Caledonia Mining Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 16, 2023

There are 7 speakers on the call.

Operator

This meeting is being recorded.

Speaker 1

We're joined by, Dana Roets, our Chief Operating Officer Victor Gopari, who joined us from Bilbo's. He's an Executive Director of Caledonia by Chester Goodwin, our CFO and by Camilla Horsfall, our Vice President, Investor Relations and also Morris Mason, our Vice President of Corporate Development. We're going to run through a slide deck, which hopefully addresses the main issues. The slide deck will be made available on our website immediately after this presentation. There is an opportunity for questions at the end of the presentation.

Speaker 1

You can either do that by typing questions in or by doing it sort of traditionally using your mouth. I would encourage you to do them verbally because typed questions always leave gaps in understanding and nuance. And so I think I always feel very uncomfortable responding to typed questions because I don't always know if you've answered the question properly. So with that, I'd like to start the presentation. Camilla is driving this.

Speaker 1

We seem to be on the summary page. So production for the production for the quarter as previously announced was just over 16,100 ounces, so substantially down from the 18,500 ounces that we achieved in the Q1 of 2022. Average gold price virtually unchanged and so the fall in revenue was pretty much due to lower production and lower sales movements in working capital. Gross profit substantially down from nearly $17,000,000 to just less than $6,000,000 And the net loss or profit attributable to shareholders went from a $6,000,000 profit in the Q1 of 2022 to a $5,000,000 loss in this quarter just finished, correspondingly a substantial reduction in earnings and loss per share. Dividend maintained at $0.14 and a very substantial instead of having a $10,000,000 inflow from operating activities, in this quarter, we had about $1,000,000 outflow.

Speaker 1

We can move down, Camilo. Right. So in terms of overview, this you should be pointing out, this is the Q1 that reflects our ownership of Bilbo's. In any event, that was going to have a short term negative effect on our financial performance because it was always intended that we would start work at Bilbo's on the oxide, stripping material to expose the oxide material and then only start production towards the very end of the quarter. So that was always intended.

Speaker 1

I think the difference now is that we've been disappointed with the grade and some of the target mining areas. And so we've had to revise our guidance for that. And Victor will talk in a bit more detail about the difficulties at Bilbois Oxides. Blanket production was below plan, mainly due to tons, and that was due to equipment failures and logistical issues, again, which Donna can talk about in a moment. There is evidence of some improvement in production in April, where on a daily basis, we achieved about 80,000 ounces per annum on an annualized rate.

Speaker 1

Operating costs at Blanket were higher than expected, and that's mainly due to increased higher than expected electricity consumption, and that was also affected by an increase in the tariff that we pay for grid power. The solar plant was commissioned in the quarter, and that generates slightly more power than we'd expected, and we are seeing a benefit from that, both in terms of a reducing the weighted average cost of power and also it displaces quite expensive of diesel. We started work on the feasibility study for the main Bilbois Sulfide project, which we can talk about in a moment. We completed a fund raise in Europe, South Africa and Zimbabwe, which raised a total of about $16,600,000 Most of that was received in the quarter and then about $5,000,000 was received immediately after the end of the quarter. And we stand behind our production guidance of Blanket for the year between 75,000, 80,000 ounces.

Speaker 1

And also, we spot on here, but we will mention later, we also reiterate our online cost guidance for Blanket. So I'll ask Darla to talk about this in a bit more detail. But look at the top graph in particular, the light line, the sort of light orange line that shows tons, and you can see that the tons was substantially down in the quarter, and grade was also down somewhat. The lower grade was as it was broadly as expected. We had expected the grade to be lower in the quarter, and so we weren't particularly disappointed by that.

Speaker 1

But the real factor that drove disappointing production was tons. So perhaps I'll ask Dana to put a bit more context on why the tons were lower than we'd expected. Dana, could you help us?

Speaker 2

Right. Normally, in the Q1, you've got you struggle to get going after Christmas and especially when last year, we showed a buildup of another 20% to achieve our 80,000 ounces. So but then added to that, we had our main winder at Forshaw that failed on us, and it was electrical motor commuter that failed, which resulted in the motor slip bring gear brushes prematurely failing. And we during the COVID era, we got spares in. We had critical spares, but we couldn't get it from the preferred company.

