Caledonia Min Regulatory News (CMCL)

14 Nov 2005 14:23

Caledonia Mining Corporation14 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 iscurrently underway. Initial construction started in late September and isexpected to take 3 to 4 months at an estimated cost of $1.51 million to befunded from operating cash flows. The plant expansion incorporates ultra-finemilling, flash flotation of the whole primary mill discharge, and an eight-tanknew 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 inAugust with a total of 979 meters drilled during the quarter to complete thefour-hole program. - Exploration drilling at Rooipoort and adjoining areas of Grasvally hasidentified a number of target areas. A drilling program for 2006 is underpreparation. - A series of exploration targets has been identified along 12km of known goldbearing structures at the Eersteling Gold Project. Exploration in these areas isplanned for 2006. - Four holes totaling 392 meters were drilled adjacent to the Stellariadiamondiferous 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 sharepurchase warrants. All the warrants were exercisable at $0.11 per share on orbefore 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 tosigning long- term purchase agreements. 2005 OBJECTIVES AND ACHIEVEMENTS 2005 Objectives Achievements to end September 2005Return Barbrook Gold Mine in Over 400% increase in gold production comparedSouth Africa to economic gold to the nine months to September 2004, from 801production. 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 onreserves and resources at opening up the ore bodies for mining and onBarbrook 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 metresRooipoort Platinum Exploration drilled during the second and third quartersProject. on Grasvally. Complete the feasibility studies Biox(R) testwork was almost complete at theof 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 testand/or Dense Media Separation results will enable a final Biox(R) plantcircuit at Barbrook Gold Mine and design to be completed. The design will becommence 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 onthe Rooipoort and Grasvally the drilling results, to produce grade tonnageproperties which form the and percentage waste curves in order toRooipoort Platinum Exploration develop insitu mineable values for the variousProject 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-soilinformation and the recently results together with compilation of previouscompleted high resolution work has highlighted the near surface goldairborne Geophysics and Soil potential along 12km of known gold bearingChemical Programs, identify and structures in the Eersteling area. Similardrill possible extensions to the compilation in the Zandrivier area hasknown ore zones on the Eersteling identified a number of potential targetand 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 geophysicalconcentrate from the Nama data was commenced and completed during July.property in Zambia. Construct a A number of as yet untested areas have beenpilot 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 andcobalt end producer to purchase they have commenced preliminary testwork. Ancobalt concentrate produced at amendment to the existing Environmental BriefNama or possibly form a strategic to allow pilot plant operations has beenalliance to achieve this approved by the Environmental Council ofobjective. Zambia. Seek a joint-venture partner to Discussion ongoing with various interestedcommence an exploration program parties.at the Kadola copper/cobalt andthe Eureka copper/gold propertiesin Zambia. Expand the Board of Directors to Rupert Pardoe joined the Board asaddress ongoing Corporate non-executive Chairman and the various BoardGovernance requirements. Committees were restructured accordingly. Implement succession plans for Succession plan developed and beingsenior executive and operational considered.staff. Strengthen the Investor Relations Appointed BuckBias as Caledonia's IR and PRand Public Relations functions. consultants for all markets. List Caledonia on the London Caledonia successfully listed on AIM on JuneStock Exchange Alternative 27 with an issue of 34,888,888 new shares.Investment Market with an issueof new shares to support theactivities required to meet theseobjectives. Management's Responsibility for Financial Reporting To the Shareholders of Caledonia Mining Corporation: The accompanying unaudited consolidated financial statements of Caledonia wereprepared by management in accordance with accounting principles generallyaccepted in Canada, consistently applied and within the framework of the summaryof significant accounting policies in these consolidated financial statements.Management is responsible for all information in the quarterly report. Allfinancial and operating data in the quarterly report is consistent, whereappropriate, with that contained in the audited 2004 consolidated annualfinancial statements. The Board of Directors