ALEX MHEMBERE PRESIDENT CHAMBER OF MINES OF ZIMBABWE PRESENTATION OUTLINE REVIEW 1. A Brief Overview of the Mining Industry in Zimbabwe Performance trends and outlook STRATEGIES FOR THE MINING INDUSTRY 2. Mining Beneficiation 3. NEW LEGISLATION & REGULATIONS Mines and Minerals Act Mining Taxation Mining Incentives How Much Geological Potential is There? Varied Geology: Approximately 60% of Zimbabwe’s land surface comprises of ancient rocks renowned worldwide for containing rich varieties of mineral resources . The country’s diversified mineral resource base is dominated by two prominent geological features namely the Great Dyke and the ancient Greenstone Belts. Major known minerals include Gold, Coal, PGMs, Diamonds 3 Mining sector: Anchor for economic development (Zim Asset) Sterling performance by the mining industry in the past 5 years has seen the sector becoming one of the main pillars of the economy recovery, leading the 2009-2013 rebound with average growth around 20%. Through the Zimbabwe Agenda for Sustainable Socio-Economic Transformation( Zim ASSET) the government earmarks the sector to grow by an average annual rate of 10% between 2014 and 2018 compared to all other sectors which are anticipated to grow in single digits. At this rate the sector has the capacity and potential to create substantial impetus for economic growth and value addition. 4 Mining sector growth outpacing the GDP growth Average sectorial growth 2009-2013 20% 10.40% 8.40% 7.30% agric Manufacturing Mining GDP 5 Mineral Output trend • There has been a significant increase in mineral production since 2009. • Growth is expected to moderate due to the lack of capital investment in mineral development and exploration. Mineral 2011 Actual 2012 Actual 2013 Actual 2014 Proj Gold (kgs) 13,000 14,800 14,000 13,800 Coal (tons) 2,922,000 1,785,000 4,980,000 4,000,000 Nickel (metric tons) 8,000 7,900 14,000 14,232 Platinum (kgs) 10,827 10,524 13,000 11,700 Chrome Ore (tons) 599,000 408,575 450,000 650,000 8,100 10,200 8,800 Palladium (kgs) 8,400 Diamonds (tons) 8,719,000 12,014,802 10,528,000 8,000,000 Overall Growth 24.4% 8.0% 6.5% -1.9% Value of Mineral Production (US$m), 1980-2013 mining exports (USD million) 2200 2169 1691 1443 645 1980 689 733 712 850 866 2007 2008 702 600 1990 1996 2000 2005 2006 Source: ZIMSTAT and COMZ 2009 2010 2011 2012 7 Challenges facing the sector The sector continues to face systematic challenges that include: Depressed mineral prices inadequate funding frequent power outages, Escalating operating costs, such power, labour and consumables High regulatory taxes, fees, levies and royalties This has negatively impacted on the output for gold, platinum and diamond, necessitating a downward revision of sector growth for 2014 from 10.8% to -1.9%. Depressed gold prices hampering down recovery of gold output Potential Growth for Gold 30,000.00 gold output (kg) Output reached a peak 27 tons in 1999. 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 2014f 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1995 1993 1991 1989 1987 1986 1985 1984 1983 1982 1981 1980 - • The gold mining sector is currently operating at 50% of potential capacity utilisation. • A recent World Bank Study estimated that by 2018 production could reach 28.5 tons if the sector secures capital of between $420 million. Platinum has experienced phenomenal growth in the past decade 14,000.00 12,000.00 Platinum Production (kgs) 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • Zimbabwe hosts the second largest known PGM resource in the world on the Great Dyke. • Potential new projects include ENRC, Ruschrome (Rostec), Global Platinum Resources and Zimari Platinum. • These projects are listed as Joint Venture projects under ZMDC. 11 Depressed prices have reduced the platinum earnings 6,000.00 5,000.00 Coal production (Kt) 4,000.00 3,000.00 2,000.00 1,000.00 - • Production is currently around 5 million t/yr . • World Bank forecasts production to reach 9.8Mt by 2018 if the sub sector secures capital to the tune of USD3 billion. • Over 29 coal localities are known with estimated resources of approximately 12 billion tonnes. Coal-bed Methane (CBM) The Coal-bed Methane (CBM) resources in the Hwange/Lupane basins are estimated at over 27-40 TCF (trillion cubic feet) of sulphur-free methane gas, which rank Zimbabwe’s resources at 11th globally, after