MINING, a key driver of Zimbabwe's economy, faces a challenging outlook in 2024 following projected revenue declines due to depressed global commodity prices and persistent power cuts.
Revenue from mining is expected to fall by 10 percent this year, following a 7,6 percent decline in 2023. This comes as the global market is battling with volatile prices for most metals.
It is projected that reduced revenue for mining firms will also affect capital investments in the sector going forward, as the companies preserve cash for other operations.
"Performance of several miners is currently weighed on by the adverse operating environment and depressed commodity prices, especially in lithium and PGMs.
"Compounded with the fact that there are very few mining listings on the local bourses, this leaves very limited buying opportunities in the sector in the short term," said research firm IH Securities in their sector report.
"The anticipated subdued profitability in 2024 points to reduced retained earnings available for reinvestment," said the research firm.
The country's power generation woes also further complicate the picture, according to research firm IH Securities.
Low water inflow into Kariba Dam, a result of El Nino-induced drought, is expected to limit hydropower generation in the other half of 2024. Additionally, infrastructure challenges at Hwange Power Station are likely to persist, creating a significant power supply gap.
The World Bank estimates that power shortages cost Zimbabwe a staggering 6,1 percent of gross domestic product annually.
This deficit is particularly concerning considering the surge in lithium mining and processing projects.
"Already, concerns have been raised as to whether the country can generate sufficient power for its lithium beneficiation plans," said IH Securities.
The Zimbabwe Investment and Development Authority (ZIDA) forecasts that the mining sector will require 2 000 megawatts by 2025, far exceeding the current average annual generation of 1 500MW.
To address the looming power crisis, the Government mandated large-scale miners to establish their own renewable energy plants by 2026 although doubts remain regarding the country's ability to generate sufficient power to support its lithium ambitions.
Another area of concern is that coal, a significant energy source for electricity generation and industrial processes, presents a mixed picture.
While demand rebounded in 2022 due to the global energy crisis, many developed countries are actively transitioning away from coal due to environmental concerns and the increasing cost-competitiveness of renewables.
Conversely, coal consumption is rising in developing countries like China and India to meet their growing energy demands. The broader shift towards cleaner energy sources like wind, solar, and hydro is likely to continue, further pressuring coal usage. This trend will undoubtedly influence Zimbabwe's energy mix in the long run.
While the overall outlook is bleak, there are some bright spots. Gold producers are expected to benefit from the current favourable prices, offering a welcome relief in the short to medium term.
"Earnings will likely continue to be supported by favourable gold prices, which may provide a buffer from high operating costs. We continue to lean towards defensive stocks with strong dividend policies in case capital gains remain subdued.
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"Gold mining stocks are particularly appealing in the present environment given the resilience of bullion prices at the current high levels giving upside to the topline," said IH Securities.
Investors looking for defensive stocks with strong dividend yields may find solace in gold mining companies. Padenga and Caledonia are highlighted as particularly attractive options due to their valuations and projected dividend yields.
Geopolitical tensions continue to cast a long shadow over the global economy, impacting commodity markets and investor sentiment.
The ongoing war in Ukraine and regional disputes contribute to market uncertainty and volatility. While this presents some upside risk to commodity prices, the broader trend suggests continued challenges for the Zimbabwean mining sector.
