Caledonia Mining Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 3, 2024

There are 5 speakers on the call.

Operator

Good afternoon, everybody, and welcome to our 2023 results call for shareholders. On the call from Caledonia, you have Mark Gleyarmoth, our CEO Chester Goodwin, our CFO and then myself, Kaman Horsfall, I'm the Vice President of Group Communications. We're going to run through the presentation as always, and we will leave time for questions at the end. What we do ask though is if you do have a question, if you could just raise your hand and we will unmute you. We find that's a better format than the written Q and A.

Operator

Okay. I'm now just going to pass you over to Mark and Chester who can run through the presentation.

Speaker 1

Thank you. Thanks very much, Camilla. Mark Leomont, Caledonia's CEO. And I was going to get a few opening observations and comments before I hand over to Chester. So I'd say, 2023 was a challenging year.

Speaker 1

Most of the difficulty was encountered in the first half of the year with a difficult situation at Blanket mine and also the Bilbo's oxide problem. Both of those are resolved, and Q3 was a good quarter. Q4 started off reasonably well. It was sort of side swine towards the end of the quarter by a couple of unexpected things. But pretty much, the bad news relating to 2023 was dealt within the first half.

Speaker 1

Having said that, let's just run through this. So annual gold production at Blanket was just over 75,000 ounces, which was in line with guidance. Gross profit for the year was $41,500,000 compared to nearly $62,000,000 in the previous year. And that decrease was largely due to higher production costs, in particular, at the Bilbois Oxide Mine in the early part of the year. It should also be noted that 2023 performance, particularly the Q4 performance, was adversely affected by higher work in progress.

Speaker 1

That was gold in a bar that hadn't been sold at the end of the year, just over 3,000 ounces. So that represents about $6,000,000 of revenue and about $3,000,000 of gross profit, and that was sold in the 1st week of January. So that was just purely a timing issue. In terms of operating costs, we had expected higher labor and power costs, but they were somewhat higher than we'd even expected. We are looking at measures to reduce our electricity consumption and to reduce our labor and to improve our labor efficiency.

Speaker 1

And that certainly on the labor side, that's gone reasonably well since December 2023. On the electricity side, the issue is purely one of higher than expected usage. It's got nothing to do with pricing. And in fact, actually, our average unit pricing for electricity has come down. On the good side, we've the drilling program at Blanket has yielded very positive results.

Speaker 1

We put out 2 news releases, 1 in July, I think, and then the other one in January. Buried deep in the financial statements, you'll find a reference to the fact that the on the back of that drilling, the life of mine of Blanket has been extended from 2,034 out to 2,041, and that will be that statement will be followed up in due course with a revised resource and reserve table. We maintained our quarterly dividend payable in April this year, which reflects the good start to 2024 and our confidence that the remainder of 2024 will be strong. We've received some preliminary feedback from the various consultants who are working on the build base feasibility study. Management and the board are evaluating those results so that we can make a capital allocation decision, And we're pressing now quite, very hard to get that work to a state of finality where it's capable of being published.

Speaker 1

And as previously announced, Donna Roets, the Chief Operating Officer, stepped down with effect from the end of February, and we're now very, very close to announcing the appointment of his replacement. So just in terms of summary, I've already mentioned production. So you can see here for the quarter, 21 just under 21,000 ounces compared to just over 21,000 ounces in Q4 2022. We benefited from a higher gold price, which fell through into higher revenues. Gross profits for the quarter were within touching distance of what they were in Q4 2022.

Speaker 1

But as you can see, for the full year, €41,500,000 compared to €61,800,000 And unfortunately, there's a lot of damage below the gross profit line, which meant that the attributable profit to shareholders was a loss in the quarter the year. Chester will give you more information on that. So that's just some sort of headline numbers. Can we could we move on? So just to give you a longer term view of what's been happening at Blanket, these graphs go back to 2012.

