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Caledonia Mining Corporation03 April 2007 Caledonia Mining Announces its Fourth Quarter and 2006 Annual Results Toronto, Ontario - April 2 2007: Caledonia Mining Corporation ("Caledonia")(TSX: CAL, NASDAQ-OTCBB: CALVF, AIM: CMCL) is pleased to announce its fourthquarter and 2006 annual operating and financial results. The financial results below are reported in thousands of Canadian dollars,except where otherwise stated. Financial Highlights Q4 '06 Q4 '05 2006 2005 Total Revenue 9,200 453 16,559 2,642 Revenue - continuing operations 9,045 4 13,586 6 Operating costs - continuingoperations 5,951 587 8,661 757 Gross Income(loss) - continuingoperations 3,094 (583) 4,925 (751) Net Income(loss) - continuingoperations 3,840 (313) 2,315 (3,748) (Loss) - discontinued operations (1,282) (1,741) (7,990) (5,932) Net Income(loss) for the period 2,558 (2,054) (5,675) (9,680) Net Income(loss) per share (basic &fully diluted) - continuingoperations $0.008 ($0.001) $0.005 ($0.012) Net Income (loss) per share (basic &fully diluted) $0.006 ($0.006) ($0.013) ($0.031) Cash in continuing operations 1,252 2,004 1,252 2,004 Total Assets 31,456 22,338 31,456 22,338 For the year ended December 31, 2006, Caledonia recorded a gross income fromcontinuing operations of $4.9 million, revenues of $13.6 million, and a netincome after tax of $2,3 million. Included in the income is a foreign exchangegain of $0.1 million. The basic net income per fully diluted share for thecontinuing operations is $0.005. Cash available at year end totaled $1.252million (from continuing operations) During 2006, $7.55 million was raised from private placements and the exerciseof warrants, of which $3.5million was invested in Capital assets and mineralproperties, mainly in South Africa. Commenting on the results, Stefan Hayden, President and CEO, said "I am pleasedto report a significant increase in our net income, after tax. Our fourthquarter was particularly strong, with net income of $3.8 million, or $0.008 perbasic and fully diluted share, from revenues of $9.2 million, demonstrating ahealthy 41% profit margin. The stronger financial performance this year is due to the acquisition of theBlanket Mine in June 2006. Blanket produced 12,437 ounces of gold for the periodof July to December 2006. We are busy with the expansion project to No.4 shaftand the mill, which we anticipate will be completed during the fourth quarter2007, which has been designed to increase Blanket's gold production from 25,000to 40,000 ounces a year. As we have mentioned before, our other gold assets, the Barbrook and Eerstelingmines are on care and maintenance, and the short listed purchasers are nowproceeding with their respective due diligence exercises. Our focus during 2007 will be the completion of the Blanket expansion, andrapidly progressing our Nama Cobalt/Copper project after the completion of themetallurgical test work currently underway.". The Annual Report including the MD&A for 2006 will be available on SEDAR and onthe Caledonia website at www.caledoniamining.com on April 2, 2007 The conference call is scheduled for Wednesday April 4, 2007 at 10:30 hours(EST) Conference ID: 9535356 Dial-in number: 416-343-4294 (local) Toll-free Dial-in number: 800-9011-2810 (International) Toll-free Dial-in number: 1-866-862-7809 (Canada/US) For more information, please contact: Stefan Hayden Alex Buck/Nick BiasPresident & CEO, Caledonia Mining buck-biasTel: +27 11 447 2499 Tel: +44 7932 740 452 Further information regarding Caledonia's exploration activities and operationsalong with its latest financials may be found at www.caledoniamining.com. 2006 Objectives Achievements Optimize gold production at While production increased steadily after theBarbrook Mine in South Africa to plant upgrade, tramming and drilling problemstreat at least 15,000 tpm. limited the volume to 13,000 tpm. As reported more fully in the MD&A the Board Continue developing additional agreed to place Barbrook under care &reserves/resources at Barbrook maintenance and intends to dispose of BarbrookMine. during the current financial year Complete metallurgical studies toconfirm viability of economicgold recovery from Daylight &Victory ores at Barbrook Mine.Improve safety awareness atBarbrook Mine and further developnecessary programs to ensure asafe operation. Further explore the PGE, Ni, Cu Application for Conversion of Rooipoortresource on the farms Rooipoort property in terms of MPRDA was submitted inand Grasvally which form the April 2006 and granted in November 2006 for aRooipoort PGE/Ni/Cu Exploration period of 5 years. No further drilling wasProject in South Africa conducted pending this granting. Soil geochemical sampling was commenced on west side of Rooipoort and adjoining areas of Moordrift property acquired in 2005 from Falconbridge. This work is ongoing at year end. Increase the land holdings around Application to transfer prospecting rightsthe Rooipoort Exploration Area. acquired from Falconbridge to Eersteling was submitted in April 2006 and further information submitted in August 2006, as well as January 2007. Approval is expected by April 2007. Drill identified extensions to Identified extensions to known mineralizedthe known ore zones on the zones were prepared for drilling in 2006.Eersteling and Zandrivier Mining Granting of New Order Prospecting Rights inLicence Areas. respect of 3002 hectares surrounding the Eersteling and Zandrivier Old Order Mining Rights was granted in November 2006 for a period of 5 years. As reported more fully in the MD&A the Board intends to dispose of Eersteling during the current financial year Continue with efforts to conclude Final agreements will be negotiated once thean agreement with a cobalt end metallurgical test work to produce cobaltproducer to purchase cobalt hydroxide has been completed.concentrate produced at Nama and/or form strategic alliances toachieve this objective. Seek a joint-venture partner to Final drafts of a JV currently under reviewcommence an exploration program with completion expected shortly.at the Kadola copper/cobalt andthe Eureka copper/gold propertiesin Zambia. Pursue possible acquisitions and/ Purchased the Blanket Mine, an operating goldor strategic partnerships to mine, in Zimbabwe.expand Caledonia's portfolio ofproperties in Southern Africa. Expand the Board of Directors to A new independent director has been appointedaddress ongoing Corporate to the main Board and Audit committeesGovernance requirements Conclude necessary agreements to Suitable partners have been identified butsatisfy the South Africa Black finalization has been held in abeyance untilEconomic Empowerment ("BEE") the possible disposal of Barbrook andrequirements. Eersteling has been determined. Arrange necessary financing to Caledonia reported a positive cash flow insupport the activities required both the third and fourth quarters and expectsto meet these objectives. this trend to continue for at least the first quarter 2007. 2007 Objectives Arrange necessary financing to support the activities required to meet theseobjectives. Conclude the sale of Barbrook and Eersteling Gold Mines. Complete the No. 4 shaft expansion project at Blanket Mine, expand the millingrate from 600tonnes per day to 1,000 tonnes per day, and increase goldproduction from 25,000 ounce per annum to approximately 40,000 ounces perannum. Further explore the PGE, Ni, Cu resource on the Rooipoort and Grasvallyproperties which form the Rooipoort PGE/Ni/Cu Exploration Project in SouthAfrica. Complete the planned metallurgical test work on Nama mineralization, andconclude the long term cobalt purchase agreements. Finalise agreement with joint-venture partner to carry out additionalexploration programs at the Kadola copper/cobalt and the Eureka copper/goldproperties in Zambia. Conclude necessary agreements to satisfy the South Africa Black EconomicEmpowerment ("BEE") requirements. Pursue possible acquisitions and/or strategic partnerships to expand Caledonia'sportfolio of properties in Southern Africa. Performance Highlights-------------------------------------------- -------- -------- -------- -------- -------- 2006 2005(2) 2004(2) 2003(1) 2002(1) -------------------- -------- -------- -------- (2) (2) -------- -------- Financial - C$ 000's ------------------------------ -------------------- -------- -------- -------- -------- Revenue from Sales 13,586 6 3 58 1 -------------------- -------- -------- -------- -------- -------- Gross Profit (Loss) 4,925 (751) (466) (94) (20) -------------------- -------- -------- -------- -------- -------- (Expenses)/Income (General and Administration, Interest , (1,958) (2,997) (2,304) (14,476) (4,335) Amortization and -------- -------- -------- -------- -------- foreign exchange) -------------------- Net Income (Loss) - before Write-Downs, tax and 2.967 (3,748) (2,770) (4,811) (1,765) discontinued -------- -------- -------- -------- -------- operations -------------------- Discontinued (7,990) (5,932) (7,222) (36) (91) Operations -------- -------- -------- -------- -------- -------------------- Income (Loss) - after Write-Downs and (5,675) (9,680) (9,979) (14,496) (4,446) discontinued -------- -------- -------- -------- -------- operations. -------------------- Cash 1,252 1,076 6,470 4,179 1,864 -------------------- -------- -------- -------- -------- -------- Current Assets 8,773 2,264 7,481 4,573 2,094 -------------------- -------- -------- -------- -------- -------- Assets 31,456 22,338 23,666 19,530 24,969 -------------------- -------- -------- -------- -------- -------- Current Liabilities 5,899 2,589 1,062 790 1,336 -------------------- -------- -------- -------- -------- -------- Long Term 1,221 377 423 1,089 1,073 Liabilities -------- -------- -------- -------- -------- -------------------- Working Capital surplus/(Deficiency) 2,874 (325) 6,419 3,783 758 -------------------- -------- -------- -------- -------- -------- Shareholders' Equity 24,336 19,372 22,181 17,651 22,560 -------------------- -------- -------- -------- -------- -------- Total Capital Expenditures 3,579 5,284 3,813 2,279 613 including Mineral -------- -------- -------- -------- -------- Properties -------------------- Expenditures on Mineral 659 2,583 2,298 2,042 624 Properties -------- -------- -------- -------- -------- -------------------- Financing Raised 7,559 6,588 14,314 9,511 5,174 -------------------- -------- -------- -------- -------- -------- Share Information -------------------- ------------------------------ -------- -------- -------- -------- Market Capitalization ($ 45,798 42,632 39,145 105,955 86,836 Thousands) -------- -------- -------- -------- -------- -------------------- Shares Outstanding (Thousands) 457,981 370,715 301,112 252,274 211,795 -------------------- -------- -------- -------- -------- -------- Warrants & Options (Thousands) 102,354 34,748 52,342 27,348 28,055 -------------------- -------- -------- -------- -------- -------- Basic and diluted eps from 0.005 (0.012) (0.010) (0.06) ( 0.02) continuing -------- -------- -------- -------- -------- operations -------------------- Basic and diluted eps from (0.018) (0.019) (0.024) (0.00) (0.00) discontinued -------- -------- -------- -------- -------- operations -------------------- Basic and diluted eps for (0.013) (0.031) (0.034) (0.06) (0.02) the year -------- -------- -------- -------- -------- -------------------- TSE Share Price High 0.23 0.18 0.465 0.610 0.44 -------------------- -------- -------- -------- -------- -------- TSE Share Price Low 0.095 0.10 0.12 0.215 0.060 -------------------- -------- -------- -------- -------- -------- TSE Share Volume 132,323 61,214 56,934 99,233 81,234 (Thousands) -------- -------- -------- -------- -------- -------------------- NASDAQ Share Price High 0.204 0.15 0.37 0.39 0.281 (US$) -------- -------- -------- -------- -------- -------------------- NASDAQ Share Price 0.082 0.08 0.10 0.16 0.040 Low (US$) -------- -------- -------- -------- -------- -------------------- NASDAQ Share Volume (Thousands) 212,028 105,151 210,251 440,811 271,404 -------------------- -------- -------- -------- -------- -------- AIM Share Price High 13.0 6.25 - - - (pence) -------- -------- -------- -------- -------- -------------------- AIM Share Price Low 4.9 4.50 - - - (pence) -------- -------- -------- -------- -------- -------------------- AIM Share Volume 12,162 856 - - - (Thousands) -------- -------- -------- -------- -------- -------------------- Operating Results (1) (3) ------------------------------ -------------------- -------- -------- -------- -------- Gold Production 12,437 4,951 1,693 1,187 52 (Ounces) -------- -------- -------- -------- -------- -------------------- Silver Production 1,038 264 66 42 4 (Ounces) -------- -------- -------- -------- -------- -------------------- Year End Gold Resource (Thousand Ounces) - 500 - - - - Blanket -------- -------- -------- -------- -------- Mine -------------------- (1) Restated for the adoption of the Asset Retirement Obligations change inaccounting policy (2) Restated to reflect the discontinued operations nature of Barbrook andEersteling Mines (3) 2006 reflects Blanket Mine only, 2005 and before are historical numbersreflecting Barbrook and Eersteling Mines Letter to Shareholders I am pleased to report a satisfactory financial performance for 2006 byCaledonia with a gross operating profit of $4.925 million, from revenues of$13.586 million, over $1.252 million cash in the bank and a diluted loss of$0.013 per share. This turn-around in the company's financial performance was due to our operatinggold mine in Zimbabwe, Blanket, which we acquired in June 2006. Blanket'sresults were consolidated into Caledonia from July 1, 2006. Blanket performedwell for the second half of the year, producing a total of 12,437 ounces of gold(24,874 ounces of gold on an annualised basis). We are currently undertaking anexpansion project at the mine to increase gold production from 25,000 ounces ayear to 40,000 ounces a year. We expect the expansion to be fully commissionedby the fourth quarter 2007. We are also undertaking exploration close to theBlanket Mine, with a view to proving up additional economic gold resources. We have had a disappointing year at our South African gold mine Barbrook, whichis currently on care and maintenance. Barbrook started out the year as anoperating gold mine, which had just undergone an expansion to increase goldproduction. Despite operational issues which were impacting on economic goldproduction, the illegal industrial action in October 2006 severely damaged somemine infrastructure. This prompted the Board of Directors to review theoperation as a whole and the conclusion is to sell the asset, along with theEersteling gold mine, also on care and maintenance. Expressions of interest havebeen received from a number of parties and we expect to conclude a sale duringthe current financial year. In Zambia, we continue to make good progress at the Nama cobalt project. We havesigned a number of letters of intent with third party refiners confirming theirinterest. However, we have been frustrated by delays in finalising the necessarymetallurgical test work which has prevented Caledonia from developing theproject further. We recently published a NI 43-101 Technical Report whichconfirms the potential economic viability of Anomaly 'A', the first depositearmarked for development. Once we have finalized the test work and productspecifications the long term purchase agreements for cobalt can be finalised andwork commenced on the pilot plant. Looking ahead to 2007, our focus will be on the Blanket Mine expansion, the Namaproject and the Rooipoort Exploration Project, with a view to strengthening ourfinancial performance further. On behalf of the Board of Directors, S. E. Hayden 31 March, 2007 President and Chief Executive Officer CALEDONIA MINING CORPORATION March 31, 2007 Management's Discussion and Analysis This discussion and analysis of the consolidated operating results and financialcondition of Caledonia Mining Corporation (the "Company", "Caledonia") for thefiscal years ended December 31, 2006, December 31, 2005 and December 31, 2004should be read in conjunction with the Consolidated Financial Statements andPress Releases issued by the company, all of which are available from the Systemfor Electronic Data Analysis and Retrieval at www.sedar.com or from the Companywebsite at www.caledoniamining.com. The Consolidated Financial Statements andrelated notes have been prepared in accordance with Canadian Generally AcceptedAccounting Principles ("GAAP").Note that all currency references in this document are to Canadian dollars. Overall Performance Caledonia was formed in February 1992 and is listed on the Toronto StockExchange as "CAL", on NASDAQ-OTCBB as "CALVF", and on London's AIM as "CMCL". 