HomeOpinionPolicy somersaults bleed mining

Policy somersaults bleed mining

Conrad Dube

A NEAR implosion of the Zimbabwean economy, weak business fundamentals and unimplemented policies have all impacted on the economic prospects of the country’s once-thriving mining sector, analysts have said.

Invest

ment protocols such as the recently announced platinum group metals (PGMs) beneficiation measures by Zimbabwe’s Reserve Bank is one clear sign of policy somersaults that hurt investment in the critical sub-sector, earning billions of dollars in foreign exchange yearly.

In addition to seri-ous economic misalign-ments, marked by a fast depreciating local currency, high inflation and half-a-decade of forex shortages, emotive affirmative action policies in the form of government’s targeted 49% indigenisation quota in all foreign-held mines is just one of the unsettling issues spooking the beleaguered sector.

With PGM companies, led by vast operator Impala Platinum Holdings (Implats) and its Zimbabwe Platinum Mines (Zimplats) subsidiary, already complaining about measures targeting offshore accounts and marketing of white metals, observers this week said this policy directive could be the “last straw” to kill off investor interest in local mining.

The PGM measures, contained in Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono’s latest monetary policy statement, entail immediate cessation of operation of offshore accounts, with PGM proceeds being ceded into special foreign exchange holding accounts to be opened locally.

Zimbabwe, holder of the world’s second largest known PGM deposits after South Africa, is dominated by international conglomerates including Anglo American Platinum (Amplats), owners of Unki.

These investors came to Zimbabwe at a time when foreign direct investments had sharply fallen owing to property rights and protection fears, stirred by seizures of mainly white-owned commercial farmland since 2000.

Meanwhile, fluctuations in the Zimbabwe dollar have resulted in input costs — accounting for 40% of production finance — soaring through the roof thereby undermining the viability of most mineral products, analysts said.

Research shows that the local unit has lost 6 200% of its 1980 value against the American dollar, while there has not been corresponding growth in precious minerals earnings locally.

The local unit, stronger than the greenback at Independence, is trading at a dismal $8 500 against the United States dollar on the black market where it is more easily available than the official sources.

And mining compa-nies, who have to tap backyard trade corridors to keep operations afloat, bear the brunt when it comes to realising returns because they are subject to a hostile government intervention policy that affects pricing.

Ian Saunders, president of Zimbabwe’s main Chamber of Mines, aptly captured the siege mood obtaining in the mining industry, saying that until such operational uncertainties are cleared investors were less likely “to proceed with project expansions”, let alone carry out new investments.

Saunders, who strongly believes that Zimbabwe’s dollar is overvalued and that the bi-weekly RBZ forex auctions hamper profitability, argued that investors looked forward to a more stable Zimbabwe, with consistent application of the Mines and Minerals Act’s key tenets on pricing.

“Investment regimes must be predictable for a longer period of time so that investors can invest with confidence,” Saunders, who runs a gold mine in southern Zimbabwe, said.

The vast majority of miners, especially his gold mining peers, are wary of the local dollar’s valuation — at $5 600 to the US unit — and that the official exchange auctions constrain cash flow “for reinvestment”.

Saunders, like otherbusinesspeople econo-my-wide and particularly those who receive their export proceeds through centralised channels such as gold miners, feels they are getting a raw deal, and the technicality of buying costly foreign cash on the black market, while receiving lower reconciliation rates, is causing serious problems.

Basically, ill-thought-out policy shifts and insensitivity render “forward planning” difficult, the chamber boss argues.

Just to demonstrate investor resistance, Implats’ wholly owned Zimplats subsidiary has shelved a long-expected three-phase US$700 million underground operation just outside Harare because “certain issues” have to be resolved.

Zimplats, extracting nearly 85 000 ounces of platinum per year, had planned to double that tonnage to 145 000 ounces by 2006 with this shareholder-approved investment, but has hinted it is now waiting for the finalisation of a bilateral investment-protection agreement between Sou-th Africa and Zimbabwe.

It will thus only proceed with the gigantic investment — set to see platinum yields notching 345 000 ounces in five years — upon provision of tangible guarantees by Harare on property rights and a commitment to business-enabling policies.

Competitor Amplats, saying it is watching Harare over planned empowerment rhetoric, is also likely to take a cue from Implats and it is known that PGM monopolies were last week said to be part of a committee tackling government over recently announced measures that trample on already-sealed agreements.

Mining multinationals are also ruminating the implications of President Robert Mugabe’s 50% mandatory localisation stance and how it contradicts agreed protocols to give as much as 20% in upcoming or greenfield projects such as Unki to local players.

Interestingly, and at a time the mining industry’s decline has also weighed down gross national product — through a minute 1,4% contribution as of 2002 — there has been a marked increase in mining, not only in platinum but gold and diamonds as well.

At Independence, mining contributed 9% to overall economic revenues, but managed a measly 4% last year.
Job cuts are the order of the day, yet at some point mining employment accounted for close to 6% of total formal employment.

By 2002, tens of thousands of people had been laid off and continue to be retrenched, with sorrowful statistics showing that only 0,8% of that strong mining workforce remain on jobs.

To reflect the erstwhile robust sector’s decline — along with rampant de-industrialisation economy-wide — Zimbabwe realised 3 426 tonnes of key export-earning asbestos by August this year from a peak of 13 348 tonnes in January.

Figures gleaned from various sources also show that PGM yield and tonnage, which includes palladium and rhodium, fell to just under 400 tonnes in the period under review, while gold plummeted from 1 769 kg in January to just 38 kg in August.

Significantly, though, investors who cry about Zimbabwe’s endemic political and economic risks, have been jostling to take up positions in various mining segments and these include British conglomerate Rio Tinto plc, which is developing Murowa diamond mine.

Rio Tinto, a significant bullion player in its own right, recently cobbled together an ownership structure favourable to local interests of the key asset Murowa.

Gold has also attracted investor interest in the form of South African firm Metallon Corporation, owners of five-mine yellow metal producer Independence Gold Mining Zimbabwe.

With investors continually worrying about Zimbabwe’s economies of scale, massive capital requirements and mineral geological formations, it remains to be seen whether this renewed mine investment activity is sustainable.

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