MANAGEMENT S DISCUSSION AND ANALYSIS. For the years ended September 30, 2012 and 2011

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1 MANAGEMENT S DISCUSSION AND ANALYSIS For the years ended September 30, 2012 and 2011 December 18, 2012

2 MANAGEMENT S DISCUSSION AND ANALYSIS 1. GENERAL 1.1 Purpose This ( MD&A ) with respect to the results of operations and financial position of. ( New Dawn or the Company ) for the three months and years ended September 30, 2012 and 2011 is intended to be a supplement to information appearing in the relevant audited consolidated financial statements for such periods. Therefore, this MD&A should be read in conjunction with the audited consolidated financial statements and related notes for the years ended September 30, 2012 and 2011 prepared in accordance with International Financial Reporting Standards ("IFRS"). This MD&A includes information available up to and including December 14, 2012 unless otherwise stated. Also, certain statements in the following MD&A are forward looking. Readers are cautioned to review the section titled Cautionary Statements Regarding Forward-Looking Information included at the end of this document. 1.2 Functional and reporting currency The U.S. dollar is the reporting currency used to report the Company s operations. Unless otherwise noted, monetary amounts reported in this MD&A are in US dollars ( $ ). 1.3 Accounting standards All amounts relating to the fiscal year ended September 30, 2012 or its component quarters have been prepared using IFRS. In addition, comparative amounts for the fiscal year ended September 30, 2011 and its component quarters that have been included in the fiscal 2012 financial statements and Management s Discussion and Analysis have been restated to conform with IFRS. For the fiscal year ended September 30, 2010, the Company reported using Canadian Generally Accepted Accounting Principles ("Canadian GAAP") applicable at that time and financial numbers related to that and any earlier fiscal periods that are included in this MD&A have been determined based on those principles. Such numbers may not be comparable to amounts presented under IFRS. 1.4 Total and Attributable ounces The terms total ounces and attributable ounces are discussed in the section Non-IFRS Measures. Throughout the MD&A, references to ounces of gold are to total ounces unless noted otherwise. Ounces refers to troy ounces. Year ended September 30, 2012 Page 1

3 2. OVERALL PERFORMANCE 2.1 Highlights Financial Highlights Revenues from gold sales Attributable revenue from gold sales Year ended September 30, 2012 $61,947,433 $56,639,108 3 months ended September 30, 2012 $16,486,433 $15,073,167 Year ended September 30, 2011 $38,293,670 $6,037,061 3 months ended September 30, 2011 $14,059,739 $13,145,209 Net income (loss) for the period attributable to shareholders $2,304,551 $(523,683) $4,297,685 $2,349,494 Earnings per share, basic and diluted $0.05 $(0.01) $0.10 $0.06 Adjusted EBITDA* $7,330,182 $695,942 $7,323,521 $3,050,129 Ounces of gold produced Attributable ounces of gold produced 37,623 34,397 10,256 9,370 26,689 24,998 * EBITDA is a non-ifrs measure and is described more fully at the end of this MD&A. Other Highlights Total investment of approximately $11.7 million in Zimbabwe in mine infrastructure, plant and equipment during the 2012 fiscal year. 8,814 8,212 Investment of approximately $1.5 million in Zimbabwe on exploration work on the Company's portfolio of properties comprising its exploration and evaluation assets. Significantly increased capacity at both Dalny Mine and Golden Quarry Mine. Dewatering at Dalny Mine is below 18 level, allowing access to higher grade underground ore blocks at 18 level and above. In July 2012, successful commissioning of the Deswick fine grind mill, located at the Turk and Angelus Mine site, providing additional processing capacity which is expected to maintain a production level of approximately 375 oz/month achieved during October 2012, with a cost per ounce in the range of $700/oz. 2.2 Summary As a result of increasing production and strong gold prices, the Company has reported increased sales revenue for both the year and quarter ended September 30, 2012 compared to the year and quarter ended September 30, However, continuing cost pressures and certain operational challenges, including the effects of a reassessment of the geological model at the Turk and Angelus Mine and the slower than planned transition from processing low grade tailings sands to accessing higher grade underground mineralised material at Dalny Mine as well as other operational and external factors combined to cause production inefficiencies and resulted in reduced net income for fiscal 2012 compared to fiscal 2011, as well as a small net loss reported for the quarter ended September 30, Year ended September 30, 2012 Page 2

4 In response to these operational issues and other external factors, and with the completion of the Company's current expansion plans, the Company has recently revised its overall near-term operating strategy to a more steady-state production model. This change in approach will provide additional time in fiscal 2013 for the Company to continue to address the operational issues encountered at its various operations. As the Company expects implementation of this change to take several months, the results for the quarter ending December 31, 2012 are likely to be similar to those for the quarter ended September 30, The Company continued to implement its growth strategy during the fiscal year ended September 30, 2012, completing a number of plant and infrastructure expansion projects, all financed primarily from internally generated cash. The 2012 fiscal year saw the completion and successful commissioning of the Deswick mill at Turk and Angelus Mine, as well as plant expansion at both Golden Quarry and Dalny Mine. In addition, access was gained to the lower levels of Dalny Mine as dewatering passed 18 level, with the result that underground mineralised material at that location is now being processed. The Company has now completed essentially all of the improvements that can be reasonably financed from operational cash flow. The next phase of development will be implemented once appropriate funding can be arranged, which will likely be when the indigenisation process has been finalised. The first expansion phase included the commissioning of the fine grind Deswick Mill at the Turk and Angelus Mine, upgrading of the leaching circuit at the Golden Quarry Mine and installation of an additional mill and a separate leach circuit at the Dalny Mine. In addition, at Golden Quarry, Dalny and Old Nic Mines, extensive repairs and maintenance work has been completed. These plant repairs, improvements and enhancements gave the combined operations the ability to increase production during the fiscal year ended September 30, In addition, investment in the underground infrastructure, plant and equipment at the Dalny Mine during the fiscal year ended September 30, 2012 has provided access to higher grade underground ore sources that are in the process of displacing the tailings sands which were being processed for a significant portion of the fiscal year ended September 30, Work has been carried out during the year ended September 30, 2012 to establish additional mineral reserves and mineral resources with the result that total mineral resources, including mineral reserves, have increased. In addition, work on the Company's portfolio of exploration claims continued during the fiscal year ended September 30, 2012 with the Company identifying those with a reasonable probability of economic advantage. All others have been or will, in due course, be sold, forfeited or abandoned. In addition, the initial phase of the exploration drilling program at Camperdown Mine ha been completed and the results are being compiled and assessed. With the commissioning of the Deswick Mill in July 2012 and the completion or near completion of other plant upgrades and expansion projects, the Company has implemented and is completing essentially all of the improvements that can be reasonably financed primarily from operational cash flow. The next phase of the expansion strategy will be put in place once the indigenisation process is complete and appropriate financing can be accessed. During the fiscal year ended September 30, 2012, the world gold price has been fluctuating in a band from approximately $1,550 to $1,800 per ounce, closing at $1,696 on December 14, 2012 (London afternoon gold fix). The continued strong gold price combined with increased production have provided revenue increases to offset the upward cost pressures on many of the inputs, as well as operational challenges. In management s view, the Company's Plan of Indigenisation presented to the Government of Zimbabwe offers an equitable solution to the statutory indigenisation requirements but, to date, the Company has not yet Year ended September 30, 2012 Page 3

5 received approval. (See the section Indigenisation for a full discussion of this issue and the current status of the process.) Delays in the indigenisation process have both delayed the involvement of the local communities in the Zimbabwe subsidiaries and also severely impacted the Company's access to investment capital and, as a result, the next phase of the Company's expansion plan, requiring a substantial capital infusion, will be delayed until the situation resolves. The restricted investment capital available, primarily as a result of the delays in the indigenisation process, has delayed the complete transition from tailings sands to underground ore at Dalny Mine with the result that material being processed at that location is a lower than planned grade with a negative impact on gold produced. The Company is exploring alternate sources for higher grade material to augment the material for processing until the Dalny Mine underground workings can be expanded over the next several months to provide sufficient material to operate the Dalny plant at its design capacity. Currently, material from a nearby property is being tested for suitability. In addition, two electrical transformers at Dalny Mine overloaded at the end of September 2012, causing production delays; necessary repairs and replacements to the affected transformers were completed towards the end of October However, in mid December a third transformer overloaded, again causing production delays for several days as necessary repairs were implemented. Both the delay in transition to underground material and the transformer issue have negatively impacted production at Dalny Mine during October and November These issues, together with the annual shut-down of all operations during December 2012, are expected to negatively impact results for the quarter ending December 31, Cash costs per ounce increased during the period as a result of a number of factors in addition to issues noted above affecting Dalny Mine. These factors are discussed in the section "Cash costs of production per ounce" included in the section on "Operating Expenses". Meeting the Company s future goals is dependent on being able to deal with the various risks that come from operating in a volatile environment. The Company has continued to expand, managing the economic and related difficulties that it has encountered while operating in this challenging environment. 2.3 Background The Company is a Canadian domiciled resource exploration, development and mining company operating gold projects currently located only in Zimbabwe, its sole reportable segment. Within Zimbabwe, the Company has four geographic areas, namely (a) Bulawayo Gold Camp, (b) Gweru Gold Camp (c) Kadoma Gold Camp, and (d) the Zimbabwe exploration portfolio. The head office and administrative operations in Canada form a cost centre. During fiscal 2012, the Company s five operating mines continued to ramp up production. The sixth mine, Venice Mine, which hosts a refractory ore requiring a modified treatment process, has been closed for a number of years and the Company continues to work on identifying a feasible economic model and, potentially, joint venture partners or a purchaser for this project. 2.4 Strategic direction The Company s medium term goal is to become a mid-tier gold producer. To achieve this goal, the Company has determined that Zimbabwe is its area of operations. Because of the opportunities and potential that currently exist in Zimbabwe, as requisite financing becomes available, the Company intends to continue its Zimbabwe growth strategy, consisting of three elements: increasing output at its producing properties; pursuing exploration work on very prospective ground it holds, Year ended September 30, 2012 Page 4

6 and reviewing potential opportunities to acquire additional mining assets in Zimbabwe. This approach will be modified as necessary to take into account the changing economic landscape and the Company's financial position. Currently, the strategy has been re-focused as a result of the delays in resolution of the indigenisation process that have negatively impacted access to investment capital and the substantial increases to the fees to hold mining claims, as follows: No significant new expansion projects will be commenced until suitable funding is in place. As a result, the Company anticipates establishing a stable production level based on current capacity. Investment in property, plant and equipment will be limited to sustaining investment required to maintain stable operations and will be financed by a portion of operational cash flow. As a result of the substantially higher claim fees introduced in 2012, the Company has accelerated its review of its claims portfolio resulting in the sale, disposal for nominal proceeds or forfeiture of claims that are not in the locality of current mine sites unless there is a reasonably high probability of successfully finding an economic ore body. With the fluctuating economic landscape, the Company is subject to cost pressures over which it has little or no control. In the context of the narrow seam higher grade ore that has historically been the focus of the Company s operations, the current offsets to these cost pressures has been the increasing world price for gold and improvements to its grade control. In addition, and as a longer term goal, the Company is working at implementing changes to its project criteria that recognize this higher cost reality including giving higher priority to large mass mining targets as a primary strategy for future expansion of production subject to available financing. 3. OPERATIONS 3.1 General The material operating properties controlled by the Company form the basis of three separate geographic areas or gold camps as follows: Bulawayo Gold Camp Gweru Gold Camp Kadoma Gold Camp Turk and Angelus Mine Old Nic Mine Golden Quarry Mine Camperdown Mine Dalny Mine Venice Mine Despite a number of challenges, each of the gold camps operated on a cash flow positive basis during the fiscal year and the three months ended September 30, 2012 assisted by the strong gold price. At the Turk and Angelus Mine in the Bulawayo Gold Camp, the geological and mining issues affecting grade and tonnage mined during the first half of the fiscal year were addressed by amending and refining the geological model with consequent changes to the mining plan. Subsequent to the fiscal year end, the Company completed the changes in the mine operating plan and production is now approaching the expected quantities based on the current mine and plant configuration. Electrical supply issues at Old Nic have been Year ended September 30, 2012 Page 5

