Caledonia Mining Corporation Plc
Q4 2018 Earnings Call Transcript

Published: 26 Mar 2019

[Operator:]

Hello and welcome to the Caledonia Mining Full Year Results. My name is Shawn and I’ll be your coordinator for today’s event. Please note, that this call is being recorded. For the duration of the duration of the call your lines will be on listen-only. [Operator instructions] I will now hand you over to your host, Steve Curtis, CEO, to begin today’s conference. Thank you.

[Steve Curtis:]

Thank you very much, indeed and thank you to all those who are listening, for joining this call and welcome to our 2018 results presentation. I’m going to be talking to the presentation that is loaded up on our website and it’s quite a comprehensive documents. And I’m going to assume that the fact you have taken the time to join the call, you may well have looked at that. So I’m not going to go in absolute page by page turning, but I’d like to focus on what I think of the critical areas and should be of interest to you, both the positive and the negative and unfortunately there are some negatives. But I will keep it focus on the areas that I trust will help you understand the business and the business environment. I'm joined on the call by the management team. That includes Mark Learmonth, CFO; Dana Roets, the COO; and Maurice Mason who looks after our Investor Relations. So welcome once again and let’s proceed into the call. Obviously, I'd like to just draw your attention to the disclaimer, which is an important document and that I will take again as read. So I'm now flicking over to what is page four, which is titled Strategy. And I’d just like to highlight some of the key areas that we have dealt with through the year, and will be top of mind for us as we go forward. In the announcement, we highlighted again that our focus in terms of the Central Shaft project is for us to achieve a production run rate and a production target of 80,000 ounces. And we've indicated that we will hit an annual rate of 80,000 ounces in the year 2022, with initially guided that this would be 2021. And for some of the reasons that I will explain to you in this presentation we're only going to -- we believe that our target now for 2021 is 75,000 ounces. So just marginally off that, but we’re still at very good shape considering we've been at this project since the end of 2014, and we're very proud of that. We are significantly advanced on the project. We have got 50 meters still to go on sinking the shaft until it reaches its bottom and the loading areas and shaft bottom is achieved. And that sinking will be completed towards the middle of this year. And then the shaft equipping will start. And that's a 12 month exercise in its own right, and that will then bring us to the commissioning phase of the shaft, which will be sort of mid-2020. So that's in a short-term horizon, a very short period considering where we've come to. And just to remind you that deals with the actual shaft, the shaft equipping all the infrastructure that we need to run and operate the shaft in terms of wind [ph] those electrics, those are all in place and waiting to go. And what we will have to do is replace the sinking head year with the operational hit year, and that will be part of the final equipping stage. So we're at a very, very exciting period in this project. But let's not get ourselves, there's still a lot of work to be done. And importantly, there still quite a lot of money to be spent. And we will again be spending roughly $20 million odd in the 2019 year, which is the sort of the medium term focus I am talking about now. And thereafter, the heavy capital expenditure should start declining and the production will ramp up, as I say to 75,000 ounces in 2021 and there should be the commensurate increase in free cash flow, which we will all very much look forward to the benefits thereof. In the longer term that sort of looking past the 2022 period when we are embedded in the 80,000 ounce arena, our focus would be looking at the utilization of that free cash flow. And we will obviously be reviewing our dividend policy. Considering that we've achieved the milestone and that will be an important period for Caledonia as an entity. We will obviously also continue as we are doing at the moment evaluating other investment opportunities. And we are currently looking very significantly in Zimbabwe, because we believe it is a very much ignored gold area of the world. For all the reasons that we are familiar with it is absolutely lacked investment for the last 20 or 30 years. And we pride ourselves as being a good corporate citizen; we understand how to operate in the region. We've got expertise on the ground in country and we've got expertise in South Africa that has been actively involved in the Central Shaft project. And we will continue to look for opportunities in Zimbabwe. And we see Zimbabwe is a very, very exciting area for us to go and develop into. We will be looking at brownfields operations, not greenfields. So a relatively short turnaround time we would trust, and we've got fairly significant and critical criteria, against which we evaluate projects as they are presented to us. And we're looking at projects that should have a minimum resource -- target resource of about 1 million ounces and a production profile of about 50,000 ounces per annum, which has the potential to ramp up. So those are very important for us from an operational point of view. But then from a finance criteria, we are using shareholders’ money, if it number one, passes our hurdle rate this management team and then satisfies the Board that these are considered -- potentially considered to be good investment opportunities. They need to be NPV per share enhancing and they need to be dividend per share enhancing in the short to medium term. Because again, it's shareholder money and if we can't do something better with the money then just return it to shareholders, then that is obviously a very significant consideration. So let me emphasize again, anything we embark upon would need to be NPV per share enhancing and dividend per share enhancing before we would consider spending shareholder money. I'm not going to go into page five, which is just the overall picture of Zimbabwe that's probably quite familiar to many of