1. VISION AND STRATEGY Caledonia is an exploration, development and mining company with a producinggold operation in Zimbabwe and two non-producing gold mines in South Africa anda diversified exploration portfolio of projects in Canada, South Africa, Zambiaand Zimbabwe, some of which are joint ventures with other unrelated companies.Caledonia's objective is to develop its asset base into a significantdiversified international mining company through profitable gold production andsuccessful exploration activity, focused primarily on Southern Africa.Caledonia's business model is to identify and acquire properties or projectsearly in the development cycle which have the potential to become low costoperations, and then add value by developing the asset, either as an operator orthrough a joint venture agreement. The possibility of divestiture in whole orpart will be considered at different points in time and will be governed by thebenefit to shareholders. Where appropriate, Caledonia will seek strategicalliances with well-managed exploration or operating companies through existingor new joint ventures. The Company has a strong management team and Board of Directors with diverseexpertise in gold production, mineral exploration, mine development, finance,and marketing. With the expectation of continuing high levels of commodity prices over the longterm, Caledonia is following the strategy of diversification through its currentexploration activities for diamonds, gold, platinum group metals and basemetals. With the potential of improved political conditions in many SouthernAfrican countries, Caledonia is reviewing mining opportunities in thesecountries. In view of the disappointing operational results at the Barbrook Mine togetherwith significant property damage incurred during illegal industrial action inthe fourth quarter of 2006, the Barbrook Mine was placed undercare-and-maintenance late in the year. Subsequently the Board of Directorsmandated management to seek purchasers for the Barbrook Mine, the EerstelingGold Mine and the gold explorations properties at Eersteling and Roodepoort. 2. OPERATIONS Blanket Mine (1983) Private Limited - Gold The Blanket Mine owned by Caledonia's 100% owned subsidiary Caledonia HoldingsZimbabwe is located 560 km south of Harare the capital city of Zimbabwe and 150km south of Bulawayo, the country's second largest city. The town of Gwanda, theprovincial capital of Matabeleland South, is located is 16 km from the mine. Themine is situated in the prolific Gwanda greenstone belt which first experiencedgold production in 1800's and which owns extensive claims throughout this belt.First pegged in 1904 with operations starting in 1906, the mine has producedover a million ounces of gold and currently has 910,500 ounce of mineralresources. Geological Setting Like most of the gold mines in Zimbabwe, a typical greenstone terrain, the 70kmlong by 15km wide Gwanda Greenstone belt, hosts Blanket Mine. This terraincomprises supra crustal metavolcanics similar to those found in the Barbertonarea of South Africa and the Abitibi area of Canada. The Blanket property is oneof three remaining large, gold producers, from a belt that had no less than 268operating mines at one time. The other two producers are the neighbouringVubachikwe mine owned and operated by Forbes and Thompson and the Jessie mine onthe south eastern end of the belt and owned by F. A. Stewart Pvt. Ltd. Property Geology Blanket mine is part of the group that makes up the North Western Mining campotherwise also called the Sabiwa group of mines extending from Jethro to thesouth, through Blanket itself, the currently defunct Feudal, AR South, AR Main,Sheet, Eroica and Lima mines. In addition dormant old gold showings, such as theSabiwa from the south, Jean, Provost, Redwick, Old Lima and Smiler, formnorthern continuation of the Vubachikwe property hosting banded iron formations. The geology consists of a basal felsic unit of no known mineralisation presence.It is generally on this lithology type that the various tailings disposal sitesare located. Above this unit is the ultramafics that include the banded ironformations hosting the eastern dormant cluster and the ore bodies of the nearbyVubachikwe complex. The active Blanket ore bodies are found on the next unit,the mafics. An andesitic unit caps this whole stratigraphy. A regional doleritesill cuts the entire sequence from Vubachikwe through Blanket to Smiler. Ore bodies at Blanket are epigenetic. They are associated with a later,regionally developed deformation zone characterized by areas of high strain,wrapping around relatively undeformed remnants of the original basaltic flows.It is within the higher strain regime that the wider of the ore bodies arelocated. Summary of Reserves and Resources at Blanket Mine at December 31, 2006 RESERVES AND RESOURCESMINERAL RESERVES (@Au price US$500/oz)----------------------------- ---------- -------- --------Classification Tonnes Grade Content ---------- -------- Au g/t (oz) --------------------- ---------- ---------- --------PROVEN ORE--------------------- ---------- ---------- --------Operating Areas 837,000 3.95 106,200--------------------- ---------- ---------- --------Pillars (discounted by 50%) 247,600 4.59 36,600--------------------- ---------- ---------- --------Total Proven Ore including Pillars 1,084,600 4.09 142,800--------------------- ---------- ---------- --------PROBABLE ORE--------------------- ---------- ---------- --------Operating and Development Areas 2,326,000 4.10 306,700--------------------- ---------- ---------- --------Total Proven +Probable Ore 3,410,600 4.10 449,500--------------------- ---------- ---------- -------- --------------------- ---------- ---------- --------MINERAL RESOURCES (@Au price US$500/oz)----------------------------- ---------- -------- --------Classification Tonnes Grade Content ---------- ---------- -------- Au g/t (oz) --------------------- ---------- ---------- -------- --------------------- ---------- ---------- --------Indicated 377,200 4.12 50,000--------------------- ---------- ---------- -------- --------------------- ---------- ---------- --------Inferred 2,375,100 5.91 **--------------------- ---------- ---------- -------- --------------------- ---------- ---------- --------Tonnages and ounces are rounded to the nearest 100----------------------------- ---------- -------- Note** In keeping with the requirements of NI 43-101, Inferred Resources arereported without estimates of metal quantities. --------------------- ---------- ---------- -------- (i) 1 tonne = 1,000 kilograms = 2,204.6 pounds(ii) Some numbers may not add due to rounding Mr. David Grant, C. Geol, FGS, Pr. Sci. Nat., an independent consultant is the"Independent Qualified Person" for Blanket's reserves and resources as requiredby National Instrument 43-101 of the Canadian Securities Administrators. Metallurgical Process Run of mine ore is crushed to - 12mm in the 3 stage crushing plant. Thismaterial is then fed into two 1.8m by 3.6m rod mills where it is milled down toapproximately 70% passing 75 microns, before being passed through two 30 inchKnelson Concentrators where approximately 49% of total gold production isrecovered. The Knelson Concentrator tails are pumped through cyclones and into a3.66 meter by 4.9 meter, 1000 HP regrind ball mill. The product from the regrindmill is pumped into a carbon in leach ("CIL") plant consisting of eight, 600cubic meter leach tanks equipped with 45kw agitators where leaching at 50%solids and simultaneous solubilised-gold adsorption onto activated carbon takesplace. Elution of the gold from the loaded carbon and its electro winning is done onsite. Gold is deposited on wire wool cathodes, the loaded cathodes are acid-digested and the resultant gold solids are smelted after which the bullion isdelivered to the Government-operated Fidelity Printers and Refiners. The CIL plant has a design capacity of 3,800 tonnes of milled ore per day, fromits previous use for reclaimed tailings processing. The present crushing andmilling circuit is being expanded from 600 tonnes per day to 1,000 tonnes perday ore throughput capacity to balance the increase in mining tonnage. Production Operations The underground workings produce 600 tonnes of ore per day using a long-holeopen stoping method. Ore is trammed to a number of shafts and hoisted tosurface. The current capital program at the No. 4 shaft will streamline thehoisting process and increase the overall hoisting capacity at the mine. Blanketemploys approximately 800 people. 3. DISCONTINUED OPERATIONS 3.1 Barbrook Mines Limited - Gold The Barbrook Mine owned by Caledonia's 100% owned subsidiary Barbrook MinesLimited ("Barbrook") is located near the historic gold-mining town of Barberton,in Mpumalanga Province, Republic of South Africa, approximately 375 km east ofPretoria and Johannesburg. Barberton has a history of gold mining dating backmore than 100 years. The Barbrook property, which covers an area of 10,625 acresand extends for a distance of about 28 km along strike, represents aconsolidation of approximately twenty previously worked gold mines.Following industrial action which resulted in substantial damage to mineproperty the Board of Directors has decided to dispose of the mine during thecurrent financial year. 3.2 Eersteling Gold Mining Company Limited The Eersteling Mine is owned by Caledonia's 100% owned subsidiary EerstelingGold Mining Company Limited ("Eersteling") is located 36 km south of the city ofPolokwane in Limpopo Province of the Republic of South Africa, approximately 300km north of Johannesburg. The Board of Directors has decided to dispose of the mine during the currentfinancial year in order to focus management and financial resources on the Namaproject in Zambia and the Blanket gold mine in Zimbabwe. 4. MARKETING All gold bullion produced in South Africa was delivered to Rand Refinery inGermiston and sold at spot price at the discretion of the company. The companynominated the currency of settlement for each individual sale.All gold bullion produced in Zimbabwe is delivered to Fidelity Printers andRefiners in Harare and sold under various methods of election, more fullydescribed under page 12 of this MD&A. 5. KEY PERFORMANCE FACTORS The key performance factor of a gold mine is the ability to produce gold at acost per ounce that is low enough to pay all obligations and generate anacceptable return to shareholders. The price of gold is established in aninternational market. The Rand price of gold plays a large part in determiningthe profitability of South African gold mines and similarly the Zimbabweandollar price of gold plays a large part in determining the profitability ofZimbabwean gold mines. During 2006, the South African Rand weakened by 11.35%against the United States dollar and this, coupled with an 22.1% increase in theUS$ gold price, resulted in a 35.9% increase in the market Rand gold price perounce. Despite this fact, Barbrook Mine continued to be cash flow negative.Blanket Mine has been consolidated into the results of Caledonia MiningCorporation from July, 1, 2006. During the six months ending December 31, 2006the Zimbabwe economy continued to falter. The Zimbabwe dollar was officiallydevalued against the US dollar in early August from Z$101:USD1 to Z$250: USD1and remained at that fixed rate to year end and into 2007. Zimbabwe had aninflation rate of approximately 1200% at December 2006, which increase toapproximately 1800% in March 2007. The effect of the high inflation, fixedexchange rates and gold sales options (more fully described under section 6)leads to certain distortions in the presented annual financial statements. Thisdistortion relates mainly to average revenue and cost per ounce of gold sold.Caledonia Mining Corporation believes it is appropriate to consolidate BlanketMine into its annual financial statements as it exercises control over theoperations, is able to sell a major proportion of gold in US dollars, retainthese US dollars in a foreign currency account, and has government approval tomake loan repayments from its available foreign currency funds. 6. SELECTED ANNUAL INFORMATION-(in thousands of Canadian dollars - except pershare amounts.) The following information is given for the last three fiscal year-ends of theCompany: December 31, December 31, 2005 December 31, 2004 2006 (1) (1) Net sales ortotal revenues 13,586 6 3 Net income or(loss) beforediscontinueditems orextraordinaryitems: 2,315 (3,748) (2,770) - per share undiluted $0.005 ($0.012) ($0.010) - per share diluted $0.005 ($0.012) ($0.010) Discontinuedoperations (7,990) (5,932) (7,222) Net income or(loss) (5,675) (9,680) (9,979) - per share undiluted ($0.013) ($0.031) ($0.034) - per share diluted ($0.013) ($0.031) ($0.034) Total assets 31,456 22,338 23,666 Totallong-termfinancialliabilities 1,221 377 423 Cash dividends declared per Nil Nil Nilshare (1) The prior year figures have been reclassified to reflect Barbrook andEersteling Mines as discontinued operations. The above data was prepared in accordance with Canadian Generally AcceptedAccounting Principles. The results for 2006 and prior years have been presented on the basis thatBarbrook and Eersteling Mines are discontinued operations. Subsequent to theillegal industrial action at Barbrook Mine during October 2006, the Board ofDirectors resolved to place Barbrook Mine on care and maintenance andsubsequently mandated management to put both Barbrook Mine and Eersteling GoldMine up for sale. Neither sale transaction was concluded by December 31, 2006,or at March 31, 2007, the date of this Report. However, there have been severalserious offers to purchase these mines and management believes that a sale willbe concluded during this financial year. The above results for 2006 include Blanket Mine's results for the 6 monthscommencing July 1, 2006. For the year ended December 31, 2006, the Company recorded a net profit aftertax, before discontinued operations, of $2,315, (compared to a $3,748 loss in2005 and a $2,757 loss in 2004), of which Blanket Mine contributed a profit of$4,803. Included in the 2006 profit is a foreign exchange gain of $143 (comparedto a $50 loss in 2005 and a $513 loss in 2004). Blanket Mine reported a gain onforeign exchange of $291 during the reporting 6 months of 2006. During 2006 thegross profit from operations (before discontinued operations) was $4,925,(compared to a $751 loss in 2005 and a $466 loss in 2004). There were no mineralproperty write downs in 2006, (compared to $152 in 2005 and $1,062 in 2004). Theincome tax expense charge of $652 relates to Blanket Mine. The operating profitof $4,925 includes an amortization charge of $40, (compared to a $27 profit in2005 and a $20 profit in 2004) with the amortization charge attributable toBlanket Mine being $20 for the 6 month period. Blanket Mine recorded revenue for the 6 months of $13,575 from the 11,287 ouncesof gold sold. During the 6 month reporting period of Blanket Mine, the ReserveBank of Zimbabwe (RBZ) stipulated various possible payment methods for goldsales. The methods varied from "40% of revenue in USD and 60% of revenue inZimbabwean dollars ("Z$")"; which changed to "75% in USD and 25% in Z$" and itis currently set at "67.5% in USD and 32.5% in Z$". All of the Z$ revenues aretranslated from USD to Z$ at the then official exchange rate. During the sameperiod, the official exchange rate in Zimbabwe changed from Z$101 per US$1 toZ$250 per US$1. The latter rate was applicable for the last 5 months of 2006. Analternative payment method for gold payment results in the full Z$ proceeds ofthe sale calculated at a rate of Z$16,000 (sixteen thousand Zimbabwe dollars)per gram of gold sold. This would result in the mine achieving an approximateexchange rate of Z$800 per US$1 on these sales. At the year end, the results ofBlanket Mine have been translated into C$ using the official Z$:C$ exchange ratewhich is based on the Z$250:USD1. The result of this is that Z$ revenuesreceived appear to be at a rate higher than the official rate. This will resultin C$ revenues appearing to be overstated, leading a reader to assume thatBlanket Mine received more than the USD market price per ounce of gold sold.This however is a distortion. Correspondingly, expenses incurred by Blanket inthe local Zimbabwe market will also appear to be overstated, as the official Z$exchange rate may not always be the applicable rate used to arrive at a sellingprice by a supplier. The net result is that certain statistics may appearoverstated in $ terms but this is a factor of the Z$ being a managed currencyand not a free floating currency. During 2006, Caledonia invested $3,579 in capital assets and mineral propertiesas compared to $5,284 in 2005 and $3,813 in 2004. Of the amount invested in2006, Blanket Mine spent $1,998, Barbrook Mine spent $922 ,Nama spent $277 andRooipoort spent $336.During the year $7,559 was raised from private placements,and the exercise of warrants and options, as compared to $6,588 in 2005 and$14,314 in 2004 (all net of issue costs). The purchase of Blanket Mine wassettled by issuing 20,000,000 shares in Caledonia Mining Corporation and thepayment of USD1 million in cash; the purchase price amounted to $4,129. The basic net profit/(loss) per share, for continuing operations, of $0.005(compared to a ($0.012) in 2005 and a ($0.010) in 2004) has been calculatedusing a weighted average number of shares of 423,838,628 (compared to313,565,142 for 2005 and 289,843,080 for 2004). The diluted net profit/(loss) per share, for continuing operations, of $0.005has only been calculated for 2006 as the prior years were anti- dilutive. Thefully diluted number of shares was 425,984,395 The funds raised were used to finance capital projects at Barbrook Mine, tofinance exploration at Nama, Rooipoort and Eersteling, to fund operating lossesincurred at Barbrook Mine and to provide working capital for GreenstoneManagement Services. Capital projects at Blanket Mine were funded frominternally generated funds. The Company had related party transactions with several of the Company'sDirectors or members of the President's family in fiscal years 2006, 2005 and2004. They are detailed in Note 11 to the Company's December 31, 2006 auditedfinancial statements. It is expected that related party transactions of asimilar nature will continue during the current fiscal year of the Company. 