Caledonia Mining Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 6 speakers on the call.

Operator

That's Morris. That's right. Okay. So I'm Ursula Sephard de Montes, Caledonia's CEO, joined by Victor Capari, Executive Director. He's in Harare today.

Operator

Chester Goodburn, the CFO is in Johannesburg. Morris Basin, Vice President, Corporate Development and Camilla are both based in London. And Dana sends his apologies, he's traveling in Zimbabwe today, okay? So as usual, we'll go through the slides. There's plenty of time left at the end of the presentation for questions.

Operator

And so let's get just so let's get going. So by way of summary, the production we'd already previously announced, it was 22,900 ounces for the quarter, of which Bilbo's was about 1,000. So production for Blanket was just under 21,800, which was a production record production for 1 after a very difficult gold price, which supported the revenue. Gross profit was a big improvement to what it has been in the previous quarters. But as we go through this presentation, you'll see that we do need to pay some attention to 2 specific areas in the cost line being our use of electricity and labor costs, both of which we need to pay some attention to.

Operator

And again, the other thing I'll take away from this sheet here is the very strong net cash inflow from operating activities of $14,400,000

Speaker 1

$14,500,000

Operator

for the quarter, which is pretty much nearly a quarterly record. Actually, that is for CapEx. And in the quarter, we were continuing to spend a lot of money, primarily on the new tailings facility, which I'll talk in a moment. So that's a summary of the results. Can we summarize?

Operator

Yes. So by way, I mentioned that there's a quarter production record of Blanket. Consolidated online costs are better, but we can do work to improve them further. During the quarter, we announced some very encouraging drilling results from Blanket. And that work continues.

Operator

But pretty much twothree of every hole we drill came out better in terms of width and grade. In due course, that will then be fed into a revised resource statement. And then in due course, that will flow into a revised life of mine plan. But we would expect the positive drilling results flow through into an incremental resource and an extended life of mine. For reasons perhaps we can discuss later, I really don't think Blanket's it's probably more likely that Blanket will extend its production rather than increase its production.

Operator

Perhaps we can come back to that in a moment. Bilbo's was returned to care of maintenance as we previously indicated with effect from the 1st October when the mining contractors notice period ran out. We expect that to result in a significant reduction in the cost of build base from $1,000,000 a month to $200,000 a month. For the next quarter for Q4, we're hopeful actually that the build base will be cash neutral as they continue to collect gold from the heap leach. The EIA at the top has been approved.

Operator

So we'll be able to mobilize on the ground in the top early in the New Year as the drilling season starts. Then we've also received an offer to purchase the solar plant. Again, perhaps we can discuss that perhaps a little bit later on. Terms not disclosed yet, but we were confident we can sell it for more than we paid for it. But we don't need to own that spill up plant.

Operator

All we need to do is benefit from the cheaper electricity it produces. We don't need to have our capital tied up in that. And then the tailings facility, the new tailings facility that we on which we're spending about $25,000,000 this year and next year, we started pouring on that a couple of weeks ago, which now takes the pressure off the existing tailings facility, which was reaching the end of its useful life as we've increased tonnage throughput from 1900 tonnes a day to 2,400 tonnes a day. When completed by the end of next year, the new tailings facility will have a life of about 14 years. So it's a lot of that asset.

Operator

Okay. Just in operational terms, this is not usually about to talk about.

Speaker 2

You can see it quite clearly towards

Operator

the right hand side of the top graph, the gray line, that's the tons. You can see from quarter 4 to quarter 1, the tons took a fairly sharp dip and have now recovered in Q3 to where we expect them to be. The increase in grade is as planned. The increase that's not something we weren't looking for. It was that was in accordance with the mine plan.

Operator

So as I mentioned, the return to tons milled and target grade is behind the return in production to where we expected it to be, which is good. Should we move on, Mais? Okay. Now moving on to the financial section. So I'll hand over to Chester, the CFO, to take us through these and the following pages dealing with finance.

Operator

So Chester, over to you.

Speaker 1

Thank you, Mark. Our revenues are up $0.15 quarter 3 2022 to Q3 2023. And there is an increased reduction from Blanket mine. Blanket mine this quarter has increased its production. It's a variable quarter for us.

