Caledonia Mining Corporation PLC

LSE:CMCL

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Camilla Horsfall, executive]

Good afternoon, everybody and welcome to our 2023 results call for shareholders. On the call from Caledonia, you have Mark Learmonth, our CEO; Chester Goodburn, our CFO; and then myself, Camilla Horsfall, I'm the Vice President of Group Communications.

We're going to run through the presentation as always and we will leave time for questions at the end. [Operator Instructions] Okay. I'm now just going to pass you over to Mark and Chester, who will run through the presentation.

[Mark Learmonth, executive]

Thank you. Thanks very much, Camilla. I'm Mark Learmonth, Caledonia's CEO. And I was going to give a few opening observations and comments before I hand over to Chester. It's fair to say, 2023 was a challenging year. Most of the difficulty was encountered in the first half of the year with a difficult situation at Blanket Mine. And also the Bilboes oxide problem. Both of those are resolved and Q3 was a good quarter. Q4 started off reasonably well. It was sort of sideswiped towards the end of the quarter by a couple of unexpected things but pretty much the bad news relating to 2023 was dwelt in the first half.

Having said that, let's just run through this. So annual gold production at Blanket was just over 75,000 ounces, which was in line with guidance. Gross profit for the year was $41.5 million compared to nearly $62 million in the previous year. And that decrease was largely due to higher production costs, in particular, at the Bilboes oxide mine in the early part of the year. It should also be noted that 2023 performance, particularly the Q4 performance was adversely affected by higher work in progress. That was gold in a bar that hadn't been sold at the end of the year, just over 3,000 ounces. So that represents about $6 million of revenue at about $3 million of gross profit and that was sold in the third week of January.

So that was just purely a timing issue. In terms of operating costs, we had expected higher labor and power costs but they were somewhat higher than we even expected. We are looking at measures to reduce our electricity consumption and to reduce our labor -- and to improve our labor efficiency. And that's the -- certainly on the labor side, that's gone reasonably well since December 2023. On the electricity side, the issue is purely one of higher-than-expected usage. It's got nothing to do with pricing. And in fact, actually, our average unit pricing for electricity has come down.

On the good side, we -- the drilling program at Blanket has yielded very positive results. We put out 2 news releases, one in July, I think and then the another one in January. Very deep in the financial statements, you'll find a reference to the fact that the -- on the back of that drilling, the life of mine of Blanket has been extended from 2034 out to 2041. And that will be -- that statement will be followed up in due course with a revised resource and reserve table.

We maintained our quarterly dividend payable in April this year, which reflects the good start to 2024 and our confidence that the remainder of 2024 will be strong. We've received some preliminary feedback from the various consultants, who are working on the Bilboes feasibility study. Management and the Board are evaluating those results, so that we can make the capital allocation decision. And we're pressing now very hard to get that work to a state of finality where it's capable of being published.

And as previously announced, Dana Roets, the Chief Operating Officer, stepped down with effect from the end of February and we're now very close to announcing the appointment of his replacement.

So just in terms of summary I've already mentioned production that is something you can see here for the quarter. Just under 21,000 ounces compared to just over 21,000 ounces in Q4 2022. We benefited from a higher gold price, which fed through into higher revenues. Gross profits for the quarter, within touching distance of what they were in Q4 2022 but as you can see, for the full year $41.5 million compared to $61.8 million. And unfortunately, there's a lot of damage below the gross profit line, which meant that the attributable profit to shareholders was a loss in the quarter and the year. Chester will give you more information on that.

So that's just some sort of headline numbers. Could you move on? So just to give you a longer-term view of what's been happening at Blanket. These graphs go back to 2012. The top graph that shows grade and tonnes. You can see that the tonnes -- the tonnes has increased pretty much steadily from 2012 to 2023 but you will notice in the first 2 quarters of 2023, tonnes mined and milled did show a fairly sharp contraction for reasons we previously discussed but pleasing to see that, that recovered quite well in Q3 and the Q4 of 2023.

