The Big Picture on Small Scale Gold Mining in Zimbabwe

Zimbabwe has a long history of gold production stretching back many centuries and gold is by any estimate a mineral with the longest mining history of the country. The gold industry is characterised by large greenstone belts which support many small mines which are privately owned. A United Nations working paper of 1995, on gold mining in Zimbabwe, estimates over 5000 small scale gold mines. This number has increased significantly since this last study and an estimate of deposits will definitely be in excess of 10 000. The economic stagnation of the last decade has seen development efforts in the area of small scale gold mining collapse, and has further fragmented private ownership and distribution of small claim owners.

A large number of these mines have considerable potential, but are seen by the current claim holders as an unattractive investments because of the considerable capital needed. Technology does not present a real constraint; the necessary equipment and skills are available locally; and there are no legal obstacles. The current Zimbabwe mining law is probably the simplest in Africa for the acquisition of full, transferable mineral title. Rather it is the shortage of risk capital for equipment purchase and exploration, and entrepreneurial skills that inhibit the development of small-scale mining.

The traditional approach to mining of gold claims was for the title holder to prospect and peg his claims, then raise sufficient capital for the purchase of the mining equipment. If capital is hard to come by, claim holders often revert to manual methods only mining the richest veins and obtaining a very low recovery. Once the easy-to-extract gold resource close to the surface is exhausted, the claim is abandoned and in cases where this is not so, the claim becomes highly dangerous for any further workings due to hazards of the numerous adits and tunnels haphazardly chasing the vein. This short term mining method further reduces the life of mine. To quote the World Gold Analyst Special Report – Zimbabwe of 2010 (WGR), “Such methods are notoriously inefficient as they fail to take into consideration the geological setting and the potential of the whole mineral deposit. With a more systematic and objective approach they could determine not only the scope of the whole deposit, but also which techniques would serve them best for optimal exploitation of the mineral wealth.”

The greatest challenge for title holders is the motivation of finance for capital equipment for their individual gold claims. In most cases, the gold claim will not have justifiable proven reserves for an outlay that would enable the miner to be profitable and therefore not be a liability to the financier. The fact that the claims are scattered means that exploration is haphazard. No economies of scale are achieved as no individual miner requires all equipment from diamond drillers used in exploration to stamp mills or crushers used in gold recovery. This presents an unusual quandary for exploitation of the resource which is further compounded by the fact that in many cases small miners are not prepared to dispose of the ownership title as it probably represents a large portion of their net worth. Further the value that they would want for the title is also in most cases much higher than value attached by potential purchasers using available geological material. Small miners do not keep verifiable production records of gold recoveries and tonnages mined. So again the intrinsic value of the title is difficult to agree on.

A look at the mining records as contained in the World Gold Analyst Special Report – Zimbabwe of 2010 (WGR), will further confirm what we have always believed. Although gold production has been falling between 2006 to 2010 (H1), gold deliveries by custom millers as a percentage has been increasing. Gold production of the large mines will increase as they increase capacity utilisation, but the importance of this statistic is that it underlines the importance of custom milling plants in unlocking the value of these small mines. With this in mind and taking into consideration the aforementioned challenges of small scale mining, a new approach should be taken by investors.

A new approach would be to set up what we loosely term “hubs of excellence”. These hubs are fully capitalised resource centres for gold miners in any region where they are established. They do more than simply transporting and crushing ore for small mines. They are a one-stop shop for title holders wishing to unlock the underlying value of the gold mines that they are literally sitting on. The hub will have all capital equipment required-from exploration to gold recovery, and also provide a full boutique of services such as mine engineers, geologists and geological intelligence that small miners can not afford to employ individually. The hub can have cyanidation farms of similar technology to leach tailings. Due to their size, they are better motivators of capital. Profitability is enhanced due to the economies of production and fuller utilisation of all mining equipment. The fact that the title is not bought out-right also means that the model saves money that would have ordinarily been used for purchase of reserves. The hub will assist miners in transportation of ores for crushing, geological sampling, and advice in terms of mine structure and best methods of attacking the reef. The hub will also lease out to the miners any equipment that they would need to enable production. This will be done at no upfront cost but rather on a pre agreed contractual basis with miners paying tributes and royalties to the hub after gold recovery when ores are crushed. Pre feasibility studies will be conducted before contractual arrangements to ensure that gold recovered will be sufficient to cover royalties. Undoubtedly, miners also face challenges when attempting to market their gold. In many cases falling victim to unscrupulous individuals involved in the industry. Hubs can purchase any excess gold from miners in the surrounding areas and due to the collective volumes of gold purchases it will be in a better position to command more competitive commodity prices.

Hubs will also maintain production and ore delivery histories including gold recovered of all mines in the area. Over time such information will be used to consolidate small mine clusters in a particular area with the objective of developing exploration and geological intelligence of that area and graduating it into a medium size mine. Title holders in such areas can then be offered separate Joint Venture agreements or out-right buy-outs. In fact such consolidation is what led to one of the countries big mines. Jumbo mine now owned by Metallon Gold was actually part a cluster of small mines of which Jumbo mine was the most prominent. Over time, the clusters were consolidated and now Jumbo has left its once humble beginnings behind.

Our approach is that the Hub is what needs to be capitalised. Quite simply our approach is this, the hub is actually not just a milling plant.No. It is a gold mine with out-sourced labour.