Mining in Forecast-Busting Show

THE Zimbabwe Stock Exchange (ZSE) industrial index dropped by almost eight percent during the seven months to July 27, 2012, from 144,72 points in January to 133,53 points by Friday, confirming a market-wide slowdown that has hit markets.

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The mining index however shrugged off several growth inhibiting factors, including increased government threats on foreign investors, with forecast-busting results.

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The mining index, which jumped 8,82 percent to 111,18 points during the review period from 102,17 points in January, was certainly rosier than initial forecasts.

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An exodus of foreign investors, persistent policy inconsistencies and deadlocks over an exact date for upcoming polls have shuttered the markets, sparking fears of a worse decline than the 3,8 percentage point downward review announced by Finance Minister Tendai Biti.

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Gross domestic product (GDP) growth in 2012 was reviewed downwards to 5,6 percent, from the projected 9,4 when the minister presented his mid-term report two week ago.

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“There has been a slowdown in terms of foreign direct investment,” said equity market analyst, Ranga Makwata.

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“Foreigners have been buzzing most of the activity on the ZSE but we have been seeing a general reversal of what has happened in the past three years. Foreign investors are liquidating their positions,” said Makwata.

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During the first half of 2012, foreign investors bought shares worth US$124,3 million and sold US$77,78 million, giving a net investment of US$46,55 million, Kingdom Stock Brokers said two weeks ago.

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The transactions exceeded the net investment for the comparable period in 2011 of US$32,34 million by 44 percent, said Kingdom.

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But Makwata said the investment was below forecasts.

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“Some of them are actually moving to safe climates like Kenya, Nigeria, Botswana and South Africa,” he said.

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Excessive power cuts, lower than expected agricultural output and the recent threat on banks, together with a long drawn liquidity crisis are among the factors pushing foreign investors out.

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Local investors are cash-strapped.

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Institutional investors, particularly Old Mutual and the National Social Security Authority, which have dominated the ZSE, have been dormant.

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“You don’t expect the markets to do well in that climate,” said Takunda Mugaga, head of research at Econometer Global Capital.

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“This is a very bumpy market. It does not follow any pattern but generally most companies are not growing, the liquidity regime is very difficult. The industry itself is not expanding. Half year results are coming in August. You will see that no company beat our forecasts,” he said.

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Despite overall poor returns on the ZSE, Kingdom Stock Brokers says several counters recorded significant price improvements in the first half, led by Falcon Gold, with a market capitalisation of about US$39 million, which rose 158,3 percent to US15,5.

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The gold mining firm has been on a recovery path from a loss in 2009 to profitability in 2011 propelled by firming gold production and higher prices.

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Makwata said even the mining index was not impressive.

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“We have very weak listed mining companies,” he said.

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“They don’t represent the growth in the industry. Real growth has been happening at Mimosa Mining Company and Zimplats but these are not listed. Falgold has been the only positive story among the listed companies after New Dawn injected money last year,” he added.

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The mining industry’s contribution to Zimbabwe’s economy has almost trebled from about four percent between 1999 and 2008 to 11 percent of gross domestic product.

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Key minerals that are expected to underpin the sector’s growth in 2012 and their respective projected output in 2012 are Gold (15 tonnes), Platinum (12 tonnes), Nickel (8 800 tonnes), Coal (two million tonnes), Chrome (750 000 tonnes), Palladium (9 600 tonnes), and Black Granite (170 800 tonnes).

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But while gold prices ended 2011 at around US$ 1 662 per ounce, the metal has been trading at about US$1 550 per ounce.

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Similarly, platinum prices hovered around US$1 655 per ounce during the first quarter of 2012, but they had declined to about US$1 455 last week.

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