Zimbabwe Mining & Energy Review Q2 2016 by PRIME MEDIA AFRICA

MININ ZIMBABWE

ISSUE 2, 2016

& ENERGY REVIEW

magazine

US$3.50 INCL VAT

Zimbabwe’s Platinum Production Spurs South Africa’s Platinum Output! 1

CONTENTS Editor’s Note

Zimbabwe’s platinum firms spur South Africa’s platinum output growth 8 Zimbabwe Power Company increases supply

Zimbabwe’s unanswered $15 billion diamonds question 24 Hwange Colliery’s ambitious dream turnaround

Service at the heart of business at Service Machinery & Trucks’ 40 Zimbabwe could witness significant growth in the next four years 48

32 40 ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 1, 2016

From the

EDITOR

et me start with this opener- The Zimbabwe Media and Information Commission has approved the application by Prime Media Africa Publishing Group {Prime Media Network} to operate a mass media business in Zimbabwe. We are very much excited at this recognition and our objective is to improve on what media outlets and products are available in the country. It takes a lot of courage and muscle to make a statement regarding nation building, I want to believe. This initiative is not, and should not be limited to politics. In business, we will definitely be playing our part in our space towards this noble ideal. I did not have the privilege to attending the last Mining Conference in 2014 but a lot of guys from the industry had a lot to say. For instance Minister Chidhakwa who was the guest of honour at the Indaba, which was running under the theme Mining: A catalyst of Infrastructure development in Africa said, “This conference has come at a time when the mining sector is experiencing a transformation. We intend to open up old mines and build new ones. It is our plan to adopt new employment intensive mining methods so that we contribute to employment creation. Even more important for us is that we empower our people through the resources we have. The sector is projected to grow by an average 9.7% in 2014. Its contribution to the country’s GDP has seen a phenomenal rise from about 4% in the 1990s to 16% in 2013 and a projected 17% in 2014. He added on to say “The largest contribution of mining to the economy does not come from the actual mining, but from upstream and downstream industries that feed into and out of the process”. Encouraging words indeed! Over 18 months later, the call still remains that in an economy such as ours, beneficiation in the mining and related fields is always a “game changer” in the medium to long term assessment towards job creation and economic growth. Imagine the gains downstream through beneficiation! From the fashion industry, the medical field and such related industries, the benefits will be felt far and even wider across our economy. As the authorities work towards establishing a winning course as far as empowerment and affirmative action policy goes, I am sure much consideration will be given to beneficiation. Zimbabwe, a country known for its rich deposits of platinum, second only to South Africa, continues to play a significant role in the sector. Our platinum is contributing to South Africa’s output of the mineral in a massive way, but how much are we benefiting in turn? Our other article on efforts to turn around operation at Hwange makes an interesting read as well. Look out for the coming edition, exploring the energy matrix in the country and if enough collaboration between government and industry is helping the market. Till next time,

Grivin

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ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

ZIM PLATINUM FIRMS spur SA platinum output growth OWN CORRESPONDENT

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

trong platinum output flows from Zimbabwean platinum firms are helping to drive production figures for two global platinum producers - Impala Platinum and Anglo – American Platinum on the back of increased milling and release of stockpiled concentrates in the first quarter of 2016. South Africa’s Impala Platinum posted a 17 percent rise in production in the quarter to the end of March following a 71percent rise in output at its Zimbabwe based unit Zimplats. In a statement, the company said Zimplats output rose by 71 percent to 89 000 ounces (oz) for the quarter ended March 31 this year up from 52 000oz in the prior comparable period. This provided a fillip on Impala Platinum which sought to stabilize production for the period after a fire disrupted its Rustenburg operation. Implats’ output shed 1000 ounces to 142 000 ounces compared to 143 000 ounces in the same period last year. However, the tonnage milled declined to two million tonnes from 2,5 million tonnes the year before at a time when production at Rustenburg is likely to decline this quarter. The commencement of an open-pit operation at Zimplats has helped to compensate for the loss of production at the Bimha mine, which is being redeveloped because of concerns about the stability of its ground and tunnels. The SA –based platinum giant says it expects to produce 1, 42 million refined platinum ounces compared to 1,276 million ounces last year. Implats output figures also went up thanks to increased output at Mimosa which saw its production figures rising by 8,7 percent to 676 000 tonnes from 622 000 tonnes recorded in the quarter ended 31 March 2015 as additional material was milled from the stockpile. Platinum in concentrate production for the quarter increased as a result of the increased mill throughput to 28 000 ounces in the quarter ended 31 March 2015. Tonnes milled during the nine-month period ended 31 March 2016 increased 3,3 percent to 1,99 million tonnes, compared to 1,92 million tonnes in the corresponding prior period. The increased throughput resulted in 2,3 percent higher platinum in concen-

