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Caledonia Mining

SteMiS
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Caledonia Mining

#451288

Postby SteMiS » October 19th, 2021, 1:53 pm

It's a gold miner and it's based on Zimbabwe.

Now we've got that out of the way, here are the fundamentals

Price - 960p (mkt cap - £161m)
EPS (2020) - 148p (P/E - 6.5)
Dividend (2020) - 24.3p (Yield - 2.5%)
Net cash (31.12.20) - £13.8m

There are a number of short and medium term triggers for a re-rating

Gold production in 2020 was 57,899 oz. The company has recently completed and commissioned a substantial (and self funded) investment in a new shaft which will both access new gold seams and increase output significantly, by 38% to 80,000 oz per annum. Not only will this increase the top line but it will also reduce cash mining costs. In quarter 3 2021 output was 18,965 oz (close to the 80k run rate projected from 2022 onwards) with guided output for the 2021 year now increased to 65-67,000 oz. Average gold price realised in 2020 was $1,749 oz. It is currently $1,780.

The company is a consistent dividend payer, which it pays quarterly, and due to it's strong cashflow it's going up strongly. The last quarterly dividend was 10.1p (14c) which would make a run rate of 40.6p per year (yield of 4.2%).

The company is looking for further sites to develop and last month acquired the Maligreen Project, a widely explored and evaluated former open pit mine in Zimbabwe, which contains an inferred resource of 827,000 oz (at 2.79g/tonne). The cost of $4m represents $4.8/oz and is less than it would cost of undertake the 60,000 m of diamond and percussion drilling that has been done on the site.

The things I like about Caledonia,

- these guys know how to run a mine and how to operate in Zimbabwe. They've had a number of challenges; the indigenisation policies of Mugabe, foreign current shortages in 2018 and Covid, which they comes through with barely a scratch. They've undertaken a very substantial development of their existing mine with (under the circumstances of covid) minimal delay and without recourse to shareholders.
- Zimbabwe is going to put a lot of investors off but it's a double edge sword. Zimbabwe is one of the last under explored regions in Africa and CMCL are ideally placed to exploit that. The bargain purchase of Maligreen was due to the absence of competitors in Zim with the cash to do the deal.
- they are very prudent and investor orientated. They understand the importance of the dividend and of not taking risks with shareholders money by speculative ventures with uncertain payback.
- with completion of the expansion, their existing Blanket mine is going to be an absolute cash machine. 80,000 oz at $1750 and a cash cost of <$750/oz is going to knock out £58m a year in cashflow (obviously there are some overheads and tax to pay). WH Ireland forecast a cash balance of £71.5m by 2023 with dividends rising to 72.5p/share (yield 7.5%).

Happy to discuss if anyone has any questions. I've been a holder for 9 years since the old TMF days.

PhaseThree

Re: Caledonia Mining

#451338

Postby PhaseThree » October 19th, 2021, 4:12 pm

Thanks for the interesting post.
How do they handle Zimbabwe's hyperinflation problem (currently 700+%) ? Do they have any exposure to the Zimbabwe dollar or do they effectively turn gold directly into USD ?

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Re: Caledonia Mining

#451368

Postby SteMiS » October 19th, 2021, 5:30 pm

PhaseThree wrote:Thanks for the interesting post.
How do they handle Zimbabwe's hyperinflation problem (currently 700+%) ? Do they have any exposure to the Zimbabwe dollar or do they effectively turn gold directly into USD ?

That's a good question and all I can do really is refer you to their Integrated Report for 2020 released on 9 September, which is an excellent description of how they operate

https://wp-caledoniamining-2020.s3.eu-w ... 2020-1.pdf

Operationally, Zimbabwe is less challenging than many other African jurisdictions. We benefit from a highly educated population with relevant commercial and technical experience; other than electricity, the infrastructure is reasonable; and the safety and security of our personnel and our operations is not a significant concern. International stakeholders frequently express concern at the high level of inflation in Zimbabwe. Provided we continue to be paid most of our revenues in US Dollars and we receive local currency at a reasonable rate of exchange, inflation is not a challenge to our operations. The most significant difficulty in Zimbabwe is the administrative complexity for transporting goods and equipment across borders and effecting commercial payments from Zimbabwe for imported goods and services and the repatriation of profits. Caledonia has operated successfully in Zimbabwe since 2006 and we have highly experienced personnel at Blanket and at our offices in Harare, Johannesburg and Jersey who make sure that we operate effectively within the complex and frequently changing regulatory environment.

