TORONTO, ONTARIO -- (Marketwire) -- 11/14/08 -- Caledonia Mining Corporation ("Caledonia") (TSX: CAL)(OTCBB: CALVF)(AIM: CMCL) is pleased to announce its third quarter 2008 operating and financial results. These are available on the Company's website www.caledoniamining.com and are also filed on www.sedar.com. The financial results below are reported in Canadian dollars, except where otherwise stated.
Financial highlights for the Quarter and the nine months ended September 30
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Three months Nine months
ended September 30 ended September 30
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(C$ 000's) 2008 2007 2008 2007
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Sales from continuing operations 2,280 1,950 7,668 6,808
Operating costs 1,978 1,176 4,595 7,534
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Gross profit/(loss) from continuing
operations 302 774 3,073 (726)
G&A expenses 2,016 542 3,174 1,584
Other costs/(income) 1,035 1,086 2,119 2,087
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Loss after tax before discontinued
operations (2,749) (855) (2,220) (4,400)
Net loss for the period after
discontinued operations (2,779) (935) (2,343) (4,860)
Net loss per share before
discontinued operations,
basic and fully diluted ($0.005) ($0.002) ($0.004) ($0.010)
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For the quarter ended September 30, 2008 Caledonia reported revenue of $2.28 million from the sale of 2,466 (2,262 in 2007) ounces of gold, which resulted in an operating profit of $302,000. Gold sales for the nine months were 8,364 (9,471 in 2007) ounces.
During the quarter Caledonia incurred certain non-cash expenses namely, unrealized foreign exchange loss of $992,000 ($1,017,000 in 2007), amortization of $101,000 ($4,000 in 2007) and share option expenses of $616,000 ($40,000 in 2007) which combined contributed $1.709 million of the net loss of $2.779 million or $0.005 per fully diluted share.
For the nine months the non-cash expenses were unrealized foreign exchange loss of $1,752,000 ($1,468,000 in 2007), amortization of $302,000 ($510,000 in 2007) and share option expenses of $684,000 ($40,000 in 2007) which combined contributed $2.738 million of the net loss of $2.343 million or $0.004 per fully diluted share.
Cash available at the quarter end totaled $5.499 million and working capital amounted to $9.105 million.
Management published a recent operational update in a press release dated October 23, 2008, and further information is included in this quarter's MD&A.
Further information regarding Caledonia's exploration activities and operations along with its latest financials may be found at www.caledoniamining.com.
CALEDONIA MINING CORPORATION November 10, 2008
Management's Discussion and Analysis
This discussion and analysis of the consolidated operating results and financial condition of Caledonia Mining Corporation ("the Corporation") for the nine months ended September 30, 2008, September 30, 2007 and September 30, 2006 should be read in conjunction with the unaudited Consolidated Financial Statements as at September 30, 2008 and the Annual Report for the year ended December 31, 2007, all of which are available from the System for Electronic Data Analysis and Retrieval at www.sedar.com or from the Corporation's website at www.caledoniamining.com. The Unaudited Consolidated Financial Statements and related notes have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP").
Note that all currency references in this document are to Canadian dollars, except where specifically stated.
Listings
The Corporation is listed on the Toronto Stock Exchange as "CAL", on NASDAQ-OTCBB as "CALVF", and on London's AIM as "CMCL".
FORWARD LOOKING STATEMENTS
This Management Discussion and Analysis contains certain forward-looking statements relating but not limited to the Corporation's expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "could", "should", "may" and "will" or similar words suggesting 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 timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results.
Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. The Corporation undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.
1. OPERATIONAL REVIEW AND RESULTS OF OPERATIONS
1.1 GOLD PRODUCTION
Blanket Mine - Zimbabwe
In view of the fact that the Reserve Bank of Zimbabwe ("RBZ") has not paid the mine the foreign exchange for gold purchased by it since May 2008, Blanket mine was unable to purchase essential imported consumables and has had no alternative but to suspend production, as announced in the press release on October 23, 2008, until revenue is forthcoming. The mine staff continue to keep the operations in a good state of repair and all staff have been retained, although their efforts have been redirected to maintenance projects.
