Harare- RioZim, formerly a leading gold producer, has reported a dismal half-year performance for the period ended June 30, 2024, characterized by declines in both production and earnings. This underwhelming outcome is surprising, given the record-high gold prices in 2024, driven by global uncertainty and geopolitical tensions in the Middle East, Israel and Hamas which is indirectly involving largest economy the US, and the UK. Amidst this uncertainty, exacerbated by the upcoming US elections, gold has emerged as a highly attractive safe-haven asset, benefiting gold-producing companies worldwide. However, RioZim's fortunes have bucked this trend, with its performance heading persistently southwards.
It currently operates three mines: Dalny Mine, Renco Mine, and Cam and Motor Mine. Among these mines, Cam and Motor Mine serves as the flagship asset. However, it is worth noting that the operations of these mines have frequently encountered challenges such as maintenance issues, plant breakdowns, and difficulties adapting to heavy rainfall especially since 2020 with more focus tilted on maintenance than replacement and production.
RioZim is an integrated mining and metallurgical company in Zimbabwe with an extensive portfolio of resources in gold, base metals, diamonds, coal and chrome. It mining operations include Renco Gold Mine in Masvingo Province, and Cam & Motor Gold Mine and Empress Nickel Refinery; both in the Mashonaland West Province. RioZim also has interests in Sengwa Colliery (Private) Limited with coal assets in Gokwe North; Murowa Diamonds (Private) Limited with operations in Zvishavane; and Marnatha ferrochrome refinery in Kadoma. With its vast diversity which includes precious metals, the company should not be suffering the way it is.
During the period, RioZim's revenue for the half-year plummeted to ZWG 282.53 million, down from ZWG 352.41 million the previous year—a decline of 13%. In US dollar terms, using the June market exchange rate of 24 per dollar, this equates to just $846,250. The company also reported a widened loss for the period of ZWG 165.71 million, compared to ZWG 11.05 million in the prior year. This paradoxically suggests that while gold prices were rising, the company's performance deteriorated.
This is despite the rallying of gold during the period. The price of gold surged by $670.73 per ounce, a 32.52% increase since the start of 2024, breaking through the $2,200, $2,400, $2,600, and $2,700 marks, making it the top-performing metal this year. The average gold price was $2,165 per ounce, 13% higher than the $1,910 per ounce recorded in the same period last year, a trend that RioZim, like other gold producers, should have capitalized on
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A decline in earnings corelated with the decline in production. During the reporting period, the group's gold production fell by 27% to 306 kg over six months. This is significantly lower than competitors such as Padenga, which produced 1,351 kg, and Caledonia, with 1,072.2 kg under similar operating conditions at national level. The performance was even below other giants’ quarterly output.
At Renco Mine, since as long as 2020, the focus remains refurbishing plant structures and addressing persistent equipment breakdowns impacting throughput. Renco's gold production decreased by 9% to 176 kg from 194 kg in the same period last year. Both outputs are nolonger impressive for a large-scale miner.
Cam & Motor Mine's production fell by 42%, from 223 kg in the previous year to 130 kg this period, largely due to ore supply challenges. Lagging pit development has hindered the mine's ability to access certain areas. Accelerated development is required to meet the pit design and enable efficient mining operations.
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Dalny Mine remained on care and maintenance, with no gold production not just this quarter but for years now. However, it is advancing towards setting up small-scale operations after securing regulatory approvals, with production expected to commence in the latter half of the year.
Final Thoughts
To understand the reasons behind RioZim's decline in production, it is essential to examine the factors that contributed to its record high in 2017. The remarkable increase in gold output that year can be attributed to several factors, including the Cam and Motor Mine project, which commenced in 2015 and was fully commissioned in 2016, and the acquisition of Dalny Mine from Falcon Gold in 2016. These mines are still there. The successful commissioning of the Cam and Motor gold processing plant and the installation of the flotation circuit also played a significant role.
Effective management under Swami and Nkomo's leadership effectively managed the challenges, including power outages and foreign currency deficits. The former management team demonstrated versatility in generating new ideas, investing in new plants and machinery, and initiating new projects. These efforts mitigated the impact of power shortages on production, enhancing foreign currency earnings. These strategies could be beneficial for Dalny Mine and the entire company.
However, since the change in management from Nkomo's leadership, production at the flagship Cam and Motor Mine has declined significantly. In 2017, the mine produced 405 kilograms, but by the first half of 2023, production had dropped to 223 kilograms. The annual performance also reflects this downward trend, with production declining from over 2000 kilograms in 2017 to below 1000 kilograms in 2023.
The once-prestigious Dalny Mine has been operating under maintenance for a while, resulting in minimal or no gold production. The management faces significant challenges in restoring the mine to full productivity and appears overwhelmed. The recurring nature of these challenges indicates ongoing difficulties in maintaining consistent operations across RioZim's mines.
The current management's focus solely on repairs, rather than replacement, raises concerns. Furthermore, their tendency to blame the country's inadequate power supply, foreign currency shortages, and export surrender portions oversimplifies the issue. These challenges existed even when the company performed well in the past.
Executives are appointed to devise strategies to overcome such obstacles, demonstrating effective management. To address the decline, RioZim's management should consider alternative solutions. Recapitalization could enhance operational efficiency, while restructuring could cut costs and optimize resources. Divesting non-core operations to focus on profitable units or hiring experienced professionals to inject fresh expertise may also be viable options.
Rather than attributing the decline to national-level challenges, the management should focus on internal solutions to revitalize the company's performance. Effective management entails finding solutions, not excuses. It is time for RioZim's leadership to reassess their approach and implement strategic changes to restore the company's former glory.
If not of the above, it might be the resource is declining rapidly. It might be then that RioZim's management may be concealing the extent of the depletion of its gold resources. As production continues to dwindle, it raises the question of whether the company's leadership is aware of a more serious issue at play—potentially a lack of viable gold reserves. If true, this could signify a deliberate attempt to mask underlying problems to maintain investor confidence, further compounding the challenges faced by the company.
The stark contrast between RioZim's declining output and the rising gold prices suggests a troubling disconnect that cannot be easily ignored. While competitors capitalize on favorable market conditions, RioZim's management seems to be trapped in a cycle of reactive measures rather than proactive strategies. This misalignment not only impacts immediate production but also raises long-term concerns about the company's sustainability and the integrity of its operations.
Up until 2020, RioZim was the third-largest gold producer in Zimbabwe. However, Padenga has since surpassed RioZim, producing 933 kilograms of gold in the first half of 2022, nearly tripling RioZim's 393 kilograms. This poor performance has hindered the company's ability to secure investors for its 178 MW solar project and slowed progress on the 2800 Sengwa power project.
RioZim's struggles to leverage rising gold prices are rooted in operational challenges, including persistent equipment breakdowns, power supply issues, and inadequate ore supply. These issues raise concerns about management's ability to rectify operational inefficiencies. To reverse this trend, RioZim's management must conduct a comprehensive operational review, develop robust maintenance strategies, invest in efficient technologies, and enhance mine planning and execution.
The company's inability to address these operational challenges has resulted in a decline, with RioZim now the worst performer among listed companies. The decline in gold production since 2020 has been alarming, with 586 kg being the last time it outperformed Padenga.
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