Speaker 1

And that shows a turnaround from Atlantic's production side. Overall, we had 2.5% more ounces that we sold during the quarter and we had an increased coal price by 0.5%. Unfortunately, our production cost increased. As Mark said, the production cost at Bulwer's off-site was used to about $200,000 per month, that's $600,000 per quarter. And we are quite pleased to see that $3,300,000 that we spent on all those for Q3 come down to about $600,000 in media Blanket.

Speaker 1

On the Blanket side, we increased our costs by about $1,100,000 that was due to higher electricity usage as well as overtime spend on the labor that will come on to that a little bit later. If we go down to our tax expense, looking at our tax expense for the quarter, you see a higher effective tax rate. That's due to the predominantly due to the Volvos Oxides that are intense and now EBITDA excludes our tax expense. And if we count back the Volvo's operating costs, you'll see that our tax expense is normalized. So we expect that to normalize to effective tax rates that we've seen in prior quarters.

Speaker 1

Adjusted EPS, that's lower on a consolidated basis predominantly due to the for the buyer costs and we'll get on to the production costs on the next slide. Morris? Looking at our salaries and wages at Blanket, that very much increased due to your account over time. We should be able to look at that over time and utilize our labor force more effectively like we've done producing the same amount of ounces and similar damages in 2022. We hope to reduce that and we'll get back to the markets and inform you about our initiatives that we will implement for the overtime and the headcount.

Speaker 1

Additionally, our kilowatt usage has been increasing over the year and that's predominantly due to new shafts that we the new central shaft that we've commissioned and we're running 3 shafts at the moment. We're also looking at introducing our fuel what our usage. It's good about these 2 use these services is that it should be within our control. We've proven before that we've been able to operate at lower costs and we should be able to do to find initiatives to reduce these costs. On the Bulbose Oxide side, as I said, that cost should be onshore, but should be reduced about $600,000 per quarter from next year, significantly reducing our costs to what we see in our Life of Mine estimates.

Speaker 1

If we turn the page, please. From administrative expenses point of view, to highlight the big increases, There was some good expenses on advisory services fees, the 2,500,000 ounce 4 way of all those coal pipes. That was paid to the advisory fees on the provision of that deal. Listening fees increased throughout the year and that was due to the successful mining period that we had on Q1 and Q2. Wages and salaries increased due to the additional staff members that we've been taking over these particular during the bolus deal.

Speaker 1

And they're currently helping us with things like the piece of the British government. I'm quite pleased to see that we're making some progress in that. Further, we've added some of the additional governance factors and increasing our internal audit department and also bolstering up our IT resources. Now if you look at the total leg, if you exclude the once off payment to buy new fees on bolbos and position of bolbos, we should be able to reduce our administrative expenses to very close to what we've been spending in previous quarters and years. Can you turn the page, please?

Speaker 1

This is an illustrative example of our online costs. We see the contribution of builders off sites and the green block on the online costs to the left. That we believe should come down to about $600,000 a quarter. So we do have a plan for that reducing our online costs and we hope to find solutions to reduce our kilowatt hours to what used to be similarly labor that should come out. And if those three costs increases come out, we should be able to get our online costs down to what you've seen in Life Mine between about $8.15 to 8.50 dollars per the balance.

Speaker 1

All in sustaining cost was mostly influenced by on mine costs. And if we fixed on mine costs, you'll be seeing that similar to what we were estimating on life of mine. We've seen the base fees. In terms of tax, we've got a higher effective tax rate, predominantly due to the bauxite's oxides, operational losses being ring fenced and being not deductible against our tax charges. Over the math, our taxes are calculated in a combination of RTGS and U.

Speaker 1

S. Dollars depending on what transaction is denominated in. That sort of puts it a little bit off from what you expect due to the RTGS devaluations. But if you take out the Bulgars' oxides costs, the profit before tax, you could see our effective tax rate is normal items, what you've seen in prior quarters. Throughout all this, there's involvement in active tax rate remaining 24.72%.

Speaker 1

Nothing new on the balance sheet. Firstly, our non current assets, we increased that due to the Bulborz acquisition. Our current assets increased due to the solar sale. We plan to sell the solar plants and that's moved the solar plant about $14,200,000 down to the current asset strategy from our current assets. And we have to make a good profit on the solar plant and use all the power from the solar plant but not only.

