Gold miner sues Zimbabwe central bank for not paying in dollars

Mazoe Mine, Zimbabwe – Image courtesy of Metallon Corp.

Zimbabwe’s biggest gold producer sued the country’s central bank for $132 million because it has been paying for the metal in a local quasi-currency rather than U.S. dollars, highlighting the business sector’s dissatisfaction with the nation’s financial regime.

Metallon Corp., which acquired Lonmin Plc’s gold mines in Zimbabwe in 2002, wants an additional $5.8 million because the central bank prevented it from externalizing 2% of revenue as a management fee for the past two years, court documents show. It’s also demanded the mines ministry pay $5.9 million in damages for not transferring a mining lease, blocking a sale to a company known as Afmine.

The government abandoned the Zimbabwe dollar in 2009 after inflation surged to 500 billion percent, and adopted use of the U.S. currency

The government abandoned the Zimbabwe dollar in 2009 after inflation surged to 500 billion percent, and adopted use of the U.S. currency. It’s since introduced a quasi-currency that can only be used in Zimbabwe. After being pegged initially to the dollar, it has now been allowed to depreciate. The turmoil in the business sector has thwarted attempts by President Emmerson Mnangagwa to revive the economy through his push for investment and his “Zimbabwe is open for business” mantra.

“Zimbabwe is not open for business,” Mzi Khumalo, the founder of Metallon who served time in prison with Nelson Mandela during apartheid, said in an interview in Johannesburg on Thursday. “They don’t pay you. They pay you what they want as and when they want.”

Mines Minister Winston Chitando said by phone he hadn’t seen the court documents and couldn’t comment. Central Bank Governor John Mangudya didn’t immediately respond to phone calls and text messages seeking comment.

Khumalo said he will also institute proceedings against Zimbabwe in London or the Netherlands for violating protection-of-investment treaties with those nations. Metallon is registered in the U.K. and has a Netherlands Antilles shareholder.

The government’s policy of forcing gold producers to sell their gold to Fidelity Printers, a unit of the central bank, and then making them wait for payment in the local currency, RTGS dollars, has prompted Metallon to suspend operations at three mines. Its biggest competitor, RioZim Ltd., temporarily stopped production earlier this year. RioZim sued the central bank for $92 million last year.

Currency differences

The government introduced interbank trading in the RTGS dollar in mid-February, allowing it to depreciate. Metallon is paid at that interbank rate, which traded at 3.44 per dollar on Thursday, and lower than the more commonly used black-market rate, currently at about 5.85.

Metallon fired about 800 workers when it idled its smaller mines last month, leaving the How mine near the southern city of Bulawayo as its only operation with annual production of 50,000 ounces. A plan to build a new mine near the capital, Harare, was thwarted, leaving a $25 million processing plant built last year idle, after the government allowed artisanal miners to invade its claim, Khumalo said.

The lawsuit “is just the first step,” he said. “Who do they think is going to do business in Zimbabwe under these circumstances?”

(By Antony Sguazzin and Loni Prinsloo)