Caledonia Mining Corporation Plc

Hello, I'm Mark Learmonth and welcome to Caledonia Mining's Q3 2023 results presentation. We've got some technology challenges today. So the presentation has been driven by Maurice in London. Sophie's going to start sharing that screen. And if for whatever reason I get thrown off, I'll have to look to colleagues to pick this up. Maurice, can you just get through to the presentation team? That's Morris. That's right. Okay. So I'm, as I said, Bart Nibald, Caledonia's CEO, joined by Victor Capari, an executive director. He's in Harare today. Chester Goodburn, the CFO, is in Johannesburg. Maurice Mason, Vice President Corporate Development, and Camilla are both based in London. And Dana sends his apologies. He's traveling in Zimbabwe today. So as usual, we'll go through the slides. There'll be plenty of time left at the end of the presentation for questions. And so let's get going. So by way of summary, the production We'd already previously announced it was 22,900 ounces for the quarter, of which Bilbo's was about 1,000. So production for Blanket was just under 21,800, which was a production record for Blanket. That's a very welcome return to to production form after a very difficult quarter one and quarter two. We had some help from the gold price, which supported the revenue. Gross profit was a big improvement to what it has been in the previous quarters, but as we go through this presentation, you'll see that we do need to pay some attention to two specific areas in the cost line, being our use of electricity and labour costs, both of which we need to pay some attention to. And again, the other thing I'll take away from this sheet here is the very strong net cash inflow from operating activities of $14.5 million for the quarter, which is pretty much nearly a quarterly record. Now, clearly, that is before CapEx, and in the quarter, We were continuing to spend a lot of money primarily on the new tailings facility about which I'll talk in a moment. That's a summary of the results. Can we move on, Maurice? Yes, so by way of an overview, I mentioned that it was a quarterly production record of blanket. Consolidated online costs are better, but we can do work to improve them further. During the quarter we announced some very encouraging drilling results from Blanket and that work continues. Pretty much two thirds of every hole we drilled came out better in terms of width and grade. In due course that will then be fed into a revised resource statement. And then in due course, that will flow into a revised life of mine plan. But we would expect the most positive drilling results to flow through into an incremental resource and an extended life of mine for reasons perhaps we can discuss later. I really don't think blankets. It's probably more likely the blanket will extend its production. rather than increase its production. Perhaps we can come back to that in a moment. Bilbo's was returned to care and maintenance, as was previously indicated, with effect from the 1st of October when the mining contractor's notice period ran out. We expect that to result in a significant reduction in the costs of Bilbo's, from about $1 million a month to $200,000 a month. For the next quarter, the Q4, we're hopeful actually that Bilbo's will be cash neutral as they continue to collect gold from the heap leach. The EIA at Matapa has been approved and so we'll be able to mobilise on the ground in Matapa early in the new year as the drilling season starts. Then we've also received an offer to purchase the solar plant Again, we can discuss that perhaps a little bit later on. Terms not disclosed yet, but we're confident that we can sell it for more than we paid for it. And we don't need to own that solar plant. All we need to do is benefit from the cheaper electricity it produces. We don't need to have our capital tied up in that. And then the tailings facility, the new tailings facility, on which we're spending about $25 million this year and next year. We started pouring on that a couple of weeks ago, which now takes the pressure off the existing tailings facility, which was reaching the end of its useful life as we've increased tonnage throughput from 1,900 tons a day to 2,400 tons a day. When completed by the end of next year, the new tailings facility will have a life of about 14 years. So it's a long life asset. Okay, just in operational terms, there's not a huge amount to talk about. You can see it quite clearly towards the right-hand side of the top graph, the grey line, that's the tons. And you can see from quarter four to quarter one, the tons took a fairly sharp dip and have now recovered. in Q3 to where we expect them to be. The increase in grade is as planned so you know the increase that's not something we went looking for it was that was that was in accordance with the mine plan so as I mentioned the return to tons milled and target grade is behind the return in production to where we expected it to be which is good. Shall we move on? Okay, now we move on to the financial section. So I'll hand over to Chester, the CFO, to take us through these and the following pages dealing with finance. So Chester, over to you.

