EPOs, what needs to be done?
Exploration of ground is vital for any mining industry to flourish, experts believe that for any company large or small to grow, large scale exploration should take place. Zimbabwe is losing quite a large some of revenue due to the fact that there is little or no exploration that is taking place in mining areas in Zimbabwe. For example In gold exploration Zimbabwe depends on the results that were carried out long back no new deposits were found during this information society era in Zimbabwe.
By Rudairo Dickson Mapuranga
What are EPOs?
Exclusive Prospecting Orders (EPO) is a large area of ground targeting the selected minerals for exploration. The maximum is 65,000 hectares in Zimbabwe. Minimum size is up to the company to choose. In Zimbabwe EPOs tenure are 3 years with an option to renew for another 3 years.
EPOs are used by companies as first pass exploration areas. This means that companies after doing the highly technical exploration studies will eventually drop most of the EPO ground in 3 years. Generally companies will in most cases eventually remain with less than 1000 hectares for mining operations that is if they find an economic mineral deposit in the EPO.
According to figures released by the renowned on Consulting Groups in the past, Zimbabwe’s spending on exploration is “the lowest among leading mining countries”. Between 1989 and 2017 Zimbabwe’s share of the global exploration budget fell from 0.2% to literally 0%.
It is clear that Zimbabwe has lagged behind the rest of the world in terms of mining, Zimbabwe used to be one of the largest producers of gold in Africa but has for now it is nearly close to nowhere to be found.
According to Kennedy Mtetwa a mining geological expert, Zimbabwe is not even making an effort in funding new exploration. To him, Zimbabwe is satisfied in producing very little and is not worried about tomorrow’s explorations.
“Globally, around 10% of all capital expenditure in mining goes towards exploration, in Zimbabwe, it’s around 0%. We are not really replacing the minerals that we are mining” said Mtetwa.
Exploration died in Zimbabwe while booming elsewhere in Africa.
In countries like South Africa, Democratic Republic of Congo and Uganda among others exploration has been key factor to the growth of the industry in those countries. Zimbabwe boost of having nearly all minerals found on earth but the way the mining industry is producing send an otherwise message. Exploration need to be at a centre stage in the mining industry in Zimbabwe just like in other countries in Africa. Factors leading to a limited exploration need to be addressed.
Legal environment
To a large extent, this reflects the lack of investor confidence in recent years. Extreme policy uncertainty, political risk and rising cost inflation have made companies wary of committing money to the local industry.
The lack of exploration in the country is not however only because of the broader environment. Exploration companies have faced particular challenges of their own.
Primary among these is that the legal framework in Zimabwe has been largely tailored towards the big mining companies that dominate the local industry. Smaller companies and exploration operations have had to meet the same level of compliance as their larger counterparts, which is, relatively, a much heavier burden.
“Junior exploration companies have been over-regulated,” “They have had to comply with the same rules that operating companies comply with, which is a barrier to the freedom that they need to operate properly” said Mtetwa.
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Many specialist exploration firms simply lack the resources to deal with this situation.
According to experts, In a large company, compliance comes more easily, one need have a large legal team, so being able to understand sophisticated rules is something a firm can deal with in-house. But if an investor is an amateur firm or a small group of investors, dealing with the legal intricacies may hamper them more than in a larger company.
The Indigenous Act (51% local ownership) law made sure no serious exploration company comes with 100% of it’s money to explore and take the risks and when they find an economic deposit the locals take 51% of that deposit. This policy rank madness, hence there here been 0% exploration expenditure.
According to Kennedy Mtetwa, exploration and the granting of EPOs gives citizens in Zimbabwe a certain advantage over foreign companies, exploration of land for mining will eventually lead the land to be bankable giving citizens an opportunity to lease or sell their deposits to bigger players thereby creating mining environment in Zimbabwe that will compete at a greater level.
“One has to recognise that the exploration space is a good capital raising ground for junior miners, particularly junior black miners,” “If you can take a number of projects to the bankable stage and then sell them to bigger players, that allows you to build up your own balance sheet to compete on a greater level. That needs to be encouraged, and so on a whole, the regime needs to be bifurcated” said Mtetwa
Wider support
Creating a more supportive legal environment may be the most important step in encouraging the exploration activities that Zimbabwe needs to sustain its mining industry, but it’s far from the only one.
“As a starting point, we need to look at what other countries are doing,”. “For instance, creating tax incentives or allowing companies to write off exploration costs as a way to mitigate the risk of non-discovery.”
Security of tenure is also a vital issue.
“One of the concerns of government is if we approve long tenure over large tracts of land for single explorers,” “But companies can be required to submit a plan and show progress against the plan. As long as they are investing continually, they can hold their tenements, but if they do nothing for a period of time, the government can take them back again.”
There is also a need for greater transparency in the mineral rights application process. Currently there is no online database that potential explorers can visit to see what land is available, who holds which licences, or when those licences expire. That makes it very difficult for companies to do strategic planning even before coming to Zimbabwe.
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Vitally, establishing a more stable and investor-friendly climate will naturally encourage more interest.
“It’s not only about fixing the regulatory environment, or creating incentives; it’s also about what happens at the next stage,” “There is no exploration just for the sake of exploration. You are doing it with a purpose. So are you in an environment where you can produce competitively, where you can raise capital? Exploration companies will go to environments where the next stage is set in a way that is favourable.”
This article first appeared in the Mining Zimbabwe magazine march issue