FALCON Gold (Falgold), which recently indicated that it might give notice of closure due to poor gold prices, has become a sitting duck for a potential t
akeover, businessdigest established this week.
A number of foreign investors have shown interest in the troubled mining firm which has suffered from a poor gold pricing regime since 1998.
The gold-mining firm is currently in talks with an unidentified South African investor.
The talks started three months ago but are still at a preliminary level, a source indicated.
The South African investor is one of the four companies that sources say have shown interest in the mining group over the years.
Falgold financial director, Garry Perotti confirmed that some offshore investors had shown interest in the company but refused to reveal their identity, saying he was bound by confidentiality rules.
“True, there has been some interest from some outside investors but that’s all I can say at the moment,” Perotti said.
He said Falgold was willing to sell off “if we find someone who is willing to pay the right price for it”.
Perotti said the talks were still at an early stage.
Falgold has an asset base of about US$18 million with the bulk of it held mainly through its mines — Dalny, Golden Quarry and Venice.
Venice was shut down a few years ago due to viability problems.
Perotti said potential buyers had in the past shown interest in the firm only to withdraw at the last minute due to concerns over the country’s uncertain mining policies.
“It’s an ongoing process (talking to interested buyers) but what has been happening is that most investors pull out at the last minute because of the costs required to expand operations and government’s inconsistent mining laws,” said Perotti.
Businessdigest understands that Falgold has held take-over talks with at least four investors in the past.
“Certainly no one would want to invest in a company in which he might lose 51% in the next five years. I don’t think there is anyone who would want to buy such an asset,” Perotti said.
MUGARI: Mid-May you wrote a letter to the RBZ, government and Chamber of Mines indicating that you could shut down if the gold price is not reviewed. What is the situation now?
Perotti: It has not changed; they have not reviewed the gold price since January. It’s a desperate situation. We will sink unless something drastic happens.
Mugari: Did the authorities respond to your letter, and if so, what did they say?
Perotti: Nothing. They have not said anything. They have not even responded to the letter. Some of them have not even acknowledged receipt of the letter we wrote them.
Mugari: Tell us about the current cash-flow position of the company.
Perotti: It’s really bad. We are making losses. For example, in May we had revenue of $97 billion but our costs were $100 billion. That’s a loss of $3 billion. The projected costs for June are about $117,2 billion but our revenue is just $100 billion. That gives you a loss of $17 billion.
If the situation does not change this month, we will still have revenue of $100 billion but our costs would be (up to) about $136 billion. Surely we can’t survive with such a situation.
Mugari: Every sector is being affected by the current economic crisis. What is unique about the gold-mining industry?
Perotti: We need to accept that even though most companies are battling to stay afloat, they are able to survive at least by increasing the prices of their commodities. The gold mining industry cannot do that because the price of gold is controlled by the government. We can’t increase our revenue unless government increases the gold price. That is how we are unique.
Mugari: What are some of the challenges that Falgold faces apart from the gold price?
Perotti: The current power-cuts are one of the main problems. We are losing many working hours because of the power-cuts and obviously that impacts on our production. Then we have the cost structure which is going up due to inflation. We also have the foreign currency problems.
Mugari: By what percentage do you want the gold price to be increased?
Perotti: In the short-term we would require a 150% increase on the current price of $2,5 billion per kg. That will cushion us in the short-term.
Mugari: Falgold’s mines have been struggling since 1998 and since then you have been threatening to close. Tell me, if the mining industry is such a difficult sector, why not sell the mines?
Perotti: We will sell the asset if we get someone willing to pay the right price, but no one is willing to buy the asset when the government will take about 51% in five years. Who will buy such an asset? There is no way one can buy such an asset.
Mugari: How much do you think the company is worth at the moment?
Perotti: About US$18 million, but there is no way you can get that price at the moment with the current situation.
Mugari: How many employees would be affected if the company closes down?
Perotti: Roughly, we employ about 750 people in our mines but support huge communities, for instance Chakari Mine which is a small town on its own.