Things have fallen apart for Zimbabwe's troubled gold miners after the country's Central Bank has failed to pay the gold firms the foreign currency component for gold remittances dating as far back as October last year.
In a development that has been denounced by gold mining sector players, the Reserve Bank of Zimbabwe (RBZ) has begun settling dues of the gold miners in local currency, saying if the gold miners wanted to be paid in foreign currency, they had to wait eternally until the central bank had raised sufficient funds.
This effectively means that illegal gold dealings and smuggling will once again become rampant and dominant while the amount of bullion delivered to the Central Bank will decline as the gold producers move to cushion themselves against Zimbabwe's skyrocketing inflation.
Over the past month, illegal gold dealers have flooded the country's mining towns in a bid to buy the metal at a relatively lower price for re-sale in South Africa and Namibia for a better return, leaving the country clutching at straws. This will also mean that the country - which has the potential to become a competent and reputable gold producing nation - will not benefit much from surging world prices of the precious mineral.
The gold miners are paid part of their receipts in local currency, while a percentage is paid for in foreign currency but payment for this component has been scotched by the central bank for the moment, said an authoritative source.
The move to defer the foreign currency component payment, sources say, will result in output of gold declining further as the gold miners will be left with no capacity to import critical inputs, which require foreign currency for their procurement.
In his monetary policy statement on April 30 this year, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono said gold mining companies should take advantage of the new exchange rate regime by claiming their receipts in Zimbabwe dollars. If they insisted on receiving their money in foreign currency, Gono said, they could wait until the RBZ had mobilized enough foreign currency reserves.
Essentially though, what the Central Bank governor - who has previously clashed with the government over the country's controversial indigenization law - was saying is that the lender of the last resort did not have the foreign currency to pay the gold mining firms.
The gold miners - battling to stay afloat and operational as they are - were left with no choice but to flock to the central bank to demand their payments in the local currency which has been reduced to just a mere piece of paper.
The scheme is however reported to be beneficial for small-scale gold miners.
The more organized and bigger mines did not want the Zimbabwe dollar. Rather, they wanted the foreign currency portion of their payments to buy spares, chemicals and other inputs. If you are paid in the local currency at the going rate today it will be much less in value tomorrow, or maybe half that value in a week, a source said.
A mining company executive agreed: That (Zimbabwe dollar) arrangement only works if you want to pay for something immediately but most mines, except under exceptional circumstances, would require payments in foreign currency.