Speaker 1

We should be able to use that, the proceeds from solar plant and invest in that in our future gold businesses to achieve a higher return. Other than that, the current liabilities have been fairly flat and non current liabilities increased because of the issuance of the solar bonds earlier this year. Turn on page. So our cash, our cash is in the right places. We expect these cash balances to go up.

Speaker 1

Currently, we are exchanging all our RTGS balances and we have mechanisms to exchange our RTGS balances. We aren't holding up any cash balances in Zimbabwe that we cannot remove outside. Can we turn the page?

Operator

Yes. Can I sorry, can I interject here? So I just want to, before we go too much further, just reiterate more clearly something that we've said

Speaker 1

for

Operator

a long time. We're moving to we've always had to make capital allocation decisions. But as we move forward with the evaluation of the build those opportunity, we have to be very clear on how we go through this capital allocation process. And as I mentioned before, our primary objective is to come up with a commercialization approach for Bilbo's and indeed all of our investments, which optimizes the net present value of per Caledonia share. So the net present value of future cash flows attributable to the Caledonia share.

Operator

And that takes into account any dilution that will be needed to fund the new project. Again, it's something I said previously, we're not interested really in doubling production or tripling production and doubling or tripling the number of shares in issue because that just effectively means that we've stood still. I'm going to talk a little bit later about where we are in terms of the Bilbo's feasibility study. As Chester mentioned, we are fairly advanced in discussions to settle the project, which will release capital from a noncore asset at a premium to pay for it to recycle into our core business, which is developing and running coal mines. In respect to the Bilbo's transaction, we are considering a phased approach.

Operator

So refreshing the initial feasibility study is a relatively straightforward exercise, but preparing a new feasibility study for a smaller phased approach is a brand new piece of work, which requires new pit designs and all sorts of other stuff, which will take slightly longer. It's also fair to say that whilst we have an appetite for some gearing in our overall capital structure, we I suspect will be relatively conservative when it comes to that. So I just thought it's worthwhile just explicitly saying a few words in respect of our capital allocation policy. Morris, could you move on to the next page? As I mentioned, the build goes gold update.

Operator

This quarter, of course, we just finished quarter 3 will be the last one to be affected by the negative contribution or the large negative contribution from Bilbo's. We expect the monthly costs to reduce from €1,000,000 to about €200,000 And for the for this quarter, Q4, we'd expect that to be broadly cash neutral as we continue to harvest some of the gold that is on the heap leach. It's disappointing the disappointing production from the oxide oxides has been bearing on the quality of the underlying sulfide resource. We entered into the Bordeaux transaction to acquire and develop the sulfur sulfide resource, about 2,500,000 ounces and 2.3 grams a ton. The oxides was just purely incidental.

Operator

So one of the things we hope to avoid doing was having to retrench a considerable number of employees. We hope to avoid that, but I'm afraid we couldn't avoid that. And so we have had to let quite a lot of people go, which in the same context, especially in the context of the recent elections was something we'd hope to avoid doing.

Speaker 1

But we

Operator

are where we are. We couldn't sustain that cash strength for any longer. Work continues on the revised feasibility study as I've just outlined. The work in terms of updating and refreshing the existing large scale project is relatively straightforward. The new work on a phased approach will probably only get completed in the Q1 of next year.

Operator

And we need both bits of information to be able to make the appropriate capital allocation decisions. So we'd expect to be able to give some further guidance early in the next quarter. Could we move on? Okay. So in terms of outlook, hoping you're going to continue producing a blanket in the targeted range of £75,000 to £18,000 and pretty much similar going forward.

Operator

As I mentioned, the encouraging drilling results at Blanket will almost certainly flow through into an increased resource base, which will probably result in an extended life of mine rather than increased production. To increase production of Blanket will require probably disproportionate investment in things like mills, CIL tanks and long productive social infrastructure, which means that it's becoming it will become more expensive just to have an extra 5,000 or 10,000 ounces, and we could use that money to better effect elsewhere. As I mentioned, the feasibility study at Bilbo's and having got the EIA approved at the top, as we get through the rainy seasons in Bawi, then that would be an appropriate time to actually commit people, commit resources to the ground at the top up. Can I move on? I think they're finished.

