Growing Anxiety over the Proposed Indigenisation of   Mines in Zimbabwe. What are the Implications?           Charles Shon...
Charles Shonayi                          Functional Expertise                                 Experience in market researc...
Agenda1   Overview of Zimbabwe’s Mining Industry2   Industry Challenges, Drivers and Restraints3   What are the opportunit...
Overview of Zimbabwe’s Mining IndustryIntroduction                                                                        ...
Overview of Zimbabwe’s Mining IndustryPlatinum                                                       Platinum Production O...
Overview of Zimbabwe’s Mining IndustryChrome                                                                              ...
Challenges, Drivers and RestraintsMarket Dynamics Analysis                                                                ...
What are the opportunities?Addressable Market Opportunities                                                               ...
What are the implications if foreign owned mining firmsare nationalised?                        Property Rights           ...
What are the implications if foreign owned mining firmsare nationalised?                       Contract Review            ...
Conclusion Project Finance and                                                Implementation                              ...
Next Steps Request a proposal for Growth Partnership Services or Growth Consulting Services to support you and your team t...
Your Feedback is Important to Us             What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive...
Follow Frost & Sullivan on Social Media Sites            http://www.facebook.com/FrostandSullivan             http://www.l...
For Additional Information  Christie Cronje                            Stephane Gay  Corporate Communications             ...
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Growing Anxiety over the Mines in Zimbabwe

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Growing Anxiety over the Mines in Zimbabwe

  1. 1. Growing Anxiety over the Proposed Indigenisation of Mines in Zimbabwe. What are the Implications? Charles Shonayi, Research Analyst Mining 11 May 2011
  2. 2. Charles Shonayi Functional Expertise Experience in market research and growth strategy consulting projects. Particular expertise in: - Qualitative and quantitative market analysis - Project Management - Writing and Presentation Industry Expertise Experience base covering broad range of sectors, leveraging long-standing working relationships with leading industry participants’ Senior Executives - Analysis of the South African HMI Market - Analysis of the South African Heat Exchangers Market - Production and Investment Trends in the East African Cement Industry - Sub- Saharan Mining Industry TrendsCharles ShonayiResearch Analyst What I bring to the Team Strong research and analytical skillsIndustrial Automation & Ability to focus and prioritize on the projectElectronics, Mining Career HighlightsFrost & Sullivan Joined Frost and Sullivan in August 2010Africa Economist with the Exchange Control and Economic Research Divisions of the Reserve Bank ofCape Town, South Africa Zimbabwe from 2002- 2007 Education BSc . Economics Hons f rom University of Zimbabwe (UZ). Master in Business Administration with Edinburgh Business School (UK) (In Progress) 2
  3. 3. Agenda1 Overview of Zimbabwe’s Mining Industry2 Industry Challenges, Drivers and Restraints3 What are the opportunities?4 What the Implications of the Indigenisation law if foreign owned firms are nationalised?5 Conclusions 3
  4. 4. Overview of Zimbabwe’s Mining IndustryIntroduction Gross Domestic Product by Economic Activity In 2010, Zimbabwe’s mining industry accounted for 4.7% of (Zimbabwe), 2010 the Gross Domestic Product (GDP) and contributed 46.0% of the country’s foreign currency earnings. Other , 14.7% Agriculture, 18.1%• Zimbabwe’s economy grew by 8.7% in 2010 and is forecast to grow by 9.3% in 2011. Services, 8.6% Mining, 4.7%• A key contributor to this growth is an increase in production Manufacturing, output of the country’s mining sector which recorded a Transport, 17.1% 17.7% 47.0% increase in production output in 2010 and is expected to grow by a further 44.0 % in 2011. Tourism, 12.7% Electricity, 5.7% Mineral Export Receipts by Sector (Zimbabwe), 2010 Construction, 0.7% Other Note: All figures are rounded; the base year is 2010. Source: Frost & Sullivan Minerals, 12.0% Mineral export receipts for 2010 amounted to $1.3 billion compared to $600.0 million in 2009. Chrome, 10.0% Source: Frost & The platinum and gold sectors accounted for 45.0% and Platinum, Diamonds, 45.0% 22.0% Sullivan respectively, of the export receipts in 2010. 11.0% • Going forward, Zimbabwe’s platinum, gold, chrome and coal mining sectors are anticipated to continue to play a Gold, 22.0% significant part in the economy’s turnaround between 2011 and 2015. Note: All figures are rounded; the base year is 2010. Source: Frost & Sullivan 4
