Mining sector better off than before

SUNDAY Mail Business (SN) had a discussion with Chamber of Mines president Elizabeth Nerwande (EN) on wide ranging issues affecting the mining sector. The following are excerpts of the interview.

SMB: Is the mining sector in a sound state given the macro-economic challenges facing the economy?

EN: The mining sector has not been spared from the challenges facing the economy. The challenges include power outages, rising cost of production and inadequate foreign exchange allocation. Resultantly, most minerals recorded declines in output in the first six months of 2019 compared to the same period in 2018.

SMB: How has energy challenges impacted on the mining sector?

EN: The inadequate supply of electricity has been a major challenge. While we note recent progress, some mining companies had to endure outages of 20 hours per day for four days in a week. It is safe to say that electricity supply disruptions are the single largest risk to continued production at the moment. On liquid fuels, the mining sector like the rest of the economy has been affected particularly during the period when policy on fuel pricing and procurement were changing. However, with the facility on direct importation, most mines are able to arrange with fuel supply operators to ensure reliability of supply.

SMB: What strategies have you adopted as Chamber to address the challenges? EN:

The Chamber of Mines of Zimbabwe has continuous regular and deep engagements with a clear negotiated process with the Minister of Energy and Power Development, ZESA, Ministry of Mines and Mining Development, Parliament of Zimbabwe, Reserve Bank of Zimbabwe and Ministry of Finance and Economic Development.

The engagements are critical in aligning expectations and jointly chatting the way forward. The recent progress on electricity is case in point. The main aim is to come up with shared practical solutions, thus creating a unity of purpose. Chamber appreciates the slight improvement on the electricity supply and willingness to support processes that will lead to security of supply.

SMB: What long term measures is the mining sector embracing to overcome energy challenges?

EN:

The mining industry has partnered ZESA in improving the electricity generation and transmission infrastructure. The power supply agreement, which followed high level engagements by Zimbabwe and South Africa is expected to significantly improve the supply of power that is necessary to enhance production by the mining industry and the country at large. Beyond this, some mining companies are considering investing in their own electricity generation units that can also feed into the national grid. Chamber is in full support of the power supply agreement, which should set the basis for a sustainable partnership between Government and the private sector.

SMB: Foreign currency is in short supply, to what extent has the mining sector been affected by forex shortages?

EN:

The mining industry has not been spared from foreign currency shortages. The current forex retentions levels have been a product of discussions and agreement with the Reserve Bank of Zimbabwe.

With emerging demands for foreign currency from the mining sector, we believe that we must reengage to reach a mutually beneficial understanding between the RBZ and the sector.

The suppliers to the mining industry are experiencing severe shortage of foreign currency leading to shortages of critical supplies for some operations.

Foreign currency constraints have combined with other challenges to weigh down the performance of the mining sector culminating in significant decline in mineral output for key minerals of between 10 percent and 40 percent for the first half of 2019, compared to same period in 2018.

SMB: Finance Minister Professor Mthuli Ncube announced a number of policy measures and pronouncements in the mid-term fiscal policy review. Are you happy with the pronouncements?

EN:

The Mid-Term Fiscal Policy had positive outcomes for the mining industry. Under the new policy measures the mining industry is better off than before the policy statement. The positive measures for mining industry include the following:

◆ Dedicated power for the mining sector at historical tariffs (USC6.7/ KWh for the ferrochrome industry and USc9.86/ KW for other minerals) to be paid in forex.

◆ Platinum and diamond removed from the reserve sector and now exempt from complying with the 51 percent/ 49 percent equity thresholds, immediate effect,

◆ Royalty now a deductible expense in the determination of taxable income. This measure is with effect from 1 January 2020. ◆ Royalty for primary large-scale gold producers indexed to gold price as follows: 3 percent for gold price below US$1,200/ ounce, and 5 percent for gold price above US$1,200/ ounce. Royalty for small-scale gold producers increased from 1 percent to 2 percent. These measures are with effect from 1 September 2019.

◆ Mining Sector Cluster on the Ease of Doing Business Initiative to finalise and implement agreed positions relating to streamlining fees and charges levied on mining operations.

SMB: What has been the impact to the mining sector of the removal of the multi-currency regime and in particular the US dollar as legal tender?

EN:

Of importance is that the measures announced on enhancing liquidity on the interbank foreign currency market should allow for those that require foreign exchange to access it. We encourage government to continue enhancing efficiencies of the interbank market.

SMB: A lot of interest has been shown by investors in our mining sector under the Zimbabwe is open for business mantra. What is needed to ensure the interest translates to investment.

EN:

There has been significant progress achieved in the past two years. The reforms being implemented under the programme have been positive but need to be accelerated and deepened to ensure Zimbabwe reaches its mining target of US12 billion by 2023 and be competitive on all global rankings.

SMB: Government has set an ambitious target of $12 billion mining sector contribution to the economy by 2023. Is the sector geared for the target?

EN:

The mining industry is supportive of government’s vision and will do all that is necessary to achieve the set targets. The targets are achievable provided the investment and operating environment is improved to attract the necessary capital into the sector.

What we are currently looking at is how we can align to the vision vis-a-vis our challenges. We need to negotiate in good faith and remain focused on growing the industry whilst balancing with national benefits.