eBusiness Weekly
Michael Tome
Challenging macroeconomic environment characterised by exchange rate volatility, tight monetary policy and plummeting commodity prices, serious constrained Bindura Nickel Corporation’s (BNC) operations in the first half of 2023.
Between May and June this year, the Zimbabwe dollar suffered bouts of depreciation as the parallel market exchange rate plummeted significantly. At the time, year-on-year blended inflation spiraled to a high of 175, 8 percent in June while month-on-month stood at 74, 5 percent.
This prompted the Government to intervene and tame the out of hand situation, leading to a tight monetary policy.
In May 2023, the treasury introduced several measures to promote the use of domestic currency in the economy, reacting to the free-falling exchange rate and rising inflation.
The measures included allowing 100 percent retention of domestic foreign currency earnings, adoption of all external loans by the Treasury and enhancing the operation of the foreign exchange auction system.
This was coupled with the directive that taxpayers settle 50 percent of the foreign currency portion of their corporate tax obligations in local currency starting from the June 2023 Quarterly Payment Date (QPD).
According to BNC, the aforementioned measures affected their operations, a situation that was exacerbated by unrelenting power outages that adversely deteriorated production.
The company also was negatively affected by periodic power tariff hikes, which surged 40 percent in October 2022 and a further 15 percent rise in November 2023, which soared the mining company’s cost outlay.
This was compounded by a global decrease in Nickel prices, with London Metal Exchange (LME) prices dipping 19 percent to US$20,614 from US$25 542 in the comparable period in 2022.
Average LME Nickel prices were heavily affected by demand-supply realities associated with the production of surplus Nickel Pig Iron by Indonesia and the slow recovery in China’s economy.
Sadly, Nickel prices are anticipated to remain relatively low in the short to medium term.
In the statement of the financials for the half year to 30 September 2023 BNC chairman, Muchadeyi Masunda, said the myriad of challenges affected the mine’s overall performance.
“Economic activity in Zimbabwe was constrained during the period, hampered by macroeconomic conditions such as exchange rate instability, coupled with global headwinds emanating from the cumulative effect of tightened monetary policies and plummeting commodity prices.
The mining sector continued to experience persistent power shortages which adversely affected production. The continuous soaring of power cost, increased by 40 percent in October 2022 and by a further 15 percent in November 2023, will have a negative impact on mining costs,” said Dr Masunda.
As a result of a turbulent working environment, the tonnage of mined ore slumped 23 percent to 177 179, a notable decline from 229 790 tonnes realised in the half year of the comparable period in 2022.
Consequently, the lower mined volumes had a ripple effect, causing a slump in milled ore to 163 674 tonnes, a 29 percent decline from 230 248 tonnes milled in the same period last year.
Nickel in concentrate production was 31 percent lower at 1,314 tonnes in the half year from 1,918 tonnes.
The decrease was attributed to the lower ore mined and milled, resultantly nickel sales volume was 1,416 tonnes, 34 percent lower than the previous year’s sales of 2,146 tonnes.
Overall, the decline was ascribed to deterioration of the Sub-Vertical Rock Winder (“SVR”) bull gear, which resulted in a 70 percent decline in hoisting capacity.
According to BNC the decline in hoisting capacity also constrained development work planned for the first half of the 2024 financial year.
Operationally, the mine’s revenue took a 43 percent dip to US$18,5 million from US$32.5 million reported in the same period last year on account of low Nickel sales volume and low Nickel prices.
The constrained operating environment saw the mining firm record a total comprehensive loss of US$6, 7 million for the period, a 25 percent slide from a total comprehensive loss of US$5, 4 million realised in the same period last year.
Economist and trade specialist, Josephine Zikomo, said power outages disrupt mining operations seriously thus discouraging exploration and development.
She said it was unfortunate that geo-political environment had instigated a nickel price decline leading to reduced profitability.
“Power outages can disrupt mining operations, leading to unplanned downtime and reduced productivity. Without a stable power supply, mining equipment cannot operate at its full capacity, resulting in lower production levels.
“On the other hand, when prices are low, mining companies may reduce production to balance supply and demand dynamics. Therefore, low prices can create market volatility that affects both miners and consumers,” she said.
According to Dr Masunda; “The loss is reflective of the low revenue recorded during the period.”
Worryingly, BNC expects the operating environment to remain difficult for the remainder of the 2024 financial year, due to the protracted effects of the macro-economic environment and challenges experienced in the first half of the financial year.
BNC mine directors resolved not to declare a dividend in response to the losses and the need to retain cash for operations.
