Bargains sometimes come with risk. So is now the time to seriously consider investing in companies or funds with an interest in the mineral rich but troubled nation of Zimbabwe.

Anybody with any sense has steered well clear of Zimbabwe for the last few years. But as the election process got underway it seemed that risk hungry investors were alive and well. Stocks in mining companies operating in Zimbabwe leapt in Johannesburg, London and Sydney as news that Robert Mugabe’s days as president could be numbered. The change in leadership hasn’t materialised, but let’s look at what happened.

Where there is risk, there are bargains…

In Sydney platinum producer Zimplats rose 11%, the biggest rise in a year! Around 68% of Zimplats is owned by South Africa’s Impala Platinum (Implats) and in Joburg, Implats too saw its share price jump 3.9%.

Then in the big smoke, LonZim, the investment fund established by mining group Lonrho, rose an impressive 14.85% to close at 116.50p. LonZim wants to raise around US$140 million on London’s Alternative Investment Market (AIM) to purchase assets in Zimbabwe in the event of an economic upturn. Rumour has it that the fund has already raised $65m.

Aquarius Platinum was another gainer — its share price leapt 8.1%. And take a look at this — London’s African Consolidated Resources soared 36% in just two days! The company felt compelled to put out a statement saying it had no idea why the share had moved so dramatically. That said, speculators that didn’t then take their profits will be kicking themselves now. The share price has fallen nearly a third since!

Still, enthusiasm for Zimbabwe is not exactly new. In October, asset management and investment company Imara used its newly launched Botswana-based Zimbabwe Fund to invest $13.5 million in 17 of the 82 companies listed on the Zimbabwe Stock Exchange. They must be chuffed — the Zimbabwean stock exchange’s mainstream industrial index has gained 600% this year!

And if you’ve been reading our diaries you’ll know that the Chinese too have been actively seeking mining opportunities in Zimbabwe. They are after gold, platinum and even uranium. The Chinese have already proved their interest is real. Last year they put money into Zimasco Consolidated Enterprises, Zimbabwe’s largest ferrochrome producer.

The nightmare isn’t over

So there is some truth in the saying where there is risk there are also bargains to be had. But there are big risks, not to mention ethical considerations; the nightmare is most certainly not over. Mugabe and his ruling Zanu-PF party were never going to relinquish power easily and second round of the presidential election now seems certain. Even Zimbabwe’s opposition leader, Morgan Tsvangirai, who is said to have won the election, has left the country. And some argue that investing in Zimbabwe will only prolong Mugabe’s reign of terror.

If stability does come to Zimbabwe, which is looking increasingly unlikely, the rewards will be long overdue. For sure, companies operating here have been hanging on by a thread. It has not exactly been an easy ride.

Take ACR, for example — Mugabe’s government cancelled its title to mine the rich Marange diamond fields in eastern Zimbabwe. Rio Tinto too saw the production of diamonds from its 78% owned Murowa operation fall 40% – given economic uncertainty the mining giant simply couldn’t justify the necessary US$20m investment to keep the operation going. And Murowa is Zimbabwe’s biggest producer of rough stones.

Indeed, countless mines (more than 100 since 1998) have had to close because of skyrocketing operational costs. Then Mugabe decided to introduce a nationalisation law that forced miners to cede majority ownership to locals. Add to that foreign exchange troubles, power cuts and power struggles, and it is plain to see that the list of woes has been endless.

But if a miner can’t look on the bright side then he is in the wrong job. David Brown, chief executive of Implats, the world’s number two producer, called Zimbabwe a “big blue sky opportunity”.

Certainly many mining companies have remained committed to Zimbabwe. After all they know what is in the ground! Zimbabwe has large gold and diamond deposits. And it is has the second biggest platinum reserves in the world after South Africa.

Last month, for example, Implats said it would aim to increase platinum output from its Zimbabwe mines by 100,000 ounces to 260,000 ounces annually by 2010. That meant a commitment of $360 million to expand its Mimosa and Zimplats operations.

Then Anglo Platinum, the world’s biggest platinum producer, and Rio Tinto both said that despite the troubles, they remained committed.

A glimmer of hope

The business community would like to see Mr Tsvangirai in power, but nothing short of a miracle would be needed for this to materialise now. And even if it did, the economy will still be in tatters. Michell Gavin, an adjunct scholar on Africa at the Council of Foreign Relations, couldn’t have put it better. An “all-hands-on-deck effort” would be necessary to rescue Zimbabwe, she was reported saying in Time magazine.

Okay, so the international community which vehemently boycotted Zimbabwe is ready to step in with financial support. The Brits, it seems, are already expected to dig deep into their pockets to bring the country back from the dead. Allegedly £1bn a year emergency aid and development package is on the cards. That would triple the aid currently being supplied to Zimbabwe.

So there may be a glimmer of golden hope. Worth watching! Though it could very easily be snuffed out.

Keep mining,

Erin and Isabel