HomeBusiness DigestFalgold faces 'imminent' closure

Falgold faces ‘imminent’ closure

Ngoni Chanakira

DESPITE assurances by government that the controversial fast-track land resettlement programme is over, mining giant Falcon Gold Zimbabwe Ltd (Falgold), says its mine farms and a portion of t

he plantation estate at Shurugwi have been designated. Chairman David Marshall at a meeting on Tuesday made the startling revelations.

Falgold is listed on the Zimbabwe Stock Exchange and has operations in Luxembourg. Agriculture Minister Joseph Made gave the designation the nod.

The mining giant this week issued a cautionary statement informing shareholders about its predicament.

“Shareholders will have seen in the annual report that the mine farms and a portion of the plantation estate at Shurugwi have been designated,” Marshall said. “These areas have our mining claims situated thereon and we have objected to these acquisitions through the mining commissioners and the company lawyers. Without access to these claims as is allowed by the current mining laws, the company will be disadvantaged in the future.”

Marshall said Falgold therefore strongly implored government to review and improve the gold pricing system and to continue to pay timeously, to review the structure of payment to the Zimbabwe Electricity Supply Authority (Zesa) and to reverse the acquisition of land which is for mining purposes.

“Shareholders should be cautioned that should action not be taken decisively by the relevant authorities, cessation of operations is imminent,” Marshall said.

The chairman said while the group’s cash position at the end of September 2003 appeared healthy at $917 million the soaring inflation rate would impact negatively on reserves.

“Inflation from October 2003 to December 2003 escalated at over 100% and, even with the governor of the Reserve Bank’s prediction that inflation will be contained to 200% for this year, indicates that the company will not survive the year under the current gold revenue regime,” Marshall said.

The chairman said furthermore in addition to the foreign currency deduction Zesa costs had been increased by 390% effective January 1.

“Cashflow estimates to enable survival now require that all 50% of the local payout is done at an auction rate of $6 800 to US$1,” he said.

Last year Falcon Investment Holdings Societé Anonyme, the holding company for Falcon Gold Zimbabwe Ltd, confirmed that it was using black market rates when converting earnings from local subsidiaries.

The mining giant was using an exchange rate of US$1:$1 400.

In January government devalued the Zimbabwe dollar from US$1:$55 to US$1:$824 causing some relief for companies especially those who export.

However, most businesses, including financial institutions, were not adhering to government regulations and are using rates ranging from $1 400 to $2 000 for the elusive greenback.

Falcon, which is incorporated in Luxembourg, said total operating profits of its Zimbabwean subsidiaries converted at average parallel exchange rates were US$697 000 in the six months to March 31 2003.

This compared to a profit of US$87 000 for the whole of the previous year and a loss of US$19 000 for the first half of 2002.

For the period ending September 30 Falgold produced 696 kg (22 378 ounces) of gold from 1 275 million tonnes treated under what it said were the “most difficult circumstances”. The production created a profit $1,42 billion, which, it said, was the result of government moving the fixed exchange rate from $55 to $824:US$1.

The mining firm said gold production in Zimbabwe was continuing to decrease due to shoddy policies within the mining sector.

“Flagella’s gold production declined by 218 kg this year,” Marshall said.

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