AfDB warns on new mine royalties

Late last year, the Government proposed to increase royalties for gold and platinum to 7 percent from 4,5 percent and 10 percent from 5 percent, respectively from this year.
But the move has been met with indignation from the mining companies, with the Chamber of Mines reporting (in its latest monthly journal) that the review would result in profit margins for large gold miners declining by 18 percent while small miners would be unprofitable.
Although highlighting the positive results of the development, the AfDB (in its Zimbabwe Economic Monthly Review for the previous month) said both current operators and potential investors on claims with low grades will suffer the worst of the repercussions.
“The main purpose of the increases is to increase the mining sector’s contribution to the fiscus and balance the economy by allowing the economy to redistribute a portion of wealth gained in mining and resource extraction
“However, the increase in royalties can result in a fall in production as those firms mining in low-grade areas will be faced by an increase in per unit cost of production, hence they will be forced to reduce output.
“This also implies that potential investors could be discouraged from investing in low-grade ore fields by the increased cost of production and the reduction in profitability,” said the AfDB.
Meanwhile, as at the close of last year, the Chamber of Mines had expressed confidence that the key minerals would likely meet their output projections for the year.
Chamber of Mines president Mr Winston Chitando told delegates at a mining stakeholders’ meeting late last year that initial projections for most minerals would be met, despite challenges in the operating environment.
He said gold was likely to reach the projected 12 078kg by year-end, while platinum output should reach 10 725kg.
According to the chamber’s projections, nickel should reach 7 867 tonnes, with coal reaching 2 660 000 tonnes.
At the same time High Carbon Ferrochrome (HcFc) is also estimated to reach its initial target of 156 425 tonnes. All chrome processed locally is for the production of HcFc.
Generally, although the majority of mineral output targets were anticipated to have been met, it is clear that the sector’s growth last year has slowed down from the previous year, largely as a result of challenges relating to dilapidated infrastructure, limited energy supplies and constrained funding.
Overall growth projection for mining in 2011 had been estimated at 25,8 percent, marginally down on the initial forecast of 33 percent, on account of lower growth rates for most minerals in the period under review.
For instance, gold was last year projected to grow by 22 percent, down from 35 percent in 2010, nickel at 22 percent (from 26 percent), chrome by 15 percent (from 166 percent), platinum by 21 percent (from 26 percent), and coal by 17 percent (from 66 percent).