Earnings Call Transcript - CMCL Q1 2025

Operator, Operator

Ladies and gentlemen, welcome to the Caledonia Mining Q1 Results Presentation. I'd like to hand over to Mark Learmonth, CEO. Mark, please go ahead.

Mark Learmonth, CEO

Thank you. Let's turn to the disclaimer regarding our forward-looking statements. I assume everyone is aware of this. Now, I'd like to introduce the team. I am Mark Learmonth, the CEO of Caledonia, and I'm currently in Jersey. Alongside me is Ross Jerrard, our CFO. In Harare, we have Victor Gapare, an Executive Director, and James Mufara, our Chief Operating Officer, who is in Johannesburg. He is accompanied by Craig Harvey, our Vice President of Technical Services, who will discuss our exploration program and near-term revenue opportunities. We also have Rusiano Tsoka from Blanket Mine, who is the Group Safety, Health, and Environment Manager, and he will talk about our new safety initiatives. Additionally, Maurice Mason, Vice President of Corporate Development and Investor Relations, and Camilla from Group Communications are also present. We have a large team and a lot of information to cover. Some slides I will go through quickly to give my colleagues more time. Let’s move to the next slide. I won’t get into numbers as Ross will handle that, but it was a strong quarter with an excellent financial performance and record gross profit. We strengthened our balance sheet, especially following the successful sale of the Solar Plant in early April, aided by the higher gold price. We realized just under $2,900 an ounce, which contributed positively. Our operational performance was robust, with production of 19,000 ounces of gold compared to 17,500 in the same quarter last year. I want to highlight the steps we've taken to enhance our Board and management team. Recently, we welcomed two new non-executive directors: Stefan Buys, a Mining Engineer and Metallurgist from ArcelorMittal, and Lesley Goldwasser from the U.S., who will assist in Corporate Finance and Capital Allocation. Johan Holtzhausen retired as a non-executive director and Chairman of the Audit Committee at our recent AGM. These changes at the Board level are part of a structured rotation to ensure regular updates rather than abrupt changes. Ross joined us as CFO a couple of months ago and will share his insights before diving into the financials. Now, let's move to the next page. This slide summarizes the points, and my colleagues will elaborate on these figures. Ross will provide details on financials, and James will discuss operations. Given the extensive information to cover, I won’t linger on this page. I'll hand it over to Ross, who will present the financial results. Before he begins, let's allow Ross some time to introduce himself and share his reasons for joining Caledonia. Ross, over to you.

