Report of Foreign Issuer (6-k)

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

Of the Securities Exchange Act of 1934

For the month of March 2015

Commission File Number: 000-13345

CALEDONIA MINING CORPORATION

(Translation of registrant’s name into English)

Suite 1000

36 Toronto Street

Toronto, ON, M5C 2C5

Canada

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F x Form 40-F ______

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ______

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ______

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ______ No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ______

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Caledonia Mining Corporation (Registrant) By: /s/ Steve Curtis
Dated: March 31, 2015	Name: Steve Curtis Title: CEO and Director

Exhibit Index

Exhibit	Description

99.1	Annual Financial Statements
99.2	Management's Discussion and Analysis
99.3	Certificate - CEO
99.4	Certificate - CFO

Exhibit 99.1

Caledonia Mining Corporation

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION

To the Shareholders of Caledonia Mining Corporation:

Management has prepared the information and representations in these consolidated financial statements. The consolidated financial statements of Caledonia Mining Corporation (“Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and, where appropriate, these statements include some amounts that are based on best estimates and judgment. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects.

The Management Discussion and Analysis (“MD&A”) also includes information regarding the impact of current transactions, sources of liquidity, capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.

The Group maintains adequate systems of internal accounting and administrative controls, within reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced. Our independent auditor has the responsibility of auditing the consolidated financial statements and expressing an opinion on them.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”). Any system of internal controls over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

At December 31, 2014 management evaluated the effectiveness of the Group’s internal control over financial reporting and concluded that such internal control over financial reporting was effective and there were no material weaknesses or changes in internal controls identified by management.

The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Audit Committee is composed of three independent directors. This Committee meets periodically with management and the external auditor to review accounting, auditing, internal control and financial reporting matters.

The consolidated financial statements have been audited by the Group’s independent auditor, KPMG Inc., in accordance with Canadian Auditing Standards. The independent auditor’s report outlines the scope of their examination and their opinion on the consolidated financial statements.

The consolidated financial statements for the year ended December 31, 2014 were approved by the Board of Directors and signed on its behalf on March 27, 2015.

(Signed) S. R. Curtis

Chief Executive Officer

(Signed) M. Learmonth

Chief Financial Officer

Caledonia Mining Corporation

INDEPENDENT AUDITOR'S REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of Caledonia Mining Corporation

We have audited the accompanying consolidated financial statements of Caledonia Mining Corporation, which comprise the consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of profit or loss and other comprehensive income, consolidated changes in equity and consolidated cash flows for the years ended December 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory information, as set out on pages 3 to 53.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caledonia Mining Corporation as at December 31, 2014 and 2013, and its financial performance and its cash flows for the years ended December 31, 2014 and 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

KPMG Inc.

Chartered Accountants

85 Empire road

Parktown

Johannesburg

South Africa

March 27, 2015

Caledonia Mining Corporation

Consolidated statements of profit or loss and other comprehensive income

(In thousands of Canadian dollars)

For the years ended December 31	Note		2014			2013
				$			$
Revenue				59,082			65,113
Less: Royalty				(3,889	)		(4,544	)
Production costs		8		(30,812	)		(27,412	)
Depreciation				(3,908	)		(3,276	)
Gross profit				20,473			29, 881
Other income				28			-
Administrative expenses		9		(8,157	)		(7,772	)
Share-based payment expense		20		-			(68	)
Foreign exchange gain				1,176			1,677
Impairment		12		(196	)		(14,203	)
Operating profit				13,324			9,515
Finance income		10		15			24
Finance cost		10		(170	)		(132	)
Net finance costs				(155	)		(108	)
Profit before tax				13,169			9,407
Tax expense		11		(6,604	)		(9,897	)
Profit/(Loss) for the year				6,565			(490	)
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences of foreign operations				3,848			2,254
Tax on other comprehensive income		11		122			-
Other comprehensive income for the year, net of income tax				3,970			2,254
Total comprehensive income for the year				10,535			1,764
Profit/(Loss) attributable to:
Owners of the Company				4,897			(3,055	)
Non-controlling interests				1,668			2,565
Profit/(Loss) for the year				6,565			(490	)
Total comprehensive income attributable to:
Owners of the Company				8,833			(726	)
Non-controlling interests				1,702			2,490
Total comprehensive income for the year				10,535			1,764
Earnings/(Loss) per share
Basic earnings/(loss) - per share ($)		18		0.093			(0,061	)
Diluted earnings/(loss) - per share ($)		18		0.093			(0,061	)

The accompanying notes on page 7 to 53 are an integral part of these consolidated financial statements. On behalf of the Board: "S.R. Curtis" - Director and "M. Learmonth"

Caledonia Mining Corporation

Consolidated statements of financial position

(In thousands of Canadian dollars)

	Note		2014			2013
As at			December 31			December 31
				$			$
Assets
Property, plant and equipment		12		40,388			33,448
Total non-current assets				40,388			33,448

Inventories		13		7,571			6,866
Prepayments				348			177
Trade and other receivables		14		2,040			3,889
Income tax receivable				111			-
Cash and cash equivalents		15		26,838			25,222
Total current assets				36,908			36,154
Total assets				77,296			69,602

Equity and liabilities
Share capital		16		57,607			57,607
Reserves		17		159,883			156,069
Retained loss				(159,759	)		(161,651	)
Equity attributable to shareholders				57,731			52,025
Non-controlling interests		29		804			(51	)
Total equity				58,535			51,974

Liabilities
Provisions		21		2,888			1,572
Deferred tax liability		11		10,092			8,522
Total non-current liabilities				12,980			10,094

Trade and other payables		22		3,791			4,600
Income tax payable				1,990			1,138
Bank overdraft		15		-			1,796
Total current liabilities				5,781			7,534
Total liabilities				18,761			17,628
Total equity and liabilities				77,296			69,602

The accompanying notes on page 7 to 53 are an integral part of these consolidated financial statements.

On behalf of the Board: “S.R. Curtis”- Director and “M. Learmonth”

Caledonia Mining Corporation

Consolidated statements of changes in equity

(In thousands of Canadian dollars)

	Note		Share capital			Investment Revaluation Reserve			Foreign Currency Translation Reserve			Contributed Surplus		Share- based payment reserve			Retained Loss			Total			Non- controlling interests (“NCI”)			Total Equity
				$			$			$			$		$			$			$			$			$
Balance at December 31, 2012				197,137			5			(2,010	)		-			*15,682		(153,399	)		57,415			(1,796	)		55,619
Transactions with owners:
Reduction of stated capital		17		(140,000	)		-			-			140,000		-			-			-			-			-
Share-based payment transaction		20		-			-			-			-		68			-			68			-			68
Dividends paid				-			-			-			-		-			(5,202	)		(5,202	)		(745	)		(5,947	)
Shares issued		16		470			-			-			-		-			-			470			-			470
Movement in equity							(5	)										5
Total comprehensive income:
(Loss)/profit for the year				-			-			-			-		-			(3,055	)		(3,055	)		2,565			(490	)
Other comprehensive income for the year				-			-			2,329			-		-			-			2,329			(75	)		2,254
Balance at December 31, 2013				57,607			-			319			140,000		15,750			(161,651	)		52,025			(51	)		51,974
Transactions with owners:
Dividends paid				-			-			-			-		-			(3,127	)		(3,127	)		(847	)		(3,974	)
Total comprehensive income:
Profit for the year				-			-			-			-		-			4,897			4,897			1,668			6,565
Other comprehensive income for the year				-			-			3,814			-		-			122			3,936			34			3,970
Balance at December 31, 2014				57,607			-			4,133			140,000		15,750			(159,759	)		57,731			804			58,535

* Refer to notes 5 and 20.

The accompanying notes on page 7 to 53 are an integral part of these consolidated financial statements.

On behalf of the Board: “S.R. Curtis” - Director and “M. Learmonth”

Caledonia Mining Corporation

Consolidated statements of cash flows
(In thousands of Canadian dollars)
For the years ended December 31,	Note	2014	2013
		$	$

Cash flows from operating activities	23	18,822	22,768
Interest received		15	24
Interest paid		(133)	(132)
Tax paid	11	(4,999)	(7,974)
Cash from operating activities		13,705	14,686

Cash flows from investing activities
Acquisition of property, plant and equipment		(6,786)	(11,738)
Net cash used in investing activities		(6,786)	(11,738)

Cash flows from financing activities
Dividends paid		(3,974)	(5,947)
Advance dividend paid		-	(1,987)
Proceeds from the exercise of share options	16	-	470
Net cash used in financing activities		(3,974)	(7,464)
Net increase/(decrease) in cash and cash equivalents		2,945	(4,516)
Cash and cash equivalents at beginning of year		23,426	27,942
Effect of exchange rate fluctuations on cash held		467	-
Cash and cash equivalents at year end	15	26,838	23,426

The accompanying notes on page 7 to 53 are an integral part of these consolidated financial statements.

On behalf of the Board: “S.R. Curtis”- Director and “M. Learmonth”

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

1 Reporting entity

Caledonia Mining Corporation (the “Company”) is a company domiciled in Canada. The address of the Company’s registered office is Suite 4009, 1 King Street West, Toronto, Ontario, M5H 1A1, Canada. These consolidated financial statements of the Group as at and for the year ended December 31, 2014 comprises the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is primarily involved in the operation of a gold mine and the exploration and development of mineral properties for precious metals.

2 Basis for preparation

(i) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were authorised for issue by the Board of Directors on March 27, 2015.

(ii) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for equity-settled share-based payment arrangements measured at fair value on grant date.

(iii) Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company. All financial information presented in Canadian dollars has been rounded to the nearest thousand.

(iv) Going concern

These consolidated financial statements have been prepared on a going-concern basis.

3 Use of estimates and judgements

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group‘s accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions in estimates are recognised prospectively.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

3 Use of estimates and judgements – (continued)

(a) Judgements

i) Indigenisation transaction

The indigenisation transaction of the Blanket Mine (1983) (Private) Limited (“Blanket Mine”) required management to make significant judgements and assumptions which are explained in Note 5.

(b) Assumptions and Estimation uncertainties

i) Site restoration provisions

The site restoration provision has been calculated for the Blanket Mine based on an independent analysis of the rehabilitation costs as performed in 2012 and based on the internal assessment for Eersteling Gold Mining Company Limited. Estimates and assumptions are made when determining the inflationary effect on current restoration costs and the discount rate to be applied in arriving at the present value of the provision where the time value of money effect is significant. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation costs which will reflect the market condition at the time the rehabilitation costs are actually incurred. The final cost of the currently recognized site rehabilitation provisions may be higher or lower than currently provided for.

ii) Exploration and evaluation (“E&E”) expenditure

The application of the Group’s accounting policy for exploration and evaluation expenditures requires judgements when determining which expenditures are recognised as exploration and evaluation assets (“E&E properties”), disclosed under Property, plant and equipment as mineral properties not depreciated.

The Group also makes estimates and assumptions regarding the possible impairment of E&E properties by evaluating whether it is likely that future economic benefits will flow to the Group, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

3 Use of estimates and judgements - (continued)

The recoverability of the carrying amount of the South African and Zambian mineral properties (if not impaired) is dependent upon the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered, the exchange rate of the local currency relative to the currency of funding and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.

iii) Income taxes

Significant estimates and assumptions are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

In addition, the Group applies judgement in recognizing deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized or sufficient estimated taxable income against which the losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.

iv) Share-based payment transactions

The Group measures the cost of equity-settled, share based payment transactions with employees, directors as well as with Indigenisation Shareholders (refer note 5 and 20) by reference to the fair value of the equity instruments on the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the appropriate valuation model, considering the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield. Additional information about significant judgements and estimates and assumptions for estimating fair value for share-based payment transactions are disclosed in note 20.

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Group’s stock options.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

3 Use of estimates and judgements - (continued)

v) Impairment

At each reporting date, the Group determines if impairment indicators exist, and if present, performs an impairment review of the non-financial assets held in the Group. The exercise is subject to various judgemental decisions and estimates. Financial assets are also reviewed regularly for impairment. Further details of the judgements and estimates made for these reviews are set out in Note 4(g).

vi) Functional currency

The functional currency of each entity in the Group is determined after considering various primary and secondary indicators which require management to make numerous judgement decisions. The determination of the functional currency has a bearing on the translation process and ultimately the foreign currency translation reserve.

vii) Measurement of fair values

Some of the Group’s accounting policies and disclosure require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group has established a control framework with respect to the measurement of fair values. This includes a valuation team member who has overall responsibility for overseeing all significant fair value measurements.

Significant valuation issues are reported to the Group’s Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Where applicable, fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation technique as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the assets and liability, either directly (i.e. as price) or indirectly (i.e. derives from prices).

Level 3: inputs for the assets or liability that are not based for identical assets or observable market data (unobservable inputs).

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies

Except as stated in note 4(p), the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by the Group entities.

(a) Basis of consolidation

i) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variability in returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

ii) Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

iii) Non-controlling interests

NCI are measured at their proportionate share of the carrying amounts of the acquiree’s identifiable net assets at fair value at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

iv) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency

i) Foreign operations

The functional currency of Caledonia Mining Corporation is the Canadian dollar, and for its subsidiaries it is US dollar, Zambian Kwacha and South African Rand (“ZAR”) respectively. Subsidiary financial statements have been translated to Canadian dollars as follows:

Assets and liabilities are translated using the exchange rate at period end; and
Income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies - (continued)

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from the item are considered to form part of the net investment in a foreign operation and are recognized in Other Comprehensive Income (“OCI”). If settlement is planned or likely in the foreseeable future, foreign exchange gains and losses are included in profit or loss.

When the Group disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are recognized in profit or loss. If an entity disposes of part of an interest

in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in OCI related to the subsidiary are reallocated between controlling and non-controlling interests.

All resulting translation differences are reported in OCI.

ii) Foreign currency translation

In preparing the financial statements of the Group entities, transactions in currencies other than the Group entities’ functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary assets and liabilities are translated using the current foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in profit or loss for the year.

i) Non-derivative financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies - (continued)

The Group has the following non-derivative financial assets: trade and other receivables, prepayments as well as cash and cash equivalents.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. The impairment loss on receivables is based on a review of all outstanding amounts at period end. Bad debts are written off during the year in which they are identified. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Loans and receivables include trade and other receivables and prepayments.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

ii) Non-derivative financial liabilities

Financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Non-derivative financial liabilities consist of bank overdrafts and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

(d) Share capital

Share capital is classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognised as a deduction from equity, net of any tax effects.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(e) Property, plant and equipment

i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets.

ii) Exploration and evaluation expenditure

Exploration costs are expensed as incurred, unless there is a high degree of confidence in the project's viability and it is probable that the project will return future economic benefits to the group when all further pre-production expenditure is capitalised. These costs include evaluation costs.

Once the legal right to explore a property has been acquired, costs directly related to exploration and evaluation expenditures (“E&E”) are capitalized in addition to the acquisition costs and disclosed under Property, plant and equipment as mineral properties not depreciated These direct expenditures include such costs as materials used, surveying costs, drilling costs, payments made to contractors, direct administrative costs and depreciation on plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the year in which they occur.

Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development. Exploration and evaluation assets are tested for impairment before the assets are transferred to mine under development. All direct costs related to the acquisition, exploration and development of mineral properties are capitalized until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. If economically recoverable ore reserves are developed, capitalized costs of the related property are reclassified as mineral properties being depleted.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised within other income in profit or loss.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

iii) Subsequent costs

The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

iv) Depreciation

Depreciation is calculated to write off the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, except for mineral properties, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. On commencement of commercial production, depreciation of each mineral property and development is provided for on the unit-of-production basis using estimated proven and probable reserves. Where the total reserves are not determinable because ore bearing structures are open at depth or are open laterally, the straight-line method of depreciation is applied over the estimated life of the mine. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

·	buildings 10 to 15 years

·	plant and equipment10 years

·	fixtures and fittings including computers 4 to 10 years

·	motor vehicles 4 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(f) Inventories

Consumable stores are measured at the lower of cost and net realisable value. The cost of consumable stores is based on the weighted average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of gold in process, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(g) Impairment

(i) Financial assets (including receivables)

A financial asset not classified as fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost provides objective evidence of impairment.

The Group considers evidence of impairment for receivables at both the specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of a CGU exceeds its estimated recoverable amount. The estimated recoverable amount is the greater of its fair value less cost to sell and its estimated value in use. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amount of other assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been an indication of reversal and a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(iii) Impairment of exploration and evaluation assets

The test for recoverability of E&E assets can combine several CGUs as long as the combination is not larger than a segment. The definition of a CGU does, however, change once development activities have begun. There are special impairment triggers for E&E assets. Despite certain relief in respect of impairment triggers and the level of aggregation, the impairment standard is applied in measuring the impairment of E&E assets. Reversals of impairment losses are permitted in the event that the circumstances that resulted in impairment have changed.

E&E assets are only assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount and upon transfer to development assets (therefore there is no requirement to assess for indication at each reporting date until the entity has sufficient information to reach a conclusion about the commercial viability and technical feasibility of extraction). Indicators of impairment include the following:

·	The entity's right to explore in the specific area has expired or will expire in the near future and is not expected to be renewed.

·	Substantive expenditure on further E&E activities in the specific area is neither budgeted nor planned.

·	The entity has not discovered commercially viable quantities of mineral resources as a result of E&E activities in the area to date and has decided to discontinue such activities in the specific area.

·	Even if development is likely to proceed, the entity has sufficient data indicating that the carrying amount of the asset is unlikely to be recovered in full from successful development or by sale.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(h) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are expensed when the related services are provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(ii) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

(I) Share-based payment transactions

(i) Share-based payment relating to employees and directors

The grant date fair value of share-based payment awards granted to employees and directors is recognised as an expense, with a corresponding increase in equity, over the vesting period of the award. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period or immediately for awards already vested.

Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive income.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(ii) Share-based payment relating to the indigenisation transaction

The grant date fair value of equity-settled share-based payment transactions with Indigenisation Shareholders (note 5) was recognised immediately as an expense in 2012 in the statement of comprehensive income, with a corresponding increase in equity, when the transaction became effective.

(j) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(k) Site restoration

The Group recognises liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to mineral properties along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pre-tax rate that reflects the time value of money and are related to the provision are used to calculate the net present value. The Group’s estimates of rehabilitation costs, which are reviewed annually, could change as a result of changes in regulatory requirements, discount rates, effects of inflation and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mineral properties with a corresponding entry to the rehabilitation provision. Changes resulting from production are charged to profit and loss for the period. The costs of rehabilitation projects that were included in the rehabilitation provision are recorded against the provision as incurred. The cost of on-going current programs to prevent and control pollution is charged against profit or loss as incurred.

(l) Revenue

Revenue from the sale of precious metals is recognized when the metal is accepted at the refinery, risk and benefits of ownership are transferred and the receipt of proceeds is substantially assured. Revenue is measured at the fair value of the gold price receivable at the date of the transaction.

