Could indigenisation laws spark a wave of listings on the ZSE?

While the adoption of a multicurrency regime in Zimbabwe has provided some form of respite for local companies, the key restraint relates to the general lack of liquidity.

An assessment of the banking sector shows that the country’s total deposits are around US$2.1bn. This is against the country’s total capital requirements of approximately $8.5bn.

A key sector that comes to our mind immediately is the mining sector, which contributes around 51% of the country’s exports and circa 4% to GDP.

The Indigenisation and Economic Empowerment Act 14, 2007 was signed into law and provided that all large companies with a net asset value exceeding $0.5m will be required to have a minimum indigenous shareholding of 51% within a period of five years.

The mining industry has accepted the broad principles of the Act. However, the major concerns stem from the empowerment threshold, considered high at 51%.

Organisations such as the Chamber of Mines have proposed a minimum equity participation of 15% for the mining sector and the use of empowerment credits. These would include social and infrastructure spending, local procurement of inputs, assistance to small scale miners, release of mineral rights, creation of new businesses, skills development and other socially and economically desirable expenditure.

Given the general lack of capital on local markets, raisings via equity are likely to be the only real option open to most mining companies. This will imply tapping into international capital markets so as to unlock the supply of funds.

For example, Metallon Gold, the country’s largest gold producer is planning to raise about $600m for capital projects. The mining company has plans to list on one of the world’s international resources exchanges (London, Toronto, Australia). Other private gold producers that intend to obtain listings include Duration Gold and Bilboes Holdings.

Recent reports also indicate that Lontoh Coal, a South African unlisted mining company with projects in Zimbabwe, intends to do its next public offer in Hong Kong. The initial public offer aims to raise $500m. This will make Lontoh the first African company to list on the Hong Kong bourse. Lontoh has a portfolio of metallurgical and thermal coal properties in South Africa and Zimbabwe. In May 2010 it bought 51% of Liberation Mining in Zimbabwe, which has major prospects and sites at Lubimbi and Entuba (Zimbabwe).

It appears that as mining groups tap into international markets, secondary listings on the ZSE could be used as a way of localising the entities.

For example, Aquarius’ half-owned Mimosa platinum mine has indicated that it could list on the ZSE as part of its localisation plans.

At a total ZSE market capitalisation of $4.2bn, listed mining companies in Zimbabwe (Falgold, Bindura Nickel, Hwange and RioZim) only constitute about 5%. We expect this to change as we continue to witness some new deals. We encourage investors not only to watch the listed mining groups but also to be active in the private equity space.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.