The first half of this year has progressed according to plan for Zimbabwe-focused Caledonia Mining in terms of production and costs as the group implemented a revised investment plan at its 49%-owned Blanket gold mine.

However, the company warned last week that expectations for its financial performance should be revised to reflect the recent downward trend of the gold price and the resultant prevailing environment.

Caledonia produced 20 361 oz of gold in the six months to June 30 – ahead of its guidance, but down on the 21 464 oz produced in the corresponding period last year.

The company’s on-mine cash costs reached $699/oz in the first half of this year, compared with the $622/oz achieved in the prior corresponding interim period, owing to lower grades and higher electricity consumption.

This, in turn, led to higher all-in sustaining costs of $984/oz, compared with $890/oz in the interim period the year before.

“On-mine cost control remains good but the average cost per ounce continues to be adversely affected by the lower achieved grades at the current production level. The achieved grade and tonnage production in the [second] quarter and in the half-year were as planned,” Caledonia CEO and president Steve Curtis said.

Gold sales contracted from 23 433 oz in the six months to June 2014 to 21 174 oz in the first half of 2015, with revenue down from $32.6-million to $31-million.

“In recent months, the price of gold has fallen from over $1 200/oz to below $1 100/oz. The lower price of gold will, if sustained, reduce Blanket’s cash generation,” he warned.

The lower first-half average realised gold price of $1 187/oz – a decline on the average of $1 267/oz in the corresponding period last year – in addition to higher on-mine costs, resulted in lower gross profit, from $11.7-million in the first half of 2014 to $8.6-million in the period under review, while the company’s profit for the period fell to $2.6-million from $5.6-million.

The group’s basic earnings a share dropped to $0.03 apiece for the interim period under review from $0.08 apiece last year.

“The lower gold price increases the importance of delivering the revised investment plan as scheduled . . . with successful implementation of the plan [expected to] result in a significant increase in the Blanket mine’s production and operating efficiency,” Curtis explained.

The revised investment plan, first tabled in November, was also expected to reduce the average cost of production and extend the life-of-mine by providing access to deeper levels for production and further exploration.

“I am pleased to report that we have met all of our key milestones and we remain on target for achieving all future milestones,” Curtis said.

As Caledonia sharpened its focus on its core operation and streamlined its corporate structure through the disposal of dormant companies and noncore assets, the company continued sinking, deepening and equipping four shafts at the mine that would deliver higher production from the first quarter of 2016.

“Blanket continues to operate profitably at the lower gold price and production and costs remain as planned and, as production begins to increase, I expect that average costs per ounce will start to fall,” Curtis concluded.