Mines boss speaks on crisis
ZIMBABWE’S mining industry has plunged into a more challenging situation than many people could perhaps realise.
One of the last few sectors still holding the hopes of an economy that has seen no respite through 16 years of a recession has “exhausted internal strategies and survival measures to restore viability”, Chamber of Mines of Zimbabwe (CoMZ) president Toindepi Muganyi told the Financial Gazette’s Companies & Markets (C&M) last week.
He said hopes for survival now hinged on government’s preparedness to unveil policies with capacity to take the burden off “virtually all mining houses (which) are struggling to break even”.
The crisis confronting the mining industry is not unique to Zimbabwe alone as most African countries have been grappling with a global crash in commodity prices.
What makes the Zimbabwean situation unique is, however, that following the near collapse of the manufacturing sector, mines had emerged among a few resilient sectors, generating close to US$2 billion per annum and employing about 40 000 people.
In a country that has failed to diversify income sources, the problems confronting the sector point to a catastrophic recession ahead.
In spite of its ongoing troubles, the mining industry has the duty to tackle the country’s pressing issues, noted Muganyi.
“It is important to note that most mining houses have now exhausted internal strategies and survival measures to restore viability, and are now calling upon the government to intervene with supportive policy measures to save the industry from the continued downturn,” Muganyi told C&M.
The mining sector has pleaded for tax relief measures, such as reducing royalties that rank among the world’s highest, as well as reviewing the entire mining industry fees and taxation system, which is largely fragmented.
At the end of September 2015, for instance, the average cost of producing an ounce of gold in Zimbabwe was hovering around US$ 1 200, against about US$1 100 selling price, which was the situation across most minerals.
“Without doubt, one of the biggest challenges we face right now stems from the dramatic declines in commodity prices, which has had far-reaching consequences to our mining industry. The depressed commodity markets continue to dampen revenue growth and weigh down the viability of the sector. Compounded by low output and relatively high cost structures, virtually all mining houses are struggling to break even,” Muganyi said.
“Virtually all key minerals recorded declines in prices (at the end of 2015), with nickel down 49 percent, platinum (-24 percent), coal (-16 percent), diamond (-10 percent) and gold (-nine percent). Due to combined effects of low output and depressed prices the industry recorded a cumulative decline in the value of exports of approximately seven percent, with significant declines in revenues being recorded in chrome (-47 percent), nickel (-30 percent), platinum (-23 percent) and coal (-19 percent),” Muganyi told C&M.
Driving the continued decline in output has been softening growth in China, which consumes the bulk of the country’s minerals.
In the wake of the gloom outlook casting a dark shadow over prospects for growth is a crippling cash crisis.
Mines have failed to access close to US$3 billion required for “developmental investments”.
“Capital shortages will remain the key constraint over and above the fiscal and power issues. The industry requires in excess of US$3,8 billion in the next five years. Of this figure, US$1,2 billion is required for stay in business while US$2,6 billion is for developmental investments (but) the bleak commodity price outlook is anticipated to continue, unabated as economic performance of major consumers of mineral commodities, such as China, remains weak,” he said.
“The general growth prospects remain relatively weak as the industry continues to be dodged by the depressed commodity markets. Notwithstanding these, however, there will be some pockets and sparse recovery in selected minerals with the gold sector anticipated to remain resilient. While we are very much aware of the issues that affect us, most of these challenges are systemic and exogenous in nature. It may also be a reflection that not much traction may have taken place to avert these problems. On a positive note, it is really encouraging that of late government has shown the desire and commitment to respond to a number of issues presented by the chamber. The chamber sees the current price challenges as a temporary set-back.”