Mining industry grapples with perfect storm

PHILLIMON MHLANGA

Machines hum. Generators growl. Hopes crumble.

Across Zimbabwe’s mining towns, the air hangs heavy with uncertainty.

Once the backbone of the economic promise, the mining sector now fights for survival in a perfect storm of falling global commodity prices, soaring operating costs and a crushing tax burden, now biting harder than ever.

While gold shines as a rare bright spot, the rest of the industry is mired in gloom. Platinum, lithium and other key minerals are under pressure, leaving miners grappling with an uncertain future.

The air, thick with uncertainty, hangs heavy over mining towns across Zimbabwe, where workers no longer cheer the arrival of paydays. Instead, they whisper of layoffs.

This is the reality for many miners in Zimbabwe as the hopes of prosperity that once came with Zimbabwe’s vast minerals have been dimmed.

What began as a year of optimism has unravelled into one relentless challenge.

The tough year has dealt a bitter blow to those expectations as miners are fighting for survival as subdued commodity prices, escalating production costs and a punitive tax regime have combined to create a perfect storm, leaving the resources companies struggling to stay afloat.

As mining houses face these mounting challenges, the year 2024 has shaped up to be one of the most difficult yet.

Consequently, mining giants Zimplats and Mimosa have recently been forced to retrench workers amid the country’s economic hardships and volatile mining conditions.

 Zimplats, one of the largest platinum producers, has faced rising operational costs and declining platinum prices, which have strained its profitability. In response, the company has initiated a series of retrenchments to cut down on expenses and maintain financial stability. The layoffs have led to concerns among unions and local communities that rely on these jobs, further exacerbating the country’s unemployment issues.

Similarly, Mimosa Mining Company, a major player in Zimbabwe’s platinum sector, has also been impacted by economic challenges, including rising power costs, inflation, and unstable global platinum prices. These issues have forced Mimosa to reduce its workforce as part of efforts to curb operational inefficiencies. While the company claims that retrenchments are necessary for its long-term survival, the decision has sparked criticism from labour unions and workers, who argue that such moves threaten the livelihoods of thousands of Zimbabweans.

These actions by Zimplats and Mimosa highlight the broader struggles within Zimbabwe’s mining industry, which remains a crucial pillar of Zimbabwe’s economy.

Platinum, one of Zimbabwe’s primary exports, has been hit by slower demand from the automotive industry, which has traditionally been a major consumer of platinum group metals (PGMs).

As electric vehicle production rises, demand for platinum, a key catalyst in traditional gasoline vehicles, has tapered off, resulting in the price of the metal plummeting to US$940 per ounce this week from US$1 100 per ounce in December 2023.

Similarly, the lithium market, which had been seeing a boom driven by battery production, has also faced challenges.

Despite lithium’s essential role in powering the green energy transition, prices have been volatile, reflecting fluctuations in global demand.

Only one mineral stands tall amidst the gloom, its gold.

Gold prices have seen an upswing to reach US$2 664.40 per ounce this week from US$1 800 per ounce in December last year, but for many miners, this is but a small consolation in a year that has tested miners’ resilience.

Rising costs of production

While the drop in commodity prices has severely affected Zimbabwe’s mining sector, the rising cost of production has only compounded the problem.

The mining process in Zimbabwe is energy intensive and the country’s chronic electricity shortages have forced many miners to rely on expensive diesel generators to power their operations.

“Power outages have become a daily struggle,” Thomas Gono, the president of the Chamber of Mines of Zimbabwe, told Business Times, a market leader in business, financial and economic reportage.

“It’s not just the cost of diesel, but the impact on productivity. Every time we lose power, we lose valuable time, and the costs add up quickly.”

The rising costs of production are eating into the profits of mining companies.

The increasing costs of energy, labour, and raw materials have become a serious burden.

Zimbabwe’s miners are grappling with power outages, inconsistent supply of critical inputs, and rising inflationary pressures, which have made it more expensive to extract and process minerals.

The mining industry is energy-intensive, and Zimbabwe has long struggled with frequent power outages and an unreliable electricity supply.

These issues have worsened in 2024, with energy tariffs rising sharply. Miners are being forced to rely on expensive alternative sources of power such as diesel generators, which add significantly to their operational costs.

Labor costs are also on the rise.

Zimbabwe’s inflation rate remains high, which has translated into higher wages and salary demands from workers. With inflationary pressures eating into miners’ profits, the situation is becoming untenable for many companies, particularly smaller miners who do not have the capital to weather such an economic storm.

The increase in raw material prices has also taken a toll. Mining inputs such as chemicals, equipment, and spare parts have seen price hikes due to both local inflation and global supply chain disruptions. These escalating costs are severely impacting profit margins, especially when mineral prices are not keeping pace.

