Caledonia Min Regulatory News (CMCL)

15 May 2007 07:57

Caledonia Mining Corporation15 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 firstquarter 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 2006Sales from continuing operations $13,401 $1Income/(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 millionfrom 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 dueto the reduced ounces sold whilst Zimbabwean inflation of 1800%, on anannualized basis, resulted in huge increases in the same period. However, arecent change in the Zimbabwean monetary policy will result in much higherrevenues from gold sales from the end of April, which will offset the effects ofinflation 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 producedduring the first quarter 2007 were due to the planned shutdown of the No 4shaft, in association with the mine expansion currently underway. In April 2007, 22,890,000 warrants, that were due to expire, were exercised at aprice 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 ofexploration activities at Nama and other sites. Commenting on the results, Stefan Hayden, President and CEO, said "I am pleasedto report a satisfactory operational performance from the Blanket Mine of 3,700ounces of gold, in the context of a planned mine and plant expansion and againstthe backdrop of a difficult mining economic environment in Zimbabwe. Whilstother gold mines have been forced to stop production, due to severe cash flowshortages, Blanket has been able to continue mining, with the switch to liquidcyanide being particularly timeous for continuing plant operations. The expansion project continues to progress, albeit with some disruption inlight of the country's challenging economic situation, and in particular thelack of hard currency, however we are still anticipating completion of theexpansion by the end of fourth quarter 2007. Looking forward in the short term, the lack of hard currency continues to remaina serious problem, however the recent change in the Zimbabwean monetary policyshould rectify this issue. Production will continue to be at reduced levelsduring the second quarter, until Shaft 4 reopens, which we anticipate will be inJune 2007. We continue to progress the sales negotiations of the Barbrook and Eerstelingmines." For more information, please contact: Stefan Hayden Alex Buck/Nick BiasPresident & CEO, Caledonia Mining buck-biasTel: +27 11 447 2499 Tel: +44 7932 740 452 Further information regarding Caledonia's exploration activities and operationsalong 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 BlanketMine of 3,700 ounces of gold, in the context of a planned mine and plantexpansion and against the backdrop of a difficult mining economic environment inZimbabwe. Whilst other gold mines have been forced to stop production, due tosevere cash flow shortages, Blanket has been able to continue mining, with theswitch to liquid cyanide being particularly timeous for the plant operations. Production was affected by the planned shut down of the No.4 shaft forrefurbishment in line with the expansion to increase the mine's production to40,000 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 andwe will be able to make-up a substantial portion of this production during thesecond quarter, if the economic situation does not deteriorate further. The expansion continues to progress, albeit with some disruption in light of thecountry's challenging economic situation, and in particular the lack of hardcurrency, however we are still anticipating completion of the expansion by theend of fourth quarter 2007. Signed "S.E Hayden" President and CEOCaledonia 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 beread in conjunction with the Company's 1st quarter financial statements preparedto March 31, 2007, according to Canadian GAAP, its Annual Management Discussionand Analysis for the fiscal year ended December 31, 2006, the audited financialstatements of the Company prepared to December 31, 2006, and the Company's 2006Annual Report. All of these documents have been filed on SEDAR and are availableat 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:- ActualOre processed -tonnes 24,700Grade g/t 3.30Recovery % 91.4% calcSands Processed - tonnes 39,000Sands Grade g/t 1.5Sands Recovery % 67.5% calcOunces gold from ore 2,395Ounces gold from Sands 1,270Total ounces produced 3,700Total ounces sold 4,352 The production from underground was affected by the shut down of the No.4 shaftfor refurbishment in line with our expansion plans. This took place on February15, 2007 after which the plant was to be fed with old mill tailings. This plandid not take off as planned because the contractors initially hired to haul thesands failed to meet their targets. This situation was resolved late in Marchwhen a more efficient contractor arrived on site. Good quality earth movingequipment is difficult to hire in Zimbabwe. Because of the problems experienced,production for the quarter was approximately 2,140 ounces below plan. Thisreduced production coupled with delays in receiving payment for gold deliveredhas had the ripple effect of slowing down the mine expansion project due to lackof cash flow to fund essential inputs. The underground section production was reduced