Andy Clay, Managing Director and Godknows Njowa, Executive Lead, Venmyn Deloitte

May 9, 2013

Andy-BLOG tn_Godknows Njowa-BLOGAndy Clay and Godknows Njowa talk about the operations of Venmyn Deloitte.

Venmyn Deloitte was established in November 2012, when Deloitte purchased 25-year-old mineral advisory firm Venmyn and incorporated it into Deloitte South Africa’s Mineral Advisory Services practice. Can you elaborate on the company’s role in the African mining industry?
AC: The purpose of Venmyn’s merge with Deloitte is twofold. Firstly, through Deloitte we now have a base in almost every country and are truly global. Secondly, we have access to a vast selection of specialized skills that we can call upon as Deloitte has 250,000 employees worldwide and can do business practically anywhere, mainly for the securities exchanges and transaction orientated projects. We specialize financial valuation, technical evaluation and projects requiring technical expertise. Venmyn Deloitte helps companies to understand the value of their assets relative to the market price. Companies have to value their assets relative to impairment calculations and Venmyn Deloitte helps them do that within the context of IFRS standards and the mineral asset valuation codes. A mineral asset is much more than the ore in the ground. It is also the ability to license and to mine it and the ability to raise finance. The accounting definition of an asset is a resource that is in control of an enterprise and from which future economic benefits will flow. The problem is that by the legal interpretation of control and the accounting interpretation means 51%. Godknows and myself also sit on the new International Minerals Valuation Committee that is coordinating a new common mineral asset valuation template.

Asset ownership is one factor that seems to continue to hinder investment in Zimbabwe. What has Venmyn Deloitte’s experience been with this in the Zimbabwean mining sector?
AC: Security of tenure and indigenization is not a problem that is unique to Zimbabwe. What is different is that the money that you pay for the asset is only partially secured against the asset and it is difficult to demonstrate true ownership and hence difficult to secure any finding against such an asset. Zimbabwe has an illustrious mining history with over 6,000 discoveries of gold in the country of which only 15 delivered more than a million ounces of gold. The great dyke is a phenomenal geological feature being well mined and exploited; there are a plethora of industrial and specialist minerals such as tantalite, tungsten and mica. Zimbabwe also has important coal resources, which presents more opportunities for the sector.

The real value of an asset can be enhanced through beneficiation. In sub-Saharan Africa we still find very little beneficiation, but rather raw material exportation. What are the prospects for mineral beneficiation in Zimbabwe and what needs to be done for this process to take off?
GN: Zimbabwe is similar to its mining neighbors in terms of little beneficiation happening in the country. There are a number of initiatives that will encourage beneficiation in the country, starting with chrome ore that is no longer allowed to be exported without being beneficiated in the country. Whether this policy is good or bad remains to be seen. Another factor hindering beneficiation is power or the lack thereof. Venmyn Deloitte has seen great success for a client in the Hwange area who is mining coal. The project started in 2007 and the company was given 18 months to start mining. Within eight to 10 months they started producing coal and today they supply approximately 50% of the country’s coal needs for power from that mine. They are now looking to double their production.

AC: There are also Independent Power Producers (IPP’s) putting agreements in place with existing power suppliers to start fixing the country’s power supply problems. It seems that the government has also realized the importance of a stable power supply and more IPP licenses may have been issued in recent years. There are a vast number of coal resources in the country suitable for power generation and the issuance of these new IPP licenses should facilitate the opening of new mines in the country. Within the next two years we should see more power stations being built and that would be a catalyst for increased production and beneficiation.

The Zimbabwean market is a very fragmented one with many medium-scale producers. Do you foresee any consolidation happening in the industry?
AC: The common problem that exists in the global mining industry is access to capital and that is pivotal for medium sized producers. Companies that do have access to cash are shepherding that capital very carefully, placing many projects on hold and cutting back on expansion. This limitation on capital access is due to the uncertain climate of the global economy and the subsequent attractiveness of acquiring equity. The collapse of the gold price was also due to people wanting to cash out on their hard assets to provide liquidity. Without capital available, consolidation becomes unlikely. The only place that still has access to real capital and an appetite for mining and minerals is China. Even so, the Chinese are sitting with a track record of $45 billion in failed acquisitions and are also more cautious than they were before.

With the recent collapse of the gold price, do you see greater diversification in the operations of big mining companies?
AC: Finding high grade deposits remain difficult no matter where you are in the world. In a time like this when the market is uncertain, miners with the high grade deposits can continue, but those with low grades are going to run out of money as the cost of producing becomes too high. Zimbabwe’s mining industry risks are multi-faceted, but it starts with the ownership of the asset. The Zimbabwean authorities have been really strict on enforcing indigenization on mining companies and there are companies who have been forced to give up assets and shares. When that happens investors become doubly scared. When it comes to gold in Zimbabwe, given that only 15 out of 6,000 discoveries have been successful, it shows that the chances of finding big deposits are relatively low. As far as diversifying into platinum, all the land around the dyke has already been taken so there is not scope for that. However, there are still opportunities in coal where new licenses are being granted.

Where do you see the Zimbabwean mining industry heading over the medium term?
AC: The global mining industry is in waiting because of uncertainty in the commodities markets and Zimbabwe is no different. Zimbabwe still remains a country with great opportunities, but for its potential to be realized it needs a stable power supply, clarity and security on asset ownership and a stable government. There is more work to be done on infrastructure, but that is slowly being addressed which can be seen through initiatives such as Group 5 having signed a deal with the government to build a new road and there should be more to follow. Although the big players are not really interested, there lies hope in consolidation for the junior miners. Zimbabwe is a high risk and high reward destination.

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