Mining

Gruelling time for Zim miners

PHILLIMON MHLANGA

Prospects of Zimbabwe’s economic recovery in the short to medium appears gloom after local mining firms continued battling rising costs, narrowing margins and subdued commodity prices on the international market, analysts and experts have said.

Mining is the country’s largest foreign currency earner, accounting for over 60% of export receipts.

The outbreak of the coronavirus pandemic and low business activity, analysts project will result in the economy contracting 10% this year.

Some of the miners who spoke to Business Times this week said the sector was facing an uncertain future.

The terrible prospects will make it difficult to continue operating, they indicated.

Most players, especially coal mining companies, indicated that they are selling the resource at a price below cost, resulting in unprecedented impact on earnings, balance sheets and investor perceptions of the sub-sector.

Industry players, this week made a distress call saying the sub-sector has literally dug itself into a hole and there is still a terrible prospect for miners in Zimbabwe.

Price for coal delivered to ZESA’s thermal power stations at Hwange, Bulawayo, Munyati and Harare, has been fixed at US$26.50 per tonne since July 2011.

There was little impact between 2011 and June 2019 because the local currency and the United States dollar was trading at parties.

Now, the price is being paid in Zimbabwe dollars-following its re-introduction last year in June- at the prevailing foreign auction exchange rate.

This translates to as little as ZWL$2,035.20 per tonne using this week’s auction rate of ZWL$76.8:US$1. This is said to be below cost of production.

Consequently, many projects in the sub-sector, players told Business Times, continue to be delayed or shelved completely because the price is inadequate to fund capital projects.

“It is difficult to continue operating. It is actually a crunch time for coal miners because it (coal) has been fetching a price lower than the cost of production, leaving us on the margins.

We hope current negotiations with the Zimbabwe Power Company(a power generation subsidiary of ZESA) will bring a new price regime, which will be cost reflective,” an executive with Hwange Colliery Company Limited, which is under administration, who preferred anonymity because is not authorised to speak to the press told Business Times on Tuesday.

Raymond Mutokonyi, the Makomo Resources boss and chairman of Coal Producers Association, had not responded to enquiries sent to him on Tuesday by the time of going to print. Information gathered by the Business Times shows that the price coal miners are fetching from ZESA is the lowest in the region.

Coal miners in Botswana and Zambia are getting an average of US$40 per tonne while those in South Africa are getting about US$50 per tonne.

The crisis confronting Zimbabwe coal miners has been compounded by a slowdown in China and India consumption, which have wreaked havoc in the sector. China and India are the world’s biggest consumers of the mineral.

There has also been a steep fall in prices for top quality thermal and coking coal on the international market recent months, meaning sellers at several international mineral exchanges, including the famous London Metal Exchange, have lost faith in the fossil fuel resulting in prices falling this week.

The prices have remained under heavy pressure amid oversupply concerns as production remained strong at major producers especially those in Australia and Indonesia in the face of weaker demand from China and India, the world’s largest consumers of the product.

Apart from that, coronavirus lockdowns have severely dented demand for coal. The price of the fossil fuel used to generate electricity in power stations is tumbling at the international market in the past few months due to the coronavirus pandemic.

According to Argus, a data provider, the overall fall in consumption has also been well pronounced in Europe as well, resulting in the price of thermal coal shipped to that continent this week falling to its lowest level since 2003 to sell at below US$40 a tonne. Zimbabwe miners are not alone in this predicament.

Even the price of high-quality Australian coal, which is the benchmark for the vast Asian market, sold to Europe, has dropped to a four-year low to US$51 per tonne this week, down from about US$68 a month ago, according to the latest assessment from Argus.

Prices of coal at international markets have been hovering around US$55 per tonne in April this year but it continues with its downward trend to sit at about US$49 per tonne this week.

It’s expected to continue southwards pressured by the rise of cleaner energy sources especially solar.

Local gold and platinum miners also battle the same fate. One of Zimbabwe’s largest gold producers, Rio Zim, recently put its mines under care and maintenance due to viability problems.

The price of gold has this week gone down by US$4.50 per ounce to US$1,938 per ounce, according to New York Mercantile Exchange.

Platinum also fell by US$6.63 to US$938.71 per ounce. At its peak, platinum, reached its highest price early 2008 at US$2,252 per ounce but after the collapse of Lehman Brothers-once United States’ fourth largest bank, in 2008, and the start of the global crisis, there was panic over the industrial outlook of metals such as platinum.

Zimbabwe has the world’s second largest proven platinum resources after South Africa, estimated at 2,8 billion tonnes of platinum group metals (PGMs) ore.

Three mines are engaged in the production of PGMs and associated metals from the Great Dyke.

These are Zimbabwe Platinum Mines (Zimplats), Mimosa and Unki Platinum Mine.

There are several others which are however still under development.

The Chamber of Mines of Zimbabwe (CMoZ) which represents major mining companies in the country, expect mineral production to fall by 60% in the second half of this year due to the impact of COVID-19, hurting Zimbabwe, which heavily relies on the sector for scarce greenback.

Local platinum and nickel miners which sell unprocessed products to South African refineries could be hard hit by the COVID-19 lockdown in South Africa due to logistical complications in transporting minerals to that country.

“It is estimated that mineral production may decline by about 60% with revenue losses exceeding US$400 million,” CMoZ said in a note to members, which was seen by Business Times.

Zimbabwe’s ferrochrome producers are also feeling the pinch. Zimbabwe’s largest producer ZIMASCO was recently put under care and maintenance due to COVID-19 and falling prices of the mineral. Zimasco is owned by China’s Sino Steel Corporation.

The fall in commodity prices comes at a time when the Government of Zimbabwe has identified mining as the pillar of economic revival.

Several experts said metal prices were likely to fall further this year.

Analysts say the outlook could be bleaker for the mining industry which is strategic to the Zimbabwean economy.

Despite this, mining remains the highest foreign currency earner, accounting for about 60% of the country’s export earnings.

It contributes to about US$3bn to the gross domestic product.

But, most miners’ average capacity utilisation is now below 60%, compared to 75% this time in 2019, due to acute power outages, inadequate foreign exchange allocations, capital shortages, high cost structure and absolute equipment, according the CMoZ.

The platinum group metals (PGMs),however, were operating at close to 100% capacity utilisation. Gold miners expect a negative output change of between -5%, to -35%, platinum 0%, to -7% , diamond -30%, to -40%, chrome ore -10%, to -20%,nickel -2%, to -10% and coal -10%, to -40%.

Zimbabwe miners are also battling low ore grades and shafts are getting deeper, stretching more than a kilometre , something which is costly, according to mining sector players.

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