Mining: Bring in the earth movers
Zimbabwe’s ten years of self-imposed economic isolation meant that the boom decade in commodity prices largely passed the country by. The country has huge potential – the world’s second largest platinum, lithium and corundum deposits, the potential to produce 30tn of gold a year, vast coal, nickel and chrome resources, several high-grade diamond sites, and a host of other minerals.
Political risk and a difficult operating environment have not chased the miners away entirely, and this is sure evidence of the glittering prizes underneath. “Geologically speaking, Zimbabwe is almost unique in the world in terms of density of high-value targets”, according to Andrew Cranswick, CEO of African Consolidated Resources, which has invested around $20m over the last four years. The infrastructure is strong compared to other African countries and deposits are not far from tarmac roads, electricity and water.?
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There has been no new mineral exploration since 2002, and the government believes that the sector, which currently produces a majority of the country’s foreign exchange, could be a pillar of investment and generate much needed revenue. Speaking to an annual general meeting of the Chamber of Mines, Prime Minister Morgan Tsvangirai said that mines could attract up to $16bn, so long as a “conducive policy environment” is put in place.
In some respects, that is what is happening. Indigenisation, under which all companies entering the country would have to be 51% Zimbabwean-owned, was introduced last year, but it appears that this will not be applied strictly. “We are reviewing it [the legislation]. 51% percent is far, far too high,” said Tsvangirai. So the balance between local and international business is more likely to be similar to the South African Black Economic Empowerment model.
But finance minister Tendai Biti has also signalled that empowerment will work differently, hoping perhaps to avoid the mistakes made in South Africa. The aim is to empower the many rather than the few. Introducing a “use it or lose it” policy, the government hopes to shake out speculators from the system and turn deposits over to miners who are going to invest in production.
In an attempt to audit the system, every mining contract that has been signed will be reviewed. Policy changes have already had an effect. After a torrid 2008, gold miners have been boosted by a change in the law in February, which previously only allowed them to sell directly to the Reserve Bank – which has been failing to pay.
Now that they have access to world market prices, several gold miners are re-starting operations that they had closed down. These include Metallon Gold, which accounts for over half of production. Owned by South African mining magnate Mzi Khumalo, Metallon has re-opened two of its five mines in Zimbabwe after signing a $15m loan from local and international banks. Mwana Africa and New Dawn Mining Corp. have also signalled that they will soon restart mines.
Platinum has been doing much better. Zimplats, in which South Africa’s Implats holds an 86.9% share, is the largest investor in the mining sector and is boosting production to 160,000 ounces a year, up from 91,000 ounces. Implats is launching a $340m mine expansion and hopes to bring platinum production up to 1m ounces annually in the long term. This is good news for mine servicing firms from South Africa, where engineering and construction companies are accompanying those miners expanding into Zimbabwe. Murray and Roberts Zimbabwe have just finished building a platinum concentrator at Zimplats’ Ngezi mine. Biti has denied reports that the Chinese are to receive platinum concessions in return for $5bn in loans.
Diamonds too are doing well. Rio Tinto’s Murowa unit produced 260,000 carats in 2008, a record haul, and the company believes that there is potential to expand. The Zimbabwe Mining Development Corp. is mining diamonds at Chiadzwa, claiming a yield of over 50,000 carats a week. Mines minister Obert Mpofu is keen to modernise extraction and has said that $600,000 could be realised daily from the site, money the Zimbabwe fiscus badly needs. He is encouraging cutting and polishing companies to set up.
One key proposal from the government is for high-resolution aeromagnetic imaging, something the Canadian government is said to be interested in financing. Similar operations have been financed in Zambia and Botswana by the World Bank and have led to the discovery of significant deposits. But the country’s mineral wealth is already well documented. Two leading Australian universities have independently studied nickel assets in Africa, and both put Zimbabwe on the top of the list of prospecting targets.