1st Quarter Results
Caledonia Mining Corporation
15 May 2007
Caledonia Mining Corporation
Caledonia Mining Announces its First Quarter 2007 Results
Toronto, Ontario - May 14, 2007: Caledonia Mining Corporation ('Caledonia')
(TSX: CAL, NASDAQ-OTCBB: CALVF, AIM: CMCL) is pleased to announce its first
quarter 2007 operating and financial results.
The financial results below are reported in thousands of Canadian dollars,
except where otherwise stated.
Financial Highlights
(C$ 000's) Q1 2007 Q1 2006
Sales from continuing operations $13,401 $1
Income/(loss) from continuing operations (278) (387)
- per share basic and diluted ($0.001) ($0.001)
Discontinued operations (loss) (255) (1,878)
Net income (loss) after discontinued operations (533) (2,266)
- per share basic and diluted ($0.001) ($0.006)
For the quarter ended March 31, 2007 Caledonia reported revenue of $13.4 million
from the Blanket gold mine, on sales of 4,352 ounces of gold and a net loss of
$278,000 or ($0.001) per fully diluted share. The loss for the quarter was due
to the reduced ounces sold whilst Zimbabwean inflation of 1800%, on an
annualized basis, resulted in huge increases in the same period. However, a
recent change in the Zimbabwean monetary policy will result in much higher
revenues from gold sales from the end of April, which will offset the effects of
inflation on the operating costs. Cash available at the quarter end totaled
$126,000.
Gold production for the quarter was 3,700 ounces. The reduced ounces produced
during the first quarter 2007 were due to the planned shutdown of the No 4
shaft, in association with the mine expansion currently underway.
In April 2007, 22,890,000 warrants, that were due to expire, were exercised at a
price of $0.15 per share. The proceeds net of commission amounted to $3,330,495.
These funds will be used for general working capital and the funding of
exploration activities at Nama and other sites.
Commenting on the results, Stefan Hayden, President and CEO, said 'I am pleased
to report a satisfactory operational performance from the Blanket Mine of 3,700
ounces of gold, in the context of a planned mine and plant expansion and against
the backdrop of a difficult mining economic environment in Zimbabwe. Whilst
other gold mines have been forced to stop production, due to severe cash flow
shortages, Blanket has been able to continue mining, with the switch to liquid
cyanide being particularly timeous for continuing plant operations.
The expansion project continues to progress, albeit with some disruption in
light of the country's challenging economic situation, and in particular the
lack of hard currency, however we are still anticipating completion of the
expansion by the end of fourth quarter 2007.
Looking forward in the short term, the lack of hard currency continues to remain
a serious problem, however the recent change in the Zimbabwean monetary policy
should rectify this issue. Production will continue to be at reduced levels
during the second quarter, until Shaft 4 reopens, which we anticipate will be in
June 2007.
We continue to progress the sales negotiations of the Barbrook and Eersteling
mines.'
For more information, please contact:
Stefan Hayden Alex Buck/Nick Bias
President & CEO, Caledonia Mining buck-bias
Tel: +27 11 447 2499 Tel: +44 7932 740 452
Further information regarding Caledonia's exploration activities and operations
along with its latest financials may be found at www.caledoniamining.com.
Caledonia Mining Corporation
First Quarter 2007 Report
President's Message
I am pleased to report a satisfactory operational performance from the Blanket
Mine of 3,700 ounces of gold, in the context of a planned mine and plant
expansion and against the backdrop of a difficult mining economic environment in
Zimbabwe. Whilst other gold mines have been forced to stop production, due to
severe cash flow shortages, Blanket has been able to continue mining, with the
switch to liquid cyanide being particularly timeous for the plant operations.
Production was affected by the planned shut down of the No.4 shaft for
refurbishment in line with the expansion to increase the mine's production to
40,000 ounces of gold per annum. Whilst production was lower than the budget,
due to the contractor issues, we are confident these have now been resolved and
we will be able to make-up a substantial portion of this production during the
second quarter, if the economic situation does not deteriorate further.
The expansion continues to progress, albeit with some disruption in light of the
country's challenging economic situation, and in particular the lack of hard
currency, however we are still anticipating completion of the expansion by the
end of fourth quarter 2007.
Signed 'S.E Hayden'
President and CEO
Caledonia Mining Corporation
Management's Discussion and Analysis
This Interim MD & A covers the Company's first fiscal quarter from January 1,
2007 to March 31, 2007 - and the period thereafter to May 3, 2007. It is to be
read in conjunction with the Company's 1st quarter financial statements prepared
to March 31, 2007, according to Canadian GAAP, its Annual Management Discussion
and Analysis for the fiscal year ended December 31, 2006, the audited financial
statements of the Company prepared to December 31, 2006, and the Company's 2006
Annual Report. All of these documents have been filed on SEDAR and are available
at www.sedar.com or on the Corporation's website at www.caledoniamining.com.
Note that all currency references in this document are to Canadian dollars.
1. OPERATIONAL REVIEW, OVERALL PERFORMANCE AND RESULTS OF OPERATIONS
Gold Production
(a) Blanket Mine- Zimbabwe
The 2007 Q1 production is outlined below:-
Actual
Ore processed -tonnes 24,700
Grade g/t 3.30
Recovery % 91.4% calc
Sands Processed - tonnes 39,000
Sands Grade g/t 1.5
Sands Recovery % 67.5% calc
Ounces gold from ore 2,395
Ounces gold from Sands 1,270
Total ounces produced 3,700
Total ounces sold 4,352
The production from underground was affected by the shut down of the No.4 shaft
for refurbishment in line with our expansion plans. This took place on February
15, 2007 after which the plant was to be fed with old mill tailings. This plan
did not take off as planned because the contractors initially hired to haul the
sands failed to meet their targets. This situation was resolved late in March
when a more efficient contractor arrived on site. Good quality earth moving
equipment is difficult to hire in Zimbabwe. Because of the problems experienced,
production for the quarter was approximately 2,140 ounces below plan. This
reduced production coupled with delays in receiving payment for gold delivered
has had the ripple effect of slowing down the mine expansion project due to lack
of cash flow to fund essential inputs.
