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

[Operator Instructions] And Mark is going talk through the presentation.

Thanks, Camilla. Welcome to all of you. First of all, apologies. We would probably have aimed to have this call a few days earlier, i.e., closer to the announcement. Unfortunately, we're travelling, and there's been problems with unreliable internet telecommunications and that way, we weren't able to deliver to you our promise of [indiscernible]. It's about a week after we put the announcement out. We've got a presentation to run through, it's about 23, 24 pages, built largely on the information in the press release but with some additional inflation that we will settle into Q&As. So Maurice, can you just move on? Then if we could clear this line again, right. So the acquisition of Bilboes is one aspect of our sort of 4-pronged strategy. As you know, Central Shaft near-term growth, increasing production this year and a commitment to return money to shareholders. But this falls in that bucket of looking at attractive new investment opportunities. I hope that towards the end of the presentation, we'll see to what extent this opportunity really is very attractive for us. This is entirely consistent to core growth, with our stated strategy. Shall we move on? Okay. Just some highlights on the transaction. We -- as you know, we signed a purchase to purchase -- we signed an agreement to purchase Bilboes for consideration of just over 5.1 million shares which will give the vendors of the project, 28.5% of our fully diluted equity. And then in addition, one of the vendors is taking half of this loan consideration as a 1% royalty on the project. Bilboes has a substantial resource base, a 43-101 compliant reserve base of just under 2 million ounces at 2.29 grams a tonne, M&I at over 2.5 million ounces at 2.26 grams a tonne. Then in addition, there's Inferred mineral resource of about just over 0.5 million ounces. And it's better say as well, there is some considerable further exploration potential, but we'll save that for another day. The vendors did a feasibility study which indicates the potential for an open pit operation with a 10-year life of mine producing about 168,000 ounces a year on average. And it has a post-tax net present value of $323 million at $1,650 gold and a 10% discount rate within to the rate of return of 33%, very competitive. All in sustaining cost of $826 an ounce. CapEx requirement of $250 million. Now in addition to that, we -- and this is maybe sort of an unusual sort of twist outside of Zimbabwe, is we're going to enter into a tribute arrangement to kickstart early production from the oxides. And I'll come on to a bit more detail in that later. It is not -- it may be unusual outside Zimbabwe, but it's pretty standard inside Zimbabwe, so I'll come back to that later. And then the transaction is subject to several conditions precedent, again, which I'll come on to in a moment. Okay, next slide. So just a little bit outside about Bilboes. It was a fully Anglo American project in Zimbabwe until they exited -- Anglo exited Zimbabwe and sold the asset to its managers, led by a chap called Victor Gapare. A little bit more about him later. It's about 75 kilometers north of Bulawayo, which means the Bulawayo is sort of become a hub for our operations in Zimbabwe. Blanket is about 180 kilometers south of Bulawayo, Bilboes is 75 kilometers north of Bulawayo. So there are no scope for any operating synergies between the 2. Bulawayo would become a convenient hub for us. Just had to say that it's got a very substantial land package. It's got some mining claims over 6,870 hectares and exploration claims over another 92,000 hectares. So the current shareholders of Bilboes is a company called Toziyana Resources. Behind that, there is actually a character called Mr. Victor Gapare, who I've known for 12 years now. I used to sit with him on the Executive Committee of the Chamber of Mines Zimbabwe, where he was President for a couple of years, and he's formerly an executive from Anglo American. So Toziyana will end up with about 13.5% of the large capital of Caledonia. The other major shareholder is Baker Steel Resources Trust, basically based in the U.K., where we would have heard of Baker Steel. Those of you who go on to the U.K., Baker Steel is a prominent London-based resource specialist institutional investor. And the third vendor is a Chinese investor group called Infinite Treasure, and they'll end up with, I think, about 10.5% of the enlarged equity. Let's move on. The feasibility study was done by the existing vendors. It's dated the middle of December last year, and it is available on our website. The first thing we'll do on completion is we will commission our own feasibility study. But the world today is a little bit different from the world that was in place late last year for obvious reasons. And in addition, we -- it's important for us that we actually implement a feasibility study, the development plan that we have ownership of rather than somebody else's plan. The salient numbers of the reserve resources there, I've already mentioned them. Shall we move on? It's very slow, turning the page, I think. So the feasibility study projected over a large-scale, low-cost, long-life asset. As I said, we'll do our own feasibility study to update it for the current situation. And also, we'll do the feasibility study on 2 basis. One will be that if funding is available for the -- to fund the entire project to one single leap. That's about $250 million, but could be more in this environment. If that funding is available on competitive terms that is -- means that the transaction, the deal is -- earning is NPV's share enhancing to shareholders. We will take that money and build a project in a single leap. If, however, the money is not available on satisfactory terms, we will fall back onto a more cautious approach which will be to fund a Phase I using our internal cash generation from Blanket. We should get -- it should allow us to build out a Phase 1 project of about 60,000 ounces, and then thereafter redeploy the cash from Blanket plus Phase 1 to build further phases. So by no means are we beholden to the markets, both debt markets and equity markets from this. It's fair to say the ore of Bilboes is refractory, which means it