Mining group Rio Tinto Zimbabwe’s net profit nearly quadrupled from $57.8 million in 1997 to $208.2 million last year, largely because of the devaluation of the Zimbabwe dollar but the company says the short term outlook for the gold price remains poor with international prices likely to continue around current levels and the local price likely to weaken as measures implemented to reduce imports bring a degree of revaluation to the dollar.
Although production of gold dropped from 76 291 ounces in 1997 to 73 094 ounces last year and nickel produced increased slightly from 6 200 tonnes to 6 430 tonnes, the company’s turnover increased by 96 percent from $486.9 million to $954.1 million.
The company also received net interest of $39.4 million at a time when most companies are burdened with heavy interest payments because of high interest rates in the second half of the year.
The company says although the average gold price for 1998 was US$294 per ounce, a drop of 11 percent from 1997’s US$331 per ounce, the local price averaged $220 850 per kg compared to $130 315 per kg in 1997.
By the end of the year, the average price had jumped to about $340 000 per kg.
The company also says although devaluation benefited earnings, the wide escalation in costs which was evident in the fourth quarter suggested that the current extent of benefit will be difficult to maintain.
Stores costs at Renco for example went up by 29 percent in the fourth quarter over those recorded in the third quarter.
“Disappointingly,” the company says, “some of the increases recorded bore no relation to inflation or devaluation and only the strength of the company’s purchasing function and its links with Rio Tinto worldwide prevented a higher level of increases.”
The company says it will therefore retain its focus on costs as already all its operations have been affected by the heavy rains.