By: Mining.com

Zimbabwe’s small-scale gold producers said government plans to double a mining royalty will deter investment and spur an increase in smuggling of the precious metal.

“New investment in exploration and mine development will stall,” the Zimbabwe Miners Federation said in a letter to Finance Minister Mthuli Ncube. “We project a dramatic increase in smuggling as miners seek better returns in neighboring countries with lower fiscal impositions.”

The federation — representing more than 450,000 small-scale miners who produce about 65% of the country’s gold — confirmed the letter dated Dec. 2. Ncube couldn’t immediately be reached for comment.

The government of the southern African nation announced plans last month to introduce a new royalty structure for gold miners on Jan. 1, as it seeks to cash in on bullion’s record-breaking rally this year. The federation says that raising the royalty to 10% for gold above $2,501 an ounce will remove an incentive for miners to sell the metal through formal channels, curbing fiscal revenues.

“As production shifts to illicit channels, official gold exports — a critical source of foreign currency — will decline, harming the country’s balance of payments and exchange rate stability,” the federation said in the letter.

Zimbabwe’s gold export revenues jumped 88% to $3.76 billion during the first 10 months of this year, driven by record production and with bullion prices near an all-time high above $4,200 an ounce.