RIO Tinto’s Zimbabwean unit, Murowa Diamonds, has warned that fees and tax hikes introduced in the past few years could have serious implications on its going concern status.
Murowa says it had its best production in 2014, with total material mined, at 5,1 MT, setting a new record and “demonstrating our capacity to deliver on our promise”. In an address to staff on January 26, seen by the Financial Gazette’s Companies & Markets (C&M), managing director, Zebra Kasete, warned that the Zvishavane-based operation faced an uncertain future, with the taxes likely to affect revenues and consequently profitability.
“The business is facing formidable challenges, which could have serious implications for our operation,” Kasete said.
“The government has slated a regime of taxes that include ground rental fees, which are weighing down the business,” he told workers.
He said Murowa was engaging government for a resolution of its problems, which could render over 200 staff redundant if the mine shuts down. Murowa is 78 percent controlled by the global resources giant, Rio Tinto, while Zimbabwe Stock Exchange-listed mining firm, RioZim, controls 22 percent.
“The management team is continuously engaging government and hope for some positive outcome from this process; else the viability of Murowa Diamonds as a going concern will be impacted. Employees will continuously be updated on any changes resulting from this outcome,” said Kasete.
Two weeks ago, C&M revealed that Zimbabwe’s gold mining sector, rattled by massive cuts in global metal prices, was bracing for a renewed wave of mine closures that could significantly affect the economy.
In a letter to Parliament, Chamber of Mines of Zimbabwe (CoMZ) chief executive officer, Isaac Kwesu, said: “This additional tax on already over-burdened diamond sector that is already paying 15 percent royalty over and above other fiscal charges, will severely affect (the mining sector’s) viability. It is also important to note that the current demand for diamond cutting and polishing has remained very low as signalled by the low take up of the 10 percent quota that is dedicated for the local market,” he said.
The CoMZ, warned that diamond mines faced a crisis if government pressed ahead with a 15 percent tax on raw export of gems.
“The viability challenges facing the gold mining industry have worsened in the past 12 months due to the continued decline in gold prices and high operating costs,” Kwesu said in the letter to Parliamentary on December 9, 2014.
At peak, Zimbabwe’s gold mines produced 27 tonnes of gold annually but the figure slumped to less than 10 tonnes after wholesale closure of mines during the Zimbabwe dollar era, which ended with dollarisation in 2009.
Last year, gold output stood at 13,9 tonnes, against a target of 14 tonnes. The industry is expecting to produce 14,5 tonnes of gold this year. Gold prices tumbled by a massive 30 percent during 2014, closing at an average US$1 140 per ounce, from US$1 671 per ounce in January.
The slump in prices threw the country’s gold mining sector, beset by high production costs that have hit profitability, into turmoil. Royalties, mining fees and other charges have remained high compared to regional rates, even after government took steps in the 2014 mid-term fiscal policy statement to implement reforms.