The Sunday Mail
GOVERNMENT has put paid to mounting speculation that it will likely review platinum royalties to align them with the declining prices of the white metal on the international market.
Market rumours suggested that a downward review was imminent after Finance and Economic Development Minister Patrick Chinamasa told Parliament on September 17 that Government was working on a royalties review to ensure mining houses do not collapse.
Responding to a question from Zvishavane-Ngezi legislator Mr John Holder on whether the platinum sector was likely to get the same intervention made to save gold producers, Mr Chinamasa intimated that this was likely.
“The issue of falling commodity prices is obviously of concern to Government because it reduces our export receipts. It also reduces naturally the revenues to Government.
“In order to take account of viability of mining houses, it is a matter we have to look into so that we link up what we charge in royalties and taxes to falling commodity prices with a view to ensure that mining houses do not collapse on the burden of falling prices and taxes. But, that is an exercise which is complex. We have already started working on that exercise and we will be able to announce to the House when we have completed that exercise,” he said.
The Fiscal Policy Review of September 11, 2014 slashed royalties for big mining houses from 7 percent to 5 percent, while the presumptive tax for small-scale gold producers was reduced to 2 percent.
The reduction takes effect on Wednesday.
Before the dispensation, Zimbabwe had some of the highest royalties in the region.
South Africa’s royalties are capped and cannot exceed 5 percent for refined mineral resources and 7 percent for unrefined minerals. Angola’s royalties are pegged at 5 percent.
Deputy Minister of Mines and Mining Development Engineer Fred Moyo said last week though other miners sought a downward review, the gold case was more compelling.
He also noted that while platinum prices have been falling, the rate has not been as sharp and adverse as gold.
“The point is that we have different mineral sectors: the gold sector has issues affecting it and we have platinum; it has its own issues and the same applies to chrome.
“The issues they face are both internal and external. The internal factors include their contribution to the national economy, then to the companies themselves. You have got the external issues such as the fact that some of these minerals do not occur all over the country like gold.
“The other factor we considered is that gold is basically a mineral that anchors our currency. If we want to borrow, we can borrow against gold reserves; gold is accepted internationally, but you can’t say the same for platinum,” said Eng Moyo.
According to Eng Moyo, gold is easily available locally – especially to small-scale miners – and has huge potential to create employment in communities where it is available.
“We therefore had to empower them (communities with the royalty reduction). We also see gold as a growth mineral for our people because gold deposits are small and we want to nurture the sector given its criticality to our fiscal planning.
“Again, any country that has gold accepts that it is the most consistent mineral; it has outlived all other minerals which come and go or they are affected by this and that challenge, but gold has been consistent.
“Technology for gold mines is also not compared to the modern and world class technology for platinum.
“If you go underground, you find that it is people with picks and shovels. So it is labour-intensive and undercapitalised, and by reducing the royalties, we are trying to assist the sector to recover,” explained Eng Moyo.
Gold prices since last year have been experiencing a battering on the international market, plummeting from an all-time high of US$1 907 realised in 2011.
Last year, prices of the yellow metal ended a 12-year bull run by dropping 28 percent, the largest annual decline since 1981.
Since the global financial crisis precipitated by the sub-prime mortgage crisis in the US in the latter part of 2007, portfolio investments had targeted gold as a hedge, as the bond-buying programme by the US federal reserve made the dollar unattractive.
However, as the federal reserve scales back its programme, investments have naturally been shifted to the US dollar.
This has left the gold sector reeling.
The spectre of a catastrophe in the gold mining sector became real after Dalny Mine, which is owned by New Dawn Mining Corporation, shut down in September 2013.
As such, gold producers cheered the royalty review.
Mwana Africa chief executive officer Mr Kalaa Mupinga said recently “the reduction in the gold royalty rate will provide a welcome financial boost to Freda Rebecca and Mwana”.
Mwana Africa has a 85 percent interest in and operates the Freda Rebecca gold mine in Bindura.
Conversely, although platinum prices have been dropping, the decline has been relatively marginal.
Last year, platinum prices slid 11 percent. This year, prices of the white metal have only retreated 5 percent as demand for the metal improves and supplies from South Africa, the world’s largest producer, were affected by labour disputes.
Added Eng Moyo: “So you can see which mineral needs support. Most of the gold mines are not even serviced by national infrastructure. Try going to some of these small mines and you will find that there are no roads and power, and when you have done five tonnes, you have to look for a tractor which will go 20 kilometres in the bush trying to go to the next mill which is running on a generator.
“These are cost structures which are difficult for gold miners. This is not to say other minerals are not important, but their environments are different and that is what allows us to look at gold slightly differently from other minerals.
“The gold sector has consistently presented its case for viability and it is fully justified, and I don’t think other minerals are going to present the same case.
“But get me right, I don’t want platinum miners to make losses but they are not in the same dilemma as gold miners. And remember this softening of royalties and presumptive tax, if you check the language, was more targeted at small-scale miners . . .
“The platinum sector has presented its case, the chrome people have also presented their issues and they are being looked into; the coal sector would like to be assisted to export coke and coal and so on and so on, but we can’t attend to them all at once because Government needs some revenue as well. We have to do it carefully so that we don’t hurt Treasury.”
Government believes local platinum producers stand in good stead compared to their South African peers because they have better cost structures.
