Caledonia Mining Corp Plc 6-K, filed Mar 18, 2020
Caledonia Mining Corp Plc (CMCL)
About this 6-K
Caledonia Mining Corp Plc filed this 6-K on March 18, 2020.
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
Of the Securities Exchange Act of 1934
For the month of March 2020
Commission File Number: 001-38164
CALEDONIA MINING CORPORATION PLC
(Translation of registrant's name into English)
B006 Millais House
Castle Quay
St Helier
Jersey JE2 3EF
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
Form 20-F x Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ______
INCORPORATION BY REFERENCE
Exhibit 99.1 and Exhibit 99.2 included with this report on Form 6-K is expressly incorporated by reference into this report and is hereby incorporated by reference as exhibit to the Registration Statement on Form F-3 of Caledonia Mining Corporation Plc (File No. 333-224784), as amended or supplemented.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Caledonia Mining Corporation (Registrant) By: /s/ Steve Curtis | |
| Dated: March 18, 2020 |
Name: Steve Curtis Title: CEO and Director |
| Exhibit | Description |
| 99.1 | Audited Annual Financial Statements |
| 99.2 | MD&A |
Exhibit 99.1
| MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION |
To the Shareholders of Caledonia Mining Corporation Plc:
Management has prepared the information and representations in these consolidated financial statements. The consolidated financial statements of Caledonia Mining Corporation Plc and its subsidiaries (“Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and, where appropriate, these statements include some amounts that are based on best estimates and judgement. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects.
Our independent auditor has the responsibility of auditing the consolidated financial statements and expressing an opinion on these financial statements.
The Management Discussion and Analysis (“MD&A”) also includes information regarding the impact of current transactions, sources of liquidity, capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.
The Group maintains adequate systems of internal accounting and administrative controls, within reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced.
Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICOFR”). Any system of internal controls over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
At December 31, 2019 management evaluated the effectiveness of the Group’s internal control over financial reporting and concluded that such internal control over financial reporting was effective based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organisations of the Treadway Commission.
The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Audit Committee is composed of three independent directors. This Committee meets periodically with management and the external auditor to review accounting, auditing, internal control and financial reporting matters.
The consolidated financial statements of the Group as at and for the year ended December 31, 2017 was audited by KPMG Inc., who expressed an unmodified opinion on those statements on March 20, 2018.
The consolidated financial statements as at and for the years ended December 31, 2019 and 2018 have been audited by the Group’s independent auditor, BDO South Africa Incorporated, in accordance with Canadian generally accepted auditing standards. The independent auditor’s report outlines the scope of their examination and their opinion on the consolidated financial statements.
The consolidated financial statements for the year ended December 31, 2019 were approved by the Board of Directors and signed on its behalf on March 18, 2020.
| (Signed) S. R. Curtis | (Signed) J.M. Learmonth | |
| Chief Executive Officer | Chief Financial Officer |
| 1 |
Caledonia Mining Corporation Plc |
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Caledonia Mining Corporation Plc.
Opinion
We have audited the consolidated financial statements of Caledonia Mining Corporation Plc and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2019 and 2018, and the consolidated statements of profit and loss and other comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
| · | The Management’s Discussion and Analysis report of the consolidated operating results and financial position of the Group for the quarter ended December 31, 2019. |
| · | The Annual Report – referred to as Form 20-F |
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained the Management’s Discussion and Analysis report prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report referred to as Form 20-F is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
| 2 |
Caledonia Mining Corporation Plc |
INDEPENDENT AUDITOR'S REPORT (continued)
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| · | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| · | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
| · | Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
| · | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Jacques Barradas.
BDO South Africa Inc.
Registered Auditors
Wanderers Office Park
52 Corlett Drive
Illovo, 2196
March 18, 2020
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Caledonia Mining Corporation Plc |
Consolidated statements of profit or loss and other comprehensive income
| (In thousands of United States Dollars, unless indicated otherwise) | ||||||||||||||
| For the years ended December 31 | Notes | 2019 | *2018 | *2017 | ||||||||||
| Revenue | 75,826 | 68,399 | 69,762 | |||||||||||
| Less: Royalties | (3,854 | ) | (3,426 | ) | (3,498 | ) | ||||||||
| Production costs | 9 | (36,400 | ) | (39,315 | ) | (36,180 | ) | |||||||
| Depreciation | 18 | (4,434 | ) | (4,071 | ) | (3,763 | ) | |||||||
| Gross profit | 31,138 | 21,587 | 26,321 | |||||||||||
| Other income | 10 | 2,274 | 7,101 | 2,594 | ||||||||||
| Other expenses | (666 | ) | (336 | ) | (14 | ) | ||||||||
| Impairment loss on trade receivables | 11 | - | - | (181 | ) | |||||||||
| Administrative expenses | 14 | (5,637 | ) | (6,465 | ) | (5,911 | ) | |||||||
| Cash-settled share-based expense | 27.1 | (689 | ) | (315 | ) | (976 | ) | |||||||
| Equity-settled share-based expense | 27.2 | - | (14 | ) | (835 | ) | ||||||||
| Net foreign exchange gain/(loss) | 12 | 29,661 | 223 | (380 | ) | |||||||||
| Profit on sale of subsidiary | 22.1 | 5,409 | - | - | ||||||||||
| Gold hedge expense | 16 | (601 | ) | (360 | ) | - | ||||||||
| Operating profit | 60,889 | 21,421 | 20,618 | |||||||||||
| Finance income | 15 | 146 | 53 | 38 | ||||||||||
| Finance cost | 15 | (344 | ) | (273 | ) | (69 | ) | |||||||
| Profit before tax | 60,691 | 21,201 | 20,587 | |||||||||||
| Tax expense | 17 | (10,290 | ) | (7,445 | ) | (8,691 | ) | |||||||
| Profit for the year | 50,401 | 13,756 | 11,896 | |||||||||||
| Other comprehensive income | ||||||||||||||
| Items that are or may be reclassified to profit or loss | ||||||||||||||
| Foreign currency translation differences of foreign operations | 49 | (676 | ) | 373 | ||||||||||
| Reversal of foreign currency translation differences on disposal of subsidiary | 22.1 | (2,109 | ) | - | - | |||||||||
| Total comprehensive income for the year | 48,341 | 13,080 | 12,269 | |||||||||||
| 4 |
Caledonia Mining Corporation Plc |
Consolidated statements of profit or loss and other comprehensive income (continued)
| (In thousands of United States Dollars, unless indicated otherwise) | ||||||||||||||
| For the years ended December 31 | Notes | 2019 | *2018 | *2017 | ||||||||||
| Profit attributable to: | ||||||||||||||
| Owners of the Company | 42,018 | 10,766 | 9,384 | |||||||||||
| Non-controlling interests | 8,383 | 2,990 | 2,512 | |||||||||||
| Profit for the year | 50,401 | 13,756 | 11,896 | |||||||||||
| Total comprehensive income attributable to: | ||||||||||||||
| Owners of the Company | 39,958 | 10,090 | 9,757 | |||||||||||
| Non-controlling interests | 8,383 | 2,990 | 2,512 | |||||||||||
| Total comprehensive income for the year | 48,341 | 13,080 | 12,269 | |||||||||||
| Earnings per share | ||||||||||||||
| Basic earnings - per share ($) | 25 | 3.82 | 0.99 | 0.86 | ||||||||||
| Diluted earnings per share ($) | 25 | 3.81 | 0.99 | 0.86 | ||||||||||
The accompanying notes on page 9 to 75 are an integral part of these consolidated financial statements.
Signed on behalf of the Board: “S.R. Curtis”- Chief Executive Officer and “J.M. Learmonth”- Chief Financial Officer.
* The Group initially applied IFRS 16 on January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated. There was no cumulative effect of initially applying IFRS 16 to recognise in retained earnings at the date of initial application.
| 5 |
Caledonia Mining Corporation Plc |
Consolidated statements of financial position
(In thousands of United States Dollars, unless indicated otherwise)
| Notes | ||||||||||
| As at 31 December | 2019 | *2018 | ||||||||
| Assets | ||||||||||
| Property, plant and equipment | 18 | 113,651 | 97,427 | |||||||
| Deferred tax asset | 17 | 63 | 98 | |||||||
| Total non-current assets | 113,714 | 97,525 | ||||||||
| Inventories | 19 | 11,092 | 9,427 | |||||||
| Prepayments | 2,350 | 866 | ||||||||
| Trade and other receivables | 20 | 6,912 | 6,392 | |||||||
| Cash and cash equivalents | 21 | 9,383 | 11,187 | |||||||
| Gold hedge | 16 | 102 | - | |||||||
| 29,839 | 27,872 | |||||||||
| Assets held for sale | 22.2 | - | 296 | |||||||
| Total current assets | 29,839 | 28,168 | ||||||||
| Total assets | 143,553 | 125,693 | ||||||||
| Equity and liabilities | ||||||||||
| Share capital | 23 | 56,065 | 55,102 | |||||||
| Reserves | 24 | 140,730 | 142,790 | |||||||
| Retained loss | (88,380 | ) | (127,429 | ) | ||||||
| Equity attributable to shareholders | 108,415 | 70,463 | ||||||||
| Non-controlling interests | 37 | 16,302 | 8,345 | |||||||
| Total equity | 124,717 | 78,808 | ||||||||
| Liabilities | ||||||||||
| Provisions | 26 | 3,346 | 3,309 | |||||||
| Deferred tax liability | 17 | 3,129 | 23,328 | |||||||
| Loans and borrowings - long-term portion | 28 | 1,942 | 5,960 | |||||||
| Cash-settled share-based payments | 27.1 | 540 | 2,090 | |||||||
| Total non-current liabilities | 8,957 | 34,687 | ||||||||
| Loans and borrowings - short-term portion | 28 | 529 | - | |||||||
| Trade and other payables | 29 | 8,697 | 10,051 | |||||||
| Income tax payable | 17 | 163 | 1,538 | |||||||
| Overdraft | 21 | 490 | - | |||||||
| 9,879 | 11,589 | |||||||||
| Liabilities associated with assets held for sale | 22.2 | - | 609 | |||||||
| Total current liabilities | 9,879 | 12,198 | ||||||||
| Total liabilities | 18,836 | 46,885 | ||||||||
| Total equity and liabilities | 143,553 | 125,693 | ||||||||
The accompanying notes on page 9 to 75 are an integral part of these consolidated financial statements.
* The Group initially applied IFRS 16 on January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated. There was no cumulative effect of initially applying IFRS 16 to recognise in retained earnings at the date of initial application.
| 6 |
Caledonia Mining Corporation Plc |
Consolidated statements of changes in equity
(In thousands of United States Dollars, unless indicated otherwise)
| Notes | Share capital | Foreign Currency Translation Reserve | Contributed Surplus | Equity- settled Share- based payment reserve | Retained Loss | Equity attributable to shareholders | Non- controlling interests (“NCI”) | Total Equity | ||||||||||||||||||||||||||
| Balance at January, 2017* | 55,002 | (6,258 | ) | 132,591 | 16,041 | (141,767 | ) | 55,609 | 3,708 | 59,317 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Equity-settled share-based expense transactions | 27.2 | - | - | - | 705 | - | 705 | 130 | 835 | |||||||||||||||||||||||||
| Shares issued – Option exercises | 23 | 246 | - | - | - | - | 246 | - | 246 | |||||||||||||||||||||||||
| Shares repurchased | 23 | (146 | ) | - | - | - | - | (146 | ) | - | (146 | ) | ||||||||||||||||||||||
| Dividends paid | - | - | - | - | (2,904 | ) | (2,904 | ) | (406 | ) | (3,310 | ) | ||||||||||||||||||||||
| Total comprehensive income: | ||||||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | 9,384 | 9,384 | 2,512 | 11,896 | ||||||||||||||||||||||||||
| Other comprehensive income for the year | - | 373 | - | - | - | 373 | - | 373 | ||||||||||||||||||||||||||
| Balance at December 31, 2017* | 55,102 | (5,885 | ) | 132,591 | 16,746 | (135,287 | ) | 63,267 | 5,944 | 69,211 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Equity-settled share-based expense transactions | 27.2 | - | - | - | 14 | - | 14 | - | 14 | |||||||||||||||||||||||||
| Dividends paid | - | - | - | - | (2,908 | ) | (2,908 | ) | (589 | ) | (3,497 | ) | ||||||||||||||||||||||
| Total comprehensive income: | ||||||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | 10,766 | 10,766 | 2,990 | 13,756 | ||||||||||||||||||||||||||
| Other comprehensive income for the year | - | (676 | ) | - | - | - | (676 | ) | - | (676 | ) | |||||||||||||||||||||||
| Balance at December, 2018* | 55,102 | (6,561 | ) | 132,591 | 16,760 | (127,429 | ) | 70,463 | 8,345 | 78,808 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Equity-settled share-based expense transactions | ||||||||||||||||||||||||||||||||||
| Dividends paid | - | - | - | - | (2,969 | ) | (2,969 | ) | (426 | ) | (3,395 | ) | ||||||||||||||||||||||
| Shares issued – Share based payments | 27.1(a) | 963 | - | - | - | - | 963 | - | 963 | |||||||||||||||||||||||||
| Total comprehensive income: | ||||||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | 42,018 | 42,018 | 8,383 | 50,401 | ||||||||||||||||||||||||||
| Other comprehensive income for the year | - | (2,060 | ) | - | - | - | (2,060 | ) | - | (2,060 | ) | |||||||||||||||||||||||
| Balance at December, 2019 | 56,065 | (8,621 | ) | 132,591 | 16,760 | (88,380 | ) | 108,415 | 16,302 | 124,717 | ||||||||||||||||||||||||
| Notes | 23 | 24 | 24 | 24 | 37 | |||||||||||||||||||||||||||||
The accompanying notes on page 9 to 75 are an integral part of these consolidated financial statements.
* The Group initially applied IFRS 16 on January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated. There was no cumulative effect of initially applying IFRS 16 to recognise in retained earnings at the date of initial application.
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Caledonia Mining Corporation Plc |
Consolidated Statements of cash flows
For the years ended December 31
(In thousands of United States Dollars, unless indicated otherwise)
| Note | 2019 | *2018 | *2017 | |||||||||||
| Cash flows from operating activities | 30 | 23,885 | 21,119 | 28,885 | ||||||||||
| Interest received | 146 | 53 | 38 | |||||||||||
| Interest paid | (454 | ) | (161 | ) | (199 | ) | ||||||||
| Tax paid | 17 | (5,517 | ) | (3,344 | ) | (4,212 | ) | |||||||
| Net cash from operating activities | 18,060 | 17,667 | 24,512 | |||||||||||
| Cash flows from investing activities | ||||||||||||||
| Acquisition of property, plant and equipment | (20,024 | ) | (20,192 | ) | (21,639 | ) | ||||||||
| Proceeds on sale of subsidiary | 22.1 | 1,000 | - | - | ||||||||||
| Net cash used in investing activities | (19,024 | ) | (20,192 | ) | (21,639 | ) | ||||||||
| Cash flows from financing activities | ||||||||||||||
| Dividends paid | (3,395 | ) | (3,497 | ) | (3,310 | ) | ||||||||
| Term loan repayments | 28 | - | (1,500 | ) | (1,500 | ) | ||||||||
| Term loan proceeds | 28 | 2,340 | 6,000 | - | ||||||||||
| Term loan transaction costs | 28 | (46 | ) | (60 | ) | - | ||||||||
| Payment of lease liabilities | 13 | (124 | ) | - | - | |||||||||
| Proceeds from issue of share capital | - | - | 246 | |||||||||||
| Share repurchase cost | - | - | (146 | ) | ||||||||||
| Net cash (used in)/from financing activities | (1,225 | ) | 943 | (4,710 | ) | |||||||||
| Net decrease in cash and cash equivalents | (2,189 | ) | (1,582 | ) | (1,837 | ) | ||||||||
| Effect of exchange rate fluctuation on cash held | (105 | ) | 13 | 258 | ||||||||||
| Cash and cash equivalents at beginning of year | 11,187 | 12,756 | 14,335 | |||||||||||
| Net cash and cash equivalents at year end | 21 | 8,893 | 11,187 | 12,756 | ||||||||||
The accompanying notes on page 9 to 75 are an integral part of these consolidated financial statements.
* The Group initially applied IFRS 16 on January 1, 2019, using the modified retrospective approach. Under this approach, comparative information is not restated. There was no cumulative effect of initially applying IFRS 16 to recognise in retained earnings at the date of initial application.
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Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 1 | Reporting entity |
Caledonia Mining Corporation Plc (the “Company”) is a company domiciled in Jersey, Channel Islands. The address of the Company’s registered office is B006 Millais House, Castle Quay, St Helier, Jersey, Channel Islands. These consolidated financial statements of the Company and its subsidiaries (the “Group”) comprise the consolidated statements of financial position as at December 31, 2019 and 2018, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the years ended December 31, 2019, 2018 and 2017, notes, significant accounting policies and other explanatory information. The Group is primarily involved in the operation of a gold mine and the exploration and development of mineral properties for precious metals.
Caledonia’s shares are listed on the NYSE American stock exchange (symbol - “CMCL”) and on the Toronto Stock Exchange (symbol - “CAL”). Depository interests in Caledonia’s shares are admitted to trading on AIM of the London Stock Exchange plc (symbol - “CMCL”).
| 2 | Basis for preparation |
| i) | Statement of compliance |
The consolidated financial statements have been prepared on a going concern basis, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorised for issue by the Board of Directors on March 18, 2020.
| ii) | Basis of measurement |
The consolidated financial statements have been prepared on the historical cost basis except for:
| · | cash-settled share-based payment arrangements measured at fair value on grant and re-measurement dates; |
| · | derivative financial instruments measured at fair value; and |
| · | equity-settled share-based payment arrangements measured at fair value on grant date. |
| iii) | Functional currency |
These consolidated financial statements are presented in United States dollars (“$” or “US Dollar”), which is also the functional currency of the Company. All financial information presented in United States dollars have been rounded to the nearest thousand, unless indicated otherwise.
| 9 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements |
In preparing these consolidated financial statements, management has made accounting assumptions, estimates and judgements that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recognised prospectively.
| (a) | Assumptions and estimation uncertainties |
| i) | Depreciation of Property, plant and equipment |
Depreciation on mine development, infrastructure and other assets in the production phase is computed on the units-of-production method over the life-of-mine based on the estimated quantities of reserves (proven and probable) and resources (measured, indicated and inferred), which are planned to be extracted in the future from known mineral deposits. Where items have a shorter useful life than the life-of-mine, the mine development, infrastructure and other assets are depreciated over their useful life. Confidence in the existence, commercial viability and economical recovery of reserves and resources included in the life-of-mine may be based on historical experience and available geological information. This is in addition to the drilling results obtained by the Group and management’s knowledge of the geological setting of the surrounding areas, which would enable simulations and extrapolations to be done with a sufficient degree of accuracy. In instances where management is able to demonstrate the economic recovery of resources with a high level of confidence, such additional resources, are included in the calculation of depreciation.
Other items of property, plant and equipment are depreciated as described in note 5(f)(iv) Useful lives.
| ii) | Mineral reserves and resources |
Mineral reserves and resources are estimates of the amount of product that can be economically and legally extracted. In order to calculate the reserves and resources, estimates and assumptions are required about a range of geological, technical and economic factors, including but not limited to quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity prices and exchange rates. Estimating the quantity and grade of mineral reserves and resources requires the size, shape and depth of orebodies to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and difficult geological assumptions and calculations to interpret the data. Estimates of mineral reserves and resources may change due to the change in economic assumptions used to estimate mineral reserves and resources and due to additional geological data becoming available during the course of operations.
The Group estimates its reserves (proven and probable) and resources (measured, indicated and inferred) based on information compiled by a Qualified Person in terms of the Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) relating to geological and technical data of the size, depth,
| 10 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| ii) | Mineral reserves and resources (continued) |
shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires geological and engineering assumptions to interpret the data. These assumptions include:
| · | correlation between drill-holes intersections where multiple reefs are intersected; |
| · | continuity of mineralisation between drill-hole intersections within recognised reefs; and |
| · | appropriateness of the planned mining methods. |
The Group estimates and reports reserves and resources in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards for Mineral Resources and Mineral Reserves. Complying with the CIM code, NI 43-101 requires the use of reasonable assumptions to calculate the recoverable resources. These assumptions include:
| · | the gold price based on current market price and the Group’s assessment of future prices; |
| · | estimated future on-mine costs, sustaining and non-sustaining capital expenditures; |
| · | cut-off grade; |
| · | dimensions and extent, determined both from drilling and mine development, of ore bodies; and |
| · | planned future production from measured, indicated and inferred resources. |
Changes in reported reserves and resources may affect the Group’s financial results and position in a number of ways, including the following:
| · | asset carrying values may be affected due to changes in the estimated cash flows; |
| · | depreciation and amortisation charges to profit or loss may change as these are calculated on the unit-of-production method or where useful lives of an asset change; and |
| · | decommissioning, site restoration and environmental provisions and resources which may affect expectations about the timing or cost of these activities. |
| iii) | Blanket mine’s indigenisation transaction |
The initial indigenisation transaction and modifications to the indigenisation transaction of Blanket Mine (1983) (Private) Limited (“Blanket Mine”) required management to make significant assumptions and estimates which are explained in note 6.
| 11 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| iv) | Site restoration provision |
The site restoration provision has been calculated for the Blanket Mine based on an independent analysis of the rehabilitation costs as performed in 2018. Assumptions and estimates are made when determining the inflationary effect on current restoration costs and the discount rate to be applied in arriving at the present value of the provision where the time value of money effect is significant. Assumptions, based on the current economic environment, have been made that management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to the provision from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation. The final cost of the currently recognised site rehabilitation provision may be higher or lower than currently provided for (refer to note 26).
| v) | Exploration and evaluation (“E&E”) assets |
The Group also makes assumptions and estimates regarding the possible impairment of E&E assets by evaluating whether it is likely that future economic benefits will flow to the Group, which may be based on assumptions about future events or circumstances. Assumptions and estimates made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalised is written off in profit or loss in the period the new information becomes available. The recoverability of the carrying amount of exploration and evaluation assets depends on the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.
| vi) | Taxes |
Significant assumptions and estimates are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. In 2019 the Zimbabwe Revenue Authority (“ZIMRA”) issued Public Notice 26 (“PN26”) effective from February 22, 2019. PN26 provided clarity on the interpretation of Section 4 (a) of the Finance Act [Chapter 23.04] of Zimbabwe, that requires a company earning taxable income to pay tax in the same or other specified currency that the income is earned. PN 26 clarifies that the calculation of taxable income be expressed in RTGS$ and that the payment of the tax payable, determined in RTGS$, be paid in the ratio of turnover earned. The application of PN26 resulted in a significant reduction in the deferred tax liability at December 31, 2019 and the Group recorded the best estimate of the tax liability. The clarification of PN26 was applied prospectively and had no impact on comparative amounts.
| 12 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| vi) | Taxes (continued) |
The tax liability of the Group includes interest and penalties in its provision. Management believes they have adequately provided for the probable outcome of tax related matters; however, the final outcome or future outcomes anticipated in the calculation of the tax liabilities may result in a materially different outcome than the amount included in the tax liabilities. In addition, the Group makes assumptions and estimates in recognising deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses may be utilised or sufficient estimated taxable income against which the losses can be utilised.
| vii) | Share-based payment transactions |
Equity-settled share-based payment arrangements
The Group measures the cost of equity-settled share-based payment transactions with employees, directors and Blanket’s indigenous shareholders (refer notes 6 and 27.2) by reference to the fair value of the equity instruments on the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the appropriate valuation model and considering the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield. Additional information about significant assumptions and estimates for estimating fair value for share-based payment transactions are disclosed in note 27.2. Where the Company granted the counterparty to a share-based payment award the choice of settlement in cash or shares the equity component is measured as the difference between the fair value of the goods and services and the fair value of the cash-settled share-based payment liability at the date when the goods and services are received at measurement date. For transactions with employees the equity component is zero.
Option pricing models require the input of assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a reliable single measure of the fair value of the Group’s share options.
Cash-settled share-based payment arrangements
The fair value of the amount payable to employees in respect of share-based awards which will be settled in cash is recognised as an expense with a corresponding increase in liabilities over the period over which the employee becomes unconditionally entitled to payment. The liability is re-measured at each reporting date. Any change in the fair value of the liability is recognised in profit or loss.
Additional information about significant assumptions and estimates used to determine the fair value of cash settled share-based payment transactions are disclosed in note 27.1.
| 13 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| viii) | Impairment |
Non-financial assets
At each reporting date, the Group determines if impairment indicators exist, and if present, performs an impairment review of the non-financial assets held in the Group. The exercise is subject to various assumptions and estimates.
Non-derivative financial assets
The Group makes use of a simplified approach in accounting for trade and other receivables and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. The Company uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
| (b) | Judgements |
Judgement is required when assessing whether an entity is controlled by the group or not. Controlled entities are consolidated. Further information is given in notes 5(a) and 6.
Refer to note 5(b)(ii) for judgement applied to determine functional currency of entities in the Group and the interbank rate of exchange to translate the Zimbabwean real time gross settlement, bond notes or bond coins (“RTGS$”).
| 4 | Change in significant accounting policies |
A number of other new standards are also effective from January 1, 2019 but they do not have a material effect on the Group’s financial statements.
| (a) | IFRS 16 Leases |
The Group initially applied IFRS 16 Leases from January 1, 2019. A number of other new standards are also effective from January 1, 2019 but they do not have a material effect on the Group’s financial statements. The Group applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application has to be recognised in retained earnings at January 1, 2019, although the adoption of IFRS 16 had no significant effect on the Group’s retained earnings at initial recognition. Accordingly, the comparative information presented for 2018 and 2017 are not restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the change in the accounting policy is disclosed below. Additionally, the disclosure requirements in IFRS 16 have not been applied to comparative information.
| 14 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 4 | Change in significant accounting policies (continued) |
| (a) | IFRS 16 Leases (continued) |
As a lessee, the Group leases property for its administrative offices in Jersey, Channel Islands and in Johannesburg, South Africa. The Group previously classified leases as operating leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognises right of use assets and lease liabilities for these leases – i.e. these leases are on-balance sheet.
| i) | Leases classified as operating leases under IAS 17 |
Previously, the Group classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rates as at January 1, 2019, of 4% and 10,25% for each of the two leases accounted for at December 31, 2019.
Right of use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
The Group has tested its right of use assets for impairment on the date of transition and concluded that there were no indications that the right of use assets were impaired.
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group:
| · | did not recognise right of use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application; |
| · | did not recognise right of use assets and liabilities for leases of low value assets; |
| · | excluded initial direct costs from the measurement of the right of use asset at the date of initial application; and |
| · | used hindsight when determining the lease term. |
| ii) | Impact on initial date of transition to IFRS 16 |
| The impact of initial date of transition is summarised below: | $’000 | |||
| Right of use assets (cost) – Property, plant and equipment (note 18) | 410 | |||
| Right of use assets (accumulated depreciation) – Property, plant and equipment (note 18) | (146 | ) | ||
| Lease liabilities – Trade and other payables | 264 | |||
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied ranged between 4% and 10,25%.
| 15 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 4 | Change in significant accounting policies (continued) |
| (b) | IFRIC 23 Uncertainty over Income Tax Treatments |
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments.
The Interpretation requires:
| · | The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; |
| · | The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and |
| · | If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations. |
The Group’s existing accounting policy for uncertain income tax treatments is consistent with the requirements in IFRIC 23 Uncertainty over Income Tax Treatments, which became effective on January 1, 2019 and required no adjustment to the amounts in the financial statements.
| 5 | Significant accounting policies |
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except as disclosed in notes 4(a), 5(c) and 5(d).
| (a) | Basis of consolidation |
| i) | Subsidiaries and structured entities |
Subsidiaries and certain structured entities are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variability in returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
| ii) | Loss of control |
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related Non-controlling interests (“NCI”) and other components of equity. Any gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
| iii) | Non-controlling interests |
NCI are measured at their proportionate share of the carrying amounts of the acquiree’s identifiable net assets at fair value at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
| 16 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (a) | Basis of consolidation (continued) |
| iv) | Transactions eliminated on consolidation |
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
| (b) | Foreign currency |
| i) | Foreign operations |
As stated in note 2(iii) the presentation currency of the Group is the United States Dollar. The functional currency of the Company and all its subsidiaries is the United States Dollar except for the South African subsidiary that uses the South African Rand (“ZAR”) as its functional currency. Subsidiary financial statements have been translated to the presentation currency as follows:
| · | assets and liabilities are translated using the exchange rate at period end; and |
| · | income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions. |
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from the item are considered to form part of the net investment in a foreign operation and are recognised in Other Comprehensive Income (“OCI”).
If settlement is planned or likely in the foreseeable future, foreign exchange gains and losses are included in profit or loss. When settlement occurs, settlement will not be regarded as a partial disposal and accordingly the foreign exchange gain or loss previously recognised in OCI is not reclassified to profit or loss/reallocated to NCI.
When the Group disposes of its entire interest in a foreign operation, or loses control over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are reclassified to profit or loss. If the Group disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in OCI related to the subsidiary are reattributed between controlling and non-controlling interests.
All resulting translation differences are reported in OCI and accumulated in the foreign currency translation reserve.
| 17 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (b) | Foreign currency |
| ii) | Foreign currency translation |
In preparing the financial statements of the Group entities, transactions in currencies other than the functional currency (foreign currencies) of these Group entities are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary assets and liabilities are translated using the current foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in profit or loss for the year.