7. OPERATIONAL REVIEW AND RESULTS OF OPERATIONS Blanket is the company's revenue generator. The Barbrook mine did not achievepositive cash-flow generation prior to its shutdown late in 2006. Shareholderfunds were applied to the metallurgical plant expansion project and toexploration projects as resources allowed. The plans for the non-revenuegenerating projects continue to be determined by the availability of funds andare more fully described below.7.1 Gold ProductionBlanket Mine - Zimbabwe Safety, Health and Environment • The mine recorded three lost time injuries, including one fatality,and one restricted work activity case during the period. This is compared to thesame period in 2005 which recorded three lost time and 13 restricted workactivity cases. With the exception of the single fatality , the reduction inincidents in restricted work activity cases was attributable to the intensivesafety training undertaken under the NOSSA program which was implemented on theentire mine during 2006. • An occupational health centre was established and all employees werescreened for occupational ailments. A total of 800 employees were checked and10% are currently under surveillance. HIV/AIDS continues to be an area ofconcern and management has put in place awareness programs to educate workers. • The Mine has drilled monitoring and ground-water pumping wellsdownstream of the tailings impoundment to facilitate ground water testing. Thetailings impoundment was also professionally managed by a licensed, specializedcontractor, audited and found to be stable. Capital Projects Number 4 Shaft Expansion Project: Projects at Blanket focused mainly on the expansion program which involved theupgrading of the No. 4 shaft and the crushing/milling section of the plant,whilst maintaining production levels. The surface works at the No. 4 shaft werecompleted; being the construction of the winder house and installation of a650kw winder therein. Other works undertaken included the fabrication andinstallation of a 40 meter high headgear complete with bins, 120 meters ofoverland conveyor system and primary crushers. The entire surface works werecommissioned and operational minus the headgear and winder due to theunderground section not yet being functional. The below-ground works werecommenced with the shaft being concrete lined from its surface collar down tothe 90 meter level. Equipping also commenced and is still in progress at theyear end. A total of 180 meters had been completed by the year-end. In themetallurgical plant a surplus mill was refurbished and was almost ready toinstall at the year-end. This expansion project is designed to increase underground production from thecurrent 600 tonnes per day ("tpd") to 1000 tpd whilst it is planned that thetotal gold ounces recovered will increase from 25,000 to 40,000 per annum. Thecomplete expansion project is expected to be completed and commissioned duringthe 4th Quarter of 2007. Operations: Underground operations ran smoothly throughout the period with emphasis beingput on haulage development designed to open up more mineable resources requiredto support the expansion initiatives. As a result of this initiative, allsurplus cash generated from the mine was re-invested in development. A total of270 meters of capital development and 1,371 meters of operating, run-of-minedevelopment were achieved. Average plant availability was highly satisfactory at 95 %. Metallurgical testwork was completed on the CIL process. The test results indicated that the sameor slightly improved gold leach recovery could be attained with savings inreagent costs. The production results for the 6 months July - December, 2006 were as outlined below:- Ore mined Tonnes 100,700Development advance (ROM) Meters 1,371Development advance (Capital) Meters 270Ore milled Tonnes 103,200Ore Gold Grade milled Grams/tonne 4.15Gold sold Ounces 11,287Gold produced Ounces 12,437 Outlook The aims and objectives for 2007 are: • To complete the No. 4 shaft project in order to realize an increase in production by first quarter of 2008. • To intensify underground development initiatives in order to generate sufficient reserves to sustain the increased production. • To explore ways of controlling input costs in a hyperinflationary environment (such as off-shore purchasing). • To focus employee, including management attention and effort to issues of safety, health and environment. Barbrook Mine - South Africa Summary Barbrook's plant expansion was completed during the 1st quarter of 2006. Theanticipated rapid build-up in mine production did not materialize owing to boththe effects of an earth tremor and equipment difficulties. This delay placedundue pressure on the metallurgical plant where management was having difficultymaintaining steady state operation due to the lack of ore. The shortfall in mineproduction relative to the mill capacity resulted in the plant being operated ona spasmodic basis, which affected gold recoveries which remained below plannedlevels. Consequently gold production and hence revenue was well below plannedlevels, while the additional costs related to staffing for increased productionlevels exceeded target. One of the Mine's Labour contractors was unable toconclude wage negotiations which resulted in a strike which lasted for 6 weeksand culminated in a violent protest which endangered the lives of non-strikingmine employees and resulted in the administration building and a security officebeing burned down. The administration building is critical to the operation ofthe mine and housed all the critical geological and administrative equipment forinformation and communication systems. It was therefore decided to placeBarbrook Mine on "care and maintenance" pending an assessment of theopportunities for re-starting operations. Following a review of all availableoptions, the company's management recommended to the Board that Barbrook andEersteling be sold. The Board of Directors decided in December 2006 to put themines up for sale. Operational Overview Barbrook Mine - 2006 Production Results Ore mined tonnes 86,730Development advance meters 1,910Ore milled tonnes 80,582Grade milled grams/tonne 3.62Gold sold ounces 4,288 An analysis of the operations indicated that the mine's overall performancefunctioned below planned target levels. The Board of Directors, having reviewed all possibilities and opportunitiesmandated management to seek buyers for the mine. 7.2 Exploration and Project Development Rooipoort PGE/Ni/Cu Project (including Grasvally) - South Africa Property In 2002, Eersteling acquired the Rooipoort platinum group elements (PGE), nickel(Ni) and copper (Cu) Project from Rustenburg Platinum, owned by Anglo PlatinumLimited. The property is located approximately 30 km southwest of the EerstelingGold Mine property in an area that is presently undergoing a surge in platinumgroup metal exploration along a well-mineralized feature known as the"Platreef". An additional 342 hectares on the farm Grasvally, immediatelyadjacent to and south of the Rooipoort property was optioned in 2004, wasgranted a New Order Prospecting Right in May 2005 (3 year period) and a further43 hectares portion was granted in April 2006 (5 year period) .Application for conversion of the Rooipoort property into a new order right interms of the Mineral and Petroleum Development Act ("MPRDA") was granted inNovember 2006. In March 2006, the Company concluded an agreement, with Falconbridge Ventures ofAfrica (Pty) Ltd ("Falconbridge") to acquire a 100% interest in Falconbridge'sprospecting rights covering a total area of 4,315.81 hectares contiguous withthe Company's Rooipoort property and effectively doubles the area of Caledonia'sRooipoort Project property underlain by Bushveld Complex rocks with PGEpotential. The Falconbridge properties were granted New Order Prospecting Rightsin April 2006 (3,099 hectares, for a period of 5 years) and September 2006(1,217 hectares, for a period of 5 years). The total area of Caledonia's NewOrder Prospecting Rights in the Rooipoort PGE/Ni/Cu properties is now 8473.39hectares. Exploration: To date, the Company has diamond-drilled a total of 18,450 meters in 54 holes onthe Rooipoort PGE/Ni/Cu Exploration Project. This drilling covers the full 6 kmstrike length that makes up the project area. Falconbridge has drilled a total of 7,393 meters in 22 holes on the portions ofGrasvally and the farms Jaagbaan and Moordrift that comprise most of theproperty purchased from Falconbridge. At the end of 2004, flotation amenability test work was performed at the SGSLakefield laboratories in Johannesburg, South Africa on mineralized compositesamples from 5 lithological units prepared from the diamond drill-hole cores toverify the flotation amenability of the ore. The tests included milling andbasic flotation to produce a flotation concentrate. The tests indicated thatfrom each of the five mineralized zones, a re-cleaner flotation concentrate oflow mass recovery can be produced that contains medium to high recovery ofplatinum, palladium, gold, copper and nickel. This initial test work indicatesthat a relatively simple metallurgical process route could possibly produce aflotation concentrate from high-tonnage, low-grade feed material.In September 2005, an independent resource estimate was calculated andincorporated into a NI 43-101 - compliant report by RSG Global of Australia. Theresults of this estimate are: Inferred Resource: At 0.5g/t 2PGE+Au and 200m below surface (900m base) Zone Average True Tonnes 2PGE+Au Pt (g/ Pd (g/ Au (g/ Ni % Cu % Width (m) (g/t) t) t) t) M2 1.8 12,791,200 1.34 0.42 0.83 0.10 0.20 0.12 L3 1.3 5,337,154 1.15 0.59 0.51 0.05 0.15 0.10 The resource estimate is the work of Dr. Julian Verbeek supported by Mr. Ken Lomberg, both of RSG Global. During 2006, work was limited to the land acquired from Falconbridge and wasdelayed until the New Prospecting Rights were issued. Field work consisting ofgeochemical sampling was conducted in these areas. Maps and drill logs for the Rooipoort PGE/Ni/Cu Exploration Project shown onCaledonia's website provide an overview of the exploration activity that hasbeen carried out on the Rooipoort property. The Project Status Report and thefull RSG NI 43-101 report are available on the Caledonia website. As a result ofthe work to date, additional target areas have been identified on the west andnorth-west of the property, these are identified in the Project Status Report onthe website. GOLD Eersteling Gold Mine - South Africa Property: The area of interest comprises the two Old Order Mining Licences that cover theEersteling and Zandrivier Mines and surroundings (5,472hectares) as well as theMarabastad Project Area where New Order Prospecting Rights were granted inNovember 2006 (3,902 hectares) Exploration Work Completed: A full geological review of the Eersteling property, including the mine plansand other technical data, was commenced in October 2004 and continued throughout2005/6. The resources at Eersteling were evaluated and a development programprioritized. Field work in 2005/6 focused on mapping of known mineralised reef structuresaround the Doreen Shaft and the Pienaar and Girlie Reefs. Compilation ofprevious information was integrated with the results of the high resolutionaeromagnetic survey flown in January 2005 as well as of gold-in-soil samplingcompleted in 2005. As noted previously, these gold exploration properties at Eersteling areincluded in the assets for sale at the Eersteling mine. Roodepoort - South Africa The Roodepoort Gold Property is located 22km north-east of the Eersteling Mine.Roodepoort is situated in an area of historical gold mining associated with anear surface unusual gold-bearing albite intrusive.In 2005, Caledonia concluded that the potential for an open-pit operation, basedon gold mineralization in the al body, as previously reported, requires furtherexploration. This was not confirmed by surface work and the drilling of threeboreholes. However, potential was demonstrated from this work as well as evidentfrom previous mining operations (1920's) for narrow high grade veinmineralization on this property. This requires further evaluation. Drillsections and drill logs from this program are listed under the RoodepoortProject in the "Operations & Projects" section of the Caledonia website. Note that the Roodepoort gold property in included in the Eersteling assets thatare for sale. Zimbabwe Exploration - Gold Caledonia's exploration activities in Zimbabwe are conducted by the BlanketMine's exploration department. Blanket's current exploration title holdings inthe form of registered mining claims in the Gwanda greenstone belt total 78claims, including a small number under option, covering a total area of 2,500ha. Of these, 47 claims are registered as precious metal (gold) blocks covering415 ha while 31 claims were pegged and are registered as base metal (Cu, Ni, As)blocks covering a total area of 2,085ha. During 2006 Blanket's efforts were focused in certain key areas in the Gwandagreenstone belt (that are within trucking distance of the Blanket plant) such asGG and Mbudzane where it is believed there is the greatest chance of success.The main exploration activities involved detailed grid-controlled mapping,ground magnetics and induced polarization (IP) surveys and diamond coredrilling. Blanket also conducted limited preliminary preparatory fieldwork (grid-linecutting) in the Sandy Claims within the Bubi greenstone belt. The Bubigreenstone belt ground holding portfolio comprises a total of 27 base metalclaims covering a combined total area of 2 820 ha. Basic reconnaissanceexploration work (soil, sampling a geological mapping) was completed in all theclaims area. In 2007 the focus will mainly be directed to conduct additionalfollow-up work to define drill targets on potentially prospective metal-in-soilanomalies so far generated in the area. The work in the Sandy claims constitutespart of this detailed follow-up exploration work. Geological mapping followed bygeophysical surveys were conducted on the GG, Mbudzane and K-Pits areas. Mappingwas carried out in the Sandy claims area. A drilling program initiated in late 2005 to probe for suspected down-dip andstrike extension mineralisation associated with the GG prospect was continuedthroughout 2006. In all 4,187 metres were drilled in 2006 with 2,263 samplesassayed. The assay results establish the presence of two zones of potentiallyeconomic gold mineralisation. During the first quarter of 2007 Blanket's exploration focus is mainly centeredon the Gwanda greenstone belt with the main emphasis being delineation of apotentially economic ore resource definition at the GG prospect and Mbudzane. AtGG, this will be achieved through continued core drilling from the surface toestablish the strike extent of established economic mineralization below the GGpit as well as to achieve close-spaced drilling in order to generate enough datafor estimation of an ore resource for the area. At Mbudzane, a second phasecore-drilling program has been planned and will commence in the early 2ndquarter period of 2007, to follow up on several highly prospective deep seatedip-anomalies generated in 2006. In addition, Blanket is conducting basic reconnaissance exploration work in theBunny's Luck claims, the target being to determine the potential strike lengthof a 1m-1.5m wide shear zone hosted quartz vein so far mapped over a strikelength of 300m. A total of 160 soil samples over a grid cell spacing of 100m x 100m have alreadybeen collected and sieved and are ready for shipment to a commercial laboratoryfor analysis. 