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VFEX a pathway to success for junior miners in Zimbabwe

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A view of the Victoria Falls in Zimbabwe. The Victoria Falls Stock Exchange (VFEX) is based in the town of Victoria Falls which falls within the Victoria Falls Special Economic Zone and makes it easier for junior mining companies to raise funding in Zimbabwe. Image credit: Leon Louw for WhyAfrica

VFEX a pathway to success for junior miners in Zimbabwe

The Victoria Falls Stock Exchange (VFEX) could be a great vehicle for junior and mid-tier miners to thrive in Zimbabwe’s challenging economic environment.

By Methembeni Moyo and Dominic Varrie of law firm NSDV

Zimbabwe is renowned for its geological wealth, skilled mining labour force and a generally well-developed mining sector. With recent world class lithium discoveries and seemingly insatiable global demand for battery minerals, Zimbabwe should be poised to become a global mining superpower.

However, progress is perennially obstructed by economic and political challenges which render Zimbabwe a high currency risk mining destination.

If the currency risk issues that affect Zimbabwe’s mining sector can be addressed, foreign and local investors will be more inclined to inject funding that could afford junior to mid-tier miners the much needed capital to take advantage of Zimbabwe’s vast natural resources.

The mining sector is a critical feature of Zimbabwe’s economy, accounting for about 12% of the country’s gross domestic product (GDP) and close to three-quarters of Zimbabwe’s export earnings in 2022.

While some economists are sceptical, the Zimbabwean government remains optimistic that the country’s mining output will reach USD12- billion by year end of 2023.

Currency risk and economic challenges faced by miners in Zimbabwe (VFEX a pathway to success for junior miners in Zimbabwe)

The fundamental deterrent to investing in Zimbabwe’s mining sector is unfavourable and uncertain exchange control, currency and fiscal policies.

Investors need to be assured that they can put money into the country and take out their gains without undue restriction. Zimbabwe’s laws and prevailing economic conditions do not provide investors that comfort. This makes raising foreign currency externally or locally for expensive capital-intensive mining projects difficult.

Large multinationals operating in Zimbabwe’s established platinum sector, for example, have the balance sheet to mitigate Zimbabwe’s foreign currency risk.

However, with mining costs on the rise due to inflation, junior to mid-tier miners are finding it challenging to raise the capital required to take advantage of the favourable commodities price cycle in precious metals and battery minerals.

However, there are some innovative avenues available to junior and mid-tier miners to raise much needed funding to thrive in Zimbabwe’s challenging economic environment.

The Victoria Falls Stock Exchange (VFEX) (VFEX a pathway to success for junior miners in Zimbabwe)

One such exciting innovation is the introduction of the Victoria Falls stock exchange (VFEX).

The VFEX is an alternative stock exchange established in 2020 as a subsidiary of the main Zimbabwe Stock Exchange (ZSE) to operate in the Victoria Falls Special Economic Zone.

The bourse incentivises listings with the prospect of raising capital in hard currency. These incentives include that:

  • All the cash inflows raised on VFEX are considered free funds and can be kept in FCA Investments Foreign currency accounts.
  • There is allowance to use offshore settlement for trades conducted on the VFEX.
  • VFEX also offers tax incentives for shareholders and exemption from capital gains and withholding tax for the bourse investors.

VFEX has provided an avenue for international investors into Zimbabwe without the associated currency risk. The success of the bourse is undeniable, with an over 400% increase in market value in the last year, with it currently sitting at USD1.4-billion. The value of stocks traded during the first quarter of this year amounted to more than USD13-million.

Procedure to list as a junior miner (VFEX a pathway to success for junior miners in Zimbabwe)

VFEX has created a procedure for listing specifically applicable to junior mining companies. A junior mining company is a company whose principal activity is that of mining but does not qualify to list on the main board but qualifies to list on the junior board.

The criteria for the listing of junior mining companies prescribes that they must have:

  • a subscribed capital of USD250 000;
  • not less than five million equity shares in issue;
  • a satisfactory profit history for the preceding three financial years, if applicable;
  • at least 20% of each class of equity shares must be held by public shareholders, unless otherwise agreed with the VFEX;
  • the number of public shareholders of listed securities must be at least— (i) 50 in respect of equity shares; (ii) 25 in respect of preference shares; (iii) 10 in respect of debentures; and
  • minimum spread criteria should be complied with on a continuous basis.

Tharisa and Caledonia’s VFEX listing (VFEX a pathway to success for junior miners in Zimbabwe)

The listing of Caledonia Mining in 2021, demonstrated the funding potential of the VFEX. Caledonia received incredible support from Zimbabwean investors who oversubscribed by more than 50% for the Caledonia Depository Receipts.

Caledonia ended up raising USD7.8-million, much more than the originally targeted USD3-million. The capital raised was used in part to fund a 12MW solar PV plant that became operational in November 2022 to reduce on-mine costs.

Tharisa Minerals’ successful listing in December 2022 of just over USD30-million in three-year bonds is another example of the immense fund-raising potential of the VFEX for mining operations.

The funds raised on the VFEX by Tharisa will be critical in enabling Tharisa to finance the proposed USD391-million Karo Platinum project in Zimbabwe.

Another Zimbabwean miner that is listed on the VFEX is Bindura Nickel Corporation Limited, which listed on 17 December 2021.

The answer in a difficult cash environment (VFEX a pathway to success for junior miners in Zimbabwe)

The funding potential of the VFEX model has been successfully demonstrated through the Caledonia listing and subsequent fund raising as well as the Karo Platinum project listing, for example.

Listing on the VFEX in addition to other funding strategies could be the answer to funding mining projects in what has historically been a difficult cash environment. Couple that with an unprecedented commodities price cycle, there may be a pathway to finding the capital needed to build a successful mining project in Zimbabwe.

The article was written for WhyAfrica by Methembeni Moyo, Lawyer Foreign Qualified Mining and Construction at NSDV and Dominic Varrie, Candidate Attorney at NSDV

Methembeni Moyo, Lawyer Foreign Qualified Mining and Construction at NSDV
Dominic Varrie, Candidate Attorney at NSDV

VFX a pathway to success for junior miners in Zimbabwe

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VFX a pathway to success for junior miners in Zimbabwe

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