Falcon Gold Zimbabwe Limited, Zimbabwe’s second largest listed gold mining house, has impaired Reserve Bank of Zimbabwe (RBZ) gold-backed bonds worth $366 219, citing payment uncertainty, and put one of its operations back on care and maintenance owing to start-up capital constraints.
The impairment, which cost the miner $417 695, including outstanding interest earnings, aggravated its full-year loss to December last year to $3,6 million or $0,03 loss per share.
Falcon Gold reopened Dalny Mine in March last year, but put it back under care and maintenance later that year after failing to “raise capital from external resources”, and also postponed the scheduled reopening of Golden Quarry and Camperdown.
In an abridged financial statement released this week, the gold miner lamented it had based its plans to recapitalise and restart the closed mines on the RBZ gold bonds to head off a funding crisis, which eventually forced its board to recommend a “different strategy for the rejuvenation, recapitalisation and operation of the company’s mines”.
Consequently, Falcon Gold’s parent – Central African Gold (CAG) – resorted to an equity-financing option, which saw it disposing 89% of the group to New Dawn Mining Corporation, a cash-rich Canada-based resources firm, in June this year.
Falcon Gold said funding options were limited, as available credit lines were unsuitable for mining operations, while debt capital was too expensive and prohibitive.
“Subsequent to the company’s 2009 Year End, in May 2010, for the aforementioned reasons, the company was unable to raise additional capital and was forced to put the Dalny Mine back onto care and maintenance.”
The RBZ failed to redeem the special tradable gold-backed foreign exchange bonds when they fell due on February 1 and initially rolled them over by six months to July 31, but had to extend their life by a further six months, as it is still to come up with a redemption plan.
The central bank issued the bonds in January last year to pay Falcon Gold and other gold producers for deliveries made to its gold-buying division, Fidelity Printers & Refiners the year before. At the time Fidelity had legal monopoly over gold trade in the country.
Reserve Bank governor Gideon Gono says the bank is making frantic efforts to settle the obligations.
“Initially this was seen as a positive move as it both acknowledged the debt owed by the RBZ and indicated to producers in the future they would have capital to expand. Unfortunately when the bank rolled over the instrument on the first anniversary date, the positives disappeared,” Falcon Gold said in the abridged financial statement, adding it had re-hinged its restart plans on New Dawn, its ultimate parent.
“With access to financing, combined with the skills of and expertise available through New Dawn Mining’s Zimbabwe subsidiary, the board is hopeful that the new arrangement will prove advantageous to and assist the company in restarting its operations, restructuring and business and ultimately reaching both its potential and corporate goals.”
New Dawn has earmarked $2 million for CAG’s restart programme.