3rd Quarter Results
Caledonia Mining Corporation
14 November 2005
CALEDONIA MINING CORPORATION
THIRD QUARTER REPORT: 2005
2005 THIRD QUARTER HIGHLIGHTS
Barbrook Gold Mine
- Gold production decreased to 1,497 ounces (Q2: 1,712 ounces) as a result of
gold losses in the carbon removal circuit and having to mill development ore
which reduced the mining grade. The plant feed-grade for the quarter was
4.37 g/t (Q2:4.80 g/t). Compared to the nine months to September 2004, gold
production increased by over 400% from 801 ounces to 4,134 ounces.
- The plant throughput at 20,451 tonnes (Q2: 18,528 tonnes) was the highest
since the plant restart in 2003.
- Expansion of the metallurgical plant to treat 15,000 tonnes per month is
currently underway. Initial construction started in late September and is
expected to take 3 to 4 months at an estimated cost of $1.51 million to be
funded from operating cash flows. The plant expansion incorporates ultra-fine
milling, flash flotation of the whole primary mill discharge, and an eight-tank
new Resin-in-Leach (RIL) circuit with longer retention time.
- As previously reported, the decision on the construction of a Biox(R) plant
will be deferred until this plant expansion is completed and has been assessed.
Exploration
- First phase of drilling on the Grasvally platinum property was completed in
August with a total of 979 meters drilled during the quarter to complete the
four-hole program.
- Exploration drilling at Rooipoort and adjoining areas of Grasvally has
identified a number of target areas. A drilling program for 2006 is under
preparation.
- A series of exploration targets has been identified along 12km of known gold
bearing structures at the Eersteling Gold Project. Exploration in these areas is
planned for 2006.
- Four holes totaling 392 meters were drilled adjacent to the Stellaria
diamondiferous kimberlite at the Kikerk Lake joint venture in Canada.
- Eleven targets have been identified for the Mulonga Plain drilling program
which was started in October.
Corporate
- During September, Caledonia amended the terms of 27,232,909 outstanding share
purchase warrants. All the warrants were exercisable at $0.11 per share on or
before October 31, 2005.
- During the quarter, 625,000 warrants were exercised, raising $69,000.
Subsequently, a further 16,238,962 were exercised, raising an additional
$1,786,000.
- Discussions with a number of large cobalt end-users continue with a view to
signing long- term purchase agreements.
2005 OBJECTIVES AND ACHIEVEMENTS
2005 Objectives Achievements to end September 2005
Return Barbrook Gold Mine in Over 400% increase in gold production compared
South Africa to economic gold to the nine months to September 2004, from 801
production. ounces to 4,134 ounces and tonnes milled have
increased from 20,296 to 51,676. Commenced
capital projects to expand the mine and plant
throughput to 15,000 tpm.
Continue developing additional Development during the quarter was focused on
reserves and resources at opening up the ore bodies for mining and on
Barbrook Gold Mine. the development of additional ore reserves.
Obtain the Prospecting Rights for Obtained the Prospecting Rights for Grasvally.
the Grasvally portions of the Drilling programme completed with 4,094 metres
Rooipoort Platinum Exploration drilled during the second and third quarters
Project. on Grasvally.
Complete the feasibility studies Biox(R) testwork was almost complete at the
of installing a Biox(R) bacterial end of the third quarter. Updated Biox(R)
leach and/or ultra-fine milling operating costs have been determined. The test
and/or Dense Media Separation results will enable a final Biox(R) plant
circuit at Barbrook Gold Mine and design to be completed. The design will be
commence construction. tailored to the current plant expansion,
however the decision to proceed with Biox(R)
will be postponed until the plant expansion
has been assessed. Ultra fine-milling testwork
has been completed and shows a significant
reduction in gold residue losses from the
plant. There is also a potential saving in the
milling cost. Ultra fine-milling is included
in the 15,000 tpm plant expansion circuit.
