Zimbabwe:A bridge too far

For Zimbabwe to thrive again, people need to start talking about the big elephant in the room, writes Leon Louw.

Simudzai Mureza wedu WeZimbabwe(Oh lift high our banner, the flag of Zimbabwe); Yakazvarwa nemoto wechimurenga (The symbol of freedom proclaiming victory). This is the introduction to Professor Solomon Mutswairo’s Shona song that in 1994 became the national anthem of Zimbabwe – that ”blessed piece of land between the Limpopo and the Zambezi, so wondrously lovely,with mountains and rivers cascading, flowing free.” His words bring tears to the eyes of most ex- Zimbabweans living on the periphery of society in strange lands, who left the borders of the familiar in search of a better life. In the anthem Mutswairo continues to sing the praises of the land of his fathers and then, towards the end, he writes: “May our leaders be exemplary.”

Unbeknown to Mutswairo, Zimbabweans were destined to question his poetic words. The new generation will be forgiven, however, when they start asking: “But what leaders?” For they have known only one: Robert Mugabe. Mugabe has ruled Zimbabwe for 36 years…

Zimbabwe conjures up different images for different people and different generations. It is an enigma for some; a conundrum for others; a basket case for most. For Zimbabwe is rich in resources. It is, as Mutswairo rightly proclaims, a fertile land. Once upon a time it was known as the breadbasket of Africa. Its national parks are world class. And the Great Dyke has been the source of tonnes and tonnes of raw platinum. On the edge of the Dyke enough gold, coal and iron ore have been mined to regard Zimbabwe as a top mining destination. In fact, it is still the second biggest platinum producer in Africa, hot on the heels of its neighbor South Africa. But Zimbabwe has, for whatever reasons, never realised its true potential. Whether all Zimbabwe’s problems can be laid at Mugabe’s door is debatable. But with the economy in tatters, sky-high inflation and a decimated agricultural sector unable to feed the nation, it is hard not to. Despite all the challenges and uncertainty, the mining industry in Zimbabwe is surviving, be it on a shoestring. A number of operations have negated the troubled waters and is, against all odds, thriving. In fact, word is out that exploration activity in the country is increasing. The higher gold price has caused a flurry of previously marginal operations to resuscitate its old shafts and go digging again.

The resurrection of gold

London-listed Vast Resources has dusted off the Picktone Peerless gold mine, once part of the Delta Group before being bought by African Consolidated Resources (ACR). The mine is located about 100km southwest of the Zimbabwean capital Harare, and is churning out 20 000 tonnes per month. “The operation was originally designed to mine 10 000 tonnes per month and produce between 800 and 900 ounces of gold per month. Since the first gold pour in August last year, the mine has actually done better than originally planned,” says Roy Pitchford, CEO of Vast Resources.

Pitchford is an old hand in the mining industry and in Zimbabwe. He was born in Zimbabwe. His track record in the country is impressive. He had a stint at Cluff Resources, where he managed the Freda Rebecca Mine, the largest gold mine in the country, as well as a number of smaller mines. Pitchford oversaw the development of the Ngezi Opencast Platinum Mine into production, the re-commissioning of the Selous Metallurgical Complex in 2011, and created a company with a platinum-group metals (PGMs) resource base in excess of 300 million ounces while at Zimplats, which was acquired by Implats, the world’s second largest producer of PGMs. In addition he served as president of the Zimbabwean Chamber of Mines. 

As a local Zimbabwean, mining in the country of his birth has been, according to Pitchford, easy going. “The only challenge we’ve had is the ability to raise capital offshore,” says Pitchford. When Pitchford joined Vast Resources, he had to raise about USD27-million to bring Pickstone Peerless and the other Vast asset, the Giant mine, on line. But the project was a hard sell in the UK. “The fact that the mine was located in Zimbabwe just proved a bridge to far,” says Pitchford. He eventually took his roadshow back to Zimbabwe and managed to raise money within the country. It wasn’t as much as what they planned for though, and as a result the company only got a much smaller operation off the ground.

