• Zimbabwe's gold deliveries plunged 5% year-over-year in May to 2,734 kg
  • Large-scale miners saw a 9.6% drop in deliveries to 1,056 kg
  • Smaller producers sold 1,678 kg, down 7% year-over-year
  • Reasons behind the plunge

Harare- Amid a foreign currency crunch and the instability of the ZiG currency exchange rate which requires immense gold backing, Zimbabwe's gold deliveries have continued to plummet according to the latest data released by the Zimbabwe National Statistics Agency (Zimstat).

On a year-over-year basis, gold deliveries declined by 5% in May, dropping from 2,876 kg in May 2023 to 2,734 kg in May 2024.

With the plunge in commodity prices and a decrease in tobacco earnings due to El Nino induced droughts, gold has become Zimbabwe's last remaining lifeline amidst the US dollar crisis plaguing the country.

Gold is now more crucial than ever, as the newly issued ZiG currency needs to be backed by both physical gold reserves and cash holdings.

Large-scale miners delivered 1,056 kg, lower than the 1,070 kg they produced in May 2022 and a 9.6% decrease from the 1,168 kg they produced in April 2023. Smaller producers, who account for the majority of Zimbabwe's gold output, sold 1,678 kg in May.

This was lower than the 1,806 kg they sold in May 2022, but 38% more than the 1,218 kg they produced in April 2023. This continued dwindling presents a precarious position on the ZiG that has already depreciated to ZiG21 per US dollar on the parallel market from ZiG13 traded on the government’s governed exchange market.

On a positive note, on a month-over-month basis, production was up from 2,387 kg in April Here is the rewritten version and major gold producers Fredda Rebecca, Caledonia, and Padenga Holdings are undertaking significant project revamps to boost their gold output.

Fredda Rebecca, currently the largest gold mine, has launched a US$2 million exploration program to extend the mine's lifespan beyond the current 5 years last year. At present, the mine produces 2.5 million tonnes of ore per year and annual gold production averages 75 000 to 80 000 ounces per annum.

On the other hand, Caledonia, the second largest is seeking to revive its Bilboes mine through a US$309 million capitalization, which will increase its production capacity beyond 200,000 ounces per year while Padenga is targeting gold production of 100,000 ounces going forward, up from 80,000-85,000 ounces this year.

These expansions and upgrades by the large-scale miners are expected to significantly increase the overall gold output, which currently ranges between 75,000 to 80,000 ounces.

However, the biggest elephant in the room remains the operating environment which is suppressing growth.  This mixed gold production performance in Zimbabwe is particularly due to an aggressive tax regime, with higher taxes and a 25% surrender portion requirement in return for an overvalued local currency (ZiG).

This hinders productivity and expansion at the company level.

Besides the unfavorable tax environment, high electricity charges are also offsetting production by miners. Compared to their regional peers, electricity tariffs in Zimbabwe have become very expensive. Despite massive blackouts, the tariff was increased to US$0.1421 per kWh in October 2023, up from $0.0986 per kWh in 2022.

This substantial increase in electricity costs has eaten up at least 20% of miners' revenue.

The combination of the aggressive tax regime, high surrender portions amid a rapidly devaluating currency and the rising electricity prices are major challenges facing gold miners in Zimbabwe, offsetting the benefits of firmer global gold prices.

These cost pressures are hindering investments and dampening the sector's growth potential, despite the country's plans to boost annual production to 40 tonnes.

Gold output decreased by 14% in 2023, dropping to 30 tonnes. Platinum group metals (PGMs) production also remained suppressed throughout 2023, forcing mining companies to resort to voluntary layoffs of workers.

Due to these recurring unsolved challenges, the mining industry's growth has declined from 10.5% in 2022 to just 4.8% in 2023 with an even lower growth rate is expected in 2024 where earnings are expected to plunge to US$5 billion. Mineral export earnings fell from $5.6 billion in 2022 to $5.2 billion in 2023.

On a broader scale,  largest platinum producers, which are major contributors to government tax revenue through companies like Zimplats, have recently reported sobering earnings. Profits have been battered by prices that have slumped by as much as 11% so far this year.

In response, Zimplats is now offering staff voluntary redundancy packages in an effort to reduce costs. Zimplats' parent company, Impala, and other major platinum producers have been cutting thousands of jobs in South Africa, which accounts for around 70% of global platinum output.

The PGMs market is expected to remain weak for at least the next 12 months, with prices forecast to fall even further due to sluggish demand, according to the Zimbabwe Chamber of Mines. This outlook may trigger the suspension of some capital projects and discourage investment in exploration, further dampening the mining sector's prospects.

The combination of lower production, falling exports, and depressed profits has severely impacted the mining sector's overall performance and growth trajectory in Zimbabwe.

With gold production declining, the mining sector - once a crucial economic driver - is now struggling to provide the necessary support as the "sole remaining mainstay" for the country.

As a result, the currency crisis and earnings crisis are expected to persist, presenting additional challenges not only for the mining sector in generating funds to boost production, but also causing further hardship for the struggling populace.

The combination of the currency crisis and earnings crisis is likely to persist, compounding the difficulties faced by the mining sector in mobilizing funds for production increases. Simultaneously, these ongoing economic challenges will continue to burden the general population, exacerbating the country's overall economic distress.

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