Caledonia Mining Corporation PLC

LSE:CMCL

Earnings Call Analysis

Solid production and strategic initiatives drive Caledonia's growth despite currency challenges.

In the latest quarter, Caledonia produced nearly 19,000 ounces of gold, slightly under last year's record but on track for annual guidance of 74,000-78,000 ounces. Revenue rose by 13.6%, attributed to higher gold prices. However, cost pressures, particularly from increased labor and electricity, have prompted revised cost projections for 2024: $950-$1,050 per ounce in online costs and $1,450-$1,550 for all-in sustaining costs. Notably, the sale of a solar plant for $22 million underpins a commitment to maintaining dividends and improving cash flow. The exploration at Motapa shows promise, reaffirming their strategy in Zimbabwe, despite ongoing foreign exchange losses totaling $9.3 million this year.

Caledonia's Growth and Performance in Q3

In the third quarter, Caledonia highlighted a positive 13.6% increase in revenue, attributed primarily to higher gold prices, which boosted earnings significantly. Despite a slight drop in gold production to 19,000 ounces compared to the previous year, the company remains on track to meet its annual production guidance of 74,000 to 78,000 ounces. This steadiness showcases the company's resilience following a challenging period earlier in 2023.

Challenges with Costs and Foreign Exchange

The company faced increased production costs, rising by 3.9% due to elevated electricity and labor charges. Notably, operating costs saw a revision, with all-in sustaining costs projected at $1,450 to $1,550 per ounce. Additionally, Caledonia reported a substantial foreign exchange loss of $9.3 million for the year, mainly due to the instability of the Zimbabwean currency (ZIG). This has emphasized the need for effective cost management amid volatile local economic conditions.

Initiatives for Cost Control and Efficiency

Several initiatives are underway to enhance efficiency and reduce operational costs. Expected measures include the installation of power factor correction equipment, projected to save approximately $1.3 million annually, and converting central shaft winders from AC to DC, aiming for a further $1.2 million in savings. Moreover, ongoing investments in energy-efficient equipment and IT improvements are anticipated to yield long-term benefits as they begin to implement in 2025.

Encouraging Results from Exploration Programs

Caledonia reported promising exploration results from the Motapa project, indicating potential synergies with the Bilboes operation. The exploration program continues to affirm the company's strategy of investing in Zimbabwe, with plans for a feasibility study at Bilboes due in the first quarter of the next fiscal year. These developments are critical as they pave the way for future gold production enhancements and operational efficiencies.

Commitment to Shareholder Returns

Despite various challenges, Caledonia maintained its commitment to shareholders by declaring a dividend of $0.14 per share. This reflects the company’s strategy to balance the need for capital investment with the importance of returning value to shareholders, a core tenet of their operational philosophy. The management's focus on maintaining this dividend amidst fluctuating market conditions is a positive signal for investors looking for stability in their investments.

Future Outlook and Adaptability

Looking forward, Caledonia's leadership expressed confidence in overcoming current operational challenges through strategic initiatives aimed at cost control and efficiency improvements. The execution of their energy-saving projects and the anticipated increased production from Motapa are pivotal to enhancing profitability. Moreover, the planned sale of the solar plant for over $22 million will provide additional liquidity to support operational viability and growth, especially in light of the new power agreements.

Earnings Call Transcript 2024-Q3

[Mark Learmonth, executive]

Okay. Ladies and gentlemen, welcome. Good afternoon. Welcome to this call to discuss Caledonia's results for the third quarter. In addition to the usual discussion of financial and operating results, we'll also discuss the preliminary results of the exploration program at Motapa, which we published this morning. And I'll also make some brief comments regarding the progress at Bilboes.

I'm joined this afternoon by James Mufara, who is our Chief Operating Officer. He joined us in May by Chester Goodburn, our CFO, and a new person, you face, I think to most of you will be Craig Harvey, who is our Vice President of Technical Services, and he's responsible for our exploration activities. So he will say a few words about what we're doing atMotapa. And then I joined by Victor Gapare who is a Director, and he will field questions relating to billows and/or the general environment in Zimbabwe.

Before we get into the presentation, I just want to make a couple of observations. The first is that Caledonia is changing very rapidly and that's reflected in the 3 announcements that we published this morning. First of all, we've got the financial and operating results, which largely reflect the performance at Blanket. It's fair to say that production has stabilized from what was a difficult a difficult time in 2023, but we now need to address the issue of costs.

And we are facing some stronger headwinds than normal, particularly in respect of higher electricity costs and labor costs and the effects of continued currency instability. We are accustomed to managing these risks. And in the course of the presentation, we'll set out some of the steps that we've already taken to address these areas, and we'll also outline some other issues, which at this stage, it's just too early to quantify the effect or indeed the timing of when they will come into effect. So we got the financial and operating results relating to bank effectively Blanket. We've got very encouraging results from Motapa, which reaffirms and reconfirms our strategy investing in Zimbabwe to create a mid-tier involve focused gold producer. And I think that strategy is now being vindicated by what we're seeing at Motapa and clearly, we'll continue the dividend.

The third press release this morning was the continuation of the dividend. We have attractive and competing calls on our capital across the business but maintaining returns to shareholders remains a key part of our strategy. So with that, we'll get into the presentation. Regrettably, we do so just go back a minute comment. Let me just deal with that. So yes, we've had a fatality at the mine in late September. James, we'll talk a little bit more about that. Just under 19,000 ounces of gold were produced in the quarter, a little bit less than we did in the same quarter of 2023, but that's just now, that was a record production quarter. So we're very comfortable with the production run rate of just under 19,000 ounces, and we are -- we remain on track to to achieve the full year guidance of anything between 74,000 and 78,000 ounces.

