Earnings Call Transcript - CMCL Q2 2025

Operator, Operator

Good afternoon, and welcome to the Q2 2025 results presentation for Caledonia Mining. Today, we are joined by Mark Learmonth, who is the CEO, and he is going to introduce the webinar and start the presentation. Mark, over to you.

John Mark Learmonth, CEO

Thank you, Scott. Welcome to the Q2 2025 results presentation for Caledonia. Let's move on to the forward-looking statements and the disclaimer, which I hope you will take the time to review. Now, let’s proceed to the presenting team. As Scott mentioned, I’m Mark Learmonth, Caledonia’s CEO, here in Jersey today. Joining me is Ross Jerrard, our recently appointed CFO in Johannesburg, who will go over the financial results. We also have James Mufara, our Chief Operating Officer, joining us from Blanket Mine. Victor Gapare in France will provide a brief update on the Bilboes project. Craig, our Vice President of Technical Services in Johannesburg, will discuss ongoing exploration at Bilboes and Motapa. Maurice, our Vice President of Corporate Development and Investor Relations, will handle any complex questions that come up. So let’s move forward. It was a very strong financial quarter, driven by excellent production. Revenue increased by 30% to $65 million, while net profit attributable to shareholders rose by 147% to just over $20 million, and adjusted earnings per share went up by 155%. This strong performance was supported by robust operating cash flows, which rose to $28 million. We ended the quarter with $8 million of net cash and an additional $18 million in fixed term deposits. If you consider fixed term deposits as cash, that brings our total cash to about $26 million. From an operational standpoint, Blanket Mine had an outstanding production quarter with just over 21,000 ounces, setting a record for any second quarter. Consequently, we've raised our full-year guidance to a range of 77,500 to 79,500 ounces, primarily due to a stronger gold price, realizing just under $3,200 an ounce. As you may know, we finalized the sale of the solar plant this quarter, generating $22.4 million. We never intended to hold onto the solar plant; our goal was always to sell it once it was built. The sale included a long-term supply contract for Blanket, allowing us to release capital for reinvestment in our core gold mining operations. We have a strong growth pipeline, continuing the Bilboes feasibility study with a focus on cost-saving options and a phased approach to minimize upfront capital costs. Victor will provide an update on this shortly. We are also conducting a $2.8 million exploration program at Motapa, which is progressing well, along with successful exploration at Blanket. The exploration of Blanket has two aspects: resource replacement to ensure we are replacing the resources we deplete, and exciting new areas within the Blanket lease that we previously couldn’t explore due to resource constraints. We are now actively investigating those areas with encouraging results. Turning to the next page, James will cover safety and production, but it is encouraging to report an improvement in our safety performance, with the total injury frequency rate for the quarter and half-year showing positive trends. There is always room for improvement, but it’s reassuring to see progress. James will also provide details on production, which I've previously mentioned. Revenue increased from $50 million to $65 million for the quarter and from $88 million to $121 million for the half-year, with a gross profit of $33.8 million for the quarter, excluding the $8.5 million profit from the solar sale. Adjusted earnings per share for the quarter were approximately $1.14, with about $0.44 from the solar sale profit, translating to around $0.70 from operations, up from approximately $0.40 in the first quarter. Even without the solar benefit, it’s been a strong quarter. Now, as we look ahead, many people focus on the work left to achieve the Bilboes project, but it's also important to recognize how far we’ve come in the past decade. We see a 10-year graph showcasing the gold price, the VanEck GDXJ index, and our share price, including dividend reinvestments. Over the past decade, the gold price increased from $100 to just over $300, the GDXJ from $100 to over $400, and Caledonia Mining from $100 to above $1,000. This reflects great performance over the last 10 years. During that period, we've increased Blanket's production from around 40,000 ounces to 80,000 ounces, and the growth potential ahead is even more promising. Our success over the past decade is grounded in two key factors: minimizing dilution and recognizing the significance of dividends. We are committed to minimizing dilution as we pursue funding for Bilboes, which has allowed us to deliver strong returns over the past decade, and we intend to maintain this approach. Moreover, while we don’t have a strict dividend policy, we understand dividends' importance in delivering shareholder returns, especially in markets like Zimbabwe, where they provide essential support. Moving forward, I want to comment on Zimbabwe. Operating in Zimbabwe daily, it's sometimes hard to recognize the overall improvements we've seen in the last five years. We've observed several encouraging signs, particularly regarding physical security, which remains stable in Zimbabwe while declining in other regions across Africa. Additionally, while the foreign exchange environment has historically been turbulent, we’ve noted increased stability and moves towards liberalizing the local market over the past 18 months. We are seeing more liquidity for trading the local currency, the ZiG, within the Willing Buyer Willing Seller market, which is promising. The stability of the ZiG/dollar exchange rate reflects the prudent financial management of the Reserve Bank of Zimbabwe. We would not have achieved our results without a skilled local workforce. Over the last year, we've significantly changed our management team, adding local talent in Zimbabwe, which has undoubtedly contributed to our record production in the second quarter following a strong first quarter. Our management team in Zimbabwe possesses valuable experience and quality, with about half of our top 25 senior managers having been with us for a year or less. While Zimbabwe does face electricity challenges, the government has taken steps over the years to mitigate issues for large users like Caledonia and Blanket. We are part of the Intensive Energy User Group, allowing us to import power from the Southern African power pool, where power is abundantly available. Furthermore, the authorities have been swift in expediting permits for independent power initiatives, including solar and coal-fired projects. Recently published rankings from the Fraser Institute indicate that Zimbabwe has improved from the bottom of the table to the 8th spot among 17 African countries surveyed. We are witnessing encouraging signs in Zimbabwe, and we hope for continued progress. With those introductory remarks, I’ll now hand things over to Ross to go over the financials. Ross, it’s all yours.

