By Selina Zhuwarara
THE Victoria Falls Stock Exchange (VFEX) recently made a call for contributions towards the crafting of a listing and trading framework for small-scale mining companies. In a bid to extend its product range, the exchange has identified the small-scale mining sector as a viable destination for investment.
This is a notable development because if it is executed correctly, it can significantly widen access to much-needed capital in the small-scale mining sector. It also has the potential to increase the productivity and growth of the sector.
It is agreed that one of the critical inputs to increasing the sector’s operational capacity lies in widening access to financial resources and services. It is trite that while small-scale mining represents the largest component of the industry in terms of participants, it has been unable to access adequate capital or debt, which is critical for growth. It is of paramount importance for the African continent to build the capacity and competitiveness of small-scale mining as well as artisanal mining (ASM) so as to maximise resource utilisation and create sustainable livelihoods for this growing sector.
Mining is a capital-intensive industry, and the large-scale mining sector has been able to grow and increase its capacity due to its sustained ability to attract capital and debt at appropriate times. While the requirement for capital is also high in the ASM sector, the ability of the sector to access or attract commercial capital, investment or debt has largely remained limited.
There are significant impediments to achieving comprehensive financial inclusion and widening financial options in the ASM sector. The common hindrances cited include the typical informal nature of the sector, poor liquidity, low productivity, difficulties in conducting due diligence and risk assessment on the entities and persons in the sector and poor operational form.
Consequently, the sector has remained an unattractive stakeholder to established financial players that have traditionally supported the mining industry. The cumulative result has been to marginalise a significant component of the small-scale mining industry from being able to access a wider range of commercial financial services.
Notwithstanding the same, it is interesting to examine how the sector has internally dealt with its needs. The sector has developed in-built financial products and services which are unique to its capacity, form and scale. Though not sufficient or universal in their impact, the sector has managed to produce uniquely scaled services and products to support their operations.
Particular attention is given to how the artisanal mining sector has dealt with financing. The sector relies on its own internal stakeholders or value chain participants to assist miners to access capital.
Financiers have emerged in the form of concession owners, buyers, millers/ processing agents or stand-alone sponsors who offer capital to miners in exchange for a portion of the product recovered by the miners. Concession owners allow artisanal miners to mine on their land on a product or revenue sharing arrangement.
Millers provide milling and processing services in exchange for a percentage of the product or on a revenue sharing basis which may be revolving in nature. The same applies for buyers or standalone sponsors. It is remarkable that these simple interactions prove that viable financing transactions can be concluded within the sector by looking at what it can provide and not what it does not have.
The common barrier to formalising the ASM sector or improving its economic participation has been evaluating and basing its economic assimilation on exclusionary standards which many small entities cannot attain.
The ASM internal financiers have developed a criterion for risk management that is commensurate with the scale that the miners operate and have leveraged profitability on their ability to continuously increase their level of direct influence in the miner’s operations.
Hence, when the miner produces more, they also get larger returns. This simple system reveals that financial access to the informal or small-scale sector requires right-sized partners or partners who have a vested interest in its growth. It is trite that the scale that the ASM sector operates at is not attractive to large-scale or traditional financiers, therefore, it is important to build up an appropriately scaled market of financial partners that have shared interests with the ASM sector.
This step lies at the heart of making extended financial services universal and more effective in the informal sector. The informal and small-scale mining sector cannot be expected to rely on the same economic framework that was evolved to support large-scale economic enterprise. The needs and expectations are fundamentally different.
The proliferation of the ASM sector shows that it is a viable economic activity. The sector can be viably nurtured for wider economic growth by creating sustainable interactions between it and the larger economic framework. Therefore, it is important to address access to wider financial products and services in the ASM sector from both internal and external investors and other financial partners. The ability to access a wide range of financial services in a simple and relatable format is a key catalyst for the sectors’ formalisation and improved economic integration.
Following the same, ASM sector host governments need to improve their focus on policies that promote and empower partners that already exist within the ASM sector to impart greater impact within the sector. Targeting the growth of institutions or partners that already participate in the sector can result in greater impact than solely focusing on acquiring financial support from external stakeholders who do not understand the workings of the sector.
The examples of ASM sector internal financing arrangements discussed herein reflect that the sector’s potential also relies on finding partners that value dependant growth. In such a scenario, both the financier and the recipient have mutual interest in improving the scale of returns, therefore, the financier also becomes an amplifier of positive influence in growing the administrative and operational capacity of the recipient. This type of interaction and influence gradually negates the level of risk in the credibility of the recipient and enables them to access more support.
The artisanal and small-scale mining sector has shown significant resilience and ingenuity in developing its own systems and solutions to address the mobilisation and distribution of capital within its value chain. This ingenuity should be instructive to the process of developing sustainable economic policies and financial products that support the sector. It is important for governments to increase their focus on mediating the enhanced integration of the sector into the mining economy.
The success of the initiative proposed by VFEX lies in the ability of governments to optimise regulation of the sector and to create a conducive economic environment for the sector through appropriate policies and law. Secondly, the exchange must develop its framework to ensure appropriately scaled listing requirements and conditions for small-scale mining enterprises and package its product in a manner that attracts the right investors who have a shared interest in the growth of the sector. The Victoria Falls Stock Exchange and the mining industry have a unique opportunity to partner in the long-term national vision to improve the small-scale mining sectors’ growth and competitiveness.
- Selina Zhuwarara is an experienced legal consultant with a demonstrated history of working in the mining and metals industry