Gamma Mudarikiri/Clive Mphambela
PLATINUM-mining companies in Zimbabwe face a bleak future following the sharp increase in production costs attributed to the recent hike in mining fees and ballooning input costs against falling platinum prices internationally, a Zimplats official said this week.
Zimplats spokesperson Busi Chindove told businessdigest this week that rising costs of production emanating from the 60% increase in electricity costs, a 100% rise in royalty fees and a 5000% increase in ground-rental fees renders the Zimbabwe platinum-mining industry uncompetitive, considering the falling prices of the metal globally.
Although platinum-mining companies in the country have benefitted from shallow mines, which are relatively cheaper to mine, and access to cheaper loans compared to other operators in the region, this was offset by the recent increases in major input costs, she said.
“The recent increases in major input costs more than offset the advantage of shallow mining,” said Chindove. In addition, the cancellation of offshore banking facilities meant that platinum mines had to access debt finance from the local markets at high interest rates,” Chindove added.
Economic analysts have added their voice to the platinum-mining industries dilemma, saying the major downside risk for the industry was emerging from the slowdown in the global automotive industry because of the persisting Euro-zone crisis. Platinum is a major component of catalytic converters in modern environmentally-friendly vehicles.
“The fact that the Euro-zone crisis is likely to persist for the next three years points to a bad outlook for the platinum industry in the country,” said economist Brains Muchemwa.
South African platinum-mining giant, Aquarius, last week announced it would mothball its Marikana joint venture with Anglo American Platinum (Amplats), citing high costs of production against falling platinum prices globally.
Aquarius is the major shareholder in Mimosa Mines in Zvishavane.
This was followed by reports from the South African media that Amplats, the world’s largest platinum producer, warned that its earnings would go down by at least 20%. Amplats is is the sole shareholder in Shurugwi’s Unki Mine.
Muchemwa, however, said Zimbabwe did not have stringent government safety standards that have been major cost drivers in platinum production in South Africa and elsewhere. The decision to close most of the platinum mines in South Africa was therefore welcome and good for the long-term stability of platinum prices.
“Zimbabwe and South Africa are the biggest producers of platinum in the world and they should hold back production to ensure that they starve the market of oversupply so as to maintain firm global prices,” Muchemwa said.
However, Zimplats’ Chindove said the mining business by nature was highly exposed to commodity price fluctuations, with prices determined by buyers without reference to input costs which exposed the Zimbabwe industry to high risk.
This was coming against an estimated 500 000 ounces oversupply of platinum on the world markets, which was also contributing to the downward movement of platinum prices.
Chindove said the overall effect of falling metal prices was reducing margins, which inevitably would result in losses.
She said Zimplats, already reeling from indigenisation laws, would in the short-term trade profitably, but the capacity of the company to undertake major expansion projects would be severely compromised as cash generation was lower than it was previously expected to be.
Chindove also said the ability of platinum mines to weather the storm depended on how long it would take for metal prices to recover and the success of the negotiations between the Chamber of Mines and government to review punitive input costs.