MIDLANDS STATE UNIVERSITY
FACULTY OF ENGINEERING AND GEOSCINCES
MINING ENGINEERING DEPARTMENT
NAME
LINSON GOTA
REG NUMBER
R175715E
MODULE CODE
HMINE515
MODE OF ENTRY
CONVENTIONAL
ASSIGNMENT
1
1. Discuss Banks and Roles in Economy
A bank is a financial institution that collects society’s surplus cash and gives a part of that as a
loan to investors for earning profit. Therefore, a bank is an intermediary institution that makes
a relationship between the owner of surplus savings and the investor of deficit capital.
A. Main Characteristics of a Bank
i.
A bank is a financial institution that deals with money deposited by people mostly
people who are not in the inner circle of the bank that is other people’s money.
ii.
Bank forms can be an Individual /Firm/Company. A company that is in the business of
banking is a Banking Company.
iii.
One of the most important uses of a bank is taking in money in the form of deposits to
give safety to people’s money/deposits, acting as a custodian to peoples funds.
Deposited money is usually repayable on demand or after the expiry of a fixed period.
iv.
Banks lend out money to eligible people in the form of Bank Loans to be used for
different purposes.
v.
A bank provides an easy payment and withdrawal facility to its customers in checks
and drafts. It also promotes circulation of bank money in the form of checks, drafts, etc.
vi.
A bank provides various banking facilities to its customers. They include general utility
services and agency services.
vii.
A bank is a profit-seeking institution with having service-oriented approach.
viii.
Banking is an evolutionary concept. Which means it continues to grow changing and
diversifying concerning its functions, services and activities.
ix.
Banks collect money from those who have surplus and give the money to those who
require it, thus a bank acts as a connecting link between borrowers and lenders of
money.
x.
A bank’s main activity should be to do banking business that should not be subsidiary
to any other business.
xi.
A banks name and identity is very important hence, banks always have the word “bank”
in their name so people can easily identify it as an institution that deals with money.
B. Functions of a Bank
i.
Primary or Main Functions of Banks
Accepting different types of Deposits –

Saving Deposits: The public deposits money into the bank as means of saving at an
attractive interest rate.

Fixed Deposits: The lump sum amount is deposited at one time for a specific period
with a higher rate of interest being paid.

Current Deposits: Account type operated by business people where there is no interest
paid but withdrawals are freely allowed.

Recurring Deposits: This type of account is operated by salaried persons and petty
traders. Withdrawals are permitted only after the expiry of a certain period. A higher
rate of interest is paid.
Granting of Loans and Advances
A bank lends out money to the public and business community. The rate charged on these
advances is higher than the amount paid on deposits.
1. Overdraft –An advance given to current account holders. It is sanctioned to business people
and firms. An overdraft facility is granted against collateral security.
2. Cash Credits - The client is allowed cash credit up to a specific limit fixed in advance. The
cash credit is given against the security of tangible assets and or guarantees. The advance is
given for a longer period, and a larger loan amount is sanctioned than that of overdraft.
3. Loans – Lending money over a period of time, whereby the loan is secured against tangible
assets of the company.
4. Discounting of the bill of exchange - The bank can advance money by discounting or by
purchasing bills of exchange, both domestic and foreign bills. The bill is presented to the
drawee or acceptor of the bill on maturity, and the amount is collected.
ii.
Secondary/Non-Banking Functions of Banks
Also called non-banking functions.
A bank can act as an agent to its clients

Transfer of Funds from one branch to another or from one place to another.

Collecting cheques through the clearing section of its customers and money from the
bills of exchange.

Making periodic payments from instructions made by the client for example electricity
bill and rent.

Portfolio Management, which is purchasing and selling the shares and debentures on
behalf of the clients and accordingly debit or credit their accounts.

The bank makes periodic collections salary, pension, dividend, and other periodic
collections on behalf of the client.

Banks also act as trustees, executors, advisers, and administrators on behalf of their
clients. They represent their clients when deals are made with other banks and
institutions.
iii.
General Utility Functions
The bank also performs general utility functions, such as,

Banks issue drafts for transferring money from one place to another, letters of credit,
especially in the case of import trade and travellers’ checks.

The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments, and other valuables.

The bank underwrites shares and debentures through its merchant banking division.

The commercial banks are allowed by reserve bank to deal in foreign exchange.

