EXHIBIT 99.1
2002
ANNUAL REPORT
CALEDONIA
MINING CORPORATION
TABLE OF CONTENTS
2. Performance Highlights
3. Letter to Shareholders
4. Activity Report on Properties
9. Management Discussion and Analysis of Financial Results
13. Management's Responsibility for Financial Reporting
14. Auditors' Report
15. Financial Statements
33. Directors and Management
34. Corporate Directory
Note: All figures in the 2002 Annual Report are in Canadian dollars unless
otherwise noted.
CORPORATE OBJECTIVES
Caledonia Mining Corporation ("Caledonia") was formed on February 5, 1992. The
focus of the Caledonia group of companies is to identify and acquire properties
and projects early in the development cycle, and then add value by either
operating or joint venturing, or disposing of mineral assets at the most
economically opportune time. Caledonia defines its operations as the
acquisition, funding, development, and operation of mineral properties, with the
possibility of divestiture at different points in time on the valuation curve,
possibly when the asset is in production or perhaps when it is at the
exploration stage. The economics of the divestiture decision governs the timing
of any such transaction. Cognisant of the economic risks and vagaries inherent
in the exploration for, and mining of mineral resources Caledonia will continue
to seek and develop only those mineral assets with the potential to be low cost
producers.
ENVIRONMENTAL POLICY
Caledonia Mining Corporation ("Caledonia") and its Board of Directors are
committed to maintain the highest environmental standards such that its
operations and/or its products do not present an unacceptable risk to its
employees, its customers, the public or the environment. Caledonia and its
subsidiaries operate under an environmental code of practice that encompasses
the following:
I. Caledonia directs its employees and its subsidiary companies to conduct
their exploration and operations activities in a professional,
environmentally responsible manner, in compliance with all applicable
legislation and policies in the jurisdictions in which they undertake
business.
II. Caledonia liaises closely with the applicable government regulatory
bodies and the public to optimize communication and an understanding of
Caledonia's activities in relation to environmental protection.
III. Caledonia is committed to the diligent application of technically proven,
economically feasible, environmental protection measures throughout its
exploration, development, mining, processing and decommissioning
activities.
IV. Caledonia on a regular ongoing basis monitors its environmental
protection management programs to ensure their compliance with the
applicable regulatory requirements.
It is the responsibility of all the employees of Caledonia and its subsidiaries
to carry out their employment activities in accordance with this code of
practice. Operational line management has the direct responsibility for regular
environmental protection management.
/s/ S. E. HAYDEN, /s/ J. JOHNSTONE,
Chairman of the Board, President and Vice-President Operations and
Chief Executive Officer Chief Operating Officer
PERFORMANCE HIGHLIGHTS (1) Filon Sur to June 30 for year 2000 only.
2002 2001 2000 1999 1998
------- ------- ------- ------ -------
FINANCIAL - C$ 000'S
Revenue from Sales 27 124 6,623 14,701 15,523
Gross Profit (Loss) (103) (126) 304 2,090 2,771
Expenses (General and Administration,
Interest and Amortization) 1,578 1,130 2,143 3,853 7,566
Net Income (Loss) - before Write-Downs (1,741) (1,195) 7,412 3,082 (4,439)
Net Income (Loss) - after Write-Downs (4,331) (1,195) 7,412 (7,460) (50,437)
Cash 1,864 90 75 51 91
Current Assets 2,094 184 200 2,179 4,175
Assets 24,767 24,973 25,063 33,189 50,831
Current Liabilities 1,336 2,701 2,556 5,143 7,678
Long Term Liabilities 1,280 1,813 1,813 21,747 34,032
Working Capital (Deficiency) 758 (2,517) (2,356) (2,964) (3,503)
Shareholders' Equity 22,151 20,459 20,694 6,299 9,121
Total Capital Expenditures 300 -- -- 345 464
Expenditures on Mineral Properties 624 23 120 353 2,458
Financing Raised 4,786 1,078 979 497 2,452
SHARE INFORMATION
Market Capitalization ($ Thousands) 86,836 9,086 10,374 3,441 4,578
Shares Outstanding (Thousands) 211,795 165,202 148,202 68,830 41,615
Warrants & Options (Thousands) 28,055 19,566 7,566 7,566 3,986
Earnings (Loss) per Share (0.02) (0.01) 0.08 (0.12) (1.35)
TSE Share Price High 0.44 0.09 0.35 0.15 0.72
TSE Share Price Low 0.060 0.04 0.05 0.05 0.09
TSE Share Volume (Thousands) 81,234 22,310 22,939 16,397 6,254
NASDAQ Share Price High (US$) 0.281 0.06 0.18 0.09 0.50
NASDAQ Share Price Low (US$) 0.040 0.02 0.03 0.03 0.06
NASDAQ Share Volume(Thousands) 271,404 74,714 61,919 34,815 36,721
OPERATING RESULTS (1)
Gold Production (Ounces) 52 114 14,558 32,300 32,567
Silver Production (Ounces) 4 -- 122,665 240,675 227,945
Average Cost per Ounce Gold (US $) Sold -- -- 240 204 216
Average Revenue per Ounce Gold (US $) Sold -- -- 285 288 296
Year End Gold Resource (Thousand Ounces) 2,489 2,930 2,930 3,487 3,519
1
LETTER TO SHAREHOLDERS
Although the base metals experienced another difficult year during 2002 as
copper, cobalt, zinc and lead prices remained at cyclical lows, precious metals
prices, and in particular gold started to break out of their long price slump
progressively from January and peaked above $350 per ounce during December 2002.
As a result of the increasing gold price, Caledonia decided during February 2002
to return the Barbrook Mine to limited production whilst it tested the
mineability of a high grade gold zone and also tested the new Caledonia
developed "PreOx" process and Resin-in-Leach (RIL) on the Taylor's ore body.
With the steady increase in the gold price, it was decided to re-commence
commercial scale mining operations and since then work has been carried out to
refurbish the mine, metallurgical plant and other surface infrastructure. Mining
commenced in January 2003 and the first gold was produced during March 2003. The
plant start-up was delayed by management's decision to install a Resin
pumped-cell leach carousel in preference to a RIL circuit.
Strong diamond exploration in the Coronation Gulf area of Nunavut, Canada
continued unabated during 2002 with further discoveries being reported. A
mini-bulk sample of the Potentilla kimberlite pipe was taken during the second
quarter from which a 0.34 carat colorless diamond was recovered. Potentilla has
an estimated diamond content of 17.4 carats per 100 tonnes. The 2002 winter and
summer exploration programs focused on the Stellaria kimberlite pipe where 105
kg and 111 kg samples were recovered by diamond drilling. Testing of these two
drill samples recovered 146 diamonds from the 216 kg of sample. Stellaria is
located about 700 metres from the Potentilla pipe. The discovery of 2
diamondiferous pipes on the Kikerk property confirms the need for further
exploration of the property.
During 2002 exploration work continued on the Mulonga Plain diamond joint
venture in Zambia, at the Kikerk Lake diamond property in Northern Canada and at
the Goedgevonden diamond prospect in South Africa. Additional properties
acquired by Caledonia during 2002 include the Rooipoort property east of
Potgietersrus in South Africa that is highly prospective for platinum group
metals and other exploration areas of interest located adjacent to the
Goedgevonden kimberlite pipe.
Further details of Caledonia's properties are to be found elsewhere in this
report, and the very latest information on all Caledonia's properties and
interests can be found on the Caledonia website http://www.caledoniamining.com.
As can be seen from these financial statements, Caledonia continues to remain
largely debt free and will continue to focus its efforts on advancing its
assets. An amount of $5.2 million, net of financing costs was raised during 2002
from private placements and the exercise of warrants. During early 2003, a
further $ 1.2 million, net of financing costs was raised from the portion of the
private placement carried over from December 2002 and from the exercise of
warrants. During 2003, Caledonia intends to extend this focus to include the
addition of income producing assets in order to fund its activities and further
acquisitions.
My thanks to Caledonia's management, directors, staff, joint venture partners,
and particularly to our shareholders for supporting Caledonia during the
challenges and opportunities of another year. The management and directors look
forward to your continued confidence as we work diligently towards the objective
of building Caledonia into a significant international mining company.
On behalf of the Board of Directors,
/s/ S.E. HAYDEN,
Chairman of the Board, President and
Chief Executive Officer
May 9th, 2003
2
2002 ACTIVITY REPORT
Caledonia owns a diversified portfolio of carefully selected properties in
Canada, Zambia, South Africa, and Democratic Republic of Congo with excellent
exploration potential for gold, diamond, platinum group metals, nickel, copper
and cobalt. These properties, some of which are under joint venture agreements
with major mining companies, are the key assets of Caledonia and should in
future provide shareholders with significant returns. However, the realization
of value from a mineral resource property requires time, money and expertise. It
remains a Caledonia strategic objective to enter into joint venture agreements
with major mining companies, as this enables Caledonia to conserve its cash
resources and allows it to draw on the expertise and skills of joint venture
partners to develop its properties. Continuing low base metal prices has
resulted, in recent years, in a reduction of exploration activities by the large
mining companies. Consequently this has made it difficult for Caledonia to
obtain JV partners for its 3 major base metal properties in Zambia and the
Congo.
This report details only those properties where there has been significant
activity during the 2002 year. Where properties have been largely inactive, no
descriptive report is presented and information on these properties can be
obtained by referring to the 1998 to 2000 annual reports. Copies of these
reports can be obtained either from the Caledonia Head Office in Mississauga,
Ontario, Canada or can be downloaded from our website at
"www.caledoniamining.com".
GOLD
BARBROOK MINES LIMITED - SOUTH AFRICA
Barbrook is located near the town of Barberton in the Mpumalanga province of
South Africa. The mine was placed on care and maintenance in July 1997. In 1997
the monthly underground mining and milling rate was 17,000 tonnes of ore. The
design capacity of the metallurgical plant is 30,000 to 40,000 tonnes per month
for free-milling oxide ores, or 25,000 tonnes per month for the harder
metallurgically more complex refractory sulphide ores.
