2021: The miners are digging it, what could go wrong

30 Oct, 2020 - 00:10 0 Views

eBusiness Weekly

Kudzanai Sharara

Very few people, if any, would argue against the conclusion that the year 2020 is one to quickly forget.

Globally, the coronavirus pandemic has decimated economies, livelihoods and lives. 

The global economy is projected to contract by 4,4 percent in 2020, according to the International Monetary Fund (IMF).

The International Labour Organisation (ILO), in its latest report released this past September, said labour income losses around the world amounted to $3,5 trillion and undoubtedly this has a significant impact on livelihoods.

The World Health Organisation’s  (WHO) (Covid-19) Dashboard on Wednesday showed that the disease had claimed 1 160 650 lives amid a resurgence in cases with some European countries such as France going under lockdown for the second time.

It has been the same locally. While confirmed cases have not been as high as initially feared, the economy, livelihoods and lives have been destroyed by the pandemic.

When Covid-19 knocked, the local economy had its own issues, which were naturally worsened by the pandemic.

A depreciating currency, rampant inflation, which reached a record 837 percent, left many barely affording a decent meal or access to health among other issues.

Like any medicine to cure, the measures put in place to arrest runaway inflation and a falling exchange rate, were found to be bitter by many.

Metaphorically, 2020 was a write off to many and sentiment is that while 2021 will see some growth, the ascent will likely be long, uneven, and uncertain.

The recovery “is not assured while the pandemic continues to spread,” the IMF said in its latest global economic analysis.

Economies everywhere face difficult paths back to pre-pandemic activity levels,” the global lender said.

The same can be said for Zimbabwe. While Finance and Economic Development Minister Mthuli Ncube is optimistic that the local economy will rebound by 7,4 percent next year, there is also possibility that things could go south.

The mining sector, which on Wednesday presented the “State of the Mining Industry Report” for 2020, shares Minister Ncube’s optimism when it comes to economic prospects for 2021.

According to the Report, the Mining Business Confidence Index for 2021, which measures the mining business sentiments (optimism or pessimism) about the prospects of the mining industry in the next 12 months stood at +3,1 — an improvement from +2,2 recorded for 2020.

The optimism by the sector is premised on mining sector growth prospects, profitability prospects, investment plans; employment prospects, as well as international commodity market outlook.

In terms of growth, most mines (90 percent) are planning to ramp up production in 2021 while 10 percent expect to remain the same. Much of this growth is expected to come from the gold (32 percent), chrome (33 percent) Coal (25 percent) and the diamond sector (19 percent.

The mines will also operate at almost full throttle, with capacity utilisation of 80 percent said to be at a 5-year high and a significant improvement from 61 percent this year.

The miners are also expecting better rewards for their efforts, with 70 percent of respondents indicating that they are projecting their businesses to be more profitable compared to 2020 while 20 percent are expecting same level of profit as in 2020.

Only 10 percent, mostly in the base metals industry are projecting losses citing the possibility of Covid-19 related challenges including depressed markets and logistical disruptions to persist in 2021.

Survey findings show that notwithstanding issues surrounding access to capital, mining executives are optimistic about the possibility of Government resolving the matters and 60 percent of the respondents indicated that they would inject more capital in their businesses than they did in 2020.

In terms of employment prospects, 20 percent are planning to recruit more labour in 2021 while about 10 percent are planning to shed off some employees.

The remainder of 70 percent of the respondents indicated that they would maintain the same number of employees in 2021 as was the case for 2020.

All that glitters is not gold

The above aphorism states that not everything that looks precious or true turns out to be so. While the miners have expressed optimism in the year ahead, they also pointed out that things could go the other way if certain issues are not resolved.  The Mining Business Confidence Index itself is still far off the heights of 21,9 that it reached at the end of 2017 meaning there are still some inherent issues.

The long drawn issue of foreign exchange retentions remains a spot of bother for miners. All respondents underscored the need for further upward review in the retentions from the current 70 percent to between 80 percent and 100 percent. 70 percent of the miners prefer to get 100 percent of their earnings in foreign currency then meet all their local obligations in foreign currency while 30 percent of the miners want to retain 80 percent in forex and be allowed to meet statutory obligations in line with the obtaining foreign exchange retention framework.

The miners say this will allow them to meet emerging demands for forex including payments for electricity bills, royalty, fuel, EMA fees and RDC charges as well as payment for other local supplies where there is now “widespread preference for US dollars following Government policy that allows charging in both forex and local currency.”

The miners also expressed concern on the time limit of 60-days for compulsory liquidation of unutilised Nostro balances arguing that it is not in line with production cycles in the mining sector and that the Covid-19 situation has not entirely improved.

Survey findings show that about 40 percent of respondents are looking forward to the removal of the compulsory liquidation time limit, while another 60 percent are expecting authorities to align the liquidation time limit to production cycles.

Payments for gold deliveries to Fidelity Printers and Refiners was also noted as another challenge with almost all gold producer respondents indicated that they were facing payment delays for gold deliveries   resulting in input shortages and production disruptions.

In 2021 all gold producers are looking forward to an improvement in payment turnaround in line with the agreed turnaround with the Reserve Bank of Zimbabwe of not more than 7 days.

On their part coal producer respondents indicated that they are facing prolonged payment delays for coal delivered to ZESA highlighting that the delays are resulting in working capital constrains and coal supply shortages impacting negatively on the power supply situation in the country.

In 2021, all coal producers are expecting Zesa to honour its commitment and pay timeously to minimise coal supply constraints.

Also a challenge for miners are difficulties in mobilising capital. Majority of respondents (90 percent) indicated that they are facing difficulties in raising capital for both sustenance and ramp up. About 80 percent reported that they put on hold some of their planned projects in 2020 due to capital shortages.

The following supportive measures were cited as key for the recovery of mining companies to pre Covid-19 levels:

Timely payments for gold delivered to Fidelity Printers and Refiners.

Tax exemptions for Covid-19 related expenditures.

Duty exemption of Covid-19 related imports. Increase foreign exchange retentions to allow mining companies to accommodate Covid-19 related imports.

Eliminate border delays in importation of mining spares and consumables as well as Covid-19 imports.

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