you. Again, page six the strategy just lays out in the top left hand corner, what the Central Shaft project looks like. And let me just remind people, we're stopping the shaft at a level of 1,200 odd meters, 1204 meters, we will be developing three new horizontal development areas into the ore bodies and gaining access into the mineralized areas below 750 meters. And then in time, we will develop the fourth operating level, which was part of an extended plan. And we will do that via declines. That will be at an appropriate time, but the first three operating levels will enable us to achieve our target of 80,000 ounces and will significantly improve the efficiencies of the Blanket mine. Let's just remember that as I said, the shaft will be commissioned by mid-2020. And obviously with a project of this nature, the implementation of the use of that will be phased in as operators, as staff, as management get used to the new equipment and the safety procedures that we will need to apply to that project all come into play. So from 2020 you're not going to just see this rapid ramp up, you're going to see a very managed use of that shaft as we gained confidence and move towards our target of hitting the much higher ounces in 2021 and 2022. There is -- for those who understand geology, there's a 3D view, which doesn't quite do itself justice on a blank piece of paper, but we have very sophisticated and significant access to 3D digital models of the ore bodies. And that gives us a lot of confidence as we do the life of mine plan and develop how we are going to access ore bodies as we go deeper and deeper into this mine. Let's just talk about 2018 for a period, that is where we've come from, and it's been a tough year, we only achieved a production rate of 54,500 ounces, which is slightly down on 2017. And I say only, but I shouldn't ignore the fact that this is a very significant achievement. Considering that there is a major project of the nature of Central Shaft carrying on at the same time. And remembering that the gold production mine is actually generating all the cash that we need to invest in this project. So the gold production is very important towards us -- to us and it is it is a very good achievement. Safety always is top of mind and we have announced, unfortunately that we did have two fatalities during this year. And that forced us into re-looking some of our processes and procedures. And we have got some very exciting initiatives taking place on the mine. Remembering that we've had a growth in our number of staff on the mine over the last couple of years, whereby, we've taken on a number of additional people probably in the hundreds to deal with the fact that production is going to ramp up and we've taken him on to ensure that safety protocols are taught to all the workers. But we have put some very specific programs in place and under Dana Roets and his people and consultants they have got some very, very important and I think groundbreaking processes going -- ongoing in Zimbabwe at the Blanket mine. There is a very, very good project called the Nyanzvi initiative, which is a behavioral change initiative, which is fundamental to the go forward position for Blanket. And we as management visitors on a very regular basis and I can tell you it is a game changer. And we've managed to put about 45% to 50% of our staff through that project so far. And that will be a focus for 2019 and we will have all of our staff having been exposed to the principles of the project. And we trust and we really hope that this will improve our safety culture. And the incidents will be decreasing on a representative basis. We can't get away from the fact that our gold production this year was adversely affected by lower grade and the lower grade is not so driven by geology. We're confident that our geological model is sound, but we have got a change in the nature of some of the ore bodies as we go deeper. And remembering that Blanket is made up of a number of near vertical ore bodies, we mine in across a 3 kilometer area, but we are in distinct and different ore mineralized areas, and some of those are changing as we go deeper. We are adopting a long haul stoping method in some of the narrower reefs, which is new for Blanket, and that decision was taken from a safety perspective. And that is fully supported by management and the Board. But obviously it comes with the consequences of potential increased dilution and we did suffer from some of that. And again, staff have been retrained aggressively to understand the disciplines that have to be attached to long haul stoping in narrower reef areas. And I'm very pleased to say that the evidence of the retraining and the absolute focus is really beginning to reap the benefits. So that add to that discipline will not stop at all it will be an ongoing exercise. And because that's the nature of the bodies that we are mining and we will just have to get better and better at that. But lower grade due to dilution was one of the contributing factors at the mine and the result was 54,500 ounces. On the positive side to that Blanket had a record tonnage throughput, which obviously means that we handled and we processed more ore than we have in the past. And therefore costs are affected negatively when you don't get the requisite grade. But at the end of the day, the fact that we are going into a period of being a higher volume miner, the fact that we can still achieve record production tons out of the infrastructure that has not been augmented by the Central Shaft is a commendable effort for the people on the Blanket mine. And we trust that once this dilution matter has been resolved and attended to and managed on an ongoing basis. The benefit of higher volumes with an improving grade will obviously result in an uptick in the gold ounces. Zimbabwe is a struggling environment in terms of some of its infrastructure. And one of the most significant for us is the electricity supply. And it's not so much the quantity of electricity because we have an uninterrupted supply agreement with the energy provider, but it's more the quality of the power. And we have done just about everything that we can do in terms of putting in the necessary protection equipment, but we still suffer from spikes and troughs coming through the