Banks mull syndicated loan for mining sector

TINASHE MAKICHI

Zimbabwe’s lenders have proposed a syndicated loan facility to fund targeted projects in the capital intensive mining sector, Business Times can report.

Under the arrangement, a group of local banks would offer finance as a syndicated loan or syndicated bank facility to a single mining house.

CABS managing director, Mehluli Mpofu, said there was a need to create a syndicate of banks to lend money to local miners for local banks to cope with the rising financial demands by the mining sector.

“There is a need for a syndication approach for the financing of big capital projects on the part of financial institutions. External is also critical going forward.

“Pension funds could be another funding alternative for the mining sector but these pension funds have been looking for alternative asset classes but at the moment mining remains a viable alternative,” Mpofu said.

Government has identified mining as one of the key sectors for economic recovery alongside agriculture.  The administration has been pushing mining claim holders to expedite the exploration and development of such projects as part of efforts to achieve a US$12bn mining industry by 2023.

Government has also issued and renewed several special mining grants. These have further put pressure on the local financial institutions to avail or facilitate funding for the projects.

But, accessing funding to execute their plans has been an uphill task for local miners. Mining is capital intensive and has a long gestation period.

The resources firms have expressed concern over local banks’ reluctance to fund several mining projects in the country. Consequently, miners have been scrambling for offshore loans, which have proved difficult to come by.

Some local lenders said they have no capacity to fund mining projects as individual banks due to their subdued balance sheets.

Nedbank Zimbabwe chief executive officer, Sibongile Moyo, said the lender was seeking about US$300m to support the mining sector.

“There is a funding gap in the market judging by most banks’ balance sheets but as Nedbank we have proposed a US$300m offshore facility aimed at providing funding for mining companies.

“Due to the funding gap on the market, large miners have relied on offshore funding while junior miners have been relying on venture capital and pension funds,” Moyo said.

Mining is one of Zimbabwe’s major contributors to its economy, alongside agriculture. The mining sector accounted for more than 60% of the country’s foreign currency receipts and contributes about 16% to gross domestic product.

It is estimated that about US$7bn is required to fund local mining projects.

Exploration in particular, has been starved of funding for more than a decade and many feasible operating projects remain on care and maintenance.

In his 2021, National Budget, Finance minister Mthuli Ncube said the mining sector was expected to rebound by 11% this year from a projected -4.7% in 2020 driven by planned expansion programmes aimed at increasing production by miners.

“The programmes include increased exploration, expansion of existing mining projects, and resuscitation of closed mines, opening of new mines and mineral beneficiation and value addition,” Ncube said.

“Further, expected improvement in the availability of power supply and foreign currency is expected to propel production and capacity utilisation from current 61% to about 80% in 2021.”