Caledonia Mining Corporation (LON:CMCL) Chief Financial Officer Mark Learmonth caught up with DirectorsTalk for an exclusive interview to discuss the recent article in The Economist on the power cuts in Zimbabwe and what measures Caledonia have in place to minimise the effect on their production.
Q1: Just wanted to catch up with you to talk about an article that was in The Economist. It mentioned that there had been issues with power cuts in Harare, will this affect production at Blanket?
A1: No. There are some severe electrical supply problems in Zimbabwe as a whole. Just talking in very general terms, in the ordinary course of events, Zimbabwe only produces about half the power it needs ordinarily and so power cuts and load-shedding have been a standard recurring feature in life in Zimbabwe for years now. In recognising that, since 2010 we put in stand-by generators, so it’s complete stand-by gens at the mine and we ran them from 10-12 hours a day. Having done that, we then entered into an uninterrupted power supply agreement with the government-owned electricity company which meant that our cost of electricity went from about 6.7 cents per kilowatt-hour to 12.8 cents per kilowatt-hour so the cost of the electricity doubled. Since then, we’ve had virtually no power outages at all so from year to date, so to mid-October, the generators at the mine have only run for 80 hours for the whole of 2015 which is just normal sort of ordinary course of business when you’re in the middle of Africa, stuff sort of goes wrong. Zimbabwe’s got a power problem at the moment, now of that 50% of the power that they’re producing at the moment, half of that 50% comes from what’s called the Kariba hydro-power project which is a shared project between Zimbabwe and Zambia. We understand that the water levels in the Kariba dam are now so low that they can no longer continue to run the turbines at the regular rate and so the electricity coming out that was been generated by Kariba is now virtually stopped. So that means that Zimbabwe is now down to about 25% of its power which is why you’ve outages of about 16 hours a day in Harare. We haven’t had any outages at Blanket so far so the government has honoured its commitment to us, to deliver uninterrupted power supplies. However, as I say, we do have the ability to run the mine 24 hours a day, 7 days a week using diesel, we’ve done it before and we’ll do it again. Fundamentally, we can continue producing and if for any reason production was interrupted as a result of power supply that would have a very serious adverse effect on us but given that’s not going to happen because we’ve got the generators so that’s fine. The financial effect actually may be really quite modest because if government is now no longer providing uninterrupted power supply, that means that our tariff that we pay will drop from 12.8 cents to 6 or 7 cents per kilowatt-hour, we’d be able to restructure our working day so that actually the period of the day when we’re unable to do mining activities, for about 4 hours a day we can’t actually enter the mine to do mining activity because once you blast you’ve got a 4 hour re-entry period, we could re-schedule our working day to make sure that the 4 hour re-entry period coincided with an agreed outage with government so we wouldn’t actually need to be using the generators during that period. So for us, it’s fine, but clearly it’s not good for Zimbabwe as a whole and it’s not good for the rest of the gold industry.
Q2: So just to reiterate, Caledonia Mining Corporation have got measures in place and it doesn’t really impact on the cost?
A2: No it doesn’t, it doesn’t at all so that’s good. There’s really no more to say on that matter. I would expect that as and when this gets into the market and people begin to consider the effects, not just for other mining companies but for others in Zimbabwe, for telecoms companies, brewing companies, all those sort of companies, it could have quite a negative effect on people’s perception about Zimbabwe in general but certainly as far as it affects us, it’s a non-issue.
