Gold producer Caledonia Mining Corporation reported record gold production for its 2017 year of 56 133 oz - 11% higher than in 2016.
The company announced this as part of its operating and financial results for the fourth quarter and the year ended 31 December 2017. Caledonia’s primary asset is a 49% legal ownership in the Blanket mine in Zimbabwe.
Caledonia Mining continues to consolidate Blanket mine (Blanket) and the operational and financial information set out below is on a 100% basis unless indicated otherwise.
“I’m delighted to report that production for the year was a new record," comments Caledonia Mining CEO Steve Curtis.
"The production difficulties which we encountered in the first half of the year were identified and addressed and it was pleasing to see that these remedial measures resulted in Blanket achieving consecutive production records in the third and fourth quarters of the year.
“In addition to increased production, we have also reduced our unit costs: Caledonia Mining's AISC per ounce for the year was $847 per ounce – 7% lower than in 2016.
“The combination of increased production and lower costs and a small increase in the gold price resulted in a 14% increase in profit attributable to shareholders.
“The strong operational and financial performance translated once more into very strong cash flows," he continues.
During the year the Caledonia Mining generated over $24 million of cash from operations (2016: $23 million).
From these cash flows and cash resources, Blanket funded $18 million of expansion capital investment, $3.5 million of sustaining capital expenditure and repaid $1.5 million of debt; Caledonia Mining also paid $2.9 million of dividends.
“During the Year we made excellent progress on implementing the Investment Plan at Blanket mine with the objective of increasing production to 80 000 ounces of gold per year by 2021.
The Central Shaft has reached a depth of 990 m, the station for the second new haulage level has been completed and shaft sinking has re-commenced.
“Exploration continues at Blanket with encouraging results. In November 2017, we announced a resource upgrade which increased the gold contained in Measured and Indicated Resources by 6% to 714 000 oz.
"The gold contained in Inferred Resources increased by 47% to 887 000 oz.
“Following the resource upgrade, we have extended the scope of the Central Shaft project by increasing the depth of the shaft by a further 250 m to a shaft bottom depth of 1 330 m," notes Curtis.
The extension will allow for a further two production levels and will potentially extend Blanket’s life of mine by four years to 2031.
The shaft extension and the new production levels will cost approximately $18 million – much less than if the company had done this work after the shaft had been completed and commissioned to the original target depth of 1 080 m.
The extension of the shaft is not expected to delay the achievement of the target production of approximately 80 000 ozpa year by 2021 but it will improve operational flexibility.
Curtis explains that there were some significant political developments in Zimbabwe towards the end of 2017 which culminated in the appointment of the new President.
"The new President has made several pronouncements regarding a relaxation in the indigenisation policy and specifically the removal of the indigenisation requirement for gold mining companies.
"These pronouncements have now passed into law and accordingly, the boards of
Caledonia and Blanket have agreed to implement a rights issue at Blanket to raise approximately $4 million which will be underwritten by Caledonia’s Zimbabwean subsidiary."
Blanket will use the proceeds of the rights issue to advance work on certain of its satellite properties.
Assuming that Blanket’s indigenous shareholders do not subscribe for shares in accordance with their rights, it is expected that, subject to the terms of the rights issue, Caledonia’s shareholding in Blanket will increase from 49% to slightly over 50%.
Caledonia will also evaluate the potential to buy the shareholdings in Blanket that are currently held by certain indigenous shareholders.
However, it is our intention to retain the shareholders representing employees and the local community as long term shareholders of Blanket.
Any transactions would reflect the value of the indigenous shareholders’ holdings in Blanket after deducting the value of their outstanding facilitation loans and would be subject to a mutually agreed valuation of the holdings in Blanket.
“I wholeheartedly welcome the change in legislation which means that Caledonia can commit new capital so that Blanket can commence exploration and evaluations of additional projects in Zimbabwe.
"If this investment is successful it will benefit all stakeholders, including Blanket’s indigenous shareholders, future employees on the new projects, the communities around the new projects and the government of Zimbabwe which would benefit from increased royalty and tax receipts and greater inflows of foreign exchange arising from increased gold production.
“We are at a very exciting point in our development. At our current production level of over 55 000 oz of gold per anum we are already highly cash generative.
"For the next two years, the bulk of the cash generation will be deployed to the Investment Plan at Blanket which we are confident will further increase cash flows as we increase production to 80 000 oz of gold by 2021.
"Once the Investment Plan is completed towards the end of 2020, we expect to have substantial free cash flows to deploy elsewhere.
"Against this background, there are very encouraging political developments in Zimbabwe which we are optimistic will create new investment opportunities," he concludes.