Caledonia Mining, which runs Blanket Mine near Gwanda, is currently investing in a central shaft that will increase annual output from 50 000 ounces to around 80 000oz from 2022.
Here, Caledonia Chief Financial Officer Mark Learmonth updates on progress on the project, and the company’s latest financial results.
Q: Results just published for the quarter and the nine months ended 30th of September; what do you consider the highlights for the period?
A: Well, we’d previously announced the production for the three months. The nine months was very strong so we did over 15,000 ounces in the quarter, nearly 43,000 ounces year-to-date. On the back of that, we decided to increase production guidance slightly from sort of 55-ish thousand ounces up to about 56/58,000 ounces.
That in itself is not a really significant step up but I think in the context of people’s concerns about this coronavirus thing, I think it just proves the point that COVID had had no effect on the mine and far from it, actually, we’re going from strength to strength. So, production was very strong.
Revenues up very strongly, about US$5 million and that actually excludes nearly 2000 ounces of gold, which we had basically sitting in the safe and delivered on the 1st of October.
So, gross profit was, again, up very strongly, up from about US$8.5 million in the third quarter of 2019, up to over US$12.5 million dollars for this quarter. That flowed through into adjusted earnings per share, which more than doubled from just less than 16 cents in the corresponding quarter of 2019 to over 34 cents in this quarter. So, a very strong quarter.
Also, the cashflow, the cash, continues to be generated and to come out of this business at a good rate so all in all, it’s a very good quarter.
Q: I guess everybody’s going to ask the question, what can you tell us about the progress being made on the central shaft?
A: So, the coronavirus did have an effect on the central shaft project. The supervision team at the mine, they were South Africans, and during the lockdown period half of that team decided to go back to South Africa and the other half, interestingly enough, decided to stay at the mine for a period of many months.
— Caledonia Mining Plc (@CaledoniaMining) November 26, 2020
That meant that the progress in equipping the shaft was slowed down and also, we needed to get specialised equipment and specialised personnel up from Johannesburg to the mine to do specific tasks and because of the restrictions on transport and travel, we just couldn’t do that, so that also introduced a delay.
The third factor is that we had to reduce the loading factors in the cages, the lifts, which we use to take workers underground, which meant that we couldn’t take as many underground as normal. So, we focused on production, not development, and so that also added a delay into development that we need to do underground to connect up to the central shelf.
So, the upshot is that the central shaft is about 12 weeks behind schedule, it should have been completed towards the end of October. It will now be completed towards the end of this year. In addition, we also got about a further three-months on the development.
What that means is that the central shaft will be equipped and completed by the end of this year, in the first quarter of next year it will start being commissioned and thereafter, we can have the production ramp-up.
So, what that means is that the production ramp has been delayed, whereas previously we were looking at production in 2021 of about 75,000 ounces, now we’re looking at anything between 61,000-67,000 ounces. The guidance for 2022 onwards remains at 80,000 ounces.
So, it’s just a short-term timing issue which clearly is factored beyond our control but we’re still making good progress and we’re very pleased with that.
“2021: We will be in very different but better place”
Q: Just talking about expectations, what can investors expect for the rest of the year from Caledonia Mining?
A: The next dividend announcement will be right at the beginning of January, I think actually it’s scheduled for January 1st, which clearly won’t happen so it’ll be January 2nd so people might want to look at that.
We’ll be announcing the completion of the central shaft at the end of this year which will be a big milestone for us then over the course of 2021, there should be a progressive quarterly increase in production as we get through that commissioning phase and as we do the ramp-up.
Clearly further dividend announcements in the course of 2021 and hopefully we should start to make some further progress on getting our hands on new opportunities in Zimbabwe. Initially, those could be quite small, they could just be getting access to do exploration on new properties, but it’s going to be a step in the right direction.
So, I think 2021 will be a very, very transitional year for us, both in terms of production, cash generation, but also building a pipeline for further growth over and above the 80,000 so I would expect us to be in a very different place this time next year. A very different but better place.