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Trying Times Ahead for Zimbabwe's Mining Industry Finds Frost & Sullivan - After a decade of decline, Zimbabwe's mining industry output increased by 47.0 percent in 2010 finds Frost & Sullivan after recent analyst
Trying Times Ahead for Zimbabwe's Mining Industry Finds Frost & Sullivan

 

PRZOOM - /newswire/ - Cape Town, South Africa, 2011/04/11 - After a decade of decline, Zimbabwe's mining industry output increased by 47.0 percent in 2010 finds Frost & Sullivan after recent analyst.

   
 
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Key contributors to this growth included an increase in production output of the country's platinum, diamond, coal and ferrochrome industries. Growth was also supported by the resumption in production output of the country's gold mining industry in 2009.

"The introduction of multiple currencies has assisted most of the mining entities within the country to afford purchases of the required machinery, equipment and consumables to increase production output," says Frost & Sullivan's Automation and Electronics Industry Analyst, James Maposa. Between 2006 and 2008, restrictive foreign currency policies, foreign exchange shortages, a weakened Zimbabwean dollar and unprecedented hyperinflation were among the major factors that crippled growth and progression of Zimbabwe's mining sector. "The new foreign exchange policies legalising the use of multiple currencies have, therefore, benefitted the country by stabilising the economy and curtailing inflation," explains Maposa. Mining consumables such as fuel, chemicals, explosives and adhesives are now being imported from neighbouring South Africa with relative ease as a result of the new foreign exchange policies. Buoyed by this reform, Frost & Sullivan expects Zimbabwe's mining output to grow by a further 44.0 percent in 2011. Output growth will allow the country to benefit from the current rise in global demand and pricing of platinum, diamond and gold commodities.

For mining sector output growth to continue on an upward-trend beyond 2011, the Chairman of the Zimbabwe Chamber of Mines has stated that the industry needs to invest an estimated US$5.00 billion on upgrading and expanding production infrastructure. A capital outlay of this magnitude will return production output to pre-economic crisis levels. Between 2000 and 2008, mining sector expenditure had been reduced to critical maintenance spends as a result of declined industry earnings and foreign exchange restrictions that were enforced by Zimbabwe's Reserve Bank. A weakened Zimbabwean dollar and hyperinflationary pressures were among the other factors that reduced the industry's purchasing power. Maposa points out that political instability and prolonged electricity and fuel shortages further exacerbated the situation, causing current and potential investors to either divest or cancel any planned investment.

From a production perspective, Frost & Sullivan anticipates a restoration in investor confidence for Zimbabwe's mining industry. The new found confidence is a function of the double digit growth witnessed by the sector in 2010. "To continue the upward trend, mining companies with operations in Zimbabwe will call on investors to support this growth by recapitalising their current operations," says Maposa. The bulk of this investment will be spent on returning mines that had been placed under care-and-maintenance to production. A significant amount of capital will also be spent on exploration and development of reserves within existing mines with purpose of growing current production levels. Expenditure will also be channelled towards 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," believes Maposa.

Zimbabwe's mining industry's positive outlook will however be impacted by the government's indigenisation laws. Gazetted in 2007 with supporting regulations issued in February 2010, Zimbabwe's empowerment laws require all foreign-owned companies with a minimum issued share capital of US$0.5 million to localise ownership of at least 51.0 percent of these shareholdings. In March 2011, Zimbabwe's minister of indigenisation and economic empowerment tasked all internationally owned mining companies with operations in Zimbabwe to submit an indigenisation plan by the 9th of May 2011, and, if endorsed by the government, complete the divestiture of at least 51.0 percent of their issued shares to certain designated entities within six months.

"Reactions to this directive have been negative, with shares of Australian listed platinum mining companies with Zimbabwean operations, being sold off," explains Maposa. Aquarius' share price dropped 6.9 percent on the Australian stock exchange following the minister's announcement. Zimplats Holdings share price witnessed a similar trend, falling by 8.32 percent. With the government remaining adamant that it will not reconsider implementing the indigenisation programme, mining houses and investors may reduce their level of investment within the country. This will therefore result in Zimbabwe's mining industry being unable to attract the required US$5 billion investment. A review of these indigenisation laws should, therefore, be prioritised by the Zimbabwean government to sustain the industry's output growth.

If you are interested in more information on Zimbabwe's Mining Industry, please send an email with your contact details to Christie Cronje, Corporate Communications, at christie.cronje[.]frost.com.

About Frost & Sullivan
Frost & Sullivan (frost.com), the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents.

 
 
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Trying Times Ahead for Zimbabwe's Mining Industry Finds Frost & Sullivan

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