Blanket Mine in Q2 production increase to mitigate falling gold prices

Home » HEADLINES » Blanket Mine in Q2 production increase to mitigate falling gold prices

By Zimbabwe Investor on August 13, 2013. No Comments

gold-bars-636Caledonia Mining mitigated the effects of the lower gold price in the second quarter by increasing productivity and lowering costs.

Productivity at its 49%-owned Blanket mine in Zimbabwe rose to around 1,125 tonnes per day (tpd) in the second quarter from about 1,030 tpd in the first.

Gold produced in the quarter was 11,588 ounces, up from 10,472 ounces in the preceding quarter and ahead of the planned target of 10,000 ounces. Gold production for the third quarter has started well, with production in July clocking in at around 4,480 ounces, some 35% higher than the planned monthly target of 3,300 ounces.

Caledonia Mining’s 52-week share performance

Management believes that Blanket is on course to produce around 44,000 ounces in 2013, which is 10% higher than the previous guidance of 40,000 ounces.

Meanwhile, Blanket’s operating costs per ounce and all-in sustaining cost per ounce (now calculated based on the most recent guidance from the World Gold Council) were both lower in the second quarter of 2013 than in the preceding quarter at US$689 per ounce and US$956 per ounce, respectively.

Blanket’s all-in cost of US$1,211 an ounce includes investments in projects to increase production.

“We keep a close eye on costs, because we are price-taker, not a price-maker, in this market,” said Stefan Hayden, Caledonia’s president and chief executive officer.

Gold sales in the quarter totalled 11,588 ounces at an average sales price of US$1,368 an ounce. Second quarter revenue retreated to C$17.2mln from C$19.2mln in the first quarter.

Profit before tax fell to C$5.3mln from C$7.9mln in the preceding quarter, but that was after a C$2mln corporation social investment (CSI) of C$2mln.

The CSI payment was the subject of most of the analysts’ questions at the morning conference call following the announcement of results. The company would not be drawn on this payment or possible future CSI payments, other than to say it gave the company “a social licence to operate”.

“The second quarter of 2013 presented significant challenges as the gold price suffered an unprecedented fall in April 2013,” Stefan Hayden admitted.

The company’s response was to increase throughput at the Blanket mine.

“Increased gold production in the second quarter was not achieved by high-grading the mine: the average realised grade in Q2 was 3.82 [grams per tonne] g/t, lower than the 4.04 g/t achieved in previous quarters and very close to the average mine grade of 3.84 g/t. Notwithstanding the higher plant throughput and slightly lower grade, gold recovery was virtually unchanged in the quarter at 93.2% compared to 93.3% in the previous quarter,” Hayden noted.

At the end of June, Caledonia had cash and cash equivalents of C$22.5 million, down from C$25.2 million at the end of March. The decline in cash was down to the payment of the company’s maiden dividend for fiscal 2012 and C$3.8mln of capital investment, of which C$2.4mln was at the Blanket mine and C$1.4mln was at Nama, Caledonia’s wholly-owned base metals mine in Zambia.

“Supported by the company’s strong cash position and continued cash generation at the operational level, development and exploration activity at Blanket has accelerated. We continue to move towards achieving our targeted increase in production,” Hayden maintained.

“As a low-cost producer with a robust balance sheet, we believe Caledonia is well-positioned to continue to implement its growth strategy, notwithstanding the current volatility in the gold price,” Hayden concluded.

Quizzed at the investors’ conference call over the likely ramifications of the recent general election in Zimbabwe, Hayden said: “The interesting thing is going to be the appointment of various ministers.”

Those appointments are going to have to wait until after the dust settles on the election result, Hayden opined. Whichever way the cards fall, Hayden said the company remains “very positive about Zimbabwe”, especially in view of the company’s compliance with indigenisation laws.

“The rhetoric coming out in the press is that indigenisation is very high on the political agenda, and is focused on international companies that have not complied with the [indigenisation] requirements. Caledonia has complied and has its indigenisation certificate,” Hayden assured shareholders.

Charlie Long, a mining analyst at broker Sanlam Securities, said Caledonia is “operating reasonably well under difficult circumstances”.

Shares in Caledonia were up 1.9% at 55p in the first half hour of trading. – Proactive Investors