Caledonia Mining - Q1 2024

Transcript

Camilla Horsfall (VP of Group Communications)

Welcome to our Q1 2024 results call for shareholders. On the call from Caledonia, you have Mark Learmonth, our CEO, Chester Goodburn, our CFO, Victor Gapare, our Executive Director, and then myself, Camilla Horsfall. I'm the Vice President of Group Communications. As always, we're going to run through the presentation, and we will have questions at the end. If you do have a question, we just ask you to raise your hand. We find that's a better format than the written Q&A. I'm now going to pass you over to Mark, who will start the presentation.

Mark Learmonth (CEO)

Thank you. Thank you, Camilla. Can we move forward? That's a disclaimer. Moving on to the next page. Okay, so just a quick overview before I hand over to Chester, who's going to do most of this presentation because it relates to the financials. On the whole, it was a much improved quarter from certainly the Q1 of 2023, which was very challenging. Before we get into production and costs, pleasing to see an improvement in safety. It's an area of enormous focus, and we'll continue to try and improve further. So it's a strong start to 2024 with higher production supported by a favorable gold price.

We produced just under 17,500 ounces in the quarter compared to just over 16,000 ounces in the Q1 of 2023. We wouldn't normally go into this level of detail, but this quarter it is significant. In the Q1 of 2024, we only had 78 production days, and that was due to the early production cutoff due to the logistical challenges relating to moving quite large amounts of gold between the mine, Harare, and Dubai. So we had to cut off relatively early. So only 78 working days in the quarter compared to 86 working days in the Q1 of last year. So in that context, it makes quarter one look even better. So we're standing behind our production guidance for the year of between 74,000 and 78,000 ounces.

On a personnel matter, as you all know, Dana Roets, the previous Chief Operating Officer, left the business at the end of February. We're pleased to say that James Mufara has joined us with effect from May 1st. He joins us from Harmony, which, for those of you who don't know South Africa very well, is one of South Africa's very large gold miners. James was responsible for five mining operations, employing 16,000 people, and producing about 500,000 ounces of gold a year. His skill set includes underground mining and open pit mining. He would have been on the call today, but he is at the mine at the moment, and is hopefully at this minute 3,500 feet underground.

James is in Zimbabwe, and initially he'll be based in Johannesburg. In due course, he will relocate to Bulawayo, which puts him in a much better position to have a much closer sight of what's happening at Blanket and then, in due course, at Bilboes. So we're very pleased to see him. We also announced earlier on in the year some very encouraging exploration results at Blanket.

Basically, we restarted the deep-level exploration program early 2023. We've put out two sets of drilling results, one in, I think, August last year and then another one in January this year. About 2/3 will be published very shortly, and an increased life of mine. So you should look out for that very shortly. We maintain the quarterly dividend: $0.14 a share was paid at the end of January and, again, at the end of April. We're very, very advanced on the work on looking at the ways to commercialize the large-scale sulfide project at Bilboes with a view to optimizing the uplift of Caledonia's shareholders.

I'd expect that we're about two weeks away from making some announcement on that, certainly by the end of May. Can we move on? Yes, so here's the we've mentioned safety, a pleasing fall in safety incidents. We've mentioned production and uptick in production from 16 to 17.5. Clearly, the higher gold price helps, $1,860 increasing to $2,040. That's the average for the quarter. Clearly, since the end of the quarter, we've been running pretty much consistently at $2,300, $2,350. I've mentioned production days. Revenue up from just less than $30 million to $38.5 million. Gross profit up from less than $6 million to nearly $14 million. And net profit to shareholders swung from a loss of $5 million in the Q1 of last year to a profit of $2 million this year.

It's fair to say that the only fly in the ointment in the Q1 was a substantial foreign exchange loss of about $4.1 million, which Chester will talk about in due course. I don't want to pretend that that foreign exchange loss doesn't exist. I can't wish it away. If we're going to continue to incur losses at that rate, that makes life very challenging for all of us. But putting it on one side, if you pretty much ignore the various bits and pieces, including the foreign exchange loss, a $0.30 a share loss in the Q1 of last year has now been converted into a $0.27 profit in this quarter. So, operationally, a very significant turnaround. Should we move forward?

Okay, there's quite a lot of information on this graph. I mean, it basically just shows you quarterly going back to 2012. The top graph shows the grade in the tons. The bottom graph shows the quarterly production at Blanket and the recovery. I think there's a lot of information here, but I think what I would point out is, in the top graph, you can see that the grade, the orange line, has pretty much gone down steadily from about 4.5 grams a ton in 2012 to a much lower level, say 3, 3.1 grams a ton. One of the things that will come out from the revised resource statement that gets published shortly is an improvement in that grade as we go forward.

