Share-based expenses

26.1

Equity-settled share-based expense

The Group has expensed the following Equity-settled share-based payment arrangements for the year ended

December 31:

	Note	2018		2017		2016
Share option programmes	26.1 (a)		14		29		170
Facilitation and advanced dividend loan modification	26.1 (b)		—		806		—
			14		835		170

(a) Share option programmes

The Omnibus Equity Incentive Compensation Plan (“OEICP”) was established for grants after

May 2015.

Share options issued before

May 2015

were issued in terms of the Rolling Stock Option Plan (“RSOP”), which was superseded by the OEICP. In accordance with the OEICP, options are granted at an exercise price equal to the greater of volume weighted average trading price for the

five

days prior to grant or the closing price on the day immediately prior to the date of grant. The options vest according to dates set at the discretion of the Compensation Committee of the Board of Directors at the date of grant. All outstanding option awards that have been granted, pursuant to the plan, vest immediately.

Terms and conditions of share option programmes

The maximum term of the options under the OEICP is

years and under the RSOP

years. The terms and conditions relating to the grant of options under the RSOP are that all options are to be settled by physical delivery of shares. Equity-settled share-based payments under the OEICP will also be settled by physical delivery of shares. Under both plans the aggregate number of shares that

may

be issued pursuant to the grant of options, or under any other share compensation arrangements of the Company, will

not

exceed

10%

of the aggregate issued and outstanding shares issued of the Company.

December 31, 2018,

the Company has the following options outstanding:

Number of Options		Exercise Price		Expiry Date
		Canadian $
	5,000		4.00	Oct 8, 2020
	18,000		11.50	Oct 13, 2021
	5,000		8.10	May 30, 2022
	10,000		9.30	Aug 25, 2024
	38,000

The continuity of the options granted, exercised, cancelled and expired under the Plan were as follows:

	Number of Options *			Weighted Avg. Exercise Price
				Canadian $*

Options outstanding and exercisable at January 1, 2016		448,184			5.40
Expired or forfeited		(232,200	)		6.50
Granted		18,000			11.50
Exercised		(141,704	)		4.15
Options outstanding and exercisable at December 31, 2016		92,280			5.85
Granted		5,000			8.10
Exercised		(69,280	)		4.50
Options outstanding and exercisable at December 31, 2017		28,000			9.55
Granted		10,000			9.30
Exercised		—			—
Options outstanding and exercisable at December 31, 2018		38,000			9.48

The weighted average remaining contractual life of the outstanding options is

3.14

years (

2017:

3.72

years).

Inputs for measurement of grant date fair values

The fair value of share-based payments noted above was estimated using the Black-Scholes Option Pricing Model as the fair value of the services could

not

be estimated reliably. Service and non-market performance conditions attached to the arrangements were

not

taken into account in measuring fair value. The following assumptions were used in determining the fair value of the options:

Options granted	10,000		* 5,000		* 18,000
Grant date	February 27, 2018		May 30, 2018		October 13, 2017
Risk-free interest rate	2,86	%	2.40	%	0.53	%
Expected stock price volatility (based on historical volatility)	32	%	118	%	119	%
Expected option life in years	3		3		5
Exercise price	CAD 9.30		* CAD 8.10		* CAD 11.50
Share price at grant date	CAD 9.30		* CAD 8.10		* CAD 11.50
Fair value at grant date	$1.40		* $5.81		* $9.45

The exercise price was determined as the prevailing Toronto Stock Exchange share price on the day of the grant. Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price. The expected term has been based on historical experience. The share-based payment expense relating to the grants amounted to

$14

(

2017:

$29;

2016:

$170

* Amounts stated after the

1:5

share consolidation effected on

June 26, 2017.

(b) Facilitation and advance dividend loan modification

June 23, 2017,

the Group, Blanket Mine and the Indigenous Shareholders reached agreement to change the interest rate on the facilitation and advanced dividend loans from the previously agreed

month LIBOR +

10%

to the lower of a fixed rate of

7.25%

per annum, payable quarterly or

80%

of the dividends paid in the financial quarter. The modification was beneficial to the Indigenisation Shareholders and resulted in an equity-settled share-based payment expense of

$806.

The Monte Carlo simulation approach was followed to value the fair value of the Indigenisation Shareholders’ equity before and after the modification date. The fair value of the Indigenisation Shareholders’ equity was based on simulating the future Blanket Mine dividend yields.

