Caledonia Mining Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 11, 2024

There are 9 speakers on the call.

Operator

Okay, ladies and gentlemen,

Speaker 1

welcome. Good afternoon. Welcome to this call to discuss Caledonia's results for the Q3. In addition to the usual discussion of financial and operating results, we'll also discuss the preliminary results of the exploration program on the top line, which we published this morning. And I'll also make some brief comments regarding the progress at Bilbo's.

Speaker 1

I'm joined this afternoon by James Mufara. He's our Chief Operating Officer. He joined us in May. By Chester Goodwin, our CFO. And a new person, a new face, I think, to most of you will be Craig Harvey, who is our Vice President, Technical Services, and he's responsible for our exploration activities.

Speaker 1

So he will say a few words about what we're doing at Metapra. Then I'm joined by Victor Gopari, who is the Director and he will field questions relating to build those and or the general environment in Zimbabwe. Before we

Speaker 2

get into the presentation, I just want

Speaker 1

to make a couple of observations. The first is that Caledonia is changing very rapidly and that's reflected in the three announcements that we published this morning. First of all, we've got the financial and operating results, which largely reflect the performance at Blanket. It's fair to say that production has stabilized from what was a difficult time in 2023, but we now need to address the issue of costs. So we are facing some stronger headwinds than normal, particularly in respect of higher electricity costs and labor costs and the effects of continued currency instability.

Speaker 1

We are accustomed to managing these risks and in the course of the presentation, we'll set out some of the steps that we're already taking to address these areas. I will also outline some other issues which at this stage is too early to quantify the effect or indeed the timing of when that will come into effect. So, we've got the financial operating results relating to the effect of the blanket. We've got very encouraging results from Metaka, which reaffirms and reconfirms our strategy of investing in Zimbabwe to create a mid tier Zimbabwe focused golfer diesel. I think that strategy has been vindicated by what we're seeing at Metapa.

Speaker 1

And clearly, we continue the dividend. The 3rd press release this morning was the continuation of the dividend. We have attractive and competing calls on our capital across the business, but maintaining returns to shareholders is a key part of our strategy. So with that, we'll get into the presentation. So, we'll get into the presentation.

Speaker 1

So, yes, we had a fatality at the mine in late September. James, we'll talk a little bit more about that. Just on the 19,000 ounces of gold were produced in the quarter, a little bit less than we did in the same quarter of 2023, but let's just note that was a record production quarter. So we're very comfortable with the production run rate of just under 19,000 ounces and we remain on track to achieve the full year guidance of 30,000 and 78,000 ounces. As I mentioned, encouraging results at Metapo, which Craig will talk about in a moment.

Speaker 1

We've also announced the forthcoming sale of the solar plant. That's been operating slightly better than expected. We built it for at a cost of about $14,000,000 We're selling it for just over $22,000,000 We will continue to get the power generated from that solar project. So by no means using the benefit of getting that reliable power. And in addition, the new owner is now evaluating a second stage of that solar plant.

Speaker 1

So we can release the capital, we're using the capital elsewhere in our business. We already mentioned the fact that we've declared another dividend of $0.14 And we'll talk a bit more about build price that we're continuing with the feasibility study and we're making some progress now on funding options for that project. So moving on, I think I've dealt with most of these things, the metro production, gold price benefited from higher gold price, an average price in the quarter of over 2,400 that's resulted in an improved revenue, improved gross profit. But the net profit attributable to the shareholders, as Chester will outline, we then suffered the headwinds of continued foreign exchange losses and some of our unusual expenses, which Chester will outline in due course. So I think with that, we're going to move into the yes.

Speaker 1

Can I ask Craigley sorry, can I ask James to just run through the review of the operations of Blanket? James, could you do that?

Speaker 3

Thank you very much, Mark. And then good afternoon to you all. As Mark already alluded to, we regret to inform you that we lost one of our treasured employees, a Jekama Systems, on the 21st September. The said employee was in the process of installing support when this fall of ground actually occurred, Fakalim Trebnile. Despite all our efforts with the rescue team to try and bring him out to surface and resuscitating, unfortunately, he succumbed to the injuries that he had suffered in this fall of ground.

Speaker 3

As an organization, Caledonia, we will strongly believe in a culture of care and growth, and this is something that we treasure ourselves with. We also believe in total real risk reduction all the time, And we believe in learning from the incidents that would have happened. We have given the employees family support and we've also supported the government with the investigation that they actually took out with regards to the employee that lost their life. Subsequent to the accident, we actually employed the services of DuPont, our DSS plant to do a total diagnostic on our operations in order to see the whole of our value chain advanced to certain health. This work, we believe, will assist us in our quest for several harm on our minds.

Speaker 3

We should believe and totally entirely believe that it's both a moral imperative and an operational imperative. On the production of the quota, I'm glad to announce that in terms of development, we actually came in 7% above close to 7% above our plan for the quarter. This is good with regards to our future flexibility that we need because the development is already up our future possibilities of flexibility. In terms of tonnes, we'll make on make with regards to what our plan was. However, we will set that because our grade was just around 4% below our plan for the quarter.

