Zimbabwe’s currency crisis hits
gold production
05
August 2019
Inflation,
currency shortages and energy shortages are taking their toll on gold production
in Zimbabwe, causing hardship for miners and reducing export receipts. Tendai
Marima reports on the problems and how they can be addressed.In the 1800s,
British colonists in South Africa trekked up to Zimbabwe, attracted by rumours
of a land rich in gold. While many were disappointed and quickly turned their
attention to agriculture, their initial instinct proved partially correct, with
small deposits supporting a modest industry for the precious metal to the
present day.
Today,
gold mining in Zimbabwe is struggling to maintain its historic role, as the
country faces its worst economic crisis in a decade. Rampant inflation,
currency shortages and a severe energy crisis have hit artisanal miners and
larger producers of the yellow metal, threatening export earnings. Analysts are
calling on the government to urgently address multiple issues plaguing the
industry.In June, as part of a raft of austerity measures aimed at reviving the
economy, the minister of finance, Mthuli Ncube, announced the end of the
country’s decade-long multiple currency regime – which had permitted the use of
the US dollar and South African rand in daily trading – in a bid to revive
Zimbabwe’s own long dormant currency. However, the partial introduction of a
quasi-currency known as the RTGS dollar has resulted in inflation soaring as
high as 176% in June, the highest since the Zimbabwe dollar collapsed in 2008.
Earnings drop
In
Inyathi, a gold-rich area in southwestern Zimbabwe, artisanal miners say that
the reversion to a single currency system has hit earnings and dampened hopes
of economic recovery. By law, gold miners are required to sell their production
to the Reserve Bank-owned Fidelity Printers and Refineries, the sole official
gold buyer, refiner and exporter. Fidelity has tried to incentivise small-scale
miners to use the official channel by offering a gold support price. The
incentive, which starts at $1,368 per ounce, is on average 7% more than the
daily gold trading price set by the London Bullion Market Association, but
there is a catch.
Fidelity
pays at least 55% in US dollars, but 45% in the unpopular RTGS dollars at the
prevailing exchange rate. The rapid devaluation of the RTGS has made miners
like Cosmos Dube weary of selling gold to Fidelity. Dube says that the support
price has dipped below the true value of his gold due to the constant weakening
of the RTGS against other currencies.“Selling to Fidelity is like giving away
my gold for free,” he explains. “I work hard just to get a few grams of gold,
but what I’m getting from Fidelity is not equal to the work I put in. The bond
note [RTGS] is worthless. If you get it today, by tomorrow prices in the shop
would have gone up so there’s not much you can buy. It would be better if we
were just paid in US dollars only – it has a steady value.”
The
low prices offered by Fidelity have seen Zimbabwe’s gold export receipts dip by
17% from $330m in the first quarter of 2017 to $273.5m in the first quarter of
2018. Some turn to illegal mining; Zimbabwe loses up to $180m annually to gold
smuggling. Illegal artisanal miners frequently toil in dangerous conditions. In
February, at least 23 were feared dead after a gold mining shaft was flooded. As
well as struggling to attract and retain supply from artisanal miners, Fidelity
is embroiled in legal disputes with larger mining houses relating to its past
dealings. In November, it was reported that Zimbabwean miner RioZim had
launched a $92m lawsuit intended to force the Central Bank to pay for more of
its gold purchases from the company in US dollars. According to Reuters, RioZim
says it failed to receive $48m due in payments from the Central Bank for its
sales in dollars and suffered losses of $44m due to lost production.In May it
was reported that Metallon Gold, a South African company, had launched legal
action to recover an alleged $132m it claims it is owed for gold deliveries
dating back to 2016.Eddie Cross, an economic analyst and member of parliament,
believes that the Reserve Bank has bought up the gold in order to settle debts.
“They are buying gold to settle the bank’s external liabilities,” he says.
Infrastructure deficit
Those
external liabilities are likely to mount unless President Emmerson Mnangagwa
can inject momentum into a much-needed economic recovery. The IMF predicts the
economy will shrink by 2.1% this year. The president has promised to woo
investors by amending controversial indigenisation policies, and in March,
Ncube pledged to amend a rule requiring investors to cede 51% stakes in diamond
and platinum mining operations to local investors. Yet even if the country
takes decisive action to attract miners, a vast infrastructure deficit built up
by years of underinvestment means that many struggle to see the upside. Patrick
Imam, the IMF’s representative in Zimbabwe, says power and fuel shortages
stifle efforts to grow the economy.
Large
energy-consuming gold miners remain underserved by a sole hydro-electric power
plant and outdated coal stations, which offer a costly and erratic supply
defined by lengthy blackouts. The Kariba Dam in the northwest is only producing
a third of its capacity due to low water levels as a result of the El Niño
drought.In March, officials said gold miners may again face higher costs and
may need to fall back on expensive diesel generators. Mines have been given the
costly option of paying for power in foreign currency to secure supply.At
Blanket Mine, a gold excavation site in southwestern Zimbabwe run by
London-listed Caledonia Mining, power shortages have dogged operations. In the
first quarter of 2019, the gold producer recorded an output of 11,900 tonnes,
below the quarterly target of 13,250 tonnes. While the mine has generator
facilities, it has struggled to access a steady supply of diesel due to acute
fuel shortages arising from national currency constraints.
“Our
technical team has worked tirelessly to mitigate the effects of electricity
supply interruptions and we continue to work closely with the Zimbabwe
Electricity Supply Authority to address these challenges as well as investing
internally to improve our resilience,” says CEO Steve Curtis. Cross says
Zimbabwe is likely to be faced with severe power challenges for a number of
years and urges the government to take swift action in order to support the
gold sector and other miners.“The state must urgently address the need for
imports and must allow duty free importation of all solar power components so
that consumers can make alternative sources of electricity.” Faced with
multiple challenges, Zimbabwe’s legal gold producers require further
legislative certainty and national infrastructure improvements if their
historic role in the economy is to be maintained.
Source:
https://africanbusinessmagazine.com/