Caledonia Min Regulatory News (CMCL)

14 Aug 2006 18:00

Caledonia Mining Corporation14 August 2006 Caledonia Mining Corporation 2nd Quarter Interim Results 2006 Toronto, Ontario - August 14, 2006: Caledonia Mining Corporation ("Caledonia")(TSX: CAL, NASDAQ-OTCBB: CALVF and AIM:CMCL) is pleased to announce its keyfinancial and operating results for the second quarter ended June 30, 2006. Thefinancial results are reported in thousands of Canadian dollars except whereotherwise stated. Operational Highlights Barbrook Gold Mine - South Africa - Quarterly gold production increased 94% to 1,749 ounces over the previous quarter. However the two quarters are not truly comparable because of disruptions in January while the plant expansion was completed.- Plant throughput has increased steadily reaching 12,397 tonnes in June, following completion of the plant expansion to 15,000 tonnes per month capacity from 6,000 tonnes per month.- Production improvements continued during the second quarter. 32,133 tonnes were treated in the plant during the quarter, an increase of 66% over the first quarter. Blanket Gold Mine - Zimbabwe - Purchased the Blanket Gold Mine in Zimbabwe from Kinross Gold.The transaction closed on July 5, 2006 and the results for Q2 will not beconsolidated for regulatory issues, despite the effective date of transactionbeing from 1 April 2006. Blanket's results will incorporated from July 1, 2006. - Quarterly gold production of 6,045 ounces. Nama Cobalt Project - Zambia - Ongoing evaluation of metallurgical process for this large cobalt oxide resource continued. Additional samples were extracted from the Nama"A" Discovery trench and dispatched to test facilities in China and South Africafor additional Wet High Intensity Magnetic Separation, flotation andpyrometallurgical testing. The results of all these tests are encouraging,additional tests are ongoing as are negotiations regarding multiple large longterm off-take agreements. Corporate/Financial - During Q2 2006 the company completed a private placement. This placement raised $3.92 million after expenses from the sale of 34,828,259 units.Each unit consists of one common share and one share purchase warrant. Thesefunds will be used for general working capital and opportunities as they mayarise. For the quarter ended June 30, 2006 Caledonia recorded a net loss of $2.9million ($0.007 per share) compared to a net loss of $3.3 million ($0.011 pershare) for the same period in 2005 and a net loss of $1.4 million ($0.005 pershare) in the second quarter of 2004. The loss in 2006 results from ongoingexploration costs, operations at Barbrook, and the normal administrationexpenses during the quarter. Reviewing the quarter, Stefan Hayden, President and CEO, said "The acquisitionof the Blanket Gold Mine in Zimbabwe is a significant step towards expanding theCompany's gold production and developing Caledonia into a significantdiversified mining company. Blanket has a long history of gold production, withthe reported proven and probable reserves exceeding 3 million tonnes Blanketreserves should continue to produce gold profitably for many years to come. At the Barbrook Gold Mine our efforts on optimizing the metallurgical circuitand ramping up tonnage from the underground mine to reach and exceed the plannedtonnage of 15,000 tonnes per month are showing encouraging results, but have notyet brought Barbrook to a cash positive position. The tonnage milled increasedby 66% and gold production increased by 94% over the first quarter's results, asnoted the two quarters are not truly comparable because of productiondisruptions in January as a result of plant expansion activities. Regarding the Nama cobalt project, I am pleased to report that the interestremains high. Negotiations regarding long-term cobalt off-take agreements witha number of large cobalt refiners are in the final stages. Technical andeconomic studies related to the production of suitable cobalt carbonates andhydroxides at Nama are presently underway in South Africa and China." As required by the AIM Rules, the Company confirms that, under the block listingarrangement for warrants issued pursuant to a private placement, of the33,287,626 common shares which were admitted to trading on AIM on 15 February2006 under this arrangement, none have been issued in the six months to 14August 2006. Caledonia Management's Discussion and Analysis was published on August 14, 2006and is available on the company's website: www.caledoniamining.com. For more information, please contact: Stefan Hayden Alex Buck / Nick BiasPresident and 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. Certain statements included herein are "forward-looking statements". Managementcautions that forward-looking statements are not guarantees and that actualresult could differ materially from those expressed or implied in theforward-looking statements. Important factors that could cause the actualresults of operations, exploration or development programs, or the financialcondition of the Company, to differ include, but are not necessarily limited to,the risks and uncertainties discussed in documents filed by the Company with thevarious regulatory authorities having jurisdiction. 