Banks may also undertake to prepare project reports on behalf of its clients.

It undertakes social welfare programs, such as adult literacy programs, public welfare
campaigns, etc.

It acts as a referee to the financial standing of customers collects creditworthiness
information about clients of its customers and it provides market information to its
customers,
C. Role of Banks to the Economy
1. Creation of Capital - Banks play an important role creating capital, which is essential for the
economic development of a country. Banks mobilize people small savings that are in many of
their branches, take the money and make it available for use as capital in business start-ups.
2. Creation of Credit - Banks create credit facilities to give business people access to more
funds which promotes project development thus increased production, employment, sales, and
prices, and thereby, they cause faster economic development.
3. Banks invest the savings mobilized by them for productive purposes and the money is put in
various sectors pf the economy.
4. Fuller Utilization of Resources - Savings collected by banks are used largely for the
development purposes of various regions in the country, which ensures fuller utilization of
resources.
5. The banks help the country’s economic development by promoting national industrialization
in the means of extending loans to the right type of persons that do good industrial practices.
6. Bank Rate Policy -Economists believe that by changing the bank rates, changes can be made
in a country’s money supply. Federal or state banks in developing countries; the interest rate is
to be paid by banks for the deposits accepted by them and the rate of interest to be charged by
them on the loans granted by them.
7. Bank Monetize Debt -Commercial banks transform the loan to be repaid after a certain period
into cash, which can be immediately used for business activities. Manufacturers and wholesale
traders cannot increase their sales without selling goods on a credit basis. But credit sales may
lead to locking up of capital.
8. Finance to Government - Banks provide long-term credit to the government by investing
their funds in Government securities and short-term finance by purchasing Treasury Bills.
9. Employment creation – When a new bank branch is opened new employment opportunities
are created and people’s livelihoods are improved when they are hired at the bank.
10. Entrepreneurship – banks in developing countries also take on entrepreneurship
development, which is a complex process. It includes the formation of project ideas,
identification of specific projects suitable to local conditions
2. Describe how mining has contributed to economic and social wellbeing of
Zimbabwean citizens with an Emphasis on SDGs related to economic
development, social inclusion, and environmental sustainability.
• Use quantitative indicators such as those for poverty, inequality, employment, and the
quality of education in your description.(You can also include
qualitative
data/information)
a. Sustainable Development Goals related to Economic Development
SDG8 – Decent Work and Economic Growth
Mining has generated new economic opportunities for citizens and members of local
communities, including jobs, training, and business development relating to mining operations,
associated service providers, or new local economies linked to the mining sector.
Facts on the ground reveal the mining sector currently constituting:
13% of nominal GDP,50% of the nation’s total exports,12% of fiscal revenue,45,000
employment jobs, more than 50% of foreign direct investment, and significant corporate social
investment in health, education, housing, and infrastructure.
The sector directly employed around 45,000 workers in 2011. It is estimated that another 15
000 workers are employed in associated industries that either supply products to, or use
products from the mining industry. Around 500, 000 people are directly dependent for their
daily subsistence on mine employees.
The mining sector is anticipated to remain the major driving force behind overall economic
growth. At 13% of GDP the mining sector is now matching the manufacturing sector which
now contribute 14% of GDP (down from above 20% in 1990s).
In terms of foreign exchange earnings per unit of GDP, mining generates the most foreign
exchange of the economy. The sector contribution to exports has increased significantly from
20% between 1993 and 2003 to 43% between 2004 and 2011.
In 2011 alone, the sector contributed USD2.3billion to national exports, representing far above
50% of the country’s total merchandise exports and the country’s total foreign exchange
earnings.
The sector continues to act as a magnet for investment in Zimbabwe, directly accounted more
than 50% of total fixed investment and more than 75% of the total private sector investment .If
the multiplier effect is taken into account, mining helped generate about 80% of total
investment in the economy.
SDG9 – Infrastructure, Innovation and Industrialization: Mining has helped drive economic
development and diversification through direct and indirect economic benefits and by spurring
the construction of new infrastructure for transport, communications, water and energy.
Some of these mining companies in Zimbabwe have upgraded local schools and clinics.
Meanwhile other mining companies such as Mimosa have built mortuaries as well as providing
mortuary refrigeration to the Zvishavane District Hospital at a cost of US$207,748.
In Zimbabwe, many communities have been completely displaced because of mineral deposits
found in those communities. Some members of the affected communities had to migrate in
search of farmlands while others were forced to relocate to different communities due to