To be fair the mechanism for dealing with these issues is somewhat complex and if you want more info I'll refer you to

https://wp-caledoniamining-2020.s3.eu-w ... -FINAL.pdf

4.9 Zimbabwe Commercial Environment - Monetary Conditions (page 19)

Enjoy...

Caledonia have been successfully operating the Blanket Mine in Zimbabwe for 15 years. The CEO, Steve Curtis, has been with them since then and CEO for 7 years. The CFO, Mark Learmonth, has been with them for 13 years and CFO for 7 years. I can't recall inflation being an issue in their accounts.

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Re: Caledonia Mining

#451862

Postby GoSeigen » October 21st, 2021, 4:44 am

Stemis, I'm also a holder for several years, maybe even alerted tot he share by you, and very happy with progress so far. However, do you not think the re-rating has already occurred in the run-up to current prices? There's still considerable risk in this business without even mentioning its location. I can see the risk being priced in at current price levels but if they were to double? Also, please remind me what level their shareholding in Blanket is, 75% IIRC, do your figures take account of that? I might repurchase some of the shares sold in the run-up to 1700p but I'm not sure about putting more in.

GS

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Re: Caledonia Mining

#451880

Postby SteMiS » October 21st, 2021, 8:38 am

GoSeigen wrote:Stemis, I'm also a holder for several years, maybe even alerted tot he share by you, and very happy with progress so far. However, do you not think the re-rating has already occurred in the run-up to current prices? There's still considerable risk in this business without even mentioning its location. I can see the risk being priced in at current price levels but if they were to double? Also, please remind me what level their shareholding in Blanket is, 75% IIRC, do your figures take account of that? I might repurchase some of the shares sold in the run-up to 1700p but I'm not sure about putting more in.

GS

CMCL own 64% of Blanket, having sold 51% as part of Mugabe's indigenisation policies in 2012 followed by repurchase of 15% in 2018 after indigenisation requirements were removed. The minority shareholders are effectively government and employee trusts. I don't think that's necessarily a bad thing. The sale of the 51% was effectively by deferred consideration (i.e loans) which are being repaid from their share of dividends from Blanket. It's all a bit complicated but there is more information in 4.8 and 12 i. in

https://wp-caledoniamining-2020.s3.eu-w ... -FINAL.pdf

The earnings figures and broker forecasts take account of this.

Other than location and gold price, I'm not sure what you think the considerable risks are. My view is that the price doesn't reflect the increase in profits/cashflow coming and longer term potential; the share price has been as high as 1900p (cp to 960p now). Double it and I agree that might be different...

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Re: Caledonia Mining

#452140

Postby GoSeigen » October 22nd, 2021, 5:17 am

SteMiS wrote:
Other than location and gold price, I'm not sure what you think the considerable risks are.

I'm thinking: political interference, gold price, accidents, loss of key execs (who I agree have done a great job), cashflow eaten by failed investment, disappointing profits due to encountering poor ore grades, etc. Some of these risks are common to all miners but as a small single-mine business operating in a challenging location I see them as elevated compared to the behemoths.

My view is that the price doesn't reflect the increase in profits/cashflow coming and longer term potential; the share price has been as high as 1900p (cp to 960p now). Double it and I agree that might be different...


For me the short-term looks very good but I struggle to see the longer term potential. I don't think this is an easily scaleable business and the execs won't stay here forever. Hope I'm wrong but those are some of the factors that have held me back from overweighting these CMCL in my holdings.


GS

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Re: Caledonia Mining

#452179

Postby SteMiS » October 22nd, 2021, 9:57 am

GoSeigen wrote:
SteMiS wrote:
Other than location and gold price, I'm not sure what you think the considerable risks are.

I'm thinking: political interference, gold price, accidents, loss of key execs (who I agree have done a great job), cashflow eaten by failed investment, disappointing profits due to encountering poor ore grades, etc. Some of these risks are common to all miners but as a small single-mine business operating in a challenging location I see them as elevated compared to the behemoths.