Ross Ian Jerrard, CFO

Thank you, Mark, and good afternoon, everyone. It's a pleasure to discuss the financial results for this quarter, which have been excellent. As we look at some of the key numbers, gold revenue increased to $65.3 million, marking a 30% rise compared to the same quarter last year. This growth was driven by a solid gold production of 21,000 ounces, alongside a favorable realized gold price of $3,186 per ounce, which was up 38% year-over-year. Consequently, our royalty for this period was higher, as shown in the table. The increase in production was primarily due to higher grades and plant recoveries, which James will elaborate on later in the presentation, leading to an 18% rise in production costs for the quarter. We will delve deeper into these costs shortly, but overall, our gross profit reached $33.8 million for the quarter, up 48%, setting another quarterly record. Now, looking at the gross profit, this slide captures the important changes. A key takeaway is that Bilboes no longer negatively impacts our results, as indicated by the orange line. Additionally, Blanket's trajectory shows a significant profit increase, which we need to maintain moving forward. Turning to production costs, in our first quarter results, we mentioned that our costs were slightly above our guidance. Now, we are bringing that back within range, though still at the upper end. Cost management remains a priority, and we have several initiatives in place to address this, ensuring we stay on track to meet our full-year guidance. The three main components of our cost base—labor, consumables, and power—are detailed in the slides. Regarding labor, the primary changes relate to higher production bonuses amounting to nearly $2 million, attributed to overtime and holiday pay as we worked to increase production and address breakdowns. Consumables exceeded the budget by approximately $3 million, driven largely by the mobilization of ZiG purchases for items such as lime and mill balls. This includes around $1 million spent to access the Willing Buyer Willing Seller market. Some overruns were also noted in repairs and maintenance expenses, although we achieved power savings, which contributed positively to our cost management efforts. As for our all-in sustaining CapEx, the on-mine costs we discussed earlier will reflect a 7.4% increase compared to the same quarter last year. The sustaining CapEx is on track with our full-year guidance. Typically, we see increased spending in the second and third quarters; last year’s quarter was lower due to funding constraints. The overall message here is that our CapEx profile is progressing well, with spending allocated appropriately, and we believe we will meet our full-year guidance. Looking at costs below the gross profit line, foreign exchange losses remain a significant focus for us. We are effectively managing our ZiG balances while accessing the Willing Buyer Willing Seller market. The recent run rate is lower than the comparative quarter, a result of both realized and unrealized losses. Overall, we are pleased with our half-year position, although foreign exchange management continues to be important. The corporate line includes some one-off restructuring costs and additional equity share-based payments based on our performance metrics. Notably, we recorded an $8.5 million profit from the sale of our solar operations. This performance has resulted in a higher tax expense, including taxes related to the solar sale. We view it positively as it reflects our contributions to the Zimbabwean economy through royalties, taxes, and tariffs, culminating in a profit of $23.6 million for the period, translating to earnings per share of $1.139. After adjusting for the solar sale, the earnings yield approximately $0.45 for comparison with $0.70 this quarter, showcasing a solid performance. Moving to cash flow, our operations have generated strong cash, and there has been a deliberate increase in working capital focused on stores and prepayments, optimizing our local purchases. There were some variations due to timing in shipments and receipts, but our working capital strategy allows robustness in operations. We’ve deployed around $20 million in capital expenditures over the past six months and secured $22 million from the solar sale. Our cash at the end of the period stood at $8.2 million, with an additional $18 million in deposits, totaling approximately $26.2 million. After excluding the overdraft facility, our cash balance approaches $40 million, and we have built this amount up to about $30 million recently, aiming for a cash balance exceeding $50 million by year-end to solidify our treasury position. Lastly, I want to highlight a change in our quarterly reporting approach, which will involve reduced financial disclosure for the first and third quarters. We remain committed to transparent reporting, providing key material facts and selected financial results without the full MD&A set during those quarters. However, regular disclosures will continue for the full and half-year reports. In conclusion, this quarter and half-year have been solid, and we look forward to the second half of the year with optimism. Now, I’ll turn it over to James Mufara, our COO.

