Well, good morning, everybody, and welcome to Central Asia Metals PLC's interim results for 2023, covering the period 1 January 2023 to 30 June 2023 . I'll move straight on to the slide three, the results summary. And overall, we've had a strong performance in the H1 of this year, and we're in good shape, despite fairly challenging economic headwinds with reduced metal prices, ongoing inflationary cost pressures in the H1, and the first tax increases in Kazakhstan for over a decade. And we'll talk more about these impacts on the business later. Production, first of all, we're on track to meet our guidance for the full year, and again, I'll talk about that later. But we've also done it in a very safe manner.
We've had what's known as an LTIFR report for the H1 of 0.8. We've only had 1 LTI, Lost Time Injury, and that results in a frequency rate per million man-hours worked of 0.8, ahead of our target. Some financial headlines, just south of $100 million of revenue was generated in the first six months, and that led to an EBITDA, that's Earnings Before Interest, Tax, Depreciation, and Amortization, of just south of $49 million with an EBITDA margin of 49%. The resulting free cash flow from that number is $24.1 million on an adjusted basis, and Gavin will talk more about that. That's led us to announce this morning a strong dividend of 9 pence for the H1 of the year.
We have a strong balance sheet still, with $50.6 million of cash in the bank, and we are debt-free. Those are some of the highlights of the financials, and we'll talk more about production later. On that point, I'll hand over to Gavin, to the right of me here, to talk more details.
Thanks, Nigel. If we can move on to slide five, please. I'll just give you a bit of a background. As Nigel mentioned, there's sort of four key areas that have affected our performance over the half. Firstly, metal prices. We've certainly seen changes in those and the prices received from H1 2022. Now, if you recall, H1 2022 was a record half for us, and since then, we've seen the prices received, that's what we actually received from our off-takers, copper going down 9%, zinc significantly down at 28%, and lead down 6%. Secondly, we've seen continued energy price inflation, although much better than we saw in H2 last year. We're still paying, on average, about 30% more for our electricity at Sasa than we were in H1 2022.
Taxes, Nigel mentioned, we've had two separate taxes impact us in Kazakhstan. One is withholding taxes, came into effect on 1 January 2023 . That's gone from zero to 10% on any dividends that we upstream from Kazakhstan. And then MET, which is the royalty that the Kazakh government charges on copper extraction, has gone up 50% from 5.7- 8.55%. And lastly, we've seen inflationary pressures and inflation rates in the countries of operations, Kazakhstan 14.6% and Macedonia 13.6%. So quite high inflation that has driven some of the cost base upwards as well. If we look at the income statement, then, to see the sort of effects on those, as Nigel said, revenue just under $100 million, $99.3 million.
That's down 17% as a result of those commodity prices I mentioned earlier. Cost of sales, up 10%. That is a function of electricity prices, inflation, those royalties. And we can split that increase in cost of sales of $4 million, roughly 50/50 between Sasa and Kounrad. If we moving down the income statement, we can see the income tax line, with a reduction, you know, effectively half of your profit before tax, but income tax remaining, relatively flat there. That is a function of that withholding tax coming through on that line as well. And what we've done there is smooth the effect of that $7 million withholding tax that we paid in H1 over the whole year.
So there's a $3.6 million adjustment sitting within that income tax line to, as I said, to smooth that out. And, if we look at it on a segmental basis, on the left-hand side, we can see that, Kounrad still, you know, really high margin producer, 72% EBITDA margin, and Sasa, no slouch either, 41%. So we remain a, you know, fundamentally a really strong business with strong margins. Cost base, you know, as I said earlier, that is primarily down to power prices, wages, and royalties. So, you know, we continue to see pressures there coming through, but as I said, H1 last year was a record. H2 was probably the worst off for us than H1 2023. We still see costs settling down a little bit there.
If we move to the next slide, I'll just show you the EBITDA evolution from H1 2022 to H1 2023. And you can see there that around 80% of the EBITDA reduction, from $74.9- 48.9 million, is down to those commodity prices, particularly the zinc prices, as I said earlier, 20% lower. Towards the right-hand side of that waterfall chart, you can see the slices get slightly smaller there, so we have been able to control costs as best we can within an overall inflationary environment. On the Kounrad C1 cost on slide eight, you can see that has, you know, not been immune to these inflationary pressures.
As I said, that in-country inflation of 14.6% is converting into small incremental rises in things like wages, reagents, materials. And if we look at the sort of full year cash cost last year, we've actually gone $0.63 H1 2022, $0.65 for the full year, and up to $0.67 this year. So ever so slightly creeping upwards there, but we do believe we have those costs under control. Moving on to the Sasa costs on slide nine. Again, you know, general inflation there. Labor costs across the site have increased. That's about a $1.1 million increase. Electricity costs, period-on-period, $600,000 higher. External services, which is mainly drilling, we've done quite a lot of exploration at Sasa.
That has contributed to the cost base increase as well. We have had a slight reduction in the amount of tons that we've pushed through the plant there. So our unit costs have gone up slightly as a result of that. Where we have seen some tailwinds is really on the realization costs. Second last line in the table on the right-hand side of your graph there, we have seen those are the treatment charges that we pay to smelters to convert our concentrate into metal. Those have come off slightly, period on period, giving us a slight benefit there.
