Mining revenues to drop US$50m…as gold nears US$800 million mark

Mining revenues to drop US$50m…as gold nears US$800 million mark

SIGNIFICANT global headwinds on international commodities markets could cut Zimbabwe’s cumulative mineral export earnings by more than US$50 million in 2016, though revenue from gold is projected to do well.
Overall, mineral exports are forecast to retreat from US$1,85 billion realised last year to $1,8 billion in 2016.
Coal, like gold, could buck the trend of declines with an estimated haul of US$245 million in 2016 from US$219 million a year earlier, while nickel sales will weigh in with US$164 million from US$142 million in the same period.
Significant gains are also expected in the chrome sector where Government lifted the ban on unprocessed ore exports in June 2015.
As a result, revenues from chrome exports are forecast to jump to US$30 million from US$21 million a year earlier.
Platinum mining, which has borne the brunt of falling prices, is likely to be affected the most, with revenues set to drop to US$346 million this year from US$381 million a year ago.
Earnings from other minerals will drop to US$244 million in 2016 from US$350 million in 2015.
Notwithstanding the price-induced decline in earnings, mineral production is set to grow 1,6 percent on anticipated output recoveries across all minerals.
Chamber of Mines of Zimbabwe CEO Mr Isaac Kwesu told The Sunday Mail Business that while there was an improvement in output, weak prices caused by subdued global demand were the biggest obstacle to growth.
“Gold output is expected to increase largely benefiting from deliveries from small-scale producers under the Gold Mobilisation Programme, as well as anticipated production ramp up by large-scale primary producers. Gold output is projected to improve from 20 000 kilogrammes to 24 000 kilogrammes in 2016.
“Chrome output is expected to increase on the back of the lifting of the ban on exportation of chrome ore as well as the electricity tariff relief accorded to the chromium sector by Government. Chrome output is expected to increase from 208 000 tonnes to 461 000 tonnes,” said Mr Kwesu, adding: “Further, nickel output is projected to increase, underpinned by improved output at the primary producer. PGMs are also expected to record an improvement as one of the players’ open pit mine increases output. Nickel output is expected to soar from 16 million tonnes to 16,7 million tonnes.
“Our industry is going through difficult times specifically against the back drop of depressed world prices.
“The majority of mining houses are struggling to break even later alone to make profit.”
There are worries that production costs are rising when mineral prices are declining.
Experts say the mining sector will remain depressed in both 2016 and 2017. An estimated US$3,8 billion is required to optimise operations over the next five years.
“These requirements are motivated by the industry’s desired output levels given the existing policy environment.
“The industry continues to face challenges in mobilising the desired capital, thus the bulk of the US$3,8 billion remains outstanding on the back of an illiquid domestic financial market.
“Of this, US$1,2 billion is required for ‘stay-in-business,’ while $2,6 billion is for developmental investments,” explained Mr Kwesu.
Platinum requires US$2,8 billion to produce 22 tonnes annually by 2020 and gold requires US$600 million to produce 30 tonnes by that same point. Coal requires US$420 million to produce18 tonnes, chrome needs US$38 million to produce 1,3 million tonnes and nickel will have to get US$28 million to produce 27 tonnes.
Meanwhile, gold exports are expected to rake in US$772 million this year from US$737 million a year ago, with output increasing by four tonnes from a year earlier to 24 tonnes, the Chamber of Mines of Zimbabwe has said.
Local gold producers are favoured by the low-cost nature of mining here, where deposits are generally closer to the surface.
Chamber of Mines chief executive Mr Isaac Kwesu said last week ZimGold, an initiative run by the Reserve Bank of Zimbabwe through Fidelity Printers and Refiners, is likely to spur output.
Under the Gold Mobilisation Programme, the RBZ and Zimbabwe Mining Development Corporation are facilitating both contract gold mining and own-gold mining.
According to Mr Kwesu, GMP will focus on harnessing low-hanging gold resources, with particular emphasis on alluvial and prolific reef deposits. Bulk open pit mining and old previously underperforming assets will also be targeted to enhance gold deliveries.
“Gold output is expected to increase largely benefiting from deliveries from small-scale producers under the Gold Mobilisation Programme, as well as anticipated production ramp up by large-scale primary producers.
“This is part of efforts by the central bank to accelerate production to ensure that gold drives the economy’s mineral export revenue in the next five years.
“Gold exports are set to increase by close to 10 percent from US$736 918 836 last year to US$771 600 000 and the production is likely to improve from 20 023 kilogrammes to 24 000 kilogrammes this year,” he said.
The central bank has mobilised US$50 million for accelerated gold production.
The RBZ treats gold miners who produce more than 1kg per month as large-scale producers.
Chamber of Mines’ statistics show that the yellow metal constitutes 40 percent of the country’s mineral exports, and it contributes 25 percent of employment and 3,6 percent of GDP.
Small-scale miners contribute significantly to gold deliveries.
Primary large-scale producers accounted for 54 percent of gold output in 2015 compared to 65 a year earlier, while small-scale producers improved their contribution from 9,6 percent in 2014 to 10,3 percent in 2015.
Survey findings indicate that 75 percent of the gold producers operate underground mines. Forecasts suggest that gold producers require US$601 million to produce 30 tonnes of gold by 2020, of which US$410 million will be for working capital requirements and the rest for investments.
Added Mr Kwesu: “The industry continues to face challenges in mobilising the desired capital, thus the bulk of the US$601 million remains outstanding on the back of an illiquid domestic financial market.”
Zimbabwe’s top 10 large-scale producers – Metallon, Freda Rebecca, Blanket Mine, RioZim, Matebeleland Minerals, John Mack and Company, Forbes and Thompson, Pan African, Falcon and ZMDC – accounted for 95 percent of gold output in 2015, compared to around 90 percent in 2014.
Finance Minister Mr Patrick Chinamasa said in the 2016 National Budget the mining sector was likely to register strong performance despite depressed international mineral prices, waning demand in export markets, power shortages and financial constraints.

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