Caledonia Mining’s new daily production record bodes well for Blanket mine targets

Caledonia Mining (LON:CMCL, TSE:CAL, OTCBB:CALVF) demonstrated the progress that’s being made as it ramps up production towards a 40,000 ounce a year target at the Blanket gold mine in Zimbabwe.

In a stock exchange statement, the junior gold miner revealed a record-breaking operational performance for a single day's production. On Tuesday, September 6, a combined 1,361 tonnes of ore was hoisted from the Number 4 and the Lima shafts.

This represents a significant outperformance, some 36 per cent, against the group’s daily production target of 1,000 tonnes of ore. Impressively this also breaks the mine’s all time record for a single day’s production, a record that has stood since 1906.

“This is a tremendous achievement by the management and employees at Blanket, who are to be heartily congratulated, and bodes well for Blanket achieving its future production targets,” said chief executive Stefan Hayden.

While this single day’s work doesn’t necessarily reflect the mine’s usual everyday output, and it is presumably too early for Caledonia to upgrade its official production targets, it is clearly a big positive for the junior mining group.

Indeed it is likely to be taken as a welcome endorsement of the mine, which has been under a cloud following what the company described as “a number of erroneous media reports” regarding Zimbabwe’s indigenisation plans and reports that the mine’s operating licence had been cancelled.

Last week, in response to the media reports, Caledonia’s Hayden told Proactive Investors that there have been no interruptions to production. 

Confirmation that the threat of the licence cancellation was withdrawn by the Minister of Youth, Empowerment and Indigensation is detailed in the signed joint statement published on the 23rd August. It revealed that an agreement had been reached which allowed the company to work on a revised Indigenisation Implementation Plan for the Blanket mine.

Indeed Hayden made personal contact with the indigenisation minister, Saviour Kasukuwere, and they had a number of meetings which has opened a very constructive dialogue between the company and Harare.

“We are now working together on a revised plan, and the minister has withdrawn his request to the minister of mines for Blanket’s operating licences to be cancelled. This is a very good step forward, as we prefer constructive discussion to litigation” Hayden told Proactive Investors.

“We have now established a meaningful and mutually acceptable base for discussion with the Zimbabwe government to move forward. There is currently no clear time frame for these discussions, but we are pressing ahead as quickly as possible and have already commissioned the mutually agreed independent valuation of the Blanket mine.”

“I must stress that there has been no interruption to our mining licences, or the operations, and actually production at Blanket continues to hit new highs.”

The second-quarter results last month showed it is making significant progress towards achieving this milestone. The Toronto and London–listed group revealed that output increased 12 per cent to 8,226 ounces in the second quarter of this year compared with the previous three month period.

Cash operating costs, meanwhile, dropped to US$585 per ounce of gold produced, compared to US$648 in the first quarter of 2011 and US$816 per ounce in the second quarter of 2010.

Gross profit for the second quarter totalled C$6.23 million, over 300 per cent higher than the C$1.53 million achieved in the second quarter of 2010. Net profit before tax for the second quarter totalled C$3.84 million, up 800 per cent on the year earlier. Higher gold prices underpinned the performance, with the average price per ounce sold during the second quarter coming in at US$1,512 compared to US$1,192 in the second quarter of last year.

This increase in production means the company will be throwing off cash at an increasing rate.  At the end of June, Caledonia had gross cash and cash equivalents of just over C$5 million, compared to C$2.22 million at the end of the first quarter in March.