GOLD RESERVES & RESOURCES (UNDILUTED) - AS AT DECEMBER 31, 2002
CATEGORY TONNES GOLD GRADE - G/TONNE GOLD OUNCES
- -------- ---------- -------------------- -----------
RESERVES
Proven Reserves 229,204 6.00 44,207
Probable Reserves 237,077 4.98 37,970
---------- ---- ---------
TOTAL RESERVES 466,281 5.48 82,177
========== ==== =========
RESOURCES
Measured Resources 485,756 4.92 76,840
Indicated Resources 1,011,996 4.98 161,943
Inferred Resources 8,830,869 5.77 1,637,341
---------- ---- ---------
TOTAL RESOURCES 10,328,621 5.65 1,876,124
========== ==== =========
TOTAL MINERAL RESERVES & RESOURCES 10,794,902 5.64 1,958,301
========== ==== =========
The mineability, geology, and mineralization of the Taylor's ore body was
re-evaluated and re-modelled during 2002 to determine the optimum mining methods
to minimize grade dilution. Mining has commenced in the Taylors ore zone between
10 and 7 levels. Geological sampling and evaluation on adjacent blocks in the
Taylors zone is ongoing. Development and stope tonnages from this area will
supplement the present production allowing the mill throughput to be increased
to the 8,000 tonnes per month range. In addition, ore samples from the Daylight
zone are being taken and tested to confirm the metallurgical amenability of this
material in the new "PreOx" and resin-in-leach circuit. If these tests prove
positive the Daylight area will provide the plant with a readily accessible
additional ore source of higher than average grade ore.
3
In mid-2002 management decided to recommence commercial production at Barbrook
and the refurbishing of the mine, the underground, and the surface
infrastructure commenced in August 2002. The refurbishment of the underground
essentially comprised of re-equipping for mining and underground development,
the replacement of wooden access ways and electric cables, the stripping and
maintenance of locos, winches, fans, and the clearing and re-equipping of the
ore delivery systems etc. The first stopes were started during January 2003 and
by March 2003 the mining rate had increased to 4,000 tonnes per month with the
initial planned mining rate of 6,000 tpm scheduled for May 2003. By the end of
February the mine had built up a stockpile of over 3,000 tonnes of ore at a
grade of about 6.3 g/t for processing.
Surface refurbishment was mainly confined to the administration areas, the
change-house, lamp room, security barracks, training and first aid rooms, the
mine stores and workshops, the assay laboratories, explosive magazines, the
metallurgical plant and the tailings deposition area.
The planned date of mid December 2002 for the plant commissioning was delayed
due to the decision to install the latest technology of pump cells in the new
resin-in-leach circuit. Because of the lower initial tonnage (6,000 tpm)
throughput planned it was decided at an early stage to reconfigure a smaller
primary and secondary milling circuits to cater for this lower tonnage. The 250
kW Vecor re-grind mill in the old 25,000 tpm circuit is presently being used as
the primary ball mill and the Sala 90 kW tertiary mill is now being utilized as
the concentrate regrind mill.
A flash-flotation cell has been installed in the Vecor primary mill circuit to
recover as much of the free and flotation-recoverable gold as early in the
process circuit as possible and to reduce gold lock-up in the primary mill. A
Knelson concentrator has also been installed in the primary Vecor mill circuit
to recover free gold. The existing rougher flotation circuit has been fully
refurbished.
A new pre-aeration section has been refurbished and commissioned, and the
existing cleaner flotation cells have been converted into the PreOx circuit. A
brand new, 6-stage Pumped Cell resin in leach circuit ("PRIL"), the new resin
elution, electrowinning circuits, the refurbished induction furnace and smelt
house, and the associated security systems have been constructed and
commissioned. As previously stated, the PRIL section is fitted with the
state-of-the-art Anglo American-patented pump cells that have been designed and
fabricated by Kemix S.A.
The tailings deposition area has been rehabilitated and the tailings delivery
lines, which have been re-routed to avoid an environmentally sensitive area,
have been pressure tested and the flotation tailings line extended. There has
been a significant enhancement of the environmental and operating codes of
practice and procedures to prevent the risk of pollution off the mine property
and increase mine safety.
The required regulatory and environmental practices have been evaluated, the
risk assessments have been carried out and the required Codes of Practices drawn
up and implemented. Barbrook was granted its Section 9 permanent mining
authorization in March 2003.
It is planned to increase the mined and processed tonnage to 8,000 tonnes per
month as the underground and stope development progresses and provides greater
mining flexibility.
EERSTELING GOLD MINING COMPANY LIMITED - SOUTH AFRICA
Eersteling Gold Mining Company Limited is listed on the Johannesburg Stock
Exchange and is 96.4% owned by Caledonia. The mine is located near the city of
Polokwane (Pietersburg) in the Limpopo Province of South Africa. Production was
halted in early 1997 due to the prevailing low gold prices. The property is less
than 10% explored and Caledonia intends, based on a sustainable economic Rand
gold price, to recommence commercial production at Eersteling during the 2003
year.
GOLD RESOURCES (UNDILUTED) - AS AT DECEMBER 31, 2002
RESOURCE CATEGORY TONNES GOLD GRADE - G/TONNE GOLD OUNCES
- ----------------- --------- -------------------- -----------
Measured 60,527 7.43 14,457
Indicated 537,232 7.78 134,382
Inferred 2,048,961 5.79 381,600
--------- ---- -------
TOTAL MINERAL RESOURCE 2,646,720 6.23 530,439
========= ==== =======
4
With the significant increase in the gold price during late 2002, and with the
added interest of the Rooipoort Platinum prospect (discussed later) there has
been a significant interest shown by a number of other mining companies in
joint-venturing the Eersteling property for a re-commencement of commercial gold
mining operations, further gold exploration, and for the exploration of the
Rooipoort platinum property.
In 2002 Eersteling applied for its required Section 9 permanent mining
permission and this was granted during April 2003. Once the Barbrook Mine has
reached commercial production during the 2nd quarter of 2003, work to return
Eersteling to production will immediately commence provided an economically
sustainable Rand gold price continues to prevail. Present planning is to
commence the de-watering of the underground areas during the 2nd quarter so as
to allow the commencement of the refurbishment and development underground
during the 3rd quarter of 2003. Depending upon the refurbishment work required
in the metallurgical plant it is likely that the processing of the mine ore will
commence during the 4th Quarter of 2003 or the 1st Quarter of 2004. Dependant
upon a study of the economics of transportation and processing, Eersteling may
elect to transport its gold-bearing flotation concentrate to the Barbrook
metallurgical complex for treatment using the new PreOx and PRIL processing
technology.
BASE METALS
NAMA: COPPER / COBALT - ZAMBIA
Caledonia Mining Nama Limited, a wholly owned subsidiary of Caledonia, holds
five contiguous exploration licences in northern Zambia and host open-pittable
near-surface low grade cobalt / copper mineralization. The 2001/2002
soil-sampling program carried out jointly by Caledonia and BHP Billiton was
completed over the majority of the remaining licence area. This program
identified a number of high priority anomalous targets within the required
geological setting. These targets will be followed up in the search for the
suspected presence of larger, deeper, sulphide ore bodies. The exploration
information that has been gained on the Nama group of licences will be
invaluable in developing exploration models and strategy at the nearby Katanga
joint ventures in the D. R. of Congo.
During 2001/2002, the 2,260 geochemical soil samples that were collected during
2000 and 2001 were processed and the results from these soil samples have been
analysed. An additional four anomalies including one drill target have been
identified for the future exploration programs.
KADOLA GROUP: GOLD / COPPER / COBALT / NICKEL / PYRITE - ZAMBIA
Caledonia Mining Kadola Limited, a wholly owned subsidiary of Caledonia, holds
three exploration licences covering 6,099 km2 of the southernmost extension of
the "Zambian Copperbelt". Within the licence areas, several distinct targets
have been identified.
Joint venture partners are being sought for these base metal prospective
properties. It is probable that a reduction in property holding will be made in
2003 to comply with the normal exploration policy. This will not result in any
material reduction in Caledonia's key areas of mineralization.
DIAMONDS
CANADA
KIKERK LAKE
In 2001 and 2002, Caledonia announced the discoveries of two diamondiferous
kimberlites, "Potentilla" and "Stellaria", on the Kikerk Lake property in
Nunavut, by its joint venture partner and operator of the property, Ashton
Mining of Canada Inc. ("Ashton"). The two kimberlite pipes are approximately 700
metres apart.
The Potentilla kimberlite is represented by a magnetic anomaly with approximate
dimensions of 140 x 60 metres and comprises two different facies within the
kimberlite pipe: an upper diatreme facies underlain by a hypabyssal facies.
Drill results suggest that the kimberlite extends 65 metres from the centre of
the anomaly along its longest dimension is orientated north south and has
maximum surface dimensions of 110 metres by 50 metres.
5
The Stellaria kimberlite was discovered by drilling a single vertical hole into
a geophysical anomaly having a surface dimension of approximately 160 metres by
50 metres. A second hole was drilled in summer from a location 40 metre
northwest of the discovery hole at an angle of 60 degrees from the horizontal
towards the vertical discovery hole. The drill passed through 16 metres of
overburden and 52 metres of dolomite before intersecting 21 metres of
hyperbyssal kimberlite, giving Stellaria an estimated true width of 13 metres.
The drill data suggests that the Stellaria kimberlite is a 13 metre-wide dyke
dipping, at an angle of 72 degrees to the northwest. Based on the mineral
indicator and geophysical data, Stellaria has a maximum strike length of
approximately 400 metres.
A 5.83 tonne mini-bulk sample from Potentilla was taken during the Winter 2002
program and returned the following results:
KIMBERLITE SAMPLE WEIGHT DIAMONDS RECOVERED ESTIMATED DIAMOND CONTENT
FACIES (TONNES) (CARATS) (cpht)
-------------------- -------------------------
>0.8 mm > 1.0 mm FOR DIAMONDS > 1.0 mm
------------ ------------- ------- -------- -------------------------
Breccia 4.48 1.07 0.86 19.20
Hypabyssal 1.35 0.21 0.16 11.85
---- ---- ---- -----
TOTAL 5.83 1.28 1.02 17.50
The largest diamond recovered came from the breccia and was a 0.34 carat
colourless composite crystal with small inclusions. The second largest diamond,
recovered from the hypabyssal phase, was a 0.09 carat stone. Using a 1.0 mm
square screen aperture, 1.02 carats of diamonds greater than 1.00 mm were
recovered, representing an estimated diamond content of 17.5 carats per hundred
tonnes ("cpht").