7 partly overcome by the relocation of an electrical generator to the site and also trucking a significant portion of material produced to Turk and Angelus Mine for processing. The underground drilling program that was implemented at Old Nic during fiscal year 2012 is showing promising results. In addition, an initial surface exploration program, consisting of geophysics, mapping and trenching, has identified a number of trends that have the potential to be the subject of a surface and underground drill program. However, as other projects were considered to have a higher potential, investment in additional exploration work at this site has been limited. At the Gweru Gold Camp, production continued to ramp up during the fiscal year. Production costs have also included amounts spent on reviewing the Wanderer Mine, a property owned by the Company that is within the Gweru Gold Camp. At this time, the Wanderer Mine property is not considered to be a material property for the Company. Production at the Kadoma Gold Camp relates solely to Dalny Mine, as Venice Mine is yet to resume operations. During the fiscal year, production at Dalny Mine has been constrained by the depletion of the higher grade tailings sands and delays in fully replacing that source with material from the underground workings caused by the restricted investment funds available. By September 30, 2012, the transition to underground was in process, with underground ore accounting for approximately 75% of the material for processing. However, underground bottlenecks, particularly the lack of hoist capacity, has prevented the mine from supplying sufficient material to the processing plant. The completion of the refurbishing of a second shaft and hoist system has been accelerated and is expected to be complete in the next few months rather than at the end of the third quarter or during the fourth quarter of fiscal Other issues that delayed the production of underground ore included inadequate compressed air supply for all planned development work and work face availability both of which factors were caused by the constricted investment capital. As a result and as noted above, the Company has been investigating alternate sources of tailings sands and, subsequent to the year end, has been testing material from a nearby site. In addition to the suboptimal operations at Dalny Mine, costs related to reviewing the Turkois Mine, a property within the Kadoma Gold Camp, have also been included in Dalny Mine production costs. At this time, Turkois Mine is not considered to be a material property for the Company. The Company had been anticipating that, during the fiscal year, the implementation of its Plan of Indigenisation would have provided access to significant capital available for deployment in the Company s various mining and exploration projects. However, the continuing delays in the indigenisation process has, in turn, delayed the planned investment by indigenous entities. The investment structure for the indigenous entities is designed both to meet the indigenisation requirements and to recognize the realities of the fiscal and economic climate in Zimbabwe, with the result that the receipt of significant investment capital from indigenous entities is likely to be deferred to future periods. With this changing economic landscape and as the bulk of the expansion projects that can be financed from operational cash flow have been implemented, the Company is anticipating a stable production model until funding is received for the next expansionary phase. This stable production model is expected, over the next few quarters, to allow the Company to strengthen the corporate balance sheet and working capital in anticipation of the next planned growth phase. Thus, the Company's future targets are expected to be realised only after raising and investing the necessary capital to appropriately expand and upgrade infrastructure at the various mine sites to allow further expansion. Year ended September 30, 2012 Page 6

8 3.2 Background With the substantial changes introduced by the Government of Zimbabwe during 2009, the economic conditions in the country improved substantially. The rampant hyperinflation of 2008 and earlier years was eliminated and the increase in the Consumer Price Index for Zimbabwe for the year to October 31, 2012 was estimated at less than 4% by an independent economist in Zimbabwe. Today, most commercial transactions in Zimbabwe, including those of all of the Company s subsidiaries located in the country, are denominated in US$. Over the last two years, steadily increasing taxes, levies and other charges that are being imposed by both the Government of Zimbabwe and local authorities are all having a negative impact on the Company's operations and cash flows. The most significant of these increases include the royalty rate that increased from 0% to the current rate of 7% over a period of four years and the increase of the tax rate on corporate income from 15% to 25% two years ago. In addition, claim fees were substantially increased effective January 1, Gold Production Gold production by Gold Camp (oz) Quarter ended Fiscal 2011 Bulawayo Gold Camp Gweru Gold Camp Kadoma Gold Camp Total December 31, ,973 n/a 835 4,808 March 31, ,576 n/a 1,650 6,226 June 30, , ,950 6,841 September 30, ,891 1,935 1,988 8,814 Total - Fiscal ,483 2,783 6,423 26,689 Fiscal 2012 December 31, ,556 2,168 2,371 9,095 March 31, ,457 2,468 2, June 30, ,096 2,875 2,565 9,536 September 30, ,477 2,851 2,928 10,256 Total - Fiscal ,586 10,362 10,675 37,623 The acquisition of Central African Gold Ltd in fiscal 2010 resulted in the Company acquiring control of five additional mine sites, although none were operational at that time. Subsequent to the acquisition, production from the Company's operating Turk and Angelus Mine was augmented by production from four of the five acquired mines as operations at these locations were resumed and expanded. Venice Mine remains closed pending the determination of an appropriate option and suitable financing for this property. The above table illustrates the effect of adding the production from the Company's original Turk and Angelus Mine to the results from the resumption and expansion of operations and increasing production of the mines that were acquired in June Thus annual production increased by 41% over the prior year and 16% for the quarter ended September 30, 2012 compared to the quarter ended September 30, 2011 with sales increasing by similar amounts. Year ended September 30, 2012 Page 7

9 Bulawayo Gold Camp, consisting primarily of the Turk and Angelus Mine, has experienced a number of operational challenges, including mine operating plan amendments, cut-off grade issues, equipment problems and a change to the geological model, together with an associated change to the mine operating plan. As a result, the production quantities have fluctuated during the two year period ended September 30, 2012 and into October However, management is confident that the anomalies experienced have been addressed and production volumes will stabilize in accordance with the expectations for this property. The Old Nic Mine, although facing electrical supply problems, has been able to maintain its production profile. 3.4 Exploration properties Exploration work consists of work designed to assist in the expansion of the various mining properties and work at other claims held by the Company. In April 2012, the Company announced an 8,000 meter drilling program on property around the Camperdown operations with an estimated cost of $1 million. As of mid December 2012, phase 1 consisting of 10 holes, approximately 20% of the program, had been completed and, once initial results have been compiled, a geological overview of the target will be available. A preliminary assessment of the data suggests that results are likely to be consistent with the geological model being tested. Subsequent phases are being held in abeyance until the phase 1 results have been compiled and analyzed thus allowing the Company to be in a position to amend subsequent work taking into account the new information available. Progress on drilling the phase 1 holes was slower than anticipated as the rock encountered was significantly harder than expected. The Company acquired a significant portfolio of mining and exploration properties as a result of its 2010 acquisition of Central African Gold ("CAG"). Over the past thirty months, the Company has fully identified, clarified ownership, completed a preliminary review and established criteria to determine which of the claims should be retained. The substantial increase in the annual mining claim fees introduced in 2012 tightened the criteria for retention and accelerated the review process. As a result of the completion of the review of the claims, approximately half of the total claims were identified for disposal and have been or are in the process of being allowed to lapse, forfeited or transferred to other parties for nominal proceeds thereby consistent with the Government's stated intention of allowing smaller miners access to claims. Four groups of claims have been or are expected to be sold at fair value. The Company is retaining only those claims contiguous with or in the vicinity of current mine sites which have a reasonable prospect for hosting mineralized material containing economically recoverable gold. In addition, two other claim groups have been identified that have positive indicators and will thus be retained. During the fiscal year, as a result of work completed to date, certain exploration and evaluation assets with accumulated carrying costs of $784,150 did not provide results that encouraged additional investigation. Thus, these properties have been considered impaired and a provision equal to the carrying cost has been made (there was no impairment provision with respect to exploration and evaluation assets during the year ended September 30, 2011). The Company expects to dispose of these impaired properties in due course but does not anticipate any significant proceeds from disposition. 3.5 Overhead Since the 2010 acquisition of CAG, a publicly listed company at that time (listed on the Alternative Investment Market ("AIM") of the London Stock Exchange), the Company has consolidated and rationalized its overhead costs by eliminating the AIM listing of CAG, reducing its statutory reporting requirements, eliminating duplicate recording and reporting systems and rationalizing staffing within the group. However, Year ended September 30, 2012 Page 8

10 the increased size of the Company has resulted in additional costs that have offset the savings from the above noted rationalisation of the CAG operations. 4. IMPAIRMENT 4.1 General Effective September 30, 2012, a full review has been undertaken of all ongoing projects to determine whether any events or other indications existed to suggest that impairment of any of the Company s properties had occurred. As of September 30, 2012, there were no indications of impairment other than those related to the exploration properties noted below. 4.2 Material mining properties All production properties are operating profitably and have sufficient reserves and resources to justify the capital employed. Accordingly, no provision for impairment is considered necessary. With significant mineral resources at the non-operating Venice Mine, the current indications are that resumption of operations at this site would be economically beneficial once appropriate investment capital is available to acquire the requisite processing plant and equipment and resume operations. Thus no provision for impairment is required at this time. However, the Company has not yet determined how resumption of operations should be structured. 4.3 Exploration properties As discussed above, the exploration properties acquired from the CAG acquisition have been reviewed and approximately half will be forfeited or sold for nominal proceeds. The probability of a substantial rationalization had been taken into account as part of the valuation process that was completed at the date of acquisition, with the result that no additional provision for impairment with respect to these properties is required. During the year and as a result of poor exploration results from certain claims in the Shurugwi area, it was determined that two claim groups had insufficient potential to warrant further work and, as previously noted, the Company has recorded an impairment provision of $784,150 in respect of these properties. 4.4 Impairment and indigenisation The effect of the indigenisation policies of the Government of Zimbabwe cannot be estimated at this time. As discussed below, the Company's Plan of Indigenisation has not yet been accepted by the Government of Zimbabwe even though the Company is of the opinion that the Plan as amended and submitted meets the legislated requirements. Therefore, it is not feasible to determine whether any impairment will arise as this issue evolves. 5. INDIGENISATION The Government of Zimbabwe is in the process of implementing an indigenisation policy wherein all domestic businesses are required to be 51% beneficially owned and controlled by indigenous Zimbabweans. New Dawn's Zimbabwe operating subsidiaries, Casmyn Mining Zimbabwe (Private) Limited, Falcon Gold Year ended September 30, 2012 Page 9

11 Zimbabwe Limited ("Falgold") and Olympus Gold Mines Limited, are all currently non-indigenous under the indigenisation legislation and the related regulations. New Dawn s Plan of Indigenisation was designed and structured to accomplish compliance with the requirement for 51% ownership by indigenous Zimbabweans, while also taking into account the interests of other key stakeholder groups. The Company s initial Plan of Indigenisation was timely filed with the Zimbabwe Ministry of Youth Development, Indigenisation and Economic Empowerment (the Ministry ) in April Since then, the Company has been in confidential discussions and meetings with the Ministry and the National Indigenisation and Economic Empowerment Board ( NIEEB ) addressing not only the components of the Company's Plan of Indigenisation but also its proposed participants. These discussions have resulted in certain changes to the Company s Plan of Indigenisation and the signing, in September 2011, of a memorandum of understanding that provided the structure for the on-going discussions. As a result of a meeting in July 2012, the Company submitted a further amended Plan of Indigenisation to NIEEB that included the participation of the National Indigenisation and Economic Empowerment Fund ("NIEEF"). Following a request from NIEEB for further details, the Company expanded on the proposal in a mid-september 2012 submission. The Company s Plan of Indigenisation, as modified, including the participation by NIEEF, is still under consideration by NIEEB. The Company is working to facilitate the finalisation and implementation of its Plan of Indigenisation. New Dawn's Plan of Indigenisation consists of two key components, the first of which contemplates the investment into New Dawn by independent indigenous investor groups, together with the participation of NIEEF. The second component provides for the transfer of equity interests in each of the Company's operating subsidiaries in Zimbabwe to Community Share Ownership Trusts and Employee Share Ownership Schemes amounting to 10% and 5%, respectively. To take account of this dilution of New Dawn's interests in its Zimbabwe subsidiaries and to meet the additional effective 36% equity ownership of those subsidiaries by indigenous Zimbabweans through investment in New Dawn, the equity interest of New Dawn that would ultimately be acquired by several indigenous investor groups and NIEEF would be approximately 42%. The Company has commenced the initial implementation process with respect to its Plan of Indigenisation, which includes the signing of non-binding term sheets with four indigenous investor groups that are intended to provide the requisite indigenous element at the New Dawn level. The Company has also engaged with NIEEB with regard to an equity participation by NIEEF at the New Dawn level through a stock option instrument. However, these arrangements are an evolving and fluid process, and none of these arrangements have been finalised. To comply with the indigenisation legislation and regulations, such equity instruments will, for control and voting purposes, rank equally with common shares. In addition, since a key component of the Company s Plan of Indigenisation is the allocation of a 10% equity interest in its Zimbabwe operating subsidiaries to community and employee groups, New Dawn is in the process of determining an appropriate structure and process for implementation. The equity interests in the Company's Zimbabwe operating subsidiaries to be transferred to these entities are expected to provide a direct and broad-based participation in New Dawn s Zimbabwe mining operations by indigenous Zimbabweans. However, to enable the transfer of these equity interests, each Zimbabwe subsidiary must be wholly owned. As New Dawn currently holds 84.7% of the equity of Falgold, the Company is in the process of acquiring the balance of the shares from the non-controlling interests, as discussed in the section "Proposed Transactions". Year ended September 30, 2012 Page 10

12 In addition to meeting legal requirements, the finalisation and implementation of the Company s Plan of Indigenisation, once implemented, is expected to alleviate, to some degree, investor perceptions of the political risk of operating in Zimbabwe and thereby make external capital resources more readily accessible. With access to adequate investment capital to support the Company s efforts to increase sustainable gold production from its properties in Zimbabwe, the Company plans to expand its employee base and contribute to the growth and development of the Zimbabwe economy. Due to various multi-jurisdictional legal, securities, tax and regulatory issues, the Company expects that the implementation of its Plan of Indigenisation may take several months or more to accomplish. However, as there still continues to be substantial uncertainty surrounding the implementation of the indigenisation policy in Zimbabwe, there can be no assurances that the Company will be successful in its efforts to comply with the indigenisation laws and regulations under commercially viable terms and conditions, or at all. The Company is currently unable to predict the effect of an inability to conclude or implement an indigenisation plan acceptable to all stakeholders. Further information will be provided as and when such discussions with the Government of Zimbabwe have been concluded, or when developments otherwise warrant in accordance with the Company's continuous disclosure requirements. 6. SELECTED INFORMATION As required, the Company has prepared its consolidated financial statements under International Financial Reporting Standards ("IFRS") for the fiscal years ended September 30, 2012 and 2011 and their component quarters. The information relating to the fiscal year ended September 30, 2010 has not been restated for presentation under IFRS, but, as permitted, has been reported using Canadian Generally Accepted Accounting Principles as then applied. Accordingly, the amounts shown in the tables below for the fiscal year ended September 30, 2010 are not necessarily comparable with the amounts shown for the fiscal years ended September 30, 2012 and Cash costs per ounce, Adjusted EBITDA and Attributable measures included in the tables below are not recognized accounting measures under IFRS (see section 17, Non-IFRS measures). For a discussion of this information, see the subsequent section 7 - Results of Operations and section 8 - Liquidity and Capital Resources. 6.1 Selected annual information The selected financial information set out below is based on and derived from the audited consolidated financial statements of the Company for each of the years listed. Year ended September 30, Accounting framework IFRS IFRS Canadian GAAP Operations Revenue $61,947,433 $38,293,670 $16,380,508 Net income (loss) allocable to common shareholders from continuing operations $2,304,551 $4,297,685 $(786,123) Year ended September 30, 2012 Page 11