(m) Finance income and finance costs

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on the rehabilitation provisions and impairment losses recognised on financial assets, interest on bank overdraft balances and also include commitment costs on overdraft facilities. Finance income and finance costs further include foreign exchange differences on financial assets and financial liabilities.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

(n) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax expense are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

(ii) Deferred tax

Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

(o) Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the adjusted profit or loss attributable to common shareholders of the Group (see note 18) by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise share options granted to employees and directors as well as any dilution in Group earnings originating from dilutive partially recognised non-controlling interests at a subsidiary level.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(p) Changes in accounting policies

The Group has adopted the following new standards, including any consequential amendments to other standards, with a date of January 1, 2014. The nature and effects of the changes are explained below.

Offsetting of financial assets and financial liabilities

The Group does not have financial assets and financial liabilities that are offset. As a result, the amendments to IFRS 7 did not require expanded disclosure about the offsetting of financial assets and financial liabilities.

IAS 36 Amendment - Disclosure of recoverable amount for non-financial assets

The Group has adopted the amendments to IAS 36 (2013) in the year ended December 31, 2014. To the extent that impairment is recognised and the recoverable amount is determined with reference to fair value less costs of disposals, the required additional disclosure has been provided.

(q) Standards, amendments and interpretations issued but not yet effective

There are new or revised Accounting Standards and Interpretations in issue that are not yet effective. Management have considered all of these Standards and Interpretations and have concluded that those that may have an impact on future consolidated financial statements are the following:

Standard/Interpretation		Effective date*	Adoption date by the Group
Amendments to IAS 1	Disclosure Initiative	January 1, 2016	January 1, 2016
IFRS 15	Revenue from Contracts with Customers	January 1, 2017	January 1, 2017
IFRS 9	Financial Instruments	January 1, 2018	January 1, 2018

* Annual periods beginning on or after

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

Possible impact on the consolidated financial statements

Disclosure Initiative (Amendments to IAS 1)

The amendments provide additional guidance on the application of materiality and aggregation when preparing financial statements. The amendments apply for annual periods beginning on or after January 1, 2016 and early application is permitted. The amendment is not expected to result in significant changes to the level of aggregation in the financial statements.

IFRS 15 Revenue from contracts with customers

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.

This new standard is not expected to have a significant impact on the Group since it is not expected to change the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending December 31, 2016 financial statements.

IFRS 9 Financial Instruments

On July 24, 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard is not expected to have a significant impact on the Group as measurement categories are similar to IAS 39 even though the criteria for classification into these categories are significantly different. The IFRS 9 impairment model has also been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model. The change is not expected to increase the provision for bad debts recognised in the Group because of the short gold sales collection period. The Group will adopt the standard in the first annual period beginning on or after January 1, 2018.

5 Blanket Zimbabwe Indigenisation Transaction

During 2012 the Group, to comply with Zimbabwean law that requires indigenous Zimbabweans own at least 51% of the Blanket Mine, entered into agreements to transfer a 51% ownership interest in Blanket Mine as follows:

·	Sold a 16% interest to the National Indigenisation and Economic Empowerment Fund (“NIEEF”) for US$11.74 million.

·	Sold a 15% interest to Fremiro, which is owned by Indigenous Zimbabweans, for US$11.01 million.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

Sold a 10% interest to Blanket Employee Trust Services (Private) Limited (BETS) for the benefit of present and future managers and employees for US$7.34 million. The shares in BETS are held by the Blanket Mine Employee Trust (Employee Trust) with Blanket Mine’s employees holding participation units in the Employee Trust.

·	And donated a 10% ownership interest to the Gwanda Community Share Ownership Trust (Community Trust). In addition Blanket Mine paid a non-refundable donation of US$1 million to the Community Trust.

The Group facilitated the vendor funding of these transactions which is repaid by way of dividends from Blanket Mine. 80% of dividends declared by Blanket Mine are used to repay such loans and the remaining 20% unconditionally accrues to the respective Indigenous Shareholders.

Outstanding balances on the facilitation loans attract interest at a rate of 10% over the 12-month LIBOR. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine.

The facilitation loans relating to the group were declared by Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”) (Blanket Mine’s parent company) to a wholly-owned subsidiary of Caledonia Mining Corporation as a dividend in specie on February 14, 2013 and withholding tax amounting to US$1.504 million was paid and expensed on March 5, 2013.

Accounting treatment

The directors of CHZ, a wholly owned subsidiary of the Company, performed an assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), and concluded that CHZ should continue to consolidate Blanket Mine and accounted for the transaction as follows:

·	Non-controlling interests (NCI) are recognised on the portion of shareholding upon which dividends declared by Blanket Mine accrue unconditionally to equity holders as follows:

(a) 20% of the 16% shareholding of NIEEF;

(b) 20% of the 15% shareholding of Fremiro;

·	This effectively means that NCI is recognised at Blanket Mine level at 16.2% of the net assets.

The remaining 80% of the shareholding of NIEEF and Fremiro is recognised as non-controlling interests to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. At December 31, 2014 the attributable net asset value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognised.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

The transaction with the BETS is accounted for in accordance with IAS 19 Employee Benefits (profit sharing arrangement) as the ownership of the shares does not ultimately pass to the employees. The employees are entitled to participate in 20% of the dividends accruing to the 10% shareholding in Blanket Mine if they are employed at the date of such distribution. To the extent that 80% of the attributable dividends exceed the balance on the BETS facilitation loan they will accrue to the employees at the date of such declaration.

·	The Employee Trust and BETS are structured entities which are effectively controlled and consolidated by Blanket Mine. Accordingly the shares held by BETS are effectively treated as treasury shares in Blanket Mine and no NCI is recognised.

Indigenisation shareholding percentages and facilitation loan balances
USD 000's	Shareholding	NCI Recognised	NCI subject to facilitation loan	Balance of facilitation loan at Dec 31, 2014 # US$’000	Dec 31, 2013 US$’000
NIEEF	16%	3.2%	12.8%	11,907	11,742
Fremiro	15%	3.0%	12.0%	11,657	11,402
Community Trust	10%	10.0%	-	-	-
BETS ~	10%	-*	-*	7,772	7,602
	51%	16.2%	24.8%	31,336	30,746

The balance on the facilitation loans is reconciled as follows:

	USD ‘000’s
Balance at December 31, 2012		30,746
Interest accrued		2,049
Dividends used to repay loans		(2,120	)
Balance at December 31, 2013		30,675
Interest accrued		2,407
Dividends used to repay loans		(1,746	)
Balance at December 31, 2014		31,336

*The shares held by BETS are effectively treated as treasury shares (see above).

~ Accounted for under IAS19 Employee Benefits.

# Facilitation loans are accounted for as equity instruments and are accordingly not recognised as loans receivable.

Advance dividends

In anticipation of completion of the underlying subscription agreements, Blanket Mine agreed to an advance dividend arrangements with NIEEF and the Community Trust as follows:

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

(a)	Advances to the Community Trust against their right to receive dividends declared by Blanket Mine on their shareholding as follows:

·	A US$2 million payment on or before September 30, 2012;

·	A US$1 million payment on or before February 28, 2013; and

·	A US$1 million payment on or before April 30, 2013.

These advance payments were debited to a loan account bearing interest at a rate of 10% over the 12-month LIBOR. The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the Community Trust.

(b)

An advance payment of US$1.8 million to NIEEF against their right to receive dividends declared by Blanket Mine on their shareholding. The advance payment was debited to an interest-free loan account and was repayable by way of set off of future dividends on the Blanket Mine shares owned by NIEEF. Whilst any amount remained outstanding on the NIEEF dividend loan account, interest on the NIEEF facilitation loan was suspended.

The advance dividend payments were recognised as distributions to shareholders and they are classified as equity instruments. The loans arising are not recognised as loans receivable, because repayment is by way of uncertain future dividends to be declared.

(c)

From January 1, 2015, Blanket will suspend dividend payments until early 2016 as a result of which the repayment of facilitation loans by Blanket’s indigenous shareholders are also suspended. During this period, there will be a moratorium on the interest roll-up on the outstanding facilitation loans.

The movement in the advance dividend loans is reconciled as follows in USD 000’s:

	NIEEF			Community Trust			Total
	US$			US$			US$
Balance at January 1, 2013		1,800			2,062			3,862
Advanced dividends paid		-			2,000			2,000
Interest accrued		-			346			346
Dividends used to repay advance dividends		(1,442	)		(901	)		(2,343	)
Balance at December 31, 2013		358			3,507			3,865
Interest accrued		-			334			334
Dividends used to repay advance dividends		(358	)		(604	)		(962	)
Balance at December 31, 2014		-			3,237			3,237

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

6 Financial risk management

Overview

The Group has exposure to the following risks from its use of financial instruments:

·	Currency risk (refer note 24)

·	Interest rate risk (refer note 24)

·	Credit risk (refer note 24)

·	Liquidity risk (refer note 24)

This note and note 24 presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements.

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

The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Group’s Audit Committee oversees management’s compliance with the Group’s financial risk management policy.

The fair value of the Group’s financial instruments approximates their carrying value unless otherwise noted.

The types of risk exposure and the way in which such exposures are managed are as follows:

(a) Currency risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities. The Group does not use financial instruments to hedge its exposure to currency risk. Currency risk on the repayment of the sales and purchases are managed by regular repayments of the outstanding amounts.

(b) Interest rate risk

The Group is exposed to interest rate risk arising from its cash and cash equivalents invested with financial institutions as well as its overdraft facility. Management’s policy is to invest cash in financial institutions with a credit –rating of at least “A” that offer the highest interest rates.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

6 Financial risk management – (continued)

Credit risk includes the risk of a financial loss to the Group if a gold sales customer fails to meet its contractual obligation. Gold sales were made to Fidelity Printers and Refiners in Zimbabwe during the year. The payment terms stipulated in the service delivery contract were adhered to in all circumstances. Cash is deposited only with “A” grade banks.

(d) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group manages its liquidity risk by ensuring that there is sufficient capital to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be sufficient to cover the anticipated cash requirements. Senior management is also actively involved in the review and approval of planned

expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.

Since the inception of dollarization in Zimbabwe in 2009, all appropriate insurance cover has been reinstated. The Zimbabwean operations are now covered for public liability risk, assets all risk and comprehensive cover on all motor vehicles.

7 Capital Management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue the mining operations and exploration potential of the mineral properties. The Group’s capital includes shareholders’ equity, comprising issued share capital, reserves, accumulated other comprehensive income, accumulated deficit, bank loans and non-controlling interests.

	2014		2013
		$		$
Total equity		58,535		51,974

The Group’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its on-going operations, to provide returns for shareholders, accommodate any rehabilitation provisions and to pursue growth opportunities. As at December 31, 2014, the Group is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

8 Production costs

	2014		2013
		$		$
Salaries and wages		11,056		10,105
Consumable materials		16,081		14,470
Site restoration		32		151
Exploration		379		(288	)
Safety		522		595
On mine administration		2,742		2,379
		30,812		27,412

9 Administrative expense

	2014		2013
		$		$
Investor relations		567		723
Management contract fee		938		879
Audit fee		393		333
Legal fee and disbursements		797		439
Accounting services fee		27		28
Listing fees		351		340
Directors fees		371		364
Salaries and wages		2,542		1,785 2,002,001117 1,961
Office costs - Zambia		989		-
Employee benefits relating to indigenisation		155		216
Donation to scholarship fund		-		2,096
Professional consulting fees		541		-
Other		486		569
		8,157		7,772

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

10 Finance income and finance costs

Finance income	2014			2013
		$			$
Interest received – Bank		15			24

Finance cost

Interest paid – Bank		(22	)		(30	)
Unwinding of rehabilitation provision		(37	)		-
Finance charges - Overdraft		(111	)		(102	)
		(170	)		(132	)

11 Tax expense

	2014		2013
Tax recognised in profit or loss	$		$

Current tax expense	5,824		7,712
Income tax– current year	5,059		5,139
Income tax – adjustment for current tax in prior years	(215	)	-
Withholding tax expense	980		2,573
Deferred tax expense	780		2,185
Origination and reversal of temporary differences	517		2,185
Change in effective tax rate	263		-

Tax expense – recognised in profit or loss	6,604		9,897

Tax recognised in other comprehensive income

Income tax - current year	(122	)	-

Net tax expense	6,482		9,897

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

11 Tax expense - (continued)

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

	2014	2013
	$	$
Deductible temporary differences	-	3,594
Tax losses carried forward	23,205	16,029
	23,205	19,623

Taxable losses expire as set out below for the entities making taxable losses within the group. Deferred tax assets have not been recognised for these items because future taxable income is not deemed probable to utilise these benefits against.

Year	Amount
2015	1,863
2026	2,780
2027	3,054
2028	2,260
2029	1,661
2030	1,617
2031	2,238
2032	2,667
2033	2,896
2034	4,096
No expiry	51,116
	76,248

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

11 Tax expense - (continued)

Reconciliation of tax rate

	2014			2014			2013			2013
	%			$				%			$
Profit/(Loss) for the year					6,565						(490	)
Total tax expense					6,604						9,897
Profit before tax					13,169						9,407

Income tax using Company's domestic tax rate		26.5	%		3,490			26.5	%		2,493
Tax rate differences in foreign jurisdictions					(385	)					(1,450	)
Change in effective tax rate					263						-
Foreign currency difference					37						(12	)
Withholding tax – not offsetable					205						1,837
Share based payment expenses and other non-deductible expenses					-						1,222
Non-deductible expenses					(373	)					-
Net over provision of taxes in prior years					(215	)					-
Change in unrecognized deferred tax assets					3,582						5,807
Tax expense - recognised in Profit or loss					6,604						9,897

Tax paid	2014			2013
		$			$
Income tax payable at January, 1		1,138			1,518
Current and withholding tax expense		5,824			7,712
Income tax recognised through other comprehensive income		(122	)		-
Foreign currency movement		38			(118	)
Tax paid		(4,999	)		(7,974	)
Net Income tax payable at December, 31		1,879			1,138

Net income tax	2014			2013
		$			$
Income tax receivable *		(111	)		-
Income tax payable		1,990			1,138
		1,879			1,138

* Receivable is due to an overpayment made to ZIMRA during quarter 4 of 2014 which cannot be offset against other tax jurisdictions.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

11 Tax expense - (continued)

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	Assets				Liabilities						Net
	2014		2013		2014			2013			2014			2013
		$		$		$			$			$			$
Property, plant and equipment		-		-		(10,339	)		(8,619	)		(10,339	)		(8,619	)
Inventories		-		-		-									(85	)
Provisions		271		221		-			-			271			221
Other items		-		-		(24	)		(39	)		(24	)		(39	)
Tax assets (liabilities)		271		221		(10,363	)		(8,743	)		(10,092	)		(8,522	)

Movement in recognised deferred tax assets and liabilities

	Balance January 1, 2014			Recognised in profit or loss			Recognised in other comprehensive income			Balance December 31, 2014
Property, plant and equipment		(8,619	)		(914	)		(806	)		(10,339	)
Inventories		(85	)		-			85			-
Provisions		221			119			(69	)		271
Other		(39	)		15			-			(24	)
Total		(8,522	)		(780	)		(790	)		(10,092	)


	Balance January 1, 2013			Recognised in profit or loss			Recognised in other comprehensive income			Balance December 31, 2013
Property, plant and equipment		(6,156	)		(2,348	)		(115	)		(8,619	)
Unrealised forex		61			-			(61	)		-
Inventories		66			158			(309	)		(85	)
Provisions		181			40						221
Other		(3	)		(35	)		(1	)		(39	)
Total		(5,851	)		(2,185	)		(486	)		(8,522	)

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

12 Property, plant and equipment

	Land and buildings			Mineral properties depreciated		Mineral properties not depreciated			Plant and equipment			Fixtures and fittings			Motor vehicles			Total
		$			$		$			$			$			$			$
Cost
Balance at January 1, 2013		4,534			11,325		10,838			19,346			1,196			1,782			49,021
Additions		3,240			2,695		4,451			979			85			288			11,738
Foreign exchange movement		378			971		1,031			1,151			25			149			3,705
Balance at December 31, 2013		8,152			14,991		16,320			21,476			1,306			2,219			64,464

Balance at January 1, 2014		8,152			14,991		16,320			21,476			1,306			2,219			64,464
Additions*		592			3,390		1,864			1,921			122			19			7,908
Reallocations between asset classes		(640	)		1,834		-			(1,197	)		3			-			-
Disposals		-			-		-			(304	)		-			(9	)		(313	)
Foreign exchange movement		742			1,689		(2,763	)		2,482			(44	)		61			2,167
Balance at December 31, 2014		8,846			21,904		15,421			24,378			1,387			2,290			74,226

There are commitments to purchase plant and equipment totalling $642 (2013 - $178) at year end.

* Included in mineral properties depreciated is an amount of $1,122 relating to rehabilitation asset capitalised refer note 21.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

12 Property, plant and equipment - (continued)

	Land and buildings			Mineral properties depreciated		Mineral properties not depreciated			Plant and equipment			Fixtures and fittings			Motor vehicles			Total
Accumulated depreciation and Impairment losses		$			$		$			$			$			$			$
Balance at January 1, 2013		978			2,028		-			7,759			982			803			12,550
Depreciation for the year		272			620		-			2,016			70			298			3,276
Impairment (1)	(a)399				-	(b)13,713				91			-			-			14,203
Derecognition		-			-		-			(443	)		-			-			(443	)
Foreign exchange movement		85			178		620			20			11			73			987
Balance at December 31, 2013		1,734			2,826		14,333			9,886			1,063			1,174			31,016

Balance at January 1, 2014		1,734			2,826		14,333			9,886			1,063			1,174			31,016
Depreciation for the year		567			810		-			2,088			86			357			3,908
Disposals		-			-		-			(236	)		-			(9	)		(245	)
Impairment		-			-		-			180			16			-			196
Foreign exchange movement		(252	)		358		(930	)		(140	)		(65	)		(8	)		(1,037	)
Balance at December 31, 2014		2,049			3,994		13,403			11,778			1,100			1,514			33,838

Carrying amounts
At December 31, 2013		6,418			12,165		1,987			11,590			243			1,045			33,448
At December 31, 2014		6,797			17,910		2,018			12,600			287			776			40,388

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

12 Property, plant and equipment - (continued)

(1) The impairments detail herein relate to the following:

(a)

This relates to the cost attributable to mineral rights held by Eersteling Gold Mine. Due to changed legislation this cost no longer has value to the Group. This mineral right does not relate to the application lodged for the New Order Mining Right applied for by Eersteling Gold Mine.

(b)

This relates to Exploration expenditure incurred at Caledonia Nama Limited in Zambia. The full carrying value of costs previously incurred and capitalised were impaired in 2013 for the following reasons:

Substantive expenditure on further E&E activities in the specific area is neither budgeted nor planned, and

The Group has not discovered commercially viable quantities of mineral resources as a result of E&E activities in the area to date and has decided to discontinue such activities in the specific area.

