UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

ANNUAL REPORT

 

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

 

OR

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ……………………………………………

 

For the transition period from ……………………………… to ………………………………

 

Commission file number 001-38164

 

Caledonia Mining Corporation Plc

(Exact name of Registrant as specified in its charter)

 

Jersey, Channel Islands

(Jurisdiction of incorporation or organization)

 

Caledonia Mining Corporation Plc

B006 Millais House, Castle Quay, St Helier, Jersey, JE2 3EF

(Address of principal executive offices)

 

Mark Learmonth, +44 1534 679 800, mlearmonth@caledoniamining.com, B006 Millais House,

Castle Quay, St Helier, Jersey Channel Islands, JE2 3EF.

(Name, telephone, email and/or facsimile number and address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Shares, no par value CMCL NYSE American LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

  1  

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or stock as of the closing of the period covered by the annual report:

 

12,118,823 (“Common shares” or “shares”)

 

Indicate by check mark if the registration is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

[ ] Yes         [X] No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

[ ] Yes         [X] No

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days

 

[X] Yes         [ ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

[X] Yes         [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, and/or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
     
    Emerging growth company [X]

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

[ ]

 

  2  

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP [ ]

 

International Financial Reporting Standards as issued by the International Accounting Standards Board [X]

 

Other [ ]

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow

 

Item 17 [ ]         Item 18 [ ]

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

[ ] Yes         [X] No

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  3  

 

 

tABLE OF cONTENTS

 

PART I 9  
ITEM 1 - Identity of Directors, Senior Management and Advisers 9  
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE 9  
ITEM 3 - KEY INFORMATION 9  
A. Selected Financial Data 9  
B. Capitalization and Indebtedness 10  
C. Reasons for the Offer and Use of Proceeds 10  
D. Risk Factors 10  
ITEM 4 - INFORMATION ON THE COMPANY 24  
A. History and Development of the Company 24  
B. Business Overview 28  
C. Organizational Structure 31  
D. Property, Plant and Equipment and Exploration and evaluation assets 31  
ITEM 4A - UNRESOLVED STAFF COMMENTS 37  
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS 37  
A. Operating Results 38  
B. Liquidity and Capital Resources 44  
C. Research and development, patents and licenses, etc. 45  
D. Trend Information 45  
E. Off-Balance Sheet Arrangements 46  
F. Tabular Disclosure of Contractual Obligations 46  
G. Safe Harbor 46  
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 47  
A. Directors and Senior Management 47  
B. Board Practices 52  
C. Employees 53  
D. Share Ownership 53  
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 54  
A. Major Shareholders 54  
B. Related Party Transactions 55  
C. Interests of Experts and Counsel 55  
ITEM 8 - FINANCIAL INFORMATION 55  
A. Consolidated Statements and Other Financial Information 55  
B. Significant Changes 56  
ITEM 9 - THE OFFERING AND LISTING 56  
A. Offering and Listing Details 56  
B. Plan of Distribution 56  
C. Markets 56  
D. Selling Shareholders 56  
E. Dilution 56  
F. Expenses of the Issue 56  
ITEM 10 - ADDITIONAL INFORMATION 56  
A. Share Capital 56  
B. Memorandum and Articles of Association 56  
C. Material Contracts 63  
D. Exchange Controls 63  
E. Taxation 64  
F. Dividends and Paying Agents 67  
G. Statement by Experts 67  
H. Documents on Display 67  
I. Subsidiary Information 68  

 

  4  

 

 

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 68  
A. Currency Risk 68  
B. Sensitivity Analysis 69  
C. Interest Rate Risk 69  
D. Concentration of Credit Risk 70  
E. Liquidity Risk 70  
F. Market Risk – Gold Price 70  
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 70  
PART II 71  
ITEM 13 - DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES 71  
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 71  
A. to D.   71  
E. Use of Proceeds 71  
ITEM 15 - CONTROLS AND PROCEDURES 71  
A. Disclosure Controls and Procedures 71  
B. Management’s annual report on internal control over financial reporting 71  
C. Attestation report of registered public accounting firm 71  
D. Changes in internal controls over financial reporting 72  
ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT 72  
ITEM 16B - CODE OF ETHICS 72  
ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES 72  
ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 73  
ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 73  
ITEM 16F - CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 73  
ITEM 16G – CORPORATE GOVERNANCE 73  
ITEM 16H - MINE SAFETY DISCLOSURE 74  
PART III 75  
ITEM 17 - FINANCIAL STATEMENTS 75  
ITEM 18 - FINANCIAL STATEMENTS 75  
ITEM 19 – EXHIBITS 75  

 

 

 

 

 

  5  

 

 

Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report on Form 20-F ("Annual Report") and the exhibits attached hereto contain "forward-looking information" and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation that involve risks and uncertainties relating, but not limited to, the Company’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 Annual Report include: our reserve calculations with underlying assumptions, 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, Caledonia Mining Corporation Plc’s (“Caledonia” or “Company”) plans and timing regarding further exploration, drilling and development, the prospective nature of exploration and development targets, the ability to upgrade and convert mineral reserves, capital 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 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 and the availability of foreign exchange, fluctuations in commodity prices, delays in the development of projects and other factors.

 

Shareholders, potential shareholders and other 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 proving to be inaccurate, fluctuations in gold price, 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, 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); availability and increasing costs associated with mining inputs and labor; 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. Shareholders, potential shareholders and other 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 annual report, 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. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

 

  6  

 

 

Status as an Emerging Growth Company

 

We are an “emerging growth company” as defined in Section 3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We will continue to qualify as an "emerging growth company" until the earliest to occur of: (a) the last day of the fiscal year during which we had total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every 5 years by the United States Securities and Exchange Commission (“SEC”)) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer", as defined in Exchange Act Rule 12b-2. We expect to continue to be an emerging growth company for the immediate future. During 2020 Caledonia completed the first sale of equity securities under the Securities Act and may therefore in 2026 no longer qualify as an emerging growth company. Refer to note 24 in the Consolidated Financial Statements for detail on the sale of these equity securities.

 

Generally, a registrant that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act a management report on internal control over financial reporting and, subject to an exemption available to registrants that are neither an "accelerated filer" or a "larger accelerated filer" (as those terms are defined in Exchange Act Rule 12b-2), an auditor attestation report on management's assessment of internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report on management’s assessment of internal controls over financial reporting in its annual reports filed under the Exchange Act, even if we were to qualify as an "accelerated filer" or a "larger accelerated filer". In addition, Section 103(a)(3) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) has been amended by the JOBS Act to provide that, among other things, auditors of an emerging growth company are exempt from any rules of the Public Company Accounting Oversight Board requiring a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the company.

 

SPECIAL NOTE REGARDING LINKS TO EXTERNAL WEBSITES

 

Links to external, or third-party websites, are provided solely for convenience. We take no responsibility whatsoever for any third-party information contained in such third-party websites, and we specifically disclaim adoption or incorporation by reference of such information into this report.

 

 

 

  7  

 

 

NON-IFRS FINANCIAL INFORMATION

 

This Annual Report contains financial statements of the Company prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).  In addition, this Annual Report also contains non-IFRS financial measures (“Non-IFRS Measures”) including “on-mine cost per ounce”, “all-in sustaining cost per ounce”, “all-in cost per ounce”, “average realized gold price” and “adjusted earnings per share” as we believe these are useful metrics for measuring our performance. However, these Non-IFRS Measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS.

 

Foreign Private Issuer Filings

 

We are considered a “foreign private issuer” pursuant to Rule 405 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

 

For as long as we are a “foreign private issuer” we intend to file our annual financial statements on Form 20-F and furnish our quarterly financial statements on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. However, the information we file or furnish may not be the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for U.S. domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.

 

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by United States residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are United States citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States. If we lose our “foreign private issuer status” we would be required to comply with Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirement for “foreign private issuers”.

 

 

 

  8  

 

 

PART I

 

ITEM 1 - Identity of Directors, Senior Management and Advisers

 

Not Applicable.

 

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable.

 

ITEM 3 - KEY INFORMATION

 

A. Selected Financial Data

 

The following tables present our selected consolidated financial data. You should read these tables in conjunction with our audited Consolidated Financial Statements and accompanying notes included in Item 18 of this Annual Report and “Operating and Financial Review and Prospects” included in Item 5 of this Annual Report.

 

The selected consolidated financial information set forth below has been derived from our audited Consolidated Financial Statements that are prepared in accordance with IFRS, which differ in certain respects from the principles we would have followed had our Consolidated Financial Statements been prepared in accordance with U.S. GAAP. The selected consolidated financial information should be read in conjunction with our Consolidated Financial Statements and related notes thereto. The selected consolidated financial information is presented in United States Dollars (“USD” or “$”), which is also the functional currency of the Company.

 

Financial – All in USD’000’s unless indicated otherwise     2020       2019       2018       2017       2016  
Revenue     100,002       75,826       68,399       69,762       61,992  
Gross Profit     46,656       31,138       21,587       26,321       23,492  
Profit for the year – after tax from operations     25,257       50,401       13,756       11,896       11,085  
Profit for the year – after tax from continuing operations     25,257       50,401       13,756       11,896       11,085  
Profit attributable to owners of the Company     20,780       42,018       10,766       9,384       8,526  
Net cash and cash equivalent     19,092       8,893       11,187       12,756       14,335  
Current Assets     44,586       29,839       28,168       27,913       25,792  
Total Assets     177,920       143,553       125,693       110,056       90,709  
Current Liabilities     9,964       9,879       12,198       15,602       9,832  
Non-current Liabilities     9,913       8,957       34,687       25,243       21,560  
Net Assets/Total equity     158,043       124,717       78,808       69,211       59,317  
Total Capital Expenditures – Cash     27,840       20,024       20,192       21,639       19,885  
Dividend per share – cents (1)     32.1       27.5       27.4       27.4       24.5  
Earnings per share – cents (1)     173       382       99       86.5       79.5  
Diluted earnings per share – cents (1)     173       381       99       86.4       79  

 

  9  

 

 

Share Information

 

      2020       2019       2018       2017       2016  
Market Capitalization at December 31 (2)     192,447       90,624       57,852       77,932       60,178  
Shares Outstanding (Thousands)(1)     12,119       10,763       10,603       10,603       10,557  
Options Outstanding (Thousands)(1)     28       38       38       28       92  

 

(1) All dividends per share, earnings per share, diluted earnings per share and option numbers are stated on the bases of the 1:5 share consolidation on June 26, 2017.
(2) Based on the NYSE American share price quoted in USD from July 27, 2017. Amounts before July 27, 2017 were based on the OTCQX share price quoted in USD.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not Applicable.

 

D. Risk Factors

 

An investment in our shares involves a high degree of risk and should be considered speculative. You should carefully consider the following risks set out below and other information before investing in our shares. If any event arising from these risks occurs, our business, prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of our shares could decline and all or part of any investment may be lost.

 

Our operations are highly speculative due to the high-risk nature of our business, which include the acquisition, financing, exploration, development of mineral infrastructure and operation of mines. The risks and uncertainties set out below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our operations. If any of the risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our shares could decline and investors could lose part or all of their investment. Our business is subject to significant risks and past performance is no guarantee of future performance.

 

Our shares may not continue to be listed on the NYSE American LLC (“NYSE American”)

 

Failure to meet the applicable maintenance requirements of the NYSE American could result in our shares being delisted from the NYSE American. If we are delisted from the NYSE American, our shares may be eligible for trading on an over-the-counter market in the United States.  In the event that we are not able to obtain a listing on another U.S. stock exchange or quotation service for our shares, it may be extremely difficult or impossible for shareholders to sell their shares in the United States.  Moreover, if we are delisted from the NYSE American, but obtain a substitute listing for our shares in the United States, it will likely be on a market with less liquidity, and therefore potentially more price volatility, than the NYSE American. Shareholders may not be able to sell their shares on any such substitute U.S. market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market.  As a result of these factors, if our shares are delisted from the NYSE American, the price of our shares is likely to decline. In addition, a decline in the price of our shares will impair our ability to obtain financing in the future.

 

 

 

  10  

 

 

Future sales of our shares into the public market by holders of our options may lower the market price, which may result in losses to our shareholders.

 

As of March 29, 2021, we had 12,118,823 shares issued and outstanding.  In addition, as of March 29, 2021, 28,000 shares were issuable upon exercise of outstanding stock options, all of which may be exercised in the future resulting in dilution to our shareholders.  As of March 29, 2021, we may issue stock options to purchase an additional 1,183,882 shares under our existing stock option plan.  As of March 29, 2021, our senior officers and directors beneficially owned, as a group, 447,882 shares (3.7% of our issued share capital), including stock options to acquire an additional 18,000 shares. Sales of substantial amounts of our shares into the public market, by our officers or directors or pursuant to the exercise of options, or even the perception by the market that such sales may occur, may lower the market price of our shares.

 

The price of gold is subject to volatility and may have a significant effect on our future activities and profitability.

 

The economic viability of our revenues, operations and exploration and development projects is, and is expected to be, heavily dependent on the price of gold, which is particularly subject to fluctuation and has fluctuated significantly in recent years. The price of gold is affected by numerous factors beyond our control including, but not limited to: international economic and political conditions; expectations of inflation; international currency exchange rates; interest rates; global or regional consumption patterns; speculative activities; levels of supply and demand; increased production due to new mine developments and improved mining and production methods; availability and costs of metal substitutes; and inventory carrying costs. The effect of these factors on the price of gold, and therefore the economic viability of our operations, cannot be accurately predicted. Blanket Mine (1983) (Private) Limited, the company which owns the Blanket Mine (all hereinafter referred to as “Blanket” or “Blanket Mine” as the context requires) continues to sell all of its gold production from the Blanket Mine to Fidelity Printers and Refiners Limited (“Fidelity”), as required by Zimbabwean legislation, and received the spot price of gold less an early settlement discount of 1.25% (2.5% from October 1, 2018 to January 11, 2019). The Company may enter into hedging agreements from time to time for economic hedging purposes as described in note 23 of the Consolidated Financial Statements.

 

Our Business Operations and/or Activities could be impacted by the spread of the Coronavirus.

 

Our business could be significantly adversely affected by the effects of a widespread global outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus (“COVID-19”). We cannot accurately predict the impact COVID-19 will have on third parties’, including our employees’ ability to fulfil their obligations to the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries (including those countries we rely on to conduct our business operations), resulting in an economic downturn that could negatively impact our operating results.

 

With regular lockdowns implemented by the Government of Zimbabwe and the Government of South Africa the supply chain has continued to function at a level that is adequate to augment our inventories, 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. Refer to notes 9 and 13 of the Consolidated Financial Statements for the cost related to these expenditures.

 

In response to these COVID-19 risks, management has 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.

 

Work on the Central Shaft project was delayed by restrictions on the movement of specialised personnel and the transport of equipment due to the COVID-19 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.

 

  11  

 

 

Currently there are no concerns over the valuation of our assets as disclosed in the Consolidated Financial Statements and the Company don’t foresee any changes in the cost of capital, cash requirements or any covenant defaults in our credit agreements. Refer to note 40 of the Consolidated Financial Statements.

 

At the date of the authorisation of this document management is of the opinion that the effects of COVID-19 have been considered in making significant judgements and estimates, valuations and evaluating our going concern principle. However, it must be recognised that the duration and effects of the COVID-19 pandemic are uncertain and can affect our forecasting accuracy.

 

We cannot guarantee that there will not be an increase in input costs affecting our results of operations and financial performance.

 

Mining companies could experience higher costs of steel, reagents, labor, electricity, government levies, fees, royalties and other direct and indirect taxes. Our planned growth at Blanket Mine should allow the fixed cost component to be absorbed over increased production, thereby helping to alleviate somewhat the net cash effect of any further cost increases due to increased revenue cash flows. However, there can be no assurance that we will be able to control such input costs and any increase in input costs above our expectations may have a negative result on our results of operations and financial performance.

 

Our operations may be subject to increased costs or even suspended or terminated as a result of any loss of required infrastructure in our operations.

 

Infrastructure, including water and electricity supplies, that is currently available and used by us may, as a result of adverse climatic conditions, natural disaster, incorrect or inadequate maintenance, sabotage or for other reasons, be destroyed or made unavailable or available in a reduced capacity. Were this to occur, operations at our properties may become more costly or have to be curtailed or even terminated, potentially having serious adverse consequences to our financial condition and viability that could, in turn, have a material adverse effect on our business, results of operations or financial performance.

 

Our operations may be subject to inadequate 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 better than average and management believes that there is enough water in the Blanket dam to maintain normal operations until the next rainy season. During dry periods as a precautionary measure, Blanket intends to resuscitate existing boreholes and determine their yield; conduct hydrological surveys to identify potential new boreholes; recycle water from the lower levels of unused workings and construct a pond to store water that is pumped from current workings. If, however, there is inadequate water supply, operations at Blanket Mine may become more costly or have to be curtailed, suspended or even terminated which may have serious adverse consequences to the viability of gold production from Blanket Mine that could, in turn, have a material adverse effect on our business, results of operations or financial performance.

 

Our operations may be subject to inadequate electricity supply.

 

Zimbabwe’s electricity generation is mainly from the Kariba hydro station on the Zambezi river, the Hwange coal-fired station and several other much smaller coal-fired power stations. Even if Zimbabwe’s installed generating capacity is fully operational, it cannot generate enough electricity to meet its requirements and therefore Zimbabwe imports electricity from Mozambique and South Africa. Blanket Mine has a supply agreement with the Zimbabwe Electricity Supply Authority (“ZESA”) in terms of which it pays a premium rate in return for uninterrupted power.

 

The generating capacity at the Kariba hydro generating station fluctuates at times when the water levels are low. In addition, the export of electricity from South Africa to Zimbabwe is also interrupted due to a lack of generating capacity in South Africa and therefore interruptions to the Blanket supply do occur. The combined effect of these are severe electricity shortages that lead to “load-shedding” or low voltage occurrences. As a result of load-shedding and low voltage occurrences, Blanket’s use of diesel for generating electricity increased from approximately 1,345,000 liters for the year in 2019 to 1,903,000 liters in 2020.

 

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Power surges as experienced at Blanket, if not controlled, can cause severe damage to Blanket’s electrical equipment. Blanket has installed its own equipment to regulate the incoming power; however, this equipment was itself damaged by the incoming supply. Power surges are regulated by Autotap transformers that are installed to normalise fluctuations up to 10MVA; current fluctuations vary to 12MVA. Blanket had to install an additional Autotap transformer and repair Autotap transformers that broke down from late 2020 to early 2021. This resulted in many power trips due to the power surges and an increased use of our generators.

 

If an electricity shortage or outage persists, operations at Blanket Mine may become more costly or have to be curtailed, suspended or even terminated which may have serious adverse consequences to the viability of production from Blanket Mine that could, in turn, have a material adverse effect on our business, results of operations or financial performance.

 

Blanket has addressed the issue of interrupted power supply by installing stand-by generators. These generators can supply the whole mine with electricity but is a costly and environmentally unfriendly electricity source that is reliant on fuel imports that may from time to time be in shortage in Zimbabwe.

 

To mitigate against the current electricity situation, Caledonia has entered into a contract for the construction of a 12MWac solar plant at a cost of approximately $12 million. Total costs to design, construct, evaluate, licence and structure the project are expected to be approximately $14.1 million. Refer to Item 4.B for more detail regarding the proposed solar plant and its financing.

 

We do business in countries and jurisdictions outside of the United States where different economic, cultural, regulatory, monetary and political environments could adversely impact our business, results of operations and financial condition.