from the normal 600 to 200 tonnesper day as planned due to the main production shaft being off line. Allproduction came from reclamation activities above 200 metre level where the orecan be hoisted up the main incline shaft. The rest of the activities took placebelow the 510 metre level being capital development, and long hole blastingwhere the ore is being currently stockpiled. Run of Mine development was mainlycarried out in the AR ore zones above 510 metre level where stope panel blockingout is in progress. In total 306 metres were advanced in Run of Mine developmentand 170 metres in capital development. Plant The plant operated at reduced capacity due to lack of feed as a result ofproblems alluded to earlier. The new capital development for the conversion fromthe use of solid cyanide to liquid cyanide was installed and ready forcommissioning by the end of the first quarter. The payback period on the liquidcyanide expansion is projected at 6 months. The less expensive liquid cyanide isimported from South Africa. Carbon in leach equipment needs to be replaced dueto 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 dynamiccommissioning of the winder and the modification of the skips to take fixedsteel guides as opposed to the originally planned rope guide. This work has beenscheduled for the 2nd Quarter during the month of May. The below-ground worksare progressing satisfactorily with stripping and equipping having advanced downto 10 level.This construction work has been significantly delayed by the combination of lackof foreign currency and lack of local cash flow as a result of the Reserve Bankof Zimbabwe's policy of delaying payments for gold delivered (sometimes as lateas two months after delivery to the refinery). Further work delays have resultedfrom frequent power cuts by the power corporation. It is estimated that if nofurther disturbances are experienced, the shaft equipping down to the 630 metrelevel will be complete in early June, allowing the mine to increase productionback to 600 tonnes per day whilst the equipping of the rest of the shaftprogresses. 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 andthe total anticipated expenditure, to achieve a mining and processing capabilityof 1000 tons per day, is estimated to be $8,680,000. Funding for the completionof the expansion will be obtained from local gold sales. Outlook The economic situation in Zimbabwe continues to deteriorate. The Reserve Bank ofZimbabwe which is responsible for making payments for gold sales to producershas failed to honor its obligation resulting in mines suffering severe cash flowshortages to the point of some mines having stopped production. This scenariounless rectified will threatening the timeous completion of the Blanketexpansion program. The program is currently at a very critical stage withreduced production coming from underground whilst the balance of production isnow derived from stockpiles of mill tailings dotted around the Blanket surfacearea. These will shortly be exhausted in approximately another 2 months,necessitating that the underground operation has to be restored to fullproduction by that time. It is clear that the economic situation is heavily influenced by the politicaloutlook. Zimbabwe will hold fully fledged parliamentary and Presidentialelections during 2008 which means that all efforts and resources will bedirected towards this exercise. Such a situation under the current conditions ofeconomic turmoil is a threat to business and Blanket is no exception. Lower than expected rainfall has been registered in Zimbabwe with one of thedriest seasons since 2000, which means that there is a shortage of food in thecountry and the lack of foreign currency will make the importation of food verydifficult. This will affect the workers ability to feed themselves and theirfamilies satisfactorily, and general productivity could be affected causing aserious 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 thequarter. All parties who submitted non-binding offers were admitted to the dataroom to conduct a due diligence. Certain parties withdrew from the process. ABSACapital, the appointed financial advisors, are now awaiting binding offers frompotential purchasers which will be assessed and presented to Caledonia MiningCorporation for their consideration. New purchasers have also shown interest inthe 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. Allexploration activities were curtailed when the shaft was shutdown in midFebruary to direct resources to the shaft expansion project. In total $120,000was spent on exploration. The exploration activities focused on taking soil samples from higher potentialclaims, positive results were achieved at the Bansluck claims.It is anticipated that exploration activities will recommence in the thirdquarter of 2007. (b) Rooipoort and Grasvally Platinum Exploration Project - South AfricaSoil geochemical sampling within the Rooipoort Platinum Exploration Project nearMokopane (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 61.25line kilometres of sampling being undertaken on this farm of which 25.40 linekilometres of sampling were achieved for the period under review. Soilgeochemical sampling has also just commenced on Moordrift 289 KR. A