Caledonia Mining Corporation PLC

LSE:CMCL

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Mark Learmonth, executive]

That's right. John Learmonth, Caledonia CEO; joined by Victor Gapare, Executive Director. He is in Harare today. Chester Goodburn, the CFO is in Johannesburg [indiscernible] And Vice President and Corporate Development and Camilla both based in London. And Dana sends apologies, he's traveling in Zimbabwe today, okay?

Let's go through slides. There be plenty of time left at the end of the presentation for questions. And so let's just -- let's get going. So the way somewhere the production we've already previously announced, it was 22,900 ounces for the quarter of which Bilboes was about 1,000. So production for Bblanket was just under 21,800 which was a production record. [indiscernible] Production gold price, which supported the revenue. Gross profit was a big improvement to what it has been in the previous quarter, but as -- to this presentation, you'll see that we do need to pay some potential to 2 specific areas in the cost line being our use of electricity and labor costs, both of which we need to pay some attention to. And again, the other thing I'll take away from this is the is a very strong net cash inflow from operating activities of $14.4 million. for the quarter, which is pretty much nearly a quarterly record and in the quarter, we were continuing to spend a lot of primarily on the new tailings facility, which I'll talk about in a moment. That's a summary of the results.

Yes. So I mention that there's a quarter production in the quarter a record of Blanket. Consolidated online costs are better, but we can do work to improve them further. During the quarter, we announced some very encouraging drilling results from Blanket. And that work continues. But pretty much 2/3 of every hole we drilled came up better in terms of winter grade. And in due course, that will then be fed into a revised resource statement. And then in due course, that will flow into a revised life of mine plan, but we would expect the most positive trending results flow through into incremental resource and an extended life of mine. The reasons perhaps we can discuss later, I really don't think Blanket's probably more like in the [indiscernible] . It will extend its production rather than an increase in production and perhaps we can come back to that time [indiscernible] was returned to care and maintenance as we previously indicated, with effect from the first of October when the mining contractors late period run out. We expect that to result in a significant reduction in the cost of Bilboe a million a month to $200,000 a month.

For the next quarter for Q4, we're hopeful actually the business, the Bilboes will be cash neutral as they continue to collect gold from the [indiscernible] The EIA term to has been approved. So we'll be able to mobilize on the ground in the top early new year as the drilling season starts. Then we've also received an offer to purchase the solar plant again, perhaps we can discuss that perhaps a little bit later on. Term is not disclosed yet, but we were confident and we're confident we can sell it for more than we paid for it. But we don't need to own that solar plant. We need to do a benefit from the cheaper electricity producers. We don't need to have our capital tied up in that. And then the tailings facility, the new tailings facility that now we're spending about $25 million this year and next year. We started pouring on that a couple of weeks ago. which now takes the pressure off the existing tailings facility, which was reaching the end of its useful life as we increased [indiscernible] throughput from 1,900 tonnes a day to 2,400 tonnes a day. When completed by the end of next year, the new tailings facility will have a life of about 14 years. So it's a long asset.

As just in operational terms, as he's not that you have to talk about, you can see it quite clearly towards the right-hand side of the top graph, the gray line, that's the tonnes you see from quarter 4 to quarter 1, the tunnels took a fairly sharp dip and have now recovered in Q3 to where we expect them to be. The increase in grade is as planned. So the increase -- that's not something we were looking forward. It was -- that was in accordance with the mine plan. So as I mentioned, the return to tonnes milled and target grade is behind the return in production to where we expected it to be, which is good. Go on to the financial section. So I'll hand over to Chester, CFO, to take us through the be in the following page doing to finance. Chester over to you.

[Chester Goodburn, executive]

Thank you, Mark. Our revenue is up $0.15 quarter 3 to 22 to Q3 2023 after an increased reduction from a Blanket mine production as a real quarter for us and that shows a turnaround from what brand Atlantis producing so overall, we had more ounces that we sold during [indiscernible] ,and we had an increase for cost 12% Unfortunately, our production cost increase. As Mark said, the productory price at all was off-site. We used about $300,000 per month. That's [ 600 ] Per quarter. We are quite pleased to see that $3.3 million that we spent on Borbos, for Q3 come down to about $600,000 in Blanket blended lakeside increased our costs by $1.1 million that was due to interest usage as well as overtime on the labor that will come on today in a little bit lesser.

