Caledonia Mining Corporation's New Sales Mechanism Reduces Risks and Expands Refining Options for Zimbabwean Gold Miners

Strategic Insights -

Caledonia Mining Corporation, the leading gold miner in Zimbabwe, has introduced a new sales mechanism that allows miners to sell up to 75 percent of their production directly to offshore refiners. This move mitigates the risks associated with relying solely on a single refining source within Zimbabwe and offers the opportunity to utilize more competitive offshore refiners. The company, in its integrated report for 2023, explained that the new sales arrangement enables gold miners to deliver their ore to Fidelity Gold Refinery, a subsidiary of the Reserve Bank of Zimbabwe (RBZ), which refines the gold to a purity of 99.5 percent on a toll-treatment basis. While 25 percent of the refined gold is sold to Fidelity, the remaining 75 percent (less statutory deductions) is exported by gold miners to an offshore refiner of their choice.

Key Takeaways:

  • The new sales mechanism allows miners to sell up to 75 percent of their production directly to offshore refiners, reducing the risks associated with relying solely on a single refining source within Zimbabwe.
  • 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), which refines the gold to a purity of 99.5 percent on a toll-treatment basis.
  • 25 percent of the refined gold is sold to Fidelity at a price reflecting the prevailing London Bullion Market Association at the official ZiG/US dollar exchange rate on the date of sale.
  • The remaining 75 percent (less statutory deductions) is exported by gold miners to an offshore refiner of their choice.
  • Caledonia Mining Corporation plans to require fresh capital for its Bilboes project, a substantial, high-grade gold deposit situated approximately 75 kilometers north of Bulawayo and Motapa, which it considers a highly promising and strategically significant asset for its growth ambitions in Zimbabwe.
  • Caledonia has acquired Bilboes Gold, which owns the Bilboes gold project in Zimbabwe, through its local subsidiary, Bilboes Holdings, for a total consideration of 5,123,044 shares and a 1 percent net smelter royalty on the project's revenues.
  • The company's flagship operation, Blanket Mine, is performing in line with its targets and is poised to achieve its production goals for 2024, with chief executive Mark Learmonth stating that the company is on track to meet its production guidance of between 74,000 ounces and 78,000 ounces at Blanket this year.
  • The Blanket mining area encompasses nine ore shoots within the producing section of the mine, with the majority of the mine's current production derived from the Blanket, AR Main, and AR South ore bodies.
  • Capital expenditure at Blanket in 2024 is estimated to be US$30.8 million, with planned expenditures including US$8 million for underground capital development, utilities for the central shaft infrastructure, information technology infrastructure, electrical engineering, mill and surface engineering, and employee housing.

Statistics:

  • The new sales mechanism allows miners to sell up to 75 percent of their production directly to offshore refiners.
  • The 25 percent of refined 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.
  • The total consideration for the acquisition of Bilboes Gold was 5,123,044 shares, representing 28.5 percent of Caledonia's fully diluted shares at the time.
  • The shares' value at the time of acquisition was US$65.7 million.
  • Historical records indicate that the Bilboes gold project has produced approximately 294,000 ounces of gold since 1989 using a heap leach process.
  • Caledonia has spent a total of US$369 million in various activities over the past decade, 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).

Sources:

  • Caledonia Mining Corporation, Integrated Report for 2023
  • Reserve Bank of Zimbabwe (RBZ)
  • London Bullion Market Association
  • Motapa Mining Company UK Limited