Miners jittery over new Zimbabwe law

IF Zimbabwe goes ahead with plans to take up a 25% stake for free in mining firms, investors such as Impala Platinum could flee the country, but a proposed law may just be an election ploy.


News of the Bill took the market by su

rprise, depressing shares in Impala Platinum (Implats), the world’s second biggest platinum producer. Implats’ chief executive officer David Brown told Reuters he had not seen the Bill and could not comment.


Implats sees Zimbabwe, which has the world’s second-biggest platinum reserves, as its major future growth area, and is ahead of the game in the country in terms of platinum operations.


Analysts said that if forced to cede a 25% stake to the government, Implats, which also has by far the biggest operations by a foreign mining firm in Zimbabwe, and its rivals may scale down their projects or pack their bags altogether.


“Eventually the government will be left holding 25% in nothing. Investors will pull out,” said Ian Troust, an analyst at Metropolitan Asset Managers.


But analysts also said Zimbabwean officials should know that the latest drive by President Robert Mugabe’s government could uproot foreign investment in a country reeling under a foreign currency shortage and worsening hyperinflation and hunger.


They said the new law, due to be debated in parliament before the end of this year, may just be posturing by Mugabe’s ruling party to win votes at polls due next March.


“Elections are next year, and there may be attempts to play to a domestic audience,” said Heye Daun, a Cape Town-based fund manager with Old Mutual Investment Group.


“This would be a major issue and is not in Zimbabwe’s interests. If Implats were to be affected, all their capital expenditure would come to an immediate halt. Their mines there do not generate excess cash flow and extra investment would dry up. I think the likelihood of this law being enacted is small.”


Analysts said Zimbabwe’s parliament had in the past passed a Bill meant to monitor non-governmental organisations strictly, but Mugabe had baulked at signing it into law after strong criticism, and also because his country relied on food aid.


The new law follows the passing in September of a general Bill meant to give 51% stakes in foreign-owned firms to locals, which is awaiting Mugabe’s signature to become law.


Implats has said it would welcome that law and already has a deal in place with Zimbabwe, under which it would obtain credits towards the 51% local-ownership requirement by giving up some unused mining claims and committing to social spending such as building infrastructure.


“Indications are that the government of Zimbabwe will honour its obligations,” Implats said last month. But the new Bill on 25% government ownership has cast a cloud, and it was not clear how it would be applied in relation to the earlier Bill.


Implats, which has struggled to keep up production amid power shortages owing to Zimbabwe’s economic crisis, has a majority stake in Zimplats Holdings Ltd, which it hopes will boost annual output to one million ounces of platinum per year in the long term from 96 500 ounces now.


Implats also has a joint venture with Aquarius Platinum in Zimbabwe’s Mimosa mine.


Zimbabwe’s mine sector, now the country’s leading foreign currency earner, also includes the world’s top platinum producer Anglo Platinum, which is developing a mine in the country, and Rio Tinto, which has diamond interests.


Zimbabwe which is grappling with a severe economic crisis blamed mainly on Mugabe’s seizure of white-owned farms to resettle landless blacks, eroding the country’s economic mainstay, has 22 mining firms, 10 of which are foreign-owned.


Jitters raised by the new draft law sent Implats’ shares more than 5% down on Monday, despite a relatively buoyant price for the white metal, used to clean car exhaust fumes and make jewellery.


Some analysts said the worries were fuelled by the fact that the new mine Bill may not be a ploy after all, and harked back to the law that allowed Zimbabwe to seize white-owned farms and hand them to blacks, enacted on the eve of the 2000 elections.


“I think the law will be enacted. If the government reneges on its deal with Impala, if they force Impala to give up 25%, Impala is going to be probably looking to downscale (its investment),” said a Johannesburg-based analyst at a global bank who declined to be identified. — Reuters.

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