Caledonia Mining Corp Plc 6-K, filed Mar 22, 2021
Caledonia Mining Corp Plc (CMCL)
About this 6-K
Caledonia Mining Corp Plc filed this 6-K on March 22, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
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 2021
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
Exhibits 99.1 to 99.4 included with this report on Form 6-K are expressly incorporated by reference into this report and are hereby incorporated by reference as exhibits 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 PLC | |||
| (Registrant) | |||
| By: | /s/ Steve Curtis | ||
| Dated: March 22, 2021 |
Name: |
Steve Curtis | |
| Title: | CEO and Director | ||
| Exhibit | Description |
| 99.1 | Annual Financial Statements/Report |
| 99.2 | Annual MD&A |
Exhibit 99.1
Caledonia Mining Corporation Plc
| 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 (the “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 judgment. 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 are produced.
Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICOFR”). Any system of ICOFR, 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, 2020 management evaluated the effectiveness of the Group’s ICOFR and concluded that such ICOFR 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 fulfills 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 as at and for the year ended December 31, 2020, 2019 and 2018 have been audited by the Group’s independent auditor, BDO South Africa Incorporated. 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, 2020 were approved by the Board of Directors and signed on its behalf on March 22, 2021.
| (Signed) S. R. Curtis | (Signed) J.M. Learmonth |
| Chief Executive Officer | Chief Financial Officer |
| 1 |
| Caledonia Mining Corporation Plc |
INDEPENDENT AUDITOR’S REPORT
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, 2020, 2019 and January 1, 2019, and the consolidated statements of profit and loss and other comprehensive income, changes in equity and cash flows for the year ended December 31, 2020, 2019, 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 statement of financial position as at December 31, 2020, 2019 and 1 January 2019, and its consolidated financial performance and its consolidated cash flows for the year ended December 31, 2020, 2019 in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (“IASB”).
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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| KEY AUDIT MATTER | HOW THE KEY AUDIT MATTER WAS ADDRESSED IN THE AUDIT | |
|
Assessment of Life-of-Mine (LOM) Estimate
The calculation of the LOM is complex and involves specialised knowledge of the resource. The LOM is based on estimated available resources, as determined by geologists and surveyors.
|
In considering the appropriateness of management’s judgements and estimates used in the LOM, we performed the following audit procedures:
— We obtained an understanding of the of key controls around the assessment of the LOM; — We obtained from management available evidence that supported their key assumptions and assessed the reasonability/appropriateness of these assumptions. — We reviewed the LOM relating to geological and technical data of the size, depth, shape and grade of the ore body and recovery rates used in the model. — We performed sensitivity analysis on the key assumptions; — We tested the mathematical accuracy of the value in use calculation;
|
| 2 |
| Caledonia Mining Corporation Plc |
INDEPENDENT AUDITOR’S REPORT (continued)
| Independent Auditor’s Report (continued) | ||
|
Any changes to the reserves and resources will impact the LOM which would impact the financial information that relies on the LOM estimate such as the calculation of depreciation of property, plant and equipment as disclosed in note 3(a)(i) and (ii) as well as the discounting of the site restoration provision disclosed in note 28.
|
We reviewed the work of management’s experts and compared to methods and assumptions used by the expert to those used in the preceding period in order to ensure consistency.
As part of our audit, we also focused on the appropriateness and completeness of the group’s disclosures, that is required in terms of International Financial Reporting Standards.
| |
|
Completeness of the site restoration provision.
The Group’s site restoration obligations with a carrying value of $ 3.5 million (2019: $3.3 million) as disclosed in note 28, are material.
Significant judgement is required in determining the rehabilitation timing, underlying cost estimates for rehabilitation, inflation and discount rates and the scope of works required to rehabilitate the mine and surrounding areas in line with current legislation.
The site restoration provision calculation includes several inputs that management uses to assess the appropriateness of their estimates, including inflation rates, discount rates, timing and value of cash flows that support their calculation.
Based on the significance of the balance as well as the management judgements and estimates involved and the sensitivity of the balance for changes in the inputs, it was concluded to be a key audit matter.
|
In considering the appropriateness of management’s judgements and estimates used in the site restoration model, we performed the following audit procedures:
— We obtained an understanding of the of key controls around the assessment of the site restoration cost model; — We obtained from management available evidence that supported their key assumptions and assessed the reasonability/appropriateness of these assumptions; — We performed sensitivity analysis on the key assumptions; — We tested the mathematical accuracy of the model; and — We reviewed and challenged the basis for any significant revisions since the prior year and assessing the competence of the internal experts — We reviewed key assumptions in the site restoration models, challenging the appropriateness of estimates with reference to contingencies applied, inflation rates, weighted average cost of capital calculation and the consistency of long term discount rates.
We reviewed the work of management’s experts and compared to methods and assumptions used by the expert to those used in the preceding period in order to ensure consistency.
We engaged our own expert to independently review the rehabilitation provision estimate and the method, fairness and accuracy of management’s calculation.
As part of our audit, we also focused on the appropriateness and completeness of the group’s disclosures, that is required in terms of International Financial Reporting Standards
| |
| 3 |
| Caledonia Mining Corporation Plc |
Independent Auditor’s Report (continued)
Other Information
Management is responsible for the other information. The other information comprises:
| · | The information included: |
| o | The Management’s Discussion and Analysis report of the consolidated operating results and financial position of the Group for the quarter ended December 31, 2020. |
| o | 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 and the Annual Report – referred to as Form 20-F 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.
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 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. |
| 4 |
| Caledonia Mining Corporation Plc |
Independent Auditor’s Report (continued)
| · | 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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
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 22, 2021
| 5 |
| 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 | Note | 2020 | 2019 | 2018 | ||||||||||
| Revenue | 100,002 | 75,826 | 68,399 | |||||||||||
| Less: Royalty | (5,007 | ) | (3,854 | ) | (3,426 | ) | ||||||||
| Production costs | 9 | (43,711 | ) | (36,400 | ) | (39,315 | ) | |||||||
| Depreciation | 17 | (4,628 | ) | (4,434 | ) | (4,071 | ) | |||||||
| Gross profit | 46,656 | 31,138 | 21,587 | |||||||||||
| Other income | 10 | 4,765 | 2,274 | 7,101 | ||||||||||
| Other expenses | 13 | (5,315 | ) | (666 | ) | (336 | ) | |||||||
| Administrative expenses | 14 | (7,997 | ) | (5,637 | ) | (6,465 | ) | |||||||
| Cash-settled share-based expense | 30.1 | (1,413 | ) | (689 | ) | (315 | ) | |||||||
| Equity-settled share-based expense | 30.2 | – | – | (14 | ) | |||||||||
| Net foreign exchange gain | 11 | 4,305 | 29,661 | 223 | ||||||||||
| Profit on sale of subsidiary | 21.2 | – | 5,409 | – | ||||||||||
| Fair value losses on derivative assets | 23 | (266 | ) | (601 | ) | (360 | ) | |||||||
| Operating profit | 40,735 | 60,889 | 21,421 | |||||||||||
| Finance income | 15 | 62 | 146 | 53 | ||||||||||
| Finance cost | 15 | (367 | ) | (344 | ) | (273 | ) | |||||||
| Profit before tax | 40,430 | 60,691 | 21,201 | |||||||||||
| Tax expense | 16 | (15,173 | ) | (10,290 | ) | (7,445 | ) | |||||||
| Profit for the year | 25,257 | 50,401 | 13,756 | |||||||||||
| Other comprehensive income | ||||||||||||||
| Items that are or may be reclassified to profit or loss | ||||||||||||||
| Exchange differences on translation of foreign operations | (173 | ) | 49 | (676 | ) | |||||||||
| Reclassification of accumulated exchange differences on the sale of subsidiary | – | (2,109 | ) | – | ||||||||||
| Total comprehensive income for the year | 25,084 | 48,341 | 13,080 | |||||||||||
| Profit attributable to: | ||||||||||||||
| Owners of the Company | 20,780 | 42,018 | 10,766 | |||||||||||
| Non-controlling interests | 27 | 4,477 | 8,383 | 2,990 | ||||||||||
| Profit for the year | 25,257 | 50,401 | 13,756 | |||||||||||
| Total comprehensive income attributable to: | ||||||||||||||
| Owners of the Company | 20,607 | 39,958 | 10,090 | |||||||||||
| Non-controlling interests | 27 | 4,477 | 8,383 | 2,990 | ||||||||||
| Total comprehensive income for the year | 25,084 | 48,341 | 13,080 | |||||||||||
| Earnings per share | ||||||||||||||
| Basic earnings per share ($) | 26 | 1.73 | 3.82 | 0.99 | ||||||||||
| Diluted earnings per share ($) | 26 | 1.73 | 3.81 | 0.99 | ||||||||||
The accompanying notes on pages 8 to 68 are an integral part of these consolidated financial statements.
On behalf of the Board: “S.R. Curtis”- Chief Executive Officer and “J.M. Learmonth”- Chief Financial Officer.
| 6 |
| Caledonia Mining Corporation Plc |
Consolidated statements of financial position
(in thousands of United States Dollars, unless indicated otherwise)
| As at December 31 | Note | 2020 | 2019 * | January 1, 2019 * | ||||||||||
| Assets | ||||||||||||||
| Property, plant and equipment | 17 | 126,479 | 106,512 | 90,460 | ||||||||||
| Exploration and evaluation asset | 18 | 6,768 | 7,139 | 6,967 | ||||||||||
| Deferred tax asset | 16 | 87 | 63 | 98 | ||||||||||
| Total non-current assets | 133,334 | 113,714 | 97,525 | |||||||||||
| Inventories | 19 | 16,798 | 11,092 | 9,427 | ||||||||||
| Prepayments | 1,974 | 2,350 | 866 | |||||||||||
| Trade and other receivables | 22 | 4,962 | 6,912 | 6,392 | ||||||||||
| Income tax receivable | 16 | 76 | – | – | ||||||||||
| Derivative financial assets | 23 | 1,184 | 102 | – | ||||||||||
| Cash and cash equivalents | 20 | 19,092 | 9,383 | 11,187 | ||||||||||
| Assets held for sale | 21 | 500 | – | 296 | ||||||||||
| Total current assets | 44,586 | 29,839 | 28,168 | |||||||||||
| Total assets | 177,920 | 143,553 | 125,693 | |||||||||||
| Equity and liabilities | ||||||||||||||
| Share capital | 24 | 74,696 | 56,065 | 55,102 | ||||||||||
| Reserves | 25 | 138,310 | 140,730 | 142,790 | ||||||||||
| Retained loss | (71,487 | ) | (88,380 | ) | (127,429 | ) | ||||||||
| Equity attributable to shareholders | 141,519 | 108,415 | 70,463 | |||||||||||
| Non-controlling interests | 27 | 16,524 | 16,302 | 8,345 | ||||||||||
| Total equity | 158,043 | 124,717 | 78,808 | |||||||||||
| Liabilities | ||||||||||||||
| Provisions | 28 | 3,567 | 3,346 | 3,309 | ||||||||||
| Deferred tax liabilities | 16 | 4,234 | 3,129 | 23,328 | ||||||||||
| Loans and borrowings - long term portion | 29 | – | 1,942 | 5,960 | ||||||||||
| Cash-settled share-based payment - long term portion | 30.1 | 1,934 | 540 | 2,090 | ||||||||||
| Lease liabilities - long term portion | 12 | 178 | – | – | ||||||||||
| Total non-current liabilities | 9,913 | 8,957 | 34,687 | |||||||||||
| Loans and borrowings - short term portion | 29 | 408 | 529 | – | ||||||||||
| Cash-settled share-based payment - short term portion | 30.1 | 336 | – | – | ||||||||||
| Lease liabilities - short term portion | 12 | 61 | 349 | – | ||||||||||
| Income taxes payable | 16 | 495 | 163 | 1,538 | ||||||||||
| Trade and other payables | 31 | 8,664 | 8,348 | 10,051 | ||||||||||
| Overdraft | 20 | – | 490 | – | ||||||||||
| Liabilities associated with assets held for sale | 21 | – | – | 609 | ||||||||||
| Total current liabilities | 9,964 | 9,879 | 12,198 | |||||||||||
| Total liabilities | 19,877 | 18,836 | 46,885 | |||||||||||
| Total equity and liabilities | 177,920 | 143,553 | 125,693 | |||||||||||
The accompanying notes on pages 8 to 68 are an integral part of these consolidated financial statements.
| * | The Group voluntarily changed its disclosure policy for exploration and evaluation assets to be disclosed separately as Exploration and evaluation assets rather than as part of Property, plant and equipment; similarly lease liabilities were classified separately from trade and other payables (refer to note 4(b)(i) and 4(b)(ii)). The new disclosure policies were adopted from December, 2020 and have been applied retrospectively. |
| 7 |
| Caledonia Mining Corporation Plc |
Consolidated statements of changes in equity
(in thousands of United States Dollars, unless indicated otherwise)
| Note | Share capital | Foreign currency translation reserve | Contributed surplus | Equity-settled share-based payment reserve | Retained loss | Total | Non-controlling interests (NCI) | Total equity | ||||||||||||||||||||||||||
| Balance January 1, 2018 | 55,102 | (5,885 | ) | 132,591 | 16,746 | (135,287 | ) | 63,267 | 5,944 | 69,211 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Dividends declared | 34 | - | - | - | - | (2,908 | ) | (2,908 | ) | (589 | ) | (3,497 | ) | |||||||||||||||||||||
| Equity-settled share-based payment | 30.2 | - | - | - | 14 | - | 14 | - | 14 | |||||||||||||||||||||||||
| 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 December 31, 2018 | 55,102 | (6,561 | ) | 132,591 | 16,760 | (127,429 | ) | 70,463 | 8,345 | 78,808 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Dividends declared | 34 | - | - | - | - | (2,969 | ) | (2,969 | ) | (426 | ) | (3,395 | ) | |||||||||||||||||||||
| Shares issued - share-based payment | 30.1 | 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 31, 2019 | 56,065 | (8,621 | ) | 132,591 | 16,760 | (88,380 | ) | 108,415 | 16,302 | 124,717 | ||||||||||||||||||||||||
| Transactions with owners: | ||||||||||||||||||||||||||||||||||
| Dividends declared | 34 | - | - | - | - | (3,887 | ) | (3,887 | ) | (655 | ) | (4,542 | ) | |||||||||||||||||||||
| Shares issued: | ||||||||||||||||||||||||||||||||||
| - share-based payment | 30.1 | 216 | - | - | - | - | 216 | - | 216 | |||||||||||||||||||||||||
| - options exercised | 24 | 30 | - | - | - | - | 30 | - | 30 | |||||||||||||||||||||||||
| - equity raise (net of transaction cost)~ | 24 | 12,538 | - | - | - | - | 12,538 | - | 12,538 | |||||||||||||||||||||||||
| - Blanket shares purchased from Fremiro | 6 | 5,847 | - | - | (2,247 | ) | - | 3,600 | (3,600 | ) | - | |||||||||||||||||||||||
| Total comprehensive income: | ||||||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | 20,780 | 20,780 | 4,477 | 25,257 | ||||||||||||||||||||||||||
| Other comprehensive income for the year | - | (173 | ) | - | - | - | (173 | ) | - | (173 | ) | |||||||||||||||||||||||
| Balance at December 31, 2020 | 74,696 | (8,794 | ) | 132,591 | 14,513 | (71,487 | ) | 141,519 | 16,524 | 158,043 | ||||||||||||||||||||||||
| 24 | 25 | 25 | 25 | 27 |
The accompanying notes on pages 8 to 68 are an integral part of these consolidated financial statements.
~ The Company raised equity for the construction of the solar plant by way of an At The Market (“ATM”) equity offer on the NYSE American. Gross proceeds of $13,000 were raised pursuant to the ATM sales agreement with Cantor Fitzgerald & Co. at a transaction cost of $462.
| 8 |
| 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 | 2020 | 2019 * | 2018* | |||||||||||
| Cash generated from operations | 32 | 37,967 | 23,885 | 21,119 | ||||||||||
| Interest received | 56 | 146 | 53 | |||||||||||
| Interest paid | (405 | ) | (454 | ) | (161 | ) | ||||||||
| Tax paid | 16 | (6,656 | ) | (5,517 | ) | (3,344 | ) | |||||||
| Net cash from operating activities | 30,962 | 18,060 | 17,667 | |||||||||||
| Cash flows used in investing activities | ||||||||||||||
| Acquisition of property, plant and equipment | (25,081 | ) | (19,852 | ) | (20,192 | ) | ||||||||
| Acquisition of exploration and evaluation assets | (2,759 | ) | (172 | ) | – | |||||||||
| Purchase of derivative financial asset | (1,058 | ) | – | – | ||||||||||
| Proceeds from disposal of subsidiary | 21.2 | 900 | 1,000 | – | ||||||||||
| Net cash used in investing activities | (27,998 | ) | (19,024 | ) | (20,192 | ) | ||||||||
| Cash flows from financing activities | ||||||||||||||
| Dividends paid | (4,542 | ) | (3,395 | ) | (3,497 | ) | ||||||||
| Term loan proceeds | 29 | – | 2,340 | 6,000 | ||||||||||
| Term loan transaction costs | 29 | – | (46 | ) | (60 | ) | ||||||||
| Term loan repayments | 29 | (574 | ) | – | (1,500 | ) | ||||||||
| Payment of lease liabilities | 12 | (118 | ) | (124 | ) | – | ||||||||
| Shares issued - equity raise (net of transaction cost) | 24 | 12,538 | – | – | ||||||||||
| Share options exercised | 30 | – | – | |||||||||||
| Net cash from/ (used in) financing activities | 7,334 | (1,225 | ) | 943 | ||||||||||
| Net increase/ (decrease) in cash and cash equivalents | 10,298 | (2,189 | ) | (1,582 | ) | |||||||||
| Effect of exchange rate fluctuations on cash held | (99 | ) | (105 | ) | 13 | |||||||||
| Net cash and cash equivalents at the beginning of the year | 8,893 | 11,187 | 12,756 | |||||||||||
| Net cash and cash equivalents at the end of the year | 20 | 19,092 | 8,893 | 11,187 | ||||||||||
The accompanying notes on pages 8 to 68 are an integral part of these consolidated financial statements.
| * | The Group voluntarily changed its disclosure policy for exploration and evaluation assets to be disclosed separately as Acquisition of exploration and evaluation assets rather than as part of Acquisition of property, plant and equipment (refer to note 4(b)(i)). The new disclosure policy was adopted from December 10, 2020 and has been applied retrospectively. |
| 9 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (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 Company’s registered office address 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, 2020, 2019 and January 1, 2019, 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, 2020, 2019 and 2018, notes, significant accounting policies and other explanatory information. The Group’s primary involvement is 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”). Depository interests in Caledonia’s shares are admitted to trading on AIM of the London Stock Exchange plc (symbol - “CMCL”). Caledonia voluntary delisted from the Toronto Stock Exchange (the “TSX”) on June 19, 2020. After the delisting the Company remains a Canadian reporting issuer and has to comply with Canadian securities laws unless and until it can demonstrate that less than 2% of its beneficial shareholders are Canadian residents.
| 2 | Basis of 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 22, 2021.
| 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; |
| · | equity-settled share-based payment arrangements measured at fair value on the grant date; and |
| · | derivative financial instruments measured at fair value. |
| iii) | Functional currency |
These consolidated financixal statements are presented in United States Dollars (“$” or “US Dollar” or “USD”), which is also the functional currency of the Company. All financial information presented in United States Dollars has been rounded to the nearest thousand, unless indicated otherwise. Refer to note 11 for changes to the Zimbabwean real-time gross settlement, bond notes or bond coins (“RTGS$”) and its effect on the statement of profit or loss and other comprehensive income.
| 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.
| 10 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (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(g)(iii).
| 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, 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. |
| 11 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (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) |
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 several ways, including the following:
| · | asset carrying values may be affected due to changes in the estimated cash flows (i.e. Impairment); |
| · | 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.
| 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 for estimating 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 28).
| 12 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| 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, which 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 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.
Management believes they have adequately provided for the probable outcome of tax related matters; however, the final outcome or future outcomes anticipated in calculating the tax liabilities may result in a materially different outcome than the amount included in the tax liabilities. In addition, The Group further makes assumptions and estimates when recognising deferred tax assets relating to tax losses carried forward to the extent that there are sufficient future 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 future 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 30.2) 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 30.2.
| 13 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 3 | Use of accounting assumptions, estimates and judgements (continued) |
| (a) | Assumptions and estimation uncertainties (continued) |
| vii) | Share-based payment transactions (continued) |
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 the 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. 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 regarding share-based awards that 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 30.1.
| 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 uses 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 the Group controls an entity 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 RTGS$.
| 14 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 4 | Change in significant accounting policies and disclosure policies |
| (a) | Change in significant accounting policies required by IFRS |
The following standards and interpretations apply for the first time to the financial reporting periods commencing on or after January 1, 2020. These changes were adopted from January 1, 2020 and do not have a material effect on the Group’s financial statements.
| i) | IAS 1 Presentation of Financial Statements & IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors |
The amendment clarifies the definition of material and makes it easier to understand. The change 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.
The definition of material omissions or misstatements from IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors has been removed.
The Group has completed its assessment of the impact of IAS 1 and 8 and concluded that the new standards did not have a material impact on the consolidated financial statements.
| ii) | Revised Conceptual Framework for Financial Reporting |
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, includes:
| · | new concepts on measurement including factors to be considered when selecting the measurement basis; |
| · | new concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income; |
| · | new guidance on when assets and liabilities are removed from financial statements; |
| · | updated definitions of an asset and liability; |
| · | 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 did not have a material impact on the consolidated financial statements.
| (b) | Voluntary change of disclosure policies |
| i) | Exploration and evaluation assets to be disclosed separately from Property, plant and equipment |
Previously exploration and evaluation assets were disclosed as part of Property, plant and equipment. Under the new disclosure policy exploration and evaluation assets are disclosed separately as Exploration and evaluation assets from the earliest period presented.
