Caledonia Mining plans to invest about $70 million on the implementation of a new mine plan at Blanket Mine over the next five years
Business Reporter
CALEDONIA Mining Corporation has de-risked the revised investment plan for its $70 million development of Blanket Mine to the end of 2017 with mining largely confined to indicated and measured reserves.
According to Edison Investment Research, only 3 percent of the mining between 2015 and 2017 will come from inferred resources while the bulk of the investment will be spent in that period.
Edison also noted, in terms of other risk sensitivities, that the company has since the last two years, been fully compliant with the country’s indigenisation requirements without any amendments.
Caledonia is a Canadian-registered mining company listed on the Toronto Stock Exchange.
The only amendment to indigenisation plan was driven by Caledonia Mining due to its intention to reinvest all of Blanket Mine’s free cash to modernise and safeguard the mine’s future production growth.
Blanket Mine’s revised investment plan also includes new mine development.
Caledonia said the $70 million plus investment endorses Zimbabwe as a worthy investment destination, with Government showing its support by allowing Blanket’s Mining dividend distribution to be put on hold until early 2016 as all cash flow will be used to fund the new investment.
“The most important point to take from the revised investment plan is that the majority of capital expenditure will be spent during the 2015-17 period, totalling $50m,” the research note says.
“During this time, 97 percent of planned gold production will come from the mining and processing of indicated and measured category mineral resources (according to the 1 December 2014 PEA), with only 3 percent from inferred mineral resources,” Edison’s report added.
The plan indicates declining production from ore reserves, which are largely above 750 metres, from 42 000 ounces in 2015 to only 6 000 oz by 2021, with a corresponding increase in production from inferred mineral resources from 2016 (4 000-5 000 oz in 2016) to 70 000-75 000 oz by 2021.
“Note that 97 percent of the $70 million capital expenditure needed to complete the revised investment plan is paid back by gold production coming from mining higher confidence measured and indicated mineral resources and ore reserves,” the research report said.
This coincides with the main period of capital investment, completion of the central shaft and where capital development becomes ore development in the south-east corner of the mine.
After 2017, production from currently defined ore reserves will start to taper off until 2021 and conversion of inferred material to ore reserves will likely mean production will continue to be dominated by de-risked production beyond 2017 as Caledonia will continue to undertake resource upgrade/reserve definition drilling alongside production and mine development.
Management states that the historical resource to reserve conversion factor at Blanket is 100 percent.
Caledonia’s revised investment plan seeks to address concerns over the future flexibility of mining Blanket’s ore body and extending the mine’s life.
The investment plan outlines increased infrastructure spending to improve access to ore from surface as well as underground.
This will now occur through existing shafts and a new main central shaft. Additional underground development will also resolve existing haulage bottlenecks that have restricted simultaneous transport of ore and waste.