My view is that the price doesn't reflect the increase in profits/cashflow coming and longer term potential; the share price has been as high as 1900p (cp to 960p now). Double it and I agree that might be different...


For me the short-term looks very good but I struggle to see the longer term potential. I don't think this is an easily scaleable business and the execs won't stay here forever. Hope I'm wrong but those are some of the factors that have held me back from overweighting these CMCL in my holdings.

OK, that's interesting. I think it's always educational to hear the opinions of those who have a different perspective, whether you agree with it or not, so thank you for posting

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Re: Caledonia Mining

#452427

Postby GoSeigen » October 23rd, 2021, 9:41 am

SteMiS wrote:OK, that's interesting. I think it's always educational to hear the opinions of those who have a different perspective, whether you agree with it or not, so thank you for posting


Same for me, nice to read an openly bullish view.

GS

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Re: Caledonia Mining

#585842

Postby GoSeigen » April 28th, 2023, 3:15 pm

Earlier in the thread:

GoSeigen wrote:
SteMiS wrote:
Other than location and gold price, I'm not sure what you think the considerable risks are.

I'm thinking: political interference, gold price, accidents, loss of key execs (who I agree have done a great job), cashflow eaten by failed investment, disappointing profits due to encountering poor ore grades, etc. Some of these risks are common to all miners but as a small single-mine business operating in a challenging location I see them as elevated compared to the behemoths.

My view is that the price doesn't reflect the increase in profits/cashflow coming and longer term potential; the share price has been as high as 1900p (cp to 960p now). Double it and I agree that might be different...


For me the short-term looks very good but I struggle to see the longer term potential. I don't think this is an easily scaleable business and the execs won't stay here forever. Hope I'm wrong but those are some of the factors that have held me back from overweighting these CMCL in my holdings.


GS



SteMiS wrote:
OK, that's interesting. I think it's always educational to hear the opinions of those who have a different perspective, whether you agree with it or not, so thank you for posting


Sadly I think SteMiS is no longer with us, but in case he is, have quoted his latest reply.

A lot has happened to Caledonia Mining since this thread, but the price has barely moved, up just over 10% at 1100. The solar plant is operational, production at Blanket is hitting promised annual targets of 80,000oz. There have been acquisitions, making the company more than a single-mine outfit.

Personally I haven't gone mad investing here, for the reasons given earlier, I've jsut bought back the shares I'd top sliced into the Jul 2020 spike.

I wonder if it's now time to be dipping in here again? Do other Fools hold and/or have an opinion on this business?


GS


EDIT: Worth noting that the below broker forecast quoted in the OP is laughably wrong. Cash balances this year before capital raise were about $7m vs £71.5m forecast!

WH Ireland forecast a cash balance of £71.5m by 2023 with dividends rising to 72.5p/share (yield 7.5%).

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Re: Caledonia Mining

#585871

Postby Lootman » April 28th, 2023, 6:06 pm

GoSeigen wrote:I think SteMiS is no longer with us

As I recall he was very active on CAN in an anti-Brexit kind of way, and I suspect he might have tired of that.

But at least he posted on investment topics, even if they were mostly very speculative African mining shares!

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Re: Caledonia Mining

#606715

Postby SteMiS » August 3rd, 2023, 12:55 pm

GoSeigen wrote:Sadly I think SteMiS is no longer with us, but in case he is, have quoted his latest reply.

I hope you're not suggesting I've shuffled off this mortal coil. It's true I don't post on LF anymore although I'm still active on Advfn and Twitter.

It's true the share price is very disappointing, lower than when I first posted and with market cap now only $217m. It's hard to criticise the operational performance of CMCL (other than some short term operational issues in H1), they've pretty much done what they said they would, and the gold price is now over $1900/oz. I suspect the market is wary of a possible fund raise relating to the Bilboes project.

GoSeigen wrote:EDIT: Worth noting that the below broker forecast quoted in the OP is laughably wrong. Cash balances this year before capital raise were about $7m vs £71.5m forecast!

Fair comment although we haven't reached the end of 2023 yet (although it's certainly very unlikely the $71.5m will be reached). Despite generating $98m in pre tax cash profits in the last 2 years, $82m has gone on capex and exploration, $17m on dividends and obviously there was tax to pay. I'm sure that's all for the long term benefit of the company but why WH Ireland didn't see that I cannot say. Maybe that's why they have just had to carry out a rescue rights issue.

