Caledonia Mining Corporation Plc Common Shares

Okay, I'm recording in progress. Here with me, Mark Learmonth, Caledonia's Chief Executive. There's Victor Capari, who is, as you'll know, one of the vendors of the Bilbao'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. Morris Mason, Vice President, Corporate Development. And Camilla, VP Group Communications. They're both based in the UK. Shall we get going? So without beating about 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-month numbers there, but I prefer to focus just on the quarter. So production was 18,000, 18 and a half thousand ounces. That includes a very disappointing 1,000 ounces from Bilbo. So it's about sort of 17,400 from Blanket. I'll ask Donna and Victor respectively to discuss the operational issues facing Blanket and Bilbo respectively. Pretty much saved by the higher gold price. The higher gold price meant that revenues were broadly level at about 37 million, but 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, very high costs at Bilbo's with no commensurate revenue. And then at Blanket, the difficulty at Blanket was largely, largely relates to higher than expected use of electricity. which gave rise to about a couple of million dollars of extra expense there. That flows through into the net profit attributable to shareholders. Instead of being $11 million profit, it was half a million dollar loss. And that also flows through in terms of the earnings per share. And critically, the net cash flow from operating activities, instead of an inflow of $16.7 million, was an outflow of $2.2 million. Chester will give us more information on that in a moment. Can we move on, Maurice? Again, so by way of summary, production of Blanket was below target due to operational issues, which Diana will talk about. I'll just draw your attention to the fact that July, after fairly intensive management interventions, July did show a substantial improvement. So 7,800 ounces produced in July, which had given us the confidence to reiterate our production guidance for 2023 of between 75,000 and 80,000 ounces of gold. Similarly, costs for the quarter were very high. Online cost was over $1,000 an ounce. The bulk of that increase from just under $700 an ounce in the comparable quarter, much of that increase, 81% of that increase was due to the high costs incurred at bill blows. And 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 that Bill does, it will be returned to care and maintenance with effect from the 1st of October. So we got a three-month notice period with the 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 pad. 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've been talking about at the moment. We raised some money by way of placings in March and April. And we've also started the direct export of gold from Zimbabwe to a refiner in Dubai, which means that we've cut the reserve bank out of our US. which is sort of optically very good. And there's been some changes at the board, whereas Lee Wilson stepped down as a non-executive chairman and has been replaced by John Kelly. So in terms of safety, I mean, the critical thing here 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 about one up to 1.35 1.36 now clearly we are going to have to take measures to 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 sets out a series of rules and procedures for doing pretty much everything, and people just need to adhere to that and stop doing silly things. And Sadama 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 want to see those safety statistics stay at that level. billboards is included just for completeness, but there's been no significant issues of billboards. 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 at the previous quarter as well, that's due to lower ounces produced at the blanket, and the additional ounces that we produced at the blanket did not increase above those levels. Royalty remained at 5%, still charged at the same rate as the comparable period, and our production cost has gone up, but we'll get to the detail of the production cost in a few slides. Depreciation has increased due to a reassessment of useful lives that increased the quarterly depreciation charge by $600,000. That's due to reassessment of the useful lives of some generators, the jet flow shaft that we do not plan to use now that we've got the central shaft available. and some LHD generated has been deteriorated due to the power fluctuations and the bad power we've been experiencing at blanket. We've been negatively affected by other costs to extend to 14.3 million for the half year. There's about a $7 million stream on the foreign exchange losses. That's a 2.1 million loss for the half year. It came down from a gain of approximately 5 million in the previous half as due to the Zimbabwean dollar that devaluated in the month of June, while outstanding from Fidelity, 25%, has devalued and that caused foreign exchange losses. It's good that we do export 75% of our gold. That 75% is not subject to any foreign exchange losses. Also included in here is write-down of all those oxides. We've placed that on care and maintenance, as Mark said, and that goes about the additional $850,000 of impairment expenses, all on cash. Stats expense, the effective tax rate is quite high. That's due to the ball goes losses we've encountered. Ring expense, it's not deductible against the taxable profits of blanket and that shows a very high tax charge for the year to date. 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?

