HARARE - Shares in mining companies operating in Zimbabwe are falling sharply amid a deepening crisis triggered by President Robert Mugabe’s landslide victory in last year’s presidential election.
Zimbabwe is the world’s second-largest producer of platinum after South Africa, and is also an important gold producer.
Mugabe’s victory provoked widespread fears he would lead a wave of nationalisations and higher taxes on foreign companies.
Mining, which accounts for just over 16 percent of gross domestic product, and accounts for more than 50 percent of exports, is strategic to the southern African country’s $10 billion economy. The sector is anticipated to drive growth in the medium term.
As part of efforts to revive the ailing economy, Mugabe’s government has identified mining as one of the four main clusters contained in its medium-term economic blueprint, the Zimbabwe Agenda for Sustainable Socio-economic Transformation covering the period 2014-2018.
However, the decline in international metal prices in the past two years, combined with the high cost of operations and an economic slowdown, is leading local mining companies to review their work plans and slash operating costs.
Hwange Colliery Coal Company (HCCL) — whose employees have gone for nearly a year without salaries — has become one of the casualties of the deteriorating economic situation in the country.
Zimbabwe’s largest coal mine declared a staggering $44 million pre-tax loss for the year to December 2013 and the major shareholder of the company threatened to rope in a judicial manager to revive the colliery.
The $44 million loss was a 10-fold slide from a $4 million loss suffered in 2012.
HCCL’s 2013 results exposed extreme write-downs and revealed how many years of under-capitalisation, shareholder dogfights and mismanagement have pushed the firm to the brink.
Technically insolvent and in dire need of working capital to save an operation that supports 2 800 workers and a community of 55 000, the coal miner’s revenues plunged to $72,5 million last year, from $104 million in 2012. Coal output fell by 16 percent to 1,9 million tonnes, from 1,6 million tonnes in 2012.
Despite trimming its 3 000-strong workforce by 200, overheads marched north, pushing operating losses to a massive $40 million, from $7,1 million in 2012. Now the company wants to slash its workforce by half — sending nearly 1 500 employees home.
Farai Mutamangira, the HCCL chairman, blamed the worsening losses on the punishing economic environment and falling international metal prices.
“The commodity prices, for coal and coke significantly declined and was affected by demand in ferro-alloys and steel products,” he said, adding the liquidity crunch prevailing on the local and global economies militated against short-term plans that the HCCL had to recapitalise its operations.
“Foreign lines of credit continued to be elusive and the local banks remained illiquid and thus unable to avail any meaningful credit. Consequently, borrowing costs remained high and all facilities remained short term and not compatible with the company’s operating model,” added Mutamangira.
Kwekwe-based ferrochrome producer Zimbabwe Mining and Smelting Company (Zimasco) recently indicated that it wouldretrench half of its 3 000 workforce, citing poor metal prices and the need to contain operational costs.
Clara Sadomba, the miner’s general manager for marketing and administration, said Zimasco’s profitability had been affected by poor metal prices, which she said had been falling since 2008.
“Zimasco continues to pursue various cost cutting initiatives in all its operations… One of the initiatives relating to labour include voluntary retrenchment,” she said.
Although workers at the mine claimed that chromium prices stablised at around $2,52 per kg since 2010, they were forced to take a pay cut from October 2012 and the whole of 2013.
Other major miners that recently rationalised their operations include platinum giants Zimplats, Mimosa and Unki. This year alone Mimosa — jointly owned by Impala Platinum and Aquarius Platinum — retrenched nearly 140 employees in a $5 million staff rationalisation exercise.
The three platinum mining firms, which are found in the Midlands districts of Zvishavane and Shurugwi, produce about 430 000 ounces annually which is exported to South Africa, where the precious metal is refined.
Last week, the platinum producers warned that the 15 percent levy imposed by government on raw platinum exports could lead to a collapse of the strategic industry. The export tariff took effect at the beginning of January and is levied on the gross value of minerals exported.
Platinum Producers Association of Zimbabwe chairman Herbert Mashanyare said the impact of the raw platinum export levy, 10 percent royalties and Minerals Marketing Corporation of Zimbabwe 0,875 percent levy could bring the industry to its knees.
“If you take the 0,875 Minerals Marketing Corporation of Zimbabwe levy, the 10 percent royalty and 15 percent (export) levy over and above that; you have no industry. Obviously, there are ongoing negotiations and discussions around that,” he said.
Mashanyare noted that the raw platinum export levy could lead to a “complete” and “total” collapse of the platinum mining industry if the situation remained unchanged.
Zimbabwe is home to second biggest known reserves of platinum in the world after its neighbour South Africa. It wants miners to set up beneficiation facilities in the country amid strong suspicion government is not receiving optimal returns from the mineral.
Diamond mining companies in Marange are also feeling the heat owing to the decline in output, with labour disputes over the non-payment of salaries and the reduction in working hours becoming the order of the day.