Lower gold prices, operational problems and a two-year delay in approving its indigenization plan has resulted in a “serious liquidity problem” and the closure of its majority owned Dalny mine in Zimbabwe, New Dawn Mining (TSX: ND) says.
New Dawn owns an 84.7% stake in the mine, 175 km southeast of Harare, which produced 2,762 oz. gold in the three months ended March 31, and employs 900 workers.
The Toronto-based miner has had to grapple with a number of issues at Dalny this year, including steadily increasing payroll and power costs, high domestic royalties, taxes and fees, an illegal strike and the lack of full electrical power. Over the last several months these problems have spawned operating inefficiencies, high operating costs, operating losses and negative cash flows.
“The company, at all of its mining operations, is under serious pressure to bring operating costs in line with the current gold-price environment,” New Dawn said in a press release. “In addition, its Zimbabwe subsidiaries are facing negative working capital positions and an increasingly difficult legislative, regulatory and economic environment in Zimbabwe.”
New Dawn cited the “heightened uncertainty” about implementing the country’s indigenization policy following national elections in July. “The evolving policy on indigenization now appears to be focusing on seizing 51% controlling interests in foreign-controlled mines, with compensation deemed to be the value of the minerals in the ground.”
New Dawn says the two years it has been waiting for approval of its proposed indigenization plan for Dalny has been a major factor in the mine’s difficulties. “A timely approval of the plan of indigenization had been expected to provide the company with access to sufficient investment capital to fully fund the development of a cost-efficient operation,” it says. “After years of underdevelopment — had an investment program in the Dalny mine been implemented and completed as originally anticipated — the Dalny mine would have been positioned to maintain profitable operations in today’s environment of lower gold prices and increasing costs.”
New Dawn does not rule out the temporary or permanent closure of some of its other mining operations in the country, and/or the sale or liquidation of the company and its assets in a formal or informal arrangement. “The result of all of these adverse factors is that there is a significant and growing risk that actions more severe than steps taken so far or currently envisaged may be required,” it notes.
“The company is unable to predict the effect of an inability to conclude or implement an acceptable plan of indigenization,” it warned shareholders. “Such failure could result in the termination of the company’s mining licences in Zimbabwe; the loss of ownership and/or control of the company’s assets and operations in Zimbabwe without monetary compensation; other sanctions against the company’s Zimbabwe operations or subsidiaries; some combination of these actions; or some result currently unknown or unforseen.”
Elsewhere in Zimbabwe, New Dawn owns 100% of the Turk-Angelus gold mine, 56 km northeast of Bulawayo; 100% of the Old Nic mine, one of the country’s oldest gold mines in Matabeleland, in the eastern part of Bulawayo; 100% of the Camperdown gold mine, 30 km southeast of Gweru; 85% of the Golden Quarry gold mine within the Gweru-Shurugwi greenstone belt; and 85% of the Venice gold mine, 28 km south of Kadoma.
Zimbabwe, a landlocked country in southern Africa, shares borders with South Africa to the south, Botswana to the southwest, Zambia to the northwest and Mozambique to the east.
New Dawn’s shares fell 13.85% on the day the news was announced on Aug. 30, and another 16.07% the next day.
At press time New Dawn was trading at 26¢ per share within a 52-week range of 15¢ to $1.10. The company has 45.6 million shares outstanding.