23 May 2014

Zimbabwe: Mining Sector Seen Growing By Under 6 Percent

CHAMBER of mines president Alex Mhembere has the country's mining sector will grow by less than 6,5 percent this year due to viability problem and limited investment.

Speaking at the Chamber of Mines AGM on Friday, Mhembere said the gold sub-sector was experiencing severe viability challenges on the back of depressed commodity prices and high operating costs.

"It is important to note that while the mining sector led the 2009-12 economic rebound with an average annual growth rate of 20 percent, the sector is now showing signs of fragility registering a growth of only 6,5 percent in 2013 and expected to slow down further in 2014," he said.

Mhembere said gold was one of the main sub-sectors of the mining industry, contributing 29% of the total value of mineral output in the country. The sector has witnessed a 31 percent decrease in prices since the beginning of the year.

Gold production has been on a free fall with monthly average output having fallen by 15% from 1230 kg in 2012 to 1058 kg as of February 2014 and, without interventions, dip was expected to continue.

"Most gold producers have been struggling to meet their operating costs characterized by sub-optimal electricity tariffs, coupled with labour, capital shortages and high tax," said Mhembere.

According to official figures Zimbabwe produced 831,3kg of gold in February, down from 926,8kg in January. The decline was mainly on account of production slippages from large-scale producers.

In February, small-scale gold producers increased their output to 190,35kg from 161,91kg produced the prior month. On the other hand, large-scale producers' output slumped to 740,99kg in February from 764,88kg.

Platinum output went up marginally to 1 044kg from 1 015kg. PGMs such as palladium and rhodium output increased from 809kg and 93kg to 832 kg and 96kg, respectively.

"International market prices for most mineral products remained subdued, due to depressed demand stemming from slackening emerging market growth," the Finance ministry said.

The Chamber of Mines said Zimbabwe's total gold earnings slumped 20 percent to $626 million in 2013 from $783 million realised prior year.

This comes as escalating production costs, limited access to long-term capital and depressed global metal prices continued to threaten the mining industry's viability.

The yellow metal's earnings constituted 32 percent of the $1,98 billion total minerals earnings, which marginally increased by six percent from $1,86 billion achieved in 2012.

The chamber president said metal prices across the board are determined on the world market which means that revenues are also determined on the same market.

"This means mining companies are price takers and have no control over their revenues, thus to succeed mining companies should focus on other variables such as costs and efficiency," said Mhembere.

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