As I mentioned, encouraging results at Motapa, which Craig will talk about in a moment. We've also announced the forthcoming sale of the solar plant -- that's been operating slightly better than expected. We built it for -- at a cost of about $14 million. We're selling it for just over $22 million. We will continue to is get the power that's generated from that solar project, so by no means losing the benefit of getting that reliable power.

And in addition, the new owner is now evaluating a second stage of that solar plant. So we can release the capital and use the capital elsewhere in our business. I already mentioned the fact that we've declared another dividend of $0.14 and we'll talk a bit more about Bilboes, but we're continuing with the feasibility study, and we're making some progress now on funding options for that project.

So moving on, I think I've dealt with most of these things. I mentioned production gold prices are benefiting from higher gold price, an average price in the quarter of over 2,400. That's resulted in an improved revenue, improved gross profit, but the net profit attributable to shareholders, as Chester will outline, we then suffer the headwinds of continued foreign exchange losses and some other unusual expenses, which Chester outline in due course. So I think with that, we're going to move into the yes. So can I ask Craig -- can ask James to just run through the review of the operations of Blanket. James, could you do that?

[James Mufara, executive]

Thank you very much, Mark, and good afternoon to you all. As Mark already alluded to, we regret to inform you that we lost one of our treasured employees a [ Jacama Assistant ] on the 21st of September. The sale employee was in the process of installing support when this fall of ground actually occurred for [indiscernible]. Despite all our efforts with the rescue team to try and bring them out to Southwest and resist team, unfortunately, he is succumbed is a come to the IDA study suffered in this call of ground.

As an organization, Caledonia, we strongly believe in a culture of care and growth, and this is something that we trace ourselves with -- we also believe in total or res reduction all the time. And we believe in learning from the incidents that would have opened. We have given the family support and we've also supported the government with the investigation that they actually took out with regards to the employee that was the line. Subsequent to the accident we actually employed the services of [ DuPont or DSS ] plans to do a total diagnostic on our operations in order to see the whole of our value chain in the last certain this work, we believe will assist us in our quest for serum on our minds, we should believe and totally eternally believe that is both more imperative and in operational imperatives.

On the production of the quarter. I'm glad to announce that in terms of development, we actually came in 7% above close to 7% above our plan for the quarter. This is good with regards to our future flexibility that we'll need because the development is opening up our future possibilities of flexibility. In terms of tonnes, we're neck-and-neck with regards to what our plan was However, we will set back because our grade was just around 4% below our plan for the quarter. This was as a result of a fall of ground that we had at the beginning of July in one of stocks in [indiscernible], and we couldn't actually quickly and in time, we have the flexibility to replace the stock as a result we actually suffered on this drop in our grades in our asset rates.

We have ever seen move back into better stocks to stabilize the grade, but it was a little bit too late to recover the quota at that moment. As a result of the great drop that we had we actually ended up with our ounces just 6.9% below for the quarter. The improvement that we see in the development and the achievements that we see with our target at the moment, will ensure that in the future, will insulate ourselves from incidence of this flexibility that [indiscernible] as in the previous quarter. Thank you, Mark.

[Mark Learmonth, executive]

Okay. I think we'll move on to finance. Can I Chester you to run through these pages dealing with finance, please?

[Chester Goodburn, executive]

Yes. Thank you, Mark. It's good to see our revenue up by 13.6%. That's 28% due to additional prices or higher prices that we receive. Royalties remained flat at 5% of revenue. and production cost has increased by 3.9%. So it was good to see the cost of Bilboes coming down and also the revenues of Bogas covering the holding costs for Bilboes. Production costs at blanket has increased. And as Mark has said, we've got some cost initiatives to improve on that, and we'll get to that in a bit. And then depreciation has decreased now due to lower ounces.

I was quite pleased to see the gross profit, an increase of 7% for the quarter. We look at the production costs. This is on a per ounce sold basis. You can see that the wages and salaries has increased, and that would be due to additional head count that we've employed at Blanket as well as over time that we spend. And we've got some initiatives to turn that around. Consumables increased predominantly due to one-off repairs and maintenance that we've done in our engineering and metallurgical plant, and that shouldn't reoccur.

So I'm not too concerned about consumables. Other than that repairs and maintenance charge -- we can see that our prices are really good. And there's actually been a reduction, a slight reduction in our variable consumable costs on a per ounce basis. Electricity has increased the blanket allows due to higher maximum demand charges that we are receiving. If you exceed a certain demand charge or I would say, [Audio Gap] pieces the cost that we see and additionally also today we have penalty if you have a low power factor that comes out of our grid and that has also increased our electricity charges at planned initiatives and some of them have already been -- is about a week away from being implemented.

Online costs and administration at the mine has increased predominantly due to the rebasement of costs due to the volatility that we've seen in the zig and all your local suppliers have increased the cost, and we can see that effect of it. But it's not a big increase in absolute terms. All those, I've spoken to that before. That's code by the revenues and on a breakeven basis. If we look at the waterfall of our Q3 23 cost and how that compares to our current online costs. So we've decreased the cost significantly at Bilboes Oxides. So good to see that turnaround, power, labor, consumables and other has increased, as I said before, and we can see that our all-in sustaining costs also increased. And that's pretty much due to increase in our share price that increases the share-based expense.

