Caledonia Mining Corporation (LON:CMCL) Chief Financial Officer Mark Learmonth caught up with DirectorsTalk for an exclusive interview to discuss the highlights from Q4 results, the completion of the re-domiciliation of the company into Jersey and key milestones for 2016
Q1: First off, could you talk us through the highlights of the Q4 results?
A1: The highlights of Q4 results and the results of the whole of 2015 were really operational in that we achieved certain operational targets that we set ourselves for the year. So we finished the Tramming Loop and that resulted in a sustained increase in the amount of material we could move and process, in Q3 and Q4 we were moving comfortably about 115,000-116,000 tonnes a quarter, that was previously capped at about 100,000 so that made a big difference to our ability to maintain production, even though the grade was falling somewhat. Also the move to, I think the fact we’re reporting now in US dollars makes life much easier for investors to understand the underlying performance of the business. Previously reporting in Canadian dollars, all the costs looked to have gone up enormously, that’s because the Canadian dollar had devalued so much against the US dollar so the US dollar reporting does make life a lot easier and we’ve just announced the move to Jersey which I think has significant impact on shareholders going forward.
In pure financial terms, 2015 was a difficult year, we were spending around $18 million on the revised investment plan, that was slightly more than we initially expected. We initially expected to spend $16 million but the increase isn’t because the project is getting away from us, it’s actually because we took the conscious decision to accelerate the purchase of certain key capital items because the equipment became available slightly earlier than we’d expected but at such a good knockdown price we thought it was silly to walk away from the opportunity. So although CapEx was $2 million higher in the year, in 2016 and 2017 collectively will be $5 million lower than what we’d expected so that over-expenditure in 2015 will unwind as we move forwards. Looking at Q4 in particular is the relatively strong, well the very strong cash flows that are coming out of the business, in Q4 there’s a significant increase in the operational cash generation from Q3, notwithstanding a gold price which in Q4 were still a little bit anaemic and that gives us a certain amount of comfort and confidence. So as we continue to increase production and get our costs further down, the cash generation supported by a rise in gold price for the business in 2016, 2017 and 2018 will be very strong indeed.
So 2015 I would see it as a consolidating year and it sets the scene for 2016 which hopefully, we believe, will be a much transformational year for the business.
Q2: Now you’ve touched on this a little bit, the announcement of the completion of the re-domiciliation of Caledonia Mining into Jersey, could you explain the benefit that this will have for shareholders?
A2: It’s subtle but very important. Caledonia Mining were previously a Canadian company and just given the complexity, the international tax rules at the moment, that meant that to live life as a Canadian company, all of the Board meetings would have to take place in Canada. That is fine for those 2 directors who are based in Canada but for the rest of the Board who are based in South Africa or the United States, but particular in South Africa, to fly backwards and forwards from Toronto for Board meetings 4 times a year or 5-6 times a year is very time-consuming, very tiring and also very expensive so domiciling ourselves in Jersey would make it much easier to reduce the potential tax problems that may have arisen had we not had an effective place of management in Toronto. So place of management will be in Jersey, I’m calling you from Jersey now, we arrived here this morning having continued into Jersey yesterday so I think the move to Jersey squares away a significant but unquantifiable tax headache in the future. In the short term, it means that for non-Canadian shareholders the Caledonia dividend will be paid without any deduction of Canadian Withholding tax. I hold shares through the UK and as far as I know the rate of withholding tax is about 25% so for every dollar we pay out, you’re only going to be receiving 75 cents, that means the next dividend that we declare in early April, which will be paid late in April, your dividend will go up by a third which is good news in anybody’s book. So I think that’s the short term benefit, also it means that as management being based here in Jersey, it’s much more accessible for the shareholder base in the UK, Europe, North America and it just makes it much easier to service that shareholder base from a more central location.
Q3: What does 2016 look like for Caledonia Mining? What are the key milestones there?
A3: Well as I’ve said, we think having done all of the hard work, well most of the hard work in 2015, 2016 will be a transformational year. The key thing that you’ll see in 2016 is quarterly increases in production so Q1 is actually never a particularly good production for us because, it sounds silly, but it’s a short quarter, by the time people have come back after New Year and then you’ve got Easter at the end of the quarter, the number of working days in Q1 is actually slightly shorter than other quarters. So Q1 will be about 11,000 ounces, Q2 about 12,000, Q3 13,000, Q4 14,000 ounces. As we increase production, clearly we’re selling more gold but more importantly as we spread those fixed costs over more ounces, the average cost begins to come down quite significantly. By the end of the year, we’ll be producing at a much higher rate with a much higher profitability than we are at the beginning of the year and I think that’s what’s important for people to see and also in 2016, you’ll see the dividend being sustained but without the tax leakage in Canada. In terms of the cash position, the cash position did come down in 2015 as we continued to invest in the business, I expect the cash position may trickle down a wee bit in the first half but then it should begin to recover, certainly at this gold price it should begin to recover from mid-year onwards. So by the end of the year I’d expect the cash to be growing again which then creates all sorts of opportunities for us in terms of what to do with that. So 2016, transformational year but that won’t be the end of the story, we expect to see the growth continue into 2017 and 2018 so we think the business has turned a corner and we think this is actually the beginning of quite an exciting transitionary period for the business.
