Caledonia lines investors’ pockets

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CALEDONIA Mining Corporation (Caledonia) says its dividend policy is informed, in part, by the need to reassure investors that it is in good standing despite the challenges in Zimbabwe.
The Zimbabwe focused miner, which operates Blanket Gold mine, is popular with international investors because it is one of the few mining companies that has consistently declared a dividend since 2014.
“We have paid dividends every quarter for about five years now,” Mark Learmonth, Caledonia’s chief financial officer, said in an interview with British specialist financial public relations and investor relations agency, Blytheweigh.
“It is an important factor to differentiate ourselves from the other gold producers. We also recognise that while the mine is a very attractive asset, it is in a somewhat challenged jurisdiction.”
Caledonia’s shares are listed on the Toronto Stock Exchange and the New York Stock Exchange while its depositary interests shares are traded on London’s Alternative Investment Market.
Learmonth noted that by constantly rewarding shareholders, the company is proving a point that its balance sheet is strong.
“There is difficulty in extracting foreign exchange from Zimbabwe at the moment. So when we pay dividends, we are proving that we are getting access to the foreign exchange. It is a sign of life,” he said.
Lately, gold miners in Zimbabwe have been distressed by the foreign currency shortages in the country.
RioZim, one of the major miners of the yellow metal in the country, early this month shut down operations at its mines, for the second time in five months, due to the central bank’s failure to pay the company its dues.
However, Learmonth said things were going well for Caledonia in this regard.
“We sell the gold to the government, we have been doing that for many years and it’s worked well for us. We deliver on a day and we get paid two or three days afterwards, at the London price less an early settlement discount which is very small, it has worked well for us,” he said.
Meanwhile, the company says it has bought put options to hedge against falls in gold price up to June 2019.
A put option is an instrument that is commonly used to hedge against downside price movements in commodities or stocks.
Leamonth says the company is hedging to secure the central shaft sinking project at Blanket Mine, which is being financed by the company’s “organic cash flows”.
“The amount we are spending is very nearly the same amount as the amount we earn. So until we start to increase production it is quite tight. So we took advantage of the opportunity to put in place a hedge tool to guarantee a minimum gold price,” he said.
“It is not a forward sale, all we did is we bought out-of-the-money gold put options. This means if the gold price falls below $1 250, those bits of paper have some value.
“We have not given away any upside potential of the gold price. At the current gold price of over $1 300, we benefit from that completely. It is just like an insurance policy allowing us to lock in a minimum gold price of $1 250,” he said.
The company says the arrangement is for the six months to June 2019.
“So we are now down to about five months. We are looking at renewing that over the course, push it perhaps to the end of the year,” said Learmonth.
He said the company will abandon the strategy after it increases production and after its capital expenditure requirements go down.
“We will not need to hedge,” he said.
Caledonia anticipates that the shaft sinking project will be completed towards mid 2019 after which the shaft will be equipped and commissioned.
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