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Zimbabwe Mining Report Q1 2009
Business Monitor International, March 2009, Pages: 70
The mining sector, along with every other key economic sector in Zimbabwe, continues to be affected by the strained political situation in the country. The deal in September 2008 that was intended to produce a coalition government between de facto President Robert Mugabe's ZANU-PF party and the two wings of the opposition Movement for Democratic Change (MDC) remains no closer to being implemented. The most visible reason is the failure to arrive at a mutually-agreed allocation of cabinet and executive posts, but there are many other obstacles standing in the way. The political instability is continuing to have a dire impact on the mining industry and the country as a whole, with the Zimbabwe still suffering from hyper-inflation and frequent power shortages. The Zimbabwean dollar is no longer widely accepted as a valid source of any real value, and the economy now only deals in the South African rand or the US dollar.
However, the geology of Zimbabwe is very richly endowed. Of the 40 known metals and minerals that it is home to, gold, platinum and chrome form the principal endowments. The country’s gold reserves are among the largest in the African region, while it hosts the second largest platinum reserves in the world.
Another segment that has caught the attention of miners in Zimbabwe is diamonds, after the discovery of a number of significant kimberlites. However, in October 2008, Zimbabwe’s gold output slumped to an all time low of 125kg. The sector has basically shut down as the mines are starved of funds with which to carry on production. At peak production levels, Zimbabwe used to produce 2,400kg of gold monthly, illustrating how far the country has fallen. Gold accounts for a third of Zimbabwe’s export earnings, which is vital considering the instability of the currency. By October 2008, mines were owed in excess of US$30mn by Reserve Bank of Zimbabwe. The country’s largest gold miner Metallon Gold was owed US$20mn alone, forcing it to close five mines in the country, and it is now inactive. Meanwhile, apart from the lack of funds from the RBZ, Zimbabwe’s mines are also plagued by a shortage of foreign currency, with which to buy essential materials, frequent power cuts and staff problems.
Industry Forecast
Frequent power cuts, a shortage of foreign currency and labour shortages are further country-specific factors which are having a hugely negative impact on the sectors performance. Coupled with this the slump in global metal prices is forcing mines to cut back production. Under these conditions, it is no
surprise that BMI is pessimistic about the prospects of Zimbabwe’s mining sector in the short term.
Indeed, in 2008 we estimated that the sector fell by almost 6% in real terms, while 2009 should see a further decline. Two areas which look particularly stricken are gold mining and nickel. The former is on the verge of collapse due to funds being withheld by the Reserve Bank of Zimbabwe. Meanwhile, the country’s largest nickel producer has shut all its mines in November 2008 due to falling prices for the metal.
However, the nation has abundant mineral resources and a well-developed, albeit deteriorating, infrastructure network. In this sense, there is hope that the country’s mining sector can begin to recover, especially when the global economy returns to growth. However, it must be remembered that many problems in the country are self-inflicted and, until the political situation resolves itself, it is hard to hold anything but a negative prognosis. In 2013, we expect the industry to be worth around US$0.53bn, although this depends on how the currency will fare over the next five years.
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