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 2016

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 21, 2016	Name: Steve Curtis Title: CEO and Director

Exhibit	Description

99.1	Interim Financial Statements
99.2	Interim MD&A

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 are 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, 2015 management evaluated the effectiveness of the Group’s internal control over financial reporting and concluded that such internal control over financial reporting was effective.

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, 2015 were approved by the Board of Directors and signed on its behalf on March 18, 2016.

(Signed) S. R. Curtis

(Signed) M. Learmonth

Chief Executive Officer

Chief Financial Officer

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, 2015 and 2014, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014, and notes, comprising a summary of significant accounting policies and other explanatory information.

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 our 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, we consider 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 consolidated financial position of Caledonia Mining Corporation as at December 31, 2015 and 2014, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2015 and 2014, 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 18, 2016

Consolidated statements of profit or loss and other comprehensive income

(In thousands of United States Dollars, unless indicated otherwise) For the years ended December 31	Note	2015			^* 2014

Revenue			48,977			53,513
Less: Royalties			(2,455	)		(3,522	)
Production costs	8		(30,019	)		(27,908	)
Depreciation			(3,322	)		(3,540	)
Gross profit			13,181			18,543
Other income			110			25
Administrative expenses	9		(7,622	)		(7,387	)
Share-based payment expense	20		(24	)		-
Net foreign exchange gain			2,850			1,065
Impairment	12		-			(178	)
Operating profit			8,495			12,068
Finance income	10		1			14
Finance cost	10		(536	)		(154	)
Net finance costs			(535	)		(140	)
Profit before tax			7,960			11,928
Tax expense	11		(2,370	)		(5,982	)
Profit for the year			5,590			5,946
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences of foreign operations			(3,291	)		(685	)
Tax on other comprehensive income	11		199			111
Total comprehensive income for the year			2,498			5,372

Profit attributable to:
Owners of the Company			4,779			4,435
Non-controlling interests			811			1,511
Profit for the year			5,590			5,946
Total comprehensive income attributable to:
Owners of the Company			1,687			3,861
Non-controlling interests			811			1,511
Total comprehensive income for the year			2,498			5,372

Earnings per share
Basic earnings - per share ($)	18		0.09			0.08
Diluted earnings - per share ($)	18		0.09			0.08

* Re-presented, refer note 2 (iii)

Consolidated statements of financial position

(In thousands of United States Dollars, unless indicated otherwise)

	Note	December 31			^* December 31			^* January 1
As at		2015			2014			2014
Assets
Property, plant and equipment	12		49,218			34,736			31,272
Deferred tax asset	11		58			-			-
Total non-current assets			49,276			34,736			31,272

Inventories	13		6,091			6,512			6,419
Prepayments			667			299			165
Trade and other receivables	14		3,839			1,755			3,636
Income tax receivable			397			95			-
Cash and cash equivalents	15		12,568			23,082			23,580
Total current assets			23,562			31,743			33,800
Total assets			72,838			66,479			65,072

Equity and liabilities
Share capital	16		54,569			54,569			54,569
Reserves	17		141,942			145,209			145,894
Retained loss			(147,654	)		(150,128	)		(151,824	)
Equity attributable to shareholders			48,857			49,650			48,639
Non-controlling interests	30		1,504			693			(48	)
Total equity			50,361			50,343			48,591

Liabilities
Provisions	21		2,762			2,484			1,470
Deferred tax liability	11		11,318			8,680			7,967
Total non-current liabilities			14,080			11,164			9,437

Trade and other payables	22		6,656			3,260			4,301
Income tax payable			53			1,712			1,064
Bank overdraft	15		1,688			-			1,679
Total current liabilities			8,397			4,972			7,044
Total liabilities			22,477			16,136			16,481
Total equity and liabilities			72,838			66,479			65,072

* Re-presented, refer note 2 (iii)

The accompanying notes on page 7 to 59 are an integral part of these consolidated financial statements.

On behalf of the Board: “S.R. Curtis”- Chief Executive Officer and “M. Learmonth”- Chief Financial Officer.

Caledonia Mining Corporation

Consolidated statements of changes in equity

(In thousands of United States Dollars, unless indicated otherwise)

	Share capital	Foreign Currency Translation Reserve	Contributed Surplus	Share- based payment reserve	Retained Loss	Total	Non- controlling interests (“NCI”)	Total Equity
Balance at January 1, 2014 ^*	54,569	(2,544)	132,591	15,847	(151,824)	48,639	(48)	48,591
Transactions with owners:
Dividends paid	-	-	-	-	(2,850)	(2,850)	(770)	(3,620)
Total comprehensive income:		-
Profit for the year	-	-	-	-	4,435	4,435	1,511	5,946
Other comprehensive income for the year	-	(685)	-	-	111	(574)	-	(574)
Balance at December 31, 2014 ^*	54,569	(3,229)	132,591	15,847	(150,128)	49,650	693	50,343
Transactions with owners:
Share-based payment transaction	-	-	-	24	-	24	-	24
Dividends paid	-	-	-	-	(2,504)	(2,504)	-	(2,504)
Total comprehensive income:
Profit for the year	-	-	-	-	4,779	4,779	811	5,590
Other comprehensive income for the year	-	(3,291)	-	-	199	(3,092)	-	(3,092)
Balance at December 31, 2015	54,569	(6,520)	132,591	15,871	(147,654)	48,857	1,504	50,361

* Re-presented, refer note 2 (iii)

Caledonia Mining Corporation

Consolidated Statements of cash flows

For the years ended December 31

(In thousands of United States Dollars, unless indicated otherwise)

	Note	2015			^* 2014

Cash flows from operating activities	23		8,823			15,584
Interest received			1			14
Interest paid			(493	)		(121	)
Tax paid	11		(1,462	)		(4,526	)
Net cash from operating activities			6,869			10,951

Cash flows from investing activities
Acquisition of property, plant and equipment			(16,567	)		(6,150	)
Net cash used in investing activities			(16,567	)		(6,150	)

Cash flows from financing activities
Dividends paid			(2,504	)		(3,620	)
Net cash used in financing activities			(2,504	)		(3,620	)

Net (decrease)/increase in cash and cash equivalents			(12,202	)		1,181
Cash and cash equivalents at beginning of year			23,082			21,901
Net cash and cash equivalents at year end	15		10,880			23,082

* Re-presented, refer note 2 (iii)

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and December 31, 2014

(in thousands of United States dollars, unless indicated otherwise)

____________________________________________________________________________________________

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 years ended December 31, 2015 and December 31, 2014 comprise 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 18, 2016.

(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 change in presentation currency

Effective December 31, 2015, Caledonia Mining Corporation changed its presentation currency in the consolidated financial statements from the Canadian dollar to the United States dollar (“US dollar”). The change in presentation currency was made to better reflect the Group's business activities and to improve investor ability to compare the Group's financial results with other publicly traded businesses in the industry. In making the change to a US dollar presentation currency, the Group applied the change retrospectively as if the new presentation currency had always been the Group's presentation currency. The change in presentation currency was applied retrospectively up to January 1, 2010, which was the date of initial adoption of IFRS by the Group. Equity was translated at the exchange rate at January 1, 2010, except for the foreign currency translation reserve which was reset to zero and with the balance recognised in retained earnings, in accordance with IFRS 1: First-time Adoption of International Financial Reporting Standards. The financial statements for all the years presented have been translated to a US dollar presentation currency. For comparative balances, assets and liabilities were translated into the presentation currency at the rate of exchange prevailing at the reporting date for those financial years, income and expenses were translated into the presentation currency using the exchange rate at the date of transaction or using a reasonable average exchange rate that approximates the exchange rates at the dates of the transactions in accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates. Exchange rate differences arising on translation to the presentation currency were recognised in the foreign currency translation reserve in shareholders' equity.

2 Basis for preparation (continued)

(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.

(a)

Judgements, assumptions and estimation uncertainties

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.

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 2015 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 that 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 conditions 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 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.

3 Use of estimates and judgements - (continued)

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.

The recoverability of the carrying amount of the South African 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.

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. 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 may 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.

Share based payment transactions

The Group measures the cost of equity-settled, share based payment transactions with employees, directors as well as with Indigenous 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 share options.

Use of estimates and judgements - (continued)

vi)

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).

vii)

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.

viii)

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. No such issues were identified during the reporting period.

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 liabilities, either directly (i.e. as price) or indirectly (i.e. derives from prices).

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

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

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 Non-controlling interests (“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

Foreign operations

As stated in note 2(iii) the presentation currency of the Group is the US dollar. 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”). Subsidiary financial statements have been translated to US 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.

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 settlement occurs, settlement will not be regarded as a partial disposal and accordingly the foreign exchange gain or loss previously recognised in OCI is not reclassified to profit or loss/reallocated to NCI.

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.

(c)	Financial instruments

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.

4 Significant accounting policies - (continued)

The Group has the following non-derivative financial assets: trade and other receivables 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.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts are repayable on demand and form an integral part of the Group’s cash management process. The bank overdraft is 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.

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. 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.

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.

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 development and certain mine specific plant and equipment is provided for on the unit-of-production basis using estimated proven and probable reserves. Where orebodies are not yet 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 equipment 10 years

·	fixtures and fittings including computers 4 to 10 years

·	motor vehicles 4 years

·	mineral properties 11 years

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

(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 and is valued on the weighted average cost principle. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

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 of disposal. 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”).

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 of disposal 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 impairment 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.

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 profit or loss 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 profit or loss.

