HomeBusiness DigestFunding constraints threaten mining targets

Funding constraints threaten mining targets

BY TAURAI MANGUDHLA

Finance minister Mthuli Ncube might remain confident the mining sector will perform positively in 2021 after having projected in November last year the industry will grow by 11% in the current year before revising it recently to 2%, largely driven by planned expansion projects across minerals, but analysts warned funding problems could upset the sector.

The mining industry has struggled to get funding due to the high risk associated with Zimbabwe on the international market, inflation and a lack of policy consistency in currencies and fears of expropriation after the chaotic land reform programme and the indigenisation exercise.

Even the revised 2% and the projected 8,4% sector growth for 2022, according to the 2022 budget strategy paper, could be missed in the absence of funding.

Ncube increased GDP growth forecasts for 2021 from 7,4% to 7,8%, despite on account of a good agricultural season, mining performance and an envisaged opening up of the economy as the country contains cases and  scales up the vaccination programme.

This was seen as overly optimistic with analysts throwing caution at the growth targets as problems remain in the various sectors including mining which has been affected by delays at borders during the Covid-19 pandemic and has for years suffered from lack of capital and volatility of mineral prices.

In his mid-term budget review, Ncube said prices of metals are projected to rise by almost 30% in 2021 driven by growth from stimulus measures and easing of supply constraints.

He said major global planned infrastructure projects could sustain higher prices for metals, such as aluminum, copper, and iron ore.

“In addition, the drive towards decarbonisation through intensification of the global energy transition could further strengthen demand for metals,” Ncube said.

So far, the 2021 national budget allocated ZW$1,4 billion (US16,3 million) towards the operations of the ministry as it targets an ambitious US$12 billion economy.

A total of ZW$561 million (US$1,8 million) (40%) has so far been disbursed.

This year, the sector has been disturbed by incessant heavy rains that resulted in some mines collapsing. Small scale miners are often easily affected.

Ncube projects mineral output performance remains more or less on course, supported by favourable international mineral prices, boosted by strong demand in China and the ongoing global economic recovery; stable power availability; continuation of the foreign auction system; macroeconomic stability characterised by stable exchange rate and declining inflation.

However, specifically for gold which is Zimbabwe’s top mineral in terms of earnings, the World Bank projects the price of gold to decrease to US$1 740/oz in 2021 from an average of US$1 775/oz in 2020 and to decline to US$1400/oz in the next decade.

The World Gold Council estimates demand for gold in the first half of 2021 took a 10% slump across the globe due to the Covid-19 pandemic.

The Treasury chief said chrome ore output for the first quarter of 2021 stood at 300 926 tonnes, comparable to the previous quarter output of 311 495 tonnes.

Output was weighed down by reduced intake for both raw chrome and High Carbon Ferrochrome (HCF) from China, in the aftermath of the second wave of Covid-19, which constrained shipments of goods.

This comes after global research firm Roskill said the Covid-19 pandemic saw varying regional impacts across the chromium supply chain, but the recovery trend has been underpinned by recovering stainless steel output in China over the second half of the year to record monthly levels.

Roskill said total chromium demand is estimated to have declined nearly 6% y-o-y in 2020, but recovery trends place 2021 demand back above 2019 levels and returning to pre-Covid-19 trends by 2022.

As a result,  chrome ore output is projected at 1,5 million tonnes in 2021, as miners are expected to ramp up production taking advantage of what he described as the general stability in power, investments in smelters undertaken by most players during the lockdown, and the favourable prices for chrome related by-products.

Generally, prices are expected to remain firm, and better than the previous year, riding on shortages created by the second and third waves of Covid-19.

However, reality on the ground is that power supplies remain erratic with miners having to set up multi-million solar plants to reduce production costs as diesel costs rise.

This week, energy regulator Zera increased the price of fuel to US$1,37 and US$1,33 per litre for petrol and diesel, respectively.

By Ncube’s own admission, the extractive sector faces risks in the face of slow roll out of vaccinations and resurgence of new waves of the Covid-19 variants, which spread more easily and quickly than previous variants, which are all potential downsides for both lives and economic activity.

Besides the Covid-19 risk, funding remains a challenge for Zimbabwe’s mining sector with players being affected by floods as they struggle to invest in the right equipment and set up standard structures, especially for small players.

Mining investment consultant Kudzai Tuhwe told this publication heavy rains and lack of funding, particularly for small scale producers of gold and other minerals, hindered production in the first half of the year.

These constraints, said Tuhwe who is also a small-scale gold producer, wereaffecting the sector.

“The decline in gold output is attributed to a number of constraints faced by small-scale miners, among them flooding in shafts due to above-normal rainfall received during the period,” she said.

“The heavy rains have caused a lot of shafts to collapse, thereby hindering production. Another attribute is lack of funding to the small-scale mines in order for them to sink proper shafts and equip the shafts to avoid collapsing in the rainy season.”

Zimbabwe Miners Federation CEO Wellington Takavarasha said funding remains a challenge for the mining industry and small scale miners.

To deal with funding challenges, the ZMF is coming up with special schemes and proposing that the government invests in smelters across the country.

Takavarasha said the ZMF was partnering banks and equipment suppliers for funding arrangements and an exercise to identify beneficiaries across mining regions is ongoing and expected to be completed within a month.

“These are enhancement programmes, capacitation programmes for small scale miners and we regions are identifying miners that are eligible to get equipment,” he said.

“Government should also come up with funding for smelters directly linked to small scale miners and not foreigners, you know all payments at MMCZ attract some levies and MMCZ should allocate some of that towards smelters for small scale miners.”

The ZMF CEO said small scale miners’ gold production recently grew by 73% after the government reduced royalties and introduced other incentives at Fidelity Printers.

Economist Prosper Chitambara said despite power challenges and funding constraints, the mining sector could benefit from the economic stability, though fragile, and firming up of global commodity prices.

“We are on course after global firming of commodity prices for Zimbabwe. We are seeing challenges with power, but they are transitory and will not be for long. As we are getting out of winter the power situation will improve. The rising fuel prices are a major downside risk,” he said.

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