Caledonia Mining Corporation plc

Operations

Blanket Gold Mine

The current Blanket mining area has eight ore shoots in the producing section of the mine. The majority of the mine production is sourced at present from the AR Main and AR South ore bodies with a lesser contribution from the Blanket, Eroica and Lima reefs.

Background

Blanket started production in 1904. Early workers tended to mine the visible gold sections of the pay shoots, i.e. pick the “eyes” out of the mine.

Significant early production milestones were: in 1965 Falconbridge acquired the property and increased gold production to an average of approximately 45 kg per month; in 1993 Kinross took over the property and built an enlarged Carbon-in-Leach (“CIL”) plant with capacity of approximately 3,800 tonnes per day (“tpd”) to treat an old tailings dump together with the run-of-mine ore.

Gold production reached a level of 110 kg per month during the tailings treatment years from 1995 to 2007. To date in excess of 1 million ounces of gold have been produced from the property.

On April 1, 2006 a wholly-owned subsidiary of Caledonia Mining Corporation completed the purchase of the Blanket Mine from Kinross. Caledonia has allowed Blanket to make considerable capital investments in its underground, surface and township facilities. These investments culminated in the commissioning of the No 4 Shaft Expansion Project at the end of September 2010 which increased Blanket’s hoisting capacity from the No. 4 Shaft from 500 tonnes per day to 3,000 tonnes per day.

The current Blanket mining area has eight ore shoots in the producing section of the mine. The majority of the mine production is sourced at present from the AR Main and AR South ore bodies with a lesser contribution from the Blanket, Eroica and Lima reefs. AR Main and AR South are massive ore bodies up to 30 m wide and are ideally suited to the long-hole open stope mining method, while the remainder of the Blanket ore bodies are tabular and better suited to underhand stoping methods.

Following the successful commissioning of the No. 4 Shaft Expansion Project in September 2010, the underground workings have increased production to approximately 1,200 tonnes of ore per day using both long-hole open stoping and underhand stoping methods. Broken ore is trammed along the 22 Level rail system by battery locomotives and the ore cars trains are self-tipped onto one of three grizzlys above the ore bins which are located between 22 Level and the 765m level crushing station. The minus 300 mm rock held in three underground storage bins, Payable ore and waste ore are held in separate storage bins and handled accordingly. Ore is gravity fed from these ore bins onto the 765m Level crushing station conveyor which discharges the ore onto a vibrating grizzly feeder which discharges the oversize into a 30 x 20 Telsmith jaw crusher.

Zimbabwe Operation Map

The underground crushing station ensures that all the run-of-mine ore is reduced to minus 150 mm in size as this provides for the optimisation and greater efficiency of the automated skip loading and hoisting operations. This allows mining and hoisting activity to continue without interruption.

Blanket No. 4 Shaft has been equipped with the first automated loading system in Zimbabwe which sequentially fills the two six tonne ore skips which are hoisted from the 789m level to surface. The use of this state of the art automation reduces the risk of ore loading accidents and injuries, reduces manpower costs, minimises spillage, reduces skip loading times, increases hoisting capacity, ensures precise ore tonnage accountability, and enhances winder efficiency while lowering loading and hoisting costs.

The double compartment No. 4 Shaft is Blanket’s main shaft for hoisting ore to surface from the loading stations at 510m and 789m below surface, and it has a proven hoisting capacity of 110 tonnes per hour from 789m. The Jethro and Eroica Shafts and the No.5 and No.6 Winzes are used for transporting personnel and materials underground, and the No.2 and Lima Shafts are also used for hoisting ore to surface.

The entire underground and surface operations of the Blanket mine, except for the Lima Shaft, including the surface compressors and the No 4 Shaft Winder can be operated by the 10,000kVA standby diesel powered generating sets which were installed and commissioned in May 2011.

This standby generating station ensures that all mining and metallurgical operations continue notwithstanding any interruptions to the electrical power supply from the grid. The level of interruptions to Blanket’s power supply has diminished considerably following the agreement of an un-interrupted power a supply agreement between Blanket and ZESA. In the year to 31 December 2012, the standby generators were used for a total of 108 hours (2011, 121 hours).