7.2.3 DIAMONDS Kikerk Lake - Canada The Kikerk Lake property consists of 5 mineral leases currently pending approvalby the Nunavut Mining Recorder. These leases cover 12,912.5 acres (5,225.5hectares). In 2001 and 2002, Caledonia announced the discovery of twodiamondiferous kimberlites, "Potentilla" and "Stellaria", on the Kikerk Lakeproperty in Nunavut Canada, by its joint venture partner and operator of theproperty, Ashton Mining of Canada Inc. ("Ashton"), a wholly owned subsidiary ofStornoway Diamond Corporation ("Stornoway"). The two kimberlite pipes areapproximately 700 meters apart. In 2005, Ashton collected 108 heavy mineralsamples to follow up on previous anomalous results. These samples were sent toAshton's laboratory and results were received in the first quarter of 2007.Ashton reported that approximately 24 line-kilometers of ground magnetic surveywere conducted over a structural trend line, but there were no new magneticfeatures noted that would be indicative of kimberlite emplacement.Four diamond drill holes, totaling 382 meters were drilled to test the Stellariakimberlite and a possible source of kimberlite indicator minerals east ofStellaria. Results confirm that the Stellaria body has a steep dip to thenorth-west and limited width. Caledonia's 17.5% share of this program is funded by Ashton. Ashton holds a52.5% interest, having incurred in excess of $750,000 in explorationexpenditures on the property. This interest can be increased to 59.5% if Ashtonfunds Caledonia's share of the costs through to a completed feasibility study.The remaining 30% interest is held by Stornoway. Recently Stornoway hasamalgamated with Ashton. Mulonga Plain - Zambia Work Completed: Caledonia has a joint venture agreement with Motapa Diamonds Inc. ("Motapa"), onthe Mulonga Plain and Kashiji Plain Licences in Western Zambia. Motapa is theproject operator on behalf of the joint venture. Motapa is now vested with a 60%participating interest, with Caledonia holding a 40% interest. In terms of thejoint venture, Motapa must continue to fund operations through the completion ofa feasibility study at which point their interest will increase to 75%.Caledonia will then have various options including that of the Motapa fundingthe project through to commercial production. The Mulonga Plain Licence area is located in Western Zambia, between the ZambeziRiver and the Angolan border identified discrete areas within the licence area.An airborne gravity survey was completed on the easternmost of these in late2004. Ten, out of an original eleven, airborne gravity and magnetic targets were drilltested during 2005 and one hole was abandoned due to poor drilling conditions.Basalt basement was intersected in each of the holes at depths ranging from 87meters to 173 meters with no kimberlite intercepts reported from any of theholes. Motapa has defined four prospective regions within the extensive MulongaPlain anomaly through prior heavy mineral sampling, airborne magnetics andreconnaissance drilling. The 2005 drill program was designed to test theeasternmost of these prospective regions and followed on from completion andinterpretation of an airborne gravity survey in late 2004. Commenting on the (2005) results, Motapa's CEO Dr. Larry Ott noted: "Theextensive Mulonga Plain diamond and kimberlite indicator mineral anomaly remainshighly prospective for discovery. This program has provided an initial drilltest of one of four well defined indicator mineral dispersions. The remainingthree areas, in the central and western portions of the Mulonga Plain remainessentially untested and results of this program should add considerably to ourunderstanding of kimberlite indicator mineral dispersion within the MulongaPlain and better constrain likely source kimberlite areas."No further work was carried out in 2006. Kashiji Plain - Zambia This licence area is located in northwest Zambia, adjacent to the Angolanborder. Prior work by Motapa has recovered 22 micro diamonds in association withnumerous kimberlitic ilmenites. Work in 2005 focused on interpretation ofresults from the field work of 2004 in two discrete areas of anomalouskimberlite indicator mineral and diamond recoveries. No further field work wascarried out on the Kashiji or Lukulu licences in 2006.Goedgevonden - South Africa Caledonia holds prospecting rights over the Goedgevonden diamond bearingkimberlite pipe and surrounding area. This property is located approximately20km north of the Stilfontein gold mine in the Klerksdorp district of the NorthWest Province in South Africa and 200km south west of Johannesburg.In April 2005 and application for conversion of these rights was submitted interms of the MPRDA and the rights were granted in December 2006. An additionalapplication for New Order Prospecting rights was submitted over an adjoiningfarm, Eleazar in June 2005. It expected that this application will be grantedshortly. Previous prospecting activities carried out in the mid 1970's on Goedgevondenindicate that the pipe is oval in shape and covers a surface area ofapproximately 0.27 hectares. This work also confirms that the pipe was drillintersected at a depth of 425 meters, and that further down, dip extensionsremain undefined. Previous drilling reported an average diamond content of 35 to45 cpht, with one hole yielding 65 cpht. It should be noted that the Company hasnot completed the work necessary to estimate a resource in terms of NationalInstrument 43-101 for the Goedgevonden property, A preliminary drilling program conducted in 2002 consisted of 7", 8" and 12"diameter reverse circulation drill holes, followed by the collection of thedrill samples and diamond recovery. Four holes were drilled in the centre of thepipe, three to a depth of 150 meters, and the other to 120 meters. The threeremaining holes were drilled to delineate the pipe in more detail. All of theseven holes drilled entered the kimberlite at a depth of about 6 meters, and thefour centrally-located holes were stopped whilst still in the kimberlite. Atotal of about 56 tonnes of drilling sample was collected and processed througha Van Eck and Lurie dense-media separation ("DMS") plant and wet Sortex machine.From the diamond recoveries it was confirmed that the Goedgevonden pipe wasdiamondiferous, and sufficient gem-quality diamonds were recovered to warrant alarger bulk sample. Geological interpretive work as well as detailed groundgravity and magnetometer surveys were completed during 2003 but there was nofurther exploration activity on this property as corporate resources wereconcentrated on Caledonia's other projects which were considered to be of higherpriority in adding shareholder value, as well as tenure issues during the changeover from old to new minerals legislation as embodied in the MPRDA. Granting of the New Order Prospecting Rights now gives the Company security oftenure and discussions are in progress with other parties with a view torealizing value by joint venture or disposal of the properties in theGoedgevonden Diamond Project. 7.2.4 BASE METALS Nama - Zambia Property: Caledonia Nama Limited, a wholly owned subsidiary of Caledonia, holds fivecontiguous exploration licences in northern Zambia which host near-surfacecobalt/copper mineralization. This area lies immediately north west of theoperating Konkola Copper mine and adjoins the extensive holdings of Teal Miningand Exploration Limited. In November 2006 the Zambian authorities agreed togrant a Retention Licence to Caledonia Nama Limited in order to enable theCompany to conclude the detailed evaluation of mineral resources outlined byearlier work. This Retention Licence covers an area of 80,625 hectares and isvalid for two years. Work Completed: The 2001/2002 soil sampling program carried out jointly by Caledonia and BHPBilliton was completed over the majority of the original licence areas. Thisprogram identified a number of high priority anomalous targets (anomalies A,Cand D) within the required geological setting. These targets have been followedup in the search for copper/cobalt oxide and sulphide bodies. In the second quarter of 2004, a mini bulk sample of 30 tonnes was excavated atNama A (Discovery) site and underwent successful screening tests and heavy media/gravity separation tests in South Africa. Following encouraging results,further one-tonne samples were sent for additional test work to fine tune theextraction process for the cobalt oxide. During 2006 metallurgical test work has provided a proposed metallurgicalflow-sheet. Two further bulk samples were taken from Anomaly A to enhance andrefine the metallurgical processes and cost parameters for producing amarketable and economically viable cobalt product. On the basis of this testwork, it is anticipated that the design of a pilot plant will be finalized,enabling Caledonia to conclude long term product purchase agreements based onthe signed letters of intent. Also in 2006/2007 a Technical Report, compliant with NI 43-101 was prepared forAnomaly A at Nama by Mr. David Grant, C.Geol., FGS, Pr.Sci.Nat., an independentconsultant who is the "Independent Qualified Person" for Nama's resources asrequired by National Instrument 43-101 of the Canadian SecuritiesAdministrators. In his report, which has been filed on SEDAR and which is available on theCompany website, Mr. Grant estimates the Indicated Resources at Anomaly A as43,656,000 tonnes grading 0.055% Co, 0.099% Cu and 0.011%Ni. Mr. Grant recommends that the results at Anomaly C should be re-evaluated withthe objective of declaring a resource. He also states that Anomalies F through Qinclusive are worthy of further investigation. With the recent substantial increase in the price of copper, Caledonia is innegotiation with potential joint venture partners for the further exploration ofthe established oxide resources and potential underlying sulphide zones. Kadola - Zambia Property: This large exploration property lies in central Zambia to the west of KapiriMposhi and consists of three contiguous licence areas held by Caledonia KadolaLimited, a wholly owned subsidiary of Caledonia and are prospective for copper,cobalt and gold. All the licence areas (301,464 hectares) are in the process ofrenewal for a further two years and granting is expected shortly. Work Completed: After substantial initial work done by Caledonia including aeromagnetic survey,soil geochemical sampling, and drilling during the period 1995/6. This workincluded outlining of the Kadola West Cu/Co deposit and the discovery of theEureka Cu/Au prospect as well as a number of other soil geochemical targets. Thelicences were previously joint ventured with Cyprus Amax (2000/02) butterminated prematurely by them as result of take over by Phelps Dodge andcorporate prioritization. With the recent substantial increase in the price of copper and gold, Caledoniais negotiating an agreement with a potential joint venture partner for thefurther exploration of the copper, cobalt and gold potential of the KadolaLicences. Outlook The outlook for the aforementioned exploration properties is difficult toquantify. Exploration by its nature is speculative with a high degree of riskaccompanied by the potential for high returns. Caledonia manages this risk byusing well-qualified exploration professionals, senior mining company jointventure partners and by exploring in areas which are considered as having abetter than average potential for discovery. The recent increases in the pricesof precious and base metals should improve exploration expenditures of the majormining companies and could improve the likelihood of Caledonia negotiating jointventure agreements for its remaining wholly-owned exploration properties.Exploration is a high-risk, high-cost but potentially high-reward business.Caledonia's strategy in this area is to position itself to participate in asignificant part of the "reward" through joint venture interests in order tominimize early exploration costs. Details of the present and previous strategicalliances with joint venture partners have been discussed above.Caledonia currently has two joint venture interests in place in Zambia andCanada. Caledonia intends to continue to focus its exploration activities ofprospective properties by developing the properties through strategic allianceswith senior producers. In terms of the South Africa Minerals and Petroleum Resources Development Act(No 28 of 2002) ("MPRDA") and implemented May 1, 2004, all "old order" mineralrights in South Africa are required to be converted to "new order" rights, by aprocess of re-applying for these rights. All inactive prospecting and miningrights (immediately preceding May 1, 2004) were required to apply for conversionby April 30, 2005. Active prospecting rights conversion applications closed onApril 30, 2006 and active mining rights conversion close on April 30, 2009. Apart from various technical requirements for conversion the new legislationrequires that companies give attention to the requirements of the MPRDA asdefined in Section 2(d) as well the Mining Charter as "substantially andmeaningfully expand opportunities for historically disadvantaged persons,including women, to enter the mineral and petroleum industries and to benefitfrom the exploitation of the nation's mineral and petroleum resources. TheMining Charter was formulated in negotiations between government, the miningindustry as largely represented by the Chamber of Mines of South Africa, andorganized labour. The Mining Charter seeks to address the implementation of section 2(d) inpractical and measurable terms. Lack of clarity as to the status of prospectingunder the Mining Charter has led to considerable debate and confusion in termsof the ability of companies involved in early stage prospecting work to meet oreven indicate their commitment to meeting the terms of the Mining Charter, evenbefore any sort of mineral resource has been established. This in part has beenthe cause of considerable delays in processing of the thousands of applicationssubmitted as part of this process. However, there has recently been an apparentrelaxing of the attitude of the South African authorities in respect of NewOrder Prospecting Rights and many companies, including Caledonia have receivedthese new rights in recent months. The Zimbabwe economy continues to be depressed and inflation is rampant. Thesurvival of the mining industry is a high priority of the Government as itsability to generate foreign currency is of paramount importance. Managementsfocus is to complete the No 4 shaft expansion and to bring production up to the1000 tpd level. Cash flow management is critical to ensure the mining operationsare protected, as much as possible, from the effects of local inflation by theutilization of foreign currency proceeds to fund operations. Management is alsocontinuing with exploration around the Blanket mine to enable Blanket to expandits operation should economic improvements in Zimbabwe occur. 8. ENVIRONMENTAL POLICY Caledonia is committed to maintain the highest environmental standards such thatits operations and/or its products do not present an unacceptable risk to itsemployees, its customers, the public or the environment. Caledonia and itssubsidiaries operate under Caledonia's Environmental Policy that encompasses thefollowing: - Caledonia directs its employees and its subsidiary companies to conduct theirexploration and operations activities in a professional, environmentallyresponsible manner, in compliance with all applicable legislation and policiesin the jurisdictions in which they undertake business. - Caledonia liaises closely with the applicable government regulatory bodies andthe public to optimize communication and an understanding of Caledonia'sactivities in relation to environmental protection. - Caledonia is committed to the diligent application of technically proven,economically feasible, environmental protection measures throughout itsexploration, development, mining, processing and decommissioning activities.- Caledonia on a regular ongoing basis monitors its environmental protectionmanagement programsto ensure their compliance with the applicable regulatory requirements. It is the responsibility of all the employees of Caledonia and its subsidiariesto carry out their employment activities in accordance with this code ofpractice. Operational line management has the direct responsibility for regularenvironmental protection management. 9. SUMMARY OF QUARTERLY RESULTS - (in thousands of Canadian dollars - except pershare amounts.) The following information is provided for each of the 8 most recently completedquarters of the Company - ending on the dates specified - in thousands ofCanadian dollars. The figures are extracted from underlying financial statementsthat have been prepared according to Canadian GAAP. Dec Sept. June Mar. Dec. Sept. June Mar. 31/06 30/06 30/06 30/06 31/05 30/05 30/05 31/05 Sales beforediscontinuedoperations $9,045 $4,539 $1 $1 $2 $0 $3 $1 Income/(loss)beforediscontinued 3,840 (455) (683) (388) (318) (1,177) (1,756) (497)operations -- per share $0.008 ($0.001) ($0.002) ($0.001) ($0.001) ($0.003) ($0.006) ($0.002) undiluted - per share $0.008 ($0.001) ($0.002) ($0.001) ($0.001) ($0.003) ($0.006) ($0.002) diluted Discontinuedoperations(loss) (1,282) (2,619) (2,210) (1,878) (1,736) (1,387) (1,520) (1,289) Net Income/(loss) afterdiscontinuedoperations 2,558 (3,074) (2,893) (2,266) (2,054) (2,564) (3,276) (1,786) - per share $0.006 ($0.007) ($0.007) ($0.006) ($0.006) ($0.008) ($0.011) ($0.006) undiluted - per share $0.006 ($0.007) ($0.007) ($0.006) ($0.006) ($0.008) ($0.011) ($0.006) diluted No of sharesbasic '000 457,981 455,209 398,142 380,714 349,801 336,028 302,262 301,112 No of sharesdiluted '000 458,087 455,951 403,055 381,663 349,801 336,028 302,262 301,112 The discontinued operation relates to Barbrook and Eersteling Mines andfluctuations in the quarterly results are affected by the level of activity.Barbrook Mine was operational during all of the last eight quarters except forthe last quarter in 2006. All foreign exchange gains or losses are reported inthe results before discontinued operations. The increase in sales revenue andincome before discontinued operations in the third and fourth quarters of 2006are attributable to Blanket Mine. The gold sales at Blanket Mine were 6,474ounces in the third quarter and 4,813 ounces in the fourth quarter. Included inthe loss before discontinued operations in the third quarter is the unrealizedforeign exchange loss of $1,662, and the foreign exchange gain of $1,576 in thefourth quarter. Amortization charges for Blanket Mine in the third quarter were$16 and $4 in the fourth quarter. Amortization charges will increase when the No4 shaft expansion project is completed in the fourth quarter of 2007, the costsare currently not being amortized. The expected capital completion cost isapproximately $4,000 Note: The effect of the dilution on the earnings per share has been calculatedfor each quarter of 2006 as a profit was earned before discontinued operationsfor the year. No calculation for 2005 was made as the result for the year was aloss and the diluted earning per share would be anti-dilutive. 