Go down to our tax expense, looking at our cat expense for the quarter. The CI effective tax rate. That's due to the predominantly due to bills oxides that are enhanced and out sell back expense. And if we go back to all those operating costs, you'll see that our tax expense normalized. So we expect that to normalize to effective tax rates that we've seen in prior quarters. Adjusted EPS is lower on a consolidated basis, predominantly due to the buyer costs, and we'll get on to the production cost for the next sale. Looking at our salaries and wages at Blanket that very much increased T count over time. We should be able to look at that over time and utilize our labor force more effectively like we've done producing the same amount of [ houses ] similar targets in [indiscernible] . And we'll get back the markets and inform you about our initiatives that we will implement for the time and the count. Issuing our kilowatt usage has been increasing over the year and that's predominantly [indiscernible] shaft that we've commissioned and we're running 3 shots at the moment.

But also looking at producing our features. It's good about these 2 solvencies that it should be within our top before that in a operate at lower cost and we should be able to find initiatives to reduce these costs. On the Bilboes off-site side, as I've said, that cost should be one-off, but should be reduced to about $600,000 of the quarter from next year, significantly reducing our cost to what we see in our life of mine estimates. Turn page, please from administrative expenses point of view, to highlight the big increases. There were some created changes on advisory services fees to million ounce of all those profiles. That was past advising piece on vision of that deal. Rising fees increased throughout the year, and that is due to the successful lines we add on onto. Wages and sales increased due to the additional staff members that we've been taking or we took over on [ Bilboes. ] And they're currently helping us with things like the titles. I'm quite pleased to see that we made some progress in [indiscernible] Further, we've added some of the additional governance structures and increasing our internal audit department and also bolstering up our ITV sources.

Now if you look at the total there, if you exclude 1 or paying to buy fees on over position forward, we should be able reduce our administrative expenses to very close to what you've been spending in each quarters and years. This is a illustrative example of our online costs. you see the contribution of billers oxides and the reblock on the online costs are left. That, we believe, should come down to about $600,000 a quarter. So we do have a plan for that reducing our online costs and were able to find solutions to reduce our kilowatt hours to what used to be similar labor that's come out. And if those 3 costs increases come out, we should be able to online on to what you've seen in life between the [ $15 million to $50 million ] per ounce. On expanding cost was mostly influenced by the online costs. And if we fix the online cost, you'll be seeing that similar to what we reestimated on life of mine. We turn the page, please. We've got a higher effective tax rate prolonged due to the billers oxide operation losses be recounted and being not deductible against our tax charges. We map our taxes are our calculation of RTGS and U.S. dollars, depending on what the transactions do not make it in. And that sort of puts it a little bit off from what you expect due to the TGS devaluations.

But if we take out the [ Bilboes ] the profit before tax you could see our effective factors normal environment to what you see in orders. Throughout all the involvement and active tax rate remain 24.72%. [indiscernible] on the balance sheet. Firstly, our long-term assets. We increased sale to [ Bilbo ] acquisition. Our current assets will increase into the solar sale, we plan to sell the solar plant and move the solar plant of about 14 consumer down to the current asset strategy from own assets and we have to make a good profit on in and use all the about from the serlopitant. We should be able to use that the proceeds from Solana investing that in our future gold businesses. [indiscernible] it current abilities have been fairly flat and noncurrent liabilities increased because of the issuance of [indiscernible] earlier this year. On the next page. Cash, our cash is in the right places. We expect these cash balances to go currently exchanging all our RTG balances, and we are making results to the exchange of Sudan, we are not holding up any cash balances in involvement outside. Turn to the next page.

[Mark Learmonth, executive]

Yes. Can I sit my interject here. So I just want to -- before we go too much further, just reiterate more clearly something that we've said for a long time. We're going to -- we always have capital allocation decisions. But as we move forward with the evaluation of the Bose opportunity. We have to be very clear on how we're going through this capital allocation process. And as I mentioned before, our primary objective is to is to come up with a commercialization approach for buildouts and indeed all of our investments, which optimizes the net present value per Caledonia share. So the net present value of future cash flows attributable to the Caledonia share.

And that takes into account any dilution that will be needed to fund the new project again thing I said previously, we're not interested really in doubling, practicing production and doubling, tripling the number of shares and issue because that just effectively means that we still I'm going to talk a little bit later about where we are in terms of the builds fealty study. As Chester mentioned, we are fairly bounced in discussions to Sean project, which we'll release capital for the noncore asset at a premium to won't pay for it to recycle into our core business, which is developing and running coal lines. In respect of the [ Bilboes ] transaction, we are considering the phased approach. So refreshing the initial feasibility study is a relatively straightforward exercise. But preparing a new feasibility study for a smaller phased approach is in a brand-new piece of work, which requires new pit designs and also other stuff, which will take slightly longer.