The new disclosure policy was adopted from December 10, 2020 and has been applied retrospectively. Management purchased two new mining options during 2020 and the change in disclosure policy provides more detail on the new and existing Exploration and evaluation assets. Management implemented the change in disclosure policy to provide increased transparency on exploration and evaluation assets in line with management’s focus to purchase and explore mining assets.
| 15 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 4 | Change in significant accounting policies and disclosure policies (continued) |
| (b) | Voluntary change of disclosure policies (continued) |
| i) | Exploration and evaluation assets to be disclosed separately from Property, plant and equipment (continued) |
The voluntary change in disclosure policy resulted in the cost of property, plant and equipment presented in the consolidated statements of financial position reducing with an amount of $6,768 (2019: $7,139, January 1, 2019: $6,967). Further, the Acquisition of property, plant and equipment line item in the consolidated statements of cash flow decreased by an amount of $2,759 (2019: $172, January 1, 2019: $Nil), while the Acquisition of exploration and evaluation assets line item increased with the same amount. The consolidated statement of changes in equity and consolidated statements of profit or loss and other comprehensive income was not affected by the change.
| ii) | Leases to be disclosed separately from Trade and other payables |
Previously lease liabilities were disclosed as part of Trade and other payables. Under the new disclosure policy lease liabilities are disclosed separately as Lease liabilities – long term portion and Lease liabilities – short term portion from the earliest period presented.
The new disclosure policy was adopted from December, 2020 and has been applied retrospectively. Management implemented the change in disclosure policy to provide more detail on the maturity of lease contracts and to better assess the effect that leases have on the financial position, financial performance and cash flows of the lessee.
The voluntary change in disclosure policy resulted in Trade and other payables presented in the consolidated statements of financial position reducing by an amount of $239 (2019: $349, January 1, 2019: $Nil) compared with the disclosure with the old policy in effect. Lease liabilities are presented separately in the statement of financial position as current and non-current Lease liabilities. The consolidated statement of changes in equity, statements of profit or loss and other comprehensive income and consolidated statements of cash flow were not affected by the change.
| 5 | Significant accounting policies |
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. For changes in accounting policies in the current year refer to notes 4(a) and 4(b).
| (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.
| 16 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (a) | Basis of consolidation (continued) |
| 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 is 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
| 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 year 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, the 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, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (b) | Foreign currency (continued) |
| 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.
On 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 81.79 RTGS$ (2019: 16.77 RTGS$, 2018: 1 RTGS$) to 1 US Dollar as at December 31, 2020.
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 RBZ increased the Foreign currency allocation with effect from May 26, 2020 from 55% to 70% and decreased the Foreign currency allocation with effect from January 8, 2021 from 70% to 60% with the remainder received as RTGS$. The allocation percentages remained in effect up to the date of approval of these financial statements. Further, the Company participated in the Foreign currency auction introduced by the Zimbabwean Government to exchange RTGS$ for US Dollars during 2021 and obtained allotments from the Reserve Bank.
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 Dollars; |
| · | the gold price receivable was calculated in US Dollars; |
| · | the majority of costs are calculated by reference to the US Dollar if denominated in RTGS$ or is paid in US Dollars; and |
| · | Income tax liabilities calculated in RTGS$ are settled predominantly in US Dollars. |
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 asset such as cash held in RTGS$.
| 18 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (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 property, plant and equipment. Also, 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 lease agreement changes in substance in terms of 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 the right of use assets that do not meet the definition of investment property as property, plant and equipment. Lease liabilities are presented separately in the statement of financial position as current- and non-current Lease liabilities.
The Group has elected not to recognise the 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, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (d) | Financial instruments |
| i) | Non-derivative financial assets |
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.
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 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. 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. Finance 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.
The Group had the following non-derivative financial assets:
Financial assets at amortised cost
Financial assets at amortised cost comprise loans and receivables included in Trade and other receivables. Loans and receivables are financial assets with fixed or determinable payments that were not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Refer to note 5(j)(i) for the impairment of receivables. Bad debts were written off during the year in which they were identified. Finance income was recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
| 20 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (d) | Financial instruments (continued) |
| 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 and invest excess short term Rands on hand at the South African subsidiary.
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.
| iv) | Offsetting |
Financial assets and liabilities are offset and the net amount is 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.
| (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 in 2019 were repayable on demand and form an integral part of the Group’s cash management process. The 2019 bank overdraft was 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.
| 21 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (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. Refer to note 5(j)(ii) for the impairment of non-financial assets.
| ii) | 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.
| iii) | 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. |
| 22 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (g) | Property, plant and equipment (continued) |
| iii) | Depreciation (continued) |
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 17 for the evaluation of the pay limit.
Land is not depreciated.
The calculation of the production rate units 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.
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. |
The estimated useful lives for the current and comparative years are as follows:
| · | buildings 10 to 15 years (2019: 10 to 15 years; 2018: 10 to 15 years); |
| · | plant and equipment 10 years (2019: 10 years; 2018: 10 years); |
| · | fixtures and fittings including computers 4 to 10 years (2019: 4 to 10 years; 2018: 4 to 10 years); |
| · | motor vehicles 4 years (2019: 4 years; 2018: 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. Assets under construction’s useful life and residual values will be assessed once the asset is available for use.
| (h) | Exploration and evaluation assets |
Exploration costs are capitalised as incurred. The costs related to speculative drilling on unestablished orebodies at Blanket Mine, general administrative or overhead costs are expensed as incurred. Exploration and evaluation costs capitalised are disclosed under Exploration and evaluation assets (refer to note 4(b)(i) for the voluntary change in disclosure policy). Direct expenditures include such costs as materials used, surveying costs, drilling costs, payments made to contractors, direct administrative costs and depreciation on property, 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 they occur.
| 23 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (h) | Exploration and evaluation assets (continued) |
Once the technical feasibility and commercial viability of extracting the mineral resource have 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.
Exploration and evaluations assets are not depreciated.
| (i) | 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. It 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.
| (j) | 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 individually 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.
| 24 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (j) | Impairment (continued) |
| ii) | Non-financial assets (continued) |
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate 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 years 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.
| iii) | Impairment of Exploration and evaluation (“E&E”) assets |
The test for impairment of E&E assets 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. |
| (k) | 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.
| 25 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (k) | Employee benefits (continued) |
| 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.
| (l) | 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 assumptions used to quantify the equity-settled share-based payment transactions and modification are disclosed in note 30.2.
| 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 30.1.
| (m) | 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
a finance cost.
| 26 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (n) | 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.
| (o) | Revenue |
Revenue from the sale of precious metals is recognised when the metal is accepted at the refinery, control is transferred and the receipt of proceeds is substantially assured. Revenue is measured at the fair value of the receivable at the date of the transaction.
| (p) | 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.
| (q) | Finance income and finance cost |
Finance income comprises interest income on funds invested. Finance income is recognised as it accrues in profit or loss, using the effective interest method. Finance cost comprise interest expense on the rehabilitation provisions, interest on bank overdraft balances, effective interest on leases, loans and borrowings and also includes commitment costs on overdraft facilities. Finance cost is recognised in profit or loss using the effective interest rate method and excludes borrowing costs capitalised.
| (r) | 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.
| 27 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (r) | Taxes (continued) |
| 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.
| (s) | 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 26) 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.
| (t) | 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 cost.
| (u) | 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.
| 28 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (v) | 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 |
The amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting. Clarification is also given when it refers to the “settlement” of a liability.
The amendments could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity. They must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The Group has completed its assessment of the impact of IAS 1 and concluded that the standard amendments would not have a material impact on the consolidated financial statements.
|
January 1, 2023 |
| IAS 16 |
The amendment to IAS 16 Property, Plant and Equipment (“PPE”) prohibits an entity from deducting from the cost of an item of PPE any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment.
The amounts of proceeds and costs relating to items produced that are not an output of the entity’s ordinary activities must be disclosed separately.
The Group has completed its assessment of the impact of IAS 16 and concluded that the standard amendment would not have a material impact on the consolidated financial statements.
|
January 1, 2022 |
| 29 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 5 | Significant accounting policies (continued) |
| (v) | The following standards, amendments to standards and interpretations to existing standards may possibly have an impact on the Group: (continued) |
| Standard/ Interpretation | Effective date and expected adoption date* | |
| IAS 37 |
Amendments to IAS 37 Provision, Contingent Liabilities and Contingent Assets clarifies the Onerous contracts – Cost of Fulfilling a Contract. The amendments specify which costs an entity includes in determining the cost of fulfilling a contract to assess whether the contract is onerous.
The amendments apply to contracts existing at the date when the amendments are first applied. At the initial application date, the cumulative effect of applying the amendments is recognised as an opening balance adjustment to retained earnings or other components of equity, as appropriate.
The Group has completed its assessment of the impact of IAS 37 and concluded that the standard amendments would not have a material impact on the consolidated financial statements.
|
January 1, 2022 |
| Annual Improvements to IFRS Standards 2018–2020 |
The following improvements were finalised in May 2020:
· IFRS 9 Financial Instruments – clarifies which fees should be included in the 10% test for derecognition of financial liabilities. · IFRS 16 Leases – amendment of illustrative example 13 to remove the illustration of payments from the lessor relating to leasehold improvements, to remove any confusion about the treatment of lease incentives. · IFRS 1 First-time Adoption of International Financial Reporting Standards – allows entities that have measured their assets and liabilities at carrying amounts recorded in their parent’s books also to measure any cumulative translation differences using the amounts reported by the parent. This amendment will also apply to associates and joint ventures that have taken the same IFRS 1 exemption.
The Group has completed its assessment of the impact of the above standards and concluded that the standard amendments would not have a material impact on the consolidated financial statements.
|
January 1, 2022 |
* Annual periods ending on or after.
| 30 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 6 | Blanket Zimbabwe 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 (also referred to herein as “Blanket” or “Blanket Mine” as the context requires) 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 loan repayments depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. The Group related facilitation loans were transferred as dividends in specie intra-group and now the loans and most of the interest thereon is payable to the Company.
Accounting treatment
The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”), a wholly-owned subsidiary of the Company, performed a reassessment using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10). It was concluded that CHZ should continue to consolidate Blanket Mine after the indigenisation. The subscription agreements with the indigenous shareholders have been accounted for accordingly 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 was initially recognised at 16.2% of the net assets of Blanket Mine, until the completion of the transaction with Fremiro, whereby the NCI reduced to 13.2% (see below). |
| 31 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 6 | Blanket Zimbabwe Indigenisation Transaction (continued) |
Accounting treatment (continued)
The subscription agreements, concluded on February 20, 2012, were accounted for as follows: (continued)
| • | The remaining 80% of the shareholding of NIEEF and Fremiro was 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, 2020 the attributable net asset value did not exceed the balance on the respective loan account 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 exceeds the balance on the BETS facilitation loan, they will accrue to the employees at the date of such declaration. |
| • | BETS is an entity 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. |
Fremiro purchase agreement
On November 5, 2018 the Company and Fremiro entered into a sale agreement for Caledonia to purchase Fremiro’s 15% shareholding in Blanket Mine. On January 20, 2020 all substantive conditions to the transaction were satisfied. The Company issued 727,266 shares to Fremiro for the cancellation of their facilitation loan and purchase of Fremiro’s 15% shareholding in Blanket Mine. The transaction was accounted for as a repurchase of a previously vested equity instrument. As a result, the Fremiro share of the NCI of $3,600 was derecognised, shares were issued at fair value, the share-based payment reserve was reduced by $2,247 and the Company’s shareholding in Blanket Mine increased to 64% on the effective date.
Blanket Mine’s indigenisation shareholding percentages and facilitation loan balances
| Effective interest & | NCI subject to | Balance of facilitation loan # | ||||||||||||||||||
| USD | Shareholding | NCI recognised | facilitation loan | December 31, 2020 | December 31, 2019 | |||||||||||||||
| NIEEF | 16 | % | 3.20 | % | 12.80 | % | 11,728 | 11,877 | ||||||||||||
| Fremiro | -& | -& | -& | -& | 11,458 | |||||||||||||||
| Community Trust | 10 | % | 10.00 | % | – | – | – | |||||||||||||
| BETS ~ | 10 | % | – | – | 7,447 | 7,639 | ||||||||||||||
| 36 | % | 13.20 | % | 12.80 | % | 19,175 | 30,974 | |||||||||||||
* The shares held by BETS are effectively treated as treasury shares (see above).
~ Accounted for under IAS19 Employee Benefits.
& After Fremiro repurchase on January 20, 2020.
# Facilitation loans are accounted for as equity instruments and are accordingly not recognised as loans receivable.
| 32 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 6 | Blanket Zimbabwe Indigenisation Transaction (continued) |
Blanket Mine’s indigenisation shareholding percentages and facilitation loan balances (continued)
The balance on the facilitation loans is reconciled as follows:
| Balance at January 1, 2019 | 30,986 | |||
| Finance cost accrued | 1,609 | |||
| Dividends used to repay loans | (1,621 | ) | ||
| Balance at December 31, 2019 | 30,974 | |||
| Cancellation of Fremiro loan | (11,458 | ) | ||
| Finance cost accrued | 1,396 | |||
| Dividends used to repay loan | (1,737 | ) | ||
| Balance at December 31, 2020 | 19,175 |
Advance dividend loans and balances
In anticipation of completing the underlying subscription agreements, Blanket Mine agreed to advance dividend arrangements with NIEEF and the Community Trust. Advances made to the Community Trust against their right to receive dividends declared by Blanket Mine on their shareholding are 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. |
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 owned by the Community Trust. Advances made to NIEEF as an advanced dividend loan before 2013 have been settled through Blanket Mine dividend repayments in 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 receivables, because repayment is by way of uncertain future dividends.
Amendments to advanced dividend loan agreements
Advance dividend loan modification - Community Trust
On February 27, 2020, the Group, Blanket Mine and the indigenous shareholders of Blanket Mine reached an agreement to change the repayment terms of the advance dividend loan to the Community Trust. The amendment allowed that 20% of the Community Trust share of the Blanket dividend accrues on declaration of the dividend and that the remaining 80% be applied to the advance dividend loan from February 27, 2020. The modification was not considered beneficial to the indigenous shareholders.
| 33 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 6 | Blanket Zimbabwe Indigenisation Transaction (continued) |
Amendments to advanced dividend loan agreements (continued)
The movement in the advance dividend loan to the Community Trust is reconciled as follows:
| Total | ||||
| Balance at January 1, 2019 | 2,053 | |||
| Finance cost accrued | 104 | |||
| Dividends used to repay advance dividend loan | (525 | ) | ||
| Balance at December 31, 2019 | 1,632 | |||
| Finance cost accrued | 98 | |||
| Dividends used to repay advance dividend loan | (736 | ) | ||
| Balance at December 31, 2020 | 994 | |||
| 7 | Financial risk management |
Overview
The Group has exposure to the following risks from its use of financial instruments:
| · | Credit risk (refer note 33) |
| · | Liquidity risk (refer note 33) |
| · | Currency risk (refer note 33) |
| · | Interest rate risk (refer note 33) |
This note and note 33 present 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 the 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 the 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 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.
| 34 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 7 | Financial risk management (continued) |
Overview (continued)
The types of risk exposure and the way in which such exposures are managed are described below:
| (a) | 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.
| (b) | Liquidity risk |
Liquidity risk is the risk that will not enable the Group to meet its financial obligations as they fall due. The Group manages its liquidity risk by ensuring sufficient cash availability 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 reviewing and approving of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.
| (c) | 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. The Group aims to maintain cash and cash equivalents in US Dollars to manage foreign exchange exposure as well as investing in a Gold ETF to avoid fluctuations in South African Rand (refer to note 23) where cash spend is held in anticipation of South African Rand based expenses.
| (d) | 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.
| 35 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 8 | Capital management |
When managing capital, the Group’s objectives 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.
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Total equity | 158,043 | 124,717 | 78,808 | |||||||||
The Group’s primary objective regarding its capital management is to ensure that it has sufficient cash resources to maintain its on-going operations, provide returns for shareholders, accommodate any rehabilitation provisions and pursue growth opportunities. As at December 31, 2020, 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 |
| 2020 | 2019 | 2018 | ||||||||||
| Salaries and wages | 16,122 | 13,905 | 13,160 | |||||||||
| Consumable materials – Operations | 14,938 | 13,020 | 12,143 | |||||||||
| Consumable materials – COVID-19 | 824 | – | – | |||||||||
| Electricity costs | 8,312 | 6,383 | 9,313 | |||||||||
| Site restoration | – | – | 84 | |||||||||
| Safety | 708 | 525 | 592 | |||||||||
| Cash-settled share-based expense (note 30.1(a)) | 634 | 107 | 43 | |||||||||
| On mine administration | 1,800 | 2,159 | 3,569 | |||||||||
| Pre-feasibility exploration costs | 373 | 301 | 411 | |||||||||
| 43,711 | 36,400 | 39,315 | ||||||||||
| 10 | Other income |
| 2020 | 2019 | 2018 | ||||||||||
| Government grant – Gold sale export credit incentive | 4,695 | 866 | 6,482 | |||||||||
| Government grant – Gold support price | - | 1,064 | - | |||||||||
| Other | 70 | 94 | 39 | |||||||||
| Greenstone Retirement Fund pay-out | - | 250 | - | |||||||||
| Greenstone Provident Fund pay-out | - | - | 363 | |||||||||
| Eersteling rock dump sale | - | - | 217 | |||||||||
| 4,765 | 2,274 | 7,101 | ||||||||||
Government grant – Gold sale export credit incentive
The Reserve Bank of Zimbabwe (“RBZ”) first announced an export credit incentive (“ECI”) on the gold proceeds received for all large-scale gold mine producers during 2016. The ECI is calculated as a percentage of the gold proceeds less the charges of Fidelity.
| 36 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 10 | Other income (continued) |
Government grant – Gold sale credit export incentive (continued)
The below table indicates when the ECI was applicable and the percentages granted, as announced by the Zimbabwean Government:
| ECI applicable periods | Percentage |
| May 1, 2016 – December 31, 2017 | 3.5% |
| January 1, 2018 – January 31, 2018 | 2.5% |
| February 1, 2018 – February 20, 2019 | 10% |
| February 21, 2019 – March 9, 2020 | 0% |
| March 10, 2020 – June 26, 2020 | 25% |
All incentives granted by the Zimbabwean Government were included in other income when determined receivable. Incentives were received in Blanket Mine’s RTGS$ account. The ECI fell away after June 26, 2020.
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 received since the LBMA gold price subsequently increased above $1,368.58 per ounce.
| 11 | Net foreign exchange gain |
On October 1, 2018 the RBZ issued a directive to Zimbabwean banks to separate foreign currency from RTGS$ in 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 81.79 RTGS$ to 1 US Dollar as at December 31, 2020 (2019: 16.77 RTG$, 2018: 1 RTG$). 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 about 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.
| 37 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 11 | Net foreign exchange gain (continued) |
The table below illustrates the effect the weakening of the RTGS$ and other foreign currencies had on the statement of profit or loss and other comprehensive income.
| 2020 | 2019 | 2018 | ||||||||||
| Unrealised foreign exchange gain | 8,367 | 31,411 | 230 | |||||||||
| Realised foreign exchange loss | (4,062 | ) | (1,750 | ) | (7 | ) | ||||||
| Net foreign exchange gain | 4,305 | 29,661 | 223 | |||||||||
| 12 | Leases |
Leases as lessee
The Group leases administrative offices. The leases, which the Group normally enters into, typically run for a period of 3 to 6 years, with an option to renew the lease after that date. The two leases for the administrative offices expire in 2021 and 2025 respectively.
Information about leases for which the Group is a lessee is presented below.
| i) | Amounts recognised in the statement of financial position |
Right of use assets
Right of use assets related to leased properties that do not meet the definition of investment property are presented as part of property, plant and equipment (refer note 17).
| Balance at January 1, 2019 | 263 | |||
| Depreciation | (112 | ) | ||
| Additions to right of use assets | 248 | |||
| Derecognition of right of use assets | (64 | ) | ||
| Foreign currency movement | 2 | |||
| Balance at December 31, 2019 | 337 | |||
| Depreciation | (99 | ) | ||
| Foreign currency movement | (9 | ) | ||
| Balance at December 31, 2020 | 229 |
Lease liabilities
| Balance at January 1, 2019 | 263 | |||
| Additions to lease liability | 195 | |||
| Finance cost | 17 | |||
| Lease payments | (124 | ) | ||
| Foreign currency movement | (2 | ) | ||
| Balance at December 31, 2019 | 349 | |||
| Finance cost | 15 | |||
| Lease payments | (118 | ) | ||
| Foreign currency movement | (7 | ) | ||
| Balance at December 31, 2020 | 239 |
| 38 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 12 | Leases (continued) |
| ii) | Amounts recognised in profit or loss |
| 2020 | 2019 | 2018 | ||||||||||
| Finance cost on lease liabilities | 15 | 17 | – | |||||||||
| Unrealised foreign exchange gain | (2 | ) | 4 | – | ||||||||
| Depreciation | 99 | 112 | – | |||||||||
| 112 | 133 | – | ||||||||||
| iii) | Amounts recognised in statement of cash flows |
| 2020 | 2019 | 2018 | ||||||||||
| Total cash outflow for leases - principal | 118 | 124 | – | |||||||||
| Total cash outflow for leases - finance cost | (15 | ) | (17 | ) | – | |||||||
| iv) | Minimum lease payments |
Minimum lease payments payable on leases of right of use assets are as follows:
| 2020 | ||||
| Less than one year | 61 | |||
| One to two years | 46 | |||
| Two to three years | 46 | |||
| Three to four years | 46 | |||
| Four to five years | 40 | |||
| More than five years | – | |||
| 239 | ||||
| 13 | Other expenses |
| 2020 | 2019 | 2018 | ||||||||||
| Intermediated Money Transaction Tax | 451 | 354 | 116 | |||||||||
| Solar evaluation cost* | 230 | 160 | – | |||||||||
| COVID-19 donations ~ | 1,322 | – | – | |||||||||
| Community and social responsibility cost | 382 | – | – | |||||||||
| Other | – | 8 | 12 | |||||||||
| Impairment of property, plant and equipment | – | 144 | 208 | |||||||||
| Impairment of exploration and evaluation assets (note 21.1) | 2,930 | – | – | |||||||||
| 5,315 | 666 | 336 | ||||||||||
* On July 6, 2020 the Board appointed Voltalia as the contractor for engineering, procuring and constructing a solar plant to be owned by a subsidiary of the Company. All solar costs that were incurred before July 6, 2020 were accounted for as other expenses and accounted through profit or loss. Solar costs incurred after approval by the Board are accounted for as property, plant and equipment (refer to note 17) as it became clear and probable that future economic benefits will flow to the project.
