Large scale miners will not benefit from strong gold prices

This is why

Zimbabwe’s decision to raise the gold royalty for primary (large-scale) producers to 10% is being framed as a “fair share” adjustment in a boom market. The logic is that gold prices are rising sharply and the state wants a bigger slice of the value coming out of the ground.

 In practice, the policy acts like an immediate cost shock to compliant, formal producers most of whom are operating old mines which are desperately in need of capital investment.

On the shock, it means that for the same ounce of gold, miners will now keep less money than they did last year unless something else changes either gold prices rise further, costs fall, production rises, or the tax burden is offset elsewhere.

A royalty is charged on gross revenue, not profit. That distinction matters. If the royalty moves from 5% to 10%, the miner loses an extra 5 percentage points of revenue before paying for labour, power, transport, chemicals, maintenance, security, and finance costs. Here is a simple example in layman terms. Suppose a primary miner sells gold worth US$100. Under a 5% royalty, government takes US$5, leaving US$95 before costs. Under a 10% royalty, government takes US$10, leaving US$90 before costs. If the miner’s total operating cost is US$80, profit falls from US$15 to US$10. That is a 33% drop in profit without any change in production. To make the same US$15 profit while costs stay at US$80, revenue now has to rise to US$105 (because 10% of 105 is 10.5, leaving 94.5; after costs of 80, profit is 14.5 close enough). In other words, the selling price has to rise by roughly 5–6% just to restore last year’s profitability at constant production and cost structure. The bigger the cost base, the more sensitive profitability becomes to the royalty shift.

This is where the policy begins to look uneven across the mining ecosystem. Zimbabwe’s gold industry is now dominated by artisanal and small-scale miners (ASM), who account for roughly three-quarters of deliveries around 76.5% by the commonly cited split. Yet ASM producers operate under much lighter fiscal obligations, paying reduced royalties (often cited around 1.5%, with indications small-scale rates remain capped at low levels even under the new framework) and typically not contributing meaningfully through corporate income tax because most are not structured or audited like formal companies. Primary miners, by contrast, are visible, measurable, easier to enforce, and therefore carry the heavier tax load. Corporate income tax for mining operations is 25% for many operators, in addition to PAYE, levies, and compliance costs.

The result is an incentive system that can unintentionally promote artisanal production at the expense of industrial scale. If ASM miners deliver most of the gold but pay a minimal royalty and limited additional taxes, their effective profit per ounce can remain attractive even when compliance costs are low. Meanwhile, large-scale miners face rising fiscal pressure precisely when they should be expanding output, investing in modern plants, improving recovery rates, and extending mine life through exploration. Zimbabwe earned about US$5 billion from gold in 2025 on strong deliveries, but the long-run sustainability of that number depends increasingly on formal investment, not informal extraction alone.

This is why the model is problematic over time. Artisanal mining is fast and responsive, but it tends to be associated with environmental degradation, unsafe practices, and higher leakages through informal trade. It also underperforms on the fiscal side: the state may collect some royalty, but it forfeits broader revenue streams that come with formal balance sheets corporate tax, audited reporting, structured employment, predictable capital investment, and longer-term production planning. Meanwhile, pushing primary miners into thinner margins can reduce exploration budgets, delay plant upgrades, and raise the risk that production growth becomes increasingly informal. Over time, that weakens the tax base and entrenches the very informalisation problem the state is trying to manage.

Other commodity-driven jurisdictions have been moving in the opposite direction. Instead of widening the gap between ASM and industrial producers, they are attempting to mainstream mining by formalising ASM through licensing, traceability, environmental enforcement, and structured buying systems while maintaining tax regimes that keep industrial investment viable. The principle is that of capturing the benefits of artisanal output, but steadily migrating the sector toward higher productivity, safer practices, and deeper fiscal contribution. Zimbabwe’s own debate, and even the way the royalty policy has been calibrated around price thresholds, reflects an awareness that if the burden becomes too heavy, investment slows and the state can end up collecting less over time.

A more sustainable approach would rebalance incentives rather than concentrating extraction on the easiest-to-tax players. That could include a more uniform royalty architecture with modest differentiation that narrows the ASM–primary gap over time, stronger formalisation pathways for ASM, including incentives to register, access finance, and comply, linking fiscal concessions for large-scale miners to measurable commitments on exploration, local procurement, and processing; and improving enforcement and traceability to reduce leakages and ensure the state captures more of the cycle without undermining future production.

The point is not that government should not benefit from a commodity boom. It should. The question is whether the current model maximises long-term value. A royalty shift from 5% to 10% clearly reduces what primary miners make for the same output, unless prices rise further or costs fall. In a sector where sustainability, reinvestment, and industrial capacity matter, Zimbabwe’s bigger win is not a higher cut from a smaller compliant base. The bigger win is expanding formal production, formalising artisanal supply, and building a fiscal system that rewards scale, safety, and investment rather than informal dominance.