Honex Projects

ZCDC plans huge diamond output leap

The Zimbabwe Consolidated Diamond Company (ZCDC) said on Friday it is aiming to ramp up output to 10 million carats per annum in the next two years as it seeks to enhance benefits accruing to the nation through the exploitation of diamonds.

Despite discovering huge diamond deposits in the eastern parts of the country over a decade ago, Zimbabwe is yet to realise meaningful benefits from their exploitation.

Companies that were operating in the area previously have been accused of fuelling leakages at the expense of the country, especially following the revelations by the late former President Robert Mugabe that the country could have been prejudiced of revenues amounting to $15 billion over the years.

While the figure remains contentious, no one has doubted the occurrence of leakages in the sector.

ZCDC acting chief executive officer Rob De Pretto told journalists that production was steadily increasing since they commenced operations in 2016.

He said production reached 1,8 million carats in 2017, 2,8 million carats in 2018 while the target for this year and next year is 3,1 million and 6,12 million carats respectively.

With the increasing production trend, De Pretto said the diamond miner was motivated to replicate successes that other countries such as Botswana and South Africa had recorded through diamond exploitation.

“Look at what diamonds have done to those countries, those communities, they have benefited tremendously from the wealth that diamonds have brought to those countries. We have not seen that same benefit coming to our communities and country so that is what we want to do. We want to realise the full potential of our diamond endowment,” he said.
(credit the Herald)

Challenges affecting the Zim mining sector
THE Chamber of Mines of Zimbabwe (Chamber) highlighted that the first half of the year was a difficult period for the mining sector on account of a “difficult environment”, which could continue way into the second half.
In response to one of the local papers chief executive officer Isaac Kwesu cited a number of challenges facing the sector including power challenges among others. Below we look at some of the cited challenges.
Foreign currency shortage
“Shortages and delays in accessing foreign currency to import critical inputs and supplies is affecting production,” Kwesu said.
“The inability to restock critical inputs such as machinery spares, chemicals and explosives will negatively impact on production in the short term. Discussion with relevant authorities is ongoing to secure a lasting solution to this challenge.”
While critical capital goods are listed as a priority on its import priority list, the Reserve Bank of Zimbabwe has struggled to allocate enough foreign currency to critical imports due to low reserves.
Lead time for foreign currency processing can take between three to 12 weeks, according the 2017 manufacturing sector survey of the Confederation of Zimbabwe Industries (CZI).
Such processing lags tend to hamper production as companies have to lower output targets, which affects overall business performance.
Rising cost of inputs
Like other sectors, mining producers are forced to pay more than the fair value of inputs due to the multiple exchange rate system (RTGS, bond notes, USD) which affects the prices of imported inputs and due to the exchange rate pass-through effects on domestic prices via non-discretionary imports such as fuel.
“The operation of multiple exchange rate system (RTGS, bond notes, USD) has resulted in multiple prices of inputs, with those paid using RTGS almost double those paid in cash USD,” Kwesu said.
“Given that most of the producers get a majority of their revenue in RTGS, this obviously impacts severely on costs and the viability of mining operations.”
It is estimated that about 25% of forex is acquired from the parallel market.
As a result of sustained demand for forex, which is sold at a premium in the parallel market, prices have risen persistently in RTGS and bond note terms since the introduction of bond notes in November 2016. Economists have called on the central bank to switch to a more accessible currency.
Shortage of capital
In February this year, the Chamber of Mines has reported that the mining sector required as much as $7 billion in new capital from 2018 to 2022 to boost production.
“Mineral producers continue to face challenges in accessing long term capital to sustain output growth or undertake new projects,” Kwesu said.
“Most business operations need to replace antiquated equipment that has become inefficient and costly.”
International markets
Kwesu said the continued appreciation of the United States dollar was weighing on international commodity prices.
If the trend persisted, mining companies would continue to report a decline in both margins and sales revenue, affecting profitability and viability.