Mystery over US$3tn deposits

BIMHA TEASER

EFFORTS to resuscitate Ziscosteel, which has since been renamed NewZim Steel, continue to be mired in breathtaking intrigue and subplots as the parties involved — Government and Indian investors Essar Africa Holdings Limited (EAHL) — remain mum over the fate of the US$3 trillion iron ore deposits at Mwanesi in Chivhu.

Since entering into an agreement on reviving the giant steel maker on March 11, 2011, Government and EAHL have been wrangling over the valuation and control of the iron ore resources in Chivhu.

 

Questions that Essar and Government are ducking
Since the beginning of last week, it has been increasingly difficult to try and get Government and Essar officials to give clarity on the agreement or supposed agreement that had been reached over the country’s Mwanesi deposits. The market is curious to know the fate of this resource by understanding the finer details of the new agreement. Below are some of the questions put to officials but have sadly remained unanswered:
Does the new agreement mean Government and Essar have renegotiated the terms of the March 2011 undertaking?
How much and what quality does the Mwanesi iron ore deposit hold?
How much stake does Government now control in New Zim Minerals in particular?
Has new Zimsteel started paying off creditors?

Through the initial deal, the Indian investors had successfully negotiated for a 60 percent stake in Ziscosteel, with Government getting the remaining 40 percent stake.

EAHL had also crucially succeeded in securing an 80 percent holding in BIMCO (Buchwa Iron Mining Company), a company charged with exploring and developing Zisco’s mining assets such as Ripple Creek Iron Ore Mine in Redcliff and its limestone deposits, including the Mwanesi iron ore deposit.

The value of the transaction, which includes Zisco’s plant and equipment and the mining assets, was put at US$750 million.
Critics argued that the agreement was fundamentally flawed as it effectively handed over a huge chunk of the country’s iron ore reserves to foreigners.

Upon realising the mistake, Government has since been holding out for an improved offer.
Former deputy prime minister in the inclusive Government Professor Arthur Mutambara suggested that the investor should have coughed up more than US$2,5 billion for the deal.

The Minister of Industry and Commerce, Mr Mike Bimha, announced on May 9, 2014 that the two parties had reached a new agreement on resuming rehabilitation works at the steel maker, sparking renewed interest into the finer details of the arrangement.

Although Mr Bimha indicated that production at NewZim Steel is scheduled to begin within the next 24 months, he noted that there were “a few minor outstanding issues” remaining.

Officials who spoke to The Sunday Mail Business on condition of anonymity say renegotiating control over the iron ore deposits remains “sticky”.

Suspicion stalks new investors

Though Essar has shown commitment in investing in the Ziscosteel asset, sceptics in the market allege that the investor has always been interested in the iron ore deposits.

Iron ore, a key ingredient in the manufacture of steel, is in huge demand in both India and China – the world’s fastest-growing economies.

The two emerging economies require steel to feed into their massive industrialisation and urbanisation projects.

It seems much of EAHL’s preoccupation was in developing assets around NewZim Minerals (former Bimco), the company housing the mining assets of the steel maker, especially Mwanesi.

An estimated US$100 million was earmarked for the full testing programme to establish the quality and quantity of the ore.

Subject to a favourable assessment of the ore, the investors were also prepared to shell out US$3,5 billion for the construction of a large-scale beneficiation project and related infrastructure.

The beneficiation process is envisaged to convert the ore into a product that could be marketed internationally.

In 2011, Essar expressed its intention to export the beneficiated iron ore, whose value was expected to rise 500 percent, to overseas markets. The company was even mulling plans for either a railway line or a slurry pipeline to wheel the ore to Mozambique.

To prove the worth of the mining portfolio, EAHL considered building a 1 000 megawatt power plant – equal to the current national power- generating capacity – to support the needs of NZM.
However, the recent interim consensus between Government and Essar is on phase one of the project which entails resuming production within the next 24 months at a rate of 50 000 tonnes per year.

Attempts to get an insight into the subject proved fruitless last week as Government and Essar officials continued to dodge critical questions.
Essar’s resident director for Africa, Middle East and Turkey Mr Firdhose Coovadia had not replied to questions sent to him on Tuesday by the time of going to print.