13 Year ended September 30, Accounting framework IFRS IFRS Canadian GAAP Earnings (loss) per share basic and diluted $0.05 $0.10 $(0.02) Balance sheet Total assets $69,618,112 $57,606,554 $44,820,031 Total non-current financial liabilities $3,000,000 $Nil $Nil Cash dividends per share $Nil $Nil $Nil Other measures Quantity of gold produced (ounces) 37,623 26,689 14,018 Quantity of gold sold (ounces) 37,415 25,166 14,089 Cash costs per ounce $1,178 $940 $631 Revenue per ounce $1,656 $1,522 $1,163 Adjusted EBITDA $7,330,182 $7,323,521 $3,290,406 Attributable Revenue $56,639,108 $36,037,061 $16,270,999 Quantity of gold produced (ounces) 34,397 24,998 13,900 Quantity of gold sold (ounces) 34,210 23,700 14, Selected quarterly information The selected financial information set out below is based on and derived from the unaudited consolidated financial statements of the Company for each of the quarters listed. Fiscal 2012 Quarters ended Prepared using IFRS September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Operations Revenue $16,486,612 $ 15,162,843 $14,857,212 $15,440,766 Net income (loss) allocable to common shareholders from continuing operations $(523,683) $583,499 $140,631 $2,104,104 Basic and diluted earnings (loss) per share $(0.01) $0.01 $0.00 $0.05 Balance sheet Year ended September 30, 2012 Page 12

14 Fiscal 2012 Quarters ended Prepared using IFRS September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Total assets $69,618,112 $67,546,076 $65,273,988 $62,935,726 Total non-current financial liabilities $3,000,000 $3,000,000 $1,000,000 $1,000,000 Other measures Quantity of gold produced (ounces) 10,256 9,536 8,736 9,095 Quantity of gold sold (ounces) 9,995 9,433 8,816 9,171 Cash costs per ounce $1,275 $1,239 $1,151 $1,029 Revenue per ounce $1,649 $1,608 $1,685 $1,684 Adjusted EBITDA $695,942 $1,021,894 $1,937,404 $3,674,942 Attributable Revenue $15,073,167 $13,776,012 $13,551,287 $14,238,642 Quantity of gold produced (ounces) 9,370 8,702 7,926 8,399 Quantity of gold sold (ounces) 9,137 8,570 8,043 8,460 Fiscal 2011 Quarters ended Prepared using IFRS September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2010 Operations Revenue $14,059,739 $ 9,791,973 $ 7,983,223 $ 6,458,735 Net income for the year allocable to common shareholders $2,450,304 $430,730 $1,214,352 $212,661 Basic and diluted earnings per share $0.06 $0.01 $0.03 $0.01 Balance sheet Total assets $57,606,554 $53,510,642 $50,064,249 $50,310,262 Total non-current financial liabilities $Nil $Nil $Nil $Nil Other measures Quantity of gold produced (ounces) 8,814 6,841 6,226 4,808 Quantity of gold sold (ounces) 8,246 6,458 5,747 4,715 Year ended September 30, 2012 Page 13

15 Fiscal 2011 Quarters ended Prepared using IFRS September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2010 Cash costs per ounce $1,038 $1,024 $799 $821 Revenue per ounce $1,705 $1,516 $1,389 $1,370 Adjusted EBITDA $3,050,129 $1,686,408 $1,564,214 $1,022,770 Attributable Revenue $13,145,209 $9,197,031 $7,510,160 $6,184,661 Quantity of gold produced (ounces) 8,212 6,355 5,854 4,577 Quantity of gold sold (ounces) 7,712 6,067 5,406 4, RESULTS OF OPERATIONS FOR THE YEAR AND QUARTER ENDED SEPTEMBER 30, 2012 Although revenue increased significantly for both the year and quarter ended September 30, 2012 compared to the corresponding periods in the previous fiscal year, cost pressures, particularly cyanide, labour rates and the royalty rate increase that was effective January 1, 2012, have partially offset the revenue gains. The wage negotiations between the Chamber of Mines of Zimbabwe (the COMZ ) on behalf of mine employers and the National Union of Mineworkers (the Union ) in respect of the calendar year 2011 resulted in an arbitrated settlement that COMZ successfully challenged in court with the result that the 2011 increase was consistent with the rate of inflation. The amounts accrued for wages based on the arbitrated settlement were reversed to direct mining and processing costs in the consolidated statements of income and comprehensive income effective June 30, Of the reversal, $687,000 related to the previous fiscal year. Negotiations in respect of the 2012 calendar year were finalized during September 2012, resulting in an increase of 7.5%. Although many mine supplies and consumables are sourced locally, a portion is imported from South Africa, where the fluctuating exchange rate and, to a lesser extent, local cost pressures, have impacted the costs of these imports. However, import of major supplies such as cyanide, explosives and fuel, requires payment in US dollars and thus there is no exchange rate effect on these items but, cyanide in particular, has increased in price, in US dollars, substantially over the past few years rising from $2,720/tonne at September 30, 2010 to $4,258/tonne at September 30, 2012, an increase of 56% over two years. Although management has limited control over the drivers of the price increases, the Company s strategic direction is evolving to take account of these changing economic realities by considering mass mining and near surface targets containing medium grade ore that will support more efficient utilisation of resources and allow greater mechanisation. 7.1 Areas of operation The Company recognizes one reportable segment, namely its operations in Zimbabwe, and within that segment are four geographic areas, namely the Bulawayo, Gweru, Kadoma Gold Camps and the exploration claims portfolio. The Toronto corporate office forms a separate cost centre. Year ended September 30, 2012 Page 14

16 7.2 General Annual production at all mine sites increased by 41% (16% for the quarter ended September 30, 2012) over the previous fiscal year (quarter ended September 30, 2011) and the Company continued to perform profitably for the year despite the various operating and external challenges faced during the period. Results for the quarter ended September 30, 2012 reflected both the challenging conditions encountered at Dalny Mine and the continuing issues at Turk and Angelus Mine as further discussed below. With the completion of the current expansion projects, production is expected to increase modestly until the indigenisation process is complete. Subsequent to meeting the indigenisation requirements, the Company anticipates further increases to production quantities as financing becomes available to allow the implementation of further improvements and expansion. (See Indigenisation.) Although corporate and administrative overhead increased for the year ended September 30, 2012 in absolute dollar terms compared to the previous fiscal year, they increased more slowly than the increase in the gold mining operations. 7.3 Political and economic environment The primary issue affecting the Company is the implementation of the indigenisation of mining operations controlled by non-indigenous Zimbabwean companies. This matter is discussed under Indigenisation. The changes enacted by the Zimbabwe government in early 2009 eliminated hyperinflation. As noted above, taxes, royalties and other charges by the government of Zimbabwe have increased over the past four years. Costs for labour and power, two of the largest inputs, have increased significantly over the last several years and these cost pressures are likely to continue. However, based on an initial review, the recently tabled Zimbabwean budget for 2013 has no specific tax proposals that are likely to significantly impact the Company. 7.4 Foreign exchange issues Except for the Canadian head office operations, the Company s operating, functional and reporting currency is the US dollar, so that foreign exchange issues are limited to purchases that are made in foreign currencies, such as Rand and occasionally Sterling, Euros and Yen. The functional currency of the Canadian head office is the Canadian dollar but its reporting currency is the US dollar. Although the US dollar and Canadian dollar fluctuations have been relatively minor over the past twelve months, head office transactions in US dollars do generate realised exchange gains and losses included as part of net income in the consolidated statements of income and comprehensive income. Translation gains and losses arising from the translation of the Canadian dollar financial information to US dollars for reporting are included in other comprehensive income (loss) in the statement of income and comprehensive income. Both realised exchange gains and losses and translation gains and losses have been minor during the years ended September 30, 2012 and 2011 and their component quarters. To minimize translation adjustment issues, the Company s policy is to maintain as much cash as is feasible in US dollars rather than local currencies. 7.5 Social investment and support for the Zimbabwean economy During the year ended September 30, 2012, the Company s operating subsidiaries made payments to the Zimbabwe Government and its agencies as follows: Year ended September 30, 2012 Page 15

17 Year ended September 30, Three months ended September 30, Gross revenue $61,947,433 $38,293,670 $16,486,612 $14,059,739 Taxes and levies Corporate taxes $ 187,315 $ 217,096 $ - $ 217,096 Royalties 3,983,195 1,634,735 1,195, ,222 Duty 1,009, , , ,747 Licences and levies 267, ,991 67,221 68,487 Payroll remittances Deductions from employees 3,116,704 2,163, , ,686 Employer contributions 1,444, , , ,727 Government controlled entities Electricity levy (ZESA) 430, , ,405 87,776 Total payments to government $ 10,439,985 $ 5,835,789 $ 2,900,747 $ 2,317,741 Percentage of gross revenue 16.4% 15.7% 16.8% 16.4% Although payroll deductions from employees are not a direct cost of the Company, they are a significant factor in determining wage and salary levels; increasing levels of personal taxation in turn increases demands for higher wage levels to compensate for the increased government take. The government received, directly and indirectly, an amount equal to 16.4% of gross revenue for the year ended September 30, 2012, In addition, the Company sourced approximately 68% of its equipment and consumable supplies and services from Zimbabwe based suppliers and total expenditures in this regard were approximately $25.9 million for the year ended September 30, ($15.1 million ). 7.6 Operating issues Overview As discussed below, the Turk and Angelus Mine has faced a number of production issues during the fiscal year including a hoist failure and grade issues that prompted a reassessment of the appropriate geological model resulting in significant changes to the mine plan to address the problem. Implementation of those changes is now complete and, over the next few months, a return to expected production levels is anticipated. Old Nic's production fell only marginally despite the deteriorating power situation, as much of its ore is trucked to the plant at the Turk and Angelus Mine for processing. At Dalny Mine and at the Golden Quarry and Camperdown Mine complex, operations have been steadily ramping up as new, refurbished or upgraded plant has come on line. These operations are approaching their current plant design capacities and gold production increases will come mainly from grade improvements until the next expansion phase is initiated. As a result, production increases at the Golden Quarry and Camperdown facility levelled off in the quarter ended September 30, However, at Dalny Mine and as previously noted, the availability of ore has become an issue with the delay in the completion of the planned Year ended September 30, 2012 Page 16

18 transition to higher grade underground material as the higher grade tailings sands were exhausted. As a result, quantity of material processed by the plant has been maintained but the lower average grade of the material processed has resulted in the quantity of gold produced not meeting planned levels. Although there was some improvement during the quarter ended September 30, 2012 compared to the quarter ended June 30, 2012 productivity did not change significantly during October 2012 as previously discussed. Subsequent to the year end, the Company is investigating and testing alternate sources of material as a temporary measure to deal with this issue. Significant improvements to operations at Dalny Mine are unlikely to be achieved until an additional source of higher grade material is available for processing. Revenue General Revenue is a function of quantity of gold produced and sold and the world gold price. Compared to the year ended September 30, 2011, production increased by approximately 41%, accounting for the bulk of the revenue increase. Average price per ounce of gold also increased by almost 9% thereby contributing to the revenue gain. In comparison with the fiscal quarter ended September 30, 2011, revenue and production for the quarter ended September 30, 2012 increased by 17% and 16% respectively. Revenue for the year ended September 30, 2012 increased by $23,653,763 to $61,947,433 from $38,293,670 reported for the previous year ended September 30, The components of this increase were as follows: Three months ended September 30, 2012 Year ended September 30, 2012 Increase (decrease) due to change in gold price $(559,720) $3,373,284 Increase due to increased production of gold $2,986,593 $20,280,479 Total increase $2,426,873 $23,653,763 The increase in fiscal 2012 was due to increased production and increased world gold price. Gold sales increased to 37,415 ounces for fiscal 2012 compared to 25,166 ounces for fiscal As a result of the increase in the quantity of gold sold in fiscal 2012, 80% of the sales revenue increase is attributable to that increase. Despite a lower gold price, revenue increased compared to the comparable quarter ended September as a result of a production increase. Gold price The average sales price for the gold sold in the year ended September 30, 2012 was $1,656 per ounce, compared to $1,522 per ounce for the year ended September 30, As a result of the increase in the gold price in 2012, $5,013,610 or 20% of the sales increase was attributable to the increase in the gold price. Below is a chart of the gold price in US$ per ounce for the period from October 2011 to September The data used in the chart is the afternoon London gold fix. The chart indicates that the price has fluctuated within the band of approximately $1,550 to $1,800, with an average price for the year of $1,660. As the Company ships gold approximately once a week, its average sales price only approximates the average world price for the period. Year ended September 30, 2012 Page 17

