CALEDONIA Mining Corporation shareholder Baker Steel Resources Trust Limited has raised concern over Zimbabwe’s proposed gold-tiered royalty regime, warning it could reduce the Bilboes Mine project’s net present value (NPV) by up to US$150 million.
The new royalty system, which takes effect next year, is expected to diminish future cash flows from the project due to a higher government take — though not to the extent of rendering the project unviable.
Under the three-tiered structure, gold sold at US$0–US$1 200 per ounce will attract a 3% royalty, US$1 201–US$2 500 will draw 5%, while prices above US$2 501 will incur a 10% royalty.
“Our initial evaluation suggests that this would reduce our estimates for the NPV by some US$100-150 million. The NPV will also be affected, albeit to a lesser degree, by an additional change in the rate of capital allowances for tax,” Baker said.
Baker’s concern comes as Caledonia positions the Bilboes Mine to become its flagship project over the next three years, away from Blanket Mine. Bilboes is expected to produce five tonnes of gold annually.
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Caledonia has previously warned the new royalty structure will squeeze profitability and cash generation at Blanket Mine and weaken returns from the Bilboes project.
A recent feasibility study shows Bilboes hosts 1,749 million ounces of proven and probable gold reserves, with revenue potential of more than US$7,2 billion at current prices.
Baker is a London-listed investment trust managed by Baker Steel Capital Managers LLP, a UK-based specialist fund manager offering a range of funds in the natural resources, gold, and precious metals.
“The company’s 1% royalty on Bilboes is not directly affected by the revised government royalty rate in Zimbabwe. However, it could result in an extension to the financing timetable even though the project remains attractive despite the higher government royalties,” Baker Steel Capital Managers LLP investment manager Trevor Steel said.
“Based on the feasibility study production profile, we calculate that the company would continue to be entitled to approximately US$7 million in royalty payments from the first full year of production at current gold
prices.
“The company will review the valuation of its Bilboes royalty at the year-end, taking into account the revised production profile from the feasibility study and the increased gold price since the last valuation in June.”
Caledonia plans for Bilboes Mine to begin production in the second half of 2028, with the first full year of output — projected at 197 000 ounces of gold — expected in 2029, more than double production at Blanket Mine.
