# Caledonia Mining Corporation transaction to acquire the Bilboes gold project in Zimbabwe

- Link: https://www.directorstalkinterviews.com/caledonia-mining-corporation-transaction-to-acquire-the-bilboes-gold-project-in-zimbabwe/4121073784
- Published: 2022-07-21T07:16:58+01:00
- Author: Giles

**Caledonia Mining Corporation Plc** ([LON:CMCL](https://www.directorstalkinterviews.com/company/caledonia-mining-corporation/cmcl.l))
has today announced that it has signed an agreement to purchase Bilboes Gold Limited,
the parent company which owns, through its Zimbabwe subsidiary, Bilboes Holdings(
Private) Limited, the Bilboes gold project in Zimbabwe for a total consideration
of 5,123,044 Caledonia shares representing approximately 28.5 per cent of Caledonia’s
fully diluted equity, and a 1 per cent net smelter royalty on the Project’s revenues.
Based on yesterday’s closing share price on NYSE American of $10.40 per share, the
value of the new shares that will be issued as consideration is currently $53,279,658.
Completion of the Transaction will be subject to several conditions set out below.

**Highlights**

·    Bilboes is a large, high grade gold deposit located approximately 75 km north
of Bulawayo, Zimbabwe. Historically, it has been subject to a limited amount of 
open pit mining. 

·    The Project has NI43-101 compliant proven and probable mineral reserves of 
1.96 million ounces of gold at a grade of 2.29 g/t and measured and indicated mineral
resources of 2.56 million ounces of gold at a grade of 2.26 g/t and inferred mineral
resources of 577,000 ounces of gold at a grade of 1.89 g/t.  The Project has produced
approximately 288,000 ounces of gold since 1989.

·    A feasibility study prepared by the vendors (the “DRA Feasibility Study”) indicates
the potential for an open-pit gold mine producing an average of 168,000 ounces per
year over a 10-year life of mine.

·    Caledonia will conduct its own feasibility study to identify the most judicious
way to commercialise the Project to optimize shareholder returns.   One approach
that will be considered is a phased development which would minimise the initial
capital investment and reduce the need for third party funding.

·    Prior to completion of the Transaction, Caledonia will enter a tribute arrangement
with Bilboes Holdings so that oxide operations can be re-started with the expectation
that Bilboes Holdings will return to profitable operations within 6 months. This
also has the benefit of an element of pre-stripping for the main development of 
the Project.

·    The Transaction is subject to several conditions including:

·    that Bilboes Holdings receives confirmation from the Zimbabwe authorities that
it will, for the life of the mine, be able to export gold directly and to retain
100 per cent of the sale proceeds in US dollars with no requirement to convert US
dollar gold revenues into domestic currency; and

·    an arrangement with or confirmation from the Zimbabwe authorities and/or an
independent power producer regarding the future availability of a sufficiently reliable
and affordable electricity supply to the Project.

·    Caledonia will, subject to satisfaction of conditions and any customary adjustments
to the purchase price to account for any extraordinary liabilities incurred before
completion, purchase Bilboes Gold Limited (“Bilboes Gold”) for a consideration to
be settled by the issue to the sellers of 5,123,044 new shares in Caledonia and 
a 1 per cent NSR on the Project’s revenues.  Based on yesterday’s closing share 
price on NYSE American of $10.40 per share, the value of the new shares that will
be issued as consideration is currently $53,279,658.

> **Commenting on the announcement, Mark Learmonth, Chief Executive Officer, said:**
> _“We are delighted to have_ _signed an agreement_ _for the purchase of Bilboes,
> the premier gold development project in Zimbabwe, and indeed one of the best gold
> development projects in Africa._
> _“This is a transformational asset for Caledonia, as we embark on the next step
> in our journey to become a multi-asset, mid-tier gold producer. Once in full production(
> which will be subject to financing of the capex) Caledonia’s management believes
> that Bilboes could produce three times our current 64 per cent attributable share
> of gold production from Blanket, resulting in production from the enlarged Caledonia
> group being potentially four times its current size._
> _“The acquisition of Bilboes will build on the recent acquisition of the Maligreen
> claims which host NI 43-101 compliant inferred mineral resources of 940,000 ounces
> of gold in 15.6 million tonnes at a grade of 1.88g/t**^([1])**. We continue our
> work at Maligreen which is focused on increasing the confidence level of the resource
> base._
> _“We have followed the progress of Bilboes for several years and today’s announcement
> marks the culmination of many years of hard work on the part of both the Caledonia
> and Bilboes management teams._
> _“The proposed acquisition of Bilboes is well timed following the completion of
> the Central Shaft project at Blanket in 2021 as we look to reinvest some of our
> surplus cash flow in this exciting new growth opportunity._
> _“I look forward to updating shareholders as we review the investment plan for
> Bilboes and as we continue work at Maligreen.”_

