AMN - ZIMBABWE: Solid quarterly cash generation at Blanket

Despite lower gold production from the Blanket mine in Zimbabwe in the March quarter, Caledonia Mining's cash generation for the three months was solid at US$6.3 million. This was sufficient to support capital investment of US$5.1 million in the Central Shaft project and the company's regular quarterly dividend.

This also enabled the company to maintain a healthy balance sheet with net cash of US$9.7 million at the end of March.

Gold production in the March quarter was 11,948 ounces, around 8 per cent below the first quarter of 2018. Production was adversely affected by lower grade, although this was anticipated as part of the mine plan.

Consolidated operating profit before tax of US$12.3 million was 105 per cent higher than Q1 of 2018 although this increase was entirely due to exceptional gains of US$3.3 million on foreign exchange following the devaluation of the domestic Zimbabwean currency and a profit on the sale of a subsidiary of US$5.4 million.

Attributable profit after tax was also substantially higher than the comparable quarter in 2018 at $9.3 million again due to exceptional items which outweighed lower gross profit.

Caledonia’s CEO Steve Curtis said: “Notwithstanding the production difficulties experienced as a result of lower than expected production tonnage, unreliable electricity supply and lower mine grade, cash generation for the quarter was solid.

“Work on sinking the Central Shaft remains on track. I expect shaft sinking to be completed in the middle of this year after which a further 12 months will be needed to equip the shaft before it is commissioned in mid-2020 and we can begin to increase production to our target of 80,000 ounces per annum by 2022.

"This production increase will contribute significantly to reducing operating costs through economies of scale and we look forward to further increasing cash flows and earnings as the shaft is commissioned.

“We maintain our full year production guidance of 53,000–56,000 ounces for 2019. I look forward to an improved cost performance in the remaining quarters of the year as we anticipate that the beneficial effects of improved production will be felt in the subsequent quarters of 2019.

“The early part of the quarter was made more challenging by some significant macroeconomic disruptions. In particular, the continuation of the currency peg between domestic currency and the US dollar caused severe hardship to our employees in Zimbabwe due to their reduced purchasing power which had repercussions for employee morale.

"The removal of the currency peg in late February resulted in a devaluation of the local currency and allowed management to take steps to remediate the situation of our employees. This, in conjunction with other measures to address operational issues, has resulted in improved performance.

"I am pleased to report that production in April was almost exactly as planned and we are confident that production will improve in the remainder of 2019.

“Notwithstanding the challenges experienced in the quarter, we remain encouraged by the overall direction of policy development which we believe will result in improved operating conditions and a better investment climate in Zimbabwe.

"The most recent positive development in this regard is the introduction of a gold support price of $1,368 per ounce, a premium above the prevailing spot price in order to incentivise domestic gold production.

"On the exploration front, we are also particularly encouraged by Zimbabwe’s geological prospectivity and we continue to evaluate potential investment opportunities,” he added.

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