LONDON (ShareCast) - (Sharecast News) - Caledonia Mining has entered into an option agreement for the exclusive right to explore, and possibly acquire, the mining claims over the area known as Glen Hume in the Gweru mining district in the Zimbabwe Midlands.
The AIM-traded firm said Glen Hume had historically produced "significant" quantities of gold.

It said it believed that the area offered "significant" exploration potential, adding that the agreement covered an area of about 350 hectares with "substantial" evidence of gold mineralisation, including historical mining activity.

Caledonia had conducted airborne geophysics, which indicated attractive exploration targets, and had also conducted preliminary metallurgical work indicating favourable grade and recovery.

A preliminary contract was signed with the existing drilling contractor, and a drill programme had been put in place.

Caledonia said it had acquired the right to explore the area for up to 15 months and subsequently, if exploration was successful and at its sole discretion, acquire the mining claims over the area.

The total consideration was an initial payment of $2.5m in cash, followed by a further payment of $2.5m in cash or shares at the discretion of the vendor, which would be payable should Caledonia decide to exercise its right to acquire the mining claims.

Caledonia said it had agreed to the payment of a 1% net smelter royalty to the vendor on gold it produced from the area.

The royalty could subsequently be bought out at Caledonia's discretion for a lump sum payment of $15m within the first five years following the acquisition by Caledonia of the claims, or $10m until the tenth anniversary of operation, or $5m thereafter.

"As we approach the completion of the central shaft, with our production expected to increase by 45% to 80,000 ounces by 2022, we also expect to realise a substantial increase in cash flow as a result of increased production, reduced costs per ounce and lower capital expenditure," said chief executive officer Steve Curtis.

"This gives us the financial and management capacity to take on new opportunities in Zimbabwe and we are pleased to enter into this option agreement which gives us the right to explore and subsequently to acquire mining claims over this property.

"This agreement represents the first step towards our goal of increasing our portfolio and becoming a multi-asset gold producer in Zimbabwe, one of the last gold frontiers in Africa."

At 0820 GMT, shares in Caledonia Mining Corporation were down 0.24% at 1,242p.

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