Falgold, a candle in the wind

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FALCON Gold Zimbabwe Limited (Falgold) has been in a precarious position for almost a decade now as it has persistently held a negative net asset position — a precursor to insolvency — since the introduction of the multi-currency system in 2009.
The company has had numerous problems over the period, including liquidity challenges, strikes, and a recent dispute with RioGold over the payment of Dalny Mine, all of which have been compounded by the country’s economic challenges.
The gold price slump during the 2012 and 2013 financial periods has also not helped the company.
In its financial results for the six months ended March 31 2018, the company advised of its doubtful going concern status for the umpteenth time.
“There is serious doubt about the company’s ability to survive as it is currently configured,” Falgold said.
“While the recent operating difficulties and serious liquidity problems are continuing to affect the company, exacerbated by the dispute with RioGold over the payment of proceeds from the Dalny Mine sale, these factors have resulted in operating losses and negative cash flows. There can be no assurances that the company will be able to continue to conduct operations in Zimbabwe under existing circumstances, ” the company added.
As at March 31, 2018, Falgold had a negative net asset position of $13,8 million. This underscores the company’s precarious position as asserted by the company.
The difference between assets and liabilities is the company’s net asset position, if the company has more liabilities than assets, then the figure will be negative.
In finance, it is a general rule that a negative asset position is a precursor to insolvency or bankruptcy.
Insolvency occurs when the company can no longer keep pace with its incoming bills. It doesn’t have the cash to pay them, and it cannot sell assets fast enough or generate cash to pay them. This is when companies generally file for liquidation.
Falgold is currently still able to realise its assets and discharge its liabilities in the ordinary course of business, but only just. If there is no significant improvement in the company’s financial performance in the short to medium term, it will have to be wound up.
The directors of Falgold, however, believe that the company will overcome the challenges it currently faces.
“…with the upgrades of the equipment essentially complete, and with both Golden Quarry and Camperdown Mines now fully operational, there is a reasonable expectation that the company will overcome the current adverse operating and financial circumstances,” the company said.
The company has said that the increased foreign interest in Zimbabwe could pan out for the gold mining industry if government addresses the challenges to do with high power tariffs and high taxes within the industry and any dynamic that favours the industry will also favour the company. The increased foreign interest in Zimbabwe over the past six months has been brought about by a shift in the global market’s perception of the southern African country. Many expect the renewed focus to bring an economic recovery to the country and that will also help ailing Falgold and many other companies like it.