discharges its responsibilities for the consolidatedfinancial statements primarily through the activities of its Audit Committeecomposed of three directors, none of whom is a member of management. ThisCommittee meets with management to ensure that it is performing itsresponsibility to maintain financial controls and systems and to approve thequarterly consolidated financial statements of Caledonia. The consolidated financial statements have not been reviewed by Caledonia'sauditors. CALEDONIA MINING CORPORATION November 1, 2005 Management's Discussion and AnalysisExpressed in Canadian Dollars This discussion provides updated information to the Management Discussion andAnalysis contained in Caledonia's Annual Report for 2004 and in the SecondQuarter 2005 Report. Where no comments are made, there are no updates to reportsince 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 continuedin July and August. During September, production was affected by crusherproblems. 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 (1,497ounces) compared to 53kg (1,712 ounces) in the second quarter largely the resultof metallurgical recoveries decreasing to 52% compared to 60% and the milling ofdevelopment ore which dropped the mill feed grade. The decrease in metallurgicalrecoveries resulted from gold losses in the carbon separation circuit. A newMetallurgical Plant Manager was appointed and started work during late September2005. As reported last quarter, the mining sequence necessitated that a lower thanaverage grade block of ore be mined during July and August adversely affectingthe feed grade to the plant. A concerted effort was made to improve the gradefrom underground however this did not materialize in the plant feed because ofdilution from lower grade material in both the underground and surfacestockpiles. To improve mining efficiency and working conditions, long-hole drillingequipment was commissioned in the stoping area in October. Because of the crusher problems underground crews have concentrated ondevelopment advance. In addition to opening up Taylor's zone on 7 level, stopepreparation work has been conducted for Taylor's zone on 10A level and forTwala's zone on 10 level. Development to access the Victory/Daylight zone from the main tramming level iscontinuing. This development will provide an opportunity to transport ore fromthese zones to the metallurgical plant. Development advance during the quarter totaled 857 meters compared with 656meters advance in the second quarter. Design for a plant expansion to 15,000 tonnes per month were finalized andinitial construction began in September. The cost is estimated at $1.51 millionand will be funded from operating cash flows. Construction will take 3 to 4months and incorporates the present crusher circuit, the installed andrehabilitated 1,300kw primary mill, a new flash flotation cell treating thewhole mill discharge, the existing rougher, scavenger and cleaner (partial)flotation sections. The flotation concentrate will be cleaned of thepreg-robbing organic carbon contaminant in an expanded Deister table/multiwash-cyclone circuit. The virtually carbon-free concentrate will be ultra-finemilled 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 usingexisting, rehabilitated carbon-in-leach tanks from the original Barbrook circuitand a new resin elution plant and expanded gold electro-winning circuit. Ultra fine-milling testwork has been completed and shows a significant reductionin gold residue losses from the plant. There is also a potential saving in themilling 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 operationalin 2006 and its gold recoveries can be economically quantified. However, inpreparation of a final decision, Biox(R) testwork was almost complete at the endof 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 atBarbrook on October 7, 2005. An enquiry into the accident was held by Barbrookmanagement and by the Department of Mines and Energy ("DME"). The results of theDME enquiry are awaited. Barbrook Mines Ltd. - Production Results 3rd Quarter 2005 2004Ore mined Tonnes 22,931 11,824Development advance Meters 857 628Ore milled Tonnes 20,451 11,567Grade milled g/t 4.37 5.60Gold sold Ounces 1,497 386 During October a failure in the electrical earth (grounding) protection wasidentified on the Barbrook property. This required upgrading of the electricalinfrastructure. The Barbrook operation was interrupted for two weeks while thiswork was carried out. Operations resumed on October 31st. CONSOLIDATED FINANCIAL RESULTS For the quarter ended September 30, 2005, Caledonia recorded an operating lossof $1.3 million ($0.004 per share) compared with an operating loss of $1.9million ($0.006 per share) in 2004 and an operating loss of $0.7 million ($0.003per share) in 2003. The net loss after all expenses, increased amortization charges as a result of achange in application of the amortization policy (see Note 3), ongoingexploration 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 