19 Gold price - London p.m. fix 1, , , , , , , , , , , , , , , , , $/oz It should be noted that historic performance is not a reliable indicator of future performance. Quantity sold As previously discussed, production and therefore sales increased significantly for both the quarter and the year ended September 30, 2012 compared to the corresponding periods for fiscal Hedging With the current gold market and the absence of any debt funding requirements to hedge production, the Company does not anticipate entering into hedging transactions in the near future, but will review its position with respect to this option if appropriate. Operating expenses Overview As previously noted, the plant at each of the Turk and Angelus Mine and the Dalny Mine operated at suboptimal levels at various periods during the year. Thus, although ore quantities processed were reasonably consistent with levels anticipated, the reduced quantity of gold produced from lower grade ore has meant that, on a cost per ounce basis, costs are higher than expected. In addition, at Dalny Mine, there has been a substantial amount of underground work to repair, replace and upgrade underground infrastructure, commence exploratory drilling programs, clear old working areas and start development work which also provides ore for processing. As a result, identification of costs that apply to ore production and repairs and segregation of these from the cost of work that would normally be considered an addition to capital assets has not been feasible. Thus all underground costs have been Year ended September 30, 2012 Page 18

20 expensed resulting in elevated expenses at this location. Over the next several months and as a normal operating pattern emerges, segregation of costs will become feasible. These anomalous factors have been a primary cause of the costs expensed during the year ended September 30, 2012 being higher in relation to gold produced and therefore revenue. As previously noted, wage rates for both the year ended December 31, 2011 and the year ending December 31, 2012 were recently finalized with rate increases of 5% and 7% respectively. Supplies are being sourced in Zimbabwe and South Africa, as well as other locations. Many of the supplies are payable in US dollars, with the result that there is reasonable competition among suppliers and, other than cyanide, prices have remained reasonably stable. Cash costs of production per ounce (See Non-IFRS Measures for a discussion of the method of calculation) Average annual cash costs per ounce of gold produced for all mines was $1,178 for the year ended September 30, 2012, ( $940). For the three months ended September 30, 2012, cash costs per ounce amounted to $1,275 ( $1,038) illustrating that the additional challenges faced in the final quarter of the year. The higher than normal cash costs per ounce for gold produced during the years ended September 30, 2012 and 2011 have been caused by several factors. At the Turk and Angelus Mine, unexpectedly poor results from drilling and production data in 2012 caused an extensive review of the geological structure, resulting in the adoption of a different geological and mine development model. The application of this model to the mine plan required several months, during which period the processing plant was operating at a sub-optimal level, thereby negatively impacting results. In addition, at Dalny Mine, the transition from low grade tailings sands to underground operations, which provide higher grade mineralised material, was delayed, thereby also reducing the anticipated quantity of gold produced. With lower gold production, the operating costs, which are mainly fixed, are allocated over a smaller quantity of gold, thus negatively impacting cash costs. Other factors impacting cash costs per ounce included a hoist breakdown, a short illegal strike and electrical supply problems at Dalny and Old Nic Mines, as well as escalating raw material prices, particularly cyanide, and a 10% increase in base labor costs during With the Company's short-term focus changing to stabilising production with the currently installed plant and infrastructure, the Company is working to improve its efficiencies and processes. To offset the decreasing economic benefit of continuing to process the on-site low grade tailings sands at Dalny Mine, the Company has begun to test new sources of raw material for the Dalny processing plant. The results of this testing are still being compiled. However, production during October 2012 has been negatively impacted by a transformer overload at Dalny Mine that halted production for several days and restricted operations for approximately three weeks; full production capability was restored once replacement equipment had been received and installed. Similar problems have recurred at Dalny Mine in mid-december Labour The illegal strike at the Turk and Angelus Mine in January 2012 was settled within a few days without a significant direct effect on production. No other strike action was encountered during the fiscal year. The issue of 2011 wage rates was settled during the year on a basis that was consistent with the inflation rate in Zimbabwe and 2012 wage rates have also been negotiated and agreed between the union and the industry. Collective bargaining between the union and the Chamber of Mines of Zimbabwe representing the employers are expected to commence in December 2012 for the 2013 wage rates. Although wage rate increases for Year ended September 30, 2012 Page 19

21 calendar 2011 and 2012 have remained consistent with the rate of inflation, the utilization of labour has not been as efficient as planned because of the operating challenges faced at the main producing mines, Dalny and Turk and Angelus Mines, particularly in the third and fourth quarters of fiscal In Zimbabwe, as in the global industry, there is a shortage of experienced mining and geological personnel. As the mining industry, especially precious metals and diamond mining, expands in Zimbabwe, there has been increasing competition for technically competent staff especially at the senior level. The Company has experienced several staff losses to other mine operations, but has been able to adjust other employee responsibilities to mitigate those losses. In addition, the Company is actively searching for appropriate replacements, as well as considering other methods to attract and retain employees. As production has expanded, the number of employees has increased and, at September 30, 2012, the Company employed a total of 2,818 staff in Zimbabwe and 2 in Canada (2011-2,350 and 2 employees respectively). As the Company implements its stable production mode, it is expected that new employees will be limited to replacement of losses due to attrition. Power In southern Africa, there has been a shortage of power for a number of years. In Zimbabwe, most consumers have experienced rotating power outages for a considerable period and, over the past two years, the situation has deteriorated markedly. As a major power user, all of the Company's mine sites, except Old Nic Mine, have contracted with the Zimbawe Electrical Supply Authority ( ZESA ) for the continuous supply of power available at a substantial premium to the standard power costs. Since the implementation of these arrangements, none of the mine sites have experienced a significant power outage. Circumstances beyond the control of the Company have delayed implementation of the continuous power arrangements at the Old Nic Mine. Supplies Supplies are readily available, both locally and from South Africa. Any limitations with respect to supplies from South Africa are likely to be confined to disruptions caused by the work stoppages that have become more prevalent in that country in recent months. Accordingly, supplies availability is no longer considered a major constraint affecting the operations. Amortization Amortization expense relates to those assets that are depreciated over their expected useful lives based on the straight line method and others that are depreciated on a units of production basis (depletion). The increase in the expense in both the year and quarter ended September 30, 2012 over the corresponding periods ended September 30, 2011 is reflective of the increased property plant and equipment investments at the various mine sites. Further amortization expense for the quarter ended September 30, 2012 increased as the Deswick mill, with a carrying cost in excess of $3.5 million, was commissioned effective July 1, 2012 General and indirect mining administration expense General and indirect mining administration expense for the year ended September 30, 2012 increased by $845,392 an increase of 14% compared to the previous fiscal year and with a significant part of the increase arising in the quarter ended September 30, Taking into account the substantial increase in the size of the operations with the associated additional overhead that this increase entails, as well as the additional stock option costs, additional costs arising from corporate social responsibility initiatives and increases in various Year ended September 30, 2012 Page 20

22 levies and other charges, general and indirect mining administration expenses for the 2012 fiscal periods exceeded those of the corresponding periods of fiscal Finance income With the very low interest rates available during the periods ended September 30, 2012, interest income was minor during the period. Finance expense Finance expense includes both the unwinding of the discount associated with the reclamation and closure costs obligations amounting to $574,823 and $163,685 for the year and quarter ended September 30, 2012 respectively ($387,059 and $96,764 for the corresponding periods in 2011) with the increase related to the reduced time to estimated outflow of funds. In addition, for the quarter ended September 30, 2012, interest related to the Deswick mill has been expensed amounting to $136,784 where previously it had been capitalised as part of the costs of acquisition. In the quarter ended September 30, 2011 there was an insignificant amount of interest expense. Other income Other income also includes proceeds from scrap sales and the gain or loss on the disposal of property, plant and equipment, primarily motor vehicles. Included in the other income caption during the quarter ended September 30, 2012 was the sale of tailings dump material in the amount of approximately $100,000. Further similar sales are unlikely. 8. LIQUIDITY AND CAPITAL RESOURCES 8.1 Working capital The Company s working capital during the last eight quarters was as follows: Year ended September 30, 2012 Page 21

23 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Current Assets Cash resources $ 774,028 $1,267,406 $458,472 $2,237,852 Accounts receivable 3,391,730 2,847,750 3,406,375 2,376,302 Inventories 10,264,356 9,794,597 9,756,926 9,252,859 Other current assets 453, , ,815 1,403,871 14,883,966 14,638,931 14,405,588 15,270,884 Current Liabilities Short term loans - - 2,000,000 2,000,000 Accounts payable and accrued liabilities 11,858,405 9,992,722 8,814,642 7,413,876 Current income taxes payable ,858,405 9,992,722 10,814,642 9,413,876 Working capital $ 3,025,561 $4,646,209 $3,590,946 $5,857,008 Year ended September 30, 2012 Page 22

24 September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2010 Current Assets Cash resources $2,191,402 $2,414,134 $3,389,835 $6,499,657 Accounts receivable 2,284,332 2,497,663 1,771,524 1,700,574 Inventories 8,613,971 6,694,403 5,214,127 4,511,264 Other current assets 733,782 1,065,023 1,778, ,284 13,823,487 12,671,223 12,154,334 13,482,779 Current Liabilities Short term loans 2,000,000 3,000,000 1,000,000 1,000,000 Accounts payable and accrued liabilities 6,589,988 4,211,694 3,7710,373 4,253,340 Current income taxes payable 186, , Warrant liability - 508, , ,749 8,776,016 7,889,668 5,078,863 6,074,089 Working capital $5,047,471 $4,781,555 $7,075,471 $7,408,690 Overview The Company's working capital decreased between September 30, 2011 and September 30, 2012 and also over the quarter ended September 30, 2012 as the Company moved to complete its capital projects that were included in its initial expansion phase and the effect of the impact of the operational and external issues previously discussed. With the challenges of raising further investment capital, the Company has modified its strategy as previously described to a more stabilized production model. The operating mines produce a positive cash flow and with emphasis on the new model, working capital resources are expected to be replenished. Although access to investment capital continues constricted due to the lack of clarity with respect to indigenisation, due to the adoption of the new operating model, there is expected to be sufficient working capital resources to meet current operating and the reduced future capital requirements of the new operating model over the foreseeable future. The short term loan that matured during October 2011 with a principal amount of $1,000,000, was refinanced for a two year term with an interest rate of 13% per annum. A term loan for $2,000,000 matured at the end of May 2012 and was replaced with a new loan on similar terms and conditions but maturing in May 2014 and carrying an interest rate of 13%. Arranging financing has become more challenging in light of the indigenisation issue. (See Indigenisation.) At September 30, 2012, in addition to its current liabilities, the Company has other liabilities of $13,408,739, compared to $10,980,773 at September 30, 2011, consisting of a deferred income tax liability of $8,957,000 ( $8,065,907), a mine reclamation and closure costs obligation of $4,451,739 ( $2,914,866) and the above noted term loans together amounting to $3,000,000 ( $ -). The deferred income tax liability Year ended September 30, 2012 Page 23

25 will become payable when the Company s ongoing investment in property, plant and equipment falls such that depreciation expense exceeds the amount deductible for income tax purposes. Depending on the length of time that the Company follows the current modified operating plan, which contemplates a stabilized production model and a reduced level of capital investment, it is possible that some of these deferred taxes will become payable in the foreseeable future. The reclamation and closure costs obligation, also known as an asset retirement obligation, is an estimate of the charge that current period operations are required to bear in respect of the cost of rehabilitating mining sites in the future when the mines cease operations. The mine life for the Company s properties, based on the current estimates of mineral reserves and mineral resources, ranges from 3-18 years, but management anticipates that additional mineralised material will be identified from its ongoing drilling programs as the underground mine workings are expanded at the various sites. As a result, management does not anticipate that this liability will require any significant cash outflow in the foreseeable future. Significant changes in working capital and liquidity The Company s working capital (current assets minus current liabilities) at September 30, 2012 amounted to $3,025,561, compared to $5,047,471 at September 30, The decrease in working capital was attributable to the ongoing plant and infrastructure improvement and expansion that was being financed out of operational cash flow and working capital. The large portfolio of exploration properties has received focused attention and the first step, completed during fiscal 2012, was to identify, document and plot all of the claims and record all geological data available on these properties. The announcement of substantially increased annual mine claim fees commencing in 2012 caused the Company to accelerate the process of assessing the potential of these properties resulting in the identification of those properties that should be subject to more detailed field work and fit within the Company s expansion plans; the Company expects to dispose of the rest. This preliminary work has involved relatively little cash investment to date, but will require increasing amounts of cash in the future. However, timing for incurring such expenses is flexible and no substantial work on these properties is expected during the next few quarters beyond that necessary to protect the claims. With the recent move towards a stable production mode and away from an aggressive production expansion policy, the Company will be generating cash from operations, much of which will be included as part of corporate working capital, thereby improving liquidity. There are no committed spending requirements. The existing long-term debt requires servicing and repayment as follows: Description Principal Interest rate Term loan, interest payable monthly, principal due on maturity in June, 2014 Term loan, interest payable monthly, principal due on maturity in October, $2,000,000 13% $1,000,000 13% The Company, through one of its subsidiaries, is still holding Special Tradable Bonds that have a face value of $492,468. These Bonds, a small part of a larger issue by RBZ, originally had a maturity date of January 31, Year ended September 30, 2012 Page 24