Speaker 3

This was just a result of a fall of ground that we had at the beginning of July in one of our stops, Iroika. And we couldn't actually quickly and in time have the flexibility to replace this stop. As a result, we actually suffered this drop in our grades, in our asset grades. We have ever since moved back into better stops to stabilize the grades, but it was a little bit too late to recover the quota at that moment. As a result of the grade drop that we had, we actually ended up with our ounces just on 6.9% below for the quarter.

Speaker 3

The improvement that we see in the development and the achievement that we see with our targets at the moment will ensure that to move in the future, we'll isolate ourselves from incidents of this flexibility that covered us in the previous quarter. Thank you, Mark.

Speaker 1

Okay. I think we'll move on to finance. Chester, can I ask you to run through these pages in the finance please? Yes.

Speaker 4

Thank you, Mark. It's good to see our revenue up by 13.6% and 28% due to additional prices or higher prices that we've received. Oil being remained flat at 5% of revenue and production cost has increased by 2.9%. So it's good to see the cost of bolgos coming down and also the revenues of bolgos covering the rolling cost costs for bolgos. Production costs at Blanket has increased and as Marcus said, we've got some cost initiatives to improve on that and we'll get to that in a bit.

Speaker 4

And then depreciation has decreased and that's due to lower ounces. I was quite pleased to see the gross profit, an increase of $0.07 for the quarter. When we look at the production costs, this on a per ounce sold basis, you can see that the wages and savings has increased and that should be due to additional accounts that we've employed at Blanket as well as overtime that we spend. And we've got some initiatives to turn that around. Consumables increased predominantly due to once off repairs and maintenance that we've done in our engineering and metallurgical plans.

Speaker 4

And that shouldn't reoccur. So I'm not too concerned about consumables. Only that repairs and maintenance charge, we can see that our price is really good and there's actually been a reduction, slight reduction in our variable consumable costs on a per ounce basis. Electricity has increased the blanket and that's due to higher maximum demand charges that we are receiving. If you exceed a certain demand charge or let's say electricity load at the mine's grid, Utility would increase the rates that they charge and that increases the cost that we see.

Speaker 4

In addition, they also will be a penalty if you have a low power factor that comes out of your grid and that has also increased our electricity charges at Blanket mine. But we've got some initiatives and some of them have already been or is about a week away from being implemented. Online cost and administration at the mine has increased predominantly due to the re basement of costs due to the volatility as we see in the Zwick and all the local spire that increased the costs and you can see that effect a bit. It's not a big increase in absolute terms. All those I've spoken to that before, that's covered by the revenues and on a breakeven basis.

Speaker 4

If we look at the waterfall of our Q3, 'twenty three cost and how that compares to our current online costs, we decreased the cost significantly at Bulgars Oxide. So good to see that turning around our power, labor, consumables and other has increased, as I said before. And we can see that our all in sustaining costs also increased. And that's pretty much due to an increase in our share price that increases the share based expense. So as I said, it costs to heal as our investors would be happy with increased share price.

Speaker 4

It provides our cost guidance for 2024. Online cost guidance is now set at $9.50 to $10.50 per ounce and all in same cost is set at $14.50 per ounce. And that increased predominantly due to the labor and the power costs, which we'll come on to in a bit. So these are our cost control initiatives. Firstly, power.

Speaker 4

We're about 2 weeks away of installing power factor correction equipment. That's expected to say approximately $1,200,000 per annum and that should take effect in 2025, between 2025 being installed in a couple of weeks. We are planning to convert our central shaft winder from AC to DC and efficiencies that you gain from a power use perspective will also decrease your cost for $1,200,000 And that should be implemented within 2025. So you'll see the full effect that coming in 2026 and part of it coming in 2025. What we've already done is to increase our waste payload, hoisting speed and improve the sequencing of our waste at Central Shaft.

Speaker 4

That's helped us to increase efficiency in our operations And that's already taken effect. So it's good to see that coming in place. And we also plan to replace equipment with more energy efficient equipment. So that will come through in time. It's not something that you will see immediately taking effect, but we are looking at more energy efficient equipment.

Speaker 4

Then from a solar plant perspective, we're looking to get an external part into the Phase 2. We expect that to be approximately 8 megawatts and the rate that it saves, it shows approximately $1,600,000 Now this wouldn't come with a capital cost for us. We'll just be buying the power from a third party and in turn save on our OpEx. Further on salaries and wages, we retired 106 people of a certain age and plus, our cost of $2,100,000 that's included in other expenses. It's not part of our OpEx, but it's expected to save our OpEx going forward by approximately $400,000 And also in addition to that, it brings about some efficiencies that we could generate by modernizing mine, We're planning to do quite a few IT initiatives and hopefully that helps with implementation of that too.

Speaker 4

We also plan to implement a new biometric clocking system and this attracts staff at the blanket mine. So we're tracking our staff movements, see where we can gain efficiencies and time studies and better allocate our better and more efficiently allocate our staff at Danket mine. In addition to this is the help of the roasting and pre authorization of overtime. So they also allocate labor better to various areas and also crack that, but also look at the overtime and make sure that this overtime gets pre approved. So we know why we're spending money on overtime.

