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Caledonia Mining Corp 23 January 2024

Focus on Bilboes

Nic Dinham

3Q23/FY24E: Caledonia’s Q3 financial metrics improved sharply after poor results in H1. The improvement was driven largely by the Blanket mine’s strong operating performance, which continued into Q4, allowing it to meet its production target of >75,000oz in FY23.  

Bilboes Oxide operation: Blanket’s improved performance helped to dilute the substantial losses incurred by the Bilboes Oxide operation. The closure of the Oxide operation at the end of 3Q23 will have sharply reduced losses in 4Q23 and is likely to benefit FY24E’s performance.  

FY23E/FY24E earnings: Based on the losses made by the Bilboes Oxide operation and Blanket’s poor H1, we have reduced our FY23E estimate of BEPS to $0.29cps, well down from last year’s $1.35cps. Fortunately, the closure of the Oxide mine, a stronger gold price and better performance from Blanket should result in FY24E BEPS returning to over $0.90cps.

FY23E/FY24E cash flows: Caledonia’s cash flows were also badly affected in H1. Blanket’s capex has remained high, driven by sharp increases in the estimates for a new TSF now under construction. By FY24E-end, cash flows and cash balances should be materially boosted by the profitable sale of the Solar Power Project and stable operations at Blanket.

Bilboes Sulphide Project (BSP): Caledonia completed the acquisition of the BSP in 1Q23 and now owns what may be one of the largest, highest-grade, undeveloped, open-pittable gold reserve in Sub-Saharan Africa.

Focus on Bilboes: Caledonia is currently refreshing its Bilboes feasibility study and is also looking at a scoping study to determine how to scale the project. At present, the project pathway looks likely to start with a small operation and grow over time. By 2030E, Bilboes could potentially be a 100,000oz/a project.

Bilboes start-up: The start-up requirement for Bilboes is estimated at c. $150m, of which $100m could be debt-funded. The remaining $50m could potentially be invested by Caledonia and shareholders. Fortunately, the current gold price trend is supportive. Debtholders may require the ZRB to allow an offshore collection account and provide legal certainty that Bilboes exports all its gold as well as receives all its revenues in USD.

Caledonia growth potential: Based on our assessment, even a modest growth trajectory from Bilboes would allow Caledonia’s attributable production to grow from 50,000oz/a to c.130,000oz/a by 2030E.

Valuations: Our valuations are based on DCFs using 20% real discount rates, and we look at a shorter life of Blanket as a base case and a 20-year LOM as a speculative case. Our valuations range from $11.07/s (previously $10.92/s) to $12.96/s (previously $11.84/s).

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