Perfomance of the Zimbabwe mining sector in 2019
Total output figures of the major contributors to Zimbabwe’s mining sector revenue are definitely going to be lower by year-end (31 December 2019) than they were in 2018. That includes gold, platinum, chrome, diamond, coal, and nickel. These minerals also happen to be the key anchors of the US$12 billion Mining Target by 2023.
By Lyman Mlambo
For gold, this is very unfortunate given that the general international price trend for gold for the past 5 years has been upwards. But then, it has been shown by empirical studies that the international price trend is not a significant explanatory variable for gold production in Zimbabwe; implying that there are other more preponderant factors that overshadow the international price effect. However, in terms of relative contribution to the economy gold has maintained its key role. By November it had contributed 43% of mineral exports, employed 30% of total formal mining labour, apart from the more than half a million artisanal and small-scale gold miners spread throughout the country.
Platinum prices have also remained generally subdued for the year as they have been for the past few years now. Output by year-end will be lower than last year’s 14.7 tons. This is despite the fact that the three primary producers continued to operate at full capacity. The price of palladium is excellent, as it is hovering around US$1,700 per ounce, even exceeding that for the booming gold sector and around double that for platinum. However, palladium is not yet counted among significant products because it is jointly produced with platinum and has generally been viewed as a by-product, rather than a co-product of the latter. This is despite a high level of production for last year at 12.1 tons. By any measure (output or revenue) it is probably time that the PGM sector stops being referred to as the platinum sector. The production levels for other PGMs which include rhodium, ruthenium, and iridium has remained insignificant in 2019. One of the key challenges, among others, in the sector, is the outstanding formal clarity of the sector’s exemption from meeting the requirements of the Indigenization and Economic Act, which exemption has only been pronounced verbally and in other documents, with the Act itself not yet repealed.
Chrome output during the year has been lower than for 2018 mainly on the back of a 10% decline in capacity utilization in the sector from 80% in 2018, low ferrochrome prices and dilapidated transport infrastructure for movement of all chrome products (chrome ore, lumpy ore, and High Carbon Ferrochrome). The local pricing of raw chrome by the Minerals Marketing Corporation of Zimbabwe has also remained a sticking point in the development of the sector and agreement on this issue should be reached to enhance production in the sector. Artisanal and small-scale chrome miners have also not enjoyed as much support from institutions like RBZ as has their counterpart in the gold sector who have been supported technically and financially by the Fidelity Printers and Refineries (a subsidiary of the RBZ).
While there are four registered diamond companies in the country including Zimbabwe Consolidated Diamond Company, Murowa Diamonds, Anjin and Alrosa, only the first two were active in 2019, with the latter two still to commence production operations. Diamond production by year-end will be lower than last year’s 3.3 million carats, as it is projected to be 2.1 million carats (a 36% decline). This is on the back of a decline in capacity utilization from 90% to 74% in 2019 as well as the persistent high royalty rate of 15 %, which remained the highest for all the minerals and in the Southern African Region. It is commendable that the Minister of Finance and Economic Development announced a downward revision of the rate to 10% in the recent Budget Statement.
Like the four major minerals alluded to above, the rest of the minerals have recorded generally lower performance compared to 2018, including coal and nickel sectors. The average capacity utilization in the coal and nickel sectors has gone down by 32% and 30% respectively. Specific factors explaining the lower levels of capacity utilization include the low prices offered by the Zimbabwe Power Company for coal and antiquated equipment which is common to both sectors.
Generally the mining industry as a whole (including the six mentioned above and several other base metals, industrial minerals and dimension stones) faced several challenges during 2019. Major among these include: regular and prolonged power outages, inadequate foreign exchange retentions, high costs of production due to domestic inflation (which is fuelled by depreciation of the local currency) and high import costs, lower prices (for most of the minerals), low access to and high costs of finance (both operating and investment), a sub-optimal fiscal regime, lack of policy consistency and predictability and perceptions of political instability due to serious national political polarization. We need to address these issues to realize a better performance in 2020 and to achieve our US$12 billion Mining Industry Target by 2023.
Lyman Mlambo is the Chairman of the Institute of Mining Research at the University of Zimbabwe he writes in his personal capacity.