Speaker 4

So we believe that could help quite a bit in helping to manage our staff members.

Speaker 1

Just before Chester goes on, so all those initiatives, some of them are very close to being implemented. Some of them will be implemented next year. We can quantify the benefits arising from those that we're pretty clear on the timing. Some of the things replacing the old equipment with more energy efficient equipment, the effect, the benefit we can get for the introduction of the biometric clocking system. At this stage, it's too early to quantify the benefits that we might reap and also the timing thereof.

Speaker 1

But we should start to see some progress from in terms of cost reduction for early next year. So go on, Chester.

Speaker 4

Thanks. The gross profit, as I said, it's going up by 37%. I'm very pleased with that. Net foreign exchange losses, that was quite significant in the quarter. We incurred $3,100,000 of foreign exchange losses, dollars 800,000 of that would be in the company foreign exchange losses that are not eliminated.

Speaker 4

That's also unrealized and we don't expect that to be realized. So I'm not too concerned about that. That's due to strength in the demand. So again, not issue there. But what we see is $2,300,000 worth of losses in Q3 due to the devaluation of the zinc.

Speaker 4

We'll get down to the detail on how we manage that and how that has broken down. But for the year, we suffered in total of $9,300,000 worth of loss. That's significant for our business. And we can no longer ignore that and say, it's not a cost related to our business. We've seen this in every quarter throughout and we've also not counted that back for our adjusted earnings per share.

Speaker 4

So we look at this as it's quite a serious cost and we try to mitigate the effects of devaluation currencies as far as we can. We'll get on to that in a moment. Under other, that's where we include the once or $2,100,000 of retirement fees. So that you won't see again won't be repeated. And the tax expense increased due to higher gross profits during the quarter.

Speaker 4

Here you can see the foreign exchange breakdown for 9 months and we've got the ZIG and the RTGS. Now ZIG is new currency and the RTGS was abolished in 5 April 2024. And you can see that it was quite easy to see that we've got a very small cash and cash equivalents loss of about $2,000 when we have the ZIG and that's how we manage that is to spend the ZIG. We're trying to spend it on efficient. We do spend on the efficiency costs to ensure that our cash gets converted to inventory that we can use at the mine rather than keeping it in a dollar that could suffer the volatility that we've seen in this currency.

Speaker 4

In the Q1, we had a conversion method, where it locked up our cash and that incurred $3,000,000 worth of losses under RTGS. And other than those 2, I'd say that the most significant line items that contribute to our foreign exchange would be the bullion sales receivable and the battery sales receivable. And the conversion receipt of that cash is very much outside of our control, as we receive our cash from Fidelity when they're already spaced. Normally that happens in about 10 days, 10 to 14 days. But still in that 10 to 14 days, if there's a significant devaluation that's likely seen with the it's still coming down to the fits our bottom line in terms of losses.

Speaker 1

Can I just make a point that people may not understand? There's no market for the there's no properly traded liquid market for the Zimbabwe currency. The exchange rate the official exchange rate is just set by a committee. And it typically steps down devalues in big steps. So case in point would be the devaluation of the ZIG from about 13.7 to see I think about 23 percent, nearly 50 percent devaluation.

Speaker 1

That happened in a space of a few seconds. So it makes it very difficult. The magnitude and the speed of these valuations makes it very difficult to manage. But there is no there's a hedging mechanism and there's no sort of exchange rate, which allows you to move ahead of the curve. So, Chasticle?

Speaker 1

Yes.

Speaker 4

I think that covers it. So, it's a main mitigation to prevent volatility in ZIG and losses in ZIG is not to have any ZIG as far as you can. So, we try to spend that to the actual expenditures. What I was also pleased with that is the cash generation. That's before the working capital changes.

Speaker 4

And again, we've got a quarter over $16,000,000 for the quarter. As you can see, if you see our 46 $1,000,000 we generated for 9 months, that's more than double what we generated last year. And it's good to see that every quarter this year, our cash generation has been consistent and it's been a lot higher than 2023. So we see the shift to move around from 2023 to now good cash generation. We have spent some money on safety stock to ensure that we've got sales available and bolster our production and not have any delays in terms of production in terms of that, especially at the current gold prices.

Speaker 4

And we've also increased our prepayments for long lead items and that would be reflected in the CapEx comes from Q4 predominantly. And about $1,400,000 of that prepayments relate to the ZEK where we've made some prepayments by stock rather than all the cash. So that has significantly affected our cash flows, but not in a bad way. It helped us to ensure our production gets on safety spares and also ensure that we don't suffer these evaluations and as research has changed form, we expect that to turn around over the longer term and then it's good to see that safety equipment on the shelves.

Speaker 1

On

Speaker 4

that CapEx, that's well controlled. We still expect CapEx to come at $30,800,000 of blanket. Now we're unexpected CapEx. We might be selling the goal over into next year, but absolute number hasn't changed and that shouldn't affect. So happy to see the cash generated again in this quarter.

Speaker 1

Good. Thank you. Thank you, Chester. Can I ask Craig to run us through the results and the top results, which again we announced this morning? Craig, can I leave you to do that, please?

