Caledonia Mining has reported a 35% jump in underlying second quarter earnings to US$9.6 million as output increased.

The company’s Blanket Mine produced 13,499 ounces of gold in the quarter to June, compared to 12,712 ounces in the same quarter last year. For the half, Blanket produced 27,732 ounces, up from 24,660 ounces last year.

Production guidance for 2020 remains unchanged at 53,000 to 56,000 ounces.

This earned Caledonia gross revenues of US$22.9 million, a 39% increase on the US$16.5 million achieved in the second quarter of 2019. Gross profit came in at US$9.2 million, up 30% on the $7 million in Q2 2019 at a gross margin of 40% (Q2 2019, 42.5 per cent).

EBITDA, excluding net foreign exchange gains, of US$9.6 million was up by 35% on the US$7.1 million in Q2 2019 at a margin of 41.9% (Q2 2019, 43.0 per cent).

All-in sustaining costs (AISC) – a comprehensive measure of costs – was up to US$868 per ounce from US$656 per ounce in the corresponding quarter. Last year’s costs are lower compared to this year because of the currency movements. The cost of electricity in last year’s second quarter were artificially low level and were not sustained.

Blanket says it contributed US$1,048,000 to towards Zimbabwe’s COVID-19 response. This was in addition to production costs of US$509,000 which were directly related to COVID-19.

The company closed the quarter with net cash and cash equivalents of US$11.7 million (December 31, 2019, US$8.9 million).

COVID-19: The impact

COVID-19 has had little impact on production, as production was kept running at 93% of target through the lockdown. However, there is likely to be a delay in the completion of Blanket’s main expansion project, the central shaft deepening expected to increase output to 80,000 ounces per year from 2022.

“Progress on the Central Shaft continued, but at a slower pace due to a reduced contractor team.  If current travel and transport restrictions continue, delays in sourcing specialist contractors and equipment may delay the completion of Central Shaft,” warns Caledonia.

Gold producers like Caledonia are likely to benefit from firming gold prices.

Should gold remain at the current US$2,000 per ounce level, Blanket would make almost US$100 million of operating profits annually at its projected 80,000 ounces and costs of US$800 per ounce. However, risk remains in Zimbabwe around policy issues, rising costs and the currency crisis.