adminto Chamber of Mines Zimbabwe president Mr Winston Chitando (WC) on this and other issues. Excerpts . . .
GS: As Chamber of Mines president you are on record as saying you believe in beneficiation of minerals. In that regard, what is the Chamber of Mines’ position on beneficiation (through setting up a refinery) of platinum in Zimbabwe?
WC: The Chamber has formed a Platinum Producers’ Association. One of the main objectives of the association (formed three months ago) is to work and liaise with the Government towards a framework for the establishment of a (platinum) refinery (in Zimbabwe).
The Platinum Producers’ Association has so far held a number of discussions with the Government. However, the point I would like to emphasise is that if you take the volumes we have, as of today, they would not justify a refinery.
But we are trying to work with Government to say what are the expansion plans of company A, company B, company C. And as those come to fruition, at what stage will it then be justifiable to set up a refinery. We would then work backwards and start planning for the setting up of the refinery.
So in terms of the principle (of the refinery) it’s indisputable. So does it make sense to set up a refinery or does the chamber believe a refinery should be set up in Zimbabwe? The answer is yes. But it is an issue of timing and the modalities in which they have to do that.
GS: You said that you recently formed a Platinum Producers’ Association that is liaising with Government on individual companies’ expansion plans. At what stage would it be justifiable to set up a refinery? And looking at the companies’ expansion plans how long will it take for the country to reach that stage?
WC: I think it’s premature for me to comment on that because that is work in progress and that is the discussion with Government to say at what point will it make economic sense to establish a refinery in Zimbabwe.
I must, however, say the main idea or the main purpose of the association is not just for the establishment of a refinery but to discuss issues pertaining to production in the country, which goes beyond a refinery.
A refinery is just one the Platinum Producers’ Association will look at (in its discussions with Government).
GS: There are quite a number of platinum projects that are coming up to complement production from existing operations. How far are these projects from getting to fruition? I know Unki Platinum came on board last year, but I understand there is Todal and there is Ruschrome coming.
WC: Todal, from what I understand, are still developing their mining capacity. But it may not be fair for me to comment on individual companies, but for them to do that.
All I can say is that we are also talking to them and plans will be incorporated.
GS: Since you are agreeable to the idea of setting up a refinery in Zimbabwe, when it makes economic sense, how long would it take to set up a refinery in the country?
WC: Without quoting a name, one of the platinum companies has indicated its support and its plans to establish a refinery.
So that on its own is the starting point. That there already is one of the platinum companies which have already indicated its willingness on this.
It is now a question of the companies in the industry liaising and working together to see what the issues are. You also note that when one company announces its plans then others will have to liaise and discuss to then say what the appropriate modus operandi is.
GS: Looking at the whole subject and debate over the setting up of a refinery how much value is added to the resources when it is refined outside the country (South Africa)?
WC: At the moment in terms of the agreement we have the platinum producers get paid for the contained metal in what we export and we then pay a toll treatment charge for those guys to process for us. So, in terms of the advantage of setting up a refinery is (first) saving on the toll treatment charge and (second) downstream economic effects of that refinery. Those are the main economic benefits of doing that. However, in terms of additional revenue coming into the country, there is no additional revenue, you are saving on toll treatment fees and then the benefits of downstream industries resulting from the operation of that refinery.
GS: And there is the issue of reservations over the level of accountability in terms of exported minerals, especially platinum, which contains other metals such as gold and nickel. There is concern in some quarters that there is no full accountability on the other minerals contained in platinum that it does not seem as though there would be full declaration of these minerals. Can you shed light on that?
WC: It is a very transparent process whereby before the material leaves the mine or Zimbabwe there is full analysis of all the metal in the quantities exported. So when we get the permission from the Minerals Marketing Corporation of Zimbabwe and the Reserve Bank of Zimbabwe there is a full analysis to say in this consignment these are the metals and these are the quantities. As such, MMCZ are fully involved in that process. And MMCZ have access to mines and at times have a permanent representative at all the mines in the country.
In terms of the inflows when the exported quantities get paid for there is full monitoring mechanism especially by MMCZ.