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 profit or loss, 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 or loss for the year. 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

4 Significant accounting policies – (continued)

include commitment costs on overdraft facilities. Finance income and finance costs further include foreign exchange differences on financial assets and financial liabilities.

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

4 Significant accounting policies – (continued)

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.

(p)	The following standards, amendments to standards and interpretations to existing standards may possibly have an impact on the Group:

Standard/Interpretation		Effective date and expected adoption date*
IAS 1 (Amendments)	Presentation of Financial Statements There is an emphasis on materiality. Specific single disclosures that are not material do not have to be presented – even if they are a minimum requirement of a standard. The order of notes to the financial statements is not prescribed. Instead, companies can choose their own order, and can also combine, for example, accounting policies with notes on related subjects. Specific criteria are provided for presenting subtotals on the balance sheet and in the statement of profit or loss and OCI, with additional reconciliation requirements for the statement of profit or loss and OCI. The amendment is not expected to result in significant changes to the level of aggregation in the financial statements.	December 31, 2016

* Annual periods ending on or after

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

IFRS 15	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 has performed a preliminary assessment and expects no impact to the results or disclosures and 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 financial statements for the year ending December 31, 2016.	December 31, 2018
IFRS 9	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.	December 31, 2018
IFRS 16 Leases	IFRS 16 was published in January 2016. It sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, ie the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 has one model for lessees which will result in almost all leases being included on the Statement of Financial position. No significant changes have been included for lessors. The group and company are assessing the potential impact on the financial statements resulting from the application of IFRS 16.	December 31, 2019

* Annual periods ending on or after

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 $11.74 million.

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

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

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

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 $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:

20% of the 16% shareholding of NIEEF;

20% of the 15% shareholding of Fremiro;

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

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

·	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, 2015 the attributable net asset value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognised.

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 2015		Dec, 31 2014
NIEEF		16	%		3.2	%		12.8	%		11,907		11,907
Fremiro		15	%		3.0	%		12.0	%		11,657		11,657
Community Trust		10	%		10.0	%		-			-		-
BETS ~		10	%		-	*		-	*		7,772		7,772
		51	%		16.2	%		24.8	%		31,336		31,336

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

The balance on the facilitation loans is reconciled as follows:

Balance at January 1, 2014	30,675
Interest accrued	2,407
Dividends used to repay loans	(1,746	)
Balance at December 31, 2014	31,336
Interest accrued ^&	-
Dividends used to repay loans ^&	-
Balance at December 31, 2015	31,336

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

^&A moratorium has been placed on interest until dividend payments resume at Blanket mine.

~ 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:

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

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

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

·	A $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 $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, a moratorium was placed on the NIEEF facilitation loan interest until dividends resume.

5 Blanket Zimbabwe Indigenisation Transaction – (continued)

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.

Blanket has suspended dividend payments from January 1, 2015 until early 2016 as a result of which the repayment of facilitation loans by Blanket’s indigenous shareholders were also suspended. During this period, there was a moratorium on the interest on the outstanding facilitation loans. This is considered a modification and was not beneficial to the indigenous shareholders.

The movement in the advance dividend loans are reconciled as follows:

	NIEEF			Community Trust			Total

Balance at January 1, 2014		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
Interest accrued ^&		-			-			-
Dividends used to repay advance dividends		-			-			-
Balance at December 31, 2015		-			3,237			3,237

^& A moratorium has been placed on interest until dividend payments resume at Blanket mine.

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 and 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.

6 Financial risk management – (continued)

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. On February 10, 2016, a gold price hedge was entered into to manage the possible effect of gold price fluctuations (refer note 31). As at December 31, 2015 no financial instruments were in place to manage the gold price risk.

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 an investment grade credit-rating.

(c)	Credit risk

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 banks with investment grade credit-rating.

(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 and cash to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be 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.

	December 31, 2015		December 31, 2014		January 1, 2014

Total equity		50,361		50,343		48,591

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, 2015, 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. Management is of the opinion that the capital is sufficient to safeguard its ability to continue as a going concern and maintain operations and exploration potential of the mineral properties.

8 Production costs

	2015		2014

Salaries and wages		11,908		10,014
Consumable materials		14,479		14,565
Site restoration		-		29
Exploration		380		343
Safety		551		473
On mine administration		2,701		2,484
		30,019		27,908

9 Administrative expense

	2015		2014

Investor relations		513		514
Audit fee		240		356
Legal fee and disbursements		452		722
Advisory services fee		355		24
Listing fees		206		318
Directors fees company		191		298
Directors fees Blanket		60		38
Employee costs		3,106		3,152
Office costs - Zambia ^*		716		896
Other office administration costs		547		16
Unrecoverable VAT expenses and penalties		298		-
Employee benefits relating to indigenisation		-		140
Travel costs		325		303
Donation to community		58		-
Eersteling Gold Mine administration costs		111		120
Professional consulting fees		444		490
		7,622		7,387

* The Zambia operations were closed down during 2015 and the companies in Zambia were struck off the companies register on September 2, 2015.

10 Finance income and finance costs

Finance income	2015		2014

Interest received – Bank		1		14

Finance cost

Interest paid – Bank		49		20
Unwinding of rehabilitation provision		43		33
Interest – South African Revenue Service		344		-
Finance charges – Overdraft		100		101
		536		154

11 Tax expense

	2015			2014
Tax recognised in profit or loss

Current tax		(197	)		5,276
Income tax– current year		506			4,582
Income tax – Prior year overprovision		(1,636	)		(194	)
Withholding tax expense		933			888
Deferred tax expense		2,567			706
Origination and reversal of temporary differences		2,567			468
Change in effective tax rate		-			238

Tax expense – recognised in profit or loss		2,370			5,982

Tax recognised in other comprehensive income

Income tax - current year			(199	)			(111	)
Tax expense			2,171				5,871

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:	2015		2014

Tax losses carried forward		11,150		*19,957
		11,150		19,957

* Tax losses carried forward included an amount of $9,357 relating to the Zambia operations which were shut down during the year.

11 Tax expense - (continued)

Taxable losses expire as set out below for the entities incurring 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^*
2026		2,451
2027		2,854
2028		2,139
2029		1,461
2030		1,567
2031		2,262
2032		2,667
2033		2,812
2034		3,710
2035		1,643
No expiry		17,553
		41,119

* Tax losses carried forward with no expiry, arose in the South African tax jurisdiction. The remainder arose in Canada.

Tax paid	2015			2014

Net income tax payable at January 1		(1,617	)		(1,064	)
Current and withholding tax credit/(expense)		197			(5,276	)
Income tax expense recognised through other comprehensive income		199			111
Foreign currency movement		103			86
Tax paid		1,462			4,526
Net income tax receivable/(payable) at December 31		344			(1,617	)

Net income tax	December 31, 2015			December 31, 2014			January 1, 2014

Income tax receivable ^*		397			95			-
Income tax payable		(53	)		(1,712	)		(1,064	)
Net income tax receivable/(payable)		344			(1,617	)		(1,064	)

* Receivable is due to an overpayment made to Her Majesty’s Revenue and Customs during quarter 1 of 2015 as well as an overpayment to the Zimbabwe Revenue Authority during Quarter 4 of 2014. These overpayments cannot be offset against other tax jurisdictions.

11 Tax expense - (continued)

Reconciliation of tax rate

	2015	2015	2014	2014
	%		%
Profit for the year		5,590		5,946
Total tax expense		2,370		5,982
Profit before tax		7,960		11,928

Income tax at Company's domestic tax rate	26.5%	2,109	26.5%	3,161
Tax rate differences in foreign jurisdictions		(63)		(349)
Change in tax rate		-		238
Foreign currency difference		(12)		34
Withholding tax – not offsetable		317		185
Permanent differences		1,105		1,584
Deemed interest on loans		31		636
Share based payments		6		-
Impairment		-		37
Non-deductible South African tax transactions		470		-
Royalties		632		881
Donations		15		3
Other		(49)		27
Over provision of taxes in prior years		(1,636)		(194)
Change in unrecognized deferred tax assets		550		1,323
Tax expense - recognised in profit or loss		2,370		5,982

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and December 31, 2014

(in thousands of United States dollars, unless indicated otherwise)

____________________________________________________________________________________________

11 Tax expense - (continued)

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	Assets				Liabilities						Net
	2015		2014		2015			2014			^*2015			2014

Property, plant and equipment		-		-		(12,988	)		(9,223	)		(12,988	)		(9,223	)
Prepayments		-		-		(3	)		(22	)		(3	)		(22	)
Provisions		733		565		-			-			733			565
Assessed losses recognised		998		-		-			-			998			-
Tax assets/ (liabilities)		1,731		565		(12,991	)		(9,245	)		(11,260	)		(8,680	)

^* The deferred tax liability consists of a deferred tax asset of $58 from the South African operations and a deferred tax liability of $11,318 due to the Zimbabwean operations. The amounts are in different tax jurisdictions and therefore not offsetable and presented separately in the Statement of financial position as a Non-current asset and a Non-current liability.