 

The jurisdictions in which we operate are unpredictable. Assets and investments in these foreign jurisdictions are subject to risks that are usually associated with operating in a foreign country and any of these could result in a material adverse effect on our business, results of operations or financial performance. These risks include, but are not limited to, access to assets, labor disputes and unrest; arbitrary revocation of government orders, approvals, licenses and permits; corruption; uncertain political and economic environments; bribery; war; civil disturbances and terrorist actions; sudden and arbitrary changes to laws and regulations; delays in obtaining government permits; limitations on foreign ownership; more onerous foreign exchange controls; currency devaluations; import and export regulations; inadequate, damaged or poorly maintained infrastructure; and endemic illnesses. There can be no guarantee that governments in these jurisdictions will not unilaterally expropriate the property of companies that are involved in mining.

 

Caledonia’s mining operations are conducted in Zimbabwe and, as such, these operations are exposed to various levels of political, economic and other risks and uncertainties in addition to those set out above. These risks and uncertainties include, but are not limited to, expropriation and nationalization, or mandatory levels of Zimbabwean ownership beyond currently mandated levels; renegotiation, nullification or partisan terms of existing concessions, licenses, permits and contracts; illegal mining; changes in monetary and taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

 

The current monetary situation in Zimbabwe can be summarized as follows:

 

· There continues to be a shortage of foreign currency in Zimbabwe, although in recent months Blanket has had satisfactory access to foreign exchange due to the higher gold price and increased production.

 

· The local currency (known as “RTGS” or “RTGS$”) 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 RTGS inflation has little effect on Blanket’s operations now that Blanket has adjusted employee remuneration to reflect the increased cost of living and Blanket’s costs and revenue track US Dollar prices. Further devaluation in the RTGS to the USD has curbed the inflationary price rise prices.

 

· Since October 2018, bank accounts in Zimbabwe have been bifurcated between Foreign Currency Accounts (“FCA”), which can be used to make international payments, and RTGS accounts which can only be used for domestic transactions.

 

· On February 20, 2019 the Reserve Bank of Zimbabwe (“RBZ”) allowed inter-bank trading between currency held in the RTGS$ system and the FCA system. Prior to this, the RBZ had stipulated that a Dollar in the RTGS system was worth 1 US Dollar in the FCA system. The interbank exchange rate at each quarter-end since the introduction of the interbank rate in February 2019 is set out below.

 

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Interbank Exchange Rates

 

(RTGS$: 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 26, 2021     84.1197  

 

· The interbank trading mechanism addressed the most pressing difficulty that emerged after the October 2018 policy implementation, being the erosion of the purchasing power of Blanket’s employees due to rapidly increasing retail prices, which had an adverse effect on employee morale. Management has increased RTGS$-denominated remuneration so that it remains more closely aligned to the US Dollar value using the interbank rate. This has alleviated some of the financial distress experienced by Blanket employees. Management regularly evaluates the available USD and increases the USD allocations to its employees when the monetary policy allows sufficient cash flows for Blanket to do so.

 

· 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.

 

· 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$. From May 26, 2020 to January 6,2021 gold producers received 70% of their sale proceeds in FCA and the balance in RTGS$. With effect from January 7, 2021, gold producers receive 60% of their revenues in FCA and the balance in RTGS$. Blanket uses the FCA component to pay for imported goods, services, electricity, dividends and a portion of the wages and salaries at Blanket; the RTGS$ 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 is sufficient for Blanket to continue mining operations, to fully implement the investment plan as scheduled and allow Caledonia to remit dividends from Zimbabwe. However, the revised 60% FCA allocation means that Blanket is expected to build up a balance of RTGS$ for which there is no commercial use. To avoid this eventuality, Blanket participates in the weekly auction to sell RTGS$ for FCA which provides an adequate mechanism to manage Blanket’s treasury.

 

· 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.

 

· Throughout the above and to the date of the 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

 

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 externalize cash from Zimbabwe.

 

 

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Our operations are subject to various government approvals, permits, licenses and legal regulation for which no assurance can be provided that such approvals, permits or licenses will be obtained or if obtained will not be revoked or suspended.

 

Government approvals, permits and licenses are required in connection with a number of our activities and additional approvals, permits and licenses may be required in the future. The duration and success of our efforts to obtain approvals, permits and licenses are contingent upon many variables outside of our control. Obtaining governmental approvals, permits and licenses can increase costs and cause delays depending on the nature of the activity and the interpretation of applicable requirements implemented by the relevant authority. While we and our affiliates currently hold the necessary licenses to conduct operations there can be no assurance that all necessary approvals, permits and licenses will be maintained or obtained or that the costs involved will not exceed our estimates or that we will be able to maintain such permits or licenses. To the extent such approvals, permits and licenses are not obtained or maintained, we may be prohibited from proceeding with planned drilling, exploration, development or operation of properties which could have a material adverse effect on our business, results of operations and financial performance.

 

In addition, failure to comply with applicable laws, regulations and requirements in the countries in which we operate may result in enforcement action, including orders calling for the curtailment or termination of operations on our property, or calling for corrective or remedial measures requiring considerable capital investment. Although we believe that our activities are currently carried out in all material respects in accordance with applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner that could limit or curtail production or development of our properties or otherwise have a material adverse effect on our business, results of operations and financial performance.

 

We face risks related to mining, exploration and mine construction on potential properties.

 

Our level of profitability, if any, in future years will depend on whether the Blanket Mine produces at forecasted rates and whether any exploration stage properties can be brought into production. The mining, exploration and development of mineral deposits involves significant risks. It is impossible to ensure that any current and future exploration programs will establish reserves. Whether a mineral ore body will be commercially viable depends on several factors, and the exact effect of these factors cannot be accurately predicted. The exploration, development and production activities are subject to political, economic and other risks, including:

 

- cancellation or renegotiation of contracts;
- changes in local and foreign laws and regulations;
- changes in tax laws;
- delays or refusal in granting prospecting permissions, mining authorizations and work permits for foreign management staff;
- environmental controls and permitting;
- expropriation or nationalization of property or assets;
- foreign exchange controls and the availability of foreign exchange;
- government mandated social expenditures;
- import and export regulation, including restrictions on the sale of production in foreign currencies;
- industrial relations and the associated stability thereof;
- inflation of costs that is not compensated for by a currency devaluation;
- requirement that a foreign subsidiary or operating unit has a domestic joint venture partner, which, possibly, the foreign company must subsidize;
- restrictions on the ability of local operating companies to hold foreign currencies in offshore and/or local bank accounts;
- restrictions on the ability of a foreign company to have management control of exploration and/or development and/or mining operations;
- restrictions on the remittance of dividend and interest payments offshore;
- retroactive tax or royalty claims;
- risks of loss due to civil strife, acts of war, guerrilla activities, insurrection and terrorism;
- royalties and tax increases or claims by governmental entities;
- unreliable local infrastructure and services such as power, water, communications and transport links;
- demands or actions by native or indigenous groups;
- other risks arising out of foreign sovereignty over the areas in which operations are conducted; and
- lack of investment funding.

 

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Such risks could potentially arise in any country in which we operate.

 

As a result of the foregoing, our exploration, development and production activities in Zimbabwe may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial position or results from operations. Furthermore, in the event of a dispute arising from such activities, we may be subject to exclusive jurisdiction of courts outside North America or may not be successful in subjecting persons to the jurisdiction of the courts in North America, which could adversely affect the outcome of a dispute.

 

We will need to identify new reserves to replace mineral reserves that have been depleted by mining activities and to commence new projects. No assurance can be given that exploration activities by us will be successful in identifying sufficient mineral reserves of an adequate grade and suitable metallurgical characteristics suitable for further development or production.

 

Blanket Mine is our principal mining asset. In addition, Blanket Mine has title to numerous but smaller satellite properties in the surrounding Gwanda greenstone terrain. These satellite properties are in the exploration stage and are without any known bodies of commercial ore. The Eagle Vulture, Mascot and Penzance satellite properties were sold in 2021. During the fourth quarter of 2020 the Company entered into option agreements that gave the Company the exclusive right to explore the Glen Hume and Connemara North properties. Refer to notes 18 and 21 of the Consolidated Financial Statements and Item 4.A for more detail on the sale of the satellite properties and the newly acquired options over exploration properties. There is no assurance that our mineral exploration activities will result in any discoveries of commercial bodies of mineral reserves. The long-term profitability of our operations will, in part, be directly related to the costs and success of our exploration programs, which may be affected by several factors.

 

There can be no assurance, even when an economic deposit of minerals is located, that any of our property interests can be commercially mined. The exploration and development of mineral deposits involve a high degree of financial risk over a significant period which a combination of careful evaluation, experience and knowledge of management may not eliminate. While the discovery of additional ore-bearing structures may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling and to construct mining and processing facilities at a particular site. It is impossible to ensure that our current exploration programs will result in profitable commercial mining operations. The profitability of our operations will be, in part, directly related to the cost and success of its exploration and development programs which may be affected by several factors. Additional expenditures are required to establish reserves that are sufficient to commercially mine and to construct, complete and install mining and processing facilities in those properties that are actually mined and developed.

 

Further development and commercial production at Blanket Mine, satellite properties and newly acquired explorations options cannot be assured.

 

We are engaged in further development activities at Blanket Mine and its satellite properties and have started our exploration program at Glen Hume. Estimates for future production, at Blanket Mine, 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. Construction and development of projects are subject to numerous risks including, but not limited to: obtaining equipment, permits and services; changes in regulations; currency rate changes; labor shortages; fluctuations in metal prices; and the loss of community support.

 

Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes to extract gold from ore and to develop the mining, processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be capable of economic extraction by metallurgical process, or discovered in sufficient quantities or grades, or the estimated operating costs of the mining venture are sufficient, to justify development of the deposit, or that the funds required for development can be obtained on a timely and economically acceptable basis.

 

The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond our control and which cannot be predicted, such as metal price and market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. Depending on the price of minerals produced, the Company may determine that it is not commercially feasible to commence or continue commercial production.

 

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Refer to capital investments under Item 4.A for detail on development activities at Blanket and surrounding areas.

 

We face credit risk exposure from counterparties to certain contractual obligations and there is no assurance that any such counterparty may not default in such obligation causing us to incur a financial loss.

 

Credit risk is the risk that a party with a contractual obligation with us will default causing a loss. New regulations introduced by the Zimbabwean Ministry of Finance in January 2014 require that all gold produced in Zimbabwe must be sold to Fidelity, a company which is controlled by the Zimbabwean authorities. Accordingly, all of our production from Blanket Mine is sold to Fidelity. At the date of approval of this document, Blanket has received all payments due from Fidelity in full and on time. This arrangement introduces a credit risk, beyond our control, that receivables and contractual performance due from Fidelity will not be paid or performed in a timely manner, or at all. If Fidelity or the Zimbabwean government were unable or unwilling to conduct business with us, or satisfy obligations to us, we could experience a material adverse effect upon our operations and financial performance.

 

The mining industry is highly competitive and there is no guarantee we will always be able to compete effectively.

 

The mining industry is a highly diverse and competitive international business. The selection of geographic areas of interest are only limited by the degree of risk a company is willing to accept by the acquisition of properties in emerging or developed markets and/or prospecting in explored or virgin territory. Mining, by its nature, is a competitive business with the search for fresh ground with good exploration potential and the raising of the requisite capital to move projects forward to production. There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. We will compete with other interests, many of which have greater financial resources than we will have, for the opportunity to participate in promising projects. Such competition may have better access to potential resources, more developed infrastructure, more available capital, have better access to necessary financing, and more knowledgeable and available employees than us. We may encounter competition in acquiring mineral properties, hiring mining professionals, obtaining mining resources, such as manpower, drill rigs, and other mining equipment. Such competitors could outbid us for potential projects or produce gold at lower costs. Increased competition could also affect our ability to attract necessary capital funding or acquire suitable properties or prospects for gold exploration or production in the future. Significant capital investment is required to achieve commercial production from successful exploration and development efforts. Globally, the mining industry is prone to cyclical variations in the price of the commodities produced by it, as dictated by supply and demand factors, speculative factors and industry-controlled marketing cartels. Nature provides the ultimate uncertainty with geological and occasionally climatic surprises. Commensurate with the acceptance of this risk profile is the potential for high rewards. If we are unable to successfully compete for properties, capital, customers or employees it could have a materially adverse effect on our results of operations.

 

We were required to facilitate the economic participation of certain indigenous groups in our business and there can be no assurance that such required participation was at fair market value or that the terms of the agreements can be amended.

 

The government of Zimbabwe introduced legislation in 2012 requiring companies to facilitate participation in their shareholdings and business enterprises by the indigenous population (typically referred to as indigenization). It is not assured that such interests were paid for at full fair value. As reported, Blanket Mine complied with the requirements of the Indigenization and Economic Empowerment Act in Zimbabwe whereby indigenous shareholders legally owned 51% of Blanket Mine since September 2012 (until recently – see below).

 

Pronouncements from the Zimbabwe Government following the appointment of the new President in late 2017 announced a relaxation in the indigenization policy which, amongst other things, included the removal of an indigenization requirement for gold mining companies. These pronouncements were passed into law in March 2018.

 

On November 6, 2018, the Company announced that it had entered into a sale agreement with Fremiro Investments (Private) Limited (“Fremiro”) to purchase Femiro’s 15% shareholding in Blanket for a gross consideration of $16.7 million 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. On completion of the transaction on January 20, 2020, Caledonia owned 64% in Blanket and Fremiro held approximately 6.3% of Caledonia’s shares.

 

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We currently do not depend on our ability to successfully access the capital and financial markets. However, should our financial position change any inability to access the capital or financial markets may limit our ability to execute our business plan or pursue investments that we may rely on for future growth.

 

Depending on our ability to generate income from our operations, we may require further financing for current and future exploration and development. Should our projections for fiscal years 2021 through to 2023 prove incorrect, to finance our working capital needs, we may have to raise funds through the issuance of additional equity or debt securities. Depending on the type and the terms of any financing we pursue, shareholders’ rights and the value of their investment in our shares could be reduced. Any additional equity financing will dilute shareholdings, and new or additional debt financing, if available, may involve restrictions on financing and operating activities. In addition, if we issue secured debt securities, the holders of the debt would have a claim to our assets that would be prior to the rights of shareholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results.

 

If we are unable to obtain additional financing, as needed, at competitive rates, our ability to implement our business plan and strategy may be affected, and we may be required to reduce the scope of our operations and scale back our exploration and development programs as the case may be. There is, however, no guarantee that we will be able to secure any additional funding or be able to secure funding which will provide us with sufficient funds to meet our objectives, which may adversely affect our business and financial position.

 

Our share price has been and is likely to continue to be volatile and an investment in our shares could suffer a decline in value.

 

Market prices for mining company securities, by their nature, are volatile. Factors, such as rapidly changing commodity prices, political unrest globally and in countries where we operate, speculative interest in mining stocks etc. are but a few factors affecting the volatility of the share price. Our shares are listed in the U.S. on the NYSE American and depositary interests representing our shares are admitted to trading on AIM of the London Stock Exchange (“AIM”) (the use of the term “share” in this Annual Report also, where the context requires, extends to a depositary interest representing a share). The Company voluntarily delisted its shares from the Toronto Stock Exchange (“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.

 

You should consider an investment in our shares as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. The market price of our shares may be highly volatile and subject to wide fluctuations. In addition, the trading volume of our shares may fluctuate and cause significant price variations to occur. If the market price of our shares declines significantly, you may be unable to resell your shares at or above the purchase price, if at all. We cannot assure you that the market price of our shares will not fluctuate or significantly decline in the future. Factors affecting our share price include but are not limited to:

 

  • actual or expected fluctuations in our operating results;
  • actual or expected changes in our growth rates or our competitors’ growth rates;
  • changes in the market price of gold;
  • changes in the demand for gold;
  • high extraction costs;
  • accidents;
  • changes in market valuations of similar companies;
  • additions to or departures of our key personnel;
  • actual or anticipated fluctuations in our quarterly operating results or those of our competitors;
  • publication of research reports by securities analysts about us or our competitors in the industry;
  • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
  • fluctuations of exchange rates between the USD, GBP, CAD, RTGS$ and ZAR;
  • changes or proposed changes in laws and regulations affecting the gold mining industry;
  • changes in trading volume of our shares on the NYSE American or AIM;
  • sales or perceived potential sales of our shares by us, our directors, senior management or our shareholders in the future;
  • short selling or other market manipulation activities;
  • announcement or expectation of additional financing efforts;
  • terrorist acts, acts of war or periods of widespread civil unrest;
  • natural disasters and other calamities;
  • litigation involving us, including: shareholder litigation, investigations or audits by regulators into our operations; or proceedings initiated by our competitors or clients;
  • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
  • the passage of legislation or other regulatory developments affecting us or our industry;
  • fluctuations in the valuation of companies perceived by investors to be comparable to us; and
  • conditions in the U.S. and United Kingdom financial markets or changes in general economic conditions.

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We are dependent on key management employees.

 

Our success depends (i) on the continued contributions of our directors, executive officers, management and consultants; and (ii) on our ability to attract new personnel whenever we seek to implement our business strategy. The loss of the services of any of these persons could have a materially adverse effect on our business, prospects results of operations and financial performance. 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. There is no assurance that we will always be able to locate and hire all the personnel that we may require. Where appropriate, we engage with consulting and service companies to undertake some of the work functions.

 

Our mineral rights may be subject to defects in title.

 

We are not currently aware of any significant competing ownership claims or encumbrances respecting title to our properties. However, the ownership and validity or title of unpatented mining claims and concessions are often uncertain and may be contested. We also may not have, or may not be able to obtain, all necessary surface rights to develop a property. Although we have taken reasonable measures to ensure proper title to our properties, there is no guarantee of title to our properties or that competing ownership claims or encumbrances respecting our properties will not be made in the future. Title insurance is generally not available for mineral properties and our ability to ensure that we have obtained secure claims to individual mineral properties or mining concessions may be severely constrained. Our mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. We may incur significant costs related to defending the title to our properties. A successful claim contesting our title to a property may cause us to compensate other persons or perhaps reduce our interest in the affected property or lose our rights to explore and, if warranted, develop that property. This could result in us not being compensated for our prior expenditures relating to the property. Also, in any such case, the investigation and resolution of title issues would divert our management’s time from ongoing exploration and, if warranted, development programs. Any impairment or defect in title could have a negative impact on us.

 

We are subject to operational hazards and risks that could have a material adverse effect on our business, results of operations and financial performance.

 

We are subject to risks typical in the mining business. These include, but are not limited to, operational issues such as unexpected geological conditions or earthquakes causing unanticipated increases in the costs of extraction or leading to falls of ground and rock bursts, particularly as mining moves into deeper levels. Major cave-ins, flooding or fires could also occur under extreme conditions. Although equipment is monitored and maintained and all staff receive safety training, accidents caused by equipment failure or human error could occur. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. As a result, we may incur significant liabilities and costs that could have a material adverse effect upon our business, results of operations and financial performance.

 

 

 

 

 

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Lawsuits may be filed against us and an adverse ruling in any such lawsuit could have a material adverse effect on our business, results of operations and financial performance.

 

We may become party to legal claims arising in the ordinary course of business. There can be no assurance that unforeseen circumstances resulting in legal claims will not result in significant costs or losses. The outcome of outstanding, pending or future proceedings cannot be predicted with certainty and may be determined adversely to us and as a result, could have a material adverse effect on our assets, liabilities, business, financial condition and results of operations. Even if we prevail in any such legal proceedings, the proceedings could be costly and time-consuming and may divert the attention of management and key personnel from our business operations, which could adversely affect our financial condition. In the event of a dispute arising in respect of our foreign operations, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States of America, South Africa, Zimbabwe, Canada, the United Kingdom, Jersey Channel Islands or international arbitration. The legal and political environments in which we operate may make it more likely that laws will not be enforced and that judgments will not be upheld. If we are unsuccessful in enforcing our rights under the agreements to which we are party to or judgments that have been granted, or if laws are not appropriately enforced, it could have a material adverse effect on our business, results of operations and financial performance.

