‘All mining sectors poised for growth’

THE  central bank is yet  to redeem gold bonds owed to mines,  leaving them short of operating capital. Zimbabwe Independent business editor Chris Muronzi (CM) this week interviewed Chamber of Mines of Zimbabwe CEO Chris Hokonya (CH), who highlighted problems in the sector and capacity utilisation.

CM: Where does capacity utilisation stand in the mining sector?

CH: Capacity utilisation in mining varies by sub sector, but broadly ranges from 33 to 40%, with the exception of platinum and diamonds.
The Platinum Mines are operating at near full capacity. Unki is expected to commission production in the fourth quarter of 2010.
Gold production is steadily rising, though mines face capitalisation and energy challenges. Much of the gold sector is operating at 33-40%, with some prospect for further gains in capacity utilisation.
Chrome and coal production have also increased compared to 2009, though capacity utilisation continues to be hampered by power interruptions and funding constraints.
Asbestos production is affected by the challenges facing SMM, with output well below 10% of capacity. The company has potential to produce more than 200 000 tonnes per year.
Diamond mines are operating at near full capacity, with Murowa undertaking further expansion initiatives.
Nickel production capacity remains low, as BNC is yet to commence production, though preparatory work is underway. Current nickel production is a by-product of Platinum group of metals(PGMs).

CM: Could you give us production output figures for the first half of the year and other minerals.

CH: Cumulative Gold production at 4 tonnes in June indicates that the sub-sector is on course to realise the annual target of 7- 8 tonnes in 2010. Total gold production was 4, 965 tonnes in 2009.
Coal production through to June 2010, implies that annual production forecast of 1,8 million tonnes could be achieved, which would translate to an annual growth of 8% over 2009.
Platinum and PGMs output is projected to continue at full capacity and it is estimated that the sub sector could realise 15% growth over 2009.
Asbestos production for the year is forecast at 4 060 tonnes – 22% lower than in 2009.
Chrome production through to June 2009 is 34% higher than the annual 2009 production. On current trends, annual chrome production for 2010 is forecast to be 70% higher than 2009.

CM: Finance minister Tendai Biti says the mining industry is going to grow by 31% this year. Is this the chamber’s view too?

CH: Yes. The chamber of Mines estimates mining production growth of about 33% in 2010. The weighted growth for the industry, factoring production for the first half of the year, shows mining growth of about 33%. All sectors are projected to record positive growth, except asbestos and Black granite.
The mining sector is undertaking extensive capital raising initiatives and  applying internally generated resources to ramp up production across all sub sectors.
Mining houses are also exploring debt financing with regional financial institutions, as part of efforts to underpin production expansion.  Mines are putting in place mitigatory measures against power outages, with many mines purchasing generators to ensure production. This, however has the effect of tying up financial resources, which could be deployed in exploration.

CM: In which sectors do you see growth?

CH: All sub sectors are showing growth, except for asbestos and granite. SMM, which is still under administration, has been unable to source funding for its working capital requirements. Otherwise all sub sectors are forecast to grow – some at a slower pace than others. The mining sector still faces capitalisation and financing challenges.

CM: What is the status of gold bonds introduced to settle outstanding payments to gold mines?

CH: The Gold bonds have not yet been redeemed by the RBZ. As such this has compounded the financial challenges facing mines.
The Minister of Finance has stated that government will takeover RBZ debt, through an enabling Act. The mining industry implores government to speed up the process, which would enable mines to sell the bonds to institutional investors, such as pension funds and insurance companies if the gold bonds are given prescribed asset status. This development would unlock resources for the mining sector.

CM: What is your view of the revised empowerment regulations. Do you think they address concerns you had raised earlier relating to ambiguity of words such “cede”?

CH: The revisions are a step forward. There is need to conclude other matters relating to mining such as the Mines and Minerals Amendment Act to give certainty to mining investment environment. This will go a long way towards addressing investor concerns and restoring confidence.
The word “cede” was replaced with “dispose”’ and removes ambiguity in as much as disposal has been defined as sell.
The Chamber of Mines also implores government to ensure that the mining sector board is speedily appointed to deal with immediate matters relating to economic empowerment, such as the establishment of minimum thresholds for empowerment, the time frame for compliance and the empowerment scorecard.

CM: How is the industry coping with power outages?

CH: Power outages represent a recurring challenge for the whole economy and the mining sector. Some mines are buying generators to keep production going. The long term solution is investing in new energy generation capacity and this requires significant financial resources. The Chamber of Mines continues to advocate for an improved investment environment to attract FDI, necessary for growth of the economy.
Peak power demand in the country is 2 200 MW and currently production amounts to about 1 335 MW. In addition to the need to financially capacitate Zesa, to ensure that all the six units at Hwange Power Station are fully operational, the Chamber of Mines implores power authorities to implement demand management measures such as installation of prepaid meters and a national exercise to introduce energy servers for efficient energy utilisation.

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