Headquartered in the island of Jersey, Caledonia Mining Corporation Plc (CMCL) is a gold mine operator that explores for and produces gold and other precious metals. The company’s operations are primarily focused on the Blanket Mine in Zimbabwe. CMCL operates through three segments: Corporate; Zimbabwe; and South Africa and Zambia.
Amid bearish investor sentiment and surging market volatility, investors have been shifting to safe-haven investments to hedge their portfolios against the current market risks.
Given CMCL’s direct exposure to gold, investors have been betting on the stock to perform well in the current environment. Thus, shares of CMCL have gained 15.2% in price year-to-date and 10.9% over the past month to close yesterday’s trading session at $13.27, as gold prices hovered near $1,900.
Click here to check out our Gold and Silver Industry Report for 2022
Here is what could shape CMCL’s performance in the near term:
Record Production in 2021
CMCL produced a record 67,476 ounces of gold in 2021, up 17% year-over-year. Its annual output exceeded the company’s revised increased guidance. In its fiscal fourth quarter, ended Dec. 31, 2021, CMCL’s gold production amounted to 18,604 ounces, representing a 24% increase from the same period last year.
Regarding this, CMCL CEO Steve Curtis said, “The commissioning of the Central Shaft, record gold production, along with a continued commitment to safety, all in one year, is an outstanding achievement and testament to the quality of the Caledonia technical team.”
Hedged 2022 Contracts
CMCL expects to produce approximately 73,000 - 80,000 ounces of gold in 2022. However, the company signed a zero-cost contract to hedge around 25% of its 2022 target gold production capped at 20,000 ounces. This means that 20,000 ounces of gold produced between March – July 2022 will be sold at prices ranging from $1825 - $1940 per ounce.
This hedging contract limits CMCL’s losses if gold prices decline in the near term. As the market’s volatility falls, given the easing conflicts between Ukraine and Russia and stabilizing commodity prices, investors are likely to invest a larger proportion in the stock market. With the CBOE Volatility index down 11% over the past five days, while the benchmark S&P 500 index rebounded marginally over this period, gold prices will likely fall as investor sentiment improves.
Given this backdrop, the zero-cost hedging contract should allow CMCL to protect its balance sheet over the next four months.
Discounted Valuation
In terms of forward non-GAAP P/E, CMCL is currently trading at 5.34x, which is 58.2% lower than the 12.78x industry average. Its 3.29 forward EV/EBITDA multiple is 58% lower than the 7.59 industry average. In addition, the stock is currently trading at 3.58 times its forward cash flow, which is 54% lower than the 7.79 industry average.
CMCL’s 1.65 forward EV/Sales ratio is 2.8% lower than the 1.70 industry average, while its 1.07 trailing-12-month Price/Book multiple is 52% lower than the2.22 industry average.
POWR Ratings Reflect Rosy Prospects
CMCL has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Value. Analysts expect CMCL’s EPS to improve 26.5% year-over-year to $3.15 in its fiscal year 2022 (ending December), in sync with its Sentiment grade. In addition, the stock’s discounted valuation with respect to its peers justifies the Value grade.
Among the 44 stocks in the Miners – Diversified industry, CMCL is ranked #4.
Beyond what I have stated above, view CMCL ratings for Growth, Momentum, Stability, and Quality here.
Bottom Line
Gold futures plummeted 2.1% today, ahead of the Fed's interest rate increase. However, analysts have been predicting an impending recession given the skyrocketing inflation rates and worsening supply chain disruptions in the wake of the Russia-Ukraine war. While the greenback is expected to strengthen due to the hawkish monetary policy, continuing geopolitical tensions and the impact of Russian sanctions on global trade will likely fuel the demand for gold in the near term. Thus, we think CMCL could be a smart investment bet now.
How Does Caledonia Mining (CMCL) Stack Up Against its Peers?
While CMCL has a B rating in our proprietary rating system, one might want to consider looking at its industry peers, Lundin Mining (LUNMF), South32 Limited (SOUHY), and Glencore plc (GLNCY), which have an A (Strong Buy) rating.
Click here to check out our Gold and Silver Industry Report for 2022
CMCL shares were trading at $13.48 per share on Wednesday morning, up $0.18 (+1.35%). Year-to-date, CMCL has gained 16.98%, versus a -8.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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