Movement in recognised deferred tax assets and liabilities

	Balance January 1, 2015			Recognised in profit or loss			Foreign exchange movement			Balance December 31, 2015
Property, plant and equipment		(9,223	)		(3,765	)		-			(12,988	)
Prepayments		(22	)		16			3			(3	)
Provisions		565			184			(16	)		733
Assessed loss recognised		-			998			-			998
Total		(8,680	)		(2,567	)		(13	)		(11,260	)

11 Tax expense - (continued)

	Balance January 1, 2014			Recognised in profit or loss			Foreign exchange movement			Balance December 31, 2014
Property, plant and equipment		(8,058	)		(835	)		(330	)		(9,223	)
Prepayments		-			-			(22	)		(22	)
Provisions		207			108			250			565
Inventory		(80	)		-			80			-
Other		(36	)		21			15			-
Total		(7,967	)		(706	)		(7	)		(8,680	)

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, 2014		7,622			14,016			15,258			20,079			1,220			2,075			60,270
Additions		536			*3,070			1,688			1,740			114			18			7,166
Disposals		-			-			-			(275	)		-			(8	)		(283	)
Reallocations between asset classes		(580	)		1,661			-			(1,084	)		3			-			-
Foreign exchange movement		30			92			(3,684	)		508			(145	)		(114	)		(3,313	)
Balance at December 31, 2014		7,608			18,839			13,262			20,968			1,192			1,971			63,840

Balance at January 1, 2015		7,608			18,839			13,262			20,968			1,192			1,971			63,840
Additions^**		681			*14,359			1,595			1,144			149			265			18,193
Surrender of Zambian assets ^***		-			-			(11,527	)		-			-			-			(11,527	)
Reallocations between asset classes		(256	)		-			1,012			(756	)		-			-			-
Disposals		-			-			-			(124	)		-			(77	)		(201	)
Foreign exchange movement		(44	)		(89	)		(69	)		(606	)		(64	)		(90	)		(962	)
Balance at December 31, 2015		7,989			33,109			4,273			20,626			1,277			2,069			69,343

* Included in mineral properties depreciated is an amount of $391 (2014: $1,016) relating to rehabilitation asset capitalised refer note 21.

** Included in additions is an amount of $26,192 (2014:$11,295) relating to capital work in progress.

*** The Group surrendered all exploration rights relating to the Zambian operations for a nominal value. The Zambian assets were fully impaired in previous years.

There are commitments to purchase plant and equipment totalling $1,376 (2014:$552) at year end.

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, 2014		1,621			2,642			13,400			9,243			994			1,098			28,998
Depreciation for the year		514			734			-			1,891			78			323			3,540
Impairment		-			-				^-		164			14			-			178
Disposals		-			-			-			(214	)		-			(8	)		(222	)
Foreign exchange movement		(372	)		59			(1,873	)		(954	)		(140	)		(110	)		(3,390	)
Balance at December 31, 2014		1,763			3,435			11,527			10,130			946			1,303			29,104

Balance at January 1, 2015		1,763			3,435			11,527			10,130			946			1,303			29,104
Depreciation for the year		559			451			-			1,894			98			320			3,322
Surrender of Zambian assets		-			-			(11,527	)		-			-			-			(11,527	)
Disposals ^***		-			-			-			(117	)		-			(51	)		(168	)
Foreign exchange movement		(1	)		(105	)		-			(383	)		(48	)		(69	)		(606	)
Balance at December 31, 2015		2,321			3,781			-			11,524			996			1,503			20,125

Carrying amounts
At January 1, 2014		6,001			11,374			1,858			10,836			226			977			31,272
At December 31, 2014		5,845			15,404			1,735			10,838			246			668			34,736
At December 31, 2015		5,668			29,328			4,273			9,102			281			566			49,218

*** The Group surrendered all exploration rights relating to the Zambian operations for a nominal value. The Zambian assets were fully impaired in previous years.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and December 31, 2014

(in thousands of United States dollars, unless indicated otherwise)

____________________________________________________________________________________________

13 Inventories

	December 31, 2015		December 31, 2014		January 1, 2014

Consumable stores		5,739		5,962		5,605
Gold in process		352		550		814
		6,091		6,512		6,419

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 for obsolete items, which amounted to $46 (2014: Nil; 2013:$53).

14 Trade and other receivables

	December 31, 2015		December 31, 2014		January 1, 2014

Bullion revenue receivable		-		-		1,554
VAT receivables		2,997		1,006		1,244
Deposits for stores and equipment and other receivables		842		749		838
		3,839		1,755		3,636

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.

15 Cash and cash equivalents

	December 31, 2015			December 31, 2014		January 1, 2014

Bank balances		12,568			23,082		23,580
Cash and cash equivalents in the statement of financial position		12,568			23,082		23,580
Bank overdrafts used for cash management purposes		(1,688	)		-		(1,679	)
Net cash and cash equivalents at year end		10,880			23,082		21,901

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 $5 million bears interest at 6.5% below the bank’s base rate of 13%. The facility is unsecured, with no covenant requirements. 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, 2013		52,117,908		54,569
December 31, 2014		52,117,908		54,569
Cancelled*		39,000		-
December 31, 2015		52,078,908		54,569

* 39,000 treasury shares issued to Caledonia Mining Corporation was cancelled during the year.

The holders of comon 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.

17 Reserves

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	December 31,		December 31,			January 1,
	2015		2014			2014
Foreign currency translation reserve	(6,520	)		(3,229	)		(2,544	)
Share-based payment reserve	15,871			15,847			15,847
Contributed surplus	132,591			132,591			132,591
Total	141,942			145,209			145,894

18 Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the year ended December 31, 2015 was based on the adjusted profit attributable to shareholders of $4,679 (2014: $4,387), and a weighted average number of shares outstanding of 52,095,087 (2014: 52,117,908).

18 Earnings per share – (continued)

Weighted average number of shares

(In number of shares)	Note	2015			2014

Issued share capital at beginning of year	16		52,117,908			52,117,908
Weighted average cancellation during the year			(22,821	)		-
Weighted average number of shares at December 31			52,095,087			52,117,908

	2015			2014
Profit attributable to shareholders		4,779			4,435
Blanket Mine Employee Trust Adjustment		(100	)		(48	)
Adjusted profit attributable to shareholders		4,679			4,387
Basic earnings per share -$		0.09			0.08

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 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.

18 Earnings per share – (continued)

The calculation of diluted earnings per share at December 31, 2015 was based on the adjusted profit attributable to shareholders of $4,679 (2014: $4,387), and a weighted average number of shares and potentially dilutive shares outstanding of 52,203,255(2014: 52,145,469), calculated as follows:

Weighted average number of shares

(In number of shares)	2015		2014

Weighted average number of shares at December 31		52,095,087		52,117,908
Effect of dilutive options		108,169		27,561
Weighted average number of shares (diluted) at December 31		52,203,255		52,145,469
Diluted earnings per share - $		0.09		0.08

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 2,132,751 (2014: 2,538,359) for these options on common shares, were 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, 2015 was $473 (2014: $443).

20 Share-based payments

At December 31, 2015 the Group has the following share-based payment arrangements:

(a) Share option programme

The Group has established a new Omnibus Equity Incentive Compensation Plan (“OEICP”) for grants after May 2015. Share options issued before May 2015 were issued in terms of the rolling stock option plan, which was superseded by the OEICP. In accordance with both plans, options are granted at an exercise price equal to the market price of the shares at the date of grant and vest according to dates set at the discretion of the Compensation Committee of the board of directors at the date of grant. All outstanding option awards that have been granted pursuant to the plans vest immediately.

Terms and conditions of share option programmes

The maximum term of the options under the OEICP is 10 years and under the rolling stock option plan 5 years. The terms and conditions relating to the grant of options under the rolling stock option plan are that all options are to be settled by physical delivery of shares. Under both plans the aggregate number of shares that may be issued pursuant to the grant of options, or under any other share compensation arrangements of the Company, will not exceed 10% of the aggregate issued and outstanding shares issued of the Company. Refer to note 31 for share based payment awards made after December 31, 2015.

20 Share-based payments – (continued)

At December 31, 2015, the Company has the following options outstanding:

Number of Options	Exercise Price	Expiry Date⁽¹⁾
	Canadian $
1,161,000	1.30	Jan 31, 2016
30,000	0.70	May 11, 2016
744,920	0.90	Sept 10, 2018
190,000	0.72	Nov 21,2018
25,000	0.80	Oct 8, 2025
90,000	0.74	Dec 22, 2025
2,240,920

⁽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 options with an expiry date of January 31, 2016 will therefore expire 10 days after the publication of these financial statements.

The continuity of the options granted, exercised, cancelled and expired under the Plan during fiscal 2015, 2014 are as follows:

	Number of Options			Weighted Avg. Exercise Price
				Canadian $
Options outstanding and exercisable at January 1, 2014		2,847,920			1.11
Expired or forfeited		(282,000	)		1.13
Options outstanding and exercisable at December 31, 2014		2,565,920			1.11
Expired or forfeited		(440,000	)		1.11
Granted		115,000			0.73
Options outstanding and exercisable at December 31, 2015		2,240,920			1.08

The weighted average remaining contractual life of the outstanding options is 2.46 years (2014: 1.81 years). No share options were exercised during 2015.

Future vesting of options is determined at the discretion of the Compensation Committee of the Board of Directors, at the time the options are granted.

20 Share-based payments – (continued)

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.

Options granted		25,000			90,000
Grant date	October 7, 2015			December 21, 2015
Risk-free interest rate		0,53	%		0,53	%
Expected dividend yield		6.8	%		6.8	%
Expected stock price volatility (based on historical volatility)		39,6	%		41,2	%
Expected option life in years		5			5
Exercise price		0.80			0.74
Share price at grant date		0.79			0.74
Fair value at grant date		0.27			0.27
Expected forfeiture rate		0	%		0	%

During 2015 two share based payments were granted in grants of 25,000 and 90,000 share equity options. The expense relating to share based payments granted amounted to $24 (2014: nil). Expected volatility has been based on an evaluation of the historical volatility of the company’s share price. The expected term has been based on historical experience.

