Zimbabwe gold output jumps nearly 50% in first 7 months

By Almot Maqolo
HARARE – Global all-in sustaining costs for gold increased by 14% from US$972/oz in Q2 2020 to US$1,131/oz in Q3 2021 as a result of inputs like fuel, electricity, and labor. Despite being reduced by these rising costs, average margins are still high historically.

Despite a 6% year-over-year decline, they remained well above the previous gold bull-run peak of US $552/oz established in 2012.In spite of additional pressure from ongoing cost inflation, gold miners should continue to generate high margins if the gold price remains strong in 2022. A “perfect storm” of rising investor and central bank demand amid economic and geopolitical uncertainties, as well as steadfast Asian retail demand, led Goldman Sachs to lift its 2022 gold goal to US$2,500 per oz.

It remains to be seen, however, how the plethora of challenges confronting Zimbabwean miners, such as power outages, unfavorable foreign currency retention rates, and policy inconsistency, will affect gold production in the coming months. For the past seven months, gold output has been on an upward trajectory. If it continues like that, miners are expected to cash in on an expected surge in gold prices. In the first seven months of 2022, gold deliveries to Fidelity Printers and Refinery (FPR) increased by nearly 50% to 18,94 tonnes, continuing the year’s upward trend from the 12,8 tonnes delivered in the same period in 2021.

At 11,4 tonnes, small scale miners made the most deliveries to FPR compared to primary producers, who delivered 7,5 tonnes in the course of the seven months. Small scale deliveries totaled 1.99 tonnes in July, accounting for 67% of the month’s total of 2.96 tonnes. July deliveries were 5.7% higher than the previous month and 4.9% higher than the previous year’s comparable month.

The small scale sector’s performance reached two tonnes in January and the July performance is the second highest this year, followed by June’s 1,96 tonnes. Primary producers delivered 966 kilograms, representing a 15.4% increase over the previous month. The buoyancy in the gold sector’s performance has lately been spurred by favorable commodity pricing structures on a global scale since last year.

The yellow metal is anticipated to play a key role in supporting the government’s 2022 growth target of 9% in the mining sector. In his 2022 mid-term review and supplementary budget, Professor Mthuli Ncube indicated that the government had reserved US$10 million for the establishment of gold centres in each province. This is to enhance small-scale miners’ performance with the ultimate objective of delivering three tonnes of gold per month.

On the other hand, the Reserve Bank of Zimbabwe (RBZ) noted it is facilitating a loan facility to capacitate existing and new gold mining ventures so as to increase production. It has since promised to retain the favorable incentive regime and lobby for policies that promote investments in the gold mining sector. Zimbabwe’s total foreign currency receipts are anticipated to reach US$7.3 billion by year-end, spurred by increases in mineral receipts benefiting from the mineral commodity price boom, as well as increases in agriculture and manufactured exports.

Chamber of Mines Zimbabwe(CoMZ) president Isaac Kwesu indicated that growth in output in the period under review stemmed from a number of factors, including the proliferation of new projects, particularly at Eureka, Rio Zim, Blanket Mine and How mine. “These mines have been contributing significantly,” said Mr Kwesu. Also, he noted that mines whose production costs traditionally surpassed returns had since resumed production in the face of rising gold prices.

He further indicated that the attractive gold prices were encouraging gold deliveries through formal channels. “Suboptimal mines have resumed operations in the face of firming gold prices and have significantly added to the gold output. The firming of gold prices has also seen a rise in deliveries through formal channels by small-scale miners,” he said.

Primary producers, however, indicated that they remain inhibited by the inadequate power supply and dearth of recapitalisation funding and unfavorable earnings retention policy. Access and allocation of capital remain the biggest issues facing primary producers. According to primary producers, rising exploration and production costs have been detrimental to profit margins and have left investors doubtful about engaging in new projects, mainly those of emerging companies.

Zimbabwe Miners Federation (ZMF) chief executive Wellington Takavarasha attributed the growth in gold output to fruitful engagements between players in the sector and government departments.He said cooperation with big mining operations like Freda Rebecca, through tributing of small-scale mining operations, had led to improvement in gold production. “Improvement in gold output has been driven mainly by growing linkages between ZMF and the government. This has significantly enhanced the ease of doing business with regards to small-scale miners’ operations.”

“On the other hand, gold prices are going up; it is at its all-time high, which is favorable to the sector,” said Mr Takavarasha. There has been a hive of activity in the gold sector since last year, and the sector is now seeing these initiatives bear fruit, with more than 10 major gold producers undertaking various improvements or initiatives, from infrastructure to production. Essentially, Caledonia launched its central shaft (project) this year and is expecting its production to hit 80 000 ounces this year, which is a first-time record, Freda is ramping up their production, Shamva gold mine has reopened, and many other initiatives have resulted in a significant upturn. Major players in the sector have also moved to discourage the smuggling of the yellow metal.

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