Mining sector expected to grow by 44pc: Report

in platinum, diamond, coal and ferrochrome output, a research by Frost & Sullivan has projected.
But the new indigenisation and empowerment laws could adversely affect the industry’s growth, warns an analyst.
Frost & Sullivan analyst Mr James Maposa said increased output would benefit the country in the current rise in global demand and pricing of platinum, diamond, gold and other commodities.
Zimbabwe mining industry expanded by 47 percent last year, ahead of other key sectors such as manufacturing and agriculture.
This resulted in revenue from mineral shipments rising by more than 100 percent to US$1,3 billion from US$600 million realised in 2009. This excludes revenue from diamond sales.
Key contributors to the mining growth included an increase in platinum, diamond, coal and chrome industries.
The growth was also supported by the resumption in production output of the gold mining industry in 2009.
“The introduction of multiple currencies has assisted most of the mining entities to afford purchases of the required machinery, equipment and consumables to increase production,” said Mr Maposa.
From 2006 to 2008, restrictive foreign currency policies, foreign exchange shortages, a weakened Zimbabwean dollar and unprecedented hyperinflation were among major factors that crippled the growth of the mining sector.
“The new foreign exchange policies legalising the use of multiple currencies have, therefore, benefited the country by stabilising the economy and curtailing inflation,” said Mr Maposa.
Mining firms are now able to import consumables such as fuel, chemicals, explosives and adhesives from South Africa.
However, a huge capital outlay is required if the sector’s growth is to be maintained.
According to the Zimbabwe Chamber of Mines, at least US$5 billion is required to recapitalise mining operations over the next five years.
A capital outlay of this magnitude will return production output to pre-economic crisis levels, said the Chamber of Mines.
The chamber has already engaged international investment banks to secure funding for gold mining sector.
Plans are underway to employ a similar initiative on platinum and coal. Between 2000 and 2008, mining sector expenditure was reduced to critical maintenance as a result of a decline in industrial earnings and foreign exchange restrictions that were enforced by the Reserve Bank.
Mr Maposa said from a production perspective, he anticipates a restoration in investor confidence for the industry.
“To continue the upward trend, mining companies with operations in Zimbabwe will call on investors to support this growth by recapitalising their current operations,” he said.
The bulk of this investment would be spent on reopening mines under care and maintenance to production.
A significant amount of capital would also be spent on exploration and development of reserves within existing mines with the purpose of raising current production levels.
Expenditure will also be channelled towards upgrading existing infrastructure, replacing near-obsolete technologies and assisting the power utility to ensure a constant energy supply for their operations.
“These investments are expected to create lucrative opportunities for regional industrial mining equipment and machinery suppliers, as well as Asian importers,” said Mr Maposa.
But this positive outlook could be eclipsed by the indigenisation and empowerment laws, he said.
The new laws require all foreign-owned companies with a minimum issued share capital of US$500 000 to localise ownership of at least 51 percent.
The revised regulations require foreign-owned mining companies to submit their plans on how they intend to achieve empowerment thresholds by May 9.
“Reactions to this directive have been negative, with shares of Australian-listed platinum mining companies with Zimbabwean operations being sold off,” explains Maposa.
Aquarius’ share price dropped 6,9 percent on the Australian Stock Exchange following the minister’s announcement.
Zimplats Holdings share price witnessed a similar trend, falling by 8,32 percent.
“With the Government remaining adamant that it will not reconsider implementing the indigenisation programme, mining houses and investors may reduce their level of investment within the country.
“This will therefore result in Zimbabwe’s mining industry being unable to attract the required US$5 billion investment. A review of these indigenisation laws should, therefore, be prioritised by the Zimbabwean Government to sustain the industry’s output growth,” he said.