~ Blanket Mine donated $840 towards the Zimbabwean Ministry of Mines and Development and $482 towards a clinic in Gwanda, in helping to curb the spread of COVID-19 and the impacts thereof.
| 39 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 14 | Administrative expenses |
| 2020 | 2019 | 2018 | ||||||||||
| Investor relations | 353 | 414 | 751 | |||||||||
| Audit fee | 288 | 237 | 266 | |||||||||
| Advisory services fees | 904 | 408 | 553 | |||||||||
| Listing fees | 448 | 277 | 495 | |||||||||
| Directors fees – Company | 323 | 240 | 225 | |||||||||
| Directors fees – Blanket | 43 | 31 | 52 | |||||||||
| Employee costs | 4,065 | 3,030 | 2,917 | |||||||||
| Other office administration cost | 424 | 605 | 645 | |||||||||
| Management liability insurance | 1,032 | 86 | 52 | |||||||||
| Travel costs | 117 | 292 | 297 | |||||||||
| Eersteling Gold Mine administration costs | – | 17 | 212 | |||||||||
| 7,997 | 5,637 | 6,465 | ||||||||||
| 15 | Finance income and finance cost |
| 2020 | 2019 | 2018 | ||||||||||
| Finance income received - Bank | 62 | 146 | 53 | |||||||||
| Finance cost - Term loan (note 29) | 386 | 165 | 92 | |||||||||
| Finance cost - Capitalised to property, plant and equipment (note 17) | (53 | ) | (165 | ) | (92 | ) | ||||||
| Unwinding of rehabilitation provision (note 28) | 2 | 20 | 20 | |||||||||
| Finance cost - Leases (note 12) | 15 | 17 | – | |||||||||
| Finance cost - Overdraft | 17 | 307 | 253 | |||||||||
| 367 | 344 | 273 | ||||||||||
| 40 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 16 | Tax expense |
| 2020 | 2019 | 2018 | ||||||||||
| Tax recognised in profit or loss | ||||||||||||
| Current tax | 9,492 | 7,311 | 3,783 | |||||||||
| Income tax - current year | 8,969 | 6,802 | 2,523 | |||||||||
| Income tax - prior year (over)/ under provision | (54 | ) | 29 | 1,075 | ||||||||
| Withholding tax - current year | 577 | 480 | 580 | |||||||||
| Withholding tax - prior year overprovision | - | - | (395 | ) | ||||||||
| Deferred tax expense | 5,681 | 2,979 | 3,662 | |||||||||
| Origination and reversal of temporary differences | 5,681 | 2,979 | 3,662 | |||||||||
| Tax expense – recognised in profit or loss | 15,173 | 10,290 | 7,445 | |||||||||
| Tax recognised in other comprehensive income | ||||||||||||
| Income tax - current year | - | - | - | |||||||||
| Tax expense | 15,173 | 10,290 | 7,445 | |||||||||
Unrecognised deferred tax assets
| 2020 | 2019 | 2018 | ||||||||||
| Eersteling Gold Mining Company Limited | - | - | 4,989 | |||||||||
| Caledonia Holdings Zimbabwe (Private) Limited | 593 | 421 | - | |||||||||
| Greenstone Management Services Holdings Limited | 376 | 276 | 191 | |||||||||
| Tax losses carried forward | 969 | 697 | 5,180 | |||||||||
Taxable losses do not expire for the entities incurring taxable losses within the Group, unless the entities cease trading. Tax losses carried forward relate to Greenstone Management Services Holdings Limited (UK) and Caledonia Holdings Zimbabwe (Private) Limited. 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 | 2020 | 2019 | January 1, 2019 | |||||||||
| Net income tax payable at January 1 | (163 | ) | (1,538 | ) | (1,145 | ) | ||||||
| Current tax expense | (9,492 | ) | (7,311 | ) | (3,783 | ) | ||||||
| Foreign currency movement | 2,580 | 3,169 | 46 | |||||||||
| Tax paid | 6,656 | 5,517 | 3,344 | |||||||||
| Net income tax payable at December 31 | (419 | ) | (163 | ) | (1,538 | ) | ||||||
| 41 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 16 | Tax expense (continued) |
| Reconciliation of tax rate | 2020 | 2019 | 2018 | |||||||||
| Profit for the year | 25,257 | 50,401 | 13,756 | |||||||||
| Total tax expense | 15,173 | 10,290 | 7,445 | |||||||||
| Profit before tax | 40,430 | 60,691 | 21,201 | |||||||||
| Income tax at Company's domestic tax rate (1) | - | - | - | |||||||||
| Tax rate differences in foreign jurisdictions (2) | 12,405 | 16,232 | 6,465 | |||||||||
| Effect of income tax calculated in RTGS$ as required by PN26 (3) | 2,004 | (8,526 | ) | - | ||||||||
| Management fee – withholding tax on deemed dividend portion | 209 | 224 | 337 | |||||||||
| Management fee – non-deductible deemed dividend | 570 | 652 | 579 | |||||||||
| Management fee – withholding tax - current year | 123 | 129 | 96 | |||||||||
| Management fee – non-deductible withholding tax - prior year | - | - | (664 | ) | ||||||||
| Withholding tax on intercompany dividends | 245 | 128 | 110 | |||||||||
| Non-deductible expenditure | ||||||||||||
| - Royalty expenses (4) | - | 933 | 882 | |||||||||
| - Donations | 107 | 18 | 14 | |||||||||
| - Other non-deductible expenditure | 177 | 21 | 123 | |||||||||
| Credit export incentive income exemption | (598 | ) | (124 | ) | (1,649 | ) | ||||||
| Change in income tax rate (5) | (287 | ) | - | - | ||||||||
| Change in tax estimates | ||||||||||||
| - Zimbabwean income tax | - | 29 | 795 | |||||||||
| - South African income tax | (54 | ) | 63 | 220 | ||||||||
| - Other | - | - | 61 | |||||||||
| Change in unrecognised deferred tax losses | 272 | 511 | 76 | |||||||||
| Tax expense - recognised in profit or loss | 15,173 | 10,290 | 7,445 | |||||||||
| (1) | The tax rate in Jersey, Channel Islands is 0% (2019: 0%, 2018: 0%). |
| (2) | The effective tax rate of 37.52% exceeds the statutory tax rates of subsidiaries of the Company, as certain expenditures are incurred by the Company that is not tax-deductible against taxable income in Zimbabwe and South Africa, where the enacted tax rates are 25.75% and 28.00% respectively. Further, Zimbabwean legislation requires the Blanket income taxation calculation to be performed in RTGS$ whereas the functional currency in which the profit before tax is calculated in these consolidated financial statements is in US Dollar; the requirement is further described in point 3 below. |
| (3) | In 2019 ZIMRA issued PN26 that was affected retrospectively from February 22, 2019. The public notice provided clarity on Section 4 (a) of the Finance Act [Chapter 23.04] of Zimbabwe, which requires a company earning taxable income to pay tax in the same or other specified currency in which taxable income and revenue 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 taxable income and revenue is earned. The reconciling 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) | On August 1, 2019 the Zimbabwean Government announced in the mid-term budget speech that mining royalties will be deductible for income tax purposes. The change came into effect on January 1, 2020. |
| (5) | On November 26, 2020 the Zimbabwean Government announced in the 2021 National Budget Statement that the income tax rate will be reduced from 25.75% to 24.72% and will take effect in the 2021 fiscal tax year. This resulted in a change in the estimated deferred tax liability. |
| 42 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 16 | Tax expense (continued) |
Recognised deferred tax assets and liabilities
| Assets | Liabilities | Net | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Property, plant and equipment | - | - | (5,409 | ) | (4,195 | ) | (5,409 | ) | (4,195 | ) | ||||||||||||||
| Allowance for obsolete stock | 13 | 22 | - | - | 13 | 22 | ||||||||||||||||||
| Prepayments | - | - | (3 | ) | (4 | ) | (3 | ) | (4 | ) | ||||||||||||||
| Unrealised foreign exchange | 530 | 309 | - | - | 530 | 309 | ||||||||||||||||||
| Trade and other payables | 636 | 739 | - | - | 636 | 739 | ||||||||||||||||||
| Cash-settled share-based payments | 8 | 5 | - | - | 8 | 5 | ||||||||||||||||||
| Provisions | 60 | 58 | - | - | 60 | 58 | ||||||||||||||||||
| Other | 18 | - | - | - | 18 | - | ||||||||||||||||||
| Tax assets/ (liabilities) | 1,265 | 1,133 | (5,412 | ) | (4,199 | ) | (4,147 | ) | (3,066 | ) | ||||||||||||||
* The deferred tax liability consists of a deferred tax asset of $87 (2019: $63, January 1, 2019: $98) from the South African operation and a net deferred tax liability of $4,234 (2019: $3,129, January 1, 2019: $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 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, 2020 | Recognised in profit or loss | Foreign exchange movement | Balance December 31, 2020 | |||||||||||||
| Property, plant and equipment | (4,195 | ) | (7,195 | ) | 5,981 | (5,409 | ) | |||||||||
| Allowance for obsolete stock | 22 | 14 | (23 | ) | 13 | |||||||||||
| Prepayments | (4 | ) | - | 1 | (3 | ) | ||||||||||
| Unrealised foreign exchange | 309 | 732 | (511 | ) | 530 | |||||||||||
| Trade and other payables | 739 | 674 | (774 | ) | 639 | |||||||||||
| Cash-settled share-based payments | 5 | 3 | - | 8 | ||||||||||||
| Provisions | 58 | 76 | (74 | ) | 60 | |||||||||||
| Other | - | 15 | - | 15 | ||||||||||||
| Tax (liabilities)/ assets | (3,066 | ) | (5,681 | ) | 4,600 | (4,147 | ) | |||||||||
| 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 | |||||||||||
| Cash-settled share-based payments | 13 | (9 | ) | 1 | 5 | |||||||||||
| Provisions | 852 | 11 | (805 | ) | 58 | |||||||||||
| Other | 60 | (43 | ) | (17 | ) | - | ||||||||||
| Tax (liabilities)/ assets | (23,230 | ) | (2,979 | ) | 23,143 | (3,066 | ) | |||||||||
| 43 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 17 | Property, plant and equipment |
| Cost | Land and Buildings | Mine development, infrastructure and other | Plant and equipment | Furniture and fittings | Motor vehicles | Solar Plant | Total | |||||||||||||||||||||
| Balance at January 1, 2019 | 10,339 | 74,509 | 32,675 | 923 | 2,402 | – | 120,848 | |||||||||||||||||||||
| Initial recognition of right of use assets | 409 | – | – | – | – | – | 409 | |||||||||||||||||||||
| Additions* | 267 | 19,020 | 897 | 88 | 151 | – | 20,423 | |||||||||||||||||||||
| 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 | 36,395 | 1,018 | 2,538 | – | 141,326 | |||||||||||||||||||||
| Balance at January 1, 2020 | 10,833 | 90,542 | 36,395 | 1,018 | 2,538 | – | 141,326 | |||||||||||||||||||||
| Additions* | 1 | 19,507 | 4,221 | 219 | 458 | 372 | 24,778 | |||||||||||||||||||||
| Derecognised plant and equipment | – | – | (238 | ) | – | – | – | (238 | ) | |||||||||||||||||||
| Reallocations between asset classes | 930 | (1,210 | ) | 280 | – | – | – | – | ||||||||||||||||||||
| Foreign exchange movement | (7 | ) | – | (14 | ) | (2 | ) | (1 | ) | 20 | (4 | ) | ||||||||||||||||
| Balance at December 31, 2020 | 11,757 | 108,839 | 40,644 | 1,235 | 2,995 | 392 | 165,862 | |||||||||||||||||||||
| * |
Included in additions is an amount of $15,771 (2019: $14,051, 2018: $19,323) relating to capital work in progress (“CWIP”) and contains $53 (December 31, 2019: $165, 2018: $61) of borrowing costs capitalised from the term loan. As at year end $85,479 of CWIP was included in the cost closing balance (2019: $69,708, January 1, 2019: $55,657).
On July 6, 2020 the Board appointed Voltalia as the contractor for engineering, procuring and constructing a solar plant to be owned by a subsidiary of the Company. All solar costs that were incurred before July 6, 2020 were accounted for as other expenses and accounted through profit or loss. Solar costs incurred after approval by the Board are accounted for as Property, plant and equipment as it became clear and probable that future economic benefits will flow to the project. The 40-hectare site for the project has been cleared and fenced and is ready for civil work to commence. Construction on the 12MWac solar plant is expected to be completed in April 2022.
|
| ~ | The Group voluntarily changed its disclosure policy for exploration and evaluation assets to be disclosed separately as Exploration and evaluation assets rather than as part of Property, plant and equipment (refer to note 4(b)(i)). The new disclosure policy was adopted from December 10, 2020 and has been applied retrospectively. |
| 44 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 17 | Property, plant and equipment (continued) |
| Accumulated depreciation and Impairment losses | Land and Buildings | Mine development, infrastructure and other | Plant and equipment | Furniture and fittings | Motor vehicles | Solar Plant | Total | |||||||||||||||||||||
| 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 | |||||||||||||||||||||
| 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 | |||||||||||||||||||||
| Balance at January 1, 2020 | 5,413 | 6,325 | 20,050 | 753 | 2,273 | – | 34,814 | |||||||||||||||||||||
| Depreciation for the year | 1,030 | 648 | 2,691 | 102 | 157 | – | 4,628 | |||||||||||||||||||||
| Accumulated depreciation for derecognised plant and equipment | – | – | (56 | ) | – | – | – | (56 | ) | |||||||||||||||||||
| Foreign exchange movement | 3 | – | – | (6 | ) | – | – | (3 | ) | |||||||||||||||||||
| Balance at December 31, 2020 | 6,446 | 6,973 | 22,685 | 849 | 2,430 | – | 39,383 | |||||||||||||||||||||
| Carrying amounts | ||||||||||||||||||||||||||||
| At January 1, 2019 | 5,928 | 68,688 | 15,318 | 274 | 252 | – | 90,460 | |||||||||||||||||||||
| At December 31, 2019 | 5,420 | 84,217 | 16,345 | 265 | 265 | – | 106,512 | |||||||||||||||||||||
| At December 31, 2020 | 5,311 | 101,866 | 17,959 | 386 | 565 | 392 | 126,479 | |||||||||||||||||||||
| 45 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 17 | 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 2.10 g/t in 2019 to 2.10 g/t in 2020 while the recovered grade has ranged from 3.26 g/t to 3.38 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 credit incentive.
| 46 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 18 | Exploration and evaluation assets |
| Glen Hume | Connemara North | GG | Eagle Vulture, Mascot & Penzance | Sabiwa | Total | |||||||||||||||||||
| Balance at January 1, 2019 | – | – | 3,347 | 3,344 | 276 | 6,967 | ||||||||||||||||||
| - Consumables and drilling | – | – | 6 | (3 | ) | – | 3 | |||||||||||||||||
| - Contractor | – | – | 36 | 57 | – | 93 | ||||||||||||||||||
| - Labour | – | – | 32 | 8 | – | 40 | ||||||||||||||||||
| - Power | – | – | 20 | 10 | 6 | 36 | ||||||||||||||||||
| Balance at December 31, 2019 | – | – | 3,441 | 3,416 | 282 | 7,139 | ||||||||||||||||||
| Balance at January 1, 2020 | – | – | 3,441 | 3,416 | 282 | 7,139 | ||||||||||||||||||
| - Option payments | 2,500 | 300 | – | – | – | 2,800 | ||||||||||||||||||
| - Consumables and drilling | 161 | – | 28 | – | – | 189 | ||||||||||||||||||
| - Labour | – | – | 35 | 11 | – | 46 | ||||||||||||||||||
| - Power | – | – | 19 | 3 | 2 | 24 | ||||||||||||||||||
| Reallocate to assets held for sale (note 21.1) ~ | – | – | – | (500 | ) | – | (500 | ) | ||||||||||||||||
| Impairment ~ | – | – | – | (2,930 | ) | – | (2,930 | ) | ||||||||||||||||
| Balance at December 31, 2020 | 2,661 | 300 | 3,523 | – | 284 | 6,768 | ||||||||||||||||||
| * | The Group voluntarily changed its disclosure policy for exploration and evaluation assets to be disclosed separately as Exploration and evaluation assets rather than as part of Property, plant and equipment (refer to note 4(b)(i)). The new disclosure policy was adopted from December 10, 2020 and has been applied retrospectively.
|
| ~ | Management determined the fair value of Eagle Vulture, Mascot and Penzance as the future sale price as agreed by independent parties in the sale contract that amounted to $500. The carrying amount of Eagle Vulture, Mascot and Penzance before the impairment was $3,430 and the write down resulted in an impairment expense of $2,930. The $500 carrying value was reallocated to Assets held for sale in December, 2020. |
| 47 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 18 | Exploration and evaluation assets (continued) |
| (a) | Glen Hume |
On November 19, 2020 the Company concluded an option agreement (“Glen Hume option”) with the representatives of Glen Hume, whereby they granted the Company an option for the right to carry out legal due diligence and conduct drilling and/or other exploratory work over a period of 15 months from the conclusion date to understand the resource body of the Glen Hume property, situated in Gweru, Zimbabwe.
On November 24, 2020 a price of $2.5 million was paid for the Glen Hume option. The Company aims to spend approximately $1 million over the option period to understand the gold deposit.
Should the Company exercise the option, an exercise price of $2.5 million will be payable to obtain the mining claims and the Glen Hume representatives will also obtain a 1% net smelter royalty (“NSR”) on the future production of the Glen Hume project. The NSR can subsequently be bought out at the Company's discretion for a lump sum payment of $15 million within the first five years following the acquisition by the Company of the claims, or $10 million until the tenth anniversary of operation or $5 million thereafter.
| (b) | Connemara North |
On December 16, 2020 the Company concluded an option agreement (“Connemara North option”) with the representatives of Connemara North to purchase the claims over the Connemara North mining properties situated in Gweru, Zimbabwe. The exercise of the option will be exercisable at the discretion of the Company.
An amount of $300 is payable for the Connemara North option and remained outstanding at the date of approval of the consolidated financial statements. The outstanding amount was accounted for as Trade and other payables (Refer note 31).
The Connemara North option gives the Company the right to carry out legal due diligence and conduct drilling and/or other exploratory work over a period of 18 months from the conclusion date to understand the resource body.
If the Company elects to exercise the option, $600 becomes payable to the Connemara representatives within 7 days of the submission of the transfer documents to the Ministry of Mines and a further $4.4 million within 7 days from confirmation of transfer of ownership by the Ministry of Mines. The first payment of $600 will remain refundable subject to the Ministry of Mines approval. After the purchase, the Connemara representatives will retain a 1% NSR payable quarterly in arrears on the net sale proceeds from the Connemara gold deposits.
| 19 | Inventories |
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Consumable stores | 15,632 | 10,716 | 9,210 | |||||||||
| Gold in progress | 1,166 | 376 | 217 | |||||||||
| 16,798 | 11,092 | 9,427 | ||||||||||
| 48 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 20 | Cash and cash equivalents |
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Bank balances | 19,092 | 9,383 | 11,187 | |||||||||
| Cash and cash equivalents in the statement of financial position | 19,092 | 9,383 | 11,187 | |||||||||
| Bank overdrafts used for cash management purposes | – | (490 | ) | – | ||||||||
| Net cash and cash equivalents at year end | 19,092 | 8,893 | 11,187 | |||||||||
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 33.
| Denomination RTGS$ | Interest rate | |||||||
| Overdraft facilities | ||||||||
| Stanbic Bank | 15,000,000 | 55 | % | |||||
| First Capital Bank | 10,000,000 | 55 | % | |||||
| 21 | Assets held for sale |
| Note | 2020 | 2019 | January 1, 2019 | |
| Non-current assets held for sale | ||||
| Eagle Vulture, Mascot & Penzance | 21.1 | 500 | – | – |
| Sale of subsidiary | 21.2 | – | – | 296 |
| 21.1 | Eagle Vulture, Mascot and Penzance |
Farvic Consolidated Mines (Pvt) Ltd (“Farvic”) requested permission from the Company to perform drilling on the Eagle Vulture, Mascot and Penzance orebodies to obtain an understanding of the technical feasibility and commercial viability of Eagle Vulture, Mascot and Penzance in 2019. Farvic later expressed their interest in buying Eagle Vulture, Mascot and Penzance in late 2020. Management evaluated the proposition and a price was determined in November of 2020. On February 24, 2021 Farvic and the Group concluded the sale contract at $500 and Blanket relinquished all rights to the properties.
The assets were available for sale in their condition in December 2020 and therefore met the criteria to be classified as held for sale.
Management determined the fair value as $500 at December 31, 2020, as this was the lower of the fair value less cost to sell and the carrying amount. The carrying amount of Eagle Vulture, Mascot and Penzance, before impairment, at December 31, 2020 was $3,430 and it was classified as an Exploration and evaluation asset. The write down resulted in an impairment expense of $2,930.
| 21.2 | 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 $3,000 which would be settled by three payments of $1,000 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 2020 $900 (2019: $1,000) was received as payment towards the purchase price. A further $340 was received in February 2021. Management believes that the remainder of the deferred consideration is recoverable.
| 49 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 21 | Assets held for Sale (continued) |
| 21.2 | Sale of subsidiary (continued) |
Details of the disposal are as follows:
| 2019 | ||||
| Carrying amounts of net assets over which control was lost: | ||||
| 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 consideration receivable (at January 31, 2019) | 2,953 | |||
| Profit on sale of subsidiary | 5,409 | |||
| 22 | Trade and other receivables |
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Bullion sales receivable | 1,311 | 2,987 | 2,695 | |||||||||
| VAT receivables | 2,278 | 1,765 | 2,743 | |||||||||
| Deferred consideration on the disposal of subsidiary | 1,100 | 1,991 | – | |||||||||
| Deposits for stores and equipment and other receivables | 273 | 169 | 954 | |||||||||
| 4,962 | 6,912 | 6,392 | ||||||||||
| 50 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 22 | Trade and other receivables (continued) |
The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables are disclosed in notes 7 and 33. The net carrying value of trade receivables was considered a reasonable approximation of fair value and are short-term in nature. No provision for expected credit losses were recognised as all scheduled payments were received as expected up to the date of approval of these financial statements and non-payment of Trade and other receivables were not foreseen. The Bullion sales receivable and part of the VAT receivable were received after year-end.
| 23 | Derivative financial assets |
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Gold exchange-traded fund ("Gold ETF") | 1,184 | – | – | |||||||||
| Gold Hedge | – | 102 | – | |||||||||
| 1,184 | 102 | – | ||||||||||
Gold ETF
In April 2020 the South African subsidiary, Caledonia Mining South Africa Proprietary Limited, purchased a Gold ETF through Standard Bank Limited at a cost of $1,058. The Gold ETF is denominated in South African Rand and the instrument is utilised to invest excess short-term Rands on hand at the South African subsidiary. The Gold ETF’s value tracks the US spot gold price and was entered into to offset fluctuations in the South African Rand against the US Dollar. The total expense, representing the change in the Rand tracked USD spot gold price, amounted to $164 (2019: $Nil) for the twelve months ended December 31, 2020. Foreign currency translation gains, due to the fluctuations in the Rand against the US Dollar on the translation of the foreign subsidiary, amounted to $290 (2019: $Nil).
