Zimbabwe mining requires $4bn to ramp up output

Zimbabwe’s mining lobby body, the Chamber of Mines, says the capital-intensive sector requires US$4 billion in working capital to ramp up output in the next five years.

Chamber of Mines president Toindepi Muganyi told delegates at a mining conference held in the capital on Wednesday that the platinum sector requires US$2,8 billion, while gold requires US$600 million and coal US$420 million. About US$28 million is needed for nickel and US$38 million for chrome.

However, local banks do not have the capacity to meet this huge capital requirement by mining companies.

ZB Financial Holdings head of corporate strategy Thomas Zawaira said the local mining sector has traditionally been financed through internal funding from revenue inflows, shareholders equity, debt finance and structured finance.

“Within the context of the multiple currency system, balance of payments developments remain a critical determinant of the expansion in the country’s bank deposit base and domestic money supply at large,” he said.

“This situation is attributable to the fact that the country is only able to increase its liquidity through exports, diaspora remittances, foreign investments and external lines of credit.”

He said while it is difficult to adequately fund mining in the short-term, in the long-run the issuance of corporate bonds, joint venture partnerships, royalty- based financing and lines of credit were alternative ways of securing funding.

Official figures show that the mining sector contributed 53% of the US$10,5 billion total exports between 2009 and 2014.

Muganyi said the platinum sector’s capital requirements of US$2,8 billion would enable the production of 22 tonnes whereas the gold sector’s US$600 million would capacitate the production of 30 tonnes per annum by 2020.

Nickel production will rise to 27 tonnes per annum while chrome 1,3 million tonnes. Coal is seen surging to 18 million tonnes per year.

The current fiscal and tax modelling reflects a strong correlation of the mining sector’s performance and contribution to new capital.

The mining sector contributes 10% of GDP and has contributed more than 50% of the US$1,9 billion in foreign direct investment inflows registered since 2009.

According to Muganyi, gold production has been on an upward trend.

From January to August 12 this year, three tonnes of bullion have been delivered with the figure expected to rise by 20% to 18,4 tonnes by year-end.
The platinum sector has produced 7,8 tonnes during the eight months to August and is expected to reach 11,8 tonnes by year-end although the figure remains below last year’s 12,4 tonnes.

As of end of August, chrome deliveries were pegged at 140 tonnes and are expected to rise to 210 tonnes by end of the year. Last year 408 tonnes was produced. A 48,5% decline is expected this year.

Coal output is expected to plummet by 38,1% to 3,9 tonnes from 6,3 tonnes produced last year.

The diamond sector produced 2 241 carats in the first eight months of the year and is anticipated to reach 3 360 by year end, a 29% drop from last year’s output of 4 773 carats.