2006 OBJECTIVES - Improve safety awareness at Barbrook Mine and further develop necessary programs to ensure a safe operation.- Optimise gold production at Barbrook Mine in South Africa by treating at least 15,000 tonnes per month.- Continue developing additional reserves/resources at Barbrook Mine.- Complete metallurgical studies to confirm viability of economic gold recovery from Daylight & Victory zones at Barbrook Mine.- Continue with negotiations to conclude agreements with cobaltrefiners to purchase cobalt concentrate produced at Nama and/or form strategicalliances to achieve this objective.- Seek a joint-venture partner to commence an exploration program at the Kadola copper/cobalt and the Eureka copper/gold properties in Zambia.- Further explore the polymetallic resource on the Rooipoort and Grasvally properties which form the Rooipoort PGE/Ni/Cu Exploration Project in South Africa.- Increase the land holdings around the Rooipoort Exploration property.- Drill identified extensions to the known ore zones on the Eersteling and Zandrivier Mining Licence areas. - Pursue possible acquisitions and/or strategic partnerships to expand Caledonia's portfolio of properties.- Expand the Board of Directors to address ongoing Corporate Governance requirements.- Implement succession plans for senior executive and operational staff.- Strengthen the Investor Relations and Public Relations functions within Caledonia.- Conclude necessary agreements to satisfy the South African Black Economic Empowerment ("BEE") requirements.- Arrange necessary financing to support the activities required to meet these objectives.- Expedite the Number 4 shaft expansion project at the newly acquired Blanket Gold Mine to increase gold production to 50,000 ounces per annum. President's Message The acquisition of the Blanket Gold Mine in Zimbabwe is a significant steptowards Caledonia's goal of developing the asset base into a significantdiversified international mining company. Gold has been mined in the Blanketarea for close on 100 years. In 2005 Blanket's reported historic gold productionexceeded one million ounces, and with the reported proven and probable orereserves exceeding 3 million tonnes Blanket should continue to produce gold formany years to come. I am delighted to welcome the Blanket management team andstaff to Caledonia where I am sure they will make a significant impact onCaledonia's future revenue. The Number 4 shaft expansion project at Blanket iscurrently well underway and should be completed by the end of the first quarter2007. This project will allow Blanket to increase production to 50,000 ouncesper year. The new monetary policy in Zimbabwe, which allows mines to retain 75%of their foreign exchange proceeds, will have a significant impact on Blanketand will further facilitate the cost cutting program which is rapidly beingimplemented. The metallurgical tests proposed by Caledonia have been completedand the circuit changes are being finalized as these will result in increasedgold recoveries and lower reagent usages. Our efforts on optimizing the metallurgical circuit at Barbrook and ramping uptonnage from the underground mine to reach and exceed the planned tonnage of15,000 tonnes per month are showing pleasing results. The tonnage milledincreased by 66% and gold production increased by 94% over the first quarter'sresults. However, it should be noted that production during the first quarterwas disrupted by plant expansion activities and the two quarters are not trulycomparable. It is disappointing that Barbrook is still not yet cash positive. I participated in the Cobalt Development Institute's conference in May and ampleased to report that the interest in rapidly bringing Nama into production ishigh. Negotiations regarding long term cobalt off-take agreements with a numberof large cobalt refiners are advancing and the technical and economic studiesrelated to the production of suitable cobalt carbonates and hydroxides at Namaare presently underway in South Africa and China. ___"Signed"__________________S. E. HaydenPresident and Chief Executive Officer Management's Discussion and AnalysisExpressed in Canadian Dollars This discussion provides updated information to the Management Discussion andAnalysis contained in the Caledonia's Annual Report for 2005 and the firstquarter report for 2006 which have been filed on SEDAR and are available atwww.sedar.com or on the Corporation's website at