Operator

Yes. So I think that's the end of the formal presentation. We're very happy to open it to questions. Any questions?

Speaker 3

Unmute? Hello. This is Ernie Malos. How are you doing?

Operator

Fine. Thanks,

Speaker 3

Ernie. I've got a question concerning the electricity supply. How much is the electricity actually costing you? Is it you said $2,600,000 per quarter. And then could you break down how much of that is really fuel cost in South African Rand maybe?

Speaker 3

And then how much is coming off the solar plant?

Operator

Okay. Well, 25 percent of the power we use comes from the solar plant. The solar I don't know, I explained this before. It's a little bit complex, but I'll do it again. The solar plant is owned by Caledonia, not by Blanket.

Operator

Caledonia owns 100% of the Solar plant, Caledonia owns 64% of Blanket. We, Caledonia, funded the Solar plant. And so the benefit arising from the Solar plant is crystallized in the Caledonia level. So the solar plant sells its power to Blanket at correct me if I'm wrong, it's about $0.13 a kilowatt hour. It only costs about $0.01 or $0.02 if that to produce it.

Operator

So the profit arising on the the benefit arising on the solar is crystallizing Caledonia and that's reflected in the all in sustaining cost share, not the online cost. So it's a bit of a wrinkle, but I think you'll understand why we're doing it. Chester, the cost of the grid power, is that about £0.08 Is that correct?

Speaker 1

Yes. It's £0.1086. Yes.

Operator

Now that is we import the grid power we import through a facility called the Intensive Energy User Group, which was a, let's say, sort of industry body set up sort of set up on the EU as a president actually. And that imports power directly from Mozambique and Zambia, which means that we benefit from a cheaper rate of the imported power than we would if we were buying grid power in Zimbabwe. I think the grid power in Zimbabwe just goes up. Is it about £0.16 in Chester or Victor? Can you grid power in Zim's number was spent, is that?

Speaker 1

$0.13 something cents.

Operator

Okay. And I think I thought I read something yesterday, which said it was going up even further. So we do get the benefits of from the grid power that we're getting at a cheaper rate, but we still suffer very unstable grid power supply because the Zimbabwe grid is very dilapidated, particularly insofar as it serves blanket, which means that we continue to experience power interruptions and voltage spikes and troughs, which then means we have to fall back on to the diesel generators. The diesel generators, I think, will cost about $0.45 a kilowatt hour. The Chesler, to handle do you have to handle to memory the approximate split of the power usage just between solar, grid and diesel?

Operator

Do you have that to handle? It's not something that I know where it is. I just can't remember what it is. If you don't, we can provide it. We can provide it later.

Operator

But do you have it handy? Okay. All right. We'll do yes, okay. Well, whilst we're talking, there are some very technical things that we could try and do with the solar farm to improve the quality of the power we receive through the grid.

Operator

And that's called power factor correction. And that's something we're exploring with the proposed buyer of the grid, which would mean that on the one hand, we would get less direct power from solar project. But on the other hand, it would mean that we could use a higher proportion of the grid power that we get into the IUG and thereby displace the use of the diesel. So we'd be losing some the use of some solar, but instead of foregoing solar for displacing diesel, which will be a very powerful benefit for us. So we're exploring that with the purchaser of the solar project.

Operator

So sorry, Ernie, that was a very complex long answer to quite a simple question. Did I answer everything or do you have

Speaker 3

ask further questions? Yes. That answers most of it. Just out of curiosity, is the solar farm already paid for? Or how much profit do you expect to get off the sale of that?

Operator

No, it's paid for, it's paid for an equity. We've not disclosed the price because that's an ongoing negotiation. So it's a very reasonable question, but one that gives me very reasonably on that. But we are expecting to sell it more than we paid for it.

Speaker 3

Okay. Let me turn it around. Is there a prospect of doing another solar farm if you get another 25%?

Operator

Yes, there is. I mean the buyer for the solar project is interested in developing its footprint further into Zimbabwe. So very much there is the option to do more solar. I'm going to say maybe we have a smaller top up planned at Blanket, maybe, but it wouldn't be very big. But Bilbo's if we can get and there's no reason to believe we wouldn't be able to.

