Acute foreign currency shortage erodes RioZim earnings

Acute foreign currency shortage erodes RioZim earnings
Published: 02 October 2018 (3053 Views)
RESOURCES group RioZim Limited's profit after tax dropped by 86% to $406 000 in the six months to June 30, from $2,9 million last year, despite higher gold production after the central bank failed to pay foreign currency earned from gold exports.

The miner's gold output was 20% higher at 1 050kg from 873kg over the same period last year but only received 15% of foreign currency earned from the exports.

The central bank has previously stated that it would keep between 25% and 30% of all foreign currency earned by miners to support critical businesses.

Zimbabwe is gripped by a shortage of US dollars, a currency it adopted in 2009 after shedding its own Zimdollar when inflation reached 500 billion percent according to World Bank figures.

The rise in gold output was on the back of higher production at Cam and Motor Mine which was up 27% to 458kg; Renco Mine up 14% to 360kg and Dainy Mine up 18,36% to 232kg.

"The group's results for the period ended June 30, 2018 were saddled by challenges mainly emanating from an acute shortage of foreign currency to meet external payments, high inflationary pressures and cash shortages," RioZim chairman Lovemore Chihota in a statement accompanying the group's results.

"The inability to access foreign currency crippled the group's intentions to maintain and continue with its expansion projects as well as exposing it to inflationary pressures encountered in procuring consumables on the local market at exorbitant prices. In particular, the group during the period under review only received some 15% of its gold production earnings in foreign currency with the balance being paid through the local real time gross settlement (RTGS) system."

Chihota said the purchasing parity of RTGS transfers had been falling and is at present between 30% and 50% of the United States dollar.

"Consequently, this has meant that not only has the group not been able to carry out its essential maintenance projects, but it has been exposed to procuring goods locally at a cost of up to 300% of the actual fair value," Chihota said.

RioZim associate, Murowa Diamonds Limited realised an operating profit of $913 000, from $583 000 over the comparative prior period.

Group revenue at $44,4 million was 17% higher owing to a 5% rise in the gold price.

Basic earnings per share dropped to 0,34 cents from 2,40 cents previously.

"Foreign exchange remains challenges remain a key risk area and the group is actively exploring avenues to address this risk. It is important to emphasise that the situation cannot be sustained where the company is in effect selling gold at 50% of its fair market value," Chihota said.

- NewsDay

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