www.caledoniamining.com. Whereno comments are made there are no updates to report. OPERATIONAL REVIEW Barbrook Mines Limited - South Africa Plant throughput at Barbrook gradually improved during the quarter, reaching12,397 tonnes in June. This was due to improved and more consistent productionfrom underground. Plant throughput increased by 66% over that in the firstquarter when the plant commissioning interrupted operations. Most significantlygold produced increased by 94% in the second quarter compared to the firstquarter. However, it should be noted that production during the first quarterwas disrupted by plant expansion activities and the two quarters are not trulycomparable. Metallurgical testing continues with a view to resolving the unexplained goldlosses. These tests indicate that changes in the operating parameters may have aconsiderable impact on reducing unexplained gold dissolution in thepre-oxidation circuit. The final results of the confirmatory testwork areawaited before the operating parameters are modified to accommodate the changes. Barbrook Mines - 2006 Production Results First Second Six Month July Quarter Quarter TotalOre mined Tonnes 27,565 29,886 57,431 14,052Developmentadvance Meters 795 737 1,532 220Ore milled Tonnes 19,357 32,133 51,490 12,292Grade milled g/t 3.78 3.37 3.53 4.53Gold recovered Ounces 902 1,749 2,651 708 Blanket Mine (1983) Private Limited - Zimbabwe The acquisition of the Blanket Mine was effective on April 1, 2006 although thefinal closing did not take place until July 5th. Thus, operating control of themine was not transferred to Caledonia until July, however the results are theresponsibility of and for the benefit of Caledonia from April 1, 2006. Blanket'soperating results for the three months ending June 30, 2006 are detailed in thetable below. For regulatory reasons Blanket's Q2 results are NOT consolidatedinto the Caledonia numbers and will only be consolidated from 1 July 2006. Blanket Mine - 2006 Production Results Second Quarter JulyOre mined Tonnes 50,700 17,600Development advance Meters 772 258Ore milled Tonnes 51,500 18,100Grade milled g/t 4.10 3.90Gold recovered Ounces 6,045 2,076 CONSOLIDATED FINANCIAL RESULTS - Excluding Blanket Mine For the quarter ended June 30, 2006 Caledonia recorded a net loss of $2.9million($0.007 per share) compared to a net loss of $3.3 million ($0.011 per share)during the same period in 2005 and a net loss of $1.4 million ($0.005 per share)in the second quarter of 2004. The loss in 2006 results from operations atBarbrook, the normal administration expenses and ongoing exploration costsduring the quarter. Financing During Q2 2006 the company completed a private placement. This placement raised$3.92 million after expenses from the sale of 34,828,259 units. Each unitconsists of one common share and one share purchase warrant. These funds will beused for general working capital and opportunities as they may arise. A furtherplacement of 17 million units, each consisting of one common share and one sharepurchase warrant, was completed in July 2006 and raised $2.16 million afterexpenses. Summary of Quarterly Results The following information is provided for each of the eight most recentlycompleted quarters of the company: (in thousands of Canadian dollars except pershare amounts) The Q2 2006 Net Loss includes a depreciation charge of $965,000 greater than Q1due to increased production levels and the use of the unit-of-productionamortization method. Q2 - Q1-2006 Q4-2005 Q3-2005 Q2-2005 Q1-2005 Q4- Q3- 2006 2004 2004Net Salesor TotalRevenues $1,304 $418 $453 $743 $965 $481 $469 $202 (Net loss) - total ($2,893) ($2,266) ($2,054) ($2,564) ($3,276) ($1,786) ($4,569) ($2,250) - per share undiluted ($0.007) ($0.006) ($0.006) ($0.008) ($0.011) ($0.007) ($0.015) ($0.008) - per sharediluted ($0.007) ($0.006) ($0.006) ($0.008) ($0.011) ($0.007) ($0.015) ($0.008) Note: As there are no extraordinary items the disclosed net loss per share isidentical to the total loss before extraordinary items. EXPLORATION AND PROJECT DEVELOPMENT Eersteling Gold Mining Company Limited - South Africa Gold Exploration Project Significant progress has been made with digital compilation of historicunderground and exploration data in preparation for review of mineral resourceson the property. Rooipoort and Grasvally Nickel, Copper, PGE Exploration Project Application for conversion of the Old Order Rooipoort Prospecting Permit to NewOrder Prospecting Rights was submitted to South African Department of Mineralsand Energy. The issuance of these new order rights is expected later this year.The combination of the Rooipoort rights with those of the adjoining rightsacquired during the first quarter from Falconbridge Ventures of Africa("Falconbridge") has doubled the area available for prospecting by the Company.Plans are in place to