Feature: Revolving door of Zim's mining investment keeps on spinning

Mine workers

ZIMBABWE’S mining sector was delivered a body-blow in June when Russian firm Vi Holding withdrew its support for the long-proposed platinum group metals (PGM) mine in Darwendale.

The company foresaw insoluble difficulties attracting investors following its homeland’s attack on neighbouring Ukraine. The project is now exclusively owned by the Zimbabwean government, which intends to go it alone. That could take some doing, though.

Darwendale is scoped to produce up to 860 000 oz of PGMs annually, a scale requiring US$3 billion in investment, $500m for its first phase alone. Government seems undeterred by the task: “That platinum project is a great asset for the country and we are not only focusing on platinum in acquiring shareholding but other assets as well,” said George Guvamatanga, Finance ministry secretary in an interview with Bloomberg News.

“That is the new thrust of government.”

The project had been in the sights of Russian investors for 16 years without ever seeing light of day. Despite the riches of the resource, there’s no escaping the reality that Zimbabwe is a tough place to do business.

The late David Brown, previously chief executive of Zimbabwe’s Kuvimba Mining House, a government-owned company that is now the sole owner of Darwendale, was fulsome in his appraisal of the asset.

“The [Darwendale] resource is reasonably attractive. It’s shallow and on the Great Dyke and so it’s got a good post code from PGM content point of view. I think it’s got some good optionality,” he said.

“But like all things, you can’t lock that in unless you’ve got the right investors. In Zimbabwe, there has been an inability to attract significant foreign direct investment [FDI] in a generic way. Saying there are one or two projects in Zimbabwe doesn’t really help. You need a wave of FDIs,” he said.

“I’m not sure the government has been that successful at attracting investment for itself. I’d say they probably aren’t [successful], and I don’t see that wave of FDIs coming through.”

Brown tragically passed away on June 18 — a major loss for Zimbabwe considering his 20-year-long involvement with the country.

Brown’s view was also recently expressed by the Chamber of Mines of Zimbabwe. Commenting in its 2022 Commodity Outlook, it identified an estimated capital shortfall in its mining sector of US$10 billion over the next five years.

That, and the hindrances of “erratic power supply ... exchange rate volatility and foreign exchange restraints”, are preventing the country from benefiting from “favourable commodity prices”.

The track record suggests Zimbabwe is a place where mining companies can have some success if they have a commodity the market views favourably, but the converse is also true. Fundamental hindrances undermine its reputation, such as its currency problems.

These include the reintroduction of the Zimbabwe dollar three years ago after the (US) “dollarisation” of the economy. As part of this, exporters have to “give up” 40% of their export proceeds, which have to be paid in Zimbabwe dollars.

“The Zimbabwe dollar relative to the US dollar has been inflationary,” says an industry source. “The differential between official rates and unofficial rates shows there’s a lack of faith in the local currency, in what it can buy and what its value is.”

There are workarounds, such as a company securing a special mining lease, but issues around currency are just the tip of the iceberg for investors. Another problem is that it’s difficult to import capital goods. Electricity supply is also unreliable.

Incentivising projects

Yet new mining projects do get announced in Zimbabwe. One is Tharisa’s proposed US$250m Karo Platinum Project, which aims to produce 150 000oz/year of PGMs, doubling the size of the Johannesburg-listed firm’s current South African production.

“Absolutely, you can invest in Zimbabwe,” says Ilja Graulich, spokesman for the company.

“People need to get their heads around the negativity although, obviously, having good geology helps,” he adds, referencing the project’s position on the Great Dyke so favoured by Brown. In fact, Karo Platinum Project is to be constructed on property originally owned by Implats until it was appropriated by Zimbabwe’s former President, Robert Mugabe.

But the game-changer for Tharisa is that the Zimbabwean government has declared the region a special economic zone (SEZ), which carries a 15% tax rate compared to 25% for other corporates, as well as duty-free importation of capital goods. “We wouldn’t have a project without the SEZ,” says Graulich. “It provides a lot of comfort.”

Tharisa is also applying for national project status, which will speed up Karo’s implementation by improving the flow of capital goods in and out of the country.

