Zimbabwean miners see a US$10bn funding hole over the next five years

Zimbabwe mining

A capital shortfall of US$10 billion over the next five years will limit Zimbabwean mines’ ability to build on better commodity prices expected this year, the Chamber of Mines says.

Gold and platinum producers will drive Zimbabwe’s mineral earnings to US$5.5 billion this year, up from US$2.7 billion last year, as companies ramp up production and feed off higher metal prices.

“In 2022, favourable commodity prices are expected to spur Zimbabwe’s mining sector performance,” the Chamber projects in its latest commodities outlook report, citing a survey of miners that showed most operators plan to increase output this year.

“The gold and PGMs sectors are the main growth pillars for the mining sector in 2022. The mining industry is expected to generate approximately US$5.5 billion in 2022, underpinned by strong performance in gold, US$2.1 billion, palladium, US$1 billion, diamond, US$0.8 billion and US$0.6 billion.”

But the lack of capital is likely to curtail growth over the next five years, the Chamber warns.

“The downside risks to the above projections include an erratic power supply resulting in production disruptions, capital shortages with a funding gap exceeding US$10 billion for the next five years, exchange rate volatility and widening parallel exchange market premiums, and foreign exchange constraints,” the report says.

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Mines: Not digging forex policy

Zimbabwe has some of the most attractive mining assets on the continent, but has failed to attract large scale investment mainly due to its poor currency policies.

Miners can keep 60% of their export earnings, but the other 40% must be sold to the Reserve Bank of Zimbabwe at the official rate. Because that formal rate is overvalued – the open market exchange rate for the US dollar is now close to double the official rate – exporters are losing value.

“Mining houses are losing more than 50% of the value of the surrendered portion of export proceeds that is liquidated at the official auction market rate at a time they face local input costs priced at premiums more than the parallel market rate,” the Chamber says.

“This situation is resulting in loss to mining companies translating to at least 20% of gross revenue This is impacting negatively on the viability of mining companies.”

As costs rise, the pressure on the 60% that mines can keep is rising. Up to 30% of that money is going to pay for local taxes and power, and this leaves miners without enough funding for equipment, consumables and capital projects for expansion.