10. INVESTING - (in thousands of Canadian dollars) During 2006 Caledonia invested $3,579 in capital assets and mineral propertiesas compared to $5,284 in 2005 and $3,813 in 2004. Of the amount invested in 2006Blanket Mine spent $1,998, Barbrook Mine $922, Nama $277 and Rooipoort $336 11. FINANCING - (in thousands of Canadian dollars) During the year $7,559 was raised from private placements, and the exercise ofwarrants and options, as compared to $6,588 in 2005 and $14,314 in 2004 (all netof issue costs). In all 87,265,885 common shares were issued, this includes the20,000,000 shares issued as part of the acquisition price of Blanket Mine (2005-52,738,888 common shares and 16,863,962 common share purchase warrants) Thefunds were used to finance the expansion of the metallurgical plant at Barbrook,exploration activity on the Company's most prospective projects and otherworking capital requirements. Barbrook continued to be cash negative during2006. Working capital and capital expenditure at Blanket Mine was funded frominternally generated funds. 12. LIQUIDITY AND CAPITAL RESOURCES -(in thousands of Canadian dollars) As of December 31, 2006, the Company had a working capital surplus of $2,874 ascompared to a deficit of $325 at December 31, 2005 and a surplus of $6,419 atDecember 31, 2004. Current assets of $8,773 ($2,264 - 2005) increased mainly dueto increased inventory levels at Blanket Mine and debtors for gold sales beingthe Reserve Bank of Zimbabwe. During the first quarter of 2007 all old andcurrent gold debtors were collected in full. Details of financing activities arepresented in note 5 (b) of the notes to the consolidated financial statements.During 2007, it is expected that the cash requirements of Caledonia will be metfrom the proceeds of the sale of Barbrook Mine and Eersteling Gold Mine and goldsales from Blanket Mine. The following table summarizes cash flows and cash on hand : ----------------------- --------- --------- 2006 2005 2004 ----------------------- --------- --------- ---------Cash $1,252 $1,076 $6,470----------------------- --------- --------- ---------Working capital 2,874 (325) 6,419----------------------- --------- --------- ---------For continuing operations----------------------- --------- --------- ---------Cash provided (used) by operating activities 1,858 (2,831) (2,530)----------------------- --------- --------- ---------Cash provided (used) by investing activities (3,516) (2,040) (406)----------------------- --------- --------- ---------Cash provided (used) by financing activities 7,362 6,785 14,314----------------------- --------- --------- ---------For discontinued operations----------------------- --------- --------- ---------Cash provided (used) by operating activities (4,560) (4,064) (5,680)----------------------- --------- --------- ---------Cash provided (used) by investing activities (922) (3,244) (3,407)----------------------- --------- --------- --------- The funds raised in 2006 together with anticipated cash inflows in 2007 will beused mainly by Caledonia on its exploration, development and productionactivities such as: - at Blanket Mine for the completion of the No 4 shaft expansion - at an estimated cost of $4,000 - by further bulk sampling and concentration test work on Caledonia's Nama Cobalt/Copper Project - at an estimated cost of $ 2,600 - corporate working capital The funds raised will be sufficient to move forward with the direct developmentof the above assets if the projects are proven to be economically andtechnically justified. Notwithstanding the estimated expenditure amounts foreach of the programs described above, the Company cannot predict the actualamounts that will be spent on those programs. It can be stated that the projectswith top priority are the No. 4 shaft at Blanket Mine and the pilot plantproject work at Nama. Decisions will be made to go ahead on the programs fromtime to time by Management as they, at that time, determine appropriate based onresults received in previous programs and funding available. The Mulonga Plain joint venture with Motapa Diamonds Inc. is subject to jointventure agreements and is entirely funded by the joint venture partner throughto commercial production. Similarly, the Kikerk Lake joint venture with AshtonMining is fully funded by Ashton. Caledonia continues to actively review thebenefits, to Caledonia and its shareholders, of seeking new joint venturepartners for most, if not all of its exploration properties. The Company does not have any significant long-term contractual obligations orcommercial commitments other than the payment of its current liabilities. It hastwo joint venture agreements with Ashton Mining of Canada Inc. and MotapaDiamonds Inc., in each case these partners are responsible for all propertyexpenditures until a feasibility study has been completed. The Company has minorobligations in respect of licence fees for its exploration and mining propertiessome of which are paid in full by Caledonia's joint venture partners. As ofDecember 31, 2006 the Company had potential/contingent liabilities to dorehabilitation work on the Blanket, Barbrook and Eersteling Mines - if and whenthose Mines are permanently closed - at an estimated cost of $1,175. 13. OFF-BALANCE SHEET ARRANGEMENTS There are no off balance sheet arrangements. 14. RELATED PARTY TRANSACTIONS The related party transactions are fully disclosed in note 11 of the Notes toConsolidated Financial Statements. 15. FOURTH QUARTER - (in thousands of Canadian dollars) The operating results for the fourth quarter reflect the mining activity atBlanket Mine who sold 4,813 ounces of gold. Approximately 76 ounces of gold wasrecovered from the metallurgical circuit of Barbrook Mine during a cleanupoperation in the first quarter of 2007. All the Barbrook staff were laid offduring the fourth quarter and holding costs at Barbrook are now made up ofminimum charges for electricity, limited managerial employment costs and ongoingsecurity costs to safeguard the property. As the mine was on care andmaintenance no amortization charge for Barbrook assets was charged in the fourthquarter, $2,742 third quarter, $1,096 second quarter and $129 first quarter.The Reserve Bank of Zimbabwe held the official exchange rate at Z$250:USD1 forthe whole quarter and did not alter the exchange rate during the monetary policyannouncement during the first quarter of 2007. 16. CRITICAL ACCOUNTING POLICIES There are two major areas where accounting estimates are made, asset impairmentand asset retirement obligation. As significant impairment provisions havealready been made against the assets and there is a reasonable level ofcertainty around the estimate it is considered unlikely that any change inestimate would result in a material impact on the results of the company. Basedon indicative purchase offers made for Barbrook and Eersteling Mines no furtherasset impairment has been made against these assets. The asset retirementobligation is also considered to be estimated with a reasonable degree ofcertainty, although the original estimation was calculated some years ago. Theestimation is accreted annually at 5% and thus any change in circumstances isconsidered unlikely to have a material impact on the results of the company orits operations. In 2005 the Company adopted the accounting guideline issued by the CanadianInstitute of Chartered Accountants in respect of consolidation of variableinterest entities effective for years after November 1, 2004. The Company hasreviewed its interests and determined that the new guideline has not had amaterial effect on the results of operations or the financial condition of theCompany. 17. SECURITIES OUTSTANDINGAs at March 29, 2007 the following securities were outstanding:(1) 457,981,021 common shares; (2) Options and warrants as follows: Number Description Exercise Validity Price 17,238,000 Common share purchase Average Various until May 11, options $0.21 2016 17,850,000 Common share purchase $0.20 Until December 28, warrants 2007 10,000,000 Common share purchase $0.20 Until January 31, 2008 warrants 2,715,476 Common share purchase $0.20 Until February 2, 2008 warrants 2,722,150 Common share purchase $0.20 Until February 3, 2008 warrants 22,890,000 Common share purchase $0.15 Until April 28, 2007 warrants 9,748,259 Common share purchase $0.15 Until May 12, 2007 warrants 2,190,000 Common share purchase $0.18 Until May 12, 2007 warrants 17,000,000 Common share purchase $0.16 Until July 27, 2007 warrants 18. 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. Management has concluded that, as of December 31, 2006, a weakness existed inthe Company's disclosure controls and procedures. However, based on theirevaluation, the CEO and CFO concluded that all required disclosures for the yearended December 31, 2006 were ultimately made in accordance with the regulations,despite the weakness in the disclosure controls and procedures. 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. As a result of the move of more of the Company's administration and financialrecord-keeping to its Johannesburg office from its Ontario office, control overfinancial reporting is more in the hands of the Company's Johannesburg-basedDirectors and Officers than was previously the case. 19. 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. 20. QUALIFIED PERSON James Johnstone, P.Eng., is a qualified person as defined by NI 43-101. MrJohnstone is responsible for the technical information provided on this MD&A. Hewas assisted by employees of Caledonia who are qualified persons for theindividual projects and, where appropriate, outside consultants and/or qualifiedpersons for joint-ventured projects. 21. BOARD AND SENIOR MANAGEMENT CHANGES Mr. Steven Curtis was appointed VP Finance and Chief Financial Officer on April3, 2006.Mr. Johnstone, the company's Chief Operating Officer, retired in October2006. Efforts to replace the senior technical executives who retired in 2006 havecontinued, but without success. At the present time there is a worldwideshortage of senior mining industry professionals and Caledonia is one of manycompanies looking for suitable staff. With the anticipated sale of the SouthAfrican gold mines and the planned expansion of the Zambian exploration andmetallurgical pilot plant programs the company is re-evaluating its requirementsfor replacement senior staff. To the Shareholders of Caledonia Mining Corporation: Management has prepared the information and representations in this annualreport. The consolidated financial statements have been prepared in conformitywith generally accepted accounting principles applied in Canada and, whereappropriate, reflect management's best estimates and judgement. The financialinformation presented throughout this report is consistent with the datapresented in the consolidated financial statements. Caledonia maintains adequate systems of internal accounting and administrativecontrols, consistent with reasonable cost. Such systems are designed to providereasonable assurance that relevant and reliable financial information isproduced. Our independent auditors have the responsibility of auditing theconsolidated financial statements and expressing an opinion on them. The Board of Directors, through its Audit Committee, is responsible for ensuringthat management fulfils its responsibilities for financial reporting andinternal control. The Audit Committee is composed of three unrelated directors.This Committee meets periodically with management and the external auditors toreview accounting, auditing, internal control and financial reporting matters. The consolidated financial statements have been audited on behalf of theshareholders by the Company's independent auditors, BDO Dunwoody LLP, inaccordance with generally accepted auditing standards in Canada and thestandards of the Public Accounting Oversight Board (United States). Theauditors' report outlines the scope of their examination and their opinion onthe consolidated financial statements. S. E. Hayden S R Curtis President and Chief Executive Officer Vice-President, Finance and ChiefFinancial Officer Auditors' Report To the Shareholders ofCaledonia Mining Corporation We have audited the consolidated balance sheets of Caledonia Mining Corporationas at December 31, 2006 and 2005 and the consolidated statements of deficit,operations and cash flows for each of the years in the three year period endedDecember 31, 2006. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditingstandards and the standards of the Public Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company as at December 31, 2006and 2005 and the results of its operations and its cash flows for each of theyears in the three year period ended December 31, 2006 in accordance withCanadian generally accepted accounting principles. (Signed) BDO Dunwoody LLP Chartered AccountantsToronto, OntarioMarch 23, 2007 Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict In the United States, reporting standards for auditors require the addition ofan explanatory paragraph (following the opinion paragraph) when the financialstatements are affected by conditions and events that cast substantial doubt onthe Company's ability to continue as a going concern, such as those described inthe summary of significant accounting policies. Our report to the shareholdersdated March 23, 2007 is expressed in accordance with Canadian reportingstandards which do not require a reference to such events and conditions in theauditors' report when these are adequately disclosed in the financialstatements. (Signed) BDO Dunwoody LLPChartered AccountantsToronto, OntarioMarch 23, 2007 Caledonia Mining Corporation Consolidated Balance Sheets (in thousands of Canadian dollars) December 31 2006 2005AssetsCurrentCash and cash equivalents $1,252 $1,076Accounts receivable 1,407 768Inventories 5,738 90Prepaid expenses 61 330Assets held for sale (Note 12) 315 - --------- --------- 8,773 2,264 --------- --------- Capital Assets and Mineral properties held for sale (Note12)11,449 - Investment at cost (Note 1) 79 79Capital assets (Note 2) 212 9,156Mineral properties (Note 3) 10,943 10,839 --------- --------- 22,683 20,074 --------- --------- $31,456 $22,338 --------- --------- Liabilities and Shareholders' EquityCurrentBank overdraft $- $197Accounts payable 5,899 2,392 --------- --------- 5,899 2,589Long term liability (Note 15) 46 -Asset retirement obligation (Note 4) 811 377Asset retirement obligation - held for sale (Note 4) 364 - --------- --------- 7,120 2,966 --------- --------- Shareholders' EquityShare capital (Note 5 (b)) 190,626 180,053Contributed surplus (Note 5 (c)) 989 923Deficit (167,279) (161,604) ---------- --------- 24,336 19,372 ---------- --------- $31,456 $22,338 ---------- --------- On behalf of the Board: " J Johnstone" Director "F C Harvey" Director The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Caledonia Mining Corporation Consolidated Statements of Deficit (in thousands of Canadian dollars) For the years ended December 31 2006 2005 2004 Deficit, beginning of year ($161,604) ($151,924) ($141,945)Net (loss) for the year (5,675) (9,680) (9,979) ---------- ---------- ----------Deficit, end of year ($167,279) ($161,604) ($151,924) ---------- ---------- ---------- Consolidated Statements of Operations (in thousands of Canadian dollars except share and per share amounts) For the years ended December 31 2006 2005 2004 Revenue and operating costsRevenue from sales $13,586 $6 $3Operating costs 8,661 757 469 --------- --------- ---------Gross profit (loss) 4,925 (751) (466) Costs and expensesGeneral and administrative 2,007 3,001 1,984Interest 54 1 16Amortization 40 27 20Other expense (income) (Note 8) (143) (32) 284 --------- --------- --------- 1,958 2,997 2,304 Income (loss) before discontinued operations 2,967 (3,748) (2,770) --------- --------- ---------Taxation (652) - - --------- --------- ---------Income(loss) before discontinued operations 2,315 (3,748) (2,770) --------- --------- --------- Discontinued operations (loss) (7,990) (5,932) (7,222) --------- --------- ---------Net (loss) ($5,675) ($9,680) ($9,992) --------- --------- ---------Non-controlling interest (Note 13) - - 13 --------- --------- ---------Net (loss) after discontinued operations andnon-controlling interest ($5,675) ($9,680) ($9,979) --------- --------- ---------Net income(loss) per share (Note 7)Basic and diluted from continuing operations $0.005 ($0.012) ($0.010)Basic and diluted from discontinued operations ($0.018) ($0.019) ($0.024)Basic and diluted for the year ($0.013) ($0.031) ($0.034) The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Caledonia Mining Corporation Consolidated Statements of Cash Flows (in thousands of Canadian dollars) For the years ended December 31 2006 2005 2004 Cash provided by (used in) Operating activities Income(loss) before discontinued operations $2,315 ($3,748) ($2,770) Adjustments to reconcile net cash from operations (Note 9) 187 264 284 Changes in non-cash working capital balances (Note 9) (644) 653 (44) -------- --------- 1,858 (2,831) (2,530) -------- --------- --------- Investing activitiesExpenditures on capital assets and mineralproperties (2,657) (2,040) (406)Investment in Blanket Mine net of cash received onacquisition (859) - - -------- --------- --------- (3,516) (2,040) (406) -------- --------- --------- Financing activitiesBank overdraft (197) 197 -Issue of share capital net of issue costs 7,559 6,588 14,314 -------- --------- --------- 7,362 6,785 14,314 -------- --------- --------- Cash flow from discontinued operationsOperating activities (4,560) (4,064) (5,680)Investing activities (922) (3,244) (3,407) -------- --------- --------- (5,482) (7,308) (9,087) -------- --------- --------- Increase (decrease) in cash for the year 222 (5,394) 2,291Cash and cash equivalents, beginning of year 1,076 6,470 4,179 -------- --------- ---------Cash and cash