While Caledonia lifted production from its Blanket mine in Zimbabwe in the June 2019 quarter, it is facing production losses for its next financial quarterly period as a result of significant power interruptions.
CEO Steve Curtis says:
“The electricity situation worsened considerably in July and early August and Blanket experienced frequent and long interruptions to its power supply.
"To address this problem Blanket has procured additional back-up diesel generators which will be installed in the coming weeks. Caledonia has had constructive engagement with the state electricity utility and the chamber of mines as a result of which Blanket has signed a new electricity supply agreement in terms of which it will receive un-interrupted imported power at a lower cost than it previously paid.
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"Caledonia is at an advanced stage of evaluating a solar PV generating facility which would reduce Blanket’s dependence on grid power. Although the electricity situation has improved in recent days, we feel it prudent to continue to implement plans to protect Blanket from any recurrence of this problem.
“Due to the continued low grade and difficulties with electricity supply in July and early August, management has reduced full year production guidance from the previous range of 53,000 to 56,000 ounces to a revised guidance range of 50,000 to 53,000 ounces.
"Whilst it is disappointing to reduce production guidance, earnings guidance for 2019 remains unchanged at 86 to 117 cents per share due to a higher than anticipated gold price and lower than expected costs.
“Other macroeconomic events during the quarter were the continued devaluation of the Zimbabwean currency, which experienced an almost 10-fold devaluation since late February 2019.
"This contributed towards a significant increase in inflation which has made life difficult for our staff in country. We note that the exchange rate appears to have stabilized in recent weeks and it is important to note that government fiscal discipline remains robust.
"The current currency devaluation and inflationary conditions appear for the most part to be a legacy of past fiscal indiscipline rather than as a result of current policy: indeed, government continues to run a primary budget surplus, a level of fiscal discipline that bodes well for future stability.
"Moreover, in the Finance Minister’s recent interim budget statement he announced the royalty payable to the Zimbabwe government will be deductible for the purposes of calculating income tax.
"He also revised the royalty rate which is reduced from five per cent to three per cent of revenues when the gold price is below $1,200 per ounce. We welcome the government of Zimbabwe’s continued efforts to promote investment in the sector.
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“The devaluation of the Zimbabwe currency resulted in very substantial foreign exchange gains as the value of liabilities such as bank loans and deferred tax were eroded in US-dollar terms.
"Earnings per share reported under IFRS for the Quarter was 211 cents per share – almost a nine-fold increase on the second quarter of 2018. Adjusted earnings per share which is a measure of the underlying performance of the business and excludes items such as unrealised foreign exchange gains were 26.8 cents per share, unchanged from the previous quarter and in-line with guidance for 2019.