Grade has, in general, declined but one of the things that I think we're optimistic about as we do more exploration is that the grade will stabilize and may somewhat slightly improve. Should we move on? Okay. It's probably best, if I hand over now to Chester to run through the more detailed analysis of the financial results. Chester?

[Chester Goodburn, executive]

Thank you, Mark. Yes, as you can see the revenue going up in the quarter versus comparable quarter and that's due to increased gold sold as well as the higher realized gold prices we see. [indiscernible] number is that 3,000 ounces of gold is work in progress that was sold early in January. And [indiscernible] royalty has very much been flat at 5%, the tax regime in Zimbabwe for several years has been fairly unchanged and consistent. Production costs, that's gone up for the quarter versus the comparable quarter. It's predominantly due to the higher electricity usage from when we added the Central Shaft [indiscernible]. As we go forward with our life of mine plan, we aim to move our production at Blanket [indiscernible] to below 750 meters. We're currently drilling online above and below on that, centralization below 750 would allow us to through Central Shaft down -- shafts down like in [indiscernible] that should reduce our overall power going forward.

Now sequencing of that in background and back to [indiscernible] that decision saw and the process and we're making up our -- evaluating our various options on that. Other than that, overtime has been high in October and November. Our initiatives has paid dividends in December [indiscernible] going forward. So you won't see a increase in the overtime, [indiscernible] has been sold. We've incurred some obviously maintenance costs late in December of approximately $1.1 million and we don't expect to incur that going forward.

The depreciation number has gone up and that's we see the shortened useful life of some of the shafts, that's the estimate. And going forward, with this significant increase in the life of mine to 2041, we will probably see our depreciation number now coming down but doesn't see that shortened life of the shafts going forward.

Under the gross profit line, we've seen a lot of one-off costs that we only [indiscernible] going forward. That is [indiscernible] well, let's say, $1.7 million of that is related to the settlement payable to the former COO. We had $1.5 million of noncash impairments on VAT receivables and the oxides mining typically with that and for the year, we expended, quarter 1, $3.1 million on acquisition fees of Bilboes [indiscernible]. Following that significant items would be $2.5 million of foreign exchange losses, overdrafts and other costs.

So overall, we shouldn't see the overtime cost repeating. We don't expect to see [indiscernible], that's why we're assuming we should not see that going forward. Our production is looking good for Q3 and Q4. [indiscernible] and we are not going to see these one-off costs that I've just mentioned. So I'm looking forward to sharing these results with you in Q1. All in all, you can also see the Blanket mine numbers remaining above in a very tough year for us and Blanket mine, which is underlying business cash generator that has remained strong.

Our tax expense at Blanket mine is approximately -- effective tax rate of approximately [ 37.2% ] and while we have such a [indiscernible] tax rate -- effective tax rate for the group because there's a lot of nondeductible expenditures within the group like the Bilboes oxide losses. These Bilboes oxide losses, they were $2.3 million for the quarter. We expect that to come down to approximately $200,000 per month. And we shouldn't see that additional costs of $13.1 million going forward.

When we look at the detailed cost breakdown, operating cost breakdown, our wages and salaries has come down quarter-on-quarter and as you see we have reduced production bonus, consumables is very much stable, in check. And that's throughout the inflationary environment that we've seen globally [indiscernible] for given what the Bilboes has really done well to keep our price in check with a modest increase in consumables. Electricity, we've seen the solar plant reducing some of the high usage that we experience on utility use. And solar plant has been -- very much been producing a lot better than what we expected initially. We're looking at some solutions to reduce our electricity bill going forward.

Bilboes oxide has been quite [indiscernible] from October 2023. And as I said, that reduced to approximately $200,000 per month. Other expenses [indiscernible] in 12 months and that's also due to a Q1 sort of costs. We mentioned the $3.1 million we spent to -- on advisers to obtain Bilboes. And our salaries and wages costs also include that $1.7 million settlement payable to the COO.

Additional wage and salaries that we've incurred was mostly on [indiscernible] and that is to do some of the feasibility studies and also evaluate our ore grade. And we've seen some -- we've seen that [indiscernible] by the increase of [indiscernible]. Taking out $3.1 million and $1.7 million of settlement and you will see that the general and admin cost has pretty much stayed in line with inflation from 2022.

