Government ‘to liberalise’ gold sector

ZIMBABWE is seriously contemplating to “liberalise” its gold sector, as part of measures to stem black market leakages and attract capital into the key mining industry sub-sector, it has emerged.

Finance Minister, Mthuli Ncube

This comes as the country’s new economic blueprint, the National Development Strategy (NDS1) says Harare is to “strengthen its metallurgical and monitoring mechanisms to contain smuggling”, and organisations such as the Zimbabwe Miners Federation, and Better Brands Jewellery have hailed the new mineral-beneficiation moves.

“…naturally within the gold sector we want to continue with reforms so that we can increase deliveries to Fidelity Refiners and Printers (FPR),” Finance minister Mthuli Ncube (pictured) told The Financial Gazette last week without going into detail about whether the Reserve Bank of Zimbabwe (RBZ) subsidiary’s monopoly would be broken.

“We can offer gold producers a fair price and pay them on time. It will be critical that all (bullion) is accounted for and we are able to maximise on our gold as a hard currency mineral,” he said.
“We want to maximise on gold deliveries, so that (it) can go a long way in supporting our balance of payment position. It will also support our desire to access additional credit lines from abroad.
“We have tried to support the sector through productive sector loans for small scale gold producers. We have a fund through Fidelity and we will be capacitating that fund to ensure more… is produced and sold there,” Ncube said.

With official statistics showing that yellow metal deliveries have declined by 43 percent — to 1,4 tonnes in October as compared to 2,4 tonnes last year, and a majority of which private players, including Skorous Investments say is being carted to places like Dubai — the government plan also includes the establishment of minerals commodity exchange, increasing exploration, revisiting current agreements and ways of “bolstering the surveillance as well as quantification capacities of various regulatory bodies or institutions”.

“In order to curb under-declaration, the government will upgrade its metallurgical laboratory to meet internationally-accredited standards and ensure mandatory valuation of all export consignments. This will be complemented by installation of weigh bridges at all ports of exit,” the recently launched economic document said.
“To reduce smuggling, the government will strengthen metallurgical accounting by capacitating the Minerals Marketing Corporation of Zimbabwe (MMCZ), Minerals Fauna and Flora Unit.

Further, Zimbabwe Revenue Authority (Zimra) will address transfer mispricing of minerals ..,” the NDS1 said.
On his part, MMCZ general manager Tongai Muzenda has also confirmed monitoring was being scaled up and at a time it is also believed FPR’s high taxes — amounting 17,5 percent were also partly responsible for encouraging leakages.

Minister of Mines Winston Chitando

“Part of our mandate is to monitor mineral exports and we have systems in place to strengthen metallurgical accounting to curb leakages, we don’t deny that there are leakages. We will further enhance them as we continue to strive to make sure the country gets maximum benefits from its minerals,” he said.

However, analysts such as Victor Bhoroma believe a liberalisation of the gold sector would be a tall order — an issue central bank governor John Mangudya has previously hinted on.
“The government will undoubtedly push for a policy where it maintains control while opening more gold buying centres across the country. Without doubt the monopoly has its downside in terms of denting viability and inducing inefficiency in the mining value chain. The loopholes are to blame for the rampant smuggling where gold worth over US$1,5 billion is smuggled to South Africa (SA) and Dubai every year by various syndicates,” he told The Financial Gazette.

“What is needed (from FPR) is paying a competitive price benchmarked on the London Bullion Market Association (LBMA) and… on time. In the absence of this mechanism, there is need for liberalisation provided the central bank has oversight and control on the marketing and exportation of the precious mineral,” Bhoroma said.
He said the inefficient settlement process where payments are delayed and 30 percent is exchanged for a local currency at prices below open market prices scares away investors.
“Remember miners are paying for almost all costs of production in US dollars or through Zim dollar prices indexed to the US dollar using parallel market rates,” Bhoroma said.

His statements also come as the Chamber of Mines of Zimbabwe (CoMZ) has said a majority of its members have said their ability to raise capital to the tune of US$300 million is being impaired by myriad challenges, including production costs, currency and power shortages.

“This depends on authorities addressing matters raised by lending institutions, which include the… setting up of collection accounts with lending banks to guarantee repayments, minimise counterpart risk and allowing gold producers to sell their gold through.. banks either individually or collectively through… CoMZ,” it said in a recent white paper.
With the average capacity utilisation for bullion producers at 58 percent — down three points from 2019 — another economist Respect Gwenzi not only says Zimbabwe risks losing out on the current gold price boom, but its small-scale miners remain vulnerable to side marketing.

“Policy makers should find a balance between shoring up scarce forex and encouraging production, lest the benefit of tighter controls be outweighed by the loss of production and higher receipts in a boom year such as 2020,” he said.

Assuming the country would have met its target of 40 tonnes, net annual gold receipts would have swelled past the US$2 billion mark, at US$2,2 billion for the first time in the history of Zimbabwe, Gwenzi said.

“The magnitude shows the relative importance of gold and… Zimbabwe’s economic development and growth prospects. Failure to craft policies that encourage investment in the gold sector and mining sector in general, derail the country’s efforts to reconfigure economically,” he said.

Gold buying in most countries is mainly reserved for the central bank, but the difference is that settlement is done through an efficient scheme benchmarked on the LBMA where prices are set twice daily and meaning producers can easily liquidate their earnings on the foreign currency market.

While Ncube and institutions such as the CoMZ project gold deliveries to end the year at 28 tonnes, this was a reflection of poor FPR prices — amid a boom on the international stage — and probably the high taxes, which make the local market unattractive.

“In order to bring transparency and fair share of government in minerals exploitation, NDS1 will prioritise formation of an investment committee comprising (the president’s office), Zimbabwe Investment Development Agency in assessing capable investors and overseeing investment agreements,” the blueprint said, adding unlocking the sector’s potential requires guaranteed long-term financing.

“…establishment of a gold reserve fund will be prioritised as a vehicle to mobilise finance. This will be complemented by setting up of a minerals commodity exchange, which will trade all other minerals, except for gold,” the NSD1 said.

“Growth of the mining sector will be anchored on opening of new mines… closed ones, projects expansion… and value addition and beneficiation. Key flagships during NDS1 include platinum, chrome, gold and coal projects,” it said.
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