Caledonia Mining Corporation Plc New record – 56,133 ounces of gold produced

CALEDONIA MINING CORPORATION PLC COM SHS NPV (DI)

Caledonia Mining Corporation PLC COM SHS NPV (DI) (LON:CMCL) announced today its operating and financial results for the fourth quarter and the year ended December 31, 2017. Caledonia’s primary asset is a 49 per cent legal ownership in the Blanket Mine (“Blanket”) in Zimbabwe. Caledonia continues to consolidate Blanket and the operational and financial information set out below is on a 100 per cent basis unless indicated otherwise.

3 months ended December 31

12 months ended December 31

Comment

2016

2017

2016

2017

Gold produced (oz)

13,591

16,425

50,351

56,133

Increased gold production due to higher tonnes milled and higher grade

On-mine cost  ($/oz)[1]

614

556

636

633

On-mine costs are stable for the year but 9% lower in the Quarter compared to Q4 2016 due to the higher production in the Quarter which meant that fixed costs were spread over more production ounces

All-in sustaining cost ($/oz) (“AISC”)1

843

901

912

847

Q4 2016 AISC was low due to the recognition of the entire 2016 export incentive credit in the quarter. Lower year-on-year AISC reflects lower administrative expenses and higher export incentive credit and sales ounces

Average realised gold price ($/oz)1

1,187

1,256

1,232

1,243

The average realised gold price reflects changes in the price of gold

Gross profit [2]

6,888

8,411

23,492

26,321

Higher gross profit reflects increased sales ounces and a higher realised gold price

Net profit attributable to  shareholders

3,258

3,232

8,526

9,384

Increased net profit reflects increased gross profit and reduced administrative costs

Adjusted basic earnings per share (“EPS”)[3](cents)

41.4

48.6

98.6

135.4

Higher adjusted EPS reflects increased net profit in the Year and the elimination from adjusted EPS in 2016 of the profit arising on the sale of treasury bills

3 months ended December 31

12 months ended December 31

Comment

2016

2017

2016

2017

Cash and cash equivalents

14,335

12,756

14,335

12,756

Cash balance remains robust but should be seen in the context of increased trade payables at Blanket due to the shortage of foreign currency in Zimbabwe

Cash from operating activities

6,940

7,914

23,011

24,512

Cash from operating activities remains strong

 

Steve Curtis, Caledonia Mining Corporation Plc Chief Executive Officer, said: “I’m delighted to report that production for the year was a new record: the 56,133 ounces of gold produced in 2017 being 11.5 per cent higher than in 2016. The production difficulties which we encountered in the first half of the year were identified and addressed and it was pleasing to see that these remedial measures resulted in Blanket achieving consecutive production records in the third and fourth quarters of the year.

“In addition to increased production, we have also reduced our unit costs: Caledonia’s AISC per ounce for the year was $847 per ounce – seven per cent lower than in 2016.

“The combination of increased production and lower costs and a small increase in the gold price resulted in a 14 per cent increase in profit attributable to shareholders.

“The strong operational and financial performance translated once more into very strong cash flows. During the Year the Group generated over $24 million of cash from operations (2016: $23 million). From these cash flows and cash resources, Blanket funded $18 million of expansion capital investment, $3.5 million of sustaining capital expenditure and repaid $1.5 million of debt; Caledonia also paid $2.9 million of dividends.

“During the Year we made excellent progress on implementing the Investment Plan at Blanket Mine with the objective of increasing production to 80,000 ounces of gold per year by 2021. The Central Shaft has reached a depth of 990 metres, the station for the second new haulage level has been completed and shaft sinking has re-commenced.

“Exploration continues at Blanket with encouraging results. In November 2017, we announced a resource upgrade which increased the gold contained in Measured and Indicated Resources by six per cent to 714,000 ounces. The gold contained in Inferred Resources increased by 47 per cent to 887,000 ounces.

“Following the resource upgrade, we have extended the scope of the Central Shaft project by increasing the depth of the shaft by a further 250 metres to a shaft bottom depth of 1,330 metres. The extension will allow for a further two production levels (in addition to the two new levels that were already planned) and will potentially extend Blanket’s life of mine by four years to 2031. The shaft extension and the new production levels will cost approximately $18 million – much less than if we had done this work after the shaft had been completed and commissioned to the original target depth of 1,080 metres. The extension of the shaft is not expected to delay the achievement of the target production of approximately 80,000 ounces per year by 2021 but it will improve operational flexibility.

“There were some significant political developments in Zimbabwe towards the end of 2017 which culminated in the appointment of the new President. The new President has made several pronouncements regarding a relaxation in the indigenisation policy and specifically the removal of the indigenisation requirement for gold mining companies. These pronouncements have now passed into law and accordingly, the boards of Caledonia and Blanket have agreed to implement a rights issue at Blanket to raise approximately $4 million which will be underwritten by Caledonia’s Zimbabwean subsidiary. Blanket will use the proceeds of the rights issue to advance work on certain of its satellite properties. Assuming that Blanket’s indigenous shareholders do not subscribe for shares in accordance with their rights, it is expected that, subject to the terms of the rights issue, Caledonia’s shareholding in Blanket will increase from 49 per cent to slightly over 50 per cent.

“Caledonia will also evaluate the potential to buy the shareholdings in Blanket that are currently held by certain indigenous shareholders. However, it is our intention to retain the shareholders representing employees and the local community (both of which currently hold 10 per cent each) as long term shareholders of Blanket. Any transactions would reflect the value of the indigenous shareholders’ holdings in Blanket after deducting the value of their outstanding facilitation loans and would be subject to a mutually agreed valuation of the holdings in Blanket.

“I wholeheartedly welcome the change in legislation which means that Caledonia can commit new capital so that Blanket can commence exploration and evaluations of additional projects in Zimbabwe. If this investment is successful it will benefit all stakeholders, including Blanket’s indigenous shareholders, future employees on the new projects, the communities around the new projects and the government of Zimbabwe which would benefit from increased royalty and tax receipts and greater inflows of foreign exchange arising from increased gold production.

“We are at a very exciting point in our development. At our current production level of over 55,000 ounces of gold per annum we are already highly cash generative. For the next two years, the bulk of the cash generation will be deployed to the Investment Plan at Blanket which we are confident will further increase cash flows as we increase production to 80,000 ounces of gold by 2021. Once the Investment Plan is completed towards the end of 2020, we expect to have substantial free cash flows to deploy elsewhere. Against this background, there are very encouraging political developments in Zimbabwe which we are optimistic will create new investment opportunities.”

[1] Non-IFRS measures such as “On-mine cost per ounce”, “AISC” and “average realised gold price” are used throughout this document.  Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

[2] Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses, other income, interest and finance charges and taxation.

[3] Adjusted EPS is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance.  Refer to Section 10 of this MD&A for a discussion of non-IFRS measures. Per share data for current and prior periods has been adjusted to reflect the effective 1-for-5 share consolidation which was effected on June 26, 2017.

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