total of 831line metres of sampling were achieved for the period under review. Currently geochemical sampling is continuing over the remainder of Moordrift 289KR as well as on Jaagbaan 291 KR and portions 6 and 24 of Grasvally 293 KR. Someresistance has been met from local land owners in respect of physical entry ofsampling teams onto their properties. These problems have largely been overcomevia negotiation and enlightenment. A qualified geologist with formal GIS qualifications, has been placed in chargeof the soil geochemical sampling program on a probationary basis, with goodresults to date. The application to the South African authorities to transfer the Falconbridgerights to the Company is in progress. Further development of the project plan is totally dependant on the availabilityof 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 activitieswithin Zambia. He took up his post on the 1st April along with a newly appointedSenior Project Geologist for Nama. The Lusaka office is presently gearing up for exploration activities planned tostart in May 2007 at a budgeted expenditure of $2,700,000. These activities willtake 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 Namagroup of prospecting licenses for a three year period. The first phase of the planned exploration activities is designed to increasethe geological confidence levels of the above deposits to a measured resourcelevel. The second phase of the exploration activities encompasses the trialmining and beneficiation of the Nama A deposit to confirm the metallurgicalprocess and minability of this deposit. During February 2007 a further 1 tonne bulk sample (sample G) was extracted fromthe Nama Trench and submitted for further metallurgical test work. The resultsare expected shortly. A Technical Report, compliant with NI 43-101 is being prepared for Anomaly A andAnomaly C at Nama by Mr. David Grant, C.Geol., FGS, Pr.Sci.Nat., an independentconsultant who is the "Independent Qualified Person" for Nama's resources asrequired by National Instrument 43-101 of the Canadian SecuritiesAdministrators. 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 Kadolagroup of licenses made in 2006 was received from the Department of Mines. This decision has been appealed with further written motivation submitted alongwith substantial relinquishment of area.Further to this, a meeting was held in April 2007 with the Director, Departmentof Mines to further motivate this appeal. Although the meeting was fruitful, theDirector is bound by Zambian mining law to refer the final decision in thisregard to the relevant Minister, as Caledonia's period of tenure of theprospecting licenses exceeds the maximum period permissible by law. A favorableoutcome is expected in the form of a retention license for a limited timeperiod. (e) Goedgevonden Diamonds - South Africa Limited activity took place during the first quarter, total expenditure amountedto $5,000. (f) Financing In April 2007 22,890,000 warrants, that were due to expire, were exercised at aprice 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 ofexploration activities at Nama and other sites. 2. SUMMARY OF QUARTERLY RESULTS The following information is provided for each of the eight most recentlycompleted quarters of the company - ending on the dates specified - in thousandsof Canadian dollars: Mar. Dec. Sept June Mar Dec. Sept. June 31/07 31/06 30/06 30/06 31/06 31/05 30/05 30/05Sales fromcontinuingoperations $13,401 $9,045 $4,539 $1 $1 $2 $- $3Income/(loss)fromcontinuing (278) 3,840 (455) (683) (387) (318) (1,177) (1,756)operations- per sharebasic anddiluted ($0.001) $0.008 ($0.001) ($0.002) ($0.001) ($0.001) ($0.003) ($0.006) Discontinuedoperations(loss) (255) (1,282) (2,619) (2,210) (1,879) (1,736) (1,387) (1,520)NetIncome(loss)afterdiscontinuedoperations (533) 2,558 (3,074) (2,893) (2,266) (2,054) (2,564) (3,276)- per sharebasic anddiluted ($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 areidentical to the total loss before extraordinary items. The effect of the dilution on the earnings per share has been calculated foreach quarter of 2006 as a profit was earned before discontinued operations forthe year. No calculation for 2005 was made as the result for the year was a lossand the diluted earning per share would be anti-dilutive. For the quarter ended March 31, 2007 Caledonia recorded revenue of $13,401,000from Blanket from the sale of 4,352 ounces of gold ($9,04,000 from 6,158 ouncesin the 4th quarter 2006 and $4,539,000 from 5,129 ounces in the 3rd quarter2006). The reduced ounces in the 1st quarter 2007 are due to the plannedshutdown of the No 4 shaft. The higher revenue, however, is due to the way thegold was sold i.e. either sold for US dollars or sold for Zimbabwe dollars (seeLiquidity below). Depending on the election made the resulting Zimbabwe dollarrevenue and effective exchange rate will differ and thus result in varyingCanadian dollar revenues as all are translated at the official rate of Z$ 250:USD1 The loss for the 1st quarter of $278,000 ( profit $3,840,000 4th quarter 2006and loss $455,000 for 3rd quarter 2006) is due to the reduced ounces sold whilstinflation of 1800% per annum resulted in huge costs increases in the sameperiod. The changed monetary policy as