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UK broker Collins Stewart starts coverage of Caledonia Mining
http://www.proactiveinvestors.com/companies/news/13294/uk-broker-collins-stewart-starts-coverage-of-caledonia-mining--13294.html
"11:11 am by Ian Lyall
The company owns the producing Blanket gold mine in Zimbabwe, some very exciting exploration targets nearby and the Nama copper project in Zambia's copper-belt. Caledonia Mining (LON:CMCL, TSE:CAL) is rated a buy up to 16 pence a share by UK broker Collins Stewart, which initiated coverage on the Zimbabwe gold play today.
A bullish assessment of the company’s prospects by analyst John McGloin immediately piqued interest in the stock, which rose 0.7 pence to 8.7 pence a share in afternoon London deals.
The company owns the producing Blanket gold mine in Zimbabwe, some very exciting exploration targets nearby and the Nama copper project in Zambia's copper-belt.
McGloin points out the potential of Nama is significant if, as suspected, part of the licence area contains a possible extension to the world-class Konkolo North project.
“This exploration upside comes for free at the current price,” the analyst adds.
Caledonia's Blanket mine is in the Gwanda greenstone belt, and was acquired from Kinross in 2006 (before that it was owned by Falconbridge).
Output was approximately 18,000 ounces last year rising to a target of 40,000 ounces of the precious metal for this year.
With cash costs falling and on target to go below US$550 an ounce this year, the current management, led by Stefan Hayden, is sweating the assets more efficiently than the mine’s two previous owners.
Gold recoveries have improved markedly from around 80 per cent on acquisition to the present sustained gold recovery level of 92 per cent. Now management’s ambition is to further increase Blanket’s output – to a target of around 100,000 ounces by 2015.
Before it can do this it needs to increase its reserves and resources, which at the current production rate of 40,000 ounces per year gives Blanket at least a 13-year mine life.
It is currently sinking one new shaft and rehabilitating three others on two of its highly prospective brown-field satellite zones – GG, which is seven kilometres from Blanket’s metallurgical plant, and the Mascot Project Area, which is 42 kilometres away.
Caledonia also isn’t ignoring the potential of the Blanket Mine footprint itself.
It is developing the 22-Level Haulage, which is essentially a horizontal tunnel 750m below surface that will provide access for further exploration of the up-dip and down-dip extensions of the mine’s known main ore bodies above and below this depth.
This is a much faster and cheaper approach to exploration than drilling all the way from surface.
The 22-Level Haulage itself will then be over 3 kilometres long and will provide immediate mining access to these resources from the recently upgraded number four shaft and automated ore loading system.
Blanket has already installed substantial excess capacity in its crushing, milling and CIL circuits, which can handle 2,400, 1,800 and 3,800 tonnes per day respectively. Daily throughput at a production rate of 40,000 ounces of gold per annum is roughly equivalent to a plant throughput of 1,000 tonnes per day. This means that Blanket can immediately treat 80 per cent more additional ore with little or no requirement for new investment in the processing plant.
The only increased costs would be the mining, transport and consumable costs related to the additional tonnage, and the result would be a significant decrease in the cost per gold ounce produced as the fixed costs are amortised over the increased production.
This busy round of resource development activity will produce an updated 43-101 reserves and resource statement by mid-2011 with a further updated reserve and resource statement a year later.
Hayden has set aside US$4 million for exploration this year and early next.
If Zimbabwean iIndigenisation rules are enforced, under the existing legislation, Caledonia would be obliged to sell a 51 per cent shareholding to black Zimbabweans over the next four to five years.
Caledonia had been hoping for a compromise deal, which seems unlikely ahead of the general election later this year as the issue of indigenisation in the mining sector has turned into a political football.
Finally Nama consists of four large scale, long term, contiguous mining licences covering more than 800 square kilometres in one of the world's premier locations for conventional copper-belt type mineralisation.
As mentioned earlier one of those mining licence areas borders onto the world class Konkola copper property being developed jointly by Brazilian giant Vale and African Rainbow Minerals, the South African mining company currently capitalised at around US$4billion.
They are currently investing a massive US$400 million in Konkola and expect to be in production by 2013.
Caledonia’s immediate plans are more modest by comparison. It is initially drilling four holes, each about 800m deep, on its Konkola East Target at a cost of just over US$1 million.
Subject to the drilling results and board approval, further drilling this year will either be focused on defining this target to a 43-101 compliant stage.
That, or an initial programme of holes may be drilled on its second copper belt target, Kafwira, which lies about 20 kilometres northwest of the Konkola East target.
The drilling programme has just started, and the initial results are expected this summer.
Should the drilling yield encouragingly positive results, then management wants to pull the trigger on a much more ambitious drilling programme.
Collins Stewart’s DCF valuation also shows that Caledonia is currently trading at a 30 per cent discount to the net present value of the Blanket Mine (based on a 10 per cent discount rate), when similar projects tend to be valued at 1.5 times NPV.