equivalents, end of year $1,298 $1,076 $6,470 -------- --------- --------- Cash and cash equivalents at end of year relate to: Continuing operations 1,252 2,004 6,470Discontinued operations 46 (928) - -------- --------- --------- $1,298 $1,076 $6,470 -------- --------- --------- 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) December 31, 2006, 2005 and 2004 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, realisingproceeds from the disposal of mineral properties and obtaining sufficientfinancing to meet its liabilities, its obligations with respect to operatingexpenditures and expenditures required on its mineral properties. Measurement Uncertainties Preparation of the financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the reported amountsof revenues and expenses during the reporting period. The more significant areasrequiring estimates relate to mineral resources, future cash flows associatedwith capital assets and mineral properties. Management's calculation of reservesand resources and cash flows are based upon engineering and geological estimatesand financial estimates including gold prices and operating costs. The amountultimately recovered could be materially different than the estimated values. Principles of Consolidation The consolidated financial statements include the accounts of the Companytogether with all its subsidiaries. All significant inter-company balances andtransactions have been eliminated on consolidation. The Company's consolidated subsidiaries (all 100% owned) are Barbrook MinesLimited ("Barbrook"), Blanket (Barbados) Holdings Limited ("Barbados"), BlanketMine (1983) (Private) Limited ("Blanket"), Caledonia Holdings (Africa) Limited("CHA"), Caledonia Holdings Zimbabwe Limited ("CHZ"), Caledonia Kadola Limited("Kadola"), Caledonia Mining Services Limited ("CMS"), Caledonia Mining (Zambia)Limited ("CMZ"), Caledonia Nama Limited ("Nama"), Caledonia Western Limited("Western"),Eersteling Gold Mining Company Limited (100% owned since June 2004)("Eersteling"), Fintona Investments (Proprietary) Limited ("Fintona"),Greenstone Management Services (Proprietary) Limited ("Greenstone"), and Maid O'Mist (Proprietary) Limited ("MOM"). Caledonia Mining CorporationSummary of Significant Accounting Policies (continued)( in thousands of Canadian Dollars) December 31, 2006, 2005 and 2004 Cash and Cash Equivalents Cash and cash equivalents represent cash on hand in operating bank accounts,cash in transit at year end between Blanket Mine in Zimbabwe and GreenstoneManagement Services in South Africa and money market funds maturing in less thanthree months. Inventories These include gold in circuit (WIP) and bulk consumable stores. WIP is valued atthe lower of the cost of production, on an average basis, at the various stagesof production or net realisable value if the cost of production exceeds thecurrent gold price. Bulk consumable stores are valued at the lower of cost ornet realisable value on an average basis. Investments The market securities are recorded at cost, a declining value of marketsecurities that is other than temporary would be recognised by writing down theinvestment. Revenue Recognition Revenue from the sale of precious metals is recognized when the metal isdelivered to the respective refineries, benefits of ownership are transferredand the receipt of proceeds is substantially assured. Capital Assets Producing AssetsProducing assets are recorded at cost less grants, accumulated amortization andwrite-downs. Producing plant and equipment assets are amortized using theunit-of-production method on the ratio of tonnes of ore mined or processed tothe estimated proven and probable mineral reserves as defined by the CanadianInstitute of Mining, Metallurgy and Petroleum. Other producing assets are amortized using the straight line method basis on theestimated useful lives of the assets. The estimated life of the producing assetsranges up to 10 years. Repairs and maintenance expenditures are charged tooperations; major improvements and replacements which extend the useful life ofan asset are capitalized and amortized over the remaining useful life of thatasset. Barbrook Mine and Eersteling Gold Mine have been put up for sale and arethus presented as assets for sale in these financial statements. Non-Producing AssetsNon-producing assets are recorded at cost less write downs. At the time ofcommercial production, the assets are reclassified as producing. Duringnon-producing periods, no amortization is recorded. Mineral Properties Producing PropertiesWhen and if properties are placed in production, the applicable capitalizedcosts are amortized using the unit-of-production method as described above.Blanket Mine was acquired during 2006 and has been consolidated into theseresults from July 1, 2006 and, as such, has been presented as a producing assetin these financial statements. Non-Producing PropertiesCosts relating to the acquisition, exploration and development of non-producingresource properties which are held by the Company or through its participationin joint ventures are capitalized until such time as either economicallyrecoverable reserves are established or the properties are sold or abandoned. Caledonia Mining CorporationSummary of Significant Accounting Policies (continued)( in thousands of Canadian Dollars) December 31, 2006, 2005 and 2004 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 an exploration program, properties that are not suitable as prospects arere-evaluated to determine if future exploration is warranted and that carryingvalues are appropriate. The ultimate recovery of these costs depends on the discovery and development ofeconomic ore reserves or the sale of the properties or the mineral rights. Theamounts shown for non-producing resource properties do not necessarily reflectpresent or future values. Discontinued Operations During the fourth quarter of 2006 Barbrook Mine was subjected to illegalindustrial action by employees of a labour broker. Due to the damage causedduring and after the industrial action the mine was placed on care andmaintenance. At a subsequent meeting of the board of Directors it was resolvedthat Barbrook Mine and Eersteling Gold Mine would be put up for sale. As a consequence of this decision Barbrook and Eersteling Mine's results for2006 and preceding years have been disclosed under discontinued operations. Revenue from discontinued operations is $2,973 ($2,636 in 2005 and $838 in 2004)there is no tax applicable to 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 recognised based on the fairvalue of the assets. Strategic Alliances The Company has entered into various agreements under which the participantsearn a right to participate in the mineral property by incurring explorationexpenditures in accordance with the conditions of the agreements. Uponsatisfaction of the conditions of the agreement a joint venture may be formedwith customary joint venture terms and provisions and then accounted for on aproportionate consolidation basis. Until a joint venture is formed only theexpenditures on the properties incurred by the Company are reflected in thesefinancial statements. Foreign Currency Translation Balances of the Company denominated in foreign currencies and the accounts ofits foreign subsidiaries are translated into Canadian dollars as follows: (i) monetary assets and liabilities at period end rates;(ii) all other assets and liabilities at historical rates, and(iii) revenue and expense transactions at the average rate of exchangeprevailing during the period. Caledonia Mining CorporationSummary of Significant Accounting Policies (continued)(in thousands of Canadian Dollars) December 31, 2006, 2005 and 2004 Exchange gains or losses arising on these translations are reflected in incomein the year incurred. Blanket is a self-sustaining operation and operates in Zimbabwe in a hyperinflationary economy. Accordingly the results of these operations have beentranslated into Canadian Dollars using the temporal method as described above.Included in the statement of operations is an exchange gain of $291 relating tothe translation of Blanket Mine. 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 betweenthefinancial 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 assetis realized or the liability settled. The effect on future tax assets andliabilities of a change in tax rates is recognized in income in the period thatsubstantive enactment or enactment occurs. Change in Accounting Policies There have been no changes in accounting policy during the current or precedingyears. 1. Investment at Cost On May 9, 2002, the Company participated in a private placement of the purchaseof shares of Motapa Diamonds Inc. ("Motapa") in an amount of $79. The shares ofMotapa are listed on the TSX Venture Exchange in Canada. Motapa Diamonds Inc. isparticipating in a strategic alliance with the Company on the Mulonga Plaindiamond exploration project in Zambia. The market value of the shares as atDecember 31, 2006 is $26 ($25 in 2005) . Motapa Diamonds has a portfolio ofdiamond exploration projects in Africa.Blanket Mine is the owner of Old Mutual shares acquired via the emutualization.They were issued and are reflected at Nil cost. The market value at December 31,2006 is $84. 2. Capital Assets 2006 Cost (1) Accumulated Net Amortization Book ValueLand - plant sites $12 $- $12 Plant and equipment - producing (2) 25 1 24 - non-producing (3) 299 299 - Office equipment 868 823 45 Vehicles 386 255 131 --------- --------- --------- $1,520 $1,308 $212 --------- --------- ---------2005 Cost (1) Accumulated Net Amortization Book Value Land - plant sites $1,541 $ - $1,541 Plant and equipment - producing (2) 7,591 957 6,634 - non-producing (3) 747 - 747 Office equipment 934 831 103 Vehicles 451 320 131 --------- --------- --------- $11,264 $2,108 $9,156 --------- --------- --------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts) December 31, 2006, 2005 and 2004 (1) Cost is comprised of the original cost of the asset, less write-downs,removal of cost for disposals and government grants. (2) The producing plant and equipment in 2006 relates to Blanket Mine and in2005 relates to the Barbrook operation. (3) The net book value of non-producing plant and equipment at December 31, 2005represents Eersteling. The recoverability of the carrying amount of the Barbrook and Eersteling capitalassets is dependent upon the company receiving binding offers of purchase thatexceed the carrying value. As a result of these uncertainties, the actual amountrecovered may vary significantly from the carrying amount. 3. Mineral Properties 2006 Cost (1) Accumulated Net Book Value AmortizationProducing:Blanket, Zimbabwe - gold property $4,317 $2 $4,315Non-producing - exploration:Rooipoort , South Africa 4,131 - 4,131Nunavut, Canada 750 - 750Goedgevonden, South Africa 79 - 79Nama, Zambia 624 - 624Mulonga, Zambia 1,044 - 1,044 ------- --------- --------- $10,945 $2 $10,943 ------- --------- --------- 2005 Cost (1) Accumulated Net Book Amortization Value Producing:Barbrook, South Africa - goldproperty $6,675 $1,338 $5,337Non-producing - care and maintenance:Eersteling, South Africa - gold - - -propertyNon-producing - exploration:Rooipoort and Roodepoort, SouthAfrica 3,324 - 3,324Nunavut, Canada 750 - 750Goedgevonden, South Africa 37 - 37Zambia 1,391 - 1,391 ------- --------- --------- $12,177 $1,338 $10,839 ------- --------- --------- (1) Cost is comprised of the original cost of the asset, less write-downs,removal of cost for disposals and government grants, and includes thecapitalized value of the estimated asset retirement obligations Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 The Company has entered into strategic alliances with third parties on aCanadian property and a Zambian property valued at $750 and $1,044 respectively.The third parties may earn varying percentage interests in these properties bycarrying out exploration work on the properties. The recoverability of the carrying amount of the Canadian, South African andZambian mineral properties is dependent upon the availability of sufficientfunding to bring the properties into commercial production, the price of theproducts to be recovered, the exchange rate of the local currency relative tothe US dollar and the undertaking of profitable mining operations. As a resultof these uncertainties, the actual amount recovered mayvary significantly from the carrying amount. 4. Asset Retirement Obligation 2006 2005 Opening balance $377 $-Accretion expense 20 -Foreign exchange loss (gain) (33) - ---------- -----------Closing balance - held for sale 364 - ---------- -----------Continuing operation assumed 750 423Accretion expense 61 22Foreign exchange loss (gain) - (68) ---------- -----------Closing balance - continuing operations $811 $377 ---------- ----------- The asset retirement obligations relate to Blanket Mine, Barbrook Gold Mine andEersteling Gold Mine and are estimates of costs of rehabilitation at the end ofthe mine life, adjusted annually for accretion expense at a rate of 5%. 5. Share Capital (a) AuthorizedAn unlimited number of common shares.An unlimited number of preference shares. (b) Issued Number of Shares AmountCommon sharesBalance, December 31, 2003 252,274,997 $159,151Issued pursuant to private placements 45,388,175 13,392Warrants exercised 3,449,114 761 ------------ -----------Balance, December 31, 2004 301,112,286 $173,304Issued pursuant to private placements 52,738,888 4,733Warrants exercised 16,863,962 2,016 ------------ -----------Balance, December 31, 2005 370,715,136 $180,053Issued pursuant to private placement 15,437,626 1,475Issued pursuant to a private placement 34,828,259 3,924Issued pursuant to acquisition 20,000,000 3,014Issued pursuant to a private placement 17,000,000 2,160 ------------ -----------Balance,December 31 , 2006 457,981,021 $190,626 ------------ ----------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 (1) During the first half of 2004, Caledonia raised a gross amount $14,978 froma private placement by the issuance of 45,388,175 units consisting of one commonshare and one-half common share purchase warrant. Each unit is priced at $0.33per unit and the common share purchase warrants are exercisable for one commonshare at $0.55 per whole warrant for a period of eighteen months from the dateof issuance.The private placement agents were paid a commission of 9% of the gross proceedsraised and whole common share purchase warrants equal to 10% of the total unitssold. The agent compensation warrants are exercisable for one common share at$0.55 per warrant for a period of eighteen months from the date of issuance. Atotal of 4,538,818 agent compensation warrants were issued at an assigned valueof $161. Cash commissions and expenses paid amounted to $1,425.. (2) In June 2005, Caledonia successfully listed on the London StockExchange's Alternative Investment Market ("AIM") and placed a small float ofshares into the AIM market in conjunction with a financing. Thefinancing on AIM raised a gross amount $3,534 from the issuance of 34,888,888units consisting of one common share priced at $0.10. Commissions and expensespaid amounted to $508 and have been charged to share capital in 2005. (3) In September 2005, the warrants previously issued in 2004 were re-priced to$0.11 with the date of expiry extended to October 31, 2005. As at that date,16,863,962 warrants were exercised for gross proceeds of $1,855 while theremaining expired (see 5 (d) below).