- Caledonia’s PAT decreased for the second time since 2020
- Latest decrease is of 1%
- Since 2020, PAT has decreased by 10%
Harare- A behemoth in gold investments in the country, Caledonia Mining Corporation posted its second post-COVID-19 profit downturn for the full year ended 31 December 2022 despite achieving a record gold production target of over 80 thousand ounces and avoiding a loss. Caledonia is struggling to beat the FY2020 profit after taxes’ outturn of US$25 257. Most embarrassing is that 2020 was a year of great mischief for businesses as the global world was adversely hit by the COVID-19 pandemic which affected both global markets and operating hours due to strict lockdowns.
However, the underlying question amid such a great production record and PAT decline is whether investors should be warried or otherwise.
Since 2020, Caledonia’s after-tax -profit has decreased by 10% despite posting record revenue growths and gold production targets. Having such information, the underlying question is whether the Corporate is swimming or sinking.
Adjusted Earnings Per Share, a measure of the company to evaluate profitability dipped from 225.9 cents to 219.9 cents in US Dollar terms in 2022 from 2021.
But let us give a round of applause to Mark Learmonth, the big-man behind Caledonia’s successes in a turmoil operating environment. Since 2014 when the Corporate announced an 80 000 ounces gold production target, the Corporate had been sailing through a confluence of calamities from within the country to the global world but always posted profits. Caledonia succumbed to reactionary policies in Zimbabwe that affected revenue generation and smooth expansion possibilities like the 40% retention thresholds leading to acute shortages in forex liquidity, record electricity blackouts that affected the Corporate’s expenditure and operating costs, the COVID-19 pandemic that shook the global markets and aggressive taxation policies.
In 2022 alone, tax expenses reduced profitability by circa 25%, from US$139 thousand profit before tax to US$22 thousand profit after tax. Tax expenses widened to US$16.8 thousand from US$14.9 thousand in 2021. Corporates in Zimbabwe pay a 25% corporate tax, 3% Aids levy and currently succumbs to 25% retention threshold to RBZ on their foreign proceeds.
Against such a gross operating environment, the Corporate has been capitalising on diversified investments in gold projects and alternative power plants to offset under-production and immense costs in the long-run. This type of leadership is called transformational and it is mostly followed by managers who sees bigger goals for the company in the future. These multi-million US dollar investments and the use of alternative energy sources have been milking the Corporate’s profits resulting in the decline in after tax profit notwithstanding the impacts of a volatile economic environment.
The Corporate’s Chief Executive Officer Mark Learmonth is more of a transformational manager than a continuity manager.
Therefore, with record gold productions, the latest being over 80 000 ounces year-on-year, the after-tax profits decline is courtesy of a transformation strategy to gain more in future than prioritising the current. Of more interest is that the Corporate’s investments are owner-built and funded through internal cash flows highlighting a top-notch management style.
After the completion of the 1200 metres deep Central Shaft in 2021 at a cost of US$60 million against the budgeted US$100 million, the Corporate completed the acquisition of Bilboes for US$65.7 million, a deal capable of positioning it as Zimbabwe’s biggest gold producer.
In 2021, the Corporate agreed to purchase the mining claims over the Maligreen for US$4 million, a property estimated to contain a NI 43-101 compliant inferred mineral resource of approximately 940koz of gold.
In November 2022, the Corporate purchased Motapa, an asset considered to be highly prospective and strategically important to its growth ambitions, as it is a large exploration property which is contiguous to the Bilboes gold project.
The Company’s 12.2MW solar plant project was connected to the Blanket grid in November 2022 and the mine has since been receiving 27% of its energy from solar. The solar power which soared costs during the investment time will displace power from the grid and from the diesel generators and is expected to reduce Caledonia's consolidated cost per ounce of gold produced by approximately US$37. This completion happily coincides with an improvement in the supply of power from the Zimbabwe grid which has substantially reduced the amount of diesel consumed.
The Corporate will continue to see an ongoing reduction in diesel usage month on month, fully justifying the investment in solar power and delivering on its Environmental Social Governance strategy.
In January 2023 alone, Blanket consumed 18,000 litres of diesel down from approximately 120,000 litres per month for the whole of last year.
Therefore, investors need not worry about the current profit decline as no later than sooner, they will be munching long-term investment benefits. Probability twists more on higher returns than otherwise.
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