Zimbabwe gold mines in serious danger of collapsing

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Harare – Zimbabwe’s gold mining firms are making losses due to weak bullion prices and could collapse unless the government reduces royalties for producers, says the Chamber of Mines.

Gold is the single largest export earner for Zimbabwe, whose economy is flatlining as a result of lack of investment, electricity shortages and high cost of capital.

Spot gold rose 1% to its highest since early September to $1 292.20 an ounce on Tuesday, having plunged to 4½ year lows late last year.

In November, Finance Minister Patrick Chinamasa reduced royalty fees on gold to 5% from 7% in the 2015 budget, but the mining body, which represents all major mines, said it wanted a further reduction to 3%.

In a report issued in December the mining chamber said that mines were making losses of up to $100 an ounce due to weak gold prices and high electricity charges.

Mines are charged higher electricity tariffs to ensure continuous supplies but this is not always the case in a country that produces 1 200 MW against a peak demand of 2 200 MW.

In the report by the mining chamber seen by Reuters on Tuesday, the group said lower power tariffs and uninterrupted supplies would save gold mines up to $55 an ounce.

“The above measures would have ensured the gold mining companies operate on a cash break-even basis and avert gold industry from collapse,” the chamber said.

Chinamasa could not be reached for comment.

Chinamasa said in November the mining sector, which brings in more than half of Zimbabwe’s export earnings, shrank for the first time in five years in 2014 due to low metal prices.

The government has set an ambitious target of 28 tonnes of gold in the next five years, to match a record set in 1990.

Chinamasa has forecast that gold output could rise to 16 tonnes this year from 14 tonnes in 2014.

“If no immediate measures are taken, the likelihood of production reaching 1990 levels is very slim and in the extreme mines will go under care and maintenance to preserve assets,” the mining chamber said.

Source-fin24