• July Gold Surge: A 33.5% jump from June, driven primarily by a 45% increase in contributions from small-scale miners
• Half-Year Comparison: While second-quarter deliveries to Fidelity were up 28% compared to the first quarter, the overall gold delivered in the first six months of 2024 fell slightly below the same period in 2023,
• Target Under Threat: The government's goal of achieving a record 40 tonnes of gold production this year faces significant challenges, including high operating costs, electricity shortages, and policy hurdles

Harare- Zimbabwe's gold sector has demonstrated remarkable resilience, with July witnessing a substantial surge in gold deliveries to Fidelity Refinery, the nation's sole gold purchaser.

The total volume of gold delivered experienced a robust 33.5% increase, soaring from 2,618 kilograms in June to 3,495 kilograms in July. This surge was primarily fueled by a significant uptick in contributions from small-scale miners.

Small-scale miners, who constitute a staggering 67% of Zimbabwe's gold sales, delivered 2,343 kilograms in July, representing a remarkable 45% jump from the previous month. This surge underscores the pivotal role these miners play in the nation's gold production, particularly within a challenging economic landscape.

Larger producers, conversely, witnessed a more modest increase, delivering 1,151 kilograms in July, a 15% rise from the preceding month.

Despite the positive trend observed in July, the overall picture for the first half of 2024 remains somewhat mixed. While second-quarter deliveries to Fidelity reached 7.74 tonnes, a notable 28% increase compared to the first quarter, this figure fell slightly below the 7.98 tonnes delivered in the corresponding period of 2023.

The total gold delivered in the first six months of 2024 reached 13.78 tonnes, marginally lower than the 14.1 tonnes achieved in the first half of 2023.

The government has set an ambitious target of achieving a record 40 tonnes of gold production this year.

However, given the current pace of production and the challenges faced by the sector, this goal appears to be a formidable hurdle. The first-half performance of 2024 falls short of the corresponding period in 2023, raising concerns about the feasibility of reaching the ambitious target.

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.

O 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 40-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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