Well, good morning, all, good afternoon, everybody, depending on where you are. Just like to welcome you to the Q2 2023 results presentation for Caledonia Mining. Can we just move on to the presentation team, Maurice? Okay, on the call today, there's me, Mark Learmonth, Caledonia's Chief Executive. There's Victor Gapare, who is, as you all know, one of the vendors of the Bilboes asset. He's an executive director. We've got Chester, Chester Goodburn, the CFO based in Johannesburg; Dana Roets , also, this Chief Operating Officer based in Johannesburg; Maurice Mason, Vice President, Corporate Development; and Camilla, VP, Group Communications. They're both based in the U.K. Shall we, shall we get going? You know, without beating about the bush, it was another very challenging, another very challenging quarter.
I'll As I go through these, my comments will be focused on Q2 compared to Q2 previous years. We do, for reference, show six-month numbers there, I'd prefer to focus just on the quarter. Production was 18,000 18,500 oz. That includes a very disappointing 1,000 oz from Bilboes, it's about sort of 17,400 from Blanket. I'll ask Dana and Victor respectively to discuss the operational issues facing Blanket and Bilboes respectively. Pretty much saved by the high gold price. The high gold price meant that revenues were broadly level at about $37 million.
The gross profit was substantially reduced, down from $18 million in Q2 2022 to just under $11 million for Q2 2023. That was a combination of higher-very high costs at Bilboes, with no commensurate revenue. Then at Blanket, the difficulty at Blanket largely relates to higher-than-expected use of electricity, which gave rise to about $2 million of extra, extra expense there. That flows through into the net profit attributable to shareholders. Instead of being $11 million profit, it was a $500,000 loss. That also flows through in terms of the earnings per share.
Critically, the net cash, net cash flow from operating activities, instead of an inflow of $16.7 million, was an outflow of $2.2 million. Chester will give us some more information on that in a moment. Can we move on, Maurice? Again, by way of summary, production at Blanket was below target due to operational issues, which Dana will talk about. I'll just draw your attention to the fact that July, after fairly intensive management interventions, July did show a substantial improvement, so 7,800 oz produced in July, which has given us the confidence to reiterate our production guidance for 2023 of between 75,000 oz- 80,000 oz of gold. Similarly, costs for the quarter were very high. All-in cost was over $1,000 an ounce.
The bulk of that increase from just under $700 an ounce in the comparable quarter, much of that increase, 81% of that increase was due to the high costs incurred at Bilboes. Again, I draw your attention to a very strong performance in July, where our all-in cost came in at $715 an ounce, which again, gives us comfort that we can stand behind the full year guidance of between $770 and $850 an ounce. Having seen the poor performance at Bilboes, it will be returned to care and maintenance with effect from the 1st of October. We've got a three-month notice period with the contractor, and it made financial sense to run that contract down rather than terminate immediately.
It, it's, it's likely we expect to see a modest cash contribution coming from Bilboes in the third quarter as the stripping ratio falls away, and we continue to harvest gold that's been deposited on the on the leach pad. Safety has been very disappointing in the quarter, and compounded by an unfortunate fatality, which we announced next week, and so management is taking urgent measures to to improve our performance there. On a more positive note, we've seen some good drilling results from Eroica, which we can talk about in a moment.
We raised some money by way of placings in March and April, and we've also started the direct export of gold from Zimbabwe to a refiner in Dubai, which means that we've cut the reserve bank out of our U.S. dollar revenue stream, which is sort of optically very good. There's been some changes at the board, whereas Lee Wilson stepped down as Non-Executive Chairman and has been replaced by John Kelly. In terms of safety, I mean, the, the critical thing here is the. What sort of brings it home is the disabling injury frequency rate or the total injury frequency rate.
You can see towards the bottom of that table, it has increased from, the TIFR has increased from sort of 1, about 1, up to 1.35, 1.36. Clearly, we are gonna have to take measures to address that. A lot of it comes down to trying to re-engineer the way people behave in the work environment. We've got a clearly set out series of rules and procedures for doing pretty much everything, and people just need to adhere to that and stop doing silly things. Dana and the rest of the team at Blanket are putting a lot of effort into trying to make people behave in the way they have to behave so they can operate safely.
