ONE of the key strategies to plug mineral leakages is correctly pricing metal commodities in line with international prices, respected engineer and mining expert Sharrydon Bright Chinosengwa (SC) this week spoke to The Financial Gazette about the potential the mining sector has to revive the country’s economy which is on a steady recovery. He also spoke about the challenges the sector was facing and how they can be addressed.
FG: Zimbabwe wants mining companies to step up investments in agriculture covering both livestock and crop production. Some of the miners have already ventured into livestock production and the authorities are looking to expand the investments into other areas in the sector. What is your comment on this move?
SC: According to the Reserve Bank of Zimbabwe, for the past few years, the mining and agriculture sectors have been contributing close to 90 percent of the export shipments. The contribution to GDP and the percentage of the population employed in these sectors is quite significant for the country. Large mining companies should therefore be encouraged to support local agricultural activities through Corporate Social Responsibility initiatives.
FG: Finance minister Mthuli Ncube says the government is seized with plugging mineral leakages, which threaten economic growth. This comes as the mining sector is expected to grow by 11 percent this year, on the back of firm demand and commodity prices. How best can the government achieve this goal?
SC: One of the key strategies to plug mineral leakages is correctly pricing metal commodities in line with international prices. This will to a large extent de-incentivize any mineral smuggling. According to the National Risk Assessment report, gold is the main mineral involved in smuggling and illicit dealings. To achieve this goal of a 11 percent growth, the government can hinge strategies on boosting production and strengthening regulations to plug mineral leakages. Payments for gold deposits to miners should be made readily available. Furthermore, 100 percent retention of sales proceeds in foreign currency especially for small-scale miners should continue to be prioritized. The recent changes whereby prices are now being determined in line with the global market prices is also a step in the right direction. On-going National Gold Monitoring exercises should continue to be supported as they have shown that they contribute significantly to gold deliveries done using the correct channels. However, the monitoring exercises should also be improved and be seriously followed up at the provincial mining level after the completion of the main national exercises. And also because the borders and airports are final exit points of smuggled minerals, security and security personnel at these points, should be increased and capacitated with advanced scanners to curb leakages.
FG: Against that background, the government says mining and manufacturing will anchor economic growth next year, with its main priority on sustaining macroeconomic stability to create a lucrative environment for business to thrive. What challenges in the mining sector should be addressed to achieve this?
SC: Like any sector, mining has also been prone to challenges affecting the country which include difficulty in accessing finance, foreign currency shortages, and power inadequacies. However, addressing issues to do with policy consistency and favourable reforms which are investment-friendly should be the priority of the government for the expected growth targets to be achieved. In addition to improved policies and regulations, smuggling and other illegal dealings in the mining sector must also be addressed with urgency.
FG: Zimbabwe’s miners are confident of recovering from the setbacks caused by Covid-19 disruptions early this year and benefit from the continuing positive economic environment prevailing in the country. Which minerals were badly affected by Covid disruptions?
SC: During the Covid 19 disruptions, the government made an important decision to regard the mining industry as an essential service which meant that most mining operations continued. While this went a long way in buffering the sector against the effects of Covid 19, comparing pre-pandemic 2019 mineral production with that of 2020, export shipments by value showed a significant increase for platinum only (+46.6%), however other minerals were significantly affected, for example, gold and chrome products fell 6% and 13% respectively. Other minerals (besides diamonds) also fell 7.3%. This could be attributed to Covid 19 impacts on the sector. Because of the lockdowns, supply chain lines were heavily affected and it was difficult to acquire reagents and spare parts on time. Furthermore, staff reduction protocols to ensure adherence to Covid 19 safety measures meant production was compromised.
FG: Some exporters have given the thumbs up to planned changes to Zimbabwe’s key mining laws including the Mines and Minerals Act, the Gold Trade Act and the Precious Stones Act. What is your view on the planned changes?