Two samples of Stellaria were obtained from drilling in the winter and the
summer programs. The results from caustic fusion analysis of the two drill core
samples returned the following results:
TOTAL DIAMONDS
DRILL PROGRAM SAMPLE WEIGHT -----------------------------------------------------------------------
(KG) >/= 0.1 MM IN >/= 0.5MM IN >/= 0.5 MM IN >/= 1.0 MM IN
TWO DIMENSIONS TWO DIMENSIONS TWO DIMENSIONS TWO DIMENSIONS
- ------------- ------------- -------------- -------------- -------------- --------------
Summer 110.7 67 22 10 1
Winter 105.4 79 13 1 0
----- -- -- -- -
TOTAL 216.1 146 35 11 1
The data from the two drill holes is insufficient to infer an accurate diamond
concentration of the Stellaria Kimberlite. The summer program also included the
collection of more than 250 indicator minerals in the vicinity of Potentilla and
Stellaria kimberlites to investigate unexplained geophysical and indicator
mineral anomalies. The data from these indicator mineral samples will assist in
identifying priority targets for the 2003 drilling program.
Caledonia currently has a 17.5% interest in the Kikerk Lake property, Ashton
currently holds a 52.5% interest, having incurred in excess of $750,000 in
exploration expenditures on the property. This can be increased to 59.5% if
Ashton funds Caledonia's share through a completed feasibility study.
A formal joint venture agreement between the parties was signed during March
2002.
6
ZAMBIA
Caledonia has a joint venture agreement with BHP World Exploration Inc. and its
affiliate Motapa Diamonds Inc., collectively "the BHP Entity", on the Mulonga
Plain, Kashiji Plain and Kakenge River licences in Western Zambia. Motapa is the
project operator on behalf of the Joint Venture. The BHP Entity is now vested
with a 60% participating interest and Caledonia has the remaining 40% interest.
In terms of the joint venture, the BHP Entity will continue to fund operations
through the completion of a feasibility study at which point their interest will
increase to 75%. Caledonia will then have various options including that of BHP
funding the project through to commercial production.
MULONGA PLAIN:
During the 2002 field program 1,450 metres on eight targets were drilled in
order to gain further stratographic information. The drill holes were sited on a
variety of geophysical anomaly types having the potential to have kimberlite as
the causative source. Overburden thickness varied between 60 and 180 metres. The
key results of the drilling program have been the resolution of thickness,
extent and the character of young sedimentary rocks accumulated over the older
crystalline basement rocks. The nature or these sediments can significantly
affect the geophysical signature that could be expected from a kimberlite body.
Motapa is applying this improved, constrained geological model to the existing
geophysical interpretive work in a review of existing, untested prospective
kimberlite targets. The objective is to identify new drill targets and to
re-prioritize existing drill targets with the refined information for the 2003
drilling program.
KASHIJI PLAIN:
This licence area is located in Northwest Zambia, adjacent to the Angolan
border. Airborne magnetic and ground magnetic, electromagnetic and gravity
geophysical surveys were completed in early summer over a series of 30 magnetic
anomalies. In late summer, an abbreviated exploration program drilled seven of
these targets. A key aim of the program was to develop a model of the overburden
and bedrock geology from which to re-interpret geochemical and the ground
geophysical data. The core from the drill samples is being tested for kimberlite
indicator mineral recovery and analysis.
In addition to the drilling, follow-up heavy mineral sampling was carried out in
the southern and central parts of the licence area to confirm and evaluate
kimberlite indicator mineral recoveries. The initial review was positive with
confirmation that the kimberlite indicator mineral recoveries generated from the
initial reconnaissance work are reproducible at a number of sites. Motapa
believe that these may be close to the primary source. All results should be
available in early 2003.
Motapa remain confident about the prospects of both Mulonga Plain and Kashiji
Plain areas. The have commented that the 2002 programs have significantly
improved their understanding of the property geology that will aid future
exploration. Additional detailed geochemical and geophysical work will be
required to prioritise untested drill targets and to develop new targets as the
new information is fully evaluated.
KAKENGE RIVER LICENCE:
The Kakenge licence, lying immediately east of the southern portion of the
Mulonga licence and east of the Zambezi River is along strike of the defined
anomalous area within the Mulonga licence. In 2002, some further confirmatory
work was carried out on Kakenge as priority work was given to Mulonga and
Kashiji Plain areas.
SOUTH AFRICA
VIER EN TWINTIG RIVIER, PRUISSEN AND ROOIPOORT
In 2002 Caledonia acquired Prospecting and Option Agreements over three
exploration properties in South Africa that it believed to be prospective for
diamonds and platinum. During 2002 Caledonia added, via its JSE listed
subsidiary company Eersteling Gold Mining Company Limited, the Rooipoort
Platinum prospect, located about 30 km south west of Eersteling's gold mine and
dropped its option on the Vier en Twintig Rivier and the Pruissen properties.
7
THE GOEDGEVONDEN EXPLORATION PROJECT
Caledonia has signed a Prospecting and Option Agreement over the Goedgevonden
diamond bearing kimberlite pipe located approximately 20 kilometres north of the
Stilfontein Gold Mine in the Klerksdorp district of the North West Province in
South Africa. In early 2002, Caledonia signed Prospecting and Option Agreements
over adjacent areas of interest, including the exploration rights to the
Syferfontein kimberlite pipe that is located about 1 km northeast of the
Goedgevonden pipe and other adjacent areas of interest.
Previous prospecting activities carried out in the mid 1970's on Goedgevonden
indicated that the pipe is oval in shape and covers a surface area of
approximately 27,000 square metres. This work also confirms that the pipe was
drill intersected at a depth of 425 metres, and that further down dip extensions
remain undefined. Previous drilling reported an average diamond content of 35 to
45 cpht, with one hole yielding 65 cpht. A fair portion of the diamonds
recovered from the drilling were gem quality with a notable tendency toward pink
coloured diamonds.
Caledonia conducted a Stratagem geophysical survey in November 2001 prior to
planning a preliminary drilling program in 2002. The preliminary drilling
program was for 7, 8" and 12" diameter reverse-circulation drill holes, the
collection of the drill samples and diamond recovery. Four holes were drilled in
the centre of the pipe, three to a depth of 150 metres, and the other to 120
metres. The three remaining holes were drilled to delineate the pipe in more
detail. All of the 7 holes drilled entered the kimberlite at a depth of about 6
metres, and the 4 centrally-located holes were stopped whilst still in the
kimberlite. A total of about 56 tonnes of drill sample was collected and
processed through a Van Eck and Lurie dense-media separation ("DMS") plant and
wet Sortex machine. From the diamond recoveries it was confirmed that the
Goedgevonden pipe was diamondiferous, and sufficient gem quality diamonds were
recovered to warrant a larger bulk sample.
The bulk sampling program planned for late 2002 was delayed by the early summer
rains. In the interim Caledonia acquired the time domain airborne geophysics
over the area and will complete its interpretation of this in April 2003. Based
on these conclusions Caledonia plans to commence a large diameter auger drill
sampling program once the summer rains have ceased and the area water table has
dropped sufficiently to facilitate the large diameter auger drilling. The
program is designed to provide a sufficiently large and representative bulk
sample to verify the grade and quality of diamonds found in the undisturbed,
heavily weathered kimberlite overlying the competent kimberlite rock. Based on
these results a bankable feasibility may then be initiated.
PLATINUM
THE ROOIPOORT EXPLORATION PROJECT
Caledonia's 96% subsidiary Eersteling Gold Mining Company Limited acquired the
rights in 2002 to explore and develop the mineral rights on the farm Rooipoort
46 KS from Anglo Platinum Mining Services in exchange for certain surface rights
held by Eersteling in the Pietersburg area. Rooipoort 46 KS is approximately 8
kilometres east of Potgietersrus and about 30 km southwest of Caledonia's
Eersteling gold mine in the Limpopo Province of South Africa and is considered
to be highly prospective for platinum deposits.
Caledonia has been in negotiation with a number of parties in 2002 to escalate
the return of Eersteling to production and simultaneously commence the platinum
exploration and exploitation if found to be commercially viable. These
negotiations continued into 2003. A comprehensive desk study on Rooipoort, based
on airborne geophysics and the down dip drilling on the adjacent farm undertaken
by Anglo Platinum has been completed. This study has confirmed the likely
presence of both the Merensky and the UG-2 platinum group metals on the
property.
It is planned to carry out ground geophysics immediately the prospecting permit,
expected during May 2003, has been received from the Department of Mineral and
Energy. This will likely be followed immediately by a drilling program.
8
MANAGEMENT DISCUSSION AND ANALYSIS
(Expressed in Canadian dollars unless otherwise stated)
FORWARD-LOOKING STATEMENTS
Statements regarding Caledonia's expectations as to the effectiveness of its
plan of business, exploration and development programs, production of gold and
certain other information presented in this report constitute forward looking
statements (as defined in the US Securities Exchange Act of 1934). Such
statements are based on assumptions and estimates related to future economic and
market conditions. While the reasonableness of such assumptions and estimates is
reviewed by management, unusual or unanticipated events may occur which render
them inaccurate. Under such circumstances, future performance may differ
materially from present expectations.
CORPORATE GOVERNANCE
The management of the Company is responsible for the preparation and
presentation of the annual financial statements, management's discussion and
analysis ("MD&A") and other information contained in this annual report. The
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles and reconciled to United States generally
accepted accounting principles in Note 15 of the notes to the consolidated
financial statements.
Management of the Company is held accountable to the Board of Directors (the
"Board") who are in turn elected annually by the shareholders of the Company.
The Board is responsible for reviewing and approving the financial statements
and the MD&A. Performance of this responsibility is delegated by the Board to
the Audit Committee comprised of three directors two of which are not members of
management. The external auditors have complete access to the Audit Committee to
discuss audit, financial reporting and related matters resulting from the annual
audit. The auditors are appointed annually by the shareholders to conduct an
audit of the consolidated financial statements in accordance with generally
accepted auditing standards.
The Toronto Stock Exchange Committee on Corporate Governance in Canada issued a
report in December, 1994 containing guidelines for effective corporate
governance of corporations. The by-laws of The Toronto Stock Exchange were
subsequently amended to require each listed corporation incorporated in Canada
to make annual disclosure of its corporate governance practices with reference
to those guidelines. The Board believes that sound corporate governance
practices are essential to the effective operation of Caledonia and that these
practices should be reviewed regularly to ensure that they are appropriate.
Caledonia's directors and management have responded to the need to establish
forward-looking governance policies and to constantly evaluate and modify them
to ensure their effectiveness. Caledonia's disclosure is set out in the
Management Proxy Circular relating to Caledonia's June 24th 2003 Annual and
Special Meeting of Shareholders. This disclosure statement has been prepared by
the Corporate Governance Committee of the Board and has been approved by the
Board of Directors.
