CANADA-based Caledonia Mining Corporation recently revealed that the travel restrictions forced by the global Covid-19 pandemic have affected a key project at its Zimbabwe flagship, Blanket Gold Mine.
The company says this may affect the anticipated build-up in production which is currently expected to be 75,000 ounces of gold in 2021 and 80,000 ounces of gold from 2022 onwards.
In this interview with Seeking Alpha (SA), Caledonia’s Vice President Corporate Development & Investor Relations Maurice Mason gives more details;
SA: The Cantor analyst note stated that “The Company anticipates gold production to ultimately reach the target rate of ~80.0 koz Au in 2022. However, completion of the Central Shaft equipping phase has been delayed by several months (Cantor estimate) due to travel restrictions related to COVID-19.” What is the company’s view of the timing of the Central Shaft project?
Maurice Mason: As we have highlighted in our Q2 2020 MD&A [Management’s Discussion and Analysis] published yesterday and available on our website, the COVID 19 Pandemic and associated lockdowns and travel restrictions had a negative effect on the Central Shaft project in the Quarter. Work on the project was adversely affected because several members of the supervision team returned to South Africa prior to the imposition of travel restrictions. Work has continued with the remaining team, but at approximately half of the anticipated rate. The Central Shaft project also requires specialised contractors to travel to Blanket from South Africa and specialised equipment to be transported from South Africa to Blanket; under the current COVID-19 quarantine requirements such travel is impractical and. At this stage, the equipping is proceeding slower than planned and although this has not yet resulted in significant delays. The Company is receiving high level support from the Zimbabwe Government to address this matter with the corresponding departments in the South African Government. Currently it is not possible to predict when travel and other restrictions will be lifted so that work can resume on the project as planned. Accordingly, it is likely the timetable for commissioning of the Central Shaft will be extended to an indeterminate extent. This may affect the anticipated build-up in production which is currently expected to be 75,000 ounces of gold in 2021 and 80,000 ounces of gold from 2022 onwards; it is not currently possible to provide revised guidance.
SA: If the project completion has been delayed, by how much?
Maurice Mason: As highlighted above the travel restrictions have slowed progress on the shaft equipping but this has not yet resulted in significant delays to the project completion which we currently estimate will still be achievable in the 4th quarter of 2020. Obviously the situation regarding COVID 19 has a high level of uncertainty associated with it and we review the situation on a regular basis.
SA: Are you forecasting gold output for 2021, and if so, how much does the delay impact your forecast?
Maurice Mason: As highlighted in our MD&A [Management’s Discussion and Analysis] and in our response to the previous question, expected production as we ramp up the Central Shaft is 75,000 ounces in 2021 and 80,000 ounces in 2022. If current travel restrictions continue it is likely that the timetable for the commissioning of central shaft will be extended but it is not currently possible to provide an accurate revised estimate.
SA: A Seeking Alpha article on CMCL raised two concerns: Zimbabwe is a terrible mining jurisdiction, and Reserves at Blanket are really low. Please see the article for details. Would you comment on those concerns?
Maurice Mason: We have noted the article on your website. Whilst it is not appropriate for us to respond to specific articles, regarding the two specific concerns you raise please see our views below: Zimbabwe as a mining jurisdiction – Zimbabwe is blessed with very significant gold deposits and from a geological prospectivity point of view we regard the country to be one of the last gold frontiers in Africa. It is a country with a highly skilled and motivated workforce, non-militant trade unions, excellent education and literacy levels, good road infrastructure, adequate water, grid electricity (albeit with some electricity supply issues) and is largely peaceful with low levels of violent crime. Our levels of engagement with government are constructive, and relations are good. On the downside, the economic situation is very difficult, inflation, monetary policy and exchange controls are an impediment to investment and cause problems for our workforce. In our judgement we do not see nationalisation as a significant risk. As an investor in the country we focus our efforts on mitigating the risks but we believe that it is important to take a balanced view of both the positives and the negatives. We believe that on balance Zimbabwe offers very attractive investment returns for acceptable and manageable levels of risk. Our track record of 14 years of operating in country are testament to this. Blankets reserves – Blanket has an operating history of over 100 years. Total resources including M&I and Inferred ounces are approximately 1.8 million ounces with approximately 1 million ounces in the inferred category and 800k ounces in the measured and indicated category. As the central shaft is commissioned we expect to have increased capacity to do deep level drilling for resource delineation as well as having access to deeper ore bodies which will enable reserve development. Historical conversion of resources to reserves has been 100% for many years, whilst investors need to form their own view, we expect this trend to continue.
SA: Thank you, Maurice. Really appreciated.