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THE Chamber of Mines of Zimbabwe (COMZ) contends that a review of the current electricity tariffs that are levied on gold producers, including a comprehensive review of royalties, especially at a time when commodity prices are falling on the international market, will help mining houses survive.
Apart from royalties and electricity charges, which are directly impacting on the high cost of production, inefficient equipment and technologies and the high costs of labour are also weighing on output.
The gold mining sector estimates that it requires more than $600 million for capitalisation, of which US$130 million is needed this year, in order to reach the targeted production of 30 tonnes of gold by 2020.
COMZ argues that a review of royalties from 5 percent to 3 percent will result in cost savings of $22 per ounce. Similarly, a reduction on power tariffs to US8 cents per kWh will naturally save $87 per ounce, according to the Chamber. Also, it is forecasted that this reduction of the tariffs will result in the improvement on profit from -5 percent loss to +4 percent.
A further revision of the tariff to US6cents will most likely save $109 per ounce, while improving the profit position from -5 percent loss to +6 percent.
“Whilst the profitability and rates of return for the local mining industry improves through the reprieve, the internal rates of return of gold mining in Zimbabwe (6 percent) remain significantly lower than the regional average of 20 percent,” reads part of the report.
Estimates suggest that electricity charges contribute 16 percent of direct costs of production. Currently, Government is relying on small-scale gold producers for improved gold deliveries as the big companies are battling high costs.
“If the industry secures the requisite optimal capital, output growth will increase from the current 2 percent to an average annual rate above 10 percent in the next five years,” COMZ explained in a report to the Ministry of Mines.
It added that it was important for the country to rely on large-scale gold producers since they are able to attract investors with ease.
Gold is generally considered to be critical for both fiscal and monetary authorities as it provides both export earnings and an instrument for the Government to bank as a reserve currency. Gold production from small-scale producers has been on the increase for the past five years.
Of the 8,8 tonnes that have been delivered in the first six months of the year — a remarkable 29,3 percent growth from last year — small-scale producers accounted for 3,1 tonnes.
Treasury expects 2015 gold deliveries to reach 17,5 tonnes, an upward revision from 16 tonnes that was previously estimated.
Zimbabwe gold deliveries peaked at 27 tonnes in 1999. Slowing economic growth in China, the world biggest consumer of commodities, has put the international commodities market in turmoil. For example, after gaining six-fold in 12 straight years of gains through 2012, gold prices are beginning to tumble.
Experts project that prices are likely to fall to below $984 per ounce before January 2016.
Online Reporter