CALVF - Caledonia Mining

[DTEJD1997]

hey all:

 

Anybody still watching this?

 

They posted earnings of $.89/share for the latest QUARTER.  Unfortunately, a good slug of that was a 1 time item for the sale of a shuttered gold mine in Africa.  This is the 2nd time that they have produced a nice little gain on disposed of assets.

 

Even though they made almost $1/share for the quarter, the stock was only up maybe $.10/share?  I would think that the price should have gone up about the amount of $$$ that they made, after all, it is now cash on balance sheet.

 

They also continue to make progress on the mine expansion.  They anticipate finishing sinking of the new shaft in 1-2 months.  After that, they start branching out, so still a little ways to go till they get to producing new volumes...but they are still making solid progress.  A lot of shareholder capital has been spent on the Blanket Mine expansion.  Assuming that they actually get everything done and increase gold production to about 80k a year, AND gold prices don't collapse, this stock is going to be making a LOT more money in about 6 quarters.

 

With all the progress they have made, they are behind schedule.  They have a BIG problem with their electricity.  They have also had some minor labor problems and foreign currency issues.

 

Definitely going to be interesting, one of the "cheapest" stocks that I am aware of.

 

Any thoughts?

[EricSchleien]

Hi All,

 

I sat down with DTEJD1997 to discuss Caledonia Mining on The Intelligent Investing Podcast. I hope this contributes to the discussion.

 

Link: https://ericschleien.com/podcast/caledonia-mining/

 

Best,

Eric Schleien

 

 

[DTEJD1997]

Hi All,

 

I sat down with DTEJD1997 to discuss Caledonia Mining on The Intelligent Investing Podcast. I hope this contributes to the discussion.

 

Link: https://ericschleien.com/podcast/caledonia-mining/

 

Best,

Eric Schleien

 

Hey all:

 

I want to thank Eric for interviewing and listening to me ramble on...he is a very gracious host!

 

In the time since that interview, a few developments have happened with CMCL:

 

A). The price of gold has gone up, up to a bit over $1400/oz.  Obviously good for CMCL.

 

B). There have been some insider purchases.

 

C). Perhaps most importantly of all, they have come out with another earnings report.  It was kinda/sorta a good report in that they had earnings of a bit over $1/share for the quarter.  That is the good news!  The bad news is that operations were disrupted a bit due to electric issues and currency/foreign exchange problems.  Most of those problems seem to have been addressed.  Large part of the earnings were from a one time gain on the sale of a shuttered gold mine in S. Africa.  This is the 2nd time CMCL has sold off assets for a nice bit of cash.

 

D). They should be done or 99% done with the sinking of the 2nd mine shaft.  Once it is completely done, they are going to start sinking the side tunnels.  Hopefully just about another year of work and then the amount of production will increase substantially.

 

I am not adding to my position now, but will be later in the year.

 

Long term thesis is intact...

[awindenberger]

Hi All,

 

I sat down with DTEJD1997 to discuss Caledonia Mining on The Intelligent Investing Podcast. I hope this contributes to the discussion.

 

Link: https://ericschleien.com/podcast/caledonia-mining/

 

Best,

Eric Schleien

 

Hey all:

 

I want to thank Eric for interviewing and listening to me ramble on...he is a very gracious host!

 

In the time since that interview, a few developments have happened with CMCL:

 

A). The price of gold has gone up, up to a bit over $1400/oz.  Obviously good for CMCL.

 

B). There have been some insider purchases.

 

C). Perhaps most importantly of all, they have come out with another earnings report.  It was kinda/sorta a good report in that they had earnings of a bit over $1/share for the quarter.  That is the good news!  The bad news is that operations were disrupted a bit due to electric issues and currency/foreign exchange problems.  Most of those problems seem to have been addressed.  Large part of the earnings were from a one time gain on the sale of a shuttered gold mine in S. Africa.  This is the 2nd time CMCL has sold off assets for a nice bit of cash.

 

D). They should be done or 99% done with the sinking of the 2nd mine shaft.  Once it is completely done, they are going to start sinking the side tunnels.  Hopefully just about another year of work and then the amount of production will increase substantially.

 

I am not adding to my position now, but will be later in the year.

