Caledonia Mining Corp Plc Q4 FY2024 Earnings Call

Ladies and gentlemen, welcome to the Caledonia Mining Q4 Results Presentation. I'd now like to hand you across to Mark Learmonth, the CEO. Mark, over to you.

Good morning or good afternoon, depending on where you are. Welcome to this webinar to discuss Caledonia's results for the fourth quarter of 2024 and for the year. I'm here in Jersey. I'm joined also in Jersey by Ross Jerrard, our CFO, who joined today. And then in Johannesburg, I've got James Mufara, our Chief Operating Officer; and Victor Gapare, an Executive Director, who is based in Harare, Zimbabwe. And in case I need them, I've got some accounting support in Johannesburg and Bulawayo. Okay. So should we get into this? If you could move to the next slide, please. If you just move forward, we've got the disclaimer next, which I think we just need to pause on. So that's the presentation we've already dealt with. Okay. Let's move on to the summary. So a record gross profit for the year of nearly $77 million, that's up 86% from 2023. And that pretty much flowed down to the bottom line with net attributable profit of just under $19 million compared to a loss of $4 million in the previous year, that's reflected in stronger operating cash flow. So that's after tax and interest and working capital before CapEx and dividends. And that was nearly $42 million compared to just less than $15 million in the previous year. Production at Blanket was within guidance, slightly towards the top end of the guidance range. And there was also a continuing very small production and build those oxides, which I'll refer to very briefly. Last week, we announced that we're going to extend the period of time needed to look at the feasibility study for Bilboes. That gives us time to assess some factors, some of which have only materialized within the last month and to optimize the project economics. So we have a little bit more on that. We have some good exploration success at Blanket and Motapa, which has encouraged us to do more work in that area. So we have a slide on that. And just so that we—on Monday, we announced a further dividend of $0.14 for the quarter, making $0.56 for the year. And it's fair to say also that we've had some fairly significant changes to the Board and to management over the course of the last year or so with James joining us as COO in May, and that's given rise to a very substantial turnaround in the operating performance at the mine, particularly at the mine as opposed to the metallurgical plant. And you've seen also that we've refreshed the Board with some recent board appointments and then we're joined today by Ross, who's taken over from Chester as the CFO. So Ross is very welcome. So should we move forward? Next slide. Before we get into this, I just want to touch very briefly on the delay in the publication of the accounts. We put out a press release about a week ago, which notified people that we need an extra week to evaluate an accounting issue that had been identified, right at the end of the audit process. The accounting issue really relates to the calculation of deferred tax for the year to December 31, 2019. So this is about five or six years old, and that then flows through into subsequent years. Just to be absolutely clear, this is an error relating to the calculation of deferred tax. It also flows through into the calculation of unrealized foreign exchange gains and losses, and then below that, it then flows through into profit after loss. I want to make it absolutely clear that this error had nothing to do with actual tax payments or any submissions that were made to Zimbabwean tax authorities and also make it very clear that this has nothing to do with cash. So the accounts that we published this morning for the year to December 2024 also include restatements of the prior year accounts for 2022 and 2023 and at the back of the audited financial statements, Note 40, you will find full disclosure of the various line items which have been affected by this restatement. But in summary, it's deferred tax, it's IFRS profit and retained earnings. So to be absolutely clear, there's nothing to do with cash or with actual income tax calculations. Okay. Should we just move on to touch on the results themselves. Starting off with safety and production. It's probably best if I hand over to James at this stage, if you'd just like to say a few words about safety and production, please.

