WH Ireland Analyst Paul Smith talks Caledonia Mining PLC LON:CMCL “Caledonia today announces an increase in its quarterly dividend from 1.125c to 1.375c per quarter, implying a rise from 4.5c/share to 5.5c/share over the year and providing a current annualised yield of 5.4%. This is a 22% increase in the US-currency dividend which when translated into GBP, given the recent slide in the exchange rate, coupled with the re-domicile to Jersey which eliminated Canadian withholding tax, is a real boost for UK-based shareholders. Caledonia is expecting to maintain this new dividend level in the coming quarters.
The increase has been driven by management being increasingly confident of success of the expansion being undertaken at the Blanket gold mine in Zimbabwe. The underground development into new, higher-grade zones below No. 6 Winze and into the AR South orebody below the 750m level will allow for the increase in production to 50koz this year (Caledonia guidance). Production will rise further to 65koz in 2017 and on out to a current forecast of 80koz by 2021 once the new Central Shaft is completed. The fixed cost proportion at the mine is relatively high, meaning that each incremental ounce produced adds significantly to the profit margin generated. The mine is already low cost and we forecast a fall in operating costs from ~$700/oz at the start of the year to $635/oz and AISC from ~$1000/oz to ~$900/oz over 2016, with further falls as production increases from 2017 onwards. The Blanket mine was forecast to turn into a cash cow for Caledonia anyway and the recent strength in the gold price only increases our belief that the cash pile in Caledonia will continue to grow.
What Caledonia chooses to do with this cash is open to interpretation. Management has various options: 1) M&A in gold; 2) purchase additional mines / projects in Zimbabwe or wider Southern Africa; 3) further greenfield expansion in and around Blanket; or 4) perhaps increase the dividend further. This morning’s news is clearly encouraging. Caledonia is one of the only miners listed on AIM to pay a dividend and this is testament to the quality of the Blanket mine and the way Caledonia operates it.”
