El Nino, low commodity prices affect Zim companies

DECLINING mineral prices and El Niño-induced drought has started to affect Zimbabwean companies as government shifts spending towards drought relief. Zimbabwe is heavily reliant on mining and agriculture, key sectors powering up the country’s economy in the middle of currency woes, hyperinflation and constrained consumer spending.

However, the country has been caught up in the middle of a drought that has negated agricultural output.

According to the United Nation’s World Food Programme, the El Niño phenomenon has “sparked drought, threatening agriculture and communities (and) risking food production” capacity.

Gregory Sebborn, chairman of construction company Masimba Holdings (formerly Murray and Roberts), said they feared that the group’s order book of over US$200 million may be affected by the shift in spending from infrastructure to humanitarian responses.

“The group has a firm order book valued at US$248 million with tenures of between three months to three years,” Sebborn said.

“However, the execution of this order book may be negatively impacted by the effects of the El Niño weather phenomenon and the declining mineral prices.”

Sebborn added that these factors could result in the government cutting down on expenditures for the private sector.

Although infrastructure spending is among the fiscal contributors to Zimbabwe’s currency woes over the past few years, according to economists, it had assisted local companies boost productivity and growth in the construction sector.

“These factors could lead to the government prioritising food relief over infrastructure development and may result in capital expenditure budget cuts in the private sector,” Sebborn said.

Masimba was now set to focus on cost-containment as a strategy aimed at “unlocking value” from its land bank.

The drought has coincided with a plunge in the prices of commodities such as platinum and lithium, further eroding earnings from the mining sector that is already suffering from declining gold output.

Zimbabwean mining companies such as Zimplats — controlled by Impala Platinum (Implats) and Mimosa, and jointly-owned by Sibanye-Stillwater and Implats — have started retrenching workers as a result of depressed platinum prices.

Lower lithium prices are also impacting artisanal miners, further reducing Zimbabwe’s economic liquidity and spending power.

“Mineral prices continued to soften in the period under review which resulted in the decline in export proceeds,” Sebborn said.

“In addition, the continued national power shortages have increased the cost of doing business.”

The contracting business for Masimba Holdings commenced the financial period to end December with a solid order book comprising of roads and earthworks, water, housing, mining and energy infrastructure projects.

Its order book remained balanced between the public and private sectors for the year ending December 31, 2023, with public and private sector continued investment in infrastructure development turning out to be stronger.

During the year under review, Masimba Holdings raised revenues from US$49,8 million to US$53,8 million.

The growth in revenue volumes has been attributed to the strong order book at the beginning of the year.

“However, growth declined in the fourth quarter as a conservative approach was taken by the group to align work execution in line with clients’ payment patterns,” it said.

Earnings before interest, taxes, depreciation and fair value adjustment for the period declined by 11% to US$12,6 million.

Masimba has attributed the decline in earnings before interest, taxes, depreciation, and amortisation to the “slow down of works in the fourth quarter due to delayed payments and liquidity constraints which negatively impacted project” efficiencies.

Cash generated from operating activities increased to US$5 million compared to US$800 000 in the previous year.

The company attributed this to “capital expenditure of US$4,2 million” incurred was mainly aligned towards the demands of a growing order book.

Capital expenditure was funded by a combination of internal resources and borrowings which lifted up to US$1,9 million from US$500 000.