THE role played by the mining sector in Zimbabwe cannot be overstated.
The sector accounts for about 12% of the country's gross domestic product (GDP) and 80% of national exports, official data show.
It contributes over 20% to government revenue and employs more than 38 000 formal jobs and over 500 000 artisanal and small-scale miners.
However, despite its significant contribution, the sector faces numerous challenges that require urgent attention to unlock additional value.
These include uncertain tax regimes, frequent power outages, capital constraints, foreign currency shortages, loss of value on the surrender portion of export proceeds, and high production costs, among other challenges.
Blackouts
Mining is an energy intensive industry, and a constant supply of power is required to keep operations functioning efficiently.
The companies use electricity to power most of the underground equipment and to hoist ore, waste and employees to surface. Electricity is also used to run metallurgical plants.
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Operating an underground mine relies heavily on electricity.
Mining companies, specifically those not connected to dedicated power lines, continue to face power outages in Zimbabwe, resulting in production shortages and output losses.
The quality of power is also reported to be poor resulting in damage to electrical plant and equipment, according to Chamber of Mines of Zimbabwe (CoMZ) president Thomas Gono.
In addition, responses to reports on faults are slow resulting in extended periods of down times.
"To keep our workers safe and ensure production stays on schedule, a consistent source of electricity is required," Caledonia Mining Corporation, which runs Blanket Mine, said in an environment, social and governance report for 2023.
"Relying on the national electricity supplier, however, presents a challenge: the shortfall in electricity generating capacity in Zimbabwe means that power from the grid has been subject to load-shedding for many years, and Blanket has had to rely heavily on diesel generators to supplement electricity from the grid.
"This has adversely affected the costs of production and led to increased greenhouse gas emissions."
Power shortages have a substantial impact on the productive sector, leading to lower economic growth and reduced household incomes.
The World Bank estimated that power supply shortages cost Zimbabwe about 6,1% of gross domestic product annually.
Uncertain tax regimes
The Association of Chinese New Energy Miners advocated for a clear and stable tax framework in Zimbabwe during a recent CoMZ conference, arguing that this was essential for building confidence and driving long-term investments in initiatives that promote value addition.
The association said, while ensuring that the nation benefits fairly from its resources, “we must also create a conducive environment that encourages investment and innovation”.
Streamlined regulations, transparent tax regimes and supportive governmental policies can pave the way for sustained growth.
It also said clarity and stability in taxation policies will instil confidence and encourage long-term investments in value-addition initiatives.
The association also indicated that the imposition of “unfair” special capital gains tax was detrimental to their operations. The government is charging 20% capital gains tax of the proceeds on transfer of a mining title.
Platinum miner Zimplats indicated in its preliminary final report for the year ended June 30, 2024, that the fiscal legislation in Zimbabwe was volatile, highly complex and subject to interpretation.
"From time to time, the group is subject to a review of its historic income tax returns and in connection with such reviews, disputes can arise with the Zimbabwe Revenue Authority over the interpretation and/or application of certain legislation," it said.
"Significant judgement is required in determining the provision for income taxes due to the complexity and differences of interpretation of fiscal legislation, and application which may require determination through the courts."
The company said there are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.
Winston Chitando, Minister of Mines and Mining Development, told the same conference that the government was creating an enabling environment that promotes investment, innovation, and transparency.
This, he noted, includes streamlining regulatory processes, addressing infrastructure deficiencies, and providing fiscal incentives to attract both domestic and foreign investment.
High energy tariff
According to CoMZ, high electricity tariffs are choking the mining industry. The chamber said the increase in electricity tariffs to USc14.21/kWh in October 2023 had a profound impact on the overall cost of production in mining.
"Compared to our peers in the region and in other major mining jurisdictions, the electricity tariff for Zimbabwean mineral producers is very high," Gono said.
"Our appeal is for a downward review of tariffs particularly at this time when mineral commodity prices are depressed.
Isaac Kwesu, chief executive officer at CoMZ, told the Zimbabwe Independent recently that the tariff hikes had severely impacted power-intensive industries, particularly chrome mining.
He called for the government to reconsider its position, highlighting that the new tariffs were unsustainable for the mining sector.
“The increase in electricity costs consumes on average 20% of mining companies’ stay in business capital budgets, which are largely funded from retained earnings,” Kwesu said.
“As a result, implementation of capital projects has generally been curtailed due to cash flow shortages."
He said the electricity tariff for mining companies, which went up by 44%, was unsustainably high and had resulted in an increase in the overall cost of production for the mining industry of around 15%.
“The situation is worse for intensive users including the ferrochrome industry where electricity costs constitute 50% of the total cost of production," the CoMZ chief noted.
He added: “With prices for most key minerals significantly coming down in the past 18 months, the viability of mining companies has been severely compromised with marginal mines struggling to break even. The tariff also compares unfavourably to regional averages, which are around US$,08/KWh."
A recent World Bank report titled Electricity Growth Through Reliable and Universal Energy Access noted that self-generated electricity is far more expensive than grid electricity, rendering firms uncompetitive.
Foreign exchange shortfalls
Many operations are facing foreign currency shortfalls to meet their operational requirements. The economy has witnessed increased usage of United States dollars, putting pressure on the available retained export earnings.
Capital constraints
The sector also noted that the funding gap to optimise operations and meet output targets of the mining industry remains huge. Most mining houses are struggling to raise offshore funding and are relying on internally generated resources (retained earnings).