Speaker 2

And when we installed these brushes, we picked up issues with the wunder where it kept on tripping. Then we had to rush out and have other brushes made up, which we then installed. And when we installed it, then we had some communication problems with our electronic cards. And that cost us a couple of days to sort that out. And the net result was that we lost 12 days of production due to that because we couldn't waste.

Speaker 2

And at the same time, we had our new shafts, central shaft, we had an ore port that was hanging up. And so it was a perfect storm at both shafts that we couldn't waste. Now part of this is a question was asked before this. How do we know this won't happen again? Now the one that Forshaw has been operating for the last 14 years, it's the first time in 14 years that we picked up an issue like this, so it was unfortunate.

Speaker 2

It's not something that happens every day. And with 50% of towards the end of the year, 50% of our production will come via Central Shaft. The pressure on foreshaft will just start getting less and less and less. And going forward, especially from the second half of the year, we will basically have foreshaft as 50% spare wheel, while and Central shaft will only run it about onethree of its capacity. So it will put us in a much better position if something similar would happen.

Speaker 1

Okay. Look, if anyone has got any further questions on that, we can come back to that towards the after we've been through the formal presentation. Can we just move on and talk about Bilbo's? I'd just like to put the Bilbo's thing the Bilbo's in context. We bought Bilbo's entirely predicated on a large, over 2,000,000 ounce, sulfide resource at a grade of over 2 grams a ton.

Speaker 1

So it's a large high grade resource. And there's nothing has happened at Bilbo's to dent our confidence in that resource. The oxide project was purely a small short term project over the course of the next two and a half years, during which period we might have produced about 50,000 ounces, primarily to generate cash so that we can maintain the operating integrity of the existing Bilbo's business, which employs about 150 people, pending the commencement of work on the main sulfide project. Now as Victor is going to explain, we went off, we did the pre stripping in the quarter to expose the first target mining area. At that area, the grades were disappointing, so we have to move to other areas.

Speaker 1

And our approach to the Bilbao's oxide project is that we are now engaged in our own quite intensive evaluation drilling of the next target areas before we commit to waste stripping so that we can improve the confidence level of those target mining areas before we start expending money. By the

Operator

end of this month, so by

Speaker 1

the end of May, we will have completed that evaluation drilling, which will give us a runway out to the end of September. And then over the course of June July onwards, we'll then do further drilling to extend that mine life horizon for a longer period of time. So at this stage, whilst we have withdrawn guidance for the Bilbo's oxide project, at this stage, we believe it will broadly wash its face, might make a small operating contribution. At the same time, we're also now beginning to evaluate the ability to identify oxide resources at the Mataka property, which is immediately adjacent right next door to build those, which we could use to extend the life of that mining of that oxide mining operation. What I'd like Victor specifically to address is a question that we received by e mail in the last day or so, which is to specifically address the issue as to how can people be confident that the difficulties we found on the oxide resource don't read across to the sulfide resource.

Speaker 1

Victor, could you just comment on that, please?

Speaker 3

Thank you, Mark. The company is very confident on the sulfide mineral resource estimates. The mineral resource estimates were estimated following extensive drilling amounting to just over 93,000 meters over 4 distinct phases. The drilling for sulfide resource is considered to be all new drilling, And the initial drilling was, commenced in 1994 and managed by Anglo American. So that was 17,000 meters of drilling out of the 93,000.

Speaker 3

So the balance of that is drilling, which actually started from 2010. So we are fairly confident about that drilling because that drilling was actually done in compliance with some guidelines. The rock chips and cores from the last three phases of sulphide resource drilling is being kept at the mine courtyard for reference. The mineral resource estimates were compiled in compliance with the revision with the definitions and guidelines for the reporting of exploration information, mineral resources and mineral reserves in Canada. That is the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines 2014.

Speaker 3

These mineral resource estimates also adhere to the rules and policies of the National Instrument 403101 Standards of Disclosure for mineral projects, Form 403101F1 and company on policy 43101 CP. The results classification follows the Canadian Institute of Mining and Metallurgy and Petroleum's definition for classification of inferred indicated and measured mineral resources. Classification of the estimated resources use the checklist approach where various criteria were assessed to determine the confidence and continuing of geology and grades. The checklist included the following: data quality and integrity data spacing for confidence in geological interpretation and grade interpolation, confidence in the geological interpretation from a regional and local perspective and how that interpretation influences the controls for sulfide mineralization, Then geostatistical confidence in grade continuity and geostatistical parameters such as kriging, variance kriging efficiency and search distances to measure the relative confidence in the block estimates. Those estimates were checked by an independent CP and deemed compliant and accurate for the purpose of the feasibility study.

