eBusiness Weekly
Kudzanai Sharara
Falling international gold prices are the latest addition to Zimbabwe’s economic challenges , threatening to reduce the country’s foreign currency earnings.
Gold prices fell to a more than 18-month low on Wednesday with spot gold falling to $1,189 an ounce after hitting its lowest since late January 2017 at $1,185.92.
The yellow metal has declined about 9 percent this year, pressured by rising US interest rates, a soaring dollar and failure to capitalise on its traditional role as a hedge against global and financial uncertainty.
Analysts across the globe believe the falling prices provides another sign that gold may indeed be losing its safe haven appeal with the USD seemingly in favour, which has also been reflected in regard to rising interest rates in the US, which has resulted in USD buying, resulting in downward pressure on commodities such as gold.
The falling prices come at a time gold producers in Zimbabwe have been ramping up production to earn the country the much needed foreign currency.
Gold output for the first seven months of the year grew by 72 percent to 20,8 tonnes from the 12,1 tonnes that was produced prior year comparative.
This earned the country $850 million in gold export proceeds, but if gold prices remain lower for longer, the 10 to 15 tonnes that the country expects to produce in the second half of the year will, however, earn a little less than what was earned in the first half of the year.
However, low prices will not threaten viability of most gold producers in the country as players operate at costs that are lower than the prevailing prices.
While most mine houses in South Africa are operating at an all-in sustaining cost above $1 000, Zimbabwean miners operate at costs below $1 000.
According to a survey conducted by Metal Consultancy GFMS, South Africa is the most expensive place to mine gold. A third of South Africa’s gold mines are unprofitable according to the Minerals Council. It estimates that the gold industry will see a sharp decline in production by 2019-20, with reserves exhausted as soon as 2033.
The biggest problem is that mines are having to delve ever deeper for gold, placing them at a disadvantage against open mines elsewhere in the world. Some reach four kilometres below the surface, requiring heavy investment in machinery to get men to the seam and haul out the spoil.
At an all-in sustaining cost of $1,184 an ounce, SA is far above the rest of the world’s gold producers, which average $884 an ounce. The average includes SA’s costs.
The average gold price in the third quarter of 2017 was $1,278 an ounce.
Gold mines reportedly shed 50 000 jobs in the first quarter of 2018 compared as deposits become harder to access profitably.
The second-most expensive place to mine gold was South America at $866 an ounce.
GFMS estimated that the $20 per ounce increase in the global average price to produce gold meant 8 percent of the world’s gold output was unprofitable.
With gold prices continuing to weaken most miners in Zimbabwe companies can, however, continue to produce profitably with all-in sustaining cost below $900.
London-based company Caledonia Mining Corporation, which owns a 49 percent stake in the Blanket Gold Mine said all-sustaining cost were at $856 per ounce in the second quarter while the average realised price for the quarter stood at $1,278 from $1,235 in the comparative quarter.
Steve Curtis, chief executive of Caledonia said cost performance for the quarter ending June 30, 2018 was satisfactory, with on-mine and all-in sustaining costs (AISC) being well-contained.
He said the miner is also working on a longer-term cost guidance target of $700 – $800 per ounce as the business grows towards 80,000 ounces per year by 2021.
With that in mind a lower price for longer is likely to still leave Blanket Mine profitable and viable.
The Reserve Bank of Zimbabwe is also of the opinion current low gold prices should not deter players from ramping up production as most operations have AISC below $1 000.
“Yes indeed, there is plenty of scope to continue to ramp up gold production as the cost of producing gold is much below $1 000 per ounce,” said RBZ Governor Dr John Mangudya in response to enquiries from Business Weekly with regard the impact of low gold price on production.
Dr Mangudya through the central bank has also put incentives to support players in the sector something which Caledonia acknowledged at the release of its second quarter performance update.
“AISC is broadly stable: higher on-mine costs are offset by the increased Export Credit Incentive (from RBZ),” said Caledonia.
