Chrome mining on the brink of collapse

ZIMBABWE’S decision to lift the ban on raw chrome ore exports will not be enough to save the country’s chrome miners, as the industry teeters  on the brink of collapse due to deepening viability challenges, experts have said.

Report by Taurai Mangudhla

Recently, Mines deputy minister Gift Chimanikire announced government’s plans to lift the ban on chrome ore exports for another 24 months to allow companies to clear stockpiles they had accumulated since the policy had been reinstated in April 2011.

The lifting of the ban, also meant to protect small-scale chrome miners, most of whom are indigenous, comes with a tax on sales to facilitate local beneficiation, which is currently too low to warrant the embargo.

The nature of the tax is yet to be specified and analysts say it will be a further barrier to viability of the battered industry, especially given the low prices of raw chromium, which have averaged between US$165 and US$185 per tonne since August, from a peak of US$230 per tonnne in May.

Local mining expert and immediate past president of the Chamber of Mines of Zimbabwe (CMZ), Victor Gapare, said the idea of charging a levy on chrome ore exports to be channelled towards building smelters in future needs to be interrogated in relation to the prevailing low market prices.

He said any additional levies would make chrome mining unviable and ultimately defeat the purpose of its miners to export raw ore.

“At the moment, chrome ore and ferrochrome prices are at relatively low levels and it’s difficult to see how chrome ore producers can be viable if an additional levy is imposed on them. A levy on the chrome ore will have the same effect as the banning of chrome ore exports due to economics,” Gapare argued.

While he agreed there was need to develop adequate smelting capacity, he maintained there was also need to provide adequate utilities to support the beneficiation projects. The country’s biggest chrome smelter at Zimasco, together with other smaller smelters, did not have the capacity to process all the chrome ore produced in the country.

Gapare said smelters required an incredible amount of uninterrupted and affordable power supply, hence the need for government to come up with a long-term solution to its power deficit of around 800 MW.
Zimbabwe’s power costs, which are arguably the highest in the region after government increased tariffs by 37% in September last year, are prohibitive to new and viable beneficiation projects, the former Chamber of Mines president pointed out.

“It follows then, that any intention to build more smelting capacity must take into consideration availability of power (and) the cost of the power is also a critical factor in the economics of smelting,” he said.

At an international level, chrome ores tend to move from countries with higher electricity costs to countries with lower or subsidised electricity costs as in the case with China, which has become a major producer of ferrochrome despite it not being a major producer of chrome ore.

As a result of China’s competitive advantage in terms of electricity costs, South Africa for instance, recently increased its chrome ore exports to the Asian country significantly.

On the other hand, Zimbabwe’s largest ferrochrome producer, Zimasco, says its mining fee expenses have gone up more than 10-fold after government increased mining fees, ground rentals and levies by up to 5 000 % effective January this year.

Zimasco group mining executive Reason Mandimika said the ferrochrome producer, which used to pay US$96 000 a year before the new fee structure, was now required to pay US$11 million.

Mandimika said the increase had an impact on pricing models and viability of the business.

Last month, Zimasco abandoned its tributor system and stopped buying ore from the small-scale miners working its claims, saying operations had become too costly.

The company also slashed wages for its staff, citing high utility costs and mining fees and taxes.

In July, Zimbabwe Alloys Limited (Zim Alloys) said it had about 60 000 tonnes of ore when the embargo was introduced last year and was now selling its ore at a loss to avoid losing more value.

“We lost about 35% of the stock due to weather conditions. Because of the heat and rain, some blocks disintegrate to fines and they are unusable,” Zim Alloys finance manager Kudakwashe Mahobele said.
ZimAlloys has not been spared by the mining fee review as it is now required to pay US$1,5 million annually in mining fees and ground rentals for its 1 200 claims.

Other small to medium-scale chrome miners as Dakota Mining Company (Private) Limited have also succumbed to challenges bedevilling the sector.

Dakota, which was liquidated, put up its US$1 million worth of chrome ore deposits in the Mazowe area for sale.

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