Mining sector requires US$780 million in 2017 to ramp up production

Source: Mining sector requires US$780 million in 2017 to ramp up production | The Financial Gazette December 8, 2016

THE  average capacity utilisation for the mining sector increased to 64 percent in 2016 from 60 percent in 2015 and requires close to US$780 million in capital next year to further increase production.  
According to a State of the mining industry survey carried out for the Chamber of Mines, during 2016, the platinum sector continued to operate at full capacity, while gold recorded an increase to 79 percent from 77 percent in 2015. Declines in capacity utilisation levels were recorded in respect of coal which fell to 30 percent in 2016 from 30 percent in the prior and nickel which slumped to 41 percent from 55  percent in 2015.

In the first three quarters of the year, the sector generated US$1,38 billion in revenue, almost flat compared to US$1,34 billion the previous year.

“The industry, excluding diamonds, needs US$777 million to rump up production in 2017,” reads the report.

Most producers are eyeing an increase of between one percent and ten percent in production next year.

There are however concerns that the top three minerals gold, platinum and palladium accounted for 79 percent of the revenues earned this year, pointing to the need for improvement in production of other minerals as possible drops in the international commodity prices for the top earners would seriously affect the economy.

The report revealed that the miners were not in a position to award any salary increases while workers, though wishing for an improvement in remuneration, were eager to keep their jobs.

“At least 60 percent of workers in the industry want to retain their jobs even if it means accepting a wage cut,” read the report.

The industry managed to reduce the number of fatalities at the work place to 32 compared to 42 last year.

The survey also indicated that the overall Mining Business Confidence for 2017, though negative, has improved from that of 2016. The MBCI for 2017 is predicted at -14, compared to -37,9 recorded for 2016

“Notable improvements in confidence relate to investment plans, mining growth prospects, mining title, consistency and predictability, political risk and employment.” stated the report

Declines in the confidence index were recorded in economic prospects and access to capital however according to the survey while the business risk index has improved; the industry remained worried about political and regulatory risk.

The report states that the economic prospects confidence indicator for 2017 at -50 indicates pessimism about the economic prospects in 2017.

“About 66% of the mining business executives expect contraction of the economy in 2017. Another 22% expect economic growth prospects in 2017 to remain the same as 2016 while 12% expect a marginal growth in 2017,” it stated.

During the period under review the access to capital index for 2017 though negative, improved to – 10 compared to -63,6 recorded for 2016.

Prospects are that while the industry will continue to face capital shortages, the situation would not be the same as in 2016

The profitability prospects confidence indicator for 2017 stood at +11 percent, indicating optimism of profitability of mining businesses in 2017.

Compared to the 2016 index of +36,4, profitability confidence for 2017, though positive, is falling.

Survey findings show that the investment plans index at +39 reflects the increased desire by mining companies to spend more on investment projects in 2017 while  the overall index compares favorably to -23 recorded for 2016.

According to the survey the investment competitiveness index for 2017 at +3 implies that the mining industry executives are optimistic that the investment environment will improve in 2017 although it is lower than +9,1 recorded for 2016.

The mining industry is however less confident on the stability of the mining fiscal regime and consistence and predictability of mining policies.

Meanwhile the overall mineral output is expected to recover in 2016, underpinned by anticipated increases in platinum at 15 percent, palladium 16 percent , gold 10 percent and nickel 10 percent. Diamonds at -40 percent and coal -38 percent are expected to record significant output declines in 2016, compared to 2015.

The survey indicates that the overall challenges in the mining sector which include high production costs, old equipment and high power costs are expected to continue in 2017.

The survey predicted an overall need for power at 140 MW but Minister of Mines and Mining Development Walter Chidhakwa said this was far below the actual figure as the industry is actually consuming far much more than this. He said the industry needs in excess of 350MW to stay afloat. “Zimasco alone is consuming more 72 MW how about Afrochine and other companies.We needed much more than this and I’m worried about your figures .I would predict we need in excess of 350 MW to survive,” he said. FinX