Operator

If we can get power through the intensive energy user group for Bilbo's, because Bilbo's is in a much better position geographically vis a vis the Zimbabwe grid. Bilbo's could probably manage very effectively with imported power with relatively little in the way of power interruptions. And so the benefit of solar power for billbounds may be much smaller than the benefit as a blanket. So it's not altogether clear to us whether we would actually need to put a solar project in a build base. But again, that will come out in the evaluations.

Operator

But very much the buyer is the sort of buyer who's there to get bigger and they're using this the purchase of the blanket solar project as a sort of a starter a starter in Zimbabwe.

Speaker 3

Okay. That answers my questions on that. I've got another question on Bilbo's project. On the are you contemplating using other approaches other than buybacks for processing that? I know there's quite a few projects coming online in Africa where they're having different sulfide projects being exploited.

Speaker 3

And a lot of the technologies are not using Vioxx. They're using some kind of oxidation method that's cheaper and more effective than Vioxx.

Operator

Victor, do you want to you're able to address that Victor?

Speaker 4

Thank you very much. Yes, during the feasibility study, which we did, we did look at the various options. And the option, which seems to give us the least capital cost and also in terms of choosing the material itself seems to be biased. There are some other options which our consultants have suggested that when we do the feasibility study going forward, maybe we may look at and review. But pretty much a lot of work was done during the feasibility study.

Speaker 4

And Biox seemed to be the most logical one from a CapEx point of view plus also from a proximity of other operations which are using biops in South Africa.

Operator

Yes. It's also fair to say, I mean, that there's been very, very limited prospect for us to export concentrate from Zimbabwe. Zimbabwe government has a red line or policy red line in country beneficiation. So our ability to export concentrate, I suspect, would be I doubt very much we'll get it to the place. So we've got to have something in country, which is going to get into 99.5%.

Operator

Does that answer your question, Jonny?

Speaker 3

Yes, it does. Thank you.

Operator

Okay. Any further questions, Camille? Yes, there are

Speaker 2

a few. I'm going to deal with the red hand test.

Operator

This is Derek Christian. Hello, Nick. How's it, Mark? How's it, everybody? Can you maybe take us through any changes in legislation and regulations that might have affected bankable builders, I think, over the last 6 months?

Operator

And obviously, we've been through you guys have been through Zimbabwe has been through an election. Has that had any reflections? Not a problem, but whatever. I mean, the elections all seem to in we very, very calmly actually when compared to what we were expecting. Victor, do you want to anything that you're aware of, Victor?

Speaker 4

No, there isn't anything really from a policy perspective which has changed. The election isn't in terms of continuing to policies, we expect the policies to continue. And maybe the one which we may point out is the fact that there was a piece of legislation which said the U. S. Dollar regime or the multicurrency regime currently in place would end in 2025.

Speaker 4

They've actually extended that by another policy instrument, which says it will end in 2030. But the way we look at it and also in terms of most of the officials, they're looking at it from a point of view that the day, maybe the multicurrency system, disappears is when certain economic conditions have been met. For instance, the inflation, the input cover in terms of Forex, those are the critical things for the multicurrency regime to end and obviously, the confidence in the Zimbabwe currency.

Operator

So Nick, clearly, you have something in mind because you wouldn't I doubt you asked that question if you have something in mind. Well, what you should have been saying, Mark, is that you may be the first company to get gold through the Fidelity and OpEx. Yes, that's the reason we did sorry, I mean just to reinforce that point, we sell we've been exporting gold directly from Zimbabwe since I think April. So that's not new. One of the and actually I think really, I'll turn around, I would say that the we've seen quite a welcome period of policy stability actually in Zimbabwe in recent months.

Operator

I probably shouldn't say that because that's very distinctive. But pretty much we've seen things to be relatively stable. And long way that continue because frankly that's the biggest the hardest thing for us to deal with is rapid changes in policy, which in the past have caused quite a lot of dislocation and caused us yet some headaches. But all seems relatively stable, Nick. Excellent.

Operator

Is this over time your go to solution for shortfalls in production going forward? No, it isn't.