And it's also fair to say that whilst we have an appetite for some year in our overall capital structure, we, I suspect, will be relatively conservative when it comes to that. So I just thought it's worthwhile just explicitly saying a few words in respect of our capital allocation policy. Maurice, could you move on to the next page . As mentioned to build those old update -- this quarter, quarter just finished quarter 3 will be the last one to be affected by the negative contribution of the large negative contribution from Bilboes and we expect the monthly costs to reduce from a million to 200,000. And for this quarter, Q4, we'd expect that to be broadly cash neutral as we continue to harvest some of the gold that is on the heap leach is disappointing. The disappointing production from the oxide as the bearing on the quality of the underlying sulfide resource. We entered into the [indiscernible] transaction to acquire and develop the [ solo ] sulfide resource, about 2.5 million ounces at 2.3 grams a tonne. The oxide was just fueling incidental from one of the things we hope to avoid doing was having to retrench a considerable other of our employees. We hope to hold that, but I'm afraid we couldn't avoid that. and so we have had to that quite a lot of people do, which is in context, especially in the context of these elections was -- well, something would hope to avoid doing but we are where we are, we couldn't sustain that cash dgrain for any longer.

We'll continue on the revised feasibility study, as I just outlined. The work in terms of updating and refreshing the existing large-scale projects is relatively straightforward. The new work on a phased approach will probably only get completed in the first quarter of next year, and we need both the information to be able to make the appropriate capital allocation decisions. So we'd expect to be able to get some further guidance early in the next quarter. Could we move on?

Okay. So in terms of outlook, hoping you're going to continue producing a Blanket in the targeted range of 75 to 80 [indiscernible] and pretty much similar going forward, as I mentioned, the encouraging drilling results at Blanket will certainly flow through to an increased resource base, which will probably result in an extended life of buy rather than increased production. To increase production of Blanket will require probably a disproportionate investment in things like mills sale tanks nonproductive social infrastructure, which means that it's becoming -- will become more expensive just to have an extra or 5,000 or 10,000 ounces, and we could use that money to better reflect elsewhere. I mentioned the feasibility study at Bilboes and having got the EIA approved at Matapa,as we get the rate seasons in [indiscernible] that would be an appropriate time to actually connect people in it resources to the ground at the top of I think they are finished. Yes. So I think that's the end of the formal presentation. We're very happy to open it to questions.

[Mark Learmonth, executive]

Any questions?

[Unknown Executive]

I have some questions on a second, you've got a rate

[Unknown Analyst]

Hello. This is Ernie Molesh. I've got a question concerning the electricity supply. How much is the electricity actually costing you? Is it you said $2.6 million per quarter. And then could you break down how much of that is really fuel cost in South African rand maybe? And then how much is coming off the solar plant?

[Mark Learmonth, executive]

Well, 25% of the power use comes from the solar plant. The same I have explained before is a little bit complex, but I'll do it again. The sale plant is owned by Caledonia not by blanket. Caladonia is 100% of the solar plant, Caledonia make kind of only funded the solar plant. And so the benefit arising from the sale of time is crystallized at the Caledonia level I would like example. So the solar plant sells its power to Blanket at, correct me if I'm wrong Chester, trusting [ 13 ] kilowatt hour. It only costs about $0.01 or $0.02 if that to produce it.

So the profit arising on the -- the benefit arising on the solar is crystallizing Caledonia, and that's reflected in the all-in sustaining cost per share, not the online cost. So it's a bit number of ink, but I think you understand why we're doing it. Just the cost of the grid power, is that about [ $10.08. ] Is that correct?

[Chester Goodburn, executive]

Yes, 10.08..

[Mark Learmonth, executive]

No, that is -- we import the grid power we import through a facility called the intensive energy user group, which was a, let's say, sort of industry body sort of satisfies the President actually. And that imports power directly from Mozambique and Zambia which means that we benefit from a cheaper rate of the imported power than we would if we were buying grid power in Zimbabwe. I think the grid power is just got up about 16 just all victory the grid pores in the number of expenses.

[Chester Goodburn, executive]

13-point-something cents.