Cost per ounce, you can see the effect of Bilboes in yellow. We've got some [indiscernible] increases, we'll explain that. We are now foreseeing that those oxide costs coming through again and our labor has reduced going forward with overtime initiatives that has paid off.

Looking at All-in Sustaining costs, sustaining CapEx increased per ounce and that's mostly due to adjacent allocation. Now that we reached steady state, most of our CapEx moves from a nonsustaining as opposed to a sustaining capital classification as that pushes up our All-in Sustaining costs. And all our CapEx pretty much remains the same in total. That's just how we had a payable.

Taxation, as I've mentioned, so we've got a higher effective tax rate. That's just due to some of our losses being reinvested in certain things and with our taxable income improving going forward, with losses like the Bilboes oxide project not being reincurred going forward, we should see that number improving. A slight increase was related to an active tax rate 25.75% from 1 January, 2024.

On balance sheet, our noncurrent assets has increased. That's due to the acquisition of Bilboes and the solar plant which came online. If we look at our noncurrent liabilities that has increased due to our overall facilities have increased mostly due to higher working capital means at Blanket -- with Blanket growing to [indiscernible] 75,000 to 80,000 ounce producer. That's very much due to some swings around about on the -- on our working capital. And we've also issued some bonds, [indiscernible] to improve the local financial markets and be more relevant.

Cash, currently, we're sitting with a net of -- net cash balance of $11 million, that's with a negative $13.8 million in countries like Zimbabwe. And our cash balance is, the positive cash balance is -- remains outside of Zimbabwe. Going forward we should be -- all our production, which you can see in [indiscernible] growth of Q1. In Bilboes [indiscernible], we should see that relative numbers improving as 2024 progresses.

[Mark Learmonth, executive]

Thank you, Chester. I just want to just leave you with this slide, which focuses on Blanket's quarterly performance in 2022 and 2023. And I want to make it very clear that the difficulties that we faced in the first 2 quarters of 2023, quarter 1 and quarter 2, where you can see production dipped from about 21,000 ounces in the second half of 2022 to 16,000 and 17,000 ounces in quarter 1 and quarter 2, respectively, which then flowed through into a fairly sharp fall in gross profit from anything like $20 million a quarter down to $12 million and $17 million. I just wanted to just make it clear that in terms of the underlying profitability and cash generation, Blanket has improved in Q3.

Q4, $17 million of gross profit, that's pretty much accounted for by the 3,000 ounces of gold work in progress that was realized in January. So the core of the business is Blanket. It had a bit of a difficult time in the first half of 2023 but we're now increasingly comfortable that it's now through that.

Next slide. Okay. So look, in terms of the outlook, we've taken steps to address the higher-than-expected costs experienced in the second half of 2023. Although it's fair to say that finding a full resolution to the elevated electricity usage may take us a little bit longer. Our expectation is to maintain production at Blanket Mine in the range of 74,000 to 78,000 ounces. That's somewhat lower than we've indicated previously because we've taken a decision to scale back production in areas which are relatively low grade and relatively low volume and quite remote from the main infrastructure.

So all 3 of those together means that those areas, which might only be moving 7,500 tonnes a day at relatively high cost. We're very comfortable operating some areas of the mine, which are low grade because they're very high volume and therefore, very efficient. So we're trying to focus the mine on producing cash-generative ounces and not just chasing ounces at any cost. When [indiscernible] spoke of preparing a revised resource statement, which reflects the encouraging drilling results we reported in 2023 and early 2024 and the Board and management are now beginning to consider some of the initial feedback on the work that's been done on the feasibility study with a view to identifying the most appropriate implementation strategy.

Currently, we're doing some low-level exploration at Blanket, where we hope that, that will start to improve. I think it's fair to say that the start to 2024 at Blanket has been very encouraging and that creates a solid foundation for us to become, as we've said we want to become, which is a Zimbabwe-focused, multi-asset gold producer. So I think that's the end of the formal part of the presentation.

