Skyrocketing inflation, erratic power supplies, a skills shortage and a dearth of foreign exchange have combined to ensure Zimbabwe is missing out on a global boom in gold prices.
While global prices for gold hit a new record high in May, the potential benefits for manufacturers and miners are being rapidly eroded by the collapse of the Zimbabwean dollar.
Instead, the mining firms are nervously waiting to see if Zimbabwean President Robert Mugabe carries out his threats to nationalise companies that he says are allowing precious metals to be smuggled out of the country as part of a Western-inspired plot to topple his beleaguered regime.
”It’s like a vicious circle as we are not benefiting from these high international prices,” said Mark Verden, CEO of the Zimbabwe Chamber of Mines. ”The problems we have are so many. Some of our gold miners have not been paid since November last year and yet they need to import most of their raw materials.”
The world price for gold now stands at about $655 an ounce, only slightly down on the record of $688 an ounce that was recorded in May.
But while the increase has led to a rise in profits elsewhere, Zimbabwean firms have found themselves out of pocket as they can only sell their product at a fraction of the market price to the government. Only 60% of the money they receive in return is paid in hard currency, while the balance comes in the increasingly worthless local Zimbabwean dollar.
For example, when the central bank sells gold to the international market, it is paid $650 per ounce, yet local producers receive just $62,34 an ounce from the authorities.
Overall gold production in Zimbabwe is this year expected to drop to about 8 700kg from 11 354kg last year, a far cry from 27 000kg produced in the industry heyday in 1989.
Eric Kahari, chairperson of the mining house Rio Zim, said that while 2007 has been good in dollar terms, he is concerned that the company has not been paid for its gold since November last year by the central bank.
”This has created considerable cash-flow constraints for your companies with a number of projects having to be deferred and creditor obligations being breached,” Kahari said in a statement to shareholders.
Low exploration
Although the Southern African country is endowed with vast reserves of minerals such as palladium, chrome, platinum, gold, diamonds, copper, coal and nickel, exploration activity has declined in recent years.
On top of the economic downturn, the industry has also had to grapple with a fall in capacity that is being caused by a lack of parts and power and then exacerbated by a skills shortage.
A report by the Confederation of Zimbabwe Industries last month showed companies were operating at a third of their capacity, with confederation president Callisto Jokonya lamenting that Zimbabwe had ”de-industrialised ourselves”.
Power cuts lasting several hours are now commonplace and companies find it almost impossible these days to either afford or find spare parts for their ageing machinery.
The Chamber of Mines said the fall in activity is particularly damaging when rival countries are reaping the rewards of the high metal prices.
”This low level of exploration was of great concern to the mining sector especially at a time when other countries were experiencing high-level exploration and development activity resulting from high metal prices,” the chamber said in its annual report.
”No exclusive prospecting orders were approved during the last three years, the reason being that government was insisting on inclusion of black empowerment in exploration activities,” it added in reference to a government Bill that will give the indigenous blacks a 51% majority stake in all public-owned companies.
Under current laws, locals are entitled to a 15% stake in foreign-owned mining ventures, but there have been few takers. The proposed new Bill is set to affect multi-nationals including Bindura Nickel Corporation and Rio Zim.
Collen Gura, CEO of Metallon Gold, whose firm contributes 52% of the country’s output, said that while the business is no longer turning in a profit, producers can also not afford simply to shut up shop until the economic situation improves.
”The cost of restructuring once you close is great, as you risk having your equipment cracking or completely breaking down,” he said. ”Right now it is more profitable to be a supplier of goods than to be a miner.” — Sapa-AFP