September30, 2005. Previously reported results, which excluded amortization, were a netloss 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 aonce-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 theDoreen Shaft and the Pienaar and Girlie Reefs. Compilation of previousinformation was integrated with the results of the high resolution aeromagneticsurvey flown in January 2005 and gold-in-soil sampling completed in the 1stquarter. The near surface gold potential of at least 8km of gold bearing structures alongthe Doreen, Pienaar and Girlie structures was highlighted. Only Girlie has beensystematically drilled (by Anglo American in 1980's) and has a shaft to 60m withlimited development. Pienaar was excavated on surface to 10m depth byEersteling's predecessors in early 1990's. Doreen has a 60m shaft and 100m ofunderground development on strike as well as a number of old winzes in an oxidezone and has been systematically trenched. These trenches are currently beingcleaned and resampled. This will be followed by similar work along the Pienaarstrike. Apart from the 220m Franka shaft that was used to access and mine theMaltz reef by previous owners, all other reefs are essentially unmined. Diamond drilling is planned to commence early in 2006 to systematically test thestructures initially to 100m depth. Zandrivier Mine Area, South Africa This area lies some 20km ENE of the Eersteling Mine Area. Similar compilation ofprevious records has commenced. Integration with new high resolutionaeromagnetic survey flown in January 2005 will assist to identify prioritytarget areas for further work. Rooipoort Platinum Exploration Project, South Africa In all forty five holes totalling 16,594 meters have been drilled at Rooipoortand have produced a wealth of geological and assay data that provides a platformfor further assessment of the platinum group elements / nickel / copper and goldpotential of this and adjoining properties. Exploration work on the Rooipoort Project has proved the existence of extensivezones of platinum group elements and gold, nickel and copper sulphidemineralization in rocks that can be correlated with the Critical Zone of theBushveld Complex, the host to nearly all the major producing platinum mines inthe 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 nineholes drilled at Grasvally will be included in the Project Status Report. Eric Roodt B.Sc (Hons), Pr.Nat.Sci., Senior Geologist is the Qualified Personfor the Eersteling, Rooipoort and Grasvally Exploration Projects. Nama Cobalt Project, Zambia Caledonia has signed a Letter of Intent with a large cobalt refinery as thefirst step towards an agreement for the long-term supply of cobalt concentratesfrom Nama. The refinery is conducting preliminary metallurgical testwork onconcentrate samples recovered from the "A" anomaly at Nama. This work isexpected to be completed during the fourth quarter. Provided that a commercialprocess is satisfactory, the details of the long-term purchase agreement will befinalized and a pilot plant will be built as soon as practical at Nama withtechnical assistance from the refinery. A re-interpretation of the airborne geophysics was completed during the quarterand has identified hitherto untested areas for further exploration and improvedthe understanding of the structural control over the mineralization of theproperties. A follow-up study is now being commissioned to confirm theseconclusions. This work should be completed by year end. Discussions are being held with a number of other large cobalt end-usersregarding long-term purchase agreements. Kikerk Lake Diamond Project, Canada The summer drilling program consisting of four holes and totaling 392 meters wascompleted in August. Three holes were drilled close to the Stellariadiamondiferous kimberlite, the fourth hole tested an unresolved indicatormineral anomaly 200 meters east of Stellaria. The drilling indicates a rapiddecrease in kimberlite mass immediately east and west of the Stellaria discoveryholes. Mulonga Plain Diamond Project, Zambia Eleven targets have been identified for the drilling program which started inSeptember and is progressing well. The drill program, which will be completed inthe fourth quarter, is concentrating on the eastern portion of the extensive(120 x 15 kilometer) high-abundance kimberlitic indicator mineral anomalyidentified by Motapa Diamonds Inc., the Project Manager. An airborne gravitysurvey was flown over this eastern portion at the end of last year. The targetsbeing tested include both gravity and magnetic anomalies. SUPPLEMENT TO THE FINANCIAL STATEMENTS On September 14, 2005 Caledonia amended the terms of 27,232,909 outstandingshare purchase warrants which had exercise dates from September 29 to October26, 2005 and were exercisable at $0.55 per share. All warrants becameexercisable at $0.11 per share on or before October 31, 2005, of which16,863,962 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 maturingat various dates