Caledonia Mining Corporation PLC

LSE:CMCL

Earnings Call Transcript 2023-Q1

[Operator]

[Audio Gap] This meeting is being recorded.

[Unknown Executive]

[Audio Gap] joined by Dana Roets, our Chief Operating Officer; Victor Gapare, who joined us from Bilboes, he's an Executive Director of Caledonia; by Chest Goodburn, our CFO; and by Camilla Horsfall, our Vice President of Investor Relations; and also Maurice 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. [Operator Instructions] So I think I always feel very comfortable responding to tight questions because I don't always know if I'd answered the question properly.

So with that, I'd like to start the presentation. Camilla is driving this. 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 first quarter of 2022.

Average gold price virtually unchanged. And so the fall in revenue was pretty much due to lower production and lower sales moments in working capital. Gross profit substantially down from nearly $17 million, so it just less than $6 million, and the net loss of profit attributable to shareholders went from a $6 million profit in the first quarter of 2022 to a $5 million 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 million inflow from operating activities in this quarter, we had about $1 million outflow.

Right. So in terms of overview, this should be [indiscernible], this is the first quarter that reflects our ownership of Bilboes. And 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 Bilboes on the oxide, stripping material obviously to expose the oxide material and then only start production towards the very end of the quarter. So that was always in tender.

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 Bilboes oxides.

Our Blanket production was below plan, mainly due to tonnes. That was due to equipment failures and logistical issues, again, which Dana 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.

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 had expected, and we are seeing a benefit from that, both in terms of reducing the weighted average cost of power and also displaces quite expensive of diesel.

We started work on the feasibility study for the main Bilboes sulphide project, which we can talk about in a moment. We completed a fundraise in Europe, South Africa and Zimbabwe, which raised a total of about $16.6 million. Most of that was received in the quarter and then about $5 million we received immediately after the end of the quarter.

And we stand behind our production guidance of Blanket for the year of between 75,000 and 80,000 ounces. And also, we shot on here, but we'll mention it later. We also reiterate our online cost guidance for Blanket.

So I'll ask Dana 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 tonnes. And you can see the tonnes was substantially down in the quarter. And grade was also down somewhat. The lower grade was also broadly as expected. We had expected the grade to be lower in the quarter, and so we weren't particularly disappointed by that. But the real factor that drove disappointing production was tonnes.

[Mark Learmonth, executive]

So perhaps, I'd ask Dana to put a bit more context on why the tonnes were lower than we'd expected. Dana, could you help us?

[Dana Roets, executive]

Right. Normally, in the first quarter, you've got -- you struggled to get going after Christmas. And especially when last year, we shared a buildup of another 20% to achieve our 80,000 ounces. So -- but then added to that, we had our main winder at 4 Shaft that failed on us, and it was electrical motor commuter that failed, which resulted in the motor subring gear brass [indiscernible] prematurely filing -- and we -- during the curved era we got spares in, we had critical space, but we couldn't get it from the preferred company.

And when we install these brushes, we picked up issues with the binder, we've kept on tripping. Then we have 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 cars. 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 you couldn't voiced and at the same time, our new shaft Central Shaft, we had a opaque that was hanging up, and so it was a perfect storm at both shafts that we couldn't work. Now part of this is -- a question was asked before this. Are we you know this won't happen again? Now the one at 4 Shaft 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. 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 4 Shaft will just start getting lessen, lessen, lessen. And going forward, especially from the second half of the year, we will basically have 4 Shaft as 50% spare very well and Central Shaft will only run it about 1/3 of its capacity. So it will put us in a much better position if something similar would happen.

[Mark Learmonth, executive]

Okay. Look, if anyone's got any further questions on that, we can come back to that towards the -- after they've been through the formal presentation.

[Mark Learmonth, executive]

Can we just move on a talk about Bilboes? I'd just like to talk a Bilboes thing, the Bilboes in contact. We bought Bilboes entirely predicated on a large over 2-million-ounce sulphide resource at a grade of over 2 grams a tonne. So it's a large high-grade resource. And nothing has happened to Bilboes to dent our confidence in that resource.