Safety, Health and Environment
- The mine continued its good safety performance and recorded no lost time injuries during the quarter and the number of restricted work accident cases (reportable accidents) declined by 66% relative to the previous quarter. However, 8 medical aid and first aid incidents were recorded which is consistent with the previous quarter.
- During the quarter 487 employees were trained in Hazard Identification and Risk Assessment (HIRA) while supervisors were trained in Planned Job Observations and Supervisory Skills.
- The mine retired 8 employees on medical grounds. No occupational health illnesses were detected during the quarter. 27 employees and their dependents voluntarily underwent HIV tests during the quarter, of which only 1 person tested positive. HIV/AIDS education continues but confidentiality restricts management's ability to identify suspected cases.
There were no adverse environmental issues during the quarter, and results from groundwater testing continue to show that the tailings dams are not affecting the quality of the groundwater. Used oil, scrap metal and spent batteries are sold to reputable dealers as a means of disposing of such potentially hazardous waste.
The economic situation in Zimbabwe has deteriorated significantly and the number of dismissals due to desertion remains high - 43 employees were dismissed during the quarter for being absent without permission. Under the current deteriorating economic conditions, formal employment is shunned in favor of work in the informal sector. As a result, the mine has had to intensify recruitment efforts in order to maintain critical staffing levels and has had to maintain a vigorous training program to prepare these replacement employees.
Capital Projects - Number 4 Shaft Expansion Project
Due to the ongoing critical shortage of foreign currency, no further work took place on the No 4 shaft project and the anticipated future expenditure is estimated at US$2,200,000. This expenditure, once made will enable production to be increased to 1,000 tonnes per day from which an annual gold production of 40,000 ounces is forecast.
Operations
During the past quarter the operation continued to be hampered by the following:
- Labour shortages caused by the rapidly deteriorating socio-economic situation in Zimbabwe. The overall manpower numbers are currently at approximately 50% of the normal requirement.
- The critical shortage of foreign currency receipts has curtailed the ability of the mine to replenish stocks of a wide range of consumable items which are essential for safety, mining and production. Consequently, mining activities were suspended.
The factors above have contributed directly to the current drop in production from the 25,000 ounce per annum level at the start of the No 4 shaft expansion project.
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Production results
3rd 3rd Nine Nine
Quarter Quarter months to months to
2008 2007 Sept 2008 Sept 2007
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Ore milled Tonnes 22,884 14,042 81,688 60,559
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Sands processed Tonnes - 81,081 - 125,137
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Ore Gold Grade milled Grams/tonne 3.09 1.90 3.33 3,05
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Recovery % - Ore Per cent 88% 75% 88% 83%
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Gold produced - Total Ounces 2,028 2,672 7,687 8,784
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Gold Sold Ounces 2,466 2,922 8,364 9,471
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The difference between gold produced and gold sold is the carry over gold work in progress from the previous period. In the first quarter of 2007, underground production was interrupted by the closure of the No. 4 shaft for expansion work and during this period sands from nearby dumps were used to supplement production, resulting in an overall decline in grade. The tonnage of ore milled in Q3 was 30% lower than in Q2 and the gold production decreased by 32% over the period. The reduced gold production is a function of the low tonnage of 22,884 milled and the lower head grade of 3.09 grams per tonne. The reduction in the number of underground production crews and the forced depletion of critical consumables were the main factors contributing to the lower gold production.
