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www.caledoniamining.com
Company Presentation
August December 2011
CALEDONIA MINING CORPORATION
May 2012
2012 AGM Presentation
Disclaimer
2
This presentation does not constitute, or form part of, any offer to sell or issue or any solicitation
of any offer to purchase or subscribe for, any shares in Caledonia, nor shall it (or any part of it) or
the fact of its distribution, form the basis of, or be relied on in connection with, or act as an
inducement to enter into any contract or agreement thereto.
Certain forward looking statements may be contained in the presentation which include, without
limitation, expectations regarding metal prices, estimates of production, operating expenditure,
capital expenditure and projections regarding the completion of capital projects as well as the
financial position of the company. Although Caledonia Mining Corporation (“Caledonia”) believes
that the expectations reflected in such forward-looking statements are reasonable, no assurance
can be given that such expectations will prove to be accurate. Accordingly, results could differ
from those projected as a result of, among other factors, changes in economic and market
conditions, changes in the regulatory environment and other business and operational risks.
Accordingly, neither Caledonia, nor any of its directors, officers, employees, advisers, associated
persons or subsidiary undertakings shall be liable for any direct, indirect or consequential loss or
damage suffered by any person as a result of relying upon this presentation or any future
communications in connection with this presentation and any such liabilities are expressly
disclaimed
Caledonia 2012 AGM Presentation
Contents
1. Operations
Blanket Gold Mine, Zimbabwe
Nama Base Metals, Zambia
2. Financial Performance
3. Corporate Issues
4. Outlook
5. Questions
3
Blanket Gold Mine, Zimbabwe Introduction
4
1. Safety, Health and Environment (SHE)
2. Production
3. Costs
4. Investment
5. Exploration
6. Indigenisation
Blanket Gold Mine, Zimbabwe Safety, Health and Environment
5
• Higher number of restricted work incidents in 2011 is being addressed by training and
SHE programs.
• Incidents in Q1 of 2012 shows improvement on the incident rate in 2011
• No environmental issues
Blanket Gold Mine, Zimbabwe Production
6
• May 2011: 18-22 Level ore
pass commissioned
• Q2-3 2011: rehabilitation of
L18 and L22 haulages
• Q4 2011 production
exceeds quarterly target of
10,000oz
• Q1 2012 production
temporarily affected by
shaft maintenance
• April 2012 production
3,722oz (44,600oz
annualised)
2012 production guidance of 40,000oz: 12% increase on 2011
Blanket Gold Mine, Zimbabwe Production
7
• Grade in 2011: lower grade areas economic to mine; dilutive effect of introduction of
additional long-hole stoping sections.
– Grade is expected to remain stable at approximately 3.8-4.0 g/t.
• Sustained improvement in recovery due to investments in the milling and Carbon-in-
Leach circuits.
– Gold recoveries expected to remain in the 93.0% to 93.5% range
Blanket Gold Mine, Zimbabwe Costs
8
• Downward trend in cash costs per ounce in 2011, despite increased input costs
• Increased Q1 2012 cost per ounce due to lower production and one-off expense items
Blanket Gold Mine, Zimbabwe Capital Investment
10
• Reduced investment requirement
after completion of No.4 Shaft
Project and related works
• New investment restricted to
essential items and low capital,
high return projects until the
investment climate improves
• Post indigenisation investment will
be funded from Blanket cash flows
• Any major investment at Blanket
which requires shareholder
funding will be funded by all
shareholders on a pro-rata basis
• Failure to participate in funding
calls will result in dilution
Blanket Gold Mine, Zimbabwe Exploration
11
• Surplus capacity at the Blanket metallurgical plant means additional ore can be
processed without capital investment or increased fixed overheads
• Two exploration and development programmes are under way to identify incremental ore
• At Blanket Mine the continuations of known ore-shoots via the L22 Haulage development
and exploration
– Target being the identification of up to 10 million tonnes or 1.25moz down to 1,300 m
– Approximately 36 months to revised NI 43-101, followed by feasibility study
• At Blanket’s portfolio of Satellite Properties
– Underground development exploration activities have started at Eagle Vulture and are
scheduled to start shortly at GG and Mascot
– Timing and amount of any future production is subject to exploration
• Illustratively, daily throughput of 1,800tpd would result in gold production of 70,000oz pa
Blanket Gold Mine, Zimbabwe Indigenisation
12
• Zimbabwe Law requires 51% Indigenous Zimbabwean (“IZ”) ownership
• 20 February 2012: Memorandum of Understanding signed: IZ’s to acquire 51% of Blanket
Mine
– IZ owners will comprise employee and community trusts, National Indigenisation and
Economic Empowerment Fund and others
• Transaction value $30.09m ($59m on a 100% basis)
• Vendor-financed
– In the absence of third party funding Caledonia will extend loans to the purchasers
– Loans will be repaid from 80% of the purchaser’s share of future Blanket dividend.
