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Caledonia Mining Corporation

Caledonia Mining predicts hit to 2019 earnings from monetary policy change in Zimbabwe

The estimated impact on earnings assumes a gold price of US$1,300 for the rest of year, the Blanket mine achieving the production guidance of 53,000 to 56,000 ounces of gold and no changes to operating costs

Caledonia
Zimbabwean miners received a premium to the international gold price under the previous policy

Caledonia Mining Corporation PLC (LON:CMCL) expects a US$5.4mln hit to 2019 earnings after the Zimbabwean central bank withdrew an export credit incentive (ECI) programme for gold producers.

READ: Caledonia Mining boosts quarterly gold production, looks ahead to 80,000 ounces in 2021

Under the ECI programme, Zimbabwean gold producers received a premium to the international gold price. The premium was initially set at 2.5% of gold revenues before rising to 10%.

The withdrawal of the programme is part of the central bank's decision to introduce a new currency, known as RTGS dollars, that can be used to make payments outside Zimbabwe.

The currency is made up of bond notes, coins and all electronic money and is aimed at reducing inflationary pressures in the country. 

"At this stage it is unclear whether this policy will address the increasing inflationary pressure in Zimbabwe by creating a transparent and efficient market exchange rate between RTGS dollars and dollars held in FCAs," Caledonia said. 

Caledonia said the Reserve Bank of Zimbabwe’s decision to remove the ECI programme would reduce earnings by 40 to 46 US cents per share.

The estimated impact on earnings assumes a gold price of US$1,300 for the rest of the year, the Blanket mine achieving the production guidance of 53,000 to 56,000 ounces of gold and no changes to operating costs.

Quick facts: Caledonia Mining Corporation

Price: £5.85

Market: AIM
Market Cap: £62.96 m
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