Caledonia Mining Corporation Plc

Right. Hello, everybody. Welcome to our Q2 results call for shareholders. So on the call from Caledonia, you've got Steve Clark, Curtis, our CEO, Mark Learmonth, our CFO, Dana Roots, our COO, Morris Mason, our Vice President of Corporate Development, and then myself, Camilla Walsall, Vice President of Investor Relations. So if you have any questions, then please just raise your hand at the end of the presentation and I can unmute you. or you can just write a question in the Q&A box. Okay, so I'm now going to pass you over to Steve and Mark, who can talk you through the presentation.

Thanks, Camilla, and welcome, everybody, and thank you for joining us for this Q2 presentation. It's great to have my team with me, and we're very pleased to present a very good set of results. We have a presentation, which we will quickly go through, and then we'll open it up to questions. And let me kick it off by starting initially, and Mark will flick the slides, and then I'll hand over to Mark. So the disclaimer is what you're all familiar with, so we'll just pass over that. The next slide just gives you the focus areas, which I'm sure you are also familiar with. Central shaft project completed, operational. Donna can talk about that later if you'd like him to. We're ramping up production. You will have seen in our public announcements that July was a very good month of nearly 6,000 ounces. And that indicates that the process of building up is working extremely well. We are committed to returning money to shareholders, as we've demonstrated with our regular increases in the quarterly dividend. And as you will have seen from the results, the free cash flow generated in this quarter is in line with our thinking of being able to afford and to return more money to shareholders. We do need some of that money, though, for new opportunities, and we announced as well in the MD&A that one of our two exploration properties we have decided not to continue with and not to exercise the option. It's the nature of exploration. So later on in the presentation, we'll talk about the Connemara North exploration opportunity, and we'll give you some detail as to where that is. The results highlights, if you haven't studied yet, and this presentation will be on the website, production ounces for the quarter of 16,700 ounces, a record for any second quarter. The revenue of 30 million, 31% increase. I must mention that in the production ounces, to achieve those many ounces, the 165,000 tons that we mined and milled, is actually an all-time record. And that just indicates how well our mining team under Dana has done in developing the mine and developing the opportunities to be able to ramp up to 80,000 ounces. Gross profit of nearly 14 million, but importantly, the EBITDA number, and we're quoting here a number that is taking, which is adjusted for the unusual business items, non-business items, let me say, The write-off of the expiration property, the foreign exchange gains and losses. So this is kind of normalized, and we're looking here at a 100% increase from just under $7 million to $14 million. That is a very, very pleasing number for a quarter. And that rolls into adjusted earnings per share of nearly 63 cents per quarter, 70% up on the comparable quarter. But importantly, against our dividend declaration of 30 cents a quarter, it just shows that we've got a lot of headroom. And at a point in time, we'll be able to ramp up that dividend, I'm sure, board permitting. Net cash from operations, operating activities, nearly $13 million from a comparable $4 million. That's what the game's all about. We need to generate cash. We need to be able to allocate that cash sensibly. And I trust you will understand that we've done that well in sinking the central shaft and being able to progress this mine to an 80,000-ounce producer level. I'm going to hand over to Mark to go through some of the intricacies of the dividends and maybe a number on the previous slide that Mark wants to just give a little bit more explanation around.

