Just a brief mid month update again this month as we have had a bit of news flow from a couple of Gold mining related shares which are in the portfolio. Firstly we had Caledonia Mining (CMCL) with their Q3 production update. This saw record production levels of just under 19,000 ounces of gold in the quarter which was 25% up on the same quarter last year. They also firmed up their full year production guidance to the top of the range at 65 – 67,000 ounces as they approach their 20,000 ounces a quarter target.
This meant they were confident in reiterating their production target of 80,000 ounces for 2022 too. This comes after their major investment in the central shaft in their main mining asset but has also allowed them to pay increasing dividends and start exploring further expansion opportunities as announced recently.
This has been a slightly disappointing / frustrating holding, although the dividend increases have been good. Nevertheless it may repay some patience as long as the gold price can maintain the levels it has traded at this year. On that basis it trades very cheaply on 4x PE with a 5% yield. Now I’m sure gold mining stocks are not to every ones taste or risk appetite or for widows and orphans and I have surprised myself by holding some of them these past couple of years. Nevertheless the bull case remains the cheap valuations and the geared play they offer on the gold price if that should take off and break out again above say $1850-1900 in the current inflationary environment. The downside risk would come if gold should breakdown instead through support around $1700 which could then usher in quite a bit of weakness I suspect.
The second update came as expected from one of this months new holdings Capital Limited (CAPD) the mining services company which was the value stock even cheaper than the housebuilder which was bought for the portfolio this month. Their Q3 update read well with their revenue guidance for the full year increased by around 8% and the interim dividend was raised by 33% from 0.9c to 1.2c. They were also positive on the outlook for sustained strong demand from their largely African Gold mining customer base, given the the gold price (as discussed above) remains at close to decade long highs.
The shares have responded positively to this update this morning and look like they are trying to breakout of the top of their recent trading range between 73p and 84p. If they can manage to do this and sustain it then (see chart below) this should open up the possibility of a run up towards the 95p to 100p range where some resistance from old historic highs back in 2011 might kick in perhaps. Nevertheless prior to any estimate changes on the back of today’s increased guidance the shares continue to look very cheap on 7x PE with a modest but growing yield of around 2% based on the current full year dividend forecast of 2.4c.
Meanwhile if that's not enough for you here are some Golden oldies at the end of this piece for you to enjoy or not as the case may be.
..is not gold as the old saying goes and it may be appropriate to this post. First up a word of warning as this note is about a much smaller and probably more speculative type of share than I normally write about. So widows and orphans please click away now. Right so you agree you are not a widow or an orphan and that you will do your own research before you even consider buying this stock and not come back and blame me if it goes horribly wrong.
Right, with that out the way lets begin. So why am I looking at a smaller and more speculative stock than I do normally. Well as regular readers will know I have recently introduced the Compound income Scores (CIS) and this piece relates to a stock that has popped in towards the top of the list recently. It has a CIS of 100 and a Stockopedia StockRank of 98, a market cap. of about £22m but an enterprise value of just £8m due to plies of cash, it trades on a just under 5x with an indicated yield of 6.5% for the current year and trades on a price to book of 0.71, so as it has all the hall marks of a deep value investment what's not to like?
Well I bet you are thinking it must be pretty dodgy then - and you might well be right because it is wait for it....
a Canada-based exploration, development and mining corporation focused on Southern Africa (Zimbabwe) and listed on AIM! It is called Caledonia Mining (CMCL) and as I say is therefore definitely not for widows and orphans.
They have plans to ramp up production in Zimbabwe on the back of expanding existing mining operations. In a video interview their CFO explains all this is quite some detail and gives a good overview of the situation. He also suggested that he felt the dividend promised for this year could be maintained in 2016 if gold stayed above $1150, but of course quite sensibly, below that he gave no guarantees. So with this one trying to be a low cost producer (aren't they all) it all really hinges on the outlook for Gold price and their ability to ramp up production in the way they expect within the budget they expect. Lots of ifs and buts there potentially and as we all know mining projects often run into unforeseen difficulties so I wouldn't personally take their plans as read.
Any way that's enough from me already as this is quite a speculative play. But if you are that way inclined and want to find out more I suggest you visit their website or checkout a fairly detailed recent note from Edison which set out the background detail quite well, although you may have to sign up for free to access it if you are not already signed up to access their research.
Summary & Conclusion
Undoubtedly a speculative play and I guess you would also have to have a view on where you think the gold price might go from here (see chart above for the price over the last ten years. I know the Money week chartist has been bullish recently on a trading view and there are plenty of gold bugs out there would believe it will go to the moon if the financial system finally collapses under a mountain of debt - who knows I guess you pay your money a take your choice as I always say.
Technically for what that is worth the shares seem to have built something of a base just below the 40p level and having bounced recently look a bit overbought in the short term and 45p might offer some resistance. However, the 50 day has cut up through the 50 day which could be bullish. I guess if 45p can be cleared then it may open the way for a run up toward the gap on the chart and highs from last year between about 52p and 60p - but no guarantees obviously. I'm not sure I'm brave enough to buy it as it's not really my kind of thing.