We have extracted the Chairman’s Statement from the 2019 half year report for RioZim Limited (RIOZ.zw), listed on the Zimbabwe Stock Exchange:
It is my honour to present to you the Company’s 2019 interim financial results as the new Chairman of the RioZim Board. The regulatory pronouncements made in the current year have had a negative impact on the performance of the Company during the period under review. It is my hope that I will build on the foundations laid by my predecessor to take the Company to greater heights.
From the introduction of a local currency to the various economic stabilisation policies implemented by the Government, 2019 has proven thus far to be a complex year for not only RioZim Limited but the nation at large. Notwithstanding all these developments, RioZim Limited has been able to, at great costs, withstand the various economic challenges and remain a viable commercial enterprise and it is under this backdrop of unprecedented challenges that I present to you the Company’s half year results for the period ending 30 June 2019. It is important to note that in accordance with SI 142 issued by the Government of Zimbabwe, the Company has adopted the Zimbabwean Dollar as its medium of exchange for local transactions. Further, considering that the Zimbabwean Dollar is the only legally recognised currency within the country, the Company has also decided to change its reporting currency to the Zimbabwean Dollar. The Government also introduced the interbank market in February 2019 which determines the exchange rate between foreign currencies and the Zimbabwean Dollar. The interbank exchange rate is the only official and legal rate in the country. The Company therefore used the interbank exchange rate to convert transactions and balances in foreign currencies to Zimbabwean Dollar which is the Company’s presentation currency. The interbank rate did not meet the definition of a market exchange rate as per the requirements of IAS 21 “The effects of changes in foreign exchange rates”. As a result, an adverse review conclusion has been issued by the Auditors. It is pertinent to note, however, that this is a nation-wide phenomenon and is not restricted to our Company alone. Notwithstanding the interbank rates used by the Company, there was no other observable legal market exchange rates that would satisfy the requirements of IAS 21.
In October 2018 the Government introduced the Transitional Stabilisation Programme (TSP), which was aimed at prioritising fiscal consolidation, economic stabilisation and stimulation of growth and the creation of employment within the economy. This was thereafter followed by a variety of economic reforms that had significant impact on the country’s economy and the general mode of doing business within Zimbabwe. Such impactful economic reforms include the pronouncement of the interbank market followed by the liberalisation of the exchange rate between the Zimbabwean Dollar and the United States Dollar. As far as the Company is concerned, these policy changes enabled it to get a slightly better realisation of the value of its export proceeds at close to market price. Prior to these regulatory interventions, the Company had been trading at significantly below market value and this had significantly eroded the Company’s equity and left its balance sheet heavily weakened.
However, notwithstanding the gains achieved by the Company as is mentioned above, the period remained extremely challenging locally from a macro-economic perspective with the continued deterioration of the local Zimbabwean currency, high inflation, and fuel shortages.
Furthermore, the local market prices persistently tracked the movement of exchange rates in the parallel markets which are significantly higher than the interbank rate. Additionally, incessant power cuts which commenced in the second quarter of the year significantly affected production. As a direct result of these power cuts, the Group, recorded a decrease in its production by 8% to 962kgs from 1 050kgs achieved in the comparative period in 2018. The Company is now back to paying for almost everything in US Dollars and is therefore extremely short of US Dollars. This is impacting working capital, maintenance and expansion capital expenditure. In the absence of either being allowed to retain and use 100% of its export proceeds or raise and use US Dollars from shareholders, the Company’s position will continue to be extremely challenging. I am however pleased to report that the Group recorded a clean health, safety and environmental performance with no fatalities being recorded. This bears testimony to the safety culture and robust safety standards which management and all employees have been able to maintain and continually improve across all our operations.
Revenue for the period under consideration stood at ZWL$136.7 million. This low revenue achievement is mainly attributable to the decrease in gold production associated with the incessant power cuts experienced during the period under review. The gold price however firmed up to an average of USD1 346/oz against USD1 298/oz recorded in the same comparative period in 2018, and this, provided a cushion on the lower production volumes. The Company also benefited from the combined effect of lower costs in USD terms for its very limited Zimbabwean Dollar denominated costs which resulted in the Group recording an operating profit of ZWL$46.9 million. The Group closed the period with a net profit of ZWL$38.2 million. It is to be noted, however, that a substantial amount of the Company’s costs is being converted back into US Dollar terms and, therefore, it is expected that there will be future pressure on the bottom line of the Group.
Cam & Motor Mine – The Mine achieved 489kgs, a 7% growth from 458kgs achieved in the same period in 2018. This performance was at the back of processing of pure oxide ores with good grades and higher recoveries. To guarantee continuity of oxides whilst the Mine is in the process of constructing its Biological Oxidation (BIOX) plant to treat refractory ore, the Mine will source ore from the Group’s One Step Mine which is within the proximityof the current Cam and Motor mine processing plant. Preparations for mining and trucking of ore from One Step were at an advanced stage as at close of period and mining has commenced in the third quarter of 2019. The Company needs to raise US Dollars to continue and complete the BIOX plant. Assistance continues to be arranged by our principal shareholder but that is not sustainable.
