Caledonia Mining Q1 2024 Earnings Call Transcript

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May 13, 2024

There are 3 speakers on the call.

Operator

Welcome to our Q1 2024 Results Call for Shareholders. On the call from Caledonia, you have Mark Learmonth, our CEO Chester Goodburn, our CFO Victor Campari, our Executive Director and then myself, Camilla Horsfall, I'm the Vice President of Group Communications. As always, we're going to run through the presentation, and we will have questions at the end. If you do have a question, we just ask you to raise your hand.

Operator

We find that's a better format than the written Q and A. I'm now going to pass you over to Mark, who will start the presentation.

Speaker 1

Thank you. Thank you, Camilla. Can we move forward? That's the disclaimer. Moving on to the next page.

Speaker 1

Okay. So just a quick overview before I hand over to Chester, who's going to do most of this presentation because it relates to the financials. On the whole, it was a much improved quarter from certainly the Q1 of 2023, which was very challenging. Before we get into production and costs, pleasing to see an improvement in safety. It's an area of enormous focus and we'll continue to try and improve further.

Speaker 1

So it's a strong start to 2024 with higher production supported by a favorable gold price. We produced just under 17,500 ounces in the quarter compared to just over 16,000 ounces in the Q1 of 2023. We wouldn't normally go into this level of detail, but this quarter, it is significant. In the Q1 of 2024, we only had 78 production days. And that was due to the early production cutoff due to the logistical challenges relating to moving quite large amounts of gold between the mine Harari and Dubai.

Speaker 1

So we had to cut off relatively early. So only 78 working days in the quarter compared to 86 working days in the Q1 of last year. So in that context, it makes quarter 1 look even better. Having so we're standing behind our production guidance for the year of between 7,478,000 ounces. On a personnel matter, as you all know, Dana Roets, the previous Chief Operating Officer, left the business at the end of February.

Speaker 1

We're pleased to say that James Mufano has joined us with effect from the 1st May. He joins us from Harmony, which for those of you who don't know South Africa very well is one of South Africa's very large gold miners. James was responsible for 5 mining operations, employing 16,000 people and producing about 500,000 ounces of gold a year. His skill set includes underground mining and open pit mining. He would have been on the call today, but he is at the mine at the moment and is hopefully at this minute 3,500 feet underground.

Speaker 1

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

Speaker 2

on

Speaker 1

in the year some very encouraging exploration results at Blanket. Basically, we restarted the deep level exploration program early 2023. We've put out 2 sets of drilling results, 1 in I think August last year and then another one in January this year. About 2 thirds of each hole we drilled came back better in terms of width and grade. And that will be converted into a revised mineral resource statement, which will be published very shortly and an increased life of mine.

Speaker 1

So you should look out for that very shortly. We maintain a quarterly dividend, dollars 0.14 a share was paid at the end of January and again at the end of April. And we're very, very advanced on the work on the looking at the ways to commercialize the large scale sulfide project at Bilbo's with a view to optimizing the uplift of Caledonia shareholders. I'd expect that we're about 2 weeks away from making some announcement on that certainly by the end of May. Can we move on?

Speaker 1

Yes. So here's the we've mentioned safety, a pleasing fall in safety incidents. We mentioned production, an uptick in production from 16 to 17.5. Clearly, the higher gold price helps 18.60 increasing to 2,040. That's the average for the quarter.

Speaker 1

Clearly, since the end of the quarter, we've been running pretty much consistently at 2,300, 2,350. I've mentioned production days, revenue up from just less than $30,000,000 to $38,500,000 gross profit up from less than $6,000,000 to nearly $14,000,000 and net profit to shareholders swung from a loss of $5,000,000 in the Q1 of last year to a profit of $2,000,000 this year. It's fair to say that the only fly in the ointment in the Q1 was a substantial foreign exchange loss of about $4,100,000 which Chester will talk about in due course. I don't want to pretend that that foreign exchange loss doesn't exist. I can't wish it away if we're going to continue to incur losses at that rate that makes life very challenging for all of us.

Speaker 1

But putting it on one side, if you pretty much ignore the various bits and pieces including the foreign exchange loss, A SEK0.30 a share loss in the Q1 of last year has now been converted into a SEK0.27 profit in this quarter. So operationally, a very significant turnaround. Should we move forward? Again, there's quite a lot of information on this graph. I mean, it basically just shows you quarterly going back to 2012.

Speaker 1

The top graph shows the grade in the TUMs. The bottom graph shows the quarterly production at Blanket and the recovery. I think there's a lot of information here. But I think what is what I would point out is in the top graph, you can see that the grade, the orange line has pretty much gone down steadily from about 4.5 grams a tonne in 2012 to a much lower level, say 3, 3.1 grams a tonne. And one of the things that will come out from the revised resource statement that gets published shortly is an improvement in that grade as we go forward.