will require specialist metallurgical processing. And the DRA feasibility study conjectures the use of BIOX technology. Again, we have reviewed the work and we're comfortable with Biox. We'll work on this ore body. Can we move on? Here's the production profile extracted from the feasibility study. So you can see how it -- if you're going the sort of the big bang approach, you can see how it increases in peaks at just under 200,000 ounces in 2029. And then on the right-hand side, we've aggregated the production from Blanket plus the production from Bilboes. And you can see 2026, you do get quite a significant increase in our attributal production. So it is a deal, it's an asset that will transform Caledonia's market position. Let's move on, Maurice. We see here is the estimated production cost. So you've got the all-in sustaining cost, hovers at around sort of $700, $750, and that increases as the stripping ratio increases in 2022. There's still a very competitive all-in sustaining costs, so highly profitable business. Let's just have a few words on the transaction structure. So you can see here the existing shareholder base at Caledonia's 12.8 million shares. The vendors, the Bilboes vendors, received 5.12 million shares, and that will be split out to between our resources, 2.4 million [indiscernible]. In addition, Baker Steel get the 1% royalty. [indiscernible] should point it out that as Victor Gapare will become an Executive Director of the group and also the major shareholder in the group. And so to avoid any funny business, he will enter into what's called a relationship agreement, which is a fairly standard document for AIM listed companies, which regulates the behavior of large shareholders in the listed company who are also directors. So effectively, it avoids those directors who are major shareholders from running the company as a personal [indiscernible]. So there's sort of controls and protections we put in place to protect the other shareholders, and the company must go on to the benefit of all shareholders, not just one shareholder. Shall we move on? Well, there's 7 important conditions pressed into the transaction. The first one is that we require to get satisfaction from the Zimbabwe authorities that Bilboes will be able to export its gold directly. So we'll not be obliged to sell to Fidelity Printers and Refiners, which is a subsidiary that is the Bank of Zimbabwe. So it will be able to export its gold directly, and we'll be able to retain 100% of the sale proceeds in U.S. dollars. Now, that cuts right through what we've picked up over many years as being one of the single biggest obstacles for investors when they consider looking at Caledonia as an investment opportunity. And the fact that we sell our gold to the government effectively, and the risk, the concern with investors is that we are then dependent on the goodwill on the government to pay for the gold that we sell them. Now, I might sound sort of slightly skeptical about this because, frankly, this government haven't paid us with the gold we delivered and will be sitting here today. So I personally think it's a perception issue, but it's an important perception issue. So when we get this condition precedent satisfied, I think that should go a long way towards addressing the single biggest concern that's been expressed to us over many years by investors. I met the Government Reserve Bank on Tuesday in Harare. Also, we met with the Ministry of Finance in Harare on Tuesday, and we see no impediment to getting this condition precedent unsatisfied. So that will be a substantial step forward for us. The other main CP relates to the only significant operating difficulty in Zimbabwe, which relates to electricity. Those of you who follow the company will know that we consistently talk about difficulties with the electricity supplies in Zimbabwe, both out loud and out outages because there's not enough local generation to meet demand. And then also the very poor quality of the power supply that we receive at Blanket. So what the CP in respect to electricity is that we will need to enter into a power purchase agreement with an independent power producer so that we can get comfortable that there is sufficient power available for the project. And then secondly, that power can be delivered to the project through the grid. Now, it's fair to say that there is actually -- even though Zimbabwe doesn't currently house power outages, that's because the state-owned electricity company is not creditworthy, and therefore, anybody in the region who has surplus power isn't prepared to sell it to ZESA because of the credit risk. For a dollar-willing creditworthy organization such as Caledonia, there actually is power available right now and going forward, so we're confident that we will be able to get a PPA. But also, we are now engaging with ZESA, which is a state-owned utility, to ensure that any PPA that we sign up to can be delivered to the project. So again, that would address the main operating difficulty that we've always identified in Zimbabwe. And there are there other CPs which are more of a sort of procedural basis. We need to get competition commission approval in Zimbabwe just to make sure that putting together Caledonia plus Bilboes means that we can't [ reach ] the international gold market, which is clearly fanciful. And we didn't need to get reserve back approval for the transaction. So those other CPs are very much sort of procedural. Two big commercial -- 2 big CPs are the ability to export, export the gold and the CP relating to electricity. Shall we move on, Maurice? Again, let's just look a little bit of the quality of the Bilboes asset compared to other assets in the region. So what you see here is the recovered grade for Bilboes. So that's the 2.2, 2.3 grams a tonne I was talking about with the 84%, 85% recovery, so that means the recovery grade just less than 2 grams a tonne. And compare that to some of the other larger opportunities in Zimbabwe, you can see quite clearly that Bilboes is a leader in terms of grade, okay? And moving on. We can look at the size of this project. And okay, there are some -- there are some substantially bigger projects out there. But in terms of overall size, the Bilboes project compares very favorably to, again, some of the other projects that are