Caledonia Mining Corporation Plc

Welcome to our Q1 results call for Michelle. In Caledonia, you've got Steve Curtis, our CEO, Mark Learmonth, our CFO, Donna Roots, our COO, Maurice Mason, our Vice President of Corporate Development, and then myself, Camilla Horsfall. I'm the Vice President of Investor Relations. So if you have any questions, please can you either just write them in the Q&A or raise your hand, and we will unmute you at the end of the presentation. So I'm now going to pass you over to Steve and Mark, and they're going to talk through the results.

Thanks, Camilla. Good afternoon, everybody. We are going to go through a presentation that's been prepared for the Q1 results. Camilla will share the screen. This presentation is obviously available on our website. And if we go through it quickly, you've always got an opportunity to go back and have a look later. So thank you once again for joining us. Obviously the disclaimer as usual, and you'll be very familiar with that. So. All right. We've got a mixture here of sort of a summary results and then financial results. I'm obviously going to ask Mark to do the financial results. You will have seen these results before because we announced production numbers at a particular time and we put out the MD&A and the Q1 results. So All of this should be familiar to you, but just to just to reemphasize the quality of the quarter production ounces, 40 percent up on the previous quarter, on the on the comparable quarter 2021. My apologies. Average gold price, nothing in our control there, but we were the beneficiaries of a higher gold price. which resulted in revenues 37% up, pleasingly gross profit 63% up, and EBITDA 49% up on the comparable quarter. Also, which Blanket is well known for, all in sustaining costs show a reduction of 7%. Management there continue to do a very good job in controlling costs, even as we ramp up production. And then profit attributable to shareholders up 30%. And adjusted earnings per share, and Mark will talk a little bit more about the adjustments to arrive at that number, 62.5 cents for the quarter. Remembering we pay 14 cents a quarter in terms of dividend. And therefore, you can see that the business is very cash generative, very profitable, and we are returning some of that to shareholders. Moving on to the next slide, our safety performance. We have had an excellent track record of safety, but as we've reported previously, we unfortunately had a fatality in February. And as ever, we send our condolences to the family and the colleagues of the deceased. This was a very unfortunate accident and all the necessary follow-up procedures have taken place. But the statistics of lost time injury frequency rate, nicely down. And we continue to be 100% focused on safety, especially as we get more and more people on the mine. and the higher level of activity, meaning that there are more blasts, there are more open areas, there's more tramming going on. So safety gets the requisite amount of time and attention. And now that COVID has subsided and we are able to be in closer proximity to each other, the Niansvi training program, excuse me, and education program that Dana runs at the mine, that is back and it's operational. And that's very, very important to reinforce safety, the disciplines, the culture. So it's important for you to know that Nyanswi is back in and running and we are working very hard on our safety performances. This is just a summary of many of the things that you probably are also familiar with. I've already spoken about the ounces. But importantly, the higher production is due to the increased tons. And that is critical for us to achieve our 80,000 ounces and an improved grade, which was over and above the average mine grade. But we are very happy that we are sticking to the mining plan. But you get some pleasant surprises and you get some unpleasant surprises in our business. And we are at the moment benefiting from higher grade and we're very happy with that. The central shaft continues to contribute. Although it's hoisting waste, that just frees up all the capacity at the number four shaft. And the reason why it's hoisting waste mainly is because there is a lot of development and connecting work between the various levels to the central shaft. and it is it is fast it's efficient we can move the waste into that area and we can then focus on the mining that can be brought with or can be brought up the number four shaft and at the moment to achieve the the tonnages that we we need to get 80 000 ounces we have we have pretty much got the capacity to achieve the 80,000 hours just using foreshaft. And as you can see, we've built up a significant stockpile because we're actually mining more than we are milling and crushing. And that is because we are in a phase of bringing a new what we call BM10, which is a new mill into the production process. So at the moment, we are not relaxing on the mining side and we're building up a stockpile. So at any point in time, if we have a bad day in some aspects, we've got capacity on surface. We continue to reiterate our guidance for 2022, 73,000 to 80,000 ounces. And the run rate that we have reported in the MDNA for April of nearly 6,800 ounces, If you extrapolate that out, that is just above 81,000 ounces. So we are very proud of a good first quarter and we are seeing it continue as we go into the second quarter. So hats off to our production team. They are really delivering and making the asset work that they've spent four or five years actually putting into operation. Okay, so we're getting into the financial numbers. So this is an appropriate time to hand over to Mark. So Mark, over to you. Thank you.

