Zimbabwe could have lost more than US$1.8bn in the first 10 months of the year largely due to gold smuggling triggered by payment delays for the yellow metal delivered to Fidelity Printers and Refiners (FPR) and other unfavourable mining policies, estimates show.
Gold miners this week said the payment delays have severely impacted the production cycle as companies are now left with no capital to continue with operations.
Gold is Zimbabwe’s single largest foreign currency earner and contributes nearly 40 per cent to overall export earnings.
Apparently, FPR is said to be taking at least eight weeks to clear payments to gold miners.
This has resulted in delivery to sole buyer Fidelity falling.
The payment delays have forced miners to dump Fidelity and now want to sell their yellow metal through the banks in order to get paid on time and access bridge finance to fund their operations.
Gold Miners Association of Zimbabwe chief executive Irvine Chinyenze told Business Times that the delay in payments and unfriendly mining policies have created arbitrage opportunities for smuggling.
“Zimbabwe has lost gold in the region of between 25 tonnes and 30 tonnes up to the end of October to smuggling due to failure by the sole gold buyer to pay miners on time.
This means that the country has lost between US$1.5bn and US$1.8bn through illicit dealings,” Chinyenze said.
Chinyenze said one of the biggest factors that was aiding smuggling was that the country does not have a viable gold purchasing policy and the fact that Fidelity has a monopoly in prices “means they somehow lag behind the international market prices and that encourages people to break the law and look for lucrative markets”.
“If we offer lucrative gold prices, smuggling will be reduced significantly as there would be no motivation to do so,” he said.
As of yesterday, gold fetched US$60,626.66 per kilogramme on the world markets.
Fidelity Printers is offering US$53,000 per kg.
Gold producers are said to be happy selling their gold to barons who pay 100 per cent foreign currency and on the spot.
Cumulative gold delivery figures up to September 2020 have fallen 28 per cent to 14.76 tonnes compared to 20.64 tonnes delivered in the prior comparative period.
Zimbabwe’s cumulative bullion export receipts have also gone down 4.9 per cent to US$641.3m during the first eight months of 2020 from US$674.4m earned during the comparative period in 2019 due to a huge fall in July and August gold deliveries.
In their 2021 budget submissions, gold miners through the Chamber of Mines of Zimbabwe said the delays in payments by Fidelity has left them vulnerable and unable to pay their suppliers.
This has also resulted in input shortages and production disruptions.
In the latest state of the mining sector report, launched last week, miners expressed disquiet and challenged the central bank and treasury to come up with a framework that ensures miners are paid on time.
The Chamber said it has been inundated with complaints from gold producers who want to see the end of Fidelity’s monopoly as is the case with other countries.
“Majority of the respondents reported that financial institutions are demanding monetary authorities and mining companies to agree on modalities that minimises counterpart risk including setting up collection accounts for gold producers or allowing them to sell gold through the lending institutions,” the miners said.
The miners’ demands come at a time when CBZ and ZB are involved in the buying of gold.
But, analysts said this would not change anything as the framework was being applied by governmentinclined banks only.
These banks are believed to be purchasing gold on behalf of FPR.
ZB’s involvement in the buying of gold is just providing the FPR with some spaces to use in 10 buying centres across the country, according to ZB CEO Ron Mutandagayi.
“We don’t touch any single gram of gold, we just have gold clients that have opened their accounts with us.
The money we got is that from Fidelity, nothing else,” Mutandagayi told Business Times.
However, FPR has come under the spotlight, with miners recommending the liberalisation of the industry.
Mining has emerged as the cornerstone of the economy and the bulk of the yellow metal has been delivered by the small scale miners.
The miners have since engaged the Reserve Bank of Zimbabwe on the issue and other matters including foreign exchange retention and compulsory liquidation of unutilised export earnings.
More than 70 per cent of the miners also bemoaned the disqualification of mining companies with positive nostro balances arguing that it is negatively affecting their ability to raise additional forex to fund capital projects.
Consequently, several big mining houses, including RioZim and Falgold, early this year temporarily stopped operations due to the delays in the payment of the bullion delivered.
They remain in the red. Large scale producers are not happy with the monopoly by Fidelity Printers saying this creates arbitrage opportunities due to delay in payments.
Several analysts said in many other gold producing countries, the marketing of gold is liberalised with banks and other institutions participating.
The problems with Fidelity have resulted in significant amounts of gold now being traded on the black market or smuggled out of the country.
Gold leakages are now one of the biggest drawbacks bedevilling the mining sector in Zimbabwe.
Market watchers say that some producers, especially those in the small-scale and artisanal mining sector, end up channelling their produce to the black market due to the inefficiencies of the state buyer.
Recently, Finance Minister Mthuli Ncube revealed that more than 30 tonnes of gold had been smuggled into South Africa and other countries.
He said leakages have been depriving the country of foreign currency earnings.
Last week, the Zimbabwe Miners Federation (ZMF) president, Henrietta Rushwaya was arrested at Robert Mugabe International Airport on allegations of attempting to smuggle more than 6kgs of gold to Dubai.
Also arrested were gold dealer Ali Mohammed, state intelligence operatives Stephen Tserayi and Rafios Mufandauya as well as ZMF employee Gift Karanda.
Zimbabwe is targeting 100 tonnes of gold a year by 2023, a figure which is expected to help the sector to earn US$12bn yearly.
Gold is expected to lead the charge with US$4bn. But, several analysts said the government needs to move in to curb these leakages if it sets a target of 100 tonnes per year by 2023.
FPR general manager Fradreck Kunaka said the Covid-19 induced restrictions affected the movement of cash and gold to the export markets thus compounding the situation.
This resulted in some delays of up to one week.
“As FPR, we always endeavour to pay our clients for all deliveries they would have made, it is unfortunate we have had to delay some payments due to circumstances beyond our control and we wish to apologise for the inconvenience caused to our clients,” Kunaka said, adding the situation would improve as the lifting of restrictions will scale up the inflow of cash into Zimbabwe.
Kunaka said the sole buyer of gold aims at offering the miners value for their gold with large scale suppliers being paid through the banking system and Fidelity’s gold prices benchmarked against the prevailing LBMA.
Large scale miners are paid at the prevailing international prices less statutory deductions and FPR charges. – Business Times.