Thank you very much, Mark, and good day to you all. On the safety front, following the loss of life incident that we had on the 21st of September, which is the previous quarter, which we already reported on, we embarked on a journey to see real risk reduction and to put better controls in place to make sure that we actually move the dial with regards to our safety. We wanted to embark on a culture change. A lot of you will remember I joined on the 1st of May. We realized that there were quite a lot of safety protocols that were in place, and we had employees basically that followed safety protocols primarily out of obligation. The idea is to move to a place where employees work not because they have to follow rules, but because they want to. Over and above the internal audit that we did with regards to the incident, we decided to also put in place a number of measures, the first of which was to appoint a group shift manager, an experienced group shift manager from Harmony, who himself put a structure in place with regards to ventilation and health and safety and split all the departments into the appropriate departments. We also looked at five other areas that we will be embarking on so that we can actually have a better safety culture on the mine. The buckets would be to strengthen governance and risk management, to strengthen emergency preparedness, to strengthen safety practices, organizational capability and to improve the overall safety culture. So the safety culture flywheel has started to move. We started to turn; now it's a question of getting the momentum in place, and we can already see the massive improvement that we are gaining with regards to that. In the last quarter, Q4, we actually had 88 out of 100 accident-free days, which is a marked improvement and a record within the safety history. In terms of production as well, we had a very good production quarter, and we also had a very good end of year, ending up on 19,841 ounces compared to quarter three, which was 18,992 ounces. I will touch further on production with regards to the next slide. Over to you, Mark.

So we'll go back to production in more detail later. But it's fair to say across the board a substantial increase in performance, obviously helped by the higher gold price. So the average realized gold price in the quarter was just over $2,600 compared to just under $1,900 in the comparable quarter of the previous year and at just over $2,300 for the year. So for those of you who follow the gold market, that won't come as a great surprise. And clearly, that supports the substantial increase in revenue, also supports the increase in gross profit, so $21 million for the quarter and $77 million for the year compared to clearly lower numbers previously. And I already mentioned the increase in net profit attributable to shareholders. One thing I would just draw to your attention, we declared a dividend again of $0.14. Just to reinforce the fact that previously, we used to declare dividends on a sort of metronomic quarterly basis. We've disclosed for several quarters now that that's now been changed slightly so that we declare the dividend at the same time as the Board approves the accounts. It just streamlines Board processes. For most quarters, that doesn't really make much of a difference. But for the publication of Q4, it does mean that the dividend that we declared and paid at the end of March or so gets pushed out a bit. So there is a little bit of a phasing issue. But for the year, the total dividend is $0.56, and that hasn't changed. Should we just go into a little bit more detail on production? James, can I ask you to talk to this slide?

As already stated, we had a very good end of year and Q4 in particular, ending up on 76,656 ounces, which is a 1.6% improvement compared to 2023. The tonnes for 2024 were 797,000 tonnes; 479,000 is a record. As you can see from the graph, it's the first time that we actually hit those sorts of numbers, which is 3.5% higher than the 2023 number. This was primarily as a result of three areas where we saw good improvement. It was better utilization of our Central Shaft, which is now fully operational after all the work we have done over the years. Secondly, better equipment availability underground. And thirdly, better labor productivity within our sections. The grade has remained almost the same for a number of years from 2014 to where we are. Year-on-year, we actually went down from 3.25 to 3.2 from 2023 to 2024. Specifically, in quarter four it was 3.18 grams per tonne compared to quarter three. We had a fall of ground in one of our high-grade stopes called Eroica, which exposed our need for better flexibility with regards to mining space. We have since embarked on better development. Our tonnage has been going up year-on-year, meaning we need to open up more areas so that we can have better flexibility. This year's development is really well improved and will help us in the years to come with regards to flexibility. The reserve grade for Blanket is sitting around 3.3 grams per tonne, and we will not mine much higher than the 3.2 grams per tonne, which is where we expect to land this year. The mine had an excellent production year in 2024. December month was the icing on the cake, where we ended up on 89,727 tonnes, a record for the month. We had never reached such a milestone. This exceeded our crushing and milling capacity at Blanket, and we ended up with a stockpile of 8,487 tonnes, which we created. It is good to report that this stockpile has been growing as well even in this financial year. One of the graphs shows recovery, which has been fluctuating. However, for the year, we ended up at 93.6% recovery, which is still very high and our plan. Last year it was slightly higher at 93.8%, which was higher than our plan and not really sustainable. By world-class standard, 93.6% is still quite a high recovery, which we have managed to maintain because of the work we've done with the oxygen plant we've installed, the Knelson Concentrators that we have been replenishing over the years to make sure our free gold recovery is on point, and the tanks that we've also been installing. So we can see that production has really stabilized. This year, we have started off with a stock of 8,487 tonnes, and we expect that this production should stabilize and be better going into the future. Thanks, Mark.