Just looking at that table, you can see the Sasa cost in millions of dollars, going from $28.4- 32.1 million, yet the unit costs on the zinc equivalent basis are remaining more or less stable. That is really a proportion, oh, sorry, a way that we calculate this cost just to point that out, and the proportion of zinc revenue contributing to those costs has dropped from 48- 40%, and that's why those costs might look a little odd to you if you worry about that. But again, the last line on the left-hand side of the slide, our full year unit cost was $55.6. So you can see, going from $45.5 in the H1 last year.
H2, you know, huge pressure, particularly from energy costs, which jumped from $0.10-0.37 a kWh, back down to $0.13 in H1. So you can see that cost base really sort of reflecting that, that electricity price cost there. But, you know, we, we've sort of managed to keep it stable since the end of last year. Moving on to the balance sheet on slide 10. As Nigel says, debt-free, so really, strong position that we're in here. Cash of $50.4 million, doesn't reflect a couple of sort of working capital adjustments, that are in the balance sheet in the back end of the notes. We've got trade receivables that we received post period-end of $4 million.
That was some of the lead concentrate that we sold to smelters outside of our usual sort of Bulgarian client there. We also, because of the way we pay tax on account, we've effectively overpaid around $5.2 million of tax, which sits on the balance sheet as well right now. Overall, balance sheet really strong, and we're in a really good financial position from that perspective. Slide 11 on the CapEx. We've decided to simplify things for you here and just say group cash CapEx, because if you look at the balance sheet, there's a slightly different number because of the way we capitalize expenditure, that some of which was incurred last year and most of it this year.
But, what you can see there is on our development projects, we've spent $7.1 million, and that is... And Nigel will go through much more of the detail of this, but we're building, as you recall, two plants, at Sasa. A Paste Backfill plant with associated underground reticulation. You can see some nice photographs of that on the page there. A Central Decline, which is a new tunnel going into the ore body at Sasa, and a Dry Stack Tailings plant as well. So that's the bulk of that expenditure there. And then, of course, we're building our solar plant, very important for our greenhouse gas emission reduction efforts.
At Kounrad, we've spent $2.7 million out of what we expect a total of $4 million for the year to be on that. So everything's on track and going well, and we're still guiding $28 million-30 million of cash CapEx for the year. Sustaining CapEx, you know, we usually quote a run rate of $8 million-10 million at Sasa and $1 million-2 million at Kounrad. And you can see from those numbers there that we're right on target to achieve those and don't expect any overruns on that point. Last but not least, the cash flow Nigel mentioned on slide 12. The waterfall chart just shows you the evolution of cash from the first of January this year to where we sit today.
You can see we've paid a nice, healthy dividend. We've paid a lot of income tax, $18.5 million. That is heavily skewed towards the H1 because all of that withholding tax I mentioned earlier on has been paid, or most of it has been paid in the H1. So what we've done, if you can see from the table on the right-hand side, is adjust that free cash flow. Our usual definition is net cash from operations. We take out the sustaining CapEx I mentioned earlier. We're adding back interest received. We are benefiting from higher interest rates with our cash balances. Then adjusting for that withholding tax that we incurred in Kazakhstan of $3.2 million to an adjusted free cash flow of $24.1 million.
On that note, I'll hand back to Nigel for an operations update.
Thanks very much, Gavin. Yes, just talking to slide 14 now, Kounrad operations. I think most people on the call will know where we operate, but just a reminder, we have two operations. In Kazakhstan, we run and 100% owned in both cases, the in-situ dump leach and SX-EW processing facility at Kounrad, in the middle of the country there. That's got a life of mine now out to 2034, and it's been in production for the last 11.5 years now. And as I said before, we're on track for our guidance this year of 13,000-14,000 tons of copper cathode. Over at Sasa, again, 100% owned underground zinc and lead mine, which we acquired in late 2017, but has been in production since the sixties.
Life of mine out to 2039 from our update last year at the full year. And we're on track for our production guidance this year of 19,000-21,000 tons of zinc and 27,000-29,000 tons of lead. Turning the sheet over to slide 15. Just a few charts there. Left-hand side for Kounrad, right-hand side for Sasa. Not a lot more to say about this. I've already mentioned on track and just the actual production numbers for the H1 of the year. Copper at 6,716 tons, zinc at 9,764 tons, and lead at 13,734 tons. And you can see the consistent production profile we've had at both operations, probably over the last five-six years.
Turning over an update on some of the projects, some of the exciting projects that we're investing money in, as Gavin said before. First of all, at Kounrad, we're calling this like investment and innovation in the, in, in our plant facilities and bringing things into the 21st century. Most of the money that we needed to invest in Kounrad has been spent over the past 11 years. We spent in excess of $80 million there, and it's fully invested with just ongoing sustaining CapEx of around about $2 million a year. So a very low capital cost operation there. But one thing we did take a decision on a while back was to improve our greenhouse gas emission footprint in Kazakhstan.
To that extent, we started constructing the solar power plant that Gavin mentioned before earlier in the year, and it's on track for completion in Q4, and it will be online in Q4 of this year. That plant itself will provide around about 16-18% of our electrical requirements at Kounrad, and it will improve our greenhouse gas emissions in Kazakhstan by about 10% and about 6% at a group level. The capital cost is expected to be well below $5 million that we've postulated into that. Fairly small plant, but 4.77 MW output. But it's a, as I say, a contribution to our greenhouse gas emissions and our CO2 footprint in Kazakhstan. Turning over the page to what we're doing in Sasa.