26 2010, but all the outstanding Bonds were rolled over into a new issue at that maturity. As this process has occurred several times, there is no certainty about the timing of the receipt of cash so that these bonds are still considered impaired and no change to the full provision, previously recorded, is appropriate at this time. The Company does not anticipate redemption of these bonds in the near future. 8.2 Currency transfers Changes implemented by the Government of Zimbabwe during 2009 included substantial easing of compliance with respect to exchange controls affecting the Company s Zimbabwe operations. Future intercorporate loan advances and subsequent repayments of those borrowings and payments to foreign suppliers may now be made without prior RBZ approval on amounts of $5 million or less, but must be reviewed and approved by the Company s commercial bank prior to payment. The requirement for the registration with RBZ of all loans advanced to Zimbabwean entities has also been eased. All amounts advanced or loaned to the Company s Zimbabwe subsidiaries by the Canadian parent company have been appropriately registered with RBZ and may therefore be repaid. Once all loans due from these subsidiaries have been repaid, further transfers of cash may be made by dividend to the parent company. At this time, Zimbabwe has no controls that prevent the payment of either interest or dividends, although RBZ approval may be required in certain circumstances. However, these amounts may be subject to nonresident withholding tax levied by the Government of Zimbabwe. 8.3 Current working capital requirements The economic conditions in the Zimbabwe mining industry, unlike many other sectors of the Zimbabwe economy, have been slowly improving over the last two years. During the period ended September 30, 2012, production from the Company s five operating mines provided sufficient cash flow to meet all of the Company s current obligations, as well as finance most of the plant and infrastructure improvements and exploration and expansion programs. In September 2012, the Company initiated its plan to acquire the balance of the shares of its subsidiary Falcon Gold Zimbabwe Limited ("Falgold") as described in section 12, "Subsequent and Proposed Transactions". As also described in section 12, the Company completed a private placement in November 2012 raising approximately $2 million, which the Company intends to use to facilitate the acquisition of the Falgold shares with any amount in excess of that requirement being added to general cash resources. 8.4 Investment in capital assets For the year ended September 30, 2012, cash invested in property, plant and equipment and deferred expenses amounted to $11,653,562 and $1,454,367, respectively (year ended September 30, $8,737,424 including $1,784,728 deposits on equipment purchases and $1,323,672, respectively). For the quarter ended September 30, 2012, cash invested in property, plant and equipment and deferred expenses amounted to $1,958,014 and $156,373, respectively (quarter ended September 30, $3,172,594 including $393,547 deposits on equipment purchases and $173,961, respectively) with the reduction compared to the quarter ended September 30, 2011 due to expansion projects being finalised but no significant new projects implemented. With the change of strategy to a stable production model with its de-emphasis on expansion over the coming quarters, investment in capital assets during the year ending September 30, 2013 is expected to reduce. Year ended September 30, 2012 Page 25

27 The project to install the Deswick fine grind mill at the Turk and Angelus Mine was completed and commissioned effective July 1, As originally envisaged, it is currently employed in the reprocessing of the old tailings dumps generating a significant positive cash flow. 8.5 Exploration properties in Zimbabwe As previously described, the substantial portfolio of exploration properties is being reviewed to determine a reasonable plan to move ahead with work on them based, primarily, on an open pit, mass mining, low to medium grade approach. The program will be dependent on the status of the Company's Plan of Indigenisation, cash on hand, potential financing options including equity issuance and debt arrangements that can be negotiated on favourable terms, the economic climate both globally and locally, and other factors, such as the world price for gold. 8.5 Off balance sheet arrangements The Company has no off balance sheet arrangements 9. OPERATING ENVIRONMENT 9.1 General The most significant issue facing the Company is the implementation of the Zimbabwe government s indigenisation policy as discussed in the section Indigenisation. Since January 2009, all gold sales have been made to Rand Refinery in South Africa and payment in US$ for all gold sales has been both prompt and complete. Rand Refinery purchases the gold at the world price on the date of its final smelt. The world gold market is deep and liquid enough that no one non-governmental participant is in a position to distort, manipulate or otherwise affect market prices. Supplies and consumables are readily available, both locally and on the international market. As well as offsetting cost pressures, particularly increasing wages, electricity, royalty charges and other levies, the increase in the gold price over the past several years has allowed the Company to increase its revenue and operating cash flow. The world gold price is subject to a variety of factors, all of which are beyond the control of the Company. As a result it is not possible to predict future price. Historical performance is not a reliable basis for the prediction of future price levels and it is possible that a drop in price may occur. However, such a decline would have to be substantial before there would be a significant effect on the viability of the Company s Zimbabwe operations. 9.2 Exchange rate to US$ The Company does not attempt to speculate on where currency markets are headed and intends to maintain its policy of keeping the bulk of its cash resources in US$ dollars. From time to time, the Company reviews its policy on the appropriate primary currency in which to hold its cash resources. 9.3 Investment policy The Company has a policy of investing its cash resources excess to current requirements only in the safest investments, focusing on safety of capital as the primary criterion and return as a secondary consideration. The result of this cautious investment policy has been that the Company has not incurred any losses with respect to its investments, but interest income has been nominal. Year ended September 30, 2012 Page 26

28 9.4 Environmental liabilities The Company is legally obligated to complete an environmental rehabilitation of a mine site when the mine is exhausted and mining operations cease. As a result, the Company previously arranged for consulting engineers experienced in this work to assess the cost of the future work at its mine sites required to meet the current legislated standards. As discussed under Critical Accounting Policies, the Company, having assessed the work necessary to fulfill its future legal obligations, discounts that projected cost to establish the current value of the future liability, the asset retirement obligation, with the discount rate being the current credit adjusted risk free rate. Unwinding of the discount is required to be recognised as a financing charge on the consolidated statements of income and comprehensive income. As legal requirements change, new technologies are introduced, reserves and resource estimates are revised and potential costs change, the asset retirement obligation is adjusted appropriately. Therefore, at the end of the project life, there will be a liability recorded on the balance sheet that is intended to be equal to the rehabilitation obligation. Based on the recently updated reserves and resources for the various properties, the life of mine at all locations has been re-evaluated resulting in a change in the current carrying amount of the reclamation and closure costs obligations. Below are the results based on the new life of mine estimates. The estimated future liability is unchanged, only the timing of the liability has been amended. Mine property Estimated life of mine Estimated future liability Discounted future liability Turk and Angelus Mine 18 $1,436,042 $276,340 Old Nic Mine 3 $788,187 $518,246 Golden Quarry 4 $1,924,782 $653,096 Camperdown Mine 16 $2,396,548 $256,106 Dalny Mine 8 $5,600,875 $1,830,936 Venice Mine 8 $2,805,170 $917,015 Total $4,451,739 The future liabilities at each of the mine sites were estimated by Epoch Resources (Pty) Ltd. Their 2011 environmental report on the Turk and Angelus Mine and, for all other mine properties, their reports were dated May The Company intends to update these reviews periodically to ensure that changes to the future liability are recognized and appropriately recorded in the Company s financial statements. The Government of Zimbabwe has continued to indicate that it is considering changes to the current environmental legislation. Once these proposals have been released and analyzed, the Company will then be able to consider their effect on the Company's operations. The most significant potential environmental liability, other than those associated with closure, is a failure of the tailings dams and side walls. To minimize the potential for such failure, the Company uses appropriately qualified and experienced engineers to design and install the tailings dams at its mine operating sites and it typically engages specialist contract personnel to operate the dams. Frazer Alexander, a leading and well respected organization in this field, has undertaken this role at all of the Company s operating properties. Part of the contract requires the contract operator to hold insurance against failure and consequential claims. Year ended September 30, 2012 Page 27

29 The costs of a contractor operating the tailings dam are greater than using on site company personnel but the Company believes that the benefits of risk transference outweigh the additional costs. These costs form part of the normal mine operating costs. During the quarter ended March 31, 2012, most of the major gold producers in Zimbabwe, including the Company, received penalty assessment notices from the Zimbabwe Environment Management Agency (the Agency ) on the basis that various tailings deposition sites were in breach of environmental standards. These notices and penalties, which are currently unpaid, are being vigorously disputed by the Company and the other companies similarly targeted. During the quarter ended June 30, 2012, the Agency reverted to its original position and is now collecting deposition fees and issuing licences for the tailings deposition sites as it had prior to its attempt to claim breaches to environmental standards. No further summons or other notices have been issued to the Company by the Agency. In the meantime, the Company has continued to make payments for the deposition fees for the disposal of its tailings in accordance with the legislation and all of its licences for the operation of its tailings deposition sites are current. Despite the Agency s current position, the Company has not withdrawn its previously filed Notice of Intent to Appeal and Actual Appeal for each of the notices that had been received. The Company s filings of the appeals were within the time frame and in the manner required by law, but there has not been any response to them despite Company officials following up with the Agency a number of times. The COMZ is continuing its discussions with senior officials at the Agency and its supervising Ministry with a view to obtaining formal written resolution and official cancellation of the fines and summonses in due course. 9.5 Exploration properties Typically, the environmental footprint of exploration work is very limited and rehabilitation is generally integrated into the exploration program. Accordingly, the Company considers that a full environmental rehabilitation report is unnecessary for the exploration properties acquired in the CAG transaction and any future additional remediation costs that may be incurred for these properties will be immaterial and expensed as incurred. Exploration properties acquired prior to the CAG transaction were included in an environmental rehabilitation report prepared for the Turk and Angelus Mine. The liability was appropriately recognized and the full unwinding of the discount was achieved several years ago. The relevant properties are still held by the Company but no remediation has occurred to date. The Company does not anticipate that the future cost will materially exceed the liability currently recorded for these properties. 10. COMMUNITY EMPOWERMENT AND CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility ( CSR ) covers a number of related areas from environmental considerations, to health and safety issues, employment equity and also support for local, regional and national communities. Up to this time, the Company has been influenced by a number of different factors and has taken an informal approach dealing with these matters. However, the over-riding ethos of the Company has been and continues to be meeting standards of good corporate citizenship in all the communities in which it operates. Environmental matters are mandated by legislation, as are many health and safety issues. The Company has and will continue to abide by the spirit and intent of the law in these areas. Year ended September 30, 2012 Page 28

30 Hiring of employees and subsequent promotion is strictly merit based. The Company is of the view that there is reasonable pay equity at all of its operations. In the spirit of the Indigenisation and Economic Empowerment policy of the Government of Zimbabwe and complementing its Plan of Indigenisation, the Company is replacing its Corporate Social Responsibility donor-recipient model with an empowerment approach. This approach is a more sustainable and equitable model based on a dynamic partnership between the Company and the local communities and one that can be applied consistently across all communities in the vicinity of the Company's mining operations. As a first step towards this empowerment approach, the Company has established an appropriate framework for its plan and process that will promote self-sustainability and incorporate a long-term, shared vision for development in the local communities, supported by broad-based Company, community and local government support. In this model, each community, with the guidance and encouragement of independent facilitators, provides the direction and determines priorities, with the Company providing the necessary support to achieve the goals thus determined. Projects that may be selected by the communities to which the Company would provide its support include those related to education, health, particularly HIV/AIDS issues, community based businesses, local infrastructure and energy projects, and planning for sustainable development. By applying this model, the Company looks to offer residents of the local communities an improving standard of living, even after the local mines are closed. The Company retained an outside consulting group that assisted in the establishment of the relevant framework and methodology for this component of its CSR plans. A pilot project at one of the communities surrounding the Company s Turk and Angelus Mine has produced positive initial results, with the Community determining and prioritizing appropriate initiatives, the first of which, water and water management, is being implemented. With some modifications, the Company expects to be in a position to apply the program to community initiatives at its other neighbourhoods adjacent to its mine sites in the near future. As previously reported, over the last 15 years, the Company has been and continues to be active in assisting local communities, including arranging educational initiatives and providing local community infrastructure and support. These initiatives include the provision of low cost housing to approximately 80 teachers to help ensure that families living at a remote mine site have access to adequate education resources. In addition, recognizing the economic hardships of many rural dwellers and where the Company has housing stock in excess of its employees needs, it has continued to make such residential units available to lower income residents of local communities, charging a nominal rent. The Company pays taxes in the form of corporate income tax, royalties, duty and other amounts as well as statutory deductions from its employees, which amounts are included as part of the Company s payroll costs. During the year ended September 30, 2012, the Company paid a total of $10,439,985 to the various taxing authorities and government controlled entities as previously detailed in the discussion on "Social investment and support for the Zimbabwean economy". 11. RISKS AND UNCERTAINTIES 11.1 General An investment in the shares of the Company is speculative and involves a high degree of risk. In addition to matters set out elsewhere in this document, the following are risks related to the Company and its business. Year ended September 30, 2012 Page 29

31 The Company is in the business of exploring, developing and operating mineral properties, which is a highly speculative endeavour. A purchase of any of the securities of the Company involves a high degree of risk and should be undertaken only by those whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the Company s securities should not constitute a major portion of an individual s investment portfolio and should only be made by persons who can afford a total loss of their investment. Prospective purchasers should evaluate carefully the following risk factors associated with an investment in the Company s securities prior to purchasing any of its securities. Current investors should assess the risk factors to determine whether their exposure to the Company s risk profile fits within their investment criteria Historically Disadvantaged Aboriginal People and Indigenisation The Company has determined that its area of operations is limited to southern Africa; it is currently operating in Zimbabwe but may, in the future, pursue activities in other jurisdictions. Countries in this region have or are in the process of introducing legislation to assist people of aboriginal descent to overcome actual and perceived historic economic disadvantages. Legislation of this type typically requires that mine owners accept ownership from entities meeting legislated standards that allow them to represent historically disadvantaged aboriginal groups. In Zimbabwe, 51% of the equity of companies meeting certain criteria must be owned or controlled by historically disadvantaged Zimbabweans and the Company is of the view that it comes within the ambit of the indigenisation legislation. The Company has designed a Plan of Indigenisation that is designed to meet the legislated requirements and is working to facilitate its finalisation and implementation. The issue of indigenisation is discussed above Operating History The Company has a three year history of earnings. Except for the five mines currently operating, there are no additional proven commercial quantities of mineral reserves on the Company s properties. There is no guarantee that additional economic quantities of mineral reserves will be discovered on any of the Company s properties. Based on mineral reserve and mineral resource estimations prepared by an independent geologist, the mine lives of the material mineral properties have been calculated using estimated future production levels. The mine lives vary from 3 to 18 years but the Company anticipates that, with a consistent drilling program, these mineral reserves and mineral resources will be increased and the life of these mines extended, although there is no certainty that this will occur. Reserve and resource calculations are estimates based on the economic and technical conditions in effect at the time of the analysis. There is no guarantee that these conditions will not change, altering the viability of the mineral deposit and, potentially, reducing the operating life of the mine Capital Requirements and Potential Dilution The Company had cash resources of $0.8 million as at September 30, 2012 and had cash resources as of December 14, 2012 of approximately $2 million. Its sources of cash include revenue from the sale of gold, as well as incidental interest and miscellaneous income. In addition, cash may be raised through a sale of either all or an interest in any of the Company s properties, the issue of shares through a public or private financing arrangement or the issue of debt or similar securities. Year ended September 30, 2012 Page 30

