Gold miner Caledonia Mining (LON:CMCL TSE:CAL) could have almost as much spare cash as its current value in two years time, underlining its appeal says broker Canaccord.
The broker says the investment case for Zimbabwe-focused Caledonia is based on four key pillars: a proven track record of delivery; a completed indigenisation process; a five year plan to increase production by 90% and dividend potential after the recent maiden dividend of C$0.005/share.
“With the net cash balance building, Caledonia offers a premium dividend, production and earnings growth versus peers,” says the broker.
The company trades on a 65% discount to peers on three key metrics, while average annual free cash flow will be US$33m over the next 5 years.
This will allow the company to fund its 5-year investment programme of US$37m internally, while leaving ample room for dividend growth, argues Canaccord.
It has a target price of 16p/share, and forecasts Caledonia will have US$55m in net cash by the end of 2014, equal to 90% of the current market capitalisation.
"This should draw attention to the group’s attractive cash flow, while an initial resource estimate at the Zambian copper asset (due mid-2013) provides further upside."
Shares were 7.09p today.