Gold Mining Stocks (XAU)

[NYBob]

Caledonia Mining Is Too Cheap To Ignore

Mar. 14, 2014 10:26 AM ET | About: CALVF
Disclosure: I have no positions in any stocks mentioned, but may
initiate a long position in CALVF, ALIAF over the next 72 hours.
I wrote this article myself, and it expresses my own opinions.
I am not receiving compensation for it (other than from Seeking
Alpha).
I have no business relationship with any company whose stock is
mentioned in this article.


Summary

Investors have ignored Caledonia Mining given that its
Blanket mine is located in Zimbabwe.
While there is substantial risk on a relative basis there is
evidence that this risk is overstated, and that the business
environment in Zimbabwe is improving.
Given this, and given the value of Caledonia's DCF the stock
offers compelling upside relative to its risk.
(Editor's Note: Trading in Caledonia's listing on the Toronto
Stock Exchange under CAL.TO offers enhanced liquidity.)

(Before reading this, note that Caledonia Mining (OTCQX:CALVF)
reports all of its figures in Canadian Dollar terms.
To make my life easier in working with the company's financial
statements, and to make it easier for the reader to refer back
to the company's documents, all of the figures below are in
Canadian Dollars until I calculate the final valuation at
the end in U. S. Dollars.)

Caledonia Mining has been largely ignored by gold mining investors
because it operates in Zimbabwe.
While it owns 49% of and operates the low cost, cash-flow
generating Blanket mine, the company trades at just 3-times
trailing earnings, and less than 1-times its trailing operating
income with the company's working capital backed out.
It also pays a 6.8% dividend.

Specifically the company has a valuation of C$46 million with
C$25 million in cash and equivalents and
C$29 million in working capital with no debt.
It owns 49% of the Blanket mine which produces about
45,000 ounces of gold annually (about 22,000 attributable to
Caledonia Mining) and which as of the most recent resource
estimate contained 467,000 ounces of gold reserves at
3.78 grams per tonne (229,000 attributable ounces) and
470,000 ounces of gold resources at 5 grams per tonne
(230,000 attributable ounces).
Since this estimate came out towards the end of 2010,
the mine has produced about 125,000 ounces of reserves, which
brings that total down to 342,000 ounces (168,000 attributable).

More importantly, however, the mine is a low cost producer.
Production costs have been coming down so that the company's all-
in sustaining cost is just C$873/ounce.
"All in" costs, which include "community costs," permitting
costs, exploration, and "capital expenditures" reached a
low of C$999/ounce in the third quarter of last year, and it
averaged just C$1,075 in the 12 months from Q4 2012 through Q3
2013.
At the current gold price this means that the company is earning
over C$400/ounce before taxes or C$8.8 million pre-tax on an
annual basis.
After taxes, which include a 25.75% corporate tax and a 7%
royalty, the company has an estimated
net annual income of about C$6 million.

Given the company's C$29 million working capital position and
its C$46 million market capitalization, this is an incredible
amount of cash-flow, and if the mine were located in virtually
any other part of the world, the stock would not be this cheap.
But the mine is located in Zimbabwe, and this complicates things.

Mining in Zimbabwe

Zimbabwe is seen as a risky place to mine and to do business
more generally.
While it is impossible to quantify this risk, we can look at the
Frasier Institute's Survey of Mining Companies.
This survey is sent to over 4,000 mining companies whose
executives evaluate the risks of mining in various countries.
The data is then compiled and countries are ranked based on
this data in various categories.

In the 2013 survey, Zimbabwe didn't exactly finish last, but
it might as well have. Let us look at the Policy Potential Index,
which measures mining executives' opinions of the governmental
policies of various countries as they pertain to mining.
Executives are asked about regulations, taxation, uncertainty and
related categories.
Countries are then ranked on a scale of 1 - 100 based on the
percentage of respondents who feel that the country's policy
"encourages investment." Zimbabwe's most recent score (2012/2013)
is just 13.4, and it ranked 91st out of a possible 96 countries.
Furthermore Zimbabwe fell significantly in the rankings, having
been a 21.8 the year before and a 22.4 the year before that.

If we look at some particular categories, we find the following:

More than half of those surveyed claimed that they would not
invest in Zimbabwe because they believe that the country's legal
practices aren't fair or transparent.
More than half of those surveyed would not invest in Zimbabwe
because they believe that there are uncertainties in the
country's administration, interpretation, and enforcement in its
regulations.
Half of those surveyed will not invest in Zimbabwe due to
concerns that the nation is corrupt.
Nearly half of those surveyed would not invest in Zimbabwe
because they believe that there are uncertainties regarding that
country's disputed land claims.
About 40% of those surveyed would not invest in Zimbabwe because
they are concerned about the country's policies regarding trade
barriers, capital repatriation, and currency restrictions.
About 40% of those surveyed will not invest in Zimbabwe due to
concerns over political stability.
About 40% of those surveyed will not invest in Zimbabwe due to
concerns over the potential for attacks coming from terrorist
organizations, criminals, and guerrilla groups.
A third will not invest in Zimbabwe because they find
inconsistencies in the country's regulations.
More than 10% will not invest in Zimbabwe because they find
inconsistencies in the country's environmental regulations.
This list is daunting. What's more, the Survey includes the
following quote from a mining company president regarding
Zimbabwe.

Zimbabwe: unofficial government policy is you will never
expatriate profits.
Black empowerment and political uncertainty make large or long-
term investment impossible; no rights of ownership, no rights to
enter required professionals, corruption is high, border
restrictions-unstable future.

-A producer company with less than US$50M, Company president

(p. 47)

(This could very well be a quote from Caledonia's President and CEO Stefan Hayden, as the company description fits Caledonia.)

page 1 / 2|Next »

http://seekingalpha.com/article/2089113-caledonia-mining-is-too-cheap-to-ignore?source=yahoo

Goldeagle thanks for good info -

CALEDONIA fair market price $100//sh +++++++->GO CAL ++FLY CAL -->>>

Rock & Roll King Little Richard

@ 4yrs old singing and playing

CALEDONIA


http://www.wimp.com/oldschool/


CAL.TO : TSX
Industry: General Mining
HOLDINGS SUMMARY

http://data.cnbc.com/quotes/CAL-CA/tab/8

Shareholders

Top Shareholders

http://data.cnbc.com/quotes/CAL-CA/tab/8


http://investorshub.advfn.com/boards/read_msg.aspx?message_id=98908961
God Bless