The underground section production was reduced from the normal 600 to 200 tonnes
per day as planned due to the main production shaft being off line. All
production came from reclamation activities above 200 metre level where the ore
can be hoisted up the main incline shaft. The rest of the activities took place
below the 510 metre level being capital development, and long hole blasting
where the ore is being currently stockpiled. Run of Mine development was mainly
carried out in the AR ore zones above 510 metre level where stope panel blocking
out is in progress. In total 306 metres were advanced in Run of Mine development
and 170 metres in capital development.
Plant
The plant operated at reduced capacity due to lack of feed as a result of
problems alluded to earlier. The new capital development for the conversion from
the use of solid cyanide to liquid cyanide was installed and ready for
commissioning by the end of the first quarter. The payback period on the liquid
cyanide expansion is projected at 6 months. The less expensive liquid cyanide is
imported from South Africa. Carbon in leach equipment needs to be replaced due
to wear and tear. Enquiries have been sent out for refurbishing the CIL shafts,
impellors and gear boxes.
Capital Expenditure
No. 4 Shaft Project
All surface works have been completed except for work associated with dynamic
commissioning of the winder and the modification of the skips to take fixed
steel guides as opposed to the originally planned rope guide. This work has been
scheduled for the 2nd Quarter during the month of May. The below-ground works
are progressing satisfactorily with stripping and equipping having advanced down
to 10 level.
This construction work has been significantly delayed by the combination of lack
of foreign currency and lack of local cash flow as a result of the Reserve Bank
of Zimbabwe's policy of delaying payments for gold delivered (sometimes as late
as two months after delivery to the refinery). Further work delays have resulted
from frequent power cuts by the power corporation. It is estimated that if no
further disturbances are experienced, the shaft equipping down to the 630 metre
level will be complete in early June, allowing the mine to increase production
back to 600 tonnes per day whilst the equipping of the rest of the shaft
progresses. Our target completion date still remains the 4th Quarter of 2007.
Associated with the No. 4 shaft project are the following plant modifications:-
(•) Refurbishment and manufacture of a second rod mill. This work is almost
complete and installation of the mill has now been delayed to Q3.
(•) The upgrading of the crushing circuit - which is currently delayed due to
lack of foreign currency.
Capital expenditure to date on the No 4 Shaft Project amounts to $5,930,000 and
the total anticipated expenditure, to achieve a mining and processing capability
of 1000 tons per day, is estimated to be $8,680,000. Funding for the completion
of the expansion will be obtained from local gold sales.
Outlook
The economic situation in Zimbabwe continues to deteriorate. The Reserve Bank of
Zimbabwe which is responsible for making payments for gold sales to producers
has failed to honor its obligation resulting in mines suffering severe cash flow
shortages to the point of some mines having stopped production. This scenario
unless rectified will threatening the timeous completion of the Blanket
expansion program. The program is currently at a very critical stage with
reduced production coming from underground whilst the balance of production is
now derived from stockpiles of mill tailings dotted around the Blanket surface
area. These will shortly be exhausted in approximately another 2 months,
necessitating that the underground operation has to be restored to full
production by that time.
It is clear that the economic situation is heavily influenced by the political
outlook. Zimbabwe will hold fully fledged parliamentary and Presidential
elections during 2008 which means that all efforts and resources will be
directed towards this exercise. Such a situation under the current conditions of
economic turmoil is a threat to business and Blanket is no exception.
Lower than expected rainfall has been registered in Zimbabwe with one of the
driest seasons since 2000, which means that there is a shortage of food in the
country and the lack of foreign currency will make the importation of food very
difficult. This will affect the workers ability to feed themselves and their
families satisfactorily, and general productivity could be affected causing a
serious challenge for Management to effect the company's business plan.
(b) Discontinued Operations
The sale process of Barbrook Mine and Eersteling Gold Mine progressed during the
quarter. All parties who submitted non-binding offers were admitted to the data
room to conduct a due diligence. Certain parties withdrew from the process. ABSA
Capital, the appointed financial advisors, are now awaiting binding offers from
potential purchasers which will be assessed and presented to Caledonia Mining
Corporation for their consideration. New purchasers have also shown interest in
the mines and ABSA is managing the process so no undue delays are experienced.
Exploration and Project Development
(a) Zimbabwe Exploration - Gold
Limited exploration activity took place during the first quarter. All
exploration activities were curtailed when the shaft was shutdown in mid
February to direct resources to the shaft expansion project. In total $120,000
was spent on exploration.
The exploration activities focused on taking soil samples from higher potential
claims, positive results were achieved at the Bansluck claims.
It is anticipated that exploration activities will recommence in the third
quarter of 2007.
(b) Rooipoort and Grasvally Platinum Exploration Project - South Africa
Soil geochemical sampling within the Rooipoort Platinum Exploration Project near
Mokopane (Potgietersrus), South Africa continued. During the quarter only
$36,000 was spent on exploration.
Geochemical soil sampling of Rooipoort 46 KS was completed with a total of 61.25
line kilometres of sampling being undertaken on this farm of which 25.40 line
kilometres of sampling were achieved for the period under review. Soil
geochemical sampling has also just commenced on Moordrift 289 KR. A total of 831
line metres of sampling were achieved for the period under review.
Currently geochemical sampling is continuing over the remainder of Moordrift 289
KR as well as on Jaagbaan 291 KR and portions 6 and 24 of Grasvally 293 KR. Some
resistance has been met from local land owners in respect of physical entry of
sampling teams onto their properties. These problems have largely been overcome
via negotiation and enlightenment.
