The ManicaPost
Kudzanai Gerede Business Correspondent —
HIGH cost drivers continue to undermine the full potential of the mining sector at a time when the extractive sector is contributing over 70 percent of total exports, the latest state of the mining sector reports 2016 suggests.
The mining sector accounts for four of the top five foreign currency earners, thus gold, platinum, palladium and nickel accounting for just above US$2 billion in export receipts, but owing to high operational costs, the mining sector has undergone a major slow down.
The development comes at a time when the sector was recovering from global price falls of the past two years.
Despite significant gains in capacity utilisation for most mineral sub-sectors, players in the industry have called on Government to rationalise cost structures in the sector’s value chains.
According to the survey results, labour (30 percent), supplies (36 percent), power (16 percent) and statutory payments accounted for 95 percent of total cost to the sector.
“All respondents from the gold sector said 12.8 cents per KiloWatt hour (KWH) is too high and 90 percent of respondents form other minerals said electricity should be priced in line with regional benchmarks, while 10 percent said electricity tariffs should be linked with commodity price variations,” the survey stated.
“Fiscal regime is suboptimal and should be renewed.
“There are many tax heads which needs to be streamlined,” it further stated.
On the costs of supplies, the survey revealed that while 70 percent of mining inputs are procured locally from local dealers, but of the 70 percent, locally manufactured goods account for less than 15 percent citing poor quality and high prices as major challenges for local products uptake.
The high cost structures in the mining sector have seen the profitability prospects confidence indicator for 2017 remain in the positive but falling from +36.4 in 2016 to +11 for next year.
This is the case with the investment competitiveness index that has also taken a dive despite remaining in the positive from +9.1 recorded for 2016 to +3 for the coming financial year.
Analysts say government should speed up the ease of doing business reforms to ensure cost drivers are reduced.
This is seen as a major step towards reviving competitiveness of the mining sector.
Among other challenges affecting the sector is the overall use of antiquated machinery which according to the survey affected coal production.
Output in the coal sub-sector suffered heavy losses owing to old equipment which saw the coal miners produce only 2 700 tonnes in 2016, a 38 percent capitulation from 4 336 tonnes realised in 2015.
It was, however, a not so gloomy a picture for the country’s mining sector as overall capacity utilisation for 2016 improved from 60 percent recorded in 2015 to 64 percent with palladium, platinum, nickel and gold sub-sectors emerging as major production gainers.
Platinum production increased (15 percent) from 12 564kg in 2015 to 14 500kg in 2016, palladium (16 percent) from 10 055 to 11 650, gold (10 percent) from 20.023 tonnes to 22.000 tonnes and nickel (10 percent) from 16.108 tonnes to 17.00 tonnes.
However, output in the diamond and coal sub-sectors capitulated 40 percent and 38 percent respectively owing to the restructuring exercise in the diamond sector and inefficiencies arising from obsolete equipment for the coal miners at Hwange plants.
Minister of Mines and Mining Development, Cde Walter Chidhakwa, said diamond sector output decline was affected by resistance to consolidate mining operation at Chiadzwa.
Platinum sector maintained its 100 percent capacity utilisation recorded last year, while gold improved to 79 percent capacity utilisation from 77 percent last year.
However, the operational environment remains subdued by economic headwinds such as the liquidity crunch, shortage of capital and high cost of finance.
Gold production missed projected targets of 24 000 tonnes reaching 22 000 tonnes as a result of challenges in payments for deliveries.
“Somewhere in September, we slipped because of the cash shortages.
“We were having problems with accessing cash on time for payments.
“The miners told me that if you do not pay us cash, we will sell elsewhere and that is where we lost it, otherwise we could have been 23 tonnes or 24 tonnes,” said Cde Chidhakwa at the launch of the report.
However, the survey showed that 90 percent of sector respondents were confident of growth in the sector for 2017 of between one percent to just above five percent, with only 10 percent projecting zero growth.
