Caledonia Mining, which operates the Blanket gold mine in Zimbabwe, will limit its spending in the country to exploration and sustaining capital until there is clarity on the controversial indigenisation programme, but can happily continue in the current mode for some time, CFO Steve Curtis said in an interview.
The firm is also exploring for copper on a project in Zambia, located northwest of Vedanta's Konkola mine, and will complete an initial drilling programme this year.
The government of Zimbabwe passed a law in 2008 that requires foreign firms worth more than $500 000 ($1-million for miners) to sell at least 51% to indigenous Zimbabweans within five years.
Although the law was passed a few years ago, the actual implementation will be determined by regulations issued by Minister Saviour Kasukuwere.
A sectoral committee on mining had proposed that the equity requirement be limited to between 25% to 30%, and that the balance of the 51% be achieved through corporate social responsibility and other investments, through a 'score card' approach.
But the Minister instead issued regulations in March stating that the full 51% must be achieved through equity, and that the process had to be completed in six months.
Those regulations have generally been pronounced "unenforceable" because the Minister went beyond his powers under the Act, but the way forward remains unclear, Curtis said in Toronto last week.
Caledonia has filed its required 'indigenisation plan', but has yet to receive a response from the government.
"We got a flavour about what the rest of the industry was thinking about, and we filed what we believe is a commercially viable proposal," said vice-president for corporate development Mark Learmonth.
"We filed it, we haven't heard back, so the ball's in their court now."
He was reluctant to provide details, but said the plan was based on the Act rather that the recent regulations, and indicated the company believes it could potentially facilitate something similar to the sectoral committee proposal, with a direct equity component of between 26% and 30%.
Although the uncertainty is "unfortunate" the good news is that the company recently finished a crucial project at Blanket that will allow it to ramp up production significantly this year, while at the same time lowering costs, Curtis commented.
"For us, at our stage, it's not the worst thing at all," he said. "It would have been a different story before we finished the number-four shaft but the economics are now entirely different, we're in a completely sustainable position."
Still, the firm will keep its spending to the "bare minimum", focusing on exploration to replace and increase reserves and sustaining capital, until there is more clarity on the indigenisation process.
"We would love to spend more," Curtis said. "We've got plenty, plenty more we could do in Zimbabwe, but frankly until the Zim government gets its act sorted out in terms of indigenisation, we just can't afford to continue to throw shareholders' money into the country."
The firm also has some potential acquisition targets it would like to take a look at, but will not move on them until the indigenisation questions have been answered, CEO Stefan Hayden told Mining Weekly Online.
"We believe we are in a very strong position to act as a consolidator in the industry, but not until the lie of the land becomes clearer."
OVER THE TOP
Caledonia, like other public companies operating in the southern African nation, continues to battle the 'Zimbabwe discount' on its shares, especially when the indigenisation debate flares up.
Learmonth suggested that investor response to the situation has been "over the top", particularly when compared with mines in other regions viewed as high risk.
"But it's fear and greed. And at this point the fear outweighs the greed."
Interestingly, he compared Zimbabwe favourably to neighbour South Africa as a mining investment jurisdiction, particularly when it comes to government interference and labour flexibility.
SELF SUFFICIENT
Caledonia, which produced around 17 700 oz of gold in 2010, expects to ramp up to its targeted 40 000 oz/y by around the third quarter of this year, and should see costs move down to around $550/oz, Longmonth said.
The company has commissioned a new 10 MVA diesel-powered plant, which it can use to power the mine and facilities if the grid power is interrupted.
Caledonia, like other miners in Zimbabwe, signed a special agreement with local utility Zesa to guarantee uninterrupted power supply, in return for a big premium on electricity prices.
The new system is working well, and the company has lost only around a "couple of hours" all year, but saw the need for the generators because of broader concerns over the power supply situation in Zimbabwe, Learmonth said.
"And obviously it's vital that we keep going, because if we don't produce we lose money hand over fist."
The Blanket mine was halted from October 2008 to April 2009, because of "continuing nonpayment" of foreign exchange by the country's Reserve Bank, for the sale of gold delivered to the Bank's Fidelity Printers and Refiners.
But the mine reopened after the government approved a new policy under which gold producers can market and sell their gold directly and are also allowed to keep the payment for their gold in foreign exchange.
COPPER
As for the Zambian prospects, the company is reluctant to talk about the copper potential until it has some drilling results to rely on, Learmonth said.
"Everyone wants to know about the copper, but as soon as we have something we will tell them," he said. "For now all we are saying is that there is copper to the right of us, the Vale/ARM joint venture, there's copper to the south in Konkola and then there's also copper to the north."
Caledonia would look to take any base-metals discovery as far along as it could by itself, he said.
"We're not just going to sit around waiting for someone to come tickle our tummies. We've got the competency to do it ourselves."
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