‘Mining can attract US$12bn FDI’ | The Herald

‘Mining can attract US$12bn FDI’ | The Herald 10 March 2014

The mining sector has potential to attract US$12 billion in new investment over the next five years, but Zimbabwe’s high mining fees could scare off investors, a World Bank report on trade and competitiveness revealed. In contrast to the potential the sector has for attracting investment, mining companies require about US$5 billion for recapitalisation over five years.

The WB said the mining sector witnessed a 30 percent growth in the value of exports from 2000 to 2009 with a 150 percent jump in the exports recorded in 2010 before the growth rate subsided to 30 percent in 2012. However, the Breton Woods institution said the boom underestimates the potential of the sector to attract new investment into the existing projects.

“This amount (US$5 billion) is less than half the potential of absorption of new investment by existing projects (US$12 billion),” the WB said.
The WB said royalties have been increased substantially in recent years with various fees associated with exploration and exploitation, ranked among the highest in the world, seen as having potential to sterilise exploration.

“While most of these fees are bearable for an operating mine, they are not for exploration companies where no income is forthcoming. These fees scare off what little investment in exploration there is,” the WB said.

Royalties for gold have increased from 4,5 percent to 7 percent, diamonds 10 percent to 15 percent, platinum group metals 5 percent to 10 percent. Diamonds miners pay US$1 million application fees, PGMs US$500 000 registration and US$2,5 million application fees while coal, with 1 percent royalties pay US$500 000 application and US$500 000 registration fees.

Further, ground rental has been increased from zero to US$3 000 per hectare for diamonds, nil to US$ 1 000 for PGMs as well as for coal mining. A 15 percent levy has been introduced on exports of un-beneficiated PGMs as Government tries to encourage establishment of a precious metals refinery. This is designed to optimise returns from the export of minerals.

“However, international experience shows that using export taxes as an incentive to stimulate further value addition investment or beneficiation is a high risk strategy for which there are few successful stories,” the WB said.

The multi-lateral lender said private investors are the best informed sources for identifying potentially profitable mineral beneficiation projects because an export tax was a negative incentive since it reduces the investor’s profits.

In addition, the WB report cited the potential effect of the design of the country’s equity laws saying they could stunt mining exploration outside known the deposits and constrain capital flows to smaller lucrative ones.

In terms of the Indigenisation and Economic Empowerment Act, designed to bring marginalised black indigenous Zimbabweans into mainstream economy, locals should hold a minimum of 51 percent in all entities.

The WB, lack of large scale exploration activities implies that unknown mineral resources continue unexplored the true potential of the country says hidden.

It added that the last three decades have witnessed evolution in exploration technology with power geophysical and geochemical tools, technology which can only be accessible after allowing international investors.

Absence of sophisticated investors has stunted new exploration as no exploration licenses issued since 2005 despite a total of 319 applications.
As a result, companies make small claims of 1 hectare granted by rural district councils for six months as larger claims are granted by the President. Companies therefore get numerous claims and block them together, but given their short tern nature, it becomes risky to invest in serious exploration.

“To increase exploration and eventually discovery of new deposits, it will be particularly important that there are policies guaranteeing security of tenure for companies. As exploration is undertaken by junior companies, the ability to sell any discoveries to other companies appears central.”