A qualified geologist with formal GIS qualifications, has been placed in charge
of the soil geochemical sampling program on a probationary basis, with good
results to date.
The application to the South African authorities to transfer the Falconbridge
rights to the Company is in progress.
Further development of the project plan is totally dependant on the availability
of funds and will be progressed accordingly.
(c) Nama Copper/Cobalt - Zambia
During January 2007, the resident Senior Geologist tended his resignation.
A Project Manager was appointed with new responsibility for all activities
within Zambia. He took up his post on the 1st April along with a newly appointed
Senior Project Geologist for Nama.
The Lusaka office is presently gearing up for exploration activities planned to
start in May 2007 at a budgeted expenditure of $2,700,000. These activities will
take the form of reverse circulation and diamond drilling over Nama anomalies A,
C, D, E and F.
During January 2007, Caledonia Nama was granted a Retention License for the Nama
group of prospecting licenses for a three year period.
The first phase of the planned exploration activities is designed to increase
the geological confidence levels of the above deposits to a measured resource
level. The second phase of the exploration activities encompasses the trial
mining and beneficiation of the Nama A deposit to confirm the metallurgical
process and minability of this deposit.
During February 2007 a further 1 tonne bulk sample (sample G) was extracted from
the Nama Trench and submitted for further metallurgical test work. The results
are expected shortly.
A Technical Report, compliant with NI 43-101 is being prepared for Anomaly A and
Anomaly C at Nama by Mr. David Grant, C.Geol., FGS, Pr.Sci.Nat., an independent
consultant who is the 'Independent Qualified Person' for Nama's resources as
required by National Instrument 43-101 of the Canadian Securities
Administrators. This report was published on May 8, 2007.
(d) Kadola Copper/Cobalt - Zambia
During March 2007 a letter of rejection of the application to renew the Kadola
group of licenses made in 2006 was received from the Department of Mines.
This decision has been appealed with further written motivation submitted along
with substantial relinquishment of area.
Further to this, a meeting was held in April 2007 with the Director, Department
of Mines to further motivate this appeal. Although the meeting was fruitful, the
Director is bound by Zambian mining law to refer the final decision in this
regard to the relevant Minister, as Caledonia's period of tenure of the
prospecting licenses exceeds the maximum period permissible by law. A favorable
outcome is expected in the form of a retention license for a limited time
period.
(e) Goedgevonden Diamonds - South Africa
Limited activity took place during the first quarter, total expenditure amounted
to $5,000.
(f) Financing
In April 2007 22,890,000 warrants, that were due to expire, were exercised at a
price of $0.15 per share. The proceeds net of commission amounted to $3,330,495.
These funds will be used for general working capital and the funding of
exploration activities at Nama and other sites.
2. SUMMARY OF QUARTERLY RESULTS
The following information is provided for each of the eight most recently
completed quarters of the company - ending on the dates specified - in thousands
of Canadian dollars:
Mar. Dec. Sept June Mar Dec. Sept. June
31/07 31/06 30/06 30/06 31/06 31/05 30/05 30/05
Sales from
continuing
operations $13,401 $9,045 $4,539 $1 $1 $2 $- $3
Income/
(loss)
from
continuing (278) 3,840 (455) (683) (387) (318) (1,177) (1,756)
operations
- per share
basic and
diluted ($0.001) $0.008 ($0.001) ($0.002) ($0.001) ($0.001) ($0.003) ($0.006)
Discontinued
operations
(loss) (255) (1,282) (2,619) (2,210) (1,879) (1,736) (1,387) (1,520)
Net
Income(loss)
after
discontinued
operations (533) 2,558 (3,074) (2,893) (2,266) (2,054) (2,564) (3,276)
- per share
basic and
diluted ($0.001) $0.006 ($0.007) ($0.007) ($0.006) ($0.006) ($0.008) ($0.011)
Note: As there are no extraordinary items the disclosed net losses per share are
identical to the total loss before extraordinary items.
The effect of the dilution on the earnings per share has been calculated for
each quarter of 2006 as a profit was earned before discontinued operations for
the year. No calculation for 2005 was made as the result for the year was a loss
and the diluted earning per share would be anti-dilutive.
For the quarter ended March 31, 2007 Caledonia recorded revenue of $13,401,000
from Blanket from the sale of 4,352 ounces of gold ($9,04,000 from 6,158 ounces
in the 4th quarter 2006 and $4,539,000 from 5,129 ounces in the 3rd quarter
2006). The reduced ounces in the 1st quarter 2007 are due to the planned
shutdown of the No 4 shaft. The higher revenue, however, is due to the way the
gold was sold i.e. either sold for US dollars or sold for Zimbabwe dollars (see
Liquidity below). Depending on the election made the resulting Zimbabwe dollar
revenue and effective exchange rate will differ and thus result in varying
Canadian dollar revenues as all are translated at the official rate of Z$ 250:
USD1
The loss for the 1st quarter of $278,000 ( profit $3,840,000 4th quarter 2006
and loss $455,000 for 3rd quarter 2006) is due to the reduced ounces sold whilst
inflation of 1800% per annum resulted in huge costs increases in the same
period.
The changed monetary policy as explained below will result in much higher
revenues from gold sales from end April, which will offset the effects of
inflation on the operating costs. The 2nd quarter of 2007 will continue with
reduced ounces of gold sales until the shaft reopens in June and production
volumes return to 600 tonnes per day and then 1000 tonnes per day during 4th
quarter 2007.
The loss from discontinued operations represents the holding costs of Barbrook
and Eersteling as the sale process progresses.
