Zimbabwe, once regarded as a shining example of African economic potential, has suffered through almost a decade of steadily worsening economic woes under the administration of President Robert Mugabe. The country’s mining industry, formerly a backbone of its economic growth, has suffered as well, with investment in minerals exploration and mine development falling to insignificant levels. However, some positive signs of potential recovery in the country’s minerals sector have taken form recently.

The Chamber of Mines of Zimbabwe hosted its 71st AGM in late May, drawing 220 participants from Africa and Europe. Attendees included potential international and regional investors, local mining companies, equipment and service suppliers and the Southern African financial community; among those attending was Mugabe himself.

Although 2009 was yet another difficult year for Zimbabwean mining, there was some light in the darkness: Platinum and palladium production grew 25% to a combined total of 12,203 kg, gold also increased with an even higher percentage figure but from a rock bottom level of 3,579 to 4,966 kg. Nickel declined by 24% to 4,858 kg, ferrochrome was halved to 72 kt and chrome ore down 56% to 193.7 kt. Coal production was stable at 1.67 million mt. All of these figures compare poorly with levels achieved 15 years ago; e.g., more than 27 million mt of gold, 5 million mt of coal, almost 300 kt of ferrochrome and similarly proportionally higher figures for the other minerals.

There seems to be, however, a belief that from this low level of output, only growth is possible. Strong international demand for metals and attendant high metals prices from mid-2009 fuel this optimism, but there are also some positive indications within the country:

• The hyperinflation years are gone and the economy is stabilizing with the “dollarization” that took full effect from the beginning of 2010, when wages for mineworkers began to be paid in U.S. dollars.

• The marketing of gold was completely liberalized.

• The World Bank is assisting the Ministry of Mines in implementing a new mining title management system, which will be a modern system conforming to high international standards.

However, problems remain, such as: • Electrical power shortages that are severe, with only half of the installed power generating capacity operational.

• An acute lack of capital.

• The government’s introduction of an indigenization policy that initially demanded a 51% share of all mining companies to be in local hands—a demand that has since been moderated after potential investors reacted strongly in opposition.

• Government-controlled diamond operations at Marange have been accused of violating the Kimberley process, to which Zimbabwe is a voluntary signatory.

• A pending amendment to the Mines and Minerals Act including, among other changes, increased fees for mineral exploration rights. However, Zimbabwe’s Attorney General has declared such fees as set by the Ministry of Finance to be unlawful and the Ministry of Mines has not implemented the new fees.

The presence of the aging and frail Mugabe at the meeting seemed to indicate that the government has come to understand that the only path for economic growth right now is through its mining industry— which could take advantage of a strong global economic cycle but is functioning far below its capacity. The potential for quick growth is good provided some bottlenecks can be cleared, the most important of which is undoubtedly solving power supply problems. But it is not sure the so called “inclusive government” with a staunch ZANU PF supporter as the Minister of Mines and Mining Development will manage to use this window of opportunity to stimulate the mining sector and the overall economy.

The power shortage is being addressed by the government’s Medium Term Plan, an effort to be conducted in cooperation with the World Bank, African Development Bank and the IMF. However, there are no quick fixes; the entire plan will take more than five years to execute and requires $3.4 billion in fresh capital. Without the resolution of the country’s debt and external arrears it will be difficult to access this level of funding.

The initial reaction by the Zimbabwean government to accusations of violation by the regulator of the Kimberley Process was purely emotional: the government decided to withdraw the export permits of Murowa Diamonds, which had not been criticized by the Kimberley regulator, thereby shutting down an important export revenue source. However, observers believe the government is now taking steps to resolve this problem.

Somewhat surprisingly, many of the basic elements of this country’s once-thriving mining industry are intact, including:

• Highly prospective geology, particularly for PGMs, ferroalloys and gold.

• High-quality—by most African standards— infrastructure including roads, railways and telecommunications.

• Absence of serious corruption within or affecting the mining sector.

• An educated and experienced workforce at both the miner and managerial level.

But these positive factors must be bolstered by improved management of mineral rights, exploration and mining concessions, and the government must come to understand that there is fierce competition for exploration investment dollars.

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