The mining industry in Zimbabwe, the world’s third-biggest platinum producer, will shrink for the first time in five years because of plummeting metal prices, high costs and a lack of capital, the Chamber of Mines has said.

The industry may contract by 2%, the Harare-based chamber says in a report.

“The sector continues to operate below capacity amidst a host of challenges, not restricted to, but including, depressed metal prices, lower capital and foreign direct investment inflows, high cost structures, suboptimal royalties and shortages of power.”

Commodity prices are near a 12-year low, with gold down 25% since the start of 2013 and platinum declining 8.2%. Zimbabwe, which has deposits of gold, coal and iron-ore, has the world’s biggest platinum and chrome reserves after South Africa. Mining is the biggest source of foreign exchange, with platinum-group metals and gold leading tobacco as the nation’s biggest exports. Companies that operate in the country include Anglo American Platinum and Impala Platinum Holdings.

Zimbabwe’s economy is projected to grow by 3.2% this year, according to the International Monetary Fund, from an estimated 3.1% last year, which was the slowest rate since contraction in 2008.

Government ignored the chamber’s request to allow royalties to be classified as a tax expense, the report says. This raises the cost of royalties by 4% to 7%, depending on the mineral, it says. Zimbabwe, which requires about 2 200 MW of power, generates and imports only about 1 200 MW, resulting in frequent blackouts.

A declining gold price and high operating costs mean most miners of the precious metal are losing $60 to $100 an ounce. A drop in royalties and lower refining charges from the central bank’s gold-buying unit, Fidelity Printers & Refiners, would help restore profitability, the chamber says.

“If there are mismatches in the gold mining sector, we must match up,” says Mines Minister Walter Chidakwa. “We’re targeting 14.5 t of gold this year. Last year, we just missed our target of 14 t when we sold 13.9 t .”

To try to encourage diamond cutters and polishers to operate in Zimbabwe, government last year cancelled royalties on gems cut in the country.