Zim brushes off pressure from chrome producers

Windhoek – Zimbabwe Government has refused to cave in to pressure from mining companies to temporarily lift or relax a ban on chrome ore exports, which companies say is worsening their plight.
Zimbabwe’s chrome producers have been lobbying intensely for government to relax the chrome ore exports ban for the second time, to give them a window to raise capital and build ferro-chrome smelting capacity.
Despite hints from the government throughout much of this year that it would heed mining companies’ pleas to relax the chrome ore exports ban, Mines and Mining Development Minister, Obert Mpofu, said in an interview that there are no such intentions.
Contrary to expectations, the Zimbabwean government would not allow chrome producers “to export feedstock, which they should be using in their own smelters”.
Minister Mpofu said chrome smelters at Sinosteel Corp’s Zimasco, Zim Alloys Chrome and Maranatha ‑ the country’s largest ferro-chrome producers ‑ must expand capacity to handle chrome ore, not only from their own mines, but also from small-scale operators.
“I encourage those that want to go into smelting to do so. We can’t be exporting raw chrome. We have three or four smelters and chrome producers should take advantage of that,” Minister Mpofu said.
“We are not going to lift nor review the ban on the exports of chrome ore to allow companies to export raw materials to other smelters outside the country.
“As government we are engaging companies with smelting capacity to increase their capacity and ensure that chrome mined locally is processed locally,” Minister Mpofu added.
Minister Mpofu’s statements are in sharp contrast to Deputy Minister Mines and Mining Development, Gift Chimanikire, who is on record as saying the ministry had heeded pleas from chrome producers and has forwarded recommendations to Cabinet for the chrome ore export ban to be reviewed for another two years.
Minister Mpofu said government is fully aware of the plight of mining companies but insisted that the ban would not be lifted, arguing that a relaxation of the ban in 2009 resulted in exporters abusing the facility.
“We opened up the ban for 18 months (between 2009 and 2010) and that facility was grossly abused. People prefer exportation of chrome in raw form to supply smelters outside the country.
“We don’t want to do that. Every mineral should be beneficiated locally and that includes chrome, platinum and others. We want all our minerals processed here,” Minister Mpofu stated.
Zimbabwe’s ferro-chrome smelters have shut down smelters citing high electricity costs and low prices of ferro-chrome on the global market.
Zimasco, a 180 000 tonnes per year of high carbon ferro-chrome producer, has scaled down capacity to 40 percent citing a fall in demand and prices of ferro-chrome in the US and Europe ‑ key destinations for its products.
Zimasco is currently running two smelters, out of five, which sources say are producing 6 000 tonnes per month of high carbon ferro-chrome, down from 15 000 tonnes per month of ferro-chrome, meaning this year production will be slightly more than half of its 180 000 tonnes per year of ferro-chrome target.
“Zimasco has scaled down its mining and smelting operations to 40 percent of operational capacity, in line with the levels of prevailing weak global demand for the commodity.
The on-going global economic crisis and lower than expected levels of economic activity affecting the world’s key regions of the USA, Japan and China, which are the markets for Zimasco’s products, have resulted in lower prices and reduced off-take for most commodities, inclusive of ferrochrome,” Zimasco said last month.
Zimasco has also stopped taking chrome ore supplies from small-scale producers, a large number of which have virtually abandoned their chrome claims since the chrome ban was reinstated in 2010.
Zim Alloys Chrome, potentially Zimbabwe’s second largest ferro-chrome producer, has been unable to rebuild its smelting capacity due to financing constraints.
This year Zim Alloys announced that it had secured a $60 million loan from Global Emerging Markets (GEM) for smelter refurbishmentsHowever, some of the loan conditions are an early cash flow, which the company had hoped would come from exports of raw chrome.
It is not clear if Maranatha’s initial agreement with South Korea’s Posco for a capital equity swap deal to help raise financing to expand capacity at its chrome smelters in Kadoma will still materialise.
Minister Mpofu stated that operators who have no financial wherewithal to build smelting capacity should make way for investors who will drive government’s beneficiation initiative.
“How can you advocate for exports of your own feedstock ‑ you want to export it to another smelter. We are not going to export raw chrome. Companies are being persuaded to increase smelting capacity, they should raise money to do that,” Minister Mpofu said.
Asked about the financing challenges miners in Zimbabwe are grappling with, Minister Mpofu said: “They should raise money to build smelting capacity. Why do they go into that kind of business if they do not have money?”
Meanwhile, Benscore Investments, a consortium of Zimbabwean investors, which holds an 85 percent stake in Zim Alloys, says it is willing to whittle down its shareholding in the chrome producer to 51 percent.
Benscore Investments says it will sell a 34 percent stake in Zim Alloys, and the buyer would also take the management contract.
Metmar Ltd, which is listed on the Johannesburg Stock Exchange and holds a 15 percent shareholding in Zim Alloys, is said to be negotiating for the stake, though it is likely to face competition from an unnamed Russian portfolio investor and a Chinese-based international steel producer.
“Benscore is willing to scale down its shareholding to 51 percent. In fact, they have always been prepared to reduce their stake to 51 percent and are willing to bring in a shareholder who can add value to the operation,” a reliable source told The Southern Times.
In 2010, Metmar agreed to buy a 40 percent stake in Zim Alloys for $51 million, but later on paid $16, 2 million for a 15 percent stake, citing risks associated with investing in Zimbabwe and delays in finalising a competent person’s report.
“Metmar is among the investors Zim Alloys is talking to; they want an equity partner who will have a management contract as well. In fact, Metmar is better placed to come in as strategic partner who will drive up the company,” the source added.
“From the talks going on, Metmar has indicated it wants to raise its stake but so has the Russian and Chinese investors.
Zim Alloys’ mineral concessions contain 30 million tonnes of high-grade chrome. The company shut down mining operations earlier this year and has idled its furnaces, which are in urgent need of refurbishment.

November 2012
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