We don't, we don't expect, we don't want to see those safety, safety statistics stay at that level. Not, Bilbo is included just for completeness, but there's been no significant issues at Bilbo, so let's move on from that. Okay. Can I ask Chester, who I'm afraid is, is suffering from a bit of a cold, but no doubt he'll manage. Can I ask Chester to take us through the financials?
Yes. Thank you, Mark. Our revenues are somewhat down from the, the previous half, comparing at the previous quarter as well. That's due to lower oz produced at the Blanket. The, the additional oz that we produced at, at Blanket did not increase above those levels. Royalty remained at 5%, still charged at the same rate as the comparable period. Our production cost has gone up, but we'll get to the detail of the production cost in a few slides. Depreciation has increased, but it's due to a reassessment of useful lives that increased the, the quarterly depreciation charge by $600,000.
That's due to reassessment of the useful lives of some generators, the Jethro Shaft, which we do not plan to use now that we've got the Central Shaft available, and some LHDs and generators that's been deteriorated due to the power fluctuations and the bad power we've been experiencing on Blanket. Been negatively affected by other costs to the extent of $14.3 million for the half year. There's about a $7 million swing on the foreign exchange losses. That's a $2.1 million loss for the half year. It came down from a gain of approximately $5 million the previous half, as due to the Zimbabwean dollar that devaluated in the month of June.
While our outstanding from Fidelity, the 25%, has devalued, that caused foreign exchange losses. It's good that we do export 75% of our gold. That 75% is not subject to any foreign exchange losses. Also included here is write-down of all those oxides. We've placed that on care and maintenance, as Mark said, that brought about the additional $850,000 of impairment expenses, all non-cash. Tax expense. The effective tax rate is quite high. That's due to the Bilboes losses we've encountered that are ring-fenced. It's not deductible against taxable profits or Blanket, that shows a very high tax charge for the year to date. Can we move to the next slide?
Okay. Can I, can I suggest, Dana, could you, could you just quickly give an overview as to, you know, what happened production-wise in the quarter?
Right. First of all, if you look, you've got a top graph. you can see the grade is went up last year, and it peaked in Q4, or in Q3, and then it came down a bit, and it continued coming down in Q1 and Q2. We knew that was the case, and that was one of the reasons why we installed the extra mill in the plant. That, that mill became operational at the end of last year. That was the problem this year. If you look at the start, if you look at Q1 there and Q2, compared it to last year, it's more or less the same tons that we did, but we had a higher grade last year that helped us, so we had to do more tons.
When you're in a build-up phase, and we were building up to 80,000 oz last year, we pushed very, very hard to get to that, and with that, we, we changed the GM last September, or he was removed, and then we signed on a new GM in January this year that started on the mine, and with that, we had also some underground managers that was replaced. During this quarter, to get to 80,000 oz, the safety culture also went for a loop, and some, some, some people lost their jobs because of being negligent as far as safety is concerned. That rolled over into this year, and when you build up, you don't have flexibility.
The flexibility will come now with our development, especially on 33 and, and 34 level, opening up those areas and then going down to 38 level. When we started the year, we were slightly behind, especially getting into our higher grade places, but at the end of the quarter, we hope to be in those places. With that, during quarter 2, we actually systematically sorted out the issues and, and got into the right places again. Some other issues like, you know, bad track work, there's normal operational issues that went for a loop, pushing very hard to get to 80,000 oz. Again, systematically, we had to fix those issues, and it, which put us in, in good stead for the third quarter.
We're in the right places, and we, we, we're getting the tonnages we need to get to now. You know, so far, the third quarter is on track. The big drive is now, as Mark said, you know, when you push people very hard and they're not achieving, they start taking shortcuts, they ignore safety, safety standards, and, you know, they take, take chances, and, unfortunately, that caught up to us from a safety point of view, view as well. We, we, pulling out the teams, every team in the mine, we started pulling them out and taking them through a behavioral initiative again, just to make sure that they understand, because we signed on, quite a couple of new people as well. Remember, we stopped with our previous, behavior intervention.
