Caledonia Mining Corporation Q&A: Blanket mine will be very cash generative (LON:CMCL)

Gold Mining

Caledonia Mining Corporation (LON:CMCL) Chief Executive Officer Steve Curtis caught up with DirectorsTalk for an exclusive interview to discuss their Q1 results, the impacts of COVID-19, increased production and pursuing opportunities in Zimbabwe.

Q1: Now, quarter one results just out, can you talk us through the highlights of the quarter?

A1: As you say, highlights, and we’re very, very happy to be able to report these numbers. The first page of our press release really does give us the highlights, and I’ll just run them through.

A normal first quarter, but a 48% increase in turnover compared to this quarter last year, ounces are higher and obviously the gold price is higher, so that gave us a 48% increase, up to $22 million. Gross profit of $10.6 million, which is 146% increase, EBITDA of about $10.2 million, 162% increase and very importantly, on mine costs coming in at $678 per ounce compared to $794.

So, it’s a very, very good set of results for an operation going through some difficult times in the world. Luckily, the COVID influence really came in right towards the end of the quarter, and therefore the effect is minimal on these results so this is just a good operational result for the quarter.

Most importantly, if listeners remember, we’re running a self-funded shaft sinking project, and during the quarter we had net cash from operating activities of nearly $11 million, and through the quarter, we actually added another $4/$5 million to our cash balance, having continued to invest quite aggressively in the project.

So, all in all, a very, very nice performance and we’re very, very happy with these results.

Q2: You touched on COVID-19, do you think it’ll impact Caledonia Mining Corporation’s annual performance?

A2: Well, as I said, the lockdowns, which is a common terminology for everybody now, that came in right towards the end of March in Zimbabwe, but importantly, our supply chain is very much driven from South Africa.

So, what happens in South Africa is important to what happens to us in Zimbabwe, and the lockdown in South Africa happened three or four days earlier, and therefore our supply chain was constrained. We had about three weeks of no deliveries from our South African suppliers, but luckily, we carry reasonable levels of inventory at the mine and we were able to carry on production with the blessing of the government and the health authorities while the country was in lockdown.

We did implement a number of disciplines to improve social distancing, we reduced the number of people that were going underground, we dramatically increased the awareness around sanitization, sanitizing our hoists, our skits, waiting areas underground, we provided a lot more PPE to our staff, and those actions have proven invaluable for us.

So, we operated for about three weeks with this reduced number of men going underground, obviously the surface operations are less affected, and the central shaft operation, which is geographically separated, was also less affected. As we said in our MD&A, the April production still came in at about 93% of our budget target so the effect was really minimal.

We’ve now, with again the permission of the government, we’ve ramped back up to a 100% at the mine level from a production perspective, and during that initial three week lockdown, we treated the whole property, and the village of the property where all our employees live, as sort of one quarantine area. We restricted access to the property and we had very, very strong monitoring controls of people who had to leave the property for whatever reason, and then come back onto the property thorough screening.

That enabled us after three weeks of the first phase of lockdown to effectively say we’ve been in quarantine, therefore, we can go back to a 100% labour force activity, still practicing the best practices we could do in terms of social distancing, continuing with the sanitization and continuing with the PPE. As we stand to date, things are still going fine and the workers are all healthy and production continues as is.

So, as long as we can keep the virus at bay, and the information is not as available in Zimbabwe as many people would like so we have to very much look after ourselves, and as long as we can keep a very tight control over our own people, our property, we would hope that we can continue operating as we are now. Supply chains are fully open again, and we would therefore hope that the impact on the annual results should be negligible, if existent at all, and in our MD&A and these results, we’ve guided that our 53,000 to 56,000 ounces remains as our annual guidance for 2020.

Q3: Now, there were some management initiatives implemented in 2019 which resulted in increased production, can you talk us through those?

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A3: Obviously, the mining operation is a combination of being able to do the right development, to be able to access the right number of tonnes according to the life of mine plan and to be able to extract the grade based on the geological models.

Now, Dana and his team have been focusing, to a very great extent, on the disciplines that need to be in place to ensure that all of the components of gold production are optimised and that the standard operating procedures are just entrenched in the workforce. That’s been done with a change management program that has been running at the mine now probably for 18 months, close to 2 years, where we have got a very much heightened understanding of all of our people, of the influence their actions have on the results of the business and the mining operation. The incentive schemes and production bonus schemes also align the thinking of the people to the goals of the company, and I’m very pleased to say that the disciplines and the routines that Dana and the training people have put in place really are reaping the benefit.

So, we are continuing to do our development as planned, the grade control is very much better than it has been, we went through a stage where grade control was a problem due to some of our mining methods, and those have been changed by Dana and Caxton.

We’re now getting the planned grade, we’re getting the tons out and the plant has always been a very successful plant from a recovery point of view, we did install a brand new oxygen plant last year, and that is really now reaping rewards, and we are achieving nearly 94% overall recoveries through our plant.

So, all the aspects that results in good gold production, Dana and Caxton have got them well under control, and the guys at the mine are really adhering to the operating procedures so it’s a good place to be.

Q4: Caledonia Mining Corporation is in a good cash position, you’re going to pay dividends at the end of May, you also mentioned pursuing opportunities in Zimbabwe. Can you tell us more about that?

A4: Quite rightly, as you say, the Company will pay its quarterly dividend at the end of May, that illustrates that we’re confident of the future cash flows coming out of Blanket. As we reach the end of this 5-year project, and the Central Shelf project should come to a conclusion with the shaft equipping and the commissioning of the shaft towards the end of this year, we haven’t suffered any major time losses because of the COVID interruption at this point in time, we may be a couple of weeks behind the plan at the moment, but at this point in time, we still believe that we’ll be able to commission the shaft this year, that will mean that the big capital expenditures are coming to an end.

Next year, in 2021, we will have a reduced capital expenditure level because there will still be some development costs associated with effectively building the new mine, but 2021 will be a very much lower figure than 2020. And then 2022 will, again, be much lower as we really get into a solid state and we really are just spending sustaining capital. That leaves us with an operation, in terms of our guidance, that we will be ramping up to about 75,000 ounces in 2021 from our current level of about 55,000, which is what we achieved last year so we ramp up to 75,000 ounces and then we ramp up to 80,000 ounces during 2022.

That is going to mean Blanket is going to generate a lot of free cashflow, and it enables us to look very aggressively for new opportunities in Zimbabwe. We’ve spoken about these over a period of time, and we continue to explore the opportunities and we’re looking for good brownfield opportunities that we can bring up the value curve, do certain high quality exploration, and hopefully identify some reserves and resource spaces that will enable us to get to a decision of do we go into feasibility and do we look at building a new mine.

We want to walk before we run, we don’t want to try and bite off too much for ourselves although Blanket will be very cash generative, we recognize that building a new operation is very, very costly. So, we will do something appropriate, but we’ve looked at a number of opportunities and we’re very excited about what we’re seeing, and we’re hoping that we will be able to advise the market in the not too distant future that we’ve got something to look forward to.

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Find more news, interviews, share price & company profile here for:
Caledonia Mining Corporation

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