Caledonia Mining Corporation Plc (CMCL) Earnings Call Transcript & Summary

Hello, and welcome to this Caledonia Mining Full Year Results Call. [Operator Instructions] I'd now like to hand over to our host, Steve Curtis, to begin the call. Thank you.

Thank you very much, and welcome, everyone, and thank you for joining this call. As you well know, this is our 2019 annual results call. And we're very happy to host you and have an opportunity to present to you and then take questions at the end. I'm joined on the call by Dana Roets, our Chief Operating Officer; Mark Learmonth, Chief Financial Officer; and Maurice Mason, who is the VP in charge of Investor Relations and business development. So thank you very much for joining this call, and let's progress. We will assume that you have got a connection to the presentation that was loaded up onto our website. And that's what I'm going to be talking to, and we'll be sharing the conversation between us as a team. And then we'll take questions at the end. So without any more ado, let's get cracking. The disclaimer is there for all the normal purposes that you're very familiar with. And then the content of our presentation is shown on the third page, and I'm going to immediately jump into, to the fourth page. I hope most of you are familiar with the story. And therefore, a bit of this detail that I'm going to talk about, I can go through relatively quickly. There's quite a lot of detail in here because there are a lot of interesting factors going on in our business and in the economy and in the general world environment, as you're well aware. So we talk about our short-term strategy and our longer-term strategy. Short term, we're looking up to 2022, which is an absolute focal point for us to get our production rates up to 80,000 ounces with the finalization of our new Central Shaft, which is in the process of being equipped at this point in time. And towards the end of this year, it will be commissioned with the successful equipping, and we don't expect any great production increase out of it this year, obviously, because the commissioning process is a managed process. And so 2021, we're looking at about 75,000 ounces, and then 2022 onwards will be the 80,000-ounce target for the balance of the life-of-mine with access up to 2034. We just recently announced that our quarterly dividend was increased in January 2020 by 9%. It's been a static dividend for a number of years while we've deployed cash into the self-funded Central Shaft project, and management has indicated that with CapEx declining free cash flow will be larger than it is today. And therefore, we made an indication of our ability to increase the dividend. A lot of what I will talk about is on a solid-state basis. We're obviously going to talk about the COVID-19 virus and the implications for our business. But when I talk about our intentions and strategy, that is a -- that's taking into account that COVID didn't exist when we were putting these documents together to the extent that it does now. And we'll obviously talk in more detail about COVID. Longer term, as I've already said, we're going to have a larger cash pile being generated by the Blanket Mine. As CapEx falls off from 2021 going forward, the major spend is this year. There will still be some development expenditure in '21, '22 and then it's going to decline into sort of a sustaining CapEx and exploration CapEx environment, which will enable us at 80,000 ounces to generate a lot of surplus-free cash flow. We're looking, and we said to the market, over an extended period that we're looking for other opportunities in Zimbabwe, and we continue to do so. We believe that we know how to operate in the region. It has been a very, very much ignored, mineralized country for tens of years, and we would be excited to be able to find another opportunity for us to sort of play from a brownfield stage the value curve and hopefully, one day develop another operating assets, so we are no longer a single asset. That continues to be our longer-term strategy. We're obviously looking for a level of scale of targeted resources of around 1 million ounces and with the ability for us to produce about 50,000 ounces per annum, maybe initially, and then ramping up. But any investments needs to be NPV enhancing and ultimately, dividend enhancing for shareholders. Otherwise, we're not allocating shareholders' capital very intelligently, and that's not the intention. We've worked very hard to generate good future cash flows out of the Blanket Mine, and our intention will be to deploy that meaningfully. The slide on Page 5 is just to show probably something that is relatively familiar to you. It just shows the red, which is the new infrastructure of the Central Shaft; and the green, which is the old infrastructure. It shows that we're going deeper. We're going into new mineralized areas, and that is where the future of this mine comes with a life of mine going into 2034. We're now going to get into some of the challenges that have existed through 2019, and that exists currently, and a number of them are operational, a number of them are economic and financial. So just to lead us through, I'm going to ask Mark, Mark Learmonth, to pick up some of this. And as and when necessary, he will pull Dana in to give him an opportunity to make some comments. So thanks. Mark, over to you.