(4) During December 2005, the Company commenced a private placement to raise$3,496. As at December 31, 2005, the first closing raised gross proceeds of$1,875 comprising 17,850,000 units. The balance of the offering was received byFebruary 2006 upon completion of the second to fourth closings (see Note 14below). A total of 33,287,626 units priced at $0.105 were subscribed for allclosings. Each unit consisted of one common share and one common share purchasewarrant. The common share purchase warrants are exercisable for one common shareat $0.20 per whole warrant for a period of 24 months from the date of issuance.The private placement agents were paid a commission of 9% of the gross proceedsraised. Cash commissions paid on the first closing amounted to $168 and has beencharged to share capital in 2005. (5) In April 2006 the company commenced a private placement to raise additionalfunds. This placement raised $3,924 after expenses from the sale of 34,828,259units. Each unit consists of one common share and one share purchase warrant. As part of the settlement of the purchase price for the acquisition of BlanketMine 20,000,000 common shares were issued to Kinross Gold Corporation. In July 2006 the company completed a private placement to raise additionalfunds. This placement of 17,000,000 units, each consisting of one common shareand one share purchase warrant, was completed in July 2006 and raised $2,160after expenses. (6) The fair value of the broker warrants noted above was estimated using theBlack-Scholes Option Pricing Model with the following assumptions for theperiods ended December 31, 2006, 2005 and 2004: 2006 2005 2004 Risk-free interest rate - - 2.25%Expected dividend yield - - nilExpected stock price volatility - - 64-65%Expected option life in years - - 1 Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 (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 December 31, 2006, the Company has the following optionsoutstanding: Number of Options Exercise Price Expiry Date 803,000 $ 0.330 February 9, 2008 9,950,000 $ 0.235 April 24, 2012 225,000 $ 0.345 June 2, 2012 610,000 $ 0.260 April 29, 2014 200,000 $ 0.260 August 15, 2014 4,000,000 $ 0.110 February 15, 2015 1,000,000 $ 0.140 July 10, 2010 450,000 $0.125 May,11,2016 ------------ 17,238,000 ------------ The continuity of the options granted, exercised, cancelled and expired underthe Plans during 2006, 2005 and 2004 are as follows: Number of Options Weighted Avg. Exercise Price Options outstanding atDecember 31, 2003 11,898,700 $0.26Granted 1,210,000 $0.26 ----------- ---------------Options outstanding atDecember 31, 2004 13,108,700 $0.26Granted 5,000,000 $0.12Cancelled or expired (1,210,700) ($0.43) ----------- ---------------Options outstanding atDecember 31, 2005 16,898,000 $0.21Granted 450,000 $0.13Cancelled or expired (110,000) ($0.27) ----------- ---------------Options outstanding atDecember 31, 2006 17,238,000 $0.21Options exercisable atDecember 31, 2006 17,238,000 $0.21--------------------- ----------- --------------- 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. As of December 31, 2006 there are8,091,325 stock options available to grant. Effective January 1, 2003, the Company commenced recording compensation expenseon a prospective basis in the Consolidated Statements of Operations for stockoptions granted to directors, officers, employees, consultants and serviceproviders using the fair value method. During 2006, stock option expense of $81for the grant of 450,000 options was charged to expense and credited tocontributed surplus (2005 - $283 for 5,000,000; 2004 - $195 for 1,210,000;). Caledonia Mining CorporationNotes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 The continuity of contributed surplus is as follows: Amount Closing balance December 31,2003 $285Stock options granted 195 ---------Closing balance December 31, 2004 480Stock options granted 283Compensation warrants expired 160 ---------Closing balance December 31, 2005 923Stock options granted and vesting 81Options cancelled (15) ---------Closing balance December 31, 2006 $989 --------- The fair value of compensation expenses noted above was estimated using theBlack-Scholes Option Pricing Model with the following assumptions for theperiods ended December 31, 2006, 2005 and 2004. 2006 2005 2004 Risk-free interest rate 3 - 4% 2.25% 2.25% Expected dividend yield nil nil nil Expected stock price volatility 70-78% 73-100% 100-113% Expected option life in years 3-5 2-3 3 Option pricing models require the input of highly subjective assumptionsincluding the expected price volatility. Changes in the subjective inputassumptions can materially affect the fair value estimate, and therefore theexisting models do not necessarily provide a reliable single measure of the fairvalue of the Company's stock options. (d) Warrants The Company has issued the following common share purchase warrants pursuant toprivate placements which are outstanding as of December 31, 2006: Number of Shares for Exercise Price Expiry DateWarrants Warrants 85,115,885 1 for 1 Various from $0.15 to Various to December 28, $0.20 2007 Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 The detail of the warrants issued is detailed below. Number Description Exercise Validity Price 17,850,000 Common share purchase $0.20 Until December 28, 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 2, warrants 2008 2,722,150 Common share purchase $0.20 Until February 3, warrants 2008 22,890,000 Common share purchase $0.15 Until April 28, 2007 warrants 9,748,259 Common share purchase $0.15 Until May 12, 2007 warrants 2,190,000 Common share purchase $0.18 Until May 12, 2007 warrants 17,000,000 Common share purchase $0.16 Until July 27, 2007 warrants The continuity of warrants issued and outstanding is as follows: Number of Warrants Outstanding December 31, 2003 15,449,114Issued pursuant to private placements 22,694,091Issued to Broker 4,538,818Exercised (3,449,114) ------------Outstanding December 31, 2004 39,232,909Exercised (16,863,962)Expired (22,368,947)Issued pursuant to private placements 17,850,000 ------------Outstanding December 31, 2005 17,850,000Issued pursuant to private placements 67,265,885 ------------Outstanding December 31, 2006 85,115,885 ------------ 6. Income Taxes The following table reconciles the expected income tax recovery at the Canadianstatutory income tax rate to the amounts recognized in the consolidatedstatements of operations for continuing operations: 2006 2005 2004 --------- ---------- ---------Income tax rate 36.12% 36.12% 36.12%Income taxes at statutory rate $1,072 $(1,354) $(1,001)Tax rate difference (167) 67 13Foreign currency difference (28) 246 283Permanent differences 170 50 70Losses expired - 3,681 1,072Change in tax rate 847 - 175Change in Valuation allowance (1,242) (2,690) (612) --------- ---------- ---------Income tax expense $652 $- $- --------- ---------- --------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 The following table reflects future income tax assets and liabilities 2006 2005 2004 --------- ---------- ---------Loss carry forwards $10,009 $10,066 $12,756Unrealized foreign exchange (857) - -Capital assets (328) - -Valuation allowance (8,824) (10,066) (12,756) --------- ---------- --------- $- $- $- --------- ---------- --------- The corporation has available tax losses for Canadian income tax purposes ofapproximately $30,598(2005 - $28,085 and 2004 - $35,203) which may be carried forward to reducetaxable income derived in future years. The expiry of these losses is as follows: Year Amount 2026 $1,580 2015 1,863 2014 1,583 2010 18,984 2009 3,611 2008 142 2007 628No expiry 2,207 ---------- $30,598 ---------- A valuation allowance has been provided as the potential income tax benefits ofthese carry-forward non-capital losses and deductible temporary differences andthe realization thereof is not considered more likely than not. The Company also has approximately $70,713 in capital losses which can beapplied to reduce future capital gains. The right to claim these capital lossesis carried forward indefinitely but can only be claimed against capital gains. The Company also has the following expenses which are available to be appliedagainst future income for income tax purposes: Canadian exploration and development expenses $7,560 ---------Foreign exploration and development expenses $1,812 --------- 7. 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 respectivefiscal years which amounted to 423,838,628 (2005 -313,565,142; 2004 -289,843,080;). Fully diluted income/(loss) per share has also been calculatedonly for 2006 as the group achieved a profit before discontinued operations, theearnings per share have been calculated using a fully diluted number of commonshares outstanding during 2006 of 425,984,395. Fully diluted earnings per sharehas not been calculated for previous years as it would be anti-dilutive. Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 8. Other Expense (Income) before discontinued operations Other expense (income) is comprised of the following: 2006 2005 2004 Investment income - ($55) ($152)Foreign exchange (gain)loss (143) 50 513Other - (27) (77) --------- --------- --------- ($143) ($32) $284 --------- --------- --------- 9. Statement of Cash Flows Items not involving cash are as follows: 2006 2005 2004 Amortization $40 $27 $20Provision for site restoration 81 22 69Net Option expenses 66 283 195Blanket long term liability (35) - -Other 35 (68) - ------- --------- --------- $187 $264 $284 ------- --------- --------- The net changes in non-cash working capital balances for operations are asfollows: 2006 2005 2004 Accounts payable $1,400 $662 $51Accounts receivable 1,200 150 24Inventories (3,263) - 1Prepaid expenses 334 (159) (18)Assets held for sale (315) - - --------- --------- --------- ($644) $653 ($44) --------- --------- --------- Supplemental cash flow Information: 2006 2005(restated) 2004(restated) Interest paid $54 $1 $16 Tax paid 237 - - Non-cash Financing activities 3,009 - - Blanket Acquisition Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 10. Financial Instruments Unless otherwise noted, it is the opinion of management that the Company is notexposed to significant interest rate or credit risks arising from its financialinstruments. A significant portion of the Company's assets and liabilities aredenominated in South African rand and Zimbabwe dollars . Fluctuations in thevalue of the currencies relative to the Canadian dollar could have a significantimpact on the results of operations. The fair values of these financialinstruments approximate their carrying values, unless otherwise noted. TheCompany does not use any derivative instruments to reduce its foreign currencyrisks. Below is a summary of the cash or near cash items denominated in a currencyother than the Canadian dollar that would be affected by changes in exchangesrates relative to the Canadian dollar. All values are in thousands. Pounds Sterling US Dollars Zimbabwe Dollars SA Rands Euro Cash - 298 145,595 352 -AccountsReceivable - 539 130,220 1,797 10AccountsPayable 7 16 353,892 10,186 - 11. Related Party Transactions The Company had the following related party transactions: 2006 2005 2004 Management, administrative services and benefits paid oraccrued to a company which employs the Company'sPresident(1) $534 $441 $225Interest paid to the Company's President(2) - - 127Consulting fees accrued to the Chairman of the Board 44 275 -Rent paid to a company owned by members of thePresident's family 47 37 83Legal fees paid to a company director 42 17 -Interest paid to a company owned by members of thePresident's family(3) - - 23Sale of a motor vehicle to the President at amarket-related price - - 114Purchase of a motor vehicle from the President at amarket-related price - - 16Consulting fees paid to Directors of the Company 27 - - (1) In prior years the President delayed submitting regular expense claims dueto the Company's cash situation. During 2004, all outstanding claims weresubmitted and the amount due, including interest at market-related rates, waspaid to him. (2) In prior years' office rental payable to a company owned by members of thePresident's family was not always paid. During 2004 all outstanding amounts werepaid, including interest at market-related rates. These related party transactions were in the normal course of operations and arerecorded at the exchange amount. The Company has the following related partybalances: Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 2006 2005 2004Included in accounts payable - owing to a company that employs the Company's President $ - $ - $ -- owing to the Corporation's President - - 3- owing to the Chairman of the Board for consulting fees 129 85 -- owing to directors/officers for unpaid salaries,consulting and/or directors' fees 193 137 -- unsecured loan due to a shareholder 450 - - 12. Segmented Financial Information The Company has been engaged directly or through subsidiaries in the productionof and the exploration for precious metals in various geographical locations. The Company's operating segments have been identified based on geographic areasas follows: For the year ended December 31, 2006 --------- ---------- --------- -------- ------- Corporate Zimbabwe South Africa Zambia Total Revenue from sales $8 $13,575 $3 - $13,586Operating costs - (8,210) (451) - (8,661)General andadministrative (1,787) (11) (209) - (2,007)Interest - (54) - - (54)Amortization - (20) (20) - (40)Other income (expense) (276) 292 128 (1) 143 -------- --------- -------- ------- ---------Income (loss) forcontinuing operations (2,055) 5,572 (549) (1) 2,967 -------- --------- -------- ------- ---------Discontinued operations(loss) - - (7,990) - (7,990) -------- --------- -------- ------- ---------Income tax expense - (652) - - (652) -------- --------- -------- ------- ---------Net income (loss) forthe year ($2,055) $4,920 ($8,539) ($1) $5,675 --------- --------- --------- ------- ---------Identifiable assets -continuing operations $965 $12,547 $4,521 $1,662 $19,695 -------- --------- -------- -------- ---------Identifiable assets -discontinued operationsCapital and Currentassets - - $11,764 - $11,764 -------- --------- --------- ------- ---------Expenditures on capitalassets & mineralproperties continuingoperations - $1,998 $382 $277 $2,657 -------- --------- -------- ------- ---------Expenditures on capitalassets & mineralproperties -discontinued operations - - $922 - $922 -------- --------- -------- ------- --------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 For the year ended December 31, 2005 --------- --------- -------- ------- Corporate South Africa Zambia Total Revenue from sales - $6 - $6Operating costs - (757) - (757)General and administrative (3,001) - - (3,001)Interest - (1) - (1)Amortization - (27) - (27)Other income (expense) 39 (7) - 32 --------- -------- ------- ---------Income (loss) for continuingoperations (2,962) (786) - (3,748) --------- -------- ------- ---------Discontinued operations (loss) - (5,932) - (5,932) --------- -------- ------- ---------Net income (loss) for the year ($2,962) ($6,718) - ($9,680) --------- --------- ------- ---------Identifiable assets - continuingoperations $2,095 $676 $1,384 $4,155 --------- --------- -------- ---------Identifiable assets -discontinuedoperations Capital and Current - $18,183 - $18,183assets --------- --------- ------- ---------Expenditures on capital assets &mineral properties continuingoperations - - $350 $350 --------- --------- -------- ---------Expenditures on capital assets &mineral properties - discontinuedoperations - $4,934 $4,934 --------- --------- -------- --------- For the year ended December 31, 2004 --------- --------- -------- ------- Corporate South Africa Zambia Total Revenue from sales - $3 - $3Operating costs - (470) - (470)General and administrative (1,676) (308) - (1,984)Interest - (16) - (16)Amortization - (20) - (20)Other income (expense) 6 (130) (160) (284)Non-controlling interest - 13 - 13 --------- -------- -------- ---------Income (loss) for continuingoperations (1,670) (928) (160) (2,758) --------- -------- -------- ---------Discontinued operations (loss) - (7,221) - (7,221) --------- -------- -------- ---------Net income (loss) for the year ($1,670) ($8,149) ($160) ($9,979) --------- --------- -------- ---------Identifiable assets - continuingoperations $7,234 $77 $1,090 $8,401 --------- --------- --------- ---------Identifiable assets -discontinuedoperations Capital and Current - $15,265 - $15,265assets --------- --------- --------- ---------Expenditures on capital assets &mineral properties continuingoperations - $406 - $406 --------- --------- --------- ---------Expenditures on capital assets &mineral properties - discontinuedoperations $- $3,407 $- $3,407 --------- --------- --------- --------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 13. Acquisition of the Minority Interest of Eersteling Gold Mining CompanyLimited On June 14, 2004, Eersteling Gold Mining Company Limited, a subsidiary of theCorporation acquired the remaining 3.6% minority shareholdings from theshareholders for a cash consideration of $26. The transaction has been accountedfor as a step-by-step acquisition by the Corporation, resulting in negativegoodwill of approximately $746 which has been allocated on a pro-rata basis as areduction of the non-monetary assets of the subsidiary. 14. Contingent Liability In the Share Sale Agreement dated May 12, 2006 pursuant to which the Companypurchased 100% of the shares of Blanket, the Company agreed that it would, assoon as reasonably practicable after the Closing of the Agreement, cause Blanketto implement a share incentive scheme considered by the Directors to be in thebest interests of Blanket, pursuant to which a percentage of the shares ofBlanket will be deposited in a Trust for the benefit of the management andemployees of Blanket. As at December 31, 2006 no scheme had been established,nor were any shares of Blanket deposited in a Trust for the purposes of such ascheme. The Company and the Board of Directors of Blanket, have expressed theirintention to delay the establishment of the required scheme pending the passingof anticipated Zimbabwe laws relating to the indigenization of the miningindustry, as it is recognized that the Zimbabwean laws, when passed, will likelyhave a material impact on the structure of the proposed scheme and thepercentage of the issued shares of Blanket required to be put into trust for thepurposes of the scheme. 15. Long Term Liability The long term liability refers to a provision for the Service Bonus Fundrelating to employees at Blanket Mine in Zimbabwe. The fund was established in1975 to provide a gratuity to permanent employees of Blanket Mine on cessationof employment at Blanket Mine for any reason apart from dismissal orresignation. The provision is built up by providing 15% of an employees basicsalary per year up to a maximum of Z$5,000. The maximum payout to any employeeis Z$5,000 (five thousand Zimbabwe Dollars) in terms of the current rules. This fund represents a defined contribution future employee benefit fund forwhich the funds have not been segregated by the company. The expense for theyear, representing the required contributions in the year, was $13. 