Duration hamstrung by sporadic power

GWANDA-BASED Duration Gold, an emerging gold mine formed in 2006, last week announced its plans to raise capital through a private placement. Since dollarisation last year, liquidity has been a problem on the country’s capital markets. Currently the mining company’s majority stake is in the hands of Jersey-based Clarity Capital with the remainder owned by employees. Our Senior Business Reporter Bernard Mpofu speaks to Duration Gold chairman Allan Dolan on this capital raising initiative.

Although he said the funds would not transform the mine into a world-class gold mine, Dolan expects good returns from this investment.
He also shared his views on the controversial empowerment regulations compelling foreign-owned companies to dispose a controlling interest to black Zimbabweans. Below are excerpts of the interview.

Mpofu: How much gold has Duration Gold produced during the first half of the year and what is your annual target?
Dolan: Production is only one side of the story but really the key question is…Are you profitable? Are you making money? Production-wise its very small, it does not even register as a very small gold mine.

Duration Gold has independently confirmed resources and reserves of one million ounces and produces 1 200 –– 2,000 ounces of gold per month.  Production and company profitability varies widely with power availability which has averaged only 60% in 2010. It’s a very small operation. Our target is 2 000 ounces per month but the key factor is that this completely depends on power and other factors.

Mpofu: What is your view of Zimbabwe’s indigenisation regulations?

Dolan: The concept of local participation is one that we embrace everywhere we do business because we think it’s very important.
Clarity and Duration both believe strongly in the principle of broad-based empowerment through local investment on the same terms as foreign investment.

To this end, we have set aside an allocation of Duration’s current private placement for Zimbabwean public institutions and pensions rather than a select few individuals.  Eventually we envisage attracting the most broad-based individual participation possible through an initial public offering and local listing on the ZSE, but that is some time in the future.

In addition, Clarity has organised the Cotton Tree Foundation, to assist in the implementation of Duration’s social investment in the communities where it operates.  Cotton Tree’s main focus is education and skills training, particularly in respect of entrepreneurship. The objective is to help create and, in time, transfer sustainable businesses that create jobs for local entrepreneurs.

Mpofu: Earlier on you mentioned that Duration Gold can hardly be classified as a small gold mine, so is your company likely to be affected by these regulations?

Dolan: Certainly we fit into the category of company that should comply with the empowerment regulations.

Mpofu: Is your planned private placement part of your compliance plan to the indigenisation regulations?
Dolan: We have been planning to do this from the beginning and our idea right now is that we are starting to reach out to the international investment community and we definitely need local participation. Our intention has always been to attract broad-based local investors, whether or not the local law requires it. In addition, Duration is committed to its employees and the communities surrounding its operations. So that is one of our approaches in principle and we agree with the spirit of the legislation and we would like to be a role model in showing that we engage and agree with the principle.
Mpofu: You said you agree with the law in principle. So do you find any problems in its interpretation?

Dolan: Well interpretation is uncertain at the moment because the law is not certain in the sense that we now have sectorial boards that are looking at what this law should actually look like. So, it is premature to comment on something they haven’t formulated. The important thing is that you conceptually want broad-based participation. So you would want as many people as possible to have an opportunity to participate. So what is the right mechanism to do that? So our target is broad-based national pension funds that have everybody contributing so that everybody can benefit from them.
Mpofu: So did I get you right when you said the proposed private placement was planned well before the empowerment regulations?

Dolan: It has always been part of the financing plan for the company, so it’s not a reaction to the regulations but we want to ensure that it is inclusive.
Mpofu: Are local pension funds ready for such an investment given their lack of participation in recent private placements?

Dolan: I think there are pension funds with capabilities despite the current economic challenges.
Mpofu: Would you want to throw names?

Dolan: We will wait and see until they say something first.
Mpofu: What other capital raising options does your company have, should the private placement fail to entice new investors?
Dolan: Well, the only option would be for you to put in more money. There is no banking financing for these types of exploration companies.
We have done our research and are confident of raising the capital required to implement the next phase of our plan.  Debt funding is out of the question for gold exploration and small scale mining companies in Zimbabwe.  The only financing avenue is raising equity and if this is not possible or funds are limited, operations will need to be scaled down until such time as international investment is available.

Mpofu: Apart from national pension funds, what other investors would you consider in your private placement?

Dolan: Our objective is to get the most broad-based participation and benefits. We would also consider groups that have larger constituencies in what we are trying to do versus one or two people. We don’t think that is the approach if the benefits are to trickle across.

Mpofu: We understand that your company has plans to list on the TSX and ZSE, can you confirm?
Dolan: We are a private company and we want to grow the company to a certain size before we would consider that.  There are no imminent plans to list, but the prospect is certainly part of our long term plans after consultation with our board and professional advisors.
Mpofu: What is your view on proposals made by the ZSE that private mining companies should list on the ZSE?
Dolan: We fully endorse local investment and listings.  Again, the public markets are the most transparent, fair, efficient and effective method of ensuring broad-based public enjoyment of Zimbabwe’s mineral wealth.

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