SC: This is a step in the right direction as the mining regulations have largely remained unchanged for a long time hence adjustments are more than necessary. The current legislation has been criticized for a long time now, and rightly so because it does not fully answer some pertinent issues currently prevailing in the mining sector. However, these planned changes must carefully consider all stakeholders involved in mining. Any changes made must be beneficial to all mining operators. Among other issues raised by stakeholders, the current regulations do not clearly articulate the flow of taxes and royalties to the fiscus, it also does not include provisions to address the problem of mineral revenue leakages. The mining licensing processes also require attention and further refining. The planned changes should also address issues such as transparency and accountability in the mineral governance as well as the regularization of artisanal miners. Ultimately, the changes in the mining legislation must be consistent and also favourable for both international and local players.
FG: Capacity utilisation in Zimbabwean mines is next year seen jumping to 80 percent — a five-year record from 61 percent as the sector ramps up production in anticipation of firm commodity prices, a survey by the Chamber of Mines showed. Is this figure achievable?
SC: Despite the Covid-19 disruptions the ongoing global economic recovery, firm demand which favourable commodity prices which are largely expected to remain high in the short to medium term are some of the pull factors driving mining companies to forecast an increase in production in the coming years. However, because the mining sector is a capital-intensive business, in order to increase productivity, capital injection is among other factors quite vital. If access to capital improves and other challenges such as power are addressed, then the target is probably achievable. Key to accessing the capital is the continued macroeconomic stability environment that is characterized mainly by the stable exchange rate as well as stable or declining inflation.
FG: The Zimbabwe Environmental Law Association has said the 2021 National Budget must provide a clear government position on the Extractive Industries Transparency Initiative (EITI), including steps that the government will undertake to implement EITI or its local version. What is your view on this?
SC: The EITI is one of the effective tools for fighting corruption in the mineral industry. It aids in increasing transparency and accountability in the sector which brings benefits such as community benefit sharing and increased attraction of FDI. Coupled with indexes such as “Ease of Doing Business” where the country is also improving, such initiatives should be implemented as the country warms up to increased investment inflows. In addition, the completion of the much-awaited mining cadastre system which will manage mining titles in a more transparent manner will also aid in bringing a lot of sanity to the sector.
FG: The Reserve Bank of Zimbabwe expects gold exports to increase this year on the back of higher global commodity prices and favourable policies domestically. What else can boast gold production in Zimbabwe?
SC: It is no secret that small-scale miners have been producing significant amounts of gold in the past recent years, and by adequately supporting this sector, the gold output is bound to increase. However, this does not mean that the government must turn its back on the large-scale miners. If some of the concerns such as competitive gold-selling pricing, sales retention percentages, readily available cash, and equipment support are addressed, then gold production will be on the increase this year. Basic equipment such as pumps in the rainy season may go a long way in ramping up production in the wet season when most sites are unable to operate due to flooded shafts.
FG: Government recently granted a gold mining concession in the Fort Rixon area to Bravura Zimbabwe, in a move aimed at unlocking value in the sector as part of initiatives toward a US$12 billion mining industry. Do you think Zimbabwe will achieve a US$12 billion mining industry by 2023?
SC: Currently, the mining sector contributes about 12% of the country’s GDP and with a lot of untapped resources, there is greater potential for the sector to grow. The expansion of some existing mines such as Murowa and Blanket mines, as well as the resuscitation of previously closed mines such as Eureka will definitely add to the growth of the mining sector. The key to achieving this target is unlocking the mineral value that the country is sitting on. It is known that the country has huge reserves of minerals such as platinum, chrome, lithium, and diamonds. The exploitation of mineral reserves by opening mining spaces (for example granting concessions) will go a long in achieving this target. The country should also position itself to benefit immensely from the expected rise in demand for lithium as the world shifts to electronic vehicles powered by lithium-based rechargeable batteries. Explorations activities of other minerals such as rare earths and also oil and gas should continue and give the country more impetus for achieving the target. Exploration has largely been lagging in Zimbabwe hence most projects do not have delineated mineral resources that can be used to support investment and financial borrowing towards developing the projects into viable mining operations. The government’s position of granting EPOs is expected to fast-track exploration activities, however by their nature results take a long time to be released. More ways of supporting local miners are therefore required by granting a limited number of claims within the EPOs. The government is also strongly advocating for value addition and beneficiation of locally produced minerals. Going up the mining value chain is undoubtedly one of the ways to achieve the target. However, it is important to note that while the country works to achieve this target, it must be done in a sustainable manner that ultimately benefits the whole country.