Thank you, Steve. From Page 7, what you see are, there's 4, the 4 real problems that we faced in the course of 2019, what the effect of those problems was on the business, and what we've done over the course of 2019 to address those problems. Though it fair to say, in the first half of the year was extremely difficult as a result of these problems. By the end of the year, we feel that we've gone a long way to address these problems, and that really reflected in the very good performance in the fourth quarter. So the first issue was safety and as you will need to be reminded, in the course of 2017, 2018, we had a safety performance that was frankly very disappointing, with 4 fatal accidents. What we've done over the course of last 18 months or so is we substantially increased the management attention that we give to safety. The key element of that is something that we call the -- the Nyanzvi initiative, which is a very formal program where we work with the workforce, we mobilize the workforce to take ownership of the answer. So the idea there is that people will work much more effectively to implement a solution in which they participated in creating rather than just be told what to do. So the safety performance in the course of 2019 was much improved. The other issue we faced was a lower head grade, lower grade delivered to the mill, and that was really due to mining dilution. It wasn't -- it was not, let's be clear, it was not any difficulty with the geological model. So it doesn't reflect the fact that the gold wasn't there. It just reflects the fact that we were mixing payable ore with unpayable waste, and that clearly had an adverse effect on production. And because it cost us a certain amount to mine a tonne or move a tonne and press us a tonne, that there's less gold in that tonne because of dilution. That has a very adverse effect on financial profitability. We addressed that in the course of the year by improving the -- improving the training of the drillers, putting much more discipline on them, and that had pleasing results towards the end of the year, and you can see the grade improved quite substantially into quarter 4. And significantly, that improvement and actually closed in the end, it has flowed through into January and February of 2020. So we're optimistic that, that solution has worked. Electricity was a big problem. There were 2 aspects of electricity problem. The first was the instability of the grid supplier, so we're getting peaks and troughs in the voltage. And those caused trip outs in the -- in our electrical equipment. We'd actually spent some money in previous years to put in our own equipment to protect against those peaks, but that equipment was itself damaged by the -- just the sheer volume, the sheer number of incidents we had to deal with. And so parts of the early part of the year, we were left unprotected. Even though these peaks can only be for a fraction of a second, they trip the equipment. By the time we got everything back up and working again, we can easily lose 40 minutes. And if you've got a succession of 6 or 7 of these events the course of a single shift, that can effectively wipe out that entire shift. So that clearly was a big problem. The other issue that we faced, particularly from pretty much early July into the middle of August and then a little bit later in the year, which is good old fashioned load sharing and load sharing just simply -- it's a term that right -- banded about quite freely in South Africa now. Load sharing simply means that because the grid can't meet consumers' demands, the electric -- there's not enough electricity available to meet demand, people just simply get turned off. And for a long time, the government went a long way to shield the gold industry from the fact that there's just not enough power available in Zimbabwe. The gold industry is so important to the government because they need that gold to be produced so they can earn the foreign exchange from the sale of that gold. And so the government bent over backwards to protect the gold industry, but really from July in to the middle of August, it was just -- they just couldn't protect it any longer. We were incurring quite substantial power outages. That clearly had an effect on production and also affected progress on the Central Shaft. So to address that, we did 2 things. The first is that working with government and the Chamber, the Chamber of Mines. We entered into a new power supply agreement, whereby we pay U.S. dollars in advance to ring-fence imported power and that actually is a long way towards addressing the problem. The only difficulty is that most of that power comes from South Africa or, a lesser extent, Mozambique and everybody on this call is probably familiar with the difficulties in the South African electricity sector. And so that's -- while it's a step in the right direction, it's not a solution because everyone knows that South Africa has been having its own problems for many years. Second thing we did is we put in place about 6 megawatts of additional diesel genset capacity, which now means that the mine is completely independent and can conduct both mining and milling operations and the capital development operations through power outages. Now that works, but the problem is that it requires the use of quite large amounts of diesel. So when all the gensets are running, I think we're using about 1 liter of diesel every second. And just to put that in context, that means that in the fourth quarter of 2019, I think we used about 350,000 liters of diesel in that quarter. And that's got a -- it's got a cost issue. And at this gold price, we can cope with that cost, that's not much of a problem. But the big problem really comes down to logistics, getting your hands on large amounts of diesel at short notice, and particularly if the outages at Blanket are rising because of the difficulty in South Africa, that means that South Africa is also in the market, who ring up large amounts of diesel, so you're competing with Eskom for a limited pool of diesel. But so the real answer to that, it comes in the form of solar power, and we are well advanced in evaluating a 2-phase server opportunity, and I would hope that about this time next year, everything going to plan, we put in place the first phase of a solar power project, which will provide all of Blanket's baseload power, then the second players would provide its peak power requirement. Then the final issue that we really felt we faced and that was particularly in the first part of the year was just general deterioration in the Zimbabwean economy, particularly the workers in the first 6 weeks of the year who felt the brunt to that because their buying power was very substantially affected. And by the middle of February, their purchasing power was probably only 1/10 from what it was at the beginning of January. And that obviously flows through into very poor morale. We're able to address that from mid-February onwards when the government introduced an interbank exchange rate, which means that on a month -- month-to-month basis, we can adjust the local currency earnings of our workers to shield them from the very high level of inflation, so that did have an effect. Other issues with the constant changes in the monetary environment remain very complex, to prepare and prepare financial accounts. And as we'll talk about in a moment, the -- some of the numbers that come into the financial accounts results with the staggering devaluation of the Zimbabwe dollars, that's made those accounts somewhat interesting to read. Now that's the highlights of those 4 key problems. The subsequent page is Page 8, Page 9, page 10, move along this screen here. Subsequent pages, they go into a little bit more detail. I wouldn't propose to go into that detail unless people want to come back to this in the form of questions. So that really takes us to the operating view on Page 14. And I guess, at this point, I should ask Dana to talk about -- to give an overview of what's happened operationally in the course of 2019. So, Dana, if you could just talk to Page 14, please?