Outlook
Since the two 2008 Zimbabwe elections and the inconclusive power sharing negotiations that followed, the economic future of the country continues to remain uncertain. Foreign currency remains in extremely short supply at government level and therefore it is likely to be some time before the mine receives payment for its gold sales. Dependant on the availability of foreign and local funds, management remains committed to:
- Completing the #4 shaft project;
- Returning Blanket to the 25,000 oz per annum production level, and as soon as possible thereafter increasing production to the planned 40,000 oz per annum level;
- Re-commencing the down dip diamond drilling program to evaluate the main ore zones which are known to extend to depth below the 750 m level;
- Re-commencing development work at Blanket's various exploration projects close to the mine;
Production operations at Blanket will remain in forced suspension until such time as the mine is paid for its gold sales. Efforts to look after the workforce in terms of basic foods and well being will continue during the period of suspended operations provided that Blanket is able to access the required tranches of funds from the RBZ.
1.2 EXPLORATION AND PROJECT DEVELOPMENT
1.2.1 COBALT AND BASE METALS
Nama Cobalt Project - Zambia
Early in Q4 2008 Caledonia was granted four Large Scale Mining Licences in respect of the Nama cobalt project by the Mines Development Department of the Zambian Ministry of Mines and Minerals Development. In addition, Caledonia received a 10 year Investment Licence from the Zambia Development Agency in respect of the Nama Cobalt Project.
The 2008 drilling campaign commenced during the second quarter of this year. The primary objectives of the program were to improve the definition of Resource Body D as well as the Co/Cu mineralised zone discovered at Konkola West. Recently received results of research work carried out by two laboratories in South Africa and one in Canada has resulted in flowsheet involving both hydrometallurgical and pyrometalurgical processes. In order to justify the implementation of a pyrometallurgical process, the resource base would have to be substantial increased and it is for this reason that current drilling efforts are focused on other very large D type iron-rich bodies about 10 kilometres to the west of the D area.
Resource Body D
Diamond drilling of the D body was undertaken primarily in order to upgrade the resources defined by the 2007 reverse circulation drilling program. This program is providing additional information on the shape, mineralogical characteristics, depth variations, engineering characteristics and internal dilution of the resource body.
During the quarter 24 diamond drilled bore holes were drilled in the area, totalling 2,058 meters. All potentially mineralised sections of the core were split using a diamond saw, and half core samples submitted for assay for Co, Cu, Ni, Zn and Fe. A total of 969 samples were submitted for assay, of which about 70% of the results have been received to date. While provisional modelling of the resource is already under way, final computation of the revised resource statistics can only be completed once all the results have been received.
Exploration is currently focused on the drilling of the additional "D-Type" bodies identified earlier this year as well as other possible sources of large iron rich bodies that can supplement the D resource.
Konkola West
Both Co and Cu enrichment was encountered in a trench excavated on a geochemical anomaly in the Konkola West area. The occurrence is situated close to a position where both Copperbelt and iron rich mineralization styles can be expected. Twelve holes were completed in this target area during the quarter amounting to 1,588 meters of drilling and 804 drill core samples were submitted for assay. The drilling of this target was completed early in the 4(th) quarter but the computation of the resource is dependent on the final analytical results which are outstanding.
Further field work is currently being done in the area in order to define other targets to be drilled later in the season.
Further Developments
China Nerin (Nanchang Engineering and Research Institute for Nonferrous Metals) Engineering Co Limited, a well established and experienced engineering company, has been requested to delay completion of their work on the Chinese Feasibility Study (CFS) pending finalisation of the revised and additional resource data, finalization of the metallurgical process and clarification of the Zambian taxation that will apply to the Nama project.
Finalization of the CFS is expected during the first half of 2009 and will be dependent on the definition of an increased Indicated Resource sufficient to support at least 5 years of production at design capacity, and finalization of the metallurgical research required to define an economic process route to treat the high-iron "D-Type" mineralisation, and clarification of the Zambian tax environment under which Nama would operate.
Any further unanticipated permitting, metallurgical, mining or funding delays will result in the construction commencement date being delayed.
An Environmental Impact Statement for the planned mining and metallurgical plant operations covering resource bodies A and D has been submitted to the Environmental Council of Zambia for approval. It is anticipated that the document will require certain updates to reflect recent changes in the metallurgical and tailings facilities of the project.