Speaker 1

The top graph that I show is grade and then tonnes. You can see that the tonnes tonnes have increased pretty much steadily from 2012 to 2023. But you will notice in the 1st 2 quarters of 2023, tonnes mined and milled did show a fairly sharp contraction for reasons we previously discussed. But pleasing to see that, that recovered quite well in Q3 and Q4 of 2023. Grade has, in general, declined, But one of the things I think we're optimistic about as we do more exploration is that the grade will stabilize and may somewhat slightly improve.

Speaker 1

Should we move on? Okay. It's pretty best if I hand over now to Chester to run through the more detailed analysis of the financial results. Chester?

Speaker 2

Thank you, Mark. Yes, good to see the revenue going up from the quarter, this comparable quarter and that's due to increased sales for sold as well as the higher realized oil prices we see. Smartsnet numbers that's picked out now with the bold work in progress that was sold only in January, and that's mostly just because of the cash position. Broiled beans is very much flat at 0.5%. The tax in January for several years have been fairly unchanged and consistent.

Speaker 2

Production process has been up for the quarter versus the comparable quarter and predominantly due to the higher electricity usage from when we added the central shop and we think we can really start wasting some damages a little bit. As we go forward with our life of mine plan, we aim to move our production, centralize our production to below 7.50 meters. We're currently moving on mine above and below. And that synchronization below 7.50 would allow us to shut some shafts down, shafts down likely much faster for 4 shafts and 6.1, but should reduce our kilowatt hours going forward. Now the sequencing of that and exactly how many kilowatt hours we will save, but decisions for under the process and making up our evaluating our various options on that.

Speaker 2

Over time, it's been high in October November. Our initiatives have paid dividends in December and long standing forward, so you won't see an increase in the overtime that's been sold. And we've incurred some unforeseen maintenance start late in December of approximately $1,100,000 and we don't expect to incur that going forward. The depreciation number has gone up and that's where you can see the short and useful lack of some of the shafts that we estimate. And going forward with this significant increase in the life of mine to 20 41, we will probably see that depreciation number now coming down, but doesn't include that shortened life of the shops going forward.

Speaker 2

Under the gross profit line, we've seen a lot of once off price that we don't expect to incur going forward. That is related to, well, let's say, $1,700,000 of assets relate to the settlement payable to the former CRO. We had $1,500,000 of non cash impairment on that receivables and the box size line you typically look at. For the year, we spent $4,100,000 on acquisition fees of Borbacs and that's quite a few amounts in this quarter. Our last significant items would be $2,500,000 of foreign exchange losses that are in that other cost.

Speaker 2

So overall, we shouldn't see the overtime cost reduction. We don't expect the unforeseen maintenance, that's why I don't assume and we should not see that going forward. Our production is looking good for Q3 and Q4 and I've scheduled to see Q1 and we're going to see these launch of parts that I just mentioned. So I'm looking forward to sharing the results with you in Q1. All in all, you can also see the Blanket mine numbers, mainly robust in a very tough year for us.

Speaker 2

And Blanket mine, which is underlying business cash generator, that has remained strong. Our tax expense at Blank Mine, approximately effective tax rate of approximately 37% to 42%. And while we have such a high tax rate, effective tax rate for the group, because there's a lot of non deductible expenditures within the group like the Borbours oxide losses. These Borbours oxide losses, they were $2,300,000 for the quarter. We expect that to come down to approximately $200,000 per month and you should see that additional costs of $13,100,000 in Q4.

Speaker 2

When we look at the detailed cost breakdown, operating cost breakdown, our wages and salaries has come down quarter on quarter and that seems to have reduced production volumes. Conceivable is very much stable in check. And that's throughout the financial environment that we've seen globally, our procurement department has really done well to keep our pricing to check the demand and increase in consumables. Electricity, we've seen the solar plant producing some of the high usage that we experienced on our utility use. And solar plant has been very much been producing up there than what we expected initially.

Speaker 2

We're looking at some solutions to reduce our HST gold vein for oil. Over the oxide, that's been placed on fair maintenance from October 2023 and I said that reduced to approximately $200,000 per month. As an extension, that's still up during 12 months and that's also due to a few ones off costs. You mentioned the 3.1 $1,000,000 we spent to our own advisors to obtain for those and our salaries and wages costs also include that $1,700,000 settlement payable to our COO. Additional wages and salaries that we've incurred was mostly on our MY and E team, and that's to do some of our feasibility studies and also evaluate our oil weight.