presence of Artisanal Small Scale Mining activities in their area.
SDG12 – Responsible Consumption and Production - Mining has also provided materials
critical for renewable technologies and the opportunity for companies to collaborate across the
supply chain to minimize waste, and to reuse and recycle.
b. Sustainable Development Goals Related to Social Inclusion
SDG1 – End Poverty,
World Bank Data says 72% of Zimbabweans are poor. Mining in Zimbabwe is generating
significant revenues through taxes, royalties and dividends for the government to invest in
economic and social development, in addition to opportunities for jobs and business locally.
On the other hand, the cost of living in mining communities is high comparing with
communities without mining. Wages or incomes of mineworkers are being used as a decider
for goods and services in those communities, which puts non-mine workers (e.g., Government
Workers, farmers) at a disadvantage.
SDG 4 – Quality Education
Mining companies like Zimplats are responsible for improving the quality of education in their
local communities by supporting the delivery of quality education, Support to local
communities in building schools, providing resources to enhance education and sporting
activities.
SDG5 – Gender Equality - Some mining companies in Zimbabwe has begun promoting gender
inclusivity as they increase the number of women they hire with some women even getting
executive positions which is a benefit to the wellbeing of Zimbabwean women. Zimplats for
example 20% of their Local Enterprise Development (LED) on the programme are female led
and this helps to promoting diversity and promoting gender equality as espoused by SDG 5.
Although women in Zimbabwe also take part in miming eg.Small (ASM) scale as reliable
workforce but their contributions to the sector is undervalued which has resulted in the mining
sector being labelled as promoting gender inequality.
SDG10 – Reduced Inequalities - Big Local companies have also supported participatory local
decision-making processes regarding the mining operations, the equitable allocation of benefits
and the resolution of grievances, and identify and expand opportunities to strengthen the voice
and influence of marginalized groups, including women, to ensure that inequalities are reduced,
rather than reinforced, by the economic opportunities a mine may bring.
SDG16 – Peace, Justice and Strong Institutions:
Mining related to big mining companies e.g. Zimplats has contributed to peaceful societies
and the rule of law by preventing and remedying company-community conflict, respecting
human rights and the rights of indigenous peoples, or other persons, ensuring transparent
reporting of revenue flows, and supporting the representative decision-making of citizens and
communities in extractives development..
However, in the Small Scale /Artisanal, mining community has negatively affected the lives of
citizens residing near the mining activities as violence, drug abuse, crime rates increase and
corruption is closely connected to this sector.
c. Sustainable Development Goals related to Environmental Sustainability
Mining activities typically cause impacts on land, water, the climate and the flora, fauna and
people that depend on these resources:
SDG6 – Clean Water and Sanitation, and SDG15 – Life on Land:
Poor ASGM practices, have led to land degradation and deforestation, the contamination of
soil and water bodies, and overuse of forest resources. The has led to lack of clean water for
domestic use and no good pasture land for domestic animals.
For example, Zimplats has embarked on Water stewardship programmes and Enhancing
community access to potable water. Large Scale Mining companies have constructed state of
the art water purifying systems to provide clean and uncontaminated water to the local
community.
SDG7 – Energy Access and Sustainability and SDG13 – Climate Action:
Mining activities are energy and emissions intensive, presenting opportunities for greater
efficiency as well as expanding access to energy. Some companies have constructed solar farms
which increases power to the national grid while at the same time promoting environmentally
friendly power generation mechanism.
3. Give 2 examples of minerals that can be considered complements and two that can
be considered substitutes. Use price trends, application, and use of the minerals to
support your answer
Complimentary Metals (Nickle & Steel)
The above graph pricing of stainless steel closely follows the cost of nickel. This is due in part
to the fact that while nickel may make up a small percentage of stainless in mass (8% in 304),
it contributes upwards of 60% of the cost. More than half the stainless steel tonnage produced
annually contains nickel.
Nickel’s primary use is in the production of stainless steel. It is used to make steel corrosion
resistant and to make it able to withstand high temperatures. Nickel minimizes the rate at which
corrosion occurs in steel, and thus improves its tolerance to acid reduction.
Substitute Minerals (Palladium & Platinum)
The chart above shows that the price for palladium has been relatively lower than that of
platinum since 1997 to 2017.However palladium metal price has been on a long sharp growth
streak since from 2017 up to now. The increase in the price of Palladium over that of Platinum
is attributed to the growing demand of use palladium metal in the vehicle manufacturing
industry.
The biggest world markets (USA and China) for vehicles are seeing a stronger growth and
demand for petrol-powered vehicles, which primarily use Palladium metal whilst Platinum
metal is used mainly in diesel-powered. Most automotive palladium demand is for light-duty
gasoline applications that require palladium-rhodium three-way catalysts.