Identify the platinum resource on Commenced modeling of the deposit, based on
the Rooipoort and Grasvally the drilling results, to produce grade tonnage
properties which form the and percentage waste curves in order to
Rooipoort Platinum Exploration develop insitu mineable values for the various
Project in South Africa. scenarios. This will form the basis for
reporting an 'inferred resource', i.e.
potentially economic based on the mining and
processing criteria.
From the existing exploration Follow-up aeromagnetic survey and gold-in-soil
information and the recently results together with compilation of previous
completed high resolution work has highlighted the near surface gold
airborne Geophysics and Soil potential along 12km of known gold bearing
Chemical Programs, identify and structures in the Eersteling area. Similar
drill possible extensions to the compilation in the Zandrivier area has
known ore zones on the Eersteling identified a number of potential target
and Zandrivier Mining Licence structures for similar work.
areas.
Confirm the feasibility of Further testwork by Mintek continued.
producing an economic cobalt Reinterpretation of the airborne geophysical
concentrate from the Nama data was commenced and completed during July.
property in Zambia. Construct a A number of as yet untested areas have been
pilot plant at Nama to produce a identified for follow-up.
cobalt concentrate for testing.
Conclude an agreement with a Signed Letter of Intent with a Refinery and
cobalt end producer to purchase they have commenced preliminary testwork. An
cobalt concentrate produced at amendment to the existing Environmental Brief
Nama or possibly form a strategic to allow pilot plant operations has been
alliance to achieve this approved by the Environmental Council of
objective. Zambia.
Seek a joint-venture partner to Discussion ongoing with various interested
commence an exploration program parties.
at the Kadola copper/cobalt and
the Eureka copper/gold properties
in Zambia.
Expand the Board of Directors to Rupert Pardoe joined the Board as
address ongoing Corporate non-executive Chairman and the various Board
Governance requirements. Committees were restructured accordingly.
Implement succession plans for Succession plan developed and being
senior executive and operational considered.
staff.
Strengthen the Investor Relations Appointed BuckBias as Caledonia's IR and PR
and Public Relations functions. consultants for all markets.
List Caledonia on the London Caledonia successfully listed on AIM on June
Stock Exchange Alternative 27 with an issue of 34,888,888 new shares.
Investment Market with an issue
of new shares to support the
activities required to meet these
objectives.
Management's Responsibility for Financial Reporting
To the Shareholders of Caledonia Mining Corporation:
The accompanying unaudited consolidated financial statements of Caledonia were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the summary
of significant accounting policies in these consolidated financial statements.
Management is responsible for all information in the quarterly report. All
financial and operating data in the quarterly report is consistent, where
appropriate, with that contained in the audited 2004 consolidated annual
financial statements.
The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee
composed of three directors, none of whom is a member of management. This
Committee meets with management to ensure that it is performing its
responsibility to maintain financial controls and systems and to approve the
quarterly consolidated financial statements of Caledonia.
The consolidated financial statements have not been reviewed by Caledonia's
auditors.
CALEDONIA MINING CORPORATION November 1, 2005
Management's Discussion and Analysis
Expressed in Canadian Dollars
This discussion provides updated information to the Management Discussion and
Analysis contained in Caledonia's Annual Report for 2004 and in the Second
Quarter 2005 Report. Where no comments are made, there are no updates to report
since the publication of the Second Quarter Report on August 12, 2005.
OPERATIONAL REVIEW
Barbrook Mines Limited
The momentum of production improvements reported in the second quarter continued
in July and August. During September, production was affected by crusher
problems. Tonnage milled during the quarter totaled 20,451 grading 4.37 g/t (Q2:
18,582 tonnes grading 4.80 g/t). Gold production decreased by 11% to 47kg (1,497
ounces) compared to 53kg (1,712 ounces) in the second quarter largely the result
of metallurgical recoveries decreasing to 52% compared to 60% and the milling of
development ore which dropped the mill feed grade. The decrease in metallurgical
recoveries resulted from gold losses in the carbon separation circuit. A new
Metallurgical Plant Manager was appointed and started work during late September
2005.
