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CALVF - Caledonia Mining


DTEJD1997

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Hey all:

 

I've discussed Caledonia Mining-CALVF briefly here and there...

 

This is one of my patented "crazy investments"!  So please be sure to do your own research & due diligence.

 

I've traded in and out of CALVF through the years and have done VERY well with it.  I've also harvested a tremendous amount in dividends.  I would posit that at the current time & current price levels (5.30.17 & $1.21/share) that CALVF is a very interesting investment.

 

Why is that?

 

Several developments have transpired that have made me increase my position...

 

A). The price has declined as they have cut back slightly on their 2017 production numbers...Evidently, they are having a bottleneck bringing rock up to the surface.  They have one mine shaft right now, and they have bring up "load bearing" ore & waste rock.  CALVF has to dig tunnels to get to the new ore that is quite deep within the earth...as such, there is currently a TON of waste rock that needs to be brought up to the surface and disposed of.  They also have to bring up the gold bearing rock...so the decision has been made to give some preference to digging the new tunnels.  Mind you...CALVF will still increase production for the year...but will be down about 5% from prior projections.  Hardly a disaster...but the stock price has gone down....

 

B). The company is making money....making really good money...but they aren't getting any credit for it.  You are going to have to indulge me...the P/E is just above 5...so this is a much higher P/E ratio than I like to go for.  HOWEVER, with a P/E this high, the market is indicating that it expects earnings to grow tremendously in the future.  Although I am a generally a contrarian/pessimist I agree that earnings should increase in the near future.  So I think it is worth "paying up" in the hopes of future growth.  Of course, with a P/E of 5, you should be looking for a rock solid balance sheet...

 

C). CALVF has a rock solid balance sheet.  While it has deteriorated somewhat over the past couple of years.  HOWEVER, there is a good reason for this.  CALVF is working tremendously on expanding their mine and output.  They've invested many millions of dollars sinking a secondary shaft, drilling exploratory/confirmatory assays, making new tunnels, expanding the oxygen plant, capital equipment, etc.  By the end of 2017, the vast majority of this capital expenditure will be over with.  Already, the increased capital expenditures are starting to slow down.  Once completed, the company will have a TREMENDOUS amount of free cash flow, ceteris paribus.

 

These capital expenditures are not some "pie in the sky" stuff....it is an eminently reasonable expansion of their successful current mine.

 

D). Insiders and management have lately been buying

 

E). They are looking to uplist to the NYSE to increase liquidity/visibility.  I think this will be a HUGE positive.  I suspect, that once gets out, people are going to be interested in investing in a single digit P/E, solid balance sheet, dividend paying gold miner.  Of course, I could be very, VERY wrong in my thinking.  Maybe investors want to invest in "waves of the future" that don't currently make money or interweb retailers with P/E's in the hundreds...

 

F).  The dividend yield at just over 4% is very low...Do not fret though!  I STRONGLY suspect that within the next 12-18 months, the dividend will be increased.  There is even a chance that it will be increased SUBSTANTIALLY and thus bring it up to a more acceptable level.

 

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So those are some of the more interesting good points.  Of course, there are some levels of risk here....

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They are a gold miner, and are thus vulnerable to swings in the price of gold.  The good news is that they are pretty low cost producer.  If CALVF can't make money mining gold, ain't nobody going to make money mining gold.

 

They are "hard rock" mining company.  Their mine has been producing for over 100 years and they have to go deep to get the gold.  This entails some of amount of risk.  Tragically, one of their miners lost their life in the mine.  So there is both a safety and technical risk.

 

They are also operating in Africa, Zimbabwe specifically.  While this is a risk, I don't think it is as great as what it is commonly perceived to be.  I could talk about this for pages & pages but it boils down to several main factors:

This is one of the very few mines that is fully compliant with Zimbabwean ownership laws

THUS, they have some strong local partners that want to see this company succeed.  The ZIM government has actually been making some great moves for miners....lowering taxes, etc.

 

So there you go....this is an abbreviated write up for CALVF.  Anybody have any thoughts?

 

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Oh, and by the way...Eric Schleien interviewed me for his podcast.  He is a great interviewer and I appreciate him giving me the time to talk about different investments I've been in.  I can very much recommend his podcast, and he has some great interviews.  Check it out at:

 

https://intelligentinvesting.podbean.com/

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I traded this bad boy before and made great money. This business warrants a very heavy discount on its valuation. Having that said, it is the kind of business that is liable to trade wildly and can dip significantly below such discounted valuation.  It is a relatively interesting business worthy of a sporadic follow as well.

