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Tuesday 20th March 2018

Zimbabwe Gold Mines Close amid Forex Constraints


Fazila Mohamed - 7Dnews Harare

Wed, 07 Nov 2018 17:20 GMT

Zimbabwe’s biggest gold miners RioZim and Metallon have closed down and laid off thousands of employees due to acute foreign exchange shortages. Gold is currently the agro-based country’s biggest foreign currency earner ahead of agriculture. Earlier this month RioZim hinted at litigation in a bid to force the Reserve Bank of Zimbabwe (RBZ), to pay it more US Dollars for part of its output.

A Zimbabwe Stock Exchange (ZSE) listed miner, RioZim Limited suspended production at three of its gold mines due to foreign currency shortages needed to import critical consumables and spare parts. The imports include cyanide, activated carbon, caustic soda, explosives, forged steel balls, and spares for the repair of critical equipment.

RioZim Board Chairman Lovemore Chihota said, “In October we stopped operations at Cam and Motor in Kadoma, Renco Mine in Masvingo and Dalny Mine in Chegutu over crippling shortages of foreign currency. RioZim only received 14% of its gold delivery proceeds in the last 30 months instead of the RBZ directive of 50% direct access to our forex funds and 50% by application.”

“This disruption is very harmful to our employees, creditors and government along with all other stakeholders. We very much hope that our stopping of production due to lack of forex in the country will be temporary and that government will resolve current issues. Meanwhile the three mines will remain closed,” he added.

This comes after Zimbabwe’s biggest gold miner, Metallon Gold, also recently closed its major gold mine in Mazowe, due to debt accumulation and forex shortages. The RBZ met Metallon’s owner Mzi Khumalo and pledged all critical facilitation to avoid the firm collapsing. Metallon has since appealed for intervention and to be allowed 100% retention of proceeds in the first bullion after restart in order to recover lost ground in the last nine weeks and restock critical spares.

RBZ withholds part of gold miners’ export proceeds to support critical national needs such as fuel and medical imports. The equivalent of foreign exchange components withheld from gold miners is paid in bond notes (local legal tender) or real time gross settlement (RTGS). Producers sell gold to Fidelity - a central bank subsidiary and are only allowed to retain 30% of their US dollar sales. Mining companies say this is inadequate as local costs soar while some suppliers have begun to demand US dollar payments.

On the other hand, RioZim applied to retain 60% of delivery proceeds every week to support operations, after the RBZ agreed to 50% retention prior to its mid term monetary policy review, while the 10% balance would be channelled towards capital programmes.

RioZim’s Chairman said, “If government extends the support it has as promised, we would be back to producing 165kgs per month (Cam and Motor 60kgs, Renco Mine 60kgs, Dalny 45kgs) from zero production. Thereafter, we could expand production to 300kgs per month. We are committed to preserving around 2,600 jobs at the group, creating new employment, supporting larger local communities, generating more foreign currency and contributing to the fiscus.”

Economics Professor Steve Hanke said, “Gold mines in Zimbabwe have an 80% chance of collapse unless government revises its foreign currency policy.”

Many companies across the board have also closed as a result of the massive lack of foreign currency. Zimbabwe’s acute forex shortages come on the back of adopting the United States dollar in 2009 to tame hyperinflation. The cost of transport, basic goods, and medicines have all drastically risen in the last few weeks.