Thursday, July 01, 2010

(NEWZIMBABWE, REUTERS) Zimbabwe’s mining sector stirs, investors poised

Zimbabwe’s mining sector stirs, investors poised
by Nelson Banya and Eric Onstad
01/07/2010 00:00:00

ZIMBABWE’S revived economy is sparking a clutch of re-openings and expansions at mothballed mines as potential rich rewards start to outweigh the lack of political stability.

The thaw in investment is largely restricted to existing assets in the country as new investors await clarity over local ownership rules and an uneasy coalition government.

"You've got a lot of people interested in the country. Money is going back into Zim, there's no doubt about it, but it's going in a measured response," said analyst Leon Esterhuizen at RBC Capital Markets in London.

Most mining activity in Zimbabwe ground to a halt during a crisis that saw inflation soar to the highest levels in the world amid political upheaval. A switch to using the U.S. dollar over the past year that has crushed inflation and relaxed rules on selling gold has led to a revival at existing mines.

Major miners Rio Tinto and Impala Platinum recently approved long-awaited expansions that together are worth about $800 million.

"The mine workers, the accountants, the lawyers - they're all beginning to come back now because there are jobs," said Michael Rawlinson, head of mining and resources at investment bank Liberum Capital in London.

Capital raising

Liberum is aiming to finalise in the next month a capital raising for private company Duration Gold - majority owned by private merchant bank Clarity Capital - which is reopening a series of closed mines it bought in 2006.

"I think some mining companies are sufficiently discounting the risk. Companies are asking 'What is the likely margin in a worst case scenario?'," Esterhuizen added.

"If you can still make a case for mining in that environment, then it makes sense to go ahead with it because maybe things will turn out for the better in Zimbabwe and then you'll be making a killing."

Zimbabwe has the world's second biggest deposits of platinum group metals after South Africa and also has rich reserves of gold, diamonds, nickel, chrome, coal and iron ore.

On June 16, Canada's New Dawn Mining Corp agreed to take control of London-listed Central African Gold in an all-share deal to consolidate and expand production at the two firms' Zimbabwe gold assets, including many mothballed mines.

The deal illustrates both the appetite for new investment and the risks involved since a government official later said the deal violated the country's empowerment law.

President Robert Mugabe assured investors at a conference last month that no mines would be expropriated and that a law requiring 51 percent local ownership of mines was being revised.

Mining firms are not opposed in principle to empowerment laws that provide opportunities to indigenous Africans, but the lack of certainty is putting a lid on new investment.

A minister recently said more flexible rules were being drawn up by committees, which would pass them to the government in three months.

"There is need for clarity - to say this is the law, this is the process, and this is the timing to allow investors to plan their investments," said Ritesh Anand, a director of London-based Invictus Investment Management, whose firm is looking to set up an asset manager in Zimbabwe.

"Investors are looking at Africa. This could be Africa's turn, but Zimbabwe risks missing out due to its political uncertainty."

Flood of cash?

Rawlinson said the current tentative rebound in the mining sector has the potential to turn into a flood of new cash.

"There's a lot of money sitting on the sidelines waiting to invest," he said. "The conditions precedent for that are a resolution of the political situation and all the things associated with that, most specifically, indigenisation."

Some miners operating in the country have been assured that spending on infrastructure and social programmes would count towards local ownership.

One company that has a deal with the government is South Africa's Impala Platinum, the world's second biggest producer of the precious metal, which is going ahead with a $500 million expansion project and is considering building a refinery.

Anglo Platinum, the No. 1 platinum miner, is due to launch output at its Shuruwgi-based Unki mine in October.

Worries about a fragile unity government led by Mugabe and Prime Minister Morgan Tsvangirai, the former opposition leader, ahead of elections next year is also curbing mining investment.

"We're also drawing closer to the end of this coalition government - this raises questions as to what will happen thereafter," said Chris Hokonya, chief executive of Zimbabwe's Chamber of Mines.

"Do we get more of the same or something different? This uncertainty makes it difficult for an investor to commit to Zimbabwe." Reuters.

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