Speaker 2

And we've seen some we've seen our bank improvements by the increase of last mile. Taking out the 2.1% to 1.7% of settlement, you will see that general admin cost is very much stayed in line with inflation from 2022. Cross down, you can see the effect of forward in yellow. We've got some power increases, we'll explain that. We don't foresee that the oxide costs can appear again and our labor might reduce the year to use going forward with the overtime initiatives that is payable.

Speaker 2

Looking at the long standing costs, standing CapEx shoots up and that's mostly due to a different allocation. Now that we've reached steady state, most of our CapEx is from a non standing both to a standing capital classification that has pushed up our own sustaining costs. In all, our CapEx pretty much remains the same in total. That's just how we allocate it. That's finishing, I've got mentioned, but we put a higher effective tax rate.

Speaker 2

That's just due to some of our losses being reinvested in things and with our taxable income improving going forward with losses like the Bulgars off-site project not being reentered going forward, we should see that number improving. Slight increase was made in an active tax rate, 25.75 from 1 January 3, Q4. On balance sheet, our non current assets have increased as due to the acquisition of Orbos and our solar farms at Sustaina Alliance. If we look at our non current liabilities, that has increased due to our overall facilities that have increased, jointly due to higher working capital in these blanket with blanket growing to 85,000 to 80,000 ounces to do so. That's very much to fund some swings around about on our working capital and we've also issued some bonds locally in Zimbabwe to improve the local financial markets and in Northern Ireland.

Speaker 2

Cash, currently we're sitting with a negative net cash balance of $11,000,000 and a negative 30 from 8 in countries in Zimbabwe and our cash balances, deposit cash balance balances remained outside of Zimbabwe. Now going forward, we should be all our production, which you can see in our Indian vein as well for Q1. There's all good iron gold prices. We should see that number improving as 2023-four progresses.

Speaker 1

Thank you, Jester. I just want to just leave you with this slide, which focuses on Blanket's quarterly performance in 20222023. And I just want to make it very clear that the difficulties that we faced in the 1st 2 quarters of 2023, quarter 1 and quarter 2, where you can see production dipped from about 21,000 ounces in the second half of twenty twenty two to 16,000 and 17,000 ounces in quarter 1 and quarter 2, respectively, which then flows through into a fairly sharp fall in gross profit from anything like $20,000,000 a quarter down to $12,000,000 $17,000,000 I just wanted to just make it clear that in terms of the underlying profitability and cash generation, Blanket has improved in Q3. Q4, dollars 17,000,000 of gross profit. That's pretty much accounted for by the 3,000 ounces of gold work in progress that was realized in January.

Speaker 1

So the core of the business is blanket. It had a bit of a difficult time in the first half of twenty twenty three, but we're now increasingly comfortable that it's now through that. Should we move on? Next slide. Okay.

Speaker 1

So look, in terms of outlook, we've taken steps to address the higher than expected costs experienced in the second half of twenty twenty three, although it's fair to say that signing a full resolution to the elevated electricity usage may take us a little bit longer. Our expectation is to maintain production at Blanket mine in the range of 74,000 to 78,000 ounces. That's somewhat lower than we've indicated previously because we've taken a decision to scale back production in areas which are relatively low grade and relatively low volume and quite remote from the main infrastructure. So all three of those together means that those areas, which might only be moving 7,500 tonnes a day, are relatively high cost. We're very comfortable operating some areas of the mine, which are low grade because they're very high volume and therefore, very efficient.

Speaker 1

So we're trying to focus the mine on producing cash generative ounces and not just chasing ounces at any cost. We're in the short strokes of preparing a revised resource statement, which reflects the encouraging drilling results we reported in 2023 and early 2024. The board and management are now beginning to consider some of the initial feedback from the work that's been done on the feasibility study with a view to identifying the most appropriate implementation strategy. Currently, we're doing some low level exploration of Blanket, where we hope that, that will start to improve. I think it's fair to say that the start to 2024 at Blanket has been very encouraging and creates a solid foundation for us to become as we've said we want to become, which is a Zimbabwe focused multi asset gold producer.

