Q4 2020 Caledonia Mining Corporation PLC Earnings Call
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Thank you down and welcome. Everybody who's joining this call? You are aware that this is the tricky tricky results presentation for Caledonia biting off. The presentation in graphic formats is on our website. And also there is a recorded presentation by market myself that you can also view on the website if you want to get more detail, so we'll we'll go briefly through the key points. And I mean, we'll open this up to Q&A. I'm joined the pool today by Don Roots. I'll see you Mark Morris Mason who's in charge of Business Development Office and commit a hold full charge of our investor relations to the whole team will be available to take your questions and we look forward to a constructive Court. Yep.
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Just starting off your drawing your attention to the usual disclaimer and you're all aware of of its need and and content houses quickly be home about the highlights. They haven't going to hand over to Mark to go through the financial side of the presentation. And as I said Donner is available to answer any operational questions that you may have that that will take place during the Q&A. So really the tricky tricky highlights, which were very proud is that from a health and safety perspective. We went through the year with Coburg you take very little effect on the operation at blanket. Mine management is an extremely good job in protecting our workers and we had virtually no effect on the the overall production levels. And as as we have announced before we actually came up with a record annual production again, yep.
8000 ounces for blankets which end of the circumstances is just fantastic considering the the lockdowns that had to take place. The operation was also a rabbit a pretty well controlled measure from a cost perspective. Although there were some additional and incidental costs associated with COVID-19 and my internet is a little bit more detail, but the full really key highlights that you're probably familiar with the lady cuz it was in me off at the price announcement that we made we hit a hundred million turnover as we are in a higher gold environmental pricing environment. That was the 32% off pretty gross profit cannot be forty-six million and that was a 50% increase on the previous year and adjusted EPS ketamine in a 240-volt.
$2.41
Increase and all in all because of the the the strength of the business the strength of the gold price in our confidence in what the future looks like. I am being able to increase the quarterly dividend four times during the 2020 which is given us a cumulative increase of 60% off from May 8th 2019 through to medic 3:20. So from a shareholder perspective we have we have generated value package. We've shared some of that value and we are you know, demonstrating our confidence going forward the Outlook which is critically important to that page that uh ability to increase the dividend. The central self confidence is high because Central shaft is was fully equipped Direct.
Twenty-twenty and commissioning will take place during this quarter that will be completed during the During the period of the first quarter of 2021 after I get production this year's going to be sixty-one to sixty seven thousand ounces as we mentioned before and then we will get into the ramp-up of eighty thousand ounces from 2022 onwards with Joe Biden's for the last few years. So covert despite COVID-19. We have managed to stick to that goal. We've managed to deliver the shaft that we all very very proud of our teams that we've had down at the blanket and most importantly we have also put into action our power Palm about wanting to expand our portfolio of assets and we announced late in 2020 that we had acquired the options or the two new exploration properties Brownfield properties dead.
And we are starting to mobilize on those on those properties. One of them is not drawings on it. The other one is still in the planning stage. They factored that we have now embarking on the next stage of California students. So those are the highlights. We very proud of them. And I think now what we should do is bring his hand over tomorrow can ask him to go into the financial in some detail and they will take your your other questions on on matters of interest to you with a keyboard available to you at the end of the court. So Mark if you'll take it from there, please.
Thank you, Dave. My finance reviews section starts on page twelve of the presentations loaded onto our website, but these thirteen get the results highlights that's nice and revenue is up to a hundred million the measurement see that was due to a 5% increase in the production and a 27% increase in the average gold price is already took it up by 50% adjusted attributed profit up by 55% adjusted attributable profit. All we do there is we strip out things like foreign exchange gains in particular home office and profits or losses arising on the disposal of of non-core assets. So we're really trying to get to the the core performance of the business. So we generally do believe that that 55% reflects the performance of the business.
Just looking at the profit.
Los accounts on page fourteen Revenue, I've dealt with the royalty stays at 5% of Revenue production costs appear to go up quite significantly go by 20% that does include a suspension components work with non control cost. I'll come back to the mainland similarly GNA increases by 43% from 5.6 million to 8 million and I got some income tax on that shortly be met for an exchange comes down last year in 2019. It was really Thirty million this year. It's four point three million and that doesn't reflect any change in the rate of the evaluation of the Zimbabwe dollar. It just reflects the fact that in 2019. We we devalued some very large liabilities down to not very much and simply there's not much further for them to go off. So. That's the reason why the foreign exchange game was was smaller and other other in 2019 was able to gain of three point nine million this year at a loss of two dead.
