Caledonia Min Regulatory News (CMCL)

15 Nov 2007 17:33

Caledonia Mining Corporation15 November 2007 Caledonia Mining Corporation Caledonia Mining Announces its Third Quarter 2007 Results Toronto, Ontario - November 15, 2007: Caledonia Mining Corporation ("Caledonia")(TSX: CAL, NASDAQ-OTCBB: CALVF, AIM: CMCL) is pleased to announce its thirdquarter 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) | Q3 2007| Q3 2006|+---------------------------------------+---------------+---------------+|Sales from continuing operations | $1,950| $4,539|+---------------------------------------+---------------+---------------+|Operating Income/ from continuing | 774| 2,377||operations | | |+---------------------------------------+---------------+---------------+|Unrealised foreign exchange loss | (1,017)| (1,659)|+---------------------------------------+---------------+---------------+|Income/(loss) from continuing | (855)| (455)||operations | | |+---------------------------------------+---------------+---------------+|- per share basic and diluted | ($0.001)| ($0.001)|+---------------------------------------+---------------+---------------+|Discontinued operations (loss) | (80)| (2,619)|+---------------------------------------+---------------+---------------+|Net (loss) after discontinued | (935)| (3,074)||operations | | |+---------------------------------------+---------------+---------------+|- per share basic and diluted | ($0.002)| ($0.007)|+---------------------------------------+---------------+---------------+ For the quarter ended September 30, 2007 Caledonia reported revenue of $1.95million from the Blanket gold mine on sales of 2,262 ounces of gold and a netloss of $935,000 or ($0.002) per fully diluted share. Gold revenue for thequarter has been boosted by $454,000 due to retrospective changes made by theReserve Bank of Zimbabwe to the gold support price. Additional revenue wasreceived in the third quarter for gold sold in the second quarter. The loss for the quarter mainly results from an unrealised foreign exchange lossof $1.01 million being recorded due to the revision in the rate of exchangeannounced by the Reserve Bank of Zimbabwe. The rapid devaluation of the Zimbabwedollar versus the US dollar affects the carrying value of the US dollardenominated loan of $5.7 million that Blanket Mine owes to Caledonia Mining andresults in an unrealized foreign exchange loss on translation. Gold production of 2,448 ounces for the quarter was impacted by severe powershortages and foreign currency availability problems. Despite these challenges,the No.4 shaft has been partially commissioned enabling the mine to resumeunderground operations at the forecast production level of up to 600 tonnes perday. By the end of October the equipping of the shaft to the bottom 24 level wascompleted. In an attempt to minimize future power shortages, the Blanket minehas negotiated an agreement with the power authority ZESA to provide anuninterrupted power supply in return for payment in US dollars. If a continuouspower supply materializes there is an opportunity to increase gold production inthe fourth quarter. Gold production in October amounted to 1,595 ounces. Howeverthe overall completion date for the No.4 shaft refurbishment has been extendedto the second quarter of 2008 as the foreign currency shortages have impacted onBlanket's ability to purchase the required additional equipment and materials tocomplete the expansion project as originally planned. Commenting on the results, Stefan Hayden, President and CEO, said "In view ofthe extremely challenging operating environment we are currently experiencing inZimbabwe, I believe Blanket's gold production of 2,448 ounces is a solidperformance. The lack of hard currency funds and the severe power shortages have impactedboth production this quarter as well as the No.4 shaft expansion timetable whichwe are now anticipating to complete by the second quarter of 2008, provided theoperating environment does not deteriorate further. Looking ahead we hope the newly negotiated power agreement will improve thepower supply going forward, which would enable us to increase production duringthe fourth quarter as evidenced by the increased production in October. Howeverthe foreign currency shortages could still hamper our operational efforts. The 2007 Nama drilling program is now complete for the year, having targetedanomalies A, C and D. Resource modeling for these anomalies is planned for thefourth quarter 2007, with a new NI 43-101 resource planned by the end of thefirst quarter 2008. During the quarter the Environmental Impact Assessment ("EIA") for the newaccess road and power line was completed and is in the process of beingsubmitted to the Environmental Council of Zambia for final approval. This EIAwill be expanded to cover the anticipated future mining operations." For more information, please contact: Stefan Hayden, President & CEO Alex Buck Jonathan WrightCaledonia Mining Buck-bias Seymour PierceTel: +27 11 447 2499 Tel: +44 7932 740 452 Tel: +44 20 7107 8000 Further information regarding Caledonia's exploration activities and operationsalong with its latest financials may be found at www.caledoniamining.com. Management's Discussion and Analysis This Interim MD & A covers the Company's results for the period from January 1,2007 to September 30, 2007 - and the period thereafter to November 7, 2007. Itis to be read in conjunction with the Company's 3rd quarter financial statementsprepared to September 30, 2007, according to Canadian GAAP, its AnnualManagement Discussion and Analysis for the fiscal year ended December 31, 2006,the audited financial statements of the Company prepared to December 31, 2006,and the Company's 2006 Annual Report. All of these documents have been filed onSEDAR and are available at www.sedar.com or on the Corporation's website atwww.caledoniamining.com. Please note that all currency references in this document are to Canadiandollars. 1. OPERATIONAL REVIEW, OVERALL PERFORMANCE AND RESULTS OF OPERATIONS (a) Blanket Mine- Zimbabwe Management regrets to announce that a fatal accident took place at the Limasurface crushing plant on October 15, 2007 in which one of our employees waskilled. No other employees were injured. Investigations by the Inspector ofMines are continuing.The table below shows the 3rd quarter, YTD 2007 and October 2007 productionresults. +-----------------------+--------------+---------------+--------------+| | 3rd Quarter | 9 months to | October 2007 || | Actual |September 2007 | Actual |+-----------------------+--------------+---------------+--------------+|Ore processed -tonnes | 21,825 | 60,559 | 12,407 |+-----------------------+--------------+---------------+--------------+|Grade g/t | 3.93 | 3.05 | 4.44 |+-----------------------+--------------+---------------+--------------+|Recovery % | 86% | 83% | 90% |+-----------------------+--------------+---------------+--------------+|Sands Processed - | 5,066 | 125,137 | - ||tonnes | | | |+-----------------------+--------------+---------------+--------------+|Sands