explained below will result in much higherrevenues from gold sales from end April, which will offset the effects ofinflation on the operating costs. The 2nd quarter of 2007 will continue withreduced ounces of gold sales until the shaft reopens in June and productionvolumes return to 600 tonnes per day and then 1000 tonnes per day during 4thquarter 2007. The loss from discontinued operations represents the holding costs of Barbrookand 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 theReserve Bank of Zimbabwe (RBZ), Blanket Mine established borrowing facilitiesfrom local banks in the amount of $2,787,000. These funds were used to pay localcreditors and staff costs. The late payments also resulted in a shortage offoreign currency for Blanket Mine and payments to foreign creditors weredelayed. 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 morethan sufficient to meet all foreign creditor liabilities once received. On April 26, 2007 the RBZ announced new monetary policy measures to address therampant inflation in Zimbabwe and the critical cash flow shortages beingexperienced by industry. Items that affect Blanket mine are summarized in thetable below: Policy Item Old Policy New Policy from April 26, 2007Gold revenue per Z$16,000 per gram Z$350,000 per gramgram when sold forZimbabwe dollars Gold revenue ratio 67,5% received in US 60% received in US dollars andwhen sold for US dollars and 32,5% received 40% received in Zimbabwedollars in Zimbabwe dollars dollars Method of Gold ounces x USD price of Gold ounces x USD price of gold xcalculating gold x Z$250 = Zimbabwe Z$250 x 60 (drought reliefZimbabwe dollars dollar revenue. Effective factor) = Zimbabwe dollarfor the 32,5% and exchange rate Z$250: USD1 revenue. Effective exchange rate40% above Z$15,000: USD1 Exchange rate paid Z$250: USD1 Z$15,000: USD1when US dollarssold to RBZ Retention period Indefinite Indefiniteof US dollars With the implementation of the new policies it is expected that Blanket Minewill generate sufficient cash to be self funding, for working capital andcapital expenditure projects, and funding requirements for explorationactivities and general working capital of other operations will be met from theproceeds received from the exercise of warrants in April 2007 and the expectedproceeds 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 partytransactions, all amounts in thousands of Canadian dollars. 2007 2006 2005Management, administrative services and benefits paid oraccrued to a company which employs the Company'sPresident $108 $108 $108 Rent paid to a company owned by members of thePresident's family 12 12 12 These related party transactions were in the normal course of operations and arerecorded at the exchange amount. 5. CRITICAL ACCOUNTING POLICIES There are two major areas where accounting estimates are made, asset impairmentand asset retirement obligation. As significant impairment provisions havealready been made against the assets and there is a reasonable level ofcertainty around the estimate it is considered unlikely that any change inestimate would result in a material impact on the results of the company. Basedon non-binding purchase offers made for Barbrook and Eersteling Mines no furtherasset impairment has been made against these assets. The asset retirementobligation is also considered to be estimated with a reasonable degree ofcertainty, although the original estimation was calculated some years ago. Theestimation is accreted annually at 5% and thus any change in circumstances isconsidered unlikely to have a material impact on the results of the company orits operations. In 2005 the Company adopted the accounting guideline issued by the CanadianInstitute of Chartered Accountants in respect of consolidation of variableinterest entities effective for years after November 1, 2004. The Company hasreviewed its interests and determined that the new guideline has not had amaterial effect on the results of operations or the financial condition of theCompany. 6. CONTROLS The CEO and CFO have evaluated the effectiveness of the Company's disclosurecontrols and procedures and assessed the design of the Company's internalcontrol over financial reporting as of March 31, 2007, pursuant to thecertification requirements of Multilateral Instrument 52-109. Management concluded that, as of December 31, 2005, a weakness existed in theCompany's disclosure controls and procedures being an inadequate understandingof the extent of the disclosures required, with respect to certain details, inthe Company's annual Management Discussion and Analysis. However, based ontheir evaluation, the CEO and CFO concluded that all required disclosures forthe year ended December 31, 2005 were ultimately made in accordance with theregulations. The Company has a Disclosure Committee consisting of four Directors and oneOfficer, and has disclosure controls and procedures which it follows in anattempt to ensure that it complies with all required disclosures on an adequateand timely basis. The Company's Directors and Management, and the DisclosureCommittee, are making all reasonable efforts to ensure that the Company'sdisclosures are made in full compliance with the applicable rules andrequirements. All reasonable efforts are also being made to ensure that theCompany's disclosure controls and procedures provide reasonable assurance thatmaterial information relating to the Company, including its consolidatedsubsidiaries, is made known to the Company's Certifying Officers by otherswithin those entities. 