Caledonia Mining (LON:CMCL) intends to double production at its Blanket mine in Zimbabwe after a strategic review indicated expansion of the mine was the best use of its funds.
The gold producer was considering expanding outside of Zimbabwe, but the review concluded the best potential returns lay with exploiting the additional resources at the mine, which is 49% owned and operated by Caledonia.
Blanket is forecast to produce 40,000 ounces of gold this year, but through a US$70mln investment output will rise to around 80,000 ounces.
Most of the additional gold will come from resources currently classified as inferred.
All of the capital expenditure will be funded from internal cash flows, it said, and will involve the construction of a six-metre diameter, four-compartment central shaft from surface to 1,080 metres down.
Caledonia said it will maintain its current dividend policy in 2015 even though the dividends it receives from Blanket will be suspended.
Stefan Hayden, Caledonia’s president and chief executive, said the new central shaft would substantially improve Blanket’s operational efficiency and help costs as its fixed costs will be spread across more production ounces.
“The central shaft will also enhance the mine’s operational flexibility by reducing its current dependence on a single production shaft and give it the flexibility to continue to explore and develop at depth.
“The revised strategic plan represents a vote of confidence in Zimbabwe as an investment destination. I am pleased to say that Blanket’s indigenous shareholders and the Government of Zimbabwe are both highly supportive of the revised plan.
“By 2018 I hope that Blanket will have doubled production and further reduced its cost per ounce, which are already amongst the lowest of any African gold producer.
“Once these projects are completed, Caledonia and Blanket will have the critical mass and the financial capacity to consider significant new investment opportunities.”
Mark Learmonth, Caledonia’s had of corporate development, the expansion at Blanket would establish the long growth fundamentals of the business and allow it to continue to access deeper ore reserves, carry out deeper exploration and improve efficiency.
He added it had looked at lots of opportunities outside but found it too expensive outside of expensive or in the wrong phase of development. “We are not great explorers but operators.”
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