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Caledonia Mining Corporation: Q1 2014 Results

TORONTO, ONTARIO -- (Marketwired) -- 05/14/14 -- Caledonia Mining Corporation (TSX: CAL)(OTCQX: CALVF)(AIM: CMCL) ("Caledonia" or the "Company") announces its operating and financial results for the first quarter of 2014 ("Q1" or the "Quarter"). All results are reported in Canadian dollars unless otherwise indicated. Following the implementation of indigenisation in September 2012, Caledonia owns 49% of the Blanket Mine in Zimbabwe. Caledonia continues to consolidate Blanket and the operational and financial information set out below is on a 100% basis unless indicated otherwise.

Operating and Financial Review

                       Q1 2013 Q1 2014 Comment
Gold produced (oz)      10,472  10,241 Gold production in Q1 2014 was
                                       adversely affected by lower head
                                       grade and lower tonnage throughput
On Mine cash cost          652     651 On-mine costs for gold sold in Q1
 (US$/oz)(1)                           2014 benefitted from work in progress
                                       brought forward from the preceding
                                       quarter with a carrying value of $411
                                       per ounce
All-in sustaining cost     924     923 All-in Sustaining costs remain stable
Gold Sales (oz)         11,964  12,210 Gold sales in Q1 2014 includes work
                                       in progress brought forward from the
                                       preceding quarter of 1,969 per ounce
Average realised gold    1,600   1,288 The lower realised gold price was
 price (US$/oz)(1)                     primarily due to the lower gold price
Gross profit ($'m)(2)      9.0     6.0 Lower gross profit was mainly due to
                                       the lower realised gold prices,
                                       ameliorated by the sale of gold work
                                       in progress brought forward
Net profit                 4.6     3.5 Lower gross profit was ameliorated by
 attributable to                       increased foreign exchange gain,
 shareholders ($'m)                    reduced effective tax rate and the
                                       sale of work in progress brought
                                       forward from the preceding quarter
Adjusted basic            11.9     4.1 Adjusted basic earnings per share
 earnings per share(1)                 excludes foreign exchange profits.
Cash and cash             25.2    26.7 Caledonia's cash is held in Canadian,
 equivalents ($'m)                     UK and South African banks.
Cash from operating        2.2     6.2 Strong cash generation in Q1 due to
 activities ($'m)                      stable working capital and lower
                                       taxation payments.
(1) Measures such as "on-mine cash cost per ounce" "all-in sustaining cost
per ounce", "average realised gold price" and "adjusted earnings per share"
are Non-IFRS measures. Refer to Section 10 of the MD&A for a discussion of
non-IFRS measures.
(2) Gross profit is after deducting royalties, production costs and
depreciation but before administrative expenses.

Growth at the Blanket mine

Blanket continues to implement its growth strategy which will result in production increasing to approximately 48,000 ounces of gold in 2014 and 52,000 ounces of gold in 2015. Further increases in production are expected following the completion of the No. 6 Winze Project, which is intended to provide access to deeper resources below 750 meters.

Blanket: low-cost, highly cash generative

Blanket's results for the Quarter confirm its position as a low-cost producer, despite the planned increased capital investment. These investments to increase production at Blanket are expected to result in continued strong cash generation, notwithstanding any further decreases in the gold price, as Blanket's fixed cost base is spread across more production ounces.

Following the implementation of Indigenisation at Blanket in September 2012, Caledonia receives 49% of Blanket's dividend distributions in addition to receiving the repayments of the facilitation loans of US$30 million.

Caledonia's Dividend Policy

On November 25, 2013 Caledonia announced a revised dividend policy. Caledonia intends to pay a dividend of six Canadian cents per share in 2014, split into four equal quarterly payments of 1.5 Canadian cents per share. The first quarterly dividend was paid on January 31, 2014; the second quarterly dividend was paid on April 30. 2014. The next quarterly dividend is expected to be paid on July 31, 2014.

Caledonia's total 2014 dividend of six cents per share is over eight times covered by Caledonia's cash resources at March 31, 2014 and 2.7 times covered by adjusted earnings attributable to Caledonia shareholders in the Quarter.

Caledonia will continue to maintain its strong financial position so that it can implement its stated growth strategy and retain the flexibility to take advantage of any opportunities that may arise without the need to raise third party finance.

Caledonia's Strategy

Caledonia's primary strategy is to continue the existing investment programme at Blanket with the objective of increasing production. Caledonia's Board believes the continuation of this strategy is in the best interests of shareholders because it is expected to increase cash flows and accelerate the repayment of the outstanding facilitation loans. Subject to an ongoing evaluation of the investment climate in Zimbabwe, Blanket and Caledonia will also consider additional acquisition opportunities in Zimbabwe on the basis of, inter alia, their fit with the existing operations and their capacity to enhance value for both Blanket's indigenous shareholders and Caledonia.

Caledonia will also use its financial and managerial resources which are outside Zimbabwe to consider any new opportunities in sub-Saharan Africa.


Despite the lower and volatile gold price from April 2013, development and exploration activity at Blanket has continued unabated. Production is expected to increase to 48,000 ounces in 2014 and 52,000 ounces in 2015.

Exploration at Blanket below 750 meters continues and we are encouraged by the results evaluated so far. Work is in progress to add this resource body to the mine's mineral resource inventory.

