Caledonia Mining Corporation Plc has assessed the Zimbabwean government’s 2026 National Budget, which proposes a 10 % royalty on gold production when the price exceeds US$2,500 per ounce and a shift in capital‑expenditure tax treatment from a 100 % upfront deduction to a spread over the life of a project. The changes are slated to take effect on 1 January 2026 and will apply to all large‑scale gold producers operating in Zimbabwe.
The new royalty regime doubles the current flat 5 % rate that has applied to the country’s gold sector. Because the threshold is set at US$2,500 per ounce, the majority of Caledonia’s production—most of which is above that level—will be subject to the higher rate. Management estimates that the increased royalty will reduce net cash flow from the Blanket Mine by an amount that could approach 10 % of the mine’s pre‑tax operating cash, while the Bilboes Gold Project, still in the development phase, will see its projected return on investment decline by a similar margin due to the higher royalty burden.
The tax reform removes the ability to claim a full 100 % deduction for capital expenditures in the year of investment. Instead, the deduction will be amortised over the project’s useful life. This change will delay the tax shield that Caledonia currently enjoys, compressing near‑term free cash flow and potentially affecting the timing of future capital projects. The company has indicated that it will adjust its cash‑flow models to reflect the deferred tax benefit, which could push the breakeven point for new projects by several months.
Caledonia’s chief executive said the company is actively engaging with Zimbabwean authorities to understand the final wording of the legislation and to negotiate any possible exemptions or transitional arrangements. “We are reviewing the impact on our Blanket Mine and Bilboes project and expect profitability to be lower if the measures are enacted,” the CEO noted. “Our long‑standing presence in Zimbabwe gives us a platform to work constructively with the government.”
Investors have reacted negatively to the announcement, citing the increased royalty and altered tax treatment as headwinds that will erode margins and cash generation. The broader context includes Zimbabwe’s effort to capture a larger share of gold revenue during a period of record gold prices, which have topped US$4,000 per ounce in recent months. The reforms align with a global trend of mining jurisdictions tightening fiscal terms during commodity booms, but they also raise questions about the country’s investment climate and the sustainability of future gold production.
The regulatory shift signals a potential shift in Zimbabwe’s mining policy that could influence Caledonia’s strategic decisions. The company will likely reassess its capital allocation, potentially delaying or scaling back new projects until the final legislation is clarified. The impact on the Bilboes project’s economics may prompt a re‑evaluation of its feasibility, while the Blanket Mine’s profitability will be monitored closely as the new royalty takes effect. Overall, the changes introduce a significant cost headwind that will shape the company’s financial outlook for the next 12 months.
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