“Apologies but I have been in a board meeting all day and have a business dinner tomorrow. I arrive in Harare tomorrow morning and will be available to answer your questions by 10h30am (Wednesday),” said Mr Coovadia.

After Wednesday, Mr Coovadia was not answering calls from this paper and he failed to respond to numerous emails sent to him.
Deputy Minister in the Ministry of Mines Engineer Fred Moyo was also non-committal, the ministry would be guided by instructions from the Ministry of Industry and Commerce.

“The new agreement is being finalised, but comments should come from the Ministry of Industry. You need to appreciate that this deal has many interested ministries such as power, water and transport and I have not seen the finer details.

“The deposits that were in discussion were only the Mwanesi ones because many people claimed ownership. On the value, I do not want to dwell much on that because the deposits at Mwanesi are assumed reserves,” said Eng Moyo.

At the beginning of the week, the Minister of Industry and Commerce, Mr Mike Bimha, claimed that “we were calling him at the wrong time”; thereafter, he did not respond to numerous calls from this paper.

Estimates suggest that the assumed reserves at the Mwanesi claim are between 30 billion and 50 billion tonnes.
Considering that prices of the metal have declined 23 percent since the beginning of the year to $103 per tonne on Monday, the implied value of the contentious deposits might be between US$3 trillion and US$5 trillion.

However, Government officials conservatively estimate the value at over US$1,5 trillion.
Essar says the Mwanesi deposit largely comprises of “jasphalite ore, which is of average to poor grade, indispersed with hematite ore”.
But market watchers believe that by downgrading the quality of the Mwanesi deposit, Essar is trying to justify the initial valuation of the asset.

Ziscosteel used to source its feedstock from Ripple Creek in Recliff whose iron ore is relatively of a higher quality.
A Government geologist who spoke with this paper conceded that the Chivhu deposits were low grade, but indicated that there were pockets of high grade iron ore.

“The argument is based on quality, but we should first ask Zisco how it was going about it using the same iron ore from Ripple Creek. The continued interest shown by the Indian investors on Mwanesi suggests that they might have found direct shipping ore.

“Iron ore is classified by iron percentage and should have a minimum percentage of 60; anything below that has to be beneficiated or upgraded to remove the waste to concentrate iron.

“When you look at our iron ore deposits, of which records are in the public domain, for Ripple Creek the iron percentage averages 54 percent, which means if the Indians are looking at standard deposits, they will have to upgrade it.

“But does that mean you cannot mine iron ore at Ripple Creek? Ziscosteel used iron ore from the mine.
“On Mwanesi, generally it’s a huge deposit with an average of 40 percent iron, but within that huge sea, there are pockets of high grade iron ore that will be useful for resuscitation of Ziscosteel.”

Government now stands in good stead to negotiate for a realistic value of the mineral deposit after it successfully wrested control of the Mwanesi deposits from a former Zisco employee, a Mr Roderick Mumbire, who previously claimed ownership of over 40 000 hectares of the deposits through a company called Bearable Prospects Private Limited.

The mining commissioner who had “erred” in handing over the claims to Mr Mumbire, especially in a reserved area, was resultantly suspended.

After reclaiming the deposits, Government issued a special grant to Essar and the Zimbabwe Mining Development Corporation (ZMDC) between October and December last year to do exploration work.

Essar has since finished exploring the deposits.
Government officials who spoke to this paper last week say Government is now waiting for Essar to submit formal papers for mining concessions, “highlighting the areas they need to operate from”.

Meanwhile, Government and Essar Africa Holdings Limited (EAHL) will this month begin settling outstanding salaries and pensions amounting to $105 million owed to workers.

Workers have not been paid for the past three years because of the impasse between the two feuding parties.
New Zim Steel Joint Workers Union chairperson Mr Benedict Moyo confirmed the development, noting that senior officials from the Ministry of Industry and Commerce indicated that workers will be paid their dues starting from this month.

“As you are aware, we have not received our salaries for the past three years as Essar continued to tell us that they were not committed to paying us before agreeing with the Government. We are owed US$105 million in total of which US$75 million is meant for salaries, while the remaining US$30 million is for other benefits.

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