Mopani Copper Mine has started renegotiating all contracts for the supply of goods and services with a view to reducing expenditure. And the mining company has suspended overtime except for breakdowns while announcing losses due to load shedding, expensive fuel, mineral royalty tax among other issues.
Sources close the case say Mopani has actually asked suppliers to fire employees and renegotiate their terms.
Mopani says it is taking such desperate steps because it has been heavily hit by the general pathetic, production conditions prevailing in the country. The mining company has also announced that ‘as at end of July 2015, our cumulative year to date net loss was US$140 million’.
According to a Status of the company report issued on 27 August 2015, Mopani said the Company is in a critical cash deficit situation in addition to making huge losses.
‘Mopani is currently not able to meet its day to day operating costs as well as fund its operational or sustaining capital expenditure, and is relying on its major shareholder to bridge the financing gap,’ read part of the communication to all employees and suppliers.
The communication further said, the Company’s state of affairs has been further worsened by other factors beyond our control such as the increased electricity tariffs which were increased by over 30% last year; the national energy crisis which has resulted in production-crippling power outages and is now leading to reduced supply of power to the Company;
Mopani said other factor that has led to the company limp are the increased Mineral Royalty Tax (MRT)’ which we have to date continued to pay at the higher rates until the recent amendments to the Mines and Minerals Development Act that came into effect in August 2015’.
Mopani explained that ‘despite the amendments, MRT has still been increased by 50% from 6% to 9% on open pit operations while for underground operations MRT reverts back to 6%, the pre 2015 rate.’
The unpaid backlog of Value Added Tax (VAT) refunds amounting to K2 billion is another factor cited by Mopani as leading to the company failing to meet its obligations. ‘The Company has recorded over $100m of exchange losses to date, increased cost of inputs and other consumables,’ read part of the communication.
According to Mopani, the combination of the above has had an adverse impact on the company’s production and overall financial performance.
‘Sadly, the levels of production performance have not been able to provide a cushion to offset these negative impacts, resulting in Mopani incurring heavy financial losses.
‘As at end of July 2015, our cumulative year to date net loss was US$140 million. This state of affairs is not sustainable going forward and poses a serious threat to our Company’s future if left unchecked. We have a collective responsibility to do everything we can to ensure that our Company survives this turbulent period’, read the statement.
To continue operating, Mopani said it will reduce costs reviewing each production area to determine its ongoing viability, Reduce Operating costs by a minimum 35% between now and end of the year through among other things; i) Instituting strict material usage to eliminate waste, Renegotiating all contracts for the supply of goods and services , Control fuel consumption, Suspend overtime except for breakdowns, Reduce sustaining capital expenditure by 22% for the remainder of the year. Only directly production related capital expenditure will be allowed and Implement energy saving measures.
The statement further said that Mopani is in a significant loss making situation because it is producing a tonne of copper at US$7,166 per tonne and currently selling the same tonne of copper below $5,000 per tonne. This is not sustainable as the company cannot continuity.
Mopani explained clearly that low copper price is not the only contributing factor to Mopani’s current poor financial situation
‘The current state of affairs has been compounded further by factors beyond its control such as high energy tariffs as well as the national power crisis which could result into reduced supply, increased Mineral Royalty Tax for open pit operations, unpaid VAT refunds and increased cost of inputs which have had an adverse effect on the company.’