Unfortunately when it comes to understanding what is going on in Zimbabwe, discerning what is fact is always challenging. We have therefore sought the correct story from Zimasco and feel that it is necessary to share this with our clients so as to better understand the market situation.
As part of its strategy to sweat its idle assets, Zimasco leased its 3 West plant furnaces to Portnex International, a South African company. The deal is for 5 years effective 10 December 2015 and terminating on 9 December 2020 with the following salient features;
- Prior to Portnex commencing operations, Zimasco brought its furnaces to a status where they were ready to be operational at our own cost.
- Portnex, for a leasing fee, then took over the ready to operate furnaces and are expected to run them as if they are their own i.e. they are responsible for all inputs needed to smelt chrome ore to produce high carbon ferrochrome and sell it for their own benefit. They are also expected to maintain the furnaces in good condition and return them to Zimasco at the termination of the contract in the same state and condition that they found them in when they started leasing them.
- The often spoken about $12 million ‘investment’ by Portnex is money that Portnex is expected to use for their working capital to run a ferrochrome production business with part of it paying for Zimasco’s leasing fee and services.
Portnex are currently running 2 furnaces, although they are yet to achieve optimum production on these two units. They intend to run a 3rd furnace as soon as it has been refurbished. All the costs incurred by Portnex to refurbish the furnace will be recovered by Portnex from Zimasco.
Portnex is currently getting some of their chrome ore from Tributors (mining contractors) working on Zimasco claims. The balance of their chrome ore they are sourcing from other small scale suppliers and claim holders.
Portnex is developing its own ore supply channels as Zimasco is at an advanced stage to resume its smelting operations on its 2 East Plant furnaces which are currently switched off. There is no refurbishment work needed on these two furnaces as they were only switched off in December due to low prices.
Zimasco provides Portnex support services such as
- Sizing and Crushing
- security and
- secondary metal recovery.
- A misconception in the market is that there is a discussion between Zimasco and Portnex to provide a $5million facility to Zimasco. This is not true and according to Zimasco there are no such discussions underway.
Zimasco’s imminent resumption of operations are based on a full business restructuring plan that has been put in place of which the Portnex leasing arrangement plays only a small part (~10%) especially given that this arrangement is a temporary one as their lease will terminate in 2020