  5. 5. Overview of Zimbabwe’s Mining IndustryPlatinum Platinum Production Output (Zimbabwe), 2004 -2010 Production Output (000 Ounces) Production Output Growth Rate (%)• In 2010, platinum production output increased sharply from Production Output Growth Rate (%) 300.0 275.0 50.0 Production Output (000 Tonnes) 146 700 ounces in 2004 to 275 000 ounces in 2010. 250.0 40.0• The increase in output was supported by the commission 200.0 187.5 30.0 into production of Phase 1 and Wedza Phase 5 at Zimplats 174.7 170.9 153.5 162.3 146.7 and Mimosa respectively. 150.0 20.0• Outline plans have been developed for Phase 2 and 3 100.0 10.0 expansion at Zimplats. 50.0 0.0• If these occur together with Wedza Phase 6 at Mimosa and 0.0 -10.0 production from Unki, Zimbabwe would become the third 2004 2005 2006 2007 2008 2009 2010 largest producer of platinum in the world. Year Gold Production Output (Zimbabwe), 2004 -2010Gold Production Output Tonnes) Production Output Growth Rate (%) Production Output Growth Rate (%) 25.0 23.75 150.0• Gold output stood at 9.6 tonnes in 2010 compared to 4,2 Production Output Tonnes tonnes in 2009. 20.0 100.0• Most of the country’s gold mines that closed at the height 15.17 15.0 50.0 of the political and economic crisis in 2008, have resumed 11.85 9.6 production. 10.0 7.98 0.0• The liberalisation of the marketing of gold has improved 5.0 3.70 4.20 -50.0 the business climate within the sector. 0.0 -100.0• The government anticipates gold production to increase to 2004 2005 2006 2007 2008 2009 2010 13 tonnes by 2011. Year Note: All figures are rounded; the base year is 2010. Source: Frost & Sullivan 5
  6. 6. Overview of Zimbabwe’s Mining IndustryChrome Chrome Production Output (Zimbabwe), 2004 -2010 Production Output (000 Tonnes) Production Output Growth Rate (%)• Approximately 12 per cent of the global high grade of Production Output Growth Rate (%) 500.0 140.0 450.0 Production Output (000 Tonnes) chrome reserves are found in Zimbabwe, but the country 450.0 120.0 400.0 100.0 ranks low in terms of output. 350.0 80.0• Chrome output increased from 201 000 tonnes in 2009 to 300.0 60.0 450,000 tonnes in 2010, owing to hoisting of production 250.0 222.0 194.0 202.0 190.0 201.0 40.0 200.0 155.0 capacity at Zimasco. 20.0 150.0• The beneficiation of chrome to produce ferrochrome 100.0 0.0 50.0 -20.0 following the recent ban on chrome ore exports is expected 0.0 -40.0 to boost exports. 2004 2005 2006 2007 2008 2009 2010 YearCoal Coal Production Output (Zimbabwe), 2004 -2010 Production Output (Million Tonnes) Production Output Growth Rate (%) Production Output Growth Rate (%)• Coal production output increased from 1.6 million tonnes 3.5 80.0 Production Output (000 Tonnes) 2.9 in 2009 to 2.6 million tonnes in 2010, representing a 38% 3.0 2.6 60.0 2.5 2.4 rise. 2.5 40.0 2.1• A boost in output is expected from the efficient use of 2.0 20.0 1.5 1.6 dragline and resumption of underground production at 1.5 0.0 Hwange Colliery. 1.0 -20.0• Hwange Colliery commissioned a new coal screening 0.5 -40.0 machine in 2010, and this boosted its monthly output by 0.0 -60.0 260,000 tonnes. 2004 2005 2006 2007 2008 2009 2010 Year Note: All figures are rounded; the base year is 2010. Source: Frost & Sullivan 6
  7. 7. Challenges, Drivers and RestraintsMarket Dynamics Analysis Key Industry Challenges (Zimbabwe), 2010 - 2015• Key industry challenges that are affecting Zimbabwe’s Power Supply mining industry include infrastructure constraints, political Constraints instability and uncertainty over the indigenisation law. Uncertainty Political over • Substantial upgrades to the road network and railway Uncertanity Indigenisation signaling system and investment in law locomotives, wagons and rail sidings are required to support the efficient movement of minerals. • Intermittent power supply challenges have resulted Railway Key in production stoppages in mines, smelter shutdowns Poor Road Capacity Industry Network and damage of heavy duty electrical equipment. Constraints Challenges • Lack of agreement by the government of national unity on key issues such as the indigenisation laws is negatively affecting the investment climate in the Market Drivers and Restraints (Zimbabwe), 2010 - 2015 economy• Key drivers expected to influence the growth and Increased progression of the Zimbabwean mining industry include the demand for burgeoning demand for mineral commodities from the rapid Abundant Limited raw Skill mineral Access to industrialisation and urbanisation of China and India. materials Shortage resources Capital from China• Factors that might inhibit growth of the Zimbabwe’s mining and India industry include technical skills shortage, limited access to capital and regulatory concerns Rising Promising Poor • At the height of the political and economic crisis economic Regulatory commodity Business skilled professionals left the country in search of recovery Concerns prices Conditions more lucrative compensation packages within the region and overseas. 7
  8. 8. What are the opportunities?Addressable Market Opportunities Recapitalisation Requirements by Mineral Sector• According to the government of Zimbabwe , the country’s (Zimbabwe), 2010 - 2015 mining industry requires approximately $5.0 billion to recapitalise existing mining infrastructure over the next five Sector Recapitalisation Requirement ($ Billion) years.• A significant amount of capitalisation is required to improve Gold 1.000 capacity utilisation by refurbishing processing plants equipment and machinery. Platinum 2.000• A sizeable portion of this expenditure will also be channelled Chrome 0.350 towards building new production facilities, particularly within the platinum , diamond and coal mineral sectors. Nickel 0.300• Over the past decade, the mining sector was largely Coal 0.500 characterised by lack of exploration and continuous mine development, particularly in the gold sector. Diamond 0.450• Potential for growth exists within the current operations and Others 0.400 from Greenfield investments. Source: MOF, Frost & Sullivan 8
