Caledonia Mining on track to achieve production targets, costs under control

In the quarter ending 30 June 2017, the company produced 12,521 oz of gold, up from 12,510 in the second quarter of the previous year, to bring first half gold output to 25,315 oz, as well as keeping the company on course to meet its production guidance of 52-57,000 oz for 2017.

The board blamed "underground logistical constraints" for the low level increase of gold production in the second quarter.

Analysts at SP Angel explained that logistical difficulties in the underground material handling "reflects the competing priorities on the existing shaft infrastructure of the requirements of production and the new mine development work to access ore below the 750 level".

Steve Curtis, CEO of the company, said: "management have implemented several remedial measures in the quarter to improve our underground material handling capacity and to address the logistical constraints."

"The benefit of these actions was evident in July when we saw improvements in ore tonnages, grade and gold recoveries. I expect that further benefits will be realised in the second half of 2017."

The company pointed out that, in the longer term, it remains on track with its deeper mine development project concerning the Central Shaft project currently estimated to be at a depth of 870m, and on course to deliver 80,000oz per annum of gold production in 2021 which ensures the long term viability of the Blanket Mine.

Although cash production costs increased by 3% to $677 per ounce from $658 per ounce in the first half of 2016, costs on an all-in-sustaining basis declined by approximately 9% to $856 per ounce from $937 per ounce in the first half of 2016, which the company said "remain under control" and are within guidance in the year to date.

Despite, a "marginally weaker" average gold price of $1,235 per ounce during the quarter, operating cash flow of $4.7m in the quarter contributed to a strong balance sheet and supports the funding of the company's Central Shaft project.

Linked to this, Caledonia maintained a broadly stable level of gross cash at $10.9m at the end of the quarter even after funding a further $4.2m of capital expenditure and $0.7m of dividend payments to shareholders.

Irrespective of the backdrop of challenges faced by the company, Curtis said that the company remains confident about achieving the 2017 production target.