available. So then the next one. And how much do we pay for it? What you see here is how much we paid dollars per ounce, and you can see that we've paid $30 to $40 an ounce. We've paid a lot less than the other comparable, other similar projects. So it's high grade, it's relatively big, and we bought it relatively cheaply. Okay, let me just talk about the tributes. For many years now, Bilboes has been, I say, mining. It's been exploiting the thinner oxide layer on the surface using a heat bleach to produce gold. And it's been producing about 20,000 ounces of gold a year using that methodology, which is very straightforward and then quite basic. Unfortunately, it's now run out of accessible oxide material, and therefore, the existing oxide plant is on care and maintenance. But the problem for that for us is that it means that Bilboes is currently hemorrhaging cash on a monthly basis because it's got no revenue coming in. But also, we believe that Bilboes has quite a high-quality workforce, certain senior people there are people we would very much like to use in the bigger project. And we would hate to lose them. The Zimbabwe mining industry is picking up and the skills are at a premium, and we would hate to lose these people. So we're entering into this distribute arrangement whereby we will inject pre-completion, about $5 million, to restart the oxide activities. Which means that effectively, it's pre-stripping down to about 40 meters in depth. That is what we would have to do anyway to do the bigger sulfide project. But what we're doing is it sort of brings forward the cash generation. So it maintains the operation in technology business, get some cash and -- get some cash going through very quickly. So it's somewhat unusual to do that sort of thing in the international context, but tribute arrangements are relatively common, albeit that in Zimbabwe, typically, the attribute arrangement is given by a larger mining company to a much smaller operator. So at Blanket, we have sort of a very small part of land, which rather than leave those as part of the land uncared for, we have sort of effectively large scale artisanal miners, who would work that for us on a tribute arrangement. It's pretty unusual to sort of reverse that and have a much larger mining company that has a 3D for a smaller company, but commercially, it makes sense. So on an offbeat, we'll be putting about $5 million in terms of CapEx, upfront costs, and in the early months, operating expenses. We'd expect all of that $5 million to be recouped within 5 to 6 months. And thereafter, it would become a healthy revenue stream -- profit stream, net cash fee for us. So that works for us quite nicely. Maurice? And, clearly, we will have a CapEx obligation in the future. As I've outlined our approach to this, which is that if market is conducive and debts available, we will go the big bang approach. If neither of those things are the case, we will adopt a much more conservative approach. In any event, it doesn't mean that we will have to put our hands in our pockets to fund an incremental CapEx program. Having said that, we do not, at this stage, believe that should jeopardize the existing dividend, which is $0.14 per quarter, $0.56 for the year. The dividend is a very important component of delivering shareholder value, and it would have to take something extraordinary for us to have to revisit the dividend downwards. Okay. Let's talk about Zimbabwe. Since President Mugabe left in 2017 and Mnangagwa became the President, he's tried to do quite a lot to improve Zimbabwe as an investment destination. So as you may be aware, the 51% local ownership requirement was scrapped in March 2019, and thereafter, we took advantage of that to increase our shareholding in Blanket through 49% to 64%. More recently, exporters such as ourselves are listed on the Victoria Falls Stock Exchange. We can retain 100% of the ForEx that we earn on incremental production, which for us is everything at 57,000 ounces. But clearly, all of the production coming out of Bilboes will be incremental, and so we will be able to retain 100% of the earnings from Bilboes in U.S. dollars. The tax rate is by no means generous. Including a 5% government royalty, the total effective tax rate is just under 30%. And it's also worth mentioning that Zimbabwe is one of the very few countries where you get 100% capital allowances for capital expenditure in the year that you incur that CapEx. Most countries force you to spreading over future years. Historically, Zimbabwe has been very, very short of foreign exchange. That seems to have changed now. There seems to be much less of foreign exchange shortage in Zimbabwe. And the net Forex in places in Zimbabwe were a record at just under $10 billion. And we see that pretty much every week in our interactions with the Reserve Bank. In terms of getting access to externalizing money from Zimbabwe, it's actually become much easier. But as I mentioned, one of the conditions precedent to the transaction is that we will not be required to sell our gold to the Reserve Bank, which again, addresses one of the key investor concerns about Zimbabwe as an investment destination for gold. So just to wrap it up, the Bilboes transaction is entirely compatible and consistent with the strategy that we've outlined. In the short term, we're focused on getting Blanket up to 80,000 ounces a year, and you'll see from the press release we put out a couple of weeks ago that we're now running at a quarterly rate of just over 20,000 ounces. So we pretty much achieved that. We still got a clear commitment to return money to shareholders, but -- whilst continuing to invest in the company's growth. And we continue to evaluate investment opportunities in Zimbabwe to derisk our business from being a single asset producer. Now, it's fair to say with Maligreen, which we're still optimistic about, we're still doing work on that. We're still in a good asset, plus Bilboes, it's fair to say that we will be somewhat circumspectual when we're looking at new opportunities in regard to our funding capacity and our management capacity. But our aim is still very much to becoming a multi-asset, Zimbabwe-focused gold producer, with achieving that over the next 5 to 7 years. So I believe that is the end of the presentation. Is that correct, Camilla?

