Loss-making Falgold mulls shutdown

By Prosper Ndlovu

Falcon Gold Zimbabwe Limited is considering shutting down operations citing lack of investment appetite among a range of ‘external’ factors that hamper growth.

The Zimbabwe Stock Exchange-listed entity recorded a net loss of $1,4 million for the year ended September 30, 2016 compared to a net profit of $6,4 million the previous year. As at the end of September, the group’s current liabilities exceeded its current assets by $2,3 million with negative equity of $11,3 million.

“These conditions, along with other matters as set forth : indicate the existence of material uncertainty, which may cast significant doubt on the group’s ability to continue as a going concern,” the group’s external auditors Ernst & Young warned.

Low production levels marred the group’s operations, which the board and management blamed on high production costs and falling global commodity prices.

The group indicated in its audited financial statements issued last week that the going was tough with major indicators painting a gloomy outlook.

It cited the prevailing liquidity constraints in the economy coupled with depressed gold sales and high power and tax base as major threats.

“Due to the serious liquidity problems, the continued absence of significant investor appetite for Zimbabwe and the lack of profits, management of the group is of necessity, operating the group with determined focus on addressing short-term issues as they arise but there can be no assurances that the group will be able to continue to conduct operations should existing circumstances persist and become exacerbated,” said Mr Ian Saunders for the board.

“The majority of factors affecting the group’s operations are external factors outside of its controls. As such there is significant pressure on the group’s efforts to survive.

“Accordingly, and as stated previously, should the group be forced to consider shutting down its remaining mining operations, either temporarily or permanently, and or liquidating the group and its assets in a formal or informal arrangement, then the group may be unable to continue realising value from its assets and discharging its liabilities in the normal course of business.”

Given the distressed position of the mining group, Mr Saunders said management and the board had proposed a range of measures to be implemented this year meant to trim costs and improve operational performance by the end of the fiscal year.

“The efforts will include serious attention to controlling costs and a continuing focus on increasing production and, subject to the trends in the price of gold, revenues,” he added.

Mr Saunders said surviving the initial months of 2017 requires concerted partnership with creditors and internal support towards overcoming the current adverse operating and financial circumstances.

He said in the short term the group could undertake certain underground and infrastructure changes at its mines to ensure higher grade and lower tonnage programmes embarked on during the previous year became self sustaining.

Mr Saunders, however, said the capital for such a project was not yet available with ongoing improvements being done using limited cash resources.

He said the toll treatment of Dalny Mine has been a significant source of income for the group generating resources greater than the care and maintenance costs of Dalny Mine.

The rental agreement is scheduled to expire on 31 December 2017. In January 2016 Falcon God acquired 74 percent of shares in Musical Scales Pvt Ltd, a company involved in processing of sands. The Chronicle