Recent results from the Blanket mine show Caledonia Mining PLC (LON:CMCL)(TSE:CAL) on track to meet revised production guidance for the full year of between 54,000 and 56,000 ounces of gold.
During the three months to 30 September 2018, Blanket produced 13,978 ounces of gold at an all-in sustaining cost of US$734 per ounce, and sold the same ounces for an average realised price of US$1,190.
That in turn lead to a net profit of US$2.2mln, down somewhat on the corresponding quarter from 2017, but compounding into the nine month figures to put Caledonia nearly 30% ahead of where it was last year, with profits at US$7.9mln.
So a mixed picture, or as chief financial officer Mark Learmonth puts it: “the results are fine.”
“We narrowed our guidance in October,” he says. “But since then production has been extremely strong. What was pleasing is that we’re now overcoming logistical issues and we’re able to move more tonnes.”
But he adds a rider which points to the real potential ahead.
“What’s happening at Blanket isn’t about this year’s production numbers, or even the next,” he says.
“It’s about increasing production to 80,000 ounces by 2021.”
This production increase has been some years in the making, but is now nearing fruition under the capable supervision of Caledonia’s chief executive Steve Curtis and chief operating officer Dana Roets, an experienced mine builder.
“Stepping up from 55,000 ounces will have a significant effect on cash generation, and costs come down because the fixed costs are spread out,” explains Learmonth.
The capex spend will drop too, once the build is complete, allowing for the possibility that Caledonia’s already generous dividend may increase further.
All told, with the gold price hovering steady above the US$1,200 mark, the outlook looks favourable.
To be sure, there is some uncertainty surrounding the situation in Zimbabwe. A shortage of US dollars has been an issue for some companies, but Caledonia, with its close ties to the government’s gold buying agency, has never encountered any issues.
And in fact, this arrangement has its benefits.
“If we sell a product with 85% gold content to the government and deliver it on, say, a Monday,” says Learmonth.
“We reference the Tuesday a.m. gold fix in London for the price, and we receive payment on Wednesday. The benefit is that we get paid within a few days of delivery – it’s done wonders for our working capital.”
Some aspects of working in Zimbabwe have been challenging over the years, to be sure, but the new regime of Emerson Mnangagwa appears to be doing its utmost to create a favourable business environment.
Already, Caledonia has struck a deal to take its ownership of the Blanket mine up to 64%, buying out former empowerment partners along the way.
And more than that, there could be opportunities to do deals.
“We’re happy to look at gold assets,” says Learmonth. “There are good assets there.”
But he cautions about the expectations vendors have about valuation, which he calls stratospherically high.
For now, the emphasis is on the ongoing development of the central shaft, and on stepping up exploration. The company has consistently replaced reserves and resources and has extended the life of mine out to 2034.
On the strength of that, and the company’s long track record of successfully operating in Zimbabwe, the future looks bright.