Executive Summary / Key Takeaways

• Record Performance and Elevated Guidance: Caledonia Mining Corporation Plc (CMCL) delivered a record-breaking Q2 2025, with significant increases in revenue, net profit, and operating cash flow, leading to an upward revision of its full-year Blanket Mine production guidance to 77,500-79,500 ounces.
• Strategic Project Advancement: The Bilboes project is undergoing a comprehensive feasibility study focused on optimizing economics and minimizing equity dilution, exploring options like concentrate export and tailings facility relocation to reduce upfront capital.
• Strong Cash Generation and Capital Discipline: The company is building a robust cash position, targeting $50-$60 million by year-end 2025, supported by the recent $22.4 million solar plant sale and internal cash flows, all while maintaining its dividend policy and funding capital expenditures internally.
• Technological and Operational Efficiency Drive: CMCL is actively implementing various technological and operational initiatives at Blanket Mine to enhance efficiency, reduce costs, and improve safety, including advanced recovery methods, energy-saving power solutions, and labor management systems.
• Underexplored Growth Potential: Promising exploration results at Motapa, particularly the shallow oxide discovery at Mpudzi, and ongoing efforts at Blanket, signal a strong growth pipeline aimed at transforming Caledonia into a mid-tier, Zimbabwe-focused gold producer.

Setting the Golden Stage in Zimbabwe

Caledonia Mining Corporation Plc, incorporated in 1992 and headquartered in Jersey, stands as a focused gold producer with its operational heart in Zimbabwe. The company's core business is the development and operation of gold mines, anchored by its 64% interest in the Blanket Mine. This strategic concentration in Zimbabwe, a mature mining jurisdiction, is central to Caledonia's vision of becoming a mid-tier gold producer. Over the past decade, Caledonia has demonstrated a compelling growth trajectory, notably expanding Blanket Mine's production from approximately 40,000 ounces to nearly 80,000 ounces annually. This growth has been meticulously managed with a strong emphasis on minimizing equity dilution and consistently returning value to shareholders through dividends.

The gold mining industry, characterized by capital intensity and exposure to commodity price fluctuations, is currently experiencing a favorable high gold price environment, which has significantly benefited Caledonia's financial performance. Broader industry trends, such as increasing demand for sustainable mining practices and technological advancements in extraction, also shape the competitive landscape. In this environment, Caledonia positions itself against larger global players like Barrick Gold Corporation (GOLD), Newmont Corporation (NEM), AngloGold Ashanti Plc (AU), and Kinross Gold Corporation (KGC). While these giants boast diversified global portfolios and superior economies of scale, Caledonia's strength lies in its deep regional expertise and agile, project-specific execution within Zimbabwe. Its localized knowledge and established presence offer a unique value proposition, allowing for nimbler strategic adaptation in the Zimbabwean market. However, CMCL's smaller scale means it typically lags these larger competitors in overall financial breadth, operational efficiency, and the sheer volume of growth opportunities, which can translate to stronger margins and cash flow for its larger rivals.

Technological Edge and Operational Excellence at Blanket Mine

At the heart of Caledonia's operational strategy is the Blanket Mine, which has consistently delivered strong performance, underpinned by a commitment to technological and operational enhancements. The mine achieved a record production of over 21,000 ounces in Q2 2025, contributing to a revised full-year guidance of 77,500 to 79,500 ounces. This operational prowess is not accidental; it is a direct result of strategic investments in technology and process optimization.

Caledonia employs advanced metallurgical processes at Blanket, including the use of an oxygen plant and Knelson Concentrators, which contributed to a record gold recovery rate of 94.41% in Q2 2025. These technologies are critical for maximizing gold extraction from the ore, directly translating into higher revenue per tonne processed. Furthermore, the company is actively pursuing several initiatives to enhance efficiency and reduce costs. Power factor correction equipment, expected to be fully installed in the coming weeks, is projected to save approximately $1.3 million annually from 2025 by optimizing electricity usage and avoiding penalties. The planned conversion of the central shaft winder from AC to DC is anticipated to yield an additional $1.2 million in annual power savings from 2026, by improving energy efficiency in hoisting operations. These initiatives demonstrate a clear technological roadmap aimed at insulating the mine from Zimbabwe's unreliable electricity grid, a significant operational risk.