Right. First of all, if you look at the top graph, you can see the grades went up last year, and it peaked in quarter four, or in quarter three, and then it came down a bit, and it 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 mill in the plant. That mill became operational at the end of last year. And 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 date last year that helped us, so we had to do more tons. Now, when you're in a build-up place, and we were building up to 80,000 ounces last year, we pushed very, very hard to get to that. And with that, we changed the GM largest timber, or it was removed, and then we signed on a new GM in January this year that started on a mine. And with that, we had also some underground managers that was replaced. So during this work to get to 80,000 ounces, the safety culture also went through a loop. And some people lost their jobs because of being negligent as far as safety is concerned. Now that rolled over into this year. And when you build up your own 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 especially getting into our high-grade places. By the end of the quarter, we hope to be in those places. And with that, during quarter two, as we systematically sorted out the issues and got into the right places again, then some other issues like... you know, bad track work. There's normal operational issues that went for a little pushing very hard to get to 80,000 ounces. So again, systematically, we had to fix those issues. And it, which put us in good stead for the third quarter. And we're in the right places and we're getting the funnages we need to get to now. And, you know, so far the third quarter is on track. And the big drive is now, as Mark said, You know, when you push people very hard and they're not achieving, they start taking shortcuts. They ignore safety standards and, you know, they take chances. And unfortunately, that caught up to us from a safety point of view as well. And we're pulling out the teams, every team in the mine. We started pulling them out and taking them through a behavioral initiative again just to make sure that they understand because we sign on quite a couple of new people as well. Remember, we stopped with our previous behaviour intervention. We actually stopped when COVID started. So we stopped it for 2020 and 2021 and basically 22 and we started again. 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 go on the ground thing where the supervisors are not around and they do the right thing. So from that point of view, support is more at the low rate and to the money gaining annual production of 80,000 ounces and for this year it's still 75 to 80,000 ounces.

Okay. Thank you, Don. Can we move on to the next slide? So, Chester, back to you to talk about production costs.

Looking at costs of wages slanted, that most reflects inflationary increase of wages. Consumables, the larger we experience by inflationary pressures on our consumable 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% of costs are fixed in the short term. So on a line cost per ounce basis, these production numbers do not look so great with lower production. But as we move forward, and as our production increases, like it has in July and so far in August, You can see a great reduction in our online class counts. Electricity costs, that's 6.4 at a blanket level. That does not reflect the 1.4 million of solar savings due to the solar plant that was commissioned earlier this year. Solar plants are working well and saving us money from a group perspective. And then we've also initiated a... a new agreement with the IEUG, the consortium, that will power into them and allows us to get power at a lower kilowatt per hour rate than what we would get from the utility. Our kilowatt hour usage, we're looking at that, looking to reduce that. So going forward, our power should reflect lower rates than what you see here, and we should see some more benefits from solar. that's now been placed on gale maintenance. You can see the high costs of $7.5 million for the year, and it's cost for the high waste stripping that we had to perform to get to the off-sites. And we plan to mine the off-sites now with the sulfite, and these costs can be motivated with high ounces. Other than that, the production costs are on mine costs per ounce basis in the next slide. You can see our online cost was negatively affected, mostly by the off-site production of $317 per ounce. Our power does not reflect the solar savings, and it doesn't show the full effect of the IEG rate. So, going forward, we plan to stop the leakage from bulbos, reduce that cost, reduce the power cost on the online cost balance basis and improve this online cost number significantly. From all the standing cost point of view, there's not much more to add. That was mostly negatively affected by the Volvo's costs that we do not expect to continue to turn forward. Next slide. Our admin expenses are very much comparable to the previous comparable quarter. For the full year, it increased across the 3.1 million due to the successful completion of all those. We're going to play some of our advisors on the successful completion of that. On the next slide, please. With holding tax, as I said earlier, our total tax charge is very 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 bulldogs, our effective tax rate going forward should be, again, between a 30% and 37% range as we've seen in prior years and prior quarters. If you look at the next slide, here you can see our cash flows. We generated $4.9 million across the group for the quarter. $8 million was for blankets, so it shows blankets' ability to generate cash flows. And that $8 million for the quarter compares to $7.7 million that we generated in July. It shows that blankets is still a very good asset for cash generating. And when it produces, it's running a cool scheme, produces a very good sum of cash. Our working capital outflows for the quarter, $4 million of that was due to legacy credit proponents. Our next 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 spent. And our financing activities includes 15.6 million net of expenses and equity raises, 7 million in bonds that we issued from the solar farm, and some dividend payments for Q1 and Q2. Looking at the next slide. Our cash balances come down on a quarterly basis. That's also due to the solar plant. We had to spend some money on building the solar plant. We purchased the power, we purchased all those, and we expect in the next six to 12 months the cash position to improve as we pay for all the assets that we have acquired. Our cash transfers from Zimbabwe continue normally, and we are not building up any serverless IPGs in Zimbabwe. If you look at the next slide, Our balance sheet doesn't tell any new story, Jeff. It has changed mostly due to the acquisition of Polvos. As I said, our cash balances should have proven to be faithful to all the assets that we acquired. And going forward, we foresee better ratios in our balance sheet.

