The Zimbabwe chamber of mines says softening metals prices are weighing down the viability of the key industry – in which units of South African resource groups, such as Impala Platinum (Implats), Anglo American Platinum and Sibanye-Stillwater, among others, are major players – at a time costs have been mounting.
Zimbabwe is the world number two producer of platinum and boasts significant reserves of other metals such as gold, lithium and chrome, and coal and diamonds, among others. Mineral exports have been pivotal in sustaining the Zimbabwean economy but the industry now says its viability is under threat.
“The prices (of minerals) are coming down at a time the cost structure for the mining industry has increased, propped up by high electricity which went up by more than 40% in the last 11 months,” the chamber of mines said yesterday.
In its 2023 annual report released last month, Zimplats, the Zimbabwe unit of Implats, said it was “exposed to commodity price risk as trade receivables include pipeline sales amounting to US$276 million (R5.3 billion), which will be re-measured at future metal prices, according to the sales contract” with Implats.
“Metals sold, for which actual prices are not yet certain, are valued using average prices for the month of June with reference to the international market. The Group is therefore exposed to the risk of external price volatility,” Zimplats said in its report.
In the past year, “the mining industry has witnessed softening of prices for most key minerals”, with rhodium down 74%, lithium weaker by 69%, palladium down 41% and nickel also declining by 8%. Although gold has held stead, diamonds has sagged by as much as 60% on world commodity markets.
The financial plight of Zimbabwean miners has been worsened “by recent increases in royalties” for platinum and lithium, said the chamber of mines.
Zimbabwe has increased the royalty rate for platinum from 2.5% to 5%, while that for lithium has also been hiked from 2% to 5%.
In spite of this increase in royalties, data from the Zimbabwe Revenue Authority for the first half of 2023 shows that mining royalties were 13% below last year’s collections and a massive 22% lower compared to the authority’s targets for the period.
“The above challenges have severely weighed down on the viability of mining projects, with affected mining companies reporting that their overall cost has increased by more than 10%,” explained the chamber of mines in an update.
In response to this, Zimbabwean mining groups have sought to reduce costs through various strategies “including cutting back on capital expenditure and optimising” their businesses.
However, “the viability gap is so huge” that the only hope of shoring up the viability status of the mining industry can only be attained through “government intervention in the form of electricity tariff and royalty reduction”.
Apart from high electricity tariffs, supply of power has been problematic for the Zimbabwe miners. The state power utility, Zesa, which envisions that the mining sector will account for 80% of new power demand, says it is planning to double electricity output in the next two years.
“We expect that by 2025 we would have added 2300 MW to the grid. I must say over 80% of the 2 300 MW is demand from miners,” a senior executive from the Zimbabwean power utility told mining executives earlier this year.
Mining sector executives in Zimbabwe told Business Report yesterday that sustained softer commodity prices and great expectations of revenue from payable royalties by the government would result in some expansion and new projects being put on hold.
“It’s an already precarious situation for the industry where there is limited capital for expansion and new projects; in fact there is very little new money that has been coming through into the industry.
“With these commodity price pressures and demands for more from the government, expansion and growth of the industry across key commodity lines will be limited if not reduced,” said one manager with a Zimbabwean mining company.
IOL BUSINESS REPORT