THE Chamber of Mines of Zimbabwe has appealed to the authorities to lower energy tariffs and mining royalties, among a raft of pro-business interventions to offset losses incurred due to softening commodity prices on the international market.
Official figures show that the capital-intensive 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).
The 2024 National Budget consultations are coming at a time the mining industry is facing a severe slowdown in commodity prices impacting negatively on export earnings and given the industry’s high fixed cost base, threatening the viability of mining projects.
The sector’s viability has been worsened by an increase in the cost structure, foreign currency shortfalls, capital constraints and fragile power supply.
Reflecting the above, mineral revenue for the first half of 2023 was at US$2.6 billion, down from US$2.9 billion for the same period last year.
Over the past 12 months, the sector has witnessed the softening of prices for most key minerals, with rhodium (-74%), lithium (-69%), palladium (-41%), diamond (-60%) and nickel (-8%) the worst affected.
“The mining industry appeals for supportive measures to restore viability and ensure that mining companies achieve their production targets and maximise their contribution to the socio-economic development of the country,” the Chamber says in its pre-budget submissions.
“This situation is happening at a time the cost structure for the mining industry has increased, propped up by high royalty, high electricity tariff and high cost of funding mining projects. As a result, viability of PGMs, diamond and nickel projects has now been adversely affected. To note, mining companies are price takers and can only work on their cost structure to remain in business. We are appealing for supportive interventions to assist in reducing the cost structure by revisiting the royalty framework and electricity tariff regime.”
The miners say royalty for platinum, which went up by 180% from 2.5% to 7%, is impacting negatively on the viability of platinum projects.
“Information gathered from platinum producers shows that the increase in platinum royalty resulted in a 5% average increase in overall production cost while lithium producers experienced a 4% increase in the overall cost of production on the back of the 150% royalty increase from 2% to 5%. The situation has been worsened by slowdown in PGMs [platinum group metals] prices,” the Chamber says.
“Royalty for diamond at 10% is also impacting negatively on the viability of diamond projects. Producers of alluvial diamonds which are predominantly low quality are the most affected as their prices have taken a huge knock. We are appealing for a royalty of around 7% to restore viability of diamond producers. Further, royalty for Lithium which went up by 150% from 2% to 5% is also high and unaffordable for lithium producers. To note, most lithium projects are still new and would re quire Government support to ensure that they are fully implemented. Lithium prices have also tumbled over the past 12 months impacting negatively on the viability of lithium projects. We are appealing for a royalty of 3% for lithium that supports full implementation of projects in the expanding lithium sector.”
The country’s power utility, Zesa, increased the electricity tariff for mining companies by around 18% to USc14.21/kilowatt hour (KWh) and miners are unhappy.
“This is a second increase in the past 12 months, with the tariff having increased by around 40% to USc12.21/KWh in October last year. The new tariff has resulted in average increase in the cost of production of approximately 10%,” the miners say.
“The ferrochrome industry is the most affected with electricity being the major cost driver accounting for more than 50% of total cost of production. We are appealing for an affordable and competitive electricity tariff that guarantees the viability of mining companies.
“The mining industry has witnessed a growing number of new projects, expansion of existing projects and construction of beneficiation facilities, putting pressure on the available power. At the same time, the power supply situation has remained fragile, with reports of power outages resulting in production stoppages and production losses. To ensure successful implementation of mining projects and minimise production disruptions, we appeal to Government to intervene and assist in ensuring that mining companies are prioritised and guaranteed for available power.”