 

We face risks related to illegal mining at Blanket Mine and no assurance can be provided that such illegal mining will not have an adverse effect on our business, results of operations and financial performance.

 

Illegal mining activities on properties controlled by Blanket have been identified. This gives rise to increased security costs and an increased risk of theft and damage to equipment. Blanket has received adequate support and assistance from the Zimbabwean police in investigating such cases but there can be no guarantee that the support from the Zimbabwean police will continue and whether their support will stop illegal mining activities.

 

Most of our employees are members of the Associated Mine Workers Union of Zimbabwe and any work stoppage or industrial action implemented by the union may affect our business, results of operations and financial performance.

 

Most of the employees are members of the Associated Mine Workers Union of Zimbabwe. Pay rates for all wage-earning staff are negotiated on a Zimbabwe industry-wide basis between the union and representatives of the mine owners. Any industrial action called by the union may affect our operations even though our operations may not be at the root cause of the action. Strikes, lockouts or other work stoppages could have a material adverse effect on our business, results of operations and financial performance. In addition, any work stoppage or labor disruption at key customers or service providers could impede our ability to supply products, to receive critical equipment and supplies for our operations or to collect payment from customers encountering labor disruptions. Work stoppages or other labor disruptions could increase our costs or impede our ability to operate.

 

There can be no assurance that changes to any environmental, health and safety laws to which we are currently subject would not adversely affect our exploration and development programs.

 

Our exploration, development and operations are subject to environment, health and safety (“EH&S”) laws and regulations in the countries in which the relevant activity is being conducted.

 

In 2018, a training facility (called the Nyanzvi initiative) was established at Blanket using dedicated facilities and specially trained facilitators. The entire Blanket workforce has participated in the programme which resulted in the general 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 because of COVID-19 which contributed to the increase in reportable events in the quarter and the preceding quarter. Management expects the safety performance will improve when the Nyanzvi initiative and other safety measures which were suspended due to COVID-19 restrictions are re-instated.

 

Safety training is an ongoing exercise and it will remain an area of focus for the Company. There is no assurance, however, that future changes in EH&S, if any, will not adversely affect our exploration and development programs or our operations. There are no assurances that regulatory and environmental approvals required under EH&S will be obtained on a timely basis or if at all. A breach of EH&S may result in the temporary suspension of operations, the imposition of fines, other penalties (including administrative penalties and regulatory prosecution), and government orders, which could potentially have a material adverse effect on operations.

 

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Due to the nature of our business, our operations face extensive EH&S risks.

 

Gold mining is exposed to numerous risks and events, the occurrence of which may result in the death of, or personal injury, to employees. EH&S legislation applicable to us could suspend part or all of our operations. EH&S incidents could therefore lead to increased unit production costs or lower production which could negatively affect our business, operating and/or financial results.

 

In response to the COVID-19 pandemic, measures were introduced to safeguard our employees; e.g. protective equipment and - clothing, sanitisers, stricter safety protocols, etc. One case of COVID-19 was recorded at Blanket during the fiscal year ended December 31, 2020; 28 cases have been detected in January and February 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 or be making a full recovery.

 

We may enter into acquisitions or other material transactions at any time.

 

We continually seek to replace and expand our reserves through the exploration of our existing properties and may expand through acquisitions of interests in new properties or of interests in companies that own such properties. Acquisitions involve a number of risks, including: the possibility that we, as a successor owner, may be legally and financially responsible for liabilities of prior owners; the possibility that we may pay more than the acquired company or assets are worth; the additional expenses associated with completing an acquisition and amortizing any acquired intangible assets; the difficulty of integrating the operations and personnel of an acquired business; the challenge of implementing uniform standards, controls, procedures and policies throughout an acquired business; the inability to integrate, train, retain and motivate key personnel of an acquired business; and the potential disruption of our ongoing business and the distraction of management from its day-to-day operations. These risks and difficulties, if they materialize, could disrupt our ongoing business, distract management, result in the loss of key personnel, increase expenses and may have a material adverse effect on our business, results of operations and financial performance.

 

In the fourth quarter of 2020 Caledonia acquired the exclusive rights to explore the Connemara North and Glen Hume properties, both situated near Gweru, Zimbabwe. Refer to note 18 of the Consolidated Financial Statements and Item 4.A “capital investments” for more detail on these acquisitions. If the exploration yields satisfactory results, Caledonia has the right to acquire the mining claims over the areas.

 

As a foreign private issuer, we are permitted to file less information with the SEC than a company that is not a foreign private issuer or that files as a domestic issuer.

 

As a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose disclosure requirements as well as procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as a company that files as a domestic issuer whose securities are registered under the Exchange Act, nor are we generally required to comply with the SEC’s Regulation FD, which restricts the selective disclosure of material non-public information. For as long as we are a “foreign private issuer” we intend to file our annual financial statements on Form 20-F and furnish our quarterly financial statements on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. However, the information we file or furnish is not the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for U.S. domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.

 

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur additional legal, accounting and other expenses.

 

We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. In order to maintain our current status as a foreign private issuer, either (1) a majority of our shares must be either directly or indirectly owned of record by non-residents of the United States or (2) (a) a majority of our executive officers or directors must not be U.S. citizens or residents, (b) more than 50 percent of our assets cannot be located in the United States and (c) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We would also be subject to additional restrictions on offers and sales of securities outside the United States and would have to comply with the generally more restrictive Regulation S requirements under the Securities Act that apply to U.S. domestic issuers, which could limit our ability to access capital markets in the future. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs.

 

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We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies may make our shares less attractive to investors and, as a result, adversely affect the price of our shares and result in a less active trading market for our shares.

 

We are an “emerging growth company” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies. For example, we have qualified for an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act relating to internal control over financial reporting, and we will not provide such an attestation from our auditors.

 

We may avail ourselves of these disclosure exemptions until we are no longer an emerging growth company. We cannot predict whether investors will find our shares less attractive because of our reliance on some or all these exemptions. If investors find our shares less attractive, it may adversely impact the price of our shares and there may be a less active trading market for our shares.

 

We will cease to be an emerging growth company upon the earliest of:

 

· the last day of the fiscal year during which we have total annual gross revenues of $1,070,000,000 (as such amount is indexed for inflation every five years by the SEC or more);

 

· the last day of our fiscal year following the fifth anniversary of the completion of our first sale of equity securities pursuant to an effective registration statement under the Securities Act;

 

· the date on which we have, during the previous three-year period, issued more than $1,000,000,000 in non- convertible debt; or

 

· the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700,000,000 as of the last day of our most recently-completed second fiscal quarter.

 

During 2020 the Company sold its first equity securities under the Securities Act. This means that the Company may no longer qualify as an emerging growth company following the fifth anniversary of the completion of the equity raise. The Company may instead thereafter have to comply with Section 404(b) of the Sarbanes-Oxley Act where our registered public accountant will be required to attest to management’s assessment of its internal controls over financial reporting as presented under Item 15B of Form20-F.

 

If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

 

Section 404(a) of the Sarbanes-Oxley Act requires that our management assess and report annually on the effectiveness of our internal controls over financial reporting and identify any material weaknesses in our internal controls over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal controls over financial reporting, we have opted to rely on the exemptions provided to us by virtue of being a foreign private issuer and an emerging growth company, and consequently will not be required to comply with SEC rules that implement Section 404(b) of the Sarbanes-Oxley Act until we lose our emerging growth company status.

 

If either we are unable to conclude that we have effective internal controls over financial reporting or, at the appropriate time, our independent auditors are unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, the price of our shares could decline and we may be subject to litigation or regulatory enforcement actions.

 

 

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There is uncertainty with our Mineral Reserve estimates.

 

Our mineral reserve figures described in this document are management’s best estimates and are reported in accordance with the requirements of Industry Guide 7 (“IG 7”) of the SEC. These estimates may not reflect actual reserves or future production. Should we encounter mineralization or formations different from those predicted by past drilling, sampling and similar examinations, reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might ultimately cause our reserve estimates to decline. Moreover, if the gold price declines, or if our labor, consumable, electricity and other production costs increase or recovery rates decrease, it may become uneconomical to recover our reserves. Under these circumstances, we would be required to re-evaluate our reserves. The reserve estimates are based on drilling results and because unforeseen conditions may occur, the actual results may vary from the initial estimates. These factors could result in reductions in our reserve estimates, which could in turn adversely impact the total value of our business.

 

There are differences in United States and Canadian reporting of mineral reserves and mineral resources.

 

From time to time, we also report mineral resources in accordance with the Canadian requirements outlined in Canadian National Instrument 43-101 which are not directly comparable to IG 7 mineral reporting and disclosure requirements. The terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be used by the Company pursuant to Canadian National Instrument 43-101; however, these terms are not defined terms under IG 7 and historically have not been permitted to be used in reports and registration statements filed in accordance with IG 7 with the SEC. Investors are cautioned not to assume that any part of or all mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of the measured mineral resources, indicated mineral resources, or inferred mineral resources will ever be upgraded to a higher category.

 

Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, teh SEC has historically only permitted issuers to report “resources” as in-place tonnage and grade without reference to unit measures. Accordingly, information concerning descriptions of mineralization and resources contained in some of our reports may not be comparable to information made public in accordance with IG 7.

 

Further, the terms “Mineral Reserve”, “Proven Mineral Reserve” and “Probable Mineral Reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum standards (the “CIM Definitions Standards”). These definitions differ from the definitions in IG 7. Under IG 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and all necessary permits or governmental authorizations must be filed with the appropriate governmental authority.

 

Accordingly, the information contained in some of the reports containing descriptions of the Company's mineral deposits may not be comparable to similar information made public in accordance with IG 7.

 

On October 31, 2018, the SEC adopted the Modernization of Property Disclosures for Mining Registrants (the “New Rule”), introducing significant changes to the existing mining disclosure framework to better align it with international industry and regulatory practice, including NI 43-101. The New Rule became effective as of February 25, 2019 and following a transition period the Company will be required to comply with the New Rule as of its annual report for its first fiscal year beginning on or after January 1, 2021, and earlier in certain circumstances. While early voluntary compliance with the New Rule is permitted, the Company has not elected to comply with the New Rule at this time and the Company does not anticipate needing to comply with the New Rule until March 2022. Under the New Rule, the definitions of "Proven Mineral Reserves" and "Probable Mineral Reserves" have been amended to be substantially similar to the corresponding CIM Definition Standards and the SEC has added definitions to recognize "Measured Mineral Resources", "Indicated Mineral Resources" and "Inferred Mineral Resources" which are also substantially similar to the corresponding CIM Definition Standards; however, there are differences in the definitions under the New Rule and the CIM Definition Standards and therefore once the Company begins reporting under the New Rule there is no assurance that the Company's Mineral Reserve and Mineral Resource estimates will be the same as those reported under CIM Definition Standards as contained in this Annual Report.

 

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U.S. investors may not be able to enforce their civil liabilities against us or our directors and officers.

 

It may be difficult to bring and enforce suits against us, because we were amalgamated and exist under the laws of Jersey, Channel Islands and are situated in Jersey, Channel Islands and do not have assets located in the United States.

 

All our assets are located outside the United States and most of our directors and all of our officers are residents of countries other than the United States. As a result, it may be difficult for investors to effect service of process on us or these non-United States resident persons within the United States or to rely in the United States upon judgments obtained in the United States based on the civil liability provisions of the U.S. federal securities laws against us or our officers and non-United States resident directors.  In addition, our U.S. shareholders should not assume that the courts of Jersey, Channel Islands (i) would enforce judgments of U.S. courts obtained in actions against us, our officers or directors predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against us, our officers or directors predicated upon the U.S. federal securities laws or other laws of the United States.

 

We are incorporated under the laws of Jersey, Channel Islands and our principal offices are located outside of the United States which could have negative tax consequences for U.S. investors.

 

We are incorporated under the laws of Jersey, Channel Islands and are located outside of the United States. Accordingly, U.S. investors could be subject to negative tax consequences.  If we choose to make an offering of securities in the United States, the applicable prospectus is expected to include a discussion of the material United States tax consequences relating to the purchase, ownership and disposition of any securities offered thereby, to the extent not set out in this Annual Report; however, investors should consult their own tax advisors as to the consequences of investing in Caledonia.

 

ITEM 4 - INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

Caledonia Mining Corporation Plc (previously Caledonia Mining Corporation) was incorporated, effective February 5, 1992, by the amalgamation of three predecessor companies and was registered at the time under the Canada Business Corporations Act.

 

Following the creation of Caledonia its shares were listed on the TSX and quoted on the NASDAQ small caps market. On October 16, 1998, Caledonia announced that NASDAQ would no longer quote its securities for trading. Caledonia’s stock commenced trading on the OTCQX in June 2005.

 

Effective April 1, 2006 the Company purchased 100% of the issued shares of the Zimbabwean company, Caledonia Holdings Zimbabwe (Private) Ltd (“CHZ”) that held 100% of the shares of Blanket Mine. The purchase consideration was $1,000,000 and 20,000,000 shares of Caledonia. The Company acquired all the assets and assumed all the liabilities of CHZ.

 

The Company re-domiciled from Canada to Jersey using a legal process called “Continuance” on March 19, 2016. The Company operates under the Companies (Jersey) Law 1991, as amended, (the “Companies Law”). The Continuance had no effect on the Company’s listing on the TSX or on the trading facilities on AIM in London or on the OTCQX in the United States of America.

 

On July 24, 2017, the Company announced that its shares would be listed on the NYSE American and trading began on July 27, 2017. The trading of the Company’s shares on the OTCQX ceased upon the commencement of trading on the NYSE American.

 

Caledonia voluntary delisted its shares from 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.

 

As at the date of this report Caledonia’s shares trade on the NYSE American and AIM under the ticker “CMCL”.

 

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The addresses and telephone numbers of Caledonia’s principal offices are:

 

Registered and Head Office African Office - South African Subsidiaries
   
Caledonia Mining Corporation Plc Caledonia Mining South Africa Proprietary Limited
B006 Millais House, Castle Quay, St Helier 4th Floor, 1 Quadrum office park
Jersey, Channel Islands Johannesburg, Gauteng, 2198
JE2 3EF South Africa
(44) 1534 679 800 (27) 11 447 2499

 

Indigenization of Blanket Mine

 

On February 20, 2012 certain companies within Caledonia’s group of companies (the “Group”) announced that they had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenization 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 Blanket Mine for a transactional value of $30.09 million. Pursuant to the above, 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, 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.

 

Following completion of the underlying subscription agreements, advances were made to NIEEF and the Community Trust against their rights to receive dividends declared by Blanket Mine on their shareholdings as follows:

 

· a $1.8 million payment to NIEEF on or about June 21, 2012;
· a $2 million payment to the Community Trust on or before September 30, 2012;
· a $1 million payment to the Community Trust on or before February 28, 2013; and
· a $1 million payment to the Community Trust on or before April 30, 2013.

 

Advances made to NIEEF as an advanced dividend loan were settled through dividend repayments in 2014. Refer to note 6 of the Consolidated Financial Statements for the outstanding balance of the advanced dividend loan with the Community Trust.

 

The Group facilitated the vendor funding of these transactions and the advanced dividend loans which are repaid by way of dividends from Blanket Mine. 100% of dividends declared by Blanket Mine as payable to the Community Trust were used to repay its advanced dividend loan although Blanket has recently agreed that from the beginning of 2020 80% of dividends declared by Blanket Mine will be used to repay such loan and the remaining 20% will unconditionally accrue to the Community Trust, which is the same arrangement that applies to the other indigenous shareholders. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. Subsequent to the indigenization transactions the facilitation loans relating to the Group were transferred as a dividend in specie to the Company.

 

On June 23, 2017, the Group, Blanket Mine and the indigenous shareholders of Blanket Mine reached agreement to change the interest terms of the facilitation and advanced dividend loan agreements. The agreements changed the interest rate from the previously agreed 12-month LIBOR + 10% to the lower of a fixed 7.25% per annum, payable quarterly or 80% of the Blanket Mine dividend in the quarter. The modification was considered beneficial to the indigenous shareholders and gave rise to an equity-settled share-based expense of $806,000 on June 23, 2017 when all parties reached agreement to modify the interest charged. It was agreed that the interest change was to be applied to the facilitation and advanced dividend loan balances from January 1, 2017.

 

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Pronouncements from the Zimbabwe Government following the appointment of the new President in late 2017 declared a relaxation in the indigenization policy which, amongst other things, included the removal of an indigenization requirement for gold mining companies. These pronouncements were passed into law in March 2018. In light of the changed legislation, on November 6, 2018, the Company announced that it had entered into a sale agreement with Fremiro to purchase Femiro’s 15% shareholding in Blanket for a gross consideration of $16.667 million to be settled through a combination of the cancellation of the loan between the two entities (which stood at $11.467 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. On completion of the transaction on January 20, 2020, Caledonia owned 64% in Blanket and Fremiro held approximately 6.3% of Caledonia’s shares.

 

On February 27, 2020, the Company, 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 allows that 20% of the Community Trust’s share of the Blanket dividend accrues to it 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 other indigenous shareholders.

 

Capital Investment

 

The main capital development project is the central shaft at the Blanket Mine (“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. The Central Shaft was fully equipped by the end of 2020 and the production headgear was erected in January 2021. The shaft will be fully commissioned by the end of the first quarter of 2021. Production can 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.

 

Work on underground development was hampered by the unstable electricity supply which has caused frequent power interruptions and by systemic power outages due to the general lack of electricity in Zimbabwe. In November 2019 further diesel generators were installed so that work at Central shaft can continue uninterrupted throughout any interruptions to the electricity supply from the grid.

 

In addition to the Central shaft, work continued on decline developments at the AR South, AR Main and Eroica ore bodies, preparations commenced for a further decline at the Blanket orebody and work continued on haulages on the 870m level. In total 554 meters (last quarter of 2019: 417 meters) of development were achieved in the last quarter of 2020.

 

In 2019 Caledonia initiated a tender process to identify parties to make proposals for a solar project that would reduce Blanket’s reliance on grid and generator power. After careful consideration, Caledonia’s board approved the construction of a 12MWac solar plant at a construction cost of approximately $12 million to be owned within the Group. Total cost related to the project is expected to amount to approximately $14.1 million and further include costs of obtaining licences, advisors to raise the equity, negotiate contracts and design the plant. 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.

 

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;

 

· On October 7, 2020 the Company announced it had appointed Voltalia, an international renewable energy provider, as contractor for the project;

 

Caledonia and Voltalia have entered into an EPC contract; procurement and construction are expected to begin immediately with current indicated commissioning for the 12MWac solar plant in the first quarter of 2022.

 

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Total cash capital expenditure increased to $27,840,000 (2019: $20,240,000; 2018: $20,192,000). Significant projects on which capital expenditures were incurred in 2020 included:

 

  • Central shaft – $10.6 million
  • Capital development - $5 million
  • Sustainable mechanical engineering capex - $4.1 million
  • Drill rigs - $1.2 million
  • Ballmill & metallurgical plant upgrades - $1.1m
  • Autotap transformers - $400 000
  • Solar plant - $372,000

Capital projects and expenditures are further analyzed under Item 4.B Mining Operations and notes 17 and 18 of the Consolidated Financial Statements.