Anyway, I'm afraid that's all you are going to get from me here so good luck...

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Re: Caledonia Mining

#606766

Postby GoSeigen » August 3rd, 2023, 4:50 pm

SteMiS wrote:
GoSeigen wrote:Sadly I think SteMiS is no longer with us, but in case he is, have quoted his latest reply.

I hope you're not suggesting I've shuffled off this mortal coil. It's true I don't post on LF anymore although I'm still active on Advfn and Twitter.

Given your sudden disappearance without a trace I was worried that was the case. Thanks for dropping in an putting one person's mind at rest. I don't use either ADVFN or Twitter so sadly will miss your posts.

It's true the share price is very disappointing, lower than when I first posted and with market cap now only $217m. It's hard to criticise the operational performance of CMCL (other than some short term operational issues in H1), they've pretty much done what they said they would, and the gold price is now over $1900/oz. I suspect the market is wary of a possible fund raise relating to the Bilboes project.

GoSeigen wrote:EDIT: Worth noting that the below broker forecast quoted in the OP is laughably wrong. Cash balances this year before capital raise were about $7m vs £71.5m forecast!

Fair comment although we haven't reached the end of 2023 yet (although it's certainly very unlikely the $71.5m will be reached). Despite generating $98m in pre tax cash profits in the last 2 years, $82m has gone on capex and exploration, $17m on dividends and obviously there was tax to pay. I'm sure that's all for the long term benefit of the company but why WH Ireland didn't see that I cannot say. Maybe that's why they have just had to carry out a rescue rights issue.

Anyway, I'm afraid that's all you are going to get from me here so good luck...


I think you're right about the reasons for cash burn and for the depressed share price. For now I'm adding to my Anglo American position in preference to CMCL on the "make money slowly" principle and on the back of their currently depressed price, but watching closely what happens at Caledonia.


Thanks again for the post, much appreciated.


GS

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Re: Caledonia Mining

#651121

Postby GoSeigen » March 4th, 2024, 9:16 am

Caledonia shares have dropped 20% this morning on a profit warning, cash levels now even lower than previously.

Weirdly my earlier caution has paid off -- I have only added a small tranche after major profit-taking in 2020, and I even switched some of that tranche to AAL in December when the price ticked up. The long term value of mines is zero, so one has to be very wary investing in them, treat them like an amortising bond with finite lifetime. And Caledonia is highly undiversified both in terms of producing assets and their country exposure.

At some point the price may get tempting but this fall could pressage a long time in the wilderness. I don't think I'm brave enough to start buying again yet.

Anyone with a different take?

GS

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Re: Caledonia Mining

#657865

Postby GoSeigen » April 4th, 2024, 6:13 pm

Well well well, Caledonia made a loss last year!

I still find myself unable to increase exposure -- holding is now worth about 0.8% of net worth so I'm not going to cry even if there turns out to be a disaster.

GS

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Re: Caledonia Mining

#657882

Postby clissold345 » April 4th, 2024, 8:02 pm

GoSeigen wrote:Well well well, Caledonia made a loss last year!

I still find myself unable to increase exposure -- holding is now worth about 0.8% of net worth so I'm not going to cry even if there turns out to be a disaster.

GS


Since you're a shareholder I suggest you take a look at the CMCL board on advfn. I'm not going to attempt to pick out a quote from it since I havent researched CMCL.

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Re: Caledonia Mining

#657954

Postby GoSeigen » April 5th, 2024, 9:32 am

clissold345 wrote:
GoSeigen wrote:Well well well, Caledonia made a loss last year!

I still find myself unable to increase exposure -- holding is now worth about 0.8% of net worth so I'm not going to cry even if there turns out to be a disaster.

GS


Since you're a shareholder I suggest you take a look at the CMCL board on advfn. I'm not going to attempt to pick out a quote from it since I havent researched CMCL.


Thanks, that's helped me to take the plunge and sell 40% of the holding to be recycled into Anglo. Both have performed roughly the same recently but I think Anglo is the far safer company and likely to recover more quickly and far less likely to have a disaster!

GS


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