The oxide project was purely a small short-term project over the course of the next 2.5 years. During this period, we might have produced about 50,000 ounces, primarily to generate cash so that we can maintain the operating integrity of the existing Bilboes business, which employs about 150 people, pending the commencement of work on the main sulphide 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. And that area, the grades were disappointing. So we have to move to other areas. And our approach to the Bilboes oxide project is that we are now engaged in our own quite intensive evaluation drilling at 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 spending money.

By the end of this month, so by 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 -- from June and 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 Bilboes oxide project. At this stage, we believe it will broadly wash its face and it 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 Motapa property, which is immediately adjacent -- right next door to Bilboes, which we could use to extend the life of that mining -- that oxide mining operation.

[Mark Learmonth, executive]

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 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. Can you just comment on that, please?

[Victor Gapare, executive]

Thank you, Mark. The company is very confident on the sulphide mineral resource estimates. The mineral resource estimates, we estimated following extensive drilling amounting to just over 93,000 meters, over 4 distinct phases.

The drilling for sulphide 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. 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 cost from the last 3 phases of sulphide resource drilling is being kept at the mine core yard for reference. The mineral results estimates were compiled in compliance with the division -- with the definitions and guidelines for the reporting of our exploration and information, mineral resources, and mineral reserves in Canada. That is the CIM Standards on Mineral Resources and Reserves, Definition and Guidelines 2014.

These mineral results estimates also adhere to the rules and policies of the National Instrument 43101 Standards of Disclosure for Mineral Projects, Form 43101 F1 and Companion Policy 43101 CP. The resource 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 used the check list approach, where various criteria we assessed to determine the confidence in continuing of geology and grids. The check list included the following: data quality and integrity; data spacing for confidence in geological interpretations and grade interpolation; confidence in the geological interpretation from a regional and local perspective, and how that interpretation influences the controls for sulphide 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 we checked by an independent CP and deemed compliant and accurate for the purpose of the feasibility study. We are confident that our due diligence what they do, well sulphide project was done properly, it's -- we stand by our decision on Bilboes sulphide project.

[Mark Learmonth, executive]

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 have been done many, many years previously, not by the existing vendor, not by the Bilboes vendors. It was old information that have been inherited.

But again, I just want to put this oxide thing into context. Again, we can come back to that with any further questions if anybody wants to raise them later on. Can I ask -- so if I can ask...

[Victor Gapare, executive]

I suppose Mark...

[Mark Learmonth, executive]

Yes.

[Victor Gapare, executive]

I suppose, what I can also just add is that when Caledonia was purchasing Bilboes, the transaction was entirely based on the sulphide project, the oxide, we are not part of that valuation. And it was like a bonus in terms of the stripping because you're always going to come up with the oxide as you strip, and you treat them with the existing -- on the existing heating up sales.

[Mark Learmonth, executive]

Yes. It's fair to say that our economic evaluation of Bilboes was based purely on the sulphide and nothing on the oxides at all. So the oxides, as Victor said, was a cheeky freebee, which is good for us, but less good for Victor as a vendor.

Okay. We can come back to Bilboes again, if anybody got any further questions. But can I ask Chester to just canter through the financials, if you could please, Chester.

[Chester Goodburn, executive]

Sure. Thanks, Mark. I'm just going to talk north-south being our existing flagship operations at banker. And when we started up oxide project of Bilboes, it's positive to see that in a challenging quarter while introducing the new oxide start-up operation, Blanket mine remained profitable, cash and both of our business remained robust with a leased uncontrollable challenges we encountered at Blanket.

Further, I was delighted to see productions Blanket in April and May, [indiscernible] Blanket and daily production running rate to achieve the production of between 77,000 and 80,000 ounces per annum. Current production rate profitability is also expected to improved in 2022.

Oxide production came late on the cost of revenue also and as shared by Victor, some will be shared by Victor as a 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 $5 million of guaranteeing profits in Q1 and weigh noncash items and working capital fluctuations are more generated approximately $8 million to our business, and that shows that Blanket...

[Unknown Analyst]

Just can I just interject that. So the critical thing here is that clearly, revenue is down from $35 million to $29 million because of lower production. But production costs up from $13.7 million to $16.1 million. Can between you and 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?