until February 1, 2015.26,607,909 common share purchase warrants exercisable at a price of $0.11 pershare until October 31, 2005. Barbrook elected to outsource its consumable stores operation to a division ofAfrox Safety Limited ("Afrox") that specializes in stores management. Inaddition to the anticipated ongoing cost benefits, Afrox purchased the existinginventory of consumables at the full book value of $543,000, paid oncommencement of the outsourcing arrangement in October. Both the exercising of the warrants and the outsourcing agreement addedsignificantly 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 CurrentCash and short term deposits 94 6,470Accounts receivable 361 316Inventories 621 508Prepaid expenses 168 187 --------- --------- 1,244 7,481Investment at cost 79 79Capital assets 6,897 7,158Mineral properties 11,452 8,948 --------- --------- 19,672 23,666 ---------------------------------- --------- --------- Liabilities and Shareholders' EquityCurrentAccounts payable 1,066 1,062 Provision for site restoration 407 423 --------- --------- 1,473 1,485 --------- --------- Shareholders' EquityShare capital (Note 1) 176,539 173,304Contributed surplus 742 480Compensation warrants 468 321Deficit (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 ofperiod (156,986) (145,180) (128,955) (151,924) (142,020) (127,325)Net (loss) forthe period (2,564) (2,250) (1,080) (7,626) (5,410) (2,710) --------- --------- --------- --------- --------- ---------Deficit, endof 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 andoperating costsRevenue from sales 743 202 259 2,189 372 312Operating 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 expensesGeneral and 341 365 378 1,565 1,324 1,006administrativeInterest 4 (10) 24 9 53 63Other expense 910 43 8 2,048 (347) (296)(income) (Note 3) --------- --------- --------- --------- --------- --------- 1,255 398 410 3,622 1,030 773 --------- --------- --------- --------- --------- --------- (Loss) beforenon-controllinginterest (2,564) (2,250) (1,080) (7,626) (5,423) (2,710)Non-controllinginterest - - - - (13) - --------- --------- --------- --------- --------- ---------Net (loss) for theperiod (2,564) (2,250) (1,080) (7,626) (5,410) (2,710)------------------- --------- --------- --------- --------- --------- ---------Operating (loss) per share(Note 2)Basic andfully diluted ($0.004) ($0.006) ($0.003) ($0.013) ($0.015) ($0.009) Net (loss) per share (Note 2)Basic andfully 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 activitiesOperating (loss) forthe 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) --------- --------- --------- --------- --------- --------- InvestingactivitiesExpenditures oncapital assets (79) (451) (214) (335) (1,565) (408)Expenditures onmineral properties (611) (563) (110) (2,723) (1,242) (1,191) --------- --------- --------- --------- --------- --------- (690) (1,014) (324) (3,058) (2,807) (1,599) --------- --------- --------- --------- --------- --------- FinancingactivitiesLoan payable - - - - - (44)Issue of sharecapital net of issue 69 - 4,671 3,235 14,167 7,191costs (Note 1) --------- --------- --------- --------- --------- --------- 69 - 4,671 3,235 14,167 7,147 --------- --------- --------- --------- --------- --------- Increase (decrease)in (2,388) (3,305) 3,095 (6,376) 5,160 2,364cash for the periodCash and cashequivalents,beginning 2,482 12,644 1,133 6,470 4,179 1,864of period --------- --------- --------- --------- --------- ---------Cash and cashequivalents, end ofperiod 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 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 andobtaining sufficient financing to meet its liabilities, its obligations withrespect to operating expenditures and expenditures required on its mineralproperties. 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 significant inter-company balances andtransactions have been eliminated on consolidation. The Company's consolidated (all 100% owned) subsidiaries are Barbrook MinesLimited ("Barbrook"), Eersteling Gold Mining Company Limited (100% owned sinceJune 2004) ("Eersteling"), Greenstone Management Services (Proprietary) Limited,Fintona Investments (Proprietary) Limited, Maid O' Mist (Proprietary) Limited,Caledonia Mining (Zambia) Limited, Caledonia Kadola Limited, Caledonia NamaLimited and Caledonia Western Limited. Cash and Cash Equivalents Cash and cash equivalents represent cash on hand in operating bank accounts andmoney 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 ofownership are transferred and the receipt of proceeds is substantially assured. Capital Assets Producing AssetsProducing assets are recorded at cost less grants, accumulated amortization andwrite-downs. Producing assets are amortized using the straight line method basedon the estimated useful lives of the assets. The estimated useful life of theproducing assets ranges up to 10 years. Repairs and maintenance expenditures arecharged to operations; major improvements and replacements which