Speaker 1

So I think that's the end of the formal part of the presentation. Maybe I can hand this over for who may talk to questions. So as Camilla said, if you raise your hand, we'll unmute you will find it easier to deal with verbal questions rather than written questions. Well, having said that, whilst people get their minds working, I do have I did receive a very detailed e mail with some questions. The first question related to the reasons for Donner's leaving the company.

Speaker 1

We ended into a termination agreement with Donner, which is subject to an NDA. But I think it's fair to say that Dana made an enormous contribution to the business over the last 10 years, in particular, completing the Central Shasta. Central Shasta is now complete. The tailings facility is complete, and we have yet to start work on the new business of the Bilbo's project. And therefore, in the context of that and some other matters, it was the appropriate time for both sides to part company.

Speaker 1

The recruitment process for his replacement is very well advanced. I mean, by very well advanced, I expect to be able to provide some updates within the next week or so. And we've had no difficulty attracting talent. We've been very favorably surprised actually by the strength and depth of the pool of candidates who've been very excited about pursuing the opportunity that's reflected by Caledonia. And there's a lot of detailed questions about the solar plant at Blanket.

Speaker 1

First of all, let me just clarify. The proposed sale of the solar plant is not a sale of leaseback. It is an outright sale. And actually, one of the issues that is currently somewhat holding up negotiations is the counterparty is trying to transfer risk back to us. And we're very clear that this is an outright sale with a long term take or pay contract.

Speaker 1

It's not a sale and leaseback. And we said that, at the moment, the solar farm is producing slightly better than we'd expected. And there is scope in due course maybe to consider increasing the size of the solar farm. But the issue we face is that we're the only logical offtaker for the product for the solar farm. So if the solar if we expand the size of the solar farm so that it produces more power than Blanket can use at any one time, either that power gets wasted or we have to find some way of storing it, which means batteries, which are very expensive.

Speaker 1

And there's no real alternative in terms of finding someone who can buy the surplus that we produce from time to time. So that puts a limit on the growth prospects for the Sandler project, but it is something that it is something that we will be considering in the context of trying to reduce our overall electricity cost. As you know, we have hedged. We and given the fact that we are in the late stages now of a capital expenditure program, which really focuses on the finishing off the final stages on the tailings facility and the finishing off the horizontal development relating to Centra Shaft. As long as we have those relatively high levels of capital expenditure, we will hedge from time to time.

Speaker 1

But if we didn't have those high levels of capital expenditure, we wouldn't see the need to hedge in hedging. And maybe clear, it's buying out the money put options. So it's basically paying an insurance premium. We don't engage in forward sales or hedging structures that give rise to potential margin calls. So those are the questions that I received by e mail, which I hope I've addressed.

Speaker 1

If anybody else, can we move back now to any further questions if people have them?

Speaker 2

Mark, it's got a question, yes. It's in fact, assemble.

Operator

There's one from Howard Flinker. Howard, you've reached on me.

Speaker 3

Hello, everybody. Hello, Robert. Two questions are, what do you plan to spend on CapEx this year?

Speaker 1

$30,000,000 Sorry, Chester, I'll leave it to you. Chester,

Speaker 2

sorry. Just over $30,000,000

Speaker 3

How much?

Speaker 2

Just over $30,000,000 30,000,000 30,000,000 Yes.

Speaker 3

Okay. And second, because your sound was so low, I couldn't understand the explanation of taxes. Essentially that your deferred tax is in U. S. Dollars and you couldn't depreciate it with the Zimbabwean dollar?

Speaker 2

No. I wouldn't say that enough. From 1 January in 2020, we've been doing the 1st tax scalp in our income tax scalp on a combination of $1,000,000 and U. S. Dollars previously.

Speaker 2

It was just basically $1,000,000 in policy CE evaluation. Now Could

Speaker 3

you get the computer a little closer to you? Your sound is very weak.

