AIM and NYSE-listed gold producer Caledonia Mining Corporation is approaching the end of a multi-year, +US$70 million investment in establishing a new shaft at the historic Blanket gold mine in Zimbabwe.
When the Central Shaft project is completed later this year, Blanket’s gold production is expected to increase from its current level of approximately 55 000 ozpa to 80 000 ozpa from 2022 onwards, CEO STEVE CURTIS tells CHANTELLE KOTZE.
The Central Shaft project, which aims to unlock additional resources from deep underground, forms an integral part of the company’s life of mine extension plan at Blanket and has been in progress since early 2015.
Upon completion of the project, gold production at Blanket mine is expected to progressively increase to 80 000 ozpa of gold by 2022.
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Caledonia has demonstrated significant business resilience in the face of the COVID-19 pandemic but due to government imposed lockdown restrictions and not being able to get the required specialist contractors and equipment to the mine at the right time, the Central Shaft project is tracking three months behind schedule.
Notwithstanding the negative effect of the coronavirus pandemic on supply chains and operating arrangements, Blanket managed to deliver robust production results for the first nine months of 2020 (42 896 oz of gold) and managed to increase its gold production by 11% year-on-year to 15 164 oz during the quarter ended 30 September 2020.
Demonstrating the strength of the business, Caledonia increased its production guidance for 2020 from 53 000 to 56 000 oz to 55 000 to 58 000 oz.
On the back of stable production, a high gold price and good cost control, the company also paid three quarterly dividends this year all of which were an increase on the last, totalling a cumulative 45% increase in dividends in the past year.
The latest dividend paid to shareholders in October of US$0.10 is an 18% increase from the previous quarterly dividend of 8.5 cents paid in July 2020, 7.5 cents in May, all of which are up from the 6.8 cents paid in October 2019.
As the company approaches the end of the six-year investment programme at Blanket, Curtis is confidence in the sustainability of the higher level of dividend distribution as the rate of capital expenditure starts decreasing in 2021.
The combination of rising production and declining capital investment will provide the company with greater flexibility to consider further increases in the dividend.
Central Shaft nears completion
The Central Shaft, sunk to a depth of 1 208 m at shaft bottom in July 2019, is currently being equipped. Shaft equipping on track to be completed in Q4, 2020, followed by commissioning by the end of Q1, 2021.
Prior to the execution of the Central Shaft project, Blanket mine operated to a depth of 750 m, accessed via No.4 Shaft. The Central Shaft project will allow the addition of three new production levels to the mine below the current 750 m level – on 26 (870 m), 30 (990 m) and 34 (1 110 m) levels, as well as a fourth production level on 38 level (1 230 m below surface) which will be accessed via a decline shaft.
The Blanket mine comprises five significantly independent near vertical ore bodies and is currently operated from the single No.4 shaft. The establishment of Central Shaft – aptly named because of its central location in relation to the five ore bodies – will enable the access of deeper ore bodies more efficiently.
Curtis explains that No.4 Shaft is located on the extremity of the ore bodies, which only allows for mining to take place in one direction. The positioning of the Central Shaft, will allow mining to take place in both directions along the 3 km strike on all three levels – reducing worker’s traveling time significantly and allowing for more efficient mining to take place.
The greater capacity of the Central Shaft, with a hoisting capacity of 3 000 tpd will allow more ore to be mined, hoisted to surface and resultantly processed at the existing 3 500 tpd CIL processing plant.
Curtis explains that while additional crushing and milling capacity will need to be installed, the overall mining and processing flowsheet will be better balanced once Central Shaft is in operation and allow for further operational efficiencies to be achieved going forward at the already low-cost mining operation.
Moreover, the expected tons that need to be hoisted to achieve 80 000 ozpa of gold production is in the region of 2 100 to 2 200 tpd, which means there will still be spare capacity, which bodes well for the long-term life of the mine and its machinery, says Curtis.
Strengthening the energy mix at Blanket
Despite having access to grid power in Zimbabwe, Caledonia is at an advanced stage in implementation of a 12 MW solar photovoltaic power plant at Blanket, which could supply the mine’s baseload demand during peak sunlight hours.
This would help further reduce the mine’s dependence on the country’s vulnerable electricity grid, reduce operating costs incurred when using diesel-generated power and ensure a more environment-friendly and sustainable electricity supply.
Having raised the required funds to construct the solar power plant to supply electricity to the Blanket mine, Caledonia appointed experienced renewable energy provider Voltalia as the engineering, procurement and construction (EPC) contractor for the project – a company with experience in the development, construction, operation and maintenance of solar power plants in Burundi, Malawi and South Africa.
The proposed solar project will supply approximately 27% of the mine’s total electricity demand during daylight hours, significantly reducing the risk to the mine of any further deterioration in the quality of grid power which would necessitate increased use of diesel generators.
The solar plant will only be for daylight usage, but as the owner of the solar plant, Caledonia has the option to install battery storage in future should it become economically feasible to do so, which would enable 24-hour operation, explains Curtis.
The company has received a generating licence and the necessary approvals from the Zimbabwe Investment Authority, while Caledonia and Voltalia have agreed an initial design phase for the project.
Subject to the conclusion of an EPC contract, procurement and construction are expected to begin with current indicated commissioning for the solar plant in the last quarter of 2021.
A proposed second phase, which could increase the size of the solar power plant to 18 MW, may be on the table if required in future.
Zimbabwe remains highly prospective for gold
Caledonia believes Zimbabwe is a highly-prospective region for gold discoveries and has assessed and continues to assess investment opportunities in the Zimbabwe gold sector.
As a single asset company in a cash position and with an appetite to acquire additional Brownfield assets, Caledonia signed an agreement with the Zimbabwean government under which Caledonia will evaluate mining rights, properties and/or projects in the gold sector that are controlled by the government with a view to assessing the potential to advance development on these properties or projects.
Curtis believes that the signing of this agreement is very timely as Blanket mine is approaching the end of the investment in the Central Shaft.
“The increased level of production which will be realised from the Central Shaft project, in conjunction with the higher gold price, means that we should have the financial capacity to consider further meaningful investments in the Zimbabwean gold sector,” says Curtis.
The signing of this agreement with the Zimbabwean government was welcomed by Winston Chitando, Minister for Mines and Mine Development, who supported the notion of Caledonia applying its experience, technical expertise and its financial capacity to evaluate the portfolio of gold assets that are held by the government.
As a low-cost gold producer in Zimbabwe, Caledonia is well placed to identify other gold opportunities in the country that could be as efficiently run as Blanket and which could delivery good returns for shareholders – a priority for Caledonia, Curtis explains. He further notes that any investment into acquiring a new project would have to be value-enhancing for its shareholders.