All right. If you look at Page 14 and you look at the graded tonnes, you will see that we started off very slowly in January for the reasons that Mark mentioned. And then the second quarter, we started turning it around by upping the tonnes. And then we ended very strong at the end of the year. Now just a reminder that the first 2 quarters of every year, we've got less shifts. And then as we progress to the second half of the year, we have more shifts. Now what we achieved the beginning of the year was about 140 ounces per day, and we ended off by achieving about 170 ounces per day. So a very nice improvement, and that's for all the reasons that Mark mentioned, mainly it's a combination of everything come together with the Nyanzvi program, which focused on behavior and people working together as a team and also focusing a lot on the daily task, what each should achieve on a daily basis and put all those control systems in place. And with that, we had -- we put an incentive scheme in place that keeps the good teams going and motivate the good teams. It was a yearly incentive scheme, where everybody got the same. We changed that for the miners to a monthly scheme and then from Supervisor level up to quarterly scheme, so that if they have a bad start to the year, for example, the first quarter, and they can't achieve the rest of the year's target, they can now look at the new quarter and start from scratch again and forget about the bad quarter behind them. So that's to keep them going. And it does seem that everything just came together and we got the teams motivated and got them going again. We saw that momentum through -- if you go to the slide at the bottom, if you look at the bar there, that momentum carried on through to the first quarter in 2020. And if you look at the bar, therefore for the ounces, it is lower, and again, because of the amount of days we've got in the first quarter. But we kept the momentum of the ounces per day that we mined in the fourth quarter. So we're getting exactly the same ounces more or less than we got in the last quarter per day, and that momentum is still ongoing. And apart from the coronavirus that is unknown. They had a very good start to the year. With that over and back to Mark.

