Sponsoring ASM gold mining operations: Nuggets on minimizing loses
By Ndanatsiwa Tagwireyi
The Parliament of Zimbabwe estimates that there are about 500 000 small scale miners, mainly mining gold, and supporting up to three million dependents in the country. Many people now want to benefit from gold mining with or without mining claims in the Artisanal and Small-Scale Mining (ASM) as they are constantly finding ways to penetrate the gold sector.
Observations made by this reporter in the Midlands Province indicate that a considerable number of people now want to venture into gold mining through sponsoring operations, a development that calls for extreme caution to avoid losing the hard-earned seed capital.
Sponsoring a small-scale gold mine involves an investor and a mine owner coming together, with the former bringing in financial assistance in form of food, fuel, equipment while the latter brings a mining claim and employees to the deal. The mining claim determines the type of mineral that is supposed to be mined and parties agree on a percentage sharing arrangement before commencement of work; it should result in a win-win situation which leaves the miner, investor, and employee happy after sharing profits.
Sponsoring ASM gold operations has become a common phenomenon in areas including Zvishavane, Mberengwa, Mazvihwa, Shurugwi and other places rich in gold deposits. However, experts warn that it should not only be a matter of following the trend but conducting prior due diligence when sponsoring.
KBM Consultancy Managing Director Kudakwashe Mapurisa cautioned that sponsors should know that they are investors, businesspeople and entrepreneurs who should take moderate risks bearing in mind that not all risks are worth taking.
“I have witnessed a lot of sponsors losing money and I believe it is because they invested to try their luck, most of them do not treat mining as a business, no business proposals, no consultation, no skilled or semiskilled labour and no security in most of the cases,” Mapurisa told the Mining Vision Magazine.
“I am not surprised by the failure of many sponsorship projects because a project undertaken without a business plan, feasibility study and without any qualified expertise is gambling,” he holds.
Seasoned Mberengwa based small scale gold miner Makumba Nyenje notes that it is very common for a sponsor to inject money amounting from US$1000 in a gold mining project but :“If you don’t pay attention to detail and if you don’t do things the way they are supposed to be done, your money can be flashed down the drain, you may lose everything that you bring and fail to break even.”
Bright Dube, a Zvishavane based resident who once tried to sponsor operations at a gold claim in Mberengwa said: “I ended up abandoning the project because the gold belt proved to be very far away from being located. I felt like my money was going down the drain.”
“Sponsors must understand the risk of any asset they are to invest in. Geological risk has high impact on small scale miners,” a Zimbabwean based mineral economist weighed in
Considering the grade and quality of the mineral, legal registration of a mine, history of the gold mine’s production, expertise, putting agreements in writing and other environmental factors were cited as important pillars that prospective investors should consider before capital injection into a project.
“Make sure the mine you are sponsoring is legally registered so that no one comes to claim ownership after you invest,” Mapurisa said adding that: “Consider the history of the mine and possibly get an expert to do a site assessment to establish the potential of your intended project and SWOT analysis.”
He warned that the success of mining projects is not dependable on capital only, as expertise and other business environmental factors such as legal formalities and natural hazards come into play.
Mapurisa’s standpoint is that: “Prospective sponsors should be on the lookout for chikorokoza (illegal mining) which is just mining exercised by people who are desperate for resources, so when you come to invest, avail the necessary resources that can take up the business. Money alone does not run a business.”
A Zimbabwean based mineral economist added one nugget for prospective sponsors when he explained technicalities around the importance of economic evaluation of a mining project.
“Quality control on sampling and assaying should ensure that the grade assigned to a deposit is representative of the amount of gold that can be recovered by gravity and leaching. This should be ascertained for any identified gold deposit,” he said.
“The economic evaluation should aim to assign a value to the deposit, taking into consideration the mining method to be used and the production rates,” the mineral economist said. “If a deposit in a 10ha block is found to have 10,000 tonnes at 2g/t and a recovery of 80%, that means there is 16kgs recoverable gold, if the mining method is poor and the ore is diluted (mixing with waste) this further reduces the amount of recoverable gold.”
“I must say however that the main reason for sponsors losing their money is dependent on other factors that are not technical in nature,” he told the Mining Vision Magazine
Makumba Nyenje stressed on the need for a prospective gold mining operations sponsor to consider working with experienced people to increase the chances of making profits.
“What is important is to make sure that you work with people who have knowledge about the industry and make sure that you reduce everything to writing, also assess every other stage, do some samples, if samples are not pleasing, do not just continue pumping out money without making a proper assessment such that you don’t lose everything,” Nyenje advised.
He implored all prospective sponsors out there to understand the business that they want to get into citing that: “It is not just a matter of saying whatever has been produced by your seed capital, you should take it all, there is an employee who needs to also get a share.”