Harare – AIM listed Caledonia Mining’s Blanket gold mine delivered a strong performance for the fourth quarter and year ended December 31, 2018 despite known challenges of operating in Zimbabwe, says CEO Steve Curtis in a statement on Wednesday.
Curtis highlighted that the monetary environment in Zimbabwe became more challenging following changes in policy, although the general direction of policy development was considered to be positive.
Policy changes disrupted the commercial banking system in October 2018 and again in February, which adversely affected procurement.
For several years, the RBZ had operated the ECI programme, providing Zimbabwean gold producers a premium to the international gold price.
This premium was initially 2.5 percent of gold revenues, but later increased to 10 percent.
The ECI revenues were received into Caledonia’s real time gross settlement bank account and were therefore not eligible for remittance outside Zimbabwe with a specific allocation of foreign exchange by the RBZ.
The ECI revenues were not subject to Zimbabwean income tax.
The removal of the ECI programme comes as part of a monetary policy statement which permits bank trading of currency held in local banking system (known as RTGS dollars) and currency held in foreign currency accounts (FCA) which is capable of being used for payments outside Zimbabwe.
In his statement Curtis pointed that delays in procuring critical items meant that capital equipment suffered from a lack of maintenance, which increased the frequency of breakdowns.
“We are optimistic that the introduction of a market exchange rate in February will, in time, allow a return to normal operating conditions.”
Curtis added that the company’s costs in FY 18 were higher than expected owing to a combination of increased prices for cyanide and steel, the increased cost of a larger fleet of trackless equipment, which operates in the declines, and the adverse effect of lower-than-expected grades.
“Not withstanding these challenges, the financial performance of the company remained robust. Net profit attributable to shareholders for the year increased from $9.4-million to $10.8-million. Cash generated by operations before working capital was $25.8-million for the year, compared with $26.8-million in 2017.”
However, Curtis informed that working capital increased by $4.7-million in the year compared with a reduction of $2.1-million in 2017 – with the increase attributed to an increase in amounts due in respect of gold sales and value-added tax (VAT) refunds from the Zimbabwe government and a reduction in trade and other payables.
Subsequent to the end of the year, Blanket has received all amounts owing as at December 31, 2018, in respect of gold sales and $1.2-million in respect of VAT refunds, which reflects all of the longer outstanding amounts owing.
Meanwhile, Curtis also highlighted good progress on the development of the central shaft at Blanket, which is anticipated to be operational in about 15 months’ time.
Curtis extolled that Caledonia was at “a very exciting” point in its development.
“At our current production level, we are already highly cash generative. For the next 18 months, the bulk of the cash generation will be deployed to the investment plan at Blanket, which we are confident will further increase cash flows as we increase production to about 80 000 oz of gold in 2022.”
Once the investment plan is completed towards the end of 2020, the company expects to have considerable free cash flows to deploy elsewhere.
“Against this background, there are very encouraging developments in Zimbabwe which we are optimistic will create new investment opportunities.”
Caledonia’s primary asset is a 49 per cent legal ownership in the Blanket Mine in Zimbabwe.
Pursuant to the signing of an agreement announced on November 6, 2018, Caledonia intends to purchase a further 15 per cent of Blanket from one of Blanket’s indigenous shareholders. The transaction remains subject to approvals from Zimbabwean regulatory authorities.
-Equity Axis News