Extractive sector under explored

Kudzanai Gerede
The recently launched state of the mining industry report suggest that the country’s extractive industry is heavily under-explored with a majority of the country’s over 40 minerals beneath its surface lying untapped. The results revealed that out of its highly diversified mineral endowment, the country generates over 90 percent of its total mineral output value from only 5 minerals.

The top 5 minerals by output value were gold (40 percent), platinum (21 percent), palladium (11 percent), diamond (11 percent) and nickel (8 percent) with a few more minerals contributing the remaining less than 10 percent.

The survey carried out by the Zimbabwe Chamber of Mines with the aim of gauging the level of confidence, profitability, opportunities, challenges and performance of the sector pointed out yawning opportunities for investment in mineral exploration and mining.

Despite other minerals that used to contribute significantly to the overall mineral output such as asbestos, tin and lithium among others having been temporarily stopped owing to viability challenges, most of the country’s mineral deposits have lied idle since operations were halted during the height of the economic woes in the first decade of the millennium.

Analysts have called for government to diversify the extractive industry as falls in mineral prices on the international market vary depending on the mineral and diversification will help avert the biting effects of price variances. For instance, the past year saw nickel prices fall by an excruciating 49 percent whilst gold prices fell by a mild 8 percent.

Antiquated machinery for mineral exploration has been an albatross to the discovery of new mineral deposits and harnessing of deeper lying minerals from the deposits currently mined which was attributing to low commodity output and lack of mineral diversification.

Officially opening the launch of the report in the capital last week, Mines and Mineral Development Minister Walter Chidhakwa stressed the need for the industry to diversify its mineral output at the same time invest in exploration to increase production since prices were so low.

“Let’s spend much money (exploration) on those minerals that account for huge chunks of money into the sector on the other hand let’s spend time on diversifying our mineral output,” said the minister.

The mining sector was subdued owing to the global commodity prices slump which has culminated into poor returns and this has led to local miners struggling to prop their production levels and undertaking vigorous cost cutting measures such as reduction of staff compliment.

Other challenges that suppressed production were power shortages, high power tarrifs, high royalty, high procurement costs, high labor costs and capital constraints.

The state’s royalty rates are among the region’s highest which was adversely affecting the local industry’s competitiveness in the wake of falling prices. Whilst regional competitors like South Africa and Angola charged royalty varying from precious stone to other minor minerals of between 2 percent -6 percent and 2 percent-5 percent respectively, Zimbabwe charged miners between 1 percent- 15 percent.

According to the findings of the survey, mineral output for the past year was in the red recording a 2,5 percent growth from the highs of 11,7 percent mineral output in 2013.

This resulted in the sector contribution to national exports plummeting to 50 percent from the previous year’s 56 percent, posting a 9 percent contribution to Gross Domestic Product.

However Government in its efforts to turn around the fortunes of the mining sector whose current capacity levels stands at 60 percent is luring investors through various incentives into the capital intensive extractive industry.

In the 2016 national budget, Finance and Economic Planning Minister, Patrick Chinamasa introduced rebate of duty on capital equipment imported by mining, agriculture, manufacturing and energy sectors for equipment valued at US$ 1 million and above to boost these sectors as they are in dire need of mechanization to start operations.

However the Minister Chidhakwa is upbeat of the prospects for the sector in the current year despite falling of prices.

“The broad base of our mineral extraction has become thin currently but in 2016 we expect growth in asbestos, lithium and tin buoyed by Chinese agreements signed last year,” he stressed.

Last year a Chinese business delegation headed by President Xi signed mega deals especially in the extractive industry with the Nigerian billionaire Mr Aliko Dangote also penning deals in cement production. These deals are expected to stir the country’s mining sector.

“Government should ensure its royalty fees are revised, energy tarrifs are lowered and energy is reliably available in cognisance of falling commodity prices so that the mining sector remains viable,” economic analyst Chris Chenga says.