/ 13 June 2014

SA platinum strike gives Zim a lift

The short-term benefit is likely to be higher prices – and investors will start looking elsewhere.
The short-term benefit is likely to be higher prices – and investors will start looking elsewhere.

Mines and Mining Development Minister Walter Chid­hakwa expects foreign investor sentiment to favour Zimbabwe’s platinum mining sector in the next two months if neighbouring South Africa fails to resolve the crippling 20-week miners’ strike.

The strike has cost the country’s platinum companies nearly R20-billion in production since workers downed tools in January. Zim­babwe holds the second-largest known platinum reserves in the world after South Africa, accounting for 6% of global platinum output. Its production costs are also relatively lower than those of the South African mines, making it lucrative to investors.

Zimbabwe’s platinum resources are on foreign investors’ watchlists and their interest has been alerted by the announcement last week by a Russian consortium – Vi Holding, Russia’s defence conglomerate Rostec and Vnesheconombank – that they are planning to establish the world’s second-largest platinum mining and processing complex in the country. The output of the mine would be 600 000 ounces a year, making it the largest in the country.

According to a report last month by Johnson Matthey, a London-based multinational company that specialises in chemicals and precious metals, there will be a deficit in global platinum output, mainly due to the South African strike.

Fresh talks to end the strike between platinum mining companies and union bosses collapsed on Monday, suggesting that the strike could drag on.

Several South African companies have mines in Zimbabwe, among them Impala Platinum (Implats), Anglo-American Platinum (Amplats) and Aquarius Platinum. Implats and Amplats run the Zimplats and Unki mines respectively and have a 50-50 joint venture in the Mimosa mine.

An alternative market
In an interview with the Mail & Guardian, Chidhakwa said the strike in South Africa had not gone on for long enough to make foreign investors look for an alternative market, although if it went on for six months they could start shopping around.

“If we are looking at foreign investor sentiment, we can give them between six and 12 months within which to start looking at the Zimbabwe platinum market and we will see more interest. The investors are not likely within only a few months of the South Africa strike to immediately shift towards Zimbabwe,” he said.

Zimbabwe’s platinum mines have a combined annual output of 365 000 ounces, which Chidhakwa said was “still low” compared with South Africa’s about 4.2-million ounces last year, according to Johnson Matthey.

“Platinum production [in Zim­babwe], however, has been increasing as all companies are running various expansion programmes,” Chid­hakwa said.

The Zimbabwe Chamber of Mines expects platinum production to reach 800 000 ounces by 2017. The treasury has earmarked growth of 11.4% in the mining sector this year, with the mining industry being a key contributor to the gross domestic product (GDP).

According to stockbroker Imara Edwards, “the mining sector’s contribution to GDP has grown from an average of 10.2% in the 1990s to an average of 16.9% from 2009-2011.”

The chamber said, from 2017 onwards, Zimbabwe’s production of platinum will approach that of Russia.

“This growth projection, however, requires significant investment in terms of power generation and capital”, the chamber said.  

Chidhakwa said that three new companies would be entering the platinum mining sector, including Todal Investments, which is 60% owned by the London-based Eurasian National Resources.

“We met with officials from Todal last month and we ironed out a few outstanding issues around their licensing. In general, we have seen some movement in companies stepping up to develop their platinum concessions.

“It is not clear if this is either linked to the situation in South Africa or the ultimatum we issued that those companies that had not developed their concessions ran the risk of forfeiting them,” Chidhakwa said.

Rising platinum prices benefit Zim
Eric Bloch, a senior economist at H&E Bloch Consultancy, said that the strike would cause platinum prices to rise, which would be of immediate benefit to Zimbabwe. An increase in production was a long-term exercise, he said.

“It [SA strike] will create a rise in platinum prices, as a shortage has been created on the global market. Unfortunately, Zimbabwe will not be in a position to increase its production levels within a short space of time, so the benefit it may derive will be from higher prices.”

Last month, the chamber held its annual general meeting, at which mining executives interacted with government officials over the state’s demands that the mining companies must build a platinum refinery in the country by the end of 2015.

Alex Mhembere, the chamber’s president, cautioned the politicians and said an enabling environment had to be established to stimulate production in the mining sector before a refinery was built.

Meanwhile, Chidhakwa said the 51% indigenisation law was no longer an issue or a deterrent to foreign investors keen to get into mining.

“From a mining perspective, the 51% threshold required by the law has not changed,” he said. “The restatement of the policy made by President Robert Mugabe recently affects mainly the non-resource-based sectors more than the mining sector.”