At Zimbabwe's second Mining Indaba in September, the Zimbabwe Chamber of Mines' vice president, Winston Chitando, was bullish about the outlook for the country's mining industry. "Investor interest is still high as evidenced by the number of business enquiries for investment opportunities," he insisted.
Certainly, the 49 enquiries in 2010 claimed by the Zimbabwe Investment Authority represent a step in the right direction for a country in desperate need of foreign investment. "The country has immense potential and is underexplored," asserted Chitando at the Indaba, continuing, "Zimbabwe has the second largest known deposits of platinum, quality coal, gold, chrome and diamonds."
The Chamber anticipates gold production to more than double from the 2009 level of 4t to 8.5t, with platinum production at similar levels, while Shaun Lightfoot, MD of Zimvest, says, "Zimbabwe's chrome reserves are prolific and of a much higher grade than those found, for example, in neighbouring South Africa".
As good as gold
Lightfoot agrees with the Chamber that the gold sector is burgeoning: "Gold is doing reasonably well at the moment for a number of reasons, but mainly because of three factors. Firstly, the free trade and sale of gold, as well as the current world gold price which means a high number of cash buyers," Lightfoot explains.
"Zimbabwe's rich resources have not been tapped for some time, whilst also being more cost-effective to mine in comparison to deposits found in South Africa. There are many rich gold dumps in the process of being re-treated, providing another very profitable gold source," he continues.
Lightfoot points out another vital factor in this turnaround: "The bulk of foreign participation has come in the middle 'investment bracket'. This is predominantly in gold and chrome, as it can be mined for a comparatively low capital expenditure."
"Mining projects that require major capital - the best examples being platinum group metals (PGMs) and coal - will remain undercapitalised for the foreseeable future," continues Lightfoot, "although there is still activity in these sectors: Zimplats is continuing its phase three expansion, Todal Mining is nearing opening their PGM resource for business and Unki continues to run."
Challenges faced by the industry
Zimbabwe has struggled to attract foreign direct investment (FDI) for a number of years due to political unrest during the latter stages of Robert Mugabe's reign, before last year's coalition government was put in place.
Has the country turned the corner? "In some respects, foreign mining investors are playing a role in Zimbabwe, but the industry as a whole is hugely undercapitalise, and the one thing mining needs is capital!"
According to the Chamber of Mines, Zimbabwe needs between $3bn and $5bn to recapitalise the sector over the next five years. But despite this Chitando enthuses, "The future looks very bright and mining will continue to be prominent. Coal, gold, chrome, iron ore, nickel, and diamonds are expected to be the main attractions."
But the Zimbabwe Mining Report Q4 2010, released by Business Monitor International (BMI) at the end of October, unequivocally calls for fundamental change, stating: "We reiterate our long-held view that there is a pressing need to negotiate with mining companies and resolve the issue of mining ownership once and for all, so foreign investors can work within a clear legal framework."
Lightfoot believes that the type of investor must also change, citing current short-term gain mining practices as opposed to the benefits to be gained from longer term investors, saying, "Longer terms investors are really what is needed to ensure maximum extraction of the ore and use of the country's wealth."
"At a certain depth the mine is converted from opencast to underground instead of overburden being returned to the pit. This improves the longevity of the mine, as well as overall profitability, while it is much more environmentally friendly," he goes on to explain.
Batanai Matsika, an analyst at financial services company Imara, pinpoints some of the main challenges faced by the local mining industry as being the effect of continued political uncertainty on FDI; government's slow reaction to issues affecting investment, such as amendments to the Mines and Minerals Act, indigenisation regulations; and ongoing electricity supply constraints.
Looking to the future
Matsika, however, also sees a clearer path ahead for prospective FDI in Zimbabwe: "Given the new dispensation in the form of a dollarised economy, the face of the mining sector has changed. We believe the total value of minerals produced in the country is poised to increase in the near future and that the main pillars of growth will be increased investment, improved liquidity in the financial sector and a reduction in local input costs."
According to Lightfoot, mining companies present at the Indaba indicated that a lack of credit facilities was forcing them to take on equity partners. He believes that this is unlikely to continue as Zimbabwe becomes more stable, opening a window of opportunity within which to invest in 'going concern' projects and reap the rewards.
New Dawn is one international company that has put its faith in the Zimbabwean industry. The Canadian-based junior gold company has a core focus on Zimbabwe and is currently expanding operations at its Turk and Angelus mines, not to mention actively assessing other value accretive acquisition opportunities in the Southern African country.
It has also recently acquired a controlling interest in Central African Gold (CAG) and is busy reviewing and assessing CAG's extensive portfolio of exploration properties in Zimbabwe for future investment and development.
New Dawn is not alone, however: "There is a multitude of medium-scale players in the gold sector," says Lightfoot. "New Dawn is extremely bullish, but there are many other active companies. Mwana Africa, for example, are recapitalising their gold mines in a major way."
To invest or not to invest
There is a lot of jostling for positions at the moment. Investors are trying to make sure that when the economic recovery happens they are not left behind, but local companies want to be part of the turnaround as well.
"There are numerous 'smart partnerships' to be made, while the sector-specific regulations with regard to indigenisation are due out shortly. This will have a bearing on how the mining sector will be governed going forward and therefore on the amount of foreign investment we see in the future," relates Lightfoot.
"Come what may, there will be investors who will stay away from Zimbabwe due to outside perceptions of the country and the threat of non-control due to indigenisation, but there will also be those who feel the time is right to form a smart partnership with a view to tapping in the immense resources that Zimbabwe has to offer," he says.
With the dollarisation of the economy and the world recession seemingly things of the past, there is huge optimism in the sector: "I see more and more people looking for opportunities: a good indicator for me is the amount of air travel into Zimbabwe, particularly from South Africa - SAA has four flights a day and virtually every flight is full, four years ago this was almost unimaginable," Lightfoot concludes.
BMI agrees with this view, but tempers it with a warning, "The scene is set for a period of strong growth for the Zimbabwean mining sector, although we would stress that this remains dependent on a continuation of the relative political stability that has endured in recent months. In this context, the developing furore over domestic ownership of mining assets could well become a more serious issue in the months ahead."