(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.

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 a mine and site and environmental restoration costs, estimated to be paid in 2026 for Blanket Mine based on the estimated life of mine. Site restoration costs at Blanket mine are capitalised to mineral properties depreciated at initial recognition and amortised systematically over the estimated life of the mine for costs relating to the decommissioning of property, plant and equipment.

Reconciliation of site restoration provision

Balance at January 1, 2014	1,470
Foreign exchange movement	(64	)
Unwinding of discount	33
Change in estimate during the year
- adjusted through profit or loss	29
- adjustment capitalised in Property, plant and equipment	1016
Balance at December 31, 2014	2,484

Balance at January 1, 2015	2,484
Foreign exchange movement	(156	)
Unwinding of discount	43
Change in estimate during the year
- adjusted through profit or loss	-
- adjustment capitalised in Property, plant and equipment	391
Balance at December 31, 2015	2,762

21	Provisions – (continued)

The discount rates currently applied in the calculation of the net present value of the Blanket mine provision is 2.76% (2014: 2.32%), based on a nominal rate and cash flows estimated at 0% inflation. The Eersteling mine is under care and maintenance and the provision is not discounted. The gross rehabilitation costs before discounting amounted to $3,006 (2014: $2,486) for Blanket mine and $459 (2014: $616) for Eersteling mine.

22 Trade and other payables

	December 31, 2015		December 31, 2014		January 1, 2014

Trade payables		1,257		866		959
Audit fee		240		294		210
Other payables and accrued expenses		1,599		507		789
Financial liabilities		3,096		1,667		1,958
VAT payable and other taxes		329		357		331
Production and management bonus accrual		1,792		-		1,031
Other employee benefits		114		102		163
Leave pay		1,325		1,134		818
Non-financial liabilities		3,560		1,593		2,343
Total		6,656		3,260		4,301

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 6 and note 24. Of the production and management bonus accrual at December 31, 2015, $1,289 relates to production bonuses payable to the employees at Blanket and the balance relates to bonuses payable to employees at Caledonia Mining South Africa Proprietary Limited. 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:

	2015			2014
Operating profit		8,495			12,068
Adjustments for:
Loss on scrapping of Property, plant and equipment		33			62
Foreign exchange gains on cash held		(2,865	)		(423	)
Site restoration		-			29
Share-based payment expense		24			-
Depreciation		3,322			3,540
Write off of inventory		46			-
Impairment		-			178
Cash generated by operations before working capital changes		9,055			15,454
Inventories		375			(94	)
Prepayments		(321	)		(46	)
Trade and other receivables		(1,472	)		566
Trade and other payables		1,186			(296	)
Cash flows from operating activities		8,823			15,584

24 Financial instruments

i) 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:

Carrying amount	December 31, 2015		December 31, 2014		January 1, 2014

Canada		-		84		-
Zimbabwe		842		665		2,392
		842		749		2,392

Impairment losses

None of the trade and other receivables are past due at year-end. Trade and other receivables have a past history of payment shortly after year end and management identified no factors at year end that could cause doubt about the credit quality or recoverability of the trade and other receivables.

24 Financial instruments (continued)

ii) Liquidity risk

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

Non-derivative financial liabilities	Carrying amount		6 months or less
December 31, 2015
Trade and other payables		3,096		3,096
Bank overdraft		1,688		1,688
		4,784		4,784
December 31, 2014	Carrying amount		6 months or less
Trade and other payables		1,667		1,667
		1,667		1,667

January 1, 2014	Carrying amount		6 months or less
Non-derivative financial liabilities
Trade and other payables		1,958		1,958
Bank overdraft		1,679		1,679
		3,637		3,637

iii)

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 US 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 US dollar in the Group’s consolidated financial statements.

The fluctuation of the US dollar in relation to other functional currencies of entities within the Group 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 currencies other than the reporting currency. 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.

24 Financial instruments (continued)

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

	December 31, 2015		December 31, 2014		January 1, 2014
Cash and cash equivalents		132		470		416
Trade and other receivables		566		83		1
Trade and other payables		510		575		648

The following exchange rates applied during the year:

	Average rate during the year				Spot rate
	2015		2014		December 31, 2015		December 31, 2014		January 1,2014
(In US dollars)
CAD 1		0.7823		0.9057		0.7210		0.8601		0.9349
Rand (ZAR) 1		0.0784		0.0923		0.0644		0.0871		0.0967

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 and equity 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.

	2015 USD‘000					2014 USD’000
	Functional currency					Functional currency
	ZAR			CAD		ZAR			CAD
Cash and cash equivalents		3,874			5,483		10,514			553
Trade and other payables		-			-		-			-
Intercompany balances^*		(27,650	)		44,390		(30,320	)		48,484
		(23,776	)		49,873		(19,806	)		49,037

A reasonably possible strengthening or weakening of 5% of the various functional currencies against the foreign currencies, would have the following equal or opposite effect on profit or loss before tax for the group:

	2015 USD‘000					2014 USD’000
	Functional currency					Functional currency
	ZAR			CAD		ZAR			CAD
Cash and cash equivalents		194			274		526			28
Trade and other payables		-			-					-
Intercompany balances^*		(1,382	)		2,219		(1,516	)		2,424

^*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.

iv)

Interest rate risk

The Group has no significant exposure to interest rate risk.

24 Financial instruments – (continued)

Gold price risk

On February 10, 2016, a gold price hedge was entered into to manage the possible effect of gold price fluctuations (refer note 31). As at December 31, 2015 no financial instruments were in place to manage the gold price risk.

25 Dividends

The following dividends were declared and paid by the Company (excluding NCI):

		December 31, 2015				December 31, 2014
$0.048 per qualifying share (2014: $0.054)			2,504				2,850

From the start of fiscal 2014 to October 6, 2015, the Company paid an annual aggregate dividend of six Canadian cents ($0.060) per share.

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 management.

27 Related parties – (continued)

Employee contracts between Caledonia Mining South Africa Proprietary Limited and key management, include an option for respective key management to terminate such employee 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, 2015 the severance payment would have amounted to $3,578 (2014: $3,611). 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

Caledonia Mining South Africa Proprietary Limited or Caledonia Mining Corporation.

Key management personnel and director transactions:

A number of related parties 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:

	2015		2014
Key management salaries and bonuses		2,452		1,781
Share-based payments		24		-
		2,476		1,781

Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 20). Group entities are set out in note 28. As at year end 1,739,020 (2014:1,584,520) related to directors and key management.

27 Related parties – (continued)

	Transactions during the year
	Note	2015	2014
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)	-	850
Rent for office premises paid to a company owned by members of the former Chief Executive Officer’s family.	(ii)	40	129
Directors fees		191	298

(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 expired on September 2015.

Refer to note 5 and note 30 for transactions with Non-controlling interests. Refer to note 29 for management fees between Caledonia Mining South Africa Proprietary Limited and Blanket Mine (1983) (Private) Limited.

28 Group entities

	Country of incorporation	Legal shareholding		Intercompany balances with Holding company
		2015	2014	2015	2014
Subsidiaries of the Company		%	%
Caledonia Holdings Zimbabwe (Private) Limited	Zimbabwe	100	100	-	-
Caledonia Mining Services Limited	Zimbabwe	100	100	-	-
Caledonia Kadola Limited ⁽⁴⁾	Zambia	-	100	-	-
Caledonia Mining (Zambia) Limited ⁽⁴⁾	Zambia	-	100	-	(15,499)
Caledonia Nama Limited ⁽⁴⁾	Zambia	-	100	-	(12,435)
Caledonia Western Limited ⁽⁴⁾	Zambia	-	100	-	-
Mulonga Mining Limited ⁽⁴⁾	Zambia	-	100	-	-
Eersteling Gold Mining Corporation Limited	South Africa	100	100	(12,585)	(12,575)
Fintona Investments Proprietary Limited	South Africa	100	100	(14,859)	(14,859)
Caledonia Mining South Africa Proprietary Limited	South Africa	100	100	(3,806)	(3,806)
Greenstone Management Services Limited	United Kingdom	100	100	7,846	7,846
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	-	-	-	-

⁽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.

⁽⁴⁾The Zambia operations were closed down during 2015 and the Companies in Zambia were struck of the Companies register on September 2, 2015.

