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Weaker H1 for Caledonia as mine focuses on essential reconfiguration to facilitate longer-term growth

Caledonia Mining has reported comprehensive H1 2017 earnings of US$4.2m against US$5.4m for the same period of 2016. EPS was US27.6c against US38.3c a year earlier, a decrease of 28%. Adjusted EPS was US45.7c against US43.0c in H1 2016.

Net profit attributable to Caledonia’s shareholders decreased from US$4.2m in H1 2016 to US$3.0m in H1 2017. Net profit in the prior period benefitted from the sale of treasury bills issued by the government of Zimbabwe in 2015 (US$2.4m).

Gross profit for H1 improved by 9%, to US$10.7m, on the back of slightly higher gold production and a marginally higher gold price, offset by an 11% increase in production costs.

The company has a 49% interest in the 100-year-old Blanket gold mine, in Zimbabwe, although, through the structure of its indigenisation arrangement, it participates currently in the mine’s cash flow at the much higher level of approximately 77%.

Blanket produced 12.5 koz of gold in Q2 taking the total for first half of 2017 to 25.3 koz, a 9% increase on H1 2016. In Q1, the mine milled 124.2kt of ore at a grade of 3.42 g/t but despite increasing tonnes milled to 136.2kt in Q2, a fall in grade to 3.1 g/t led to a decline in gold produced. The mine still has logistical problems with ore and waste transport underground, which has affected management’s ability to increase output in line with its original plan. Remedial measures have been put in place and in July tonnage and grade improved markedly and management is confident that longer term underground production levels of 1,600 t/d of ore and 400 t/d of waste are achievable.

On-mine unit costs for H1 increased slightly from H1 2016, to US$677/oz (as a result of the lower grade), but AISC fell 9% to US$856/oz on reduced sustaining capital costs and lower G&A.

The Blanket operations generated cash of US$7.9m in the first six months of 2017 and spending on expansion projects and sustaining capital amounted to US$7.5m (down from US$8.2m). The company’s cash position at the end of June was US$10.9m (2016:US$14.3m).

The Central shaft has reached 870m below surface (26 level) and is on schedule for commissioning in H2 2018. The shaft is key to the company’s plans to increase gold production to 80koz/y by 2021.

Due to the logistical constraints underground mentioned above, earlier this year Caledonia revised its gold production guidance for 2017 from approximately 60koz to between 52koz and 57koz. Cost guidance for 2017 is US$615 to US$645/oz for on-mine costs and US$820 to US$860/oz for AISC.

The company is guiding EPS of US120-155c for 2017 (based on a gold price averaging US$1,275/oz for the rest of the year).

The company completed a 5-for-1 share consolidation in June in order to be eligible to trade on the NYSE American exchange (symbol CMCL) and began trading there at the end of July.

Following the share consolidation, the company announced an increased quarterly dividend of US6.875c per share and plans to maintain this rate as its dividend policy.

Weaker H1 for Caledonia as mine focuses on essential reconfiguration to facilitate longer-term growth: CMCL

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