So that's actually good [indiscernible] to see as our investors would be happy with increased share price. We've revised our cost guidance for 2024. Online cost guidance is now set at $950 to $1,050 per ounce and all-in sustaining cost is set at $1,450 and $1,550 barrels, and that's increased predominantly due to the labor and the power costs, which will come on to a bit. So these are our cost control initiatives.

Firstly, power, we're about 2 weeks away of installing power factor correction equipment, that's expected to save approximately $1.3 million per annum and that should take effect in 2025 for the full 2025 being installed in a couple of weeks. We are planning to convert our central shaft winder from AC to DC and the efficiencies that you gain from a power use perspective will also decrease your cost by $1.2 million and that would be implemented within 2025. So you'll see the full effect of that coming in, in 2026 and part of it coming in 2025.

What we've already done is to increase our waste payload, hoisting speed and improved the the sequencing of our waste at Central Shaft. That's helped us to increase efficiency in our operations, and that's already taken effect. So it's good to see that coming in place. And we also plan to replace equipment with more energy-efficient equipment. The lateral come through in time. It's not something that you will see immediately taking effect, but we are looking at more energy-efficient equipment.

Then from a solar plant perspective, we're looking to get an external party to build Phase 2. We expect that to be approximately 8 megawatts. And the rate sales of approximately $1.6 million. Now this wouldn't come with a capital cost for us. We'll just be buying the power from a third party and save on OpEx.

Further on salaries and wages. We retired 106 people of a certain age and plus our cost of $2.1 million. That's included in other expenses. It's not part of OpEx, but is expected to save our OpEx going forward by approximately $400,000. And also, in addition to that, it brings about some efficiencies that we could generate by modernizing mine. We're planning to do quite a few IT initiatives. And hopefully, that helps with the implementation of that too. We also plan to implement a new biometric clocking system, and this would track staff at the Blanket model. So the tracking of our staff movements, see where we can gain efficiencies in time studies better allocate our better and more efficiently allocate our staff at Blanket Mine.

In addition to this, this help with the rostering and preauthorization of overtime. So it allows us to allocate labor better to various areas and also track that, but also look at the overtime and make sure that this over time gets preapproved. So we know why we're spending money over time. So we believe that well quite a bit in helping to manage our staff members.

[Mark Learmonth, executive]

Just before Chester goes on, so all those initiatives, some of them are very close to being implemented. Some of them will be implemented next year, and we can quantify the benefits arising from those and we're pretty clear on the timing. Some of the things, replacing old equipment with more energy-efficient equipment, the effect, the benefit we can get from the introduction of the biometric clocking system.

At this stage, it's too early to quantify the benefits that we might read also the timing thereof. But we should start to see some progress from -- in terms of cost reduction for early next year.

[Chester Goodburn, executive]

So the gross profit, as I said, that's gone up by 37%. I'm very pleased with that. Net foreign exchange losses that was quite significant in the quarter. We incurred $3.1 million of foreign exchange losses. 800,000 of that would be intercompany foreign exchange losses that are not eliminated. That's also unrealized, and we don't expect that to realize. So I'm not too concerned about that, that's on strengthening of the [indiscernible]. So we not issue there. But what we see is $2.3 million worth of losses in Q3 to the devaluation of the ZIG. We'll get down to the detail and how we manage that and how that is broken down. But for the year, we've suffered in total amount of $9.3 million worth of loss now that's significant for our business. And we can no longer in all that and say, it's not a cost related to our business.

We've seen this in every quarter, out. And we've also not counted that back for our adjusted earnings per share. So we look at this as a quite serious cost, and we try to mitigate the effects of devaluating currencies as far as we can. We'll get into that in a moment. And other, that's where we include the one of $2.1 million of retirement fee. So that you as again won't be repeated. And the tax expense increased due to our gross profits during the quarter.

Here you can see the foreign exchange breakdown for the 9 months, and we've got the ZIG and the RTGS now. The ZIG is the new currency, the RTGS was abolished on 5th April 2024. And you can see I was quite pleased to see that we've got a very small cash and cash equivalents loss of about $2,000 when we had the ZIG. And that's that how we manage that to spend the ZIG.We're trying to spend it on official we reduced spend on the first costs to ensure that our cash gets converted to inventory that we can use at the mine rather than keeping it in a dollar that could suffer the volatility that we've seen in this currency.

In the first quarter, we had a conversion method. We had locked up our cash and incurred $3 million worth of losses under RTGS, and other than those to you, I'd say that there are no significant line items that contribute to our foreign exchange would be the brilliant sales receivable and our battery sales receivable. And conversion and receipt of but cash is very much outside of our control as we receive our cash from finality when they're ready to pay. So normally, that happens in about 10 days, 10 to 14 days, but still in that 10 to 14 days, if there's a significant devaluation that like we've seen with the ZIG comes down to the bottom line in terms of losses.

[Mark Learmonth, executive]

Can I just make a point that people may not understand -- there's no market -- there's no properly traded liquid market for the Zimbabwe currency, the exchange rate, the official exchange rate is just set by a committee, and it typically steps down devalues in big steps. So casing point would be the devaluation of the ZIG from about from about 13.7% to, I think, about 23%. It's about nearly 50% devaluation. That happened in the space of a few seconds. So it makes it very difficult.

The magnitude and the speed of these devaluations makes it very difficult to manage. But there's no hedging mechanism and there's no sort of exchange rate, which allows you to to move ahead of the common -- sorry Chester?