19th at three point nine billion most of that what five million but that was that was a profit on the disposal of the wrestling gold mine in South Africa in 2020 that reversed we incurred $1,000 impairment on a small, um expiration asset which we decided to get rid of and that twenty-twenty also includes one point four million dollars of equity settle down payment expense. That's the long-term incentive award to to management and employees at the bulk of that is driven by the bulk of that value is driven by the higher share price. I come onto tax in a month would be the tax rate of $15 tax of fifteen point two million. The first blush seems to be quite a high effective rate, and I've got some some for the context on that in a moment. So today it's back in production costs wages and salaries up by 16% that reflects a 12% increase in 1 hours worked and the balance would be higher higher, you know per capita payments. It's fair to say in the year. We put in a month.
Progressive bonus structure and those things already mentioned in the year performance was as a record that is not surprising that the workers are rewarded for that success consumables Gorsuch 15% That's largely due to the increased cost of maintaining the fleet of trackless equipment underground which mainly work in the declines. We have a difficult time with my Titan that equipment and stuff. We bought initially was reconditioned second hand and it did have a high maintenance cost. We've done two things with replaced much of that equipment with the equipment. And also we've taken a a specialist contractor to help us improve the the maintenance the maintenance scheduling that quickly equipment. So we we believe we got our arms around around that then offsetting that increase with a with a reduction in the cyanide usage as a result of the commissioning of the oxygen plant in in March negative eight hundred thousand eight hundred thousand dollars worth of COVID-19 expenses. That's PPE.
And stuff like that, which is unavoidable.
Repossess the electricity costs less for being the the grid grid provider that went off and 5.9 billion to 6 and 1/2 and that that reflects 12% increase in power usage. And I also do to 7% increase and tons Milt. We also saw a substantial increase in the cost of electricity of diesel to run the gem set that went off from half a million to one point eight. So that that effectively means that the the hours used increased for the 3,800 hours in 2019 to eight and a half thousand and twenty twenty and that increased inform the decision in the middle of twenty-twenty to press ahead with a a solo project because frankly we can't see the electricity situation in Zimbabwe also have like a generally improving and it's probably more likely to get get wage or we get back to soon as a defensive maneuver. We decided to press ahead with the solar and at the mind in addition to the one point four million dollars of of share-based payment expensive refer to a group level wage.
The mind is a small a small not now no point six million of share-based a way too expensive respect to those employees at the mine who participate in that scheme as I say that that charge is largely driven by the fact that price so that's total probably far as production costs increased by 20% and 36.4 to 43.7. But within those costs are quite substantial cost that I'll call non-controlled co-sign 20/20 is about 3. 3.3 million as such costs being the cost of the Kobe consumables the cost of running the gem sets. We when the electricity goes down, we have the choice of either running or not producing a clearly would prefer to manage and sets and also the share-based expense. So if you strip those out 2020 and 2019, the increase is 16% from 34.40 and 1/2. And if you express those values in terms of cost per ton the cost of the time they increased by 8% from just less than $63 an ounce to 6 a.m.
Seven dollars sixty and frankly, you know anything much less than seventy. We're we're very pleased with anything much less than $70 an ounce seventy seventy dollars a tonne. We're quite pleased with so one of the the head seems to be increased. We actually believe that the court costs have been quite a lot controlled looking at g n a certain costs went down. So particularly investor relations cost went down on the Travel cost window. And that's GT2 COVID-19. And the events in which we participated advisory Services increased other half a million from 400,000 to just over nine hundred and not quite a lot of work. We have to do the course of twenty twenty which on things which which we later got value from so we incurred legal fees in respect to the TSX delisting but we're very confident SXT listing actually increase Tyrone ruley quality in North America. So if you compare the quiddity on the Toronto exchange the New York exchange for the six months before we did list it with the liquidity on the birth.
You change after we listed up in his doubles.