grid. And that has devastating effect on our equipment in the fact that we've sensitive equipment and it trips out as it's supposed to do. But when you trip out big pieces of machinery on a mine, like compressors, they need to go through a startup and they buildup pressure buildup period, and we just lose hours. So if it’s compresses or it's motors, we have suffered from a from a severe disruption. And I'm afraid to say, we can't see that improving to a great extent until two things happen, Zimbabwe either fixes the grid and fixes all of its infrastructure, which we trust will happen in a period of time. But that's not going to be in the short-term. There are many things that they need to attend to, or we make ourselves more self-sufficient in terms of being able to go off-grid to a greater extent, at a cost effective -- in a cost effective manner. We do have standby diesel generators, which could run the mine above and below ground, but that come at an enormous costs and they are not designed to be triggered in for short-term bursts of spikes and troughs in the incoming electricity feed. So, going off-grid is something that we will continue to look at and solar projects are obviously the logical arena for us to look at. Gwanda where we based is blessed with a climate that is just man made for solar. So you we would, we would continue to look at that very, very seriously. It is expensive, but it has enormous opportunity costs by putting it in and being able to run the mine efficiently. The economy in itself is struggling still, although there has been a change of government, the euphoria I would say about how things could progress is slower out of the starting blocks than I think many people would have liked, but let me not be negative about that. I do believe that the new government is making significant changes in the right direction. But there are many things that they need to do, and it all comes down to money. And the availability and the quantity of foreign currency that the country needs to put itself back on its feet and to encourage investors to bring their money into the country, those processes do take some time. So there have been interruptions and frustrations in terms of the availability of foreign currency for people like ourselves. The fact that we are advancing the project and that we can continue to operate the mine by consumables, by capital equipment for the shaft project, continuing to pay dividends is evidence that it is possible to manage through a very difficult situation in Zimbabwe without absolute free access to all the foreign currency that you would need. But it is very hard, and we have to work very closely with the regulators and the authorities there to make sure that our business is managed in a way that is matching to the economic environment that we're in. But we've had some significant movements from the authorities, the Reserve Bank and the Ministry of Finance, where they have recognized some of the disciplines they have to implement themselves, which are painful for a country. They are moving in the right direction and we are just now at a stage with where we have a currency environment where there is a local currency, which is now tradable and there is a free market whereby the local Zimbabwe currency can be traded in an organized market for us to be able to buy dollars or sell dollars, U.S. dollars I am talking about. The market is very thin at the moment, is very new. We do trust that the right direction that the authorities have put in place and it comes down to confidence. And we would like to see more people participating in that market. And for the exchange rate level to find its right equilibrium. And since the introduction, the exchange rate has moved in the right direction. There is an informal market, where there is a quoted or a spoken about rate it is not where we operate. But we do see a narrowing of the gap between the informal market and the formal market. So we do believe that the right structures have been put in place and we will continue to engage very, very actively with the authorities, so that Blanket get access to sufficient foreign currency, so that it can continue to grow this mine. And most importantly, finish this project and continue to pay the dividend that Caledonia is very, very proud of. We have a slide on page nine which deals with the safety and it gives you some visual representation of safety record, it also just talks a little bit more about the Nyanzvi Initiative that I spoke about. So I'll leave you to look at that at your own leisure. There is also a graphic representation of what I was talking about the low grade and the new long haul stoping in narrow veined areas, which tries to explain a new mining method that is being implemented at Blanket mine. For those who don't know some of the areas of Blanket mine, we had stopes that were 15, 20, 25 meters wide and long haul stoping in those areas was a no brainer. We've now got areas in other ore bodies, which are very, very much narrower, 2, 3, 4 meters and obviously disciplines are different. But the skills that we have at the mine and the skills we've got available to us to train up the miners does I think prepare us for the way forward. So I'm confident that we will overcome the challenges that we currently have. And remembering we've got a very experienced management team under Dana Roets, who have been through this sort of challenges before and you've got a very receptive well educated workforce in Zimbabwe, who will be trainable and who will learn and we will move forward appropriately. There's a slide that deals with more on the electricity side, it is fundamental to the business and it is top of mind of all of us and the country to be honest. And we will continue to work very, very hard and aggressively with the authorities to make this a smaller problem for the mine as possible. There is a good explanation about the sort of the financial regulatory environment on page 13. And there are significant dates before October 2018, after October 2018 and February 2019. And probably the most significant thing that did happen to us in February 2019 was the export incentive credits that we were receiving when we delivered and sold gold to the government refinery. That was removed when the interbank market, which