Caledonia Mining Corporation Plc Common Shares

Good afternoon or good morning, depending on where you are. Thank you for joining this presentation to review Caledonia's results for the second quarter of 2024. I'm Mark Learmonth, Caledonia's Chief Executive. I'm joined by Chester Goodburn, our CFO, and also Vic Kapari who is another executive director James should should have joined us but he's traveling somewhere in Zimbabwe and I suspect he's got I suspect he's got communication difficulties okay shall we we've got a relatively short presentation to run through so Chester's driving it Chester could you could you move through the right so overview it was an excellent quarter Production up, the gold price up, costs down, and that all flowed through, as you'll see, into a very strong financial performance. In terms of production, we produced just under 21,000 ounces of gold in the quarter, comfortably up from the 17,500 that we achieved in the second quarter of 2023 so a very substantial improvement there also during the quarter although not a focus for this presentation because we've already discussed it at some length we published a preliminary economic assessment of the Bilbo's sulphide project which reiterated the fact that it's got a very strong underlying economics it'll produce one and a half million ounces over a 10-year mine life all in sustaining cost of below a thousand dollars an ounce so highly cash generative In addition, we also published a a revised mineral and resource estimate for Blanket Mine which effectively doubled our reserves and means that now we have a life of mine based on reserves at Blanket out beyond 10 years which is a very healthy position for a mine of our nature. Based on our internal life of mine plan which includes some inferred resource as well we've got a life of mine plan now out to 2041 which significantly underpins the business going forwards. It's also worth noting that the increase in gold ounces was a result of not just more tons, but also higher grade, which is very healthy. And just as a matter of administration, some of you may have, if you've seen it in the MD&A and the news release that we published this morning, for administrative purposes, we're rescheduling the declaration and hence the payment of our quarterly dividends to bring it in line with the um the quarterly board processes to approve and review the the quarterly financials it's just purely administration there's nothing else nothing else to it apart from that OK, so just turning to the results summary, stable in terms of safety. Clearly, there's always more that we can do. And this continues to be an area of management focus. But it's pretty much the same as it has been in previous quarters. As I mentioned, production up quite significantly. Clearly, as we all know, the gold price is higher. So we realized exactly $2,300 an ounce, substantially higher than they $1,949 in the comparative quarter. All of that flowed through to a significant increase in revenue, just over $50 million for the quarter. And as you'll see in a moment, lower online costs means that gross profit more than doubled up from approximately $11 million to nearly $23 million. in the quarter. And that flowed through to a significant increase in net profit attributable to shareholders, which was nearly $8.4 million for the quarter compared to a loss of half a million dollars in the corresponding quarter. And obviously that then flows through to an increase in earnings per share. I think we'll move forwards now and I'll ask, oh, sorry, Craig, sorry, James was going to join us. Unfortunately, he has a communications issue. This is a slide that we've used many times. It just shows the long-term development in terms of tons milled, grade, ounces produced and recovery. And during the quarter, pretty much everything went as or slightly better than planned in terms of better tons, better grade, that was sort of 93, 93 and a half percent. And that then flows through into better ounces. So frankly, there's nothing funny to explain here. It was a good solid quarter. And hopefully we can see a repetition of that in future quarters. Shall we move on? Okay, I'll ask Chester to run through some of the financials in a bit more detail. Chester, if you could do that for us, please.