As announced earlier in Q3, the recently introduced taxation legislation in Zambia, whilst not rendering the project uneconomic, imposes an unreasonably heavy burden on investors. Caledonia has had constructive discussions with the Zambian authorities and has made detailed proposals to the requisite Ministries and Departments for a more appropriate taxation structure for the Nama project. The ability of the Zambian authorities to respond to our proposals was impaired by the unforeseen Presidential elections in Zambia that resulted from the untimely death of President Mwanawasa. Caledonia expects to be able to progress the discussions with the Zambian authorities when normal government resumes after the post-election period.
Market conditions for raising debt and equity are currently extremely difficult. However the prospective debt providers with whom Caledonia had entered preliminary discussions regarding debt funding have confirmed that they retain their interest in the Nama Cobalt Project and their capacity to participate in debt funding. Caledonia considers it prudent to defer any discussions with prospective equity providers until the technical and taxation aspects of the Nama Project have been clearly defined and the general equity market conditions improve.
1.2.2 ROOIPOORT AND MAPOCHSGRONDE PGE/Ni/Cu PROJECTS - SOUTH AFRICA
Property
Rooipoort and Mapochsgronde
The prospecting rights granted to the company to prospect for PGMs on the major portions of the Mapochsgronde tribal trust land are currently in the process of registration. A further application has been made for an adjoining property to the north of the current rights.
The Rooipoort platinum rights, previously held by Caledonia's subsidiary, Eersteling Gold Mine, are currently being registered under Maid O' the Mist, also a wholly owned subsidiary of Caledonia. Maid O' the Mist is the vehicle that will be used to manage the Joint Venture with Mitsubishi Corporation in the Rooipoort area. Once registered and all other due diligence matters are complete, funds are expected to be released by Mitsubishi Corporation to proceed with the exploration of this area.
It was announced during the quarter that Caledonia and Mitsubishi Corporation of Japan signed a Heads of Agreement relating to potential Joint Ventures (JV) between the companies on both the above platinum properties. The JV's will come into effect as soon as certain due diligence conditions of the agreement have been completed to Mitsubishi's satisfaction. In terms of the agreement, Mitsubishi will fund 100% of all further exploration on each of the above two properties up to a bankable feasibility stage, or to the value of $40 million for the 2 JV's, whichever comes first, to earn a 50% interest in the JV's. The JV management team is planning a rapid escalation in exploration activity as soon as the registration of the prospecting rights is completed and the Shareholder Agreements are signed between Caledonia and Mitsubishi Corporation.
1.2.3 GOLD
Zimbabwe Exploration - Gold
Due to the lack of foreign currency no exploration work took place during the quarter.
1.2.4 DIAMONDS
Mulonga Plain - Zambia
An application for a Retention Licence has been lodged with the Zambian authorities. The Zambian Government department responsible for the issuing of prospecting licences has been reorganised and this has temporarily delayed the process of awarding permits. No response had been received from the Zambian authorities by the date of this report.
Kashiji Plain - Zambia
No further field work was carried out on the Kashiji or Lukulu licenses in this quarter. This license expired in June 2008, at which time the Corporation had already applied for retention licenses covering these areas.
Goedgevonden - South Africa
The Corporation holds prospecting rights over the Goedgevonden diamond bearing kimberlite pipe and surrounding area. This property is located approximately 20 km north of the now defunct Stilfontein gold mine in the Klerksdorp district of the North West Province in South Africa and 200 km south west of Johannesburg. Although the New Order Prospecting Rights have been granted, the signature of the documentation is awaiting certain suspensive conditions. Discussions are in progress with other parties with a view to realizing value by either joint venture or disposal of the properties constituting the Goedgevonden Diamond Project. No further work was carried out on this property during the quarter.
