Caledonia Mining Corporation Plc (AMEX:CMCL) Q4 2023 Earnings Call Transcript

Caledonia Mining Corporation Plc (AMEX:CMCL) Q4 2023 Earnings Call Transcript April 3, 2024

Caledonia Mining Corporation Plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Camilla Horsfall: We’re going to run through the presentation as always, and we will leave time for questions at the end. What we do ask though is if you do have a question, if you could just raise your hand and we will unmute you. We find that’s a better format than the written Q&A. I’m now just going to pass you over to Mark and Chester who can run through the presentation.

Mark Learmonth: 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 oxides 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 dealt within 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 oxides mine in the early parts of the year. It should also be noted that 2023 performance, particularly the Q4 performance was adversely affected by a higher and 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 and about $3 million of gross profit and that was sold in the first 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’d 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 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 with the drilling program, our Blanket has yielded very positive results. We put out two news releases, one in July, I think and then the other one in January. And buried deep in the financial statements, you’ll find a reference to the fact that on the back of that drilling, the life of minor 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 resort 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 bill based feasibility study. Management and the board are evaluating those results so that we can make the capital allocation decision. And we’re pressing now quite very hard to get that work to a state of finality where it’s capable of being published. Then as previously announced, Dana Roets, the Chief Operating Officer stepped out with effect from the end of February and we’re now very, very close to announcing the appointment of his replacement. So just in terms of summary, I’ve already mentioned production.

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Q&A Session

That was something you can see here for the quarter. 21 — 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 were within touching distance of what they were in Q4 2022 is 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 a quarter down the year. Chester will give you more information on that. So though that’s just some sort of headline numbers. Can we, could we 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 tons. You can see that the tons, the tons has increased pretty much steadily from 2012 to 2023, but you will notice in the first two quarters of 2023, tons 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 pretty best if I hand over now to Chester to run through the more detailed analysis of the of the financial results. Chester?

Chester Goodburn : Thank you, Mark. Yes. It’s good to see the revenue going up from quarter this comparable quarter, and asked you to increase ounces sold as well as the higher realized gold prices received. It’s not that number. It’s about 3,000 ounces of gold work in progress that was sold early in January, and that’s mostly just to get the cattle fishing. Royalty is very much been flat at 5%. The tax in Zimbabwe for several years has been fairly unchanged and consistent. Production price that’s gone up for the quarter versus the comparable quarter and it’s predominantly due to the higher electricity usage from when we added the central shaft in 2023 and really started wasting some damages, a little bit. As we go forward with our life and mine plan, we aim to move our production centralize our production to below 750 meters.

We’re currently moving on mine above and below. And that synchronization below 750 would allow us to shut some shaft down, like the four shaft and six ones that should reduce our kilowatt hours coming forward. Now the sequencing of that and exactly how that kilowatt hours we will save that decision is still under in the process, we’re making up or evaluating our various options on that. Over time, it’s been high in October and November. Our initiatives has paid dividends in December and now it’s going forward, so you won’t see an increase in the overtime that’s been sold. And we’ve incurred some unforeseen maintenance for us 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 where you see the short and useful lack of some of the shafts that we estimate.

And going forward with this significant increase in life of mine to 2041, we will probably see a depreciation number now coming down, but doesn’t prove that short of life of the shafts going forward. Under the gross profit line, we’ve seen a lot of once off price that we don’t expect to incur going forward. That would relate to well, let’s say, $1.7 million of that relate to the settlement payable to the former CRO. We had $1.5 million of non-cash impairments on that receivables and the oxides mine utility repair. For the year, we extended quarter one $3.1 million on acquisition fees of all those and that’s to acquire a few amounts of resources. Our last significant items would be $2.5 million of foreign exchange losses that are in that other cost.

So, overall, we shouldn’t see the overtime cost of computing. We don’t expect the unforeseen maintenance. That’s why it’s not seen and we should not see that going forward. Our production is looking good for Q3 and Q4 and that’s guaranteed to Q1. And we’re going to see these sponsored costs that I 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 robust in a very tough year for us. And Blanket mine, which is the underlying business cash generated that remains strong. Our tax expense at Blanket mine, that’s approximately effective tax rate of approximately 37% to 42%. And why we have such a high tax rate, it’s effective tax rate for the group because of a lot of non-deductible expenditures within the group like the Bilboes oxides losses.

