. . . situation can be rescued
RIOZIM Limited says foreign currency shortages experienced last year, plunged the firm in “material uncertainty”, but believes turning around the company’s fortunes is possible if the interbank market rate was left “completely to market forces”.
The gold miner, which operates Cam & Motor, Renco Mine and Dalny Mine – closed all its mines in October last year after running out of critical consumables and spares.
Dalny stopped operations on October 19 followed by Cam & Motor and Renco on October 22.
In its financials for the year ended December 31, 2018, RioZim chairman Lovemore Chihota said the situation at the company is not rosy given that as at the reporting date, the group’s current liabilities exceeded current assets by US$37,7 million compared to US$31,6 million in the comparative period.
“The group’s operations were significantly impacted by shortage of foreign currency in the current year which led to the involuntary closure of all the mines in the fourth quarter and therefore negatively affected cash flows.
“These factors ordinarily indicate the existence of a material uncertainty on the group’s ability to continue as a going concern and that it may be unable to realise its assets and discharge its liabilities in the normal course of business,” said Chihota.
Last year, Chihota wrote to Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya, and copied Finance and Economic Development Minister Professor Mthuli Ncube, and Mines and Mining Development Minister Winston Chitando, indicating that RioZim had received a measly 14 percent of its money in forex in 30 months.
This was against an RBZ directive of 50 percent directly to its nostro account and 50 percent through application to the apex bank.
RioZim said the 1:1 rate of US dollars weighed down the company but is excited about the introduction of the interbank rate.
Chihota said in the past, RioZim used to be paid for 45 percent of its produce at “a substandard rate of 1:1 compared to the rate at alternative markets of approximately 4:1”.
He said input prices were pegged at the alternative market rate of approximately 4:1, a move that created a “significant disparity” between its cost base and its revenue.
Chihota argues that while the rate of 2,5 remains below the alternative market rate, it is “significantly higher” than the previous rate of 1:1.
“The review will see the fortunes of the group change even with the same level of production as the company will now generate cash resources to service its creditors.
“Furthermore, the group’s financial liabilities are predominantly denominated in RTGS$ and therefore, will be converted at the interbank rate to USD which will self-correct the net liability position,” said Chihota.
RioZim plans to continue engaging monetary authorities to change the current forex retention framework such that it can retain a higher percentage of the foreign currency it generates from selling of gold.
“It is also expected that the floating of the exchange rate would be left completely to market forces so that the exchange rate reflects the true value of the RTGS$ in the market,” said Chihota.
Chihota said even with the depressed exchange rate, the group generated net earnings as represented by EBIDTA of US$2,4 million last year compared to US$8,1 million raked in the comparative period.
Management expects that earnings will further improve going forward on the back of a number of initiatives including the opening of One Step Mine hauling ore to Cam & Motor Plant; completion of the BIOX Plant which will double gold production at Cam & Motor, and cost savings from owner mining at Cam & Motor Mine and Dalny Mine.
Resumption of underground gold mining at Dalny, which will enable the mine to access high grade ores, will also increase gold production.