GENERAL
The Company is in the business of locating, acquiring, exploring and, if
warranted, developing and exploiting mineral properties. The principal current
geographical areas of interest are in southern Africa and Canada. Exploration
activities for new projects, where possible, are generally conducted through
joint venture partnerships with major mining companies. The Company also has two
past producing mines located in South Africa, one of which Barbrook, is
presently being refurbished in response to the improving price of gold.
9
However, as was the case in the past three years, Caledonia along with other
companies in the junior resource industry continued to experience difficult
economic times during most of 2002. The raising of finance in April 2002 allowed
management to commence the refurbishment work to bring the Barbrook mine back
into production and to carry out preliminary sampling work on the Goedgevonden
diamond pipe. The financing also allowed Caledonia to significantly reduce its
short-term loan debt. Through-out 2002, the primary focus of management has been
the continuation of operations without incurring significant debt, the
continuing development of the assets of Caledonia and the procurement of longer
term financing.
During the period from mid 1994 to early 1995 Caledonia expanded rapidly with
the acquisition of the Barbrook and Eersteling gold mines in South Africa, the
Cononish gold property in Scotland and the acquisition of essentially 100% of
the remaining interest of the Filon Sur gold mine in Spain, which was not
already owned by Caledonia. Exploration activities were pursued for alluvial
diamonds in the Northwest Territories of Canada and other property interests
were added to the property portfolio in southern Africa. During this period,
gold revenue per ounce was in the US$400 range and Caledonia was optimistic that
the two South African gold mines could be brought successfully into production.
Plans were also underway to develop the gold property in Scotland. The expansion
programme was financed in part by the issue of common stock during a period when
the share price achieved an all time high of $13.13 per share. Debt financing
was also used for the expansion resulting in the issue of approximately $20.4
million of convertible debentures. Bank financing of US$10.5 million US was used
to expand the production capacity of the Filon Sur gold mine in Spain.
Subsequent to this expansion activity, revenue derived from gold production
started to decline due to the falling price of gold and market support eroded as
investors searched for better returns from other industry sectors. In response,
Caledonia cut back dramatically on exploration programs, placed higher cost gold
mining operations on care and maintenance status and slashed administrative
expenditures. Discussions during 1999 with the lender for a further
restructuring of the Filon Sur debt continued, culminating in an agreement to
sell Filon Sur and gain access to future financing for Caledonia. Similarly,
discussions with the convertible debenture holders resulted in the conversion of
the debentures to common shares in 1999.
In September 2000, Caledonia completed the sale and debt restructuring of
Caledonia's subsidiary Filon Sur. Caledonia is now essentially debt free, the
secured short-term debt has been reduced to $69,000 with the largest creditors
being officers of the Company which is included in accounts payable. Except for
minor income from gold production, Caledonia was able to continue through 2002
with funding received from two equity financings and the exercise of warrants.
A small quantity of gold and silver was recovered from the limited mining
carried out at Barbrook in early 2002.
Going forward, the objectives of the Company are to complete the refurbishment
of the Barbrook mine and commence commercial production. Efforts to grow the
asset base through exploration will continue on the Goedgevonden diamond pipe
and the Rooipoort platinum prospect, both in South Africa, and encouragement
will be provided to the Company's joint exploration partners to continue
activity at the Kikerk Lake project in Canada and the Mulonga Plain project in
Zambia.
RISK FACTORS
There are many risk factors facing companies involved in the mining industry.
The following factors are those which are the most applicable to the Company.
The discussion which follows is not inclusive of all potential risks. Risk
management is an ongoing exercise upon which the Company spends a substantial
amount of time. While it is not possible to eliminate all of the risks inherent
to the mining business, the Company strives to manage these risks, to the
greatest extent possible, to ensure that its assets are protected.
Some of the more common elements of risk are as follows:
INDUSTRY
Exploring and developing mineral properties is inherently risky in nature and
few properties that are explored are ultimately developed into producing mines
due to events or circumstances which cannot be reasonably predicted in advance.
Exploration or mining operations may be subject to risks or hazards such as
labour disputes, environmental events, unexpected geological formations, natural
disasters or estimation errors for example. The occurrence of any single event
could result in the creation of uneconomic conditions which could result in the
termination of exploration programs or development projects. The Company
attempts to mitigate industry inherent risks as much as possible through
insurance programs and on going risk management assessment reviews.
10
POLITICAL RISK
The Company's foreign operations located in southern Africa could be adversely
affected by war, civil disturbances and activities of the foreign governments
which could disrupt markets or restrict the movement of funds. In order to limit
the exposure of the Company to these risks, financing requirements for project
exploration activities is provided on an as required basis or where possible
funded through the joint venture partners. The Company, at present, does not
maintain political risk insurance for its foreign exploration projects.
PRECIOUS METAL PRICE
The principal business activity of the Company is the exploration for precious
and base metals, platinum and diamonds. The future development of economically
exploitable properties is largely dependent on the movement in the price of
diamonds, platinum and precious and base metals. These prices fluctuate on a
daily basis and are affected by a number of factors beyond the control of the
Company. A sustained decline in diamonds, platinum, precious and base metal
prices could result in the termination of exploration or development activities
on any exploration property. This could result in a write down of the property
carrying values or the termination of a property interest. Although metal prices
cannot be predicted with certainty, the Company monitors supply/demand
conditions, among other issues, all of which affect world prices in order to
assess the feasibility of continuing exploration activities.
ENVIRONMENTAL
Exploration projects and producing operations are subject to the environmental
laws and regulations of the country in which the activities are undertaken. The
environmental standards continue to change and the world trend is to a longer
more complex process. The Company continuously reviews environmental matters and
undertakes to comply with changes as expeditiously as possible. Where
appropriate, provisions are made in the financial statements for any potential
environmental liability.
LIQUIDITY
As of December 31, 2002 the Company had working capital of $0.8 million compared
to a deficiency of $2.5 million at December 31, 2001. Cash and short term
deposits increased from $0.09 million at the end of 2001 to $ 1.9 million at
December 31, 2002.
During 2002, Caledonia raised $5.2 million in equity financing from a private
placement by issuing 27,409,655 common shares and a from the exercise of common
share purchase warrants. Details of financing activities are presented in note 6
(b) of the notes to the consolidated financial statements. During 2003 it is
expected that further cash requirements of Caledonia will be met from private
placement equity financing activity and cash flow from gold production at
Barbrook.
FINANCIAL REVIEW OF OPERATIONS
For the year ended December 31, 2002, the Company recorded a net loss after
write downs of $ 4.3 million ($0.023 per share) compared to a net loss of $1.2
million ($0.008 per share) in 2001. The loss in 2002 resulted from the write
down of mineral properties of $2.6 million and losses from operating activities
of $1.6 million. There was no capital asset or mineral property write down in
2001. The loss from operating activities of $1.6 million has increased from $1.1
million in 2001 reflecting a higher level of activity associated with efforts to
refurbish the Barbrook operation and increased general and administrative
expenses. The expensing of $0.2 million of stock option grants is included in
general and administrative for 2002. There was no similar charge for 2001.
Despite the difficulties experienced in general by the mining industry in 2002
with continuing low base metal prices throughout the year and low gold prices in
the early part of the year, Caledonia moved forward on several fronts.
Exploration activities by Caledonia's joint venture partners continued in Zambia
and in Canada. Exploration at Kikerk Lake in Nunavut, Canada identified a second
diamondiferous kimberlite - the Stellaria kimberlite. Positive results from the
first pipe, Potentilla, together with the Stellaria pipe and other discoveries
in the area, maintained interest in diamond exploration activities in the
Coronation Gulf area of Canada. In Zambia, the BHP entity continued exploration
activity on the Mulonga Plain diamond joint venture. In South Africa, the
Syferfontein diamond property, adjacent to Caledonia's Goedgevonden diamond
prospect was added to Caledonia's portfolio of exploration properties during the
year as was the Rooipoort platinum prospect. The options on the Vier-en-Twintig
and Pruissen properties in South Africa were dropped.
11
The main focus of Caledonia's activities in 2002 was the re-evaluation of
geology and mining at Barbrook and the start of refurbishment of the mine and
plant to enable a resumption of production in 2003, field exploration at the
Goedgevonden diamond prospect to develop a bulk mining program for 2003 and a
desk study of all the available data at the Rooipoort platinum prospect, near
Eersteling, to determine a drilling program for 2003.
In 2002, the sole contributor to revenue from sales were the Barbrook and
Eersteling gold mines in South Africa in an amount of $27,000 as compared to
revenue of $124,000 in 2001. A total of 52 ounces of gold were sold in the 2002
calendar year.
The production and sale of gold for 2003 is difficult to estimate, and will
depend upon the rate and timing of the commercial production achieved at
Barbrook.
The table below provides a quarterly summary of selected financial information
for the year 2002. The table should be reviewed in conjunction with the
information included in the financial statements.
SELECTED FINANCIAL HIGHLIGHTS - 2002
FIRST SECOND THIRD FOURTH TOTAL
000'S EXCEPT PER SHARE AMOUNT QUARTER QUARTER QUARTER QUARTER YEAR
----------------------------- ------- ------- ------- ------- -----
BALANCE SHEET
Current assets $223 $964 $1,521 $2,094
Capital assets 7,424 7,451 7,610 7,715
Mineral properties 17,299 17,378 17,424 14,879
Share capital $143,986 $146,658 $148,106 $149,623
OPERATIONS
Expenses $351 $315 $395 $3,180(1) $4,241
Net loss for the period $409 $428 $536 $2,958(1) 4,331
Loss per share - basic $0.002 $0.003 $0.003 $0.014 0.023
(1) Includes write down of mineral properties in an amount of $2,590
during the fourth quarter.
12
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
TO THE SHAREHOLDERS OF CALEDONIA MINING CORPORATION:
The accompanying consolidated financial statements of the Corporation were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the summary
of significant accounting policies in these consolidated financial statements.
Management is responsible for all information in the annual report. All
financial and operating data in the annual report is consistent, where
appropriate, with that contained in the consolidated financial statements.
A system of internal accounting control is maintained in order to provide
reasonable assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's authorization.
This system includes established policies and procedures, the selection and
training of qualified personnel and an organization providing for appropriate
delegation of authority and segregation of responsibilities.
The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee
composed of three directors, two of whom are not members of management. This
Committee meets with management to assure that it is performing its
responsibility to maintain financial controls and systems and to approve the
annual consolidated financial statements of the Corporation. The Audit Committee
also meets with the independent auditors to discuss the results of their audit,
their review of internal accounting controls and their audit report prior to
submitting the consolidated financial statements to the Board of Directors for
approval.