13 Inventories

	2014		2013
		$		$
Consumable stores		6,932		5,995
Gold in process		639		871
		7,571		6,866

Inventory comprises gold in progress at the Blanket Mine and consumable stores utilised by Blanket Mine. Consumables stores are disclosed net of any write downs or provisions of obsolete items.

14 Trade and other receivables

	2014		2013
		$		$
Bullion revenue receivable		-		1,662
VAT receivables		1,169		1,331
Deposits for stores and equipment and other receivables		871		896
		2,040		3,889

The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables is disclosed in notes 6 and 24.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

15 Cash and cash equivalents

	2014		2013
		$		$
Bank balances		26,838		25,222
Cash and cash equivalents in the statement of financial position		26,838		25,222
Bank overdrafts used for cash management purposes		-		(1,796	)
Cash and cash equivalents in the statement of cash flows		26,838		23,426

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 24.

The bank overdraft facility of US$2.5 million bears interest at 8% above the bank’s base rate. The facility is unsecured, valid for 12 months and is renewable. The facility is repayable on demand.

16 Share capital

Authorised

Unlimited number of common shares of no par value.

Unlimited number of preference shares of no par value.

Issued	Number of fully paid common shares	Amount $
December 31, 2012	51,446,178	197,137
Reduction in stated capital (note 17)	-	(140,000	)
Share options exercised during the year	671,730	470
December 31, 2013	52,117,908	57,607
December 31, 2014	52,117,908	57,607

The holders of common share capital are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Group.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

17 Reserves

Investment revaluation reserve

The investment revaluation reserve arises from the valuation of investments at fair value through OCI. The amount was transferred to retained loss in the previous year because the investment was disposed of.

Foreign currency translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations with functional currencies that differ from the presentation currency.

Share-based payment reserve

The share-based payment reserve comprises the fair value of equity instruments granted to employees, directors and service providers under share option plans and equity instruments issued to Zimbabwe indigenisation shareholders under the Indigenisation Transaction (refer Note 5).

Contributed surplus

The contributed surplus reserve comprises the reduction in stated capital as approved by shareholders at the special general meeting on January 24, 2013 so as to be able to commence dividend payments.

Reserves	2014		2013
		$		$
Foreign currency translation reserve		4,133		319
Share-based payment reserve		15,750		15,750
Contributed surplus		140,000		140,000
Total - December 31		159,883		156,069

18 Earnings/(Loss) per share

Basic earnings/(loss) per share

The calculation of basic earnings/(loss) per share at December 31, 2014 was based on the adjusted profit/(loss) attributable to shareholders of $4,843 (2013:($3,160)), and a weighted average number of shares outstanding of 52,117,908 (2013: 51,986,466).

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

18 Earnings/(Loss) per share – (continued)

Weighted average number of shares

(In number of shares)	Note		2014		2013

Issued share capital at January 1		16		52,117,908		51,446,178
Weighted average issues during the year				-		540,288
Weighted average number of shares at December 31				52,117,908		51,986,466

	2014			2013
		$			$
Profit/(Loss) attributable to shareholders		4,897			(3,055	)
Blanket Mine Employee Trust Adjustment		(54	)		(105	)
Adjusted profit/(loss) attributable to shareholders		4,843			(3,160	)

Basic earnings/(loss) per share -$		0.093			(0.061	)

Basic earnings are adjusted for the amounts that accrue to other equity holders of subsidiaries upon the full distribution of post-acquisition earnings to shareholders.

Diluted earnings is calculated on the basis that the unpaid ownership interests of Blanket Mine’s Indigenisation shareholders are effectively treated as options whereby the weighted average fair value for the period of the Blanket Mine shares issued to Indigenous Zimbabweans and which are subject to settlement of the loan accounts is compared to the balance of the loan accounts and any excess portion is regarded as dilutive. The difference between the number of Blanket Mine shares subject to the settlement of the loan accounts and the number of Blanket Mine shares that would have been issued at the average fair value during the period of the Blanket Mine shares is treated as the issue of shares for no consideration and regarded as dilutive shares. The calculated dilution is taken into account with additional earnings attributable to the dilutive shares in Blanket Mine, if any.

The interest of NIEEF and Fremiro shareholding were anti-dilutive in the current year (i.e. the value of the options was less than the outstanding loan balance) and accordingly there was no adjustment to fully diluted earnings attributable to common shareholders.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

18 Earnings/(Loss) per share – (continued)

The calculation of diluted earnings per share at December 31, 2014 was based on the adjusted profit/(loss) attributable to shareholders of $4,843 (2013: ($3,160)), and a weighted average number of shares and potentially dilutive shares outstanding of 52,145,469 (2013: 52,007,646), calculated as follows:

Weighted average number of shares

(In number of shares)	2014		2013

Weighted average number of shares (basic) at December 31		52,117,908		51,986,466
Effect of dilutive options		27,561		21,180
Weighted average number of shares (diluted) at December 31		52,145,469		52,007,646
Diluted earnings per share - $		0.093		($0.061	)

The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. The potential dilutive effect of 2,538,359 options (2013 – 2,576,920) was excluded from the above calculations because these options were anti-dilutive.

19 Defined Contribution Plan

Under the terms of the Mining Industry Pension Fund (“Fund”) in Zimbabwe, eligible employees contribute a fixed percentage of their eligible earnings to the Fund. Blanket Mine makes a matching contribution plus an inflation levy as a fixed percentage of eligible earnings of these employees. The total contribution by Blanket Mine for the year ended December 31, 2014 was $489 (2013: $445).

20 Share-based payments

At December 31, 2014 the Group has the following share-based payment arrangements:

(a) Share option programme (equity-settled)

The Group has established a rolling stock option plan (the "Plan") for employees, officers, directors, consultants and other service providers. In accordance with the Plan, options are granted with exercise prices equal to the market price of the shares at the date of grant and vests immediately.

Terms and conditions of share option program

The terms and conditions relating to the grants under the Plan are that all options are to be settled by physical delivery of shares. Under the current Plan, the maximum term of the options is 5 years. Under the Plan, the aggregate number of shares that may be issued will not exceed 10% of the number of the shares issued of the Company.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

20 Share-based payments – (continued)

At December 31, 2014, the Company has the following options outstanding:

Number of Options	Exercise Price	Expiry Date(1)
	$
1,461,000	1.30	Jan 31, 2016
30,000	0.70	May 11, 2016
884,920	0.90	Sept 10, 2017
190,000	0.72	Nov 21,2018
2,565,920

(1)

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

The continuity of the options granted, exercised, cancelled and expired under the Plan during 2014 and 2013 are as follows:

	Number of Options			Weighted Avg. Exercise Price
				$
Options outstanding and exercisable at December 31, 2012		3,329,650			1.05
Exercised		(671,730	)		0.70
Granted		190,000			0.72
Options outstanding and exercisable at December 31, 2013		2,847,920			1.11
Exercised		-			-
Expired or forfeited		(282,000	)		1.13
Options outstanding and exercisable at December 31, 2014		2,565,920			1.11

The weighted average remaining contractual life of the outstanding options is 1.81 years (2013: 2.76 years).

The vesting of options is determined at the discretion of the board of directors, at the time the options are granted.

Inputs for measurement of grant date fair values

The fair value of share based payments noted above was estimated using the Black-Scholes Option Pricing Model with the following assumptions.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

20 Share-based payments – (continued)

Risk-free interest rate		0.95	%
Expected dividend yield	Nil
Expected stock price volatility (based on historical volatility)		57.88	%
Expected option life in years		5
Exercise price		0.72
Share price at grant date		0.72
Fair value at grant date		0.356
Expected forfeiture rate		0	%

No share based payments were granted during 2014. Costs relating to share based payments granted amounted to Nil (2013: $68).

(b) Equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction

The equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction (refer note 5), excluding Blanket Mine Employee Trust Services (Private) Limited (BETS), were accounted for as share-based payments under IFRS 2 Share Based Payment, whilst the equity instruments granted to BETS have been accounted for under IAS 19 Employee benefits.

The fair value of the equity instruments on the grant date of September 5, 2012 was determined for each transaction as being the sum of the present value of the following components:

The value of the shares at the point that any loans provided to purchase the shares or fund advance dividends are paid off;

The value of any advance dividends paid to participants;

The value of any “trickle dividends”, being the 20% entitlements, paid to participants while the loans to purchase the shares are outstanding.

To determine the fair value of the equity-settled share-based payment and take into account the unique features of each transaction, the Monte Carlo Simulation technique was used as the valuation model to allow for the uncertainty around the potential scenarios that affect the value of each arrangement. Projected market values were estimated using a stochastic modelling methodology based on Geometric Brownian Motion model. Additional equity instruments will vest to the Non-controlling interest to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. Refer to note 5 for the accounting treatment of the Non-controlling interests.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

20 Share-based payments – (continued)

Assumptions used based on the grant date of September 5, 2012 were as follows:

Fair value of Blanket Mine	$45,065
Expected volatility (based on historical volatility)	65%
Risk free rates	USD swap curve with country specific adjustments
Country specific adjustment	17.3%
Dividend yield	14.8%
Withholding tax	5% of dividends
Interest on loans	10%

21 Provisions

Site restoration

Site restoration relates to the net present value of the estimated cost of closing down the mine and site and environmental restoration costs, estimated to be paid in 2026 (Blanket Mine) based on the estimated life of mine. Site restoration costs are capitalised to mineral properties depreciated at initial recognition and amortised systematically over the estimated life of the mine.

	$
Balance at January 1,2013	1,015
Foreign currency adjustment	1
Unwinding of discount	(1	)
Change in estimate during the year	557
Balance at December 31,2013	1,572

Balance at January 1,2014	1,572
Foreign currency adjustment	125
Unwinding of discount	37
Change in estimate during the year
-adjusted through profit or loss	32
-adjustment capitalised in Property, plant and equipment	1,122
Balance at December 31,2014	2,888

The discount rates currently applied in the calculation of the net present value of the Blanket mine provision is 2.32% (2013 - 2.75%). The Eersteling mine is under care and maintenance and the provision is not discounted. The gross rehabilitation costs before discounting amounted to $2,890 (2013 - $1,760) for Blanket mine and $716 (2013 - $697) for Eersteling mine.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

22 Trade and other payables

	$	$
Trade payables	1,007	1,026
Other payables and accrued expenses	2,784	3,574
	3,791	4,600

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 6 and note 24.

The Directors consider the carrying amounts of trade and other payables as a reasonable approximation of their fair values.

23 Cash flow information

Non-cash items and information presented separately on the cash flow statement:

	2014			2013
		$			$
Operating profit		13,324			9,515
Adjustments for:
Loss on scrapping of Property, plant and equipment		68			-
Site restoration		32			556
Share-based payment expense		-			68
Depreciation		3,908			3,276
Impairment		196			14,203
Cash generated by operations before working capital changes		17,528			27,618
Inventories		(159	)		(1,767	)
Prepayments		(234	)		(51	)
Trade and other receivables		3,420			(2,226	)
Trade and other payables		(1,733	)		(806	)
Cash flows from operating activities		18,822			22,768

24 Financial instruments

Credit risk

Exposure to credit risk

The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure.

The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

24 Financial instruments – (continued)

Carrying amount	2014		2013
		$		$
Canada		98		-
Other regions		773		3,889
		871		3,889

Impairment losses

None of the trade and other receivables is past due at the year-end date and were estimated at a level 3 fair value hierarchy. No factors existed at year end that could cause doubt about the credit quality or recoverability of the trade and other receivables.

Liquidity risk

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

December 31, 2014	Carrying amount		6 months or less
		$		$
Non-derivative financial liabilities – Level 3
Trade and other payables		2,317		2,317
		2,317		2,317

December 31, 2013	Carrying amount		6 months or less
		$		$
Non-derivative financial liabilities – Level 3
Trade and other payables		4,600		4,600
Bank overdraft		1,796		1,796
		6,396		6,396

Currency risk

As the Group operates in an international environment, some of the Group’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Group’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Group are reported in Canadian dollar in the Group’s consolidated financial statements.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

24 Financial instruments – (continued)

The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Group and may also affect the value of the Group’s assets and liabilities and the amount of shareholders’ equity.

As noted below, the Group has certain financial assets and liabilities denominated in foreign currencies. The Group does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, the Group maintains cash and cash equivalents in the currencies used by the Group to meet short‐term liquidity requirements.

Below is a summary of the assets and liabilities denominated in a currency other than the Canadian dollar that would be affected by changes in exchange rates relative to the Canadian dollar. The values are the Canadian dollar equivalent of the respective asset or liability that is denominated in US dollars or South African rands.

	2014			2013
		$			$
Cash and cash equivalents		26,512			25, 042
Bank overdraft		-			(1,796	)
Trade and other receivables		773			3,887
Prepayments		348			177
Trade and other payables		(2,199	)		(5,160	)

The following exchange rates applied during the year:

	Average rate during the year				Spot rate
	2014		2013		December 31, 2014		December 31, 2013
(In Canadian dollars)		$		$		$		$
USD 1		1.1041		1.0300		1.1627		1.0696
Rand 1		0.1018		0.1071		0.1001		0.1019
Kwacha 1		0.1785		0.1895		0.1808		0.1921

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

24 Financial instruments – (continued)

Sensitivity analysis

As a result of the group’s monetary assets and liabilities denominated in foreign currencies which is different to the functional currency of the underlying entities, the profit or loss in the underlying entities could be affected by movements between the functional currency and the foreign currency. The table below indicates net monetary assets/(liabilities) in the group that have a different functional currency and foreign currency. Amounts are indicated before elimination of intergroup balances.

	2014						2013
	CAD’000						CAD’000
	Functional currency						Functional currency
USD denominated balance – Foreign currency	Rand			Kwacha			Rand			Kwacha

Cash and cash equivalents		12,084			12			8,069			41
Intercompany balances*		(70,280	)		(29,321	)		(64,640	)		(26,968	)

* These intercompany balances represent the exposure to foreign currency risk between functional currencies and foreign currencies at a subsidiary level. These balances eliminates on consolidation.

A 5% strengthening or weakening of the various functional currencies against the foreign currencies, for cash and cash equivalents, would have the following effect on profit or (loss) after tax for the group:

	2014						2013
	CAD’000						CAD’000
	Functional currency						Functional currency
	Rand			Kwacha			Rand			Kwacha
5% Strengthening		442			5			290			4
5% Weakening		(442	)		(5	)		(290	)		(4	)

A 5% strengthening or weakening of the various functional currencies against the foreign currencies, for intercompany balances, which is allocated on consolidation to the foreign currency translation reserve within equity for the Group and have the following effect:

	2014						2013
	CAD’000						CAD’000
	Functional currency						Functional currency
	Rand			Kwacha			Rand			Kwacha
5% Strengthening		3,510			1,456			2,327			1,348
5% Weakening		(3,510	)		(1,456	)		(2,327	)		(1,348	)

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

Interest rate risk

Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates.

Unless otherwise noted, it is the opinion of management that the Group is not exposed to significant interest rate risk as it has no debt financing apart from short term borrowings utilized in Zimbabwe. The Group’s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Group manages its interest rate risk by endeavouring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Group’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions.

25 Dividends

The following dividends were declared and paid by the Company (excluding NCI) for the year ended December, 31 2014.

	2014		2013
		$		$
$0.0600 per qualifying share (2013: $0.0998)		3,127		5,202

26 Contingencies

The Group may be subject to various claims that arise in the normal course of business. Management believes there are no contingent liabilities of the Group arising from claims.

27 Related parties

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity. Directors of the company, as well as certain mine managers are considered key managers.

A service agreement between Greenstone Management Services Proprietary Limited and Mr. Curtis includes an option to terminate the contract in the event of a change in control of the Company and to receive a severance payment equal to two years’ compensation. If this was triggered as at December 31, 2014 the severance payment would have amounted to US $820. The contract also includes a payment of one month’s pay per year of service rendered by Mr Curtis if Caledonia terminates his services. A change in control would constitute:

· the acquisition of more than 50% of the common shares; or

· the acquisition of right to exercise the majority of the voting rights of common shares; or

· the acquisition of the right to appoint the majority of the board of directors; or

· the acquisition of more than 50% of the assets; of Greenstone Management Service Proprietary Limited or Caledonia Mining Corporation.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

27 Related parties – (continued)

	2014		2013
		$		$
Directors fees, Salaries and bonuses		1,966		1,526
Share-based payments		-		36
		1,966		1,562

In addition, Blanket Mine also contributes to a defined contribution plan on behalf of eligible employees. For the terms of the plan refer to note 19: Defined Contribution Plan.

Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 20).

Key management personnel and director transactions:

A number of those entities transacted with the Group in the reporting period. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows:

						Balance outstanding
						As at December 31,
	Note	2014		2013		2014		2013
			$		$		$		$
Management contract fees, allowances and bonus paid or accrued to a company for management services provided by the Group’s former President and Chief Executive Officer.	(i)		938		736		-		-
Rent for office premises paid to a company owned by members of the former President’s family.	(ii)		142		38		-		-
Legal fees and disbursements up to retirement.			-		88		-		-
Directors fees paid.			326		285		-		-

(i)

On July 15, 2014 Caledonia served a six month notice to Epicure Overseas S.A. for the termination of the contract between Caledonia and Epicure for the provision of the services of Mr. Stefan Hayden, who was at that time Caledonia’s President and Chief Executive Officer (“CEO”). Negotiations for alternative arrangements to secure the continued services of Mr. Hayden as President and CEO failed to reach agreement. Accordingly, on November 18, 2014 Mr. Hayden stepped down as President and CEO and on December 6, 2014, Mr. Hayden resigned as a director of Caledonia. No payments other than the contractual payments that were due to Epicure Overseas SA for the provision of the services of Mr. Hayden during the notice period were made.

(ii)

The contract expires September 2015.

Refer to note 5 and note 29 for transactions with Non-controlling interests.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

28 Group entities

	Country of incorporation	Legal shareholding				Intercompany balances with Holding company
		2014		2013		2014			2013
Subsidiaries of the Company		%		%
Caledonia Holdings Zimbabwe (Private) Limited	Zimbabwe		100		100		-			-
Caledonia Mining Services Limited	Zimbabwe		100		100		-			-
Caledonia Kadola Limited	Zambia		100		100		-			-
Caledonia Mining (Zambia) Limited	Zambia		100		100		(18,021	)		(16,575	)
Caledonia Nama Limited	Zambia		100		100		(11,200	)		(13,301	)
Caledonia Western Limited	Zambia		100		100		-			-
Mulonga Mining Limited	Zambia		100		100		-			-
Dunhill Enterprises Inc.	Panama		100		100		-			-
Eersteling Gold Mining Corporation Limited	South Africa		100		100		(14,632	)		(13,450	)
Fintona Investments Proprietary Limited	South Africa		100		100		(17,277	)		(15,890	)
Greenstone Management Services Proprietary Limited	South Africa		100		100		(4,425	)		(4,070	)
Greenstone Management Services Limited	United Kingdom		100		100		9,122			8,390
Maid O’ Mist Proprietary Limited	South Africa		100		100		-			-
Mapochs Exploration Proprietary Limited	South Africa		100		100		-			-
Caledonia Holdings (Africa) Limited	Barbados		100		100		-			-
Blanket (Barbados) Holdings Limited	Barbados		100		100		-			-
Blanket Mine (1983) (Private) Limited(3)	Zimbabwe		(2)49		49		-			-
Blanket Employee Trust Services (Private) Limited (BETS) (1)	Zimbabwe		-		-		-			-
Blanket Mine Employee Trust (Employee Trust)(1)	Zimbabwe		-		-		-			-
Mulonga Mining Guernsey	Guernsey		100		100		-			-

(1) BETS and the Employee Trust are consolidated as structured entities.