 

Long term thesis is intact...

 

DTEJD, have you reached out to management in the past? If so, were they responsive. As a shareholder I'd love for them to figure out the power supply issues, and in my day job working for a solar/battery developer and installation firm, I design solar/battery systems. Caldonia seems like they would benefit significantly from a solar/battery system deal with their grid outages. Trying to get that installed in Zimbabwe might be interesting though.

 

[Sunrider]

Hi All,

 

I sat down with DTEJD1997 to discuss Caledonia Mining on The Intelligent Investing Podcast. I hope this contributes to the discussion.

 

Link: https://ericschleien.com/podcast/caledonia-mining/

 

Best,

Eric Schleien

 

Hey all:

 

I want to thank Eric for interviewing and listening to me ramble on...he is a very gracious host!

 

In the time since that interview, a few developments have happened with CMCL:

 

A). The price of gold has gone up, up to a bit over $1400/oz.  Obviously good for CMCL.

 

B). There have been some insider purchases.

 

C). Perhaps most importantly of all, they have come out with another earnings report.  It was kinda/sorta a good report in that they had earnings of a bit over $1/share for the quarter.  That is the good news!  The bad news is that operations were disrupted a bit due to electric issues and currency/foreign exchange problems.  Most of those problems seem to have been addressed.  Large part of the earnings were from a one time gain on the sale of a shuttered gold mine in S. Africa.  This is the 2nd time CMCL has sold off assets for a nice bit of cash.

 

D). They should be done or 99% done with the sinking of the 2nd mine shaft.  Once it is completely done, they are going to start sinking the side tunnels.  Hopefully just about another year of work and then the amount of production will increase substantially.

 

I am not adding to my position now, but will be later in the year.

 

Long term thesis is intact...

 

DTEJD, have you reached out to management in the past? If so, were they responsive. As a shareholder I'd love for them to figure out the power supply issues, and in my day job working for a solar/battery developer and installation firm, I design solar/battery systems. Caldonia seems like they would benefit significantly from a solar/battery system deal with their grid outages. Trying to get that installed in Zimbabwe might be interesting though.

 

Practical issues with getting equipment into Zim and installed there aside (you can, but you’ll pay), a mine’s power consumption is pretty big, so that’d be a substantial size solar farm. I would think that mine management would’ve looked at options including solar but decided not cost effective at this point ...

[DTEJD1997]

Awindenberger:

 

I have not yet reached out to management.  I will probably do so as the year progresses.

 

Management has discussed the power issue(s) in their YouTube videos.  One of the issues is that while they get power most of the work day, the QUALITY of the power is lacking.  That is, there are spikes & dips in voltage which is damaging to their machinery.  There are also very short outages.  If the power goes out for even a second, it will require machinery to be reset.  So what they really need is to get raw power off the grid and then have a power conditioner on site.  Sort of like a giant UPS for computers.

 

As for solar power, I suspect that their location is an area where it would make sense.  Lots & lots of strong sun light, relatively few days of rain.  At first I was thinking that it would make more sense to have diesel backup generators...but you would have to import the diesel.  This would require foreign currency AND logistical problems, AND taxation problems.  Solar power bypasses a lot of that.  No taxation/import restrictions on sun light!

 

So we will see.  I suspect that management will start to work on the power issues more fully when the 2nd shaft is up & running fully.  They will have 1 major thing completed, and then they can more fully turn their attention to the next problem.  They will also have the NEED for more electricity with 2 shafts running.

 

Finally, they are exploring other projects in ZIM.  If they can set up a solar plant at the Blanket Mine, could they also use that solar facility for a 2nd location?  Maybe?

 

Going to be interesting!

[DTEJD1997]

Hey all:

 

A few updates on CMCL.

 

1). They are going to spend about $1.5mm on diesel backup generators.  Still evaluating solar power.

 

2). Some of the previous operational problems have been worked out/solved.

 

3). Most important of all, sinking on the 2nd shaft is finally done.  They will now be equipping the shaft over the next 12 months.  Once that is done, significantly more ore can be brought to the surface. 

 

The company has spent 5 years and about $44mm sinking that shaft.

 

So that is good news indeed and the difficult part and most of the spending should be behind the company. 

