Caledonia Investments (LSE:CLDN) has decided to go ahead with its Bilboes project in Zimbabwe through a single phase of development after a study showed it could return the capital cost in under two years.
Bilboes would almost triple annual production to more than 200,000 ounces of gold a year, Caledonia added.
Assuming a gold price of US$1,884 an ounce, the preliminary economic assessment indicated 1.5 million ounces could be produced over an initial ten-year mine life, with payback in 1.9 years.
A full feasibility study is now underway for the single-phase development that will be delivered in the first half of next year and incorporate revised pit designs and modular construction.
Build costs will be US$403 million and peak funding US$309 million, with most of this to come from debt.
Net present value (NPV) is US$309 million and the rate of return 34% with sustaining costs of production at US$968 an oz.
Mark Learmonth, Caledonia's chief executive, said: "The board's decision to proceed with the single-phase development option for Bilboes represents a key strategic milestone in our journey to becoming a multi-asset, mid-tier gold producer.
“Notwithstanding the general inflationary increase in operating costs and capital costs over recent years, the PEA re-confirms that Bilboes is a high-quality mid-scale asset that can generate attractive economic returns.
"The PEA also confirms that Bilboes has an attractive production profile with the potential to almost triple Caledonia's production capacity to over 200,000 ounces per annum in combination with production from Blanket Mine.
"The peak funding requirement for the Project is expected to be approximately $309 million, with a sizable proportion funded through debt.
“The company and, in the past, Bilboes' previous owners, have had highly positive engagements with prospective debt providers and we now propose to re-engage with these providers in parallel with the process of preparing the new feasibility study.”