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Another miner bemoans Zesa power cuts


Caledonia Mining group says Zesa’s unscheduled power cuts stoked the cost of producing gold at its Blanket Mine, hurting its earnings for the second quarter.

Although gold production rose 9% in the second quarter over the quarter before, it was produced at a much higher cost as Zimbabwe’s national power utility increased the mine’s downtimes.

It is the second miner after New Dawn to openly blame Zesa for poor earnings. Both resources companies have also announced a decision to diversify to generator-fired power to reduce their exposure to Zesa.

The industry is currently engaged in talks with government and the utility company to agree terms on a proposed independent power importation from Mozambique, wheeling the load-flow through Zesa’s transmission and distribution company.

For the quarter ended June 30, Caledonia reported that Blanket Mine turned in $4,15 million in revenue from the sale of 3 408 ounces of gold at an average price of $1 190,45 per ounce.

The Canada-based company realised a gross operating profit of $1,26 million and a net profit from continuing operations of $322 000 during the quarter.

“Gold production by the Blanket Mine in Zimbabwe was severely affected by electricity supply interruptions which averaged over 30% of available 24-hour operating time during the quarter, despite the installation of standby generating capacity in mid-June,” Stefan Hayden, president and chief executive officer of Caledonia Mining, said.

“The high levels of electricity interruptions contributed substantially to an increase in the average cost per ounce of gold produced due to the high level of fixed costs at Blanket Mine, the lower production and the unproductive labour directly caused by the continual power disruptions.”

In addition, certain cost elements, particularly labour, increased during the quarter. The average cost per ounce of gold produced in the second quarter increased slightly from US$804 in the first quarter to U$$810.”

Gold production in July rebounded to 1 852 ounces, representing over 50% of the production for the entire second quarter.

Increased production in July was attributed to further improvements in the ore feed grade and yield.

Hayden said during the quarter under review work on the No. 4 shafts expansion project continued, albeit with frequent interruptions due to the high level of power supply interruptions.

Progress on the project is now behind schedule by two weeks.

“Following the installation of the standby generator, work on this project has been accelerated and it is anticipated that the underground installations will still be completed before the end of the third quarter as originally planned. Commissioning and ramp-up of production to an annualised rate of 40 000 ounces of gold per annum will commence in the fourth quarter,” said Hayden in a trading update to shareholders.

He said the company continued to appraise the capital costs and potential returns from exploration and development opportunities at Blanket and its other properties.

Hayden noted that the returns on such projects would be influenced by, inter alia, assessments of long term gold prices, the cost and availability of capital, an assessment of the future tax regime in Zimbabwe, the availability of electrical power for these projects and Blanket’s obligations to implement indigenisation and the terms of a resultant indigenisation transaction.

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