Yesterday, Caledonia Mining Corporation announced the operating results for Q1 2016. During the period, the company’s revenue improved to US$13.4m compared with US$12.9m in Q1 2015; however, production costs during the period increased to US$8.0m from US$7.7m a year ago. Pre-tax profit for the period was US$1.974m, down from US$2.595m, due to costs related to margin call on gold hedge and lower gains on foreign exchange. Consequently, profit for the period declined to US$848,000m from US$1,627,000 in Q1 2016 due to a higher tax charge. On the operations front, the company’s gold production improved 8.7% to 10,822oz and the on-mine cost declined 3.8% to US$689/oz. The average realised gold price too dropped to US$1,166/oz, reflecting the prevailing gold prices in the quarter. Following the implementation of indigenisation in September 2012, Caledonia owns 49% of the Blanket Mine in Zimbabwe. On 18 February 2016, a special meeting of Caledonia’s shareholders voted to approve the continuance of the company from Canada to Jersey, Channel Islands. The meeting also adopted new charter documents and changed its name to Caledonia Mining Corporation plc. Meanwhile, the company continues to focus on the implementation of the Revised Investment Plan at its Blanket mine that is likely to result in increased production, reduced operating costs and greater flexibility to undertake further exploration and development.
Beaufort Securities view: Caledonia’s financial and operating results for the first quarter of 2016 look promising despite the low realised price of gold. The company was also successful in reducing the fixed cost per ounce of gold produced. Moreover, the projected increase in production in 2016 is expected to result in improved cash generation due to higher sales volume and lower costs per ounce of gold, as fixed costs are spread over more gold ounces produced. The higher gold price, if sustained, will further enhance cash generation. Meanwhile, the company remains on track to implement the Revised Investment Plan at the Blanket mine. In view of these factors, we reiterate a Speculative Buy rating on the stock.