commence drilling on the Central Target area once the NewOrder rights have been granted. Research is in progress into the morphology ofthe significant PGE, Ni, Cu intersections on the "321 Reef" on the Moordriftproperty acquired from Falconbridge, prior to planning of further follow up workon this Western Target area. See maps in our Press Release of March 13, 2006which is available in the Investor Centre at www.caledoniamining.com under PressReleases for location of these Target areas. Caledonia Nama Limited - ZambiaNama Cobalt Project Ongoing evaluation of metallurgical process for this large cobalt oxide resourcecontinued. Additional samples were extracted from the Nama "A" Discovery trenchand dispatched to test facilities in China and South Africa for additional WetHigh Intensity Magnetic Separation, flotation and pyrometallurgical testing. Theresults of all these tests are encouraging and testing is ongoing. Kadola Copper, Cobalt, Gold Project- Zambia Representatives of a potential joint-venture partner made a technical visit tothe Eureka Cu/Au prospect and their assessment of the extensive database of workdone by Caledonia on the Kadola property is in progress. SUPPLEMENT TO THE FINANCIAL STATEMENTS As at June 30, 2006 the following securities were outstanding: • 440,981,021 common shares. • 17,238,000 common share purchase options at an average price of $0.21 maturing at various dates until May 11, 2016. • 33,287,626 common share purchase warrants exercisable at a price of $0.20 per share until February 3, 2008, 32,638,259 share purchase warrants exercisable at a price of $0.15 per share until May 12, 2007 and 2,190,000 share purchase warrants exercisable at a price of $0.18 per share until May 12, 2007. 20,000,000 shares were being held in escrow on June 30, 2006 pending closure ofthe Blanket Mine acquisition. Management's Responsibility for Financial Reporting To the Shareholders of Caledonia Mining Corporation: The accompanying unaudited consolidated financial statements of Caledonia wereprepared by management in accordance with accounting principles generallyaccepted in Canada, consistently applied and within the framework of the summaryof significant accounting policies in these consolidated financial statements.Management is responsible for all information in the quarterly report. Allfinancial and operating data in the quarterly report is consistent, whereappropriate, with that contained in the consolidated financial statements. The Board of Directors discharges its responsibilities for the consolidatedfinancial statements primarily through the activities of its Audit Committeecomposed of three directors, two of whom are not members of management. ThisCommittee meets with management to assure that it is performing itsresponsibility to maintain financial controls and systems and to approve thequarterly consolidated financial statements of Caledonia. The consolidated financial statements have not been reviewed by Caledonia'sauditors. ___"Signed"__________________ ___"Signed"__________________ S. E. Hayden S.R. Curtis President and Vice-President Finance Chief Executive Officer and Chief Financial Officer Consolidated Balance Sheet(in thousands of Canadian Dollars) June 30, December 31, June 30,(Unaudited) 2006 2005 2005Assets Current AssetsCash and short term deposits 1,314 1,076 2,482Accounts Receivable 307 768 599Inventories 332 90 839Prepaid expenses 3,320 330 3 ____________ ____________ ____________ 5,273 2,264 3,923 Investment at cost 79 79 79Capital assets 9,184 9,156 7,141Mineral properties 10,994 10,839 10,859 ____________ ____________ ____________ 20,256 20,074 18,079 ____________ ____________ ____________Total assets 25,530 22,338 22,002 ____________ ____________ ____________Liabilities and ShareholderEquity Current LiabilitiesBank overdraft - 197 -Accounts payable 2,527 2,392 1,252 Provision for site restoration 325 377 397 ____________ ____________ ____________ 2,851 2,966 1,649 Shareholders equityShare capital 188,466 180,053 176,470Contributed surplus 976 923 548Compensation warrants - - 321Accumulated Deficit (166,763) (161,604) (156,986) ____________ ____________ ____________ 22,678 19,372 20,353 ____________ ____________ ____________Total Capital and liabilities 25,530 22,338 22,002 ____________ ____________ ____________ Consolidated Statement of Deficit(in thousands of Canadian Dollars) Three month period ended June 30, Six month period ended June 30,(Unaudited) 2006 2005 2004 2006 2005 2004Deficit,beginning (163,870) (153,710) (143,670) (161,604) (151,924) (141,945)Net(loss) forthe period (2,893) (3,276) (1,435) (5,159) (5,062) (3,160) _________ _________ _________ _________ _________ _________Deficit, endof period (166,763) (156,986) (145,105) (166,763) (156,986) (145,105) Consolidated Statement of Operations(in thousands of Canadian