**About Bilboes**

Bilboes was formerly owned and explored by Anglo American Corporation Zimbabwe Limited
prior to its exit from the Zimbabwean gold sector in 2003. The project is approximately
75km north of Bulawayo with a total land package comprising mining claims covering
6,870 hectares and exclusive prospecting orders totaling approximately 92,000 hectares.
Bilboes Gold is owned by the following:

·    Toziyana Resources Limited (“Toziyana”) (50 per cent) – a private Mauritius
company wholly owned by GAT Investments (Private) Limited, a Zimbabwe company which
is controlled by Mr. Victor Gapare, a prominent Zimbabwean mining entrepreneur. 
Mr Gapare was previously the Operations Director for the gold and pyrites business
of Anglo American Corporation Zimbabwe Limited when Bilboes was part of its portfolio,
prior to a management buyout in which he was involved, and is a former President
of the Chamber of Mines Zimbabwe. Following the successful completion of the Transaction,
Mr Gapare will be appointed as an executive director of Caledonia;

·    Baker Steel Resources Trust Limited (“BSRT”) (24 per cent) – a London-listed
investment trust managed by Baker Steel Capital; and

·    Infinite Treasure Limited (“Infinite Treasure”) (26 per cent) – a British Virgin
Islands registered subsidiary of Shining Capital Holdings LP. II, a Cayman Islands
registered investment fund.

The Project has produced a total of approximately 288,000 ounces of gold since 1989
of which approximately 90,000 ounces were produced by the current owners. Bilboes
has also completed a total of 93,400 meters of drilling over a total strike length
of 7.4km. Approximately 60 per cent of this drilling was diamond core drilling.

Bilboes Gold had an unaudited loss before tax for the year ended 31 December 2021
of $1.5m and unaudited net assets at 31 May 2022 of $23m. The audit process is progressing
and audited results for the year ended 31 December 2021 are expected to be completed
prior to the Transaction completing.  Investors should note that the historic financial
performance of the business relates primarily to the legacy oxide mining operations
and not the larger scale sulphide project.

Bilboes Holdings engaged DRA Projects (Pty) Ltd (“DRA”) to complete the DRA Feasibility
Study  with an effective date of 15 December 2021 for the Project, a copy of which
is being filed on SEDAR today^([2]).  The mineral resources and reserves set out
in the report are summarised below:

| **Mineral Resources (Cut off grade 0.9g/t)** | 
| Category | **Tonnes (Mt)** | **Grade (g/t)** | **Ounces (koz)** | 
| Measured | 6.128 | 2.51 | 495 | 
| Indicated | 29.052 | 2.21 | 2,061 | 
| Total M&I | 35.180 | 2.26 | 2,555 | 
| Inferred | 9.475 | 1.89 | 577 | 
| **In Situ Mineral Reserves** | 
| Category | **Tonnes (Mt)** | **Grade (g/t)** | **Ounces (koz)** | 
| Proven | 5.858 | 2.42 | 456 | 
| Probable | 20.785 | 2.26 | 1,509 | 
| Total Proven & Probable | 26.644 | 2.29 | 1,964 |

1.     Mineral resources are inclusive of mineral reserves.

2.     Mineral resources that are not mineral reserves do not have demonstrated 
economic viability.

3.     Mineral resources have been assessed using a long term gold price of $2,400/
oz and mineral reserves have been assessed using a long term gold price of $1,500/
oz

4.     CIM definitions (May 10, 2014) observed for classification of mineral resources.

5.     Block bulk density interpolated from specific gravity measurements taken 
from core samples.

6.     Resources are constrained by a Lerchs-Grossman (LG) optimized pit shell using
Whittle software.

7.     Mineral resources are not mineral reserves and have no demonstrated economic
viability. The estimate of mineral

resources may be materially affected by mining, processing, metallurgical, infrastructure,
economic, marketing, legal,

environmental, social and governmental factors (“Modifying Factors”).

8.     Numbers may not add due to rounding.

9.     Effective date of resource estimate is 25th of October 2021.

10.  DRA is confident that enough geological work has been undertaken, and sufficient
geological understanding gained, to enable the construction of an ore body model
suitable for the derivation of mineral resource and mineral reserve estimates. DRA
considers that both the modelling and the grade interpolation have been carried 
out in an unbiased manner and that the resulting grade and tonnage estimates should
be reliable within the context of the classification applied. In addition, DRA is
not aware of any metallurgical, infrastructural, environmental, legal, title, taxation,
socio-economic, or marketing issues that would impact on the mineral resource, or
reserve statements as presented in the DRA Feasibility Study.

