The property is located in the Gweru mining district in the Zimbabwe Midlands that has historically produced significant quantities of gold, the miner said.
READ: Caledonia completes sinking of central shaft at Blanket gold mine, and is now on track to deliver production boost
Under the agreement, which covers 350 hectares, Caledonia has the right to explore the area for a period of up to 15 months and subsequently, if exploration is successful and at its sole discretion, acquire the mining claims over the area.
The total consideration is an initial payment of US$2.5mln in cash, followed by a further payment of US$2.5mln, payable 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.
The firm said it believes that Glen Hume offers significant exploration potential, having conducted airborne geophysics which indicates attractive exploration targets as well as preliminary metallurgical work indicating favourable grade and recovery.
A preliminary contract has been signed with the existing drilling contractor and a drill programme has been put in place.
Caledonia has agreed to the payment of a one per cent net smelter royalty (NSR) to the vendor on gold it produces from the area, the firm added.
The NSR can subsequently be bought out at Caledonia’s discretion for a lump sum payment of US$15mln within the first five years following the acquisition by Caledonia of the claims, or US$10mln until the tenth anniversary of operation or US$5mln thereafter.
“As we approach the completion of the Central Shaft project, our production is expected to increase by 45% to 80,000 ounces by 2022, we also expect to realise a substantial increase in cashflow as a result of increased production, reduced costs per ounce and lower capital expenditure,” said chief executive Steve Curtis in a statement.
“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 give 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.”