Zimbabwe’s gold mining firms are making losses due to weak bullion prices and could collapse unless the government reduces royalties for producers, the Chamber of Mines said.
Gold is the single largest export earner in the southern African country, whose economy has flatlined as a result of lack of investment — a legacy of economic mismanagement since 2000 — electricity shortages and high cost of capital.
Spot gold rose 1% to its highest since early September to US$92,20/oz on Tuesday, having plunged to a four-and-a-half-year low late last year.
In November, Finance Minister Patrick Chinamasa reduced royalty fees on gold to 5% from 7% in the 2015 budget but the mining body, which represents all major mines, said it wanted a further reduction to 3%.
In a report issued in December in response to Chinamasa’s declaration the mining chamber said that mines were making losses of up to US$100/oz due to weak gold prices and high electricity charges.
Mines are charged higher electricity tariffs to ensure continuous supplies but this is not always the case in a country that produces 1 200MW against a peak demand of 2 200MW. The group said lower power tariffs and uninterrupted supplies would save gold mines up to US$55/oz.
“The above measures would have ensured the gold mining companies operate on a cash break-even basis and avert gold industry from collapse,” the chamber
Zimbabwe’s economy is projected to grow 3,2% this year, according to the International Monetary Fund, from an estimated 3,1% last year, which was the slowest rate since 2008. The recovery is off a very low base after years of economic mismanagement and corruption.
Chinamasa could not be reached for comment. He said in November the mining sector, which brings in more than half of Zimbabwe’s export earnings, shrank for the first time in five years in 2014 due to low metal prices.
The government has set an ambitious target of 28 tonnes of gold in the next five years, to match a record set in 1990.
Chinamasa has forecast that gold output could rise to 16 tonnes this year from 14 tonnes in 2014.
“If no immediate measures are taken, the likelihood of production reaching 1990 levels is very slim and in the extreme mines will go under care and maintenance to preserve assets,” the mining chamber said.