Zimbabwe gold producers upbeat

Published: 28 May 2018

Zimbabwe gold producers say the yellow-metal subsector has potential to rake in millions of dollars in export receipts, but requires a lot of capital to recapitalise operations.

The southern African country, which is currently battling serious cash shortages due to a high import bill and low exports, resulting in most firms resorting to the parallel market to secure foreign currency for raw materials, is desperate to get hard currency to meet rising industry needs.

The country raked in $1 billion last year from the sale of 24 tonnes of gold, amid indications that production can be increased to 30 tonnes this year.

Zimbabwe has rich gold reserves totalling millions of tonnes but the resource remains largely under-exploited owing to various factors such as lack of capital and limited machinery.

New York Stock Exchange-listed firm Caledonia Mining Corporation (Caledonia) chief executive officer Steve Curtis said the coming in of a new political dispensation has presented more opportunities for investment in Zimbabwe.

"The operating environment and the investment climate in Zimbabwe continue to improve with government showing very pleasing levels of support of the mining industry, including the increase in the export credit incentive for gold producers.

"Zimbabwe gold sector offers exciting opportunities but is in need of significant capital investment," he said.

"In March, the government enacted legislation which completely removed the requirement for gold producers to implement indigenisation which has created the opportunity for Caledonia to potentially increase its stake in the Blanket Mine subject to agreement with our local partners."

Curtis noted that the resources firm has been encouraged by the level of support that the new leadership has shown for the mining sector and the Zimbabwean economy in general.

"We maintain our guidance of 55 000 to 59 000 ounces for the full year and earnings guidance of between 165 cents and 190 cents per share," he added.

President Emmerson Mnangagwa recently indicated that Zimbabwe is targeting to produce 100 tonnes of gold per annum in five years.

United Kingdom-headquartered Metallon Gold said it plans to grow output seven fold within the next two years to 70 000 tonnes per month after spending as much as $12 million to increase production capacity.

"We have invested in this plant from 2014 up to now. We believe the mining sector in Zimbabwe has a bright future and we are investing right now so that when things stabilise, we will reap the benefits," Metallon Gold Zimbabwe chief executive officer Ken Mekani said.

In February this year, Australia-based Prospect Resources agreed a deal to move into Zimbabwe's gold sector, while also receiving a strong investment support strategic investors, including Blumont of Singapore.

In one swoop, Prospect acquired a 70 percent stake in a Zimbabwe gold exploration company which owns 100 percent of one gold project and can mine a previously operating gold mine and raises $4.5 million with strategic investors.

The deal involves two projects that were historical producers of high-grade gold a mine. The first mine is located at Penhalonga in Manicaland province and used to produce about 185,000 ounces of gold at until closure in 1943.

Prospect will also be looking to revive Bushtick Gold Mine near Esigodini which produced around 470,000 ounces of gold until it was closed in 1950

The acquisition provides the opportunity to fast-track projects using historical data with potential to generate cash flows early.

Mines minister Winston Chitando said government is working on measures to ease foreign currency shortages and fund the gold sector.

"In the medium long term, the issue of foreign currency will mainly be addressed by increasing production. In the short term Government, through the Reserve Bank of Zimbabwe, is working on establishing lines of credit which can enable the mining sector to jump start their production, upscale their level of mining activity. This will provide necessary working capital," he said.

- The Financial Gazette

Tags: Gold,