New Dawn shuts down Dalny mine in Zimbabwe

New Dawn shuts down Dalny mine in Zimbabwe
Published: 30 August 2013
New Dawn Mining Corp announced that Falcon Gold Zimbabwe Limited, has shut down its 100% owned Dalny Mine located in Kadoma effective as of August 30, 2013.

The Dalny Mine produced 1,949 ounces of gold in the quarter ended March 31, 2013, and 2,762 ounces of gold in the quarter ended June 30, 2013 and employs approximately 900 people in Zimbabwe.

The substantial fall in the price of gold over the last nine months, exacerbated by the impact of previously reported operational problems at the mine, has resulted in a serious liquidity problem. As a result, the amounts owing to the Zimbabwe Electricity Supply Authority in respect of the Dalny Mine operations were not being paid on a basis acceptable to ZESA, thus causing ZESA to issue a Notice of Disconnection of electrical services to the mine.  Without electrical power, the Company cannot operate the mine and was thus forced to shut-down the Dalny Mine operations.  As part of the shut-down, the Dalny Mine workforce is being placed on unpaid leave and the Company is moving the Dalny Mine to care and maintenance. The Company intends to engage with the creditors of the Dalny Mine operations to craft a plan that will address the mine's outstanding trade payables, which currently total approximately $3.1 million. The mine is expected to remain on care and maintenance until the Company is able to satisfactorily address the financial and operational issues that contributed to its shut-down or until a potential sale, joint venture or some other arrangement is realised.

A major underlying factor contributing to the Dalny Mine's current difficulties has been the more than two year delay in the still incomplete approval process for the Company's proposed Plan of Indigenisation.  A timely approval of the Plan of Indigenisation had been expected to provide the Company with access to sufficient investment capital to fully fund the development of a cost efficient operation at the Dalny Mine.  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.

A combination of further adverse factors, all of which have been previously reported, also contributed to the decision to terminate mining operations at the Dalny Mine.  These factors included steadily increasing payroll and power costs and high domestic royalties, taxes and fees, as well as a damaging and costly illegal strike and the lack of full electrical power, both experienced earlier in the year.  In the aggregate, these specific difficulties, together with lower gold prices, caused significant operating inefficiencies and high operating costs, thus resulting in the operating losses and negative cash flows at the mine over the past several months.

The Company, at all of its mining operations, is under serious pressure to bring operating costs in line with the current gold price regime.  In addition, its Zimbabwe subsidiaries are facing negative working capital positions and an increasingly difficult legislative, regulatory and economic environment in Zimbabwe.  Further, as previously reported, there is heightened uncertainty surrounding the implementation of indigenisation policy in Zimbabwe subsequent to the July 31, 2013 national elections, with the potential for an increasingly negative effect on the Company and its stakeholders.  The evolving policy on indigenisation 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.  The Company is continuing its efforts to gain approval for and implement a compliant Plan of Indigenisation.

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, including the temporary or permanent closure of other of the Company's mining operations in Zimbabwe and/or the sale or liquidation of the Company and its assets in a formal or informal arrangement. Further, the Company is currently unable to predict the effect of an inability to conclude or implement an acceptable Plan of Indigenisation.  Such failure could result in the termination of the Company's mining licenses 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 unforeseen.
- newdawn
Tags: DalnyMine, NewDawn,

Comments

Latest News

Latest Published Reports

Latest jobs