Analysts say the major drawback for the sector has been the indigenization law, which they say was still ‘incoherent and opaque. trate production of 90 000 platinum ounces compared to 88 000 platinum ounces in the prior comparable period. “The higher throughput was directly attributable to the measures implemented to recover production loses as a result of the safety closure of the Bimha Mine in August 2014,” reported Implats. Platinum in matte for the nine months ended March 31, 2016 was 42 percent higher at 220 000oz, compared to 155 000oz in the prior comparable period. Implats has an 87 percent stake in Zimplats, as well as 50-50 joint venture with Aquarius Platinum in another Zimbabwe-based platinum producer, Mimosa Platinum Mine. Zimplats and Mimosa contributed nearly 120 000 ounces to Implats production figures for the first quarter despite a difficult macro – economic environment in Zimbabwe. ANGLO American Platinum registered a 7% increase in platinum production to 381 000 ounces in the first quarter ended March 31, 2016 due to an increase in output at its three mines including Zimbabwean based Unki. An increase to 357 000 ounce was at-

tributed to higher production from Unki, Amandelbult and Mogalakwena mines. “For the full basket of metals we produce, there was a 30% decline in prices in 2015, from $2 215 to $1 555, with the drop being more acute in the second half when the basket price fell 19%. Platinum and palladium prices specifically fell 28% and 30% respectively in 2015, with a 19% decline in the platinum price in the second half, down from $1 212 at the beginning of the year to $876 by year end,” independent non-executive chairman Mohamed Valli Moosa was quoted saying at an annual general meeting of Anglo American Platinum Limited which was held recently. “While palladium prices declined 14% on average from $803 in 2014 to $717 in 2015, the depreciation of the rand during the year did not offset the decline in commodity prices, and the underlying factors behind the decline have continued into 2016.” Production from Unki increased by 14% to 19 000 ounces due to improved running time of the concentrators and increased head grade and was the second highest after Amadelbult, which had an increase of 33% to 111 000, while Mogalakwena increased 7% to 109 000. Zimbabwe’s mining sector is still reeling from numerous constraints such as high power tarrifs, labour costs, interest rates and falling global commodity prices. Analysts say the major drawback for the sector has been the indigenization law, which they say was still ‘incoherent and opaque.” Zimbabwean platinum mines are still seized with negotiating with the government over the implementation of the controversial indigenization laws. The companies are pressing to secure

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

a more conducive regulatory and fiscal framework for the mining industry in the country. Zimbabwe’s three major platinum producers - Zimplats, Mimosa and Unki operated at full capacity in 2015 despite the constraints. Zimbabwe supplies 6% of global refined production, the same as North America while South Africa is the largest at 73% followed by Russia at 12%. The value of platinum production fell 23% in 2015 at $381 million from $495 million according to the Chamber of Mines. Platinum prices declined by around 24% in 2015 to $1 053/oz.

Worldwide, WPIC is forecasting a deficit of 135 koz in 2016, a 1% contraction in refined production over the course of 2016. Supply from South Africa is expected to decline by 2% over the year due to disruptions related to wage negotiations and safety stoppages. However recycling supply is forecast to rebound by 14% in 2016, compared to the 15% contraction in 2015. In its Zimbabwe Monthly Economic Review, the African Development Bank (AfDB) urged local platinum firms to increase their production capacities and take advantage of the present gap in global platinum supply.

The regional finance body said Zimbabwean firms should seize the opportunity to boost production following prospects for increased platinum demand this year on the back of weakening global supply. “In 2015 total global demand for platinum is predicted to increase, led by a growth in industrial demand of 9 percent. However, the global platinum market is expected to remain in deficit at 235 k ounces (koz) in 2015.” “This provides opportunity for Zimbabwe platinum mining firms to capitalise on the persistent deficit in the global market and increase production through expansion projects since demand is outweighing supply,” the pan African development bank said.

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

In 2015 total global demand for platinum is predicted to increase, led by a growth in industrial demand of 9 percent. However, the global platinum market is expected to remain in deficit at 235 k ounces (koz) in 2015. Overall the global platinum market ended year 2015 in deficit by 380 koz (2014: 725 koz) after demand in the automotive industry grew by 5 percent reaching 3,455 koz, up from 3,290 koz in 2014 and 3,160 koz in 2013. Platinum market watchers say demand growth in 2015 was led by Western Europe vehicle sales growth, up 9% year-on- year, where the imposition of the new Euro 6 leg-

islation also increased platinum loading per car. They also said automotive demand from India, also grew by 9%. Global investment demand increased by 110 koz over the year (73%), with a global fall in ETF holdings eclipsed by a surge in demand for bars and coins, particularly in Japan which experienced record buying in the final quarter.

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Platinum outlook prospects for Zimbabwe are bright as Zimplatsâ&#x20AC;&#x2122;s $460 million expansion project which is underway may help boost platinum output in the near future. But incoherent investment and indigenization policies, moves to re-introduce the Zimbabwe bond notes, the whirlpool of corruption and the fierce succession battle, may dent the prospects.

POWERTEL REVITALIZES ITS CORPORATE BUSINESS WITH PROFESSIONAL SERVICES OUR CORRESPONDENT

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 1, 2016

Company Profile

owertel Communications, one of Zimbabwe’s largest Internet Access Provider (IAP) in the country, has moved to revitalize its corporate business products through the introduction of Professional (Managed) services. These services include Domain and Email hosting, LAN installations and LAN audits and Maintenance. The corporate has moved to providing professional (managed) services in response to changing market dictates as the market now rates service providers based on services offered and not just the ability to provide access or connectivity solution. In the recent years due to economic pressures affecting viability, companies have resorted to cost-cutting and downsizing measures, some which have affected their internal ICT support functions. This has seen the rise in outsourcing these services, with a one-stop shop provider being the ideal. Furthermore, the prevalence and growth of SME sector, some who prefer not to set up internal IT support, has seen the rise in demand for the one-stop-shop facility. The Powertel corporate business portfolio includes the following:○ Corporate Internet ○ Virtual Private Networking ○ Carrier (also known as the Carrier of Carriers) The above products have become a basic standard offered by most IAPs in Zimbabwe. The differentiating factor has become the services offered to support these products, with speed, reliability, quality of service and contention levels being determining factors on superiority in the provision of the products. The Pow-