3. LIQUIDITY
As of March 31, 2007 the company had a working capital surplus of $709,000
($2,874,000 as at December 31, 2006). Due to late payments for gold sold to the
Reserve Bank of Zimbabwe (RBZ), Blanket Mine established borrowing facilities
from local banks in the amount of $2,787,000. These funds were used to pay local
creditors and staff costs. The late payments also resulted in a shortage of
foreign currency for Blanket Mine and payments to foreign creditors were
delayed. As at March 31, 2007 Blanket was owed $365,000 (by April 17, 2007
$541,000 overdue and a further $270,000 due by May 8) by RBZ which will be more
than sufficient to meet all foreign creditor liabilities once received.
On April 26, 2007 the RBZ announced new monetary policy measures to address the
rampant inflation in Zimbabwe and the critical cash flow shortages being
experienced by industry. Items that affect Blanket mine are summarized in the
table below:
Policy Item Old Policy New Policy from April 26, 2007
Gold revenue per Z$16,000 per gram Z$350,000 per gram
gram when sold for
Zimbabwe dollars
Gold revenue ratio 67,5% received in US 60% received in US dollars and
when sold for US dollars and 32,5% received 40% received in Zimbabwe
dollars in Zimbabwe dollars dollars
Method of Gold ounces x USD price of Gold ounces x USD price of gold x
calculating gold x Z$250 = Zimbabwe Z$250 x 60 (drought relief
Zimbabwe dollars dollar revenue. Effective factor) = Zimbabwe dollar
for the 32,5% and exchange rate Z$250: USD1 revenue. Effective exchange rate
40% above Z$15,000: USD1
Exchange rate paid Z$250: USD1 Z$15,000: USD1
when US dollars
sold to RBZ
Retention period Indefinite Indefinite
of US dollars
With the implementation of the new policies it is expected that Blanket Mine
will generate sufficient cash to be self funding, for working capital and
capital expenditure projects, and funding requirements for exploration
activities and general working capital of other operations will be met from the
proceeds received from the exercise of warrants in April 2007 and the expected
proceeds from the sale of Barbrook and Eersteling mines.
There are no other capital commitments that have a call on the companies'
available resources.
4. RELATED PARTY TRANSACTIONS
During the first quarter the company had the following related party
transactions, all amounts in thousands of Canadian dollars.
2007 2006 2005
Management, administrative services and benefits paid or
accrued to a company which employs the Company's
President $108 $108 $108
Rent paid to a company owned by members of the
President's family 12 12 12
These related party transactions were in the normal course of operations and are
recorded at the exchange amount.
5. CRITICAL ACCOUNTING POLICIES
There are two major areas where accounting estimates are made, asset impairment
and asset retirement obligation. As significant impairment provisions have
already been made against the assets and there is a reasonable level of
certainty around the estimate it is considered unlikely that any change in
estimate would result in a material impact on the results of the company. Based
on non-binding purchase offers made for Barbrook and Eersteling Mines no further
asset impairment has been made against these assets. The asset retirement
obligation is also considered to be estimated with a reasonable degree of
certainty, although the original estimation was calculated some years ago. The
estimation is accreted annually at 5% and thus any change in circumstances is
considered unlikely to have a material impact on the results of the company or
its operations.
In 2005 the Company adopted the accounting guideline issued by the Canadian
Institute of Chartered Accountants in respect of consolidation of variable
interest entities effective for years after November 1, 2004. The Company has
reviewed its interests and determined that the new guideline has not had a
material effect on the results of operations or the financial condition of the
Company.
6. CONTROLS
The CEO and CFO have evaluated the effectiveness of the Company's disclosure
controls and procedures and assessed the design of the Company's internal
control over financial reporting as of March 31, 2007, pursuant to the
certification requirements of Multilateral Instrument 52-109.
Management concluded that, as of December 31, 2005, a weakness existed in the
Company's disclosure controls and procedures being an inadequate understanding
of the extent of the disclosures required, with respect to certain details, in
the Company's annual Management Discussion and Analysis. However, based on
their evaluation, the CEO and CFO concluded that all required disclosures for
the year ended December 31, 2005 were ultimately made in accordance with the
regulations.
The Company has a Disclosure Committee consisting of four Directors and one
Officer, and has disclosure controls and procedures which it follows in an
attempt to ensure that it complies with all required disclosures on an adequate
and timely basis. The Company's Directors and Management, and the Disclosure
Committee, are making all reasonable efforts to ensure that the Company's
disclosures are made in full compliance with the applicable rules and
requirements. All reasonable efforts are also being made to ensure that the
Company's disclosure controls and procedures provide reasonable assurance that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company's Certifying Officers by others
within those entities.
7. FORWARD LOOKING STATEMENTS
This Management Discussion and Analysis contains certain forward-looking
statements relating but not limited to the Company's expectations, intentions,
plans and beliefs. Forward-looking information can often be identified by
forward-looking words such as 'anticipate', 'believe', 'expect', 'goal', 'plan',
'intend', 'estimate', 'could', 'should', 'may' and 'will' or similar words
suggesting future outcomes, or other expectations, beliefs, plans, objectives,
assumptions, intentions or statements about future events or performance.
Forward-looking information may include reserve and resource estimates,
estimates of future production, unit costs, costs of capital projects and timing
of commencement of operations, and is based on current expectations that involve
a number of business risks and uncertainties. Factors that could cause actual
results to differ materially from any forward-looking statement include, but are
not limited to, failure to establish estimated resources and reserves, the grade
and recovery of ore which is mined varying from estimates, capital and operating
costs varying significantly from estimates, delays in obtaining or failures to
obtain required governmental, environmental or other project approvals,
inflation, changes in exchange rates, fluctuations in commodity prices, delays
in the development of projects and other factors. Forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from expected results.
