Caledonia Mining — Record production and 14% increase in grade

Caledonia Mining — Record production and 14% increase in grade

Caledonia’s Q3 results indicate record gold production with moderate unit cost decreases. The company is now firmly on target for its FY17 full-year guidance of 54-56koz of gold. We also consider the marked increase in gold grade mined compared with the previous quarter, as a major positive for the company. Following a marked increase in higher confidence category gold resources situated at depth, the central shaft development has been extended to add further long-term mining flexibility.

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Caledonia Mining

Record production and 14% increase in grade

Q3 results

Metals & mining

12 January 2018

Price

537.5p

Market cap

£57m

US$/£:1.29

Net cash (US$m) at end September 2017

11.8

Shares in issue

10.6m

Free float

95%

Code

CMCL

Primary exchange

AIM (CMCL), TSX (CAL)

Secondary exchange

NYSE American (CMCL)

Share price performance

%

1m

3m

12m

Abs

11.6

(5.4)

(1.0)

Rel (local)

13.1

(5.7)

(9.7)

52-week high/low

143.0p

69.0p

Business description

Caledonia Mining mines gold at, and maintains management control over, its main operating asset, and the 49%-owned Blanket gold mine in southern Zimbabwe. It is also progressing its understanding of a number of promising satellite projects close to Blanket.

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Next events

FY17 results

20/03/2018

Analysts

Tom Hayes

+44 (0)20 3077 5725

Charles Gibson

+44 (0)20 3077 5724

Caledonia Mining is a research client of Edison Investment Research Limited

Caledonia’s Q3 results indicate record gold production with moderate unit cost decreases. The company is now firmly on target for its FY17 full-year guidance of 54-56koz of gold. We also consider the marked increase in gold grade mined compared with the previous quarter, as a major positive for the company. Following a marked increase in higher confidence category gold resources situated at depth, the central shaft development has been extended to add further long-term mining flexibility.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/15

49.0

5.1

40.0

23.7

17.3

3.4

12/16

62.0

19.6

106.9

28.4

6.5

4.1

12/17e

68.0

21.0

129.3

27.6

5.4

4.0

12/18e

78.7

24.9

148.4

27.6

4.7

4.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items, share-based payments and deferred tax. Historical earnings reflect share consolidation.

FY17e: Production target narrowed further

As a result of Blanket’s improving operational performance over FY17 (Q3 gold grades up 14% q-o-q and tonnages milled up 10% from end Q117), Caledonia has narrowed its previous 52-56koz production target to 54-56koz of gold produced. We maintain our forecast for 54koz produced from Blanket in FY17.

Going deeper for good reason

Caledonia has viewed its recent drilling results and resource upgrade very positively and factored the results into its understanding of future mining potential below a depth of 750m. Partly as a result of this new data, the company has decided to extend the central shaft depth by 250m from 1,080m to 1,330m. The cost of this additional development is US$18m and is to be funded entirely via Blanket’s internal cash flow generation.

Valuation: Adjusted for Q317 results and new gold prices

We adjust our base case valuation for Caledonia’s Q317 results, driven by an improved gold grade providing record gold production for the quarter of 14,936oz at cash operating costs of US$663/oz and all in sustaining cost (AISC) of US$827/oz. The average gold price realised fell slightly by 2% q-o-q from US$1,265/oz to US$1,238/oz. We have also included US$18m in total additional capex required for the central shaft’s depth extension. We assume that US$12m is spent over FY18 with the remaining US$6m spent during FY19 as the central shaft completes. Of most significance to our valuation is the adoption of our new gold price forecasts, as set out on page 89 of our mining overview, Unlocking the price to NPV discount: A new world order, published on 16 November. Factoring in all these adjustments reduces our previous 933p base case valuation by 7% to 869p. We use a 10% discount rate to reflect general equity risk. Applying a spot gold price of US$1,280/oz over LOM results in an 838p value. The company’s current dividend yield of 4% compares to the average for the FTSE mining index of 3.5% and its FY17e P/E of 5.4x to the index’s P/E of 17x.

Quarterly results

Q317 saw record gold production of 14,936oz at Blanket at an AISC of US$827/oz, a 15% decrease compared to Q316, driven by a reduction in G&A arising from lower sustaining capital and recognition of the export incentive credit in 2017. However q-o-q G&A is up 8% (36% above our forecast) driven largely by, inter alia, an increase in employee costs resulting from Caledonia appointing its own in-house legal counsel and a strengthening of the South African rand.

