Zimbabwe: Govts Dithering On EPOs Suicidal – Mining Experts

PRESIDENT Robert Mugabe’s refusal to sign Exclusive Prospecting Orders (EPOs) will hamper growth and further reduce foreign currency inflows into the country, analysts and mining experts said.

They said Mugabe’s decision would damage the mining sector, one of the few sectors still accounting for the few receipts trickling into the foreign currency market and accounting for 4% of the country’s gross domestic product.
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International and local investors have over the past two years been scouring for fresh mining concessions in the country, particularly those with platinum, gold and diamond deposits.

Some established investors were also renewing their EPOs for concessions that they already hold.

EPOs are rights allocated to miners to explore possible mineral deposits.

The exploration stage is the initial stage of any mining activity, although a more expensive process of feasibility study always follows when a concession is established to be holding meaningful mineral deposits.

In 2003, 12 EPOs were either granted or renewed, with over 20 having been issued in 2004.

The EPOs apply to minerals such as gold, silver, platinum, palladium and many other metals.

Businessdigest understands that no fresh EPOs were granted in 2005 and 2006, throwing many potential investors into a quagmire of sorts.

Other mining companies have lost EPOs held over certain concessions after government had alleged these had been held for speculative purposes.

Last year, the Minister of Mines and Mining Development revoked 13 exclusive mining prospecting rights for three companies, including giants Rio Tinto and Anglo American.

The move was taken after central bank governor, Gideon Gono, urged the government to take action against under-utilised mining rights and claims.

Gono had alleged that the mining sector continued to under-perform because of “under-utilisation of some mining rights, where potential investors keep mining claims for years without tangible operational plans”.

“What is not appreciated is that the time between exploration and actual investment takes anything between five to 10 years,” a mining expert told businessdigest.

He said Rio Tinto, for example, had started exploration for diamonds in Zimbabwe in the early 1980s, but only commenced mining operations after 2000.

“Exploration which discovered all the platinum deposits in Zimbabwe commenced in the early 1970s, but production has only taken off recently. Exploration on the Hunters Road nickel deposits commenced in the 1980s, but up to now no production has taken place there,” the expert said.

Independent economic consultant, John Robertson, said the decision not to sign Exclusive Prospecting Orders would not only result in lack of investment, but mine closures.

“The delay in signing Exclusive Prospecting Orders will cut back on investment in the country. Investors will eventually look elsewhere if they realise that operations and decisions in the country are more political than for the good of the economy,” said Robertson.

Finance minister Herbert Murerwa said during presentation of his budget proposals for 2007 that lack of extensive recapitalisation at existing mines and investment in new mining exploration programmes had remained a major constraint to the growth of the sector.

“This has been compounded by disruptions to power supplies, coupled with rising mining production costs which affect viability. The spiralling cost of capital items, due to inflation, is being exacerbated by the rising parallel market exchange rates at which most imported items are priced,” Murerwa said.

Murerwa said the sector was being plagued by mineral leakages, especially that of gold and diamonds.

A government-proposed amendment to the country’s minerals laws is due to be tabled in parliament soon, and is envisaged to give historically disadvantaged persons and government a 51% stake in foreign and privately-owned mines.

A mining executive who spoke on condition of anonymity said Mugabe’s government was “shooting itself in the foot” as the decision not to sign EPOs would negatively affect mining output and investment in future.

“The mining industry is a capital-intensive industry and takes a long time before any profits can be realised. Most of the capital required in this industry is foreign currency which is not readily available in the country,” the executive said.

Zimbabwe’s mining industry has been contracting over the last six years.

The gold sector has been — affected the most, with production having fallen from a high of 29 tonnes per annum at its peak to the current 12 tonnes produced last year.

Copyright © 2007 Zimbabwe Independent.