[Mark Learmonth, executive]

I thought I read something yesterday we setting up even further. So we do get the benefits of from the grid power that we're getting at a cheaper rate. But we still suffer a very unstable grid power supply because the Zimbabwe grid is very dilapidated particularly in so far as it serves blanket, which means that we continue to experience power interruptions and voltage spikes and troughs, which then means we have to fall back on to the diesel generators. The diesel generators, I think, will cost about $0.45 a kilowatt hour.

Chester do you have to handle to memory the approximate split of the power usage just between solar, grid and diesel? Do you have that to hand this off I don't worry if I just comment on what it is -- if you don't, we prove can provide it later. But do you have it?

[Chester Goodburn, executive]

Yes, okay.

[Mark Learmonth, executive]

Well, as we're talking. There are some very technical things that we could try and do with the solar farm to improve -- to improve the quality of the power we receive through the grid, and that's called Power Factor Correction and that's something we're exploring with the proposed buyout of the grid, which would mean that on the one hand, we would get less direct power from solar project. On the other hand, it would mean that we could use a higher proportion of the grid power that we get into the IEG and thereby displace use of the diesel. So we'll be losing some -- the use of some solar but in certain forgoing solar for displacing diesel, which will be a very powerful benefit for us. So we're exploring we're exploring that with the purchaser of the solar project. So sorry, that was a very complex long answer to quite a simple question. Did I answer everything? Or do you ask to the

[Unknown Analyst]

Yes, that answers most of it. Just out of curiosity, -- is the solar farm already paid for? Or much profit do you expect to get after the sale of that

[Mark Learmonth, executive]

It is always paid for an equity, we've not disclosed the price because that's an ongoing negotiation it's a very reasonable question, but very easily able to -- but we are expecting out, but we are expecting to sell it more than we paid for it.

[Unknown Analyst]

Okay. Let me turn it around. Is there a prospect of doing another solar farm if you get another 25%?

[Mark Learmonth, executive]

Yes, there is. I mean the buyer for the some project is interested in developing its footprint further into [ barges. ] So very much there is the option to do more so I'm going to say so maybe we have a smaller top-up planned Blanket, maybe it won't be very big. But Bilboes those if we can get -- and there's no reason to believe we wouldn't be able to. If we can get power through the intensive energy user group for Bilboes because Bilboes is in a much better position geographically vis-a-vis the Zimbabwe grid.

Bilboes could probably manage very effectively with imported power with relatively let in the way the power interruptions -- and so the benefit of total power for Bilboes may be much smaller than the benefit is a blanket. So it's not altogether clear towards whether we would actually need to put a solar project in a build back. So again, that will come out of the evaluation. But much the buyer is the sort of buyer who is there to get bigger? Are they using this -- the purchase of the blanket seller project as sort of a startup starter in a.

[Unknown Analyst]

That answers my question on that. I've got another question on Bilboes soft project. On the -- are you contemplating using other approaches other than by for processing that. I know there's quite a few projects coming online in Africa, where they're having different self-life projects being exploited -- and a lot of the technologies are not using Box. They're using some kind of oxidation method that's cheaper and more effective than [Vias.]

[Mark Learmonth, executive]

Yes,Victor, are you able to address that, Victor?

[Victor Gapare, executive]

Thank you very much. Here during the feasibility study, which we did, we did look at the various options and the option which seems to give us the least capital costs -- and also in terms of treating the material itself seems to be bios. There are some other options, which are our consultants have suggested that when we do the feasibility study going forward, maybe we may look at and review. But pretty much a lot of wait was done during the intY study, and Biogen to be the most logical one. From a CapEx point of view, plus also from a probability of other operations, which are using bios in South Africa.

[Mark Learmonth, executive]

It's also fair to say only that there's been very, very limited prospect to export concentrate from Zimbabwe involvement in we got as a red line or policy red line in-country beneficiation. So our ability to export concentrate, so I don't how much we get it to the face. So we've got to have something in country, which you're going to get into 99.5%. Does that answer question, Jay?

[Unknown Analyst]

Yes, it does. Thank you.

[Mark Learmonth, executive]

Any further questions come on?

[Unknown Executive]

Yes. There are a few. I'm going to deal with the readiness.

[Unknown Analyst]

Can you may take us through any changes in legislation and regulations that might have affected Blanket and Bilboes, I think over the last 6 months. And obviously, we've been through -- you guys have been to baby has been through an election. Has that had been a reflections?

