Hello and welcome to the Caledonia Mining Shareholder Conference Call. My name is Lydia and I will be your coordinator for today’s event. Please note, this conference is being recorded, and for the duration of your call your lines will be on listen-only. [Operator instructions]I will now hand you over to your host, Steven Curtis, to begin today’s conference. Thank you.

Thanks Lydia and good afternoon. I’ll say ladies and gentlemen, I don’t know if there are any ladies there, but welcome to the second quarter results presentation and thank you for joining this call. I'm joined on the call by Mark Learmonth, Dana Roets, Maurice Mason, and we are all available for questions at the end of the call. So, let’s just proceed immediately. The presentation that we are going to be talking to is on our website and it’s the most recent one post there, the Q2 presentation. So, please use that, if you want to follow where we are talking.So, obviously, I'll just draw your attention to the disclaimer, which is on Page 2 and then I just like to lead into the conversation and then hand over to some of my colleagues. Basically, we’ve been through this discussion previously about the medium-term and the long-term strategy of Caledonia, and just to reiterate for those who maybe new to the conversation, the medium-term strategy, which takes us up to 2022 is for us to complete the Central Shaft project to Blanket and ramp up our production to a rate of 80,000 ounces of gold per annum. That will enable a large increase in operating cash flows.We will have lower unit cost because of the economies of scale, and obviously by then the project, which completes by mid-2020, the CapEx spend at Blanket would have declined quite dramatically by 2022. We will continue to do deep level exploration and the shaft is down to 1,200 meters and we will continue to do exploration to prove up and improve the confidence levels of our resources, and although we are already sitting with more than 10 years life of mine at Blanket, we have got shaft infrastructure that we have put…

Thank you, Steven. So, I am starting on Page 8 of that presentation, which – just include some key statistics extracted from the financial results. Let’s [start with] financial gold production in the quarter and in the half-year was broadly as expected Steve, perhaps couple of hundred ounces lower than we had expected and that was largely because of lower than expected grade and to a lesser extent was – it was lower than expected tonnage. So, the production in the first half wasn’t really a factor in leading us to reduce the production guidance of the full-year. That was really driven more by expectations, what was going to happen in the second half, and I’ll talk about that later.Nice to see that online cost per ounce for the quarter have come down by about 25% from just over $700 an ounce to $534 an ounce and that’s also reflected in for the half year and on the all-in sustaining cost level as well. It was pleasing to see that costs have come down and that really reflects two things, it reflects the fact that on the operating cost level we’ve benefitted from the ransoms and the devaluation of the Zimbabwe dollar against the U.S. dollar, which reduced the cost of particularly electricity in U.S. dollar terms. There was a certain amount of debate as to when we could be confident that that was a real reduction.Until the end of December last year 2018, we had an uninterrupted power supply agreement with ZESA, the local supplier in terms of which we pay $0.128 a kilowatt hour. Those cents in the contracts were never specified as to whether they were local cents or U.S. dollar cents and about time it wasn’t relevant because there was no such thing as a local…

Thank you, Mark and you make it sound very, very easy and I’m sure everybody understood the complexities of this quarter, which let me assure people that it is complex, but it’s demonstrated by what we believe are the correct monetary and economic policies that has been implemented by the government and there is a settling down stage and I think we’re in that settling down stage. We believe we’ve got our hands on the teller. We know which direction to go, so we – yes, we are excited to be able to manage our way as we go forward and Zimbabwe hopefully begins to prosper.So, now we’re going to go and have a review of the operations and I'd like to ask Dana Roets to take us through the operational slides in the details that he thinks necessary, and I’ll hand over to him to talk the operational and the mining aspects of our business.

Thank you, Steve. If we look at the production through the half year and, you know, I want to add to what Mark said, it’s not much different to what we’ve seen over the last three years and I just want to remind everybody that it was always said, while we’re building a new mine below the old mine, its maintaining the production labels and [indiscernible] once the shaft is in production, and that was a balancing act on its own if you don't have any issues in the country and so on. You know to maintain that is difficult enough and we’ve all had challenges we had, you know, ignited a bit more difficult.But what happened at the end of last year and I will go through some numbers just now, but as a little background, in the year, we had a slow start off of Christmas, and in the real production really comes up during the last two quarters, and what we see in this year is, and what we tried to do in the end of last year, we’re sitting stable trying to start slowly. We’re going to change our internal plan and trying to push the guys a bit harder during the first and the second quarter, and which will make it easier for us not to really push as hard during the last two quarters and then have this [autistic effect] in the year where you start slowly and then you end high and then you fall back and you start slowly again.So, if you look at the numbers and if you go to Slide 16, if you look at tons milled, 2017 quarter was 136,000; 2018, 132,000; and in 2019, 135,000 and that’s [indiscernible] there’s no real difference. If you go to the grade…

