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Caledonia Mining (LON:CMCL,TSE:CAL) says its Blanket mine in Zimbabwe continues to be profitable despite the lower gold price, and expects output to be lifted from 2016 as its investment plan takes hold.
Reporting results for the first half to end June, the group said the gold price had fallen significantly since the period end - to now below US$1,100 per ounce, which will impact cash generation.
It said the revised investment plan unveiled last November remained its key focus and was expected to increase gold production, reduce the average cost of production and extend the life of mine by providing access to deeper levels for production and further exploration.
Through the US$70mln investment programme, output is scheduled to rise to around 80,000 ounces a year (nearly 42,000 ounces was produced in full year, 2014).
Steve Curtis, president and chief executive, told investors: "We are currently sinking, deepening or equipping four shafts at the Blanket mine in Zimbabwe and I expect this activity will translate into increased production from the first quarter of 2016."
He added that the successful implementation of the plan will result in a significant increase in Blanket's production and operating efficiency and that the lower gold price increased the importance of delivering the plan as scheduled.
"I am pleased to report that we have met all of our key milestones and we remain on target for achieving all of the future milestones."
For the six months to June 30, 20,361 ounces of the yellow metal was produced - slightly ahead of target, but a bit lower than the 21,464 ounces produced in the same period in 2014.
Sales were 21,174 ounces (2014: 23,433 ounces) and all in sustaining costs were higher than last year at US$984 per ounce (2014: US$890 per ounce).
The achieved grade and tonnage production in the quarter and in the half year were as planned, the firm said, but net profit in the half year fell to C$1.9mln from C$4.3mln in the first half of 2014.
The average realised gold price in the six months was US$1,187 compared to US$1,216 in 2014.
Shares in London nudged higher after the news, gaining 1.2% to move to 42p each.
Broker Shore Capital estimated that the gold price has averaged US$1,123 per ounce in Caledonia's current third quarter and it is expecting Q3 results to be "rather poorer" than Q2’s.
"Caledonia is expecting per ounce costs to fall as production begins to increase from Q1 2016, so hopefully 2016 will prove much better than 2015," said analyst Yuen Low.
"We had been expecting guidance for 2016 dividends, but quite understandably, Caledonia simply said that it currently envisages continuing the existing C$0.015/share/quarter dividend policy (without specifically mentioning its plans for 2016) and that it “remains attentive to further changes in market conditions," he added.