Value of precious metals’ output drops in Q2 and Q3

26Dec 2017
The Guardian
Value of precious metals’ output drops in Q2 and Q3

Quarters two and three have not been good for big local miners as the value of gold and diamonds they produced declined compared to what was raked in the first three months of the year, new official data shows.

The poor values fetched in quarter two (Q2) and quarter three (Q3) were largely due to low prices of the rare metals during the six months period and the small volumes produced. The value of the precious metals in the two quarters was also not as good as what was obtained during the same period last year.

However, the total worth of the output for the nine months to September has been more compared to last year’s performance largely due to the superb outturn in quarter one (Q1). The value of the metals produced in the three quarters of this year amounted to about US$1.09 billion while in 2016 it was US$1.08 billion.

Latest Bank of Tanzania (BoT) figures show that the year started on a positive note for large-scale mining companies as the value of gold and diamonds produced in the first quarter amounted to US$393.7 million.

In the following quarter, the value of the output dropped by nearly 12 per cent to US$347.2 million, which was also 2.7 per cent less the production value in quarter two (Q2) last year. The situation improved a bit in quarter three but still remained below the Q1 performance.

“Value of gold and diamond produced by large-scale mining companies (in Q3) declined to US$360.4 million in the quarter ending September 2017 from US$386.9 million recorded in the corresponding quarter in 2016, on account of price and volume effect,” the central bank notes in the Economic Bulletin for the Quarter Ending September 2017.

“During the period under review, production of gold recorded an annual decline of 3.5 per cent, while that of diamond increased by 0.9 per cent,” it adds.

The new report puts gold output in Q3 at 10,422.4 kilogrammes compared to 10,798.4 last year and 10,450.9 in Q2 of 2017. These amounts fetched US$345.6 million, US$369.6 million and US$334.1 million respectively.

Diamond output, which had declined to 64,850.3 carats in quarter two increased to 71,659.5 compared 70,996.5 in the third quarter of 2016. In terms of value, these outputs fetched US$13.1 million, US$14.8 million and US$17.4 million respectively.

“Value of gold and diamond produced by large scale miners declined to US$347.2 million in the quarter ending June 2017 compared with US$356.9 million recorded in the corresponding quarter in 2016, on account of price effect as total volume increased,” BoT notes in the Economic Bulletin for the Quarter Ending June  2017

“During the period under review, gold produced increased to 10,583.3 kilograms from 10,272.2 kilograms, while diamond production rose to 64,850.3 carats from 56,379.1 carats in the quarter ending June 2016,” it adds.

The value of the gold output in Q2 2017 was US$334.1 million and US$343.6 million in Q2 2016 compared to US$376.8 million in the first quarter of this year. During the three quarters, diamonds output worth was US$13.1 million, US$13.2 million and US$16.9 million respectively.

“The value of gold and diamond produced by large scale miners was US$393.7 million in the quarter ending March 2017 compared with US$345.1 million in the corresponding quarter in 2016,” the central bank Economic Bulletin for the Quarter Ending March  2017

“The increase was manifested in volume of gold production coupled with a recovery in its price in the world market. Notably, the volume of gold produced increased to 10,890.2 kilograms from 9,856.2 kilograms. By contrast, production of diamonds decreased to 65,619.6 carats from 76,675.9 carats,” it adds.

It is estimated that gold production in Tanzania stands at around 50 tonnes per year which makes it the 4th largest gold producer in Africa after South Africa, Ghana and Mali. While Tanzania’s gold production increased by more than 700 per cent over the past 25 years, from five to 40–50 tonnes per year, South Africa’s production of gold decreased from over 500 tonnes in 1990 to 140 tonnes in 2015.

Gold export accounted for US$1.3 billion of the total value of Tanzania’s export in 2015, about 22 per cent that represented more than 90 per cent of the country’s minerals export. Tanzania’s gold export remained steady over the past five years with US$1.3 billion in 2010. Tanzania exports gold mainly to South Africa, India and Switzerland.

In 2016, export of gold, which dominated other non-traditional exports, increased by 22.5 per cent to US$1,449.4 million, owing to a steady recovery in price in the world market and increase in export volume.

Having hit a low of US$1222.50 last December, gold regained poise in January this year, tracking broad based US$ weakness and rose to a high of $1357.20 in September. Last week, the yellow metal was trading at US$1255 levels and looks set to end the year with a 11.8 per cent gain.

The World Gold Council is bullish on gold going forward with its latest report maintaining that the precious metal has many reasons to stretch its gains into 2018. WGC believes the monetary policy tightening will be gentle given the subdued inflation across the advanced world. Further, it says geopolitical tensions could push up metal from time to time.

Meanwhile, Goldman Sachs has said that it looks for gold prices to slide to around US$1,200 a troy ounce in the middle of 2018 as general marketplace fears subside, but then to rise to US$1,375 by the end of 2020 as demand from emerging-market nations grows.

Goldman called for silver to fare better than gold, rising by the end of 2018. The precious-metals forecasts were included in a commodities outlook released early last week, with Goldman describing itself as bullish on commodities as an asset class in 2018.

The investment bank said it was near-term bearish in gold due to a moderation of “fear,” which tends to lead to safe-haven buying of gold. The metal moved lower in recent weeks as speculators exited bullish position.

Analysts said they do not think gold’s weakness is related to the dramatic rise in Bitcoin, describing gold and the cryptocurrency as “very different assets,” particularly since there has not been a corresponding exit from gold exchange-traded funds.

“Rather we see the decline in gold as evidence that ‘fear’ effects, which had been keeping gold supported, have at least partially moderated as US tax reform and the transition to a new Fed chair appear to be going smoothly,” Goldman said.

Analysts later added: “We continue to expect gold prices will move lower over the coming months, reaching US$1,200/toz by mid-2018.”

The main factors behind that near-term bearish view are an expectation for robust growth in gross domestic product in developed nations, further interest-rate hikes from the Fed, no deterioration in geopolitical risks and no recession in 2018-19. The bank listed forecasts of US$1,225, US$1,200 and US$1,225 in three, six and 12 months, respectively.


“Over the long term, we continue to see strong EM [emerging-market] growth expanding gold demand, and the ‘wealth’ channel eventually dominating,” Goldman said. “We believe this will take prices back up to US$1,375 by end-2020.”

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