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 1, 2016

Given that the Zimbabwe internet penetration rate is estimated to be now at 48.1% as of Q4 2015, there is greater window of opportunity for internet business now and into the future ertel brand has been synonymous with reliability, speed and dedicated service offering better quality of services to the market. For over 15 years now, Powertel has dominated in the provision of internet and connectivity solutions for business, education and recently for SMEs Sector. As the battle for dominance in the IAP sector continues, Powertel has set its sights on expansion and growth of its infrastructure, smart partnerships as well as utilisation of existent synergies within the ZESA Holdings and ICT sectors to strengthen their dominance. Overall, the IAP sector is predicted to grow driven by increased demand for data and internet by local consumers prompting local operators to increase their capacities for international bandwidth. This comes on the back of positive performance of the IAP sector in terms of revenue growth and investment as reported by the industry regulator- Potraz in the Q3 & Q4 of 2015 Sector Performance reports. In 2015, Powertel increased its backhaul to STM64 and also upgraded its capacities for the Harare- Plumtree and Harare- Mutare routes. The value added premise is that with bigger capacity comes better performance, improved services and more choices. Given that the Zimbabwe internet penetration rate is estimated to be now at 48.1% as of Q4 2015, there is greater window of opportunity for internet business now and into the future.

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 1, 2016

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ZIMBABWE POWER COMPANY

to increase coal supply at its Hwange thermal power station OUR CORRESPONDENT

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

his is in preparation to boost power generation from the current 484MW to 700MW for the anticipated high demand during the winter period, reports the Herald.

ZPC builds stock levels

Joshua Chirikutsi, general manager at Hwange thermal power station said the coal deliveries will enable ZPC to build stock levels from just over 200,000 tonnes to approximately 300,000 tonnes. Local media reported that for its normal consumption, the thermal power station requires a minimum of 115,000 tonnes from each of its two major suppliers - Hwange Colliery Company and Makomo Resources. In efforts to build sufficient stock ahead of the winter months, it is expected that ZPC will also engage smaller suppliers including Coal Zim and Coal Brick to double their deliveries to Hwange thermal power station from about 10,000 tonnes per month to around 20,000 tonnes. However, Chirikutsi noted that working capital challenges had seen the major suppliers delivering only about 100,000 tonnes per month instead of the required 150,000 tonnes to build the stocks amounting to 300,000 tonnes.

Hwange thermal power station – aging equipment

Chirikutsi added that the thermal power station would be servicing its power generators with all six units to be refurbished before the beginning of the winter period. Hwange thermal power station has an installed capacity of 920MW; but due to aging equipment, the plant can only produce to a maximum of 700MW. The media also reported that power production is currently averaging 1,100MW against peak period demand for power of 2,200MW. The deficit is now being balanced through imports from the regional utilities. Last week, state utility, ZESA Holdings generation unit's board of directors visited Hwange thermal power plant to understand the operations and challenges the station is faced with. “We are here as the board to familiarise ourselves with the operations and challenges the station is facing especially as they seek to increase production ahead of the winter period,” ZPC board chairman Stanley Kazhanje said. ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

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hen Zimbabwe President Robert Mugabe during his televised 92nd birthday choked with emotion and spoke about the $15 billion which was squirreled away from the country’s Marange diamond fields, it sowed seeds of ill –feelings among people and sparked a wave of mockery online and the social media. The faces of his critics pixillated as they were not only left pawing at thin air but suffering sharp, hurtful punches from the revelations. The shocking revelations about the siphoning of $15 billion has tainted Mugabe’s government and a fragile economy desperate for cash. Mugabe’s government later promised to launch a probe into disappearance of $15 billion. His unsparing critics found this brutal to withstand and hurled all sorts of criticism on his administration. They were highly skeptical about its prospects of success. They said the government was chasing the wrong culprit in a bid to cover up the massive diamond money hemorrhaging by the ruling elite in the Marange diamond fields for more than a decade. Speaking on his televised 92nd birthday, Mugabe said his government had not received meaningful returns from the Chiadzwa diamond fields and that private companies mining there robbed the state. He said less than $2 billion was remitted from diamond proceeds and those seconded by government to work with the private companies did not help matters as they failed to account for the gems. “We have not received much from the diamond industry at all,” he said. “Not much by way of earnings. I don’t think we have exceeded $2 billion or so and yet we think that well over 15 or more billion dollars have been earned in that area. So where have our gold or carats have been going – the gems and there has been quite a lot of secrecy in handling them and we have been blinded ourselves,” he said. “That is our people who we expected to be our eyes and ears have not been able to see or hear what was going on and lots of swindling, smuggling have taken place and companies that have been mining vir-