Speaker 1

Let me sorry, Howard, let me step

Speaker 3

in. Yes. Yes.

Speaker 1

So we report in U. S. Dollars, okay? But the underlying tax calculations are done in a combination of U. S.

Speaker 1

Dollars and local currency. And that makes it absolutely impossible for someone like you or me who looks at who just looks at a dollar set of accounts to actually reconcile those dollar profits back to the stated tax charge. Having said that, the tax regime in Zimbabwe is by no means unfavorable. The headline tax rate is 25%. We get 100 percent capital allowances to capital expenditure in the year that you spend them.

Speaker 1

And so what that means is that if Blanket makes a profit of, I'll call it, dollars 40,000,000 From that profit, you deduct the, in this year, dollars 30,000,000 of capital expenditure. And then the resulting number 10 is the is on what is about the amount that you pay income tax on. The difference comes through as withholding deferred tax. Now clearly, that's not a cash tax. That will unwind in due course.

Speaker 1

Now the problem from a group perspective is that whilst the we can, if we try hard enough, make sense of the income tax at the Blanket level, all of the losses that we incurred at Bilbo's, about $7,000,000 of losses at Bilbo's, we can't offset those against the profits at Blanket because they're 2 separate entities. But the tax losses of Bilbo's are available for use in due course.

Speaker 3

That's what I understood, but Blanket seems to have a large tax rate in the Q4 by itself.

Speaker 1

Yes. That's because of this the well, Dunkirk didn't make very much money in the Q1. And that's because of this difficulty of some of the taxes are calculated in local currency. Some of the taxes are calculated in U. S.

Speaker 1

Dollars. It is audited and it is correct, but it does make it very hard to see through and understand. The big difference is the things that are realized tax losses or tax gains in U. S. Dollars in local currency reverse.

Speaker 3

As expected to allow the Yes.

Speaker 2

Can you hear me?

Speaker 1

Yes. Go and try that Chester.

Speaker 2

Yes. Something else to add is there is $1,700,000 of additional deferred tax in the tax expense and that's due to the net asset tax rate moving from 24.72% to 25.75%. That increased your deferred tax liability.

Speaker 1

Yes, that didn't affect Q1. That's a year ago.

Speaker 3

Probably Q4. I didn't realize it was that large. I thought it was only 1.5%. I thought probably not $1,700,000 but I didn't understand.

Speaker 1

Yes, but it attaches to a very large amount of capital expenditure.

Speaker 3

Okay, of course. Thanks. Okay. Thank you, Howard.

Speaker 1

You're welcome. Further questions?

Operator

Yes. There's one here from Ian Jocelyn. Ian, you're unmuted.

Speaker 1

Hello. Can just hear you, very faint.

Speaker 4

Okay. I'll just try and turn the volume up.

Speaker 1

That's fine. That's fine. That's fine.

Speaker 4

Okay. Yes, I just got a couple of questions. One that occurred to me as you were talking. I think you said that your the amount to which you added cost to capital to the balance sheet will reduce because Blanket is now becoming I think the Central Shaft is now becoming an ongoing operation means that costs are effectively incurred as they're spent. If that's correct, presumably at some point, depreciation will come down because what you would have added to your balance sheet and then depreciated no longer gets added to your balance sheet that's incurred in the period.

Speaker 4

So one should expect depreciation to come down on Blanket. Is there a reason for more?

Speaker 1

Yes. That's what Chester was saying. So because we depreciate the fixed assets over the on a per ounce basis. And so as we are going to add more ounces to the life of mine plan, that means that the depreciation charge per ounce will come down. Balance, on the other hand, by us looking to reduce the useful lives of certain other bits of infrastructure like, say, the Jethro shaft or other stuff.

Speaker 1

Given the size of Central Shafts, I would expect that the benefit arising from the longer life of Central Shafts will outweigh the bad effect of shortening the lives of other assets.

Speaker 4

Yes. Talking of the different shafts and how you're basically looking to re balance production to the more profitable areas. I wonder, would it be I would find it helpful as a shareholder to understand what your original plans were. And obviously, something didn't quite go according to plan, which resulted in the higher cost that you incurred in Q1 and Q2. So can you help maybe understand the process by which that happens and

Speaker 1

Maybe someone didn't do the math right.