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 MDA. The grade of 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 is comparable to approximately $700 an ounce last year. So hopefully we've turned the corner and July shows that we should hopefully be looking for a much better second half of the year than the first half of the year. Can we move on? Earlier on, a few weeks ago, we started deep level drilling in January. We had 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, to mine out the drilling cubbies, which then gives the platform for deep drilling. It's fair to say that currently we've got sort of two exploration targets. The first target on which we reported, which is summarised here, is at Eroica. We've just started also now in a second area on the other side of the mine at Blankie. 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 better than expected results in terms of a new resource statement which will mean that we're going to be extending the life of the mine and increasing the amount of material that we can access from 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. But 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 trail. 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 Blanket's average daily power. I think it works very slightly better than we'd expected, which is good. We're currently constructing a new... compliance 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 at the expense of that is because it has to be double lined with clay and plastic. And that will support us for the next sort of 12 to 14 years at a production rate of about 800,000 tonnes a year. So upfront expenditure, but then once we're through that, it's built and 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 the... our VP in Zimbabwe, Captain Mangezi, handing over a substantial check to the local people. And in terms of governance, we comply with all the requirements, the relevant jurisdictions. 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. Shall we 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 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 commercialize it We've commenced work on the feasibility studies at Bilbo's. We're looking, as I've said before, we're looking at how we can sort of balance growth with minimising dilution and therefore optimising the net present value uplift for a Caledonia share. And so we hopefully, and we also expect to start exploring Metapa later in the year. So I think that's the formal presentation finished. 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?

Yes. Okay, so I just had a question regarding the dividend policy. In a scenario where the production and cash might continue to disappoint, what is the likelihood that that would be maintained at 14 cents per share?

Well, that's one question. The other question is what do we do with the dividend in terms of the very substantial investment requirements for billbows? 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 requirements. and it's not just affordability, will it be the right thing to do as you go forward to continue to pay dividend given the fact that the money we pay out in dividends is money we'd have to raise to fund the Bilbo's project. So that's all part and parcel of the work that we're doing at the moment relating to how to commercialise Bilbo's. The way you started from, the idea always was that our dividend policy wasn't, or our dividends weren't formally pegged to performance. As you're probably aware, we never said Q2 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 operating performance right now, that itself would not be a reason for cancelling the dividend. The bigger issue really comes to how we're going to fund billboats.

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 have blanket rose because of extended use of Jethro and number four. Can I ask what is stalling the transition to central shaft? I saw like in the MD&A there was like commissioning problems with the all-part systems. Can you maybe add some color to that?

