Caledonia Mining Q&A: Positive update and exciting outlook

Caledonia Mining plc (LON:CMCL) is the topic of conversation when DirectorsTalk caught up with Paul Smith, Analyst at WHIreland.

Caledonia have published Q2 2020 results, Paul what did you make of the update?

Thanks Darren, I think the first thing to say is that Caledonia’s update was very positive. Along with many other gold producers, Caledonia reported increased revenues and profits together with increased cash generation. Despite the continued high capital spend for the Central Shaft expansion project Caledonia also reported an increase in its cash position to $11.6m. If current gold prices can be maintained, and we expect they can be, Caledonia should see record profits this year.

How has the company fared during the pandemic?

Production was pretty much unaffected by the pandemic with gold produced rising 12% against the same period last year to 27.7koz for H1 20 – management changes have led to a more stable, and safer, production platform. Additional costs were incurred, however, with management focus on PPE and sanitisation and a $1m donation to help the government deal with COVID. The Central Shaft project continued but has been affected by delays caused by travel restrictions for contractors. Caledonia management has told us that the Zimbabwean Government has been very helpful in arranging travel and ensuring that quarantine restrictions are as light as they can be and we expect news on progress at Central Shaft soon.

How do you view the outlook?

Caledonia’s outlook is exciting. As it approaches the end of this capital investment cycle, and moves into its planned 80koz gold/yr production levels, it will be well positioned with a productive gold mine in a high price environment generating lots of cash. Caledonia has shown its intent to return money to shareholders having twice increased its dividend this year and we expect further increases to be announced as risk reduces and the Central Shaft project comes to an end; and as Caledonia continues to generate ever increasing amounts of cash. We expect opportunities for new projects in country as well, with Caledonia having the financial firepower to invest in new, value-enhancing opportunities within Zimbabwe. This is an exciting time for Caledonia and its shareholders, the Central Shaft project has obviously taken some time to complete but everybody should now begin to reap the rewards of the revamped, renewed and more productive Blanket mine.

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