1.2.5 GENERAL OUTLOOK
Exploration by its nature is speculative with a high degree of risk accompanied by the potential for high returns. The Corporation manages this risk by using well-qualified exploration professionals, senior mining company joint venture partners and by exploring in areas which are considered as having a better than average potential for discovery.
1.3 QUALIFIED PERSONS
Dr. Trevor Pearton, BSc Eng (Mining Geology), PhD (Geology), FGSSA, VP Exploration is a qualified person as defined by NI 43-101. Dr. Pearton is responsible for the technical information provided in this MD&A except where otherwise stated. He was assisted where appropriate by outside consultants and/or qualified persons for joint-ventured projects. Mr. David Grant is the Independent Qualified Person for the NI 43-101 compliant reports on the resources of the Nama Property, prepared by Applied Geology and Mining (Proprietary)Limited, whose Managing Director is Mr. Grant.
2. SUMMARY OF QUARTERLY RESULTS - (C$ 000's - except per share amounts.)
The following information is provided for each of the 8 most recently completed quarters of the Corporation -ending on the dates specified - in thousands of Canadian dollars. The figures are extracted from underlying financial statements that have been prepared according to Canadian GAAP.
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Sept June Mar Dec Sept June Mar Dec
30/08 30/08 31/08 31/07 30/07 30/07 30/07 31/06
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Sales
before
discon-
tinued
opera-
tions 2,280 2,883 2,504 3,231 1,950 1,539 3,319 9,044
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Income/
(loss)
before
discon-
tinued
opera-
tions (2,749) (261) 791 494 (855) 364 (3,909) 3,841
- per
share
undiluted (0.0055) (0.0005) 0.0016 0.0010 (0.0019) 0.0007 (0.0085) 0.0084
- per
share
Diluted (0.0055) (0.0005) 0.0016 0.0010 (0.0019) 0.0007 (0.0085) 0.0084
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Discon-
tinued
opera-
tions
(loss) (30) (24) (70) (249) (80) (126) (254) (1,283)
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Net
Income/
(loss)
after
discon-
tinued
opera-
tions (2,779) (285) 721 245 (935) 238 (4,163) 2,558
- per
share
undiluted (0.0056) (0.0006) 0.0015 0.0005 (0.0019) 0.0005 (0.0074) 0.0056
- per
share
Diluted (0.0056) (0.0006) 0.0015 0.0005 (0.0019) 0.0005 (0.0074) 0.0056
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No of
shares
basic
'000 500,169 500,169 493,199 487,869 487,869 487,869 457,981 457,981
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The discontinued operations in the quarter ended September 2008 relate to Eersteling Mines, Barbrook was included up to March 31,2008. All foreign exchange gains or losses are reported in the results before discontinued operations. The gold sales at Blanket Mine were 2,466 ounces in Q3 (3,089 ounces in Q2, 2,809 ounces in Q1, 4,352 ounces in Q1 2007, 2,922 ounces in Q2 2007, 2,263 ounces in Q3 2007 and 4,512 ounces Q4 2007). Included in the loss for the quarter, before discontinued operations, is the unrealized foreign exchange gain/ (loss) of ($992,000); (loss of ($860,000) in Q2, $100,000 gain in Q1 of 2008, and in 2007 $456,000 in Q4, ($1,016,000) in Q3, ($707,000) in Q2and $255,000 in Q1). The huge collapse in the value of the Zimbabwe dollar resulted in an unrealized foreign exchange loss of $856,000 at Blanket Mine. As a result of the sale of Barbrook Mines shares and loan claims a loss of $203,000 has been realized due to foreign exchange fluctuations.
The gross profit of $302,000 ($1,526,000 in Q2 and $1,245,000 in Q1 2008) for the third quarter has been achieved despite inflationary factors in Zimbabwe (493 million % per month in October 2008) and is evidenced by the fact that the Reserve Bank of Zimbabwe ("RBZ") owed Blanket Mine US$3,098,000 for gold sales at the end of the quarter compared to US$2,685,000 at the end of Q2 and US$2,680,000 at the end of Q1. During the quarter RBZ made no direct payments to Blanket Mine but paid certain suppliers on the Mine's behalf to the amount of roughly US$270,000.
