Caledonia Min Regulatory News (CMCL)

28 Sep 2007 07:02

Caledonia Mining Corporation28 September 2007 Caledonia Mining Corporation ("Caledonia Mining" or the "Company") 2007 Second Quarter Report CALEDONIA MINING CORPORATION August 7, 2007Management's Discussion and Analysis This Interim MD & A covers the Company's results for the period from January 1,2007 to June 30, 2007 - and the period thereafter to August 7, 2007. It is to beread in conjunction with the Company's 2nd quarter financial statements preparedto June 30, 2007, according to Canadian GAAP, its Annual Management Discussionand Analysis for the fiscal year ended December 31, 2006, the audited financialstatements of the Company prepared to December 31, 2006, and the Company's 2006Annual Report. All of these documents have been filed on SEDAR and are availableat www.sedar.com or on the Corporation's website at www.caledoniamining.com. Note that all currency references in this document are to Canadian dollars. 1. OPERATIONAL REVIEW, OVERALL PERFORMANCE AND RESULTS OFOPERATIONS (a) Blanket Mine- Zimbabwe The 2007 production is outlined below:- There was no recordable production for the month of July as explained in thetext below. 2nd Quarter Actual Six months to June 2007Ore processed -tonnes 14,042 38,742Grade g/t 1.90 2.60Recovery % 75% 82%Sands Processed - tonnes 81,081 120,081Sands Grade g/t 1.28 1.10Sands Recovery % 60% 54%Ounces gold from ore 647 3,042Ounces gold from Sands 2,025 3,295Total ounces produced 2,672 6,337Total ounces sold 2,922 7,274 The metallurgical plant continued to operate as planned when the underground wasshutdown to finish the shaft equipping and gold production was derivedpredominantly from the Sabiwa Tailings and limited underground production ofapproximately 200 tonnes per day. The underground production came from selectedremnant areas in the upper section of the mine (above 7 level) which could behoisted to surface via the main Blanket Incline Shaft. These identified upperblocks are essentially low grade +/- 2.5 - 3.0g/t and of limited strike. Total production for the quarter was 2013 ozs below plan mainly due to theshortfall from underground where anticipated grades were not realized. The pinchand swirl nature of the ore zone created a lot of dilution resulting in most ofthe stopes being abandoned.This created a tonnage shortage as the stopes beingmined were limited in number. A decision was made to stop underground productionat the end of the quarter as it was no longer economic. The Sands plant performed well producing 573 ozs above plan. This was achievedby a better performance by the haulage company in delivering tonnage to thehydro sluicing plant and further assisted by better gold recoveries. Once thehigh grade Sabiwa Sands were completed they were replaced with the low gradeVubachikwe tailings.Underground development was limited to mainly capital work with minimal run ofmine. Of the total of 207 meters advanced 116 meters were capital whilst 91meters were run of mine. Payability was 49% at a grade of 3.36 g/t. The mine resumed underground production on July 26, 2007 and is capable ofproducing 600 tonnes per day but power outages are preventing this from beingachieved. Plant The plant operated well below capacity during the second quarter due to feedshortages from both underground and sands. Plans to utilize this time torefurbish equipment were hampered by lack of spares due to foreign currencyshortages.Capital Expenditure Blanket Mine as planned shut down 90% of the underground operations on February15, 2007 to allow for the stripping and re-equipping of the No. 4 shaft (the newmain production shaft) in line with our expansion programme. The shaft was tohave been re-equipped from 6 level down to 24 level in 90 days withcommissioning taking place in June. However this programme was delayedsignificantly mainly due to delayed payments for gold which resulted in deliverydelays of the shaft steel work as the suppliers in South Africa required cashbefore shipping and the ZESA power outages which became increasingly severeduring the second quarter. By the end of June equipping had reached 18 level which is below the mid-shaftloading bins. The decision was taken to re-activate the 14 level loading chuteso the mine could rapidly get back to the 600 tonnes per day production level.Commissioning of this plan is currently in progress, Blanket hoisted, crushedand milled 495 tonnes of underground ore on the August, 2 and the 600 tonne perday level is achieveable as long as power outages do not prevent this. The next stage of the shaft expansion project will be to continue with the shaftequipping down to the bottom of the shaft (825m level) and this is expected tobe completed by the end of September as the steelwork for this section will onlybe ready for dispatch on the August 28 due to strikes in South Africa, afterwhich the equipping of the loading chute and spillage arrangements willcommence. Provided the operational environment in Zimbabwe does not deterioratefurther the shaft should be ready for final commissioning in December but thisis a very tight schedule. Outlook • With relatively firm international gold prices the future of Blanket Mine looks positive. Our reserve/resource at present stands at +/- 500,000 ozs and this level of resource can support easily a 2,000 tonnes per day operation, hence our efforts to expand the mine beyond the current expansion project. • Blanket's current exploration initiatives in the Gwanda Greenstone belt have revealed interesting potential at the GG, Abercorn and Mascot / Penzance / Eagle Vulture exploration projects. Further exploration is planned for 2008 whilst the proposed exploration shaft is to be sunk at GG during the 3rd quarter 2007. Should any of these projects prove to be viable mines, the ore would be trucked to Blanket for processing. • The down-dip potential of Blanket Mine below the 750 m level is good, and a comprehensive diamond drilling programme will be planned early in 2008 to further evaluate this potential once the No. 4 shaft is fully commissioned and operational down to 825m level. • However, an area of ongoing concern is that all the above initiatives are dependent on the socio-political and economic situation in Zimbabwe. Currently Zimbabwe is experiencing