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Could lithium transform Zimbabwe’s economy or will the opportunity be squandered?

The country’s vast mineral resources – in particular iron and lithium – place it in a critical position in the global energy transition. With its large lithium deposits, some experts say it has the potential to meet up to 20% of the global demand for the light metal. However, in 2021 it produced only 1% of the world’s lithium and ranked sixth amongst the leading lithium-producing countries after Australia (52% of global production), Chile (25%), China (13%), Argentina (6%) and Brazil (1%). In 2021, Zimbabwe’s total output was 1,200 tonnes compared with Australia’s 55,400 tonnes. In 2022, it had the planet’s seventh biggest proven lithium reserves, estimated at 310,000 tonnes (Chile had the world’s biggest reserves at 9.3mn tonnes).

As well as lithium, the country is blessed with a treasure-trove of close to 40 other minerals. It has some of Africa’s largest deposits of coal, diamonds and gold, as well as vast quantities of chromium, nickel and platinum group metals (PGMs) — many crucial for emerging clean energy technologies. The country boasts the second-largest platinum deposit and high-grade chromium ores in the world, with around 2.8bn tonnes of PGM and 10bn tonnes of chromium ore. It is also one of the continent’s largest exporters of nickel ore, with South Africa and Mozambique the main destinations. It boasts a massive 37bn tonnes of good-grade iron ore reserves that are yet to be exploited. It will soon start exporting iron and steel from the Manhize plant in Midlands Province – a giant China-funded, $1.5bn project set to position the country as the biggest steel producer on the continent.

Endowed with over 4,000 recorded gold deposits, Zimbabwe enjoys the second largest gold reserves per square kilometre in the world. As the country’s largest export, gold is vital to country’s economy, serving as the main driver of economic growth in the short term and attracting the most foreign direct investment. Held mostly in the country’s Great Dyke – a 550-km linear early Proterozoic layered mafic-ultramafic intrusion – the country’s resource base of PGMs offers a unique opportunity to develop world-class mines and processing facilities.

The government also had the aim of increasing diamond production to 11m carats in 2023 and the diamond industry is poised to contribute at least $1bn to mining output revenue. Accounting for around 3% of global diamond production, Zimbabwe is the world’s seventh largest producer of the mineral, with an output of 3,414 carats recorded in 2022. Production is expected to increase by 3% between 2022 and 2026.

However, its lithium, in particular, is considered world class. Despite modest investment levels so far, President Emmerson Mnangagwa – who has been in power since 2017 and is now aged 81 – wants to raise $10bn a year in revenues from lithium exports alone but analysts say that is an overly ambitious target.

Zimbabwe’s mining sector has enormous potential but the country faces an array of challenges. It has a $47bn economy and 16.5mn people. This year the IMF forecasts an inflation rate of a staggering 222% compared with an estimated 314% last year. It is estimated that the economy expanded at 4.1% last year and it is forecast to grow by 3.6% this year. The mining sector accounts for about 12% of GDP and 80% of national exports. The Chamber of Mines reported the mining industry generated $5.6bn in 2022 compared to $5.1bn in 2021, and it projected 10.4% sector growth in 2023.

The government set a target of $12bn in minerals’ revenues by the end of 2023 and lithium is expected to contribute at least $500m to the target. However, challenges such as persistent power shortages, foreign currency shortages and policy uncertainties have not been addressed and the target was probably missed. The country reportedly earned only $209mn from lithium exports in the first three quarters of 2023.

One of the biggest issues that Zimbabwe faces is sanctions. At the start of March 2024, the US removed sanctions against many Zimbabweans and companies but imposed new ones on President Mnangagwa and a few senior leaders. The sanctions list was originally introduced in 2001 for alleged election-rigging and human rights abuses. Those on the new list include First Lady Auxillia Mnangagwa, Vice-President Constantino Chiwenga, Defence Minister Oppah Muchinguri, senior security officials and businesspeople found to have facilitated state corruption.

Analysts say that the more limited sanctions list is a welcome move. The government will now be able to borrow money, while businesses will be able to obtain credit, buy machinery and make payment clearances.