had the free flow market trading of the local currency dollar and the U.S. dollar when that was put in place the export credits incentive was removed and that we made an announcement on that, but that was worth a good $5 million to Blanket on an annual basis. That was in local currency, but it was still very useful for us to be able to pay wages and electricity and it was $5 million of the profit line. Obviously that was disappointing for us, but understandable because it was put in place to compensate businesses for the fact that maybe the local currency was not as competitive as the U.S. dollar currency, which was in very short supply. It is -- we're now back to being paid the London gold price and that is reality. And we need to run our business appropriately to deal with that. So we do what we can do to protect ourselves against a falling gold price. And what we can do there is make sure we're as efficient and as lower cost producer as possible and when necessary and the opportunities presented to us. We do put in some sort of financial hedging to protect us from a downside, especially when we have this large capital commitment for self-funded project. And we have got the we've got the necessary protections in at the moment and those have been adequately explained to in the MD&A and if you are interested in that I would suggest you go and have a look at them in detail. The page 14 again deals with currency. There is no life without money. And people need to really understand what the currency environment is like in Zimbabwe. But again, I must draw your attention to the fact that it has been challenging for many years. We're in a position today where we get 55% of our gold revenues in hard U.S. dollar currency, which is very much better than where we were in previous periods and even as early as 2017, early 2018. So this 55% that we have under our control is a very good place to be. The balance of the RTGS local currency funds is what we used to be paid 100% in. But those funds are now reflecting a more realistic purchasing power. And we can still use them to pay our workers, to pay our electricity bills, to pay our taxes. So it is a real currency in the environment in which we operate. But for people who are not familiar with it, I draw your attention to these pages it well worth spending some time and just trying to understand the environment in which we operate. At a governmental level, we've got a slide on 15 was just explained some of the important aspects that this government is attending to. They are committed and they have committed themselves to being open for business. They have committed that they would like to reengage with the international financial community. But for them to be able to do that there are certain areas of attention that they have been drawn towards by funders, countries, and page 15 just deals with that. But I can tell you for myself and my team who operate there on a regular basis, the moves being made are all in the right direction. Yes, they may be considered to be slow for some people, but we are definitely heading in the right direction and that is most encouraging. The next few pages deal more with the operational side. And I think I've probably covered -- I've covered that with a lot of words. You've now got some graphics that deal with the tons and the grade and it shows how we are tracking on that. It gives you some information about the forward looking position of our resources, where we've got measured and indicated running at a grade of about 3.7 in our latest resource statement. And we've got inferred above 4 grams a ton. And we therefore are confidence that the grade that we have run at in 2018 which is indicated on page 18, a recovered grade of sort of 3.2, 3.12. We are confident that that is going to be improved on and that would then results with higher tonnages, higher grade a move up in the gold production. And at the moment please remember we are constrained by the fact that we can only operate out of the number 4 shaft, which has got a limited hoisting capacity and it can -- and it is doing waste and reef at the moment. And therefore we are constrained. So when we do access to the central shaft, we will be in a very much better position to be able to ramp up the amount of material that we bring out in terms of reef. And once we get up our disciplines right around drilling and dilution control, we will see the uplift in that grade. One of the reasons and I felt to focus on and one of the reasons that the actual production uplift to 80,000 ounces is now in 2022 is really a factor of the amount of development that we need to do. We're going to have three operating levels when we’ve got the shaft complete, but you obviously have to open up the mining areas. And again as a function of the environment we’re operating in breakdown, electricity cuts, lack of foreign currency. We’ve had to balance time and resources to mining now, developing for future. And we’re probably a little bit behind in some of the development, but it is very, very high focus area. And that is one of the consequences or the slowdown in the ramp up is one of the consequences of some of the development not being exactly where we would have wanted it to be. But we know the grade is there, we know the gold is there, we know we've got mineralization. And that's well represented on page 19, which just shows what the deep drilling and the exploration drilling has achieved over the last seven years at Blanket. We have had an annual uplift in the resources that we have announced out of the mine. And we are sitting as from our last resource statement in 2018 at a very comfortable position with about 1.6 million ounces in reserves and resources and including inferred of course and that is a very comforting place to be remembering Blanket is being running for over 110 years and it's never had resources anywhere near the size that it’s got today. And we now working around the life of mine that goes into 2030, 2034 and we continue to do further exploration and it's very encouraging to see that there is continuation. I'm now at page 21, which has got some financial results. So I'm going to hand over to Mark and ask him to run us through what he considers to be the most critical points that he'd like to draw your attention too.

