Zimbabwe Mining sector in double digit growth

Renaissance Capital's research unit has forecast double-digit growth in the mining sector, despite increasing concerns government is pushing ahead with a proposed nationalisation of the country's mining sector. In a research note to investors, Renaissance said mining was the engine of Zimbabwe's troubled economy now on a recovery path after a decade-long economic crisis that had grounded the sector.
"We expect mining to be the fastest-growing sector this year. Mining output presently constitutes seven percent of Gross Domestic Product (GDP); however, we forecast that double-digit growth over the medium term will boost mining output to 12-13 percent of GDP by 2015," said Renaissance.
Strong commodity prices and increasing fixed investment in the sector would "propel the sector to new heights", it said.
"This is significant because minerals bring in half of total export earnings, equivalent to one-third of GDP. Renewed activity at existing gold mines, contributions from recent diamond discoveries and increased output of platinum group metals have reenergised the sector. 
"Notable developments include the opening up of the country's coal fields by President Robert Mugabe and the approval of over 60 applications in the past six months, which may facilitate the comprehensive development of Zimbabwe's coal assets," Renaissance said.
"In effect, this represents the auctioning off and allocation of the country's entire coal wealth to private hands. Production at several of these assets is expected to begin this year," said Renaissance.
Coal mining had also received a boost from an investment in the Hwange Colliery and the introduction of viable coal pricing, Renaissance noted.
Renewed activity at existing gold mines, said Re-naissance, as well as contributions from recent diamond discoveries and increasing platinum group metals output had fuelled the sector's growth.
It indicated that stronger earnings from the mining sector would make more foreign currency available to producers to enable them to import capital equipment and raw materials.
More earnings from the sector would also augment liquidity in the economy.
"Going forward, gold output is projected to increase on the back of new mines opening and the recapitalisation of some existing mines," the researchers noted, indicating that most of the expansion in platinum production would come from the Unki and Mimosa mines.
Moreover, a significant coal-bed methane discovery would be developed, and the more than two-fold increase in chrome output in 2010 was largely due to increased processing at ZIMASCO and Zimbabwe Alloys.
"Chrome's strong growth is expected to continue in 2011, on the back of mine expansion plans," said Renaissance. The researchers noted that strengthening commodity prices were behind the current mining industry's appeal to foreign investors.
The firming prices would boost the sector's export earnings this year.
But they admitted that behind the façade of normalcy and a positive outlook for the mining industry were significant challenges for the industry.
These challenges meant that although the growth rate was exceptional, it remained below potential.
"These challenges include an erratic power supply and a dearth of affordable credit. Moreover, interest rates on dollar loans are at a prohibitive 12-18 percent," Renaissance said.