Yeah, thank you, Mark. Very good quarter, and I'm pleased to share these results with our shareholders. Revenues were up 35.4%. That's on account of additional ounces, as well as high gold prices that we've received. Realty's up. That's due to the higher revenues. Realty's remain flat at 5% of revenues. Production costs, in absolute terms, that is down. on a consolidated basis. And on mine cost at blanket, it's reduced to $906 from $915 per ounce in the previous quarter. Depreciation has increased due to our excess cost base. And it was good to see our gross profits increasing by 110%. That's $12 million up from the comparable quarter. Other costs are down by 1.6 million due to lower foreign exchange losses. It was good to see that the volatile RTGS was replaced on 5 April of this year by the ZIG that has so far been more stable. And should that continue, we should also see lower foreign exchange losses. Our net finance costs is lower. That's due to additional cash in the group that reduced the interest charge. And our tax expense is normalized to in between 30% to 33% of our effective tax rate. That's due to higher profits and less proportion of non-deductible expenditures. It was also good to see our EPS up to $0.43 and adjust the EPS of $0.51 for the quarter. That's all produced in the three-month space. Looking at our production cost per ounce, that's come down significantly on a on-mine cost basis due to the Bilbo's oxides cost has come down. That's reduced our on-mine cost by 13.7%. Power and labor is up, power mostly due to consumption and iron maximum demand charges. We're seeing iron maximum demand charges due to are succeeding some of our limits on the electricity use in certain times of the day. And we are working on that. We've got some power factor correction equipment that's in the budget that should help with that. And we're also looking to create some efficiencies when it comes to labor overtime and the power consumption. I was quite pleased to see the consumables coming down by 3%. This is a time where you see your consumables increasing And you see a lot of inflationary pressures across the globe. But at Blanket, we've managed to curb that and actually reduced our consumable costs due to good procurement practices. On our only standing costs, that's come down mostly due to the online costs coming down. And what you'll see in that other costs would be the royalties. And that's due to higher revenues that we've generated over the quarter. We maintain production guidance at $870 pounds to $970 pounds for online costs. And we also maintain our all-in sustaining cost guidance between $1370 and $1470 per ounce. It's good to see our costs being in check while we are producing more ounces and also at these record gold prices. Administrative expenses are approximately $3 million down. That's due to $3 million of expenditures that we expanded last year to complete the finalization and acquisition of the Bobo's sulfide steel. That added $3 million, 3 million ounces of resource and reserves to our group. It was good to see us going en route to becoming a multi-acid coal producer. Employee cost has also increased. And that's by about $500,000 that previously was accounted for as Oxide's operating expenditures. We've moved those employees and those resources over to the feasibility study. And we've also reallocated some of those resources to the Matapa drilling. So good to see spending some costs on furthering our business and our strategy of becoming a multi-asset gold producer. Now, with the revenues being up, costs being down, and in check, it's good to see our cash generation increasing. We've generated just over $20 million in the quarter, and that's more than we've generated in any quarter over the last two years. So really good cash generation. And overall, on a net basis, we've added $12.8 million worth of cash during the last three months. So I'm really pleased with these results and the cash generation that comes with that. Over to you, Mark.

Okay, well, look, I mean, this presentation focuses on the financial results for the quarter. We've discussed in separate calls the work of the PEA at Bilbo's and also the... the upgrade in the reserves and resources. So really these results are very clean, very good, quite easy to talk to. In terms of our immediate strategic focus, we are continuing to run blanket to achieve our targeted production range of between 74,000 and 78,000 ounces for the year. And then thereafter, similar levels from 2025 onwards. Also making good progress on completing the feasibility study in respect of the Sulfide project and in parallel with that we're refining our own internal work that we've done on funding structures for that asset. Initially we're focusing on refining our understanding of the debt capacity of the project. But given the fact that it is so high margin and has such a quick payback, we are confident that a high proportion of the overall funding requirement will be capable of being funded by debt. And then in parallel, we're also continuing with our initial exploration at Matapa. That exploration work started in the second quarter, right at the beginning of the second quarter, will be finished towards the end of the third quarter and then subject to the capacity of the assay labs we'd expect to get those results out before the end of the year. It is fair to say that the work to prove Matapa is about five years behind Bilbo's in terms of of exploration. So it will take a considerable period of time to do sufficient exploration at Matapa to prove up a significant resource. But so far it's all looking very good. So with that, it's a brief presentation. I think it's on point. We'll open it up to questions. Typically, we prefer questions, you know, spoken. If they're typed, the risk with a typed question is that, you know, we don't really understand the nuance and we may answer a slightly different question from that which you actually wanted answering. So please, if you are able, if you could just open the line and ask questions verbally.

So I'm going to start on each of the people.

I do see one typed Q&A. Let me just go to that one.

Katera, you're unmuted.

All right. Thank you. Can you hear me?

Yeah.

Okay. I've been noticing over the past few months that there's been an increase in, I think, the U.S. asset manager BlackRock's shareholding in the company. And I wanted to find out if your company is going to continue with selling a significant stake of the company to BlackRock and what their increased stake in Caledonia will mean in the long term.