James Mufara, COO

Thank you very much, Ross. Thank you, Mark, for your opening remarks as well. Good afternoon to everyone. If we could move to the next slide. As Mark and Ross have mentioned, we have experienced a strong half year, and this quarter was particularly good. We have taken a very close look at our health and safety programs at the mine, which is part of our commitment to care. We have consistently aimed for improvement in our performance in this area. Quarter 2 showed a significant improvement compared to quarter 1 regarding our health and safety metrics. The number of accident-free days increased from 83 to 85, and the total number of injuries decreased. Lost time injuries also dropped from 4 to 1, indicating that the severity of the accidents we are experiencing is low. During the quarter, we completed a number of bowtie analyses to assess significant unwanted events, finishing 52 of these in the quarter. As part of our cultural initiative to ensure that employees work more safely and effectively at Blanket Mine, we began assessing our employees for risk propensity, focusing first on supervisors, with plans to continue this journey and improve health and safety. However, we recognize that maintaining health and safety requires ongoing effort. If we move to the next slide, I can share our grades and tonnage, which are part of our traditional reporting. You will see that the orange line represents the grade and the dark blue line represents the tonnage. We are excited to report record production in tonnage milled at 204,915 tonnes for the quarter, exceeding our plan of 193,000 by 11,000 tonnes, or 6%. We also saw a meaningful improvement in grade from the last quarter, finishing over plan at 3.31 grams per tonne, which is 3% above our expectations. This improvement results from our ongoing focus on enhancing flexibility and our development efforts over the years. The bottom graph reflects our ounces and recovery, showing that we achieved record ounces for a second quarter, supported by a recovery rate of 94.41%. We reached this figure through three key initiatives introduced in the quarter: launching tank #9 to optimize residence time for better recovery, adjusting reagent dosage for efficient leaching and adsorption, and implementing enhanced process control with a new management team at the plant. All these initiatives contributed to our record production in quarter 2, as mentioned by Mark. Moving to the next graph, we see how we achieved these ounces. This success was not a one-time event at the end of the quarter, but rather a consistent performance throughout the quarter, providing the plant with steady grades and tonnage which led to record production. The top line, the orange line, shows our cumulative performance, while the deeper purple line indicates our budget. From the very first month in April, we exceeded our monthly budget of 5,818 ounces. We maintained a steady performance throughout the quarter, finishing with 21,070 ounces. This surpasses the quarter 2 ounces from last year, which stood at 20,774 ounces, and is also better than the same quarter 2 ounces from 2023, which were at 70,400 ounces. This is indeed a record production, achieved consistently throughout the quarter. Please turn to the next graph. Thank you. I will now pass it over to Victor.