From October 1, 2018 the RBZ pegged the RTGS$ at 1:1 to the US dollar and on February 20, 2019 issued a further monetary policy statement, which allowed inter-bank trading between RTGS$ and foreign currency. The interbank rate was introduced at 2.5 RTGS$ to 1 US dollar and traded at 16.77 RTGS$ to 1 US dollar as at December 31, 2019. On June 24, 2019 the Government issued SI 142 which stated “Zimbabwe dollar (RTGS$) to be the sole currency for legal tender purposes for any transactions in Zimbabwe ”.
Further, the Reserve Bank of Zimbabwe (“RBZ”) issued a directive to Zimbabwean banks to separate foreign currency (“Foreign currency”) and RTGS$ for bank accounts held by clients on October 1, 2018. Subsequent to the directive the RBZ announced that 30% of Blanket Mine’s gold proceeds will be received in Foreign currency (i.e. United States dollars) and the remainder received as RTGS$. From November 12, 2018 the RBZ increased the Foreign currency allocation from 30% to 55% with the remainder received as RTGS$. The allocation percentages remained in effect up to the date of approval of these financial statements.
In applying IAS 21, management determined that the US dollar remained the primary currency in which the Group’s Zimbabwean entities operate, as:
| · | the majority of revenue is received in US dollar; |
| · | the gold price receivable was calculated in US dollar; |
| · | the majority of costs are calculated by reference to the US dollar if denominated in RTGS$ or is paid in US dollar; and |
| · | income tax liabilities calculated in RTGS$ are settled predominantly in US dollar. |
The application of IAS 21, the advent of SI 142 and the devaluation of the RTGS$ against the US dollar had a significant impact on the US dollar value of RTGS$ denominated Zimbabwean monetary assets and liabilities consolidated, as part of the Group. Monetary items mostly affected include, monetary liabilities such as income and deferred tax liabilities, loans and borrowings, trade and other payables and to a lesser extent monetary assets such as cash held in RTGS$.
| 18 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (c) | Leases |
The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right of use asset reflects that the Group will exercise a purchase option. In that case the right of use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
| · | fixed payments, including in-substance fixed payments; |
| · | variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; |
| · | amounts expected to be payable under a residual value guarantee; and |
| · | the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. |
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced to zero.
The Group presents right of use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘trade and other payables’ in the statement of financial position.
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
| 19 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (c) | Leases (continued) |
Policy applicable before January 1, 2019
At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate.
Leases of property, plant and equipment that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
| (d) | Financial instruments |
| i) | Non-derivative financial assets |
Policy applicable from January 1, 2018
Recognition and initial measurement
The Group holds only financial assets measured at amortised cost and at fair value through profit or loss. Financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
| 20 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (d) | Financial instruments (continued) |
| i) | Non-derivative financial assets (continued) |
Classification and subsequent measurement
On initial recognition, a financial asset is classified as and measured at amortised cost or at fair value through profit or loss. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through profit or loss:
| · | it is held within a business model whose objective is to hold assets to collect contractual cash flows; and |
| · | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
All financial assets of the Group not classified as and measured at amortised cost are measured at fair value through profit or loss. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset, that otherwise meets the requirements to be measured at amortised cost, to fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets at fair value through profit or loss are subsequently measured at fair value. Net gains and losses are recognised in profit or loss. Financial assets classified as and measured at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Policy applicable before January 1, 2018
Trade receivables were initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less a provision for estimated credit losses. All other financial assets were recognised initially on the trade date at which the Group became a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset.
| 21 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (d) | Financial instruments (continued) |
| ii) | Non-derivative financial assets (continued) |
The Group had the following non-derivative financial assets:
Loans and receivables
Loans and receivables included trade and other receivables. Loans and receivables were financial assets with fixed or determinable payments that were not quoted in an active market. Such assets were recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables were measured at amortised cost using the effective interest method, less any impairment losses. The impairment loss on receivables was based on a review of all outstanding amounts at year end. Bad debts were written off during the year in which they were identified. Interest income was recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
| ii) | Non-derivative financial instruments |
Non-derivative financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
Non-derivative financial liabilities consist of bank overdrafts, loans and borrowings and trade and other payables.
Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.
| iii) | Derivative financial instruments |
The Group held derivative financial instruments to hedge its gold price exposure. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value. The Group does not hold derivatives that are classified as cash flow hedges, embedded derivatives or hedges that qualify as highly effective. Therefore, all changes in the fair value of derivative instruments are accounted for in profit or loss.
The adoption of IFRS 9 on January 1, 2018 had no impact on this accounting policy.
| iv) | Offsetting |
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
| 22 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (e) | Cash and cash equivalents |
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts are repayable on demand and form an integral part of the Group’s cash management process. The bank overdraft is included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
| (f) | Share capital |
Share capital is classified as equity. Incremental costs directly attributable to the issue, consolidation and repurchase of fractional items of shares and share options are recognised as a deduction from equity, net of any tax effects.
| (g) | Property, plant and equipment |
| i) | Recognition and measurement |
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised in profit or loss.
| ii) | Exploration and evaluation assets |
Exploration costs are capitalised as incurred, unless the exploration costs are related to speculative drilling on unestablished orebodies, general administrative or overhead costs associated with exploration drilling. The costs related to speculative drilling on unestablished orebodies, general administrative or overhead costs are expensed as incurred. Exploration and evaluation costs capitalised are disclosed under property, plant and equipment. Direct expenditures include such costs as materials used, surveying costs, drilling costs, payments made to contractors, direct administrative costs and depreciation on plant and equipment during the exploration phase.
Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the year in which they occur.
Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development and moved to the mine development, infrastructure and other asset category within Property, plant and equipment. Capitalised direct costs related to the acquisition, exploration and development of mineral properties remain capitalised until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. Exploration and evaluation assets are tested for impairment before the assets are transferred to mine development, infrastructure and other assets.
| 23 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (g) | Property, plant and equipment (continued) |
| iii) | Subsequent costs |
The cost of replacing a part of an item of Property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
| iv) | Depreciation |
Depreciation is calculated to write off the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. On commencement of commercial production, depreciation of mine development, infrastructure and other assets is calculated on the unit-of-production method using the estimated measured, indicated and inferred resources which are planned to be extracted in terms of Blanket’s life-of-mine plan (“LoMP”). Resources that are not included in the LoMP are not included in the calculation of depreciation.
For other categories, depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
Inferred resources are included in the LoMP to the extent that there is a successful history of upgrading inferred resources. Blanket reports its resources inclusive of reserves. As a result, resources included in the LoMP and hence in the calculation of depreciation include material from measured, indicated and inferred resource classes as detailed below under the following types of resources:
| · | Measured resources – all proven reserve blocks plus 50% of the remnant pillar blocks. |
| · | Indicated resources – all probable reserves plus indicated resources which occur within the mine extent as defined by the LoMP infrastructure. |
| · | Inferred resources – inferred resources (discounted by approximately 30%) that are well defined in terms of geometry (position, width, extent) falling within the planned infrastructure as per the LoMP. |
In addition, inferred resources are included in the LoMP if it is expected that the inferred resources can be economically recovered in the future. Economic recovery is expected if a history can be proven that the recovered grade of the inferred resources exceeded the pay limit grade and when this trend can be expected in the future and if it is economical to recover inclusive of the cost of the capital requirements to access and extract the gold from the inferred resources. Refer to note 18 for the evaluation of the pay limit.
Land is not depreciated.
The calculation of the units of production rate could be affected to the extent that actual production in the future is different from the current forecast production based on reserves and resources. This would generally result from the extent to which there are significant changes in any of the factors or assumptions used in estimating mineral reserves and resources.
| 24 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (f) | Property, plant and equipment (continued) |
| iv) | Depreciation (continued) |
These factors include:
| · | changes in mineral reserves and resources; |
| · | differences between actual commodity prices and commodity price assumptions; |
| · | unforeseen operational issues at mine sites; and |
| · | changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates. |
Useful lives
The estimated useful lives for the current and comparative periods are as follows:
| · | buildings 10 to 15 years (2018: 10 to 15 years; 2017: 10 to 15 years); |
| · | plant and equipment 10 years (2018: 10 years; 2017: 10 years); |
| · | fixtures and fittings including computers 4 to 10 years (2018: 4 to 10 years; 2017: 4 to 10 years); |
| · | motor vehicles 4 years (2018: 4 years; 2017: 4 years); |
| · | Right of use assets 3 to 6 years (determined by lease term); and |
| · | mine development, infrastructure and other assets in production, units-of-production method. |
Depreciation methods, useful lives and residual values are reviewed each financial year and adjusted if appropriate. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
| (g) | Inventories |
Consumable stores are measured at the lower of cost and net realisable value. The cost of consumable stores is based on the weighted average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Gold in process is measured at the lower of cost and net realisable value. The cost of gold in process includes an appropriate share of production overheads based on normal operating capacity and is valued on the weighted average cost principle. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
| 25 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (h) | Impairment |
| i) | Non-derivative financial assets (including receivables) |
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on an individual basis as they possess different credit risk characteristics. Trade receivables have been assessed based on the days past due. The expected loss rates are based on the payment profile for gold sales over the past 48 months prior to December 31, of each year reported. The historical rates are adjusted to reflect current and forward looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding. However, given the short period exposed to credit risk the impact of these factors has not been considered significant. Trade receivables are written off (i.e. derecognised) when there is no reasonable expectation of recovery. Failure to make payments within 90 days from lodgement date with Fidelity Printers and Refiners Limited (“Fidelity”) and failure to engage with the Group on alternative payment arrangement, amongst others, are considered indicators of no reasonable expectation of recovery.
| ii) | Non-financial assets |
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a CGU to which a corporate asset is allocated may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognised if the carrying amount of a CGU exceeds its estimated recoverable amount. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amount of assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been an indication of reversal and a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
| 26 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (h) | Impairment (continued) |
| iii) | Impairment of exploration and evaluation (“E&E”) assets |
The test for impairment of E&E assets, included in Mineral properties not depreciated, can combine several CGUs as long as the combination is not larger than a segment. The definition of a CGU does, however, change once development activities have begun. There are specific impairment triggers for E&E assets. Despite certain relief in respect of impairment triggers and the level of aggregation, the impairment standard is applied in measuring the impairment of E&E assets. Reversals of impairment losses are required in the event that the circumstances that resulted in impairment have changed.
E&E assets are assessed for impairment only when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount. Indicators of impairment include the following:
| · | The entity's right to explore in the specific area has expired or will expire in the near future and is not expected to be renewed. |
| · | Substantive expenditure on further E&E activities in the specific area is neither budgeted nor planned. |
| · | The entity has not discovered commercially viable quantities of mineral resources as a result of E&E activities in the area to date and has decided to discontinue such activities in the specific area. |
| · | Even if development is likely to proceed, the entity has sufficient data indicating that the carrying amount of the asset is unlikely to be recovered in full from successful development or by sale. |
| (i) | Employee benefits |
| i) | Short-term employee benefits |
Short-term employee benefits are expensed when the related services are provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
| ii) | Defined contribution plans |
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
| 27 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (j) | Share-based payment transactions |
| i) | Equity-settled share-based payments to employees and directors |
The grant date fair value of equity-settled share-based payment awards granted to employees and directors is recognised as an expense, with a corresponding increase in equity, over the vesting period of the award. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market vesting conditions at the vesting date.
Where the terms and conditions of equity-settled share-based payments are modified, the increase in the fair value, measured immediately before and after the modification date, is charged to profit or loss over the remaining vesting period or immediately for vested awards. Similarly, where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in profit or loss. Additional information about significant judgements, estimates and the assumptions used in the quantifying of the equity-settled share-based payment transactions and modification are disclosed in note 27.2.
| ii) | Cash-settled share-based payments to employees and directors |
The grant date fair value of cash-settled awards granted to employees and directors is recognised as an expense, with a corresponding increase in the liability, over the vesting period of the awards. At each reporting date the fair value of the awards is re-measured with a corresponding adjustment to profit or loss. The method of calculating the fair value of the cash-settled share-based payments changed during quarter 1 of 2018 from the intrinsic valuation method to the Black-Scholes method. The Black-Scholes method includes the effect of share volatility in calculating the fair value of the share-based payment awards. The change was applied prospectively and did not have a significant effect on the liability value. Additional information about significant judgements, estimates and the assumptions used to estimate the fair value of cash-settled share-based payment transactions are disclosed in note 27.1.
| (k) | Provisions |
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability if the time value of money is considered significant. The unwinding of the discount is recognised as finance cost.
| 28 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (l) | Site restoration |
The Group recognises liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of these assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalised to mineral properties along with a corresponding increase in the rehabilitation provision in the period incurred. Future rehabilitation costs are discounted using a pre-tax risk free rate that reflects the time-value of money. The Group’s estimates of rehabilitation costs, which are reviewed annually, could change as a result of changes in regulatory requirements, discount rates, effects of inflation and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mineral properties with a corresponding entry to the rehabilitation provision. The cost of on-going current programs to prevent and control pollution is charged against profit or loss as incurred.
| (m) | Revenue |
Revenue from the sale of precious metals is recognised when the metal is accepted at the refinery, control is transferred and when the receipt of proceeds are substantially assured. Revenue is measured at the fair value of the receivable at the date of the transaction.
| (n) | Government grants |
The Company recognises an unconditional government grant related to gold proceeds in profit or loss as other income when the grant becomes receivable. Government grants are initially recognised as deferred income at fair value if there is reasonable assurance that they will be received.
| (o) | Finance income and finance costs |
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on the rehabilitation provisions, interest on bank overdraft balances, effective interest on leases, loans and borrowings and also include commitment costs on overdraft facilities. Finance costs is recognised in profit or loss using the effective interest rate method and excludes borrowing costs capitalised.
| 29 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (p) | Taxes |
| i) | Income tax |
Tax expense comprises current and deferred tax. These expenses are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
| ii) | Current tax |
Current tax is the tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Current tax includes withholding tax on management fees and dividends paid between companies within the Group.
| iii) | Deferred tax |
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is a monetary item measured at the tax rates and in the currency that are expected to be applied when temporary differences reverse. The tax and exchange rates are based on the laws that have been enacted, substantively enacted or the interbank exchange rates that prevail at the reporting date. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
| (q) | Earnings per share |
The Group presents basic and diluted earnings per share (“EPS”) data for its shares. Basic EPS is calculated by dividing the adjusted profit or loss attributable to shareholders of the Group (see note 25) by the weighted average number of shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding, adjusted for own shares held, for the effects of all dilutive potential shares, which comprise share options granted to employees and directors as well as any dilution in Group earnings originating from dilutive partially recognised non-controlling interests at a subsidiary level.
| 30 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (r) | Borrowing cost |
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Other borrowing costs are expensed in the period in which they are incurred and recognised as finance costs.
| (s) | Assets held for sale |
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount or fair value less costs to sell. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognised in profit or loss.
Once classified as held for sale property, plant and equipment are no longer amortised or depreciated.
| 31 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (t) | The following standards, amendments to standards and interpretations to existing standards may possibly have an impact on the Group: |
|
Standard/Interpretation
|
Effective date and expected adoption date* | |
| IAS 1&8 |
The amendment clarifies the definition of material to make it easier to understand and provides guidance on how the definition should be applied. The change in the definition now ensures that the definition is consistent across all IFRS standards and the Conceptual Framework. |
January 1, 2020 |
| · | Old definition (IAS 1): Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements; | ||
| · | New definition: Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. | ||
| The definition of material omissions or misstatements from IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors has been removed. The final assessment of the impact of the amendment will be finalised in due course. | |||
| The Group has completed its assessment of the impact of IAS 1 and 8 and concluded that the new standard will not have a material impact on the consolidated financial statements. | |||
| IFRS 3 |
Amendment to IFRS 3 clarifies whether entities acquire a business or a group of assets. The amendments: |
January 1, 2020 |
| · | confirm that a business must include inputs and a process, and clarified that: | |||
| o | the process must be substantive; and | |||
| o | the inputs and process must together significantly contribute to creating outputs. | |||
| · | narrow the definitions of a business by focusing the definition of outputs on goods and services provided to customers and other income from ordinary activities, rather than on providing dividends or other economic benefits directly to investors or lowering costs; and | |||
| · | add a test that makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets. | |||
| The Group has completed its assessment of the impact of IFRS 3 and concluded that the new standard will not have a material impact on the consolidated financial statements. | ||||
| 32 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (t) | The following standards, amendments to standards and interpretations to existing standards may possibly have an impact on the Group (continued): |
| Revised |
The IASB decided to revise the Conceptual Framework because certain important issues were not covered and certain guidance was unclear or out of date. The revised Conceptual Framework, issued by the IASB in March 2018, includes: |
January 1, 2020 |
| Conceptual | · | New concepts on measurement including factors to be considered when selecting the measurement basis; | |
| Framework | · | New concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income; | |
| for | · | New guidance on when assets and liabilities are removed from financial statements; | |
| Financial | · | Updated definitions of an asset and liability; | |
| Reporting | · | Updated recognition criteria for including assets and liabilities in financial statements; and | |
| · | Clarified the concepts of prudence, stewardship, measurement uncertainty and substance over form. | ||
| The IASB also updated references to the Conceptual Framework in IFRS Standards by issuing amendments to references to the Conceptual Framework in IFRS Standards. The Group has completed its assessment of the impact and concluded that the new standard will not have a material impact on the consolidated financial statements. | |||
* Annual periods ending on or after
| 33 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 6 | Blanket Mine Indigenisation Transaction |
On February 20, 2012 the Group announced it had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe pursuant to which the Group agreed that indigenous Zimbabweans would acquire an effective 51% ownership interest in the Zimbabwean company owning the Blanket Mine for a paid transactional value of $30.09 million. Pursuant to the above, members of the Group entered into agreements with each indigenous shareholder to transfer 51% of the Group’s ownership interest in Blanket Mine whereby it:
| · | sold a 16% interest to the National Indigenisation and Economic Empowerment Fund (“NIEEF”) for $11.74 million; |
| · | sold a 15% interest to Fremiro Investments (Private) Limited (“Fremiro”), which is owned by indigenous Zimbabweans, for $11.01 million; |
| · | sold a 10% interest to Blanket Employee Trust Services (Private) Limited (“BETS”) for the benefit of present and future managers and employees for $7.34 million. The shares in BETS are held by the Blanket Mine Employee Trust (“Employee Trust”) with Blanket Mine’s employees holding participation units in the Employee Trust; and |
| · | donated a 10% ownership interest to the Gwanda Community Share Ownership Trust (“Community Trust”). In addition, Blanket Mine paid a non-refundable donation of $1 million to the Community Trust. |
The Group facilitated the vendor funding of these transactions which is repaid by way of dividends from Blanket Mine. 80% of dividends declared by Blanket Mine are used to repay such loans and the remaining 20% unconditionally accrues to the respective indigenous shareholders. Following a modification to the interest rate on June 23, 2017, outstanding balances on these facilitation loans attract interest at a rate of the lower of a fixed 7.25% per annum payable quarterly or 80% of the Blanket Mine dividend in the quarter. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. The facilitation loans relating to the Group were transferred as dividends in specie intra Group and now the loans and most of the interest thereon is payable to the Company.
On November 5, 2018 the Company and Fremiro entered into a sale agreement for Caledonia to purchase Femiro’s 15% shareholding in Blanket Mine. As at December 31, 2019 the transaction remained subject to, amongst other things, approvals from various Zimbabwean regulatory authorities to be effective. In terms of the sale agreement, the Company planned to issue 727,266 shares at $7.15 per share to Fremiro for the cancellation of their facilitation loan which stood at $11,467 as at June 30, 2018 and the purchase of their 15% shareholding in Blanket Mine, increasing the Company’s total shareholding in Blanket Mine to 64%. On January 21, 2020 the Company announced that all regulatory approvals were obtained and the transaction became effective. The Company continues to consolidate Blanket Mine in the consolidated financial statements.
| 34 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 6 | Blanket Mine Indigenisation Transaction (continued) |
Accounting treatment
The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”), a wholly owned subsidiary of the Company, performed a re-assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), and concluded that CHZ should continue to consolidate Blanket Mine after the indigenisation and accordingly the subscription agreements with the indigenous shareholders have been accounted for as a transaction with non-controlling interests and as a share based payment transaction.
The subscription agreements, concluded on February 20, 2012, were accounted for as follows:
| · | Non-controlling interests (“NCI”) were recognised on the portion of shareholding upon which dividends declared by Blanket Mine will accrue unconditionally to equity holders as follows: |
| (a) | 20% of the 16% shareholding of NIEEF; |
| (b) | 20% of the 15% shareholding of Fremiro; and |
| (c) | 100% of the 10% shareholding of the Community Trust. |
| · | This effectively means that NCI is recognised at 16.2% of the net assets of Blanket Mine. |
| · | The remaining 80% of the shareholding of NIEEF and Fremiro is recognised as non-controlling interests to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. At December 31, 2019 the attributable net asset value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognised. |
| · | The transaction with BETS is accounted for in accordance with IAS 19 Employee Benefits (profit sharing arrangement) as the ownership of the shares does not ultimately pass to the employees. The employees are entitled to participate in 20% of the dividends accruing to the 10% shareholding in Blanket Mine if they are employed at the date of such distribution. To the extent that 80% of the attributable dividends exceed the balance on the BETS facilitation loan they will accrue to the employees at the date of such declaration. |
| · | The Employee Trust and BETS are entities effectively controlled and consolidated by Blanket Mine. Accordingly, the shares held by BETS are effectively treated as treasury shares in Blanket Mine and no NCI is recognised. |
Amendments to the facilitation and advanced dividend loan agreements
Interest modification
On June 23, 2017, the Group, Blanket Mine and the indigenous shareholders of Blanket Mine reached agreement to change the interest terms of the facilitation and advanced dividend loan agreements. The agreements changed the interest rate from the previously agreed 12-month LIBOR + 10% to the lower of a fixed 7.25% per annum, payable quarterly or 80% of the Blanket Mine dividend in the quarter. The modification was considered beneficial to the indigenous shareholders and gave rise to an equity-settled share-based expense of $806 on June 23, 2017 when all parties reached agreement to modify the interest charged. It was agreed that the interest change was to be applied to the facilitation and advanced dividend loan balances from January 1, 2017. The assumptions and methodologies used to quantify the equity-settled share-based payment expense relating to the beneficial interest modification are detailed in note 27.2.
| 35 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 6 | Blanket Mine Indigenisation Transaction (continued) |
Amendments to the facilitation and advanced dividend loan agreements (continued)
Blanket Mine’s indigenisation shareholding percentages and facilitation loan balances
| Balance of facilitation loan # | ||||||||||||||||||||
$ 000's | Shareholding | NCI Recognised | NCI subject to facilitation loan | Dec, 31, 2019 | Dec, 31 2018 | |||||||||||||||
| NIEEF | 16 | % | 3.2 | % | 12.8 | % | 11,877 | 11,876 | ||||||||||||
| Fremiro (refer note 38(b)) | 15 | % | 3.0 | % | 12.0 | % | 11,458 | 11,466 | ||||||||||||
| Community Trust | 10 | % | 10.0 | % | - | - | - | |||||||||||||
| BETS | 10 | % | - | * | - | * | 7,639 | 7,644 | ||||||||||||
| 51 | % | 16.2 | % | 24.8 | % | 30,974 | 30,986 | |||||||||||||
The balance on the facilitation loans is reconciled as follows:
| Balance at January 1, 2018 | 31,052 | |||
| Interest accrued | 2,173 | |||
| Dividends used to repay loans | (2,239 | ) | ||
| Balance at December 31, 2018 | 30,986 | |||
| Interest accrued | 1,609 | |||
| Dividends used to repay loans | (1,621 | ) | ||
| Balance at December 31, 2019 | 30,974 |
* The shares held by BETS are effectively treated as treasury shares (see above). The BETS facilitation loan earnings are accounted for under IAS19 Employee Benefits as an employee charge under Production cost.
# Facilitation loans are accounted for as equity instruments and are accordingly not recognised as loans receivable.
Advance dividends
In anticipation of completion of the underlying subscription agreements, Blanket Mine agreed to advance dividend arrangements with NIEEF and the Community Trust as follows:
Advances made to the Community Trust against their right to receive dividends declared by Blanket Mine on their shareholding as follows:
| · | a $2 million payment on or before September 30, 2012; |
| · | a $1 million payment on or before February 28, 2013; and |
| · | a $1 million payment on or before April 30, 2013. |
| 36 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 6 | Blanket Mine Indigenisation Transaction (continued) |
Advance dividends (continued)
These advance payments were debited to a loan account bearing interest at a rate at the lower of a fixed 7.25% per annum, payable quarterly or the Blanket Mine dividend in the quarter to the advanced dividend loan holder. The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the Community Trust. Advances made to NIEEF as an advanced dividend loan before 2013 were settled through Blanket Mine dividend repayments in fiscal 2014.
The advance dividend payments were recognised as distributions to shareholders and they are classified as equity instruments. The loans arising are not recognised as loans receivable, because repayment is by way of uncertain future dividends.
The movement in the advance dividend loan to the Community Trust is reconciled as follows:
| Total | ||||
| Balance at January 1, 2018 | 2,604 | |||
| Interest accrued | 174 | |||
| Dividends used to repay advance dividends | (725 | ) | ||
| Balance at December 31, 2018 | 2,053 | |||
| Interest accrued | 104 | |||
| Dividends used to repay advance dividends | (525 | ) | ||
| Balance at December 31, 2019 | 1,632 | |||
| 7 | Financial risk management |
Overview
The Group has exposure to the following risks from its use of financial instruments:
| · | Currency risk (refer note 31) |
| · | Interest rate risk (refer note 31) |
| · | Credit risk (refer note 31) |
| · | Liquidity risk (refer note 31) |
| · | Market risk (refer note 31) |
This note and note 31 presents information about the Group’s exposure to each of the above risks and the Group’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements. The Group is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital, and protecting current and future Group assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets. The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Group’s Audit Committee oversees management’s compliance with the Group’s
| 37 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 7 | Financial risk management (continued) |
financial risk management policy. Gold price hedges were entered into to manage the possible effect of gold price fluctuations. The derivative financial instrument was entered into by the Company for economic hedging purposes and not as a speculative investment. The fair value of the Group’s financial instruments approximates their carrying value due to the short period to maturity. The types of risk exposure and the way in which such exposures are managed are described below:
| (a) | Currency risk |
The Group is exposed to currency risk on inter-company sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities. The Group does not use financial instruments to hedge its exposure to currency risk. To reduce exposure to currency transaction risk, the Group regularly reviews the currency (i.e. RTGS$ or Foreign currency) in which it spends its cash to identify and avoid specific expenditures in currencies that experience inflationary pressures. Further the Group aims to maintain cash and cash equivalents in US Dollar to manage foreign exchange exposure.
| (b) | Interest rate risk |
The Group is exposed to interest rate risk arising from its cash and cash equivalents invested with financial institutions as well as its overdraft facility and term loan. The Group has not entered into interest rate swap agreements and mitigates the interest rate risk by remaining in a positive consolidated net cash position.
| (c) | Credit risk |
Credit risk includes the risk of a financial loss to the Group if a gold sales customer fails to meet its contractual obligation. Gold sales were made to Fidelity in Zimbabwe during the year.
| (d) | Liquidity risk |
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity risk by ensuring that there is sufficient cash to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be sufficient to cover the anticipated cash requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.
| (e) | Market risk |
Market risk is the risk that changes in the gold price will affect the group’s profitability. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising returns. Hedges were entered into by the Company for economic hedging purposes to ensure sufficient cash availability for Blanket Mine’s capital investment plan, rather than as a speculative investment, refer to note 16 for details on hedge transactions entered into.
| 38 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 8 | Capital Management |
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue the mining operations and exploration potential of the mineral properties. The Group’s capital includes shareholders’ equity, comprising issued share capital, reserves, accumulated other comprehensive income, accumulated deficit, bank loans and non-controlling interests.
| 2019 | 2018 | |||||||
| Total equity | 124,717 | 78,808 | ||||||
The Group’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its on-going operations, to provide returns for shareholders and accommodate any rehabilitation provisions and to pursue growth opportunities. As at December 31, 2019, the Group is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy.
| 9 | Production costs |
| 2019 | 2018 | 2017 | ||||||||||
| Salaries and wages | 13,905 | 13,160 | 13,440 | |||||||||
| Cash-settled share-based payments (note 27.1(a)) | 107 | 43 | 311 | |||||||||
| Consumable materials | 13,020 | 12,143 | 9,916 | |||||||||
| Electricity costs | 6,383 | 9,313 | 8,701 | |||||||||
| Site restoration | - | 84 | 58 | |||||||||
| Pre-feasibility exploration cost | 301 | 411 | 410 | |||||||||
| Safety | 525 | 592 | 323 | |||||||||
| On mine administration | 2,159 | 3,569 | 3,004 | |||||||||
| Other production cost | - | - | 17 | |||||||||
| 36,400 | 39,315 | 36,180 | ||||||||||
| 10 | Other income |
| 2019 | 2018 | 2017 | ||||||||||
| Government grant – Gold sale export incentive | 866 | 6,482 | 2,446 | |||||||||
| Government grant – Gold support price | 1,064 | - | - | |||||||||
| Other | 94 | 39 | 148 | |||||||||
| Greenstone Retirement Fund pay-out | 250 | - | - | |||||||||
| Greenstone Provident Fund pay-out | - | 363 | - | |||||||||
| Eersteling rock dump sale | - | 217 | - | |||||||||
| 2,274 | 7,101 | 2,594 | ||||||||||
| 39 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 10 | Other income (continued) |
Government grant – Gold sale export incentive
From May, 2016 the Reserve Bank of Zimbabwe announced an export credit incentive (“ECI”) on the gold proceeds received for all large scale gold mine producers. On January 1, 2018 the export credit incentive decreased from 3,5% to 2,5% and on February 1, 2018, increased to 10%. All incentives granted by the Zimbabwean government were included in other income when determined receivable. All receipts were received in Blanket Mine’s RTGS$ account. In the monetary policy statement issued on February 20, 2019 the RBZ announced the cancellation of the ECI.
