Q2 2023 Caledonia Mining Corporation PLC Earnings Call

Can we just move on to the presentation team.

Speaker 1: Caledonia Mining. Can we just move on to the presentation team, Maurice?

Okay on the call today there's me, Martin Leavonta Caledonia's Chief Executive, there's Victor Capari. Welcome to the show, I'm Martin Leavonta Caledonia and I'm here to talk about the

who is, as you'll know, one of the vendors of the Bilbo's asset. He's an Executive Director. We've got Chester Goodburn, the CFO based in Johannesburg, Donna Roots, also the Chief Operating Officer based in Johannesburg, Maurice Mason, Vice President, Corporate Development and Camilla, VP Group Communications. They're both based in the UK.

Shall we get going? Without beating you out of the bush, it was another very challenging quarter. As I go through these, my comments will be focused on Q2 compared to Q2 previous years. We do, for reference, show six months numbers there, but I prefer to focus just on the quarter.

very disappointing 1000 ounces from Bilbo's so it's about sort of 17,400 from Blanket. I'll ask Dana and Victor respectively to discuss the operational issues facing Blanket and Bilbo's respectively.

Pretty much saved by the high gold price. The high gold price meant that revenues were broadly level at about $37 million. The gross profit was substantially reduced, down from $18 million in the second quarter of 2022 to just under $11 million for the second quarter of 2023. And that was a combination of higher, high costs that Bill...

to higher than expected use of electricity, which gave rise to about a couple of million dollars of extra expense there. That flowed through into the net profit attributable to shareholders, instead of being $11 million profit with half a million dollar loss.

Again So our W summary, production of blanket was below target. To operational issues which Don or talk about. I'm just raw your attentions the fact that July , after fairly intensive management interventions, July did show a substantial improvement. So 7800 ounces produced in uly, which are given us the confidence to iterate our production guidance for 2023 between 75.08 million ounces of gold. Similarly, costs for the quarter were very high. Online cost was over thousand dollars announce.

The bulk of that increase from just under $700 an ounce in the comparable quarter, 81% of that increase was due to the high costs incurred at Bilbo's. Again, I draw your attention to a very strong performance in July where our online cost...

came in at $715 an ounce, which again gives us comfort that we can stand behind the full year guidance of between $770 and $850 an ounce. Having seen the poor performance at Billbeth, it will be returned to care and maintenance with effect for the 1st of October . So we got a three month notice period with a contractor.

And it made financial sense to run that contract down rather than terminate immediately. And it's likely we expect to see a modest cash contribution coming from Bilbo's in the third quarter as the stripping ratio falls away and we continue to harvest gold that's been deposited on the leach path.

Safety has been very disappointing in the quarter and compounded by an unfortunate fatality which we announced next week. And so management is taking urgent measures to improve our performance there. On a more positive note, we've seen some good drilling results.

from Eroica, which we'll talk about in a moment. We raised some money by placing in March and April . And we also started the direct export of gold from Zimbabwe to a refine up in Dubai, which means that we've cut the Reserve Bank out of our US dollar.

So in terms of safety, I mean the critical thing here is the, is the, what brings it home is the disability injury frequency rate or the total injury frequency rate. You can see

towards the bottom of that table it has increased from the TIFR has increased from sort of one let about one up to 1.35 1.36. Now clearly we are going to have to take measures to address that. A lot of it comes down to

trying to re-engineer the way people behave in the work environment. We've got a clearly set out series of rules and procedures for doing pretty much everything and people just need to adhere to that and stop doing silly things. And so Donna and the rest of the team at Blanket are putting a lot of effort into trying to...

make people behave in the way they have to behave so they can operate safely. So we don't expect, we don't want to see those safety statistics stay at that level.

Billbout has included just for completeness but there's been significant issues at Billbout. So let's move on from that.

Okay, can I ask Chester, who I'm afraid is suffering from a bit of a cold but no doubt he'll manage, can I ask Chester to take us through the financials?

Yes, thank you Mark.

Our revenues are somewhat down from the previous half, comparing the previous quarter as well. That's due to lower ounces produced at the blanket. The additional ounce that we produced at the blanket did not increase above those levels.

Realty remained at 5%, which is all charged at the same rate as the comparable period. Our production class is going up, but we'll get to the detail of the production class in a few slides.