[Victor Gapare, executive]

Sure. Dana, do you want to start or should I? Okay. Looking at the production numbers that kick follows next, our electricity costs at the Blanket increased. That's part due to additional usage on the grading piece experience in quarter. We've subsequent in the quarter engaged in contracted by IEUG that's a consortium that enforced on choosing our brand that gives us a lower rate, I'm expecting get a benefit of approximately $450,000 per quarter. That's not included in its numbers. You'll see that going forward.

We're also encouraging further initiatives by our operators to look at our kilowatt hours, we said to you more towards the Central Shaft, we pay out production north-west at least towards meeting the 4 Shaft this also use our kilowatt hour usage.

What is not evident in our [indiscernible] price in our price basis it's about $434,000 that we saved by sighting up for 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, Dana, do you want to expand to -- on the electricity side?

[Dana Roets, executive]

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, way before we could get away with sort of a very stable working cost as far as labor is considered. So we got our people a 4.5% increase.

And then added to that, in the upper section of one section, we had some slowing where we had porting some of the spikes that we tried to undercut, and it just kept on coming down. And those big rocks blocked our draw points. And we were into a period where we had to do a lot of secondary blasting, which also cost us as far as exposes is concerned. So that also contributed to the higher cost. And then...

[Unknown Executive]

I mean that -- in labor, Dana, you can see a higher job creation levers, if you compare it to the prior quarter, that's due to the ramp-up of the ounces. It's not evident in the quarter 1, 2022. We've added some our labor force, and that helps us to increase and maintain to the 80,000-ounce level.

[Unknown Executive]

Ad if we can move on to the next slide. We can see the production costs, wage and salaries went up as what Victor said. It is also encouraging to see that we are paying our labor force fair wage, that's -- we're good to see how we're paying them 100% in U.S. dollars. Further electricity, we've spoken about. We are planning to reduce that electricity costs with better rates of paying from the [indiscernible] initiatives implemented with IEUG, and we have seen it realized in April. And the Bilboes oxide costs, we are looking at turning those operations around and becoming cash neutral.

We can move to next slide.

[Unknown Executive]

Just before you move on, there was a question, this isn't purely -- this isn't really about the financials, but as you mentioned, the IEUG.

The IEUG is 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 of April. We are seeing a reduction in tariff.

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

[Dana Roets, executive]

Yes, we should actually start seeing it from next month more.

[Unknown Executive]

But the question was specifically, it doesn't -- even if you're getting juice coming in from Zambia or Mozambique, you're still at risk with the Zimbabwe grid.

Yes, we are. And we can't fix the Zimbabwe grid. It is fair to say that the approach the Zimbabwe authorities is generally to prefer industrial users to domestic users, unlike in South Africa. But Dana, could you just comment on the new line that the [indiscernible] line that we've built?

[Dana Roets, executive]

Yes. We worth the [indiscernible]. We upgraded the extra line of country, 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 in we've got 16 MVA of generator capacity.

So we -- again, we've got a lot more flexibility and to deal with the load saving. But if I look back to the question, it was us, there's nothing in the contract that says that ZESA get [indiscernible] now to interrupt or take the power that we import. So there's nothing like that.

[Unknown Executive]

Yes, but I think the question was more generally, if the grid collapses, the grid collapse, there's nothing we can do about it. Let's just deal with this electricity situation whilst we're talking about it.

Victor, could you just give a comment as to where Bilboes is in terms of the grid, and how Bilboes is situated in terms of this grid supply?

[Victor Gapare, executive]

Okay. Bilboes is more towards the north at the moment, in terms of the sulphide 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 Hwange power station.

As you know, at Hwange power station is constructed few generators, which will generate about 600 megawatts. So that line past is very close to the grip 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 Hwange, it's much more reliable maybe than compared to the south of the country.

[Mark Learmonth, executive]

So I think the upshot is that Blanket is not -- geographically, not a great place for the grid built, but is much better positioned for the grid than Blanket. Sorry, we got a bit of a departure on electricity, but I just thought whilst we're talking about electricity, we should deal with it So, sorry to interrupt you, Chester, do you want to continue?

[Chester Goodburn, executive]

Sure. Turn the page, please. Administrative expenses increased due to a one-pass of approximately $3.1 million paid to advisers on acquiring Bilboes sulphide project. The Bilboes sulphide project is was worth of spending, and it's also an important note is a one-off cost. And all those expected to be highly profitable and much bigger than Blanket.