a severe economic contraction and this is negatively affecting the business environment, a situation weighing heavily against our current initiatives. • The Zimbabwean authorities appear determined to pass the Indigenisation and Economic Empowerment Bill, which if implemented in its present ambiguous form could severely curtail the mining industry in Zimbabwe. We believe the authorities are cognizant of this probability and will likely amend the legislation in practice. (b) Discontinued Operations Negotiations regarding the possible sale of the Barbrook Mine and EerstelingGold Mine continued during the quarter. Of the parties who submitted initialnon-binding offers only one continues with their due diligence investigationsbut a number of new interested parties have joined the process and continue toconduct their due diligence. The Board of directors has decided that theCorporation should continue to seek buyers who will purchase the assets onacceptable terms. (c) Exploration and Project DevelopmentGold Exploration - Zimbabwe Exploration activities were scaled down when the Blanket shaft was shutdown inmid February to direct all available resources to the shaft expansion project. Atotal of $6,000 was spent on exploration during the second quarter ($45,000 forthe six months to date). The exploration activities focused on soil sampling the higher potential claims.It is anticipated that exploration activities will recommence during the thirdquarter of 2007 once the shaft is fully functional at 600 tonnes per day. Rooipoort and Grasvally Platinum Exploration Project - South AfricaSoil geochemical sampling within the Rooipoort Platinum Exploration Project nearMokopane (Potgietersrus) continued. During the quarter $19,000 was spent onexploration ($54,000 for the six months to date).Soil geochemical sampling on the rights acquired from Falconbridge continuedwith a total of 6750 line meters of sampling achieved on Moordrift 289 KR.forthe period under review.Concurrently soil geochemical sampling was undertaken on Jaagbaan 291 KR (9,820line meters) and portions 6 and 24 of Grasvally 293 KR (22,560 line meters). The application to the South African authorities to transfer the Falconbridgerights to the Company is still in progress.Nama Copper/Cobalt - Zambia The communication and computer facilities at Lusaka office have been modernizedto facilitate better communications. Exploration work commenced during April at Nama in the form of field preparationwork for the planned drilling program under the supervision of a Senior ProjectGeologist. Drilling of both diamond drill and reverse circulation holes commenced on June19 at anomaly A (diamond drill) and anomaly C (reverse circulation). Water forthe drilling is being sourced from old water boreholes drilled by RUC in the1960's. This represents a significant saving in costs. To date 959.6 meters of drilling has been completed at anomaly A (4 diamonddrill holes, AP3, AP7, AP6 and AP2) with no operational problems. A total of 18 reverse circulation holes (973 meters of drilling) have beencompleted at anomaly C and site preparations are well advanced at anomaly D. All the access roads to the sites and the main camp have been upgraded and thecamp infrastructure has been brought up to standard. No security incidents havebeen reported, but a contingent of para military police remains resident in thearea to ensure safety standards. The core drilled to date is currently being logged and split on site inpreparation for dispatch to the laboratory in Ndola, Zambia for analysis ofCobalt, Copper, Nickel and Manganese. Quality Control and Quality Assurancecontrol procedures are in place to verify the accuracy of the lab results. Overall the exploration program at Nama is progressing ahead of schedule underthe management of the Country Manager. The metallurgical testing to establish the likely product specification of thecobalt hydroxide is nearing completion and the report and results are expectedshortly. A quotation has been received and is being evaluated for the 20 tonne per daytest plant which will be used for ongoing Nama metallurgical plant optimization. A quotation for an independent feasibility study of Nama to Chinese standardsand the evaluation of the information required is currently in progress. Kadola Copper/Cobalt - Zambia No progress has been made with regards to the renewal of the Kadola group oflicenses despite many hours of negotiation with members of the Department ofMines at all levels of seniority.Notwithstanding the problems a favorable outcome is expected in the form of aretention license for a limited time period. Goedgevonden Diamonds - South Africa Discussions with an interested party who has signed a confidentiality agreementwith Caledonia have commenced and will be further reported on if and when anyagreement is reached (d) Financing In April and May 2007 two sets of warrants of 22,890,000 and 6,998,259 warrantswere exercised at a price of $0.15 per share. The proceeds, net of commission,amounted to $4,380,233. These funds will be used for general working capital andthe funding of exploration activities at Nama and other sites. 2. SUMMARY OF QUARTERLY RESULTSThe following information is provided for each of the eight most recentlycompleted quarters of the company - ending on the dates specified - in thousandsof Canadian dollars: June 30/ Mar 31/07 Dec 31/ Sept 30/ June 30/ Mar 31/ Dec 31/ Sept 30/ 07 new 06 06 06 06 05 05 estimateSales fromcontinuingoperations $1,539 $3,319 $9,045 $4,539 $1 $1 $2 $-Income/(loss)fromcontinuing operations 364 (3,909) 3,840 (455) (683) (387) (318) (1,177)- per sharebasic anddiluted $0.001 ($0.008) $0.008 ($0.001) ($0.002) ($0.001) ($0.001) ($0.003) Discontinuedoperations(loss) (126) (254) (1,282) (2,619) (2,210) (1,879) (1,736) (1,387)NetIncome(loss)afterdiscontinuedoperations 238 (4,163) 2,558 (3,074) (2,893) (2,266) (2,054) (2,564)- per sharebasic anddiluted $0.0005 ($0.008) $0.006 ($0.007) ($0.007) ($0.006) ($0.006) ($0.008) Note: As there are no extraordinary items the disclosed net losses per share areidentical to the total loss before extraordinary items. The effect of the dilution on the earnings per share has been calculated foreach quarter of 2006 as a profit was earned before discontinued operations forthe year. No