The cost of SA’s illegal gold trade

A new report on illegal mining suggests that South Africa is losing upwards of R14 billion a year to the illicit gold trade. This is substantially more than previous estimates of about R7 billion.

Speaking at the launch of the report at the Institute for Security Studies in Pretoria yesterday, author and investigative researcher Alan Martin said one way to track SA’s illicit gold trade is to look at shipment data from the United Arab Emirates (UAE), where most illegal gold ends up because of the UAE’s lax import controls.

Most of this illegal gold is exported in the form of doré bars, which are a semi-pure alloy of gold and silver. SA reported no doré exports between 2007 and 2017, yet UAE data shows more than 34 tonnes arrived between 2012 and 2016. This does not count illegal exports through neighbouring countries, which would substantially increase this figure. The market value of a 1kg doré bar is estimated at between R51 000 and R54 000.

Lax controls

“UAE’s hand-carry gold policy allows couriers to sell their merchandise directly to gold traders in the Dubai souk without demonstrating provenance, export taxes or documentation,” says the report, entitled Uncovered – The Dark World of the Zama Zamas.

The unfolding economic crisis in Zimbabwe is adding to the illicit trade. Police report that around 500 000kg of gold is being smuggled into SA each week from Zimbabwe due to the inability to fetch fair market prices in that country. The gold is then laundered through buyers in SA for eventual export to Dubai.

Martin says these illegal gold exports probably left through the legal system – being processed at one of about 100 illegal refineries in Gauteng and given legal export papers by the SA Diamonds and Precious Metals Regulator (SADPMR), which has been in disarray for years. Given that Rand Refinery exports the entire industrial production of South Africa to countries other than Dubai, these figures give a more accurate picture of the scale of the illegal trade.

An estimated 70% of zama zamas (or illegal miners) are undocumented migrants. Some are operating in abandoned mines in the Johannesburg area, while others in the Free State manage to infiltrate operating mines by bribing security officials.

Illegal mining is gang-controlled, with zama zamas at the bottom of the food chain. They complain of having to bribe police to avoid having their gold or equipment confiscated and facilitated by bulk buyers such as licensed jewellers or scrap metal dealers, who can easily side-step the requirement to carefully document any gold purchases. They are able to disguise the origins of the gold by mixing it with alloys. The gold is then laundered and exported by companies to international intermediaries.

The detrimental effects of illegal mining on SA’s economy spread far further than the problems of lost gold and government royalties.

Sibanye-Stillwater has reportedly spent close to R600 million in recent years to counter the zama zama intrusion at its mines.

James Wellsted, head of investor relations at Sibanye-Stillwater, says the group still has issues with zama zamas. “It is an ongoing problem,” he says, although the incursion has been drastically reduced in recent years.

Illegal mining also represents a huge cost to the City of Johannesburg, which has incurred massive expenses caused by poor mining practices, vandalism and theft.

The biggest problem for the city is the use of explosives, which have compromised support pillars in decommissioned mines and resulted in tremors, which put the structural integrity of roads, adjacent residential communities and businesses at risk. It also poses a significant public safety threat as some of the blasting has taken place close to pipelines carrying gas and fuel. A spark could start a fire capable of incinerating property within a radius of up to 300m², according to the report.

Johannesburg’s Infrastructure Protection Unit head Conel Mackay earlier told Moneyweb that illegal miners came within centimetres of blowing up a fuel pipeline running underneath the FNB Stadium in Soweto. The miners were advised of the catastrophic danger of their mining practices, and have since moved to other, less dangerous areas.

‘Easy deflection’ from uncomfortable truths

The criminalising of illegal mining in SA is having no effect, and is “an easy deflection away from more difficult discussions of uncomfortable truths about the persistent poverty, poor service delivery in marginalised areas and political instability in neighbouring countries that contribute to men becoming zama zamas in the first place.”

One of the obvious causes of the zama zama problem is the South African government’s neglect of the political crisis in Zimbabwe and its tolerance for what has been described as the repeated theft of elections by Zanu-PF. The resultant economic crisis north of our border resulted in a mass exodus to SA. A high percentage of illegal miners in SA are from Zimbabwe.

One solution to the illegal mining problem is a change to the Mineral Petrol Resource Development Act (MPRDA) to better align the licensing process to the realities of artisanal mining. The current act mandates the SADPMR to license, monitor and investigate mining permit holders, tasks critics claim it is not equipped to carry out. An amended act should enable this role to either be shared with or returned to the exclusive control of the SA Police Service (Saps), says the report.

The Saps and SADPMR should also cooperate in monitoring permit holders and their operations. Any legislative amendments should tighten the licensing requirements for scrap metal dealers and gold export permit holders, and mandate the Department of Mineral Resources to publish their corporate details.

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