7. FORWARD LOOKING STATEMENTS This Management Discussion and Analysis contains certain forward-lookingstatements relating but not limited to the Company's expectations, intentions,plans and beliefs. Forward-looking information can often be identified byforward-looking words such as "anticipate", "believe", "expect", "goal", "plan","intend", "estimate", "could", "should", "may" and "will" or similar wordssuggesting 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 timingof commencement of operations, and is based on current expectations that involvea number of business risks and uncertainties. Factors that could cause actualresults to differ materially from any forward-looking statement include, but arenot limited to, failure to establish estimated resources and reserves, the gradeand recovery of ore which is mined varying from estimates, capital and operatingcosts varying significantly from estimates, delays in obtaining or failures toobtain required governmental, environmental or other project approvals,inflation, changes in exchange rates, fluctuations in commodity prices, delaysin the development of projects and other factors. Forward-looking statements aresubject to risks, uncertainties and other factors that could cause actualresults to differ materially from expected results. Potential shareholders and prospective investors should be aware that thesestatements are subject to known and unknown risks, uncertainties and otherfactors that could cause actual results to differ materially from thosesuggested by the forward-looking statements. Shareholders are cautioned not toplace undue reliance on forward-looking information. By its nature,forward-looking information involves numerous assumptions, inherent risks anduncertainties, both general and specific, that contribute to the possibilitythat the predictions, forecasts, projections and various future events will notoccur. Caledonia undertakes no obligation to update publicly or otherwise reviseany forward-looking information whether as a result of new information, futureevents or other such factors which affect this information, except as requiredby 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 2006Annual Information Form dated April 10, 2007 filed with the Ontario SecuritiesCommission 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 $1,252Accounts receivable 3,653 1,407Inventories 16,814 5,738Prepaid expenses 107 61Assets 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 79Capital assets 199 212Mineral 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 46Asset retirement obligation 811 811Asset retirement obligation - held for sale 345 364 --------- --------- 21,383 7,120 Shareholders' EquityShare Capital 190,626 190,626Contributed surplus 989 989Deficit (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 anintegral 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 $1Operating costs 13,516 294 181 -------- -------- --------Gross (loss) (115) (293) (180) -------- -------- -------- Costs and expenses (see Note 6)General and administration 394 189 449Interest 33 (2) (3)Amortization 14 9 6Other expenses (income) (Note 3) (280) (102) (134) -------- -------- -------- 161 94 318 -------- -------- -------- (Loss) before discontinued operation (276) (387) (498)Taxation (2) - - -------- -------- --------(Loss) after tax before discontinuedoperations (278) (387) (498)Net (loss) for discontinued operations (255) (1,879) (1,288) -------- -------- --------Net (loss) for the period after discontinuedoperations ($533) ($2,266) ($1,786) -------- -------- -------- Net (loss) per share before discontinuedoperationsBasic and fully diluted ($0.001) ($0.001) ($0.002) Net (loss) per share after discontinuedoperationsBasic and fully diluted ($0.001) ($0.006) ($0.006) The accompanying summary of significant accounting policies and notes are anintegral 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 mineralproperties (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 152Investing Activities - (1,030) (1,343) --------- --------- --------- (255) (2,737) (2,479) --------- --------- --------- Increase (decrease) in cash for the period (seeNote 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 periodrelate to:Continuing operations 126 574 3,395Discontinued operations 2 (281) (5) --------- --------- --------- $128 $293 $3,390 --------- --------- --------- The accompanying summary of significant accounting policies and notes are anintegral 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 ofmineral properties for the exploitation of base and precious metals. The abilityof the Company to recover the amounts shown for its capital assets and mineralproperties is dependent upon the existence of economically recoverable reserves;the ability of the Company to obtain the necessary financing to completeexploration and development; and future profitable production or proceeds fromthe 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 dischargeliabilities in the normal