Government grant – Gold support price
From March 6, 2019 it became apparent that Blanket Mine’s sales proceeds received from Fidelity were calculated at a gross price of $44,000 per kilogram ($1,368.58 per ounce), which exceeded the prevailing London Bullion Market Association (“LBMA”) price. On May 12, 2019 the Company received confirmation from Fidelity of this windfall receipt, called the “gold support price”, which has been implemented to incentivise gold producers to increase gold production. The gold support price has not been increased as the LMBA gold price has subsequently increased above $1,368.58 per ounce.
Greenstone Retirement Fund pay-out
The Greenstone Retirement Fund (the “Fund”) was established with the aim to provide retirement benefits to employees of mines previously owned by Caledonia Mining South Africa Proprietary Limited. A surplus remained in the Fund after all members were retrenched or terminated in 1997 when the mines were closed. The Financial Services Board in South Africa appointed a tribunal that liquidated the Fund and concluded that the surplus of ZAR 3,6 million ($250) that remained in the Fund to be paid out to the former employer. On October 25, 2019 the surplus was paid out to Caledonia Mining South Africa Proprietary Limited.
| 11 | Impairment loss on trade receivables |
| 2019 | 2018 | 2017 | ||||||||||
| Impairment - 2017 royalty rebate | - | - | 181 | |||||||||
During 2016 Blanket Mine obtained a rebate on royalty payments made in 2015 of $181 for incremental gold production in 2016 compared to production in 2015. A receivable was recognised for the royalty amount overpaid to the revenue authorities in 2016 based on the pre-award rate. An impairment provision of $Nil (2018:181; 2017: $181) was raised against the receivable outstanding in 2017. The Zimbabwean government has been unable to put in place the modalities of implementing the royalty on incremental gold sales across the gold industry as a whole.
| 40 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 12 | Net foreign exchange gain/(loss) |
On October 1, 2018 the RBZ issued a directive to Zimbabwean banks to separate foreign currency from RTGS$ on the accounts held by their clients and pegged the RTGS$ at 1:1 to the US dollar. On February 20, 2019 the RBZ issued a further monetary policy statement, which allowed inter-bank trading between RTGS$ and foreign currency. The interbank rate was introduced at 2.5 RTGS$ to 1 US dollar and traded at 16,77 RTGS$ to 1 US dollar as at December 31, 2019. On June 24, 2019 the Government issued S.I. 142 which stated, “Zimbabwe dollar (RTGS$) to be the sole currency for legal tender purposes for any transactions in Zimbabwe”. Throughout these announcements and to the date of issue of these financial statements the US dollar has remained the primary currency in which the Group’s Zimbabwean entities operate and the functional currency of these entities.
Previously there was uncertainty as to what currency would be used to settle amounts owed to the Zimbabwe Government. The announcement of S.I. 142 clarified the Zimbabwean Government’s intentions that these liabilities were always denominated in RTGS$ and that RTGS$ would be the currency in which they would be settled. The devaluation of the deferred tax and electricity liabilities contributed the largest portion of the foreign exchange gain set out below.
The table below illustrates the effect the weakening of the RTGS$ and other non-RTGS$ currencies had, against the US dollar, on the statement of profit or loss and other comprehensive income.
| 2019 | 2018 | 2017 | ||||||||||
| Unrealised Foreign exchange gain/(loss) | 31,411 | 230 | (379 | ) | ||||||||
| Realised foreign exchange loss | (1,750 | ) | (7 | ) | (1 | ) | ||||||
| Net foreign exchange gain/(loss) | 29,661 | 223 | (380 | ) | ||||||||
| 13 | Leases |
Leases as lessee
The Group leases administrative offices. The leases typically run for a period of 3 to 6 years, with an option to renew the lease after that date. The two leases over the administrative offices expire in 2021 and 2025 respectively.
Previously, leases were classified as operating leases under IAS 17. Information about leases for which the Group is a lessee is presented below.
| 41 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 13 | Leases (continued) |
| i) | Right of use assets |
Right of use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment (refer note 18).
| 2019 | ||||
| Balance at January 1 | 263 | |||
| Depreciation charge for the year | (112 | ) | ||
| Additions to Right of use assets | 248 | |||
| Derecognition of Right of use assets | (64 | ) | ||
| Foreign currency movement | 2 | |||
| Balance at December 31 | 337 | |||
| ii) | Amounts recognised in profit or loss |
| 2019 | ||||
| Leases under IFRS 16 | ||||
| Interest on lease liabilities | 17 | |||
| 2018 | ||||
| Operating leases under IAS 17 | ||||
| Lease expense | 105 | |||
| iii) | Amounts recognised in statement of cash flows |
| 2019 | ||||
| Total cash outflow for leases | 124 | |||
An amount of $349 was recognised as part of Trade and other payables as at December 31, 2019 relating to the above leases.
| 42 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 14 | Administrative expense |
| 2019 | 2018 | 2017 | ||||||||||
| Investor relations | 414 | 751 | 541 | |||||||||
| Audit fee | 237 | 266 | 231 | |||||||||
| Advisory services fees | 408 | 553 | 684 | |||||||||
| Listing fees | 277 | 495 | 402 | |||||||||
| Directors fees Company | 240 | 225 | 247 | |||||||||
| Directors fees Blanket Mine | 31 | 52 | 40 | |||||||||
| Employee costs | 3,030 | 2,917 | 2,781 | |||||||||
| Eersteling Gold Mine administration cost | 17 | 212 | 142 | |||||||||
| Other office administration costs | 691 | 697 | 444 | |||||||||
| Travel costs | 292 | 297 | 399 | |||||||||
| 5,637 | 6,465 | 5,911 | ||||||||||
| 15 | Finance income and finance costs |
| Finance income | 2019 | 2018 | 2017 | |||||||||
| Interest received – Bank | 146 | 53 | 38 | |||||||||
| Finance cost | ||||||||||||
| Interest – Term loan (note 28) | 165 | 92 | 155 | |||||||||
| Interest – Capitalised to Property, plant and equipment (note 18) | (165 | ) | (92 | ) | (155 | ) | ||||||
| Unwinding of rehabilitation provision | 20 | 20 | 25 | |||||||||
| Finance charges – Leases (note 13) | 17 | - | - | |||||||||
| Finance charges – Overdraft | 307 | 253 | 44 | |||||||||
| 344 | 273 | 69 | ||||||||||
| 43 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 16 | Gold hedge |
The Company entered into a 5 month hedge in respect of 4,500 ounces of gold per month from February to June 2019 through the purchase of put options with a strike price of $1,250 per ounce. The gold price never went below $1,250 per ounce and the hedge was concluded at a cost of $324.
The Company entered into a new hedge in November 2019 at a cost of $379. The new hedge was in the form of put options in respect of 4,600 ounces of gold for the period January to June 2020 exercisable at a strike price of $1,400 per ounce. At December 31, 2019 the mark-to-market valuation, that represents the fair value of the hedge amounted to $102 (2018: Nil).
Both hedges were entered into by the Company for economic hedging purposes to ensure sufficient cash availability for Blanket Mine’s capital investment plan, rather than as a speculative investment. The total expense of the derivative contracts amounted to $601 (2018: $360) for the year.
| 17 | Tax expense |
| 2019 | 2018 | 2017 | ||||||||||
| Tax recognised in profit or loss | ||||||||||||
| Current tax | 7,311 | 3,783 | 4,995 | |||||||||
| Income tax– current year | 6,802 | 2,523 | 3,702 | |||||||||
| Income tax – Prior year under provision | 29 | 1,075 | 71 | |||||||||
| Withholding tax expense – current year | 480 | 580 | 1,222 | |||||||||
| Withholding tax expense – Prior year over provision | - | (395 | ) | - | ||||||||
| Deferred tax expense | 2,979 | 3,662 | 3,696 | |||||||||
| Origination and reversal of temporary differences | 2,979 | 3,662 | 3,696 | |||||||||
| Tax expense – recognised in profit or loss | 10,290 | 7,445 | 8,691 | |||||||||
| Tax recognised in other comprehensive income | ||||||||||||
| Income tax - current year | - | - | - | |||||||||
| Tax expense | 10,290 | 7,445 | 8,691 | |||||||||
| 44 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 17 | Tax expense (continued) |
Unrecognised deferred tax assets
| 2019 | 2018 | 2017 | ||||||||||
| Eersteling Gold Mining Company Limited | - | 4,989 | 4,989 | |||||||||
| Caledonia Holdings Zimbabwe (Private) Limited | 421 | - | - | |||||||||
| Greenstone Management Services Holdings Limited | 276 | 191 | 116 | |||||||||
| Tax losses carried forward | 697 | 5,180 | 5,105 | |||||||||
Taxable losses do not expire for the entities incurring taxable losses within the Group. Tax losses carried forward relate to Greenstone Management Services Holdings Limited (UK) and Caledonia Holdings Zimbabwe (Private) Limited. Unrecognised tax losses of Eersteling Gold Mining Company Limited amounted to $5 for 2019 and the unrecognised tax losses relating to the entity were transferred with the sale of the entity. Deferred tax assets have not been recognised in these entities as future taxable income is not deemed probable to utilise these losses against.
| Tax paid | 2019 | 2018 | 2017 | |||||||||
| Net income tax payable at January 1 | (1,538 | ) | (1,145 | ) | (345 | ) | ||||||
| Current tax expense | (7,310 | ) | (3,783 | ) | (4,995 | ) | ||||||
| Foreign currency movement | 3,168 | 46 | (17 | ) | ||||||||
| Tax paid | 5,517 | 3,344 | 4,212 | |||||||||
| Net income tax payable at December 31 | (163 | ) | (1,538 | ) | (1,145 | ) | ||||||
| 45 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 17 | Tax expense (continued) |
Reconciliation of tax rate
| 2019 | 2018 | 2017 | ||||||||||
| Profit for the year | 50,401 | 13,756 | 11,896 | |||||||||
| Total tax expense | 10,290 | 7,445 | 8,691 | |||||||||
| Profit before tax | 60,691 | 21,201 | 20,587 | |||||||||
| Income tax at Company's domestic tax rate (1) | - | - | - | |||||||||
| Tax rate differences in foreign jurisdictions (2) | 16,232 | 6,465 | 6,546 | |||||||||
| Effect of income tax calculated in RTGS$ as required by PN26 (3) | (8,526 | ) | - | - | ||||||||
| Management fee – Withholding tax on deemed dividend portion (4) | 224 | 337 | 538 | |||||||||
| Management fee – non-deductible deemed dividend (4) | 652 | 579 | 925 | |||||||||
| Management fee – withholding tax current year | 129 | 96 | 427 | |||||||||
| Management fee – non-deductible withholding tax prior year (5) | - | (664 | ) | - | ||||||||
| Withholding tax on intercompany dividend | 128 | 110 | 90 | |||||||||
| Non-deductible royalty expenses | 933 | 882 | 901 | |||||||||
| Other non-deductible expenditure | 39 | 137 | 107 | |||||||||
| Export incentive income credit relating to 2016 | - | - | (284 | ) | ||||||||
| Export incentive income exemption (6) | (124 | ) | (1,649 | ) | (630 | ) | ||||||
| Change in tax estimates | ||||||||||||
| - Zimbabwean income tax (7) | 29 | 795 | - | |||||||||
| - South African income tax | 63 | 220 | - | |||||||||
| - Other | - | 61 | (45 | ) | ||||||||
| Change in unrecognised deferred tax assets | 511 | 76 | 116 | |||||||||
| Tax expense - recognised in profit or loss | 10,290 | 7,445 | 8,691 | |||||||||
| (1) | Enacted tax rate in Jersey, Channel Islands is 0% (2018: 0%; 2017: 0%) |
| (2) | Subsidiaries registered in Zimbabwe and South Africa are subject to a corporate tax rate of 25,75% and 28% respectively. |
| (3) | In 2019 ZIMRA issued PN26 that was effected retrospectively from February 22, 2019. The public notice provided clarity on Section 4 (a) of the Finance Act [Chapter 23.04] of Zimbabwe, that requires a company earning taxable income to pay tax in the same or other specified currency that the income is earned. PN 26 clarifies that the calculation of taxable income be performed in RTGS$ and that the payment of the tax be in the ratio of the currency that the turnover is earned. The reconciliating item reconciles the profit before tax calculated using US dollars as the functional currency of the Zimbabwean entities to taxable income calculated in RTGS$. |
| (4) | Zimbabwean tax legislation changed during 2017 that gave rise to an additional withholding tax of 15% going forward on a portion of the intercompany management fee considered to be a deemed dividend. The new legislation resulted in this portion of the management fee being not deductible for income tax purposes in Zimbabwe from January 1, 2017. |
| (5) | Withholding tax on the management fee was provided for and paid at 15% in 2017. However, in the second quarter of 2018 management obtained confirmation from the ZIMRA that the withholding tax rate was reduced to 5% from February 1, 2017. The ZIMRA allowed an amount of $395 to be offset against outstanding income tax liabilities in Zimbabwe. The overpayment of withholding taxes on the management fee also resulted in a change of estimate reducing the 2017 non-deductible withholding tax in the South African subsidiary amounting to $269, estimated at 15%, to 5%. The change in estimate was accounted for prospectively in the 2018 year. |
| (6) | On March 23, 2018, the ZIMRA enacted a new finance act that provided for the export credit incentive to be tax exempt. The 2018 finance bill indicated that the export incentive income will be tax exempt from June 1, 2017. The new finance bill resulted in an income tax credit being applied in the 2018 income tax calculation giving rise to a credit for the export incentive income of 2017. |
| (7) | During the second quarter of 2018 management revised its estimated management fee fair value previously deducted against taxable income in the prior years. Management approached ZIMRA and reached a settlement on the amount allowed as a deduction. No penalties or interests were incurred. |
| 46 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 17 | Tax expense (continued) |
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| Assets | Liabilities | Net | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | *2019 | *2018 | |||||||||||||||||||
| Property, plant and equipment | - | - | (4,195 | ) | (24,930 | ) | (4,195 | ) | (24,930 | ) | ||||||||||||||
| Allowance for obsolete stock | 22 | 258 | - | 22 | 258 | |||||||||||||||||||
| Prepayments | - | - | (4 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||||||||
| Unrealised foreign exchange | 309 | 34 | - | - | 309 | 34 | ||||||||||||||||||
| Trade and other payables | 739 | - | - | - | 739 | - | ||||||||||||||||||
| Share based payments | 5 | 13 | - | - | 5 | 13 | ||||||||||||||||||
| Provisions | 58 | 1,386 | - | - | 58 | 1,386 | ||||||||||||||||||
| Other | - | 12 | - | - | - | 12 | ||||||||||||||||||
| Tax assets/ (liabilities) | 1,133 | 1,703 | (4,199 | ) | (24,933 | ) | (3,066 | ) | (23,230 | ) | ||||||||||||||
* The deferred tax liability consists of a deferred tax asset of $63 (2018: $98) from the South African operation and a net deferred tax liability of $3,129 (2018: $23,328) due to the Zimbabwean operation. The amounts are in different tax jurisdictions and cannot be offset. The amounts are presented as part of Non-current assets and a Non-current liabilities in the Statements of financial position. The deferred tax asset recognised is supported by evidence of probable future taxable income.
Movement in recognised deferred tax assets and liabilities
| Balance January 1, 2019 | Recognised in profit or loss | Foreign exchange movement | Balance December 31, 2019 | |||||||||||||
| Property, plant and equipment | (24,930 | ) | (4,561 | ) | 25,296 | (4,195 | ) | |||||||||
| Allowance for obsolete stock | 258 | 11 | (247 | ) | 22 | |||||||||||
| Prepayments | (3 | ) | - | (1 | ) | (4 | ) | |||||||||
| Unrealised foreign exchange | 34 | 519 | (244 | ) | 309 | |||||||||||
| Trade and other payables | 486 | 1,093 | (840 | ) | 739 | |||||||||||
| Share based payments | 13 | (9 | ) | 1 | 5 | |||||||||||
| Provisions | 852 | 11 | (805 | ) | 58 | |||||||||||
| Other | 60 | (43 | ) | (17 | ) | - | ||||||||||
| Total | (23,230 | ) | (2,979 | ) | 23,143 | (3,066 | ) | |||||||||
| Balance January 1, 2018 | Recognised in profit or loss | Foreign exchange movement | Balance December 31, 2018 | |||||||||||||
| Property, plant and equipment | (20,985 | ) | (3,945 | ) | - | (24,930 | ) | |||||||||
| Allowance for obsolete stock | 35 | 223 | - | 258 | ||||||||||||
| Prepayments | (4 | ) | - | 1 | (3 | ) | ||||||||||
| Unrealised foreign exchange | 97 | (63 | ) | - | 34 | |||||||||||
| Trade and other payables | 429 | 57 | - | 486 | ||||||||||||
| Share based payments | 12 | 3 | (2 | ) | 13 | |||||||||||
| Provisions | 813 | 47 | (8 | ) | 852 | |||||||||||
| Other | 48 | 16 | (4 | ) | 60 | |||||||||||
| Total | (19,555 | ) | (3,662 | ) | (13 | ) | (23,230 | ) | ||||||||
| 47 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 18 | Property, plant and equipment |
| Land and buildings | Mine development, infrastructure and other | Exploration and Evaluation assets | Plant and equipment | Fixtures and fittings | Motor vehicles | Total | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| Balance at January 1, 2018 | 9,434 | 61,498 | 6,967 | 27,881 | 943 | 2,329 | 109,052 | |||||||||||||||||||||
| Additions** | - | 18,719 | - | 899 | 202 | 95 | 19,915 | |||||||||||||||||||||
| Impairments*** | - | (60 | ) | - | (529 | ) | (216 | ) | (17 | ) | (822 | ) | ||||||||||||||||
| Assets held for sale | (140 | ) | (74 | ) | - | - | - | - | (214 | ) | ||||||||||||||||||
| Reallocations between asset classes | 1,068 | (5,525 | ) | - | 4,457 | - | - | - | ||||||||||||||||||||
| Foreign exchange movement | (23 | ) | (49 | ) | - | (33 | ) | (6 | ) | (5 | ) | (116 | ) | |||||||||||||||
| Balance at December 31, 2018 | 10,339 | 74,509 | 6,967 | 32,675 | 923 | 2,402 | 127,815 | |||||||||||||||||||||
| Balance at January 1, 2019 | 10,339 | 74,509 | 6,967 | 32,675 | 923 | 2,402 | 127,815 | |||||||||||||||||||||
| Initial recognition of right of use assets | 409 | - | - | - | - | - | 409 | |||||||||||||||||||||
| Additions** | 267 | 19,020 | 172 | 897 | 88 | 151 | 20,595 | |||||||||||||||||||||
| Impairments*** | - | - | - | (144 | ) | - | (144 | ) | ||||||||||||||||||||
| Disposals | (212 | ) | - | - | - | - | (16 | ) | (228 | ) | ||||||||||||||||||
| Reallocations between asset classes | 25 | (2,989 | ) | - | 2,964 | - | - | - | ||||||||||||||||||||
| Foreign exchange movement | 5 | 2 | - | 3 | 7 | 1 | 18 | |||||||||||||||||||||
| Balance at December 31, 2019 | 10,833 | 90,542 | 7,139 | 36,395 | 1,018 | 2,538 | 148,465 | |||||||||||||||||||||
There are commitments to purchase plant and equipment totalling $560 (2018: $3,981) at year end.
* Included in additions to mine development, infrastructure and other assets is an amount of $1,882 (2018: $1,958) relating to rehabilitation asset capitalised, refer note 26.
** Included in additions is an amount of $20,093 (2018: $19,323) relating to capital work in progress (“CWIP”) and contains $165 (2018: $61) of borrowing costs capitalised from the term loan. As at year end $76,847 of CWIP was included in the closing balance (2018: $62,624).
*** The auto-tap transformer was written off due to the large voltage fluctuations at Blanket Mine that caused it to burn out.
| 48 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 18 | Property, plant and equipment (continued) |
| Land and buildings | Mine development, infrastructure and other | Exploration and Evaluation assets | Plant and equipment | Fixtures and fittings | Motor vehicles | Total | ||||||||||||||||||||||
| Accumulated depreciation and Impairment losses | ||||||||||||||||||||||||||||
| Balance at January 1, 2018 | 3,636 | 5,172 | - | 15,382 | 761 | 2,023 | 26,974 | |||||||||||||||||||||
| Depreciation for the year | 775 | 649 | - | 2,404 | 99 | 144 | 4,071 | |||||||||||||||||||||
| Impairments | - | - | - | (429 | ) | (170 | ) | (15 | ) | (614 | ) | |||||||||||||||||
| Foreign exchange movement | - | - | - | - | (41 | ) | (2 | ) | (43 | ) | ||||||||||||||||||
| Balance at December 31, 2018 | 4,411 | 5,821 | - | 17,357 | 649 | 2,150 | 30,388 | |||||||||||||||||||||
| Balance at January 1, 2019 | 4,411 | 5,821 | - | 17,357 | 649 | 2,150 | 30,388 | |||||||||||||||||||||
| Initial recognition of right of use assets | 146 | - | - | - | - | - | 146 | |||||||||||||||||||||
| Depreciation for the year | 1,005 | 504 | - | 2,693 | 99 | 133 | 4,434 | |||||||||||||||||||||
| Impairments | - | - | - | - | - | - | - | |||||||||||||||||||||
| Disposals | (149 | ) | - | - | - | - | (16 | ) | (165 | ) | ||||||||||||||||||
| Foreign exchange movement | - | - | - | - | 5 | 6 | 11 | |||||||||||||||||||||
| Balance at December 31, 2019 | 5,413 | 6,325 | - | 20,050 | 753 | 2,273 | 34,814 | |||||||||||||||||||||
| Carrying amounts | ||||||||||||||||||||||||||||
| At December 31, 2018 | 5,928 | 68,688 | 6,967 | 15,318 | 274 | 252 | 97,427 | |||||||||||||||||||||
| At December 31, 2019 | 5,420 | 84,217 | 7,139 | 16,345 | 265 | 265 | 113,651 | |||||||||||||||||||||
| 49 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 18 | Property, plant and equipment (continued) |
Economic recovery
Items of Property, plant and equipment are depreciated over the LoMP, which includes planned production from inferred resources. These inferred resources are included in the calculation when the economic recovery thereof is demonstrated by the achieved recovered grade relative to the mine’s pay limit for the period 2006 to 2018. The pay limit has ranged from 2.3 g/t in 2008 to 2.1. g/t in 2019 while the recovered grade has ranged from 4.0 g/t to 3.26 g/t over the period. All-in-sustaining-cost* has remained consistently below the gold price received over this period resulting in economic recovery of the inferred resources.
* All-in sustaining cost (“AISC”) per ounce, is calculated as the on-mine cost per ounce to produce gold (which includes production costs before intercompany eliminations and exploration costs) plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg, London and Jersey), costs associated with maintaining the operating infrastructure and resource base that are required to maintain production at the current levels (sustaining capital investment), the share-based expense arising from the LTIP less silver by-product revenue and the export incentive credit
| 19 | Inventories |
| 2019 | 2018 | |||||||
| Consumable stores | 10,716 | 9,210 | ||||||
| Gold in process | 376 | 217 | ||||||
| 11,092 | 9,427 | |||||||
Consumables stores are disclosed net of any write downs or provisions for obsolete items, which amounted to $912 (2018: $911).
| 20 | Trade and other receivables |
| 2019 | 2018 | |||||||
| Bullion revenue receivable | 2,987 | 2,695 | ||||||
| VAT receivables | 1,765 | 2,743 | ||||||
| Deferred consideration on the disposal of subsidiary | 1,991 | - | ||||||
| Deposits for stores and equipment and other receivables | 169 | 954 | ||||||
| 6,912 | 6,392 | |||||||
The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables is disclosed in notes 7 and 31. The net carrying value of trade receivables is considered a reasonable approximation of fair value and are short-term in nature. Refer to note 22.1 for terms of deferred consideration on the disposal of subsidiary. No provision for expected credit losses were recognised as all scheduled payments were received up to the date of approval of these financial statements and non-payment of Trade and other receivables were not foreseen.
| 50 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 21 | Cash and cash equivalents |
| 2019 | 2018 | |||||||
| Bank balances | 9,383 | 11,187 | ||||||
| Cash and cash equivalents in the statement of financial position | 9,383 | 11,187 | ||||||
| Bank overdrafts used for cash management purposes | (490 | ) | - | |||||
| Net cash and cash equivalents at year end | 8,893 | 11,187 | ||||||
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 31.
| Denomination RTGS$ | Interest rate | |||||||
| Overdraft facilities | ||||||||
| Stanbic Bank | 15,000,000 | 25 | % | |||||
| First Capital Bank | 10,000,000 | 26 | % | |||||
| 22 | Eersteling |
| 22.1 | Sale of subsidiary |
On May 31, 2018 the Group entered into an amended share sale agreement with SH Mineral Investments Proprietary Limited (“SH Minerals”) to sell the shares and claims of Eersteling Gold Mining Company Limited (“Eersteling”), a South African subsidiary previously consolidated as part of the Group, that has been on care and maintenance since 1997. The amended share sale agreement allowed for a purchase price of $3 million which would be settled by three payments of $1 million payable on the completion date, 12 and 18 months after the completion date. On January 31, 2019 all suspensive conditions for the sale were met and the Group transferred the registered and beneficial ownership of Eersteling to SH Minerals. During 2019, $1 million was received and $901 was received post year end as payment towards the purchase price.
| 51 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 22 | Eersteling (continued) |
| 22.1 | Sale of subsidiary (continued) |
Details of the disposal are as follows:
| Carrying amounts of net assets over which control was lost: | 2019 | |||
| Non-current assets | ||||
| Property, plant and equipment | 227 | |||
| Current assets | ||||
| Trade and other receivables | 84 | |||
| Total assets | 311 | |||
| Non-current liabilities | ||||
| Rehabilitation provision | 650 | |||
| Current liabilities | ||||
| Trade and other payables | 8 | |||
| Total liabilities | 658 | |||
| Consideration receivable: | ||||
| Cash received | 1,000 | |||
| Deferred consideration (at January 31, 2019) | 1,953 | |||
| Total consideration | 2,953 | |||
| Profit on sale of subsidiary: | ||||
| Net liabilities derecognised | 347 | |||
| Cumulative exchange differences in respect of the net liabilities of the subsidiary reclassified from equity on loss of control of subsidiary | 2,109 | |||
| Fair value of consideration receivable (at January 31, 2019) | 2,953 | |||
| Profit on sale of subsidiary | 5,409 | |||
At the date of approval of these financial statements $901 remained outstanding from SH Minerals and is expected to be received in July of 2020.
| 22.2 | Disposal group held for sale |
As at December 31, 2018, management concluded that the Eersteling disposal group will be recovered principally through a sale transaction rather than through continuing use and that the sale of Eersteling had become highly probable as one of the two suspensive conditions in the new share sale agreement had been met.
| 52 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 22 | Eersteling (continued) |
| 22.2 | Disposal group held for sale (continued) |
As at December 31, 2018 the disposal group held for sale was stated at its carrying amount.
| 2019 | 2018 | |||||||
| Non-current assets | ||||||||
| Property, plant, and equipment | - | 214 | ||||||
| Current assets | ||||||||
| Trade and other receivables | - | 80 | ||||||
| Cash and cash equivalents | - | 2 | ||||||
| Assets held for sale | - | 296 | ||||||
| Non-current liabilities | ||||||||
| Rehabilitation provision | - | 602 | ||||||
| Current liabilities | ||||||||
| Trade and other payables | - | 7 | ||||||
| Liabilities associated with assets held for sale | - | 609 | ||||||
| 23 | Share capital |
Authorised
Unlimited number of ordinary shares of no par value.
Unlimited number of preference shares of no par value.
| Issued ordinary shares | Number of fully paid shares* | Amount | ||||||
| January 1, 2017 | 10,651,936 | 55,002 | ||||||
| Shares repurchased | (118,063 | ) | (146 | ) | ||||
| Issued during the year | 69,280 | 246 | ||||||
| December 31, 2017 | 10,603,153 | 55,102 | ||||||
| Issued during the year | - | - | ||||||
| December 31, 2018 | 10,603,153 | 55,102 | ||||||
| Issued during the year (refer note 27.1) | 159,888 | 963 | ||||||
| December 31, 2019 | 10,763,041 | 56,065 | ||||||
* Amounts stated after the 1:5 share consolidation effected June 26, 2017.
| 53 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 24 | Reserves |
Foreign currency translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations with functional currencies that differ from the presentation currency.
Share-based payment reserve
The share-based payment reserve comprises the fair value of equity instruments granted to employees, directors and service providers under share option plans and equity instruments issued to Blanket’s indigenous shareholders under Blanket Mine’s Indigenisation Transaction (refer note 6).
