Falcon Gold’s troubles have deepened, largely due to a significant exposure in foreign exchange risks, resulting in its net loss widening by 1,519% in the six months to March this year.
In its latest financial results, published last week, the net loss of the crisis-hit resources concern (popularly known as Falgold) widened to ZWL$27.2m during the reviewed period, up from the ZWL$1.7m recorded in the same period last year.
It also suffered a ZWL$24m foreign exchange loss, which contributed significantly to the company’s massive loss. Foreign exchange gain or loss occurs when a company or a person sells goods and services in foreign currency. The value, when converted to the local currency of the seller, varies depending on the prevailing exchange rate.
If the value of the currency increases after the conversion, the seller would have made a foreign currency gain. But, in Falgold’s case, the value of the currency declined during the period under review after the conversion, resulting in Falgold incurring a foreign exchange loss of ZWL$24m.
Falgold chairman, Ian Saunders, said currency swings weighed down the company. “The group reported a total comprehensive loss of ZWL$27,224,725 for the six months ended 31 March 2019. The increase in total comprehensive loss is mainly due to foreign exchange losses amounting to ZWL$23,917,228,” Saunders added.
Worse, the company recorded a negative working capital, which is closely tied to current ratio. Total current assets were ZWL$4.3m compared to current liabilities amounting to ZWL$15.6m. This resulted in a negative working capital of ZWL$11.3m.
Working capital measures how well a company is able to manage its short-term obligations. Having enough working capital ensures that a company can fully cover its short-term liabilities as they come due in the next 12 months.
In Falgold’s case, it recorded a negative working capital, meaning the company incurred a large cash outlay or a substantive increase in its accounts payable. This is a cause for concern because it is a warning sign that Falgold is struggling to make ends meet and have to rely on borrowings or stock issuances to finance its working capital.
Which means the operational situation of Falgold is dire. There is also a negative equity of ZWL$44.4m during the period under review. According to financial analysts, Falgold might not survive as a going concern if solutions are not immediately found to its problems.
Its operating loss stands at ZWL$3.1m, a 75% increase from ZWL$1.8m recorded in the comparable period last year.
Production costs increased by 4% to ZWL$5.2m during the period under review, from ZWL$3.7m in prior year.
Revenue, however, went up by 10% to ZWL$2.8m in the reviewed period, from ZWL$2.6m in the prior period. This resulted in a gross loss amounting to ZWL$2.4m, compared to ZWL$1.1m in the same period last year, reflecting a 113% increase.
During the period under review, gold production went down by 71 ounces to 1,849 ounces, compared to 1,920 ounces produced in the same period the previous year.
Administration costs went up by 46% compared to the same period in the prior year.
The company is still struggling to operationalise its main mill at the Golden Quarry Mine. Power supply was also terminated by ZETDC, compounding Falgold’s problems.
Saunders said the company was evaluating various options to deal with the situation. Discussions between the company and its parent company are underway.
Falgold’s shares were suspended from trading on the Zimbabwe Stock Exchange in February this year, after it failed to finalise its September 2018 financial statements on time. Saunders said the company would launch an application to resume trading of the shares.
“The delay in the publication of the March 2019 interim financial results was caused by the delayed publication of the September 2018 financial statement,” he explained. “After the publication of Falgold 2019 half year results, the company will be making an application to ZSE to resume trading of the shares.” Saunders added.