Hello, and welcome to Caledonia mining results for quarter ended June 30, 2020. My name is Julie, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Chief Executive, Steve Curtis, to begin today's conference. Thank you.

Thank you very much, and welcome, everybody, who has joined this call. And it is our second quarter as our hosts mentioned, second quarter 2020 results. And we're very happy to release these and have an opportunity to discuss this with you. The presentation is on our website. So if you haven't had a chance to look at it, please go to that, if you'd like to follow. And I'm joined on the call today by Mark Learmonth, who is our Chief Financial Officer; Dana Roets, Chief Operations Officer; and Maurice Mason, who is in charge of Business Development and Investor Relations. So I'd like to just proceed immediately and just draw your attention to the disclaimer, as usual, and take that as read and understood. The prime and probably prominent thing that's on everybody's mind is COVID. And if you have read the results this morning, you will notice that the production for the quarter was very good. And it really does demonstrate and illustrate that the mine has managed the COVID pandemic exceptionally well, and it really has had very little to no effect on our operations. I'm very pleased to say that we are free of any COVID infections at this point in time. And we continue to practice the best standards of protection and isolation and distancing that needs to be done. So yes, COVID has had very little effect on our operation. Mark will discuss costs a little bit later, and he will tell you that we have spent some money on COVID, but that's a positive, not a negative. So really, with no further review, what I'd like to do is ask Dana to take us into some of the aspects of operations, and let's take it on a couple of slides in the presentation. So let me hand over to Dana. Dana, you there? Dana?

Sorry, I'm back, I was on mute.

Okay. All right.

Review of Operations, Slide 7. We started the year very well in quarter 1. And end of quarter 1 going into quarter 2, we had the lockdown with the coronavirus. We're very lucky that we weren't severely affected by the coronavirus. And after a slow start during lockdown, we picked up, and we ended the quarter strong. And the grade was slightly down, below target. But we saw a 6% increase quarter-on-quarter comparable with last year. And in half year, we're actually up 12% if you compare 2019 to 2020. So overall, the outlook that we started putting in last year, the second half of 2019 continued into 2020 and the team is focused, and we saw that in the production. Production is still expected to increase to 80,000 ounces from 2022 onwards. And the tonnes milled also improved on quarter 2 due to, as I said, the Nyanzvi initiatives. What we also have done, we install the oxygen plant, and we saw great improvements as far as the recovery is concerned. We're closing now to 94%. Last year, we're hovering just above 93%. If we go to Slide 8 then, COVID-19. Back to you, Steve.

Thank you, Dana. So as you can see, as Dana has told us, operations are going well. We are sticking to the basics and the operation is moving towards being able to finish the Central Shaft with the equipping that's taking place during this year. There has been some interruption in terms of getting some highly qualified and specialist contractors up to the mine, but that's part of travel restrictions and that hopefully will be short-lived and then the program will go back to normal. The program is continuing all of this time and has continued the whole way through the lockdown. And we look forward to the finalization of the equipping of the Central Shaft. I've got nothing more to say on COVID. It is spoken about quite extensively on Page 8. So I think let's get into the [ guts ] of the conversation, and that's about the financials. And I'll hand over to Mark to do that.

Thanks, Steve. Okay. Turning to Page 10. What you see here is just a little sort of summary information on the results. So gold production for the quarter was 13,500, up 6% better than the comparable quarter in quarter 2. The number that really sticks out here, the on-mine cost per ounce, which increased from $534 an ounce in quarter 2 of 2019 to $811 in quarter 2 of 2020. I want to come back and talk about that in quite some detail because the last thing I wanted people to leave the discussion thinking that cost are under control. But the headline is that the second quarter of 2019, that $534 was -- is artificially known as various factors, and the quarter gets finished with artificially high for various factors. But I'll explain that in more detail and that really plays to --into the all of the pending cost per ounce. Average gold price, as you know, the gold price is high. So we benefited by that [ dollar amount ] in terms of realized gold price. Gross profit, that's a good number. That’s gone up from $7 million to $9 million. That really does reflect the strong performance of the business. Net profit attributable to shareholders, $23 million in quarter 2 of 2019 and $5 million this quarter ending, don’t forget. Please don’t forget that $23.3 million in the second quarter 2019 increased about $20 million of unrealized foreign exchange gain due to the rapid devaluation of the Zimbabwe dollar last year. So really, if you're looking at profitability, the meaningful number is the adjusted earnings per share, which increased from about [ $0.24 ], up to [ $0.36 ], so approximately 50% increase there. And that really does reflect the underlying performance of the business. The adjusted…