Gold Hedge
The Company entered into a hedge in November 2019 at a cost of $379. The 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, 2020 the mark-to-market valuation, that represents the fair value of the hedge, amounted to $Nil (2019: $102, 2018: $Nil). The put options 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 hedge expired on June 30, 2020.
| Fair value losses on derivative assets | 2020 | 2019 | 2018 | |||||||||
| Gold ETF | 164 | – | – | |||||||||
| Gold hedge | 102 | 601 | 360 | |||||||||
| 266 | 601 | 360 | ||||||||||
| 51 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 24 | 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, 2019 | 10,603,153 | 55,102 | ||||||
| Shares issued - share-based payment - employees | 159,888 | 963 | ||||||
| December 31, 2019 | 10,763,041 | 56,065 | ||||||
| Shares issued: | ||||||||
| - share-based payment - employees (note 30.1(a)) | 25,553 | 216 | ||||||
| - options exercised | 5,000 | 30 | ||||||
| - equity raise* | 597,963 | 12,538 | ||||||
| - Blanket shares purchased from Fremiro (note 6) | 727,266 | 5,847 | ||||||
| December 31, 2020 | 12,118,823 | 74,696 | ||||||
* The Company raised equity for the construction of the solar plant by way of an At The Market (“ATM”) equity offer on the NYSE American. Gross proceeds of $13,000 were raised pursuant to the ATM sales agreement with Cantor Fitzgerald & Co. at a transaction cost of $462.
| 25 | 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 (refer to note 30) 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
| 2020 | 2019 | January 1, 2019 | ||||||||||
| Foreign currency translation reserve | (8,794 | ) | (8,621 | ) | (6,561 | ) | ||||||
| Equity-settled share-based payment reserve | 14,513 | 16,760 | 16,760 | |||||||||
| Contributed surplus | 132,591 | 132,591 | 132,591 | |||||||||
| Total | 138,310 | 140,730 | 142,790 | |||||||||
| 52 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 26 | Earnings per share |
| Weighted average number of shares – Basic earnings per share | ||||||||||||
| (in number of shares) | 2020 | 2019 | 2018 | |||||||||
| Issued shares at the beginning of year (note 24) | 10,763,041 | 10,603,153 | 10,603,153 | |||||||||
| Issued shares post consolidation | 10,763,041 | 10,603,153 | 10,603,153 | |||||||||
| Weighted average shares issued | 940,489 | 138,736 | - | |||||||||
| Weighted average number of shares at December 31 | 11,703,530 | 10,741,889 | 10,603,153 | |||||||||
| Weighted average number of shares - Diluted earnings per share | ||||||||||||
| (in number of shares) | 2020 | 2019 | 2018 | |||||||||
| Weighted average at December 31 | 11,703,530 | 10,603,851 | 10,603,153 | |||||||||
| Effect of dilutive options | 13,173 | 143,267 | 698 | |||||||||
| Weighted average number of shares (diluted) at December 31 | 11,716,703 | 10,747,118 | 10,603,851 |
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 14,827 (2019: 32,771, 2018: 37,302) 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 Nil (2019: 18,000, 2018: 18,000) options.
The calculation of total basic and diluted earnings per share for the year ended December 31, 2020 was based on the adjusted profit attributable to shareholders as follows:
| 2020 | 2019 | 2018 | ||||||||||
| Profit for the year attributable to owners of the Company (basic and diluted) | 20,780 | 42,018 | 10,766 | |||||||||
| Blanket Mine Employee Trust Adjustment | (485 | ) | (986 | ) | (280 | ) | ||||||
| Profit attributable to ordinary shareholders (basic and diluted) | 20,295 | 41,032 | 10,486 | |||||||||
| Basic earnings per share - $ | 1.73 | 3.82 | 0.99 | |||||||||
| Diluted earnings per share - $ | 1.73 | 3.81 | 0.99 | |||||||||
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 are 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). Accordingly, there was no adjustment to fully diluted earnings attributable to shareholders.
| 53 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 27 | Non-controlling interests |
Blanket Mine recognise NCI at an effective share of 13.2% (2019: 16.2%, 2018: 16.2%)
| 2020 | 2019 | 2018 | ||||||||||
| Current assets | 24,864 | 21,386 | 19,107 | |||||||||
| Non-current assets | 133,908 | 115,610 | 98,700 | |||||||||
| Current liabilities | 7,339 | (8,630 | ) | (13,200 | ) | |||||||
| Non-current liabilities | (8,065 | ) | (9,085 | ) | (33,043 | ) | ||||||
| Net assets of Blanket Mine (100%) | 158,046 | 119,281 | 71,564 | |||||||||
| Carrying amount of NCI (2020: 13.2%, 2019: 16.2%, 2018: 16.2%) | 16,524 | 16,302 | 8,345 | |||||||||
| Revenue | 100,002 | 75,826 | 68,399 | |||||||||
| Profit after tax | 33,361 | 51,746 | 18,456 | |||||||||
| Total comprehensive income of Blanket Mine (100%) | 33,361 | 51,746 | 18,456 | |||||||||
| Profit allocated to NCI (2020: 13.2%, 2019: 16.2%, 2018: 16.2%) | 4,477 | 8,383 | 2,990 | |||||||||
| Dividend allocated to NCI (2020: 13.2%, 2019: 16.2%, 2018: 16.2%) | (655 | ) | (426 | ) | (589 | ) | ||||||
| 28 | 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. Regarding 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 | 2020 | 2019 | ||||||
| Balance January 1 | 3,346 | 3,309 | ||||||
| Unwinding of discount | 2 | 20 | ||||||
| Change in estimate - adjustment capitalised in Property, plant and equipment | 219 | 17 | ||||||
| Balance December 31 | 3,567 | 3,346 | ||||||
The discount rates currently applied in calculating the net present value of the Blanket Mine provision is 1.45% (2019: 2.31%, January 1, 2019: 2.95%), based on a risk-free rate and cash flows estimated at an average 2.05% inflation (2019: 2.27%, January 1, 2019: 2.13%). The gross rehabilitation costs, before discounting, amounted to $3,389 (2019: $3,364, January 1, 2019: $3,604) for Blanket Mine as at December 31, 2020.
| 54 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 29 | Loans and borrowings |
| 2020 | 2019 | 2018 | ||||||||||
| Balance at January 1 | 2,471 | 5,960 | 1,486 | |||||||||
| Cash flows | ||||||||||||
| Repayment | ||||||||||||
| - Capital | (574 | ) | - | (1,500 | ) | |||||||
| - Finance cost | (388 | ) | (130 | ) | (58 | ) | ||||||
| Proceeds | - | 2,340 | 6,000 | |||||||||
| Transaction cost | - | (46 | ) | (60 | ) | |||||||
| Unrealised foreign exchange | (1,487 | ) | (5,818 | ) | - | |||||||
| Non-cash flow | ||||||||||||
| Finance cost | 386 | 165 | 92 | |||||||||
| Balance at December 31 | 408 | 2,471 | 5,960 | |||||||||
| Long-term portion of loan facility | - | 1,942 | 5,960 | |||||||||
| Short-term portion of loan facility | 408 | 529 | - | |||||||||
Finance cost are accounted for in note 15 on the effective interest rate method.
Terms and repayment schedule
The terms and conditions of outstanding loans are as follows on December 31:
| 2020 | 2019 | |||||||||||||||||||||||||
| Currency | Nominal interest rate | Year of maturity | Face value | Carrying value | Face value | Carrying value | ||||||||||||||||||||
| Unsecured bank loan - Stanbic | RTGS$ | 50 | % | 2021 | 87 | 87 | 384 | 384 | ||||||||||||||||||
| Unsecured bank loan - First Capital | RTGS$ | 55 | % | 2021 | 321 | 321 | 2,087 | 2,087 | ||||||||||||||||||
| Total | 408 | 408 | 2,471 | 2,471 | ||||||||||||||||||||||
The Stanbic loan is repayable as a single bullet payment in December 2021. The First Capital loan is repayable by way of 4 quarterly installments and commenced in December 2020.
| 30 | Share-based payments |
| 30.1 | Cash-settled share-based payments |
The Group has expensed the following cash-settled share-based expense arrangements for the twelve months ended December 31:
| Note | 2020 | 2019 | 2018 | |||||||||||
| Restricted Share Units and Performance Units | 30.1(a) | 1,299 | 616 | 218 | ||||||||||
| Caledonia Mining South Africa employee incentive scheme | 30.1(b) | 114 | 73 | 97 | ||||||||||
| 1,413 | 689 | 315 | ||||||||||||
| 55 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 30 | Share-based payments (continued) |
| 30.1 | Cash-settled share-based payments (continued) |
| (a) | Restricted Share Units and Performance Units (continued) |
Certain management and employees within the Group are granted Restricted Share Units (“RSUs”) and Performance Units (”PUs”) pursuant to provisions of the 2015 Omnibus Equity Incentive Compensation Plan (“OEICP”). All RSUs and PUs were granted and approved at the discretion of the Compensation Committee of the Board of Directors.
RSUs vest three years after grant date given that the service condition of the relevant employees have been fulfilled. The value of the vested RSUs is the number of RSUs vested multiplied by the fair market value of the Company’s shares, as specified by the OEICP, on the date of settlement.
PUs have a performance condition based on gold production and a performance period of three years. The number of PUs that vest will be the PUs granted multiplied by the 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. PUs have rights to dividends only after they have vested.
RSUs and PUs 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 unitholder.
The fair value of the RSUs at the reporting date was based on the Black Scholes option valuation model. The fair value of the PUs 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% (2019: 93%-100%, 2018: 85%) average performance multiplier was used in calculating the estimated liability. The liability as at December 31, 2020 amounted to $2,240 (2019: $524, January 1, 2019: $2,043). Included in the liability as at December 31, 2020 is an amount of $634 (2019: $107, 2018: $43) that was expensed and classified as production costs; refer to note 9. During the year PUs and RSUs to the value of $216 vested and were issued as share capital.
| 56 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 30 | Share-based payments (continued) |
| 30.1 | Cash-settled share-based payments (continued) |
| (a) | Restricted Share Units and Performance Units (continued) |
The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability on:
| December 31, | December 31, | |||||||||||||||
| 2020 | 2019 | |||||||||||||||
| RSUs | PUs | RSUs | PUs | |||||||||||||
| Fair value (USD) | $ | 15.88 | $ | 15.51 | $ | 8.46 | $ | 8.19 | ||||||||
| Share price (USD) | $ | 15.88 | $ | 15.88 | $ | 8.46 | $ | 8.46 | ||||||||
| Performance multiplier percentage | – | 93-100% | – | 93-100% | ||||||||||||
| Share units granted: | ||||||||||||||||
| RSUs | PUs | RSUs | PUs | |||||||||||||
| Grant – January 11, 2016 | – | – | 60,645 | 242,579 | ||||||||||||
| Grant- March 23, 2016 | – | – | 10,965 | 43,871 | ||||||||||||
| Grant – June 8, 2016 | – | – | 5,117 | 20,470 | ||||||||||||
| Grant - January 19, 2017 | 4,443 | 17,774 | 4,443 | 17,774 | ||||||||||||
| Grant - January 11, 2019 | – | 95,740 | – | 95,740 | ||||||||||||
| Grant - March 23, 2019 | – | 28,287 | – | 28,287 | ||||||||||||
| Grant - June 8, 2019 | – | 14,672 | – | 14,672 | ||||||||||||
| Grant - January 11, 2020 | 17,585 | 114,668 | – | – | ||||||||||||
| Grant - March 31, 2020 | – | 1,971 | – | – | ||||||||||||
| Grant - June 1, 2020 | – | 1,740 | – | – | ||||||||||||
| Grant - September 9, 2020 | – | 1,611 | – | – | ||||||||||||
| Grant - September 14, 2020 | – | 20,686 | – | – | ||||||||||||
| Grant - October 5, 2020 | – | 514 | – | – | ||||||||||||
| RSU dividends reinvested | 995 | – | 11,316 | – | ||||||||||||
| Settlements/ terminations | (5,052 | ) | (17,774 | ) | (87,434 | ) | (306,920 | ) | ||||||||
| Total awards | 17,971 | 279,889 | 5,052 | 156,473 | ||||||||||||
On January 11, 2021, 78,883 PUs were granted to certain employees within the Group.
| (b) | Caledonia Mining South Africa employee incentive scheme |
From 2017 Caledonia Mining South Africa Proprietary Limited granted 52,282 awards to its employees that entitle them to a cash pay-out at the Company’s share price on November 30 of 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 £12.05 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 $30 (December 31, 2019: $16, January 1, 2019: $47) and the expense amounted to $114 (2019: $73, 2018: $97) for the twelve months ended December 31, 2020. The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability for the year ended December 31, 2020.
| 57 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 30 | Share-based payments (continued) |
| 30.1 | Cash-settled share-based payments (continued) |
| (b) | Caledonia Mining South Africa employee incentive scheme (continued) |
During September 2020 it was communicated to employees of Caledonia Mining South Africa Proprietary Limited that because going forwards they would receive awards of PUs under the Plan, a discretionary 10% cash bonus scheme would gradually replace the current cash-settled share-based scheme and no more awards would be made under that scheme. To the extent their cash-settled share-based payments fall shot of the cash bonus, they would receive an amount to make up the shortfall. The shortfall between 10% of the cash bonus and the cash-settled share-based payments, where applicable, was accounted for as employee costs (note 14) and included in Trade and other payables (note 31).
| 2020 | 2019 | |||||||
| Awards | ||||||||
| Grant – July 2017 (3-year term) | – | 37,330 | ||||||
| Grant – August 2018 (3-year term) | 5,918 | 5,918 | ||||||
| Grant - August 2019 (3-year term) | 9,034 | 9,034 | ||||||
| Awards paid out/ expired | (11,941 | ) | (44,985 | ) | ||||
| Total awards outstanding | 3,011 | 7,297 | ||||||
| Estimated awards expected to vest | 100 | % | 100 | % | ||||
| 30.2 | Equity-settled share-based payments |
The Group has expensed the following equity-settled share-based payment arrangements for the years ended December 31:
| Note | 2020 | 2019 | 2018 | |||||||||||
| Share option programmes | 30.2(a) | – | – | 14 | ||||||||||
| – | – | 14 | ||||||||||||
| (a) | Share option programs |
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 programs
The maximum term of the options under the OEICP is ten years. Equity-settled share-based payments under the OEICP will be settled by physical delivery of shares. Under the OEICP 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, 2020, the Company has the following options outstanding:
| Number of Options | Exercise Price | Expiry Date | ||||||
| Canadian $ | ||||||||
| 18,000 | 11.50 | Oct 13, 2021 | ||||||
| 10,000 | 9.30 | Aug 25, 2024 | ||||||
| 28,000 | ||||||||
| 58 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 30 | Share-based payments (continued) |
| 30.2 | Equity-settled share-based payments (continued) |
| (a) | Share option programs (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 excercisable at January 1, 2019 | 38,000 | 9.48 | |
| Granted | - | - | |
| Exercised | - | - | |
| Options outstanding and excercisable at December 31, 2019 | 38,000 | 9.48 | |
| Granted | - | - | |
| Exercised | (5,000) | 8.10 | |
| Expired | (5,000) | 4.00 | |
| Options outstanding and excercisable at December 31, 2020 | 28,000 | 10.71 |
The weighted average remaining contractual life of the outstanding options is 1.81 years (2019: 2.14 years, 2018: 3.14 years).
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 |
| Grant date | February 27, 2018 |
| Risk-free interest rate | 2.86% |
| Expected stock price volatility (based on historical volatility) | 32% |
| Expected option life in years | 3 |
| Exercise price | CAD 9.30 |
| Share price at grant date | CAD 9.30 |
| Fair value at grant date | $1.40 |
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 (2019: $Nil; 2018: $14).
| 59 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 31 | Trade and other payables |
| 2020 | 2019 | January 1, 2019 | |
| Trade payables and accruals | 1,897 | 2,825 | 2,510 |
| Electricity accrual | 735 | 626 | 4,054 |
| Audit fee | 273 | 370 | 239 |
| Shareholders for dividend (Non-controlling interest) | 208 | 364 | 215 |
| Other payables | 1,209 | 582 | 475 |
| Connemara North - exploration option | 300 | – | – |
| Financial liabilities | 4,622 | 4,767 | 7,493 |
| Production and management bonus accrual - Blanket Mine | 467 | 1,092 | – |
| Other employee benefits | 794 | 546 | 669 |
| Leave pay | 2,098 | 1,943 | 1,889 |
| Accruals | 683 | – | – |
| Non-financial liabilities | 4,042 | 3,581 | 2,558 |
| Total | 8,664 | 8,348 | 10,051 |
The Group's exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in notes 7 and 33.
The Group voluntarily changed the disclosure policy for lease liabilities to be disclosed separately rather than under Trade and other payables (refer to note 4(b)(ii)). The new disclosure policy was adopted from December, 2020 and has been applied retrospectively.
| 60 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 32 | Cash flow information |
Non-cash items and information presented separately on the cash flow statement:
| 2020 | 2019 | 2018 | |
| Operating profit | 40,735 | 60,889 | 21,421 |
| Adjustments for: | |||
| Impairment of property, plant and equipment | – | 144 | 208 |
| Impairment of exploration and evaluation assets | 2,930 | – | – |
| Profit on sale of subsidiary | – | (5,409) | – |
| Unrealised foreign exchange gains (note 11) | (8,367) | (31,307) | (243) |
| Cash-settled share-based expense (note 30.1) | 1,413 | 689 | 228 |
|
Cash-settled share-based expense included in production costs (note 9) |
634 | 107 | 43 |
| Settlement of cash-settled share-based expense | (1) | (1,384) | – |
| Equity-settled share-based expense | – | – | 14 |
| Site restoration | – | – | 30 |
| Depreciation | 4,628 | 4,434 | 4,071 |
| Allowance for obsolete inventory | – | – | 15 |
| Fair value loss/ (gain) on derivative assets (note 23) | 266 | (102) | – |
| Disposal of property, plant and equipment | – | 63 | – |
| Derecognition of property, plant and equipment | 182 | – | – |
| Net cash used for assets and liabilities held for sale | – | – | (2) |
| Cash generated by operations before working capital changes | 42,420 | 28,124 | 25,785 |
| Inventories | (5,707) | (1,655) | (277) |
| Prepayments | 816 | (2,099) | (62) |
| Trade and other receivables | 539 | 393 | (1,916) |
| Trade and other payables | (101) | (878) | (2,411) |
| Cash generated by operations | 37,967 | 23,885 | 21,119 |
| 33 | Financial Instruments |
| (a) | 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 | 2020 | 2019 | January 1, 2019 |
| Zimbabwe | 1,581 | 3,123 | 3,639 |
| Jersey, Channel Islands | 1,100 | 2,003 | – |
| Other regions | 3 | 20 | 10 |
| 2,684 | 5,146 | 3,649 |
| 61 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 33 | Financial Instruments (continued) |
| (b) | 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, 2020 | Carrying amount | 12 months or less | 1-3 Years |
| Trade and other payables | 4,622 | 4,622 | - |
| Term loan facility | 408 | 408 | - |
| 5,030 | 5,030 | - | |
| 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 | |
| January 1, 2019 | 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 |
| (c) | 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.
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 experience inflationary pressures. The Group invested in a Gold ETF to avoid fluctuations in South African Rands. 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.
| 62 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 33 | Financial Instruments (continued) |
| (c) | Currency risk (continued) |
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.
| 2020 | 2019 | January 1, 2019 | ||||
| $'000 | $'000 | $'000 | ||||
| Functional currency | Functional currency | Functional currency | ||||
| ZAR | $ | ZAR | $ | ZAR | $ | |
| Cash and cash equivalents | 59 | 1,959 | 57 | 4,176 | 57 | 8,147 |
| Trade and other receivables | - | 249 | - | 1,735 | - | 126 |
| Trade and other payables | - | (174) | - | (179) | - | (345) |
| Term loan | - | 408 | - | (2,471) | - | (5,960) |
| Overdraft | - | - | - | (490) | - | - |
| 59 | 2,442 | 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:
| 2020 | 2019 | January 1, 2019 | ||||
| $'000 | $'000 | $'000 | ||||
| Functional currency | Functional currency | Functional currency | ||||
| ZAR | $ | ZAR | $ | ZAR | $ | |
| Cash and cash equivalents | 3 | 103 | 3 | 199 | 3 | 388 |
| Trade and other receivables | - | 12 | - | 82 | - | 6 |
| Trade and other payables | - | (8) | - | 9 | - | (16) |
| Term loan | - | 19 | - | (117) | - | (283) |
| Overdraft | - | - | - | (23) | - | - |
| 3 | 126 | 3 | 150 | 3 | 95 | |
| (d) | 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 rates. Variable rates 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:
| 2020 | 2019 | January 1, 2019 | |
| Cash and cash equivalents | 19,092 | 9,383 | 11,187 |
| Term loan | (408) | (2,471) | (5,960) |
| Overdraft | – | (490) | – |
| 63 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 33 | Financial Instruments (continued) |
| (d) | Interest rate risk (continued) |
Interest rate risk arising from borrowings is offset by interest from 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 | 2020 | 2019 | January 1, 2019 |
| Increase by 100 basis points | 191 | 94 | 111 |
| Decrease by 100 basis points | (191) | (94) | (111) |
| Sensitivity analysis - Term loan | |||
| Increase by 100 basis points | 4 | (25) | (60) |
| Decrease by 100 basis points | (4) | 25 | 60 |
| Sensitivity analysis - Overdraft | |||
| Increase by 100 basis points | - | (5) | - |
| Decrease by 100 basis points | - | 5 | - |
| 34 | Dividends |
| 2020 | 2019 | 2018 | |
| Dividends declared to owners of the Company (excluding NCI) | 3,887 | 2,969 | 2,908 |
Quarterly dividend per share history:
| Declaration date | cents per share |
| January 10, 2019 | 6.875 |
| April 11, 2019 | 6.875 |
| July 11, 2019 | 6.875 |
| October 10, 2019 | 6.875 |
| January 16, 2020 | 7.5 |
| May 14, 2020 | 7.5 |
| July 16, 2020 | 8.5 |
| October 15, 2020 | 10.0 |
| 35 | Contingencies |
The Group may be subject to various claims that arise in the normal course of business. Management believes there are no contingent liabilities.
| 64 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 36 | 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, 2020 the severance payment would have amounted to $8,338 (2019: $6,259, 2018: $6,567). 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:
| 2020 | 2019 | 2018 | |
| Key management salaries and bonuses | 2,915 | 2,362 | 2,476 |
| Cash-settled share-based expense* | 1,280 | 723 | 261 |
| 4,195 | 3,085 | 2,737 |
Employees, officers, directors, consultants and other service providers also participate in the OEICP (see note 30.1(a)). Group entities are set out in note 37.
