Zimbabwe: back on the high road
Country in focus Zimbabwe: back on the high road Zimbabwe is on the road to recovery, but challenges remain, writes Leon Louw. 9Ik H di. koy, < Zimbabwe’s mining industry is on the road to recovery as political change brin new hope. ACF’s chrome operation in Zimbabwe has reaped the rewards of being an early mover in Zimbabwe. It has been almost seven months since Emmerson Mnangagwa vowed to serve all citizens of Zimbabwe when he was inaugurated as president in front of a packed stadium in Harare last year. Since then, Mnangagwa and his jet setting team has travelled the world to lure potential investors to Zimbabwe, which, at one time, was regarded as the country with the greatest economic potential on the African continent. That was, of course, just after Robert Mugabe took the reins in 1980. Contrary to global expectations, Mugabe’s 37 year long rule was an utter disaster, which ultimately resulted in a total collapse of the once thriving economy. Nonetheless, with their multicoloured scarfs, straight talking, and charisma, the ‘Crocodile’ and his business gurus have finally wiped out the pitiful memory of Mugabe as an old man desperately trying to cling to power in front of a global audience. Mnangagwa has promised elections on 30 July this year. Despite a few reports about intimidation mostly from the MDC, the main opposition the general feeling is that this time, the elections will be free and fair. Expectations are that the majority will endorse Mnangagwa and Zarin PE as the democratic rulers for the next five years. As the bruised and battered Zimbabweans resuscitate dead and buried hopes and dreams, international investors are circling. Not only because of Mnangagwa’s ‘Open for Business’ mantra, but because the country holds massive potential, especially for the mining industry. Mnangagwa moved quickly. His team has identified mining and agriculture as the main drivers of the economy and, in a move lauded by the international mining community, appointed a mining man, Winston Chitando, as minister of mines. Chitando held several directorships in the mining industry including with Mimosa, Anglo, and Hwange and a number of other senior positions. According to Johannesburg based Zimbabwean Rolland Kuchocha, a geologist and managing partner at TumbleVestT, the move to appoint Chitando is a feather in the cap of Mnangagwa. “One of his first reforms after intense policy reviews was to scrap the 51% indigenisation law, which scared potential foreign investors,” says Kuchocha. Although diamond and platinum miners are still required to have a 51% local partner, Kuchocha is positive that these burdensome rules will become much friendlier soon. The Zimbabwean Chamber of Mines has repeatedly stated that the 51% for platinum and diamonds is onerous and hampers further investment. Chitando has said, on numerous occasions, that “There is a continuous review of policies with the aim of improving the ease of doing business.” Renewed optimism Besides mining companies not being forced to hand over 51% of their operations to local Zimbabweans, investors will no longer be required to list on the Zimbabwe Stock Exchange, which was another impediment to growth. “The entire system was fraught with corruption,” says Kuchocha. “Corrupt individuals delayed the whole process of acquiring prospecting licenses and mining permits on purpose. One of the first things the new ministry has done is to increase the turnaround time when companies apply for mining licenses,” adds Kuchocha. According to Andrew van Zyl, partner and principal consultant at SRK Consulting South Africa, the political change has resulted, much as in South Africa, in optimism and a renewed interest in Zimbabwe. “More investment may be on the horizon; however, positive momentum has not yet been established, and the mooted changes still need to be tested,” says Van Zyl. Sternford Moyo, Lex Africa’s member in Zimbabwe, said at a recent seminar held in Johannesburg, South Africa, that Zimbabwe is a place with enormous opportunity for private equity investors. “It is common knowledge that the country’s Country in focus infrastructure has taken a beating, but the upside is that this in itself creates opportunities, and smart investors would capitalise on it,” he said. ‘There are huge deficits in Zimbabwe, especially in the energy sector. Last year, the Zimbabwe Energy Regulatory Authority Zera said the country could only meet 75% of the electricity requirements and that at least 60% of the country’s population had no access to power. Ashruf Kaka, CEO of the Moti Group and national project liaison director of African Chrome Fields ACF , feels that investors have waited too long to enter Zimbabwe and that they could have reaped the