Wednesday, May 5, 2010

Zim mining industry still struggling, says Chamber

Zimbabwe Business Media
Bulawayo, Zimbabwe

27 April 2010 - Severe power cuts, the unavailability of cash loans from capital lending institutions and foreign investors anxiety about the country's controversial indigenisation laws are some of the factors negatively impacting on the revival of production in Zimbabwe's mining sector, the Chamber of Mines says.

Chamber of Mines president Victor Gapare told local media that it was largely due to these and other factors that the country had still recorded a marginal increase in monthly gold output from 487.8 kilogrammes in February to 661,8 kilogrammes in March, representing a 30 per cent increase.

He said it will take time for the mines to start producing on average because of several negative factors, key among them the power crisis, a lack of operating capital and growing investor anxiety over the indigenisation law.

“The mines are suffering from severe power cuts and it is impossible to produce without power. Banks just don’t have capital to lend to mining businesses at the moment.

"Even equity investors are hesitant about investing in the country at the moment as they await finalisation of indigenisation and economic empowerment matters,” Gapare said.

However, Gapare said the March increase was so far the highest the country had recorded after the January and February records and could be attributed to the slow build up of production capacity at some mines around the country.

“Production for March is the highest monthly production recorded for the year to date. This is attributed to continuous investment in rebuilding production capacities. This investment is from revenues generated from production.”

Mines and Mining Development minister Obert Mpofu told The Business Diary that unlike the manufacturing sector which got a US$500 million bail-out loan from state coffers, government has no immediate rescue plan for the mining sector.

"The mining sector should be able to solve some of the cash problems they face progressively. Of course, there are such issues as power, for which government is responsible. We have many plans for the revival of power stations and the capitalisation of the operational ones.

"But again these are facing funding problems, so there is no easy way out except to work out things progressively as the state accumulates enough capital to fund its power generation project," Mpofu says.

The Bankers Association of Zimbabwe (BAZ) has stated that financial institutions are not yet ready to give out the long term capital needed by mining houses and industry because they are in a liquidity crisis on their own.

Analysts say the country's growing political and investment risk ratings can be attributed to political undercurrents, particularly the writing of a new consititution, which process should be followed by elections in which the parties in the unity government will turn against each other in a potentially disastrous fight for political survival.

"Banks are still in a crisis but not so much that they cant lend. But in every bank, all risk analysts tell you that it is not yet time to lend on the long-term because, as provided for in the Global Political Agreement that brought about the unity government, Zimbabwe will hold elections upon the conclusion of the current constitution-making process.

"President Robert Mugabe has already said that elections will take place regardless of whether the country fails or suceeds in crafting the new constitution.

"So that means elections within the next 24 or so months and we all know what an economic disaster elections have always been for this country. The red banner is out, and the banks have seen it," said Nyoni, an economic analyst from the National University of Science and Technology (NUST) in Bulawayo.

Zimbabwe is struggling to increase gold output to at least 10 000 kilogrammes annually in order to be readmitted to the London Bullion market. In 2008, the country recorded the lowest output of 3 100 kilogrammes as the majority of the country's mines closed down because of the economic crisis. Last year, there was a marginal increase in output to 4 2 00 kilogrammes.