Diversified resources group, RioZim Limited, is planning legal action against the Reserve Bank of Zimbabwe (RBZ) over failure to meet its obligation to avail foreign currency saying this is choking its business.
RioZim said due to lack of access to foreign currency for its operations, business was becoming unsustainable and crippling its growth strategies.
The group said, while the central bank’s policy from April 2016 to September 2018 was that gold producers were entitled to access 50 percent of their receipts in foreign exchange automatically in their nostro account and the balance by application, the company has not received even the first 50 percent.
Add to that, the RBZ also reduced the 50 percent foreign exchange entitlement to 30 percent effective October 01, 2018, worsening the situation for the resources group.
Resultantly, RioZim engaged the central bank and said was considering instituting legal action.
“The company has engaged the central bank on numerous occasions over the issue and minimal progress has been made in improving the situation,” said RioZim in a notice to shareholders.
“Therefore, in addition to the other measures that the company is considering to address the situation, the company has proceeded to formally serve the Reserve Bank of Zimbabwe with its notice advising it of its intention to file legal proceedings against the RBZ for a claim demanding that the central bank complies with its directives and policies, and also, for compensation for any losses that the company has suffered as a result of the central bank’s non-compliance with its directives from 2016 to date,” said the group.
According to RioZim, the company has only been allocated an average circa of 15 percent of the foreign currency that it has generated.
Gold producers are required by law to deliver their produce to Fidelity Printers and Refiners who in turn, credit them through the local RTGS system notwithstanding the fact that they have a contractual obligation to pay in foreign currency.
“The impact of this on the company’s operations has been that the company is unable to pay its external suppliers and consequently, the company’s costs have escalated as the price of locally available consumables and spares has increased exponentially when compared to the prices quoted by external suppliers for the same products,” said RioZim.
The foreign currency shortages are also having a knock-on effect on the firm’s capex projects. For instance, the company needs to establish a Biological Oxidation Plant at Cam & Motor Mine which is required to treat refractory ore as the near-surface oxidised ore was already depleted at the end of last year.
Said RioZim: “Unless the company is allowed to access adequate foreign currency to fund this project, it will not be able to build this plant thereby adversely affecting the viability of the mine.”
RioZim’s half year gold production rose 20 percent to 1 050 kilogrammes from 873 kilogrammes in the same period last year as production at its three mines was ahead of comparable prior year period.
Gold sales volumes increased 18 percent to 1 007kg from 852kg achieved in the same period last year. However, management is concerned the foreign currency shortages will affect its ability to meet production targets as well as shrink its earnings.