Operator

Thanks, Mark. Good afternoon or good morning to everybody. So basically during 2024, Caledonia kicked off 1st pass pretty widely spaced drilling program at Tarpen. As we can see on the map just to the right there, we had Dolbers, which shares a common boundary. So it's starting, I mean, they're right next to one another.

Operator

Metalpa has 3 main trends. So we have basically the northern, central and southern trend. These 3 trends in total are just over 9 ks in strike length. So it's a fairly expensive piece of ground. So in well, for this year, what our focus was, it was to test the continuation of sulfide zones below the historic over the pit oxide that was mined typically during the 80s 90s under Anglo American.

Operator

And so clearly we have quite a bit of data from Anglo, some old billing databases, some underground working plans from previous operating as well. And then we wanted to trench across the Metaka property to have a look for prospective new areas that might not have been found or had been looked over. So we had drilled just over, let's say, about 9,500

Speaker 5

The grade in

Operator

general is very, very similar to Bulbasque. The grade in general is very, very similar to Bulbas. So again, I'll just going to stress that it's very wide, widely spaced. It's about 150 to maybe 200 meters between drills. So early days.

Operator

The widths maybe a little bit thinner than bullbos. There's still a lot of work to act to actually be done. So just looking at the grades, I mean those are 6 holes of as I said 68 in the press release, it will be available on our website as well. The full details are there. You can have a look through all the holes.

Operator

But something that sort of stuck out is that, yes, quite clearly sulfides continue at depth at similar grades, but of great satisfaction is Caledonia has defined an area on the eastern portion of the Metapas Central Trend and we call it Mokusi. And so the 4th hole there, the NPZ are seen on the 2. That's just one of the holes that is from there. And so as you can quite clearly see, pretty decent grade, very, very shallow, sitting at 12 meters low surface. And it does appear to be oxides, right, so oxide material.

Operator

And this is quite significant in the fact that the bollards that we have that currently still has 2 oxide heap leach processing plants. The closest well, they're about the same. The one is 3.5 ks away, the other one is 3.2 ks far. So we have drilled some extra holes. They are in the tables in the press release.

Operator

There are 15 holes that we actually drilled in, sorry, 9 holes drilled, 6 of which had grade and of great interest is of all of the intersections in the Mackenzie area, 8 of the 15 intersections that we actually report with grade are above 15 meters. So 15 meters and shallow. The average of those 8 intersections is 4.21 grams per ton. And so we can drop out to the high grade, 1 on 10.95 and the average comes back at 2.6. So that's very, very exciting for us going forward into 20252026.

Operator

Our focus is going to be on clearly the Pudsey area. We are pretty sure and pretty confident that the potential for near term oxide mineralization is there and clearly we'd like to get that into the bank. The second focus is going to be drilling on the Metaupa North area, which is directly basically along the bulldoze Metaupa shared boundary and that is about a k and a half from the plant. So our focus is to get that into a mineral resource of some form or fashion, be it inferred, indicated, whatever it is, and then to focus on the Mepudi area. So I think going forward, we're very happy that we had proven up that sulfides continue at depth and we will execute a standard drilling probe grain to get that on to our books and then the Mepozi area very, very exciting.

Operator

Thanks, Mark. I don't know if you have any comments.

Speaker 1

Okay. Thank you. Thank you, Craig. Should we move on? Okay.

Speaker 1

Just a few words about Dovada. We continue to do work on the feasibility study. So there's no update there. All the information you see on this slide is from stuff we previously published. We still remain on course to publish the feasibility study in the Q1 of next year.

Speaker 1

And for those of you who are familiar, the main focus of the work is to upgrade it from the existing PEA to a feasibility study is to upgrade the work that's been done on the tailings facility. While that's going on, we're also now progressing our thoughts about funding. Clearly, we have some internal thoughts when we bought BuildBose. We now have those validated by a specialist debt adviser and we're now in the process of beginning to engage with prospective funders. We're looking at what seems to be coming into focus would be through the potential funding structures using various combinations of various permutations of senior debt and the mezzanine debt.

Speaker 1

So we'll continue to flush those out and then in due course very much in the hands of the speed at which the fund have moved and in due course we've been able to announce the senior lender and the debtor rangers. But I can't really give an indication as to how long that would be, but that's making good progress. So look, in terms of outlook, the blanket, our immediate area of focus is to maintain production of about 75,000 ounces a year. As you've heard, we do need to pay closer attention to the cost, particularly electricity and labor. Some of the initiatives we're taking, we're able to quantify.

Speaker 1

Some of them are at this stage, we can't quantify and we can't put precise timing, but we'll be able to make progress there. At Bilbo's, we expect to publish the feasibility study in the Q1. And as I said, we are making progress on various funding options. And as Craig just outlined to you, we've got exciting results at Metapa from 3 areas that were preloaded and then from one new area, which effectively we found. And we'd expect that exploration to continue maybe a couple of years before we get to a maiden resource.

Speaker 1

But given its immediate proximity to build those, anything we find at Matapa should give rise to very substantial synergies as a combined build those Metapa operation. So we took about half an hour to go through that. I mean, we can now open this out to questions. Camilla, do you want to share that?