Just an update on projects that have been ongoing now for about two years. As Gavin mentioned, we've got a paste backfill plant, we've got a new Central Decline, and we've got a Dry Stack Tailings plant. Probably three elements of the projects to transition to paste fill mining at Sasa, and we're well on track to be more or less complete with that at the back end of this year. Just taking each aspect in turn. The paste backfill plant construction is materially complete now. All the buildings are up. The only last piece of equipment we're expecting is the emergency overflow for when we start putting cemented tailings into the system. That's due on site later this month, early October. But commissioning is well underway.
We started dry commissioning in May and June and completed that on most of the piece of equipment, and then moved into wet commissioning with, initially just introducing water into the system and then thickened tails towards the back end of August. That's all ongoing now with various runs of thickened tailings of increasing thickness, and then eventually from October, we start introducing paste into the system itself. The reticulation pipework, 4.5km now, has been put in place, ready for cemented tailings to go into the first voids that we'll be operating in this H2 of this year.
We've identified various voids within the underground mine, some for trials, just to put the tailings themselves without cement, and other areas with cement to actually increase the amount of tailings that we store underground, as opposed to TSF 4. The first paste will be placed operational underground later this year, in H2 2023. The transition in the mining sector of it to actually accommodate paste fill mining, that's going well. On 800 level, we've started now the paste fill mining method. Waste development is well underway, and ore development will start in the next couple of weeks for paste fill mining. We have six new faces that have been designed and have been, and will be situated later this month.
As I said, ore development is expected later in the month as well. Extraction of ore by paste fill mining method is on track for this current half of the year. So good, fairly good progress on the paste fill mining side there. Turning over the page to the slide with Central Decline. We pulled through in May of this year. That was from the surface down to 910 level, and we're just continuing down. In total, the new Central Decline will be about 3.8km in length, and at the moment, I think we've done around about 2.2 km, and as I say, we connected those in Q2 of 2023. It's now operational. We're actually using it for the haulage of ore and for waste.
Not fully, not 100% usage at the moment, but we are using it operationally for the haulage of ore, as I say. Last, but by no means least on this project, which is latest in the line to be developed, is the Dry Stack Tailings part of the project. We started the earthworks on site. We expect to have a lot of the building completed by the end of this year, weather depending. The steels are being constructed locally in North Macedonia at the moment for commencements in Q4 for construction. And the automation and the electrical work aspects of that plant will extend into the Q1 of next year.
The associated landform, i.e., where you put the Dry Stack Tailings and the cake onto, and where you store it on land, that will commence construction later this year, and then into commissioning in the H1 of next year. So that's an update on how we're progressing on our projects and how production's going on both of the sites. In terms of sustainability, if I'm now talking to slide 19 and how we progressed on that, two sides to the slide. On the right-hand side, our progress on reporting, and during the past six months, what we have done is published our fourth sustainability report to GRI standards. We've also published our second climate change report. We became an official TCFD supporter, and we'll be looking to report to those standards, next year.
We submitted our first disclosures to CDP, that's the Carbon Disclosure Project, and we have also committed to doing Scope 3 emission reporting from 2024. So good, good, advances on our reporting. In terms of objectives as a business, many of you know on the call, we have established five key pillars that that identify our sustainability. That's delivering value through stewardship, maintaining health and safety on site, focusing on developing our people, looking after the environments in which we operate, and unlocking value for our communities. Those are the five key pillars that we adhere to, and in each of those areas, we've set ourselves targets and long-term targets, upon which the executive directors and the rest of the management team get rewarded for how we deliver against those. I won't go through each individual target.
We can talk about those maybe later in the Q&A if anybody needs, but there's a whole list of all the various objective targets that we've set ourselves to deliver on, and we're well advanced on each one of those. Turning over to a little bit more sustainability, each of the sites. First of all, at Kounrad, there's some statistics up there at the top. They're really what we've achieved while we've been operating the Kounrad mine, in terms of what we've contributed to local development projects, what we've done in terms of employing staff, and we employ 100% local staff at Kounrad. That's 330 staff locally.
What we've spent with local suppliers in the region, the taxation we've paid in the country since the time we've been operating the mine, and as already mentioned, the employment locally. And some of the local activities in terms of our sustainability initiatives in Kounrad in H1 2023. I've already mentioned the solar investment of just under $5 million for the solar farm. We've had no LTIs now at Kounrad since May 2018, which is fantastic success for the guys on site there. We are looking at developing the local community by investing into a strategy for helping the local community.
Another thing is we've increased our local funding from 0.25% of the revenue this year to 0.5% of the revenue, and there's various projects that we put that money into at Kounrad. Then just turning over the slides, the last element is sustainability. At Sasa, a similar picture. Obviously, we've not owned the mine as long, but in terms of what we've contributed to the local community and development projects, we employ around about 712 staff at Sasa. Suppliers, how much we've invested with local suppliers, local taxation, and employment. Not quite 100% at Sasa, but we will work towards that target.
We currently have quite a few number of key people as we develop the transition to paste fill mining, and we look to train the local people to be able to develop and work that operation in the future. In terms of sustainability activity at Sasa, we have 100% renewable energy supplied throughout the first six months of this year and in previous years. 98% local employment, I've mentioned, and we're developing a sustainable economic development plan for the local community, and we've just finished phase one, and we're moving into phase two. And again, you can see some examples of where we spend money in the local area. And as with Kounrad, we've increased the foundation donations from 0.25% of revenue there to 0.5%.