Victor Robinson Gapare, Project Manager, Bilboes Project

Thank you, James. Thank you, Mark. Can we move to the next slide, please? Today, we want to provide you with an update on the Bilboes feasibility study. The study is progressing well, confirming that the project has strong economic viability with a high capacity for debt. We are particularly evaluating the option of relocating the tailings storage facility to the Motapa property, which is adjacent to Bilboes. This relocation would lower construction costs due to the favorable topography at Motapa, as opposed to the flatter terrain at Bilboes, where we would face more extensive earthworks. Additionally, we are considering a phased approach to the project, starting on a smaller scale and gradually increasing to full capacity. This strategy emphasizes financial prudence to ensure we raise a reasonable amount of capital without being excessive. We are also exploring short-term revenue opportunities within our asset portfolio, which would assist in financing the project. Regarding funding, our goal is to maximize net present value per share while balancing growth and minimizing equity dilution. This approach has allowed us to outperform the GDXJ index without diluting our shareholders, which is integral to our strategy. Victor mentioned that the rationale behind the smaller scale phased approach is to limit the amount of debt we incur and ideally avoid equity dilution, while still maintaining a sensible level of gearing. In terms of funding options, we are investigating non-equity solutions, such as non-recourse project financing, with several African development finance funders showing interest. We are also looking at a modest amount of mezzanine funding since it is considerably cheaper than our equity cost, along with asset-backed loans. The final funding decision will follow the completion of the feasibility study and will depend on the timelines of the funders, some of whom may not move quickly, but we will put forth our best efforts. That concludes the update on Bilboes. Sorry, Victor, if you can -- we lost part of your input. I'm not sure if you can hear me.

John Mark Learmonth, CEO

Yes, but we just finished. We just finished your section.

Victor Robinson Gapare, Project Manager, Bilboes Project

Yeah, I could hear you at the end.

John Mark Learmonth, CEO

Is that French Wi-Fi connection causing issues? Should we move on to discuss Motapa?

Victor Robinson Gapare, Project Manager, Bilboes Project

Let's move on to talk about Motapa.

Craig Harvey, Vice President, Technical Services

Thank you, Victor, and thanks to everyone for joining. Good afternoon. While we’re on the topic, I want to provide a quick update on Blanket for those who might not be familiar. On June 23rd, we released information regarding Blanket's deep drilling, which is why there's limited discussion about it here. Our deep drilling program is ongoing, and we're seeing expected grades, with some actually being significantly better. Our goal is to maintain our resource base at approximately 3 million ounces, which supports a mining reserve plan of about 10 years. This is the focus of our drilling efforts. The CEO mentioned we are also exploring other opportunities. While I don't have any results to share yet, I want to emphasize that during a visit to the Blanket property, you won’t find an open pit. Unlike many other mining properties in Zimbabwe that started with open pits before transitioning underground, Blanket has different characteristics. Moving to Motapa, I want to remind everyone about our plans for this year. We have a budget of $2.8 million, which includes around 21,000 meters of reverse circulation drilling and just over 1,000 meters of diamond drilling. The shift towards more reverse circulation drilling is based on the geological information we’ve gathered. Our first target is Motapa North, primarily aimed at defining a sulfide resource beneath historical oxide pits, involving a total of about 16,000 meters of drilling. The second target, Mpudzi, focuses on examining primarily the oxides and moving into the upper sulfides. Importantly, there are no historical open pits at Mpudzi, which leads us to believe that with adequate work, it may be possible to identify an oxide mineral resource suitable for our portfolio in the near future. We are also carrying out further exploration at Motapa South. So far, we've drilled about 50% of our budget, amounting to just under 10,000 meters. We will provide updates on the drilling as we receive sufficient assay results. Although we've completed about half of our budgeted drilling, we have only received around 40% of the assay results back from local accredited labs in Zimbabwe. This slow turnaround is frustrating for us, but it reflects the broader demand for assay services as other companies are also submitting numerous samples due to the favorable gold price environment, which is encouraging for Zimbabwe’s exploration potential. Let’s move on to the next slide for a brief overview of Motapa North. The area consists of the previously mined open pits, including Boomgate, Jupiter, and Shawl. The blue line indicates the boundary of the Bilboes property, located about 200 meters to the north. The red dots represent our initial drilling conducted in 2024, while the yellow dots correspond to the drilling completed to date, with an anticipated addition of 50% more dots. Our aim is to define a sulfide mineral resource by year-end that can kick off a study phase once we have enough assay results to share. Transitioning to the next slide depicting the Mpudzi area, you'll notice it lacks open pit mines or holes. The red dots again indicate our initial drilling for 2024, showcasing wider space drilling, with yellow dots marking what has been completed so far. Mpudzi differs from other Motapa areas as it mainly targets a banded iron formation. We are observing promising grades and widths, and we will keep the market updated on our progress. Now, I’ll hand it back to Mark for his closing remarks.