Speaker 2

That's fine. Can I just ask, could you raise your hand if you have any questions?

Speaker 1

And also, people can type them, but the problem with typed questions is sometimes you may not get the nuanced answer that you're looking for. So you probably get a better quality of answer if you actually raise your hand and do it verbally rather than written. But of course, if you do not do that, we can manage.

Speaker 2

Only question so far about having the drawing on cycle team available on the website. Yes, we can do that. It's open in the press release. There's a question here from Ian Justling. So I'm just going to unmute you now.

Speaker 2

Ian, you should be able to speak.

Speaker 1

Can you hear me? Yes. You can hear me?

Speaker 6

Yes. Okay, good. Right. Yes, I think I had a similar question last time around, but it's kind of you've highlighted it, I think, today. It's to do with the accounts where you obviously have the IAS EPSs and then you have your own adjusted.

Speaker 6

And you've touched on something I was going to talk about anyway. But when I look at your notes, the difference, I think that correct me if I'm wrong, but the main difference between the IAS EPSs and the adjusted ones are 1 FX, which clearly you've highlighted on as being of concern. And I think the other factor was, I think, minority interests, which obviously takes up quite a large chunk of profit after taxes.

Speaker 1

Well, Chet can answer that question, but I would yes, Chet, I'll leave you to answer that question. Yes.

Speaker 4

The first one on the NCI, we show what is EPS on an attributable basis. And secondly, we don't deduct the FX. The FX that we do deduct would be the intercompany FX that I spoke about. It's not that big, it's not the significant portion. Significant portion relates to the Zinc losses.

Speaker 4

And that's still deducted from EPS and adjusted EPS.

Speaker 6

So what's the main difference? What accounts for the main difference between the 2?

Speaker 4

We take out adjusted earnings per share, we take out non controlling just the deferred tax and some foreign exchange if we don't see a structural to our business. What we've done in the past was to remove the foreign exchange because we have foreign exchange gains for well, let's say, 2020, 2021, 2022. So we removed those profits from adjusted earnings per share because we didn't feel that was part of our business and we didn't want to show a number without that. When we look at 2023 2024, we see large foreign exchange losses. And now for this year, because we've seen significant losses of about $9,300,000 We did that to the foreign exchange losses that pertains to the ZYN operation.

Speaker 4

We still deducted that from this. So we didn't count it back and the adjusted earnings per share in kelp.

Speaker 6

And you mentioned minority interest?

Speaker 4

Yes. So we want to show a number that's attributable to our business. So we don't we can count that back.

Speaker 6

But isn't that I mean, perhaps I'm not understanding, but isn't that money paid out, which is a long

Speaker 1

term thing? No, hold on. When we adjust the foreign exchange movement, we only adjust it for our share of that foreign exchange movement. Clearly, those foreign exchange movements are incurred a blanket. And so, the minorities are blanket.

Speaker 1

They have to stand behind their share of that. I think that's the confusion. The calculation of earnings per share is based on attributable earnings per share. So that's after the MCI.

Speaker 6

Right. Okay. So really, minority interest is then standing behind the share of the losses? No, they have to. Absolutely.

Speaker 6

No, that's fine. That's fine. It just had a line minority interest. So I thought possibly you were just adding back that total share.

Speaker 1

So what we do, the adjustment for foreign exchange the adjustment is further adjusted for the NCI components and the extent of any tax relief on the foreign exchange loss.

Speaker 6

Got you. Okay. So, it's effectively, yes, the 2 words misled me. Do you think you got it? Okay.

Speaker 6

Could I ask another question? Yes. Sure. It's to do with I think you made you gave examples of putting in extra inventory to try to ensure that if you hit low grades, you're able to have flexibility to have more faces to do the mining. I was just wondering if you could give an example of how the extra inventories will help you?

Speaker 1

The inventories, I think you're talking about development. And clearly, we're trying to develop in as many areas as possible to give us the flexibility in the event that we have another event, which will happen at Eureka. The build up of inventory is to make sure that if we've got enough backup stock in case, say, pumps fail, we're putting some new pumping systems on the bottom level of the mine or 34 level. If those pumps fail, that means that we end up with too much water at the bottom of mine. Similarly, we're having to we bought spare parts to service the new tailings facility.

Speaker 1

And then in addition, we've also increased our inventory to mean that we're spending instead of holding the cash, we spend the cash and we buy whatever it is we can buy that we use in the business to minimize our foreign exchange exposure.

Speaker 6

Right. Okay. I understand. And I just one last question. Obviously, it's interesting and quite exciting that you discovered oxides in Mataba.

Speaker 6

And I think you mentioned you're looking at a 2 year horizon for any sort of development. So would that include doing some shallow mining for taking out the oxides that

Speaker 1

you've Well, yes, look, if we can, definitely, we had a very unhappy experience in oxide mining a couple of years ago. So we certainly don't want to repeat that. But if we can get our hands on relatively shallow oxides, we will do and we can put it through the existing peat leach facilities at Bulbas and turn into cash as quickly as we can. So if that's economically viable, we will do it. But we're not going to fall into the same literally the same pitfall in early 2023.

Speaker 1

So yes, it makes sense clearly, but on a prudent basis.