course of business. The Company's ability to continueas a going concern is dependent upon attaining profitable operations, realizingproceeds from the disposal of mineral properties and obtaining sufficientfinancing to meet its liabilities, its obligations with respect to operatingexpenditures and expenditures required on its mineral properties. Measurement Uncertainties Preparation of the financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the reported amountsof revenues and expenses during the reporting period. The more significant areasrequiring estimates relate to mineral resources, future cash flows associatedwith capital assets and mineral properties. Management's calculation of reservesand resources and cash flows are based upon engineering and geological estimatesand financial estimates including gold prices and operating costs. The amountultimately recovered could be materially different than the estimated values. Principles of Consolidation The consolidated financial statements include the accounts of the Companytogether with all its subsidiaries, all 100% owned. All significantinter-company balances and transactions have been eliminated on consolidation. Barbrook Mines Limited Caledonia Mining (Zambia) LimitedBlanket (Barbados) Holdings Limited Caledonia Nama LimitedBlanket Mine (1983) (Private)Limited Caledonia Western LimitedCaledonia Holdings (Africa)Limited Eersteling Gold Mining Company LimitedCaledonia Holdings Zimbabwe Limited Fintona Investments (Proprietary) LimitedCaledonia Kadola Limited Greenstone Management Services (Proprietary) LimitedCaledonia 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 GreenstoneManagement Services in South Africa and money market funds maturing in less thanthree months. Inventories These include gold in circuit (WIP) and bulk consumable stores. WIP is valued atthe lower of the cost of production, on an average basis, at the various stagesof production or net realizable value if the cost of production exceeds thecurrent gold price. Bulk consumable stores are valued at the lower of cost ornet realizable value on an average basis. Investments The market securities are recorded at cost, a declining value of marketsecurities that is other than temporary would be recognized by writing down theinvestment. Revenue Recognition Revenue from the sale of precious metals is recognized when the metal isdelivered to the respective refineries, benefits of ownership are transferredand the receipt of proceeds is substantially assured. Capital Assets Producing AssetsProducing assets are recorded at cost less grants, accumulated amortization andwrite-downs. Producing plant and equipment assets are amortized using theunit-of-production method on the ratio of tonnes of ore mined or processed tothe estimated proven and probable mineral reserves as defined by the CanadianInstitute of Mining, Metallurgy and Petroleum. Other producing assets are amortized using the straight line method basis on theestimated useful lives of the assets. The estimated life of the producing assetsranges up to 10 years. Repairs and maintenance expenditures are charged tooperations; major improvements and replacements which extend the useful life ofan asset are capitalized and amortized over the remaining useful life of thatasset. Barbrook Mine and Eersteling Gold Mine have been put up for sale and arethus presented as assets for sale in these financial statements. Non-Producing AssetsNon-producing assets are recorded at cost less write downs. At the time ofcommercial production, the assets are reclassified as producing. Duringnon-producing periods, no amortization is recorded. Mineral Properties Producing PropertiesWhen and if properties are placed in production, the applicable capitalizedcosts are amortized using the unit-of-production method as described above.Blanket Mine was acquired during 2006 and has been consolidated into theseresults from July 1, 2006 and, as such, has been presented as a producing assetin these financial statements. Non-Producing PropertiesCosts relating to the acquisition, exploration and development of non-producingresource properties which are held by the Company or through its participationin joint ventures are capitalized until such time as either economicallyrecoverable reserves are established or the properties are sold or abandoned.A decision to abandon, reduce or expand activity on a specific project is basedupon many factors including general and specific assessments of mineralreserves, anticipated future mineral prices, anticipated costs of developing andoperating a producing mine, the expiration date of mineral property leases, andthe general likelihood that the Company will continue exploration on theproject. However, based on the results at the conclusion of each phase of anexploration program, properties that are not suitable as prospects arere-evaluated to determine if future exploration is warranted and that carryingvalues are appropriate. The ultimate recovery of these costs depends on the discovery and development ofeconomic ore reserves or the sale of the properties or the mineral rights. Theamounts shown for non-producing resource properties do not necessarily reflectpresent or future values. Discontinued Operations During the