May 5, 2024
Karo to start mine development next month
KARO Mining Holdings is seeking to raise US$50 million through the issue of the bond by way of a private placement on the Victoria Falls Stock Exchange (VFEX) next month. The first VFEX-listed bond in Zimbabwe will help fund a 190 000-ounce per year platinum group metals (PGMs) mine at the Karo Platinum project. The Financial Gazette’s Companies and Markets Editor, Adelaide Moyo, caught up with Karo’s managing director Bernard Pryor (BP) and country manager, Josephat Zimba (JZ), to discuss the project and Karo’s plans going forward.
Below are excerpts of the interview:
AM: What thought process led to the decision to go the VFEX route as opposed to other ways of raising money?
BP: I think there are two answers to that. One is clearly we know there are a number of financial institutions in Zimbabwe who own US dollars and are looking for places to invest them in Zimbabwe where there is various fiscal constraints on what they can do with that and we thought look we need US dollars to spend in Zimbabwe, we could raise them in Zimbabwe so why don’t we issue a bond on the VFEX and they can invest that way. We had a roadshow last week and we have lots of very good interest from a number of very large institutions and pension funds in Harare.
The other reason which has a knock-on effect is that this is a Zimbabwean project, its based obviously in Zimbabwe, it will be built and run by Zimbabweans and what’s better than to use money based in Zimbabwe, invest it through a Zimbabwean investment platform and for that money to be spent back in Zimbabwe.
Karo country manager, Josephat Zimba
So it reduces our need for international debt and equity and it makes much more what I called in my roadshows involving the wider Zimbabwean family in the development of Karo.
JZ: By going this route, you spread the benefits of the Karo project across a much wider Zimbabwean community. If you look at employment, ordinarily your first thought of call is the communities around and those are the people that benefit. But in the past, all these community trusts are more focused on the communities around the mine, but if you go this route, you allow pension funds that are cutting across the whole country to participate.
Guys in Bulawayo, Binga or wherever they are contributing pension funds have an opportunity to participate and benefit in the mining space. The platinum industry is very closed for Zimbabweans to participate in, so this is really a unique opportunity for Zimbabweans to participate in developing the country. It is developing a new culture where Zimbabweans take some responsibility for developing their own economy and use funds that are in-country to do so.
AM: What is your impression of VFEX as a platform to raise funds?
BP: Obviously, this is our first involvement with them but our engagement with them has been fantastic, they have been incredibly supportive, and helpful and they are also looking forward to what would be the largest bond listing on their exchange. So far, there has been a great relationship and I’m sure that will continue after we have listed the bond.
AM: Can you give us an update on the Karo Platinum Project, are you in line with targets on production planned for within the next 24 months?
BP: We are having a ground-breaking in the first week of December and that’s really exciting. We have equipment being mobilised to the site, we have done all the design of the project and we are into procurement. We have been buying all the long lead items and now we are starting construction on the ground.
We probably spent US$25 million to date to get the project to where it is now and with ground-breaking on the start of construction, we are fostering ahead in developing the whole project on the ground.
Karo’s managing director Bernard Pryor
We are also currently employing a lot of people, our managers are Zimbabwean, we have been advertising in the local press and we have to build up our team very rapidly because this is a fast-paced project.
We actually have a 24-month construction schedule and we plan to commission and put our first ore into the plant in July 2024. Thereafter we will ramp up the project over 12 months to the desired capacity. The environmental and social impact assessment has been approved by Zimbabwean authorities. We have been working very closely with the government, the mining and the processing plant have all been approved for us to start work.
AM: How much in total are you investing in the Karo project?
BP: The capital cost of the project is approximately US$390 million and on top of that you have to add working capital during construction and then through into operations until you are into cash flow positive. So, your peak expenditure is approximately US$450 million but the actual what we would all understand as capital cost is US$390 million.
JZ: The US$25 million excludes some of the costs that have been incurred from the exploration point of view. It’s more on the design and ordering of the long lead items for the project so overall the actual spend to date would exceed US$25 million.
AM: What are your PGMs targets in the first phase of the project?
BP: The first phase of the project for production is that we are targeting an output of 190 000 ounces of PGMs per year.
This is a multiple-phased project and we would also commence probably next year looking at the ability to expand the project and also look to downstream beneficiation with the smelter and look at the economics and the feasibility of undertaking that.
AM: How is it like operating in Zimbabwe, in terms of the environment? What are some of the challenges that you have faced along the way?