As reported last quarter, the mining sequence necessitated that a lower than
average grade block of ore be mined during July and August adversely affecting
the feed grade to the plant. A concerted effort was made to improve the grade
from underground however this did not materialize in the plant feed because of
dilution from lower grade material in both the underground and surface
stockpiles.
To improve mining efficiency and working conditions, long-hole drilling
equipment was commissioned in the stoping area in October.
Because of the crusher problems underground crews have concentrated on
development advance. In addition to opening up Taylor's zone on 7 level, stope
preparation work has been conducted for Taylor's zone on 10A level and for
Twala's zone on 10 level.
Development to access the Victory/Daylight zone from the main tramming level is
continuing. This development will provide an opportunity to transport ore from
these zones to the metallurgical plant.
Development advance during the quarter totaled 857 meters compared with 656
meters advance in the second quarter.
Design for a plant expansion to 15,000 tonnes per month were finalized and
initial construction began in September. The cost is estimated at $1.51 million
and will be funded from operating cash flows. Construction will take 3 to 4
months and incorporates the present crusher circuit, the installed and
rehabilitated 1,300kw primary mill, a new flash flotation cell treating the
whole mill discharge, the existing rougher, scavenger and cleaner (partial)
flotation sections. The flotation concentrate will be cleaned of the
preg-robbing organic carbon contaminant in an expanded Deister table/multi
wash-cyclone circuit. The virtually carbon-free concentrate will be ultra-fine
milled in a new milling circuit, pre-oxidised/conditioned in an expanded
'Aachen' circuit.
Gold will be recovered in a new and larger eight-tank RIL section using
existing, rehabilitated carbon-in-leach tanks from the original Barbrook circuit
and a new resin elution plant and expanded gold electro-winning circuit.
Ultra fine-milling testwork has been completed and shows a significant reduction
in gold residue losses from the plant. There is also a potential saving in the
milling cost. Ultra fine-milling is included in the plant expansion.
As mentioned last quarter, the decision on whether or not to construct a Biox(R)
metallurgical process has been deferred until the expanded plant is operational
in 2006 and its gold recoveries can be economically quantified. However, in
preparation of a final decision, Biox(R) testwork was almost complete at the end
of the third quarter and updated Biox(R) operating costs have been determined.
The test results will enable a final Biox(R) plant design to be completed.
Tragically, one of our employees was killed in an underground accident at
Barbrook on October 7, 2005. An enquiry into the accident was held by Barbrook
management and by the Department of Mines and Energy ('DME'). The results of the
DME enquiry are awaited.
Barbrook Mines Ltd. - Production Results 3rd Quarter
2005 2004
Ore mined Tonnes 22,931 11,824
Development advance Meters 857 628
Ore milled Tonnes 20,451 11,567
Grade milled g/t 4.37 5.60
Gold sold Ounces 1,497 386
During October a failure in the electrical earth (grounding) protection was
identified on the Barbrook property. This required upgrading of the electrical
infrastructure. The Barbrook operation was interrupted for two weeks while this
work was carried out. Operations resumed on October 31st.
CONSOLIDATED FINANCIAL RESULTS
For the quarter ended September 30, 2005, Caledonia recorded an operating loss
of $1.3 million ($0.004 per share) compared with an operating loss of $1.9
million ($0.006 per share) in 2004 and an operating loss of $0.7 million ($0.003
per share) in 2003.
The net loss after all expenses, increased amortization charges as a result of a
change in application of the amortization policy (see Note 3), ongoing
exploration and assay costs, Nama testwork costs and unrealized exchange losses
(see Note 3) was $2.6 million ($0.008 per share) for the quarter ended September
30, 2005. Previously reported results, which excluded amortization, were a net
loss of $2.2 million ($0.008 per share) in 2004 and a net loss of $1.1 million
($0.005 per share) in 2003.
Financing
During the quarter, 625,000 warrants were exercised, raising $69,000.
