Project explorers and mine developers discuss indigenization and nationalization, while reviewing new startups By Antonio Ruffini, South Africa-based editor

At the 2010 Mining Indaba attended by some 4,000 delegates, an event that takes place annually in Cape Town, South Africa, the country’s northern neighbor Zimbabwe gained an unusually high profile. Zimbabwe’s minerals potential has been off the mainstream radar for many years due to the misrule of President Robert Mugabe and his cronies. However, many see opportunities in this geologically rich terrain that has experienced little modern exploration.

In spite of the fact that Mugabe is still around, investors are positioning themselves for if and when Zimbabwe adopts governance that inspires greater confidence. So far the signals have been mixed. Gold production, which ground to a halt in Zimbabwe a year and a half ago, has recommenced at a myriad of small producers because they are now able to repatriate their earnings and obtain payment in U.S. dollars for their output.

On the other hand, the country is putting in place legislation that instructs all companies worth more than $500,000 operating there to arrange for 51% of their shares or interests to be owned by indigenous Zimbabweans within five years. A government promulgation at the end of January called on all companies to submit a detailed indigenization implementation plan by April 15, 2010. That announcement resulted in widespread criticism and fear that this could be the final nail in Zimbabwe’s foreign investment coffin.

However, mining operators in Zimbabwe expressed optimism based on what they perceive to be happening behind the scenes. Kalaa Mpinga, CEO of gold producer Mwana Africa, which owns the historic Freda Rebecca mine (an operation once owned by Anglo American) 90 km northeast of Harare, said that the Zimbabwean government’s indigenization promulgation will not divert the company from its plans to produce 30,000 oz/y at this operation.

Mpinga said that talks between the various parties involved in the mining industry are progressing well. “There is consensus between the Ministry of Mines, the ministry of Indigenization, the Ministry of Finance, and the Chamber of Mines that this 51:49 split will be difficult to implement in the mining industry.

“We have been discussing a system whereby companies will be given indigenization credits in terms of corporate and social responsibility requirements. My view is that it is not going to be very different from the situation in South Africa,” he said. South Africa has Black Economic Empowerment (BEE) legislation in place that calls for a 26% share of all mining operations and companies in that country to be owned by previously disadvantaged individuals.

Another Zimbabwean gold producer, New Dawn, which operates the Turk-Angus mining complex in that country, is planning to accelerate output to achieve 35,000 to 50,000 oz/y despite the uncertainty.

Its CEO, Ian Saunders, said all parties in the government of Zimbabwe have indicated that ultimately the country’s recovery will be led by the mining sector. “We are not particularly concerned with the promulgation of these regulations at this point. With the stakeholders being in agreement, they will have to come up with something different for mining.” Saunders later went on to say, “You can look around the world, and there are few countries left where you can make real money in mining; Zimbabwe is one of them.”

This is why a number of South African companies have turned their eyes northwards. CEO of mid-level gold producer DRDGold, Niel Pretorius, said, “Being a smaller South African gold miner, we have needed to try and develop our portfolio away from the major risks revolving around ballooning power, labor and other costs, and underground safety issues in this country.

“Over the past few years we have been moving further and further away from deep level mining, and we are shrinking our underground footprint in South Africa. If you look at the available gold resources in Zimbabwe, there isn’t another country in the world where a tarred road and an existing power line are that close to surface gold.

“We could get something up and running for a very low initial start-up capital provision. What appeals about Zimbabwe, is that flying to Harare takes less time than it takes to fly to Cape Town,” said the Johannesburg-based Pretorius. “If everything collapses there the risk we would have taken literally will be less than what we spent on the rent of our Johannesburg offices over five years.”

Of course much has to be done, like implementing rule of law in Zimbabwe. This is illustrated starkly by the Marange diamond field in that country, a deposit that has been widely publicized in a context of illegal production of blood diamonds. This diamond field is controlled by politically connected thugs, while its actual owner, AIM-listed exploration group African Consolidated Resources (ACR), is unable to apply its rights. ACR won an order in the Zimbabwean high court for its rights to this field to be upheld, on the ground it is unable to gain access.

