Unidentified Analyst : 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?
Camilla Horsfall: No. I wouldn’t say that. From 1 January 2023, we’ve been doing up the third tax scale and income tax scale on a combination of $1 million and U.S. dollars. Previously, we just placed $1 million in past this year devaluation.
Unidentified Analyst : Can you get to compute a little closer, your sound is very weak.
Mark Learmonth: Let me — sorry, [Howard] let me step in. 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 look 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 then I call it $40 million from that profit, you deduct this year’s $30 million of capital expenditure.
And then the resulting $10 million is the — is what — that’s 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 two separate entities. The tax losses at Bilboes are available for use in due core.
Unidentified Analyst : That part I understood it, but Blanket seems to have a large tax rate in the fourth quarter by itself.
Mark Learmonth: 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 things that are realized tax losses or tax gains in U.S. dollars in local currency reverse.
Camilla Horsfall: Can you hear me?
Mark Learmonth: Go ahead and try it, Chester.
Camilla Horsfall: Yes. Something else to add there is $1.7 million of additional deferred tax in the tax expense not due to then active tax rate moving from 24.7% to 25.75% increased your deferred tax liability.
Mark Learmonth: That didn’t affect Q1. That’s a year end.
Unidentified Analyst : Probably Q4.
Mark Learmonth: Yes.
Unidentified Analyst : 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: It attaches to a very large amount of capital expenditure.
Unidentified Analyst : Okay. Of course.
Mark Learmonth: Further questions?
Camilla Horsfall: Yes. There’s 1 here from [Ian Joslin].
Mark Learmonth: Can’t hear you.
Unidentified Analyst : I’ll just try and turn the volume up.
Mark Learmonth: That’s fine.
Unidentified Analyst : I just got a couple of questions. One that occurred as you were talking, I think you said that your — the amount which you and 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 incurs this spend. 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: Yes, that’s what Chester was said. 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 as per ounce will come down. Balance on the other hand, buyers looking to reduce the useful lives of certain 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.
Unidentified Analyst : Talking of the different shafts and how you’re basically looking to rebalance production to the more profitable areas. I wondering, 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 one and quarter two. So can you maybe help process by which that happens?
Mark Learmonth: Someone didn’t do the math right.
Unidentified Analyst : So it was just a planning issue, was it?
Mark Learmonth: Yes. You said just a planning issue. It’s quite a big planning issue, isn’t it? But we can clearly see with the benefit of hindsight, our consumption has increased dramatically, when we 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? On 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 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.
Unidentified Analyst : So what you’re saying was 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 one and quarter two, but the market didn’t react very well to the three results where 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 two quarters.
Mark Learmonth: I think we if you extrapolate from the earnings at the end of September were I think about — I think around $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 reasonable 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 I think the other thing that makes it — that may sort of amplified that was because quarter one and quarter two have been so poor, it meant that the effect of earnings variations at the back end of the quarter had a disproportionate large effect.
Unidentified Analyst : I can see. Yes, that makes sense.
Mark Learmonth: 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 four of $0.10 or $0.15 wouldn’t have been the upset that it actually turned out to be.
Unidentified Analyst : Do you think you could just take me through — I appreciate Bilboes has been put on 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.