tually, I want to say, robbed us our wealth and that is why we have decided that this area should be a monopoly area and only the state should be able to do the mining in that area.” Battered by sanctions and its economy on its knees, the 2006 revelations of the existence huge diamond deposits at Marange gave Zimbabwe hope. Then mines minister Obert Mpofu even boasted that the country would never, again, need to beg for financial assistance. But after a decade now, the alluvial diamonds are reportedly exhausted and government struggles to pay its employees, the economy is deep in the mire and unemployment is estimated at more than 90 percent. The looting of $15 billion angered Zimbabweans and locked them into entrenched positions on the diamonds debate. Zimbabwe’s government still struggles to provide reliable basic services to the majority of its citizens, trapping hundreds of millions of them in poverty. Civil servants are not being paid on time, cash shortages have compounded issues while moves to introduce bond notes have not bode well for the country’s recovery prospects. Corruption, opaque mining deals, abuse of communities displaced from the diamond mining fields and failure to implement access-benefit-sharing schemes has rattled the donor community and the country, with inflicted political wounds unlikely to be forgotten soon. The looting of the $15 billion tore through the heart of most Zimbabweans who are struggling to survive the harsh economic environment characterised by poor access to basic services, cash, jobs, food and human rights. The dismal shame of poverty, suffering, human degradation and the persistent shadow of despair emerged recently when Darlington Muyambwa, a Zimbabwe Environmental Law Association activist led a discussion titled: “People, Planet, Profits – Mining in Zimbabwe’s Extractive Mining Industry.” He said it was critical for the Zimbabwean government to ensure transparency and accountability were upheld in the ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

Zimbabweâ&#x20AC;&#x2122;s unanswered

$15 BILION DIAMOND QUESTION

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

Not much by way of earnings. I don’t think we have exceeded $2 billion or so and yet we think that well over 15 or more billion dollars have been earned in that area. So where have our gold or carats have been going – the gems and there has been quite a lot of secrecy in handling them and we have been blinded ourselves

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

mining sector by making sure all companies report all payments being made by extractive companies to it, as well as all payments the Government has received from these companies. Muyambwa told participants at a US Public Affairs dialogue meeting on promoting transparency and accountability in the extractive sector that improved transparency and accountability should be upheld to ensure the country and its people benefit from mining proceeds. “In Zimbabwe we have a very secretive and opaque mining sector policy,” he said. “A sector where we are earning so much and yet there is very little reaching the majority of the people in this country. “The mining of diamonds in the Marange fields has left many communities there worse off. People have been displaced, their environment has been polluted, their cattle are dying from drinking water from polluted rivers and there are no visible benefits in terms of schools, roads, hospitals and other critical infrastructure.” He said the looting of the $15 billion should ring alarm bells in Mugabe’s administration over the prospect that the resource conflict could spiral into a full – blown one, spawning divisions, abuse of human rights and turning it into a non-inclusive development state. The ZELA activist said there was need to balance the needs of the ‘People, Planet and Profits’ (triple P’s) to ensure the sustainable extraction of resources. “The extractive industry has a huge appetite for destroying the environment and we need this sector to carry out its activities in a way that minimizes its harm to the environment and in a way that benefits local communities through job creation, health and education facilities and other livelihoods programmes,” he said. “In Botswana, South Africa and Zambia, the extractive industry has some positive sides and you can see how resources are managed in a way that benefits the people and the country. Here we have a different scenario. “We need to think more around the environment and community rights to achieve our Sustainable Development Goals through the balancing of the interest of the planet, of the people and the interest of mining companies.”

Muyambwa said government revenue and company payments should be disclosed together with other information about the extractive sector. “The importance of this process for Zimbabwe cannot be overemphasized,” he said. “The country needs to know the revenue mining companies are paying to government, as well as any other information on the sector. Otherwise, if government is not willing to disclose the revenue they are receiving from mining companies, then the question is: who is benefitting from this secrecy? “It is important to note that information that should be disclosed should cover the whole value chain of mining, which includes contacts and licences, production, revenue collection, and social and economic contribution of the sector.” Any findings, the Zela activist said, should be communicated to create public awareness and debate about how the country should manage its resources. “Progress and development is nested in a country’s ability to promote multi-stakeholder engagement, public debate and the flourishing of ideas,” Muyambwa said.

“There is a need to break from a culture that believes government leaders have a monopoly on ideas. “ Zela runs the Publish What You Pay chapter that advocates transparency in mining revenue and has over the years engaged the government, local communities and mining companies to push for the disclosure of information about mining contracts and revenue. It also engaged the government to adopt the Extractive International Transparency Initiative (EITI) to promote transparency and accountability in the extractive sector but no real and meaningful progress has been made by the government on these initiatives. The initiatives stiff political resistance casting serious doubts about government’s commitment to public transparency and accountability on mineral revenues. Up to now, no figures have been given for diamonds in Marange despite the fact that government owns no less than 50% stake in all the five companies operating in Marange. The only significant disclosure on Marange diamonds was that there should be

transition from alluvial to conglomerate diamond mining.” Despite, the shroud of secrecy over the Marange field diamonds, there is a glimmer of hope on Zimbabwe’s platinum mining which are publishing their company results and contributing immensely to the development towns and rural communities in the central part of the country. The companies have built schools, roads, houses and other infrastructure as well as supporting the livelihood programmes in the local communities. The companies have also generated revenue earnings for the country, helping to shed Zimbabwe’s ‘bad guy’ image in the extractive industry. In short, it seems, Zimbabwe needs to clean up its act and commit itself firmly to transparency and accountability, to prevent the ‘resource curse.’ “It is important to restate the late Justice Louis D. Brandeis of the United States’ words that “sunlight is the best disinfectant,” said Muyambwa. “Zimbabwe more than ever needs to shine the light on the mining sector and one possible path to follow is the EITI.”