Sorry, I've got to confess, I'm a bit naughty to hurry Steve along. I keep on moving the slides before he's finished. So to go back to the previous slide, Steve's quite right. If you look for the six months, six months this year and six months last year, there looks to be an anomaly here. The dividends declared in the first six months of 2020 were was 23 and a half cents, which is more than the dividends we declared in the first six months of this year. And that's because for a very obscure and very arcane regulatory reason, last year we declared three dividends. We declared one at the end of January. The one that we would ordinarily have declared in early April and paid in April, we actually deferred that to May just to get a better sense as to what's happening with coronavirus. The dividend that we would ordinarily have declared in July, i.e. after the end of the half year and after the quarter, for some reason last year we declared it on the 29th of June. So in terms of dividend declaration, in 2020 we had three dividends in there, whereas in 2021 we only had the two dividends. I don't want any sort of confusion that we've cut the dividend or anything. And actually, to make that clear, here you see the graph showing our quarterly distributions. And you can see we've pretty much increased every quarter since late 2019, other than, as I've mentioned, sort of April, May last year, where we sort of deferred the dividend for a month to see what was going on. And then we held it at an increased level of 7.5 cents a share, rather than increase it. We thought to increase it in that environment might be a bit inured. So we were on a dividend yield We're about 4.1%. That's probably gone up since our share price reacted to the adverse movement in the gold price a few days ago. And that's nearly a 90% increase in the quarterly dividends since October 2019. Turning just to encapsulate some information here about production, what you see here is tons milled in grade and ounces produced in recovery. The driver for our incremental production in the quarter was tons milled. And Steve's already mentioned that the ounces produced in quarter two is a record for any quarter two. But the tons milled in the quarter is a record for any quarter at all. And that demonstrates that the central shaft is now contributing. And what it's doing at the moment is it's now hoisting development waste so that the central shaft can get itself connected up to the ore bodies. And that then relieves the pressure on number four shaft to focus on hoisting ore. So we'd expect Central Shaft to actually start hoisting gold-bearing material by the end of the year, but it's already making a substantial contribution. And as Steve's already mentioned, July's production was just 5,000 ounces, five ounces less than 6,000, so it's 5,995, which again, if you extrapolate on that for the quarter, shows again continued progress towards achieving our target of 80,000 ounces a year. Just looking at the profit-loss account, revenue up to 30 million for the quarter, and that's a combination of higher production and higher gold price. The royalty stays the same at 5%. Production costs, I'll go a bit more about that later, but in general, production costs were as expected or perhaps even slightly lower than expected, other than in the area of electricity, but I'll come on to that later. Depreciation has increased by about a million dollars for the quarter, and that's because having commissioned the central shut, I'm afraid we've now got to start depreciating it. So that would increase the annual depreciation charge from about 4 million to about 8 million. So the gross profit level, everything's looking good, 9.2 million up to 13.9. G&A is up slightly, and I've got more information on that. And that reflects primarily increased wages and salaries. And that's due mainly to new hires. We've taken on an internal audit person to improve and strengthen our internal controls. We've taken on Camilla to help with investor relations. And Dana's taken on two technical staff in Johannesburg to help us with the increased complexity of the mine. Then below that level, things kind of go wrong for this quarter, really. You'll see in last year, we had a net foreign exchange gain of one and a half million. And we also had net other income of one and a half million. That net income, that was a government grant to encourage us to produce more gold. So we had a $3 million non-operating income in 2020. But in this quarter, we had a net foreign exchange loss because the rate of devaluation of the Zimbabwe dollar has pretty much stopped. Then in addition, we impaired the Glen Hume asset. So we bought an option for $2.5 million. And we spent about a million dollars over the intervening period. And because we decided to walk away from that project now, because it doesn't meet our criteria, we've impaired that. So that contributed a $3.5 million impairment. So whereas in the second quarter of 2020, we had a $3 million income, in the second quarter this year, we had about a $4.2 million charge. And that's why profit before tax goes down from 9.9 to 7.7. The tax expense... The effective tax rate, overall aggregate effective tax rate for the quarter at 3.9 million was just over 50%. And that's largely because the impairment, the $3.5 million impairment reduced PBT, but there was no corresponding effect on the tax charge. There was no tax to offset against that. So the tax expense remained unchanged. So I can come on to that in a bit more detail later on. And then get down to adjusted