We had to stop when COVID started, so we stopped it for 2020 and 2021, and basically 2022, and we're starting now again, and unfortunately, the effect of that is showing. A lot of hard work to get to a place where we can trust the people when they go on the ground and where the supervisors are not around, that they do the right thing. From that point of view, to forward is more tons at a lower rate and to maintaining annual production of 80,000 oz. Our prediction for this year is still 75,000 oz- 80,000 oz.
Good. Okay. Thank you, Dan. Can we, can we move on to the next, the next slide? Chester, back to you to talk about production costs.
Looking at our costs, of wages Blanket, that mostly reflects, reflects, inflation increase on wages. Consumables, last year, we experienced high inflationary pressures on our consumable costs. This year, we haven't seen that. We've seen that the plateau and we haven't seen the same increases as last year. What's important to note here is that about 75%-80% of the costs are, are fixed in the short term. On-mine cost per ounce basis, these production numbers do not look so great with lower production. As we move forward and as our production increases, like it has in July and so far in August, you can see a great reduction in our on-mine cost per ounce. Electricity costs, that's 6.4 at a Blanket level.
That does not reflect the $1.4 million of solar savings due to the solar plant that was commissioned earlier this year. Solar plant's working well and saving us money from a, from a group perspective. Then we've also initiated a, a, a new agreement with the IUG, the consortium, that wheels power into them and allows us to get power at a lower kWh rate than what we would get from the utility. Our kWh usage, we're looking at that, looking to review that. Going forward, our power should reflect lower rates than what you see here, and we should some, see some more benefits from, from solar. Bilboes oxides, that's now been placed on care and maintenance. You see the, the high costs of $7.5 million for the year.
That's the cost for the by-waste stripping that we had to form to get to the oxides. We plan to mine the oxides now with the sulfides, and these costs can be motivated with high ounces. On that, the production costs are on-mine costs per ounce basis in the next slide. You can see our on-mine cost was negatively affected mostly by the oxides production of $217/oz . Our power does not reflect the solar savings, and it doesn't show the full effect of the IUG rates. Going forward, we plan to stop the leakage from Bilboes, reduce that cost, reduce the power cost, the on-mine costs per ounce basis, and improve this on-mine cost number significantly. From all standing cost point of view, there's not much more to add.
That was mostly negatively affected by the Bilboes costs that we do not expect to continue going forward. On the next slide. Admin expenses are very much comparable to the previous comparable quarter. For the full year, that includes a cost of $3.1 million, due to the successful completion of Bilboes, where we had to pay some of our advisors on the successful completion of that. On the next slide, please. Our withholding tax, as said, well, it's our total tax charge is very high from an effective tax charge point of view. Our effective taxation rate at a Blanket level, however, has remained very much stable from the previous quarters.
Going forward, if we do not incur the loss of Bilboes, our effective tax rate going forward should be again between a 30%-37% range as we've seen in, in, in prior years and prior quarters. Look at the next slide. Here you can see our cash flows. We generated $4.9 million across the group for the quarter. $8 million was from Blanket. That shows Blanket's ability to, to generate cash flows. That $8 million for the quarter compares to $7.2 million that we generated in July. That shows that Blanket is still a very good asset, cash-generating, and, and when it produces, running at full steam, produces a very good sum of cash.
Our working capital outflows for the quarter, $4 million of that was due to legacy credit payments on net investing in capital activities. That's pretty much way to the latter part of the year. We'll catch up on some of the capital spend. Our financing activities includes $15.6 million net of expenses and equity raises, $10 million in bond that we issued from the solar plant, and some dividend payments for Q1 and Q2. Looking at the next slide. Our cash balances that has come down on a quarterly basis, and that's also due to the solar plant. We had to spend the money on building the solar plant.
