GOLD producers in Zimbabwe want the government to link electricity tariffs and mining royalties to the prevailing gold price, as high energy costs threaten to put the mines out of business, the biggest industry lobby group said.
The price of gold in the international market has fallen 42% from a June 2011 record, and producers in Zimbabwe have instituted “survival measures” such as reducing wages and working hours, negotiating discounts with suppliers and replacing contractors with in-house staff, the Chamber of Mines of Zimbabwe said in a document to the government obtained by Bloomberg.
The organisation, which represents companies including No. 1 local producer Metallon Corp., want royalties trimmed to to as low as 2% from the current 5%, and power tariffs cut 48% to 6.7 U.S. cents per kilowatt-hour.
The strategies “have not helped much as companies continue to operate below their breakeven point,” the chamber said.
Reducing royalties and power tariffs “will assist producers to break even and sustain production, and improve the potential incidences of closure or placements under care and maintenance, whose adverse implications on employment and revenue are far- reaching.”
Mining is the biggest source of foreign exchange for Zimbabwe, which has the world’s largest platinum reserves after South Africa; the country also has deposits of chrome and iron ore.
Low water levels at Lake Kariba, which straddles Zambia’s border with Zimbabwe, and hydropower for both southern African countries, have compelled both countries to cut electricity generation and have led to rotating power cuts that last as long as 14 hours a day.
Zimbabwe raised or imposed taxes on everything from mines to water over the past 18 months to finance its budget, just as producers grapple with a plunge in metals prices.
Low ore grades that average 2.5 grams per metric ton - which makes it more expensive to extract - contribute to the poor competitiveness of the nation’s mines, the chamber said. Averages in other countries range from 4.2 grams to 18.2 grams a ton.
Production costs for Zimbabwean gold mines average $1,170 an ounce compared with a mean of $878 an ounce for operators elsewhere on the continent, the chamber said. Gold has dropped 8.9% in the past year, trading at $1,106.33 an ounce at 11:30 a.m. in London Friday.
The chamber recommended indexing power tariffs to the prevailing gold price and indexation of royalties to movements in the bullion price.