Exhibit 1 shows our forecasts compared with actual Q317 results. Caledonia’s Q317 revenues came in 2% above our forecasts, almost entirely as a result of the company’s record production. We have marginally adjusted our FY17 gold price upwards on a pro rata basis from US$1,256/oz (used in our last note) to US$1,258/oz now. Other income of US$663k is the receipt of an export credit incentive from the government of Zimbabwe. Blanket receives an export credit incentive to the value of 3.5% of its gold sales. This is factored into our valuation for the entire forecast period from FY18 to FY26.

As a result of revenues slightly exceeding our estimates and recognition of credit incentive, partly offset by higher than expected G&A coupled with moderately higher royalty payments (up 9% cf our estimate driven by Q3’s record production) and depreciation (6% above), the company’s Q317 PAT was flat at US$3.88m versus our estimate of US$3.93m.

Exhibit 1: Comparison of Edison estimates versus actual Q317 results

(US$000s)

Q317e

Q317

% change

Revenue (incl of refining costs and rebate)

17,813

18,230

2%

Royalty

(834)

(913)

9%

Operating costs

(9,263)

(9,080)

(2%)

Depreciation

(953)

(1,008)

6%

Gross profit

6,763

7,229

7%

G&A

(1,183)

(1,607)

36%

Share based payments

-

(73)

-

Foreign exchange gain/(loss)

-

(3)

-

Other income

-

663

-

Operating profit

5,580

6,209

11%

Net interest

135

(7)

N/A

PBT (FRS 3)

5,715

6,202

9%

Tax

(1,783)

(2,326)

57%

PAT (FRS 3)

3,932

3,876

(1%)

Minority interest

(891)

(756)

(15%)

Attributable profit

3,041

3,120

3%

EPS (IFRS), (c)

29

29

1%

Source: Caledonia Mining and Edison Investment Research

In terms of earnings, our forecast for Q317 IFRS earnings per share came broadly in level with that reported by Caledonia, with only EPS on a normalised basis coming in 7% lower (41c vs 44c) than our estimate, driven by an adjustment to deferred tax which is governed by the company’s timing of capital expenditures. The other adjustment to normalised earnings is FX, which was immaterial during the quarter at US$3k. The following exhibit details Caledonia’s ytd quarterly income statement and our estimates for Q417 earnings are largely in line with our previous estimates. Normalised EPS has decreased on an FY17 basis by just under 4%.

Exhibit 2: Ytd quarterly figures and Q417 forecasts

US$000s

Q117

Q217

H117

Q317

Q417e

FY17e

Revenue (incl. refining costs and rebate)

16,449

15,484

31,933

18,230

17,830

67,993

Royalty

(823)

(776)

(1,599)

(913)

(834)

(3,346)

Operating costs

(9,098)

(8,814)

(17,912)

(9,080)

(9,263)

(36,255)

Depreciation

(882)

(859)

(1,741)

(1,008)

(953)

(3,702)

Gross profit

5,646

5,035

10,681

7,229

6,779

24,689

G&A

(1,441)

(1,493)

(2,934)

(1,607)

(1,183)

(5,724)

Share-based payments

(410)

(959)

(1,369)

(73)

-

(1,442)

Foreign exchange gain/(loss)

(64)

83

19

(3)

-

16

Other income

644

557

1,201

663

-

1,864

Operating profit

4,375

3,223

7,598

6,209

5,596

19,403

Net interest

(7)

(10)

(17)

(7)

135

111

PBT

4,368

3,213

7,581

6,202

5,731

19,514

Tax (excludes deferred tax charge)

(1,460)

(2,090)

(3,550)

(1,127)

(14)

(4,691)

Deferred tax

-

-

-

(1,199)

(1,683)

(2,882)

PAT

2,908

1,123

4,031

3,876

4,034

11,941

Minority interest

(570)

(429)

(999)

(756)

(891)

(2,646)

Forex translation differences

73

60

133

-

-

133

Attributable profit

2,411

754

3,165

3,120

3,143

9,428

Source: Caledonia Mining and Edison Investment Plan

We maintain our previous forecast of 54koz produced for FY17, this being the lower end of Caledonia’s recently narrowed production target of 54-56koz gold produced. We estimate that this production will incur unit cash operating costs of US$686/oz, before drifting lower as higher production in subsequent years decreases the effect of Blanket’s fixed cost base. The ability to mine more gold while maintaining a stable fixed cost base is a key reason for expanding Blanket’s production and, as shown in Exhibit 3 below, will have a material positive effect on decreasing unit costs going forward.