[Mark Learmonth:]

Thank you, Steve. Let’s start with the profit and loss account on page 22. The production costs increased from about $36 million to $39 million, that's a 9% increase. And that looks quite alarming. It's worth noting that the adverse effect of lower grade was a significant contributor to that. And typically when you get lower grade you also get a lower recovery. So if you were to look at those production costs on a cost per ton basis, the increase isn’t 9%, it’s about 4%. And the increase on a cost per ton basis is largely due to things like higher -- some of the higher -- some of the consumable costs were slightly higher. So in particular, cyanide [going to explode] [ph]. And the cost of running the enlarged fleet of underground trackless equipment have also increased, because we're running more machines. Sort of a bizarre effect of the monetary changes in Zimbabwe was that in October, when they introduced the modification of the banking system between RTGS and FCA effectively that [indiscernible] the banking system didn't know how to cope with those, and so stopped working for a period of two weeks or so. And there's nothing to do that -- wasn’t to do with the availability of money, it's just that you couldn't process transactions. That meant that we were unable to place an order as we’ve planned to do for an underground -- a dump truck to operate underground. So we failed to place an order before the Christmas shut down in Johannesburg. And as a result of that, it meant that the LHD machines which are only designed to go very, very short distances, we're having to go much longer distances and is a very long way of explaining the cost of the inefficiency of the banking system, we ended up incurring very much higher fixed maintenance costs relating to wheel tire replacement for these LHDs, because they're traveling so much further on very sharp freshly blasted rock we were replacing these tires and they cost about $3,000 a piece. So little things like that tended to increase the cost per ton as we increase production to 80,000 ounces and reduced our reliance on trackless machinery and expect the -- and the grade obviously improves and recovery improves and expect those costs to fall back to normal level. On the cash flow, what looks to be quite significant is the cash generated from operating activities that's the first line in the table on page 23, looks to be much lower in 2018 than it was in previous years. So 2016 it’s $25 million, 2017 it was nearly $29 million, and 2018 it was just over $21 million that’s after working capital movements. And as we explained, in 2017 we benefited from a $2 million reduction in working capital, which obviously boosted cash flow whereas in 2018 that reversed and we had a $4.6 million increase in working capital, which obviously reduced our cash flow. And the main component of that was the amount that we have to pay to the electricity company. So in 2017 ordinarily we would have a 30 day payable which is about $700,000 or $800,000. For the course of 2017 that increased to about $6.5 million because the electricity company wanted payment offshore, we had no obligation to pay them offshore and the Reserve Bank wouldn't let us do it anyway And that reversed in 2018. So that largely explains the delta in cash from operating activities. Of them you still see the high CapEx spend nearly $20 million in 2016, $21 million in 2017 and $20 million in 2018, but the other significant factor on the cash flow is the proceeds of loans. So in 2016 we took out a $3 million loan facility in Zimbabwe. That was repaid in October 2018. And we renewed that with a new $6 million facility, which we didn't took about nine months to put that in place. And we drew that loan down just before Christmas. And we used it to effect some dividend payments from Zimbabwe out to PLC in Jersey so that when we have the effective devaluation of the RTGS dollar from a rate of 1 to 1 to 2.5 to 1 we were marginally in a net debt position in Zimbabwe, so that we didn't suffer any devaluation of cash while minimize the effect of the devaluation. So the only other thing I draw your attention to is on page 25 to some other things that Steve mentioned the export credits incentive, which earned us about $6 million, $6.5 million, $6.7 million in 2018 that disappeared in 2019. So we got about $1 million of benefit in 2019. It was nice to have it, but if we are perfectly prepared to accept the removal of the export credit incentive provided we move to a free and transparent exchange rate between RTGS dollars and U.S. dollars that as Steve has outlined we seem to be moving in that direction. So that's positive. We’ve put in -- we had a hedge in place in the course of 2018 we put further hedging arrangements in place early in 2019. The budgets -- the price that we use for our internal evaluations of cash generation and capital expenditure $1,200 an ounce. As we - production in the first part of the year -- first couple months of the year wasn't where we’d expected it to be, but the CapEx requirement is where we expected to be still $20 million. We took advantage of the higher gold price that we’d expected to put in place a hedge for production in February, March, April, May and June. We may extend that by a few months at the current gold price. But as we’ve moved towards the end of the year and the phasing of capital expenditure is somewhat lower in the second half of the year the first half of the year maybe that we don't need to repeat that exercise. So with that I mean that covers all of the -- that's all I really want to say in terms of the financials. I'll take if anyone has any questions when we get to it, I'd be happy to take any specific questions. And I guess really just leave Steve to talk to the medium and long-term outlook on page 27.

