The drastic fall of global commodity prices has immensely affected the local mining sector, pushing companies to look for strategies to minimise operational costs in a crisis industry players say is becoming unmanageable.

Some mining companies have laid off workers or stopped selling their minerals while others have not paid miners for several months.

Rwanda Mining Association (RMA), an organisation that brings together mining firms operating in the country, said minerals prices have been falling since the middle of the year and the trend is likely to continue until March.

“In the long run, the profit margins are very low; so companies try to minimise their operating costs and they lay off workers,” Frank Butera, the executive secretary of RMA, told Rwanda Today.

Miners are now feeling the negative impact of price uncertainty, as they are subjected to wage reduction and payment delay in addition to poor working conditions.

Jean Claude Minani, a miner at Rongi Wolfram site located in Muhanga District, told Rwanda Today he and his co-workers had gone three months without pay.

“We have very many debts and life is very bad,” Mr Minani lamented. “Our supervisor told us that the reason we are not being paid is because mineral prices have gone down in the country.”

Mr Minani added that they used to be paid Rwf2,000 per kilogramme of minerals mined but that was reduced to Rwf1,500. He claimed that 900 miners have been affected by the salary delays.

“We have issues with shop owners in our villages because we have not yet paid our debts,” said the young miner.

Falling prices

The management of Ets Simeon Sindambiwe Ltd, a company that owns the Rongi site, confirmed that their miners had not been paid.

The technical director of the company, who only identified himself as Jean-Baptiste, blamed the situation on falling prices for its minerals, which he said has affected its cash flow.

“The situation in the wolfram market is not good as prices have fallen by half but we hope that by January they will have gone back to normal, which was Rwf6,000 per kilo,” Mr Jean-Baptiste said in a telephone interview. “Currently, it is Rwf3,500 per kilo in the country.”

Mr Jean-Baptiste said that, should the company sell its wolfram, it will make losses. He added that the management is now focusing on coltan and cassiterite, whose prices have not plummeted at the rate of wolfram.

“We could use revenues generated from coltan and cassiterite sites to pay Rongi workers,” he said.

Export revenue

Statistics from the National Bank of Rwanda (BNR) show that, in the first half of 2015, the country’s exports decreased by 6.2 per cent in value to $275.28 million from $293.61 million in the first half of 2014.

The central bank attributed that to poor performance in the mining sector, the value of whose exports plunged by 31.3 per cent, mainly due to falling international prices.

Mineral export revenue dropped to $64.24 million from $93.45 million during the first half of this year while volumes fell to 3,790 tonnes compared to 5,220 tonnes recorded last year.

Specifically, cassiterite and wolfram declined by 48 per cent and 21.2 per cent in value as a result of the fall in their prices by 20.3 per cent and 10.4 per cent, respectively. Despite the rise of its unit price by 4.2 per cent, coltan exports also decreased by 18.8 per cent in value and 22.1 per cent in volume.

Considering that local mining operators do not play a role in fixing international market prices, they are seeking ways to deal with its impact on the cost of production so as to increase return on investment as their profits shrink, Mr Butera said.

“For example, if you are going to buy machinery or some equipment for use, their prices do not fall at the same rate as the prices of the final product,” explains Mr Butera. “So you find that investment is way higher than what you get out of it.”

Value addition

There are 250 mining companies in Rwanda, among whom the bigger ones are exporters who have to get contracts in order to be able to export minerals.

READ: Failure to secure licences slows export of Rwanda’s minerals

“In a situation like this, where prices have fallen like that, most of them did not put much emphasis on obtaining those contracts,” said the RMA officials. “This means that smaller companies which are the majority, don’t have where to sell their minerals.”

According to RMA, currently some minerals — such as wolfram and coltan — do not have a ready markets. It however said there is still some market opportunities for cassiterite, albeit at very low prices, because its value has fallen by half since June.

“We still have some few contracts for cassiterite but at a very low price,” said Bucyana. “Locally, a kilo of cassiterite is around Rwf4,500 while in June it was around Rwf9,000.”

Rwanda Today has also learnt that Rutongo Mines company, which used to pay its workers at Rwf6,000 per kilo, is now paying Rwf3,000.

Industry players say that, given the uncertainty in commodity prices on the international market, the sustainable solution could be attracting investments in value addition. But that would be too huge for local companies and entering new markets could reduce their vulnerability.

Rwanda currently exports unprocessed minerals, but in the country there is only one smelting company, which adds values to minerals.

“Currently, we are more or less exporting to China and most of Asian countries,” said Mr Butera. “We do not have markets in Europe and the US.

“So, at least if we can find away of penetrating these markets, Asia would be having their competitors and we can negotiate the prices. At the moment, we only export to Asia and they are the ones who fix the prices.”

Industry players worried

Local mining industry players are also worried that their biggest partner, China, might reduce its demand in the future because Myanmar (former Burma), which is closer to China than Rwanda, could take a portion of the market as it is now producing cassiterite.

“China has been the leading buyer of cassiterite; so, there is a need to look for alternatives in Europe and the US,” he added.

The US has imposed restrictions on its minerals market, locking out imports from some countries in a bid to avoid buying from rebels and other illegal groups that traffic and route minerals to finance wars and other criminal activities.

Recently, the State Minister in charge of Mining, Evode Imena, was in the US, where he told members of Congress in that country that Rwandan minerals are conflict-free, that they are not trafficked from war zones.