calculation for 2005 was made as the result for the year was a lossand the diluted earning per share would be anti-dilutive. Due to the hyper inflationary nature of the Zimbabwean economy it was decided tochange the basis of the exchange rate estimate to be used in translating theresults of Blanket Mine into Canadian dollars. This change has been made to the results for both the first and second quarters.It has been decided that the effective exchange rate applicable to the "GoldSupport Price" is the most appropriate rate of exchange to use at this point intime and meets the requirements of Canadian GAAP. The table below shows theexchange rates used now and in the past in Z$ per US$ 2nd Quarter rate of 1st Quarter rate of Previous 1st Quarter rate exchange exchange of exchange Sales revenue 14,220 713 250Other incomestatement items 21,070 758 250Monetaryassets andliabilities 47,451 758 250All otherassets andliabilities 101.19 101.19 101.19 It was deemed appropriate to change the estimate as the Reserve Bank of Zimbabweannounced retrospective changes, in August 2007, to the Gold Support Price (seetable below) and the resulting effective rate of exchange gives a more accuraterepresentation of the purchasing power of the Zimbabwean dollar, compared to thefixed official rate of exchange of Z$250:US$1 Period Jan- Apr 26, Apr 27- May June 2007 From July 2007 2007 2007Average goldpriceUSD/ounce $657 $667 $656 $666Gold support price in Z$/gram Z$16,000 Z$350,000 Z$1,000,000 Z$3,000,000Effective Z$:US$ exchange rate Z$758 Z$16,317 Z$47,451 Z$140,219Old Mutual Implied Rate Average Z$10,464 Z$26,184 Z$126,828 Z$139,747 Another rate of exchange used by other companies, is the Old Mutual ImpliedRate. This rate is calculated by dividing the Old Mutual Plc share price on theHarare Stock Exchange by the Old Mutual Plc share price on the London StockExchange. Management note that as the official exchange rate is not freelyfloating it does not reflect the impact of the hyper inflationary economy anddoes not give shareholders a fair perspective of the results of the operation. The table below demonstrates what the consolidated results of Caledonia MiningCorporation would have been if the Old Mutual Implied rate had been used totranslate the results of Blanket Mine. At this time the Old Mutual Implied rateis not considered compliant with Canadian GAAP requirements Six months to June 2007- At Gold Support Price At Old Mutual Impliedthousands of Canadian dollars rate of exchange rate of exchange Sales Revenue $4,858 $4,838Gross (loss) (1,500) (798)Unrealisedforeignexchange loss 452 1,719Net (loss) (3,925) (4,456)Current Assets 4,688 4,362CurrentLiabilities 2,356 2,100Total Assets 28,228 27,441IncomeStatementaverage rateof exchange 21,070 59,053Period endrate ofexchange 47,451 147,351 For the six month period ending June 2007 the net gross revenue was $4,858,000from the sale of 7,274 ounces of gold (2006 - $1,722,000 from 2,651 ounces). Theounces of gold are not comparable as 2007 includes the operations of BlanketMine and 2006 includes the operations of Barbrook Mine only. The ounces of goldsold in the second quarter amounted to 2,922 compared to 4,352 ounces in thefirst quarter. The reduced ounces in the 2nd quarter 2007 are due to the plannedproduction reduction detailed in 1(a) above. The income from continuingoperations for the 2nd quarter of $364,000 (loss $3,909,000 1st quarter, income$3,840,000 4th quarter 2006 and loss $455,000 for 3rd quarter 2006) mainlyresults from a foreign exchange gain of $1,975,000 (loss $2,427,000 1st quarter)being recorded due to the revision in the rate of exchange announced by theReserve Bank of Zimbabwe on April 26, 2007. The revised monetary policy as explained below resulted in improved revenuesfrom gold sales if settled in Zimbabwe dollars from end April, but low goldrecovery from the tailings sands and the effect of inflation on the operatingcosts resulted in an operating loss of $424,000 for the quarter ($1,076,000 loss1st quarter). Underground mining resumed on July 26, 2007 after the successfulcommissioning of the winder on No 4 shaft which will see the mine return to 600metric tonnes per day as long as power outages do not occur. During the second quarter the carrying value of the investment in the KikerkLake diamond JV was written down by $495,000, to $254,000 as only 5 of theoriginal 15 claims transferred to the JV remain. The loss from discontinued operations of $126,000 for the quarter represents theholding costs of Barbrook and Eersteling as the sale process progresses. 3. LIQUIDITY As of June 30, 2007 the company had a working capital surplus of $2,332,000($1,978,000 deficit at March 31, 2007 and a surplus of $2,828,000 as at December31, 2006). Due to continued late payments for gold sold to the Reserve Bank ofZimbabwe (RBZ), Blanket Mine increased local borrowing facilities, thefacilities utilised calculated at the new rate of exchange of Z$15,000: US$1 isnow $500,000. These funds were used to pay local creditors and staff costs. Asat the end of the 2nd quarter US$413,000 was owed by the Reserve Bank ofZimbabwe for gold sold, US$280,000 was received 3 days after the quarter closedand as at August 7 US$244,000 was over due for payment. On April 26, 2007 the RBZ announced new monetary policy measures to address therampant inflation in Zimbabwe and the critical cash flow shortages beingexperienced by industry. Items that affect Blanket mine are summarized in thetable below: Policy Item Old Policy New Policy from April 26, 2007 Gold revenue per Z$16,000 per gram Z$350,000 per gramgram when sold forZimbabwe dollars Gold revenue ratio 67,5% received in US 60% received in US dollars andwhen sold for US dollars and 32,5% received 40% received in Zimbabwedollars in Zimbabwe dollars dollars Method of Gold ounces x US$ price of Gold ounces x US$ price of gold calculating gold x Z$250 = Zimbabwe x Z$250 x 60 (drought reliefZimbabwe dollars dollar revenue. Effective factor) = Zimbabwe dollarfor the 32,5% and exchange rate Z$250: US$1 revenue. Effective exchange rate40% above rate Z$15,000: US$1 Exchange rate paid Z$250: US$1 Z$15,000: US$1when US dollarssold to RBZ Retention period Indefinite Indefiniteof US dollars In terms of the Reserve Bank of Zimbabwe Act a monetary policy announcement wasto be made by July 31, 2007. Although no formal Monetary Policy announcement wasmade, the Reserve Bank of Zimbabwe has announced that the gold support price hasbeen increased retrospectively to Z$1,000,000 per gram of gold sold in Zimbabwedollars in June 2007, and to Z$3,000,000 per gram from July 1, 2007. With the implementation of the new policies it is expected that Blanket Minewill generate sufficient cash to be self funding, for working capital andcapital expenditure projects.Funding requirements for exploration activities and general working capital ofother operations will be met from the proceeds received from the exercise ofwarrants in April 2007. There are no other capital commitments that have a call on the companies'available resources. 