The results of Blanket Mine have been translated into Canadian dollars using the inter-bank rate that was introduced by the RBZ in May 2008. This rate of exchange ("ROE") is established by the market on a "willing buyer - willing seller" basis. The table below illustrates the rates of exchange used per financial statement category; all rates of exchange before Q2 2008 were derived from the gold support price quoted by RBZ. Due to the introduction of the inter-bank rate the effective discount on gold sold in Zimbabwe dollars initially decreased from 90% to roughly 15% but as the inter-bank rate has not been allowed to move freely in the market the discount has widened again to about 90%. Blanket Mine sold 719 ounces of gold during the quarter solely for Zimbabwe dollars at a discount of above 90% to the US$ based market price. This was necessary as Blanket Mine had no Zimbabwe dollars to pay the work force. When introduced the inter-bank rate was set at Z$190 million per US$1 and is currently trading at about Z$600 (new currency 10 zeros removed).
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2008 2008 2008 2007 2007
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Z$'s per C$1 Q3 ROE Q2 ROE Q1 ROE Q4 ROE Q3 ROE
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Sales revenue 48 337,140,498 5,161,433 275,926 156,590
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Other income statement
items 53 3,736,329,101 10,019,210 260,870 150,507
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Monetary assets and
liabilities 122 10,631,984,967 22,960,635 378,644 168,645
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All other assets and
liabilities 101.19 101.19 101.19 101.19 101.19
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On July 30, 2008 the RBZ announced a new monetary policy. Part of the announcement dealt with the devaluation of the Zimbabwe dollar and 10 zeros were removed from the value of the currency i.e. Z$100,000,000,000 became Z$10. Due to the rampant inflation all 10 zeros have returned to the devalued currency as of early November 2008.
3. INVESTING
During the third quarter 2008 the Corporation invested $993,000 in capital assets and mineral properties ($959,000 in 2007 and $1,566,000 in 2006). Of the amount invested in 2008, $755,000 was spent at Nama on drilling exploration and $223,000 at Rooipoort acquiring the Falconbridge prospecting rights. Due to a lack of foreign currency there was negligible capital expenditure at Blanket Mine.
4. FINANCING
In February 2008 $1,119,000 (nil - 2007 and $1,475,000 - 2006) was raised from private placements (net of expenses). In all 12,300,000 shares, priced at $0.10 were issued in the private placement along with an equal number of warrants priced at $0.15, valid for 1 year. The funds were used to finance exploration activity on the Corporation's most prospective projects and working capital requirements. No further capital raising took place in the third quarter.
On May 31, 2008 the sale of Barbrook Mine to Eastern Goldfields was concluded. The full purchase price of $9,213,000 was paid in cash. These funds are being used to finance exploration activities at Nama and other corporate expenses.
5. LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2008, the Corporation had a working capital of $9,105,000 (surplus of $65,000 at December 31, 2007). The increase in working capital is due to the proceeds received for Barbrook Mine and the transfer of Barbrook liabilities to Eastern Goldfields. Due to the state of the Zimbabwean economy, Blanket Mine is operating on a virtual cash basis as suppliers do not grant credit in the hyper-inflationary environment. During the quarter the US dollar amount owed by the RBZ has increased to US$3,098,000 from US$2,685,000 at June 30, 2008. Blanket Mine has received no direct payments from RBZ during the quarter and as a result gold production has been temporarily suspended. Blanket Mine will retain all staff as long as it can convert US dollars owed to it by RBZ at a favourable exchange rate to pay salaries and purchase food requirements. Blanket has managed to conclude two transactions with RBZ on this basis since production was suspended. RBZ has also paid certain of Blanket suppliers directly from the US dollars owed by RBZ namely for electricity and fuel supplies.