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

It's actually two-fold. When we equipped central shaft at the beginning, third year, last year, we only did waste in central shaft. And then at the end of the year, we started doing grease as well at central shaft. And then this year, by the end of the year, the 50% of our grease will go through central shaft and 50% will go through fore shaft. And as you migrate towards central shaft, that will happen over the next two to three years. Then you will put, actually, full shaft as a standby shaft, almost in care of maintenance, the same with Jeffra. But at the same time, there's a lot of white area still above 750. That because during the sinking of central shaft, having limited working capacity, we had to target our... development, waste development, you know, where we knew we're going to find return on our investment. And as we've got more working capacity now, there are certain areas above 750 that we're toileting and opening up. And that's sort of bonus 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 the foreshaft, because there are certain areas that you can only waste the re-stones, the waste stones through foreshafts. Other areas, like on the right-hand side, that we can take, we can take through central shafts. So that's why it's not clear cut when we're going to stop foreshaft, when we're going to stop jetra. It all depends on what we find as we explore more. And then also this year when we started with the solar, it was a lot of rain this year and even last week we had drained a blanket. So it's playing a bit of havoc with our solar electricity that we generate as well. And using it for the first year, hopefully next year we can budget better and get a better fuel for what we will get from solar.

But in general, solar is performing in plan. I mean, what Dana's saying is that when you have rainy days and cloudy days, solar doesn't work quite as well in those days. Now, blanket is for sure just located in an area of good sunshine. But, you know, raining in blanket in August is pretty much, 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 going forward, the answer to that is to call a couple of batteries to have that. When the clouds come over and your solar pond generation drops, then that is kept stable.

So do 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 need, like, job skills training, some things like this. Can you just add some clarity to if that is a growing issue or is it – Okay.

Donna? You know, we were lucky that if you look at the workforce at Blanket, very stable. It was very stable and a lot of experience. And as we started growing and building up, we had to sign on new skills. Now, that's always a danger when you sign on new people. Not every new person you sign on is the correct fit. So you've got to, you know, get that correct fit. Some people fit in, some don't. And with that also you've got to be very strong on the culture you want to have and what you will allow and will not allow. And with that we also actually saw that the people we lost during, especially last year, increased because of what I explained now and we've got to get to a point where We grew our people by about 500 people, you know, and since we started building up by more than 1,000 people, you've got to get that people putting into the culture and the way we do things and what we allow. And, you know, that takes two years about to get that culture right, and then we'll start stabilizing and, you know, get a well-experienced workforce. But I don't think we've got a very good mix of very, very experienced people and people The benefit of building 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 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...? 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, that is what we're saying.

Right.

Yeah, we may actually decide not to go hunting for oxides, given the poor experience. We may actually just focus on the sulfides, which is the main reason, which is the reason for actually... acquiring Mitapa in the first place.

Right. Okay.

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

Right, right. Okay, and then my last one is just maybe something that I'm on TR on. So in the MD&A, it was cited that part of the FX losses were due to a three-week delay in the settlement of RTSG receivables. Like previously, it was said that within two weeks, like, it was okay and you would receive all settlement from SGR. So is that the change only due to the devaluation of...

I'll leave Chester to answer. If Chester can answer that, that would be good. But I'll 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 receivable period, which has since normalised. I would just leave that out there, that it does appear to be a suspicious coincidence. Chester, do you want to talk about that?

Yes, sure. Yeah, it's suspicious. The rate is devalued by about three, well, devalued 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% of our gold now goes to outside of Fidelity to a company called LATI. We receive just about all of our cash within two to three days of delivering the cash to them. So we haven't seen those long delays again after June, and so far the 580 has been playing within that two-week period. So so far it's been going well. It's only that little bump that cost us a lot of Netflix losses.

Okay, cool. That covers me.

Anything else?

No, thanks.

Thank you.

Good, 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. Shall we just give it a few minutes just in case anybody has any second thoughts? Nope. Okay. Well, thank you for attending. Difficult quarter, as I said. Signs of improvement in July, and hopefully we'll do this again at the end of Q3, and it'll be a more cheerful presentation. Okay. Thank you very much for attending.