Speaker 3

We are confident that our due diligence on the Diogo Sulfide project was done properly, and we stand by our decision on the Auguste sulfide project.

Speaker 1

Good. Thank you for that. So I think the critical point is that the work that had been done on the disappointing oxide project was work that had been done many, many years previously, not by the existing vendor not by the Bilbo's vendors. It was all the information that had been inherited. But again, I just want to put this oxide thing into context.

Speaker 1

Again, we can come back to that with any further questions if anybody wants to raise them later on. Can I ask sorry,

Operator

Victor, can you ask? I suppose, Mark.

Speaker 1

Yes.

Speaker 3

I suppose. What I can also just add is that when Caledonia purchasing Beoboz, the transaction was entirely based on the sulfide project. The oxide were not part of that valuation. It was like a bonus in terms of the stripping because you were always going to come up with the oxide as you strip and you treat them with the existing on the existing heap.

Speaker 1

Yes, it's fair to say that our economic evaluation of Bilbo's was based purely on the sulfides and nothing on the oxides at all. So the oxides, as Victor says, was a cheeky freebie, which is good for us, but less good for Victor as a vendor. Okay. We can come back to Bill Bose again if anybody's got any further questions. But can I ask Chester to just canter through the financials, if you could please, Chester?

Speaker 4

Sure. Thanks, Mark. We've put the rock and wall side in our existing back ship operations at Blanket. And when we started up oxide project of Bulbose. It was positive to see that in the challenging quarter while introducing the new oxide startup operation Blanket mine remained possible cash and the 4th hour business remained robust with all these uncontrollable challenges we encountered at Blanket.

Speaker 4

Further, I was delighted to see productions Blanket in April May, African Blanket's daily production running rate to achieve production of between 77,000 and 90,000 ounces van. Current production rate profitability is also expected to improve in 2023. Oxide production came late on the past early quarter and the share by Victor some will be shared by Victor's plan to be cash, neutral and cover costs and further increase our group profitability levels when we achieve this. Blanket mine, as you can see at the bottom, contributes $500 of accounting profits in Q1 and when non cash items and working capital fluctuations are ignored, generated approximately $8,000,000 to our business. And this shows a blanket

Speaker 1

Chester, can I just interject that? So the critical thing here is that revenue is down from $35,000,000 to $29,000,000 because of lower production, but production costs up from €13,700,000 to €16,100,000 Can between you and Dana, could you just explain the reason why that's gone up? Primarily, it is electricity. Could you just talk about that a bit?

Speaker 4

Sure. Dan, do you want to start or should I? Okay. Looking at the production numbers, it follows next. Electricity cost that the plan could increase.

Speaker 4

That's part of due to additional usage and the rate increases experienced in the quarter. We've, subsequent to the quarter, engaged in contracted buying new GE, that's a consortium that enforced power to Zimbabwe and that gives us a lower rate and we expect to get a benefit of approximately $450,000 per quarter. That's not included in these numbers. You'll see that coming forward. We're also encouraging further initiatives by our operators to look at our kilowatt hours usage as we move more towards the central shaft being paying our production noise waste, at least towards using the ore sharp and jetco use our kilowatt hour usage.

Speaker 4

What is not element now at the PercicFAST, on an online fast basis, it's about $434,000 that we saved by starting up the solar project and we're quite happy to see that that's operating slightly better than what we expected. Further, I don't know, Dan, if you want to expand to on the electricity side.

Speaker 2

Yes. I think it's important to note as well that when we did the budget with what happened in the Ukraine, dollar inflation, as we know inflation worldwide went up. So our labor costs went up as well where before we could get away with sort of a very stable working cost as far as labor is concerned. So we gave our people a 4.5% increase. And then added to that, in the upper section or one section, we had some slowing where we had a parting in some of the spurts that we tried to undercut and it just kept on coming down.