4. RELATED PARTY TRANSACTIONS During the second quarter of 2007 the company had the following related partytransactions, all amounts in thousands of Canadian dollars. 2007 2006 2005Management, administrative services and benefits paid oraccrued to a company which employs the Company'sPresident $107 $108 $108Rent paid to a company owned by members of thePresident's family 12 12 12 These related party transactions were in the normal course of operations and arerecorded at the ruling exchange amount. 5. CRITICAL ACCOUNTING POLICIES Apart from the estimate of the rate of exchange to be used to translate theresults of Blanket Mine, there are two other major areas where accountingestimates are made, asset impairment and asset retirement obligation. Assignificant impairment provisions have already been made against the assets andthere is a reasonable level of certainty around the estimate it is consideredunlikely that any change in estimate would result in a material impact on theresults of the company. Based on non-binding purchase offers made for Barbrookand Eersteling Mines no further asset impairment has been made against theseassets. The asset retirement obligation is also considered to be estimated witha reasonable degree of certainty, although the original estimation wascalculated some years ago. The estimation is accreted annually at 5% and thusany change in circumstances is considered unlikely to have a material impact onthe results of the company or its operations. In 2005 the Company adopted the accounting guideline issued by the CanadianInstitute of Chartered Accountants in respect of consolidation of variableinterest entities effective for years after November 1, 2004. The Company hasreviewed its interests and determined that the new guideline has not had amaterial effect on the results of operations or the financial condition of theCompany. 6. CONTROLS The CEO and CFO have evaluated the effectiveness of the Company's disclosurecontrols and procedures and assessed the design of the Company's internalcontrol over financial reporting as of December 31, 2006, pursuant to thecertification requirements of Multilateral Instrument 52-109. The Company has a Disclosure Committee consisting of four Directors and oneOfficer, and has disclosure controls and procedures which it follows in anattempt to ensure that it complies with all required disclosures on an adequateand timely basis. The Company's Directors and Management, and the DisclosureCommittee, are making all reasonable efforts to ensure that the Company'sdisclosures are made in full compliance with the applicable rules andrequirements. All reasonable efforts are also being made to ensure that theCompany's disclosure controls and procedures provide reasonable assurance thatmaterial information relating to the Company, including its consolidatedsubsidiaries, is made known to the Company's Certifying Officers by otherswithin those entities. 7. FORWARD LOOKING STATEMENTS This Management Discussion and Analysis contains certain forward-lookingstatements relating but not limited to the Company's expectations, intentions,plans and beliefs. Forward-looking information can often be identified byforward-looking words such as "anticipate", "believe", "expect", "goal", "plan","intend", "estimate", "could", "should", "may" and "will" or similar wordssuggesting future outcomes, or other expectations, beliefs, plans, objectives,assumptions, intentions or statements about future events or performance.Forward-looking information may include reserve and resource estimates,estimates of future production, unit costs, costs of capital projects and timingof commencement of operations, and is based on current expectations that involvea number of business risks and uncertainties. Factors that could cause actualresults to differ materially from any forward-looking statement include, but arenot limited to, failure to establish estimated resources and reserves, the gradeand recovery of ore which is mined varying from estimates, capital and operatingcosts varying significantly from estimates, delays in obtaining or failures toobtain required governmental, environmental or other project approvals,inflation, changes in exchange rates, fluctuations in commodity prices, delaysin the development of projects and other factors. Forward-looking statements aresubject to risks, uncertainties and other factors that could cause actualresults to differ materially from expected results. Potential shareholders and prospective investors should be aware that thesestatements are subject to known and unknown risks, uncertainties and otherfactors that could cause actual results to differ materially from thosesuggested by the forward-looking statements. Shareholders are cautioned not toplace undue reliance on forward-looking information. By its nature,forward-looking information involves numerous assumptions, inherent risks anduncertainties, both general and specific, that contribute to the possibilitythat the predictions, forecasts, projections and various future events will notoccur. Caledonia undertakes no obligation to update publicly or otherwise reviseany forward-looking information whether as a result of new information, futureevents or other such factors which affect this information, except as requiredby law. 8. ADDITIONAL INFORMATION (a) As at August 7, 2007 the following securities of the Company wereoutstanding: - 487,869,280 common shares. - 18,388,000 common share purchase options at an average price of $0.196 maturing at various dates