Okay. Just to clarify something, BlackRock's participation in Caledonia is as a manager of a passive fund. So it's an index tracker investor. So we're in something called the Russell 3000 Index in the United States. And that means BlackRock run a fund which which tracks that index okay and so to make sure that the fund mirrors the performance of the index they have to buy shares in the underlying companies and because there actually aren't that very many gold companies if any other than us in the Russell 3000 BlackRock have to buy and sell our shares from time to time depending on what our weighting is within the overall index. So that's the first thing. They're not active managers. They're purely passive managers. And typically, you'll see that as our market capitalization goes up, they'll have to buy more shares to increase the weighting of Caledonia in the overall portfolio. Conversely, when our market cap falls, they'll typically sell shares. They're only buying and selling shares in the market. They're not having shares issued to them. So I hope that answers the question. does that answer the question yes yes thank you okay so i can before we move on i can see a typed question um modest increase in planned capex spend for 24 what led to the 700 000 million dollar upward vision in planned capex for the tailing facility phase 1b against the expected 4.7 million in q1 2024 chester detailed question. Are you able to answer that? I hope so.

Yes, I am. It's a compressor that we're planning to implement a blanket just to improve the pneumatics underground.

Okay. Now, the second part of this question relates to water a blanket. For those people who aren't in Zimbabwe, Zimbabwe situation the rainy season normally is sort of November to February and the last rainy season was extremely poor and so there is a big shortage of water and the question relates to what the impact of that water shortage has been on blanket. I'm happy to say that one of the unexpected but very welcome side effects of the new tailings facility is that because it's a lined tailings facility, it means that the water that goes into the tailings facility doesn't escape underground. which means that we can now recycle much more water from the tailings facility than we could from the old one, which was unlined and therefore the water used to percolate into the ground. That's the first thing to say. The second thing is that we are and we have taken measures to reduce our water consumption. But for the time being, water has been released into the blanket dams. from upstream and at the moment we're not seeing and we don't expect to see over the course of the next before we get to the next rainy season any adverse consequences. Clearly if the upcoming rainy season is as disappointing as the last rainy season that may cause difficulties. We do have boreholes which we've not renovated, but we've got them going again and we could look for other boreholes, but it is a risk and it is one that we recognise. One further question, how's the production grade profile playing out at Blanket? Grade profile is lower than it has been in previous years. The grade of blanket is lower than it has been in previous years, but is improving. I don't see blanket as getting significantly above 80,000 ounces a year. I'm comfortable giving guidance for blanket in the range of 75 to 80. The range, the grade will improve as we move forwards. But I think to it, I can't really give guidance that blanket will be producing substantially above 80,000 ounces a year. I can see, sorry, has someone got a hand up, Camilla?

There are a few people with their hands up. So Ian, Jocelyn, you're unmuted.

About foreign exchange, which you briefly mentioned. and the role it plays in adjusted EPS. Obviously, adjusted EPS is something that says, these are the earnings you would normally expect, and the difference between the adjusted earnings and the IAS earnings are one-off pluses or minuses that won't reoccur. But a comment you made as part of your presentation implied that because of the volatility of the currency, you tend to systematically lose money on FX. And I just wondered how you can relate that to basically stripping it out.

Okay, that's a very fair question. Historically, we have actually incurred, let's be clear, the Zimbabwe currency, formerly the RTGS, now the ZIG, has been very volatile. Historically, we have actually incurred very substantial foreign exchange gains. There was one quarter, I think, Chester, was it like tens of millions of dollars? when the deferred tax liability devalued. And so as the dollar tax liability in dollar terms became much smaller, we had a gain. And so initially we started, and we thought that was, whilst it would have been great fun to keep that in the adjusted EPS calculation, it was kind of misleading. So initially we went into... adjusted EPS to try and remove things like that which were outside management's control you're correct that in the last two quarters particularly the first quarter of this year and to the lesser extent the second quarter this year we have reversed out substantial foreign exchange losses so in the first quarter the foreign exchange loss was four million dollars in this quarter the foreign exchange loss was two million dollars and let's be clear that two million dollar loss in the second quarter was incurred in the first five trading days of the year because the RTGS was discontinued on the 5th of April. So that $2 million was incurred in the first five days of the year. Since then, with the introduction of the ZIG, the official exchange rate has been very stable. And if it continues on this basis, the incidence of foreign exchange gains and losses will become If I say immaterial, I don't mean like an accounting weight. It will become a much, much less noticeable factor. OK, but it is clearly disclosed every quarter and there is a full reconciliation in, I think, note 10.2. Is that correct, Chester, 10.2?

