Zimbabwe accelerates indigenization program

The Zimbabwe government has announced it is going ahead with its indigenization law, and foreign mining firms now have until Sept. 25 to sell a majority stake of their projects in the country to qualified locals.

While implementation was expected, companies had been hoping for a possible modification of the law and instead have been given only 45 days to submit plans to the government as to how they will divest a 51% interest to any of several state-owned or controlled entities, or an employee share ownership scheme. The details, published in
an official gazette, also stipulate
that the law covers any foreign mining company with a net asset value of more than US$1, compared with the previous threshold of US$500,000.

Further rattling investors, share valuation will take into account Zimbabwe’s “sovereign ownership of the minerals exploited or proposed to be exploited by the non-indigenous mining business concerned,” though ostensibly valuation will be calculated on a basis agreed by the minister in charge of indigenization and the foreign mining companies.

New Dawn Mining (ND-T), which owns the 15,000-oz.-gold-per-year Turk mine and several historic mines in three mining camps in Zimbabwe, saw its share price plunge on the news, dropping 37¢ or 23% over two days to $1.23 on 180,000 shares traded.

New Dawn stated that it is reviewing the new regulations to understand their potential impact but otherwise released no new details about the potential impact of the law.

Caledonia Mining (CAL-T), which owns the Blanket gold mine in Zimbabwe that it recently ramped up to a 40,000-oz.-per-year production rate, stayed largely flat at 13¢ on the news. Days later, the company stated in its
annual results that it continues to discuss with the government about the terms and timing of indigenization. Caledonia recorded $22.4 million in sales from its Blanket mine last year and $3.7 million in profit.

The latest hurdle for foreign investment comes only two years after New Dawn and Caledonia started to reinvest in the country and re-commissioned their mines after the government changed the gold export laws and started to stabilize the economy.

The indigenization law, however, was already in place when the companies returned to Zimbabwe, having been passed in 2008 with further work done in 2010 to advance it. But since details were still being worked out and had yet to be fully implemented, miners still had hope that the country would revise the 51% local ownership requirement in favour of something more modest like South Africa’s 26%.

New Dawn has in the past stated that there was a possibility that socially and economically desirable activities may alter the required percentage, but it is not entirely clear if they will have an effect.

While New Dawn and Caledonia operate on a relatively small scale, international majors like Anglo American (AAL-L), Impala Platinum (IMP-J) and Aquarius Platinum (AGP-L, AGP-A) have more substantial assets in the country. 

Impala, for one, has committed to a US$450-million investment in the country through its 87%-owned subsidiary Zimplats. The company states that it is confident its own proposals, which factor in previous agreements, will comply with the legislation while it is also preparing for a minimum 15% equity stake with local participants.

Adding further uncertainty to the law’s actual implementation, India’s Essar Group agreed to a US$750-million deal earlier in March to buy a 54% stake in Zimbabwe’s beleaguered Zisco Steel, in apparent contradiction of the new law. The Wall Street Journal also reports that Chinese firms, including diamond miners, are also exempt from the law as they are carrying out national projects and notes that the Chinese government recently pledged US$700 million in loans to Zimbabwe.