Canadian gold producer Caledonia Mining Corporation has entered into six month cap and collar hedge with a financial counterparty over 15 000 oz of production, using a collar value of US$1 050/oz and a cap value of $1 080/oz.
The hedge will provide Caledonia with greater certainty as to its cash flows in the period up to July 2016, by when it is expected that operating cash flows at its 49%-owned Blanket gold mine in Zimbabwe will benefit from the projected increase in gold production.
Blanket has completed the first year of a six-year investment programme under its revised investment plan in terms of which it will invest $70 million over the years 2015 to 2021 with the objective of increasing production to approximately 80 000 oz of gold by 2021.
When the revised investment plan was announced in October 2014, the anticipated capital investment in the three years 2015 to 2017 was $50 million; it is now expected to be approximately $45 million.
The hedge comprises a series of weekly contracts as explained below:
- If the gold price at the end of each contract falls below the collar value, Caledonia will receive the value of the shortfall below the collar multiplied by the hedged ounces.
- If the gold price at the end of each contract falls between the cap and the collar value, Caledonia will pay to the hedge counterparty the excess over the collar value multiplied by the hedged ounces.
- If the gold price at the end of each contract exceeds the cap value, Caledonia will pay to the hedge counterparty the difference between the cap and the collar multiplied by the hedged ounces.
There are no other fees or expenses arising in terms of the hedge, the company said in a statement.
The hedge arrangement is a financial instrument between Caledonia and a financial counterparty and Blanket will continue to sell 100% of its gold to Fidelity Printers and Refiners in Zimbabwe.
Caledonia intends to maintain its existing dividend policy of paying 1.125 cents per quarter.