Subsequently, a further 16,238,962 were exercised, raising an additional
$1,786,000. Barbrook outsourced its consumable stores operation resulting in a
once-off cash inflow of $543,000 from the sale of its consumables inventory.
EXPLORATION AND PROJECT DEVELOPMENT
Eersteling Gold Exploration Project, South Africa
Field work focussed on mapping of known mineralised reef structures around the
Doreen Shaft and the Pienaar and Girlie Reefs. Compilation of previous
information was integrated with the results of the high resolution aeromagnetic
survey flown in January 2005 and gold-in-soil sampling completed in the 1st
quarter.
The near surface gold potential of at least 8km of gold bearing structures along
the Doreen, Pienaar and Girlie structures was highlighted. Only Girlie has been
systematically drilled (by Anglo American in 1980's) and has a shaft to 60m with
limited development. Pienaar was excavated on surface to 10m depth by
Eersteling's predecessors in early 1990's. Doreen has a 60m shaft and 100m of
underground development on strike as well as a number of old winzes in an oxide
zone and has been systematically trenched. These trenches are currently being
cleaned and resampled. This will be followed by similar work along the Pienaar
strike. Apart from the 220m Franka shaft that was used to access and mine the
Maltz reef by previous owners, all other reefs are essentially unmined.
Diamond drilling is planned to commence early in 2006 to systematically test the
structures initially to 100m depth.
Zandrivier Mine Area, South Africa
This area lies some 20km ENE of the Eersteling Mine Area. Similar compilation of
previous records has commenced. Integration with new high resolution
aeromagnetic survey flown in January 2005 will assist to identify priority
target areas for further work.
Rooipoort Platinum Exploration Project, South Africa
In all forty five holes totalling 16,594 meters have been drilled at Rooipoort
and have produced a wealth of geological and assay data that provides a platform
for further assessment of the platinum group elements / nickel / copper and gold
potential of this and adjoining properties.
Exploration work on the Rooipoort Project has proved the existence of extensive
zones of platinum group elements and gold, nickel and copper sulphide
mineralization in rocks that can be correlated with the Critical Zone of the
Bushveld Complex, the host to nearly all the major producing platinum mines in
the world.
Grasvally Platinum Exploration Project, South Africa
A total of 979 meters was drilled on the Grasvally property during the quarter.
This completes the current phase of drilling. Composite results from the nine
holes drilled at Grasvally will be included in the Project Status Report.
Eric Roodt B.Sc (Hons), Pr.Nat.Sci., Senior Geologist is the Qualified Person
for the Eersteling, Rooipoort and Grasvally Exploration Projects.
Nama Cobalt Project, Zambia
Caledonia has signed a Letter of Intent with a large cobalt refinery as the
first step towards an agreement for the long-term supply of cobalt concentrates
from Nama. The refinery is conducting preliminary metallurgical testwork on
concentrate samples recovered from the 'A' anomaly at Nama. This work is
expected to be completed during the fourth quarter. Provided that a commercial
process is satisfactory, the details of the long-term purchase agreement will be
finalized and a pilot plant will be built as soon as practical at Nama with
technical assistance from the refinery.
A re-interpretation of the airborne geophysics was completed during the quarter
and has identified hitherto untested areas for further exploration and improved
the understanding of the structural control over the mineralization of the
properties. A follow-up study is now being commissioned to confirm these
conclusions. This work should be completed by year end.
Discussions are being held with a number of other large cobalt end-users
regarding long-term purchase agreements.
Kikerk Lake Diamond Project, Canada
The summer drilling program consisting of four holes and totaling 392 meters was
completed in August. Three holes were drilled close to the Stellaria
diamondiferous kimberlite, the fourth hole tested an unresolved indicator
mineral anomaly 200 meters east of Stellaria. The drilling indicates a rapid
decrease in kimberlite mass immediately east and west of the Stellaria discovery
holes.
