Caledonia to resume mining operations in Zimbabwe

Caledonia Mining (CAL-T, CALVF-o, CMCL-l) suspended gold production in Zimbabwe in October 2008 because it was never paid for the gold it delivered to the country’s central bank.

But recent policy changes governing gold sales and foreign exchange earnings have convinced Caledonia that it can safely resume mining operations at the Blanket gold mine, about 560 km southwest of the capital city, Harare, and 150km south of Bulawayo, Zimbabwe’s second largest city.

Under Zimbabwe’s new Short Term Emergency Recovery Program, or STERP, the government will no longer retain revenue from export sales, foreign gold mining companies say. In January the government said its retention of revenue from export sales would be cut from 15% to 7.5%, but that percentage was apparently eliminated entirely last month.

The result is that gold producers can market their gold directly and retain 100% of the proceeds from gold sales in foreign currency. At the same time, STERP will review taxation and royalty structures to bring them in line with international standards.

Under the new policy Caledonia says it can export and market its gold bullion to a refiner of its choice and the proceeds from the sale will be paid directly into the Blanket mine’s foreign currency account at a Zimbabwean commercial bank and be entitled to retain 100% of the proceeds indefinitely in its foreign currency account.

“Blanket has already opened the necessary account with a major precious metals refiner and once Blanket has successfully completed its first delivery to the refinery, a further press release will be issued,” the company said.

Caledonia plans to complete its expansion project for the No 4 shaft, which it expects will result in production increases to 40,000 oz. gold a year by 2010. But that depends on the availability of debt facilities and the rate of internally generated cash flow, which ultimately rests on the implementation of Zimbabwe’s current arrangements for the country’s gold exporters, the company concedes.

Caledonia is currently in discussions with several financial institutions to raise additional capital, it says.

Despite having temporarily suspended operations for the last six months, the company has retained the majority of its skilled workers and believes the mine can return to production relatively quickly.

Despite economic hardships, the mine produced 2,989 oz. gold in the second quarter ended June 30, 2008 and 2,208 oz. gold in the third quarter ended Sept. 30, 2008.

Caledonia acquired the Blanket mine from Kinross Gold (K-T, KGC-n) in June 2006, which had acquired the mine from Falconbridge in 1993. According to Caledonia’s website, the mine, which has been “producing gold since the time of the ancients” has churned out more than 1 million oz. gold.

Blanket has proven and probable reserves of 3.41 million tonnes grading 4.10 grams gold per tonne for total contained gold of 449,500 oz.

In addition to its gold mine in Zimbabwe, Caledonia has a cobalt development project in Zambia and a platinum-nickel exploration project in South Africa.

At presstime the Toronto-based company was trading at 6¢ per share. It has a trading range of 2.5¢ to 19¢ per share and has 500.2 million shares outstanding.