Chamber of Mines of Zimbabwe (CMZ) calls for larger mines


The Chamber of Mines of Zimbabwe (CMZ) wants the government to consider the merits of promoting large mines that enjoy economies of scale and greater access to capital and markets, as opposed to numerous small projects exposed to stifling costs of production.
The association of miners, “for now”, is offering just 15% equity to local investors wishing to buy into mining operations instead of the 51% demanded by the government in a indigenisation law until the country builds its own capital.
Record hyperinflation destroyed Zimbabwe’s savings base comprising banks, insurance companies and pension, mutual funds and wealth funds.
“We think initially 15% minimum equity is desirable but in the long term as we build our own capital, it’s possible to achieve higher equity stakes. Which means it is possible to have even 100% equity being locally owned,” Victor Gapare, CMZ president, said.
“In the long run, if Zimbabwe is to benefit from its mineral endowment, it must attract serious risk capital and also build bigger mines which enjoy economies of scale.”
He added that over 50% of Zimbabwe’s mineral rights were in the hands of blacks and government-owned institutions, particularly the Zimbabwe Mining Development Corporation, Minerals Marketing Corporation of Zimbabwe and Hwange Colliery Company Limited.
“What must happen is that the people holding these mineral rights must look for partners who will bring in capital and develop these mineral rights.”
Nearly every mining operation in the country is currently hamstrung by working capital constraints and poring eyes on offshore capital markets already hurt by risk aversion, for solace.
Zimbabwe’s treasury expects the mining industry, which currently accounts for about 50 % of foreign currency generation and close to 5% of gross domestic product, to recover 40% this year, buoyed by gold and platinum.
The government has already signaled it would accept a diluted “indigenisation” model proffered by the sector, which seeks to balance the “aspirations of the country and the needs of investors”, to avoid freezing new investments.
The government in January published a set of general regulations on indigenisation and economic empowerment, which put into force the Indigenisation and Economic Empowerment Act triggered investors to plans to expand or open new mining investments in the country on worries of expropriation.
The policy shift effectively supplants indigenisation with empowerment through a system of “equity-equivalent” credits, which dilutes the minimum equity demand and removes the ceiling initially imposed on foreign ownership.
The law, passed roughly two years before, primarily seeks to warehouse at least 51% of large mines and other firms for local investors as an instrument of economic empowerment.
Foreign-owned entities, including those listed on the local bourse, have up to five years to phase in the equity changes and until end of June to disclose their shareholding to the Ministry of Youth, Indigenisation and Economic Empowerment.
Under the “broad-based empowerment” model the Chamber has proposed, direct equity would be limited to 15% with equity-weighted credits making up the balance up to the statutory threshold of 51%.
The empowerment credits comprise community investments such as infrastructure spending, social investments, assistance to small-scale miners, local procurement, creation of companies and factories or training and skills development.
The direct equity would be sold rather than ceded through commercial disposals and acquisitions of shares, employee ownership schemes and initial public offerings on the Zimbabwe Stock Exchange (ZSE).
A source familiar with the consultations says the government has climbed down from its earlier stance of equity-based indigenisation and empowerment after realising radical structural changes to the industry may hamper its recovery following a meltdown, which triggered closures and a commodity slump that hit its profitability.