 

Glen Hume

 

In December 2020 Caledonia announced it had entered into an option agreement which gives the Company the exclusive right to explore the Glen Hume property, an area of approximately 350 hectares with substantial evidence of gold mineralisation including historical mining activity, for a period of up to 15 months. Refer to note 18 of the Consolidated Financial Statements for detailed information regarding the agreement.

 

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 and a drill programme has commenced with 1,012.6 metres of reverse circulation drilling completed. Diamond drilling commenced in January 2021. 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 the Connemara North property. Refer to note 18 of the Consolidated Financial Statements for more detail on the agreement.

 

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 lay 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.

 

Eagle Vulture, Mascot and Penzance held for sale

 

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 the claims over 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 $500,000 and Blanket relinquished all rights to the properties. Refer to note 21.1 of the Consolidated Financial Statements for more detail on the sale of the exploration properties.

 

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Eersteling Gold Mining Company Limited

 

On May 31, 2018 the Group entered into an amended share sale agreement with SH Mineral Investments Proprietary Limited (“SH Minerals”) to sell the shares and claims of Eersteling Gold Mining Company Limited (“Eersteling”), a South African subsidiary previously consolidated as part of the Group, that has been on care and maintenance since 1997. The amended share sale agreement allowed for a purchase price of $3 million which would be settled by three payments of $1 million payable on the completion date, 12 and 18 months after the completion date. On January 31, 2019 all conditions for the sale were met and the Group transferred the registered and beneficial ownership of Eersteling to SH Minerals. During 2020, the ZAR equivalent of approximately $0.9 million (2019: $1 million) was received and the ZAR equivalent of approximately $0.34 millionwas received post year-end as payment towards the outstanding instalment of the purchase price with the remainder of that instalment expected to be received shortly.

 

Available Information

 

The SEC maintains an internet site (http://www.sec.gov) that contains report, proxy and information statements and other information regarding issuers that file electronically with the SEC. Such information can also be found on the Company’s website (http://www.caledoniamining.com).

 

B. Business Overview

 

Description of Our Business

 

Caledonia’s primary focus is the operation of a gold mine and the exploration and development of mineral properties for precious metals. Caledonia’s activities are focused on Blanket Mine in Zimbabwe. The Company’s business during the last three completed fiscal years has been focused primarily on increasing production to 80,000 oz. of gold by 2022 through its investment plan.

 

Total gold production at Blanket Mine for 2020 was 57,899 oz. (2019: 55,182 oz.; 2018: 54,511 oz.). 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. Gold producers compete globally based on their operating and capital costs. Certain gold producers benefit from their ability to produce other minerals in commercial quantities as by-products. Caledonia derives approximately 0.1% of its revenues from silver, which is insignificant. 100% of Blanket’s revenues over the last three years was derived from its operations in Zimbabwe.

 

Blanket Mine’s available reserves are disclosed under Item 4.D under the subheading of “Mineral Reserve Calculations”.

 

Mining Operations

 

On November 3, 2014 Caledonia announced the investment plan and production projections for the Blanket Mine. The objectives of the investment plan are to improve the underground infrastructure and logistics to allow efficient and sustainable production build-up.

 

In January 2020, Ms. Janet Hobkirk joined the Group as Group Mineral Resource Manager. Ms. Hobkirk will be responsible for driving exploration activities both at Blanket, Glen Hume, Connemara North and for any new properties that are under investigation by the Group.

 

Caledonia’s exploration activities are focused on the growth and development of Blanket Mine and on two new exploration properties in respect of which Caledonia acquired purchase options during the last quarter of 2020.

 

There was no deep exploration drilling in the fourth quarter of 2020 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 into an agreement with Farvic to sell the claims over Mascot, Eagle Vulture and Penzance properties for a cash consideration of $500,000. This transaction entails an impairment of the carrying value of these assets of $2,930,000 which is classified as “Other expense” in the Statement of Profit of Loss and Other Comprehensive Income and is a non-cash item.

 

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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 last quarter of 2020, and as noted above, 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.

 

Metallurgical Process

 

Metallurgical plant – Blanket Mine

 

Average plant recovery was 93.8% for 2020, compared to 93.4% in 2019 (2018: 92.3%).

 

Recoveries improved following 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 last quarter of 2020 work commenced on installing an additional mill which should increase milling capacity from 75 to 100 tonnes per hour which will be required to achieve target production of 80,000 ounces per annum.

 

Safety, Health and Environment

 

The following safety statistics have been recorded for the year 2019 and the preceding two years.

 

Classification 2018 2019 2020
Fatal 2 - -
Lost time injury 5 3 6
Restricted work activity 16 17 9
First aid 9 - 1
Medical aid 13 11 12
Occupational illness - - -
Total 45 31 28
Incidents 33 54 59
Near misses 11 22 24
Disability Injury Frequency Rate 0.270 0.12 0.52
Total Injury Frequency Rate 1.71 1.2 0.97
Man-hours worked (thousands) 5,254 5,174 5,789

 

In 2018 a training facility (called the Nyanzvi initiative) was established at Blanket using dedicated facilities and specially trained facilitators. The entire Blanket workforce has participated in the programme which resulted in the general 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 because of COVID-19 which contributed to the increase in reportable events in the second half of 2020. Management expects the safety performance will improve when the Nyanzvi initiative and other safety measures which were suspended due to COVID-19 restrictions are re-instated. Safety training is an ongoing exercise and it will remain an area of focus for management.

 

The Group takes the safety of its employees very seriously and, accordingly, measures have been taken to instill adherence to prescribed safety procedures.

 

 

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Exchange Controls, Social Investment and Contribution to the Zimbabwean Economy

 

Exchange control approvals from the RBZ and the Reserve Bank of South Africa are required on the flow of funds in and out of Zimbabwe and South Africa. The Company obtained necessary approvals from both the RBZ and the Reserve Bank of South Africa to transfer foreign currency during the fiscal year 2020.

 

Additionally, Blanket Mine’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket Mine’s employees, the payments made to the Community Trust in terms of Blanket Mine’s indigenization, 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)

  Community and Social Investment Payments to GCSOT Payments to Zimbabwe Government Total
Year 2018 4 - 10,140 10,144
Year 2019 47 - 10,357 10,404
Year 2020 1,689 184 12,526 14,399

 

General Comments

 

Caledonia’s activities are centered on Zimbabwe and occur year-round. Caledonia is not dependent, to any material extent, on patents, licenses, contracts, specialized equipment or new manufacturing processes at this time. However, there may be occasions that Caledonia may wish to adopt such patents, licenses, specialized equipment, etc. if these are economically beneficial to its operations. All mining and exploration activities are conducted under the various economic, mining and environmental regulations of the country where the operations are being carried out. It is always Caledonia’s standard that these regulations are complied with by Blanket Mine. Caledonia has not experienced a shortage of availability of raw materials or significant price volatility.

 

Refer to the risk factor under Item 3.D “We do business in countries and jurisdictions outside of the United States where different economic, cultural, regulatory, monetary and political environments could adversely impact our business, results of operations and financial condition” and note 5(b)(ii) of the Consolidated Financial Statements where the material effects of government regulations of the Company’s business are disclosed.

 

Investors should recognize that Blanket’s ability to implement its investment programme and Caledonia’s ability to sustain its operations outside Zimbabwe and pay future dividends depends, inter alia, on the ability to externalise cash from Zimbabwe.

 

 

 

 

 

 

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C.

Organizational Structure

 

The Company has the following organizational structure as at March 29, 2021:

 

 

D. Property, Plant and Equipment and Exploration and evaluation assets

 

(a) Zimbabwe:

 

The Company indirectly owns 64% of the shares of Blanket Mine after the purchase of Fremiro’s 15% shareholding became effective in January of 2020. The Blanket Mine is fully equipped with all the necessary plant and equipment to conduct mining operations and the production of gold from the ore mined from the mine.

 

For a detailed breakdown of the property, plant and equipment and encumbrances thereon refer to note 17 of the Consolidated Financial Statements. The property, plant and equipment of the Group is predominantly held in Zimbabwe and the continued implementation of the investment plan is expected to increase the property, plant and equipment of the Group. Refer to note 18 of the Consolidated Financial Statements for a detailed breakdown on the exploration and evaluation properties of the Company and encumbrances thereon, as well as Item 4.A. The investment plan is expected to be funded with existing cash, a term loan, an overdraft facility and cash generated from operating activities. The investment plan is expected to be completed in 2021.

 

(b) South Africa:

 

Refer to Item 4.A “History and Development of the Company” concerning the sale of Eersteling.

 

Mining Geology and Exploration Activities

 

Geology and Mineral Deposit

 

Zimbabwe’s known gold mineralisation occurs in host rocks of the Zimbabwe Craton, which is made up of Archaean rocks. The geology of the Craton is characterised by deformed and metamorphosed rocks which include high-grade metamorphic rocks, gneisses, older granitoids, greenstone belts, intrusive complexes, younger granites and the Great Dyke. The Chingezi gneiss, Mashaba tonalite and Shabani gneiss form part of a variety of tonalities and gneisses of varying ages. Three major sequences of slightly younger gold-bearing greenstone belt supracrustal rocks exist:

 

· Older greenstones called the Sebakwian Group, which are mostly metamorphosed to amphibolite facies. They comprise komatiitic and basaltic volcanic rocks, some banded iron formation (“BIF”), as well as clastic sediments.

 

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· The Lower Bulawayan Group, which comprises basalts, high-Mg basalts, felsic volcanic rocks and mixed chemical and clastic sediments. The Lower Bulawayan Group forms the Belingwe (Mberengwa) greenstones.

 

· The Upper Bulawayan (upper greenstones) and Shamvaian groups, which comprise a succession of sedimentary and komatiitic to tholeiitic to calc-alkaline rocks.

 

Three metamorphic belts surround the Zimbabwe Craton:

 

· Archaean Limpopo Mobile Belt to the south;

 

· Magondi Mobile Belt on the north-western margin of the Craton; and

 

· Zambezi Mobile Belt to the north and northeast of the Zimbabwe Craton.

 

 

 

  Zimbabwe Craton Relative to Other Cratons

 

Overview of the Project Geology

 

The Blanket Mine is situated on the north-western limb of the Archaean Gwanda Greenstone Belt. Several other gold deposits are situated along the same general strike as the mine. Approximately 268 mines operated in this greenstone belt at one stage; however, the Blanket Mine is one of the few remaining operational mines. At Blanket Mine, the rock units strike north−south, and generally dip steeply to the west.

 

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Local Property Geology

 

The local geology consists of the Felsic Unit made up of, largely, quartz and quartz-sericite schists overlain by the Mafic Unit. The lower zone of the Mafic Unit comprises ultramafics and banded iron formations which host the orebodies of the Vubachikwe mine, that is located south of Blanket. The upper zone of the Mafic Unit is made up of massive to pillowed basaltic lavas with intercalations of interflow sediments now showing as cherty argillites (locally commonly referred to as Black Markers) and this hosts the Blanket complex orebodies. The Blanket orebodies are in an orogenic setting with hydrothermal mineralization hosted in selected shears of country basaltic metavolcanics. This package is intruded by a younger and seemingly barren olivine-gabbro sheet. The sequence is capped by an Intermediate Unit comprising andesitic lavas with amphibole feldspar schists.

 

The Blanket complex orebodies together with those of the Vubachikwe complex comprise the north-western Mining Camp, also called the Sabiwa group of mines. Blanket Mine complex is a cluster of deposits that extend from Jethro in the south, through Blanket, Feudal, AR South, AR Main, Sheet, Eroica and Lima to the north.

 

Longitudinal Section of Blanket Mine

 

 

 

Dormant old workings include Sabiwa, Jean, Provost, Redwick, Old Lima, and Smiler. The latter group of mines form the northern continuation of the Vubachikwe zone and are hosted by BIFs. The mafic unit which hosts the gold mineralisation is, for the most part, a metabasalt with occasional remnants of pillow basalts. Regionally, the rock is a fine-grained massive amphibolite with localised shear planes. A low angle transgressive anastomosing shear zone (up to 500 m wide cutting through the mafic zone) is the locus of the gold ore shoots. The shear zone is characterised by a well-developed fabric and the presence of biotite. A regional dolerite sill cuts the entire sequence from Vubachikwe through Blanket to Smiler. The sill does not cause a significant displacement and although it truncates the ore shoots, there is continuity of mineralisation below the sill. The upper zone comprises massive to pillowed lavas with intercalations of interflow sediments.

 

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  Geology of the Project Area

 

The gold deposits are found around a low-angle transgressive shear zone. A simplified stratigraphic column for the Blanket Mine is shown in the following figure.

 

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Stratigraphic Column

 

 

 

  Stratigraphic Column

 

Status of Exploration

 

The Blanket Mine is a producing operation. Ordinarily, exploration activities are carried out both on and off the mine. Mine exploration takes place mostly underground on the producing claims and is aimed at expanding the lateral and depth extension of the known ore bodies which are being mined, as well as searching for potential additional orebodies. Available exploration platforms have been exhausted underground at Blanket Mine. Once Central Shaft is equipped, the capacity to establish new exploration platforms will be restored. Near-mine exploration takes place on satellite properties that are currently non-producing assets, which have the potential to yield new sources of ore and possibly give rise to new mines.

 

The mine’s exploration title holdings are in the form of 358 registered mining claims and a 2,120 ha mining lease (registered number 40) in the Gwanda Greenstone Belt. These claims include a small number under option and cover an area of approximately 3,500 ha.

 

The blocks of claims pegged as follows:

 

· 348 are registered as precious metal (gold) blocks covering 2,818ha.; and

 

· 10 claims were pegged and are registered as base metal (Cu, Ni, As) blocks, covering an area of 721 ha.

 

No underground exploration drilling was budgeted for the year on Blanket Mine due to the unavailability of drilling platforms, unlike in the previous year when 9,824 metres were drilled. A total of 1,910.33 metres were drilled on surface at GG Mine and Valentine prospect. Exploration drilling will ramp up on establishment new drilling platforms.

 

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Mineral Reserve Calculations

 

Mineral reserve estimates in this Annual Report are reported in accordance with the requirements of IG 7. Accordingly, as of the date of the Annual Report, all mineral reserves are planned to be mined out under the life of mine plan within the period of our existing rights to mine, or within the time period of assured renewal periods of our rights to mine. In addition, as of the date of this Annual Report, all mineral reserves are covered by required permits and governmental approvals.

 

Blanket Mine’s mineral reserve estimates are set out in the table below.

 

Mineral Reserve Classification Stope Grade Stope Tonnes Gold Content
g/t kt kg ounces
Proven 3.33 1,213 4,043 130,001
Probable 3.40 3,591 12,215 392,722
Total 3.38 4,804 16,259 522,723

 

Notes:

1.       Tonnages refer to tonnes delivered to the metallurgical plant.

2.       All figures are in metric tonnes.

3.       Mineral Reserve cut-off of 2.10 g/t applied for Blanket Mine.

4.       Cut-off calculated: USD/oz. = 1,240; Direct Cash Cost (C1) = USD71 /t milled.

5.       Tonnage and grade have been rounded and this may result in minor adding discrepancies.

6.       Mineral Reserves are reported as total Mineral Reserves and are not attributed.

 

The mineral reserves information is from an internal reserve update as at July 31, 2018. It is based on Blanket Mine’s life-of-mine plan, applying applicable modifying factors. Refer to the technical report dated February 13, 2018 entitled “National Instrument 43-101 Technical Report on the Blanket Mine, Gwanda Area, Zimbabwe (updated February 2018), a copy of which was filed by the Company on SEDAR on March 2, 2018, for key assumptions, parameters, and methods used to estimate the mineral reserves and risks that could materially affect the potential development of the mineral reserves. An independently verified NI 43-101 Technical Report is due to be published in Q2 of fiscal 2021 which shall include revised mineral reserve estimates as at 31 December 2019.

 

Our mineral reserve figures are estimates, which may not reflect actual reserves or future production. These figures are prepared in accordance with industry practice, converting mineral deposits to reserves through the preparation of a mining plan and application of appropriate modifying factors. The mineral reserve estimates contained herein inherently include a degree of uncertainty and depend to some extent on statistical inferences. Reserve estimates require revisions based on actual production experience or new information. Should we encounter mineralisation or formations different from those predicted by past drilling, sampling and similar examinations, mineral reserve estimates may have to be adjusted and mining plans may have to be altered in a way that might adversely affect our operations. Moreover, if the price of gold declines, stabilizes at a price that is lower than break-even level, if our production costs increase or recovery rates decrease, it may become uneconomical to recover mineral reserves with lower grades of mineralisation.

 

Access to the Property, Power and Water Supply

 

Access to the Blanket Mine is by an all-weather single lane tarred road from Gwanda. Gwanda is linked by national highways to Bulawayo, Harare and the Beitbridge Border post. Earlier, Zimbabwe had good road infrastructure. However, lack of investment over the past ten to fifteen years resulted in its deterioration; substantial investment is required country-wide. The railway line connecting the Zimbabwean national network to South Africa passes through Gwanda. An airstrip for light aircraft is located 5 km to the northwest of the town. Blanket power is supplied primarily from ZESA. Blanket also has a combined 18MVA of installed stand-by diesel generating capacity which is sufficient to allow all mining and processing activities and shaft-sinking work at the Central Shaft to continue if there are any interruptions to the ZESA supply. Water to the mine and its township is supplied through the Mtshabezi river, on-mine boreholes and the Gwanda municipality.

 

Caledonia’s approach to the electricity situation is threefold:

 

i. continue to engage constructively with ZESA with the objective of securing cheap, reliable and stable power from the grid. This includes agreeing a realistic electricity pricing formula in the context of the current monetary conditions; assisting ZESA to repair and maintain its equipment and participating in an industry-wide scheme to import power. On August 9, 2019 Blanket signed a new power supply agreement in terms of which Blanket will receive uninterrupted power in return for a US Dollar-denominated tariff which, although cheaper than the tariff which prevailed until December 31, 2018, is still sufficient to allow ZESA to import power so that (subject to the availability of power in neighboring countries) it can keep its supply commitment to the participants in the scheme. This arrangement has worked reasonably well, although Blanket continues to experience less severe outages during periods when South Africa’s electricity system has come under pressure;

 

ii. utilise Blanket’s standby diesel generating capacity. Blanket has 18MVA of installed diesel generators which is enough to maintain production and allow work to continue on the Central Shaft. However, diesel generators are not a long-term solution to the electricity problem: diesel power is expensive and requires large quantities of diesel which is environmentally damaging and is not always easily available; and

 

iii. install a 12MWac solar power plant to supply some of Blanket’s requirements.

 

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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;

 

· On October 7, 2020 the Company announced it had appointed Voltalia, an international renewable energy provider, as contractor for the project;

 

· Caledonia and Voltalia have entered into an EPC contract; procurement and construction are expected to begin imminently with current indicated commissioning for the 12MWac solar plant in the first quarter of 2022.

 

Blanket Claims

 

Blanket Mine's exploration interests in Zimbabwe include operating claims (i.e. on-mine), non-operating claims and a portfolio of brownfield exploration projects ("Satellite Prospects").

 

Blanket Mine operates under a mining lease with registered number 40 issued under the Mines and Minerals Act of 1961 (Chapter 21:05). A copy is exhibited at Exhibit 4.9.

 

Blanket Mine also had a number of registered claims, not incorporated under the lease, which include Oqueil, Valentine, Sheet, Mbudzane, Mascot, Eagle Vulture, Abercorn, Rubicon and others. Mascot, Eagle Vulture and Penzance claims were recently sold, as noted above.

 

The mine’s claims under the lease cover an area of 2,120 hectares, and incorporated the claims of Lima, Sheet, Oqueil, Feudal, Sabiwa, Jethro, Harvard and Blanket claims.