Thank you, Mark. Our revenues are up 15%. quarter 3, 2022 to Q3, 2023. And actually, there's an increased production from Blanket Mine. Blanket Mine, this quarter has increased its production. It's a regular quarter for us. And that shows a turnaround from Blanket's production side. Overall, we had 2.5% more ounces that we sold during the quarter. And we had an increased gold price of about 12%. Unfortunately, our production cost increased. As Mark said, the production cost at Bulbo's Oxides was reduced to about $200,000 per month. That's $600 per quarter. And we are quite pleased to see that $3.3 million that we spent on Bulbo's for Q3 come down to about $600,000 in New Year. Blanket. On the blanket side, we've increased our costs by about $1.1 million. That was due to high interest usage, as well as overtime spent on the labor. We'll come on to that a little bit later. Go down to our tax expense. We're looking at our tax expense for the quarter. We see a high effective tax rate. That's due to the, predominantly due to Bulbo's oxides that are infested and cannot be deducted against our tax expense. And if we count back the Bulbo's operating costs, you'll see that our tax expense was normalized. So we expect that to normalize to effective tax rates that we've seen in prior quarters. Just the UPS that's lower on a consolidated basis, predominantly due to the higher costs and we'll get on to the production costs on the next slide. Maurice. Looking at our salaries and wages, a blanket that very much increased due to aid count over time. We should be able to look at that over time and utilize our labor force more effectively, like we've done producing the same amount of ounces, similar amount of tonnages in 2022, to reduce that. And we'll get back to the markets and inform you about our initiatives that we will implement for the overtime and the headcount. Additionally, our kilowatt usage has been increasing over the year, and that's predominantly due to the new central shaft that we've commissioned, and we're running three shafts at the moment. We're also looking at introducing our kilowatt-per-hour usage. What's good about these two uses for this is that it should be within our control. We've proven before that we've been able to operate at lower costs, and we should be able to find initiatives to reduce these costs. On the Bilbo's Oxide side, as I've said, that cost should be one sort, but should be reduced to about $600,000 per quarter from next year, and significantly reducing our costs to what we see in our life of mine estimates Can you turn the page, please? From administrative expenses point of view, to highlight the big increases, There were some good expenditures on advisory services fees. We got down to a few and a half million ounce, four body of all those qualifieds. That was paid to the advisory fees on the fusion of that deal. Listing fees increased throughout the year, and that was due to the successful nising tier raise that we had in year one and year two. Wages and salaries increased due to the additional staff members that we've been taking over, that we took over during the Bulbos deal. And they're currently helping us with things like the feasibility study. I'm quite pleased to see that we're making some progress on that. Further, we've added some additional governance structures and introducing our internal audit department and also bolstering up our IT resources. Now, if you look at the TOEFL there, if you exclude the ones of payment to advisory fees on bulldoze, acquisition of bulldoze, we should be able to reduce our administrative expenses to very close to what you've been spending in previous quarters and years. You can turn the page, please. This is an illustrative example of our online costs. You see the contribution of all those oxides and the green block on the online costs to the left. That we believe should come down to about $600,000 a quarter. So we do have a plan for that, reducing our online costs. And we hope to find solutions to reduce our kilowatt hours to what used to be similarly labor that should come out. And if those three costs increases come out, we should be able to get our on-mine costs down to what you've seen in life of mine, between about $8.15 to $8.50 per ounce. All outstanding costs was mostly influenced by the on-mine costs, and if we fix the on-mine costs, you'll be seeing that similar to what we estimate the on-life of mine. Can we turn the page, please? Income tax. We've had a high effective tax rate, predominantly due to the bulbous oxides operation losses being ring fenced and being not deductible against our tax charges. Other than that, our taxes are are calculated in a combination of RTGS and US dollars, depending on what the transaction is denominated in. And that sort of puts it a little bit off from what you expect due to the RTGS devaluations. But if we take out the bulbous oxides costs out of the property for tax, you could see our effective tax rates normalize into what you see in prior quarters. Throughout all of this, the Zimbabwean inactive tax rate remained at 24.72%. Nothing new on the balance sheet. Firstly, our non-current assets, we increased that due to Bulba's acquisition. Our current assets have increased due to the solar sale. We plan to sell the solar plant and that's moved the solar plant about 14.2 million down to the current assets category from non-current assets. and we have to make a good profit on the solar plant and use all the power from the solar plant but not own it. We should be able to use the proceeds from the solar plant and invest in that in our future gold businesses and achieve a higher return. Other than that, the current liabilities have been fairly flat and non-current liabilities increased because of the issuance of the solar bonds earlier this year. So our cash, our cash is in the right places. We expect these cash balances to go up. Currently we are exchanging all our RTGS balances and we have mechanisms to exchange our RTGS balances. We aren't building up any cash balances in Zimbabwe that we cannot promote outside. Can we turn the page?

