Caledonia Mining – 18% production increase boosts earnings

Caledonia Mining (Caledonia: CMCL) achieved targeted gold production of 50,400oz (50.4koz) in 2016, an 18% increase on 2015, after processing a record quantity of ore at its Blanket mine.

The company is aiming to increase production by a further 20%, to around 60koz of gold, in 2017 as part of an internally-funded expansion programme to increase gold production to 81koz by 2020. Earnings per share (EPS) for 2016 was up 78% and earnings before interest, tax, depreciation and amortisation (EBITDA) was US$16.7m.

The company paid a total dividend of US5.0c per share in 2016, for a yield of 3.6%, one of the highest in the sector. According to Marten & Co’s model (see pages 6 to 8), the company may be able to increase its dividend substantially as capital investment winds down. Increased production could also reduce average costs.

Caledonia has a 49% interest in the 100-year-old Blanket gold mine, in Zimbabwe, although it participates currently in the mine’s cash flow at the much higher level of 77%.

Marten & Co’s model of Caledonia indicates an EPS of US35.1c in 2017 and US30.2c in 2018. This suggests that the company could increase its annual dividend to US10c in 2018.

About Caledonia Mining

Caledonia is a gold mining company with an operating mine in the southern region of Zimbabwe. The company’s shares trade on the Toronto Stock Exchange (TSX) with the symbol CAL and on London’s AIM with the symbol CMCL. The company is registered in Jersey, having moved its domicile from Canada in Q1 16 to simplify the group structure and to reduce travel and compliance costs. The company acquired the Blanket mine from Kinross Gold in 2006. In 2012, it sold a 51% interest in the mine to various local parties to comply with indigenisation law (designed to increase the participation of Black Zimbabweans in the local economy). Caledonia is able to participate in Blanket mine’s cash flow at the much higher level of 77%, however, because of the way the indigenisation deal was facilitated.

CMCL: Caledonia Mining – 18% production increase boosts earnings