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Mernat Mafirakurewa Business Editor
CALEDONIA Mining Corporation’s local unit, Blanket mine, continues to implement its growth strategy which will result in production increasing to 48,000 ounces of gold in 2014 and 52,000 ounces of gold in 2015, the company said yesterday.
Further increases in production are expected following the completion of the No 6 Winze Project that would provide access to deeper resources below 750 metres.
The pre-production capital cost of this project estimated to be $4 million is to be funded from internal cash flows. Gold sales in Q1 2014 were 12,210 ounces two percent more than in Q1 2013, but the average realised gold price in Q1 2014 was $1,288 per ounce – 20 percent lower than during the comparative period.
Production costs in the quarter under review were $8,7 million representing on-mine cash cost of $651 per ounce of gold and an all-in sustaining cost of $923 per ounce of gold. In its first quarter ended March 31 trading update, Caledonia’s president and chief executive officer, Stefan Hayden, said: “New production areas have and are being developed and I am confident that the 2014 production target of 48,000 ounces will be achieved, with 52,000 ounces expected in 2015.
“Cash generation in the quarter was strong: net cash generated from operating activities in Q1 of 2014 was $6,2m compared to $4,8m in the previous quarter and $2,2 million in the first quarter of 2013. Since the beginning of 2014 Blanket has sold its gold production to Fidelity Printers and Refiners. The new sales arrangements with Fidelity have reduced Blanket’s working capital requirement due to the earlier payment terms. Blanket has received all payments due from Fidelity in-full and on-time.
“Blanket’s on-mine cash cost decreased in the quarter from the previous quarter due to the reversal of the adverse effect of high work-in-progress at December 31, 2013. Work-in-progress was brought forward at a carrying value of $411 per ounce, which reduced the average cost per ounce of the gold sold in the quarter.
“Underlying costs at Blanket remain stable: there have been no significant increases in electricity or consumable costs and the 2014 labour negotiations have recently been finalised at an across-the-board increase of approximately 5 percent. It is expected that Blanket’s on-mine cash costs will decrease as production increases.”
Caledonia said Blanket’s results for the quarter confirm its position as a low-cost producer, despite the planned increased capital investment.
The Canada listed entity plans to pay a dividend of six Canadian cents per share in 2014, split into four equal quarterly payments of 1,5 Canadian cents per share.
The first quarterly dividend was paid on January 31, 2014; the second quarterly dividend was paid on April 30, 2014. The next quarterly dividend is expected to be paid on July 31, 2014.
It said Caledonia would continue to maintain its strong financial position so that it could implement its growth strategy and retain the flexibility to take advantage of any opportunities that may arise without the need to raise third party finance.
“Blanket and Caledonia will also consider additional acquisition opportunities in Zimbabwe on the basis of; inter alia, their fit with the existing operations and their capacity to enhance value for both Blanket’s indigenous shareholders and Caledonia.
“Caledonia will also use its financial and managerial resources which are outside Zimbabwe to consider any new opportunities in sub-Saharan Africa”.
Going forward the company said despite the lower and volatile gold price from April last year, development and exploration activity at Blanket has continued unabated.
It said Blanket had surplus metallurgical plant capacity and is sufficiently cash generative so that, provided the investment climate is acceptable, Caledonia could invest in projects with a view to further increasing production thereby helping to maintain downward pressure on the cost per ounce of gold produced.
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