Caledonia enters 6-month ‘cap and collar’ hedge

Business Reporter
Caledonia Mining Corporation, a gold miner, 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.

According to the mining company, the hedge arrangement is a financial instrument between Caledonia and a financial counterpart. It is an agreement entered into to offset financial risk.

Caledonia said the hedge will provide greater certainty to its cash flows in the period up to July 2016, by when it is expected that operating cash flows at Blanket will benefit from the projected increase in gold production.

“Caledonia advises that 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.

Caledonia is a Mining, Exploration and Development Company focused on Southern Africa and has a 49 percent stake in Blanket Mine in Zimbabwe.’

The group said it had completed the first year of a six year investment programme for its Blanket Mine in terms of which it will invest $70m over the years 2015 to 2021 with the objective of increasing production to approximately 80 000 ounces of gold by

2021.

The mining company said when the Revised Investment Plan was announced in October 2014, the anticipated capital investment in the three years 2015 to 2017 was $50 million.

Caledonia said the investment is now expected to be approximately $45 million.

“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.

“If the gold price at the end of each contract falls between the cap and the collar value, Caledonia will pay to

the hedge counterpart the excess over the collar value multiplied by the hedged ounces,” said the mining company.

“If the gold price at the end of each contract exceeds the cap value, Caledonia will pay to the hedge counterpart the difference between the cap and the collar multiplied by the hedged ounces.”

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

The mining company said Blanket will continue to sell 100 percent of its gold to Fidelity Printers and Refiners in Zimbabwe.

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