Operations
Bilboes
On 6 January 2023, Caledonia announced that it had completed the acquisition of Bilboes Gold Limited for a total consideration of 5,123,044 Caledonia
shares representing approximately 28.5 per cent of Caledonia’s fully diluted
equity, and a 1 per cent net smelter royalty the Project’s revenues.
Based on the last trading day’s closing share price on NYSE American of US$12.82 per share, the value of the maximum number of new shares that could be issued as consideration if there is no adjustment is currently US$65,677,424.
Highlights
- Bilboes is a large, high grade gold deposit located approximately 75 kmnorth of Bulawayo, Zimbabwe. Historically, it has been subject to a limited amount of open pit mining.
- The Project has NI43-101 compliant proven and probable mineral reserves of 1.96 million ounces of gold at a grade of 2.29 g/t and measured and indicated mineral resources of 2.56 million ounces of gold at a grade of 2.26 g/t and inferred mineral resources of 577,000 ounces of gold at a grade of 1.89 g/t. The Project has produced approximately 288,000 ounces of gold since 1989.
- A feasibility study prepared by the vendors (DRA) indicates the potential for an open-pit gold mine producing an average of 168,000 ounces per year over a 10-year life of mine.
- Caledonia will conduct its own feasibility study to identify the most judicious way to commercialise the Project to optimize shareholder returns. One approach that will be considered is a phased development which would minimise the initial capital investment and reduce the need for third party funding.
- Prior to completion of the Transaction, Caledonia will enter a tribute arrangement with Bilboes Holdings so that oxide operations can be re-started with the expectation that Bilboes Holdings will return to profitable operations within 6 months. This also has the benefit of an element of pre-stripping for the main development of the Project.
- The Transaction is subject to several conditions including:
- that Bilboes Holdings receives confirmation from the Zimbabwe authorities that it will, for the life of the mine, be able to export gold directly and to retain 100 per cent of the sale proceeds in US dollars with no requirement to convert US dollar gold revenues into domestic currency; and
- an arrangement with or confirmation from the Zimbabwe authorities and/or an independent power producer regarding the future availability of a sufficiently reliable and affordable electricity supply to the Project.
- Caledonia will, subject to satisfaction of conditions and any customary adjustments to the purchase price to account for any extraordinary liabilities incurred before completion, purchase Bilboes Gold Limited for a consideration to be settled by the issue to the sellers of 5,123,044 new shares in Caledonia and a 1 per cent NSR on the Project’s revenues.
On 3rd June the Company announced that it would shortly be filing a preliminary economic assessment in accordance with Canada’s National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) on SEDAR+ (the “PEA”) for a single-phase development of the Bilboes sulphide gold project (the “Project”). A copy of the PEA, which is entitled “Bilboes Gold Project Preliminary Economic Assessment” with effective date May 30, 2024 prepared by DRA Projects (Pty) Ltd (“DRA”) is also available on the website at www.caledoniamining.com/investors/technical-reports/. All dollar figures are in U.S. dollars unless otherwise noted.
The PEA reflects the work that has been done by Caledonia and its consultants over the period since the Project was acquired by Caledonia in January 2023. This work focussed on updating the feasibility study in respect of the Project that was prepared by DRA on behalf of the previous owners of the project and which had an effective date of December 15, 2021 (the “Former Feasibility Study”); the work also considered alternative development options for the Project, which included multi-phase development and changes to certain aspects of the Project. The main change to the Project development plan that has been made relates to the proposed construction of the Tailings Storage Facility (“TSF”), which will now be constructed on a modular basis to reduce the initial capital expenditure and therefore improve the economic returns. The revised approach to the TSF constitutes a “significant change” to the Project and requires the preparation of an entirely new technical and economic study. The work that has been carried out to date in respect of the revised approach to the TSF is to the level of a preliminary economic assessment and not to the level of a feasibility study. Due to the significance of the TSF to the overall Project, the entire body of work that has been completed to date is therefore at the level of confidence of a preliminary economic assessment. Over the course of the next 9 months, the Company intends to upgrade the confidence level of the study in respect of the TSF so that the entire body of work on the Project may be classified as a feasibility study which will be published in due course.