On that point, I will hand over to Louise to talk more about our capital allocation and business development activities.
Thanks, Nigel. And yes, in addition to the investments in our existing business that Nigel and Gavin have talked about, if we turn to slide 23, we can touch on some of our efforts in terms of inorganic business development as well. So if we recap on our strategy, which I believe we've laid out before, we've got sort of six strategic areas of focus, really, when we look at opportunities for mergers and acquisitions. The type of opportunity, obviously, is key. So we've talked about sort of larger, more transformational in production-type acquisitions. We also put a lot of effort into looking for earlier stage exploration projects, and we'll come onto our arrangements with a group called Terra Exploration shortly.
And we also look at ad hoc overlooked opportunities as well, particularly in the sort of development, category. Jurisdiction-wise, we're, we're kind of sticking with our same approach really, which is really European time zone, plus Kazakhstan, and that does include some selected African countries that we look at. Affordability is key. We've got a strong balance sheet, we've got no debt, and we've got strong cash generation from our existing operations. So we're in a good position to be able to borrow, a relatively significant amount for the right opportunity. We've also got, we've got a good share, supportive shareholder base and liquidity as well to support future deals. Accretion is clearly key. Any, any deals that we were to do would have to add value for our existing shareholders.
And in terms of commodities we look at, we are remaining focused on the base metals and, you know, metals which are essential for modern living. And as overriding all of that, we are clear that any acquisitions mustn't negatively impact our sustainability credentials for the longer term. So on the right-hand side of that slide, you can see the summary of our activities for the H1. So a similar number of opportunities appraised as the H1 last year, but I think the main difference here really is an additional number of sites; it's undertaken an external consultancy used for due diligence, which you can read into the fact that we've gone into more detail on some projects than perhaps we did in the H1 of last year.
So if we turn onto slide 24, we can run through our new business arrangements with Terra Exploration. So Terra Exploration are a group of very experienced early-stage geologists with lots of experience in Kazakhstan and internationally as well. They are geologists with a very strong database, and they use that advanced database and historical data, which can be acquired in Kazakhstan, to review specific target areas within Kazakhstan that we've agreed upon. So that work has been underway with a consulting agreement for the last few months with Terra, and applications for exploration licenses have now been made in Kazakhstan. So that's all underway. We have formed a new company called CAML Exploration in the Astana International Financial Centre.
And that vehicle will be owned 80% by CAML, 20% by Terra, and in the fullness of time, with exploration successes, that will move on to an NSR style royalty arrangement for Terra as well. And the budget for that work this year will be around about possibly just under $1 million. So we're excited for the future in this aspect of exploration, early stage exploration in Kazakhstan, and we'll be getting a lot of the work, of the desktop work underway this year for a positive exploration season from spring onwards next year. And then, if we just look at slide 25, just to review how we've actually developed our business, since we listed in London in 2010.
And I think it's key to remind ourselves that we've raised equity twice from the market. So first was $60 million when we floated, and then we raised $204 million of new equity in 2017 when we acquired Sasa. So we've taken a total of $264 million of equity from our shareholders, but we've now returned almost $320 million in dividends. Through our investments in Kounrad, we've had $85 million CapEx that we've invested to date there, and we've generated EBITDA of $731 million. And in just over five years of the equity investment in Sasa, we've repaid all the debt that we took on, and we've generated EBITDA of $320 million.
So we believe that we're trusted to find the right deal going forward. On top of that, there's also a couple of other business development activities that we've undertaken in the past. Copper Bay was a minimal investment of around $6 million. We made a decision that the returns from a CAML perspective were limited to us, and similarly, an exploration project called Shuak, which we had in northern Kazakhstan. We spent less than $2 million on that, and likewise, the resource potential, we decided, was not at the right level for CAML as well. So we're more than happy to look at business development decisions and make difficult decisions at times when things are not quite right for us as well.
As well, in the last few years, we've appraised over 100 business development opportunities as well, and we will keep looking for the right opportunity. So we very firmly believe that we're trusted in the market to find the right deal and the right opportunities to grow our business. And on that, I'll hand back to Nigel to wrap up.
Thanks very much, Louise. And so hopefully you've got a good overview there of the business, where we are at the moment, how we've performed in the first six months of this year. And I think in summary, really, looking to the future for the rest of this year, we've certainly got a strong balance sheet, as Gavin's explained. We've got dependable financial performance. These are challenging times for everybody. We are facing some headwinds, but we're still profitable, still making money, and still announcing record dividends in terms of sector-leading dividend yield. And the 0.09 pence dividend we announced this morning is a strong confidence in the future of our cash flows and the strength of our balance sheet, and what we're trying to do within the business.
In terms of our projects, we're on track to achieve fully operational paste backfill plant by the end of this year into Q1 next year. On track to achieve our full year guidance. Transition to paste fill mining will commence in the H2 of this year. The Kounrad Solar Power Plant, that's on track to be completed in Q4 of this year. And the Dry Stack Tailings plant, a little bit behind, but we are on track for completing construction early into next year and commissioning, and then being operational next year. So a lot of work going on in the business. And on that point, I'll hand over to the audience or the presenter, the rep for Q&A.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. So once again, that's star one if you'd like to ask a question. The first question comes from the line of Alexander Pearce from BMO. Please go ahead.
