JOHANNESBURG (miningweekly.com) – Reinforcing its position as a low-cost gold producer, on-mine costs for Caledonia Mining’s Blanket mine, in Zimbabwe, fell from $651/oz in first quarter to $624/oz in the second quarter ended June 30, while all-in sustaining costs fell from $924/oz to $881/oz over the same period. 

The Aim- and TSX-listed miner said in a statement on Tuesday that cost reductions were achieved as a result of improved cost controls, greater operating efficiency and lower sustaining capital expenditure. 

“On-mine costs at Blanket are low and better than expected, primarily owing to the improved metallurgical recovery and reduced cyanide consumption as a result of being able to reintroduce oxygen sparging into the carbon-in-leach circuit.

“Blanket's strong cash generation and Caledonia's robust balance sheet mean that Caledonia and Blanket have the financial capacity to continue to invest with a view to realising Blanket's growth potential,” commented president and CEO Stefan Hayden.

Despite tapering costs, production from the mine narrowed from 11 588 oz in the second quarter of 2013 to 11 223 oz in the period under review, which Caledonia attributed to lower headgrade and lower tonnage throughput.

“The [second] quarter and first half year of 2014 presented significant challenges as a result of the continued low grades, which adversely affected gold production. 

“New production areas have and are being developed to replace those areas where production has been suspended owing to the lower grade. I am confident that the 2014 production target of 45 000 oz will be achieved,” said Hayden.

He added that management interventions to improve grade control had resulted in some improvement from the previous quarter; however, it was likely that the achieved grade in future quarters would continue to be on par or slightly lower than the level achieved in the quarter under review. 

Exploration at Blanket, meanwhile, continued over the quarter, focusing on the potential to extend the mineralisation below the 750 m level and at the Mascot and GG satellite properties. 

Based on recent diamond drill intersections, additional inferred resources amounting to around 500 000 t at 3.9 g/t was added to the Blanket mine mineral resources.

Further work was being done to define the extent and viability of these mineralised zones and their metallurgical amenability to processing.

Elaborating on Caledonia’s strategy for the mine, Hayden noted that the group would to continue to invest in Blanket with the objective of increasing production. 

“[We] believe that the continuation of this strategy is in the best interests of shareholders, as it is expected to increase cash flows and accelerate the repayment of the outstanding facilitation loans,” he noted.

In the first quarter of 2013, Blanket mine embarked on a strategy to increase gold production over the next four years by accelerating the access to resources below 22 Level.

However, since the plan was initiated, the gold price had fallen from around $1 700/oz to its current level of some $1 300/oz and projections for future gold prices had also been significantly reduced. 

“Gold production at Blanket has been lower than anticipated and taxes and regulatory fees in Zimbabwe have increased. While it remains cash generative, the combined effect of these factors means that the rate of cash generation at Blanket is lower than anticipated. 

“Accordingly, [we are] currently reviewing the medium-term capital investment programme at Blanket, with the revised programme expected to be finalised in the fourth quarter. This may result in revisions to the rate of increase in Blanket's production,” the company cautioned.  

Meanwhile, subject to an ongoing evaluation of the investment climate in Zimbabwe, Caledonia has said it would consider additional acquisition opportunities in the country based on their capacity to enhance value for Blanket's indigenous shareholders and Caledonia.

Caledonia could also consider using its financial and managerial resources located outside Zimbabwe to consider any suitable opportunities elsewhere in sub-Saharan Africa. 

Following the implementation of the Indigenisation Act at Blanket in September 2012, Caledonia receives 49% of Blanket's dividend distributions, in addition to receiving the repayments of the facilitation loans of $30-million.