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Zimbabwe's Mining Sector in 2017: Through the Looking Glass

1-Gold will continue to do well. The country is likely to breach 20 tonnes once again as the RBZ continues its drive to mop up ASM gold through increased monitoring and improving market access (‘ no questions asked’ policy). There might not be a significant increase in gold deliveries if the liquidity crisis does not ease. Deliveries are likely to plateau- discouraged by failure of FPR to pay hard currency but evened off by miners who may still want some of the 5% export incentive. Alluvial gold mining in Gache Gache by Zimbabwe Diamond Mining Company might result in a significant increase. Either way, gold is the one to watch.

2-Platinum is also likely to keep doing well. The major companies- Unki, Mimosa and Zimplats are established companies and have expansion plans. Barring a huge fall in commodity prices (one that cannot be shored up by increasing production, as previously done), the sector will continue to do well.

3-The Mines and Minerals Amendment Bill- It is likely that Parliament might fail to pass the Bill in its current form in 2017. This would follow the trend- with Parliament expressing concern around the Minerals Exploration and Marketing Corporation Bill (gazetted in December 2015 and still to be passed). If Mines Amendment Bill gets to the 3rd Quarter without much movement, it is likely it might be shelved. Legal reform and policy making often gets significantly gridlocked towards elections. The Bill might be potentially fast-tracked id re-engagement of IFIs is brought back on track. This might also see some reforms, however minor, on diamond mining.

4-A new mining fiscal regime- after much talk- this might eventually see light of day towards the end of 2017. It might have some rationalization on taxes and fees. It might result in government take increasing. It is difficult to imagine what this might look like as there has been very little information given out by the Minister of Finance and Economic Development on this thus far. What is beyond doubt is that- it is highly unlikely that it would result in the reduction of the effective tax rate of mining companies. Government needs money.
5-Value addition and beneficiation- There might not be much movement here particularly in the platinum sector. The government of Zimbabwe does not have a well thought out value addition and beneficiation strategy that includes analysis of feed-stocks, infrastructure capacity and markets. What the government has is the threat of the 15% export tax on exports of raw platinum. This tax has been deferred to 2018. The platinum mining companies will do just enough to demonstrate that beneficiation is still on their agenda while advocating for further deferments of the tax come November/December 2017 when the National Budget is presented. This could include completion of a small smelter at Unki Mines for example.

6-Diamonds- The new consolidated company, the Zimbabwe Consolidated Diamond Mining Company, will not do much. Dogged by the legal battles (which are unlikely to be resolved in 2017) surrounding the consolidation, it is unlikely that there will be improved production. There should be considerable monitoring of the company though. Everyone says there is nothing coming from the diamond fields and attention has shifted when it should not. However, ZCDC simply cannot attract the much needed investment in the sector. It is blighted by the legal and contractual disputes. There might be some compromise- the government might ease its stance or make some major concessions on consolidation in desperation to get Marange ticking again.

7-Exploration- there are unlikely to be any significant new projects besides some very minimum movement on the Russia-Zimbabwe Great Dyke Platinum project, coal bed methane and lithium. The macro-economic conditions have not improved and are unlikely to improve during the course of 2017. There are no incentives for exploration. Government’s intended expropriation of land belonging to Zimplats will only serve to reinforce anxiety around property rights in the sector.

8-Transparency and accountability- listed companies will continue to make significant disclosure- through their integrated annual reports and management updates. Where transparency is needed most-bar the issues around tax and illicit financial flows- is with respect to State owned enterprises. Nothing will change. What may be continuously held up as addressing transparency and accountability is the proposed consolidation of diamond mining companies and the establishment of a new mining fiscal regime. I also do not see the mining cadastre coming online in 2017.

9-State owned enterprises/JVs- the Zimbabwe Mining Development Corporation, the Minerals Marketing Corporation of Zimbabwe, Hwange Colliery and the Zimbabwe Consolidated Diamond Mining Company will continue to be financial sink-holes due to poor management and under-capitalization.
Sovereign Wealth Fund- this is not going to be operational. It is supposed to be funded by a percentage drawn from mining royalties. It is hard to imagine that it is a priority when the government can barely meet its wage obligations. The 2016 National Budget allocated $500 000 to kick start the operations of the Fund and a Board was subsequently put in place. But there has not been any news with respect to this. Frankly, from government's perspective and in the scheme of things- the SWF is just a 'nice to have'.

10-Indigenization and Economic Empowerment- Ambiguity around this will persist. The Presidential Statement clarifying the implementation framework of this law was not conclusive. If the re-engagement of IFIs fails to get back on track and is totally abandoned then rhetoric around ownership and indigenization might pick up again during the course of the year.

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