CALEDONIA MINING CORPORATION PLC COM SHS NPV (DI) (LON:CMCL) Chief Financial Officer Mark Learmonth caught up with DirectorsTalk to discuss their new increased quarterly dividend
Q1: Now, some good news today for investors, can you tell us about your new dividend?
A1: Yes, what we did is this morning we announced that we increased our dividend from one and one eighth US cents per quarter to one and three eighths cents per quarter and that will take effect from the dividend that we pay at the end of July so in 3 or 4 weeks.
Q2: So why have you increased your dividend?
A2: Well it shouldn’t really come as a great surprise to anybody because we announced in October 2014 that we’d embarked upon a new investment programme, the Blanket mine in Zimbabwe, we said that you’d start to see production increase starting in 2016. We’re half way through 2016 and production is beginning to increase but critically and very importantly, as production starts to increase our overall cost base starts to fall because the fixed costs are so high, our marginal cost of production is only about $160 for every extra ounce of gold we produce so clearly as we produce more extra ounces at such a low cost our cash generation begins to improve very significantly. We have a sort of slight tail wind effect coming from the gold price but fundamentally we’re not increasing the dividend because the gold price is higher, we’re increasing the dividend because the underlying business is now beginning to perform in the way that we said it would because of the high production.
Q3: Is the new dividend sustainable then?
A3: Absolutely, I think you’ll find if you look at research on the company, so I think WH Ireland produced research and Edison produced research, if you look at this higher dividend on an annualised basis so disregarding the fact that the first two dividends, the dividend we paid in January and April, were at a lower level, just on an annualised basis you’ll see that the dividend cover for 2016 will be higher than the dividend cover for 2015 and our dividend pay-out ratio for 2016 will probably be lower than the dividend pay-out rate for 2015. So even though it increased the dividend I think by ordinary criteria the sort of comfort level is actually gone up so we’re actually still quite conservative so another way of saying it is that we’re leaving an awful lot of gas in the tank which gives it the flexibility in future to either increase the dividend further or to embark on incremental investment opportunities, both internal and external.
Q4: Now I think you’ve already answered this but does the new dividend preclude Caledonia Mining Corporation from any other investments?
A4: Not at all, as I’ve just outlined, even though we’ve increased the dividend by no means sort of draining the pond of cash that we’re going to be generating so yes, we still retain the flexibility both to look at internal investment opportunities and we’ve got a portfolio of exploration properties dotted around the Blanket mine, we’ve got 18 of those. We’re actively engaged on 2 of those so we can now step up the pace on those 2 and perhaps begin to investigate some of the others 16 and we continue to explore new investment opportunities, primarily in Zimbabwe but if we don’t find anything in Zimbabwe we’ll have to look elsewhere. I think the initial footprint has to be Zimbabwe because that’s where we have the infrastructure, that’s where we understand the operating and the regulatory environment and actually it’s where our money goes furthest, if you start looking at opportunities outside of Zimbabwe your money quite quickly doesn’t go as far as it would do if you were investing in Zimbabwe.