The PEA therefore supersedes the Former Feasibility Study.
Highlights of the PEA
The publication of the PEA will follow the Company’s decision to advance the Project to the execution stage in a single-phase development instead of multiple phases. This decision followed an evaluation of different development options, revealing that the single-phase approach is expected to yield superior returns.
- Publication of PEA for a single-phase development of the Project.
- Single-phase development is expected to provide improved cash generation allowing for a lower cost of capital due to enhanced debt financing capacity than phased development alternatives.
- Project to yield approximately 1.5 million ounces of gold (based on measured and indicated mineral resources) over a 10-year life of mine at an all-in sustaining cost of $968 per ounce. See below for mineral resource table. (Note that mineral resources are not mineral reserves and have no demonstrated economic viability.)
- Payback period of 1.9 years at a gold price of $1,884 per ounce.
- New single-phase feasibility study commissioned (the “New Feasibility Study”) that is expected to be delivered during the first half of 2025.
- Funding solutions being progressed in tandem with work on the New Feasibility Study.
Summary of the revisions made to the single-phase development plan
The Company incorporated several material revisions to the original single-phase development plan (as set out in the Former Feasibility Study) which include:
- Revised designs for the TSF to incorporate a modular construction approach and reduce upfront capital.
- Revised pit designs to reduce upfront capital.
- A review of the cost of the process plant and infrastructure, in particular sourcing major equipment and steelwork from alternative suppliers to reduce costs.
- Reassessing the phasing of the mine village establishment.
- A review of the operating expenses and general and administrative expenses with the availability of shared resources now that the Project is part of the Caledonia group.
The results of the evaluation confirmed that the single-phase development option, that incorporates rephased capital spending, revised costs and applies updated gold prices is expected to offer more appealing returns than multi-phased development options. This approach is also anticipated to generate cash returns capable of accommodating a lower cost of capital due to an increased debt capacity compared to the multi-phase development options. The Company expects that the single-phase development option will optimise capital allocation and maximise the NPV of the Project compared to the multi-phase development options.
Further work is required on the selected single-phase development option to elevate the confidence level of the PEA towards the New Feasibility Study. DRA has indicated that this work is expected to be completed in the first half of 2025. The main focus of this work relates to the TSF, which is effectively a new undertaking due to the modular construction approach.
The Company believes that a significant proportion of the funding requirement for the single-phase development option may be provided by one or more lenders. The Company will work with its appointed debt adviser to secure an acceptable debt funding package in parallel with the process of preparing the New Feasibility Study.
Summary of economic outcomes in the PEA*:
| Total production (m.oz) | 1.518 |
| Life of mine (years) | 10 |
| Total capital cost ($’m) | 403 |
| Peak funding ($’m) | 309 |
| NPV (10%) ($’m) | 309 |
| IRR (%) | 34 |
| AISC ($/oz) | 968 |
| Payback (undiscounted) (years) | 1.9 |
|
Summary of mineral resource estimate in the PEA*:
| Base Case Mineral Resources (0.9 g/t Au) Reference Point: in Situ (31 December 2023) | |||||
| Classification | Tonnage (Mt) | Au (g/t) | Metal (kg) | Ounces (koz) | |
| Totals | Total Measured | 6.128 | 2.51 | 15,382 | 495 |
| Total Indicated | 27.522 | 2.26 | 61,446 | 1,976 | |
| Total Measured and Indicated | 33.650 | 2.30 | 76,828 | 2,470 | |
| Total Inferred | 9.118 | 1.99 | 17,406 | 560 | |
*based on a 0.9g/t Au Cut-Off Grade