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US$ 4 Billion Gold Sector target by 2023: Are we there yet?

13 May 2022

By Tatenda Mapoodze

Zimbabwe is determined to achieve an empowered and prosperous upper Middle-income society by 2030 through establishing transformative inclusive development agendas. The country has moved to a mineral resource-dependent economy and the hope remains that the extractive industry will catapult the country’s economy and hugely contribute to the achievement of an upper-middle economy. Small but incremental changes are bringing the change that is needed in order for the country to achieve its goals. 33% of the US$ 12 billion target which is US$ 4 billion is expected to come from the gold mining sector. This target is quite reasonable considering the fact that Zimbabwe was once the World’s third-largest gold producer and most of its gold reserves are still to be exploited.  

However, there are still a lot of challenges that the gold mining sector is still facing, to that end the Parliament Portfolio Committee on Mines and Mining Development (PPC Mines) together with the  Zimbabwe Environmental Law Association (ZELA) and other stakeholders recently went on a fact-finding mission to map the gold value chain and have a better understanding of the problems being faced by the players and key contributors to the gold delivery in the sector in Mashonaland West province, Masvingo province, and Manicaland province. One of the main challenges identified was the illicit gold trade in the country.

The country’s mining sector is now at 5.30 billion which is a milestone for delivering the 12 billion mining industry by the year 2023 target. This target will be achieved by opening closed mines, opening new mines, and expanding the mines that already operating. Fidelity Printers and Refinery (FPR) which is wholly owned by RBZ is the sole buyer of gold in Zimbabwe. Currently, it is paying Large-Scale Miners 98.75% of the London Bullion Market’s gold price, paid as 60% Nostro and 40% local currency which is then subjected to 5% royalty deductions. Small-scale miners’ fire assay gold price is 95% of the London Bullion market’s gold price subject to a 1% royalty deduction and payable within 24 hours of the sale.

 The first quarter of 2022 saw a total of 7.6 tonnes of gold being delivered to Fidelity Printers and Refinery (FPR) against four tonnes for the same quarter last year. The major contributor to this rise in gold deliveries is said to be the introduction of incentives. This year’s projection for gold production is 36 to 40 tonnes. FPR needs to increase its presence in gold-producing areas, and help in capacitating the miners, so that they may stop getting loans from the parallel market. There is also a need to eliminate delays in paying producers, especially the small-scale miners who live on hand to mouth basis and this forces them to end up selling their gold to the black market where they get quick cash. 

The centralized gold buying system by FPR sometimes plays a part in fuelling illicit gold trade as miners do not feel safe traveling long distances with gold without all the paperwork needed so they end up selling to the unregistered gold buyers who are readily available in all gold producing areas around the country. These then submit only a small percentage of the gold to FPR and the rest is channelled to the black market where it fetches higher prices.

Mining is a capital-intensive business and sometimes the return on investment takes a long time. Miners need financial assistance from time to time whether as capital to start their mine, to do mine exploration, to buy machinery, to develop the mine, or to invest in other ancillary services or utilities needed at their mines to boost their production. Lack of funding by official financial systems and FPR (who mentioned that they lack the financial capacity to fund the miners as their profit margin from the gold trade is very minimal). Furthermore the requirements of collateral by big official financing institutions force the artisanal miners and small-scale miners to source funds elsewhere to develop their mines and they end up getting funds from unofficial gold buyers and gold barons who have unlimited cash at hand. These buyers in return require the miners to submit all their proceeds to them so that they can deduct the money they would have lent them. Even if the miners do not owe the buyers any money, they feel obliged to sell their gold to them because their loyalty lies with the people who help them out in times of financial and other crisis. Failure to do that sometimes leads to nasty confrontations which may eventually lead to violence as some of the unofficial buyers and who cannot use the law to protect their investments in the illegal gold trade sometimes use the protection of violent machete-wielding gangs. 

Fidelity Printers and Refinery should come up with innovative ideas that allow them to match or even outmatch the gold prices being offered by the black market and drive them out of business. This can never be achieved if FPR is still willing to only act as an official gold buying middlemen in the country. They have to think outside the box and start playing a bigger role in the gold value chain by adding value to the gold they mobilise, therefore contributing more to the US$4 billion gold mining revenue target the country is marching towards. There is still a need for innovative ideas as far as the whole mineral value chain is concerned. The value addition and beneficiation innovations are the ones that will determine the future of the country’s economy other than solely depending on the endowment of finite mineral resources which deplete. Zimbabwe should also move away from selling its gold to the Rand Refinery and look for a market with more competitive prices like the London Bullion Market or any other international gold market which is better than the current market. We do acknowledge that there are efforts to join the Dubai Gold Deliveries.

As long as the FPR gold prices do not match cash availability being offered on the parallel market most of the gold being produced by the small-scale miners will always find its way to the black market and might take longer than initially planned for the country to start realizing US$ 4 billion worth of revenue from gold every year or the 100 tonnes gold delivery target which is currently set for the year 2023.

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