Author Topic: CALVF - Caledonia Mining  (Read 1443 times)

DTEJD1997

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CALVF - Caledonia Mining
« on: May 30, 2017, 08:48:53 PM »
Hey all:

I've discussed Caledonia Mining-CALVF briefly here and there...

This is one of my patented "crazy investments"!  So please be sure to do your own research & due diligence.

I've traded in and out of CALVF through the years and have done VERY well with it.  I've also harvested a tremendous amount in dividends.  I would posit that at the current time & current price levels (5.30.17 & $1.21/share) that CALVF is a very interesting investment.

Why is that?

Several developments have transpired that have made me increase my position...

A). The price has declined as they have cut back slightly on their 2017 production numbers...Evidently, they are having a bottleneck bringing rock up to the surface.  They have one mine shaft right now, and they have bring up "load bearing" ore & waste rock.  CALVF has to dig tunnels to get to the new ore that is quite deep within the earth...as such, there is currently a TON of waste rock that needs to be brought up to the surface and disposed of.  They also have to bring up the gold bearing rock...so the decision has been made to give some preference to digging the new tunnels.  Mind you...CALVF will still increase production for the year...but will be down about 5% from prior projections.  Hardly a disaster...but the stock price has gone down....

B). The company is making money....making really good money...but they aren't getting any credit for it.  You are going to have to indulge me...the P/E is just above 5...so this is a much higher P/E ratio than I like to go for.  HOWEVER, with a P/E this high, the market is indicating that it expects earnings to grow tremendously in the future.  Although I am a generally a contrarian/pessimist I agree that earnings should increase in the near future.  So I think it is worth "paying up" in the hopes of future growth.  Of course, with a P/E of 5, you should be looking for a rock solid balance sheet...

C). CALVF has a rock solid balance sheet.  While it has deteriorated somewhat over the past couple of years.  HOWEVER, there is a good reason for this.  CALVF is working tremendously on expanding their mine and output.  They've invested many millions of dollars sinking a secondary shaft, drilling exploratory/confirmatory assays, making new tunnels, expanding the oxygen plant, capital equipment, etc.  By the end of 2017, the vast majority of this capital expenditure will be over with.  Already, the increased capital expenditures are starting to slow down.  Once completed, the company will have a TREMENDOUS amount of free cash flow, ceteris paribus.

These capital expenditures are not some "pie in the sky" stuff....it is an eminently reasonable expansion of their successful current mine.

D). Insiders and management have lately been buying

E). They are looking to uplist to the NYSE to increase liquidity/visibility.  I think this will be a HUGE positive.  I suspect, that once gets out, people are going to be interested in investing in a single digit P/E, solid balance sheet, dividend paying gold miner.  Of course, I could be very, VERY wrong in my thinking.  Maybe investors want to invest in "waves of the future" that don't currently make money or interweb retailers with P/E's in the hundreds...

F).  The dividend yield at just over 4% is very low...Do not fret though!  I STRONGLY suspect that within the next 12-18 months, the dividend will be increased.  There is even a chance that it will be increased SUBSTANTIALLY and thus bring it up to a more acceptable level.

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So those are some of the more interesting good points.  Of course, there are some levels of risk here....
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They are a gold miner, and are thus vulnerable to swings in the price of gold.  The good news is that they are pretty low cost producer.  If CALVF can't make money mining gold, ain't nobody going to make money mining gold.

They are "hard rock" mining company.  Their mine has been producing for over 100 years and they have to go deep to get the gold.  This entails some of amount of risk.  Tragically, one of their miners lost their life in the mine.  So there is both a safety and technical risk.

They are also operating in Africa, Zimbabwe specifically.  While this is a risk, I don't think it is as great as what it is commonly perceived to be.  I could talk about this for pages & pages but it boils down to several main factors:
This is one of the very few mines that is fully compliant with Zimbabwean ownership laws
THUS, they have some strong local partners that want to see this company succeed.  The ZIM government has actually been making some great moves for miners....lowering taxes, etc.

So there you go....this is an abbreviated write up for CALVF.  Anybody have any thoughts?

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Oh, and by the way...Eric Schleien interviewed me for his podcast.  He is a great interviewer and I appreciate him giving me the time to talk about different investments I've been in.  I can very much recommend his podcast, and he has some great interviews.  Check it out at:

https://intelligentinvesting.podbean.com/
« Last Edit: May 31, 2017, 12:12:41 AM by Parsad »


awindenberger

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Re: Caledonia Mining-CALVF
« Reply #1 on: May 30, 2017, 10:53:17 PM »
Very interesting. Can you fix the links to your previous posts please?

I presume the 5 PE is in large part due to their Zimbabwe dwelling, correct?

Patmo

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Re: CALVF - Caledonia Mining
« Reply #2 on: May 31, 2017, 03:51:07 AM »
I traded this bad boy before and made great money. This business warrants a very heavy discount on its valuation. Having that said, it is the kind of business that is liable to trade wildly and can dip significantly below such discounted valuation.  It is a relatively interesting business worthy of a sporadic follow as well.

DTEJD1997

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Re: CALVF - Caledonia Mining
« Reply #3 on: May 31, 2017, 02:41:17 PM »
I traded this bad boy before and made great money. This business warrants a very heavy discount on its valuation. Having that said, it is the kind of business that is liable to trade wildly and can dip significantly below such discounted valuation.  It is a relatively interesting business worthy of a sporadic follow as well.

