ZIMBABWE, which together with South Africa holds 75% of the world’s platinum reserves, has grown production of the white metal by 121% since 2006, while local output has dropped 20% over the same period.
Report by bdlive.co.za
Hamstrung by violent labour unrest, rising costs and increasingly difficult underground mining conditions, South Africa’s platinum production is expected to fall by 607 000 ounces this year, costing mining companies an estimated R8,6bn in lost revenue at current prices. Zimbabwe’s output is expected to increase by 7%.
Should the political situation in Zimbabwe improve, it will become a more attractive platinum investment destination than South Africa.
“The long-term potential of Zimbabwe excites me. It’s a low-cost, high-growth area for investors. I’m much more excited about Zimbabwe than South Africa over the long term,” one platinum analyst said.
Compared with South African mines, which are largely deep underground operations, Zimbabwe’s platinum deposits allow for opencast, mechanised mining, making them some of the lowest-cost operators in the world.
Zimbabwean mining companies have also benefited from low labour costs, which are about a third of what they are in South Africa and limited labour unrest.
However, the cost and availability of electricity remains a problem, one fund manager with exposure to Zimplats said.
The share price of the country’s biggest platinum miner, Zimplats, which is 87% owned by Impala, has gained 13% since the unrest at Lonmin started in August. However, political risk remains a big concern and is depressing the values of assets in the country.
Other platinum operators in Zimbabwe are Anglo American Platinum, which commissioned its Unki Mine at the end of 2010, and Mimosa, a venture between Impala and Aquarius Platinum.
Impala has said that it could invest as much as $10bn (R87bn) to expand production in the country if the regulatory environment and indigenisation rules, which require that black Zimbabweans own 51% of companies, were more business-friendly. Zimplats, which produces about 180 000 ounces of platinum a year, has the potential to expand this to a million ounces.
The expropriation of white-owned farmland since the late 1990s caused investors to withdraw from Zimbabwe and halved its economy between 1997 and 2008. The economy has recovered since the use of the US dollar was legalised in 2009, but it is still smaller than it was in 1999.
Uncertainty over indigenisation legislation has seen investment into the country’s mines dry up and investors are expected to remain skittish until a new constitution is finalised and free, fair and peaceful elections are held.
South Africa’s government should take note of the effect political risk has on asset valuation and the ability to attract investment.
“Zimbabwe also holds an important lesson for South Africa in terms of political risk and the impact on valuations. You can have the best asset in the world, but any good asset will be damaged by an unfavourable political environment,” the analyst said.
Despite challenges besetting local mines, South Africa remains the world’s biggest platinum producer and is expected to produce 4,2 million ounces this year, out of total global production of
5,87 million ounces. South Africa’s production is expected to recover slightly next year, with output of 4,47million ounces.
Zimbabwe’s output is expected to grow 3% to 365 000 ounces this year and is forecast to reach 393 000 ounces in 2013.