Other than advisory fees, we had small increases in our uptick in travel post 2019 lockdowns and other than that, it's very comparable to the previous quarter.

If you move on to cost per ounce. You can see the large portion of our price was due to the oxide start-up and that affected our online costs. We plan to turn the oxide cash neutral. Energy savings, as we mentioned, through the IEUGs expected to reduce energy costs and our production levels in the future quarters that we have seen realized both quarter and expected to lower online costs for the remainder of 2023.

Online production cost guidance for Blanket, [indiscernible] our business at $770 per ounce to $850 per ounce and ranks amongst the line in the second, when compared to behind these peers.

We move on to tax. Our effective tax rate was high in the quarter due to the oxide operating price and acquisition piece helping that $6.4 million being all be in the nondeductible. These costs are new piece for tax purposes. The future benefit of the success wise are not affected in the numbers. In future we'll be able to reap the benefit of sales for us in the oxide project as it can be profitable.

[Mark Learmonth, executive]

Cash flows.

[Chester Goodburn, executive]

Blanket as I said contributed approximately $8 million to the cash flows before working capital swings. And this previous Blanket remains strong and is expected to improve throughout this year. This is due to reduced [indiscernible] supplies, reduced for the one-off advisory fees and the completion of the Bilboes sulphide project and an active cash flow is of oxide standard operation.

We visioned solar bonds at the bank of $7 million, one-off $1 million of that was issued before quarter one hand and raised $16 million in equity raises, of which $5 million was not reflected in these numbers.

The bullion receivable outstanding at quarter end of $6.7 million, as was received post quarter end. And to give out these mentioned cash flows represent approximately $40 million that drive [indiscernible] 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.

Moving on to the balance sheet. Noncurrent assets included approximately $70 million due to the acquisition of the sulphide project. Current assets increased due to the increased cash availability in the group, and current liabilities included approximately $4 million of liabilities, not settled in cash, as were settled by positions of shares over strength deferred consideration for Bilboes and $4.5 million of liabilities was acquired in the Bilboes deal.

Also excited to share Bilboes must have quality and that we expect to make a huge strength in our overall facilities by the end of 2023 when we pay of the large portion of our results. This is at the current production guidance levels on gold price.

We can move over to cash. On the slide, the uptick in our net cash position is evident as we've improved the production at Blanket, you can see the premiums continue in May, giving an indication of production line has been funded. Further, we are expected to reduce our borrowings by year-end. And our transfer cash from Zimbabwe continued normally has enabled us to maintain the dividend of shares $0.40 per share per quarter and pay for related expenditures outside of the north-west.

[Unknown Executive]

Yes, -- just to just pause 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 is available, we choose to take it, and the guiding principal behind it, and we don't like to leave dollars sitting in Zimbabwe. 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 million 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 relate.

[Mark Learmonth, executive]

I think that very much wraps up the client segment. We'll move over to other matters.

[Unknown Executive]

Yes. Just a few other matters just on the buildup on the sulphides, we started working in earnest on that in April. Initially, we're doing a series of high-level studies, 3 high-level studies, which would carry 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.

The first I'd call like a hop, skip and jump. The second would be the 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 the slower by minimizing dilution and 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. 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 first quarter of next year. So, that's very much ongoing.

As Chester mentioned, we have started the direct export to gold. 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're able to make our first deliveries of gold to where refiner outside Zimbabweans that we export to a refiner in Dubai.

So the most recent -- the most recent export was done on Sunday, and we received payments on Monday in U.S. dollars directly into our Zimbabwe bank accounts, that considerably improves our cash -- it takes the lumpiness out of our cash flows. And whilst we've never really had a significant difficulty getting paid by Fidelity, it does address a sort of long-standing shareholder concern about the credit risk. So that's good.

We raised equity in March and early April. We raised about $16 million. We were surprised at the strength and depth of demand in Zimbabwe. And we're very pleased. We've always intended that the VFEX listing was really only that 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 -- comes quite a pleasant surprise to us.