16. Acquisition of Blanket Mine During 2006 Caledonia Mining Corporation through its wholly owned subsidiaryCaledonia Holdings (Africa) Limited purchased 100% of the shares in Blanket(Barbados) Holdings Limited ("Barbados") from Kinross Gold Corporation."Barbados" owns 100% of the shares in Caledonia Holdings Zimbabwe Limited whoowns 100% of the shares in Caledonia Mining Services (Private) Limited (dormant)and Blanket Mine (1983) (Private) Limited. The effective date of the share sale agreement was April 1, 2006 but CaledoniaMining Corporation effectively only took control after payment of the purchaseprice and thus the Zimbabwe operations are consolidated into the results ofCaledonia Mining Corporation from July 1, 2006. Caledonia Mining CorporationNotes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 The purchase price consideration was made up of $1,120 (US$1,000) in cash and bythe issue of 20,000,000 shares in Caledonia Mining Corporation at an assignedvalue of $3,009. This resulted in an effective purchase consideration of $4,129. The allocation of the purchase price is presented in the abridged balance sheetbelow: Current Assets $4,548Capital Assets and Mineral Properties 2,519 --------Total Assets 7,067 -------- Current Liabilities (2,107)Other Long Term Liabilities (831) --------Total Liabilities (2,938) -------- --------Total Purchase Consideration $4,129 -------- There are no unfinalized purchase price considerations. 17. Comparative Figures The prior period figures have been reclassified to conform to the currentpresentation. 18. Generally Accepted Accounting Principles in Canada and the United States The Company's accounting policies do not differ materially from accountingprinciples generally accepted in the United States ("US GAAP") except for thefollowing: (a) Mineral Properties US GAAP requires that expenditures on mineral properties with no proven reservesbe reflected as expenses in the period incurred. (b) Employee and Directors Stock Options Prior to 2003, the Company accounted for employee and director stock optionsunder APB Opinion No. 25 under which, no compensation cost is recognized whenthe exercise price equals or exceeds the fair value at the date of grant.Effective January 1, 2003, the company has, for US reporting purposes,prospectively applied the fair-value recognition provisions of SFAS 123. Under Canadian GAAP, effective January 1, 2002 on a prospective basis, theCompany adopted the new CICA policy of accounting for stock based compensation.Compensation expense on stock options granted to directors, officers andemployees, was not recorded. However, disclosure of the effects of accountingfor the compensation expense, utilizing the fair value method estimated usingthe Black-Scholes Option Pricing Model, was disclosed as pro-forma information.For 2002, a compensation expense was shown reflecting the intrinsic valueattributable to stock options granted to directors, officers and employees. Under Canadian GAAP, effective January 1, 2003 on a prospective basis, theCompany commenced the expensing of all stock based compensation for new stockoption grants applying the fair value method estimated by using theBlack-Scholes Option Pricing Model. Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 (c) Comprehensive Income Under US GAAP, comprehensive income must be reported which is defined as allchanges in equity other than those resulting from investments by owners anddistributions to owners. (d) Marketable S ecurities Under accounting principles generally accepted in Canada, unrealized gains andlosses in shares of public companies are not recognized until investments aresold unless there is deemed to be an impairment of value which is other than temporary. Under US GAAP, such investments are recorded at market value and the unrealised gains and losses are recognized in other comprehensive income unless there is deemed to be an impairment which is other than temporary. Under FAS 115 the Company is accounting for the marketable securities as available for sale. (e) Warrants Under US GAAP the fair value of the warrants re-priced in Note 5(b)(5) areconsidered to be a benefit awarded to certain holders. This would be consideredto be a deemed dividend to these shareholders. The fair value of the warrantswas calculated using the Black-Scholes Option Pricing Model. The assumptionsused in the calculation are: Risk free interest rate - 2.77%; Expected dividendyield - nil; Expected stock volatility - 38%; Expected warrant life in years -0.134. (f) Recently Issued United States Accounting Standards (i) On February 15, 2007, the FASB issued FASB Statement No. 159, The Fair ValueOption for Financial Assets and Financial Liabilities - Including an Amendmentof FASB Statement No. 115. This standard permits an entity to choose to measuremany financial instruments and certain other items at fair value. The FASB'sstated objective in issuing this standard is as follows: "to improve financialreporting by providing entities with the opportunity to mitigate volatility inreported earnings caused by measuring related assets and liabilities differentlywithout having to apply complex hedge accounting provisions." A business entity will report unrealized gains and losses on items for which thefair value option has been elected in earnings at each subsequent reportingdate. The fair value option: (a) may be applied instrument by instrument, with afew exceptions, such as investments otherwise accounted for by the equitymethod; (b) is irrevocable (unless a new election date occurs); and (c) isapplied only to entire instruments and not to portions of instruments.Statement 159 is effective as of the beginning of an entity's first fiscal yearthat begins after November 15, 2007. Early adoption is permitted as of thebeginning of the previous fiscal year provided that the entity makes that choicein the first 120 days of that fiscal year and also elects to apply theprovisions of FASB Statement No. 157. The company did not elect to adopt thisstandard early. (ii) FASB Statement No. 157, Fair Value Measurements, has been issued by the FASB. This new standard provides guidance for using fair value to measure assetsand liabilities. The FASB believes the standard also responds to investors'requests for expanded information about the extent to which companies measureassets and liabilities at fair value, the information used to measure fairvalue, and the effect of fair value measurements on earnings. Under Statement157, fair value refers to the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants in the market in which the reporting entity transacts.The provisions of Statement 157 are effective for financial statements issuedfor fiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years. Earlier application is encouraged, provided that thereporting entity has not yet issued financial statements for that fiscal year,including any financial statements for an interim period within that fiscalyear. The company has not elected early adoption of this standard. Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 (iii) On July 13, 2006, FASB Interpretation (FIN) No. 48, Accounting forUncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, wasissued. FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken in atax return. The new FASB standard also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. The evaluation of a tax position in accordance with FIN 48 is a two-stepprocess. The first step is a recognition process whereby the enterprisedetermines whether it is more likely than not that a tax position will besustained upon examination. The second step is a measurement process whereby atax position that meets the more-likely-than-not recognition threshold iscalculated to determine the amount of benefit to recognize in the financialstatements. The tax position is measured at the largest amount of benefit thatis greater than 50% likely of being realized upon ultimate settlement.The provisions of FIN 48 are effective for fiscal years beginning after December15, 2006. Earlier application is permitted as long as the enterprise has not yetissued financial statements, including interim financial statements, in theperiod of adoption. The provisions of FIN 48 are to be applied to all taxpositions upon initial adoption of this standard. Only tax positions that meetthe more-likely-than-not recognition threshold at the effective date may berecognized or continue to be recognized uponadjustment to the opening balance of retained earnings (or other appropriatecomponents of equity or net assets in the statement of financial position) forthat fiscal year. The adoption of FIN 48 will not have an affect on the companysfinancial position or the results of operations. (iv)On March 30, 2005, FASB Interpretation (FIN) No. 47, Accounting forConditional Asset Retirement Obligations - An Interpretation of FASB StatementNo. 143, was issued. The FASB issued FIN 47 to address diverse accountingpractices that developed with respect to the timing of liability recognition forlegal obligations associated with the retirement of a tangible long-lived assetwhen the timing and (or) method of settlement of the obligation are conditionalon a future event. FIN 47 concludes that an entity is required to recognize aliability for the fair value of a conditional asset retirement obligation whenincurred if the liability's fair value can be reasonably estimated. Originally,the FASB proposed guidance in FASB Staff Position (FSP) FAS 143-x, "Applicationof FASB Statement No. 143, The company recognises the fair value of retirementobligations as estimations are made and updated on a regular basis to ensure theliability is still valid. (v) In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB108") Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements, that provides interpretiveguidance on how the effects of the carryover or reversal of prior yearmisstatements should be considered in quantifying a current year misstatement.The SEC staff believes that registrants should quantify errors using both abalance sheet and an income statement approach and evaluate whether eitherapproach results in quantifying a misstatement that, when all relevantquantitative and qualitative factors are considered, is material. Thispronouncement is effective for fiscal years ending after November 15, 2006. Theadoption of SAB 108 did not have a material affect on the Company's financialposition and results of operations. (vi) In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting forDefined Benefit Pension and Other Postretirement Plans-an amendment of FASBStatements No. 87, 88, 106, and 132(R)," which requires employers to: (a)recognize in its statement of financial position an asset for a plan'sover-funded status or a liability for a plan's under-funded status; (b) measurea plan's assets and its obligations that determine its funded status as of theend of the employer's fiscal year; and (c) recognize changes in the fundedstatus of a defined benefit postretirement plan in the year in which the changes Caledonia Mining CorporationNotes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 occur. These changes will be reported in comprehensive income of a businessentity. The requirement to recognize the funded status of a benefit plan and thedisclosure requirements are effective as of the end of the fiscal year endingDecember 15, 2006 for entities with publicly traded equity securities. Therequirement to measure plan assets and benefit obligations as of the date of theemployer's fiscal year-end statement of financial position is effective forfiscal years ending after December 15, 2008. The Company has no defined benefitpension plans The impact of the foregoing on the financial statements is as follows: (a) Income Statement 2006 2005 2004 Income/(Loss) for continuing operations perCanadian GAAP $2,315 ($3,748) ($2,757)Mineral property expenditure with no provenreserves (expensed) or previously expensedunder US GAAP (659) (2,040) (406) ------- ------- -------Net income (loss) from continuingoperations 1,656 (5,788) (3,163)Loss from discontinued operations (7,990) (5,932) (7,222) ------- ------- -------Net income (loss) (6,334) (11,720) (10,385)Deemed Dividend - (171) - ------- ------- -------Net income (loss) available for commonshareholders ($6,334) ($11,891) ($10,385) ------- ------- -------Net income (loss) ($6,334) ($11,720) ($10,385)Other comprehensive (loss)/gain 85 (18) (36) ------- ------- -------Total comprehensive loss ($6,249) ($11,738) ($10,421) ------- ------- -------Basic and diluted income/(loss) per sharecontinuing operations $0.00 ($0.02) ($0.01)Basic and diluted income/(loss) per sharediscontinued operations ($0.02) ($0.02) ($0.03)Basic and diluted income/(loss) per sharefor the year ($0.02) ($0.04) ($0.04) (b) Balance Sheet 2006 2005 Total assets per Canadian GAAP $31,456 $22,338Unrealised loss on marketable securities 31 (54)Mineral properties with no proven reserves expensed (5,352) (4,693) -------- --------Total assets per US GAAP $26,135 $17,591 -------- -------- Total liabilities per Canadian and US GAAP $7,120 $2,966 -------- -------- Shareholders' equityShareholders' equity per Canadian GAAP $24,336 $19,372Mineral properties with no proven reserves expensed (5,352) (4,693)Accumulated other comprehensive income/(loss) 31 (54) -------- --------Shareholders' equity per US GAAP $19,015 $14,625 -------- -------- Total liabilities & shareholder's equity per US GAAP $26,135 $17,591 -------- -------- Caledonia Mining Corporation Notes to the Consolidated Financial Statements(in thousands of Canadian Dollars unless otherwise indicated and except forshare and per share amounts)December 31, 2006, 2005 and 2004 (c) Cash Flow 2006 2005 2004Cash provided by (used in)Operating activities for continuing operationsper $1,858 ($2,831) ($2,530)Canadian GAAPMineral properties expenditure by continuingoperations (659) (2,040) (406) -------- --------- --------Operating activities per US GAAP 1,199 (4,871) (2,936) -------- --------- --------Investment activities for continuingoperations per (3,516) (2,040) (406)Canadian GAAPMineral properties expenditure 659 2,040 406 -------- --------- --------Investment activities per US GAAP (2,857) - - -------- --------- --------Financing Activities per Canadian and US GAAP 7,362 6,785 14,314 -------- --------- --------Increase (decrease) in cash for continuingoperations 5,704 1,914 11,378 -------- --------- --------Operating activities for discontinuedoperations (4,560) (4,064) (5,680)per Canadian GAAP -------- --------- --------Investment activities for discontinuedoperations (922) (3,244) (3,407)per Canadian and US GAAP -------- --------- --------Increase (decrease) in cash for the year 222 (5,394) 2,291Cash and cash equivalents, beginning of year 1,076 6,470 4,179 -------- --------- --------Cash and cash equivalents, end of year $1,298 $1,076 $6,470 -------- --------- -------- BOARD OF DIRECTORS and OFFICERS G.R. Pardoe (2) (3) (4)(5Chairman of the Board, Johannesburg, South Africa S. E. Hayden (2) (3) (5) President and Chief Executive Officer S. E. Hayden (2) (3) (5) President and Chief Executive OfficerJohannesburg, South Africa S R Curtis (5)Vice-President Finance and Chief Financial OfficerJohannesburg, South Africa J. Smith Vice-President ExplorationCantabria, Spain J. Johnstone (5) Retired Executive Chief Operating OfficerGibsons, British Columbia, Canada F C. HarveyRetired ExecutiveOakville, Ontario, Canada W. I. L. Forrest (1) (2) (3)Business ExecutiveNyon, Switzerland C. R. Jonsson (2) (3) (5)Principal of Tupper Jonsson & YeadonBarristers & SolicitorsVancouver, British Columbia, Canada R.G. Fasel (1) (4)Business ExecutiveGeneva, Switzerland R. Liverant (1)Retired ExecutiveVancouver, British Columbia, Canada BOARD COMMITTEE MEMBERS (1) Audit Committee (2) Compensation Committee (3) Corporate Governance Committee (4) Nominating Committee (5) Disclosure Committee Corporate Directory CORPORATE OFFICES SOLICITORS Canada - Head Office Borden Ladner Gervais LLP Caledonia Mining Corporation Suite 4100, Scotia Plaza Suite 1201 67 Yonge Street 40 King Street West Toronto, Ontario Toronto, Ontario M5H 3Y4 Canada M5E 1J8 Canada Tel: (416) 369-9835 Tupper, Jonsson & Yeadon Fax: (416) 369-0449 1710-1177 West Hastings Street info@caledoniamining.com Vancouver, British Columbia V6E 2L3 Canada South Africa Greenstone Management Services (Pty) Ltd. P.O. Box 587 AUDITORS Johannesburg 2000 BDO Dunwoody LLP South Africa Chartered Accountants Tel: (27) (11) 447-2499 Suite 3300, 200 Bay Street Fax: (27) (11) 447-2554 Royal Bank Plaza, South Tower Toronto, Ontario M5J 2J8 Canada Zambia Caledonia Mining (Zambia) Limited REGISTRAR & TRANSFER AGENT P.O. Box 36604 Equity Transfer Services Inc. Lusaka, Zambia Suite 400 200 University Ave Tel: (260) (1) 29-1574 Toronto, Ontario M5H 4H1 Canada Fax: (260) (1) 29-2154 Tel: (416) 361-0152 Fax: (416) 361-0470 Zimbabwe Caledonia Holdings Zimbabwe (Limited) P.O. Box CY1277 Causeway Harare Zimbabwe Tel: +2634 701 151/4 Fax: +2634 702 248 SHARES LISTED The Toronto Stock Exchange Symbol "CAL" BANKERS NASDAQ OTC BB Symbol "CALVF" Canadian Imperial Bank of Commerce London "AIM" Market Symbol "CMCL" 6266 Dixie Road Mississauga, Ontario L5T 1A7 Canada CAPITALIZATION at December 31, 2006 Authorised: Unlimited Shares, Warrants and Options Issued: Common Shares: 457,981,021 Warrants : 85,115,885 Options : 17,238,000 Web Site: http://www.caledoniamining.com This information is provided by RNS The company news service from the London Stock Exchange
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Caledonia Min Information
Share Price Information for Caledonia Min (CMCL)
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Share Price:
815.00
Bid:
790.00
Ask:
840.00
Change:
0.00 (0.00%)
Spread:
50.00 (6.329%)
Open:
815.00
High:
815.00
Low:
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Prev. Close:
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