Now Bob is grabbing foreign mining interests. If the mining sector collapses, there goes their 20% employment rate.

Zimbabwe mining sector faces collapse

Friday 13 April 2007

By Edith Kaseke

HARARE – The mining industry in Zimbabwe could collapse under the weight of heavy debts and an unsustainable exchange rate, ironically at a time when world metal prices are booming, which would be another blow to the foreign currency starved country, the Chamber of Mines said.

The mining sector is the biggest foreign currency earner in a country battling its worst ever economic crisis and its collapse could bring more misery to the majority who are squeezed by the world’s highest inflation rate of nearly 2 000 percent, unemployment above 80 percent and shortages of hard cash and food.

With the agriculture sector in turmoil, mainly as a result of President Robert Mugabe’s government’s seizures of farms from whites, mining had become the largest employer and earned more than half of the country’s foreign currency.

The Chamber of Mines said an official rate of $250 which miners are paid for a third of their earnings was unviable as this could not meet their Zimbabwe dollar costs, noting that for example suppliers of goods and services were pricing at black market rates.

The United Stated dollar is trading around $17 000 at the black market.

Miners are forced to liquidate nearly 33 percent of their forex receipts at the central bank at the official rate.

"The official exchange rate of US$1:Z$250 continues to cause viability challenges," the chamber said on Thursday.

"The shortage of foreign currency for suppliers of goods and services to the mineral sector is impacting on the determination of prices. It is no secret that in the absence of foreign currency on the official market, the parallel market is the only other source," it added.

According to the Chamber of Mines, gold producers were hit by payment delays by the central bank, adding that at the beginning of this month, most producers had not been paid for gold delivered in January.

Gold producers account for 52 percent of total mineral production and a third of gross domestic product.

The producers who are required to sell their gold to Fidelity, a subsidiary of the Reserve Bank of Zimbabwe (RBZ), are paid 60 percent of their earnings in local currency at $200 000 per gram, a price which is less than the one offered at the black market.

RBZ governor Gideon Gono has previously said Zimbabwe lost at least US$40 million a year to gold smuggling, a development industry officials said was a result of poor official yellow metal prices.

"The combined effects of delayed payment and misaligned exchange rate have combined to create a viability crunch that is threatening the very existence of the gold industry in Zimbabwe,” the chamber noted.

“Most producers are heavily borrowed, have exhausted their lines of credit and have limited input in stock. It will not be surprising if the gold sector were to collapse under the existing heavy debts and non availability of inputs."

The industry was also failing to retain skilled manpower, as many Zimbabweans continued to flee from the turmoil at home to neighbouring countries or as far as Australia, Canada and Russia where mines pay better salaries, the chamber said.

The government has projected a five percent growth in the mining sector this year after declining by over 14 percent last year but industry officials say this is impossible given the viability problems and lack of growth as investors fret over planned amendments to mining laws.

Mugabe’s government has indicated it plans to seize 51 percent of foreign-owned mines, which has sent shockwaves in the industry and kept potential investors at bay.

“The delay in finalising the Mines and Minerals Act is affecting investment in the minerals sector. Without the amended Act, investors will wait in the wings until a final position is reached,” according to the chamber. - ZimOnline