Grade g/t | 1.13 | 1.29 | - |+-----------------------+--------------+---------------+--------------+|Sands Recovery % | 54% | 62% | - |+-----------------------+--------------+---------------+--------------+|Ounces gold from ore | 2,328 | 5,370 | 1,595 |+-----------------------+--------------+---------------+--------------+|Ounces gold from Sands | 120 | 3,414 | - |+-----------------------+--------------+---------------+--------------+|Total ounces produced | 2,448 | 8,784 | 1,595 |+-----------------------+--------------+---------------+--------------+|Total ounces sold | 2,262 | 9,471 | 1,523 |+-----------------------+--------------+---------------+--------------+ Contrary to the project plan, the mine suffered a prolonged shutdown fromFebruary 15 to July 26 due to power supply and foreign currency availabilityproblems beyond Management's control. During July production was halted and themine put on care and maintenance to save costs as the high grade sands weredepleted and the contractor cost of transporting the sands to the plantescalated. In order to rapidly access the new mid-shaft loading binsunderground, the decision was taken to speed up equipping of the No. 4 shaft byoperating around the clock when power availability allowed. This decision paiddividends, as Blanket was able to partially commission the No. 4 shaft to haulfrom 14 level on July 26, thereby allowing the mine to resume undergroundoperations at the forecast production level of up to 600 tonnes per day ("TPD"). Production constraints experienced in the last two months of the quarter weremainly due to severe power shortages and to the delayed and unpredictablereceipt of US Dollar payments for gold sold and delivered to Fidelity Printersand Refiners the agent of the Reserve Bank of Zimbabwe (RBZ). Blanket hasconcluded an agreement with the power authority ZESA in order to attempt toovercome the power supply problem. From mid October Blanket will pay ZESA in USDollars for an uninterrupted power supply. As a result of this agreement someimprovement in production levels are anticipated in the 4th quarter, if Blanketactually receives both the agreed uninterrupted power supply and its foreigncurrency for gold sales timeously. Plant Frequent power disruptions during the last two months of the 3rd quarter onlyallowed the shafts and metallurgical plant to operate for 76% of the availabletime, processing 21,825 tonnes instead of a forecast 36,400 tonnes. Both thepartially completed No 4 shaft expansion and the plant are currently runningwell although foreign currency shortages are beginning to affect the plantavailability in some sections, in particular the crushing and screening plantand the carbon in leach (C.I.L) sections. Discussions are ongoing with RBZ totry and improve the receipt of foreign currency for gold delivered. As a result of managements continuing efforts to improve pollution controlmeasures at Blanket Mine the Governmental Environment Management Agent (EMA) hasnow upgraded the slimes dam from the red to the yellow category and managementintends to strive for achievement of the highest ("green") safety category.Capital Expenditure At the beginning of the 3rd quarter the No 4 shaft was successfully commissionedfrom surface to the 14 level where the two mid-shaft loading bins are located.Also at this time, equipping had reached the 18 level to enable commencement ofunderground operations utilizing mid shaft loading. This plan was successful asevidenced by the declared production. Although planned production resumed at thepre-shutdown level of 600 TPD, maintaining this proved difficult due to severedaily power outages and the sporadic and unpredictable payments of foreigncurrency. These currency restrictions make it extremely difficult to procure andimport foreign inputs in a timeous and scheduled manner. As a result of the above power and foreign currency shortages, only 60% of theforecast production was achieved during the quarter. Not only did the aboverestrictions affect production but they also delayed the further equipping ofthe No 4 shaft from 18 level to the current shaft bottom on 24 level. This finalequipping was eventually completed by the end of October. Further delays areanticipated if sufficient foreign currency is not timeously received from theRBZ as these will impact severely on Blanket's ability to purchase the requiredadditional equipment and materials to complete this phase of the expansionproject. All these delays have resulted in extending the estimated completiondate of the project to the 2nd quarter 2008. This latest estimate is based onthe assumption that the foreign currency and power situation does notdeteriorate further. Exploration and Project Development All exploration expenditure was scaled back during the 3rd quarter largely as aresult of the limited foreign currency resources being channeled to the partialcommissioning of No 4 shaft. The following exploration took place at three sitesin the Gwanda Greenstone belt:- • Surface mapping and partial ground magnetometer surveys were carried out over a 1,000m by 500m grid around Mascot and this work is still in progress. • At Abercorn, property definition work by way of boundary clearing was carried out with limited sampling of old workings and reconciling of previous ground magnetometer and soil geochemistry work to identify anomalous zones, was undertaken. Follow up work will continue in the 4th quarter. • The GG pilot shaft was sunk to 15 meters and currently lining of the shaft collar is in progress. This has been delayed due to the non availability of cement. A review of our property holdings in the Bindura area was undertaken prior tofurther discussions with our partners in the Mazoe joint venture. OutlookManagement is reviewing all our properties that are within economic truckingdistance of the Blanket plant to evaluate future production opportunities. Onesuch property is the GG (discussed above) where shaft sinking has commenced. The supply of continuous power from ZESA, if it materializes, will certainlyafford the mine the opportunity to increase production from the 4th quarterprovided the RBZ does not continue to delay gold payments. There is a need to increase exploration activity in the Gwanda Greenstone beltin order to realize the full potential of our property holdings. This willdepend on the availability and priority use of the mine's foreign exchangefunds. The socio-economic environment in the country remains an area of grave concernand there are no signs of improvement. The situation remains fluid and changesfrom day to day making it difficult to make any meaningful business forecasts. (b) Discontinued Operations Negotiations regarding the possible sale of the Barbrook Mine and EerstelingGold Mine continued during the quarter. A number of interested and financiallyable parties joined the process and continue to conduct their due diligence. TheBoard of Directors has decided that the Corporation should continue to seekbuyers who will purchase the assets on acceptable terms. (c) Exploration and Project