 

Prior Ownership and Ownership Changes – Blanket Mine

 

The Blanket Mine is part of the Sabiwa group of mines within the Gwanda Greenstone Belt from which gold was first extracted in the 19th century. The Blanket Mine is a cluster of mines extending some 3 km from Jethro in the south through Blanket itself, Feudal, AR South, AR Main, Sheet, and Eroica, to Lima in the north. Blanket Mine has produced over a million ounces of gold during its lifetime.

 

Following sporadic artisanal working, the Blanket Mine was acquired in 1904 by the Matabele Reefs and Estate Company. Mining and metallurgical operations commenced in 1906 and between then and 1911, 128,000 t were mined. From 1912 to 1916 mining was conducted by the Forbes Rhodesia Syndicate who achieved 23,000 t. There are no reliable records of mining for the period between 1917 and 1941 and it is possible that operations were adversely affected by political instability during World Wars I and II. In 1941 F.D.A. Payne produced some 214,000 t before selling the property to Falconbridge in 1964 (Blanket Mine, 2009). Under Falconbridge, production increased to 45 kg per month and the property yielded some 4 Mt of ore up until September 1993. Kinross Gold Corporation (“Kinross”) then took over the property and constructed a larger Carbon-in-Leach (“CIL”) plant with a capacity of 3,800 tpd. This was designed to treat both run of mine (“RoM”) ore and an old tailings dump.

 

The Blanket Mine is currently 64% indirectly owned and operated by Caledonia, which initially completed the purchase of the mine from Kinross on 1 April 2006. The Blanket Mine re-started production in April 2009 after a temporary shut-down due to the economic difficulties in Zimbabwe.

 

ITEM 4A - UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following Operating and Financial Review and Prospects section is intended to help the reader understand the factors that have affected the Company's financial condition and results of operations for the historical period covered by the financial statements and management's assessment of factors and trends which are anticipated to have a material effect on the Company's financial condition and results in future periods. This section is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the other financial information contained elsewhere in this document. Our Consolidated Financial Statements have been prepared in accordance with IFRS. Our discussion contains forward-looking information based on current expectations that involve risks and uncertainties, such as our plans, objectives and intentions. Our actual results may differ from those indicated in such forward-looking statements.

 

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A. Operating Results

 

The key drivers of our operating results and principal activities are:

 

  revenue, which is influenced by:
    the price of gold, which fluctuates in terms of the realized USD gold price obtained; and
    our production tonnages and gold content thereof, impacting on the amount of gold we produce at our operation;
       
    our cost of producing gold; and
       
    other significant matters affecting profitability.

 

Revenue

 

Revenue increased to $100,002,000 in fiscal year 2020 from $75,826,000 in fiscal year 2019 (2018: $68,399,000). Gold produced was 57,899 oz. (2019: 55,182 oz.; 2018: 54,511 oz.). The increase in revenue was due to an increase in the average realized gold price received to $1,749 per oz. (2019: $1,382 per oz.; 2018: $1,245 per oz.) and increase in quantity of gold sold (see below).

 

Gold price

 

Average realized gold price per ounce is a non-IFRS measures which management believes assists the stakeholders in understanding the average price obtained for an ounce of gold.

 

Our revenues are derived from the sale of gold produced by the Blanket Mine. As a result, our revenues are directly influenced by the average realized gold price obtained from the sale of gold. The gold prices obtained may fluctuate widely and are influenced by factors beyond the control of the Company. The table below indicates the average realized gold price per ounce obtained for the 2020, 2019 and 2018 fiscal years.

 

$’000     2018       2019       2020  
Revenue (IFRS)     68,399       75,826       100,002  
Revenue from silver sales     (61 )     (64 )     (86 )
Revenue from gold sales     68,338       75,762       99,916  
Gold ounces sold     54,899       54,801       57,137  
Average realized gold price per ounce     1,245       1,382       1,749  

 

Gold produced

 

Tonnes milled, average grades, recoveries and gold produced 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.)

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 136,262 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 556,746 3.26 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

 

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Ounces produced increased by 4.9% mostly due to the increased tonnes milled and higher recovery, the effect of which was offset somewhat by a lower grade. Tonnes milled in the year were 7.5% higher than 2019. Mine production in the first part of 2020 was only slightly adversely affected by measures taken by the Zimbabwe Government in response to the COVID-19 pandemic. Although Blanket obtained permission to maintain operations during this lockdown, it was obliged to change its operating procedures to reduce the risk of transmission of the virus amongst its workers. During this initial lockdown period, Blanket achieved production at approximately 93% of target using its inventories of consumables and spare parts. The second quarter of 2020 saw an improvement due to exemptions granted to Blanket, and the Zimbabwean mining industry in general, from the lockdown provisions in Zimbabwe and they were encouraged to resume full operation as quickly as possible.

 

Blanket’s improved operating performance resulted in a record level of production in 2020 which, in conjunction with a stronger gold price, resulted in an improvement in gross profit.

 

Production cost

 

Production cost includes salaries and wages, on mine administration, consumable materials and electricity and other related costs incurred in the production of gold. Production cost for 2020, 2019 and 2018 is summarized below.

 

$ ‘000     2018       2019       2020  
Salaries and wages     13,160       13,905       16,122  
Consumable materials – Operations     12,143       13,020       14,938  
Consumable materials – COVID-19                 824  
Electricity costs     9,313       6,383       8,312  
Site restoration     84              
Safety     592       525       708  
Cash-settled share-based expense (note 30.1(a))     43       107       634  
On mine administration     3,569       2,159       1,800  
Pre-feasibility exploration costs     411       301       373  
      39,315       36,400       43,711  

 

On-mine cost, all-in sustaining cost (“AISC”) and all-in cost per ounce

 

On-mine cost, AISC and all-in cost per ounce are non-IFRS cost measures which managements believes assist the stakeholders in understanding the cost structures of the Company. The table below reconciles production cost as stated in terms of IFRS to these cost measures.

 

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 fiscal year and previous fiscal years has been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases:

 

  i. On-mine cost per ounce, 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 (“AISC”) per ounce, which shows the on-mine cost per ounce plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg, London and Jersey), costs associated with maintaining the operating infrastructure and reserve base that are required to maintain production at the current levels (sustaining capital investment), the share-based expense (or credit) arising from the long-term incentive plan awards (the “LTIPs”) 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 ounce, which shows AISC per ounce plus the additional costs associated with activities that are undertaken to increase production (expansion capital investment).

 

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($’000’s unless otherwise indicated)            
      2018       2019       2020  
Production cost (IFRS)     39,315       36,400       43,711  
Less exploration and site restoration costs     (1,003 )     (826 )     (708 )
Cash-settled share-based payment expense - allocated to production cost     (43 )     (107 )     (634 )
COVID-19 expenses included in operating cost     -       -       (1,038 )
Other cost     (395 )     212       1,201  
On-mine production cost     37,874       35,679       42,532  
                         
Gold sales (oz.)     54,899       54,801       57,137  
On-mine cost per ounce ($/oz.)     690       651       744  
                         
Royalty     3,426       3,854       5,007  
ECI     (6,482 )     (1,930 )     (4,695 )
Exploration, remediation and permitting cost     305       416       468  
Sustaining capital development     2,154       565       760  
Administrative expenses     6,465       5,637       7,997  
Silver by-product credit     (61 )     (64 )     (86 )
Cash-settled share-based payment expense     315       689       1,413  
Cash-settled share-based payments expense - allocated to production cost     43       107       634  
All in sustaining cost     44,039       44,953       54,030  
                         
Gold sales (oz.)     54,899       54,801       57,137  
AISC per ounce ($/oz.)     802       820       946  
                         
Solar expenses     -       160       230  
COVID-19 donations     -       -       1,322  
COVID-19 expenses     -       -       1,038  
Permitting and exploration expenses     132       132       373  
Non-sustaining capital expenses     17,760       20,030       24,018  
Total all in cost     61,719       65,275       81,011  
                         
Gold sales (oz.)     54,899       54,801       57,137  
All-in cost per ounce ($/oz.)     1,124       1,191       1,418  
                         

 

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 increased by 14% compared to 2019 due to the lower grade and 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 COVID-19 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 on-mine cost per ounce of gold sold in the last quarter of 2020 excludes the costs relating to 1,585 ounces of work in progress which was sold immediately after the end of the quarter.

 

On mine costs include certain costs that are beyond the control of management 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, cash settled share based expenses for employees at the mine (which expense is largely determined by the performance of the Company’s share price) and pre-feasibility exploration costs.

 

  40  

 

 

All-in sustaining cost

 

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. Refer below and to note 13 of the Consolidated Financial Statements for details on administrative expenses.

 

All-in cost

 

All-in cost includes investment in expansion projects which remained at a high level due to the continued investment at Blanket.

 

Other significant matters affecting profitability

 

Foreign exchange gains

 

On October 1, 2018 the RBZ issued a directive to Zimbabwean banks to separate foreign currency from RTGS$ on the accounts held by their clients and pegged the RTGS$ at 1:1 to the US Dollar. On February 20, 2019 the RBZ issued a further monetary policy statement, which allowed inter-bank trading between RTGS$ and foreign currency. The interbank rate was introduced at 2.5 RTGS$ to 1 US Dollar and traded at 81.79 to 1 US Dollar as at December 31, 2020 (2019: 16.77 RTGS$). Throughout these announcements and to the date of issue of the Consolidated Financial Statements the US Dollar has remained the primary currency in which the Group’s Zimbabwean entities operate and the functional currency of these entities.

 

Previously there was uncertainty as to what currency would be used to settle amounts owed to the Zimbabwe Government. 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. Further, the Company participated in the foreign currency auction introduced by the Zimbabwean Government to exchange RTGS$ for US Dollars during 2021 and accordingly obtained allotments from the RBZ.

 

The table below illustrates the effect that the weakening of the RTGS$ and other non-RTGS$ currencies had, against the US Dollar, on the statement of profit or loss and other comprehensive income.

 

      2018       2019       2020  
                         
Unrealized Foreign exchange (loss)/gain     230       31,411       8,367  
Realised foreign exchange (loss)     (7 )     (1,750 )     (4,062 )
Net foreign exchange (loss)/gain     223       29,661       4,305  

 

Administrative expenses

 

Administrative expenses increased by 42% from the previous year, principally 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 COVID-19 pandemic.

 

Professional and advisory fees were $496 higher in the year compared to 2019. The increase was due to, inter alia:

 

· Costs of evaluating potential investment opportunities, which culminated in the conclusion of option agreements over two exploration opportunities (Connemara and Glen Hume);

 

· Costs associated with the Company’s voluntary de-listing of its shares 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;

 

· Costs of preparing documentation which culminated in the raising of $13m (before fees and expenses) by the issue of new shares; and

 

· Costs relating to the proposed solar project prior to the board decision to proceed.

 

  41  

 

 

Wages and salaries increased by $1,035 in the year compared to 2019. 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).

 

Administrative expenses are further analyzed in note 14 of the Consolidated Financial Statements.

 

Other expenses

 

Other expenses increased by 698% in 2020 compared to 2019. The substantial increase is mostly due to donations of $1,322 in the year to the local community to assist its efforts to address the COVID-19 pandemic and an expense of $2,930 arising on the impairment of the Mascot, Eagle Vulture and Penzance exploration assets that have been sold. Other expenses are detailed in note 13 to the Consolidated Financial Statements.

 

Government grant – Gold sale export credit incentive

 

From May 2016 the RBZ announced an export credit incentive (“ECI”) on the gold proceeds received for all largescale gold producers. On January 1, 2018 the ECI decreased from 3.5% to 2.5%, on February 1, 2018 increased to 10% and on March 10, 2020 increased to 25%. All incentives granted by the Zimbabwean Government were included in other income when determined receivable. All receipts were received in Blanket Mine’s RTGS$ account. The ECI was cancelled after June 26, 2020. Refer to note 10 of the Consolidated Financial Statements for amounts received.

 

Gold hedge

 

The Company entered into a hedge in November 2019 for economic hedging purposes to ensure sufficient cash availability for Blanket Mine’s capital investment plan, rather than as a speculative investment. Refer to note 23 of the Consolidated Financial Statements for more information on the gold hedge.

 

Gold ETF

 

In April 2020 the South African subsidiary, Caledonia Mining South Africa Proprietary Limited, purchased a Gold ETF through Standard Bank Limited utilised to invest excess short-term Rands on hand at the South African subsidiary. Refer to note 23 of the Consolidated Financial Statements for more information on the Gold ETF.

 

 

 

  42  

 

 

Share-based payment awards

 

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 (which includes dividend reinvestments into further RSUs) 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, with most unitholders’ PUs vesting in equal tranches over each of the three years (whereas senior executives’ PUs all vest on the third anniversary). The number of PUs that vest will be the relevant PUs 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.

 

Refer to note 30.1 of the Consolidated Financial Statements for more information on the share-based payment awards.

 

During 2019 and 2020 an aggregate of 279,889 PUs and 17,585 RSUs were awarded to executives as well as to certain senior management and certain employees within the companies in the Group. On January 11, 2021, 78,883 PUs were granted to certain employees within the Group. An example of the award agreements are disclosed as Exhibits 4.6, 4.7 and 4.8. Refer to note 30.1(a) of the Consolidated Financial Statement for a further analysis of cash-settled share-based payments granted.

 

Caledonia Mining South Africa employee incentive scheme

 

From July 2017, Caledonia Mining South Africa Proprietary Limited granted 52,282 awards respectively to certain of its employees that entitle them to a cash pay-out at the Company’s share price on November 30 each year over a 3-year period from the grant date. Refer to note 30.1(b) of the Consolidated Financial Statements for more information on the awards.

 

Adjusted earnings per share

 

“Adjusted earnings per share” is a Non-IFRS Measure which management believes assists investors in understanding the Company’s cash-based performance of core business activities. The table below reconciles “adjusted earnings per share” to the Profit/Loss attributable to Owners of the Company shown in the Consolidated Financial Statements which have been prepared under IFRS and adjusts for deferred tax and non-core business activities.

 

 

 

  43  

 

 

Reconciliation of Adjusted Earnings per Share (“Adjusted EPS”) to IFRS Profit Attributable to Owners of the Company

($’000’s unless otherwise indicated)

             
      *2018       2019       2020  
Profit for the year (IFRS)     13,756       50,401       25,257  
Profit for the year attributable to non-controlling interests     (2,990 )     (8,383 )     (4,477 )
Profit attributable to owners of the Company     10,766       42,018       20,780  
Blanket Mine Employee Trust adjustment     (280 )     (986 )     (485 )
Earnings (IFRS)     10,486       41,032       20,295  
Weighted average shares in issue     10,603       10,742       11,704  
IFRS EPS (cents)     99       382       173  
                         
Add back/(deduct) amounts in respect of foreign exchange gains and losses:                        
Realised net foreign exchange losses     5       1,648       4,062  
- less tax     (1 )     (414 )     (1,006 )
- less non-controlling interest     (1 )     (198 )     (383 )
Unrealized net foreign exchange losses/(gains)     (230 )     (31,309 )     (8,369 )
- less tax     55       519       2,158  
- less non-controlling interest     16       5,000       836  
Adjusted IFRS profit excl. foreign exchange     10,330       16,278       17,593  
Weighted average shares in issue     10,603       10,742       11,704  
Adjusted IFRS EPS excl foreign exchange (cents)     97       152       150  
                         
Add back/(deduct) amounts in respect of:                        
Reversal of Blanket Mine Employee Trust adjustment     280       986       485  
Impairment of E&E assets     -       -       2,930  
Deferred tax     3,607       2,460       3,523  
Deferred tax net of non-controlling interest     (601 )     (477 )     (900 )
Hedge loss     360       601       266  
Equity-settled share-based expense     14       -       -  
Profit on sale of subsidiary     -       (4,409 )     -  
Adjusted profit     13,990       15,439       23,897  
Weighted average shares in issue (m)     10,603       10,742       11,704  
Adjusted EPS (cents)     132       144       204  
                         
*Restated period and numbers for the reversal of realised foreign exchange and the reversal of Blanket Mine Employee Trust adjustment.

 

B. Liquidity and Capital Resources

 

Cash and cash equivalents

 

$’000     2018       2019       2020  
Bank balances     11,187       9,383       19,092  
Cash and cash equivalents in the statements of financial position     11,187       9,383       19,092  
Bank overdraft used for cash management purposes     -       (409 )     -  
Cash and cash equivalents in the statements of cash flows     11,187       8,893       19,092  

 

 

  44  

 

 

Blanket Mine has arranged unsecured overdraft facilities with the following banks and terms.

 

Overdraft facilities   Denomination RTGS$   Interest rate
Stanbic Bank     15,000,000       55 %
First Capital Bank     10,000,000       55 %

 

As at year end, Caledonia’s cash was held in the following jurisdictions:

 

$’000     2018       2019       2020  
Jersey, Channel Islands     1,954       1,146       11,243  
United Kingdom     1,311       1,735       1  
South Africa     2,931       2,513       2,732  
Zimbabwe (net of overdraft)     4,991       3,499       5,116  
Total     11,187       8,893       19,092  

 

An analysis of the sources and uses of Caledonia’s cash is set out in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements.

 

As of December 31, 2020, Caledonia had a working capital surplus of $34,622,000 (2019: $19,960,000; 2018: $15,970,000). As of December 31, 2020, Caledonia had potential liabilities for rehabilitation work on Blanket (2020 and prior) – if and when those mines permanently close – at an estimated present value cost of $3,567,000 (2019: $3,346,000; 2018: $3,309,000). The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue its mining operations and exploration activities.

 

The Company’s primary objective with respect to its capital management is to ensure that it has enough cash resources to maintain its ongoing operations, to provide returns for shareholders, complete the investment plan and accommodate any asset retirement obligation. Refer to note 33 of the Consolidated Financial Statements for information on the type of financial instruments used and the maturity profiles thereof. Management believes that the current working capital and future production cash proceeds will be enough to meet its capital requirements.

 

Blanket foreign exchange approval requirements

 

Approval from the RBZ is required for the remittance of dividends declared from Zimbabwe, for the repayment of loans and advances from Blanket Mine to Caledonia and the repayment of capital and consumables purchased from Caledonia Mining South Africa Proprietary Limited. During 2020 Caledonia obtained the necessary approvals from the RBZ to obtain foreign currency to conduct normal business operations.

 

C. Research and development, patents and licenses, etc.

 

The Company is an exploration, development and mining company and does not carry on any research and development activities.

 

D. Trend Information

 

Production Guidance

 

Production for 2020 was 57,899 ounces, which was towards the upper end of the revised guidance range of 55,000 to 58,000 ounces. Refer to Item 5.A – gold produced for further discussion and detail of actual production.

 

Production guidance for 2021 is between 61,000 and 67,000 ounces.

 

  45  

 

 

Cost Guidance

 

The estimated on-mine cost for 2020 was in the range of $693 to $767 per ounce and the estimated AISC for 2020 was a range of $951 to $1,033 per ounce. The actual on-mine cost per ounce for 2020 was $770 and actual AISC per ounce for 2020 was $1,083 - higher than guidance. Costs were above guidance due to higher on-mine costs relating to COVID-19 expenses and increased use of diesel generators; and higher administrative costs due to the increased cost of insurance cover and higher wages and salaries.

 

On-mine cost guidance for 2021 is in the range of $740 to $815 per ounce; guidance for AISC is $985 to $1,080 per ounce. The guidance for on-mine cost per ounce is higher than the on-mine cost per ounce guidance in 2020 due to the 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 COVID-19 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.

 

E. Off-Balance Sheet Arrangements

 

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 6 of the Consolidated Financial Statements).