There is a need to break from a culture that believes government leaders have a monopoly on ideas. 30

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

INSIDE HWANGE COLLIERY’S ambitious pipe dream turnaround BY NEVANJI MUSADEMBA

The arrival of US$30 million worth of Hwange colliery equipment was greeted with pomp and fanfare and celebrated as turnaround of the struggling coal miner.

anagement said this was it. “We expect our production capacity to significantly improve to 450 000 tonnes per month amounting to an annual coal production of close to six million tonnes per year once we start utilising the new equipment being commissioned today,” said Thomas Makore, the listed coal miner’s chief executive. “With the new equipment, we expect output to be high, not a marginal increase.” And many believed the solution to Hwange’s problems had been found at long last. But that was not be. At commissioning, management discovered the equipment was faulty. The plan to lift output and turn around the company was derailed. Then the worst thing that could have happened at the time happened; the media got wind of the teething problems of the equipment and announced it to the

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

world. Hwange had purchased the equipment from a Belarus firm, Belaz and BEML of India through a vendor financing scheme secured from PTA Bank and India Exim Export Bank respectively. PTA bank funded the acquisition of equipment from Belaz to the tune of US$18,2 while India Exim Bank financed the purchase of equipment from BEML to the tune of US$11,2 million. In a bid to contain the public relations fallout, Hwange issued a statement refuting the allegations, but insisted this was normal at commissioning stages. “The fact of the matter is that Hwange Colliery Company is still in the commissioning phase of the new equipment. This entails that the equipment undergoes load testing in order to identify any snagging issues which the supplier will resolve. This load testing brings to the fore any issues with regard to the equipment that may result due to transportation or assembling processes,” the company said in a state-

ment. “HCCL would like to highlight that problems of this nature normally occur during any new equipment commissioning phase. Once the machines are deployed into production and their performance during operation have been monitored and approved, then commissioning can be completed. In view of the above, Hwange Colliery Company Limited considers these allegations as unfounded.” With that little hope held out for the coal miner with a listing on the Zimbabwe Stock exchange and JSE and London exchanges quickly extinguished, it was trouble again for the colliery. Now, almost two years ago, the colliery is still struggling, weighed down by teething operational challenges. No output has increased. In October, operations at Hwange’s Chaba concession came to a halt after disagreements with Mota Engel, the Portuguese company contracted to mine the area. The week long production strike only ended after some millions were paid into Mota Engels bank account. HCCL’s mining contractor had helped resume operations at the colliery, breathing life into a group choked by huge debts. Mota-Engil was owed around US$7 million by the colliery. The Portuguese firm secured a fiveyear mining contract with HCC early in 2014 after HCCL floated a tender for a contract miner. The contract involved drilling works, detonation, load and transportation of coal at the colliery’s Chaba open-cast mine. This would not have been the first contractor to dissolve business dealing with Hwange over debts. Billy Rautenbach also called it quite some time back. Hwange owes its employees around US$80 million in outstanding wages. Although the company has installed capacity to produce 6,2 million tonnes of coal per annum. Even relatively newer players on the coal mining scene, seem to getting be it right on the output front. Makomo Resources, a new kid on the block, last year registered a milestone

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and became the country’s biggest thermal coal producer, overtaking Hwange, which has been in existence for the last six decades. Makomo, whose production has been limited by demand can produce up to 300 000 tonnes a month, with ZPC taking up to 98% of total tonnage. Early last year, management had held out hopes for the group, aiming to reverse its gross loss position in the last quarter of this year. Makore last year said the company’s gross loss position was migrating towards a break-even on a month-to-month analysis in the five months to June. “However, cumulatively we expect to have significantly reversed the gross loss performance in the last quarter of 2015,” he said. “With competition, the profit margins have been varying from company to company and largely depend on the business model, with some companies targeting and achieving margins from 10% to 30%.” Today, the group is still not making money. In fact, it restated the same accounts to reflect a wide loss. Hwange’s restated unaudited financial results for the six months to June 30 last year showed that losses skyrocketed by more than 400% to US$44 million on a higher tax bill and plummeting sales. Chininga said the republication of the interim financial results has been necessitated by materiality of the final Zimbabwe Revenue Authority liability with an additional tax bill of US$28,5 million, pushing the final figure owed to the taxman to US$69,1 million following of a special exercise covering the period 2009 to 2015. HCCL’s operating loss widened in the half year to June to US$19 million from US$7 million recorded during the same period last year. Sales revenue during the period stood at US$35,4 million compared to US$39,9 million recorded during the same period last year. Operating loss shot up to US$19,5 million compared to US$7,6 million last year. Tired of management’s promises, the Hwange board to read the riot act to management in September last year,

giving them 30 days to shape up or ship out, as patience runs out after production remained flat on last year’s figures, despite a US$31,2 million investment in new equipment. But the months’ notice has come and gone. Production numbers are not going to be pleasing. Mining of coking coal at the three main underground mines was last year stopped after of the continuous miner broke down and brought to the surface, with management haggling over whether to decommission the state-of-the-art underground equipment, or source for fresh funds to procure a new one. To fix the equipment, six to eight weeks were required. Makore last year said the group was working towards ramping up production, but was currently operating at the same capacity of 300 000 tonnes as at last year. “We are ramping up production since the introduction of the new equipment. We are in the process of securing new working capital. The production is still the same as last year at 300 000, but we are ramping up production,” Makore said. At the commissioning of the new equipment in June, Mines and Mining Development minister Walter Chidhakwa challenged the HCCL board and management to deliver expected results as the time for excuses was over. Now Chidhakwa seems to have had it with the management. He warned management he would not hesitate to wield the axe. He has already fired the chairman, prompting veteran miner Jemister Chininga to act. The group has been starved of working capital and has been in fire-fighting mode, dealing with legacy issues. The bulk of the revenue generated has been used to resolve past debts instead of working capital. Ironically, the company is not devoid of suitors and investors who have confidence in its ability to turn around. British billionaire Nicholas Van Hoogstraten is one such indivdual with an undying love fore Hwange. Van Hoogstraten, who holds a 30% equity stakein Zimbabwe’s largest coal mine, the second largest after the Zimbabwe government’s 37,10%, has demandZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