– Interest at LIBOR plus 10% on outstanding facilitation balances
– Loan tenor depends on Blanket’s financial performance and dividend payments
Blanket Gold Mine, Zimbabwe Indigenisation
13
• Caledonia Management is implementing the MoU
– Agreement signed for sale of 15% to Flemiro, a consortium of IZ parties
– Agreement signed for donation of 10% shares to Gwanda Community Share
Ownership Trust which has been established and US$1.0m donation will be
made
– Blanket Employee Trust registered and agreement signed for sale of 10% shares
– Agreement submitted to National Indigenisation Economic Empowerment Fund
for sale of 16% of shares
• Complex taxation and transaction structuring issues have been resolved: no tax
leakage is expected as a result of the transactions
• Completion of all transactions is subject to the necessary RBZ approval for
repatriation of sale proceeds
• Signed agreements confirm Caledonia as manager while any facilitation loans are
outstanding
Blanket Gold Mine, Zimbabwe Indigenisation – The Future
14
• Caledonia’s future earnings will reflect 49% ownership of Blanket
• Caledonia’s cash flows will include
– Blanket dividends (49%)
– Blanket management fee
– Repayment of $30.09m facilitation loans plus interest at 10%
• Caledonia will continue to manage Blanket for as long as the loans remain outstanding.
• Blanket’s budgeted capital investment will be funded from Blanket’s cash flows
– Dividend payments are after capital investment
• Any substantial capital expenditure which requires funding from Blanket shareholders
must be funded on a pro rata basis to avoid dilution
As an Indigenised, cash-generative entity, Blanket will be well-positioned to take
advantage of new opportunities that may arise in Zimbabwe.
Zambian Base Metals - Nama Introduction
15
• Caledonia holds Mining
Licences covering approx
800 sq. km.
• Konkola East: 5 holes drilled in 2011 identified a new copper-bearing mineralised zone
– Adjacent to Konkola and Vale/ARM properties
VALE
VEDANTA
Zambian Base Metals – Nama Substantial Copper-Cobalt Opportunity
16
• New mineralised zone identified in
holes 3, 4 and 5 is considered to be
contiguous.
• The assay results for the 3
intersections have a weighted
average of 0.47% copper over a
weighted average width of 41m at
depths of 280-450 m.
• Holes 3 and 4 are 1,650 metres
apart representing a minimum
strike length of the mineralisation.
• 2012 exploration programme:
• Phase 1:6 holes to identify near
surface extension commenced in
March and 5th hole in progress
• Phase 2: drilling to identify
deeper extension will start after
Phase 1 is completed
2011 Financial Review Overview
17
• Significant increase in revenues due to increased production and the higher
gold price
• Gross profit $29.1m:
– 358% increase on 2010
• Reduction in cash cost to US$521/oz in Q4 of 2011
– Increased average cost in Q1 of 2012 due to short term non-recurring
expenses
• Strong cash generation: $17.4m of operational cash flows before $8.5m of
capital expenditure (development and sustaining)
• Significant taxation and other payments to Zimbabwe Government: US$13.6m
in 2011
• Transition from Canadian GAAP to IFRS completed.
Financial Review Profit and Loss
18
• Royalty rate increases from 3.5% to 7%
• Admin expenses includes $0.3m of
indigenisation costs
• Share based expenses relates to issue of
16m options
• Impairment in respect of South African PGM
assets
• Income tax includes $2.6m of withholding
tax. Higher taxes reflect increased profits
and higher dividend payments from
Zimbabwe.
(C$'m) 12 Months to 31 Dec
2010 2011
Revenues 22.4 55.7
Royalty -0.8 -2.5
Operating costs -12.6 -21.1
Depreciation -2.6 -3.0
Gross Profit 6.4 29.1
Admin expenses -2.8 -3.7
Share based expenses -0.4 -1.1
Foreign exchange 0.4 0.3
Impairment - -3.9
Other -1.1 -
Operating Profit 2.5 20.8
Finance charges 0.0 -0.2
Profit before tax 2.5 20.6
Income tax -1.0 -8.5
Profit after tax 1.5 12.1
Adjusted EPS (basic) (cents)* 0.22 3.14* Adjusted EPS excludes Impairment and Foreign Exchange movements
Financial Review Cash Flow
19
• Strong operational cash flows reflects higher
profit and stable working capital
• Lower capital investment at Blanket; capital
investment at Nama increases from $0.6m to
$2.7m.
