Over US$1bil capital needed to unlock gold sector – CoMZ

The gold industry requires in excess of US$1 billion in funding in the next 5 years to sustain growth and development, the Chamber of Mines said after reviewing factors that might hamper the achievement of the US$4 billion gold target.

According to the Chamber of Mines Chairperson for Gold Producers, Mr Qubeka Nkomo, for the country to unlock the potential of the gold sector for sustainable economic development, adequate funding, adequate foreign exchange allocation, adequate and affordable electricity and other factors including a conducive operating environment and system are pivotal for the sector’s contribution.

Nkomo also said the government through the Ministry of Finance should review contentious foreign currency retention thresholds for gold miners to help the industry grow and suggested that the retention should not be below 80 per cent. However, some miners have been suggesting that 100 per cent foreign currency was necessary for the sector’s growth trajectory.

“The gold industry requires in excess of US$1 billion in the next 5 years to sustain growth and development of the sector and achieve output targets, local financial market has limited capacity to finance such huge capital requirements on the back of liquidity challenges and indeed where available such finance is very costly.

“The current 60 per cent foreign currency returned by gold producers is not enough to meet other operational requirements and expansion projects. Meanwhile, the 40 per cent surrender portion which is liquidated at interbank rate is unfairly compensated due to the disparities between the interbank rate and the hugely depreciated parallel market rate which is applied by most suppliers.

“Statistics from gold producers show that the optimum retention that allows gold producers to achieve their production target and expansion project is approximately 80 per cent.

“Foreign investors are demanding gold producers to use their gold as security to secure funding, some are raising concerns about the current retention framework which they say is not supportive of additional capital injections into the gold industry. Therefore there is a need by the government to relax the marketing arrangements and allow gold producers to export their gold and use it for capital raising while also reviewing retention levels,” Nkomo said

Nkomo also said that the gold industry has the potential to produce 60 tonnes of gold which will be nearly double what was produced last year (31.5 tonnes) if bottlenecks affecting the growth of the sector are addressed.

“The presence of extensive gold deposits coupled with idle capacity, present an opportunity for the gold sector to grow and maximize its contribution to the socio-economic development of the country. The gold industry has the potential to grow and surpass annual production of 60 tonnes in the next 5 years with revenues exceeding US$3.5 billion per current gold prices. To unlock this potential there is a need to address structural bottlenecks that continue to ware down on the performance and growth of the gold industry,” Nkomo said.

He also acknowledged that lack of exploration was hindering the growth of the gold sector noting that the country’s gold industry should be in the top 5 gold producers in the world.

“Zimbabwe is rich in gold deposits, gold mining in Zim stretches back to the pre-colonial time as evidenced by the many ancient workings in many parts of the country. Yes, the country boasts of more than 4000 recorded gold deposits. The mineral resources series 23 of the geological survey of Zim indicates that in terms of gold production per square kilometre, the country is ranked above traditional big producers that include the USA, Canada, Australia and Brazil. The country has however remained largely under-explored impacting negatively on potential growth of the gold sector,” he said.