until January 23, 2017 - 33,287,626 common share purchase warrants exercisable at a price of $0.20 per share at dates between 28 December 2007 and February 3, 2008. - 17,000,000 share purchase warrants exercisable at a price of $0.16 per share until September 28, 2007 but not exercisable before August 15, 2007. (b) For further information about Caledonia reference is also made to its 2006Annual Information Form dated April 10, 2007 filed with the Ontario SecuritiesCommission on its SEDAR site. Management's Responsibility for Financial Reporting To the Shareholders of Caledonia Mining Corporation: The accompanying unaudited consolidated financial statements of Caledonia wereprepared by management in accordance with accounting principles generallyaccepted in Canada, consistently applied and within the framework of the summaryof significant accounting policies in these consolidated financial statements.Management is responsible for all information in the quarterly report. Allfinancial and operating data in the quarterly report is consistent, whereappropriate, with that contained in the consolidated financial statements. The Board of Directors discharges its responsibilities for the consolidatedfinancial statements primarily through the activities of its Audit Committeecomposed of three directors, all of whom are not members of management. ThisCommittee meets with management to assure that it is performing itsresponsibility to maintain financial controls and systems and to approve thequarterly consolidated financial statements of Caledonia. The consolidated financial statements have not been reviewed by Caledonia'sauditors. S. E. Hayden S.R. CurtisPresident and Vice-President FinanceChief Executive Officer and Chief Financial Officer Caledonia Mining CorporationConsolidated Balance Sheet(in thousands of Canadian dollars) Unaudited June 30 December 31 2007 2006 --------- ---------Assets Note A CurrentCash and cash equivalents $2,169 $1,252Accounts receivable 652 1,407Inventories (note 4) 1,669 5,738Prepaid expenses 16 61Assets held for sale 182 315 --------- --------- 4,688 8,773 Capital assets and mineral properties held for sale 11,929 11,449 Investment at cost 79 79Capital assets 214 212Mineral properties 11,318 10,943 --------- --------- 23,540 22,683 --------- --------- $28,228 $31,456 --------- --------- Liabilities and Shareholders' Equity CurrentAccounts payable (note 4) 2,356 5,945 --------- --------- 2,356 5,945 Asset retirement obligation 756 811Asset retirement obligation - held for sale 325 364 --------- --------- 3,437 7,120 Shareholders' EquityShare Capital (note 1) 195,006 190,626Contributed surplus 989 989Deficit (171,204) (167,279) --------- --------- 24,791 24,336 --------- --------- $28,228 $31,456 --------- --------- Note A: The estimate of the exchange rate used to translate Blanket Mine in thecomparative Financial Statements has not been changed and thus the comparativesare as previously reported. On behalf of the Board:"S E Hayden" Director"R Fasel" Director The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Consolidated Statement of Deficit(in thousands of Canadian dollars) For the three months ended June 30, For the six months ended June 30 Unaudited 2007 2006 2005 2007 2006 2005---------------- -------- -------- -------- -------- -------- --------Deficit,beginning ofperiod ($171,442) ($163,870) ($153,710) ($167,279) ($161,604) ($151,924) Net (loss) forthe period 238 (2,893) (3,276) (3,925) (5,159) (5,062) --------- --------- --------- --------- --------- ---------Deficit end ofperiod ($171,204) ($166,763) ($156,986) ($171,204) ($166,763) ($156,986) --------- --------- --------- --------- --------- --------- For the three months ended June 30, For the six months ended June 30 Unaudited 2007 2006 2005 2007 2006 2005------------------ ------- ------- -------- ------ ------- -------Revenue and operatingcostsRevenue fromsales $1,539 ($1) $2 $4,858 $- $3Operatingcosts 1,963 253 186 6,358 548 367 ------- ------- -------- ------- ------- -------Gross (loss) (424) (254) (184) (1,500) (548) (364) ------- ------- -------- ------- ------- ------- Costs and expensesGeneral andadministration 646 544 774 1,041 732 1,224Interest 44 2 3 55 1 0Amortization 499 11 9 506 20 14Other expenses(income) (Note3) (1,978) 2,586 140 441 2,484 6 ------- ------- -------- ------- ------- ------- (789) 3,143 925 2,043 3,237 1,244 ------- ------- -------- ------- ------- ------- (Loss) beforediscontinuedoperation 365 (3,397) (1,110) (3,543) (3,784) (1,608)Taxation (1) - - (2) ------- ------- -------- ------- ------- -------(Loss) aftertax beforediscontinuedoperations 364 (3,397) (1,110) (3,545) (3,784) (1,608)Net (loss) fordiscontinuedoperations (126) 504 (2,166) (380) (1,375) (3,454) ------- ------- -------- ------- ------- -------Net (loss) forthe periodafterdiscontinuedoperations $238 ($2,893) ($3,276) ($3,925) ($5,159) ($5,062) ------- ------- -------- ------- ------- ------- Net Income/(loss) pershare before discontinuedoperationsBasic andfully diluted(note 2) $0.001 ($0.009) ($0.004) ($0.008) ($0.010) ($0.005) Net Income/(loss) pershare after discontinuedoperationsBasic andfully diluted(note 2) $0.0005 ($0.007) ($0.011) ($0.008) ($0.013) ($0.017) The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Consolidated Statement of Cash Flows(in thousands of Canadian dollars) For the three months ended June 30, For the six months ended June 30 Unaudited 2007 2006 2005 2007 2006 2005----------------- ------- ------- -------- ------ ------- ---------Cash provided by (usedin) Operating activitiesNet (loss)beforediscontinuedoperations $364 ($3,397) ($1,110) ($3,545) ($3,784) ($1,608) Adjustments toreconcile netcash fromoperations (note4 ) 461 18 4 412 59 44 Changes inworking capitalbalances (note4) (1,758) (3,434) (99) 1,370 (2,688) (242) ------- -------- -------- -------- -------- -------- (933) (6,813) (1,205) (1,763) (6,413) (1,806) ------- -------- -------- -------- -------- -------- Investing ActivitiesExpenditure oncapital assetsand mineralproperties (696) (127) (205) (1,380) (132) (205) Financing activitiesBank overdraft(decrease) (598) (281) - - (197) -Shares held inEscrow - 3,014 - - 3,014 -Issue of sharecapital net ofissue costs 4,380 3,924 3,166 4,380 5,399 3,166 ------- -------- -------- -------- -------- -------- 