Dollars except per share amounts) Three month period ended June Six month period ended June 30, 30,(Unaudited) 2006 2005 2004 2006 2005 2004Revenue andoperating costsRevenue fromsales 1,304 965 30 1,722 1,446 170Operatingcosts 2,878 2,393 1,396 5,228 4,141 2,711 _______ _______ _______ _______ _______ _______Operatingprofit (loss) (1,573) (1,428) (1,366) (3,505) (2,695) (2,541) _______ _______ _______ _______ _______ _______Costs and expensesGeneral andadministration 477 728 660 732 1,224 959Interest 4 5 88 4 5 135Unrealisedforexloss(gain) (124) 829 100 (226) 695 334Other expenses(income) (note 3) 963 286 (779) 1,143 443 (796) _______ _______ _______ _______ _______ _______ 1,320 1,848 69 1,653 2,367 632 _______ _______ _______ _______ _______ _______ (Loss) beforenoncontrollinginterest (2,893) (3,276) (1,435) (5,159) (5,062) (3,173)noncontrollinginterest (13) _______ _______ _______ _______ _______ _______Net (loss) forthe period (2,893) (3,276) (1,435) (5,159) (5,062) (3,160) Operating(loss) pershare (Note 2) ($0.004) ($0.005) ($0.005) ($0.009) ($0.009) ($0.009) Basic and fullydiluted Net (loss) pershare (Note 2) ($0.007) ($0.011) ($0.005) ($0.013) ($0.017) ($0.011) Basic and fullydiluted Consolidated Statement of Cash Flows(in thousands of Canadian Dollars) Three month period ended June Six month period ended June 30, 30, (Unaudited) 2006 2005 2004 2006 2005 2004Cash provided by(used in) OperatingactivitiesOperating(loss) for theperiod (1,573) (1,428) (1,366) (3,505) (2,695) (2,541) Other expensesandnon-controlling interests (1,320) (1,848) (69) (1,653) (2,367) (632) Adjustments toreconcile net cashfromoperations(note 4) 973 326 (682) 1,185 518 (579) Changes in non-cashworking capitalbalances (note 4) (3,434) (99) (169) (2,688) (242) (157) _______ _______ _______ _______ _______ _______ (5,354) (3,049) (2,286) (6,661) (4,786) (3,909) _______ _______ _______ _______ _______ _______InvestingactivitiesExpenditureson capex (57) (69) (927) (787) (256) (1,114)Expenditureson mineralproperties (225) (956) (496) (530) (2,112) (679) _______ _______ _______ _______ _______ _______ (282) (1,025) (1,423) (1,317) (2,368) (1,793) _______ _______ _______ _______ _______ _______FinancingactivitiesShares held ineskrow -Blanket Mine 3,014 3,014Issue of sharecapital net ofcosts (note 1) 3,924 3,166 4,885 5,399 3,166 14,167 _______ _______ _______ _______ _______ _______ 6,938 3,166 4,885 8,413 3,166 14,167 _______ _______ _______ _______ _______ _______ Increase(decrease) in cashfor the period 1,302 (908) 1,176 435 (3,988) 8,465Cash beginningperiod 12 3,390 11,468 879 6,470 4,179 _______ _______ _______ _______ _______ _______Net Cash endperiod 1,314 2,482 12,644 1,314 2,482 12,644 _______ _______ _______ _______ _______ _______ _______ _______ Caledonia Mining CorporationSummary of Significant Accounting Policies(Unaudited) For the six months ended June 30, 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 andobtaining sufficient financing to meet its liabilities, its obligations withrespect to operating expenditures and expenditures required on its mineralproperties. Measurement Uncertainties Preparation of the financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the reported amountsof revenues and expenses during the reporting period. The more significant areasrequiring estimates relate to mineral resources, future cash flows associatedwith capital assets and mineral properties. Management's calculation of reservesand resources and cash flows are based upon engineering and geological estimatesand financial estimates including gold prices and operating costs. The amountultimatelyrecovered could be materially different than the estimated values. Subsequent Events During the second quarter Caledonia finalised the acquisition of Blanket Mine inZimbabwe with an effective date of April 1, 2006. The purchase consideration wasUS$ 1,000,000 and 20,000,000 shares in Caledonia Mining Corporation. The actualclosure date of the agreement and the payment of the purchase consideration wasJuly 5, 2006. As the closure date was after June 30, 2006 Blanket Mine will be consolidatedinto Caledonia Mining Corporation as of July 1, 2006. Principles of Consolidation The consolidated financial statements include the accounts of the Companytogether with all its subsidiaries (except Blanket Mine (1983) Private Limitedwhich will be consolidated from July 1, 2006). All significant inter-companybalances and transactions have been eliminated on consolidation. For information purposes only, we include the following table comparing theresults with and without Blanket Mine for Q2 2006: $ 000s Consolidated Q2 Results Consolidated Q2 Results Excluding Blanket Including BlanketGold Sales 1,304 4,696Operating profit/(loss) (1,573) 88Net profit/(loss) (2,893) (3,434)Unrealised translationgain/(loss) 