.. . aggressive tax regime bites
WHEN the country’s big mining companies warned the authorities of impending turbulence caused by weakening commodity prices against the backdrop of an unfavourable business climate, many bureaucrats who spend most of their professional lives in ivory towers reluctantly took heed of the distress call.
BERNARD MPOFU
For the miners, without the crystal ball it was impossible to see how the year would pan out. It seems they were right.
A study was done, findings revealed and recommendations listed, but little was done to tweak the policy environment to make business at least fly over the turbulence. Government eyes were transfixed on the bacon.
Building a US$12 billion mining economy by 2023 was what former Mines minister Winston Chitando needed to add a feather on his cap.
This week, Zimplats, a unit of South Africa-headquartered Impala Platinum, said it would start voluntary retrenchments as the company faces headwinds due to weakening commodity prices on the international market.
Zimplats chief executive Alex Mhembere said retrenchments were necessitated by the “difficult operating environment that we face”.
“While our cost containment and cash preservation programmes yield expected results, the company’s situation remains difficult and therefore additional measures still need to be undertaken,” said Mhembere, who is also chairperson of Zimbabwe Platinum Mines (Pvt) Ltd, Zimplats Holdings’ operating subsidiary.
“One of the measures that the company will implement is a voluntary retrenchment exercise for all employees wishing to be considered.”
The Australian Stock Exchange-listed mining house’s cost rationalisation strategy involves a series of actions aimed at cutting costs, optimising resources, and repositioning the company for stability and long-term sustainability. Zimbabwe has the third-largest known platinum reserves after South Africa and Russia.
How we got here
Zimbabwe’s large-scale mining companies painted a gloomy picture of the economic outlook as business confidence wanes due to an unfavourable operating environment and depressed commodity prices.
“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 pol[1]icy and legislative environment to remain challenging in 2024 citing frequent policy reversals and unresolved legislative and policy matters for the mining industry as key areas of concern.”
Ahead of the 2024 National Budget, miners implored the government to reduce ener[1]gy tariffs and royalties, citing softening commodity prices.
They said in the 12 months to November, the sector witnessed the weakning of prices for most key minerals, with rhodium (-74%); lithium (-69%); palladium (-41%); diamond (-60%); and nickel (-8%) the worst affected.
The authorities were unrelenting. Royalties which were raised to 7% last year from 2.5% in the previous were maintained and effects of a 5% beneficiation tax were felt across the platinum sector.
Impact of tumbling commodity prices
Early this month Mimosa Mine announced that it was retrenching 33 managers and aban[1]doning a key expansion project, in the latest damaging response by platinum producers to falling global metal prices.
The company says platinum prices fell by 35% since April last year, hitting its cashflows and profits.
“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 says in a statement.
“This has resulted in a staff rationalisation exercise, which has affected 33 managerial and supervisory employees.”
The platinum miner previously announced plans to ramp up production by spending up to US$100 million to develop a new mining area, called North Hill. This area has a resource of 1.5 million ounces of platinum. It would replace the South Hill area, which is running out.
The company has had to abandon this plan, according to results released earlier by Sibanye Stillwater, the South African miner that co-owns Mimosa with Impala Platinum.
Mimosa is situated 32km from Zvishavane town, about 400km from the capital city Harare and east of Bulawayo on the Wedza Geological Complex of the mineral-rich Great Dyke.
The Great Dyke is a layered complex similar to that of the Bushveld complex. It ex[1]tends for 550km and has a maximum width of 11km.
What this means to Zimbabwe exports
The capital-intensive mining 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).
Depressed commodity prices will in turn hit hard the country’s export performance.
The World Bank has warned that Zimbabwe’s overreliance on three export commodities could hurt on export performance as the country grapples with weakening mineral prices on the global market.
“Zimbabwe’s concentration in three export commodities — gold, platinum, and tobacco — known for their price instability, has increased the unpredictability of export earnings and fiscal revenues and complicated macroeconomic management,” says the World Bank in its new report on Zimbabwe’s private sector.
