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Caledonia Mining to extend central shaft at Blanket mine after resource upgrade

The central shaft is currently under construction and will now be extended by a further 250 metres
picture of mine
The Blanket mine

Caledonia Mining Corporation PLC (LON:CMCL, NYSE:CMCL) has potentially secured the future of its Blanket mine in Zimbabwe for the next 20 years by opting to extend the central shaft on site to greater depths.

It comes on the back of the recent resource upgrade, which underlined potential volume and grade at depth.

READ: Caledonia Mining ups resources at Blanket mine for sixth successive year

Total measured and indicated gold ounces now amount to 714,000 ounces compared to 671,000 ounces at the end of 2016, the company said last week.

The central shaft is currently under construction, and will now be extended by a further 250 metres to a depth of 1,330 metres and fully commissioned by the end of the first quarter of 2020, the mining group said.

"The Central Shaft is already a transformational project for our business, and to extend the project an additional 250 metres in depth including development on 34 and 38 levels will potentially secure Blanket's operating future for the next 20 years taking exploration potential into account," said Steve Curtis, chief executive at Caledonia.

"It is significantly cheaper to continue the shaft sinking while we are in the construction phase of the project rather than to deepen a fully commissioned and operational shaft in several years' time," he added.

"The creation of an additional two levels will also increase the mining flexibility and further de-risk the target production of 80,000 ounces per annum from 2021."

The extension and associated capital development of additional production levels will cost around US$18mln to be funded by Blanket's internal cash generation.

READ: Caledonia Mining expecting strong finish to 2017 after record quarter

A preliminary economic assessment (PEA) indicates a project NPV (net present value) over the life of mine (LOM) of US$193mln based on a gold price of US$1,260/ounce and a 10% discount rate.

Total output from the measured and indicated resources over the life of the mine is expected to be around 420,000 ounces and production from inferred resources is expected to be around 550,000 to 600,000 ounces between 2018 and 2031.

Caledonia expects that its long term All-In Sustaining Cost (AISC) guidance is expected to remain in the range of US$700 to US$800 per ounce.

Notably, the indicated resource below 30 level of 37,000 ounces justifies as a standalone project alone the investment of US$18mln for the shaft deepening and the additional two production levels.

Caledonia said it had also started a mid-shaft loading system at Blanket using the existing Central Shaft infrastructure to handle development waste to improve handling capacity and alleviate pressure on Number 4 shaft.

Caledonia owns 49% of the Blanket mine.

Shares in London added 0.72% to 418p

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