Yeah, can I interject here? So I just want to, before we go too much further, just reiterate more clearly something that we've said for a long time. We're moving into, well, we've always had to make capital allocation decisions, but as we move forward and with the evaluation of the Bilbo's opportunity, we have to be very clear on how we go through this capital allocation process. And as I mentioned before, our primary objective is to come up with a commercialization approach for Bilbo's and indeed all of our investments, which optimizes the net present value of the Caledonia share. So the net present value of future cash flows attributable to the Caledonia share. And that takes into account any dilution that will be needed to fund the new project. Again, something I said previously, we're not interested really in doubling production or tripling production and doubling or tripling the number of shares an issue, because that just effectively means that we've stood still. I'm going to talk a little bit later about where we are in terms of the Bilbo's feasibility study. As Chester's mentioned, we are fairly advanced in discussions to sell the solar project, which will release capital from a non-core asset at a premium to what we paid for it to recycle into our core business, which is developing and running gold mines. In respect to the Bilbo's transaction, we are considering a phased approach. So refreshing the initial feasibility study is a relatively straightforward exercise, but preparing a new feasibility study for a smaller phased approach is a brand new piece of work which requires new pit designs and all sorts of other stuff, which will take slightly longer. And it's also fair to say that whilst we have an appetite for some gearing in our overall capital structure, we, I suspect, will be relatively conservative when it comes to that. So I just thought it's worthwhile just explicitly saying a few words in respect of our capital allocation policy. Maurice, could you move on to the next page? As I mentioned, the Bilbo's gold update, this quarter, quarter just finished, quarter three will be the last one to be affected by the negative contribution or the large negative contribution from Bilbo's. We'd expect the monthly costs to reduce from a million to about 200,000. And for this quarter, Q4, we'd expect that to be broadly cash neutral as we continue to harvest some of the gold that is on the heap leach. The disappointing production from the oxides has no bearing on the quality of the underlying sulphide resource. We entered into the Bilbo transaction to acquire and develop the sulphide resource, about 2.5 million ounces at 2.3 grams a tonne. The oxides was just purely incidental. And one of the things we'd hoped to avoid doing was having to retrench a considerable number of employees. We'd hoped to avoid that, but I'm afraid we couldn't avoid that. And so we have had to to let quite a lot of people go, which ends in context, especially in the context of the recent elections was. was something we would have hoped to avoid doing, but we know where we are. We couldn't sustain that cash drain for any longer. Work continues on the revised feasibility study, as I've just outlined. The work in terms of updating and refreshing the existing large-scale project is relatively straightforward. The new work on a phased approach will probably only get completed in the first quarter of next year. And we need both bits of information to be able to make the appropriate capital allocation decisions. So we'd expect to be able to give some further guidance early in the next quarter. Could we move on? OK, so in terms of outlook, I've been going to continue producing a blanket in the targeted range of 75 to 80,000 ounces. Pretty much similar going forward. As I mentioned, the encouraging drilling results of blanket will almost certainly flow through into an increased resource base, which will probably result in an extended life of mine rather than increased production. To increase production of blanket will require probably disproportionate investment in things like mills, CIL tanks and non-productive social infrastructure, which means that it's becoming it will become more expensive just to add an extra sort of five or ten thousand ounces. And we could use that money to better effect elsewhere. As I mentioned, the feasibility study at Bilbo's, and having got the EIA approved at Matapa, as we get through the rainy season in Zimbabwe, then that would be the appropriate time to actually commit people, commit resources to the ground at Matapa. Can we move on? I think we're nearly finished. Yeah, so I think that's the end of the formal presentation. We're very happy to open it to questions. Any questions?