Great. Morning, all. So it's interesting-
Morning, Alex.
-to see that new arrangement with Terra. So when it comes to Kazakhstan, in terms of commodity, is it still the same kind of copper focus there or are you looking at all options in Kazakhstan? And then, Louise mentioned the $1 million budget for exploration in 2023 there, but should we assume that the overall exploration budget is likely to be up significantly next year? And maybe you could provide a range for us. Thanks.
You want to take that one, Louise?
Yeah, sure. Yeah, thanks, Alex. Yes, in terms of the commodities, yes, I think we've always been quite clear that copper is probably our preferred metal, and we're very comfortable with the fundamentals of zinc and lead for the long term as well. So we'd look at those opportunities. But the focus, the areas of focus for the Terra group are areas that would be most likely to generate copper-related assets. So yes, there's no real change in terms of that. In terms of a budget, exploration-wise, so as we said, it's in the order of about $1 million this year, maybe just slightly less. Next year, it could be a little bit more, but we are...
We probably wouldn't expect to be able to do any drilling next year, so it's more likely to be maybe geophysics, geochemistry type work on these early-stage exploration assets next year. So I wouldn't assume drilling-type exploration costs for next year.
... I think it's early days, Alex. I mean, we, we don't know what we'd spend next year in the sense of, you know, the more we'll be spending, the more confidence we've got in what we've actually found. I mean, it's a consultancy arrangement at the moment, moving into a collaborative arrangement, depending on, drilling results. Sorry, not drilling results, geological, you know, results that we get from the geochem, geostats, et cetera, et cetera. And hopefully, we'll find a couple of targets that we're confident enough in to actually move to a next stage, in which case, you will see over the coming years, hopefully, the expenditure on that ramping up a little bit.
Do you want to talk about the drilling at Sasa as well? That's separate to this, but we are doing... Alex, we are doing some exploration at Sasa-
That's a good point.
-as well. Yeah, we sort of obviously trying to do two things there. One is increase the confidence in the geological confidence in the sort of inferred resources that we have there at Golema Reka and Svinja Reka, and then we've got two new targets that we're drilling as well. And this year, I think there's around, I know, 3,000 meters of drilling. So it's not that much, but it is going through the OpEx. As I said earlier, it's about $1.2 billion has gone through at Sasa, just on exploration there.
Yeah, it's a good point.
Great. Thanks, all.
Thanks, Alex.
Okay.
The next question, and it comes from the line of Yuen Low from Liberum. Please go ahead.
Hello, everyone. Apologies if this has been answered already, but I was just trying to puzzle out the dividend payout. If I didn't adjust FCF, then the payout ratios were 95%, and adjusting it to apportion the withholding tax. So that's the 80-something% that you've quoted. But that's still above the 50% maximum. So I was wondering why that's been reiterated?
Well, I think, Yuen, I mean, Gavin can chip in as well on this one. I mean, we still maintain the policy because we don't feel it's appropriate at the moment necessarily to change that policy until we find something, you know, fairly large scale on the business development work we're doing. And we just demonstrates confidence for the future. I think the H1 was distorted a little bit by some working capital issues as well, whereby we had money unusually tied up in some offtake contracts and also some advanced payments of corporation tax, which if you'd allowed for those, that's around about a $9 million swing on the cash flow.
And so, the view, when you're looking at the dividend that we pay, looking backwards as well as looking forward to what we predict for the future cash flows for the full year. I mean, you could argue, I mean, it's probably splitting hairs, if I'm honest with you, but you could argue the policy is designed at a full year kind of payout. But we have got a track record for going outside the tramlines of 50%. In the H2 of last year, we paid, I think, close to 57%. And at the moment, given that we've got a strong balance sheet, we've got confidence in the future, we are generating good cash.
We're coming to the end of a large capital program at Sasa, as well as capital investments at Kounrad, a bit smaller, obviously, around the $4-5 million mark. But seeing as they're coming to an end, and as we look into the future, we feel that we can maintain the dividend at a higher level. But we don't feel it's appropriate at the moment to necessarily change that dividend policy, because it would feel a bit odd, really, at the moment to do that. So yes, it, it is outside the tramlines. Yes, it looks a high percentage if you look at it on that basis, but if you look at the underlying cash generation of the business and the balance sheet and the working capital aspects, and what we're trying to do here, I think it just demonstrates confidence in the business.
Okay, thanks. That's much clearer because the explanation in the financial report just refers to the withholding tax. So I was trying to puzzle how-
Yeah.
How that worked out, but this is much clearer. Thank you.
I think we were wary. What we don't wanna do is really make too many adjustments. I mean, the withholding tax is not a one-off, it is something that's there now. It's changed, but it's the first time we've experienced it. These other working capital movements can go in your favor and against your favor. It's just in the H1 of this year, I think it's fair to say they were fairly material, and went against us and should reverse themselves out in the full year. So we took account of that when we decided what dividends to pay the investors.
Great. Thank you.
The next question comes from the line of Richard Hatch from Berenberg. Please go ahead.
Yeah, thanks. Morning, Nigel and team. Yeah, a few questions. First one's on the business development. Perhaps a sort of two-part question on this one. On the opportunities you've seen, on the ones you haven't acted on, is that a function of asset quality, stroke, size, or is it mainly coming down to price because you've come down the road, you've ticked the boxes in terms of the quality of the asset, but you can't agree on the price? And then the second part of the question is, you know, we've seen M&A pick up in other jurisdictions. Australia is quite active at the moment. You know, do you think you've been too conservative on not sort of pushing for opportunities when you should have at a point in the cycle?