Depreciation has increased due to reassessment of useful life. That increased the quarterly depreciation by $600,000.

That's due to reassessment of the useful lives of some generators, the jet tow shaft, which we do not plan to use now that we've got the central shaft available, and some LHD generators that's being deteriorated due to the power fluctuation and the bad power we've been experiencing at Langford.

We're negatively affected by other costs, the extent of $14.3 million for the half year. There's about a $7 million swing on foreign exchange losses.

So 2.1 million lost for the year. It came down from a gain of approximately 5 million in the previous half. As you see the Zimbabwean dollar that devaluated in the month of June , while our standing from fidelity of 25%.

as devalued and that caused foreign exchange losses.

It's good that we do export 75 cents of our gold. That 75 cent is not subject to any foreign exchange losses. Also include near as right down of global oxides. It's based on care and maintenance, as Mark said. And that's both about the additional items of the fee.

thousand dollars of impairment expenses all on cash. Tax expense, the effective tax rate is quite high. That's due to the bulbose loss we've encountered.

It's not deductible against taxable profits.

a blanket and that shows a very high tax charge for the year.

Can we move to the next slide?

Okay, can I suggest, Dana, could you just quickly give an overview as to what happened production wise in the quarter? Yes...

But this is the whole way if you look at the top graph.

You can see the grade went up last year and it picked in quarter four or quarter three and then it came down a bit and continued coming down in quarter one and quarter two. We knew that was the case and that was one of the reasons why we installed the extra amount in the plant.

That model became operational last year. That was the problem this year. If you look at the start, if you look at quarter one there and quarter two, compared to last year, it's more or less the same tons that we did. But we had a higher grade last year at Delta, so we had to do more times. Now when you're in a build-up place and we were building up to 90,000 ounces last year.

or it was removed and then we signed on a new GM in January this year that started on the mine and with that we had also some underground managers that was replaced. So during this was good to get to 80,000 ounces the safety culture also went for a loop.

and some people acted just because of being negligent as far as their concern.

Now that rolled over into this year and when you build up you run a flexibility. The flexibility will come now with our development especially on 33 and 34 level. Opening up those areas and then going down to 38 level.

And when we started the year, we were slightly behind the fish beginning into our high grade places.

By the end of the quarter we hope to be in those places.

And with that, during Quarter 2, we systematically sorted out the issues and got into the right places again. Then some other issues like bad track work with normal operational issues that went for a loop, pushing very hard to get to 80,000 ounces.

So again, systematically we had to fix those issues and it would put us in good stead for the third quarter and we're in the right places and we're getting the tonnages we need to get to now. And so for the third quarter it's on track.

And the big drivers now, as Mark said, you know, when you put people very hard, they're not achieving, they start taking shortcuts, they ignore safety standards and they take chances. And unfortunately that caught up to us from a safety point of view as well.

And we are pulling out the teams, every team in the mine, we started pulling them out and taking them through a behavioural initiative again, just to make sure that they understand because we sign on quite a couple of new people as well. We stopped with our previous behaviour intervention.

We had to stop when Dovin started. So we stopped it for 2020 and 2021 and basically 2022 and we're starting again. And unfortunately the effect of that is showing. So a lot of hard work to get to a place where we can trust the people when they're going on a grant where the supervisors are not around.

Our support is more advanced at a lower rate and to maintain an annual production of 80,000oz. Anti-op addiction for this year restored 75-80,000oz.

Good, okay. Thank you Donna. Can we move on to the next...

The next slide, so Chester back to you to talk about production costs.

Looking at our costs of wages slanted, that mostly reflects inflation and increase of wages. Intimidals lost their way of experience, buying flight speed pressures and untimable costs.

This year we haven't seen that. We've seen that plateau and we haven't seen the same increase as last year. What's important to note here is that about 75 to 80 percent of costs are fixed in the short term. So on an online cost basis.

These production numbers do not look so great with low production, but as we move forward, as our production increases, like it has in July and so far in August , you can see a great production in our online kicks out.

Electricity costs are about 6.4 at a blanket level. That does not affect the 1.4 million solar savings due to the solar plant that was commissioned earlier this year. Solar plants are working well and saving us money from the group perspective. times.

a new agreement with the IUG, the consortium, that will power into zones and allows us to power the lower kilowatt per hour rate and what we can get from the utility.