Okay. Thank you, Dana. Let's quickly come through the financials. So Page 16, revenue is up from $68 million to $75 million, as you'll see in a moment, the vast bulk of that increase was due to the higher gold price. We also remain confident at 5% of revenues. There are no big changes there. Production costs are down quite nicely from $40 million to $36 million. It was largely driven by a lower electricity cost. In the first half of the year, we were paying for electricity in local currency. And as that currency devalued, that meant that the U.S. dollar denominate, the U.S. dollar equivalent cost of electricity fell away very sharply. And then in the second half of the year, we were paying in U.S. dollars, but the U.S. dollar rate that we're paying was slightly cheaper than the rate we've been paying in 2018. So all those things together contributed to a low -- lower overall electricity cost, notwithstanding the fact that we have to use significantly more diesel, which is a much more expensive way of gathering power for it, so that's nice to see. G&A, also down a bit, and that's a continuation of an asset to reduce those G&A costs. So EBITDA for 2019 of just under $30 million, that really is a genuine reflection of the underlying business. So $30 million compared to $19 million in 2018, that is a very fair reflection of a very strong financial performance in the business. The fun and games really happen a bit below that, which I'm going to talk about in a minute. So depreciation is what it is, about $4 million. That depreciation will go up in future years as we start to bring into production some of the development assets. Net other income for 2019 was $1.6 million. 2018, it was $6.7 million. That's this crazy Zimbabwe saying the export incentive credit replaced by the gold support -- replaced by the gold support price. So that value's just simply an extra payment that we received from the Zimbabwe government, which is they're willing to encourage us to produce more gold. It's a matter of government policy, the size of it, how long it continues for. And for that matter, we recognize it as effectively other income, like a government grant. ForEx gain is -- there's a huge Forex gain. Net ForEx gain in the year have been $30 million. And that's because of the devaluation of the Zimbabwe dollar, which started off the year on parity with the U.S. dollar. But by the end of 2019, had fallen to, I think, 16.6, 16.7 to the U.S. dollar. And that meant that liabilities denominated in the local currency, became smaller in U.S. dollar terms. The 2 big components of that were -- is a tax and a term loan, a $6 million term loan. The deferred tax, I'll come on to in a minute, it can get quite complex, our commodity to a tax advantage. Other -- in other, it's about $4.8 million of other in 2019. That is mainly the profit arising on the sale of Eesterling. Eesterling is a small gold asset in South Africa that we've been holding on for care and maintenance for many years. And after a very long process, we're very pleased to get rid of it. So you can see that operating profit of $61 million for the year, compared to $21 million for 2018, that's very distorted, mainly by the foreign exchange gain and, to a lesser extent, by the profit on the side of Eesterling and the net other income. So PBT, $60 million, $60.6 million. Taxation looks quite high at $10.3 million, but don't forget that a significant component of that is deferred tax. And deferred tax simply recognizes the difference between the tax treatment of capital expenditure and the accounting treatment. So for tax purposes, we get 100% deduction, like along capital allowances. And 100% of the CapEx we spend is deducted from our taxable profit in the year that we spend it, whereas, for accounting purposes, clearly the corresponding depreciation doesn't happen for many years, when we actually bring that thing into service. So what it means is that, in any -- in 2019, 2018, 2017, 2016, whether we're spending about $20 million a year on CapEx, we're getting an immediate upfront tax benefit of that, which is reflected in the -- which will get clawed back in due course, when those assets are brought into production. But because it's denominated in Zimbabwe dollars, that now means that, that, though, will [ never ] get repaid, so hence the deferred tax charge. So profit after tax, $50 million. Noncontrolling interest, that's the 16.2% attributable to the minority interests in Blanket Mine. Gets you down to attributable profit of $42 million, which is earnings per share of just under $4 a share. If you were to strip out the foreign exchange component, that $3.80 becomes about $1.50. So still quite a reasonable uplift from previous years. Gross margin is 41% compared to 32% the previous year. EBITDA margin is 39% compared to 28% in the previous year. Again, that's a very strong margin. And return on capital employed, 39%, but if you're going to strip out the benefit of foreign exchange gain, it's still a very, very creditable 21% in 2019, so it's a good result. All that happens on Page 17 is it just simply walks the -- which shows you how the revenues move from the -- the gold revenues have moved from $68 million in 2018 to $75.8 million in 2019. As you can see from that chart, the biggest contribution to that was really the higher gold price, which has a bearing on what do the mine expect to see in 2020, given the fact that the gold price really appreciated in January and February. And okay, it's come back a bit, but it's still appreciably high -- even today, it's still appreciably higher than the average that we realized in 2019 as $1,382 an ounce. Page 18 goes in a little bit more detail on production costs and breaks it down into labor. Labor cost was up a little bit, notwithstanding the fact that we've increased the head count from 1,465 in 2018 to about 1,570. The variations in that really arise from -- whether production bonuses are paid or not. Consumables, up about $1 million, and that reflects the increased costs of running the larger fleet of LHD underground, which are quite expensive. And I've already explained the electricity cost, which came down by about 1/3 from $9.3 to $6.3 million. Net other income, I've already mentioned. That is the export incentive which are then replaced by the gold support price. Then as the gold price, the real gold price, moved above the gold support price, the amounts of income we're getting in terms of the gold support price, that's, that evaporated. And so they didn't push up the gold support price as the gold price rose through it. Foreign exchange gains more dimension. You can see that the -- of the $29.6 million, $29.7 million of foreign exchange gain in the year, the vast bulk of that came from deferred tax, $23 million and about $5.8 million came from the erosion in the U.S. dollar cost of the value of the term loans. Taxation, I've already mentioned, so of the $10.3 million, you can see quite a significant proportion of that is deferred tax. Little bit of withholding tax, which arises as we move money around the group, which I'm afraid is unavoidable. Cash flow, very strong. So on Page 22, you can see the cash. The thing I like about this is the cash flows before working capital movement in the year, with $28 million, compared to just under $26 million in 2018. So very strong operating performance from the business. On the B side though, there is an adverse working capital movement in 2019, about $4.2 million and that reflects 2 trends which I think we're going to see more of in Zimbabwe. The first is the need to carry higher stocks to protect ourselves from unforeseen eventuality. So we're holding higher stocks of diesel because of the difficulties with the electricity supply. And we've also increased our stock holding with the critical parts for the -- particularly for the LHDs, which are quite expensive. The working capital absorption in 2018 was slightly different, and that relates to the normalization of the amount we owed our electricity company. So that's a different reason for that net working capital absorbed in 2018. So as we move forward 2020 onwards, I would expect to see some modest further increases in working capital. As we're finding that supply credit in Zimbabwe isn't operating because of the highlighted inflation. So increasingly now we're having to not take credit, but actually prepay for equipment, prepay for stuff. $20 million of CapEx in the year, similar to previous years, and we'd expect a similar level of capital expenditure in the course of 2020, pretty much front-loaded in the first 6 or 7 months of the year. All that you see on Page 23 is just extracting the 3 big components of operating cash flow. So the blue bar, that reflects the operating cash flow before working capital. This is on a quarterly basis. So you can see on the right-hand side, the size of that blue bar in quarter 4 of 2019 was very considerable, the $13 million, which again shows the strength of the underlying performance of the business. And then offset against that cash flow from -- before working capital, you've got the modest working capital movement and CapEx. So going forwards, what I'd expect to see is that blue bar to grow, as the gold price has gone up and then later on in the year and into next year as we begin to increase production, and then expect the size of the green bar, the CapEx to diminish as we run off the high level of capital expenditure. The balance sheet, again, there's not much to talk about there. It's a strong balance sheet. We had just under $9 billion of cash at the end of the year. Not surprisingly, as we've had good production, as we disclosed for the first couple of months of 2020, and it's continued. With the high gold price, you won't be surprised to see if that cash goes up somewhat. So the only 2 things I'd say would be just on Page 25 is our hedging. We hedged, we have hedged and we are hedged, because we still continue to spend a lot of money on CapEx. And whilst the cash flows are strong, the cash flows are very susceptible to either variations in production and/or volatility of the gold price. So we felt it prudent to -- whilst we should be able to control our production, we can't control the gold prices, that's why we've hedged. Once we finish this capital investment program, I would not expect us to need to hedge. Steve's already mentioned the dividend. Our total dividend distributions last year, about GBP 2.4 million. And if you look at that in the context of the cash that we generated from the businesses, it's by no means the -- at the moment, dividend payments -- so early in year, in January, we gave a [indiscernible] intent that as the business comes to the end of this significant CapEx program, and as we move into increasing our cash flow, we have an intention to continue to increase our dividend further. So that's all for me. I'll just pass it back to Steve to talk about outlook, and then I can take some questions.