 

F. Tabular Disclosure of Contractual Obligations

 

As at December 31, 2020, the Company had the following contractual obligations:

 

Payments due by Period
$’000
   

Less than

1 year

      1-3 years       4-5 years      

More than

5 years

 
Trade and other payables     8,664       -       -       -  
Term loan facility     408       -       -       -  
Provisions     139       793       93       2,542  
Capital expenditure commitments     2,998       -       -       -  
Lease liabilities     61       178       -       -  
Cash-settled share-based payments     336       1,934       -       -  
Total     12,606       2,905       93       2,542  

 

Except for capital expenditure commitments, the contractual obligations in the table above are based on the classification requirements under IFRS.

 

G. Safe Harbor

 

The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary Note Regarding Forward-Looking Statements" above.

 

 

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ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

The following is a list of our current directors and the Group’s senior management as of March 29, 2021.

 

Name, Office Held and Municipality of Residence   Principal Occupations During Past Five Years   Company position(s) held Since   Number of Shares Beneficially Owned, Controlled or Directed as of March 29, 2021
             
Steven Curtis Chief Executive Officer & Director
Johannesburg, South Africa
 

Chief Executive Officer and director over certain subsidiary companies.

 

Director since 2008

Chief Executive Officer since 2014

  164,882
             

Leigh Wilson
Non-Executive Director & Chairman

Stuart, Florida, USA

 

Chairman of the Victory Portfolios

  Director since 2012   40,000
             

Nick Clarke

Non-Executive Director

East Molesey, United Kingdom

  Chairman and former Chief Executive Officer of Central Asia Metals Plc.   Director since 2019   Nil
             

John Kelly
Non-Executive Director

New Canaan, Connecticut

 

Managing Partner of Active Capital Partners LLC (From January 2018)

Independent Trustee, The Victory Funds (From February 2015).

Non-Executive Member of CrossRoad LLC (From May 2009).

Partner, McCarvill Capital Partners (September 2016 to September 2017).

Adviser, Endgate Commodities LLC (January to April 2016).

  Director since 2012   16,330
             
Johan Holtzhausen
Non-Executive Director
Cape Town, South Africa
  Business consultant and Independent Director of DRDGOLD Limited.   Director since 2013   19,825
             

Dana Roets
Chief Operating Officer
Johannesburg, South Africa

  Chief Operating Officer and director of certain subsidiary companies.   Chief Operating Officer since 2013   Nil

 

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Mark Learmonth
Chief Financial Officer & Director

Jersey, Channel Islands

  Chief Financial Officer and director of certain subsidiary companies.   Chief Financial Officer since 2014, Director since 2015 and formerly Vice-President, Business Development since 2008   139,775
             

John McGloin

Non-Executive Director

Bishops Stortford, United Kingdom

 

 

Previous Executive Chairman and Chief Executive Officer of Amara Mining Plc. Current non-executive director of Perseus Mining Limited, non-executive director of Cornish Metals Inc., non-executive chairman of Oriole Resources Plc and non-executive director of Amphi Capital Limited.

  Director since 2016   Nil
             

Geralda Wildschutt

Non-Executive Director

Johannesburg, South Africa

 

Founder and CEO of Maisha Social Solutions Pty Ltd

Board member of SAICA ED Pty Ltd

Board member of The Hope Factory

Trustee of the Anglo American Namibia Foundation

Sustainability Consultant Gold Fields (2017, 2018)

  Director since 2021   Nil
             

Adam Chester

General Counsel, Company Secretary and Head of Risk and Compliance

Jersey, Channel Islands

  Solicitor of the Supreme Court of England and Wales. Partner at Walkers and advocate of the Royal Court of Jersey.   General Counsel, Company Secretary and Head of Risk and Compliance since 2017   25,553
             

Caxton Mangezi

General Manager of Blanket Mine

Gwanda, Zimbabwe

  General Manager of Blanket Mine.   General Manager of Blanket Mine since 1993   Nil

 

No family relationships exist between any of the Directors or senior management.

 

A brief profile of each of the Directors and senior managers is given below:

 

Steven Curtis, CA (SA) – Director and Chief Executive Officer

 

Mr. Steven Roy Curtis is a Chartered Accountant with over 36 years of experience and has held a number of senior financial positions in the manufacturing industry. Before joining Caledonia in April 2006, he was Director Finance and Supply Chain for Avery Dennison SA and, prior to this, Financial Director and then Managing Director of Jackstadt GmbH South African operation. Mr. Curtis is a member of the South African Institute of Chartered Accountants and graduated from the University of Cape Town.

 

Mr. Curtis was appointed Vice-President Finance and Chief Financial Officer in April 2006 and served in the position until Dec 2014 when he was appointed as President and Chief Executive Officer.

 

Leigh WilsonNon-Executive Director and Chairman

 

Mr. Leigh Alan Wilson has been a senior executive in international business and financial services and held positions with Union Bank of Switzerland (Securities) Ltd. in London and with the Paribas Group in Paris and New York where he served as CEO of Paribas North America between 1984 and 1990.

 

 

  48  

 

 
Mr. Wilson has served on the Board of Trustees of a mutual fund complex managed by Victory Capital Management since 1993.  He currently serves as Independent Chairman of the Board. The mutual fund complex is the largest client of Victory Capital Management high of Trustees of the mutual fund complex managed by Victory Capital Management, an independent investment management firm with total assets and advisement as of December 31, 2019 of $61.8 billion.

 

In March 2006, Mr. Wilson received the Mutual Fund Trustee of the Year Award from Institutional Investor Magazine. Between March 2008 and October 2008, Mr. Wilson was an independent non-executive director of the Company.   Mr. Wilson was re-appointed to the Caledonia board as an independent non-executive director in May 2012 and was appointed Chairman in May 2013.

 

Nick ClarkeNon-Executive Director

 

Mr. Nick Clarke joined the Company’s board as a Non-Executive Director on September 23, 2019. Mr. Clarke, who is Chairman of Central Asia Metals PLC (AIM: CAML), is a highly experienced Chartered Engineer (CEng) with 46 years in the mining industry.  He has held senior positions in several resource companies and is well known as a successful executive in the sector having been involved in the construction of major mining projects and conducted several fundraisings on AIM and TSX.

 

He has an extensive background in managing AIM and TSX listed minerals companies including his current position as Chairman of Central Asia Metals PLC, where he was CEO from 2009 until 2016.  Between 2004 and 2008 he was Managing Director of Oriel Resources plc (AIM: ORI) and from 2006 to 2008 he was President and CEO of Lero Gold Corporation (TSX: LER). Mr. Clarke has significant experience as a non-executive director of a number of AIM and TSX listed resource companies having previously held non-executive directorships on the boards of Afcan Mining Corp. (TSX: AFK), Caledon Resources plc (AIM: CDN), Obtala Resources plc (AIM: OBT), Columbus Copper Corp (TSX: CCU) and Sunkar Resources plc (AIM: SKR).

 

Mr. Clarke is an Associate of Camborne School of Mines (ACSM). He is a trustee of the Camborne School of Mines Trust and is a member of the Institution of Materials Minerals & Mining (MIMMM).

 

John KellyNon-Executive Director

 

Mr. John Lawson Kelly has over 37 years of experience in the financial services industry in the U.S.A and international markets including emerging markets in Asia. Mr. Kelly is currently Managing Partner of Active Capital Partners LLC, an Independent Trustee of the Victory Funds and a non-executive Member of CrossRoad LLC.  Within the last five years, Mr. Kelly has also been a partner of McCarvill Capital Partners and adviser to EndGate Commodities LLC.  Mr. Kelly is a graduate of Yale University and the Yale School of Management.

 

Mr. Kelly was appointed to the Caledonia board as an independent non-executive director in May 2012.

 

Johan Holtzhausen – Non-Executive Director

 

Mr. Johan Andries Holtzhausen is a retired partner of KPMG South Africa with 42 years of audit experience, of which 36 years were as a partner focused on the mining sector. Mr. Holtzhausen chaired the Mining Interest Group at KPMG South Africa and his clients included major listed mining companies operating in Africa and elsewhere, which operated across a broad range of commodities. In addition to his professional qualifications, Mr. Holtzhausen holds a B.Sc. from the University of Stellenbosch, majoring in chemistry and geology.

 

Mr. Holtzhausen is chairman of the Finance, Audit and Risk Committees of Strategic Partners in Tourism and its related party the Tourism Micro Enterprises Support Fund, both of which are not-for-profit organizations. Until February 28, 2011, Mr. Holtzhausen served as a director of KPMG Inc. and KPMG Services (Pty) Ltd, both of which are private companies registered in South Africa and which provided audit, taxation and advisory services.

 

  49  

 

 

Dana Roets – Chief Operating Officer

 

Mr. Dana Roets is a qualified Mining Engineer and holds a B.Sc. Mining Engineering degree from Pretoria University (1986) and an MBA from the University of Cape Town (1995). Mr. Roets is a South African national with over 25 years of operational and managerial experience in the South African gold and platinum industries. He started his career with Gold Fields at the St Helena Gold Mine as a graduate trainee and progressed via various operational roles from being an underground shift boss to become Vice President and Head of Operations at Kloof Gold Mine in January 1999 at which time Kloof produced over 1,000,000 ounces of gold per annum. More recently, Mr. Roets was the COO at Great Basin Gold which had gold mining operations in the United States of America and South Africa.

 

Mark Learmonth Director and Chief Financial Officer

 

Mr. John Mark Learmonth joined Caledonia in July 2008. Prior to this, he was a Division Director of Investment Banking at Macquarie First South in South Africa and has over 17 years of experience in corporate finance and investment banking, predominantly in the resources sector. Mr. Learmonth graduated from Oxford University and is a chartered accountant. He is a member of the Executive Committee of the Chamber of Mines, Zimbabwe and is also a member of the Gold Producers Sub-Committee.

 

Mr. Learmonth was appointed Vice-President Finance, Chief Financial Officer of the Company in November 2014. Mr. Learmonth was responsible for Investor Relations and Corporate Development of the Company until the appointment of Mr. Maurice Mason. Responsibilities for Investor Relations was appointed to Mrs. Camilla Horsfall in September 2020.

 

John McGloin – Non-Executive Director

 

John McGloin is the former Chairman and Chief Executive of Amara Mining and is currently a non-executive director of Perseus Mining Limited, a non-executive director of Cornish Metals Inc., the non-executive chairman of Oriole Resources Plc and a non-executive director of Amphi Capital Limited. Mr. McGloin joined Caledonia in August 2016. He is a geologist and graduate of Camborne School of Mines.

 

Mr. McGloin worked for many years in Africa within the mining industry before moving into consultancy. He joined Arbuthnot Banking Group following four years at Evolution Securities as their mining analyst. He is also the former Head of Mining at Collins Stewart.

 

Geralda Wildschutt – Non-Executive Director

 

Geralda has over 25 years’ experience in stakeholder engagement, corporate social responsibility, community development and social performance across mining, renewable energy, banking and the social sector. She has worked across Africa, Latin America, Australia and Canada.

 

In mining, she has been a consultant to Anglo American, Gold Fields, Ivanhoe Mines and South32 on a range of ESG topics. She has held senior positions at Anglo American, Gold Fields, ABSA/ Barclays Group and Ashoka: Innovators for the Public. Geralda 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.

 

Adam Chester – General Counsel, Company Secretary and Head of Risk and Compliance

 

In January 2017 Mr. Adam Chester joined the management team as General Counsel, Company Secretary and Head of Risk and Compliance. Mr. Chester is a dual qualified lawyer (England and Jersey, Channel Islands) and previously worked as a solicitor of the Supreme Court of England and Wales at international law firms in the City of London and, more recently, as an advocate of the Royal Court of Jersey at an international offshore law firm in which he was a partner. He has nearly 20 years’ experience advising businesses and individuals on a variety of commercial and corporate legal issues.

 

Caxton Mangezi – Generak Manager of Blanket Mines

 

Mr. Caxton Mangezi is a qualified miner and mine manager. He has worked at Blanket since 1969 in a range of roles including geological technician, overseer miner and underground manager.

 

Mr. Mangezi has been General Manager of Blanket Mine since 1993, with full responsibility for day-to-day operations. Mr. Mangezi also serves as director on certain Zimbabwean subsidiary companies.

 

  50  

 

 

Arrangements, Understandings, etc.

 

Caledonia has no arrangements or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.

 

Compensation

 

Summary Compensation Table

 

Name and principal position Year Salary ($) Share-based awards ($)(1) Option-based awards

Non-equity incentive plan compensation

($)

Pension value

($)

All other

compensation

($)

Total compensation

($)

(a) (b) (c) (d) (e) (f) (g) (h)(2) (i)
          Annual incentive plans (1) Long term incentive plans      

Steven Curtis

Chief Executive Officer

2020

2019

2018

 

470,478 459,900

450,000

 

380,477 200,391

80,562

 

-

-

-

-

-

-

-

-

-

-

-

-

235,239 70,000

45,000

 

1,086,194 730,291

575,562

 

Dana Roets

Chief Operating Officer

2020

2019

2018

 

445,082 442,602

418,182

 

239,641 128,217

52,678

 

-

-

-

 

-

-

-

 

-

-

-

 

-

-

-

 

222,541 65,000

41,818

 

907,263 662,292

512,678

 

Mark Learmonth

Chief Financial Officer

2020

2019

2018

 

436,373 433,942

410,000

 

231,660 163,350

43,267

 

-

-

-

 

-

-

-

 

-

-

-

 

-

-

-

 

218,187 65,000

41,000

 

 

886,220 662,292

494,267

 

Caxton Mangezi

General Manager and Director of the Blanket Mine

2020

2019

2018

 

 

374,817 450,377

358,503

 

 

294,512 107,050

43,379

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

-

-

-

 

 

187,409 63,771

124,518

 

856,738 621,198

526,400

 

Adam Chester

General Counsel, Company Secretary and Head of Risk and Compliance

2020

2019

2018

 

286,952 281,744

273,872

 

 

 

133,840 73,046

14,936

 

 

 

-

-

-

 

-

-

-

 

-

-

-

 

-

-

-

 

38,510 29,773

32,768

 

 

 

459,302 384,563

321,576

 

 

 

 

(1) OEICP awards (also referred to herein as Long-term incentive plan or LTIPs) represents the non-cash expense amount as determined by the method described in note 30.1 of the Consolidated Financial Statements and are, following amendment to allow for settlement in shares as well as or instead of cash, considered to be share-based awards. Note 30.1(a) of the Consolidated Financial Statements indicates the amount that was issued as equity to Mr. Chester during 2020.
(2) Bonuses paid to directors and key management (Refer to note 36 of the Consolidated Financial Statements)

 

Non-executive director fees were paid in equal quarterly instalments in arrears during 2020. From January 1, 2020 to December 31, 2020 the approved non-executive director fees amounted to $63,750 p.a. payable to non-executive directors other than Mr. Nick Clarke who received $67,500 for his services in 2020.

 

 

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Long term incentive plan

 

The following key management members were granted RSUs and PUs, pursuant to the provisions of the OEICP. The outstanding RSUs and PUs as at December 31, 2020 were as follows:

 

Key management member Vesting date RSUs PUs
Steve Curtis 2022/01/11 -  44,309
2023/01/11 - 16,547
Dana Roets 2022/01/11 -  27,898
2023/01/11 - 10,436
Mark Learmonth 2022/01/11 -  28,287
2023/01/11 - 10,231
Caxton Mangezi 2022/01/11 - 23,533
2023/01/11 17,971 8,788
Adam Chester 2023/01/11 - 7,103
2023/01/11 - 13,692
Total   17,971 210,473

 

For further detail on the RSUs and PUs refer to note 30.1 (a) of the Consolidated Financial Statements.

 

Refer to Item 6.E for a breakdown of director equity options outstanding, these equity options and their grant dates.

 

Caledonia does not have a pension, retirement or similar benefits scheme for directors.

 

B. Board Practices

 

The directors all hold their positions for an indefinite term, subject to re-election at each annual general meeting of the shareholders. The officers hold their positions subject to being removed by resolution of the board of directors. The term of office of each director expires as of the date that an annual general meeting of the shareholders is held, subject to the re-election of a director at such annual general meeting. The following persons comprise the following committees:

 

Audit Compensation Governance Nomination Disclosure
J Holtzhausen L Wilson L Wilson L Wilson M Learmonth
J McGloin J Kelly J Kelly J Holtzhausen S Curtis
J Kelly J Holtzhausen J McGloin J McGloin D Roets
    G Wildschutt N Clarke C Horsfall
      J Kelly A Chester
      G Wildschutt  
Technical Strategic Planning      
J Holtzhausen L Wilson      
D Roets J Kelly      
J McGloin S Curtis      
S Curtis M Learmonth      
N Clarke D Roets      
  J McGloin      
 

J Holtzhausen

     
  M Mason      
  N Clarke      
 

G Wildschutt

     

 

Terms of reference of the Audit Committee are given in the charter of the Audit Committee, and the terms of reference of the Compensation Committee are given in the charter of the Compensation Committee. All charters of committees are available on the Company’s website or, on request, from the Company’s offices listed in this report.

 

The Audit Committee is comprised of the following directors: (i) Johan Holtzhausen (Chairperson), (ii) John McGloin, and (iii) John Kelly. Each member of the Audit Committee is considered independent as defined under Canadian National Instrument 52-110 and as defined pursuant to Section 803 of the NYSE American LLC Company Guide (as such definition may be modified or supplemented) and considered to be financially literate as such terms are defined under Canadian National Instrument 52-110 Audit Committees.

 

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Benefits upon termination are disclosed in note 36 of the Consolidated Financial Statements and an example contract is disclosed in Exhibit 4.2.

 

C. Employees

 

The average, approximate number of employees, their categories and geographic locations for each of the last 3 years are summarized in the table below:

 

Geographic Location and Number of Employees:

 

Employee Location     2018       2019       2020  
Total Employees                        
London, United Kingdom - Management and administration     1       1       2  
Jersey, Channel Islands - Management and administration     3       3       3  
South Africa - Management, procurement, administration and technical     15       13       16  
Zimbabwe - Mine operations (i)     1,445       1,569       1,697  
South Africa (Eersteling)     1       -       -  
Total Employees at all Locations     1,465       1,586       1,718  

 

Management and Administration:

 

Employee Locations:     2018       2019       2020  
London, United Kingdom - Management and administration     1       1       2  
Jersey, Channel Islands - Management and administration     3       3       3  
Zimbabwe - Mine operations     44       44       46  
South Africa - Management, procurement, administration and technical     14       12       15  
South Africa (Eersteling)     -       -       -  
Total Management and Administration     62       60       66  

 

D. Share Ownership

 

(a) The direct and indirect shareholdings of the Company’s directors, officers and senior management as at March 29, 2021 were as follows:

 

      Number of shares       Percentage share holding  
L Wilson     40,000       0.33 %
S Curtis     164,882       1.36 %
M Learmonth     139,775       1.15 %
J. Kelly     16,330       0.13 %
J Holtzhausen     19,825       0.16 %
A Chester     25,553       0.21 %
Total     447,882       3.68 %

 

Refer to Item 6.A for a list of the Company’s directors, officers and senior management and number of shares held.

 

All of the shares held above are voting shares and do not have any different voting or other rights than the other outstanding shares of the Company.

 

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The information as to shares beneficially owned or controlled or directed, not being within the knowledge of the Company, has been furnished by the respective directors, officers and senior management members individually.

 

(b) Share purchase options outstanding as of March 29, 2021:

 

Name         Exercise Price CAD     Expiry Date     Number of Options  
J McGloin   Non-Executive Director     11.50     October 13, 2021     18,000  
P Chidley   Advisor     *9.30   August 25, 2024     5,000  
P Durham   Advisor     *9.30   August 25, 2024     5,000  
TOTAL                     28,000  

 

*The exercise price of CAD$9.30 per share was converted into a USD amount of $7.35 at the prevailing USD/CAD exchange rate at the date of grant (August 25, 2017).