Speaker 1

And of all the ways to benefit from to get more gold, a higher grade is by far the best. It has a much better effect on cost per ounce and recovery. And again, if you look very closely at the bottom graph, you can see if you look very closely, you can see there was a very clear pattern during the course of each calendar year. Q1 typically starts off relatively subdued note and then it improves as the year goes on. And then when you get into the next year, again, it's a relatively subdued quarter 1.

Speaker 1

Based on what we've seen happening at the mine in April and into May, we're very comfortable that will continue in 2024. Should we move on? Okay. I'll hand over to Chester now really for the bulk of this the rest of the presentation to run through the financials. So Chester, over to you.

Speaker 2

Thank you, Mark. It's really good to see that we produced just under 19,000 ounces for the quarter. That includes 3,000 ounces that was produced in Q4 and sold in Q1. And similarly, we've had 1600 ounces that we produced in Q1 and sold in Q2. Saia sales also comes at a time where we're seeing record production sorry, record gold prices.

Speaker 2

Our average gold price for the quarter was $2,040 and that comes with the online cost of $9.93 per ounce, pretty much flat quarter on quarter. And we should see that coming down in the latter parts of the year. At Blanket mine, we've got a very big fixed cost base. So that means if you've got more days in your quarter that we will have in Q2 to Q4, that should bring down our online cost per ounce going forward. So we've maintained OpEx guidance of between $8.70 $9.70 per ounce on an online cost basis.

Speaker 1

So Chesky, can you just explain the step up in the online cost per ounce for about $700 an ounce in 2022 to the current level of not far short of $1,000 an ounce? Can you just explain that so people understand?

Speaker 2

That's right. Yes. So mostly that's due to inflationary increases that we've seen from 2022 to 2024 and about $2,000,000 of increased electricity costs based on additional consumption since we've started the central shaft in 2023. So, we are working on quite a few initiatives to look at our electricity usage. And so far, we've come up with power factor correction that we will implement in Q3 of 2024.

Speaker 2

We should see some reductions in our own persi cost. Other than that, we're also looking at other initiatives and we'll come back to the markets with some of that information. Now we plan to transition to using most of our shafts at Blanket to just using central shaft and reducing our consumption overall at Blanket. So there are methods in place to and ideas that's on the table currently that we are discussing to reduce that electricity consumption. On an all in standing cost basis, our costs were 1267 dollars That's lower than what we've given guidance on of between $13.70 $14.70 for the year.

Speaker 2

And that's due to the timing of our CapEx spend that we plan to spend in the latter part of the year. Good to see our gross profit increasing to $13,800,000 that includes additional depreciation charge of about $2,000,000 that we've incurred due to our shortening of useful life of our shafts that we plan to stop as soon as we mine predominantly under 7 50 meters at the mine and that should also have a resulting cost benefit on electricity as explained. Our earnings per share was positive $0.106 for the quarter. That turned around the 2023 woes that we had. It's good to see that Blanket is producing a lot of cash and is profitable and it's had a good quarter so far.

Speaker 2

Same with adjusted earnings per share, this is where we count back the foreign exchange losses that Mark alluded to earlier, but we'll get to the FX losses in the following slides. Our cash used in investing activities, the CapEx, that's amounted to $4,100,000 We plan to spend more in Q2 to Q4, but we've maintained our guidance of $30,000,000 at Blanket. So, it's all within plan. It's just a timing of the spend that will increase in future quarters. Operating cash flows before working capital movements amounted to $10,500,000 dollars That includes the realized foreign exchange loss of $3,600,000 and of that to be counted back.

Speaker 2

So if we didn't have these massive devaluations of our Zim dollar, we would have had produced more cash than we did in our 2022 quarter 1.

Speaker 1

But before we move on, there is before working capital movements from time to time, we do incur quite substantial variations in working capital, and that can be towards the end of this quarter, quarter 1. Part of that was due to us prepaying for equipment and goods that we were buying in country so that we weren't holding to minimize the extent to which we were holding local currency, which was devaluing very, very, very rapidly. And then we also have quite large foreign exchange movements arising from delays in transmission of funds from Dubai through the U. S. Into Zimbabwe.

Speaker 1

And that just comes down to from time to time you get intermediary banks who send the money back to Dubai because they get confused about KYC. So the working capital has been quite large and that's actually one of the things that contributed to the relatively low cash balance at the end of Q1. That has changed markedly for the better since then. Sorry to interrupt. You move on then, Chester.

Speaker 2

Thanks. Profit and loss, good to see our revenues at 38 $500,000 that's due to 20% more ounces than the comparable quarter and 9% due to the increase in the gold price that we received. We had 78 production days, as I said earlier. On average, we've got 87 production days, that's 12% increase in production days in quarters 2 to Q4. And with fixed cost base, it means that we get more bang for our buck basically or more bang for our production days in future quarters.