And one of the difficulties we faced in recent years has low liquidity. So we're very pleased to increase the liquidity. We also incur fees on on an SEC filing which we then subsequently used the purchase of the ATM issue. And then we also incurred legal fees on the Solar projects for the period of time before we got board approval. And so we have to expense those rather than capitalize them. So those things suck it up and they do they do reflect a very high level of activity last year. But I hope you agree that those expenses flowed through it two things for which we derive tangible benefit wages and salaries by about a million talk to that was due to increased head count. So we took on a senior geologist to help us improve our our resource management and also begin to look at the new projects, which require we took a rock mechanics as the mind is going deeper. We now need to begin to pay more attention to to rock mechanics and we took on the Camilla to do I offer us it's also fair to say that as well.
Speak with the strong performance in the management did receive higher bonuses a number that really sticks out of the increased liability insurance which went up I need a million dollars. That's that's the insurance that insurance premiums the directors and officers cover that that hurt to to have to pay that amount but it does reflect a general risks of a shot tightening in the market for that sort of language to cover as as the insurance companies are becoming increasingly concerned about recent recent problems the mining industry in particular relating to things like slides down wall failure and that sort of stuff off my display matters worse because our primary listing in terms of volume is now in New York. The insurers are more worried about class actions, which typically don't come from the New York market and other markets so long, I would like to see that come down in the future, but I think it will be substantially hard the 86 that we enjoy in previous years.
Online cost per ounce don't forget these costs Browns. They do include the the non-controlled costs that are referred to previously. So I need to page eighteen the overall taxes not charge of 15.90 fifteen point two million, but reflects a rate of it effective rate of 37% of IFRS profit, but you haven't tell the entire story. So the core of the tax do you think I'm tax and deferred tax in Zimbabwe and if you have to gather income tax deferred tax in Zimbabwe and express that as a as a percentage of IFRS gross profit, which is approximately very closely to Online Profit that gives you an effective tax rate of 27% which is very close to the headline rate of taxes in Bob. We have 25.75% but there's additional to that sort of quad-core tax. We also incur income tax in South Africa on intercompany profits and then we also include withholding tax as we move money around the group home.
Please leave money from from Zimbabwe to South Africa. And as we move money from Zimbabwe to the to the UK Jersey included as money movements don't reflect profitability. So inevitably we will as wage forwards continue to incur those taxes in South Africa and holding tax.
cash flow.
Extremely strong cash flow before words and capital was over forty two million. We continue to see a an absorption of cash into into working capital and a half million + 24.2 million + 2019 part of that is just due to the erosion of Supply credit the in Zimbabwe due to the very high rate of inflation. But there's also fair to say that part of it is also due to an increase across the top level of inventories and frankly last, you know for many years. I've been trying to get this top levels down if I did say but in the course of twenty twenty because we have to rely on the high levels of the stock suck conceivable. So solid explosive drill steals more have you to keep the mind going when they supply chain up from South Africa Zimbabwe with with interrupted to say last year. We bought a tested a lot. So twenty-eight million dollars, um of capital investment in the year that includes about to put the two point six million that we spent on getting our hands on the to view investment properties wage.
20-21 will be spending even more because them to get will also be spending about thirteen million dollars on the on the solar project and they're not expect capex to fall away very quickly from birth onwards. The net financing income is 7.3 included that that is the that's the net of twelve and a half million of the equity rate and we did it in the summer and four and a half million dollars of off-balance-sheet. My strong I got to say much about that I would point out is is we because there's now much more cash moving. We need more cash held in South Africa to talk to the buffer because the very high level of procurement spent in South Africa. That doesn't mean from time to time. We do hold Surplus cash in South Africa. We're not allowed but all that cash in US dollars in Lost hold it in place in rentals and it take a long time to get the money out and get the money back in again. So rather than leave that cash exposed to round evaluation. We're holding it as a gold ETF.
So it means we can meet the access that cash in South Africa with short notice rather than have to wait several weeks to get it back into the country if we need it.
Steve already mentioned the dividend we started increasing in January 2022 increased in the six and seven eight cents to seven and a half. We would probably have increased it again in April last year had a meltdown coronavirus thing. So as you recall, when you instead of declaring the dividend in early April last year we decided to wait for four weeks to see to see how it played out at the end of those four weeks. We comfortable to maintain the dividend seven and a half. We didn't think it appropriate to increase it further and then we increased it to Baton house ends in July 10th of October and then further increased wage to $0.11 in in January this year and the next the next dividend announcement. Is your very very early in in ankle.
