Zimbabwe’s plan to build reserves: make miners pay part of their royalties in minerals

Gold bullion at Fidelity: RBZ seeks to build reserves

Zimbabwean miners could pay half of their royalties in minerals as part of a plan by Government to build up mineral reserves.

Currently, platinum miners pay 2.5% in royalties. They start paying 5% in January. Gold royalties are at 5%, which is what miners pay when the gold price is above US$1,200 an ounce. They pay this in cash to the government. Now, if the government’s proposal goes through, half of what they pay will be paid to the central bank in actual minerals.

The proposal is carried in a September letter from Treasury Secretary George Guvamatanga to the Ministry of Mines, in which he raises “concern that despite the abundant mineral resources that the country has at its disposal, there are currently no reserves for key minerals”.

Reserves of minerals “serve as a source of trust in a country given that they carry no credit or counterparty risks”, Guvamatanga writes.

“Treasury, therefore, proposes that the collection of royalties for the above-mentioned minerals be split as 50% cash and the other 50% in the form of the commodity itself.”

He does not give a timeline of when this may happen, but urged Mines to engage stakeholders for “immediate implementation”.

Not enough

Zimbabwe has no gold reserves, despite rising output, and exports virtually all its production. Mineral exports from Zimbabwe, mainly gold and PGMs, reached US$5 billion in 2021, accounting for 80% of the country’s total export value.

In August, Finance Minister Mthuli Ncube complained that government income from the mining industry was low due to what he called “a generous royalty regime on some major minerals”.

“Despite the significant contribution to output and export receipts, the mining sector contributed about 1.2% of GDP in direct taxes to the Fiscus in 2021. This is a significant contrast to countries in sub-Saharan Africa which averaged 2% during the same period,” Ncube said.

Last month, the IMF said Zimbabwe’s decision to launch gold coins was a missed opportunity to build gold reserves.

“The sale of gold coins has contributed to withdrawing Zimbabwe dollar liquidity from the market, though it represents an opportunity cost in terms of foregone reserves for the Reserve Bank of Zimbabwe,” an IMF spokesperson told Bloomberg recently, without elaborating.

South Africa, one Africa’s biggest gold producers, had 125.3 tonnes of gold reserves at the half year. Ghana, the continent’s leading producer, had 8.74 tonnes over the same period.

While many economies no longer use the gold standard – pegging their currencies to gold – the metal is still used by some central banks to manage currencies.

Investors often buy gold in times of uncertainty, increasing its value. However, this year, gold is under pressure because the US has been raising interest rates, which has made the US dollar more attractive than gold. The price of gold fell in September, a sixth consecutive monthly decline. This marked gold’s longest streak of monthly declines in four years.

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