Ross Jerrard, CFO

Thanks, Mark, and good afternoon, everybody. It’s my pleasure to talk you through these financial results and first-time for me as CFO. A little bit about me, I'm Ross Jerrard. I've joined Caledonia after spending just short of the last decade with a company called Centamin plc, which was a FTSE-250 dual listed company. It was taken over by AngloGold Ashanti late last year for $2.5 billion. During my time with Centamin, we achieved many milestones over that time, some good and some not so good. Importantly, in the second half of my time at Centamin, it was basically navigating the reset of a Tier 1 mine, the Sukari gold mine in Egypt. As part of that reset, it was not just looking at production profiles and life of mine, but importantly, lowering that all-in sustaining cost base and setting that mine up to be the growth engine for a multi-asset portfolio. Through consistent delivery, we were able to demonstrate this reset and basically reinforce the investment case for a mine in Egypt that was a little bit of an unknown mining jurisdiction. The result exiting was that we put both the company and the country on the map that could no longer be ignored from a mining jurisdiction or destination. Bringing this back to why I joined Caledonia, I see several parallels in terms of having a wonderful operating mine in Blanket, which has been producing for a considerable amount of time; and importantly, has a long and exciting future ahead. It's running well, and with further optimizations and cost reductions, we have every opportunity to turn this into a serious cash generator that will underwrite a good platform for future growth and development opportunities. Many of those opportunities are already in the portfolio, which makes it exciting. We operate in Zimbabwe, which is a mature mining jurisdiction. Blanket has been producing since 1907, and we have a highly skilled workforce that knows how to operate in the country. Personally, I'm very biased; I'll be honest. I've been born in Bulawayo, so it's great, and I'm really excited about spending more time back in country. I believe it's an exciting jurisdiction to operate in. Particularly when you look elsewhere around the world and especially throughout Africa, I think we're fortunate to operate in Zimbabwe. We're changing this concept of perception versus reality in terms of operations there. I'm very excited about both Caledonia and the Zimbabwe opportunity. Both the quality of the asset and the quality of the team that's already in place and the opportunities we have to maximize this growth are compelling. Now, importantly, let's take a dive and have a closer look at the quarter. Our gold revenue for the quarter was up at $56 million, which was up 46% on the comparative quarter. This was driven by good gold production, both from Blanket and Bilboes oxides at 19,000 ounces, which was up 9% on the comparative quarter, with the added benefit of an average realized gold price of just a shade under $2,900 per ounce, which was up 42%. This increase meant that there was a higher royalty paid for the period, which you'll see is up a similar 47%. Now James Mufara, our COO, will take us through some operational highlights a bit later in this presentation. This was driven by higher tonnes mined and milled, impacting production costs. It was a grade-volume equation in terms of deliveries for the quarter, and that's where you see that those production costs are up some 19% at $22.6 million compared to the prior period. That increase was primarily due to higher labor, power, and consumables costs, and we will go into a bit more detail later in the presentation regarding that breakdown. Very importantly, as you can see at the bottom right of the chart, we delivered a gross profit of $26.9 million, which was up 95% and is a quarterly record. Let's take a pause and talk more about that gross profit and trends in a bit more detail. Here, you can see a mapping of our profit profile over the previous periods, both '23, '24 and into '25, showing a consistent and significant increase in gross profits. We've increased considerably over the post-challenges in 2023. You can see the difference in the orange line and the blue line, which is Blanket standalone. These were the challenges regarding what we termed Bilboes oxide phase, and we no longer have that negative impact on gross profits from Bilboes. Those benefits are being realized in terms of trajectory of that gross profit line and mitigating some challenges. I want to move back and discuss production costs. Looking at our guidance ranges in Blanket on-mine cost of $1,050 to $1,150 per ounce, our costs are slightly higher than that guidance range. The main increases are shown on the left chart, predominantly in that dark blue color of labor, consumables, and admin costs. Some of those labor and consumable costs result from the additional tonnages and overtime work to achieve targets during the period, along with production bonuses for meeting the quarter. We do, however, have several initiatives in place to address these costs. I believe overall, the annual guidance is still well within range and will be achieved over the year. So we don't have concerns about that as these initiatives come into play. James will again talk about some of the initiatives we're rolling out. On the right, you'll see the all-in sustaining costs have been impacted by admin and capital expenditure. Higher when looking back at the comparative quarter. Many of those admin costs are one-off costs, and a higher CapEx profile is scheduled for the year. Overall, we expect these to normalize and return within guidance ranges, and we have identified one-off costs totaling about $2.2 million, impacting us on about $110 an ounce. Backing those out, we’re actually at the bottom end of that range. Moving to details below the gross profit lines, net foreign exchange losses have not had a significant impact this period when compared to the previous quarter of $4.9 million. While it was a pleasing result, we actively manage and mitigate impacts of any devaluations in the business. We have increased working capital as we are deploying a lot of our cash into prepayments, stores, inventories, trying to best minimize any impact of currency. It’s beneficial but ongoing. Corporate was a big line item, as you’ll see at $6.9 million due to a number of one-off settlements in terms of our HR strategy and headcount. One area in admin is worth highlighting. The company had previously entered into gold hedges or put options that set the floor for gold prices received. I am glad to say that with the gold price where it is, those prices are above hedge limits which means we've fully expensed the hedges and they’ve been written off in the income statement to $1.3 million. Next, we'll discuss cash flows for the period. We have increased cash flows from operations up to $18.7 million driven by the presentation of both gold price production and costs with an increase in working capital. You can see the increase in trade and other receivables that I mentioned and was an active decision in terms of what we paid. net cash from operating activities more than doubled at $13.3 million compared to $4.9 million in the comparative quarter. Even after the higher taxes, this provides solid foundations for internal funding for capital investments and debt reduction. We did have a higher level of taxes, as I mentioned, due to good performance and some timing of payments outstanding at the end of the fourth quarter that came and were paid early in the quarter. Higher investing spend or activities are aligned with guidance. The net cash position improved to negative $4.6 million at the end of the quarter, compared to negative $14.2 million for the comparative period, which is a great result for three months. We've been really pleased with our results and the ability to capitalize on both gold price and a good production base. We expect this to continue. Our cash across various jurisdictions has evolved over the quarters, showing consistent cash increase each quarter, which is really pleasing. We expect that to continue further into 2025 and for the full year ahead. Where we sit with our current cash position following the completion of the Solar Plant sale in April 2025, our pro forma net cash position improved to $18.6 million, providing us with flexibility for growth initiatives. We expect this cash balance to build, sitting in Jersey in deposit accounts, expecting a strong performance in the future. Overall, it was a pleasing quarter that gets our 2025 off to a great start. I will now hand across to James Mufara, our COO, who will talk through some of the operational performance.