The Blanket Mine is situated in the Gwanda Greenstone Belt, a typical Archaean greenstone-hosted gold deposit. The deposit is situated on the northwest limb of the Gwanda Greenstone Belt along strike from several other prominent gold deposits. Blanket is the largest producing mine in a belt which at one time had 268 operating mines.

The Gwanda Greenstone Belt extends 80 km in an east-west direction and consists predominantly of basaltic rocks (greenstones) with minor felsic and ultramafic units. The belt has been intensely sheared and intruded by granites resulting in complex deformation structures and vertically dipping strata. The shape of the gold ore bodies is controlled by these structures, resulting in their near vertical orientation.

Near vertical shear zones are developed throughout the belt and are the loci of most of the small mines that have been discovered in the area. Most of Blanket’s prospects are of this type. Many of these now defunct small mines were shallow, had historically high recovered gold grades and closed towards the end of the 1960s when the gold price was low and the mining and metallurgical techniques available at that time were such that the mines became un-economic. The area has a long history of gold production and remains highly prospective and must therefore be regarded as an attractive exploration area as it has never been subjected to modern exploration techniques.

Active mining at the Blanket mine takes place over a 3 km strike that includes 8 discrete ore shoots. Fig NN provides a north-south vertical projection of the various Blanket ore shoots. Mineralisation occurs in near vertical shoots aligned along an approximately north-south axis. The ore shoots vary in shape from the tabular to lensoidal quartz reefs to the massive to pipe-like disseminated sulphide reefs (DSR).

Gold mineralisation occurred as a result of the reaction between rising hot fluids and the iron rich minerals in the shear zones. The reaction involved the formation of sulphide minerals, predominantly arsenopyrite, as the sulphur in solution reacted with iron in the rocks. Gold, which was also transported by the fluids, became attached to the arsenopyrite to form the gold ore. These reaction zones are located within the more ductile tensional high strain areas of the shear zone.

Blanket Mine is part of the group of mines that make up the North Western Mining Camp otherwise also called the Sabiwa group of mines. What is today referred to as Blanket Mine is a cluster of mines extending from Jethro in the south, through Blanket itself, Feudal, AR South, AR Main, Sheet, Eroica and Lima in the north. These ore shoots occur in the Blanket shear zone, a low angle transgressive shear characterised by the presence of biotite relative to the massive amphibolites forming the country rocks.

A regional sub horizontal dolerite sill intruded the above sequence and is emplaced about 500 meters below surface. The sill does not cause a significant displacement and although it truncates all the ore shoots, the mineralised shoots continue undisturbed below the sill.

Since the rock units of the Gwanda Greenstone Belt are tilted on their side and strike north-south in the vicinity of Blanket Mine, the stratigraphic sequence is exposed from the oldest in the east to the youngest in the west. The Felsic unit consisting of quartzite and sericite-quartz schists forms the base of the stratigraphy. No gold deposits have been recorded in this unit. Overlying this unit to the west is the Ultramafic-Mafic unit interlayered with banded iron formations. Gold occurs in this unit at Vubachikwe mine, which is adjacent to Blanket, where the deposits are confined to steeply dipping folds in the banded iron formation layers. The Ultramafic-Mafic unit is in turn overlain to the west by the Mafic unit, a thick sequence of tholeiitic and pillow basalts. Within the Mafic unit a prominent shear zone up to 50 meterswide runs the length of the property and is the locus of all ore bodies on the Blanket property. The sequence is completed by an Andesitic unit which caps the stratigraphic sequence.

Two main types of mineralisation are recognised; disseminated sulphide replacement reefs and quartz-filled reefs and shears.

The first type is the disseminated sulphide replacement type which comprises the bulk of the ore shoots. Typically these zones have a silicified core with fine sprays of disseminated arsenopyrite hosting the best grades. Disseminated sulphide replacement ore bodies range up to 50m in width with a strike between 60m and 90m. Free-milling gold constitutes up to 50% of the total metal content with the remainder occluded within the arsenopyrite.