Refer to note 6 and note 27 for transactions with Non-controlling interests. Refer to note 38 for management fees between Caledonia Mining South Africa Proprietary Limited and Blanket Mine (1983) (Private) Limited.
* Amount inclusive of $295 (2019: $107, 2018: $43) classified as production costs.
| 65 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 37 | Group entities |
Functional currency |
Country of incorporation |
Legal shareholding |
Intercompany balances with holding company | |||
| 2020 | 2019 | 2020 | 2019 | |||
| Caledonia Holdings Zimbabwe (Private) Limited | $ | Zimbabwe | 100 | 100 | - | - |
| Caledonia Mining Services (Private) 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 | 612 | 1,750 |
| Greenstone Management Services Holdings Limited | $ | United Kingdom | 100 | 100 | 20,818 | 14,902 |
| Blanket Mine (1983) (Private) Limited (2) | $ | Zimbabwe | 64 | 49 | (3,980) | (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 13.2% (2019: 16.2%, 2018: 16.2%) interest in cash flows of Blanket only.
| 66 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 38 | 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 comprises Caledonia Holdings Zimbabwe (Private) Limited and subsidiaries and Caledonia Mining Services (Private) Limited. The South African geographical segment comprises a gold mine that is on care and maintenance (and now sold), as well as sales made by Caledonia Mining South Africa Proprietary Limited to the Blanket Mine. The holding company (Caledonia Mining Corporation Plc) and Greenstone Management Services Holdings Limited (a UK company) 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. 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
| For the twelve months ended December 31, 2020 | Zimbabwe | South Africa | Inter-group eliminations adjustments |
Corporate and other reconciling amounts |
Total |
| Revenue | 100,002 | – | – | – | 100,002 |
| Inter-segmental revenue | – | 23,214 | (23,214) | – | – |
| Royalty | (5,007) | – | – | – | (5,007) |
| Production costs | (44,032) | (20,318) | 20,639 | – | (43,711) |
| Depreciation | (4,920) | (91) | 424 | (41) | (4,628) |
| Other income | 4,751 | 14 | – | – | 4,765 |
| Other expenses | (5,180) | (114) | – | (21) | (5,315) |
| Administrative expenses | (156) | (2,237) | 10 | (5,614) | (7,997) |
| Management fee | (2,492) | 2,492 | – | – | – |
| Cash-settled share-based expense | – | (114) | 634 | (1,933) | (1,413) |
| Net foreign exchange gain (loss) | 4,618 | 132 | (272) | (173) | 4,305 |
| Fair value loss on derivative assets | – | (164) | – | (102) | (266) |
| Net finance cost | (352) | 47 | – | – | (305) |
| Dividends (paid) received | (2,198) | (1,355) | – | 3,553 | – |
| Profit before tax | 45,034 | 1,506 | (1,779) | (4,331) | 40,430 |
| Tax expense | (14,446) | (854) | 380 | (253) | (15,173) |
| Profit after tax | 30,588 | 652 | (1,399) | (4,584) | 25,257 |
| 67 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 38 | Operating Segments (continued) |
| As at December 31, 2020 | Zimbabwe | South Africa | Inter-group eliminations adjustments |
Corporate and other reconciling amounts |
Total |
| Geographic segment assets: | |||||
| Current (excluding intercompany) | 27,070 | 5,320 | (194) | 12,390 | 44,586 |
| Non-Current (excluding intercompany) | 133,568 | 716 | (4,237) | 3,287 | 133,334 |
| Expenditure on property, plant and equipment (note 17) | 26,391 | 151 | (1,887) | 123 | 24,778 |
| Expenditure on evaluation and exploration assets (note 18) | 98 | – | – | 2,961 | 3,059 |
| Intercompany balances | 17,482 | 6,752 | (69,144) | 44,910 | – |
| Geographic segment liabilities: | |||||
| Current (excluding intercompany) | (6,831) | (1,797) | – | (1,336) | (9,964) |
| Non-current (excluding intercompany) | (8,065) | – | 264 | (2,112) | (9,913) |
| Intercompany balances | – | (34,020) | 69,144 | (35,124) | – |
| For the twelve months ended December 31, 2019 | Zimbabwe | South Africa | Inter-group eliminations adjustments |
Corporate and other reconciling amounts |
Total |
| Revenue | 75,826 | – | – | – | 75,826 |
| Inter-segmental revenue | – | 15,973 | (15,194) | (779) | – |
| Royalty | (3,854) | – | – | – | (3,854) |
| Production costs | (36,278) | (13,740) | 13,618 | – | (36,400) |
| Depreciation | (4,645) | (90) | 350 | (49) | (4,434) |
| Other income | 2,016 | 258 | – | – | 2,274 |
| Other expenses | (498) | (168) | – | – | (666) |
| Administrative expenses | (126) | (1,736) | – | (3,775) | (5,637) |
| Management fee | (2,798) | 2,798 | – | – | – |
| Cash-settled share-based expense | (234) | (166) | – | (289) | (689) |
| Net foreign exchange gain | 29,634 | 9 | – | 18 | 29,661 |
| Profit with sale of subsidiary | – | – | – | 5,409 | 5,409 |
| Fair value loss on derivative assets | – | – | – | (601) | (601) |
| Net finance cost | (299) | 57 | – | 44 | (198) |
| Dividends received | – | – | – | – | – |
| Profit before tax | 58,744 | 3,195 | (1,226) | (22) | 60,691 |
| Tax expense | (9,529) | (825) | 192 | (128) | (10,290) |
| Profit after tax | 49,215 | 2,370 | (1,034) | (150) | 50,401 |
| 68 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 38 | Operating Segments (continued) |
| As at December 31, 2019 | Zimbabwe | South Africa | Inter-group eliminations 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 (note 17) | 21,293 | 47 | (1,165) | 248 | 20,423 |
| Expenditure on evaluation and exploration assets (note 18) | 172 | – | – | – | 172 |
| Intercompany balances | – | 8,869 | (52,783) | 43,914 | – |
| Geographic segment liabilities: | |||||
| Current (excluding intercompany) | (7,177) | (1,546) | – | (1,156) | (9,879) |
| Non-current (excluding intercompany) | (9,085) | (17) | 140 | 5 | (8,957) |
| Intercompany balances | (2,441) | (32,558) | 52,783 | (17,784) | – |
Major customer
Revenues from Fidelity amounted to $100,002 (2019: $75,826, 2018: $68,399) for the twelve months ended December 31, 2020.
| 39 | 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, 2020 was $796 (2019: $506, 2018: $619).
| 69 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
| 40 | COVID-19 |
Due to the worldwide COVID-19 outbreak, material uncertainties may come into existence that could influence management’s going concern assumption. Management cannot accurately predict the future impact that COVID-19 may have on:
| · | global gold prices; |
| · | demand for gold and the ability to refine and sell gold produced; |
| · | the severity and the length of potential measures taken by governments to manage the spread of the disease, and their effect on labour availability and supply lines; |
| · | availability of government supplies, such as water and electricity; |
| · | local currency purchasing power; or |
| · | ability to obtain funding. |
With regular lockdowns implemented by the Government of Zimbabwe and the Government of South Africa the Group’s supply chain has continued to function at a level that is adequate to augment the Group’s inventories, which management believes are sufficient to maintain normal production without interruption and accordingly the current situation bears no impact on management’s going concern assumption.
Further management had to incur additional costs to ensure the wellbeing of its employees and made donations to stakeholders in Zimbabwe to assist in curbing the effects of COVID-19. The cost related to these expenditures are disclosed in notes 9 and 13.
Work on the Central Shaft project from April 2020 was delayed by restrictions on the movement of specialised personnel and the transport of equipment due to the coronavirus pandemic. The Central Shaft is now expected to be commissioned in the first quarter of 2021 instead of the fourth quarter of 2020. The delay in commissioning has affected target production for 2021 which has been reduced from approximately 75,000 ounces to a range of 61,000 to 67,000 ounces. There is no change to the target production rate of 80,000 ounces in from 2022 onwards.
At the date of the authorisation of the financial statements management is of the opinion that the effects of COVID-19 has been considered in making significant judgements and estimates, valuations and evaluating our going concern principle.
| 41 | Subsequent events |
There were no significant subsequent events between December 31, 2020 and the date of issue of these financial statements other than described in the preceding notes to the consolidated financial statements.
| 70 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
DIRECTORS AND OFFICERS at March 22, 2021
| BOARD OF DIRECTORS | OFFICERS |
|
L.A. Wilson (2) (3) (4) (6) 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) (4) (6) | M. Learmonth (6) (7) |
|
Non-executive Director Connecticut, United States of America |
Chief Financial Officer Jersey, Channel Islands |
| J. Holtzhausen (1) (2) (4) (5) (6) | A. Chester (7) |
|
Chairman Audit Committee Non-executive Director, Cape Town, South Africa |
General Counsel, Company Secretary and Head of Risk and Compliance Jersey, Channel Islands |
| M. Learmonth (6) (7) | BOARD COMMITTEES |
|
Chief Financial Officer Jersey, Channel Islands |
(1) Audit Committee |
| (2) Compensation Committee | |
| (3) Corporate Governance Committee | |
| J. McGloin (1) (3) (4) (5) (6) | (4) Nomination Committee |
| Non-executive Director | (5) Technical Committee |
| Bishops Stortford, United Kingdom | (6) Strategic Planning Committee |
| (7) Disclosure Committee | |
| N. Clark (4) (5) (6) | |
| Non-executive Director | |
| East Molesey, United Kingdom | |
| G. Wildschutt (3) (4) (6) | |
| Non-executive Director | |
| Johannesburg, South Africa |
| 71 |
| Caledonia Mining Corporation Plc |
| Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2020, 2019 and 2018 |
| (in thousands of United States Dollars, unless indicated otherwise) |
CORPORATE DIRECTORY as at March 22, 2021
| CORPORATE OFFICES | SOLICITORS |
| Jersey – Head and Registered Office | Mourant Ozannes (Jersey) |
| Caledonia Mining Corporation Plc | 22 Grenville Street |
|
B006 Millais House |
St Helier |
| Weighbridge Ho | Jersey |
| Castle Quay | Channel Islands |
| St Helier | |
| Jersey JE2 3NF | |
| 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 |
| 1715 | |
| South Africa | Memery Crystal LLP (United Kingdom) |
| 165 Fleet Street | |
| Caledonia Holdings Zimbabwe (Private) Limited | London EC4A 2DY |
| P.O. Box CY1277 | United Kingdom |
| Causeway, Harare | |
| Zimbabwe | Dorsey & Whitney LLP (US) |
| TD Canada Trust Tower | |
| Capitalisation (March 22, 2021) | Brookfield Place |
| Authorised: Unlimited | 161 Bay Street |
| Shares, Warrants and Options | Suite 4310 |
| Shares: 12,118,823 | Toronto, Ontario |
| Options: 28,000 | M5J 2S1 Canada |
| SHARE TRADING SYMBOLS | AUDITORS |
| NYSE American - Symbol “CMCL” | BDO South Africa Incorporated |
| AIM - Symbol “CMCL” | Wanderers Office Park |
| 52 Corlett Drive | |
| BANKERS | Illovo 2196 |
| Barclays | South Africa |
| 13 Library Place | Tel: +27(0)10 590 7200 |
| St Helier, Jersey | |
| REGISTRAR & TRANSFER AGENT | |
| Computershare | |
| 150 Royall Street, | |
| Canton, Massachusetts, 02021 | |
| Tel: +1 800 736 3001 or +1 781 575 3100 |
72
Exhibit 99.2
| CALEDONIA MINING CORPORATION PLC | March 22, 2021 |
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, 2020 (“Q4 2020” or the “Quarter” and the year ended December 31, 2020 (the “Year”) and the period ended March 22, 2021). 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 |
| 4.12 | COVID-19 |
| 4.13 | Solar project |
| 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. | 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 is a 64% ownership in Blanket Mine (“Blanket”), a 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. Caledonia’s shares are listed on the NYSE American LLC ("NYSE American") (symbol - “CMCL”) and 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 | |||
| 2019 | 2020 | 2019 | 2020 | ||
| Gold produced (oz) | 16,876 | 15,012 | 55,182 | 57,899 | Gold produced in the Quarter was 11% lower than Q4 2019 (“the comparable quarter”) due to lower grade and recovery. Production includes 1,585 ounces of gold which was sold after the end of the Quarter. |
| On-mine cost per ounce ($/oz)1 | 603 | 770 | 651 | 744 | On-mine costs increased due to COVID-19 costs, higher share-based payment expense, increased diesel usage and increased maintenance costs on trackless equipment |
| All-in sustaining cost ($/oz) (“AISC”)1 | 812 | 1,083 | 820 | 946 | AISC increased due to higher on-mine costs, higher administrative expenses due to the increased cost of insurance and higher wages and salaries |
| Average realised gold price ($/oz)1 | 1,458 | 1,845 | 1,382 | 1,749 | The average realised gold price reflects international spot prices and excludes revenues from the export credit incentive and predecessor schemes |
| Gross profit2 | 11,336 | 14,375 | 31,138 | 46,656 | Gross profit is higher due to the higher gold price and (for the Year) higher production offset by increased production costs |
| Net profit attributable to shareholders | 2,390 | 2,973 | 42,018 | 20,780 | Net profit the Year was lower than 2019 which benefitted from foreign exchange gains, profit on the sale of a subsidiary and income from government grants. Increased profit for the Quarter is commensurate with increased gross profit |
| Basic IFRS earnings per share (“EPS”) (cents) | 21.5 | 24.0 | 382.0 | 173.4 | IFRS EPS reflects the movement in IFRS profit attributable to shareholders after adjustment for increased shares in issue |
| Adjusted EPS1 | 11.7 | 74.9 | 145.1 | 204.2 | Adjusted EPS excludes foreign exchange gains and losses and profit on disposal of a subsidiary, which benefitted prior periods |
| Net cash and cash equivalents | 8,893 | 19,092 | 8,893 | 19,092 | Cash increased due to a $13m (gross) equity issue in Q3 of 2020 |
| Net cash from operating activities | 4,794 | 11,617 | 18,060 | 30,962 | Improved cash generation due to the higher gold price |
1 Non-IFRS measures such as “On-mine cost per ounce”, “AISC”, “average realised gold price” and “adjusted EPS” 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 |
An excellent operating and financial performance
Production in the Year was 57,899 ounces, which was at the top end of the guidance range and was a new record for annual production. Production for the Quarter, although lower than the comparable quarter, was 15,012 ounces and was in-line with our expectations. The strong performance, despite the impediments arising from the COVID-19 pandemic, reflects the measures taken in previous quarters to improve tonnes mined and increase metallurgical recoveries.
The robust operating performance was supported by a rising gold price: gross profit for the Year was $46.6 million – almost 50% higher than 2019; gross profit for the Quarter was $14.4 million - almost 27% higher than the comparable quarter.
The net financial performance for the Year when compared to 2019 was adversely affected by the large foreign exchange gains and a significant profit arising on the sale of a subsidiary which were recognised in 2019. Adjusted earnings per share for the Year increased by 41% from 145 cents to 204 cents.
Central Shaft Project almost complete
The Central Shaft was fully equipped by the end of the Year and the production headgear was erected in January 2021. The shaft is now being commissioned and is expected to be fully operational before the end of the first quarter of 2021.
Rising production in 2021 and 2022
Production is expected to increase after the Central Shaft has been commissioned. Production guidance for 2021 is a range of 61,000 to 67,000 ounces; guidance from 2022 onwards is 80,000 ounces – 38% higher than the production in 2020.
60% cumulative increase in the quarterly dividend since October 2019
The Company paid a quarterly dividend of 11 cents per share in January 2021. This is the fourth increase in the quarterly dividend in the last 15 months. The total dividend per share paid in 2020 was 33.5 cents – a 21.8% increase from 2019.
Decision to implement a $12 million solar project
The Company has resolved to construct a 12MWac solar plant at a cost of approximately $12 million to improve the quality and security of Blanket’s electricity supply and to reduce Blanket’s environmental footprint. The plant is expected to provide approximately 27% of Blanket’s total daily electricity demand. The plant will be constructed by Voltalia, an international renewable energy provider, and is expected to be operational in early 2022. Whilst the project is being done for largely defensive reasons, it is expected to yield a modest return to shareholders after taking account of the dilutive effect of the equity issued to fund it.
Successful equity issue to fund the solar project
During the third quarter of 2020, the Company issued approximately 600,000 shares to raise $13 million (before expenses) to fund the solar project. The number of shares issued was lower than the 800,000 new shares that the Company had expected to issue, thereby improving the anticipated returns to shareholders from the project.
Acquisition of new exploration assets
In the Quarter the Company entered into option agreements in respect of two properties in the Zimbabwe Midlands, which has historically been a substantial gold producing region. These options give the Company the right to explore each property for periods of 15 and 18 months; depending on the exploration success, the Company has the right to acquire each property for a consideration of approximately $5 million plus a net smelter royalty at 1%.
| 4 |
Appointment of an additional non executive director; management team strengthened
In February 2021, the Company announced Mrs Geralda Wildschutt had joined the board of directors of the Company as an independent non-executive director. Mrs Wildschutt has over 25 years’ experience working in social development and stakeholder management. She has consulted to Anglo American, Gold Fields, Ivanhoe Mines and South32 on a range of social performance areas including social investment, compliance with Environmental, Social Investment and Governance (“ESG”) guidelines, human rights and social impact assessments, strengthening of community trusts, capacity building and systems development.
During the Year, the Company made executive appointments in the areas of geology, rock mechanics and investor relations. In January 2021, the company also appointed an internal auditor. These appointments improve the strength and depth of the management team to support the Company’s planned growth.
Voluntary de-listing from Toronto Stock Exchange (“TSX”)
On June 5, 2020, the Company announced that it had applied for a voluntary delisting from the TSX effective as of the closing of trading on June 19, 2020. Following delisting, the Company's shares have continued to be listed and trade on NYSE American. Depositary interests representing shares also continue to trade on AIM of the London Stock Exchange plc. Since the Company's shares were listed on the NYSE American in 2017, trading on that market provides the most liquid market for Caledonia's shares. Accordingly, the financial and administrative costs associated with maintaining its listing on the TSX were no longer justified. In the six months following the de-listing from the TSX, liquidity in the Company’s shares on the NYSE American increased by over 150% to approximately 114,0000 shares per day compared to the combined liquidity on the NYSE American and TSX in the six months prior to the de-listing.
Strategy and Outlook
Caledonia’s immediate strategic focus is to complete the Central Shaft project, which is expected to increase production, reduce operating costs and increase the flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long-term future.
Caledonia will conduct exploration at the two optioned properties in Zimbabwe and will consider further investment opportunities in Zimbabwe that are privately-owned. Caledonia has also entered into an agreement with the Government of Zimbabwe in terms of which Caledonia may evaluate assets in the gold sector that are controlled by the Government with a view to assessing the potential for such assets to be commercially developed for mutual benefit.
Caledonia will evaluate investment opportunities in the gold and precious metals sector outside Zimbabwe.
| 5 |
| 3. | SUMMARY FINANCIAL RESULTS |
The table below sets out the consolidated profit and loss for the three months ended December 31, 2020 and 2019 and the years ended December 31, 2020, 2019 and 2018 prepared under IFRS.
Condensed Consolidated Statement of Profit of Loss and Other Comprehensive Income ($’000’s) | |||||||
| 3 months ended | 12 months ended | ||||||
| December 31 | December 31 | ||||||
| 2019 | 2020 | 2018 | 2019 | 2020 | |||
| Revenue | 23,433 | 28,128 | 68,399 | 75,826 | 100,002 | ||
| Royalty | (1,172) | (1,408) | (3,426) | (3,854) | (5,007) | ||
| Production costs | (9,650) | (11,174) | (39,315) | (36,400) | (43,711) | ||
| Depreciation | (1,275) | (1,171) | (4,071) | (4,434) | (4,628) | ||
| Gross profit | 11,336 | 14,375 | 21,587 | 31,138 | 46,656 | ||
| Other income | 231 | 29 | 7,101 | 2,274 | 4,765 | ||
| Other expenses | (184) | (3,488) | (336) | (666) | (5,315) | ||
| Administrative expenses | (1,686) | (2,636) | (6,465) | (5,637) | (7,997) | ||
| Net foreign exchange gain/(loss) | 1,391 | (389) | 223 | 29,661 | 4,305 | ||
| Cash-settled share-based payment | (283) | (236) | (315) | (689) | (1,413) | ||
| Equity-settled share-based payment | - | - | (14) | - | - | ||
| Profit on sale of subsidiary | - | - | - | 5,409 | - | ||
| Fair value losses on derivative assets | (277) | (145) | (360) | (601) | (266) | ||
| Operating profit | 10,528 | 7,510 | 21,421 | 60,889 | 40,735 | ||
| Net finance costs | (162) | 49 | (220) | (198) | (305) | ||
| Profit before tax | 10,366 | 7,559 | 21,201 | 60,691 | 40,430 | ||
| Tax expense | (7,136) | (3,763) | (7,445) | (10,290) | (15,173) | ||
| Profit for the period | 3,230 | 3,796 | 13,756 | 50,401 | 25,257 | ||
| Other comprehensive income | |||||||
| Items that are or may be reclassified to profit or loss | |||||||
| Exchange differences on translation of foreign operations | 402 | 973 | (676) | 49 | (173) | ||
| Reclassification of accumulated exchange differences on the sale of subsidiary | - | - | - | - | - | ||
| Reversal of foreign exchange currency translation differences on disposal of subsidiary | - | - | - | (2,109) | - | ||
| Total comprehensive income for the period | 3,632 | 4,769 | 13,080 | 48,341 | 25,084 | ||
| Profit attributable to: | |||||||
| Shareholders of the Company | 2,390 | 2,973 | 10,766 | 42,018 | 20,780 | ||
| Non-controlling interest | 840 | 823 | 2,990 | 8,383 | 4,477 | ||
| Profit for the period | 3,230 | 3,796 | 13,756 | 50,401 | 25,257 | ||
| Total comprehensive income attributable to: | |||||||
| Shareholders of the Company | 2,792 | 3,946 | 10,090 | 39,958 | 20,607 | ||
| Non-controlling interest | 840 | 823 | 2,990 | 8,383 | 4,477 | ||
| Total comprehensive income for the period | 3,632 | 4,769 | 13,080 | 48,341 | 25,084 | ||
| Earnings per share (cents) | |||||||
| Basic | 21.5 | 24.0 | 98.9 | 382.0 | 173.4 | ||
| Diluted | 21.3 | 23.9 | 98.9 | 381.5 | 173.2 | ||
| Adjusted earnings per share (cents)3 | |||||||
| Basic | 11.7 | 74.9 | 132 | 145.1 | 204.2 | ||
| 6 |
| Condensed Consolidated Statement of Profit of Loss and Other Comprehensive Income (cont.) | ||||||
3 months ended December 31 |
12 months ended December 31 | |||||
| 2019 | 2020 | 2018 | 2019 | 2020 | ||
| Dividends declared per share (cents) | 6.875 | 10.0 | 27.5 | 27.5 | 33.5 | |
3 “Adjusted EPS” is a non-IFRS measure. Refer to section 10 of this MD&A for a reconciliation to IFRS EPS.