[Chester Goodburn, executive]

Yes. I think that covers it. So it's our main mitigation to prevent volatility in ZIG and losses and ZIG is not have any ZIG as far as you can. So we try to spend that expenditures. What I was also pleased about is the cash generation. That's before the working capital changes. And again, we've got a quarter over $16 million for the quarter. If you can see -- if you see our $46 million that we generated for 9 months, that's more than double what we generated last year. And it's good to see that every quarter this year, our cash generation has been consistent and has been a lot higher than 23%. So we see the ship turn around from 2023 to now, good cash generation.

We have spent some money on safety stock to ensure that we've got sales available and bolster our production and not have any delays in terms of production. We don't want that, especially at the current gold prices. And we've also increased our prepayments for long-lead items and that would be reflected in the CapEx that comes from Q4 predominantly and about $1.4 million of that prepayments related to the ZIG, where we've made some prepayments by stock rather than all the cash. So that has significantly affected our cash flow, but not in a bad way.

It helps us to ensure our production get some safety spares and also ensure that we don't suffer the evaluations in the just changed form. We expect that to turn around over the longer term. And it's good to see that safety equipment on the shelves. On that CapEx, that's well controlled. We still expect CapEx to come in at $30.8 million at blanket unexpected CapEx there might be some that grow over into next year, but the absolute number hasn't changed, and that shouldn't affect -- so happy to see the cash generated again in this quarter.

[Mark Learmonth, executive]

Good. Thank you, Chester..Can I ask Craig to run us through the results, the Motapa results, which again, we announced this morning. Craig, can I leave you to do that, please?

[Craig Harvey, executive]

Thanks, Mark. Good afternoon or good morning to everybody. So Basically, during 2024, Caledonia kicked off first pass, pretty widely spaced drilling program at Top. As we can see on the map, just to the right there, -- we have Bilboes, which shares a common boundary. So it's -- I mean they write next to one another. Motapa has 3 main trends. So we have basically the Northern Central and Southern trend.

These 3 trends in total are just over 9,000 in strike land. So it's a fairly expensive piece of ground. So in -- well, for this year, what our focus was, it was to test the continuation of sulfide zones below the historic open pit oxide that was mined typically during the '80s and '90s under Anglo American. And so clearly, we have quite a quite a bit of data from ANCOLD, some old Billy databases, some underground working plans from previous operators as -- and then we wanted to trench across the Motapa property to even look for prospective new areas that might not have been found or have been looked or had been looked over -- so we had drilled just over -- it's there, so about 9,500 meters of drilling, a combination of diamond and reverse cation drilling. That was from a total of 68 holes, the grade in general is very, very similar to Bilboes.

So again, I've just got to stress that it's very widely spaced. It's about to maybe 200 meters between drills. So it's early days. The what's maybe a little bit thinner than Bilboes, there's still a lot of work to act to actually be done. So just looking at the grades, I mean, those are 6 holes of, as I said, in in the press release, it will be available on our website as well. The full details are there, you can look through all the holes. But something that sort of stuck out is that, yes, quite clearly, sulfides continue at depth at similar grades. But of great satisfaction is Caledonia is defined an area on the eastern portion of the Motapa Central trend, and we call it Nipisi. And so the fourth hold there, the NPZ, -- that's just one of the holes that is from there. And so as you can quite clearly see pretty decent grade, very, very shallow, sitting at 12 meters low surface -- and it does appear to be oxides, oxide material. And this is quite significant in the fact that the Bilboes that we have that currently still has 2 oxide heap leach processing plants. The closest -- well, they're about the same one is 3.50s away, the other one's 3.20s fall. So we have drilled some extra holes. They are in the tables in the press in the press lease.

There are holes that we actually drill there. Sorry, 9 holes drilled, 6 of which had grade and of great interest is of all of the intersections in the Nipisi area, 8 of the 15 intersections that we actually report with grade are above 15 meters. So 50 meters and shallow. The average of those intersections is 4.2 grams per tonne. And so we can drop out the high-grade 10.95% and the average comes back at 2.6 million -- so that's very, very exciting for us going forward into 2025 and 2026. Our focus is going to be on clearly the busy area. We are pretty sure and pretty confident that the potential for near-term oxide mineralization is there.

And clearly, we'd like to get that into the bank. The second focus is going to be drilling on the Metapod North area, which is directly basically along the Bilboes, Motapa bound -- boundary. And that is about as from the plant. So our focus is to get that into a mineral resource of some fall or fashion, be it inferred, indicated whatever it is. and then to focus on and put the area. So I think going forward, we're very happy that we have proven up that sulfides continue depth, and we will execute a standard drilling program to get that on to our books and then the [indiscernible] area, very, very exciting. Thanks, Mark, if you have any comments.

[Mark Learmonth, executive]

Okay. Thank you, Craig. Should we move on Okay. Just a few words about Bilboes. We continue to do work on a feasibility study. So there's no no update there. All the information you see on this slide is from stuff we previously published. We still remain on course to publish a feasibility study in the first quarter of next year. And for those of you who are familiar, the main focus of the work is to upgrade it from the existing PEA to a feasibility study is to upgrade the work that's been done on the tailings facility. Whilst that's going on, we're also now progressing our thoughts about funding.

Clearly, we had some internal thoughts when we bought Bilboes. We now have those validated by a specialist debt adviser, and we're now in the process of beginning to engage with prospective funders. We're looking at what seems to be coming into focus would be Three potential funding structures using various combinations of various permutations of senior debt and [ mezzanine ] debt. So we'll continue to flush those out. And then in due course, very much in the hands of the speed at which the fund has moved. But in due course, we'd be able to announce the senior lender the debtor ranges. But I can't really give an indication as to how long that will be, but that's making good progress. Sure. I think moving on.

