Zimbabwe’s recovery marks another positive step

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By Zimbabwe Investor on April 4, 2013. No Comments

Opportunities opening up in Zimbabwe

Opportunities opening up in Zimbabwe

The lifting of the majority of European Union (EU) sanctions in Zimbabwe marks another positive step in the African nation’s economy, and promises to boost its businesses.

Last week, sanctions including travel bans have were suspended for 81 officials and eight companies.

Some sanctions remain for certain individuals and companies, including President Robert Mugabe and state diamond miner Zimbabwe Mining Development Corporation.

The EU said the decision to take a more relaxed approach followed the “peaceful, successful and credible” referendum on Zimbabwe’s new constitution.

The poll is being seen as another positive step towards a general election later this year.

It is believed that the greater political stability and predictability will lead to heightened interest in Zimbabwe from the international investment community.

It also represents progress towards a sustainable recovery of Zimbabwe’s economy and could potentially lead to the opening of more export markets for Zimbabwean companies.

UK stockbroker WH Ireland, in a note, said, according to stock exchange data from Harare, Zimbabwe’s industrials sector is up 19% this year so far and is 30% higher than last year.

As an investor and business owner in Zimbabwe, AIM-quoted Cambria Africa, is among the potential winners in this recovery.

In the past twelve months Cambria has undergone a period of significant transformation and put in place the foundations for its own recovery.

The majority of the board has changed and the business simplified to focus on its four strongest units under the Cambria Africa name.

Cambria also recently reported signs of significant improvement in the business during the start of 2013 with the benefits of the strategic initiatives the group’s management has introduced now becoming visible.

“Whilst there may still be many twists and turns in Zimbabwe’s political future these are steps in the right direction, which we hope will encourage further development of the economy, which in turn may boost the already fast growing companies in Cambria’s investment portfolio,” the broker said.

WH Ireland has a ‘speculative buy’ recommendation, and a 25.1p price target; it said the improvements in Zimbabwe could help narrow the 61% discount in the share price from its sum-of-its-parts valuation.

Cambria is not the only AIM firm pinning its ambitions on Zimbabwe.

Indeed, gold miner Caledonia showed it is possible to operate and grow a business, and make a decent profit in Zimbabwe.

Last Thursday’s financial results, for the twelve months ended December 31 2012, revealed its strong operational performance, coupled with a dip in cash costs, made for a profitable and very cash generative year.

Gross profit for the period jumped to US$40.91mln from US$29.11mln previously, although the pre-tax figure was almost static year-on-year after Caledonia made US$14.6mln of share based payments this time round.

The mine, which, following indigenisation initiatives last year, is now 51% owned by Zimbabweans, is not only one of the lowest cost gold producers in Africa, but in the world.

It is now expected to increase gold production by 90% by 2016. This would take output to 76,000 ounces of the precious metal compared with 40,000 this year.

In a recent note, City broker Canaccord said it believes there is headroom for the stock to double in value in the next year.
Reiterating his ‘buy’ advice, Canaccord analyst Dmitry Kalachev added: “Caledonia has proven track record of delivering results in a challenging environment and has the financial strength to finance growth internally.

“Strong balance sheet and cash generation leave ample room for further dividend growth.”

Mwana, another AIM firm with gold mining operations in Zimbabwe, is also hoping for a successful year following the recent restart of production at the Freda Rebecca property following a rupture to a leach tank earlier this year.

The incident will probably affect gold recovery in the medium term, the company said.

Management guidance for gold production for the 12 months ending March 2013 is set at 63,000 ounces. In the 12 months to the end of March 2012, the mine produced 47,770 ounces of gold, and hit a record quarterly production of 18,350 ounces in the third quarter of 2012.

What’s clear is that, while all these businesses operate in different industries, all are likely to benefit from growing investor interest in Zimbabwe should the country’s political and economic backdrop continue to stabilise.

As such attentions will be focused on the country’s upcoming elections.