GS: I would like to know why you sound uncertain about whether the various companies may struggle to raise funding for recapitalisation considering the fact that most have very strong anchor shareholders if I may say so? How then could it be possible that these companies may struggle to raise funding required to expand production like you said the sector requires US$5 to US$7 billion to raise industry capacity to 12 000 kilogrammes?
WC: The shareholders have really been supportive in funding expansion. If you consider that Mimosa Mining Company has been having expansion programmes continuously since 2000, every two to three years we have been commissioning a new phase. We have already gone through phase 3, phase 4, phase 5, phase 5,5 A, phase 5,5B and at the moment we are investigating phase 6. The are all expansions, which have been taking place.
If you look at Unki, it’s a new project but it has been on a regular expansion programme. And recently, I picked up in the Press that they are advertising some tenders, which are all expansion related. Then when you look at Zimplats you can then see all the expansions they have been doing over the years.
Then you also look at Todal, a completely Greenfield, again they have been on expansion. So I think, in all fairness, the shareholders in the sector have actually been supportive in terms of expansion programmes in the country.
So in terms of the whole platinum sector those are the amounts US$5 billion-US$7 billion required for the envisaged expansion programmes to be achieved.
GS: On a number of occasions you have expressed reservations over royalties and taxes. How responsive has Government been in terms of looking at or addressing the issues you have raise?
WC: The discussions with Government are ongoing and we meet and talk. Two weeks ago there was that session in Victoria Falls. The issue of royalties was among those discussed and when it comes to mining there were two main presenters — one from the World Bank, another from South Africa and I got an opportunity to present.
What was very pleasing one of the experts echoed those views that by increasing royalties, we are shooting ourselves in the foot and it is not good for the industry. From that interaction I remain positive that a structure to facilitate growth of the industry will be arrived at.
GS: How does the country compare to the region in terms royalties and taxes?
WC: It is probably both, what happens is that there is the charges from EMA, percentage commission to the MMCZ, commission to royalties. When you aggregate those charges you find the effective tax rate becomes very high.
We asked an independent professional auditing firm to compile a list of all the charges and let us see what the effective level of tax is. This showed the effective charge is very high compared to the region and internationally.
GS: What are the issues on electricity?
WC: The issues relate to availability and pricing. There actually are some operators who have to use generators. Those issues can only be addressed through increasing supply in the medium to long term. It is also essential that for any value addition to take place, it has to be anchored on the basis of availability of power. At the moment the industry is operating at below 50 percent, but there is not sufficient electricity for production. It that went to 100 percent it would put a lot of pressure.
GS: There is a general feeling in certain quarters of Government that mining industry is not contributing as much as it should to the fiscus and economy. May you please shed light on mining contribution to the economy?
WC: Let’s remember that some towns owe their birth to the mining industry and these include Kwekwe, Zvishavane, Mvuma, Hwange, Shamva, Shurugwi, Bindura, etcetera.
Imagine what these towns would be like assuming there was no mining activity? Look at what happened to Kamativi and Mhangura when major mining activities came to an end. Look at the impact from the mining sector on activities in Mhondoro-Ngezi, Selous and Chegutu.
The point here is apart from the direct payments through royalties, taxes and other statutory charges there are very significant downstream positive effects from mining activities.
The fact of the matter is the mining industry is operating below 50 percent of capacity and as such the contribution cannot be optimum.
Yes, in terms of revenue about US$2 billion could have been generated but the fact of the matter is that a large number of companies actually posted losses and are struggling to raise money to operate at full capacity.
And in some cases, gold is failing to take advantage of record prices prevailing on the world commodity markets.
The only nickel producer is still on care and maintenance. We all know that the ferrochrome and coal producers are operating below installed capacity.
I believe it is also absolutely important to look ahead. The mining industry contributed 13 percent to GDP in 2011.
Our projections are the sector has the capacity to increase this contribution to at least 25 percent to GDP by 2020.
What is critical here is that all stakeholders work together to ensure this potential growth is realised and in the process substantially increasing contribution from the mining.
On our part as the Chamber of Mines we are and will continue engaging all stakeholders to ensure that this is achieved.
Online Reporter