Sunday, February 8, 2009

Zimbabwe investments will be respected if they are fair - MDC

Zimbabwe has the second-largest platinum resource in the world, and a host of other metals and minerals, which makes South Africa’s troubled neighbour an attractive mining destination.

Some, like the world’s second-largest platinum company, Impala Platinum, of Johannesburg, and junior Aquarius Platinum, which is listed in Johannesburg and Australia, grasped the Zimbabwe nettle years ago and had been reaping rich rewards until recently, when the platinum price collapsed.

Others, like platinum and chrome explorer Kameni, are very recent entrants, and then there are still others, like South Africa’s black-owned African Rainbow Minerals, that make no bones about being attracted by Zimbabwe’s prospectivity, have still not made any investment announcements and are presumably awaiting a globally acceptable political settlement, which several politicians, analysts and corporations believe may be only a stone’s throw away.

Zimbabwe’s Movement for Democratic Change (MDC) led by Morgan Tsvangirai, which is the frontrunning political entity that holds a key to a possible acceptable political outcome, has been vocal about mining companies investing in Zimbabwe.

The Johannesburg-based MDC treasurer-general, Roy Bennett, suggests that any new Zimbabwe government would need to scrutinise the mining investments that have been made to ensure that they are all able to withstand the full glare of the most rigorous of modern-day corporate-governance scrutiny.

Bennett says, in an exclusive interview with Mining Weekly, that there will be a “day of reckoning”.

He says that, should the MDC come into power, a committee will be formed to review all mining investments in Zimbabwe.

“Anything that has been done transparently, accountably and according to the legitimate laws of Zimbabwe will be respected,” Bennett says, but there will be a low tolerance level for anything untoward.

Many in the mining industry, who have studied the risk-and-reward ratios, believe that there is a growing weighting towards reward.

Kameni CEO Stephen Gorven late last year told Mining Weekly that the company sensed a “near-term” political settlement in Zimbabwe.

In a more recent interview, Gorven reiterated his contention even more stridently.

“I think Zimbabweans increasingly realise that there has to be some kind of settlement. It’s hard to see how they can go backwards from here,” Gorven expounded further to Mining Weekly.

As there is a risk of losing dormant Zimbabwean assets on the basis of the ‘use or lose’ principle, Anglo American CEO Cynthia Carroll revealed that her iconic company had given the go-ahead for infrastructural development to start at Anglo Platinum’s Unki prospect, which happens to be not that far from where Kameni is undertaking exploration drilling in the hope of creating a dual chrome- and platinum-mining operation.

However, Anglo American, with its corporate office in London, has not escaped criti- cism, in the light of the overwhelming low regard that the world has for President Robert Mugabe and Zanu-PF.

Anglo American had been mining in Zimbabwe for more than 50 years, and started drilling in the area in the 1970s. Carroll made the point that Anglo Platinum was, at that stage, not producing any platinum in Zimbabwe, nor was it paying taxes to the government, but was developing the prospect into a future mine.

African Rainbow Minerals chairperson Patrice Motsepe did not hide his attraction to Zimbabwe as an exciting mining destination when questioned at a recent results presen- tation, describing Zimbabwe as “a very, very important country”, but his company has still to make any firm announcements of Zimbabwean intentions.

His CEO, André Wilkens, said last year that the company was considering “a number of platinum opportunities”.

But it is Impala Platinum that has been the most communicative about its Zimbabwean mining activities, over the longest period of time.

Impala Platinum CEO David Brown is invariably open to media questioning at results presentations and has engaged in transparent transactions and ‘indigenisation’, the Zimbabwe equivalent of South Africa’s black economic-empowerment policy.

Brown has expressed parti- cular concern about the obli- gation that Impala Platinum has in Zimbabwe to continue to provide the employment that its activities at its 87%-owned Zimplats and Mimosa offer to the suffering people of Zimbabwe.

Brown is on record as praising the diligence and can-do approach of the employees of Zimplats and Mimosa, a view often also expressed by Aquarius Platinum CEO Stuart Murray.

Aquarius is also a shareholding in the Mimosa mine and there have been occasions where quarterly results have shown the high productivity levels that the Zimbabwe workforce is able to achieve.

Carroll says that Anglo American is still developing the infrastructure, roads and water supply at Unki, and, if the poli- tical environment improves, expects to break ground and start producing platinum in 2010.