Contributed surplus
The contributed surplus reserve comprises the reduction in stated capital as approved by shareholders at the special general meeting on January 24, 2013 to be able to commence dividend payments.
| Reserves | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Foreign currency translation reserve | (8,621 | ) | (6,561 | ) | (5,885 | ) | ||||||
| Equity-settled share-based payment reserve (note 27.2) | 16,760 | 16,760 | 16,746 | |||||||||
| Contributed surplus | 132,591 | 132,591 | 132,591 | |||||||||
| Total | 140,730 | 142,790 | 143,452 | |||||||||
| 54 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 25 | Earnings per share |
Weighted average number of shares – Basic earnings per share
| (In number of shares) | Note | 2019 | 2018 | 2017 | ||||||||||
| Issued shares at beginning of year | 23 | 10,603,153 | 10,603,153 | 52,787,428 | ||||||||||
| Share consolidation | - | - | (42,135,492 | ) | ||||||||||
| Issued shares post consolidation | 10,603,153 | 10,603,153 | 10,651,936 | |||||||||||
| Weighted average shares repurchased | - | - | (60,978 | ) | ||||||||||
| Weighted average shares issued | 138,736 | - | 16,924 | |||||||||||
| Weighted average number of shares at December 31 | 10,741,889 | 10,603,153 | 10,607,882 | |||||||||||
Weighted average number of shares – Diluted earnings per share (In number of shares) | 2019 | 2018 | 2017 | |||||||||
| Weighted average shares at December 31 | 10,603,851 | 10,603,153 | 10,607,882 | |||||||||
| Effect of dilutive options | 143,267 | 698 | 9,622 | |||||||||
| Weighted average number of shares (diluted) at December 31 | 10,747,118 | 10,603,851 | 10,617,504 | |||||||||
The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. Options of 32,771 (2018: 37,302; 2017: 18,378), were excluded from the dilutive earnings per share calculation as these options were anti-dilutive.
The quantity of options outstanding as at year end that were out of the money amounted to 18,000 (2018: 18,000) options.
| 55 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 25 | Earnings per share (continued) |
The calculation of total basic and diluted earnings per share for the year ended December 31, 2019 was based on the adjusted profit attributable to shareholders as follows:
| 2019 | 2018 | 2017 | ||||||||||
| Profit for the year attributable to owners of the Company (basic and diluted) | 42,018 | 10,766 | 9,384 | |||||||||
| Blanket Mine Employee Trust Adjustment | (986 | ) | (280 | ) | (210 | ) | ||||||
| Profit attributable to ordinary shareholders (basic and diluted) | 41,032 | 10,486 | 9,174 | |||||||||
| Basic earnings per share - $ | 3.82 | 0.99 | 0.86 | |||||||||
| Diluted earnings per share - $ | 3.81 | 0.99 | 0.86 | |||||||||
Basic earnings are adjusted for the amounts that accrue to other equity holders of subsidiaries upon the full distribution of post-acquisition earnings to shareholders.
Diluted earnings is calculated on the basis that the unpaid ownership interests of Blanket Mine’s indigenous shareholders are effectively treated as options whereby the weighted average fair value for the period of the Blanket Mine shares issued to the indigenous shareholders and which are subject to settlement of the loan accounts is compared to the balance of the loan accounts and any excess portion is regarded as dilutive. The difference between the number of Blanket Mine shares subject to the settlement of the loan accounts and the number of Blanket Mine shares that would have been issued at the average fair value is treated as the issue of shares for no consideration and regarded as dilutive shares. The calculated dilution is taken into account with additional earnings attributable to the dilutive shares in Blanket Mine, if any. The interest of the NIEEF and Fremiro shareholdings were anti-dilutive in the current and prior year (i.e. the value of the options was less than the outstanding loan balance) and accordingly there was no adjustment to fully diluted earnings attributable to shareholders.
| 56 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 26 | Provisions |
Site restoration
Site restoration relates to the estimated cost of closing down the mines and represents the site and environmental restoration costs, estimated to be paid throughout the period up until closure due to areas of environmental disturbance present at the reporting date as a result of mining activities. In the case of Blanket Mine the costs of site restoration are discounted based on the estimated life of mine. Site restoration costs at Blanket Mine are capitalised to mineral properties depreciated at initial recognition and amortised systematically over the estimated life of the mine for costs relating to the decommissioning of property, plant and equipment.
| Reconciliation of site restoration provision | 2019 | 2018 | ||||||
| Balance at January 1 | 3,309 | 3,797 | ||||||
| Reclassified to Liabilities associated with assets held for sale | - | (602 | ) | |||||
| Foreign exchange movement | - | (97 | ) | |||||
| Unwinding of discount | 20 | 20 | ||||||
| Rehabilitation performed | - | (54 | ) | |||||
| Change in estimate during the year | ||||||||
| - adjusted through profit or loss | - | 84 | ||||||
| - adjustment capitalised in Property, plant and equipment | 17 | 161 | ||||||
| Balance at December 31 | 3,346 | 3,309 | ||||||
The discount rates currently applied in the calculation of the net present value of the Blanket Mine provision is 2.31% (2018: 2.95%), based on a risk-free rate and cash flows estimated at an average 2.27% inflation (2018: 2.13%). The gross rehabilitation costs before discounting amounted to $3,603 (2018: $3,604) for Blanket Mine as at December 31, 2019.
| 27 | Share-based expenses |
| 27.1 | Cash-settled share-based expense |
The Group has separately disclosed the following cash-settled share-based payment arrangements in the statements of profit or loss and other comprehensive income for the years ended December 31:
| Note | 2019 | 2018 | 2017 | |||||||||||
| Restricted Share Units and Performance Units | 27.1.(a) | 616 | 218 | 853 | ||||||||||
| Caledonia Mining South Africa employee incentive scheme | 27.1.(b) | 73 | 97 | 123 | ||||||||||
| 689 | 315 | 976 | ||||||||||||
| 57 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 27 | Share-based expenses (continued) |
| 27.1 | Cash-settled share-based expense (continued) |
| (a) | Restricted Share Units and Performance Units |
Certain key management members were granted Restricted Share Units (“RSUs”) and Performance Units (“PSUs”) pursuant to provisions of the 2015 Omnibus Equity Incentive Compensation Plan. All RSUs and PSUs were granted and approved by the Compensation Committee of the Board of Directors.
The RSUs will vest three years after grant date given that the service condition of the relevant employees is fulfilled. The value of the vested RSUs will be the number of RSUs vested multiplied by the fair market value of the Company’s shares, as specified by the Plan and in the award agreements, on date of settlement.
The PSUs have a service condition and a performance period of three years. The performance condition is a function of production cost, gold production and central shaft depth targets on certain specified dates. The number of PSUs that will vest will be the PSUs granted multiplied by a performance multiplier, which will reflect the actual performance in terms of the performance conditions compared to expectations on the date of the award.
RSU holders are entitled to receive dividends over the vesting period. Such dividends will be reinvested in additional RSUs at the then applicable share price calculated at the average Bank of Canada noon rate immediately preceding the dividend payment. PSUs have rights to dividends only after they have vested.
RSUs and PSUs were originally granted to be settled in cash. On May 8, 2018 the Board approved amendments to the awards to allow for settlement of the vesting date value in cash or shares issuable at fair market value or a combination of both at the discretion of the unit holder.
The fair value of the RSUs, at the reporting date, was based on the Black Scholes option valuation model. The fair value of the PSUs, at the reporting date, was based on the Black Scholes option valuation model less the fair value of the expected dividends during the vesting period multiplied by the performance multiplier expectation. At the reporting date it was assumed that there is a 93%-100% probability that the performance conditions will be met and therefore a 93%-100% (2018: 85%; 2017: 94%) average performance multiplier was used in calculating the estimated liability. The liability as at December 31, 2019 amounted to $524 (December 31, 2018: $2,043). Included in the liability as at December 31, 2019 is an amount of $107 (December 31, 2018: $43; December 31, 2017: $311) that was expensed and classified as production costs; refer note 9. During the year PSUs and RSUs to the value of $2,243 vested of which $963 was issued as share capital.
| 58 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 27 | Share-based expenses (continued) |
| 27.1 | Cash-settled share-based expense (continued) |
| (a) | Restricted Share Units and Performance Share Units (continued) |
The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability on December 31:
| 2019 | 2018 | |||||||||||||||
| RSUs | PSUs | RSUs | PSUs | |||||||||||||
| Fair value ($) | $ | 8.46 | $ | 8.19 | $ | 5.46 | $ | 5.46 | ||||||||
| Share price ($) | $ | 8.46 | $ | 8.46 | $ | 5.46 | $ | 5.46 | ||||||||
| Performance multiplier percentage | - | 93-100% | - | 85 | % | |||||||||||
| Share units granted: | ||||||||||||||||
| RSUs | PSUs | RSUs | PSUs | |||||||||||||
| Grant - January 11, 2016 | 60,645 | 242,579 | 60,645 | 242,579 | ||||||||||||
| Grant - March 23, 2016 | 10,965 | 43,871 | 10,965 | 43,871 | ||||||||||||
| Grant - June 8, 2016 | 5,117 | 20,470 | 5,117 | 20,470 | ||||||||||||
| Grant - January 19, 2017 | 4,443 | 17,774 | 4,443 | 17,774 | ||||||||||||
| Grant – January 19, 2019 | - | 124,027 | - | - | ||||||||||||
| Grant – June 8, 2019 | - | 14,672 | - | - | ||||||||||||
| RSU dividend reinvestments | 11,316 | - | 10,960 | - | ||||||||||||
| Settlements | (87,434 | ) | (306,920 | ) | ||||||||||||
| Total awards at December 31 | 5,052 | 156,473 | 92,130 | 324,694 | ||||||||||||
On January 11, 2020 and January 19, 2020 an aggregate of 121,332 PSUs and 17,585 RSUs were awarded to executives as well as to certain senior management of the companies in the Group.
| (b) | Caledonia Mining South Africa employee incentive scheme |
From July 2017, Caledonia Mining South Africa Proprietary Limited granted 52,282 awards respectively to certain of its employees that entitle them to a cash pay-out at the Company’s share price on November 30 each year over a 3 year period from the grant date. The cash-settled share-based payment liability was calculated based on the number of awards expected to vest multiplied by the Company’s Black Scholes option valuation fair value of £6.07 at the reporting date and apportioned for the quantity vested over the total vesting period. The liability relating to these cash-settled share-based payment awards amounted to $16 (December 31, 2018: $47) and the expense amounted to $73 (December 31, 2018: $97; December 31, 2017: $123) for the year ended December 31, 2019. The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability on December, 31:
| 2019 | 2018 | |||||||
| Awards | ||||||||
| Grant - July 2017 (3 year term) | 37,330 | 37,330 | ||||||
| Grant - August 2018 (3 year term) | 5,918 | 5,918 | ||||||
| Grant - August 2019 (3 year term) | 9,034 | - | ||||||
| Awards paid out | (44,985 | ) | (26,864 | ) | ||||
| Total awards outstanding December 31 | 7,297 | 16,384 | ||||||
| Estimated awards expected to vest at December 31 | 100 | % | 100 | % | ||||
| 59 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 27 | Share-based expenses (continued) |
| 27.2 | Equity-settled share-based expense |
The Group has expensed the following equity-settled share-based payment arrangements for the years ended December 31:
| Note | 2019 | 2018 | 2017 | |||||||||||
| Share option programmes | 27.2 (a) | - | 14 | 29 | ||||||||||
| Facilitation and advanced dividend loan modification | 27.2 (b) | - | - | 806 | ||||||||||
| - | 14 | 835 | ||||||||||||
| (a) | Share option programmes |
The Omnibus Equity Incentive Compensation Plan (“OEICP”) was established for grants after May 2015. Share options issued before May 2015 were issued in terms of the Rolling Stock Option Plan (“RSOP”), which was superseded by the OEICP. In accordance with the OEICP, options are granted at an exercise price equal to the greater of volume weighted average trading price for the five days prior to grant or the closing price on the day immediately prior to the date of grant. The options vest according to dates set at the discretion of the Compensation Committee of the Board of Directors at the date of grant. All outstanding option awards that have been granted, pursuant to the plan, vest immediately.
Terms and conditions of share option programmes
The maximum term of the options under the OEICP is 10 years and under the RSOP 5 years. The terms and conditions relating to the grant of options under the RSOP are that all options are to be settled by physical delivery of shares. Equity-settled share-based payments under the OEICP will also be settled by physical delivery of shares. Under both plans the aggregate number of shares that may be issued pursuant to the grant of options, or under any other share compensation arrangements of the Company, will not exceed 10% of the aggregate issued and outstanding shares issued of the Company.
At December 31, 2019, the Company has the following options outstanding:
| Number of Options | Exercise Price | Expiry Date | |||||||
| Canadian $ | |||||||||
| 5,000 | 4.00 | Oct 8, 2020 | |||||||
| 18,000 | 11.50 | Oct 13, 2021 | |||||||
| 5,000 | 8.10 | May 30, 2022 | |||||||
| 10,000 | 9.30 | Aug 25, 2024 | |||||||
| 38,000 | |||||||||
| 60 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 27 | Share-based expenses (continued) |
| 27.2 | Equity-settled share-based expense (continued) |
| (a) | Share option programmes (continued) |
The continuity of the options granted, exercised, cancelled and expired under the Plan were as follows:
| Number of Options* | Weighted Avg. Exercise Price | |||||||
| Canadian $* | ||||||||
| Options outstanding and exercisable at January, 2017 | 92,280 | 5.85 | ||||||
| Granted | 5,000 | 8.10 | ||||||
| Exercised | (69,280 | ) | 4.50 | |||||
| Options outstanding and exercisable at December 31, 2017 | 28,000 | 9.55 | ||||||
| Granted | 10,000 | 9.30 | ||||||
| Exercised | - | - | ||||||
| Options outstanding and exercisable at December 31, 2018 | 38,000 | 9.48 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Options outstanding and exercisable at December 31, 2019 | 38,000 | 9,48 | ||||||
The weighted average remaining contractual life of the outstanding options is 2.14 years (2018: 3.14 years).
| 61 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 27.2 | Equity-settled share-based expense (continued) |
| (a) | Share option programmes (continued) |
Inputs for measurement of grant date fair values
The fair value of share-based payments noted above was estimated using the Black-Scholes Option Pricing Model as the fair value of the services could not be estimated reliably. Service and non-market performance conditions attached to the arrangements were not taken into account in measuring fair value. The following assumptions were used in determining the fair value of the options:
| Options granted | 10,000 | * 5,000 | * 18,000 | |||||||||
| Grant date | February 27, 2018 | May 30, 2018 | October 13, 2017 | |||||||||
| Risk-free interest rate | 2,86 | % | 2.40 | % | 0.53 | % | ||||||
| Expected stock price volatility (based on historical volatility) | 32 | % | 118 | % | 119 | % | ||||||
| Expected option life in years | 3 | 3 | 5 | |||||||||
| Exercise price | CAD 9.30 | * CAD 8.10 | * CAD 11.50 | |||||||||
| Share price at grant date | CAD 9.30 | * CAD 8.10 | * CAD 11.50 | |||||||||
| Fair value at grant date | $ | 1.40 | * $5.81 | * $9.45 |
The exercise price was determined as the prevailing Toronto Stock Exchange share price on the day of the grant. Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price. The expected term has been based on historical experience. The share-based payment expense relating to the grants amounted to $Nil (2018: $14; 2017: $29).
* Amounts stated after the 1:5 share consolidation effected on June 26, 2017.
| (b) | Facilitation and advance dividend loan modification |
On June 23, 2017, the Group, Blanket Mine and the indigenous shareholders reached agreement to change the interest rate on the facilitation and advanced dividend loans from the previously agreed 12 month LIBOR + 10% to the lower of a fixed rate of 7.25% per annum, payable quarterly or 80% of the dividends paid in the financial quarter. The modification was beneficial to the indigenous shareholders and resulted in an equity-settled share-based payment expense of $806. The Monte Carlo simulation approach was followed to value the fair value of the indigenous shareholders’ equity before and after the modification date. The fair value of the indigenous shareholders’ equity was based on simulating the future Blanket Mine dividend yields.
The following assumptions were used in determining modification of the expense:
| Modification date | June 23, 2017 | |||
| Blanket Mine dividend yield | 23.70% - 89.88% | |||
| Risk free interest rate | $ swap curve | |||
| Group market capitalisation at grant date ($’000) | $ | 68,436 | ||
| 62 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 28 | Loans and borrowings |
| 2019 | 2018 | 2017 | ||||||||||
| Balance at January 1 | 5,960 | 1,486 | 2,987 | |||||||||
| Cash flows | ||||||||||||
| Repayment | ||||||||||||
| - Capital | - | (1,500 | ) | (1,500 | ) | |||||||
| - Interest | (130 | ) | (58 | ) | (156 | ) | ||||||
| Proceeds | 2,340 | 6,000 | - | |||||||||
| Transaction cost | (46 | ) | (60 | ) | - | |||||||
| Unrealised foreign exchange | (5,818 | ) | - | - | ||||||||
| Non-cash flows | ||||||||||||
| Interest | 165 | 92 | 155 | |||||||||
| Balance at December 31 | 2,471 | 5,960 | 1,486 | |||||||||
| Long-term portion of term loan facility | 1,942 | 5,960 | - | |||||||||
| Short-term portion of term loan facility | 529 | - | 1,486 | |||||||||
Finance costs are accounted for in note 15 on the effective interest rate method.
Terms and repayment schedule
The terms and conditions of outstanding loans are as follows on December 31:
| 2019 | 2018 | |||||||||||||||||||||||||
| Currency | Nominal interest rate | Year of maturity | Face value | Carrying amount | Face value | Carrying amount | ||||||||||||||||||||
| Unsecured bank loan - Stanbic | RTGS$ | 25 | % | 2021 | 384 | 384 | 5,960 | 5,960 | ||||||||||||||||||
| Unsecured bank loan - First Capital | RTGS$ | 26 | % | 2021 | 2,087 | 2,087 | - | - | ||||||||||||||||||
| Total | 2,471 | 2,471 | 5,960 | 5,960 | ||||||||||||||||||||||
The Stanbic loan is repayable in as a single bullet payment in December of 2021 and the First Capital loan is repayable by way of 4 quarterly instalments commencing December 2020.
| 63 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 29 | Trade and other payables |
| 2019 | 2018 | |||||||
| Trade payables and accruals | 2,825 | 2,510 | ||||||
| Electricity accrual | 626 | 4,054 | ||||||
| Lease liability (note 13) | 349 | - | ||||||
| Audit fee | 370 | 239 | ||||||
| Shareholders for dividend | 364 | 215 | ||||||
| Other payables | 582 | 475 | ||||||
| Financial liabilities | 5,116 | 7,493 | ||||||
| Production and management bonus accrual - Blanket Mine | 1,092 | - | ||||||
| Other employee benefits | 546 | 669 | ||||||
| Leave pay | 1,943 | 1,889 | ||||||
| Non-financial liabilities | 3,581 | 2,558 | ||||||
| Total | 8,697 | 10,051 | ||||||
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 7 and note 31.
| 64 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 30 | Cash flow information |
Non-cash items and information presented separately on the cash flow statement:
| 2019 | 2018 | 2017 | ||||||||||
| Operating profit | 60,889 | 21,421 | 20,618 | |||||||||
| Adjustments for: | ||||||||||||
| Loss on sale of Property, plant and equipment | - | - | 2 | |||||||||
| Impairment of Property, plant and equipment | 144 | 208 | 12 | |||||||||
| Profit on disposal of subsidiary | (5,409 | ) | - | - | ||||||||
| Scrapping of Property, plant and equipment | 63 | - | - | |||||||||
| Unrealised foreign exchange (gain)/loss | (31,307 | ) | (243 | ) | 121 | |||||||
| Cash-settled share-based payment expense | 689 | 228 | 897 | |||||||||
| Cash-settled share-based payment expense included in operating cost | 107 | 43 | 311 | |||||||||
| Equity-settled share-based payment expense | - | 14 | 835 | |||||||||
| Settlement of cash-settled share-based payments | (1,384 | ) | - | - | ||||||||
| Site restoration | - | 30 | 36 | |||||||||
| Depreciation | 4,434 | 4,071 | 3,763 | |||||||||
| Allowance for obsolete stock | - | 15 | 32 | |||||||||
| Provision for impairment – royalty rebate (note 11) | - | - | 181 | |||||||||
| Unrealised portion of gold hedge | (102 | ) | - | - | ||||||||
| Net cash used for assets and liabilities held for sale | - | (2 | ) | - | ||||||||
| Cash generated by operations before working capital changes | 28,124 | 25,785 | 26,808 | |||||||||
| Inventories | (1,655 | ) | (277 | ) | (1,975 | ) | ||||||
| Prepayments | (2,099 | ) | (62 | ) | 82 | |||||||
| Trade and other receivables | 393 | (1,916 | ) | (1,437 | ) | |||||||
| Trade and other payables | (878 | ) | (2,411 | ) | 5,407 | |||||||
| Cash flows from operating activities | 23,885 | 21,119 | 28,885 | |||||||||
| 65 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 31 | Financial instruments |
| i) | Credit risk |
Exposure to credit risk
The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure. The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
| Carrying amount | December 31, 2019 | December 31, 2018 | ||||||
| Zimbabwe | 3,123 | 3,639 | ||||||
| Jersey, Channel Islands | 2,003 | - | ||||||
| Other regions | 20 | 10 | ||||||
| 5,146 | 3,649 | |||||||
| ii) | Liquidity risk |
The following are the contractual maturities of financial liabilities, including contractual interest payments and excluding the impact of netting agreements.
| Non-derivative financial liabilities | ||||||||||||
| December 31, 2019 | Carrying amount | 12 months or less | 1-3 Years | |||||||||
| Trade and other payables | 5,116 | 5,116 | - | |||||||||
| Term loan facility | 2,471 | - | 2,471 | |||||||||
| 7,587 | 5,116 | 2,471 | ||||||||||
| December 31, 2018 | Carrying amount | 12 months or less | 1-3 Years | |||||||||
| Trade and other payables | 7,493 | 7,493 | - | |||||||||
| Term loan facility | 5,960 | - | 5,960 | |||||||||
| 13,453 | 7,493 | 5,960 | ||||||||||
| iii) | Currency risk |
The Group is exposed to currency risk to the extent that there is a mismatch between the currency that it transacts in and the functional currency. The results of the Group’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Group are reported in US dollar in the Group’s consolidated financial statements.
| 66 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 31 | Financial instruments (continued) |
| iii) | Currency risk (continued) |
The fluctuation of the US dollar in relation to other currencies that entities within the Group may transact in will consequently have an effect upon the profitability of the Group and may also effect the value of the Group’s assets and liabilities. As noted below, the Group has certain financial assets and liabilities denominated in currencies other than the functional currency of the Company. To reduce exposure to currency transaction risk, the Group regularly reviews the currency in which it spends its cash to identify and avoid specific expenditures in currencies that experiences inflationary pressures. Further the Group aims to maintain cash and cash equivalents in US Dollar to avoid foreign exchange exposure and to meet short-term liquidity requirements.
Sensitivity analysis
As a result of the Group’s monetary assets and liabilities denominated in foreign currencies which is different to the functional currency of the underlying entities, the profit or loss and equity in the underlying entities could be affected by movements between the functional currency and the foreign currency. The table below indicates consolidated monetary assets/(liabilities) in the group that have a different functional currency and foreign currency.
2019 $‘000 | 2018 $‘000 | |||||||||||||||
| Functional currency | Functional currency | |||||||||||||||
| ZAR | $ | ZAR | $ | |||||||||||||
| Cash and cash equivalents | 57 | 4,176 | 57 | 8,147 | ||||||||||||
| Trade and other receivables | - | 1,735 | - | 126 | ||||||||||||
| Trade and other payables | - | (179 | ) | - | (345 | ) | ||||||||||
| Term loan | - | (2,471 | ) | - | (5,960 | ) | ||||||||||
| Overdraft | - | (490 | ) | - | - | |||||||||||
| 57 | 2,771 | 57 | 1,968 | |||||||||||||
A reasonably possible strengthening or weakening of 5% of the various functional currencies against the foreign currencies, would have the following equal or opposite effect on profit or loss and equity for the group:
2019 $‘000 | 2018 $’000 | |||||||||||||||
| Functional currency | Functional currency | |||||||||||||||
| ZAR | $ | ZAR | $ | |||||||||||||
| Cash and cash equivalents | 3 | 199 | 3 | 388 | ||||||||||||
| Trade and other receivables | - | 82 | - | 6 | ||||||||||||
| Trade and other payables | - | 9 | - | (16 | ) | |||||||||||
| Term loan | - | (117 | ) | - | (283 | ) | ||||||||||
| Overdraft | - | (23 | ) | - | - | |||||||||||
| 3 | 150 | 3 | 95 | |||||||||||||
| 67 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 31 | Financial instruments (continued) |
| iv) | Interest rate risk |
The group's interest rate risk arises from Loans and borrowings, overdraft facility and cash held. The Loans and borrowings, overdraft facility and cash held have variable interest rate borrowings. Variable rate borrowings expose the group to cash flow interest rate risk. The group has not entered into interest rate swap agreements.
The Group’s assets and liabilities exposed to interest rate fluctuations as at year end is summarised as follows:
| 2019 | 2018 | |||||||
| Cash and cash equivalents | 9,383 | 11,187 | ||||||
| Term loan | (2,471 | ) | (5,960 | ) | ||||
| Overdraft | (490 | ) | - | |||||
Interest rate risk arising is offset by available cash and cash equivalents. The table below summarises the effect of a change in finance cost on the Group’s profit or loss and equity, had the rates charged differed.
| Sensitivity analysis – Cash and cash equivalents | 2019 | 2018 | ||||||
| Increase by 100 basis points | 94 | 111 | ||||||
| Decrease by 100 basis points | (94 | ) | (111 | ) | ||||
| Sensitivity analysis – Term loan | 2019 | 2018 | ||||||
| Increase by 100 basis points | (25 | ) | (60 | ) | ||||
| Decrease by 100 basis points | 25 | 60 | ||||||
| Sensitivity analysis – Overdraft | 2019 | 2018 | ||||||
| Increase by 100 basis points | (5 | ) | - | |||||
| Decrease by 100 basis points | 5 | - | ||||||
| 32 | Dividends |
| 2019 | 2018 | 2017 | ||||||||||
| Dividends paid to owners of the Company (Excluding NCI) | 2,968 | 2,908 | 2,904 | |||||||||
The quarterly dividend policy of paying 6,875 cents per share was increased to 7,5 cents from January 3, 2020.
| 33 | Contingencies |
The Group may be subject to various claims that arise in the normal course of business. Management believes there are no contingent liabilities.
| 68 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 34 | Related parties |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity. Directors of the company, as well as certain executives are considered key management.
Employee contracts between Caledonia Mining South Africa Proprietary Limited, the Company and key management, include an option for respective key management to terminate such employee contract in the event of a change in control of the Company and to receive a severance payment equal to two years’ compensation. If this was triggered as at December 31, 2019 the severance payment would have amounted to $4,051 (2018: $5,221). A change in control would constitute:
| · | the acquisition of more than 50% of the shares; or | |
| · | the acquisition of right to exercise the majority of the voting rights of shares; or | |
| · | the acquisition of the right to appoint the majority of the board of directors; or | |
| · | the acquisition of more than 50% of the assets of the Group. |
Key management personnel and director transactions:
A number of related parties transacted with the Group in the reporting period. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows:
| 2019 | 2018 | 2017 | ||||||||||
| Key management salaries and bonuses | 2,362 | 2,476 | 2,041 | |||||||||
| Cash-settled share-based expense* | 723 | 261 | 1,164 | |||||||||
| 3,085 | 2,737 | 3,205 | ||||||||||
Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 27.1(a)). Group entities are set out in note 35.
Refer to note 6 and note 37 for transactions with Non-controlling interests. Refer to note 36 for management fees between Caledonia Mining South Africa Proprietary Limited and Blanket Mine (1983) (Private) Limited.
* Amount inclusive of $107 (2018: $43) classified as production costs.
| 69 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 35 | Group entities |
| Functional currency | Country of incorporation | Legal shareholding | Intercompany balances with holding company | |||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||||||
| Subsidiaries of the Company | % | % | ||||||||||||||||||
| Caledonia Holdings Zimbabwe (Private) Limited | $ | Zimbabwe | 100 | 100 | - | - | ||||||||||||||
| Caledonia Mining Services Limited | $ | Zimbabwe | 100 | 100 | - | - | ||||||||||||||
| Fintona Investments Proprietary Limited | ZAR | South Africa | 100 | 100 | (14,859 | ) | (14,859 | ) | ||||||||||||
| Caledonia Mining South Africa Proprietary Limited | ZAR | South Africa | 100 | 100 | 1,750 | (565 | ) | |||||||||||||
| Greenstone Management Services Holdings Limited | $ | United Kingdom | 100 | 100 | 14,902 | 9,813 | ||||||||||||||
| Blanket Mine (1983) (Private) Limited | $ | Zimbabwe | (2)49 | (2)49 | (400 | ) | - | |||||||||||||
| Blanket Employee Trust Services (Private) Limited (BETS) (1) | $ | Zimbabwe | - | - | - | - | ||||||||||||||
(1) BETS and the Community Trust are consolidated as structured entities.