Exhibit 3: Actual and forecast revenue and costs, 2015-2025e

Source: Edison Investment Research and Caledonia Mining

Improving gold grades

Third quarter production was also bolstered by a slight increase in the mined gold grade at Blanket. A q-o-q increase of 14% from 3.08g/t (Q217) to 3.52g/t (Q317) was recorded and supports management’s view that gold grades will return from recent lows and back up towards the long-term average for Blanket of c 3.8g/t. Of all the operational data announced to market in the company’s third quarter release, this grade increase is the most reassuring and we look forward to seeing it maintained at similar levels during subsequent quarters.

Allied to the increase in gold grade mined is a very slight increase in gold recoveries (see right-hand chart below). Tonnages mined and milled for the quarter remained flat compared to Q217.

Exhibit 4: Quarterly operational data Q114 to Q317

Source: Caledonia Mining and Edison Investment Research

Exhibit 4: Quarterly operational data Q114 to Q317

Source: Caledonia Mining and Edison Investment Research

New resource data to underpin central shaft extension

Along with the improved geological confidence that underpins the company’s increase in NI43-101 resources, management has taken the view that it is prudent and in the best interests of Blanket’s future longevity that an extension to the central shaft’s depth, from 1,080m to 1,330m, should be made. Importantly, the US$18m of additional capital expenditure required for this extension is to be funded entirely via Blanket’s internal cash flow generation. We note that the depth extension to the central shaft has been calculated using a long-term gold price of US$1,260/oz.

Caledonia states that the central shaft depth extension is not expected to affect payment of its dividend. We have maintained our forecast for a FY18 dividend equal to that paid out in FY17.

Beyond extending Blanket’s mine life – why extend now?

Development down to a depth of 1,080m underpinned the company’s 2014 investment plan. With the development of a brand-new, single nine-metre shaft in a central position to Blanket’s main ore-bearing lodes and providing an additional 330m of vertical access below the 750m level, Caledonia envisioned production at Blanket well into the 2020s. This original plan had enough measured and indicated resources and reserves to pay back 97% of the original US$70m cost of the investment plan’s development. However, future mining at that time had been pinned to mining far lower confidence inferred resources. This situation has since changed with the ongoing drilling being undertaken to target the deeper reaches of Blanket’s orebodies. The following section explains how Caledonia has successfully evolved its NI43-101 compliant resource base over time (Exhibit 5).

The extension to the central shaft’s planned depth will also be significantly cheaper to develop now, rather than in the future when all construction equipment and services have been removed. Furthermore, as production commences, it would be highly undesirably to have to stop production intermittently to allow additional waste haulage from the central shaft, which will, on completion, become Blanket’s main production ore and waste haulage route to surface.

Resource upgrade drives depth increase

Caledonia released a resource update on 2 November 2017, which, among other things, detailed a 6% increase in measured ounces from 671koz (December 2016) to 714koz and a 47% increase in inferred ounces to 887koz. The improvement to Caledonia’s Blanket resource base has, however, been far more impressive when viewed over time, and indicates a high level of background activity in improving its geological processes. During our site visit in October 2016, we saw a meaningful push towards digitisation of existing paper-based geological information, which is an important factor in visualising in 3D the viabilities in Blanket’s orebody structures and grade variations. The improvements to Blanket’s resource base (and, by extension, reserves) should indicate to the investor a far more confident view of the quantum of gold available to mine, its gold grade and grade variability – all important factors for the consistent running of any mine.

Exhibit 5: Caledonia’s resource base evolution over time (2011-2017); pie chart is 2017 resource-split (koz)

Source: Caledonia Mining and Edison Investment Research

As shown by the above graphs and pie chart, the evolution over time of Caledonia’s resource base at Blanket has been positive and material. The lack of a measured resource category before 2015 was a hindrance on the company’s ability to scope out the future potential viability of expanding Blanket’s production, both above and below the 750m level – the historical depth limit to Blanket’s gold production before the advent of the investment plan.

The long-term average mined gold grade assumption for Blanket is just under 4.00g/t gold at 3.84g/t. The support for this grade level is given by the grade of Blanket’s 2017 measured resource category of 3.90g/t. While the average resource grade has modestly declined from the previous estimate given in 2016 (with respect to the indicated and measured categories only), this is as a result of greater geological confidence derived from more infill drilling, and should allow the company to better target, and most importantly, mine and blend various ore streams from Blanket’s numerous orebodies with far better confidence and accuracy. In providing a more accurate estimate of grade and its variability across each orebody, Blanket should be able to provide improved operational performance and greater consistency over IFRS earnings forecasts.