**Feasibility studies**

Caledonia will conduct its own feasibility study to identify the most judicious 
way to commercialise the Project to optimise shareholder returns, having regard 
to the availability of debt and equity on acceptable terms to augment the cash that
is expected to be generated from Caledonia’s existing gold operation in Zimbabwe,
the Blanket Mine.  One approach that will be considered is a phased development 
which would minimise the initial capital investment and reduce the need for third
party funding.

For information purposes only, the DRA Feasibility Study indicates the potential
for an open-pit gold mine producing an average of 168,000 ounces per year over a
10-year life of mine. 

Specifically, the DRA Feasibility Study has the following highlights:

| Life of Mine | 10 Years |   |   | 
| Planned Production Rates | Isabella & McCays 2.88Mtpa |  Bubi 2.160Mtpa |   | 
|  |   |   | 
| Life of Mine Gold Production (Oz) | 1.673 million ounces |   |   | 
| Average Annual Nine Year Steady state  LOM Production (koz) | 168koz per year |   |   | 
| Peak Production (koz) | 208koz per year |   |   | 
| LOM C1 Cash Cost ($/oz) | $719/oz |   |   | 
| Peak Funding Requirement ($m) | $250m |   |   | 
| Economic Analysis as at 15^(th) December 2021 |   |   |   | 
| Gold Price ($/oz) | $1,350/oz | $1,500/oz | $1,650/oz | 
| Post Tax NPV (10%) ($m) | $126.9m | $225.2m | $323.3m | 
| Post Tax IRR (%) | 20.50% | 27.30% | 33.40% | 
| AISC ($/oz) | $811/oz | $818/oz | $826/oz |

The ore at the Bilboes deposits is refractory and will require specialised metallurgical
processing.  DRA has conducted work on the metallurgical processing which concludes
that approximately 84 per cent of the gold contained can be recovered using Biox
technology in conjunction with gravity and carbon-in-leach processing.  DRA’s work
has been reviewed by Caledonia’s internal team and technical consultants during 
the due diligence process. 

As indicated above, Caledonia believes the development plan outlined in the DRA 
Feasibility Study can be modified to a phased approach with lower initial production
and a lower peak funding requirement. Based on Caledonia’s assessment of the existing
capital intensity of the Project and Caledonia’s experience of project development
in Zimbabwe, Caledonia estimates that the peak up-front capital investment could
be reduced to less than $100m for the construction of a mine with an initial production
capacity of approximately 60,000 ounces per year before increasing the operation
in subsequent phases to achieve an operation of similar scale to that described 
in the DRA Feasibility Study, being approximately 168,000 ounces per year. Caledonia
intends to spend approximately 12 months following completion of the Transaction
further reviewing the DRA Feasibility Study with a view to formulating a project
development plan that takes into account Caledonia’s future cash generation profile
from the Blanket Mine and the oxide mining and processing operations at Bilboes (
described further below), the availability of additional funding on acceptable terms
and Caledonia’s experience of developing large-scale mining projects in Zimbabwe
over the past 6 years (e.g. the Central Shaft project). Accordingly, readers should
treat the foregoing economic highlights as indicative only and as subject to change
following the finalisation of Caledonia’s revised development plan. Caledonia will
update the market when the results of its own feasibility study review are complete.

**The Transaction**

Subject to the satisfaction of various conditions precedent, Caledonia will purchase
Bilboes Gold for a total consideration comprising 5,123,044 Caledonia shares and
a 1 per cent NSR from the Project at completion (the “Consideration”). Subject to
receipt of the necessary regulatory approvals, the Consideration will be split amongst
the current Bilboes Gold shareholders as follows:

·    2,863,336 new shares in Caledonia will be issued to Toziyana of which approximately
441,000 Caledonia shares will be withheld by Caledonia and will be issued to Infinite
Treasure in settlement of a separate commercial arrangement between Toziyana’s holding
company and Infinite Treasure.  The issue of the withheld shares to Infinite Treasure
is subject to Reserve Bank of Zimbabwe approval for the commercial arrangement between
Toziyana’s holding company and Infinite Treasure

·    800,000 new shares in Caledonia and the 1% NSR will be issued to BSRT; and

·    1,459,708 new shares in Caledonia will be issued to Infinite Treasure.  As 
noted above, Infinite Treasure will also receive a further approximately 441,000
Caledonia shares from Toziyana’s allocation of Consideration shares in settlement
of their separate commercial arrangement.

The Consideration shares shall be subject to sale restrictions for a 6-month period
following completion of the Transaction. The NSR is perpetual but will be capped
at a figure to be agreed between the parties but is currently indicated to be a 
theoretical maximum of $75million (which would require the Project to produce revenues
of $7.5billion).

Toziyana, as the largest new holder of shares and Caledonia will enter into a relationship
agreement with customary terms upon the new Consideration shares being issued.

