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Bullish mineral prices buoy Zim mining

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PRICES of gold and other precious metals on the global market are this year expected to reach new highs driven by a surge in demand triggered by the Russia-Ukraine war, the Chamber of Mines of Zimbabwe has projected in its latest report.

BERNARD MPOFU

As global economies continue to feel the shocks of the conflict in Eastern Europe, Zimbabwe’s large mining companies have projected a bullish outturn of the commodities market with gold being a haven for those seeking to preserve capital.

Zimbabwe’s economy is projected to grow by 5.5% underpinned by an anticipated strong recovery in mining (8%), manufacturing (5.5%) and construction (17.4%).

According to the Chamber of Mines Commodity Outlook for 2022, the prospects for firm mineral prices in 2022 are expected to provide an impetus for increased activities in the mining sector.

“The outlook for commodity prices is on the upside, with most minerals expected to remain elevated at levels above their long-run averages. The Zimbabwe mining industry is set to benefit from the commodity price boom,”  the report says.

“For the greater part of 2022, precious metals will find support as a safe haven on the back of the crisis in Europe. We anticipate gold prices to trend towards the all-time high reached in 2020. Palladium prices are expected to reach their previous peaks as deficits emerge from constriction of supply from Russia — the world’s largest producer. Platinum prices will also trend up with the increasing fungibility with palladium.

“Zimbabwe’s mining sector is set to benefit from global developments. In 2022, favourable commodity prices are expected to spur Zimbabwe’s mining sector performance. The State of the Mining Industry Survey conducted by the Chamber of Mines last year indicates that mining companies are ramping up production in 2022, with mineral exports expected to benefit from favourable prices. The gold and PGMs (platinum group metals) sectors are the main growth pillars for the mining sector in 2022. The mining industry is expected to generate approximately US$5.5 billion in 2022, underpinned by strong performance in: gold, US$2.1 billion; palladium, US$1 billion; diamond, US$0.8 billion.”

In 2022, the report says, the gold price is expected to remain elevated above US$1 900 per ounce throughout the year. With the geopolitical tension, gold still will be a main safe haven asset.

Meanwhile, the gold price has already responded to the unfolding crisis in Europe, surging above the US$2 000 per ounce mark during the period of conflict, from an average of US$1 750/ounce in December 2021.

“Gold will also have support from high demand from central banks and jewellery sectors. In the second half of 2022, we anticipate the gold market to revert to macro drivers such as real rates, US Federal Reserve policy,” the Chamber says.

The ongoing crisis, the report further states, will increase the price of minerals such as platinum group metals, nickel and iron.

“Amid growing geopolitical tensions, palladium price increased by over 55% to US$21 440 by end of February 2022. The imposition of sanctions on Russia is expected to result in the shrinking of PGMs supply to the rest of the world, propping up PGM prices,” the report reads.

“The imposition of sanctions on Russia, one of the biggest producers of nickel, will result in supply constraints and high prices in 2022. Production disruptions in Ukraine (another big player in the nickel industry) due to the current war will hurt the supply of nickel.”

Russia accounts for approximately 38% and 10% of global palladium and platinum, respectively.

Economic analysts say risks to the macro-economic outlook which include power shortages, foreign exchange constraints, exchange rate volatility, high inflation and new Covid-19 variants may slow down the growth.

The downside risks to the above projections include an erratic power supply (resulting in production disruptions), capital shortages (with a funding gap exceeding US$10 billion for the next five years), exchange rate volatility and widening parallel exchange market premiums, and foreign exchange constraints.

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