John Mark Learmonth, CEO

Thank you, Craig. Let's move to the last page. Regarding our outlook, Blanket aims to reach a target range of 75,500 to just under 80,000 ounces. We will continue investing to modernize and improve the mine while focusing on cost containment and eventual cost reduction. We will also invest in depletion replacement at Blanket, while exploring potential near-term revenue opportunities. We are actively working on the feasibility study at Bilboes, seeking ways to enhance this promising project. In Zimbabwe, we have faced unexpected challenges, but now we are focused on leveraging positive developments for our investors. Additionally, as Craig mentioned, we will keep exploring at Motapa, examining both oxides and sulfides. There is a lot happening, and these results provide a strong foundation for further activities. With that, we will pause for any additional questions.

Operator, Operator

We're going to start with our first question, which is from Ian Joslin.

Ian Joslin, Analyst

My question is about your strong cash generation and commendable performance last quarter. I appreciate your efforts to enhance the Bilboes and Motapa project and increase its return on capital. I also support your anti-dilution stance. It's common knowledge that investing more equity or cash into a project can help reduce reliance on financial institutions. If you approach a decision on this project, would you consider suspending dividends to free up more cash for the project, thereby minimizing the need for borrowing or raising equity, and avoiding the dilution of future profits?

John Mark Learmonth, CEO

I'm going to say you've got a very jaundiced and jaded view about the investor community. We'll put that on one side.

Ian Joslin, Analyst

40 years' experience.

John Mark Learmonth, CEO

Well, yes, okay. The dividend, as I outlined at the outset, the dividend is very, very important, particularly in Zimbabwe. And you're right. I mean, purely objectively, if we were short of money and had to raise money, the obvious thing to do would be to suspend or cut the dividend. I've got to tell you, we're working towards an outcome where we cannot dilute by raising equity. Now that's still a work in progress. But the other imponderable would be the adverse effect on the share price if we did cut the dividend or impair the dividend. Frankly, you don't know what that impairment would be until you've done it, by which time it's too late. So all I can say to you is that we worked for, I don't know, 10 years or so to build up a position as a trustworthy credible dividend payer. And everything you say is right, but for us to throw that away would be unfortunate. So I can't give you a straight answer to that question. Minimizing equity dilution alongside maintaining the dividend and eventually growing the dividend, the 2 irreconcilables, but our job is to try and reconcile them. That's all I can say.

Ian Joslin, Analyst

No. My main point wasn't that you should do it, but that you would be open to the idea. I fully understand and accept that there could be a negative impact on the share price, although it wouldn't be rational because you would be using the foregone dividend for a project that could yield greater returns.

John Mark Learmonth, CEO

The challenge with this discussion is that individuals might leave with the impression that I'm suggesting a reduction or elimination of the dividend, which I am not implying at all. On the other hand, we do not provide any assurance regarding dividends. If you seek a reliable revenue source, you should consider purchasing a Swiss bond. I am trying to find a balance between these two conflicting views. I might not be expressing this as clearly as I would like, but the dividend is very important to us as a management tool. We understand its significance for certain targeted markets, and that’s all I can share.

Operator, Operator

We're going to go to our next question, which is from Mike Kozak.

Unidentified Analyst, Analyst

Congrats on the very good quarter and the solid cash flow build. It's nice to see. I had 2 questions on Bilboes. The first one, if you've already answered it, I apologize. But the first one was the feasibility study. Do you have an approximate timeline for when that is going to be completed and released?

John Mark Learmonth, CEO

Not really because the ongoing work about the smaller scale option is an indeterminate period of time. So I can't help you on that at this stage I'm afraid.

Unidentified Analyst, Analyst

And my second question, which I'm curious about, is regarding the reduction in initial CapEx you mentioned. I understand it's scaled down or has a slight change of scope. What kind of reduction are we discussing? I believe the PEA was $310 million. Is the current number closer to $200 million or perhaps $250 million?

