'Platinum exports tax disastrous'

Published: 07 June 2015

Zimbabwe's move to impose a 15 percent tax on unprocessed platinum exports could threaten producers' viability, compromise future mining investments and is yet another instance of policy discord by authorities, analysts said.

The country - holding the second-largest known platinum reserves in the world after South Africa - recently effected the levy, which authorities hope will dissuade miners from exporting the commodity in raw form and compel them to construct refineries.

While Finance minister Patrick Chinamasa in his 2015 National Budget proposed the deferment of the tax until 2017, to allow ample time for miners to build refineries, government went ahead to gazette the tax.

However, analysts said the policy incoherence further dampens investor confidence, which has been one of the major obstacles the investment-starved country is failing to attract meaningful capital.

Platinum producers have since expressed concern over the tax.

Kipson Gundani, an economist with Buy Zimbabwe, said "the implications of the immediate implementation of the export tax are detrimental to affected companies and the economy".

"This will compromise any expansion projects and also likely to cause a cut back on capital expenditure, retrenchments, company closures and add confusion to our ability to attract foreign direct investment (FDI)," he said.

He added that both parties should "put the people and the economy first before making a decision that is likely to jeorpadise the policy intent".

"We urge government to validate its claims that mining houses do not have concrete roadmap in place for value addition through exhaustive engagement and dialogue," said Gundani, adding that in turn, platinum producers are compelled to be proactive and communicate with government on progress made to date.

A mining expert who preferred anonymity said the levy would erode the platinum producers' cash flows and also argued that the country's current production levels of less than 500 000 ounces of platinum are considered too low to sustain a refinery.

"That's catastrophic considering that platinum is one of the country's cash cows and not diamonds. Government should ensure that it reaches a consensus with the miners.

The problem is about capacity, the amount being produced lacks the critical mass. Unless production is ramped up it is not going to be cost effective to do that (constructing a refinery)," he said.

Zimbabwe Platinum Mine (Zimplats)'s major shareholder, South Africa-based Impala Platinum Limited (Implats), is currently seeking clarity over export levy.

"It is not clear whether the export levy will be formally enforced and the group, in consultation with the Chamber of Mines in Zimbabwe, is presently seeking clarity from the authorities," said Implats.

The proposed export levy by government was with a view to encourage platinum mining companies to invest in smelting and refining capacity in Zimbabwe.

Implats, which holds an 87 percent stake in Zimplats said its operations remain committed to securing a conducive regulatory and fiscal framework for the mining industry in Zimbabwe.

Two years ago, President Robert Mugabe threatened to ban export of raw platinum with analysts warning that the move would be disastrous to Zimbabwe's battered economy.

They warned that while the move is ideal in the long run, currently, it will ravage the country's investment-starved economy - still struggling to take off from a decade-long recession - as it risks losing millions of dollars in revenue.

Even Mines minister Walter Chidakwa last year accused local platinum group metals (PGMs) producers of "deliberately" delaying construction.

"There has been a process of deliberately delaying things and nothing has happened to date.

"As soon as the refinery is set up we will make sure that no platinum is exported out of Zimbabwe without being processed first," he was quoted as saying, adding that the measure to ban platinum exports would only be taken once a refinery is operational.

Chidakwa said that if platinum producers came together and established a refinery, which the local mining chamber says would cost at least $2 billion to build, the government could allow the mines to own more shares.

Impalts controls Zimplats while it also runs Zvishavane-based Mimosa mine in a 50-50 joint venture with Aquarius. Anglo owns Unki Mine.

Aquarius also issued a related notice saying: "Aquarius and Mimosa are hopeful that the matter will be resolved and remains committed to building good working relations with the Government of Zimbabwe."

According to the PGMs producers, the country needs investment to the tune of $5,3 billion and stable mining policies if it is to boost platinum output and viably operate the refinery.

Together, the miners are supposed to produce at least 500 000 ounces of platinum per annum for the refinery to be viable.
- dailynews

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