Caledonia Mining signs offtake deal with Chinese refiner

Caledonia Mining (CAL-T, CMCL-L) has teamed up with an undisclosed Chinese refiner, signing an offtake 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 priceof 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 traded up 90% at 19 apiece on a 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 cobalt and copper 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 the 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 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 amenable to open-pit mining.

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

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

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