HARARE – Zimbabwe may be a difficult place for mining firms to invest new capital at the moment, but those with their feet already atop its rich soil are sticking around.
They think it is better to brave the current political uncertainties and regulatory constraints than quit, the country’s high tax regime notwithstanding.
In fact, there’s even the hope miners will get a break owing to a highly anticipated review of the southern African country’s tax system.
One of the largest investors in Zimbabwe’s mining sector, Impala Platinum (Implats), said it remains committed to its investment which it holds through Australian-listed Zimplats, a declaration demonstrated by its willingness to comply with government’s proposed beneficiation strategy.
Alex Mhembere, Zimplats' chief executive, says the firm will build a refinery in Zimbabwe rather than ship ore to South Africa.
Zimplats has set aside funds for this, although Mhembere warns that the platinum industry in Zimbabwe must first ramp up output to about 500 000 ounces per year to sustain the refinery.
Platinum miners also want a guaranteed supply of power to pave the way for the refinery.
Aquarius Platinum, which jointly owns and operates the Mimosa mine in Zimbabwe with Implats, deems its Zimbabwe operation as pivotal to its future strategy.
The Mimosa mine accounts for about 30 percent of Aquarius Platinum’s total output.
“Mimosa is a highly efficient operation and there is no indication that this will change in the short to medium term,” says a spokesperson for Aquarius Platinum.
The caveat to this commitment, however, is that platinum group metal prices can support the investment.
“Like most platinum mining operations, the long-term prognosis for the Mimosa mine depends on the basket price received for our product and containing costs,” Aquarius Platinum says.
By dint of the quality of resources in Zimbabwe, the country provides an opportunity for expansion and growth at a time when market prices aren’t supporting expansion strategies elsewhere in the world.
Anglo American Platinum’s (Amplats’) Unki mine, for instance, is planning to double its output in the next three years, whereas it is throttling back investment in its home base of South Africa.
The company is firstly mulling development of a joint venture platinum mine with Mimosa and, in separate plans, wants to develop a new $400m mine in Zimbabwe.
Although the existing mining groups in Zimbabwe are prepared to brave the current wave of constraints, the uncertainties in the mining industry have brought funding headaches for companies.
Mwana Africa, the Pan-African diversified mining group, which has gold and nickel properties in Zimbabwe, said it had encountered difficulties in raising funds for its nickel project, the Bindura Nickel Corporation (BNC).
“We started up BNC in April. It’s all going well in terms of technical things,” says Donald McAllister, Mwana Africa’s finance director.
He adds, however: “We always knew we had a further funding requirement at BNC”.
The company had “… always hoped we’d get some debt or trade finance once the thing was operational and de-risked. But it doesn’t make money at these prices,” says McAllister.
The result is another setback for a project with massive potential.
The attractiveness of Zimbabwe as a mining destination will only be assisted if a more benign tax system is implemented.
Winston Chitando, former president of Zimbabwe’s Chamber of Mines, says the mining industry has long been lobbying the government to review taxes.
High mineral royalties have eroded the profitability of miners while excessive fees have impacted heavily on potential investments despite the country’s vast mineral wealth.
The country currently levies a seven percent royalty on gold, 10 percent for platinum, and 15 percent for diamonds.
Independent Zimbabwe economist, Moses Moyo says there was notable movement by the government to lower the high mineral royalties and other levies on mining firms, but its efforts had to be expedited to ensure the country did not lose out on new investment.
“We have witnessed some level of movement towards lowering the fees, and royalties, but we want to see more being done and the process concluding faster so that we put these issues behind and move forward,” says Moyo.
The African Development Bank (AfDB) said in a recent economic review that mineral royalties charged in Zimbabwe, which has the biggest platinum reserves in the world after South Africa, were “… still too high since there was a substantial increase of the mining fees in January 2012”.
It added that the high fees were a “barrier to companies entering the mining sector and (reduced) the profitability of those companies” that are already operational.
Incoming Finance minister Patrick Chinamasa recently announced the country would be engaging the AfDB over the securitisation of its natural resources.
Zimbabwe’s mining sector is expected to lead the country’s economy recovery and projected to grow by 5.3 percent this year from a revised target of 17 percent.