Mines warm up to Mnangagwa

Published: 14 December 2017

AT least 630 of the country's 800 mines are projecting strong growth in 2018, riding on anticipated policy reforms under President Emmerson Mnangagwa's new administration and aggressive expansion by "bullish" investors, according to a new Chamber of Mines of Zimbabwe (CoMZ) report.

Utilisation of installed plant capacity in the industry would rise to 79 percent next year in tandem with higher activity, from 71 percent this year, the 2017 State of the Mining Industry Survey released last week said.

Positive signals from the new administration have inspired renewed impetus to revisit frozen projects even as price related headwinds continue to ravage global markets.

And operators are seeing most mines returning to profit in 2018, as the industry turns a fresh page following decades of State-inflicted losses and closures amplified by factors including high power tariffs and takeover threats.

Ten of the 12 variables measured under the mining business confidence index projected growth in 2018, with 90 percent of sector leaders (about 630 respondents) anticipating positive prospects in the post Robert Mugabe era.

"The new index shows that respondents are bullish about the prospects of the mining industry in 2018 given the new political dispensation, with the majority of the respondents (90 percent) optimistic that the new government will endeavor to resolve all legislative and policy bottlenecks affecting the mining industry," the CoMZ said.

Leading analysts also projected positive spinoffs after the swift changes in government.

"The profitability prospects confidence indicator of +18 percent, compared to +11 recorded for 2017, indicates strong optimism of profitability of mining businesses in 2018," said Albert Makochekanwa, chairman of the economics department at the University of Zimbabwe.

Survey consultants had to re-interview respondents in the aftermath of dramatic developments on the political front late November, when Zimbabwe's military drove battle tanks to ex-president Mugabe's mansion, deployed artillery to strategic points and asked their long time commander-in-chief to step down.

In the political drama that followed, the 93-year old ruler capitulated in a shock decision, sparking widespread celebrations countrywide.

The country has now been repositioning to repair its shattered industries, mines and agricultural facilities, as the next revolution.

Mugabe had been blamed for the grinding poverty afflicting 70 percent of the country's 16 million people.

Mnangagwa, generally seen as a pro business reformer, took his oath as new President late November and immediately promised to attract back elusive capital, reform taxes and fees, and revisit harsh laws that had undermined business.

The mining sector, considered to be one of four sectors to drive economic recovery, is currently facing problems in the payment of foreign suppliers of critical materials that have hampered production.

This is despite the fact that mining is currently the single largest foreign currency earner in the country.

The survey acknowledged that the cash-strapped country was losing substantial amounts in potential revenue and that this boiled down to poor investment policies.

Mining experts said the hostile environment had been fostered by a punitive tax regime, unfriendly legislation that proscribed foreigners from controlling their investments and high royalties and fees.

These have combined with uncertainty created by the State's threats to seize foreign controlled mining firms to destabilise the sector.

"All respondents indicated that the new government position on compliance with indigenisation law (spending 75 percent of revenues locally) was a positive move and brought confidence in the sector," the report said.

"However, all respondents expressed concern over delays in amending the law to align with the new policy position. Ninety percent of the respondents were of the view that the equity threshold should be reduced to realistic levels," said the report.

Mnangagwa has already been applauded for drafting in former CoMZ president, Winston Chitando, as Mines and Mining Development Minister to help him implement reforms that he fought for as a miner.

Last week, Chitando reiterated the President's resolve.

"The mining industry contributes around 13 percent of gross domestic product and about 68 percent of total exports. This is encouraging, but we would like to create a more enabling environment for the sector to thrive and provide a positive return on investment," Chitando told mining executives at the launch of the survey.

Analysts said the industry was likely to give him an ear.

Indications were that mines had jumped on the bandwagon of the revolution, promising leaps in growth prospects through expansion programmes expected to cost US$392 million next year, after sinking US$211 million this year.

With Mugabe out of the picture, the mining industry restated previous growth forecasts, telling survey consultants that they were sharpening their drill bits and repositioning dynamites to blast away more ore, in a rare show of confidence.

"These are exciting times for Zimbabwe and for Prospect," said Prospect Resources chairman, Hugh Warne, whose firm has invested in lithium mining.

"We have seen a peaceful transition of leadership in Zimbabwe and we have all read the positive remarks that the new President has made with respect to welcoming foreign investment. Prospect is well placed to participate and contribute to the rejuvenation of Zimbabwe," he said.

"We are ready to make out contribution to the growth of the Zimbabwean economy," Batisai Manhando, managing director at the Zimbabwe Stock Exchange listed Bindura Nickel Corporation (BNC), told financial analysts last week.

After deploying US$22 million in expansion projects this year, gold mines projected fresh commitments worth US$100 million next year and to increase output by between 20 and 100 percent.

The diamonds subsector, known for its lack of transparency and which authorities believe to have siphoned out of the country at least US$14 billion, would inject US$100 million as it kick starts new projects following radical policy shifts.

This would be a rise from US$65 million this year, which would increase output to 4,6 million carats, from 2,6 million carats this year, the CoMZ said.

The chromium industry spent in excess of US$4,4 million in expansion projects in 2017, which is projected to rise to US$13 million next year, while BNC is to spend US$2,1 million on expansion projects next year, after sinking US$643 634 this year.

Still, the pace and scale of the growth projected by mines would hinge on whether banks would perceive the sector's potential in the same way the mining executives see it, and whether Mnangagwa is ready to implement the reforms as promised, and as demanded by investors during the lockdown decade charaterised by project freezes and capital flight.

However, a significant number of mines still believed political risk remains high, while lenders remain sceptical about extending loans until the dust settles.

Exactly when the dust settles will depend on the speed at which government springs into action.

Perception on risk is still negative, with 30 percent of the mining sector saying 'political risk will remain high in 2018, while 10 percent were of the view that government should do more in addressing industry (policy) concerns".

- fingaz

Tags: Mnangagwa,