Caledonia, New Dawn Resuming Gold Mining In Zimbabwe

Caledonia Mining (CAL-T, CMCL-L) suspended gold production in Zimbabwe last October because it was never paid for the gold it delivered to the country’s central bank.

But recent policy changes governing gold sales and foreign exchange earnings have convinced the company that it can safely resume mining operations at the Blanket gold mine, about 560 km southwest of the capital city, Harare, and 150 km south of Bulawayo, Zimbabwe’s second-largest city.

Under Zimbabwe’s new Short Term Emergency Recovery Program, or STERP, the government will no longer retain revenue from export sales, foreign gold mining companies say.

In January, the government said its retention of revenue from export sales would be cut from 15% to 7.5%, but that percentage was apparently eliminated entirely last month.

The result is that gold producers can market their gold directly and retain 100% of the proceeds from gold sales in foreign currency. At the same time, STERP will review taxation and royalty structures to bring them in line with international standards.

Under the new policy, Caledonia says it can export and market its gold bullion to a refiner of its choice and the proceeds from the sale will be paid directly into Blanket’s foreign currency account at a Zimbabwean commercial bank and be entitled to retain 100% of the proceeds indefinitely in its foreign currency account.

“Blanket has already opened the necessary account with a major precious metals refiner and once Blanket has successfully completed its first delivery to the refinery, a further press release will be issued,” the company said in a statement.

Caledonia plans to complete its expansion project for the No. 4 shaft, which it expects will result in production increases to 40,000 oz. gold a year by 2010. But that depends on the availability of debt facilities and the rate of internally generated cash flow, which ultimately rests on the implementation of Zimbabwe’s current arrangements for the country’s gold exporters, the company concedes.

Caledonia is currently in discussions with several financial institutions to raise additional capital, it says.

Despite having temporarily suspended operations for the last six months, the company has retained the majority of its skilled workers and believes the mine can return to production relatively quickly.

The mine produced 2,990 oz. gold in the second quarter ended June 30, 2008, and 2,210 oz. gold in the third quarter ended Sept. 30.

Caledonia bought Blanket from Kinross Gold (K-T, KGC-N) in June 2006; Kinross had acquired the mine from Falconbridge in 1993.

According to Caledonia’s web-site, the mine, which has been “producing gold since the time of the ancients” has produced more than 1 million oz. gold.

The mine has proven and probable reserves of 3.41 million tonnes grading 4.1 grams gold per tonne for total contained gold of 449,500 oz.

In addition to its gold mine in Zimbabwe, Caledonia has a cobalt development project in Zambia and a platinum-nickel exploration project in South Africa.

At presstime, the company was trading at 6¢ per share. It has traded between 2.5¢ and 19¢ per share over the past year and has 500.2 million shares outstanding.

Another junior, New Dawn Mining (ND-T) is equally upbeat about the positive policy changes are afoot in Zimbabwe.

In mid-March, New Dawn chief executive Ian Saunders said the company was taking its 100%- owned Turk gold mine, located 55 km north of Bulawayo, out of care and maintenance and putting it back into production after the Reserve Bank of Zimbabwe changed its monetary policy in late January.

New Dawn put its Turk mine on care and maintenance in October because it had not been paid for gold it had deposited with the central bank.

For the years 2006 and 2007, production from underground operations averaged 1,100 oz. gold a month, or 13,200 oz. gold per year, at an average adjusted cash cost of less than US$380 per oz.

In Toronto, New Dawn recently traded at about 60¢ per share. It has a 52-week trading range of 5¢- $2 and has 29 million shares outstanding.