By Business Reporter
MINING giant, Rio Tinto Zimbabwe (RioZim) is taking legal action against the Reserve Bank of Zimbabwe (RBZ) for failure to comply with its directives and policies in allocation of foreign currency which has adversely affected the company’s operations and growth prospects.
In a cautionary statement issued by the company’s board of directors, RioZim challenged the apex banks’ modus operandi in foreign currency allocation, also seeking compensation for any losses suffered owing to non-compliance.
“Therefore in addition to the other measures that the Company is considering to address the situation, the Company has proceeded to formally serve the Reserve Bank of Zimbabwe with its notice advising it of its intention to file legal proceedings against the Reserve Bank of Zimbabwe for a claim demanding that the Central Bank complies with its directives and policies, and also, for compensation for any losses that the Company has suffered as result of the Central Bank’s non-compliance with its directives from 2016 to date,” read part of the statement.
“The Directors of RioZim Limited wish to advise the Company’s shareholders and members of the public that the Company is currently facing severe challenges arising from the Company’s inability to access its foreign currency earnings that are required to fund its operations and sustain its growth.”
Whilst the Central Bank’s policy from April 2016 to September 2018 was that gold producers were entitled to access 50% of their receipts in foreign exchange automatically in their nostro account and the balance 50% by application, this policy has changed to 30% with effect from 1 October 2018.
RioZim has not received even the first 50%, let alone the balance as per the Directives issued by the Central Bank in respect of its foreign exchange allocation.
“Since 2016 to date, the Company has only been allocated an average of circa 15% of the foreign currency that it has generated. The Company is required to deliver all gold produced to Fidelity Printers and Refiners (Private) Limited (“Fidelity Printers”) who in turn, credit the Company through the local RTGS system notwithstanding the fact that they have a contractual obligation to pay in foreign currency. “
RioZim says several attempts have been made to engage the central bank over the issue and minimal progress has been made in improving the situation.
The mining giant now face viability challenges due to limited access to foreign currency which has resulted in stalled progress in implementing its capital projects.
“In addition, the gold business requires access to foreign currency in order to fund very important sustaining capex projects. For example, the Company needs to establish a Biological Oxidation Plant at Cam & Motor Mine which is required to treat refractory ore as the near-surface oxidized ore was already depleted at the end of last year. Unless the Company is allowed to access adequate foreign currency to fund this project, it will not be able to build this plant thereby adversely affecting the viability of the mine.”
“There are other similar capex projects which are absolutely critical for the Company to sustain and grow its current production which have not been triggered as a result of foreign currency not being available.”
RioZim also aired a myriad of challenges hampering operational progress and growth due to inefficiencies by the apex bank.
Rio lamented its failure to pay external suppliers which has seen its costs escalating due to unmatched prices of locally available consumables and spares which have increased exponentially, compared to the prices quoted by external suppliers for the same products. “In some cases, the prices quoted by local suppliers is more than 300% the prices quoted by their international counterparts. “
RioZim bemoaned shrinking revenues which have led to depleted output.
“The lack of foreign currency has also started to have a significant negative impact on the Company’s ability to meet its projected targets. The challenge which the Company faces is that its revenues have shrunk leading to a severely depressed production whilst its cost base continues to fluctuate and like most mining companies, the Company’s costs are largely fixed and the Company can only benefit from increased production. Locally, costs have increased exponentially,” lamented Rio Tinto.
The company express dissatisfaction over paltry foreign currency allocation which is not a true reflection of the price of gold on the global market.
“Furthermore, the effect of the Central Bank’s inability to allocate the Company adequate foreign currency is that the Company has in effect been receiving a fraction of the true value of the international market price of the gold that it has been delivering to Fidelity Printers. The situation is thus unsustainable and prohibits the Company’s ability to operate viably and maintain its production.”
RioZim said they will continues to engage the Reserve Bank of Zimbabwe on the matter and the Board is also closely monitoring the situation, urging the public, to exercise caution and to consult their professional advisers when dealing in its shares. ENDS//