HARARE — Zimbabwe’s lithium miners have urged the government to introduce royalty payments tied to fluctuating metal prices, citing the current market slump as a threat to the viability of new investment projects.
In proposals submitted by the Chamber of Mines to the Ministry of Finance, according to a Bloomberg report, the miners suggested that a price-linked royalty system would ensure the government benefits more during price surges while offering relief to miners during downturns.
“The government captures a higher share of revenue when lithium prices are high while providing relief when prices drop,” the Chamber of Mines stated in the proposals.
Lithium Market Pressures
Lithium, a key metal in battery production, has seen prices plummet from their late 2022 peak due to oversupply and reduced demand from the electric vehicle sector. Zimbabwe’s higher royalty rates, implemented amid this downturn, have further strained mining operations.
Projects operated by companies such as China’s Chengxin Lithium Group Co. and Sinomine Resource Group Co., which are still grappling with significant start-up costs, have been particularly impacted.
“The high royalty has a huge impact on their top line, thereby compromising the viability of lithium projects,” the chamber warned, noting that most projects are yet to recoup initial investments.
Broader Mining Challenges
Zimbabwe’s mining sector has also been hampered by operational inefficiencies, including power outages, which cost the sector an estimated $500 million in potential revenue this year.
In the first half of 2024, the country’s mineral earnings fell by 1.1% to $2.6 billion, according to the Chamber of Mines. Notable declines included a 9% drop in lithium output, a 3% reduction in gold production, and a 1% fall in platinum group metals output.
Chamber of Mines’ Recommendations
In addition to price-linked royalties for lithium, the chamber proposed similar adjustments for the platinum sector. Under their plan:
- Royalties would start at 3.5% for prices up to $1,100 per ounce.
- Rates would rise to 5% for $1,100-$1,400, 7% for $1,400-$2,000, and 8.5% for prices above $2,000 per ounce.
Mining companies also recommended increasing the minimum retention of foreign currency earnings from 75% to 85% and revising power tariffs. Current rates of 14.21 US cents per kilowatt-hour (kWh), with a peak tariff of 19 US cents per kWh, are deemed unaffordable. Miners are pushing for tariffs closer to 9 US cents per kWh.
Outlook
The proposed measures reflect the sector’s call for a more flexible and sustainable regulatory framework to address economic pressures and ensure continued investment in Zimbabwe’s mining industry. With lithium and other key minerals positioned as critical to global energy transition goals, industry leaders stress the importance of balancing government revenue objectives with the sector’s growth needs.