The consolidated financial statements have been audited on behalf of the
shareholders by the Corporation's independent auditors, BDO Dunwoody LLP, in
accordance with generally accepted auditing standards. The auditors' report
outlines the scope of their examination and their opinion on the consolidated
financial statements.
/s/ S.E. HAYDEN /s/ S.W. POAD
Chairman of the Board, President and Vice-President Finance
Chief Executive Officer and Administration
13
- --------------------------------------------------------------------------------
AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
CALEDONIA MINING CORPORATION
We have audited the consolidated balance sheets of Caledonia Mining Corporation
as at December 31, 2002 and 2001 and the consolidated statements of deficit,
operations and cash flow for each of the years in the three year period ended
December 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financials statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flow for each of the
years in the three year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.
The Company's consolidated financial statements as at December 31, 2002 have
been revised as explained in Note 15(g) and our report dated April 10, 2003 has
been withdrawn.
/s/ BDO DUNWOODY LLP
Chartered Accountants
Toronto, Ontario
April 10, 2003 (except for Note 15(g), which is as of May 26, 2003)
- --------------------------------------------------------------------------------
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
- --------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
the summary of significant accounting policies. The United States reporting
standards also require the addition of an explanatory paragraph when changes in
an accounting policy, such as those involving stock based compensation described
in the summary of significant accounting policies, has a material effect on the
consolidated financial statements. Our report to the shareholders dated April
10, 2003 (except for Note 15(g), which is as of May 26, 2003) is expressed in
accordance with Canadian reporting standards which do not require a reference to
such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
/s/ BDO DUNWOODY LLP
Chartered Accountants
Toronto, Ontario
April 10, 2003 (except for Note 15(g), which is as of May 26, 2003)
14
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CALEDONIA MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
DECEMBER 31 2002 2001
- --------------------------------------------------------------------------------
ASSETS
Current
Cash and short term deposits $1,864 $90
Accounts receivable 113 89
Prepaid expenses 117 5
--------- ---------
2,094 184
INVESTMENT AT COST (Note 1) 79 --
CAPITAL ASSETS (Note 2) 7,715 7,424
MINERAL PROPERTIES (Note 3) 14,879 17,365
--------- ---------
$24,767 $24,973
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable $1,267 $1,604
Loan payable (Note 4) 69 1,097
--------- ---------
1,336 2,701
PROVISION FOR SITE RESTORATION (Note 3) 506 1,026
NON-CONTROLLING INTEREST 774 787
--------- ---------
$2,616 $4,514
--------- ---------
SHAREHOLDERS' EQUITY
Share capital (Note 6 (b)) $149,623 $143,986
Contributed surplus (Note 6 (e)) 209 --
Compensation warrants (Note 6 (d)) 177 --
Deficit (127,858) (123,527)
--------- ---------
22,151 20,459
--------- ---------
$24,767 $24,973
========= =========
On behalf of the Board:
/s/ F.C.HARVEY Director
- ------------------------
/s/ J.JOHNSTONE Director
- ------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
15
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CALEDONIA MINING CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE YEARS ENDED DECEMBER 31 2002 2001 2000
- --------------------------------------------------------------------------------
DEFICIT, beginning of year ($123,527) ($122,332) ($129,744)
NET INCOME (LOSS) FOR THE YEAR (4,331) (1,195) 7,412
--------- --------- ---------
DEFICIT, end of year ($127,858) ($123,527) ($122,332)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31 2002 2001 2000
- ----------------------------------------------------------------------------------------------
REVENUE AND OPERATING COSTS
Revenue from sales $27 $124 $6,623
Revenue from management services -- -- 109
Operating costs 130 250 6,428
------- ------- ------
GROSS PROFIT (LOSS) (103) (126) 304
------- ------- ------
COSTS AND EXPENSES
General and administrative 1,540 1,030 1,225
Interest 29 84 41
Amortization 9 16 877
Other expense (income) (Note 9) 73 (61) (245)
Write down of mineral property 2,590 -- --
------- ------- ------
4,241 1,069 1,898
------- ------- ------
(LOSS) BEFORE THE UNDERNOTED (4,344) (1,195) (1,594)
Net gain on conversion of the convertible
debentures and sale of subsidiary companies - net -- -- 9,003
(Note 5)
------- ------- ------
INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST (4,344) (1,195) 7,409
Non-controlling interest (13) -- 3
------- ------- ------
NET INCOME (LOSS) FOR THE YEAR ($4,331) ($1,195) $7,412
======= ======= ======
INCOME (LOSS) PER SHARE (NOTE 8)
Basic and fully diluted ($0.023) ($0.008) $0.080
======= ======= ======
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
16
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CALEDONIA MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE YEARS ENDED DECEMBER 31 2002 2001 2000
- --------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the year ($4,331) ($1,195) $7,412
Adjustments to reconcile net cash from
operations (Note 10) 2,795 16 (8,257)
Changes in non-cash working capital
balances ( Note 10) (473) 58 731
------- ------- -------
($2,009) ($1,121) ($114)
------- ------- -------
INVESTING ACTIVITIES
Cash given up on sale of Filon Sur $-- $-- ($721)
Purchase of investment (79) -- --
Proceeds from sale of capital assets 81 --
Expenditures on capital assets (300) -- --
Expenditures on mineral properties (624) (23) (120)
------- ------- -------
($1,003) $58 ($841)
------- ------- -------
FINANCING ACTIVITIES
Loan payable ($388) $118 $979
Issue of share capital net of issue costs 5,174 960 --
------- ------- -------
$4,786 $1,078 $979
------- ------- -------
INCREASE IN CASH FOR THE YEAR $1,774 $15 $24
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 90 75 51
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,864 $90 $75
------- ------- -------
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
NATURE OF BUSINESS
The Company is engaged in the acquisition, exploration and development of
mineral properties for the exploitation of base and precious metals. The ability
of the Company to recover the amounts shown for its capital assets and mineral
properties is dependent upon the existence of economically recoverable reserves;
the ability of the Company to obtain the necessary financing to complete
exploration and development; and future profitable production or proceeds from
the disposition of such capital assets and mineral properties.
As of June 30, 2000, the Company has been managing Filon Sur, SA ("Filon Sur"),
a former subsidiary on behalf of private investors. During January 2002, the
mine was placed in liquidation and the management services contract was
terminated.
17
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CALEDONIA MINING CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
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 discharge
liabilities in the normal course of business. The Company's ability to continue
as a going concern is dependent upon attaining profitable operations and
obtaining sufficient financing to meet its liabilities, its obligations with
respect to operating expenditures and expenditures required on its mineral
properties.
MEASUREMENT UNCERTAINTIES
Preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. The more significant areas
requiring estimates relate to mineral resources, future cash flows associated
with capital assets and mineral properties. Management's calculation of reserves
and resources and cash flows are based upon engineering and geological estimates
and financial estimates including gold prices and operating costs. The amount
ultimately recovered could be materially different than the estimated values.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
together with all its subsidiaries.
The Company's principal consolidated subsidiaries are Barbrook Mines Limited
(100% owned) ("Barbrook"), Eersteling Gold Mining Company Limited (96% owned)
("Eersteling") and Caledonia Mining (Zambia) Limited, Caledonia Kadola Limited,
Caledonia Nama Limited and Caledonia Western Limited (all 100% owned)
(collectively known as "Caledonia Zambia").
Effective with the close of business on June 30, 2000, the Company recorded the
sale of Filon Sur (previously 99.5% owned) and Filon Sur's wholly owned
subsidiary, Fynegold Exploration Limited ("Fynegold") to the Oak Consortium
("Oak"), a group of private investors, as part of the debt restructuring of
Filon Sur. Accordingly, these consolidated financial statements reflect the
operating activities of Filon Sur and Fynegold up to the close of business as of
June 30, 2000. The Company's revenue from sales and operating costs for the
first six months of 2000 were principally derived from the Filon Sur operation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash on hand in operating bank accounts and
short term cash deposits in money market funds.
INVENTORIES
Inventories are stated at the lower of cost, which is determined on the
first-in, first-out basis, and net realizable value.
CAPITAL ASSETS
PRODUCING ASSETS
Producing assets are recorded at cost less grants, accumulated amortization and
write-downs. Producing assets are amortized using the straight line method based
on the estimated useful lives of the assets. The estimated useful life of the
producing assets range from 3 to 5 years. Repairs and maintenance expenditures
are charged to operations; major improvements and replacements which extend the
useful life of an asset are capitalized and amortized over the remaining useful
life of that asset. As of December 31, 2002, 2001 and 2000, the Company does not
have any producing capital assets.
18
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CALEDONIA MINING CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
NON-PRODUCING ASSETS
Non-producing assets are recorded at cost less write downs. During non-producing
periods, no amortization is recorded.
At the time of commercial production, the assets are reclassified as producing
and amortized in the manner described above.
MINERAL PROPERTIES
PRODUCING PROPERTIES
When and if properties are placed in production, the applicable capitalized
costs are amortized using the unit-of-production method on the ratio of tonnes
of ore mined or processed to the estimated proven and probable mineral reserves
as defined by the Canadian Institute of Mining, Metallurgy and Petroleum. As of
December 31, 2002, 2001 and 2000, the Company does not have any producing
mineral properties.
NON-PRODUCING PROPERTIES
Costs relating to the acquisition, exploration and development of non-producing
resource properties which are held by the Company or through its participation
in joint ventures are capitalized until such time as either economically
recoverable reserves are established, or the properties are sold or abandoned.
A decision to abandon, reduce or expand activity on a specific project is based
upon many factors including general and specific assessments of mineral
reserves, anticipated future mineral prices, anticipated costs of developing and
operating a producing mine, the expiration date of mineral property leases, and
the general likelihood that the Company will continue exploration on the
project. However, based on the results at the conclusion of each phase of an
exploration program, properties that are not suitable as prospects are
re-evaluated to determine if future exploration is warranted and that carrying
values are appropriate.
The ultimate recovery of these costs depends on the discovery and development of
economic ore reserves or the sale of the properties or the mineral rights. The
amounts shown for non-producing resource properties do not necessarily reflect
present or future values.
JOINT VENTURES
Certain of the Company's exploration activities are conducted jointly with
others. These financial statements reflect only the Company's expenditures on
these properties.
