Can Zim cash in on the gold price rally?
Zimbabwe’s mineral commodity producers will enjoy limited benefit from the current upsurge in international prices as it is nearly impossible to ramp up production in the short term, industry experts have said.
Commodity markets are being squeezed from increased demand as economies recover from the coronavirus pandemic as well as the impact from geopolitical factors that are affecting supplies.
As a result prices for metals and other internationally traded commodities are climbing at the fastest rate since 1995, pointing to a very good year for producers.
Gold extended its rally towards a record high on Tuesday, after investors made a beeline for the traditional safe-haven metal on mounting fears around the Russia-Ukraine crisis.
While the gold price has since retreated below US$2 000 per ounce, it is still trading 15,16 percent higher than a year ago. As at mid-morning yesterday, the gold price was up 2,44 percent for the week.
Gold miners are expected to benefit from the rush to safe haven amid the Ukraine crisis.
The benefit is however likely to be limited to current production levels as the nature of mining does not allow any unplanned ramp up in production levels.
According to Caledonia Mining Corporation chief executive Mark Learmonth the miner does not have the flexibility to increase production at short notice in response to a higher gold price.
“Production increases over and above our current mine plan will require years of planning and investment,” Mr Learmonth said in an emailed response to questions.
Caledonia will however still benefit from the current high gold prices as it has been able to ramp up production within its planned targets.
In January this year, Caledonia announced record annual production of 67,476oz, exceeding revised increased guidance.
This year, Caledonia is guiding for production of 73 000 ounces of gold from its Blanket mine in southern Zimbabwe.
The miner’s strategy is also to focus on becoming a multi-asset gold producer now that the Central Shaft is complete and the Company can focus on other areas of its growth strategy, predominately de-risking the business from being a single asset producer.
As a country Zimbabwe is set to earn more from its gold as producers have almost doubled production.
Latest figures from Fidelity Printers and Refiners show that gold output for the first two months to February 2022 was 5,131kg against 2,168kg of gold produced in the prior year.
Dr Wilson Gwatiringa, RioZim Group corporate affairs executive said the company already has its plans which it will stick to. He said what is happening to international commodities now is considered short term and as such RioZim will not ramp production to take advantage of the good prices.
Gwatiringa said the higher price situation can turn at any given time.
And already gold prices extended declines by yesterday mid morning after recording their worst drop in nearly 14 months in the previous session as a retreat in oil prices and planned diplomatic talks between Russia and Ukraine boosted risk appetite.
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