MIDAS SHARE TIPS: Caledonia Mining on treasure trail

Zimbabwe has been associated with gold mining for over a century and was the world’s third largest producer until the 1980s.

Then Robert Mugabe came to power. In 2008, the country’s gold industry was in shambles, mines were forced to close and production slumped.

That was when Mark Learmonth joined Mining in Caledoniaat that time a small company with too many early stage assets and not enough cash to bail them out.

Learmonth and his team set about transforming the company to create a business focused on gold production in Zimbabwe.

Today, Caledonia is profitable, pays a quarterly dividend and produces about 80,000 ounces of gold annually. However, over the next three years, production is expected to more than triple to nearly 250,000 ounces and the stock, now at £10.70, should respond.

Zimbabwe is ringing the alarm bells for many investors. On the ground, the situation is more nuanced.

Mugabe’s long rule has left a country in devastation, but President Emmerson Mnangagwa is determined to lift his people out of poverty. Mining can play a key role and Caledonia contributes to this, with projects both recognized and valued by the government.

The company’s main asset is Blanket, an underground mine in southern Zimbabwe, whose roots of 62 Wealth & Personal Finance date back to 1904.

Over the last decade and more, Caledonia has made significant investments in the mine, production has skyrocketed and the site now employs 2,000 people, all locally.

This is not only good political practice, it also makes commercial sense. With its long history of gold production, Zimbabwe has an abundance of skilled miners and technicians and Caledonia is reaping the rewards.

The mine’s costs are low compared to many others in the industry, its safety performance is exemplary and the company also works closely with local communities, owning 10 per cent of Blanket and receiving annual dividends in excess of $2 million (£1 .7 million).

With Blanket making a lot of money, Learmonth is eager to take Caledonia to the next stage, transforming the company from a one-min company to a multi-asset company.

Two exploration sites have been acquired in the past two years and on Friday the group completed the purchase of Bilboes, a mine already in production with proven reserves of more than two million ounces of gold.

The site is expected to produce about 15,000 ounces this year, but production will increase more than tenfold as Caledonia develops the mine and installs infrastructure. That will cost money – estimated at £250 million – but Learmonth is determined to maintain its dividend track record and deliver quarterly payouts even as the company expands and develops.

General income will provide some of the money, debt will probably play a role and Learmonth will almost certainly seek the help of the stock market by issuing new shares. But as a former accountant and banker, he knows the value of money and will strive to keep the issuance of shares to a minimum.

Dividends have been paid over the last decade, with 39 pence paid in 2022 and the same or more expected for this year.

MIDAS VERDICT: Zimbabwe may not seem like the most obvious place to look for shareholder returns, but Caledonia Mining provides the goods and the stock should rise in price significantly as the company grows. With gold looking brilliant, the outlook is even more robust. At £10.70 the shares are a buy. And the dividend is an attractive bonus.

Traded on: AIM Ticker: CMCL Contact: caledoniamining.com or 01534 679800.

Dividends Shine While Gold Remains Strong

Centamine is another dividend-paying gold miner. Based in Egypt, the company has grown from a cash-strapped exploration company in the 1990s to a full-fledged, profitable producer of today, generating more than 400,000 ounces of gold each year.

Midas recommended the stock in 2015, when the price was 62 pence.

Today the stock is £1.26 and should bring attractive rewards for years to come.

Recent times have been difficult for this company. Annual production exceeded 500,000 ounces in 2016 and 2017, but output declined as the company faced operational and production issues.

New management came in during 2020 and the group then embarked on a serious investment program in both mines, surface and underground. Shares, which had risen to more than £2.30 in 2020, plunged below 80 pence last year amid concerns that the company would deliver little or no growth if the company regrouped under new boss Martin Horgan.

Today the outlook looks much brighter. Horgan has a history of success in the gold mining industry, he has tackled investment challenges decisively and results should steadily improve over time.

The company is targeting sustained annual production of 500,000 ounces or more through 2024, and costs are expected to fall as major investment programs come to an end and shrewd decisions make their mark, including using solar energy to lower energy bills.

Even as Centamin has experienced operational turbulence, dividend payments have continued, with 5 cents expected for just last year, the same weather forecast for 2023 and the chance of higher payouts beyond that.

MIDAS VERDICT: Investors who bought in 2015 doubled their money and also received a decent stream of dividends. They can now choose to sell some stocks and bank profits while the gold price is high. However, long-term holders may prefer to keep the faith. Horgan is a savvy operator, gold is a useful addition to any portfolio and this company should gain ground in the coming years and pay dividends all the while.

Traded on: Main Market Ticker: CEY Contact: centamin.com or 01534 828700.

Add some sparkle with emeralds

Gold is a unique asset, valued for its brilliance, beauty and value.

Colored gemstones are quite different, but also in demand. Rising prices and growing awareness are good news for this Gemfieldswhich owns the largest ruby ​​and emerald mines in the world, as well as the luxury brand Fabergé.

The company has a complicated history. The group, which was listed until 2017, was delisted by a specialist investment company, leaving many ordinary shareholders feeling dissatisfied and shortchanged.

Gemfields was offered again in February 2020, just before Covid-19 virtually closed the market for colored gemstones.

Shares have bounced back from pandemic-induced lows, the price is at 18.5 pence and CEO Sean Gilbertson is upbeat.

Sean, the son of mining veteran Brian Gilbertson, has mining in his blood. And he wants to leave a mark.

Gemfields owns an emerald mine in Zambia and a ruby ​​mine in Mozambique, but also sells rough stones at auction. Four emerald auctions generated record sales of $149 million (£125 million) in 2022, up 62 percent from 2021. Three ruby ​​auctions also generated record sales – $167 million, compared to $147 million last year.

The Fabergé business is helping to bring colored gemstones to the forefront of wealthy consumers and a 007 Fabergé egg is expected this year, commemorating 60 years of James Bond films. Gemfields has not been helped by civil unrest in Mozambique, putting expansion plans there on hold.

Nevertheless, the balance sheet is strong and Gilbertson is a dividend enthusiast, with an expected yield of 2.6 pence for this year, giving the stock an extraordinary return of nearly 14 percent. Brokers predict a payment of at least 2 pence for the current year, rising to 2.4 pence by 2024, making Gemfields one of the few companies offering inflation-destroying revenue.

Traded on: AIM Ticker: GEM Contact: gemfields.com or 020 7518 3400.

MIDAS VERDICT: With a volatile history and an uncertain future, Gemfields is not for the faint of heart.

But adventurous investors – or those with a penchant for gemstones – can take a chance for 18.5 pence. And the fat dividend adds extra sparkle.