3,782 6,657 3,166 4,380 8,216 3,166 ------- -------- -------- -------- -------- --------Cash flow fromdiscontinued operationsOperatingactivities (126) 504 (2,166) (380) (1,375) (3,454)Amortization 16 954 322 16 1,126 474InvestingActivities - (154) (820) (1,184) (2,163) ------- -------- -------- -------- -------- -------- (110) 1,304 (2,664) (364) (1,433) (5,143) ------- -------- -------- -------- -------- -------- Increase(decrease) incash for theperiod 2,043 1,021 (908) 873 238 (3,988)Cash and cashequivalents,beginning of theperiod 128 293 3,390 1,298 1,076 6,470 ------- -------- -------- -------- -------- --------Cash and cashequivalents, endof the period 2,171 1,314 2,482 2,171 1,314 2,482 ------- -------- -------- -------- -------- -------- Cash and cash equivalentsat end of the periodrelate to:Continuingoperations 2,169 1,595 2,487 2,169 1,595 2,487Discontinuedoperations 2 (281) (5) 2 (281) (5) ------- -------- -------- -------- -------- -------- $2,171 $1,314 $2,482 $2,171 $1,314 2,482 ------- -------- -------- -------- -------- -------- The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements. Summary of Significant Accounting Policies Nature of Business The Company is engaged in the acquisition, exploration and development ofmineral properties for the exploitation of base and precious metals. The abilityof the Company to recover the amounts shown for its capital assets and mineralproperties is dependent upon the existence of economically recoverable reserves;the ability of the Company to obtain the necessary financing to completeexploration and development; and future profitable production or proceeds fromthe disposition of such capital assets and mineral properties. Basis of Presentation These financial statements have been prepared on the basis of a going concern,which contemplates that the Company will be able to realize assets and dischargeliabilities in the normal course of business. The Company's ability to continueas a going concern is dependent upon attaining profitable operations, realizingproceeds from the disposal of mineral properties and obtaining sufficientfinancing to meet its liabilities, its obligations with respect to operatingexpenditures and expenditures required on its mineral properties. Measurement Uncertainties Preparation of the financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the reported amountsof revenues and expenses during the reporting period. The more significant areasrequiring estimates relate to the exchange rate used to translate the results ofBlanket Mine into Canadian dollars, mineral resources, future cash flowsassociated with capital assets and mineral properties. Management's calculationof reserves and resources and cash flows are based upon engineering andgeological estimates and financial estimates including gold prices and operatingcosts. The amount ultimately recovered could be materially different than theestimated values. Principles of Consolidation The consolidated financial statements include the accounts of the Companytogether with all its subsidiaries, all 100% owned. All significantinter-company balances and transactions have been eliminated on consolidation. Barbrook Mines Limited Caledonia Mining (Zambia) LimitedBlanket (Barbados) Holdings Caledonia Nama LimitedLimitedBlanket Mine (1983) (Private) Caledonia Western LimitedLimitedCaledonia Holdings (Africa) Eersteling Gold Mining Company LimitedLimitedCaledonia Holdings Zimbabwe Fintona Investments (Proprietary) LimitedLimitedCaledonia Kadola Limited Greenstone Management Services (Proprietary) LimitedCaledonia Mining Services Maid O'Mist (Proprietary) LimitedLimited Cash and Cash Equivalents Cash and cash equivalents represent cash on hand in operating bank accounts,cash in transit at period end between Blanket Mine in Zimbabwe and GreenstoneManagement Services in South Africa and money market funds maturing in less thanthree months. Inventories These include gold in circuit (WIP) and bulk consumable stores. WIP is valued atthe lower of the cost of production, on an average basis, at the various stagesof production or net realizable value if the cost of production exceeds thecurrent gold price. Bulk consumable stores are valued at the lower of cost ornet realizable value on an average basis. Investments The market securities are recorded at cost, a declining value of marketsecurities that is other than temporary would be recognized by writing down theinvestment. Revenue Recognition Revenue from the sale of precious metals is recognized when the metal isdelivered to the respective refineries, benefits of ownership are transferredand the receipt of proceeds is substantially assured. Capital Assets Producing AssetsProducing assets are recorded at cost less grants, accumulated amortization andwrite-downs. Producing plant and equipment assets are amortized using theunit-of-production method on the ratio of tonnes of ore mined or processed tothe estimated proven and probable mineral reserves as defined by the CanadianInstitute of Mining, Metallurgy and Petroleum. Other producing assets are amortized using the straight line method basis on theestimated useful lives of the assets. The estimated life of the producing assetsranges up to 10 years. Repairs and maintenance expenditures are charged tooperations; major improvements and replacements which extend the useful life ofan asset are capitalized and amortized over the remaining useful life of thatasset. Barbrook Mine and Eersteling Gold Mine have been put up for sale and arethus presented as assets for sale in these financial statements. Non-Producing AssetsNon-producing assets are recorded at cost less write downs. At the time ofcommercial production, the assets are reclassified as producing. Duringnon-producing periods, no amortization is recorded. Mineral Properties Producing PropertiesWhen and if properties are placed in production, the applicable capitalizedcosts are amortized using the unit-of-production method as described above.Blanket Mine was acquired during 2006 and has been consolidated into theseresults from July 1, 2006 and, as such, has been presented as a producing assetin these financial statements. Non-Producing PropertiesCosts relating to the acquisition, exploration and development of non-producingresource