The 2012 budget increased royalties on gold to 7% from 4,5% effective January 1. It also doubled royalties on platinum to 10%. In its latest review on the state of the Zimbabwean economy, AfDB said that while the main purpose of the review is to increase the mining sector’s contribution to the fiscus and to balance the economy by allowing the government to redistribute a portion of wealth gained in mining and resource extraction, the increases would affect production.
“However, the increase in royalties can result in a fall in production as those firms mining in low-grade areas will be faced by an increase in per unit cost of production, hence they will be forced to reduce output,” AfDB said.
“This also implies that potential investors could be discouraged from investing in low-grade ore fields by the increased cost of production and the reduction in profitability.”
Government contends that despite the increase in mineral shipments, very little has been coming into its coffers as remittances. In his 2012 budget statement, Finance minister Tendai Biti said that despite sales of US$1,7 billion, a paltry US$44,1 million came to Treasury as royalties.
“The resource rent collections are, thus, not commensurate with the value of the minerals extracted, especially in view of the surge in international prices of precious metals,” Biti said.
Mining companies pay government in the form of royalties to extract the resources. The resource rent is usually a percentage on resultant profits.
The platinum and gold sectors are not operating at full potential due to under-capitalisation. The gold sector is currently operating at below capacity due to cash constraints. Estimates from the Chamber of Mines show that the sector is operating at 44,4% at a time prices have been buoyant on the world markets.
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In the gold sector, small producers are contributing over 30% to total gold production. In 2010, 9,620 tonnes of gold were produced and the production is projected to have leapt to 13 000 tonnes last year.
However, the Chamber of Mines says the sector requires capital of around US$2,3 billion to ramp up production. With such injection, the chamber forecasts that production would reach 50 000kg in 2016.
The chamber says the platinum sector requires US$2,8 billion recapitalisation to more than double production to 21 000 tonnes in 2016.
As a result of the liquidity constraints, the financing has to be obtained offshore but analysts say the perceived high-country risk rating has made it difficult for local companies to access long-term loans on international markets.
The mining sector is increasingly evolving into a dominant sector in the economy and accounted for two-thirds of exports recorded in 2010. It is estimated that it would have contributed over 50% of exports last year.
