Zmbabwe’s gold sector has demonstrated continued resilience, with July witnessing a significant surge in deliveries to Fidelity Refinery, the country’s sole gold buyer.
The total volume increased by 33.5% from 2,618 kg in June to 3,495 kg in July, primarily driven by increased contributions from small-scale miners.
Gold has been Zimbabwe’s main export lately, contributing an average of nearly 30% to total exports. Its importance extends beyond its economic value, as it serves as a crucial component for gold-backed coins, underpinning the ZiG currency. This makes gold a vital export mineral, anchoring foreign currency receipts and contributing significantly to the country’s economic stability.
Small-scale miners, who account for a substantial 67% of Zimbabwe’s gold sales, delivered 2,343 kg in July, representing a remarkable 45% jump from June.
This highlights the crucial role these miners play in the country’s gold production, particularly within a challenging economic environment.
Large-scale miners, on the other hand, saw a more modest increase, delivering 1,151 kg in July, up 15% from the previous month.
Major large-scale gold producers include Kuvimba Mining House, Caledonia Mining Corporation, and Padenga Holdings. Padenga is projecting a range of between 80k to 85k ounces this year while Caledonia is 74k to 78k ounces.
Despite the positive trend in July, the overall picture for the first seven months of 2024 remains mixed. While second quarter deliveries reached 7.74 tonnes, a 28% increase compared to the first quarter, this figure fell slightly below the 7.98 tonnes delivered in the same period of 2023, when challenges like electricity costs were less pronounced.
Total gold delivered in the first six months of 2024 reached 13.78 tonnes, marginally lower than the 14.1 tonnes achieved in the first half of 2023.
With the latest gold figures, the first seven months’ production has reached 17.2 tonnes against a target of 40 tonnes in just five months, leaving a gap of 22.8 tonnes to be achieved over this period.
To meet the target, Zimbabwe would need to produce an average of 4,560kg of gold each month for five months.
This assumes a consistent rate of production, which appears unlikely. To achieve this, small-scale miners would need to increase their production by an
additional 1,000 kg, while large-scale miners would also need to contribute significantly. This would also set a new record for monthly gold production.
Gold plays a crucial role in the Zimbabwean economy, contributing over 60% of foreign currency receipts.
The introduction of the Zimbabwe Gold (ZiG), a gold-backed currency, has further elevated the prominence of gold.
However, achieving the 40-tonne gold production target remains challenging due to various factors.
The gold mining sector faces significant obstacles that impede production efficiency. High operating costs and the 25% surrender portion, which depletes working capital, are major concerns.
Electricity costs, now accounting for approximately 20% of miners’ expenses, have risen significantly due to consecutive price increases by the Zimbabwe Electricity Supply Authority (ZESA) in 2023. Miners are currently paying 14.21 cents per kilowatt hour, compared to 9.86 cents in 2022.
Recurring blackouts, particularly in 2024, further exacerbate the situation. The country has experienced its worst blackouts since 2017-2018, with
outages lasting up to 10 hours per day, reaching 16 hours in July and August. ZESA’s average production of 1,200 megawatts falls short of the peak demand of nearly 2,000 megawatts.
This shortfall is attributed to low water levels at Kariba Dam which have now gone beyond 10% from 28% in the same period in 2023, which hampers electricity generation and the ageing infrastructure at Hwange Power Station. Units 7 and 8 at Hwange produce 600 megawatts, while Units 1-6 generate only 400 megawatts due to their dilapidated state. The mining sector’s power demand has reached 2,600 megawatts, far exceeding the current production capacity.
High electricity charges imposed by ZESA, reaching 14.21 cents per kilowatt, make signing contracts with them impractical for gold mining firms. This factor, along with the 25% surrender portion policy, has significantly impacted the industry, particularly large-scale miners.
The 25% surrender portion, where miners relinquish a portion of their foreign currency earnings in exchange for Zimbabwe at an overvalued interbank rate, further hinders production efficiency.
These challenges have led to a shift in dominance from large-scale miners to small-scale miners since 2017, as the former are disproportionately affected by these policies. The government needs to strike a balance between tax collection and promoting productivity, as a one-sided approach is detrimental to the sector’s growth.
The widening premium between the official interbank rate and the parallel market rate further exacerbates the situation. This premium, which reached 74% by the end of July 2024, erodes potential revenue that could be used for value addition and plant upgrades.
Companies like RioZim, severely impacted by the surrender portion policy, have seen their revenues depleted and are struggling for survival. The policy also discourages investment in alternative power projects, such as solar, as funds are eroded by inflation.
Side marketing, driven by better prices offered by informal market buyers, has resulted in significant gold smuggling. Estimates suggest a loss of $200 million to $500 million annually due to illicit gold smuggling.
This practice, coupled with underpayments by Fidelity, discourages miners from delivering their gold to the state-owned entity. Small-scale miners, often the primary breadwinners in their communities, are particularly vulnerable to underpayments and face chal- lenges with licensing, pricing, and marketing.
Another crucial area is taxation. The current tax regime, exemplified by Caledonia Mining Corporation’s 2023 tax payment of $19.2 million, is perceived as excessively burdensome. Lowering taxes would incentivize investment and encourage higher production.
A significant hurdle is the high cost of mining licenses. The current system discourages small-scale miners, who often operate with limited resources. Implementing a system of cheap licenses, as practised in some SADC countries, would significantly reduce barriers to entry and encourage participation in the sector.
Addressing these key concerns is crucial for Zimbabwe to achieve its 40-tonne gold production target. The government must prioritize policies that promote a sustainable and competitive gold mining sector by addressing the high electricity costs, revising the surrender portion policy, stabilizing the exchange rate, and tackling the challenges faced by both large-scale and small-scale miners. This will require a comprehensive approach that balances government revenue with
the need to foster a thriving gold mining industry. – (The Axis)
