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Caledonia Mining restates output guidance but expects 2016 earnings hit

Last updated: 11:04 02 Nov 2016 GMT, First published: 08:39 02 Nov 2016 GMT

blanket_mine
The Blanket mine is in Zimbabwe

Gold miner Caledonia Mining Corporation PLC (LON:CMCL, TSE:CAL) expects to meet market expectations for revenue but not for profit for 2016, it said, outlining performance at its Blanket mine.

Average grade in October was below expectations, but this is temporary and the Zimbabwean mine is still on track to produce 50,000 ounces of gold this year, the firm told investors.

Underlying performance is expected to be in-line and operations remain robustly cash generative, it added, but earnings per share for the year to end 2016 are expected to lower than expectations, although still significantly higher than 2015.

This is due to various factors, including the strong South African Rand against the US dollar and the increased share price since the start of 2016, meaning share-based expenses are now higher.

Caledonia reiterated that the investment programme at Blanket continues to be implemented as planned, funded internally.

Blanket remains on track to increase production from 42,800 ounces of gold in 2015 to around 80,000 ounces of gold in 2021, it added.

Broker Panmure repeated a 'hold' stance on the shares, noting it had downgraded the stock at the start of September.

Analyst Kieron Hodgson said while he sees longer term value in the firm, short term optimism was too bullish.

The broker reckons the investment programme to increase production to over 80,000 ounces a year by 2021, the low-cost nature of the operation, an unrivalled yield and significant cash resources offer enough incentives for investors to ensure the Caledonia story remains interesting.

"... however, following the latest update we retain our view that taking profits from the exceptional performance in 2016 is preferable," said the analyst.

Caledonia shares dropped 9.43% to 120p on the day.

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