Exhibit 6: Blanket NI43-101 resource base (2017)

Inferred

Indicated

Measured

Tonnes (Mt)

Grade
(g/t Au)

Contained ounces (koz)

Tonnes (Mt)

Grade
(g/t Au)

Contained ounces (koz)

Tonnes (Mt)

Grade
(g/t Au)

Contained ounces (koz)

5.53

4.99

887.0

3.81

3.98

488.0

1.81

3.90

227.0

Source: Caledonia Mining

Valuation – gold price revisions

We have adjusted our valuation for Q317 results, but also for our recently revised gold price forecasts and other factors given in the following sections.

New gold price forecasts

Following the release on 16 November 2017 of our annual mining overview, Unlocking the price to NPV discount, a new world order, we have revised our long-term gold price forecasts. For background to the changes made, please refer to the aforementioned report (pages 79 onwards).

Exhibit 7: Edison’s new 2018-2026 gold prices

Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

New forecast (US$/oz)

1,220

1,263

1,482

1,437

1,304

1,303

1,264

1,235

1,319

Old forecast (US$/oz)

1,220

1,284

1,362

1,344

1,281

1,274

1,257

1,245

1,264

Change (%)

0.0%

-1.6%

8.8%

6.9%

1.8%

2.3%

0.6%

-0.8%

4.4%

Source: Edison Investment Research

Central shaft extension capex

As advised by the company, the deepening of the central shaft development by 250m from 1,080m to 1,330m will cost an estimated US$18m. The development has been costed using a gold price of US$1,260/oz (well below our forecasts in Exhibit 7). The additional capital expenditures required for the depth extension is to be funded purely by Blanket’s internal cash flow. We factor this additional capex into our valuation, with US$12m allocated to FY18, and the remaining US$6m spent in FY19. Note that the additional capex is not being made to support the existing Investment Plan’s planned mining schedule. The central shaft depth extension is supported by production in addition to our base case valuation scenario, which we have not yet been able to update as we await more details from the company.

We have also adjusted our US$/£ exchange rate up 4% from 1.29 to 1.34.

Base case down on additional capex

On this basis and largely as a result of the aforementioned additional capex requirement, our base case valuation for Caledonia’s shares decreases 7% from 933p to 869p per share. Our valuation uses a 10% discount rate to reflect general equity risk.

Forcing our model to reflect Caledonia’s current share price of 500p results in an implied discount rate of 21%. Furthermore, on applying a spot gold price of US$1,280/oz across all forecast years results in a valuation of 838p.

Financials

Caledonia finished Q317 with a cash balance of US$11.8m, a q-o-q increase of 8%. This follows ytd cash generated from operating activities of US$16.6m, net cash used in investing activities of US$15.6m, US$3.6m in net cash from financing activities (including US$2.4m in dividends paid on a quarterly basis and a US$1.1m loan repayment in connection with Caledonia’s small-term loan facility). We now forecast Caledonia finishing FY17 with a cash balance of US$11.5m (compared to our previous forecast following Q217 results of US$10.5m). As a result of the additional capex spend associated with the central shaft over the next couple of years, we see Caledonia’s cash pile decreasing in FY18 to US$8.7m, before a substantial increase, under our assumptions, in FY19 to US$36.9m.

Exhibit 8: Financial summary

US$000s

2015

2016

2017e

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

48,977

61,992

67,993

78,678

96,382

119,172

Cost of Sales

(35,796)

(38,500)

(43,303)

(47,484)

(51,433)

(54,472)

Gross Profit

13,181

23,492

24,689

31,194

44,949

64,700

EBITDA

 

 

8,967

23,257

24,547

29,847

54,562

76,293

Operating Profit (before amort. and except.)