Our kilowatt hour usage, we're looking at that. Looking to reduce that. So going forward, the hour should reflect the lower rate than what you see here. And we should see some more benefits from solar.

For both oxides that's now been placed on cattle maintenance, we see the high cost of $7.5 million for the year, which is the cost for the high waste dripping that we had to perform to get to the oxides. And we plan to mine the oxides now with the sulphides and these costs can be...

motivated with iAlms, unless the production process is out on an online process. Next slide.

You can see

Our online cost was negatively affected mostly by the last five production of GM's $10 per ounce. Our power does not reflect the solar savings and it doesn't show the full effect of the IEG rate. So, thanks for what we plan to do.

stop the leakage from Bulbas, reduce that cost, reduce the power cost, the online cost, balance basis and improve the online cost numbers significantly. From all these standing cost point of view there's not much more to add as it's mostly negatively affected by the Bulbas.

that we do not expect to continue turning forward. Next slide.

Adam extensives are very much comparable to the previous comparable quarter. For the full year it includes a cost of $3.1 million due to the successful completion of all those who had to pay some of our prizes.

on the successful completion of that. On the next slide.

of that. On the next slide, please.

Our holding tax is set and our role is our total tax charge is pretty high from an effective tax charge.

point of view, our effective taxation rate at a blanket level however has remained very much stable from the previous quarters. And going forward, if we do not incur the loss of bulbose, our effective tax rate going forward should be again between the 30 and 37 cent range as we've seen in prior years and prior quarters.

9 million across the group for the quarter. 8 million months of landfills are chose as landfills ability to generate cash flows. And that 8 million for the quarter compares to 7.7 million that we generate in July . So it shows that the bank is still a very good for the station rating. And uh.

and when it's used and running at full steam, it produces a very good amount of cash.

Our working capital outflow for the quarter, 4 million of that was due to legacy credit opponents investing in capital activities. That's pretty much way to the latter part of the year. We'll catch up on some of the capital spend.

And our financing activities includes 15.6 million net of expenses and equity raises, 7 million in bonds that we issued on the solar bond and some different savings for Q1 and Q2.

Looking at the next slide. Our cash balances come down on a 40 basis. That's also due to the solar farm. We had to spend some money on building the solar farm. We purchased the solar farm, we purchased all those and one green.

I'm expecting the next six to 12 months gas pollution to improve as we fight for all the assets that we acquired.

Our cache transfers from Zimbabwe continued normally, and we are not pulling up any serverless RTGS in Zoom.

Look at the next slide.

Our balance sheet doesn't tell any new storage. It has changed mostly due to the activation of the foreboders.

I said our cash balances should have proved now to be faithful all the assets that we have acquired. And I'm going forward.

we perceive better ratios in our balance sheet.

Thank you, thank you, Chester. So as I've mentioned, July was a strong month, so here's the information relating to July that was in the MD&A. The grade is 3.6, gold recovery 93.6%, producing just over 7,800.

ounces of gold at an annualized weight of just about 93,000 ounces a year with a very competitive online cost per ounce of $715 which equates, is comparable to approximately $700 an ounce last year. So hopefully we turn the corner and...

July shows that we should hopefully be looking for a much better second half of the year in the first half of the year. Can we move on?

Early on a few weeks ago. We restart deep level drilling in January . We'd have to suspend deep level exploration several years ago because we just didn't have the logistical capacity underground to.

do exploration at the same time as doing all the development and the production. So having got Central Shaft commissioned, we've now got the capacity to excavate, mine out the drilling cubbies, which then gives the platform for deep drilling. It's fair to say that on the, we've got sort of two...

two exploration targets. The first target on which we reported, which is summarized here, is at Eroica. We've just started also now in a second area on the other side of the mine at Blanket, but it's fair to say that the results that we got at Eroica...

Pretty much a very substantial majority of the holes supplies on the upside in terms of grade and width and that means that in hopefully towards the end of the year we will reflect the best expected results.

in terms of a new resource statement, which will mean that we're going to be extending the life of the mine, an increasing amount of material that we can access from the existing infrastructure of Blanket. At Matapa, we've submitted an environmental impact assessment and we will be able to commence...

what we call invasive drilling activity at Matapa later on in the year.

