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Caledonia Mining Corp 07 September 2022

Buying Bilboes

Purchase of Bilboes: Caledonia Mining (Caledonia, CMCL) has announced its intention to acquire the 2.5m oz Bilboes resource in Zimbabwe. The reserve is stated to be over 1.9m oz with a relatively high grade of over 2.3g/t that can be mined from open pits.   

The price: The transaction will require Caledonia to issue 5.1m new shares and an NSR of 1% to one of the sellers. The sellers will then have 28.5% of the enlarged shareholding of Caledonia. 

Conditions precedent: Caledonia requires two unusual CPs before the transaction can be concluded. The most important is a government guarantee that all gold from Bilboes can be exported and that it will not be required to exchange its USD proceeds into the rapidly devaluing local currency. This will give CMCL the ability to raise offshore debt and minimise equity raisings.

Bilboes development: CMCL may require two years to complete a new FS, obtain licences and permits as well as award tenders on the project. We expect full production to take another three years. We expect Caledonia to minimise technical and financial risk by building a mine with gold production limited to an estimated c. 85,000oz/a initially and capex of $140m.

The Tribute Agreement: Caledonia has acquired the right to mine the oxide ore on the deposit. This could generate $25m from as early as mid-2023E. These cash flows would help to pay pre-production expenses as well as generate earnings that is likely to offset the impact of the equity dilution and underwrite CMCL’s commitment to maintain the dividend.

Valuation of Bilboes: We value Bilboes at $83m based on a $1,725/oz gold price and a 15% discount rate and assuming two-year lead time to construction and an 85,000oz/a to 100,000oz/a production rate.

Valuation of Caledonia without Bilboes: We have adjusted our estimate of Caledonia’s fair value valuation range to reflect the fact that the gold price is now lower than it was when we initiated coverage on this company. Our valuation range is now $10.07/s to $11.76/s based on a $1,725/oz gold price (from $14.40/s to $17.50/s based a $2,000/oz gold price previously).

Valuation of Caledonia with Bilboes: When the CPs are concluded, possibly within the next six months, our pro forma value of Caledonia will include Bilboes. We estimate that Caledonia’s FVVR range will increase to between $11.08/s and $12.28/s. 

Caledonia’s Blue Skies: In our view, Bilboes is the first major step allowing CMCL to diversify its exposure from the Blanket Mine. Regardless of the outcome of the Bilboes deal, Caledonia intends to acquire additional resources and reserves within Zimbabwe. Management believes that world-class deposits are still available and that exploration potential in the country is still outstanding.


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