properties which are held by the Company or through its participationin joint ventures are capitalized until such time as either economicallyrecoverable reserves are established or the properties are sold or abandoned.A decision to abandon, reduce or expand activity on a specific project is basedupon many factors including general and specific assessments of mineralreserves, anticipated future mineral prices, anticipated costs of developing andoperating a producing mine, the expiration date of mineral property leases, andthe general likelihood that the Company will continue exploration on theproject. However, based on the results at the conclusion of each phase of anexploration program, properties that are not suitable as prospects arere-evaluated to determine if future exploration is warranted and that carryingvalues are appropriate. The ultimate recovery of these costs depends on the discovery and development ofeconomic ore reserves or the sale of the properties or the mineral rights. Theamounts shown for non-producing resource properties do not necessarily reflectpresent or future values. Discontinued Operations During the fourth quarter of 2006 Barbrook Mine was subjected to illegalindustrial action by employees of a labour broker. Due to the damage causedduring and after the industrial action the mine was placed on care andmaintenance. At a subsequent meeting of the Board of Directors it was resolvedthat Barbrook Mine and Eersteling Gold Mine would be put up for sale. As a consequence of this decision Barbrook and Eersteling Mine's results for2007 and preceding years have been disclosed under discontinued operations. Asset Impairment Long-lived assets are reviewed for possible impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. If changes in circumstances indicate that the carrying amount ofan asset that an entity expects to hold and use may not be recoverable, futurecash flows expected to result from the use of the asset and its disposition mustbe estimated. If the undiscounted value of the future cash flows is less thanthe carrying amount of the asset, impairment is recognized based on the fairvalue of the assets. Strategic Alliances The Company has entered into various agreements under which the participantsearn a right to participate in the mineral property by incurring explorationexpenditures in accordance with the conditions of the agreements. Uponsatisfaction of the conditions of the agreement a joint venture may be formedwith customary joint venture terms and provisions and then accounted foron a proportionate consolidation basis. Until a joint venture is formed only theexpenditures on the properties incurred by the Company are reflected in thesefinancial statements. Foreign Currency Translation Balances of the Company denominated in foreign currencies and the accounts ofits foreign subsidiaries are translated into Canadian dollars as follows: (i) monetary assets and liabilities at period end rates;(ii) all other assets and liabilities at historical rates, and(iii) revenue and expense transactions at the average rate of exchangeprevailing during the period.Exchange gains or losses arising on these translations are reflected in incomein the year incurred. Blanket is a self-sustaining operation and operates in Zimbabwe in a hyperinflationary economy. Accordingly the results of these operations have beentranslated into Canadian Dollars using the temporal method as described above. In the preparation of the financial statements shown on pages 12-14 theeffective exchange rate derived from the Gold Support price, has been used totranslate the results of Blanket Mine into Canadian dollars. Due to the hyper inflationary nature of the Zimbabwe economy it was decided tochange the basis on which to estimate the exchange rate to be used intranslating the results of Blanket Mine into Canadian dollars. This is a changein estimate and not a change in accounting policy. This change has been made to the results for both the first and second quarters.It has been decided that the effective exchange rate applicable to the "GoldSupport Price" is the most appropriate rate of exchange to use at this point intime and meets the requirements of Canadian GAAP. The table below shows theexchange rates used now and in the past in Z$ per US$ 2nd Quarter rate of 1st Quarter rate of Previous 1st Quarter rate exchange exchange of exchange Sales revenue 14,220 713 250Other incomestatement items 21,070 758 250Monetaryassets andliabilities 47,451 758 250All otherassets andliabilities 101.19 101.19 101.19 It was deemed appropriate to change the estimate as the Reserve Bank of Zimbabweannounced retrospective changes, in August 2007, to the Gold Support Price andthe resulting effective rate of exchange gives a more accurate representation ofthe purchasing power of the Zimbabwean dollar, compared to the fixed officialrate of exchange of Z$250:US$1 Income TaxesThe Company accounts for income taxes using the asset and liability method.Under the asset and liability method, future tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Future tax assets and liabilities are measured usingenacted or substantively enacted tax rates expected to apply when the asset isrealized or the liability settled. The effect on future tax assets andliabilities of a change in tax rates is recognized in income in the period thatsubstantive enactment or enactment occurs. Change in Accounting PoliciesThere have been no changes in accounting policy during the current or precedingyears. Notes to the Consolidated Financial Statements(in thousands of Canadian dollars unless otherwise indicated and except for share and per share amounts)1. Share Capital (a) AuthorizedAn unlimited number of common shares.An unlimited number of preference shares.