Speaker 4

No, it isn't.

Operator

Over time, since we're going to position people looking at production benefits. So now we've got to be more we've got to have a much, much closer attention to the scheduling of labor, so that we get people down the shafts into that place of work more effectively, more efficiently and minimize the time they spend waiting to get down the shaft. That's scheduling. And again, it's not difficult, okay? So no, we shouldn't be using that advancement over time.

Speaker 2

Howie, I'm not sure if I know you had a written question. I'm not sure if you've got an additional question that you want.

Speaker 5

I do. Can you hear me? Hello, Howie. Hi, Mark, Boris. I'm looking at your diluted earnings per share and your regular earnings per share.

Speaker 5

If I take $5,600,000 of profit and divide it by $19,000,000 that's 24,000,000 dollars a share. Do you have more than 19,000,000 shares?

Operator

No, we've got 19,100,000 shares in issue.

Speaker 5

How much of the diluted earnings become $0.15 What's the dilution? It looks like a miscalculation.

Speaker 1

It's the movement between quarters and how that makes it look up. If you look at the dividend effect for the 9 months, a lot smaller.

Operator

So it's a sort of quarter on quarter presentation, I think. I'm sure Chester will be delighted to take us through it in more detail, Ernie. But I think it's hilarious you're asking a bad question at this forum.

Speaker 5

Even quarter on quarter, you still only have 19,000,000 shares no matter what quarter

Speaker 1

you take. Chesley,

Operator

I don't believe it's not. I'm confident that Chesley can take you through it on a sort of detailed calculation basis. I don't think he's able to do it sort of quite off the cuff like this. But if you can

Speaker 5

do Why don't you send me a note? Yes. The second, do I understand correctly that by putting billables on care and maintenance, you're going to save $800,000 a month or $9,600,000 a year pretax?

Operator

That's correct, yes.

Speaker 5

Well, that's $0.45 a share after tax. That's a lot.

Operator

That's why we're doing it. Well, put it the other way around, Ernie, it was unsustainable and we have to stop.

Speaker 5

That's all right. As for the proposed sale of the solar plant, will you pay more in rate to the buyer than your costs now? No. No. Okay.

Speaker 5

The reason

Operator

it's just purely their cost of funding is lower than ours. Hence, they can pay more. It's purely us only this, Ernie.

Speaker 5

Oh, that explains it. And finally, because of Bilbo's, the ore that you thought was there is not there. Is there a way for you to claw back some of the sale transaction the price of the transaction?

Operator

Well, actually Victor is the vendor and he's asked for. And I think that will be

Speaker 4

Victor, can we call some money back from you for the auction? How

Speaker 5

Yes. Okay.

Speaker 4

Most of the ore is actually transitional. What we thought was the oxide is transitional. And in the original plan, we were always going to buy the ore. But the issue was when we do the pre drilling for the sulfide project, that's when we were going to mine the ore. So basically, it will come almost like a free ore in the sense that the mining cost, the waste stripping, they are already borne by the sulfide project.

Speaker 4

That's how it was going to contribute. So that ore is still there. We've mined some areas, okay, some areas we didn't quite get the ore. But most of the transitional ore or what we thought was oxide is actually transitional. So it is there.

Speaker 5

And the other ore, is it oxide or sulfur? I forget which is which.

Speaker 4

The sulfides, obviously, between the oxide and the sulfides, you normally get a transitional zone. So is that transitional or from the transitional zone, you can't really process it as oxide and your recoveries will be poor. But when we actually do the sulfide project, we're able to process that by blending it together with the sulfide in certain proportions so that you get maximum recovery out of it.

Speaker 5

Okay. And the main ore body as to the main ore body, does that have what you think is 4000000 or 5000000 ounces?

Operator

It's got 2,500,000 M and I, another 500,000 that's inferred. But it's fair to say there is exploration potential, but we're not pursuing that at this stage.

Speaker 5

So 3 plus at this time?

Operator

Yes. But as MI and I.

Speaker 5

Yes. Okay. Thank you all.

Operator

Okay. Thank you, Ernie.