So look, in terms of outlook, Blanket, our immediate area of focus is to maintain production at about 75,000 ounces a year. And as you've heard, we do need to pay closer attention to the cost real costs, particularly electricity and labor. Some of those -- some of the initiatives we're taking, we're able to quantify, some of them at this stage, we can't quantify and we can't put precise timing, but we're beginning to make progress there. Bilboes, we expect to publish the feasibility study in the first quarter. And as I said, we are making progress on various funding options and as Craig has just outlined to you, we've got exciting results at Motapa from 3 areas that were renown and then from one new area, which affected we found.

And we'd expect that exploration to continue maybe a couple of years before we get to maiden resource. But given it's immediate proximity to bill boes, anything we find that Motapa should give rise to very substantial synergies as a combined Bilboes operation. So we're taking out half an hour to go through that.

I mean we can now open this out to questions. Camilla, do you want to share that?

[Camilla Horsfall, executive]

[Operator Instructions].

[Mark Learmonth, executive]

I also say people can type them, but the problem with typed questions is sometimes it's -- you may not get the nuance answer that you're looking for. So you probably got a better quality of answer if you actually raise your hand and do it vitally rather than written. But of course, if you don't want to do that, we can manage.

[Camilla Horsfall, executive]

The only question so far is about having the drawing on Slide 14 available on the website, yes, we can do that. It's also in the press release.

There's a question here from Ian Joslin.

[Ian Joslin, analyst]

Good. Right. Yes. I think I had a similar question last time around, but it's kind of -- you've highlighted it, I think, to date It's to do with the account where you obviously IAS, EPS and then you have your own adjusted. And you've touched on something I was going to talk about anyway. But when I look at your notes, the difference, I think that correct me if I'm wrong, but the main difference between the IAS EPS is and the adjusted ones are on FX, which clearly you've alighted on as being of concern.

And I think the other factor was, I think, minority interests, which obviously takes up quite a large chunk of profit after taxes.

[Mark Learmonth, executive]

And well, Chester can answer that question. But I would -- Chester, I'll leave you to answer that question, if you could.

[Chester Goodburn, executive]

So first element, NCI, we show what is the EPS on an attributable basis. Secondly, we don't deduct the FX. The FX that we do deduct would be the intercompany FX that I spoke about. It's not that big. It's not a significant portion. Significant portion relates to the ZIG losses. And that's still deducted from EPS and adjusted EPS.

[Ian Joslin, analyst]

So what's the main difference what accounts for the main difference between the adjusted earnings.

[Chester Goodburn, executive]

Adjusted earnings, we share, we take out noncontrolling interest, the deferred tax and some foreign exchange that we don't see a structural to our business. What we've done in the past was to remove the foreign exchange because we had foreign exchange gains for -- well, it's a 2020, 2021 and 2022. So we removed those profits from adjusted earnings per share because we didn't feel that was part of our business, and we wanted to show a number without that. When we look at 2023 and 2024, you see large foreign exchange losses and for this year, because we've seen significant losses of about $9.3 million, we deducted the foreign exchange losses that pertains to the Zim operation. we still adapted that from so we didn't count it back in the adjusted to the share of [indiscernible].

[Ian Joslin, analyst]

And you mentioned minority interests?

[Chester Goodburn, executive]

Yes. So what I show that that's attributable profit to our business. So we don't -- we count that back.

[Ian Joslin, analyst]

But that -- I mean, perhaps I'm not understand, but isn't that money paid out, which is the thing.

[Mark Learmonth, executive]

When we adjust the -- when we adjust the foreign exchange movement, we only adjusted for our share of that foreign exchange movement. Clearly, those foreign exchange movements were incurred a blanket and so the minority of the bank, they have to stand behind their share of that. I think that's the confusion. The calculation of earnings per share is based on attributable earnings per share. So that's after the NCI.

[Ian Joslin, analyst]

Right. Okay. So really minority interest is the standing behind the share of the losses?

[Mark Learmonth, executive]

They have to absolutely, yes.

[Ian Joslin, analyst]

No, that's fine. That's right. It just had a line minority interest, so I thought possibly you were just adding back the total.

[Mark Learmonth, executive]

So what we do the adjustment for foreign exchange is then -- the adjustment is further adjusted for the NCI component and to the extent there's any tax relief on the foreign exchange loss.

[Ian Joslin, analyst]

Got you. Okay. So it's effectively yes. The 2 words misled means, I mean thinking.

Okay. Could I ask another question? Sure, it's to do with -- I think you gave examples of you're putting in extra inventories to try to ensure that you hit to grade, you're able to have flexibility, perhaps more faces to do the money. I was just wondering if you could give an example of how the extra inventories will help you?

[Mark Learmonth, executive]

The inventories are -- I think you're talking about development. And clearly, when we try to develop in as many areas as possible to give us the flexibility in the event that we have another event, which has happened in America. -- the build the buildup of inventory is to make sure that if we've got enough backup stock in case, say, pumps fail, we're putting some new pumping systems at the bottom level of the mine on the 34% level. If those pumps fail, that means that we end up with too much water at the bottom of the mine.

Similarly, we're having to -- we bought spare parts to service the new tailings facility. And then in addition, we also increased our inventory to mean that we're spending -- instead of holding ZIG cash we spend the in cash and we buy whatever it is we can buy that we use in the business to minimize our foreign exchange exposure side.

[Ian Joslin, analyst]

Okay. I understand. And just one last question. Obviously, it's interesting and quite exciting that you discovered oxides in Motapa. And I think you mentioned you're looking at a 2-year horizon for any sort of development. So would that include doing some shallow mining for taking out the oxides that?