Yes, that's the end of the presentation.

Good. Okay, so we'll open it to questions at that point.

There are a few questions written down below. So would Phase 1 alone costs $150 million initially.

We've indicated $100 million, but that is a little more than a guess and I thought $150 million is pretty heavy.

Okay. And other question is, why does Baker Steel receive 1% NSR?

Because they wouldn't sell if they didn't get it.

Okay. And then another question --

Just to clarify, they receive a smaller portion of shares than the other shareholders as a pro rata amount, so, yes. Just to clarify.

It's fair to say had we said no, there's no royalty and you must take Caledonia shares, they wouldn't have been sellers at that point. We did consider say, okay, not a case. You don't want the offer, you can stay in the asset as a minority investor, but we thought that looked -- that would have been practically somewhat cumbersome. And so then they said, okay, well, we'll accept the offer if we can convert 50% of our consideration into the [indiscernible]. It was something we had to do to get the deal.

Okay. $30 an ounce of reserves and circa $11, $12 an ounce of resources?

So that's kind of a hard question, but thanks, [ Harry ].

Another question is, how is security of a new mine? Are there artisanal miners on the mine site?

No, there aren't. Security, I'm going to say security is not a general -- a widespread problem in Zimbabwe. It's not something we encounter. So the -- there is infrastructure there. There are people on the property, existing Bilboes employees, so security is not a problem. But it's not, generally speaking, something that we don't count on the same sort of security issues in Zimbabwe than we would elsewhere in Africa.

Has the condition precedent relating to ForEx and gold been achieved by any other gold producer in [ Zoom ]?

I don't think -- no, but no other gold producer is investing what we're proposing to invest. Everything we're asking for, the ability to export, incremental gold production, the ability to hold the proceeds of those gold sales in U.S. dollars, that is all within the existing regulations. So we're not asking for something that's not already on the table. And when we met with the authorities on Tuesday, they recognize that very clearly. So all we're asking for is that those existing so-called concessions, although frankly, I don't think it is a concession to be able to sell your own gold. There's existing rules that are simply codified and given more sort of strength for more longevity. That's all we're asking for.

So there's another question here. In the event that you get a guarantee, what form are you expecting?

That's interesting. It has to be a letter from development authorities which, in our opinion, is sufficiently binding because that's always going to be a degree of subjectivity. That's an interesting question. We're not looking for an active parliament.