Also in the diesel market manufacturers have opted for substituting Platinum with Palladium
in their technology thus Palladium continues to have a stronger demand growth as a substitute
for Platinum.
4.
a. What are the three approaches used for valuing mining projects and at which
stages are they applied.
Market approach
A way of valuing a mining project whereby valuing is focused on using data that reflect
market transactions and rational thinking that corresponds to that of market participants.
Market approach is a simple way of estimating the value of an asset that uses various
methods that compare the subject to similar assets that have been sold.
Using the market approach for mineral property valuations requires that all of the
methodologies that rely on database of historical mineral property transactions must be
applied since these databases tabulate the prices at which all previous mineral property
transactions occurred. This important historical data is used as a benchmark against
current asset information and prices are compared to ome up with an estimate value of
the mineral in question.
Historical transactions include acquisitions, disposals and mergers. The transactions
used are those that were carried out willingly by the participants without being forced.
Cost approach
‘A comparative approach to the value of property or another asset, that considers as a substitute
for the purchase of a given property, the possibility of constructing another property that is a
replica of the original or one that could furnish equal utility with no undue cost due to delay.
The valuer‘s estimate is based on the reproduction or replacement cost of the subject property
or asset, less total (accrued) depreciation, plus the value of the land to which an estimate of
entrepreneurial incentive or developer’s profit/loss is commonly added.’
The cost approach is based on the premise that a mineral property is worth at least that
meaningful exploration expenditure incurred as well as the warranted future costs necessary to
improve the geological understanding of that deposit.
Therefore, the cost approach method assumes that the amount of exploration expenditure
justified and justifiable on a mineral property is related to that property’s value. The cost
approach is often referred to as the appraised value method.
Income (capitalization) approach:
‘A comparative approach to the value that considers income and expense data relating to the
property being valued and estimates value through a capitalization process. Capitalization
relates income (usually net income) and a defined value type by converting an income amount
into a value estimate. This process may consider direct relationships (whereby an overall
capitalization rate or all risks yield is applied to a single year’s income), yield or discount rates
(reflecting measures of return on investment) applied to a series of incomes over a projected
period, or both. The income approach reflects the principle of anticipation.’
Conclusion
Market Based and Cost based approach a mostly applied at the exploration stages. Income
based approach is applied after mineral resources have been indicated and some initial concept
of how they can be developed and mined has been formulated and costed in a preliminary way.
b.
i.
65% Equity & 35% Debt
Cost of Equity (RE) = RF + β*(RM – RF)
= 3% + 1.2(10%-3%)
= 11.4 %
ii.
WACC = [(D/D+E) *RD (1-t) ] + [(E/D+E)*RE]
= [0.35*0.21(1-0.3)] + [0.65*11.4]
iii.
=
12.555
=
13%
MARR = WACC + Risk Premium
= 13 % + [β*(RM-RF)]
= 13% + [1.2*(10% - 3%)]
=21.4% is higher than WACC therefore; this will make a good investment
iv.
NPV at 15 % Discount rate
t
NPV =
∑(
CASH FLOW
)
t
/ (1+DR) t
0
= -$110 000 000 + $ 38,276,740.79/ (1+0.15)1+ $ 39,227,043.02/ (1+0.15)2
+ $ 40,205,854.31/ (1+0.15)3 +$ 41,214,029.94/ (1+0.15)4
+ $ 42,252,450.84/ (1+0.15)5
= $ 23,952,595.39
v.
Sensitivity of NPV
c. Assuming you have unlimited funds at your disposal, and you are tasked to invest
in a mining project of your choice in Zimbabwe.
i.
Which mineral would you invest in and why? Highlight the end uses, availability,
supply and demand prospects for your mineral of choice.
Mineral - (PGM)
Platinum Group Minerals (platinum, palladium, rhodium, iridium
ruthenium, and osmium)
End Uses - auto catalysts, electrical and electronics, fuel cells, glass, ceramics and pigments,
jewellery, medical, chemicals.
AvailabilityZimbabwe’s Great Dyke is a potentially significant source of primary PGMs. The Great Dyke
is an igneous intrusion that extends about 550 km through central Zimbabwe. PGMs occur in
a layer known as the Main Sulphide Zone, which is roughly about 5 m thick. Ore zone width
can be as little as 1 m, depending upon geology, grade, metal prices, and the chosen mining
method.
Supply and Demand Prospects
The Market for platinum group metals is expected to grow globally. Demand for PGMs will
increase due to an increase in consumption caused by growth in the Automotive, electronics
and medical industries that consume platinum, palladium and iridium.
Supply for PGM - South Africa is the largest producer of platinum with a production volume
of 133 kiloton in the year 2019, which is around 71.5% of the overall platinum production in
the same year. The global production is estimated to be about 170 kilotons by 2020.This shows
there is an opportunity for new PGM miners to increase the global supply in the following
years.
ii.
What means you would use to finance your project highlighting the critical factors
that you consider when choosing your funding method
Sources of Funds
External Financing
EQUITY
DEBT
(Public & Private)
Loans ,Bonds
(Public Equity ,
Private/State owned
investor)
Internal Financing
OTHERS
RETAINED EARNINGS
(Royalty & Sream
Financing )
(Depreciation
Depletion)
1. Exploration stage

