Southern Africa-focused exploration and development company Caledonia Mining Corporation has entered into a six-month cap and collar hedge with a financial counterparty over 15 000 oz of production, using a collar value of $1 050/oz and a cap value of $1 080/oz.
The hedge would provide Caledonia with greater certainty in terms of its cash flow in the period to July 2016, by which time the company expected that operating cash flows at Blanket mine, in Zimbabwe, would benefit from the projected increase in gold production.
Blanket mine had completed the first year of a six-year investment programme which stipulated that the miner would invest $70-million between 2015 and 2021, with the objective of increasing production to about 80 000 oz of gold by 2021.
When the revised investment plan was announced in October 2014, the expected capital investment between 2015 and 2017 was $50-million; it was now expected to be $45-million.
The hedge comprised a series of weekly contracts. If the gold price at the end of each contract fell below the collar value, Caledonia would receive the value of the shortfall below the collar multiplied by the hedged ounces.
If the gold price at the end of each contract fell between the cap and the collar value, Caledonia would pay to the hedge counterparty the excess over the collar value multiplied by the hedged ounces.
If the gold price at the end of each contract exceeded the cap value, Caledonia would pay to the hedge counterparty the difference between the cap and the collar multiplied by the hedged ounces.
No other fees or expenses arose in terms of the hedge.
Blanket mine would continue to sell 100% of its gold to Fidelity Printers and Refiners in Zimbabwe.