then yeah yeah in the in the mda you'll see a full reconciliation between uh ifrs um eps and the adjusted eps so i hope that does that answer your question adequately just i was just what i mean it sounds i mean clearly you've got different elements on your balance sheet that will be affected in different ways as you pointed out with your deferred tax um i guess it's it's all about whether the government in zimbabwe intends to try to run um firm money policy or whether it will go back to what it historically has done is obviously devalue the currency um and this is just an opinion i'm asking of you do you think the government in zimbabwe is is less likely to devalue the currency to nothing as it has done in the past is it is it has it turned over a new leaf with the zig let me let me answer that i mean the the elements of the um

are the RCGS receivables, which is the relatively small proportion of our revenues for which we sell in local currency and where we receive the cash sort of a week or so after the date of the transaction. of VAT. So it's both of those two things that drive foreign exchange losses. All I can repeat to you is the conversations I had with the Deputy Minister of Finance, with the incoming Governor of the Reserve Bank. The Governor of the Reserve Bank changed the end of March, and with the permanent representative of the IMF in Harare, all three of whom were very confident that, you know, the Zimbabwean having broken the RCGS, there is a clear determination not to make the same mistake with a new currency. That's all I can repeat. I can't give a view as to whether they're going to stand behind that or not. No, no, I understand. I understand. Just a view of what you've been talking about. Don't forget, the collapsing of the currency doesn't help anybody. It doesn't help us. And the government ends up chasing its tail as well. So it's in everybody's interests to maintain a stable currency. And the government and the government of the Reserve Bank seem absolutely determined to maintain that. That's all I can say.

And do you think the timing of those VAT refunds was timed to coincide with the collapse of the currency?

I don't think so, no. No, we've not seen any blowout. We haven't seen any sort of untoward lengthening of credit. No, no, no, we haven't seen that.

You don't see it in the timing either. Our timing of our VAT receivables are between 60 and 120 days, and they're very during those days throughout, and it's been doing so for the last couple of years. So it's been very constant in terms of how regularly we receive those VAT refunds.

The bigger one, the one that's got more volume, would be the payment of the RTGS component of our revenues, and that's a much shorter... I would hate people to think there's 120 days for that, Chester. That's much shorter, isn't it?

Yeah, for the bullion receivable, it offers between 14 to 7 days that we receive it from delivery at Fidelity. And that's just for the 25% portion of our gold sales.

Okay. And that portion you have to sell. That's a standard requirement for you to do, is it?

Yeah, we have to sell 25% to government. The balance, the 75% of the remainder, we export ourselves and we sell that offshore for dollars.

Gotcha. Okay, that's been very helpful.

That actually is a relatively recent development. The ability to export our gold is only something we started doing in April 2023. So we've been doing that for just over a year now. And that works extremely well. We... We'll deliver a bar of gold or several bars of gold into Dubai on a day, say a Monday morning, and we get sort of 90, 95% of the revenues that day and the balance two days later. It works very nicely. Thank you.

That's been very helpful. Thank you.

Okay. I see a question from Tatira. Hand up.

There's Nick. Hi, Mark.

Hi, Nick. Okay, just there was a follow-up question to that earlier question by Ian. It's not really a question, but it's an observation that obviously your suppliers are sceptical about the future of the ZEG. And I see that... Black market Zigs are now trading between 20 and 22. Is this an early indicator of a robust parallel market starting to develop?

Victor, do you want to talk about that? I mean, I would say that clearly our visibility of an illegal foreign exchange market, Nick, is by definition zero. I would just say that. Sorry, Victor, are you able to help? Helm, your next question.

Thank you, Mark. Nick, I mean, basically, let's just focus on what we as Caledonia do. Number one, we get the ZIG from the Zimbabwe government for 25% of our gold production or our sales. So basically what we do with that ZIG is we match the bulk of it with the payments we have to make to government because government is setting in place uh payments to it which are paid in zig so basically that you are matching in terms of the exchange rate the balance which is a very small amount we actually buy local products so in terms of having visibility what's happening on the parallel market we don't really feel it that much we don't we don't see that much at this stage other than uh maybe when we talk about the exchange losses when the zig officially defiles or something like that so i would say we don't have visibility on that we couldn't comment on that but sorry victor could you um just just talk about the the measures the government took to to put um liquidity into the into the market recently yeah okay uh when there was a bit of pressure on the market about i think it's about two or so weeks ago we actually did see the government releasing about 50 million U.S. dollars into the market, right? Because what they've basically said is the ZIG is backed by gold and some foreign currency. So all they did is they converted the gold which they are keeping, which is the gold and currency which they have. The gold, they get it out of 50% of the royalties we pay. We pay in... in physical gold, and also the other producers give them money so they can have reserves. So what they're doing is they're trying to manage it in the sense that if they think the ZIG on the market is under pressure, they're actually releasing money through the reserve bank onto the market. So you see the currency, the rate coming down naturally.

