The $12bn mining strategic roadmap . . . must address the future world
Last week the Minister of Mines and Mining Development unveiled a strategic roadmap for the mining sector, hinged on creating US$12 billion revenues by 2023.
Of course, thinking long-term is a welcome departure from the short-term focus that generally characterises all politics and for that, the Government must be commended.
If anything, the planning horizon needs to be longer to enable inter-generational transfer of wealth. These are the debates one would expect youths to pounce on, influence and shape with vigour, particularly as calls are growing louder for future generations to share in the economic prosperity that exploiting the nation’s natural resources creates.
It is glaringly obvious, however, that the plan will meet severe headwinds from inadequate infrastructure capacity (electricity, rail, water, roads), human capital shortages, cash/monetary policy challenges, lagging mining regulatory reforms, the negative impact of US/EU restrictive measures on attracting capital, among other issues.
On the balance of probability, therefore, the delivery of projects, the bulk of which are either at concept level or in early stages, could take longer to execute than the optimistic 2023 target.
That said, the emphasis of my critique is beyond internal challenges; rather, it questions the strategic shrewdness of the choice of minerals, given changing external global conditions.
The strategy clearly focuses on precious metals (gold and platinum), forecast to rake in US$7 billion. The plan targets 100 tonnes gold output by 2023, roughly treble the 34 tonnes mined in 2018, which was actually a historical record. On the surface, fundamentals for gold prices outlook look impressive.
Deeper analysis on the price drivers, however, reveals that gold price strength will be due to rising costs of mining and not demand driven. The strategy, meanwhile, implies Zimbabwe will gain global market share through trebling local output.
The trouble with gold is Zimbabwe does not have any absolute advantages over other nations as there are many other countries capable of increasing output. The battle will then centre on relative mining cost competitiveness. Clearly, the prospect of Zimbabwe aggressively gaining global gold market share within five years and at the expense of other countries look slim, given the context of the current investment climate.
The global gold market is fragmented and unlike the cobalt market, for example, where the DRC commands 60 percent of the global market, and can unilaterally influence global supply with little to no competition from other countries. Gold is even more complex.
In 2000, then UK Chancellor, Gordon Brown, released so much gold on the global market that prices were suppressed to as low as US$250/oz (current price approx. US$1 400/oz). Curiously, this coincided with the land reform programme and it did hurt the Zimbabwean economy. Surely, that must serve as warning that relying on gold is a very dangerous strategy.
The platinum sector, meanwhile, is set to be the biggest loser from the electric-vehicle revolution. Roughly 45 percent of global platinum consumption is for catalytic converters used in internal combustion engines.
Some forecasts estimate that by 2030, 90 percent of new car sector sales will be electric vehicles. Even then, by 2022, the costs of manufacturing and running an electric vehicle are set to be cheaper than combustion engines. Several European and developed countries have already begun banning diesel engines from as early as 2030. Admittedly, the strategic outlook for platinum does not look promising.
Indeed, the strategic roadmap is conspicuously silent on the very fact that the future of the mineral sector will be mainly driven by three factors; technological advances, climate change reduction and the quest for geopolitical dominance.
Technologically, the so-called battery metals (cobalt, nickel and lithium), represent the best prospects for the future. Lithium is actually not that scarce, but Zimbabwe can do more to play a part and become one of the important players in the global industry from the onset.
Climate change is going to force the world to rethink consumer tastes. Light weighting of automobiles and even in buildings construction will take centre stage. The winners will be copper, aluminium and graphite (for composites).
In the quest for geopolitical dominance, one of the most important minerals at the moment are the rare earth elements. These are used to make powerful magnets and have massive applications in military equipment, electronic devices and satellites technology.
China currently controls over 90 percent of the market and even counts the US Department of Defence among its customers. No doubt then, that China is using its market dominance as a trump card in ongoing trade wars with the USA.
It took China around 20 years to build this dominance. Interestingly, China holds around a third of world deposits and Zimbabwe is thought among the top five countries in the world with economically viable deposits.
Rwanda again features as a great case study. In 2010, Rwanda opened mines for coltan (tantalum), widely used to make capacitors for mobile phones and electronic devices. Today it is the biggest producer with 25 percent of global supply followed by the DRC (20 percent of market).
In fact, roughly three quarters of the world’ coltan supply is newly mined — and by African countries. The dominance of African countries in this market could be even greater if supply chains are integrated internally, making use of various continental free trade agreements.
My bone of contention is that the current strategy implies mining the same old traditional minerals and continuing the same old tradition of exporting raw materials. This surely will be a recipe for continued exploitation of our resources with little benefit for future generations.
Evidently, what Zimbabwe actually needs is an integrated industrial strategy (as opposed to a mining strategy), which speaks to future world realities and then informs mining plans. That industrial strategy must be crafted with value addition of mined ores intrinsically integrated as China did with rare earth elements industry. Now that will be a real game changer!
Hopewell Mauwa is strategic analyst based in London. He writes in his personal capacity and can be contacted on [email protected]
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