We purchased from Flower Power, we purchased Bilboes and Maligreen , and we expect in the next 6-12 months cash position to improve as we've paid for all the assets that we acquired. Our cash transfers from Zimbabwe continued normally, and we are not building up any surplus RPGs in Zim. If you look at the next slide. Our balance sheet doesn't tell any new, new stories here. That has changed mostly due to the acquisition of the Bilboes. I said our cash balances should improve now that we've paid for all the assets that we acquired. Going forward, we foresee better ratios on our, on our balance sheet.
Good. Let's, thank you. Thank you, Chester. As I've mentioned, July, July was a, was a, a strong month. Here's the information relating to July that was in the MD&A. The grade is 3.6, gold recovery 93.6%, producing just over 7,800 oz of gold at a, an annualized rate of just over, of about 93,000 oz a year, with a, a very competitive on-mine cost per ounce of $715, which is comparable to approximately $700 an ounce last year. Hopefully we turn the corner, and July shows that we should hopefully be looking for a much better second half of the year than the first half of the year. Can we move on?
Early on, a few weeks ago, we restarted deep-level drilling in January. We'd had to suspend deep-level exploration several years ago because we just didn't have the logistical capacity underground to do exploration at the same time as doing all the development and the production. Having got Central Shaft commissioned, we've now got the capacity to excavate, mine out the drilling cubbies, and then, which then gives the platform for deep drilling. It's fair to say that currently, we've got sort of two, two exploration targets. The first target on which we reported, and which is summarized here, is at Eroica. We've just started also now a in a second area on the other side of the mine at Blanket.
It's fair to say that the results that we got at Eroica, pretty much a very substantial majority of the holes surprised on the upside in terms of grade and width. That means that in due course, hopefully towards the end of the year, we will reflect the better than expected results in terms of a new resource statement, which will mean that we're gonna be extending the life of the mine and increasing the amount of material that we can access from the existing infrastructure of Blanket. At Motapa, we've submitted an environmental impact assessment, and we will be able to commence what we call invasive drilling activity at Motapa later on in the year. We've, we've...
ESG is becoming an area of increasing focus by regulators and investors. It's fair to say that the regulatory environment keeps on, keeps on evolving. The SEC apparently is gonna get involved. We hear now that that's gonna be sort of accounting standards dealing with ESG. You know, our objective is to put in place sustainable business practices that are aligned with our corporate strategy. We'll do what we have to do to the best of our ability, but we're not, we're not sort of blazing a trail. We'll do, we'll do what we have to do. We just published our most recent ESG report, which sets out a lot of information about the specific projects that we're involved with at the social level.
Just in terms of, in terms of a summary, from an environmental perspective, we've put in place a solar plant, which provides about 24% of Blanket's average daily power. I think it works very slightly better than we'd expected, which is good. We're currently constructing a new compliant tailings facility. The existing tailings facility is now pretty much exhausted. We're gonna spend about $25 million over the next few years putting in a new facility, which is, and the expense of that is because it has to be double-lined with clay and plastic. That will, that will support us for the next sort of 12 to 14 years at a production rate of about 800,000 tons a year.
Upfront expenditure, but then once we're through that, the, it's built and we've got it. In terms of social, we've got 34% local ownership, including the employees and the community. The community paid off its, outstanding sort of, loans to us, and the picture there shows the, our VP in Zimbabwe, Caxton Mangezi, handing over a, a substantial check to the, to the local, to the local people. And in terms of governance, we comply with, with all the requirements, the relevant jurisdictions. I think, I think we're, we're very, we're very sort of... We're where we need to be in terms of compliance. If this area interests you, there's a load of information in the ESG report. Can we move on?
Okay, in terms of outlook. The focus really is on getting Blanket running sweetly again and achieving a targeted production range of 75,000 oz-80,000 oz. We'll continue to do our deep-level drilling at Blanket with the objective of, initially, of upgrading inferred mineral resource to a higher confidence level, and then thereafter, looking for extensions to the existing ore bodies at depth, which we can then make a decision in due course as to if we find something, how we commercialize it. We've commenced work on the feasibility studies at Bilboes, and we're looking as I've said before, we're looking at how we can sort of balance growth with minimizing dilution and therefore optimizing the net present value uplift for a Caledonia share.