[Steve Curtis:]

Thanks, Mark. Yes -- and it's important that we look at the sort of brackets of time zones that are critical to Blanket at this point in time. The next 18 to 24 months when we finish and commission the shaft and we ramp up production. Crucial, because it will be the combination of a long exercise, it will prove that we have been successful in this very significant capital project. But most importantly, the capital expenditure will start to decline and the ramp up of free cash flow will move in a very positive direction. So, that's an exciting period for us to move into. Thereafter, sort of two years to four years on from here, as again declining CapEx, Blanket will be equipped really for the balance of the life of mine that we’ve got in terms of resources by this capital project, apart from the decline that we need to do at a point in time to establish the fourth level that's going to be very manageable expenditure. And again, it will be done out of the free cash flow, which will be growing to a significant amount. That will give us the opportunity, as I said earlier to review the dividend policy, and maybe other corporate activities like share buybacks depending on what we believe is appropriate, and the -- the share price at that point in time that we deploy shareholder funds that are becoming more and more available in the right direction for the right reasons. And thereafter, looking sort of far over the fence, looking at the next stage of opportunities, projects do take some time to bring through the germination and the gestation stage. And we're looking now we would hopefully be able to push a button at some time. But over the next five years, hopefully there will be new opportunities to augment and add to the very significant gold production that we're going to have coming out of Blanket. And we can proudly talk to shareholders about that as we find something to put on the table. So I've got nothing more to say on the actual presentation. And I'd like to open up the floor to questions. And the team is here and please if anybody is interested, work through our call coordinator and let's see if we can answer any questions you have. So thank you for listening.