Thank you, James. The difficulty we've always had over the last year or so has been our inability to blast the ore, trim the ore and hoist it. There were breakdowns in that process. What James has managed to do is get this whole operation working much more cleanly and efficiently. We're blasting, we're trimming and we're hoisting and the growth of the stockpile is very welcome; that's something we've not had before. Thank you very much, James. Should we move on to the next page? What this shows for the quarter breaks down the consolidated results. It shows what's been going on at Blanket, what's been going on at Bilboes and other, which is really intercompany eliminations and head office costs. So you can see quite clearly at the Blanket level, revenue very strong. The government royalty stays the same at 5%. Production costs at Blanket broadly the same, about just $19 million, although we would like to get that down a bit. Depreciation slightly down for technical reasons. So gross profit is $20 million compared to $11 million in the previous quarter. Quarter-on-quarter, Bilboes has had very little impact. There's a slide coming later which shows how we've authorized the losses from Bilboes. At the moment, we're continuing to re-leach the heat pads at Bilboes, slightly helped by the higher gold price. We'll continue to do that for as long as that leaching process covers the direct costs. So it's basically washing its face. 'Other' is corporate and group adjustments. Shall we move on to the next slide? Okay. What you see are two graphs. Left-hand side is the on-mine cost. The right-hand side is the all-in sustaining cost. It shows how our costs have developed from Q4 2023 to Q4 2024. Looking at on-mine cost, we had a benefit, around 7%, as a result of putting Bilboes back on care and maintenance. Negligible movement on power, some increase in labor. Part of that in the quarter was we had to rely heavily towards the end of the quarter on overtime and a special bonus system that we introduced specifically for December because the first half of the fourth quarter was very difficult due to a sharp deterioration in the electricity supply. Had we not made those interventions, I suspect at the end of November Q4 would have looked quite ill. Thankfully, we made those interventions and pulled Q4 around very nicely. Then an increase in consumables, largely costs relating to equipment, underground pumps, LHDs. That walks the cost up from 2023 to 2024. On the right-hand side, you see how the all-in sustaining cost moves, some increase due to on-mine cost, some fluctuations with share-based expense and accounting adjustments, sustaining CapEx and procurement margin. Management is conscious these costs are higher than historically, and we are exploring ways over the next few years to reduce on-mine cost, particularly focusing on labor and electricity, to use our labor more intelligently and reduce electricity usage. At the all-in sustaining cost level, that will benefit from reductions in on-mine cost and we'll look at what we can do to reduce sustaining CapEx. Sustaining CapEx remains very high. 2024 sustaining CapEx was $19 million, about $240 an ounce. 2025 will be about $30 million, about $400 an ounce. That goes into development, which James explained is important to improve mine flexibility; milling and the tailings facility; and continued engineering to increase robustness and resilience of equipment at Blanket. That higher level of sustaining CapEx will continue for 2025 and 2026, and then we'd expect it to begin to fall away from 2027 onwards. Can we move on? This next slide shows everything below gross profit. We discussed revenue and on-mine costs; below gross profit you've got net foreign exchange losses in the quarter, which were only $600,000 in Q4. For the year they were much higher. It was pleasing to see that the local currency, the ZiG, stabilized in Q4, and that's continued into Q1. We're not seeing a recurrence of the very substantial FX losses we incurred in the first nine months of the year. 'Other' is primarily $2 million of retirement costs. In Q3 we initiated a retirement program, which affected just over 100 people who are over the age of 60 for manual work and 65 for non-manual. That action should have been taken earlier. We retired 104 people. As part of that retirement program, you have seen a significant cultural shift at Blanket, which has contributed to the strong performance in Q4. Tax is a combination of income tax, deferred tax and a significant component of withholding tax incurred as we move money around the group. The NCI, non-controlling interest, is the minorities at Blanket. That takes you down to adjusted earnings per share for the quarter, which was $44.3 compared to $0.2 in Q4 2023. This graph splits out gross profit of Blanket from gross profit at Bilboes. Blanket in the top half shows gross profit in 2022 was $17 million, down to $11 million. In the first half of 2023 Blanket's performance was not very good, largely because of lower production and higher costs. Towards the back end of 2024, we're now getting gross profit of $22 million, nearly $20 million and just over $20 million. The point is Blanket as a cash-generative engine is back where it should be. On the bottom half, Bilboes incurred losses of $3 million, $2 million and $1 million in the first three