However, even this has not deterred ACR CEO Andrew Cranswick, a fourth generation Zimbabwean, from his optimism in the future of Zimbabwe. He suggested that, as a trend, the environment for doing business in Zimbabwe is starting to improve and a number of ACR’s projects can progress to feasibility and mining stages.

Since ACR’s inception, it has spent $25 million on exploration in Zimbabwe and, claims that after Impala Platinum’s Zimplats operation it is the second largest investor in the country’s mining sector.

ACR is hoping to achieve about five JORC resource declarations by the end of 2010, three on gold projects in Zim-
babwe’s central midlands. The fourth is a rock phosphate deposit ACR is drilling at Chishanya, in the east of Zimbabwe located about 300 km from Mozambique’s Maputo port where the plan is to have a resource of approximately 100 million metric tons (mt) delineated this year. The fifth is on the Horseshoe nickel project which the company is progressing.

But it is the world’s second largest platinum producer, Impala Platinum, that puts into perspective what is at stake in Zimbabwe. Its planned phase two expansion at Zimplats, which would increase that operation’s output by 85,000 oz/y of platinum to 270,000 oz/y has been given board approval from a technical perspective. However, Implats CEO David Brown said the project, which entails a $450 million investment, the largest single investment in Zimbabwe in 20 years, could be shelved if the proposed 51% indigenization is applied.

“It is quite clear that with various utterances on indigenization and regulations being gazetted at a 51% local shareholding, this cannot be regarded as an investor-friendly approach. The equation of 49% of the economic profits of a business versus a major share of risk and significant funding does not work,” Brown said.

But, while explorers and project developers in Zimbabwe are poised between hope and despair, many international investors and potential investors are closely monitoring events to the south, in the continent’s economic powerhouse.
Prudence over Nationalization in South Africa
At this year’s Mining Indaba, the South African government at least made the right noises. In her keynote speech, minister of minerals Susan Shabangu promised to halve the time taken to process applications for prospecting and mining rights in South Africa, respectively from six to three months and from 12 to six months. She talked about the need to ensure transparency and avoid opportunities for corruption.

For a long time the concept of nationalization of South Africa’s mining sector was seen as too silly to be mentioned in serious conversation, but such has been the persistence in promoting this idea in certain quarters that are perceived to be politically influential that it has become a topic of discussion.

Later at the Indaba Shabangu reiterated what senior government officials have said at other forums over the past year, that nationalization of South Africa’s mining industry is not government policy.

However in immediate response, the vocal ANC’s youth league head Julius Malema, someone who is seen to enjoy the support of South Africa’s President Jacob Zuma, attacked Shabangu for suggesting nationalization is not on the agenda.

The government responded well to investors on the topic. Government officials not only made statements that nationalization will not happen, but explained in painstaking detail how neither the ANC’s freedom charter, nor the country’s constitution support or create the space for nationalization of mining assets as called for by Malema.

In a further attempt to alleviate concern, a few days later in parliament, Zuma reiterated what his ministers were saying, that nationalization of mines was not government policy at this stage.

Further comfort can be taken from the fact that the South African government invited chairperson of the International Bar Association's (IBA’s) mining law committee, a South African, Peter Leon, to be part of a task team, Migdett, focused on the South African mining industry's future growth and development.

Leon has been critical of South Africa’s mining policy over the past few years. He said in a presentation to the IBA during 2009 that South Africa has vast mineral resources, but investor confidence was muted. In 2004, South Africa’s Mineral and Petroleum Resources Development Act (MPRDA) took effect. Its objectives were to provide for equitable access to mineral resources, promote economic growth and mineral resource development, and provide for security of tenure in respect of prospecting, exploration, mining and production operations.

