By SILUMESI MALUMO
BANK of Zambia and Kansanshi Mining Company have signed a gold purchase agreement in order to mop up enough gold for reserves.
Bank of Zambia Governor Christopher Mvunga said he was confident that this agreement would help the Central bank’s efforts to build gold reserves.
Mr Mvunga also said the agreement would enable the country boost its foreign reserves and enhance market confidence in the bank’s ability to fulfill its mandate of price and financial system stability.
He said yesterday during the signing ceremony at Bank of Zambia that this agreement was an important milestone in the Central bank’s efforts to resume the holding of gold as part of the country’s foreign exchange reserves.
“We are delighted that the gold will be sourced locally. In this regard, Kansanshi Mining Plc was identified as a counterparty since it has been producing the commodity on a commercial basis since 2006,” he said.
The central bank Governor said apart from Kansanshi, the bank had also engaged Zambia Gold Company, a newly established subsidiary of ZCCM–IH as the other counterparty in the purchase agreement.
Mr Mvunga said gold had been a long-term store of value, especially during high periods of inflation, and that this attribute helps protect reserves from significant loss in an inflationary environment, thereby making it a valuable asset for central banks.
“Gold is a kind of reserve asset that can be easily liquidated and used in emergency situations. From an international reserves management perspective, gold’s low correlation with other assets typically held in the reserves portfolio makes it an effective risk diversifier.
During periods of market stress when traditional assets would be losing value, gold would be adding value, thereby shielding the whole portfolio from large losses. Holding of gold is thus an important risk management strategy in the management of reserves.
And ZCCM-IH Chief Executive Officer Mabvuto Chipata said the company had been able to mine and process near surface material with a current total production of 74 kilo grams worth about US$4 million equivalent of K84 million.
Mr Chipata said the company was currently focused and working on increasing the production capacity by purchasing bigger processing machinery and more mining equipment.