Mining sector upbeat about 2022
ZIMBABWE’S mining industry is projecting a significant increase in production this year despite battling Covid-19 related challenges that have been afflicting the sector for the past two years.
According to the Chamber of Mines of Zimbabwe (CMZ), major increases in production this year are expected in diamonds, coal, gold and chrome.
The latest CMZ report projected a percentage growth of 43% in diamond production, with coal expected to rise by 40%, chrome (33%) while gold output is expected to increase by 21% this year.
The 2022 Mining Business Confidence Index (MBCI), the report said, showed that mining executives are confident about business prospects this year.
“Notable among the positive sentiments includes optimism about commodity price outlook, improvement in capacity utilisation and anticipated output growth.
“On the negative side, however, mining business executives expect the investment environment to be depressed, characterised by high cost of capital. They further anticipate foreign exchange constraints and infrastructure deficit to persist in 2022,” the report said.
Also in the negative, according to the report, are variables such as investment competitiveness; access to foreign exchange, mining policy environment, while country risk will remain in the negative territory.
Findings on measured variables include the overall MBCI which is expected to increase from 9,8% to 17% while mineral output growth prospects will go up from 47,1% last year to 69,2%.
There was also an increased prospect on expenditure on capital projects rising to 69,7% from 51,5% with employment prospects set to increase to 39,4% from 33,3% .
The findings, however, noted a decrease in profitability prospects from 27,3% dropping by 2% this year with investment competitiveness, access to and cost of capital, mining fiscal regime, economic growth outlook, country risk and infrastructure and energy prospects also dropping.
The report said the year’s mineral output projections for selected minerals indicate that gold will rise from 29 tonnes last year to 35 tonnes, representing a 21% projected growth.
There is also an expected improvement in diamond production from a projected 3,8 million carats projected last year to five million carats.
Coal production is projected to increase from 2,8 million tonnes to 3,9 million tonnes while chrome production is likely to grow to 1,6 million tonnes from 1,2 million tonnes last year.
Increased production is also projected in platinum, palladium and nickel production.
The report further indicated that mining industry capacity utilisation is likely to jump by 3% from the 80% projected last year.
“Mining executives are confident about mineral output growth in 2022. Majority of the respondent mining houses are planning to ramp up production in 2022 by ranges of 3% to as high as 100%.
“Approximately 58% of respondents are planning to increase production by up to 40%, while 42% of respondents are planning to ramp up production by more than 40%,” the report said.
However, capacity utilisation constraints during the year will include, among others, high cost structures, Covid-19-related challenges, capital shortages, power outages and antiquated equipment.
“As was the case for 2021, mining executives are less confident about the prospects of a competitive investment in 2022, with 70% of respondents expecting the investment environment to remain depressed as in 2021,” reads part of the report.
It further states that respondents to the survey are expecting the fiscal framework to remain suboptimal while key issues highlighted include high royalty beneficiation taxes, high environmental management levies and misaligned rural district council charges.
The mining executives also indicated that they were expecting a suboptimal foreign exchange framework citing forex retention levels, disqualification of mining companies from participating in the auction market, loss of value on surrendered portions of export proceeds and delays in payments for mineral deliveries.
“Almost all respondents indicated that the foreign exchange retention at 60% was inadequate to meet the operational requirements. They highlighted that the retentions were under pressure from requirements to pay royalties, electricity bills, taxes and some statutory obligations in foreign currency as well as the widespread preference for US dollars by suppliers.”
Meanwhile, the report indicated that challenges faced due to the Covid-19 pandemic include market closures due to national lockdowns and limited access to mines for contractors and key suppliers.
Some miners indicated that they continued operating during the national lockdown in the first eight months of last year, benefiting from the government position to allow the mining sector to operate as an essential service.