fourth quarter of 2006 Barbrook Mine was subjected to illegalindustrial action by employees of a labour broker. Due to the damage causedduring and after the industrial action the mine was placed on care andmaintenance. At a subsequent meeting of the Board of Directors it was resolvedthat Barbrook Mine and Eersteling Gold Mine would be put up for sale. As a consequence of this decision Barbrook and Eersteling Mine's results for2006 and preceding years have been disclosed under discontinued operations. Asset Impairment Long-lived assets are reviewed for possible impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. If changes in circumstances indicate that the carrying amount ofan asset that an entity expects to hold and use may not be recoverable, futurecash flows expected to result from the use of the asset and its disposition mustbe estimated. If the undiscounted value of the future cash flows is less thanthe carrying amount of the asset, impairment is recognized based on the fairvalue of the assets. Strategic Alliances The Company has entered into various agreements under which the participantsearn a right to participate in the mineral property by incurring explorationexpenditures in accordance with the conditions of the agreements. Uponsatisfaction of the conditions of the agreement a joint venture may be formedwith customary joint venture terms and provisions and then accounted for on aproportionate consolidation basis. Until a joint venture is formed only theexpenditures on the properties incurred by the Company are reflected in thesefinancial statements. Foreign Currency Translation Balances of the Company denominated in foreign currencies and the accounts ofits 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 exchangeprevailing during the period.Exchange gains or losses arising on these translations are reflected in incomein the year incurred. Blanket is a self-sustaining operation and operates in Zimbabwe in a hyperinflationary economy. Accordingly the results of these operations have beentranslated into Canadian Dollars using the temporal method as described above. In the preparation of the financial statements shown on pages 10-12 the officialZimbabwe exchange rate of Z$250: USD1, and the applicable USD : CND exchangerate, has been used to translate the results of Blanket Mine into Canadiandollars. See Note 6 below for an explanation of a subsequent revision of theexchange rate announced by the Governor of the Reserve Bank of Zimbabwe and theeffect it would have had on the presentation of the financial statements. Income TaxesThe Company accounts for income taxes using the asset and liability method.Under the asset and liability method, future tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Future tax assets and liabilities are measured usingenacted or substantively enacted tax rates expected to apply when the asset isrealized or the liability settled. The effect on future tax assets andliabilities of a change in tax rates is recognized in income in the period thatsubstantive enactment or enactment occurs. Change in Accounting Policies There have been no changes in accounting policy during the current or precedingyears. 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) AuthorizedAn unlimited number of common shares.An unlimited number of preference shares.(b) Issued Number of Shares AmountCommon sharesBalance, December 31, 2004 301,112,286 $173,304Issued pursuant to private placements 52,738,888 4,733Warrants exercised 16,863,962 2,016 ------------ -----------Balance, December 31, 2005 370,715,136 $180,053Issued pursuant to private placement 15,437,626 1,475Issued pursuant to a private placement 34,828,259 3,924Issued pursuant to acquisition 20,000,000 3,014Issued 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 anequivalent 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") foremployees, officers, directors, consultants and other service providers. Underthe Plans, as at March 31, 2007, the Company has the following optionsoutstanding: 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 underthe Plans during 2007, 2006 and 2005 are as follows: Number of Options Weighted Avg. Exercise Price ---------- ---------------Options outstanding atDecember 31, 2004 13,108,700 $0.26Granted 5,000,000 $0.12Cancelled or expired (1,210,700) ($0.43) ---------- ---------------Options outstanding atDecember 31, 2005 16,898,000 $0.21Granted 300,000 $0.13Granted 150,000 $0.115Cancelled or expired (110,000) ($0.27) ---------- ---------------Options outstanding atDecember 31, 2006 17,238,000 $0.21Cancelled or expired (150,000) ($0.115)Granted 200,000 $0.11 ---------- ---------------Options outstanding atMarch 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 pricesdetermined by reference to the market value of the common shares on the date ofgrant. The vesting of options is made at the discretion of the board ofdirectors at the time the options are granted. (d) Warrants The Company has issued the following common share purchase warrants pursuant toprivate placements which are outstanding as of March 31, 2007: Number of Shares for Exercise Price Expiry DateWarrants Warrants85,115,885 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 anequivalent 