The Corporation anticipates that the funds held by the RBZ (US$3,098,000) will only be available, in the immediate future, for use at Blanket in Zimbabwe. However, the Corporation's Board has decided that it is not necessary to, at this date, conclude that the amount is not going to be ultimately collectible - and the full amount is still showing in its quarter-end Balance Sheet as a current asset.
Gold sales in Zimbabwe continued on the basis of a minimum of 75% of the proceeds being paid in US dollar and the balance paid in Zimbabwe dollars using the inter-bank rate. The 75% US dollar retention was increased from 55% in the latest Monetary Policy announcement and an extra 150% of the inter-bank rate was also added to the sales formula for the Zimbabwe dollar portion.
Blanket Mine continues to be self funding. Little or no money is currently being spent on capital development due to a lack of foreign and local currency.
Anticipated cash inflows in 2008 will be used mainly by the Corporation on its exploration, development and production activities.
Future gold production at Blanket Mine is totally dependent on the RBZ paying the outstanding US dollars owed to Blanket, so essential imported consumables can be acquired and the No 4 shaft expansion - at an estimated cost of $750,000 to regain the 600 tpd ore delivery to the plant and a further amount of $1,500,000 to reach the expanded rate of 1,000 tpd ore delivery and plant expansion needs, will be completed.
Areas of focus outside Zimbabwe are as follows:
- the defined activities at the Corporation's Nama Cobalt/Copper Project at an estimated cost of $ 4,000,000
- the Rooipoort and Mapochsgronde South African PGE & Ni properties which will be funded by Mitsubishi in terms of the JV agreements.
- corporate working capital.
The prime area of focus will be the Nama Cobalt Project in Zambia. Notwithstanding the estimated expenditure amounts for each of the programs described above, the Corporation cannot predict the actual amounts that will be spent on those programs. Decisions will be made to go ahead on the programs from time to time by Management as they, at that time, determine appropriate, based on results achieved in previous programs and funding availability.
The Corporation does not have any significant long-term contractual obligations or commercial commitments other than the payment of its current liabilities and its five cobalt sales agreements. It has two joint venture agreements with Ashton Mining of Canada Inc. and Motapa Diamonds Inc. In each case these partners were responsible for all property expenditures until a feasibility study had been completed. The Corporation has minor obligations in respect of licence fees for its exploration and mining properties some of which are paid in full by the Corporation's joint venture partners. Now that Motapa wishes to withdraw from its JV on Mulonga Plain, the Corporation will be responsible for maintaining the Licences. As of September 30, 2008 the Corporation had potential/contingent liabilities to do rehabilitation work on the Blanket and Eersteling Mines - if and when those Mines are permanently closed - at an estimated cost of $1,033,000. With the completion of the sale of the Barbrook the rehabilitation liability of $93,000 has passed onto the new owners.
6. OFF-BALANCE SHEET ARRANGEMENTS
There are no off balance sheet arrangements.
7. RELATED PARTY TRANSACTIONS
The Corporation had the following related party transactions in the normal course of business:
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Year to date
September 2008
---------------------
$ 000s 2008 2007 2006
---------------------
$ $ $
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Management fees, allowances and Director fees paid
or accrued to a company which provides the services
of the Corporation's President 423 388 356
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Rent paid to a Company owned by members of the
President's family 32 33 34
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Directors fees, travel expenses, consulting fees
and salaries paid to the Chairman and Directors
of the Board (note 1) 801 204 157
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Note 1: Since 2005 Caledonia has had limited cash resources to compensate
the Chairman and other non-executive Directors for consulting work and
related director responsibilities. The Chairman along with the other
non-executive Directors agreed to defer their claims for time spent on
Caledonia business until it had the cash resources to pay the claims.
As Caledonia has now sold Barbrook, Caledonia has paid and accrued amounts
to compensate the Chairman and non-executive directors for unbilled time
spent on Caledonia business since 2005. An amount of $406,000 relates to
fees for the periods 2005, 2006 and 2007.
