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REGULATORY uncertainty, which has dashed hopes of a new dawn for Zimbabwe’s mining industry in 2011, will continue to weigh heavily on investor sentiment this year amid the advancement of indigenisation and looming elections.
The African Development Bank (AfDB) recently warned that the indigenisation law – which has forced foreign-owned mining firms to abandon majority stakes – would put a further damper on investment in 2012. Several economists and mining executives inside Zimbabwe agree that a rethink is needed on the controversial empowerment drive.
“Mining companies are currently not looking at further investment and expansion of projects because the environment is still uncertain,” said an economist at a Zimbabwean financial institution.
“This year will certainly bring a lot of headaches for mining executives. We have already seen the government approve an increase in royalties for gold and platinum, and it could worsen if elections are called.”
Some firms have already felt the brunt of these changes. Caledonia Mining Corporation, which operates the Blanket gold mine in southern Zimbabwe, almost lost its assets after the government said the company had been unwilling to comply with the controversial expropriation law.
The government has also approved a hike in royalties for gold and platinum – to 7%, from 4,5%, and to 10% from 5%, respectively – while platinum miners also face a new law forcing them to set up refineries in the country.
The AfDB warned that an increase in royalties would curtail production, while early elections could slow down growth in the whole economy. “The increase in royalties can result in a fall in production as those firms mining in low-grade areas will face an increase in the unit cost of production; hence they will be forced to slash output.
This also implies that potential investors could be discouraged from investing…. by the increased cost of production and the reduction in profitability.”
Another economist, Eric Bloc, pointed out that the new mining royalties were “higher than what other mining countries” in the region were charging, and agrees that these would “reduce the profitability of the mining sector” and act as a deterrent to new investors.
He was quoted in Business Day, saying that platinum production by JSE-listed Impala Platinum’s Zimbabwe unit, Zimplats, could plummet in 2012.
He said this after the Zimbabwean government slapped the company, which also jointly runs the Mimosa project together with Aquarius Platinum, with a $28m tax claim on back-dated royalties for platinum. Mining companies in Zimbabwe are also likely to be hit by a surging demand for wage increases.
This has already affected Canadian gold miner New Dawn Mining, which runs the Turk and Angelus gold mines, after employees stopped production earlier this year.
New Dawn said the job action would significantly jeopardise plans to further increase production at its existing properties to a run rate of 100,000 ounces of annualised gold production by December 2014. However, some are still succeeding in raking in profits.
These include Mwana Africa, whose Freda Rebecca gold mine doubled production to 21,893 ounces for the third quarter, significantly up from 10,915 ounces in the same period in 2010.
Indications were that Mwana will either maintain or improve its performance.
The Mimosa joint venture between Zimplats and Aquarius was also expecting to raise platinum output while Anglo Platinum’s recently commissioned Unki project was expected to ramp up production in line with expected targets.
The African Development Bank (AfDB) recently warned that the indigenisation law – which has forced foreign-owned mining firms to abandon majority stakes – would put a further damper on investment in 2012. Several economists and mining executives inside Zimbabwe agree that a rethink is needed on the controversial empowerment drive.
“Mining companies are currently not looking at further investment and expansion of projects because the environment is still uncertain,” said an economist at a Zimbabwean financial institution.
“This year will certainly bring a lot of headaches for mining executives. We have already seen the government approve an increase in royalties for gold and platinum, and it could worsen if elections are called.”
Some firms have already felt the brunt of these changes. Caledonia Mining Corporation, which operates the Blanket gold mine in southern Zimbabwe, almost lost its assets after the government said the company had been unwilling to comply with the controversial expropriation law.
The government has also approved a hike in royalties for gold and platinum – to 7%, from 4,5%, and to 10% from 5%, respectively – while platinum miners also face a new law forcing them to set up refineries in the country.
The AfDB warned that an increase in royalties would curtail production, while early elections could slow down growth in the whole economy. “The increase in royalties can result in a fall in production as those firms mining in low-grade areas will face an increase in the unit cost of production; hence they will be forced to slash output.
This also implies that potential investors could be discouraged from investing…. by the increased cost of production and the reduction in profitability.”
Another economist, Eric Bloc, pointed out that the new mining royalties were “higher than what other mining countries” in the region were charging, and agrees that these would “reduce the profitability of the mining sector” and act as a deterrent to new investors.
He was quoted in Business Day, saying that platinum production by JSE-listed Impala Platinum’s Zimbabwe unit, Zimplats, could plummet in 2012.
He said this after the Zimbabwean government slapped the company, which also jointly runs the Mimosa project together with Aquarius Platinum, with a $28m tax claim on back-dated royalties for platinum. Mining companies in Zimbabwe are also likely to be hit by a surging demand for wage increases.
This has already affected Canadian gold miner New Dawn Mining, which runs the Turk and Angelus gold mines, after employees stopped production earlier this year.
New Dawn said the job action would significantly jeopardise plans to further increase production at its existing properties to a run rate of 100,000 ounces of annualised gold production by December 2014. However, some are still succeeding in raking in profits.
These include Mwana Africa, whose Freda Rebecca gold mine doubled production to 21,893 ounces for the third quarter, significantly up from 10,915 ounces in the same period in 2010.
Indications were that Mwana will either maintain or improve its performance.
The Mimosa joint venture between Zimplats and Aquarius was also expecting to raise platinum output while Anglo Platinum’s recently commissioned Unki project was expected to ramp up production in line with expected targets.
