New Zimbabwe (London)

Zimbabwe: Falgold Posts U.S.$12.5 Million Loss

POOR gold prices coupled with the temporary closure of Dalny Mine in October saw Falcon Gold Zimbabwe posting a $12.5 million loss for the year ended 30 September compared to a profit of $4 million during the same period last year.

Chairperson Ian Saunders also attributed the decline in revenue to increased operating costs and labour issues at Dalny Mine.

Impairment charges stood at $6 million for the period under review.

Gold sales for the period fell to 556kg compared to 650kg sold last year. The average gold price was $1.502 per ounce compared to $1.656 per ounce last year.

The gold price continues to fall and is currently fluctuating between $1.225 and $1350 per ounce.

Mining and processing costs totalled $29 million compared to $27 million last year as a result of almost 15 percent increase in NEC mandated salary increases from January 2013 and the high costs of power and other indirect taxes.

"Operating and labour issues at Dalny Mine also contributed to the increased operating costs," Saunders said.

Administration charges were $2.2 million for the period under review compared to $1.9 million last year attributed to the National Employment Council (NEC) mandated increases to salaries and wages.

This resulted in administration costs, as a percentage of mining and processing costs, increasing from 7.2 percent to 7.5 percent.

Saunders said operating issues initially encountered at Dalny Mine in the fourth quarter of last year continued into the early part of the second quarter of this year and caused the mine to operate at a loss for almost five months.

"Unfortunately, as these issues were resolved and Dalny Mine was returning to normal operating levels, an illegal work stoppage was undertaken at Dalny Mine, as a result of which the company incurred further significant financial losses," he said.

He said the losses combined by the sudden fall in gold price at the beginning of April placed a significant financial strain on the company resulting in its subsequent shut down on August 30 when it was placed under care and maintenance.

On the outlook, Saunders said the return of the company to a more stable financial position was predicated on a number of factors including supportive fiscal and tax regime, a lower power rate from power utility, ZESA and injection of significant new capital and access to technical management with critical experience and skills.

"As an initial step, the large working capital deficit will need to be addressed, and this will require both the financial support of the company's shareholders and the continued patience of the company's creditors," he said.

"Once this critical issue has been resolved, future growth in gold production will require significant new capital, currently estimated to be of the order of $25 million."

The new capital is targeted at projects with lower cost and lower technical risk that have already been identified, according to Saunders.

He said the company, through its parent company, New Dawn had received formal acceptance of its indigenisation plan and was now working on implementing it.

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