8. CRITICAL ACCOUNTING POLICIES
There are two major areas where accounting estimates are made, asset impairment and asset retirement obligation. As significant impairment provisions have already been made against the assets and there is a reasonable level of certainty around the estimate it is considered unlikely that any change in estimate would result in a material impact on the results of the Corporation. Based on indicative purchase offer previously made for Eersteling Mine no further asset impairment has been made against these assets. The asset retirement obligation is also considered to be estimated with a reasonable degree of certainty, although the original estimation was calculated some years ago. The estimation is accreted annually at 5% and thus any change in circumstances is considered unlikely to have a material impact on the results of the Corporation or its operations.
The following accounting policy changes have been adopted as of January 1, 2008 and are more fully described in the Interim Consolidated Financial Statements.
a. Inventories:
Effective January 1, 2008, the Corporation adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3031, Inventories. This standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-downs to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories and requires the reversal of write downs, if applicable, on inventory. There were no changes to the Corporation's accounting policies required on implementation of this standard.
b. Financial Instruments - Disclosures
Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 3862, Financial Instruments - Disclosures; Section 3863, Financial Instruments - Presentation.
Section 3862 on financial instrument disclosures, provides guidance on disclosures in the financial statements to enable users of the financial statements to evaluate the significance of financial instruments to the Corporation's financial position and performance and about risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new Section requires qualitative and quantitative information relating to concentrations of risk, credit risk, liquidity risk and price risk currently found in Section 3861.
Section 3863 carries forward unchanged the presentation requirements of Section 3861. This Section establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset.
c. Capital Disclosures
Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 1535-Capital Disclosures. Section 1535 requires the disclosure of an entity's objectives, policies and processes for managing capital as well as quantitative data about what the entity regards as capital. Disclosure of externally imposed capital requirements is also required and whether the entity has complied with these and, if not, the consequences.
The Corporation has included disclosures recommended by the new section in Note 14 to these unaudited interim consolidated financial statements.
d. Financial Statements Presentation
Effective January 1, 2008, the Corporation adopted the new recommendations of CICA amended Handbook Section 1400-General Standards of Financial Statements Presentation. The section provides revised guidance related to management's responsibility to assess and disclose the ability of an entity to continue as a going concern.
9. FINANCIAL RISK EXPOSURE AND RISK MANAGEMENT
The Corporation is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital, and protecting current and future Corporation assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets.
The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Corporation's Audit Committee oversees management's compliance with the Corporation's financial risk management policy.
The types of risk exposure and the way in which such exposures are managed are as follows:
a) Currency Risk
As the Corporation operates in an international environment, some of the Corporation's financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Corporation's operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Corporation are reported in Canadian dollars in the Corporation's consolidated financial statements.
The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Corporation and may also affect the value of the Corporation's assets and the amount of shareholders' equity.
A significant portion of the Corporation's assets and liabilities are denominated in South African rand and Zimbabwe dollars. Management do not consider that the fluctuation of the value of the South African Rand to the Canadian Dollar could have a significant impact on the results of operations. Blanket Mine operation is subject to a hyperinflationary environment in Zimbabwe, foreign creditors are denominated in Rands and local costs increase with inflation. As the official exchange rate is not free floating and the effective buying power of the Zimbabwe Dollar decreases accordingly there could be a significant impact on the results of the operations. The shareholder loan account in Zimbabwe is denominated in US Dollars and will generate foreign exchange losses for Blanket Mine in Zimbabwe Dollar terms but the effect on the consolidated financial statements in Canadian Dollars is unlikely to be significant. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. The Corporation does not use any derivative instruments to reduce its foreign currency risks.
The summary below details the cash or near cash items denominated in a currency other than the Canadian dollar that would be affected by changes in exchanges rates relative to the Canadian dollar.