Thanks, Mark and Dana. Yes, Slide 27 is a bit sort of something that we were just talking about really, but I think what's important is just to reiterate that just the production costs, when we were running at 80,000 ounces. We anticipate those to be in the same day that they were announced or in December. And you take the gold price, the margin is large, and it just demonstrates that there will be a good amount of cash available coming out of this business for us to deploy. Either in returning it to shareholders, if we can't find anything better to do with it, or to put it to another opportunity that will that deliver an acceptable return for shareholders who are -- who are being loyal over the last few years. Yes, the next 2.0 to 4.0 years, you'll see a decline in CapEx situation as our self-funded project comes to an end. And the shaft and the development that Dana has managed has -- going to set this mine up for the next 10 to 15 years and maybe even longer. The 1 chart that I did show you that showed the 3 horizontal levels of development, there is a planned fourth level that will be executed by a decline. But that's only 5 to 7 years down the line, once we bedded down the 80,000 ounces. So decline in CapEx is definitely the flavor of the day. The sort of the range of 4 to 8 years is for us to find the next opportunity or opportunities to change us from a single-asset operation into a multi-user -- multi-asset operation. We're focused and we're committed to staying in gold. And certainly, at this stage, we are committed to looking in Zimbabwe because it has been so ignored and it is well endowed with gold prospects. So if we can find a couple more Blankets, we can easily see, and I think we have demonstrated that we know how to expand operations through Dana and his experienced mining teams, and we're going to have some financial resources. We can see ourselves growing to a larger gold producer to hopefully get over the hurdles of the under 100,000 ounce and get back up -- get into the realm of a couple of hundred thousand ounce per annum producer. So that's pretty much all I would like to say and the team and very happy to take questions from anybody who has -- who has got something that they'd like to chat to us about. So I'll hand it back to the operator at this point in time, and thank you once again.

