Gold price resilience to buffer declining mineral revenue

THE resilience of gold prices is expected to minimise the drop in mineral revenue as prices of platinum group metals (PGMs), nickel and lithium continue to decline.

The price of gold has remained steady, reaching an all-time high of US$2 195 per ounce this month. Gold, along with PGMs, accounts for over 50 percent of total Government revenue in Zimbabwe.

Under the Mines and Minerals Act, miners pay royalties on their mining output to the Zimbabwe Revenue Authority (ZIMRA). The amounts and collection methods for these royalties are laid out in the Finance Act.

Royalties for gold, diamonds, platinum, lithium and other designated minerals must be paid 50 percent in kind, meeting a specific form, purity or quality standard set by the Reserve Bank of Zimbabwe.

Recently, prices of key revenue contributors like platinum, nickel and lithium have been declining, causing some companies to post losses and suspend expansion projects.

However, gold’s price stability will act as a buffer to the decline in overall mineral revenue, a crucial source of Government income.

According to the Zimbabwe National Statistics Agency’s latest trade figures, tobacco, semi-manufactured gold and nickel ores and concentrates dominated Zimbabwe’s exports in January.

South Africa, the United Arab Emirates and China were the top three export destinations, collectively accounting for roughly 71 percent of the total export value of US$540,3 million.

The Government remains committed to implementing a mix of measures to boost gold production and achieve the 40-tonne target set by stakeholders in the sector in 2019.

According to the country’s exclusive buyer of gold, Fidelity Gold Refinery (FGR), gold deliveries dropped by 14,7 percent to 30,1 tonnes in 2023 compared to a record high of 35,3 tonnes in 2022.

FGR’s production update for last year indicates that small-scale miners, who traditionally produce the majority of the gold, again maintained momentum in 2023, delivering 18,7 tonnes.

Efforts will, however, have to be boosted to make sure gold production does not fall but firms. So far in the year, gold deliveries to FGR dropped by 22 percent in February compared to January 2024, with 1,85 tonnes delivered compared to 2,38 tonnes delivered in January.

Recognising gold as the anchor of the mining industry, the Government has recently implemented several initiatives to curb leakages and boost deliveries.

These measures include the gold mobilisation exercise, the establishment of gold service centres across the country and the adoption of the Responsible Mining Audit Initiative.

To mitigate challenges, the Government, in March 2023, allocated US$5 million to support small-scale miners and another US$5 million to establish five gold service centres.

These centres function as one-stop shops, offering technical services, milling access, financial resources and a ready market for small-scale miners.

The gold service centre model envisions a holistic approach, providing technical support, transportation, milling, on-site technical guidance, laboratory services and purchasing of the extracted gold.

Additionally, the Government launched the Responsible Mining Audit Initiative to increase oversight of all mining activities and prevent malpractice.

Mines and Mining Development Minister Zhemu Soda recently reaffirmed the Government’s commitment to implementing measures aimed at bolstering gold production in the country.

All this is expected to cushion national coffers from the slump in platinum prices.

Zimplats, the country’s largest platinum producer and tax contributor, reported fiscal contributions for 2023 at US$150 million, significantly lower than a peak of US$400 million in 2021.

The decline reflects the impact of low metal prices on profitability. The group even posted its first loss in years, highlighting the impact of weak global metal prices on miners.

Nickel prices have also fallen by more than 40 percent this year, and experts warn the downturn could worsen and last for several years.

Lithium prices are expected to decline further due to rising supplies, lower Chinese demand and a stagnant American electric vehicle market.

Investment analyst Mr Enock Rukarwa expressed concern that mineral exports contribute approximately 77 percent of the country’s total merchandise exports.

Economist Mr Victor Bhoroma shares the same concerns.

“Taxes on mining, such as royalties, constitute over 5 percent of Government revenues,” Mr Bhoroma said.

“The same applies to excise and sales tax revenues on tobacco, which are also significant. However, gold will minimise the extent to which declining mineral revenues affect overall Government royalty income.”

Overall, the mining industry is projected to play a pivotal role in achieving the country’s vision of becoming an upper middle-income economy by 2030, as outlined in the National Development Strategy 1.