5,645

19,766

20,845

24,647

48,062

69,793

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

2,850

(788)

(1,442)

(1,000)

(2,966)

0

Operating Profit

8,495

18,978

19,403

23,647

45,096

69,793

Net Interest

(535)

(176)

111

231

173

737

Other financial items

0

Profit Before Tax (norm)

 

 

5,110

19,590

20,956

24,878

48,235

70,531

Profit Before Tax (FRS 3)

 

 

7,960

18,802

19,514

23,878

45,270

70,531

Tax

(2,370)

(7,717)

(7,573)

(6,121)

(10,610)

(15,898)

Profit After Tax (norm)

2,740

11,873

13,383

18,757

37,625

54,632

Profit After Tax (FRS 3)

5,590

11,085

11,941

17,757

34,660

54,632

Minority interests

(811)

(2,797)

(2,646)

(3,217)

(4,667)

(7,074)

Net income (norm)

 

 

4,220

11,276

13,635

15,540

32,958

47,558

Net income (FRS3)

 

 

4,779

8,288

9,295

14,540

29,992

47,558

Average Number of Shares Outstanding (m)

10.5

10.5

10.5

10.5

10.5

10.5

EPS - normalised (c)

 

 

40.0

106.9

129.3

148.4

312.5

450.9

EPS - normalised and fully diluted (c)

 

34.6

92.4

128.1

146.0

309.6

446.8

EPS - (IFRS) (c)

 

 

8.9

79.5

88.1

137.8

284.3

450.9

Dividend per share (c)

23.7

28.4

27.6

27.6

0.0

0.0

Gross Margin (%)

26.9

37.9

36.3

39.6

46.6

54.3

EBITDA Margin (%)

18.3

37.5

36.1

37.9

56.6

64.0

Operating Margin (before GW and except.) (%)

11.5

31.9

30.7

31.3

49.9

58.6

BALANCE SHEET

Fixed Assets

 

 

49,276

64,917

81,215

96,215

101,165

100,208

Intangible Assets

0

0

0

0

0

0

Tangible Assets

49,276

64,917

81,215

96,215

101,165

100,208

Investments

0

0

0

0

0

0

Indigenisation receivable

0

0

0

0

0

0

Current Assets

 

 

23,562

25,792

22,415

23,364

53,163

108,883

Stocks

6,091

7,222

4,470

4,623

4,757

4,953

Debtors

4,236

3,425

2,794

6,467

7,922

9,795

Cash

12,568

14,335

11,540

8,663

36,873

90,524

Other

667

810

3,611

3,611

3,611

3,611

Current Liabilities

 

 

(8,397)

(9,832)

(11,190)

(13,970)

(18,705)

(25,459)

Creditors

(6,709)

(9,832)

(11,190)

(13,970)

(18,705)

(25,459)

Short term borrowings

`

(1,688)

0

0

0

0

0

Long Term Liabilities

 

 

(14,080)

(19,365)

(19,365)

(19,365)

(19,365)

(19,365)

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

(14,080)

(19,365)

(19,365)

(19,365)

(19,365)

(19,365)

Net Assets

 

 

50,361

61,512

73,076

86,243

116,258

164,267

Minority interests

 

 

(1,504)

(3,708)

(5,882)

(8,628)

(13,296)

(20,370)

Shareholder equity

 

 

48,857

57,804

67,193

77,615

102,963

143,897

CASH FLOW

Operating Cash Flow

 

 

8,331

25,631

23,707

26,123

50,097

74,355

Net Interest

0

(194)

111

231

173

737

Tax

(1,462)

(2,466)

(3,702)

(6,121)

(10,610)

(15,898)

Capex

(16,567)

(19,885)

(20,000)

(20,200)

(11,450)

(5,543)

Acquisitions/disposals

0

3

0

0

0

0

Term loan facility and equity issuance

0

3,360

0

0

0

0

Dividends

(2,504)

(2,994)

(2,911)

(2,911)

0

0

Net Cash Flow

(12,202)

3,455

(2,795)

(2,878)

28,210

53,651

Opening net debt/(cash)

 

 

(23,082)

(10,880)

(14,335)

(11,540)

(8,663)

(36,873)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

(0)

(0)

0

0

Closing net debt/(cash)

 

 

(10,880)

(14,335)

(11,540)

(8,663)

(36,873)

(90,524)

Source: Company accounts, Caledonia Mining

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Caledonia Mining and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Caledonia Mining and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

NetScientific — Clinical and commercial progress continues

In January Glycotest announced that it had completed a 149-person Chinese retrospective study of its test for hepatocellular carcinoma (HCC). It demonstrated 93% sensitivity at 92% specificity, which is superior to the commonly used alpha-fetoprotein (AFP) test. Additionally, ProAxsis announced continued commercial progress with the CE mark of a ProteaseTag research kit for a new enzyme, plasmin, which may have utility in inflammatory conditions of the lung.

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