Speaker 2

So all else, a very good quarter. Production costs are in check. Our online cost per ounce remained relatively flat at Blanket and that's where our main focus lies now that the Bulbuz oxide has been placed on care and maintenance. And talking about Bulbuz, we've that's very much on a breakeven basis where we are still incurring some costs and we're gaining some revenues to the extent of exceeding those heap leaching activity costs. That's good to see bolworths breaking even and not incurring the losses of the prior quarter.

Speaker 2

So, we've really reduced our cost to the bolus level. Depreciation, I've spoken about that. That will be useful as we've shortened for Scharz. And under the gross profit line, yes, you can see the foreign exchange losses of $4,100,000 $3,600,000 that is realized. So that had a cash effect.

Speaker 2

And that was due to the devaluation of the ZIM dollar. Subsequently, after year end or quarter end, Zimbabwean government introduced the Zimbabwean gold currency on 5 April and we've been transacting in that currency from then. So there was a bit of a delay in transacting at first. The 1st 2 weeks were slow, but we are transacting in the ZIG. And what's quite nice to see is that the ZIG has actually strengthened from the 5th April to now.

Speaker 2

So, it's currency based on or backed by gold and foreign exchange reserves. So, we believe if those measures are followed and if the ZIG holds its strength as it's currently doing that these foreign exchange losses would not reoccur going forward.

Speaker 1

So can I just add just a bit more context as to where these foreign exchange losses come from? We sell 25% of our gold in country for local currency. And normally, it takes about 2 weeks or so before we get paid for that gold. Actually, in this quarter just finished, the payment was actually slightly shorter. I think it was about 9 days.

Speaker 1

But whilst we're holding that 9 day receivable, the rate of devaluation of the Zimbabwe dollar accelerated exponentially towards the end of the quarter, which meant that by the time we got paid the RTGS in that's local currency, in dollar terms, it was worth substantially less than the rate at which we booked it. So that was one component of the loss. The other component of the loss was on our VAT receivable and a third component of the loss would be on the relatively small amount of local currency that we're holding in cash. And as Chester says, the new currency was introduced shortly after the end of the quarter And so far, we've seen much more stability.

Speaker 2

Working on production costs on a balance sold basis, it was good to see that we have our costs at Blanket has remained in check throughout this quarter. Our consumables has actually come down by 4% and that goes against the grain of inflation increases that we are seeing mostly all over the world, high inflation, high prices. And as to some initiatives that we've implemented at our procurement department to reduce the business while maintaining the quality of the consumables that we are purchasing. So that is very good to see our cost

Speaker 1

coming down. We do have a very sophisticated procurement operation based in Johannesburg, which leverages the quite competitive supply environment in Johannesburg. So if you want the thing for the mine, there's usually a number of people who produce that thing so you can get a good price. And then we're very good. We take receipt of it in our warehouse in Johannesburg, and we're very good at shipping it up to the mine quickly.

Speaker 1

If we didn't have that operation in Johannesburg, we would find it very, very difficult to get South African based suppliers to deal directly with a blanket mine in Zimbabwe. So I'm very pleased to see that 4% reduction. Also quite pleased to see the wages and salaries on a per ounce basis coming down. But as you can see, electricity is higher for reasons that Chester has just already explained.

Speaker 2

Other than that, it's also good to see the costs coming down. Bulbous, we've spoken about that. So overall, I think costs came down or remained flat quite well. As said earlier, this shows the online cost and all in sustaining cost per ounce. We've maintained our guidance at $8.70 to $9.70 per ounce on an online cost basis.

Speaker 2

And on an all in sustaining cost basis, we believe this will increase and that's due to the timing of all the CapEx spend, the scheduling of our CapEx spend is mostly towards the end of the asset. That's also maintained at $13.70 to $14.70 for the full year. So also, I was quite pleased to see administrative expenses coming down. It came down by about $3,300,000 overall. And it came down on several fronts.

Speaker 2

Our Investor Relations, that was lower than the comparable quarter. Advisory services fees were $3,100,000 lower. And as to us not reoccurring the Bulbos acquisition costs, that was a one stop cost to obtain 30,000,000 ounces of Bulbos and it's good to see that coming down. Wages and salaries from a pool perspective, there was a reversal of the 2023 management bonus accrual and a 2024 year reducing our wages and salaries and also our travel costs came down quarter on quarter. So all in all, it's very good to see that the quarter 4 G and A costs, the general administrative costs that we incurred that had quite a few once off costs So that these costs or those once off costs were not reoccurring into Q1 and we've really focused our costs to make sure that we reduce our cost.

