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Gold price framework condemned

BY MTHANDAZO NYONI

ZIMBABWE’S sole gold buyer, Fidelity Printers and Refiners (FPR), must align the price for gold deliveries from artisanal and small-scale miners (ASMs) with those on the international market to promote transparency and responsiveness of its gold price, a new report says.

FPR recently announced a gold trading framework, which provides for a flat price of US$45 per gram delivered by small-scale producers and a 70/30 framework for large-scale gold producers.

But a new report compiled by the Zimbabwe Environmental Law Association (Zela) reveals that instead of coming out with a flat fee of US$45 per gram of gold, FPR must offer prices aligned to the international market to curb gold smuggling activities.

“The fixed rate of US$45 will not be responsive to gold price movements on the international market,” the report reads in part.

“On the day that FPR announced the new gold trading measures, the international market offered US$54.8 per gram of gold.

“Thus, FPR is paying 17.88% less than what is offered on the international market bearing in mind the price can change.

“The price difference is quite significant, and it leaves a gap for illicit gold trade to continue thriving.”

Zela said it appeared that FPR wanted to match the illicit market price per gram of gold of US$45 but as is the norm, the illicit market responded by hiking its price from US$45 to US$48 per gram.

“If the changes on the international market remain buoyant, unless adjustments are made timely, the impact of the new trading requirements is less likely to achieve the intended results of mobilising more gold deliveries to the formal market,” the report says.

“As it stands, FPR is likely to reverse the trend of falling gold deliveries from artisanal and small gold miners although it might fall short of extinguishing the illicit gold market.”

The Zimbabwe Miners Federation, an umbrella body of small-scale producers, also condemned the new gold trading framework, demanding one that provides a win-win situation between FPR and the gold miner, which minimises or eradicates the discrepancy between the world price of gold and local price of gold.

This framework curtails side-marketing and gold leakages while at the same time promoting delivery of gold to FPR, it said.

Zela said the commitment by FPR to pay ASMs 100% cash in US$ for gold deliveries while well intentioned, could present huge challenges.

“Before this announcement was made, FPR was struggling to pay 55% cash in US$ for gold delivered by ASMs citing the Covid-19 impact on importation of cash,” Zela added.

“Therefore, FPR’s capacity is likely to be further stretched and result in delays for gold payments to ASMs.

“If this happens, the illicit market is ready to pounce and may offer prices below US$45 per gram offered by FPR because ASM is heavily a cash business — cash payment upon delivery of gold is the norm.”

Zela said the gold price alone was not enough to curb the illicit gold market.

“While the move by FPR to improve prices offered for gold deliveries from the artisanal and small-scale gold mining (ASGM) sector is quite important, it is not enough to remove oxygen for the illicit gold market,” it said.

Zela said the Mines and Mining Development ministry must chip in by enhancing transparency and accountability in the administration of mining titles through computerisation of the long overdue mining cadastre system.

It said ease of doing business in the ASM sector must be given priority by government.

“For instance, the gold mobilisation committee is accused of choking ASMs due to its rent-seeking behaviour motivated by the knowledge that the bar of compliance for ASMs is too high,” the report says.

“Artisanal mining must be prioritised in the long overdue reform of the old Mines and Minerals Act the with compliance burden being distinguished from that of large-scale miners.”

As part of recommendations, Zela said FPR should not only care about the golden eggs, but the goose that lays them too.

“Considering the vulnerabilities of ASMs in Covid-19 times, FPR must push for ring-fencing of a portion of royalties for investment in Covid-19 prevention mechanism in the ASM sector — disinfection of hot spots, provision of hand sanitisers and masks,” it said.

“Arbitrage opportunities must be removed by ensuring that the gold payment arrangements for ASMs and large-scale miners are not differentiated except that FPR must continue paying ASGM in cash and large-scale miners through bank transfers.”

Zela said a comprehensive reform package was needed to curb the illicit gold trade by expanding focus to include legal and financial support to formalise the ASM sector.

For the first time in more than five years in Zimbabwe, annual gold deliveries to FPR from ASMs plunged in 2019 by 20%. In 2018, gold deliveries from ASMs peaked to 21,678.42kg and fell by 4,289.68kg in 2019 to 17,478.74kg.

Prior to the plunge, annual gold deliveries from ASMs phenomenally grew from 3.9 tonnes in 2014 to 21.7 tonnes in 2018, a whopping 556% increase.

The decline of ASM gold deliveries in 2019 was attributed to electricity shortages, coupled with inadequate equipment for small-scale miners to access deep gold reefs and gold leakages through smuggling.

However, ASM players felt that the decrease of the foreign currency retention threshold of 70% from 55% introduced in 2019 mainly contributed to the plunge in gold deliveries.

Latest delivery data from FPR shows that between January and April 2020, ASMs delivered 4,300.61kg of gold, a 19% decline over the comparable period in 2019.

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