Caledonia Mining signs off-take agreement with Chinese refiner

Caledonia Mining Corporation (CAL-T, CALVF-O, CMCL-L) has teamed up with an undisclosed Chinese refiner, signing an off-take agreement for cobalt from its Nama project in northern Zambia.

Caledonia will supply at least 21,000 tonnes of cobalt metal equivalent in the form of cobalt hydroxide over the next six years.

Under the agreement, the price will be based on the published monthly average for 99.3% cobalt from the London Metal Exchange.

The deal also contains a guaranteed “take or pay” minimum cobalt price of US$12 per lb. of cobalt metal.

The current spot price for cobalt is US$44 per lb.

In Toronto the markets welcomed the news, and shares of Caledonia at mid-day were trading up 90% at 19 apiece on a trading volume of 10.7 million.

Caledonia is targeting production by early 2009 at a rate of about 10,000 tonnes of cobalt metal a year.

The Nama project lies on the northwestern flank of Zambia’s Copperbelt.

In March, Caledonia released its first national instrument 43-101 compliant indicated resource for a portion of its Nama cobalt and copper project.

The numbers reveal an indicated resource of 43.7 million tonnes grading 0.055% cobalt, 0.1% copper, and 0.01% nickel.

In 1997, the company had released a non-compliant indicated resource of 7.4 million tonnes grading 0.079% copper for the same anomaly, known as anomaly A.

Anomaly A has been described by the company as oxidized and open pittable.

So far the company has explored five of the 16 cobalt anomalies identified at Nama.

In a press release today the company said it plans to start mining Anomalies A and C using open-pit mining methods, pre-concentration and conventional cobalt extractive technology.

The company also said an internal feasibility study estimated capital expenditure at US$125 million and production costs below US$10 per lb.