Business Reporter —
Global investment research and advisory company, Edison said Caledonia Mining Corporation is doing everything expected of a gold miner with $36m spent in the past two years while an additional $18m will be spent this year towards ramping up production.
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and Asia-Pacific. According to a research done by Edison on Caledonia’s 49 percent owned Blanket Mine in Zimbabwe, the research company said investments made so far by the mining company is testament to what a gold miner should do.
“Caledonia’s full year 2016 results show the company continues to run a tight ship at its 49 percent-owned Blanket gold mine in Zimbabwe. The mine is doing everything you want a gold miner to do.
“Caledonia ramped up its underground drill programme in 2016, completing 22,2km of exploratory and resource definition drilling.
“This has resulted in a marked increase in resource confidence and the addition of new inferred material,” said Edison.
According to the research, Caledonia beat its full year 2016 production target of 50 000 ounces (koz) per annum by recording 50,4koz produced, with AISC costs down 12 percent year on year to $912 per ounce while C1 costs dropped nine percent due to a commensurate annual increase of 18 percent in gold ounces produced.
“Investment continues at Blanket to raise production towards 80kozpa by 2021, with US$36m spent in the past two years alone, and another $18m due in 2017 before capex drops off markedly.
“The central shaft is on track and on budget for completion in mid-2018 and is two thirds-complete,” said Edison.
The research added that while this investment takes place Caledonia carries a sound cash balance of $14,3 million at end December 2016.
The dividend yield is a high 3,8 percent and the stock is trading on a very low P/E of c 4x vs the FTSE miners index at 2,1 percent and 40x respectively. The research said Caledonia’s on mine and all in sustaining costs continue to fall with 2016 recording a year on year decline in mine costs of 9,3 percent from $701 per ounce to $636 per ounce as production increased 18 percent in line with the Investment Plan roll-out.
Edison said effective control of its mining practices and increased underground mining flexibility are evident on the bottom line, with year on year EPS growth of 79 percent, simultaneously driven by the marked year on year increase in gold production to 50,4koz (1000 ounces), a slight beat on Caledonia’s guidance of 50koz for 2016.
“The year ahead should continue the positive trend of 2016, with production up, costs down and positive cash generation comfortably covering capital outflow.
“Management targets 2017 production of 60koz, which in our view puts it well on track for its targeted 80koz in 2021. With two elements of Caledonia’s Investment Plan completed on schedule during 2016,” said Edison.
According to the research, Caledonia materially stepped up resource delineation and exploration drilling over 2016. The company drilled 22,172m of drilling over 2016, 55 percent up on the year.
This, backed by information generated from digitising historical production and exploration data has resulted in an increase in resources and reserves for Blanket Mine.