However, the country’s mining industry has also been hamstrung by power cuts – mines have experienced blackouts of six to 12 hours a day amid a protracted energy crisis. Moreover, Zimbabwe’s staggering debt of $17bn and its arrears to the IMF and World Bank preclude it from receiving fresh capital from multilateral development banks that could be used for expanding electricity access and putting energy generation on a more durable footing.

Foreign currency retention requirements have also challenged mineral exporters, particularly at times when the parallel-market exchange rate diverged greatly from the official rate, which resulted in smuggling. In February 2023 the government increased foreign exchange retention to 75% from 60% for mining companies, something that mineral exporters welcomed. But a new requirement that mining companies must pay electricity bills in foreign exchange means effective retention falls to between 60% and 65%. Exporters complain that the high export surrender requirements make it difficult to access foreign exchange for critical capital expenditure and to finance operations.

Other revenue leakages the mining industry faces include mineral smuggling, superficial government disclosures, limited capacity of regulatory authorities to enforce compliance in mines and a lack of coordinated information dissemination in government institutions. Government departments also have limited skills to evaluate mining data and they lack verification and assaying processes. The industry also has problems with obsolete technology and a dire need for spare parts.

Companies are required to export all minerals through the state-owned Minerals Marketing Corporation of Zimbabwe (MMCZ), except gold, which must be sold to the Reserve Bank of Zimbabwe’s subsidiary Fidelity Printers and Refiners.  Individual companies may receive permission, however, from the government to sell minerals directly to avoid US-targeted sanctions on the MMCZ (that could now change following the introduction of a new sanctions list).

Given how tight lithium supply chains are globally, lithium exports could potentially help Zimbabwe escape its status as a pariah state, largely isolated by Western politicians and investors. But a big scramble is under way for the country’s critical minerals and at the moment China is winning it.

China has announced a massive $2.79bn investment in its lithium mining operations in Zimbabwe. In September 2023, there were more than seven lithium exploration and mining projects at different development stages, with Chinese companies leading the race.

In February 2022, Sinomine Resource Group, a Chinese mining company, acquired the country’s only lithium producer, the Bikita Lithium Mine, from African Metals Management Services and Southern African Metals and Minerals, for $180mn. The mine is located in Masvingo province in the southern part of the country, roughly 300 km south of the capital city of Harare, and reportedly holds the world’s largest-known lithium deposit at 10.8mn tonnes of lithium ore grading 1.4% lithium, resulting in 0.15m tonnes of lithium oxide.

Sinomine plans to invest $200mn to expand the mine’s production capacity by another 2m tonnes per year (tpy). The investment will also allow it to produce lithium spodumene.

In 2022, Zhejiang Huayou, the world’s biggest producer of cobalt, acquired controlling rights to the Arcadia mine from Prospect Resources, an Australian mining company, for $422mn. Zhejiang has commissioned a $300mn processing plant at Arcadia. The mine has capacity to process 4.5m tpy of lithium ore and produce 450,000 tpy of concentrate.

In 2023, there was also speculation that China Natural Resources, Feishang Group and Top Pacific (China) would jointly acquire a Zimbabwean lithium mine for around $1.75bn. By March 2024 this investment had still not happened.

One of the few major projects that is not Chinese owned is the Zulu lithium and tantalum project, Zimbabwe’s largest undeveloped lithium-bearing site. It consists of 14 mineral claims covering a surface area of 3.5 sq km, which are prospective for lithium and tantalum mineralisation. Owned by Premier African Minerals, the strategic metals and minerals developer listed on the London Stock Exchange, the project will explore an inferred lithium carbonate equivalent resource of 526,000 tonnes, grading 1.06% lithium oxide. It has 107,000 tonnes of lithium in the inferred and indicated categories as well as 1,000 tonnes of tantalum (pentoxide).

The mine is set to develop a 50,000 tpy pilot plant by research and development company Suzhou TA&A Ultra Clean Technology to the tune of $35mn.

Australian investors also still run the Step Aside Lithium Project, located 35 km from Harare (and around 8 km north of the Arcadia Lithium Mine Project). It comprises around one hundred hectares of claim within the Harare Greenstone Belt.

Western investors remain reluctant to work in Zimbabwe and are concerned about the human rights situation. They fear sanctions, political uncertainty, security of investments and reputational risks. Analysts say that this is one of the reasons that the Australian investors behind the Arcadia mine sold their mining rights to the Chinese.

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