ZIMBABWE gold mining firm, Caledonia Mining Corporation, said a shortage of foreign exchange could impede its ability to complete a capital project at its Blanket mine which it said was critical in reaching its 80,000 ounce a year target by 2021.
“Difficulties in obtaining sufficient foreign exchange may jeopardise Caledonia’s ability to implement the Central Shaft project as planned,” the company said in its third quarter results published today in which adjusted share earnings fell 17% year-on-year. The lower earning number was blamed on a weaker gold price and higher production costs.
Net cash from operating activities was “robust” at $6.8m, the company said, although it acknowledged cash was lower than the comparable quarter which was an unusually strong quarter. Net cash at the end of the quarter was $5.9m.
Foreign exchange restrictions via a government directive to control 85% of receipts were hammering precious metals miners across the board in Zimbabwe.
Under Zimbabwean law, producers of bullion sell production via the central bank in which they surrender 85% of their foreign exchange receipts. In return, they receive local bank transfer funds which the government rates at 1:1 to the US dollar. Then they wait for their foreign denominated payments cleared by the central bank which is now delaying effecting such transactions owing to foreign exchange shortages.
RioZim, another gold producer in Zimbabwe, recently mothballed mines owing to the shortages and is considering taking court action. Caledonia Mining said it anticipated that its Central Shaft extension would be completed, although there were risks.
“Recent changes in the banking environment in Zimbabwe and the chronic shortage of foreign exchange in Zimbabwe may present challenges with regards to operating cost inflation, and the ability to implement the capital investment programme at Blanket and to externalise cash from Zimbabwe,” said Steve Curtis, CEO of Caledonia Mining.
“Operations at Blanket are currently continuing as normal and the situation is being closely monitored by management and is receiving the highest levels of attention from Zimbabwean Monetary and Government authorities,” he said. “Caledonia is actively and constructively engaged at the appropriate levels in government on a regular and ongoing basis.”
The company also confirmed that it would consider acquisitions saying it intended “… to evaluate further investment opportunities in Zimbabwe that may not fall underneath Blanket’s ownership”.
According to a report by Reuters, Caledonia Mining is among the bidders for assets the Zimbabwean government has put under the hammer.
These are assets owned by state-owned mining company, Zimbabwe Mining and Development Corporation (ZMDC), which are being sold by the southern African country in an effort to cut costs. The winners of the bids would be announced in about two weeks with more mines to be sold by end-November, said Reuters citing Zimbabwe mines minister, Winston Chitando in a report on November 5.
ZMDC will either sell outright, or seek joint ventures, for the mines, most of which are either operating below capacity or under care and maintenance, Chitando said. “As government, we would like to see each and every asset owned by ZMDC getting into production,” he said.
