Zimbabwe has a long history of gold production dating back many centuries and gold is, by any estimate, a mineral with the longest mining history in the country. The gold industry is characterized by large greenstone belts that support many small, privately owned mines. A 1995 United Nations working paper on gold mining in Zimbabwe estimates that there are over 5,000 small-scale gold mines. This number has increased significantly since this last study and one estimate of deposits will definitely exceed 10,000. The economic stagnation of the last decade has seen development efforts in the area of small-scale gold mining collapse and have further fragmented more to the private ones. property and distribution of small claims owners.
A large number of these mines have considerable potential, but are considered unattractive investments by current rights holders due to the considerable capital required. The technology presents no real limitation; the necessary equipment and skills are available locally; and there are no legal obstacles. Zimbabwe’s current mining law is probably the simplest in Africa for the acquisition of a full and transferable mining title. Rather, it is the scarcity of venture capital for the purchase and exploration of equipment and entrepreneurial skills that inhibits the development of small-scale mining.
The traditional approach to mining gold claims was for the title holder to prospect and fix their claims, and then raise enough capital to purchase the mining equipment. If capital is hard to come by, rights holders often resort to manual methods only to mine the richest veins for a very low recovery. Once the easily minable gold resource near the surface is exhausted, the claim is abandoned, and in cases where this is not the case, the claim becomes highly dangerous for any further work due to the dangers of numerous sinkholes and tunnels that randomly pursue the vein. This short-term method of mining further reduces the life of the mine. To quote the 2010 World Gold Analyst Zimbabwe (WGR) Special Report, “Such methods are notoriously inefficient as they do not take into account the geological setting and potential of the entire mineral deposit. With a more systematic and objective approach they could determine not only the scope of the entire deposit, but also what techniques would best serve them for the optimal exploitation of mineral wealth”.
The biggest challenge for security holders is motivating capital team financing for their individual gold claims. In most cases, the gold claim will not have justifiable proven reserves for an outlay that would allow the miner to be profitable and therefore not a liability to the financier. The fact that the claims are scattered means that the exploration is random. Economies of scale are not achieved as no single miner requires all the equipment, from diamond drills used in exploration to stamping mills or crushers used in gold recovery. This presents an unusual dilemma for resource development that is compounded by the fact that, in many cases, small-scale miners are not prepared to part with title to the property, as it likely accounts for a large part of their net worth. Furthermore, the value they would want for the title is also, in most cases, much higher than the value assigned by potential buyers using available geological material. Small-scale miners do not keep verifiable production records of gold recoveries and tonnages extracted. So again, it’s hard to agree on the intrinsic value of the title.
A look at the mining records contained in the 2010 World Gold Analyst Zimbabwe Special Report (WGR), will further confirm what we have always believed. Although gold production has been falling between 2006 and 2010 (H1), gold deliveries by custom millers as a percentage have been increasing. Gold production from large mines will increase as capacity utilization increases, but the importance of this statistic is that it underscores the importance of custom milling plants in unlocking value for these small mines. With this in mind and considering the aforementioned challenges of small-scale mining, investors need to take a new approach.
A new approach would be to establish what we loosely call “centers of excellence.” These centers are fully capitalized resource centers for gold miners in whatever region they are based. They do more than just transport and crush minerals for small mines. They are a one stop shop for security holders who want to unlock the underlying value of the gold mines they are literally sitting on. The center will be stocked with all the required capital equipment, from exploration to gold recovery, and will also provide a full boutique of services such as mining engineers, geologists and geological intelligence that small-scale miners cannot afford to employ individually. The hub may have cyanidation farms of similar technology to leach tailings. Because of their size, they are better capital motivators. Profitability is increased due to production economies and fuller utilization of all mining equipment. The fact that the title is not purchased outright also means that the model saves money that would normally have been used to purchase reserves. The center will assist the miners in the transportation of ores for crushing, geological sampling and advice regarding the structure of the mine and the best methods to attack the reef. The center will also lease the miners any equipment they need to enable production. This will be done at no upfront cost, but on a pre-agreed contractual basis with the miners paying taxes and royalties to the center after gold recovery when the ores are crushed. Pre-feasibility studies will be carried out prior to contractual arrangements to ensure that the gold recovered is sufficient to cover royalties. To be sure, miners also face challenges when trying to market their gold. In many cases being a victim of unscrupulous people involved in the industry. The centers can purchase any excess gold from miners in the surrounding areas and, due to the collective volumes of gold purchases, will be in a better position to obtain more competitive commodity prices.
The centers will also maintain ore production and delivery histories, including gold recovered from all mines in the area. Over time, such information will be used to consolidate groups of small mines in a particular area with the goal of developing exploration and geological intelligence of that area and converting it into a medium-sized mine. Title holders in such areas may be offered separate Joint Venture agreements or outright acquisitions. In fact, such consolidation is what led to one of the country’s great mines. The Jumbo mine, now owned by Metallon Gold, was actually part of a group of smaller mines, of which the Jumbo mine was the most prominent. Over time, the clusters consolidated and now Jumbo has left its humble beginnings behind.
Our approach is that the Hub is what needs to be capitalized on. Quite simply, our approach is this: the center is not just a grinding plant. It is a gold mine with outsourced labor.
