CALEDONIA Mining Corporation Plc has entered into a zero-cost contract to hedge approximately 25% of its targeted gold production for 2020 at its flagship operation, Blanket Mine in Gwanda.
The deal will be executed via a cap and collar hedging contract for 20 000 ounces of gold over a period of five months, from March to July 2022, the company said in a statement Thursday.
The hedging contract has a cap of US$1 940 and a collar of US$1 825, meaning that, for the 4 000 ounces of gold per month for the period, Caledonia will receive an effective gold price per ounce of not less than US$1 825 nor greater than US$1 940 and will receive an effective spot gold price between these two levels.
“Hedging gold production is not an easy decision for a gold miner as investors usually wish to maximise exposure to gold price upside,” Caledonia’s chief executive officer Steve Curtis said.
“However, given the fact that our capital expenditure phasing is heavily weighted towards the first half of 2022 as we ramp up gold production, the board considered it prudent to take advantage of the current strong gold price to protect the balance sheet during this phase of higher capital investment with a five-month hedging arrangement over a portion of our production.”
Caledonia has been on an aggressive expansion programme over the past five years.
In his address recently in Harare, Curtis said apart from Blanket, the firm was pressing ahead with plans to increase its assets.
Chief finance officer Mark Learmonth, incoming CEO, said Caledonia had narrowed its search for fresh Zimbabwean projects to seven goldfields after combing through over 30 assets.
The strategy was part of a broad ambition under which it plans to pounce on more gold mines, following significant expansion at Blanket, where it projects to lift output to 80 000 ounces (oz) this year.
With a US$30 million war chest at the end of September, Caledonia sits on strong ground to swing as it sees fit, and take over assets of its desire.
Learmonth said the firm was determined to transform into a multi-asset firm with capacity to extract 500 000oz.
The first phase of Caledonia’s expansion kicked off with a US$70 million new shaft development that was completed last year.
Central Shaft, which helped the firm lift output last year, was this week described by Learmonth as a “first world piece of engineering”.