• Healthy improvement in net cash available:
further increase in Q1 of 2012 to over $16m
12 Months to 31 Dec
(C$'m) 2010 2011
Cash flow from operations 6.6 25.4
Taxation paid -0.0 -8.0
Net capital investment -7.3 -8.5
Financing 0.2 -0.3
Increase in cash -0.5 8.6
Cash b/fwd 1.6 1.1
Exchange rate fluctuation 0.0 -0.1
Cash c/fwd 1.1 9.7
Financial Review Balance Sheet
20
• Non current assets is after impairment of
Rooipoort
• Increased inventory and receivables reflect
increased production volumes. Majority of
receivables are due from Rand Refineries
and have been received in full
• Improved cash position and further
improvement anticipated
• Blanket overdraft remains well within $2.5m
facility
C$'m 2010 2011
Non current assets 32.0 34.2
Inventories 2.6 4.5
Prepayments 0.1 0.3
Receivables 2.3 3.7
Cash and equivalents 1.1 9.7
Total current assets 6.2 18.2
Total Assets 38.2 52.4
Long term liabilities -7.1 -7.8
Trade creditors -3.9 -3.8
Bank overdraft -0.7 -
Income tax - -
Total current liabilities -4.6 -11.7
Net Assets 26.5 40.7
As at 31 December
Corporate Issues Share Price Performance
22
1. CG Index includes a selection of AIM-listed gold exploration and development companies
Source: Canaccord Genuity
• Mining shares generally have come under significant pressure in recent months
• Gold producers in particular have not performed as well as the gold price
• Caledonia’s share price has underperformed the other mining companies, including the
other listed Zimbabweans
triple-exchange liquidity; weak-holders; North American retail investors
uncomfortable with Zimbabwe risk; conservative growth profile; Caledonia at the
forefront of indigenisation
Corporate Issues Investor Relations Activity
23
• Roll-out of Investor Relations strategy commenced in 2011
Canada USA UK/Other
Institutional • Frequent approaches
to Canadian brokers:
no interest without an
equity raise
• 3 road shows with
Collins Stewart across
USA
• Further assistance is
required
• Collins Stewart initiate
research March 2011, 3
road shows
• Conferences: Mines and
Money; African Mining
Congress; London Spring
Conference; Minesite
Retail/
Private
Client
Brokers
(PCB)
• Renmark appointed
May 2011(replaced
with CHF in March
2012)
• 2 road shows, 115
investors in 5 cities
• Renmark road shows
cover 90 investors in
NYC and Boston
• Further assistance is
required and is being
addressed
• Edison initiate research
July 2011. 2 road shows
• Threadneedle (Dec 2012)
media coverage and PCB
and institutional broker
access
• Proactive: media access,
private client conferences
Corporate Issues Investor Relations Feedback
24
• Zimbabwe uncertainty remains the biggest single obstacle to significant buying.
“The big thing that the company will suffer from is the whole Zimbabwe issue. That’s a
huge shame in my eyes as the project itself, in its own right, sounded good. ”
“If the project was anywhere else I think people would say they are doing everything right.
……The main issue is, and will remain, the huge country risk…..I think many would not
want to take the investment risk at this stage”
• But there are encouraging signs as we get the message out
“We were all surprised with the presentation. We all went in with slightly preconceived
ideas about the company and in particular Zimbabwe and thought it would be a no go.
We were convinced of the story after the presentation and the way they are developing
Blanket and moving it forward really reduces the risk in our minds.”
“There is no doubt…that Zimbabwe is a hard sell at the moment but it seems that the
country is slowly sorting itself out. The company just needs to concentrate on optimising
the mine, expanding the resource and hopefully all will come good.”
Corporate Issues Investor Relations Approach
25
• Continued efforts to educate the investor market preferably via 1-1 or small group
meetings
Short term focus is PCB’s and private clients
Continued efforts to attract institutional buyers
• Encouraging signs of support in UK – particularly from PCB and private clients
• Canadian institutional market is closed without an equity raise, which we do not require
at this stage
• Further efforts to access US market; other markets not yet approached (Europe, Asia)
• Caledonia management to control all marketing:
A “difficult ”story – incoming investors must understand the risks as well as the
rewards
Highly politicised Zimbabwe environment needs careful management of all
marketing messages to avoid adverse effects of flow-back into Zimbabwe
Strategy
26
1. We have virtually completed the Indigenisation of Blanket in accordance with
Zimbabwean law
2. Progress exploration at Blanket’s satellite projects
– Further enhance cash performance
– Demonstrate that we can continue to grow the business as an indigenised operation
3. Continue down-dip exploration at Blanket
– 3-4 year investment horizon is appropriate in the current Zimbabwe environment
4. Continue exploration at Nama
– Exciting potential for a substantial new copper mine in a new jurisdiction
5. Continue to accumulate cash
– Enhances Caledonia’s ability to invest in its existing projects and to take advantage
of new opportunities
Contacts
28
Caledonia Mining
Website: www.caledoniamining.com
Stefan Hayden, President and CEO
Tel: +27 11 447 2499
Email: [email protected]
Mark Learmonth, Vice President
Tel: +27 11 447 2499
Email: [email protected]