Maybe I can hand this over for [indiscernible] questions. As Camilla said, if you raise your hand, you will find it easier to deal with verbal questions rather than written questions. Well, having said that, whilst people get their minds working, until -- I have -- I did receive a very detailed e-mail with some questions.

[Mark Learmonth, executive]

The first question related to the reasons for Dana Roets leaving the company.

We entered into a termination agreement with Dana, which is subject to an NDA. But I think it's fair to say that Dana made an enormous contribution to the business over the last 10 years, in particular, completing the Central Shaft. Central Shaft is now complete. The tailings facility is complete. And we have yet to start work on the new business of the Bilboes project. And therefore, in the context of that and some other matters, it was appropriate time for both sides to part company.

The recruitment process for his replacement is very well advanced. I mean, by very advanced, we expect to be able to see -- provide some update within the next week or so. And we've had no difficulty attracting talent. We've been very favorably surprised actually by the strength and depth of the pool of candidates who've been very excited about pursuing the opportunity that's reflected by Caledonia.

And there's a lot of detailed questions about the solar plant at Blanket.

First of all, let me just clarify, the proposed sale of the solar plant is not to sign a leaseback. It is an outright sale. And actually, one of the issues that is currently somewhat holding up negotiations, is the counterparty is trying to transfer risk back to us. And we're very clear that this is an outright sale with a long-term take-or-pay contract. It's not a sale and leaseback. Having said that, at the moment, the solar farm is producing slightly better than we'd expected. And there is scope in due course maybe to consider increasing the size of the solar farm. But the issue we face is that we -- we're the only logical offtaker for the product from the solar farm.

So if we expand the size of the solar farm, so that produces more power than Blanket can use at any 1 time, either that power gets wasted or we have to find some way of storing it, which means batteries, which are very expensive. And there's no real alternative in terms of finding someone who can buy the surplus that we produce from time to time. So that puts a limit on the growth prospects of the solar project. But it is something that we -- it is something that we will be considering in the context of trying to reduce our overall electricity cost.

As you know, we have hedged, we -- and given the fact that we are in the late stages now of a capital expenditure program, which really focuses on the finishing of the final stages on the tailings facility and the finishing off the horizontal development relating to Central Shaft, as long as we have those relatively high levels of capital expenditure, we will hedge from time to time. But if we didn't have those high levels of capital expenditure, we wouldn't see the need to hedge. And hedging, let me be clear, is buying out the money put options. So it's basically paying an insurance premium. We don't engage in forward sales or hedging structures that give rise to potential margin calls.

So those are the questions that I received by e-mail, which I hope I've addressed. If anybody else has, can we move back now to any further questions if people have them.

[Chester Goodburn, executive]

Mark, we've got a question here that's [indiscernible]

[Camilla Horsfall, executive]

There's 1 from Howard Flinker.

[Howard Flinker, analyst]

Two questions are, what do you plan to spend on CapEx this year?

[Mark Learmonth, executive]

Sorry, Chester, I'll leave it to you.

[Chester Goodburn, executive]

Just over $30 million.

[Howard Flinker, analyst]

How much?

[Chester Goodburn, executive]

Just over $30 million.

[Howard Flinker, analyst]

Okay. And second, because your sound was so low, I couldn't understand the explanation of taxes. Is it essentially that your deferred tax is in U.S. dollars and you couldn't depreciate it, with the Zimbabwean dollar?

[Chester Goodburn, executive]

Look Howard, I didn't say that. From 1 January increasing to -- with the -- we've been doing our deferred tax scale -- from our income tax scale on a combination of Zimbabwe dollar and U.S. dollar, previously, it was just based on Zimbabwe dollars and [indiscernible] a devaluation...

[Howard Flinker, analyst]

Can you get the computer a little closer to you, your sound is very weak.