John Mark Learmonth, CEO

No, I think you need to realize that if you were to move forward with a 240,000 tonne a month project, the capital costs will have increased. Capital costs have risen throughout the industry. Therefore, I can't really provide guidance on that. We do have a figure, but sharing it incrementally won't be beneficial since anything I share will be incomplete and you'll likely want more information. It's clear that the capital intensity of a smaller project is greater than that of a larger project, and that's something we need to consider. On the flip side, we need to weigh whether the higher capital intensity leads to reduced financial risk from taking on substantial debt and eliminates or reduces the need for equity dilution. There's a significant amount of balancing to do here, which is the challenge. To clarify, we are not discussing how to make this project viable; rather, we are focusing on how to optimize this project, which is a different consideration.

Operator, Operator

And we're going to take our next question from Howey Flinker.

Howard Flinker, Analyst

First, there's a typo. In the printed income statement, the 4 columns say 6 months ended. The 2 left-hand columns should be 3 months ended. And the 2 right hand, 6 months.

John Mark Learmonth, CEO

Yes, you said we needed to do that a few minutes ago, which we've got. So thank you on that. We'll correct.

Howard Flinker, Analyst

I wanted to point that out. Second, what is the tax rate on the capital gain of the solar plant?

John Mark Learmonth, CEO

I wish you haven't asked that question. It is lower than we had expected.

Howard Flinker, Analyst

But there is some tax?

John Mark Learmonth, CEO

There is some tax, but it's not what we'd expected it to be.

Howard Flinker, Analyst

Okay. But not zero. I thought it might be zero. And if you were to reduce the dividend in the future, you could expect your stock to decline by 20% or 25%. Do you need to consider that?

John Mark Learmonth, CEO

Well, that's the point I was making. So, and you don't know what the hell this effect will be until you've done it. And by the time you've done, look, it's too late. I can think of some fairly salty sort of analogy, which I use internally with the management team, which I don't really use on this call. But it's one of those things you can't do without full and careful consideration. And frankly, even when you do it, you don't know where the outcome is going to take you.

Howard Flinker, Analyst

You're in a great position of having future growth in Motapa or Bilboes and producing gold at $3,300 or $3,400 generates a lot of cash inflow. That's a great position to be in.

John Mark Learmonth, CEO

And that's the point I was trying to make it earlier. I mean what we're looking at now is how to make this project the best it can be, recognize the fact that the gold price is higher, therefore, our organic cash generation is there, but also with an eye to the potential for near-term revenue opportunities, which are as yet indistinct but are coming into focus, which would further enhance that. And what we're trying to avoid is a situation where we rush ahead and frankly, over dilute it. And then in 3 years' time, we've said we've raised equity, which frankly, we didn't need to do because no one is going to thank us for that.

Operator, Operator

The next question is coming from Nic Dinham.

Nic Dinham, Analyst

Congrats, awesome. Just a couple of questions. You've been building stockpiles. I haven't yet got the detail of what the stockpiles look like now, and it obviously underpins your production expectations. What is your stockpile strategy going forward?

John Mark Learmonth, CEO

The stockpile is a concern for me because it's about 30,000 tonnes. Given that we're processing around 2,000 tonnes a day, that leaves us with only a two-week supply, which feels inadequate. It's somewhat embarrassing to be in this situation, and it emphasizes our current challenges. Ideally, we would aim to build a stockpile of up to six months' worth and maintain it. However, there is no plan to increase production rates significantly enough to warrant further investment. It's just standard practice to have a stockpile.

Nic Dinham, Analyst

You are experiencing some unexpected issues with the grade. Could you please provide more details about that?

John Mark Learmonth, CEO

I think I'll probably hand that one over to Craig before I make a fool of myself. Craig?

Craig Harvey, Vice President, Technical Services

Yes. The deeper we explore some of the Blanket ore bodies, particularly around BQR and Eroica, the grades we are drilling are showing improvements. In 2023, we conducted our first major resource update, and we may have initially been a bit conservative with those grades since it was our first time doing it. However, we are observing that the in-situ grades appear to be somewhat higher. We are actively focused on controlling dilution and ensuring high-quality mining. All of these factors combined give us a better outlook.