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 Caledonia Mining South Africa 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 CEO. 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

2015	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total

External Revenue		9,497			48,978			17,016			-			(26,514	)		48,977
Royalties		-			(2,455	)		-			-			-			(2,455	)
Production costs		-			(30,955	)		(12,174	)		-			13,110			(30,019	)
Management fee		-			(4,140	)		4,140			-			-			-
Share based payment expense		(24	)		-			-			-			-			(24	)
Other income		9			55			46			-			-			110
Administrative expenses		(5,802	)		(118	)		(8,135	)		(750	)		7,183			(7,622	)
Depreciation		-			(3,559	)		(42	)		-			279			(3,322	)
Finance income		-			-			1			-			-			1
Finance expense		(344	)		(190	)		(2	)		-			-			(536	)
Foreign exchange gain/(loss)		431			-			2,419			-			-			2,850
Profit before income tax		3,767			7,616			3,269			(750	)		(5,942	)		7,960
Tax expense		522			(2,616	)		(276	)		-			-			(2,370	)
Profit after income tax		4,289			5,000			2,993			(750	)		(5,942	)		5,590

29 Operating Segments – (continued)

2015	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total

Geographic segment assets:
Current (excluding intercompany)		8,857			10,386			4,918			1			(600	)		23,562
Non-current (excluding intercompany)		40			50,613			370			-			(1,747	)		49,276
Additions to property, plant and equipment		-			18,385			143			-			(335	)		18,193
Intercompany balances		74,007			1,509			7,958			-			(83,474	)		-

Geographic segment liabilities
Current (excluding intercompany)		(433	)		(6,497	)		(1,469	)		-			-			(8,397	)
Non-current (excluding intercompany)		-			(13,621	)		(459	)		-			-			(14,080	)
Intercompany balances		(16,734	)		(3,507	)		(37,290	)		(25,943	)		83,474			-

2014	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total

External Revenue		3,719			53,513			7,167			-			(10,886	)		53,513
Royalties		-			(3,522	)		-			-			-			(3,522	)
Production costs		-			(28,536	)		(6,256	)		-			6,884			(27,908	)
Management fee		-			(4,680	)		4,680						-
Other income/(expense)		-			16			9			-			-			25
Administrative expenses		(3,115	)		(436	)		(2,942	)		(894	)		-			(7,387	)
Depreciation		-			(3,522	)		(18	)		-			-			(3,540	)
Impairment		-			(81	)		-			(97	)		-			(178	)
Finance income		14			-			-			-			-			14
Finance expense		-			(154	)		-			-			-			(154	)
Foreign exchange gain/(loss)		49			-			1,016			-			-			1,065
Profit before income tax		667			12,598			3,656			(991	)		(4,002	)		11,928
Tax expense		(1,067	)		(3,594	)		(1,321	)		-			-			(5,982	)
Profit after income tax		(400	)		9,004			2,335			(991	)		(4,002	)		5,946

29 Operating Segments – (continued)

2014	Corporate			Zimbabwe			South Africa			Zambia			Inter-group eliminations adjustments			Total
Geographic segment assets:
Current		10,768			10,448			11,783			44			(1,300	)		31,743
Non-current (excluding intercompany)		48			35,818			306			-			(1,436	)		34,736
Additions to property, plant and equipment		-			7,022			47			97			-			7,166
Intercompany balances		101,920			1,503			29,060			-			(132,483	)		-

Geographic segment liabilities
Current		(994	)		(2,412	)		(1,566	)		-			-			(4,972	)
Non-current (excluding intercompany)		-			(10,571	)		(593	)		-			-			(11,164	)
Intercompany balances		(33,955	)		(902	)		(72,406	)		(25,220	)		132,438			-

Major customer

Revenues from Fidelity Printers in Zimbabwe amounted to approximately $48,977 (2014: $53,513).

30	Non-controlling interests

Blanket Mine (1983) (Private) Limited NCI % - 16.2%

	2015			2014

Current assets		10,386			10,448
Non-current assets		50,613			37,322
Current liabilities		(6,497	)		(2,412	)
Non-current liabilities		(13,621	)		(10,571	)
Net assets		40,881			(34,787	)

Carrying amount of NCI		1,504			693


Revenue		48,977			53,515
Profit		5,000			8,860
Total comprehensive income		5,000			8,860

Profit allocated to NCI		811			1,511
Dividend paid to NCI		-			770

31 Subsequent events

i) Gold Hedge

In February 2016, the Company announced it had entered into a hedge in respect of 15,000 ounces of gold over a period of 6 months. The hedge protects the Company if the gold price falls below $1,050 per ounce but gives Caledonia full participation if the price of gold exceeds $1,079 per ounce. Blanket continues to sell all of its gold production to Fidelity Printers and Refiners Ltd (“Fidelity”), as required by Zimbabwean legislation, and receives the spot price of gold less an early settlement discount of 1.25%. The maximum cost of the hedge to Caledonia is $435. The full accounting impact has not been determined at the date of approval of these financial statements.

ii)

Recapitalisation of Blanket Mine (1983) (Private) Limited (“Blanket”)

On February 26, 2016 Blanket entered into an agreement to recapitalise its cash resources by issuing shares to current shareholders as follows:

Caledonia Holdings Zimbabwe (Private) Limited subscribed for 4,755,556 Founder shares with a par value of $0.012 at $1.051;

A-class shareholders (NIEEF, BETS and Fremiro) subscribed for 3,979,140 A-class shares with a par value of $0.005 at $0.57; and

GCSOT subscribed for 970,522 B class shares with a par value of $0.005 for a nominal amount of $4.8

31 Subsequent events – (continued)

Founder shares will be paid for in a cash consideration of $5 million funded through Greenstone Management Services Limited (United Kingdom). A class shares will be funded by increasing the Facilitation loans (described in note 5) by $2.27 million on the same terms and conditions as the previous facilitation loan agreements. The B class shares were donated by Blanket. The transaction would not affect the current shareholding structure of the Company and the entity will continue to consolidate Blanket after the transaction.

Reserve Bank of Zimbabwe approval for these share transactions was obtained on March 1, 2016. The transaction is further dependant on the approval by the Zimbabwe Reserve Bank of the $5 million loan from Greenstone Management Services Limited (United Kingdom) to Caledonia Holdings Zimbabwe (Private) Limited, which was received on March 14, 2016. At the date of these financial statements funds had not been moved to effect the recapitalisation and the financial effect of the recapitalisation cannot be determined at the date of approval of these financial statements.

iii)

Re-domicile to Jersey

On December 21, 2015 the Company announced that it would seek shareholder approval to re-domicile from Canada to Jersey using a legal process called “Continuance”.

The reasons for the proposed Continuance included:

the Company has no commercial operations in Canada, hence there is no reason for it to be domiciled in Canada and subject to Canadian taxes and the compliance costs associated with being a Canadian tax entity;

Jersey is more conveniently located in relation to the Company’s operations in Southern Africa and the majority of its shareholder base which ranges from continental Europe to South Africa and North America; and

Canadian withholding tax, which is currently applicable to dividends paid to the Company’s shareholders outside Canada, will be eliminated.

On February 18, 2016, shareholder approval was obtained and it is estimated that the Continuance will become effective on or around March 21, 2016, although this timing is subject to the receipt of regulatory approvals which are not within the Company’s control. The Continuance has no effect on the Company’s existing listings in Toronto and on AIM in London, or the trading facility on the OTCQX in the USA and the company’s shares will continue to be traded on these listing and trading platforms after the continuance is completed. The re-domicile to Jersey has no impact on these financial statements.

31 Subsequent events – (continued)

iv)

Share based payment awards

On January 12, 2016, key management were granted Restricted Share Units (“RSU’s”) and Performance Share Units (“PSU’s”) pursuant to provisions of the 2015 Omnibus Equity Incentive Compensation Plan. 303,225 RSU’s and 1,212,903 PSU’s were granted and approved by the Compensation Committee of the board of directors on January 12, 2016. 27,419 of the RSU’s will vest on December 31, 2016 and 275,806 on December 31, 2018 given that the service condition of the relevant employee(s) are fulfilled at these dates. The value of the vested RSU’s will be the amount of RSU’s vested multiplied by the Fair Market Value, as specified by the plan, on date of settlement.

109,677 PSU’s are expected to vest on December 31, 2016 and 1,103,226 on December 31, 2018, dependent on certain performance measures as vesting conditions. The performance measures are determined with reference to the stage of the completion of the central shaft project, gold production targets and production cost per ounce targets. The vesting amounts of the PSU’s are determined by the quantity granted multiplied by the performance multiplier at vesting date. The performance multiplier varies between zero and 70% of target, to a maximum multiplier of 200%, if 200% of the performance measure targets are met. The settlement amounts of the PSU’s are determined by the number of PSU’s vested multiplied by the Fair Market Value, as specified by the Plan, on date of settlement.

Both RSU’s holders are entitled to receive cash equivalent dividends on the common shares of the Company from and after the date of grant until the settlement date, and such dividends will be automatically reinvested in additional RSU’s at the then applicable RSU’s Share Price. PSU’s holders are entitled to receive cash equivalent dividends on the underlying common shares of the Company from and after the vesting date until the settlement date, and such dividends will be automatically reinvested in additional PSU’s at the then applicable PSU’s Share Price.

All RSU’s and PSU’s awards will be settled in cash. No shares of the Company will be issued in connection with the RSU’s and PSU’s awards. The total financial effect of the share based payment transaction has not been determined at the date of approval of these financial statements.

Dividend Policy

On January 5, 2016 Caledonia announced that the revised dividend policy would amount to an annual dividend of 4.5 United States cents per annum, paid quarterly.

