HomeGoldBlanket mine restarts production

Blanket mine restarts production

Canadian registered Caledonia Mining Corporation, which owns the Blanket gold mine in Zimbabwe, is one of a pack of juniors planning and implementing a new start in the Southern African country.

Caledonia has relaunched gold production at the Blanket mine, which was placed on care and maintenance last October. It is preparing to increase output by almost 70% in the next year, and hopes to at least double that production level by 2014.

In an interview with Mining Review Africa, Caledonia president and CEO Stefan Hayden says that underground mining at Blanket resumed on the 7th of April 2009, and the first gold was delivered to the Rand Refinery before the end of that month.

“We were able to secure the required initial working capital which is allowing us to return Blanket to its previous production level of 24,000 ounces a year,” he explains. “This involves an amount which will be finalised at somewhere between R5 and R10 million.”

Before this, Caledonia had already sunk US$5.5 million (almost R50 million in today’s terms) into this project over more than two years, and should have completed the project in October 2007. “We were unable to achieve this because of the Zimbabwe Reserve Bank’s failure to pay us for the gold we had delivered,” Hayden points out. “We have made the investment, but have yet to see a return.”

Hayden estimates it will take five or six months to get back to the 24,000 ounce a year level, which is scheduled to happen by September this year. “It will depend on the sustainability of the new Zimbabwean legislation, as well as our cash flows – although we do have the working capital. We are considerably better off than the other mines.”

Blanket has a proven ore reserve of 1.3 million tonnes at a grade of 3.88 grams of gold per tonne, giving a yield of 161,400 ounces. This means a life of mine of eight years. It also has a probable ore reserve of 2.5 million tonnes at a grade of 3.7 g/t for an additional yield of 303,400 ounces of gold. The total indicated and inferred resource amounts to another three million tonnes at grades ranging from 3.91 to 5.27 g/t.

“Our immediate plan is to complete our No 4 Shaft expansion, which will raise output at Blanket by more than two-thirds from 24,000 to 40,000 ounces a year. This will require an investment of another US$2.5 million.”

Hayden stresses the fact that this is a well defined, tangible target. “As long as we are able to raise the money, and do so quickly, we should be able to reach a production level of 40,000 ounces a year by next April.

Blanket mine1

An overview of Blanket mine

“But all of this depends on the uninterrupted application of the Zimbabwean government’s new monetary regime and a stable operating environment,” he emphasises.

“We are in discussion with various financial institutions regarding the additional capital required. If the US$3 million owed to us could be repaid immediately, we could go ahead and fund the project ourselves, as well as all of the working capital. The problem is that this amount has been converted into a bond which matures only in January 2010,” Hayden explains.

“We are talking to the financial institutions in Zimbabwe that have historically supported us, and we have had expressions of interest from South African institutions. Although both Zimbabwean and South African institutions understand the political situation far better than their foreign counterparts, our preference is to raise this funding in Zimbabwe if we can. If necessary, we will talk to South Africa and offshore as well – we can’t afford not to.”

Blanket mine has no significant operational issues. “We have kept the equipment in good condition,” Hayden says. “We paid the employees to stay after production was suspended, maintenance has continued and we have retained our skills levels, which is critical in Zimbabwe. Development risk is minimal; the mine has a 60-year operating history; and it has produced over a million ounces.”

All the paperwork is in place as well. “We have applied for the necessary permission and licences, following the recent changes to the regulations governing gold trading in Zimbabwe that will enable us to recommence gold production,” he adds. “Blanket has received the necessary gold dealer’s licence from the ministry of finance and a gold exporter’s licence from the Reserve Bank of Zimbabwe.”

These licences entitle the mine to comply with the gold dealing and gold export regulations, and export and market its gold bullion to a refiner of its choice. The proceeds from the sale of gold are paid directly into Blanket’s foreign currency account at a Zimbabwean commercial bank, and Blanket is entitled to retain 100% of the proceeds indefinitely in this account.

Looking further ahead, expansion of production capacity at Blanket mine beyond 40,000 ounces a year is more than just an aspiration. “That is basically a three to five year project from now at least,” Hayden estimates. “One must bear in mind that Blanket will not be the only contributor. There are also our various exploration properties within the vicinity of Blanket mine.

“However, before we invest the money to increase output beyond 40,000 ounces a year, we would need to prove up sufficient reserves and resources to a level which would make such increased production economically worthwhile over a period of years. At the same time we would be completing the feasibility study to get comfortable with the capital and operating costs of the expansion as being reasonable.”

The Lima shaft development project would also be part of the plan to help Caledonia reach its next horizon of more than doubling its 40,000 ounce a year production level.

“We expect it will cost US$20 million to achieve this production level,” Hayden says, “bearing in mind that this will be an expansion, not a new mine. If we had to rebuild the existing Blanket operation from scratch today, you would probably be looking at between at least US$80 and US$100 million.”

Blanket mine2

Ore moving up the conveyor from
the primary crushing plant

This would mean that, to increase production from the current capacity of 24,000 ounces a year to reach an eventual production level of well beyond the next target of 40,000 ounces a year by 2014, Caledonia would have spent a combined total of almost US$28 million.

Hayden also points out that in the middle of the Caledonia property and adjacent to No 4 shaft, a variety of exploration opportunities exist, within a 15 km radius in all directions. “These are certainly worth exploration, but in our current situation we cannot afford to spend money on this, as our priority is to get Blanket up and running and earning money again.

“You can see that with organisations like the IDC and the DBSA there is a willingness to consider projects like this, presumably because of some form of pressure from the top. How that translates down to the bottom level could be a bit of a problem,” he says.

“I must reiterate that we are not going to be able to invest the money required for such development if we have anything other than stability in Zimbabwe,” Hayden adds. “We can’t be expected to pour more equity risk money into further exploration and development work until we are comfortable on the issue of stability.

“We will of course be paying tax quarterly in advance, so the Zimbabwe government should be receiving cash payments immediately. Also, the Blanket employees will be receiving pay in US dollars immediately. These developments should allow the government of Zimbabwe to see the benefit of facilitating the new financial regime.”

By way of comparison, Hayden refers to neighbouring Zambia which did much to unpick many years of investorfriendly policies by the introduction in 2008 of radical new tax measures.

“It’s going to take some time for investors’ confidence to be rebuilt in Zambia,” he says.

“But that was a minor wobble compared to what has happened in Zimbabwe. It’s going to take a long time, or a complete change in government, to see a return of investor confidence in this country,” he predicts.

“We are not being negative about the prospects in Zimbabwe, but at the same time we do not want to give the impression that everything in the country has been sorted out,” Hayden continues. “The indications are very positive. It’s just a matter of trying to take advantage of the current environment without exposing oneself to too much risk in case things don’t work out.

“Unfortunately one has to fly by the seat of one’s pants in the hope that things are going to be sustainable,” Hayden says.

“We’re a mining company and we are not political. We adopt the pragmatic point of view that we don’t mind who the government is as long as it is stable, and gives us a set of legislation that enables us to look after our people and to operate for the benefit of our shareholders,” he concludes.