Caledonia Mining (OTCQX:CALVF) just announced its second quarter earnings results. The results were fine. Earnings came in at $1.8 million, down from $3.1 million in the second quarter of 2013. Gold production fell slightly from 11,600 to 11,200 from the second quarter a year ago. Both declines are attributable to the fact that the company realized lower ore grades. Also the company's average realized gold price fell from $1,373/oz. to $1,271/oz. However these issues were offset by lower all-in costs, which fell from $959/oz. to $881/oz.
These results aren't spectacular, but they are not terrible. The company remains highly profitable while being priced for disaster. They are largely in line with my March investment thesis that the company is inexpensive with just a $53 million valuation as investors do not want to invest in Zimbabwe. The company has a large, $25 million cash position and it trades at less than 4 times earnings with the cash backed out.
There was, however a troubling issue, namely the company's accounting irregularities. Management reported that it had overstated its Q1 profits by $1 million: it reported $4.1 million when the figure should have been $3.1 million. Now $1 million isn't a big deal, but accounting irregularities are. The market punished the company on the open for this misstep, although the stock quickly recovered reflecting the stock's valuation. However I do not like accounting irregularities and so I do not want to be in the stock for the time being. Investors who followed my advice and bought shares can exit with a 30% profit (not including dividends), which represents a 35% out-performance relative to the Market Vectors Junior Gold Miner ETF (NYSEARCA:GDXJ) and a similar out-performance relative to gold.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.