eBusiness Weekly
Golden Sibanda in Victoria Falls
ZIMBABWE’s gold mining companies have demanded a 40 percentage point increase in the foreign currency retention threshold to about 90 percent arguing they need more of their proceeds in hard currency for procurement of key imported inputs.
Gold mining entities, including primary and small-scale producers currently receive 55 percent of their deliveries to the country’s sole gold buyer, Fidelity Printers and Refiners (FPR), as hard currency while the balance is paid in RTGS dollars.
FPR is the sole authorised buyer of gold in Zimbabwe and a unit of the Reserve Bank of Zimbabwe (RBZ). Captains of industry said the sector required over US$1 billion to achieve desired production target of 100 tonnes by 2023, set by Government.
More than half the capital is required for both sustenance and ramp up of production, with US$540 million (roughly 60 percent) required within the next three years.
Addressing a Chamber of Mines of Zimbabwe annual conference in Victoria Falls yesterday, chairman of the gold producers association, Thomas Gono said the current retention threshold was too low for the sector’s production requirements.
“Gold producers retain 55 percent of gold proceeds with the remainder liquidated at the interbank market at the prevailing (exchange) rate.
“The 55 percent falls short of foreign exchange requirements for the gold industry, which range
rom 70 percent to 90 percent of proceeds,” Gono said.
“There is need to guarantee adequate foreign exchange to the gold industry to allow gold producers to import critical materials for production.
“Retention thresholds should be reviewed upwards to between 75 to 90 percent in line with foreign exchange requirements for gold producers.
“The majority of suppliers are demanding payments in foreign exchange, in isolated cases where RTGS dollar is accepted, the prices are as much as 10 times the US dollar price.”
Zimbabwe Miners’ Federation President Henrietta Rushwaya, shared similar sentiments saying the small-scale miners were not amused by the 55 percent retention threshold and wanted it reviewed to at least 75 percent.
The miners are still not happy with the Reserve Bank of Zimbabwe’s threshold on retention percentage, especially that of 55 percent and 45 percent at bank rate of the day.
“Consequently, this has resulted in less deliveries at Fidelity Printers and Refiners. And our recommendations as a sector are that the monopoly being enjoyed by Fidelity needs to reviewed and gold trading liberalised,” she said.
The country’s gold miners face a myriad of other challenges impacting production.
Gono said Zimbabwe’s gold producers also faced difficulties accessing foreign exchange on the interbank market to supplement the gap in their foreign exchange requirements, resulting in input shortages and production disruptions.
Gold production, which reached a record 35 tonnes last year, has already registered a significant dip in the first quarter of this year, at 6,5 tonnes, against about 7,5 tonnes in the same period last year.
Gold mining is strategic to Zimbabwe, accounting for 25 percent of total annual exports, 7 percent of gross domestic product, contributes US$140 million to fiscus, accounts for 28 percent of foreign investment and creates 12 000 jobs out of a total of 40 000 in the country’s entire mining industry.
Gono said gold producers were also facing delays in the disbursement of foreign currency for gold delivered to Fidelity Printers.
The delays, which average three weeks, have further worsened input shortages in the gold industry.
“RBZ should reduce the turnaround period for depositing foreign exchange into nostros for gold delivered to Fidelity, to not more than seven days in order to curtail production disruptions arising from input shortages,” Gono said.
Local gold producers face a high cost structure characterised by high input costs, high cost of funding, high labour costs, and suboptimal royalty.
The country’s average all-in cost of producing an ounce of gold at US$1 080 in 2018, remains the highest in the region.
The power supply situation in the country remains fragile, which has negatively impacted miners.
Gono said most gold producers have been experiencing severe power outages with some going for seven days without power, leading to widespread output losses.
The gold industry, like any other mineral sub-sectors face multiple revenue collecting agencies; multiple legislative instruments governing the system; and multiple tax heads.
This, compounded by high royalty (which is not deductible for taxation) has not only compromised the viability of the gold industry, but also undermines the competitiveness of Zimbabwe as a destination for foreign direct investment (FDI).
Presence of extensive gold deposits coupled with idle capacity presents an opportunity for the gold sector to increase output to over 100 tonnes by 2023.
