Caledonia Mining’s plan to double output at its Blanket mine in Zimbabwe could pay back more than three times its cost, according to a new external study.
Consultant Minxcon estimates a net present value for Blanket of US$147mln and an internal rate of return of 267% through the US$70mln expansion plan that will see a new central shaft at the mine.
Under the plan, production would rise to 80,000 ounces of gold in 2021. This would comprise approximately 70-75,000 from current inferred resources with a further 6,000 ounces from existing proven and probable mineral reserves.
The assessment, which assumed a gold price of US$1,250 per ounce and a discount rate of 8.36%, also concluded that to achieve positive cash flow would only require conversion of 3% of the mine’s inferred resources.
Steve Curtis, Caledonia’s chief executive said: “I am encouraged that the revised investment plan for the Blanket Mine has been validated by Minxcon, an external independent consulting group. The high projected internal rate of return for the investment confirms this to be a very exciting project.
“The high proportion of the investment that will be recovered from the mining of reserves and resources with a higher level of confidence than inferred resources, also supports our view that the revised investment plan has been prepared on a conservative basis.”
Caledonia owns 49% and operates the Blanket gold mine.
Sanlam Securities said it was a very good PEA result from a consultant that specialises in financial models for African mines.
The lower levels have been quite well drilled already and management is confident that the payzones continue at depth, it added.
The neighbouring mine (which borders Blanket) is mining at 1,500 metres while Caledonia’s plan only goes down to 1,120 metres.
“Although Zimbabwe has its challenges, it is a relatively straightforward place to operate with good infrastructure and a work force that has an excellent attitude.”