New Dawn threatens to pull out of Zim

HARARE - Toronto Stock Exchange-listed New Dawn Mining Corporation (New Dawn) has threatened to divest from Zimbabwe if its planned cost-reduction measures fail and the international gold price continues to fall.

The gold miner — operating five mines in Zimbabwe — said it might mothball its operations or dispose the business totally.

According to Money Morning’s global resources specialist Peter KrauthGold, the gold price has retreated 17 percent since mid-April while the yellow metal has shed 23 percent this year and is on pace for its biggest annual drop since 1981.

New Dawn is currently implementing measures to drive down costs, following a strategic review of its operations in April.

Depressed gold prices, coupled with the uncertainty surrounding the implementation of Zimbabwe’s indigenisation policy and current limitations on the availability of investment capital, have placed “undue” pressure on New Dawn’s mining operations.

Gold slid to a low of $1 192 per ounce on June 28, a level not seen since mid-2010, and despite a recent rebound taking the metal to a range of $1 200 per ounce to $1 300 per ounce in July, prices are still well below the high of $1 889 per ounce in 2011.

New Dawn has currently frozen all capital development projects, except those needed to sustain production for six months. It also negotiated temporary price reductions from suppliers for various critical supplies ranging from five percent to 15 percent.

The junior miner said it had successfully negotiated an initial 25 percent wage reduction for all levels of its 3 000 employees.

The company added that it would eliminate, or reduce, certain administrative positions in Canada and Zimbabwe, and that it had already reduced, or deferred, certain costs at its corporate offices in Toronto, including management compensation and board fees.

Further, New Dawn said it would focus on operating efficiencies, including adjusting the cut-off grades that were being mined, which could help improve the recovered grades and resulting gold output.

The company said it did not expect the cost-reduction measures to negatively impact on gold production in the short term, adding that it was exploring other options, including significant changes to its operating and capital structure, divestitures, joint ventures and various structured financings.

In combination with the uncertainty surrounding the implementation of indigenisation policy in Zimbabwe and the current limitations on the availability of investment capital, these factors have placed undue pressure on New Dawn’s mining operations in the country.

Industry experts say the Zimbabwe-focused company’s efforts to address and improve operating viability at its mine sites in Zimbabwe are subject to various factors outside of its control, including, for example, taxes and royalties, mining fees, power costs, environmental regulations, the economic and business environment in Zimbabwe.

“Potential changes to the legislative and regulatory environment in Zimbabwe, any of which could impact the company’s mining operations, capital requirements and ability to operate in a commercially viable manner or at all,” said an economist with a local mining consulting company.

New Dawn reported a 4,7 percent year-on-year increase in gold production to 9 986 ounce in the June quarter, of which 9 168 ounces were attributable to the company.

Its gold sales, on a consolidated basis, declined by 10,2 percent to $13,62-million, compared with $15,16-million a year earlier.

The average sales price per ounce of gold declined to $1 399 for the June quarter, from $1 608/ounce in the March quarter.

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