ESG is becoming an area of increasing focus by regulators and investors. It's fair to say that the regulatory environment keeps on evolving. The SEC apparently is going to get involved.

We hear now that there's going to be sort of accounting standards dealing with ESG. So our objective is to put in place sustainable business practices that are aligned with our corporate strategy. So we'll do what we have to do to the best of our ability but we're not sort of blazing a trial. We'll do what we have to do.

We just published our most recent ESG report which sets out a lot of information about the specific projects that we're involved with at the social level. But just in terms of a summary from an environmental perspective, we've put in place a solar plant which provides about 24% of...

blankets average daily power. I think it works very slightly better than we'd expected, which is good. We're currently constructing a new compliant tailings facility. The existing tailings facility is now pretty much exhausted.

So we're going to spend about $25 million over the next few years putting in a new facility which is, and the expense of that is because it has to be double lined with clay and plastic. And that will support us for the next 12 to 14 years.

at a production rate of about 800,000 tons a year. So upfront expenditure, but then once we're through that, the building we've got it.

In terms of social, we've got 34% local ownership, including the employees and the community. The community paid off its outstanding sort of loans to us and the picture there shows our VP in Zimbabwe, Captain Manghese, handing over a substantial cheque to the local people.

And in terms of governance, we comply with all the requirements, the relevant jurisdictions, but I think we're very sort of where we need to be in terms of compliance. If this area interests you, there's a load of information in the ESG report. If you move on.

Okay, so in terms of outlook, the focus really is on getting blanket running sweetly again and achieving a targeted production range of 75,000 to 80,000 ounces.

We'll continue to do our deep level drilling at Blanket with the objective of initially of upgrading inferred mineral resource to a higher confidence level and then thereafter then looking for extensions to the existing ore bodies at depth which we can then make a decision in due course as to if we find something how do we commercial.

So maybe we can open this to questions, Camilla? Yeah, if anyone has a question, can I ask you just to raise your hand and we can unmute you. Hi, can you hear me? Yep. So, okay, so I just had a question regarding the dividend policy. In a scenario where the production and cash might continue to disappoint.

investment requirements for Bilbo's. And we've always said that our policy is to pay a dividend but we've also again said that whether we maintain the dividend depends on a view about sort of capital allocation and it's not just affordability. Is it really the right thing to do as it go forward?

So that's all part and parcel of the work that we're doing at the moment relating to how to commercialise billboards. So if the idea was, the way you started from, the idea always was that we would, our dividend policy wasn't, or our dividends weren't.

formerly pegged to performance, as you would probably be aware, we never said Q2 or in a quarter, a quarter's production, a quarter's profit was this, therefore the dividend is that. We never did that. So there was no clear correlation between the two. And frankly, given the fact that we can see a substantial improvement in the performance of the two countries, it was quite a sight for the additional

in the operating performance right now, that itself would not be a reason for cancelling dividend. The bigger issue really comes to how we're going to fund Billbooth. Right, I just have a few more questions. Can I get through those? No, no. Okay cool. So in part some of the electricity costs are bank arose

I saw like in the MDNA there was like commissioning problems with the OPAR systems and can you maybe add some color to it?

Yeah, Donna, would you like to pick that up?

And then this year, by the end of the year, the 50% of our reef will go through the central shaft and 50% will go through the foreshaft. And as you migrate towards the central shaft, that will happen over the next two to three years. Then you will put eventually a foreshaft as a stand-by-shaft almost on Keter Main to do the same with Jefra. But at the same time, there's a lot of white area still above 750. That because during the sinking of the central shaft, having limited avoiding capacity, we had to talk with our...

development, wise development, where we knew we were going to find return on our investment. And as we got more work passed in our, there are certain areas above 750 that we're targeting and opening up. And that's sort of one of the areas.

So we might get to a point where we actually find extra stuff and we already found extra stuff above 750, which will extend the life, for example, of a foreshoft, because there are certain areas that you can only waste the... the restones, the wastons through foreshofts. Are there areas?

like on the Rorco side, that we can go take above 750, we can take through central shelf. So that's why it's not clear cut when we're going to stop foreshod, when we're going to stop jet rate. That's all the opinion of what we find as we explore more.

