Oliver Kazunga, Senior Business Reporter
GOLD output at Blanket Mine in Matabeleland South was 11 948 ounces in the first quarter reflecting an eight percent decrease compared to the same period last year.
In a production update for the quarter ended March 31, 2019, Caledonia Mining Corporation, parent company to Blanket Mine, attributed the decline in gold output during the period under review to lower grade.
“Gold production in the Quarter was 11 948oz, approximately eight percent below the first quarter of 2018 (the ‘comparable quarter’ or ‘Q1 2018’).
“Production was adversely affected by lower grade, although this was anticipated as part of the mine plan,” it said.
During the period under review, the mine’s consolidated operating profit before tax was 105 percent higher than the first quarter last year at $12,3 million although this increase was entirely due to exceptional gains of $3,3 million on foreign exchange, following the devaluation of the local currency.
This was also attributed to a profit on the sale of Eersteling (a South African gold mine, which has been held on care and maintenance for many years) for $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.
“Foreign exchange gains and profits arising on disposal are excluded from Caledonia’s adjusted earnings per share of 23 cents, which were 44 percent lower than the comparable quarter, largely due to reduced production and higher on-mine costs,” said Caledonia.
Operating cash flows for the quarter under review were $6,3 million (Q1 2018; $7 million) and the company’s balance sheet remains strong with net cash of $9,7 million as at March 31, 2019.
The mining group said the grade dilution, which was experienced in previous quarters, has largely been addressed. Commenting on the results, Caledonia chief executive officer, Mr 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 at $6,3 million- sufficient to support both capital investment in the Central Shaft project of $5,1million and Caledonia’s regular quarterly dividend as well as maintain a healthy balance sheet with net cash of $9.7m at the end of March.”
He said work on sinking the Central Shaft remains on track and was optimistic that shaft sinking would be completed mid-year after which a further 12 months would 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,” said Mr Curtis.
“We maintain our full year production guidance of 53 000–56 000oz 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.”
Mr Curtis said the early part of the first quarter was made more challenging by some significant macro-economic 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 the reduced purchasing power, which had repercussions for employee morale,” he said.
“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.”
Mr Curtis, however, said the devaluation had a one-off positive financial impact on their results with a foreign exchange gain of $3,3 million arising on the revaluation of assets and liabilities that are denominated in local currency.
“Looking forward, provided the exchange rate which is used to calculate Blanket’s local currency denominated gold receipts recognises economic fundamentals, management is optimistic that current monetary policy may create a more stable economic environment,” he said.