 

Going to be interesting.

[DTEJD1997]

Hey all:

 

CMCL has gone up in price a bit since the last posting.  Gold prices have also gone up a bit.

 

Management continues to produce reasonably well.

 

There have been some small insider purchases.

 

A lot ways this stock can continue to move higher.

 

Anybody else watching/invested in this?

[TwoCitiesCapital]

I'm always interested in following it, but cannot buy it through either of my brokers so more of a spectator sport for me.

[Xaston]

 

 

Anybody else watching/invested in this?

 

I am.  I first heard about it the episode of The Intelligent Investing Podcast where you talked about it.

 

I've not historically spent much time at all looking at miners. I'm vaguely concerned that them being done sinking the shaft and now capex is going to drop appreciably is the same sort of story mining companies are always telling, that they're always about to start gushing cash now that their previous investments are going to start paying off and won't be necessary to continue making going forward.  Again, because I've never really sniffed around miners before I have no idea if that is a thing they regularly do, but I can imagine it being a thing that happens regularly.

[DTEJD1997]

 

 

Anybody else watching/invested in this?

 

I am.  I first heard about it the episode of The Intelligent Investing Podcast where you talked about it.

 

I've not historically spent much time at all looking at miners. I'm vaguely concerned that them being done sinking the shaft and now capex is going to drop appreciably is the same sort of story mining companies are always telling, that they're always about to start gushing cash now that their previous investments are going to start paying off and won't be necessary to continue making going forward.  Again, because I've never really sniffed around miners before I have no idea if that is a thing they regularly do, but I can imagine it being a thing that happens regularly.

 

Xaston:

 

I think you are absolutely right to be cautious about miners & their "projections" of capital expenditures and production figures.

 

Nothing is a certainty when it comes to mining, but I think CMCL is a bit different that most other miners.

 

1). Management has an incredible track record of capital allocation.

 

2). This new shaft is at their existing mine...an existing mine that has been in operation for over 100 years.  It is producing, will continue to produce, and they know where existing ore currently is AND they have a damn good idea where more is located.  When the new shaft is up & running, there is not a doubt in my mind that they will be producing more gold & probably significantly more.

 

In various presentations, management has talked about how inefficient some of their production is due to tunnels being dug over a 100 year period.  When the initial shaft was sunk, they didn't know precisely where to put it.  Thus, some miners have a 2 hour commute to get to the area where they are working.  It is like a snake's nest underground.  The new shaft will cut that commute time down by 75%+.  It will also increase the gross tonnage they are able to take out.  It will also improve safety & reliability.

 

A slam dunk of a capital investment if I ever saw one.

 

So I pass on the vast majority of miners that I look at, but CMCL is one of the rare ones that makes sense to me.

[DTEJD1997]

Hey all:

 

A significant few developments on CMCL today.

 

The big one is that they are raising the dividend just over 9% for the next quarterly payment.  Going from $.06875/share to $.075/share.  NICE!

 

The new shaft appears to be roughly on time and should be coming on line in the 2nd half of the year.  This will lead to materially MORE production of gold in 2021 and 2022.  Projected to go to around 80k oz. per year.

 

Finally, financial performance has IMPROVED due to increased production and sustained prices in gold.

 

I know I've been yammering about this since $5/share, but even over $8/share, this thing could be a "lead pipe cinch", if gold prices stay where they are at, AND production goes to 80k oz a year, they are EASILY earning over $2/share in net earnings. 

 

IF that plays out, dividend could well be 2x or 3x where it is today in 2022.

 

Anybody got any thoughts on this?

[Xaston]

Anybody got any thoughts on this?

 

I'm still holding and still following.  I like what I see in the company.  The fact that a gold miner in Zimbabwe is now my 4th largest position sounds wild to me, but if the company continues to mine gold at the rate it has, sell it at the price it has, with the same cost per ounce, it will work out very well.  None of those are sure things, but as you and the company have stated, at least in the rate at which they are mining gold, things should only be getting better in the next handful of years

 

The inflation in the country is, according to the IMF (at least as of August 2019 iirc) the highest of any country the world.  Because of the currencies they pay workers in vs what they sell the gold in and all that it might seem on paper to be fine or even beneficial, but maybe the destabilization in the country becomes so great that the investment thesis cracks.  This worries me, but I suppose not as much as it worries those who are selling the stock, or who are looking and not buying.  I'm young and it's only 8.4% of my portfolio so I am ok with the amorphous risk I just described, for now.