Speaker 2

And those big rocks blocked our draw points. And we went through a period where we had to do a lot of secondary blasting, which also cost us as far as explosives is concerned. So that also contributed to the higher cost. And then Maybe back

Speaker 4

to labor, Donna. You can see higher job creation levels if you compare it to the prior quarter. That's due to ramp up of the ounces. It's not evident in the quarter 1, 2022. We've added some to our Air Force and that helps us to increase and maintain up to the 80,000 ounce level.

Speaker 4

Great. If we can move on to the next slide, you can see the production costs, The rate and the salary went up as Peter said. It's also encouraging to see that we are paying our labor force a fair wage. That's you could see how we're paying them 100% in U. S.

Speaker 4

Dollars Further electricity, we've spoken about. We are planning to reduce that electricity cost with better rates of paying from the initiatives implemented with ING and we have seen that realized in April. And the Bulgas Oxide cost, we are looking at turning those operations around and becoming cash neutral. We move to the next slide.

Speaker 1

Chester, before we move on, there was a question. This isn't purely this isn't really about financials, but as you mentioned, the iUG. The iUG is the Intensive Energy User Group, which is an initiative that's been set up under the auspices of the President. And the aim of the iEUG is to allow large scale users such as Blanket to import power directly from outside the country, so usually Zambia or Mozambique, and then wheel that power through the Zimbabwe grid to us. We started using that in April, 1st April.

Speaker 1

We are seeing a reduction in tariffs. At this stage, I don't know if we're seeing any benefit in terms of a reduction in load shedding. Donner, can you have you got a view as to whether we're incurring less load shedding so far?

Speaker 2

Yes. We should actually start seeing it from next month more.

Speaker 1

But the question was specifically, yes, it doesn't even if you're getting juice coming in from Zambia or Mozambique, you're still at risk with a Zimbabwe grid. Yes, we are, and we can't fix the Zimbabwe grid. It is fair to say that the approach that's involving authorities is generally to prefer industrial users to domestic users, unlike in South Africa. But Dana, could you just comment on the new line, the M2BASE line that we've built? Does that work?

Speaker 2

Yes. We with Zesa, we upgraded the extra line of Kansy, which give us an extra 6 MVA. And that line, we are busy connecting directly to our winders at Central Shaft. And then apart from that, we've got the solar farm and then we've got 16 MVA of generator capacity. So we again, we've got a lot more flexibility and to deal with the load sharing.

Speaker 2

But if I look back at a question that was asked, Mark, there's nothing in the contract that says that Zesa are allowed to interrupt or take the power that we import. So there's nothing like that.

Speaker 1

Yes. But I think the question was more generally, if the grid collapses, the grid collapses, there's nothing we can do about it. So whilst just let's just deal with this electricity situation whilst we're talking about it. Victor, could you just give a comment as to where Bilbo's is in terms of the grid and how Bilbo's is situated in terms of this grid supply?

Speaker 3

Okay. Vilmos is more towards the north. At the moment, in terms of the sulfide project, we've budgeted to build a new line, a direct line, coming from a substation. I think that line will be about 75 kilometers or so. However, in the last 2 years or so, the Zimbabwe Electricity Transmission and Distribution Company has been building a line which is coming direct from Mwange Power Station.

Speaker 3

As you know, at Mwange Power Station, they've constructed 2 generators, which will generate about 600 megawatts. So that line passes very close to the build operations. So we've got a chance, an alternative to actually connect from a much closer line, plus also electricity supply, which is closer to Wange is much more reliable maybe than compared to the south of the country.

Speaker 1

Yes. So I think the upshot is that Blank is not geographically not a great place for the grid. Bilbo is much better positioned for the grid than Blank is. So we got a bit of a departure on electricity, but I just thought whilst we're talking about electricity, we should deal with it. Sorry to interrupt you, Chastain.

Speaker 1

Do you want to continue?

Speaker 4

Sure. If you could turn the page, please. Administrative expenses increased due to a once a passcode, approximately 3,100,000 paid to advisers on acquiring Bulba's sulfides project. Bulbor sulfide project is well worth the spendings and it's also important to note that it's a once off cost. And Bulbor is expected to be highly profitable and much bigger than Blanket.

