• Government is targeting a US$4 billion in gold revenues in 2023
• Output fell in the first quarter by 19.5%
• Gold production continues to succumb to retrogressive policies

Harare- Zimbabwe’s gold output plunged to 6.2 tonnes in the first three months to March, the latest report by Fidelity Gold Refinery shows. This was a 19.5% decrease from 7.7 tonnes delivered last year. Zimbabwe Mines Federation President, Henrietta Rushwaya attributed the decrease in gold production to a lack of equipment among small producers to dewater flooded pits during the rainy season.  However, there is more to that including erratic power supplies, the Zimbabwe dollar case and an aggressive tax regime.

The decline in gold output comes amid an ambitious US$12 billion mining industry revenues in 2023, with the yellow metal expected to contribute US$4 billion of the revenue. Mines Minister Winston Chitando initially in 2019 laid out an ambitious target to grow gold output to 100 tonnes in 2023, a target that was severally revised up to 40 tonnes by 2023. However, the revised targets are further at risk due to corruption, power challenges, lack of accountability and chiefly, lack of small-scale miners’ empowerment. 

The yellow mineral contributes 30% of Zimbabwe’s exports, overtaking tobacco which had been dominant for years. However, the first problem of Zimbabwe's gold is that the precious mineral's reserves are not officilally audited. The decline of Zimbabwe’s agricultural contribution to the economy is tracked back to the 2000s when the fast trek land reform program was initiated, to the recurring drought spells and expensive of raw materials courtesy of the Russia-Ukraine War. That is when the contribution of the golden leaf, tobacco started dwindling. The current main competing export mineral with gold are the Platinum Group of Metals (PGMS). 

Gold deliveries hit an all-time low in 2008 when 3.579 tonnes were delivered during a period of hyperinflation and economic recession. However, with the introduction of dollarisation, production output picked up throughout the years to reach an all-time high of 35.6 tonnes in 2022.

During the week ending 30 April 2023, Central Bank Governor, Doctor John Mangudya expressed interest in introducing a gold-backed central bank digital currency. This means high gold reserves will be required to support the currency. These entails the need to officially audit Zimbabwe's gold reserves and proffer accountability.

However, gold production in Zimbabwe is largely hindered by aggressive economic policies and rapid currency depreciation of local currency. With the nation plunged into the US dollar crisis and darkness due to power outages in a hyperinflationary environment of 2008, production fell to 3 tonnes. With another reintroduction of the Zimbabwe dollar in 2019, annual gold output fell 16.8% to 27.6 tonnes coming off its record highs in 2018, as producers grappled with power cuts and currency crisis. The country had a record haul of 33.2 tonnes of gold in 2018 and had targeted to grow output to 40 tonnes in 2019. However, the curse of failed economic fundamentals and the Zimbabwe dollar mix tumbled the target. 

Minister Rushwaya said the plunge in gold output for the first quarter was due to lack of sophisticated equipment by the small-scale miners, removing the large-scale miners from the mix, and that large scale miners are ready to ride.  However, statistics from large scale miners’ financial reports show that they are neither being spared from headwinds, and that the small-scale miners are facing less than they are facing. In FY2021 and HY2022, RIOZIM reported reduced output due to impact of heavy incessant rains that stalled production for some time. However, corporates go on to face tax curses, currency curses and aggressive policies curse.

The large-scale miners have been the victims of aggressive monetary policies and currency depreciation, not to mention power outages. Mining industry consumes more energy and without sufficient electricity, production is curtailed significantly. Corporates can invest in alternative power supplies, but that is altered by surrender taxes and toxic corporate taxes. Metallon Gold, the then-biggest gold producer in 2008 which supplied 50% of gold shut five of its mines while Falcon Gold closed its mine late in 2008. With the reintroduction of the Zimbabwe dollar in 2019, RioZim, production dropped by 20% to 366kg for the third quarter to September 2019, compared to the same period in 2018. In early 2019, RioZim temporarily shut down its operations over delays in gold payments from Fidelity. This was the second time, after October 2018, that the company halted operations.

That was made worse by a regressive 70% surrender tax. In 2018, miners were required to surrender 70% of their earnings to the Reserve Bank of Zimbabwe. After a warning of mass mine shutdowns, the government increased the retention to 55% from 30%. In 2020, they were reduced to 40% and in 2023 to 25% respectively. However, the surrender tax remains unfair given the rapid depreciation of the Zimbabwe dollar at a time when economic fundamentals are out of order. 

Against that, Zimbabwe s likely to miss out on both the 40 tonnes target and US$4 billion mining industry this year due to a deficit of effective policing and an erratic power supply. RIOZIM’s 100% owned gold mine, Renco recorded a decline of 37% in gold production to 174kg during the half year ended 30 June 2022 from 278kg achieved in 2021 mainly due to the scarcity of power supply by the power utility, ZESA. These, need to be addressed.

Companies have been succumbing to a 25% surrender threshold which is limiting their production efficacy, either through value addition or productivity. The surrender taxes make operations for exporting companies difficult by limiting foreign currency liquidity at their disposal. With a record power blackout in 2023, RIOZIM is likely to report another decline in gold production in FY2022 results to be released this year. In HY2022, the low gold production volumes coupled with the adverse effect of exchange rate distortions on costs plunged the Group into a net loss of ZW$5.5 billion.

One of the large gold mining corporates, Caledonia Mining reported flat results for the first three months to March 2023. Production at Caledonia’s Blanket Mine plunged by 13% from 18 515 ounces in the previous first quarter to 16 036 ounces, according to the Company’s latest trading update for the quarter ended 31 March 2023.

Caledonia commissioned a 12 MW solar plant in December 2022. However, the project is only supplying 27% of Blanket’s power demands. This means the remaining 73% should be catered by ZESA’s electricity supplies. However, due to dampened electricity generation courtesy of low water levels at Kariba Power Station and delayed commissioning of Hwange’s Units 7 and 8 to the main grid, Caledonia has to rely on alternative power sources, which are expensive, however. 

This means that funds meant for producing more gold will be channelled to fund alternative power sources. Already, companies are losing half of the 25% of the revenue they are given by RBZ at the Auction Market rate, which is doubled by the parallel market rate, the rate quoted by suppliers. 

Gold mining companies import most of their raw materials for efficient mining processes. Production at Bilboes in Q12023 was affected due to a lack of spare parts in Zimbabwe. Importing needs a huge chunk of forex as the Bond is not recognised in the international market. 

Power outages, surrender taxes and shortages of US dollar liquidity remain key challenges in gold production and against this, we predict that government will hugely miss its 100 gold tonnes target or even 40 tonnes unless otherwise.

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