Blanket Mine April production recovers from QI slump

Blanket Mine recently won the Zimbabwe National Chamber & Commerce award for the most improvement of the year, based on figures from the Reserve Bank of Zimbabwe Mark Learmonth, VP Corporate Development & Investor Relations at Caledonia Mining told the 89th Minesite forum held in London last week that gold production at the mine has tripled since the first quarter of 2010.

He however noted that the first quarter production had temporarily been affected by maintenance work. But overall there had been strong and sustained increases in EBITDA.

According to figures from Fidelity Printers, Blanket Mine’s deliveries in the first quarter were at 323.211kgs. The deliveries had started out slow in January at 95kg and further slumped to 87.52kgs in February and then rose to 140.7kg in March.

Learmonth said Blanket was a low cash cost producer with the group experiencing a reduction in cash costs per ounce in 2011. “There was a temporary increase in costs in the first quarter 2012 due to lower production and high fixed costs.”

Investments in milling and CIL circuits had increased recoveries and reduced the quantity of the consumables to produce each ounce of gold. Cost per tonne processed fell to US$27,40 per tonne in the first quarter this year from US$29/tonne in the same period last year.  Cyanide usage had reduced from 1,4kg/t processed to 0,67kg/t processed.

Gold recovery increased from 92% in 2010 to 93.4$ in the fourth quarter of 2011 and April 2012. Learmonth said Blanket’s cash costs were highly competitive as they benefitted from tight cost control, amenable mine environment, an efficient metallurgical plant and efficient labour structure.

Cash costs were around US$648 per ounce in the first quarter, but had now come down to US$521 an ounce which was relatively low compared to other African gold miners. New Dawn, its neighbour in Matabeleland had cash costs of above US$1 000.

In terms of reserves, Learmonth said reserves and resources above 750m supports 14 years production at current 40 000 ounces per annum production level.
“The existing mine plan gives ample time for further exploration and development with un-interrupted production.” It’s expected that resources will increase as a result of exploration over the next 24-36 months.

Blanket has 18 Brownfield exploration projects close to the current mine. Learmonth said the immediate focus will be on the GG and Mascot Project Area. The GG satellite project is 7kms away from Blanket while Mascot Satellite project is 42km from Blanket.

Mascot has 3 old mines, Mascot, Penzance and Eagle Vulture with shafts and infrastructure. Learmonth said the Eagle Vulture mine had been re-opened and de-watered adding that depending on exploration results, mine plan could be developed in mid-2012. Mascot electricity connection was virtually complete and Zesa was doing its final testing.

Learmonth said that the indicative capital cost was approximately US$600 000 per shaft. Learmonth said that the group was self-funded with no debt and had US$16,3 million cash in treasury outside Zimbabwe and no necessity to raise funds.

Learmonth said that where Zimbabwe becomes challenging is on indigenisation. The company signed an MoU in February to allow the acquisition of 51% of Blanket Mine for US$30.09 million, vendor-financed.

He noted that the value attached to the stake is considerably higher than Caledonia’s current market capitalisation. “I challenge anyone here to show me any similar empowerment transaction that was done anywhere near, let alone above the market capitalisation, in South Africa or anywhere else for that matter.

Vendor-financing is a methodology developed in South Africa for its empowerment processfor buyers who did not have access, buyers did not have access to funds to facilitate the transfer of stakes. The company sells the stake on loan accounts and the buyer repays the loans through future dividends. Learmonth said that while there were flaws with the process; “in cash terms, the cash effect for the coming years may not be significant at all.”

The group expects the empowerment transaction to be completed by the end of this quarter though Learmonth added that the pace of which the transaction with the wealth funds willbe implemented is largely out of their control is largely out of their control.

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