Speaker 4

Other than advisory fees, we had small increases in our uptick in travel post COVID-nineteen lockdowns and other than that, it's very comparable to the previous quarter. And move on to cost to us. Here you can see a large portion of our cost was due to the oxide startup and that affected our online costs. We plan to turn the oxide cash into. Energy savings, as mentioned, through the IUG is expected to reduce our energy costs and higher production levels in future quarters that we have seen realized both quarters and expected to lower the online costs for the remainder of 2023.

Speaker 4

The online production costs balance is anchored and the crux of our business is set at $7.70 per ounce to $8.15 per ounce and ranks amongst the low end of the spectrum when compared to the high industry peers. We move on to tax. Effective tax rate was high in the quarter due to the oxide operating costs and acquisition fees, 13, about $6,400,000 being all being non deductible. These costs are in place dispensed for that purpose. And the future benefit of these asset losses are not affected in the numbers.

Speaker 4

In future, we'll be able to reap the benefit of the asset losses in our oxide project as it has been profitable. Moving to cash flows. Bankhead, as I said, contributed approximately $8,000,000 to the cash flows before working capital swings. And this proves blanket remains strong and expected to improve throughout this year. This has reduced the once of advisory fees and the completion of the Volvo sulphide project and an active cash flows of the oxide startup operation.

Speaker 4

We have issued solar bonds at a value of SEK 7,000,000, 1.5 percent of that was issued before quarter on one hand and raised SEK 16,000,000 equity raises, of which SEK 5,000,000 was not reflected in these numbers. The bullion receivable outstanding at quarter end of SEK 6,700,000 as we see post quarter end. And together, these mentioned cash flows represent approximately CHF 40,000,000 that arrived in our bank account post quarter end. Further normalization of our volume receivable due to our new sales mechanism should improve our deliveries and our cash flows and make our deliveries less lumpy along with the cash flows as follows though. Moving on to the balance sheet, non current assets included approximately $70,000,000 due to the acquisition of the Sol Price project.

Speaker 4

Current assets increased due to the increased cash availability in the group and current liabilities include approximately $4,000,000 of liabilities not settled in cash. It was settled by the issuance of shares post rent and deferred consideration for all borrowers and $4,500,000 of liabilities was acquired in the Bulworths deal. Also excited to share, there goes my bow, apology, but we expect to make huge dent in our overdraft facilities by the end of 2023 when we pay off a large portion of our overdrafts. This is at the current production guidance levels, our current gold price. We can move over to cash.

Speaker 4

On the slide, I think in our net cash position as evidence as we've improved our production blanket. You can see the trend is continuing in my giving an indication of the reduction plan as turning back this target. Further, we expected we are expected to reduce our borrowings by year end. And our transfers of cash from Zimbabwe continued normally. This enabled us to maintain dividend of $0.40 per share per quarter and very few related expenses outside of Zimbabwe.

Speaker 1

Yes. Chester, just pause. So one of the things that's changed in the course of the last year or so is the availability in Zimbabwe of dollar denominated debt. So on the basis that it's available, we choose to take it. And the guiding principle behind it is we don't like to leave dollars sitting in Zimbabwe.

Speaker 1

And if we can borrow in dollars in Zimbabwe, we will do. But as Chester said, over the course of the year, we do make provision to repay about $10,000,000 of these overdrafts. But if they continue to be available, we'll keep them in situ and use the cash elsewhere in the business. It's just worth noting that. So I just want to be absolutely clear, we are not accumulating a pile of local Zimbabwe dollars for which we have no use of which we can't remit.

Speaker 4

I think that very much wraps up the finance segment. Should we move over to other matters? Yes,

Speaker 1

just a few other matters. Just on the build on the sulfides, we started working earnest on that in April. Initially, we're doing a series of high level studies, 3 high level studies, which our the overall objective is to achieve a production rate of 170,000 ounces a year. There are various ways to do that. And so we're looking at 3 approaches.

Speaker 1

The first, I'd call like a hop, skip and a jump. The second would be a hop and a skip and the third one would just be a jump straight to 170,000 ounces a year. And so what we're doing is we're balancing the slower growth with a more achievable funding profile. So it will be slower growth, but by minimizing dilution, I think, then the overall objective is to identify the outcome that maximizes the uplift in NPV per share. So my expectation would be that the big, the single jump project will probably give the best return, but that may be difficult in terms of funding.

