Troubled listed resources firm, Falcon Gold Zimbabwe, is in severe levels of financial distress due to worsening economic conditions in the country and the company faces the prospects of a sudden closure of operations.
In a joint statement signed by the company’s chairman Ian Saunders and finance director, Qubeka Nkomo, the resources firm said in the event that the company shuts down the remaining mining operations or liquidates its assets, it may be unable to realise value from its assets and may also find it difficult to service its liabilities.
“These conditions give rise to material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern and therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business,” it said.
The company said it continues to experience financial distress in the continuing environment of gold prices and toll fees being approximately equal to the group’s cost of production before depreciation and other non-cash costs.
“Due to serious liquidity problems, the continued absence of significant investor appetite for Zimbabwe and the lack of operating profits, management is, of necessity, operating the group with a determined focus on addressing short-term issues as they arise, but there can be no assurances that the group will be able to conduct operations should existing circumstances persist,” it said.
The majority of factors affecting the group’s operations, it said, are external factors outside of its control and there is significant pressure on the group’s efforts to survive.
“Accordingly… should the group be forced to consider shutting down its remaining mining operations, either temporarily or permanently and or liquidating its assets in a formal or informal arrangement, then the group may be unable to continue realising value from its assets and discharging its liabilities in the normal course of business,” Falcon Gold said.
In its financial results for the year to September 2018, published yesterday, Falcon Gold widened its loss by 609% during the period under review to $4,8 million from $684 074 recorded in the prior year.
The financial results showed that Falcon Gold had a net working capital deficit of $6,7 million during the period under review compared to $4,4 million in prior year. It also recorded a negative equity of $17,2 million compared to $12,3 million in 2017. Revenue for the group went down 1,55% to $6,8 million from $6,9 million in 2017.
The results also showed that the company has overstretched its balance sheet, amid a slowing economy. Total assets went down to $4,6 million during the period under review
from $7,4 million in 2017.
The company generates revenues from two sources-the mill at the Golden Quarry Mine and the sand processing plant at Wanderer Mine.
But, frequent machine breakdown severely affected operations at Golden Quarry Mine, which resulted in ceasing gold production.
The operations were also affected the unstable power supply. In fact, power supply had been cut off due to non-payment of utility bills, resulting in the full impairment of Golden Quarry cash generating unit.
The resources firm said ignoring these challenges could be devastating for the company because the outlook was so bleak as the insolvency data suggested.
The company has, however, introduced cost containment measures, reduction in marginal grade areas mined and efficiency enhancement initiatives. In addition to these measures, Falcon Gold is restructuring operations and reduces costs.
The company has also obtained a letter of support from parent company, New Dawn Mining Corp.