Beyond power, Caledonia is also modernizing its labor management. The implementation of a new biometric clocking system at Blanket Mine is designed to track staff movements, improve rostering, and pre-authorize overtime. This technology aims to enhance labor utilization and control, addressing labor costs which represent the largest component of the mine's operating expenses. The company's proactive approach to safety, including a comprehensive diagnostic review by DuPont (DD) following a Q3 2024 fatality, further underscores its commitment to operational excellence and long-term sustainability. These technological and operational differentiators contribute directly to Caledonia's competitive moat by driving down costs, improving recovery rates, and enhancing overall productivity, thereby supporting stronger financial performance and market positioning.

Strategic Growth: Unlocking Bilboes and Motapa's Potential

Caledonia's future growth trajectory extends beyond Blanket, with significant potential vested in the Bilboes and Motapa projects. The Bilboes project, a substantial gold deposit, is currently undergoing a comprehensive feasibility study. Management's objective is to maximize the project's net present value per share by optimizing its economics and minimizing equity dilution. This involves a multi-pronged approach, including evaluating a phased development strategy to reduce upfront capital costs, which were historically estimated at around $310 million but are now acknowledged to be higher across the industry.

A key strategic consideration for Bilboes is the potential to export gold concentrates. This option, if permanently approved by the Zimbabwean government, could significantly reduce capital expenditure by deferring or eliminating the immediate need to construct a costly BIOX plant, thereby derisking the project, particularly for North American investors. The tailings storage facility (TSF), which represents the largest capital component of the project at nearly $100 million, is also under review for relocation to the adjacent Motapa property. Leveraging Motapa's more favorable topography could reduce construction costs by minimizing the need for retaining walls. Preliminary results of the feasibility study are expected before the end of 2025, with the full study timeline remaining indeterminate as smaller-scale options are evaluated. Caledonia is actively engaging with potential debt funders, including African DFIs, South African commercial banks, and resource-specialist credit providers, aiming for non-recourse project finance and modest mezzanine funding to achieve prudent gearing and avoid equity dilution.

The Motapa project, an exploration property adjacent to Bilboes, presents another exciting growth avenue. A $2.8 million exploration program for 2025 follows encouraging results from 2024, which confirmed widespread mineralization over a 9-kilometer strike length. Of particular interest is the Mpudzi area, where shallow oxide mineralization has been identified, with 8 out of 15 intersections with grade above 15 meters depth averaging 4.21 g/t Au. This near-term oxide potential is "very, very exciting" and could be processed using Bilboes' existing heap leach facilities, adding an estimated 30,000 to 40,000 recoverable ounces over two to three years at lower costs. These synergies between Bilboes and Motapa are expected to form a combined "Bilboes mining camp," significantly enhancing Caledonia's resource base and production profile.

Financial Fortitude and Capital Allocation

Caledonia's financial performance in recent periods underscores its operational improvements and strategic focus. In Q2 2025, the company reported a 30% increase in revenue to $65 million and a 147% surge in net profit attributable to shareholders to over $20 million. Adjusted earnings per share climbed by 155%, reflecting a robust quarter.

Operating cash flows reached $28 million, contributing to a healthy cash balance of approximately $26 million (including fixed term deposits) at the close of Q2 2025. This strong cash generation is a significant turnaround from previous periods, with 2024 annual operating cash flow nearly tripling to $41.95 million from $14.77 million in 2023.