Then also, as Chester mentioned, we're issuing loan notes from the solar vehicle. We did $4.5 million in the quarter and then about $2.5 million GAAP for the quarter. And then 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. We reiterate Blankets online guidance between $770 and $850 an ounce. We withdrawn guidance, both in terms of production and costs for Bilboes because of the uncertainty. So -- and clearly, in due course, Bilboes will have an effect on all-in sustaining costs. But pertaining the Bilboes didn't exist. We're looking at an all-in sustaining cost for Blanket between $9.35 and $10.35 an ounce.

As I mentioned, we expect the final feasibility study for Bilboes to be completed in the first quarter of 2024. And we've got Board approval now to commence the first phase of an initial drilling campaign at Motapa, initially focused on looking for oxides to supplement the -- what we're doing at Bilboes, but with a clear trajectory to then move into the sulphides with a need to identifying a substantial sulphide resource, which will complement what we have at Bilboes.

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

[Unknown Executive]

Is it the lines open or?

[Unknown Executive]

I am just going to allow to talk here.

[Unknown Executive]

I can see one from Damian.

[Unknown Analyst]

Okay.

[Unknown Executive]

Yes.

[Unknown Analyst]

Cool. Thank you for the presentation. Yes, I thought that's very comprehensive, very good rundown. I suppose I got a couple of questions. I mean, profits, I mean, obviously, revenues and profits seem to have encountered pretty much every possible headwind you can imagine in this first quarter.

Now I can make a judgment on 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?

[Mark Learmonth, executive]

Production -- I think we've got our hands around production. Electricity, the effect of higher -- higher-than-expected electricity consumption will continue for some time until we can rationalize the use of all the infrastructure that we're using. So by that I mean until we can actually start closing down the things like the #4 shaft.

But we are now beginning to see benefits in terms of a lower tariff. And the cash drain that we've -- I'm not really -- really thinking cash terms, the cash drain that we've experienced at the Bilboes should be stemmed sort of June, July this year, so we can deal with -- with that -- we can deal with that.

[Unknown Analyst]

Okay. And the second question was you guided the online cost at Blanket to be between $770 and $850 per ounce for this year, which is obviously above the $735 cost for full year '22. So this kind of suggests the remaining quarters. Is it going to return to a prior cost level or better, given how much higher Q1 was?

[Mark Learmonth, executive]

Yes. You're quite right. Quite right. It does definitely a large proportion of the costs of Blanket are fixed. And so just by increasing production, there's sort of a virtuous circle all 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 an improvement. But having said that, we have seen -- we have -- as Dana saying, we have seen inflationary pressure both from wages and salaries and input costs like cyanide and explosives and what have you.

And even our guidance range that we've reiterated is higher than what we incurred in 2022, and this is good reasons for that.

[Unknown Analyst]

Okay. And actually, a third question has occur to me is that, obviously, with Blanket, you're guiding production of 75,000 to 80,000 ounces this year. So obviously, 8,000 ounces was something that's achieved in a Central Shaft, is only scope for going higher than that from Blanket in terms of theirs best drilling exploration going on there, always all of your efforts being focused on the other side?

[Mark Learmonth, executive]

No. The way that you talk about that.

[Unknown Executive]

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

So ideally, you want to have at least 2 years of reserves ahead of you, greater 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're going to start doing more, there's still a lot of areas that the upside potential for exploration at Blanket. 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 plat because the plant is running at full capacity.

So once you start looking at that, then it's all new business case on the time, we simply running at full capacity invested.

[Unknown Analyst]

Okay. Right. So I guess, the capacity that you've got at Central Shaft is kind of thing cannot be it at the moment?

[Unknown Executive]

Yes. So the Central Shaft or surplus capacity, what Dana 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 not a cost, the cost attaching to it.

And also, we still -- I think we're still playing catch up with the costs associated with increasing the headcount at the mine, because don't forget, we accommodate all of 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 more water. All these costs bill get add up, okay?

[Unknown Analyst]

Sure. So really, I guess, yes, I mean really Blanket as kind of a steady state, hopefully, and it's still base the other sites that will provide the upside?

[Unknown Executive]

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

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

[Unknown Executive]

I just got a question.

[Unknown Analyst]

I've got a question concerning build also the target mining rate is what, around 20,000 ounces -- 20,000 tonnes per month and what's the head grade?

