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Johannesburg - The correction in platinum shares might be a healthy one, but Impala Platinum - down a third since June - may have its long-standing investment in Zimbabwe finally pay dividends.
That's if Zimbabwe's ruling Zanu PF party is able to share power with the Movement for Democratic Change.
According to Neill Young, a fund manager at Coronation Fund Managers, Impala's Zimbabwe platinum operations have a lot going for them. Cash margins are high, they are shallow and easy to mine, and the resource is big, equal to about 40% of Impala's total.
"So there clearly is significant potential to scale up beyond the current expansion plans," he told Fin24.com. "But this would clearly require political stability and a far more conducive investment environment."
Impala operates two mines in Zimbabwe: Zimplats in conjunction with Aquarius Platinum, a London and Johannesburg listed firm, and Mimosa which produced 78 200 ounces of platinum last year. Zimplats delivered 96 500 ounces.
Capital expenditure has been approved to increase annual production to 160 000 by 2010 at Zimplats which is estimated to have as much as 184.3 million tonnes of ore in platinum group metals (PGM).
According to another analyst, very little value has been attributed to these assets in Impala's share price. But should political stability be achieved in Zimbabwe: "a positive differentiating factor for the group".
Said Young: "Zimplats is listed in Australia and has a market cap of about $1bn. Impala own 87% of it, so one could make the argument that about 5% of the Impala share price reflects its holding in Zimplats."
"The problem with the argument is that the Zimplats share is not very liquid, so one can question how realistic the share price is." This figure also excludes any contribution from Mimosa, Young said.
Not all agree. Liston Meintjes, chief investment officer at Lion of Africa Fund Managers said Impala's SA assets were better value than the Zimbabwean assets.
"The Zimbabwean mines are quality assets but the real benefit will only be seen when the operating environment that they are working in improves." Meintjes said there was room for improved operating margins at these mines.
Political interference has become a way of life for business in Zimbabwe and this threat hangs over mines in the region.
The Zimplats operations were recently the subject of an audit by the Zimbabwean Central Bank. According to the Herald newspaper in Harare, alleges that they siphoned $115m from Zimbabwe in unpaid taxes. And yet companies like Impala and its rival, Anglo Platinum, can't afford to quit the country now.
"It has been made clear to Anglo American that if it ceases to develop this project, the Government of Zimbabwe will assume control," said the company which is developing the large Unki deposit in Zimbabwe.
Meanwhile, there's a double-edged sword to an underperforming platinum industry in Zimbabwe because, coupled with SA supply constraints, it helps maintain the supply deficit.
With the new Anglo Platinum mine expected to produce about 58 000 oz of platinum by 2010 and expansion at the Zimplats and Mimosa operations, Zimbabwe could be expected to deliver around 300 000 oz of platinum onto the world market - about 5% of total supply - each year.
- Fin24.com