 

In terms of the OEICP, the expiry of the options that expire in a closed period will be extended by 10 days from the cessation of the closed period.

 

ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

To the best of Caledonia's knowledge, as at March 29, 2021, we are aware of the following beneficial owners that directly or indirectly exercise control or direction over more than 3% of the voting rights to our shares.

 

Beneficial owner name   2019   2020
     

Number of

Shares Held

     

Percentage of

Issued Shares

     

Number of

Shares Held

     

Percentage of

Issued Shares

 
Allan Gray (through two of its funds)     2,070,348       17.98 %     1,957,391       16.15 %
Sales promotion Services S.A./ Heinrich Auwärter     848,773       7.37 %     663,773       5.48 %
TD Ameritrade     884,647       7.68 %     -       -  
Fremiro Investments (Private) Limited     727,266       6.32 %     727,266       6.0 %
Blackrock, Inc.     -       -       604,129       4.98 %
Premier Miton Group PLC     -       -       399,925       3.30 %

 

All shareholders have the same voting rights as all other shareholders of Caledonia.

 

According to our share register and information received from our registrar on March 16, 2021 the shares of Caledonia (including those represented by depositary interests) were held in the following geographic locations:

 

Geographic Location based on the share register only    

Number of

Shares Held

     

Percentage of

Issued Shares

 
                 
United Kingdom     3,294       0.03 %
USA     11,378,381       93.89 %
Canada     4,962       0.04 %
Zimbabwe     727,266       6.0 %
Other     4,920       0.04 %
      12,118,823       100 %

 

12,118,823 shares of the Company, as on March 16, 2021, are held by a total of 78 registered shareholders.

 

Caledonia is not aware of any arrangement which may at some subsequent date result in a change of control of Caledonia.

 

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B. Related Party Transactions

 

No related party transactions exist, other than disclosed in note 36 of the Consolidated Financial Statements.

 

C. Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8 - FINANCIAL INFORMATION

 

A. Consolidated Statements and Other Financial Information

 

This Annual Report contains the audited Consolidated Financial Statements which comprise the consolidated statements of financial position as at December 31, 2020, December 31, 2019 and January 1, 2019 and the related consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended December 31, 2020, December 31, 2019 and December 31, 2018.

 

Reference is made to page 75 where the Consolidated Financial Statements are filed as part of this Annual Report on pages F1 – F67.

 

Legal Proceedings and Regulatory Actions

 

To our knowledge, there are no legal proceedings material to us to which we are or were a party to or of which any of our properties are or were the subject of during the financial year ended December 31, 2020 nor are there any such proceedings known to us to be contemplated which would materially impact our financial position or ability to continue as a going concern.

 

During the twelve months ended December 31, 2020, there were no (i) penalties or sanctions imposed against us by a court relating to securities legislation or by a securities regulatory authority; (ii) penalties or sanctions imposed by a court or regulatory body against us that would likely be considered important to a reasonable investor in making an investment decision, or (iii) settlement agreements we entered into before a court relating to securities legislation or with a securities regulatory authority.

 

Dividend policy

 

From 2014, the Company has paid a quarterly dividend (payable at the end of January, April, July and October each year, except for the dividend expected to be paid in April 2020 which was delayed by a month due to uncertainties related to the COVID-19 pandemic). The quarterly dividend declared was 6.875 cents per share in 2019 and was increased on several dates during 2020 and 2021 as set out below:

 

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
January 14, 2021 11.0

 

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B. Significant Changes

 

We have not experienced any significant changes since the date of the Consolidated Financial Statements included with this Annual Report except as disclosed in this Annual Report.

 

ITEM 9 - THE OFFERING AND LISTING

 

A. Offering and Listing Details

 

The Company’s shares trade on the NYSE American and AIM under the trading symbol “CMCL”. Caledonia voluntary delisted its shares from 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.

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

The Company’s shares trade on the NYSE American and AIM under the trading symbol “CMCL”. Caledonia voluntary delisted its shares from 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.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

ITEM 10 - ADDITIONAL INFORMATION

 

A. Share Capital

 

Not Applicable.

 

B. Memorandum and Articles of Association

 

Securities Registrar

 

Computershare Inc. is the transfer agent and registrar for the shares at its principal office in Massachusetts. Computershare Investor Services PLC at its principal office in Bristol, United Kingdom is the transfer agent for the depositary interests.

 

Director’s power to vote on a proposal, arrangement or contract in which the director is materially interested.

 

An interested director must disclose to the Company the nature and extent of any interest in a transaction with the Company, or one of its subsidiaries, which to a material extent conflicts or may conflict with its interests and of which the director is aware. Failure to disclose an interest entitles the Company or a shareholder to apply to the court for an order setting aside the transaction concerned and directing that the director account to the Company for any profit.

 

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A transaction is not voidable and a director is not accountable notwithstanding a failure to disclose an interest if the transaction is confirmed by special resolution and the nature and extent of the director’s interest in the transaction are disclosed in reasonable detail in the notice calling the meeting at which the resolution is passed.

 

Although it may still order that a director account for any profit, a court will not set aside a transaction unless it is satisfied that the interests of third parties who have acted in good faith would not thereby be unfairly prejudiced and the transaction was not reasonable and fair in the Company’s interests at the time it was entered into.

 

Except as otherwise provided in the Articles (as defined below) and save in respect of a limited number of instances as set out in the Articles, a director shall not vote on, or be counted in the quorum in relation to, any resolution of the board or of a committee of the board concerning any matter in which he has to his knowledge, directly or indirectly, an interest (other than his interest in shares or debentures or other securities of, or otherwise in or through, the Company) or duty which (together with any interest of a person connected with him) is material and, if he shall do so, his vote shall not be counted. 

 

Directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body.

 

The compensation of the directors is decided by the directors unless the board of directors specifically requests approval of the compensation from the shareholders.  If the issuance of compensation to the directors is decided by the directors, a quorum is the majority of the directors in office.  The Articles do not require that the compensation of any director be approved by disinterested directors.

 

The Company has a compensation committee that is currently composed of three independent directors.  The compensation committee makes recommendations to the board with respect to compensation, including bonuses, incentive stock options and securities of directors and executive officers.

 

Borrowing powers exercisable by the directors and how such borrowing powers may be varied.

 

The board may exercise all the Company’s powers to borrow money, to guarantee, to indemnify and to mortgage or charge all or any part of the Company’s undertaking, property and assets (present and future) and uncalled capital and, subject to the Companies Law to issue debentures and other securities, whether outright or as collateral security, for any debt, liability or obligation of the Company or of any third party.

 

The board shall restrict the Company’s borrowings and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiary undertakings (if any) to secure (but as regards subsidiary undertakings only in so far as by the exercise of such rights or powers of control the board can secure) that the aggregate principal amount from time to time outstanding of all borrowings by the Company’s group (exclusive of borrowings owing by one member of the Company’s group to another member of the Company’s group) shall not at any time without the previous sanction of an ordinary resolution of the Company exceed an amount equal to three times the Adjusted Capital and Reserves (as defined in the Articles).  The borrowing powers may be varied by amendment to the Articles which requires approval of the Company’s shareholders by special resolution, being a resolution passed by at least 2/3 majority of the votes cast on the resolution.

 

Retirement and non-retirement of directors under an age limit requirement.

 

There are no such provisions applicable to the Company under the Articles or the Companies Law.

 

Number of shares required for a director’s qualification.

 

Under the Articles, the directors are not required to hold any shares as qualification for service on the board.

 

Place of Incorporation and Purpose

 

The Company was incorporated, effective February 5, 1992, by the amalgamation of three predecessor companies. It was registered in terms of the Canada Business Corporations Act. The company re-domiciled to Jersey, Channel Islands, effective March 19, 2016 through the Continuance process. The Continuance had no appreciable effect on the Company’s listing in Toronto, the admission of its depositary interests to trading on AIM in London or the trading facility on the OTCQX (from July 27, 2017 the OTCQX trading ceased and shares commenced trading on NYSE American) and the Company’s securities continued to be traded on these listing and trading platforms after the Continuance process was completed. Caledonia voluntary delisted its shares from the TSX on June 19, 2020.

 

Neither the Company’s memorandum of association nor the Articles stipulate any objects or purposes of the Company and no objects or purposes are required to be stated by the Companies Law.

 

  57  

 

 

Articles of Association

 

At a special meeting of shareholders held on February 18, 2016, Caledonia’s shareholders voted in favor of a resolution to approve the Continuance. This resolution, inter alia, included provisions to replace Caledonia’s by-laws with new articles of association (the “Articles”). The Articles do not place any restrictions on the Company’s business.

 

The holders of the shares are entitled to one vote per share at all meetings of the shareholders of the Company. The holders of shares are also entitled to dividends, if and when declared, and the distribution of the residual assets of the Company in the event of a liquidation, dissolution or winding up of the Company. The Company's shares do not have pre-emptive rights to purchase additional shares.

 

No preference shares are currently issued and outstanding. Preference shares may be issued from time to time in one or more series composed of such number of shares with such preference, deferred or other special rights, privileges, restrictions and conditions as specified in the Articles or as fixed before such issuance by a resolution passed by the directors and confirmed and declared by shareholders by a special resolution. The preference shares shall be entitled to preference over shares in respect of the payment of dividends and shall have priority over other shares in the event of a distribution of residual assets of the Company in the event of a liquidation, dissolution or winding up of the Company. The rights attaching to the shares or the preference shares can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of the relevant shareholders called for that purpose.

 

Meetings of Shareholders

 

The Articles require the Company to call an annual general meeting of shareholders within 13 months after holding the last preceding annual general meeting and permits the Company to call any other meeting of shareholders at any time. The Company is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 clear days and not more than 60 days prior to the date of any annual or other general meeting of shareholders, although it currently utilizes the notice and access method under Canadian law. These materials must also be filed with Canadian securities regulatory authorities. The Articles provide that a quorum of two shareholders in person or represented by proxy holding or representing by proxy not less than 5% of the Company’s issued shares carrying the right to vote at the meeting is required to transact business at a general meeting. Shareholders, and their duly appointed proxies and corporate representatives, as well as the Company's auditors, are entitled to be admitted to the Company's annual and other general meetings of shareholders.

 

Limitations on the Right to Own Securities

 

There are no limitations on the rights to own securities in the Company.

 

Limitations on Restructuring

 

There is no provision in the Articles that would have the effect of placing any limitations on any corporate restructuring in addition to what would otherwise be required by applicable law.

 

Disclosure of Share Ownership

 

The Articles permit the Company to give a disclosure notice to any person that the Company has reasonable cause to believe is/was interested in the Company’s shares within the preceding three years; such notice may require the person to inform the Company whether that person holds/has held an interest in the Company’s shares. The Articles also incorporate by reference certain of the disclosure guidance and transparency rules (“DTR”) published by the UK's Financial Conduct Authority. The DTR include, inter alia, a requirement that a shareholder must notify the Company of the percentage of its voting rights (held directly and indirectly) if the percentage of those voting rights reaches, exceeds or falls below 3% of the Company’s issued voting securities and each 1% threshold above 3%.

 

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Differences in Corporate Law between United States (Delaware) and Jersey, Channel Islands

 

Set forth below is a comparison of certain shareholder rights and corporate governance matters under Delaware law and Jersey law:

 

Corporate Law Issue

 

  Delaware Law     Jersey Law
Special Meetings of Shareholders   Shareholders generally do not have the right to call meetings of shareholders unless that right is granted in the certificate of incorporation or by-laws. However, if a corporation fails to hold its annual meeting within a period of 30 days after the date designated for the annual meeting, or if no date has been designated for a period of 13 months after its last annual meeting, the Delaware Court of Chancery may order a meeting to be held upon the application of a shareholder.  

Shareholders holding 10% or more of the company’s voting rights and entitled to vote at the relevant meeting may legally require directors to call a meeting of shareholders. Under the Articles, the percentage required to requisition a meeting is reduced to 5%.

 

The Jersey Financial Services Commission, or JFSC, may, at the request of any officer, secretary or shareholder, call or direct the calling of an annual general meeting. Failure to call an annual general meeting in accordance with the requirements of the Companies Law is a criminal offense on the part of a Jersey company and its directors and secretary.

         

Interested Director Transactions

 

 

Interested director transactions are permissible and may not be legally voided if:

• either a majority of disinterested directors, or a majority in interest of holders of shares of the corporation’s capital stock entitled to vote upon the matter, approves the transaction upon disclosure of all material facts; or

• the transaction is determined to have been fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof or the shareholders.

 

An interested director must disclose to the company the nature and extent of any interest in a transaction with the company, or one of its subsidiaries, which to a material extent conflicts or may conflict with the interests of the company and of which the director is aware. Failure to disclose an interest entitles the company or a shareholder to apply to the court for an order setting aside the transaction concerned and directing that the director account to the company for any profit.

 

A transaction is not voidable and a director is not accountable notwithstanding a failure to disclose an interest if the transaction is confirmed by special resolution and the nature and extent of the director’s interest in the transaction are disclosed in reasonable detail in the notice calling the meeting at which the resolution is passed.

 

Although it may still order that a director account for any profit, a court will not set aside a transaction unless it is satisfied that the interests of third parties who have acted in good faith would not thereby be unfairly prejudiced and the transaction was not reasonable and fair in the interests of the company at the time it was entered into.

 

The Articles set out a limited number of transactions and matters in which a director may be interested and in which he may vote and be counted in the quorum in relation to a resolution on the matter.

 

 

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Cumulative Voting

 

 

The certificate of incorporation of a Delaware corporation may provide that shareholders of any class or classes or of any series may vote cumulatively either at all elections or at elections under specified circumstances.

  There are no provisions in the Companies Law relating to cumulative voting.
         
Approval of Corporate Matters by Written Consent  

Unless otherwise specified in a corporation’s certificate of incorporation, shareholders may take action permitted to be taken at an annual or special meeting, without a meeting, notice or a vote, if consents, in writing, setting forth the action, are signed by shareholders with not less than the minimum number of votes that would be necessary to authorize the action at a meeting. All consents must be dated and are only effective if the requisite signatures are collected within 60 days of the earliest dated consent delivered.

 

 

If permitted by the articles of association of a company, a written consent signed and passed by the specified majority of members may affect any matter that otherwise may be brought before a shareholders’ meeting, except for the removal of a company’s auditors. Such consent shall be deemed effective when the instrument, or the last of several instruments, is signed by the specified majority of members or on such later date as is specified in the resolution.

 

The Articles do not contain provisions regarding shareholder resolutions in writing.

         
Business Combinations  

With certain exceptions, a merger, consolidation or sale of all or substantially all of the assets of a Delaware corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon.

 

A sale or disposal of all or substantially all the assets of a Jersey company must be approved by the board of directors and, only if the articles of association of the company require, by the shareholders in general meeting. A merger involving a Jersey company must be generally documented in a merger agreement which must be approved by special resolution of that company.

         

Limitations on Director’s Liability and Indemnification of Directors and Officers

 

 

A Delaware corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of his or her position if (i) the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful.

 

 

The Companies Law does not contain any provision permitting Jersey companies to limit the liabilities of directors for breach of fiduciary duty.

 

However, a Jersey company may exempt from liability, and indemnify directors and officers, for liabilities:

 

• incurred in defending any civil or criminal legal proceedings where:

 

- the person is either acquitted or receives a judgment in their favor;

 

- where the proceedings are discontinued other than by reason of such person (or someone on their behalf) giving some benefit or suffering some detriment; or

 

- where the proceedings are settled on terms that such person (or someone on their behalf) gives some benefit or suffers some detriment but in the opinion of a majority of the disinterested directors, the person was substantially successful on the merits in the person’s resistance to the proceedings;

 

 

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• incurred to anyone other than to the company if the person acted in good faith with a view to the best interests of the company;

 

• incurred in connection with an application made to the court for relief from liability for negligence, default, breach of duty or breach of trust under Article 212 of the Companies Law in which relief is granted to the person by the court; or

 

• incurred in a case in which the company normally maintains insurance for persons other than directors.

         

Appraisal Rights

 

 

A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights under which the shareholder may receive cash in the amount of the fair value of the shares held by that shareholder (as determined by a court) in lieu of the consideration the shareholder would otherwise receive in the transaction.

  There are no appraisal rights under the Companies Law but the Articles include dissent rights of shareholders, based on Canadian law, whereby shareholders who dissent to certain transactions of the Company may apply to have the Company buy their shares for fair value.
         

Shareholder Suits

 

 

Class actions and derivative actions generally are available to the shareholders of a Delaware corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.

 

 

Under Article 141 of the Companies Law, a shareholder may apply to court for relief on the ground that the conduct of a company’s affairs, including a proposed or actual act or omission by a company, is “unfairly prejudicial” to the interests of shareholders generally or of some part of shareholders, including at least the shareholder making the application.

 

There may also be customary law personal actions available to shareholders. Under Article 143 of the Companies Law (which sets out the types of relief a court may grant in relation to an action brought under Article 141 of the Companies Law), the court may make an order regulating the affairs of a company, requiring a company to refrain from doing or continuing to do an act complained of, authorizing civil proceedings and providing for the purchase of shares by a company or by any of its other shareholders.

 

 

 

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Inspection of Books and Records  

All shareholders of a Delaware corporation have the right, upon written demand, to inspect or obtain copies of the corporation’s shares ledger and its other books and records for any purpose reasonably related to such person’s interest as a shareholder.

 

 

The register of shareholders and books containing the minutes of general meetings or of meetings of any class of shareholders of a Jersey company must during business hours be open to the inspection of a shareholder of the company without charge. The register of directors and secretaries must during business hours (subject to such reasonable restrictions as the company may by its articles of association or in general meeting impose, but so that not less than two hours in each business day be allowed for inspection) be open to the inspection of a shareholder or director of the company without charge.

         

Amendments to Charter

 

 

Amendments to the certificate of incorporation of a Delaware corporation require the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon or such greater vote as is provided for in the certificate of incorporation. A provision in the certificate of incorporation requiring the vote of a greater number or proportion of the directors or of the holders of any class of shares than is required by Delaware corporate law may not be amended, altered or repealed except by such greater vote.

  The memorandum of association and the articles of association of a Jersey company may only be amended by special resolution (being a two-thirds majority if the articles of association of the company do not specify a greater majority) passed by shareholders in general meeting or by written resolution signed by all the shareholders entitled to vote.
         
Blank Check Preferred Stock/Shares  

Under Delaware law, the certificate of incorporation of a corporation may give the board the right to issue new classes of preferred shares with voting, conversion, dividend distribution, and other rights to be determined by the board at the time of issuance, which could prevent a takeover attempt and thereby preclude shareholders from realizing a potential premium over the market value of their shares.

 

In addition, Delaware law does not prohibit a corporation from adopting a shareholder rights plan, or “poison pill,” which could prevent a takeover attempt and also preclude shareholders from realizing a potential premium over the market value of their shares.

 

The UK’s Takeover Code requires a target company shareholders' consent in general meeting before the target company can take any action (other than seeking alternative bids) that may result in the frustration of a takeover bid. Moreover, the Takeover Code provides that the board of directors of an offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of a takeover bid.

 

 

 

 

 

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Distributions and Dividends; Repurchases and Redemptions

 

Under Delaware law, subject to any restrictions contained in the certificate of incorporation, a corporation may pay dividends out of capital surplus or, if there is no surplus, out of net profits for the current and/or the preceding fiscal year in which the dividend is declared, as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by issued and outstanding shares having a preference upon the distribution of assets. Surplus is defined in Delaware law as the excess of the net assets over capital, as such capital may be adjusted by the board.