The group has been starved of working capital and has been in fire-fighting mode, dealing with legacy issues. The bulk of the revenue generated has been used to resolve past debts instead of working capital

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

ed management control of the company for five years in exchange for the cash; a lot of it actually. A total US$50 million to be precise. But the catch is the management control. And he is right. Analysts feel this where the wheels have come off. Government is still considering the US$50 million rescue package offered to Hwange Colliery Company (HCCL) by shareholder and businessman, Nicholas van Hoogstraten and will only announce its decision next year, the mines minister said on Tuesday. “We are considering the offer and the permanent secretary is discussing with the board chairman,” Mines Minister, Walter Chidhakwa said last year. “Any consideration of such a matter must be exhaustive,” Chidhakwa said. He said the decision on the deal would be announced early next year.

Nothing of the sort has happened. Hwange is grappling with a US$14 million six-month salary backlog and a debt of US$160 million. Under the van Hoogstraten proposal, the capital injection would be formalised and secured through the issue of convertible loan stock with a 10% interest rate, a conversion rate of one new US$0.25c ordinary share for each US$0.50c of loan stock and convertible at the end of the fourth year. The government’s 37% shareholding would be maintained while debts owed to statutory bodies will be converted into five-year preference shares at a par value of $1 and a five percent interest rate. Banks owed by the company would receive an immediate 50% cash payout. By and large, it seemed to be a good deal. Other Hwange shareholders include

Mittal Steel Africa with 9.76 percent and Messina Investments with 15.09 percent. Several deals have been tabled. Government was set to emerge with a controlling stake in listed coal producer Hwange Colliery Ltd in the wake of a planned rights issue and a debt-to-equity conversion. With a 40,25% stake in the company, government decided to convert a US$80 million debt owed by Hwange Colliery into some shareholding through a debt-to-equity swap. Post the debt-to-equity conversion, the company was pursuing a capital raise via a rights issue. Van Hoogstraten, the second largest shareholder in the company with an 18,02% stake held through Messina Investments had not wanted to follow his rights along with Mittal Steel Africa Investments’ capacity and willingness to follow their rights in the business was questionable, particularly given that it continues to struggle. The company said it sold 685 759 tonnes of coal and coke down from 764 813 tonnes during the same period last year. Coal deliveries to the Hwange Power Station went up to 409 842 tonnes from 394 451 tonnes. HCCL said it is working on its new concessions in the Western Areas of Lubimbi East and West, adding focus was now on commencement of field exploration work. “The new concessions are strategic to the growth of the company. The new coal reserves also enhances Hwange Colliery Company Limited’s capacity to fully support power generation projects, including the expansion projects like Hwange Power Station Stage 3,” said the company. Coal and coke sales were down 10 percent to 685,759 tonnes during the period under review resulting in an 11 percent decline in revenue to $35,3 million. Going forward, Chininga said the company has introduced cost cutting measures that will reduce the cost of coal. “The infrastructure costs of maintaining the town and utilities will be shared with other coal mining companies and stakeholders around Hwange. The reduction of overheads through management salaries and benefits cut is being finalized,” he said.

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

SERVICE AT THE HEART OF BUSINESS SMT puts Service at the heart of its business and sets out ambitions for growth in Europe and in Africa.

OUR CORRESPONDENT

MT has set out its commitment to customer service by changing its company name to ‘Service Machinery & Trucks’ (SMT). Previously ‘Swedish Machinery & Trucks’, the inclusion of ‘Service’ in the new company name is a clear statement of SMT’s intent to place Services at the heart of the business and to develop its brand in the European market. As part of this approach and to align SMT’s organisation, Kuiken Netherlands along with VCM Belgium & VCM Luxembourg are also changing their company names to SMT to offer unified service across all markets. Jérôme Barioz, SMT CEO, comments: “Now is the ideal time to rename and rebrand our business and bring together the combined strengths of SMT Group and the Kuiken Group, the complementary ethos will help cement SMT’s place in Africa and win new customers in Europe.” He continues: “A strong commitment to customer service is very much part of the DNA of our business. As a supplier of premium brands and services our customers have high expectations of everyone in our Group, they rely on us to help them build their business profitably as they have demanding customers themselves. It is the quality of our service that differentiates us from our competitors in each market, through listening to and understanding their needs we have earned their trust and built successful long term relationships.” One of the fundamental values of SMT

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

is to build partnerships with its customers by offering high-end services and products in the transport and infrastructure sectors with the objective of supporting their growth. “With the coming together of SMT, we have succeeded in combining our dynamism and renowned operational agility with the experience and knowledge of an industry leader in the Benelux, thereby reinforcing our expertise and the added value we can bring to our customers,’ concludes Jérôme Barioz, SMT CEO. “We have the organization and expertise to provide top-of-the-range products and services that all our customers are looking for and expect from us.” Established in 1991 in Belgium, SMT today provides a broad range of advanced products, services and solutions for the transport and infrastructure sectors across Europe and Africa. Reinforced by the operational agility of its dedicated sales and service network, SMT works in partnership with its customers, delivering value to improve their performance and support their growth. SMT is the official distributor of Volvo Construction Equipment, Volvo Trucks, Volvo Penta, Sennebogen, Terex Trucks, Dressta, Palfinger, Mack Trucks in 23 countries in North, Central and West Africa. In June 2015 SMT acquired the Dutch Kuiken group, the official distributor of Volvo Construction Equipment, Sennebogen cranes and material handling equipment and Sandvik grinders in Belgium, Luxembourg and in the Netherlands.

