African Consolidated Resources (AFCR) to bag gold mine this week

THE acquisition of Kadoma gold producer Dalny mine, a unit of listed miner Falgold, by resources firm African Consolidated Resources (AFCR) — a deal likely to provide a timely US$8 million cash boost for the struggling Falgold, while at the same time completing the transformation of AFCR from a local prospecting company to a mining house — could be concluded on Friday.

Falgold, which wholly owns Dalny Mine, is 84,7 percent controlled by New Dawn Mining Corporation, a firm listed on the Toronto Stock Exchange (Canada).

A series of transactions and processes that will culminate in the payment of the outstanding US$7,5 million consideration by AFCR on Friday are expected this week.

It has since been established that the deal could have been concluded last month but it had to be delayed after a two-week adjournment of a meeting of the Zimbabwe Stock Exchange (ZSE) Listing Committee.

AFCR recently told its shareholders in a statement on July 22 that Falgold is scheduled to have an Extraordinary General Meeting (EGM) to approve the transaction on Wednesday following which the outstanding amount will be paid.

“Further to the announcement dated June 30 2014, AFCR, the AIM-listed resources and development company, announces that Falcon Gold Zimbabwe Limited (“Falgold”) has informed the Company that, following an adjournment by two weeks of a meeting of the Zimbabwe Stock Exchange Listing Committee (“the Listing Committee”), the expected date of the Extraordinary General Meeting of Falgold (“the Falgold EGM”) in order to approve the proposed sale of the Dalny Mine and associated infrastructure (“the Dalny Mine”) is now August 13 2014, with the results expected to be published on August 15 2014.

“In order to accommodate the new date of the Falgold EGM Falgold has requested and AFCR has agreed to extend the date for payment of the outstanding consideration (being a net cost of UD$7,5 million) from July 30 2014 to August 15 2014.”

AFCR, which unsuccessfully tussled with Government for the control of the 650 000 — hectare Marange diamond fields in 2006, swooped on ailing Dalny Mine after it was shut down on August 30 last year weighed by ballooning labour costs, an unremitting decline in gold prices, “unsustainable” high rates of royalties and taxes, Environmental Management Authority charges and a rising debt owed to the Zimbabwe Electricity Supply Authority (Zesa).

Last year gold prices snapped a 12-year bull run by dropping more than 28 percent as investors speculated on when the United States Federal Reserve was likely to wind down its controversial bond-buying programme (Quantitative Easing), which was mainly effected to stem the lingering adverse effects of the 2007 global financial crisis. As the Federal Reserve pumped more money into the global financial system, the United States dollar consequently dropped, driving most of the investments into gold.

In December, however, it decided to reduce the stimulus by US$10 billion, to US$75 billion a month, starting in January, with the aim of slowly winding down the programme over 2014.

By the end of December, gold, which once soared to a record $1 921,15 an ounce in September 2011, was quoted at US$1 202 per ounce.

Prices recovered somewhat in July to US$1 337 per ounce.

Market watchers say future price trends will depend on the health of the US economy.

But, equally, gold miners have been complaining about royalties that have risen more than five times in the past three years.

Currently, royalties are pegged at seven percent for gold, 10 percent for platinum and 15 percent for gold.

Falgold is presently battling a US$5,3 million working capital deficit and believes the cash-flow position could significantly improve once Dalny Mine is offloaded.

Not only will AFCR inherit the mine assets but its related liabilities as well.

The acquisition is conditional on the AIM-listed miner settling all known creditors of Dalny Mine in full, partial settlement of labour costs, full settlement of any capital gains tax or other tax liabilities due to the Zimbabwe Revenue Authority (Zimra).

The balance of funds after payment of the obligations will be remitted to Falgold.

As a result, the net cash from the transaction is estimated to be US$2,5 million.

On its part, AFCR is expected to conduct a diligence of Dalny Mine and raise capital to the tune of US$12 million.

Among Falgold’s list of top ten creditors are suppliers for explosives, cyanide, mill balls and electric motor repairs.

It also owes Zesa approximately US$1,3 million.

Resultantly, Dalny Mine was fully impaired on Falgold’s position for the 2013 financial year.

The company recorded a US$12,5 million loss for the year to September 2013 after the mine was closed.

A fortnight ago, Falgold’s chairman Mr Ian Saunders told shareholders that the mining concern, which also owns Golden Quarry and Venice mines in Zimbabwe, is banking on the deal to sail through.

“The substantial fall in the price of gold over the last 12 months, exacerbated by the impact of the previously reported operational problems at Dalny Mine, has resulted in a serious liquidity problem at Falgold.

“As a result, the amounts due to Zesa in respect of Dalny Mine operations were not being paid on a basis acceptable to Zesa, which has caused Zesa to issue a notice of disconnection of electrical services to the mine.

“Without electrical power, Falgold could not operate the mine and was forced to shut down the Dalny Mine operations on August 30, 2013. As part of the shut down, the Dalny Mine workforce was placed on unpaid leave and the mine was moved to care and maintenance.

“As a result, Dalny Mine requires in excess of US$10 million of new capital to restart. Furthermore, the current operating mine cannot support this cash drain at Dalny in the current price and taxation regime,” said Mr Saunders.AFCR, which has shown heightened interest to invest in gold mining assets, is pushing for the deal to be sealed for they know that the addition of Dalny Mine, a mine equipped with its own operational processing plant and ancillary infrastructure, will help treat ore from its Pickstone Peerless Gold Project, which is near the Kadoma mine. Dalny Mine is located about 56 kilometres from Pickstone Peerless and 46 kilometres from Gadzema.

An initial pre-feasibility study of the Pickstone Peerless project concluded December 31 has indicated that the deposit could hold mineral resources of more than one million ounces.AFCR intends to raise about US$18 milion though a mixture of debt and equity in order to bring Pickstone into production and also finance the acquisition of the new mine.

Chegutu-based Pickstone is expected to become the biggest gold mine in Zimbabwe once the full investment is sunk into the project.

First Bank of Nigeria-Nigeria’s biggest bank by assets at US$21 billion as at June 30 this year was once considered as a financier of the project last year. Restarting gold mining at Dalny, which used to employ more than 900 workers, will be a major boost for the economy in general and the gold sector in particular.The country’s gold production dropped 26 percent to six tonnes between January and July this year from the same period a year earlier.

But while gold producers are smarting from an increasingly challenging economic environment, Metallon Gold, which is owned by South African business magnate Mr Mzi Khumalo, projects that production at its five mines – How Mine, Shamva Mine, Arcturus Mine, Mazowe Mine and Redwing Mine – will increase.

In a recent report, Metallon reported that production at its mine in June had risen by five percent to 7 400 ounces from 7 000 ounces that was recorded a month earlier.

The miner believes that production at its mines will rise to 100 000 ounces by the end of the year compared to 82 000 ounces recorded in 2013.

The mining sector grew by 35 percent from 2009 to 2011 with the sector’s contribution to Gross Domestic Product increasing from four percent to 16,9 percent.

According to the Chamber of Mines of Zimbabwe, the mining sector has overtaken the agricultural sector as the mainstay of economic growth and now accounts for more than 50 percent of foreign exchange inflows into the country.

On the basis of current costs and policies, gross revenues and fiscal revenues from the sector are seen increasing by 63 and 87 percent respectively, to US$4,8 billion and US$729 million by 2018.

By Darlington Musarurwa & Africa Moyo