How mining firms can raise capital

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Panashe Sachikonye
While giving his address at the Chamber of Mines Zimbabwe conference in Victoria Falls recently, Mines and Mining Development Minister Winston Chitando, stated that most mining companies have been facing difficulties in raising capital and this has seen most projects failing to take off.

He also said that there is difficulty in raising capital, which explains the low capacity and lack of development of potential projects and lack of expansion. Zimbabwe’s Lithium miners have been battling to raise capital for their start-ups due to country risk factors.

Prospect Resources, Zulu Lithium, Zimbabwe Lithium and Bikita Minerals, are at various stages of developing their mines, which could require about $300 million to get them into full productions, according to statistics from the Lithium Producers Association (LPA).

Mining companies can raise finance through commercial paper, long term bonds and listing on the Stock Exchanges. The first two are linked to the country risk profile, which is the major reason behind failure to attract significant capital.

However, by listing on an exchange outside the country this removes the negative risk profile and allows foreign investors to freely invest.

Companies take several variables into account when deciding whether to list on an exchange such as country’s regulatory environment, listing standards, the cost of listing, the quality of institutional investors and the participation of foreign investors.

The Zimbabwe Stock Exchange (ZSE) is not attractive for mining firms because of the low liquidity, low volumes, difficulty for foreign investors to purchase shares and trading systems are not yet fully developed.

Several mining companies including multinationals such as Impala Platinum’s 87 percent owned Platinum Holdings, Aquarius and Sibanye Stillwater 50-50 owned Mimosa Mining Company, Unki Mines as well as giant gold producers Freda Rebecca and Metallon Gold Corporation are not listed.

Prospect Resources, the Australian listed outfit that is developing Acadia Mine near Harare, has managed to raise capital from its listing on the Australian Stock Exchange (ASX).

Instead of solely listing on the ZSE, firms can opt for dual listing on another exchange in Africa such as the Nairobi Securities Exchange or Johannesburg Securities Exchange (JSE).

This will assist in gaining access to a much larger capital pool and trading in a more liquid environment, while still allowing local market participation.

Bank of Kigali, whose shares are already trading in Rwanda, plans to list stock on the Nairobi Securities Exchange in the second half of this year as part of a drive to raise up to $70 million for investment.

Listing on the Johannesburg Stock Exchange makes sense for mining companies with African assets, as it is a good listing venue. Proof of this is that major mining companies, such as global diversified miner Glencore, BHP Billiton and Lonmin have chosen to list on the JSE.

According to the 2016 World Economic Forum’s Global Competitiveness Survey, South Africa is ranked first for ability to finance through equity markets.

For a Zimbabwean company to be able to list on the JSE certain requirements should be met.

In 2017, Brainworks became the first Zimbabwean company to list on the JSE main board.

The country’s mining industry requires about $11 billion to ramp up production and sustain operations in the next five years, the Chamber of Mines of Zimbabwe (CoMZ) said last week at their annual general meeting (AGM) in Victoria Falls.

A dual listing will give mining companies access to deep and highly liquid capital markets, while providing investors a means of getting exposure to Zimbabwe’s great growth potential through a well-regulated and trusted entry point.

Mauritius-based Alphamin Resources is the last company to list on the Gold Sector of the JSE and managed to raise $44,3 million in January 2018 for continued development of its Bisie tin project in the Democratic Republic of the Congo (DRC).

 Panashe Sachikonye obtained a Masters in Finance and Investment from Wits Business School, Johannesburg. He can be contacted via Email: panashesachi@gmail.com <mailto:panashesachi@gmail.com> or Phone: 0867 7168 576/0776 640 182

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