The following assumptions were used in determining modification of the expense:

Modification date		June 23, 2017
Blanket Mine dividend yield		23.70% - 89.88%
Risk free interest rate		$ swap curve
Group market capitalisation at grant date ($’000)	$	68,436

26.2

Cash-settled share-based expense

The Group has separately disclosed the following cash-settled share-based payment arrangements in the statements of profit or loss and other comprehensive income for the years ended

December 31:

	Note	2018		2017		2016

Restricted Share Units and Performance Share Units	26.2.(a)		218		853		618
Caledonia Mining South Africa employee incentive scheme	26.2.(b)		97		123		—
			315		976		618

(a)

Restricted Share Units and Performance Share Units

Certain key management members were granted Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”) pursuant to provisions of the

2015

Omnibus Equity Incentive Compensation Plan. All RSUs and PSUs were granted and approved by the Compensation Committee of the Board of Directors.

The RSUs will vest

three

years after grant date given that the service condition of the relevant employees are fulfilled. The value of the vested RSUs will be the number of RSUs vested multiplied by the fair market value of the Company’s shares, as specified by the Plan and in the award agreements, on date of settlement.

The PSUs have a service condition and a performance period of

three

years. The performance condition is a function of production cost, gold production and central shaft depth targets on certain specified dates. The number of PSUs that will vest will be the PSUs granted multiplied by a performance multiplier, which will reflect the actual performance in terms of the performance conditions compared to expectations on the date of the award.

RSU holders are entitled to receive dividends over the vesting period. Such dividends will be reinvested in additional RSUs at the then applicable share price calculated at the average Bank of Canada noon rate immediately preceding the dividend payment. PSUs have rights to dividends only after they have vested.

RSUs and PSUs were originally granted to be settled in cash. On

May 8, 2018

the Board approved amendments to the awards to allow for settlement of the vesting date value in cash or shares issuable at fair market value or a combination of both at the discretion of the option holder.

The fair value of the RSUs, at the reporting date, was based on the Black Scholes option valuation model. The fair value of the PSUs, at the reporting date, was based on the Black Scholes option valuation model less the fair value of the expected dividends during the vesting period multiplied by the performance multiplier expectation. At the reporting date it was assumed that there is an

85%

probability that the performance conditions will be met and therefore an

85%

(

2017:

94%;

2016:

100%

) average performance multiplier was used in calculating the estimated liability. The liability as at

December 31, 2018

amounted to

$2,043

(

December 31, 2017:

$1,782

). Included in the liability as at

December 31, 2018

is an amount of

$43

(

December 31, 2017:

$311;

December 31, 2016:

Nil

) that was expensed and classified as production costs; refer note

The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability on

December 31, 2018:

	*2018					*2017
	RSUs		PSUs			RSUs		PSUs
Fair value ($)	$	5.46	$	5.46		$	7.37	$	7.17
Share price ($)	$	5.46	$	5.46		$	7.37	$	7.37
Performance multiplier percentage		—		85	%		—		94	%
Share units granted:
		RSUs		PSUs			RSUs		PSUs
Grant - January 11, 2016		60,645		242,579			60,645		242,579
Grant - March 23, 2016		10,965		43,871			10,965		43,871
Grant - June 8, 2016		5,117		20,470			5,117		20,470
Grant - January 19, 2017		4,443		17,774			4,443		17,774
RSU dividend reinvestments		10,960		—			7,324		—
Total awards at December 31		92,130		324,694			88,494		324,694

Amounts are presented after the

1:5

share consolidation that took place on

June 26, 2017.

All fractional entitlements due to the share consolidation were rounded down.

(b)

Caledonia Mining South Africa employee incentive scheme

During

July 2017

and

August 2018,

Caledonia Mining South Africa Proprietary Limited granted

37,330

and

5,918

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

year period from the grant date. The cash-settled share-based payment liability was calculated based on the number of awards expected to vest multiplied by the Company’s Black Scholes option valuation fair value of

£4.39

at the reporting date and apportioned for the quantity vested over the total vesting period. The liability relating to these cash-settled share-based payment awards amounted to

$47

(

December 31, 2017:

$44

) and the expense amounted to

$97

(

December 31, 2017:

$123;

December 31, 2016:

Nil

) for the year ended

December 31, 2018.

The following assumptions were used in estimating the fair value of the cash-settled share-based payment liability on

December, 31:

	2018			2017
	Awards
Grant - July 2017 (3 year term)		37,330			37,330
Grant - August 2018 (3 year term)		5,918			—
Awards paid out		(26,864	)		—
Total awards outstanding December 31		16,384			37,330

Estimated awards expected to vest at December 31		100	%		100	%