Mulonga Plain Diamond Project, Zambia
Eleven targets have been identified for the drilling program which started in
September and is progressing well. The drill program, which will be completed in
the fourth quarter, is concentrating on the eastern portion of the extensive
(120 x 15 kilometer) high-abundance kimberlitic indicator mineral anomaly
identified by Motapa Diamonds Inc., the Project Manager. An airborne gravity
survey was flown over this eastern portion at the end of last year. The targets
being tested include both gravity and magnetic anomalies.
SUPPLEMENT TO THE FINANCIAL STATEMENTS
On September 14, 2005 Caledonia amended the terms of 27,232,909 outstanding
share purchase warrants which had exercise dates from September 29 to October
26, 2005 and were exercisable at $0.55 per share. All warrants became
exercisable at $0.11 per share on or before October 31, 2005, of which
16,863,962 were exercised and the balance expired unexercised.
As at September 30, 2005 the following securities were outstanding:
336,626,174 common shares.
16,898,000 common share purchase options at an average price of $0.21 maturing
at various dates until February 1, 2015.
26,607,909 common share purchase warrants exercisable at a price of $0.11 per
share until October 31, 2005.
Barbrook elected to outsource its consumable stores operation to a division of
Afrox Safety Limited ('Afrox') that specializes in stores management. In
addition to the anticipated ongoing cost benefits, Afrox purchased the existing
inventory of consumables at the full book value of $543,000, paid on
commencement of the outsourcing arrangement in October.
Both the exercising of the warrants and the outsourcing agreement added
significantly to cash reserves in the fourth quarter.
Caledonia Mining Corporation
Consolidated Balance Sheets
(in thousands of Canadian dollars)
September 30, December 31,
(Unaudited) 2005 2004
Assets
Current
Cash and short term deposits 94 6,470
Accounts receivable 361 316
Inventories 621 508
Prepaid expenses 168 187
--------- ---------
1,244 7,481
Investment at cost 79 79
Capital assets 6,897 7,158
Mineral properties 11,452 8,948
--------- ---------
19,672 23,666
---------------------------------- --------- ---------
Liabilities and Shareholders' Equity
Current
Accounts payable 1,066 1,062
Provision for site restoration 407 423
--------- ---------
1,473 1,485
--------- ---------
Shareholders' Equity
Share capital (Note 1) 176,539 173,304
Contributed surplus 742 480
Compensation warrants 468 321
Deficit (159,550) (151,924)
--------- ---------
18,199 22,181
--------- ---------
19,672 23,666
---------------------------------- --------- ---------
Caledonia Mining Corporation
Consolidated Statements of Deficit
(in thousands of Canadian dollars)
Three month period ended Nine month period ended
September 30, September 30,
(Unaudited) 2005 2004 2003 2005 2004 2003
Deficit,
beginning of
period (156,986) (145,180) (128,955) (151,924) (142,020) (127,325)
Net (loss) for
the period (2,564) (2,250) (1,080) (7,626) (5,410) (2,710)
--------- --------- --------- --------- --------- ---------
Deficit, end
of period (159,550) (147,430) (130,035) (159,550) (147,430) (130,035)
Consolidated Statements of Operations
(in thousands of Canadian dollars except per share amounts)
Three month period ended Nine month period ended
September 30, September 30,
(Unaudited) 2005 2004 2003 2005 2004 2003
Revenue and
operating costs
Revenue from sales 743 202 259 2,189 372 312
Operating costs 2,052 2,054 929 6,193 4,765 2,249
--------- --------- --------- --------- --------- ---------
Operating profit
(loss) (1,309) (1,852) (670) (4,004) (4,393) (1,937)
--------- --------- --------- --------- --------- ---------
Costs and expenses
General and 341 365 378 1,565 1,324 1,006
administrative
Interest 4 (10) 24 9 53 63
Other expense 910 43 8 2,048 (347) (296)
(income) (Note 3) --------- --------- --------- --------- --------- ---------
1,255 398 410 3,622 1,030 773
--------- --------- --------- --------- --------- ---------
(Loss) before
non-controlling
interest (2,564) (2,250) (1,080) (7,626) (5,423) (2,710)
Non-controlling
interest - - - - (13) -
--------- --------- --------- --------- --------- ---------
Net (loss) for the