Speaker 2

So, it's really good to see that in these numbers. This slide shows the cash generated from operations before working capital changes. As said earlier, here you can see our cash generation throughout the quarters. That was 2023 numbers looking very bleak. But from Q1, our cost controls are in place.

Speaker 2

Our production is up. We're really doing well in terms of the gold price. And if you count back that $3,600,000 foreign exchange realized foreign exchange loss that was outside of our control, we would have generated over $40,000,000 that is higher than our 2022 amounts when we ramped up to 80,000 ounces per annum. So really good to see the blankets back and its cash generating abilities remain strong. Over to you, Mark.

Speaker 1

Yes. So just in terms of the outlook, I think there's much here that's new. We're looking at 74,000 to 78,000 ounces for this year and then thereafter producing at a similar level. We're well advanced in reviewing a range of development options at Bilbo's with a view exclusively to optimize the uplift in value for Caledonia shareholders. And I'm hopeful that we'll get something out to investors before the end of the month.

Speaker 1

And exploration results of Blanket have been very encouraging and that will be translated into a revised mineral resource statement and an increased life of mine, which will be announced shortly, which will go straight to value. And we're just about to start a first phase of drilling activity at Metalpa. So I'm delighted that we've we seem to have drawn a line under what was a very, very difficult 2023. 2024 has got off to a reasonable start. The first half of the second quarter is going very well indeed.

Speaker 1

And I think we're in a very exciting juncture now as we begin to take this business forwards materially. So that's the end of the formal presentation. We can now hold it hold this open to questions.

Operator

There are a couple of written questions.

Speaker 1

Okay. The first one is from Howard about the ZYN dollar. Okay. So the new let's be clear on this. The new currency is called the ZIG.

Speaker 1

It was introduced and let's face it. The ZIG only affects us as to 25% of our revenues. The rest of the other 75% of our revenues are in U. S. Dollars and nothing has changed there.

Speaker 1

The ZIG is apparently backed by assets. Now let's say apparently, I've got no reason to doubt that, but I'm not seeing those assets. But we're told that the total value of Zigs in circulation is backed by assets such as gold and other assets, which I assume would be currency, mainly dollars I'd expect. Since the introduction of the ZIG on the 5th April, the exchange rate, I think, has gone from about 13.8 percent to I think it strengthened very slightly. So we've moved to the right direction.

Speaker 1

So basically, it's been stable as strengthened slightly. So that's the question about the ZIG. And then a question another question, when can we expect can we expect to see Blanket Henkrad return to 4 grams a tonne? Well, can you can we just wait a few days until you get the revised mineral to get the revised resource statement out to the next few days? And that we can have a more sensible conversation about that then.

Speaker 1

So we would once we there's quite a lot of the resource statement is quite a complex, quite a lot of information. So that will be published sometime in the next few days and then we will have a further call thereafter to give shareholders and investors an opportunity to ask questions specifically on that. So at this stage, I don't particularly want to answer that question right now. We'll get back to it in a few days' time. Okay.

Speaker 1

That's the only written questions we've got. Do we have anybody wanting to ask questions in the traditional way by asking?

Operator

The lines are open. If people want to raise their hand, they can. Yes.

Speaker 1

No, not seeing any questions. There's another question popped up. How many shares are out? I think it's 19,100,000, isn't it?

Speaker 2

That's right. Yes. Correct.

Speaker 1

Okay. Any further questions? There's another one. Thank you. Okay.

Speaker 1

Thank you, Alan. Okay. I think on that basis then unless anyone's got anything else, I think we'll draw stumps there. Thank you very much. There is going to be quite a lot of news flow coming over the next few weeks.

Speaker 1

So keep your eyes open for it. Okay. Thank you all for your attendance.

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Key Takeaways

  • Production surge: Q1 2024 output rose to 17,500 ounces—up 9% year-on-year despite only 78 production days—reinforcing the 74,000–78,000 ounces annual guidance.
  • Profit recovery: Revenue climbed to $38.5 million and gross profit to $14 million, delivering a net profit of $2 million ($0.106 EPS) versus a $5 million loss in Q1 2023, before a $4.1 million forex hit.
  • Cost discipline: Online cash costs held at $993/ounce and all-in sustaining costs at $1,267/ounce within guidance, as power-saving and central-shaft initiatives target further electricity savings.
  • Strategic leadership and exploration: James Mufano joins as COO, deep-level drilling at Blanket returned stronger grades leading to a revised mineral resource and extended mine life imminent release, and Bilbo’s sulfide project commercialization update is expected by month-end.
  • Shareholder returns: The quarterly dividend of $0.14 per share was maintained, while exploration at Metalpa and advanced development plans aim to drive future value uplift.
AI Generated. May Contain Errors.
Earnings Conference Call
Caledonia Mining Q1 2024
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