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 Price17,850,000 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 warrants22,890,000 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 warrants17,000,000 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 39,232,909Exercised (16,863,962)Expired (22,368,947)Issued pursuant to private placements 17,850,000 ------------Outstanding December 31, 2005 17,850,000Issued 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 theweighted average number of common shares outstanding during the first quarterwhich amounted to 457,981,021 (2006 -380,714,447; 2005 - 301,112,286 ;). Fullydiluted earnings per share have not been calculated as it would beanti-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 2005Amortization $14 $9 $6Provision 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 asfollows: 2007 2006 2005Accounts payable $12,464 $667 $(155)Accounts Receivable (2,246) 353 68Inventories (11,076) (272) 29Prepaid 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 Companypurchased 100% of the shares of Blanket, the Company agreed that it would, assoon as reasonably practicable after the Closing of the Agreement, cause Blanketto implement a share incentive scheme considered by the Directors to be in thebest interests of Blanket, pursuant to which a percentage of the shares ofBlanket will be deposited in a Trust for the benefit of the management andemployees 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 ascheme. The Company and the Board of Directors of Blanket, have expressed theirintention to delay the establishment of the required scheme pending the passingof anticipated Zimbabwe laws relating to the indigenization of the miningindustry, as it is recognized that the Zimbabwean laws, when passed, will likelyhave a material impact on the structure of the proposed scheme and thepercentage of the issued shares of Blanket required to be put into trust for thepurposes of the scheme. 6. Subsequent Events On April 26, 2007 the Governor of the Reserve Bank of Zimbabwe announced anInterim Monetary Policy Statement, the content of which affects Caledonia MiningCorporation as per the table below. The table illustrates the policy changesannounced 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 gramwhen sold forZimbabwe dollars Gold revenue ratio 67,5% received in US 60% received in US dollars andwhen sold for US dollars and 32,5% received 40% received in Zimbabwedollars in Zimbabwe dollars dollars Method of calculating Gold ounces x USD price of Gold ounces x USD price of goldthe amount of gold x Z$250 = Zimbabwe x Z$250 x 60 (drought reliefZimbabwe dollars for dollar revenue. Effective factor) = Zimbabwe dollarthe 32,5% and 40% exchange rate Z$250: revenue. Effective exchangeabove USD1 rate Z$15,000: USD1 Exchange rate paid Z$250: USD1 Z$15,000: USD1when US dollars soldto RBZ Retention period of Indefinite IndefiniteUS dollars byBlanket The announcement made addresses a number of issues being experienced by industryin Zimbabwe and brings the effective exchange rate received by businesses closerto the unofficial parallel market rate that affects all industries. It is clear that the above announcement will affect the reporting of the resultsof Blanket Mine for the 2nd quarter and thereon. In an attempt to understand the effect this new Monetary Policy will have on theresults of Blanket Mine and thus Caledonia Mining Corporation, we present acomparative table of results below which compares the results as per theFinancial Statements on pages 10 - 12 to adjusted results that may have beenpresented if the Interim Monetary Policy had been announced on March 31, 2007.The adjusted results are arrived at by translating the Blanket Mine results forQ1 (as per the note above Foreign Currency Translation) at the foreign currencyexchange rates per the table below: Exchange rates Z$: Exchange rates Z$: CND1 CND1 ------------------ ------------------ As per Financial Adjusted after Statements Interim Monetary Policy Statement ------------------ ------------------Monetary assets and liabilities at Z$ 216.28 Z$ 12,977.00period end rates ------------------ ------------------------------------All other assets and liabilities at Z$ 90.34 Z$ 90.34historical rates ------------------ ------------------------------------Revenue and expense transactions at the Z$ 213.30 Z$ 840.00average rate of exchange prevailing ------------------ ------------------during the period.------------------ The comparatives provided are only for the items that would have changedmaterially. Actual - in thousands Adjusted - in thousands of Canadian dollars of Canadian dollars ------------------ ------------------Accountsreceivable 3,653 456 ------------------ ------------------Inventories 16,814 5,397 ------------------ ------------------Prepaidexpenses 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) 869operations ------------------ ------------------Net Income(loss) for the period afterdiscontinued (533) 613operations ------------------ ------------------ ------------------ ------------------Expenditure on capital assets and mineral (1,664) (574)properties ------------------ ------------------ This information is provided by RNS The company news service from the London Stock Exchange