Zim mining poised for growth

HARARE - Zimbabwe's mining sector is expected to grow on the back of a stable macro-economic environment despite liquidity challenges, electricity shortages and controversial government policies, mining experts say.

The situation which has persisted since 2009 as a result of the signing of the GPA and the adoption of the use of multiple currencies has created a conducive environment for business planning and project execution.

Mining is currently contributing about 13 percent to Zimbabwe’s gross domestic product, matching the manufacturing sector’s 14 percent contribution, and is expected to reach 25 percent by 2020.

Experts contend that industry growth in the medium to long-term, however, depends on the ability to attract investment into current and new projects, as well as investment into key infrastructure necessary for the sustainable development of mining, such as power and railroad transportation.

A survey carried out by the Chamber of Mines estimates that the mining sector requires between $3 to $5 billion in investment to increase capacity to an average of over 80 percent within the next three to five years.

Speaking at this year’s Zimbabwe Mining Indaba, Chamber of Mines president Winston Chitando said the cash injection would enable the country to increase its gold production to 50 tonnes per year, platinum to 21 tonnes per year from 12 tonnes expected this year; and coal to seven million tonnes a year, from two million tonnes forecasted for 2012.

The gold sector is only running at 50 percent capacity and production for the year was anticipated to reach 14,5 tonnes, well below the 1990 levels of 28 tonnes per year.

Ferrochrome and chrome production is also running at below capacity, owing to low prices and finance constraints, while the nickel sector has seen Bindura Nickel being placed under care and maintenance.

However, Chitando stated that mining remained at the heart of Zimbabwe’s economic activities and provided great impetus for exports and employment.

The sector employs about 45 000 people and accounts for about 50 percent of the country’s foreign currency inflows.

Engineering consultancy SRK Consulting chairperson Roger Dixon said amendments to the Zimbabwe Investment Authority Act to ensure that any foreign direct investment is not subject to the Indigenisation and
Economic Empowerment Act should improve the climate for investment and the minerals sector.

“The mineral potential and mining history of Zimbabwe make it an important place to be, with the continued interest in the country’s minerals sector a testament to that,” said Dixon.

He however, said there is a need for increased capital investment in the private and public sectors, adding that it is becoming more difficult for companies to operate optimally without adequate funds.

BancABC group economist James Wadi recently said foreign direct investment (FDI) inflows were critical to bridge the funding gap in Zimbabwe’s mining sector, as local banks are failing to meet the financing needs of companies.

“We need to discuss what needs to be done to attract meaningful FDI, which will be directed to the mining sector,” he said.

So far, FDI flows into Zimbabwe amounted to $200 million for the year, which is lower than other countries in the region.

FDI in Zambia reached about $1 billion, about $1,5 billion in Tanzania and about $1,6 billion in Mozambique.

Wadi said the skewed structure of deposits in the country’s banking sector made it difficult to lend over a long term. This also resulted in high credit risk.

However, of the $3,234 million in loans that were awarded Zimbabwe as of July, nine percent was for the mining sector.

This compared competitively with neighbouring countries such as Zambia where seven percent of a total of $3,278 million in loans, as of May, were awarded to mining operations.

In an effort to increase production in the sector and add value to minerals being produced in the country the Chamber of Mines has also announced the formation of a sub-sector association, the Platinum Producers’ Association (PPA), which will be specifically looking at the question of beneficiation of platinum minerals in Zimbabwe.

The question of a platinum refinery being established in Zimbabwe has been raised on a number of occasions but current production levels will have to be increased to make such a project viable.

The demand for mineral value addition inside the country is in line with a current international trend of resource nationalism, with many countries, Indonesia being one of the latest, claiming that mineral resources are national assets which should provide maximum benefit to domestic economies through beneficiation, taxation, increased local ownership or similar means.

In its monthly economic review for August, the African Development Bank believes that the re-introduction of gold refining in Zimbabwe can yield greater benefits for downstream industries.

“Since 2010, the country has been exceeding an annual threshold of 10 tonnes requisite for refinery,” said the review.

“However, currently no refinery is being done at Fidelity Printers and Refiners due to viability problems. The company exports the bullion mainly to the Rand Refinery. However, the resumption of gold refining will help downstream industries, such as jewellers to purchase gold locally and reduce the cost of production. Jewellers are also currently importing silver at some added costs.”

Latest figures from the ministry of Finance show that mineral exports continue to surge indicating earnings of $1,5 billion for the first eight months of 2012 spurred by the high global demand and improved capacity utilisation.

The mineral exports accounted for 70,7 percent of the total exports for the period January to August 2012.
Of the total mining exports receipts, platinum was the major contributor with a total of $511 million, followed by diamonds which accounted for $456 million.

Gold contributed $401 million.

Analysts also say clarity on how indigenisation and economic empowerment is going to be implemented will be a determinant on how soon investors begin to commit themselves.

Most investors are still waiting for more certainty regarding the political future of Zimbabwe in general and, particularly, the legal framework for mining.

Undoubtedly, the existing environment remains a critical ingredient for a favourable investment environment.

Zimbabwe remains behind in exploration as the country has not invested in exploration in the last 10 years.

The economic challenges of the past decade have resulted in the department of Geological Survey failing to carry out its key role of geological mapping. - John Kachembere

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