Caledonia Mining Corporation plc (LON:CMCL) is the topic of conversation when Analyst Paul Smith at WH Ireland joins DirectorsTalk.
Q1: Caledonia has announced it has signed an option agreement to explore and acquire Glen Hume. What are your thoughts on this?
A1: Caledonia has long told its shareholders that it is looking at potential acquisitions in Zimbabwe and today we have first evidence of that. The Glen Hume area contains active artisanal workings and has produced from formal mines in the past. We have long held the opinion that Zimbabwe has not been properly explored using modern exploration techniques and that given the type of mineral deposit, and depth and strike extensions of gold deposits in similar Greenstone belts in the world, that the potential in Zimbabwe is huge. With Caledonia having already carried out airborne geophysics and with it lining a drilling contractor to get drilling quickly, we expect results soon.
Q2: What can you tell us about the option – do you think it’s good value?
A2: The option cost Caledonia $2.5m (in cash) and will cost another $2.5m (cash or shares) to complete (plus a net smelter return that can be bought back). If the project is as good as Caledonia thinks it is – and remember the company has been looking all over Zimbabwe for several years – then the purchase price will be small compared to the benefits a second, low-cost producing mine in Zimbabwe will bring to the company – by increasing the production profile and also reducing its risk.
Q3: Does this change how you see the fair value of the company?
A3: Our fair value for the company is based principally on its high profit margin Blanket Gold mine which is expanding to produce over 80koz gold per year. The cash being thrown off from this profitable mine will be used to both increase the dividend to shareholders and also used to grow the company. With the tremendous projects available in Zimbabwe and the goodwill that Caledonia Mining Corporation has built up in country we see this first step out of the Gwanda Greenstone Belt, where Blanket is located, as an exciting move – and one that we hope will result in Caledonia increasing its scale and the size of its production footprint in country.