These Bilboes oxides losses, they were $2.3 million for the quarter. We expect that to come down to approximately $200,000 per month and you should see that additional cost of $13.1 million going forward. When we look at the detailed cost breakdown — operating cost breakdown, our wage and salaries has come down quarter-on-quarter and that seem to have reduced production bonus. Consumables is very much stable in check and that’s throughout the inflation environment that we’ve seen globally. Our procurement department has really done well to with our pricing and check with the modest increase in consumables. Electricity, we’ve seen the solar plant producing some of the high usage that we’ve experienced on our 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 addressable going forward. Bilboes oxides that’s been placed on care and maintenance from October 2023. And I said that’s reduced to approximately $200,000 per month. Other expenses that shot up during 12 months, and that’s also due to a few one sell across, we mentioned the $3.1 million we spent to online advisers to obtain for those and our salaries and wages for us also include that $1.7 million on the settlement payable to the COO. Additional wages and salaries that we’ve incurred was mostly on [MRN] fees and that’s to do some of our feasibility studies and also evaluate our whole body. And we’ve seen some — we’ve seen that playing some of those but in the piece of life of mine. Taking out $3.1 million, $1.7 million of settlement and you will see that the general and administrative cost is pretty much stayed in line with inflation from 2022 cost per ounces.

Here you can see the effect of Bilboes in yellow. We’ve got some power increases. We’ll explain that. We don’t foreseeing that those oxide costs coming through again, and our labor might be reduced going forward with the overtime initiatives that is paid off. Looking at the outstanding costs, standing CapEx, shoots up and that’s mostly due to a different allocation. Now that we’re steady state most of our CapEx moves from a non-standing price to a standing capital classification that has pushed up our all in sustaining cost. And all our CapEx too much remains the same in total. That’s just how we pieces. Taxation, I’ve mentioned but some higher effective tax rate that’s just due to some of our losses being reinvested in things and without taxable income improving going forward with losses like the Bilboes upside project not being pre-incurred going forward, we should see that number improving.

Slight increase was made to an active tax rate 25% from 1 January 2024. Our balance sheet among current assets has increased as due to the acquisition of Bilboes and our solar plant that came online. If we look at our non-current liabilities that has increased due to our overall facilities that have increased, don’t be due to higher working capital needs at Blanket with Blanket growing to 75,000 to 80,000 ounce producer. That’s very much to find some strings roundabouts on our working capital and we’ve also issued some bonds located in Zimbabwe to improve the local financial markets and be more so relevant. Cash, currently, we’re sitting with a negative net cash balance of $11 million with a negative $13.8 million in country in Zimbabwe, and our cash balances — the positive cash balances remains outside as Zimbabwe.

Now going forward, should we hold our production, which you can see in our Indian vein, we did well for Q1. The high gold prices, we should see that net of numbers improving as 2024 progresses.

Mark Learmonth : 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 just want to make it very clear that the difficulties that we faced in the first two quarters of 2023, quarter one and quarter two, where you can see production dipped from about 21,000 ounces in the second half of 2022 to 16,000, 17,000 ounces in quarter one and quarter two respectively, which then floats 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 want 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. Should we move on? Next slide. So, look in terms of 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 three of those together means that those areas, which might only be moving 7,500 tones a day, they’re 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 onto producing cash generative ounces and not just chasing ounces at any cost. We’re in the short strokes of preparing a revised resource statement, which reflects the encouraging drilling results we’ve reported in 2023 and early 2024. The board management are now beginning to consider some of the initial feedback from 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 of Blanket, but we hope that will start to improve.

I guess fair to say that the start to 2024 at Blanket has been very encouraging and that creates very solid foundation for us to become as we’ve said we want to become, which is involved with 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 opening it up to questions. As Camilla said, if you raise your hand, we’ll unmute you. We’ll find it easier to deal with verbal questions rather than written questions. Well having said that, whilst people get their minds working, I did receive a very detailed email with some questions.