[Mark Learmonth, executive]

Yes, look, if we can, don't forget we have a very unhappy experience in oxide mining mobile, a couple of years ago. So we certainly don't -- we certainly don't want to repeat that. But if we can get our hands on relatively shallow oxides, we will do, and we can put it through the existing heat leach facilities at billboards and turn it to cash as quickly as we can.

So if that's economically viable, we will do it, -- but we're not going to form the same -- literally the same pit fall that we've run into in early 2023. So yes, if it makes sense, clearly, but on a prudent basis.

[Ian Joslin, analyst]

And could you remind me what happened at Bilbo -- because obviously, you thought that you could do it there, but it didn't turn out?

[Mark Learmonth, executive]

It turns out that the stripping ratio is too high. So we will be able to -- we will access the remaining oxides at Bilboes in due course as part of the broader sulfide package. But on a stand-alone basis, it just wasn't cost effective.

[Ian Joslin, analyst]

Does carrying too much around?

[Mark Learmonth, executive]

Yes. Okay. We do actually have some written questions, which are quite detailed. So Camilla, shall I try and address these written questions.

[Camilla Horsfall, executive]

Yes. Okay.

[Mark Learmonth, executive]

Okay. The first question was, please explain the circumstances surrounding the fall of ground in [indiscernible]. Craig or James, do you want to talk about what happened in Arica the fall of ground early in the third quarter?

[Unknown Executive]

Yes. So what happened was a very unfortunate instance where there was 2 structures that was we -- it was performing a or structure. Some of the people that understand this would remember. So it was for a hole structure. And in between, you obviously for a world where our teams were supposed to proactively identify that in this work and be in a position to carry on with work.

Unfortunately, we did not do that time actually. And as a result, when they were trying to put in support -- they unfortunately not putting temporary support. The risk was not received to the extent to which it was, and the fall of ground happened, unfortunately, when they were still there, and we lost demand.

[Mark Learmonth, executive]

Okay. And then the further question was the incident at #4 shaft that led the disruptive hoisting. That was quite simply a piece of equipment was being lower down the #4 shaft at Bilboes. It fell down, it fell down the shaft and caused some damage to the shaft infrastructure. And that lost us about what a week's worth of hoisting #4 shaft, was that correct?

[James Mufara, executive]

Yes, it was a weak end [indiscernible].

[Mark Learmonth, executive]

Yes, but that's not been resolved. There's a very detailed question about the -- which I think just I'll ask Chester to deal with this. The difference between IFRS production costs on Page 11 of $20.1 million and Blankets production costs on Page 12 of $19.3 million. Chester, are you able to address that easily? Or does that require an e-mail to the question?

[Chester Goodburn, executive]

[indiscernible] e-mail, if I look at Page 7, that's where production costs shown on the slide, not Page 11. But I can...

[Mark Learmonth, executive]

But I don't know chance -- I don't know -- this is written. So I don't know if probably refers to the MD&A or something, maybe the accounts. I don't know what documents has been referenced to.

[Chester Goodburn, executive]

19.3 million. I'm going to assume a few things here. But if it doesn't and so let's do it on e-mail, 19.3% is the cost at Blanket. We do incur some costs at a group level that gets added to that. And you also get the Bilboes costs.

[Mark Learmonth, executive]

So Retail sending the messages whilst we'll have. So ratably, please, if you send me or e-mail address and then our for year e-mail to Chester and Chester will deal with this over e-mail. It's a bit too detailed to go into on a call like this.

The further question is the reallocated employee costs into the shared services center. It's about $2.4 million for 2024. Those are costs that we will need to carry as we go forward with Bilboes. So yes, those will be recurring costs. So where we are at the moment is we're effectively building up head office infrastructure to service not just blanket and Caledonia as it currently stands, but blanket plus Caledonia plus Bilboes as we will be in the future. And so we are in this uncomfortable period now until we get Bilboes running of carrying those costs.

Now clearly, when Bilboes is not running, those we do expect our all-in sustaining costs and our own mine cost to fall very, very substantially as we spread those shared services costs and the higher head office costs, they have substantially more production. So it will work its way out in the wash over the course of the next couple of years. But we need to have got Bilboes and running Okay.

Further question was the -- our funding in Zimbabwe, the overdraft facilities and working capital. Chester, do you want to talk about liquidity in Zimbabwe?

[Chester Goodburn, executive]

Yes. So as we go forward, Mark mentioned now, we've got some cost initiatives that should bring down our operating costs going forward. So that will increase the cash generation. We won't see the working capital outflows. We don't see that going on going forward. We just got the safety space to ensure that we don't have any delays in our production. So we don't see that cash coming through or cash expense coming through cash outflow. So yes, our cash position should improve going forward. And for the short period of time, when we've increased our inventory where we will be utilizing the full facility before year end, but it should normalize going forward.

[Mark Learmonth, executive]

But the point of those facilities is to use them. And it -- I know that the Blanket is very ungeared?

[Chester Goodburn, executive]

Maybe if I could add to that, and Mark did mention the solar plant that we're planning to sell for $22 million after CGT, which you generated about $ 19 million. Like it's very profitable at these gold prices. So you should see an increase in the cash flows going through in 2025. So all these factors will improve our cash flows going forward.

[Mark Learmonth, executive]

And then the final question was the ZIG, the adoption rate of the ZIG and do local Zimbabwe still primarily transact in dollars. I guess the person who's best placed to answer that is Victor. Are you able to talk about the the general acceptance or nonacceptance of the Zig in country?