Dana, thank you and that was a very comprehensive and detailed report back, and I'm sure our listeners got a lot of value after that, thank you. I think we’ve spoken about the work that Zimbabwe government is doing. The slides that we've incorporated in the pack on Slide 23 just gives you sort of focal areas, so I’d refer you to have a look at that. I think you – what I would ask shareholders and listeners do is spend some time looking for some of the good news that comes out of Zimbabwe because unfortunately a lot of what we read is mainly the bad news. We need to look behind that and say, why are these actions being taken? And when you understand where Zimbabwe came from and what it needed to rectify the path it is on, unfortunately it's not just like switching on the lights and its all sunshine and roses.There is some pain that has to be taken, but Zimbabwe is working its way through and IMF staff monitoring program for the next 12 months, which is a significant commitment from the government to subject itself to rules and regulations to show that they are determined to turn things around and the government should be given credit for that. So, let’s watch space that they do the right things; they get the right guidance; and our job as a management is just to make sure that Blanket continues to operate as effectively as it can, and we finish this project, which is 12 months down the road.If we look just briefly at the outlook and we’ve spoken a lot about this that – the slide on Page 25, just gives you a snapshot of where our thinking is at the moment and I’ve spoken…

Absolutely. [Operator Instructions] We have some questions coming through. Our first question comes from the line of [Howard Sinclair of Sinclair Company]. Howard, please proceed.

She almost had the name right. Hi, guys.

Hi.

Hi.

I maybe your only fan, but that will change. You just keep delivering that will change. One, to clarify, your wages to your employees [were after each], while the Zimbabwean dollar was collapsing, basically stabilize at some kind of formula against the US dollar, is that correct?

Hi. Yes, we simply pay them the inter-bank rate. So, if they were earning say 1,000 local dollars in January, when the exchange rate was [1:1] that’s means – and say June, when the exchange rate says, [6:1] that the earning 6,000 local dollars, which goes a long way to pushing them from the effective inflation.

Right. So, that allows them to come to work. At $1000 after devaluation of 10:1 or 6:1…

Yes.

...with [indiscernible]. Second, in electricity – as to electricity, are you paying, it wasn’t clear, are you paying in Zimbabwean dollar at their rate? Or some FX adjusted rate?

Now, the new – okay, so it was a very good question. In quarter two, we were paying them in local dollars, RTGS dollars, okay?

Yes.

Then there was a debate about whether they should be getting local dollars, RTGS dollars or U.S. dollars we are done with that now. But the agreement that we signed last Friday is that we will pay them in [SCA], which is the effectively U.S. dollars in country.

Is that the essential franc, essential African franc?

No, [SCA] is just the foreign currency. So, but as you said, no that’s the franc foreign currency – that’s the best foreign currency. It is actually [to end some of the] purposes. It seemed that we are paying them U.S. dollars in country, okay?

Okay. That’s okay. And to add solar power, would that cost you $1 million or $2 million?

Well, the solar – it costs about – if we were to put in a 14-megawatt plant, which would cover the needs – the peak requirements of the whole operation that will cost approximately $14 million. So…

One four?

Yes, $14 million. We’re not using batteries, we can’t batteries, they so far too expensive. We’d probably do a – we’re thinking of a phased approach.

Sure.

So, we’re thinking of doing say 8 megawatts as soon as we can on the basis of the mine you can undertake to take a 100% of that’s on a take-or-pay basis. To do the extra 6 megawatts, we would need to put in place a mechanism to sell the surplus production, which will be generated from time-to-time into the grid and that will be a much more complex negotiation, and so, that will take time. So, rather than delay to agree this sort of what we call the banking agreement with view to get a 14-megawatt project that’s the eight now, while the basis we can use a 100% of production and then deal with the balance later. Just to be clear, the solar project would be owned by Caledonia. We’ve done a 100% of that project and Caledonia would then sell the electricity to Blanket.

Oh! I see? Well, when your CapEx – when next year comes around, your CapEx will decline probably around springtime, and at the same time, if we take the current price of gold, which we can debate up and down, wouldn’t the current price add about $2.5 million or $3 million of cash flow to your quarterly income?

Well, you can – I don’t want to start making detailed…

No, no, no. Let’s say more than $2 million so that by next year between the decline in CapEx and hopefully the sustainably higher price, you would have internally generated cash to pay for these [solar self], is that a fair assumption?

Yes, that would be.

