The gold story

Eddie Cross

LAST week, Al Jazeera ran a programme on gold smuggling and money laundering in Zimbabwe. Nothing new to those of us who live here, but it attracted a huge audience. I have no real gripe with the content except that it underestimated the size of the problem.

Zimbabwe is certainly in the top 10 gold producers in the world and it is by far (after remittances) our largest source of hard currency. The basic resource is very interesting and is found in what we call “the green stone belt”. I am no geologist but these occur over many parts of the country and although nothing like the famous Gold Reef in South Africa, these vary a great deal in the content and character of the gold deposits. Our most famous gold mine was located in Kwekwe in the Midlands and at one stage produced 20 grammes of gold per tonne.

When our economy crashed between 2000 and 2008, people in most parts of the country had two choices — leave or turn to the informal sector. They left in their millions  up to 500 000 a year at one point. They turned to smuggling and cross-border trading (often the same thing). Very quickly this became a major source of basic incomes. However, it was the discovery, by young people, that in many areas of the country, you could find outcrops of the famous greenstone and dig it up and get it crushed at a local mill and make perhaps two grammes a tonne of ore, worth US$100 on the market that started our “gold rush”.

Today we estimate that 500 000 to 700 000 small-scale “artisanal” miners are active across the country. They are serviced by perhaps 2 000 millers with stamp mills mainly, who take in the ore and allow the miners to take the gold that is produced through a simple machine at the back of the mill. This most often is assayed on site and the miner paid in cash.

In the more formal sector, there are perhaps 600 mines — varying from opencast operations and some deep mines with annual production of five to 100 kilogrammes of semi-refined gold per month. The mining industry tells me that if these resources were exploited properly in an organised manner, up to 200 “mega mines” could be established with national production reaching perhaps 200 tonnes a year.

I estimate that about half of that is traded here at present — no argument with others that say about 70 tonnes is traded “informally” and 30 tonnes “formally” through official channels. A tonne of gold traded internationally is worth about US$70 million. That would put our gold industry at a value of US$7 billion a year, if it was managed properly. Al Jazeera said a third of that!

Apart from some very foolish individuals who spoke on camera, the main casualties of the programme (with more to come) were the Dubai gold market — now the largest in the world, our own gold refinery and the Reserve Bank of Zimbabwe and perhaps our reputation as a country. We have just come off the grey list of countries which are regarded as havening inadequate controls on money-laundering and the funding of terrorism. South Africa has just joined the list. Being classified as grey implies serious malfunctions in how we manage our money.

When artisanal miners take their ore to a local miller, they face further exploitation. The stamp mill recovers the loose gold from the crushed ore, either over a table. This may represent 60% of the actual gold content, the rest flows away to a dump, where the miller, if he knows what he is doing, has a chemical recovery plant where he recovers the balance.

Then when the miner wants to sell his gold, it is assayed by a laboratory working for the miller or a trader, the real gold content is understated and the price offered often represents a discount against the world market price. The raw gold, in whatever form will most likely be smuggled to South Africa where one of the six refineries, established in their heyday, will refine the product and buy it for rand or US dollars. Sometimes it is smuggled overseas.

This involves not only gold mined in Zimbabwe but also gold traded through Zimbabwe from other African States. The major player is the Democratic Republic of Congo where similar chaotic conditions prevail and small-scale miners also operate under conditions that are distinctly unhealthy by any standard. The players in the Al Jazeera programme of Indian extraction are the major interlocuters.

Add to this sorry tale, the use of cyanide and mercury plus the environmental aspects of all this activity and you get the picture. Criminal gangs control large swathes of land in this country and force is used to control territory. It's not good.

What do we do about all this? Having an undercover team in the country and finding out all of the above is one thing, sorting it out and regularising the industry is quite another and I hope Al Jazeera will take as much time on this aspect as it has devoted to the negative aspects.

But for me the answers are quite easy to identify and implement, and the whole programme could be self-funding and in turn produce major benefits for the economy and the millions of people involved.

It starts with the miners — give them a licence (which they pay for) to occupy and mine a small claim that is physically identified and surveyed using modern GPS technology. Such claims will immediately attract a value which the miner can secure by selling the claim to someone else, who either wants to become a small-scale miner himself or has ambitions to fully exploit the resources. It also gives the operator legal status and he can quote his number when delivering his ore to a miller or selling his raw gold.

Then get a major player who wants gold, to come into the country and get them to set up buying centres in all gold-producing districts. Pay for the gold at the world market price, less a small discount for costs. These buying centres should fund an extension service for the miners in their area and support the miners with protective clothing and all the other items and machinery required. They should also be suppliers of explosives.

I would also encourage the miners in the area of each buying centre to establish their own processing capacities which they operate on a co-operative basis. These have to be equipped by machinery especially designed and manufactured to handle the ore produced and maximise recovery. They should operate in competition with the established millers.

There is considerable interest in the establishment of the large-scale opencast mines exploiting low-grade ore resources and a special programme needs to be created for this to happen. The present arrangement where the sole buyer of gold is Fidelity under the Reserve Bank of Zimbabwe is clearly not working properly, in my view. If the bank wishes to buy gold for reserve purposes, it should do so at market prices in US dollars and not hold any monopoly on refining or buying gold.

The payment of hard currency for all gold production would assist the country’s balance of payments, raise living standards and increase tax revenues. Everyone wins.

Eddie Cross is an economist and former opposition legislator. 

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