[Mark Learmonth, executive]

Not that I am aware of. I mean the elections all seem to -- we very, very hardly actually, we compared to what we are expecting. Victor, anything that you're aware of it to?

[Victor Gapare, executive]

No. The usage anything really from a policy perspective, which has changed in terms of continuing to is, we expect the policies to continue. And maybe everyone which we may point out is the fact that -- there are the set of legislation, we say the U.S. dollar regime or the multicurrency regime currently in place would end in 2025. They've actually extended that by another policy instrument which as it does in 2030.

But the way we look at it as so in terms of most of the officials, they're looking at it from the point of view that they -- maybe the multicar disappears is well seen economic conditions have been met. For instance, the inflation, the input cover in terms of ForEx doors are the critical things for the board regime to end. And obviously, the confidence in the public currency.

[Mark Learmonth, executive]

So clearly, you have some more because you won't I doubt you asked that keep answering -- you must have something in mind.

[Unknown Analyst]

Well, what you should have been saying, Mark, is that you may be the first company to get gold through the fidelity and....

[Mark Learmonth, executive]

I mean just to reinforce the point, we felt -- we've been exporting gold directly funding parties, I think, April. So that's not new. One of the -- and actually, I think really, I'll turn around, I would say that the -- we've seen quite a welcome period of policy stability actually in Zimbabwe in recent months. I pray shouldn't say that because , but pretty much we've seen things to be relatively same. And long way that continue. Because, frankly, that's the biggest -- the hardest thing for us to deal with is roughly changed the policy, in the past have caused quite a lot of dislocation and caused us some headaches. But all seeing positively is stable, Nick.

[Unknown Analyst]

Okay. Excellent. just over time, your [indiscernible] solution for shortfalls in production.

[Mark Learmonth, executive]

No, it didn't. Over time, since really go to physicians, people are looking at production benefits. So now we've got more -- we've got to have a much, much closer attention to the scheduling of labor so that we get people down the shops into that place of work more effectively and more efficiently minimize the time they spend waiting to own shaft or that's that scheduling. And again, it's not difficult, okay? So no, we shouldn't be using over time.

[Unknown Executive]

Harry, I'm not sure -- I know you had a written question. I'm not sure if you've got an additional question that you want to ...

[Unknown Analyst]

Can you hear me? I'm looking at your diluted earnings per share and your regular earnings per share. If I take $5.6 million of profit and divided by $19 million, that's $24 million -- $0.24 a share. Do you have more than 19 million shares

[Mark Learmonth, executive]

No, that 19, 19.1 million shares in.

[Unknown Executive]

Diluted earnings become $0.15. What's the dilution? It looks like a miscalculation?

[Mark Learmonth, executive]

Chester?

[Chester Goodburn, executive]

[indiscernible] the movement quarters and how it makes look. If you look at effect for the 9 months, a lot smaller.

[Mark Learmonth, executive]

So it's a sort of quarter-on-quarter presentation. I think I'm sure Chester will be delighted to take you through a little more detail on. But I think it's a reason asking that question in this forum.

[Unknown Analyst]

Even quarter-on-quarter, you still only have 19 million shares, no matter what quarter you're taking?

[Mark Learmonth, executive]

Just I don't believe it's -- I don't believe there's no, I'm confident that Chester can take you through it on a sort of a detailed calculation basis. I don't think it's able to do it sort of quite off the cup like this.

[Unknown Analyst]

But just send me a note. Second, do I understand correctly that by putting Bilboes on care and maintenance, you're going to save $800,000 a month or $9.6 million a year pretax. Is that correct?

[Mark Learmonth, executive]

That's correct, yes.

[Unknown Analyst]

Well, that's $0.45 a share after tax. That's a lot.

[Mark Learmonth, executive]

Yes, that's what we're doing it. Well, put it the other way about it was also cash and is unsustainable and we have this call.

[Unknown Analyst]

That's all right. As for the proposed sale of the solar plant, will you pay more in rate to the buyer and your cost is now?

[Mark Learmonth, executive]

No. The reason is just truly their cost of funding is collected lower than ours, hence, the payment is purely that's all in this.

[Unknown Analyst]

That explains it. And finally, and because that Bilboes, the ore that you thought was there is not there. Is there a way for you to claw back some of the sales transaction in the press transaction ...

[Mark Learmonth, executive]

No, because actually, [indiscernible] the vendor is as. And I think that will be this can we claw some money back from you for the oxide.