32 Although planned expenditures for exploration, development and property acquisitions are pursued based on the Company s current and reasonably likely future cash resources, unanticipated setbacks in operations or exploration activities may cause the Company to exhaust those resources and be forced into a financial restructuring or a corporate re-organisation before it can raise additional capital to continue operations. If the Company were able to secure such financing, there can be no assurance that it would be offered on acceptable terms. If additional financing is raised through the issuance of equity or debt securities of the Company, the interests of the current shareholders in the net assets of the Company may be significantly diluted Capital Requirements and Potential Dilution The economic feasibility of each of the Company s properties is dependent on the world price for gold. Factors beyond the control of the Company including, but not limited to, international economic and political trends, currency exchange fluctuations, economic inflation and expectations for the level of economic inflation in the consuming economies, interest rates, global and local economic health and trends, speculative activities and changes in the supply of precious and base minerals and metals due to new mine developments, mine closures, as well as advances in various production and technological advances may affect the marketability of metals produced. Properties that are economically worthwhile pursuing at the current gold price may become uneconomic if that price were to fall significantly. Exploration properties that, based on the work and data currently available, appear promising may have to be placed in abeyance or abandoned if there is a permanent decline in the world gold price. Gold production may have to be curtailed or reserves reduced if the world gold price declines thus making production from the lower grade mineral deposits uneconomic. There is no guarantee that the current price level of gold will be maintained in the future Exploration and Development Risks Exploration and development of resources is a speculative business, characterized by a number of significant risks including, among other things, unproductive efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production. Few properties that are explored are ultimately developed into producing mines. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, including but not limited to 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, environmental protection, the combination of which factors may result in the Company not receiving an adequate return on investment capital. There is no assurance that New Dawn s mineral exploration and development activities will result in any discoveries of commercial bodies of mineral reserves. The long-term profitability of the Company s operations will, in part, be directly related to the costs and success of its exploration programs, which may be affected by a number of factors. Substantial expenditures are required to establish reserves through drilling and to develop the mining and 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 discovered in sufficient quantities to justify commercial operations or that funds required for development can be obtained on a timely or economic basis. Year ended September 30, 2012 Page 31

33 Mine development is a long term commitment. If the Company decides, based on its best estimates of future gold prices and related mining costs, to proceed with the development of a property to a producing mine, but prior to completion of that project, gold prices fall significantly, costs increase substantially or the legal framework, including tax and environmental legislation, changes with adverse consequences for the Company, the investment in the project may become impaired causing a substantial write down and charge to the consolidated statements of income and comprehensive income or, potentially, a termination of the project. Such outcomes would have a negative effect on the Company and thus may significantly impact its share price Mining Risks The Company is subject to risks typical in the mining business. These include 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 stringently monitored and maintained and all staff receives rigorous safety training, accidents caused by equipment failure or human error could occur. Any of these could result in substantially reduced production or mine closure for an extended period or even permanently. If there were loss of life as a result of an accident and it were determined that New Dawn had been negligent, New Dawn could be liable for any of compensation to the estate of the deceased, penalties levied by government authorities or a cease mining order until rectification of safety deficiencies. Further, any such incidents could have consequential environmental costs during rehabilitation. 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 the Company s operations even though the Company s operations may not be at the root cause of the action Reliability of Reserves and Resources Mineral reserves and resources are calculated based on drilling and underground development results that establish a reasonable estimate of the quantity and grade of gold contained within a certain block of mineralized material. The nature of a mineral deposit is not homogeneous such that drilling results, from which it would be reasonable to assume a certain quantity of ore, may not be representative of the mineral deposit as a whole. Therefore the quantity of gold included in mineral reserves and resource estimates may be understated or overstated. Mineral inventory estimates are used to determine whether or not to continue mining operations or exploration activities. Inaccurate estimates could therefore lead to uneconomic activities or the failure to take advantage of mineral deposits that could be economically mined Country risk New Dawn carries on its mining operations and exploration activities in southern Africa, currently solely focused in Zimbabwe, but may in the future operate in other countries in this region and possibly beyond. 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 any or all of cash flows, earnings, and results of operations with a consequent effect on the share value. Risks include, among others, labour disputes, arbitrary revocation of government orders and permits, corruption, uncertain political and economic environments, sovereign risk, war, civil disturbances and terrorist actions, arbitrary changes to laws and regulations affecting New Dawn, delays in obtaining government permits, opposition by environmental, non-government organizations (NGOs) or local groups to mining activities including civil Year ended September 30, 2012 Page 32

34 disobedience, limitations on foreign ownership, limitations on the repatriation of earnings, more onerous foreign exchange controls, currency devaluations, import and export regulations, inadequate, damaged or poorly maintained infrastructure, and endemic illnesses such as malaria and HIV/AIDS. There can be no guarantee that governments in this region will not unilaterally expropriate the property of companies that are involved in strategic minerals or any other business, have a majority foreign ownership or for any other reason. Operating in a volatile area of the world, the Company recognizes that there is the possibility of sabotage or even an armed insurrection. The consequences of such an event cannot be predicted, but a potential outcome is a material adverse affect on the viability of the Company and therefore on its share price. In relation to southern Africa, a number of economic and social issues exist which may increase certain risks. The governments in this region are facing economic and political issues, such as employment creation, black economic empowerment and land redistribution, and social issues, including crime, corruption, poverty and HIV/AIDS, any of which may impact New Dawn s operations. While the regions governments are either currently or may in the future adopt measures to address these matters, there is no assurance that they will not implement changes in laws, regulations and policies on these and other matters such as indigenisation, foreign investment, industrial relations and land tenure which could have a material and adverse effect on cash flow, results of operations and financial condition of the Company Health Issues HIV/AIDS, malaria and other diseases represent a serious threat to maintaining a skilled workforce in the mining industry of southern Africa. The per capita incidence of the HIV/AIDS virus in Zimbabwe and South Africa has been estimated as being one of the highest in the world. As such, HIV/AIDS remains a major healthcare challenge faced by New Dawn and a portion of New Dawn s workforce is believed to be infected by HIV/AIDS, but it is not possible to determine with certainty the future costs that may be incurred in dealing with this disease. There can be no assurance that New Dawn will not experience the loss of members of its workforce or worker productivity or incur increased medical costs, which may have a material adverse effect on New Dawn s operations. In addition, if the infection rate continues to rise, costs associated with treatment and employee retraining may also increase, potentially further affecting the Company s cash flow, results of operations and financial condition Infrastructure and Related Risks New Dawn operates in Zimbabwe and may, in the future operate in other southern African countries and beyond. These are considered emerging market locations and, as such, infrastructure that may be considered normal in the western world may not be available in this region. Infrastructure that may be currently available and used by New Dawn may, as result of 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 the Company s properties may become more costly or have to be curtailed or even terminated, potentially having serious adverse consequences to the Company s financial condition and viability that could, in turn, have a material adverse effect on the Company. Electrical power supplies are the responsibility of national power authority, the Zimbabwe Electrical Supply Authority ( ZESA ), that is controlled by the national government. New Dawn must rely on the power authority to provide the requisite amount of power to maintain operations. With insufficient power, New Dawn may be forced, temporarily or for an extended period, to reduce or suspend operations until supply is restored. The Company has or is in the process of having all of its operations supplied by the continuous Year ended September 30, 2012 Page 33

35 power option offered by ZESA. To date, the continuous supply arrangements have been successfully maintained by ZESA. However, should there be a failure of supply, only Turk and Angelus Mine has adequate on-site electrical generating capacity to maintain operations at its current level of output. A power failure extending more than a few days could have a significant effect on production and therefore on revenue and profitability. These circumstances could have a material adverse effect on the share price of the Company s stock Labour market Wages and related labour costs account for a large portion of New Dawn s operating costs in Zimbabwe. Accordingly, its costs may be materially affected by increases in wages and related costs. Since 2009 and the ending of hyperinflation, Zimbabwe, relative to other African countries, has moved from a low labour cost jurisdiction to a higher cost jurisdiction. Most of New Dawn s employees in Zimbabwe are members of the Associated Mine Workers Union of Zimbabwe ( Union ), which negotiates the wage rates on a national basis with the Chamber of Mines of Zimbabwe, the employers representative Continued Availability of Personnel As previously discussed, there is a shortage of experienced mining and geological personnel and the Company has experienced several staff losses to other mine operations. However, continuing staff losses are a possibility in the current environment and such losses could negatively impact operational efficiency and thereby depress net income Foreign Operations Risk The operations of New Dawn are currently conducted in Zimbabwe and, as such, these operations are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, terrorism; hostage taking; military repression; high rates of inflation; labour unrest; the risks of war or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licences, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Changes, if any, in mining or investment policies or shifts in political attitude in Zimbabwe or other countries in the region may adversely affect the operations or profitability of the Company. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income and other taxes and levies, expropriation of property, foreign investment controls, maintenance of claims, environmental legislation, land use, land claims of local people, water use, mine safety and other factors. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral rights applications and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the operations, profitability or viability of the Company. Year ended September 30, 2012 Page 34

36 11.16 Risk of Expropriation and Enforceability of Contracts with Government and Government Agencies In each of the countries in which New Dawn holds mineral properties, or may hold in the future, it is possible that the current system of exploration and mine permitting may change resulting in expropriation of or similar actions against New Dawn s properties or subsidiaries without adequate compensation. In addition, there is a possibility that New Dawn s agreements with governments and government agencies may be unenforceable against these parties Effecting Service of Process Some of the Company s directors and officers reside outside of Canada and substantially all of the assets of these persons are located outside of Canada. It may not be possible for investors to effect service of process within Canada upon the directors, officers and experts named in this document Control by Principal Shareholder Reflection Partners, L.P. at September 30, 2012 and currently holds 12,949,191 Common Shares, representing 29.7% of the Common Shares as at September 30, 2012 and 28.4% as of the date of this MD&A. As such, Reflection Partners is capable of materially influencing the approval or rejection of any matter submitted for the approval of the shareholders of the Company Acquisition of Additional Mineral Properties If the Company loses or abandons its interest in the Material Mineral Properties, there is no assurance that it will be able to acquire other mineral properties of merit Commercial Mineral Deposits The Company s exploration properties are in the exploration stage only and without a known body of commercial ore. Development of those properties would follow only if favourable exploration results are obtained. If results are unfavourable, then the Company will attempt to dispose of the property, but the proceeds could be substantially less than the costs previously incurred for its exploration. The business of exploration for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. Unfavourable exploration or development results could have a negative effect on the Company s share price Uninsurable Risks In the course of exploration, development and production of mineral properties, events, including but not limited to, unexpected or unusual geological operating conditions such as rock bursts, cave-ins, fires, flooding and earthquakes may occur. It is not always possible to fully insure or even obtain any insurance coverage against such risks. Further, New Dawn may decide not to take out insurance, or only partly insure, against such risks because of high premiums or for other reasons. Should such events occur, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the securities of the Company Foreign Exchange, Inflation and Bank Liquidity Risks In 2009, the government of Zimbabwe successfully arrested hyperinflation by making foreign currencies legal tender and demonetizing the Zimbabwe dollar. However, there is no guarantee that the Government will not Year ended September 30, 2012 Page 35

37 reintroduce the local currency, a possible step towards providing the conditions that previously caused and exacerbated the hyperinflationary environment. Foreign exchange controls exist in many jurisdictions in southern Africa, including Zimbabwe. These controls, although not currently impeding the Company s operations, are subject to change in response to the local government s policies and reactions to both internal and international events. Future changes in the imposition or application of these controls are beyond the control of the Company and its management. Such changes may have a negative effect on the Company s operations. Zimbabwe, as well as some of the other countries in this region, faces a number of economic, financial and similar problems which are exacerbated by both some of the country's policies and the unavailability of support from world organizations that are designed to assist in the resolution of these issues. As a result, there is a possibility of a loss of the liquidity required to operate Zimbabwe's banking system that could have a substantial negative impact on the Company. All of the countries in the southern Africa region are emerging markets and are having varying degrees of success dealing with their various economic and financial issues. Changes in government or in government policies may negatively influence the economy and these effects could be reflected in the foreign exchange rate, particularly with respect to the United States dollar. The Company has no control over these matters but their effects may adversely affect the Company, its operations and financial position potentially leading to a negative effect on the Company s share price Credit Risk Exposure Credit risk is the risk that a party with a contractual obligation to New Dawn will default causing a loss to New Dawn. Currently, a loss could occur where the purchaser of the gold bullion refuses or is unable to pay for shipments received. During the year ended September 30, 2012, the only purchaser of gold bullion with whom New Dawn dealt was RRL, a company with a solid financial reputation. Subsequent to the year end, the Company has been making some limited sales to Fidelity Printers and Refiners. Credit risk with respect to these sales is considered low. Cash balances are held in bank accounts with cash in excess of current operating requirements held in short term deposits. With an unstable global economy, there is a risk of bank default and the loss of cash resources for cash balances held in that financial institution. To offset this risk, New Dawn has the policy of using, where feasible, banks that are well financed and are part of an international banking organization. In addition, institutions with which the short term deposits are placed are selected for their financial stability and interest rates offered as well as meeting a goal of diversifying the potential risk of default. These steps do not guarantee that there will be no loss as a result of a bank failure or default. In many cases, the Zimbabwe operations are unable to acquire supplies from some foreign entities, generally based in South Africa, without prepaying in US$, Rand or occasionally Euros and Yen. There is a risk that the supplier receiving the prepayment will not honour the purchase agreement because of financial difficulties encountered by it or for other reasons with the result that the deposit is lost. The Company seeks to minimize this risk by dealing with reputable and well financed suppliers. If New Dawn suffered a loss as a result of default described above, the consequences could have a significant negative effect on cash flow, possibly causing New Dawn to defer exploration projects, close some or all operations, or force the Company or its subsidiaries into a financial restructuring that might include bankruptcy proceedings. Any one of these events would likely have a negative effect on the share value. Year ended September 30, 2012 Page 36