[Operator Instructions] The question comes from the line of Howard Flinker from Flinker & Co.

When you specify hedges, when you state hedges, you should specify that you have outputs. To most companies in the industry, to them hedging means selling calls to buy puts or they call them "costless." And to that, I ask if they're costless, does the investment banker get no fee. You are directly hedging by buying puts. So would you classify that?

We do actually say that in the text. We do say it there. Nothing is quite...

Yes, yes. Yes, I know. And some people might misunderstand it, so that's why I'm pointing it out.

Okay.

The next question is from the line of Mr. [ Schote ].

It's Chris [ Flemming ] from Austria. I have one question for Mark and one question for Steve. I will start with Mark. Mark, some years back, you did a share buyback of the small shareholders, 50 to 100 shares, would you do anything in the future?

We did that -- it was very small, and it was done for technical reasons, to get the share price to a level where it qualified for inclusion on the NYSE American. If you are -- it was a -- so it was a -- it's what I'd characterize as a reverse split. And what it meant is we had to take care of those people who got fractions that didn't sort of start-up. So it was a purely technical, mechanical buyback. But as we go forwards, there are only -- there should be no doubt that we're going to generate certainly more money. Okay, there should be no doubt in anyone's mind about that. If there is any doubt, we'd happily explain. So I think at a full bloom, we'll have more money. There are only 3 things we can do with that money, either invest in new projects or give it back to shareholders and giving it back to shareholders, either by way of dividends and/or share buyback. So it is on the agenda. That's not immediately. But it really is 1 of the levers that can pull, so absolutely, yes.

Yes. Excellent. I have a question for Steve. You've got some properties, GG and Mascot. Would you consider firing them up in the near future and/or buying a roasting oven for 1 of those mines?

We have spent some money on GG and Mascot and some of our other satellite properties over a number of years. It all comes down to capital allocation. And as you can imagine, the Central Shaft has consumed an enormous amount of capital. A number of those properties we've actually put out to tribute, so that they are being worked by people who have an obligation to us. At an appropriate point in time, looking at our own portfolio of assets would be something that we would do in the context of looking for new brownfield operations. So yes, those are -- some of those are close to home. Some of them are under tribute already to people who want to operate them. And maybe under the tribute, they would want to take them off our hands. They need to meet the criteria of being NPV enhancing and dividend enhancing in the longer term. And based on the work that we've done on GG and Mascot so far, we haven't been able to allocate sufficient capital to actually warrant doing more. So, Chris, that is something for down the line. But at this point in time, some of them are being worked under tribute.

