Caledonia Mining Corporation PLC (LON: CMCL) – Expects to grow dividend after improving production guidance.

Caledonia Mining Corporation PLC is a FTSE AIM All-Share listed Gold producer with cash generative business model. The Blanket Mine in Zimbabwe is its primary asset, which is all set to hit the production guidance of 55,000 – 58,000 ounces (oz) in FY20.

Rationale for Valuation – Speculative Buy at GBX 1,115.00

• From the technical standpoint, 14-day RSI (32.60), which is supporting the upside movement.
• Over the past four quarters (Q4 FY19 to Q3 FY20), Gross Margin and EBITDA have remained above 42.20% and 44.80%, respectively. Moreover, the Company does not have any debt.
• Caledonia expects to increase free cash flows due to higher production, reduce capex and lower unit costs from FY21.
• By FY22, Caledonia expects to produce around 80,000 of gold, reflecting ~45% increase from the current position.

Key Risks

• Caledonia is exposed to financial risk with fluctuations in Gold price and exchange rates.
• Furthermore, the unavailability of adequate working capital can impact regular revenue and cash flow.
• The Global Covid-19 pandemic could result in the suspension of operations and increase the labour absenteeism, and thus, the operation costs.

Production Update for the quarter ended 31 December 2020 (as on 18 January 2021)

• During FY20, Caledonia reported record production of 57,899 ounces.
• In Q4 FY20, the Company produced nearly 15,012 ounces of gold.
• For FY21, gold production is projected to be between 61,000 - 67,000 ounces.

Financial highlights for the three months ended 30 September 2020 (as on 12 November 2020)

(Source: Company Website)

• During Q3 FY20, gross revenues surged 27% year-on-year to US$25.4 million.
• Similarly, gross profit increased by 47% year-on-year to US$12.5 million against US$8.5 million in Q3 FY19.
• Adjacently, AISC cost increased from US$872 in Q3 FY19 to US$1,119 in Q3 FY20, primarily due to a higher insurance premium.
• Adjusted EPS stood at 34.1% (Q3 FY19: 15.8%).
• As of 30 September 2020, total assets increased from US$143.55 (at the end of Q3 FY19) to US$172.12 million.

One Year Share Price Chart

 (Source: Kalkine Group, Refinitiv)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Clearly, Covid-19 pandemic had no effect on production, and therefore, the production was above target in the 9M FY20. Moreover, the production guidance for FY21 and beyond has been significantly improved. For Q3 FY20, Caledonia also delivered an 8.5% year-on-year jump in dividend per share. Therefore, the dividend per share has increased by 45% since January 2020 on a cumulative basis. In a nutshell, the Company is in a great position to pursue significant growth opportunities. The stock made a 52-week high and low of GBX 1,900.00 and GBX 582.00, respectively.

Based on the positive trading momentum, gold market prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Caledonia Mining Corporation PLC at the current market price of GBX 1,115.00 (as on 22 January 2021, before the market close at 10:37 AM GMT), with lower double-digit upside potential based on 12.64x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Metal Tiger PLC – Continued to diversify its portfolio to generate greater shareholder value.

Metal Tiger PLC (LON: MTR) is a FTSE AIM All-Share listed Financial Services Company, which provides business and financial support for expanding the natural resources interests.

Investment Rationale – Speculative Buy at GBX 20.50

• It has obtained total funding of AU$11.8 million through financing arrangements secured over Sandfire shares.
• As of 30 June 2020, market capitalisation improved to £38,052,000 from £21,026,000 on 30 June 2019.
• From a technical standpoint, 14-day RSI (22.70) is supporting the upside potential.
• In the past 1-year, the stock price of MTR has outperformed the benchmark index by delivering ~55.34% return as against ~23.15% return of FTSE AIM All-Share index.

Risk Assessments

• Political uncertainties and macroeconomic headwinds continued to create the market turbulence.
• Covid-19 pandemic led disruption continued to fluctuate the exchange rates and created liquidity, operational and credit risks.
• It is a lossmaking entity and unavailability of substantial funds can affect the growth trajectory.

Recent News

21 December 2020: MTR invested nearly AU$300k in Catalyst Metals Limited by subscribing 142,857 new ordinary shares at a price of A$2.10 per share. It was a part of Company’s AU$18 million placement plan.

Unaudited interim results for the six months ended 30 June 2020 (as on 30 September 2020)

 (Source: Company Website)

• Metal Tiger acquired 62.2% ownership of Kalahari Metals Limited by investing US$1.5 million.
• However, MTR could not generate any revenue and reports net losses in H1 FY20.
• Adjacently, the Company is for dual listing on Australian Stock Exchange.
• The Company continued to make investments in existing and new entities to diversify portfolio investments.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

During H1 FY20, financial performance declined significantly while the profitability remained in the negative territory. However, the board is confident about the positive future outlook as it has strengthened the management position with the hiring of David Royle and the financial position was bolstered with the equity derivative collar financing facility. Moreover, it continues to focus on Botswana with interests in KML and holdings in Sandfire. Stock 52-week High and Low were GBX 29.00 and GBX 7.00, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Metal Tiger PLC at the current market price of GBX 20.50 (as on 22 January 2021 before the market close at 8.05 AM GMT).

*All forecasted figures and Industry/Peer Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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