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Investors Wary of Mining Laws

THE mining industry, which is expected to drive economic revival, is in freefall as it emerged this week that only three mines are operating at full capacity.

As of last year, 88 registered mines were operating but only 20 are working.

Zimbabwe Platinum Mines managing director Alex Mhembere told a mining conference that to revive the mining sector, closed mines should be opened before expanding operating ones, as only three were operating at full capacity.

“There is urgent need to revive the mining sector and resuscitating closed mines should be the first task. We have 88 registered mines as of last year of which 20 are operating. But just three are operating at full scale. They mine platinum and gold,” said Mhembere.

Gold production fell from 25 000 tonnes in 1999 to 5 000 tonnes in 2008. Before the turn of the century, Zimbabwe was the third largest producer of gold in Africa.

The production of other minerals has also been declining during the same period.

Last week the Chamber of Mines said only 335kg of gold was produced between January and April compared to 1 407 kg during the same period last year.

In 2007, gold output declined by 33%, whilst chrome went down 12%. Phosphates declined by 15% during the same year.

Mhembere said there was need for a paradigm shift in policy implementation if the country was to attract investment in the sector.

“There is need for a consistent implementation of policies in the country, an issue that was overlooked in the past. Local and foreign investors want policy consistency before committing their money to mining,” he said.

Mhembere said perception that Zimbabwe was a good investment destination was still very low.

Mining companies had for the past 10 years shelved exploration activities because of “unfavourable laws”.

“Over the last 10 years we have not had exploration so we have a 10-year gap,” Mhembere said.

Participants at the conference said the country should consider scrapping provisions compelling foreign mines to sell their stakes to locals but instead allow miners to set their own empowerment targets.

They said foreign investors were concerned by government’s indigenisation laws, which has led many companies to withhold investment needed to raise mining production after a decline over the past 10 years.

The move by government to set the empowerment limit at 51% is said to have discouraged large investors from committing their funds in the country.

Independent economist John Robertson said by limiting ownership rights the sector was in danger of taking long to be revived.

“We are in danger of sinking this entire set of possibilities because government wants to limit ownership rights, all the way from the prospector staking a claim to a mineral discovery to the company that knows how to convert an ore deposit into a fully functional mine,” Robertson said.

Robertson said the proposals for change might be expected to deliver more control to government, but its control will be less simply because development funding from foreign investors will stop and the industry will reach the limitations imposed by Zimbabwe’s lack of resources.

Said Robertson: “The preoccupation with the dividend is a shallow interpretation of reality because a threat to its payment can completely wipe out all the other payments.

“Zimbabwean authorities should become very much more supportive of the basic requirements of business and should appreciate more fully that businesses face more than enough problems.”

Robertson said government was “piling political risk on top of the business risks already in place”.

Robertson said Zimbabwe had allowed itself to be persuaded that dividends paid to foreign shareholders constitute a huge drain on the Zimbabwean economy.


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