Gold production expected to increase by 67%

Gold production was expected to increase by 67 percent to 20 tonnes because of a favourable price that the government was paying to the producers.

The government was paying miners Z$85 000/gram, the equivalent of US$15.00/gram versus a world market price of US$ 12.50/gram at the official exchange rate of Z$5 600.

It was offering gold producers and exchange rate of Z$6 800 and did not require them to exchange 25 percent of earnings at the ultra-low Z$824:US$ rate, provided they accepted all revenue in Zimdollars.

Full cable:

Viewing cable 04HARARE1588, Why Gold Is Up and Other Exports Down

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231114Z Sep 04

UNCLAS HARARE 001588

SIPDIS

STATE FOR AF/S

USDOC FOR AMANDA HILLIGAS

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: EMIN EAGR ECON ETRD EINV PGOV ZI

SUBJECT: Why Gold Is Up and Other Exports Down

Ref: Harare 1498

¶1. Summary: Zimbabwean gold production could increase 67

percent to 20 tons this year, according to industry

insiders. At current world prices, bullion will easily

soar past tobacco and cotton to become the country top

foreign exchange earner. As part of the Government’s

efforts to encourage production, it is providing gold

miners with zimdollars at a favorable exchange rate.

Gold Doubles Tobacco in Revenue

——————————————

¶2. Econoff spoke with several mining executives this

week. They confirmed Reserve Bank (RBZ) Governor Gideon

Gono’s claims that output would rebound to about 20 tons

this year, up significantly from last year’s 12 tons but

still shy of the 30 ton-record set in 2000. (N.B. The

RBZ is 6 months behind in publishing mineral statistics.)

From 2000-2003, Zimbabwean gold production slipped from

third to seventh in sub-Saharan Africa. At the current

US$390/oz world price, industry reps estimate Zimbabwe

will earn US$250 million this year, roughly double the

revenue anticipated from tobacco (ref).

¶3. Unlike its treatment of other export commodities that

it requires be sold to the government, the GOZ has

established a realistic floor price for gold that nearly

reflects the world price. The current rate the

government is paying miners is Z$85,000/gram. Although

the currency is not freely convertible, this equates to

about US$ 15.00/gram versus a world market price of US$

12.50/gram at the official exchange rate of Z$5600. The

GOZ is not, in fact, paying above the world price, but

instead is simply incentivizing production by offering

golf miners a favorable exchange rate of Z$6800:US$, much

closer to the current parallel market rate of

Z$7500:US$1. In further contrast to its handling of

other exporters, the RBZ does not require gold producers

to exchange 25 percent of earnings at the ultra-low

Z$824:US$ rate, provided they accept all revenue in

zimdollars.

Comment

———–

¶4. Gold’s resurgence underscores how rapidly certain

aspects of the economy can bounce back under favorable

macroeconomic conditions. The GOZ has deployed a

concerted strategy to boost output, including use of a

favorable exchange rate and elimination of disincentives

such as the 25 percent retention requirement.   The GOZ’s

use of a favorable exchange rate for this sector also

indicates the artificiality of the official rate and how

difficult it may be to maintain it over time.

Dell

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