period (2,564) (2,250) (1,080) (7,626) (5,410) (2,710)
------------------- --------- --------- --------- --------- --------- ---------
Operating (loss) per share
(Note 2)
Basic and
fully diluted ($0.004) ($0.006) ($0.003) ($0.013) ($0.015) ($0.009)
Net (loss) per share
(Note 2)
Basic and
fully diluted ($0.008) ($0.008) ($0.005) ($0.024) ($0.019) ($0.012)
------------------ --------- --------- --------- --------- --------- ---------
Caledonia Mining Corporation
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three month period ended Nine month period ended
September 30, September 30,
(Unaudited) 2005 2004 2003 2005 2004 2003
Cash provided by
(used in)
Operating activities
Operating (loss) for
the period (1,309) (1,852) (670) (4,004) (4,393) (1,937)
Other costs and
expenses and
non-controlling
interests (1,255) (398) (410) (3,622) (1,017) (773)
Adjustments to
reconcile net cash
from operations 690 162 8 1,208 (430) 42
(Note 4)
Changes in non-cash
working capital 107 (203) (180) (135) (360) (516)
balances (Note 4)
--------- --------- --------- --------- --------- ---------
(1,767) (2,291) (1,252) (6,553) (6,200) (3,184)
--------- --------- --------- --------- --------- ---------
Investing
activities
Expenditures on
capital assets (79) (451) (214) (335) (1,565) (408)
Expenditures on
mineral properties (611) (563) (110) (2,723) (1,242) (1,191)
--------- --------- --------- --------- --------- ---------
(690) (1,014) (324) (3,058) (2,807) (1,599)
--------- --------- --------- --------- --------- ---------
Financing
activities
Loan payable - - - - - (44)
Issue of share
capital net of issue 69 - 4,671 3,235 14,167 7,191
costs (Note 1) --------- --------- --------- --------- --------- ---------
69 - 4,671 3,235 14,167 7,147
--------- --------- --------- --------- --------- ---------
Increase (decrease)
in (2,388) (3,305) 3,095 (6,376) 5,160 2,364
cash for the period
Cash and cash
equivalents,
beginning 2,482 12,644 1,133 6,470 4,179 1,864
of period --------- --------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
period 94 9,339 4,228 94 9,339 4,228
--------- --------- --------- --------- --------- ---------
Caledonia Mining Corporation
Summary of Significant Accounting Policies
(Unaudited) For the nine months ended September 30, 2005, 2004 and 2003
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 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 significant inter-company balances and
transactions have been eliminated on consolidation.
The Company's consolidated (all 100% owned) subsidiaries are Barbrook Mines
Limited ('Barbrook'), Eersteling Gold Mining Company Limited (100% owned since
June 2004) ('Eersteling'), Greenstone Management Services (Proprietary) Limited,
Fintona Investments (Proprietary) Limited, Maid O' Mist (Proprietary) Limited,
Caledonia Mining (Zambia) Limited, Caledonia Kadola Limited, Caledonia Nama
Limited and Caledonia Western Limited.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand in operating bank accounts and
money market funds.
Inventories
Inventories are stated at the lower of cost and net realizable value.
Revenue Recognition
Revenue from the sale of precious metals is recognized when the 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 assets are amortized using the straight line method based
on the estimated useful lives of the assets. The estimated useful 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 continues to undertake activities to re-establish
commercial operations and has been presented as a producing asset in these
financial statements for 2005, 2004 and 2003.
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
and amortized in the manner described above.
Mineral Properties
Producing Properties
When and if properties are placed in production, the applicable capitalized
costs are amortized using the unit-of-production method on the ratio of reserve
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. Barbrook continues to undertake activities to re-commence commercial
operations and has been presented as a producing asset in these financial
statements for 2005, 2004 and 2003. Of the 22,931 tonnes mined during the third
Quarter, 8,777 were from reserves with the balance from other sources, including
development.
