Falcon Gold narrows loss to $750 978

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Falcon Gold Zimbabwe says that its focus will now shift to carrying out some limited exploration activities during 2018 following the completion of its mining projects and plant optimisation in the current year. This comes as the group managed to narrow its loss for the year to September 30, 2017 to $750 978 or $0,007 per share but operations remain under pressure.

According to the group’s results, the reduced loss position was however brought about by a gain on the sale of Dalny Mine of $4,05 million to RioZim but the operating line had been extremely affected by low revenues and high mining and processing costs. Revenue decreased 23,5 percent to $6,89 million from $9 million in the comparable period in 2016.

Mining and processing costs increased marginally to $10,52 million from $10,36 million resulting in a gross loss of $3,63 million from $1,35 million last year.

“Production levels were depressed but some increases in base costs were evident in the later part of the year,” said CEO Ian Saunders.

In addition, general and administration expenses increased 13.6 percent to $1.15 million. Saunders said that the operating environment remained challenging from the tax side and the power tariff at 12,8c/kWh against the national norm of 7,8c/kWh.

“The resultant high operating cost base remains a threat to the continued viable operations of the mines.” However, the improved gold price, and the commissioned growth and improvement projects are expected to increase ore production and treatment capacities at the mines in 2018. Gold sales for the year decreased by 72kgs (31,2 percent) to 159kgs compared to 231kg mainly due to what the group said was inadequate suitable ore deliveries to the plant.

The average price realised was $1 243 per ounce versus $1 219 in 2016. Gold sales in the past two years were realised from the sole operating gold processing plant at Golden Quarry near Shurugwi.

In terms of operations, Saunders said because of the high cost of operations, progress in increasing tonnage from the mines and throughput from the processing plant had been slow.

The group is however “cautiously optimistic” about meeting next year’s targets following the completion on increased ore hoisting capacities from the two mines and improved reliability of the three mills and the addition of the pre-aeration tank. “This should have an added benefit of improving the group’s viability. As a result, the group anticipates an increase in production volumes and an improvement in revenues.”

Saunders said the group continues to struggle to get funding.

For the moment, other than operating cash flows, proceeds from the sale of Dalny Mine, and the prudent use of such proceeds, remain the group’s primary sources of cash resources.

Operating cash flows were a negative $1,33 million but the closing cash was boosted by the sale of Dalny to $363 277. Total assets on the balance sheet decreased to $7,59 million.

Comment: Falcon’s results are unamusing, and the main issue of particular concern is on the group’s ability to complete its current plans, utilise its existing assets and continue to sustainably meet its financial obligations during and beyond the next fiscal period.

The group is facing some liquidity challenges, with its current ratio standing at 0.48, compared to 0.78 percent in the previous trading period, raising concerns about its ability to meet its short term obligations.

Already, trade payables have surged on account of challenges to settle supplier obligations in time.

The topline is down 23 percent with the mining and processing expenses as well as operating expenses going up.

The group is in need of an overhaul of its antiquated and antediluvian machinery and equipment so as to lower down its high maintenance costs and bring flexibility on expenses associated with mining and processing.

Fostering reliability alone will not do much justice on both the top line and bottom line.

In the short run, the repairs that have been done to existing machinery might improve production, coupled with firming gold prices.

But the mining expenses will also be high due to the inefficient setup of the plant.

A sustainable solution therefore lies in cleaning the group’s balance sheet by looking for fresh capital injection to recapitalise operations and carry out aggressive exploration to realise ore deliveries with better yield. — FinX

 

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