same rewards that the Moti Group is doing now, had they taken the risk to invest when Mugabe had been on his last legs. Getting in early Four years ago, few international investors would have braved the politically loaded landscape of Zimbabwe. Back then, Mugabe was still firmly entrenched, and the circumstances that would eventually lead to his demise were probably just an unspoken thought in the minds of one or two progressive politicians. At the time, foreign investment had become an intermittent trickle, but despite the clear political and economic risks, Johannesburg based Moti Group navigated the political minefield and established a chrome mine in the Midlands Province of Zimbabwe in less than a year. The company spent more than USD250 million to develop a mine that would produce an expected 750 000 tonnes t of chrome ore per annum. President Mnangagwa, who hails from the Midlands, has been a frequent visitor to the alluvial deposit in the KweKwe region and is clearly an ardent supporter of the operation, as it brought foreign direct investment and job creation. “President Mnangagwa backed this project from the start. But remember, we entered Zimbabwe when Mugabe was still in full control,” says Kaka. “The positive political change, however, is clear to see just looking at our production charts, which have been moving north since Mnangagwa’s inauguration,” adds Kaka. The reward for companies that entered Zimbabwe early, or stayed put when the chips were down while others fled, will be so much better. ACF is now established in the country and according to Kaka, the mine has acquired enough claims to keep it going for at least another 12 years. They rode out the tough times and is now on a growth path next to none. They have a good relationship with the new government and plans are afoot for several new projects in Zimbabwe, including in gold mining and the platinum and lithium space. Moreover, they plan to build a smelter in the area, which will hopefully result in additional development of the region. Investors start circling “South African business, with its tendency to wait and see, could miss the boat in terms of opportunities in Zimbabwe, while international investors flock to Zimbabwe to explore new business potential there,” says Duncan Bonnett, strategy and business Zimbabwe hosts significant deposits of coal, although it has only one operating coal mine at Hwange. More coal deposits are found north west of Hwange, close to the town of Binga. Electricity supply is a major concern in Zimbabwe as mining production is set to ramp up. The country only has one coal fired power station at Hwange in picture . Aquarius Platinum’s Mimosa Mine, on the Great Dyke, has been churning out platinum, despite the depressing economic environment. Country in focus The people of Zimbabwe are preparing for the next election, due on 30 July 2018. The repressive Mugabe regime has done real damage to the Zimbabwean economy and the country’s people. Power supply from the hydroelectric plant at the Kariba Dam on the border of Zambia has been erratic of late. development director at research and consulting specialists Africa House, who has led two fact finding and business development delegations to Zimbabwe in recent months. “The prevailing spirit in Zimbabwe has changed dramatically,” says Bonnett. “Zimbabwe’s public and private sectors are more positive than they have been in possibly 15 years, but with a sense of realism. Significant infrastructure and industrial revitalisation projects are planned, but there are still certain challenges in the way of realising them,” he says. Geological endowment According to Hennie Theart, corporate consultant, partner, and economic geologist at SRK Consulting South Africa, Zimbabwe is best known for its greenstone hosted gold deposits some containing antimony as a by product , chromite, and platinum group element PGE deposits related to the Great Dyke. Furthermore, the country hosts several diamond deposits kimberlitic and alluvial . In addition to these, there are podiform chemical grade chromite deposits and the coal deposits of the Wankie Coal Field. Deposits of nickel sulphide Trojan and Shangani , banded iron formation related iron ore deposits, the Kamativi tin field, lithium deposits such as the Bikita pegmatite, copper gold deposits such as the Mhangura mine, and carbonatite related apatite phosphate deposits such as Dorowa and Shamva, further adds credibility to an impressive geology. “Although Zimbabwe has historically been well explored in the past, very little modern exploration has taken place since independence, and there are many opportunities,” says Theart. Van Zyl says it seems likely that PGEs and gold would be the early beneficiaries, as these are typically