And then also this year when we started with solar, it was a lot of rain this year and even last year we had rain and tank it. So it's playing a bit of havoc with our solar electricity that we generate as well. And using it for the third year, hopefully next year we can budget better and get a better feel for what we will get from solar.

But in general solar is performing in plan. What Dana is saying is that when you have rainy days and cloudy days, solar doesn't work quite as well in those days. Now, Blanket is fortuitously located in an area of good sunshine, but raining in Blanket.

in August is pretty much on the ground, I'm afraid. That's what happened earlier on this week. As we're going forward, I mean, when you get overcast conditions, then you've got to run generators to supplement the solar. And the answer to that is to pull a couple of metrics to have that.

when you get out the cloud come over and you sort upon the inversion drops that that is stable. So if you have some further questions? Yeah I did.

Let me just get to them here. Okay, so it seems I just wanted to ask about some of the underground technical expertise. It seems like a lot of the infrastructure issues have been addressed, but it seemed like there were also some of like human capital issues that needed like job skills training, something like this. Can you just add some clarity?

If you look at the workforce at Bank, it's very stable, it was very stable and a lot of experience. And as we started growing and building up, we had to sign on our new skills. Now that's always a danger when you sign on new people. Not every new person you sign on is the great fit.

So you've got to get that correct, fit some people, fit some don't. And with that also you've got to be very strong on the culture you want to live and what you will allow and what you will not allow. And with that we also actually saw that the people we lost during the station last year

increase because of what I explain now. And we've got to get to a point where we grew our people by about 500 people. And since we started building up by more than 1000 people, you've got to get that people put into the culture and the way we do things and what we allow.

And that takes two years to get that culture right and then we've got stabilising and get a well experienced workforce. But apparently we've got a very good mix of very, very experienced people. And the benefit of holding up was we actually managed to get some younger people in because...

Our workforce was actually getting quite old. So there's positives and negatives, but you see it everywhere where you sign on to new people and you've got to train and coach them to get into the right culture and the way you want to do things.

Right. Okay. I just have, I think, two more questions. Okay. So, Mutapa, with the first phase, it sounds a little bit similar to the Bobo's first phase. Would that be an accurate characterization? Or… Absolutely, although I completelyattering

and what gives you confidence if it is that it will work better this time around? Well, I mean, so when you say we're going to go hunting for oxides at Matapras, is that what you're saying? Right. We may actually decide not to go hunting for oxides given the...

given the poor experience, we may actually just focus on the sulfides, which is the main reason, which is the reason for actually acquiring the top in the first place.

so we may actually just focus on the sulfides, which is the main reason, which is the reason for actually acquiring the tarp in the first place. Right. Okay.

I don't want a repetition of what we've experienced at the Bilbo's Oxide Project. Thank you very much.

Okay, and then my last one is just maybe something that I'm unclear on. So in the mDNA, it was cited that part of the FX losses were due to a three-week delay in the settlement of RTSG receivables. Like previously, the...

It was said that within two weeks like it was okay and you would receive all sediment from SGR. So is that the change only due to the devaluation of the rapid... I'll leave Chester to... if Chester could answer that would be good. But I just point out to you there is a suspicious coincidence.

between the really very very rapid devaluation of the RTGS over a three-week period and at the same time the pushing out of the receivable period which has since normalised. I would just leave that out there, that does appear to be a suspicious coincidence there. Chester, do you want to talk about that?

Yes, sure. Yeah, it's special.

The rate is devalued by about three times over that period of three weeks. Normally we receive our cash from Fidelity within two weeks. They've been paying us regularly over the two weeks. 75¢ gold nagat isher and it is

to our side of the company called LHR and we just got all of our cash from two to three dollars of delivering the cash to them.

So we haven't seen those long delays again after June and so far they've been by late in the spring and in the two periods. So, so far they've been going well. There's only that little bump across this lot of net picks losses.

Okay, cool. That covers me.

Thanks. Thank you.

Okay, any further questions from anybody?

I don't think there are any more questions. There was another hand up but it's gone back down. So I think that's it. Okay, should we just give it a few minutes just in case anybody...

any second thoughts?

No ok again all on that. On that well, Thank you. Thank you for attending digital quarter and I said signs of improvement in July and hopefully we we do this again at end of Q3 and ll be more cheerful and more cheful. Presentation and cannect. Thank you very much for attending.

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