38 11.24 Permits and Government Regulations The future operations of the Company may require permits from any of various national, regional and local governmental authorities and will be governed by laws and regulations governing prospecting, development, mining, production, export, taxes, labour standards, occupational health, waste disposal, land use, environmental protections, mine safety and other matters. There can be no guarantee that the Company will be able to obtain all necessary permits and approvals that may be required to undertake exploration activity, commence or continue construction or operation of mine facilities on the Company s mineral properties. Zimbabwe is proposing to introduce changes to the Mines and Minerals Act. Without any detailed proposals currently available, it is not possible to determine the extent to which these changes will affect the Company. Accordingly, it is possible that the changes, when implemented, will negatively affect the Company s operations and thus share price Environmental and Safety Regulations Risk Changes to environmental laws and regulations and health and safety standards may affect the operations of New Dawn. These laws, regulations and standards set various criteria regulating certain aspects of health, safety and environmental quality. They normally provide for penalties and other liabilities for the violation of such criteria and establish, in certain circumstances, obligations to rehabilitate current and former facilities and locations where operations are or were conducted. The permission to operate can be withdrawn temporarily where there is evidence of breaches of health and safety standards, or even permanently in the case of extreme breaches. Significant liabilities could be imposed on New Dawn for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous owners of acquired properties or non-compliance with environmental laws or regulations. In all major developments, New Dawn generally relies on recognised designers and development contractors from which New Dawn will, in the first instance, seek indemnities. Although the Company works to minimise risks by ensuring compliance with environmental, health and safety laws and regulations and operating to applicable environmental standards such steps may not avoid these risks. There is a risk that environmental laws and regulations and health and safety standards may become more onerous, making New Dawn s operations more expensive or uneconomic, potentially resulting in closure or abandonment of particular properties Mineral Titles New Dawn has conducted industry standard due diligence respecting title to its mineral claims. The Company is not aware of any significant competing ownership claims or encumbrances respecting title to the Material Mineral Properties. There can be no guarantee, however, that there are no competing ownership claims or encumbrances respecting such mineral properties or that challenges to title will not be made in the future. New Dawn s ability to maintain its interest in its mineral properties will also be dependent on its ability to generate sufficient cash either from operations or from additional debt or equity financings. Failure to pay government fees or levies or complete work programs may result in the forfeiture of rights to a property Repatriation of Earnings There is no assurance that any countries in which New Dawn operates or may operate in the future will not impose restrictions on the repatriation of earnings to foreign entities or jurisdictions Competition The Company produces gold and the world market for gold is large and very liquid, with the result the Company is not in competition with other gold producers for market share. Although considered by the Year ended September 30, 2012 Page 37

39 Company to be most unlikely, there is a risk that this market could contract to such a degree that gold producers would be competing for sales with a potential negative impact on the Company s sales volume that could, in turn, cause financial difficulties for the Company. The mining industry is intensely competitive in all its phases. New Dawn competes for the acquisition of mineral properties, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees with many companies possessing greater financial resources and technical facilities than New Dawn. The competition in the mineral exploration, development and extraction business could have an adverse effect on the Company's ability to acquire or retain suitable properties or prospects for mineral exploration, development or operation in the future Management The success of the Company is currently largely dependent on the performance of its directors and officers. The loss of the services of any of these persons could have a materially adverse effect on the Company s business and prospects. There is no assurance the Company can maintain the services of its directors, officers or other qualified personnel required to operate its business. The senior officers of the Company are not currently party to any written employment agreements, and are not subject to any non-competition agreements with the Company Financing Risks The Company has no extended history of significant earnings and, due to the nature of its business, there can be no assurance that the Company will continue to be profitable. The Company has paid no dividends on its shares since incorporation and, based on its current operating strategy, does not expect to do so in the near future. The present source of funds available to the Company is through profitable operation of its producing mines, through the sale of equity shares, from a debt financing program, from the sale of full or partial interests of its mineral property rights or other assets, or from a combination of these sources. While the Company may generate additional working capital from these sources, there is no assurance that such funds will be available. Future equity financing, if available, may result in substantial dilution to existing shareholders of the Company. Although the Company does not require additional financing to continue its operations at the current production levels, its proposed growth and further expansion will require additional funding Price Volatility of Publicly Traded Securities In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many gold mining companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in price will not continue. It is likely that the quoted market for the Common Shares will be subject to market trends generally, notwithstanding any potential success of the Company in creating revenues, cash flows or earnings or increasing the Company s reserves and resources. The value of the Company s Common Shares will be affected by such volatility. An active public market for the Common Shares might not be sustained in the near term. If an active public market for the Common Shares does not continue, the liquidity of a shareholder s investment may be limited and the share price may decline Conflicts of Interest Some of the directors and officers are engaged and will continue to be engaged in the search for additional business opportunities on behalf of other corporations, and situations may arise where these directors and Year ended September 30, 2012 Page 38

40 officers will be in direct competition with the Company. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the Canada Business Corporations Act. Some of the directors and officers of the Company are or may become directors or officers of other companies engaged in other business ventures Tax Issues New Dawn is subject to the tax laws in each of the jurisdictions in which it operates. It is subject to income or profits tax, and in addition is required to deduct income tax and other amounts from the gross pay of employees, deduct and remit withholding tax on certain payments to non-residents, and pay sales, value added or consumption taxes. In respect of all these taxes, New Dawn, after taking into account advice from its professional tax advisors, may have taken certain positions with respect to its filings that are in its view legitimate under the relevant taxation legislation. Nevertheless, the taxation authorities may disagree with some or all of those positions and, if their arguments were sustained, there could be an assessment for additional tax with interest and other penalties assessed. Such assessments could be material and have adverse consequences for the Company. 12. SUBSEQUENT AND PROPOSED TRANSACTIONS 12.1 Indigenisation As discussed in the section "Indigenisation", the Company is working to facilitate the finalisation and implementation of its Plan of Indigenisation Transactions in progress at September 30, 2012 As discussed in the section, "Indigenisation", the Company, as part of its efforts to finalize and implement its Plan of Indigenisation, has implemented a program to acquire all of the issued common shares held by noncontrolling interests of Falgold, the Company s currently 84.7% owned subsidiary. Falgold is one of the Company s three operating subsidiaries in Zimbabwe, the other two being wholly owned. Prior to September 30, 2012, the Company initiated the acquisition process through a Scheme of Arrangement under the Companies Act of Zimbabwe. This process requires that a circular in a specified format describing the offer be provided to the non-controlling shareholders, followed by the calling of a meeting of the shareholders to consider the offer for approval and, once approval is obtained, the submission of the terms of the transaction to the Court for approval. The offer presented to the non-controlling shareholders of Falgold was, at the option of the shareholder, the exchange of one New Dawn common share for every five Falgold shares held or US$0.20 cash for each Falgold share held. If a Falgold shareholder does not indicate a preference, they will be paid in cash for their Falgold shares. The circular describing this offer to the relevant shareholders was published in September 2012 and, at a duly constituted meeting of the shareholders on September 24, 2012, the offer implementing the Scheme of Arrangement was approved by all shareholders attending, thereby surpassing the legally specified majority for acceptance. On October 3, 2012, the High Court in Zimbabwe issued an Order sanctioning the Scheme of Arrangement. On November 13, 2012, the directors of the Company reviewed the proposed transaction and authorized management to proceed. On November 15, 2012, the Toronto Stock Exchange provided approval of the listing of the common shares of New Dawn that will be issued on the closing of the transaction, conditional on closing by February 7, 2013 and the provision of certain documents immediately following closing. However, the Company must still obtain regulatory approval in Year ended September 30, 2012 Page 39

41 Zimbabwe for the transaction. As a result, the date of closing of the transaction may be delayed for several months. The maximum number of the Company's common shares that will be issued in respect of this transaction is 2,899,888, but may be significantly less, depending on how many shareholders elect to receive cash rather than common shares of New Dawn Transaction occurring subsequent to September 30, 2012 Subsequent to the year end and in order to finance the acquisition of the Falgold equity interests held by noncontrolling shareholders, the Company raised additional capital through a private placement of New Dawn common shares with a Zimbabwe-focused fund managed by an international investment firm. Closing on November 22, 2012, the private placement raised CAN$2,000,000 through the issue of 2,000,000 shares with a subscription price of CAN$1.00 and did not include the issue of any warrants or the payment of any finder s fees or brokerage commissions. The private placement shares are subject to a four month statutory hold period expiring on March 22, As a result of this transaction, there are 45,612,383 common shares outstanding as of the date of this MD&A Other The Company is, at any particular time, reviewing a number of potential projects, investments and joint venture arrangements. At this time there are no proposed transactions to report that have reached a level of certainty such that completion is probable other than those discussed above. 13. CRITICAL ACCOUNTING ESTIMATES 13.1 General The Company s significant accounting policies are described in Note 3 of the audited consolidated financial statements for the year ended September 30, There are three main areas that are critical to the financial statements, namely the estimate of reserves and resources, the estimate of the future rehabilitation obligation, and the impairment of long lived assets where estimates or assumptions have been made that subsequent results may indicate were inaccurate Reserves and resources Mineral reserves and resources are calculated based on drilling and underground development results that establish a reasonable estimate of the quantity and grade of gold contained within a certain block of ore. Resource estimates are less accurate than reserve estimates and are based on less drilling data. The nature of an ore body is such that drilling results from which it would be reasonable to assume a certain quantity of ore may not be representative of the ore body as a whole. Therefore the quantity of gold included in mineral reserves and resource estimates may be understated or overstated. Given a certain quantity of ore in an ore body, the economic reason for mining that ore is dependent on factors such as world gold prices, foreign exchange rates, mining costs, and the implementation of new technologies, processes or methods. For example, an increase in gold price might make a certain part of the ore body economic to mine, whereas increases in mining costs might turn a marginally profitable body into an uneconomic one. In addition, changes in the political and economic environment can have an effect in the determination of economic recoverability. Changes to laws affecting taxation and royalties, or other measures Year ended September 30, 2012 Page 40

42 that increase operating costs or the cost of capital will change the calculation of economic recoverability and therefore, potentially the amount that will be recognized in mineral reserves and resources. The quantity of mineral reserves and resources has been used in the calculation of depletion of the mining assets, tests for impairment as well as the accretion period for the rehabilitation obligation. A review of the Company's reserves and resources as at June 30, 2012 has resulted in updated reserve and resource estimates that have, in turn, caused changes in the life of mine estimate and the estimates with respect to the rehabilitation provisions and depletion calculations. Details ofthe changes are included in the Company's press release issued on December 17, Rehabilitation obligation In Zimbabwe, there are legal requirements to carry out reclamation and closure work once the mine is exhausted. IFRS requires that the future costs for that work be recognized as a liability on the balance sheet, initially at its discounted amount increased annually (unwinding of the discount) at an interest rate that will record the full liability at the time when the closure work must be done. When the closure liability is recognized at the start of the project, it is necessary to estimate what work will need to be done at the future closing date to meet current environmental legislation. Because of the typically long term nature of the obligation, not only do costs change, but changing legislation, as well as improved technologies, will affect the amount that is finally paid out to meet the legislated requirements. Therefore, the estimate of the obligation may be subject to significant adjustment as time passes and as the parameters change. These adjustments may impact the consolidated statements of income and comprehensive income and could materially affect the results of operations. As a result of an analysis of the reserve and resource data at the various mine properties and a consideration of estimated future production rates, the life of mine calculations have been amended resulting in changes to the estimated lives at all of its properties resulting in a change of the liability as previously discussed Impairment of long lived assets The Company reviews and evaluates its long lived assets on a quarterly basis or when events or circumstances change that indicate that assumptions previously used may need to be modified. Impairment is deemed to have occurred when the undiscounted future cash flows are less than the current carrying costs. This means that the project will not recover the current carrying costs over its anticipated lifetime. The determination of an impairment condition is based on factors that are similar to those used to determine the life of the mine based on estimated mineral inventory. Changes in the assumptions could result in impairment recognition with a consequent effect on the statement of operations. If an impairment was recognized, the amount of that impairment would be a charge to the statement of operations in the period of recognition. In addition, the carrying value of the corresponding asset would be decreased by a similar amount. With five of its six gold mines in operation a review of the current and anticipated operations indicates that no impairment provision is required at this time. During the fiscal year ended September 30, 2012 certain exploration properties were abandoned and the costs were written off during the second and third fiscal quarters of the year amounting to $784,150. These properties are in the process of disposition. Year ended September 30, 2012 Page 41