[Mark Learmonth, executive]

Let me -- sorry, Howard, let me step in. So we report in U.S. dollars, okay? But the underlying tax calculations are done in a combination of U.S. dollars and local currency and that makes it absolutely impossible for someone like you or me, who looks at -- who just looks at a dollar set of accounts to actually reconcile those dollar profits back to the stated tax charge. Having said that, the tax regime in Zimbabwe is by no means unfavorable. The headline tax rate is 25%. We get 100% capital allowances for capital expenditure in the year that you spend them.

And so what that means is that, if Blanket makes a profit of, dare I call it $40 million, from that profit, you deduct the -- in this year $30 million of capital expenditure. And then the resulting $10 million is the -- is on what -- is about the amount that you pay income tax on. The difference comes through as withholding -- as deferred tax. Now clearly, that's not a cash tax. That will unwind in due course.

Now the problem from a group perspective is that whilst the -- we can, if we try hard enough, makes sense of the income tax at the Blanket level, all of the losses that we incurred at Bilboes, about $7 million of losses at Bilboes, we can't offset those against the profits at Blanket because they're 2 separate entities. The tax losses at Bilboes are available for use in due course, of course.

[Howard Flinker, analyst]

That part I understood but Blanket seems to have a large tax rate in the fourth quarter by itself.

[Mark Learmonth, executive]

Yes. That's because of the -- well, Blanket didn't make very much money in the first quarter and that's because of this difficulty of some of the taxes are calculated in local currency, some of the taxes are calculated in U.S. dollars. It is audited and it is correct. But it does make it very hard to see through and understand. The big difference is that things that are realized, tax losses or tax gains in U.S. dollars, in local currency, reverse.

[Chester Goodburn, executive]

Can you hear me?

[Mark Learmonth, executive]

Go ahead and try again, Chester.

[Chester Goodburn, executive]

Yes. Something else to add is, there is $1.7 million of additional deferred tax in the tax expense and that's due to certain active tax rate moving from 24.72% to 25.75%, that increased your deferred tax liability, the additional cost.

[Mark Learmonth, executive]

That didn't affect Q1. That's at year end.

[Howard Flinker, analyst]

Probably Q4. I didn't realize it was that large. I thought it was only 1.5%. I thought probably not $1.7 million but I didn't understand that.

[Mark Learmonth, executive]

It attaches to a very large amounts of capital expenditure.

Further questions?

[Camilla Horsfall, executive]

Yes. There's 1 here from Ian Joslin.

[Mark Learmonth, executive]

Can't just hear you.[indiscernible]

[Ian Joslin, analyst]

Okay. I'll just try and turn the volume up.

[Mark Learmonth, executive]

That's fine. That's fine.

[Ian Joslin, analyst]

I just got a couple of questions. One that occurred to me as you were talking, I think you said that your -- the amount which you and the cost to capital to the balance sheet, reduce the cost, Blanket is now becoming -- I think the Central Shaft is now becoming an ongoing operation, means that costs are effectively, I think, incurred as they're spent. If that's correct, presumably at some point, depreciation will come down because what you would have added to your balance sheet and then depreciated no longer gets added to your balance sheet that is incurred in the period, so one should expect depreciation to come down on Blanket? Is that reasonable...

[Mark Learmonth, executive]

Yes, that's what Chester was saying. So because we depreciate the fixed assets over the -- on a per ounce basis. And so as we are going to add more ounces to the life of mine plan, that means that the depreciation cost per ounce will come down, balanced on the other hand, by buyers looking to reduce the useful lives of certain other bits of infrastructure, like say, the Jethro Shaft or other stuff. Again, given the size of Central Shaft and I would expect that the benefit arising from the longer life of Central Shaft will outweigh the bad effect of shortening the lives of other assets.

[Ian Joslin, analyst]

Yes. Talking about different shafts and how you're basically looking to rebalance production to the more profitable areas. I wonder, would it be -- I would find it helpful as a shareholder to understand what your original plans were? And obviously, something didn't like go according to plan, which resulted in the higher cost that you've incurred in quarter 1 and quarter 2. So can you maybe help understand the process by which that happens...

[Mark Learmonth, executive]

Well, Ian, maybe someone didn't do the math right.

[Ian Joslin, analyst]

Okay. So it was just a planning issue, was it?

