Calibre shares fall to a fresh low on expanded U.S.-Nicaragua sanctions

The Toronto-quoted equity of Nicaragua-focused Calibre Mining (TSX: CXB; US-OTC: CXBMF) has fallen to a fresh 12-month low following the imposition by the U.S. government of tighter sanctions aimed at stifling the regime of Daniel Ortega.

The new U.S. sanctions under President Joe Biden expand a previously signed Trump-era executive order to include specific potential restrictions on trade and investment involving Nicaragua, with a particular reference to the gold industry.

The U.S. Treasury Department also acted in concert with the order to designate sanctions against Nicaragua’s General Directorate of Mines (DGM) and an official of the Nicaraguan government named Cerna, the former head of state security and a confidante to Ortega. These actions come as a continuation of the U.S. government’s efforts to limit the power and resources of the Ortega regime, which has silenced critics and dismantled democratic institutions in the country.

Under the new executive order, Biden has increased the scope for the designated persons covered by sanctions to potentially include those in the Nicaraguan gold industry (Section 1), and could potentially prohibit trade and investment with the country (Section 4).

According to Canaccord Genuity analyst Michael Fairbairn, what impact these sanctions will have, if any, on a Canadian-listed company remains unclear.

Fairbairn explains in a note to clients the DGM is a subset of the Nicaraguan Ministry of Energy and Mines and is considered by the Treasury to be “an important piece of state-controlled gold operations in Nicaragua.”

In the past, the Treasury Department has stated that the “ultimate goal of sanctions is not to punish but to bring about a positive behaviour change” and “The U.S. continues to stand with the Nicaraguan people against… the sustained assault on Nicaragua’s democracy by the Ortega-Murillo regime.”

In a video on the latest sanctions, the State Department “reiterated [its] call for the release of political prisoners… and the restoration of civic space” by the regime.

State Department actions to date have consistently targeted state-controlled mining operations (Empresa Nicaraguense de Minas and General Directorate of Mines) and those at the top of Ortega’s regime (Reinaldo Gregorio Lenin Cerna Juarez), not the Nicaraguan people or foreign entities.

Calibre estimates it distributed US$335.7 million in economic value in Nicaragua in 2021, representing around 2% of the country’s US$14 billion GDP.

Given the miner’s importance to the Nicaraguan economy, Canaccord does not believe the State Department would interfere with Calibre’s operations in-country.

“The State Department’s commentary and actions to date seem to indicate that it would prefer to target state-owned mining companies and individuals at the top of President Ortega’s regime rather than pursue a course of action that would negatively impact the Nicaraguan people,” Fairbairns said.

Assuming the business can continue as usual, Canaccord expects strong free cash flow potential remains. Based on the analyst’s numbers, Calibre’s assets in the U.S. and working capital balance of about US$115 million fully support its current US$259 million market cap.

Fairbairn maintains a ‘buy’ rating on the stock and a $2 target share price.

Calibre shares fell more than 10% on Tuesday to a 12-month low at 52¢ but recovered to 58¢ by the closing bell. It has fallen two-thirds in value over the past 12 months, having touched a high of $1.72 a year ago.