Revenue in the Quarter was 20% higher than in the comparable quarter due to a 27% increase in the average realised gold price offset by a 5% decrease in the quantity of gold sold. Gold sales in the Quarter include 1,803 ounces of gold that were included in work in progress at the end of the preceding quarter and were sold at the beginning of the Quarter and excludes 1,585 ounces of gold that were included in work in progress at the end of the Quarter and were sold immediately after the end of the Quarter. Revenue in the Year was 32% higher than in 2019 (the “previous year”) due to a 27% increase in the average realised gold price and a 4% increase in the quantity of gold sold. Gold production is discussed in section 4.3 of this MD&A.
Notwithstanding the increase in revenue for the Year, profit attributable to shareholders was 51% lower in the Year compared to the previous year. This was due to a combination of substantial foreign exchange gains and a significant profit arising on the disposal of a subsidiary in 2019. The increased revenue for the Quarter was reflected in a broadly corresponding increase in attributable profit for the Quarter.
The royalty rate payable to the Zimbabwe Government was unchanged at 5% in the Quarter. Due to the higher realised gold price in the Quarter, the royalty expense increased proportionately.
Production costs increased by 15.8% in the Quarter compared to the comparable quarter and by 20% in the Year compared to the previous year. As set out in section 4.6, production costs in the Quarter and the Year include certain costs that are beyond the control of management i.e. the incremental operating costs arising from COVID-19, increased use of diesel generators due to the instability of the grid power supply, the share-based payment expense (which is influenced by movement in the Company’s share price) and pre feasibility expenses. Excluding these costs, production costs for the Quarter increased by 39% compared to the comparable quarter and 16% in the Year compared to the previous year. The increase in costs, after adjustment for non-controlled items, was mainly due to the increased cost of maintaining the trackless underground equipment. Costs are discussed further in section 4.6 of this MD&A.
Other income for the Year mainly comprises the proceeds of the gold support price which is discussed in section 4.9; the gold support price mechanism was terminated in the preceding quarter and there was no revenue from this source in the Quarter and Other income for the Quarter was therefore insignificant.
Other expenses are detailed in note 13 to the Consolidated Financial Statements and include donations of $1,322 in the Year to the community to assist its efforts to address the coronavirus pandemic and an expense of $2,930 arising on the impairment of the Mascot, Eagle Vulture and Penzance exploration assets that have been identified to be disposed of as discussed further in section 5.
Administrative expenses are detailed in note 14 to the Consolidated Financial Statements and include the costs of Caledonia’s offices and personnel in Johannesburg, the UK, Jersey and Harare which provide the following functions: technical services, finance, procurement, investor relations, corporate development, legal and company secretarial. Administrative expenses in the Quarter were 56% higher than the comparable quarter and 42% higher in the Year compared to the previous year. The increase in the Quarterly expense was due to increased professional and advisory fees, higher wages and salaries and an increased cost of insurance cover for directors and officers. Increases in these areas were offset somewhat by lower travel and investor relations costs due to restrictions on travel resulting from the coronavirus pandemic.
| · | Professional and advisory fees were $210 higher in the Quarter compared to the comparable quarter and $458 higher in the Year compared to 2019. The increase was due to, inter alia: |
| o | Costs of evaluating potential investment opportunities, which culminated in the conclusion of option agreements over two exploration properties as discussed further in section 5; |
| o | Costs associated with the Company’s voluntary de-listing from the TSX. Since the de-listing the liquidity of the Company’s shares on the NYSE American has increased substantially compared to the combined liquidity on NYSE American and TSX before the de-listing; |
| 7 |
| o | Costs of preparing a Form F-3 Registration Statement which was subsequently used to raise $13m (before fees and expenses) as discussed in section 7; and |
| o | Costs relating to the proposed solar project prior to the board decision to proceed. |
| · | Wages and salaries increased by $668 in the Quarter compared to the comparable quarter and by $1,035 in the Year. The increase was due to an increase in personnel in the areas of geology, rock mechanics and investor relations, and incentive payments to senior management to reflect the improved financial and operating performance in the Year and the near-completion of the Central Shaft. |
| · | The cost of directors and officers insurance cover increased from $86 in 2019 to $1,032. This considerable increase was explained to the Company as being due to several factors including a hardening of market conditions for directors and officers insurance, the exiting of the market by many insurance companies who are unwilling to write new lines of directors and officers insurance, anxieties due to the anticipated negative effects of the COVID-19 pandemic and a changing appetite of insurance companies towards taking on mining risks and in particular mining companies whose shares are traded in the United States (where derivative actions are more common). |
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 further devaluation of the Zimbabwe currency against the US Dollar which is discussed in section 4.9 of this MD&A. The net gain in the Quarter and the Year was smaller than in previous periods because financial liabilities (the devaluation of which had contributed the most to previous foreign exchange gains) are now devalued to such an extent that further devaluation has a reduced financial effect. The largest components of the net gain in the Quarter were unrealised gains on borrowings denominated in Zimbabwe currency and the deferred and income tax liability, offset by a realised loss on Zimbabwe currency denominated cash and VAT receivables.
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, heads of department and staff in the form of Restricted Share Units (“RSUs”) and Performance Units (“PUs”). LTIP awards may be settled in cash or, subject to conditions, shares or a combination of both at the request of the award holder. The LTIP expense reflects a combination of factors, including the change in the Company’s share price: the increased charge for the Year is mainly due to the increase in the price of the Company’s shares over the course of the Year. Further information on the calculation of the charge is set out in note 30 to the Consolidated Financial Statements.
The fair value loss on derivative assets in the Quarter was in respect of a gold ETF which was purchased in April 2020 by Caledonia Mining South Africa Proprietary Limited (“CMSA”) to protect against devaluation of the South African Rand against the US Dollar. South African foreign exchange restrictions do not allow CMSA to hold US Dollars in South Africa and administrative delays at commercial banks and the South African Reserve Bank impede CMSA’s ability to move cash around the Group as rapidly as operational considerations require. Accordingly, to protect against devaluation of the South African Rand and to retain CMSA’s operational flexibility, the surplus Rands were used to purchase a gold ETF.
The fair value loss on derivative assets in the Year includes a charge for a hedging arrangement which Caledonia put in place in January 2020 over 4,600 ounces of gold per month for the period from January 1, 2020 to June 30, 2020. The hedge comprised the purchase of out-of-the money put options which guaranteed that Caledonia received a minimum price of $1,400 per ounce in respect of the ounces hedged but retained full exposure to the gold price. The hedge was not for speculative purposes but was intended to protect Caledonia’s cashflows during a period when capital expenditure on the Central Shaft was expected to be high. The cash cost of the hedge was a once-off amount of $380; however, the accounting charge recognised the mark-to-market loss arising on the instruments.
| 8 |
The tax expense comprises the following:
| Analysis of Consolidated Tax expense/(credit) for the Year | |||||
| ($’000’s) | |||||
| Zimbabwe | South Africa | UK | Total | ||
| Income tax | 8,153 | 762 | - | 8,915 | |
| Withholding tax | |||||
| Management Fee | - | 122 | - | 122 | |
| Deemed Dividend | 209 | - | - | 209 | |
| CHZ Dividend to UK | - | - | 110 | 110 | |
| CMSA Dividend to UK | - | - | 136 | 136 | |
| Deferred tax | 5,705 | (24) | - | 5,681 | |
| 14,067 | 860 | 246 | 15,173 | ||
The overall effective taxation rate in the Year was 37%, the majority of which was made up of income tax and deferred tax in Zimbabwe.
Income tax in Zimbabwe is calculated at 25.75% of taxable profits which is IFRS profit before tax (in local currency terms) after adjustments which include the deduction of the government royalty, the add-back of depreciation and the deduction of capital expenditure in the year. The effective Zimbabwe income tax rate for the Year as a percentage of IFRS gross profit (which approximates to the on-mine profit before tax) was 16% which is lower than the headline rate of income tax due to the combined effect of the adjustments to IFRS profit set out above.
Deferred tax reflects 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. The deferred tax calculation is also affected by unrealised foreign exchange movements, which have been substantial in certain quarters and the requirement that tax computations are calculated using accounts denominated in local currency. The combined effective tax rate of Zimbabwean income tax and Zimbabwean deferred tax for the Year as a percentage of IFRS gross profit (which approximates to the on-mine profit before tax) was 27% which approximates to the headline tax rate of 25.75%.
South African income tax arises on intercompany profits arising at CMSA.
Withholding tax is Zimbabwean withholding tax on the management fees paid to CMSA and on dividend payments from Zimbabwe to the UK; South African withholding tax arose on dividends paid from CMSA to its parent company in the UK.
Following the acquisition by the Company of a further 15% interest in Blanket in January 2020, the effective non controlling interest share in profit or loss reduced from 16.2% to 13.2% of Blanket’s net profit. The non-controlling interest is discussed further in section 4.9.
Dividends comprise dividends paid by the Company and dividends paid by Blanket to its minority shareholders after deduction of amounts to repay the various advances and loans as discussed in section 4.9. The Company paid higher quarterly dividends during the Year (as discussed in section 14) totalling 33.5 cents per share – a 21.8% increase on the total dividends per share paid in the previous year. The increased quarterly dividend, in conjunction with the increased number of shares in issue following the equity issue in the third quarter of the Year (as discussed in section 7) resulted in an increase in Caledonia’s dividend distributions.
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, 2020, 2019 and 2018 prepared under IFRS.
| Condensed Consolidated Statement of Cash Flows ($’000’s) | ||||||||||||
| 12 months ended December 31 | ||||||||||||
| 2018 | 2019 | 2020 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Cash generated from operations | 21,119 | 23,885 | 37,967 | |||||||||
| Net interest paid | (108 | ) | (308 | ) | (349 | ) | ||||||
| Tax paid | (3,344 | ) | (5,517 | ) | (6,656 | ) | ||||||
| Net cash from operating activities | 17,667 | 18,060 | 30,962 | |||||||||
| Cash flows used in investing activities | ||||||||||||
| Acquisition of property, plant and equipment | (20,192 | ) | (20,024 | ) | (25,081 | ) | ||||||
| Acquisition of exploration and evaluation assets | - | - | (2,759 | ) | ||||||||
| Purchase of derivative financial asset | - | - | (1,058 | ) | ||||||||
| Proceeds from disposal of subsidiary | - | 1,000 | 900 | |||||||||
| Net cash used in investing activities | (20,192 | ) | (19,024 | ) | (27,998 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Dividends paid | (3,497 | ) | (3,395 | ) | (4,542 | ) | ||||||
| Repayment of term loan facility | (1,500 | ) | - | (574 | ) | |||||||
| Term loan proceeds | 6,000 | 2,340 | - | |||||||||
| Term loan – transaction cost | (60 | ) | (46 | ) | - | |||||||
| Shares issued – equity raise | - | - | 12,538 | |||||||||
| Payment of lease liabilities | - | (124 | ) | (118 | ) | |||||||
| Share options exercised | - | - | 30 | |||||||||
| Net cash from/(used in) financing activities | 943 | (1,225 | ) | 7,334 | ||||||||
| Net (decrease)/increase in cash and cash equivalents | (1,582 | ) | (2,189 | ) | 10,298 | |||||||
| Effect of exchange rate fluctuations on cash held | 13 | (105 | ) | (99 | ) | |||||||
| Net cash and cash equivalents at beginning of the period | 12,756 | 11,187 | 8,893 | |||||||||
| Net cash and cash equivalents at end of the period | 11,187 | 8,893 | 19,092 | |||||||||
Cash generated from operating activities is detailed in note 32 to the Consolidated Financial Statements which shows that cash generated by operations before working capital changes in the Year was $42.4 million, 51% higher than $28.1 million in 2019. The increase was mainly due to the higher gross profit which is due mainly to the higher gold price offset somewhat by increased production costs. Working capital increased in the Year mainly due to an increase in inventories as discussed below in the review of the summarised consolidated statements of financial position.
Investment in property, plant and equipment remains high due to the continued investment in the Central Shaft project, which is discussed further in section 4.7 of this MD&A and in sustaining capital investment.
The acquisition of exploration and evaluation assets relates to the option fees payable in respect of the Glen Hume and Connemara North exploration properties as discussed further in section 5.
The purchase of the derivative financial assets relates to the purchase of the gold ETF by CMSA as discussed above.
| 10 |
Proceeds from the disposal of a subsidiary relates to the consideration received in respect of the sale of Eersteling Gold Mining Company Limited (“Eersteling”) as discussed in section 4.11.
The dividends paid relate to the dividends paid by Caledonia on the increased number of the Company’s shares in issue pursuant to the issue of shares to Fremiro (as discussed in section 5) and the equity issue (as discussed in section 7) and by Blanket to its minority shareholders.
The proceeds of the issue of shares relates to the issue of shares as discussed in section 7.
The effect of exchange rate fluctuations on cash held predominantly reflects gains or losses on cash balances held in currencies other than the US Dollar. The effect on cash balances forms part of an overall foreign exchange gain or loss arising on all affected financial assets and liabilities.
The table below sets out the consolidated statements of Caledonia’s financial position at December 31, 2020, December 31, 2019 and December 31, 2018 prepared under IFRS.
| Summarised Consolidated Statements of Financial Position | ||||||||||||||||
| ($’000’s) | As at | Dec 31 | Dec 31 | Dec 31 | ||||||||||||
| 2018 | 2019 | 2020 | ||||||||||||||
| Total non-current assets | 97,525 | 113,714 | 133,334 | |||||||||||||
| Inventories | 9,427 | 11,092 | 16,798 | |||||||||||||
| Prepayments | 866 | 2,350 | 1,974 | |||||||||||||
| Trade and other receivables | 6,392 | 6,912 | 4,962 | |||||||||||||
| Income tax receivable | - | - | 76 | |||||||||||||
| Cash and cash equivalents | 11,187 | 9,383 | 19,092 | |||||||||||||
| Derivative financial assets | - | 102 | 1,184 | |||||||||||||
| Assets held for sale | 296 | - | 500 | |||||||||||||
| Total assets | 125,693 | 143,553 | 177,920 | |||||||||||||
| Total non-current liabilities | 34,687 | 9,486 | 9,913 | |||||||||||||
| Term loan facility – short term portion | - | 529 | 408 | |||||||||||||
| Lease liabilities – short term portion | - | 112 | 61 | |||||||||||||
| Trade and other payables | 10,051 | 8,348 | 8,664 | |||||||||||||
| Income taxes payable | 1,538 | 163 | 495 | |||||||||||||
| Overdraft | - | 490 | - | |||||||||||||
| Liabilities associated with assets held for sale | 609 | - | - | |||||||||||||
| Cash-settled share-based payments - short term portion | - | - | 336 | |||||||||||||
| Total liabilities | 46,885 | 18,836 | 19,877 | |||||||||||||
| Total equity | 78,808 | 124,717 | 158,043 | |||||||||||||
| Total equity and liabilities | 125,693 | 143,553 | 177,920 | |||||||||||||
Non-current assets increased due to the continued investment at the Central Shaft and investment to sustain existing operations.
Inventories increased due to the increased holdings of consumables in anticipation of any further disruption to Blanket’s supply chain due to the COVID-19 pandemic and to prepare Blanket for the usual shut-down in the supply chain from South Africa towards the end of each year. Items which contributed to the increased level of inventories include: spare parts for the trackless mining machinery; items of PPE and chemicals related to COVID-19; spare parts and consumables for the small scale metallurgical plant at Lima that has been re-commissioned to allow for increased production; and spare parts for new items of capital equipment.
Inventories include 1,585 ounces of gold work-in-progress (December 2019:840 ounces). For logistical reasons, this gold was delivered and sold to Fidelity Printers and Refiners (Private) Limited (“Fidelity”), a subsidiary of the Reserve Bank of Zimbabwe (“RBZ”), early in January 2021.
| 11 |
Prepayments represent deposits and advance payments for goods and services. Prepayments at 31 December 2020 and 2019 were higher than at 31 December 2018 because of the requirement to pay in advance for consumables and other items due to the tightening of supplier credit due to the economic situation in Zimbabwe.
Trade and other receivables are detailed in note 22 to the Consolidated Financial Statements and include $1,311 (December 31, 2019: $2,987) due from Fidelity in respect of gold deliveries prior to the close of business on December 31, 2020 and $2,278 (December 31, 2019: $1,765) due from the Zimbabwe Government in respect of VAT refunds. The amounts due from Fidelity were received in full after the end of the Quarter. The amount due in respect of VAT refunds mainly comprises RTGS$-denominated VAT refunds which has increased because of the increased level of purchasing activity at the end of the Year in respect of which VAT refunds are due. Trade receivables also include $1,100 (December 31, 2019: $1,991) in respect of deferred consideration due on the disposal of Eersteling, the sale of which was concluded in the comparable quarter and is discussed in section 4.11 of this MD&A and $273 (December 31, 2019: $169) in respect of deposits for stores and equipment.
The distribution of the consolidated cash as at December 31, 2020 across the jurisdictions where the Company operates was as follows:
| Geographical location of cash ($’000’s) | ||||||||||||
| As at | December 31 2019 | December 31 2020 | ||||||||||
| Zimbabwe (including overdraft) | 3,499 | 5,115 | ||||||||||
| South Africa | 2,512 | 2,732 | ||||||||||
| UK/Jersey | 2,882 | 11,245 | ||||||||||
| Total net cash and cash equivalents | 8,893 | 19,092 | ||||||||||
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 | Mar 31, | June 30, | Sept 30, | Dec 31, | Mar 31, | June 30, | Sept 30, | Dec 31 |
| per share amounts) | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | 2020 | 2020 |
| Revenue from operations | 15,920 | 16,520 | 19,953 | 23,433 | 23,602 | 22,913 | 25,359 | 28,128 |
| Profit attributable to owners of the Company | 9,318 | 23,303 | 7,007 | 2,390 | 8,240 | 5,134 | 4,433 | 2,973 |
| Earnings per share – basic (cents) | 88.6 | 210.8 | 63.4 | 21.5 | 71.2 | 43.1 | 36.6 | 24.0 |
| Earnings per share – diluted (cents) | 88.5 | 210.9 | 63.4 | 21.3 | 71.1 | 43 | 36.5 | 23.9 |
| Net cash and cash equivalents | 9,742 | 7,875 | 8,026 | 8,893 | 13,825 | 11,639 | 21,562 | 19,092 |
Fluctuations in profit attributable to owners of the Company on a quarterly basis are due to, inter alia, the incidence of substantial foreign exchange profits as discussed in the relevant MD&As and financial statements.
| 12 |
| 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 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
| Fatal | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Lost time injury | 2 | 0 | 0 | 1 | 1 | 1 | 1 | 3 |
| Restricted work activity | 3 | 7 | 4 | 3 | 1 | 2 | 5 | 1 |
| First aid | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 |
| Medical aid | 1 | 1 | 4 | 5 | 0 | 2 | 5 | 5 |
| Occupational illness | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 6 | 8 | 8 | 9 | 2 | 6 | 11 | 9 |
| Incidents | 12 | 15 | 12 | 15 | 9 | 15 | 21 | 14 |
| Near misses | 5 | 2 | 8 | 7 | 3 | 7 | 7 | 7 |
| Disability Injury Frequency Rate | 0.81 | 1.08 | 0.62 | 0.60 | 0.29 | 0.42 | 0.80 | 0.55 |
| Total Injury Frequency Rate | 0.97 | 1.23 | 1.23 | 1.34 | 0.29 | 0.83 | 1.48 | 1.23 |
| Man-hours worked (thousands) | 1,240 | 1,296 | 1,297 | 1,341 | 1,395 | 1,443 | 1,491 | 1,460 |
In 2018 a training facility (called “Nyanzvi”) was established at Blanket using dedicated facilities and specially trained facilitators. The entire Blanket workforce has participated in the programme which resulted in the improvement in safety in the first two quarters of 2020. The Nyanzvi programme was suspended from late March 2020 due to the need to observe social distancing which contributed to the subsequent increase in reportable events. Management expects safety performance will improve when the Nyanzvi programme and other safety measures which were suspended due to COVID-19 restrictions are re-instated.
| 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 Zimbabwe Government 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 |
| Year | 2019 | 47 | - | 10,357 | 10,404 |
| Q1 | 2020 | 52 | - | 2,490 | 2,542 |
| Q2 | 2020 | 1,002 | 84 | 2,787 | 3,873 |
| Q3 | 2020 | 252 | 40 | 3,243 | 3,535 |
| Q4 | 2020 | 383 | 60 | 4,006 | 4,449 |
| Year | 2020 | 1,689 | 184 | 12,526 | 14,399 |
| 13 |
There is no legal requirement in Zimbabwe to implement corporate and social responsibility (“CSR”), but there is an expectation from stakeholders and investors that mining companies should do more to address social and environmental issues. For many years Blanket has engaged in ad hoc CSR activities and Blanket’s CSR programme is set out on Caledonia’s website. The main activities during the Quarter were as follows:
| · | Women and Youth Empowerment: Blanket has 26 students on one-year attachment as part of their tertiary studies. |
| · | Education: |
| o | Nsimbi Primary School: renovation of classrooms and drilling of boreholes |
| o | Sabiwa Primary School: renovation of classrooms and toilets; construction of new toilet block and provision of desks |
| · | Agriculture: Blanket supports the Gwakwe communal lands farming venture by providing water, seed and fertilizer. Blanket has repaired the irrigation system, provided fencing and constructed a packing and tool shed. The project has harvested its first maize crop and is growing a second crop and is planting a sugar bean crop. |
| · | Health: |
| o | Blanket provided protective equipment and sanitisers to five local schools and the district authority to assist in preventing the spread of the coronavirus; |
| o | Blanket constructed two 10-bed isolation wards at the Phakama Clinic including ablution facilities and a fully-equipped kitchen. Each ward is equipped with 10 beds with lockers and stools; the centre has an autoclave to sterilise equipment, an anaesthetic machine, a ventilator, two multiple parameter monitors, bathrooms and nurses’ stations. The total cost of this project was $462,000. |
As set out in section 15 of this MD&A, on February 22, 2021 Caledonia announced the appointment of a non-executive director with specific responsibility to oversee the Company’s CSR activities.
| 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 2021 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 | 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 |
| Quarter 1 | 2020 | 140,922 | 3.35 | 93.8 | 14,233 |
| Quarter 2 | 2020 | 143,210 | 3.13 | 93.9 | 13,499 |
| Quarter 3 | 2020 | 157,343 | 3.19 | 93.9 | 15,155 |
| Quarter 4 | 2020 | 156,487 | 3.19 | 93.5 | 15,012 |
| Year | 2020 | 597,962 | 3.21 | 93.8 | 57,899 |
| January | 2021 | 52,449 | 2.68 | 92.4 | 4,177 |
| February | 2021 | 46,145 | 2.96 | 92.8 | 4,080 |
| 14 |
Gold production for the Quarter was 11% lower than the comparable quarter and 0.9% lower than the previous quarter. Production for the Quarter was lower than the comparable quarter primarily due to lower grade and lower recovery. Gold production for the Year was 4.9% higher than in 2019. The higher production for the Year was due to increased tonnes milled and higher recovery the effect of which was offset somewhat by a lower grade. 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 was negatively influenced by a lower than planned grade which also affected the recovery. The lower grade was mainly due to fall-of-ground issues which resulted in lower tons from the high-grade area of AR South. This has been resolved by the end of February. Tonnages in February was also adversely affected by record high rainfalls for January and February which caused flooding underground and resulted in the loss of five production days. The flooding was rectified by installing extra pumps and an extra pump column in the shaft; the high rainfall levels have now eased as the region moves into the dry season.
| 4.4 | Underground |
The grade in the Quarter was 11.6% lower than the comparable quarter and unchanged from the preceding quarter; the grade in the Year was 3.0% lower than in 2019. The achieved grade for the Quarter and the Year was as expected in terms of the mine plan.