Thank you, Mark. Thank you very much. And as we said right upfront, a great set of results. We're operating in a good sector. We've got a good gold price. And the message coming out is that the mine is still operating at a level that will generate sufficient cash flow to enable us to complete the Central Shaft project, which is what we've been doing for the last 5 years. So that message, I hope, is clear to everybody. Mark has spoken about dividends, but let me just elaborate a little bit on the solar project. We have got final Board approval to embark on the construction of a solar project that will give us the ability to provide the baseload during daylight hours to Blanket. And this is a strategic decision to protect Blanket from erratic and sort of substandard quality power. We do get the majority of our power from Zimbabwe grid. But as we have known in the past, the grid is old, and it has some problems. And the whole southern African region is short of power. South Africa is short in its own right, and Zimbabwe does purchase power from South Africa. So although COVID has depressed economic activities in the whole region, we know that will reverse and the demand for power will become higher and higher. Therefore, our decision to embark on a solar project. We'll start off with initial 12 megawatts. And as I said, that will give us the baseload for the whole operation. Ultimately, we could add to that, but that will mean establishing other arrangements to sell excess power into the national grid, and we'll get there if that's appropriate. We're not going batteries for the night time and just from a cost perspective, so effectively, we will…

[Operator Instructions] The first question is coming from the line of [ Nir Venda Halom ] from -- who is a private investor.

And as a very long term or long time shareholder, I’m very, very pleased with how you performed under difficult circumstances. And so to the whole team, thank you very much. I've got 4 questions, if that's okay. First one is -- most of them are technical in nature. For the first one is that for Mark. You mentioned that about $300,000 was spent on this quarter for genset power, up 2%, the way I calculated it. Do you expect that to increase? What's your outlook going forward in terms of that until such time as obviously it will reduce with the solar power? That’s the first of it.

Okay. [ Shareholder Nir Venda Halom ], so I'll answer this one and then you can do the other 3 questions. We can't project how much we'll use the gensets. Because we just simply have to react to the situation as it unfolds. And the reason -- one of the main reason why we embarked on [ some ] wasn't just because it's a good economic return, but it's to protect us from a situation whereby there's a complete failure in the grid for whatever reason that we end up having to run the gensets all the time. And we -- theoretically, we could run the gensets all the time. But then you've got the difficulty of just procuring that much diesel in such a short time frame that it would become logistically very difficult. So we can't project how much diesel we will use. The solar project that we're putting in place on a normal 24-hour basis would provide about 27% of Blanket’s daily electricity requirement. And the balance will be made up between grid power and gensets, subject to the continuing availability of grid power. I’m afraid I can't give a better answer than that, I’m afraid.

Okay. No, that's fine. I mean in terms of, I guess, the CapEx, what percentage of the CapEx roughly is in development, in a ramping down, declining? And do you have a ballpark figure for cost per meter of development, final development?

Probably, Dana is best place to answer that. Dana, if you could?

Our capital or our development is very strong. On the development, which is about $600 per meter, then you get to trade development, that's about close to $1,000. And then we've got our decline developments, which we do with trackless equipment, which is about $1,500 per meter. Yes, percentage wise, we're going to do about roughly going forward, 400 meters a month of development. So [ it turns to all ] that's about 5 pillars. So -- and that's [ 5,000 tonnes a thousand ]. Let’s say, 5 million of development. And I would say that, going forward, that's not all the -- our capital.