quarters of 2023. In 2024 we've quarterized that as Bilboes is now on care and maintenance and is just running so long as it will cover its operating costs. The cash drain that was coming out of Blanket's poor performance and Bilboes has now been dealt with. Moving to cash flow, it's a dense slide but probably the most relevant. Cash from operations before working capital was $65 million in 2024, which equates to about $1.25 million a week. In Q4 it was $19 million, about $1.5 million a week. A substantial improvement in cash generation in Q4. Below that, movements in working capital show we absorbed $10 million into working capital for the year and about $3.5 million in the quarter. The main areas are inventories and prepayments; one way we manage exposure to possible devaluation of the ZiG is to use ZiG to buy inventories or make prepayments instead of holding ZiG cash balances. Receivables increased largely because of the higher gold price which means more money flowing through the system. Net cash used in investing activities was $32 million for the year and nearly $13 million for the quarter, mainly sustaining CapEx at Blanket. Of the $32 million spent in the year, $27 million was at Blanket. Bilboes and Motapa also absorbed $3 million in the year, largely on the feasibility study and exploration at Motapa which turned out to be good. Cash used in financing activities includes the Caledonia dividend, just under $11 million, dividends paid to Blanket minorities about $1.6 million, offset by increases in debt which include modest bond issues in Zimbabwe and movements in overdrafts. We intend, at this higher gold price, to focus on improving our cash position. This slide shows how quarter-on-quarter cash generation in the last few quarters has improved after the dip in late 2022 and early 2023. Turning to the feasibility study: work is progressing well with support from DRA and other technical consultants. The feasibility study will supersede the PEA published in June 2024. We put out a press release last week that we want to extend the timeline to complete the feasibility study. That's to give DRA more time and to explore new development options which have become apparent. One of them is the potential to export concentrate. Previously, we thought the Zimbabwe government would not accept that and wanted in-country beneficiation. Now we understand that given the complexity of processing complex gold metallurgies such as Bilboes, the Zimbabwe government may be more flexible. If we can export concentrate, that would reduce capital expenditure by removing the need to build a BIOX plant. It would de-risk the project in the eyes of North American investors who are wary about BIOX. It may also affect the eventual tailings facility. Regarding the tailings facility, we currently intend to locate it on a very flat area at Bilboes. We may be able to move it to an area at Motapa, where we can lean it against a hill and reduce the need for retaining walls, again reducing CapEx. The tailings facility is the biggest component of the capital, nearly $100 million. Anything to reduce that cost benefits the project. Good exploration results at Motapa mean we want to continue work and potentially fold a resource at Motapa into the Bilboes feasibility study. On funding Bilboes, our objective is to maximize Caledonia's NPV per share which includes three elements: optimize project economics to get the best IRR, maximize debt funding within prudent constraints to minimize equity dilution, and evaluate near-term revenue opportunities across the portfolio such as re-leaching heat pads at Bubi and Motapa and near-term oxide resources at Blanket. We think Bilboes has a high capacity for debt; nonrecourse debt may be limited by banks' lending constraints around 65% to 70% of total cost. Three potential funding sources are African DFIs, South African commercial banks with ECIC cover, and resource-specialist credit or private equity. Preliminary engagement with these groups is underway but we need a feasibility study to get detailed. All indications are the project is fundable. Regarding exploration: at Motapa we focused on Motapa North, Central and South and a new area called Mpudzi. We did over 5,000 meters of RC drilling and 4,000 of DD drilling showing widespread mineralization over a 9 km strike length. This year's program targets shallow oxide potential at Mpudzi and deeper sulfide resources which may form part of Bilboes. At Blanket we did a resource upgrade in May more than doubling our S-K 1300 reserves and increasing resources substantially. This year we're focused on increasing confidence to convert resources to reserves and evaluating new areas outside the existing mine footprint, including the blended Ironstone formation 800 meters east of the current area and potential shallow oxide resources. Outlook: with James as COO, we're focused on maintaining stable production at Blanket and getting away from the gyrations of the last few years. We're investigating near-term growth opportunities across Blanket, Bilboes and Motapa; advancing Bilboes to convert it into a producing asset; doing further exploration at Blanket and Motapa; and continuing to invest in Blanket to achieve longer-term cost reductions and improve reliability and resilience. I think we're finished, in which case, we can open this to questions.

