Online Reporter
Business Reporter
ZIMBABWE’S mining industry is advocating a review of the royalty structure for platinum, diamond and lithium, saying a commodity price-linked framework would guarantee payment of royalties to the Government and the viability of mining entities.
According to the Chamber of Mines Zimbabwe (COMZ), the royalty specifically for platinum, diamond and lithium has remained high, impacting negatively on the viability of the sub-sectors.
The chamber also contends that a royalty is a direct cost of production, so the higher the figure, the higher the cost structure for mining companies.
In an interview, COMZ chief executive officer Mr Isaac Kwesu said a price-linked royalty allows the Government to maximise revenue collections during price booms while ensuring the viability of producers during periods of depressed prices.
“Royalty must be aligned to the ability of mining companies to pay. The commodity (price)-linked royalty will ensure that it guarantees the payment of royalties to the Government while, at the same time, it guarantees the viability of mining entities.
“Specifically in times of a commodity prices slowdown, as well as in times of high commodity prices, or during the time of boom,” he said.
Mr Kwesu said commodities such as platinum and lithium are currently experiencing depressed prices.
He said what they are calling for “is to say when prices are high, the royalty that they pay must also go up and when prices are low, the royalty rate must also be low when the mining companies are struggling”.
Mr Kwesu said the gold sub-sector is already implementing the gold price-linked royalty system, which says when prices are below US$1 000, they pay a royalty of 3 percent and when prices are above US$1 000, the royalty is 5 percent.
“This is what we are calling for; that other minerals be like gold,” he said.
When prices are low, Mr Kwesu said, miners can also resuscitate operations or they can restore viability by reducing their cost of operations, including the royalty.
COMZ is among business stakeholders that made post-Budget submissions to the Portfolio Committee on Budget, Finance, Economic Development and Investment Promotion ahead of debate and passing of the 2025 estimates by Parliament.
The organisation noted that the 2025 National Budget Statement was announced at a time when the mining industry is operating below its potential, on the back of a challenging environment, characterised by weak commodity prices, foreign currency shortfalls, capital shortages and fragile power supply.
It noted that the royalty for platinum is high, at 7 percent.
It recommended a commodity price-linked royalty framework for platinum; a base royalty of 3 percent for a platinum price of up to US$1 100/ounce; a royalty rate of 5 percent for a platinum price of between US$1 100/ounce and US$1 400; a royalty rate of 7 percent for a platinum price of between US$1 400/ounce and US$2 000/ounce; and a royalty of 10 percent for a platinum price above US$2 000/ounce.
In the diamond sub-sector, COMZ said the royalty for the mineral, at 10 percent, is also impacting negatively on the viability of diamond projects.
It said producers of alluvial diamonds, which are predominantly of low quality, are the most affected as their prices have taken a huge knock.
“The Chamber of Mines appeals for a diamond price-linked royalty framework with a base royalty of 5 percent payable on gross revenue and a progressive royalty structure.
“Prices up to US$500 per carat: base rate applies, around 5 percent; US$500-US$1 000 per carat: royalty 7 percent; and above US$1 000 per carat: rate of 10 percent.”
In the lithium sub-sector, COMZ said
the royalty for lithium, which went up from 2,5 percent to 7 percent, is high and unaffordable.
“The increase in royalty came at a time when lithium prices were slowing down, declining from a peak of US$81 427/tonne in November 2022, to the current price of around US$10 600/tonne.
“To note, the country’s lithium industry is still new, with the majority of producers having commenced production in the past two years,” COMZ said.
The Chamber of Mines recommended a lithium royalty structure where a base royalty of 5 percent applies for lithium prices of up to US$15 000/tonne paid regardless of the fluctuating market price and secures a minimum revenue flow to the Government; a royalty of 7 percent for prices between US$15 000/tonne and US$20 000/tonne; and a royalty of 10 percent for lithium prices exceeding US$20 000/tonne.
The chamber also said the proposal to extend the royalty on coal to all types, including coking and industrial coal, will increase production costs in the energy sector.
“This extension translates into higher operational expenses, impacting various downstream industries. Specifically, the cost of generating thermal power is likely to
rise, as this additional cost will be passed down to Zimbabwe Power Company,” said COMZ.
It noted that furthermore, the agriculture sector, particularly the tobacco sub-sector, would be directly affected by the increased cost of industrial coal used for curing.
Other sub-sectors, such as iron and steel, which rely on coking coal, would also experience increased costs.
