Mining recovers but


0

Zimbabwe’s mining sector was expected to grow by two percent in 2009 after a decade of steep decline but there were fears that the new indigenisation laws could slow down the growth.

Mining industry sources said mining could grow by as much as 20 percent in 2010 but the recovery was not likely to be sustained because investment in exploration had been minimal over the past ten years.

The main reasons for the recovery were a rebound in mineral prices internationally, the dollarisation of the Zimbabwean economy, and liberalisation of gold marketing in March 2009.

 

Full cable:


Viewing cable 09HARARE947, ZIMBABWE MINING ON THE MEND

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs

Reference ID

Created

Released

Classification

Origin

09HARARE947

2009-12-08 13:34

2011-08-30 01:44

UNCLASSIFIED

Embassy Harare

VZCZCXRO0444

PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0947/01 3421334

ZNR UUUUU ZZH

P 081334Z DEC 09

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC PRIORITY 5197

INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHAR/AMEMBASSY ACCRA 3199

RUEHDS/AMEMBASSY ADDIS ABABA 3308

RUEHBY/AMEMBASSY CANBERRA 2569

RUEHDK/AMEMBASSY DAKAR 2938

RUEHKM/AMEMBASSY KAMPALA 3356

RUEHRL/AMEMBASSY BERLIN 1735

RUEHNR/AMEMBASSY NAIROBI 5804

RUEHGV/USMISSION GENEVA 2481

RUEAIIA/CIA WASHDC

RHEFDIA/DIA WASHDC

RHMFISS/EUCOM POLAD VAIHINGEN GE

RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000947

 

SIPDIS

 

AF/S FOR B.WALCH

DRL FOR N.WILETT

ADDIS ABABA FOR USAU

STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS

STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR M.GAVIN

 

E.O. 12958: N/A

TAGS: EMIN ECON PGOV ZI

SUBJECT: ZIMBABWE MINING ON THE MEND

 

1. SUMMARY: Zimbabwe’s mining sector is showing signs of recovery,

with growth this year of about 2 percent after a decade of steep

decline. Mining could grow by as much as 20 percent in 2010. But

investment in exploration has been minimal over the past decade, so

recovery of the industry is unlikely to be sustained. Among the

obstacles to investment are proposed amendments to the Mines and

Minerals Act that would force investors to sell a majority

shareholding to black Zimbabweans. Mining in Zimbabwe will have a

chance to reach its potential only when the Government of Zimbabwe

(GOZ) recognizes that this highly capital-intensive industry is

entirely dependent on foreign investment to expand. END SUMMARY.

 

————–

Mining Matters

————–

 

2. At its peak in 1995, the mining sector accounted for 7 percent of

Zimbabwe’s gross domestic product (GDP) and 50 percent of export

earnings. Mines employed around 60,000 people directly. Steep

decline in output between 1999 and 2008 saw the sector’s

contribution to GDP fall to just 4 percent as mining contracted even

more rapidly than the rest of the economy, while employment declined

to around 35,000 people. Mining remains a major user of

electricity, accounting for between 35 and 40 percent of total

electricity consumed in Zimbabwe.

 

 

3. As the economy collapsed following the chaotic land reforms that

started in 2000, so did mining output. According to the Chamber of

Mines of Zimbabwe, between 2004 and 2008 most mining houses had

stopped production, concentrating instead on care and maintenance

activities. In addition to the poor operating environment at home,

characterized by onerous foreign-exchange rules and power outages,

in recent years most metal prices declined internationally due to a

fall in demand caused by the global financial crisis that started in

2007. Only diamond and platinum mines operated at full capacity

during this period, primarily because of special arrangements with

the Zimbabwean authorities that allowed them to retain export

receipts rather than surrender them to the Reserve Bank of Zimbabwe

at an unattractive official exchange rate.

