Mining sector needs US$780m

Mine1.gif

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

ZIMBABWE’S mining sector requires an estimated US$777 million to sustain operations and ramp up production this year, businessdigest has learnt.

By Tinashe Kairiza

By September last year, local finance houses had extended an estimated US$172 million to the mining sector in working capital. Although mineral output is projected to rise significantly in 2018, the Zimbabwe Chamber of Mines says a raft of challenges ranging from scarce foreign currency, steep power tariffs and tumbling prices of key minerals on the international market will continue to arrest growth.

Last year, the sector grew 7,5% with mineral earnings in 2018 set to soar to US$2,5 billion propelled by improved output of key minerals such as gold, platinum, coal and chrome. In 2017, Zimbabwe raked in US$2,38 billion in mineral export earnings, up from US$2,2 billion grossed in 2016.

Gold production this year is projected to increase 13% to 30 000 tonnes from 26 495 tonnes realised last year while coal output is also forecast to increase 54% to 4 500 000 tonnes from 2 928 036 tonnes produced in 2017.

While platinum production slumped 6% in 2017 to 14 257 tonnes from 15 110 tonnes realised in 2016, output in 2018 is projected to increase to 15 500 tonnes, indicating a 9% jump. Last year, the World Platinum Council (WPC) projected Zimbabwe’s platinum output for Q3 2017 to tumble by 10% due to maintenance work that key miners of the mineral were undertaking.

In a paper presented during a Confederation of Zimbabwe Industries (CZI) symposium, the Chamber of Mines noted that the debilitating liquidity challenges ravaging the local economy were arresting the growth potential of the sector, around which government has anchored efforts to revive the country’s fragile economy.

“The local mining industry is in dire need of capital for both sustenance and ramp up. In 2018, the mining industry requires around US$777 million to optimise production, with US$401 million needed for sustaining operations and US$376 million for replacement and expansion capital,” the Chamber of Mines said.

“Despite the aforementioned growth, the sector remains fragile and continues to operate below capacity on the back of a host of challenges, not restricted, but including: foreign exchange challenges (shortages and delays in foreign payments, inadequate capital, and high cost structure (high electricity tariff, sub-optimal fiscal charges).”

The Chamber of Mines pointed out that Zimbabwe’s gold output is now largely being propelled by small-scale miners, who surpassed the cumulative output of large-scale mining firms. Production of the yellow metal by small-scale miners in 2017 rose by 36% to 13 176 tonnes.

“For the first time since 2009, output from large-scale gold producers declined in 2017, compared to their counterparts in the small-scale sector. And for the first time since 2009, small-scale producers delivered more gold than large-scale producers,” it said.

The Chamber of Mines singled out Zimbabwe’s “uncompetitive” fiscal framework, characterised by a punitive tax regime as factors inhibiting the growth potential of the mining sector. Investors expect a favourable and stable fiscal framework which balances the need to attract foreign capital, with the need to maximise net benefits to the host country.

“The country’s fiscal framework has largely remained uncompetitive, weighed down by multiple taxes, suboptimal and double taxed royalty, high mining fees, indiscriminate RDC charges, unsustainable Environment Impact Assessment levy and Environmental Manangement Agency charges,” it said.

The Chamber of Mines also noted that regulations of the indigenisation law, which still remain in force for platinum and diamond, should be scrapped, while efforts to effect amendments to the legislation should be finalised “during this year”.

Last year, the southern African country effected sweeping changes to the contentious indigenisation legislation, though provisions of the law regulating the diamond and platinum sectors still remain in force.

Top