Speaker 4

Okay. Okay. So it was just a planning issue, was it?

Speaker 1

Well, yes. So if you say just a planning issue, it's quite a big planning issue, isn't it? But we can clearly see that the with the benefit of hindsight, our electricity consumption has increased dramatically when we started commissioning and started using the central shaft in earnest. And whilst we're in this period of using having the Central Shatt only services the mine below 7 50 meters, okay? And the other infrastructure largely services stuff above 7 50 meters.

Speaker 1

So for as long as we're continuing to operate from the old mine above 7 50 meters and the new mine below 7 50 meters, we will inevitably continue to use a large amount of infrastructure. When in a couple of years, we've gravitated towards mining exclusively below 7 50 meters, then unless we find something very attractive above 750 to justify continued operations above that level, so unless that happens, then we will be in a position to completely stop the old infrastructure. And then we're in a situation where we'll be relying exclusively on the central shaft.

Speaker 4

Okay. So what you're saying was that, that wasn't properly in hindsight, that wasn't properly accounted for the fact that effectively you were doubling it

Speaker 1

in your places. I was also interested to see

Speaker 4

I mean, I think you correctly said that the bad news was mainly quarters 1 and quarters 2, but the market didn't react very well to the pre results RNS where you said that profits will be down. So I'm just wondering whether that was down to the market not really catching up with the bad news in the 1st 2 quarters.

Speaker 1

Yes. I think if you extrapolate from the earnings at the end of September were, I think about net I think about sort of $0.17 by the end of September. And in September itself, earnings were about $0.35 And so as we went into Q4, with the expectation that Q4 will be about the same as Q3, it was not unreasonable to expect the outturn for the year would be about $0.50 which was in line with certainly in line with one of the analysts. Perhaps the other analyst was a little bit adrift. But that assumption held true pretty much until we got into December.

Speaker 1

And then I think we may have been slow to anticipate the effect of some elevated costs, which we incurred in late in December on the effect for Q4. And I think the other thing that makes it that made it sort of amplified that was because quarters 1 and quarters 2 have been so poor, it meant that the effects of earnings variations at the back end of the quarter had a disproportionate large effect.

Speaker 4

Yes, I can see. Yes, yes, that makes sense.

Speaker 1

It's certainly something we will pay much closer attention to. But having said that, if we'd have made if we'd have started off the year as we'd expected to start off the year, a variation in quarter 4 of $0.10 or $0.15 wouldn't have been the upset that it actually turned out to be.

Speaker 4

Do you think you could just take me through I appreciate Bill Bose has been put on the care and maintenance, but it would just be helpful to understand what led you to the decision that you thought that you could obviously make the effectively turn a stripping cost of the oxides before you got to the sulfides? You thought you could make that at least pay its way and how that turned out not to be the case?

Speaker 1

Yes. That was well, again, we discussed that sort of at length in quarters 1 and quarter 2. So the management team at Bilbo have been mining oxides for 10 years. They were confident they could continue to do it. They all they needed or all they thought they needed was extra capital expenditure, which they couldn't fund themselves to do a certain amount of pushing back and stripping.

Speaker 1

But having incurred that cost to do the pushing back in the stripping, it then transpired that what they expected to find in terms of oxide resources was either disappointing or just not there. And that was the problem. And having so that we really began to understand that in April, May and then by the end of June, we made the decision to return the business to care and maintenance, but the contract had a 3 months notice period. So we had that runoff in for an extra month, which was not comfortable. I would say that the oxides a certain element of oxides still remains.

Speaker 1

So those oxides will be extracted in due course as part of the bigger sulfide project. But the other thing I want to make absolutely clear is the build those projects have got 2,300,000 ounces of sulfide material. The oxides was only ever a few tens of thousands of ounces. It's not material. And so with the benefit of hindsight, we would not have embarked on that oxide on the whole oxide exercise, and we would have put the mine on care and maintenance immediately and kept it on care and maintenance.