Yes, okay. And I wasn’t sure about the graph on reserves and resources. Did I – did I interpret it correctly so that you have about 1.6 million ounces of resources yet on all four categories? Or are they overlapping?

No, no. That’s $1.6 million in each individual category.

Okay.

And the point is that, as we get more infrastructure at deeper levels, we can do more deeper exploration to improve the inferred, but also as we get more infrastructure depths, it means that we can then convert some of the inferred to measured and indicated. So, it is both.

No. What you did not mention was – if anybody else is listening besides one guy on this phone right here, is that you know you told me and I have also read that there are some local minors who would love to get out with hard currency, and they course, it’s Zimbabwe, so they’re having an extremely hard time to find buyers. It’s a buyers’ market. Are those properties still available? And what is the potential size of the resources that those owners have discovered or previous owners?

The – if you look at the cost of potential side, because that then stop promising what we don't know is there yet. But…

Of course, of course.

…but we will look to – we must have looked at about a dozen opportunities. We've narrowed it down to three that we really like. I've got to say, of those three, in every case, we focused our work on technical due diligence, in only one of those three cases, is there an actual resource base to purchase at the moment.

Okay.

And I – and then I thought if you want to one compliant resource base, that actually of itself is relatively be small. So, we're not buying existing. We're not proposing to buy existing resources. We're proposing to buy things that have historical drilling, which gives us a very good sense as to what may be capable of being identified to 43-101 standard, in due course. And of the three identified, we can comfortably see a target – a reasonable target resource of anything between 8 million and 12 million ounces. But I have to caution you…

Yes, that’s just a shallow guess, I understand.

That's a guess. But I have to caution you that when we focused on technical due diligence, obviously, that we don't want to buy moose pasty with nothing there. As we, in every single case, there are some quite significant technical legal difficulties relating to proof of ownership. And that really comes down to very poor housekeeping on the part of the people who own or claim to own these assets. And correspondingly very poor delivery from government in terms of recordkeeping and that sort of stuff.So, we can't deploy shareholders money to buy stuff, unless we're absolutely sure that what we buy, got good legal title. And that has become extraordinarily difficult in Zimbabwe. I mean, just so frustrating. And I guess that really comes down to where Zimbabwe was 10 or 15 years ago.

Okay.

But also, even right now, just trying to get government officials right now to focus on the here and now and doing stuff today is extremely hard, because if you're a government official living in Bulawayo or Harare, you've only got power for four hours a day and that's between sort of 1 o'clock and 5 o'clock. And you're not benefiting from a generous blanket employee remuneration package, which basically tries to bring sense your purchasing power. You're suffering from very, very high inflation. So, they're mitigating reasons as to why we're in this mess, but it does make it very, very hard to make progress than anywhere else in the world. This sort of stuff will be done in an afternoon or two days or something.

Is there any possibility that previous owners in Rhodesia could come back and say, wait a second, they took away our property? You own it now Caledonia, but it's really ours [indiscernible]. Is there any possibility that’s going to rise, or while there’s always a possibility, but I guess, some large possibility?

If you’ve got as long as we get adequate proof of legal title then, that's fine. There's no – that’s not relevant.

Okay. And finally, I don't think I heard. And if I say, if there's more than one listener, in your written commentary, you mentioned that the Government of Zimbabwe has a balanced budget.

Yes.

That is really encouraging for a longer-term point of view. And I don't know if it’s unique in the world, but it may be – maybe the only one?

We think it is and they're running. Mark is much closer to this than I’m. But government's been running a budget surplus central sort of October, September last year, and it's running at a rate of hundreds of millions of dollars a month. And you're quite right that it must be – so they're running a budget surplus and actually, the government is embarking on the opposite of QE.So, a lot of what the opposite of QE is that the government is sucking liquidity out of the banking market instead of pumping liquidity into the banking market. And that gives us still the same, that gives us comfort and confidence that provided the political environment doesn't become unmanageable. They just objectivity the economic policies that are being followed by governments are on the path to redemption. But that's not to say that for people on the ground, it is extremely painful.

Who would have said that the exchequer in Zimbabwe is in better shape than the exchequer in Europe or United States?

Well, I’m going to say talking to getting [Dana] years ago. I mean, [getting Dana] when he did quantitative easing just cruising about printing more money. He was the Finance Minister under the – many, many years ago under [indiscernible], And I remember him crowing and chuckling at the QE that was introduced by the western banking system after 2008. And he claimed to have tasted and perfected that mechanism himself. So…

He preceded them by a factor maybe 1,000 times when he said the pattern?

Yes. But having said that, I think the critical issue relating to the rehabilitation of the Zimbabwe with the West is one – is more one of credibility.