FOREIGN CURRENCY TRANSLATION
Balances of the Company denominated in foreign currencies and the accounts of
its foreign subsidiaries, excluding Filon Sur, are translated into Canadian
dollars as follows:
(i) monetary assets and liabilities at period end rates;
(ii) all other assets and liabilities at historical rates; and
(iii) revenue and expense transactions at the average rate of exchange
prevailing during the period.
Exchange gains or losses arising on these translations are reflected in income
in the year incurred. Gains and losses arising on translation of long term
foreign currency denominated liabilities at each year end are reflected in
income in the year incurred effective for years ending after December 31, 2001.
Prior thereto, translation gains or losses arising on long term foreign currency
denominated liabilities were deferred and amortized to earnings over the
remaining life of such liabilities. The Company has no long term debt
denominated in foreign currency.
19
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CALEDONIA MINING CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
Filon Sur which was a self-sustaining foreign subsidiary up to June 30, 2000,
was translated at current rates of exchange.
REVENUE RECOGNITION
Revenue from the sale of precious metals is recognized when delivery occurs.
PROVISION FOR SITE RESTORATION
Site restoration costs are accrued when the need for such expenditure is
established, and then written off as part of the cost of production. It is
always possible that the Company's estimate of its ultimate site restoration
liability could change in the near term due to possible changes in laws and
regulations in applicable jurisdictions and changes in cost estimates.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period that
substantive enactment or enactment occurs.
CHANGE IN ACCOUNTING POLICY - STOCK BASED COMPENSATION
The Company has adopted the new accounting standard of the Canadian Institute of
Chartered Accountants ("CICA") for accounting for stock-based compensation
expense effective January 1, 2002 on a prospective basis. Under this standard,
compensation expense on stock options granted to non-employees is recorded as an
expense in the period the options are vested using the fair value method
estimated using the Black-Scholes Option Pricing Model.
The Company does not record compensation expense for stock options granted to
directors, officers and employees. However, additional disclosure of the effects
of accounting for stock-based compensation to directors, officers and employees
as compensation expense, using the fair value method estimated using the
Black-Scholes Option Pricing Model, is disclosed as pro-forma information in
Note 6 (e) which follows. Any consideration paid by directors, officers and
employees on exercise of stock options or purchases of shares is credited to
share capital.
20
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
1. INVESTMENT AT COST
On May 9, 2002 the Company participated in a private placement of Motapa
Diamonds Inc. in an amount of $50 US ($79 Canadian) representing a 0.3%
interest. Motapa Diamonds Inc. is the Company's joint venture partner on
the Mulonga Plain diamond exploration project in Zambia.
- --------------------------------------------------------------------------------
2. CAPITAL ASSETS
2002
--------------------------------------
Accumulated Net
Cost (1) Amortization Book Value
-------- ------------ ----------
Land - plant sites $1,833 $-- $1,833
Plant and equipment
- non-producing (2)(3) 6,521 664 5,857
Office furniture 750 739 11
Vehicles 357 343 14
------ ------ ------
$9,461 $1,746 $7,715
====== ====== ======
2001
--------------------------------------
Accumulated Net
Cost (1) Amortization Book Value
-------- ------------ ----------
Land - plant sites $1,711 $-- $1,711
Plant and equipment
- non-producing (2) 6,372 664 5,708
Office furniture 735 730 5
Vehicles 343 343 --
------ ------ ------
$9,161 $1,737 $7,424
====== ====== ======
(1) Cost is comprised of the original cost of the asset, less previous
write downs, removal of cost for disposals and government grants.
(2) The non-producing plant and equipment relates to the Barbrook and
Eersteling properties. In 1997 the mines were placed on care and
maintenance resulting in write downs to estimated net realizable
amount.
(3) The net book value of the Barbrook plant and equipment at December
31, 2002 is $4,460. Rehabilitation of Barbrook commenced during
the second half of 2002 in response to improving gold prices. The
remainder of plant and equipment of $1,397 relates to Eersteling.
The recoverability of the carrying amount of the Barbrook capital assets
is dependent upon the availability of sufficient funding to bring the
property into commercial production, the price of gold, the exchange rate
of the South African Rand relative to US dollars and the undertaking of a
profitable mining operation. The recoverability of the carrying amount of
the Eersteling capital assets is dependent upon the availability of
sufficient funding to bring the property into commercial production or
the value realized from the possible disposal of the assets. As a result
of these uncertainties, the actual amount recovered may vary
significantly from the carrying amount.
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
3. MINERAL PROPERTIES
2002
-------------------------------------
Accumulated Net
Cost (1) Amortization Book Value
-------- ------------ ----------
Non-producing - care and maintenance:
Barbrook, South Africa - gold property (2) $3,278 $17 $3,261
Eersteling, South Africa - gold property 357 67 290
Non-producing - exploration:
Nunavut, Canada 750 -- 750
Zambia 10,578 -- 10,578
Other 488 488 --
------- ---- -------
$15,451 $572 $14,879
======= ==== =======
2001
-------------------------------------
Accumulated Net
Cost (1) Amortization Book Value
-------- ------------ ----------
Non-producing - care and maintenance:
Barbrook, South Africa - gold property $3,461 $17 $3,444
Eersteling, South Africa - gold property 357 67 290
Non-producing - exploration:
Nunavut, Canada 750 -- 750
Zambia 12,881 -- 12,881
Other 488 488 --
------- ---- -------
$17,937 $572 $17,365
======= ==== =======
(1) Cost is comprised of the original cost of the asset, less previous
write downs, removal of cost for disposals and government grants.
(2) The carrying amount of the Barbrook mineral property has been
reduced by $520 since there has been a corresponding reduction in
the estimated provision for site restoration.
The Company has entered into joint venture agreements with third parties
on one Canadian property and one Zambian property valued at $750 and
$1,044 respectively. The third parties may earn varying percentage
interests in these properties by carrying out exploration work on the
properties.
The recoverability of the carrying amount of the Barbrook, Eersteling and
Zambian mineral properties is dependent upon the availability of
sufficient funding to bring the properties into commercial production,
the price of gold, the exchange rate of the local currency relative to US
dollars and the undertaking of a profitable mining operation. As a result
of these uncertainties, the actual amount recovered may vary
significantly from the carrying amount. The Kadola property in Zambia has
been written down to $1 due to limited exploration activity.
- --------------------------------------------------------------------------------
4. LOAN PAYABLE
As part of the restructuring of debt (Note 5), Oak agreed to provide
short term financing, due on demand, interest accruing at 8%, and secured
by a General Security Agreement over certain assets of the Company.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
5. NET GAIN ON CONVERSION OF CONVERTIBLE DEBENTURE AND SALE OF SUBSIDIARY
In 2000, the Company completed the restructuring of its long term debt
which process commenced in 1999. The result of the restructuring is
summarized as follows:
(a) In 1999, the Company converted 4% Convertible Debentures into
14,593,750 common shares at a conversion price of a $1.40 per
share. As a result, $4,185 was allocated to share capital and
$15,526 to a pre-tax gain on restructuring. An amount of $10,216
of the gain was deferred since the debenture holders retained the
right to become a creditor of the Company under certain
circumstances.
(b) On June 30, 2000, as part of a series of transactions, the Company
disposed of its investment in Filon Sur and Fynegold, including
its inter-company debt, for nominal consideration to Oak. As part
of this transaction CIBC Wood Gundy Ireland Limited ("CIBC")
waived its right to receive payment in cash for a Convertible Note
(the "Note") which it held as a result of the debt restructuring
that commenced in 1999. The Note was subsequently purchased by Oak
from CIBC and settled by the issuance of 79,371,973 common shares
to Oak pursuant to its original terms of conversion.
The result of these transactions was the settlement of long term
debt, disposal of the Company's investment in Filon Sur and
Fynegold and the realization of the deferred gain from the
conversion of the Convertible Debentures.
The deferred gain realized in 2000 was calculated as follows:
Realization of deferred gain $10,216
Loss on disposal of Filon Sur and Fynegold $ 1,213
-------
Net gain $ 9,003
=======
In addition, as part of the sale and debt restructuring, the
Company was contracted to provide management services over the
activities of Filon Sur and Fynegold on behalf of Oak for 30% of
the distributable cash flow of Filon Sur. The agreement which
terminated during January 2002 provided that if the Company
committed an unremedied default under the terms of the agreement,
the Company would have a liability of $1,000 in liquidation
damages, which amount would be payable in cash or shares of the
Company at the Company's election.
- --------------------------------------------------------------------------------
6. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares. Unlimited number of preference
shares.
(b) Issued
Number of Shares Amount
---------------- --------
Common shares
Balance, December 31, 2000 148,202,115 $143,026
Issued pursuant to a private placement - note (1) 17,000,000 960
----------- --------
Balance, December 31, 2001 165,202,115 143,986
Issued pursuant to private placements - notes (2) & (4) 27,409,655 4,023
Warrants exercised 18,018,000 1,474
Shares issued for debt - note (3) 1,165,500 140
----------- --------
Balance, December 31, 2002 211,795,270 $149,623
=========== ========
23
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (CONTINUED)
(1) On August 3, 2001 the Company issued 17,000,000 units at $0.06 per
unit for gross proceeds of $1,020. Each unit is comprised of one
common share and one common share purchase warrant exercisable at
$0.075 per share expiring February 3, 2003. Share issue costs of
$60 have been charged to share capital.
(2) On April 12, 2002, the Company completed a private placement for
proceeds of $3,000 comprised of gross cash consideration of $2,500
and the retirement of debt of $500. The issue price was $0.145 per
unit, each unit being comprised of one common share and one half
common share purchase warrant exercisable at $0.195 per whole
common share purchase warrant for a period of two years from the
issue date. A total of 20,689,655 shares were issued pursuant to
the private placement of which 3,448,029 were issued for the
retirement of debt. Share issue costs of $328 for the private
placement have been charged to share capital. In addition, whole
broker warrants in the amount of 1,724,163 were issued exercisable
at $0.195 per warrant. A value of $0.06 per warrant was assigned
to the broker compensation warrants for a total consideration of
$103.
(3) A convertible loan of a subsidiary convertible in common shares of
the Company was redeemed and converted during the third quarter of
2002 into 1,165,500 common shares valued at $140.
(4) During December 2002, the Company commenced a private placement to
raise $3,000. As at December 31, 2002 the first closing raised
gross proceeds of $1,680 resulting in the issuance of 6,720,000
common shares. The balance of the offering was received on January
6, 2003 upon completion of the second closing. A total of 12
million units priced at $0.25 per unit were subscribed (see note
13). Each unit consisted of one common share and one half common
share purchase warrant. Each full warrant entitles the holder to
purchase one common share at a price of $0.33 for a period of one
year from the date of issue. Share issue costs of $152 have been
charged to share capital. A total of 672,000 broker warrants were
issued upon behalf of the first closing under the same terms and
conditions as noted above. A value of $0.11 per warrant was
assigned to broker compensation warrants for a total consideration
of $74.
