Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) plan for its Bilboes project in Zimbabwe is starting to shape up after some early road bumps.
The project is a key plank in a strategy to add another leg to the business and lift the load a little from its stalwart mine performer Blanket.
in June, when Caledonia decided to go ahead with the project, the miner said Bilboes would almost triple annual gold production to more than 200,000 ounces of gold a year.
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 a very speedy 1.9 years.
A full feasibility study is expected to appear early next year with optimised pit designs and modular construction.
Build costs in June were estimated in June at US$403 million and peak funding US$309 million, with most of this coming from debt.
Net present value (NPV) was US$309 million and the rate of return 34% with sustaining costs of production at US$968 an oz.
While costs in general have gone up since, so has the gold price, which currently sits at US$2,662 an ounce or 40% above the June estimate.
Latest news from exploration nearby has also been encouraging, said the miner this week.
Motapa, a huge chunk of adjacent acreage next to Bilboes and containing a historic gold mine, is showing potential to increase significantly the life of any Bilboes mine development.
House broker Panmure Liberum said first drill results from Motapa were promising especially with it earmarked to play a key part in the miner’s growth prospects.
Significant high-grade results were obtained in “numerous” areas at Motapa - in particular, the Jupiter, Pluvious and Mpudzi sections, which will be the focus for follow-up drilling aimed at defining an open-pit mineral resource.
Historical gold production from Motapa (until 1990) is estimated by Caledonia at 300,000 oz from 2.4Mt of ore averaging 5.4g/t.
The feasibility study for the Bilboes sulphide plant is scheduled for completion in the first quarter of 2025 and this latest Motapa drilling suggests there could be significant synergies between the two deposits, Panmure Liberum suggests.
Elsewhere, production guidance for the Blanket mine was reiterated after a steady third quarter of production.
Quarterly gold production of 18,992 ounces was lower than the comparable 21,772 ounces due to lower grade and reduced metallurgical recoveries.
Even so, for 2024 and 2025, Caledonia said it aims to maintain production at Blanket at between 74,000 to 78,000 ounces though mine costs will go up to between $950 and $1,050 per due to higher labour and electricity costs.
Mark Learmonth, chief executive, said that production was in line with expectations and it is on track to meet production guidance for the year.
"We continue to explore ways to reduce on-mine costs at Blanket - particularly the cost of electricity and labour where several initiatives are being implemented and further measures are under consideration,” he added.
Panmure Liberum noted that the forecast for on-mine cost and All-In Sustaining Cost (AISC) was upped, which has prompted the broker to trim its share price target to 1,416p (from 1,554p) though its ‘buy’ rating remained with the Bilboes potential a major reason for its optimism.
Shares are 1,140p.