‘Lack of capital threatens mines’

Lack of access to capital for expansion and operations has emerged as the biggest threat to the development of the mining sector, a  new report by Ernst & Young (E&Y) had indicated.E&Y, which has been carrying out an annual assessment of risks affecting the resources sector in Zimbabwe and globally, said in its 2013 that the major threat to the mining sector had turned out to be lack of capital, rather than policies.
Critics argue that the sector has been unable to attract capital due to bad and often controversial policies.
The country has been experiencing a cash squeeze, forcing industries to wind up or review operations.
“Capital allocation and access to capital   have rocketed to the top of the business risk list for mining and metals companies up from number eight in 2012,” said E&Y in the report.
It looked at 10 risks which affected the industry.
“These capital dilemmas threaten the long-term growth prospects of the larger miners at one end of the sector, and the short-term survival of the cash-strapped smaller mines at the other,” Nqaba Mkwananzi, E&Y’s mining and metals sector leader for Zimbabwe told The Financial Gazette’s Companies & Markets.
“The rising business risks that are at the top of mind with mining and metals chief executive officers and boards today are  being driven by the need to protect returns and manage the interest of varied and often competing stakeholders. This is in stark contrast to just 12 to 18 months ago when fast-tracking production was still top of the agenda and capacity constraints defined key business risks,” added Mkwananzi.
In the past three years, the dominant issue over the future of Zimbabwe’s mining industry had been the effects of indegenisation policies, which sought to transfer substantial ownership of mines to locals.
Under the programme, which also affected foreign controlled firms outside the mining sector, offshore investors were forced to sell at least 51 percent of their shareholdings to indigenous Zimbabweans.
The programme, which has already been accepted by the country’s biggest mines, albeit half-heartedly, triggered apprehension among potential investors.
Many expressed reservations about establishing big projects only to lose ownership or control of the assets.
Mkwananzi said resource nationalism, or indegenisation, which led the list of risks in 2012, dropped to number three this year, while access to capital moved to first place from number eight in 2012.
Other risks covered in the report included margin protection and productivity improvement, social licence to operate, skills shortages and price and currency volatility.
E&Y’s report came as the Zimbabwe Economic Analysis and Research Unit (ZEPARU) said last week that mineral earnings from Zimbabwe were projected to rise 12-fold to US$24 billion by 2018, from US$2,6 billion last year.
It pointed out that fiscal revenue would equally get a significant boost from increased mining revenue.
But this would depend on activation of several pipeline projects and creation of investor friendly policies, it noted.
Fiscal revenues are projected to rise to about US$6 billion per annum, from about US$310 million in 2012, in line with the growth in turnover.
An extra 21 000 jobs would be created if the industry expanded as projected, the report said.
This would take the number of workers in the mining industry to 56 000 in 2018, from 45 000 in 2012.
The ZEPARU report, which extensively quoted a World Bank (WB) base case study conducted on Zimbabwe recently, urged the country to implement viable policies that would encourage mining industry expansion.

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