By Business Reporter – Tuesday 26 May 2020
HARARE (Mining Index) – GOLD miners have welcomed the move by Fidelity Printers and Refiners (FPR) to pay 100 percent in foreign currency for all gold deliveries but have quizzed the gazetted US$45 imposed as a flat rate on every gram of fine gold.
Today, Fidelity reviewed Zimbabwe’s gold trade framework which will see small-scale gold buying agents and artisanal producers receiving 100 percent of their gold deliveries in cash at a flat rate of US$45-00 per gram.
“Small-scale gold buying agents and artisanal producers shall be paid in cash at a flat rate of forty-five United States Dollars (US$45-00) per gram of fine gold,” revealed FPR general manager Fradreck Kunaka in a press statement.
Kunaka said ‘being responsive to customer genuine concerns’ necessitated Fidelity to pay miners wholly in foreign currency.
Over the years, miners, mining associations and politicians had been clamouring for government to pay 100 percent for gold deliveries to Fidelity.
With the global gold price currently pegged at US$55 per gram, Mining Index compiled various sentiments shared by gold miners, mining leaders and experts regarding the new gold trade framework. Here is what they had to say.
“This is a good move as long it doesn’t lead to double taxation. It is a big and welcome development.”
“100 percent foreign currency retention is a step in the right direction by FPR but they cannot talk of a flat price for ASM gold producers and buyers. It can never be flat. Production and input costs are never flat.”
“Not all miners have the same cost. Neither do their mines operate at the same level on the global cost curve. Mining companies have different costs. Costs determine the sustainability of operations and when your costs are high, you need a reprieve in terms of prices. An 18% royalty or reduction can render some mines unprofitable especially when your cost drivers include high energy costs due to ring-fencing arrangements or high capital expenditure on power generation plants.”
“What happens when the world price shoots up? Do we remain at US$45 per gram or we move up also? If we move up, how quickly can we get there and how approximate? I am asking this in light of what I have observed in the fuel sector where we have seen a big drop in the world price yet we only witnessed a paltry reduction in the price of fuel. Clarification is needed.”
“A fixed price of US$45 per gram means Fidelity is fixing the price at the lowest purity level for all gold, that is not ok.”
“The moment a price is fixed then someone is bound to lose.”
“Their price is still too low compared to world market price minus the 5% royalty. FPR should pay 95% of world market price, to at least US$51.5 per gram.”
“Fidelity should actually be paying at least US$52.78 which is 95 percent of the world price after deducting a 5% royalty. In South Africa for example, for a 5-7% royalty, miners receive 93-97% of the world price depending on level of refining done. In Tanzania, miners receive 6% royalty plus handling fee when exporting gold, meaning they receive 93% of World Gold Price if they want to export gold. This means gold miners in Tanzania receive US$51.65 for their gold, that is, US$6.65 more per gram of gold. People then wonder why Tanzania’s gold mining sector is attracting more investment and doing better compared to Zimbabwe’s gold sector in terms of output.”
“It is an open secret that with such policies, the black market will remain fully intact. Deliveries to FPR will continue being flat or worse decline. The black market rate is actually now the real market.”
“The black market price is already hovering between US$48 and US$50 per gram which will remain attractive to artisanal miners. I would have preferred a free floating price even if it starts from US$45 but must have a ceiling of approximately US$50 per gram.”
Responding to why the US$45 flat rate, which is below what miners were expecting, Kunaka commented;
“I hope you would agree that the new position is an improvement from the previous arrangement, which points to the authorities endeavour to addressing the miners concerns in a win-win manner. The review in itself is a positive as it is a reflection of responsiveness and going into the future, reviews can always be done to address any issues.”
Kunaka said FPR and the National Gold Monitoring Team are enhancing surveillance to ensure all gold is sold through FPR in line with the country’s regulations.
He said small scale gold buying agents shall enter into an Agency Agreement with FPR, which contract shall clearly spell out the terms and conditions under which the agents shall operate.
The new gold trade framework also reviewed upwards local currency ratios of gold sale proceeds to 70/30.
“With effect from the 26th of May, 2020, gold producers shall be paid under a 70:30 payment arrangement scheme in terms of which 70% of the gold sale proceeds shall be paid into the producer’s Nostro account and the balance of 30% shall be paid in local currency at the prevailing exchange rate into the producer’s ZW$ account. Meaning the 55:45 percent payment is no longer applicable,” he said.
Previously, gold miners were receiving 55 percent of their gold deliveries in foreign currency while 45 percent was paid in local Zimbabwean dollars.
“Large buying agents must have a mining operation producing a minimum of fifty (50) kilograms of fine gold per month to qualify for a Fidelity Printers and Refiners (FPR) agency permit,” said Kunaka.
In the past two weeks, Fidelity had no USD to pay for gold but only had Zimbabwean bond notes.
Asked on how much USD Zimbabwe imports on a monthly basis, how much Fidelity is allocated by the central bank to cater for mining sector requirement and whether the mining sector allocation is enough to avoid future shortages, Kunaka said,
“The Reserve Bank does provide the cash to Fidelity and as such we would not be in a position to state how much is imported. As Fidelity we only request USD on demand depending on the gold inflows.”
On whether Fidelity now has enough foreign currency to pay miners, the Fidelity boss commented;
“Fidelity will always endeavour to source enough foreign currency to pay miners for gold delivered. It must however be noted that the COVID 19 lockdowns has had negative impacts on movements of which cash has not been spared.”
Gold deliveries to Fidelity for the first quarter of 2020 decreased to 5,721.71 tonnes relative to 6,523.49 tonnes delivered in the same period in 2019.
ASM deliveries for the month of March 2020 decreased to 1,061.66 tonnes compared to 1,690.63 delivered in March 2019. February 2020 was the hardest hit with a paltry 696.40 tonnes, less than half of the 1,496.27 produced in the same month last year.
FPR attributed the drop in gold deliveries to various local and global factors such as negative effects of the COVID-19 pandemic, electricity challenges affecting the country, deepening gold shafts and lack of mining equipment among small scale miners. ENDS// www.miningindex.co.zw
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