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Caledonia Mining Reports Blowout Earnings And Record Production

ProActive Investor:

Caledonia Mining shares rose more than 12 per cent today after it revealed gold production at the Blanket mine had achieved an "all time high" in the third quarter.

From the mine in Zimbabwe, 12,918 ounces of the yellow metal were produced - 12 per cent higher than the 11,560 ounces generated in the second quarter.

And it was 33 per cent higher than the 9,743 ounces produced in the third quarter last year, the firm told investors.

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This morning, Caledonia also revealed that production from underground mining at Blanket in the third quarter to September 30 was the highest ever produced since the mine first recorded production in 1906.

It highlighted that increased gold production, further improvements in recoveries and attention to costs reduced average operating costs to US$508 per ounce from US$547 in the last quarter.

Blanket is now one of the lowest cost gold producers in both Africa and the world, it highlighted.

Meanwhile, its financial position continued to improve with almost $25 million of cash on hand.

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The analyst said that now the indigenisation process is now complete, the new board has refocused on growth and approving a capital investment programme that includes the No.6 Winze development project at the Blanket mine.

This has the potential to increase production by 70 per cent to around 70,000 ounces per annum from 2015, he noted.

"As well as the expansion at Blanket, the company is progressing with its base metal Nama project (Zambia) with a view to releasing a copper resource estimate by June 2013," he added.

"We think this year's production target of 40,000 ounces looks conservative, given nine months production of 33,600 ounces," he concluded.

These earnings and the record levels of production are really good news. The company is consistently building cash and now has $25 million in the bank. That cash level represents nearly 50% of the market cap of the entire company. You may recall that I recently wrote a letter to the company management asking about the possibility of a dividend or share buyback. They said that because they have recently completed the indigenisation process they will now discuss with the board how the company will proceed on a going forward basis. I am an advocate of making investments in more gold production, at a reasonable cost, in Zimbabwe. I am not a fan of spending money on the Nama project in Zambia. Nevertheless I am inclined to give them the benefit of the doubt for now but I am hopeful that long suffering shareholders will be rewarded fairly soon.

Disclosure: I am long OTCQX:CALVF.