Speaker 2

Thanks a lot. We've got a few written questions. So the first one is, how do you expect those in the top of the site to add to total revenue and profit in the next 5 years? Well, it

Operator

depends very much. David, it's impossible. On the top of I think it's unlikely the top of the stock production in the next 5 years, I don't know. Bill, that depends entirely on whether we go for a big bang approach or phase approach. And until we have an answer, it's just premature.

Operator

I just can't answer that question until we've got a clearer route on commercialization. But I mean, it's fair to say that when we bought Bilbo's, we worked on the basis of a big bang approach. And we could still do that, but we're looking for we're looking to optimize the assumptions from those which we used when we bought it. So we're looking at a further improvement. There's nothing wrong with the project as it currently stands with a big project approach.

Operator

We're trying to find something that's better than that. So the yes, I can't translate what I can't answer that question in terms of dollars revenue. I just want to go back to that comment earlier on about our approach to capital allocation is we're trying to find a smarter way to commercialize this asset, which balances growth and minimizes dilution benefit of shareholders, not chasing revenue.

Speaker 2

Okay. Next question is, can you talk through the rough expenditure on Bilbo's various feasibility studies? And could you go through any planned exploration programs in various sense?

Operator

So just read them again, I couldn't just just spell it again.

Speaker 2

Can you talk through the rough expenditure on Bilbo's various feasibility studies?

Operator

Okay. Victor, what's the cost of the feasibility study?

Speaker 4

Okay. The work which we are doing now probably to get to feasibility study. We'll probably spend something. I think just everybody will put something just under US5 $1,000,000

Speaker 1

Right. Exactly.

Operator

Yes. Okay. And that is a very broad it includes an awful lot of it covers many areas, doesn't it? It's quite a complex project, so it does cover many areas. Do you want to talk about it?

Operator

Yes. It covers many areas

Speaker 4

in the sense that the way we're looking at it in terms of a phased approach, it will be purely a new project at the end of the day. You have to do new designs and things like that. So unlike where we looked at the bigger project, we still look at the bigger project to see whether we can fund it. So there is an update on the costs. And also, in the last few months as we've been looking at it, there are a lot of areas which were already identified as areas for optimization.

Speaker 4

So that's the kind of work which we're doing. Optimization in terms of various work streams and also in terms of maybe managing the capital expenditure.

Speaker 5

Do you want to go into

Operator

a bit more detail on those various work streams?

Speaker 4

Okay. I'll just pick a few. For instance, the big one where we're expecting to make quite a big saving on capital would have been about the tailings facility, for instance, in terms of how we construct it and also taking a phased approach, which then reduces our peak capital funding when we start the project. So that's a big one. We expect it to be quite a big one.

Speaker 4

Plus also, if we go with a smaller project, obviously, we'll go with a smaller tailings facility also in a phased way. So that will reduce the CapEx. And then from a mining point of view, the way the pits have been designed, obviously, by managing the way you do your waste stripping when you start, we do expect to reduce maybe the capital expenditure at the beginning. These are the major waste streams which are going on. We've also looked at the issue of electricity.

Speaker 4

If we are doing the big project, for instance, we'll have to build a new power line, which is about 75 kilometers. But we're having to look at that. If we do the smaller project, we're doing some work to see whether the existing line can actually be upgraded or can actually take the amount of power which we will need. We're working very closely with the power utility, the Zimbabwe power utility on that. I think those are obviously, the other issues are maybe the contractor will be doing the mining.

Speaker 4

We're looking at optimizing that in the sense that if that contractor is also mobilized to do the tailings facility, for instance, we only pay one mobilization fee and things like that. His workshops will have to look at his workshops. There are many areas which we're working on at the moment, and we're quite optimistic in terms of maybe coming up with a better capital estimate for this project and also better operating cost for the project.

Operator

Okay. So next question, Camilla, anything else?

Speaker 2

Yes. There is, what are your thoughts on near term future CapEx in 2019, 2020? We also thought that was going to go down And CapEx is roughly in the amount of operating cash flows. Do we expect that to decline, free cash flow to increase and a larger dividend?

Operator

No. We do expect CapEx to go down. But I think to increase the dividend in the context of a very substantial investment program would be I can't see how each other how we could possibly justify that. But we would expect CapEx to come down and therefore free cash flow to go up. But I can't at this stage and this is the dividend going up given the time we got a large and there's yet unmodified CapEx program coming towards us.

