Caledonia Mining Corporation PLC

LSE:CMCL

Earnings Call Transcript 2024-Q1

[Camilla Horsfall, executive]

Good morning, 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 Gapare, 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. We find that's a better format than the written Q&A.

I'm now going to pass you over to Mark, who will start the presentation.

[Mark Learmonth, executive]

Thank you, Camilla. Can we move forward? That's the disclaimer.

Moving on to the next page. 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 first quarter 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.

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 first quarter of 2023. We wouldn't normally go into this level of detail, but this quarter it is significant.

In the first quarter 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, Harare and Dubai. So we have to go off relatively early. So only 78 working days in the quarter compared to 86 working days in the first quarter of last year. So in that context, it makes quarter 1 look even better.

I think -- so we're standing behind our production guidance for the year of between 74,000 and 78,000 ounces. On a personnel matter as you all know, Dana Roets, the previous Chief Operating Officer left the business at the end of February. We're pleased to say that James Mufara has joined us with effect from the 1st of May. He joins us from Harmony, which for those of you who are not -- 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 0.5 million 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 it's hopefully at this minute, 3,500 feet underground.

James is 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 site of what's happening at Blanket and then in due course at Bilboes.

So we're very pleased to see him. We also announced earlier on in the year some very encouraging exploration results of 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 2/3 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. So you should look out for that very shortly. We maintained a quarterly dividend of $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 Bilboes, 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. Yes, we mentioned safety pleasing fall in safety incidents. We mentioned production, an uptick in production from 16,000 to 17,500. Clearly, the higher gold price helps, $1,860 increasing to $2,040, that's the average for the quarter. 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 million to $38.5 million, gross profit up from less than $6 million to nearly $14 million and net profit to shareholders swam from a loss of $5 million in the first quarter of last year to a profit of $2 million this year.

It's fair to say that the only fly in the ointment in the first quarter was a substantial foreign exchange loss of about $4 million, $4.1 million, which Chester will talk about in due course. I don't want to pretend that the 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. But putting it on one side, if you pretty much ignore the -- there is some pieces, including the foreign exchange loss. $0.30 a share loss in the first quarter of last year has now been converted into a $0.27 profit in this quarter. So operationally, a very significant turnaround. Should we move forward.

Okay, there's quite a lot of information on this graph. I mean it basically just shows you quarterly going back to 2012, the top graph shows the grade in the tonnes. 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 low 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 and have all the ways to benefit from -- to get more gold at a higher grade is by far the best. It has a much better effect on cost per ounce and recovery. And again, if you are very closely at the bottom graph, you can see very closely, you can see there was a very clear pattern during the quarter of each calendar year, Q1 typically starts off a 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. Based on what we've seen happening at the mine in April and into May, we're very comfortable that, that will continue in 2024.

Okay. I'll hand over to Chester now really for the bulk of the rest of the presentation to run through the financials. Chester, over to you.

[Chester Goodburn, executive]

Thank you. 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 in fact 1,600 ounces that we produced in Q1 and sold in Q2. [ Solar ] Sales also comes at a time where we've seen record production -- sorry, record gold prices. Our average gold price for the quarter was $2,040 and that comes with the online cost of $993 per ounce, pretty much flat quarter-on-quarter, and we should see that going down in the latter part 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 quarter 2, quarter 4, that should bring down our online cost per ounce going forward. So we've maintained OpEx guidance of between $870 and $970 per ounce on an online cost basis...

[Mark Learmonth, executive]

Chester, can you just explain the step-up in the old mine cost per ounce were 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.

[Chester Goodburn, executive]

That's right. Yes. So mostly that's due to inflation increases that we've seen from 2022 to 2024, and about $2 million of increased electricity costs based on additional consumption since we 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 our factor correction that we will implement in Q3 of 2024, and we should see some reductions now per se cost. Other than that, we're also looking at other initiatives, and we'll come back to the markets with some of that information, on how we plan to transition to using most of our shafts at Blanket to just using the 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 $1,267. That's lower than what we've given guidance on of between $1,370 and $1,470 for the year. And that's due to the timing of our CapEx spend that we plan to spend in the latter part of the year. So could you see our gross profit increasing to $13.8 million. That includes additional depreciation charge of about $2 million that we've incurred due to our [indiscernible] of the useful life of our shafts that we plan to stop as soon as we mine predominantly under 750 meters at the mine, and that should also have a result in cost benefit on electricity as explained.

Our earnings per share was positive $0.106 for the quarter that turn around 2023 egos that we had. It's good to see that Blanket is producing a lot of cash and it's profitable, and they had a good quarter so far. So with adjusted earnings per share, this is where we count back the foreign exchange losses that Mark alluded to you earlier, but we'll get to the FX losses in the following slides.

Our cash used in investing activities, the CapEx, that amounted to $4.1 million. We plan to spend more in Q2 to Q4, but we've maintained our guidance of $30 million 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 $10.5 million, that includes the realized foreign exchange loss of $3.6 million and a factor to be countered back. So if we didn't have these massive devaluations of ZAR dollar, we would have produced more cash than we did in our 2022 quarter 1.

[Mark Learmonth, executive]

But before we move on is before working capital movements from time to time, we do think quite substantial variations in working capital, and that can be towards the end of this quarter, quarter Part of that was due to us prepaying for equipment and goods that we're buying in country, so that we weren't holding to minimize the extent to which we are 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, and that just comes down to some 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 to the end of Q1, that has changed markedly better since then.

Sorry to interrupt, you move on, Chester.

