Dual-listed gold miner Caledonia Mining Corporation has entered into a six-month ‘cap and collar’ hedge of over 15 000 oz of production using a collar value of $1 050/oz and a cap value of $1 080/oz.

The company explains that the hedge will provide it with greater certainty as to its cash flows in the period up to July 6, by when it is expected that operating cash flows at its Blanket gold mine, in Zimbabwe, will benefit from the projected increase in gold production.

Caledonia notes that Blanket has completed the first year of a six-year investment programme, in terms of which the company will invest $70-million between 2015 and 2021 with the objective of increasing production to about 80 000 oz of gold by 2021 from its current level of about 42 000 oz.

When the revised investment plan was announced in October 2014, the anticipated capital investment in the three years from 2015 to 2017 was $50-million. However, it is currently expected to be around $45-million.

Caledonia explains that the hedge comprises a series of weekly contracts and, if the gold price at the end of each contract falls below the collar value, it 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, we will pay to the hedge counterparty the excess over the collar value multiplied by the hedged ounces,” the company states.

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

There are no other fees or expenses arising in terms of the hedge and the hedge arrangement is a financial instrument between Caledonia and a financial counterparty. Blanket will continue to sell 100% of its gold to Fidelity Printers & Refiners, in Zimbabwe.

Caledonia also intends to maintain its existing dividend policy of paying $1.125 per quarter.