3 February 2014

Zimbabwe: Gold Miners Raise Red Flag

Gold mining companies are lobbying Government for a reduction in the rate of royalty and power tariffs applicable to the sector to avoid potential collapse of mines and loss of jobs.Apart from reduction in the rate of royalties and power tariffs, gold miners have also called for a reduction in mining fees and charges, market competitive gold refining and tax deductible royalties.

Further, they are appealing for centralised rationalisation of unit taxes, the removal of environmental levy and scrapping of all Environmental Management Agency charges.

Their calls follow the drastic fall in the price of bullion on the international markets from highs of US$1 700 per ounce in 2013 to about US$1 200 per ounce at present.

Gold mining firms have warned that at current gold prices, 75 percent of formal gold mining firms were on the brink of closure if there is no significant change to the cost base in the industry.

While producers have initiated several programmes to reduce operating losses, with some effect on output and employment, fears abound that there will be gold mine closures and loss of export earnings in the short-term unless relief is granted through royalty and power tariff reduction.

In their submission to Government last month through their representative body- the Chamber of Mines of Zimbabwe -- the gold miners said the 2014 National Budget did not address their concerns.

"The Chamber of Mines believes that the best way to give immediate relief to gold producers is to reduce both the royalty rate and the power tariff charged to gold producers," CoMZ said.

Gold producers used to pay US3c to US3,5c per KWhr (plus 6 percent levy) prior dollarisation in 2009 but now pay US12,78c per KWhr (plus 6 percent levy) for current and continuous supply.

They are also paying a 7 percent royalty introduced after dollarisation of the economy. The miners are also advocating for power tariffs in the range of 0,07 cents per kilowatt hour to 0,1 cents per kilowatt hour for bullion prices ranging from US$1 200 per ounce to US$1 800 per ounce. They believe this will allow them to break even.

Some gold miners have reduced exploration and expansion, cut back on replacement development, reduced high cost operations and suspended operations to combat the challenges.

Firms that suspended operations have put their mines under care and maintenance.

"Initial short-term measures taken to combat the sudden large fall in the gold price, now six-months-old, are fundamentally undermining stability and medium term future of formal gold mining.

The gold miners submitted that the current gold price of about US$1 225 per ounce is now relatively low as a function of the cost base even though it seems or is regarded by many to be high.

Gold miners said that current problems in the sector, which came to the fore after the fall in the bullion price, were related to historical structural matters linked to cost and investment criteria. CoMZ said the issues were evident well before the introduction of the multi-currency regime.

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