“We couldn’t build the big sulfide operation with all the bells and whistles. With a budget of only USD4-million we had to settle for a much smaller oxide operation,” says Pitchford. Pickstone Peerless and the Giant mines are both very old historical mines with extensive underground infrastructure and tunnels. Nevertheless, both deposits are shallow and the gold reef at Pickstone is accessed by open pit. The same will happen at the Giant mine where drilling is taking place at the moment. Giant is earmarked to become Vast’s second operating mine in Zimbabwe in the next few years. Although the Pickstone and Giant deposits were mined before, not a lot of the original surface infrastructure was left. “We used an old scrap mill and refurbished it as a re-grind mill. So the primary mill does most of the work and all the excess material is reground in the re-grind mill,” Pitchford explains. “We had powerlines and roads at Pickstone, but the only plant infrastructure that really survived was the carbon in leach and carbon in pulp concrete tanks, and fortunately they were in good nick,” says Pitchford.

A word of warning

 Despite Pitchford’s opinion of the relative ease of operating in Zimbabwe, he does have a word of caution for companies considering Zimbabwe as a good potential investment. “Don’t go into the country and try to manage your mine with a South African, Australian or UK attitude. You have to employ local people who understand the territory,” he says. But Pitchford is positive about Zimbabwe’s future. “The economics in Zimbabwe will eventually change. At the moment the economy is at a low, but it means that there are mining assets available at a discount. Once there is change, there will be a renaissance,” he says. That Zimbabwe is regarded as a high risk mining destination at the moment might not be such a bad thing. High risk means high reward, and while the risks are high, good quality assets can be acquired for reasonable prices. When the risks are low, those same operations will become available at high premiums.            

According to Andrew van Zyl, partner and principal consultant at SRK Consulting, there are a lot of smaller gold deposits in Zimbabwe that are starting to look attractive after the recent upsurge in the gold price. “The problem at the moment, however, is the high hurdle rate of entering Zimbabwe as a foreign owned company,” says Van Zyl. It is extremely difficult for a company to raise money while required to have 51% of the project owned by local Zimbabweans and with high prevailing interest rates US dollar-denominated debt. In addition the tax rates are high, mining regulations can be confusing and inflation continue creeping up. Once a company has taken money into the country it can be very difficult expatriating returns to foreign funders, as foreign exchange is scarce. “To foster the growth of mining in Zimbabwe, the primary role of government would be to reduce the hurdle rate for investment. At the moment the hurdle rate for realising a reasonable return on investment is prohibitively high. The government should focus on reducing interest rates and business will develop in response,” says Van Zyl. SRK is currently working on two major projects in Zimbabwe - one at Zimplats’ Ngezi platinum mine close to Harare, and the other at Darwendale, also a platinum mine on the Great Dyke. Darwendale is the culmination of a joint venture signed between Zimbabwean firm Pen-East Mining and Russia’s JCS Afronet. The USD3-billion project was commissioned earlier this year. The joint-venture, Great Dyke Investments (GDI) is expected to produce at least one million ounces of platinum annually. According to Marcin Wertz, partner and principal mining engineer at SRK the company is sub-consulting to DRA Projects in conducting a number of work packages for a feasibility study. “The feasibility study is expected to be completed in September, and the project is expected to start in 2017,” says Wertz. Also part of SRK’s feasibility work is the tailings dam, hydro-geology, hydrology, mining geotechnic and the civil geotechnical work. “In addition to the usual investment criteria, the decision to get involved in Zimbabwe as a mining company is also based on one’s take on the political situation and what sort of appetite one has for risk. There will be a lot more activity as soon as there is political certainty. That’s the elephant in the room that stakeholders have to address. The reality is that there are people waiting to invest,” says Wertz.

Work underway at Ngezi

SRK’s other project, Ngezi, is located on the Zimbabwean Great Dyke, about 150km southwest of Harare. SRK recently completed a feasibility study on the Portal 6 Project. “Zimplats has a 10-year plan to produce in excess of one million ounces of platinum per year. Two years ago, SRK was completing a feasibility study for the Portal 5 area, but because of geotechnical concerns and the small footprint at Portal 5, Zimplats decided not to go ahead,” says Andy McDonald, associate consultant at SRK. Instead SRK was awarded a contract for the feasibility study of the new Portal 6 project, which they finished in May this year. “Although Zimbabwe has challenges, there are also many opportunities,” says McDonald. “But bureaucracy, a lack of experience in big mining projects and the political and economic situation are constraints.”