James Mufara, COO

Thank you, Ross, for that introduction. Good day to everyone. As Ross and Mark mentioned earlier, Blanket achieved record production in the first quarter. If you could turn to the next slide, I want to start with the graph at the bottom that shows the ounces produced. This production reflects the intentional decisions made by our management team at Caledonia. I want to highlight a few key decisions: first, we increased our focus on Health and Safety, and Rusiano Tsoka will discuss some of those initiatives at the end of my presentation. Second, we separated the mine and the plant into two focused management teams: one for underground production and another for the plant. Another step in this separation was the creation of a stockpile. We recognized the need for this stockpile in the fourth quarter of last year to ensure smooth production, and we made the deliberate decision to start building it around late November to early December, which has allowed us to maintain consistency even during mining interruptions. Third, we enhanced employee engagement through various initiatives, including management walkabouts and soliciting employee feedback. Lastly, we reduced short interval controls to gain better management over activities in the mine within shorter timeframes, which has led to the record production we are currently seeing. Looking at the top graph, you will notice that although we have experienced a steady increase in tonnage over time, one of the graphs indicating grade has plateaued. We are addressing this by focusing on ounces produced from better grade areas so we can improve our grades over time. In the last quarter, we saw an increase in grade from 2.78 grams per tonne in January to 3.3 grams per tonne in March. This strategy is proving effective, and we are pleased with our progress. Moving to the next graph, it shows our actual production throughout the quarter in relation to our budget. The orange line represents production from the plant, while the purple line displays the budgeted ounces. This illustrates consistent overperformance by the team throughout the quarter. There were some minor setbacks regarding the grade, which was at 3.09 grams per tonne compared to the planned 3.21. However, we concluded the quarter with a commendable grade above the planned 3.3 grams per tonne, demonstrating that our initiatives have been successful. The stockpile has helped us maintain consistent mill throughput, confirming that our decisions from the fourth quarter have paid off. The next graph showcases key performance areas in the mine, with all areas surpassing targets. The left-hand table shows tonnages inputted for production, resulting in the surface stockpile increasing from 7,000 tonnes to approximately 15,000 tonnes. The top graph displays achievements across four mining areas, with all sections exhibiting growth and ensuring production consistency. Notably, reserves have increased even as production has surpassed targets, positioning the mine for better and more reliable production in the future. With regards to costs, as Ross mentioned earlier, we aim for higher production while focusing on cost reduction. We are currently working on reducing costs by hiring a Business Improvement Manager for key initiatives and optimizing the Central Shaft, which accounts for 60% of our production. Additionally, we are bringing on Voltvision to monitor energy usage in the mine through over 100 measuring units for real-time insight into energy consumption, which will help in optimizing high usage areas. Labor costs are a primary focus, and we have implemented a Time and Attendance System called Firefly at Blanket. This system provides visibility into workforce attendance and helps track overtime and necessary work levels. Moreover, we have introduced improved planning systems for resource utilization and control. I will now hand over to Rusiano Tsoka to discuss some of our safety initiatives. Thank you.

Rusiano Tsoka, Group Safety, Health and Environment Manager

Good morning, ladies and gentlemen. Thank you, James, for the introduction. I’m going to give you an update on one of our key pillars of our operational excellence, which is safety. Since we reviewed our safety strategy, can you proceed to the next slide, please? We've focused on several safety initiatives, all listed on this slide. Today, I’m highlighting the two most impactful: Visible Felt Leadership, VFL, and the structured management of our top 20 operational risks. VFL has ensured that our leaders, managers, and supervisors are consistently present where it matters most, underground and in the plant. They engage personally with employees through two-way communication, providing valuable insights not obtained during routine inspections. In the last quarter, we conducted 47 VFL engagements that helped identify and address unsafe acts and conditions while fostering trust from employees. Managing COPE risks involved identifying and prioritizing the most critical safety and health risks, including falls of ground, heat stress, fire safety, and tailings storage integrity. Employing industry best practices, we’ve assigned ownership deadlines and measurable outcomes. I'm pleased to report that over 85% of high-priority actions have been completed, directly contributing to improved safety performance. The impact of these combined initiatives is evident. We reduced incidents from five in January to one in March, achieving 26 accident-free days in January to 30 accident-free days in March. Safety is non-negotiable, and we’re committed not only to protecting lives but also securing the long-term sustainability of our operations. Our vision is to embed a proactive safety culture where every employee feels responsible, empowered, and supported to prevent incidents before they occur. Our journey to zero harm continues. Thank you. Next slide?

