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Depressed platinum prices dent US$400m Afreximbank loan repayment

The loan which has no grace period will be repaid monthly and should be fully serviced by 2029. Softening commodity prices, high royalties, unfavourable energy tariffs and unpredictable policy environment have hit hard the country’s platinum mining sector.

ZIMBABWE’S repayment of a US$400 million loan borrowed from the African Export and Import Bank (Afreximbank) could suffer a huge blow after the country’s major platinum miners downsized operations due to tumbling prices of the mineral also known as “white gold” on the international market.

Last December, local media reported on the government’s plan to repay a US$400 million loan from the Afreximbank using part of the proceeds realised from platinum sales.

The southern African country is currently ineligible to access concessional funding from international financial institutions such as the World Bank and the African Development Bank after defaulting on repayments at the turn of the millennium.

In the absence of such funding, Zimbabwe now largely depends on domestic resources such as taxes, Treasury Bills, grants and bilateral loans from regional lenders.

The terms of the Afreximbank deal included an interest rate of 10.216%, arrangement fees 2.75%, commitment fee 0.5% and default interest of 12.216%.

The loan which has no grace period will be repaid monthly and should be fully serviced by 2029. Softening commodity prices, high royalties, unfavourable energy tariffs and unpredictable policy environment have hit hard the country’s platinum mining sector.

This month, the country’s major platinum miners — Zimplats and Mimosa — announced job cuts after warning that the current business environment was adversely affecting their operations.

Zimbabwe has the third-largest known platinum reserves in the world after South Africa and Russia.

The mineral is mainly used for manufacturing catalytic converters in the automotive industries. The devices are vital in reducing carbon emissions.

Independent economist Prosper Chitambara says the under-performance of exports due to depressed commodity prices would affect Zimbabwe’s ability to pay its foreign obligations.

“We are also expecting that agriculture is not going to do well as well. So that is going to affect our exports overall and ultimately our current account even the balance of payment support, so it is going to weaken our ability to be able to pay our foreign obligations, including the Afreximbank loan as well as other arrears,” Chitambara told The NewsHawks.

“This year is going to be a very challenging year on account of a number of external factors, in particular the El Niño-induced drought and also the softening of global commodity prices.”

According to Zimbabwe’s Public Debt Report, total public and publicly guaranteed (PPG) debt stood at US$17.7 billion, as at the end of September 2023, of which external debt amounted to US$12.7 billion (72%) and do[1]mestic debt of US$5.0 billion (28%).

“Government, in February 2023, secured a US$400 million loan from Afreximbank for budget support and the financing of trade-re[1]lated infrastructure,” the Public Debt Report reads.

“The US$400 million Afreximbank loan is repaid using 35 percent of Zimplats’ export proceeds, which are managed by RBZ.” The Chamber of Mines of Zimbabwe says the royalty for platinum, which went up by 180% from 2.5% to 7%, is impacting neg[1]atively on the viability of platinum projects. Platinum producers contend that the increase in thr platinum royalty resulted in a 5% average increase in overall production cost.

“The situation has been worsened by slowdown in PGMs prices. Rhodium price declined from around US$13 000/ounce in September last year compared to the current average of around US$4 000/ounce,” a report by the Chamber of Mines reads.

“Palladium prices also declined from US$2 200/ounce in September last year, to the current averages of around US$1 200/ounce. The platinum producers are operating at full capacity and, unlike other mineral sub-sectors, they have little scope to ramp up production to cover for revenue losses due to softening PGMs prices.

“Resultantly, the contribution of the platinum group metal miners to the economy has been declining over the last 12 months. Given the current situation and to restore viability, as well as maximise the contribution of the platinum industry to the economy, we appeal for a royalty of around 3%. The royalty can be reviewed in line with movements in platinum prices up to a maximum of 5%.”

While the Reserve Bank of Zimbabwe says mineral exports remained subdued during the quarter ending December 2023, weighed down by depressed global commodity prices, the apex bank said this would not spell doom on the industry.

“Despite the threats of declining revenues due to depressed commodity prices, platinum mining houses remain steadfast in their investments to support mine development, exploration and improvement in operational efficiency to sustain PGMs output,” says the central in in its quarterly update.

“Notable investments by platinum houses during the quarter under review included establishment of new concentrator plant, refurbishment of plants, construction of solar power plants, construction of furnaces and storage facilities.”

According to the World Platinum Investment Council, Zimbabwe is on track to ramping up output of the white metal to an all-time high of 502 kilo ounces (koz) following massive investment by one of the country’s top miners. – (NewsHawks)

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