No new external capitalisation for Zimbabwe mines as power, forex crunch bites
Mining companies in Zimbabwe, including units of Impala Platinum and Anglo Platinum, are expecting no new external capitalisation as the industry battles power outages amid uncertainties with foreign currency.
Zimbabwe holds the world’s second-largest reserves of platinum and chrome, while large deposits of lithium, diamond, coal and gold have attracted some investors. However, mining executives are expecting no new investment in operations.
“Mining executives are pessimistic about the prospects to raise adequate external capital citing uncompetitiveness,” notes the 2021 mining sector survey of mining chief executives and other managers. “Most mining executives whose companies are planning to expand production plan to use their retained foreign currency or forex profits to expand.”
The retained foreign currency is just about inadequate for operational requirements, say mining executives, because the central bank allows gold and platinum producers to retain only 60% of their earnings in foreign currency. About 40% of the earnings is liquidated into local currency.
The Zimbabwean mining firms are thus anticipating the fiscal regime “to remain sub-optimal” at a time when foreign currency retentions by the government are contributing to a “loss of 20% of gross export values”, leaving them unable to pay for their foreign currency cost components.
Power supply constraints have worsened the plight of the Zimbabwean mining firms. Although the government has secured additional electricity imports from the region, it is failing to pay for this upfront, according to a senior executive with the Zimbabwe Electricity Supply Authority.
“We have been talking to regional suppliers for additional electricity imports,” said Howard Choga, a senior manager and engineer with the Zimbabwe Electricity Supply Authority. “We have an offer from Mozambique for 180MW but there are conditions which basically means that we have to pay up and then we talk.”
Zimbabwe, which also imports 400MW from South Africa’s Eskom, had also secured 100MW additional electricity supply from Zambia, although Lusaka is demanding that Zimbabwe pre-pay for the supply.
“With Zesco (Zambia power utility) we have managed to secure 100MW, but they also want us to pre-pay and we already have an invoice for 100MW for the month of November,” explained Choga.
Zesco said it prioritised consumers that paid for electricity in foreign currency, but with mining companies now allowed to pay 40% of their electricity bills in local currency, supply to mines was sluggish.
Zesco said it also disconnected some mining companies that were in arrears, with the mining sector owing Zesa about US$57 million (R892m) in arrears.
Although erratic power supply and foreign currency hurdles are hobbling production, the International Monetary Fund said this week that “increased mining and energy production” would provide growth impetus to Zimbabwe’s economy.
It also projected that real gross domestic product in the country would grow by about 6%, although “uncertainty remains high” on the back of currency uncertainties and slow-paced reforms of economic and governance policies.
