CALEDONIA Mining Corporation today announced a major development in its growth strategy in which it will issue $53.3m worth of shares – about 28.5% of its share capital – for the Bilboes gold project north of Bulawayo in Zimbabwe.
“This is a transformational asset for Caledonia, as we embark on the next step in our journey to become a multi-asset, mid-tier gold producer,” said Mark Learmouth, CEO of Caledonia Mining.
The 1.96 million oz prospect – from which there has been limited production of 288,000 ounces since 1989 – could produce an estimated 168,000 oz/year in gold over a 10-year life of mine, the company estimated. This is a multiple of the 80,000 oz/year in production Caledonia currently mines from its 64%-owned Blanket mine, its only operating mine.
The transaction is a signal investment by Learmouth who was appointed CEO of Caledonia earlier this year, although he said the project had been on the company’s radar for “several years”. He added that once in full production, Bilboes would result in “production from the enlarged Caledonia group being potentially four times its current size”.
In terms of the deal structure, Caledonia will issue about 5.1 million shares to Bilboes Gold, the parent company, at a price of Wednesday’s closing price of $10.40/share. Caledonia shares are about 14% over the last 12 months in line with liquidations across the board in the gold sector, but over five years the stock is 64% stronger.
Caledonia will also pay Bilboes Gold a one per cent net smelter royalty on the project’s revenues.
The deal builds on the recent acqusition by Caledonia of the Maligreen prospect which contains inferred mineral resources of 940,000 oz of gold. Caledonia continued to “work at Maligreen which is focused on increasing the confidence level of the resource base,” it said.
Bilboes was formerly owned and explored by Anglo American Corporation Zimbabwe prior to its exit from the Zimbabwean gold sector in 2003.
After a doubling in its dividend over the last two years, Caledonia said in January it would turn its attention to expansion. “Now that the Central Shaft (expansion of Blanket mine) is complete the company can focus on other areas of its growth strategy, predominately de-risking the business from being a single asset producer,” said Steve Curtis, Caledonia’s previous CEO.