Or do you still think that you've been sort of suitably conservative and you've preserved the value for the shareholders, or you may have missed out?
Thanks, Richard. Do you want me to-
Yeah, if you look at it.
Sure. Yes, so no, good, both good questions, actually. And I would say for the opportunities that we've looked closely at, maybe visited, maybe spent money with external consultants, they have come down typically to getting under the bonnet in terms of due diligence, maybe finding things that were not quite as attractive as we may have originally thought, and then thinking about, rethinking about valuation, and then maybe not agreeing on valuation. I would say is probably a simplistic-
Yeah
-way to explain why some of those things didn't end up coming to fruition. I think probably if we look back over time, that's quite a typical, you know, a typical route that would end up happening, whereas you go, you know, go into detail on the due diligence and invariably find things that aren't quite as rosy as you may have originally thought. In terms of whether we're too conservative, it's a very good question. We ask ourselves this question a lot as well. I think we need to be. Personally, I think we need a level of conservatism because I think we have got a great business as it is. We've got two, you know, long life, low cost assets, and a really strong business.
So we would think very carefully before taking too big a risk to an existing business that is as solid as ours. So I think that's why if we are conservative, and if we could be accused of being conservative, then that is why. The other thing I would say is, if I look back over the opportunities that we have reviewed and what's happened to those opportunities, I can't think of many that we have looked at, that we thought we've made a big mistake here with, with things that we should have taken on, that we didn't. So I, you know, I would probably say maybe it looked conservative, but actually I think we, we're being sensible, we're being practical. We look at everything from a technical perspective, from the financial perspective and, and key from, the accretion perspective as well.
I think I don't see us changing our approach to how we review these opportunities just to make one happen, if that would mean, you know, relaxing on some of our due diligence in any way.
Yeah. Yeah, well answered.
Okay, thank you.
Actually, go ahead.
Yeah, it does. Yeah, no, I think it's completely fair. It's just I think, you know, investors I speak to sometimes ask that question, so I think it's good to have it on the record that that's the view of the company, and I, for what it's worth, I agree with it. Okay, fine. That's the first one. Second one, Gavin, just on this withholding tax situation, so can you just talk us through how you think about dividending up cash from Kounrad into Topco? You know, when should we think about that? Is it regular, you know, how should we think about modeling that tax? Because, you know, it's probably gonna be moderately lumpy, given the profitability of the asset.
Hmm.
Yeah, it's a good question, Richard, and I think, you know, this is the first time we've experienced it, so I suppose we... Yeah, it gets complicated quickly, but effectively, once you've sort of achieved a few hurdles in country, you're then free to dividend the money out. And the minute you dividend that money out, the withholding tax is applied. And I suppose what we've done, what's happened now is we've paid the bulk of it in H1 this year. We are looking from a treasury perspective at ways of smoothing this, so that we won't have to run adjustments through as we have this time.
I mean, this is a non-IFRS adjustment, so it's, it's pretty straightforward, but I think in future we will try and smooth that sort of $7-7.5 million that we expect this year over the full year, rather than making it a full cash flow hit in H1. But I think it's, it's, I think in terms of your modeling, I suppose, you know, you could just take your cash flow estimate for Kounrad and, you know, times that by 10, and then, I guess, split it half, half over the year.
Yeah.
Yeah. Yeah, so-
How much do you like them to model? Because to be honest with you, I mean, the rules have tightened up in Kazakhstan as to how you can actually get your money out of the country. We used to be able to do it without audited accounts, for example, and now they insist on audited accounts. We also use loan mechanisms to get money out of the country. We do everything that's in compliance with the law, but they've tightened it up. And as Gavin said, we will try and look at mechanisms whereby the cash actually flows smoothly, but even if that doesn't happen, from an accounting point of view, we will smooth it over the years.
Yeah.
So I think that's right and fair. It's right and appropriate, because otherwise we'd have had a huge hit in the H1, which would have been distorted in the H2 with no impact, and that's why we took that adjustment to the free cash flow, as opposed to not adjusting for the other things like the working capital movements, which happen all the time, really, and be in your favor or against you-
Yeah.
as I [uncertain].
Yes, understood. All right, fine. Thank you. And then just on this, the $5.2 million tax overpayment that you referenced earlier in the call, should we expect that to come back H2, Gavin, in terms of a cash standpoint or not?
Look, I think, you know, as all, with all businesses all over the world, you pay tax on account basis, your previous year's tax bill. And last year was a really good year for miners, so I guess we're all in a similar position where we're overpaying tax. And generally, what happens, you know, when there's not such a huge swing, is that there's an adjustment that occurs in the final couple of months of the year. This year, we expect this to unwind to the extent it can, but I think this, you know, given the size of this deficit, it may well bleed into H1 next year.
Yeah.
Okay, cool. And then last one, just a bit more broadly, is just... I mean, the zinc price has been pretty terrible year to date, isn't it? I mean, China macro has not been brilliant. But, you know, so how do you think about the zinc price sort of from here? You know, what are your sort of intelligence or sources showing you on the zinc price? You know, what's your view as we move into a new calendar year?