  9. 9. What are the implications if foreign owned mining firmsare nationalised? Property Rights Economy • The ceding of 51% stake by foreign owned firms • The country’s national income, foreign exchange to locals entails relinquishing control over the earnings, government revenues, flow of enterprise and the sovereign rights to the investment and market access to fresh low cost minerals underground. funding might be negatively affected. • This is anticipated to result in the increased • The country’s ability to service its external debt perception that the country is a high risk might be compromised. investment destination. • This will trigger disinvestment from stocks of the • If private property and property rights are not affected foreign owned firms. observed it dissuades foreign investors. • It is anticipated that the country’s tentative and fragile economic recovery will be derailed. Production Socioeconomic Development Projects • Production output is anticipated to fall due to the • The Government of Zimbabwe has refused to government’s lack of capital and expertise to adopt a hybrid indigenisation model. successsfullly run the mines. An example would • For example, Zimplats has invested $163 million be state owned enterprises such as ZISCO. in community projects which include roads, • The government’s has limited ability to secure $5 housing for employees, clinics, electricity billion for recapitalisation. infrastructure. • Similar to the land reform, lack of exploration and • Companies such as Zimplats expect the continuous mine development will lead to government to take social investments into creation of shallow production assets. consideration during the renegotiations Source: Frost & Sullivan 9
  10. 10. What are the implications if foreign owned mining firmsare nationalised? Contract Review Jobs • Mining contract reviews for foreign owned firms • The mining sector is anticipated to lose jobs due are anticipated to lead to higher taxes and to viability problems in the ensuing years. royalties. • Programs to facilitate the transfer of knowledge • Mining companies are expected to release mining for local mining professionals through claims to the government. In May 2006, Zimplats apprenticeship or training will be hampered. released to the government part of its • Skills shortages are likely to result as skilled undeveloped mining claims. professionals migrate to higher paying countries. • Offshore foreign currency accounts especially for The government ‘s ability to retain highly skilled platinum producers are likely to be banned. These professionals is limited. ... were operated to give comfort to the lenders. Look East Policy Trade • In recent years, Zimbabwe’s Look East Policy has • Nationalisation of foreign owned mines might seen investments from new players, such as affect trade between Zimbabwe and other Chinese and Indian companies, but few projects countries. have been commissioned into production. • Bilateral Investment and Promotion and • Investments in Zimbabwe’s mining industry by Protection Agreements (BIPPAs) might be Chinese and Indian firms is expected to increase. violated during the takeover of firms. • When the land reform exercise was undertaken, property rights under BIPPAs were affected. Source: Frost & Sullivan 10
  11. 11. Conclusion Project Finance and Implementation Country Risk Quality of Institutions Capital Modalities• The availability of • Foreign investors • The government • The quality of capital in the local place a lot of value in needs to be institutions in market to finance the transparent in shaping Zimbabwe policy stability and the responsible for equity transfer deals is sanctity of contracts the discussion on economic limited. which is lacking in indigenisation. management,• The financial sector is • The implementation governance and policy Zimbabwe. struggling to survive in modalities are not are poor. the face of liquidity • Foreign companies very clear and are at problems resulting in considering investing the discretion of a short term lending at in Zimbabwe will need single ministry. exorbitant interest to gain a deeper • In particular, the rates which is not understanding of the clarity on how the sustainable. unique challenges sovereign wealth fund• Foreign capital is facing the country and will be administered. required to sustain assess risk investments in the comprehensively. mining sector which are long term and capital intensive in nature. Zimbabwe is unlikely to benefit from indigenisation or nationalisation of the foreign owned firms because of the observations cited above. 11
  12. 12. Next Steps Request a proposal for Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. (enquiries@frost.com) Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth taking place in South Africa on 25th August 2011. (http://gil-global.com/africa) Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news) 12
  13. 13. Your Feedback is Important to Us What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive Structure?Emerging Trends?Strategic Recommendations?Other? Rate this presentation via the ‘Rate This’ button on the top right-hand side of your screen. Frost & Sullivan’s Growth Consulting can assist with your growth strategies 13
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  15. 15. For Additional Information Christie Cronje Stephane Gay Corporate Communications Account Manager Africa Environment & Building Technologies +27 21 680 3566 +27 21 680 3279 christie.Cronje@Frost.com stephane.Gay@Frost.com David Winter Research Manager Mining +27 21 680 3275 david.winter@frost.com 15

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