(b) Issued Number of Shares AmountCommon sharesBalance December 31, 2004 301,112,286 $173,304Issued pursuant to private placements 52,738,888 4,733Warrants exercised 16,863,962 2,016 ------------ -----------Balance, December 31, 2005 370,715,136 $180,053Issued pursuant to private placement 15,437,626 1,475Issued pursuant to a private placement 34,828,259 3,924Issued pursuant to acquisition 20,000,000 3,014Issued pursuant to a private placement 17,000,000 2,160 ------------ -----------Balance December 31 , 2006 457,981,021 $190,626 ------------ -----------Balance March 31 , 2007 457,981,021 $190,626Warrants exercised 22,890,000 3,330Warrants exercised 6,998,259 1,050 ------------ -----------Balance June 30 , 2007 487,869,280 $195,006 ------------ ----------- On April 27, 2007 warrants amounting to 22,890,000 units were exercised and anequivalent number of shares were issued at a price of $0.15 per share realizing$3,330,495 after commission and on May 12,2007 warrants amounting to 6,998,259units were exercised and an equivalent number of shares were issued at a priceof $0.15 per share realizing $1,049,739. (c) Stock Option Plans and Stock-Based Compensation The Company has established incentive stock option plans (the "Plans") foremployees, officers, directors, consultants and other service providers. Underthe Plans, as at June 30, 2007, the Company has the following optionsoutstanding: Number of Options Exercise Price Expiry Date 803,000 $ 0.330 February 9, 2008 9,950,000 $ 0.235 April 24, 2012 225,000 $ 0.345 June 2, 2012 610,000 $ 0.260 April 29, 2014 200,000 $ 0.260 August 15, 2014 4,000,000 $ 0.110 February 15, 2015 1,000,000 $ 0.140 July 10, 2010 300,000 $0.130 May 11,2016 200,000 $0.110 January 23,2017 1,100,000 $.1125 May 31, 2012 ------------ 18,388,000 ------------ The continuity of the options granted, exercised, cancelled and expired underthe Plans during 2007, 2006 and 2005 are as follows: Number of Options Weighted Avg. Exercise PriceOptions outstanding atDecember 31, 2004 13,108,700 $0.26Granted 5,000,000 $0.12Cancelled or expired (1,210,700) ($0.43) ---------- ---------------Options outstanding atDecember 31, 2005 16,898,000 $0.21Granted 300,000 $0.13Granted 150,000 $0.115Cancelled or expired (110,000) ($0.27) ---------- ---------------Options outstanding atDecember 31, 2006 17,238,000 $0.21Cancelled or expired (150,000) ($0.115)Granted 200,000 $0.11 ---------- ---------------Options outstanding atMarch 31, 2007 17,288,000 $0.204Granted 1,100,000 $0.1125 ---------- ---------------Options outstanding at June30, 2007 18,388,000 $0.196 ---------- --------------- The options to purchase common shares noted above, have been granted todirectors, officers, employees and service providers at exercise pricesdetermined by reference to the market value of the common shares on the date ofgrant. The vesting of options is made at the discretion of the board ofdirectors at the time the options are granted. (d) Warrants The Company has issued the following common share purchase warrants pursuant toprivate placements which are outstanding as of March 31, 2007: Number of Shares for Exercise Price Expiry DateWarrants Warrants50,287,626 1 for 1 Various from $0.15 Various to February 03, to $0.20 2008 On April 27, 2007 warrants amounting to 22,890,000 units were exercised and anequivalent number of shares were issued at a price of $0.15 per share realizing$3,330,495 after commission and on May 12,2007 warrants amounting to 6,998,259units were exercised and an equivalent number of shares were issued at a priceof $0.15 per share realizing $1,049,739. The detail of the warrants issued is detailed below. Number Description Exercise Validity Price17,850,000 Common share purchase $0.20 Until December 28, 2007 warrants10,000,000 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 warrants17,000,000 Common share purchase $0.16 Until September 28, warrants 2007 The continuity of warrants issued and outstanding is as follows: Number of Warrants Outstanding December 31, 2004 39,232,909Exercised (16,863,962)Expired (22,368,947)Issued pursuant to private placements 17,850,000 ------------Outstanding December 31, 2005 17,850,000Issued pursuant to private placements 67,265,885 ------------Outstanding December 31, 2006 85,115,885 ------------Outstanding March 31, 2007 85,115,885Exercised (22,890,000)Exercised (6,998,259)Expired (4,940,000) ------------Outstanding June 30, 2007 50,287,626 ------------ 2. Net Income/(Loss) Per Share The net basic income(loss) per share figures have been calculated using theweighted average number of common shares outstanding during the second quarterwhich amounted to 477,344,698 (2006 -398,142,213 ;) and year to date 467,770,435(2006 - 390,345,589). Fully diluted earnings per share have not been calculatedas it would be anti-dilutive. 3. Other Expense (Income) before discontinued operations Other expense (income) is comprised of the following: 2007 2006 2005 Foreign exchange (gain)loss 452 2,487 51Other (11) (3) (45) --------- --------- --------- $441 $2,484 $6 --------- --------- --------- 4. Supplemental Cash Flow information Items not involving cash are as follows: 2007 2006 2005Amortization $11 $20 $14Asset retirement obligation (94)Write down of mineral property 495Other 39 30 ------- --------- --------- $412 $59 $44 ------- --------- --------- The net changes in non-cash working capital balances for operations are asfollows: 2007 2006 2005Accounts payable ($3,589) $82 $189Accounts Receivable 755 461 (283)Inventories 4,068 (242) (330)Prepaid expenses 45 (2,989) 182Assets held for sale 91 --------- --------- --------- $1,370 ($2,688) ($242) --------- --------- --------- The reduction in the value of both inventory and accounts payable is largely dueto the more accurate estimate of exchange rate used to translate the BlanketMine financial statements into Canadian dollars. There has also been a reductionof both inventory and accounts payable levels due to the reduced level ofproduction during the shaft expansion phase in the 2nd quarter. 5. Contingent Liability In the Share Sale Agreement dated May 12, 2006 pursuant to which the Companypurchased 100% of the shares of Blanket, the Company agreed that it would, assoon as reasonably practicable after the Closing of the Agreement, cause Blanketto implement a share incentive scheme considered by the Directors to be in thebest interests of Blanket, pursuant to which a percentage of the shares ofBlanket will be deposited in a Trust for the benefit of the management andemployees of Blanket. As at June 30, 2007 no scheme had been established, norwere 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. Enquiries Seymour Pierce LimitedJonathan WrightTel: +44 (0)207 107 8000 This information is provided by RNS The company news service from the London Stock Exchange