[Mark Learmonth, executive]

Well, yes, you said just a planning issue. It's quite a big planning issue, isn't it? But we can clearly see that the -- with the benefit of hindsight, our electricity consumption has increased dramatically, when we started commencement -- when we actually started using the Central Shaft in earnest. And whilst we're in this period of using -- having -- the Central Shaft only services the mine below 750 meters, okay? And the other infrastructure largely services stuff above 750 meters. So for as long as we're continuing to operate from the old mine, above 750 meters and the new mine, below 750 meters, we will inevitably continue to use a large amount of infrastructure. When in a couple of years, we've gravitated towards mining exclusively below 750 meters, then unless we find something very attractive above 750 meters to justify continued operations above that level, so unless that happens, then we will be in a position to completely stop the old infrastructure. And then we're in a situation where we'll be relying exclusively on the Central Shaft.

[Ian Joslin, analyst]

Okay. So what you're saying was that, that wasn't properly -- in hindsight, that wasn't properly accounted for the fact that effectively you're doubling your operations. And I was also interested to see -- I mean, I think you correctly said that the bad news was mainly quarter 1 and quarter 2. But the market didn't react very well to the 3 results when you said that profits will be down. So I'm just wondering whether that was down to the market not really catching up with the bad news in the first 2 quarters.

[Mark Learmonth, executive]

I think we -- if you extrapolate from the earnings at the end of September, where we were, think about -- I think around some $0.17 by the end of September. And in September itself, earnings were about $0.35. And so as we went into Q4, with the expectation that Q4 will be about the same as Q3, it was not unreasonable to expect the outturn for the year would be about $0.50, which was in line with -- certainly in line with one of the analysts. Perhaps the other analyst, was a little bit of drift.

And that assumption held true pretty much until we got into December. And then I think we may have been slow to anticipate the effect of some elevated costs, which we incurred in late -- in December on the effect for Q4. And the other thing that makes it -- that may then sort of amplify that was because quarter 1 and quarter 2 have been so poor, it meant that the effect of earnings variations at the back end of the quarter had a disproportionate large effect.

[Ian Joslin, analyst]

Yes, I can see. Yes, that makes sense.

[Mark Learmonth, executive]

It's certainly something we will pay much closer attention to. But having said that, if we have started off the year as we'd expected to start off the year, a variation in quarter 4 of $0.10 or $0.15 wouldn't have been the upset that it actually turned out to be.

[Ian Joslin, analyst]

Do you think you could just take me through -- I appreciate Bilboes has been put on the care and maintenance but it would just be helpful to understand what led you to the decision that you thought that you could obviously make the -- effectively turn a stripping cost of the oxides before you got to the sulfides. You thought you could make that at least pay its way and how that turned out not to be the case.

[Mark Learmonth, executive]

Yes. That was -- well, again, we discussed that sort of at length in quarter 1 and quarter 2. So the management team at Bilboes have been mining oxides for 10 years. They were confident they could continue to do it. All they needed or they thought they needed was extra capital expenditure, which they couldn't fund themselves to do a certain amount of pushing back and stripping. But having incurred that cost to do the pushing back and the stripping, it then transpired what they expected to find in terms of oxide resources, was either disappointing or just not there.

And that was the problem, having -- so that we're really being able to understand that in April, May and then by the end of June, we made the decision to return the business to care and maintenance but the contract had a 3-month notice period. So we had that runoff for an extra month, which was not comfortable. I would say that the oxides -- a certain element of oxide still remains and those oxides will be extracted in due course as part of the bigger sulfide project.

The other thing I want to make absolutely clear is, the Bilboes project has got over 2.3 million ounces of sulfide material. The oxides was only ever a few tens of thousands of ounces, it's not material. And so with the benefit of hindsight, with the benefit of hindsight, we would not have embarked on that oxide -- on the whole oxide exercise and we would have put the mine on care and maintenance, immediately and kept it on care and maintenance, so with the benefit of hindsight, that's what we'd have done.