124 (1,412)Loss per share ($0.007) ($0.009) The net loss for Q2 increases by $541,000 with the inclusion of Blanket Minealthough the mine operated at a profit for the period. The inclusion of Blanket Mine resulted in an increase in the unrealised foreignexchange translation loss of $1,536,000 during the reporting period. The Company's consolidated (all 100% owned) subsidiaries are Barbrook MinesLimited ("Barbrook"), Eersteling Gold Mining Company Limited (100% owned sinceJune 2004) ("Eersteling"), Greenstone Management Services (Proprietary) Limited,Fintona Investments (Proprietary) Limited, Maid O' Mist (Proprietary) Limited,Caledonia Holdings (Africa) Limited, Caledonia Mining (Zambia) Limited,Caledonia Kadola Limited, Caledonia Nama Limited and Caledonia Western Limited. Cash and Cash Equivalents Cash and cash equivalents represent cash on hand in operating bank accounts andmoney market funds Inventories Inventories are stated at the lower of cost, which is determined on thefirst-in, first-out basis, and net realizable value. Inventories comprise goldin circuit, stockpiled ore and consumable stores. Revenue Recognition Revenue from the sale of precious metals is recognized when the benefits ofownership are transferred and the receipt of proceeds is substantially assured. Capital Assets Producing AssetsProducing assets are recorded at cost less grants, accumulated amortization andwrite-downs. Producing assets are amortized using the unit-of-production methodon the ratio of tonnes of ore mined or processed to the proven and probablemineral reserves as defined by the Canadian Institute of Mining, Metallurgy andPetroleum. Other producing assets are amortized using the straight line method basis on theestimated useful lives of the assets. The estimated useful life of the producingassets ranges up to 10 years. Repairs and maintenance expenditures are chargedto operations; major improvements and replacements which extend the useful lifeof an asset are capitalized and amortized over the remaining useful life of thatasset. Barbrook re-commenced commercial operations during 2003 and, as such has beenpresented as a producing asset in these financial statements. Non-Producing AssetsNon-producing assets are recorded at cost less write downs. During non-producingperiods, no amortization is recorded. At the time of commercial production, the assets are reclassified as producingand amortized in the manner described above. Mineral Properties Producing PropertiesWhen and if properties are placed in production, the applicable capitalizedcosts are amortized using the unit-of-production method on the ratio of tonnesof ore mined or processed to the estimated proven and probable mineral reservesas defined by the Canadian Institute of Mining, Metallurgy and Petroleum.Barbrook re-commenced commercial operations during 2003 and, as such has beenpresented as a producing asset in these financial statements. Non-Producing PropertiesCosts relating to the acquisition, exploration and development of non-producingresource properties which are held by the Company or through its participationin joint ventures are capitalized until such time as either economicallyrecoverable reserves are established, or the properties are sold or abandoned. A decision to abandon, reduce or expand activity on a specific project is basedupon many factors including general and specific assessments of mineralreserves, anticipated future mineral prices, anticipated costs of developing andoperating a producing mine, the expiration date of mineral property leases, andthe general likelihood that the Company will continue exploration on theproject. However, based on the results at the conclusion of each phase of anexploration program, properties that are not suitable as prospects arere-evaluated to determine if future exploration is warranted and that carryingvalues are appropriate. The ultimate recovery of these costs depends on the discovery and development ofeconomic ore reserves or the sale of the properties or the mineral rights. Theamounts shown for non-producing resource properties do not necessarily reflectpresent or future values. 