(2) Refer to Note 5, for the effective shareholding. NCI has a 16.2% interest in cash flows of Blanket only.

(3) Blanket has no subsidiary companies.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

29 Operating Segments

The Group's operating segments have been identified based on geographic areas.

The Group has four reportable segments as described below, which are the Group's strategic business units. The strategic business units are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s CEO reviews internal management reports on at least a quarterly basis. The following geographical areas describe the operations of the Group's reportable segments: Corporate, Zimbabwe, South Africa and Zambia. The accounting policies of the reportable segments are the same as described in note 4.

The Corporate segment comprise the holding company and Greenstone Management Services Limited (UK) responsible for administrative functions within the group. The Zimbabwe operating segments comprise of Caledonia Holdings Zimbabwe Limited and subsidiaries. The Zambia segments consist of Nama copper project and cobalt project. The South Africa geographical segment comprise a gold mine as well as sales made by Greenstone Management Services Proprietary Limited to the Blanket Mine.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management report that are reviewed by the Group's CFO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.

Information about reportable segments

2014	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total
	$			$			$			$			$			$
External Revenue		4,106			59,082			7,913			-			(12,019	)		59,082
Royalty		-			(3,889	)		-			-			-			(3,889	)
Production costs		-			(31,506	)		(6,907	)		-			7,601			(30,812	)
Management fee		-			(5,167	)		5,167			-			-			-
Other income		-			18			10			-			-			28
Administrative expenses		(3,439	)		(481	)		(3,248	)		(989	)		-			(8,157	)
Depreciation		-			(3,888	)		(20	)		-			-			(3,908	)
Impairment		-			(89	)		-			(107	)		-			(196	)
Finance income		15			-			-			-			-			15
Finance expense		-			(170	)		-			-			-			(170	)
Foreign exchange gain/(loss)		54			-			1,122			-			-			1,176
Segment profit before income tax		736			13,910			4,037			(1,096	)		(4,418	)		13,169
Tax expense		(1,178	)		(3,968	)		(1,458	)		-			-			(6,604	)
Segment profit after income tax		(442	)		9,942			2,579			(1,096	)		(4,418	)		6,565

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

28 Operating Segments – (continued)

2014	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total
		$			$			$			$			$			$
Geographic segment assets:
Current		12,520			12,148			13,700			51			(1,511	)		36,908
Non-Current (excluding
intercompany)		56			41,646			356			-			(1,670	)		40,388
Expenditure on property, plant
and equipment - cash		-			6,627			52			107			-			6,786

Intercompany balances		118,502			1,748			33,788			-			(154,038	)		-


Geographic segment liabilities

Current		(1,146	)		(2,804	)		(1,831	)		-			-			(5,781	)
Non-current (excluding
intercompany)		-			(12,291	)		(689	)		-			-			(12,980	)
Intercompany balances		(39,479	)		(1,049	)		(84,187	)		(29,323	)		154,038			-

2013	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total
		$			$			$			$						$
External Revenue		-			65, 113			10,618			-			(10,618	)		65,113
Royalty					(4,544	)		-									(4,544	)
Production costs		-			(28,580	)		(9,749	)		-			10,917			(27,412	)
Management fee		-			(4,820	)		4,820			-			-			-
Other income/(expense)		5,770			(5,770	)		-									-
Administrative expenses		(2,872	)		(2,380	)		(2,304	)		-			(216	)		(7,772	)
Share-based payment expenses		(68	)		-			-			-						(68	)
Depreciation		-			(3,491	)		(15	)		-			230			(3,276	)
Impairment		-			(91	)		(399	)		(13,713	)					(14,203	)
Finance income		24			-			-			-						24
Finance expense		-			(132	)		-			-						(132	)
Foreign exchange gain/(loss)		111			1			2,336			-			(771	)		1,677
Segment profit before income tax		2,965			15,306			5,307			(13,713	)		(458	)		9,407
Tax expense		(1,842	)		(6,482	)		(1,573	)		-			-			(9,897	)
Segment profit after income tax		1,123			8,824			3,734			(13,713	)		(458	)		(490	)

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

28 Operating Segments – (continued)

2013	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total

Geographic segment assets:

Current		15,064			10,599			10,446			45			-			36,154
Non-Current (excluding
intercompany)		55			34,840			331			-			(1,778	)		33,448
Expenditure on property, plant and
equipment		-			9,461			35			2,637			(395	)		11,738
Intercompany balances		60,893			1,773			6,287			-			(68,953	)		-


Geographic segment liabilities

Current		(160	)		(5,731	)		(1,635	)		(8	)		-			(7,534	)
Non-current (excluding		-			(9,360	)		(734	)		-			-			(10,094	)
intercompany)
Intercompany balances		(3,601	)		(783	)		(38,623	)		(25,946	)		68,953			-

Major customer

Revenues from Fidelity Printers in Zimbabwe amounted to approximately $59,082.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

(in thousands of Canadian dollars)

29 Non-controlling interests

Blanket Mine (1983) (Private) Limited NCI % - 16.2
	2014			2013
		$			$
Current assets		12,148			10,599
Non-current assets		43,394			34,840
Current liabilities		(2,804	)		(5,731	)
Non-current liabilities		(12,291	)		(9,360	)
Net assets		40,447			30,348

Carrying amount of NCI		804			(51	)

Revenue		59,082			65, 113
Profit		10,301			15,833
Other comprehensive income		-			-
Total comprehensive income		10,301			15,833

Profit allocated to NCI		1,668			2,565
OCI allocated to NCI		34			(75	)
Dividend paid to NCI		(847	)		(745	)

30 Subsequent events

No material subsequent events to report

Caledonia Mining Corporation

Additional information

Directors and Officers at March 27, 2015


BOARD OF DIRECTORS	OFFICERS
L.A. Wilson (1) (2) (3) (4) (5) (7) - Chairman	S. R. Curtis
Non- executive Director	Chief Executive Officer
New York, United States of America	Johannesburg, South Africa

S. R. Curtis (4) (5) (7)	M. Learmonth (5) (7)
Chief Executive Officer Johannesburg, South Africa	Chief Financial Officer Vice-President Finance and Investor Relations and Corporate Development
	Johannesburg, South Africa

J. Johnstone (2) (5) (6) (7)	D. Roets (6) (7)
Non-executive Director	Chief Operating Officer
Gibsons, British Columbia, Canada	Johannesburg, South Africa

J. L. Kelly (1) (2) (3) (7)	Dr. T. Pearton (6) (7)
Non- executive Director	Vice-President Exploration
New York, United States of America	Johannesburg, South Africa

R. Patricio (2) (3) (7)
Non- executive Director	DSA Corporate Services Inc.
Toronto, Ontario, Canada	Company Secretary
	36 Toronto Street – Suite1000
J. Holtzhausen (1) (2) (5) (6) (7) - Chairman Audit Committee	Toronto, Ontario, M5C 2C5
Non- executive Director
Cape Town, South Africa
	Board Committees
	(1) Audit Committee
	(2) Compensation Committee
	(3) Corporate Governance Committee
	(4) Nominating Committee
	(5) Disclosure Committee
	(6) Technical Committee
	(7) Strategic Planning Committee

Caledonia Mining Corporation

Additional information

CORPORATE DIRECTORY as at March 27, 2015

CORPORATE OFFICES	SOLICITORS
Canada - Head Office	Borden Ladner Gervais LLP
Caledonia Mining Corporation	Suite 4100, Scotia Plaza
Suite 4009, 1 King West	40 King Street West
Toronto, Ontario M5H 1A1	Toronto, Ontario M5H 3Y4 Canada
Tel:(1)(416) 369-9835 Fax:(1)(416) 369-0449
info@caledoniamining.com
	AUDITORS
South Africa – Africa Office	KPMG Inc.
Greenstone Management Services (Pty) Ltd.	85 Empire Road
P.O. Box 834	Parktown 2193
Saxonwold 2132	South Africa
South Africa	Tel: +27 83 445 1400, Fax: + 27 11 647 6018
Tel: (27)(11) 447-2499 Fax: (27)(11) 447-2554
	REGISTRAR & TRANSFER AGENT
Zambia	Computershare
Caledonia Mining (Zambia) Limited	100 University Ave, 8th Floor,
P.O. Box 36604	Toronto, Ontario, M5J 2Y1
Lusaka, Zambia	Tel:+1 416 263 9483
Tel:(260)(1) 29-1574 Fax(260)(1) 29-2154
	BANKERS
Zimbabwe	Canadian Imperial Bank of Commerce
Caledonia Holdings Zimbabwe (Limited)	6266 Dixie Road
P.O. Box CY1277	Mississauga, Ontario L5T 1A7 Canada
Causeway, Harare
Zimbabwe	NOMAD
Tel: (263) (4) 701 152/4 Fax: (263)(4) 702 248	Numis Securities Limited
	The London Stock Exchange Building
CAPITALIZATION at March 24, 2015	10 Paternoster Square
Authorised: Unlimited	London EC4M 7LT
Shares, Warrants and Options Issued:	Tel: +44 207 260 1000
Common Shares: 52,117,908
Warrants: Nil	JOINT BROKERS (AIM)
Options: 2,125,920 (March, 27 2015)	Numis Securities Limited

SHARES LISTED	WH Ireland
Toronto Stock Exchange Symbol “CAL”	24 Martin Lane
NASDAQ OTCQX Symbol "CALVF"	London EC4R ODR
London “AIM” Market Symbol “CMCL”	Tel: +44 207 220 1751

Exhibit 99.2

CALEDONIA MINING CORPORATION

MARCH 27, 2015

Management’s Discussion and Analysis

This management’s discussion and analysis (“MD&A”) of the consolidated operating results and financial position of Caledonia Mining Corporation (“Caledonia” or the “Company”) is for the fiscal year ended December 31, 2014 (the “Year”) and the quarter ended December 31, 2014 (“Q4 2014 ” or the “Quarter”). It should be read in conjunction with the Consolidated Financial Statements of Caledonia for the year ended December 31, 2014 (“the Consolidated Financial Statements”) which are available from the System for Electronic Data Analysis and Retrieval at www.sedar.com or from Caledonia’s website at www.caledoniamining.com. The Consolidated Financial Statements and related notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In this MD&A, the terms “Caledonia”, the “Company”, “we”, “our” and “us” refer to the consolidated operations of Caledonia Mining Corporation and our subsidiaries unless otherwise specifically noted or the context requires otherwise.

Note that all currency references in this document are to Canadian Dollars, unless otherwise stated.

TABLE OF CONTENTS

Overview

2.	Highlights

3.	Summary Financial Results

4.	Operations at the Blanket Gold Mine, Zimbabwe

4.1.

Safety, Health and Environment

4.2.

Social Investment and Contribution to the Zimbabwean Economy

4.3.

Gold Production

4.4.

Production Costs

4.5.

Underground

4.6.

Metallurgical Plant

4.7.

Capital Projects

4.8.

Mineral Resources and Mineral Reserves

4.9.

Indigenisation

4.10.

Opportunities and Outlook

5.	Exploration and Project Development

5.1.

Blanket Exploration

5.2.

Blanket Satellite Prospects

Investing

Financing

8.	Liquidity and Capital Resources

9.	Off-Balance Sheet Arrangements, Contractual Commitments and Contingencies

10.	Non-IFRS Measures

11.	Related Party Transactions

12.	Critical Accounting Policies

13.	Financial Instruments

14.	Dividend Policy and Other Shareholder Information

15.	Securities Outstanding

16.	Risk Analysis

17.	Forward-Looking Statements

18.

Controls

19.	Qualified Person

OVERVIEW

Caledonia is an exploration, development and mining corporation focused on Southern Africa. Following the implementation of indigenisation at the Blanket Mine (“Blanket” or the “Blanket Mine”) in September 2012, Caledonia’s primary asset is a 49% legal ownership in Blanket, an operating gold mine in Zimbabwe. Caledonia continues to consolidate Blanket, as explained in Note 5 to the Consolidated Financial Statements, accordingly operational and financial information set out in this MD&A is on a 100% basis, unless otherwise specified. Caledonia’s shares are listed in Canada on the Toronto Stock Exchange (symbol - “CAL”), on London’s AIM (symbol - “CMCL”) and are also traded on the American OTCQX (symbol - “CALVF”).

2.	HIGHLIGHTS

	Q4 2013	Q4 2014	Year 2013	Year 2014	Comment
Gold produced (oz)	11,429	10,417	45,530	41,771	Gold production in 2014 was adversely affected by the lower head grade.
On-mine cost (US$/oz)1	666	704	613	652	On-mine costs for 2014 were higher than 2013 due to lower sales which means that on-mine fixed costs are spread over fewer ounces. On-mine costs in Q4 of each year are higher than the annual average due to the effect of work-in-progress.
All-in Sustaining Cost (US$/oz) (“AISC”)	1,196	1,118	973	969	AISC decreased in Q4 and the Year due to lower royalties, lower refining charges, lower community costs (for the Year only) and lower sustaining capital investment the combined effects of which were reduced by higher administrative costs.
Gold Sales (oz)	9,454	9,604	45,048	42,927	Sales in Q4 2014 were higher than Q4 2013 despite lower production due to the lower level of work in progress at December 31, 2014. Sales in 2014 were lower than 2013 due to lower production.
Average realised gold price (US$/oz)	1,277	1,180	1,402	1,245	Lower realised gold prices in Q4 2014 and Year 2014 primarily due to the lower gold price.
Gross profit ($’m)2	4.5	4.4	29.9	20.5	Lower gross profit in 2014 compared to 2013 mainly due to the lower realised gold prices and lower production and sales.
Net (loss)/profit attributable to shareholders ($’m)	(14.3)	(0.5)	(3.1)	4.9	Net loss in the Q4 2013 and the Year 2013 was after an impairment charge of $14.2m in respect of the Nama project in Zambia. Net loss in Q4 2014 was due to higher general and administrative expenses and a high tax charge in the Quarter. Profit for 2014 was adversely affected by lower gold production and the lower realised gold price.

————————————————————

1 Non-IFRS measures such as “On-Mine Cost per ounce”, “All-in Sustaining Cost per ounce” and “average realised gold price” are used throughout this document. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

2 Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses.

	Q4 2013	Q4 2014	Year 2013	Year 2014	Comment
Adjusted basic (loss)/earnings per share3 (cents)	(0.7)	1.6	27.6	12.1	Adjusted basic earnings per share excludes impairment charges, foreign exchange profits or losses, indigenisation expenses, deferred taxation and tax adjustments in respect of prior years and the costs of the Zambian operation.
Cash and cash equivalents ($’m)	25.2	26.8	25.2	26.8	Caledonia’s cash is held in Canadian, UK and South African banks.
Cash from operating activities ($’m)	2.8	2.2	14.7	13.7	Cash flow in Q4 and the year were lower due to the lower realised gold price and, for the year, the lower number of ounces sold the effect of which was reduced by lower tax payments.
Payments to the community and Zimbabwe government ($’m)	3.6	2.6	19.5	12.4	Payments include direct and indirect taxes, royalties, licence fees and levies. The total of such payments in 2014 was lower primarily due to lower income tax payable on the reduced profit, withholding tax and reduced royalty payments due to the lower prevailing gold price.

Dividend Policy and Shareholder Matters

On November 25, 2013 Caledonia announced a revised dividend policy in terms of which it intended to pay a dividend of 6 Canadian cents per share in 2014, split into 4 equal quarterly payments of 1.5 Canadian cents per share. The first quarterly dividend was paid on January 31, 2014 and subsequent quarterly dividends were paid at the end of April, July and October 2014 and at the end of January 2015. It is currently envisaged that the existing dividend policy of 6 cents per annum paid in equal quarterly instalments will be maintained in 2015. Caledonia will consider further dividends thereafter in the context of the prevailing commercial environment and expects to provide guidance for dividend payments in 2016 at or about the time of the Q2 results in August 2015.

Strategy and Outlook

Caledonia’s Board of Directors (the “Board”) and Management have reviewed alternative expansion and diversification plans for Caledonia and have concluded the best returns on investment remain at the Blanket Mine in Zimbabwe, which continues to be cash generative in the current adverse market conditions and offers investment returns that exceed alternative opportunities.

On November 3, 2014, Caledonia announced its revised investment plan (“Revised Plan”) and production projections for the Blanket Mine. The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up. The infrastructure improvements will include the development of a “Tramming Loop” and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters.

————————————————————

3 Adjusted earnings per share (“EPS”) is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance. The adjusted EPS calculation excludes any share based expense arising on the implementation of indigenisation and the impairment and the foreign exchange profit, all of which are included in the calculation of EPS under IFRS. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

The increased investment pursuant to the Revised Plan is expected to give rise to an increasing production profile that is expected to result in additional production from resources currently in the inferred category of approximately 70,000-75,000 ounces in 2021, this being in addition to projected production in 2021 from current mineral reserves of approximately 6,000 ounces. The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.

An independent preliminary economic assessment (the “PEA”) and a revised supporting technical report dated December 1, 2014, entitled “A Technical Report on the Blanket Mine in the Gwanda Area, Zimbabwe” (the “Technical Report”) relating to the Blanket Mine, with an effective date of December 1, 2014, was prepared in respect of the Revised Plan by Minxcon Consulting (Pty) Ltd. (“Minxcon”), in compliance with National Instrument 43-101 - Standards for Disclosure of Mineral Projects of the Canadian Securities Administrators (“NI 43-101”) . The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is threfore no certainty that the PEA will be realized. The key conclusions arising from the PEA are as follows:

the IRR arising from the Revised Plan was calculated at 267 per cent4;

the NPV for the Blanket Mine arising from reserves and the inferred resources used in the Revised Plan was calculated at US$147 million4; and

of the gold that will need to be produced so that the cumulative cash flow arising from the Revised Plan becomes positive (i.e. the “Payback Area”), only 3 per cent will come from resources that are currently classified as inferred.

Management and Board changes

On July 15, 2014, Caledonia provided Epicure Overseas S.A. (“Epicure”), a company at arm’s length to Caledonia, with six months’ notice to terminate the contract, between Caledonia and Epicure, pursuant to which Epicure provided the services of Mr. Stefan Hayden as President and Chief Executive Officer (“CEO”). Negotiations for alternative arrangements to secure the continued services of Mr. Hayden as President and Chief Executive Officer failed to reach agreement.

