Zimbabwe: Mining Sector Reels in the First Quarter

Chamber of Mines CEO Isaac Kwesu (IK) told our business reporter Fidelity Mhlanga (FM) in an interview that the first quarter of 2019 was not good for miners. Below are excerpts from the interview.

Zimbabwe's mineral production has been on a steady rise in recent years, but output was severely dented in the second half of last year and the effects have spilled over into 2019 as the economy continues to suffer from foreign currency and electricity shortages.

FM: What is your assessment of how the sector has performed this year?

IK: Generally you have heard the government explaining how the sector has performed when the Ministry of Finance presented in Parliament.

The performance of the industry this quarter has not been good. I can confirm and validate the Ministry of Finance's statement.

The first quarter was not a good quarter. Generally during the beginning of the year it always starts low.

Most minerals recorded negative growth with the exception of chrome which recorded some marginal increase.

I think the biggest hangover are the challenges from the previous year that continued to undermine performance in 2019.It is our wish that we will be able to cover the lost ground.

FM:What have been the major constraints for the mining sector in Zimbabwe?

IK: I think the challenges had a lot to do with delays in availing foreign currency to import critical materials for the primary producers of gold.

Gold contributes a huge chunk of overall mineral weight. Whatever happens to gold has a huge bearing on the performance of the mining industry.

We have already seen the numbers of gold for the first quarter in public, which was down by plus or minus 10%.

Gold is the biggest contributor to mineral output .

So a lot happened to do in terms of gold. By this I mean issues around pricing and allocation. I mean issues to do with thresholds and delays in accessing forex.

FM: Have you been engaging authorities to have these problems fixed?

IK: Yes, we have been engaging government and we have seen the lead time improving from as much as 12 weeks to the current two to three-week delays.

So we have seen much improvement such that if we continue on that trajectory, we may cover the lost ground in the second quarter.

We also had challenges with electricity supplies.

FM: What is your take on the incentive scheme recently introduced by government for gold producers?

IK: Yes, it is a positive development because the effective price of gold will also go up to compete with international prices.

That issue has to do with the anomaly between the then interbank rate, which was at 2.5 to 3.2.

When your export earnings are paid in RTGS you compare 3.2 and the actual cost of doing business, which was around 4 -5 (parallel market rate), it means they were paid less and this automatically means viability was not guaranteed.

So all those miners who are high cost used to find it difficult to increase output and even to be viable and that has been a huge challenge.

FM: What measures are you putting in place to deal with power cuts?

IK: We are engaging government through Zesa, and we are having a series of meetings with a view to ensuring in the short term at worst that we are guaranteed power that is available to the critical productive sector whilst we come up with the medium to long-term solution.

We are also engaging with a view to finding out how best we can work together.

We understand there are challenges to do with tariffs, challenges of not having adequate forex to import critical spare parts they need.

The issue remains that mining requires adequate electricity. We are unique not that we generate forex, but we are unique because power is needed for safety requirements in mining.

FM: How has the increase in fuel prices affected the mining sector?

IK: We cannot be spared from the fuel price hikes. The issue is that generally we have not been affected by fuel hikes as long as we continue to pay part of our fuel in forex.

We would not continue to talk much about pricing because it has not changed much in United States dollars, but in RTGS dollars. So for mining it's about availability, that's a major issue.

FM: What are the prospects for the mining sector this year given the fuel and power shortages?

IK: The prospects remain positive. We remain upbeat. We are engaging the authorities to resolve most of these issues.

We have already seen some changes on some of the minerals in the second quarter.

We may not achieve the output that we are aiming for, but we will still try to make it. The first quarter is usually not reflective of the full year.

We will make an effort to make sure we recover any lost ground.

FM: Is the Chamber content with the current forex retention thresholds?

IK: We are on record saying these thresholds have not been sufficient, but as I am saying we also appreciate the current situation government is facing, the demand for that scarce foreign exchange.

But the issue has been to give priority to mining to ensure that we get enough forex to run the businesses and to import the critical raw materials that we require.

It is our anticipation that the coming- in of the interbank market and the improvement in its activity will make sure that even when we don't have sufficient forex through retention we can go to the market.

But for the time being we are still engaging government to make sure that anything outside the retention threshold we will have a special dispensation by requesting from the central bank and get a positive response.

FM: Is this year's mineral revenue target achievable?

IK: The government has targeted around $4 billion. It is our wish that if all challenges that are setting us back are attended to, these numbers are attainable.

FM: Do you think the country will meet its targets for gold output this year?

IK: We are still in the first half of the year. Yes, the first quarter was down, but the issues that were affecting the sector have been addressed.

The disbursement of funds to gold producers and other supportive efforts that make sure that we have adequate power will ensure that we recover the lost quarter.

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