So that's that's all from the financial Steven back to you.
Thank you Mark. I'll just I'll just summarize how we see so may 20-22 our Target ability thousand ounces is now very very close and it's Remains the absolute focal point of our office is this and we really do look forward to ramping up production to keep that that Target is very important to us and bath convict is full steam ahead final designs that you signed off. The instructions to proceed has been issued COVID-19 has a black beans and Bob way. So the contractors will be able to get on site to be very excited about the project. It will take roughly 12 months at this time next year.
We will have a 12 megawatts telephone providing like it's it's it's very slow during daylight hours off the the exploration projects as as we spoke about become a a more focused part of our business as we as we close actually wrap up the production. It just it's just as I say it just puts into action of the words. We've been saying for for a while now that we want to increase the portfolio of our pipelines. We want to move away from being a single basket producer but shareholders and they will they will take their time and we will conduct him in a responsible and professional manner, but we we look forward to reporting back as and when we have something to talk to the Mazda.
about the
the other area has its growing Focus, but we really are formalizing is commitment to TGs G. We are we've got a solid CSR program on the ground where we work with our local communities to ensure that we make a difference in people's lives. We we work really hard to adhere to the highest standards in terms of environmental behaved. I'll take the biggest in management the server Farm comes into that. So the easiest G is is something that we have done quietly in the background now, it's we bring it to the fall and you will see more and more about our our efforts there. We have recently just added a new one executive director.
to our board who is going to have a
A focus on on the outside of our business because she brings many years many decades of experience for other businesses in in mining jobs in the mining space across a number of jurisdictions. So we look forward to to be able to wave that flag quite a lot higher wage.
I'll I'll I'll come mm extras. They will be coming out of blanket because of the economies of scale down and as you get past twenty twenty-two, they will be at a slow reduction in the overall capex because the project for the software update completed they will be some money spent on on the plugs just to increase our capacity but it's minor and that's probably going to take place during the 2500 2022. So that that is it's sucking time that the cash flows floating out to Caledonia. I'll go just to to Thursday including as we get deeper into the mine the new shaft allows us to get it down to twelve hundred meters. We will be able to do further detailed exploration dead.
Michael Decker available out a logical people to enhance out reserve and resource replace ounces that we deplete and the moment we have a life of mine that's out to 24 and you know that may be extended or a decent would be protected as we that's really exploit $18,000 a year off. Once they get an announcement in the next couple of weeks about Vivid so she held it should look out for that. But as we stayed, you know confidence it showed me a call back by by increasing the times recently and we we have got to the end of the of a long and difficult and expensive program. So Thursday, we excuse me. We look forward to talking to shareholders about dividends as we go forward. We will continue to age
Gali like I believe investment opportunities to engage human Connemara North or not going to be the only projects that we we hope to put into the Caledonia portfolio. We will continue to look at other opportunities. We will have some simplest cash right that we can deploy towards these assets and we as I say, we we want to build em. Yeah it sure the vehicle cuz you said with a with a a portfolio of assets that diversify risk and potentially even diverge E5 jurisdiction. So that for us is is a very exciting part of the future of Caledonia likely to secure we've got with a good business to to build a solid platform months. And with that I think I should cleanse off and open up the session to Q&A and you can log
access to the team
Thank you very much for listening and I'll head back to Dad and he can he can open up whole for the cute and I said thank you Steve. Ladies and gentlemen, if you wish to ask a question, you can press star one on your telephone keypad. Now, please ensure your phone is unmuted locally so that I can call your name and advise one to ask your question. Again, that is star one on your telephone keypad. If you wish to enter the question queue and we do have some callers coming in one more time. It is star one at any time to join the queue, but the first question will come from Howard, Howard when you are ready your line is now open please go ahead.
Hello, everybody. I have three minor questions in the manager real commentary. Does he see I refer to the now terminated get a price support program for gold or is it something like that? Yeah. That was one of his situations. Yes. Yeah. Okay second time. I have read that. I guess I can put quotations around this inflation in Zimbabwe is the accelerating. What is the most recent guest at What annual inflation is?