Speaker 1

So that if with the benefit of hindsight, that's what we've done.

Speaker 4

I'm sure you've discussed already, but what you're saying presumably is that the amount of oxides that you thought were there were not there, and that was the problem. But then presumably the sulfides, are that further in? If the level of confidence of knowledge of the oxides wasn't there, the question is, and presumably you've got the answer, is that why is the level of confidence for the sulfates that are further down still there when you were let down by the level of confidence of the reserves higher up?

Speaker 1

Because the sulfides have been directly drilled, not all of the oxides have been directly drilled.

Speaker 4

Okay. Okay. I understood.

Speaker 1

And you're very welcome to visit and look at the core samples.

Speaker 4

Yes. Yes. I'm sure you've asked yourself that question, but it just occurred to me that, okay, so you basically the main drilling has been on the sulfides, sulfides. And so I appreciate you're saying you're going to come back to the market. But again, you probably outlined this, but I missed those meetings.

Speaker 4

Sort of what timescale roughly we're talking about bringing rail bows into some sort of production? Are we talking 2 or 3 years?

Speaker 1

Well, if we if the critical thing is going to be the funding. And within that, the critical thing is going to be the debt funding. Debt funders move relatively slowly. But let's say we can get the funding in place by this time next year, which I think would be very optimistic and then probably 2 years to build.

Speaker 3

Okay. Okay.

Speaker 4

And you're still looking at debt funding, not an equity raise?

Speaker 1

Well, that's exactly one of the things that we're focusing on. We believe the project has a capacity to carry a high proportion of debt, And that's the first thing we'll do when we've decided what's the best way forward will be to firm up our understanding on that with by having direct engagement with the lenders. I think we already have preliminary conversations with most likely lenders, and they are not going to be Western banks that people know. They're going to be African Development Banks who've indicated a high degree of interest in this specific project, and they know this project because the previous management team have built those and already engaged with them. So that will be the first approach.

Speaker 1

And when it comes to funding the differential, we will consider any form of funding with a view to optimizing Caledonia NPV per share. And so that so in terms of non debt funding, that would obviously include public equity markets, private equity markets, but also potentially joint venture partners.

Speaker 4

Okay. Yes. Yes, that's been very helpful. Thank you.

Speaker 1

Any further questions? Camilla, can you see?

Operator

We've got a few written questions. So just hold on. Compared to the cost of power from Zesa and the solar plant, which is more expensive? Secondly, has the power reliability improved?

Speaker 1

Okay. We get power from 3 sources. Okay. We used to get power from Zesa. That's now been replaced by getting power.

Speaker 1

We import power directly into Zimbabwe through a mechanism called the Intensive Energy User Group. We've been doing that since I think about April, if memory serves me right. And that's actually been an initiative fostered by the Zimbabwe government. And that means that the power that we import is actually somewhat cheaper than the power we will get from Zesa. Chester, may I have those numbers down?

Speaker 1

Chester, what's the power differential between buying from Zesa and buying from the IUG? Do you have that yet?

Speaker 2

Yes. It's about $0.035 per kilowatt hour.

Speaker 1

Okay. So it's $0.035 different, yes?

Speaker 3

Yes.

Speaker 1

Yes. We don't pay IUG $0.035, okay? So there is a slight benefit by beginning power through the IUG, but it still has to come to the grid. And so what it means is whilst we no longer suffer straight out power outages as you get into Africa, we do continue to get disruptions in our power supply and also peaks and troughs in the voltages because the Zesa grid is in very poor condition. So to deal with that, the second source of power is standby diesel generators, which we've had for years.

Speaker 1

And then the third source of power, which we started using early in 2023, is the solar project, which provides about a quarter, that's a bit less than a quarter of our power during sunny times. Our overall power consumption has increased considerably, but our average unit cost is much lower. So case in point, the use of solar means that in 2023, we used just less than 1,500,000 liters of diesel, whereas in 2022, before we had the solar project, we used nearly 4,000,000 liters. And if diesel is costing you $1.50 $1.60 that's an appreciable saving.