 

 

 

[DTEJD1997]

Hey all:

 

I would like to apologize...I was rushing when I put up the post earlier today and forgot several things.

 

1). This is not the first dividend increase.  How many mining companies pay a significant dividend?  How many have raised that dividend at least twice? 

 

2). There is an interview on the YouTube today.  Please point your browser to:

 

 

3). It is simply crucial for ZIM to have the blanket mine running, running well, and expanding.  It brings in desperately needed foreign currency for ZIM.  It provides jobs for locals.  It pays taxes.  It helps improve the infrastructure of the country.  There is significant local interest/ownership of Blanket mine and also CMCL stock.

 

CMCL is already working with the ZIM government to bring other mine(s) that have been mothballed/abondoned, back into production.  ZIM used to be one of the largest gold producers in Africa.  All that gold is still in the ground, just waiting to be mined out.  What is needed is good management, experienced engineering staff, motivated and trained workers, and capital.  CMCL has all of this.

 

Once the new shaft is fully up & running, I would wager a large amount of $ that CMCL management's next major project is acquiring another mine and bringing that up to speed.

 

ZIM desperately needs to get access to foreign capital/trade.  Doing something screwy with CMCL (and other miners) would set them back tremendously. 

 

It is in EVERYBODY's interest to have CMCL up & running smoothly and to even be working on other projects.

 

The local currency depreciation is a problem...but CMCL can partially make up for this by paying their workers more local ZIM currency...OR pay them the same, but bring in supplies from SA or other places to supplement workers pay...OR partially pay them in USD or Euros, or some combination of the 3.  The workers are producing something that directly brings in foreign currency, their payment ultimately should not be too much of a problem.

 

4). Final point is what if conditions overall improve in ZIM?  Not impossible.  Let us say the ZIM market P/E at this point in time should be 4-5?  Fast forward 3-4 years, the country improves somewhat, foreign investment is starting to come in, and the ZIM market re-rates to a P/E of 6-7?  CMCL is in the best possible position.  They are going to have expanding earnings and an increase of the P/E.  Going from a P/E of 4 to 6 is a 50% increase in share price alone.

 

Lots of risk, but a lot of potential reward.

[mikazo]

"Caledonia increases its shareholding in Blanket Mine to 64 per cent"

https://ca.finance.yahoo.com/news/caledonia-mining-corporation-plc-caledonia-070010321.html

 

Does this mean we can expect higher revenue in the coming quarters from the increased ownership? I'm new at analyzing mining stocks.

 

The purchase price of $16.667 million implies Blanket being worth $111.113 million, 64% of which Caledonia now owns, presumably valued at $71.112 million.

 

I assume the share issue price of $7.15 was chosen back in November 2018 when shares were trading around that price and the deal was first announced.

 

Receiving deal approval from the Zimbabwe regulatory authorities seems like a good sign.

[matts]

Inflation in Dec was reportedly 521%. I know they sell gold on the world market but that seems like a recipe for chaos at the company (payroll, suppliers etc.)

 

wouldn't it be better to wait to see the annual inflation coming down and then buy? I know it's down a tad Nov to Dec, but a month is just noise.

 

 

[Xaston]

wouldn't it be better to wait to see the annual inflation coming down and then buy?

 

If the only thing that mattered in buying was what you get it probably would be, but you also have to consider what you're paying.  It's likely that by the time the inflation situation in Zimbabwe has settled down, you'd have to pay a lot more to buy the same equity interest in this company.

[matts]

wouldn't it be better to wait to see the annual inflation coming down and then buy?

 

If the only thing that mattered in buying was what you get it probably would be, but you also have to consider what you're paying.  It's likely that by the time the inflation situation in Zimbabwe has settled down, you'd have to pay a lot more to buy the same equity interest in this company.