Thanks very much for that, Mark. We've got our first question, which is from Nic Dinham. Nic, if you could unmute yourself and ask your question. As COO, we're focused on maintaining stable production at Blanket and getting away from the gyrations of the last few years. We're investigating near-term growth opportunities across Blanket, Bilboes and Motapa; advancing Bilboes to convert it into a producing asset; doing further exploration at Blanket and Motapa; and continuing to invest in Blanket to achieve longer-term cost reductions and improve reliability and resilience. I think we're finished, in which case, we can open this to questions.

Can everyone hear me? Hi. Good afternoon. Great. Thank you. Just a couple of questions. One is what is the status of the solar power project, the sale of that asset? That will be the first question.

Sometime this week, we expect.

So the second question is to James. It's a little bit about your sense of reliability of what you can produce out of the mine. I know we have a target that's tonnage related. It seems to indicate that you should be able to pull out 800,000 tonnes out of the shaft, not necessarily process it in the next year. Is that the right sort of number we should be pegging into our models?

Yes, Nic. That's the right sort of number. 800,000 we should pull out of the mine, yes.

Excellent. Okay. Well, welcome because that's a very stable number. The third set of questions relates to Bilboes. And it's back to you, Mark. The tie-in with getting a resource or a reserve out of Motapa somehow gives a sense that this could be almost like a year or two to develop a reliable reserve that you could weave back into your feasibility study. That's the first question about Bilboes.

We'll take as long as it takes to get the best project we can. If we feel we've got a project that works and is fundable based on what's at Bilboes right now, that's fine; we'll run with that, and we can introduce Motapa later. If we feel that introduction of Motapa would materially affect the equity and debt story, we owe it to ourselves to consider that. We'll consider things on the basis of net present value per share, including the effect of any delay, time value of money, and the competing tensions of optimizing NPV, minimizing dilution, and balancing speed.

Okay. The second question: you mentioned maybe a change in the tailings dam strategy because you're looking for a hill. But you also mentioned in passing that it could affect what you do. Obviously, if you are able to toll treat concentrate, the nature and designation of the TSF is going to change. Is that what you're thinking about?

Correct. Now that really only works if we can get permanent permission to export concentrate. If we only get temporary permission that will still mean that we're going to need to set the tailings facility up from the outset so that it can receive material from a BIOX plant even if that BIOX plant may not be in place for two years.

100%. Okay. So finally, the toll concentrate idea is attractive from an outsider's perspective, but there is another side of the coin: you may be limited in scale and volume of those exports simply because not many people in the economic catchment area of your concentrates are going to be able to accept what you initially proposed to produce.

You're quite right. This opportunity has emerged very recently and we need time to consider it. There are trade-offs. It has only materialized within the last four or five weeks.

That’s great. Thanks so much for that. We're now going to move on to Howie Flinker. Howie, if you would like to unmute yourself and then talk to the team.

Hello, Mark. Hello, Victor. So three short questions. One, do I read correctly that your bank debt is down to about $2 million?

No. Slightly more than that. Our net—it's in a slide somewhere—our net cash position is positive. We have more cash than debt. But the strategy will always be to have debt in country and cash out of the country. That will always be the strategy.

Okay. Second, are your taxes going to be 42%, as they seem to be in the fourth quarter?

Pretty much. In the MD&A we break down the tax into Zimbabwe income tax, Zimbabwe deferred tax, South African income tax and withholding tax. If you look at Zimbabwe income tax plus Zimbabwe deferred tax expressed as a percentage of gross profit, which equates closely to Blanket's PBT, that rate is about 20% to 24%—the underlying commercial tax rate. On top of that we incur tax leakage, about $1 million of withholding tax as we move things around the group. Management fees paid from Blanket to South Africa aren't tax allowable in Zimbabwe and they also incur withholding tax. Expenses incurred outside Blanket in Johannesburg, Harare and Jersey aren't offsetable against profit because Jersey is a zero-tax regime or there is no taxable profit. So our effective tax rate remains somewhat high because of structural inefficiencies not readily addressed.