less dependent on infrastructure like power, water, roads, and rail. “That said, infrastructure in Zimbabwe is relatively good compared to many other countries even though rail export through South Africa or Mozambique remains a problem so other commodities could well still benefit in the longer term,” says Van Zyl. “The most significant geological features in Zimbabwe is without a doubt the greenstone belts and the Great Dyke,” says Kuchocha. ‘The Great Dyke cuts across Zimbabwe from the north east to the south west. It is the second largest reserve of PGEs after South Africa’s Bushveld Igneous Complex and is a linear layered intrusion that extends for about 550km, with a maximum width of about 11km. The reef most exploited is the Main Sulphide Zone MSZ , which is between 2m and 3.5m thick. “Platinum, and the associated chrome deposits, present significant opportunities for investors,” says Kuchocha. “The mineralisation of the Dyke is in a basin shape, so it means that platinum minerals occur on the east and the west and at depth. The gold deposits are mostly shallow and small, which make it ideal for junior mining companies to explore and exploit,” he adds. At the moment, platinum seems to be the major attraction in Zimbabwe. Cyprus based Karo Resources recently signed a massive deal of USD4.2 billion with the Zimbabwe government to construct a platinum mine and refinery west of the capital, Harare. According to Loucas Pourolis, CEO of Karo, work is expected to start in July this year. Country in focus Minister Chitando told the media present at the signing of the deal that production will get underway in 2020, and that the mine aims to reach 1.4 million ounces per annum within the first three years. The proposed project is in the Mhondoro Ngezi platinum belt close to Impala Platinum’s mine, one of the few die hard operations in Zimbabwe that continued ticking over during the Mugabe regime. Pourolis says the project will include a coal mine and power station to produce electricity for the smelter, and once constructed, would employ up to 15 000 people. Mnangagwa said at the signing ceremony that Zimbabwe is open for business and whoever stands in the way, hurting business in this country, will fall. “It is not business as usual anymore, things have to change,” Mnangagwa warned. In dire need of exploration Zimbabwe has a long history of mining, and there will probably be a lot more brownfields expansions and upgrades than new projects built from scratch. Moreover, under difficult circumstances, exploration has grounded to a halt. There are many small mines, especially in the gold space, that have been neglected and flooded with water, and these might offer significant opportunities for junior mining companies. The lack of proper exploration work also creates opportunities, and the country is in dire need of renewed exploration projects to ensure the sustainability of the mining sector. Adjacent to South Africa and Botswana, Zimbabwe seems to be the ideal destination for mining and exploration entrepreneurs Country in focus “. E Hwange Colliery has been ticking pv.ett.4lorifig NhVIVILigibe’r egime… from these two developing countries. According to Moyo, private equity investors could interpret the country’s flooded and unexplored mines as an opportunity to access the untapped market of mineral potential. In 2014, Lyman Mlambo, chairman of the Institute of Mining Research at the University of Zimbabwe, said the country was sitting on an estimated USD11 billion of mineral wealth. In a paper titled “Economic Overview of the Mining Sector in Zimbabwe and Key Developments”, Mlambo wrote that “Zimbabwe hosts 60 different types of minerals and 40 types that have been historically exploited to various extents. But little exploration has been done; yet, we have a record of 6 000 deposits of minerals such as gold, chromite, gas, and other precious stones discovered a long time ago.” Apart from gold, platinum, and diamonds, there has been increased interest in the lithium deposits of Zimbabwe. Earlier this year, Minister Chitando told a delegation at the Mining Indaba in Cape Town that the country hosts some of the world’s largest lithium deposits. Two lithium operations have already successfully established itself in Zimbabwe. Bikita Minerals operates in the Masvingo Province, and the Arcadia Lithium Project in Goromonzi is up and running as well. In addition, the historical Kamativi tin mine, between Hwange and Binga, hosts substantial deposits of lithium, and that operation is set to start producing in the next year or two. Reasons to invest According to Kaka, it made geographical sense to invest in Zimbabwe, as the Moti Group owns other strategic assets related to chrome in South Africa. “The geographic