Caledonia Mining Corporation PLC – Results for the quarter ended 31 March 2019

Caledonia Mining Corporation Plc announces its operating and financial results for the first quarter of 2019.

 Gold production in the Quarter was 11,948 ounces, approximately 8 per cent below the first quarter of 2018 (the “comparable quarter” or “Q1 2018”). Production was adversely affected by lower grade, although this was anticipated as part of the mine plan.

Consolidated operating profit before tax of $12.3m for the Quarter was 105 per cent higher than Q1 2018 although this increase was entirely due to exceptional gains of $3.3 million on foreign exchange following the devaluation of the domestic Zimbabwean currency and a profit on the sale of a subsidiary of $5.4m.

Attributable profit after tax was also substantially higher than the comparable quarter in 2018 at $9.3m again due to exceptional items which outweighed lower gross profit. Foreign exchange gains and profits arising on disposal are excluded from Caledonia’s adjusted earnings per share of 23 cents which were 44 per cent lower than the comparable quarter, largely due to reduced production and higher on-mine costs. 

Operating cash flows for the Quarter were $6.3 million (Q1 2018; $7.0 million) and the Company’s balance sheet remains strong with net cash of $9.7 million as at 31 March 2019. Amounts stated below are expressed in thousands of US Dollars, unless otherwise stated or the context requires otherwise. 

	Q1 2018	Q1 2019	% Change	Comment
Gold produced (oz)	12,924	11,948	-7.6%	Lower gold production was mainly due to lower grade, which was in-line with the mine plan.  The grade dilution which was experienced in previous quarters has largely been addressed. Production was less than planned due mainly to lower than planned tonnage
On-mine cost per ounce ($/oz)[1]	687	794	15.6%	On-mine costs increased due to Blanket’s high fixed costs, which has an adverse effect at low production levels. Labour rates and the costs and consumption rates for certain consumables were also higher, but were as expected
All-in sustaining cost ($/oz) (“AISC”)1	832	943	13.3%	AISC increased due to the higher on-mine cost per ounce the effect of which was partially offset by lower sustaining capital investment and lower administrative expenses
Average realised gold price ($/oz)1	1,312	1,284	-2.1%	The average realised price of gold reflects the prevailing gold price received: revenues from the export credit incentive (“ECI”) and gold support price are accounted for as “other income”
Gross profit [2]	6,223	4,284	-31.2%	Gross profit was lower due to a reduction in the number of ounces sold and increased on-mine cost per ounce
Net profit attributable to shareholders	3,154	9,318	195.4%	Net profit attributable to shareholders increased due to foreign exchange gains and the profit on disposal of a subsidiary, the combined effect of which outweighed lower gross profit
Adjusted basic earnings per share (“EPS”)[3](cents)	40.8	23.0	-43.6%	Adjusted basic earnings per share excludes deferred tax, foreign exchange gains and the profit on disposal of a subsidiary
Net cash and cash equivalents	13,380	9,742	-27.2%	Net cash remains strong
Cash from operating activities	7,045	6,275	-10.9%	Cash from operating activities remains robust and exceeded capital investment in the Quarter

Commenting on the results, Steve Curtis, Caledonia’s Chief Executive Officer said:

“Notwithstanding the production difficulties experienced as a result of lower than expected production tonnage, unreliable electricity supply and lower mine grade, cash generation for the quarter was solid at $6.3 million – sufficient to support both capital investment in the Central Shaft project of $5.1 million and Caledonia’s regular quarterly dividend as well as maintain a healthy balance sheet with net cash of $9.7m at the end of March.

“Work on sinking the Central Shaft remains on track. I expect shaft sinking to be completed in the middle of this year after which a further 12 months will be needed to equip the shaft before it is commissioned in mid-2020 and we can begin to increase production to our target of 80,000 ounces per annum by 2022. This production increase will contribute significantly to reducing operating costs through economies of scale and we look forward to further increasing cash flows and earnings as the shaft is commissioned.

“We maintain our full year production guidance of 53,000 – 56,000 ounces for 2019. I look forward to an improved cost performance in the remaining quarters of the year as we anticipate that the beneficial effects of improved production will be felt in the subsequent quarters of 2019.

“The early part of the Quarter was made more challenging by some significant macroeconomic disruptions.  In particular, the continuation of the currency peg between domestic currency and the US dollar caused severe hardship to our employees in Zimbabwe due to their reduced purchasing power which had repercussions for employee morale. The removal of the currency peg in late February resulted in a devaluation of the local currency and allowed management to take steps to remediate the situation of our employees.  This, in conjunction with other measures to address operational issues, has resulted in improved performance: I am pleased to report that production in April was almost exactly as planned and we are confident that production will improve in the remainder of 2019.

“The devaluation did however have a one-off positive financial impact on our results with a foreign exchange gain of $3.3 million arising on the revaluation of assets and liabilities that are denominated in local currency.  Looking forward, provided the exchange rate which is used to calculate Blanket’s local currency denominated gold receipts recognises economic fundamentals, management is optimistic that current monetary policy may create a more stable economic environment.

“Unit costs in the Quarter, although higher than the comparable quarter of 2018, were largely as expected.  Blanket’s relatively high fixed costs component makes our business particularly sensitive to production volumes.  On-mine cash costs per ounce of $794 and AISC of $943 were 15.6 per cent and 13.3 per cent higher respectively than the comparable quarter in 2018 although in line with budget.

“Operating profit was boosted by exceptional one-off gains on the sale of Eersteling (a South African gold mine which has been held on care and maintenance for many years) and the foreign exchange gain arising on the devaluation of the domestic currency.

“I am particularly pleased that we have maintained a safe working environment during what was clearly a difficult time for all our Zimbabwe based employees. I join with my fellow directors in expressing our sincere gratitude to all our management and staff for their contribution to this achievement.

“Notwithstanding the challenges experienced in the Quarter, we remain encouraged by the overall direction of policy development which we believe will result in improved operating conditions and a better investment climate in Zimbabwe. The most recent positive development in this regard is the introduction of a gold support price of $1,368 per ounce, a premium above the prevailing spot price in order to incentivize domestic gold production. On the exploration front, we are also particularly encouraged by Zimbabwe’s geological prospectivity and we continue to evaluate potential investment opportunities.”