Caledonia Mining says it plans to invest US$250 million over three years to develop Bilboes Mine, once it completes the takeover of one of Zimbabwe’s most prized mining assets.
Last week, Caledonia announced it had agreed a deal to take over Bilboes for US$53.3 million in Caledonia stock plus a royalty on revenues. Estimates show Bilboes could produce an average of 168,000 ounces of gold per year over a 10-year life of mine.
“The cost of building a 170,000 ounce a year mine will be about US$250 million, spread over three years, some very substantial investment opportunity,” Caledonia CEO Mark Learmonth says.
Options for raising the money include loans, equity, and using retained earnings.
“We are engaged with international debt providers to provide as much debt as possible. The balance of that will come from equity. If none of those add up to US$250 million, we will then fall back on a two-phased project, which would see a first initial phase of 60,000 ounces, then move on to the second phase,” he said.
“So, even if equity markets aren’t amenable – and the environment is not great right now – we will still continue to do the project with just using our own internal cashflows.”
Caledonia has so far used internally generated resources to expand Blanket Mine and build a war chest for acquisitions.
Caledonia: Options and guarantees
Bilboes shareholder Victor Gapare says his company had considered several options, including selling the asset or listing Bilboes directly. They settled on the Caledonia deal as it presents the best chance to develop the operation.
“What we wanted was to show that we can have large scale gold mining projects in Zimbabwe. We believed we had a large enough resource to establish a mid-tier gold mining business, so we spent a lot of time doing exploration,” Gapare said.
“It’s a project which will require a lot of money. Even with the risk associated with Zimbabwe, if you have a large enough resource, you can attract the capital required.”
The transaction will only go through if Bilboes gets guarantees from government that it will be able to sell its own gold and retain all its earnings. Miners can only keep 60% of their earnings in US dollars, with the rest sold to central bank at the official exchange rate, which cuts into companies’ earnings.
But Caledonia hopes to leverage on its listing on the Victoria Falls Stock Exchange, where companies can keep 100% of their earnings from incremental gold production, such as the extra 168,000 ounces that Bilboes could deliver to the group.