Mining in dire need of reforms

PIGGY has been following developments in the mining sector. An important observation is that while Zimbabwe remains a “hard sell’ on the global investment matrix, there are certain themes that continue to attract a lot of attention amongst investors.

One such theme has to do with areas, such as rare earths and the potential of minerals like lithium.

The main dynamic is that governments all over the world are strongly pushing a shift towards new energy vehicles given that they are an ingredient for the achievement of low-carbon societies.

It is estimated that that the proportion of EV, PHV and hybrids in global auto sales might be over 50 or 60% in 2030. A drastic change in the automobile industry and material sectors is expected to occur.

Since batteries and new-vehicle-motors will take the place of the internal combustion engine, certain mineral resources are going to be in high demand.

A lithium-ion-battery requires lithium, cobalt, nickel and graphite as significant materials.

The demand for these resources is on a surprising uptrend and lithium requirement is likely to reach 36 times current demand by 2030.

In this material demands reshuffle, Africa is likely to perform well given its potential in cobalt and natural graphite.

Piggy has also been recommending an investment strategy that revolves around export-oriented businesses as well as regional diversification.

The common question that has come up is whether the mining sector offers an attractive investment proposition for institutional investors?

The mining sector in Zimbabwe contributes an average of 7%-8% to Zimbabwe’s gross domestic product (GDP) and presents a long-term solution to the forex shortages issues in the country.

Zimbabwe has a rich mineral endowment with one of the world’s largest platinum reserves and also has chrome, coal, nickel, diamond deposits and significant coal-bed methane discoveries.

Over 40 different minerals have been extracted and mining has remained an important cog in the Zimbabwean economy; creating jobs, earning foreign currency and diversifying the economic base.

We highlight that with relative political and economic stability around 1999, mineral exports accounted for about 45%-51% of Zimbabwe’s foreign currency earnings.

To unlock value in the mining sector, economic reforms will have to be put in place to stimulate mining production and reduce the opportunity cost of production.

This can take the form of tax reliefs for certain minerals and the extension of duty-free status for the importation of capital goods.

Such economic reforms will likely yield inflow of FDI and affordable lines of credit leading to increased FX supply.

The growth in the mining sector also has several spill- over effects in the broader economy.

For example, mining activities also stimulated the development of towns, such as, Hwange and Kadoma and was a catalyst in the development of basic infrastructure like road, rail, and telecoms.

Overall, we expect the mining sector to continue registering solid growth with most minerals anticipated to record output gains in the medium term.

This is being supported by relatively strong international mineral prices for most minerals, including gold, nickel, platinum, chrome and granite.

Piggy’s engagements with mining companies in Zimbabwe reveals that one of the key constraints affecting mining operations has been limited capital.

In addition, most mining firms also require foreign currency to import machinery, spare parts, and chemicals.

While Zimbabwe capital markets offer access to some interesting names in the mining space, there are other avenues to gain exposure in the sector through: private equity transaction and investment through international exchanges (London, Australia and Canada).

For more insights, join a Piggybankadvisor Whatsapp Group (+26378 358 4745).

Matsika is the managing partner at Mark and Associates Consulting Group and founder of piggybankadvisor. com. — +263 78 358 4745 or batanai@ markassociatescg. com/ batanai@ piggybankadvisor. com.