Steve, can I just add to that?

Sure, please do.

What we -- currently, we have a constraint with what we can work and how much waste development we can do. And once Central Shaft is operational, we believe actually there's some virgin areas in the Blanket operations itself, where we will target more exploration. And we think that the potential is better than GG and Mascot.

[Operator Instructions] Our next question from Ian Joslin from Fund Know-How.

I just wanted to ask more of a general question, about capital. One is a request. I noticed in your accounts, you've got summary sections on operational cash flow in the RNS and on -- you summarized the fixed assets and the long-term liability. I just wondered, is it possible -- will it be in your accounts to basically get the more detailed breakout of these figures? And my second question is a much more general question. It just relates to, obviously, a risk that whenever you invest in a place like Zimbabwe or Mali or somewhere like that, expropriation is always a possibility as shown by Tanzania. I just wonder what is the situation in Zimbabwe. Clearly, the government is no bunch of angels. What are the things that are driving them to cooperate with the gold industry versus the temptation of expropriation? So I'd just be interested to hear about the dynamics of that from your perspective, because obviously, you'd be out of a job if anything nasty happened.

I'm afraid the -- could you go breakdown for me, Mark? Sure.

Okay. The -- yes, there is -- there are accounts, the audited accounts on our website, and there are some -- there is some further breakdown of liabilities in the notes to those accounts that might address what you're looking for. I don't think Steve heard the early question, but the answer is quite straightforwards. There's been a very significant change in the tide of -- in Zimbabwe following the disappearance -- no the ouster Mugabe and bringing in Mnangagwa. And Mnangagwa very clearly understands, that to -- that Zimbabwe needs foreign investment to get itself out of the mess it's in at the moment. So the understanding target that the government just hasn't got the capacity, financial or any capacity, to solve Zimbabwe's problems, so they need investment. And they see gold as the, as one of the sort of flagships, the main plank of that economic recovery. So we don't feel that we're at risk of expropriation. And in fact, quite the opposite happened. So the 51% in indigenization threshold was removed. That was legislated and actually we've taken advantage of that. You've seen it in the first -- in January this year, January 2020. We announced the transaction whereby we've bought back another 15% of Blanket Mine from people to whom we've sold it as part of the indigenization deal. The government is anxious. It's probably anxious, desperate. It's very anxious that gold production increases because they need, desperately need, the foreign exchange income that comes from the gold, from the gold industry. The platinum ministry watch is much bigger. The platinum is all exported in concentrate. And so the government really can't get access to the dollar revenues from platinum. So gold, frankly, is its next best source of foreign exchange. So we see a very positive -- we have a very positive relationship with the government, Steve, in particular. We have regular dialogue with the Minister of Mines, the government, the Reserve Bank and also with the president. They understand exactly what we've done over the past 5 years, investing considerably to grow Blanket Mine, increase employment. And they understand that in the very short period of time now, they'll be looking at a significant increase in taxable income from that side. And they're anxious that we take -- we can use the money that we generate from Blanket to invest in further projects in Zimbabwe, so they see us as parts of the answer to their problems. And I actually think that the risk of expropriation in Zimbabwe is now vanishing -- is now vanishingly small, and we're very optimistic about it.

I don't know the composition of the gold industry in Zimbabwe, but as far as your place in the industry is concerned, are you -- I mean obviously, there's more than 1 operator in Zimbabwe. Are you 1 of the main operators or are you...

Yes, we think we're the biggest. We may not be quite the biggest, but we're pretty much up there. But certainly, 80,000 ounces, I expect we would be the biggest. But more to the point, we are probably, by far, the most profitable. And so the government will be receiving very, very substantial income streams coming from not just the royalty, the payroll tax and the income tax. And then we have the financial capacity to take on new projects. So we're important in that line, yes.

And sorry to hold you a bit, but the solar power project that you're thinking about doing, which sounds like on paper, pretty good idea. It clearly has to meet your internal revenue, rate of return projections. What are the parameters that you judge any new project by as? I think you mentioned...