Development Gold Exploration - Zimbabwe All Blankets exploration permits are in place and are current. Exploration activities were scaled down when the Blanket shaft was shutdown inmid February to direct all available resources to the shaft expansion project. Atotal of $10,000 was spent on exploration during the 3rd quarter ($55,000 forthe nine months to date). Rooipoort and Grasvally Platinum Exploration Project - South Africa Soil geochemical sampling within the Rooipoort Platinum Exploration Project nearMokopane (Potgietersrus) continued. During the quarter $30,000 was spent onexploration ($84,000 for the nine months to date). Soil geochemical sampling on the rights acquired from Falconbridge VenturesAfrica (FVA) continued with a total of 19,300 line meters of sampling achievedon Moordrift 289 KR. for the period under review. Approximately 8,500 line meters of soil geochemical sampling remains to be doneon Jaagbaan 291 KR, an adjacent FVA property to complete this phase of theproject. The application to the South African authorities to transfer the recentlyobtained Falconbridge property rights to one of Caledonia's wholly ownedsubsidiary company's has been finalized by the regional DME office in Polokwaneand submitted to DME head office in Pretoria for approval. Nama Copper/Cobalt - Zambia Exploration work continued smoothly at Nama during the dry winter field seasonand in accordance with the planned dates, with the exception of the ReverseCirculation (RC) drilling. During the quarter $1,008,285 was spent on plannedexploration. The drilling of all the diamond drill core holes, both for geological and bulkdensity measurement purposes, was completed on October 5 and the diamond drillrigs have moved off site. Bulk density measurements are required in order to determine ore volumes andtonnages for mining purposes with an acceptable level of accuracy. These bulkdensity drill holes were therefore sited so as to provide information of ageological nature in critical areas and thereby provide the added benefit ofimproving the definition and understanding of the ore bodies. Diamond drilling amounted to 3,140 meters during the 3rd quarter with a total of4,099 meters having been completed for the 2007 exploration field season,against a planned 4,000 meters. The diamond drilling breakdown per Anomaly areais as follows: +---------+-------------------+---------------+----------------------------------+|Anomaly |Diamond Drill Holes|Meters Drilled |Comment |+---------+-------------------+---------------+----------------------------------+| A | 7 | 1,769 |Geological and assay data |+---------+-------------------+---------------+----------------------------------+| A | 4 | 320 |Bulk Density & Geological data |+---------+-------------------+---------------+----------------------------------+| C | 3 | 770 |Geological and assay data |+---------+-------------------+---------------+----------------------------------+| C | 8 | 640 |Bulk Density & Geological data |+---------+-------------------+---------------+----------------------------------+| D | 6 | 600 |Bulk Density & Geological data |+---------+-------------------+---------------+----------------------------------+| Total | 28 | 4,099 | |+---------+-------------------+---------------+----------------------------------+ A total of 2,256 meters of Reverse Circulation ("RC") drilling was completedthis quarter. To date 3,229 meters of RC drilling has been completed during the2007 exploration season. The results per anomaly area are shown below: +---------+--------------------+---------------+---------------+|Anomaly |RC Drill Holes |Meters Drilled |Comment |+---------+--------------------+---------------+---------------+| C | 23 | 1,309 |Completed |+---------+--------------------+---------------+---------------+| D | 24 | 1,920 |Completed |+---------+--------------------+---------------+---------------+|Sub Total| 47 | 3,229 | |+---------+--------------------+---------------+---------------+| D | 28 | 2,211 |Planned for Nov|+---------+--------------------+---------------+---------------+| A | 2 | 160 |Planned for Nov|+---------+--------------------+---------------+---------------+| Q | 4 | 430 |Planned for Nov|+---------+--------------------+---------------+---------------+|Sub Total| 34 | 2,801 | |+---------+--------------------+---------------+---------------+| Total | 81 | 6,030 | |+---------+--------------------+---------------+---------------+ Initially, the Anomaly D area proved to be problematic in terms of RC drilling,with only 53% of the planned RC drilling being completed on account of the largevolumes of water that were encountered below the water table level in this area.The boreholes became difficult to air flush and the "down the hole drillingequipment" tended to become clogged. This slowed down the RC drilling ratesignificantly. The problem was largely resolved by the end of September when thecontractor moved a large high pressure/large air volume compressor on site.Drilling operations are now continuing on a 24 hour continuous drilling cycleand this has lead to a significant improvement in productivity. The earlier thanusual onset of the rains in early November has made it impossible to drill someoutstanding areas of Anomaly D and Anomaly Q which is a new compellinggeochemical target. In order to obtain at least some geological information onAnomaly Q this season, a shallow pit and trench program is being implemented butmay be restricted by the water table depth. The drill core is being logged and split on site prior to dispatch to anaccredited analytical laboratory in Ndola, Zambia for analysis of Cobalt,Copper, Nickel and Manganese. To date all of the core samples from thegeological holes at Anomaly "A" have been dispatched and results are stillawaited. Quality Control and Quality Assurance control procedures are in placeto verify the accuracy of the drill core splitting and handling and thelaboratory results. Preliminary analytical results from the RC drilling at anomaly "C" support thegeological model proposed to date. The resource modeling and re-evaluation ofthe anomalies is planned once all results have been returned by the laboratoryand the field work observations have been evaluated. A revised independentTechnical Report compliant with NI 43-101 standards will be issued once thiswork is completed. Five widely-spaced pits were dug on the southern boundary of the Konkola Westarea, within an area reporting anomalous Cobalt soil geochemical values. Thepits were dug to a depth of 4 to 5 meters and have all been sampled and thesamples have been submitted for analysis. A deeply weathered soil profile wasencountered in all the holes with no recognizable geological units beingencountered. It is possible that the area may be underlain by a deeply weatheredintrusive. All pits have now been closed in accordance with our rehabilitationprogram. Depending on the outcome of the pit sampling, further exploration workwill be planned and conducted in this area during next year's explorationprogram. Overall, the exploration