The year 2020, has turned out to be a gruelling period for Zimbabwe’s mining industry, which has taken a big hit.
The list of miners’ woes is considerable.
They had to contend with a painful reality of squeezed margins, lower commodity prices, falling revenues, soaring costs and cash conservation, among many other problems.
The sector also battled power shortages during the year despite pre-paying for the electricity, meaning they were supposed to have uninterrupted electricity supplies.
The country’s resources firms also battled shortage of capital and difficult international market movements due to the Covid-19 pandemic, which ravaged economies around the world.Another challenge which plagued the mining sector, especially the small scale and artisanal miners was the several fatal mine collapses around the country.
These have turned to be ugly for the sector, especially the gold sub-sector which laid bare the structural flaws.Miners also grappled with the 60-day liquidation policy, which they said was not in line with production cycles in the mining sector.Miners are required to utilise their nostro balances within 60 days.
Although the foreign exchange auction trading system has significantly improved the value for the surrendered portion compared to the fixed interbank rate, miners indicated that there remained a premium between the auction rate and actual obtaining costs on the market.
Miners, especially gold entities, also battled delays in payments resulting in input shortages and production disruptions.
Reacting to the furore, mining heavyweights -RioZim and Falgold- shut down their operations as they reported weak fiscal results.
“The year 2020 was a difficult period for the mining sector on account of a difficult environment, which could continue in the next year,” Chamber of Mines of Zimbabwe chief executive officer, Isaac Kwesu, said.
Zimbabwe is endowed with more than 60 mineral resources.
President Emmerson Mnangagwa’s government has identified mining as one of the critical sectors it hoped would play a crucial role to salvage the fragile economy.
With Zimbabwe failing to access fresh capital from international financial institutions due debt arrears to the World Bank, African Development Bank, the Paris and Non-Paris club, the mining sector especially the gold sub-sector, has in the past decade or so, played an important role in the inflow of the much needed foreign currency in the country.
Tobacco also played a huge role in the inflow of foreign currency into the country.
The mining sector contributes more than 60% of the country’s exports earnings, 13% of the country’s gross domestic product, 12% of fiscal revenue and more than 50% of foreign direct investment.
“Gold is very important to Zimbabwe the same way oil is crucial to Nigeria and Saudi Arabia.
The yellow metal has been bailing out the country in the absence of loans from the International Financial Institutions,” Reserve Bank of Zimbabwe governor, John Mangudya said.
In the past few years, the mining sector has been generating an average of about US$2.7bn yearly.
But, the government recently launched an ambitious mining plan to generate US$12bn by 2023.
However, severe challenges lie in wait, meaning there is still a terrible prospect owing to the bad policies, corruption, unreliable and expensive power and forex crunch.
The ambitious project could be a pipe dream.
Government, however, expects gold to lead the charge by generating US$4bn.
Analysts say if well managed and if all the fundamentals are addressed the sector can fund the country’s US$4bn budget or can turn around the country’s economy by itself.
However, deliveries have been lower this year. The bullion, which has been in a bubble since 2017, saw export revenues plunging 21% to US$770.4m in the 11 months of the year from US$971.5m reported in the same period last year.
Gold deliveries, according to official data obtained from the Fidelity Printers & Refiners (FPR), plunged to 17.59 tonnes in the 11 months of this year from 24.88 tonnes recorded in the same period last year.
Zimbabwe is grappling with high incidences of mineral leakages.
There is rampant smuggling of gold largely and miners blame it on payment delays for deliveries made to the country’s sole buyer and marketer of the yellow metal, FPR.Miners turn to better prices offered by underground networks.
They also pay on the spot.
Finance Minister, Mthuli Ncube, recently disclosed that Zimbabwe lost more than 30 tonnes of gold which was smuggled to South Africa and other countries around the world in a new wave of financial illicit flows.
In monetary terms, it translates to about US$3.5bn.This year, the figure could be more.
The revelations came at a time suspended Zimbabwe Miners Federation president, Henrietta Rushwaya, is in custody following her arrest recently at the Robert Gabriel Mugabe International Airport on charges of attempting to smuggle 6kgs of gold to Dubai.
Gold Miners Association of Zimbabwe (GMAZ) said the authorities should address all challenges that the miners are facing to achieve desired goals.
“The country is endowed with many resources but smuggling has been a major hindrance in realising the real value for money in our mineral resources as they benefit few individuals.
“It’s a shame that we only talk of gold because of its importance to the economy but there are some valuable minerals also being smuggled outside the country but because we don’t focus on them we are losing a lot of value there,” GMAZ said.
The RBZ, however, announced plans to liberalise FPR, ending its monopoly on gold trade in Zimbabwe.
The unbundling will see partial privatisation of gold of gold refining business allowing private players to be part of the decision making process concerning the yellow metal.
Rampant smuggling has also spread to gemstones with a cartel of international buyers and local players conniving to bleed the government of millions of dollars in potential revenue, according to Minerals Marketing Corporation of Zimbabwe (MMCZ) general manager, Tongai Muzenda.
Muzenda told Business Times that the value of the country’s gemstone resources is estimated to be valued at US$20bn.
It is also estimated that Zimbabwe has about 36 semi-precious minerals that include goshenite, alexandrite, chrysoberyl, iolite, emeralds and tourmaline.
These are largely found in Karoi, Hurungwe, Mutoko, Mt Darwin, Zvishavane, Mutare, Rusape, and Odzi.
This could help significantly help heal the frail economy.
The gemstones, according to Muzenda, have the capability to overtake diamond in revenue generation, if proper management was put in place.He said there are plans to regulate the sector by issuing out licenses to firms and small-scale buyers for purchasing gemstones as part of a strategy to curb extensive smuggling of gemstones by international cartels.
There is optimism, however, that next year, the situation would improve in the sector.In the state of the mining industry some mining executives are optimistic that gold output will surpass 35 tonnes next year.
Mining executives said notwithstanding the positive business confidence index, access and cost of capital, investment environment, policy environment and country risk needs to be addressed to improve the sector.
The mining survey projects platinum to grow by 4% to 15.2 tonnes in 2021 from 14.6 tonnes this year while chrome is expected to increase by 92% to 2.3m tonnes in 2021 from 1.2m in 2020 and diamond is projected to increase its output to 3.5m carats from 2.1 m carats this year.
Platinum group metals output is expected to grow by over 3% while ferrochrome is expected to grow by 33% in 2021.
In the coal industry, there are also a number of coal and coke battery projects in the Hwange area at various levels of implementation including JIN-AN underground operation and Coke Battery Plant, Tsingshan / Afrochine.
The average capacity utilisation for the industry is expected to increase from 61% in 2020 to a 5-year record at 80% in 2021.
The above growth and capacity utilisation prospects are premised on respondents’ expectations on improvements in key areas that are currently undermining the performance of the mining industry.
Miners say access to capital and 2021 prospects for the mining industry as was the case for 2020,survey findings show that most mining executives are pessimistic about the prospects for raising adequate capital in 2021, indicating that uncompetitive investment environment, high cost of doing business and perceived country risk are major hindrances to raising capital.