The question there also, Mark, on whether we would look for a special mining lease as part of this? I don't know if you want to deal with that? Maybe we thought about it.

We thought about it. We don't believe we need a special mining lease to achieve what we want to achieve. We are aware that other companies do have special mining leases. We don't believe that necessarily we need to get a special mining lease to achieve, certainly the ability to export the gold. And so this -- we're asking because it's already on the table. It's something we've considered. We don't feel we need it.

There's another question here around power and whether we're likely to add solar?

It depends if we can -- the power that appears to be available from projects outside Zimbabwe is hydro power. That is clean and green, so there will be no requirement for us to try and go solar to improve our ESG credentials. However, if we were to find that even if we're getting power coming from -- the exact same as an ambient hydro project, and we were incurring sort of intermittent introduction because of the grid, which is pretty much where we are at Blanket. That's the situation we have at Blanket. Well, then we would put in some solar. Before that model that we've worked up is that we're perfectly comfortable with the situation where we get about 70% of the project power from a -- through a PPA. And then the balance -- most of the balance coming from a solar project, a captive solar project, with a very small amount as diesel. So we have sort of gained and strategized as sort of fall back, which approximates the situation that is sort of slightly worse than it currently exists at Blanket. Although it's fair to say that a lot of the power problems, the Blanket experiences, because of Blanket's geographical position at the end of a particularly poorly-maintained line. The Bilboes project is sort of more fortuitously located closer to a newer line, which is not overused. So I think using Blanket as a reference point and they're making it a little bit worse than that is somewhat conservative. So maybe we use solar, we may not. It depends. We could do it.

There's another question here. So if Bilboes is currently losing cash, what were its other options if Caledonia...

Closed out. It doesn't have the access -- it does not have access to funding to keep going, so it would have closed down. I have seen some comments say why are you buying a loss-making business? We're not buying a business. We're buying a resource base of nearly 2 million, 2.5 million ounces. The fact it's loss-making is frankly not the head of there, and we can address that very quickly through the tribute structure. It's very difficult to think that people who don't operate in Zimbabwe to appreciate that for a business like Bilboes, raising $5 million or so to kickstart an oxide project, even though it is -- there's just no banking capacity to be able to sort of accommodate that, which is just an unfortunate reflection of the difficult sort of straightened banking circumstances in Zimbabwe. But look, it plays into our hands because it focused the [indiscernible] mines and meant that we had to get to sort of draw a line on these negotiations and get going.

The low acquisition price suggests that there are no competitive bids for the asset?

Well, if I'm sure if Baker Steel and the vendors, we've got a high price on the templates. So I think that is -- I think is pretty self-evidently true.

Please clarify your investment cost benefits and expected IRR, including the tribute and potential $5 million Baker Steel royalty?

Maurice, do you want to talk about how we evaluate these projects?

Yes, I'm happy to do that. I mean, for regulatory reasons, there is not an independent feasibility study being conducted on the oxides itself. So if you -- if that question refers specifically to the tribute arrangement, we're obviously limited in what we can say there. Suffice to say that it's $5 million. We think it will get us sort of to do the pre-stripping and a small amount of equipment required to get the oxide processing process, the heat bleach oxide processing facility, to get that back up and running. And we think we'll get our money back there in about 6 months of current gold prices. So it's a very good return on the initial $5 million investment, and it's a deal that works for both parties. The same question relates to the $75 million Baker Steel royalty. That's a cap that's put in for reverse takeover protection purposes on the AIM exchange. We don't think the royalty will overpass $75 million, and if it does, the project would have to mine $7.5 billion worth of gold, which would be very, very healthy indeed for the business our size.

Maurice, could you explain the methodology that we go through when we evaluate the purchase, the purchase of an asset and the funding of an asset?

Yes sure, I'm sorry. Yes. The acquisition criteria we used were that the business -- the acquisition, if we do dilute our shareholders to buy something, that it's going to be NPV per share enhancing and it's got to be free cash flow per share enhancing, and quite substantially by those metrics. So even though we are diluting our shareholders by 28%, the portion that the shareholders are left over with, we believe, will be substantially more value on our hands. We will value this project at a conservative gold price. And we think that in terms of both NPV per share and distributable free cash flow per share, the number is quite positive.

So there's another question here. Will you export 100% of the gold or will some be sold to the government good relations?