(2) Refer to note 6, for the effective shareholding. NCI has a 16.2% interest in cash flows of Blanket only.
| 70 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 36 | Operating Segments |
The Group's operating segments have been identified based on geographic areas. The strategic business units are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s CEO reviews internal management reports on at least a quarterly basis. Zimbabwe and South Africa describe the operations of the Group's reportable segments. The Zimbabwe operating segment comprise Caledonia Holdings Zimbabwe Limited and subsidiaries. The South Africa geographical segment comprise a gold mine in 2018, sold in 2019, that was on care and maintenance, as well as sales made by Caledonia Mining South Africa Proprietary Limited to the Blanket Mine. The holding company and Greenstone Management Services Holdings Limited (UK) responsible for administrative functions within the group are taken into consideration in the strategic decision-making process of the CEO and are therefore included in the disclosure below. Corporate and other reconciling amounts do not represent a separate segment. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management report that are reviewed by the Group's CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
| Information about reportable segments 2019 | Zimbabwe | South Africa | Inter-group elimination adjustments | Corporate and other reconciling amounts | Total | |||||||||||||||
| Revenue | 75,826 | 15,973 | (15,194 | ) | (779 | ) | 75,826 | |||||||||||||
| Royalties | (3,854 | ) | - | - | - | (3,854 | ) | |||||||||||||
| Production costs | (36,278 | ) | (13,740 | ) | 13,618 | - | (36,400 | ) | ||||||||||||
| Depreciation | (4,645 | ) | (90 | ) | 350 | (49 | ) | (4,434 | ) | |||||||||||
| Management fee* | (2,798 | ) | 2,798 | - | - | - | ||||||||||||||
| Other income | 2,016 | 258 | - | - | 2,274 | |||||||||||||||
| Other expenses | (498 | ) | (168 | ) | - | - | (666 | ) | ||||||||||||
| Administrative expenses | (126 | ) | (1,736 | ) | - | (3,775 | ) | (5,637 | ) | |||||||||||
| Cash-settled share-based expense | (234 | ) | (166 | ) | - | (289 | ) | (689 | ) | |||||||||||
| Net Foreign exchange gain | 29,634 | 9 | - | 18 | 29,661 | |||||||||||||||
| Net finance cost | (299 | ) | 57 | - | 44 | (198 | ) | |||||||||||||
| Profit on sale of subsidiary | - | - | - | 5,409 | 5,409 | |||||||||||||||
| Gold hedge expense | - | - | - | (601 | ) | (601 | ) | |||||||||||||
| Profit before tax | 58,744 | 3,195 | (1,226 | ) | (22 | ) | 60,691 | |||||||||||||
| Tax expense | (9,529 | ) | (825 | ) | 192 | (128 | ) | (10,290 | ) | |||||||||||
| Profit for the year | 49,215 | 2,370 | (1,034 | ) | (150 | ) | 50,401 | |||||||||||||
Of the management fee $627 was receivable and payable at year end (2018: $1,871).
| 71 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 36 | Operating Segments (continued) |
| Information about reportable segments 2019 | Zimbabwe | South Africa | Inter-group elimination adjustments | Corporate and other reconciling amounts | Total | |||||||||||||||
| Geographic segment assets: | ||||||||||||||||||||
| Current (excluding intercompany) | 21,608 | 3,383 | (139 | ) | 4,987 | 29,839 | ||||||||||||||
| Non-current (excluding intercompany) | 115,611 | 315 | (2,456 | ) | 244 | 113,714 | ||||||||||||||
| Expenditure on property, plant and equipment | 21,465 | 47 | (1,165 | ) | 248 | 20,595 | ||||||||||||||
| Intercompany balances | - | 8,869 | (52,783 | ) | 43,914 | - | ||||||||||||||
| Geographic segment liabilities | ||||||||||||||||||||
| Current (excluding intercompany) | (7,177 | ) | (1,546 | ) | - | (627 | ) | (9,350 | ) | |||||||||||
| Non-current (excluding intercompany) | (9,085 | ) | (17 | ) | 140 | (524 | ) | (9,486 | ) | |||||||||||
| Intercompany balances | (2,441 | ) | (32,558 | ) | 52,783 | (17,784 | ) | - | ||||||||||||
| Information about reportable segments 2018 | Zimbabwe | South Africa | Inter-group elimination adjustments | Corporate and other reconciling amounts | Total | |||||||||||||||
| Revenue | 68,399 | 12,554 | (12,166 | ) | (388 | ) | 68,399 | |||||||||||||
| Royalties | (3,426 | ) | - | - | - | (3,426 | ) | |||||||||||||
| Production costs | (39,186 | ) | (11,328 | ) | 11,199 | - | (39,315 | ) | ||||||||||||
| Depreciation | (4,366 | ) | (32 | ) | 327 | - | (4,071 | ) | ||||||||||||
| Management fee* | (2,650 | ) | 2,650 | - | - | - | ||||||||||||||
| Other income | 6,482 | 366 | - | 253 | 7,101 | |||||||||||||||
| Other expenses | (296 | ) | - | - | (40 | ) | (336 | ) | ||||||||||||
| Administrative expenses | (159 | ) | (2,433 | ) | - | (3,873 | ) | (6,465 | ) | |||||||||||
| Cash-settled share-based expense | (84 | ) | (137 | ) | - | (94 | ) | (315 | ) | |||||||||||
| Equity-settled share-based expense | - | - | - | (14 | ) | (14 | ) | |||||||||||||
| Net Foreign exchange gain/(loss) | 133 | (327 | ) | - | 417 | 223 | ||||||||||||||
| Net finance cost | (262 | ) | 17 | - | 25 | (220 | ) | |||||||||||||
| Gold hedge expense | - | - | - | (360 | ) | (360 | ) | |||||||||||||
| Profit before tax | 24,585 | 1,330 | (640 | ) | (4,074 | ) | 21,201 | |||||||||||||
| Tax expense | (7,085 | ) | (387 | ) | 153 | (126 | ) | (7,445 | ) | |||||||||||
| Profit for the year | 17,500 | 943 | (487 | ) | (4,200 | ) | 13,756 | |||||||||||||
| 72 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 36 | Operating Segments (continued) |
| Information about reportable segments 2018 | Zimbabwe | South Africa | Inter-group elimination adjustments | Corporate and other reconciling amounts | Total | |||||||||||||||
| Geographic segment assets: | ||||||||||||||||||||
| Current (excluding intercompany) | 21,505 | 3,489 | (91 | ) | 3,265 | 28,168 | ||||||||||||||
| Non-current (excluding intercompany) | 98,700 | 466 | (1,641 | ) | - | 97,525 | ||||||||||||||
| Expenditure on property, plant and equipment | 20,436 | 370 | (891 | ) | - | 19,915 | ||||||||||||||
| Intercompany balances | - | 6,926 | (46,240 | ) | 39,314 | - | ||||||||||||||
| Assets held for sale | - | 296 | - | - | 296 | |||||||||||||||
| Geographic segment liabilities | ||||||||||||||||||||
| Current (excluding intercompany) | (10,445 | ) | (1,403 | ) | - | (350 | ) | (12,198 | ) | |||||||||||
| Non-current (excluding intercompany) | (33,043 | ) | (47 | ) | 446 | (2,043 | ) | (34,687 | ) | |||||||||||
| Intercompany balances | (1,345 | ) | (33,032 | ) | 46,240 | (11,863 | ) | - | ||||||||||||
| Liabilities directly associated with assets held for sale | (609 | ) | - | - | (609 | ) | ||||||||||||||
| Information about reportable segments 2017 | Zimbabwe | South Africa | Inter-group eliminations adjustments | Corporate and other reconciling amounts | Total | |||||||||||||||
| Revenue | 69,762 | - | - | - | 69,762 | |||||||||||||||
| Inter-segmental revenue | - | 15,247 | (15,061 | ) | (186 | ) | - | |||||||||||||
| Royalties | (3,498 | ) | - | - | - | (3,498 | ) | |||||||||||||
| Production costs | (36,753 | ) | (14,751 | ) | 15,324 | - | (36,180 | ) | ||||||||||||
| Depreciation | (4,019 | ) | (53 | ) | 309 | - | (3,763 | ) | ||||||||||||
| Management fee | (3,960 | ) | 3,960 | - | - | - | ||||||||||||||
| Other income | 2,358 | 205 | - | 31 | 2,594 | |||||||||||||||
| Other expenses | - | (14 | ) | - | - | (14 | ) | |||||||||||||
| Impairment loss on trade receivables | (181 | ) | - | - | - | (181 | ) | |||||||||||||
| Administrative expenses | (40 | ) | (2,258 | ) | - | (3,613 | ) | (5,911 | ) | |||||||||||
| Cash-settled share-based expense | (581 | ) | - | - | (395 | ) | (976 | ) | ||||||||||||
| Equity-settled share-based expense | (806 | ) | - | - | (29 | ) | (835 | ) | ||||||||||||
| Net foreign exchange (loss)/gain | (375 | ) | 207 | - | (212 | ) | (380 | ) | ||||||||||||
| Net finance cost | (69 | ) | 10 | - | 28 | (31 | ) | |||||||||||||
| Profit before tax | 21,838 | 2,553 | 572 | (4,376 | ) | 20,587 | ||||||||||||||
| Tax expense | (7,587 | ) | (1,104 | ) | - | - | (8,691 | ) | ||||||||||||
| Profit for the year | 14,251 | 1,449 | 572 | (4,376 | ) | 11,896 | ||||||||||||||
| 73 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 36 | Operating Segments (continued) |
Major customer
Revenues from Fidelity in Zimbabwe amounted to $75,826 (2018: $68,399; 2017: $69,762).
| 37 | Non-controlling interests |
| Blanket Mine (1983) (Private) Limited NCI % - 16.2% | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Current assets | 21,386 | 19,107 | 15,559 | |||||||||
| Non-current assets | 115,610 | 98,700 | 82,798 | |||||||||
| Current liabilities | (8,630 | ) | (13,200 | ) | (16,232 | ) | ||||||
| Non-current liabilities | (9,085 | ) | (33,043 | ) | (23,041 | ) | ||||||
| Net assets | 119,281 | 71,564 | 59,084 | |||||||||
| Carrying amount of NCI | 16,302 | 8,345 | 5,944 | |||||||||
| Revenue | 75,826 | 68,399 | 69,762 | |||||||||
| Profit after tax | 51,746 | 18,456 | 15,506 | |||||||||
| Total comprehensive income | 51,746 | 18,456 | 15,506 | |||||||||
| Profit allocated to NCI | 8,383 | 2,990 | 2,512 | |||||||||
| Dividend to NCI | (426 | ) | (589 | ) | (406 | ) | ||||||
| 74 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| 38 | Defined Contribution Plan |
Under the terms of the Mining Industry Pension Fund (“Fund”) in Zimbabwe, eligible employees contribute a fixed percentage of their eligible earnings to the Fund. Blanket Mine makes a matching contribution plus an inflation levy as a fixed percentage of eligible earnings of these employees. The total contribution by Blanket Mine for the year ended December 31, 2019 was $506 (2018: $619).
| 39 | Subsequent events |
There were no significant subsequent events between December 31, 2019 and the date of issue of these financial statements other than described below and included in the preceding notes to the consolidated financial statements.
| (a) | Purchase of 15% Fremiro stake in Blanket |
On January 21, 2020 the Group concluded the purchase of Fremiro’s 15% shareholding in Blanket Mine and its facilitation loans. The purchase price of $16,667 was settled through the issue of 727,266 shares in the Company and cancelled the facilitation loan outstanding, repurchased the NCI and increased the Group’s shareholding in Blanket Mine.
At the date of authorisation of the financial statements the estimated financial effect could not be made.
| (b) | Amendment of GCSOT advanced dividend loan terms |
On February 27, 2020 the Blanket board approved the amendment to the terms of the GCSOT advanced dividend loan (refer note 6). It was resolved that going forward, 20% of the Blanket dividend attributable to GCSOT would accrue to GCSOT unconditionally and 80% would repay the advanced dividend loan. At the date of authorisation of the financial statements the estimated financial effect could not be made.
| 75 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
| DIRECTORS AND OFFICERS at March 18, 2020 | |
| BOARD OF DIRECTORS | OFFICERS |
|
L.A. Wilson (2) (3) (4) (5) (7) Chairman of the Board |
S. R. Curtis (5) (6) (7) Chief Executive Officer |
| Non-executive Director | Johannesburg, South Africa |
| Florida, United States of America | |
| S. R. Curtis (5) (6) (7) | D. Roets (5) (6) (7) |
|
Chief Executive Officer Johannesburg, South Africa |
Chief Operating Officer Johannesburg, South Africa |
| J. L. Kelly (1) (2) (3) (5) (7) | M. Learmonth (5) (7) |
|
Non-executive Director Connecticut, United States of America |
Chief Financial Officer Jersey, Channel Islands |
| J. Holtzhausen (1) (2) (4) (5) (6) (7) | M. Mason (5) (7) |
|
Chairman Audit Committee Non-executive Director, Cape Town, South Africa |
VP Corporate Development and Investor Relations London, England |
| M. Learmonth (5) (7) | A. Chester (5) |
|
Chief Financial Officer Jersey, Channel Islands
|
General Counsel, Company Secretary and Head of Risk and Compliance Jersey, Channel Islands |
| J. McGloin (1) (3) (4) (6) (7) | Board Committees |
| Non-executive Director | (1) Audit Committee |
| Bishops Stortford, United Kingdom | (2) Compensation Committee |
| (3) Corporate Governance Committee | |
| N. Clarke (4) (6) (7) | (4) Nomination Committee |
| Non-executive Director | (5) Disclosure Committee |
| East Molesey, United Kingdom |
(6) Technical Committee (7) Strategic Planning Committee
|
| 76 |
Caledonia Mining Corporation Plc Notes to the Consolidated Financial Statements For the years ended December 31, 2019, 2018 and 2017 (in thousands of United States dollars, unless indicated otherwise) |
CORPORATE DIRECTORY as at March 18, 2020
| CORPORATE OFFICES | SOLICITORS | ||
| Jersey – Head and Registered Office | Mourant Ozannes (Jersey) | ||
| Caledonia Mining Corporation Plc | 22 Grenville Street | ||
|
B006 Millais House |
St Helier | ||
| Castle Quay | Jersey | ||
| St Helier | Channel Islands | ||
| Jersey JE2 3NF | |||
| South Africa | Borden Ladner Gervais LLP (Canada) | ||
| Caledonia Mining South Africa Proprietary Limited | Suite 4100, Scotia Plaza | ||
| P.O. Box 4628 | 40 King Street West | ||
|
Weltevreden park |
Toronto, Ontario M5H 3Y4 Canada | ||
| South Africa | |||
| Memery Crystal LLP (United Kingdom) | |||
| 165 Fleet Street | |||
| Zimbabwe | London EC4A 2DY | ||
| Caledonia Holdings Zimbabwe (Private) Limited | United Kingdom | ||
| P.O. Box CY1277 | |||
| Causeway, Harare | Dorsey & Whitney LLP (US) | ||
| Zimbabwe | TD Canada Trust Tower | ||
| Brookfield Place | |||
| Capitalisation (March 18, 2020) | 161 Bay Street | ||
| Authorised: | Unlimited | Suite 4310 | |
| Shares, Warrants and Options Issued: | Toronto, Ontario | ||
| Shares: | 11,515,860 | M5J 2S1 Canada | |
| Options: | 38,000 | ||
| AUDITORS | |||
| SHARE TRADING SYMBOLS |
BDO South Africa Incorporated | ||
| NYSE American - Symbol "CMCL" |
Wanderers Office Park | ||
| AIM - Symbol “CMCL” |
52 Corlett Drive | ||
| Toronto Stock Exchange - Symbol “CAL” |
Illovo 2196 | ||
| South Africa | |||
| BANKERS |
Tel: +27(0)105907200 | ||
| Barclays | |||
| 13 Library Place | REGISTRAR & TRANSFER AGENT | ||
| St Helier, Jersey | Computershare | ||
| 100 University Ave, 8th Floor, | |||
| Toronto, Ontario, M5J 2Y1 | |||
|
Tel: +1 416 263 9483 | |||
77
Exhibit 99.2
| CALEDONIA MINING CORPORATION PLC | MARCH 18, 2020 |
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) of the consolidated operating results and financial position of Caledonia Mining Corporation Plc (“Caledonia” or the “Company”) is for the quarter ended December 31, 2019 (“Q4 2019” or the “Quarter” and the year ended December 31, 2019 (the “Year”) and the period ended March 18, 2020). It should be read in conjunction with the Audited Consolidated Financial Statements of Caledonia for the Year (“the Consolidated Financial Statements”) which are available from the System for Electronic Data Analysis and Retrieval at www.sedar.com or from Caledonia’s website at www.caledoniamining.com. The Consolidated Financial Statements and related notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. In this MD&A, the terms “Caledonia”, the “Company”, the “Group”, “we”, “our” and “us” refer to the consolidated operations of Caledonia Mining Corporation Plc and its subsidiaries unless otherwise specifically noted or the context requires otherwise.
Note that all currency references in this document are to US Dollars, unless otherwise stated.
1
TABLE OF CONTENTS
| 1. | Overview |
| 2. | Highlights |
| 3. | Summary Financial Results |
| 4. | Operations at the Blanket Gold Mine, Zimbabwe |
| 4.1. | Safety, Health and Environment |
| 4.2. | Social Investment and Contribution to the Zimbabwean Economy |
| 4.3. | Gold Production |
| 4.4. | Underground |
| 4.5. | Metallurgical Plant |
| 4.6. | Production Costs |
| 4.7. | Capital Projects |
| 4.8. | Indigenisation |
| 4.9. | Zimbabwe Commercial Environment |
| 4.10. | Opportunities and Outlook |
| 4.11. | Sale of Eersteling |
| 5. | Exploration |
| 6. | Investing |
| 7. | Financing |
| 8. | Liquidity and Capital Resources |
| 9. | Off-Balance Sheet Arrangements, Contractual Commitments and Contingencies |
| 10. | Non-IFRS Measures |
| 11. | Related Party Transactions |
| 12. | Critical Accounting Estimates |
| 13. | Financial Instruments |
| 14. | Dividend Policy |
| 15. | Management and Board |
| 16. | Securities Outstanding |
| 17. | Risk Analysis |
| 18. | Forward-Looking Statements |
| 19. | Controls |
| 20. | Qualified Person |
2
| 1. | OVERVIEW |
Caledonia is an exploration, development and mining corporation focused on Zimbabwe. Caledonia’s primary asset in the Year was a 49% ownership in Blanket Mine (“Blanket”), an operating gold mine in Zimbabwe. Caledonia consolidates Blanket into the Consolidated Financial Statements; accordingly, operational and financial information set out in this MD&A is on a 100% basis, unless otherwise specified. In January 2020, Caledonia increased its shareholding in Blanket to 64% as discussed further below. Caledonia’s shares are listed on the NYSE American stock exchange (symbol - “CMCL”) and on the Toronto Stock Exchange (symbol - “CAL”). Depositary interests in Caledonia’s shares are admitted to trading on AIM of the London Stock Exchange plc (symbol - “CMCL”).
| 2. | HIGHLIGHTS |
3 months ended December 31 |
12 months ended December 31 |
Comment | |||
| 2018 | 2019 | 2018 | 2019 | ||
| Gold produced (oz) | 14,952 | 16,876 | 54,511 | 55,182 | Gold production for the Quarter was 12.9% higher than the last quarter of 2018 (the “comparable quarter”); gold production for the Year was 1.2% higher than in 2018. The higher production was mainly due to increased grade and higher recovery. |
| On-mine cost per ounce ($/oz)1 | 688 | 603 | 690 | 651 | The on-mine cost per ounce of gold sold was lower due to the higher grade and higher recovery and lower costs of electricity and on-mine administration costs. |
| All-in sustaining cost ($/oz)1 (“AISC”) | 774 | 806 | 802 | 820 | AISC increased slightly; however, after reversing the effect of the Export Credit Incentive (“ECI”) scheme and its replacement (the gold support price) AISC per ounce in the Quarter and the Year was approximately 10% and 7% lower respectively due to lower on-mine costs, administration expenses and sustaining capex and, in the Quarter, the effect of higher sales ounces which meant that fixed costs were spread across a higher number of ounces sold. |
| Average realised gold price ($/oz)1 | 1,205 | 1,458 | 1,245 | 1,382 | The average realised gold price was higher and reflects the increased price of gold. |
| Gross profit2 | 5,374 | 11,336 | 21,587 | 31,138 | Gross profit was higher due to higher sales ounces, a higher gold price and lower unit costs. |
| Net profit attributable to shareholders | 2,784 | 2,390 | 10,766 | 42,018 | Net profit for the Year was higher due to the higher gross profit and foreign exchange gains of $29.7 million arising from the devaluation of the Zimbabwe currency. Profit for the Quarter was adversely affected by a $4.7m deferred tax charge. |
_______________________________
1 Non-IFRS measures such as “On-mine cost per ounce”, “AISC” and “average realised gold price” are used throughout this document. Refer to section 10 of this MD&A for a discussion of non-IFRS measures.
2 Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses, other income, interest and finance charges and taxation.
3
3 months ended December 31 |
12 months ended December 31 |
Comment | |||
| 2018 | 2019 | 2018 | 2019 | ||
| IFRS earnings per share (“EPS”) (cents) | 25 | 22 | 99 | 382 | EPS for the Year and the Quarter reflects the net profit attributable to shareholders. |
| Net cash and cash equivalents | 11,187 | 8,893 | 11,187 | 8,893 | Net cash remains strong. |
| Net cash from operating activities | 5,079 | 4,794 | 17,667 | 18,060 | Net cash flows from operating activities remain robust. |
Substantial improvement in profitability
Gross profit for the Year was $31.1 million – 44% higher than the $21.6 million achieved in 2018 and the gross margin for the Year was 41% compared to 32% in 2018. The increase in gross profit was due to lower production costs and a higher realised gold price. The ounces of gold sold were broadly unchanged.
Completion of shaft sinking at Central Shaft
As announced on July 24, 2019 the Central Shaft has reached its target depth of 1,204 metres. Work on equipping the shaft has commenced and is expected to be completed in the fourth quarter of 2020, after which production from Central Shaft can commence. Production in 2020 is expected to be between 53,000 ounces and 56,000 ounces; production in 2021 is expected to be approximately 75,000 ounces, increasing to the target rate of approximately 80,000 ounces in 2022.
Completion of the shaft-sinking phase at Central Shaft is a significant milestone and substantially de-risks the remainder of the project.
Production challenges have been resolved
Mine production in the first part of the Year was adversely affected by Zimbabwe’s economic difficulties and technical problems: mine production was lower than planned due to mining dilution, low employee morale because of Zimbabwe’s deteriorating economic climate and delays in procuring equipment and consumables because of the shortage of foreign exchange. Production in July and early August was hampered by sustained interruptions to the electricity supply and sporadic shortages of diesel.
The second half of the Quarter saw a substantial improvement in production due to the following factors:
| · | a new electricity tariff resulted in a cheaper and more reliable supply of imported electricity; |
| · | workers’ remuneration was revised so that they are better protected from inflation; |
| · | a revised bonus structure was implemented to incentivize individual teams; |
| · | new controls were introduced to minimize mining dilution and increase transparency in the daily targets for production teams; |
| · | on-mine supervision was strengthened; and |
| · | underhand stoping in narrow reef areas was re-introduced to reduce dilution with improved support in certain areas so that safety is not compromised. |
Blanket’s improved operating performance resulted in a record level of production in the Quarter which in conjunction with a stronger gold price, resulted in a substantial improvement in gross profit. The strong operational performance achieved in the Quarter has continued into 2020 and gives grounds for confidence for future performance.
Zimbabwe commercial environment – difficult but stabilising
Zimbabwe has a severe shortage of foreign exchange which, in the first 8 months of the Year, hampered Blanket’s procurement of consumables and services and restricted the ability to remit funds from Zimbabwe. In recent months, the situation has stabilised and Blanket has not experienced the same degree of difficulty in accessing foreign exchange that it encountered earlier in 2019. Investors should recognize that Blanket’s ability to implement the investment programme and Caledonia’s ability to sustain its operations outside Zimbabwe and pay future dividends depends, inter alia, on the ability to continue to externalise cash from Zimbabwe.
4
Zimbabwe’s rate of inflation has increased, which had a major effect on Blanket’s operations in the early part of the Year due to the adverse effect on worker morale. After the introduction of the interbank exchange mechanism in February 2019, Blanket re-structured workers’ remuneration to protect them better from the adverse effects of inflation.
In July and early August, Blanket (in common with other industrial users) suffered extensive interruptions to its electricity supply due to a worsening in the supply and demand balance for electricity in Zimbabwe. After intensive discussions with all relevant parties, this matter was rapidly resolved and a new power supply agreement was put in place whereby participating gold producers pay for dedicated imported power. The electricity supply was again disrupted in October due to a supply deficit in South Africa which resulted in reduced electricity exports to Zimbabwe. Additional generators were installed at Blanket in the Quarter which is now completely insulated from further disruptions to power supply. However, the use of diesel generators is not a long-term solution due to the cost and difficulty in obtaining diesel to run the generators for extended periods. Management is well-advanced in evaluating a possible solar project which should reduce Blanket’s dependence on grid power and improve the quality and security of Blanket’s electricity supply.
Caledonia welcomes the recent changes which reduced the burden of the royalty regime from January 1, 2020 (as discussed in section 4.9 of this MD&A).
Devaluation of the Zimbabwe currency results in substantial net foreign exchange gains
The financial results for the Year and the second and third quarters include substantial net foreign exchange gains due to the re-introduction of a Zimbabwe local currency (referred to in this MD&A as the “RTGS$”) and its devaluation against the US Dollar (which is the functional currency for Blanket Mine and Caledonia). The net foreign exchange gain in the Year was $29.7 million, the largest components of which relate to un-realised gains on the reduced US Dollar values of the deferred tax liability and the term loan and a realised gain on an amount that was payable to Blanket’s electricity supplier. If the Zimbabwe currency remains at the current level against the US Dollar the un-realised gains will be realised when the underlying liability falls due for settlement. The rate of the devaluation of the local currency slowed towards the end of the Year and resulted in a smaller net foreign exchange gain of $1.4 million for the Quarter.
The net foreign exchange gain resulted in Caledonia reporting a significantly higher attributable profit and earnings per share on an IFRS basis. Earnings per share on an IFRS basis were 382 cents compared to 99 cents in 2018. After adjusting for the foreign exchange gains (and before other adjustments) Caledonia’s earnings per share were 152 cents (No adjustment was made to IFRS earnings per share in 2018 in respect of foreign exchange gains because they were not significant). Adjusted earnings per share after elimination of all unusual and non-cash items (the principal adjustments being in respect of the profit on the sale of Eersteling and the elimination of deferred tax) were 144 cents (2018; 132 cents). A reconciliation of adjusted earnings to IFRS earnings is included in section 10 of this MD&A.
Increased Dividend
On January 3, 2020 the Company announced a 9.1% increase from the previous quarterly dividend of 6.875 cents per share to 7.5 cents per share. The increased dividend was due to:
| · | the Company’s improved financial performance due to Blanket’s improved operational performance; |
| · | the continued higher gold price; |
| · | the improving prospects for the Company as we approach the completion of the Central Shaft towards the end of 2020 and a resultant anticipated increase in production; and |
| · | a general improvement in the operating environment in Zimbabwe. |
The Board will consider future increases in the dividend as appropriate in line with its prudent approach to risk management.
5
Increased shareholding in Blanket
On January 21, 2020 the Company announced the completion of a transaction to acquire an additional 15% of Blanket from Fremiro Investments (Private) Limited (“Fremiro”), one of Blanket’s indigenous Zimbabwean shareholders, for a gross consideration of $16.7 million which was settled through a combination of the cancellation of the loan between the two entities and the issue of 727,266 new shares in Caledonia. As a result of this transaction Caledonia has a 64% shareholding in Blanket and Fremiro holds approximately 6.3% of Caledonia’s enlarged issued share capital.
Appointment of a new non-executive director
On September 23, 2019 the Company announced that Nick Clarke had joined the board of directors of the Company as an independent non-executive director with immediate effect. Mr Clarke, who is Chairman of Central Asia Metals PLC, is a highly experienced Chartered Engineer with 45 years’ experience in the mining industry. He has held senior positions in several resource companies and is well known as a successful executive in the sector having been involved in the construction of major mining projects and conducted several fund raisings on AIM and TSX.
Strategy and Outlook
Caledonia’s strategic focus is the implementation of the investment programme at Blanket, the main component of which is the Central Shaft project, which is outlined in section 4.7. Caledonia’s board and management believe the successful completion of the Central Shaft is in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and increased flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long-term future. Caledonia continues to evaluate further investment opportunities in Zimbabwe that would not fall underneath Blanket’s ownership.
6
3. SUMMARY FINANCIAL RESULTS
The table below sets out the consolidated profit and loss for the three months ended December 31, 2019 and 2018 and the years ended December 31, 2019, 2018 and 2017 prepared under IFRS.
Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income ($’000’s) | ||||||||
3 months ended December 31 |
12 months ended December 31 | |||||||
| 2018 | 2019 | 2017 | 2018 | 2019 | ||||
| Revenue | 17,495 | 23,433 | 69,762 | 68,399 | 75,826 | |||
| Royalty | (877) | (1,172) | (3,498) | (3,426) | (3,854) | |||
| Production costs | (10,060) | (9,650) | (36,180) | (39,315) | (36,400) | |||
| Depreciation | (1,184) | (1,275) | (3,763) | (4,071) | (4,434) | |||
| Gross profit | 5,374 | 11,336 | 26,321 | 21,587 | 31,138 | |||
| Other income | 2,317 | 231 | 2,594 | 7,101 | 2,274 | |||
| Other expenses | (316) | (184) | (14) | (336) | (666) | |||
| Impairment loss on trade receivables | - | - | (181) | - | - | |||
| Administrative expenses | (1,840) | (1,686) | (5,911) | (6,465) | (5,637) | |||
| Profit on sale of subsidiary | - | - | - | - | 5,409 | |||
| Net foreign exchange gain/(loss) | 338 | 1,391 | (380) | 223 | 29,661 | |||
| Cash-settled share-based payment | 135 | (283) | (976) | (315) | (689) | |||
| Equity-settled share-based payment | - | - | (835) | (14) | - | |||
| Gold hedge expense | - | (277) | - | (360) | (601) | |||
| Operating profit | 6,008 | 10,528 | 20,618 | 21,421 | 60,889 | |||
| Net finance cost | (78) | (162) | (31) | (220) | (198) | |||
| Profit before tax | 5,930 | 10,366 | 20,587 | 21,201 | 60,691 | |||
| Tax expense | (2,344) | (7,136) | (8,691) | (7,445) | (10,290) | |||
| Profit for the period | 3,586 | 3,230 | 11,896 | 13,756 | 50,401 | |||
| Other comprehensive income | ||||||||
| Items that are or may be reclassified to profit or loss | ||||||||
| Exchange differences on translation of foreign operations | (167) | 402 | 373 | (676) | 49 | |||
| Reversal of foreign currency translation differences on disposal of subsidiary | - | - | - | - | (2,109) | |||
| Total comprehensive income for the period | 3,419 | 3,632 | 12,269 | 13,080 | 48,341 | |||
| Profit attributable to: | ||||||||
| Shareholders of the Company | 2,784 | 2,390 | 9,384 | 10,766 | 42,018 | |||
| Non-controlling interests | 802 | 840 | 2,512 | 2,990 | 8,383 | |||
| Profit for the period | 3,586 | 3,230 | 11,896 | 13,756 | 50,401 | |||
| Total comprehensive income attributable to: | ||||||||
| Shareholders of the Company | 2,617 | 2,792 | 9,757 | 10,090 | 39,958 | |||
| Non-controlling interests | 802 | 840 | 2,512 | 2,990 | 8,383 | |||
| Total comprehensive income for the period | 3,419 | 3,632 | 12,269 | 13,080 | 48,341 | |||
| Earnings per share (cents)3 | ||||||||
| Basic | 25.1 | 21.5 | 86.5 | 98.9 | 382.0 | |||
| Diluted | 25.2 | 21.3 | 86.3 | 98.9 | 381.5 | |||
| Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (cont.) | ||||||||
3 months ended December 31 |
12 months ended December 31 | |||||||
| 2018 | 2019 | 2017 | 2018 | 2019 | ||||
| Dividends declared per share (cents)3 | 6.875 | 6.875 | 27.5 | 27.5 | 27.5 | |||
_______________________________
3 Earnings per share (“EPS”) and dividends per share for 2017 have been adjusted to reflect the effective 1-for-5 share consolidation which was effected on June 26, 2017.
7
Revenue in the Quarter was 34% higher than in the comparable quarter due to a 21% increase in the average realised price of gold and a 11% increase in the quantity of gold sold. Sales in the Quarter excluded 840 ounces of gold (2018; 442 ounces) which is included as work-in-progress and was sold in early January 2020. Revenue in the Year was 11% higher than in 2018 (the “previous year”) due to an 11% increase in the average realised price of gold and a 0.2% reduction in the quantity of gold sold. The average realised price of gold is a non-IFRS measure which is discussed in section 10.2 of this MD&A. Gold production is discussed in section 4.3 of this MD&A.
The royalty rate payable to the Zimbabwe Government was unchanged at 5% in the Quarter and the Year.
Production costs in the Quarter decreased by 4.1% compared to the comparable quarter mainly due to a lower electricity charge for the Quarter following the agreement in August 2019 of a new power supply agreement and the devaluation of certain costs in Zimbabwe that are denominated in local currency. Production costs for the Year were 7.4% lower than in the previous year and benefitted from the one-off effect of a substantial reduction in the US Dollar-denominated cost of electricity in the first half of the year which was in addition to the lower electricity costs realised in the Quarter. Costs are discussed further in section 4.6 of this MD&A.
Depreciation was higher in the Quarter and in the Year compared to the comparable quarter and the previous year due to more items of property, plant and equipment being brought into use and depreciated.
Other income in the Quarter and the Year mainly comprises income arising from a government grant in respect of a gold support price and was substantially lower than in the comparable quarter and the previous year due to the cessation of the gold support price from June 2019 onwards because the international gold price exceeded the support price. The gold support price is discussed in section 4.9 of this MD&A.
Other expenses in the Quarter and the Year include the costs of evaluating a potential solar power project.
Administrative expenses comprise the costs of Caledonia’s offices in Johannesburg, St. Helier and Harare, and the costs of Caledonia’s board and executives, the finance and procurement teams based in Johannesburg, investor relations, corporate development, legal and secretarial costs. Administrative expenses were 8.4% lower than the comparable quarter and 12.8% lower than in the previous year due to continued efforts to reduce costs. Administrative expenses are detailed in note 13 to the Consolidated Financial Statements.
Net foreign exchange movements relate to gains and losses arising on monetary assets and liabilities that are held in currencies other than the US Dollar. Foreign exchange movements principally arose due to the devaluation of the Zimbabwe currency against the US Dollar which is discussed in section 4.9 of this MD&A. The largest components of the net gain in the Quarter and the Year were unrealised gains on borrowings denominated in Zimbabwe currency and the deferred tax liability, offset by a loss on Zimbabwe currency denominated cash and receivables, the most significant of which is the VAT recoverable.
The cash-settled share-based payment expense reflects an accrual for a payment which is expected to arise from the long-term incentive plan (“LTIP”) awards under the Company’s 2015 Omnibus Equity Incentive Compensation Plan (the “Plan”) to certain executives in the form of Restricted Share Units (“RSUs”) and Performance Units (“PUs”). LTIP awards may be settled in cash, shares or a combination of both at the discretion of the award holder. The LTIP expense (other than the small amount which is included in production cost) in the Quarter was $689 (2018: $315) and reflects a combination of factors including the change in the Company’s share price and the effluxion of the time period until vesting. Further information on the calculation of the charge is set out in note 26 to the Consolidated Financial Statements.
The gold hedge expense in the Quarter relates to a hedging arrangement which Caledonia entered into during the Quarter over 4,600 ounces of gold per month for the period from January 1, 2020 to June 30, 2020. The hedge comprises the purchase of out-of-the money put options which guarantees that Caledonia will receive a minimum price of $1,400 in respect of the ounces hedged but retain full exposure to the gold price. The hedge is not for speculative purposes but is intended to protect Caledonia’s cashflows during a period when capital expenditure on the Central Shaft remains high. The cash cost of the hedge was a once-off amount of $380 however the accounting charge also recognises mark-to-market loss arising on the instruments.
8
The tax expense comprises the following:
| Analysis of Consolidated Tax expense for the Year | ||||||||||||
| ($’000’s) | ||||||||||||
| Zimbabwe | South Africa | GMS UK | Total | |||||||||
| Income tax | 6,171 | 660 | - | 6,831 | ||||||||
| Withholding tax | ||||||||||||
| Management Fee | - | 128 | - | 128 | ||||||||
| Deemed Dividend | 224 | - | - | 224 | ||||||||
| GMS UK Dividend | - | - | 128 | 128 | ||||||||
| Deferred tax | 2,942 | 37 | - | 2,979 | ||||||||
| 9,337 | 825 | 128 | 10,290 | |||||||||
The overall effective taxation rate in the Year was 17% compared to 35% in the previous year. Direct comparison of the effective tax rate in the Year compared to the previous year is complicated by the change in the basis of the calculation of taxation for Blanket. In 2018, Blanket’s tax was calculated in US dollars using Blanket’s US Dollar-denominated accounting records (the US Dollar being Blanket’s functional currency). In 2019, as explained in section 4.9, Blanket’s taxation charge is calculated using RTGS$-denominated accounts, the resulting charge is then translated into US Dollars for the purposes of financial reporting. As set out in note 17 to the Consolidated Financial Statements, the requirement to calculate tax in RTGS$ reduced the taxation charge by $8,526. If the actual tax expense for the Year of $10,290 million is adjusted to reflect the effect of calculation in RTGS$, the overall effective taxation rate for the Year was 37%, compared to 35% in the previous year.
The largest component of the total taxation charge is Zimbabwe income tax on profits arising at Blanket. The income tax charge for the Year and the Quarter was higher than in 2018 and the comparable quarter due to higher taxable profits at Blanket which is broadly reflected in the increase in gross profit.
Zimbabwean deferred tax reflects inter alia the difference between the accounting and tax treatments of capital investment. 100% of capital expenditure is deductible in the year in which it is incurred for the purposes of calculating Zimbabwean income tax, whereas for accounting purposes depreciation commences when the project enters production. In the Quarter the deferred tax expense increased due to the large capital purchases made in the Quarter and as a result of changes in realised and unrealized foreign exchange differences.
Withholding tax is Zimbabwean withholding tax on dividends remitted to the UK, management fees and tax on the deemed dividend arising on management fees paid to Caledonia’s wholly owned subsidiary in South Africa for technical services rendered.
For the Year non-controlling interests shared in 16.2% of Blanket’s net profit as explained in note 6 of the Consolidated Financial Statements.
Risks that may affect Caledonia’s future financial condition are discussed in sections 4.9 and 17.
9
The table below sets out the consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017 prepared under IFRS.
|
Condensed Consolidated Statement of Cash Flows ($’000’s) |
|||
| 12 months ended December 31 | |||
| 2017 | 2018 | 2019 | |
| Cash flows from operating activities | |||
| Cash generated from operations | 28,885 | 21,119 | 23,885 |
| Net interest paid | (161) | (108) | (308) |
| Tax paid | (4,212) | (3,344) | (5,517) |
| Net cash from operating activities | 24,512 | 17,667 | 18,060 |
| Cash flows used in investing activities | |||
| Acquisition of property, plant and equipment | (21,639) | (20,192) | (20,024) |
| Proceeds on sale of subsidiary | - | - | 1,000 |
| Net cash used in investing activities | (21,639) | (20,192) | (19,024) |
| Cash flows from financing activities | |||
| Dividends paid | (3,310) | (3,497) | (3,395) |
| Repayment of term loan facility | (1,500) | (1,500) | - |
| Term loan proceeds | - | 6,000 | 2,340 |
| Term loan – transaction cost | - | (60) | (46) |
| Share issue | 246 | - | - |
| Payment of lease liabilities | - | - | (124) |
| Share repurchase | (146) | - | - |
| Net cash used in financing activities | (4,710) | 943 | (1,225) |
| Net decrease in cash and cash equivalents | (1,837) | (1,582) | (2,189) |
| Effect of exchange rate fluctuations on cash held | 258 | 13 | (105) |
| Net cash and cash equivalents at beginning of the period | 14,335 | 12,756 | 11,187 |
| Net cash and cash equivalents at end of the period | 12,756 | 11,187 | 8,893 |
Cash generated from operating activities is detailed in note 30 to the Consolidated Financial Statements.
Cash flows in the Year from operations before working capital were $28.1 million compared to $25.8 million in the previous year. The increase was mainly due to the higher gross profit which is due to the higher gold price and lower production costs the effect of which was offset by the lower revenues arising from the gold support price. Working capital increased in the Year by $4.2 million which was mainly due to an increase in inventories and prepayments. Inventories increased due the increased stocks of relatively high value spare parts for the enlarged fleet of underground trackless equipment; the higher level of prepayments reflects the requirement to prepay for some consumables as Zimbabwean suppliers have reduced their credit terms due to the high level of inflation; Blanket also prepaid for consignments of diesel to be delivered in January 2020.
Net investment in property, plant and equipment remains high due to the continued investment on the Central Shaft project, which is discussed further in section 4.7 of this MD&A and in sustaining capital investment. Net investment also included an unbudgeted amount of approximately $1.5 million to buy additional generators in response to the power outages experienced in July and early August.
Proceeds from the disposal of a subsidiary relates to the consideration received in the quarter ended March 31, 2019 in respect of the sale of Eersteling Gold Mining Company Limited (“Eersteling”) as discussed in section 4.11 of this MD&A.
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The dividends paid relate to the dividend paid by Caledonia and the portion of dividends paid by Blanket that accrued to the indigenous shareholders after retentions to repay the facilitation loans.
The proceeds of term loans relate to the drawing of further facilities denominated in local currency by Blanket for working capital purposes. Due to the rapid devaluation of the Zimbabwean currency (as discussed in section 4.9 of this MD&A) the US Dollar value of Blanket’s debt facilities has continued to erode. However, as most of Blanket’s expenditures are denominated in US Dollars and South African Rands, Blanket needs to increase its RTGS$-denominated borrowings to maintain its working capital in US Dollar terms. Blanket’s debt facilities are discussed in section 7 of this MD&A.
The effect of exchange rate fluctuations on cash held predominantly reflects the losses on cash balances held in RTGS$ due to the devaluation of RTGS$ against the US dollar. The adverse effect on cash balances forms part of an overall foreign exchange gain arising on the devaluation of all affected financial assets and liabilities.
The table below sets out the consolidated statements of Caledonia’s financial position as at December 31, 2019, December 31, 2018 and December 31, 2017 prepared under IFRS.
| Summarised Consolidated Statements of Financial Position | ||||
| ($’000’s) | As at | Dec 31 | Dec 31 | Dec 31 |
| 2017 | 2018 | 2019 | ||
| Total non-current assets | 82,143 | 97,525 | 113,714 | |
| Inventories | 9,175 | 9,427 | 11,092 | |
| Prepayments | 709 | 866 | 2,350 | |
| Trade and other receivables | 4,962 | 6,392 | 6,912 | |
| Cash and cash equivalents | 13,067 | 11,187 | 9,383 | |
| Gold hedge | - | - | 102 | |
| Assets held for sale | - | 296 | - | |
| Total assets | 110,056 | 125,693 | 143,553 | |
| Total non-current liabilities | 25,243 | 34,687 | 8,957 | |
| Short-term portion of term loan facility | 1,486 | - | 529 | |
| Trade and other payables | 12,660 | 10,051 | 8,697 | |
| Income tax payable | 1,145 | 1,538 | 163 | |
| Bank overdraft | 311 | - | 490 | |
| Liabilities associated with assets held for sale | - | 609 | - | |
| Total liabilities | 40,845 | 46,885 | 18,836 | |
| Total equity | 69,211 | 78,808 | 124,717 | |
| Total equity and liabilities | 110,056 | 125,693 | 143,553 | |
Non-current assets increased due to the continued investment at the Central Shaft, investment to sustain existing operations and the purchase of additional generators to safeguard Blanket’s electricity supply.
Inventories increased due to the increased holdings of materials that will be used to equip the Central Shaft and an increase is the inventory of spare parts for the larger fleet of underground trackless equipment.
Prepayments represent deposits and advance payments for goods and services, including capital items that are being fabricated and which will be delivered to Blanket in due course. The increased amount as at December 31, 2019 compared to December 31, 2018 reflects prepayments for equipment and materials and an increase in the advance purchase of diesel to accommodate anticipated electricity outages.
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Trade and other receivables are detailed in note 19 to the Consolidated Financial Statements and include $2,987 (December 31, 2018: $2,695) due from Fidelity Printers and Refiners Limited (“Fidelity”), a subsidiary of the Reserve Bank of Zimbabwe (“RBZ”), in respect of gold deliveries prior to the close of business on December 31, 2019 and $1,765 (December 31, 2018: $2,743) due from the Government of Zimbabwe in respect of VAT refunds. The increased amount due from Fidelity reflects the extension of the payment cycle following the implementation of the monetary policy announced by the RBZ on February 20, 2019 (as discussed in section 4.9) and the higher gold price, which increases the value of each delivery made to Fidelity. The amounts due from Fidelity were received in full after the end of the Year. The amount due in respect of VAT refunds mainly comprises RTGS$-denominated VAT refunds. Increased delays in the processing of VAT refunds by the Government of Zimbabwe has resulted in an increase in the amount receivable in RTGS$ terms, however the outstanding balance has reduced in US Dollar terms due to the devaluation of the RTGS$. The long-outstanding balances have either been repaid after the end of the Year or have been recovered by way of offset against other tax payables due to the Government of Zimbabwe. Trade receivables include $1,991 (2018: nil) in respect of deferred consideration due on the disposal of Eersteling, the sale of which was concluded in the first quarter of 2019 and is discussed in section 4.11 of this MD&A.
Non-current liabilities reduced from $34,687 as at December 31, 2018 to $9,486 at the end of the Year mainly due to the conversion of a RTGS$ 6 million term facility and deferred tax liability into US Dollars as these balances are denominated in RTGS$.
The following information is provided for each of the eight most recent quarterly periods ending on the dates specified. The figures are extracted from underlying financial statements that have been prepared using accounting policies consistent with IFRS.
| ($’000’s except per share amounts) |
Mar 31, 2018 |
June 30, 2018 |
Sept 30, 2018 |
Dec 31, 2018 |
Mar 31, 2019 |
June 30, 2019 |
Sept 30, 2019 |
Dec 31, 2019 |
| Revenue from operations | 18,059 | 16,198 | 16,647 | 17,495 | 15,920 | 16,520 | 19,953 | 23,433 |
| Profit attributable to owners of the Company | 3,154 | 2,604 | 2,224 | 2,784 | 9,318 | 23,303 | 7,007 | 2,390 |
| Earnings per share – basic (cents) | 29.3 | 24.1 | 20.4 | 25.1 | 88.6 | 210.8 | 61.1 | 21.5 |
| Earnings per share – diluted (cents) | 29.2 | 24.1 | 20.4 | 25.2 | 88.5 | 210.9 | 60.9 | 21.3 |
| Net cash and cash equivalents | 13,380 | 5,308 | 5,896 | 11,187 | 9,742 | 7,875 | 8,026 | 8,893 |
Fluctuations in profit attributable to owners of the Company on a quarterly basis in the quarters ended March 31 2019, June 30 2019 and September 30, 2019 are due to, inter alia, the incidence of substantial foreign exchange profits as discussed in the relevant MD&As and financial statements.
4. OPERATIONS AT THE BLANKET GOLD MINE, ZIMBABWE
| 4.1 | Safety, Health and Environment |
The following safety statistics have been recorded for the Quarter and the preceding seven quarters.
| Blanket Mine Safety Statistics | ||||||||
|
Classification |
Q1 2018 |
Q2 2018 |
Q3 2018 |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
| Fatal | 1 | 0 | 1 | 0 | 0 | 0 | 0 | 0 |
| Lost time injury | 1 | 3 | 1 | 0 | 2 | 0 | 0 | 1 |
| Restricted work activity | 6 | 5 | 4 | 1 | 3 | 7 | 4 | 3 |
| First aid | 1 | 2 | 6 | 0 | 0 | 0 | 0 | 0 |
| Medical aid | 4 | 2 | 1 | 6 | 1 | 1 | 4 | 5 |
| Occupational illness | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 13 | 12 | 13 | 7 | 6 | 8 | 8 | 9 |
| Incidents | 7 | 10 | 8 | 7 | 12 | 15 | 12 | 15 |
| Near misses | 4 | 1 | 2 | 4 | 5 | 2 | 8 | 7 |
| Disability Injury Frequency Rate | 0.31 | 0.44 | 0.29 | 0.00 | 0.32 | 0.00 | 0.00 | 0.15 |
| Total Injury Frequency Rate | 2.03 | 1.77 | 1.78 | 1.12 | 0.97 | 1.23 | 1.23 | 1.34 |
| Man-hours worked (thousands) | 1,278 | 1,352 | 1,371 | 1,252 | 1,240 | 1,296 | 1,297 | 1,341 |
In 2018 a training facility (called the Nyanzvi initiative) was established at Blanket using dedicated facilities and specially trained facilitators. 120 senior supervisors participated in the Nyanzvi scheme during the Quarter and the Heads of Departments completed the programme in January 2020 thereby completing the training of Blanket’s entire workforce. As a result of this increased focus on safety training, there were no fatal accidents and the number of accidents reduced from 45 in 2018 to 31 in the Year. Safety training is an ongoing exercise and it will remain an area of focus for management.
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4.2 Social Investment and Contribution to the Zimbabwean Economy
Blanket’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket’s employees, the payments made to the Gwanda Community Share Ownership Trust (“GCSOT”) in terms of Blanket’s indigenisation, and payments of royalties, taxation and other non-taxation charges to the Government of Zimbabwe and its agencies are set out in the table below.
|
Payments to the Community and the Zimbabwe Government ($’000’s) | |||||
| Period | Year | Community and Social Investment | Payments to GCSOT |
Payments to Zimbabwe Government | Total |
| Year | 2013 | 2,147 | 2,000 | 15,354 | 19,501 |
| Year | 2014 | 35 | - | 12,319 | 12,354 |
| Year | 2015 | 50 | - | 7,376 | 7,426 |
| Year | 2016 | 12 | - | 10,637 | 10,649 |
| Year | 2017 | 5 | - | 11,988 | 11,993 |
| Year | 2018 | 4 | - | 10,140 | 10,144 |
| Q1 | 2019 | 14 | - | 2,567 | 2,581 |
| Q2 | 2019 | 27 | - | 2,360 | 2,387 |
| Q3 | 2019 | 11 | - | 3,344 | 3,355 |
| Q4 | 2019 | - | - | 2,086 | 2,086 |
| Year | 2019 | 47 | - | 10,357 | 10,404 |
There is no legal requirement in Zimbabwe for mining companies to implement corporate and social responsibility (“CSR”), but there is an increasing expectation from stakeholders in Zimbabwe and from international investors that mining companies should do more to address social and environmental issues. For many years Blanket has engaged in ad hoc CSR activities. In October 2019 Blanket’s board of directors approved a formal CSR programme which is set out on Caledonia’s website. One aspect of Blanket’s CSR activities is the employment of students on secondment from tertiary institutions. At any one time there are up to 25 students on attachment at Blanket at a cost of $506 for the Year, such costs being included in production costs.
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4.3 Gold Production
Tonnes milled, average grades, recoveries and gold produced during the Quarter, the preceding 11 quarters, the Year, the years 2017, 2018 and 2019 and January and February 2020 are shown in the table below.
| Blanket Mine Production Statistics | |||||
| Year |
Tonnes Milled (t) |
Gold Head (Feed) Grade (g/t Au) |
Gold Recovery (%) |
Gold Produced (oz) | |
| Year | 2016 | 510,661 | 3.30 | 93.0 | 50,351 |
| Quarter 1 | 2017 | 124,225 | 3.42 | 93.7 | 12,794 |
| Quarter 2 | 2017 | 136,163 | 3.08 | 92.8 | 12,518 |
| Quarter 3 | 2017 | 136,064 | 3.52 | 93.6 | 14,396 |
| Quarter 4 | 2017 | 150,755 | 3.62 | 93.6 | 16,425 |
| Year | 2017 | 547,207 | 3.41 | 93.4 | 56,133 |
| Quarter 1 | 2018 | 123,628 | 3.48 | 93.4 | 12,924 |
| Quarter 2 | 2018 | 132,585 | 3.19 | 92.8 | 12,657 |
| Quarter 3 | 2018 | 151,160 | 3.12 | 92.6 | 13,978 |
| Quarter 4 | 2018 | 153,540 | 3.27 | 92.8 | 14,952 |
| Year | 2018 | 560,913 | 3.26 | 92.9 | 54,511 |
| Quarter 1 | 2019 | 122,389 | 3.26 | 93.4 | 11,948 |
| Quarter 2 | 2019 | 135,847 | 3.11 | 93.2 | 12,712 |
| Quarter 3 | 2019 | 142,706 | 3.19 | 93.2 | 13,646 |
| Quarter 4 | 2019 | 155,389 | 3.61 | 93.8 | 16,876 |
| Year | 2019 | 556,331 | 3.31 | 93.4 | 55,182 |
| January | 2020 | 43,774 | 3.42 | 93.9 | 4,509 |
| February | 2020 | 46,311 | 3.29 | 93.5 | 4,579 |
Gold production for the Quarter was 13% higher than the comparable quarter and 24% higher than the previous quarter. Gold production for the Year was 1.2% higher than in 2018. The higher production for the Quarter and the Year was mainly due to increased grade and higher recovery; higher production in the Quarter was also due to higher tonnes milled. Tonnes milled and grade are discussed in section 4.4 of this MD&A; gold recoveries are discussed in section 4.5 of this MD&A.
Production in January and February showed a continuation of the higher daily tonnes mined, improved grade and recovery compared to the first three quarter of 2018.
| 4.4 | Underground |
Tonnes milled in the Quarter were 1.2% higher than the comparable quarter and 8.9% higher than the preceding quarter. Tonnes milled in the Year were 0.8% lower than the previous year.
In the early part of the Year, production was affected by excessive breakdowns on equipment due to a shortage of foreign currency to buy the necessary spares and low employee morale due to the reduction in workers’ spending power due to the high level of inflation. Low morale manifested itself in more unauthorised employee absences and desertions which affected production due to the resulting lost shifts. Low morale was addressed by adjusting worker’s remuneration as discussed in section 4.9. Employee morale was further improved by the introduction of a new production incentive scheme in the Quarter which rewards more directly those production teams that perform to the required level. Production in the Quarter also benefited from improved management attention to enforce daily targets and production standards.
Production in the period July to the middle of August 2019 was adversely affected by electricity outages; the electricity supply situation improved from mid-August although there were further power interruptions in October 2019. The electricity supply situation in Zimbabwe is discussed further in section 4.9 of this MD&A. During the Quarter, Blanket commissioned a further 6MW of diesel generators. Blanket now has 18MW of installed diesel generators which is sufficient to maintain production and allow work to continue on the Central Shaft. However, diesel generators are not a long-term solution to the electricity problem: diesel power is expensive and requires large quantities of diesel which may not always be available. Management is evaluating a range of solutions to this problem as discussed in section 4.9 of this MD&A.
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The grade in the Quarter was 10.4% higher than the comparable quarter and 13.2% higher than the preceding quarter. Grade in the Year was 1.5% higher than in 2018. Grade improved following the re-introduction of underhand stoping in the narrow stopes along with additional measures to enhance safety which reduced mining dilution. Mining dilution was also reduced by the improved training of drill operators, intensified geological control, reviewing blasting techniques and technology and reducing the sublevel vertical spacing from 15 meters to 10 meters.
The improved level of daily ore production and the achievement of planned grades compared to the first three quarters of 2018 has continued into January and February 2020. The new bonus system that was introduced in July 2019 encourages workers to fulfil their daily development target as well as their production target. Primary development advanced in the Quarter by 3,392 meters compared to 2,662 meters in the previous quarter and 1,911 in the comparable quarter.
4.5 Metallurgical Plant
Plant throughput in the Quarter was 73.1 tonnes per hour (“tph”) compared to 72.3 tph in the previous quarter. Recoveries in the Quarter were 93.8% compared to 93.2% in the previous quarter.
Recoveries improved following the commissioning of the new oxygen plant in October 2019. A full assessment of the effect of the new oxygen plant can only be made after the introduction of an upgraded oxygen sparging system in the first quarter of 2020. The new oxygen plant has already resulted in a reduction in cyanide consumption from 0.88kg per tonne milled before the plant was commissioned to 0.79 kg per tonne milled by the end of the Quarter.
| 4.6 | Production Costs |
A narrow focus on the direct costs of production (mainly labour, electricity and consumables) does not fully reflect the total cost of gold production. Accordingly, cost per ounce data for the Quarter and the comparable quarter have been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases:
| i. | On-mine cost per ounce[4], which shows the on-mine costs of producing an ounce of gold and includes direct labour, electricity, consumables and other costs that are incurred at the mine including insurance, security and on-mine administration; |
| ii. | All-in sustaining cost per ounce4, which shows the on-mine cost per ounce plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg, London and Jersey), costs associated with maintaining the operating infrastructure and resource base that are required to maintain production at the current levels (sustaining capital investment), the share-based expense (or credit) arising from the LTIP awards less silver by-product revenue. The all-in sustaining cost also includes as a credit (i.e. as a deduction from costs) the gold support price (or its predecessor); and |
| iii. | All-in cost per ounce4, which shows the all-in sustaining cost per ounce plus the costs associated with activities that are undertaken with a view to increasing production (expansion capital investment). |
Cost per Ounce of Gold Sold (US$/ounce) |
||||
3 Months to December 31 |
12 Months to December 31 | |||
| 2018 | 2019 | 2018 | 2019 | |
| On-mine cost4 | 688 | 603 | 690 | 651 |
| All-in sustaining cost4 | 774 | 806 | 802 | 820 |
| All-in cost4 | 1,007 | 1,147 | 1,128 | 1,188 |
_______________________________
4 On-mine cost per ounce, all-in sustaining cost per ounce and all-in cost per ounce are non-IFRS measures. Refer to section 10 for a reconciliation of these amounts to IFRS.
15
Per-ounce costs are calculated based on gold ounces sold and not produced, so that an accurate value can be ascribed to the royalty and the ECI. A reconciliation of costs per ounce to IFRS production costs is set out in section 10.
On-Mine costs
On-mine cost comprises labour, electricity, consumables and other costs such as security and insurance. Production costs are detailed in note 9 to the Consolidated Financial Statements. The on-mine cost per ounce of gold sold in the Quarter decreased by 12.3% compared to the comparable quarter due to the higher grade and higher recovery and lower costs of electricity and other costs, the combined effect of which was offset somewhat by higher labour and consumable costs.
As discussed in section 4.4, the grade in the Quarter was higher than the comparable quarter. A higher grade reduces the on-mine cost per ounce which is generally related to tonnes of production – if each tonne mined and processed contains more gold, a higher grade will result in a lower cost per ounce even if costs remain unchanged.
