BoZ, Kansanshi Mining seal gold pact

SILUMESI MALUMO writes@SunZambianBANK of Zambia and Kansanshi Mining Company have signed a gold purchase agreement in order to mop up enough gold for reserves.Bank of Zambia Governor Christopher Mvunga said he was confident that this agreement would help the Central bank’s efforts to build gold reserves.Mr Mvunga also said the agreement would enable the country boost its foreign reserves and enhance market confidence in the bank’s ability to fulfill its mandate of price and financial system stability.“The signing of this Agreement is an important milestone in the Bank’s efforts to resume the holding of gold as part of the country’s foreign exchange reserves. As some of you may recall, this will not be the first time that the Bank will be acquiring and holding gold as a reserve asset.“Before 1995, the Bank procured gold for reserves from Zambia Consolidated Copper Mines (ZCCM) Limited. However, due to the severe foreign exchange liquidity challenges that the country faced during the 1990s, the gold reserve portfolio was liquidated in 1995.“We are delighted that the gold will be sourced locally. In this regard, Kansanshi Mining Plc was identified as a counterparty since it has been producing the commodity on a commercial basis since 2006. Apart from Kansanshi, the Bank has also engaged Zambia Gold Company, a newly established subsidiary of ZCCM–IH as the other counterparty in the purchase agreements given its mandate to oversee mining, processing, refining and marketing of gold in Zambia.He said this during the signing ceremony at Bank of Zambia that this agreement was an important milestone in the Central bank’s efforts to resume the holding of gold as part of the country’s foreign exchange reserves.“We are delighted that the gold will be sourced locally. In this regard, Kansanshi Mining Plc was identified as a counterparty since it has been producing the commodity on a commercial basis since 2006,” he said.The Central bank Governor said gold had been a long-term store of value, especially during high periods of inflation, and that this attribute helps protect reserves from significant loss in an inflationary environment, thereby making it a valuable asset for central banks.“Gold is a kind of reserve asset that can be easily liquidated and used in emergency situations. From an international reserves management perspective, gold’s low correlation with other assets typically held in the reserves portfolio makes it an effective risk diversifier.During periods of market stress when traditional assets would be losing value, gold would be adding value, thereby shielding the whole portfolio from large losses. Holding of gold is thus an important risk management strategy in the management of reserves.“Holding gold also drastically reduces default risk in the portfolio. Unlike other financial instruments such as bonds, which can fail to yield returns should the issuer fail to meet its payment obligations, gold is not issued by any entity and is therefore not anyone’s liability,” Mr Mvunga said.“You may wish to know that data from the International Monetary Fund (IMF) shows that gold reserves have continued to increase and currently accounts for about 15 percent of the total world foreign reserves. Furthermore, central banks’ total gold holding has risen to 34,000 tonnes by the end of 2019 from a low of 28,000 tonnes recorded in 1997 since the end of the gold standard, according to the World Gold Council. These dynamics demonstrate the strategic value of gold.“The context of continued gold appetite by central banks is not so hard to establish. As some of you may be aware, gold has long been a long-term store of value, especially during high periods of inflation.“This attribute helps protect reserves from significant loss in an inflationary environment, thereby making it a valuable asset for central banks. Given this value, gold is a kind of reserve asset that can be easily liquidated and used in emergency situations.“From an international reserves management perspective, gold’s low correlation with other assets typically held in the reserves portfolio makes it an effective risk diversifier,” he said.And ZCCM-IH Chief Executive Officer Mabvuto Chipata said the company had been able to mine and process near surface material with a current total production of 74 kilo grams worth about US$4 million equivalent of K84 million.Mr Chipata said the company was currently focused and working on increasing the production capacity by purchasing bigger processing machinery and more mining equipment.Kansanshi produced 145,386 ounces of gold in 2019, according to First Quantum’s website.First Quantum Director of Operations Rudi Badenhorst called the agreement as an important step in building financial resilience in Zambia.Badenhorst, the First Quantum executive, said the company was also in talks with Zambia’s government to incentivise large-scale mining.“Challenges do remain for mining companies operating in Zambia but the ministry of finance is fully engaged with First Quantum and the Chamber of Mines of Zambia to seek out a competitive and stable mining tax code,” he said.