Of all the ways to benefit from to get more gold, a higher grade is by far the best. It has a much better effect on cost per ounce and recovery.

Again, if you look very closely at the bottom graph, you can see there is a very clear pattern during the course of each calendar year. Q1 typically starts off on a relatively subdued note, and then it improves as the year goes on. And then, when you get into the next year, again, it's a relatively subdued quarter one. Based on what we've seen happening at the mine in April and into May, we're very comfortable that that will continue in 2024. Should we move on? Okay, I'll hand over to Chester now, really, for the bulk of this the rest of the presentation, to run through the financials. So, Chester, over to you.

Chester Goodburn (CFO)

Thank you, Mark. It's really good to see that we've produced just under 19,000 ounces for the quarter. That includes 3,000 ounces that was produced in Q4 and sold in Q1. And similarly, we've had 1,600 ounces that we produced in Q1 and sold in Q2. So higher sales also comes at a time where we're seeing record production or, sorry, record gold prices. Our average gold price for the quarter was $2,040, and that comes with the on-mine cost of $993 per ounce, pretty much flat quarter-over-quarter. And we should see that coming down in the latter parts of the year. At Blanket Mine, we've got a very big fixed cost base.

So that means if you've got more days in your quarter that we will have in Q2 to Q4, that should bring down our on-mine cost per ounce going forward. So we've maintained OpEx guidance of between $870-$970 per ounce on an On-Mine Cost basis.

Mark Learmonth (CEO)

Yeah, so, Chester, can you just explain the step-up in the On-Mine Cost per ounce from about $700 an ounce in 2022 to the current level of not far short of $1,000 an ounce? Can you just explain that so people understand?

Chester Goodburn (CFO)

That's right, yeah. So mostly that's due to inflation increases that we've seen from 2022-2024 and about $2 million of increased electricity costs based on additional consumption since we've started the central shaft in 2023. So we are working on quite a few initiatives to look at our electricity usage. And so far, we've come up with power factor correction that we will implement in Q3 of 2024, and we should see some reductions in our electricity costs. Other than that, we're also looking at other initiatives, and we'll come back to the markets with some of that information. Now, we plan to transition to using most of our shafts at Blanket to just using the central shaft and reducing our consumption overall at Blanket.

So there are methods in place and ideas that's on the table currently that we are discussing to reduce that electricity consumption. On an all-in sustaining cost basis, our costs were $1,267. That's lower than what we've given guidance on, of between $1,370-$1,470 for the year. That's due to the timing of our CapEx spend that we plan to spend in the latter part of the year. It's good to see our gross profit increasing to $13.8 million. That includes an additional depreciation charge of about $2 million that we've incurred due to our shortening of the useful life of our shafts that we plan to stop as soon as we mine predominantly under 750 meters at the mine.

That should also have a resulting cost benefit on electricity, as explained. Our earnings per share was positive: $0.106 for the quarter. That turned around the 2023 woes that we had. It's good to see that Blanket is producing a lot of cash and is profitable, and it's had a good quarter so far. Same with adjusted earnings per share. This is where we add back the foreign exchange losses that Mark alluded to earlier, but we'll get to the FX losses in the following slides. Our cash used in investing activities, the CapEx, that's amounted to $4.1 million. We plan to spend more in Q2-Q4, but we've maintained our guidance of $30 million at Blanket.

That's all within plan. It's just a timing of the spend that will increase in future quarters. Operating cash flows before working capital movements amounted to $10.5 million. That includes the realized foreign exchange loss of $3.6 million. If that were to be counted back, so if we didn't have these massive devaluations of our Zim dollar, we would have produced more cash than we did in our 2022 quarter one.

Mark Learmonth (CEO)

But before we move on, that is before working capital movements. From time to time, we do incur quite substantial variations in working capital, and that can be towards the end of this quarter, quarter one. Part of that was due to us prepaying for equipment and goods that we were buying in-country so that we weren't holding to minimise the extent to which we were holding local currency, which was devaluing very rapidly. And then we also have quite large foreign exchange movements arising from delays in transmission of funds from Dubai through the U.S. into Zimbabwe. And that just comes down to, from time to time, you get intermediary banks who send the money back to Dubai because they get confused about KYC.