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 ore 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.
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 any 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
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) current 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 period incurred. Gains and losses arising on translation of long-term
foreign currency denominated liabilities at each year end are reflected in
income.
Asset Retirement Obligation
Effective January 1, 2004 the Company adopted the Canadian Institute of
Chartered Accountants Standard 3110, 'Asset Retirement Obligations'. This
standard requires that a liability be recognized for retirement obligations to
be settled as a result of an existing law, regulation, or contract.
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.
Caledonia Mining Corporation
Notes to the Consolidated Financial Statements
(Unaudited) For the nine months ended September 30, 2005, 2004 and 2003
1. Share Capital
Authorised:
An unlimited number of common shares
An unlimited number of preference shares a
Issued - Common Shares
Number of Shares Amount ($000's)
------------------------ ----------- -----------
Balance, December 31, 2004 301,112,286 173,304
Issued in Quarter 2 34,888,888 3,166
Issued in Quarter 3 625,000 69
------------------------ ----------- -----------
Balance September 30, 2005 336,626,174 176,539
------------------------ ----------- -----------
Issued - Preference Shares Nil
Stock Option Plans
The Company has established incentive stock option plans for employees,
officers, directors, consultants and other service providers. As at September
30, 2005, the Company had 16,898,000 common share options outstanding at an
average price of $0.21 maturing at various dates until February 1, 2015.
Share Purchase Warrants
The Company has 26,607,909 share purchase warrants outstanding exercisable at an
average price of $0.11 maturing on October 31, 2005.
2. Operating (Loss) and Net (Loss) Per Share
The operating (loss) and net (loss) per share figures have been calculated using
the weighted average number of common shares outstanding during the third
quarter and year to date, which amounted to 336,028,348 and 313,262,265,
respectively. Under the treasury method of calculating fully diluted income per
share, exercise of the outstanding stock options and warrants would be
anti-dilutive in 2005.
3. Other Expense (Income)
Included in other expense (income) are unrealized exchange translation losses of
$979,000 (2004 - loss of $334,000, 2003 - gain of $304,000) and an amortization
charge of $815,000. The amortization charge relates mainly to Barbrook, where
increasing production levels lead to increasing amortization charges in terms of
the accounting policies detailed under 'Mineral Properties' on page 14 above.
Prior to the current fiscal year, amortization was only calculated at the end of
the year due to the low tonnages processed by Barbrook. Amortization is now
calculated for all of Caledonia's capital assets and mineral properties on a
quarterly basis.
Caledonia Mining Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian Dollars)
(Unaudited) For the nine months ended September 30, 2005, 2004 and 2003
4. Supplemental Cash Flow Information
Items not involving cash are as follows:
2005 2004 2003
Accretion asset retirement obligation - 16 24
Non-controlling interest - (13) -
Stock option benefit expense 103 167
Compensation warrants expense 307 147 218
Gain on acquisition of non-controlling interest
of - (724) -
subsidiary company
Amortization 815 - -
Other (17) (23) (200)
---------- ---------- ---------
1,208 (430) 42
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The net changes in non-cash working capital balances for continuing operations
are as follows:
2005 2004 2003
Accounts payable 4 (340) (351)
Accounts receivable (45) (193) (156)
Inventories (113) 47 -
Prepaid expenses 19 126 (9)
---------- ---------- ---------
(135) (360) (516)
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Certain statements included herein are 'forward-looking statements'. Management
cautions that forward- looking statements are not guarantees, and that actual
results could differ materially from those expressed or implied in the
forward-looking statements. Important factors that could cause the actual
results of operations, exploration or development programmes, or the financial
condition of the Corporation, to differ include, but are not necessarily limited
to, the risks and uncertainties discussed in documents filed by the Corporation
with the various regulatory authorities having jurisdiction.
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