Zimbabwe is missing out on gold's rally

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  • Policy missteps by the Zimbabwean authorities have caused the country to miss out on gains it could have harvested from record-high gold prices.
  • Zimbabwe is targeting billions in annual earnings for gold by 2023, but those plans are under serious threat amid the government's failure to pay miners and bullion smuggling. 
  • Gold deliveries in the country for the nine months to September slumped to 14.7 tons from 20.8 produced for the same period in 2019.

Gold might have rallied to a record high above US$2 070 this year, but policy missteps by the Zimbabwean authorities saw the southern African country missing out on the uplift.

Zimbabwe, which has an ambitious plan to grow the mining sector's annual earnings to US$12 billion by 2023, has a target of a US$4 billion contribution for gold.

The target would mean improving on its 2018 record gold earnings of US$1.3 billion, achieved from deliveries amounting to 33.2 tons. 

Such plans are, however, under serious threat amid the government's failure to pay miners. 

Zimbabwe's sole gold buyer, Fidelity Printers and Refiners (Fidelity), which is owned by the Reserve Bank of Zimbabwe has, since 2018's record output, experienced a slump in both gold deliveries and earnings. In 2019, the country earned US$946 million from the delivery of 27.6 tons of bullion. 

The downturn in output has continued this year, notwithstanding that gold mining was declared an essential service during the Covid-19 lockdown period.

According to figures released this week by Fidelity, gold deliveries for the nine months to September slumped to 14.7 tons from 20.8 produced for the same period in 2019.

Deliveries for the three months to September were the year's lowest quarterly outturn down 17.4% from the previous quarter.

The month of September outturn paints a gloomy picture after official deliveries plunged 50% to 1.4 tons from 2.8 prior year comparative.

Gold smuggling problems

Last month, Home Affairs Minister Kazembe Kazembe said Zimbabwe was losing at least $100 million worth of gold every month due to smuggling

Finance Minister Mthuli Ncube this week reiterated that "smuggling remains a challenge".

"The figures are large. I don't know how gold leaves the airport, but it leaves, we are told on some flights. How it leaves, whether scanners go off at an opportune time or not, I don't know," said Ncube.

Critics, however, have blamed the fact that payments being made in the unstable and shunned local Zimbabwe dollar. Gold miners can only keep 70% of their earnings in hard currency, while the balance is converted into Zimbabwe dollars - a currency that has depreciated from an exchange rate of 25 to the greenback to the current 81.34.

RioZim, one of the country's biggest gold producers, said in June it was owed US$2.46 million and Z$65 million in gold payments. When it released its results for the half year to June, RioZim made a similar claim.

It had incurred heavy losses "as a portion of the group's revenue was being received at an inferior fixed interbank exchange rate".

Zimbabwe had a fixed exchange rate between the end of March and end of June.

In July, the Chamber of Mines Zimbabwe said payment delays have resulted in working capital shortages and production disruptions, "weighing down the potential gold output to as much as 25%". 

Payments to small-scale miners are also unacceptably delayed, with Fidelity operating a T+5 payment cycle as forex shortages weigh. This against a promise to pay on delivery.

Fidelity general manager Fradreck Kunaka said Zimbabwe was unable to import enough US dollars to pay miners.

RBZ deputy governor Khupikile Mlambo told a media briefing one of the reasons why gold was being smuggled was that countries around Zimbabwe "are paying a rebate on the gold and we have not been able to do that".

Not the first time

Interestingly, this is not the first time Zimbabwe has missed out on a gold price rally. In 2009, gold prices rose as high as US$1 227.50 but it could not benefit as it was going through political turmoil and world-beating hyperinflation.

It was a similar story in 2011 when gold rallied to US$1 900, but Zimbabwe was busy scoring own goals and missed out on the rich pickings.

In 2010, a year before the gold rally, it implemented indigenisation and economic empowerment laws that compelled miners, including gold producers, to cede 51% of equity to indigenous Zimbabweans.

The indigenisation laws have since been scrapped with the government acknowledging they were discouraging investments. 

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