Caledonia Mining Corporation PLC COM SHS NPV (DI) (LON:CMCL) Chief Financial Officer Mark Learmonth caught up with DirectorsTalk to discuss the first quarter results of 2016
Q1: This morning Caledonia Mining released your Quarter 1 results which in your own words were better than expected. Can you sum up the release for us?
A1: Yes, it was a little bit better than we expected on the whole full range of fronts. We’d already announced the production for the first quarter so the production for the first quarter was just 10,800 ounces, that was a few hundred ounces better than expected so that was good. The gold price was better than we’d feared it was going to be, I think when we started off the quarter I think the expectations for the gold price could actually have been a lot more difficult than it turned out to be so that was nice and more in particular, our costs, the on-mine costs were lower than we thought they would be, the all-in sustaining cost was lower. So on-mine cost per ounce fell by a comparable quarter basis from $716 an ounce to $689 an ounce, the all-in sustaining cost fell from 985 to 950 and that’s a function of continued very strict cost control, we have to really watch the pounds and the pennies here. Also the natural effect that we kept on talking about, so in the quarter we produced as I said 10,800 ounces, in the comparable quarter we produce just less than 10,000 ounces, because something like 75% of the costs at Blanket Mine are fixed that means when you increase production those fixed costs are spread out over more ounces so the average cost comes down. The other way of looking at it is to say well what’s the margin of cost, the margin of cost of gold production is like a couple of hundred dollars an ounce so we want more of those ounces for a couple of hundred dollars an ounce and it helps enormously. It was a slightly better than expected quarter, also reflected in the improved cash generation so all good. Let’s be clear, where we are isn’t where we want to be, so the creditable performance in quarter 1, where at quarter 1 and that sort of performance at 10,800 ounces is by no means what we expect to be producing certainly by the end of the year.
Q2: You reported that the net cash was down in the period, could you tell us a bit more about that?
A2: Yes and again we did expect the net cash to fall in the period although it was actually a couple of million dollars higher than we’d expected. The cash was going to fall because Blanket Mine is continuing to invest at a real rate of knots, and we’ll come back to that in a minute I suspect, to deliver particularly the central shaft, I’ll show you some footage to demonstrate what we’ve achieved over the last sort of 15-18 months. So Blanket Mine is continuing to spend a lot of money, that means it’s not paying dividends up to us, up to the parent company, but at the same time we’re continuing to spend on the dividend, at the top company level, and we also have the head office costs which include quite significant costs associated with the technical skills, technical services, that we’re providing from Johannesburg into the mine to achieve what you’re going to see in a moment. So we did expect the cash to come down, it has come down, it’s better than we expected, probably March/April we’d expect to be the low point in the cash position, we think quite quickly in the second quarter cash should start to come back into the company, into the group again as we start to get dividends coming out of Blanket and the rate of capital expenditure is also now beginning to fall off with the very high levels that we’ve seen in the course of 2015/2016, we’ll now reduce as we move into a slightly different phase of the CAPEX programme so not unexpected.
Q3: How is the revised investment plan going then?
A3: Well that’s the main focus of what Caledonia Mining are doing and it’s going really very well, we’re very excited about it.
http://bit.ly/1YpoNtW – see link at 04:30 mins
You’ll see a still picture, hopefully, on the screen now, if you look very closely at sort of in the middle where those 4 gentlemen are standing, you’ll see a little yellow steel rod sticking out the ground, that’s the plug for guide hole which is down the middle of the shaft that we’re now busy sinking. If you compare that picture, with I think was taken in October 2014, with some of this video footage I took when I was at the mine a few weeks ago, you can see the enormous amount that’s been achieved. So just looking at the video footage you can see we’ve erected an enormous sinking headgear, absolutely enormous sinking headgear that was fabricated in Johannesburg and was trucked up to the mine and assembled at the mine, that’s all been assembled since Christmas. You’ll also see the winders, the enormous winders that we purchased, 2 winders we bought those for $1.3 million in South Africa, we’ve got 2 more just like that so we’ve got 4 winders in total, had we had to buy those from new it would’ve probably cost ten times that. So it’s all been bought, it’s all been refurbished, it’s all been equipped, it’s all been installed and just the rate of development at that project is phenomenal. That is actually going to be the driving factor sort of behind where we want the business to go so over the course of 2016/2017 yes production will increase from 42,000 to probably 50,000 this year, 65,000 next year. That’s a step in the right direction, what Caledonia Mining is aiming to do here is to produce a mine that’s producing over 80,000 ounces a year and that will come from the central shaft so this central shaft was the biggest component to the revised investment plan and I’m very pleased to say that it’s progressing at slightly lower than budget and absolutely on schedule in terms of timing so it’s going very well indeed, we’re very happy with that and very excited.
Q4: What can we expect to see in terms of news flow over the next 6 months?
A4: Obviously you’ll see the quarterly results coming out so the next quarter we’ll release in August, middle of August, so that’s Q2, Q3 we’ll release in November and you should certainly Q3 start to see a significant increase in production. So I’d expect in Q2 we’ll produce about 12,000 ounces, in Q3 15,000 ounces, in Q4 14,000 ounces so selling more ounces of gold, the average cost of production per ounce will be lower so profit will be turbo charged. You should see by the end of the year the cash position beginning to improve from that net cash position of about 8.8 million should start to improve very strongly by the end of the year which opens up all sorts of opportunities for us to think about how to redeploy that cash. We’ve always said 2016 would be a transitional year and we think very much we’re on track to demonstrate that.