(c) Stock Option Plans
The Company has established incentive stock option plans (the "Plans")
for employees, officers, directors, consultants and other service
providers. Under the Plans, as at December 31, 2002, the Company has the
following options exercisable and outstanding:
Number of Shares Exercise Price Expiry Date
---------------- -------------- -----------
410,700 $ 0.750 April 28, 2005
1,232,100 $ 0.500 April 28, 2003
813,000 $ 0.330 February 9, 2008
225,000 $ 0.345 June 2, 2012
10,000,000 $ 0.235 April 24, 2012
The continuity of the options granted, exercised and cancelled under the
Plans during 2002 and 2001 are as follows and all of the options
outstanding are exercisable.
Number of Weighted Average
Options Price
---------- ----------------
Options outstanding as at December 31, 2000 & 2001 2,565,800 $0.48
Options granted 10,225,000 $0.24
Options cancelled (110,000) ($0.33)
----------
Options outstanding as at December 31, 2002 12,680,800 $0.29
==========
24
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (continued)
(d) Warrants
The Company has issued the following common share purchase warrants
pursuant to the private placement which are outstanding as of December
31, 2002:
Number of Warrants Shares for Warrants Exercise Price Expiry Date
------------------ ------------------- -------------- ------------------
291,375 1 for 1 $0.150 September 19, 2003
(1) 1,724,163 1 for 1 $0.195 April 12, 2004
18,653,655 1 for 2 $0.195 April 12, 2004
6,720,000 1 for 2 $0.330 December 30, 2003
(1) 672,000 1 for 1 $0.330 December 30, 2003
(1) These warrants represent broker compensation warrants issued
during the year at an assigned value of $177.
The continuity of warrants issued and outstanding in terms of equivalent
shares is as follows:
Number of Warrants Equivalent Underlying Shares
------------------ ----------------------------
Outstanding December 31, 2000 5,000,000 5,000,000
Expired (5,000,000) (5,000,000)
Issued pursuant to private placement 17,000,000 17,000,000
----------- -----------
Outstanding December 31, 2001 17,000,000 17,000,000
Issued pursuant to private placements 27,409,655 13,704,828
Issued to Broker 2,396,163 2,396,163
Issued for conversion of debt 291,375 291,375
Exercised (19,036,000) (18,018,000)
----------- -----------
Outstanding December 31, 2002 28,061,193 15,374,366
=========== ===========
(e) Stock Based Compensation
Options to purchase common shares have been granted to directors,
officers and employees at exercise prices determined by reference to the
market value on the date of grant. Vesting of options is made at the
discretion of the board of directors at the time the options are granted.
As at December 31, 2002, the Company has stock options outstanding for
the purchase of 12,680,800 common shares (as at December 31, 2001 -
2,565,800 common shares). All of the options outstanding are exercisable.
Pursuant to the new CICA policy of accounting for stock based
compensation, compensation expense on stock options granted to directors,
officers and employees, using the fair value method, is disclosed as
pro-forma information. Of the stock options granted to directors an
amount of 1,000,000 options were granted as compensation for legal
services. The fair value assigned to the options in an amount of $209 was
recorded as an expense and credited to contributed surplus.
25
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (continued)
The fair value of stock options used to calculate compensation expense is
estimated using the Black-Scholes Option Pricing Model with the following
assumptions as at December 31, 2002.
Risk-free interest rate 3.63%
Expected dividend yield nil
Expected stock price volatility 48%
Expected option life in years 3
The pro-forma effect on net loss and loss per share for the period ended
December 31, 2002 of the actual results had the Company accounted for the
stock options granted to directors, officers and employees using the fair
value method is as follows:
Net loss for the period
Reported $4,331
Compensation expense $1,916
------
Pro-forma $6,247
======
Basic loss per share
Reported $0.023
======
Pro-forma $0.033
======
Option pricing models require the input of highly subjective assumptions
including the expected price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate, and therefore
the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's stock options.
- --------------------------------------------------------------------------------
7. INCOME TAXES
Effective January 1, 2000, the Company calculates income taxes using the
liability method as explained in the Summary of Significant Accounting
Policies. The effect of this change was not material to the Company.
The Company's effective tax rate, which differs from the combined federal
and provincial statutory income tax rates, may be reconciled as follows:
2002 2001 2000
---------------- --------------- -----------------
$ % $ % $ %
----- ----- ---- ----- ------ -----
Basic rate applied to pre-tax income (loss) (1,672) (38.6) (509) (42.6) 3,232 43.6
Losses and other benefits not tax affected 1,672 38.6 509 42.6 230 3.0
Non taxable portion of capital loss -- -- -- -- (1,998) (26.9)
Utilization of prior year losses -- -- (1,464) (19.7)
----- ----- ---- ----- ------ -----
-- -- -- -- -- --
===== ===== ==== ===== ====== =====
The Company and its subsidiaries have non-capital losses of approximately
$15,199 which may be carried forward to reduce future taxable income. The
right to claim non-capital losses of $1,269, $142, $628, $10,191 and
$2,969 expires in 2009, 2008, 2007, 2005 and 2004 respectively. The
Company also has approximately $73,957 in capital losses which can be
applied to reduce future capital gains. The right to claim these capital
losses is carried forward indefinitely.
26
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
The Company also has the following expenses which are available to be
applied against future income for income tax purposes:
Canadian exploration and development expenses $7,560
------
Foreign exploration and development expenses $1,812
------
The benefit of the above tax assets have not been recognized in the
accounts for financial statement purposes and have been reduced by a
valuation adjustment.
- --------------------------------------------------------------------------------
8. INCOME (LOSS) PER SHARE
The income (loss) per share figures have been calculated using the
weighted average number of common shares outstanding during the
respective fiscal years which amounted to 187,710,451 (2001 -
155,285,448; 2000 - 92,750,463). Effective January 1, 2001, the Company
adopted the treasury method of calculating fully diluted income per share
on a retroactive basis. Exercise of the outstanding stock options and
warrants would be anti-dilutive in 2002, 2001 and 2000.
- --------------------------------------------------------------------------------
9. OTHER EXPENSE (INCOME)
Other expense (income) is comprised of the following:
2002 2001 2000
---- ---- ----
Investment income ($7) ($2) $--
Oil and gas net income (7) (27) (24)
Foreign exchange (gain) loss 87 (32) (221)
--- ---- -----
$73 ($61) ($245)
=== ==== =====
- --------------------------------------------------------------------------------
10. STATEMENT OF CASH FLOW
Items not involving cash are as follows:
2002 2001 2000
---- ---- ----
Amortization $9 $16 $877
Write down of mineral properties 2,590 -- --
Gain on retirement of long-term debt -- -- (10,216)
Loss on disposal of subsidiary companies -- -- 1,213
Non-controlling interest (13) -- (3)
Foreign currency translation adjustment -- -- (128)
Options granted for legal services 209 -- --
------ --- -------
$2,795 $16 ($8,257)
====== === =======
27
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
10. STATEMENT OF CASH FLOW (CONTINUED)
The net changes in non-cash working capital balances for continuing
operations are as follows:
2002 2001 2000
---- ---- ----
Accounts payable ($337) $27 $554
Accounts receivable (24) 29 77
Inventories -- -- 105
Prepaid expenses (112) 2 (5)
----- --- ----
($473) $58 $731
===== === ====
Additional cash flow information:
In 2002, the Company issued 4,163,529 shares to settle loans payable of
$640.
In 2000, the Company issued 79,371,973 shares to settle the Convertible
Note (see Note 5) for $6,188.
2002 2001 2000
---- ---- ----
Cash paid for interest $-- $-- $5
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
Unless otherwise noted, it is the opinion of management that the Company
is not exposed to significant interest rate, currency or credit risks
arising from its financial instruments. The fair values of these
financial instruments approximate their carrying values, unless otherwise
noted.
- --------------------------------------------------------------------------------
12. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
2002 2001 2000
---- ---- ----
Management and administrative services paid or accrued
to a company which employs the Company's chairman $180 $180 $182
---- ---- ----
Lease paid to a company that the Chairman is a shareholder of $63 $57 $58
---- ---- ----
The related party transactions are recorded at the exchange amount.
The Company has the following related party balances:
2002 2001 2000
---- ---- ----
Included in accounts payable
- owing to a company that employs the Company's chairman $296 $271 $166
- owing to directors/officers for unpaid salaries $556 $588 $391
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
13. SUBSEQUENT EVENT
On January 6, 2003, the Company concluded a private placement financing
for $3.0 million gross proceeds comprised of 12,000,000 units. Each unit
is comprised of one common share and one half common share purchase
warrant issued at $0.25 per unit. In addition, a total of 1,200,000 whole
broker warrants were issued with each warrant exchangeable for one whole
common share. Whole warrants are exchangeable for shares at $0.33 per
share for a period of one year from closing. A total of 6,720,000 units
and 672,000 whole broker warrants were closed on December 31, 2002 (see
Note 6 (b)).
- --------------------------------------------------------------------------------
14. SEGMENTED FINANCIAL INFORMATION
The Company has been engaged directly or through subsidiaries in the
production of and the exploration for precious metals in various
geographical locations.
