Gold company Caledonia Mining (CMCL) is set to acquire a former Anglo American gold project in Zimbabwe for $53mn (£44mn) in shares, issued in New York, and a 1 per cent royalty
The move aims to increase the firm’s production to over 250,000 ounces (oz) a year from the current 80,000. The seller, a local company called Bilboes, is half-owned by a former Anglo American employee, 24%-owned by the Baker Steel Resources Trust (BSRT) and 26%-owned by a British Virgin Islands-registered investment firm. Bilboes owner Victor Gapare will become an executive director at Caledonia if the deal goes through. The asset changed hands after Anglo American quit Zimbabwe 20 years ago.
Open pit operation
Caledonia foresees an open pit operation producing up to 168,000oz a year, although a new feasibility study will be put together once the deal is completed. This would cost around $250mn, and a cheaper option which could be funded from cash flow would be an 80,000oz-a-year option that would be expanded down the line.
Caledonia has asked the government to guarantee it will be able to export its gold and sell it for US dollars, instead of the arrangement for the current mine, where gold is sold to the Zimbabwean central bank. Secondly, Caledonia wants to confirm adequate power will be available to run a mine. It has struggled with electricity supply at the Blanket mine.
“We now have the potential to become a gold producer of substantial scale. At the price paid the deal would support higher cash flow and dividends per share. Caledonia has paid a consistent dividend for a decade, even during the downturn when gold was trading below $1,100 an oz. It has also recently finished a major expansion project at Blanket, building a new mine shaft to increase production. Gold sales hit a record high of $121mn in 2021,” said Caledonia chief executive Mark Learmonth
The company has been chasing this project since 2016. Mining has already taken place but only of the shallow oxide ores, and this will start up again soon after Caledonia agreed to fund this work to generate some cash from the mine, even before the deal has closed. Learmonth said the company’s valuation meant raising cash to buy a mine or prospective mine outside Zimbabwe was not possible, but underlined the company’s expertise in the country. Caledonia has a P/E ratio of 3.9 times, compared to Centamin (CEY), which also has a single gold mine but in Egypt, and is rated at 8.8 times earnings as per FactSet.