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- Caledonia Mining reported Q2 earnings of $1.8 million on lower ore grades and a lower realized gold price.
- However the shares fell sharply in early trade as the company overstated its Q1 earnings due to an accounting error.
- While the results are still fine (the company remains inexpensive and highly profitable) and in line with my expectations, accounting irregularities raise a red flag.
- I am avoiding the stock for the time being.
- Caledonia Mining has declared a quarterly dividend of C$0.015/share.
- This has no bearing on my investment thesis except that it reaffirms my belief that the company shouldn't have trouble getting its money out of Zimbabwe.
- The risk/reward has changed since March given the increase in the share price, and given the risk of mining in Zimbabwe I would not initiate a position at these levels.
- 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.