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Mid-term monetary policy to affect Blanket Gold Mine 2019 earnings – Caledonia

 By Business Reporter – Thursday 28 February 2019

HARARE (Mining Index) – CALEDONIA Mining Corporation says the recent announcement of the mid-term monetary policy statement by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya is likely to affect Blanket Gold Mine 2019 earnings.

“Caledonia Mining Corporation Plc (“Caledonia” or the “Company”) announces that following the announcement of a revised monetary policy by the Reserve Bank of Zimbabwe (“RBZ”), the export credit incentive (“ECI”) programme for Zimbabwean gold producers will be withdrawn,” said Caledonia in a press release.

The removal of the ECI programme comes as part of a monetary policy statement which permits bank trading of currency held in local banking system in RTGS dollars and currency held in foreign nostro currency accounts (FCA”) which is capable of being used for payments outside Zimbabwe.

“It is estimated this will reduce Caledonia’s earnings per share (calculated on an IFRS basis) for 2019 and thereafter by approximately US$ 5.4 million or 40 to 46 United States cents per share.”

Caledonia, which holds a 64 percent stake in Blanket Gold Mine, noted with concern the increasing inflationary status quo in the country, coupled with the discrepancies in exchange rate between the new RTGs dollars and the hard currency values in nostro accounts.

“At this stage it is unclear whether this policy will address the increasing inflationary pressure in Zimbabwe by creating a transparent and efficient market exchange rate between RTGS dollars and dollars held in FCAs.”

“The effect on Caledonia’s earnings per share for 2019 is calculated assuming a gold price of $1,300 for the remainder of the year, that Blanket achieves the production guidance for 2019 as announced on January 14, 2019 of between 53,000 and 56,000 ounces of gold and that there are no changes in Blanket’s operating costs,” said Caledonia.

Total gold production for the year to December 31, 2018 was approximately 54,512 ounces, in line with 2018 production guidance ranging between 54,000 to 56,000 ounces.

Caledonia noted that for several years the RBZ has operated an ECI programme in terms of which Zimbabwean gold producers received a premium to the international gold price.

“This premium was initially at a level of 2.5% of gold revenues, which has subsequently increased to 10%. The ECI revenues were received into Caledonia’s real time gross settlement bank account and were therefore not eligible for remittance outside Zimbabwe with a specific allocation of foreign exchange by the RBZ. The ECI revenues were not subject to Zimbabwean income tax.”

Commenting on the operating and financial results for the third quarter of last year, Caledonia’s Chief Executive Officer, Steve Curtis acknowledged the complexity of the financial situation in Zimbabwe which he said may turn out to be an impediment to implementation of Caledonia’s capital projects saying “Recent changes in the banking environment in Zimbabwe and the chronic shortage of foreign exchange in Zimbabwe may present challenges with regards to operating cost inflation, and the ability to implement the capital investment programme at Blanket and to externalise cash from Zimbabwe.” ENDS//

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