Speaker 6

And could you remind me what happened at Bilbo's because obviously you thought that you could do it there, but it didn't turn out to be

Speaker 1

It turns out that the stripping ratio was too high. So we will be able to actually we will access the remaining oxides of Bilbo in due course as part of the broader sulfide package. But on a standalone basis, it just wasn't cost effective.

Speaker 6

Carrying too much earth around. Yes.

Speaker 1

Please explain the circumstances surrounding the fall of ground in Eureka. Craig or James, do you want to talk about what happened in Eureka, the fall of ground early in the Q3?

Speaker 3

Yes. So what happened was a very unfortunate instance where there was 2 structures that was very it was forming a whole structure. Some of the people that understand this would remember. So it was following a whole structure. And in between, you would obviously form a wedge where we our teams were supposed to proactively identify that, pin these wedge and be in a position to carry on with work.

Speaker 3

Unfortunately, we did not do that time actually. And as a result, when they were trying to put in support, they did unfortunately not put in support support. The risk was not perceived to the extent to which it was and the fall of ground happened unfortunately when they were still there and we lost demand. Okay.

Speaker 1

And then the further question was the incident at number 4 shaft that led the disruptive hoisting. That was quite simply a piece of equipment was being narrowed down the number 4 shaft. It broke loose. It fell down shaft and caused some damage to the shaft infrastructure. And that lost us about sort of weeks worth of hoisting up to another small shaft.

Speaker 1

Is that correct?

Speaker 3

Yes, it was a week's worth of hoisting.

Speaker 1

Yes. But that's now been resolved. The very detailed question about which I think Chester I'll ask Chester to do with this. The difference between IFRS production costs on Page 11 of $3,100,000 and Blanket's production costs on Page 12 of $19,200,000 Chasturi, are you able to address that easily or does that require an e mail to the questioner?

Speaker 4

It might require e mail, but if I look at Page 7, that's where production cost shown on the slide, not Page 11. But I can

Speaker 1

This is written, so I don't know if Page 11 pointed to the MD and A or something, maybe the accounts.

Speaker 4

I don't know what documents been referenced to. $19,300,000 I'm going to assume a few things here. But if it doesn't answer, let's do it on the e mail. Dollars 19,300,000 is the cost at Blanket. We do incur some costs that are reasonable that gets added to that.

Speaker 4

And you also get the bolivose costs.

Speaker 1

So, Rustomi is sending a message as well. So Rustomi, please if you send me your email address and then I'll send your email to Chester and Chester will deal with this over email. It's a bit too detailed going to on a call like this. The further question is the reallocated employee costs into the shared services center. It's about $2,400,000 for 2024.

Speaker 1

Those are costs that we will need to carry as we go forward as we build those. So yes, those will be recurring costs. So where we are at the moment is we're effectively building up a head office infrastructure. So there's not just Blanket and Caledonia as it currently stands, but Blanket plus Caledonia plus Buildbase as it will be in the future. And so we are in this uncomfortable period now until we get Buildbase up and running and carrying those costs.

Speaker 1

Now clearly, when Buildbase is up running, those we do expect our order sustaining costs and our online costs to fall very, very substantially as we spread those shared services costs and the higher head office costs, whether substantially more production. So it will work its way out in the wash over the course of the next couple of years, but we need to have got builders up running. Okay. So the further question was the our funding in Zimbabwe, the underground facilities and working capital. Chesney, do you want to talk about liquidity in Zimbabwe?

Speaker 4

Yes. So as we go forward, Mark mentioned now we've got some cost initiatives that should bring down our operating cost and forward So that will increase the cash generation. We don't see the working capital outflows. We don't see that going on going forward. We just got the safe space to ensure that we don't have any delays in our production.

Speaker 4

So we don't see that cash coming through or cash expense coming through, cash outflow. So yes, our cash position should improve going forward. And for the short period of time, when we've increased our inventory, we will be utilizing the full facility before we end, but it should normalize going forward.

Speaker 1

The point of those facilities is to use them. And it's I'd know that the blanket is very under geared. But maybe

Speaker 4

if I could add to that. I mean, Mark did mention with Olapant that we're planning to sell for $32,000,000 after CGT, it should generate about $19,000,000 Blank is very profitable at these gold prices, so you should see an increase in the cash flows coming through in 2025. So all these factors will improve our cash flows going forward.

Speaker 1

And then the final question was the ZIG, the adoption rate of the ZIG and do locals involved with the still primarily transacting dollars. I guess the person who is best to answer that is, Victoria, are you able to talk about the general acceptance or non acceptance of the ZIG in country? Thank you, Mark. At the moment, if you look at

Speaker 7

the global transactions in ZYN, what you find is that the U. S. Dollar is somewhere between 70% 75% and moving up to probably somewhere between 75% 80%. So approximately 20% to 30% of transactions in ZYN are mainly ZYN. So there is a level of acceptance where you have to use it anyway.

Speaker 7

So but for us because we get some of that money in ZYN dollars in ZYN like Chesapeake, we use it to pay taxes and buy some local consumables.