The Company's operating segments have been identified based on geographic
areas as follows:
FOR THE YEAR ENDED DECEMBER 31, 2002
-------------------------------------------------
CORPORATE SOUTH AFRICA ZAMBIA TOTAL
--------- ------------ ------ ------
Revenue from sales $-- $27 $-- $27
Operating Costs -- (130) -- (130)
General and administrative (1,405) (135) -- (1,540)
Interest (29) -- -- (29)
Amortization (9) -- -- (9)
Write down of mineral properties -- -- (2,590) (2,590)
Other income (expense) (23) (50) -- (73)
------ ------ ------ ------
(Loss) before the undernoted (1,466) (288) (2,590) (4,344)
Non-controlling interest -- 13 -- 13
------ ------ ------ ------
Net income (loss) for the year (1,466) (275) (2,590) (4,331)
====== ====== ====== ======
Identifiable assets 2,614 11,743 10,410 24,767
====== ====== ====== ======
Expenditures on capital assets & mineral properties $-- $805 $119 $924
====== ====== ====== ======
For the year ended December 31, 2001
-------------------------------------------------
Corporate South Africa Zambia Total
--------- ------------ ------ ------
Revenue from sales $-- $124 $-- $124
Operating costs -- (250) -- (250)
General and administrative (891) (139) -- (1,030)
Interest (84) -- -- (84)
Amortization -- (16) -- (16)
Other income 26 35 -- 61
------ ------ ------ ------
Net income (loss) for the year (949) (246) -- (1,195)
====== ====== ====== ======
Identifiable assets 934 11,158 12,881 24,973
====== ====== ====== ======
Expenditures on capital assets & mineral properties $-- $-- $23 $23
====== ====== ====== ======
29
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
14. SEGMENTED FINANCIAL INFORMATION (continued)
For the year ended December 31, 2000
-----------------------------------------------------------------
Corporate Europe South Africa Zambia Total
--------- ------ ------------ ------ -----
Revenue from sales $-- $6,623 $-- $-- $6,623
Revenue from management services 109 -- -- -- 109
Operating costs -- (6,367) (61) -- (6,428)
General and administrative (1,081) -- (144) -- (1,225)
Interest (36) (5) -- -- (41)
Amortization (2) (847) (28) -- (877)
Other income 7 -- 238 -- 245
------ ------ ------ ------ ------
Income (loss) before the undernoted (1,003) (596) 5 -- (1,594)
Net gain on conversion of convertible
debenture and sale of subsidiary companies
9,003 -- -- -- 9,003
Non-controlling interest -- 3 -- -- 3
------ ------ ------ ------ ------
Net income (loss) for the year 8,000 (593) 5 -- 7,412
====== ====== ====== ====== ======
Identifiable assets 912 19 11,258 12,874 25,063
====== ====== ====== ====== ======
Expenditures on capital assets and
mineral properties $-- $-- $-- $120 $120
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
The Company's accounting policies do not differ materially from
accounting principles generally accepted in the United States ("US GAAP")
except for the following:
(a) Mineral Properties
US GAAP requires that mineral properties with no proven reserves
be reflected as expenses in the period incurred.
(b) Other Paid in Capital
Under Canadian GAAP, convertible debentures have been segregated
into a debt and equity component. The resulting debt discount is
amortized over the term of the debt and is included with interest
expense. Under US GAAP, the convertible debentures would be shown
as debt only and therefore would not include an equity component
or amortization expense.
(c) Employee and Directors Stock Options
The Company accounts for employee and directors stock options
under APB Opinion No. 25 under which no compensation cost is
recognized when the exercise price equals or exceeds the fair
value at the date of grant.
30
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(continued)
Under Canadian GAAP, effective January 1, 2002 on a prospective
basis, the Company adopted the new CICA policy of accounting for
stock based compensation. Compensation expense on stock options
granted to directors, officers and employees, is not recorded.
However, disclosure of the effects of accounting for the
compensation expense, using the fair value method estimated using
the Black-Scholes Option Pricing Model, is disclosed as pro-forma
information.
(d) Comprehensive Income
Under US GAAP, comprehensive income must be reported which is
defined as all changes in equity other than those resulting from
investments by owners and distributions to owners.
(e) Recently Issued Accounting Standards
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires the fair value of a
liability for an asset retirement obligation to be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived
assets. SFAS No. 143 is effective for the fiscal year ending
December 31, 2003. Management has not yet determined the impact of
this standard.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized at the date the liability is
incurred and is measured and recorded at fair value. This is
effective for exits or disposal activities initiated after
December 31, 2002. Management is of the opinion that the adoption
of SFAS No. 146 will not impact its financial position and results
of operation.
(f) Net Gain on Conversion of the Convertible Debentures and
Settlement of Debt
For US GAAP the net gain would be considered an extraordinary
item.
For US GAAP purposes a loss is recognized on settlement of debt to
the extent that the quoted market value of shares and fair value
of warrants issued at the date of settlement exceeds the carrying
amount of debt.
(g) The Company restated the US GAAP reconciliation note to correctly
reflect a compensation expense for the intrinsic value
attributable to stock options granted to directors, officers and
employees.
The following table summarises the changes to the US GAAP
reconciliation note:
As Previously As
Reported Restated
-------------- --------
Balance Sheet
Contributed surplus 209 1,614
Deficit (138,988) (140,393)
Income Statement
Net Loss (2,390) (3,795)
Basic and diluted (loss) per share (0.013) (0.020)
31
- --------------------------------------------------------------------------------
CALEDONIA MINING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian Dollars unless otherwise indicated and except for
per share amounts)
DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
15. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(continued)
The impact of the foregoing on the financial statements is as follows:
(a) Income Statement
Restated
2002 2001 2000
-------- ---- ----
Loss for the year before extraordinary item per Canadian GAAP ($4,331) ($1,195) ($1,591)
Mineral property expenditure with no proven reserves (expensed) or
previously expensed under US GAAP 2,303 (7) (120)
Loss on settlement of debt (362) -- --
Compensation expense (1,405) -- --
Loss on sale of subsidiary not considered an extraordinary item
for US GAAP -- -- (1,061)
------- ------- -------
Loss for the year before extraordinary item and income taxes per US GAAP (3,795) (1,202) (2,772)
Utilization of prior year losses -- -- $291
------- ------- -------
Loss for the year before extraordinary item (3,795) (1,202) (2,481)
Extraordinary item per US GAAP
Net gain on conversion of the convertible debentures $11,551,
net of tax $291 -- -- 11,260
------- ------- -------
Net income (loss) per US GAAP (3,795) (1,202) 8,779
Foreign currency translation adjustment -- -- 795
------- ------- -------
Comprehensive net income (loss) per US GAAP (3,795) (1,202) 9,574
======= ======= =======
Basic and diluted (loss) per share before extraordinary item (0.020) (0.008) (0.030)
======= ======= =======
Basic earnings per share on the extraordinary item for the year -- -- 0.120
======= ======= =======
Basic and diluted income (loss) per share for the year ($0.020) ($0.008) $0.090
======= ======= =======
(b) Balance Sheet
2002 2001
---- ----
Total assets per Canadian GAAP $24,767 $24,973
Mineral properties with no proven reserves expensed (11,328) (13,631)
-------- --------
Total assets per US GAAP 13,439 11,342
======== ========
Total liabilities per Canadian and US GAAP 2,616 4,514
-------- --------
Share capital Canadian GAAP $149,623 $143,986
Other paid in capital
Loss on settlement of debt $362 --
Convertible debt (560) (560)
-------- --------
Share capital US GAAP $149,425 $143,426
======== ========
Compensation warrants per Canadian and US GAAP $177 $--
-------- --------
Contributed surplus per Canadian GAAP 209 --
Compensation expense 1,405 --
-------- --------
Contributed surplus per US GAAP 1,614 --
-------- --------
Shareholders' equity
Deficit end of the year per Canadian GAAP (127,858) (123,527)
Loss on settlement of debt (362) --
Compensation expense (1,405) --
Mineral properties with no proven reserves expensed (11,328) (13,631)
Debenture discount amortization 560 560
-------- --------
Deficit end of year per US GAAP (140,393) (136,598)
-------- --------
Total shareholders' equity US GAAP $10,823 $6,828
======== ========
32
DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS OFFICERS
S. E. Hayden (1) (2) (3) (4) S. E. Hayden
Chairman of the Board, President and Chairman of the Board, President and
Chief Executive Officer Chief Executive Officer
Johannesburg, South Africa
F. C. Harvey
J. Johnstone Technical Director
Vice President Operations and
Chief Operating Officer J. Johnstone
Mississauga, Ontario, Canada Vice-President Operations and
Chief Operating Officer
F. C. Harvey
Technical Director S. W. Poad
Mississauga, Ontario, Canada Vice-President Finance
and Administration
W. I. L. Forrest (1) (2) (4)
Business Executive J. Smith
Gingins, Switzerland Vice-President Exploration
C. R. Jonsson (1) (2) (3)
Principal of Tupper Jonsson
& Yeadon
Barristers & Solicitors
Vancouver, British Columbia,
Canada
BOARD COMMITTEE
MEMBERS
(1) Audit Committee
(2) Compensation Committee
(3) Corporate Governance Committee
(4) Nominating Committee
33
CORPORATE DIRECTORY
CORPORATE OFFICES SOLICITORS
CANADA - HEAD OFFICE BORDEN LADNER GERVAIS LLP
CALEDONIA MINING CORPORATION Suite 4100, Scotia Plaza
Unit 9, 2145 Dunwin Drive 40 King Street West
Mississauga, Ontario Toronto, Ontario M5H 3Y4 Canada
L5L 4L9 Canada
Tel: (905) 607-7543 TUPPER, JONSSON & YEADON
Fax: (905) 607-9806 1710-1177 West Hastings Street
Vancouver, British Columbia
SOUTH AFRICA V6E 2L3 Canada
GREENSTONE MANAGEMENT SERVICES (PTY) LTD.
P.O. Box 587 AUDITORS
Johannesburg 2000 BDO DUNWOODY LLP
South Africa CHARTERED ACCOUNTANTS
Tel: (27)(11) 447-2499 Suite 3200, 200 Bay Street
Fax: (27)(11) 447-2554 Royal Bank Plaza, South Tower
Toronto, Ontario M5J 2J8 Canada
ZAMBIA
CALEDONIA MINING (ZAMBIA) LIMITED REGISTRAR & TRANSFER AGENT
P.O. Box 36604 EQUITY TRANSFER SERVICES INC.
Lusaka, Zambia Suite 420 120 Adelaide Street West
Tel: (260)(1) 29-1574 Toronto, Ontario M5H 4C3 Canada
Fax: (260)(1) 29-2154 Tel: (416) 361-0152
Fax: (416) 361-0470
SHARES LISTED
The Toronto Stock Exchange Symbol "CAL" BANKERS
NASDAQ OTC BB Symbol "CALVF" CANADIAN IMPERIAL BANK OF COMMERCE
6266 Dixie Road
CAPITALIZATION at December 31, 2002 Mississauga, Ontario
Authorised: Unlimited L5T 1A7 Canada
Shares, Warrants and Options Issued:
Common Shares: 211,795,270
Warrants: 28,061,193
Options: 12,680,800
WEB SITE: http://www.caledoniamining.com
34
NOTES:
CALEDONIA MINING CORPORATION
Unit #9
2145 Dunwin Drive
Mississauga, Ontario, Canada
L5L 4L9
Tel: (905) 607-7543
Fax: (905) 607-9806
info@caledoniamining.com