Mining: An expensive pause in the gold rush
Arguments over indigenisation rules and government accountability have slowed down a new phase of investment in the country’s platinum and gold mines
Impala Platinum’s announcement in May that it is to go ahead with a $500m expansion of its Zimbabwean mines heralds the biggest investment in the country for a decade. For the government, it was a welcome counter to mining companies’ concerns about the new indigenisation laws. Zimplats, Impala’s local subsidiary, decided to push ahead with the second phase of the expansion, which will increase platinum production from 180,000oz to 270,000oz per year. The first phase of expansion in Zimbabwe had cost $349m.
The investment decision was “based on existing agreements with the government of Zimbabwe and despite the fact that discussions are still ongoing on certain key issues”, officials from Impala, the world’s second- biggest platinum producer, told the Johannesburg Stock Exchange. Zimbabwe is second only to South Africa in terms of platinum reserves.
The great Marange diamond rush
It is one of the biggest diamond fields in history and could produce as much as a quarter of the world’s demand each year, earning Zimbabwe close to $2bn each year. To the cash-strapped government, production at the Marange diamond fields could rescue it from the current financial crisis and fire up many of the country’s urgent development projects.
The future of Marange has become part of a political dispute involving rival factions within the ruling coalition, local rights activists, foreign diamond companies and the industry’s own international watchdog, the Kimberley Process. Having previously imposed an official ban on Zimbabwean diamond exports, the Kimberley board met in St Petersburg in July and agreed that Zimbabwe could export part of its stockpile. The board will meet again in September to decide whether, after more research, it should lift the ban on Zimbabwe completely.
Rights activists furiously argue that the Kimberley Process, which was set up to outlaw conflict diamonds, has betrayed its mandate by taking the first step to legitimise exports from Marange. Journalists and activists have written detailed accounts of beatings and killings carried out by soldiers and police, as well as serious damage to the environment.
Finance Minister Tendai Biti agrees with the Zimbabwe African National Union-Patriotic Front’s mines minister, Obert Mpofu, that the ban must be lifted, but he wants comprehensive tracking of all diamond exports and earnings. In July, Biti told Parliament in Harare that some $30m of diamonds had been sold in a week but that the government had received no formal notification nor tax revenues.
Among the key issues is the new indigenisation rule, under which all companies operating in Zimbabwe with assets worth more than $500,000 must draw up plans to transfer 51% of their equity to black Zimbabwean-owned entities within five years. In principle, the ruling would hit the three biggest investors in Zimbabwe: Impala, Anglo Platinum and Rio Tinto.
Despite fiery rhetoric about forcing recalcitrant companies into line from Zimbabwe’s empowerment minister, Saviour Kasukuwere, ministers from the three parties in the coalition government are trying to forge a compromise. Victor Gapare, president of the Zimbabwe Chamber of Mines, has proposed the proportion of equity transferred to indigenous businesses be cut to 15% and that mining companies could also make commitments to support viable road, education and health projects. Others point out that the definition of indigenous companies would include pension and other funds where black Zimbabweans make the overwhelming majority of contributions.
Arguing that the indigenisation regulations risked driving away investors, a visiting IMF team said in July that the new rules “need to be reviewed to ensure that the empowerment of the indigenous population does not conflict with the government’s other objectives of attracting foreign direct investment and ensuring equitable and transparent distribution of wealth”. The IMF’s report notes that the cabinet is debating “possible revisions to indigenisation regulations to provide sufficient assurances to current and potential investors”, and that pending the debate, “the regulations were suspended on 13 April 2010.”?
Investor sentiment is unlikely to change markedly until the government produces a credible statement of intent on the rules. Without that, President Robert Mugabe’s assurances may ring hollow: “Government has no intention of expropriating the mining industry,” Mugabe told mining executives in Harare after the announcement of the new rules. “No mine has been nationalised since independence.”
A calmer climate?
The next big test of investor interest will be the Zimbabwe Mining Indaba in September. One of the conference directors, Allan Musona, said the government had improved conditions for investors: “The investment climate in Zimbabwe is better than in many countries in Africa, and it’s the perfect time to invest in the mining sector. If you can invest in countries like the Democratic Republic of Congo, Niger, Côte d’Ivoire or Sierra Leone, then you definitely can invest in Zimbabwe.”?
Several mining companies made plans to set up or expand in Zimbabwe last year after the start-up of the coalition, the suspension of the Zimbabwe dollar, the lifting of restrictions on foreign-exchange transactions and the implementation of sharp cuts in taxes and royalties.
At an investment conference in London addressed by Prime Minister Morgan Tsvangirai last year, several companies claimed that terms and conditions in Zimbabwe’s mining sector were among the best in the world. Mwana Africa chief executive Kalaa Mpinga said that the improved conditions in Zimbabwe had convinced his company that it should “restart gold production at a time when the gold price is strong and when gold supply is constrained”. Canada-based New Dawn recently bought a 89% stake in the struggling London-listed Central Africa Gold and will add four new gold mines in Midlands Province to its portfolio alongside the Turk and Angelus mines it runs near Bulawayo.
The interest goes beyond gold and platinum. London-listed chrome specialist Chromex Mining acquired a 49% stake in Falvect Mining last year. In May, it completed its purchase of Waylox Mining, a subsidiary of TransAfrika Resources, which has exploration properties at Darwendale on the Great Dyke. Feasibility studies are already underway.