Mark Learmonth, CEO

Can I ask you to provide some introductory comments on Bilboes before I hand over to Victor? Please go to the next slide. Before diving into the specifics of Bilboes, I want to discuss capital allocation. I have mentioned this before, but to reiterate, our management's goal in developing Bilboes is to maximize the increase in Caledonia's net present value per share, which closely relates to our share price. There are a couple of strategies for achieving this. First, Victor will discuss in more detail the various workstreams currently underway to optimize the project's economics. The other aspect is minimizing equity dilution. We need to adjust our development approach to reduce upfront capital costs and boost Caledonia's internal equity contribution. We also need to seek debt funding, but we must do so carefully; we don’t want to burden the company with excessive debt. We've had productive discussions with potential funders through Cutfield Freeman, which are currently on hold until we complete the work that Victor will outline. Capital allocation is the most critical factor in how we manage this project. Victor, it's your turn.

Victor Gapare, Executive Director

Thank you, Mark. Regarding the Bilboes project, over the last few months, working with DRA on the feasibility study revealed some optimization opportunities given the project size concerning ore and waste mining as well as the required capital. The feasibility study we're conducting looks at 240,000 tonnes per month. Opportunities to relook at pit and mine scheduling particularly for our McCays and Isabella operations, which are within a 5-kilometer radius. Thus we could reduce upfront capital and operating costs over the life of mine. Modern metallurgical changes focus on using a bio-processing method. Phase 1 will focus on Isabella and McCays, where we plan to strip out the upfront capital expenditure for the Biox plant related to Bubi, focusing solely on Isabella and McCays initially. Additionally, we’re exploring exporting concentrates, and we have established that the Zimbabwean government can allow this; this will save upfront capital costs significantly. The infrastructure focuses on power requirements, negotiating with the power authorities. We will cover the CapEx for the power line, but in return, we can recoup it via credits on our electricity bills, impacting project economics positively. We are also looking for better pricing from contractors for earthmoving, civils, and infrastructure. We think there are areas for savings there. For the tailings storage facility, the largest cost in the project, we’re reviewing what the environmental compliance would entail in terms of lining. The existing plan is to navigate to the Motapa property to optimize the location of the TSF. We expect preliminary results before year-end, giving a clear idea of capital costs. Once this is completed, we'll engage with Zimbabwean authorities concerning concentrates and project-related issues. Smaller scale options will also be assessed before the final feasibility study. That's all I can say about the project. Thank you.

Mark Learmonth, CEO

Thank you, Victor. Can we now ask Craig, our Vice President of Technical Services, to outline what we're doing regarding exploration and some near-term opportunities? So Craig, over to you.

Craig Harvey, Vice President, Technical Services

Thanks, Mark. I'll quickly take you through exploration and the near-term opportunities for Caledonia. Moving onto the next slide, one of our key focus areas this year is Motapa. At the end of last year, we detailed initial work via a press release. For this year, we have a budget of just under $3 million. Our three trends are North, Central, and South. At Motapa North, we aim to drill out a minimum of 250,000 ounces into a mineral resource, with 19,500 meters of drilling planned, covering 170 drill holes down to approximately 150 meters. This is just phase one, and further drilling will be scheduled next year to explore the sulfide resource. The Mpudzi block in our central area is an abandoned iron formation. We’ve trenched the area considerably this year to define an oxide mineral resource of greater than 30,000 ounces, including 6,000 meters of drilling planned for this. Bilboes is about 400 to 500 meters away from heap leach pads, making it a promising area for potential ore. Motapa South has revealed a 600-meter anomaly with trenches returning strong values. We plan infill trenching and possibly drilling based on favorable results. For Blanket, we've released excellent drilling results and be working on an update due in the next two to three weeks on our long-haul drilling. The long-haul drilling remains positive, with grades and widths better than expected. We've targeted extensions of main ore bodies below the 34 level, which is crucial for future expansion. Notably, pre or post-1970, surface work has been minimal. Nearby mines like Vumbachikwe hold promise. We’re pursuing opportunities to optimize gold recovery on spent heap leach pads at Motapa and Bubi. Historically, these pads show substantial recovery rates. With a low-cost operation, we aim to add up to 30,000 to 40,000 ounces of recoverable gold over the next two to three years at reduced costs. That's our overview of exploration. Thank you.