“It’s a very big orebody. We have to keep investing to hold onto it. We have responded to some of the media by saying that we are absolutely not propping up the Mugabe regime. There are no taxes being paid into that government today and we are bringing capital equipment in from outside the country. That’s the state of affairs and we continue to watch it very closely,” Carroll was quoted as saying last year, when questioned by jour- nalists on the company’s acti- vities in Zimbabwe.

But the troubled global econo- my and financial meltdown are resulting in pain.

In December last year, Impala’s Zimplats discontinued its opencast mining owing to low metal prices. The company also ran up a $16-million loss in the September quarter, despite its platinum price averaging a relatively high $1 551/oz.

Transactional Concerns

There have been instances in which companies have signed over a portion of their mineral resour- ces to the government in return for indigenisation or empower- ment credits, and Bennett questions some of these, especially in instances where there are allegations that the mineral resources have allegedly been passed on to Zanu-PF functionaries who have, in turn, allegedly sold these resources to companies whose corporate-governance records have been challenged by some.

Bennett’s reading between the lines is that certain of these transactions need to be thoroughly scrutinised, particularly those that may have involved businesspeople whose reputations were already known to be dubious.

Shining Light

Cadiz Corporate Solutions mining analyst Peter Major believes that, risk aside, Zimbabwe’s platinum prospects are “fabulous”.

“The price to obtain mineral rights in Zimbabwe is so low now that everyone is jumping to get in. Virtually every mine there has closed down, accept platinum, and, currently, these mines are not operating at the capacity they could be. Fifty per cent of the Chinese are saying that there is a better future in Zimbabwean mining than in South Africa.

“If you invest in Zimbabwe now, in five or seven years, there will be good money to be made,” Major adds.

He disagrees that Zimbabwe is hardest hit when it comes to corruption. “Zimbabwe’s corruption isn’t worse than ours in South Africa,” and he rallies behind those who are investing in the country, commenting that “companies should hold on to their mines – everyone knows it cannot get worse”.

“It’s similar to the apartheid era in the late 1980s – investors knew that the African National Congress would come into power and that apartheid would not last, and they took the ‘pain’ and hung onto their assets, and the upside was so much better. However, the worry is how strong the companies investing in Zimbabwe’s permits are, and whether they will survive a regime change.”

Major does concede, however, that investing in Zimbabwe does involve “walking a fine line”, noting that companies should consider how much they are, in the process, assisting ‘Bob’.

Letting Go

Because of the difficulty in remaining apolitical in Zimbabwe, Bennett advises companies to play it safe and withdraw now.

He says they should not fear the ‘use or lose’ aspect, as he believes that withdrawing concerns are unlikely to lose their assets, “because Zanu-PF does not have the technology or the money to continue operating those assets”.

Bennett urges companies to “remain on the moral high-ground”.

Major says, however, that companies must try to be trans- parent in their dealings in Zimbabwe.

He comments that the current Zimbabwe government cannot just throw established players out of the country if they refuse to do what it says – “it’s too risky” – and newcomers have nothing to lose as the Zimbabwe government will not have much “collateral” on them.

Shipping Out

But some are leaving. Aim-listed Central African Gold (CAG) ceased all its operations in Zimbabwe in December, saying that the closure was “due to the adverse political and economic climate”.

CAG says that it will continue to maintain its Zimbabwean assets “pending resolution to such turbulence”.

CAG operates the Dalny mine, the Rix tailings treatment operation, the Golden Quarry underground mine, the Camperdown quarry and the Old Nic underground mine in Zimbabwe.

Other gold producers have also shut down owing to the Reserve Bank of Zimbabwe’s (RBZ’s) failure to pay millions it owes the industry. While the RBZ holds the sole gold dealing licence in the country, it does not have the same hold on platinum-miners.

The RBZ is said to owe gold-miners US$30-million for gold deliveries.

The African Institute of South Africa’s chief research specialist, Dr Norman Mlambo, says, however, companies that leave Zimbabwe create room for companies that are willing to risk investing there. “It’s better to go into Zimbabwe now while there is still a crisis, because it’s possible to negotiate cheaply.”

Mlambo adds that most compa- nies entering the country in a moderate way are hoping that they will be able to go into full opera- tion when things turn around.

“When Zimbabwe stabilises politically, there will most likely be a flood of investors and not all of them will be accommodated. To go in now is basically about avoiding the scramble,” he says.

“Zimbabwe is not as volatile as other regions where there is actual war, such as Angola and Nigeria, where people are actually being killed while mining,” he says.

But Bennett laments that the world just stands by and watches, while the people of Zimbabwe continue to suffer.