Shareholders in Caledonia Mining Corporation (LON:CMCL), the operator of the Blanket mine in Zimbabwe, are to receive their first dividend.
Blanket has hit record levels of production recently and the 0.5c dividend reflects the sustainable and significant cash flow now being generated by the company, the miner said.
Analysts say Blanket is now one of the lowest cost gold producers in both Africa and the world and has the potential to produce 70,000 ounces per year from 2015.
The majority ownership of Blanket is now in the hands of the local Zimbabweans after Caledonia transferred a 51% stake to meet its obligations under the Zimbabwe Indigenisation Act.
Caledonia added the payment will be in addition to continued investment in its projects in Zimbabwe and Zambia. The company said the dividend would be paid after a restructuring of its share capital and then be followed by a one–for-ten share consolidation.
The proposed capital reduction will not affect the company's operations or the value of the company or its issued shares, Caledonia said.
Stefan Hayden, Caledonia's president and chief executive said: "I am delighted to announce Caledonia's maiden dividend. Over the past 3 years Caledonia has become a profitable and cash generative company with exciting growth and investment opportunities.
"In light of our cash position and strong cash generation, the Caledonia board feels it appropriate to propose a dividend of one-half cent per existing common share and is confident that the proposed dividend will not reduce our ability to continue to invest in our exciting portfolio of assets, expanding gold production at Blanket, and continuing exploration on our Nama Project".
The size of the dividend will be reviewed annually going forward, Caledonia said.
Canaccord noted the initial dividend implies a 4.5% dividend yield and underscores the firm’s solid financial position and ability to generate strong cash flows.
Preliminary economics of the recently announced expansion plans at the Blanket mine were also very positive as the initial capital requirements to be limited and can be fully financed internally.
At the end of September the company had a net cash balance of C$23m, up from C$9m at the end of 2011.
Cash costs (Canaccord calculates US$620/oz including royalty in the latest quarter) are below the peer group average of US$750/oz .
The broker has a target price of 16p and says Caledonia is rated well below the average of London-listed juniors due to the discount for Zimbabwe.
This price offers a good opportunity given the significant cash generation, strong balance sheet, relatively low cash costs and growth plans, it said.