program at Nama is progressing well and within budgetunder the management of the Country Manager and the supervision of GodfreyGriffin, Pr. Sci. Nat. Caledonia's Exploration Manager and QP for the Namaexploration programs. The metallurgical testing to establish the likely product specification of thecobalt hydroxide product has been completed. Based on this metallurgical testwork the cobalt hydroxide specification has been discussed with, and isacceptable to the various potential cobalt hydroxide purchasers. Draft long-termsupply agreements are being finalized, and will be forwarded to the variouscobalt refiners for their final comments and inputs later this month. During the quarter the Nama Environmental Impact Assessment (EIA) covering thenew access road and power line routes to the proposed Nama Plant Site wascompleted, and is in the process of being submitted to the Environmental Councilof Zambia for their final approval. This EIA study will be expanded to cover theanticipated future mining operations at Nama. A fabrication and installation quotation for a 20 tonne per day test processplant has been received and is being evaluated. It is intended that this plantwill be used for Nama metallurgical plant optimization. Kadola Copper/Cobalt - Zambia No progress has been made with regards to the finalization of the renewal of theKadola group of three licenses despite many hours of negotiation with members ofthe Department of Mines at all levels of seniority. However the outcome of thisapplication is expected to be made known shortly as the period of the ZambianGovernment moratorium is rapidly approaching its finalization deadline. Notwithstanding these delays a favorable outcome is expected in the form of aretention license for a limited time period. Goedgevonden Diamonds - South Africa Discussions with an interested party who has signed a confidentiality agreementwith Caledonia have commenced and will be further reported on as and when anyagreement is reached. (d) Financing There were no capital raising efforts during the quarter and the activities ofthe company were funded from the proceeds of the exercise of warrants that tookplace in the second quarter. Blanket Mine in Zimbabwe continues to fund itsactivities from internally generated funds. 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: +-----------------+--------+-------+--------+-------+--------+--------+--------+--------+| |Sept 30/|June 30|Mar 31/ |Dec 31/|Sept 30/|June 30/|Mar 31/ |Dec 31/ ||QUARTER ENDED | 07 | /07 | 07 | 06 | 06 | 06 | 06 | 05 |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Sales from | $1,950| $1,539| $3,319| $9,045| $4,539| $1| $1| $2||continuing | | | | | | | | ||operations | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Operating income/| 774| (424)| (1,076)| 3,095| 2,377| (254)| (293)| (167)||(loss) from | | | | | | | | ||continuing | | | | | | | | ||operations | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Unrealized | (1,017)| (707)| 255| 1,576| (1,659)| 124| 102| 929||Foreign exchange | | | | | | | | ||gain/(loss) | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Income/(loss) | | | | | | | | ||from continuing | (855)| 364| (3,909)| 3,840| (455)| (683)| (387)| (318)||operations | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|- per share basic|($0.002)| $0.001|($0.008)| $0.008|($0.001)|($0.002)|($0.001)|($0.001)||and diluted | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Discontinued | (80)| (126)| (254)|(1,282)| (2,619)| (2,210)| (1,879)| (1,736)||operations (loss)| | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Net Income(loss) | (935)| 238| (4,163)| 2,558| (3,074)| (2,893)| (2,266)| (2,054)||after | | | | | | | | ||discontinued | | | | | | | | ||operations | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Revaluation of | (76)| -| -| -| -| -| -| -||investments to | | | | | | | | ||fair value | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|Comprehensive |($1,011)| $238|($4,163)| N/A| N/A| N/A| N/A| N/A||loss | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+|- per share basic|($0.002)|$0.0005|($0.008)| $0.006|($0.007)|($0.007)|($0.006)|($0.006)||and diluted | | | | | | | | |+-----------------+--------+-------+--------+-------+--------+--------+--------+--------+ Note: As there are no extraordinary items the disclosed net losses per share areidentical to the total loss before extraordinary item. Comprehensive loss is shown as N/A for 2006 and 2005 as the Accounting StandardSection was only applicable from January 1, 2007. The effect of the dilution on the earnings per share has been calculated foreach quarter of 2006 as a profit was earned before discontinued operations forthe year. No calculation for 2007 or 2005 was made as the result for the yearwas a loss and the diluted earning per share would be anti-dilutive. As can be seen from the table above, the loss from continuing operations in the3rd quarter 2007 resulted from the unrealized loss on foreign exchange. The effective exchange rate applicable to the "Gold Support Price" is stillconsidered the most appropriate rate of exchange to translate the results ofBlanket Mine into Canadian Dollars and meets the requirements of Canadian GAAP.The table below shows the exchange rates used now and in the past in Z$ per US$ +-------------------+------------------+------------------+------------------+| |3rd Quarter rate |2nd Quarter rate |1st Quarter rate ||Z$ per US$1 |of exchange |of exchange |of exchange |+-------------------+------------------+------------------+------------------+|Sales revenue | 156,590 | 14,220 | 713 |+-------------------+------------------+------------------+------------------+|Other income | | | ||statement items | 150,507 | 21,070 | 758 |+-------------------+------------------+------------------+------------------+|Monetary assets and| | | ||liabilities | 168,645 | 47,451 | 758 |+-------------------+------------------+------------------+------------------+|All other assets | | | ||and liabilities | 101.19 | 101.19 | 101.19 |+-------------------+------------------+------------------+------------------+ The RBZ announced retrospective changes, in 2007, to the Gold Support Price (seetable below) and the resulting effective rate of exchange gives a more accuraterepresentation of the purchasing power of the Zimbabwean dollar, compared to thefixed official rate of exchange of Z$30,000:US$1 +-----------------+--------+---------+-----------+---------+---------+---------+|Period 2007 |Jan-Apr |Apr27-May|1June-1July|1 |1 |From 1 || |26 | | |July-1Aug|Aug-1Sep |Sep |+-----------------+--------+---------+-----------+---------+---------+---------+|Average Gold | | | | | | ||price US$/ounce |$657 |$667 |$656 |$666 |$665 |$712 |+-----------------+--------+---------+-----------+---------+---------+---------+|Gold support | | | | | | ||price Z$/gram |Z$16,000|Z$350,000|Z$1 million|Z$3 |Z$3,5 |Z$4 || | | | |million |million |million |+-----------------+--------+---------+-----------+---------+---------+---------+|Effective Z$:US$ | | | | | | ||exchange rate |Z$758 |Z$16,317 |Z$47,451 |Z$140,219|Z$163,712|Z$174,748|+-----------------+--------+---------+-----------+---------+---------+---------+|Old Mutual | | | | | | ||Implied Rate |Z$10,464|Z$26,184 |Z$126,828 |Z$139,747|Z$322,517|Z$295,444|+-----------------+--------+---------+-----------+---------+---------+---------+ The "Old Mutual Implied Rate" is calculated by dividing the "Old Mutual Plcshare price" on the Zimbabwe Stock Exchange by the "Old Mutual Plc share price"on the London Stock Exchange. Management note that as the official exchange rateis not freely floating it does not reflect the impact of the hyper-inflationaryeconomy and does not give shareholders a fair perspective of the results of theoperation. The table below demonstrates what the consolidated results of Caledonia MiningCorporation would have been if the "Old Mutual Implied Rate" had been used totranslate the results of Blanket Mine. At this time the "Old Mutual ImpliedRate" is not considered to be compliant with Canadian GAAP requirements. +---------------------------+----------------------+------------------------+| | | ||Nine months to September |At Gold Support Price |At Old Mutual Implied ||2007- thousands of Canadian|rate of exchange |rate of exchange ||dollars | | || | | |+---------------------------+----------------------+------------------------+|Sales Revenue | $6,808 | $6,788 |+---------------------------+----------------------+------------------------+|Gross (loss)income | (726) | 3,649 |+---------------------------+----------------------+------------------------+|Unrealised foreign exchange| 1,468 | 6,868 ||loss | | |+---------------------------+----------------------+------------------------+|Net (loss) | (4,935) | (5,908) |+---------------------------+----------------------+------------------------+|Current Assets | 2,954 | 2,228 |+---------------------------+----------------------+------------------------+|Current Liabilities | 2,519 | 2,285 |+---------------------------+----------------------+------------------------+|Total Assets | 27,400 | 23,965 |+---------------------------+----------------------+------------------------+|Income Statement average | | ||rate of exchange for the | 150,507 | 190,576 ||quarter | | |+---------------------------+----------------------+------------------------+|Period end rate of exchange| 168,645 | 398,900 |+---------------------------+----------------------+------------------------+ For the nine month period ending September 2007 the net gross revenue was$6,808,000 from the sale of 9,471 ounces of gold (2006 - $4,540,000 from 8,023ounces). The ounces of gold are not comparable as 2007 includes the operationsof Blanket Mine only and 2006 included the operations of Barbrook Mine andBlanket Mine from 1 July 2006. The ounces of gold sold by Blanket Mine in the3rd quarter amounted to 2,262 ounces (2,922 in the 2nd quarter and 4,287 ouncesin the 1st quarter). The reduced ounces in the 3rd quarter 2007 are due to theplanned production reduction detailed in 1(a) above. The loss from continuingoperations for the 3rd quarter was $855,000 (2nd quarter income $364,000, loss$3,909,000 1st quarter, income $3,840,000 4th quarter 2006 and loss $455,000 for3rd quarter 2006) and mainly results from a foreign exchange loss of $1,017,000(gain of $1,975,000 2nd quarter and loss $2,427,000 1st quarter) being recordeddue to the revision in the rate of exchange announced by the RBZ. The rapiddevaluation of the Zimbabwe dollar versus the US dollar affects the carryingvalue of the US dollar denominated loan of US$5,700,000 that Blanket Mine owesto Caledonia Mining Corporation and results in an unrealized foreign exchangeloss on translation. The revised monetary policy as explained below, under Liquidity, resulted inimproved revenues from gold sales if settled in Zimbabwe dollars. Of the 2,262ounces sold in the 3rd quarter 50% were sold for Zimbabwe dollars. Gold revenuefor the 3rd quarter was boosted by $454,000 due to retrospective monetary policyadjustments resulting in additional revenue being received, in the quarter, forgold sold in the previous quarter. Blanket Mine produced an operating profit forthe 3rd quarter of $774,000 (2nd quarter loss $424,000 and 1st quarter loss of$1,076,000). Underground mining resumed on July 26, 2007 after the successfulcommissioning of the winder on No 4 shaft but continuing power shortagesprevented the mine from achieving its 600 tonnes per day target on a sustainedbasis. The loss from discontinued operations of $80,000 for the quarter represents theholding costs of Barbrook and Eersteling as the sale process progresses. 3. LIQUIDITY As of September 30, 2007 the company had a working capital surplus of $435,000(surplus of $2,332,000 at June 30 and $1,978,000 deficit at March 31, 2007 and asurplus of $2,874,000 as at December 31, 2006). Despite late payments for goldsold to the RBZ, Blanket Mine ended the quarter with local borrowings of $27,000. These funds were used to pay local creditors and staff costs. As at theend of the 3rd quarter $509,885 was owed by the RBZ for gold sold of which$250,000 was received on October 20, 2007. Due to subsequent sales of gold theRBZ owed Blanket Mine $1,100,000 for gold delivered to Fidelity Printers andRefiners as of November 1, 2007. On October 1, 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 from July 1, |New Policy from October 1, || |2007 |2007 |+---------------------------+---------------------------+---------------------------+|Gold revenue per gram when |Z$1,000,000 per gram |Z$5,000,000 per gram ||sold for Zimbabwe dollars | | |+---------------------------+---------------------------+---------------------------+|Gold revenue ratio when |60% received in US dollars |65% received in US dollars ||sold for US dollars |and 40% received in |and 35% received in || |Zimbabwe dollars |Zimbabwe dollars |+---------------------------+---------------------------+---------------------------+|Method of calculating |Gold ounces x US$ price of |Gold ounces x US$ price of ||Zimbabwe dollars for the |gold x Z$250 x 60 (drought |gold x Z$270,000 ||35% and 40% above |relief factor) = Zimbabwe | || |dollar revenue. Effective | || |exchange rate Z$15,000: | || |US$1 | |+---------------------------+---------------------------+---------------------------+|Exchange rate paid when US |Z$15,000: US$1 |Z$270,000: US$1 ||dollars sold to RBZ | | |+---------------------------+---------------------------+---------------------------+|Retention period of US |Indefinite |Indefinite ||dollars | | |+---------------------------+---------------------------+---------------------------+ With the implementation of the new policies it is expected that Blanket Minewill generate sufficient cash to be self funding (subject to electricityavailability), for working capital and limited capital expenditure projects. Funding requirements for exploration activities and general working capital ofnon Zimbabwean operations were met from the proceeds received from the exerciseof warrants in April 2007. There are no other capital commitments that have a call on the availableresources of Caledonia Mining Corporation. 