extend theuseful life of an asset are capitalized and amortized over the remaining usefullife of that asset. Barbrook continues to undertake activities to re-establishcommercial operations and has been presented as a producing asset in thesefinancial statements for 2005, 2004 and 2003. Non-Producing AssetsNon-producing assets are recorded at cost less write downs. At the time of commercial production, the assets are reclassified as producingand amortized in the manner described above. Mineral Properties Producing PropertiesWhen and if properties are placed in production, the applicable capitalizedcosts are amortized using the unit-of-production method on the ratio of reservetonnes of ore mined or processed to the estimated proven and probable mineralreserves as defined by the Canadian Institute of Mining, Metallurgy andPetroleum. Barbrook continues to undertake activities to re-commence commercialoperations and has been presented as a producing asset in these financialstatements for 2005, 2004 and 2003. Of the 22,931 tonnes mined during the thirdQuarter, 8,777 were from reserves with the balance from other sources, includingdevelopment. 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 ore reserves are established or the properties are sold orabandoned. 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. 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 any 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 onlyexpenditures 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) 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 exchangeprevailing during the period. Exchange gains or losses arising on these translations are reflected in incomein the period incurred. Gains and losses arising on translation of long-termforeign currency denominated liabilities at each year end are reflected inincome. Asset Retirement Obligation Effective January 1, 2004 the Company adopted the Canadian Institute ofChartered Accountants Standard 3110, "Asset Retirement Obligations". Thisstandard requires that a liability be recognized for retirement obligations tobe 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 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. 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 sharesAn unlimited number of preference shares a Issued - Common Shares Number of Shares Amount ($000's) ------------------------ ----------- -----------Balance, December 31, 2004 301,112,286 173,304Issued in Quarter 2 34,888,888 3,166Issued 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 September30, 2005, the Company had 16,898,000 common share options outstanding at anaverage 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 anaverage 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 usingthe weighted average number of common shares outstanding during the thirdquarter and year to date, which amounted to 336,028,348 and 313,262,265,respectively. Under the treasury method of calculating fully diluted income pershare, exercise of the outstanding stock options and warrants would beanti-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 amortizationcharge of $815,000. The amortization charge relates mainly to Barbrook, whereincreasing production levels lead to increasing amortization charges in terms ofthe accounting policies detailed under "Mineral Properties' on page 14 above.Prior to the current fiscal year, amortization was only calculated at the end ofthe year due to the low tonnages processed by Barbrook. Amortization is nowcalculated for all of Caledonia's capital assets and mineral properties on aquarterly 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 2003Accretion asset retirement obligation - 16 24Non-controlling interest - (13) -Stock option benefit expense 103 167Compensation warrants expense 307 147 218Gain on acquisition of non-controlling interestof - (724) -subsidiary companyAmortization 815 - -Other (17) (23) (200) ---------- ---------- --------- 1,208 (430) 42 ---------- ---------- --------- The net changes in non-cash working capital balances for continuing operationsare as follows: 2005 2004 2003Accounts payable 4 (340) (351)Accounts receivable (45) (193) (156)Inventories (113) 47 -Prepaid expenses 19 126 (9) ---------- ---------- --------- (135) (360) (516) ---------- ---------- --------- Certain statements included herein are "forward-looking statements". Managementcautions that forward- looking statements are not guarantees, and that actualresults could differ materially from those expressed or implied in theforward-looking statements. Important factors that could cause the actualresults of operations, exploration or development programmes, or the financialcondition of the Corporation, to differ include, but are not necessarily limitedto, the risks and uncertainties discussed in documents filed by the Corporationwith the various regulatory authorities having jurisdiction. This information is provided by RNS The company news service from the London Stock Exchange