Information has emerged that the much anticipated building up of gold reserves by the Bank of Zambia – BOZ risks being derailed as the biggest gold producer in Zambia, Kansanshi Mine (a subsidiary of First Quantum Minerals – FQM) is yet to start supplying gold to BOZ.
A check conducted by the Zambian Business Times – ZBT has revealed that the two parties seem to have hit a dead end in negotiations and finalizing for the delivery to start under turn gold purchase agreement due to a dispute on which currency is to be used for settlement or payment.
For the deal to make economic sense for the country, BOZ needs to buy the gold in the local currency – Kwacha while FQM seems to want to be paid in foreign currency – US dollars. The volatility of the Kwacha which has shed over 60% value in one year is likely to be the matter behind the dispute.
According to the Memorandum of Understanding (MOU) that was signed between the Bank of Zambia (BOZ) and Kansanshi Mine in 2020, the central bank is supposed to have commenced the purchase of gold by now. BOZ has so far only confirmed the purchase from Zambia Gold Company, a subsidiary of ZCCM-IH.
The Zambia central bank has maintained that it estimates to purchase around 25,200 ounces of gold from Kansanshi Copper and Gold Mine per year. According to information made available to ZBT by BOZ, the central bank has restated that the purchases of gold from Kansanshi Mine will be in Kwacha.
BOZ however said there is no set target of purchase in the medium term as this exercise is an ongoing process and will be dictated by the conditions set out in the respective gold purchase agreements. In addition, the central bank intends to purchase around 2,000 ounces of gold with a minimum of 88% purity from Zambia Gold Company per year.
Meanwhile, Kansanshi Mine Assistant General Manager John Gladston told ZBT in a separate discussion that the price of gold is always quoted in United States Dollars (US$) per troy ounce as determined by the London Bullion Market Association, adding that this is a global standard practice in gold trading.
Gladston was responding to a question on whether FQM’s Kanshanshi Mine would be able to sell its gold to BOZ in Kwacha, which is the local currency and preferred deal medium of exchange by Zambia in order to meaningfully build up gold reserves as an alternative to only holdings US dollar reserves.
BOZ new Governor Christopher Mvunga has been challenged to put in place a more aggressive gold buying plan to shore up Zambia’s gold reserves which can be used as a buffer to defend the Kwacha and restore the local currency value and ultimately the citizens incomes purchasing power.
Kansanshi in 2020 produced gold worth over US$210 million, which if mopped up by the central bank together with produce from Zambia Gold Company, can build up about US$1 billion in reserves within a five year period. This can turn around the ability of the central bank to defend the Kwacha value for the benefit of the majority of Zambians.