[Operator:]

[Operator instructions] The first question is from the line of Peter Townsend. Please go ahead with your question.

[Unidentified Analyst:]

Good afternoon gentlemen and thanks for the call. Just one question on the mining method where you've moved to long haul stoping and narrower inches, is presumably there's additional development that needs to be done. And does that have a meaningful impact on your costs?

[Steve Curtis:]

Peter, thanks for the question. I’ll ask Dana, who is the miner, to answer that question for you. So Dana can you jump in?

[Dana Roets:]

Hi Steve, can you hear me?

[Steve Curtis:]

Yes, perfect. Thank you.

[Dana Roets:]

Right. Peter, it's only very limited and yes, if we reduce the veins or the [indiscernible] from 15 meters to 10 meters we’ll have to do more development. But it's really- it's very limited. It's not -- what we've done is we've got a wide open stopes at [indiscernible] ourselves we were doing longer stoping. And it’s only the narrow stopes that we used to have at Blanket and as well as [indiscernible] that we now started to implement longer stoping for safety reasons. And what we see is when it goes between about 3 meters and 1.5 meter, then we reduce the sub levels, and currently we only have two stopes that we’re doing that. So it’s very limited.

[Unidentified Analyst:]

Thank you. Then a follow-up the additional training that you’re doing has that seen your grades revert to where they were previously or you continuing to experience dilution?

[Dana Roets:]

We managed this year so far especially from March onwards, we started to get the grade that we [indiscernible]. So, we’re sort of optimistic that we can maintain it. But signs are there that we managed to get [hand along the dilution][ph].

[Unidentified Analyst:]

Okay, thank you. And one more if I may, when the central shaft comes on stream I assume your operation becomes a lot more efficient, clearly you can add more tonnages, et cetera but your per ton cost I'm assuming there's a meaningful impact. Now some of that is in your forecast. But it looks to me like this should be transformational given your current mining layout and the inefficiencies in using old infrastructure windows, et cetera. Is it a meaningful decline in cost that you expect once kind of 2021-22 when you should be operating close to steady state?

[Dana Roets:]

None of those synergies or improvements are built into our costs going forward. For example, it takes [indiscernible] from putting the guys down on the one end of the cycle of over 3 kilometers traveling to the other side takes about two and half hours. And that's going through [three] [ph] shaft, [the front] [ph] shaft, vertical shafts. Where now we'll put the guys down one shot right to the middle of the area. And will at least halve the traveling time to working places. The new one will travel at 50 meters per second so it will take us a couple of minutes to get people down. And the same with the equipment and material, where now they taken down by hand the smaller material items and equipment and then we had four shaft we put on our bigger equipment, and very limited because it's only two compartment. So [wasting][ph] rock and once you want to put in the equipment you're going to stop wasting. Where the new shaft is a four compartment being main material and rock. So none of the benefit has been built into our costs going forward. And I think it will have a huge effect. I don't have a feeling for that, but we can easily add one and half hours to two hours to our on [phase] [ph] time. And what that putting down equipment and material and having [delays] [ph] will be much improved.

[Unidentified Analyst:]

Thank you very much. I’ll allow others to ask questions and come back later. Thank you.

[Operator:]

We currently have no further questions. [Operator Instructions] There are no further questions. So I will now hand back to Steve Curtis, CEO to conclude today's conference.

[Steve Curtis:]

Thank you. Hello. All right. Yeah, thank you very much. And, Peter, thank you for the questions. We appreciate people taking the time to have a listen to the presentation. We will continue to feed information into the market as we progress through this exciting stage. You could expect to hear from us around about the middle of the year when the shaft is completed and when we’ve started commissioning. So once again, I’d just like to thank you for participating in this call and being interested in Caledonia Mining. So from the team, good afternoon, good evening to all of you wherever you may be. Thank you once again.

[Operator:]

Thank you for joining today's call. You may now disconnect your lines.