Mark Learmonth, CEO

Thank you. We've spent quite a long time, almost 50 minutes or so. Let’s quickly discuss the outlook. Our objectives are focused on disciplined growth. We aim to maintain Blanket production consistently. We’ve had an excellent start. We'll continue our cost reduction initiatives leading to improvements by year-end. We’re expanding exploration activities at Blanket with a view to increasing its life and exploring new opportunities within the lease. We're also evaluating beneficial development options for Bilboes to optimize economics and reduce upfront capital costs. Lastly, we’re excited about Motapa's potential. We’ve covered significant ground. Let’s open this up to questions.

Operator, Operator

Our first question is from Howdy Flinker. Howdy, please go ahead.

Howard Flinker, Analyst

I’ve no questions.

Mark Learmonth, CEO

No more questions.

Operator, Operator

Okay. We'll go to the next question from Nic Dinham. Nic, please go ahead.

Nic Dinham, Analyst

Thank you. Hi, everybody. Thanks. It was a really impressive presentation. A couple of questions. James, you've unpacked a lot more data than we've seen traditionally about the mine itself. You’ve given us comfort that you're balancing reserves against production. What about the longer-term aspects of mine development? The developments on the declines and other work you’re doing. Is that where it should be at the moment? That's my first question.

James Mufara, COO

Thank you, Nic. So yes, the development on the decline is in a positive direction as you can see. When we took over, we realized some shallow reserves we could mine closely without needing extensive energy or ventilation. We therefore decided to extract these ounces closer to the surface to improve production. In the medium to long term, we will need to restart deeper declines.

Nic Dinham, Analyst

The next question is about Blanket dividends' role in funding the rest of your business. Your mine is making significant profits. What dividends came out of Blanket in 2024? If we look ahead, how much can you extract from Blanket to fund the rest of your business? What is the likely closeout horizon on the facilitation loans under the current gold price scenario?

Mark Learmonth, CEO

Ross, do you want to address that?

Ross Jerrard, CFO

Yes, regarding the facilitation first: Blanket’s not a cash drop. It serves all shareholders’ interests, and they all desire it to retain as much cash as possible. The balances matter; we don't want to over-distribute while meeting shareholder interest. At this rate, I would expect the facilitation rates to get repaid in about 12 months at this rate of cash generation.

Mark Learmonth, CEO

I'll let Ross explain how much cash he predicts we can pull from Blanket throughout the year.

Ross Jerrard, CFO

Quite feasibly, we could end the year with a cash balance between $50 million and $60 million, depending on various levers. Our trajectory concerning cash flow is exciting. We're implementing long-term savings initiatives that might require short-term capital. So, we anticipate a closing balance of around $50 million to $60 million.

Mark Learmonth, CEO

Anything else, Nic?

Nic Dinham, Analyst

I wanted to follow up on the smaller exploration projects. Is it the right time to shake loose of them considering how big your commitment is in Bilboes?

Mark Learmonth, CEO

Maligreen is being incubated; I can't think of anything else for sale.

Nic Dinham, Analyst

Okay. You mentioned tempting investment opportunities arising from your strategic position now. Is electricity investment the only opportunity that excites you?

Mark Learmonth, CEO

No. We have more than enough on our plate. We've got exciting investment opportunities. Thank you.

Operator, Operator

We've got another question from an unidentified participant. Please go ahead and unmute yourself.

Unidentified Participant, Analyst

You had set aside $41 million in CapEx for 2025 for modernization and exploration. Of this amount, $3.4 million was for Blanket, $6.9 million for Bilboes and Motapa. How much has been spent to date?

Mark Learmonth, CEO

That's a slow one, but Ross, do you want to respond?

Ross Jerrard, CFO

Approximately $10 million has been spent across both Blanket and Bilboes to date. The impediment to spending remains the speed of execution, especially when it comes to procuring products and services.

Unidentified Participant, Analyst

Thank you.

Operator, Operator

No further questions at this moment, so we can turn back to you, Mark, for any closing remarks.

Mark Learmonth, CEO

Thank you all for your attendance. It was a good quarter, but with gold prices holding strong and a robust production start to the year, we look forward to improvements in quarter two and thereafter. We'll update you next quarter. Thank you very much for attending.