Thursday, May 21, 2015

Zim Gold Miner Sees Stability And Growth, 21 MAY

Zim Gold Miner Sees Stability And Growth

Caledonia Mining reckons mining in Zimbabwe is far less risky than generally perceived

Zimbabwe undoubtedly gets bad press in the West. Robert Mugabe has been something of a bête noir – and perhaps justifiably so – but according to Mark Learmonth, CFO of Caledonia Mining Corp (TSX: CAL, OTCQX: CALVF, AIM:CMCL), presenting at the Global Mining Finance conference in London, the political situation is actually very stable – more so than in many other African nations.

Government and administration both work, he said. Ever since the relatively recent debacle of hyperinflation and the demise of the Zimbabwean dollar, the country has used the US dollar as its currency and there is thus no longer any worry about any kind of rapid depreciation of the domestic currency. 

Indeed from hyperinflation Zimbabwe now appears to be in a mild deflationary phase which helps keep costs down. 

Indigenisation whereby 51% of operating companies need to be Zimbabwean owned tends to put up another red flag for investors, but Caledonia is one of the few which already meets this requirement, yet can still mine gold profitably for its Western shareholders from its century-old Blanket mine and is perhaps the highest yielding gold mining stock out there with a dividend equivalent to about 8% of the share price, covered 2.5x by net cash generated from its mine.

The indigenisation programme effectively gave away US$30.09 million worth of stock, but this is being repaid out of dividends.

Zimbabwean transport infrastructure is seemingly good, and while the country, like its southern neighbour South Africa, has power capacity problems the government ensures operations like the Blanket mine, which is important to the economy, are effectively kept on line. 

The mine does have stand-by generators, but Learmonth reckoned they were only needed for a total of 27 hours in the whole of 2014.

Profit before tax in 2014 came to C$13.2 million, equivalent to 12.1 cents per share, while operating cash flow was $13.7 million

There is currently an expansion plan being implemented designed to lift annual gold production from 41,700 ounces last year to 42,000 ounces this year, 49,500 ounces in 2016, 64,000 ounces in 2017 and around 80,000 ounces thereafter with the completion of a new, 6 metre diameter vertical shaft due to be completed in 2017. All of the expansion programmes will be self funded, with peak demands on cash resources this year and next.

It is already a relatively low cost gold miner with All In Sustaining Costs of $969 an ounce last year, but targeted to fall to $741 an ounce by 2018 as the expansion progresses.

 The new shaft is being sunk at a capital cost of only $23 million and the company is keeping capital costs down by sourcing refurbished used equipment from South Africa – winders for the new shaft, for example, were purchased at a fraction of the cost of buying new.

Ore reserves are 346,000 ounces grading 3.67 g/tonne proven and probable, while resources are currently 498,000 ounces with grades of 3.82 g/tonne measured and indicated with an additional inferred resource of around 549,000 ounces at 5.11 g/tonne giving a total of just over 1 million ounces.

At 80,000 ounces a year that could give the mine a further 12 years life, but there remains potential for expanding the resource within the current operation at depth and in satellite deposits. Historically the mine has been able to convert a high proportion of resources into reserves.

Obviously the dividend commands a high yield because of the perceived risk of operating in Zimbabwe, but the operation is already fully indigenised, and the Zimbabwean government appears supportive of the gold mining sector as an important element in the national economy.


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