BP: This is always an interesting question for more parties. I’ve operated throughout Africa and I have to say that Zimbabwe has impressed me in a huge number of areas. It’s wonderful, the ability to operate is all related to people so its wonderful to see that there is such a high level of education in Zimbabwe which means there are great skills that we need to build and operate our project. We have advertised and we had a great response from people wanting to work for Karo.
That’s also helped us along the way. We feel that the energy, the support has been really good to make sure that we maintain our schedule.
In terms of the challenges, I think the one that we all know about is just the fiscal structures in-country. They are what they are. We have to work with them and we do obviously. They are a bit complicated but they work. That’s probably the only challenge and everything else I think is normal for a large construction project and we look forward to a very successful construction phase.
JZ: One of the points that we can probably add on that is that look, we operate in multiple jurisdictions as the group and one of the things that stands out for me in terms of operating in Zimbabwe is the accessibility of the Zim’s government officials to discuss anything that might be hindering progress on the project.
I think they are always available to sit at the table and discuss and that for us is always positive when you operate in a country where you have the full support of the government structures.
For a project of this nature, it’s inevitable that there would be issues here and there but I think it’s the ability to sit at the table and find solutions in a very practical way for which I must commend the government for providing an environment where we can sit down the table across from ministry of Mines, Finance to Energy. We have met with open doors wherever we have gone and I think it bodes well for doing the project in the country.
AM: Are you worried about Zimbabwe’s storied past with exchange controls and policy inconsistency?
BP: No, not really. As I said earlier, it’s a system, and exchange controls can be complicated for people who haven’t been here before but once you understand how it works and because Karo has been in Zimbabwe for a number of years and the Tharisa group as well, so they have operated through all these phases and Karo is just going to learn from that more.
JZ: We have been here, we got a view and once you know how the system works and then you work through making sure that you follow the processes required then the system works. What interests me is that Zim has got a very strict adherence to its laws, acts and policies and once you know how it works you have no difficulties. There are no shortcuts in Zim.
AM: Tharisa is in talks with French energy company Total Eren for a 300 megawatts (MW) solar plant for Karo, can you tell us more about this? Is it in line with the group’s ESG initiative?
BP: It’s in line with our ESG concept and our targets. We clearly as Karo want to be as energy efficient as possible. We also know that our responses to greenhouse gases are important so that we can play our little part in climate change which is a real and challenging subject for the whole planet. We are not going to change it on our own but we can take our steps and that all adds to the improvement of the climate. To do that also is renewable energies. Karo has signed an MoU with Total Eren that they will build a 300 MW solar plant next door to our plant. We have already outlined the land they can have and they would then sell their power into the grid and we would then get the benefits of that power through the grid through Zetdc at obviously much more competitive price rates and then we would also benefit from having a greener carbon footprint to our whole operation. We will only take 30 MW and the balance of the power will be sold into the grid for the benefit of the wider Zimbabwean uses.
JZ: The 300 MW solar power was or is part of the agreement that we entered with the Zim government. The Karo project has two facets, the development of a PGMs mine and the value addition chain along that and also the development of at least 300 MW of solar power. This is again another phase of the two implementations of the Karo project in its entirety. We are excited for many reasons. At Kariba, there are water stress levels. The levels of water in Kariba are low which has suffocated generation. If you can replace some of the demand for power generation because of the low water levels from Kariba through the solar plant that really helps at a national level and we would really draw power for the project while generating the country’s capacity of green energy which is a fantastic initiative for the group.
AM: How significant is this project to Zimbabwe and the region?
BP: It’s very significant I would say. If you take the revenue of our project, say US$2 000 an ounce, we will be somewhere close to contributing to two percent of the country’s GDP. We will also be adding a thousand jobs in direct employment and indirect employment of some seven to 10 000 jobs. An added benefit for the country. On top of that, there is always community support mostly clearly probably through the towns of Chegutu and Norton where we will source our employees from but also, they would be the communities that we will support because they are the closest and most affected by the project.
AM: Any other information you might want to add about the project?
BP: I think this is a great project for us, for the country even for the people, this is the first brand new major mine development for a long time so that’s exciting. The use of the VFEX is really important, its involving the wider community of Zimbabwe in our project. It’s not just an international investor coming in and building the project and sitting outside Zimbabwe we are involving not just through employment, but Zimbabwean investors. And that gets everybody happy because it’s a Zimbabwe-centric and most valuable asset that everybody can benefit from.
JZ: I think the good news is that the constructor for the civil work has already moved to the site so work is starting. All the construction work will be done by Zimbabweans provided they have the capability and availability.
