Mines face closure in Zimbabwe
ZIMBABWE’s mining industry, which is battling to contain debilitating costs, could slide into further difficulties due to the fall in mineral and metal prices caused by a slowdown in China, the world’s largest consumer.
Last week, analysts were already speculating over the possible closure of some small gold mines, whose fortunes have been hardest hit by softening demand and tumbling prices.
Production costs in the sector have risen against declining prices.
Chinese trade statistic revealed a sharp drop in the value of imports on Tuesday last week, amplifying concerns about implications of the downturn on developing countries that have spent the past decade riding on the Chinese boom.
The softening growth in China, said Chamber of Mines of Zimbabwe (CoMZ) chief executive officer (CEO), Isaac Kwesu, meant that Chinese markets were purchasing less gold, chrome, platinum, nickel, coal and other minerals from Zimbabwe and other countries.
“The mining industry has been seriously affected,” Kwesu told the Financial Gazette’s Companies & Markets (C&M).
“China was driving the growth that we have registered. They were buying most of the base metals and precious metals. We cannot ignore what is happening in China because this has been mostly responsible for the drop in prices. When growth is softening, demand weakens,” said Kwesu, an economist.
The slide in metal prices, whose effects have also hit resource-rich countries like oil-rich Angola and Africa’s biggest copper producer, Zambia, has worsened costs in gold and platinum mines.
Platinum Group Metals (PGMs) and gold are currently driving economic recovery in Zimbabwe.
Turmoil in the two subsectors would have dire effects of annual growth, which has already been revised downwards from about 3,2 percent to 1,5 percent in 2015.
In Zambia, the global commodities giant, Glencore, has suspended operations at Mopani Mine, a key asset near Kitwe.
At least one other copper mine has mothballed in the country’s Copperbelt region.
The average cost of producing an ounce of gold in Zimbabwe is currently hovering at about US$1 200, according to CoMZ statistics.
This is against a selling price of about US$1 100 per ounce at the close of Friday last week.
The cost per platinum ounce produced has increased by 18 percent to US$1 551 in the past year, according to the Australian Stock Exchange-listed platinum mining giant, Zimplats Holdings Limited, which mines platinum in Zimbabwe.
At the close of trade last week, platinum prices averaged about US$973 per ounce, highlighting the problems that the three platinum companies operating in the country — Mimosa Mining Company, Unki, and Zimplats — are contending with.
A recent study showed Unki could be the only one of the three that could withstand the effects of declining prices if the crisis persists because of its size, according to Zimplats CEO, Alex Mhembere.
Mhembere spoke to reporters after Zimplats reported a 177 percent drop in post tax profits to a loss of US$74,3 million during the full-year to June 30, 2015.
Zimplats had posted a US$97,1 million profit during the same period last year.
Zimplats said PGMs “have been driven more by sentiments on above-ground stocks rather than underlying fundamentals despite these stocks being eroded every year without much appreciation in the price”.
Zimbabwe has the world’s second biggest deposits of platinum after South Africa.
Estimates show that the country has an estimated at 2,8 billion tonnes of PGMs.
Platinum accounts for about 45 percent of the country’s export earnings.
The mines are battling to break even.
And analysts are already bracing for a fresh round of closures that could bring sad memories of the crisis that shook the sector during the hyperinflationary period between 2000 and 2008.
Leading economist, John Robertson, said small gold mines were in trouble.
To save the situation, he said, banks should reduce interest rates, which are among the highest in Africa, to give mines breathing space.
He said a reduction in royalty rates was urgently required, and unions should also be persuaded to stop piling pressure on mines to increase wages.
“We can’t rule out closures, especially for small gold mines,” Robertson told C&M.
“Many gold mines are very small, but platinum miners operate in a fairly different way from gold mines. The mines are suffering from cost increases in Zimbabwe. This must be reversed,” said Robertson.