Broker Liberum has initiated coverage on Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL), the Zimbabwe-focussed gold specialist with a long track record of production from its Blanket mine near Bulawayo.
“The investment case is attractive,” wrote Liberum analyst Yuen Low.
“Strong free cash flow generation from 2023 should afford sustainably higher dividends (paid since 2012) alongside investing in new projects towards an ambition of becoming a plus-200,000 ounce per year multi-asset producer.”
At the same time, the Liberum analysis points out, Caledonia trades at a discount to peers.
This, reckons Liberum, is due to perceptions of ‘Zimbabwe risk’.
But Caledonia has a long track record of making things work in Zimbabwe, and indeed is one of the few producers that’s really been able to thrive in the complex operating environment out there.
In a way, the numbers speak for themselves.
Production guidance for this year is for between 73,000 and 80,000 ounces of gold produced at an all-in sustaining cost of between US$880 and US$970 per ounce.
That makes Blanket a lower-cost operating, never mind that it’s underground.
The company also has a long and well-established track record of dividend payments, and offers significant upside in the shape of new projects recently acquired in other parts of Zimbabwe.
“We believe that Caledonia will re-rate as the market re-assesses dividend and growth prospects and comes to realise that the current ‘Zimbabwe haircut’ is excessive,” wrote Liberum.
“Caledonia’s capex spend should fall significantly next year. The resulting strong free cash flow generation should allow for sustainably higher dividend levels from 2023, concurrent with acquiring and developing new projects. We expect that the company will strive to ensure that dividends are ‘upwards only’. This would be attractive in providing a degree of predictability, particularly if the gold price trends down as we forecast.”