Quartz-filled shear zones form the second type of mineralisation. Two quartz shears are mined at Blanket Mine, the Blanket Quartz Reef and the Eroica Reef. These reefs tend to have long strikes but are not uniformly mineralized although continuous pay shoots of over 100 m on strike are not uncommon. The Quartz Reef at Blanket has a surface strike of some 500 m, but economic mineralisation is restricted to three 90 m shoots which were defined on surface by the early workers. Grade fluctuations are more extreme in the quartz reefs than in the disseminated type reefs but on average these shears have higher grades and are used as a “sweetener” of ore to the mill.

On-Mine Exploration and Development

On November 3, 2014, Caledonia announced its revised investment plan (“Revised Plan”) and production projections for the Blanket Mine.

Caledonia’s Board and Management have completed a review of alternative expansion and diversification plans for Caledonia.  Both the Board and Management have also addressed the revised production projections for the Blanket Mine and the possible benefits of diversifying Caledonia’s production base. Caledonia has concluded the best returns on investment remain at the Blanket Mine in Zimbabwe, which continues to be cash generative in the current adverse market conditions and also offers significant investment returns that exceed alternative investment opportunities.

The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up.  The infrastructure improvements will include the continuation of the No. 6 Winze, the development of a “Tramming Loop” and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters.

The increased investment pursuant to the Revised Plan is expected to give rise to production from inferred resources of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from proven and probable mineral reserves of approximately 6,000 ounces.  The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.

Core Storage

Metallurgical Process

The skips automatically tip ore hoisted to surface into the Shaft Bins on the No4 Shaft headgear. Ore is gravity fed from the Shaft Bins onto the No1 belt which conveys the ore over the automated belt scale and to vibrating screens and 14×24 Telsmith jaw crushers. This crushing circuit reduces the ore to minus 50 mm and it is then deposited by the No 2 belt stockpile conveyor onto the coarse ore stockpile which has a live capacity of approximately 2,000 tonnes of material. Ore from the coarse ore stockpile is then fed onto the triple-deck vibrating screen with the oversize being crushed to minus 12 mm by one of two 38H Telsmith Gyrasphere crushers. The 12mm ore is then fed into the 600 tonne Mill Bin which feeds the two (of the three installed) 1.8 x 3.6 m rod mills where it is milled down to approximately 70% passing 75 microns, before being passed through two 30 inch continuous Knelson Concentrators where approximately 49% of total gold production is recovered. The Knelson Concentrator tails are pumped through cyclones and into a 3.66 x 4.9 m x 750kW (1,000 HP) regrind ball mill. As part of the No.4 Shaft Expansion Project, the capacity of the secondary crushers was increased to over 2,000 tpd and the capacity of the rod mills was increased to 1,800 tpd. The slurry from the regrind mill is pumped into a carbon in leach (“CIL”) plant consisting of eight, 600 cubic meter leach tanks equipped with 45 kW agitators where leaching at 50% solids and simultaneous adsorption of dissolved gold onto activated carbon takes place. The CIL plant has a nameplate capacity of 3,800 tonnes of milled ore per day. Elution of the gold from the loaded carbon and electro winning is done on site. Gold is deposited onto steel wool cathodes, the loaded cathodes are acid-digested and the resultant gold solids are smelted in an induction furnace to produce gold bullion of approximately 90% purity, after which the bullion is sold as required by Zimbabwean law to Fidelity Printers and Refiners (Fidelity) in Harare which undertakes final refining and sale. The proceeds of sale (i.e. 98.5% of the value of the gold contained before payment of any royalty) are paid directly into Blanket’s foreign currency account with its commercial bank in Zimbabwe within 7 days of receipt of the gold by Fidelity.

Overall gold recovery rates have been increased from 85% at the time of acquisition by Caledonia to over 94% as a result of the re-design of more efficient CIL agitators and the installation of an automated liquid sodium cyanide facility which allows for multiple stage cyanide dosing and monitoring of the CIL. The PSA (Pressure Swing Adsorption) Oxygen Generator has been re-commissioned and the controlled sparging of oxygen into the CIL has resulted in an increase in leach recoveries to approximately 94%.

