THE mining industry will shrink for the first time in five years because of plummeting metal prices, high costs and a lack of capital, the Chamber of Mines said.
The industry, the world’s third-biggest platinum producer, may contract by 2 percent, the chamber said in a report that’s a response to the budget for 2015.
“The sector continues to operate below capacity amidst a host of challenges, not restricted to but including depressed metal prices, lower capital and FDI inflows, high cost structures, sub-optimal royalties and shortages of power,” the Chamber said, referring to foreign direct investment.
Commodity prices are near a 12-year low, with gold down 25 percent since the start of 2013 and platinum declining 8.2 percent. Zimbabwe, which has deposits of gold, coal and iron ore, has the world’s biggest platinum and chrome reserves after South Africa.
Mining is the biggest source of foreign exchange, with platinum group metals and gold leading tobacco as the nation’s largest exports.
Zimbabwe’s economy is projected to grow 3.2 percent this year, according to the International Monetary Fund, from an estimated 3.1 percent last year, which was the slowest rate since contraction in 2008.
Gold for immediate delivery fell 0.3 percent to $1,277.08 an ounce at 11:17 a.m. in London, while the spot price of platinum declined 0.4 percent to $1,262.64 an ounce.
The government ignored the chamber’s request to allow royalties to be classified as a tax expense, the report said. This raises the cost of royalties by 4 percent to 7 percent, depending on the mineral, it said.
Zimbabwe, which requires about 2,200 megawatts of power, generates and imports only about 1,200 megawatts, resulting in frequent blackouts.
A declining gold price and high operating costs mean most miners of the precious metal are losing $60 to $100 an ounce.
A drop in royalties and lower refining charges from the central bank’s gold-buying unit, Fidelity Printers and Refiners, would help restore profitability, it said.
“If there are mismatches in the gold-mining sector, we must match up,” Mines Minister Walter Chidakwa said by phone from Harare.
“We’re targeting 14.5 metric tons of gold this year. Last year we just missed our target of 14 tons when we sold 13.9 tons.”Advertisement
To try encourage diamond cutters and polishers to operate in Zimbabwe, the government last year canceled royalties on gems cut within the country.
Demand by local cutters “remained very low,” the chamber said.
Deferring royalties for diamond miners would ease the “over-burdened sector that is already paying 15 percent royalties” in addition to other charges.
“We’re trying to improve cutting and polishing here in Zimbabwe, but if the diamond miners have concerns, let them come and talk to us,” Chidakwa said.