US$4bn gold trade by 2023 intangible

ZIMBABWE’S gold output plummeted 31% in 2020 to 19,05 tonnes from 27,66 tonnes in 2019 having hit a record high of 33,2 tonnes in 2018. This renders the government’s aim of generating US$4 billion from the gold sector by 2023 an elusive one, considering the yellow metal generated US$1,3 billion and US$946 million in foreign receipts for 2018 and 2019 respectively.

Eben mabunda

Feeding the trend is rampant side marketing due to price distortions and payment challenges which have given rise to arbitrage, corruption and illicit financial flows within the gold sector.

In October 2019, President Mnangagwa launched a strategic blueprint toward the attainment of a US$12 billion mining industry by 2023, in government’s pursuit to amplify the sector’s contribution to the economy. Realising the target would translate to a 275% jump from the US$3,2 billion realised through mining exports in 2018.The roadmap targets gold, platinum and diamond output of US$4 billion, US$3 billion and US$1 billion respectively.

The US$4 billion target may be a stretch but that is not a “mission impossible” factoring in Zimbabwe’s vast mineral resource base. Zimbabwe boasts of two major geological features; the wealthy Greenstone Belts (also known as Gold Belts) and the Great Dyke which home to billions worth of gold reserves and many other metals.

According to www.statista.com, Zimbabwe ranks 8th in Africa in gold production with South Africa and Ghana leading the pack at 160 tonnes and 120 tonnes respectively – based on 2019 figures when Zimbabwe produced 27,66 tonnes.

Blanket Mine is Zimbabwe’s largest single gold mine by output having produced 57 899 ounces in 2020, a jump from 55 000 ounces recorded in 2019. The mine’s 2021 production is expected to be between 61 000 to 67 000 ounces while production guidance from 2022 onward is set at 80 000 ounces. Other primary producers of note include Freda Rebecca, RioZim and Falgold. Falgold delisted from the ZSE in 2020 after failing to recapitalise its operations.

The major source of gold submissions to the country’s sole gold buyer – Fidelity Printers are the artisanal miners whose contribution has fared between 50%-65% over the past five years. Meanwhile, Zimbabwe’s central bank plans to sell a majority stake in Fidelity Printers — in a bid to boost compliance with trading of the precious metal.  However a poor regulatory framework, side-marketing and currency woes have negated the contribution of artisanal miners.

Gold output over the last 20 years hit lows of 3,6 tonnes and five tonnes in 2008 and 2009 respectively – years in which Zimbabwe grappled with the twin evils of inflation and currency instability. This suggests side marketing thrives under conditions of hyperinflation and currency woes especially in the face of sub-optimal forex retention (at 70%) as small-scale miners opt to sell their gold to South Africa and Mozambique for a 100% forex payment for their gold.

In 2019, the Treasury department admitted that only 33% of gold produced in the country is delivered to the central bank while the Minister of Home Affairs conceded that US$100 was lost through illicit trade annually.

In unveiling the US$4 billion initiative, the government committed to prioritising investments in exploration, opening of new mines, beneficiation and value addition of minerals as well as expansion of projects subject to government considerations.

This plus ceasing impunity on illicit financial flows, formalisation of Artisanal and Small-Scale Miners to optimise on their contribution to the economy would create the envied value for the sector.

Gold prices surged on Monday, after trouncing a one-and-half-month low earlier in the session, as prospects of a colossal US coronavirus relief aid overshadowed a stronger dollar and lifted bullion’s appeal as an inflation hedge. Spot gold rose 0,5% to $1 836,29 per ounce, after falling to $1 809,90, its lowest since December  2, 2020.

Mabunda is an analyst and television anchor for Equity Axis, a leading finance research firm in Zimbabwe. — ebenm@equityaxis. Twitter: @EbenMabunda.