On November 18, 2014, Mr. Hayden stepped down as President and Chief Executive Officer and Mr. Steve Curtis was appointed as Caledonia’s President and Chief Executive Officer (“CEO”) in succession to Mr. Stefan Hayden. Mr. Curtis, a Chartered Accountant with over 30 years’ experience, was previously Caledonia’s Chief Financial Officer (“CFO”). Mr. Curtis has been a key member of Caledonia’s management team since he joined Caledonia in April 2006 and was elected to the Board in 2008. Mr. Curtis will be supported in his role as President and CEO by Caledonia’s existing management team which has been expanded over the last 15 months and comprises Mr. Dana Roets, the Chief Operating Officer, and Mr. Mark Learmonth the Chief Financial Officer and formerly Vice President, Investor Relations and Corporate Development. Mr. Learmonth is a Chartered Accountant and has 15 years of investment banking experience in London and Johannesburg before joining Caledonia in 2008.

On December 6, 2014, Mr. Stefan Hayden resigned as a non-executive director of Caledonia.

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4 IRR and NPV are derived using an assumed real gold price of US$1,250 per ounce; NPV is calculated using a real discount rate of 8.36 per cent. Further assumptions are set out in the Technical Report

3.	SUMMARY FINANCIAL RESULTS

The table below sets out the consolidated profit and loss for the years ended December 31, 2014, 2013 and 2012, and the quarters ended December 31, 2014 and 2013 prepared under IFRS.

Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars except per share amounts)
	For the 3						For the 12 months ended
	months ended						Dec 31
	Dec 31
	2014			2013			2014			2013			2012
		$			$			$			$			$
Revenue		12,972			12,114			59,082			65,113			75,221
Royalty		(659	)		(893	)		(3,889	)		(4,544	)		(5,261	)
Production costs		(7,082	)		(5,919	)		(30,812	)		(27,412	)		(25,653	)
Depreciation		(796	)		(818	)		(3,908	)		(3,276	)		(3,392	)
Gross profit		4,435			4,484			20,473			29,881			40,915
Other (expense)/income		(29	)		-			28			-			-
Administrative expenses		(2,796	)		(2,067	)		(8,157	)		(7,772	)		(4,055	)
Share-based payment expense		-			(68	)		-			(68	)		(14,569	)
Indigenisation expenses (i)		-			-			-			-			(1,700	)
Foreign exchange gain/(loss)		659			1,677			1,176			1,677			(4	)
Impairment		(196	)		(14,203	)		(196	)		(14,203	)		(330	)
Results from operating activities		2,073			(10,177	)		13,324			9,515			20,257
Net finance (cost)/income		(69	)		102			(155	)		(108	)		(81	)
Profit before tax		2,004			(10,075	)		13,169			9,407			20,176
Tax expense		(2,320	)		(4,279	)		(6,604	)		(9,897	)		(12,818	)
Profit/(Loss) for the period		(316	)		(14,354	)		6,565			(490	)		7,358
Other comprehensive income/(loss)
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations		1,440			38			3,848			2,254			(1,589	)
Tax on other comprehensive income		122			-			122			-			-
Other comprehensive income/(loss) net of income tax		1,562			38			3,970			2,254			(1,589	)
Total comprehensive income/(loss) for the period		1,246			(14,316	)		10,535			1,764			5,769
Profit/(Loss) attributable to:
Shareholders of the Company		(480	)		(14,436	)		4,897			(3,055	)		8,720
Non-controlling interests		164			82			1,668			2,565			(1,362	)
Profit/(Loss) for the period		(316	)		(14,354	)		6,565			(490	)		7,358
Total comprehensive income/(loss) attributable to:
Shareholders of the Company		1,064			(14,345	)		8,833			(726	)		7,112
Non-controlling interests		182			29			1,702			2,490			(1,343	)
Total comprehensive income/(loss) for the period		1,246			(14,316	)		10,535			1,764			5,769
Earnings/(Loss) per share (cents)(iii)
Basic		(1.1	)		(27.7	)		9.3			(6.1	)		17.2
Diluted		(1.1	)		(27.7	)		9.3			(6.1	)		17.2
Adjusted earnings per share (cents) (ii)(iii)
Basic		1.6			(0.5	)		12.1			27.7			49.9
Diluted		1.6			(0.5	)		12.1			27.7			49.9

(i)

Expenses relating to the Zimbabwe indigenisation transaction were previously included in Administrative expenses. These expenses are now presented separately as they are relevant to the understanding of Caledonia’s financial performance. The presentation of comparative figures has been aligned accordingly.

(ii)

EPS is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance. The adjusted EPS calculation excludes any share based expense arising on the implementation of indigenisation, impairments, tax adjustments in respect of prior years and foreign exchange profits and losses, all of which are included in the calculation of EPS under IFRS. Refer to Section 10 for a discussion of non-IFRS measures

(iii)

The EPS for 2012 has been restated based on the 10:1 consolidation that took place in that year.

Revenues in 2014 were lower than 2013 and 2012 primarily due to the lower realised gold price and also lower gold sales. The average realised gold price in 2014 was US$1,245 per ounce, 11% lower than the average realised price per ounce in 2013 and 25% lower than the average realised gold price in 2012. The average realised gold price in Q4 of 2014 was 6% lower than the average realised price in the preceding quarter and 8% lower than the average realised gold price in the comparable quarter. The realised gold price in 2014 represents 98.5% of the value of the gold that is sold by Blanket in terms of its sale agreement with Fidelity Printers and Refiners Ltd (“Fidelity”). Changes to Zimbabwean legislation in January 2014 required all Zimbabwean gold producers to sell their production to Fidelity. Prior to this change, Blanket sold its gold to a non-Zimbabwean refiner and received 100% of the value of the gold contained.

Gold sales in 2014 were 42,927 ounces, 4.7% lower than in 2013 and 5.0% lower than in 2012. Sales in 2014 included sales of 1,978 ounces of work-in-progress brought forward from 2013 but excludes 813 ounces of work in progress as at December 31, 2014 which was sold in January 2015. Gold sales in Q4 of 2014 were 9,604 ounces compared to 9,890 ounces in the preceding quarter and 9,454 ounces in the comparable quarter. Gold sales in Q4 of 2014 and Q4 of 2013 exclude work-in-progress of 813 ounces and 1,978 ounces respectively. Gold production is discussed in Section 4.3 of this MD&A.

Production costs for 2014 amounted to $30,812,000, 12.4% higher than in 2013 and 20.1% higher than in 2012 representing an on-mine cash cost5 of US$652 (2013: US$613) per ounce of gold sold. The All-in Sustaining Cost5 per ounce of gold sold during 2014 was US$969 (2013: US$973). Further discussion of production costs is set out in Section 4.4 of this MD&A.

Administrative expenses in 2014 amounted to $8,157,000 (2013:$7,772,000). Administrative expenses in Q4 of 2014 were $2,796,000 compared to $1,754,000 in the preceding quarter and $2,067,000 in the comparable quarter. Administrative expenses are analysed in Note 9 to the Consolidated Financial Statements. The higher administrative expense in the Year and the Quarter reflects increased wages and salaries resulting from the strengthening of the management team, increased professional and legal consulting fees and the cost of Caledonia’s office in Zambia, which are no longer capitalised. Caledonia’s management team has been strengthened by the appointment of the Chief Operating Officer in August 2013, the appointment of an individual to assist in the areas of project management and mine design, and an assistant to the CFO. As discussed in section 4.10 of the MD&A, it is expected that administrative expenses will be reduced in 2015.

The foreign currency gain is a non-cash item which reflects the profit arising on the translation into the functional currency of both the Canadian and South African entities where the cash balances they hold are in currencies other than their functional currency.

The impairment in 2014 primarily reflects the writing down of office equipment and fittings at the offices of Caledonia’s subsidiary in Lusaka, Zambia. In early 2015 Caledonia initiated the process to close the Zambian office and to withdraw entirely from Zambia, hence the impairment in 2014 of the remaining assets held in Zambia. The impairment in 2013 of $14.2 million primarily reflects the impairment of the Company’s cobalt and copper exploration projects at the Nama Project in Zambia (the “Nama Project”).

The taxation charge includes Zimbabwean income tax on the profits arising at Blanket, Zimbabwean withholding tax on payments out of Zimbabwe, South African income tax on inter-company profits arising in South Africa, UK tax on interest earned on facilitation loans granted in Zimbabwe (including an accrual in respect of 2013), deferred tax and adjustments in respect of prior year estimates. The Zimbabwean income tax charge in 2014 also reflects a change in the regulations which means that with effect January 1, 2014 the royalty payable to the Zimbabwe government was no longer allowable as a deduction for the purposes of calculating income tax. The royalty rate from January 1, 2013 to September 30, 2014 was 7%. With effect from October 1, 2014 the royalty rate was reduced to 5% which effectively neutralises the adverse effect arising from the dis-allowance of the royalty deduction. The tax charge shown in the consolidated statement of profit or loss represents 50.1% of consolidated profit before tax. After deducting deferred taxation of $780,000, withholding tax of $980,000, South African income tax arising on inter-company profits of $333,000, an adjustment to prior year estimates for South African income tax of $300,000 and adding back a net credit of $515,000 in respect of adjustments, the resultant charge of $4,726,000 represents 35.9% of the consolidated profit before tax. As discussed in section 4.10 of this MD&A, Caledonia is investigating measures to reduce the group tax burden which arise from inefficiencies in Caledonia’s group structure.

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5 Non-IFRS measures such as “On-Mine Cost per ounce”, “All-in Sustaining Cost per ounce” and “adjusted earnings per share” are used throughout this document. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

The non-controlling interest is the profit attributable to Blanket’s Indigenous Zimbabwean shareholders and reflects their participation in the economic benefits generated by Blanket from the effective date of the indigenisation and is explained in Note 5 of the Consolidated Financial Statements.

The adjusted earnings per share is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance and is calculated on the share of profit attributable to Caledonia shareholders excluding foreign exchange profits or losses, non-cash items such as impairments and deferred tax and the Zambian administrative expenses. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

Risks that may affect Caledonia’s future financial condition are discussed in Section 16 of the MD&A.

The table below sets out the consolidated statements of cash flows for the twelve months to December 31, 2014, 2013 and 2012 prepared under IFRS.

Consolidated Statements of Cash Flows (In thousands of Canadian dollars)
	For the 12 months ended Dec 31,
	2014			2013			2012
		$			$			$
Cash flows from operating activities
Cash generated by operating activities		18,822			22,768			41,420
Net interest paid		(118	)		(108	)		(81	)
Tax paid		(4,999	)		(7,974	)		(11,618	)
Net cash from operating activities		13,705			14,686			29,721

Cash flows from investing activities
Acquisition of Property, plant and equipment		(6,786	)		(11,738	)		(7,909	)
Proceeds on sale of investment		-			-			38
Net cash used in investing activities		(6,786	)		(11,738	)		(7,871	)

Cash flows from financing activities
Advance dividends paid		-			(1,987	)		(3,739	)
Dividends paid		(3,974	)		(5,947	)		-
Proceeds from the exercise of share options		-			470			974
Net cash used in financing activities		(3,974	)		(7,464	)		(2,765	)
Net increase/(decrease) in cash and cash equivalents		2,945			(4,516	)		19,085
Cash and cash equivalents at beginning of the year		23,426			27,942			9,256
Effect of exchange rate fluctuations on cash held		467			-			(399	)
Cash and cash equivalents at year end		26,838			23,426			27,942

Cash generated from operating activities is analysed in Note 23 to the Consolidated Financial Statements. Cash generated from operating activities was lower in 2014 compared to 2013 due to lower gold sales and the lower realised gold price.

Tax paid in 2014 of $4,999,000 includes $980,000 of withholding tax and was after a net credit of US$ (and I mean US$) 797,000 in respect of prior year Zimbabwean income tax charges, which was offset against the Zimbabwean income tax paid in 2014.

Investment in property, plant and equipment in 2014 were lower than in the respective comparative periods. The reduction was due mainly to reduced investment that is required to sustain current operations which reflects the good condition of the plant and equipment following intensive investment in previous years. Blanket’s capital projects are described in Sections 4.7 and 5 of this MD&A. Higher capital investment is anticipated in future years due to the implementation of the Revised Plan.

The dividends paid in 2014 relate to the quarterly dividends of 1.5 Canadian cents per share which were paid by Caledonia in terms of the quarterly dividend policy, announced in November 2013. The consolidated dividends also include $847,000 of dividends that were paid to Blanket’s indigenous shareholders after retentions to repay the facilitation loans as described in Section 4.9 of this MD&A.

At December 31, 2014, Caledonia’s cash was held with banks primarily in the United Kingdom, Canada and in non-resident accounts in South Africa.

The table below sets out the consolidated statements of Caledonia’s financial position at December 31, 2014, 2013 and 2012 prepared under IFRS.

Consolidated Statements of Financial Position
(In thousands of Canadian dollars)	As at	Dec 31,		Dec 31,		Dec 31,
		2014		2013		2012
			$		$		$
Total non-current assets			40,388		33,448		36,533
Inventories			7,571		6,866		5,508
Prepayments			348		177		126
Income tax receivable			111		-		-
Trade and other receivables			2,040		3,889		1,718
Cash and cash equivalents			26,838		25,222		27,942
Total assets			77,296		69,602		71,827
Total non-current liabilities			12,980		10,094		6,928
Trade and other payables			3,791		4,600		5,775
Zimbabwe advance dividend accrual			-		-		1,987
Income taxes payable			1,990		1,138		1,518
Bank overdraft			-		1,796		-
Total liabilities			18,761		17,628		16,208
Total equity			58,535		51,974		55,619
Total equity and liabilities			77,296		69,602		71,827

The net book value of non-current assets increased largely due to the devaluation of the Canadian dollar against the US dollar: Blanket’s non-current assets, which are held in US dollars and which comprise the majority of Caledonia’s consolidated non-current assets, increased by US$2.5 million, which is due to continued investment in plant, equipment and mineral properties.

Inventories comprise consumable stores and gold in progress. Consumable stores increased by approximately $937,000 in 2014 due to the appreciation of the US dollar against the Canadian dollar and the continued build-up of stock of consumables and other equipment for use at Blanket’s capital projects. Gold-in-progress at December 31, 2014 was $639,000, $232,000 lower than the prior year, which was due to the reduced ounces of work-in-progress at the end of 2014 compared to the end of 2013. The level of work-in-progress at each year end is determined by the timing of deliveries of bullion during the year-end holiday period in Zimbabwe.

The income tax receivable represents the outcome of a successful legal action that was taken by Blanket against the Zimbabwe Revenue Authority in respect of a tax dispute relating to a previous year. Having received judgement in its favour, Blanket is able to offset an amount of approximately US$680,000 against current income tax liabilities in Zimbabwe, most of which was utilised in Q4 of 2014. As at December 31, 2014, Blanket had an amount of $111,000 to offset against future income tax liabilities arising in Zimbabwe.

Trade and other receivables as at December 31, 2014 includes Value Added Tax receivable, bullion sales receivables and deposits for stores and equipment as analysed in Note 14 to the Consolidated Financial Statements. The reduction in trade and other receivables reflects the fact that there was no bullion receivable at the end of 2014 as payment for the last bar that was delivered in 2014 was received prior to December 31, 2014.

The following information is provided for each of the eight most recent quarterly periods ending on the dates specified. The figures are extracted from underlying unaudited financial statements that have been prepared using accounting policies consistent with IFRS.

(Thousands of Canadian dollars except per share amounts)	Mar 31, 2013	June 30, 2013	Sept 30, 2013	Dec 31, 2013	Mar 31, 2014	June 30, 2014	Sept 30 2014	Dec 31, 2014
Revenue from operations	19,218	17,190	16,591	12,114	17,063	15,555	13,492	12,972
Profit/(loss) after tax from operations	5,530	3,055	4,589	(14,354)	3,091	2,522	1,268	(316)
Earnings/(loss) per share – basic (cents)	9	5.8	7.2	(27.7)	4.7	3.5	2.2	(1.1)
Earnings/(loss) per share – diluted (cents)	9	5.8	7.2	(27.7)	4.7	3.4	2.2	(1.1)
Cash and cash equivalents	25,189	22,475	25,099	25,222	26,714	25,842	26,854	26,838

Our quarterly results fluctuate materially from quarter to quarter primarily due to changes in production levels and gold prices but also due to the recording of impairments and other unusual costs such as indigenisation. Significant changes relating to prior quarters are discussed in the relevant MD&A’s and financial statements.

4. OPERATIONS AT THE BLANKET GOLD MINE, ZIMBABWE

4.1	Safety, Health and Environment (“SHE”)

The following safety statistics have been recorded for the Quarter and the preceding six quarters.

Blanket Mine Safety Statistics
Incident Classification	Q2 2013	Q3 2013	Q4 2013	Q1 2014	Q2 2014	Q3 2014	Q4 2014
Fatal	0	1	0	0	0	0	0
Lost time injury	1	7	2	1	2	2	1
Restricted work activity	7	5	9	6	4	12	9
First aid	2	2	0	2	2	4	0
Medical aid	3	2	3	3	2	2	1
Occupational illness	0	0	0	0	0	0	0
Total	13	17	14	12	10	20	11
Incidents	12	11	17	10	6	4	19
Near misses	4	7	3	2	2	4	1
Disability Injury Frequency Rate (i)	0.25	1.75	0.46	0.24	0.49	0.49	0.24
Total Injury Frequency Rate (ii)	3.25	4.00	3.20	2.86	2.46	4.94	4.32
Man-hours worked (thousands)	801	800	865	840	812	810	833
(i) A measurement of total injuries, deaths and permanent disability occurring per 200,000 man-hours worked. (ii) A measurement of all accidents that have occurred regardless of injury or not expressed per 200,000 man-hours worked. This includes accidents that could have caused injuries.

The number of injuries incurred in Q4 was 45% lower than in the preceding quarter and reflects the intensive focus on the area of safety and health by Blanket management in recent quarters. Management continues to be concerned at the relatively high proportion of reportable injuries compared to total incidents and the relatively low number of reported Near Misses, which may be symptomatic of a failure by workers to report minor incidents which did not result in an injury. It is only by full and transparent reporting of all incidents, no matter how minor, that management can identify areas where systems and procedures should be improved or where adherence to approved procedures needs to be reinforced. NOSA, an occupational health and safety specialist, continues to be involved in training staff on SHE auditing.

During the Quarter, in addition to the usual training courses, 154 personnel received induction training and 238 employees were trained on incident investigation and the implementation of the SHE management systems.

There were no significant adverse environmental issues during 2014.

4.2	Social Investment and Contribution to the Zimbabwean Economy

Blanket’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket’s employees, the payments made to the Gwanda Community Share Ownership Trust (“GCSOT”) in terms of Blanket’s indigenisation, and payments of royalties, taxation and other non-taxation charges to the Government of Zimbabwe and its agencies are set out in the table below.

