ZIMBABWE Mines Minister Winston Chitando last week rejected demands from gold producers to channel fresh capital from pension funds to rebuild undercapitalized operators.
Gold miners alone over the past decade have combed the markets for US$1 billion to help them get back to full production.
In total, Zimbabwe’s mines say they need injections of up to $5 billion to pull operators out of a severe crisis, which has been compounded by weak domestic banks and interest rates unsustainable.
In a presentation last week at the Zimbabwe Chamber of Mines’ annual mining conference in Victoria Falls, the Gold Producers Association said it had found a funding channel through a new mining bill. insurance which allows pension funds to invest 15% of their portfolios abroad.
Qhubeka Nkomo, president of the association, said that instead of sending liquidity to offshore markets, these funds would be useful for miners.
Current regulations prohibit local insurers and pension funds from investing abroad.
But organizations including the Life Offices Association of Zimbabwe (LOAZ) have been pushing for permission to invest funds in offshore markets.
LOAZ says this would help mitigate domestic risks associated with a 22-year-old hemorrhaging economy.
The authorities bought into the idea, and if the bill were enacted, millions of US dollars would flow out of pension funds into high-yield overseas markets.
In his presentation at the conference, Nkomo said investing such funds in the mining industry would be vital in addressing capital issues.
But Chitando said that would be “unfair”.
“Pension funds are already invested in the mining sector through the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange and through other private placements where they acquire stakes,” the minister said.
“Giving the 15% to the mining industry may be unfair to pension funds,” Chitando told the conference.
In 2017, former LOAZ chairman Reuben Java said offshore investments would help the insurance industry spread risk and mitigate losses in turbulent times.
Java said that if insurance companies had invested some of the funds overseas, the impact of the hyperinflationary crisis experienced over the past decade could have been mitigated by stable market returns.
“We are not allowed to invest overseas,” Java said at the time.
“We continue to have conversations with regulators but we are not allowed. In other countries, insurance companies are allowed to invest abroad so that if there are problems in one country, the assets in other countries are safe. Hyperinflation destroys value. It did (havoc) on our economies… Inflation fled, it got out of control. It killed our exchange rate; everything we had became worthless,” he added.
Billions of US dollar savings were then wiped out, and today Zimbabwe has one of the most struggling pensioners.
At last week’s conference, the government outlined a multi-pronged approach to help mines increase production, with industry leaders indicating the scale of capital needed to boost operations was too large to national lenders.
More than $30 million in new funding is estimated to be flowing to mines, immediately coming from sources outside the banking sector, as mining executives digest the future of the industry.
State-run gold buyer Fidelity Printers and Refiners said loans of at least $20 million would be funneled into operators in the sector, while the Ministry of Mines and Mineral Development said that it was deploying its share of the $961 million in special drawing rights (SDRs) allocated to Zimbabwe by the International Monetary Fund (IMF) to recapitalize the mining industry.
Bankers have also said they are ready to finance the production.
Onesimo Mazai Moyo, permanent secretary at the Ministry of Mines, told delegates that the Treasury had released $10 million of the IMF’s $961 million envelope, which will soon be channeled to the mines.
Moyo said the government is working out a rollout strategy with banks to determine how SDRs will flow through mining companies.
SDRs won’t be free money, but the government says it will charge borrowers competitive rates to revive hundreds of struggling businesses across industries.
“The ministry has received $10 million from the SDRs and we are working with the Treasury and the banks to ensure that this money is lent to the mining industry,” Moyo told delegates.
“The beneficiaries will include small miners because we want inclusive growth. We are establishing a facility with the banks, because they are competent in this area,” he said.