LocalNews

Zimbabwe’s economic status quo impacts on Caledonia’s financial performance

By Business Reporter – Friday 22 March 2019

HARARE (Mining Index) –  BLANKET Mine’s 2018 gold output, gross profit, attributable profit, net cash and cash equivalents, net cash from operating activities and adjusted earnings per share (EPS) were reportedly lower at the back of higher on-mine costs.

“Costs in the Year and the Quarter were higher than expected due to a combination of increased prices for cyanide and steel, the increased cost of a larger fleet of trackless equipment which operates in the declines and the adverse effect of lower than expected grades,” revealed Caledonia Mining Corporation Chief Executive Officer Steve Curtis.

Cash generated by operations before working capital decreased to $25.8 million, compared to $26.8 million in 2017.

“Production for the Year was lower than in 2017 primarily due to an unplanned lower recovered grade as a result of added dilution due to the adoption of long-hole stoping in certain areas for safety reasons. Provided the drilling is accurate and the shape of the reef does not vary too much, long-hole stoping is an efficient mining method; however, drilling accuracy and choice of the most suitable areas to use this methodology is essential to reduce the dilution,” said Curtis.

“Blanket delivered a robust performance, despite the well-known challenges of operating in Zimbabwe,” he noted, adding that “The monetary environment in Zimbabwe became more challenging following changes in policy although the general direction of policy development appears to be positive.”

Curtis said notwithstanding these challenges, the financial performance of the Company remained robust, recording a net profit attributable to shareholders of $10.8 million from $9.4 million the previous year.

Working capital increased by $4.7 million in the Year compared to a reduction of $2.1 million in 2017, with the growth attributed to increase in amounts due in respect of gold sales and VAT refunds from the Government of Zimbabwe and a reduction in trade and other payables.

“Policy changes disrupted the commercial banking system in October 2018 and February 2019 which adversely affected procurement,” he said.

In October 2018, Finance minister Mthuli Ncube introduced the 2 percent tax, resulting in most suppliers, not sparing the mining sector, reviewing upwards their retail selling prices (RSP).

Curtis said delays in procuring critical items meant that capital equipment suffered from a lack of maintenance which increased the frequency of breakdowns.

In a similar incident , RioZim in September last year temporarily closed three of its mines Cam and Motor, Renco and Dalny mines citing foreign currency bottlenecks hampering its operational viability.

This followed change in policy by the apex bank in November 2018 which saw large scale miners retaining 55 percent of foreign currency from mineral exports to allow them recoup production costs, up from 30 percent of their export proceeds which they were previously getting, with the balance of 45 percent retained by government.

“We are optimistic that the introduction of a market exchange rate in February 2019 will, in time, allow a return to normal operating conditions,” he said.

In February this year, the reserve bank liberalised the exchange rate from the previous US$1 : $1 bond/transfer which has seen the rate hovering around 2.6 within the formal banking system compared to 3.5 on the parallel market. ENDS//

 

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