Caledonia unwinds Zimbabwe indigenisation deal taking stake in Blanket mine to 64%

Blanket mine, Zimbabwe

CALEDONIA Mining has increased its stake in its Blanket gold mine to 64% after cancelling a shareholder loan dating back to 2012 when the firm sold a stake in the mine to comply with late former president Robert Mugabe’s indigenisation policy.

The Toronto-listed company bought 15% of its shares from Fremiro Investments which was one of three companies that bought 41% of Blanket mine and included Zimbabwe’s National Indigenisation and Empowerment Fund and an employee trust which owned an additional 26% in the mine.

The share in Blanket were bought from a vendor-facilitated loan of $30m which was shared on a pro-rata basis between the new shareholders.

In 2018, however, the Zimbabwean government amended the indigenisation act for gold mining businesses enabling the buy-back of the shares. In addition to cancelling Fremiro’s share of the $30m loan, Caledonia also issued 727,266 new shares at an issue price of $7.15 per share, equal to 6.3% of the company.

The gross consideration for Fremiro’s shareholding in Blanket is about $16.7m, Caledonia said in a statement.

Increasing exposure to Blanket gold mine is a positive development for Caledonia shareholders especially as the company nears completion of the mine’s expansion from a 55,000 ounce per year gold producer to 80,000 oz plus in about two years’ time.

Steve Curtis, CEO of Caledonia, said earlier this month that he expected 2020 to be “a landmark” year for the company largely owing to the expansion of Blanket which achieved record fourth quarter production of 16,876 oz.

The production amounts are small in absolute terms but Caledonia is relevant as it’s an outlier in terms of being able to successfully operate in Zimbabwe despite foreign exchange and electricity supply problems.

On July 5, it unveiled a 9% lift to its quarterly dividend – an increase it said was motivated by an increase in production and the stronger dollar gold price.

Curtis said the firm’s board would review future dividend distributions “as appropriate” whilst considering the balance between delivering returns to shareholders and pursuing new growth opportunities in Zimbabwe.

Caledonia said in March that it was considering investing in new opportunities in Zimbabwe once it had completed the Blanket expansion. “If you believe things will be better in five years’ time, you have to get in now,” Mark Learmonth, Caledonia’s CFO, told Reuters.

“We’re not talking about a big, producing mine,” he said. “We’re talking about advanced exploration or brownfield, but with good prospectivity. We plan to redeploy some of the surplus cash to be generated by the Blanket Mine,” he said.