“While the MPRDA has opened up the South African mining sector and promoted BEE, it has failed on the last two of these objectives,” Leon said. “This is because wide administrative discretion under the MPRDA, as well as uncertainty in the regulatory framework and its application, discourage investment and undermine security of tenure.”

Leon said some aspects of the MPRDA do represent good policy; in particular, the opening up of the mining industry to the junior mining sector. Should the political will be there, it would be relatively simple to fix the legislation to achieve best practice.

However, on the whole, Leon said Africa is doing well with notably successful mining jurisdictions, including many of the West African countries (Guinea being an exception); successes in southern Africa such as Mozambique, Namibia, Botswana; and countries such as Tanzania having demonstrated what investor friendly mining policy can achieve.

Low-risk Rapid Startups are the Name of the Game
At Indaba 2010 it came across that, in addition to notable ventures such as the Bisha polymetals mine in Eritrea, expected to be in full operation this time next year, or the Mengo potash project being initiated in the Republic of Congo, exploration and project development activity has revived. Having come to a virtual standstill a year previously, drilling programs are once again under way across the continent of Africa, and numerous low risk mining projects are being evolved. These typically aim for short term production and fast paybacks.

This approach is summed up by the Kipoi copper project in the Democratic Republic of the Congo (DRC). Tiger Resources, the project developer, is working toward a high grade starter operation with a three year life while it does the feasibility work for a larger longer term mine.

Kipoi has seen two feasibility studies done, the first completed during Sep-
tember 2008. However, the conclusion of the first feasibility study coincided with the arrival of the global financial crisis and the project was re-evaluated to reduce initial capital expenditure.

Kipoi has some very rich sections including Kipoi Central, with a measured and indicated resource of 2.8 million mt at a grade of 8% copper. The second feasibility study for Kipoi, completed during 2009, looked at this for a high grade starter project, one with capital costs of only $30 million.

Production is scheduled to begin during the second half of 2010. The no-frills stage one project at Kipoi will achieve a mine throughput of 900,000 mt/y of material with an average copper grade of 7.15%.

“This stage one project will show the market that we can operate a project in the DRC and will lay the platform for the second stage,” Tiger Resources Joint Managing Director, Brad Marwood said.

Another example, this time in West Africa, is how Australia-based Signature Metals is looking at making use of a tailing resource in Ghana’s Ashanti gold belt. The old Konongo tailings dam contains residual material from processing at the historic Konongo mine, which operated between 1918 and 1986 and is one of several surface stockpiles/dumps Signature is evaluating to determine if it can provide feed for the existing 350,000-mt/y CIL plant. The cost of reclaiming these stockpiles will be less than that of mining new ore.

Over time, Signature Metals aims to explore and define 1.5 to 2.5 million oz of gold at a resource grade of 2 to 4 g/mt and develop Konongo into a more than 100,000-oz/y gold producer. The Konongo tailings represent a low risk starter project.

Keeping risk down is the name of the game, even for greenfields explorers. In East Africa, AIM-listed Nyota Minerals believes that its Tulu Kapi gold project in western Ethiopia offers the potential for near term production. Having acquired the project in August 2009 from Minerva Resources, which was working on it but ran out of funds, Nyota Minerals has a maiden inferred JORC resource of 690,000 oz of gold. This resource is contained in 13.5 million metric tons (mt) at a grade of 1.58 g/mt of gold.

The 30,000-m reverse circulation and diamond drilling program Nyota is undertaking is considered a low risk exercise because it covers soil geochemical anomalies of the same order of magnitude as those coincident with the first 600 m of the target already drilled.

Nyota’s goal is a 100,000-oz/y mine, and if an inferred resource of 1.5 million oz is achieved then such a project could be viable. Nyota CEO Melissa Sturgess hopes that a mine could be in production within three years.

Kipoi, Kotongo and Tulu Kapi are typical of the numerous projects that are reviving across the continent, projects where risk mitigation and early production are the priorities.

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