Total development advanced in the Quarter by 4,213 meters compared to 3,781 meters in the previous quarter and 3,809 in the comparable quarter. The increased development reflects increased management focus and changes to the incentivization structure which rewards personnel equally on achieving targets for production, safety and development targets as pre-qualifiers to be eligible for bonuses.
| 4.5 | Metallurgical Plant |
Recoveries in the Quarter were 93.5% compared to 93.9% in the previous quarter; recoveries in the Year were 93.8% compared to 93.4% in 2019. The general improvement in recoveries in the Year was due to the commissioning of the new oxygen plant in October 2019 and the commissioning of an upgraded oxygen sparging system in the first quarter of 2020. The new oxygen plant has also reduced cyanide consumption by approximately 15%. In the Quarter work commenced on installing an additional mill which will increase milling capacity from 75 to 100 tonnes per hour which will be required to achieve target production of 80,000 ounces per annum.
| 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 ounce1, 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 ounce1, which shows the on-mine cost per ounce plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg 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) any revenue from the gold support price (or its predecessor); and |
| iii. | All-in cost per ounce1, 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). |
___________________________
1 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 |
Cost per Ounce of Gold Sold (US$/ounce) | ||||
| 3 Months to December 31 | 12 Months to December 31 | |||
| 2019 | 2020 | 2019 | 2020 | |
| On-mine cost1 | 603 | 770 | 651 | 744 |
| All-in sustaining cost per ounce1 | 812 | 1,083 | 820 | 946 |
| All-in cost per ounce1 | 1,159 | 1,835 | 1,191 | 1,418 |
A reconciliation of costs per ounce to IFRS production costs is set out in section 10.
On-mine cost
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 excludes the costs relating to 1,585 ounces of work in progress which was sold immediately after the end of the Quarter.
The on-mine cost per ounce in the Quarter increased by 28% compared to the comparable quarter. The on-mine cost per ounce in the comparable quarter benefitted from a higher grade: the grade in the comparable quarter was 3.61 g/t compared to 3.21g/t in the Quarter. A higher grade reduces the on-mine cost per ounce which is generally related to tonnes of production. The on-mine cost per ounce for the Year increased by 14% compared to 2019. On-mine cost in the Quarter and the Year was adversely affected by increased maintenance costs for the underground trackless equipment. To reduce capital costs, the fleet largely comprised refurbished, second-hand equipment which requires more maintenance. Due to travel restrictions relating to the coronavirus pandemic, the Johannesburg-based contractor who was engaged to supervise and optimise the maintenance schedule was unable to travel to Blanket. The maintenance programme has been re-instated and the fleet is being replaced with new equipment. The performance of the fleet has improved in 2021.
On-mine cost includes certain costs that are beyond the control of management (i.e. “non-controlled costs”) which include costs relating to COVID-19 (e.g. items of PPE, sanitisers etc); the cost of running diesel generators due to the instability of the grid electricity supply and cash settled share based expenses for employees at the mine (which is largely determined by the performance of the Company’s share price). The table below shows IFRS production costs adjusted for such costs for the Year and the Quarter and comparative periods.
| 16 |
Adjusted production costs ($’000) | ||||
| 3 Months to December 31 | 12 Months to December 31 | |||
| 2019 | 2020 | 2019 | 2020 | |
| IFRS production costs | 9,650 | 11,174 | 36,400 | 43,711 |
| Minus “non-controlled costs”: | ||||
| COVID-19 related cost included in production cost | - | (198) | - | (824) |
| Diesel generator costs | (337) | (507) | (1,366) | (1,825) |
| Cash-settled share-based payments | (34) | (154) | (107) | (634) |
| Total non-controlled costs | (371) | (859) | (1,473) | (3,283) |
| Adjusted IFRS production cost | 9,279 | 10,315 | 34,927 | 40,428 |
| Tonnes milled (tonnes) | 155,389 | 156,487 | 556,331 | 597,962 |
| Adjusted dollar production cost per tonne milled ($/tonne) | 59.71 | 65.92 | 62.78 | 67.61 |
| Ounces of gold sold (0z) | 16,053 | 15,230 | 54,801 | 57,137 |
| Adjusted IFRS production cost per ounce of gold sold ($/oz) | 578 | 677 | 637 | 708 |
Excluding non-controlled costs, IFRS production costs per tonne (which excludes the effect of variations in the grade or recovery) increased for the Year by 7.7% from $637/tonne to $708/tonne; the cost per tonne milled increased for the Quarter by 10.4% from $59.71/tonne to $65.92/tonne.
All-in sustaining cost
The all-in sustaining cost per ounce in the Quarter was 33% higher than the comparable quarter; the all-in sustaining cost for the Year was 15% higher than 2019. The increase was due to the higher on-mine cost per ounce as discussed above and the cost of increased insurance cover for directors and officers and increased wages and salaries as discussed in section 3. Administrative expenses are detailed in note 9 to the Consolidated Financial Statements and are discussed in section 3.
All-in cost
All-in cost includes 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; shaft equipping was completed in the Quarter and the production headgear was erected in January 2021. Work on the Central Shaft project from April 2020 was delayed by restrictions on the movement of specialised personnel and the transport of equipment due to the coronavirus pandemic. The Central Shaft is now expected to be commissioned in the first quarter of 2021 instead of the fourth quarter of 2020. The delay in commissioning has affected target production for 2021 which has been reduced from approximately 75,000 ounces to a range of 61,000 to 67,000 ounces. There is no change to the target production rate of 80,000 ounces from 2022 onwards.
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Work on underground development continued but was hampered by the unstable electricity supply which caused frequent power interruptions and by systemic power outages due to the general lack of electricity in Zimbabwe as discussed in section 4.9. Capital development was also adversely affected by a reduction in the number of workers who could work underground due to restrictions arising from measures to prevent the spread of coronavirus.
In addition to the Central Shaft, work continued at the following developments with total capital development of 554 meters in the Quarter:
| · | Blanket Decline 4. This development, which is located between the Blanket and AR South ore bodies, was established in the previous quarter and will be mined from the 870-meter level down to the 930-meter level where a new decline (decline 6) will be developed to link with the haulage on the 990-meter level from Central Shaft. Decline 4 face has reached 915-meter level; |
| · | Blanket Decline 5 which is branching off Decline 4 has been developed past 900-meter level and is 15m from reaching 915-meter level; |
| · | AR Main Decline (Decline 2): this decline has been mined to 825 meters but further work has been paused to allow for more geological evaluation; in the meantime, work has commenced on creating development blocks from the 825-meter level to the 750-meter level above; and |
| · | Eroica Decline 3: the decline face is now at the 810-meter level and will continue to the 870-meter level so that the Eroica ore body can be established from the 870-meter level up to the 750-meter level above. |
| 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, which fully complied with the Indigenisation and Economic Empowerment Act.
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 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 after which Caledonia’s shareholding in Blanket increased to 64% shareholding in Blanket and Fremiro received approximately 6.3% of Caledonia’s enlarged issued share capital at that date.
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 at December 31, 2020 was $19.4 million (December 31, 2019: $31.0 million), the reduction being largely due to the cancellation of the loan due from Fremiro on completion of the Fremiro transaction (described above). 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% accrues to the respective indigenous shareholders. 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 $994,436 at December 31, 2020 (December 31, 2019; $1.63 million). In February 2020, Blanket agreed to a request from GCSOT that the terms of the debt relating to the repayment of the advance dividends be amended so that GCSOT would receive 20% of its attributable dividends and the balance of 80% will be applied to repay the advance dividends.
The facilitation loans are not shown as receivables in Caledonia’s financial statements in terms of IFRS. These loans are equity instruments as their only means of repayment is via dividend distributions from Blanket. Caledonia continues to consolidate Blanket for accounting purposes. Further information on the accounting effects of indigenisation at Blanket is set out in note 5 to the Consolidated Financial Statements.
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| 4.9 | Zimbabwe Commercial Environment |
Monetary Conditions
The current situation in Zimbabwe can be summarized as follows:
| · | There continues to be a shortage of foreign currency in Zimbabwe, although Blanket continues to have satisfactory access to foreign exchange. |
| · | The rate of annual inflation increased from 5% in September 2018 to approximately 500% by December 2019. By December 2020, the monthly inflation rate had fallen to approximately 4.2% and the annual rate was approximately 350%. A high rate of inflation has little effect on Blanket’s operations now that Blanket has adjusted employee remuneration to reflect the increased cost of living – this is discussed further below. |
| · | Since October 2018, bank accounts in Zimbabwe are bifurcated between Foreign Currency Accounts (“FCA”), which are effectively US Dollar denominated, and local currency (known as “ZWL$”, “RTGS Dollars” or “RTGS$”) accounts which are subject to devaluation in US$ terms and can only be used for domestic transactions. |
| · | On February 20, 2019, the RBZ allowed inter-bank trading between currency in the RTGS$ and the FCA systems. 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 and the most recent exchange rate is set out below. |
|
Interbank Exchange Rates (ZWL$:US$1) | |
| February 20, 2019 | 2.500 |
| March 31, 2019 | 3.003 |
| June 30, 2019 | 6.543 |
| September 30, 2019 | 15.090 |
| December 31, 2019 | 16.773 |
| March 31, 2020 | 25.000 |
| June 30, 2020 | 57.3582 |
| September 30, 2020 | 81.4439 |
| December 31, 2020 | 81.7866 |
| March 17, 2021 | 85.5 |
| · | The interbank trading mechanism addressed the most pressing difficulty that emerged after the October 2018 policy implementation, being the erosion of the purchasing power of Blanket’s employees due to rapidly increasing retail prices which had an adverse effect on employee morale. Management has increased RTGS$-denominated remuneration so that it remains more closely aligned to the US Dollar value using the interbank rate. More recently, Management has also introduced an element of FCA-denominated remuneration. These measures have alleviated some of the financial anxiety experienced by Blanket employees. |
| · | In February 2020, the RBZ announced its intention to further liberalise the interbank market with the objective of increasing liquidity and transparency. However, in response to the COVID-19 pandemic, the Minister of Finance reversed this policy and re-established a fixed exchange rate of ZWL$25:US$1 with effect from March 26, 2020. Despite the fixed exchange rate, the local currency continued to devalue on the informal exchange markets. On June 23, 2020, the RBZ introduced an “auction system” whereby, on a weekly basis, buyers and sellers of local currency and foreign exchange submit tenders which the RBZ uses to determine a revised interbank rate. |
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| · | Zimbabwean gold producers, including Blanket, are required to sell their gold to Fidelity. Prior to May 26, 2020, 55% of the sale proceeds were received in FCA and the balance was received in RTGS$. From May 26, 2020 gold producers received 70% of their sale proceeds in FCA and the balance was received in RTGS$. With effect from 7 January, 2021, gold producers receive 60% of their revenues in FCA and the balance in RTGS$. Blanket uses the FCA component to pay for imported goods, services, electricity and a portion of the wages and salaries at Blanket; the RTGS$ component is used to pay for goods and services procured in Zimbabwe, the remaining portion of wages and salaries at Blanket and payroll taxes and a proportion of Blanket’s income tax. At prevailing gold prices and the current rate of production, the 60% FCA allocation in conjunction with the weekly auction system 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. |
| · | Provided the interbank exchange rate is efficient, Blanket continues to participate effectively in the weekly foreign exchange auctions and Blanket receives the amounts due promptly, in full and at an exchange rate which reflects economic fundamentals, management is optimistic the current policy is an acceptable 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. |
| · | Throughout these developments 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. |
Gold support price
Blanket sells gold to Fidelity at a price which is 98.75% of the price fixed by the London Bullion Market Association (the “LBMA price”).
Prior to February 20, 2019, Blanket, in common with the other gold producers, received the Export Credit Incentive (“ECI”) which was a 10% premium to the LBMA price. On February 27, 2019 Caledonia announced the ECI programme had been terminated. However, from March 6, 2019 it became apparent that Blanket’s sales proceeds were calculated at a gross price of $44,000 per kilogram (US$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 intended to incentivize gold producers to increase gold production. The gold support price was not increased when the LBMA gold price subsequently increased above $1,368.58 per ounce and therefore from early June 2019 there was no further income in respect of the gold support price because the LBMA gold price exceeded the gold support price on each delivery date.
On March 16, 2020 Blanket received notification from Fidelity that, henceforth, Blanket would receive an incentive of 25% of the LBMA price. The incentive was receivable in RTGS$ and was calculated at 25% of the LBMA price for each delivery at the prevailing interbank rate. This incentive was withdrawn on May 26, 2020 at the same time as the FCA allocation for revenues was increased from 55% to 70% as discussed above.
There was no income arising in the Quarter from the ECI and the gold support price; any income from such sources in previous quarters was included as “Government Grant - Other Income” and was treated as a deduction from costs for the purposes of calculating all-in sustaining costs, as set out in section 10.1.
Electricity supply
Blanket experiences interruptions to its power supply from the grid and the supply from the grid is also subject to frequent surges and dips in voltage which, if not controlled, cause severe damage to Blanket’s electrical equipment. To address this matter, in 2019 Blanket increased its diesel generating capacity to 18MW of installed capacity which is sufficient to maintain all operations and capital projects. Caledonia’s board has approved a project to construct a 12 MWac solar project which will provide approximately 27% of Blanket’s average daily electricity demand at a cost of approximately $12 million. This is discussed further in section 4.13.
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 2020/21 rainy season has been excellent and water supply is adequate for the foreseeable future.
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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% if the gold price is above $1,200 per ounce; a royalty rate at 3% applies if the gold price is below $1,200. With effect from January 1, 2020 the royalty is allowable as a deductible expense for the calculation of income tax. |
| · | Income tax in the Year was levied at 25.75% on profits as adjusted for tax purposes. The main adjustments to profit for the purposes of calculating tax are the add-back of depreciation and most of the management fees paid by Blanket to CMSA. 100% of all capital expenditure incurred in the year of assessment is allowed as a deductible expense. Deferred tax is raised for the difference between capital expenditure and depreciation, in addition to other timing differences such as unrealized foreign exchange gains and losses. The calculation of taxable income is performed using financial records prepared in RTGS$: in an environment where the local currency is rapidly depreciating against the US Dollar, this significantly reduces the deferred tax liability; however, it increases the taxable profits denominated in local currency. The income tax liability is translated into US Dollars for reporting purposes, but the eventual payment of the liability is made in a combination of US Dollars and local currency, which may give rise to further exchanges gains or losses. With effect from 1 January 2021 mining entities will be levied income tax at a rate of 24.72%. |
| · | 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 CMSA. |
| 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 and this shaft is expected to be commissioned by the end of the first quarter of 2021. Once commissioned, the shaft should allow production to increase to the targeted rate of approximately 80,000 ounces per annum from 2022 onwards.
Production Guidance
On October 5, 2020, following record production in the third quarter of 2020 the Company increased production guidance for 2020 from a range of 53,000 to 56,000 ounces to a range of 55,000 to 58,000 ounces. Production for the Year was 57,899 ounces, which was towards the upper end of the guidance range.
Production guidance for 2021 is a range of 61,000 to 67,000 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.
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Cost Guidance
Guidance in respect of on-mine cost per ounce and AISC per ounce for 2020 and 2021 and the outcome for 2020 is set out in the table below.
| Cost guidance for 2020 and 2021 and 2020 actual costs | |||
| 2020 | 2021 | ||
| Guidance | Actual | Guidance | |
| On-mine cost per ounce ($/oz) | 693-767 | 770 | 740-815 |
| AISC per ounce ($/oz) | 951-1,033 | 1,083 | 985-1,080 |
Actual on-mine cost per ounce and AISC per ounce for the Year were higher than guidance for the reasons set out in section 4.6 which include: costs relating to COVID-19 and increased use of diesel generators; and higher administrative costs due to the increased cost of insurance cover and higher wages and salaries.
Cost guidance 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.
| 4.11 | Sale of Eersteling |
On May 31, 2018, the Group entered into a share sale agreement to sell the shares and claims of Eersteling, a South African subsidiary which owns a mine that was on care and maintenance since 1997. The share sale agreement allowed for a purchase price of $3 million to be settled by three payments of $1 million, the last of which fell due on July 30, 2020. The purchaser was unable to make the final payment due to the closure of the operation during the South African lock-down period and the death of one of the purchaser’s principals. Caledonia continues constructive engagement with the purchaser to recover the outstanding consideration of $1,099 (December 31, 2019: $1,991). An amount of R5 million (US$342) was received in 2021 in part settlement of the outstanding amount; Caledonia is of the opinion that the remaining outstanding amount is fully recoverable.
| 4.12 | COVID-19 |
One case of coronavirus was recorded at Blanket during the Year; 37 cases of coronavirus have been detected in 2021 and some cases were also detected at the Company’s offices in Harare and amongst its employees in Johannesburg. None of the identified cases resulted in hospitalisation and all infected persons appear to have made a full recovery. Periodic lockdowns from March 2020 in Zimbabwe and South Africa had a negligible effect on production in the Quarter or the Year and in 2021 to the date of this MD&A. However, as discussed in section 4.7, they caused some slippage in the timetable to complete Central Shaft.
COVID-19 related operating costs such as the cost of protective equipment were $179 in the Quarter and $824 for the Year. Blanket also donated $290 in the Quarter and $1,322 in the Year to the community to assist its efforts to address the pandemic.
| 4.13 | Proposed solar project |
As noted in section 4.9, Blanket suffers from unstable grid power and frequent and prolonged power outages due to load shedding. In late 2019 Caledonia initiated a tender process to identify parties to make proposals for a solar project to reduce Blanket’s reliance on grid power. After careful consideration, Caledonia’s board approved the construction of a 12MWac solar plant at a cost of approximately $12 million. The plant is expected to provide all of Blanket’s minimum electricity demand during daylight hours; Blanket will continue to rely on the grid and generators to provide additional power during daylight hours and at night. It is estimated that the solar plant will provide approximately 27% of Blanket’s total daily electricity requirement. Battery power is currently too expensive to justify their use to augment the solar project, but the Company will continue to monitor this situation as battery technology develops. The Company will also evaluate a further phase for the solar project to provide Blanket’s peak demand during daylight hours, but this will require an agreement between the Company and the Zimbabwe authorities regarding the treatment of power that will be generated by a second phase that is surplus to Blanket’s requirements.
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The Company investigated the possibility of raising non-recourse debt to fund all or part of the proposed project but such funding was not available. Accordingly, the Company raised $13 million (before commission and expenses) through the sale of 597,963 shares at an average price of $21.74 per share.
The status of the project is as follows:
| · | the 40-hectare site for the project has been cleared and fenced and is ready for civil work to commence; |
| · | Caledonia has obtained the necessary licences and permits for the project; |
| · | Contracts between Caledonia and the various other parties have been negotiated and on October 7, 2020 the Company announced it had appointed Voltalia, an international renewable energy provider, as contractor for the project; and |
| · | Caledonia and Voltalia are currently in the process of satisfying final conditions precedent, including production of the detailed design for the project, after which procurement and construction are expected to begin with current indicated commissioning for the 12MWac solar plant in early 2022. |
| 5. | EXPLORATION |
Caledonia’s exploration activities are focussed on the growth and development of Blanket Mine and on two new exploration properties in respect of which Caledonia acquired purchase options during the Quarter. 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.
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. 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.
Exploration at Blanket’s portfolio of satellite properties has been suspended since 2016 so that resources could be re-deployed at Blanket. Since then, the Company has evaluated other investment opportunities in Zimbabwe and has concluded that the satellite properties other than GG are unattractive due to their relatively small size, low grade, limited exploration potential, operating complexity and metallurgical incompatibility with the existing Blanket plant. Accordingly, Blanket has entered discussions to sell the Mascot, Eagle Vulture and Penzance properties for a cash consideration of $500. This transaction entails an impairment of the carrying value of these assets of $2,930 which is classified as “Other expense” in the Statement of Profit and Loss and Other Comprehensive Income and is a non-cash item.
The GG satellite property remains on care and maintenance. Limited surface drilling was undertaken in the Quarter to test for parallel zones to the south of the existing mineralised zone. Preliminary results are encouraging and drilling continues. The Lima pilot plant, which could be used to process any material from GG, has recently been upgraded to accommodate 200 tonnes per day.