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I traded this bad boy before and made great money. This business warrants a very heavy discount on its valuation. Having that said, it is the kind of business that is liable to trade wildly and can dip significantly below such discounted valuation.  It is a relatively interesting business worthy of a sporadic follow as well.

 

Glad to hear I'm not the only to have made $$$$ on this.  I very much agree with you that it can be volatile.  I will also agree that it should trade a discount.  How big a discount is subject to discussion.  Even given a mining discount, small cap discount, ZIM discount...a company with a 5 P/E, no debt, and decent dividend is probably being discounted too much...

 

What has changed (making it particularly interesting) is that:

 

A). The company is probably going to uplist to NYSE.  This is a good thing and will improve liquidity/visibility.

 

B). The company is expanding production and thus sales & earnings.  They have been spending a tremendous amount of $$$$ relative to their market cap improving their operations.  That is going to end in well less than a year...perhaps in less than 6 months!  Once that ends, the kash money is going to pile up.  I am going to guess that the company is going to increase the dividend substantially. There are several different reasons why I suspect this...

 

Put these two things together, and I think the stock price will be substantially higher 12=18 months from now.

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What are the tax implications of the dividend for US holders?

 

Caledonia only owns 49% of the Blanket mine. It loaned/fronted cash to the local owners so that they could purchase the majority 51% interest. In return the local owners' share of Blanket's profits go to Caledonia until this loan is paid off (maybe 2022). Because of the loan Caledonia's financial statements are consolidated to reflect 100% of Blanket's operations. So the company, in the long run anyway, isn't as cheap as it appears at first glance.

 

Is there any chance the government appropriates the mine? What happens in Zimbabwe once Mugabe, who's 93, dies?

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Thanks for bringing this up. I owned them for a while and have since forgotten about them. Looks like one of the few sales that I timed right. Two things I remember:

1. These guys are (were) the lowest cost producer I've come across. When most of the majors were (are?) operating at breakeven, these guys were cranking out cash.

2. A few years ago the Zimbabwean government effectively nationalized a big chunk of the company, which is why Caledonia owns 49% of their mine. I think this is an ongoing pattern in Zimbabwe: https://www.theguardian.com/world/2016/mar/03/robert-mugabe-to-nationalise-zimbabwes-diamond-industry . Unlike the diamond industry, Caledonia does pay significant amounts to the government. It looks like they have a good relationship and the government is also investing alongside them: http://www.caledoniamining.com/pdfs/Q4%20and%20FY%202016%20Press%20Release%20Final.pdf . A single gold mine will always have a high discount rate and if you add some political risk the discount rate is higher. It will likely never be a high multiple company, but that doesn't mean it's a bad investment.

 

Will take a deeper look at it.

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  • 1 month later...

I know it's a different country, but I see a gold miner in Tanzania got slapped with a $190 billion fine (yes, billion with a b), despite their market cap being only $1 billion. This was after the government constantly hiked royalty payments, demanded ownership stakes, forced the company to develop a local smelting industry.

 

http://www.cityam.com/269049/acacia-mining-has-been-slapped-tanzanian-tax-bill-almost

 

I think the Zimbabwe government are doing a similar thing here. They are dangling just enough carrot to get the company to dig the new tunnel. When the extra production starts getting brought on line, there is no reason to have foreign investors anymore, so they can just make a grab for the remaining 49% of the company. If I was an old despot like Mugabe, this is the game I would be playing.

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I know it's a different country, but I see a gold miner in Tanzania got slapped with a $190 billion fine (yes, billion with a b), despite their market cap being only $1 billion. This was after the government constantly hiked royalty payments, demanded ownership stakes, forced the company to develop a local smelting industry.

 

http://www.cityam.com/269049/acacia-mining-has-been-slapped-tanzanian-tax-bill-almost

 

I think the Zimbabwe government are doing a similar thing here. They are dangling just enough carrot to get the company to dig the new tunnel. When the extra production starts getting brought on line, there is no reason to have foreign investors anymore, so they can just make a grab for the remaining 49% of the company. If I was an old despot like Mugabe, this is the game I would be playing.

 

The only policy that the ZIM government has changed over the last few years is to actually give a slight credit to miners on MARGINAL production over a certain base level.  That has acted as small tax CUT.  A couple of years ago, the ZIM government actually paid an account receivable that had been written off also.  This was to the tune of 2-3 MM USD if I remember correctly....

 

As to the ownership of the company...the federal ZIM government does not own 49%...it is split between federal, local, and "business men".  Presumably the "business men" are regional/locals?

 

If the mine was seized outright...there would be NO foreign management and no expertise.  If the company can expand production AND be listed on NYSE and get a multiple expansion, why seize it?  Everybody grows richer with the company trading for 8,10,12 earnings...

