The Zimbabwe Environmental Law Association (ZELA) has urged Fidelity Printers and Refiners to align price for gold deliveries from Artisanal and Small Scale Gold Miners with the international market to promote transparency and responsiveness of its gold price.
This comes after Fidelity Printers and Refiners (FPR) announced a new gold trading framework on Tuesday, 26 May 2020.
Mainly, the new measures relate to different gold payment arrangements for deliveries from Artisanal and Small-Scale Gold Mining (ASGM) and Large-Scale Mining (LSM).
With effect from 26 May 2020, FPR is now paying a flat fee of US$45 per gram of gold from ASGM.
According to ZELA, if the changes on the international market remain buoyant, unless adjustments are made timely, the impact of the new trading requirements are less likely to achieve the intended results of mobilising more gold deliveries to the formal market.
“Instead of coming out with a flat fee of US$45 per gramme of gold, FPR must offer prices aligned to the international market as demanded by ZMF.
“As it stands, FPR is likely to reverse the trend of falling gold deliveries from ASGM although it might fall short of extinguishing the illicit gold market.
“Already, ZMF during their press conference delivered a day after FPR came up with the new gold trading framework demanded the following options,” said ZELA.
According to FPR, gold deliveries from Large Scale Miners are now being paid 80% in US$ transferred to the relevant company’s nostro bank account and the remaining 20% being liquidated to local ZW$ at the prevailing official exchange rate.
The changes are not limited to payment arrangements for gold deliveries but include new requirements for gold buyers.
Large gold buyers must now produce a minimum of 50kgs of gold per month to get a gold buying license from FPR. Small gold buyers need to be licensed as agents for FPR with attendant terms and conditions which were not specified.
In response to this framework, ZELA revealed that there are arbitrage risks created by FPR’s new gold trading arrangements adding that Large scale gold producers can funnel their gold as small scale producers in order to get payment US$45 per gram that is offered to ASGM.
“The commitment by FPR to pay ASMers 100% cash in US$ for gold deliveries while well intentioned, it can present huge challenges.
” Before this announcement was made, FPR was struggling to pay 55% cash in US$ for gold delivered by ASMers citing COVID-19 impact on importation of cash.
“Therefore, FPR’s capacity is likely to be further stretched and result in delays for gold payments to ASMers.
“If this happens, the illicit market is ready to pounce and may offer prices below US$45 per gram offered by FPR because ASGM is heavily a cash business – cash payment upon delivery of gold is the norm.
“In the past, different royalty rates for AGM and LSM including different payment arrangements for gold deliveries created arbitrate opportunities for LSM to funnel their gold under ASGM.
“In response, the 2019 Midterm Budget Review Statement increased royalty rates of ASGM from 1% to 2% to narrow the gap of 3% royalty fee for gold below US$1,200 from LSM,” said ZELA.
The US $45 flat fee per gram of gold for deliveries from ASGM mining has already been applauded by the Zimbabwe Miners Federation (ZMF) in their press statement issued on 27 May 2020.
However, ZMF raised concerns that FPR deviated from its promise for transparency in gold pricing hinged on what is obtained from the international market, LBMA rates.
Latest gold delivery data from FPR shows that between January to April 2020, ASGM delivered 4,300.61 kgs of gold, a 19% decline over a comparable period in 2019; 5,332.37 kgs.
If we are to compare the gold delivery figures between January and April for 2018 and 2019, ASGM deliveries plunged by 14% from 6,169.29 kgs to 5,332.37 kgs respectively.
Thus, the sharp decline in gold deliveries for the first four months in 2020 forced FPR to bend to the demands of Artisanal and Small-Scale Miners (ASMers) who have always appealed for a 100% cash payment in US$.
The accelerating decline of gold deliveries from FPR comes at a time when black market exchange rate for US$ and ZW$ has been spiralling out of control.
When the new gold trading arrangements were announced, the black-market rates were offering roughly 200% more in comparison with the official exchange rate pegged at US$ 25 ZW$.