South Africa. There are plans for a thermal power station based on the Lupane CBM resources and the reserves are currently being appraised for this. CBM could also provide the feedstock for nitrogenous fertilisers and other methanol chemicals. Iron and Steel 1.6 1.4 1.2 • 1 0.8 • Production peaked in 1992 at 1.46 Mt, and then fell to zero in 2008 Huge production potential 0.6 0.4 0.2 0 Ripple Creek • • • Buchwa Zimbabwe has huge iron ore deposits associated with banded ironstone formations in greenstone belts. Major deposits are estimated to host at least 30 billion tonnes of reserves. Currently no significant iron ore mining or steel production in Zimbabwe Nickel production Nickel production (tonnes) 16,000.00 14,000.00 12,000.00 10,000.00 8,000.00 Nickel production (tonnes) 6,000.00 4,000.00 2,000.00 - For nearly4 years, most nickel were produced by platinum mining operations as a byproduct. Production is expected to increase significantly on the back of the primary producer BNC which resuscitated its mining operations after a long spell on care and maintenance Ferrochrome 350000 300000 250000 200000 Ferrochromium Production (tonnes) 150000 100000 50000 0 1980 1984 1988 1992 1996 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 • Zimbabwe is estimated to host over 80% of the world’s resources of metallurgical quality chromite. • Chromite reserves on the Great Dyke approximate 10 billion tonnes. • The sub sector requires a minimum capital of USD85 million to increase production to around 540,000 tons by 2018. October 2013 Diamond output The recent discovery of significant placer diamond deposits at Chiadzwa points to significant potential in ancient basins on the edges of the craton. If the deposits are mined extensively, Zimbabwe has the potential to produce approximately 25% of the world’s diamonds. In 2014, diamond output is projected at 8million carats, benefiting from the recent removal of the Zimbabwe Mining Diamond Corporation (ZMDC) from the sanctions list by European Union. STRATEGIES FOR MINING SECTOR Strategic Pillars There are 4 pillars as follows: Investment competitiveness Resuscitation & Growth New mining Development Value addition & beneficiation Investment Attractiveness Mining an international business Investment attractiveness at both country and project level critical to attract investment Country attractiveness hinges on: Clear and consistent regulations and policies Ease of doing business Perception Project Attractivenes hinges on: Expected returns Skills availability Fiscal matters and statutoty fees. Resuscitation & Growth Most mines are currently operating slightly above 50% of their capacities due to lack of finances for recapitalisation. The 2009 mining economic rebound driven by old reserves which are fast depleting. Urgent need for recapitalisation Opportunities exists organic growth, brownfields projects Green Projects Abundant mineral resources not yet adequately quantified Leading in platinum, Gold, Chrome, Iron Ore, Coal, tin and Coal bed methane. Huge opportunities for exploration and mining development. Market investment opportunities Value Addition & Beneficiation Resuscitate mothballed operations: Base Metal Refineries, SMC, BNR & ENR Steel Plant – Zisco Chrome Smelting several Expand exiting facilities Establish new facilities, platinum, diamonds Create linkages with other sectors manufacturing, agriculture, construction etc etc NEW LEGISLATION & REGULATIONS REGULATORY FRAMEWORK The Mines and Minerals Act Chapter 21:05 is the principal legislative tool guiding mining operations in Zimbabwe. The Government is in the process of finalizing revision of the Act which is intended to: Provide for an improved and competitive mining legislative framework, which offers a user-friendly operating mining environment, Guarantee increased capacity in mineral production, continuous exploration, beneficiation and value addition, Make it more investment-focused, based on a win-win principle that also addresses issues of levies and taxes to reflect prudence in the application of mineral rents Mineral Development Framework Government is also finalizing the development of a comprehensive Mineral Development Policy to guide investors towards sustainable exploitation of mineral resources of Zimbabwe in a win – win manner. The Mineral Policy aspires to integrate the mineral sector