earnings per share, as Steve mentioned, of 62.6 cents for the quarter, which we feel is a fair reflection of the underlying performance of the business. Just turning to production costs, here you can see that, as I said, everything was pretty much as we expected. The only area where it wasn't as expected was electricity. So for the quarter, that increased from 2.1 million to 2.7 for the half year, nearly a million dollars of extra. And that's because we're having to use the gensets more. And we're having to use the gensets more because we're having more outages. And we also continue to suffer from a deterioration in the incoming grid supply, which means we're having to run our gensets more to protect our own equipment. Now, we have a strategy. First of all, I think the first point to make is that we can actually run the entire business, everything, using diesel gensets. So it's not an existential problem. It has a cost implication, but we could, if necessary, accommodate that. But we have a plan to, as you know, to put in a solar project, which should be operational by, I think, April next year, which will provide about 27% of Blanket's average daily usage and will reduce our dependence on the grid. We're already evaluating how we can increase the scope of that solar project to further reduce our dependence on the grid. So online costs very much as expected. You see a breakdown of G&A onto the main headings. You can see the main increase really comes from employee costs. As I mentioned, that is largely due to an increase in our headcount. What does that mean in terms of cost per ounce? The cost per ounce, online cost per ounce for the quarter at $715 an ounce was below our guidance for the whole year of 740 to 815. And similarly, all the sustaining cost per ounce for the quarter at $973 was also below our guidance range. It's worth noting that of our online costs, something like 90% of our online costs are fixed. And so as we expect production to increase for the second half compared to the first half, that means that those fixed costs get spread over more ounces. And so we do expect as the year progresses, to see the online cost per ounce fall further. So we're feeling very confident that our cost guidance will be at least met. We'll probably come in below our target. I mentioned tax. The bulk of the tax is in Zimbabwe. So income tax on the profits arising of blanket mine and deferred tax. And the bulk of deferred tax recognises the difference between the accounting treatment of capital expenditure and the tax treatment of capital expenditure. If you add those two tax items together, so 2.4 million of income tax and 1.2 million of deferred tax, and express that as a percentage of IFRS gross profit, which actually is very, very close to the online PBT, you end up with an effective tax rate of about 26%, which is very close to the income tax rate in Zimbabwe of just under 25%. So that should give you some comfort that the bulk of, that should give you some comfort that the The tax charge isn't completely wrong. Then in addition, we also incur tax in South Africa on intercompany profits and then some other taxes as we move money around the group and across borders. Cash flow is very strong. So cash flow before working capital for the quarter was nearly $14 million compared to nine and a half for the comparable quarter. It's also pleasing to see working capital for once go down Typically, working capital can be quite volatile, and it can increase if we have large receivables due to us from Fidelity, who we sell our gold to, or if we allow the electricity creditor to build up and then we pay it down in a lump sum. So it's nice to see working capital normalize a bit. So net cash from operating activities was about $12 million, very strong. We continue to invest. as you know, on the development associated with Central Shaft. So that's about $7.1 million there. We've not really started spending big time on the solar project. We've made some deposits for orders that we've already placed. So the spending on the solar project will really kick in from now until probably January, February next year. So cash flow is very, very strong and we're very pleased with it. There's nothing really on the balance sheet to talk about. This derivative financial asset, at the end of last year, we had a surplus of cash sitting in South Africa, which we knew we would need at some point to cover procurement liabilities. Because of exchange controls in South Africa, we can't hold that in US dollars. We have to hold it in rands. And the rand is quite volatile and subject to quite sharp devaluation. We could have taken it out of the country, but then it's easier to take money out of South Africa than take it back into South Africa. And the problem is that when we need it, we need it. And so rather than sort of put ourselves in a position of embarrassment in South Africa where we strip money out and then can't get it back quickly enough, we did the next best thing, which is to hold a gold ETF. We liquidated that in the course of this quarter and we've repatriated those funds back up to Jersey. Then the only other item I'd point out on the balance sheet is the liabilities. Non-current liabilities, the long-term liabilities, that's mainly deferred tax and rehab provisions. There's no debt there. The current liabilities, again, that's mainly trade payables. We've got less than $200,000 worth of debt, and that is locally denominated working capital facilities. So with that, I'll hand back to Steve to talk about the opportunity in Zimbabwe.