Some Zimbabwean mining companies have halted expansion projects due to lack of capital with most financiers now demanding offshore collection accounts as guarantor for funding citing high country risk profile, the Chamber of Mines has said.
In the gold sector, investors are insisting on gold output as security for capital, the industry lobby group said in the report, prepared for Government earlier this month.
The sector, expected to underpin Zimbabwe’s economic turnaround, generates about 70 percent of its foreign currency from exports mainly from gold, platinum group metals and ferrochrome.
Zimbabwe owes various international creditors about US$8,3 billion and recently had its appeal for an emergency bailout to the Paris Club rejected for lack of policy reforms.
This week, the Government agreed to pay former white commercial farmers about US$3,5 billion for land improvements, in a move some analysts say may help mend relations between Zimbabwe and the international community.
“Mining companies are struggling to raise capital due to increased country risk,” the Chamber of Mines said.
“This has seen most expansion mining projects put on hold as financiers are demanding offshore collection accounts as guarantor for capital.”
Last year, Zimbabwe launched a roadmap expected to grow the mining industry to US$12
billion by 2023, but critics say the target is unrealistic.
In the petition, mining firms also want foreign currency retention threshold from exports raised to at least 80 percent and to be allowed to keep their excess nostro balances beyond the stipulated 30-day period.
The Chamber of Mines noted the current foreign exchange framework for the industry was characterised by inadequate foreign exchange retentions, uncompetitive price for the surrendered portion and the short 30-day compulsory liquidation of unutilised nostro balances.
Mining firms are allowed to keep up to 55 percent of their foreign currency earnings and the remainder is liquidated in local currency at the official rate.
However, with the introduction of the auction system, companies can voluntarily liquidate their forex.
“Foreign exchange retentions for the mining sector are inadequate to meet regular operational requirements including importation of critical raw material supplies,” said the Chamber of Mines.
“The situation has been exacerbated by requirement to pay for electricity bills, royalty and other taxes in foreign currency which have significantly reduced the effective retention from around 50 percent to around 30 percent.”
The mining board said there was a misalignment between compulsory liquidation of unutilised foreign currency and production cycles of mining companies.
It said the working capital cycle for mining companies average between 60 to 90 days, ordinarily implying that mining companies may require excess balances in their nostro accounts beyond 30-days.
Some mining companies that experienced production disruptions caused by Covid-19 might have seen increase in excess balances in their nostro accounts.
“These balances remain strategic as decoupling cash reserves to augment working capital requirements to meet expansion in capacity utilisation in line with improvement in the Covid-19 situation.
“It is against the above that mining companies are appealing for an upward review in time limit in line with production cycle.
“While we appreciate that the reintroduced auction system may see some mining companies to voluntarily offloading their excess balances, we appeal to the Government to guarantee minimum working capital cycle for sustenance and expansion projects,” said the industry lobby group.
It said gold producers continue facing payment delays for deliveries to Fidelity Printers and Refiners, the sole buyer of the commodity, of up to eight weeks.
This has resulted in working capital shortages and production disruptions, weighing down potential gold output to as much as 25 percent.
Miners are also worried about the “fragile” and “unstable” power supply situation. With production levels expected to increase, demand for power may result in power cuts.