High Electricity Tariffs, Outages Choking Mining Industry, Gono
Chamber of Mines President Thomas Gono has said that the mining industry in Zimbabwe is grappling with significant challenges due to high electricity tariffs and frequent outages.
Speaking at the Chamber of Mines Annual Mining Conference 2024 on its third day at Elephant Hills in Victoria Falls, Gono highlighted the impact of electricity tariffs and outages on mining operations. He revealed that the increase in electricity tariffs to USc14.21/kWh in October 2023 had significantly raised production costs.
“Compared to our peers in the region and other major mining jurisdictions, the electricity tariff for Zimbabwean mineral producers is very high,” he said, appealing for a downward review of tariffs.
Power outages have also taken a toll on the industry. Companies not connected to dedicated power lines experience frequent outages, resulting in production losses and equipment damage. Despite the government’s support for ZESA subsidiaries to import critical components duty-free, many mining operations have had to invest in alternative power solutions, such as solar and diesel plants, to mitigate the impact of unreliable grid power.
Gono painted a bleak picture of the current state of the mining industry. He noted that industry growth had declined from 10.5% in 2022 to 4.8% in 2023, with mineral exports falling from US$5.6 billion to US$5.2 billion in the same period. This decline comes amidst a drought that has disrupted the strong economic performance of previous years.
“Our preference is for the mining industry to be resilient in supporting the economy in such difficult times,” Gono emphasized.
Foreign currency shortages have exacerbated the challenges faced by the mining sector. Increased use of the US dollar has put pressure on available retained export earnings, making it difficult for operations to meet their requirements. Gono acknowledged the government’s efforts to build confidence in the ZiG and secure its functional use, but stressed the need for ongoing engagement on foreign exchange management matters.
The mining industry also faces significant capital constraints. Most mining houses struggle to raise offshore funding and rely on internally generated resources, which have become limited due to softening mineral prices. This has led to the postponement of capital projects, negatively impacting the industry’s long-term growth.
“The funding gap to optimize operations and meet output targets remains huge,” Gono said.
Performance of Specific Minerals
Discussing specific mineral performances, Gono highlighted several key points:
– Gold output declined by 14% to 31.965 tons in 2023, attributed to rising costs and power shortages.
– Production of platinum, palladium, and iridium remained at 2022 levels, with declines in rhodium (-4%) and ruthenium (-13%).
– Primary nickel production faced challenges, with only one producer contributing 16% to total nickel production, though overall nickel production grew by 1.4% to 14,465 tons.
Despite these challenges, the mining sector accounted for approximately 78% of national exports in 2023 and contributed around 20% to government revenue. It also provided over 53,000 formal jobs and employed more than 500,000 artisanal and small-scale miners.
Policy and Legislative Matters
Gono expressed concern over the Special Capital Gains Tax on transferring mining title, which he described as a direct tax on the purchase price rather than capital gains.
“Applying the tax retrospectively has severe consequences on investor confidence,” he warned.
He also discussed the high royalties for platinum, diamond, and lithium, which have increased production costs and affected the viability of mining projects. Furthermore, Gono emphasized the need to finalize amendments to the Mines and Minerals Act and regularize the exemption of the mining industry from the Indigenisation and Economic Empowerment Act.
Looking Ahead
In his outlook for 2024, Gono projected a weighted average growth of around 7.6% in mineral output, driven by increased production in gold, ferrochrome, and coal. However, he cautioned that mineral revenues are expected to decline to around US$5 billion due to further softening of commodity prices. “Risks to the mining sector outlook include fragile power supply, capital constraints, foreign currency shortfalls, and high production costs,” he said.