Mining sector under-funded

Zimbabwe faces an uphill task raising funding for its extractive industry which requires huge capital expenditure to ramp up production at a time the sector is battling power shortages, antiquated machinery and depressed international prices.

By Fidelity Mhlanga

Mining executives say the extractive sector faces an uphill task to raise funding to retool.
Mining executives say the extractive sector faces an uphill task to raise funding to retool.

Mining executives, who converged last week for the Chamber of Mines conference in Victoria Falls, said there was need to resuscitate closed mines, improve efficiencies, reduce costs, adopt new technology and optimise the use of inputs to create a conducive business environment to increase production.

Chairperson of the Platinum Producers Association Winston Chitando disclosed that the sector needs US$2,8 billion in capital expenditure to lift output from 13 tonnes to 20 tonnes by 2020 and 26 tonnes by 2025. He said gold needs a total of US$600 million to optimise production to 50 tonnes by 2020.

Of the required amount, US$1,6 billion was for increasing production, while US$1,2 billion was sustenance capital.

He said with the vast platinum reserves, the sector has a potential to increase platinum output from about 13 tonnes, to 20 tonnes by 2020 and 26 tonnes by 2025.

“If we incorporate current projects and potential new entrants (GDI and global platinum) output could surge to as much as 30 tonnes by 2025. Mirroring growth in output, platinum annual revenue could increase to about US$1,2 billion by 2020, and US$1,6 billion by 2030, to become the single largest source of exports in Zimbabwe.

“Power shortages should be addressed in light of beneficiation and value addition, with the cost of power being rationalised,” Chitando said at the conference last Friday.

The platinum sector employed about 10 000 at the end of 2015, representing about 25% of total formal mining employment.

Chitando said there was need to address skills relevance in light of beneficiation and value addition.

Although the capital requirement is not as huge as that of the platinum sector, gold production in the country also requires vast capital injection to increase output in the next five years.

Gold Producers Association chairman Noah Matimba said a total of US$600 million is required to optimise production to 50 tonnes by 2020, generating US$1,8 billion annually.

“Existing producers have a potential to increase output to 50 tonnes through improved efficiencies and expansion of current operations. In line with output growth, gold revenues will reach US$1,8 billion by 2020. The gold industry requires US$600 million in the next five years to optimise production, of which US$410 million relates to ramp up capital, while US$190 million is for sustenance of operations,” Matimba said.

He said the existing electricity tariff for the gold industry at 12,8 US cents per kilo-watt hour (KWh), was significantly higher than the regional average of eight US cents/KWh.

Gold is currently contributing around 4% to the fiscus through government taxes and other fiscal charges, and an additional 4% is generated in the value chain.

After attaining a peak of 27,1 tonnes in 1999, gold output levels progressively declined to reach a historic low of 3,6 tonnes in 2008, before recovering back to 20 tonnes by 2015.

Grave concerns for sustained growth and development, include managing costs through aligning labour costs to productivity, optimal power usage and negotiating with suppliers for reduced prices.

Base metals such as nickel, chromium, cobalt, iron, tantalum have contributed to the development of the mining industry over the years.

Bindura Nickel Corporation MD Batirai Manhando said nickel production has a huge potential to grow to 27 000 tonnes by 2020, and increase annual export earnings to US$700 million, with employment figures almost doubling to 1 800.

He said in order to bridge the gaps and grow the base mineral sector, the country must attract investment in minerals exploration of about US$120 million annually.

Since the resumption of production by Bindura Nickel Company, nickel has recorded phenomenal growth from 7 900 tonnes in 2012 to 16 000 tonnes in 2015.

Average capacity utilisation in the nickel sector decreased from 83% in 2014 to 61% in 2015
Chrome mining was on the verge of collapse until the government lifted a ban on chrome ore exports in June last year, resulting in 28 840 tonnes of the ore, valued at US$2 million being exported.

“The chrome sector is energy intensive, lower tariffs are required to restore viability and contribute to the generation of the much-needed foreign currency. Reliability and competitive pricing of electricity are fundamental to attracting the future growth of the base metal mining industry and the economy at large. Pursue commodity price linked tariffs,” Manhando said.

The country’s electricity supplier, Zesa Holdings, is proposing a 14% tariff increase from the current 9,86 US cents to 11,2 cents/KWh.

Economist Eddie Cross said the level of funding required in the mining sector can be capacitated through normalising relations with international financial institutions.

“The short answer is no we do not have (the potential to fund mining activities on our own) and so we would have to find this sort of money externally. To do so we will have to get our relations with the IMF back on track and seek a better relationship with the global community. Until this is achieved we will not have access to financing at low interest rates,” he said.