Yes, that will take time.

And credibility is that that's what, that's subjective and it's in a number – numbers play a part in it. But there's a high – there's a big subjective element to that, which is going to up in the challenge that we are hopeful that we’re hopeful.

What happens is, investors will recognize that Caledonia is an extremely cheap business.

Yes.

And what it happens? It happens. I don't know what's going to happen today at 11:15 Eastern Time, or 75 years from now, but it'll happen?

Yes.

All right, thanks for your nice work.

Howard, just to give you a little bit more context around electricity. The Minister of Finance announced that electricity tariffs across Zimbabwe and all the sectors would increase dramatically to take account of inflation. He did also announce that the mining sector would be required – all miners would be required to pay for their electricity in foreign currency. And this is important, because the agencies that articulate the power and generate the power in Zimbabwe are hugely cash strapped and are subject to the inflationary factors.

Well, that’s our thinking as to…

…pricing.

Go ahead.

That the mispricing their electricity for many, many years. And that's why they’ve actually run out of cash and that's why the infrastructure is struggling. So, we're at a stage now where people who – and it's going to make things difficult, are going to have to pay a fair price for the power in Zimbabwe, and miners will pay a U.S. dollar base price for electricity, because we are U.S. dollar earners. And that will enable the country to input power to augment the very, very low self-generation of electricity. They've got generation problems in terms of aged coal-fired power stations. And they've got a huge reliance on the Kariba dam, and that is got very, very low water levels at the moment.So, although it's painful, it's the right structural change. And without power, although we've got gensets, you can't run the mine efficiently on diesel power, it's too expensive. So, this for me is significant that the government again has recognized the needs of the country and the productive sector. And they are putting methods in place. And the mere fact that South Africa, Mozambique is re-delivering power to Zimbabwe is a very good signal for me. So, it's significant how we deal with it.

Well, from the point of view of opportunities or competition, this squeezes the owners of those other properties even harder, because they don't have even if they're not producing, they won't have foreign currency to pay for the electricity if they ever decide to build it or create a joint venture. That's better for you. It just intensifies the buyer – intensifies the buyer’s market. That's really good.

Yes. Howie, thank you for your questions.

Yes. Thanks, guys.

We have some more questions in the queue. Our next question comes from the line of [Zachary Sharpe]. Zachary, please proceed.

Hi, guys.

Hi, Zack.

Hello, Zack.

Hey, yes, those are really good questions, Howard just asked. I think he covered about half of mine. One of the other things I was going to ask is, you mentioned the sale of a subsidiary. Do you guys have other ones or other assets that you own other than Blanket Mine?

No.

And then, I was reading about the purchase of 15% more at the mine in some of the past reports. And I was wondering if there's an update on that? And I know I read that you guys would use an equity sale of shares that do at least part of that transaction?

Yes. What you are referring to is the agreement that we reached about a year ago with Fremiro. Fremiro, 15% of Blanket and the dealers that we will buy that 15% off of them Caledonia shares and that also write-off the balance of their facilitation lines. That is just simple bit of house-keeping, which gives us clear access to 64% of Blanket, which is really important because people over this obstacle in their minds that were very good [minority position] in Blanket and it is modestly NPV per share enhancing at the Caledonia levels. So, once taken to account the bigger statement we take in Blanket offset by the diluted effect of issuing more shares in Caledonia and net effect in small ways is beneficial to Caledonia shareholders. And also, we value the participation of some of the people within the Fremiro structure who have helped and continue to help us in Zimbabwe. So, that will work.To make that agreement happen, we need two things. We need a Reserve Bank approval of the Reserve Bank of Zimbabwe approval for the Fremiro shareholders to own Caledonia shares offshore outside of Zimbabwe, and we’ve been around and around in circles with the Reserve Bank, and I'm afraid the situation that we now have is that they keep on giving approval for transaction that we’ve not asked them to approve. They keep on approving a different transaction to the one that’s on the table. And Zimbabwe being Zimbabwe, whilst they say they have approved it, we cannot proceed until they have actually approved the real deal that is here. And that really is just a question of misunderstanding on their part and we will continue to work with them to get them to prove the right deal.The other issue really relates to capital…

Yes. That was great. Thank you. Sounds like it is a thing that [indiscernible] keep approving along transaction. My last question is around the dividend policy, you mentioned that a lot of trends in the reporting that you had raised the dividend when gold production goes up, would you guys also consider buying back shares [or do you mind] instead?

