HARARE, February 28 (The Source) – Falcon Gold’s sale of Dalny Mine to RioZim for $8 million will improve its financial position and provide working capital for its remaining operations, the company said on Tuesday.
Falgold and RioZim entered into an agreement in which the latter would acquire Falgold Dalny mine shares and loan accounts. According to the proposed transaction, RioZim agreed to purchase the shares of the company for a consideration of $250,000. Additionally, Dalny Mine loan accounts amounting to $7.75 million will be ceded to RioZim.
In a circular to shareholders, Falgold said from the proceeds of the proposed transactions, $3 million will be used for the repayment of shareholder loans to its parent firm, New Dawn Mining Corporation, $2 million will be used for the settlement of existing local creditors and as working capital while $1 million will be for improving its property, plant and equipment at its remaining operations.
In August 2014 Falgold sold Dalny mine assets along with related liabilities to Vast Resources Plc but the deal collapsed after the London-based miner failed to raise the required funds. This left the company without working capital and facing liquidity problems until the agreement with RioZim.
Analysts on the deal’s impact on Falgold
According to the pro forma statement, Falgold’s accumulated losses by 55 percent to $4,35 million from the current $9,65 million on the back of a $5,3 million profit from the sale. As such, total equity will improve from a negative $11.4 million to a negative $6.1 million after the proposed transaction.
Total assets will increase by 1.26 percent from $12.55 million as as at September 30, 2016 to $12.71 million on the back of an additional amount of $1.827 million and $4.904 million which represent the non-current and current portion of the purchase consideration receivable respectively.
Additionally, the proposed transaction will reduce the company’s liabilities by 21.5 percent from the $23.9 million reported in the full year period to September 2016 to $18.8 million, chiefly on the back of the disposal of total liabilities of Dalny mine amounting to $5.13 million.
The company’s net asset value will improve by 46 percent from a negative 10.23 cents per share to a negative 5.46 cents per share.
The company said it will remain in distress although management are of the view that the deal will allow them to improve the operating performance of the company and its financial position this year.
“The high cost base, coupled with the falling gold price, remains a real and persistent threat to the continued operations of the Golden Quarry/Camperdown Mine. However, measures in the form of key growth projects are being put in place to increase the ore production and treatment capacities at the mine, which should raise production volumes and generate increased revenues,” said Falgold.
However, the company said due to limited cash generated from its operations which is used to finance its projects, the projects might not be commissioned within expected time frames.
“The proceeds of the Dalny Mine sale should enable the company to enhance the various projects and return the company to viability as it may accelerate these projects and fund other new projects that will further enhance the performance of the company to realign and rationalise its asset base, whilst providing much needed growth and working capital,” it said.
Falgold has operations at Turk Mine near Bulawayo and the Golden Quarry Mine in Shurugwi.
Canadian-listed New Dawn Mining Corporation owns a controlling 84.67 percent in Falgold. Its major shareholders of Falcon Gold are Falcon Mines Society Anonyme and Boundary Investments (Private) Limited that own 57.1 percent and 27.57 percent respectively.
An individual investor, Turner Roy holds a 2.09 percent interest.
The proposed transaction is set to be approved by the shareholders at the upcoming extraordinary general meeting on Wednesday March 22, 2016.