HomeAnalysisAssessing the US$12bn mining industry target

Assessing the US$12bn mining industry target

By Victor Bhoroma
THE Zimbabwean government launched an ambitious plan to transform the mining sector into a US$12 billion export industry by the end of 2023.

The plan was launched in October 2019 as a key pillar to sustainable economic growth. Achieving that target would represent a 275% jump from the US$3,2 billion realised through exporting mining commodities in 2018.

The blueprint targeted gold output of US$4 billion per year with platinum coming in second at US$3 billion. Diamond mining and polishing was set at US$1 billion, equal to the combined target of chrome, nickel and steel, coal, hydrocarbons, lithium and other minerals were projected to contribute the remaining US$3 billion.

Key to the above ambition is the beneficiation of minerals at source as opposed to exporting raw mining commodities. The Chamber of Mines in Zimbabwe (CoMZ) predicted that production from mining could reach US$18 billion by 2030, provided the key challenges in the sector are ironed out through policy and legislative reforms.

Mining in Zimbabwe

Zimbabwe is endowed with two prominent geological features namely the rich Great Dyke and the ancient Greenstone Belts (also known as Gold Belts) which are home to billions worth of reserves in chrome, gold, nickel, diamond, iron ore and platinum.

The country has a massive competitive advantage in the mining sector with a highly diversified mineral resource base of over 40 commercially exploitable minerals.

Foreign Direct Investment (FDI) figures and enquiries are heavily biased towards mining, highlighting the importance of the sector to the country’s growth prospects in the medium-to-long term.

The mining sector has an estimated 850 operating mines across the country and these range from international mining houses to small-scale mines.

In terms of employment, over 100 000 workers are employed directly and indirectly in downstream businesses. The sector is also home to over 600 000 small-scale and artisanal miners who are mainly engaged in gold and chrome mining.

Economic instability and lack of viability in agriculture has contributed to the surge in the number of artisanal miners in the past for years in mining towns, such as Gwanda, Zvishavane, Shurugwi, Kwekwe, Kadoma, Mazowe, Chinhoyi, Bindura and Chegutu among others.

Indigenisation law amendments

The changes made in March 2018 with regards to the enforcement of the Indigenisation and Empowerment law (Through the Finance Act) to allow for over 51% foreign ownership of mining assets has improved foreign appetite for investment into the country.

This has resulted in notable investment in platinum group of metals (PGMs) smelting, acquisition of dormant or ailing gold mines and investment in lithium exploration.

PGMs rally

There has been significant growth in the production of PGMs over the past three years due to policy incentives (tax holidays) from the previous government and investment in smelting by the miners. Globally, Zimbabwe is now the third largest producer of platinum after South Africa and Russia.

The major mining companies in the sub-sector are Impala Platinum, which owns Zimplats, Anglo American that owns Unki Mine and Sibanye Stillwater. These jointly own Mimosa Mine with Impala Platinum.

The three firms have invested in excess of US$1 billion into new mines and smelters, and that investment has catapulted PGMs output. Platinum is likely to be Zimbabwe’s mainstay in the foreseeable future.

Managing gold smuggling

To curb rampant smuggling of gold, the central bank has been giving gold producers incentives to increase the tonnage of gold sold via formal channels.

The incentives have acted as a silver bullet as deliveries and production jumped from 19 tonnes in 2020 to 29,6 tonnes in 2021. Gold production in 2022 is expected to reach 40 tonnes. The rally in gold price on the world market also makes the country’s redundant gold mines very appealing.

Lithium rally and rare earths discoveries

As the demand for electric cars drives up demand for lithium, Zimbabwe has seen notable investment into exploration and investment with deals worth over US$700 million.

Notable deals include the US$422 million Huayou purchase of Arcadia Mine, Sinomine’s $180 million purchase of Bikita Minerals and Chengxin’s US$76,5 million buy of Sabi Star Mine.

United Kingdom’s Red Rock Resources, Galileo Resources and Premier African Resources have acquired claims to prospect and mine lithium locally, joining Six Sigma from Australia and Arkle Resources from Ireland.

Rainbow Rare Earths and Premier African Resources are also currently undertaking rare earth minerals exploration to commercially exploit the resource.