“Exploration success has the potential to expand the group’s resources, with Nama having the potential to be a share price driver,” McGloin concludes."
http://www.proactiveinvestors.com/companies/news/13294/uk-broker-collins-stewart-starts-coverage-of-caledonia-mining--13294.html
"11:11 am by Ian Lyall
The company owns the producing Blanket gold mine in Zimbabwe, some very exciting exploration targets nearby and the Nama copper project in Zambia's copper-belt. Caledonia Mining (LON:CMCL, TSE:CAL) is rated a buy up to 16 pence a share by UK broker Collins Stewart, which initiated coverage on the Zimbabwe gold play today.
A bullish assessment of the company’s prospects by analyst John McGloin immediately piqued interest in the stock, which rose 0.7 pence to 8.7 pence a share in afternoon London deals.
The company owns the producing Blanket gold mine in Zimbabwe, some very exciting exploration targets nearby and the Nama copper project in Zambia's copper-belt.
McGloin points out the potential of Nama is significant if, as suspected, part of the licence area contains a possible extension to the world-class Konkolo North project.
“This exploration upside comes for free at the current price,” the analyst adds.
Caledonia's Blanket mine is in the Gwanda greenstone belt, and was acquired from Kinross in 2006 (before that it was owned by Falconbridge).
Output was approximately 18,000 ounces last year rising to a target of 40,000 ounces of the precious metal for this year.
With cash costs falling and on target to go below US$550 an ounce this year, the current management, led by Stefan Hayden, is sweating the assets more efficiently than the mine’s two previous owners.
Gold recoveries have improved markedly from around 80 per cent on acquisition to the present sustained gold recovery level of 92 per cent. Now management’s ambition is to further increase Blanket’s output – to a target of around 100,000 ounces by 2015.
Before it can do this it needs to increase its reserves and resources, which at the current production rate of 40,000 ounces per year gives Blanket at least a 13-year mine life.
It is currently sinking one new shaft and rehabilitating three others on two of its highly prospective brown-field satellite zones – GG, which is seven kilometres from Blanket’s metallurgical plant, and the Mascot Project Area, which is 42 kilometres away.
Caledonia also isn’t ignoring the potential of the Blanket Mine footprint itself.
It is developing the 22-Level Haulage, which is essentially a horizontal tunnel 750m below surface that will provide access for further exploration of the up-dip and down-dip extensions of the mine’s known main ore bodies above and below this depth.
This is a much faster and cheaper approach to exploration than drilling all the way from surface.
The 22-Level Haulage itself will then be over 3 kilometres long and will provide immediate mining access to these resources from the recently upgraded number four shaft and automated ore loading system.
Blanket has already installed substantial excess capacity in its crushing, milling and CIL circuits, which can handle 2,400, 1,800 and 3,800 tonnes per day respectively. Daily throughput at a production rate of 40,000 ounces of gold per annum is roughly equivalent to a plant throughput of 1,000 tonnes per day. This means that Blanket can immediately treat 80 per cent more additional ore with little or no requirement for new investment in the processing plant.
The only increased costs would be the mining, transport and consumable costs related to the additional tonnage, and the result would be a significant decrease in the cost per gold ounce produced as the fixed costs are amortised over the increased production.
This busy round of resource development activity will produce an updated 43-101 reserves and resource statement by mid-2011 with a further updated reserve and resource statement a year later.
Hayden has set aside US$4 million for exploration this year and early next.
If Zimbabwean iIndigenisation rules are enforced, under the existing legislation, Caledonia would be obliged to sell a 51 per cent shareholding to black Zimbabweans over the next four to five years.
Caledonia had been hoping for a compromise deal, which seems unlikely ahead of the general election later this year as the issue of indigenisation in the mining sector has turned into a political football.
Finally Nama consists of four large scale, long term, contiguous mining licences covering more than 800 square kilometres in one of the world's premier locations for conventional copper-belt type mineralisation.
As mentioned earlier one of those mining licence areas borders onto the world class Konkola copper property being developed jointly by Brazilian giant Vale and African Rainbow Minerals, the South African mining company currently capitalised at around US$4billion.
They are currently investing a massive US$400 million in Konkola and expect to be in production by 2013.
Caledonia’s immediate plans are more modest by comparison. It is initially drilling four holes, each about 800m deep, on its Konkola East Target at a cost of just over US$1 million.
Subject to the drilling results and board approval, further drilling this year will either be focused on defining this target to a 43-101 compliant stage.
That, or an initial programme of holes may be drilled on its second copper belt target, Kafwira, which lies about 20 kilometres northwest of the Konkola East target.
The drilling programme has just started, and the initial results are expected this summer.
Should the drilling yield encouragingly positive results, then management wants to pull the trigger on a much more ambitious drilling programme.
Collins Stewart’s DCF valuation also shows that Caledonia is currently trading at a 30 per cent discount to the net present value of the Blanket Mine (based on a 10 per cent discount rate), when similar projects tend to be valued at 1.5 times NPV.
“Exploration success has the potential to expand the group’s resources, with Nama having the potential to be a share price driver,” McGloin concludes."
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