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Bullion bubble bursts


Gold’s four-months bubble burst in February as deliveries fell 34% to 1.403 tonnes from 2.136 tonnes recorded in the same period last year on the back of underperformance by small scale miners weighed down by forex and power shortages.

This is the first time in years that small scale miners have been outperformed by primary producers and will also make authorities wary of possible leakages by secondary producers as they seek better returns to evade the 55% forex retention threshold.

Since October last year to January this year, gold deliveries have been on a surge every month on the back of increased fuel allocation which had fuelled a ramp up in the production of the yellow metal.

The yellow metal is now the highest forex earner and contributes 38% of the country’s total earnings and more than 60% to the mining sector—the economy’s highest forex earning sector.

Fidelity Printers and Refiners general manager, Fradreck Kunaka told Business Times that more needs to be done to improve mining methods to improve productivity.

“In February 2020, gold deliveries were 34% down to 1.403 tonnes from 2.13 tonnes in the same period last year due to foreign currency shortages to buy equipment and consumables together with serious power shortages which mainly affected primary gold producers. Small scale miners extracted 0.69 tonnes and primary producers at 0.7 tonnes,” Kunaka said.

Gold deliveries surged 44% to 2.54 tonnes during the month of January from 1.77 tonnes during the same period last year due to increased fuel allocations to miners.

“At the beginning of the year, that is January and February 2020 we recorded a total of 3.951 tonnes of gold compared to 3.907 tonnes of gold received within the same period last year.

The increase can be attributed to deliveries brought through by gold buying agents that were issued with permits at the start of 2020,” Kunaka said.

In December 2019, the yellow metal was up 72% to 2.77 tonnes from 1.6 tonnes during the same period the previous year.

Cumulative gold deliveries fell 16% to 27.6 tonnes in 2019 from 33.2 tonnes in 2018 due to suspected smuggling and hostile mining policies.

Last year gold export receipts, slumped 28 percent to US$946m in 2019 from US$1.33bn in 2018, leaving the country with no alternatives for foreign currency as the second-highest forex earner tobacco also tumbled 7% to US$846.7m from US$907.8m due to prolonged droughts and unfavourable payment policies.

Experts said the underperforming of the small scale was due to unfavourable mining policies which remained stagnant at 55% foreign currency retention threshold against 70% in 2018.

Since 2017, the country has been grappling with foreign currency shortages, inefficient mining, and processing technologies.

But the reduction of the forex retention levels by the Reserve Bank of Zimbabwe is believed to have impacted negatively on the deliveries.

This has created arbitrage opportunities for miners to smuggle gold outside the country’s borders.

Over 34 tonnes are believed to have been smuggled out of Zimbabwe.

Gold Miners Association of Zimbabwe chief executive, Irvine Chinyenze believed monetary authorities should have increased forex retention rather than decreasing as they created a conducive environment for smuggling and arbitrage opportunities.

“The reason for the decrease in gold deliveries may be due to illegal gold miners that have wreaked havoc in the past few months though the situation is now under control.

“The fact that monetary authorities have not increased forex retention to above 55% means gold miners don’t have an appetite to sell their gold to Fidelity Printers and Refiners as they are better offers somewhere.

The trick is that they should have raised forex retention to above 80 percent to woo miners,” Chinyenze said.

Some miners, especially large scale, are believed to be selling their gold to suspected smugglers to get more forex for their operations.

Experts suggested that established mining companies with huge capital can’t be dominated by less organised small scale producers who don’t have basic machinery for mining.

Zimbabwe is targeting 100 tonnes of gold per year by 2023, a figure which is expected to help the sector to earn US$12bn yearly and only if the forex retention threshold, fundamentals and funding issues are addressed.

Gold is expected to lead the charge with US$4bn. Meanwhile, gold producers will continue enjoying the 25% forex incentive until the proposed electronic forex trading platform under the Reuters system is fully operational.

Earlier this month, Finance Minister Mthuli Ncube announced the formation of a Currency Stabilisation Taskforce where he said the gold incentive will be scrapped once the Reuters system is fully functional.

Fidelity Printers and Refiners (FPR) general manager, Fradreck Kunaka said the gold incentive remains payable until the new measures announced by Ncube are in place.

“Referring to the press statement issued on the 11th of March, 2020 by the Minister of Finance and Economic Development on the establishment of the currency stabilisation task force, it is stated that the RBZ will terminate the gold incentive facility once the Reuters system becomes fully functional and a unified exchange rate is achieved,” said Kunaka in e-mailed responses.

“Unless and until those factors have been achieved, we cannot comment as the gold incentive is still in place.”

The scrapping of the forex incentive in the gold sector is largely seen as spelling doom for Zimbabwe given the industry is already suffering from foreign currency shortages, incessant power supply and rising inflation which is putting pressure on wages, particularly for small producers.

Last week, an internal memo by FPR announced the application and scales for the incentive.

According to the memo, the incentive was implemented effective March 9. The payments are done on a weekly basis with the first one, according to the memo, expected to have been made last week.

A 10% incentive, being the least, is paid for gold deliveries ranging between 0 to 2,499kg per week.

Out of 11 categories based on weekly production, government is paying a maximum of 25% to deliveries of at least 25kg

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