By Fitch Solutions
Key View: The election of Emmerson Mnangagwa as President of Zimbabwe presents growing upside risks to growth in the country’s mining industry over the coming years. However, we are holding off on revising the country’s production forecasts until proposed reforms materialise.
The election of Emmerson Mnangagwa as President of Zimbabwe on July 30 bodes well for the country’s mining sector over the coming years. Mnangagwa’s ZANU-PF party also won a majority in the legislative election which took place on the same day, taking 144 out of 210 directly elected seats.
As we mentioned in our analysis immediately following the removal of ex-leader, Mugabe on November 15 2017, Emmerson Mnangagwa is broadly seen as a reform-minded leader and will now benefit from the political support needed to implement business-friendly economic reforms, which will strengthen investor confidence ( See ‘Quick View: Zimbabwe Power Shift Offers Glimmer Of Hope Ahead’, November 21 2017).
Nevertheless, the country’s mining sector remains highly restrictive and we are reticent to change our forecasts until we see any material change in existing mining policies.
|Upside Risks To Positive Growth Outlook|
|Zimbabe Mining Industry Value & Growth|
|Source: Fitch Solutions|
Positive Changes On Way But Much Still To Be Done
Since initially coming to power in November 2017, Emmerson Mnangagwa has indicated he is willing to enact a number of reforms to the broader economy and the mining industry in particular, that will improve investor sentiment.
Indeed, Mnangagwa ran his presidential campaign on promises to make progress towards both economic reforms and re-engaging with the international community, after years of isolation and economic collapse under Mugabe.
In regards to the mining sector, Mnangagwa’s approach to date has been significantly more collaborative than the previous regime. For instance, Manangagwa’s government will reportedly look to formalise the widespread small-scale gold mining operations across the country by providing an inexpensive permit and enabling miners to sell gold ore directly to refineries.
Depending on the extent of their implementation, these reforms pose upside risks to the country’s gold production outlook. Furthermore, in June of this year, a long-standing legal dispute over land between the Zimbabwean government and the country’s largest platinum miner, Impala Platinum, was resolved.
In exchange for releasing 23,903 hectares of its claims, the Zimbabwean government gave Impala Platinum two leases valid for the life of its operations, signalling an already much improved relationship between government and mining stakeholders.
|In Need Of Significant Improvements|
|Sub-Saharan Africa – Regulatory Scores|
|Scores out of 100, higher score = More attractive market. Source: Fitch Solutions Mining Risk/Reward Index|
Despite these positive signals, we do not expect radical policy change in a domestic mining regulatory environment that remains one of the most restrictive in the region through high local ownership requirements, royalty rates and government intervention.
For instance, Mnangagwa’s decision in March of this year to largely repeal the country’s indigenisation law that limits foreign ownership of local companies to 49%, does not apply to the strategic diamond and platinum mining sectors which will continue to be 51% owned by the government.
As such, a significant section of the country’s mining sector will remain largely restricted to foreign investment. As a result, we are maintaining our modest production forecasts for Zimbabwe’s mining industry over the coming years and expect the country’s mining industry value to average 2.4% y-o-y growth from 2018-2027.
Risks To Outlook: Political Stability Not Yet Assured
While our core review remains that Zimbabwe is now politically well set up for positive economic reforms that will benefit the mining industry over the coming years, our political risk analysts highlight ongoing risks pertaining to civil unrest in the immediate aftermath of the election ( See ‘Zimbabwe Election Results: Initial Thoughts’ August 2 2018).
While the election was largely seen as free and fair, the opposition Movement for Democratic Change (MDC) criticised the results as fraudulent and several international observers highlighting irregularities with the conduct of the election leading to violent clashes between the protesters and national security forces.
Were this unrest to continue or escalate further over the coming weeks and months, the new government’s political capital and therefore its ability to create a stable political environment under which to enact promised reforms, would be significantly hindered.
|Zimbabwe – New Mining Projects|
|Source: Fitch Solutions Mining Projects Database|
|Gold||Karo||Karo Mining Holdings Limited (50%)||July 2018 – Karo Mining Holdings has officially launched a geological exploration programme to confirm and delineate the orebody before progressing to the bankable feasibility study at the project; Resources: 96Moz; Expected start year: 2020; Number of Employees: 15,000 (Direct), 75,000 (Indirect); The remaining 50% stake is held by Zimbabwe Investment Co|
|Palladium||Karo||Karo Mining Holdings Limited (50%)||July 2018 – Karo Mining Holdings has officially launched a geological exploration programme to confirm and delineate the orebody before progressing to the bankable feasibility study at the project; Resources: 96Moz; Expected start year: 2020; Number of Employees: 15,000 (Direct), 75,000 (Indirect); The remaining 50% stake is held by Zimbabwe Investment Co|
|Platinum||Karo||Karo Mining Holdings Limited (50%)||July 2018 – Karo Mining Holdings has officially launched a geological exploration programme to confirm and delineate the orebody before progressing to the bankable feasibility study at the project; Resources: 96Moz; Expected start year: 2020; Number of Employees: 15,000 (Direct), 75,000 (Indirect); The remaining 50% stake is held by Zimbabwe Investment Co|
|Coal – Thermal||Lubu||Consolidated Growth Holdings (100%)||Resources: 786mnt; Will also produce coking coal|
|Coal – Coking||Lubimbi||Lontoh Coal (51%)||Resources: 550mnt; The mine will also produce thermal coal; Expected Production: 27mnt/yr (Coal – Thermal), 18mnt/yr (Coal – Coking)|
|Nickel||Hunter’s Road||Asa Resource Group (75.4%)||July 2017 – Exploration drilling is expected to start in 2017 at the mine; Indicated Resources: 36.4mnt|
Source: Fitch Solutions Mining Projects Database