Blanket has surplus metallurgical plant capacity and is sufficiently cash generative so that, provided the investment climate is acceptable, Caledonia could invest in projects with a view to further increasing production, thereby helping to maintain downward pressure on the cost per ounce of gold produced.

An increase in unavoidable internal dilution due to low grade lenses within the ore zone is expected to put downward pressure on the mined grade for the coming months. Accordingly, the average mined grade is expected to be between 3.6 grams per tonne ('g/t') and 3.7 g/t of gold as opposed to our targeted grade of 3.83 g/t for the next two quarters. Blanket management continues to pay close attention to minimising grade dilution. The lower average mined grade is expected to be reflected in a lower average feed grade of material into the metallurgical plant.

Commenting on these results, Stefan Hayden, Caledonia's President and Chief Executive Officer said:

"New production areas have and are being developed and I am confident that the 2014 production target of 48,000 ounces will be achieved, with 52,000 ounces expected in 2015.

"Cash generation in the quarter was strong: net cash generated from operating activities in Q1 of 2014 was $6.2m compared to $4.8m in the previous quarter and $2.2 million in the first quarter of 2013. Since the beginning of 2014 Blanket has sold its gold production to Fidelity Printers and Refiners. The new sales arrangements with Fidelity have reduced Blanket's working capital requirement due to the earlier payment terms. Blanket has received all payments due from Fidelity in-full and on-time.

"Blanket's on-mine cash cost decreased in the Quarter from the previous quarter due to the reversal of the adverse effect of high work-in-progress at December 31, 2013. Work-in-progress was brought forward at a carrying value of $411 per ounce, which reduced the average cost per ounce of the gold sold in the quarter.

"Underlying costs at Blanket remain stable: there have been no significant increases in electricity or consumable costs and the 2014 labour negotiations have recently been finalised at an across-the-board increase of approximately 5 per cent. It is expected that Blanket's on-mine cash costs will decrease as production increases."

The full Report & Accounts, including the Management Discussion and Analysis for the quarter ended March 31, 2014 are available from the Company's website and from SEDAR.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive
 Income (unaudited)
(in thousands of Canadian dollars except per share amounts)
                                                 Three months ended March 31
                                                          2014          2013
                                                             $             $
Revenue                                               17,063         19,218
Royalty                                               (1,195)        (1,349)
Production costs                                      (8,788)        (8,019)
Depreciation                                          (1,058)          (803)
Gross profit                                           6,022          9,047
Administrative expenses                               (1,847)        (1,175)
Foreign exchange gain/(loss)                           1,311              -
Results from operating activities                      5,486          7,872
Net finance income/(expense)                             (41)           (64)
Profit before tax                                      5,445          7,808
Tax expense                                           (1,300)        (2,278)
Profit for the period                                  4,145          5,530

Other comprehensive income
Items that are or may be reclassified to profit
 or loss
Foreign currency translation differences for
 foreign operations                                    1,080            827
Other comprehensive income net of income tax           1,080            827
Total comprehensive income for the period              5,225          6,357

Profit attributable to:
Shareholders of the Company                            3,479          4,593
Non-controlling interests                                666            937
Profit for the period                                  4,145          5,530

Total comprehensive income attributable to:
Shareholders of the Company                            4,558          5,530
Non-controlling interests                                667            827
Total comprehensive income for the period              5,225          6,357

Earnings per share (cents)(iii)
Basic                                                    6.6            9.0
Diluted                                                  6.6            9.0
Adjusted earnings per share (cents) (ii)(iii)
Basic                                                    4.1           11.9
Diluted                                                  4.1           11.9

Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands of Canadian dollars)
                                                 Three months ended March 31
                                                          2014          2013
                                                             $             $
Cash flows from operating activities
Cash generated by operating activities                 6,868          5,435
Net interest paid                                        (41)           (64)
Tax paid                                                (600)        (3,163)
Net cash from operating activities                     6,227          2,208

Cash flows from investing activities
Acquisition of Property, plant and equipment          (2,032)        (1,340)
Net cash used in investing activities                 (2,032)        (1,340)

Cash flows from financing activities
Advance dividends paid                                     -           (969)
Dividends paid                                          (907)        (2,834)
Proceeds from the exercise of share options                -            182
Net cash from (used in) financing activities            (907)        (3,621)
Net increase/(decrease) in cash and cash
 equivalents                                           3,288         (2,753)
Cash and cash equivalents at beginning of the
 year                                                 23,426         27,942
Cash and cash equivalents at year end                 26,714         25,189

Condensed Consolidated statements of Financial Position (unaudited)
(In thousands of Canadian dollars)
                                           As at      March 31  December 31,
                                                          2014          2013
                                                             $             $
Total non-current assets                                36,181        33,448
Inventories                                              6,847         6,866
Prepayments                                                179           177
Trade and other receivables                              3,854         3,889
Cash and cash equivalents                               26,714        25,222
Total assets                                            73,775        69,602
Non-current liabilities                                 10,622        10,094
Trade and other payables                                 5,027         4,600
Income taxes payable                                     1,834         1,138
Bank overdraft                                               -         1,796
Total liabilities                                       17,483        17,628
Total equity                                            56,292        51,974
Total equity and liabilities                            73,775        69,602

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