Ngezi is operated by Makwiro Platinum Mines, 70% owned by Zimbabwe Platinum Mines (Zimplats) and 30% by the South African mining company Impala Platinum. Ngezi has replaced the failed Hartley operation, which was developed by Australian companies BHP Biliton and Delta Gold in the mid-1990s. Pitchford incidentally, was part of the Delta group and Zimplats, and played a big role in getting Hartley back on track again around the change of the millennium. An underground operation, Hartley was brought into production in 1997 at a cost of USD289-million, but closed within two years because of operational problems. Delta spun off its holding into Zimplats, which later bought BHP's share as well.

Zimbabwe’s Great Dyke is a layered complex similar to that of the Bushveld Igneous Complex in South Africa. It extends for 550km and has a maximum width of 11km. Within the Great Dyke four geological complexes are known to contain PGM and base metal deposits. These are the WedzaComplex, in which Mimosa owned by Aquarius and Implats operates, the Selukwe Complex where Anglo Platinum Unki mine is located, the Hartley Geological Complex where Zimplats runs their Hartley and Ngezi Platinum Mines and the Musengezi Complex.

Electricity concerns

Another concern in Zimbabwe is the intermittent electricity supply. “The recent drought in the region has had a huge impact on Zimbabwe’s ability to generate enough electricity,” says McDonald. “The water in the Zambezi is exceptionally low, in fact close to its historic low in 1995-96, and the water levels in Kariba had dropped to 12% of capacity in early 2016, barely sufficient to operate the turbines. The Zambezi River Authority is rationing the flow of water for power generation, but a complete shutdown of the turbines would only be prevented by further rationing. The Zimbabwe Electrical Supply Authority (ZESA) is already cutting power to some parts of the country for up to 10 hours at a time. The result is that any new projects will be held back by power constraints.” McDonald adds that in spite of these difficulties it does appear that gold operations around the country are ramping up. One of these producers, Metallon, recently announced good results, despite electricity outages. The company intends increasing production significantly over the next five years.

Metallon is the 100% owner of four gold mining companies in Zimbabwe. Gold production was 97 000 ounces in 2015 and the target is 120 000 ounces in 2016. According to Ken Mekani, CEO at Metallon, the company intends ramping up mining at Redwing. The construction of an additional processing plant at Mazowe Mine is also in the pipeline, in addition to further on-mine expansions across operations. The company operates the Shamva, Mazowe, Arcturus and Redwing Mines.

“Metallon is committed to mining in Zimbabwe and we are especially pleased with the tremendous progress at Redwing since the resumption of operation in November last year,” says Mekani. “There have been some challenges in production during the first quarter due to equipment breakdowns at How and Shamva Mines and significant power interruptions. This year we will be investing in our assets by refurbishing and upgrading operations and expanding capacity which will deliver economies of scale and significantly lower costs. This investment and the three exploration projects taking place will put Metallon on course to increased production over the next five years,” Mekani adds.

Zimbabwe is richly endowed with a range of minerals. Besides its platinum and the scattered, high quality gold reefs, the country’s complex geology hosts coal, diamonds and good quality chrome and iron ore deposits. In fact, Indian steel giant Essar faced the full force of Zimbabwean bureaucracy when they bought the Buchwa Iron Mining Company (BIMCO), a subsidiary of the Zimbabwe Iron and Steel Company (Zisco) a few years ago. Essar claims that with 45 billion tonnes of iron ore, BIMCO has the largest reserves of iron ore in the world. The deal was mired in controversy though. Zimbabwean Industry and Commerce Minister Welshman Ncube faced allegations that he pushed through the deal without proper due diligence and allowed Essar to unfairly take possession of 80% of the project. The current weak iron ore prices have put a lid on the project anyway, and if it will ever gain traction again is anybody’s guess. As the political climate in Zimbabwe heats up, potential investors are following developments with hawk eyes. Pitchford urges mining companies to invest in Zimbabwe sooner rather than later, as change is imminent. “There are many bargains available that will become very expensive in the future,” Pitchford says.            

Zimbabwe could be one of the wealthiest nations in Africa. But the figure of Robert Mugabe looms large. He is the big elephant in the room nobody is talking about. Zimbabwe needs change… Navatungamiri vave nenduramo (May our leaders be exemplary).