43 14. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION 14.1 Changes to IFRS There have been no changes to IFRS that came into force during the year ended September 30, 2012 that have significantly affected the financial statements for the year ended September 30, Future changes to IFRS Future changes to IFRS are discussed in note 3 to the consolidated financial statements for the year ended September 30, TRANSITION TO IFRS The fiscal year ended September 30, 2012 is the first full year of reporting using IFRS. All amounts included in the consolidated financial statements and this MD&A in respect of the year ended September 30, 2011 have been restated using IFRS in order to maintain comparability. Information in respect of the effect of the change in accounting framework is included in note 28 to the consolidated financial statements for the year ended September 30, FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS Financial instruments are described in note 25 of the consolidated financial statements for the year ended September 30, OTHER MATTERS 16.1 Filings on SEDAR The Company's audited consolidated financial statements for the year ended September 30, 2012 and this MD&A have been filed on SEDAR and are also included on the Company's website. The Company is completing and expects to file its Annual Information Form ( AIF ) for the year ended September 30, 2012 prior to the filing deadline of December 31, Subsequent to filing, investors may find copies of these documents on both the Company s web site at and on the SEDAR database at Outstanding options During the year ended September 30, 2012, the Company issued 1,400,000 stock options to employees as follows: Year ended September 30, 2012 Page 42

44 Date of issue Quantity Exercise price Expiry date Vesting May 16, ,000 CAN$2 December 31, /3 vested at date of grant 1/3 vesting December 31, /3 vesting December 31, 2013 September 24, 2012 September 24, ,200,000 CAN$1.30 September 30, /3 vesting September 30, /3 vesting September 31, /3 vesting September 31, ,000 CAN$1.30 September 30, 2012 On the achievement of specified targets During the year ended September 30, 2012, 1,260,882 stock options were exercised, 42,838 stock options were cancelled in lieu of cash, and 248,330 stock options expired. All options that were granted in fiscal 2012 were granted in accordance with the Company s stock option plan. Quantity Number of options outstanding, beginning of year 3,593,459 Options exercised, cancelled or expired during the year (1,552,050) Options granted during the year 1,400,000 Number of options outstanding, end of year 3,441,409 Further details about the changes in the outstanding stock options during the year and the currently outstanding stock options are included in Note 20 of the consolidated financial statements for the year ended September 30, At the Annual and Special Meeting of the Shareholders held on March 7, 2012, the maximum number of options that may be granted under the Company's stock option plan was increased from 5,000,000 to 8,500, Outstanding warrants There was no change to the number of outstanding warrants during the year ended September 30, 2012 amounting to 2,216,972, all of which are exercisable at CAN$2.00 each and expire in June Further details about the currently outstanding warrants are included in note 20 of the consolidated financial statements for the year ended September 30, Outstanding share data The Company s authorized share capital consists of special and common shares only. Special shares Year ended September 30, 2012 Page 43

45 At the Annual and Special Meeting of the shareholders held on March 7, 2012, the shareholders passed a resolution authorizing the Company to issue an unlimited number of a new, additional class of shares, designated as special shares, issuable in series ("Special Shares"). The rights, privileges, restrictions and conditions attaching to each series of Special Shares are to be determined and approved by the directors prior to the issue of the shares of any such series. To date, the directors have not specified the rights, privileges, restrictions and conditions attaching to any series of Special Shares and have neither approved for issue nor caused to be issued any Special Shares. Common shares On March 19, 2012, the Company issued common shares as a result of the exercise of stock options bringing the total number of common shares issued and outstanding at September 30, 2012 to 43,612,383 (September 30, ,949,736). Subsequent to the year end, 2,000,000 common shares were issued pursuant to a private placement as discussed under "Subsequent and proposed transactions" Certification of disclosure in issuer s annual filings The Company has met its certification obligations as described in National Instrument regarding disclosure controls and procedures ( DCP ) and internal controls over financial reporting ( ICFR ) for its year ended September 30, No material weaknesses were identified. There were no significant changes to its procedures in place during the year ended September 30, 2012 or to the date of this MD&A Related party transactions Related party transactions are described in note 20 in the audited consolidated finacial statements for the year ended September 30, NON-IFRS MEASURES 17.1 General The Company has included within this MD&A certain non-ifrs performance measures, specifically, EBITDA, adjusted EBITDA, cash costs per ounce and attributable measures. These non-ifrs performance measures do not have any standardized meaning prescribed by GAAP and, therefore, are not necessarily comparable to similar measures presented by other companies. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors find this information useful in their evaluation of the Company s performance. Accordingly, these non-ifrs measures are intended to provide additional information, they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Set out below are definitions for these performance measures and reconciliations of the non-ifrs measures to reported GAAP measures for the years ended September 30, 2012 and Total and attributable ounces Total ounces represent the total ounces that are under the control of the Company and its subsidiaries, and include 100% of such ounces. Total ounces are calculated and presented using the method that is consistent with the method of consolidation of the accounting information provided in the Company s consolidated financial statements, in which the Company and its subsidiaries, both wholly-owned and partly-owned, are Year ended September 30, 2012 Page 44

46 considered an operating unit with adjustment for the minority interest based on income (loss) after provision for income taxes. Attributable ounces are the ounces calculated on the basis of the Company s proportionate ownership of such ounces, after adjusting for the minority interests share of gold production from the CAG properties. Accordingly, any financial information based on attributable ounces is a non-ifrs measure. Information with respect to total and attributable ounces for the years ended September 30, 2012 and 2011 is presented below. Quarter ended September 30, 2012: Casmyn Zim Falgold Olympus Proportionate holding 100% 85% 100% Consolidated Total Attributable (1) Ounces of gold sold 4,043 5, ,995 9,137 Ounces of gold produced 3,872 5, ,256 9,370 Revenue from gold sold $6,685,946 $9,220,127 $580,539 $16,486,612 $15,073,167 Year ended September 30, 2012: Casmyn Zim Falgold Olympus Proportionate holding 100% 85% 100% Consolidated Total Attributable (1) Ounces of gold sold 14,310 20,912 2,193 37,415 34,210 Ounces of gold produced 13,725 21,039 2,859 37,623 34,397 Revenue from gold sold $23,709,115 $34,627,041 $3,611,277 $61,947,433 $56,639,108 (1) Attributable ounces have been calculated using a weighted average approach of the controlling interests in the subsidiaries during the three months and twelve months ended September 30, Year ended September 30, 2011: Casmyn Falgold Olympus Proportionate holding 100% 85% 100% Consolidated Total Attributable (1) Ounces of gold sold 15,151 8,030 1,985 25,166 23,700 Ounces of gold produced 15,350 9,204 2,135 26,689 24,998 Revenue from gold sold $22,685,826 $12,589,969 $3,017,875 $38,293,670 $36,037,061 (1) Proportionate holding at September 30, 2011; the proportionate holding of both Falgold and Olympus changed during the year ended September 30, Attributable ounces have been Year ended September 30, 2012 Page 45

47 calculated using a weighted average approach of the controlling interests in the subsidiaries during the three months and twelve months ended September 30, EBITDA Earnings before interest expense, income taxes, depreciation and amortization ( EBITDA ) is a metric that is used by some readers to measure cash earnings without the distortion arising from both varying capital structures and different tax legislations that apply in different jurisdictions. EBITDA is different from cash flow from operations appearing in the consolidated statement of cash flows in that it does not take into account interest expense and tax payments or changes in non-cash working capital. It is also different from free cash flow in that it excludes the cash required to replace capital assets. As EBITDA is used by some as a surrogate for or supplement to cash earnings metric, the Company further adjusts EBITDA by eliminating non-cash items including stock-based compensation expense, impairment expense (net of impairment recovery) and, for fiscal 2011, gain or loss from the change in fair value of warrants to arrive at Adjusted EBITDA. Included in the table below is EBITDA as typically calculated, as well as Adjusted EBITDA that excludes these additional non-cash items. During the year ended September 30, 2012, the Company revised Adjusted EBITDA to remove overhead of non-operational properties from the current period calculation and all comparative periods. The reconciliation to EBITDA and Adjusted EBITDA starts at net income (loss) for the period shown on the consolidated statement of operations. Fiscal Years Ended September 30, Net income for the year $2,860,551 $4,308,047 $(960,789) Add Interest expense, net 704, ,430 82,741 Income taxes 916, ,256 2,264,465 Amortization 2,333,384 1,477, ,721 Adjustment for wage accrual reversal (687,000) - - EBITDA 6,127,501 7,001,047 2,333,138 Add (deduct) Impairment expense, net 784, , ,000 Change in fair value of warrants - (433,921) - Stock-based compensation 418, , ,268 Adjusted EBITDA $7,330,182 $7,323,521 $3,290,406 Year ended September 30, 2012 Page 46

48 Fiscal Quarters Ended September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Net income (loss) for the period $(556,295) $770,314 $347,652 $2,298,880 Add Interest expense, net 236, , , ,820 Income taxes (91,546) 102, , ,712 Amortization and accretion 747, , , ,376 Adjustment for wage accrual reversal 113,000 (800,000) - - EBITDA 449, ,161 1,262,829 3,583,788 Add (deduct) Impairment expense - 152, ,451 - Stock-based compensation 246,219 38,034 43,124 91,154 Adjusted EBITDA $695,942 $1,021,894 $1,937,404 $3,674,942 Fiscal Quarters Ended September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2009 Net income (loss) for the period $2,450,305 $430,729 $1,214,352 $212,661 Add Interest expense, net (2,884) 212,721 74, ,231 Income taxes (176,964) 394, , ,165 Amortization 432, , , ,318 Adjustment for wage accrual reversal EBITDA 2,702,476 1,412,643 1,875,553 1,010,375 Add (deduct) Impairment expense 146, (Gain) or loss from the change in fair value of warrants 20, ,468 (452,259) (142,974) Stock-based compensation 180, , , ,369 Adjusted EBITDA $3,050,129 $1,686,408 $1,564,214 $1,022,770 Year ended September 30, 2012 Page 47

49 17.4 Cash costs per ounce The Company calculates this metric from mining and processing costs reported in its statement of income and comprehensive income, excludes royalties and levies, and adjusts for the change in production activity. Years ended September 30, Quantity of gold produced (ounces) 37,623 26,689 14,018 Mining and processing costs $47,116,926 $25,374,589 $9,145,159 Adjustment for royalties and levies (4,468,726) (2,327,619) (560,088) Adjustment for change in gold inventory 980,994 2,028, ,586 Adjustment for wage accrual reversal 687, Cash costs of production $44,316,194 $25,075,072 $8,848,657 Cash costs per ounce (average for the year) $1,178 $940 $631 Fiscal Quarters Ended September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 Quantity of gold produced (ounces) 10,256 9,536 8,736 9,095 Mining and processing costs $13,912,088 $11,901,419 $10,975,994 $10,327,425 Adjustment for royalties and levies (1,195,051) (1,168,816) (1,101,210) (1,003,649) Adjustment for change in gold inventory 476, , ,665 33,554 Adjustment for wage accrual reversal (113,000) 800, Cash costs of production $13,080,988 $11,816,427 $10,061,449 $9,357,330 Cash costs per ounce (average for the quarter) $1,275 $1,239 $1,151 $1,029 Year ended September 30, 2012 Page 48

50 September 30, 2011 Fiscal quarters ended June 30, 2011 March 31, 2011 December 31, 2010 Quantity of gold produced (ounces) 8,814 6,841 6,226 4,808 Mining and processing costs $9,342,070 $7,030,437 $5,058,823 $3,943,259 Adjustment for royalties and levies (913,883) (636,478) (518,909) (258,349) Adjustment for change in gold inventory 717, , , ,085 Cash costs of production $9,145,243 $7,005,980 $4,977,854 $3,945,995 Cash costs per ounce (average for the quarter) $1,038 $1,024 $799 $ CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This document contains forward-looking information which may include, but is not limited to, statements with respect to the future financial or operating performances of New Dawn, its mineral properties, the future supply, demand, inventory, production and price of gold and other precious minerals, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital, operating and exploration expenditures, development costs for the mineral properties, requirements for additional capital, government regulation of mining operations, environmental risks, political risk, indigenization risk, reclamation and rehabilitation expenses, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of litigation and regulatory matters. Often, but not always, forward-looking information statements can be identified by the use of words such as plans, expects, is expected, budget, scheduled, estimates, forecasts, intends, anticipates, or believes, or variations (including negative variations) of such words and phrases, or state that certain actions, events or results may, could, would, might, or will be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of New Dawn to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, those factors discussed in the section entitled Risk Factors in this document. Although New Dawn has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this document based on the opinions and estimates of management, and New Dawn disclaims any obligation to update any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise, except as required by applicable securities legislation. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could Year ended September 30, 2012 Page 49

51 differ materially from those anticipated in such statements. Accordingly, shareholders should not place undue reliance on forward-looking statements. Year ended September 30, 2012 Page 50

52 Symbol Officers Directors Transfer Agent Legal Counsel Auditors Investor Relations ND - TSX Mr. Ian R. Saunders President, CEO and Director Mr. Graham R. Clow C.A. Chief Financial Officer and Corporate Secretary Mr. Robert N. Weingarten (Executive Chairman) Mr. Bryce L. Fort Mr. Philip G. MacDonnell Mr. Divo Milan Dr. Jon W. North Mr. Ian R. Saunders Equity Financial Trust Company Borden Ladner Gervais LLP Davidson & Co. Mr. Richard Buzbuzian Corporate Address 116 Simcoe Street, Suite 301, Toronto, Ontario, Canada M5H 4E2 Tel Fax info@newdawnmining.com Web-site