Investors on the Zimbabwe rarely look at mining counters because they are not easily understood, yet the world economy revolves around resources such as Gold, Platinum, Nickel, Silver, Oil, Coal, Diamonds to mention but a few. For many years Zimbabwe’s mining industry has operated under very difficult conditions. Controls, lack of equipment and machinery, inefficient processes. The list is long.
In Zimbabwe price controls saw producers pulling out because they could not sell precious metals directly to the world markets. As a result Zimbabwe’s minerals are largely unexploited. Because of the problems in Zimbabwe major players skirted our resources in favour of our neighbours South Africa (gold and platinum) and Zambia (copper and nickel).
In the early 80s Zimbabwe had the likes of Ashanti, Anglo, Rio Tinto, and BHP among other big mining houses and the industry employed more than 20,000 people directly. Drive around Harare and see the buildings owned by the Mining Industry Pension fund and you will appreciate just how important the mining sector is to the Zimbabwean economy.
Looking back to what I had begun to write here, it looks like I was onto something. Not only has ZSE listed mining counters been re-rated since then, the country has seen a number of new developments and conferences too! Zimbabwe has reportedly sold over a million and half carats of diamonds. 900,000 carats were confirmed and thought to have earned the country between 30 to 56 million dollars. Some respected mining experts say Zimbabwe (producing an estimated $2b a year) could become the 3rd largest diamond producer of diamonds after Russia and Botswana. (Source http://www.cheap-diamond.com/Countries/)
I will not try and offer any economic analysis as to what this could do for Zimbabwean economy because it is all too obvious! I would rather focus on what you and I as investors or potential investors are doing to benefit from all this. I mentioned earlier that the mining sector is not easily understood. At the time I wrote my unpublished blog in June, Falgold was trading at 3 cents, Hwange 21 cents, RioZim 265cents and Bindura around 12 cents. Today Bindura is trading at 13.15 cents, Falgold is trading at 5.5 cents, Hwange at 30 cents and Rio is the only counter down at 180 cents.
This confirms that the mining sector is on a recovery path but needs capital. Serious money has been put into both Hwange and Falgold in the last two months. Hwange released a pleasing set of results for the first six months of the year, posting a profit of over $4 million on sales figure of nearly $50million. A picture many of us haven’t seen in more than a decade from our listed mining companies! Pinch me, am I dreaming? Hwange actually made money from selling coal and coke. Investors who bought at 20 cents aren’t doing badly. The share price has gone up by 50 percent since June 2010.
Following a change in shareholding at Falgold it seems the company’s fortunes are also set to change. A loss of over $3m in 2009 did not deter New Dawn mining a very aggressive junior gold mining company with big dreams. They are consolidating their gold resources and are aiming to produce 250,000 ounces of gold a year in the long term. In the short term their sights are on achieving 50,000 to 60,000 ounces per year. These guys mean business and have not wasted anytime to get things going. Falgold has seen an injection of $2m into the business, kicking off production long stopped at the height of the country’s economic crisis.
The case for investment in Zimbabwe’s mining sector needs very little selling (I am not trying to sell these companies, the unexplored resources speak for themselves) if you are brave enough to look ahead and are not bothered about politics and the uncertainty that comes up from time to time. If properly structured from the onset, there is room to profit from investments in Zimbabwe. Over lunch I had an opportunity to listen to a Harvard Professor of Strategy being interviewed on CNBC on Sqwuakbox and my jaw dropped when he spoke of the differences between Republicans and Democrats in America and how such differences shape the economy. Yet investors all over the world still chase investments on the Dow etc
The contrast of their views (Reps/Dems) and what needs to be done to revive the economy are so far apart and according to the presenter it is like people sitting on two sides of the road. Listening to the two go at it left me with a smile on my face and with no illusion that no country is without politics and as investors we must find strategies of finding winning investment strategies within the political space that we find ourselves and just hope for the best. I wish it was that simple. Let me leave politics to politicians!
I have just been thing and hoping that it is not too late to pick up of these mining counters. Sadly we only have 4, I wish more would come and list! Hwange is certainly still good to go as they say! It is trading on a forward P/E of 5.5 times if we assume that it will make another $4 million in the second half. Where is RioZim in all this? The company owns about plus or minus 19% of Murowa Diamonds which made a loss after being caught up in the Diamonds debacle that faced the country this year.
Rio is saddled with a huge debt and is attempting to raise $40 million to get back on stream. A search for a technical partner is also on. The sad story ends there. Its amazing to see the resources Rio sits on. A huge coal deposits is one of many of its many assets. RioZim sees itself solving Zimbabwe power shortages for good by 2014 when its 2400MW PowerStation comes on stream. If one is ready to wait for a 3-4 years this is one good strategic investment. We all know of power issues saddling SADC countries.
Another company in the mining sector is Bindura. Production is scheduled to restart soon. There are plans to sell off part of the mine to raise capital. I wont repeat what I have already said about Falgold.
Enough about the mines, Its now time to focus Dairibord which was 7,1 cents in June 2010 is now trading above 10 cents, 12 cents to be exact, thanks to a good set of half year results. I wrote about Dairibord sometime back highlighting how well managed this company is and that it would be a good investment for anyone looking for exposure in the food and bev sector. The company appears to be a solid path and is poised to grow. Walking in the CBD today, I saw and smiled at how their business model is so right for what they are trying to do. I saw at least a dozen people holding a choc ice to beat off the summer heat! The Ice cream machine is up I see.
