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Caledonia Mining (LON:CMCL) expects the benefits of expanding the Blanket gold mine in Zimbabwe to be seen in higher production and earnings from the start of 2016.
Production from the 49% owned Blanket dipped to 9,960 ounces (10,241 oz) in the three months to March, which Caledonia said was in line with its targets.
Sales were 10,773 oz (12,210) at a price of US$,1200, which alongside a rise in cash costs meant net profits fell to C$1.6mln from C$2.4mln.
Cash generated dropped to C$3.4mln from C$6.2mln, but this was still a strong result according to the company.
Steve Curtis, chief executive, said work is currently underway on four shafts at Blanket including a new central shaft.
A new Tramming Loop is scheduled for completion three weeks early and the 6 Winze project remains on target to start production build-up in January 2016.
"On-mine cost control remains good and we have initiated measures to reduce the level of general and administrative costs.
“As production begins to increase from the first quarter of 2016, I expect that average costs per ounce will start to fall."
Caledonia expects production at Blanket to increase to around 80,000 ounces annually once the expansion work in completed.
The dividend for the quarter was maintained at a 6c per annum equivalent, while payments to the local community were C$1.8mln (C$3mln).
Exploration at Blanket Mine below the 750m level and two satellite projects, the GG Project and the Mascot Project, had established the existence of multiple mineralized zones with potentially favourable gold grades.
Caledonia said there had been a fatality at GG on April 30 during the course of the exploration work.
Broker Sanlam repeated a 'buy' stance on the shares. The target is 92p.
It noted the results were "actually good" bearing in mind the lower grade patch Blanket was working in, and that the first quarter was an expected "soft quarter".
"An investment in Caledonia is based on the growth profile from FY16 onwards and falling production costs, not on trading in the current periods," said analyst Charlie Long.
Meanwhile, SP Angel noted: "The development of the deeper levels at the Blanket mine is a strategy to secure the long term future, however much of the mineralisation at depth will need to be upgraded from its current “inferred” level to facilitate mine planning."
Caledonia shares were unchanged at 41.5p each.