Despite the notable progress on amending the indigenisation and empowerment laws, granting national project status to mining projects, issuing more Exclusive Prospecting Orders (EPOs), incentivising Gold production and setting policies to encourage diamond polishing; there are some persistent hurdles that have not been resolved. These include:

Foreign exchange regulations

The current export retention scheme permits miners to retain 60% of the export proceeds and surrender 40% to the central bank. If the 60% is not utilised within four months, the central bank will confiscate another 25% to take the total surrender requirement to 65%.

As a result of the wide discrepancy between the pegged formal exchange rate and the market rate, exporters are losing 35% of their earnings due to the surrender requirements.

With miners paying for taxes, fuel, electricity and almost all consumables in foreign currency, foreign exchange regulations are a punitive tax to business viability and deterrent to further investment into mine development or beneficiation.

Miners are currently calling for the review of the retention threshold to over 80%.

Power cuts

After a period of relative stability, Zimbabwe has rolled back 6-to-12-hour power cuts to manage domestic demand. However, guaranteed power supply is critical to optimal production in the mining sector with demand expected to rise to 2 100MW by 2025.

Currently Zimbabwe is producing 1 120MW, with a peak shortfall of at least 500MW. Part of the shortfall is being augmented through imports from Mozambique, Zambia and from the Southern Africa Power Pool (SAPP).

Transparency and corruption

The biggest impediment to the US$12 billion mining target is lack of transparency and systemic corruption in the mining value chain. There is massive red tape and bureaucracy in the processing of mining certificates, verification of applications and awarding of EPOs.

In addition there is disregard for rule of law by connected miners and deliberate delays in the settlement of legal disputes. For a long time, diamond mining has remained a murky affair due to the involvement of several controversial foreign investors and the army.

The impact of corruption is that the country loses millions in potential tax proceeds while billions are externalised through illicit financial flows (IFFs).

To address this, Zimbabwe needs to join the Extractive Industries Transparency Initiative (EITI) and implement its global standards on mining transparency.

These standards can be customised to Zimbabwe’s context. Joining EITI ensures that the government commits to full disclosure of information on beneficial owners of mining claims, claims size and number of minerals assets, minerals output, revenues, tax contributions and other information pertaining to minerals marketing.

Mining legislation

The government has approved the Mines and Minerals Amendment Bill with several changes to it. The Bill was first tabled in 2015 and some of its provisions were implemented individually.

The Bill amends and reinforces the archaic Mines and Minerals Act of 1963 which is currently being used. The current mining law lacks provisions that plug mineral revenue leakages and tax evasion and consolidates tax payments by miners.

The government has failed to close revenue leakages especially in diamond, gold and granite mining where smuggling and illicit trade is rife. Most importantly the current law promotes opaqueness in licensing, corruption by state institutions that oversee mining and secretive side marketing of precious minerals.

The new Bill should also decriminalise and formalise small-scale and artisanal mining to ensure proper reporting, private sector financing, improve taxation, minimum safety standards, inspections, and environmental management.

The bill should be expedited as it is key in ramping up production and increasing transparency in the industry.

Untapped reserves

Zimbabwe remains under-explored when it comes to mining. Investment and tax incentives to boost exploration capacity should play a crucial role in quantifying the amount of mineral reserves.

On paper, the country has over 4 000 recorded gold deposits in the Greenstone Belts, an estimated reserve of 2,8 billion tonnes PGMs ore and over 30 deposits of nickel in the Great Dyke, over 12 billion tonnes of coal in the mid-Zambezi Basin and the Save-Limpopo Basin and several kimberlites of diamonds in Manicaland and Masvingo.

The surge in commodity prices on the world market has seen Zimbabwe increase its export value while lately export incentives to gold producers have done magic to improve formal gold production.

It is fair to point that most of the targeted international investors have adopted a wait and see attitude on the political and economic landscape in the country.

Risk takers (mostly Chinese investors) have taken the lead to secure local assets while established miners have ploughed back their profits in a measured manner.

Despite this, the target to create a US$12 billion export industry from mining now seems unattainable as exports from the sector were US$5 billion in 2021.

The actual will likely be at most 60% of the overall target. Even though there has been investment and billion dollar promises, the anticipated FDI inflows have not quite materialised in the last three years.

  • Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). — vbhoroma@gmail.com or Twitter @VictorBhoroma1.

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