Labour costs in the Quarter and the Year were higher than the comparable periods due to production bonuses; labour costs per ounce of gold produced were lower than the comparable quarter due to the higher production which offset the effect of the higher monetary value.
Consumable costs for the Quarter and the Year were higher than in the comparable periods due to the increased cost of maintaining the underground trackless equipment; consumable costs for the Year also increased due to the increased consumption rate for cyanide before the commissioning of the new oxygen plant in October 2019 as discussed in section 4.5.
The electricity cost in the Quarter and the Year was lower due to the implementation of the new power supply arrangements from mid-August as outlined in section 4.9. The lower cost for the Year was also the result of the low US-Dollar denominated cost of power arising in the first half of 2019 when the cost of Blanket’s grid power was denominated in local currency which depreciated substantially against the US Dollar.
Other costs comprise a small component of on-mine costs; these costs were reduced in the Quarter and the Year as they are largely denominated in local currency which depreciated substantially against the US Dollar.
All-in sustaining costs
All-in sustaining costs for the previous year and for the comparable quarter were reduced by $6.5 million and $1.8 million respectively due to other income received in terms of the ECI which is discussed in section 4.9 of this MD&A. On a cost per ounce basis, the benefit of the ECI was $118 per ounce for 2018 and $126 per ounce for the comparable quarter. After adjusting for the benefit arising from the ECI, all-in sustaining costs for the Year and the Quarter were approximately 7% and 10% lower respectively than the previous year and the comparable quarter. The reduction is due to lower on-mine costs as discussed above, lower administrative expenses and lower sustaining capital expenditure. Administrative expenses which are detailed in note 13 to the Consolidated Financial Statements were reduced due to inter alia lower expenditure on investor relations and reduced costs associated with Eersteling following its sale as discussed in section 4.11 of this MD&A.
All-in costs
All-in costs include investment in expansion projects which remained at a high level in the Quarter due to the continued investment at Blanket, as discussed in section 4.7 of this MD&A.
4.7 Capital Projects
The main capital development project is the Central Shaft which will allow for three new production levels below the current operations; a fourth level is intended to be added in due course via a decline construction. Shaft sinking commenced in early 2015 and the shaft reached its target depth of 1,204 metres (approx. 4,000 feet) in July 2019. Work on equipping the shaft has commenced and it is expected to be commissioned in the last quarter of 2020 after which production ramp up can commence: production in 2021 is expected to be approximately 75,000 ounces, increasing to the target rate of 80,000 ounces in 2022.
Work on underground development was hampered by the unstable electricity supply which has caused frequent power interruptions and by systemic power outages due to the general lack of electricity in Zimbabwe as discussed in section 4.9. In the Quarter further diesel generators were installed so that work at Central shaft can continue uninterrupted throughout any interruptions to the electricity supply from the grid.
16
In addition to the Central shaft, work continued on decline developments at the AR South, AR Main and Eroica ore bodies, preparations commenced for a further decline at the Blanket orebody and work continued on haulages on the 870m level. In total 417 meters of development were achieved in the Quarter compared to 267 meters in the comparable quarter; 1,504 meters were achieved in the Year compared to 1,745 meters in 2018.
4.8 Indigenisation
Transactions that implemented the indigenisation of Blanket (which expression in this section and in certain other sections throughout this MD&A refers to the Zimbabwe company that owns Blanket Mine) were completed on September 5, 2012 following which Caledonia owned 49% of Blanket and received a Certificate of Compliance from the Government of Zimbabwe which confirms that Blanket is fully compliant with the Indigenisation and Economic Empowerment Act.
Following the appointment of the new President in late 2017 the requirement for gold mining companies to be indigenised was removed by a change in legislation with effect from March 2018. On November 6, 2018, the Company announced that it had entered into a sale agreement with Fremiro to purchase Femiro’s 15% shareholding in Blanket for a gross consideration of $16.7 million which was to be settled through a combination of the cancellation of the loan between the two entities which stood at $11.5 million as at June 30, 2018 and the issue of 727,266 new shares in Caledonia at an issue price of $7.15 per share. This transaction was completed on January 20, 2020 as a result of which Caledonia has a 64% shareholding in Blanket and Fremiro holds approximately 6.3% of Caledonia’s enlarged issued share capital.
As a 64% shareholder, Caledonia receives 64% of Blanket’s dividends plus the repayment of vendor facilitation loans which were extended by Blanket to certain of the indigenous shareholders. The outstanding balance of the facilitation loans as at December 31, 2019 was $31.0 million (December 31, 2018: $31.0 million). On completion of the Fremiro transaction (described above) the outstanding facilitation loans were reduced by the cancellation of the loan due from Fremiro. The facilitation loans (including interest thereon) are repaid by way of dividends from Blanket; 80% of the dividends declared by Blanket which are attributable to the beneficiaries of the facilitation loans are used to repay such loans and the remaining 20% unconditionally accrues to the respective indigenous shareholders. Blanket declared dividends which resulted in a small reduction on the outstanding balance of the facilitation loans after accrued interest. The dividends attributable to GCSOT, which holds 10% of Blanket, are withheld by Blanket to repay the advance dividends which were paid to GCSOT in 2012 and 2013 and which had an outstanding balance of $1.63 million at December 31, 2019 (December 31, 2018; $2.19 million). In February 2020, Blanket agreed to a request from GCSOT that the terms of the debt relating to the repayment of the advance dividend be amended so that GCSOT might receive 20% of its attributable dividend and the balance of 80% will be applied to repay the advance dividend.
The facilitation loans are not shown as receivables in Caledonia’s financial statements in terms of IFRS. These loans are effectively equity instruments as their only means of repayment is via dividend distributions from Blanket. Caledonia continues to consolidate Blanket for accounting purposes. Further information on the accounting effects of indigenisation at Blanket is set out in note 6 to the Consolidated Financial Statements and in a Frequently Asked Questions page which is available on Caledonia’s website.
| 4.9 | Zimbabwe Commercial Environment |
Monetary Conditions
The current situation in Zimbabwe can be summarized as follows:
| · | There continues to be a shortage of foreign currency in Zimbabwe, although in recent months Blanket has had satisfactory access to foreign exchange due to the higher gold price and increased production. |
| · | The rate of annual inflation increased from 5% in September 2018 to approximately 500% by December 2019. The Zimbabwe Government no longer releases annualised inflation data, but it is widely accepted that the rate of inflation although still high has moderated to approximately 80% per annum in early 2020. A high rate of inflation has little effect on Blanket’s operations now that Blanket has adjusted employee remuneration to reflect the increased cost of living – this is discussed further below. |
17
| · | Since October 2018, bank accounts in Zimbabwe have been bifurcated between Foreign Currency Accounts (“FCA”), which can be used to make international payments, and local currency (known as “RTGS Dollars” or “RTGS$”) accounts which can only be used for domestic transactions. |
| · | On February 20, 2019 the RBZ allowed inter-bank trading between currency held in the RTGS$ system and the FCA system. Prior to this, the RBZ had stipulated that a Dollar in the RTGS system was worth 1 US Dollar in the FCA system. The interbank exchange rate at each quarter end since the introduction of the interbank rate in February 2019 is set out below. |
|
Interbank Exchange Rates (ZWL:US$1)
| |
| February 20, 2019 | 2.500 |
| March 31, 2019 | 3.003 |
| June 30, 2019 | 6.543 |
| September 30, 2019 | 15.090 |
| December 31, 2019 | 16.773 |
| · | The interbank trading mechanism addressed the most pressing difficulty that emerged after the October 2018 policy implementation, being the erosion of the purchasing power of Blanket’s employees due to rapidly increasing retail prices which had an adverse effect on employee morale. Management has increased RTGS$-denominated remuneration so that it remains more closely aligned to the US Dollar value using the interbank rate. This has alleviated some of the financial distress experienced by Blanket employees. The interbank market is relevant in terms of creating an exchange rate; however, there is little liquidity in the interbank market so it is not a meaningful mechanism to trade between RTGS$ and US Dollars. In February 2020 the RBZ announced its intention to further liberalise the interbank market with the objective of increasing liquidity and transparency. |
| · | Zimbabwean gold producers, including Blanket, are required to sell their gold to Fidelity. 55% of the sale proceeds are received in FCA and the balance is received in RTGS$. Blanket uses the FCA component to pay for imported goods, services and electricity; the RTGS$ component is used to pay for goods and services procured in Zimbabwe and to pay employees and payroll taxes and a proportion of Blanket’s income tax. At prevailing gold prices and the current rate of production the 55% FCA allocation is sufficient for Blanket to continue normal mining operations, to fully implement the investment plan as scheduled and allow Caledonia to remit dividends from Zimbabwe. |
| · | On June 24, 2019 the Government issued S.I. 142 which stated: “Zimbabwe dollar (RTGS$) to be the sole currency for legal tender purposes for any transactions in Zimbabwe”. Throughout these announcements and to the date of issue of the Consolidated Financial Statements the US Dollar has remained the primary currency in which the Group’s Zimbabwean entities operate and the functional currency of these entities. Previously there was uncertainty as to what currency would be used to settle amounts owed to the Zimbabwe Government. The announcement of S.I.142 clarified the Zimbabwean Government’s intentions that these liabilities were always denominated in RTGS$ and that RTGS$ would be the currency in which they would be settled. The devaluation of the deferred tax, electricity and term loan liabilities were the largest contributions to the net foreign exchange gain of $27.1 million which was recognised in the Year. The electricity supply agreement that was finalised in August 2019 (as discussed further below) allows for payment in FCA, whereas the liabilities that accrued prior to this agreement were denominated and paid in RTGS$. |
| · | Provided the interbank exchange rate is efficient and Blanket receives the amounts due promptly, in full and at an exchange rate which reflects economic fundamentals, management is optimistic the revised policy may create a more stable environment. Investors should recognize that Blanket’s ability to implement its investment plan and Caledonia’s ability to sustain its operations outside Zimbabwe and pay future dividends depends, inter alia, on the ability to continue to externalise cash from Zimbabwe. |
18
Gold support price
Blanket sells gold to Fidelity and is contractually entitled to receive a price which is 98.75% of the price fixed by the London Bullion Market Association (the “LBMA price”). 55% of Blanket’s proceeds are received in US Dollars and the remainder is received in RTGS$ using the interbank exchange rate for RTGS$ and US Dollars.
Prior to February 20, 2019, Blanket in common with the other gold producers, received the ECI which was a 10% premium to the LBMA price. On February 27, 2019 Caledonia announced the termination of the ECI programme and the financial effect thereof.
From March 6, 2019 it became apparent that Blanket’s sales proceeds received from Fidelity were calculated at a gross price of $44,000 per kilogram ($1,368.58 per ounce), which exceeded the prevailing LBMA price. On May 12, 2019 the Company received confirmation from Fidelity of this arrangement, called the “gold support price”, which was implemented to incentivize gold producers to increase gold production. The gold support price had not been increased as the LBMA gold price has subsequently increased above $1,368.58 per ounce; Caledonia has no information whether the gold support price would be re-introduced if the LBMA price fell below $1,368.58 per ounce.
As the LBMA gold price exceeded the gold support price on each delivery date since early June 2019 there was no income in respect of the gold support price for the remainder of the Year. The income arising from the ECI and the gold support price in previous quarters was included as “Government Grant - Other Income”.
Electricity supply
Zimbabwe’s electricity generation is mainly from the Kariba hydro station on the Zambezi and the Hwange coal-fired station with several other much smaller coal-fired power stations. Even if Zimbabwe’s installed generating capacity is fully operational, it cannot generate enough electricity to meet its requirements and therefore Zimbabwe imports electricity from Mozambique and South Africa. Since 2010 Blanket Mine, along with most other gold producers, had a supply agreement with the Zimbabwe Electricity Supply Authority (“ZESA”) in terms of which the consumers paid a premium rate in return for un-interrupted power. This agreement expired on December 31, 2018 and was not renewed as ZESA demanded that payment should be in US Dollars, which was neither practical (due to insufficient access to US Dollars) nor permissible in terms of the prevailing Zimbabwean foreign exchange controls.
The generating capacity at the Kariba hydro generating station has been significantly reduced due to low water levels caused by insufficient rain in the catchment area. In addition, in July and early August 2019, South Africa reduced its deliveries of electricity to Zimbabwe due to non-payment for historic deliveries. In October 2019 the export of electricity from South Africa was further interrupted due to a lack of generating capacity in South Africa.
The combined effect of these factors is that Zimbabwe experiences a severe electricity shortage and has resorted to “load-shedding” whereby electricity consumers experience prolonged power outages. Initially the load-shedding targeted domestic consumers; however, from early July 2019, Blanket and other industrial users experienced substantial interruptions to their electricity supply. In the case of Blanket which has a maximum demand of 18MW, in July and early August 2019 it was regularly required to reduce its consumption by up to 8 MW for periods of up to 16 hours each day. As a result of load-shedding, Blanket’s use of diesel for generating electricity increased from approximately 30,000 litres per month in 2018 to 265,000 litres in July 2019. The recurrence of load-shedding in October was less severe and Blanket was required to reduce consumption by up to 4MW for periods of up to 10 hours per day.
Blanket and Caledonia management had constructive engagement with the relevant authorities both directly and via the Chamber of Mines to find an urgent resolution to this matter. All parties understand that without sufficient power, Zimbabwe’s gold production and hence its ability to earn foreign exchange, will be very severely affected if the gold industry does not receive sufficient power to maintain production.
Although it is hoped that power production from Kariba will increase when water levels return to normal, it is likely that Zimbabwe will continue to experience severe electricity shortages due to the continued difficulties experienced by the South African state-owned electricity generator, which has been a substantial supplier to Zimbabwe.
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An additional difficulty, which Blanket has experienced for many months, is that the electricity supply from the grid is highly unstable and is subject to frequent surges and dips in voltage. Power surges, if not controlled, cause severe damage to Blanket’s electrical equipment. Blanket has therefore installed its own equipment to regulate the incoming power; however, this equipment was itself damaged by the incoming supply although it was repaired and re-installed in the previous quarter.
Caledonia’s approach to the electricity situation is threefold:
| i. | continue to engage constructively with ZESA with the objective of securing cheap, reliable and stable power from the grid. This includes agreeing a realistic electricity pricing formula in the context of the current monetary conditions; assisting ZESA to repair and maintain its own equipment and participating in an industry-wide scheme to import power. On August 9, 2019 Blanket signed a new power supply agreement in terms of which Blanket will receive un-interrupted power in return for an FCA-denominated tariff which, although cheaper than the tariff which prevailed until December 31, 2018, is still sufficient to allow ZESA to import power so that (subject to the availability of power in neighbouring countries) it can keep its supply commitment to the participants in the scheme. This arrangement has worked reasonably well, although Blanket continues to experience less severe outages during periods when South Africa’s own electricity system has come under pressure; |
| ii. | increase Blanket’s stand-by diesel generating capacity. Blanket commissioned a further 6MW of diesel generators in the Quarter and it now has 18MW of installed diesel generators which is sufficient to maintain production and allow work to continue on the Central Shaft. However, diesel generators are not a long-term solution to the electricity problem: diesel power is expensive and requires large quantities of diesel which is environmentally damaging and is not always easily available; and |
| iii. | explore the installation of a solar power plant to supply some or all of Blanket’s requirements. Management is currently completing financial and technical evaluations of a solar project and has received a generating licence so that it can move quickly if the evaluations indicate that a solar project will be cost effective. Caledonia ran a tender process during the Quarter to identify a party either to build and sell the solar plant to Caledonia or to own and operate the solar plant and sell the power to Blanket. Caledonia and its advisers are currently evaluating the proposals it has received from interested parties and is considering various funding options. |
Water supply
Blanket uses water in the metallurgical process, some of which is pumped from the deeper levels of the mine but most of which is obtained from the “Blanket dam” (which, despite its name, is neither owned nor managed by Blanket Mine) which also supplies water to the nearby town of Gwanda. Blanket is situated in a semi-arid region and rainfall typically only occurs in the period November to February. The 2018/19 rainy season was very poor and the 2019/2020 rainy season was somewhat late but has improved in recent weeks. Water levels in the dam are lower than usual and the water authority has released water from an upstream dam to replenish the Blanket dam. Management believes that, with careful management, there is enough water in the Blanket dam to maintain normal operations until the start of the next rainy season in late 2020. As a precautionary measure, Blanket intends to resuscitate existing boreholes and determine their yield; conduct hydrological surveys to identify potential new boreholes; recycle water from the lower levels of unused workings and construct a pond to store water that is pumped from current workings.
Taxation
The main elements of the Zimbabwe tax regime insofar as it affects Blanket Mine and Caledonia are as follows:
| • | A royalty is levied on gold revenues at a rate of 5%. Historically, the royalty has not been an allowable deduction for the purposes of calculating taxable profits. In the Mid-Year Budget Review, published on August 1, 2019 it was announced that with effect from January 1, 2020 the royalty would be allowable as a deductible expense. It was also announced that from September 1, 2019 the royalty rate would be calculated on a sliding scale based on gold prices: a royalty rate at 3% will apply if the gold price is below $1,200 and a royalty of 5% will apply if the gold price is over $1,200 per ounce. This proposal will reduce the royalty and tax burden on Blanket: illustratively, the effect of these changes for each 10,000 ounces per annum of gold production at an assumed gold price of $1,450 per ounce would be a post-tax benefit of approximately $186. |
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| • | Income tax is levied at 25.75% on profits as adjusted for tax purposes. The main adjustments to profit for the purposes of calculating tax are the add-back of depreciation, most of the management fees paid by Blanket to Caledonia’s subsidiary in South Africa and the royalty on gold sales. 100% of all capital expenditure incurred in the year of assessment is allowed as a deductible expense. As noted above, the Zimbabwe Government proposed that the royalty would be deductible for income tax purposes with effect from January 1, 2020. | |
| • | Withholding tax is levied on certain remittances from Zimbabwe i.e. dividend payments from Zimbabwe to the UK and payments of management fees from Blanket to Caledonia in South Africa. | |
| • | In June 2019 the Zimbabwe Revenue Authority (“ZIMRA”) issued Public Notice 26 (“PN26”) effective from February 22, 2019. PN26 provided clarity on the interpretation of Section 4 (a) of the Finance Act [Chapter 23.04] of Zimbabwe, that requires a company earning taxable income to pay tax in the same or other specified currency that the income is earned. PN 26 clarifies that the calculation of taxable income be performed in RTGS$ and that the payment of the taxable payable, determined in RTGS$, be paid in the ratio of turnover earned in FCA and RTGS$. The application of PN26 resulted in a significant reduction in the deferred tax liability at December 31, 2019 and the Group recorded the best estimate of the tax liability. |
4.10 Opportunities and Outlook
Central Shaft Project to Increase Production and Extend Mine Life
As discussed in section 4.7 the Company has sunk a new shaft to a depth of 1,204 meters. Once commissioned, the shaft should allow production to increase to the targeted rate of approximately 80,000 ounces per annum from 2022 onwards. Subject to the continued availability of foreign currency (as discussed in section 4.9), Caledonia intends to continue to implement the Central Shaft project.
Production Guidance
Production for the Year was 55,182 ounces, which exceeded the guidance range of 50,000 to 53,000 ounces due mainly to the improved grade which was achieved in the Quarter for the reasons set out in Section 4.4 of the MD&A. Production guidance for 2020 is between 53,000 and 56,000 ounces. This is forward looking information as defined by National Instrument 51-102. Refer to section 18 of this MD&A for further information on forward looking statements.
Cost Guidance
The estimated on-mine cost for 2019 was in the range of $735 to $817 per ounce and the estimated AISC for 2019 was a range of $933 to $1,022 per ounce. The actual on-mine cost per ounce for the Year was $651 and actual AISC per ounce for the Year was $820 - lower than guidance. Costs are discussed further in section 4.6 but were generally better than guidance due to higher than expected production (particularly arising from improved grade), a lower electricity cost and continued close attention to controlling costs.
On-mine cost guidance for 2020 is in the range of $693 to $767 per ounce; guidance for AISC is $951 to $1,033 per ounce. The guidance for on-mine cost per ounce is higher than the on-mine cost per ounce in 2019 because costs in early 2019 benefitted from a one-time reduction in the cost of electricity as a result of the depreciation of the local currency. On mine costs in 2020 are also expected to be higher than in 2019 due to higher maintenance costs for the underground fleet of trackless equipment which is used in the declines.
The guidance for AISC per ounce in 2020 is higher than AISC per ounce in 2019 – the increase is largely due to the projected increase in on-mine costs and the removal of the gold support price as discussed in section 4.9
This is forward looking information as defined by National Instrument 51-102. Refer to section 18 of this MD&A for further information on forward looking statements.
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Earnings Guidance
Guidance for adjusted earnings per share for 2019 was in the range of 86 to 117 cents per share. This guidance was issued in the MD&A published on March 20, 2019 and reflected the Company’s production and cost guidance cost and assumed a gold price for the Year of $1,300 per ounce.
On January 30, 2020 the Company issued guidance for earnings per share for the Year on an IFRS basis of between 380 to 400 cents per share and for earnings per share adjusted to remove net realized and unrealized foreign exchange profits of 155 to 175 cents per share. Actual earnings per share for the Year on an IFRS basis were 382 cent per share and were towards the bottom end of the guidance range due to a revision in the calculation of the taxation charge, primarily relating to the appropriate exchange rate to apply in the calculation of the annual tax charge. Actual IFRS earnings per share adjusted to exclude foreign net realized and unrealised foreign exchange profits were 151 cents per share - slightly lower than the bottom end of the guidance range issued on January 30, 2021 due to the revision in the taxation charge noted above. Adjusted earnings per share for the Year excluding all foreign exchange gains and inter alia, deferred tax and the proceeds of the sale of Eersteling were 146 cents. The calculation of adjusted earnings per share is set out in section 10.3 of the MD&A.
Strategy
Caledonia’s strategic focus is on implementing the Central Shaft project at Blanket on schedule and within budget. Subject to the continued availability of foreign currency, Caledonia’s board and management believe the successful implementation of the Central Shaft remains in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and greater flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long-term future. Caledonia will also evaluate further investment opportunities in Zimbabwe that would not fall underneath Blanket’s ownership.
4.11 Sale of Eersteling
On May 31, 2018 the Group entered into an amended share sale agreement to sell the shares and claims of Eersteling, a South African subsidiary which was previously consolidated as part of the Group and was on care and maintenance since 1997. The amended share sale agreement allowed for a purchase price of $3 million to be settled by three payments of $1 million payable on the completion date, 12 and 18 months after the completion date. On January 31, 2019 all suspensive conditions for the sale were met, ZAR13.9 million ($1 million) was received as payment towards the purchase price and the Group transferred the registered and beneficial ownership of Eersteling to the purchaser.
The disposal of Eersteling gave rise to a profit of $5,409 in the first quarter of 2019, which comprises the fair value of the consideration (including the deferred consideration) of $1,953, a reversal of $2,109 of cumulative foreign currency translation reserves and net liabilities derecognised of $347.
As at December 31, 2019 there was a deferred consideration receivable $1,953 which is due in two tranches on January 31, 2020 and July 30, 2020.
5 EXPLORATION
Caledonia’s exploration activities are focussed on the growth and development of Blanket Mine.
There was no deep exploration drilling in the Quarter as all the available drilling sites had been drilled out in accordance with the annual budget. 9,824 meters were drilled in the Year compared to 18,551 meters in the previous year. Deep level exploration drilling will re-commence after the Central Shaft and the related development has been completed to provide access to new drilling positions.
As discussed in section 15 of this MD&A, in January 2020 Ms Janet Hobkirk joined Caledonia as Group Mineral Resource Manager. Ms Hobkirk will be responsible for driving Caledonia’s exploration activities both at Blanket and any new properties.
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| 6. | INVESTING |
An analysis of investment in the Quarter, the preceding quarters and the years 2017 and 2018 is set out below.
| ($’000’s) |
2017 Year |
2018 Year |
2019 Q1 |
2019 Q2 |
2019 Q3 |
2019 Q4 |
2019 Year |
| Total Investment | 20,949 | 19,915 | 5,209 | 4,208 | 5,636 | 5,542 | 20,595 |
| Blanket | 20,939 | 19,900 | 5,045 | 4,203 | 5,636 | 5,416 | 20,300 |
| Other | 10 | 15 | 164 | 5 | 0 | 126 | 295 |
Investment at Blanket is in terms of the investment plan that was announced in October 2014 and which is discussed in section 4.7 of this MD&A. Investment that takes place other than at Blanket largely comprises capital items that are purchased by Caledonia in South Africa which will be sold on to Blanket in due course. All further investment at Blanket is expected to be funded from Blanket’s internal cash flows and its Zimbabwean borrowing facilities.
| 7. | FINANCING |
Caledonia financed all its operations using funds on hand and those generated by its operations. No equity financing took place in the Quarter or the Year. The Company currently has no plans to raise equity. The Company has no debt other than loan facilities which are held by Blanket and which were as set out below as at December 31, 2019:
| Blanket Debt facilities | |||||
| Lender | Date drawn | Principal value | Balance drawn at December 31, 2019 | Repayment terms | Security |
| Term Facilities | |||||
| Stanbic Bank Zimbabwe Limited | December 2018 | RTGS$ 6 million | RTGS$ 6 million | Single bullet in December 2021 | Unsecured |
| First Capital Bank Limited | October 2019 | RTGS$ 35 million | RTGS$ 35 million | 4 equal quarterly installments commencing December 2020 | Unsecured |
| Overdraft facilities | |||||
| Stanbic Bank Zimbabwe Limited | August 2019 | RTGS15 million | Nil | On demand | Unsecured |
| First Capital Bank Limited | October 2019 | RTGS$10 million |
RTGS$ 8.2 million |
On demand | Unsecured |
Due to the continued devaluation of the RTGS$, loan facilities denominated in RTGS$ have substantially reduced in US Dollar terms which has eroded Blanket’s working capital. Blanket continues efforts to maintain its RTGS$ denominated borrowing facilities
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| 8. | LIQUIDITY AND CAPITAL RESOURCES |
An analysis of Caledonia’s capital resources as at December 31, 2019 and at the end of each of the preceding 5 quarters is set out below.
Liquidity and Capital Resources ($’000’s) | |||||||||||||||||||
| As at | Sept 30 2018 | Dec 31 2018 | Mar 31 2019 | June 30 2019 | Sept 30 2019 | Dec 31 2019 | |||||||||||||
| Overdraft | 3,931 | - | - | - | - | 490 | |||||||||||||
| Term facility | 374 | 5,960 | 1,987 | 912 | 424 | 2,471 | |||||||||||||
| Cash and cash equivalents in the statement of cashflows (net of overdraft) | 5,896 | 11,187 | 9,742 | 7,875 | 8,026 | 8,893 | |||||||||||||
| Working capital | 10,151 | 15,970 | 14,498 | 16,447 | 17,614 | 20,489 | |||||||||||||
Movements in Caledonia’s net cash, the overdraft and working capital and an analysis of the sources and uses of Caledonia’s cash are discussed in section 3 of this MD&A. The overdraft and term facilities are held by Blanket with Zimbabwean banks with security and repayment periods as detailed in section 7. The Company’s liquid assets as at December 31, 2019 plus anticipated cashflows exceed its planned and foreseeable commitments as set out in section 9 of this MD&A.
| 9. | OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL COMMITMENTS AND CONTINGENCIES |
There are no off-balance sheet arrangements apart from the facilitation loans of $30.97 million which are not reflected as loans receivable for IFRS purposes (refer to note 6 of the Consolidated Financial Statements). The Company had the following contractual obligations at December 31, 2019:
Payments due by Period ($’000’s) | |||||||||||||||||||
| Falling due | Within 1 year | 1-3 Years | 4-5 Years | After 5 Years | Total | ||||||||||||||
| Trade and other payables | 8,697 | - | - | - | 8,697 | ||||||||||||||
| Term loan | 529 | 1,942 | - | - | 2,471 | ||||||||||||||
| Provisions | 124 | 708 | 144 | 2,370 | 3,346 | ||||||||||||||
| Capital expenditure commitments | 371 | - | - | - | 371 | ||||||||||||||
| Total | 9,721 | 2,650 | 144 | 2,370 | 14,885 | ||||||||||||||
The capital expenditure commitments relate primarily to materials and equipment which have been ordered by Caledonia in South Africa to equip the Central Shaft. In addition to the committed purchase obligations set out above, Blanket currently intends to invest approximately $21.1 million between January 2020 and December 2020 which is not yet committed and a further $23 million in the years 2021 and 2022, which is also uncommitted. The committed and uncommitted investment will be used to maintain Blanket’s existing operations and implement the Central Shaft which is discussed in section 4.7 of this MD&A. Committed and uncommitted purchase obligations are expected to be met from the cash generated from Blanket’s existing operations and Blanket’s existing borrowing facilities. The Group leases property for its administrative offices in Jersey, Johannesburg; following the implementation of IFRS 16 the Group recognises the liabilities for these leases. As of December 31, 2019, Caledonia had potential liabilities for rehabilitation work on Blanket – if and when the mine is permanently closed – at an estimated discounted cost of $3.3 million.
| 10. | NON-IFRS MEASURES |
Throughout this document, we have provided measures prepared in accordance with IFRS in addition to some non-IFRS performance measures for investors who use them to evaluate our performance. Since there is no standard method for calculating non-IFRS measures, they are not a reliable way to compare Caledonia against other companies. Non-IFRS measures should be used along with other performance measures prepared in accordance with IFRS. We have defined below the non-IFRS measures we have used in this document and provide a reconciliation of such non-IFRS measures to the IFRS measures we report.
