Mining stakeholders have advised Malawi to combine domestic bank lending with larger pools of international capital if it is to finance its emerging mining industry.
The comments by the Chamber of Mines and Energy and other stakeholders on Thursday in Lilongwe during the National Bank of Malawi (NBM) plc-sponsored Mining Stakeholders Meeting came at a time the size and risk profile of mining projects stretch the capacity of individual local lenders.
During the meeting, government officials, financiers and mining industry players discussed how collaboration can accelerate the development of a sector currently contributing about one percent to the gross domestic product (GDP), but with potential to hit 15 percent, according to the National Planning Commission.
Chamber of Mines and Energy national coordinator Grain Malunga, speaking during the event, said large mines require capital far beyond what a single domestic financial institution can provide, making syndicated financing, in which several financiers share the exposure, critical.
He cited the Malawi Stock Exchange-listed NBM plc’s indication that it can finance up to about K90 billion as critical for mining development.
“There is need to have a syndicate,” said Malunga, welcoming efforts by the bank to work with financing partners capable of increasing the amount available for mining projects.
But he argued that banks should not necessarily be expected to finance every stage of mining, particularly high-risk exploration.
The financing debate comes as government targets mining to contribute about 10 percent to the GDP by 2030, an ambition that will require not only major foreign-funded projects, but greater participation of Malawian businesses in mining supply and value chains
NBM plc head of retail banking William Chatsala said the gap is particularly pronounced in mineral exploration which banks consider risky because substantial capital can be committed before a commercially viable deposit and repayment cash flows are established.
“On the one hand, you have miners with huge borrowing requirements and on the other, you have National Bank of Malawi with huge resources to lend out. But there’s a gap in understanding between the two parties,” he said.
Chatsala said NBM’s challenge was not necessarily availability of capital, but determining whether mining propositions were commercially viable and understanding the risks well enough to structure financing appropriately.
He said: “The question is not about the bank not wanting to lend, but the issue is, do we understand enough in terms of the risks that we are exposing the bank to and how do we mitigate those risks?”
Ministry of Industrialisation, Business, Trade and Tourism deputy director responsible for SMEs development Chezani Otaniele said collaboration between government, financial institutions and mining companies is critical to achieving that targets in the mining industy.
“If collaborations and partnerships such as these are encouraged, we should certainly hit the target,” he said.
Otaniele described the NBM engagement as evidence of increasing financial-sector interest in mining.
He defended the government’s regulatory objective, saying authorities need to prevent mineral resources from leaving the country without adequate benefits accruing to Malawians.
“Government’s interest is to protect the resources of Malawi. We just don’t want some other countries or some other people from other countries to benefit from our resources,” said Otaniele.
Under the chamber’s preferred model, the government can undertake grassroots exploration through to pre-feasibility, effectively absorbing some of the geological risk before private investors and financiers enter at feasibility, mine development, infrastructure and processing stages.
Mining is one of the critical sectors touted as a catalyst for rapid economig growth.
