Gloomy cloud hanging over mining companies

ZIMBABWE’S large-scale mining companies have painted a gloomy picture of the economic outlook as business confidence wanes due to an unfavourable operating environment and depressed commodity prices.

BERNARD MPOFU

The capital-intensive sector is the southern African nation’s top foreign currency earner followed by tobacco exports.

According to the Chamber of Mines of Zimbabwe, the mining industry currently contributes 70% to foreign direct investment, 80% to exports, 19% to government revenues, 3% to direct formal employment, and 13.5% national income (GDP and GNI).

A new survey by the Chamber of Mines has shown that mining executives are generally pessimistic about prospects of their business in 2024.

“Notable variables that weigh down their confidence include depressed commodity price outlook, gloomy investment environment, inadequate foreign exchange and infrastructure bottlenecks,” reads the State of Mining Industry Survey Report for 2024.

 “Mining executives expect the mining policy and legislative environment to remain challenging in 2024 citing frequent policy reversals and unresolved legislative and policy matters as environment for the mining industry as key areas of concern.”

The mining business prospects are measured by the Mining Business Confidence Index (MBCI) which gauges the mining business sentiments (optimism or pessimism) about the prospects of the mining industry in the next 12 months.

The MBCI is interpreted from a scale ranging from -100 to +100, with the lowest score representing the least level of confidence and the biggest score representing the highest level of confidence.

A score of 0 to +100 indicates that mining executives are optimistic about the prospects of their businesses while a score of 0 to -100 indicates that mining executives are pessimistic about the prospects of their businesses.

The MBCI gauges the mining business sentiments (optimism or pessimism) about the prospects of the mining industry in the next 12 months.

The 2024 prospects for the mining industry, as measured by the MBCI are negative and lower than that recorded for 2023.

This means that mining executives are generally not confident (pessimistic) about the prospects for their businesses in 2024.

The study shows that overall MBCI will drop to -0,3 from 9,4 this year. The study also shows that most mining executives are expecting the profitability of their business to decline, largely weighed down by subdued commodity prices and high-cost structure.

“Most mining executives expect their mineral earnings to decline on the back of softening commodity prices and high-cost structure,” the study shows.

“While mining companies plan to ramp up production to compensate revenue losses due to low prices, the increase in production will be more than offset by a disproportionate decline in prices.

“Most mining executives expect the commodity market conditions to worsen in 2024. They are anticipating commodity prices to further slowdown in 2024, mostly for PGMs and base metals citing geo-political tensions and weak global economic outlook.”

 Mining executives expect their cost of production to increase upwards of 10% due to anticipated electricity tariff increases, high cost of funding and high royalties and taxes, the study further shows.