The company's strategic divestment of its 12.2MWac solar plant for $22.4 million in Q2 2025, realizing a profit on its $14 million construction cost, further bolstered its cash position and allowed for capital redeployment into core mining activities. Caledonia aims to build its cash balance to $50-$60 million by the end of 2025, providing substantial financial flexibility for its growth initiatives.

All capital expenditures, including the projected $30 million in sustaining CapEx for 2025 (up from $19 million in 2024), are funded from internal cash flows. This disciplined approach to capital allocation, coupled with a commitment to maintaining dividends, is a cornerstone of Caledonia's shareholder value proposition. The company's dividend of $0.14 per quarter, totaling $0.56 for the year, is considered "super important" for shareholder returns, particularly in Zimbabwe, and management is committed to maintaining and eventually growing it.

Despite these strengths, Caledonia faces financial headwinds, notably from the volatile foreign exchange environment in Zimbabwe. The local currency, ZiG, lacks a liquid market and is subject to rapid, committee-driven devaluations, leading to significant foreign exchange losses, totaling $9.3 million in 2024. To mitigate this, Caledonia actively manages its ZiG balances by converting them into inventories and prepayments rather than holding cash. The company's effective tax rate also remains somewhat high due to structural inefficiencies, as certain group-level expenses are not tax-deductible in Zimbabwe. However, the stabilization of the ZiG in Q4 2024 and Q1 2025, coupled with ongoing cost-reduction initiatives, is expected to ameliorate these pressures.

Navigating the Zimbabwean Operating Environment

Operating in Zimbabwe presents both unique opportunities and inherent challenges. Caledonia's long-standing presence since 1907 has fostered a highly skilled local workforce and deep institutional knowledge, enabling it to navigate the country's complex landscape. Encouragingly, Zimbabwe's operating environment has shown signs of improvement, with its ranking in the Fraser Institute survey rising to 8th out of 17 African countries, up from the bottom. This reflects increased stability in physical security and ongoing efforts to liberalize the foreign exchange market, leading to more liquidity for the ZiG in the Willing Buyer Willing Seller market and greater stability in the ZiG/dollar exchange rate.

However, challenges persist. Zimbabwe's electricity supply remains a critical issue, with the country producing less power than it needs. This unpredictability, exacerbated by seasonal rains and infrastructure limitations, forces Caledonia to rely on expensive diesel generators during grid interruptions. To counter this, the company is investing in a $10 million, 17-kilometer connection to Zimbabwe's 132 kV backbone, expected to materially improve power quality and reliability. Furthermore, the government's fast-tracking of independent power projects, including solar, indicates a supportive stance for industrial users. The company's management team has also undergone significant changes, with about 50% of Blanket's senior management joining within the last year, contributing to improved operational performance and a cultural shift towards greater efficiency and safety. These strategic responses to the Zimbabwean operating environment are crucial for Caledonia's continued success and its ability to capitalize on the country's mineral potential.

Conclusion

Caledonia Mining Corporation Plc is poised for a transformative period, building on the bedrock of its highly productive Blanket Mine and the promising growth pipeline of Bilboes and Motapa. The company's record Q2 2025 performance, bolstered by a strong gold price and disciplined operational management, has set a robust foundation for future expansion. With an increased production guidance for Blanket and a clear roadmap for optimizing the Bilboes project while minimizing equity dilution, Caledonia is strategically positioned to enhance shareholder value.

The company's commitment to technological innovation in operational efficiency and cost control, coupled with its proactive approach to managing the complexities of the Zimbabwean operating environment, reinforces its competitive standing. While larger gold producers benefit from scale, Caledonia's localized expertise and targeted growth strategy in Zimbabwe offer a compelling investment thesis. The potential for near-term revenue from Motapa's oxide resources and the long-term vision of a combined Bilboes-Motapa mining camp underscore the significant upside. Investors should recognize Caledonia's proven ability to generate strong cash flows, its unwavering dividend policy, and its strategic pursuit of growth opportunities as key drivers in its journey to become a leading mid-tier gold producer in Africa.