Generating cash from a high gold price is helping Caledonia Mining Corporation (LON: CMCL) to invest in the Blanket mine and build up its balance sheet as it seeks to progress the Bilboes sulphide project.
Zimbabwe mine Blanket produced 20,773 ounces of gold in the quarter and there was an additional 401,000 from heap leaching at Bilboes. In the second quarter of 2024, gross revenues improved from $37m to $50.1m thanks to a combination of higher gold production and a higher gold price. The on-mine Blanket cost is $906/ounce, down from $915/ounce in the second quarter of 2023. The pre-tax profit jumped from $1.52m to $15.5m.
Caledonia Mining Corporation recently announced a doubling of Blanket’s mineral reserves and a 63% increased in measured and indicated mineral resources. This means that there could be a mine life up to 2041. This year’s production guidance is 74,000-78,000 ounces of gold.
However, the main long-term upside is from Bilboes. The feasibility study should be published in the first quarter of 2025. The capital investment is likely to be $309m, according to Cavendish. The broker believes that $200m could be funded with debt, leaving Caledonia Mining Corporation to find the rest.
This investment could triple gold production to more than 200,000 ounces/year. This is based on a ten-year mine life for Bilboes. There is also the adjacent Motapa prospect that could be brought into production in the future and the capital investment should be lower.
Net debt was $1.4m at the end of June 2024. Further cash generation will boost the cash position even though the quarterly dividend continues to be 14 cents/share, although payments will be made after quarterly results, rather than prior to them. The dividend costs $11m/year.
At 850p, the shares are trading on 12 times prospective 2024 earnings, although a cautious approach to the gold price next year means that the multiple would then rise to 16. The yield is more than 5%.
Cavendish has a sum of the parts valuation of 1435p/share based on a heavily discounted valuation for Bilboes.