A strong commitment to customer service is very much part of the DNA of our business

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

ZIMBABWE MINING REVIEW Issue 2, 2015

Advertorial

J & J TRANSPORT

&J Transport is the leading transport and logistics provider on the Beira Corridor, specializing in International transportation between Mozambique, Zimbabwe, Zambia, Malawi and the Eastern DRC. Boasting many years of experience in cross-border transport, we provide a superior service for handling bulk, containerized, project, liquid bulk and out of gauge cargo. Our fleet of approximately 1,100 trucks, provides unparalleled capacity for our clients cargo. We are well equipped to handle large volumes of cargo such as minerals, fertilizers and agricultural products.

Our trucks have flatbed or drop-side trailers allowing load-dependent flexibility. J&J Transport ensures that our customers receive best value for money, always remaining committed to a profitable growth for all our customers. Although the economic environment has become increasingly challenging, we have prepared ourselves to compete through refining our systems and processes, reducing our cost base and improving our services to our clients. We pride ourselves on our good ethics, integrity, reliability and proactive, open communication. We strictly operate according to International standards, adhering to all health, safety and

business values. This has built strong and mutually beneficial relationships with all of our clients. Over the recent years we added warehousing and depot services to our Group’s portfolio. The Beira Logistics Terminal comprises 25,000 m² of warehouse space and approximately 50,000 m² of space for other logistical operations, such as bagging of bulk cargo, stripping and stuffing of containers, and fumigation in the direct vicinity of Beira port. On the outskirts of Beira on the main road to the Hinterland we have devel-

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

Advertorial oped a state of the art Inland Container Depot (ICD), which was officially opened in August 2013, and is operated by Independent Beira Logistics Terminals and Services (IBLT&S). All our premises are access controlled and under 24/7 CCTV surveillance to ensure maximum security for our clientsâ&#x20AC;&#x2122; cargo. We also utilize a high quality depot management system from a 3rd party provider, which enables us to update our customers with timely and accurate data. All of our trucks are fitted with state of the art Satellite Tracking, providing us with the control and clients with the visibility at all times. The client is able to view the location of the truck carrying his cargo at any given time during the course of its trip. As a company, we are continually evaluating our performance, identifying areas for improvement and raising our standards. 2016 will be an exciting year, which holds many opportunities for the J&J Group. We look forward to forging our way through all challenges 2016 has in store for us. J&J Transport Zimbabwe Limited 34 Martin Drive Msasa Harare, Zimbabwe Tel: (263) 4 447171 - 6 Fax: (263) 4 487123 http://www.jjafrica.com

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

ravelling by road from Harare, the country’s capital, to Bulawayo, Zimbabwe’s second biggest city, is now a pleasurable and thrilling experience as the 400km stretch is now of the level expected of a modern developmental state. However, travelling to Victoria Falls, the Mecca of domestic and international tourism, from Bulawayo is both tortuous and treacherous. The same, too, can be said of the “corridor of death” that has become the highway from Beitbridge to Harare, itself the continent’s busiest thoroughfare and gateway to South Africa, Africa’s second-biggest economy. Zimbabwe’s centrality and strategic geographical location in Southern Africa has the potential to make it a transport and logistics hub. But statistics indicate that it does not measure up to this challenge, especially in the road transport sector. Of the estimated total road network of 800 000km, only 20 percent is surfaced; and of the surfaced portions, vast swatches are plagued by potholes or are unimaginably uneven. This situation is not peculiar to Zimbabwe, and the country is even better than many in Africa. The World Bank estimates that only 16 percent of Sub-Saharan roads were paved in 2011. This compares to 26 percent in Latin America and 65 percent in East Asia. Also, the road network itself remains inconvenient, a development that comes with a huge cost to business and the economy. For example, where it is supposed to take half the time and distance to travel to Victoria Falls from Harare using a direct road link between the two points, it takes a huge effort to complete the journey. The 15-year-old sanctions activated by the United States of America and the European Union after Zimbabwe’s relationship with Britain soured after 1999 over land reforms have made efforts to rehabilitate the local road network daunting. The country now has to rely on local resources to sponsor road projects. Experts say the country, which has a huge infrastructure funding gap, needs more than US$5 billion to transform local roads into a trafficable state. “Its actually difficult to quantify (the funding gap) especially in the absence of a roads condition survey … If funding was found was ought to be found, we would need to re-