The working capital has been quite large, and that's actually one of the things that contributed to the relatively low cash balance at the end of Q1. That has changed markedly for the better since then. Sorry to interrupt. You move on. Move on then, Chester.

Chester Goodburn (CFO)

Thanks. Profit and loss, it's good to see our revenues at $38.5 million. That's due to 20% more ounces than the comparable quarter and 9% due to the increase in the gold price that we received. We had 78 production days, as I said earlier. On average, we've got 87 production days. That's a 12% increase in production days in Q2-Q4. And with a fixed cost base, it means that we get more bang for buck, basically, or more bang for production days in future quarters. So, all in all, it's a very good quarter. Production costs are in check. Our on-mine cost per ounce remained relatively flat at Blanket, and that's where our main focus lies now that the Bilboes oxides have been placed on care and maintenance.

Talking about Bilboes, that's pretty much on a break-even basis where we are still incurring some costs and gaining some revenues to the extent of exceeding those heap leaching activity costs. It's good to see Bilboes breaking even and not incurring the losses of the prior quarter. So we've really reduced our costs at a Bilboes level. Depreciation, I've spoken about that. A lot of useful ounce that we've shortened for shafts. Under the gross profit line, yeah, you can see the foreign exchange losses of $4.1 million. $3.6 million, that is realized. So that had a cash effect. And that was due to the devaluation of the Zim dollar. Subsequently, after year-end or quarter-end, the Zimbabwean government introduced the Zimbabwean gold currency on April 5th, and we've been transacting in that currency from then.

So there was a bit of a delay in transacting at first. The first two weeks were slow, but we are transacting in the ZiG. What's quite nice to see is that the ZiG has actually strengthened from the 5th of April to now. It's currency based on or backed by gold and foreign exchange reserves. We believe if those measures are followed and if the ZiG holds its strength as it's currently doing, that these foreign exchange losses would not reoccur going forward.

Mark Learmonth (CEO)

So can I just add just a bit more context as to where these foreign exchange losses come from? We sell 25% of our gold in-country for local currency, and normally it takes about two weeks or so before we get paid for that gold. Actually, in this quarter just finished, the payment was actually slightly shorter. I think it was about nine days. But whilst we're holding that nine-day receivable, the rate of devaluation of the Zimbabwe dollar accelerated exponentially towards the end of the quarter, which meant that by the time we got paid, the RTGS in that's local currency. In dollar terms, it was worth substantially less than the rate at which we'd booked it. So that was one component of the loss.

The other component of the loss was on our VAT receivable, and a third component of the loss would be on the relatively small amount of local currency that we were holding in cash. As Chester says, the new currency was introduced shortly after the end of the quarter, and so far we've seen much more stability.

Chester Goodburn (CFO)

Looking at production costs on a per ounce sold basis, it was good to see that our costs at Blanket have remained in check throughout this quarter. Our consumables have actually come down by 4%, and that goes against the grain of inflation increases that we are seeing mostly all over the world: higher inflation, higher prices. That's due to some initiatives that we've implemented at our procurement department to reduce the prices while maintaining the quality of the consumables that we are purchasing. That was very good to see our costs coming down.

Mark Learmonth (CEO)

We do have a very sophisticated procurement operation based in Johannesburg, which leverages the quite competitive supply environment in Jo'burg. So if you want a thing for the mine, there's usually a number of people who produce that thing so you can get a good price. And then we're very good, we take receipt of it in our warehouse in Johannesburg, and we're very good at shipping it up to the mine quickly. If we didn't have that operation in Johannesburg, we would find it very, very difficult to get South African-based suppliers to deal directly with Blanket Mine in Zimbabwe. So I'm very pleased to see that 4% reduction. Also quite pleased to see the wages and salaries on a per-ounce basis coming down. But as you can see, electricity is higher for reasons that Chester's just already explained.

Chester Goodburn (CFO)

Other than that, it's also good to see the costs coming down. Bilboes, we've spoken about that. So all in all, I think costs came down or remained flat quite well. As said earlier, this shows the on-mine costs, now all-in sustaining costs per ounce. We've maintained our guidance at $870-$970 per ounce on an on-mine cost basis. And on an all-in sustaining cost basis, we believe this will increase. And that's due to the timing of all the CapEx spend. The scheduling of our CapEx spend is mostly towards the end of the year, as I said. So that's also maintained at $1,370-$1,470 for the full year. Also, I was quite pleased to see administrative expenses coming down.

