Mine closures loom as global prices dip
ZIMBABWE’S mining sector has been rattled by massive cuts in global metal prices after production ramp up during the first quarter of this year only to earn far less revenue, an analysis of Chamber of Mines of Zimbabwe (CoMZ) statistics has indicated.
The statistics were released at the CoMZ annual conference held in the resort town of Victoria Falls last week.
The industry has been forced to institute cutbacks on costs and human resources, according to senior vice president, Batisai Manhando, who spoke as the industry celebrated “a robust performance in the first quarter of 2016 compared to the same period in 2015” but mourned over a 3,5 percent collapse in revenues during the same period.
In value terms, the mining industry lost US$15 million during the first three months of 2016 due to the slump in prices, a report by the mining body said.
Last week, CoMZ chief executive officer, Isaac Kwesu, described the growth in output as “stellar”, but revenue declined, meaning the mining industry pumped in more to produce less.
The sector actually sank into deeper crisis.
It is the value of the output that matters than the quantum of tonnes produced, which determines whether mines would remain viable, according to experts.
The report did not indicate if the industry had returned to profits but in the coming months, results from the mining industry are likely to demonstrate the extent of the crisis, given the fact that government has failed to implement measures such as reducing royalties and fees to save the sector.
Analysts said considering that power prices remained high, and that the industry agreed to a wage hike, mines could be forced to embark on a fresh round of cost cuts, or worse still, shutdowns.
These issues were at the core of discussions at the CoMZ annual meeting.
But it appeared both government and the industry are perplexed and beaten by a crisis that has been precipitated by a fall of prices on the international markets.
“We have noticed the growth of the sector softening,” said Kwesu.
“We need to bring back our sector into production. Some minerals did not perform well…they need an incubation period to grow. We need to grow at a super normal rate to cover up, and we need to sustain that growth,” he said.
“In the first quarter, our industry recorded robust growth. It is not what we wanted but it is better than in 2015,” said Kwesu.
Except for gold, platinum and iridium, the rest of the minerals produced in Zimbabwe slumped in value.
High carbon ferrochrome took the biggest battering after slumping by 93 percent to 1,5 million tonnes in 2016, from 22 million tonnes last year, according to the CoMZ.
Coal output declined by 20 percent to 19,2 million tonnes, from 24 million tonnes last year, the report indicated.
Nickel, one of a few minerals that have been driving growth after massive investments at Bindura Nickel Corporation, saw revenue slide by 21 percent during the first quarter.
The amount of cobalt produced declined by 18 percent to one million tonnes, from 1,3 million tonnes the previous year, while rhodium and palladium output also retreated.
The slump in prices threw the country’s mining sector, beset by high production costs that have hit profitability, into turmoil.
Royalties, mining fees and other charges have remained high compared to regional rates, even after government took steps in the 2016 fiscal policy statement to implement reforms.
Closure of mining firms could also affect already dwindling government revenues, as this would reduce collectable fees and taxes meant for the cash-strapped government. Downstream industries would also be affected.
Apparently, Mines and Mining Development Minister, Walter Chidhakwa, warned at the CoMZ annual conference that the continued deterioration in international commodity prices could result in mine closures.
Government is usually conservative when it comes to spelling out the true extent of potential disaster, so the comments of a looming crisis by Chidhakwa were seen as highlighting the urgent need for intervention.
Chidhakwa said big mines could be forced to cease production due to continuing slowdown in mineral prices on the international markets.
But it is not only the subdued mineral prices that could instigate mine closures, which could paralyse an already weak State revenue collection system and force many of the 45 000 workers out of jobs – the sector is already battling to contain debilitating costs, as the State has failed to offer concessions, such as reduction of fees, royalties and other punitive charges.
“The commodity price crunch the world over means that prices will remain low until supply fundamentals correct themselves,” Chidhakwa said in a statement delivered by his deputy, Fred Moyo.
“Put differently, high cost producers will be forced to shut down and Zimbabwe as a high cost producer must immediately focus on cutting cost of production holistically for all of us.
“The mining sector, as a price taker and from a global level, remains depressed mainly due to the declining commodity prices of major minerals leading to job cuts and other austerity measures to keep businesses going. Operations have remained afloat due to the resilience and adaptive measure taken,” he said.
A slump in mineral prices due to falling demand in China, the world’s largest consumer, has not only threatened Zimbabwe; many resource-rich developing countries have been at the crossroads since last year, when the crisis started.
But for Zimbabwe, which has depended on the mining sector after the near collapse of the manufacturing sector, the effects of a fresh round of mine closures would be dire.
Between 2009 and this year, the sector contributed more than 53 percent of total exports and generated between seven and 10 percent of State revenues.
About 45 000 formal jobs are in the mining industry and this number could be as high as 320 000 if downstream industries are included.
The mining industry constitutes at least 50 percent of the US$1,9 billion worth of foreign direct investment inflows since 2009, according to the Ministry of Mines.
Mines have become proactive in dealing with their problems after several calls for government to improve the operating climate failed.
But as Chidhakwa indicated, the headwinds are mounting.
The robust growth reported by the sector in the first quarter was only in volume terms, with the statistics showing significant decline in revenues, which is more important, said analysts, some of whom have already been speculating over the closure of some small gold mines, amplifying concerns about implications of the downturn in the country.
“We can’t rule out closures, especially for small gold mines,” said economist, John Robertson.
“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.
Platinum Group Metals (PGMs) and gold are two of only four minerals driving the country’s economic recovery.
The country has 40 established minerals.
At last week’s conference, PGM producers said the potential to grow was there, but hurdles abounded.
“The industry requires around US$2,8 billion over the next five years to ramp up and sustain operations and achieve 20 tonnes of platinum,” said Mimosa Mining executive chairman, and Platinum Producers’ Association president, Winston Chitando.
“Bottlenecks that undermine capital inflows include clarity on indigenisation, lack of policy clarity and inconsistencies. With vast platinum reserves, the sector has potential to increase platinum by the current producers from about 13 tonnes to 20 tonnes by 2020 and to 26 tonnes by 2025,” he said.
Gold producers said scope to ramp up output to 50 tonnes per annum, from about 20 tonnes currently, was there, but government has failed to look into several hurdles facing the sector.
“Government should continue working on reducing the cost of doing business, improve the investment climate, addressing infrastructure deficits, finalising amendments to the Mines and Minerals Act and addressing the investment policies and doing business reforms to mobilisation adequate capital depends on the investment environment. Bottlenecks that undermine capital inflows include clarity on indigenisation, lack of policy clarity and inconsistencies,” said Noah Matimba, chief executive officer at RioZim, who heads the gold mining committee in the CoMZ.
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