Zimbabwe platinum poised for lift-off

Zimbabwe platinum poised for lift-off

[miningmx.com] -- ZIMBABWE’S emerging platinum sector appears to be on the verge of a boom, following Impala Platinum’s (Implats’) decision to invest $500m in the second phase expansion of its Ngezi mine.

At the same time, Anglo Platinum (AngloPlat) is pushing ahead with development of the Unki mine. Mining operations have started and ore is being stockpiled ahead of commissioning of the concentrator plant, scheduled for the fourth quarter of 2010.

The decision by Implats to go for the second phase expansion at Ngezi is hugely significant - yet Implats appears to have done its best to downplay the news.

The announcement was tucked away near the end of a third-quarter trading update, published by Implats on the JSE’s Stock Exchange News Service (Sens) on May 17.

As a result it was missed at the time by many observers, including Miningmx. It received minimal publicity, despite the fact that this will make Implats - which will plough in more than $1bn in total - by the far the largest investor in Zimbabwe.

The decision is controversial given the political, social and economic problems in the country and because Implats still does not have everything nailed down in terms of Zimbabwe’s indigenisation legislation.

This demands that 51% of all businesses in the country be placed in Zimbabwean hands, although there are a range of offset allowances - such as investment in infrastructure - which will reduce that equity requirement.

Implats reckons that its equity requirements should be in the 15% to 26% range, once the offsets it is claiming are allowed.

Implats said it was going ahead with the project “based on existing agreements with the government of Zimbabwe, and despite the fact that discussions are still ongoing on certain key issues”.

Implats added the $500m would be funded by “a combination of internally-generated cash resources and a bank loan. The funding arrangements have not yet been finalised and government project approvals are still outstanding.”

When Implats released its interim results in February, CEO David Brownsounded iffy on what would happen next concerning 87% held subsidiary Zimplats, which owns the Ngezi mine.

He said: “We have a wonderful opportunity where we would like to expand sooner rather than later - but we have to balance that outlook against the real fears of our shareholders so that all are comfortable with the decision on when to proceed.”

Asked why Implats was now going ahead, Brown told Miningmx: “We are working on the basis that we have agreements in place with the Zimbabwe government that will be honoured, and the outstanding issues can be resolved in terms of those agreements.

“Clearly, if the Zimbabwe government reneged on those agreements we would react accordingly but, in the absence of anything contrary, we are going ahead.”

Brown added that Implats will only start to spend large amounts on capital expenditure for the phase two expansion after August, when orders for major items like mills will have to be placed.

The great attraction of Zimbabwe to Implats is that it could, over time, expand its operations there to a production capacity of about 1 million ounces per year of platinum.

That would match existing production from its core Rustenburg mines, but at far lower operating costs. This is because the Zimplats operations are shallow and mechanised, compared with the deep-level, labour-intensive South African mines.

According to a platinum industry source, Implats has no option but to expand in Zimbabwe. The group faces severe restrictions on expansion in South Africa as well as the high capital and working costs involved in sinking more deep-level shafts at Rustenburg.

What’s more, the existing Zimbabwean operations at Zimplats and Mimosa –a 50/50 joint venture between Implats and Aquarius Platinum – have consistently remained among the best-performing divisions at Implats, despite the economic and social meltdown that has taken place in the country.

The main reasons for that lie in the nature of the assets, plus the well-educated workforce and excellent local management.

There are two other potential platinum mines that could be developed in the short term in Zimbabwe.

These are owned by heavyweight resource group Eurasian Natural Resources Corporation (ENRC) and unlisted Kameni. However, the precise status of these projects is not clear.

ENRC bought control of Central African Mining and Exploration (Camec) in late 2009, mainly for its copper and cobalt interests in the Democratic Republic of Congo. Camec also owned mineral rights that used to form part of AngloPlat’s Unki project. The company announced in September 2009 that it was about to be awarded a mining licence, and that it would start immediate construction of a platinum mine at a cost of about $250m.

But since ENRC took over Camec, the Zimbabwe platinum project has vanished from the radar screen. The ENRC 2009 preliminary results statement mentions it as one of a number of development prospects in the non-ferrous division.

An ENRC spokesperson said: “There is no significant update at this time.”

Kameni was launched in November 2008 by entrepreneur Loucas Pouroulis . It was supposed to be listed on the JSE by March 2010, and controls platinum projects in South Africa and Zimbabwe.

The Zimbabwe project – called Bougai – also used to be part of AngloPlat’s Unki project and is located right next to the ENRC ground.

Former Kameni CEO Stephen Gorven said in November 2008: “We’ve had a legal due diligence done on the validity of the claims, and our acquisition at Bougai is squeaky clean.”

But, again, little appears to be happening in terms of development of a mine there.

There is speculation in the market over a dispute between Kameni and ENRC about ownership of the rights which, it is alleged, overlap.

Pouroulis commented, "there’s no problem whatsoever between us and ENRC.

“We have been in consultations and discussions with the Zimbabwe government. We will soon announce a favourable outcome on the confirmation of our mineral rights.”