Internal funding is going to be the dominant means of funding at the exploration stage
since the company has unlimited sources of funds.

Exploration of PGM deposits is a high-risk project so the company will also rely on
Equity funding. Equity financing is the best at this stage as it allows sharing of all
project risks among shareholders.eg Initial Public Offerings (IPO)

Debt financing is not used at the exploration stage since payoffs to exploration are
highly skewed, as most exploration projects are risky and do not usually find minable
deposits so potential lenders will not lend such risky enterprise.
2. Development stage
Debt financing is dominant here because

The PGM mining projects are very large so it will be very expensive to finance
the project development on our own using internal funds.

Easy/Flexible access of funds when actually needed.

The transaction cost of establishing a loan are lower than those of equity

Long term Debt (Bond and Loans) will be used to finance the project
development as it is repaid over a long period even 40yrs. Short term loans will
not suffice as the company barely makes any money during its first years of
operation.

A combination of Debt and Equity will be used when the mine development
will be at medium level risk. The high levels of debt at the beginning of the
project will decrease as the project cash flow start to improve.
3. Production stage
During the mine production stage we will use funding provided for by Royalty financing
companies. Unlike debt financing this one allows risk sharing among shareholders.
Other sources of funding at the production stage are a steady balance between equity and debt
that minimises taxes and advantages shareholders’ returns at an acceptable level of financial
risk.
iii.
Describe and explain fully the steps you would take to come up with an
appropriate discount rate for calculating the net present value of your company.
Step 1: Calculate future cash flow value under consideration.
Step 2: Calculate the present value of future cash flows.
Step 3: Determine the number of years between the time of the future cash flow and the present
day. (n)
Step 4: To find the discount rate divide the future cash flow (step 1) by present value (step
2) which is then raised to the reciprocal of the number of years (step 3) and then subtract one
as shown below.
Discount Rate = (Future Cash Flow / Present Value) 1/n – 1
References
iedunote, 2022. iedunote. [Online]
Available at: https://www.iedunote.com/bank-meaning-characteristics-features-functions
[Accessed 20 March 2022].
Moris, G. D., 2021. FASTMARKETS. [Online]
Available at: https://www.fastmarkets.com/insights/the-many-forces-driving-nickel-price-volatility
[Accessed 20 March 2022].
Philip Maxwell, P. G., 2006. Australian Mineral Economics A Survey Of Important Issues. 1 ed.
Doncaster East VIC: Jenni Stiffe for The Australasian Institute of Mining and Metallurgy.
Zawaira, R. T., 2017. Slideplayer. [Online]
Available at: https://slideplayer.com/slide/8847990/
[Accessed 15 March 2022].
Zimplats, 2020. 2 0 2 0 I N T E G R ATED ANNUAL REPORT, Harare: Zimplats.com.