On the back of this, Tharisa has raised the prospect of tapping Zimbabwe’s bond market in order to part-fund the project, possibly through the newly founded Victoria Falls Exchange. That sounds bold, but it’s a sign of the confidence Tharisa has in Zimbabwe.

Debt funding and export credit finance are other funding mechanisms underway but which are yet to be finalised by the company.

If successfully built, Karo Platinum Project will take its place in an established PGM business that has Impala Platinum as its most significant investor through its 85%-owned Zimplats. It announced in March the US$204m doubling of Zimplats’ smelter capacity.

This investment frees up capacity for additional smelting in South Africa, which currently treats concentrate from the Mimosa mine in Zimbabwe.

Implats CE Nico Muller says the decision to invest in Zimplats’ expansion was premised on “the attractiveness of the orebody, strength of the operating team and unmatched record in operational performance and project delivery”.

As for jurisdictional risk, he thinks Implats can fall back on a 25-year track record of collaboration with the government.

This has led to some criticism of Implats: how does it square its own principles against the corrupt administration of Mugabe? But Muller has few qualms.

“Zimbabwe has been our best jurisdiction, where we have had the least amount of disruption and the most predictable production profile,” he said in April at a PGM industry conference.

“Personally, I am quite happy that the jurisdiction is seen as a risk by most other competitors because it allows us to continue expanding our interests,” he said.


Sam Hosack, MD and CEO of Sydney-listed Prospect Resources, says his company is content to reinvest in Zimbabwe’s minerals exploration industry despite having in April completed the US$387m sale of the firm’s Arcadia lithium project to China’s Zhejiang Huayou Cobalt Co.

“The government of Zimbabwe gets a load of bad press and I accept that. It is not getting everything right, but its incentives, what it is putting in front of foreign direct investors, are well thought through,” he says.

“Zimbabwe is trying to create an ‘open for business’ culture and to create that awareness, and certainly in our case it was a clear example of a well-incentivised investor that found a good asset.”

It’s a little known fact that Zimbabwe is the world’s sixth-largest producer of lithium, and the largest in Africa. Lithium, a mineral critical in the assembly of batteries for the electric car industry, is expected to flourish over the next five to 10 years. Its price gained 400% last year and according to the International Energy Association, a major supply deficit opens up from about 2024.

China controls the market, but the price hike alarmed some of its smaller producers, triggering a rush for the mineral globally, hence the play for Prospect’s Arcadia.

Sinomine acquired Zimbabwe’s Bikita lithium mine earlier this year while Chinese firm Chengxin Lithium Group has teamed up with Sinomine to explore for the mineral in Zimbabwe.

London-listed Premier African Metals recently raised funds for the continued development of the Zulu lithium and tantalum project in Zimbabwe whilst there was speculation last year that the government’s Zimbabwe Mining Development Corporation planned to reopen the Kamativi tin mine as a multi-element operation including lithium production.

“Much of the new developments involve smaller players in China looking to secure resource supply overseas, a strategy that China has employed to gain control of the supply chain,” says Allan Ray Restauro, an analyst at BloombergNEF.

The West is concerned about the geopolitical risk of China having so much dominance in a critical metal, much as it does in the rare earth industry that is critical in the manufacture of wind turbines for renewable energy. Hosack’s view is that the Chinese are quicker to the table than Western original equipment manufacturers.

“When we were looking at, shall we say, investment approach, I was quite frankly disturbed by the attitudes from Western countries. It was very predatory, there was no profit-sharing interest,” says Hosack.

“It’s of course a function of risk appetite that China can move quicker and that the West is lagging,” he says.

“When the Chinese came along they were like a gundog on the scent. When they want something they can move very quickly. That’s part of our fiduciary duties as directors to carefully note where the real likelihood lies and where the best shareholder value can be created.”

President Emmerson Mnangagwa welcomes China’s presence in the country’s minerals sector, according to a report by Xinhua, the state-owned news agency.

China had brought “value and employment” in contrast to Western investors, said Mnangagwa.

According to Xinhua, the government mouthpiece, the investment in Bikita this year could herald a new start for the mine after years of one-way exploitation by Western investors. Based on recent history in Zimbabwe, the fulfilment of that assumption remains to be seen.



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