Well, I think we reached a low, didn't we? I think it got down to $2,200 earlier in the year, Maytime or June, something like that. It's now bounced back a little bit, and I think we collectively probably view that the next probably 18 months or so, it's gonna be quite challenging with, you know, the demand is not great out there. The economy is in a poor shape across the world, be it China or ex-China, and the supply is actually there. But you are seeing now some of the, you know, not so much worries we had the smelters offline with electricity prices. That may happen again in the winter, who knows?
But you are seeing some of the mines whereby the cost, the zinc price now is eating into the cost curve for them. And things like Tara, that's been put on the care and maintenance, and you may find that-
... as the price gets, say, below $2,500, some mines may come off stream, which will be an incentive for the price to then bounce back up. So I would expect it maybe to stay at a similar level. And then, if you look further beyond 2025, 2026, and the supply and demand fundamentals, you should start seeing an improvement in the price, one would hope, because I think the demand should maybe kick back in. But the supply side of the, you know, the zinc supply is not gonna be increasing significantly. There's not a lot of zinc mines coming on stream beyond 2025, 2026.
Yeah.
So it's still going to be-
[crosstalk]
But it's, you know, not gonna shoot the lights out in the next 12 months, I wouldn't have thought. But, you know, because we are a low-cost operator, we reported, what? $0.72 per pound on zinc. I know it's a strange calculation to C1 zinc cash cost, but the fact of the matter is we are a low-cost operator, and we can maintain, you know, our operations profitably while zinc is under a bit of pressure.
Yeah, fair enough. You've got to own them through the cycle. Yeah, agreed. All right. Okay, thanks for your time, have a nice day. Cheers.
Thanks, Richard.
Bye.
Thanks, Richard.
The next question comes from the line of Nick Chalmers from ARC. Please go ahead.
Just following on from Richard's question about the withholding tax. Should we assume that essentially all from Kounrad is ultimately expatriated in any given period, and therefore, the 10% withholding tax or a material sum that's kind of always held back in country?
Look. Hi, Nick. I think in the absence of us, you know, having success with Terra or other business development within the country, then the assumption is fair that we will try and repatriate all that cash flow up to the UK. And as I said earlier, we are sort of... And then Nigel also gave more detail in terms of we've got intercompany loans. We've taken a bunch of tax advice to make sure that we are always in compliance with the law. But, you know, it's one of the certainties in life, you're gonna pay tax. And, you know, unfortunately, it's moved against us, and we will be paying this tax going forward.
So, it comes down to what your estimate of the free cash flow from Kounrad is gonna be and estimating what the tax is gonna be on that.
And then just on your CapEx guidance of 20 to... Is that exclusive of the prepaid that were made and, or?
Yeah, that's cash CapEx. Yeah. That, that's actual cash that we'll be spending this year.
And then just finally on the obviously the main reason for doing that is for the environmental benefits, but do you think it's gonna have an impact in terms of lowering your power costs there going forward?
So, so is that the solar side of that? Yeah. No, I mean, if you looked at it, well, to be fair, actually, when we initially looked at it on an NPV basis, it was more or less break even, really, 'cause we're paying $0.045 per kWh in Kazakhstan for the power that we get, so it wouldn't have justified itself commercially in that sense. So it is more for the, you know, the green footprint, effectively. But we are seeing changes within Kazakhstan, where there's a growing move for, you know, an increase in renewable energy, et cetera, et cetera. And actually, the removal, in some cases, of price tariffs.
If you saw the announcement from Tokayev recently, the State of the Nation, as they call it, that was actually trying to consider moving price tariffs in electricity, water, and a few other key utilities, which will probably lead to an increase in prices over a longer term. I don't think it'll happen immediately, but I think you will see an increase in those prices, that cost base. And then maybe, you know, from the learning experiences we've had with the 5-megawatt plant, we can expand upon that, and then maybe it might, is having a, you know, a beneficial impact on the economics of Kounrad. Whereas at the moment, I think it's fair to say, it doesn't necessarily add a lot. I mean, they're very cheap to run once you've got these up and running.
We only need about four people to actually run the whole site, and it's 20% of your electricity. But as you know, obviously, it's not reliable throughout the year. We need a base load from the grid still, but it is low cost in Kazakhstan, fortunately.
Thanks for that. See you all soon.
Thanks.
Cheers.
The next question comes from the line of Marina Calero from RBC Capital Markets. Please go ahead.
Good morning. Thanks for the call. A couple of questions from on my side. The first one on Kazakhstan, I mean, based on your experience and relationships in the country, do you see potential for further tax increases from here? And then the second one on costs. I appreciate you didn't give cost guidance, but could you give us some color on how you expect inflation rates within the H2 of the year, and maybe if there is potential to bring cost savings at Macedonia or Kazakhstan? Thank you.
Sorry, your second question, Marina, was on cost. Was that on cost inflation? Was it in general or on one of the operations or... Sorry, we couldn't hear you that well. Sorry.
In general. In general.
Cost inflation in general?
How do you see cost inflation?
Yeah, let's deal with the first bit. But I think the first part of the question was about tax increases, potentially in Kazakhstan. Obviously, we've experienced a couple over the past 12 months that we're incurring in this current half for the first time to report on them. Again, I go back to this state of the nation report from the President, Tokayev, the other day, whereby he was making the right noises about investing into Kazakhstan and therefore wanted to attract foreign investment. And I think there's an appreciation in the country that maybe they've done as much as they should do with the tax system, 'cause that's the first changes, as I said early on in the presentation, for I think over a decade, really. And they are quite high increases in taxation.
