Caledonia in gold price hedge strategy

HARARE - Toronto Stock Exchange-listed miner Caledonia Mining Corporation (Caledonia) says it has entered into a six-month “cap and collar” hedge over 15 000 ounces of production using a “collar” value of $1,050 per ounce and a cap value of $1,080 per ounce.

The hedge will provide Caledonia with greater certainty as to its cash flows in the period up to July 2016, when it is expected that operating cash flows at its Zimbabwean Blanket Mine (Blanket) will benefit from the projected increase in gold production.

This comes after Blanket has completed the first year of a six-year investment programme in terms of which it will invest $70 million over the years 2015 to 2021 with the objective of increasing production to approximately 80 000 ounces of gold by 2021.

“When the Revised Investment Plan was announced in October 2014, the anticipated capital investment in the three years 2015 to 2017 was $50 million — it is now expected to be approximately $45 million,” the gold miner said.

According to mining experts, the hedge comprises a series of weekly contracts.

If the gold price at the end of each contract falls below the collar value, Caledonia will receive the value of the shortfall below the collar multiplied by the hedged ounces.

However, if the gold price at the end of each contract falls between the cap and the collar value, Caledonia will pay to the hedge counterparty the excess over the collar value multiplied by the hedged ounces.

In some instances, if the gold price at the end of each contract exceeds the cap value, Caledonia will pay to the hedge counterparty the difference between the cap and the collar multiplied by the hedged ounces.

Caledonia said there were no other fees or expenses arising in terms of the hedge.

“The hedge arrangement is a financial instrument between Caledonia and a financial counterparty: Blanket will continue to sell 100 percent of its gold to Fidelity Printers and Refiners in Zimbabwe,” the company said.

Caledonia intends to maintain its existing dividend policy of paying 1,125 cents per quarter.

 

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