During the Quarter, Caledonia acquired purchase options in respect of two properties, Glen Hume and Connemara North, located in the Gweru mining district in the Zimbabwe Midlands – an area that has historically produced significant quantities of gold.
Glen Hume
In December 2020 Caledonia acquired the exclusive right to explore an area of approximately 350 hectares with substantial evidence of gold mineralisation including historical mining activity for a period of up to 15 months. If exploration is successful and at its sole discretion, Caledonia has the right to acquire the mining claims over the area. The total consideration is an initial payment of $2.5 million in cash, followed by a further payment of $2.5 million (payable in cash or shares at the discretion of the vendor) which would be payable should Caledonia decide to exercise its right to acquire the mining claims. Caledonia has also agreed to the payment of a 1% net smelter royalty ("NSR") to the vendor on gold it produces from the area. The NSR can subsequently be bought out at Caledonia's discretion for a lump sum payment of $15 million within the first five years following the acquisition by Caledonia of the claims, or $10 million until the tenth anniversary of operation or $5 million thereafter.
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Caledonia has conducted airborne geophysics which indicates attractive exploration targets and has also conducted preliminary metallurgical work indicating favourable grade and recovery. A preliminary contract has been signed with the existing drilling contractor, a drill programme has commenced with 1,012.6 metres of reverse circulation drilling completed. Diamond drilling commenced in January 2021. The planned drilling programme across the entire duration of the 15-month option period is for 5,100 meters of reverse circulation drilling and 3,500 meters of diamond drilling. The necessary quality assurance and control protocols have been implemented, laboratory services procured and samples submitted for assay.
Connemara North
In December 2020 Caledonia announced it had entered into an option agreement which gives the Company the exclusive right to explore for a period of 18 months and subsequently, if exploration is successful and at its sole discretion, acquire the mining claims over an area known as Connemara North. The total consideration is an initial payment of $300, followed by a further payment of $5 million (payable in cash or shares at the discretion of the vendor) which would be payable should Caledonia decide to exercise its right to acquire the mining claims. Caledonia has also agreed to the payment of a 1% NSR to the vendor on gold it produces from Connemara North.
Connemara North is the northern section of the currently closed Connemara mine which was previously owned by First Quantum Minerals (“First Quantum”); it was placed on care and maintenance in 2001 and subsequently disposed of in 2003. It has not been commercially mined since this time but before being placed on care and maintenance the Connemara mine produced approximately 20,000 ounces of gold per annum from an open pit heap leach operation. Previous public disclosures made by First Quantum in 2001 indicated that they had plans to expand the existing open pit operations at Connemara mine, when gold prices were approximately $300/oz. At this stage it is not possible for Caledonia to verify any of the work performed by previous owners or to ascertain what proportion of any purported resource lies within the boundaries of the Connemara North property over which Caledonia has secured the option. The property is approximately 30km from Glen Hume with good road access between them offering the potential of operating synergies should Caledonia decide to develop both areas.
Existing data sets have been reviewed for scoping of the proposed exploration programme which will commence in 2021.
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| 6. | INVESTING |
An analysis of investment in the Quarter, the Year, the preceding quarters in 2020 and the years 2018 and 2019 is set out below.
| ($’000’s) | 2018 | 2019 | 2020 | 2020 | 2020 | 2020 | 2020 |
| Year | Year | Q1 | Q2 | Q3 | Q4 | Year | |
| Total Investment – Property, plant and equipment | 19,453 | 20,423 | 4,072 | 4,054 | 5,714 | 10,938 | 24,778 |
| Blanket | 19,438 | 20,128 | 4,066 | 4,042 | 5,537 | 10,670 | 24,315 |
| Solar | - | - | - | - | 136 | 236 | 372 |
| Other | 15 | 295 | 6 | 12 | 41 | 32 | 91 |
| Total investment – Exploration and evaluation assets | 462 | 172 | 28 | 34 | 14 | 2,982 | 3,058 |
| Connemara North | - | - | - | - | - | 300 | 300 |
| Glen Hume | - | - | - | - | - | 2,661 | 2,661 |
| Other Satellite properties | 462 | 172 | 28 | 34 | 14 | 21 | 97 |
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 investment in the proposed solar project after it had received board approval (as discussed in section 4.13) and capital items that are purchased by CMSA 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 |
The Company raised $13 million (before expenses) during the third quarter of 2020 by issuing 597,963 shares at an average price of $21.74 per share. The proceeds of this financing are intended to fund the construction of a solar plant as discussed in section 4.13. Other than the issue of equity to fund the solar project, Caledonia financed all its operations using funds on hand and those generated by its operations. The Company has no debt other than loan facilities which are held by Blanket and which were as set out below at December 31, 2020:
| Blanket debt facilities | |||||
| Lender | Date drawn | Principal value | Balance drawn at December 31, 2020 |
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 2018 | RTGS$35 million | RTGS$35 million | 4 equal quarterly instalments commencing December 2020 | Unsecured |
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| Blanket debt facilities (cont.) | |||||
| Overdraft facilities | |||||
| Lender | Date drawn | Principal value | Balance drawn at December 31, 2020 |
Repayment terms | Security |
| Stanbic Bank Zimbabwe Limited | August 2019 | RTGS$15 million | Nil | On demand | Unsecured |
| First Capital Bank Limited | October 2019 | RTGS$10 million | Nil | On demand | Unsecured |
| 8. | LIQUIDITY AND CAPITAL RESOURCES |
An analysis of Caledonia’s capital resources at December 31, 2020 and at the end of each of the preceding 5 quarters is set out below.
| Liquidity and Capital Resources | |||||||
| ($’000’s) | |||||||
| As at | Sept 30 | Dec 31 | Mar 31 | Jun 30 | Sept 30 | Dec 31 | |
| 2019 | 2019 | 2020 | 2020 | 2020 | 2020 | ||
| Overdraft | – | 490 | – | – | – | - | |
| Term facility | 424 | 2,471 | 1,585 | 721 | 515 | 408 | |
| Gold ETF | – | – | – | 1,112 | 1,160 | 1,184 | |
| Cash and cash equivalents in the statement of cashflows (net of overdraft) | 8,026 | 8,893 | 13,825 | 11,639 | 21,562 | 19,092 | |
| Working capital | 17,614 | 19,960 | 22,798 | 24,937 | 37,691 | 34,622 | |
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, 2020 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 $19.5 million which are not reflected as loans receivable for IFRS purposes (refer to note 5 of the Consolidated Financial Statements). The Company had the following contractual obligations at December 31, 2020:
| Payments due by Period | |||||
| ($’000’s) | |||||
| Falling due | Within 1 year | 1-3 Years | 4-5 Years | After 5 Years | Total |
| Trade and other payables | 8,664 | - | - | - | 8,664 |
| Term loan | 408 | - | - | - | 408 |
| Provisions | 139 | 793 | 93 | 2,542 | 3,567 |
| Capital expenditure commitments | 2,998 | - | - | - | 2,998 |
| Lease Liabilities | 61 | 178 | - | - | 239 |
| Cash-settled share-based payments | 336 | 1,934 | - | - | 2,270 |
The capital expenditure commitments relate primarily to materials and equipment which have been ordered by CMSA and which will be sold on to Blanket. In addition to the committed purchase obligations set out above, Blanket currently intends to invest a further $35.8 million in 2021 which is also uncommitted and includes $12.4 million on the solar project and $1.8 million on the optioned exploration properties. Other than the proposed investment on the solar project and at the exploration properties, 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.
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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 and, in respect of the cost of the proposed solar project, the proceeds of the issue of shares as discussed in section 7.
The Group leases property for its administrative offices in Jersey, Harare and Johannesburg; following the implementation of IFRS 16 the Group recognises the liabilities for these leases. As of December 31, 2020, Caledonia had potential liabilities for rehabilitation work on Blanket – if the mine is permanently closed – at an estimated discounted cost of $3.6 million (2019: $3.3 million; 2018: $3.3 million).
| 10. | NON-IFRS MEASURES |
Throughout this document, we have provided measures prepared in accordance with IFRS in addition to some non-IFRS performance measures for investors who use them to evaluate our performance. Since there is no standard method for calculating non-IFRS measures, they are not a reliable way to compare Caledonia against other companies. Non-IFRS measures should be used along with other performance measures prepared in accordance with IFRS. We have defined below the non-IFRS measures we have used in this document and provide a reconciliation of such non-IFRS measures to the IFRS measures we report.
| 10.1 | Cost per ounce |
Non-IFRS performance measures such as “on-mine cost per ounce”, “all-in sustaining cost per ounce” and “all-in cost per ounce” are used in this document. Management believes these measures assist investors and other stakeholders in understanding the economics of gold mining over the life-cycle of a mine. These measures are calculated on the basis set out by the World Gold Council in a Guidance Note published on June 23, 2013 and accordingly differ from the previous basis of calculation. The table below reconciles “on-mine cost per ounce”, “all-in sustaining cost per ounce” and “all-in cost per ounce” to the production costs shown in the financial statements which have been prepared under IFRS.
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| Reconciliation of IFRS Production Cost to Non-IFRS Costs per ounce | ||||
| ($’000’s unless otherwise indicated) | ||||
| 3 months ended December 31 | 12 months ended December 31 | |||
| *2019 | 2020 | *2019 | 2020 | |
| Production cost (IFRS) | 9,650 | 11,174 | 36,400 | 43,711 |
| COVID-19 expenses included in operating cost | - | (198) | - | (1,038) |
| Cash-settled share-based expense | (34) | (154) | (107) | (634) |
| Less exploration and site restoration costs | (234) | (160) | (826) | (708) |
| Other cost and intercompany adjustments | 304 | 1,063 | 212 | 1,201 |
| On-mine production cost | 9,686 | 11,725 | 35,679 | 42,532 |
| Gold sales (oz) | 16,053 | 15,230 | 54,801 | 57,137 |
| On-mine cost per ounce ($/oz) | 603 | 770 | 651 | 744 |
| Royalty | 1,172 | 1,408 | 3,854 | 5,007 |
| Exploration, remediation and permitting cost | 108 | 196 | 416 | 468 |
| Sustaining capital expenditure | 93 | 171 | 565 | 760 |
| Administrative expenses | 1,686 | 2,636 | 5,637 | 7,997 |
| Silver by-product credit | (20) | (27) | (64) | (86) |
| Share-based payment expense included in production cost | 34 | 154 | 107 | 634 |
| Share-based payment expense | 283 | 236 | 689 | 1,413 |
| All-in sustaining cost | 13,042 | 16,499 | 46,883 | 58,725 |
| Gold sales (oz) | 16,053 | 15,230 | 54,801 | 57,137 |
| All-in sustaining cost per ounce before ECI ($/oz) | 812 | 1,083 | 856 | 1,028 |
| ECI | - | - | (1,930) | (4,695) |
| All-in sustaining cost | 13,042 | 16,499 | 44,953 | 54,030 |
| Gold sales (oz) | 16,053 | 15,230 | 54,801 | 57,137 |
| All-in sustaining cost per ounce after ECI ($/oz) | 812 | 1,083 | 820 | 946 |
| Solar expenses | 75 | 28 | 160 | 230 |
| COVID-19 donations | - | 274 | - | 1,322 |
| COVID-19 expenses | 198 | 1,038 | ||
| Permitting and exploration expenses | 31 | 251 | 132 | 373 |
| Non-sustaining capital expenditure | 5,452 | 10,691 | 20,030 | 24,018 |
| Total all-in cost | 18,600 | 27,941 | 65,275 | 81,011 |
| Gold sales (oz) | 16,053 | 15,230 | 54,801 | 57,137 |
| All-in cost per ounce ($/oz) | 1,159 | 1,835 | 1,191 | 1,418 |
| * Restated | ||||
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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 | ||||
| ($’000’s unless otherwise indicated) | ||||
| 3 months ended December 31 | 12 months ended December 31 | |||
| 2019 | 2020 | 2019 | 2020 | |
| Revenue (IFRS) | 23,433 | 28,128 | 75,826 | 100,002 |
| Revenues from sales of silver | (20) | (27) | (64) | (86) |
| Revenues from sales of gold | 23,413 | 28,101 | 75,762 | 99,916 |
| Gold ounces sold (oz) | 16,053 | 15,230 | 54,801 | 57,137 |
| Average realised gold price per ounce (US$/oz) | 1,458 | 1,845 | 1,382 | 1,749 |
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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 ended December 31 | 12 months ended December 31 | |||
| *2019 | 2020 | *2019 | 2020 | |
| Profit for the period (IFRS) | 3,230 | 3,796 | 50,401 | 25,257 |
| Non-controlling interest share of profit for the period | (840) | (823) | (8,383) | (4,477) |
| Profit attributable to owners of the Company | 2,390 | 2,973 | 42,018 | 20,780 |
| Blanket Mine Employee Trust adjustment | (55) | (67) | (986) | (485) |
| Earnings (IFRS) | 2,335 | 2,906 | 41,032 | 20,295 |
| Weighted average shares in issue (thousands) | 10,742 | 12,119 | 10,742 | 11,704 |
| IFRS EPS (cents) | 22 | 24 | 382 | 173 |
| Add back/(deduct) amounts in respect of foreign exchange movements | ||||
| Realised net foreign exchange (gains)/losses | (846) | 292 | 1,648 | 4,062 |
| - less tax | 228 | (40) | (414) | (1,006) |
| - less non-controlling interest | 108 | (15) | (198) | (383) |
| Unrealised net foreign exchange (gains) | (546) | 94 | (31,309) | (8,369) |
| - less tax | 9 | 89 | 519 | 2,158 |
| - less non-controlling interest | 98 | 1 | 5,000 | 836 |
| Adjusted IFRS profit excl. foreign exchange | 1,386 | 3,327 | 16,278 | 17,593 |
| Weighted average shares in issue (thousands) | 10,742 | 12,119 | 10,742 | 11,704 |
| Adjusted IFRS EPS excl. foreign exchange (cents) | 13 | 27 | 152 | 150 |
| Add back/(deduct) amounts in respect of: | ||||
| Reversal of Blanket Mine Employee Trust adjustment | 55 | 67 | 986 | 485 |
| Impairment of E&E assets | - | 2,930 | - | 2,930 |
| Deferred tax | 4,716 | 3,519 | 2,460 | 3,523 |
| Non-controlling interest portion deferred tax and impairment | (768) | (914) | (477) | (900) |
| Profit on sale of subsidiary | (4,409) | - | (4,409) | - |
| Hedge loss | 277 | 145 | 601 | 266 |
| Adjusted profit | 1,257 | 9,074 | 15,439 | 23,897 |
| Weighted average shares in issue (thousands) | 10,742 | 12,119 | 10,742 | 11,704 |
| Adjusted EPS (cents) | 12 | 75 | 144 | 204 |
| * Restated | ||||
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| 11. | RELATED PARTY TRANSACTIONS |
There were no related party transactions in the Quarter.
| 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”); and |
| (b) | 100% of the 10% shareholding of GCSOT. |
| · | This effectively means that NCI is recognised at Blanket at 13.2% of its net assets. |
| · | The remaining 80% of the shareholding of NIEEF is recognised as a non-controlling interest to the extent that its attributable share of the net asset value of Blanket exceeds the balance on the facilitation loans including interest. At December 31, 2020 the attributable net asset value did not exceed the balance on the loan account 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 exceeds the balance on BETS’ facilitation loan they will accrue to the employees at the date of such declaration.
The Employee Trust, which owns BETS, 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 account of 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 30 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 plan 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 can 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 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 several 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. Caledonia currently has no arrangements to mitigate commodity price risk but continues to assess the requirement for any hedging in the context of, inter alia, the prevailing gold price and Blanket’s production and capital expenditure programme.
| 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 2021. The VAT receivables were within the agreed terms of such refunds.
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| iii) | Impairment losses |
None of the trade and other receivables is past due at the period-end date other than a tranche of deferred consideration in respect of the sale of Eersteling in respect of which discussions continue regarding the rescheduling of the amount due.
| 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.
During the second quarter of 2020, Caledonia purchased a gold ETF using a portion of the cash that is held by CMSA in South African Rands to protect against further devaluation of the South African Rand.
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. In addition, the Company may be subject to fluctuations in the exchange rate between the South African Rand and the US Dollar in respect of cash that is held in Rands in South Africa.
| vi) | Interest rate risk |
Interest rate risk is the risk borne by an interest-bearing asset or liability due to 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 in the quarterly dividend from 6.875 cents to 7.5 cents per share.
On April 1, 2020, the Company announced the deferral of the quarterly dividend that would ordinarily have been declared and paid in April 2020 due to the uncertainty surrounding the COVID-19 pandemic. On April 29, 2020, the Company announced this dividend would be paid at the end of May 2020 at a rate of 7.5 cents per share.
On June 29, 2020, the Company announced a 13% increase in the quarterly dividend from 7.5 cents to 8.5 cents per share.
On October 1, 2020, the Company announced an 18% increase in the quarterly dividend from 8.5 cents to 10 cents per share.
On January 4, 2021, the Company announced a 10% increase in the quarterly dividend from 10 cents to 11 cents per share. This fourth increase within a 15-month period represents a cumulative 60% increase in the quarterly dividend since October 2019.The board will consider the continuation of the dividend and any future increases in the dividend as appropriate in line with its prudent approach to risk management including: Blanket maintaining a reasonable level of production; receiving payment in full and on-time for all gold sales; being able to make the necessary local and international payments and being able to replenish its supplies of consumables and other items.
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| 15. | MANAGEMENT AND BOARD |
In January 2020 Janet Hobkirk joined the Group 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.
In March 2020 Pieter Greyling joined the Group as a Rock Engineer to enhance safety at Blanket’s undergound operations. Mr Greyling has 34 years of experience in the mining industry. Prior to joining the Group, he was in charge of the Rock Engineering department at Goldfields and was Group Rock Engineering Manager for Anglogold at their West Wits operations.
In October 2020 Camilla Horsfall joined the Company as Vice President, Investor Relations. Miss Horsfall was previously a Partner at Blytheweigh, a London-based financial public relations and investor relations consultancy, of which Caledonia remains a client.
In January 2021 Mrs Leonet Steyn CA (SA), CISA, joined the Group as Internal Auditor. Mrs Steyn was previously a senior manager in the IT Risk Assurance division at PriceWaterhouseCoopers in Johannesburg.
In February 2021 the Company announced that Mrs Geralda Wildschutt had joined the board of directors of the Company as an independent non-executive director with immediate effect. Mrs Wildschutt has over 25 years’ experience working in social development and stakeholder management in the fields of social performance, community relations in mining operations, financial services and industry bodies focused on responsible mining. She has been a consultant to Anglo American, Gold Fields, Ivanhoe Mines and South32 on a range of social performance areas including social investment, ESG compliance, human rights and social impact assessments, strengthening of community trusts, capacity building and systems development. Mrs Wildschutt hold a Masters’ Degree in Psychology from the University of Cape Town, an MBA from the Business School of the Netherlands and a post-graduate Certificate in Cross-sector Partnerships from Cambridge University.
| 16. | SECURITIES OUTSTANDING |
At March 22, 2021, being the last day practicable prior to the publication of this MD&A, Caledonia had 12,118,823 common shares issued and outstanding options to purchase common shares (“Options”) as follows:
| Number of Options | Exercise Price | Expiry Date |
| Canadian $ | ||
| 18,000 | 11.5 | 13-Oct-21 |
| 10,000 | 9.3 | 25-Aug-24 |
| 28,000 |
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 1,183,882 shares at March 22, 2021 on the assumption that all outstanding LTIPs are settled in cash, at the request of the LTIP holders.
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| 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.
| · | COVID-19 pandemic: The COVID-19 pandemic, and measures that may be taken by governments and other parties to counter the spread of the virus may, inter alia, have the following effects on the Company: its workforce may fall ill which could affect operations; restrictions on transport and travel may impede the Company’s ability to procure consumables, equipment and services which may affect operations and progress on capital projects; the banking system may not operate effectively which may impede the Company’s ability to effect domestic and international payments; it may be difficult to secure a route to market for the gold doré produced by Blanket. In response to these risks, management has: introduced measures to safeguard its employees from the virus; maximised the inventory of consumable stock; engaged closely with its customer, Fidelity, regarding access to refiners and the eventual route to market for Blanket’s production; and management regularly reviews its financial status and projections. However, it must be recognised that the duration and effects of the COVID-19 pandemic are uncertain and therefore not capable of accurate forecasting. |
| · | Liquidity risk: The Company aims to generate capital to be able to continue to invest in properties and projects without raising further third-party financing. Caledonia currently has sufficient cash resources and continues to generate sufficient cash to cover all its anticipated investment needs. |
| · | 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 lease, claims, licences and permits are in good standing. The Company must pay fees etc. to maintain its lease, 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 its lease, 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 had hedging arrangements over 4,600 ounces of gold per month for the period from January 1, 2020 to June 30, 2020 which guaranteed that Caledonia would receive a minimum price of $1,400 per ounce in respect of the ounces hedged. The Company currently has no hedging arrangements in place. Management regularly reviews future cash flow forecasts in the context of the prevailing gold price and likely downside scenarios for future gold prices. |
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| · | 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: In previous years there have been incidences of illegal mining activities on properties controlled by Blanket which resulted in 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. Those properties that are at most risk from such activity have been sold. |
| · | 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 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. The Company’s board has resolved to install a solar plant which will provide some of Blanket’s power requirements. |
| · | 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 most recent rainy season has been better than average and management believes there is enough water in the Blanket dam to maintain normal operations until the next rainy season. |
| · | 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 been augmented so that, if required, it could provide appropriate support to Blanket if this is 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 Zimbabwe Government 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. |
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| 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.
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, risks related to natural disasters, terrorism, civil unrest, public health concerns (including health epidemics or outbreaks of communicable diseases such as the coronavirus (COVID-19)), 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.
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| 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, 2020. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, at December 31, 2020, 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.
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 at December 31, 2020. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that at December 31, 2020, the Company’s ICFR was effective.
There have been no changes in the Company’s ICFR during the period ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. In January 2021 Leonet Steyn joined the Group as Internal Auditor; this is expected to enhance the Company’s ICFR for future reporting periods.
| 20. | QUALIFIED PERSON |
Mr. Dana Roets (B Eng (Min), MBA, Pr..Eng, FSAIMM, AMMSA) is the Company’s qualified person as defined by Canada’s National Instrument 43-101. Mr. Roets is responsible for the technical information provided in this MD&A except where otherwise stated. Mr. Roets 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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