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Why Caledonia Mining Is a Value Stock

The company is also financially healthy

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The City Letter
Jul 20, 2021


  • Caledonia Mining has growing gold production rates.
  • The company has a strong financial position as per the Altman Z-score and Piotroski F-Score.
  • The stock is cheap on a forward price-earnings basis and trades on a price-book of 1.
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Caledonia Mining Corp. PLC (

CMCL, Financial) (LSE:CMCL, Financial) is a profitable, cash-generative gold producer with a strong growth profile.

The company's primary asset is the Blanket Mine in Zimbabwe. By 2022, the miner plans to increase its annual production by 37% to 80,000 ounces. The company has a current market capitalization of about $140 million. Caledonia has a prime position in Zimbabwe, one of the last gold frontiers in Africa with substantial exploration potential. Production in 2020 was 58,000 ounces at an all-in sustaining cost of around $900 per ounce. AISC cost guidance post the growth to 80,000 ounces by 2022 will be $700 to $800 per ounce. Caledonia has a life of mine of 13 years to 2034.

Caledonia has a strong balance sheet with no long-term debt and $21 million in cash. The company pays a quarterly dividend, which increased in April 2021 to 12 cents a share. The dividend has been increased 5 times in the last 18 months and is a 75% cumulative increase from 6.875 cents announced in October 2019. Caledonia is committed to evaluating investment opportunities in Zimbabwe and has entered into two option agreements to acquire the mining claims over Glen Hume and Connemara North. The properties are in the Gweru mining district, an area that has historically produced significant quantities of gold. The company’s long-term vision is to become a sustainable, multi-asset mid-tier producer focused on organic growth and making genuine return for its shareholders.

CEO Steve Curtis said in the company’s second-quarter production statement:

"Having got off to a slow start to the year, for production to be 7.8% above the first half of 2020 and 23% ahead of the corresponding quarter is an outstanding achievement and leaves us well placed to meet our full year guidance. During the quarter we also announced that Central Shaft was operational; this has been a huge feat by the team. We are currently working hard to achieve the expansion and we remain on track to hit our 80,000 ounce target in 2022."

Caledonia wisely used the high gold prices of 2019-20 and resulting profits bonanza to hand more cash back to investors. It also managed to reduce its non-current liabilities from $35 million to $10 million. Higher gold prices in recent times has meant the company could both deleverage and expand operations at the same time.

The gold sector has a poor track record when it comes to dividends, but Caledonia does have a very strong record: paying a dividend each year for a decade consistently, even when gold was much lower at $1,100 per ounce.

The Blanket Mine

Blanket is an underground mine that produced 57,899 ounces of gold in 2020. A new shaft has given access to three new levels of orebody. This means production should grow to between 61,000 and 67,000 ounces as guided in the second-quarter update.

The mine’s AISC per ounce was $946 in 2020 and rose to $1,077 in the first quarter of this year. This number factors in capital spending, general and administrative, royalties and on-mine exploration needed to uphold Blanket’s reserve levels. AISC increased in 2020 from $820 in 2019 due to more diesel usage to power mining operations and Covid-19-related costs.

Zimbabwe’s grid power is too unreliable, so Caledonia spent $1.8 million on diesel fuel generators to keep the power on 24/7. This disadvantage will be somewhat solved with the construction of an on-site solar power plant. Solar can power the mine in the day, and diesel at night. This technology is becoming more commonplace in Africa with Resolute Mining (

LSE:RSG, Financial) and Centamin PLC (LSE:CEY, Financial) employing or planning to employ this method in Mali and Egypt respectively.


Zimbabwe is a risky place to operate in. Control Risks rates the country as medium for security risk and high for political risk. Caledonia must sell its gold to a subsidiary of the Zimbabwean central bank, which makes lenders wary of lending to the miner. This may limit its growth options in country at least. That is why Caledonia is exploring growth options for assets it can develop. In the meantime, being a single mine outfit is not unique to Caledonia; Centamin only has one mine - Sukari in Egypt - and Shanta Gold (

LSE:SHG, Financial) has the New Luika mine in Tanzania. Both do have active exploration licenses in other jurisdictions, however.


Caledonia trades at just 4.6 times 2021 expected earnings and 3.4 times 2022 expected earnings. The stock is down 36% in the last year, and down nearly 50% from its 52-week high of 19 pounds ($25.88).


The price of gold is clearly a risk, but I expect it to rise along with the return of inflation. Even if commodity prices fall, Caledonia has a cost of production that keeps it profitable for quite some time. The commitment to the dividend also provides reassure, as does the net cash position.

Caledonia is higher risk, but with an Altman Z-score of 6.8 and a Piotroski score of 7, the company is very healthy.

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I am/we are Long LSE:CMCL and LSE:CEY
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