How RBZ export incentive withdrawal will shave millions off miners’ earnings

Caledonia Mining says its earnings per share will fall by US$5.4 million after central bank dropped the export incentive scheme. The London-listed company, which owns Blanket gold mine, will not be the only one taking a hit from the Reserve Bank of Zimbabwe move.

In its monetary policy statement issued recently, Reserve Bank of Zimbabwe removed the export incentive scheme, under which gold producers were paid an extra 10%, in local RTGS for their gold sales to Fidelity Printers.

 “It is estimated that this will reduce Caledonia’s earnings per share (calculated on an IFRS basis) for 2019 and thereafter by approximately US$ 5.4 million or 40 to 46 United States cents per share,” Caledonia said in an update to shareholders.

Originally set at 2.5%, the incentive was meant to encourage exporters, but was increasingly seen as contributing to money supply growth. Currency reforms introduced in the monetary policy statement, under which a new interbank market for foreign currency was introduced, saw the incentive falling away. Gold producers are compelled to surrender 45% of their earnings to RBZ, which will be paid at the prevailing rate of the new interbank market. The “export incentive scheme has been eroded by the forex premiums induced inflation”, RBZ said in the monetary policy.

According to Caledonia: “The removal of the (export credit incentive) programme comes as part of a monetary policy statement which permits bank trading of currency held in local banking system and currency held in foreign currency accounts which is capable of being used for payments outside Zimbabwe. At this stage it is unclear whether this policy will address the increasing inflationary pressure in Zimbabwe by creating a transparent and efficient market exchange rate between RTGS dollars and dollars held in FCAs.”

The effect on Caledonia’s earnings per share for 2019 is calculated assuming a gold price of $1,300 for the remainder of the year, that Blanket achieves the production guidance for 2019 as announced on January 14, 2019 of between 53,000 and 56,000 ounces of gold and that there are no changes in Blanket’s operating costs.

Caledonia will not be the only miner taking a knock from the incentive withdrawal. Zimplats, the country’s biggest miner, booked a benefit of $29.4 million from the export incentive in the half year to December, up from $5.6 million over the same period in 2017. In the half year to June 2018, gold producer RioZim reported $4.3 million in export incentives and other income.

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