with the rest of the economy; establish a fiscal regime which ensures benefits to the country and remain internationally competitive (A review of tax regime is underway ). support mineral beneficiation and marketing; Develop and integrate small scale miners and, promote indigenous and public participation in mining activities. Sept 2013 27 OTHER LAWS GOVERNING INVESTMENT Other pieces of legislation that govern foreign investment include: The Zimbabwe Investment Authority Act The Indigenization and Empowerment Act The Minerals Marketing Corporation Act The Zimbabwe Mining Development Corporation Act Precious Stones Trade Act It is the government's priority to establish an investor-friendly environment in this sector through the adoption of international best practices and ensure that it transforms it into a world-class mining investment destination. REQUIREMENTS AND PROCEDURES FOR INVESTING IN THE MINING SECTOR Investment entry points Access to prospecting and mining ground may be easily obtained, either by: pegging or registration of claims purchase or lease of existing properties entering into joint ventures with going concerns. MINING TAXATION AND INCENTIVES Royalty is calculated as a percentage of the gross fair market value of minerals produced and sold as follows: Precious Stones 15% Gold 7% Platinum 10% Base Metals 2% Industrial Minerals 2% Coal Bed Methane Gas 2% Coal 1% Income tax on mining operations is levied at 15% for Special Mining Lease holders and 25% for other mining title holders and all capital expenditure incurred exclusively for mining operations is deductible at a rate of 100%. Mining companies enjoy indefinite carry forward of their tax losses. Investors are allowed to borrow locally for working capital purposes. Offshore borrowings require Reserve Bank approval and interest paid on borrowings of a debt to equity ratio of up to a maximum of 3 to 1 are tax deductible. MINING INCENTIVES Exploration and Mining Rebate and Suspension of duty may be granted in terms of the Customs and Excise (General) Regulations, 2001 and Customs and Excise (Suspension) (Amendment) Regulations, 2010. I. II. III. IV. V. Rebate of duty may be granted on goods for the prospecting and search for mineral deposits. Goods are imported by a person who has entered into a contract with the Government, i.e. with exploration title. Rebate of duty may be granted on goods imported in terms of an agreement entered in pursuant to a Special Mining Lease. Rebate of duty may be granted on goods imported temporarily for an approved project. Rebate of duty may be granted on goods for incorporation in the construction of approved projects. Suspension of duty may be granted to a holder in respect of specified goods which, during the specified period, are imported by the holder for use solely and exclusively for mining development operations MINING INCENTIVES CNT’D Marketing of minerals Mining companies are granted the right to market their minerals directly, in accordance with the provisions of the Minerals Marketing Corporation of Zimbabwe (MMCZ) Act. There is no restriction on the amount of foreign currency brought into Zimbabwe. The foreign investment equity can be in the form of cash or capital equipment. Operation of foreign currency accounts is permitted upon approval by the Reserve Bank of Zimbabwe. Investors can remit 100% of their dividends subject to Exchange Control approval. On disinvestment, 100% repatriation of invested capital is allowed. Investments of more than US$100 Million qualify for Special Mining Lease, which allows investors to negotiate for favourable concessions. There is no restriction on dividend remittances and on disinvestment Conclusion Zimbabwe is endowed with abundant mineral resources, and indeed mining can become the cornerstone of an economic turnaround We need to resuscitate existing mines on care and maintenance to pre-1998 levels We need to invest in exploration and new mining development We need to focus on value addition and beneficiation We need to focus on linkages To achieve this, we need to address the following issues: A common national vision Policy consistency. Mining Policy in progress. To now focus on economic & Industrial Policies. Competitive fiscal regime We need to attract investment to the sector Improve critical infrastructure, i.e. electricity, roads and water supply END