So I think there's a recognition of that within the country. Now, I can't sit here and say they will never, therefore, change or increase another of the taxes they might be looking at. There is noises of them moving to a progressive corporation tax, but I think there's enough recognition within the country that they do need to keep attracting foreign investments into the, into the country as well from, you know, from the pronouncements that are made from the very top level. So I would hope we don't see any further tax increases, but clearly, I can give no guarantees on that. In terms of cost inflation, I would like to think, as we sit here today, we're getting over the worst.
I mean, if you look at our H2 of last year and our H1 of this year, it's almost like it's kind of reached the top of the curve. I think the cost base was increasing in the H2 of last year, and we've seen that follow through into this year. Headline inflation is still around about 14, 15% in Kazakhstan, as it is in North Macedonia, a similar kind of level. But I think if you look at the projections for both countries, you do see a decline next year, slowly but surely, down to more levels like 5 - 6%, certainly in Kazakhstan and possibly even less in North Macedonia. And we will...
You know, clearly, one of our cost implications is salaries, as Gavin's already mentioned, and we respond to that with trying to keep the workforce suitably remunerated given the cost of living increases they're experiencing. So that should feed through to our reduced, you know, reduced increases in any costs that are associated with the business.
Yeah, and I think, sort of for the H2, I think the other part of your question, we are, you know, particularly on the power side of things, we're seeing that easing a little bit. It's had a little bit of a spike recently because of strikes in Australia and LNG producers and carriers, but, you know, we have seen that trending down. If you look at that graph on the first page I talked about, you know, if we had H1 2022, we had a $0.10, sort of quite consistent electricity price there. We had $0.13 in H1 this year, and it has come off since then as well-
Yeah.
So a little bit of a benefit expected there.
Yeah, good point.
Very helpful. Thank you. [uncertain]
Thank you.
The next question comes from the line of Oliver O'Donnell from VSA Capital. Please go ahead.
Morning. Thanks very much for the presentation.
Good morning.
Two questions, please. Just to clarify on Terra, have the applications been made by the CAML Exploration Co., or
Mm-hmm.
Have they been made by Terra?
Sure. So they, they've actually been made by our subsidiary, our Kounrad subsidiary, Sary Kazna, because of timing of setting up the, the new co, essentially. So we've made the applications before we've got confirmation that the new co has been set up. That's now been set up. I think there's a 12-month period during which you can't transfer a license from one entity to another, so they will stay that. And any other application that we make, that will be in the, Sary Kazna asset, will then be transferred to CAML Exploration within the 12-month period. Should we get those licenses as well, because they're, they're only applications at the moment.
Yeah.
Yeah. Okay, and Terra itself doesn't have its own portfolio?
No, they're acting as a consultant with us-
Yeah.
you know, and the licenses will go into a vehicle owned by CAML, and then it'll move, as I think Louise said before, into an 80/20-
Mm.
kind of joint venture operation.
Yeah.
And then, if it moves even beyond that, further towards development, then there'll be a point in time where we'll move that to an NSR royalty.
Yeah. I think just to build on what Louise said in her piece in the presentation as well, these guys are, you know, we, we're sort of in, in partnership with them on a target generation, sort of spree as well. So they've looked at a lot of targets and then we'll ground truth these things and apply for licenses, and if they ground truth post-application of the license, we actually drop the application. So it's quite an efficient process as well. So we are working through quite a lot of ground. I think we've got about, what, five under application. Is that right now?
Yeah, about that, yeah.
Great. Thanks. And then just on labor costs, apologies if you've covered it already, but have you got formal annual pay reviews or is Sasa biannual? Can you just remind me, please?
That's a good question. I think, look, at Sasa, it's easier because we have a collective bargaining agreement in place with the unions there. So, you know, we do revise salaries on an annual basis. We kind of agree, sort of three-year CBA with these guys to sort of govern those pay increases. Now, clearly, you know, we want to look after the staff, and if we believe that, you know, the inflationary pressures are such that our workforce is under pressure and potentially, you know, looking for work in, you know, elsewhere in Europe, then we'll pay more to try and, you know, because retention is far better than going out and recruiting people again, particularly in this environment. So, formally, it's annual.
At Kounrad, we have given a big year pay rise, just again, to sort of allow for that enormous inflation that we saw there, and also in response to a lot of our peers in Kounrad, in Kazakhstan, that were providing pay rises. But what we did there, Ollie, is do a full benchmarking study to make sure that we still pay slightly more than everybody else and still the employer of choice in the region. So no, no real flight risk there as a consequence of that work that we've done.
Great. Thanks very much.
We currently have no questions in the queue. As a reminder, please press star one if you'd like to ask a question. We have no further questions in the queue, I will now turn the call back over to Nigel for some closing remarks.
Okay. Well, thank you very much, everybody, for listening in. I appreciate your time. Hopefully, you'll see that we are making good progress on all our projects, that we're on track for our production. As I said before, we paid a very good dividend out for the H1 of this year, and we've got a strong business moving forward. So just thank you for your time, and any further questions, please don't hesitate to give us a call at the office, either through Emma or Louise here, and we'll get back to you.
Thank you for joining today's call. You may now disconnect your line.