Glad to hear I'm not the only to have made $$$$ on this.  I very much agree with you that it can be volatile.  I will also agree that it should trade a discount.  How big a discount is subject to discussion.  Even given a mining discount, small cap discount, ZIM discount...a company with a 5 P/E, no debt, and decent dividend is probably being discounted too much...

What has changed (making it particularly interesting) is that:

A). The company is probably going to uplist to NYSE.  This is a good thing and will improve liquidity/visibility.

B). The company is expanding production and thus sales & earnings.  They have been spending a tremendous amount of $$$$ relative to their market cap improving their operations.  That is going to end in well less than a year...perhaps in less than 6 months!  Once that ends, the kash money is going to pile up.  I am going to guess that the company is going to increase the dividend substantially. There are several different reasons why I suspect this...

Put these two things together, and I think the stock price will be substantially higher 12=18 months from now.

Foreign Tuffett

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Re: CALVF - Caledonia Mining
« Reply #4 on: May 31, 2017, 09:11:54 PM »
What are the tax implications of the dividend for US holders?

Caledonia only owns 49% of the Blanket mine. It loaned/fronted cash to the local owners so that they could purchase the majority 51% interest. In return the local owners' share of Blanket's profits go to Caledonia until this loan is paid off (maybe 2022). Because of the loan Caledonia's financial statements are consolidated to reflect 100% of Blanket's operations. So the company, in the long run anyway, isn't as cheap as it appears at first glance.

Is there any chance the government appropriates the mine? What happens in Zimbabwe once Mugabe, who's 93, dies?

JayGatsby

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Re: CALVF - Caledonia Mining
« Reply #5 on: June 01, 2017, 09:44:53 AM »
Thanks for bringing this up. I owned them for a while and have since forgotten about them. Looks like one of the few sales that I timed right. Two things I remember:
1. These guys are (were) the lowest cost producer I've come across. When most of the majors were (are?) operating at breakeven, these guys were cranking out cash.
2. A few years ago the Zimbabwean government effectively nationalized a big chunk of the company, which is why Caledonia owns 49% of their mine. I think this is an ongoing pattern in Zimbabwe: https://www.theguardian.com/world/2016/mar/03/robert-mugabe-to-nationalise-zimbabwes-diamond-industry . Unlike the diamond industry, Caledonia does pay significant amounts to the government. It looks like they have a good relationship and the government is also investing alongside them: http://www.caledoniamining.com/pdfs/Q4%20and%20FY%202016%20Press%20Release%20Final.pdf . A single gold mine will always have a high discount rate and if you add some political risk the discount rate is higher. It will likely never be a high multiple company, but that doesn't mean it's a bad investment.

Will take a deeper look at it.

Ballinvarosig Investors

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Re: CALVF - Caledonia Mining
« Reply #6 on: July 24, 2017, 02:19:15 PM »
I know it's a different country, but I see a gold miner in Tanzania got slapped with a $190 billion fine (yes, billion with a b), despite their market cap being only $1 billion. This was after the government constantly hiked royalty payments, demanded ownership stakes, forced the company to develop a local smelting industry.

http://www.cityam.com/269049/acacia-mining-has-been-slapped-tanzanian-tax-bill-almost

I think the Zimbabwe government are doing a similar thing here. They are dangling just enough carrot to get the company to dig the new tunnel. When the extra production starts getting brought on line, there is no reason to have foreign investors anymore, so they can just make a grab for the remaining 49% of the company. If I was an old despot like Mugabe, this is the game I would be playing.
« Last Edit: July 24, 2017, 02:23:38 PM by Ballinvarosig Investors »

DTEJD1997

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Re: CALVF - Caledonia Mining
« Reply #7 on: July 24, 2017, 05:54:54 PM »
I know it's a different country, but I see a gold miner in Tanzania got slapped with a $190 billion fine (yes, billion with a b), despite their market cap being only $1 billion. This was after the government constantly hiked royalty payments, demanded ownership stakes, forced the company to develop a local smelting industry.

http://www.cityam.com/269049/acacia-mining-has-been-slapped-tanzanian-tax-bill-almost

I think the Zimbabwe government are doing a similar thing here. They are dangling just enough carrot to get the company to dig the new tunnel. When the extra production starts getting brought on line, there is no reason to have foreign investors anymore, so they can just make a grab for the remaining 49% of the company. If I was an old despot like Mugabe, this is the game I would be playing.

The only policy that the ZIM government has changed over the last few years is to actually give a slight credit to miners on MARGINAL production over a certain base level.  That has acted as small tax CUT.  A couple of years ago, the ZIM government actually paid an account receivable that had been written off also.  This was to the tune of 2-3 MM USD if I remember correctly....

As to the ownership of the company...the federal ZIM government does not own 49%...it is split between federal, local, and "business men".  Presumably the "business men" are regional/locals?

If the mine was seized outright...there would be NO foreign management and no expertise.  If the company can expand production AND be listed on NYSE and get a multiple expansion, why seize it?  Everybody grows richer with the company trading for 8,10,12 earnings...

Further, the gold mining companies (in addition to tobacco) are one of the VERY few ways the ZIM can get their hands on USD. 

I suppose anything can happen, but I have seen no evidence of this company being seized.

Is there risk?  Of course!  Plenty of it...and the stock should probably always trade at a discount...How much of a discount is the question.  I bought most of my shares for a low single digit P/E and close to a 10% yield. 

Time will tell & we will see!