Look, we intend to sell every ounce of incremental gold as we are allowed to. It may be -- it may be refined at Fidelity, and then Fidelity -- then we would export it from Fidelity. But if Fidelity refines it for us then we export it, that will be under our own -- we'll be doing it under power, so to speak. We -- so that would address the government's concern about income tree depreciation. We also address governments concerned about having full visibility as to what's being exported. But we -- so we would only sell the government what we have to sell to government. Okay?

Another question about Blanket, whether it can go over 80,000 ounces a year?

Maybe. Maybe not. It's too early to say. We give guidance of 80,000 and when we -- when we're comfortable that based on future exploration, it may be able to exceed 80,000, we'll make the appropriate announcement in the ordinary course event. At this stage, we're guiding 80,000.

Large variations of tax have been a factor of government intervention past when you tried to knock in an agreed route?

I don't understand that question. The Zimbabwe tax regime has been incredibly stable. For as long as I've worked with this company, the income tax I don't think has moved at all. The royalty did change a little bit. Zimbabwe's by no means like -- the tax resilience in Zimbabwe is by no means as volatile as it has been in, let's say, Zambia or Tanzania. Our effective tax rate may from time to time vary, but that's got nothing to do with underlying -- the underlying tax regime. That's to do with structural inefficiencies, I suppose, and the way we organize our business. Chester, do you want to add into that question? Taxes, I don't personally feel tax is a risk issue.

I agree with you, Mark. Our tax rates don't fluctuate there. I think the tax rates fluctuates mostly due to ForEx fluctuations. Our best stock is [ $9.07 ], and devaluations of $7 break down tax, income tax expense, reducing our effective tax rate. So the regime is going to be [indiscernible].

Yes. So any variations in the effective tax rate have come from sort of exogenous variables, not because the tax rates changed.

I think we've dealt with the next question, to talk about $5 billion royalty. So if the numbers are enhancing cash flow per share after 28% dilution, why did you say the dividend won't increase?

In the short term, it may not increase. Clearly, longer term, we're not -- we've been -- clearly, longer term, we're doing this with every expectation and intent of increasing the dividend. Obviously, I was talking short term, as it wasn't clear.

Will the new investment propose to divert investment away from Blanket?

No. We have to -- that will be very foolish. We have to keep and maintain Blanket as the goose that lays the golden eggs, and we have to feed our goose very well. So that would be very, very foolish thing to do.

I don't understand how this question is there. I don't -- we can --

Yes, I'm not.

Do all questions have to be tied to [indiscernible]

There's one person here who's raised their hand. Okay. So it's not just [indiscernible].

[indiscernible] Because I'm very conscious. I'm sort of -- I'm being asked questions by Camilla. I'm answering questions, Camilla's questions, the way we answer if we're sitting in the office. Which [indiscernible] a little bit, a little bit [indiscernible].

Can you hear me?

Yes, we can hear you.

I calculated return on investment of about 50% or 52% if you include both the $250 million and the acquisition cost of $50-odd million and $1,700. Will a pre-tax return on investment approximate 50% or 52% after all costs?

I wouldn't want to comment on it without reviewing that maximum authority, [ Harry ].

Okay. I'll call you tomorrow. I have some other calls actually that is [indiscernible].

Well it's a typically very difficult question to answer, [indiscernible]. I think we're plenty to scratch his head a bit on that one.

We'll talk about it, Harry.

There's one more question here.

Jon?

Sorry, yes. I just got muted there. Sure. So I guess, I mean, this sounds like a great deal for the company, and I think it's the right thing to do for diversification. But I have some of the questions that were tied earlier about Blanket. And I guess, obviously, the Central Shaft and investment in Blanket have taken up to 80,000 ounces a year, which is fantastic. One of the slides were showing the production for Blanket was penciled in as like 80,000, 80,000 for the next 2 years, and then slowly decreasing a bit in the following slides. So I guess the question is not so much can Blanket go above 80,000. It's more that is it -- are there plans? There could have been plans necessarily in Blanket to say, okay, this is our only mine so we're going to invest a lot more to try and go even further? Or is it, we've gone the way you want to be at Blanket, we're going to sustain it, which is great. But also, we've got a new mine if you're going to divert.