Speaker 1

So maybe we have to do a 2 stage process. But at this stage, we're looking at all realistic options, and then we'll identify the one that works best. And the idea, I think, at this stage is that we should hopefully have got the bankable feasibility study completed within the Q1 of next year. So that's very much ongoing. As Chester mentioned, we have started the direct export of gold.

Speaker 1

In 2022, the regulations changed such that as a policy announcement, which allowed people like us to export gold ourselves, but the policy announcement, it took a long time, about 6 months, to convert that into practical steps that were acceptable to the Zimbabwean authorities. And we were very pleased in early April that we were able to make our first deliveries of gold to a refiner outside Zimbabwe. So we export to a refiner in Dubai. So the most recent export was done on Sunday, and we received payments on Monday in U. S.

Speaker 1

Dollars directly into our Zimbabwe bank accounts. That considerably improves our ability of cash. It takes the lumpiness out of our cash flows. And whilst we've never really had significant difficulty getting paid by Fidelity, it does address a sort of long standing shareholder concern about the credit risk. So that's good.

Speaker 1

We raised equity in March early April. It's fair to say, we raised about $16,000,000 We were surprised at the strength and depth of demand in Zimbabwe, and we're very pleased. We'd always intended that the Vic Force listing was really only there to we only secured it to take advantage of various concessions. But actually, it is a real living source of equity on a competitive basis. So that's an issue of it comes as quite a pleasant surprise to us.

Speaker 1

Then also, as Chester mentioned, we're issuing loan notes from the solar vehicle. We did $4,500,000 in the quarter and then about $2,500,000 we did get for the quarter. And that is purely to sort of this housekeeping to make the capital structure of the solar vehicle more in accordance with what it should be for a company of that nature, which has got a high degree of predictable very predictable cash flows. So those are the other matters. Then in terms of outlook, we as I've already said, we reiterate our production guidance for 2023 of 75,000 to 80,000 ounces.

Speaker 1

We reiterate Blanket's online guidance of between $7.70 and $8.50 an ounce. We've withdrawn guidance both in terms of production and costs for Bilbo's because of the uncertainty. So and clearly, Bilbo's in due course, Bilbo's will have an effect on all in sustaining costs. But pretending that Bilbo didn't exist, we're looking at an all in sustaining cost for Blanket of between $9.35 $10.35 an ounce. As I mentioned, we expect the final feasibility study for Bilbo's to be completed in the Q1 of 2024, And we've got board approval now to commence the 1st phase of an initial drilling campaign at Matapa, initially focused on looking for oxides to supplement the what we're doing at Bilbo's, but with a clear trajectory to then move into the sulfides with a view to identifying a substantial sulfide resource, which will complement what we have at Bilbo's.

Speaker 1

So I think that brings the formal part of the presentation to an end. Can we open this to questions, please?

Operator

I am just going to allow to talk here.

Speaker 1

I can see one from Damian. Yes.

Speaker 2

Okay. Can you

Operator

hear me? Yes.

Speaker 5

Cool. Thank you. Thank you for the presentation. Yes, I thought that's very comprehensive, a very good rundown. I suppose a couple of questions.

Speaker 5

I mean, profits, I mean, obviously revenues and profits seem to have encountered pretty much every possible headwind you can imagine in this Q1. Now I can make a judgment on which ones which one of the headwinds are kind of one off, which are ongoing, but I was wondering what your perspective was on which headwinds are going to kind of continue throughout the year?

Speaker 1

Production, I think we've got our hands around production. Electricity, the effect of higher than expected electricity consumption will continue for some time until we can rationalize the use of the of all the infrastructure that we're using. So by that, I mean until we can actually start closing down the things like the number 4 shaft. But we are now beginning to see benefits in terms of a lower tariff. And the cash drain that we've now we're really thinking cash terms.

Speaker 1

The cash drain that we've experienced at the Bilbo's should be stemmed sort of June, July this year, so we can deal with that.

Speaker 5

Okay. And the second question was, you guided the online cost at Blanket to be between SEK 770 and SEK 850 for this year, which is obviously above the $7.35 cost for full year 'twenty two. So this kind of suggests the remaining quarters are going to return to a prior cost level or better given how much higher Q1 was?