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 of an entity expects to hold and use may not be recoverable, futurecash flows expected to result from the use of the asset and it's dispositionmust be estimated. If the undiscounted value of the future cash flows is lessthan the carrying amount of the asset, impairment is recognised based on thefair value 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 any agreement a joint venture may be formedwith customary joint venture terms and provisions and then accounted for on aproportionate consolidation basis. Until a joint venture is formed onlyexpenditures on the properties incurred by the Company are reflected in thesefinancial statements. Foreign Currency Translation Balances of the Company denominated in foreign currencies and the accounts ofits foreign subsidiaries are translated into Canadian dollars as follows: (i) monetary assets and liabilities at period end rates;(ii) all other assets and liabilities at historical rates; and(iii) revenue and expense transactions at the average rate of exchangeprevailing during the period. Exchange gains or losses arising on these translations are reflected in incomein the period incurred. Gains and losses arising on translation of long termforeign currency denominated liabilities at each year end are reflected inincome. Asset Retirement Obligation Effective January 1, 2004 the Company adopted the Canadian Institute ofChartered Accountants Standard 3110, "Asset Retirement Obligations". Thisstandard requires that a liability for retirement obligations to be settled as aresult of an existing law, regulation or contract be recognized. Income Taxes The Company accounts for income taxes using the asset and liability method.Under the asset and liability method, future tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Future tax assets and liabilities are measured usingenacted or substantively enacted tax rates expected to apply when the asset isrealized or the liability settled. The effect on future tax assets andliabilities of a change in tax rates is recognized in income in the period thatsubstantive enactment or enactment occurs. Caledonia Mining CorporationNotes to the Consolidated Financial Statements(Unaudited) For the six months ended June 30, 2006 1. Share Capital Authorised: An unlimited number of common sharesAn unlimited number of preference shares Issued - Common Shares Number of Shares Amount (000's)-------------------------- ----------- -----------Balance, December 31, 2005 370,715,136 $180,053-------------------------- ----------- -----------Issued pursuant to private placement 15,437,626 1,475-------------------------- ----------- -----------Balance, March 31, 2006 386,152,762 $181,528-------------------------- ----------- -----------Issued pursuant to a private placement 34,828,259 $3,924-------------------------- ----------- -----------Issued pursuant to acquisition * 20,000,000 $3,014-------------------------- ----------- -----------Balance , June 30 , 2006 440,981,021 $188,466-------------------------- ----------- ----------- * 20,000,000 shares were issued but were being held in escrow on June 30, 2006pending the closure of the Blanket Mine acquisition. Issued - Preference Shares Nil Stock Option Plans The Company has established incentive stock option plans for employees,officers, directors, consultants and other service providers. As at June 30,2006, the Company has 17,238,000 common share options exercisable at an averageprice of $0.205 maturing at various dates until May 11, 2016. Share Purchase Warrants The Company has 68,115,885 share purchase warrants outstanding exercisable at anaverage price of $0.175 maturing at various dates until February 3, 2008 2. Net (Loss) Per Share The net (loss) per share figures have been calculated using the weighted averagenumber of common shares outstanding during the second quarter which amounted to398,142,213 and YTD which amounted to 390,345,589. Under the treasury method ofcalculating fully diluted income per share, exercise of the outstanding stockoptions and warrants would be anti-dilutive in 2006.If the Q2 results of Blanket Mine had been consolidated since 1 April 2006 thenet (loss) per share figures would have been ($0.009) cps - 2005 ($0.011) - 2004($0.005) 3. Other Expense (Income) Included in other expense (income) are YTD unrealized exchange translation gainof $226,000 (2005 - loss of $695,000, 2004 - loss of $334,000) and anamortisation charge of $1,146,000(2005 - $488,000, 2004 - $ nil). The amortization charge relates mainly toBarbrook, where increasing production levels lead to increasing amortizationcharges in terms of the accounting policies detailed under "Mineral Properties"on page 14 above. If the Q2 results of Blanket Mine had been consolidated, then the YTD unrealisedexchange translation loss would have been $1,412,000 (2005 - loss $695,000, 2004- loss $334,000) , and the amortization charge would have been $1,214,000 (2005- $488,000 , 2004 - $ nil). 4. Supplemental cash flow infoItems not involving cash are as follows: 2006 2005 2004Acretion asset retirement obligation - 4non controlling interest 0 - (13)amortisation 1,146 488 -other 39 30 (570) 1,185 518 (579)Net changes in non cash working capital Acc Payable 82 189 (193)Acc Receivable 461 (283) (147)Inventories (242) (330) 57Prepayments - Shares held in eskrow (3,014) - -Prepaid expenses 24 182 126 (2,688) (242) (157) This information is provided by RNS The company news service from the London Stock Exchange