[Ian Joslin, analyst]

I'm sure you've discussed it already but what you're saying [indiscernible] is, the amount of oxides that you thought were there were not there and that was the problem. But then presuming the sulphides and that further in, if the level of confidence of knowledge of the oxides wasn't there, the question is and presumably you've got the answer, is that why is the level of -- why is the level of confidence for the sulphides further down, still when you were let down by the level of confidence of the reserve [indiscernible]

[Mark Learmonth, executive]

Because the sulphides have been directly drilled, not all of the oxides have been direct. And you're very welcome to visit and look at the core samples.

[Ian Joslin, analyst]

Yes. I'm sure you've asked yourself that question but it just occurred to me that. Okay, so you basically -- the main drilling has been on the sulphides. And sort of -- I appreciate -- you're saying you're going to come back to the market. But -- and again, you probably outlined this but I missed those meetings. Sort of what time scale roughly we're talking about bringing Bilboes into some sort of production, we're talking 2 or 3 years?

[Mark Learmonth, executive]

Well, if we -- if -- the critical thing is going to be the funding. And within that, the critical thing is going to be the debt funding. Debt fund has moved relatively slowly but let's say we can get the funding in place by this time next year, which I think would be very optimistic and then probably 2 years to build.

[Ian Joslin, analyst]

Okay. Okay. And you're still looking at debt funding, not an equity raise.

[Mark Learmonth, executive]

We'll that's exactly one of the things that we're focusing on. We believe the project has a capacity to carry a high proportion of debt. And that's the first thing that we'll do when we decided what's the best way forward will be to firm up our understanding on that with -- by having direct engagement with the lenders. And what really happened, we already had preliminary conversations with most likely lenders. And they're not going to be Western banks that people know. They're going to be African development banks who've indicated a high degree of interest in this specific project and they know this project because the previous management team at Bilboes had already engaged with them.

And so that will be the first approach. And when it comes to funding the differential, we will consider any form of funding with a view to optimizing Caledonia NPV per share. And so that -- so in terms of non-debt funding, that would obviously -- think public equity markets, private equity markets but also potentially joint venture partners.

Any further questions, Camilla, can you see?

[Camilla Horsfall, executive]

We've got a few written questions, can you just hold on. Compared to the cost of power from ZESA and the solar plant, which is more expensive? Secondly, has the power reliability improved?

[Mark Learmonth, executive]

Okay. We get power from 3 sources, okay? We used to get power from ZESA. That's now been replaced by getting power we import power directly into Zimbabwe, through a mechanism called the Intensive Energy User Group. We've been doing that since, I think about April, if memory serves me right. And that's actually been an initiative fostered by the Zimbabwe government and that means that the power that we import is actually somewhat cheaper than the power we get from ZESA. Chester, may have those numbers down. Chester, what's the power differential between buying from ZESA and buying from the IEUG, do you have that yet?

[Chester Goodburn, executive]

Yes, it's about $0.035 per kilowatt hour.

[Mark Learmonth, executive]

Okay. So $0.035 difference. Yes. Yes, it's not -- we don't pay IEUG $0.035, okay. So there is a slight benefit by getting power through the IEUG but it still has to come through the grid. And so what it means is, whilst we no longer suffer straight out power outages as you get in South Africa, we do continue to get disruptions in our power supply and also peaks and troughs and the voltages because the ZESA grid is in very poor condition.

So to deal with that, the second source of power is done by diesel generators, which we've had for years. And then the third source of power, which we started using early in 2023 is the solar project, which provides about 1/4, about a bit less than 1/4 of our power during sunny times. Our overall power consumption has increased considerably but our average unit cost is much lower. So case in point, the use of solar means that in 2023, we used just less than 1.5 million liters of diesel, whereas in 2022, before we had the solar project, we used nearly 4 million liters. And if diesel is costing you $1.50, $1.60, that's an appreciable saving.

[Chester Goodburn, executive]

So Mark, if you can hear me, maybe if I could add that there's no cost first to the solar. It's our solar plant. We own it. And then we save approximately on a blended rate basis, about $3.5 million per year.

