Caledonia embarks on expansion strategy buying $2.5m option over Gweru gold prospect

CALEDONIA Mining, the Toronto-listed gold junior, said it had bought a $2.5m option over a gold exploration prospect situated in Zimbabwe’s Gweru mining district, known as Glen Hulme, in the country’s Midlands.

If the exploration of the property is successful, the company will pay a further $2.5m in cash which will give it mining rights over Glen Hulme. Caledonia said the region had historically produced “significant quantities of gold”.

“This agreement represents the first step towards our goal of increasing our portfolio and becoming a multi-asset gold producer in Zimbabwe, one of the last gold frontiers in Africa,” said Steve Curtis, CEO of Caledonia Mining.

The company did not name the vendor, but said a preliminary contract had been signed with the existing drilling contractor and a drill programme had been put in place. Caledonia has the right to drill the property for up to 15 months in terms of its agreement.

The agreement covers a 350 hectare area it described as having “substantial evidence of gold mineralisation including historical mining activity.”

The company had conducted airborne geophysics indicating “attractive exploration targets”, it said. It had also run a preliminary metallurgical work which indicated “favourable grade and recovery”.

The move is an important step-out for Caledonia which has been working on the expansion of its Blanket mine to 80,000 ounces of gold a year from current production of about 58,000 oz/year. The Blanket expansion was almost complete.

“As we approach the completion of the Central Shaft, our production is expected to increase by 45% to 80,000 oz by 2022, we also expect to realise a substantial increase in cash flow as a result of increase production, reduced costs per ounce and lower capital expenditure,” said Curtis.

“This gives us the financial and management capacity to take on new opportunities in Zimbabwe and we are pleased to enter into this option agreement which gives us the right to explore and subsequently to acquire mining claims over this property,” he said.

Caledonia has been connected with a number of potential expansion opportunities in the latter half of this year, especially as the company scales back capital expenditure amid a strong gold price and excellent cash generation.

In October, Curtis signed a memorandum of understanding with the Zimbabwean government to evaluate some of the gold assets of Mining Development Corporation, a state-owned company.

In November, Curtis said at the Junior Indaba, a conference in Johannesburg: “We recognise that being a single asset company won’t move the needle. We see our way with two or three projects of about 350,000 to 500,000 oz/year”.

In terms of the Glen Hulme agreement, Caledonia also agreed to the payment of a one per cent net smelter royalty (NSR) to the vendor on gold it produces from the area.

The NSR can subsequently be bought out at Caledonia’s discretion for a lump sum payment of $15m within the first five years following the acquisition by Caledonia of the claims, or $10m until the tenth anniversary or $5m thereafter, the company said.

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