CLOUDINE MATOLA AND LIVINGSTONE MARUFU
Zimbabwe’s resources companies have taken a huge lurch downwards largely as a result of steep drop in metal prices on the international market coupled with escalating operational costs, forcing several big mining houses to turn to job cuts to survive, Business Times can report.
Players in the sector confirmed this week that they face a challenging operating environment.
In response to the lower price environment, miners have had to implement cost cutting measures, which have already included significant job cuts.
Major mining houses in Zimbabwe have declared their intention to cut jobs.
According to analysts, the current crisis is the latest sign that Zimbabwe is bearing the brunt of the severe commodities price decline in over a decade, which has resulted in widespread layoffs.
The Chamber of Mines of Zimbabwe president, Thomas Gono, told Business Times yesterday that the situation was dire.
There are growing fears that massive layoffs of workers will hit the mining sector.
“The unfolding slowdown in commodity prices that has seen most key minerals including PGMs experiencing significant decline in prices averaging 60% over the past 12 months and has resulted in reduction in mineral earnings by more than 30% from US$2.2bn to US$1.5bn in 2023,” Gono told Business Times yesterday.
He added: “This situation has been happening at a time the cost structure has been increasing, propped up by a 44% and 180% increase in electricity tariff and royalty, respectively.
“This has impacted negatively on the viability of PGMs producers.
“While the producers have introduced interventions to minimise the full impact of the softening prices including ramping up production, improving on efficiency and cutting back on some capital expenditures, the initiatives have been inadequate to offset the decline in prices.
Some of the producers are now retrenching to supplement their cost cutting initiatives.
Mining companies are calling upon the government to intervene and assist in reducing costs by revisiting electricity tariff and fiscal charges to avoid company closures which will result in foreign currency shortages, reduced government revenue, job losses and overall reduction in GDP.”
The biggest platinum miner in Zimbabwe, ZIMPLATS, is the latest to announce that it is implementing measures to limit costs and preserve cash, including staff layoffs in an effort to remain in business.
ZIMPLATS’ head of Corporate Affairs, Busi Chindove, yesterday said PGM prices declined by more than 50% threatening the viability of mining companies.
She said ZIMPLATS was not spared by the crisis and is now forced to implement the stringent cost preservation to protect the business.
“PGM metal prices have declined significantly and in some cases by more than 50%, threatening financial viability and sustainability of business operations for most PGM mining producers.
“ZIMPLATS is no exception and is facing similar challenges confronting all other producers in the PGM industry.
“It is for this reason that the company is critically reviewing its business operations to withstand the ongoing challenges arising from declining metal prices,” Chindove said.
In response to the sharp decline in metal prices, Chindove said ZIMPLATS was implementing stringent cost preservation to “protect the business from enormous pressure on profitability and cash flow on our operations and safeguard the business and to preserve as much as possible, the jobs of more than 8 000 people employed by the company, both permanent and contract”.
“Our team has sought to ensure that ZIMPLATS retains production capacity and the integrity of our infrastructure and that we remain socially and environmentally responsible and compliant. We also seek to minimise the impact of spending cuts on our growth strategy, which include a US$1.8bn expansion programme.
“The targeted interventions include operational efficiency improvements, operational cost rationalisation, capital prioritisation and labour cost optimisation.
“Our immediate focus is cost reduction, improved productivity and safe, consistent and sustainable volumes. Persistent low PGM pricing requires organisational restructuring to ensure business sustainability.
“Cost interventions must align to prevailing metal prices and deliver the strategic objective of being cash positive.
Regrettably, labour optimisation initiatives must be implemented urgently to secure the business and the bulk of jobs in the company. To this end, the latest offer for voluntary retrenchment is part of that response. We will ensure that the process will be advanced with due care and sensitivity.”
According to Chindove, ZIMPLATS is devoted to enhancing the industry’s competitiveness and sustainability while also making it evident that the PGM sector’s long-term fundamentals are still solid.
She said through “our past and ongoing investments in growth and beneficiation and in improving the lives of our mine-host communities, we have demonstrated our ability and dedication to responsibly doing the right thing for the long-term”.
ZIMPLATS said those who would like to be considered for the voluntary retrenchment package should approach the respective divisional human resources department for the application form beginning Tuesday this week. The completed forms must be submitted to the respective human resources department by this coming weekend.
Another platinum miner, Mimosa Mining company, is also laying off more than 30 workers at managerial and supervisory levels.
The miner stated that the company had to take cost-cutting steps in order to survive because it is anticipated that metal prices would be low for the foreseeable future.
“The outlook is that the prices will remain depressed in the medium term. In view of this, we have had to implement several measures to ensure that our business remains viable in the low-price metal environment,” Mimosa said.
The company said, due to the prevailing environment, it is necessary for them to review staffing structures.
“It has also been necessary to review our staffing structures to optimise these, considering the prevailing environment. This has resulted in a staff rationalisation exercise, which has affected 33 managerial and supervisory employees,” Mimosa said.
A number of economists are concerned that Zimbabwe’s economy will shrink primarily as a result of low metal prices.
“If the current economic headwinds and softening of prices continues, the economy will contract and more companies will close given the companies contribution to the foreign currency earnings in the country,” economist Vince Musewe said.
Another economist, Brains Muchemwa said some of the government policies have worsened the situation.
“The predominant use of the United States dollars , constituting in excess of 90% of trades in the economy, has made it difficult for the mining sector in particular when foreign currency earning surrender requirements at 25% means that they have a quarter of the income in Zimbabwe dollar, a currency on a free fall, with near zero value.
“Taking into consideration the falling commodity prices, with real costs of doing business sticky downwards, the mining sector is in a very difficult position and would need to take drastic cost cutting measures to remain afloat,” Muchemwa told Business Times.
Dr Patrick Chitambara, another economist said the country faces a gloomy outlook.
“This year is going to be a difficult period for the companies across the board as mining companies are affected by softening of the commodity prices and agricultural businesses again have been affected by El Nino induced Drought. Therefore, there will be a lot of pressure on companies to downsize and eat into profitability. The outlook will be gloomy this year as the number of businesses across the economic sectors may retrench,” Dr Chitambara said.
According to the economic analyst Victor Boroma, when the mining industry sneezes the whole economy coughs.
“The fall in PGM prices globally has impacted their operations and cash flows. It will affect all platinum players locally and in South Africa.
“The businesses have to shed off some costs to remain afloat and this has ripple effects on the local economy in terms of direct and indirect employment, tax revenues, foreign currency earnings and Gross Domestic Product,”Boroma said.