location of Zimbabwe made sense, as well as the abundance of quality resources that it has. The people in Zimbabwe are extremely hospitable, educated, and supportive of the project. The work ethic is acceptable on international norms to allow sustainable growth of the project,” says Kaka. Kuchocha says Zimbabwe has a solid mining history, so skills are not a problem. “There are still exceptional skills in Zimbabwe, which is a great advantage. Mining companies trained people well and many gained international experience, myself included. There is a lot of mining skills in Zimbabwe,” says Kuchocha. Challenges and risks Despite the optimism, there are potential pitfalls, challenges, and risks facing the Zimbabwean authorities and potential foreign investors. According to Batirai Manhando, president of the Zimbabwean Chamber of Mines, the country needs more than USD11 billion to modernise its mines and boost productivity to maximum capacity over the next five years. In addition, funding, especially for new lithium projects, remains a hurdle. “Mining companies in Zimbabwe face problems like prohibitive costs of electricity, labour, and royalty fees when compared to other jurisdictions. There has also been little exploration in the country since 2000,” says Manhando. Country in focus Overview of the geology of Zimbabwe Close to 60% of the Zimbabwean land surface is underlain by the Zimbabwean Craton. It is made up of vast areas of Paleoarchean granitic gneiss and Neoarchean granitoids. The Craton is further dotted with numerous greenstone belts, composed of mafic, ultramafic, and felsic volcanics along with epiclastic sediments and iron formations. The main greenstone belts are the Sebakwian, Bulawayan, and Shamviain groups. nese greenstone belts host the main gold, asbestos, and iron mineralisation. There are over 2 000 small gold mines dotted all over the country, most of which have not been operational since the 1930s. It also hosts graphite deposits and other vein and pegmatite hosted minerals. World class pegmatite deposits occur at Bikita, Kamativi, Sandawana, Beryl Rose, Benson, and Bepe. These pegmatite veins host significant lithium mineralisation, making Zimbabwe the fourth largest producer in the world. Asbestos mining has been permanently suspended in the country. The most prominent geological feature of Zimbabwe is the Great Dyke, bisecting the country from north to south. It is a long narrow body of inward dipping peridotites, with chromite bands, pyroxenites, and norites. The Main Sulphide Zone host significant platinum and associated precious metal mineralisation. The Great Dyke is subdivided into four chambers from the north to the south, namely the Musengezi, Hartley, Selukwe, and Wedza complexes. There are also two parallel satellite dykes on either side: the Umvimeela and West dykes. Further to the east is the gabbro filled Popoteke fracture zone that intruded the basement complex greenstone belts and batholitic granites. Nickel deposits are hosted in the Komatiites of the basement rocks and in the Great Dyke. It is the source for the rocks used in Zimbabwe’s famous soapstone sculptures. The Magondi Basin was formed during an extension phase after emplacement of the Great Dyke and forms the north western margin of the Zambezi Basin. The southern portion of the basin is covered by sediments of the Karoo Supergroup and younger formations. The basin is subdivided into the Piriwiri, Deweras, Mcheka, and Chiwuyu Godzi groups. These groups host copper and gold mineralisation but to date, it has not been economical to mine. These groups contain significant coal beds. A swarm of dolerite intrusions formed during the Mashonaland igneous event and is concentrated in the north western part of the country. The southern margin of the Zimbabwe Craton is marked by the Limpopo Mobile Belt and consists of highly metamorphosed cratonic rocks. The Mobile Belt hosts gold, magnesite, and corundum deposits. The southern part of the country also has significant Karoo Supergroup sediments and volcanics laid down in the Middle and Lower Zambezi basins in the west and north, respectively, and the Save Limpopo Basin in the south and south east. The lithology consists of feldspathic sandstones, grits, and shales. These basins host the country’s southern coal deposits and possible coaled methane. The Kalahari Group of Neogene to Recent age cover material that consist of sandstone and sand and is developed in the north western part of the country between Bulawayo and the Victoria Falls. Diamonds are mostly found as paleo placer deposits at Marange and Chimanimani. Source: Nicolaas C. Steenkamp, independent geologist and mining consultant. Country in focus African Chrome Fields ACF built its first wash plant in the