HomeOpinionGold producers to own FPR: A positive move?

Gold producers to own FPR: A positive move?

BY EBEN MABUNDA

ZIMBABWE’S Finance minister Professor Mthuli Ncube in the 2021 Budget review statement announced that 10 gold producers had agreed to acquire a 60% stake in Fidelity Printers and Refiners (FPR) — the country’s sole gold buyer and refinery for an aggregate US$49 million.

An arm of the Reserve Bank of Zimbabwe (RBZ), Fidelity, will first be divided into two before the gold buying and refining side of the business is sold.

Once split, the RBZ will relinquish a 60% stake of the gold buying and refining business to miners, while the central bank will retain 40% in the gold refinery and 100% in the printing, minting and gold financing business.

The model is akin to the Rand Refinery — South Africa’s biggest refinery — which is owned by SA’s biggest gold producers. The central bank expects that the gold producers’ compliance levels in the trading of gold will significantly increase after the bank disposes its stake.

If duly followed, the move could yield positives for the economy considering gold accounts for over 35% of mineral exports.

The initiative is meant to get rid of the prevailing inefficiencies in the gold sector, allow private players to be part of the gold decision-making process and buttress the government’s aim of attaining a US$4 billion gold trade by 2023 — a jump of over 340% from the 2020 outturn.

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 generating US$1,3 billion and US$946 million in foreign receipts for 2018 and 2019 respectively.

The current model is characterised by a rigid gold pricing regime which is not sensitive to global gold price movements nor yields to the market forces of demand and supply and is infamous for its sub-optimal price offering and payment delays to gold producers.

This then fuels the rampant side marketing due to price distortions giving rise to arbitrage, corruption and illicit financial flows within the sector.

The major source of gold submissions to FPR are the artisanal miners whose contribution has fared between 50% and 65% over the past five years.

Gold output over the last 20 years hit lows of 3,6t and 5t in 2008 and 2009 respectively — years in which Zimbabwe grappled with the twin evils of inflation and currency instability.

Notable primary gold producers  include Blanket Mine, Freda Rebecca, RioZim and Falgold. Delays in the payment of gold deliveries by FPR have in the past led to temporary mine closures by RioZim.

Reports show that the Treasury recently revealed that about US$1,5 billion worth of gold was smuggled out of the country in 2020.

Earlier this year, Tashinga Masinire was arrested at OR Tambo International Airport in Johannesburg, after allegedly trying to smuggle 23 pieces of gold from Zimbabwe.

While the plan looks solid on paper, it must be implemented in such a way that allows market forces to play without the government’s invisible hand.

As a caveat, the government is still mum on the 10 takers of the 60% stake in FPR and the breakdown of their shareholding is yet to be disclosed. I trust that on the list of 10, there will not appear some state-controlled pseudo private enterprises as that would compromise the efficiency of the system.

Gold took a tumble after the US Fed’s aggressive shift in June, when officials sped up their timetable for policy tightening and said they would start discussing scaling back bond buying. Treasuries have been rallying since the end of March even as inflation accelerates, pushing 10-year real yields to a record low. That would typically raise the appeal of holding non-interest bearing bullion, but prices are still well below last year’s high.

Gold fell 0,4% to $1 807,01 as of 8.27AM on Monday August 2, 2021 in London after rising 2,5% in July after having reached an all-time high of $2 075,47 in August 2020 as the pandemic wreaked havoc on the global economy.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net

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