Caledonia Mining Corporation

Additional information

____________________________________________________________________________________________

Directors and Officers at March 18, 2016
BOARD OF DIRECTORS		OFFICERS
L.A. Wilson (1) (2) (3) (4) (7) Chairman of the Board		S. R. Curtis
Non- executive Director		Chief Executive Officer
New York, United States of America		Johannesburg, South Africa

S. R. Curtis (5) (7)		D. Roets (6) (7)
Chief Executive Officer Johannesburg, South Africa		Chief Operating Officer
		Johannesburg, South Africa

J. Johnstone (2) (4) (6) (7)		Dr. T. Pearton (5) (6) (7)
Non-executive Director		Vice-President Exploration
Gibsons, British Columbia, Canada		Johannesburg, South Africa

J. L. Kelly (1) (2) (3) (7)		M. Learmonth (5) (7)
Non- executive Director		Chief Financial Officer Vice-President Finance and Investor Relations and Corporate Development
New York, United States of America		Johannesburg, South Africa

D. Henderson (6)		DSA Corporate Services Inc.
Non- executive Director		Company Secretary
Oakville,, Ontario, Canada		36 Toronto Street – Suite1000
		Toronto, Ontario, M5C 2C5
J. Holtzhausen (1) (2) (4) (5) (6) (7) Chairman Audit Committee		Board Committees
Non- executive Director		(1) Audit Committee (2) Compensation Committee
Cape Town, South Africa		(3) Corporate Governance Committee
		(4) Nominating Committee
M. Learmonth (5) (7)		(5) Disclosure Committee
		(6) Technical Committee
Chief Financial Officer Vice-President Finance and Investor Relations and Corporate Development		(7) Strategic Planning Committee
Johannesburg, South Africa

CORPORATE DIRECTORY as at March 18, 2016

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
	AUDITORS
South Africa – Africa Office	KPMG Inc.
Caledonia Mining South Africa Proprietary Limited	85 Empire Road
P.O. Box 4628 444628834 BDO Dunwoody LLP	Parktown 2193
Weltevreden park	South Africa
South Africa
Tel: (27)(11) 447-2499 Fax: (27)(11) 447-2554	Tel: +27 83 445 1400, Fax: + 27 11 647 6018

Zambia	REGISTRAR & TRANSFER AGENT
Caledonia Mining (Zambia) Limited	Computershare
P.O. Box 36604	100 University Ave, 8th Floor,
Lusaka, Zambia Suite 400 200 University Ave	Toronto, Ontario, M5J 2Y1
Tel:(260)(1) 29-1574 Fax(260)(1) 29-2154	Tel:+1 416 263 9483

Zimbabwe
Caledonia Holdings Zimbabwe (Limited)	BANKERS
P.O. Box CY1277	Canadian Imperial Bank of Commerce
Causeway, Harare	6266 Dixie Road
Zimbabwe	Mississauga, Ontario L5T 1A7 Canada
Tel: (263) (4) 701 152/4 Fax: (263)(4) 702 248
	NOMAD and AIM BROKER
CAPITALIZATION (March 18, 2016)	WH Ireland
Authorised: 52,108,908	24 Martin Lane
Shares, Warrants and Options Issued: (March 18, 2016)	London EC4R ODR
Common Shares: 52,108,908	Tel: +44 207 220 1751
Warrants: Nil	WH Ireland
Options: 2,210,920

SHARES LISTED
Toronto Stock Exchange Symbol “CAL”
NASDAQ OTCQX Symbol "CALVF"
London “AIM” Market Symbol “CMCL”

Exhibit 99.2

CALEDONIA MINING CORPORATION

MARCH 18, 2016

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, 2015 (the “Year”) and the quarter ended December 31, 2015 (“Q4 2015 ” or the “Quarter”). It should be read in conjunction with the Consolidated Financial Statements of Caledonia for the year ended December 31, 2015 (“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”) as issued by the International Accounting Standards Board. 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 US 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.

Underground

4.5.

Metallurgical Plant

4.6.

Production Costs

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

$’000’s unless otherwise stated
	Q4 2014	Q4 2015	Year 2014	Year 2015	Comment
Gold produced (oz)	10,417	11,515	41,771	42,804	Gold production increased in the Quarter and the Year due to higher tonnes milled, offset by a lower grade
On-mine cost ($/oz)¹	704	701	652	701	On-mine costs increased in the year due to the lower average grade which outweighed the overall reduction in cost per tonne milled
All-in Sustaining Cost ($/oz) (“AISC”)	1,118	1,130	969	1,038	All-in sustaining costs increased in 2015 compared to 2014 due to the increased sustaining capital investment
Average realised gold price ($/oz)	1,180	1,083	1,245	1,139	Lower realised gold price in the Quarter and Year reflects the lower prevailing gold price
Gross profit ²	3,804	3,408	18,543	13,181	Gross profit was lower due to the lower realised gold price, the effect of which was offset in Q4 by higher production and sales, and increased production costs
Net (loss)/profit attributable to shareholders	(251)	1,940	4,435	4,779	The effect of lower revenues was outweighed by a foreign exchange gain arising from the devaluation of the South Africa rand against the US dollar and lower taxation
Adjusted basic earnings per share³ (cents)	2.1	0.9	10.4	8.1	Adjusted earnings per share excludes deferred taxation charges, foreign exchange gains, the costs of the Zambian operation and the income tax credits arising in 2015 relating to previous years
Net cash and cash equivalents	23,082	10,80	23,082	10,880	Group net cash was lower due to the high level of capital investment at Blanket. Net cash at December 31, 2015 includes Blanket’s overdraft of $1.7m (2014, nil)
Cash from operating activities	1,383	2,556	10,951	6,869	Caledonia remains cash generative at the operating level despite the lower gold price
Payments to the community and Zimbabwe government	2,616	1,976	12,354	7,373	Payments to the community and the Zimbabwe Government in 2015 were lower than in previous years due to the lower income tax and royalty payments.

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.

³ Adjusted earnings per share (“EPS”) is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

US Dollar Reporting

On December 16, 2015 Caledonia advised that the reporting currency for all future financial reporting commencing with the financial results for the quarter and year ended December 31, 2015 will be the United States dollar instead of the Canadian dollar. This change is made in order to better report the true performance of its business. All of the revenues and operating costs at the Blanket Mine in Zimbabwe are denominated in US dollars. A very small proportion of Caledonia’s costs are denominated in South African rands and Canadian dollars.

Dividend Policy and Shareholder Matters

On November 25, 2013 Caledonia announced a revised dividend policy in terms of which it paid 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 thereafter.

Following the announcement on December 16, 2015 that henceforth Caledonia will report its financial results in United States Dollars, the quarterly dividend that was paid at the end of January 2016 was declared and denominated in United States Dollars as 1.125 United States cents. A quarterly dividend of 1.125 United States cents, or 4.5 United States cents per annum, represents Caledonia’s revised dividend policy.

It is currently envisaged that the existing dividend policy of 4.5 United States cents per annum will be maintained in 2016.

Hedging

In February 2016, Caledonia announced it had entered into a hedge in respect of 15,000 ounces of gold over a period of 6 months. The hedge protects Caledonia if the gold price falls below $1,050 per ounce but gives Caledonia full participation if the price of gold exceeds $1,079 per ounce. Blanket continues to sell all of its gold production to Fidelity Printers and Refiners Ltd (“Fidelity”), as required by Zimbabwean legislation, and receives the spot price of gold less an early settlement discount of 1.25%. The maximum cost of the hedge to Caledonia is $435,000, being 15,000 ounces at $29 per ounce.

Re-domicile from Canada to Jersey, Channel Islands

On February 18, 2016 a Special Meeting of Caledonia’s shareholders voted to approve the continuance (the “Continuance”) of the Company from Canada to Jersey, Channel Islands. Caledonia’s Board of Directors subsequently resolved to proceed with the proposed Continuance whereupon the Company will also adopt new charter documents and change its name to Caledonia Mining Corporation Plc. It is estimated that the Continuance will become effective on or around March 21, 2016, although this timing is subject to the receipt of regulatory approvals which are not within Caledonia’s control. Following the Continuance, Caledonia will be domiciled in Jersey, Channel Islands, for legal and tax purposes; Caledonia’s shares (or depository interests) will continue to be listed and traded on the Toronto Stock Exchange and on AIM and they will continue to be traded on the OTCQX in the USA.

Electricity supply

As noted in the Q3 MD&A, as a result of the low water level, power generation from Kariba hydro-power facility has been significantly reduced by the Zimbabwean and Zambian power generators and has resulted in widespread power outages in Zimbabwe. In recent weeks the availability of electricity in Zimbabwe has improved due to the import of approximately 300MW per day from South Africa and the incidence of power outages has significantly reduced. Blanket Mine (but not the satellite exploration properties) has an un-interruptible power supply agreement with the Zimbabwe Electricity Supply Agency (“ZESA”) and Blanket has not experienced load-shedding. Blanket also has 10MW of installed stand-by diesel generating capacity which is sufficient to allow all mining and processing activities and work at the central shaft to continue if there are any interruptions to the ZESA supply. It is expected that the cost of using the generators (if this became necessary) would be mitigated by a reduction in electricity consumption from ZESA and a reduction in the tariff payable to ZESA.

Exploration

There was an increased focus on exploration activity during the Year. Towards the end of the year, new underground drill rigs were commissioned, which increased the underground drilling capacity from less than 700 meters per month to approximately 2,000 meters per month.

In May 2015, 491,000 tonnes of inferred resource were upgraded to indicated resource and added a further 47,000 tonnes of new indicated resource.

In December 2015, 222,000 tonnes of new inventory was added to indicated resources, 283,000 tonnes of new inventory was added to inferred resources and 254,750 tonnes was upgraded from inferred resources to indicated resources.

Completion of the Tramming Loop in June 2015 allows more development waste to be handled without impeding production and this allowed the resumption of development from which further deep-level exploration drilling will take place.

The nature of the geology at Blanket, which has steeply-dipping ore bodies, means that exploration is unlikely to result in an exponential increase in resources. However it is expected that the increased focus on exploration, will result in further modest additions to the resource base which will continue to extend the mine life.

Strategy and Outlook

Caledonia’s strategic focus is the implementation of the Revised Investment Plan at Blanket, which was announced in November 2014 and is expected to extend the life of mine by providing access to deeper levels for production and further exploration. Caledonia’s board and management believe the successful implementation of the Revised Investment Plan is in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and greater flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long term future.