KweKwe region of Zimbabwe in 2014, when .W Robert Mugabe was still firmly in control of the country. In fact, it is not only the cost of electricity that is a problem the supply thereof is bound to be another constraint, especially with talk about beneficiation. The country currently requires 1 600MW of power, but only produces 1 000MW. With the ramp up in the mining industry and two or three new smelters in the pipeline, the question is, where will the power come from? Zimbabwe has two main sources of power: the Hwange Power Station, and the Kariba Hydroelectric Plant, which has not been as reliable of late as before. The deficit is imported from South Africa and Mozambique, at high cost. According to 7he Chronicle, a Bulawayo based daily newspaper, industry experts project that Zimbabwe will need more than USD12 billion to meet future electricity demand. Without the required electricity supply, ACF is forced to use diesel generators at their chrome operation, which is a big cost driver. “We are fortunate that we have obtained rebates from the government for our diesel requirement. This has, to an extent, alleviated the negative effects on costs,” says Kaka. “‘The long term solution, however, will always be sustainable electricity supply to effectively compete in the world market,” Kaka adds. Energy opportunities Bonnett says that Zimbabwe presents significant opportunities for investors in the mining and energy sectors. “Power is a key factor underpinning Zimbabwe’s aims to restart its manufacturing sector and boost economic growth,” says Bonnett. “The country is focused on rehabilitation, upgrading, and expansion. Manufacturing was once a key sector of the economy and the basic manufacturing infrastructure still exists in many cases. However, it needs investment, modernization, and reliable power to get up and running again,” he adds. Bonnett says that as new mining and industrial projects roll out, the power shortfall will become more pronounced. “To address this, there are new mega hydro and coal fired projects on the table. There are many infrastructure and power business opportunities in Zimbabwe, but it needs to be understood that if companies wait until after the elections to start investigating the opportunities, they may be too late,” says Bonnett. During his recent fact finding visits, Bonnett was told that delegations had been flying into Zimbabwe from across the world to investigate opportunities. “There are reports that delegations have visited from the US, Canada, Brazil, Turkey, Japan, Korea, China, and India, with a view to either making their first inroads into the country or expanding their existing business there,” he says. Bonnett concludes that challenges to do business in Zimbabwe remain, but with its educated workforce and skilled diaspora, along with the new will to revitalise the economy, the country presents strong growth potential. Arduous systems Zimbabwe doesn’t have its own currency, and US dollars are not readily available. This can become a major challenge, especially running day to day operations in a remote area. “It is still extremely tedious to acquire claims, only because the Zimbabwean geology and resources are not a digitised system, it is still all manual so you still have to go to maps to find out who owns all the claims, Country in focus .Most exploration projdcts in Zimbabwe were hatied years ago, and there are many opportunities for junior miners in this space. and that information is not always available,” says Leon Richardson, CEO of ACF. He adds, however, that the ministry is streamlining the process and working on the digitisation of the resource system, which will make the information much easier to access. According to Van Zyl, investors might still be hesitant to enter Zimbabwe, as corporate money is not as freely available as it was during the previous boom. “Many larger companies only recently started considering more risky destinations. Zimbabwe might not yet feature high on their list of priority areas. It is more likely to be the smaller players that will move in first, says Van Zyl. He adds that it is a challenge that the country is using US dollars, and it is yet to be seen if the country can sustainably allow dollars to be earned and repatriated, even if it is wanting to do so. Also, interest rates in Zimbabwe are still high, and this limits the ability of Zimbabweans to borrow in an effort to finance investment, says Van Zyl. Zimbabwe’s fortunes do not hinge on the actions of a senile 93 year old president any longer. What happens at the election in July, and how Mnangagwa steers the ship in the next few years, will determine the fate of the nation. What happens in the next year will be key to the growth of the economy and the mining industry.