Okay. No, that's really helpful. And so that kind of leads into my next question. My understanding, looking at the 43-101 and historical production, is that your -- you had a very big bonanza really in AR. I think it's the AR Main orebody. And my understanding was that AR Main orebody quite a wide orebody. But I'm just curious to know, going forward, as you ramp up to 80,000 ounces, what kind of mining methods are you going to be using? You’re using trackless machines. But I know some of the other orebodies in the region, and I guess some of historical orebodies are a lot narrow. Have you got a rough split in terms of what's going to be kind of trackless? Or are you going to go into conventional shrinkage start/stop? Can you give us a little bit of color on that?

Yes. We've got our wide orebodies is AR Main and AR South, where AR South is the main producer at a higher grade. Now -- but going forward, I would say, within the next 5 years, Blanket orebody is where the bulk of the production is going to come from. And that's a thinner orebody. So the trackless mining stays at AR Main and AR South. And then when you look at Blanket, we're going back conventional. There are some areas where we might do some long-haul stoping. But again, it's [ handheld ] conventional long-haul [ S26 ] machines. So going forward, it's going to be a hybrid with more back to conventional mining. Eroica, there are -- might be some opportunities there to do some trackless mining as well, but it's mining itself.

Okay. And then my last question is, obviously, you're not sure when you're going to have contractors back up there in that site, assuming you could get the contractors back up there in say the next month or so, I would imagine, what was your projected target base for commissioning the shaft?

We still -- it looks like we can still finish the shaft really late in the fourth quarter. And then that's with the current delay. So if we can get the contractors back there now, we definitely finished within the throughput or commissioning the shaft.

Okay. And once again, congratulations to the team. Very, very happy on how you got it done. Well done.

And the next question is coming from the line of Howard Flinker from Flinker & Co. Howard Flinker;Flinker & Co.;Analyst: I have a few questions. One, are those expenses of 500,000 and 870,000 pretax or post tax?

Pretax. Howard Flinker;Flinker & Co.;Analyst: Pretax. The second, Mark, you broke up when you were discussing the 11.5 million of expense compared to about 7.5 million, did you -- did I hear correctly that you think about 1.25 million or $1.5 million of that can be reduced?

Let’s go back to, [ what’s that ]? So you're talking about the production cost being, what, 7.5 million in quarter 2 last year and this year, it was 11.4 million. What I'm saying is that about 1.6 million is accounted for by electricity, which is going to stay there. So yes, yes, say that again, so the thing -- the cost that, we think, we called out would be the costs of the -- maintaining the trackless equipment, that's about $870,000 and including all of the --- with the COVID costs to the extent COVID disappears eventually, you would hope that those costs wouldn't occur. So gensets, we're still going to have the need for the genset going forward, so I wouldn't say genset will disappear completely. So I thought, yes, say, 900 million to about 1.4 million shouldn't be recurring. Howard Flinker;Flinker & Co.;Analyst: Okay. When the current medical crisis ends, of course, not necessarily this afternoon.

Yes. Not [ this quarter ]. Howard Flinker;Flinker & Co.;Analyst: Additionally, have you completed your sale at the market? Or is there still some to go?

No, it's still ongoing? Howard Flinker;Flinker & Co.;Analyst: It is. All right. And I had -- and the final question relates to taxes. Did I understand that your taxes will continue at the current rate? Or because of the shift between tax credits and payment of taxes, it will balance out at somewhat lower rate than the current 35%.

No, I still think it will continue at approximately 35% because we still -- the tax in Zimbabwe is a combination of income tax and deferred tax, which more or less should balance out at approximately 25%. So all that's going to happen is when we stop investing quite heavily, we’ll be paying more income tax and the deferred tax, but we'll still incur tax leakage on the movement of funds out of Zimbabwe, so withholding tax on dividend payments. And actually, that would probably go up because as we start to make more money and start to distribute more money out of Zimbabwe, clearly we'll be paying more withholding tax on the dividend distribution of Zimbabwe up to the U.K. and also continue to incur income tax in South Africa on the intercompany profits arising from the group procurement activity. So structurally, -- well, yes, because we continue to procure in South Africa. So one of the -- that's one of the... Howard Flinker;Flinker & Co.;Analyst: I thought those profits would be sent to Jersey or [ Guernsey ] instead of...