 

A Delaware corporation may purchase or redeem shares of any class except when its capital is impaired or would be impaired by the purchase or redemption, and it may not purchase, for more than the price at which they may be redeemed, any of its shares which are redeemable at the option of the corporation. A corporation may, however, purchase or redeem out of capital shares that are entitled upon any distribution of its assets to a preference over another class or series of its shares if the shares are to be retired and the capital reduced.

 

Under the Companies Law, a Jersey company may make a distribution at any time and out of any source provided that the directors of the company who authorize the distribution make an immediate and 12 month forward looking cash-flow solvency statement.

 

Likewise, authorizing directors must also make a solvency statement in the event of redeeming or purchasing the company’s shares.

 

The Companies Law allows a Jersey company to purchase its own shares, whether they are redeemable or not, provided that the purchase is sanctioned by a special resolution. The monies payable on the redemption of redeemable shares or on the purchase of its own shares by a Jersey company may be funded from any source, including capital, provided that such shares are fully paid.

 

If shares are to be purchased other than on a stock exchange, they may only be purchased pursuant to a contract approved in advance by an ordinary resolution of the company and they shall not carry the right to vote on the resolution sanctioning the purchase or approving the contract. If shares are to be purchased on a stock exchange, the resolution authorizing the purchase must specify the maximum number of shares to be purchased; the maximum and minimum prices which may be paid; and

the date (not being later than 5 years after the passing of the resolution) on which the authority to purchase is to expire.

 

C. Material Contracts

 

Not applicable.

 

D. Exchange Controls

 

There are no governmental laws, decrees or regulations existing in Jersey, Channel Islands, which restrict the export or import of capital, or the remittance of dividends, interest or other payments to non-resident holders of Caledonia's securities, nor does Jersey, Channel Islands have foreign exchange currency controls. Exchange control approvals from the RBZ and the Reserve Bank of South Africa are required on the flow of funds in and out of Zimbabwe and South Africa; Caledonia obtained the necessary approvals from the RBZ and the Reserve Bank of South Africa to transfer foreign currency during 2020.

 

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E. Taxation

 

Certain United States Federal Income Tax Considerations

 

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of shares. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition of shares. No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary are based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

 

Scope of this Summary

 

Authorities

 

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.

 

U.S. Holders

 

For purposes of this summary, the term "U.S. Holder" means a beneficial owner of shares that is for U.S. federal income tax purposes:

 

· an individual who is a citizen or resident of the U.S.;
· a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
· an estate whose income is subject to U.S. federal income taxation regardless of its source; or
· a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

 

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the USD; (e) own shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to taxing jurisdictions other than, or in addition to, the United States; (i) are partnerships and other pass-through entities (and investors in such partnerships and entities); (j) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company; (i) U.S. expatriates or former long-term residents of the U.S., or (k) are subject to special tax accounting rules with respect to shares. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of shares.

 

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If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of shares.

 

Ownership and Disposition of shares

 

The following discussion is subject to the rules described below under the heading “Passive Foreign Investment Company Rules”.

 

Taxation of Distributions

 

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the shares and thereafter as gain from the sale or exchange of such shares (see “Sale or Other Taxable Disposition of shares” below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the shares will constitute ordinary dividend income. Dividends received on shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction”. Subject to applicable limitations and provided the shares are readily tradable on a United States securities market, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

 

Sale or Other Taxable Disposition of Shares

 

A U.S. Holder will generally recognize gain or loss on the sale or other taxable disposition of shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such shares are held for more than one year.

 

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

 

Passive Foreign Investment Company (“PFIC”) Rules

 

If the Company were to constitute a PFIC for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of shares. The Company believes that it was not a PFIC for the tax year ended December 31, 2020. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold shares.

 

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In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.

 

The Company generally will be a PFIC under Section 1297 of the Code if, after the application of certain “look-through” rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.

 

If the Company were a PFIC in any tax year during which a U.S. Holder held shares, such holder generally would be subject to special rules with respect to “excess distributions” made by the Company on the shares and with respect to gain from the disposition of shares. An “excess distribution” generally is defined as the excess of distributions with respect to the shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the shares ratably over its holding period for the shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.

 

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.

 

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record-keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF election with respect to the Company or any subsidiary that also is classified as a PFIC.

 

Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of shares, and the availability of certain U.S. tax elections under the PFIC rules.

 

Additional Considerations

 

Receipt of Foreign Currency

 

The amount of any distribution paid to a U.S. Holder in foreign currency, or payment received on the sale, exchange or other taxable disposition of shares, generally will be equal to the USD value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into USD at that time). A U.S. Holder will have a basis in the foreign currency equal to its USD value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the shares. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

 

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Foreign Tax Credit

 

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) foreign income tax with respect to dividends paid on the shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such foreign income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.

 

Backup Withholding and Information Reporting

 

Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

 

Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, shares will generally be subject to information reporting and backup withholding tax, at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

 

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.

 

F. Dividends and Paying Agents

 

Not applicable.

 

G. Statement by Experts

 

Not applicable.

 

H. Documents on Display

 

Any statement in this Annual Report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed to modify the description contained in this Annual Report. Readers must review the exhibits themselves for a complete description of the contract or document.

 

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We are subject to the informational requirements of the U.S. Exchange Act and file reports and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov.

 

We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.

 

Copies of our material contracts are kept at our registered office.

 

I. Subsidiary Information

 

Not applicable.

 

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital and protecting current and future Company assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets.

 

The board of directors of the Company has a responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Company’s Audit Committee oversees management’s compliance with the Company’s financial risk management policy.

 

The fair value of the Company’s financial instruments approximates their carrying value unless otherwise noted. The types of risk exposure and the way in which such exposures are managed are as follows:

 

A. 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 USD in the Consolidated Financial Statements.

 

The availability of foreign exchange and the fluctuation of the USD in relation to other currencies that entities, within the Group, may transact in will consequently have an impact upon the profitability of the Group and may also affect 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. Further the Group aims to maintain cash and cash equivalents in USD to avoid foreign exchange exposure and to meet short-term liquidity requirements.

 

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B. 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
USD’000
  2019
USD’000
  2018
USD’000
    Functional currency   Functional currency   Functional currency
    ZAR   USD   ZAR   USD   ZAR   USD
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 before tax for the Group:

 

    2020
USD’000
  2019
USD’000
  2018
USD’000
    Functional currency   Functional currency   Functional currency
    ZAR   USD   ZAR   USD   ZAR   USD
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  

 

C. Interest Rate Risk

 

The Group's interest rate risk arises from loans and borrowings, overdraft facility and cash held. The loans and borrowings, overdraft facility and cash held have variable interest rate borrowings. Variable-rate borrowings expose the Group to cash flow interest rate risk. The Group has not entered into interest rate swap agreements.

 

The Group’s assets and (liabilities) exposed to interest rate fluctuations as at year-end are summarized as follows:

 

      2020       2019       2018  
Term loan     (408 )     (2,471 )     5,960  
Cash and cash equivalents     19,092       9,383       11,187  
Overdraft     -       (490 )     -  

 

Interest rate risk arising is offset by available cash and cash equivalents. The table below summarizes the effect of a change in finance cost on the Group’s profit or loss and equity for the year, had the rates charged differed.

 

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Sensitivity analysis – cash and cash equivalents

 

    2020   2019   2018
             
Increase in 100 basis points     191       94       111  
Decrease in 100 basis points     (191 )     (94 )     (111 )

 

Sensitivity analysis – term loan

 

                         
Increase in 100 basis points     4       (25 )     (60 )
Decrease in 100 basis points     (4 )     25       60  

 

Sensitivity analysis – overdraft

 

                         
Increase in 100 basis points     -       (5 )     -  
Decrease in 100 basis points     -       5       -  

 

D. Concentration of Credit Risk

 

Credit risk is the risk of a financial loss to the Company if a debtor fails to meet its contractual obligation. From 2014, gold sales were made to Fidelity in Zimbabwe and the payment terms stipulated in the service delivery contract have been adhered to in all instances. Trade and other receivables are analysed in note 22 to the Consolidated Financial Statements and include $1.3 million (2019: $3.0 million; 2018: $2.7 million) due from Fidelity in respect of gold deliveries immediately prior to the close of business at the end of 2020 and $2.3 million (2019: $1.8 million; 2018: $2.7 million) due from the Zimbabwe Government in respect of VAT refunds. The amount due from Fidelity was paid in full after year-end; the outstanding balance at December 31, 2020 reflects a normal balance in the context of the timing of bullion shipments to Fidelity and payments from Fidelity for bullion received. The amount due in respect of the longer-outstanding VAT refunds were within the agreed terms and a portion was also received after year-end.

 

E. Liquidity Risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity risk by ensuring that there is enough cash to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be enough to cover the anticipated cash requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.

 

F. Market Risk – Gold Price

 

The value of the Company’s mineral properties is related to the price of gold and the outlook for these minerals. In addition, adverse changes in the price of certain key or high cost operating consumables can significantly impair the Company’s cash flows.

 

Gold prices historically have fluctuated widely and are affected by numerous factors outside of the Company's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and macro-economic variables, and certain other factors related specifically to gold.

 

The Company has no hedges in place and is fully exposed to the gains or losses resulting from a higher or lower gold price.

 

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not applicable.

 

  70  

 

 

PART II

 

ITEM 13 - DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES

 

There has not been a material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within thirty days, relating to indebtedness of the Company or any of its significant subsidiaries. There are no payments of dividends by the Company in arrears, nor has there been any other material delinquency relating to any class of preference shares of the Company.

 

ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

A. to D.

 

None.

 

E. Use of Proceeds

 

Not applicable.

 

ITEM 15 - CONTROLS AND PROCEDURES

 

A. Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, and assessed the design of the Company’s internal control over financial reporting as of December 31, 2020. As required by Rule 13(a)-15 under the Exchange Act, in connection with this Annual Report on Form 20-F, under the direction of our CEO and CFO, we have evaluated our disclosure controls and procedures as of December 31, 2020, and we have concluded our disclosure controls and procedures were effective as at December 31, 2020.

 

B. Management’s annual report on internal control over financial reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting has been designed to provide reasonable assurance with respect to the reliability of financial reporting and the presentation of financial statements for external purposes in accordance with IFRS. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

 

As of the date of this filing, we have in place controls and procedures to maintain appropriate segregation of duties in our manual and computer-based business processes that we believe are appropriate for a company of our size and extent of business transactions. Under the supervision and with the participation of the CEO and CFO, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making their assessment, management used the control objectives established in the 2013 Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework. Based upon that assessment and those criteria, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.

 

C. Attestation report of registered public accounting firm

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm as we qualify as an "emerging growth company" under section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and are therefore exempt from the attestation requirement.

 

  71  

 

 

D. Changes in internal controls over financial reporting

 

There were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

 

ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT

 

Caledonia’s board of directors has determined, as of March 29, 2021, that the three members of its Audit Committee are considered independent as defined under Canadian National Instrument 52-110 and as defined pursuant to Section 803 of the NYSE American LLC Company Guide (as such definition may be modified or supplemented) and considered to be financially literate as such terms are defined under Canadian National Instrument 52-110, and one of the members can be considered to be a financial expert as defined in Item 407(d)(5) of Regulation S-K under the Exchange Act. The financial expert serving on the Audit Committee is Mr. J. Holtzhausen, whose experience is disclosed in this Annual Report under Item 6.A “Directors and Senior Management”. Messrs. J. Holtzhausen, J. Kelly and J. McGloin are all independent directors under the applicable rules.

 

The SEC has indicated that the designation of an audit committee financial expert does not make that person an "expert" for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the Audit Committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the Audit Committee.

 

ITEM 16B - CODE OF ETHICS

 

On November 8, 2016 the registrant’s board of directors approved in principle, and the Company formally adopted on March 7, 2017, a revised code of business conduct, ethics and anti-bribery policy that applies to the registrant’s directors, CEO, CFO, principal accounting officer or controller, or persons performing similar functions, and all other employees and contractors. The code was further revised and the most recent updated version was adopted on November 10, 2020.

 

The text of this code is available on the Company’s website (www.caledoniamining.com/index.php/aboutus/corporate-governance).

 

The Company has not granted any waiver from the Code of Ethics to the CEO, CFO, principal accounting officer or controller, or persons performing similar functions during the fiscal year 2020.

 

ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the aggregate fees billed by our external auditors, unless stated otherwise, for the years indicated:

 

 

      (1)(2)2020     (1)(2)2019
Audit fees     255,553       176,415  
Audit – related fees     -       -  
Tax fees     -       -  
All other fees     38,191       1,542  
TOTAL     293,744       177,957  

 

Notes:
(1) Prior to the start of the audit process, Caledonia’s Audit Committee receives an estimate of the costs from its auditors and reviews such costs for their reasonableness. After their review and pre-approval of the fees, the Audit Committee recommends to the board of directors whether to accept the estimated audit fees given by the auditors.
(2) Represents fees billed by BDO South Africa Incorporated

 

  72  

 

 

ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

Not applicable.

 

ITEM 16F - CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

 

At the conclusion of the 2018 AGM held on June 27, 2018, KPMG was not re-appointed as the auditor of the Company. At the 2018 AGM and at the subsequent AGMs held on May 8, 2019 and on May 6, 2020, the appointment and reappointment, respectively, of BDO as the auditor of the Company for the ensuing fiscal years was approved unanimously by way of a show of hands.

 

In connection with the change in accountants, there were no disagreements or reportable events.

 

ITEM 16G – CORPORATE GOVERNANCE

 

Because our securities are listed on NYSE American, being a national securities exchange in the United States, we are subject to the corporate governance requirements set out in the NYSE American LLC Company Guide. We are also subject to a variety of corporate governance guidelines and requirements enacted by the jurisdictions and exchanges in which we operate our business and on which our securities are traded. We incorporate a mix of corporate governance best practices to ensure that our corporate governance complies in all material respects with the requirements of the jurisdictions in which we operate and the exchanges on which our securities are traded. The Company has also adopted the UK’s Quoted Companies Alliance Corporate Governance Code and discloses on its website how it satisfies the ten principles of the Code. 

 

Section 110 of the NYSE American Company Guide permits NYSE American to consider the laws, customs and practices of foreign issuers, and to grant exemptions from NYSE American listing criteria based on these considerations. A company seeking relief under these provisions is required to provide a written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE American standards is as follows:

 

Shareholder Meeting Quorum Requirement: the NYSE American Company Guide specifies a quorum requirement of at least 33-1/3% of the shares issued and outstanding and entitled to vote for meetings of a listed company's shareholders. The Company's quorum requirements for shareholder meetings, as set forth in the Articles, are two members entitled to vote at the meeting present in person or by proxy together holding or representing by proxy not less than five percent of the issued shares of the Company. The Company's quorum requirement as set forth in the Articles is not prohibited by, and does not contravene, the Companies Law.

 

Proxy Delivery Requirement: the NYSE American requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings and requires that these proxies be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company complies with the applicable rules and regulations in Jersey.

 

In addition, the Company may from time-to-time seek relief from NYSE American corporate governance requirements on specific transactions under Section 110 of the NYSE American Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law, in which case, the Company shall make the disclosure of such transactions available on its website at http://www.caledoniamining.com. Information contained on the Company’s website is not part of this Form 20-F.

 

  73  

 

 

ITEM 16H - MINE SAFETY DISCLOSURE

 

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). During the year ended December 31, 2020, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  74  

 

 

PART III

 

ITEM 17 - FINANCIAL STATEMENTS

 

See Item 18.

 

ITEM 18 - FINANCIAL STATEMENTS

 

The Consolidated Financial Statements and schedules appear on pages F-1 through F-67 of this Annual Report and are incorporated herein by reference. Our audited financial statements as prepared by our management and approved by the board of directors include:

 

Consolidated Statements of Profit or Loss and Other Comprehensive Income

Consolidated Statements of Financial Position

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

 

All the above statements are available on the Company’s website at www.caledoniamining.com or under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com

 

ITEM 19 – EXHIBITS

 

Financial Statements

 

Description   Page
     
Consolidated Financial Statements and Notes   F-1- F-67

 

Exhibit List

 

Exhibit No. Name
1.1 Articles of Association (incorporated herein by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F filed with the SEC on March 31, 2016)
2.1 Description of Registered Securities
4.1 OEICP (revised 2020)
4.2 Employment contracts/executive employment agreements (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 20-F filed with the SEC on March 31, 2017)
4.3 Share Subscription Agreements – Blanket Mine (incorporated herein by reference to Exhibit 15.4 to the Registrant’s Annual Report on Form 20-F filed with the SEC on March 31, 2015)
4.4 Addendum to share subscription agreements – FREMIRO, GCSOT, NIEEF, BETS (incorporated herein by reference to Exhibit 4.4 of the Registrant’s Annual Report on Form 20-F filed with the SEC on April 2, 2018)
4.5 Share Purchase Agreement by and between the Company and Fremiro, dated November 6, 2018 (incorporated herein by reference to Exhibit 4.5 of the Registrant’s Annual Report on Form 20-F filed with the SEC on March 28, 2019)
4.6 January 11, 2019 PU award agreement and addendum example (incorporated herein by reference as Exhibit 4.6 of the Registrant’s Annual Report on Form 20-F filed with the SEC on March 28, 2019)
4.7 January 11, 2020 RSU and PU award agreement example (incorporated herein by reference as Exhibit 4.7 of the Registrant’s Annual Report on Form 20-F filed with the SEC on March 31, 2020)
4.8 January 11, 2021 PU award agreement example
4.9 Mining Lease (incorporated herein by reference to Exhibit 4.9 of the registrant’s Annual Report on Form 20-F filed with the SEC on March 31, 2020)

 

  75  

 

 

Exhibit No. Name
8.1 List of Caledonia Mining Corporation Plc group entities
12.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 Consent of BDO South Africa Incorporated
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  76  

 

 

SIGNATURES

 

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sight this Annual Report on its behalf.

 

  Caledonia Mining Corporation Plc  
       
  By: /s/ Mark Learmonth  
  Name: Mark Learmonth  
  Title: Chief Financial Officer  
  Date: March 29, 2021  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  77  

 

 

 

Report of Independent Registered Public Accounting Firm

 

Shareholders and Board of Directors

 

St Helier, Jersey, Channel Islands

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Caledonia Mining Corporation Plc and its subsidiaries (the “Group”) as of December 31, 2020, 2019 and January 1, 2019 the related consolidated statements of profit or loss and other comprehensive income, statements of changes in equity, and cash flows for each of the three ended December 31, 2020, 2019 and 2018 and the related notes (collectively referred to as the “consolidated financial statements”. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group at December 31, 2020, 2019 and January 1, 2019 and the results of its operations and its cash flows for each of the three years ended December 31, 2020, 2019 and 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audits we are required to obtain an understanding of internal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

BDO South Africa Inc.

 

We have served as the Group's auditor since year 2018.

BDO South Africa Incorporated

Wanderers Office Park

52 Corlett Drive

Illovo, 2196

 

March 29, 2021

(date of signing consent)

 

 

 

BDO South Africa Incorporated
Registration number: 1995/002310/21
Practice number: 905526
VAT number: 4910148685

 

Chief Executive Officer: ME Stewart

 

A full list of all company directors is available on www.bdo.co.za

The company's principal place of business is at 22 Wellington Road, Parktown, Johannesburg, where a list of directors' names is available for inspection. BDO South Africa Incorporated, a South African personal liability company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

  F-1  

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 66 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.

  F-2  

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 66 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.

 

  F-3  

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: