Zim pins hope on platinum reserves

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HARARE – Despite the uncertainty facing Zimbabwe’s economy following President Robert Mugabe's election victory, economic experts say the country’s platinum reserves may raise hopes in the mining sector.

This comes after Finance minister Tendai Biti recently revised the mining sectors’ growth target for this year from 17,1 percent to 5,3 percent due to falling metal prices and effects of the Indigenisation Act.

Zimbabwe is rich in minerals but has so far suffered from economic mismanagement and corruption.

It has the world’s second-largest platinum reserves, as well as ample deposits of gold, nickel, diamonds and coal. While gold’s price has fallen in recent times, the tightening supply of platinum has helped boost prices of that metal.

The country’s platinum mines are labour-intensive, and may not offer strong returns for investors, but analysts laud the country’s disciplined workforce.

“Mining operations are in good shape in terms of the quality of the operation and the productivity they are getting out of people. If you look at it from that perspective, it’s really shining,” Kobus Nell, a mining analyst for Stanlib in South Africa.

“It’s totally different from the militant workforce in South Africa,” Vimbai Chakanetsa, the founder and chief executive of Goldsearch Holdings, a mining consultancy in Zimbabwe.

“Here, I’m telling you, a worker can work for a month without being fully paid, but they are very understanding and they believe in talking rather than engaging in a militant manner,” said Chakanetsa.

While the mining sector in Zimbabwe is currently growing steadily, the broader economy is now on stagnation mode after recovering briefly from its economic depression a few years ago when inflation was at 231 million percent.

One factor holding back foreign investments in mining is a policy known as “indigenisation” introduced by President Robert Mugabe’s Zanu PF party. It compels businesses owned by foreign nationals — or white Zimbabweans — to give 51 percent of their shares to black Zimbabweans.

The Zimbabwe Investment Authority announced in April that foreign direct investment (FDI) had fallen by 76 percent in the first quarter of 2013 to roughly $36 million, from $136 million in the same period in 2012.
South African mining analyst Nell said what mining companies want is more security in terms of their deals and investments.

“At the moment, it’s clearly not an easy place to negotiate things given the current structure. If you just look at some of the deals, or the attempts by companies to pin these things down and get to a conclusion, the terms fall through,” Nell said.

He pointed to a January 2013 deal between Mugabe’s administration and Impala Platinum, which would have seen the company sell a 51 percent stake in its business to local black investors for $971 million.

Now that agreement is in doubt after Mugabe said his Indigenisation minister Savior Kasukuwere had made a mistake in the deal.

Alison Turner, a mining analyst at Panmure Gordon, said extortionate fees were also holding back mining exploration. She blamed a “massive increase” in licence fees for exploration and said a lot of companies had given back licences because they could not afford to continue exploration.

Mining companies in Zimbabwe paid $81,1 million to the government in royalty payments during the first half of 2013.

Media reports suggest that the government is eager to bring royalties down to boost investment in the sector, but any change will have to wait until after the election results.

Analysts said the mining sector was indifferent to whether Mugabe or Tsvangirai won the election on Wednesday. Instead, what the industry wants is stability and a reduction in corruption.

According to Transparency International, Zimbabwe ranked 163 out of 176 countries in terms of perceived corruption. In a 2013 survey, 67 percent of respondents said corruption had gotten worse in the past two years and 81 percent said it was a serious problem. — With CNBC

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