Should investors be playing in Zim mining space?

While Zimbabwe remains a “hard sell’ as an investment destination on the global investment matrix, there are certain themes that continue to attract a lot of attention amongst investors.

One such theme has to do with areas such as rare earths and the potential of minerals such as lithium.

The main dynamic is that governments all over the world are strongly pushing a shift towards new energy vehicles given that they are an ingredient for the achievement of low-carbon societies.

It is estimated that the proportion of EV, PHV and hybrids in global auto sales might be over 50 or 60% in 2030.

A drastic change in the automobile industry and material sectors is expected to occur.

Since batteries and new-vehicle-motors will take the place of the internal combustion engine, certain mineral resources are going to be in high demand. 

A Lithium-ion-Battery requires Lithium, Cobalt, Nickel and Graphite as significant materials.

The demand for these resources is on a surprising uptrend and lithium requirement is likely to reach 36 times current demand by 2030.

In this material demands reshuffle, Africa is likely to perform well given its potential in cobalt and natural graphite. 

Morgan & Co Research has also been recommending an equity strategy that revolves around export-oriented stocks as well as regional diversification.

The common question that has come up is whether the mining sector offers an attractive investment proposition for institutional investors on the ZSE?

The mining sector in Zimbabwe contributes an average of 7%-8% to Zimbabwe’s GDP and presents a long-term solution to the forex shortage issues in the country.

Zimbabwe has a rich mineral endowment with one of the world’s largest platinum reserves and has chrome, coal, nickel, diamond deposits as well as significant coal-bed methane discoveries. 

Over 40 different minerals have been extracted and mining has remained an important cog in the Zimbabwean economy; creating jobs, earning foreign currency and diversifying the economic base. 

We highlight that with relative political and economic stability around 1999, mineral exports accounted for about 45% to 51% of Zimbabwe’s foreign currency earnings. 

To unlock value in the mining sector, several economic reforms will have to be put in place to stimulate mining production and reduce the opportunity cost of production.

This can take the form of tax reliefs for certain minerals and the extension of duty-free status for the importation of capital goods.

Such economic reforms will likely yield inflows of FDI and affordable lines of credit leading to increased foreign currency supply.

The growth in the mining sector also has spill-over effects in the broader economy.

For example, mining activities stimulated the development of towns such as Hwange and Kadoma and was a catalyst in the development of basic infrastructure such as road, rail and telecoms.

Our engagements with several private and listed companies in Zimbabwe reveals that one of the key constraints affecting mining operations has been limited capital.

In addition, most mining firms also require foreign currency to import machinery, spare parts and chemicals.

The Zimbabwe Stock Exchange offers access to RioZim and Bindura Nickel Corporation.

In our view, there are more opportunities to participate in the sector through (i) private equity transactions and (ii) investment through international exchanges (London, Australia and Canada).

Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com

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