Okay. And the last question is probably a technical error. I got a weird announcement this morning, you bought 11,500 shares at $42 something. Is that some technical error by the service provider?

I got quite excited about that. Yes. So that's a company called Caledonia Investments, a U.K. investment trust, and somehow their announcement ended up on our website. I think it's been rectified. I hope so.

I thought it was ours, but I wanted to verify that. That's all I have. Thanks.

Okay. Thank you, Howard.

Thank you. Our next question comes from Tate Sullivan. Tate, if you please go ahead. Unmute yourself and put your question to the team.

Great. Thank you. Hi, Mark. You mentioned retirement expenses in Q4. Are you within your cost guidance for 2025, and are you planning more retirement expenses?

No. There will be de minimis further retirement costs. 104 people out of a workforce of 2,200 reflects that we hadn't really enforced this policy for many years. Even supervisory roles going underground is hard work in their mid-70s and that was inappropriate. The retirement policy will continue to be enforced but will only affect a few people a year; it will not be like the magnitude in 2024.

And then if I may have misinterpreted, in terms of the Q4 costs, were some of the higher labor costs associated with the lower availability of electricity and if so, why?

Yes. The first part of the quarter was terrible because we had serious electricity problems. It started raining, which meant the grid suffered, and because it was cloudy the solar plant didn't work well. There was also an equipment failure within the solar plant, which we rectified, but it was a problem for some time. By the end of November things looked bleak, so James had to do some fairly extensive work to raise morale and get the team focused on delivering in December. James, do you want to talk about what you did? It worked.

We had a bleak start to the quarter. ZESA's infrastructure is not that well equipped; it collapsed with the rains. We had lightning strikes that caused transformer issues. Solar was not generating well. We regrouped the team, used some plant stream capacity, and worked overtime, sometimes through Sundays, to get the production machine going again. It worked.

I don't like to see people working excessive overtime, but they were paid and incentivized. They finished the quarter well and that has continued into this year. It's a virtuous circle: the mine is performing well, people receive production bonuses, and morale is improved.

And then my last question: for 2025 costs, Mark, is the greatest variable higher employee costs, higher consumables, unpredictable electricity or another factor?

The least predictable is electricity. If the grid collapses or the solar plant underperforms, we have to run diesel generators which are expensive. The solar plant works very well in sun but is sensitive to cloud; a thin cloud can reduce generation by about two-thirds. If we have any interruption, diesel costs are the main risk. Over the next two years we've decided as a Board to look at ways to insulate ourselves further from the vagaries of the grid because this situation is unlikely to get better and we must fix it.

Thank you.

Thank you very much for your question. I'd now like to invite Duncan Hay to ask his question.

Thank you. Hi, Mark. Just going back to Bilboes and the concentrate sales scenario. You mentioned time value of money, which suggests you don't want to hang around too long waiting for approval. Would the strategy initially be to try and get an ideal scenario where you sell concentrate with no commitment to put in the BIOX? Is that preferred, but if you have to compromise, then the priority would be to get moving on the project and not hold out too long?

The government typically has the lever to allow concentrate export for a period, say two years, after which you're expected to put in a beneficiation plant; failure can bring punitive taxes. That could be one option. Alternatively the government could decide to allow permanent export. There seems to be increasing pragmatism from government and we'll explore it.

Okay. Thank you.

Thanks very much. We have got no further questions at the moment. Mark, maybe back to yourself for any closing remarks.

We had a substantial improvement in 2024 compared to 2023. Very pleased to see stability of the ZiG and that's continued into 2025. Very pleased to see an improvement in cash generation and much better reliability in mine performance. We're genuinely excited about some near-term opportunities which could make a significant contribution to our cash generation. We've come through a fairly difficult 18 months and I'm hopeful that Q4 and into Q1 you'll begin to see substantial improvement. I look forward to sharing that with you. Thank you.

Thanks very much. That already concludes the presentation today, and we look forward to speaking to you again.