It came down by about $3.3 million overall. And it came down on several fronts. Investor relations, that was lower than in the comparable quarter. Advisory services fees were $3.1 million lower. And that's due to us not recurring the Bilboes acquisition costs. That was a one-off cost to obtain 3 million ounces of Bilboes. And it's good to see that coming down. Wages and salaries, from a perspective, there was a reversal of the 2023 management bonus accrual in a 2024 year, reducing our wages and salaries. And also our travel costs came down quarter-on-quarter. So all in all, it's very good to see that the Q4 G&A costs, the general administrative costs that we incurred, that had quite a few one-off costs in that these costs, or those one-off costs which are not recurring into Q1.

And we've really focused on our costs to make sure that we reduce our costs. And it's really good to see that in these numbers. The slide shows the cash generated from operations before working capital changes. As said earlier, here you can see our cash generation throughout the quarters with 2023 numbers looking very bleak. But from Q1, our cost controls are in place. Our production is up. We're really doing well in terms of the gold price. And if you counted back that $3.6 million realised foreign exchange loss that was outside of our control, we would have generated over $14 million. That is higher than our 2022 amounts when we ramped up to 80,000 ounces per annum. So really good to see that Blanket's back and its cash generating abilities remain strong. Over to you, Mark.

Mark Learmonth (CEO)

Yeah. So just in terms of the outlook, I don't think there's much here that's new. We're looking at 74,000-78,000 ounces for this year and then thereafter, producing at a similar level. We're well advanced in reviewing a range of development options at Bilboes with the view exclusively to optimize the uplift in value for Caledonia shareholders. And I'm hopeful that we'll get something out to investors before the end of the month. And exploration results at Blanket have been very encouraging, and that will be translated into a revised mineral resource statement and an increased life of mine, which will be announced shortly, which will go straight to value. And we're just about to start a first phase of drilling activity at Motapa.

So I'm delighted that we've seemed to have drawn a line under what was a very, very difficult 2023. 2024 has got off to a reasonable start. The first half of the Q2 is going very well indeed. I think we're at a very exciting juncture now as we begin to take this business forward materially. That's the end of the formal presentation. We can now hold this open to questions.

Operator (participant)

There are a couple of written questions.

Mark Learmonth (CEO)

Okay. The first one's from Howard about the ZIM dollar. Okay. So let's be clear on this. The new currency, it's called the ZiG. It was introduced and let's face it, the ZiG only affects us as to 25% of our revenues. The other 75% of our revenues are in U.S. dollars, and nothing's changed there. The ZiG is apparently backed by assets. Now, I say apparently. I've got no reason to doubt that, but I've not seen those assets. But we're told that the total value of ZiGs in circulation is backed by assets such as gold and other assets, which I assume would be currency, mainly dollars, I'd expect.

Since the introduction of the ZiG on the April 5th, the exchange rate, I think, has gone from about 13.8 to I think it's strengthened very slightly. So it's moved in the right direction. So basically, it's been stable. It's strengthened slightly. So that's the question about the ZiG. And then another question, when can we expect to see Blanket's headgrade return to 4 grams per tonne? Well, can we just wait a few days until you get the revised mineral resource statement out in the next few days?

We can have a more sensible conversation about that then. So once we've the resource statement, it's quite complex, quite a lot of information. So that will be published sometime in the next few days, and then we will have a further call thereafter to give shareholders and investors an opportunity to ask questions specifically on that. So at this stage, I don't particularly want to answer that question right now. We'll get back to it in a few days' time. Okay. That's the only written questions we've got. Do we have anybody wanting to ask questions in the traditional way by asking? Can I hear the lines open?

Operator (participant)

The lines are open. If people want to raise their hand, they can. Yeah. I'll just wait a couple of minutes.

Mark Learmonth (CEO)

No. Not seeing any questions. Okay. No, there's another question popped up. How many shares are out? So I think it's 19.1 million, isn't it, Chester?

Chester Goodburn (CFO)

That's right. Correct.

Mark Learmonth (CEO)

Yeah.

Chester Goodburn (CFO)

Correct.

Mark Learmonth (CEO)

Okay. Any further questions? Oh, there's another one. Thank you. Okay. Thank you, Howard. Thank you. Okay. I think on that basis then, unless anyone's got anything else, I think we'll draw stumps there. Thank you very much. There is going to be quite a lot of news flow coming over the next few weeks, so keep your eyes open for it. Okay? Thank you all for your attendance.