Mining in Zimbabwe: Turning around its fortunes
by Reuben Machinga
Mining in Zimbabwe: Turning around its fortunes
The mining sector contributed about a quarter of export receipts in 2017[i] which indicative of the importance of mining to Zimbabwe. Mineral exports brought about US$2 billion into the country during that same year. However the mining sector is not, by any stretch of the imagination, operating close to its limits. There is a lot of room for it to grow.
To help achieve this growth, an understanding of the opportunities and the potential solutions to challenges is necessary. It is important to also explain why Goldma decided to fund their project by using financial technology (cryptocurrency and blockchain).
Funding is the major obstacle.
Although minerals worth billions of dollars are pulled out of the ground every year, quite surprisingly, Zimbabwe’s mineral deposits have not been adequately explored.[ii] Insufficient funding is the reason behind this. Exploration, as well as mining itself, is an expensive business. Historically, banks funded mining operations. With the collapse of the Zimbabwean financial system in 2008, this pool of funds largely dried up.
After years of financial challenges, the general populace’s distrust of the banking system increased by as the liquidity crisis intensified. That was, and still is, reflected in the nature of deposits therefore, Zimbabwean banks don’t hold a meaningful amount of long-term deposits.[iii]
A prevalence of short-term deposits means that mining companies would struggle to get financing from banks. The time it takes from acquiring a greenfield site, developing it, to actually selling a commodity is much longer than catered for by short-term financing. Coupled with the short-term nature of deposits is the fact that there aren’t a lot of funds in the Zimbabwean financial system. Economic law dictates that low levels of supply are associated with high prices, all else being equal. This holds true for the Zimbabwean financial markets. Interest rates, effectively the price of money, are high. In March of 2012, the benchmark interest rate was at an eye watering 16% and by late 2017 had come down to a still high rate of around 8%.[iv] This does not bode well for the mining sector.
The Bankers Association of Zimbabwe (BAZ), which is the local banking industry grouping, noted many of these challenges and urged the mining sector to be innovative in sourcing finance. Goldma answered that call and headed straight to the cutting edge. An initial coin offering (ICO) proved the way to go. With a much deeper pool of funds than our local banking system, cryptocurrency financial markets are proving a rich place to tap into.
Goldma’s ICO and business model functions along similar lines as those suggested by the BAZ. Holders of Goldma’s GMA token are entitled to a share of profits generated from Goldma’s gold mining operations. This is akin to their suggestion of ‘Royalty Based Funding.’
The opportunity
Because of lack of exploration, hard numbers for the whole country are not as detailed as one would like. Let’s use Goldma’s Sunrise mine as an indication of what potential there may be in other gold mines as well as other minerals. The deposits at Sunrise have been estimated to be worth over US$6 billion. Mining and selling this much gold would make a veritable impact on Zimbabwe.
At Sunrise, as well as at other mines, communities ought to look forward to improved infrastructure when mining companies produce more. Good quality transportation links are needed to safely move equipment and the minerals themselves. Mining companies have directly financed road construction before. Zimplats, one of Zimbabwe’s largest platinum miners, spent US$17 million to construct a 77-km long road.[v] Goldma is also emboldened to follow suit and so part of the funds to be raised during the ICO will be dedicated to the infrastructural development in the Sunrise mine community.
Not only do people have improved infrastrucuture to look forward to, but greater exploration and expansion meaning more jobs for locals. Zimbabwe is in desperate need of that. Considering that the country is facing a high rate of unemployment, there is a lot to be gained from extracting the riches under the Zimbabwean soil. Mining can directly employ a significant number of the jobseekers as the operation expands.
Mining companies’ Corporate Social Responsibility programmes will also positively impact the country at large. Again, we can use Goldma as an example of the role the mining industry can play in bringing about a positive change to people’s material conditions. Goldma produces fresh produce for local consumption and community members gain from its subsistence farming program. The company also intends to increase the quality of medical facilities in the community. If other companies in the extractive sector follow suit, a veritable impact will be made.
No better time than now
In conclusion, we stand at an opportune moment. Unlike before, when the government was almost hostile to business, we have an administration keen to support enterprise. Coupled with that are large, untapped mineral reserves. By mining gold, Goldma’s mining project is playing its part to breathe life into Zimbabwe’s economy. Rumour has it that Zimbabwe has enough gold to make each of its citizens a millionaire. Come join us, the time is now.
[i] http://source.co.zw/2017/12/mining-to-anchor-growth-earnings-seen-higher-at-25bln-next-year/
[ii] https://www.newsday.co.zw/2014/10/zimbabwe-sitting-11bn-mineral-wealth/
[iii] http://www.baz.org.zw/sites/default/files/Exploring%20the%20unconventional%20methods%20of%20funding%20the%20mining%20sector.pdf