Yes, let me explain. The -- on the Canadian regulations, we're not allowed to show a production forecast for Blanket that aggregates production from measured and indicated resources and from inferred resources. And so the falloff in production that you see in those later years is because we -- in terms of our buying plan, the production in those years from M&I falls off. And if you were then to look at our mine plan from inferred, there would be incremental production coming from that. So I'm afraid that's just a nuance of the Canadian report team. And that's why -- and that's actually also why we couldn't show that graph going out much further than 2026 because by the time we get to 2028, 2029, the bulk of our expectation, the bulk of our expected production from Blanket will be coming from inferred resources. So that's why that graph might have a look into that question. We -- the best and the cheapest place for us to invest money for short-term growth, the best place for us to invest our money is Blanket, okay. So we are going to continue to invest in Blanket. And we have an exploration strategy at Blanket which is to go do deep level exploration, also to do fill in exploration in the areas of the mine above 750 meters which we believe, over the past decades, has been ignored. We also know that we've got operation potential to the north, immediate north and immediate south of the mine area. And then finally, we want to start looking at something called abandoned limestone formation, a bit which is a completely separate trend, which is about 800 meters to the east. So we've got plenty, plenty to play with Blanket. With potential be to either extending the mine life and/or increasing production, at this stage, I've got no basis, no basis to tell you that we've got a clear route to increase production above 80,000. Hence the message I heard earlier on, which is 80,000 ounces for the foreseeable future. But the balancing out for us is to invest money in new projects, but also by no means we can't afford to strangle Blanket. That will be a very, very silly thing to do.

Mark. I mean, that makes a lot more sense to kind of [indiscernible].

When you asked a question and answer it, can we either ask a question then answer it.

But it's so much easier when you can expand on what you're really thinking. I've seen previous slides and Blanket showing all sorts of directions you could potentially explore. Yes, that makes sense. Now in terms of kind of -- what do you think are the major risks here? I mean, is it essentially -- I mean, some are within your control, some are beyond your control. And I mean, I guess, from my perspective, the risks on the whole seem to be around power, around given the White Star. I mean, obviously, the mine itself because you have to do your feasibility study. But I mean, I guess, what do you -- are those the kind of main that you see? Or are there things I'm not seeing?

I think we're going to largely address power, but power's always going to be a residual risk. I actually don't feel personnel is a substantial risk. I mean, one of the reasons we're entering into the tribute is because we're very keen to keep hold of some of the senior staff at the Bilboes project who we think are really rather good, actually. We really don't want to lose them. Having said that, there are skills available in Zimbabwe. So why I don't feel skills is -- I don't feel skills is the -- there's a risk. I guess the risk is tough that we just can't see coming, which would be unforeseen eventualities in Zimbabwe, which give rise to a series of policy sponsors that currently we can't envisage. There's nothing at all on the horizon that would suggest that's going to happen. But we've got to recognize that we're operating in a very challenged jurisdiction where it could, therefore, be unpredictable. But my strong belief is that Zimbabwe is much more stable and much more sort of rational than certainly several other sub-Saharan African jurisdictions.

Okay. That makes sense. I mean, if I can ask one final thing. It is -- I mean, it sounds, I mean, are the Zimbabwean government themselves, are they keen to say go ahead? I mean, it's [indiscernible] supportive and they want [indiscernible] things.

Absolutely. Yes. They are very keen to see this project come to fruition for all the obvious reasons, more employment, more taxes, more -- everything. And the Caledonia has got very good standing in country because we've delivered -- it's quite substantial growth over the last 7 years or so. In a way -- and they also recognize that in our own small way, we're a living-breathing demonstration to people on this call that Zimbabwe is an investable jurisdiction. They get a lot of -- they drive a lot of value, the comfort from that. So government is very, very keen to see this transaction proceed. And we spent a lot of time over the recent years. to make sure they understand our strategy and they support our strategy. So normally, the conversations we have with government now about selling or [indiscernible] None of this is new. Not of us is new at all. We've raised this some multiple times in recent years with the Minister of Mines, the President or anybody that's relevant doing this.

Mark. Yes, that's all I've got for. I mean, thank you for doing such a good job over the last few years as well, really impressive. So I hope it keeps going.

Mark, there was just a question about the $75 million royalty cap, which maybe we need to give a little bit more clarity on. Baker Steel gets 1% royalty on 2 million ounces of reserves at an 83% recovery. So that's -- on a 1% of that at $1,700 gold is about $28 million over the entire life of the product over 10 years. So if you discount that back on an NPV basis, we did the sums quite carefully, and we were comfortable that it represented roughly equivalent value to the dilution that we would have had to take and where we do buy their share with equity. So gold price has doubled to over $4,000. Then we'll probably end up hitting close to the cap of that royalty, in which case, we'll be happy to pay it at $4,000 gold.

