Confidence among mining executives shrink

Confidence among mining executives in Zimbabwe has dipped further this year, hit by worries over power cuts, the foreign currency crisis and an uncertain policy outlook, a new industry survey shows.

The Mining Business Confidence Index (MBCI), which gauges confidence among members of the Chamber of Mines, has dropped to 2.2% from 8% at the end of last year.

The index scale ranges from -100 to +100, with the lowest score representing least level of confidence and the biggest score representing the highest.

Mining executives expect a drop in production in 2019, but anticipate some recovery in 2020. However, overall sentiment remains largely weak, the survey shows.

Sharp dip

The latest index shows how much confidence has collapsed from the 2017 index, which rose sharply to 21.9% in the immediate aftermath of the ouster of Robert Mugabe. Before that, the index had last been measured at -6.6%. Under Mugabe, the index had been stuck mostly in negative territory, reflecting sub-zero investor confidence under his rule.

The initial bounce in confidence that followed President Emmerson Mnangagwa’s rise to power late in 2017 has now almost been reversed, replaced by growing pessimism over his failure to solve the power and forex crises, as well as bring policy stability to the economy.

To measure sentiment, the survey polled mine executives on their outlook on the economy, profitability, commodity prices, access to capital, the policy environment, title security, political risk and investment plans.

When asked to rank their most pressing concerns, executives placed power cuts at the top of the list. This was followed by “inadequate foreign exchange retention”; miners want to be allowed to keep 100% of their export earnings. Currently, they keep 55%, while the remainder is sold on the interbank market.

Other key concerns are rising production costs, discounted mineral prices and the shortage of capital.

Key mining survey findings:

• 60% of respondents said they faced power outages of up to three days per week. Some 90% of mine executives said they continued to suffer power outages despite signing contracts with ZESA for dedicated power. “Almost all respondents indicated that the power outages have resulted in production stoppages and output losses of between 1% and 40%,” the survey says.
• Producers demand lower tariffs and want to be allowed to import their own power
• 60% of mine executives are pessimistic about political and country risk, while just 20% indicated that they are positive about the political environment
• 80% of respondents see 2019 output falling by between 10% and 40%
• 70% of miners do not anticipate a stable mining policy environment for 2020, while 20% were optimistic
• 60% are less confident about their prospects to raise capital in 2020. Just 20% are anticipating access to capital to improve in 2020. A further 20% expect the situation to remain the same next year
• 60% expect the economy to contract in 2020. In contrast, Finance Minister Mthuli Ncube has forecast the economy to recover 4.6% next year, after falling into recession this year.

Bright spots

However, there are some bright spots in the mining survey.

The report says 60% of executives till expect their operations to be profitable in 2020, which is more executives than was the case in the last survey. Some 60% of the respondents expect marginal growth of the mining sector in 2020. Of the respondents, 80% expect to inject fresh capital into their business in 2020, while 70% expect commodity prices to firm next year.

However, the good news does not offset the pessimism, which dominates the report. Gold miners expect a fall in output of up to 35%, platinum producers see output falling by up to 7%, diamond output will drop this year by between 30% and 40%), chrome (-10% to -20%), nickel (-2% to -10%) and coal (-10% to -40%).

However, miners anticipate a rebound in 2020, with gold likely to recover by as much as 40%, chrome by 20%, diamond by between 10% and 20% and coal by up to 15%. The forecasts on recovery are based on plans by mines to ramp up production.

Gold accounts for 43% of the country’s total mineral exports, according to the survey.

Mining skills and capacity

Skills flight also hit mines this year, with 60% of miners saying they lost critical skills during the year due to inflation and regulations barring miners from paying locals in foreign currency.

Average capacity utilisation for the mining industry fell to around 70% in 2019, compared to 75% in 2018. Only platinum producers were able to sustain high capacity utilisation, which was close to 100%.

“Executives of mining companies operating below full capacity mentioned acute power outages, inadequate foreign exchange allocations, capital shortages, high cost structure and obsolete equipment as the major constrains weighing down capacity utilisation in the mining industry,” the survey says_Newzwire