[Victor Gapare, executive]

Thank you, Mark. At the moment, if you look at the global transactions in Zim, what you find is that the U.S. dollar is somewhere between 70% and 75% and moving up to probably somewhere 75% and 80%. So approximately 20% to 30% of transactions in Zim are mainly ZIG. So the easy level of acceptance where you have to use it anyway. So -- but for us, because we get some of that money in Zim dollars in ZIG like just I say is, we use it to pay taxes and buy some local consumables.

[Mark Learmonth, executive]

And I think the other trend in Zimbabwe is the extent to which people just don't use banks anymore. Do you want to talk about that factor, the sort of de banking?

[Victor Gapare, executive]

Yes. A lot of Zimbabwe to some -- to a large extent, also operates a cash economy because you find the general public because most of the businesses have gone in formal and because of unemployment, a lot of people like informal traders, inform our traders. So those transactions in that side of things is mostly cash. So in fact, most of those transactions actually U.S. dollars rather than ZIG.

[Mark Learmonth, executive]

Okay. Right. That's -- that deals with those written questions. Any further questions Camilla?

[Camilla Horsfall, executive]

Yes, there are. So Howard Flinker wants to ask a question. .

[Howard Flinker, analyst]

I have a few questions. Craig, you cited one hole in Motapa. Do you just say 15 meters or 50 meters?

[Craig Harvey, executive]

I'm not quite sure what

[Howard Flinker, analyst]

You said 15 or 50 meters at some grade. And I didn't know?

[Craig Harvey, executive]

No, it's a [indiscernible] that's listed there. So it is at around 50 meters below surface. It's 4 meters down the whole intersection at a grade of 10.95%.

[Howard Flinker, analyst]

I'd say 50 meters downhole. Okay. I misunderstood.

[Craig Harvey, executive]

No, no, no. No, it is 15 meters.

[Mark Learmonth, executive]

15 meters surface.

[Craig Harvey, executive]

[indiscernible] it is 4 meters.

[Howard Flinker, analyst]

Got it. Okay. And Chester, could you please explain no, I'll rephrase that. Is the large increase in administrative expense attributable to expenses at Bilboes and Motapa. Or is that something else?

[Chester Goodburn, executive]

If you look at our admin expenses increased quarter-on-quarter increased by approximately EUR 1 million Yes. And so that's predominantly cost compared to do the feasibility study. So we've bolstered our forces there to complete that.

[Mark Learmonth, executive]

Howard, that's the point I was making earlier, which is as we -- we can't just -- over the course of the next few years, we've got to build up an owner's team to build this project and then run the project. And so we will be having costs at the head office level or a group level to build these projects. So we have...

[Howard Flinker, analyst]

So that's what I -- that's what I thought. I wanted to clarify that in my mind.

[Mark Learmonth, executive]

Yes. On the other slide problem arising from those sort of follow-on problem arising for those is those costs aren't actually tax deductible because they're not in a taxable entity. Okay. So that's one of the reasons why our effective tax rate looks quite high because we've got costs sitting in areas that aren't making aren't making profit and therefore are not having tax deductions. Again, that will wash out eventually once we've got Bilboes.

[Howard Flinker, analyst]

You preempted my next question about taxes. Is the foreign exchange loss also tax deductible or not really?

[Chester Goodburn, executive]

The real -- yes, which is most of it's a realized portion is.

[Howard Flinker, analyst]

Okay. And you also said you're going to say $1.2 million of electrical expense compared to now, I think you mean compared to now. Does that mean that the finance owning the solar plant will actually save you another $1.2 million?

[Chester Goodburn, executive]

Yes. So the solar plant is said sliding will be $1.6 million. 1.6%, yes. So we're planning to get somebody else to build that. So would be -- it would be a PPA that we enter. The cost would be cheaper than and they've got estimates based on a mixture of using game sets or the utility. So that's what we will be saving to -- instead of using utility at a cost, we'll be using the solar plant at a cheaper cost, and that should save us about $1.6 million.

[Howard Flinker, analyst]

And is that also $1.6 million cheaper than what it is now or cheaper than what the utility would charge?

[Chester Goodburn, executive]

Until reselling the bond, and we're going to generate cash for that. But it would be cheaper than that Phase 1.

[Mark Learmonth, executive]

It's cheaper than what we pay at the moment. That's the point.

[Howard Flinker, analyst]

Okay. And second and last question, a point. Chester, on your cash flow statement at the bottom, it looks as if you're ending balance is a negative $7.6 million. And I think you meant the cash outflow net was $7.6 million because you do have $7.2 million on your balance sheet. So the last label on that statement is a little misleading. You might want to clarify that. too.

And Victor, finally, could you please tell me what inflation has been in the most recent months, maybe October in Zimbabwe, if you know?

[Victor Gapare, executive]

Well, if you look at the U.S. dollar inflation, it was less than 1%. -- and the U.S. dollar inflation and the ZIG inflation. If my member says me right, might have been around 6%, 7%. I think that's to my colleagues. Does any one of you remember?

[Mark Learmonth, executive]

No, I could find out. I could find it out. But I need to for it about a bit. I couldn't do it easily on this call.

[Howard Flinker, analyst]

Victor, did you say 6% or 7% in ZIG or 1.6%?

[Victor Gapare, executive]

No, no, no. I say the U.S. dollar inflation was less than 1%, month-on-month and the ZIG inflation was probably around 37%. I have to double check that before I confirm.

[Howard Flinker, analyst]

That's okay. 3.7, you said, right?

[Victor Gapare, executive]

Yes. No, I don't hold me on that

[Howard Flinker, analyst]

Approximately, yes.