 

It is possible but I'm not sure it's likely. This is a sub 100 million cap gold company with minimal analyst coverage. If the market was as efficient as you suggest it wouldn't be trading at anywhere near this level. Or maybe it is efficient and the bulls are plain wrong. I don't need zimbabwe to become Sweden, but inflation above 500% brings a lot of real-life logistical problems that can't be solved with "oh but they get paid in USD". even sub-100% annual infation would be a huge improvement while still being way too high for most investors to touch this stock.

 

I also discovered that only 55% of their revenue comes to them in USD, and 45% comes in local currency. I guess they can hedge the fx, if they know exactly when the monopoly money will be coming in.

[Sunrider]

Dollar inflation in Zim is not 500 percent. Think of this as a business operating in dollars.

wouldn't it be better to wait to see the annual inflation coming down and then buy?

 

If the only thing that mattered in buying was what you get it probably would be, but you also have to consider what you're paying.  It's likely that by the time the inflation situation in Zimbabwe has settled down, you'd have to pay a lot more to buy the same equity interest in this company.

 

It is possible but I'm not sure it's likely. This is a sub 100 million cap gold company with minimal analyst coverage. If the market was as efficient as you suggest it wouldn't be trading at anywhere near this level. Or maybe it is efficient and the bulls are plain wrong. I don't need zimbabwe to become Sweden, but inflation above 500% brings a lot of real-life logistical problems that can't be solved with "oh but they get paid in USD". even sub-100% annual infation would be a huge improvement while still being way too high for most investors to touch this stock.

 

I also discovered that only 55% of their revenue comes to them in USD, and 45% comes in local currency. I guess they can hedge the fx, if they know exactly when the monopoly money will be coming in.

[matts]

Not sure what you mean, can you elaborate?

 

there is just a bloomberg article today talking about how the local currency inflation is over 500%

 

I know they get usd when they sell gold, but they pay their local employees, contractors, electric company, etc in local currency. I'm just saying that level of inflation would cause logistical chaos inside a company.

 

[Xaston]

From today's press release:

 

"As a result of these factors, adjusted earnings per share (before net realised and unrealised foreign exchange gains) for 2019 are expected to be in the range of US$1.55 to US$1.75 per share compared to company guidance in early 2019 of US$0.86 to US$1.17 per share."

 

 

[DTEJD1997]

From today's press release:

 

"As a result of these factors, adjusted earnings per share (before net realised and unrealised foreign exchange gains) for 2019 are expected to be in the range of US$1.55 to US$1.75 per share compared to company guidance in early 2019 of US$0.86 to US$1.17 per share."

 

I am very surprised by the stock action this AM.  You might think that the stock would be up a little bit more?

 

If they are earning $1.70/share BEFORE the benefits from the new shaft come online, what are they going to be earning when it does?

 

After they print $1.70/share in earnings, might the dividend be increased?  Might it be increased BIGLY?

 

If CMCL is earning this kind of money, might they not buy out another mine?  Bring another mine back online and managed well like Blanket mine?

 

Oh well, should have invested in TSLA.

[TwoCitiesCapital]

Not to mention the massive gain from FOREX movements. Surely that additional $2.25/share that will be reported under IFRS is substantially due to the inflation/currency environment that people were concerned with above, correct?

[DTEJD1997]

Yes, CMCL is going to have a huge gain on for-ex for the quarter, a couple bucks a share. 

 

I guess in the grand scheme of things, that is relatively significant.  I do not know how much that will happen going forward.  I am going to guess that it will continue, but probably at a much lower rate.

 

Of course, in the future, CMCL could have a negative for-ex event?

 

I would look at this as simply a one time fortuitous event.

 

Even so, I am somewhat surprised that CMCL did not move more on this announcement.  CMCL's price gain was lower than what they will probably make off the for-ex event...let alone improved earnings for 4th quarter and future earnings going forward.

[DTEJD1997]

Hey all:

 

Gold price has been incredibly strong this past month, well above $1600/oz. now.

 

CMCL along with all gold stocks have been moving up.  CMCL has been hitting new highs, $12/share on Friday.

 

Could gold go up another 10%?  If so, we're looking at $1,800oz.  At $1,800 oz., CMCL is going to be printing money.

 

Things could get interesting, and I think we are in the beginning.