Tawanda Karombo Harare
ZIMBABWEAN Finance Minister Patrick Chinamasa’s announcement that royalties on gold would be cut from 7 percent to 5 percent showed the government recognised challenges affecting the sector, executives in the country’s mining industry said yesterday.
Despite operational constraints and concerns over the regulatory framework, most of the major mining companies with interests in the country – such as Rio Tinto, Impala Platinum, Metallon Gold, Caledonia Mining Corporation and Anglo American Platinum – have committed to support their Zimbabwean operations.
Chinese and Russian investors are increasingly warming up to the idea of investing in Zimbabwe, which experts say is being shunned by Western investors because of its high country risk profile mainly stemming from a controversial policy compelling foreign-owned companies to cede majority control into the hands of black Zimbabwean groups.
Although there has been some interest by Chinese and Russian investors, existing investors have previously complained of the high royalty and tax regime in Zimbabwe.
However, Chinamasa announced last week a cut in the royalty payable by gold producers from 7 percent to 5 percent.
The move, the minister said, was intended to provide a respite for struggling bullion producers.
“We have actively engaged with government on this issue and it is very pleasing that – in a spirit of understanding and co-operation – it has recognised the challenges inherent in the gold mining industry at present,” said Kalaa Mpinga, the chief executive of pan-African resources group Mwana Africa.
The mining sector in Zimbabwe is now expected to contract this year despite earlier being identified as one of the pillars to which President Robert Mugabe’s government would turn to stave off a looming economic meltdown.
“In 2014, the mining sector was initially projected to grow by 10.7 percent, largely driven by anticipated increased output for nickel, coal, gold and diamonds,” Chinamasa said in his medium-term fiscal policy review statement last week.
However, Chinamasa added, “weak international prices for some minerals, frequent power outages, obsolete equipment and inadequate funding for recapitalisation undermined the performance” of the sector during the six months to the end of June.
These factors had necessitated a downward revision of sector growth to a contraction of 1.9 percent for 2014.
Mwana Africa owns a majority stake in Freda Rebecca gold mine, while Mzi Khumalo’s Metallon Gold owns five bullion producing mines, making it the biggest gold producer in Zimbabwe. The other major gold producer is Toronto-listed Caledonia, which owns the Blanket gold mine in the south of the country.
“The reduction in the gold royalty rate will provide a welcome financial boost to Freda Rebecca and Mwana (Africa),” added Mpinga. Mwana Africa is listed on London’s AIM, has a diamond property in South Africa, gold and cobalt interests in the Democratic Republic of Congo, and also owns a nickel operation in Zimbabwe.
Ian Saunders, the chairman of the Gold Producers Committee, an arm of the Zimbabwe Chamber of Mines, had earlier said the high royalty on gold producers was adding to costs.
This year Zimbabwe had produced about 8.8 tons of the precious yellow metal by the end of last month, according to Chinamasa’s medium-term fiscal policy review statement.
An executive from a gold producer in Zimbabwe said on Friday: “Production is happening but operators have concerns that they want addressed and the finance minister left out some of these.
“But we look set to miss this year’s target [of 15 tons] and it’s bad for the industry when we fail to have growth in output as it shows that problems are mounting.”
Local media quoted Saunders as saying yesterday that gold producers in the country had been “pleased” that the government had announced “some relief in the royalty rate”. However, he added that the government needed to address electricity outages, which were hobbling the mining and the other productive sectors in Zimbabwe.