The graph below shows the Group’s quarterly production from 2020
Harare- As rolling power cuts in Zimbabwe fail to find a breather and electricity tariffs have spilled over 40% in United States dollars, Platinum Group Metals miner, Zimplats Holdings Limited says its power tariff bill soared by 42% during the quarter ended December 2022. As a result, total operating cash costs increased by 13% ahead of the comparative period in 2021 adding to high production costs.
Between October and December 2022, power utility, Zimbabwe Electricity Supply Authority (ZESA) introduced load-shedding which lasted up to 18 hours per day, one of the worst power cuts in Zimbabwean history.
Zimbabwe targeted to export electricity by 2023 (achieving electricity self-sufficiency) and add unit 7 of Hwange Power Station to the national grid on the 31st of January 2023. However, the government missed both targets.
To offset power costs and power disruptions, Zimplats is executing a 35MW solar plant project which is Phase 1 of its 185 MW solar project. The 35 MW project is progressing well with a total of US$0.8 million spent and US$ 0.4 million committed against a budget of US$37 million.
“The engineering, procurement and construction contract was awarded during the quarter and the solar plant is being constructed at Selous Metallurgical Complex targeted for completion in FY2024,” the Group said in a trading update.
Overall, the project has four implementation phases with the last phase scheduled for completion in FY2027 at a total estimated project cost of US$201 million.
With continued power uncertainty, mining companies have turned to alternative power sources, especially solar systems to offset generators use costs with Zimplats and Caledonia leading the pack. RioZim is still looking for possible investors.
Other costs were incurred due to inflationary pressures and higher production volumes.
US$4.5 million was transferred from operating costs as milled throughput exceeded mined volumes and some concentrate inventory accumulated during the prior quarter was smelted in the period resulting in the gross cost of metal produced increasing by 21% compared to the prior quarter.
6E unit costs increased by 5% to US$839/oz from US$801/oz in the prior quarter and was 15% higher year-on-year.
On the production side, mined volumes increased by 1% from the prior quarter and were 14% higher year-on-year, with strong operational performances across the mines. A marginal increase was despite production disruptions at Mupfuti Mine during a changeover of the trackless mining equipment service provider.
Ore milled increased by 13% from the prior quarter to 1.95 million tonnes as milled volumes benefitted from higher installed capacity following the commissioning of the Ngezi third concentrator plant in September 2022. The plant achieved nameplate capacity in the period under review.
6E head grade decreased by 2% from the prior quarter and was 1% lower year-on-year necessitated by increased contribution of lower grade development ore from the Mupani Mine stockpile while 6E metal in final product increased by 16% from the prior quarter and was 15% higher year-on-year, reflecting the benefit of higher concentrator volumes and the impact of inventory accumulation during the scheduled furnace reline in the prior quarter.
Future of Zimplats
The future of the platinum miner remains buoyant despite economic uncertainties in the local environment courtesy of a poor currency which has depreciated by 100% since its introduction in 2019, erratic power cuts and regressive political and economic policies.
The Group is investing circa US$.1.4 billion to deal with aggressive tax regimes, erratic power cuts and inflationary pressures.
Development of Mupani Mine and upgrading of Bimha Mine to replace Rukodzi which was depleted in FY2022, Ngwarati, and Mupfuti mines, which will be depleted in FY2025 and FY2028 respectively will increase production as the mines have a high production life. The developments progressed well during the quarter with US$274.6 million being spent on the project to date. US$71.9 million has been committed against a project budget of US$468 million. Despite increasing production targets, exports are further set to increase and bolster the group’s foreign currency coffers in a turmoil economic environment.
Further, the Ngezi third concentrator plant commissioned in September 2022 will increase milling capacity by 0.9 million tonnes per year equivalent to circa 80 000 6E ounces. The plant ramped up production to nameplate capacity during the quarter. Cumulative project expenditure at the end of the quarter amounted to US$97.1 million, with US$5.8 million committed against a project budget of US$104.1 million.
“Implementation of the US$521 million smelter expansion and the SO2 abatement plant project remains on track, with US$49.8 million spent and US$242.9 million committed at quarter end, “the Group added.
To deal with power outages, the Group is Executing a 35MW solar plant project which is Phase 1 of its major 185 MW solar project which is scheduled for completion in FY2027.
Of the 35 MW project set for completion in FY2024, US$0.8 million was spent and US$ 0.4 million was committed against a budget of US$37 million. The solar plant is being constructed at Selous Metallurgical Complex.
Overall, the project has four implementation phases with the last phase scheduled for completion in FY2027 at a total estimated project cost of US$201 million.
During the quarter, the board approved the refurbishment of the mothballed base metal refinery (BMR) at Selous Metallurgical Complex. The BMR is designed to process an equivalent 5 200 tonnes of nickel and associated base metals contained in converter matte. The project is in the initial stage of implementation. A total of US$0.3m has been committed with no expenditure recorded to date against a budget of US$189.9 million.
Challenges expected
The company, just like any other company is expected to face more than expected inflationary pressures due to regressive and reactionary policies ahead of the 2023 harmonised elections. The government has already started injecting more ZWL liquidity into the market as testified by the rapid blooming of the parallel market rate.
The government’s 10% and 5% reserve money growth targets failed and the 0% growth target is set to register as a big failure. Target growths for the reserve money have failed and will continue to fail as the government will resort to the cranking machine to fund its suppliers and election campaign projects.
The obvious ones, aggressive taxation systems, and reduced revenues through the retention thresholds relinquished to the RBZ in exchange for the local currency, at a rate which is overvalued. Despite foreign currency retention thresholds reduced to 25% for exporting companies and 15% for local US dollar sales, companies are still to pay a huge price due to global geopolitical tension and disruption in supply chains which is inflating raw materials’ prices. Using the parallel market rate, the 25% received by companies in RTGS depreciates faster causing firms to lose circa 12% in revenues.
With the electricity bill in United State dollars shooting over 40%, 25% export retention is still an abnormal figure further given a high taxation regime, poor economic environment exacerbated by toxic borrowing rate of up to 150%, the need to add value and beneficiation and a turmoil pollical system.
Unless foreign currency retention is totally removed or reduced and the taxation system revised, US dollar liquidity will remain one of the most challenges to face companies in outlook.
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