[Mark Learmonth, executive]

Yes. But I think, yes, so what Chester is saying, is the solar plant is owned by Caledonia. And so the benefit arising from the solar plant is not reflected in your mine cost, it's reflected at the Caledonia level. So the mine buys solar power from the solar project at a rates which reflects its average unit consumption cost of power. The thinking behind that is that we neither want to benefit, nor disadvantage the minority shareholders in Blanket through the solar project.

So if we sold power from the solar project to Blanket, the costs, that would mean that the minority shareholders were benefiting from a project that they didn't fund. Again, it's quite a complex answer to quite a simple question, I'd say.

[Camilla Horsfall, executive]

So the next question is just with regards to Bilboes. How soon can we expect gold production beyond 80,000 ounces?

[Mark Learmonth, executive]

Well, as I said, if it takes a year to put the funding in place, 2 years to build it, I think you can work from that. Well, I got to say there's a highly indicative at this stage, sort of timing.

[Camilla Horsfall, executive]

Next question, how do you plan to raise the funding for Bilboes? And do you have a time line?

[Mark Learmonth, executive]

Well, as I've said, the initial focus is raising the -- getting a handle on the debt, to the point of getting a credit approved term sheet, the balance will be equity. And the equity will come from internal cash flows, public market equity, private equity or joint venture partners.

[Camilla Horsfall, executive]

The next question...

[Mark Learmonth, executive]

I mean we will not be approaching the market for any, what I call, non-debt funding until we got a better idea as to what the debt capacity is because, frankly, we do think it's going to be as cheap as debt funding.

[Camilla Horsfall, executive]

What was the key driver of the advisory fees in 2023?

[Mark Learmonth, executive]

Well, we had 2 -- we had our advisers and then because we have to pay for Bilboes advisers because they didn't have the money to pay for it themselves. And even if they had paid , it would just come off their cash pile anyway. It was a very complex, long-running transaction. I think our involvement in the final stage was, I think, 2 years. It was a very long-running process, very, very complex. I'm afraid I don't enjoy paying up their fees any more than anybody else.

[Camilla Horsfall, executive]

I think -- I mean the other question I think has pretty much been answered. It's maybe, when do you expect the feasibility study to be completed, the other part...

[Mark Learmonth, executive]

Well, we're working hard to get the consultants, the various consultants to -- I mean just to put more context on it. There's 4 main elements to the feasibility study. The first is the underlying geology. And there's been very, very little change there other than removing a small element of oxide material. So there's virtually no change there at all. There's been some change to the pit designs and the mining plan with a view to optimizing the capital spend. But again, very, very minor. There's been no change to the metallurgical processing but there have been quite substantial changes to the back end of the project, the tailings, the tailings facility. And in that area, we're using the experience that we gained at Blanket over the course of 2023 by, where we put in a new tailings facility but we did it on a modular basis, so that we could start using it quickly but we extended the capital expenditure over a longer period of time.

And actually that was actually quite beneficial there. That work is effectively a brand-new study and that needs to be upgraded to a point at which it is capable of being published and can be a component of an overall feasibility study, which is to a relatively high level of confidence. And that's the time that it -- that's exactly what's been -- the time that's been taken right now. How long they take? I don't know, maybe it's 6 weeks, maybe it's 2 months. I would hope it's not longer than that.

[Camilla Horsfall, executive]

At the moment, that's it for questions. Does anybody else have a question?

[Mark Learmonth, executive]

Okay. Let's finish that, just was a challenging year, as I said, mainly in the first half. We did recover in Q3. Q4 wasn't so bad and we got off to a strong start in quarter 1. So I'm hopeful that we've now reestablished Blanket as in its rightful position as a solid cash generator and we're making good progress, both on exploration at Blanket, which is considerably more optimistic than we had expected. And we're making good progress with the feasibility study of Bilboes. So it has been frustrating but hopefully we're going to see better days ahead.

So I think with that, we'll finish unless there's any last question.

Okay. I think we are done, Camilla. Thank you for your attendance.

[Camilla Horsfall, executive]

Thank you, everyone.