No. 1 Conveyor feeding the two Primary Jaw Crushers. Tailings from the CIL circuit contain less than 30 ppm of cyanide, and are pumped to one of two tailings dams which are operated and maintained by Fraser Alexander, and are inspected and monitored daily by Blanket.

shaft

Consumables used in the metallurgical plant (e.g. grinding media, reagents etc) and the mining operations (explosives, detonators, drill steels etc.) are currently sourced primarily from South Africa.

Historical operating statistics for the Blanket Mine are available in Caledonia’s MD&A, which can be found in the Investor section of Caledonia’s website. Blanket’s historic financial performance up to February 2009 was accounted for in Zimbabwean dollars until 2009. Due to the extreme hyper-inflationary environment which prevailed in Zimbabwe until early 2009 and the resultant devaluation of the Zimbabwean dollar, Blanket’s stated historic financial statements are unhelpful for the purposes of evaluating Blanket’s historic financial performance. The Zimbabwean dollar was abolished in February 2009 and all financial transactions in Zimbabwe now take place using other currencies, including the US Dollar, the South African Rand and the Botswana Pula. With effect from 1 January 2009, Blanket has prepared its accounts in US Dollars.

Central Shaft

The proposed Central Shaft will be a 3,000 tonne per day, 6-meter diameter, 4-compartment shaft that will transport men, equipment and material from surface to 1,080 meters below surface. The shaft will be located between the AR Main and AR South ore bodies, in the middle of Blanket’s mining area. Construction on the shaft is expected to commence in July 2015, following completion of the Tramming Loop. The capital cost of the Central Shaft is expected to be approximately US$23 million. The shaft will be sunk in two simultaneous phases: from surface from 750m below surface and is expected to be completed in July 2017. Once complete, the Central Shaft will provide access for horizontal development in two directions on two levels below 750m.

The increased investment pursuant to the Revised Plan is expected to give rise to production from inferred resources of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from proven and probable mineral reserves of approximately 6,000 ounces. The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.

The Revised Plan includes a revised life of mine plan for the Blanket Mine (the “LOM Plan”) in terms of which it is anticipated that the approximate production from existing proven and probable mineral reserves above 750 m level will be as set out below.

Approximate production from proven and probable mineral reserves above 750m (per LOM Plan)

Central Shaft and the associated capacity improvements in the Blanket Processing Plant are expected to enable an increase in gold production at Blanket to 75,000 ounces by 2021 and 80,000 ounces from 2022 onwards. Improved access to Inferred Mineral Resources at depth is expected to enable the maintenance of this 80,000 ounce per year production rate until approximately 2034.

The new Central Shaft and the deepening of No 6 winze will provide access to the current inferred mineral resources below 750 meters and allow for further exploration, development and mining in these sections along the known Blanket strike, which is approximately 3 kilometers in length. The PEA has been prepared in respect of the inferred mineral resources below 750 meters. Based on the PEA, additional approximate production from current inferred mineral resources (excluding the projected production set out above) may be achieved in the following indicative ranges:

Possible production from inferred mineral resources below 750m (per PEA)

Canadian rules do not allow production from inferred resources to be added to those from proven and probable reserves for reporting purposes.

The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA will be realised. Diamond drilling and development will continue with the objective of increasing confidence in order to upgrade the categorization of the resources.

The LOM Plan and the PEA have been reviewed by Minxcon Consulting, an independent mining consulting company. A technical report prepared in compliance with National Instrument 43-101 which summarizes the revised LOM Plan and the PEA will be filed on SEDAR before December 17, 2014. The most important assumptions on which the PEA is based include, a gold price of US$1,200 per ounce, achievement of the targeted production set out above and the accuracy of the projected capital costs.

It is also intended to continue exploration at two of Blanket’s satellite projects, Mascot and GG. No production forecasts are attributed to mining activity at either GG or Mascot at this stage as neither of these currently have defined NI43-101 mineral reserves or resources.