TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.  

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Caledonia Mining (CMCL) is a gold producer, with its primary asset being the Blanket Mine in Zimbabwe. The Blanket Mine has a 13-year life expectancy, notes Ryan Irvine, contributing editor to Internet Wealth Builder.

Caledonia’s strategy is to recommence deep level drilling with the objective of upgrading inferred mineral resources, thereby extending the life of the mine beyond the current horizon of 2034. Caledonia continues to explore the country for other potential mining opportunities.

Total gold production during 2021 was 67,476 ounces, exceeding the company's revised increased guidance and serving as a 17% improvement over 2020. Gold production for 2022 is expected to be between 73,000 and 80,000 ounces.

As of Dec. 31, Caledonia had a cash balance of $17.2 million and $1.4 million in debt and leases, providing the company with a net cash position of $15.8 million ($1.23 per share). Caledonia’s working capital was $35.2 million and has a current ratio of 3.0 times. The stock pays a quarterly dividend of $0.14 per share ($0.56 a year) to yield 3.7% at the current price.

Caledonia is a profitable, cash rich, dividend paying, pure-play gold producer, operating in the relatively risky jurisdiction of Zimbabwe. Despite the high degree of inflation experienced by the Zimbabwean dollar, Caledonia is relatively unaffected by the local currency’s inflation as it receives more than 70% of its total revenues in US dollars.

Regarding Zimbabwe’s political environment, on July 30, 2018, Zimbabwe held its first presidential election since autocratic ruler Robert Mugabe was forced to step down following a brief military takeover in November 2017.

He ruled the country from 1980-2017. The newly elected president, Emmerson Mnangagwa, came to power after winning 50.8% of votes. The next election is expected to be held in April 2023. In addition, the reliability of the power grid remains a primary risk factor for Zimbabwe.

Caledonia has hedged 25% of its operation to the price of gold from March to July 2022 as management anticipates most of its capital expenditures in the first half of the year.

During the fiscal year, management anticipates capex to be approximately $37 million, with a majority going toward advancing the expansion of the Blanket mine. With the new central shaft that came into operation recently, the company is on target to achieve the upper end of its production guidance.

Caledonia is suitable to investors who have a high degree of risk tolerance and believe the price of gold will perform well throughout 2022. Utilizing the midpoint of the company’s 2022 gold production guidance, we estimate fair value at approximately $19 per share.

Action now: we reiterate our 'speculative buy' recommendation on Caledonia.