The only reason for the cap being in place is if we didn't have a cap, the transaction would, therefore, theoretically have an unlimited consideration, which then means under the AIM rules, we would have to qualify if it would then be a risk takeover, and we would have to seek a relisting in London, which will cost an arm and a leg in terms of advisory fees and stuff. So the way you stop -- the way you cut yourself off from going down that rabbit hole is to put in place a cap on consideration. It's fair to say Baker Steel believe that there is at least another 2.5 million ounces in the ground, and it's also fair to say, I think that really build the balls. And so hence, they look for the upside in terms of what they could possibly get from the royalty. But Maurice is right. We -- when we went into this transaction, we offered all the shareholder, all the vendors, Caledonia equity. Baker Steel said they want to take 50% of theirs in a royalty, and so that we back-solved it to make sure that the reasonable scenario, the value that we're giving up in terms of royalty, was broadly the same as the dilutive effect of the shares that we now issue.

There is one more question in here. Do you know if the future new block of shareholders have a common vision of where they want or don't want to go in Caledonia?

They absolutely do not have a common vision. But they are not -- if the question is, are they a concert-party who are sitting at 28.5%? Absolutely not. So we -- from our interactions with the 3 investors, we know that they have somewhat different views as to what they want to do with their shareholdings. And it's not for me to discuss that publicly, but I'm very clear in my mind that they're not a sort of sleeping concert party with a 28% springboard to make a bid for the company.

Howard still has his hand up. I don't know if he's got another question.

I have no others.

Okay. I think that's it.

I mean, there is a raise hand from Clyde.

Let's unmute that. Are you up?

Can you hear me okay?

Yes.

Well, it wasn't there another way you could have cut this deal, perhaps investing directly into the project as a JV and reducing the existing holders in the project's percentage in it rather than giving them shares in Caledonia?

Two problems with that. The first is when we had to reduce our shareholding in Blanket to 49%, we're absolutely can't because ostensibly, we have no control over the -- people believe in, we lost control over Blanket. So ending up in a minority position was not comfortable. But if you do the maths, if you do the maths, if you do go down the route you've suggested, if you effectively you want to get 100%, you've effectively got to pay people to buy them out of an asset to which you've added value with your money. So I'm afraid that doesn't work. We weren't prepared to consider that. As we said, we recognize the dilution, the dilutive effect of issuing equity to buy the asset. But the -- in the round, once you take account of the shared issue to buy it, any shares, we may issue no shares to fund the building. There is still a substantial increase in net present value per share and free cash flow per share. So that's the approach we've adopted.

And also, that option wasn't on the table from a sense without disclosing the negotiations. They wanted to sell rather than to have someone invest in their company to co-invest in that business. So it wasn't really an option that was available to us, Mark.

No, it wasn't. It's not something we would have considered. And they are presumably looking in due course for a sort of liquidity event with Caledonia shares. So Clyde, that's not something we would have considered even had it been available. Are we done? Last call? Clyde, please share your question.

I've got a follow up to that -- to your answer then. If they were motivated sellers of Bilboes and not all of them are that keen to hold on to Caledonia stock, would it not have been better just to raise the money with investors in Caledonia and make cash at a lower price...

A cash fee would have been -- it would have been unaffordable. They were not prepared to accept the same price in cash as they preferred to acceptance sort of see-through value of shares. Would not have been -- I mean, I think previously, this deal has been through many iterations from the vendor's perspective. And I believe they were looking at a much higher price for cash or something like cash. We could never match that.

Okay. But if you look at M&A transactions historically in this industry, cash is always at a lower valuation than equity M&As. Yours has gone the other way around.

They weren't -- frankly, they were not prepared to accept. So we've offered for $53 million. They would not have taken $53 million in cash. I doubt they would have taken $100 million in cash. It just wasn't an option available. We trust to raise $100 million in cash, you don't issue shares in share price. You actually share the discount to share price. It would have -- the dilution would have been excruciating. It just wasn't a realistic option.

Okay.

Okay. Well, thank you very much for attending. Thank you for your questions. If anybody has got any further questions, feel free to send an e-mail to either me or Camilla. We'll do our best to accommodate you. Thank you very much for joining us.

Thank you, everyone.

Well, thank you. Very good.