Speaker 1

Yes, quite right. It

Speaker 3

does

Speaker 1

definitely get a large proportion of the costs at Blanket are fixed. And so just by increasing production, there's a sort of a virtual circle. More production means that your the marginal cost per ounce is quite low. So that does bring things down. You're quite right, we are expecting to see, I think, an improvement.

Speaker 1

But having said that, we have seen, as Diana was saying, we have seen inflationary pressure both on wages and salaries and input costs like cyanide and explosives and what have you.

Speaker 5

Okay. Thank

Speaker 1

you. Even that guidance range that we've reiterated is higher than what we incurred in 2022 and there's good reasons for that.

Speaker 5

Okay. And actually, the third question that's occurred to me is that, obviously, with Blanket, you're guiding production of 75,000 to 80,000 ounces this year. So obviously, 80,000 ounces was something that's achieved in a central shaft. Is there any scope for going higher than that from Blanket in terms of there's drilling exploration going on there? Or is all of your efforts being focused on the other sites?

Speaker 1

No, I don't want you to talk about that. Right.

Speaker 2

If I we lost Mark. We must remember that Banquette was in a build up phase for the last 6 years. And we achieved our target of 80,000 ounces. And normally, when you're in the buildup phase, you develop like hell and open up resources as quick as possible. You want to create flexibility.

Speaker 2

And that's what we need to focus on now. We want to create flexibility, do a lot of development and be in a much better position to deal with those shift moments like when starts go unpaid and so on. So ideally, you want to have at least 2 years of reserves ahead of you, create that flexibility and carry on. At the moment, I don't foresee that we're going to increase on the 80,000 ounces, especially for that. If we want to start doing more, there's still a lot of areas that the upside potential for exploration at Blanket.

Speaker 2

If we start looking at that and it looks promising and we want to look at maybe increase, we'll have to then expand the pond because the pond is running at full capacity. So once you start looking at that, then it's a whole new business case on its own. We're simply running at full capacity and that's it.

Speaker 5

Okay, right. So I guess the capacity that you've got with the central shaft and this kind of thing cannot be utilized at the moment?

Speaker 1

Yes. So the center shaft are surplus capacity. What Dana is saying is, if we wanted to take production materially above 80, we'd have to start expanding things like the CIL tanks, the mills and that sort of stuff, which can be done, but there's still a cost attaching to it. And also, we're still I think we're still playing catch up with the cost associated with increasing the headcount at the mine because, don't forget, we accommodate all those people on our village, which is now quite full. And so it comes down to basic stuff like if we increase production, we need more people, we need more houses, we need to process more sewage, we need water, all these costs will add up, okay?

Speaker 5

Sure. So really, I guess, yes, I mean, Buoy Blanket is kind of at a steady state hopefully. And it's the other sites that will provide the upside.

Speaker 1

Yes. I think for material purposes, that's correct, yes.

Speaker 5

Great. Thank you. That's all my questions.

Speaker 1

Okay. I don't see any more questions from anybody else.

Operator

No. Andy has got a question. I've got a question concerning buildables. The target mining rate is, what, around 20,000 ounces 20,000 tons per month. And what's the head grade?

Operator

Well, the oxides? Yes, that's oxides.

Speaker 1

We're not giving guidance on the oxides.

Operator

You don't have you mentioned that you want to be cash flow neutral, right?

Speaker 1

Yes. But that's as far as we're going. But that's as far as we're going. We're not giving guidance on the oxides. We've made that very clear.

Speaker 1

And so if I start giving having told the market I'm not giving guidance on oxides and then I start giving guidance on the oxides, I can't do that. So clearly, we have our own internal expectations, but we will manage ourselves as far as possible to be cash neutral. And that comes down to balancing the costs of the business with the obviously, with the revenues. We can't go further than that,

Operator

I'm afraid. Okay. Well, the costs for April were $1,600,000 Is that sort of the typical cost that you expect at Bilbo's?

Speaker 1

Really, we're not giving any further guidance. We've already said this. We've been very clear. Sorry to be helpful, but I mean, we have withdrawn guidance in terms of costs and production from Bilbo's Oxides. I can't go further than that.

Speaker 1

Okay. Thank you. Any further questions?