Potential shareholders and prospective investors should be aware that these
statements are subject to known and unknown risks, uncertainties and other
factors that could cause actual results to differ materially from those
suggested by the forward-looking statements. Shareholders are cautioned not to
place undue reliance on forward-looking information. By its nature,
forward-looking information involves numerous assumptions, inherent risks and
uncertainties, both general and specific, that contribute to the possibility
that the predictions, forecasts, projections and various future events will not
occur. Caledonia undertakes no obligation to update publicly or otherwise revise
any forward-looking information whether as a result of new information, future
events or other such factors which affect this information, except as required
by law.
8. ADDITIONAL INFORMATION
(a) As at April 30, 2007 the following securities of the Company were
outstanding:
- 480,871,021 common shares.
- 17,288,000 common share purchase options at an average price of
$0.204 maturing at various dates until January 23, 2017
- 33,287,626 common share purchase warrants exercisable at a price
of $0.20 per share at dates between 28 December 2007 and February
3, 2008.
- 9,748,259 share purchase warrants exercisable at a price of $0.15
per share until May 12, 2007.
- 2,190,000 share purchase warrants exercisable at a price of $0.18
per share until May 12, 2007.
- 17,000,000 share purchase warrants exercisable at a price of $0.16
per share until July 27, 2007.
(b) For further information about Caledonia reference is also made to its 2006
Annual Information Form dated April 10, 2007 filed with the Ontario Securities
Commission on its SEDAR site.
-------------------------------------------------
Caledonia Mining Corporation
Consolidated Balance Sheet
(in thousands of Canadian dollars)
Unaudited March 31 December 31
2007 2006
----------------------------------- --------- ---------
Assets
Current (see Note 6)
Cash and cash equivalents $126 $1,252
Accounts receivable 3,653 1,407
Inventories 16,814 5,738
Prepaid expenses 107 61
Assets held for sale 184 315
--------- ---------
20,884 8,773
Capital assets and mineral properties held for sale 11,703 11,449
Investment at cost 79 79
Capital assets 199 212
Mineral properties 12,321 10,943
--------- ---------
24,302 22,683
--------- ---------
$45,186 $31,456
--------- ---------
Liabilities and Shareholders' Equity
Current (see Note 6)
Bank overdraft $1,812 $-
Accounts payable 18,363 5,899
--------- ---------
20,175 5,899
Long term debt 52 46
Asset retirement obligation 811 811
Asset retirement obligation - held for sale 345 364
--------- ---------
21,383 7,120
Shareholders' Equity
Share Capital 190,626 190,626
Contributed surplus 989 989
Deficit (167,812) (167,279)
--------- ---------
23,803 24,336
--------- ---------
$45,186 $31,456
--------- ---------
On behalf of the Board:
'J Johnstone' Director
'F C Harvey' Director
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
-------------------------------------------------
Caledonia Mining Corporation
Consolidated Statement of Deficit
(in thousands of Canadian dollars)
For the three months ended March 31,
Unaudited 2007 2006 2005
------------------------------- -------- -------- --------
Deficit, beginning of period ($167,279) ($161,604) ($151,924)
Net (loss) for the period (533) (2,266) (1,786)
--------- --------- ---------
Deficit end of period ($167,812) ($163,870) ($153,710)
--------- --------- ---------
-------------------------------------------------
Caledonia Mining Corporation
Consolidated Statement of Operations
(in thousands of Canadian dollars except per share amounts)
For the three months ended March 31,
Unaudited 2007 2006 2005
------------------------------- -------- -------- --------
Revenue and operating costs (see Note 6)
Revenue from sales $13,401 $1 $1
Operating costs 13,516 294 181
-------- -------- --------
Gross (loss) (115) (293) (180)
-------- -------- --------
Costs and expenses (see Note 6)
General and administration 394 189 449
Interest 33 (2) (3)
Amortization 14 9 6
Other expenses (income) (Note 3) (280) (102) (134)
-------- -------- --------
161 94 318
-------- -------- --------
(Loss) before discontinued operation (276) (387) (498)
Taxation (2) - -
-------- -------- --------
(Loss) after tax before discontinued
operations (278) (387) (498)
Net (loss) for discontinued operations (255) (1,879) (1,288)
-------- -------- --------
Net (loss) for the period after discontinued
operations ($533) ($2,266) ($1,786)
-------- -------- --------
Net (loss) per share before discontinued
operations
Basic and fully diluted ($0.001) ($0.001) ($0.002)
Net (loss) per share after discontinued
operations
Basic and fully diluted ($0.001) ($0.006) ($0.006)
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
-------------------------------------------------
Caledonia Mining Corporation
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars)
For the three months ended March 31,
Unaudited 2007 2006 2005
----------------------------- --------- --------- ---------
Cash provided by (used in)
Operating activities (see Note 6)
Net (loss) before discontinued operations ($278) ($387) ($498)
Adjustments to reconcile net cash from operations
(note 4 ) (11) 41 40
Changes in working capital balances (note 4) (774) 746 (143)
--------- --------- ---------
(1,063) 400 (601)
--------- --------- ---------
Investing Activities (see Note 6)
Expenditure on capital assets and mineral
properties (1,664) (5) -
Financing activities (see Note 6)
Bank overdraft 1,812 84 -
Issue of share capital net of issue costs - 1,475 -
--------- --------- ---------
1,812 1,559 -
--------- --------- ---------
Cash flow from discontinued operations (see Note 6)
Operating activities (255) (1,879) (1,288)
Amortization - 172 152
Investing Activities - (1,030) (1,343)
--------- --------- ---------
(255) (2,737) (2,479)
--------- --------- ---------
Increase (decrease) in cash for the period (see
Note 6) (1,170) (783) (3,080)
Cash and cash equivalents, beginning of the period 1,298 1,076 6,470
--------- --------- ---------
Cash and cash equivalents, end of the period 128 293 3,390
--------- --------- ---------
Cash and cash equivalents at end of the period
relate to:
Continuing operations 126 574 3,395
Discontinued operations 2 (281) (5)
--------- --------- ---------
$128 $293 $3,390
--------- --------- ---------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
Caledonia Mining Corporation
Summary of Significant Accounting Policies
(in thousands of Canadian Dollars)
Nature of Business
The Company is engaged in the acquisition, exploration and development of
mineral properties for the exploitation of base and precious metals. The ability
of the Company to recover the amounts shown for its capital assets and mineral
properties is dependent upon the existence of economically recoverable reserves;
the ability of the Company to obtain the necessary financing to complete
exploration and development; and future profitable production or proceeds from
the disposition of such capital assets and mineral properties.