Payments to the Community and the Zimbabwe Government (US$’000’s)
Period	Year	Community and Social Investment	Payments to GCSOT	Payments to Zimbabwe Government	Total
Year 2012	2012	416	3,000	20,569	23,985
Quarter 1	2013	5	1,000	4,584	5,589
Quarter 2	2013	2,135	1,000	3,555	6,690
Quarter 3	2013	7	-	3,646	3,653
Quarter 4	2013	-	-	3,569	3,569
Year 2013	2013	2,147	2,000	15,354	19,501
Quarter 1	2014	-	-	3,026	3,026
Quarter 2	2014	5	-	3,617	3,622
Quarter 3	2014	-	-	3,090	3,090
Quarter 4	2014	30	-	2,586	2,616
Year 2014	2014	35	-	12,319	12,354

The final installment of the advance dividend payments that were payable to GCSOT in terms of Blanket’s indigenisation transaction was made in the second quarter of 2013. No further dividends will be payable to GCSOT until the advance dividends have been repaid by the offset of future dividends on Blanket shares that are owned by GCSOT. From January 1, 2014, Blanket has sold its gold production to Fidelity, a subsidiary of the Reserve Bank of Zimbabwe. Blanket was paid 98.5% of the value of the gold it delivers to Fidelity, the balance of 1.5% is retained by Fidelity and is included in the payments shown above. With effect from February 3, 2015 Blanket is expected to receive 98.75% of the value of the gold it delivers to Fidelity.

4.3	Gold Production

Tonnes milled, average grades, recoveries and gold produced and the average realised price per ounce during the Quarter, the preceding 7 quarters and January and February 2015 are shown in the table below.

Blanket Mine Production Statistics
	Year	Tonnes Milled (t)	Gold Head (Feed) Grade (g/t Au)	Gold Recovery (%)	Gold Produced (oz)	Average Realised Price per Ounce of Gold Sold (US$/oz)
Year	2012	363,315	4.16	93.7	45,464	1,666
Quarter 1	2013	86,502	4.04	93.3	10,472	1,600
Quarter 2	2013	101,174	3.82	93.2	11,587	1,373
Quarter 3	2013	99,386	4.03	93.6	12,042	1,330
Quarter 4	2013	105,258	3.63	93.1	11,429	1,277
Year	2013	392,320	3.88	93.3	45,530	1,402
Quarter 1	2014	92,846	3.67	93.6	10,241	1,268
Quarter 2	2014	99,229	3.74	94.1	11,223	1,265
Quarter 3	2014	98,575	3.34	93.4	9,890	1,252
Quarter 4	2014	100,085	3.47	93.2	10,417	1,180
Year	2014	390,735	3.55	93.4	41,771	1,245
January 2015	2015	38,582	3.10	92.9	3,573	1,268
February 2015	2015	33,308	3.25	92.7	3,223	1,212

Gold production in the Quarter increased from the preceding quarter due to the higher grade and increased tonnes processed the effects of which were partially offset by a slight reduction in gold recovery. Combined production in January and February 2015 was on target. Underground production tonnages and grades are discussed further in Section 4.5 of this MD&A.

4.4	Production Costs

A narrow focus on the direct costs of production (mainly labour, electricity and consumables) does not fully reflect the total cost of gold production. Accordingly, cost per ounce data for the Quarter, the Year and the comparative quarter and year have been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases:

On-mine Cost per ounce(i), which shows the on-mine cash costs of producing an ounce of gold;

ii.

All-in Sustaining Cost per ounce(i), which shows the On-mine Cost per ounce plus additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg and Toronto) and the costs associated with maintaining the operating infrastructure and resource base that are required to maintain production at the current levels; and

iii.

All-in Cost per ounce(i), which shows the All-in Sustaining Cost per ounce plus the additional costs associated with activities that are undertaken with a view to increasing production.

Blanket Mine: Cost per Ounce of Gold Sold (US$/oz)
	Year 2012		Q4 2013	Year 2013			Q4 2014	Year 2014
On-Mine Cost (i)		570	666		613		704		652
Royalty(i)		116	89		98		59		82
Permitting costs related to current operations		5	3		3		3		3
3rd party smelting, refining and transport costs		6	6		7		-		-
Operating cost per ounce		698	766		721		766		736
Corporate general and administrative costs (incl. share based remuneration)		90	207		167		265		173
Community costs included in G&A not related to current production					(44	)
Reclamation and remediation of operating sites		2	5		2		2		2
Exploration and study costs		-	5		2		3		3
Capital expenditure		67	213		125		82		55
All-in Sustaining Cost per ounce (i)		857	1,196		973		1,118		969
Costs not related to current production
Community costs		25	-		47		-		-
Permitting costs		17	1		2		1		1
Exploration and study costs		-	4		3		2		2
Capital expenditure		29	97		78		76		89
All-in Cost per ounce (i)		929	1,298		1,103		1,198		1,062
(i) non-IFRS measure: refer to Section 10 of the MD&A for a discussion of non-IFRS measures

Per-ounce costs are calculated on the basis of sales and not production, so that an accurate value can be ascribed to the royalty. The ounces of gold sold in 2014 was 4.7% and 5.0% lower than in 2013 and 2012 respectively. Approximately 60% of Blanket’s costs are fixed, therefore lower production and sales results in a higher cost per ounce for 2014 when compared to 2013 and 2012. The average grade of ore milled in 2014 was 3.55g/t compared to 3.88 g/t in 2013 and 4.16 g/t in 2012 as discussed in Section 4.5 of this MD&A. Unit mining and processing costs are determined by the tonnage of material processed, irrespective of the gold contained. Thus the lower grades tend to increase the cost per ounce of gold produced. The On-mine Cost per ounce in the Quarter and the Year remained within the anticipated range, given the actual level of sales and the actual grade of the material processed. Certain changes to the mining method at the AR Main body (as discussed in section 4.5) have tended to increase On-Mine Costs in Quarter 4. The incidence of working capital at the end of Q4 in each year has the effect of increasing the Q4 cost per ounce.

The Royalty is payable to the Zimbabwean government. The reduction in the royalty cost per ounce in Q4 of 2014 reflects the reduction in the royalty rate from 7% to 5% with effect from October 1, 2014. The lower royalty per ounce in 2014 compared to previous years reflects the lower gold price. Third party smelting and refining costs have reduced significantly since Blanket commenced sales of gold to Fidelity Printers and Refiners in Zimbabwe. From January 1, 2014, such charges have been absorbed into revenues and are therefore shown as a reduction in the realised price of gold.

Corporate general and administrative costs increased in the quarter due to higher legal and consulting fees, a significant proportion of which were incurred in respect of events and activities which are not expected to recur. Management has taken measures which are expected to progressively reduce the dollar-cost of general and administrative costs over the course of 2015. Thereafter, the general and administrative cost per ounce is expected to decrease further as production increases from 2016 onwards in terms of the revised life of mine plan.

Sustaining capital expenditure varies from quarter to quarter depending on the timing of the purchase of specific higher value items of equipment. Over the course of 2014, sustaining capital investment was close to the target of approximately $50 per ounce.

Expansion capital investment includes investment in respect of Blanket’s capital projects, which are discussed in section 4.7 of this MD&A. In terms of Blanket’s Revised Plan, which was announced on November 3, 2014, capital investment is expected to increase significantly in 2015, 2016 and 2017 before the resultant increases in production materialise. Thus the expansion capital investment cost per ounce of gold sold is expected to increase substantially in future years.

4.5	Underground

Low grades continue to be encountered at AR Main due to internal waste and this situation is expected to continue for several quarters. The average head grade achieved over the entire mining operations in the Quarter was 3.47 g/t, which compares to target grade of 3.83 g/t. To minimise dilution at AR Main and improve grade control, the mining method at AR Main has been changed from long-hole stoping to short-hole sub-level benching and this contributed to a slight improvement in the average achieved head grade from 3.34 g/t, which was achieved in the previous quarter.

Production early in the Quarter was adversely affected by the introduction of capital equipment onto 22-Level to commence work on the Tramming Loop. Tonnes hoisted in the quarter were approximately 4% lower than target. By the end of the quarter, the situation had improved following the introduction of an additional locomotive on 22-Level.

To address the lower grades and reduced mining rate at AR Main, new production areas have been opened up at Lima and Eroica. The new production areas are further away from the No. 4 Shaft, which is the main rock-hoisting shaft, and this has put further pressure on the single-track underground haulage system. This constraint is being addressed by the development of the Tramming Loop, which is part of the Revised Plan, and will, when complete in mid-2015, significantly improve the ability to haul mineralised material and waste.

As set out in Sections 4.7 and 4.10 on November 3, 2014 Caledonia announced the Revised Plan for Blanket Mine. The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up. The infrastructure improvements include the development of a “Tramming Loop” parallel to the existing 22 Level haulage, which allows one-way travel and facilitates improved tramming efficiency.

Underground development activities continued throughout the Quarter and the total development advance was 1,442 meters compared to a planned advance of 1,738 meters. The shortfall against plan was due to insufficient compressed air and lost shifts arising from leave requests at the end of the Quarter.

Blanket’s installed compressor capacity during the Quarter was only just sufficient to provide the required amount of compressed air. Any breakdowns of this equipment meant there was insufficient compressed air to carry out production as well as development work: in these circumstances development work was suspended in order to maintain production. Installation of the new Centac compressor remained stalled in the Quarter due to the continued inability of the Zimbabwe Electricity Transmission and Distribution Corporation, the state-owned electricity distribution company, to service their faulty transformer and equipment. Blanket has therefore purchased its own transformer which was commissioned in January 2015 and has significantly improved the supply of compressed air with the Centac now operational.

Blanket’s 2015 budget includes provision for the recruitment of additional workers so that leave requirements can be accommodated without a resultant loss in shifts.

4.6	Metallurgical Plant

During the Quarter, the metallurgical plant continued to operate at budgeted efficiency – recovery was 93.2%, compared to the target of 93.3%. Throughput was 47.5 tonnes per hour compared to the planned throughput of 51.0 tonnes per hour. All equipment operated to expectations and no significant unplanned downtime was experienced during the Quarter.

4.7 Capital Projects

The main capital developments are:

the Tramming Loop;

the No. 6 Winze Project - Shaft Deepening from 750 to the 930 meter level; and

the haulage extension on 22 Level from AR Main to Lima;

the Central Shaft

Further information on these Projects is set out below.

Tramming Loop

The Tramming Loop is being developed on 22 Level to improve underground logistics by increasing the amount of mineralized material and waste that can be transported to the No. 4 Shaft. Work on the Loop commenced at the end of October 2014. Of the 800 meters required to complete the loop, 16 meters had been completed at November 7, 2014. As at the end of February 2015, 450 meters had been completed and this project is on schedule for completion as planned. This project is expected to be completed in June 2015, slightly ahead of schedule

No. 6 Winze Project - Shaft Deepening to 930 meters

The No. 6 Winze Project will provide access to the four Blanket resource bodies below 22 Level, viz. Blanket 1 Ore Body, Blanket 2 Ore Body, Blanket 4 Ore Body and Blanket Quartz Reef. The pre-production capital cost of this project is estimated to be US$5 million, which will be funded from Blanket’s internal cash flows. Progress on sinking was hampered by the continued inability to clear waste rock using mechanical cleaning. Removal of waste is now done manually and sinking progress is now at an acceptable rate. The shaft reached 890 meters below surface, which will be the main production level and the main station has been mined at this level. A further 40 meters remains to be sunk to accommodate rock handling facilities. This project is expected to be completed according to the revised schedule at the end of July 2015.

22 Level Haulage Extension

The 22 Level haulage extension will eventually complete the link between all sections of the Blanket Mine, from the Blanket Section to the Lima section in the north over a distance of 2,000 metres on the 22 Level (750 meters below surface). Work on the 22 Level haulage has been temporarily suspended so that work can progress with the Tramming Loop. To date, the haulage has advanced as far as Eroica where reef development is taking place between 750m and 630m. This work will provide access to the depth continuity of Eroica where an inferred resource of 300,000 tonnes at a gold grade of 3.5g/t has been outlined.

Central Shaft

The Central Shaft is the main component of the Revised Plan which is discussed in Section 4.10 of the MD&A. Sinking work on the Central Shaft is scheduled to commence in July 2015. The shaft sinking methodology has been amended: instead of the shaft being sunk in two simultaneous phases, the shaft will now be sunk in one single continuous phase from surface to 1,080 meters. The estimated completion date of the shaft has been moved from mid-2017 to early 2018. This change has no effect on the projected timing for the start of production from the Central Shaft and no adverse effect on economic return arising from the project as set out in the PEA. Early in 2015 work commenced on clearing the ground so that pre-sink work can commence in late March, 2015. Also in 2015, two 3,100 kW double-drum winders have been purchased which, once refurbished, will be sufficient for the sinking phase and eventual production with the capacity to reach a depth of 2,000 meters below surface.

4.8 Mineral Resources and Mineral Reserves

The Technical Report dated December 1, 2014 relating to the Blanket Mine was prepared by Minxcon, in compliance with NI 43-101.

Minxcon is a mining industry consulting company based in South Africa. Minxcon reviewed the mineral reserve and mineral resource calculation procedures for the Blanket Mine as at August 31, 2014. Minxcon’s mineral resource and mineral reserve estimates are set out in the following tables:

MINERAL RESOURCES – (August 2014)

Mineral Resource Category	Tonnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Measured Resources	1,572,733	3.91	197,606
Indicated Resources	2,478,902	3.77	300,288
Total Measured and Indicated	4,051,635	3.82	497,895
Inferred Resources*	3,344,831	5.11	549,963

Notes:

Mineral Resources are reported inclusive of Mineral Reserves Prior to the preparation of the Technical Report, Blanket Mine reported resources exclusive of reserves. However, as the mine matured an increasing proportion of the “reserve” accumulated in pillars which are unlikely to be mined in the immediate future. In order to distinguish between the currently available reserves and pillar blocks which are not immediately available, Blanket Mine’s Technical Department has elected to report mineral resources inclusive of mineral reserves. Accordingly, these pillar tonnages are now reported under the Measured Resource category until they are scheduled in the mine plan.

Resource estimate is based on a gold price of US$1,300/oz

Mineral Resources are stated at a 1.96 g/t cut-off.

Tonnages are stated at an in-situ relative density of 2.86 t/m3.

Inferred Resources are expressed separately from the Measured and Indicated category.

* Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically or legally. It cannot be assumed that all or any part of the inferred resource will be upgraded to a higher resource or reserve category.

MINERAL RESERVES – (August, 2014)

Mineral Reserve Category	Tonnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Proven Reserves	856,005	3.40	93,638
Probable Reserves	2,077,828	3.78	252,758
Total Proven & Probable Reserves	2,933,833	3.67	346,396

Notes:

As noted above, Mineral Reserves are also included in the above table of Mineral Resources.

Reserve estimate is based on a gold price of US$1,250/oz and a cash cost of US$71/tonne milled.

Blanket pay limit (cut-off grade) is 2.03 g/t.

Reserve tonnages have been diluted by 7.5% at zero grade to yield RoM tonnages (delivered to mill).

Cautionary note to U.S. Investors concerning estimates of Inferred and Indicated Resources.

The above tables use the terms “inferred resources” and “indicated resources.” While these terms are recognized and required by Canadian regulations, the US Securities and Exchange Commission does not recognize them. They have a great amount of uncertainty as to their existence, and great uncertainty as to their economic feasibility. It cannot be assumed that all or any part of an Inferred or Indicated Mineral Resource will ever be upgraded to a higher category. Investors are cautioned not to assume that part or all of an inferred or indicated resource exists or is economically mineable.

The full Technical Report can be viewed on the Company’s website – www.caledoniamining.com or under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

Since the calculation of the above figures as at August 31, 2014, the Company has mined 131,500 tons with an average recovered gold grade of 3.16 grams per ton, the majority of which has been from within the reserve blocks to produce 13,349 ounces of gold at a recovery of 93.2%. An updated internal estimate of Blanket’s mineral reserves and resources as at December 31, 2014 has been prepared by Blanket Mines’ Technical Department following the standards and procedures required by NI 43-101. In preparing the Mineral Resource and Mineral Reserve estimates, the following assumptions and modifying factors were applied. A cut-off grade (pay limit) of 2.03 g/t based on a gold price of US$1250/oz, was applied. Tonnages were increased by 7.5% to allow for dilution at zero grade and the grade adjusted accordingly. A metallurgical recovery of 93% was applied, marginally less than the 3 year historical 93.3% recovered grade. The Mineral Reserve and Mineral Resource estimates included in this report have been reviewed and approved by Dr Trevor Pearton, Caledonia’s Qualified Person and the results are presented in the following tables:

MINERAL RESOURCES – December 31, 2014

Mineral Resource Category	Tonnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Measured Resources	1,547,400	3.89	193,700
Indicated Resources	2,493,400	3.75	300,250
Total Measured and Indicated	4,040,800	3.80	493,950
Inferred Resources*	3,344,800	5.11	550,000

Notes:

Mineral Resources are reported inclusive of Mineral Reserves (See Note to table of Mineral Resources (August 2014) on page 15 above).

Resource estimate is based on a gold price of US$1,300/oz

Mineral Resources are stated at a 1.96 g/t cut-off.

Tonnages are rounded to the nearest 100 and ounces to the nearest 50.

Tonnages are stated at an in-situ relative density of 2.86 t/m3.

Inferred Resources are expressed separately from the Measured and Indicated category.

MINERAL RESERVES – December 31, 2014

Mineral Reserve Category	Tonnnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Proven Reserves	872,900	3.33	93,550
Probable Reserves	2,034,000	3.60	235,650
Total Proven & Probable Reserves	2,906,900	3.52	329,200

Notes:

Mineral Resources are reported inclusive of Mineral Reserves**.

Reserve estimate is based on a gold price of US$1,250/oz and a cash cost of US$71/ tonne milled.

Blanket pay limit (cut-off) is 2.03 g/t.

Reserve tonnages have been diluted by 7.5% at zero grade to yield RoM tonnages (delivered to mill).

Tonnages are rounded to the nearest 100 and ounces to the nearest 50.

Relative to the independent estimate of mineral resources and mineral reserves as at August 31, 2014, the Reserves have decreased by 0.9% in terms of tonnage. Resources expressed in terms of tonnage have declined by 0.3% over the same period.

While Blanket Mine has generally recorded 100% conversion of resources to reserves (past 10 years), this high rate of conversion cannot be assumed to occur in future. Blanket Mine is situated in a country which is widely considered to be politically unstable, and this may impact on the reserve life of the mine which at present is estimated at between 7 and 8 years based on the Revised Plan. However, Blanket Mine is fully indigenized and compliant with all legislation within Zimbabwe and as such is expected to be able to operate within normal business parameters for the foreseeable future.

4.9 Indigenisation

Transactions that implemented the Indigenisation of Blanket were completed on September 5, 2012 following which Caledonia owns 49% of Blanket and has received a Certificate of Compliance from the Government of Zimbabwe which confirms that Blanket is fully compliant with the Indigenisation and Economic Empowerment Act.