We hopefully, and we also expect to start exploring Motapa later in the year. I think, I think that's the formal presentation finished. Maybe, maybe we can open this to questions. Camilla?
Yeah. If anyone has a question, can I ask you just to, to raise your hand and we can, and we can unmute you.
Hi, can you hear me?
Yeah.
Okay. I just had a question regarding the dividend policy. In a scenario where the production and cash, like, continue to disappoint, what is the likelihood that that would be maintained at $0.14 per share?
Well, that's one question. The other question is: what do we do with the dividend in terms of the very substantial investment requirements?
Right
For Bilboes, we've always said that the, our policy is to pay a dividend b ut we've also again said that, whether we maintain the dividend depends on a view about sort of capital allocation. And, you know, it's not just affordability, it's will it be the right thing to do as we go forward to continue to pay dividend, given the fact that, you know, the money we pay out in dividends is money we'd have to raise to fund the Bilboes, the Bilboes project. That's all part and parcel of the work that we're doing at the moment relating to how to commercialize, Bilboes.
If, if the idea was, the where you started from, the idea always was that we would our dividend policy wasn't, or our dividends weren't formally pegged to performance. As you'll probably be aware, we never said, you know, Q2 or in a quarter, a quarter's production, a quarter's profit was this, therefore the dividend is that. No, we never did that. So there was no clear correlation between the two. Frankly, given the fact that we can see a substantial improvement in the operating performance right now, that itself would not be a reason for cancelling dividend. The bigger issue really comes to how are we gonna fund Bilboes.
Right. I just have a few more questions. Can I get through those or-
Yeah.
Okay, I... Oh, okay, cool. In part, some of the electricity costs at Blanket rose because of extended use of Jethro and Number Four. Can I ask what's, what is stalling the transition to Central Shaft? I saw, like, in the MD&A, there was, like, commissioning problems with the old power systems, and, can you maybe add some color to that?
Yeah. Dana, would you, would you like to pick that up?
Well, it's actually twofold. When we equipped Central Shaft in the beginning, third year, last year, we only did waste through Central Shaft. Then at the end of the year, we started doing reef as well, at Central Shaft. Then this year is, by the end of the year, that 50% of our reef will go through Central Shaft and 50% will go through Four Shaft. As you migrate towards Central Shaft, and that, that will happen over the next 2-3 years, then you will, you will put eventually, Four Shaft as a standby shaft, almost on care maintenance, the same with Jethro. At the same time, there's a lot of white areas still above 750.
That because during the sinking of Central Shaft and having limited to working capacity, we had to target our, our development, waste development, you know, where we knew we're going to find return on our investment. As we, as we've got more working capacity now, there are certain areas above 750 that we're targeting and opening up, and that's sort of bonus areas. We might get to a point where we actually find extra stuff, and we already found extra stuff a bit above 750, which will extend the life, for example, of a, of a, a Four Shaft. Because there are certain areas that you can only waste the, the waste stones, the waste stones through, through Four Shaft.
Other areas, like on the right-hand side, maybe we can go take above 750, we can take through Central Shaft. That's why it's not clear-cut when we're going to, when we're going to stop Four Shaft, when we're going to stop Jethro. It's all dependent on what we, what we find as we explore more. Then also, this year, when we started with the solar, it was, it was a lot of rain this year and, and even, even last week we had to drain a tanker. It's playing a bit of havoc with our solar electricity that we generate as well, and losing it for the first year. Hopefully, next year we can budget better and get a better feel for what we will get from solar.
In, but in general, solar, solar is, solar is performing in plan. I mean, what Don, what Don is saying is that when you have, when you have rainy days and cloudy days, solar doesn't work quite so well than it's done, isn't it? Blanket is, is fortuitously located in an area of, of good sunshine, but, you know, raining, raining in Blanket in August is pretty much on the top, I'm afraid. That's what happened earlier on this week.
As, as we're going forward, I mean, when, when, when, when you get overcast conditions, then you've got to run generators to supplement the solar. Going forward, the answer to that is to, to install a couple of battery to, to have that when, when you, you know, the clouds come over and your solar plant generation drops, that, that at least keeps it stable.
