Recapitalisation to support recovery of Zimbabwe’s mining

Research and Markets reports that after 11 years of decline, the Zimbabwean economy is recovering, supported by an increase in production output of the country’s mining sector.

Mining and manufacturing companies in Zimbabwe are, however, expected to continue to struggle to raise funds to start or expand operations during the short term.

“Supportive fiscal and monetary frameworks are chief among the factors expected to contribute to the recovery of Zimbabwe’s mining and manufacturing sectors,” notes the analyst of this research.

The stable macroeconomic environment, combined with the liberalisation of the gold sector introduced in 2009, has allowed gold mines that suspended operations to resume production. Increase in the capacities at five of Metallon Gold’s mines through an investment of $800 million is anticipated to boost the output to 15.0 tonnes by 2015.

Higher international commodity prices and an improved business climate in Zimbabwe are driving investments in expansion programmes and recapitalising gold, platinum, chrome and diamond mining operations. In 2010, the Zimbabwe mining sector recorded a 47.0 per cent increase in production output and is expected to grow by a further 44.0 per cent in 2011, against the background of rising international commodity prices.

Mining and manufacturing companies in Zimbabwe are, however, expected to continue to struggle to raise funds to start or expand operations during the short term. Plant refurbishment requires substantial amounts of capital investment, and this places additional pressure on the investment and operating costs. “The Zimbabwean capital market lacks liquidity, and the absence of significant, reasonably priced long-term borrowings is placing constraints on capital expenditure projects,” states the analyst.

“Most companies are funding their capital expenditure projects largely from operations.” Capital expenditure towards rehabilitation of plant and equipment is anticipated to be very high as a result of ageing and obsolete equipment in the manufacturing industry and outline plans for expansion drives in the mining industry. Investment in new plants and equipment remains the key to higher growth in terms of volumes and revenues for companies engaged in the manufacturing and mining industries.

“Investment in plant and equipment technology through strategic partnerships or supply chain alignment will remain the key to the growth of companies in the manufacturing and mining industries,” says the analyst. “It is imperative for companies to seek partnerships to secure constant supply of feedstock and capitalise on the available opportunities.” Despite the limited access to funding, huge private capital inflows are anticipated in the mining and manufacturing industry once the Government gives assurances to companies that no expropriations will occur.

“Political stability in Zimbabwe is key to an improvement in the investment climate in the economy,” concludes the analyst. “This will provide a clear indication to investors and international financiers that the Government is committed to improving its governance and transparency.” Furthermore, the insatiable global demand for commodities such as coal, iron ore and copper is expected to re-inject the much needed capital for the successful implementation of planned expansion projects.

Click here for the Production and Investment Trends in the Zimbabwean Mining and Manufacturing Industries Report by Research and Markets.