Caledonia earnings to bulk
Analysts forecast increased earnings performance for the Victoria Falls Stock Exchange (VFEX) listed resources group, Caledonia Mining Corporation Plc, supported by strong gold production, while also benefiting from its acquisitions and firm commodity prices.
Projected favourable gold prices, stabilising at an average of US$1 600 over the next 12 months is expected to favour Caledonia’s earnings for financial year 22 (FY22) and going forward.
Annual gold production is slated to hit 80,000 ounces from 2022 attributable to maturation of the Central Main Shaft expansion programme, at a self-funded cost of US$67 million to date.
The development will allow access to proved resources below the 750m zone with an envisaged and fully funded mine life of 13 years.
The resources group has also made investments towards solar energy to boost power supplies at Blanket Mine, which should be up and running by FY22 with target to provide approximately 27 percent of Blanket’s total daily electricity demand.
“With no other major CAPEX immediately on the books, higher production and low unit costs overall this gives Caledonia significant upside in a cash rich position giving room for profit-share growth with investors.
“Production costs are expected to trend downwards at Blanket mine due to anticipated economies of scale as the central shaft comes online,” said IH Securities in their Initiating Coverage, Caledonia Mining Corporation Plc report.
The mining firm’s consistency in dividend pay-outs also increase its allure.
“While there is no fixed dividend policy, management had taken a stance to grow dividends consistent with increasing free cash flows,” said IH.
Caledonia’s dividend grew 8 percent in October 2021 to 14 cents per share on uptick in production and favourable market prices, marking a 104 percent increase since October 2019.
The mining firm is operating on a dividend yield of 4,4 percent. Dividend Growth prospects remain strong for the firm, with active explorations and acquisitions ongoing in the background.
IH Securities forecast EBITDA margin to remain steady above the 40 percent mark through to 2028.
While the firm has decided not to exercise the option to the Glen Hume Mine, open cast mines Connemara North and Maligreen Goldfields remain on the cards with annual historic output of 20 000 ounces each.
IH estimates a target price of US$16,03.
“We see the valuation as undemanding and place a BUY rating on Caledonia.”
Meanwhile run of mine for Blanket mine grew 7,4 percent to 597,962 at an average grade of 3,21g/t while recovery rate trended at 93,8 percent for FY20 yielding 57,899 ounces of gold.
For the half year to June 30, 2021, revenue for the mining firm registered a 19,74 percent year on year growth to US$55,70 million. Annual revenue for the preceding financial year, FY20, breached the US$100 million mark on a combination of increased production figures and a higher average realised gold price.
EBITDA surged 41 percent to US$23,5 million with an improved cash position of US$16,69 million at end of 1H21 on normalisation of working capital.
Caledonia purchased Blanket Mine on 1 April 2006 with ownership currently amounting to a 64 percent stake.
The mine has measured and Indicated resources of 8,53Mt (902koz) at 3,29g/t and Inferred resources of 8.49Mt (866koz) at 3.17g/ with ore being processed at an on-site plant.
Being a strategic commodity to economic growth and currency stability, the gold sector remains critical to Zimbabwe which prompts the Government to come up with policy measures to boost output and efficiency in the sector.
The Government recently unbundled Fidelity Printers and Refiners to promote efficiency and plug problems of late payments constraining working capital needs.
Now, with the listing on the US$ denominated VFEX, Caledonia is expected to further unlock shareholder value while raising capital in foreign currency for expansion programmes.
Among other key incentives on the VFEX, capital raised by a company listed on the exchange may be held in an approved local or offshore account with an internationally recognised banking institution. Exporters listed on the VFEX will also retain 100 percent of their incremental export proceeds.-eBusiness Weekly
