Conducive environment boosts Caledonia success

Nqobile Bhebhe, Senior Business Reporter

VICTORIA Falls Stock Exchange (VFEX)-listed mining firm, Caledonia Mining Corporation Plc, says Zimbabwe’s conducive business operating environment has aided the company’s success.

Despite inflationary pressures regularly cited by other business stakeholders, Caledonia says this has not hindered its growth.

The resource group is on course to surpassing its 80 000 ounces of gold production target for this year after producing 38 605 ounces in the first six months, 29 percent higher than the 29 907 ounces produced in the first half of 2021.

In the quarter ended 30 June 2022, the mining firm produced 20 091 ounces of gold, representing a 20 percent higher margin than the 16 710 ounces produced in the corresponding quarter last year.

In its latest 2021 Integrated Report, Caledonia said when compared to other African countries, Zimbabwe has favourable operating conditions and is able to tap into the vast skilled human resource base.

 The conducive operating environment, Caledonia said, has contributed to its successful operations in Zimbabwe since 2006.

“Operationally, Zimbabwe is less challenging than many other African jurisdictions. We benefit from a highly educated population with strong commercial and technical experience,” reads part of the report.

“Other than electricity, the infrastructure is reasonable, and the safety and security of our personnel and our operations is not a significant concern.”

While international stakeholders frequently express concern at the high level of inflation in Zimbabwe, the mining firm said “local inflation is not a challenge to our operations”.

“Although there continues to be a shortage of foreign currency in Zimbabwe, Blanket has had satisfactory access to foreign exchange to date,” it said. 

“The rate of inflation appears to have moderated to an annual rate of 61 percent for the 12 months to the end of December 2021. A high rate of inflation has little effect on Blanket’s operations because our employee remuneration was partly paid in US-dollars and the local currency component was adjusted each month to reflect the increased cost of living,” said the company.

“Provided we continue to be paid most of our revenues in US-dollars and we receive and spend local currency at the official exchange rate, local inflation is not a challenge to our operations.”

In December 2021 Caledonia obtained a secondary listing on the Victoria Falls Stock Exchange following which Blanket receives approximately 72 percent of its net revenues in US-dollars and the balance in local currency.

“We don’t accumulate local currency for which we have no commercial use and which we are unable to convert into US-dollars and/or remit from Zimbabwe,” said Caledonia.

However, the mining firm said it faces administrative challenges in transporting goods and equipment across borders, thereby affecting payments from Zimbabwe for imported goods and services and the repatriation of profits.

On strategy and outlook, the firm said following the commissioning of the Central Shaft at Blanket Mine, it is already achieving the monthly production rate target to reach production level of 80 000 ounces of gold per annum from this year onwards.

“This has increased our financial capacity to evaluate and implement new projects, completion of Central Shaft also frees up our technical team who would be needed to evaluate and construct such projects,” it said.

“We are optimistic that increased exploration activity at Blanket may extend the current life of mine at the existing anticipated production rate of 80 000 ounces per annum; new discoveries at Blanket could also allow for an increase in the rate of production.”

The report said Zimbabwe is geologically highly prospective for gold and there has been a marked lack of formal exploration in recent decades.

“In late 2020 Caledonia acquired the Maligreen mining claims located in the Zimbabwe Midlands for a cash consideration of $4 million. Maligreen already has an NI 43-101 inferred mineral resource of 940 000 ounces in 15.6 million tons at a grade of 1.88g/t; work is currently under way to increase the confidence level of the resource by re-evaluating the historic cores,” it said.

With anticipated increase in production, which will require more energy, the report said due to the higher than anticipated use of the diesel generators because of the further deterioration in the ZESA supply, Caledonia’s board has approved a further $2.8 million capital programme.

This includes installing further auto-tap changers to stabilise the power at the Central Shaft and optimising power use.

“This investment programme is in addition to the approved capital investment of approximately $3.2 million, which was included in the 2022 capital budget.

“It’s estimated that these new measures will result in a 15 percent reduction in anticipated total power consumption and improve the mix of power by reducing the use of diesel generators from an expected 21MWh to approximately 2MWh,” said the company. 

“The overall savings arising from the new programme were expected to be approximately $9 million per annum assuming a diesel cost at $1.70 per litre. Caledonia is evaluating the possibility of further increasing the scale of the solar project.”

For the firm to be energy secure, it has commenced the evaluation of a further phase for the solar project to provide Blanket’s peak demand during daylight hours or installation of storage capacity.

An agreement between the company and Zimbabwe authorities regarding the treatment of power that will be generated by a second phase that is surplus to Blanket’s requirements and/or the installation of storage capacity will be required in regards to banking it on the ZESA power grid and deducting it from Blanket’s account, it noted.

“Solar as a strategic solution will introduce a third electricity supply source (alongside the power utility and diesel generators), which will be under Caledonia’s control and will improve reliability of power supply during daylight hours,” said the company.

“A reliable power supply will assist Blanket to achieve its production and capital project targets by reducing the incidence of outages and enhance safety at the mine.”