As a 49% shareholder, Caledonia receives 49% of Blanket’s dividends plus the repayment of vendor facilitation loans which were extended by Blanket to certain of the Indigenous Shareholders and which carry interest at LIBOR plus 10%. The vendor facilitation loans are repaid by way of dividends from Blanket Mine. 80% of the dividends declared by Blanket Mine which are attributable to the beneficiaries of the vendor facilitation loans are used to repay such loans and the remaining 20% unconditionally accrues to the respective Indigenous Shareholders. It is anticipated that Blanket will suspend dividend payments in 2015 and until early 2016 in order to fund the capital projects provided under the Revised Plan as a result of which the repayment of facilitation loans by Blanket’s indigenous shareholders will also be suspended. During this period, there will be a moratorium on the interest roll-up on the outstanding facilitation loans. The interest moratorium will have no effect on either Caledonia’s cash receipts or its reported earnings as interest on the facilitation loans is not recognized in Caledonia’s financial statements.

The outstanding balance of the facilitation loans as at December 31, 2014 was US$31.3 million (September 30, 2014, US$30.7 million). Blanket’s dividend payments in the Quarter which were used to repay the facilitation loans were approximately the same as the interest which accumulated on the loans. The overall level of the facilitation loans at December 30, 2014 is broadly as anticipated when the indigenisation transactions were concluded in September 2012. The vendor facilitation loans are not shown as receivables in the Consolidated Financial Statements because in terms of accounting standards, these loans are effectively equity instruments as their only means of repayment is via dividend distributions from Blanket. Caledonia continues to consolidate Blanket for accounting purposes. Further information on the accounting effects of indigenisation at Blanket is set out in Note 5 to the Consolidated Financial Statements.

4.10 Opportunities and Outlook

Revised Investment Plan to Increase Production

On November 3, 2014 Caledonia announced the Revised Plan and production projections for the Blanket Mine. The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up. The infrastructure improvements will include the development of a “Tramming Loop” and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters.

The Revised Plan provides for proposed investment of approximately US$50 million between 2015 and 2017 and a further US$20 million in the period 2018 to 2020. The increased investment pursuant to the Revised Plan is expected to give rise to an increasing production profile that is expected to result in additional production from resources currently in the inferred category of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from current mineral reserves of approximately 6,000 ounces. The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.

The Revised Plan includes a revised life of mine plan for the Blanket Mine (the “LOM Plan”) in terms of which it is anticipated that the approximate production from existing proven and probable mineral reserves above 750 m level will be as set out below.

Approximate production from proven and probable mineral reserves above 750m (per LOM Plan)
	2015	2016	2017	2018	2019	2020	2021
Tonnes milled (‘000)	430	460	430	380	230	100	50
Gold production (koz)	42	45	43	39	23	10	6

The new Central Shaft and the deepening of No 6 winze will provide access to the current inferred mineral resources below 750 meters and allow for further exploration, development and mining in these sections along the known Blanket strike, which is approximately 3 kilometers in length. The PEA has been prepared in respect of the inferred mineral resources below 750 meters. Based on the PEA, additional approximate production from current inferred mineral resources (excluding the projected production set out above) may be achieved in the following indicative ranges:

Possible production from inferred mineral resources below 750m (as per PEA)
	2015	2016	2017	2018	2019	2020	2021
Tonnes milled (‘000)	0	35	160	215	390	550	600
Gold production (koz)	0	4-5	20-22	27-30	46-50	63-67	70-75

Canadian regulations do not allow production from inferred resources to be added to those from proven and probable reserves for disclosure purposes.

Minxcon completed a scoping level study on Blanket’s revised LOM Plan in the form of a PEA, a summary of which is included in the Technical Report. The key conclusions arising from the PEA are as follows:

the IRR arising from the Revised Plan was calculated at 267 per cent;

the NPV for the Blanket Mine arising from reserves and the inferred resources used in the Revised Plan was calculated at US$147 million; and

The Technical Report was authored by Daan van Heerden, Uwe Englemann, Dario Clemente, Johan Odendaal and Jaco Burger of Minxcon, each of whom is a qualified person who is independent of Caledonia for the purposes of National Instrument 43-101. The Technical Report, which includes the PEA, is available for download on the System for Electronic Data Analysis and Retrieval at www.sedar.com or from Caledonia’s website at www.caledoniamining.com

The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA will be realized. Diamond drilling and development will continue with the objective of increasing confidence in order to upgrade the categorization of the resources. The most important assumptions on which the PEA is based include, a gold price of US$1,250 per ounce, achievement of the targeted production set out above and the accuracy of the projected capital costs.

Exploration

Caledonia intends to continue its exploration efforts both at the Blanket Mine and also at the first two of Blanket’s portfolio of 18 satellite properties: Mascot and GG. Initial resources for both GG and Mascot were identified in the Technical Report. No production forecasts are currently attributed to mining activity at either GG or Mascot at this stage pending ongoing metallurgical evaluations. Further information on Blanket’s exploration is set out in Section 5 of this MD&A.

Cost Reduction

Management has taken steps to reduce the level of general and administrative expenses and these are expected to bear fruit in the course of 2015. These steps include a reduction in the cost of Caledonia’s executive management team and the proposed closure of Caledonia’s representative office in Lusaka, Zambia, following the cessation of further exploration at the Nama project. Management is also evaluating opportunities to reduce the taxation burden on the group outside Zimbabwe.

5 EXPLORATION AND PROJECT DEVELOPMENT

Caledonia’s primary exploration activities are focussed on the growth and development of Blanket Mine and its satellite properties.

5.1 Blanket Exploration

Exploration activities on Blanket Mine target the depth extensions of the current Blanket ore bodies as well as the AR Main and AR South ore bodies and involves drilling downholes from chambers on 18 and 22 Levels to intersect the depth continuation of these ore bodies. Drilling activities in the Quarter were hampered by numerous machine breakdowns.

Caledonia has a conservative approach to accruing new resources: only resource blocks with an estimated grade in excess of the current pay limit are taken into inventory. Resources that are below the pay limit are reviewed on an annual basis.

5.2 Blanket Satellite Prospects

Blanket Mine has exploration title holdings in the form of registered mining claims in the Gwanda Greenstone Belt totalling 78 claims, including a small number under option, covering properties with a total area of about 2,500 hectares. Included within these claim areas are 18 previously operated small gold workings which warrant further exploration, i.e. the Satellite Projects. Blanket’s main exploration efforts on these satellite properties are focused at this stage on the GG Project and the Mascot Project Area which, based on past production records, are likely to have the greatest potential.

GG Project

The GG Project is located approximately seven kilometers southeast of Blanket Mine. Surface drilling programs have been carried out at the GG Project over the past eight years consisting of 24 diamond-cored holes totalling 6,360m of drilling. Two zones of gold mineralization have been established down to a depth of at least 300m, each with a potential strike length of up to 150m. Current activities involve the definition of the extent and characteristics of this mineralization by way of a prospect shaft and level development.

During Q1 2014 the development on the 120 meter level was completed to approximately 160 meters east of the shaft and four drill cubbies were completed from which horizontal and inclined holes were drilled into the two zones (North and South zones) that were identified by surface drilling. The horizontal and inclined drilling intersected the identified zones, with the North zone hosting the more extensive mineralization. In Q2, development reached the North Zone where the mineralisation that had been identified by drilling in previous quarters was opened up exposing a mineralised zone over a strike of 50 meters over which chip sampling returned an average value of 3.9g/t over an average width of 4 meters. Locally the mineralisation reaches a width of 10 meters and it is open on strike. Locally the mineralisation reaches a width of 10 meters and it is open on strike. Based on this encouraging result further horizontal development has been suspended so that the shaft can be deepened to 240 meters. In Q3 2014 the shaft was sunk from 120m to 150m; in Q4, the shaft was sunk further to 180 meters and development of the station on that level is in progress.

As noted in the previous quarters, metallurgical test work continues on fresh material from this zone. The test work has confirmed that the mineralized material is refractory and test work is ongoing to optimise recovery.

Mascot Project Area

The Mascot Project Area includes three sections, viz. the Mascot prospect, the Penzance prospect and the Eagle Vulture prospect. Mascot was previously mined to a depth of approximately 250 meters, exploiting an east-west trending mineralised body the strike extent of which decreased at depth but which was accompanied by a doubling in width. Previous surface drilling undertaken by Blanket has indicated the existence of two further mineralised zones, one to the north and one to the south of the mined out area.

In the previous quarter, underground development on Levels 1 and 2 (60m and 90m below surface respectively) confirmed the existence of potentially payable mineralisation on the North Parallel. In Q2 and Q3 of 2014 development continued along the North Parallel on the 150m level. This development has provided access to the mineralized area over a strike extent of 80 meters and a vertical extent of 90 meters. In Q4 development on the North zone reached the 180 meter level.

Mine de-watering to below 180 meter level has continued, with the objective of accessing higher grade material below the current workings in 2015. The mine has now been de-watered and the bottom of the shaft is now being cleaned to expose the shaft bottom, with the possibility to deepen the shaft by a further 120 meters. This would allow access to the Main Shear at depth which, based on old mine records, had a substantially higher grade than the associated North Parallel and South Shear and, if successful, would improve the economic potential of this project.

INVESTING

An analysis of Investment in the Quarter and the Year and in 2013 and in 2012 is set out below

Capital Investment
		2012 Year	2013 Year	2014 Q1	2014 Q2	2014 Q3	2014 Q4	2014 Year
Total Investment	C$’000	7,909	11,738	2,032	1,550	1,379	1,826	6,786
Nama Project (i)	C$’000	3,614	2,637	-	-	-	107	107
Blanket	C$’000	4,280	9,066	2,032	1,550	1,341	1,783	6,627
Other	C$’000	15	35	-	-	38	14	52
(i)Nama is a base metal exploration project in Zambia which was fully impaired at December 31, 2013. No further exploration is planned at Nama

All investment at Blanket is funded from Blanket’s internal cash flows and its Zimbabwean borrowing facilities. No further investment is planned for the Nama project in Zambia

FINANCING

Caledonia financed all its operations using funds on hand and those generated by its operations. No equity financing took place in the Quarter and none is currently planned. Blanket has an unsecured US$2.5 million loan facility in Zimbabwe which is repayable on demand. At December 31, 2014 this facility was unused.

8.	LIQUIDITY AND CAPITAL RESOURCES

An analysis of Caledonia’s capital resources as at December 31, 2014 and each of the preceding 5 quarters is set out below.

Liquidity and Capital Resources (Thousands of Canadian dollars)
As at	Sept 30 2013	Dec 31 2013	Mar 31 2014	June 30 2014	Sept 30 2014	Dec 31 2014
Gross Cash and cash equivalents in the statement of financial position	25,099	25,222	26,714	25,842	27,852	26,838
Loan Facility	1,204	1,796	-	-	998	-
Cash and cash equivalents in the statement of cash flows	23,895	23,426	26,714	25,842	26,854	26,838
Working capital	29,389	28,620	31,380	30,626	31,148	31,127

Movements in Caledonia’s net cash, the overdraft and working capital and an analysis of the sources and uses of Caledonia’s cash are discussed in Section 3 of this MD&A.

The loan facility is held by Blanket with a Zimbabwean Bank and is unsecured and repayable on demand.

The Company’s liquid assets as at December 31, 2014 are less than its planned and foreseeable commitments in terms of the revised LOM Plan which total approximately US$70 million over the period 2015 to 2020, the proposed funding of which is discussed in Section 9 of this MD&A.

9.	OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL COMMITMENTS AND CONTINGENCIES

There are no off balance sheet arrangements apart from the facilitation loans of US$30.9 million which are not reflected as loans receivable for IFRS purposes (refer to Note 5 of the Consolidated Financial Statements). The company has the following contractual obligations at December 31, 2014.

Payments due by Period (Thousands of Canadian dollars)
Falling due	Within 1 year	1-3 Years	4-5 Years	After 5 Years	Total
Trade and other payables	3,681	-	-	-	3,681
Provisions	-	-	-	2,888	2,888
Capital expenditure commitments	642	-	-	-	642

In addition to the committed purchase obligations set out above, Blanket currently intends to invest approximately US$50 million between November 13, 2014 and December 2017 which is not yet committed and a further US$20 million in the years 2018 to 2020, which is also uncommitted. The committed and uncommitted investment will be used to maintain Blanket’s existing operations, implement the Revised Plan and the advance Blanket’s satellite exploration properties which are discussed in Sections 4.7, 4.10 and 5.3 of this MD&A respectively. Committed and uncommitted purchase obligations will be met from the cash generated from Blanket’s existing operations and Blanket’s existing borrowing facility. Caledonia has no obligations in respect of capital or operating leases. As of December 31, 2014, Caledonia had potential liabilities for rehabilitation work on the Blanket and Eersteling Mines6 – if and when those mines are permanently closed – at an estimated discounted cost of $2,888,000 ($1,572,000 – 2013).

10.	NON-IFRS MEASURES

Throughout this document, we have provided measures prepared in accordance with IFRS in addition to some non-IFRS performance measures for investors who use them to evaluate our performance. Since there is no standard method for calculating non-IFRS measures, they are not a reliable way to compare Caledonia against other companies. Non-IFRS measures should be used along with other performance measures prepared in accordance with IFRS. We have defined below the non-IFRS measures we have used in this document and provide a reconciliation of such non-IFRS measures to the IFRS measures we report.

Cost per ounce

Non-IFRS performance measures such as “On-Mine Cost per ounce”, “All-in Sustaining Cost per ounce” and “All-in Cost per ounce” are used in this document. Management believes these measures assist investors and other stakeholders in understanding the economics of gold mining over the life-cycle of a mine. These measures are calculated on the basis set out by the World Gold Council in a Guidance Note published on June 23, 2013 and accordingly differ from the previous basis of calculation. The table below reconciles “On-mine Cost per ounce”, “All-in Sustaining Costs per ounce” and “All-in Cost per ounce” to the production costs shown in the financial statements which have been prepared under IFRS.

————————————————————

6 Eersteling Mine is a South African gold property, which has been held on care and maintenance basis for several years pending the identification of a suitable purchaser.

Reconciliation of IFRS Production Costs
	Year 2012	Q4 2013	Year 2013	Q4 2014	Year 2014
Production costs (IFRS) (C$’000’s)	25,653	5,919	27,412	7,082	30,812
Less site restoration costs (C$’000’s)	(43)	(78)	(151)	41	(32)
Less exploration costs (C$’000’)	(831)	(121)	(393)	(89)	(379)
Reversal of claim fee provision (C$’000’s)	-	970	970	-	-
Reallocated admin costs	(247)	(65)	(337)	(508)	(466)
Realisation charges (i)	-	(284)	(284)	-	-
Non-Blanket production costs	(121)	(27)	(102)	317	-
Inter company profit elimination	1,353	331	1,332	599	727
Adjusted production costs (C$’000’s)	25,764	6,645	28,447	7,443	30,662
Exchange rate (US$1 to C$)	1.00	1.06	1.03	1.10	1.10
On-mine Production costs (US$’000’s )	25,769	6,301	27,619	6,766	27,969
Gold Sales (oz)	45,181	9,454	45,048	9,604	42,927
On-mine Cost (US$/oz)	570	666	613	704	652
Royalty (US$’000’s)	5,262	845	4,412	568	3,521
Permitting costs (US$’000’s)	225	33	135	25	110
Refining and 3rd party smelting (US$’000’s) (i)	290	60	301	-	-
Administrative expenses (C$’000’s) (ii)	4,055	2,067	7,772	2,687	8,157
Exchange rate (US$1 to C$)	1.00	1.06	1.03	1.10	1.10
Administrative expenses (US$’000’s)	4,056	1,960	7,532	2,446	7,441
Community cost not related to current production			(2,000)
Reclamation and remediation of operating sites (US$’000)	90	45	107	19	75
Exploration and study costs (US$’000’s)	3	43	85	26	120
Sustaining capital investment (US$’000’s)	3,044	2,017	5,653	785	2,348
All-in Sustaining cost (US$’000)	38,739	11,303	43,844	10,634	41,584
Gold sales (oz)	45,181	9,454	45,048	9,604	42,927
All-in Sustaining Cost per ounce (US$/oz)	857	1,196	973	1,118	969
Costs not related to current production
Community costs (US$’000’s)	1,137	-	2,100	-	-
Permitting (US$’000’s)	785	14	106	14	55
Exploration (US$’000’s)	15	38	120	23	106
Capital investment (US$’000’s)	1,306	917	3,530	733	3,833
All-in Costs (US$’000’s)	41,981	12,272	49,701	11,403	45,578
Gold Sold (oz)	45,181	9,454	45,047	9,604	42,927
All-in Cost per ounce (US$/oz)	929	1,298	1,103	1,198	1,062

(i)

Third party smelting and refining costs have reduced significantly since Blanket commenced sales of gold to Fidelity Printers and Refiners in Zimbabwe. From January 1, 2014, such charges have been absorbed into revenues and are therefore shown as a reduction in the realised price of gold.

(ii)

In 2013 the Administrative expenses were shown in the reconciliation net of the US$2 million community cost not related to current production. The 2013 administrative expense for 2013 in the reconciliation is now shown inclusive of this amount which corresponds to the Administrative expense set out in the Consolidated Financial Statements for 2013. This amount, in addition to a further amount of US$100,000, is shown as a community cost not related to current production in the reconciliation.

Average realised gold price per ounce

“Average realised price per ounce” is a non-IFRS measure which, in conjunction with the cost per ounce measures described above, allows stakeholders to assess our performance. The table below reconciles “Average realised price per ounce” to the Revenue shown in the financial statements which have been prepared under IFRS.

Reconciliation of Average Realised Gold Price per Ounce to IFRS
	Year 2012	Q1 2013	Q2 2013	Q3 2013	Q4 2013	Year 2013	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Year 2014
Revenue (IFRS) (C$’000’s)	75,221	19,218	17,190	16,591	12,114	65,113	17,063	15,555	13,492	12,972	59,082
Less miscellaneous income	-	-	(947)	-	-	(947)	-	-	-	-	-
Revenue from precious metal sales (C$’000s)	75,221	19,218	16,243	16,591	12,114	65,113	17,063	15,555	13,492	12,972	59,082
Exchange rate (1US$: C$)	0.99	1.00	1.02	1.04	1.00	1.02	1.10	1.09	1.09	1.14	1.10
Revenue from precious metal sales (US$’000’s)	75,340	19,148	15,922	16,013	12,133	63,216	15,480	14,233	12,401	11,343	53,513
Revenues from sales of silver (US$’000s)	(72)	(5)	(15)	-	(57)	(77)	(3)	(31)	(15)	(12)	(61)
Revenues from sales of gold (US$’000s)	75,268	19,143	15,907	16,013	12,076	63,138	15,477	14,202	12,386	11,331	53,452
Gold ounces sold (oz)	45,181	11,965	11,587	12,042	9,454	45,048	12,210	11,223	9,890	9,604	42,927
Average realised gold price per ounce (US$)	1 666	1 600	1 373	1,330	1,277	1,402	1,268	1,265	1,252	1,180	1,245

Adjusted earnings per share

“Adjusted earnings per share” is a non-IFRS measure which management believes assists investors in understanding the company’s underlying performance. The table below reconciles “adjusted earnings per share” to the Profit/Loss attributable to Owners of the Company shown in the financial statements which have been prepared under IFRS.