Speaker 1

And I think the other trend in Zimbabwe is the extent to which people just don't use banks anymore. Do you want to talk about that, Victor, sort of debanking? Yes, a lot of

Speaker 7

Zimbabwe to some to a large extent also operates a cash economy because you find the general public because most of the businesses have gone informal and because of unemployment, a lot of people are informal traders, informal traders. So those transactions in that side of things is mostly cash. So you find most of those transactions actually use dollars rather than zig.

Speaker 1

Yes. Okay. Right. That deals with those written questions. Any further questions come up?

Speaker 1

Yes. So, Howard, thank you.

Speaker 2

Howard, you're unmuted. Can you hear me? Yes.

Speaker 1

All good. I had a

Speaker 8

few questions. Craig, you cited 1 hole in Metapod. Did you say 15 meters or 50 meters?

Speaker 5

I'm not quite sure what's

Speaker 8

You said 15 or 50 meters at some grade.

Speaker 7

I didn't know what one meant.

Operator

It's the 4th hole that's listed there. So it is at around 15 meters below surface. 4 meters down the hole intersection at a grade of 10.95.

Speaker 8

Oh, I see. 50 meters downhole. Okay, I misunderstood.

Operator

No, no, no, no. It is 15 meters. 15.

Speaker 1

15 meters.

Speaker 8

And the fiber optic

Operator

column width is 4 meters.

Speaker 8

Got it. Okay. And Chester, could you please explain no, I'll rephrase that. Is the large increase administrative expense attributable to expenses at Bilbo's and Metabo or is that something else?

Speaker 4

If you look at our admin expenses, it increased quarter on quarter, increased by approximately $1,000,000 And so that's predominantly cost to be in the feasibility study. So we've bolstered our forces there to complete that.

Speaker 2

Okay. That's the point I

Speaker 1

was making earlier, which is as we've got we can't just over the course of the next few years, we've got to build up an owner team to build this project, to then run the project. And so we will be having costs at the head office level or a group level to build this project.

Speaker 8

That's what I thought. I wanted to clarify that in my mind.

Speaker 1

Yes. We have a slight problem arising from those, a follow on problem arising though, is those costs are actually tax deductible because they're not in a taxable entity. Okay. So that's one of the reasons why our effective tax rate looks quite high because we've got costs sitting in areas that aren't making profit and that's where we're not having tax deductions. Again, that will all wash out eventually once we've got built in.

Speaker 8

You preempted my next question about taxes. Is the foreign exchange loss also tax deductible or not really?

Speaker 4

The real life portion. Yes, which is most of it. So real life portion is.

Speaker 8

Okay. And you've also said you're going to save $1,200,000 of electrical expense compared to now. I think you meant compared to now. Does that mean that the financier owning the solar plant will actually save you another $1,200,000

Speaker 4

Yes. So the solar plant we're saving would be $1,600,000 1,600,000

Speaker 7

1,600,000 1,600,000 1,600,000 1,600,000

Speaker 4

1,600,000 Yes. 1,600,000 Yes. So we're planning to get somebody else to build that. So it will be a PPA that we enter. And the cost would be cheaper than that's our estimates based on a mixture of using gensets or utility.

Speaker 4

So that's what we'll be saving to instead of using utility at a higher cost, we'll be using the solar bonds at a cheaper cost and that should save us about $1,600,000

Speaker 8

And is that also $1,600,000 cheaper than what it is now or cheaper than what the utility would charge?

Speaker 4

Currently, we sell the we're refilling the plant and we're going to generate cash for that. But it would be cheaper than

Operator

that phase 1. It's cheaper than what

Speaker 1

we've had at the moment. That's the point.

Speaker 8

All good. All good. And second to last question, I don't know, a point. Chester, on your cash flow statement at the bottom, it looks as if your ending balance is a negative $7,600,000 And I think you meant the cash outflow net was $7,600,000 because you do have $7,200,000 on your balance sheet. So the last label on that statement is a little misleading.

Speaker 8

You might want to clarify that.

Speaker 4

Okay. Let's have a look. I'll get back to you.

Speaker 8

And Victor, finally, could you please tell me what inflation has been in the most recent month, maybe October in Zimbabwe, as you know?

Speaker 7

Well, if you look at the U. S. Dollar inflation, it was less than 1% and the U. S. Dollar inflation and the big inflation, if my memory serves me right, it might have been around 37%.

Speaker 7

I think that's to my colleagues. Does anyone of you remember?

Speaker 1

No, I could find out. I could find out. Yes. I could I mean, I mean, I mean, I couldn't do it easy on this call.

Speaker 8

Victor, did you say 6% or 7% in ZIG or 1.6%?

Speaker 7

No, no, no. I say the U. S. Dollar inflation was less than 1% month on month and the ZIG inflation was probably around 37%. I have to double check that before I confirm.

Speaker 8

That's okay. 37 you said, right?

Speaker 7

Yes. No, don't hold me on that figure. Approximately. I have to double check it and send it to you.

Speaker 8

I just wanted to make sure I heard correctly.

Speaker 7

Actually, yes, no, I have the figure. Official U. S. Dollar inflation was unchanged at 0.7% in October, while the big inflation is sold to 37.2% month on month after the Arab business defunded the local unit at the end of September.

