Zimbabwe sees gold rush, investors still sceptical

Gold producers are re-starting shut mines in Zimbabwe after new rules allowed them to sell gold directly on world markets, but uncertainty is likely to block big new mine investments for years. The rush to re-open mines comes at a time when Zimbabwe's unity government of President Robert Mugabe and Morgan Tsvangirai is seeking to repair a tattered economy, but investors are holding out for major reforms.
The global credit crunch has also dried up cash for investment, and even once this hurdle is crossed, Zimbabwe is unlikely to see new cash flowing its way immediately. "It's going to take a long time to build people's confidence to invest in the country," said analyst Cailey Barker at RBC Capital Markets in London.
"In terms of a big rush into the country, I think there are far better opportunities in other countries that people are not even doing because of the rest of the problems with debt and capital markets." A key stumbling block to mining investment in Zimbabwe - which has the world's second-biggest platinum reserves and hefty deposits of diamonds, coal and nickel - is a law limiting foreign ownership of mines to 49 percent.
Gold producers already in the country have jumped at the opportunity presented by the central bank, which in February relinquished its role as sales agent for gold, allowing firms for the first time to sell the metal and keep all the proceeds. This is a far cry from the previous scenario where they got 40 percent of proceeds in Zimbabwean dollars, a currency made worthless by hyper-inflation.
Zimbabwe's central bank, which owes gold miners millions of dollars, plans to repay this in special foreign currency bonds. A wave of gold firms that had shut down mines leading to near halt in output are now seeking funds to resume business. They had shut their mines in the face of sharply rising costs, frequent power cuts, equipment and foreign currency shortages.
The country's biggest gold producer, Metallon Gold, London-listed Mwana Africa and Canada's New Dawn Mining Corp are all planning to re-open their gold mines within months. "Gold producers there were scraping the bottom of the barrel in terms of profits," Johannesburg-based gold analyst David Davis of Credit Suisse Standard Securities said.