Basis of Presentation
These financial statements have been prepared on the basis of a going concern,
which contemplates that the Company will be able to realize assets and discharge
liabilities in the normal course of business. The Company's ability to continue
as a going concern is dependent upon attaining profitable operations, realizing
proceeds from the disposal of mineral properties and obtaining sufficient
financing to meet its liabilities, its obligations with respect to operating
expenditures and expenditures required on its mineral properties.
Measurement Uncertainties
Preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. The more significant areas
requiring estimates relate to mineral resources, future cash flows associated
with capital assets and mineral properties. Management's calculation of reserves
and resources and cash flows are based upon engineering and geological estimates
and financial estimates including gold prices and operating costs. The amount
ultimately recovered could be materially different than the estimated values.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
together with all its subsidiaries, all 100% owned. All significant
inter-company balances and transactions have been eliminated on consolidation.
Barbrook Mines Limited Caledonia Mining (Zambia) Limited
Blanket (Barbados) Holdings Limited Caledonia Nama Limited
Blanket Mine (1983) (Private)Limited Caledonia Western Limited
Caledonia Holdings (Africa)Limited Eersteling Gold Mining Company Limited
Caledonia Holdings Zimbabwe Limited Fintona Investments (Proprietary) Limited
Caledonia Kadola Limited Greenstone Management Services (Proprietary)
Limited
Caledonia Mining Services Limited Maid O'Mist (Proprietary) Limited
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand in operating bank accounts,
cash in transit at year end between Blanket Mine in Zimbabwe and Greenstone
Management Services in South Africa and money market funds maturing in less than
three months.
Inventories
These include gold in circuit (WIP) and bulk consumable stores. WIP is valued at
the lower of the cost of production, on an average basis, at the various stages
of production or net realizable value if the cost of production exceeds the
current gold price. Bulk consumable stores are valued at the lower of cost or
net realizable value on an average basis.
Investments
The market securities are recorded at cost, a declining value of market
securities that is other than temporary would be recognized by writing down the
investment.
Revenue Recognition
Revenue from the sale of precious metals is recognized when the metal is
delivered to the respective refineries, benefits of ownership are transferred
and the receipt of proceeds is substantially assured.
Capital Assets
Producing Assets
Producing assets are recorded at cost less grants, accumulated amortization and
write-downs. Producing plant and equipment assets are amortized using the
unit-of-production method on the ratio of tonnes of ore mined or processed to
the estimated proven and probable mineral reserves as defined by the Canadian
Institute of Mining, Metallurgy and Petroleum.
Other producing assets are amortized using the straight line method basis on the
estimated useful lives of the assets. The estimated life of the producing assets
ranges up to 10 years. Repairs and maintenance expenditures are charged to
operations; major improvements and replacements which extend the useful life of
an asset are capitalized and amortized over the remaining useful life of that
asset. Barbrook Mine and Eersteling Gold Mine have been put up for sale and are
thus presented as assets for sale in these financial statements.
Non-Producing Assets
Non-producing assets are recorded at cost less write downs. At the time of
commercial production, the assets are reclassified as producing. During
non-producing periods, no amortization is recorded.
Mineral Properties
Producing Properties
When and if properties are placed in production, the applicable capitalized
costs are amortized using the unit-of-production method as described above.
Blanket Mine was acquired during 2006 and has been consolidated into these
results from July 1, 2006 and, as such, has been presented as a producing asset
in these financial statements.
Non-Producing Properties
Costs relating to the acquisition, exploration and development of non-producing
resource properties which are held by the Company or through its participation
in joint ventures are capitalized until such time as either economically
recoverable reserves are established or the properties are sold or abandoned.
A decision to abandon, reduce or expand activity on a specific project is based
upon many factors including general and specific assessments of mineral
reserves, anticipated future mineral prices, anticipated costs of developing and
operating a producing mine, the expiration date of mineral property leases, and
the general likelihood that the Company will continue exploration on the
project. However, based on the results at the conclusion of each phase of an
exploration program, properties that are not suitable as prospects are
re-evaluated to determine if future exploration is warranted and that carrying
values are appropriate.
The ultimate recovery of these costs depends on the discovery and development of
economic ore reserves or the sale of the properties or the mineral rights. The
amounts shown for non-producing resource properties do not necessarily reflect
present or future values.
Discontinued Operations
During the fourth quarter of 2006 Barbrook Mine was subjected to illegal
industrial action by employees of a labour broker. Due to the damage caused
during and after the industrial action the mine was placed on care and
maintenance. At a subsequent meeting of the Board of Directors it was resolved
that Barbrook Mine and Eersteling Gold Mine would be put up for sale.
As a consequence of this decision Barbrook and Eersteling Mine's results for
2006 and preceding years have been disclosed under discontinued operations.
Asset Impairment
Long-lived assets are reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If changes in circumstances indicate that the carrying amount of
an asset that an entity expects to hold and use may not be recoverable, future
cash flows expected to result from the use of the asset and its disposition must
be estimated. If the undiscounted value of the future cash flows is less than
the carrying amount of the asset, impairment is recognized based on the fair
value of the assets.