4. RELATED PARTY TRANSACTIONS During the 3rd quarter of 2007 the company had the following related partytransactions, all amounts in thousands of Canadian dollars. 2007 2006 2005Management, administrative services and benefits paidor accrued to a company which employs the Company's $129 $118 $108President Rent paid to a company owned by members of the 12 12 12President's family These related party transactions were in the normal course of operations and arerecorded at the ruling exchange amount. 5. CRITICAL ACCOUNTING POLICIES Apart from the estimate of the rate of exchange to be used to translate theresults of Blanket Mine, there are two other major areas where accountingestimates are made, asset impairment and asset retirement obligation. Assignificant impairment provisions have already been made against the assets andthere is a reasonable level of certainty around the estimate it is consideredunlikely that any change in estimate would result in a material impact on theresults of the company. Based on non-binding purchase offers made for Barbrookand Eersteling Mines no further asset impairment has been made against theseassets. The asset retirement obligation is also considered to be estimated witha reasonable degree of certainty, although the original estimation wascalculated some years ago. The estimation is accreted annually at 5% and thusany change in circumstances is considered unlikely to have a material impact onthe results of the company or its 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 December 31, 2006, pursuant to thecertification requirements of Multilateral Instrument 52-109. 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 November 7, 2007 the following securities of the Company were outstanding: - 487,869,280 common shares. - 18,588,000 common share purchase options at an average price of $0.198 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. (b) For further information about Caledonia reference is also made to its 2006 Annual Information Form dated April 10, 2007 filed on SEDAR which can be seen at www.sedar.com 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 consolidated financial statements. The Board of Directors discharges its responsibilities for the consolidatedfinancial statements primarily through the activities of its Audit Committeecomposed of three directors, all of whom are not members of management. ThisCommittee meets with management to assure 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. S. E. Hayden S.R. CurtisPresident and Vice-President FinanceChief Executive Officer and Chief Financial Officer Caledonia Mining Corporation Consolidated Balance Sheet (in thousands of Canadian dollars) Unaudited September 30 December 31 2007 2006Assets CurrentCash and cash equivalents $681 $1,252Accounts receivable 799 1,407Inventories (note 4) 1,293 5,738Prepaid expenses 28 61Assets held for sale 153 315 2,954 8,773 Capital assets and mineral properties held for sale 11,955 11,449 Investment at cost (note 5) 34 79Capital assets 212 212Mineral properties 12,245 10,943 24,446 22,683 $27,400 $31,456 Liabilities and Shareholders' Equity CurrentAccounts payable (note 4) $2,519 $5,945 2,519 5,945 Asset retirement obligation 718 811Asset retirement obligation - held for sale 312 364 3,549 7,120 Shareholders' EquityShare Capital (note 1) 195,006 190,626Contributed surplus 1,029 989Accumulated other comprehensive income/(loss) (45) -Deficit (172,139) (167,279) 23,851 24,336 $27,400 $31,456 The estimate of the exchange rate used to translate Blanket Mine in thecomparative Financial Statements has not been changed and thus the comparativesare as previously reported. On behalf of the Board: "S E Hayden" Director "R Fasel" 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 September 30 For the nine months ended September 30 Unaudited 2007 2006 2005 2007 2006 2005Deficit, beginning ($171,204) ($166,763) ($156,986) ($167,279) ($161,604) ($151,924)of periodNet (loss) for the (935) (3,074) (2,564) (4,860) (8,233) (7,626)periodDeficit end of ($172,139) ($169,837) ($159,550) ($172,139) ($169,837) ($159,550)period Caledonia Mining Corporation Consolidated Statement of Operations and Comprehensive Income(Loss) (in thousands of Canadian dollars except per share amounts) For the three months ended September 30 For the nine months ended September 30 Unaudited 2007 2006 2005 2007 2006 2005Revenue and operatingcostsRevenue from sales $1,950 $4,540 $- $6,808 $4,540 $4Operating costs 1,176 2,163 221 7,534 2,710 588Gross Income (loss) 774 2,377 (221) (726) 1,830 (584) Costs and expensesGeneral and 542 986 342 1,584 1,719 1,565administrationInterest 65 (2) (1) 120 (2) 0Amortization 4 79 36 510 99 51Other expenses (income) 1,017 (945) 1,227 1,457 1,539 1,233(Note 3) 1,628 118 1,604 3,671 3,355 2,849 (Loss)Income before (854) 2,259 (1,825) (4,397) (1,525) (3,433)discontinued operationsTaxation (1) - - (3)(Loss) Income after tax (855) 2,259 (1,825) (4,400) (1,525) (3,433)before discontinuedoperationsNet (loss) for (80) (5,333) (739) (460) (6,708) (4,193)discontinued operationsNet (loss) for the period (935) (3,074) (2,564) (4,860) (8,233) (7,626)after discontinuedoperationsRevaluation of (76) - - (76) - -Investments to fair valueComprehensive (loss) forthe period ($1,011) N/A N/A ($4,935) N/A N/ANet (loss) per sharebefore discontinuedoperationsBasic and fully diluted ($0.002) ($0.005) ($0.005) ($0.009) ($0.004) ($0.011)(note 2) Net (loss) per shareafter discontinuedoperationsBasic and fully diluted ($0.002) ($0.007) ($0.008) ($0.010) ($0.020) ($0.024)(note 2) Comprehensive (Loss) for 2006 and 2005 is shown as N/A as Standard 1530 dealingwith Comprehensive Income only came into effect for Caledonia from January1,2007. The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Caledonia Mining Corporation Statement of Changes in Shareholder Equity (in thousands of Canadian dollars ) Share Contributed Accumulated Other Deficit Total Capital Surplus Comprehensive Amount Income Balance at December 31, 2006 $190,626 $989 $- $(167,279) $24,336Warrants exercised 3,330 3,330Warrants exercised 1,050 1,050Adjustment to opening balance change inaccounting policy 31 31Expense on options issued 50 50Options cancelled (10) (10)Investments revaluationto fair value (76) (76)Net loss for the period (4,860) (4,860)Balance at September $195,006 $1,029 ($45) ($172,139) ($23,851)30, 2007 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 September 30 For the nine months ended September 30 Unaudited 2007 2006 2005 2007 2006 2005Cash provided by (used in) Operating activitiesNet (loss) income before ($855) $2,259 ($1,825) ($4,400) ($1,525) ($3,433)discontinued operations Adjustments to reconcile 3 297 400 415 356 444net cash from operations(note 4 ) Changes in working 396 3,357 107 1,766 669 (135)capital balances (note 4) (456) 5,913 (1,318) (2,219) (500) (3,124) Investing ActivitiesExpenditure on capital (959) (1,304) (1,579) (2,339) (1,436) (1,784)assets and mineralpropertiesInvestment in