Reconciliation of Adjusted Earnings per Share to IFRS Profit/(Loss) Attributable to Owners of the Company (C$’000’s except per share numbers)
	Year 2012	Q1 2013	Q2 2013	Q3 2013	Q4 2013	Year 2013	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Year 2014
Profit/(loss) attributable to owners of the company (IFRS)	8,721	4,593	3,055	3,733	(14,436)	(3,055)	2,425	1,840	1,112	(480)	4,897

Reconciliation of Adjusted Earnings per Share to IFRS Profit/(Loss) Attributable to Owners of the Company (C$’000’s except per share numbers)
	Year 2012	Q1 2013	Q2 2013	Q3 2013	Q4 2013	Year 2013	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Year 2014
Blanket Mine Employee Trust adjustment (refer Note 18 to the Consolidated Financial Statements)	-	-	-	-	(105)	(105)	-	-	-	(54)	(54)
Add back amounts attributable to owners of the company in respect of:
Indigenisation expenses, advance dividends, donations etc.	16,034	-	1,640	-	-	1,640	-	-	-	-	-
Foreign exchange loss/(profit)	3	-	-	-	(1,677)	(1,677)	(257)	129	(389)	(659)	(1,176)
Asset impairment	330	-	-	-	14,203	14,203	-	-	-	196	196
Deferred tax	271	-	-	54	2,131	2,185				801	801
Withholding tax on distributions in specie	-	1,531		-	-	1,531
Reversal of Zambian G&A	-	-	-	-	-	-	142	198	309	340	989

Reconciliation of Adjusted Earnings per Share to IFRS Profit/(Loss) Attributable to Owners of the Company (C$’000’s except per share numbers)
	Year 2012	Q1 2013	Q2 2013	Q3 2013	Q4 2013	Year 2013	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Year 2014
Under accrual for 2013 UK tax	-	-	-	-	(375)	(375)	-	-	-	375	375
Prior year adjustment in respect of GMS (SA) tax	(100)				(100)	(100)				300	300
Adjusted profit	25,258	6,124	4,695	3,787	(359)	14,247	2,310	2,167	1,032	819	6,328
Weighted average shares (m)	50.8	51.5	51.8	52.1	52.1	52.0	52.1	52.1	52.1	52.1	52.1
Adjusted EPS (cents)	49.8	11.9	9.1	7.3	(0.7)	27.6	4.4	4.2	2.0	1.9	12.1

Q4 2013 and Year 2013 adjusted EPS calculations have been adjusted to reflect the under-accrual for UK income tax arising in respect of 2013 on interest receivable by GMS (UK) on the facilitation loans.

11.	RELATED PARTY TRANSACTIONS

Caledonia had the following related party transactions which are recorded in the Consolidated Financial Statements on the basis of IFRS:

	Year Ended December 31, 2014
	$’000
Rent paid to Bastian Investments CC, a company owned by members of the former President’s family for the rental of the Company’s Johannesburg office facilities. The rental tenancy is on a monthly basis.	142
Directors fees paid	326

Caledonia has given notice that the current lease arrangement with Bastian Investments will not be renewed when it terminates.

12.	CRITICAL ACCOUNTING POLICIES

Caledonia's accounting policies are presented in the consolidated financial statements for the year ended December 31, 2014 which have been publicly filed on SEDAR at www.sedar.com. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the amounts represented in the Consolidated Financial Statements and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the Consolidated Financial Statements is included in the following notes:

i) Indigenisation transaction

·	Non-controlling interests (“NCI”) are recognised on the portion of shareholding upon which dividends declared by Blanket Mine accrue unconditionally to equity holders as follows:

(a)

20% of the 16% shareholding of NIEEF;

(b)

20% of the 15% shareholding of Fremiro;

(c)

100% of the 10% shareholding of the Community Trust.

·	This effectively means that NCI is recognised at Blanket Mine level at 16.2% of the net assets.

The Employee Trust and BETS are structured entities which are effectively controlled and consolidated by Blanket Mine. Accordingly the shares held by BETS are effectively treated as treasury shares in Blanket Mine and no NCI is recognised.

ii) Site restoration provisions

The site restoration provision has been calculated for the Blanket Mine based on an independent analysis of the rehabilitation costs as performed in 2012 and based on the internal assessment for Eersteling Gold Mining Corporation Limited. Estimates and assumptions are made when determining the inflationary effect on current restoration costs and the discount rate to be applied in arriving at the present value of the provision. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation costs which will reflect the market condition at the time the rehabilitation costs are actually incurred. The final cost of the currently recognized site rehabilitation provisions may be higher or lower than currently provided for.

iii) Exploration and evaluation (“E&E”) expenditure

The application of Caledonia’s accounting policy for exploration and evaluation expenditures requires judgements when determining which expenditures are recognised as exploration and evaluation assets (“E&E properties”).

Caledonia also makes estimates and assumptions regarding the possible impairment of E&E properties by evaluating whether it is likely that future economic benefits will flow to Caledonia, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

iv) Income taxes

Significant estimates and assumptions are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Caledonia records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

In addition, Caledonia applies judgement in recognizing deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized or sufficient estimated taxable income against which the losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.

v) Share-based payment transactions

Caledonia measures the cost of equity-settled, share based payment transactions with employees, directors as well as with Indigenisation Shareholders (refer to Note 5 and 20 of the Consolidated Financial Statements) by reference to the fair value of the equity instruments on the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the appropriate valuation model, considering the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield.

vi) Impairment

At each reporting date, Caledonia determines if impairment indicators exist, and if present, performs an impairment review of the non-financial assets held in Caledonia. The exercise is subject to various judgemental decisions and estimates. Financial assets are also reviewed regularly for impairment.

vii) Functional currency

The functional currency of each entity in Caledonia is determined after considering various primary and secondary indicators which require management to make numerous judgement decisions. The determination of the functional currency has a bearing on the translation process and ultimately the foreign currency translation reserve.

13. FINANCIAL INSTRUMENTS

Credit risk

The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure.

Impairment losses

None of the trade and other receivables is past due at the year-end date.

Liquidity risk

All trade payables and bank overdraft have maturity dates that are expected to mature in under 6 months.

Currency risk

As Caledonia operates in an international environment, some of Caledonia’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of Caledonia’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of Caledonia are reported in Canadian dollar in the Consolidated Financial Statements.

The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of Caledonia and may also affect the value of Caledonia’s assets and liabilities and the amount of shareholders’ equity.

Caledonia has certain financial assets and liabilities denominated in foreign currencies. Caledonia does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, Caledonia maintains cash and cash equivalents in the currencies used by Caledonia to meet short‐term liquidity requirements.

Interest rate risk

Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates.

Unless otherwise noted, it is the opinion of management that Caledonia is not exposed to significant interest rate risk as it has no debt financing apart from short term borrowings utilized in Zimbabwe. Caledonia’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Caledonia manages its interest rate risk by endeavouring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. Caledonia’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions.

14.	DIVIDEND POLICY AND OTHER SHAREHOLDER INFORMATION

Caledonia paid its inaugural dividend of 5 Canadian cents per share in February 2013 following a capital re-structure which was approved by shareholders in January 2013 which allowed it to make dividend payments. The inaugural dividend did not relate to any specific accounting period. Caledonia paid a further dividend of 5 Canadian cents per share in April 2013 in respect of the earnings for the year to December 31, 2012.

On November 25, 2013 Caledonia announced a revised dividend policy pursuant to which it intended to pay a dividend of 6 Canadian cents per share in 2014, split into 4 equal quarterly payments of 1.5 Canadian cents per share. The first quarterly dividend was paid on January 31, 2014; further payments were made at the end of April, August and November 2014 and at the end of January 2015. Caledonia will consider further dividends thereafter in the context of the prevailing commercial environment and expects to provide guidance for dividend payments in 2016 at or about the time of the release of the Q2 2014 results in mid-August 2015.

Effective December 5, 2013 Caledonia appointed Computershare as its Transfer Agent in Canada and as the Registrar. Following the appointment of Computershare, shareholders in the USA and UK now receive their dividends denominated in US Dollars and Pounds Sterling respectively; all other shareholders will continue to be paid in Canadian dollars. Computershare also offers DRS services for Caledonia shareholders who do not wish to hold their shares in nominee accounts in the name of their financial adviser or stock-broker. Shareholders who wish to participate in the DRS should contact Computershare using the contact details set out below:

Computershare Canada and USA	Toll-free North American Number 1-800-564-6253 For Shareholders outside North America 1-514-982-7555
Computershare UK	+44 (0)870 702 0000

15.	SECURITIES OUTSTANDING

As at March 27, 2015 Caledonia had 52,117,908 common shares issued.

Outstanding options to purchase Common Shares (“Options”) are as follows:

Number of Options	Exercise Price ($)	Expiry Date (1)
1,161,000	1.30	Jan 31, 2016
30,000	0.70	May 11, 2016
744,920	0.90	Aug 31, 2017
190,000	0.72	Nov 21, 2018
2,125,920

(1)

Options expiring during a “closed period” will have the expiry date extended, in terms of the option plan, by 10 days following the cancellation of the closed period.

As Caledonia’s Option Plan allows the granting of options for the number of Common Shares equal to 10% of the issued shares, Caledonia could grant Options on a further 3,054,878 shares.

16.	RISK ANALYSIS

The business of Caledonia contains significant risk due to the nature of mining, exploration and development activities. Risks such as interest rate, foreign exchange and credit risks are considered in Notes 6 and 24 to the Consolidated Financial Statements. Caledonia’s business contains significant additional risks due to the jurisdictions in which it operates and the nature of mining, exploration and development. Included in the risk factors below are details of how management seeks to mitigate the risks where this is possible.

Liquidity risk: The Company needs to generate capital to be able to continue to invest in properties and projects without raising third party financing. Caledonia currently has significant cash resources and continues to generate sufficient cash to cover all of its anticipated investment needs.

Exploration Risk: The Company needs to identify new resources to replace ore which has been depleted by mining activities and to commence new projects. Blanket has embarked on development and exploration programmes as set out in sections 4.7 and 5. No assurance can be given that exploration will be successful in identifying sufficient mineral resources of an adequate grade and suitable metallurgical characteristics that are suitable for further development or production.

Development Risk: The Company is engaged in development activities at Blanket Mine and the Satellite properties including the implementation of the Revised Plan as set out in section 4.10 of the MD&A. Construction and development of projects are subject to numerous risks including: obtaining equipment, permits and services; changes in regulations, currency rate changes; labour shortages; fluctuations in metal prices and the loss of community support. There can be no assurance that construction will commence or continue in accordance with the current expectations or at all.

Production Estimates: Estimates for future production are based on mining plans and are subject to change. Production estimates are subject to risk and no assurance can be given that future production estimates will be achieved. Actual production may vary from estimated production for a variety of reasons including un-anticipated variations in grades, mined tonnages and geological conditions, accident and equipment breakdown, changes in metal prices and the cost and supply of inputs and changes to government regulations.

Mineral Rights: The Company’s existing licences and permits are in good standing. The Company has to pay fees etc. to maintain its rights and licence. No assurance can be given that the Company will be able to make payments by the required date or will meet development and production schedules that are required to protect licences.

Metal Prices: The Company’s operations and exploration and development projects are heavily influenced by the price of gold, which is particularly subject to fluctuation. Caledonia has not adopted any strategies to control the effect of mineral price fluctuations because the Company’s cash resources currently exceed its planned and foreseeable commitments as set out in Section 9.

Increasing input costs: Mining companies generally have experienced higher costs of steel, reagents, labour and electricity and from local and national government for levies, fees, royalties and other direct and indirect taxes. Blanket’s planned growth should allow the fixed cost component to be absorbed over increased production, thereby helping to alleviate somewhat the effect of any further price increases.

Illegal mining: There has been an increase in illegal mining activities on properties controlled by Blanket. This gives rise to increased security costs and an increased risk of theft and damage to equipment. Blanket has received adequate support and assistance from the Zimbabwean police in investigating such cases.

Succession planning: The limited availability of mining and other technical skills and experience in Zimbabwe and the difficulty of attracting appropriately skilled employees to Zimbabwe creates a risk that appropriate skills may not be available if, for whatever reason, the current skills base at the Blanket Mine is depleted. The Caledonia management team has recently been augmented so that, if required, it could provide appropriate support to Blanket if this was required.

Country risk: The commercial environments in which the Company operates is unpredictable. Potential risks may arise from: unforeseen changes in the legal and regulatory framework which means that laws may change, may not be enforced, or judgements may not be upheld; restrictions on the movement of currency; risks relating to possible corruption, bribery, civil disorder, expropriation or nationalisation; risks relating to restrictions on access to assets. Management believes that it has minimised such risks by complying fully with all relevant legislation and by obtaining all relevant regulatory permissions and approvals.

Gold marketing arrangements: In terms of regulations introduced by the Zimbabwean Ministry of Finance in January 2014, all gold produced in Zimbabwe must be sold to Fidelity, a company which is controlled by the Zimbabwean authorities. Accordingly, all of Blanket’s production has been sold to Fidelity. Blanket has received all payments due from Fidelity in full and on time. However the requirement to sell to Fidelity increases Blanket’s credit risk.

17. FORWARD LOOKING STATEMENTS

Information and statements contained in this MD&A that are not historical facts are “forward-looking information” within the meaning of applicable securities legislation that involve risks and uncertainties relating, but not limited to, Caledonia’s current expectations, intentions, plans, and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “target”, “intend”, “estimate”, “could”, “should”, “may” and “will” or the negative of these terms or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Examples of forward-looking information in this MD&A include: implementation schedules for, and other uncertainties inherent in, the Revised Plan; costs associated with the LOM Plan; production guidance; estimates of future/targeted production rates; planned mill capacity increases; estimates of future metallurgical recovery rates and the ability to maintain high metallurgical recovery rates; timing of commencement of operations; plans and timing regarding further exploration, drilling and development; the prospective nature of exploration and development targets; the ability to upgrade and convert mineral resources to mineral reserves; capital costs; our intentions with respect to financial position and third party financing; and future dividend payments. This forward-looking information is based, in part, on assumptions and factors that may change or prove to be incorrect, thus causing actual results, performance or achievements to be materially different from those expressed or implied by forward-looking information. Such factors and assumptions include, but are not limited to: failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, success of future exploration and drilling programs, reliability of drilling, sampling and assay data, assumptions regarding the representativeness of mineralization being inaccurate, success of planned metallurgical test-work, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, changes in government regulations, legislation and rates of taxation, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors.

Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Such factors include, but are not limited to: risks relating to estimates of mineral reserves and mineral resources proving to be inaccurate, fluctuations in gold price and payment terms for gold sold to Fidelity, risks and hazards associated with the business of mineral exploration, development and mining (including environmental hazards, industrial accidents, unusual or unexpected geological or structural formations, pressures, power outages, explosions, landslides, cave-ins and flooding), risks relating to the credit worthiness or financial condition of suppliers, refiners and other parties with whom the Company does business; inadequate insurance, or inability to obtain insurance, to cover these risks and hazards, employee relations; relationships with and claims by local communities and indigenous populations; political risk; availability and increasing costs associated with mining inputs and labour; the speculative nature of mineral exploration and development, including the risks of obtaining or maintaining necessary licenses and permits, diminishing quantities or grades of mineral reserves as mining occurs; global financial condition, the actual results of current exploration activities, changes to conclusions of economic evaluations, and changes in project parameters to deal with un-anticipated economic or other factors, risks of increased capital and operating costs, we are affected by environmental, safety or regulatory risks, expropriation, the Company’s title to properties including ownership thereof, increased competition in the mining industry for properties, equipment, qualified personnel and their costs, risks relating to the uncertainty of timing of events including targeted production rate increase and currency fluctuations. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. Caledonia reviews forward-looking information for the purposes of preparing each MD&A, however Caledonia undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

18.

CONTROLS

Caledonia maintains adequate systems of internal accounting and administrative controls, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced.

At December 31, 2014 we have tested our ICFR and management has evaluated the effectiveness of Caledonia’s internal control over financial reporting and concluded that such internal control over financial reporting was effective and there were no material weaknesses. As part of their monitoring and oversight role, the Audit Committee performs a review and conducts discussions with management. No material exceptions were noted based on the additional procedures and no evidence of fraudulent activity was found.

Segregation of Duties

Management has concluded, and the Audit Committee has agreed, that the hiring of additional staff needs to be constantly addressed and assessed in light of risks to ICFR and the costs associated with additional staff. There have been no changes in the Corporation’s internal controls over financial reporting since the year ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

The Corporation has a Disclosure Committee consisting of three Directors, and has disclosure controls and procedures which it follows in an attempt to ensure that it complies with all required disclosures on an adequate and timely basis. The Corporation’s Directors and Management, and the Disclosure Committee, are making all reasonable efforts to ensure that the Corporation’s disclosures are made in full compliance with all of the applicable rules, regulations and requirements. All reasonable efforts are also being made to ensure that the Corporation’s disclosure controls and procedures provide reasonable assurance that material information relating to the Corporation, including its consolidated subsidiaries, is made known to the Corporation’s Certifying Officers by others within those entities.

19.	QUALIFIED PERSON

Dr. Trevor Pearton, B.Sc. Eng. (Mining Geology), Ph.D. (Geology), Pr.Sci.Nat., F.G.S.S.A., VP Exploration is the Corporation’s qualified person as defined by NI 43-101. Dr. Pearton is responsible for the technical information provided in this MD&A except where otherwise stated. Dr. Pearton has reviewed the scientific and technical information included in this document and has approved the disclosure of this information for the purposes of this MD&A.

Exhibit 99.3

FORM 52-109F1

CERTIFICATION OF ANNUAL FILINGS

FULL CERTIFICATE

I, Steve Curtis, Chief Executive Officer of Caledonia Mining Corporation, certify the following:

1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of Caledonia Mining Corporation (the “issuer”) for the financial year ended December 31, 2014.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end

A.	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

I.	material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

II.	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

B.	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the 1992 Internal Control – Integrated Framework – published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 ICFR – material weakness relating to design: N/A

5.3 Limitation on scope of design: N/A

6. Evaluation: The issuer’s other certifying officer(s) and I have

A.	evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

B.	evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

I.	our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

II.

N/A

7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2014 and ended on December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

Date: March 31, 2015

“Steve Curtis”

_____________________

Steve Curtis

Chief Executive Officer

Exhibit 99.4

FORM 52-109F1

CERTIFICATION OF ANNUAL FILINGS

FULL CERTIFICATE

I, Mark Learmonth, Chief Financial Officer of Caledonia Mining Corporation, certify the following:

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end

A.	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

I.	material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

II.	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

B.	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.2 ICFR – material weakness relating to design: N/A

5.3 Limitation on scope of design: N/A

6. Evaluation: The issuer’s other certifying officer(s) and I have

A.	evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

B.	evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A