With softening mineral prices, the retained earnings have become limited. This has led to deferment of capital projects with negative implications on long term growth of the mining industry, CoMZ noted.
Commodity prices softening
Prices for most key minerals were predominantly subdued in 2023 on the back of sluggish global economic recovery, weak Chinese industrial sector, and ongoing geo-political tensions.
These factors introduced uncertainty in commodity markets. Gold prices, however, traded at historical peaks in 2023, largely driven by safe haven demand amidst global uncertainty.
"In the outlook for 2024, commodity markets are expected to remain depressed as the prevailing conditions are anticipated to persist for the rest of 2024," the CoMZ president said.
Due to depressed world metal prices, the country missed its mineral revenue and volume projections in the first half of the year, according to the Minerals Marketing Corporation of Zimbabwe.
The organisation reported that the country sold 1,9 million metric tonnes of minerals (excluding gold and silver), valued at US$1,5 billion, falling short of its target of two million mt valued at US$2,03 billion.
This represents a 6% volume miss and a significant 26% revenue shortfall.
Economist Stevenson Dhlamini said the missed revenue and volume projections for Zimbabwe’s mineral sales would result in reduced foreign exchange reserves, diminished government revenue, limited public expenditure, decreased economic activity and potential investment setbacks in the mining sector.
Royalties for PGM, diamond and lithium
Gono said royalty for platinum, diamond and lithium remain high, increasing the cost of production and impacting negatively on the viability of mining projects. With mineral prices on a downward trend, the viability situation in the mining industry has been severely compromised, he noted.
Forex retention
Mineral exporters face difficulties due to foreign currency retention requirements, exacerbated by significant disparities between parallel-market and official exchange rates, leading to smuggling.
In February 2023, the government raised the foreign exchange retention rate for mining companies from 60% to 75%. However, a new requirement for mining companies to pay electricity bills in foreign exchange effectively reduces retention to between 60% and 65%.
Central bank governor John Mushayavanhu told miners at the CoMZ conference that the 25% surrender requirement was “here to stay” as it remained critical to support economic transformation and development.
Mining companies have been lobbying the government to reduce surrender requirements to 20% or less, arguing it was constraining their ability to cater for capital needs.
Mitigating setbacks
To address some of these challenges, Chitando said the mining industry must harness the power of technology and innovation to optimise mining operations and enhance productivity.
He said the Fourth Industrial Revolution presents unprecedented opportunities to improve efficiency, reduce costs, and mitigate risks in the mining sector.
"By embracing digitalisation, automation, and renewable energy solutions, we can create a more resilient and competitive mining industry," the minister said.
To offset mineral price volatility, he underscored the need for a diversified and resilient approach to the mining sector, especially in the platinum group metals (PGMs) subsector.
"We must move beyond simply being price takers in the global market. By investing in exploration, mine efficiency improvements, and value addition capabilities, we can strengthen our position and mitigate the impact of external fluctuations," he noted.
"Collaboration with research institutions to develop innovative extraction and processing techniques can further enhance our competitive edge."
Experts said the country should move towards mineral beneficiation to minimise such risks.
“Our economy remains highly dependent on primary products both in agriculture and mining. This means we are vulnerable to exogenous price and demand movements. A reduction in mineral earnings starves the fiscus of taxes and also can lead to job losses in the sector,” said economist Vince Musewe.
“We must rapidly move toward beneficiation so that we retain value in the country and export finished products whose price we can set.
"This has been the call from some of us for many years. A deliberate and focused strategy to transform our mining sector remains an urgent and important matter.”
Some mining companies have invested in solar energy to mitigate against power outages.
For instance, Blanket Mine invested about US$14 million in a solar plant, while Zimplats is constructing a 35 megawatt (MW) solar power plant for US$37 million.
Investments in the sector soar
Despite operating in a challenging environment, mining companies have lined up capital investment projects totalling US$455,8 million to boost production capacities, according to the CoMZ 2023 report.
These investments are in the platinum group metals, gold and lithium sectors.
In addition to these future projects, mining firms have already invested more than US$1,5 billion in capital projects over the past three years, showcasing the sector’s resilience and determination to thrive.
Opportunities
The Zimbabwe Investment Development Agency (Zida) said the vast mineral deposits in Zimbabwe, including lithium and gold, present a unique opportunity for both local and international investors.
With the increasing demand for lithium-ion batteries used in electric vehicles and renewable energy storage, Zimbabwe's lithium sector is experiencing a significant boom.
This presents an opportunity for the country to become a key supplier of lithium to meet the growing global demand.
Furthermore, the presence of over 4 000 recorded gold deposits, most of them located on ancient workings, highlights the untapped potential of Zimbabwe's mining sector.
These deposits offer opportunities not only for large-scale mining operations but also for small-scale miners who can contribute to the country's economic growth.
"There are huge investment opportunities in retooling, exploration, extraction, and beneficiation in the mining industry," it said.
Besides direct investment in mining, there is a significant opportunity to provide heavy underground mining machinery and other supplies, as well as transportation infrastructure and materials, including railways, and bespoke power generation alternatives, according to Zida.
Zimbabwe’s mining sector is highly diversified, with close to 40 different minerals.
The predominant minerals include PGM, chrome, gold, coal, lithium, and diamonds.
The country boasts the second-largest platinum deposit and high-grade chromium ores in the world, with approximately 2,8 billion tonnes of PGM and 10 billion tonnes of chromium ore.