Mm-hmm. Do you have some further questions ?
Yeah, I did. Let me just get to them here. It seems. I just wanted to ask about some of the underground technical expertise. It seems like a lot of the infrastructure issues have been addressed, but it seemed like there were also some of, like, human capital issues that needed, like, job skills training, some things like this. Can you just add some clarity to if that is a growing issue or is it okay?
Yeah. Dana?
Yeah. You know, we were lucky, that if you, if you look at the workforce at Blanket, very stable. It was very stable and a lot of experience. As we started growing and building up, we had to sign on new skills. Now, that's always a danger when you sign on new people. Not every new person you sign on is the great fit. So you've got to, you know, get that great fit. Some people fit in, some don't. With that, also, you've got to be very strong on the culture you want to have and what you will allow and will not allow. With that, we also actually saw that the people we lost during, especially last year, increased because of, you know, what I explained now.
We've got to get to a point where we grew our people by about 500 people. You know, since we started building up on more than 1,000 people, you've got to get that people fit in into the culture and the way we do things and what we allow. You know, that takes 2 years about to get that culture right, and then we'll start stabilizing, and, and, you know, get a well-experienced workforce. Currently, we've got a very good mix of very, very experienced people. You know, the benefit of, of building up was we actually managed to get some younger people in because our workforce was actually getting quite old.
There's positives and negatives, but you see it everywhere when you, where you sign on new people, and you've got to train and coach them to get into the right culture and, and the way you want to do things.
Right. Okay. I just have, I think, two more questions. Okay, so M- Motapa, with the first phase, it sounds a little bit similar to the Bilboes first phase. Would that be an accurate characterization or... what gives you confidence, if it is, that it will work better this time around?
Given how the- well, well, I mean, so when you say we, we're gonna go hunting for oxides at Motapa, is that, is that what you're saying?
Right.
Yeah. We may, we, we may actually decide, we, we may actually decide not to go hunting for oxides, given the, given the poor experience. We may actually just focus on the, on the sulfides, which is, which is the, the main reason, which is the reason for actually, acquiring Motapa in the first place.
Right. Okay.
I certainly don't, I certainly don't want a repetition of what we've experienced at the Bilboes oxide project. Thank you very much.
Great. Great. Okay, then my last one is just maybe something that I'm unclear on, is. In the MD&A, there was, it was cited that part of the FX losses were due to a three-week delay in the settlement of RTGS receivables. Previously, the, it was said that within two weeks, it was okay, and you would receive all settlement from SGR. Is that change only due to the devaluation of the, the rapid-?
I'll leave, I'll leave Chester. If Chester can answer that, that'd be, it'd be good. I'll just point out to you, there is a suspicious coincidence between the really very, very rapid devaluation of the RTGS over a three-week period, and at the same time, a, the, the, the pushing out of the receivable period, which has since normalized. I would just, I would just leave that out there, that there does appear to be a suspicious coincidence there. Chester, do you wanna talk about that?
Yeah, sure. Yeah, it is suspicious. I mean, the rate is devalued by about three... Well, devalued about three times over that period of three weeks. Normally, we receive our cash from Fidelity within two weeks. They've been paying us regularly over the 2 weeks. 75% of our gold now goes to outside of Fidelity, to a company called [a, and we receive just about all of our cash within two, two to three days of delivering the cash to them. We haven't seen those long delays again after June, and so far, they've been, Fidelity's been paying within that two-week period. So far, it's been going well. It was only that little blip that cost us a lot on FX losses.
Okay, cool. That covers me.
Anything else?
No, thanks. Thank you.
Okay, good. Thank you. Okay.
Well- Any, any further questions from anybody?
I don't think there are any more questions. There was another hand up, but it's gone back down. I think that's it.
Okay. Shall we just give it a few minutes just in case anybody has any second thoughts? Okay. Well, thank you, thank you for attending. Difficult quarter, as I said, signs of improvement in July. Hopefully we'll do this again at the end of Q3, and it'll be a more cheerful presentation. Okay. Thank you very much for your time.