[Victor Gapare, executive]

I have to double check it and send it to you.

[Howard Flinker, analyst]

Sure. I just wanted to make sure I heard correctly.

[Victor Gapare, executive]

Okay. Yes. No, I have the figure. Office U.S. dollar inflation was unchanged at 0.7% in October, while the ZIG inflation sold to 37.2% month-on-month after the [indiscernible] local unit at the end of September. It got released by Zim.

[Chester Goodburn, executive]

Mark I just check the cash flow seems right.

[Howard Flinker, analyst]

No, -- the cash flow is right. The label makes it appear as if your ending balance was a negative $7.6 million. And I think what you made was the cash outflow was $7.6 million because cash on hand is $7.2 million.

[Chester Goodburn, executive]

Yes. I'll send you e-mail that, but it could be negative.

[Howard Flinker, analyst]

The balance sheet shows $7.2 million in actual cash. And a on the cash flow statement makes it look negative.

[Chester Goodburn, executive]

[indiscernible] the liabilities to.

[Camilla Horsfall, executive]

Howard, do you go any more questions?

[Howard Flinker, analyst]

No.

[Camilla Horsfall, executive]

One more question from Nick.

[Unknown Analyst]

Craig, your very interesting discovery on the Motapa. Do you have a sense of how long the strike is on that undiscovered area?

[Craig Harvey, executive]

Yes, on on that particular one from what we've outlined from our trenching, it's about. It's about 800 meters of strike and it's made up of 2 possibly 3 zones of various ones.

[Unknown Analyst]

Okay. So having seen the are the satellite photos of the area, it looks fairly well charted that the area has been worked for extensive periods of time. So how many more -- is it possible that there are many more undiscovered similar types of occurrences in that area?

[Mark Learmonth, executive]

Okay. So I've got to be cautious with what I say because obviously, I don't to read any forward-looking statements as such. But -- but Birbos has quite a comprehensive set of EPOs, claims and other patches of dirt in that immediate area. So we are busy putting all of the in all of the info together struck from a sort of structural point of view, there's quite a number of or quite a bit of folding and sharing that takes place at the sort of northern end of the [ booby Green greenstone ] belt. And as we know, gold loves shares and bans and things like that. So -- if you look at who our neighbors are or our closest people, and if you had a look on Bilboes Earth, you would also notice further to the north, there's a couple of other historic pits, which if memory serves me correctly or if my inboard is working, it's part of the billings properties, all very close to it. We have we have 1 mine which is on a structure to the south of the top but it runs into the Bilboes holdings and only mine I'm not going to quote a number because I'll probably get it wrong. I'll switch numbers around. It was a 1 million-ounce producer from what I understand.

So I think the camp that we're in -- and this might be a good term for it is that bulbs atop whatever, but it's probably that Bilbo mining cap is going to become the future name for this area. -- because I really do think that there's a lot of exciting potential in the specific area.

[Unknown Analyst]

So come back to Motapa, how much of a top have you done -- have you covered systematically to find these possible outstanding oxide ore deposits. Any 20%, 30%, 50%..

[Unknown Executive]

So we've covered about 60% of the area with trenches or what we want to do. I think it's now standing. And just on 1,000 meters out of the budgeted total of 22,000 meters, I think. And so we've put a -- and I said that we have completed activities for 2 -- so as we enter the rainy seasons, it just becomes very, very difficult, becomes costly. We have to keep the trenches dry. So we will pick up the remainder of the trenching activities and other surface activities yes, from probably about the end of March, and it runs from March until the beginning of November of next year.

[Camilla Horsfall, executive]

There's one more question from [indiscernible].

[Unknown Analyst]

Congratulations on the very interesting results from Motapa. Sorry, I joined Lease, so this may have been asked already. But have you done any has yet on the Motapa, I understand it's very early days or probably not, but just curious.

[Mark Learmonth, executive]

So I couldn't -- have we done any what work?

[Craig Harvey, executive]

The test work.

[Mark Learmonth, executive]

Test work. Okay. Sorry, Craig.

[Craig Harvey, executive]

Yes. So at this stage, we haven't done. But what I can say is that we have put sample material through our assay laboratory at Isabella, which is on the Bilboes property, specifically for butter tests. And then those samples are halved or duplicated to be sent off for fire assays. And then obviously, what that gives you is it gives you an indication of what the oxidation level is. So if you've got a fire assay of 2 grams per tonne and a bottle roll of 1 gram per tonne. That means that you can realistically under oxide heap leach conditions expect to get somewhere near the 1 gram per tonne. So it's very early days.

So we have the oxides that we're going to have a look at. And then as we go forward, we will also generate sample material for metallurgical testing on the sulfides at tape to see if they are amenable to the proposed Bilboes plant.

[Unknown Analyst]

What's the depth of weathering I mean is it just Motapa Central that you see oxide potential?

[Craig Harvey, executive]

No. So I mean, on the top and north, Motapa Central, MatapaSouth, there has been historic oxide mining down to depths approaching somewhere between 30 and 40 meters. -- the weathering profile does change. It's not quite uniform. But I think in general, we could look at a 20 -- possibly a 25-meter depth of weathering.

[Mark Learmonth, executive]

Are there any further questions?

[Camilla Horsfall, executive]

No. I think that's it.

[Mark Learmonth, executive]

Okay. Just pause for -- if anyone has any further questions, then we hand up now, we'll quickly send something. Right. I don't see any coming through. So look, thank you for your time this afternoon. And we will be doing the same thing again when we publish our full year results, which will be towards the back end of March next year. So thank you very much for your participation. Goodbye.