HomeBusiness DigestExchange rate mismatch could hurt gold targets

Exchange rate mismatch could hurt gold targets

Ndamu Sandu

ZIMBABWE is likely to miss its annual gold production targets because of low output in the first quarter and an unfavourable exchange rate.

lvetica, sans-serif”>Figures released by the Chamber of Mines last week show that gold production in the first quarter declined 17,6% to 4 200 kg from 5100 kg in the previous year.

The decline in the quarterly output has put a damper on the annual output of 35 000 kg envisaged by the chamber at the beginning of the year.

The chamber attributed the decline to rising production costs and foreign currency shortages.

Economist John Robertson said the decline in gold production might be an indication that more people are selling the metal privately as the parallel market is giving a better rate compared to the official rate.

Currently the US dollar is trading at $20 000 on the parallel market compared to $6 000 on the official auction market.

Robertson said because of this discrepancy, there was a possibility that more gold was finding its way into the parallel rate.

“Maybe Zimbabwe is producing a lot of gold but the RBZ is not getting it because of the exchange rate which is way behind the rate offered on the parallel market,” Robertson said.

Zimbabwe’s total gold production last year reached 21 300 kg, pushing foreign currency earnings to $273,8 million from $152,3 million the previous year.

Falcon Gold, the second largest gold producer after Metallon, announced a fortnight ago that it was stopping gold production because it was no longer profitable.

Industry officials said the decline in yellow metal output over the past four years had been caused by power shortages, lack of spare parts, high production costs and an uncertain future caused by President Mugabe’s announcement that locals should be given a 50% stake in all foreign-owned firms.

In January the Reserve Bank of Zimbabwe increased the Zimbabwe dollar gold support price from $92 000 to $130 000 per gramme.

Producers are required to sell some of the metal to the central bank.

But producers say the support price requires frequent review as it is easily overtaken by high inflation which in March stood at 124%.

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