Operator

Yes. There's one here from Alan Grant.

Speaker 6

Okay. Thank you very much for your presentation and for answering 3 of my questions as you presented. I do have a question about the Metapah. And you obviously bought that resource with a view to developing alongside build outs. Is there any early view based on historical drilling about the how the sulfide resources might be developed there?

Speaker 6

Or are you is it still too early stage to get any idea?

Speaker 1

It is very early stage. Victor, do you want to comment on that?

Speaker 3

Thank you, Mark. Like before, Anglo American worked on this property and they did a little bit of drilling. But those results are just too old. And in terms of relying on them for guidance, I think it would be wrong to give any impression. What we do know is that there are sulfides because there was some drilling which took place there.

Speaker 3

So our idea is that this is an exploration property, which is what we reported when we bought the property. It's an exploration property. We want to do exploration on it. We believe in the long term, when you combine it with Bilbao, you can have a much longer life of mine. And also, you can actually increase your production so that in terms of your the quantity of production, you'll be much higher than what we are anticipating from Bilbo's.

Speaker 1

Yes. So at this stage, it's just too early to say whether we would I mean, the Bilbo's project has got various mining areas, some close by and some further away. In due course, if we find more material quickly at Metapra, it may be that we, in due course, rephase the accessing of the more remote mining areas at Bilbo's, particularly Bubi and displace replace those with things from the top of it. It's just far too early to be it's far too early to go down that route. So as Victor says, it could either be a completely it could allow us to increase production above 170,000 and or allow us to extend the life of production beyond the initial 10 years.

Speaker 1

It could be both. But frankly, we just need to go drilling before we can start talking about that properly.

Speaker 6

Okay. Thank you for that answer. One question I had sent in by e mail was the a couple of years ago, there have been talk about extending ownership of line 2.

Operator

I know. Yes. I've talked about that. Yes.

Speaker 1

That is so the idea, as you know, we used our 49%. We increased it to 64% when we bought the 15% of Bilbo that was held by Froniero. We're committed to keeping the workers in there for 10% and the community in there for 10%, but there is a stake of 16% that's held used to be held by something called the National Indigenization and Economic Empowerment Fund, which is a sort of a government entity. That fund under the new government well, not new government, under the when government changed from Mugabe to Managawa, that whole indigenization thing disappeared. And so the ownership of Blanket has been sort of moved from pillar to post within the government structures.

Speaker 1

And for some time, we found it very difficult to actually find who to engage with at government to have the sorts of discussions that you're outlining. What's happened now is that the there appears to be in set up, something called the Sovereign Wealth Fund, and this is one of the assets in the Sovereign Wealth Fund. But I think we've got to be clear that any decision to so we've got clarity as to where this asset sits now. But I think we've got to understand that any decision as to what happens with the Sovereign Wealth Fund's interest in Blanket Mine will largely be political, and we are within a few months of an election. And so you're just not going to get that sort of political direction that we need.

Speaker 1

So for the time being, it's not something I can see happening, but it is something that we do hope to do because it would give the Sovereign Wealth Fund a much broader interest across the group rather than just focusing on Blanket. It would give them a much better perspective across the whole group and give them, as a shareholder in Caledonia, it would give them gold congruence with all Caledonia shareholders, not just as a shareholder of Blanket. So it's on the table, but it's not going to move very far, very quickly, I'm afraid.

Speaker 3

Okay. Thank you for that. Mark, just to add to that, in terms of where that asset sits at the moment, it sits in the Ministry of Industry and Trade, right? So in terms of the reorganization, whether it ends up at the Sovereign Wealth Fund, we expect it to end up at the Sovereign Wealth Fund. But at the moment, it sits in the Ministry of Industry.

Speaker 6

Okay. Thank

Speaker 1

you. Okay. Should we pause for any further questions? Can you say anything, Pavel? No.

Speaker 2

I

Operator

don't think there are any more questions.

Speaker 1

Okay. Well, with that, I thank you all for joining. We'll have another call at the end of our Q2 results, which we'll put out in the middle of August. And hopefully, it will be rather more cheerful than the Q1. So thank you very much for your attendance.

Speaker 5

Thanks, Mark. Thanks, everyone.

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Earnings Conference Call
Caledonia Mining Q1 2023
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