Kudzanai Gerede Business Correspondent
Government intends to nationalise the country’s vast chrome fields to increase broader participation of various indigenous players into the sub-sector in an effort to prop production volumes and ultimately boost export earnings, Post Business has learnt.
On-going negotiations to cede 50 percent of chrome deposits to Government in claims held by ZIMASCO and ZIMALLOYS who have for a long time held 80 percent of the country’s total chrome deposits started last year and are yielding results.
This has so far triggered giant chrome producer ZIMASCO to relinquish 21 270 hectares of land to government while negotiations with ZIMALLOYS are proceeding.
ZIMASCO and ZIMALLOYS are currently facing operational challenges which has seen the two mining concerns put under judicial management while the vast tracts of land they possess in claims remain idle.
Relinquished Chrome mining claims will be distributed under three categories, government (Zimbabwe Geological Survey) for future development, medium scale beneficiation plants and new smelters for beneficiation and value addition and to the small scale miners for indigenisation and empowerment of marginalised groups.
Zimbabwe has the world’s second largest chrome ore deposits after neighbouring South Africa and together they constitute 80 per cent of the world’s chrome.
The Ministry of Mines and Mineral Development further estimates that Zimbabwe has 1 billion tonnes of unproven reserves mainly along the great dyke, a mineral-rich strip which cuts across the central parts of the country.
The move comes at a time when there is very limited indigenous players’ participation in the chrome sub-sector; an anomaly government seeks to reverse by according special grants to suitable indigenous small scale players taking a leaf from the gold sector that has been buoyed by wider participation.
Last year gold production figures scaled-up to 22 000 tonnes from less than 10 000 tonnes realised 5 years ago.
“In order to broaden the indigenisation in the chrome sector and empowering Zimbabwean citizens and create more employment, the Government directed that 50 percent of claims held by ZIMASCO and ZIMALLOYS must be released and made available to other players in the sector to ensure wider inclusion of indigenous players in the chrome sector,” said Mines and Mineral Development Minister Walter
Chidhakwa while addressing journalists in Harare this past week.
“Following the release of chrome mining claims by ZIMASCO to Government and the subsequent gazetting of the entire Great Dyke as a Reserved Area, chrome mining claims can now be accessed by means of Special Grants,” he added.
The minister further stated that Government envisions mobilising resources for the chrome sector in order to help small scale miners acquire machinery to improve efficiency and production volumes. This is expected to double production figures from 284 943 tonnes recorded last year.
“We are projecting 300 000 tonnes of ferrochrome for 2017 as a result of the measures we have taken in allocating the chrome concessions. For raw chrome we expect some 550 000 tonnes,” said Chidhakwa.
Last year the sector realised US$ 146 million in exports from both raw chrome and high carbon Ferrochrome with analysts projecting that there could be more earnings realised if Government pushes for value-addition in order to avoid economic spill overs from price slumps which hit producers in the past few years.
Ferrochrome is an essential input for stainless steel manufacturing in Asian markets particularly China which has recently set up its on smelter plants to process raw chrome after South Africa, the largest chrome supplier was failing to consistently supply ferrochrome owing to electricity shortages and tariff hikes.
Just about two years ago global chrome producers increased production having projected a market boom particularly in the Chinese market whose appetite for the base metal was expected to surge and its economy to grow around 9 percent but however closed at around 6 percent. This led to over-stocking of the base metal hence prices fell drastically.
This, for most producers was a major blow threatening viability particularly exporters of the raw product.
In response to international price falls, Government in January 2015 lifted the ban on exportation of raw chrome in order to ease the additional burden incurred by producers in the smelter process as declining prices were already threatening profitability.
However, in 2016 international prices firmed spilling into the current year. For Zimbabwe, this has prompted optimistic forecasts on both the production side and on viability.
First quarter 2017 ferrochrome contract prices have been agreed at 50 per cent higher than in the fourth quarter of 2016, reports South Africa’s Merafe Resources, the world’s biggest ferrochrome producer.
While this is good news for locals intending to venture into this sector, analysts say there is need to revisit the country’s chrome export policy with regards to value addition.
Last year’ sector export revenue figures reflect a stark profit disparity that exists between exportation of raw chrome and that of value added high carbon ferrochrome.
Total chrome ore reached 284 943 tonnes translating to just US$31 million while carbon ferrochrome which is derived from value addition only managed 149 000 tonnes but amassed US$ 115 million.
“We would earn more from exports of processed chrome that is why we are pushing to have smelting in place.
“We are saying all those indigenous players in the Medium Scale Beneficiation plants and New Smelters category wishing to acquire special grants of 500 hectors will have to assure us of setting up a smelting plant to beneficiate and value-add our resources so that we do not export raw products. We shall have ministry officials doing follow-ups on developments in case one does not fulfil their promise,” stressed Minister Chidhakwa.
The move will also see the resuscitation of the chrome smelting industry that had been negatively affected by the lifting of the raw chrome export ban two years ago.
A number of smelters have recently raised concern over lack of feedstock into their smelters as they do not have mining claims and have to rely on other producers for business.
The quota of chrome claims to be allocated to small and medium scale miners will complement the supply of much needed feedstock for a vibrant smelting industry.
Zimbabwe Miners Federation president Mr Wellington Takavarasha told Business Post that the redistribution of chrome claims to the indigenous players fit well into the beneficiation strategy because for long indigenous players in the sub-sector have been short-changed in their capacity as tributers to ZIMALLOYS and ZIMASCO since they did not have claims to the land.
“We welcome Government’s move to redistribute land because most small players were mere tributers to ZIMASCO and ZIMALLOYS. This created a situation where they did not benefit from international price increases of chrome. These companies basically dictated how much they wanted to pay these tributers,”
“We are going to prioritise the tributers in allocating claims since they have been in the business for some time then obviously new players can chip in because the land available is very significant,” he said.
Mr Takavarasha however, called on stakeholders to ensure that small scale miners are supported with efficient equipment in order to be competitive and increase production.
As talk of value addition through setting up of smelter plants take centre-stage, one of the major conundrums set to pose a threat to this initiative is the accessibility and affordability of electricity to run the plants.
Zimbabwe remains a high cost industrial destination due to high tariff charges across all industrial value chains.
For example South Africa’s recent electricity shortages and tariff hikes have strangled investment in smelter industry and this could be even dire for Zimbabwe whose tariffs are rated amongst the highest in the world.
“We would want a favourable power price,” stressed Minister Chidhakwa while accentuating that 40 per cent of total cost of running any furnace is consumed by power.
“Power below four cents per kilowatt hour would be the best for us. At the moment power for the chrome smelters is at 6.7 cents per kilowatt hour and its putting a lot of pressure. You need a very high price of the mineral for you to cover the high costs of power.
“It is critical to note that any future development in the chrome sector should have a favourable ring-fenced power tariff for the smelting as an incentive to the development of value addition for the production of ferrochrome and ultimately steel,” he said.
However, favourable tariff adjustments currently seem highly unlikely with the country’s power company ZESA pushing for a tariff hike.
ZETDC, a subsidiary of ZESA proposed to the country’s energy regulator ZERA for a tariff increase and despite being turned down, this has not stopped the power utility company from further pursuing its agenda as currently negotiations are in place.
ZESA is facing operational challenges chief amongst them the recurring costs of repairing its old equipment and a surging debt to South African power supplier Eskom.