BlanketMine net of cash - (859) - - (859) -received on acquisition (959) (2,163) (1,579) (2,339) (2,295) (1,784)Financing activitiesBank overdraft - - - - (197) -(decrease)Shares held in Escrow - (3,014) - - - -Issue of share capitalnet of issue costs - 2,160 69 4,380 7,559 3,235 - (854) 69 4,380 7,362 3,235Cash flow fromdiscontinued operationsOperating activities (80) (5,333) (739) (460) (6,708) (4,193)Amortization 5 1,767 290 21 2,893 764Investing Activities - 262 889 (922) (1,274) (75) (3,304) 440 (439) (4,737) (4,703) Increase (decrease) in (1,490) (408) (2,388) (617) (170) (6,376)cash for the periodCash and cash 2,171 1,314 2,482 1,298 1,076 6,470equivalents, beginningof the periodCash and cash 681 906 94 681 906 94equivalents, end of theperiod Cash and cashequivalents at end ofthe period relate to:Continuing operations 691 1,187 99 691 1,187 99Discontinued operations (10) (281) (5) (10) (281) (5) $681 $906 $94 $681 $906 94 The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Caledonia Mining CorporationSummary 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 the exchange rate used to translate the results ofBlanket Mine into Canadian dollars, mineral resources, future cash flowsassociated with capital assets and mineral properties. Management's calculationof reserves and resources and cash flows are based upon engineering andgeological estimates and financial estimates including gold prices and operatingcosts. The amount ultimately recovered could be materially different than theestimated 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 period 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 fair value. Changes in fair value arerecognized in the statements of operations and comprehensive income. 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 for2007 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 exchange prevailing 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 aboveand exchange gains or losses arising on these translations are reflected inincome in the year incurred. In the preparation of the financial statements shown on pages 12-15 theeffective exchange rate derived from the Gold Support price, has been used totranslate the results of Blanket Mine into Canadian dollars. Due to the hyper inflationary nature of the Zimbabwe economy it was decided tochange the basis on which to estimate the exchange rate to be used intranslating the results of Blanket Mine into Canadian dollars. This is a changein estimate and not a change in accounting policy. This change was made during the second quarter of 2007 and has been applied tothe results of all the quarters of 2007. It has been decided that the effectiveexchange rate applicable to the "Gold Support Price" is the most appropriaterate of exchange to use at this point in time and meets the requirements ofCanadian GAAP. The table below shows the exchange rates used now and in the pastin Z$ per US$ +---------------+------------------+-------------------+-----------------+| | 3rd Quarter rate |2nd Quarter rate of|1st Quarter rate || | of exchange | exchange | of exchange |+---------------+------------------+-------------------+-----------------+|Sales revenue | 156,590 | 14,220 | 713 |+---------------+------------------+-------------------+-----------------+|Other income | | | ||statement items| 150,507 | 21,070 | 758 |+---------------+------------------+-------------------+-----------------+|Monetary assets| | | ||and liabilities| 168,645 | 47,451 | 758 |+---------------+------------------+-------------------+-----------------+|All other | | | ||assets and | 101.19 | 101.19 | 101.19 ||liabilities | | | |+---------------+------------------+-------------------+-----------------+ 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. Adoption of New Accounting Standards retrospectively at January 1, 2007i) Financial Instruments- Recognition and Measurement (Section 3855).Thisstandard sets out criteria for the recognition and measurement of financialinstruments for fiscal years beginning on or after October 1, 2006. Thisstandard requires all financial instruments within its scope, includingderivatives, to be included on a Company's balance sheet and measured either atfair value or, in certain circumstances when fair value may not be consideredmost relevant, at cost or amortized cost. Changes in fair value are to berecognized in the statements of operations and comprehensive income. All financial assets and liabilities are recognized when the entity becomes aparty to the contract creating the item. As such, any of the Company'soutstanding financial assets and liabilities at the effective date of adoptionare recognized and measured in accordance with the new requirements as if theserequirements had always been in effect. Any changes to the fair values of assetsand liabilities prior to October 1, 2006 are recognized by adjusting openingdeficit or opening accumulated other comprehensive income.All financial instruments are classified into one of the following fivecategories: held for trading, held-to-maturity, loans and receivables,available-for-sale financial assets, or other financial liabilities. Initial andsubsequent measurement and recognition of changes in the value of financialinstruments depends on their initial classification. ii) Comprehensive Income (Section 1530)Comprehensive income is the change in shareholders' equity during a period fromtransaction and other events from non-owner sources. This standard requirescertain gains and losses that would otherwise be recorded as part of the netearnings to be presented in other "comprehensive income" until it is consideredappropriate to recognize into net earnings. This standard requires thepresentation of comprehensive income and its components in a separate financialstatement that is displayed with the same prominence as the other financialstatements. Accordingly, the Company now reports a Statement of ShareholderEquity which includes the account "accumulated other comprehensive income" inthe shareholders' equity section of the consolidated balance sheet. The adoption of Sections 3855 and 1530 determines how the Company records itsinvestment in Motapa Diamonds Inc. and Old Mutual Plc which are now classifiedas financial instruments "available for sale" and thus have to be reported atfair value. The adjustment to opening balance to recognize this was $31 anyfurther unrealized gains or losses in the nine months ended September 30, 2007are reported in the current period Change in Accounting PoliciesThere have been no other changes in accounting policy during the current orpreceding years. Caledonia Mining CorporationNotes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts) 1. Share Capital (a) Authorized An unlimited number of common shares. An unlimited number of preference shares.