Caledonia Mining has taken a preliminary step in its Zimbabwe expansion plan, signing an MoU with the government on Monday to evaluate a possible investment in state-owned gold assets.
Now, in the rubble of rusting steel that is Zimbabwe Mining Development Corporation’s (ZMDC) mines, Caledonia must now find an asset that fits into its stated acquisition strategy – finding a small brownfield asset with potential, but one that doesn’t need too much money to get it running again.
President Emmerson Mnangagwa and Caledonia CEO Steve Curtis signed the MoU on Monday. Caledonia already runs Blanket Mine near Gwanda, which is expected to produce up to 58 000 ounces of gold this year.
“I am informed that Caledonia Mining Corporation has investment interest in government’s mining projects. It has thus pledged to evaluate mining rights, properties and projects owned by the government of Zimbabwe,” Mnangagwa said.
“The MoU between my government and Caledonia Mining Corporation is vital as it defines the responsibilities of each party. It further provides scope of authority, clarifies terms, conditions and outlines compliance issues with regards to proposed mining interventions,” he said.
Delighted to have signed an MOU yesterday with the Government of Zimbabwe to review potential investment opportunities & highlights the longstanding commitment that we have to #Zimbabwe pic.twitter.com/eBnqKlFNJH
— Caledonia Mining Plc (@CaledoniaMining) October 6, 2020
Curtis said Zimbabwe was “one of the last gold frontiers” and his company is looking to evaluate any new prospects.
“Caledonia has assessed and continues to assess investment opportunities in the Zimbabwe gold sector that are both privately owned and the portfolio that the government has we are very, very excited to start our excercise in evaluating the potential that are inside of that portfolio,” Curtis said after signing the MoU.
Zimbabwe is desperate for new investment in mining, a sector that the Zimbabwe government wants to grow to a US$12 billion industry by 2023, an unlikely target given that mineral output was only US$2.91 billion in 2019.
Caledonia was among the earliest bidders when six ZMDC mines were put up for sale in 2018. The selloff was later cancelled, with Mines Minister Winston Chitando saying the sale had failed to attract enough quality bidders.
Caledonia’s Blanket Mine has just reported record quarterly output in the third quarter, and will have money to spare for acquisitions once it is done with its current main capital project – the sinking of the central shaft. Commissioning is expected in the first quarter of next year.
The completion of that project will free up more money for new investment. As at March 25, Caledonia had US$12.5 million cash-on-hand and the firm has increased its dividend three times in the past year alone, a much better position than most struggling gold miners in the country.
Caledonia’s acquisition game plan
Speaking on Caledonia’s investment strategy back in May, Finance Director Mark Learmonth said the company was targeting small-sized brownfield investments – or mines where work has been done before.
“The idea is to redeploy some, but not all, of the cash that we’re going to be generating from Blanket to build a growth pipeline which will take us forward for the next decade. Very clearly, we don’t intend to blow all the money on a big high-risk acquisition, it’s much more gradual.”
The company, he said, had looked at dozens of possible buys, but trimmed these down to assess just a few that matched Caledonia’s strategy.
“So, of those two dozen opportunities, we’ve narrowed it down to perhaps four of five that we really like. None of these are large scale producing operations, so we’re not really thinking of splashing out tens of millions of dollars to buy some asset that’s been run into the ground and needs a huge amount of money to be capitalised. That’s not our focus.”
Several other similar investment MoUs signed by the Zimbabwe government have not matured into actual investments, but Mnangagwa said he is keen to make a deal happen and that “bureaucratic and lethargic tendencies are a thing of the past.”
It is unclear which ZMDC mines would still be available for Caledonia.
Recently, the government announced that Landela, owned by Kuda Tagwirei, had won the contract to operate ZMDC mines. Landela is said to have already moved into Sabi and Jena Mines on long term 25-year leases, industry players say.
ZMDC’s remaining gold assets are Elvington and Golden Kopje mines. Golden Kopje, near Chinhoyi, has been shut down for close to a decade but could be a possible fit for Caledonia’s strategy.
ZMDC mines can produce 85,000 ounces, according to ZMDC, but all are small and weighed down by aged equipment and debt.