[Chester Goodburn, executive]

Thanks. Profit and loss, it's good to see our revenues at $38.5 million. 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 said earlier. On average, we've got 87 production days, that's 12% increase in production days in quarter 2 to quarter 4. 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. So overall it's 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 Bilboes oxides is been in care and maintenance. And talking about Bilboes, we've -- that's very much on a breakeven basis, where we are still incurring some costs and gaining some revenues to the extent of exceeding those heap leaching activity costs. It's good to see Bilboes breaking even and not incurring the losses of the prior quarters. So we really reduced our cost to the Bilboes level. Depreciation, I've spoken about that. But we use 4 ounces that we've shortened for shafts. And under the gross profit line, yes, you can see the foreign exchange losses of $4.1 million, $3.6 million of that is realize so that had a cash effect. And that was due to the devaluation of the Zim dollar, subsequently after year-end or quarter end, Zimbabwean government introduced Zimbabwe gold currency on 5 April.

And we've been transacting in that currency from them. So there's a bit of a delay in and transacting at first. The first 2 weeks was slow, but we are transacting in the Zig. And what's quite nice to see is that the Zig's actually strengthened from the 5th of April to now. So it's currency based on, all backed by gold and foreign exchange reserves. So we believe if those measures are followed, and if the Zig gold strength as it's currently doing that these foreign exchange losses would not reoccur going forward.

[Mark Learmonth, executive]

So can I 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 short, I think it was about 9 days. 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 local currency.

In dollar terms, it was worth substantially less than the rate at which we booked it. So that's 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 amounts 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.

[Chester Goodburn, executive]

Looking at our production costs on a balance sold basis. It was good to see that we -- our costs at Blanket remain checked 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 and high prices. And that's due to some initiatives that we've implemented at our procurement department to reduce the is while maintaining the quality of the consumables that we are purchasing. So it is very good to see our cost coming down.

[Mark Learmonth, executive]

We do have a very sophisticated procurement operation based in Johannesburg, which leverages the quite competitive supply environment in Johannesburg. So if you want a 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. 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.

[Chester Goodburn, executive]

Other than that, it's also good to see the cost coming down. Bilboes, we've spoken about that. So all -- I think cost came down, we remain flat quite well. As said earlier, this shows the online costs or all-in sustaining cost per ounce. We've maintained our guidance of $870 to $970 per ounce on an online cost basis. And on an all-in sustaining cost basis, we've found -- we believe this will increase and that's due to the timing of all the CapEx and the scheduling of our CapEx spend mostly towards an asset. So that's also maintaining a $1,370 to $1,470 for the full year.

Also, I was quite pleased to see administrative expenses coming down. It came down by about $3.3 million overall. That came down on several fronts, investor relations. That was lower than comparable quarter. Advisory services fees were $3.1 million lower as to us not reoccurring the Bilboes acquisition cost. That was a once-off cost to obtain an ounce of Bilboes, and it's good to see that coming down. Wages and salaries from a group perspective. There was a reversal of the 2023 management bonus accrual and the 2024 year, reducing our wages and salaries and also our travel costs came down quarter-on-quarter.

So overall it's very good to see that the quarter 4 G&A costs, general and administrative costs that we incurred that had quite a few one-off costs in that these costs, although those once of cost, who are not recurring into Q1, and we fund we've really focused our cost to make sure that we reduce our cost. So it's really good to see that in these numbers. This slide shows the cash generated from operations before working capital changes. As I said earlier, here, you can see cash generation throughout the quarters was 2023 numbers looking very bleak. But from Q1, our cost controls are in place. Our production is up. We're really doing well in terms of the gold price. And if you count back that $3.6 million foreign exchange realized foreign exchange loss that was outside of our control, that would've of generated over $14 million. That is higher than our 2022 amounts when we ramp up to 80,000 ounces per annum. So really good to see the Blanket's back, and its cash generation -- generating abilities remain strong.

Over to you, Mark.

[Mark Learmonth, executive]

Yes. So just in terms of the outlook, as 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 Bilboes with the 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. And exploration results at 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 Motapa. So I'm delighted that we seem to have drawn a line under what was a very, very difficult 2023. 2024, we got off to a reasonable start. First half of the second quarter is going very well indeed. And I think we're in a very exciting juncture or as we begin to take this business forward materially.

So that's the end of the formal presentation, we can now hold it open to questions.

[Camilla Horsfall, executive]

There are a couple of written questions.

[Mark Learmonth, executive]

Okay. There's a first one is from how about the Zim-dollar?

Okay. So the new -- let's be clear on this. The new currency is called ZIG, it was introduced, and let's face, the ZIG only affects us to 25% of our revenues. The rest of the 75% of our revenues are in U.S. dollars and nothing has changed there. The ZIG is apparently backed by assets. I 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 of April, the exchange rate, I think, has gone from about 13.8% to I think it's strengthened very slightly. It's moving to the right direction. So basically, it's been stable, has strengthened slightly. So that's the question about the ZIG.

And then a question on question, when can we expect -- can we expect to Blanket's grade return to 4 grams a tonne.

Well, can we just wait a few days until you get the revised mineral -- to get the revised result statement out in the next few days, and we can have a more sensible conversation about that then. So we would once -- 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 left 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. That was the only written questions we've got. Do we have any anybody wanting to ask questions in the traditional way by asking? Could we have the lines open.

[Camilla Horsfall, executive]

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

Not seeing any questions.

[Mark Learmonth, executive]

No. Not seeing any questions. There's another question popped up. How many shares are out?

So I think it's 19.1 million, isn't it, Chester?

[Chester Goodburn, executive]

Right. Correct.

[Mark Learmonth, executive]

Any further questions. Thank you. Okay. Thank you, [ Alan ].

Okay. I think on that basis, then lets go to 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. So keep your eyes open for it. Okay. Thank you all for your attendance.