- Q2 output surged by 19%
- This took 1HY performance to 1072.26kgs
- This was however, lower than Padenga’s HY23 output of 1080 kgs
Harare- Caledonia Mining Corporation, the second-largest gold producer in the country, has reported a 19% increase in gold output during the second quarter of 2024, reaching 588.9 kilograms. This performance has contributed to a strong half-year (HY) result of 1,072.26 kilograms, setting a notable pace among the listed gold mining giants: the faltering RioZim and the aspiring Padenga Holdings, which has the capacity to become the largest gold producer in the near term.
While Caledonia was pleased with the latest output, which surpassed the HY2023 figures, it still fell short of the company's record HY2022 production of 1,094 kilograms. The current half-year output is also lower than Padenga's HY2023 production of 1,080 kilograms, which marked the first time Padenga overtook the industry behemoth, Caledonia. Padenga's HY2023 performance also more than doubled RioZim's half-year output.
This trend suggests that Padenga has a strong probability of surpassing Caledonia's half-year production, as the former's first-quarter output nearly reached 800 kilograms at 751 kilograms. Padenga's gold production of 751 kilograms not only exceeded Caledonia's output by a substantial margin of 52% (equivalent to 495.9 kilograms or 17,476 ounces), but it also came close to matching RioZim's total production of 940 kilograms for the entire 2023 fiscal year.
Given this momentum, it is projected that Padenga will once again lead the HY2024 gold production race, while RioZim is expected to experience a below-average performance.
Caledonia’s output decline compared to Padenga is mainly attributed to the suspension of its Bilboes operations, which the company is currently looking to recapitalize with a $309 million investment. For the full fiscal year 2024, Caledonia has reiterated its production guidance of 74,000 to 78,000 ounces, which is lower than Padenga Holdings' projected output of 80,000 to 85,000 ounces.
Meanwhile, Freda Rebecca, a subsidiary of Kuvimba Mining, typically produces up to 80,000 ounces of gold, making it one of Zimbabwe's top three gold producers, along with Caledonia and Padenga Holdings. However, Padenga's latest projections of up to 85,000 ounces are poised to surpass both Caledonia and Freda Rebecca, positioning Padenga as the largest gold producer in the short term.
In the long run, Caledonia's efforts to recapitalize the Bilboes operation have the potential to take the company's annual gold output to a record 7 tonnes, which would make it the largest gold asset in the country. This strategic move by Caledonia is expected to solidify its position as the largest gold producer in Zimbabwe.
However, the auric dynamical systems in Zimbabwe are significantly impacted by the prevailing high-taxation economic frameworks, exacerbated by the elevated electrical power expenditures. The producers are mandated to surrender substantial portions of their yields in exchange for the overvalued domestic currency, coupled with the delayed and suboptimal remuneration from Fidelity, the monopolistic gold purchasing entity.
In 2018, RioZim accused Fidelity of exhibiting tardiness in their payments, which was vehemently refuted by both Fidelity and the central banking authority. This incited RioZim to temporarily halt production operations and instigate legal proceedings against Fidelity and the central bank, seeking $92 million in compensation for the delayed payments. The arrears were eventually cleared, allowing production to resume. A similar scenario unfolded in 2019, wherein RioZim suspended its operations for four months due to the failure to remunerate gold deliveries in a timely manner. RioZim was once the preeminent gold producer among the publicly listed companies, but the government's suboptimal managerial practices, coupled with RioZim's own shortcomings, have significantly impaired its operational capacity.
This dynamic primarily affects the large-scale commercial operators, while the small-scale retailers can circumvent these challenges through illicit smuggling channels. This course of action is logically defensible, as the producers can access higher market prices for their commodities, rather than succumbing to the lower remuneration due to the burdensome production expenses, including the licensing fees levied in Zimbabwe, which have long been abolished in other SADC (Southern African Development Community) nations.
The 25% surrender requirement imposed on gold producers which miners expect will be reduced in the mid-term budget is excessively high, given that most of their operational costs are denominated in foreign currency. The expenses related to production, debt servicing, and machinery/plant upgrades necessitate the utilization of foreign exchange to facilitate settlement.
Gold currently stands as Zimbabwe's largest export commodity, accounting for a record 42.5% of May exports, and is responsible for nearly a third of the country's foreign currency receipts, while the mining sector overall contributes over 60% of the foreign currency earnings. Considering the pivotal role of the mining industry in Zimbabwe's economic landscape, it would be prudent to alleviate the cost burden faced by the producers.
The extant issue of precious metal smuggling can be largely attributed to the suboptimal remuneration schemes implemented by Fidelity. To mitigate this illicit transnational trade, the governing authorities are poised to institute a comprehensive traceability framework encompassing the entire value chain - from the extractive sites to the commercial markets. While this proposition ostensibly appears to be a panacea, it can be construed as a mere palliative measure akin to treating the symptoms rather than the underlying causality.
In addressing any complex socioeconomic challenge, it is paramount to rigorously define the problem statement and meticulously identify the primary etiological factors. In the case at hand, the principal driver of the smuggling phenomenon can be attributed to the inherent inefficacies within Fidelity's payment disbursement mechanisms - the delayed and inadequate remuneration to the small-scale miners incentivizes their circumvention of the formal channels in pursuit of more lucrative prices in the parallel markets.
Zimbabwe aspires to achieve a gold production target of 40 metric tons for the current year, a notable increase from the 30 metric tons realized in the preceding cycle. However, the gold deliveries to Fidelity during the second quarter of 2024 stood at 7.74 metric tons, representing a 28% increment over the first quarter's 6.04 metric tons, yet still trailing the 7.98 metric tons recorded in the corresponding period of 2023.
Cumulatively, the gold volumes channelled through Fidelity in the first half of 2024 reached 13.78 metric tons, falling short of the 14.1 metric tons delivered during the same timeframe in 2023.Deliveries closed the first quarter at 6044 kgs lower than 6194 kgs in 2023 and significantly below 7694 kgs in the first quarter of 2022, a record-breaking year.
The government needs to provide tax relief and incentives to gold producers in Zimbabwe in order to enable them to capitalize on the higher global prices for the precious metal. Additionally, Fidelity, the state-owned gold buying entity, must ensure timely and improved payment terms to the producers.
This is crucial given that Zimbabwe's new currency is now backed by the country's gold reserves. Running away from the formal Fidelity channel will not be viable option for producers given the prices offered by the monopoly are superior or even closer to the parallel market.
Thus, the government needs to address the structural issues within the gold trading ecosystem, including providing tax relief, ensuring prompt payments, and addressing any potential anti-competitive practices, in order to incentivize producers to sell through the official channels and boost the country's gold reserves to support the new currency.
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