[Victor Gapare, executive]

Yes. So -- most of the ore is actually transitional. What we thought was outside this transitional. And this is our plan. We were always going to mine the ore. But the issue is when we do the credit trade for the [indiscernible] project, that we will bring to mine. Basically, it can come almost like a free or in the fat the mining cost, they were shipping, they are already borne by the sulfide project. That's how it was going to contribute. So that's all is still there with mine, some areas, okay, some areas we didn't get the ore, most of the transition on or what we thought out side is actually transitional. So it is there.

[Unknown Analyst]

And the other orders an oxide or software is.

[Victor Gapare, executive]

The sulphides, obviously, between the [ upside ] and the sulphide you normally get a transition now gone. So is that transition Trans now all from the transitional zone, you can't really protect it is oxide the companies will be poor. But when we actually do the sulfide project, we're able to process that by blending it together with the sulphide proportion so that you give maximum recovery out of it.

[Unknown Analyst]

Okay. And the main ore body at the main ore body, does that have what you think is 4 million or 5 million ounces?

[Mark Learmonth, executive]

It's 2.5 M&I, another 0.5 million that's inferred but it's fair to say there is exploration potential, but we're not pursuing that at this stage.

[Unknown Analyst]

So 3 class at this time.

[Mark Learmonth, executive]

Yes.

[Unknown Executive]

We've got a few written questions. So the first one is, how do you expect Bilboes in the past to add to total revenue and profits for the next 5 years.

[Mark Learmonth, executive]

Well, it depends very much it's impossible -- well, on the top up, I think it's like in the top and we'll start production in the next 5 years. I don't know. Bilboes, that depends entirely on whether we go for a big buy approach or a place approach and until we have an answer, it's just [indiscernible] I just can't answer that question until we've got a clearer route on commercialization. So I mean it's fair to say that when we Bilboesbought builds, we worked on the basis of a big bang approach. And we could still do that, but we're looking to optimize the assumptions from those which we use when we bought. So we're looking at a further improvement.

There's nothing wrong with the project as it currently stands with a big project approach, which we find something better. Better than that. So the -- I can't translate that -- I can't answer that question in terms of dollars revenue, I just want to go back to that comment a bit earlier on about our approach to capital allocation is we're trying to find a smarter way to commercialize this asset, which balances growth and minimize dilution to the benefit of shareholders, not chasing revenue.

[Unknown Executive]

Next question is, can you talk through the rough expenditure on Bilbo various feasibility studies? And could you go through any planned exploration programs at various site?

[Mark Learmonth, executive]

So just read them again. I couldn't just be again.

[Unknown Executive]

Can you talk through the rough expenditure on Bilboes various feasibility studies?

[Mark Learmonth, executive]

Victor, what's the cost of the feasibility study?

[Victor Gapare, executive]

The work which we are doing now are probably to get to feasibility study-- probably spend something. I think it budget put something at $5 million.

[Mark Learmonth, executive]

Okay. And that is a very broad -- it includes an awful lot of, becomes many areas there's quite a complex project that don't come in many areas. Do you want to talk.

[Victor Gapare, executive]

A talk this are the sense that the way we're looking at it is in terms of a fiproach, it can be purely a new project at the end of the day, you have to do new designs and things like that. So unlike where we look at the bigger project, we still look at the bigger project to see whether we can find it. So they we update on the cost. And also, in the last few months, as we've been looking at it, there are a lot of areas which we already identified this area for optimization. So that's the kind of point which we're doing optimization in terms of various webstream and also in terms of maybe managing the capital expenditure.

[Mark Learmonth, executive]

So do you want to go into a bit more detail on those various extents.

[Victor Gapare, executive]

Okay. I'll just pick a few. For instance, the big one1 way we're expecting to made quite a big saving on our capital will be about the tailings facility, for instance, in terms of how we construct it and also taking a fair approach which then reduces our peak capital funding when we start the project. So that's a big one. We expect it to be quite a big one. But also if we go with a smaller project is we go with a smaller facility. Also in a way so that will reduce the CapEx. And then from a mining point of view, the way the pit have been designed, obviously, by i.e., managing the way you do your waste stripping when you start.

We do expect to reduce maybe the capital expenditure at the beginning. These are the major waystreams which are on. We've also at the issue of the electricity. If we are drilling the big project for et we'll have to build a new power line, which is about 75 kilometers. But we have to look at that. If we do the smaller projects, we drill some way to see whether the existing line can naturally be upgraded or can naturally take the amount of power, which we need. We're working very closely with the power utility that we point net.

