THE Reserve Bank of Zimbabwe (RBZ), through its February 2019 monetary policy statement, reduced the 70/30% gold retention threshold to 55/45% for all miners, a move which was, however, described by miners as unprogressive in many ways.
By Dumisani Nyoni
For instance, the miners argued that the service providers and input suppliers were demanding forex which the central bank was depriving them of. In this article, we will discuss at least eight reasons why gold retention should be revised upwards.
Inputs readily available in forex
Miners who spoke to Mining Zimbabwe said the central bank should revise gold retention upwards as all inputs were readily available in forex.
“Imagine using US$300 input cost; sell your gold for US$200, the other US$100 is given in RTGS at 1:25. If you want to buy forex in order to break even at the prevailing parallel market rate, you are already running at a deficit. Most small-scale miners are shouldered out as they cannot buy the same inputs they would have used,” one miner said.
“All inputs are in forex, those in RTGS are rated at the parallel market rate that leads simply to a serious loss or dealing with the parallel market,” another one said.
In its latest COVID-19 mining sector and communities situational report, the Zimbabwe Environmental Law Association (ZELA) said in Mberengwa, equipment suppliers and lessors where miners hire pumps, compressors and jackhammers hiked prices.
In Shurugwi prices of hiring pumps and compressors have gone up from USD 50 per day to USD 80 per day.
Demoralises miners
Miners said the decision by the apex bank to impose a 55% retention threshold was akin to killing the goose that lays the golden eggs. For instance, in 2019 following the introduction of the 55% retention threshold, Zimbabwe failed to meet its gold production target of 40 tons it had set for the year.
The country’s gold output fell 17% in 2019 to 27.66 tonnes, down from 2018’s 33.29 tonnes, according to the central bank, contributing about 37% to minerals exports, down from 43% recorded in the previous year.
The decline was attributed to the unpopular foreign currency retention threshold, among other challenges, according to Deputy Minister of Mines and Mining Development Polite Kambamura.
Kambamura said the threshold was demoralizing gold miners.
At the time, Zimbabwe Miners Federation spokesperson Dosman Mangisi also concurred that “the reviewing downwards of the thresholds impacted negatively on the mining sector because it made it difficult for miners to procure supplies, plant, and equipment, most of which is imported.”
Helps curb gold smuggling
With the 70% forex retention, a range of between 20 and 30 tonnes of gold was said to have been smuggled to South Africa in 2018.
What more with the 55%? It means tonnes and tonnes of gold are finding their way to South Africa and other countries offering better prices.
As such, there is a need for the government to come up with smart ways discouraging smuggling of gold and one of them is offering miners at least 80% or 100% foreign currency retention threshold, miners say.
US$ is a stable currency
Miners also argue that US$ is a stable currency compared to the RTGS which is not stable. When the RTGS dollar was introduced, late February 2019, the Reserve Bank of Zimbabwe put an official rate of RTGS$2.5: US$1. Now the rate is standing at RTGS$45: US$1 in the parallel market and RTGS$25: US$1 at the official exchange rate.
“It is not easy to plan with RTGS because the currency is not stable. It loses value now and then,” another miner said.
Service providers demand forex
Many service providers are demanding forex payment, making the life of a miner who gets 45% in local currency, difficult.
“The other reason simply put is that milling charges and milling ores are as well in forex or gold. You will find out that milling and transport charges cost more than the cost of production itself (explosives, diesel, food and other related costs),” a miner said.
In Mberengwa, ZELA said equipment suppliers and lessors where miners hire pumps, compressors and jackhammers, hiked prices. In Shurugwi, prices of hiring pumps and compressors have reportedly gone up from US$50 per day to US$80 per day.
Workers need to be paid in forex
Recently, the Zimbabwe Diamond and Allied Minerals Workers’ Union wrote to the government seeking to be allowed to bargain for salaries in line with the forex retention threshold.
The union asked to be exempted and be allowed to demand salaries or wages in line with what the employers are retaining, meaning out of the paltry 55% forex retention, a certain percent should now go towards wages.
This, miners said, was not feasible unless the government reviews the retention threshold upwards.
Fuel easily available in forex
ZELA said access to fuel continues to be a challenge because suppliers are only accepting bond notes in cash, while Fidelity Printers and Refiners, the gold buying government arm, is making payments in US dollars and bank transfer.
“Fuel can only be purchased by exchanging the US dollars or bank balance for bond notes. As a result, the cost of fuel is high,” reads part of the report.
Small-scale gold miners need forex to buy fuel, JCBs, compressors, generators, and spare parts among other requirements. Miners need fuel for generators and other machines for dewatering processes. Hence, without enough forex, mining business is curtailed.
High forex demand
The central bank recently declared that the United States Dollar can now be used to pay for goods and services in local transactions as part of measures to deal with the coronavirus (Covid-19) epidemic.
However, this automatically gave rise in demand for forex and the gold industry in Zimbabwe is much driven by foreign currency, one miner opined.
Therefore, it is economically prudent for the central bank to give miners full value for their product, lest the sector collapses.
Miners also argued that the exchange rate is not practical considering that it’s paid electronically and that all major mining requirements are transacted by the greenback.
Article first appeared in the Mining Newsweek (Mining Zimbabwe Weekly) in the 18 May 2020 Edition