Punitive tax regime

One of the most significant grievances voiced by miners in Zimbabwe is the government’s tax regime.

They said Zimbabwe’s tax policies have become increasingly punitive to the point where many mining companies are questioning the sustainability of their operations.

Miners are subject to a variety of taxes, including corporate income tax, export levies, and royalty payments.

The government, in a bid to raise revenue, has implemented higher tax rates on mining companies. These include a royalty tax of up to 10% on precious metals, among the highest in Africa, and a currency exchange tax that forces mining companies to sell their foreign currency earnings at a rate determined by the Reserve Bank of Zimbabwe, which is often unfavorable to exporters.

For miners, this creates a double burden: a relatively low global commodity price combined with the high tax rates means their earnings are diminished before they even begin to reinvest in their operations.

Zimbabwe’s mining sector is not the only one facing a difficult tax regime, but the scale of the challenges here has driven some miners to the brink of closure.

“The taxes are crippling us,” Gono said.

“We are paying heavy royalties. It feels like we are being squeezed from all sides.”

Isaac Kwesu, the CEO of Chamber of Mines of Zimbabwe weighed in saying: “The tax burden is simply too high for us to bear.

He added: “If we are to survive, the government needs to provide tax relief and some form of incentive to help us reinvest in businesses and safeguard jobs.”

The Government of Zimbabwe has often defended the high taxes, arguing that mining is one of the few sectors that can bring in much-needed foreign currency to the country.

However, the growing discontent from miners is a clear signal that the current tax model is unsustainable in the long run.

Miners’ perspective: A year of setbacks

The year 2024 has been especially tough for miners operating in Zimbabwe.

The challenges have compounded, making it an extremely difficult year for many in the sector.

Miners have had to contend with the impact of low global commodity prices, rising costs, and heavy taxation.

Several mining executives voiced their frustrations.

 “This year has been particularly difficult. The market conditions are not in our favor, and the cost of doing business is skyrocketing,” a mining executive with a platinum mining company, who requested not to be named, said.

Another pointed out that “The government has to listen to the concerns of miners. If things continue as they are, we will see more mines close down, leading to significant job losses.”

The impact of the downturn is already evident.

Several small to medium-sized mining operations have scaled back production or ceased operations altogether due to financial strain.

The situation is more dire for those in the platinum and lithium sectors, where price drops and supply-chain challenges have made it difficult for companies to maintain profitability.

In particular, the lithium boom that many had hoped would secure Zimbabwe’s future has not panned out as expected.

Although demand for lithium remains strong, price fluctuations and oversupply in global markets have added an element of uncertainty to the market.

Gold: A rare bright spot

Amidst the bleak picture painted by most of Zimbabwe’s mining sector, there is one shining exception, in the form of gold.

The price of gold has seen a steady rise in 2024, providing a lifeline for many miners who depend on this precious metal.

Gold remains Zimbabwe’s most valuable export, and the surge in its price has allowed some mining companies to weather the storm.

“Gold has been our saving grace this year. It remains a critical pillar of our mining sector,” the Minister of Mines and Mining Development, Winston Chitando told Business Times.

He added: “It is one of the few bright spots in an otherwise challenging year for the industry.

“If it were not for the rise in gold prices, we would be in real trouble.”

Gold mining companies, especially large-scale ones, are benefiting from the price increase.

“Gold has kept us afloat,” said Caledonia Corporation group CEO, Mark Learmonth.

Hea added: “Without the rise in gold prices, we would have been in even worse shape this year.”

However, even gold miners are not immune to the pressures of rising operational costs and the taxation issues affecting the wider industry.

Despite these challenges, the outlook for gold remains relatively positive, with analysts predicting continued price strength due to global economic factors.

The year 2024 has been one of deep struggles for Zimbabwe’s mining sector. While gold has provided a much-needed cushion, platinum, lithium and other critical minerals have struggled with falling prices, rising costs and a burdensome tax regime.

The industry finds itself at a crossroads, with many miners facing the very real possibility of shutting down operations unless significant reforms are introduced.

 If the government does not act quickly to address the concerns of the miners, Zimbabwe risks seeing a mass exodus of investment, a decline in production and job losses across the sector.

“This is a critical moment for us,” said Chamber of Mines of Zimbabwe president Gono.

“If things don’t change soon, we won’t be able to survive as rising costs, volatile prices and punitive taxes are choking the life out of the industry.”

The coming months will be critical in determining whether Zimbabwe’s miners can weather the storm or whether the sector will continue its slow descent into crisis.

Will the government listen to the cries of its miners, or will the sector continue to unravel under the weight of economic challenges?

Only time will tell, but for now, Zimbabwe’s miners are fighting for survival in a year that has brought them to the brink.