(b) Issued Number of Shares AmountCommon sharesBalance December 31, 2004 301,112,286 $173,304Issued pursuant to private placements 52,738,888 4,733Warrants exercised 16,863,962 2,016Balance, 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 2,160Balance December 31 , 2006 457,981,021 $190,626Balance March 31 , 2007 457,981,021 $190,626Warrants exercised 22,890,000 3,330Warrants exercised 6,998,259 1,050Balance June 30 , 2007 487,869,280 $195,006Balance September 30 , 2007 487,869,280 $195,006 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 and on May 12, 2007 warrants amounting to 6,998,259units were exercised and an equivalent number of shares were issued at a priceof $0.15 per share realizing $1,049,739. (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 September 30, 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 11, 2010 300,000 $ 0.130 May 11,2016 200,000 $ 0.110 January 23,2017 1,300,000 $0.1125 May 31, 2012 18,588,000 The continuity of the options granted, exercised, cancelled and expired underthe Plans during 2007, 2006 and 2005 are as follows: +---------------------------------+-------------+--------------------+| | Number of |Weighted Avg. || | Options |Exercise Price |+---------------------------------+-------------+--------------------+|Options outstanding at December | 13,108,700| $0.26 ||31, 2004 | | |+---------------------------------+-------------+--------------------+|Granted | 5,000,000| $0.12 |+---------------------------------+-------------+--------------------+|Cancelled or expired | (1,210,700)| ($0.43) |+---------------------------------+-------------+--------------------+|Options outstanding at December | 16,898,000| $0.21 ||31, 2005 | | |+---------------------------------+-------------+--------------------+|Granted | 300,000| $0.13 |+---------------------------------+-------------+--------------------+|Granted | 150,000| $0.115 |+---------------------------------+-------------+--------------------+|Cancelled or expired | (110,000)| ($0.27) |+---------------------------------+-------------+--------------------+|Options outstanding at December | 17,238,000| $0.21 ||31, 2006 | | |+---------------------------------+-------------+--------------------+|Cancelled or expired | (150,000)| ($0.115) |+---------------------------------+-------------+--------------------+|Granted | 200,000| $0.11 |+---------------------------------+-------------+--------------------+|Options outstanding at March 31, | 17,288,000| $0.204 ||2007 | | |+---------------------------------+-------------+--------------------+|Granted | 1,300,000| $0.1125 |+---------------------------------+-------------+--------------------+|Options outstanding at June 30, | 18,588,000| $0.198 ||2007 | | |+---------------------------------+-------------+--------------------+|Options outstanding at September | 18,588,000| $0.198 ||30, 2007 | | |+---------------------------------+-------------+--------------------+ The options to purchase common shares noted above, have been granted todirectors, 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 September 30, 2007: Number of Warrants Shares for Exercise Expiry Date Warrants Price 33,287,626 1 for 1 $0.20 Various to February 03, 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 and on May 12,2007 warrants amounting to 6,998,259units were exercised and an equivalent number of shares were issued at a priceof $0.15 per share realizing $1,049,739. On September 28, 2007 17,000,000warrants expired. The detail of the warrants outstanding is detailed below. +----------+-----------------------+-------------+-------------------+| Number|Description | Exercise | Validity || | | Price | |+----------+-----------------------+-------------+-------------------+|17,850,000|Common share purchase | $0.20 |Until December 28, || |warrants | |2007 |+----------+-----------------------+-------------+-------------------+|10,000,000|Common share purchase | $0.20 |Until January 31, || |warrants | |2008 |+----------+-----------------------+-------------+-------------------+| 2,715,476|Common share purchase | $0.20 |Until February 1, || |warrants | |2008 |+----------+-----------------------+-------------+-------------------+| 2,722,150|Common share purchase | $0.20 |Until February 3, || |warrants | |2008 |+----------+-----------------------+-------------+-------------------+ The continuity of warrants issued and outstanding is as follows: Number of Warrants Outstanding December 31, 2004 39,232,909 Exercised (16,863,962) Expired (22,368,947) Issued pursuant to private 17,850,000 placements Outstanding December 31, 2005 17,850,000 Issued pursuant to private 67,265,885 placements Outstanding December 31, 2006 85,115,885 Outstanding March 31, 2007 85,115,885 Exercised (22,890,000) Exercised (6,998,259) Expired (4,940,000) Outstanding June 30, 2007 50,287,626 Expired (17,000,000) Outstanding September 30, 2007 33,287,626 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 third quarterwhich amounted to 487,869,280 (2006 - 455,209,281;) and year to date 474,568,573(2006 - 412,981,020). Fully diluted earnings per share have not been calculatedas it would be anti-dilutive. 3. Other Expense (Income) before discontinued operations Other expense (income) is comprised of the following: 2007 2006 2005 Foreign exchange loss 1,468 1,433 979Other (11) 106 254 $1,457 $1,539 $1,233 The foreign exchange loss reported for 2007 has arisen due to the rapiddevaluation of the Zimbabwe Dollar versus the US dollar and the fact thatBlanket Mine has a US dollar denominated loan owing to Caledonia MiningCorporation. 4. Supplemental Cash Flow information Items not involving cash are as follows: 2007 2006 2005Amortization $15 $99 $51Asset retirement obligation (146)Write down of mineral property 495 293Compensation warrant expense 307Stock option expense net 40 103Other 11 39 (17) $415 $356 $444 The net changes in non-cash working capital balances for operations are asfollows: 2007 2006 2005Accounts payable ($3,426) $314 $4Accounts Receivable 608 93 (45)Inventories 4,445 169 (113)Prepaid expenses 33 93 19Assets held for sale 106 $1,766 $669 ($135) The reduction in the value of both inventory and accounts payable is largely dueto the more accurate estimate of exchange rate used to translate the BlanketMine financial statements into Canadian dollars. There has also been a reductionof both inventory and accounts payable levels due to the reduced level ofproduction during the 3rd quarter caused by power shortages and lack of foreigncurrency. 5. Investments The adoption of Sections 3855 and 1530, retrospectively from January 1, 2007,determines how the Company records its investment in Motapa Diamonds Inc. andOld Mutual Plc which are now classified as financial instruments "available forsale" and thus have to be reported at fair value. The adjustment to openingbalance to recognize this was $31 any further unrealized gains or losses in thenine months ended September 30, 2007 are reported in the current periodThe investment in Motapa Diamonds Inc is valued at $26 and shares held in OldMutual Plc are valued at $8. 6. 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 September 30, 2007 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. This information is provided by RNS The company news service from the London Stock Exchange