PATCHING ZIMBABWE’S ECONOMIC VEINS

If funding was found was ought to be found, we would need to revamp or overhaul in totality the whole network in Zimbabwe. And if we talk about reconstruction or new construction, we are talking about millions of dollars… the board chair (Mr Albert Mugabe) is on record that if we are to access a figure of say US $5 billion, we will be able to do justice in terms of road development and maintenance, and, currently, like in our case in a good year we are able to mobilise about US $200 million BY OUR CORRENSPONDENT vamp or overhaul in totality the whole network in Zimbabwe. And if we talk about reconstruction or new construction, we are talking about millions of dollars. I think the board chair (Mr Albert Mugabe) is on record that if we are access a figure of say US $5 billion, we will be able to do justice in terms of road development and maintenance, and, currently, like in our case in a good year we are able to mobilise about US $200 million,” said Engineer Moses Juma, the acting chief executive officer of the Zimbabwe National Road Administration (Zinara ), a statutory body that administers the local road fund. “From the conference that we have been having here in Victoria Falls — the ARMFA conference — what has come very clear is that in terms

of the regional comparative our fuel levy quantum is on the lower side. Some of our peers are collecting anything up to 15 percent of the fuel levy but in Zimbabwe our rates are very low. I think we are the lowest in terms of the cents per litre that goes to the Road Fund. “So there have been discussions that maybe it would be prudent to peg it using a percent so that when fuel increases, it will just automatically adjusts as well,” he explained. Most of the resources pooled into the Road Fund are generated from road user charges such as vehicle licence fees, toll fees, transit fees, fuel levy, abnormal load fees and presumptive tax. The fuel levy, which last year grossed more than US$40 million, remains the lifeblood of the fund.

Vehicle licence fees contributed more than US$47 million, but about 30 percent of the money is chewed up by operational expenses and bank charges. Toll fees and transit fees contributed US$27 million and US$18 million, respectively, of the US$133 million that the fund generated in 2015. Government has decided to roll out 35 new tolling points, adding to the 26 toll gates that are already operational. Not surprisingly, this has been met with scepticism by the public who feel that Zinara is not administering the Road Fund judiciously since there isnâ&#x20AC;&#x2122;t any demonstrable development. Toll fees were increased by 100 percent last year. As the country has been starved of support from international financiers, it

has had to rely on the taxpayer to shore up reserves. There is now a push for the Road Fund to find innovative ways of making money. It is precisely because of this reason that road funds from across the continent decided to form the African Road Maintenance Funds Association (ARMFA) in 2003. The 34-member body, meant to share knowledge and experiences in the mobilisation and judious application of road funds, met in Victoria Falls for its executive committee meeting last week. It was preceded by the ARMFA Southern Africa Focal Group Meeting. Zimbabwe will host the AGM between February 22 and February 28, 2015 in Victoria Falls. African countries are waking up to the need to fund infrastructure development.

The Lesotho Road Fund gets part of its contributions from fines generated from traffic offences, whilst in Namibia there is an option to float bonds to support road projects. Zinara board chair Mr Mugabe said there were several options to augment money from road user charges. He proposed leveraging on the countryâ&#x20AC;&#x2122;s 88 000km road stretch by generating advertising through billboards. Road administration experts believe Government has to revert to the old system where the fuel levy was pegged at 10 percent. Presently, the State collects just USc4 per litre of petroleum imported by road. It is argued that if the fuel levy is reviewed, collections could increase five-fold to US$200 million annually, lessing the burden on road users.

ZIM MINING COULD WITNESS SIGNIFICANT GROWTH THE NET FOUR YEARS – US BODY OUR CORRESPONDENCE

imbabwe’s mining sector could achieve significant growth during the period 2016 to 2020, driven by inFROM CULTURALcreased SURVIVAL INC, platinum and diamond production, the USbased International Business Monitor (IBM) has said. But it hastens to add that political uncertainty, a challenging regulatory environment and falling mineral commodity prices could put paid to the envisaged growth. Zimbabwe is richly endowed with chrome, gold, nickel, diamonds and platinum, besides other minerals. Its gold reserves are besides the biggest in Africa, while it has the world’s second- largest platinum reserves, after South Africa. Its diamond reserves are to be the second- largest globally, after Russia. Developments in these key markets, together with the political and economic climate becoming more stable gradually, have seen the country’s status as a major global producer strengthen in recent years. In terms of overall output, Zimbabwe is also a significant platinum producer, while a recent reduction in taxes for smaller gold miners is expected to lead to significant increase in production this year. The report notes, however, that the sector faces challenges such as political and economic risk factors, which will likely directly impact on the regulatory and investment environment. “The changing regulatory environment surrounding Zimbabwe’s diamond mining industry is likely to create challenges as well as opportunities for diamond production over the next few years. In terms of the challenges, on February 22, 2016, the Zimbabwe government ordered all diamond mining firms in the Marange diamond fields to halt operations and vacate their premises within 90 days, stating that their licences and special grants had expired,” the IBM report states. The IBM says that, despite the many problems it faces, Zimbabwe is poised to become a major diamond producer in the next four years, on the back of new investments by established and new players seeking to capitalise on the second- largest diamond reserve in the world. The envisaged rise of Zimbabwe as a major diamond producer contrasts with slowing production growth in neighbouring South Africa, where, IBM predicts, growth during the next four years will be weighed down by persistent labour unrest and high energy costs. IBM also predicts that Zimbabwe will remain a minor gold producer in Africa, way behind South Africa, Ghana and the Democratic Republic of Congo, owing to its overreliance on output from artisanal miners and small-scale producers.

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016

Zimbabwe is richly endowed with chrome, gold, nickel, diamonds and platinum, besides other minerals. Its gold reserves are some of the biggest in Africa, while it has the worldâ&#x20AC;&#x2122;s second- largest platinum reserves, after South Africa

ZIMBABWE MINING & ENERGY REVIEW MAGAZINE ISSUE 2, 2016