No. No. [ Because the ] people actually do the procurement, live and work in Johannesburg they need to. They need to be able to [ pop ] down the road the [ box burden ] and look at a bit of [ kit ]. So we can't really do that with some area. So structurally, we are going to continue to incur an overall tax rate that is higher than the basic rate of tax because of the cost of using money around and also because of the tax leakage arising in South Africa. There's nothing we can do about that. Howard Flinker;Flinker & Co.;Analyst: There is one more question. Related to those $870,000 of maintenance expense, I wasn't clear why that arose. Is that continuous? Or is that extra expenses just to keep the equipment operational when you're not actually using it?

No. It's because we bought -- we conditioned a second-hand equipment. Dana is probably the best place to talk about that. And Dana, do you want to talk about the cost of maintenance, please?

Yes. What happened was we -- from the start, we bought refurbish equipment because that's what we could afford at that stage. And we actually worked our equipment quite hard. We started with the tracking equipment in 2015. So the only equipment has been operating for 5 years, and we came to a point where 2018 was very rough in getting parts and with the end of 2018, getting past to the mine and then the Zim dollar came in and third, we got 35% of our currency in dollars. And we struggled to get parts. And that improved during 2019. And lately, that's improved even more. But with that, we started to get enough spare parts, critical spares and new equipment into the country. Unfortunately, our old fleet deteriorated quite dramatically and being lockdown happened and we really struggled to get technicians and parts into the country. Because what happened was end of 2019, we've got a South African maintenance contractor in come and help us because we also lost a couple of our maintenance people to Vietnam. That's when it was really bad and you couldn’t put payout people in the U.S. dollar. So we lost a couple of those. And of the skills, we've got people in from South Africa, then unfortunately lockdown happened, and we couldn't get into the mine. So with all of that, our trackless equipment went into a very bad patch, and we had to catch up on that. So I would say, we probably saw a spike in those costs, and we're busy catching up and that should come down again. And we should become more efficient... Howard Flinker;Flinker & Co.;Analyst: So they're not continuous. It's not 870,000 every quarter.

No. And can I also make a point, we actually started a program of replacing the clocked out, old equipment with brand new equipment. So -- and that should also reduce the maintenance cost as well. Howard Flinker;Flinker & Co.;Analyst: Has the lockdown in South Africa continued, or has it ended?

Currently, yes, it is continuing, but we are anticipating an announcement any day now from the President as to -- and a potential relaxation. We seem to have turned a corner in some provinces. And we -- as I say, we're expecting to see if there is going to be a relaxation. But apart from highly skilled technical people, the supply chains are working perfectly all right. And although the travel restrictions make it difficult, it is not impossible to get people up to the bank. We did get some additional people for the Central Shaft up there a month or so ago. And we work with the authorities through the mines -- the Ministry of Mines and the Ministry of Health, and we get specific [ dispensation ] to get people up. It just takes much longer than buying an air ticket and just jumping on an airplane. But it will be doable. And we're getting a lot of cooperation from the authorities to help us get the right people at the right place.

[Operator Instructions] As of right now, there are no further questions in the queue.

Well, then, Judy, let me wrap up and just thank everybody for joining the call today. And I hope you've been able to get the information that you needed. It's very encouraging to see that this is the largest number of participants that we've had on one of these calls. And thank you from us and the team for you participating. And let's hopefully keep on watching the success of Caledonia. And we will continue to deliver. And as Dana says, the target is still to get the Central Shaft complete, and then we'll do the ramp-up. And the story will continue. So thank you once again. Thank you to the team for joining the call, and thank you to everybody who dialed in, and I just wish you good health and stay safe, everybody. Bye-bye now.

Thank you, everyone, for joining us on today's call. You may now disconnect your handsets. Host, please [ be connected ].