MULTI-resource giant RioZim Limited slipped into a liquidity crunch during the first six months of 2021, after overturning a healthy working capital position to plunge into almost ZW$1 billion (about US$11,5 million) working capital black hole, financial statements for the half year ended June 30, 2021 show.
On Monday, the RioZim board cast doubts over the giant’s ability to continue as a going concern as tremendous working capital shortages exerted fresh pressures on the firm’s ability to settle crucial commitments.
However, RioZim chairperson Saleem Beebeejaun maintained that strategies were underway to help the firm return to profit and ride out the liquidity crisis.
He spoke as the financial statements showed current liabilities, at ZW$3,8 billion (about US$43,6 million) exceeding ZW$2,8 billion (about US$32 million) current assets and creating a ZW$935 million (about US$10,7 million) negative working capital position.
This represented a dramatic push back from a ZW$435,4 million (about US$5 million) positive working capital position during the year ended December 31, 2020.
A firm with a negative working capital position struggles to meet its day-to-day commitments such as raw material procurement, fuel and other requirements to keep the business running.
In a commentary, Beebeejaun confirmed the headwinds that have threatened RioZim’s going concern position.
“As at the reporting date the group’s current liabilities exceeded current assets by ZW$935,7 million (December 2020: current assets exceeded current liabilities by ZW$435,4 million) and the group reported a net loss for the period of ZW$1,5 billion (about US$17,2 million) (June 2020 ZW$77,4 million(about US$890 000),” Beebeejaun noted.
“The group’s operations were significantly impacted by rain-induced power cuts and plant breakdowns in the first quarter.
“These factors ordinarily indicate the existence of a material uncertainty on the group’s ability to continue as a going concern and that it may be unable to realise its assets and discharge its liabilities in the normal course of business,” he added.
Developments at one of Zimbabwe’s biggest mining operations were reminiscent of terrifying developments a decade ago when the firm was saved by a central bank intervention after almost collapsing under heavy debts owed to banks.
As RioZim and other troubled firms across industries battled for funding to clear debts in the post dollarisation era, the central bank established the Zimbabwe Asset Management Corporation to take over millions in toxic debts and reposition firms for growth.
The RioZim boss predicted that the gold, coal and diamond operation was building sustainable capacities to overturn the crisis and return to profit.
At the centre of the recovery efforts are several ongoing stability-inducing projects, including completion of a BIOX plant at Cam & Motor Mine, RioZim’s flagship asset.
The firm is investing in generators across its operations to address rolling blackouts affecting the domestic market, while new furnaces will be commissioned at the Kadoma-based Empress Nickel Refinery.
Post-tax losses at RioZim widened after heavy rains triggered flash floods into open pit operations at Cam & Motor. RioZim had posted another loss during the same period in 2020.
The ZSE-listed giant said it ran into headwinds stemming from rolling blackouts of up to eight hours a day, which frustrated growth across sectors.
However, the volatile currency, which has this year suffered its worst beating against the United States dollar, helped the firm lift revenues to ZW$2,6 billion (about US$30 million) during the period, from ZW$616,4 million (about US$7 million) previously.
“The marked increase in revenue was a direct result of the depreciation of the local currency against the United States dollar,” Beebeejaun said.
“Resultantly, the low production achieved led to a loss of ZW$1,5 billion compared to the same period prior year’s loss of ZW$77,4 million.
“Cam & Motor Mine suffered from incessant rains during the first quarter, which made some of the mining areas in the mine’s open pits inaccessible resulting in the mine obtaining lower grade ore than planned.
“Cam also experienced persistent rain induced breakdowns on the plant which also negatively affected plant throughput. Consequently, gold production for the period fell by 9% to 181 kg compared to the prior period’s 199 kg,” Beebeejaun noted.
Zimbabwe experienced one of its best rainfalls during the 2020/2021 agricultural season.
But this became the biggest threat to gold mines, also reportedly affecting the robustly expanding Caledonia Mining Corporation, which controls Gwanda-based Blanket Mine. Overall gold production at RioZim, which controls , retreated by 4% to 564 kg during the review period, compared to 586 kg previously. Zimbabwe Independent