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10.1 Cost per ounce
Non-IFRS performance measures such as “on-mine cost per ounce”, “all-in sustaining cost per ounce” and “all-in cost per ounce” are used in this document. Management believes these measures assist investors and other stakeholders in understanding the economics of gold mining over the life-cycle of a mine. These measures are calculated on the basis set out by the World Gold Council in a Guidance Note published on June 23, 2013 and accordingly differ from the previous basis of calculation. The table below reconciles “on-mine cost per ounce”, “all-in sustaining cost per ounce” and “all-in cost per ounce” to the production costs shown in the financial statements which have been prepared under IFRS.
Reconciliation of IFRS Production Cost to Non-IFRS Costs per ounce ($’000’s unless otherwise indicated) |
|||||
|
|
3 Months to December 31 |
12 Months to December 31 | |||
| 2018 | 2019 | 2018 | 2019 | ||
| Production cost (IFRS) | 10,060 | 9,650 | 39,315 | 36,400 | |
| Cash-settled share-based expense | (43) | (34) | (43) | (107) | |
| Less exploration and site restoration costs | (255) | (234) | (1,003) | (826) | |
| Other cost and intercompany adjustments | 222 | 304 | (395) | 212 | |
| On-mine production cost | 9,984 | 9,686 | 37,874 | 35,679 | |
| Gold sales (oz) | 14,510 | 16,053 | 54,899 | 54,801 | |
| On-mine costs per ounce ($/oz) | 688 | 603 | 690 | 651 | |
| Royalty | 877 | 1,172 | 3,426 | 3,854 | |
| ECI and gold support price | (1,830) | - | (6,482) | (1,930) | |
| Exploration, remediation and permitting cost | 63 | 108 | 305 | 416 | |
| Sustaining capital expenditure | 459 | 93 | 2,154 | 565 | |
| Administrative expenses | 1,840 | 1,686 | 6,465 | 5,637 | |
| Silver by-product credit | (14) | (20) | (61) | (64) | |
| Share-based payment expense | (151) | 210 | 315 | 689 | |
| Share-based payment expense included in production cost | - | - | 43 | 107 | |
| All in sustaining cost | 11,228 | 12,935 | 44,039 | 44,953 | |
| Gold sales (oz) | 14,510 | 16,053 | 54,899 | 54,801 | |
| All-in sustaining costs per ounce ($/oz) | 774 | 806 | 802 | 820 | |
| All-in sustaining cost per ounce excluding ECI and gold support price ($/oz) | 900 | 806 | 920 | 856 | |
| Permitting and exploration expenses | - | 31 | 132 | 132 | |
| Non-sustaining capital expenditure | 3,387 | 5,452 | 17,760 | 20,030 | |
| Total all in cost | 14,615 | 18,418 | 61,931 | 65,115 | |
| Gold sales (oz) | 14,510 | 16,053 | 54,899 | 54,801 | |
| All-in costs per ounce ($/oz) | 1,007 | 1,147 | 1,128 | 1,188 | |
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10.2 Average realised gold price per ounce
“Average realised gold price per ounce” is a non-IFRS measure which, in conjunction with the cost per ounce measures described above, allows stakeholders to assess our performance. The table below reconciles “Average realised gold price per ounce” to the Revenue shown in the financial statements which have been prepared under IFRS.
Reconciliation of Average Realised Gold Price per Ounce ($’000’s unless otherwise indicated) | ||||
3 Months to December 31 |
12 Months to December 31 | |||
| 2018 | 2019 | 2018 | 2019 | |
| Revenue (IFRS) | 17,495 | 23,433 | 68,399 | 75,826 |
| Revenues from sales of silver | (14) | (20) | (61) | (64) |
| Revenues from sales of gold | 17,481 | 23,413 | 68,338 | 75,762 |
| Gold ounces sold (oz) | 14,510 | 16,053 | 54,899 | 54,801 |
| Average realised gold price per ounce (US$/oz) | 1,205 | 1,458 | 1,245 | 1,382 |
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10.3 Adjusted earnings per share
“Adjusted earnings per share” is a non-IFRS measure which management believes assists investors in understanding the Company’s underlying performance. The table below reconciles “adjusted earnings per share” to the Profit/Loss attributable to owners of the Company shown in the financial statements which have been prepared under IFRS.
Reconciliation of Adjusted Earnings per Share (“Adjusted EPS”) to IFRS Profit Attributable to Owners of the Company ($’000’s unless otherwise indicated) | ||||
3 Months to December 31 |
12 Months to December 31 | |||
| *2018 | 2019 | *2018 | 2019 | |
| Profit for the period (IFRS) | 3,586 | 3,230 | 13,756 | 50,401 |
| Non-controlling interest share of profit for the period | (802) | (840) | (2,990) | (8,383) |
| Profit attributable to owners of the Company | 2,784 | 2,390 | 10,766 | 42,018 |
| Blanket Mine Employee Trust adjustment | (120) | (55) | (280) | (986) |
| Earnings (IFRS) | 2,664 | 2,335 | 10,486 | 41,032 |
| Weighted average shares in issue* | 10,603 | 10,742 | 10,603 | 10,742 |
| IFRS EPS (cents) | 25 | 22 | 99 | 382 |
| Add back/(deduct) amounts in respect of foreign exchange gains and losses: | ||||
| Realised net foreign exchange (gains)/losses | 45 | (846) | 5 | 1,648 |
| - less tax | (12) | 228 | (1) | (414) |
| - less non controlling interest | (5) | 108 | (1) | (198) |
| Unrealised net foreign exchange gains | (382) | (546) | (230) | (31,309) |
| - less tax | 94 | 9 | 55 | 519 |
| - less non controlling interest | 33 | 98 | 16 | 5,000 |
| Adjusted IFRS profit excl. foreign exchange | 2,437 | 1,386 | 10,330 | 16,278 |
| Weighted average shares in issue* | 10,603 | 10,742 | 10,603 | 10,742 |
| Adjusted IFRS EPS excl foreign exchange (cents) | 23 | 13 | 97 | 152 |
| Add back/(deduct) amounts in respect of: | ||||
| Reversal of Blanket Mine Employee Trust adjustment | 120 | 55 | 280 | 986 |
| Deferred tax | 83 | 4,716 | 3,607 | 2,460 |
| Deferred tax net of non controlling interest | (21) | (768) | (601) | (477) |
| Hedge loss | - | 277 | 360 | 601 |
| Equity-settled share-based expense | 14 | - | 14 | - |
| Profit on sale of subsidiary | - | (4,409) | - | (4,409) |
| Adjusted profit | 2,633 | 1,257 | 13,990 | 15,439 |
| Weighted average shares in issue (m)* | 10,603 | 10,742 | 10,603 | 10,742 |
| Adjusted EPS (cents) | 25 | 12 | 132 | 144 |
| *Restated period and numbers for the reversal of realised foreign exchange and the reversal of Blanket Mine Employee Trust adjustment. | ||||
| 11. | RELATED PARTY TRANSACTIONS |
There were no related party transactions in the Quarter or for the Year.
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| 12. | CRITICAL ACCOUNTING ESTIMATES |
Caledonia's accounting policies are set out in the Consolidated Financial Statements which have been publicly filed on SEDAR at www.sedar.com. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the amounts represented in the Consolidated Financial Statements and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Discussion of recently issued accounting pronouncements is set out in note 4 of the Consolidated Financial Statements.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the Consolidated Financial Statements is included in the following notes:
i) Indigenisation transaction
The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”), a wholly owned subsidiary of the Company, performed an assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), and concluded that CHZ should continue to consolidate Blanket and accounted for the transaction as follows:
| · | Non-controlling interests (“NCI”) are recognised on the portion of shareholding upon which dividends declared by Blanket accrue unconditionally to equity holders as follows: |
| (a) | 20% of the 16% shareholding of National Indigenisation and Economic Empowerment Fund (“NIEEF”); |
| (b) | 20% of the 15% shareholding of Fremiro; and |
| (c) | 100% of the 10% shareholding of GCSOT. |
| · | This effectively means that NCI is recognised at Blanket at 16.2% of its net assets. |
| · | The remaining 80% of the shareholding of NIEEF and Fremiro is recognised as non-controlling interests to the extent that their attributable share of the net asset value of Blanket exceeds the balance on the facilitation loans including interest. At December 31, 2019 the attributable net asset value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognised. |
The transaction with Blanket Employee Trust Services (Private) Limited (“BETS”) is accounted for in accordance with IAS 19 Employee Benefits (profit sharing arrangement) as the ownership of the shares does not ultimately pass to the employees. The employees are entitled to participate in 20% of the dividends accruing to the 10% shareholding in Blanket if they are employed at the date of such distribution. To the extent that 80% of the attributable dividends exceed the balance on BETS’ facilitation loan they will accrue to the employees at the date of such declaration.
The Employee Trust and BETS are structured entities which are effectively controlled and consolidated by Blanket. Accordingly, the shares held by BETS are effectively treated as treasury shares in Blanket and no NCI is recognised.
ii) Site restoration provisions
The site restoration provision has been calculated for the Blanket Mine based on an independent analysis of the rehabilitation costs as performed in 2018. Estimates and assumptions are made when determining the inflationary effect on current restoration costs and the discount rate to be applied in arriving at the present value of the provision. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation costs which will reflect the market condition at the time the rehabilitation costs are incurred. The final cost of the currently recognized site rehabilitation provisions may be higher or lower than currently provided for.
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| iii) | Exploration and evaluation (“E&E”) expenditure |
The Group makes estimates and assumptions regarding the possible impairment of E&E properties by evaluating whether it is likely that future economic benefits will flow to the Group, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available. The recoverability of the carrying amounts of exploration and evaluation assets depends upon the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.
iv) Income taxes
Significant estimates and assumptions are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Caledonia records its best estimate of the tax liability including any related interest and penalties in the current tax provision. In addition, Caledonia applies judgement in recognizing deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized or sufficient estimated taxable income against which the losses can be utilized.
v) Share-based payment transactions
The fair value of the amount payable to employees in respect of share-based awards, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period over which the employee becomes unconditionally entitled to payment. The liability is re-measured at each reporting date. Any changes in the fair value of the liability are recognised as a personnel expense in profit or loss. Additional information about significant judgements and estimates and the assumptions used to estimate fair value for cash settled share-based payment transactions are disclosed in note 26 to the Consolidated Financial Statements.
vi) Impairment
At each reporting date, Caledonia determines if impairment indicators exist and, if present, performs an impairment review of the non-financial assets held in Caledonia. The exercise is subject to various judgemental decisions and estimates. Financial assets are also reviewed regularly for impairment.
| vii) | Depreciation |
Depreciation on mine development, infrastructure and other assets in the production phase is computed on the units-of-production method over the life-of-mine based on the estimated quantities of reserves (proven and probable) and resources (measured, indicated and inferred), which are planned to be extracted in the future from known mineral deposits. Where items have a shorter useful life than the life-of-mine, the mine development, infrastructure and other assets are depreciated over their useful life. Confidence in the existence, commercial viability and economical recovery of reserves and resources included in the life-of-mine may be based on historical experience and available geological information. This is in addition to the drilling results obtained by the Group and management’s knowledge of the geological setting of the surrounding areas, which would enable simulations and extrapolations to be done with a sufficient degree of accuracy. In instances where management is able to demonstrate the economic recovery of resources with a high level of confidence, such additional resources, are included in the calculation of depreciation.
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| viii) | Mineral reserves and resources |
Mineral reserves and resources are estimates of the amount of product that can be economically and legally extracted. In order to calculate the reserves and resources, estimates and assumptions are required about a range of geological, technical and economic factors, including but not limited to quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity prices and exchange rates. Estimating the quantity and grade of mineral reserves and resources requires the size, shape and depth of orebodies to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and difficult geological assumptions and calculations to interpret the data. Estimates of mineral reserves and resources may change due to the change in economic assumptions used to estimate mineral reserves and resources and due to additional geological data becoming available during the course of operations.
The Group estimates its reserves (proven and probable) and resources (measured, indicated and inferred) based on information compiled by a Qualified Person in terms of the Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) relating to geological and technical data of the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires geological and engineering assumptions to interpret the data. These assumptions include:
| · | correlation between drill-holes intersections where multiple reefs are intersected; |
| · | continuity of mineralisation between drill-hole intersections within recognised reefs; and |
| · | appropriateness of the planned mining methods. |
The Group estimates and reports reserves and resources in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards for Mineral Resources and Mineral Reserves. Complying with the CIM code, NI 43-101 requires the use of reasonable assumptions to calculate the recoverable resources. These assumptions include:
| · | the gold price based on current market price and the Group’s assessment of future prices; |
| · | estimated future on-mine costs, sustaining and non-sustaining capital expenditures; |
| · | cut-off grade; |
| · | dimensions and extent, determined both from drilling and mine development, of ore bodies; and |
| · | planned future production from measured, indicated and inferred resources. |
Changes in reported reserves and resources may affect the Group’s financial results and position in a number of ways, including the following:
| · | asset carrying values may be affected due to changes in the estimated cash flows; |
| · | depreciation and amortisation charges to profit or loss may change as these are calculated on the unit-of-production method or where useful lives of an asset change; and |
| · | decommissioning, site restoration and environmental provisions may change in ore reserves and resources which may affect expectations about the timing or cost of these activities. |
| 13. | FINANCIAL INSTRUMENTS |
| i) | Commodity risk |
Caledonia is exposed to fluctuations in the price of gold because Blanket produces and sells gold doré and receives the prevailing spot price for the gold contained therein. In January 2019 Caledonia entered into hedging arrangements for the 5 months from February 2019 until June 2019 for 22,500 ounces of production through the purchase of put options with a strike price of $1,250 per ounce. The hedge ensured that Caledonia received a minimum price of $1,250 per ounce of gold for the duration of the contracts whilst maintaining full upside participation. During the Quarter, Caledonia entered into hedging arrangements over 4,600 ounces of gold per month for the period from January 1, 2020 to June 30, 2020 which guarantees that Caledonia will receive a minimum price of $1,400 in respect of the ounces hedged. Caledonia retains full exposure if the gold price exceeds $1,400 per ounce. Caledonia will continue to assess the requirement for further hedging in the context of, inter alia, the prevailing gold price and Blanket’s production and capital expenditure programme.
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| ii) | Credit risk |
The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure. The trade receivable relates to gold bullion sold before the end of the Quarter, VAT receivables and deferred consideration due in respect of the sale of Eersteling. The amount due in respect of bullion sales was settled in January 2019. Certain of the VAT receivables were outside the agreed terms of such refunds as at December 31, 2019 such amounts have since been recovered by way of cash receipts or offset against other amounts of tax payable.
| iii) | Impairment losses |
None of the trade and other receivables is past due at the period-end date other than certain of the VAT receivables which have subsequently been recovered in full.
| iv) | Liquidity risk |
All trade payables and the bank overdraft have maturity dates that are expected to mature in under 6 months. The term loans are repayable as set out in section 7.
| v) | Currency risk |
A proportion of Caledonia’s assets, financial instruments and transactions are denominated in currencies other than the US Dollar. The financial results and financial position of Caledonia are reported in US Dollars in the Consolidated Financial Statements.
The fluctuation of the US Dollar in relation to other currencies will consequently have an impact upon the profitability of Caledonia and may also affect the value of Caledonia’s assets and liabilities and the amount of shareholders’ equity.
Caledonia does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, where possible Caledonia maintains cash and cash equivalents in the currencies used by Caledonia to meet short-term liquidity requirements.
As discussed in section 4.9 of this MD&A, the RTGS$ is subject to variations in the exchange rate against the US Dollar. This may result in Blanket’s assets, liabilities and transactions that are denominated in RTGS$ being subject to further fluctuations in the exchange rate between RTGS$ and US Dollars.
| vi) | Interest rate risk |
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Unless otherwise noted, it is the opinion of management that Caledonia is not exposed to significant interest rate risk as it has limited debt financing. Caledonia’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Caledonia manages its interest rate risk by endeavouring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. Caledonia’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions.
| 14. | DIVIDEND POLICY |
Following the share consolidation on June 26, 2017, the Company announced on July 4, 2017 an increased quarterly dividend of 6.875 United States cents which has been paid at the end of July, October, January and April thereafter. The dividend of 6.875 US cents per share effectively maintained the dividend at the previous level of 1.375 United States cents per share, after adjusting for the effect of the consolidation.
On January 3, 2020 the Company announced a 9.1% increase from the previous quarterly dividend of 6.875 cents to 7.5 cents per share. The increased dividend was due to the Company’s improved financial performance due to increased production in the Quarter and improved prospects for the company as it approaches the completion of the Central Shaft.
The Board will consider future increases in the dividend as appropriate in line with its prudent approach to risk management.
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| 15. | MANAGEMENT AND BOARD |
On September 23, 2019 the Company announced that Nick Clarke had joined the board of directors of the Company as an independent non-executive director with immediate effect. Mr Clarke, who is Chairman of Central Asia Metals PLC, is a highly experienced Chartered Engineer with 45 years’ experience in the mining industry. He has held senior positions in several resource companies and is well known as a successful executive in the sector having been involved in the construction of major mining projects and conducted several fund raisings on AIM and TSX. He has an extensive background in managing AIM and TSX listed minerals companies including his current position as Chairman of Central Asia Metals PLC, where he was CEO from 2009 until 2016.
In January 2020 Janet Hobkirk joined the Company as Group Mineral Resource Manager. Ms Hobkirk is a qualified geologist with broad operational experience across the mining value chain from resource delineation to metal accounting. She holds a BSc (Hons) in Geology and Engineering Geology from the University of Natal. Prior to joining Caledonia Janet worked for Harmony Gold Mining Company and Anglo American Platinum. Until 2017 Janet managed the 240-member mineral resource management team at the Amandelbult Complex which extracted 7 million tonnes per annum from a complex infrastructure of vertical and decline shafts and from small surface pits.
| 16. | SECURITIES OUTSTANDING |
As at March 18, 2020 Caledonia had 11,515,860 common shares issued and outstanding options to purchase common shares (“Options”) as follows:
Number of Options |
Exercise Price | Expiry Date |
| Canadian $ | ||
| 5,000 | 4.00 | Oct 8, 2020 |
| 18,000 | 11.50 | Oct 13, 2021 |
| 5,000 | 8.10 | May 30, 2022 |
| 10,000 | 9.305 | Aug 25, 2024 |
| 38,000 |
The Plan allows that the number of shares reserved for issuance to participants under the Plan, together with shares reserved for issue under any other share compensation arrangements of the Company, shall not exceed the number which represents 10% of the issued and outstanding shares from time to time. Accordingly, Caledonia could grant Options on a further 1,113,586 shares at March 18, 2020 on the assumption that all the LTIPs are settled in cash, at the option of the LTIP holder.
| 17. | RISK ANALYSIS |
The business of Caledonia contains significant risk due to the nature of mining, exploration and development activities. Risks such as interest rate, foreign exchange rates and credit risks are considered in notes 7 and 30 to the Consolidated Financial Statements. Caledonia’s business contains significant additional risks due to the jurisdictions in which it operates and the nature of mining, exploration and development. Included in the risk factors below are details of how management seeks to mitigate the risks where this is possible.
| · | Liquidity risk: The Company needs to generate capital to be able to continue to invest in properties and projects without raising further third-party financing in addition to the existing debt facilities at Blanket. Caledonia currently has sufficient cash resources and debt facilities and continues to generate sufficient cash to cover all of its anticipated investment needs. |
_______________________________
5 The exercise price of CAD$9.30 per share for these options was converted into a USD amount of $7.35 at the prevailing USD/CAD exchange rate.
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| · | Availability of foreign currency: The Company needs access to foreign currency in Zimbabwe so that it can pay for imported goods and equipment and remit funds to Group companies outside Zimbabwe. As discussed in section 4.9, at prevailing gold prices and the current rate of production the Company has access to sufficient foreign currency to continue normal mining operations, to fully implement the investment plan as scheduled and allow Caledonia to remit dividends and loan repayments from Zimbabwe. No assurance can be given that sufficient foreign currency will continue to be available. |
| · | Exploration risk: The Company needs to identify new resources to replace ore which has been depleted by mining activities and to commence new projects. No assurance can be given that exploration will be successful in identifying sufficient mineral resources of an adequate grade and suitable metallurgical characteristics that are suitable for further development or production. |
| · | Development risk: The Company is engaged in the implementation of the Central Shaft project as set out in section 4.7 of this MD&A. Construction and development of projects are subject to numerous risks including: obtaining equipment, permits and services; changes in regulations; currency rate changes; labour shortages; fluctuations in metal prices and the loss of community support. There can be no assurance that construction will commence or continue in accordance with the current expectations or at all. |
| · | Production estimates: Estimates for future production are based on mining plans and are subject to change. Production estimates are subject to risk and no assurance can be given that future production estimates will be achieved. Actual production may vary from estimated production for a variety of reasons including un-anticipated variations in grades, mined tonnages and geological conditions, accident and equipment breakdown, changes in metal prices and the cost and supply of inputs and changes to government regulations. |
| · | Mineral rights: The Company’s existing mining claims, licences and permits are in good standing. The Company has to pay fees etc. to maintain its claims and licences. No assurance can be given that the Company will be able to make payments by the required date or will meet development and production schedules that are required to protect claims and licences. |
| · | Metal prices: The Company’s operations and exploration and development projects are heavily influenced by the price of gold, which is particularly subject to fluctuation. Caledonia has hedging arrangements over 4,600 ounces of gold per month for the period from January 1, 2020 to June 30, 2020 which guarantees that Caledonia will receive a minimum price of $1,400 in respect of the ounces hedged. Management regularly reviews future cash flow forecasts in the context of the prevailing gold price and likely downside scenarios for future gold prices. |
| · | Increasing input costs: Mining companies generally have experienced higher costs of steel, reagents, labour and electricity and from local and national government for levies, fees, royalties and other direct and indirect taxes. Blanket’s planned growth should allow the fixed cost component to be absorbed over increased production, thereby helping to alleviate somewhat the effect of any further price increases. |
| · | Illegal mining: There has been an increase in illegal mining activities on properties controlled by Blanket. This gives rise to increased security costs and an increased risk of theft and damage to equipment. Blanket has received adequate support and assistance from the Zimbabwean police in investigating such cases. |
| · | Electricity supply: Zimbabwe produces and imports less electricity than it requires and has insufficient funds to adequately maintain or upgrade its distribution infrastructure. This has resulted in frequent interruptions to the power supply at Blanket Mine. Blanket has addressed the issue of interrupted power supply by installing stand-by generators and entering into an arrangement with the state-owned electricity company to receive ring-fenced imported power in return for paying a US Dollar denominated tariff. More recently, production at Blanket has been adversely affected by the instability of the incoming electricity supply. Management is assessing the potential to install a solar project to provide some of Blanket’s power requirements. |
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| · | Water supply: Blanket uses water in the metallurgical process, most of which is obtained from a nearby dam. Blanket is situated in a semi-arid area and rainfall typically occurs only in the period November to February. The last rainy season was very poor and water levels in the dam are lower than usual. The water authority has released water from an upstream dam to replenish the Blanket dam and management believes that with careful management, there is enough water in the Blanket dam to maintain normal operations until the next rainy season. Blanket is taking steps to access water from boreholes and to reduce its water consumption by improved re-cycling and storage facilities. |
| · | Succession planning: The limited availability of mining and other technical skills and experience in Zimbabwe and the difficulty of attracting appropriately skilled employees to Zimbabwe creates a risk that appropriate skills may not be available if, for whatever reason, the current skills base at the Blanket Mine is depleted. The Caledonia and Blanket management teams have recently been augmented so that, if required, it could provide appropriate support to Blanket if this was required. |
| · | Country risk: The commercial environment in which the Company operates is unpredictable. Potential risks may arise from: unforeseen changes in the legal and regulatory framework which means that laws may change, may not be enforced, or judgements may not be upheld; restrictions on the movement of currency and the availability of foreign currency to make payments from Zimbabwe; risks relating to inflationary pressures as mentioned in section 4.9; risks relating to possible corruption, bribery, civil disorder, expropriation or nationalisation; risks relating to restrictions on access to assets and the risk that the Government of Zimbabwe is unable to pay its liabilities to Blanket. Management believes that it has minimised such risks by complying fully with all relevant legislation, by obtaining all relevant regulatory permissions and approvals and by regular and proactive engagement with the relevant authorities. |
| · | Gold marketing arrangements: In terms of regulations introduced by the Zimbabwean Ministry of Finance in January 2014, all gold produced in Zimbabwe must be sold to Fidelity, a company which is controlled by the Zimbabwean authorities. Accordingly, all of Blanket’s production has been sold to Fidelity. Blanket has received all payments due from Fidelity in full and on time. However, the requirement to sell to Fidelity increases Blanket’s credit risk because Fidelity failed to pay Blanket in the period of hyper-inflation which existed prior to the adoption of the multi-currency system by Zimbabwe in early 2009. |
| · | Coronavirus: Reported cases of the virus in the jurisdictions in which we operate are currently very low or nil. However, should the virus have a significant impact in those jurisdictions where we operate or jurisdictions from which the business sources goods or services, the Group could suffer from employee absences, a lack of supplies and consumables, failure by its contractors to perform and travel restrictions which may affect production. The business has taken steps to increase its holdings of consumable stocks and to mitigate its supply-chain risk; the Group will continue to monitor any further developments. |
| 18. | FORWARD LOOKING STATEMENTS |
Information and statements contained in this MD&A that are not historical facts are “forward-looking information” within the meaning of applicable securities legislation that involve risks and uncertainties relating, but not limited to, Caledonia’s current expectations, intentions, plans, and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “target”, “intend”, “estimate”, “could”, “should”, “may” and “will” or the negative of these terms or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Examples of forward-looking information in this MD&A include: implementation schedules for, and other uncertainties inherent in, the Central Shaft project; production guidance; estimates of future/targeted production rates; planned mill capacity increases; estimates of future metallurgical recovery rates and the ability to maintain high metallurgical recovery rates; timing of commencement of operations; plans and timing regarding further exploration, drilling and development; the prospective nature of exploration and development targets; the ability to upgrade and convert mineral resources to mineral reserves; capital and operating costs; our intentions with respect to financial position and third party financing; and future dividend payments. This forward-looking information is based, in part, on assumptions and factors that may change or prove to be incorrect, thus causing actual results, performance or achievements to be materially different from those expressed or implied by forward-looking information. Such factors and assumptions include, but are not limited to: failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, success of future exploration and drilling programs, reliability of drilling, sampling and assay data, assumptions regarding the representativeness of mineralization being inaccurate, success of planned metallurgical test-work, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, changes in government regulations, legislation and rates of taxation, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors.
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Security holders, potential security holders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Such factors include, but are not limited to: risks relating to estimates of mineral reserves and mineral resources proving to be inaccurate, fluctuations in gold price and payment terms for gold sold to Fidelity, risks and hazards associated with the business of mineral exploration, development and mining (including environmental hazards, industrial accidents, unusual or unexpected geological or structural formations, pressures, power outages, fire, explosions, landslides, cave-ins and flooding), risks relating to the credit worthiness or financial condition of suppliers, refiners and other parties with whom the Company does business, inadequate insurance, or inability to obtain insurance, to cover these risks and hazards, employee relations, relationships with and claims by local communities and indigenous populations, political risk, availability and increasing costs associated with mining inputs and labour, the speculative nature of mineral exploration and development, including the risks of obtaining or maintaining necessary licenses and permits, diminishing quantities or grades of mineral reserves as mining occurs, global financial condition, the actual results of current exploration activities, changes to conclusions of economic evaluations, and changes in project parameters to deal with un-anticipated economic or other factors, risks of increased capital and operating costs, environmental, safety or regulatory risks, expropriation, the Company’s title to properties including ownership thereof, increased competition in the mining industry for properties, equipment, qualified personnel and their costs, risks relating to the uncertainty of timing of events including targeted production rate increase and currency fluctuations. Security holders, potential security holders and prospective investors are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. Caledonia reviews forward-looking information for the purposes of preparing each MD&A; however, Caledonia undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.
| 19. | CONTROLS |
The Company has established and maintains disclosure controls and procedures (“DC&P”) designed to provide reasonable assurance that material information relating to the Company is made known to the Chief Executive Officer and the Chief Financial Officer by others, particularly during the period in which annual filings are being prepared, and that information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified by such securities legislation.
The Company’s management, along with the participation of the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Company’s DC&P as of December 31, 2019. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as at December 31, 2019, the Company’s DC&P were effective.
The Company also maintains a system of internal controls over financial reporting (“ICFR”) designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS; however, due to inherent limitations, ICFR may not prevent or detect all misstatements and fraud. The board of directors approves the financial statements and ensures that management discharges its financial responsibilities. The Audit Committee, which is composed of independent directors, meets periodically with management and auditors to review financial reporting and control matters and reviews the financial statements and recommends them for approval to the board of directors.
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The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate ICFR and evaluating the effectiveness of the Company’s ICFR as at each fiscal year end. Management has used the 2013 Internal Control–Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO”) to evaluate the effectiveness of the Company’s ICFR as at December 31, 2019. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that as at December 31, 2019, the Company’s ICFR was effective.
There have been no changes in the Company’s ICFR during the period ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
| 20. | QUALIFIED PERSON |
Paul Matthews (BSc (Hons) Geology) is the Company’s qualified person as defined by Canada’s National Instrument 43-101. Mr. Matthews is responsible for the technical information provided in this MD&A except where otherwise stated. Mr. Matthews has reviewed the scientific and technical information included in this document and has approved the disclosure of this information for the purposes of this MD&A.
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