Caledonia applauds flexibility with new gold sales model

Zimbabwe’s leading gold miner, Caledonia Mining Corporation, said the new sales mechanism, which allows miners to sell up to 75 percent of their production directly to offshore refiners, mitigates the risks associated with relying solely on a single refining source within Zimbabwe.

It also offers the opportunity to utilise more competitive offshore refiners and potentially secure debt funding against offshore gold sales, the company said in its integrated report for 2023 published this week, a comprehensive document that provides a holistic view of a company’s performance, including its financial, environmental, social and governance aspects.

Under the new sales arrangement, gold miners are obligated to deliver their ore to Fidelity Gold Refinery, a subsidiary of the Reserve Bank of Zimbabwe (RBZ).

It refines the gold to a purity of 99,5 percent on a toll-treatment basis.

With effect from April 2023, 25 percent of the refined gold is sold to Fidelity, while the remaining 75 percent (less statutory deductions) is exported by gold miners to an offshore refiner of their choice.

The 25 percent of gold sold to Fidelity is sold at a price reflecting the prevailing London Bullion Market Association at the official ZiG/US dollar exchange rate on the date of sale. Fidelity pays gold miners in ZiG within 14 days of the sale.

It deducts a refining fee of 1,24 percent from the ZiG sale proceeds and collects half of the 5 percent royalty payable to the Government in physical gold, which is deducted from the amount exported.

The balance is paid in US dollar and ZiG proportionally to the 75:25 revenue split between the green back and the local currency.

During 2023, all gold exports produced by Blanket were sent to AEG.

Caledonia believes that this new sales mechanism reduces the risks associated with selling and receiving payment from a single refining source in Zimbabwe.

“It also creates the opportunity to use more competitive offshore refiners and it may allow for the company to raise debt funding secured against offshore gold sales,” it said.

Caledonia will require fresh capital for its Bilboes project, a substantial, high-grade gold deposit situated approximately 75 kilometres north of Bulawayo and Motapa, which it considers a highly promising and strategically significant asset for its growth ambitions in Zimbabwe.

In November 2022, Caledonia acquired Motapa Mining Company UK Limited, the parent company of a Zimbabwean subsidiary that holds a registered mining lease over the Motapa gold exploration property in southern Zimbabwe, given its location and scale.

Motapa is a large exploration property that adjoins Caledonia’s Bilboes gold project.

The Motapa project is an exploration-stage project without any declared compliant mineral reserves or resources.

The registered mining lease held by Arraskar Investment covers an area of 2 224 hectares in a brownfield exploration and mining region within the Inkosikazi resettlement area, Matabeleland North.

The Motapa Mining Lease spans a geological strike of approximately five kilometres.

As of December 31, 2022, the exploration and evaluation costs for the Motapa project totalled US$8,3 million.

In January 2023, Caledonia successfully acquired Bilboes Gold, which owns the Bilboes gold project in Zimbabwe through its local subsidiary, Bilboes Holdings.

The total consideration for the acquisition was 5,123,044 shares, representing 28,5 percent of Caledonia’s fully diluted shares at the time, subject to adjustment and a 1 percent net smelter royalty on the project’s revenues.

The shares’ value at the time of acquisition was US$65,7 million.

Historical records indicate that the project has produced approximately 294 000 ounces of gold since 1989 using a heap leach process.

Following the completion of the transaction in January 2023, Caledonia initiated its own feasibility study to determine the most effective approach for commercialising the project and maximising shareholder returns.

In the report, Caledonia said Its flagship operation, Blanket Mine, is performing in line with its targets and is poised to achieve its production goals for 2024.

Chief executive Mark Learmonth said the company was on track to achieve its production guidance of between 74 000 ounces and 78 000 ounces of gold at Blanket this year while maintaining a similar production level in 2025.

“(The) 2024 has started well with operating and financial performance at Blanket in line with management expectations,” he said.

“We are on track to meet our production guidance of between 74 000oz and 78 000oz at Blanket in 2024, and are expecting a similar level in 2025.”

The current Blanket mining area encompasses nine ore shoots within the producing section of the mine.

The majority of the mine’s current production is derived from the Blanket, AR Main, and AR South ore bodies.

According to the company, the successful commissioning of the central shaft in March 2021 facilitated a significant increase in Blanket’s production, reaching over 67 000 ounces in 2021, exceeding 80 000 ounces in 2022, and surpassing 75 000 ounces in 2023.

The central shaft project, a six-year endeavour costing approximately US$67 million, has enabled production from three additional levels. Capital expenditure at Blanket in 2024 is estimated to be US$30,8 million.

Planned capital expenditures for 2024 include US$8 million for underground capital development, utilities for the central shaft infrastructure (US$2,1 million), information technology infrastructure, (US$1,5 million), electrical engineering, (US$2,5 million), mill and surface engineering, (US$2,1 million) and employee housing (US$1,4 million).

Over the past decade, Caledonia has spent a total of US$369 million in various activities, including reinvestment in property, plant, and equipment at the Blanket Mine (US$212 million), taxes (approximately US$51 million), and dividends (around US$52 million).-ebsinessweekl