Dalny Mine –The Mine experienced acute power cuts in the second quarter of the year. This worsened during the month of June with the Mine only afforded an average of 4-6 hours of plant running time per day. Resultantly production regressed by 7% to 215kgs from 232kgs recorded in the same period in 2018.
Renco Mine – Renco experienced some plant breakdowns which reduced production processing time. In addition, the incessant power cuts in the second quarter of 2019 had a negative impact on gold output. The mine therefore, produced 259kgs which is only 72% of comparative period production of 360kgs.
Base Metals business
The Empress Nickel Refinery (ENR) remained under care and maintenance. ENR processed rivets into matte during the period so as to generate revenue to meet care and maintenance costs as well as continue preserving the integrity of the plant. Engagements are continuing with various stakeholders for potential raw material offtake that can be effectively beneficiated at the Refinery and these are at differing levels and stages of negotiation.
Murowa Diamonds (Private) Limited achieved a 16% growth in production to 390,000 carats from 343,000 carats produced in the comparative period in 2018. Consequently, the share of profit from Associate also grew to ZWL$12.8 million.
During the period the Company remained seized with legal battles relating to some of its chrome claims in the Darwendale area, and the matter is still within the courts. Once the court processes are concluded, the Company remains committed to its plan of resumption of mining operations on its chrome claims after due consideration of chrome prices.
The Group continues to vigorously pursue its power projects pipeline to guarantee stable power supply not only to its operations but also to assist in improving the electricity deficit in the country. The two major projects are the 178MW solar project and the Sengwa thermal power station. 178 MW Solar Project An Engineering Procurement and Construction (EPC) partner who has the requisite expertise and experience to undertake the project has been secured and binding memorandums of understanding between the parties have already been concluded. The design work and grid impact assessment for the project has been concluded. Implementation of the project is expected in the immediate future once negotiations relating to the financing structure are finalised 2 800 MW Sengwa Power Station The project entails the development of a coal mine, power station, water pipeline and power transmission lines to the national grid. Significant progress was made during the period with the Bankable Feasibility Study completed and a suitable Investment Partner in the project was identified. The Company together with the Investment Partner are in the process of finalising the funding structure which should see ground breaking in the short term for the first phase of 700 MW.
The Group is committed to promoting sustainability, protecting the environment and adding value to the communities that it operates in. The Company through the RioZim Foundation Trust, is engaged in several projects to ensure that the needs of the communities that we operate in are met. A major focus point for the Trust during the period under review was the assistance in the form of donations and basic commodities given to the communities affected by Cyclone Idai.
The BIOX plant project at Cam and Motor Mine is underway. Civil works for the project are in full swing and structural steel fabrications are in progress. Key suppliers and contractors have also been appointed. The plant is expected to be commissioned in the fourth quarter of 2020 as long as we are able to find foreign currency.
Exploration remains a key focus for the Group, and the Company continues to invest in cutting edge exploration equipment to advance exploration activities on its current active mines and non-active mining claims. Power supply deficit remains a key risk in the second half of 2019. Even though the Company is paying for uninterrupted power supply in United States Dollars, the Group has continued to experience intermittent load shedding.
Despite the gloomy preface in the operating environment in the second half of 2019, the Company remains confident in the interventions being put in place by the Government to stabilise power supply and curb rising inflation which should see the mining sector bounce back to full capacity.
Following the retirement of Mr. Lovemore Pfupajena Chihota from the position of Chairman and Non-Executive Director of the Board on 24th of June 2019, I was appointed as the Chairman effective that date. I want to thank Mr Chihota for his leadership, he left us an outstanding legacy to build on.
I would like to congratulate Mr Caleb Dengu on his appointment as Vice Chairman of the Board on the 7th of August 2019. Mr Dengu has been a non-Executive member of the RioZim Board since 2014. The Board is confident that he will serve the Company with distinction.
I would also like to extend a warm welcome to Mr John Mafungei Chikura who was appointed to the Board as Non-Executive Member on the 23rd of April 2019 and Mr. Manit Mukeshkumar Shah who was appointed to the Board as an Executive Director on the 7th of July 2019. The Board looks forward to benefitting from their contribution and wishes them all the best during their tenure on the Board.
I would like to extend my sincerest gratitude to my fellow Directors for their continued stewardship in driving the Company to greater heights. I also wish to express my appreciation to Management and Staff for their hard work, commitment to duty and dedication to the Company.
S R Beebeejaun