[Unknown Executive]

The oxides?

[Unknown Analyst]

Yes, at oxide?

[Unknown Executive]

We're not giving guidance on the oxides.

[Unknown Analyst]

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

[Unknown Executive]

Yes. But that's as far as we're going -- that's as far as we go, we're not giving guidance on the oxides. We've made that very clear. And so if I start giving -- I think told the market, I'm not giving guidance on oxides and then I'll start giving guidance on the oxides that 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. But we can't go further than that on oxide.

[Unknown Analyst]

Okay. Well, the costs for April were $1.6 million. Is that sort of the typical cost that you expected normals?

[Unknown Executive]

Really, we're not giving any further guidance. I've already said this, we made very clear. Sorry, so helpful, but I mean we have withdrawn guidance in terms of costs and production from Bilboes oxide are accounting further than that.

[Unknown Analyst]

Okay.

[Unknown Executive]

Any further questions?

[Unknown Executive]

Yes. There is one here from Alan Ground.

[Unknown Analyst]

Okay. Thank you very much for your presentation and for answering 3 of my questions that you presented.

I do have a question about the Motapa. And you obviously bought that resource with a view to developing alongside Bilboes. Is there any early view based on historical drilling about the -- how the sulphide resources might be developed there? Or is it still too early stage to get any ideas?

[Mark Learmonth, executive]

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

[Victor Gapare, executive]

Thank you, Mark. Like -- before Anglo American were doing this property and he did a little bit of drilling. But those results are just too old and in terms of relying on them of guidance, I think it would be wrong to give any impression.

What we do know is that there are some high because there were some drilling, which took place there. So our idea is that this is an exploration property, which is what we reported, we report 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 Bilboes, 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 will be much higher than what we are anticipating from Bilboes.

[Mark Learmonth, executive]

Yes. So at this stage, it's just too early to say whether we would -- I mean that the Bilboes -- the Bilboes project has got various mining areas, some close highest, some close by and some further away. In due course, if we find more material quickly at Motapa maybe that we, in due course, rephase the accessing of some of the more remote mining areas at Bilboes, particularly [indiscernible] and displace replace those with things from the top of it. 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 tenure, it could be both. But frankly, we just need to go drilling before we can start talking about that properly.

[Unknown Analyst]

Okay. One question I've sent in by e-mail was the -- a couple of years ago, they've been talked about extending ownership of [indiscernible] some thoughts about that?

[Mark Learmonth, executive]

Yes, that is -- so the idea, as you know, we used to 49%. We increased it to 64% when we bought the 15% of Bilboes that's held by Fremiro. We're committed to keeping the workers in there for 10% and the community in other 10%, but there is a stake of 16% that's held -- used to be held by [indiscernible] of National Indigenisation and Economic Empowerment Fund, which is a sort of a government entity. That fund under the new government -- well, the new government under the mine when government changed from Mugabe to Mnangagwa, that whole indigenisation thing disappear.

So the ownership of Blanket has been sort of moved from pillar to post within the government structures. And for some time, we found it very difficult to actually find who to engage with government to have the sorts of discussions that you're outlining.

What's happened now is that the -- there appears to have been set up, I think all 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 Funds 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.

So for the time being, it's not a thing I can see happening, but it is something that we do hope to do because it would give Sovereign Wealth Fund, a much broader interest across the group rather than just focusing on Blanket. It will give them a much better perspective across the whole group and give them as a shareholder in Caledonia, 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 on that Fred.

[Unknown Analyst]

Okay.

[Victor Gapare, executive]

Mark, just to add to that, in terms of where that asset sits at the moment, it fits in the Ministry of Industry and the Affairs, right? So in terms of the reorganization, we like end up with the Sovereign Wealth Fund, we expect it to end up in the Sovereign Wealth Fund. But the moment, it sits in the Ministry of Industry.

[Mark Learmonth, executive]

Any further questions? Can you see anything Pamela?

[Operator]

No, I haven't, there are any more questions?

[Mark Learmonth, executive]

Okay. Well, with that, 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 much cheerful than in the first quarter. So thank you very much for your attendance.

[Unknown Executive]

Thanks, Mark. Thanks, everyone.