A Long Slog Awaits Zimbabwe's Platinum Miners

Michael Teague |

Platinum futures were trading slightly higher on Monday at $1,436.60 per ounce on the New York Mercantile Exchange at the same time that Zimbabwe’s Chamber of Mines, a trade group representing that country’s mining industry reported that the African nation would require as much as $5 billion in investment in order to ramp up production and increase revenues.

The Chamber claimed that Zimbabwe has the capacity to start significantly narrowing the gap between itself and Russia, the world number two in platinum production, by 2017. But this milestone can only become a reality after nearly $3 billion of investment into the construction of smelters and refineries, along with another $2 billion for processing facilities, and up to $500,000 million to secure a power supply that could sustain such an increase in platinum production.

The country is currently responsible for about 6 percent of global platinum, with the top spots occupied by South Africa and Russia. Output from foreign miners operating in Zimbabwe is currently forecast at some 365,000 ounces for 2013, a little less than half of Russian production, and well behind South Africa’s 4.1 million ounces.

The Chamber did not specify where it expects the money to come from, but firms such as Anglo American Platinum Ltd. (AGPPY) and Impala Platinum Holdings (IMPUY) are likely among the intended recipients of today’s report. In the case of Anglo American, however, the funds are by no means guaranteed, as the company in late August eliminated over 3,000 jobs at one of its South African projects in a bid to reduce costs, while shares for Impala have touched historic lows throughout 2013 in response to dwindling production exacerbated by rising costs.

If overarching industry conditions and the substantial infrastructural needs specific to Zimbabwe already present a significant obstacle to the country’s aspirations, the political climate is not helping matters either. The country’s recent push to legislate the redistribution of resource-ownership to black Zimbabweans can be seen as a move on the part of the beleaguered government of Robert Mugabe to shore up popular support through the familiar trope of resource nationalism, but continue to reinforce trepidation on the part of foreign companies concerned about the viability of their investments.

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