Zimbabwe Gold Miners Facing Crisis; Global Production Expected To Fall

As we reported a couple of weeks ago, mining companies worldwide face increasing obsticals, and analysts expect gold production to drop for the first time since 2008.

Now Bloomberg provides us with a concrete example of the struggles facing many gold mining operations.

According to the largest industry lobby group in the country, gold producers in Zimbabwe recently asked the government to lower royalties and electricity tariffs to stave off mine closures.

Producers of the precious metal that has fallen 42 percent from a June 2011 record have instituted ‘survival measures’ such as reducing wages and working hours, negotiating discounts with suppliers and replacing contractors with in-house staff, the Chamber of Mines of Zimbabwe said in a document to the government obtained by Bloomberg. The organization, which represents companies including No. 1 local producer Metallon Corp., want royalties trimmed to as low as 2 percent from 5 percent now, and power tariffs cut 48 percent to 6.7 U.S. cents per kilowatt-hour.”

According to the Bloomberg report, mining companies in Zimbabwe continue to operate at below their breakeven point.

Obviously, this is unsustainable, and it illustrates the stresses facing mining companies world-wide.

The problems in Zimbabwe follow a global trend. Profit margins for the 15 largest gold producers in the world have dropped as much as 45% since 2011, while their debt has doubled to about $34.7 billion, according to an analysis by Bloomberg Intelligence.

The news becomes more significant in light of the fact that many analysts believe the world will hit “peak gold” this year or next. In other words, gold production will begin to shrink every year, rather than increase, as it has since the 1970s. The problems facing gold mining companies like those in Zimbabwe, and the resulting expected drop in production would seem to support this belief.