Strategic Alliances
The Company has entered into various agreements under which the participants
earn a right to participate in the mineral property by incurring exploration
expenditures in accordance with the conditions of the agreements. Upon
satisfaction of the conditions of the agreement a joint venture may be formed
with customary joint venture terms and provisions and then accounted for on a
proportionate consolidation basis. Until a joint venture is formed only the
expenditures on the properties incurred by the Company are reflected in these
financial statements.
Foreign Currency Translation
Balances of the Company denominated in foreign currencies and the accounts of
its foreign subsidiaries are translated into Canadian dollars as follows:
(i) monetary assets and liabilities at period end rates;
(ii) all other assets and liabilities at historical rates, and
(iii) revenue and expense transactions at the average rate of exchange
prevailing during the period.
Exchange gains or losses arising on these translations are reflected in income
in the year incurred.
Blanket is a self-sustaining operation and operates in Zimbabwe in a hyper
inflationary economy. Accordingly the results of these operations have been
translated into Canadian Dollars using the temporal method as described above.
In the preparation of the financial statements shown on pages 10-12 the official
Zimbabwe exchange rate of Z$250: USD1, and the applicable USD : CND exchange
rate, has been used to translate the results of Blanket Mine into Canadian
dollars. See Note 6 below for an explanation of a subsequent revision of the
exchange rate announced by the Governor of the Reserve Bank of Zimbabwe and the
effect it would have had on the presentation of the financial statements.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period that
substantive enactment or enactment occurs.
Change in Accounting Policies
There have been no changes in accounting policy during the current or preceding
years.
Caledonia Mining Corporation
Notes to the Consolidated Financial Statements
(in thousands of Canadian Dollars unless otherwise indicated and except for
share and per share amounts)
1. Share Capital
(a) Authorized
An unlimited number of common shares.
An unlimited number of preference shares.
(b) Issued
Number of Shares Amount
Common shares
Balance, December 31, 2004 301,112,286 $173,304
Issued pursuant to private placements 52,738,888 4,733
Warrants exercised 16,863,962 2,016
------------ -----------
Balance, December 31, 2005 370,715,136 $180,053
Issued pursuant to private placement 15,437,626 1,475
Issued pursuant to a private placement 34,828,259 3,924
Issued pursuant to acquisition 20,000,000 3,014
Issued pursuant to a private placement 17,000,000 2,160
------------ -----------
Balance ,December 31 , 2006 457,981,021 $190,626
------------ -----------
Balance ,March 31 , 2007 457,981,021 $190,626
------------ -----------
On April 27, 2007 warrants amounting to 22,890,000 units were exercised and an
equivalent number of shares were issued at a price of $0.15 per share realizing
$3,330,495 after commission.
(c) Stock Option Plans and Stock-Based Compensation
The Company has established incentive stock option plans (the 'Plans') for
employees, officers, directors, consultants and other service providers. Under
the Plans, as at March 31, 2007, the Company has the following options
outstanding:
Number of Options Exercise Price Expiry Date
803,000 $ 0.330 February 9, 2008
9,950,000 $ 0.235 April 24, 2012
225,000 $ 0.345 June 2, 2012
610,000 $ 0.260 April 29, 2014
200,000 $ 0.260 August 15, 2014
4,000,000 $ 0.110 February 15, 2015
1,000,000 $ 0.140 July 10, 2010
300,000 $0.130 May 11,2016
200,000 $0.110 January 23,2017
------------
17,288,000
------------
The continuity of the options granted, exercised, cancelled and expired under
the Plans during 2007, 2006 and 2005 are as follows:
Number of Options Weighted Avg. Exercise Price
---------- ---------------
Options outstanding at
December 31, 2004 13,108,700 $0.26
Granted 5,000,000 $0.12
Cancelled or expired (1,210,700) ($0.43)
---------- ---------------
Options outstanding at
December 31, 2005 16,898,000 $0.21
Granted 300,000 $0.13
Granted 150,000 $0.115
Cancelled or expired (110,000) ($0.27)
---------- ---------------
Options outstanding at
December 31, 2006 17,238,000 $0.21
Cancelled or expired (150,000) ($0.115)
Granted 200,000 $0.11
---------- ---------------
Options outstanding at
March 31, 2007 17,288,000 $0.204
---------- ---------------
The options to purchase common shares noted above, have been granted to
directors, officers, employees and service providers at exercise prices
determined by reference to the market value of the common shares on the date of
grant. The vesting of options is made at the discretion of the board of
directors at the time the options are granted.
(d) Warrants
The Company has issued the following common share purchase warrants pursuant to
private placements which are outstanding as of March 31, 2007:
Number of Shares for Exercise Price Expiry Date
Warrants Warrants
85,115,885 1 for 1 Various from $0.15 to Various to February 03,
$0.20 2008
On April 27, 2007 warrants amounting to 22,890,000 units were exercised and an
equivalent number of shares were issued at a price of $0.15 per share realizing
$3,330,495 after commission.
The detail of the warrants issued is detailed below.
Number Description Exercise Validity
Price
17,850,000 Common share purchase $0.20 Until December 28, 2007
warrants
10,000,000 Common share purchase $0.20 Until January 31, 2008
warrants
2,715,476 Common share purchase $0.20 Until February 2, 2008
warrants
2,722,150 Common share purchase $0.20 Until February 3, 2008
warrants
22,890,000 Common share purchase $0.15 Until April 28, 2007
warrants
9,748,259 Common share purchase $0.15 Until May 12, 2007
warrants
2,190,000 Common share purchase $0.18 Until May 12, 2007
warrants
17,000,000 Common share purchase $0.16 Until July 27, 2007
warrants
The continuity of warrants issued and outstanding is as follows:
Number of Warrants
------------
Outstanding December 31, 2004 39,232,909
Exercised (16,863,962)
Expired (22,368,947)
Issued pursuant to private placements 17,850,000
------------
Outstanding December 31, 2005 17,850,000
Issued pursuant to private placements 67,265,885
------------
Outstanding December 31, 2006 85,115,885
------------
Outstanding March 31, 2007 85,115,885
------------
2. Net Income/(Loss) Per Share
The net basic income(loss) per share figures have been calculated using the
weighted average number of common shares outstanding during the first quarter
which amounted to 457,981,021 (2006 -380,714,447; 2005 - 301,112,286 ;). Fully
diluted earnings per share have not been calculated as it would be
anti-dilutive.