But I think obviously, the other issues that are maybe the contractor will be doing the mining. We're looking at optimizing that in the sense that if that contract is also mobilized to do the tailings facility for an -- we only pay one mobilization here and things like that is we shops to let to look at these wishes. So there are many areas which we're working on at the moment, they're we're quite optimistic in terms of maybe coming up with a better capital estimate for this project and also better operating cost for the project.

[Mark Learmonth, executive]

So let's, anything else?

[Unknown Executive]

Yes, there is what are your thoughts on near-term future CapEx in 2019, 2020? We obviously thought that was going to go down and CapEx is roughly doing the amount of operating cash flow. Do we expect that to decline free cash flow to increase and a larger dividend?

[Mark Learmonth, executive]

No, we do expect CapEx to go down, but I think to increase the dividend in the context of a very substantial investment program would be I can't see how I do on possibly justify that. Although we wouldn't expect CapEx to come down and therefore, free cash flow to go up. But I can't at this stage and give you the dividend given the fact we've got a large quantified CapEx program coming towards us.

[Unknown Executive]

And then there's one more, which says, when will the current recovery at Bilboesbill both oxide be completed?

[Mark Learmonth, executive]

Victor secondly ended this quarter. I mean outright the end of this quarter, it doesn't trickle on into I want to say, first of all, let's be clear, we're not talking [indiscernible] on, okay. So let's put it in contracts. The [ vinerstanding ] was that we thought that the continuing heat leach would go for quarter 4 and then not into next year. Is that correct?

[Victor Gapare, executive]

It should really end at the end of the year. unless if we -- if the recoveries are showing still in showing that we can recover any more gold, but I think that has developed with the cost of doing host

[Mark Learmonth, executive]

Yes. But I really would encourage you not to start focusing on the heap leaching from the oxide that really is going to be done in the....

Any further question?

[Unknown Executive]

One just come in. How is the South African rand affecting your supply cost, especially with fuel and materials,.

[Mark Learmonth, executive]

It's not. I mean, Chester can probably talk about this better but South African suppliers typically charge us in run sort of a trough dollar price. And so we're not -- I mean lots actually in the cost analysis Chester put up. We've not seen any increase in our consumable input costs, which is still very pleased to see. So the simple answer is that we are not -- that the answer is not having an effect at all.

[Unknown Executive]

There's one more. Do you plan to increase the spend on exploration at Blanket?

[Mark Learmonth, executive]

The Blanket connect not substantially. I mean, the cost of the exploration program at bank isn't particularly significant is more constrained by logistical just get billing excavating the drill copies they're working for us, but it's not particularly expensive program. And we're very comfortable that the results we've seen so far and the results that we're expecting to see to the ongoing exercise will give a very substantial uplift in resource base and life of mine.

For us to go the other exploration area that we could we do plan to do in due coloan will be a long strike to the north and the south, but also to the east at 800 meters to the east on the bandeira. But again, we've got many competing needs for capital. And there's a limit to how much cash will be spent. It's not a lot amount of money expense. At the moment, I'm comfortable that the exploration activity of blanket is more than for purpose. And I think the other area we have to spend a lot of money at it's not direct an exploration that's related. It is upgrading the IT systems and the software packages that we're using in the own department which has actually paid dividends very expensive, but is paid dividends in terms of improving and making much more real-time our mine planning system, which we think that we can adapt to changing circumstances we see them.

And actually, that we are expecting will probably crystallizing a modest reduction in some of the capital programs that we have planned which now using the better mine planning software we've got, they mean that we actually don't need to do some of the stuff that we would do. So that is paying for itself. So again quite a long answer to quite very short question, but I think that answers it properly.

We just give a pause to give to see if anyone else wants to -- the minute I'll save Steve will ask further questions. Victor or Chester of any final observations you'd like to make based on the questions that we've received on my attended answers.

[Victor Gapare, executive]

Not for me, Mark. Thank you.

[Mark Learmonth, executive]

Okay. No more questions come.

[Unknown Executive]

Nothing

[Mark Learmonth, executive]

Okay. Well, thank you all for attending, and we'll do this again or we can publish our next quarter results, which will be towards the end of March to be Q4 as taking out more the cost of the audit is get involved. Thank you all for coming.