Zambia’s gold stocks levitate 15k.oz as BOZ targets reserve shoring
As the world frets around a rising COVID19 delta variant spread, markets are clearly reacting in ways causing investors fleeing to safety in gold which has pushed its price to $1,823.57/oz roughly 0.9% up in the week. For Zambia, Africa’s red metal hotspot a higher gold price is causing positive market valuation for its recently built gold reserve which has grown 15,392oz (circa. 436.35kilo’s) between yearend of 2020 to date. The Bank of Zambia has been on an aggressive streak to help shore up decade low foreign exchange reserves by buying gold from a state owned vehicle the Zambia Gold Company, a subsidiary of the ZCCM-Investment Holding plc and First Quantum Mining – FQM as part of Gold Purchase Agreements – GPA’s. This for Zambia Gold Company is helping change the lives of small scale miners on the copper belt of Africa area who are selling their gold to an actual market at competitive prices, but in Kwacha. Current market value of the central banks stock is $28.06 million signalling small but steady steps towards 27.86k.oz annual target.
According to Bank of Zambia on its website, 478.76 kilos (15,392 oz) of gold for K604.3 million since December, 2020 have been acquired from First Quantum Mining – FQMs Kansanshi Mine (12.6k.oz) and Zambia Gold Company (2.8k.oz), a subsidiary of ZCCM – IH. This is actualisation of the GPAs signed off in December of 2020.
Zambia’s reserves were last reported officially at just under $1.4 billion and has been a function of other measures such as dollarisation of mining tax receipts backed by increased metal prices precisely copper on the London Metal Exchange. The lean reserve quagmire for the central bank has incapacitated its aggressive intervention through selling of foreign currency on the open market to stabilise currency as such the exchange rate remains weak and this has been a key source of inflationary pressure.
As the current buying velocity, the central bank will amass $50 million (28k.oz at current prices of $1,823.57/oz) annually towards reserve buffer which can be accelerated if the gold buying is opened to pension funds such as NAPSA, Workers Compensation Funds and above all commercial banks that should still be able to keep their wealth store at the Bank of Zambia – BOZ in statutory reserves. This will allow for gold reserves to rally much faster than currently. The central bank is only purchasing 30.0% of gold produced in the country and if additional players with deeper pools of liquidity are permitted to participate in gold buying the quote can soar to 66.0%-85.0%.
The Southern African nation remains well positioned for reserve building not only for gold but sovereign wealth as copper continues on an all time high on the LME while Zambia seeks to maximise its share of tax revenues from the mining sector. The red metal producer will seek to leverage off mining opportunities to address half of its economic challenges as it navigates a debt default situation while remaining very hopeful of an IMF bailout which is a standing precursor for successful debt restructure post the August polls.
