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Caledonia Mining Corp 01 August 2023

2022/2023 and a Bilboes Future

Nic Dinham

Earnings 2022/2023E: Caledonia’s (CMC) BEPS is likely to fall sharply from last year’s $1.36/s to $0.81cps in 2023E due to possible lower production at Blanket, a large increase in issued shares and the negative impact of the Bilboes Oxide Project. However, better output from Blanket and a gold price of $1,900/oz should allow earnings to recover in 2024E. 

Cash flows 2022/2023: CMC experienced large cash calls at the end of 2022FY and into 2023Q1, which required it to enter the equity market. However, the possible sale of the Solar Panel Project, the closure of the Bilboes Oxide Project and lower capital expenditure at Blanket should improve CMC’s liquidity by year end.  

Milestones achieved: In 2022, CMC delivered on two major milestones. Blanket Mine achieved its 80,000/oz target after three years of growth. The second milestone was the conditional acquisition of a large undeveloped reserve at Bilboes, which offers CMC the ability to scale production to c.150,000/oz/a. 

More success: In 2023Q1, CMC succeeded in getting the Zimbabwean authorities (almost uniquely) to agree to the condition’s precedent to the Bilboes deal. These included the ability to import power and receive 100% of Bilboes revenues in USD. The transaction was finalised with the issue of c. 5.4m Caledonia shares worth $64m and a 1% NSR.  

More good news: After several years of delays, Blanket has accelerated its resource drilling programme. The initial results from the Eroica orebody have proven to be far better than forecast by digital methods. If this continues, Blanket could potentially benefit from several years of significant resource and reserve upgrades at a time when its capex commitments are expected to fall. 

Bilboes ahead: With Blanket’s future assured, Bilboes takes centre stage. A PFS in Q4 should provide updated scoping studies for Bilboes followed by an FFS in 1Q24E. In our view, CMC’s challenge will be to navigate the requirements of debt providers and shareholders without undermining its share price. Our assessment suggests that a possible solution could be a phased approach to minimise technical and funding risk that should reward shareholders in the medium term.

Valuation: Our valuation is based on a sum of the parts of Caledonia’s key assets including the Blanket Mine and the Bilboes Project using a gold price of $1,900/oz. We apply a 20% real discount rate to take account of the perceived and actual risks associated with Zimbabwe. We value Caledonia’s Base case and Speculative case at $10.92/s and $11.84/s respectively (from $10.07/s and $11.76/s previously). 

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