Caledonia currently has 12,833,126 shares in issue. The issue of an additional 5,123,044
new shares (on the basis that all shares are issued and there is no adjustment to
the consideration) would result in the total number of shares in issue increasing
to 17,956,170, giving the current owners of Bilboes Gold Limited an aggregate of
28.5 per cent of the post Transaction shares in issue.

The Transaction will be subject to several conditions precedent including but not
limited to:

·    An arrangement with the Zimbabwe authorities which allows inter alia:

o that Bilboes Holdings will, for the life of the mine, be able to export gold directly
and to retain 100 per cent of the sale proceeds in US dollars; and

o that there will be no requirement for Bilboes Holdings to convert US dollar gold
revenues into domestic currency;

·    an arrangement with the Zimbabwe authorities, or an independent power producer
regarding the future availability and cost of a sufficiently reliable electricity
supply to the Bilboes mining and processing operations;

·    Zimbabwean regulatory approvals from the Zimbabwe Competition and Tariff Commission,
the Zimbabwe Revenue Authority and the Reserve Bank of Zimbabwe; and

·    approvals for the listing of the Consideration shares from applicable securities
exchanges.

Under the terms of the Transaction, Caledonia will take on the working capital obligations
of the Bilboes group at the time of completion. The Bilboes group is estimated to
have a current net working capital liability of approximately $6 million.

On completion of the acquisition, Mr Gapare is expected to be appointed as an executive
director with specific responsibility for government relations in Zimbabwe, the 
implementation of Caledonia’s environmental and [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
strategy and participation in investor relations, with a salary of US$470,000 and
short and long-term incentives that are offered to other senior executives.  His
extensive experience of both the Project and mining in Zimbabwe will be an invaluable
addition to the Board.

**_Tribute arrangement to generate short-term cashflow_**

Bilboes currently has a functional oxide mining and metallurgical plant at the Project
site which has historically produced up to 20,000 ounces of gold per annum but is
currently on care and maintenance. Caledonia will enter into a tribute agreement
with Bilboes Holdings to mine the oxide and transitional ore.  This tribute agreement
will commence as soon as it has been registered with the relevant authorities and
will continue until completion of the Transaction.  The objective of the tribute
arrangement is to create short term cash flow and allow Bilboes Holdings to maintain
its operational integrity in the period up to completion of the Transaction and 
the commencement of sulphide mining operations. Under the terms of the tribute agreement,
Caledonia will fund the necessary capital and operational costs and will receive
100 per cent of the revenue from the mining operation while paying a 5 per cent 
royalty to Bilboes Holdings which it will apply to its working capital liabilities.
The cumulative maximum funding cost to restart the oxides is expected to be in the
range of $3 million to $5 million and the oxide mining operation is expected to 
take approximately 6 months to restart and repay the initial funding costs.   On
completion of the Transaction or if the Transaction fails to complete and Caledonia
has recouped its investment at an adequate internal rate of return, the tribute 
agreement will be terminated. On completion of the Transaction, Caledonia expects
to continue to mine and process the oxides and transitional ore and to use the proceeds
to contribute towards funding the capital cost of the larger scale sulphide project.

Rothschild & Co acted as financial advisor to Caledonia. Hannam & Partners acted
as financial advisor to Bilboes.

> **Caledonia Mining Chairman, Leigh Wilson, also commented on the announcement,
> saying:**
> _“It gives me great satisfaction to sign an agreement for the purchase of Bilboes,
> a transformational asset for our business. Today’s announcement represents the
> culmination of many months of hard work on behalf of both parties for which I 
> extend my and the board’s sincere appreciation._
> _“I would like to extend a welcome to Bilboes’ existing shareholders as they become
> significant shareholders in Caledonia on completion and I look forward to their
> long-term support as we continue to grow the business. I would also like to extend
> a warm welcome to all the employees of Bilboes as we look forward to them becoming
> our colleagues._
> _“As with many deals of this nature there remain several significant conditions
> precedent which I am confident that both parties will continue to work to resolve.
> Pending the successful resolution of these matters and the subsequent completion
> of the Transaction, I look forward to working with Victor as a fellow director._
> _“Lastly, I would like to take this opportunity to thank our existing shareholders,
> many of whom have been investors in Caledonia for over a decade. Their patience
> has been rewarded as we have delivered on our strategy over the last decade, and
> I look forward to their continued support as we embark on the next phase of growth.”_

**Conference Call Details**

Management will host a conference call / webinar at 2pm British Summer Time on July
28, 2022.

Details for the call are as follows:

When: July 28, 2022 at 02:00 PM London

Topic: Webinar for Caledonia Shareholders

Register in advance for this webinar:

[https://caledoniamining.zoom.us/webinar/register/WN_iuYwxS76Q8yNMNhPC94Dgw](https://caledoniamining.zoom.us/webinar/register/WN_iuYwxS76Q8yNMNhPC94Dgw)

After registering, you will receive a confirmation email containing information 
about joining the webinar.

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