Monday, July 18, 2011

Caledonia Mining Corporation Shares Plunge Over 9% As Gold Price Surges

Shares of Caledonia Mining Corporation (CALVF) took a nose dive Monday even as Gold prices surged past $1600 per ounce.

Caledonia operates the Blanket Gold Mine in Zimbabwe and is currently producing over 40,000 ounce of gold annually.

With uncertainty about the Zimbabwe Indigenisation laws, Caledonia shares have remained undervalued compared to other gold mining companies.

Yesterday I asked Caledonia about the current state of Indigenisation and here is the response I received:

We have no feedback our plan.  We believe the minister for indigenisation is reviewing the existing regulations in light of overwhelming messages from various parties, including the world bank, that the current policies will kill the zim economy.  

New dawn is in a slightly different position to us in that their acquisition of CAG just over a year ago triggered an immediate indigenisation obligation.  I know that new dawn believes this immediate obligation does not arise because the deal was done at offshore holding co level, but I think This is a thin argument which will not work on the zim authorities.  

If it has taken over a year for the zim authorities to make no progress on new dawn, where they have a much better entry point, I would not expect any speedy action from the zimbos on other mining companies. They have not got their thinking right in that we believe they do not really know what they want to achieve from indigenisation and even if they did have well-marshalled thoughts, they do not have the administrative capacity to do very much very quickly.

In the meantime, we are concentrating on increasing production and controlling costs at blanket with a view to Rebuilding our treasury so that we have flexibility on our other assets, particularly in Zambia.

Kind regards

Mark Learmonth

I have been looking for Caledonia to move much higher in the short term as it breaks higher out of this wedge formation.

Is this the final shakeout of the weak hands in CALVF? Or is Caledonia going to continue to stay mired in political and economical uncertainty?