Zesa tariffs dim Falgold prospects

Gabriel Masvora, Business Editor
STRUGGLING gold mining concern, Falcon Gold (Falgold) has said it could have saved $12 million last year only from electricity charges had the power utility company, Zesa been implementing an equal tariff charge in the mining sector.

Zesa has a different power tariff regime for gold miners who are being charged $12,8c/kWhr while other mining companies such as those in the platinum sector are charged US8,0c/kWh. This has resulted in the cost of operating for gold miners being higher compared to those in other sectors.

In an interview after the group’s annual general meeting held in Bulawayo on Wednesday, Falgold chairman Mr Ian Saunders said his mining concern could have saved $12 million alone last year had the power base tariffs been level.

“Gold miners are made to pay more for electricity charges, imagine what $12 million more which we paid to Zesa could have done to our operations had we been paying the same rates as other miners,” he said.

Gold mining companies through the Chamber of Mines have been lobbying both Government and Zesa to review the tariffs.

Towards the end of last year, the Government advised of an intention to reduce the cost of power to the mining sectors by nearly 40 percent.

“That has not been done, Zesa has not moved and through the Chamber, we are still negotiating and we are still hopeful that this will be implemented.”

Such costs, added Mr Saunders, were impacting hard on the operations of the group, with overheads costs outpacing revenue.

“That is why our exploration activities have been limited this year.”

According to a report by Ernst & Young, a chartered accounting firm which audits Falgold’s accounts, the mining company’s going concern status has been under threat since 2013. The report indicated that as at 30 September 2013, on which Falgold’s financial year is pegged, the group’s liabilities exceeded current assets by more than $14 million. In 2014, the figure went up to $15,7 million, in 2015 it went down to $4,2 million while last year it was to $2,4 million.

“We hope to recover from the sale of Dalny Mine,” he said.

Falgold shareholders last week approved the sale of Dalny Mine to Rio Zim for $8 million. The deal was consummated last year but was waiting shareholder approval from both parties.

“The transaction now has full shareholders approval from both parties. There is one outstanding condition as of today’s date, that is the authority of the Competition (and Tariffs) Commission. This transaction falls under specification of the Competition Commission. In terms of the statutes, there is no timeframe for the Competition Commission to come back to us although they are aware of the timeframe of this transaction which is currently the 31st of March,” he said.

According to the transaction, RioZim agreed to purchase the shares of the company for a consideration of $250 000.

Additionally, Dalny Mine loan accounts amounting to $7,75 million will be ceded to RioZim. Problems at Dalny Mine, situated near Kadoma started manifesting in January 2013 when workers embarked on a work stoppage which depleted the available working capital.

However, the mine resumed production but gold prices fell by almost $400 per ounce resulting in the mine becoming unprofitable. The negative impact of the prices and the subsequent disconnections of electricity to the mining complex by Zesa resulted in the depletion of the working capital and serious financial problems for the company. In 2013, the mine was placed under care and maintenance.

Over the years the group has been pursuing various options to secure fresh capital to revive the mine. The options among others included disposal of non-core assets, entering into joint venture capital partnerships and raising new equity capital.
In 2014, the group tried to dispose the mine to the United Kingdom based Vast Resources. However, Vast Resources failed to raise the necessary funds to fund the deal resulting in its collapse. Last year, Falgold entered the deal with RioZim to sell the mine. Apart from Dalny Mine, the group also owns Golden Quarry Mine near Shurugwi.

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