Mining to grow by 44% but could be derailed by indigenisation

Zimbabwe’s mining output could grow by 44 percent this year, a slight decline from last year’s 47 percent, and return to the pre-economic crisis levels if the sector receives an injection of $5 billion but this could be derailed by the indigenisation law announced last month, a study just released says.

The study by James Maposa an industry analyst with Frost and Sullivan says the growth in mining has been boosted by the introduction of multiple currencies which has enabled companies to purchases required machinery, equipment and consumables.

The growth will allow the country to benefit from the current rise in global demand and pricing of platinum, diamond and gold commodities. Maposa, however, says the Chamber of Mines says the sector needs an injection of $5 billion to continue its double digit growth.

It might, however, be difficult to raise that kind of money because investors have become nervous following the announcement of indigenisation laws on mining which require all foreign-owned mining companies to come up with plans on how they are going to sell equity to local entities by 10 May. The law says the companies must sell the equity by 25 September.

The announcement of the indigenisation law impacted negatively on mining companies listed overseas especially in Australia and Johannesburg, but mining analysts said this was more due to a misunderstanding of how indigenisation will be implemented.

Even President Mugabe has said that companies could be given credits. The greatest worry seems to have been centred on who the companies will sell their equity to and in most cases indigenisation has been equated with nationalisation.

The study by Frost was however optimistic because of the new confidence raised by the double digit growth in 2010.

Maposa says companies will seek investors to recapitalise their current operations. The bulk of this investment will be spent on returning mines that had been placed under care-and-maintenance to production.

A significant amount will be spent on exploration and development of reserves, upgrading existing infrastructure, replacing near obsolete technologies and assisting the country's power utility to ensure a constant energy supply for their operations.

"These investments are expected to create lucrative opportunities for regional industrial mining equipment and machinery suppliers as well as Asian importers," Maposa says.

Finance Minister Tendai Biti in his budget speech for 2011 lamented the paltry amounts government was getting from mining. He said in the nine months to September 2010 the government had only been paid $20.7 million in royalties out of the $593.8 million from the sale of precious metals.

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