 

Further, the gold mining companies (in addition to tobacco) are one of the VERY few ways the ZIM can get their hands on USD. 

 

I suppose anything can happen, but I have seen no evidence of this company being seized.

 

Is there risk?  Of course!  Plenty of it...and the stock should probably always trade at a discount...How much of a discount is the question.  I bought most of my shares for a low single digit P/E and close to a 10% yield. 

 

Time will tell & we will see!

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  • 3 months later...

Hey all:

 

Anybody else watching this/invested in it?

 

I am going to guess that nobody is watching this thing.

 

They came out with earnings today.

 

Three months earnings are about $.41/share.  Nine month earnings are at about $.873/share.  Stock moved up today $.05/share to $5.50.

 

Last quarter was the largest in terms of oz. produced.  They are executing their plan about as expected.

 

They have extended their reserves...they are also going to extend their second shaft to deeper levels.

 

Generally pretty good.  Company should be producing more gold very soon....surprised the stock price is as low as it is.

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I'm hearing rumours of a coup in Zimbabwe. Whether that affects them long term or not, if it happens it won't be good for the stock.

 

Yes, day after good earnings...rumors of a coup.

 

A coup might indeed be a good thing.  The country might open up to more foreign investment?

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Maybe in the long run. During the coup (and likely interuptions to what civil society remains in Zimbabwe) I would expect a drop. On the other hand, reports are that Mugabe is under house arrest and the army has taken over the capital, and the stock hasn't budged.

 

It's possible that nobody is watching, or maybe the only holders are people completely immune to political risk.

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Maybe in the long run. During the coup (and likely interuptions to what civil society remains in Zimbabwe) I would expect a drop. On the other hand, reports are that Mugabe is under house arrest and the army has taken over the capital, and the stock hasn't budged.

 

It's possible that nobody is watching, or maybe the only holders are people completely immune to political risk.

 

I am going to take the coup as a very positive development.  Remember, it was under Mugabe that stuff was nationalized and Zimbabwe started it's descent into grinding poverty.

 

I am further going to guess that the military will put the former VP in power.  Further, I think the country will open to foreign investment again.  I think they are going to want to interact with the rest of the world.

 

Mugabe going is almost certainly a good thing.  The only way it becomes bad is if the country breaks apart into different warring factions.  That does not appear (at this point) to be the case.

 

CMCL is the only company I know of that has significant operations in Zimbabwe. 

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Hey all:

 

Like I've said before, and will say again...it is likely a good thing that Mugabe is going to wind up on the ash heap of history.  Many people are glad he is going:

 

http://www.zerohedge.com/news/2017-11-18/zimbabwean-spring-looms-1000s-celebrate-mugabes-imminent-exit

 

What if society in Zimbabwe improves somewhat?  What if they open up a bit to outside investment?  What if their unemployment rate goes from 90% to 50%?  What if they go from grinding poverty to simply being below average?  Heck, what if they do even better?

 

It could be good, very good for CMCL.  Market might agree, stock was up Friday.

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  • 4 months later...

Hey all:

 

Caledonia Mining released their yearly results this AM.

 

Stock has earnings of $1.35/share.  Pretty good, but expectations were high.  They had record gold production for the year (56,133 oz. mined).

 

Market reaction is muted, stock is up $.01/share at $6.95.  P/E is a shade above 5.  Dividend remains unchanged for now.

 

The political situation in Zimbabwe appears to be improving.  The new government wants to unwind some of the prior rules about ownership!  CMCL anticipates buying out some of their local shareholders.

 

The one regretful thing is that there were a few fatalities at the mine. 

 

Overall, a good year, and perhaps even better things lay ahead for this company?

 

 

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Hey all:

 

Caledonia Mining released their yearly results this AM.

 

Stock has earnings of $1.35/share.  Pretty good, but expectations were high.  They had record gold production for the year (56,133 oz. mined).

 

Market reaction is muted, stock is up $.01/share at $6.95.  P/E is a shade above 5.  Dividend remains unchanged for now.

 

The political situation in Zimbabwe appears to be improving.  The new government wants to unwind some of the prior rules about ownership!  CMCL anticipates buying out some of their local shareholders.

 

The one regretful thing is that there were a few fatalities at the mine. 

 

Overall, a good year, and perhaps even better things lay ahead for this company?

 

I bought a small position a few months ago after a good report before it moved from the mid-$5s to the $7s. Very happy to sit on this one while the situation continues improving. Thanks for keeping the board updated.

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Hey all:

 

I noticed a very interesting thing on the last page of the quarterly slide deck...

 

Management is projecting earnings of $1.30 to $1.50/share in 2018.  This is partially predicated on gold trading at an average price of $1,260/oz.

