- YTD Gold Deliveries: 24,089 kg
- Q3 Gold Output: 10,309 kg, up 33% from Q2 and 20% from Q3 2023
- September Deliveries & Target: 3,414 kg (1,009 kg from large-scale, 2,405 kg from small-scale)
- Still short of revised annual target
Harare- Gold deliveries from January to September 2024 have increased to 24,089 kilograms, surpassing the 22,760 kilograms delivered during the same period in 2023 according to the latest data released by Fidelity Printers.
For the third quarter of 2024, gold deliveries rose significantly to 10,309 kilograms, representing a 33% increase from the 7,739 kilograms delivered in the second quarter.
This also marks a 20% increase compared to the third quarter of 2023, which saw deliveries of 8,590 kilograms.
Breaking down the September 2024 deliveries, large-scale miners contributed 1,009 kilograms, slightly lower than the 1,027 kilograms delivered in August and 961 kilograms in September 2023.
Small-scale miners, on the other hand, delivered 2,405 kilograms in September, up from 2,373 kilograms in August and 2,170 kilograms in September 2023.
Small-scale miners account for over 60% of the total gold deliveries, while large-scale miners contribute around 30%.
However, despite this growth, gold production remains below the government's initial target of 40 tonnes, which has since been revised downward to 35 tonnes.
Reaching Zimbabwe's revised gold target of 35 tonnes by December appears highly improbable. Delivering the required additional 11 tonnes in just three months seems daunting, considering the country's gold sector has delivered only 24,089 tonnes in the first nine months.
This translates to a monthly average of approximately 2.67 tonnes, which would need to increase by 37% to 3.67 tonnes per month to meet the target.
Historical delivery rates and industry constraints cast doubt on achieving this goal. The impending rainy season, typically spanning October to December, will likely hinder mining activities, further reducing output.
Existing challenges such as power cuts, high electricity costs, taxes, and maintenance issues continue to plague the sector.
While it's mathematically possible to reach 35 tonnes, the probability is low. Unforeseen improvements in mining efficiency, significant investments, or government interventions addressing industry constraints could increase this probability.
Favourable weather conditions which is unlikely due to La Nina could also contribute. However, based on current trends and challenges, the likelihood of falling short remains high, around 80-85%.
Achieving 35 tonnes by December would require small-scale miners to deliver around 7.7 tonnes (70% of 11 tonnes) and large-scale miners to contribute approximately 3.3 tonnes (30% of 11 tonnes) in the last quarter. Given the enormity of this task, it seems improbable that Zimbabwe's gold sector can meet this ambitious target.
Ultimately, the actual probability may vary depending on various factors. Nonetheless, the odds are stacked against reaching the revised target, highlighting the need for realistic assessments and strategic planning to support Zimbabwe's gold sector growth.
The industry has faced numerous challenges, including frequent electricity blackouts, high electricity costs, taxes, 25% export surrender retentions and maintenance issues.
Major gold producers have adjusted their production forecasts accordingly.
Caledonia has placed Bilboes under maintenance, revising its FY24 guidance from 80,000 ounces to a lower range of 74,000 ounces.
Kuvimba is also revamping its gold mines, while RioZim struggles with power cuts and high taxes, impacting its bid for a 78 MW solar plant.
To address gold leakages, the government introduced the "mine-to-market" gold traceability initiative effective on 30 September 2024.
According to Peter Magaramombe, the General Manager of Fidelity Printers and Refiners, the system will enable real-time monitoring of the gold supply chain. It will track the gold bullion weighing by producers and its subsequent delivery to Fidelity Printers and Refiners, which can then also be traced to the final market.
However, the success of this program hinges on its independence from government interference and influential individuals.
Challenges analysis
The gold mining sector is grappling with a multitude of challenges that are hindering production efficiency. The most significant obstacles include high operating costs and the 25% surrender portion of gold production to the government, which continues to strain working capital and impede operational effectiveness.
Electricity costs, according to the Zimbabwe Chamber of Commerce, now account for a substantial 20% of miners' expenses. The electricity utility, ZESA, has implemented three consecutive electricity tariff increases in 2023, resulting in miners paying 14.21 cents per kilowatt hour for power, compared to 9.86 cents in 2022.
Recurring and worsening blackouts, particularly in 2024, pose another significant challenge, further jeopardizing the attainment of the 40-tonne target. Zimbabwe is currently experiencing its most severe blackout period since 2017-2018, with blackouts lasting up to 10 hours per day, reaching 16 hours in July and the early days of August.
ZESA is producing an average of 1200 megawatts against a peak demand of nearly 2000 megawatts. The depressed power output is attributed to low water levels at Kariba Dam, which is hampering electricity generation, and aging and dilapidated infrastructure at Hwange Power Station.
The situation is exacerbated by the fact that Units 7 and 8 are producing 600 megawatts while Units 1-6 are generating less than 400 megawatts due to the deteriorating infrastructure. Consequently, the mining sector's power demand has surged to 2600 megawatts, far exceeding the current production capacity of 1200 megawatts.
On the other hand, signing contracts with ZESA for electricity supply is not a viable option for gold mining firms due to the exorbitant electricity charges, reaching 14.21 cents per kilowatt. This is a key factor contributing to the decline of once-giant mining companies like RioZim.
Furthermore, the 25% surrender portion of gold production to the government in exchange for local currency is impeding production efficiency.
Miners are required to relinquish 25% of their foreign currency earnings to the government in exchange for Zimbabwean gold, the local currency. However, the exchange rate used for this transaction is the overvalued interbank rate, which further erodes their profits.
The aggressive policies implemented towards gold miners have led to a shift in the gold production landscape, with small-scale miners surpassing large-scale miners as the leading gold producers since 2017. This shift is primarily attributed to the challenges faced by large-scale miners due to the aforementioned policies.
To restore the prominence of large-scale miners, the government needs to implement effective policy measures that strike a balance between tax collection and promoting productivity. A one-sided approach will have detrimental consequences.
A significant disparity continues to exist between the official and parallel market exchange rates. On July 1st, the interbank rate was 13.7025, while the parallel market rate ranged between 20% and 22%, creating a premium of 55%.
By the end of July, the interbank rate had risen to 13.796, while the parallel market rate ranged between 23% and 24.5%, resulting in a premium of 74%. This widening gap erodes revenues that could be used for value addition and plant upgrades.
RioZim is another company that has been severely impacted by the surrender portion policy. In 2022, the company reported that nearly half of its revenues were depleted by the surrender portion, and now the firm is struggling for survival. These policies discourage companies from investing in alternative power projects like solar, as their funds are eroded by inflation.
Another hurdle faced by the gold mining sector is side marketing, driven by the higher prices offered by informal market buyers. It is estimated that at least $200 million is lost to gold smuggling. In 2019, RioZim suspended its operations for months for the second time after Fidelity failed to pay for the gold delivered.
Small-scale miners also face similar challenges. Persistent complaints from small-scale miners regarding the high costs of mining licenses, suboptimal pricing modalities, licensing bureaucracy, underpayments, and marketing challenges continue to undermine gold deliveries to the state-owned Fidelity.
It is projected that only a quarter of the national gold output is channeled through Fidelity, with the remaining portion potentially lost to illicit smuggling, which is estimated to range from $200 million to as high as $400-500 million.
The issue of underpayments is particularly concerning, as small-scale miners, who are often the primary breadwinners, require immediate and competitive cash flow. This dynamic creates an exploitative environment that can be leveraged by gold smugglers.
To transform the 35-tonne gold production target from a mere aspiration to a tangible reality, the government must address these key areas of concern.
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