Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Caledonia Mining (TSX: CAL; NYSE: CMCL) has agreed to buy back Fremiro Investments’ 15% shareholding in the Blanket gold mine in Zimbabwe in a deal valued at $16.6 million. After completing the transaction, Caledonia will own 64% of Blanket.
Under the terms of the deal, the two companies will cancel Fremiro’s outstanding US$11.46 million Caledonia loan. Caledonia will then issue Fremiro 727,266 shares valued at US$7.15 per share, Caledonia’s closing share price on the New York Stock Exchange on Aug. 17, 2018. Fremiro will then own 6.42% of Caledonia’s diluted equity.
Caledonia produced nearly 14,000 oz. gold at Blanket in 2018’s third quarter
Caledonia produced nearly 14,000 oz. gold at Blanket in 2018’s third quarter, 3% the same quarter of the previous year but 10% higher than in 2018’s second quarter. The company produced 39,559 oz. gold in the first three quarters of 2018, slightly less than in the first three quarters of 2017.
As a result, the company has decreased its 2018 production guidance from 55,000 to 59,000 oz. gold to 54,000 to 56,000 oz. gold. It says, however, that it remains on track to reach its 2021 production target of 80,000 oz. gold.
The company says the lower than expected guidance combined with a weak gold price has forced it to reduce its adjusted earnings guidance from US$1.65 to US$1.90 per share to US$1.40 to US$1.50 per share. The revised earnings guidance is 3% to 12% higher than the company’s earnings in 2017.
Caledonia acquired the Blanket mine from Kinross Gold (TSX: K; NYSE:KGC) in April 2006. Its interest dropped to 49% following indigenization in 2012 that forced it to sell 51% of its interest to Zimbabwe locals, including Fremiro. Fremiro could not afford the interest, so Caledonia loaned it the money.
Shares of Caledonia Mining are currently trading at $7.19 with a 52-week range of $6.80 to $12.50. The company has a $72 million market capitalization.
