GOLD deliveries to the state-run Fidelity Printers & Refiners plunged by more than 50% in October as the extractive sector implodes with mining houses struggling to fund operations owing to inadequate foreign currency and other economic problems.
By Kuda Chideme
Zimbabwe is reeling from a chronic liquidity crunch and cash shortages.
Mining is the largest earner of foreign currency in Zimbabwe, contributing more than 60% of total exports, but miners are forced to surrender 70% of their export earnings to the central bank which is supposed to allocate the foreign exchange to the rest of the economy.
In exchange for the foreign currency, the central bank pays the exporter using Real-Time Gross Settlement (RTGS), crediting the exporter’s account with local currency.
As the forex shortages intensify, some miners have received only part of their allocation from the central bank while others have not received anything at all.
Outstanding foreign payments for gold producers are in excess of US$15 million.
An industry source told the Zimbabwe Independent this week that the situation had deteriorated in recent months, with most mines facing viability challenges characterised by widespread shortages of inputs and sharp increases in operating costs.
RioZim, one of the country’s top producers, has stopped operations at three of its units (Renco Mine, Dalny Mine as well as Cam and Motor Mine) after running out of consumables such as explosives, caustic soda, cyanide, activated carbon, forged steel balls and spare parts.
RioZim chairman Lovemore Chihota said in a letter, dated October 26, to central bank governor John Mangudya it had closed three mines after running out of consumables and spare parts due to lack of foreign currency.
The source added that gold deliveries to Fidelity, the central bank unit mandated to buy gold, for the month of October plunged to less than 1,5 tonnes from a monthly average of 3,6 tonnes.
As of September, gold deliveries had reached 28,2 tonnes, which is a new all-time high for the commodity.
This year the country is targeting output of 30 tonnes, but hopes of achieving that target have now been diminished by the economic turmoil.
“The entire industry was on a strong footing, evidenced by the growth numbers in the first half of the year, but because of the developments in recent months most people are considering closing shop until the situation improves,” another source said.
“So for now the majority of the mines are in survival mode, they are barely operating. If the forex is not availed, we risk reversing the gains we have made in recent years.”
Zimbabwe’s hyperinflation era, which peaked in 2008, decimated mines and industry across the country as the local currency became worthless until 2009 when it dollarised and received external lines of credit to recapitalise businesses.
“The majority of suppliers and service providers are no longer accepting payment via RTGS. You will find that in the isolated instances where RTGS are still being accepted, the prices have shot up more than three times,” the source said.
Miners have since appealed to President Emmerson Mnangagwa to have the sector prioritised and allocated foreign currency to meet their operating costs and stay afloat.
Older PostUS$4,2bn platinum deal in limbo