Speaker 2

And then there's one more which says when will the current recovery at Bilbo's oxide be completed?

Operator

Victor, we've said at the end of this quarter, I mean, is that right, is it? At the end of this quarter, it doesn't trickle on into I'm going to say, first of all, let's be clear, we're not talking material amounts of gold here, okay? So let's put it in context. Victor, my understanding was that we thought that the continuing heap reach would go for quarter 4 and then not into next year. Is that correct?

Speaker 4

It should really end at the end of the year. Unless if we if the recoveries are showing still if they're showing that we can recover any more gold, but I mean that has to be balanced with the cost of doing cost.

Operator

Yes. Yes. But I really would encourage you not to start focusing on the heap leaching from the off sites. That really is going to be done in the East. Any further questions?

Operator

Yes, there's

Speaker 2

one more that's just come in. How is the South African rand affecting your supply costs, especially with fuel and materials? No, it's not. I mean, Chester can probably talk about

Operator

this better, but the South African suppliers typically charge us in randoms that are the C3 dollar price. And so we are not and you will notice actually in the cost analysis that Chester put up, we've not seen any increase in our consumable input costs, which is which I'm very pleased to see. So the simple answer is that we are not the answer is not having an effect at all.

Speaker 2

And there's one more. Do you plan to increase the spend on exploration at Blanket?

Operator

The Blanket not substantially. I mean the cost of the exploration program at Blanket isn't particularly significant. It's more constrained by logistical just get drilling, excavating the drill covers and working for those. But it's not particularly expensive program. And we're very comfortable with the results we've seen so far and the results that we're expecting to see through the ongoing exercise will give a very substantial uplift in resource base and life of mine.

Operator

For us to go the other exploration area that we could that we do plan to do, and you call us a blank, it will be a long strike to the north and the south, but also to the east, about 800 meters to the east on the banded ironstone formation. But again, we've got many competing needs for capital. And there's a limit to how much cash we can spend. It's also a limited amount of money to spend. So at the moment, I'm comfortable with the exploration activity of Blanket is more than fit for purpose.

Operator

And I think the other area we have to spend a lot of money at Blanket is not direct on exploration, it's related. It is upgrading the IT systems and the software packages that we're using in the MRM department, which has actually paid dividends. It's very expensive, but it's paid dividends in terms of improving and making much more real time our mine planning system, which means that we can adapt to changing circumstances as we see them. And actually that we are expecting will probably material crystallize in a modest reduction in some of the capital programs that we have planned for 2024, which now using the better mine planning software we've got, may mean that we actually don't need to do some of the stuff that we thought we would do. So that is paying for itself.

Operator

So I guess it's quite a long answer to quite a fairly short question, I'm afraid. But I hope that answers it properly. Okay. Shall we just give a pause to see if anybody else wants to just a minute or so, see if anybody else wants to ask any further questions? Victor or Chester, any final observations you'd like to make based on the questions that we've received and by the intended answers?

Speaker 4

Not from me, Mark. Thank you. Okay. Chester?

Operator

No more questions, Camilla? Nothing. Okay. Well, thank you all for attending. And we'll do this again when we publish our next quarter results, which will be towards the end of March.

Operator

The Q4 numbers take a bit longer because the auditors get involved. Okay. Thank you all for attending. Thank you very much.

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Key Takeaways

  • Record production: Q3 consolidated gold output reached 22,900 ounces, including a record 21,800 ounces at Blanket, driving improved revenues and gross profit.
  • Operating cash flow surged to $14.5 million for the quarter, providing near-record liquidity to fund capital expenditures.
  • Unit costs were pressured by rising electricity usage and overtime labour expenses at Blanket, highlighting key areas needing cost control.
  • Bilbo’s was placed on care and maintenance on October 1, cutting monthly build‐base costs from $1 million to $200 000 and targeting cash neutrality in Q4 as heap leach recovery continues.
  • Encouraging drilling results at Blanket are expected to flow into a revised resource statement, likely extending the mine’s life rather than boosting near-term output.
AI Generated. May Contain Errors.
Earnings Conference Call
Caledonia Mining Q3 2023
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