Thank you, Steve. So very briefly, revenue is up 36%. That's driven largely by a 28% increase in gold sales. And as Steve's already mentioned, a 6% higher gold price. Royalty stays fixed at 5% of revenues. Production costs, I've got a bit more detail on that in the next slide. So although the dollar value went up, there was actually a 17% reduction in online cost per ounce. And depreciation goes up substantially because don't forget, now that we've commissioned the central shaft, unfortunately, we've got to depreciate it. So that's gone up a bit. So, hence, gross profit up by 63% from 10.5 million to just under 17 million. G&A up from 1.6 million to 2.4. That's driven by a considerable increase in the quarterly charge for insurance. I've got some more information on how the G&A is made up here. and a slide or two, and also higher advisory expenses in the quarter. Net foreign exchange gain was just under a million dollars, and that reflects a considerable step up in the rate of devaluation of the RCGS dollar against the US dollar in the quarter. Then other $3 million, that includes $1.7 million of marked market costs on the various hedges, half a million dollars exploration and evaluation asset impairment. And that primarily relates to the decision to walk away from the Connemara North asset and about $400,000 of LTIP costs. And the LTIP cost was increased because our share price was quite strong in the quarter. So that's profit before tax up by 47%. The tax expense increased to $4.7 million. I've got some more information on that in a moment. But the tax, the income tax and the withholding tax, sorry, the income tax, the deferred tax on the underlying profits was relatively stable, but there was a higher withholding tax incurred as we moved more money around the group. Adjusted earnings per share increased from 51.6 cents to 62.5, and that excludes things like foreign exchange gains, deferred tax, and what have you. So a very creditable profit and loss performance. Let's move down, Camilla. A bit more information on production, which largely comprises wages and salaries, consumables and electricity. Wages and salaries increased quite substantially from 4.4 million to 5.9. But don't forget, we've had nearly a 24% increase in headcount at the mine. The mine employs about 2,000 people now as we've increased personnel levels to cater for the increased rate of production. And also don't forget that the comparable quarter, quarter one of 2021, was a very poor quarter. only 13,000 ounces. So there was no production bonus attributable to that quarter, whereas clearly in the first quarter of 2022, it being a good quarter, there was a 12% production bonus. So hence the increase in wages and salaries. Late last year, very late last year, we took the decision to pay our online workers entirely in US dollars. which has cut through a sort of an inflationary effect, which arises from the fact that although the local currency rate of inflation in Zimbabwe is extremely high, running about 100%, that's not reflected in the rate of devaluation of the local currency. And so what happens is if you're paying your workers in local currency and accepting the local inflation rate, once that higher value has been translated back into U.S. dollars, it shows a very substantial increase in dollar denominated costs. So we've cut through that by now paying our workers entirely in U.S. dollars. And we're seeing no appreciable increase. um inflation arising from that consumables up from 4.2 million to 5.1 that's 21 increase um partly that reflects the increase in tons mill but it is fair to say that during the quarter we did see price increases in most of the major imports being explosives drill steels and cyanide and it's fair to say that after the end of the quarter we've seen further price rises and i think i think um Along with all other producers, I think we must prepare ourselves for the higher input price environment. Although, as I hope you'll see from this discussion, that even if we are seeing inflation in consumables, that is for a relatively small component of our overall online cost base. So wages and salaries, we don't expect to see any significant inflation. And also electricity. We believe we've got the electricity costs well under control. Moving on to electricity then. Notwithstanding the higher production costs, electricity increased from 2.1 to 2.3 million and that's that's because late last year we we spent some money to install some more auto tap changes at um at number four shaft which means that in quarter one of this year we substantially reduced the amount of diesel that we used over the course of 2021 the amount of diesel we used increased from about 400 000 uh liters in the in the first quarter to about 1.1 million liters in the fourth quarter and in this quarter it dropped back to about 83 000 uh liters that are offset by obviously an increase in the in the price of diesel having so having seen that success uh we are now intending to um and also seeing a further deterioration in the in the quality of the grid power We are now intending to invest about three million more dollars to further protect ourselves from the grid to improve the quality of the grid supply we get and therefore substantially reduce the cost, the amount of diesel that we use and therefore reduce our overall electricity