Zimbabwe’s perceived country risk for foreign investors is exaggerated after success of junior miner, Caledonia Mining which has operated in the country for the past decade and paying dividends to foreign investors in that time, according to a research on the firm.
Caledonia has operated Blanket Mine in Gwanda, south of the country since 2006. It became the first mining house to comply with country’s foreign ownership laws after selling off 51 percent of the mine to locals in 2012.
Zimbabwe is seen as having high country risk, which levies an additional premium on the cost of funds, making the country more expensive.
The country’s low FDI flows have been blamed on policies such as the seizure of white-owned farms to resettle landless blacks from 2000, and the current drive by Mugabe’s government to force foreign-owned businesses, especially mines, to cede 51 percent shareholding to local blacks.
Caledonia does not face any such challenges after it became the first and so far only miner to meet the indigenisation criteria.
It owns 49 percent, with the remaining 51 percent divided among Gwanda Community Trust (10 percent), Blanket Employee Trust (10 percent) the NIEEF (National Indigenisation and Economic Empowerment Fund (16 percent) and Fremiro (15 percent).
In a research paper on the company released by Caledonia, WH Ireland said the miner is undervalued because of Zimbabwe’s risk which is overstated.
“We believe that the Zimbabwe risk has been overplayed considering the operating history demonstrated by Caledonia and the company is valued at only half the level of its African gold mining peers on most financial multiples.”
The mine is currently undertaking a major expansion project which will see annual production capacity double from the current 40 000 ounces by year end.
“By the end of the year we expect Caledonia’s cash position to improve measurably and see strong (and increasing) cash generation as the new Central Shaft is completed and the expansion concluded.”
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