3. SUMMARY FINANCIAL RESULTS

The table below sets out the consolidated profit and loss for the years ended December 31, 2015, 2014 and 2013, and the quarters ended December 31, 2015 and 2014 prepared under IFRS.

Consolidated Statements of Comprehensive Income ($’000’s except per share amounts)
	For the 3 months ended Dec 31						For the 12 months ended Dec 31
	2015			2014			2015			2014			2013
Revenue		11,753			11,139			48,977			53,513			63,217
Royalty		(591	)		(554	)		(2,455	)		(3,522	)		(4,412	)
Production costs		(7,018	)		(6,101	)		(30,019	)		(27,908	)		(26,614	)
Depreciation		(736	)		(680	)		(3,322	)		(3,540	)		(3,181	)
Gross profit		3,408			3,804			13,181			18,543			29,010
Other (expense)/income		54			(27	)		110			25			-
Administrative expenses		(2,439	)		(2,460	)		(7,622	)		(7,387	)		(7,546	)
Share-based payment expense		(24	)		-			(24	)		-			(66	)
Foreign exchange gain/(loss)		774			590			2,850			1,065			1,628
Impairment		-			(178	)		-			(178	)		(13,789	)
Operating profit		1,773			1,729			8,495			12,068			9,237
Net finance (cost)/income		(107	)		(61	)		(535	)		(140	)		(105	)
Profit before tax		1,666			1,688			7,960			11,928			9,132
Tax (expense)/credit		287			(2,045	)		(2,370	)		(5,982	)		(9,609	)
Profit/(Loss) for the period		1,953			(377	)		5,590			5,946			(477	)

Other comprehensive income/(loss)
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations		(1,203	)		(2,409	)		(3,291	)		(685	)		(1,567	)
Tax credit on other comprehensive income		199			111			199			111			-
Other comprehensive income/(loss) net of income tax		(1,004	)		(2,298	)		(3,092	)		(574	)		(1,567	)
Total comprehensive income/(loss) for the period		949			(2,675	)		2,498			5,372			(2,044	)

Profit/(Loss) attributable to:
Shareholders of the Company		1,940			(251	)		4,779			4,435			(2,967	)
Non-controlling interests		13			(126	)		811			1,511			2,490
Profit/(Loss) for the period		1,953			(377	)		5,590			5,946			(477	)

Total comprehensive income/(loss) attributable to:
Shareholders of the Company		936			(2,549	)		1,687			3,861			(4,534	)
Non-controlling interests		13			(126	)		811			1,511			2,490
Total comprehensive income/(loss) for the period		949			(2,675	)		2,498			5,372			(2,044	)

Earnings/(Loss) per share (cents)
Basic		3.6			(0.6	)		8.9			8.4			(5.9	)
Diluted		3.6			(0.6	)		8.9			8.4			(5.9	)
Adjusted earnings per share (cents) ⁽ⁱ⁾
Basic		0.9			2.1			8.1			10.4			26.8

(i)	Adjusted EPS is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance. Refer to Section 10 for a discussion of non-IFRS measures

Revenues for the year were lower than in previous years due to the lower realised gold price. The average realised gold price⁴ in 2015 was $1,139 per ounce compared to $1,245 per ounce in 2014. The number of ounces sold in 2015 was virtually unchanged from the number of ounces sold in 2014. Revenues in Q4 2015 were 5.5% higher than in Q4 2014 due to the higher sales ounces which was partially offset by the lower realised gold price. Sales in Q4 2015 were 12.9% higher than in Q4 of 2014 due to the higher production following the completion of the Tramming Loop in June 2015. Gold production is discussed in Section 4.3 of this MD&A. The benefit of higher production was offset by a small change in work-in-progress at December 31, 2015 and by the lower realised gold price: the average realised price in Q4 2015 was $1,083 per ounce, 8.2% lower than the average realised price of $1,180 per ounce in Q4 2014.

The royalty payable to the Zimbabwe government was unchanged at 5%; changes in the value of royalties paid in the Year and the Quarter therefore relate to changes in sales ounces and the realised gold price.

Production costs comprise the on-mine cost of production and include the costs of labour, electricity, consumables and on-mine administration. Production costs were higher in the Quarter and the Year due to the higher production in terms of tonnes milled and ounces of gold produced. Production costs are discussed further in Section 4.6.

Depreciation is charged on assets which are used in production. Caledonia’s non-current assets increased by 42 % in the Year due to the continued investment in terms of the Revised Investment Plan (refer section 4.7) however this is not reflected in a commensurate increase in depreciation because the increase in non-current assets relates mainly to assets that are not yet in production.

Administrative expenses for the year include $716,000 in respect of the Zambian operations, which were closed in the middle of 2015. Administrative expenses for Q4 2015 include provision for performance bonuses by Caledonia management and by the employees at Caledonia’s South African office.

The foreign exchange gain is mainly due to the gain that arose in South African rands on the US dollar-denominated cash holdings of Caledonia Mining South Africa Proprietary Limited (“CMSA”). Over the course of 2015, the South African rand, which is the functional currency of CMSA, devalued by approximately 34 percent against the US dollar from December 31, 2014.

There was no impairment in 2015 because management estimates that the recoverable amount from its assets exceeds the carrying cost of those assets. The impairments in 2014 and 2013 related to Caledonia’s operations in Zambia, which were terminated during 2015.

Net finance costs in the Year include an amount of $344,000 in respect of interest payable to the South African Revenue Services in respect of the remediation of Caledonia’s tax affairs in South Africa. The net finance cost in Q4 2015 is the normal interest cost arising from the use of the unsecured overdraft facility at Blanket in Zimbabwe.

The net tax expense for the Year of $2,171,000 (an expense of $2,370,000 in profit or loss and a credit of $199,000 in other comprehensive income) reflects an effective rate of 30 % compared to the effective rate of 50 per cent in 2014. The taxation charge for 2015 includes deferred tax of $2,567,000 (2014, $706,000), Zimbabwean and South African withholding tax of $933,000 (2014, $888,000) and an income tax credit of $1,130,000 (2014, an expense of $4,388,000). The deferred tax charge is a non-cash item which reflects the difference between the accounting treatment of capital investment (i.e. depreciation) and the tax treatment of the investments (100% of which is allowable against income tax in the year it is incurred). Zimbabwean withholding tax of $626,000 (2014, $702,000) arose on the payment of management fees to South Africa; South African withholding tax of $275,000 (2014: nil) was also paid in respect of an intercompany dividend from South Africa to Canada and a further $32,000 (2014: nil) was paid in respect of the remediation of Caledonia’s tax affairs in South Africa. In 2014 there was a withholding tax charge of $186,000 in respect of dividends paid from Zimbabwe to the UK; there was no similar charge in 2015. The income tax credit includes a credit of $1,636,000 in respect of adjustments to prior year estimates: $765,000 was due to a lower liability than had been estimated in respect of the remediation of Caledonia’s tax affairs in South Africa; and $871,000 was due to the reversal of UK income taxation on facilitation loan income. The income tax charge for 2015 was $506,000 which is substantially lower than the charge in 2014 of $4,582,000 because the high level of capital investment at Blanket in 2015, offset Blanket’s trading profits.

⁴ Average realised gold price is a non-IFRS measure. Refer to Section 10 for a reconciliation to IFRS

The non-controlling interest is 16.2 % of the net profit of Blanket which is 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. This is explained in Note 5 of the Consolidated Financial Statements.

The adjusted earnings per share is a non-IFRS measure which reflects 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, 2015, 2014 and 2013 prepared under IFRS.

Consolidated Statements of Cash Flows ($’000’s)
	For the 12 months ended Dec 31,
	2015			2014			2013
Cash flows from operating activities
Cash generated by operating activities		8,823			15,584			22,820
Net interest paid		(492	)		(107	)		(105	)
Tax paid		(1,462	)		(4,526	)		(7,742	)
Net cash from operating activities		6,869			10,951			14,973

Cash flows from investing activities
Acquisition of Property, plant and equipment		(16,567	)		(6,150	)		(11,396	)
Net cash used in investing activities		(16,567	)		(6,150	)		(11,396	)

Cash flows from financing activities
Advance dividends paid		-			-			(2,000	)
Dividends paid		(2,504	)		(3,620	)		(5,871	)
Proceeds from the exercise of share options		-			-			456
Net cash used in financing activities		(2,504	)		(3,260	)		(7,415	)
Net (decrease)/increase in cash and cash equivalents		(12,202	)		1,181			(3,838	)
Cash and cash equivalents at beginning of the year		23,082			21,901			28,125
Cash and cash equivalents at year end (net of overdraft)		10,880			23,082			21,901

Cash generated from operating activities is analysed in Note 23 to the Consolidated Financial Statements, and was lower in 2015 than in previous years primarily due to the lower average gold price received.

Tax paid in 2015 was lower than in previous years due to the lower income tax and withholding tax charges, as discussed above in the review of the Consolidated Statements of Comprehensive Income.

Investment in property, plant and equipment in 2015 was higher than in the previous years due to the investment at Blanket in terms of the Revised Investment Plan, which is discussed further in Section 4.7 of this MD&A.

The dividends paid in 2015 relate to the quarterly dividends paid by Caledonia. The consolidated dividends paid in 2013 and 2014 also include 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, 2015, 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, 2015, 2014 and 2013 prepared under IFRS.