3. Other Expense (Income) before discontinued operations
Other expense (income) is comprised of the following:
2007 2006 2005
Foreign exchange (gain)loss (255) (102) (134)
Other (25) - -
--------- --------- ---------
($280) ($102) ($134)
--------- --------- ---------
4. Supplemental Cash Flow information
Items not involving cash are as follows:
2007 2006 2005
Amortization $14 $9 $6
Provision for site restoration (19) 12 -
Blanket long term liability 6 - -
Other (12) 20 34
------- --------- ---------
($11) $41 $40
------- --------- ---------
The net changes in non-cash working capital balances for operations are as
follows:
2007 2006 2005
Accounts payable $12,464 $667 $(155)
Accounts Receivable (2,246) 353 68
Inventories (11,076) (272) 29
Prepaid expenses (46) (2) (85)
Assets held for sale 131 - -
--------- --------- ---------
($774) $746 ($143)
--------- --------- ---------
5. Contingent Liability
In the Share Sale Agreement dated May 12, 2006 pursuant to which the Company
purchased 100% of the shares of Blanket, the Company agreed that it would, as
soon as reasonably practicable after the Closing of the Agreement, cause Blanket
to implement a share incentive scheme considered by the Directors to be in the
best interests of Blanket, pursuant to which a percentage of the shares of
Blanket will be deposited in a Trust for the benefit of the management and
employees of Blanket. As at December 31, 2006 no scheme had been established,
nor were any shares of Blanket deposited in a Trust for the purposes of such a
scheme. The Company and the Board of Directors of Blanket, have expressed their
intention to delay the establishment of the required scheme pending the passing
of anticipated Zimbabwe laws relating to the indigenization of the mining
industry, as it is recognized that the Zimbabwean laws, when passed, will likely
have a material impact on the structure of the proposed scheme and the
percentage of the issued shares of Blanket required to be put into trust for the
purposes of the scheme.
6. Subsequent Events
On April 26, 2007 the Governor of the Reserve Bank of Zimbabwe announced an
Interim Monetary Policy Statement, the content of which affects Caledonia Mining
Corporation as per the table below. The table illustrates the policy changes
announced that affect Blanket Mine:
Policy Item Old Policy New Policy from April 26, 2007
Gold revenue per gram Z$16,000 per gram Z$350,000 per gram
when sold for
Zimbabwe dollars
Gold revenue ratio 67,5% received in US 60% received in US dollars and
when sold for US dollars and 32,5% received 40% received in Zimbabwe
dollars in Zimbabwe dollars dollars
Method of calculating Gold ounces x USD price of Gold ounces x USD price of gold
the amount of gold x Z$250 = Zimbabwe x Z$250 x 60 (drought relief
Zimbabwe dollars for dollar revenue. Effective factor) = Zimbabwe dollar
the 32,5% and 40% exchange rate Z$250: revenue. Effective exchange
above USD1 rate Z$15,000: USD1
Exchange rate paid Z$250: USD1 Z$15,000: USD1
when US dollars sold
to RBZ
Retention period of Indefinite Indefinite
US dollars by
Blanket
The announcement made addresses a number of issues being experienced by industry
in Zimbabwe and brings the effective exchange rate received by businesses closer
to the unofficial parallel market rate that affects all industries.
It is clear that the above announcement will affect the reporting of the results
of Blanket Mine for the 2nd quarter and thereon.
In an attempt to understand the effect this new Monetary Policy will have on the
results of Blanket Mine and thus Caledonia Mining Corporation, we present a
comparative table of results below which compares the results as per the
Financial Statements on pages 10 - 12 to adjusted results that may have been
presented if the Interim Monetary Policy had been announced on March 31, 2007.
The adjusted results are arrived at by translating the Blanket Mine results for
Q1 (as per the note above Foreign Currency Translation) at the foreign currency
exchange rates per the table below:
Exchange rates Z$: Exchange rates Z$:
CND1 CND1
------------------ ------------------
As per Financial Adjusted after
Statements Interim Monetary
Policy Statement
------------------ ------------------
Monetary assets and liabilities at Z$ 216.28 Z$ 12,977.00
period end rates ------------------ ------------------
------------------
All other assets and liabilities at Z$ 90.34 Z$ 90.34
historical rates ------------------ ------------------
------------------
Revenue and expense transactions at the Z$ 213.30 Z$ 840.00
average rate of exchange prevailing ------------------ ------------------
during the period.
------------------
The comparatives provided are only for the items that would have changed
materially.
Actual - in thousands Adjusted - in thousands
of Canadian dollars of Canadian dollars
------------------ ------------------
Accounts
receivable 3,653 456
------------------ ------------------
Inventories 16,814 5,397
------------------ ------------------
Prepaid
expenses 107 13
------------------ ------------------
Bank overdraft 1,812 30
------------------ ------------------
Accounts payable 18,363 3,252
------------------ ------------------
------------------ ------------------
Revenue from sales 13,401 3,664
------------------ ------------------
Operating costs 13,516 3,746
------------------ ------------------
------------------ ------------------
Other expenses (income) (280) (1,361)
------------------ ------------------
------------------ ------------------
Income(Loss) after tax before discontinued (278) 869
operations ------------------ ------------------
Net Income(loss) for the period after
discontinued (533) 613
operations ------------------ ------------------
------------------ ------------------
Expenditure on capital assets and mineral (1,664) (574)
properties ------------------ ------------------
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