Nic Dinham, Analyst

So when you do your reserve estimate, which is going to be post the end of the year, or we can maybe expect to see some grade improvements for the reserve as a whole. Is that where we're going with that, Craig?

Craig Harvey, Vice President, Technical Services

I don't think it's untoward to maybe see a slight uptick. It will, of course, depend on if we have mined all the high grade, then you've got no high grade left to raise the reserve grade. But I think it's going to be maintained or with a slight uptick.

Nic Dinham, Analyst

And last question or 2 here. It's back to Blanket. What dividends has Blanket produced in this period, in this first 6 months period?

John Mark Learmonth, CEO

Ross, I guess, are you able to answer that?

Ross Ian Jerrard, CFO

Yes. So there was a $9 million dividend declared, but that included both the Caledonia side and the Blanket side. So yes, there's a $10.7 million, so $7 million net to Caledonia that came through after the NCIs or minority distributions. Just short of $11 million or I think it was $10.6 million from a Blanket perspective.

Nic Dinham, Analyst

From Blanket, $11 million came from Blanket.

Ross Ian Jerrard, CFO

Yes.

Nic Dinham, Analyst

And then obviously, linked to that question is the one I asked in the previous quarter. When do you think your NCIs will be fully repaid and drawn down?

Ross Ian Jerrard, CFO

Hopefully, by the end of the year or very early in next year.

Nic Dinham, Analyst

And then final question for Maurice. There's some discussion about alternative sources of energy. What are you thinking about? And will this be within the Blanket side of things, or do you think Caledonia will handle this?

John Mark Learmonth, CEO

Our perspective has evolved. We have engaged a knowledgeable local expert to assist with capital projects, bringing extensive experience in the Zimbabwean power sector. Initially, we considered solar energy, but it has limitations as it only functions when the sun is shining, necessitating a backup system like the grid to avoid production losses. Therefore, solar isn't a viable solution for us. We explored other options for captive power, but the solution we are currently pursuing involves connecting to the 132 kV backbone infrastructure in Zimbabwe. This connection is expected to significantly enhance the quality of power we receive and help alleviate some existing issues. We are moving forward with a proposal to establish a 17-kilometer, $10 million connection to the 132 kV backbone, which should effectively address our challenges.

Nic Dinham, Analyst

Would that go in Caledonia? And would that go into Blanket accounts?

John Mark Learmonth, CEO

Because Blanket will benefit, yes. It's Blanket's.

Operator, Operator

Next question is from Eun Lou.

Unidentified Analyst, Analyst

First of all, congratulations on a record-breaking quarter for breaking records. Question for James. James, or maybe for all of you, can you give us a steer as to how quarter 3 production is going to be? And in particular, our recoveries being maintained at around 94.5%.

John Mark Learmonth, CEO

I've got to say you are naughty, in that we've just upgraded our guidance to between whatever it is and whatever it is. So I mean, we've just told you what production is going to be for the rest of the year. So I don't know why you think we're going to give you a different answer from what we put in the press release 2 weeks ago. So having said that, James, what's your answer?

James Mufara, COO

Yes, production is going well for the third quarter, and we have a very strong metallurgical team. We are adhering to the guidance we provided.

Unidentified Analyst, Analyst

Let's see, just going on the list of my questions. Nic has already asked several of them. Are you able to speak more, this is to Craig, about the new discovery at Blanket? Is that the one at depth? Is that another quartz reef or is that disseminated reef?

Craig Harvey, Vice President, Technical Services

It's another disseminated reef. It's part of the Blanket ore body. So we have what we call Blanket 1, 2, 3, 4, 5, 6, and so now this one has been termed Blanket 7. So it's early days yet. It was a triangle of holes that picked up the zone that had good grades. So now obviously, we've got to grow it and see where does it go. We've got to start pinning it out.

Operator, Operator

Thanks very much. We have no further questions at the moment. So what I'd like to do is pass back to Mark for any final and closing remarks.

John Mark Learmonth, CEO

Okay. Well, thank you all for joining us today. It's been a good performance from the entire team, and I thank them for that. And we look forward to doing it all again in mid-November. So thank you very much.

Operator, Operator

Thanks very much. That now concludes the webinar.