 

I suspect that might be too conservative an assumption on the gold price.  The price of gold has pretty much been above $1,300/oz. for 2018 so far. 

 

Gold is down today at $1,326/oz.  It has been jumping around lately.  It has traded over $1,350 every so often....

 

So, if gold trades at an average price of $1,325 or even $1,350 for 2018, could CMCL see earnings of OVER $1.50/share?

 

Not an impossible situation...

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Hey all:

 

Anybody else watch this exciting video?

 

 

Steve Curtis & Mark Learmonth are interviewed about the Blanket Mine.

 

Apparently, Zimbabwe has dropped/repealed the indigenousization requirement.  They will buy out some of their local partners and get control of the mine.

 

They are also apparently going to do a $4mm rights offering.  This money raised will be used to work on their satellite exploration activities.  The ZIM government is anxious for them to expand and presumably employ more people.

 

Looks like some good things may be ahead for CMCL?

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Hey all:

 

Caledonia is up bigly today, +10%.

 

ZIM has announced a change to their tax policy.  Gold mining is now being encouraged by the government, and as a result of the change in tax policy, earnings estimates for the year are a little bit under $2/share ($1.65 to $1.95).

 

As I stated previously, IF the price of gold stays where it is at, OR if it even moves up slightly, then the previous AND revised earnings estimates are probably too low.

 

So with a bit of luck, Caledonia might be earning $2/share?  Might be a bargain even at a new high?

 

 

 

 

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  • 4 months later...

Hey all:

 

Caledonia is down BIGLY on it's quarterly report.

 

Earnings were actually pretty good at $.352 (+86% yoy) for the quarter, and $.752/share (+64% yoy period) for the six months.

 

Dividends are going to be maintained.

 

A director bought 4,000 shares a couple of days after earnings came out.

 

I think the stock is down for a few different reasons:

 

1). There was ANOTHER fatality at the mine recently.  A terrible tragedy.

 

2). The price of gold is DOWN.

 

3). The company is spending a TREMENDOUS amount of mining expanding the mine, the secondary shaft is now down just over 1.1KM.

 

4). Cash reserves are DOWN, as capital expenditures have been very high.  Perhaps this is what investors are most concerned about?

 

Overall, not too bad a quarter in my opinion.  We are getting closer to completion of the new central shaft.  Production is slowly increasing.  The situation in Zimbabwe appears to be improving.

A year from now, the company may be radically different than what it is today.

 

Anybody have any thoughts on this?

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  • 2 weeks later...

Hey DTEJD,

 

I bought into this company last year after seeing your posts and doing some DD. Must say I'm excited to see it down under $7 again, as its giving me the chance to add more shares.

 

We must be thinking along the same lines.  CMCL was down even MOAR bigly on Thursday and I picked up a few more shares.  I wish I could say that I got them at the bottom.  Close, but no cigar.

 

There was no news Thursday...perhaps CMCL was down because of the problems with land seizures in SA?

 

Today it was announced that CMCL is increasing their stake in Blanket mine.  Probably a good thing.

 

I've noticed that a couple/few times a year CMCL will spike down...

 

I've added twice now to my position.

 

It will be interesting to see what happens.

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Hey all:

 

CMCL is buying about 16% more of the Blanket Mine.

 

They are getting more of the mine for cancellation of debt and issuance (exchange) of shares to the existing ZIM shareholder.

 

I think this is a good thing for CMCL.

 

I am also going to guess that CMCL has designs on getting some more properties (in ZIM) and the shareholder doing the exchange knows as much.

 

CMCL is trading for about a 5.5 P/E currently?

 

We will see, but in addition to Gran Colombia Gold, this is the cheapest gold miner that I know of.

 

Any thoughts?

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CMCL is trading for about a 5.5 P/E currently?

 

We will see, but in addition to Gran Colombia Gold, this is the cheapest gold miner that I know of.

 

Any thoughts?

 

Their share price is 6.26 USD. They earned 0.53 USD for 6months...run rate is 1.06 EPS. Their PE is therefore 6.26/1.06 = 5.9, not 5.5.

 

I believe you used their adjusted EPS figure of 0.752 USD and their Canadian share price of 8.2 CAD/share to calculate your PE figure. Incidentally I'm not a fan of their adjusted EPS figure for valuation purposes (in might make more sense for YOY comparison purposes) since they attempt to remove deferred taxes from earnings. I don't really see how you can avoid paying deferred tax liabilities...I'm I missing something? Overall I'm never a fan of "adjusted" anything.

 

That said, I think the stock is pretty cheap and I like having a little exposure to cheap gold in my portfolio...just in case  :P

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