costs. So we feel that going forwards, we've got a very good handle. on the electricity cost. Work in progress just reflects the movement in gold in work in progress. And it also in this quarter reflects the buildup of the ore stockpile. I don't really think there's much more to explain in terms of production costs other than to say right at the bottom of the table, very pleased to see the online cost per ounce fall from $836 to $698 an ounce. Here we see the G&A. I think we should all recognise that as the world stumbles out of COVID, we are now going to see an increase in investor relations costs and travel costs as the activity levels return to normal. So that explains the increase in investor relations and travel. Advisory services, that increased quite significantly, and that relates to legal fees and also executive search fees relating to the replacement of several senior executives. And wages and salaries increased from just over a million to about 1.1 million. Again, that reflects increased headcount, mainly in Johannesburg. As the mines got bigger and more complex, we are now having to increase the complement of technical staff in Johannesburg. So people like rock engineers to a rock engineer to make sure the roof stays up and people to improve the quality of our mine planning. Shall we move on? So that just pulls together the, as I mentioned, the online cost falls from 836 to 698 and the all in sustaining cost falls from just over a thousand dollars an ounce to $968 an ounce. Taxation, the ability for external sort of viewers to see through the tax charge for the group in terms of underlying profitability, it's very, very difficult because the main elements of tax being Zimbabwe income tax and Zimbabwe deferred tax are calculated on the basis of local currency denominated accounts. whereas we report obviously in US dollar accounts. But safe to say that the main components of tax comprise income tax in Zimbabwe, about 2.9 million, and also deferred tax of just under 1.5 million. If you express that income tax plus deferred tax as a proportion of the overall PBT arising in Zimbabwe, it comes out at about 32%. of Zimbabwean tax. In the corresponding quarter, it was about 34%. So there is underlying stability in terms of the tax charge in respect of the underlying profitability. And then on top of that, we incur what I'd call tax leakage, being tax arising in South Africa on intercompany profits, and then also tax arising, withholding tax arising on the movement of funds from Zimbabwe to South Africa and from Zimbabwe to the UK. So that explains how the overall tax charge arises and what it is. Cashflow is very strong. Cashflow before working capital increased from 9.7 million to 13 and a half million. Working capital continued to increase somewhat in the quarter, clearly not as dramatically as in the first quarter of 2021, which was adversely affected by anomalies in the payment system. We are working hard to reduce the overall level of working capital in particularly inventory levels. And that's gonna be a continued area of focus for management. So net cash from operating activities was just over $10 million compared to, I'm going to say admittedly, a very anemic $2 million in the first quarter of 2021. Net investing continues to be high. We spent $10 million in the quarter, both at Centroshaft and on the solar project. And we do expect to have a very high rate of net investment in quarter two and into quarter three before it begins to taper off. But the cash position remains strong. And I think we've got some more information on cash on the next page, don't we? Later on, we have some information. The balance sheet, very strong. Obviously, non-current assets increased, driven by the rate of capital investment. Current assets, 35 million, cash and cash equivalents of 15.3. The non-controlling interest of 21 million, that reflects the 36% minority interest in blanket mine. And the non-current liabilities of 11.6, that's mainly deferred tax and closure provisions. Current liabilities, that's mainly trade and tax payables. which includes $4 million of derivative liabilities. This shows where the cash is. So here we show, for the last sort of few quarters or so, the cash split between Zimbabwe, South Africa, the UK. And you can see that at the end of the quarter, the end of March 2022, we apparently had $5.8 million in Zimbabwe, being a combination of US dollars and RTGS. Actually, of that $5.8 million, about $2.3 million was... was RTGS currency, which is ring-fenced against a 90-day letter of credit. So what happens is that of that $5.8 million, $2.3 million in RTGS will be taken out of our bank account in Zimbabwe, and a corresponding value in South Africa, Rands, will appear in Caledonia Mining South Africa in June. So that's a new mechanism that we put in place in the course of the year to enhance our ability to move RTGS into a hard currency, being rands, which we then use to procure assets and stuff for the mine. So in Zimbabwe, actually, we were modestly overdrawn at the end of the quarter in RTGS. So we are not building up a pile of local currency, which is either unusable or unremittable. And we work very hard to maintain that position. Shall we move on? Steve, do you want to talk about the solar project? Organa, do you want to talk about the solar project? You're on mute.