It's several hundred percent but his is still several hundred percent. But how would that doesn't affect it because we mostly most the stuff the Mind uses we often anyway, so it will feel real steel cyanide. All that stuff is imported. We we pay for our electricity largely in in US Dollars and we pay our Workforce in our the page all local currency for the local currency component. We we pay them the an adjusted amount every month which reflects the devaluation of the of the exchange rate. So we try we try to keep our wage cuz leveling u.s. Dollar to so you really inflation really doesn't affect us at all and in fact affects the currency, but from what you've read or what you heard is still above like two hundred percent. Oh, yeah, it's closer to 5 from there. It's it's a it's a it's a wild goose chase. It just doesn't affect it.
Okay. No, I just just curious and and finally next year. Will there be any extra solar power in what may be off hours that off to the National group or will you use the full capacity know the whole point of phase one is that we will we will use the whole capacity on a little lose it basis face to Thursday would be we would need to have an arrangement where we could deal with Surplus power from time to time. I'm not I'm not familiar at saying that we can't negotiate that but I will take some time and so the thinking was to get phase one up and running shows the concept frankly they will do is to lately.
And then you don't have to negotiate a price satisfactory to Caledonia parent.
Before you proceeded otherwise it wouldn't be worth your while. Yeah.
Okay. Thanks. Stay healthy guys. You're welcome.
And once again ladies and gentlemen, it's star one at any time. If you wish to answer the question queue that is star one on your keypad. The next question will come from Michael Michael when you are ready your lifestyle open, please go ahead.
Flow that you go out put his boot by the authorities What proportion of that is paid for in u.s. Dollars and What proportion of your costs are in US dollars?
The currently currently we will take sixty percent in US Dollars forty percent in local currency. We the 40% in local currency. We we used to the local purchases. So at the moment we're paying for electricity on a 60-40 basis, although there are ongoing negotiations about that. We pay our workers comp basis just about every most of the consumables are imported. And so we pay for those in effectively in South African Rands. So not local currency, What we do is we need to extend we to the extent we would have Surplus local-currency. We participate in a weekly portion where by we could sell that local currency in US dollars. So we are not seeing we're not seeing a A build-up this stage of unwanted unwanted local currency so dead.
I'm going to say the the the the regime the 60/40 regime has increased the administrative burden on the finance team enormously, but we thought we'd like it work. So they're not making lot easier for us. But it is it is it is workable.
But one further question you obviously externalize your profits so you can pay dividend how you actually doing that. How is it done? Technically, it sounds like a very long I can process the do know it is so blanket blanket obviously receives its revenues and a combination of US Dollars and local-currency, you know spends that she spends some some of that money that he has to spend on the local currency for local stuff or US dollars for imported stuff. Then have a a profit or it has Surplus US Dollars those off externalized by a fire the payment of a monthly management fee to our business in South Africa for services provided blanket by pretty much all the cars that use this from our business in South Africa. So there is a modest procurement margin on that then there's still money left over and so that money is distributed from blanket up to our 100%
The subsidiary in Zimbabwe cool Caledonia holding Zimbabwe that goes off as a dividend payment and then see a zebra mean it makes payments out from CA said to the UK, but bought three payments or dividends. I mean, that's what we do. It is complex. It is complex. And so the treasury treasury management and dealing with life is is probably within with all the operating difficulties of the business. That is probably the biggest single operating headache. But but we make it work on a lady work for many years and that's how we can pay the dividend just one final question. You talked about treasury management. Are there any foreseeable problems with that? As you said it's worked well as far but do you see any problems with that on the horizon? But you know, I don't but having having said that we must all recognize the Zimbabwe is very unpredictable.
No.
yeah, so I can say
Make this work for many years now and we are probably one of the biggest single foreign exchange earners for the country and the government understands that they need blanket to continue producing and selling gold to to get that foreign exchange. They did say it's a symbiotic relationship which we don't need to explain to the the authorities.
Oh, that's great that much appreciate it. Thank you.
And I don't currently have any callers in the question queue, but I'll give it another reminder in one more chance for questions to come in. It is star one on your telephone keypad. If you do wish to submit a question now that start off.
And it appears that that's all the audience questions will have for today. So Steve I'll pass it back to you.
Thank you, Daddy. Yes, and thank you everyone for participating. I hope you enjoyed the presentation. As I said before the the gas station is on the website, and he's also a video presentation with Mark. Can I go into more detail? And that's also on the website. So please if you if you've got an interest going to have a life, but thank you once again for joining and good afternoon. Good night. Good morning and until next time thank you, bye-bye.
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