Caledonia Mining Corporation Plc has told DirectorsTalk its operating and financial results for the first quarter of 2016. Following the implementation of indigenisation in September 2012, Caledonia owns 49% of the Blanket Mine in Zimbabwe. Caledonia continues to consolidate Blanket: the operational and the financial information set out below is on a consolidated basis and production information is expressed on a 100% basis. Financial information is expressed in thousands of US dollars unless otherwise indicated.
Operating and Financial Review
Q1 2015 Q1 2016 Comment
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8.7% increase in production
due to higher ore production
following the completion of
the Tramming Loop in 2015and
Gold produced improved recovery, offset by
(oz) 9,960 10,822 a slightly lower grade.
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3.8% decrease as fixed costs
On-mine are spread across higher production
cost ($/oz) 716 689 and sales ounces
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All-in Sustaining 3.6% decrease as fixed costs
Cost ($/oz) are spread across higher production
("AISC") 985 950 and sales ounces
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Average
realised Lower realised gold price reflects
gold price the prevailing gold price in
($/oz) 1,198 1,166 the Quarter
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3.7% increase due to increased
production and sales and a
lower average cost per ounce,
offset by the lower realised
Gross profit 3,748 3,888 gold price
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Net profit is after a deferred
Net profit tax charge of $909,000 at Blanket,
attributable which reflects the continued
to shareholders 1,256 543 high level of capital investment
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Adjusted
basic earnings
per share
("EPS") Adjusted EPS excludes non-cash
(cents) 2.6 2.7 items such as deferred taxation
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Q1 2015 Q1 2016 Comment
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Net cash at March 31, 2016
includes an overdraft of $4,673,000
held by Blanket in Zimbabwe.
Lower net cash reflects the
Net cash continued investment at Blanket
and cash in terms of the Revised Investment
equivalents 20,640 8,841 Plan.
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31% increase in cash from operating
activities due to increased
Cash from sales volumes, lower unit costs
operating of production and lower tax
activities 1,333 1,749 payments
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Commenting on the results for the Quarter, Steve Curtis, Caledonia’s President and Chief Executive officer said: “The financial and operating results for the first Quarter of 2016 were better than expected. Production, as previously reported, was marginally better than target; on-mine operating costs and AISC were lower than in the comparable quarter and reflect continued strict cost control and lower sustaining capital expenditure.
“As expected, Caledonia’s net consolidated cash was lower than at the end of December 2015 due to the continued suspension of dividends from Blanket as a result of investments at Blanket Mine and the continuation of Caledonia’s dividend. Net cash at March 31 2016 was better than expected due to the combined effects of slightly better than expected production, good cost control and the higher gold price.
“Progress on implementing the Revised Investment Plan at Blanket remains on track. Towards the end of the quarter, production commenced as planned from the No. 6 Winze and from an additional development which provides access to ore below the 750 meter level. These developments have substantially improved operational flexibility and are expected to be the main reason for the projected increase in production from 42,800 ounces in 2015, to approximately 50,000 ounces in 2016.
“The projected increase in production in 2016 is expected to result in improved cash generation due to higher sales volumes and lower costs per ounce of gold as fixed costs are spread over more gold ounces produced. Capital investment is expected to moderate somewhat over the remainder of 2016 as work at the Central Shaft moves into the main sinking phase. The higher gold price, if sustained, will further enhance cash generation. I therefore expect that Caledonia’s treasury will begin to improve in the second half of 2016 when Blanket resumes dividend payments, which will also result in the resumption of the repayment of the facilitation loans from Blanket’s indigenous Zimbabwean shareholders.
“A huge amount has been achieved at the Central Shaft since work commenced in late 2014; in the first quarter of 2016 the main sinking headgear was assembled; the winders have been commissioned and sinking is expected to re-commence within a few days. Completion of the Central Shaft remains on track for mid-2018 and will re-establish Blanket’s position as a low cost operation with excellent prospects to extend the existing mine life.
“I expect 2016 to be a transformational year for Caledonia and Blanket and I look forward to providing further updates to the market as the year progresses.”
Hedging
In February 2016, the Company entered into a hedge in respect of 15,000 ounces of gold over a period of 6 months. The hedge protects the Company if the gold price falls below $1,050 per ounce but gives Caledonia full participation if the price of gold exceeds $1,079 per ounce. The derivative financial instrument was entered into by the Company for economic hedging purposes and not as a speculative investment.
The derivative financial liability is measured at fair value and resulted in a one-time expense of $435,000 which is included in profit or loss. Of the $435,000 expense recognised, $145,000 was realised as at 31 March 2016. The Company has the intention to settle the cost of the hedge with the $435,000 margin call deposited with the hedge counter-party. The maximum cost of the hedge to Caledonia is $435,000, being 15,000 ounces at $29 per ounce. Blanket continues to sell all of its gold production to Fidelity Printers and Refiners Ltd (“Fidelity”), as required by Zimbabwean legislation, and receives the spot price of gold less an early settlement discount of 1.25%.
Re-domicile from Canada to Jersey, Channel Islands
On 18 February 2016, a Special Meeting of Caledonia’s shareholders voted to approve the continuance (the “Continuance”) of the Company from Canada to Jersey, Channel Islands. Caledonia’s Board of Directors subsequently resolved to proceed with the proposed Continuance which became effective on 19 March 2016, whereupon the Company also adopted new charter documents and changed its name to Caledonia Mining Corporation plc. Following the Continuance, Caledonia is domiciled in Jersey, Channel Islands, for legal and tax purposes; Caledonia’s shares (or depository interests) continue to be listed and traded on the Toronto Stock Exchange and on AIM, and they continue to be traded on the OTCQX in the USA.
LTIP Award
Pursuant to the approval of the Omnibus Equity Incentive Plan (the “Plan”) by Shareholders at the annual shareholder meeting on 14 May 2015, the Company made Long Term Incentive Plan (“LTIP”) awards to certain executives in the form of Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”) in the Quarter which resulted in a charge of $90,000. The LTIP awards are intended to create a high degree of alignment between the remuneration of the Company’s senior management team and the interests of shareholders. 80% of the award value for each participant is made up of PSUs. The final number of PSUs which vest on maturity will be adjusted to reflect the actual performance of the Company in terms of three criteria: progress on the sinking of the Central Shaft; gold production and production costs. The number of RSU’s (which make up 20% of the total award for each participant) that vest will not change according to performance.
Strategy and Outlook
Caledonia’s strategic focus continues to be the implementation of the Revised Investment Plan at Blanket, which was announced in November 2014, and is expected to extend the life of mine by providing access to deeper levels for production and further exploration. Caledonia’s board and management believe the successful implementation of the Revised Investment Plan is in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and greater flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long term future.
