Blanket Mine R&R upgrade

New Resource and Reserve Statement: Blanket Mine’s recent R&R statement shows it has significantly upgraded its reserves as the result of an extensive underground drilling campaign since mid-FY22.   

Reserves and LOM: On a 100% basis, the reserves grew from 3.94mt at a grade of 3.12g/t in September 2022 to 7.68mt at a grade of 3.29g/t in March 2024. Contained gold increased significantly from 0.39moz to 0.81moz. This increased the SEC-defined LOM from 4 to 11 years (2034). 

Inferred resources: There are 6mt of inferred resources within Blanket’s planned mine development footprint, which are scheduled for mining.  

20-F vs Blanket’s planned LOM: The SEC requires Caledonia to ignore Blanket’s inferred resources in its 20-F cash flow analysis. This exclusion undervalues Blanket, which expects to extend its economic life to 2041 but also promises higher production over the next decade. 

Blanket valuation uplift: The 20F report estimated Blanket’s value to Caledonia at $83m at a 15.6% real discount rate, which provides little support to its current share price. Our valuation, which is based on Blanket’s production estimates and its planned use of inferred resources, indicates that the mine is worth between $163m and $187m to Caledonia at below and at near-spot gold prices.

Further ahead: The Deep Drilling Project should generate further extensions to both the SEC-defined LOM to 2038E as well as its own LOM plan to 2043E. These exceptional levels of reserve life would make Blanket a rare example of a very long-life underground Archaean gold mine underwritten by ‘bankable’ reserves.

Earnings upgrade: After poor production as well as a loss of USD24cps in FY23, Blanket’s performance has recovered, and Caledonia is expected to generate basic earnings of USD117cps in FY24E. We also expect cash to start accumulating by year end despite high capex in 2H24E.

Bilboes project is another key value pivot for Caledonia. The project is one of Southern Africa’s largest and highest-grade gold reserves. However, it remains a work in progress both from a feasibility study and financing point of view. Finalisation of these issues should increase our estimate of the attributable value to Caledonia.

Caledonia valuation: Based on a 20% real discount rate and a DCF-based sum-of-the-parts valuation, we estimate Caledonia to be worth between $10.45/s (base case, previously $11.07/s) and $12.56/s (speculative case, previously $12.96/s). Our estimated value of the Bilboes project in the value mix remains small due to our expectations of start-up and construction delays as well as cost escalations.

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