 

———————-

Green Shoots Appearing

———————-

 

4. Between January and October 2009, however, activity in the mining

sector improved, with most mines being rehabilitated. In his recent

budget speech, Finance Minister Tendai Biti reported that mining

output is expected to grow 2 percent in 2009. Experts at the

Chamber of Mines believe output could grow a further 20 percent or

more in 2010.

 

5. The main reasons for recovery are a rebound in mineral prices

internationally, the dollarization of the Zimbabwean economy, and

liberalization of gold marketing in March 2009. Statistics from the

Chamber of Mines show that gold output for the year reached 3.14

tons by October 2009, compared to 3.50 tons recorded for the whole

of 2008. Gold output is estimated to reach 4.5 tons by year’s end.

Qof 2008. Gold output is estimated to reach 4.5 tons by year’s end.

According to the Chamber of Mines, only the base-metals sector is

still operating on a care and maintenance basis, largely due to a

shortage of capital reserves. The mines need both working capital

and fixed capital expenditures to be fully operational, but

shareholders are unwilling to plough in new capital because of

continuing uncertainty in the operating environment.

 

6. All three major producers of chrome — ZIMASCO, Zim Alloys, and

Maranatha — have made significant progress toward reviving

production. Zim Alloys has managed to inject capital from a South

African investor, while ZIMASCO succeded in bringing four out of

six furnaces into production, with a fifth expected to start

production in April 2010.

 

 

HARARE 00000947 002 OF 002

 

 

——————————

Low Investment Limits Recovery

——————————

 

7. There have been significant new investments over the past two

decades. The most notable of these are: Zimbabwe Platinum Mines

(Zimplats), established by Delta Gold Limited; Anglo Platinum’s Unki

Mine; the Mimosa Mine set up jointly by Aquarius and Impala of South

Africa; and Rio Zim’s Murowa Diamonds. Industry experts say there

would have been even greater investment had the economic and

political environment been favorable.

 

8. The main factor that discourages mining investment is the

Indigenization Act, which compels foreign companies to sell 51

percent of their shareholding to black Zimbabweans, even if black

Zimbabwean investors lack the means to purchase shares. More than

one mining executive has told us of failed efforts to raise

financing due to market participants’ fears of the Indigenization

Act.

 

9. One consequence of the lack of recent investment is the absence

of minerals exploration for the past decade. Industry experts

expect a gap in output in the short term due to the lack of

exploration work. Zimbabwe will require huge mining investments

just to restore mineral output to its 1997 level. But indigenous

investors do not have the wherewithal to finance this level of

activity.

 

———————————

New Tax Regime Will Stifle Growth

———————————

 

10. Historically, Zimbabwe’s fiscal environment has been liberal,

with corporate tax at just 15 percent. With a number of concessions

given to miners such as the initial special allowance and favorable

capital depreciation allowances, the effective rate of tax fell

drastically to around 7 percent per annum. But since 2003, when

miners started paying royalties at varying rates from 1 percent for

coal to as high as 10 percent for diamonds, along with a 3 percent

levy on wages, the effective tax rate rose to 45 percent, according

to the Chamber of Mines. Even more confiscatory were requirements

to surrender hard currency earnings. Finance Minster Biti’s

proposed 2010 budget will raise royalties to from 3 percent to 3.5

percent for most minerals. Some observers expect the higher royalty

payments will further discourage investment.

 

——-

COMMENT

——-

 

11. As in other sectors of the economy, the main problems in mining

are political. The Indigenization Act, as it stands now, makes any

large new mining venture an impossible proposition. At a minimum,

the GOZ will need to make special provisions for indigenization in

mining to clear the way for the needed large infusion of foreign

capital. But even if the Indigenization Act were modified, there

would still be enough uncertainty about the direction of GOZ policy

in the medium term to make mining in Zimbabwe relatively

unattractive for new players. END COMMENT.

 

RAY

 

(55 VIEWS)

Don't be shellfish... Please SHARETweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on LinkedIn
Linkedin
Email this to someone
email
Print this page
Print

Like it? Share with your friends!

0
Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

0 Comments

Your email address will not be published. Required fields are marked *