So, I mean, Nick, I'm not an economist by any means, but if you have a currency which is backed by something, gold or US dollars, you should, in theory, when people want to sell your currency, you should, in theory, be able to take those zigs off those people who want to get rid of those zigs and give them the asset backing, give them whatever it is, the gold or the dollars behind it, until you get to such a point that the supply of the zig is so restricted the ZIG exchange rate has to strengthen again. That's the theory. Now, I'm not an economist and I'm certainly not a central banker. So you kind of exhausted my understanding of how currencies work. But I think what we saw in the last couple of weeks, where in recognition of the movement in the parallel market, government did release dollars, I think it kind of suggests that they really are running this currency as an asset-backed currency.

Okay, excellent. One or two other little questions, if I may. So you had a rock fall in Noroika. Is there a read-through into a broader picture of what's happening on the mine, or is this an isolated incident?

No, it's an isolated incident. It did have an adverse effect on production in July, as you'll have seen from the MDA. Production in July was about 6,000 ounces. We've now got all the crews back to other areas, and they're now working in productive phases. And the area that has been affected by the So it's not symptomatic or systemic of any broader problem, Nick. Okay.

And then the last question is that you've obviously got quite a bit of CapEx lined up for H2, that's still going to amount to $31, $32 million by year end. Yep. Okay. Excellent.

Great. Thank you. So to be clear, what we did is we, having seen disappointing production towards the end of last year and a slow start to the beginning of this year, the first six weeks of this year, we put the brakes on capex because you know we can't we've seen this movie before where production promises an increase that will get back on track in terms of production and in the meantime could we could we please carry on spending on the capex plans and having been bitten by that before this year we we said well hold on the production is not there the cash isn't flowing as it should be therefore we will defer capex now as as clearly our cash generation has improved that planned capex will be released in the second half of the year sorry one more question mark there's a commentary about additional studies to enhance this solar power panel project the capacity there at the same time you're talking of selling is this an adjunct to or will the study disappear once you saw it's part and parcel of the same thing so the idea was the idea is that we will set well not the idea it's more than an idea it's it's it's happening is that we will sell the solar plant uh in terms in in risk and we'll have a long-term power purchase agreement on the same terms as we currently enjoy. And in addition, the new owner will construct a second phase.

Okay, excellent.

See, the point is we're selling it to someone whose core business is building and developing and running solar plants. It's not our core business. We don't need to own this.

Right, excellent.

Thanks very much, Mark. Okay.

There is another question from Albright. There's another question? Yes, there is. Albright, I'm just trying to unmute.

Albright, you're unmuted. Is someone asking me a question?

Because I can't understand or hear properly. Sorry, I really can't understand. So Victor, can you can you help on this? Because I really can't hear this properly.

All right, it's now muted.

I think they're having a background conversation among themselves.

Yeah, okay. Well, when they've decided, when they've started the background conversation and they've decided the question, we'll try and deal with it. But I couldn't hear that properly. Any further questions? I can see some.

There are some written questions. There are some written questions.

Okay, hold on. Let me see.

We've got a question here from Howard.

Just a minute.

I'm working through them. I'm just working through them.

There's one from Justin Baring. That's the next one.

Can you comment on the proposed changes to the FX regime? I think I've dealt with that. The expectation is that for Bilbo's, Bilbo's will operate on 100% US dollar basis anyway. So I think we've dealt with that. I hope, Justin, we've dealt with that question. I think we've dealt with another question about the July production issue. Again, I think we dealt with that. It was a fall of ground, affected Eroica, which is a high-grade area of the mine. It affected us in July. It's been sorted out. And the mine in the last week has been running within 1% or so of plan. So it's not a long-term impact. A question on inflation. I don't know what the monthly inflation rate has been recently. Victor, do you know what the monthly inflation rate is?

Yeah, actually, in the last few months, when the Reserve Bank has released something, or rather the Zimbabwe Statistical Office has released something, it was actually very minute because the ZIG has been very stable in the last few months since they introduced it. So I think it was almost like 2% or something like that. Or 2% a month. 2% a month. Much less than that, Mark.

okay okay annualized yeah okay annualized annualized okay yeah that's better that's better than a lot of other places um any any further questions can you see anything i don't think there are any more OK, well, look, that's relatively brief, but I think the numbers speak for themselves. So thank you for your attendance. And we'll do the same thing again in mid-November after we've released the third quarter results. So thank you all very much for your participation.