Speaker 3

Mark, if

Speaker 2

you can hear me, maybe if I could add that there's no cost for us to the solar. It's our solar plant. We own it, and we save approximately on a blended rate basis about $3,500,000 per year.

Speaker 1

Yes. But Abigail, yes, so what Chester is saying is the solar plant is owned by Caledonia. And so the benefit arising from the solar plant is not reflected in the online cost. It's reflected at the Caledonia level. So the mine buys solar power from a solar project at a rate which reflects its average unit consumption cost of power.

Speaker 1

The thinking behind that is that we'd either want to benefit nor disadvantage the minority shareholders in Blanket through the solar project. So if we sold power from the solar project to Blanket at costs, that would mean that the minority shareholders were benefiting from a project that they didn't fund. So Again, it's quite a complex answer to quite a simple question, I'm afraid.

Operator

So the next question is just with regards to Bilbo's. How soon can we expect gold production beyond 80,000 ounces?

Speaker 1

Well, as I said, if it takes a year to put the funding in place, 2 years to build it, you can work from that. I would say those are highly indicative at this stage timing.

Operator

Next question, how do you plan to raise the funding to Bilbo's? And do you have a time line?

Speaker 1

Well, as I said, initial focus is raising the getting a handle on the debt to the point of getting a credit approved a credit approved term sheet, the balance will be equity, and the equity will come from internal cash flows, public market equity, private equity or joint venture partners.

Operator

The next question And

Speaker 1

we will not be approaching the market for any, what I call, non debt funding until we've got a better idea as to what the debt capacity is because frankly, nothing is going to be as cheap as debt funding.

Operator

What was the key driver of the advisory fees in 2023?

Speaker 1

Well, we have 2 we had our advisers and then because we have to pay for bill based advisers because they didn't have the money to pay for it themselves. And even if they had paid for it, it would just have come off their cash pile anyway. It was a very complex, long running transaction. I think our involvement in the final stage was, I think, 2 years. It was a very long running process, very, very complex.

Speaker 1

I'm afraid, I don't enjoy paying up fees anymore than anybody else.

Operator

I think I mean, the other question, I think, has pretty much been answered. It's maybe when do you expect the feasibility study to be completed? The other part, where do you have any

Speaker 1

Well, we're working hard to get the consultants, the various consultants to I mean, just to put more context on it, there's 4 main elements to the feasibility study. The first is the underlying geology, and there's been very, very little change there other than removing a small element of oxide material. So there's virtually no change there at all. There's been some change to the pit designs and the mining plan with a view to optimizing the capital spend, but again, very, very minor. There's been no change to the metallurgical processing, but there have been quite substantial changes to the back end of the project, the tailings facility.

Speaker 1

And in that area, we're using the experience that we're getting the blanket over the course of 2023 by where we put in a new tailings facility, but we did it on a modular basis so that we could start using it quickly. But we extended the capital expenditure over a longer period of time. And that's actually quite beneficial. Now that work is effectively a brand new study, and that needs to be upgraded to a point at which it is capable of being published and can be a component of an overall feasibility study, which is to a relatively high level of confidence. And that's the time that that's exactly what's been the time that's been taken right now.

Speaker 1

How long they take? I don't know. Maybe it's 6 weeks, maybe it's 2 months. I would hope it's not longer than that.

Operator

All right. At the moment, that's it for questions. Does anybody else have a question?

Speaker 1

Okay. If we finish that, just with a challenging year, as I said, mainly in the first half. We did recover in Q3. Q4 wasn't so bad, and we got off to a strong start in quarter 1. So I'm hopeful that we've now reestablished Blanket as in its rightful position as a solid cash generator, and we're making good progress both on exploration at Blanket, which is considerably more optimistic than we'd expected.

Speaker 1

And we're making good progress with the feasibility study at Bilbois. So it has been frustrating, but hopefully, we're going to see better days ahead. And I think with that, we'll finish unless there's any last question. Okay. I think we're done, Kavila.

Speaker 1

Thank you for your attendance.

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Earnings Conference Call
Caledonia Mining Q4 2023
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