A – Mark Learmonth: The first question related to the reasons for Dana’s 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 the appropriate time for both sides to part company. The recruitment process for his replacement is very well advanced. I mean, by very well advanced we expect to be able to provide some updates 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 a sale of leaseback. It is an outright sale. And actually, one of the issues that is currently somewhat holding up negotiations is the counterparties 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 or leaseback. And they 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’re the only logical off-taker for the product for the solar farm. So if the solar — if we expand the size of the solar farm so that it produces more power than Blanket can use at any one 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 for 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 and given the fact that we’re in the late stages now of a capital expenditure program, which really focuses on the finishing off the final stages on the tailings facility and the finishing off the horizontal development relating to central shaft. For 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 in 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 cause. So those are the questions that I received by email, which I hope I’ve addressed.

If anybody else has — can we move back down to any further questions if people have them?

Chester Goodburn : Mark, we’ve got a question that’s been typed.

Camilla Horsfall: There’s one from [Howard Flinker]. Howard?

Unidentified Analyst : The two questions are, what do you plan to spend on CapEx this year?

Mark Learmonth: $30 million. Sorry, Chester. I’ll leave it to you. Chester? I’m sorry.

Camilla Horsfall: Just over $30 million.

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.

Mark Learmonth: Yes. That was — well, again, we discussed that sort of length in quarter one and quarter two. 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 in the stripping, it then transpired what they expect to find in terms of oxide resources was either disappointing or just not there. And that was the problem. And 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 three 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 2.3 million ounces of sulfide material. The oxide 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 exercise and we would have put the mine on care and maintenance, immediately uncapped on care and maintenance, so with the benefit of hindsight that’s what we’ve done.

Unidentified Analyst : I’m sure you’ve discussed it already, but what you’re saying presumably is that the amount of oxides that you thought were there, were not there and that was the problem. But then presumably 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 confidence for the sulphides further down, still when you were let down by the level of confidence of the reserves?

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

Unidentified Analyst : I’m sure you’ve asked yourself that question, but it just occurred to me that. So you basically — the main drilling has been on the sulphide. And sort of I appreciate you’re saying 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 two or three years?

Mark Learmonth: If we — the critical thing is going to be the funding. 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 two years to build.

Unidentified Analyst : And you’re still looking at debt funding, not an equity raise?

Mark Learmonth: We’ll ask 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 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. I think we already have 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 potential joint venture partners.

Unidentified Analyst : Okay. Very helpful.

Mark Learmonth: Any further questions, Camilla?

Camilla Horsfall: We’ve got a few written questions that 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: We get power from three 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 IUG, do you have that in your head?

Chester Goodburn : It’s about $0.035 per kilowatt hour.

Mark Learmonth: So $0.035 different. Yes, it’s not — we don’t pay IUG $0.035. So there is a slight benefit by beginning power through the IUG, 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 into 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. That’s 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 : Mark, maybe if I could add that there’s no cost first to the solar. It’s our solar plant. We own it. And we say approximately on a blended rate basis about $3.5 million per year.

Mark Learmonth: But I think what Chester is saying is the solar plant is owned Caledonia. And so the benefit arising from the solar plant is not reflected in on-mine costs is reflected at the Caledonia level. So the mine buys solar power from the solar project at a rate which reflects its average unit consumption cost of power. The thinking behind that is that we neither want to benefit, not disadvantage the minority shareholders in Blanket through the solar project. So if we sold power from the solar project to Blanket the cost 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’m sorry.

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

Mark Learmonth: As I said, if it takes a year to put the funding in place two years to build it, you can work from that. I got to say there’s a highly indicative at this stage, that timing.

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

Mark Learmonth: 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: The next question.

Mark Learmonth: 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: What was the key driver of the advisory fees in 2023?

Mark Learmonth: Well, 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, two years. It was a very long-running process, very, very complex. I’m afraid I don’t enjoy paying up I have fees any more than anybody else.

Camilla Horsfall: 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 where [inaudible].

Mark Learmonth: We’re working hard to get the consultants, the various consultants to — I mean just to put more context on it. There’s four 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 facility. And in that area, we’re using the experience that we gained a 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. 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 six weeks, maybe it’s two months. I would hope it’s no longer than that.

Camilla Horsfall: At the moment, that’s it for questions. Does anybody else have a question?

Mark Learmonth: If we 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 one. So I’m hopeful that we’ve now reestablished Blanket as in a 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 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. Thank you for your attendance.

Camilla Horsfall: Thank you, everyone.