Speaker 8

Okay. All right. Thanks guys.

Speaker 4

Mallory, I'll just check the cash flow. It seems right.

Speaker 8

No, the cash flow is right. The label makes it appear as if your ending balance was a negative $7,600,000 And I think what you made with the cash outflow was $7,600,000 because cash on hand is 7.2 dollars

Speaker 4

Yes. I'll send you an email on that, but it should be negative.

Speaker 8

Because the balance sheet showed $7,200,000 in actual cash and the label on the cash flow statement makes it look negative.

Speaker 4

You see that the liabilities

Speaker 2

Howard, did you got any more questions?

Speaker 8

No. Camilo, thanks. Mark, thanks.

Speaker 2

Okay. Just one more question from Nick Diddens. Just hold one sec. Nick, you're unmuted.

Speaker 5

Okay. Thank you very much. Okay. Craig, your very interesting discovery in the copper. Do you have a sense of how long the strike is on this undiscovered

Operator

area? Yes. On that particular one, from what we've outlined from our trenching, it's about 800 meters of strike and it's made up of 2 possibly 3 zones of various widths.

Speaker 5

Okay. So having seen the area of the satellite pillars of the area, it looks pretty well trodden that the area has been worked for extensive periods of time. So how many more is it possible that there are many more undiscovered similar types of occurrences in that area?

Speaker 3

Okay. So I'm going to be

Operator

cautious with what I say, because obviously other hard looking statements as such. But Volo has quite a comprehensive set of EPOs, claims and other patches of dirt in that immediate area. So we are putting all of the info together.

Speaker 1

Struck from a sort of structural point of

Operator

view, there's quite a number of or quite a bit of holding and sharing that takes place at the sort of northern end of the booby green, greenstone belt. And as you know, gold loves shares and things like that. So if you look at who our neighbors are or our closest people and if you had as you get a look on Google Earth, you will also notice further to the north is a couple of other historic pits, which if memory serves me correctly or if my eyeball is working, it's part of the buildings property or very close to it. We have Loney Mine, which is sitting on a structure to the south of the top of it, it runs into the boulders holdings. And lonely mine, I'm not going to quote a number because I'll probably hit it wrong, I'll switch numbers around, it was a 1,000,000 ounce producer from what I understand.

Operator

So I think the camp that we're in and this might be in good terms for it is that Bulbas, Metapar, whatever, but it's probably the Bulbas Mining camp is going to become the future name for this area because I really do think that there's a lot of exciting potential in this specific area.

Speaker 5

So if Craig comes back to Metaupa, how much of Metaupa have you done? Have you covered systematically to find these possible outstanding oxide order projects. So we've

Operator

covered about 60% of the area with trenches or what we want to do. I think it's now standing at just on 13,000 meters out of the budgeted total 22,000

Speaker 4

meters,

Operator

I think. And so we've put a and I said that we have completed activities for 2024. So as we enter the rainy season, it just becomes very, very difficult, becomes costly. We have to keep the trenches dry. So we will pick up the remainder of the trenching activities and other surface activities here from probably about the end of March and then run from March until the beginning of November of next year.

Speaker 5

Okay. Thanks, Kurt.

Speaker 1

Thank you, Nick.

Speaker 2

And there's one more question from Ewan Lo. Hi, guys. Congratulations on the very interesting results from Motapa. Sorry, I joined late, so this may have been asked already. But have you done any test work yet on the Motapa side?

Speaker 2

I understand it's very early days, so probably not, but just curious.

Speaker 1

So, I couldn't have done any work? The test work. Test work. Okay. Sorry, Craig.

Operator

Yes. So, at this stage, we haven't done, but what I can say is that we have put sample material through our assay laboratory at Isabella, which is on the builder's property, specifically for batorial tests. And then those samples are halved or duplicated to be sent off for fire assays. And then obviously what that gives you is it gives you an indication of what the oxidation level is. So if you've got a fire assay of 2 grams per ton and a bottle roll of 1 gram per ton, it means that you can realistically under oxide heapage conditions, expect to get somewhere near the 1 gram per ton.

Operator

So it's very early days. So we have the oxides that we're going to have a look at. And then as we go forward, we also generate sample material for metallurgical testing on the sulfides at Toper to see if they are amenable to the proposed Bullhouse plant.

Speaker 2

What's the depth of weathering? Is it just Metapar Central that you see off-site potential? No.

Operator

So I mean, on Metapin North, Metapin Central, Metapin South, there has been historic oxide mining down to our 2 depths approaching somewhere between 30 40 meters. The weathering profile does change. It's not quite uniform. But I think in general, we could look at a 20, possibly a 25 meter depth of weathering.

Speaker 2

Okay. Thanks very much.

Speaker 1

Are there any further questions? I think that's it. Okay. Just pause for if anyone has any further questions, then we'll hand that now and we'll quickly send something. I don't see any coming through.

Speaker 1

So thank you for your time this afternoon. And we will be doing the same again when we publish our full year results, which will be towards the back end of March next year. So thank you very much for your participation. Goodbye.

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Earnings Conference Call
Caledonia Mining Q3 2024
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