This is a mining project. It's a pure mining project, we would be -- we wouldn't want to look at it if it was less than a 25% internal rate of return. There's actually an infrastructure project, which lends itself to a slightly different funding structure, so you could put much more debt in there. You have a much lower risk as well because basically, the risk is, does the sun shine or not. I can tell you the sun shines quite a lot down there. And in the fullness of time, if we have to do this on our own balance sheet for now, we'll do it because it's almost like an insurance policy. It protects the business. But in the fullness of time, if we could sell it off to someone who's got a -- is more purely focused on mining infrastructure, we'd do it. So we're prepared to tolerate a slightly lower return on the solar project because it protects the business.

Well, presumably, it smooths out and lowers your production cost and lowers the overall risk of your operation.

Yes, absolutely. Yes.

Are you attaching batteries to it? Or is it purely just direct thing that...

There's a small -- very small battery to smooth things out a bit. But by no means are we going to be -- to put batteries in so it can run 24 hours a day would be pretty much expensive, so we're not...

Yes, absolutely. So you'd have to kick in diesel or electricity during the night.

Yes, we have full diesel backup. But typically, the outages, the power, the load shedding happens during daylight hours. So typically during night time, it's less of a problem.

Yes, that makes sense. And how much of the CapEx on that, roughly?

It's about $1 million per megawatt. So a 6- or 7-megawatt project will cost about $7 million, approximately.

Okay, it's not cheap. But then it should save you over the term.

Sorry, just briefly on that, Mark, we -- after this commissioning of Central Shaft, we reckon we'll be somewhere between 20% and 25% of the formal gold sectors and so a pretty big fish in a relatively small pond.

Right. How many other operators are there out there?

Well, we could run -- we could sort of...

Which makes sense, obviously.

\There's Freda Rebecca, which is part of ASA Resources, but that used to be an Anglo operation that used to run at about 70,000 ounces. I think it is a bit smaller now. Then there's a private company called Metallon, which is owned by Mzi Khumalo. They have a suite of assets, Redwing, How Mine. How Mine used to be the best, and because it's private, there's very little information as to how successful that is, but they would have been the 2 biggest operators, I would have thought. And then perhaps also, we have been -- but again, in the end, nothing can compete like we used to. So the other companies have had trouble, had difficulties, and we kind of go against the flow, and that's why we're so important within the government.

It takes a brave -- it takes so many brave to invest in somewhere like Zimbabwe right now, but also remunerative too, I suppose. That's why you can do.

We do have one follow-up question from the line of Howard Flinker.

Considering that Mnangagwa wants to invite foreign investment, is there any chance he could open foreign investment to other fields in the next 10 or 20 years? Or is that a pipe dream?

No, I mean, in other areas. So it's like, I can't tell you. Yes, yes, sure, but we don't operate in telecommunications, and we don't -- gold's what we do. So gold is...

Not for you, but in general.

Yes, yes, that's very much so. They want to encourage investment across the whole industry, yes.

Well, if they do that, they will change the whole economy and also the view of outside investors about Zimbabwe. He was afraid of a guy with blond hair, that could be a game changer.

Yes.

Thank you very much. All questions have now been answered. So I'll hand back to you, Steve, if I may.

Well, thank you, and thank you to all the participants. It's probably a longer list than we've had in the past. We appreciate your interest. I think the numbers speak for themselves. And although Zimbabwe is a challenging environment, we have shown that if you stick to your [ Nyanzvi ] and you run a well-managed mining operation, in these times, with the gold price doing what it does, we are able to generate some very healthy returns for shareholders. And I think the one exciting thing about the Blanket operation is that for many, many years, it has been a very well-managed, cost-controlling operation through all the years of hyperinflation and the difficulties. We have shown that we can run an operation in this part of the world that consistently generates enough money, which has enabled us to invest probably nearly $70 million on the shaft. And yes, the economy and the country has got a very bad reputation, but let's look at the fundamentals of the business. And we are very confident that we will deliver the 80,000 ounces at a very acceptable cost. And we are very excited about the future. So we will be looking forward to chatting to you again. And telling you that we've done what we said we would do. And please watch this space. But thank you again for joining us, and good night from me.

Thank you very much for joining today's Caledonia Mining full year's results call. You may now disconnect your lines. Speakers, please stay connected.