Caledonia, Tharisa: Zimbabwe Mining Investment Defies Risk

• International miners Caledonia Mining and Tharisa are making significant investments in Zimbabwe, challenging perceptions of high risk.
• Caledonia, with 20 years of experience, is developing the Bilboes gold project and successfully manages foreign exchange through US dollar gold sales.
• Tharisa recently secured $300 million in an oversubscribed bond for its Karo platinum project, indicating strong investor confidence.
• Both companies attribute their success to deep understanding of local regulations, established government relations, and specific operational strategies.
• While broader economic stability exists, company-specific expertise in navigating bureaucracy and foreign exchange remains crucial for successful Zimbabwean mining investments.

Their experiences suggest that successful operations in Zimbabwe are highly dependent on individual company strategies, the specific minerals being extracted, and robust arrangements for managing foreign exchange, regulatory compliance, and government relations.

International mining firms Caledonia Mining and Tharisa are channeling substantial capital into projects within Zimbabwe, challenging conventional perceptions of risk in the country's mining sector. Both companies are making significant investments, with Caledonia focusing on its Bilboes gold project and Tharisa advancing the Karo platinum project on the Great Dyke. Their experiences suggest that successful operations in Zimbabwe are highly dependent on individual company strategies, the specific minerals being extracted, and robust arrangements for managing foreign exchange, regulatory compliance, and government relations.

Caledonia, which boasts two decades of operational history in Zimbabwe, expresses considerable optimism regarding the nation's potential. During a recent capital markets presentation in New York, the company actively argued that the investment risk associated with Zimbabwean mining is often overstated. Maurice Mason, Caledonia's Vice-President for Corporate Development, emphasized the company's unwavering commitment, stating, "Our long-term strategy is that we are 100% focused on Zim." He further asserted Caledonia's expertise in the Zimbabwean operating environment, believing the country's risk is "significantly mispriced" by the market.

Caledonia's confidence stems from its ability to identify opportunities where market assessments of risk have been inaccurate. Mason highlighted the company's deep understanding of Zimbabwe's operational procedures, its proficiency in navigating complex regulations and bureaucracy, and its well-established relationships within the country. This long-standing presence and accumulated knowledge have been crucial to its success, particularly in managing critical aspects like foreign exchange.

Victor Gapare, Executive Director at Caledonia Mining and Group Chief Executive Officer of Bilboes Holdings, and a veteran operator in Zimbabwe since 1987, previously serving as president of the Chamber of Mines, confirmed Caledonia's effective foreign exchange management. He noted that Caledonia has consistently repatriated funds from Zimbabwe without difficulty, primarily because it receives US dollars directly for its gold sales. Furthermore, Caledonia has observed improving government support for major capital projects. CEO Mark Learmonth cited an instance where Zimbabwean authorities facilitated the seamless cross-border transfer of approximately $15 million worth of equipment for the Blanket mine’s solar project, describing it as "a very good experience."

Tharisa shares a similar perspective on Zimbabwe's investment climate. Ilja Graulich, Tharisa's Head of Investor Relations and Communications, concurred that investors often perceive Zimbabwe as riskier than conditions warrant. This sentiment was underscored by Tharisa's recent oversubscribed $300 million bond raise for its Karo platinum project, despite some investors on the roadshow still posing fundamental questions, such as the safety of Harare. Graulich confidently affirmed the safety of Harare and noted the availability of capital eager for deployment.

Caledonia has also experienced strong investor appetite, securing $150 million through a seven-year convertible bond earlier this year. Demand from US institutional investors for this offering surpassed $600 million, indicating robust interest. Mark Learmonth, Caledonia's CEO, commented at the time that this transaction demonstrated Zimbabwe could no longer be simply dismissed as "uninvestable," suggesting the country is "becoming, relatively speaking, less risky." These funds are integral to the financing of the Bilboes gold project, which is projected to yield 200,000 ounces of gold annually starting in 2029.

Beyond company-specific successes, there are broader indicators of economic improvement in Zimbabwe, though these come with important caveats. Mutemwa Ushewokunze, a Zimbabwean corporate executive and economic researcher, identified three pillars supporting the country's current stability in a LinkedIn post: enhanced political predictability, stricter monetary policy, and a favorable commodity cycle. However, Ushewokunze also cautioned that these very pillars represent potential vulnerabilities.

While Zimbabwe has significantly benefited from high gold prices, underlying issues such as debt distress, outstanding arrears, and a constrained financing base remain unresolved. For mining companies, the operating environment is nuanced. Improved macroeconomic conditions can certainly enhance operations, but the article underscores that company-specific experience and protective measures remain paramount. Caledonia's long tenure in Zimbabwe exemplifies this, with Learmonth describing the country's bureaucracy as "just process" rather than an obstacle, provided one understands how to "press the right buttons in the right order." He noted Caledonia's exceptional proficiency in this regard due to its extensive experience, though this does not mean Zimbabwe’s foreign-exchange problems have disappeared.

This article highlights that successful mining operations in Zimbabwe depend heavily on company-specific strategies for navigating foreign exchange, regulation, and government relations. Lawyers advising clients in the Zimbabwean mining sector should focus on robust due diligence regarding these operational specifics, rather than relying solely on general risk perceptions, to identify viable investment opportunities and compliance pathways.

Source: Original reporting via industry analysis.