We will do whatever makes sense to shareholders. So, the dividend is the easiest way. We find that is one of the easiest ways for us to differentiate ourselves from other gold companies is to pay this quarterly dividend. If we were to increase the dividend and didn’t find the [shares]. If we were to say double the dividend and our share price didn't double, so if we double the dividend and our yield doubles, as a CFO I would find that a very poor use of money, and I would effectively shake the shoulders unless they bid the shares up, but no more dividend increases, and buy our shares back. So, we will use whatever levers we have to try and make sure that we deliver the best returns to shareholders both in terms of yield and capital return.Having said that, we also hoped that we are in a position where some, but not all of the incremental cash flows coming out of Blanket could be redirected towards new growth opportunities. Because the last thing we want to do is become a high-yield ex-growth company, because then you will find that the, if Blanket is ex-growth, Caledonia is ex-growth then you would invest in new growth projects, you will find that our yield goes up inevitability. So, yes, we are open to anything that makes sense at the time, but it would be premature I think to commit to anything or to rule anything out.

Okay, yes. That’s great. The dividend, that makes sense that, you would think that would double the price, but I think as of right now the business is very undervalued and that would be advantageous for shareholders to buy back stock at this point, but who knows what can happen as you guys move forward with the Central Shaft or as you continue exploration, but obviously I'm personally in it for the long-run. So, I would like to see more exploration for sure, I’m not planning on selling my shares as planned. I’m actually planning to expand so that’s really good to hear.

Yes. Thank you.

Alright. Yes, that's everything I had. Thanks guys.

Thank you.

Thank you, Jack.

Our next question comes from the line of John Bailey of [indiscernible]. John, please proceed.

Hi, good afternoon gentlemen, hope you can hear me. Just on the, with the gold stock price about $1,500 would you get a full benefit of that in H2 or are you putting a more hedging in place or what are you thinking?

No, I think the hedging was in forward selling. The hedging that we put in place was just simply [buy-out] the money put option. So, there was an option premium, a cut under $1,000 and that was it, but we’ve always had full upside participation in the gold price. What we would do is just protecting the downside.

Have you – and obviously are you. doing that for H2 or?

We are not doing it, and the genuine lack of clarity we have is, say the gold price fell to 1,300 right, we don’t know at this stage. If the gold price fell to 1,300 would the government reintroduced the gold support price mechanism, you know, which guaranteed the share price of 1,268 because the last thing we want to do is to spend good shareholders money putting a place to hedge and that now turns out to be unnecessarily because the gold support price, but it is certainly at this stage we have not hedged, those were the hedges.

Okay. And just on the July numbers, it is in the bottom in – grade was 3.01 and production just below 4,000, is essentially that that probably would be the worst month – is there any visibility that it’s just edging away from those low numbers?

I would let Steve to answer.

Yes. John, the July month was a short production days month. So, it’s very difficult to compare month-on-month, but it was only a 28 a month where the other months from our production perspective are 30 or 31. So, that counts again. So, and the grade, yes, the grade was lower. What we are seeing is [tons] are increasing and we are working very, very hard to remedy the grade situation. And as Dana has already said, traditionally, you go into Q3 and Q4 where you get better production. There are less public holidays and therefore less disruptions. And traditionally for many, many years Q3 and Q4 have been our best quarters. So, yes, we would certainly not like to see July repeating itself and we consider it a low point.

Okay, great. And then on the workforce, I mean in terms of the employee absences, again that’s improved I think with the – as you have tried to support the workers?

Yes. As Dana also said, the effect of the inflation and our inability to pay in U.S. dollars which had become a bit of a norm among some of the mining fraternity and some of the commodities like platinum and the other gold miners were able to pay in U.S. dollars when there was an open multicurrency system. We didn’t. We never went that route because number one our foreign currency was committed to the expansion project and therefore our staff were being paid in the local currency and a 1:1 basis and as Mark already explained, we’ve remedied that because we have the ability to remedy it and we are finding a very much better situation.We are not losing highly skilled people like we did before. We do unfortunately still have the sort of unexplained [indiscernible] that becomes part of the Nyanzvi program where we re-educate and motivate people. So, a lot of effort has been put into staff and staff morale.

Right. Thank you very much. Well I look forward to the 70,000 plus ounces in the future.

So, do we.

Great. Thank you.

This concludes today's Q&A session. I now return the call to your host.

Well thank you very much. And looking at the list of people who’ve dialed-in, it’s been one of our better attended calls, and we thank you for that, and yes, we will be publishing our next set of results as we usually do. And as announcements are available to us, and we progress through the equipping stage, we will keep shareholders involved. So, just on behalf of my team, I just like to thank everybody who has participated today, and Lydia thank you very much for hosting and goodbye to everybody.

Thank you for joining today's call. You may now disconnect your handset. Host, please stay connected.