Consolidated Statements of Financial Position
($’000’s)	As at	Dec 31,		Dec 31,		Dec 31,
		2015		2014		2013
Total non-current assets			49,276		34,736		31,272
Inventories			6,091		6,512		6,419
Prepayments			667		299		165
Income tax receivable			397		95		-
Trade and other receivables			3,839		1,755		3,636
Cash and cash equivalents			12,568		23,082		23,580
Total assets			72,838		66,479		65,072
Total non-current liabilities			14,080		11,164		9,437
Trade and other payables			6,656		3,260		4,301
Income taxes payable			53		1,712		1,064
Bank overdraft			1,688		-		1,679
Total liabilities			22,477		16,136		16,481
Total equity			50,361		50,343		48,591
Total equity and liabilities			72,838		66,479		65,072

The net book value of non-current assets increased due to the continued investment in plant, equipment and mineral properties at Blanket in terms of the Revised Investment Plan as discussed in Section 4.10.

Inventories comprise consumable stores and gold in progress. Gold-in-progress at December 31, 2015 was $352,000 which is $198,000 lower than the prior year due to the lower ounces of work-in-progress at the end of 2015 compared to the end of 2014. 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.

Prepayments largely reflect payments in advance for capital items which are being fabricated.

The income tax receivable at December 31, 2015 relates primarily to an amount recoverable in the UK.

Trade and other receivables as at December 31, 2015 includes Value Added Tax receivable, bullion sales receivables and deposits for stores and equipment as analysed in Note 14 to the Consolidated Financial Statements. Of the total receivable at December 31, 2015, $2,997,000 (2014, $1,006,000) is in respect of VAT which is due from the Zimbabwe Revenue Authority (“ZIMRA”). The amount due from ZIMRA was higher at the end of 2015 than at the end of 2014 because of the increased level of purchasing activity at Blanket and slower repayments by ZIMRA. The increased purchasing activity reflects the higher level of capital investment due to the implementation of the Revised Investment Plan. Of the total amount due from ZIMRA at December 31, 2015, $1,727,000 was paid in 2016; the remaining amount due from ZIMRA is within their agreed payment terms.

Trade and other payables is analysed in Note 22 to the Consolidated Financial Statements and includes $1,792,000 (2014, nil) in respect of bonus accruals of which $1,288,779 was payable at Blanket in February 2016 due to the achievement of production targets and the balance was payable to employees at Caledonia Mining South Africa.

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 US dollars except per share amounts)	Mar 31, 2014		June 30, 2014		Sept 30, 2014		Dec 31, 2014			Mar 31, 2015		June 30, 2015		Sept 30 2015		Dec 31, 2015
Revenue from operations		15,480		14,417		12,477		11,139			12,916		12,212		12,096		11,753
Profit/(loss) after tax from operations		2,805		2,341		1,177		(377	)		1,627		472		1,538		1,953
Earnings/(loss) per share – basic (cents)		4.0		3.1		1.9		(0.6	)		2.3		0.4		2.6		3.6
Earnings/(loss) per share – diluted (cents)		4.0		3.1		1.9		(0.6	)		2.3		0.4		2.6		3.6
Cash and cash equivalents		24,040		23,857		25,323		23,082			20,641		19,170		14,653		10,880

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 seven quarters.

Blanket Mine Safety Statistics
Classification	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Q1 2015	Q2 2015	Q3 2015	Q4 2015
Fatal	0	0	0	0	0	1	0	0
Lost time injury	1	2	2	1	3	1	2	2
Restricted work activity	6	4	12	9	5	12	8	6
First aid	2	2	4	0	3	4	1	7
Medical aid	3	2	2	1	3	1	1	0
Occupational illness	0	0	0	0	0	0	0	0
Total	12	10	20	11	14	19	12	15
Incidents	10	6	4	19	8	6	18	15
Near misses	2	2	4	1	0	5	4	5
Disability Injury Frequency Rate	0.52	0.25	1.75	0.24	0.67	0.46	0.46	0.44
Total Injury Frequency Rate	2.09	3.25	4.00	4.32	3.15	4.41	2.73	3.32
Man-hours worked (thousands)	767	801	800	833	889	861	878	904

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
Year 2013	2013	2,147	2,000	15,354	19,501
Year 2014	2014	35	-	12,319	12,354
Quarter 1	2015	-	-	1,771	1,771
Quarter 2	2015	8	-	1,808	1,816
Quarter 3	2015	8	-	1,821	1,829
Quarter 4	2015	34	-	1,976	1,976
Year 2015	2015	50	-	7,376	7,376

Payments to the Zimbabwe Government in 2015 were lower than in previous years due to the lower income tax and royalty payments.

4.3	Gold Production

Tonnes milled, average grades, recoveries and gold produced during the Quarter, the preceding 7 quarters and January 2016 are shown in the table below.

Blanket Mine Production Statistics
	Year	Tonnes Milled (t)	Gold Head (Feed) Grade (g/t Au)	Gold Recovery (%)	Gold Produced (oz)
Quarter 1	2014	92,846	3.67	93.6	10,241
Quarter 2	2014	99,229	3.74	94.1	11,223
Quarter 3	2014	98,575	3.34	93.4	9,890
Quarter 4	2014	100,085	3.47	93.2	10,417
Year	2014	390,735	3.55	93.4	41,771
Quarter 1	2015	104,755	3.19	92.7	9,960
Quarter 2	2015	103,551	3.35	93.3	10,401
Quarter 3	2015	116,694	3.14	92.7	10,927
Quarter 4	2015	115,079	3.34	93.1	11,515
Year	2015	440,079	3.25	93.0	42,804
January	2016	40,905	3.20	93.0	3,915

Gold production in the Quarter was 207 ounces above target; gold production for the Year was 203 ounces above target. Tonnes milled and grade in the Quarter and the Year are discussed in Section 4.4 of this MD&A; gold recoveries in the Quarter and the Year are discussed in Section 4.5 of this MD&A.

4.4	Underground

As set out in Sections 4.7 and 4.10 of this MD&A, Caledonia announced the Revised Investment Plan for Blanket Mine on November 3, 2014. The objectives of the Revised Investment 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” (which was completed in June 2015), the sinking and equipping of the No.6 Winze (which commenced production at the end of Q1 2016) and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters (which is scheduled to commence production in mid-2018).

Ore production in the Quarter and the Year was approximately 3% higher than target; the head grade in the Quarter and the Year was very close to target. Following completion of the Tramming Loop in July 2015, the amount of material that could be transported underground increased and is reflected in the increased tonnes milled in the Quarter and the preceding quarter compared to earlier quarters. The AR Main and AR south ore bodies provided most of the ore delivered to the plant during the Quarter and the Year. In December 2015 production commenced from a new section at the Eroica ore body above 750 meters; this area will replace production from the AR South ore body which, as anticipated in the Life of Mine Plan, is expected to be mined out towards the middle of 2016.

4.5	Metallurgical Plant

Gold recovery in the Quarter and the Year was slightly below the target of 93.5% due to the reduced level of free gold in the ores and the lower oxygen concentration in the Carbon-in-Leach tanks which reflects the inefficiency of the oxygen-producing Pressure Swing Absorption (“PSA”) plant which is now somewhat old. Management continues to evaluate options to address this matter either by purchasing a replacement PSA plant or adopting an alternative technology.

Work on a Fine Ore bin resumed in the quarter and was completed in Quarter 1 of 2016. The Fine Ore Bin will allow the metallurgical plant to sustain the higher projected throughput with an un-interrupted flow of material from the crushers.

4.6	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 ounce⁵, which shows the on-mine cash costs of producing an ounce of gold;

ii.

All-in Sustaining Cost per ounce⁵, 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 ounce⁵, 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.

Cost per Ounce of Gold Sold (US$/ounce)
	3 Months to December 31				12 Months to December 31
	2014		2015		2014		2015
On-mine cost⁵		704		701		652		701
All-in sustaining cost per ounce⁵		1,118		1,130		969		1,038
All-in cost per ounce⁵		1,198		1,688		1,062		1,355

Per-ounce costs are calculated on the basis of sales and not production, so that an accurate value can be ascribed to the royalty. A reconciliation of costs per ounce to IFRS production costs is set out in Section 10

⁵ On mine cost per ounce, all-in sustaining cost per ounce and all-in cost per ounce are non-IFRA measures. Refer to Section 10 for a reconciliation of these amounts to IFRS

On-mine costs comprise labour, electricity, consumables and other costs which include security and insurance. Blanket did not experience significant inflationary pressure on input costs and the cost per tonne milled in the Year and the Quarter was slightly lower than in the comparative periods as the fixed cost component of on-mine costs was spread across the increased tonnes milled. However, the average grade in 2015 was lower than in 2014 which meant that the average on-mine cost per ounce of gold sold increased by 7.5%.

All-in sustaining costs per ounce increased by 1% in Q4 2015 compared to Q4 2014, notwithstanding an increase of $672,000 in sustaining capital expenditure, which added approximately $62 per ounce. All-in sustaining costs increased by 7.1% due to the increased on-mine costs and a $2,359,000 increase in sustaining capital investment, which added approximately $55 per ounce.

All-in costs include investment in expansion projects which was higher in the Quarter and the Year due to the continued investment in Blanket’s capital projects, which are discussed in section 4.7 of this MD&A. Investment in expansion projects in 2015 was $13,486,000 (2014: $5,658,000), representing a cost of $314 per ounce of gold sold.

4.7 Capital Projects

The main capital developments in the Quarter and the Year are:

The Tramming Loop on 22 Level (750 meters below surface)

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

Central Shaft.

Further information on these Projects is set out below.

Tramming Loop

The Tramming Loop was completed in June 2015, slightly ahead of schedule, and improved the underground logistics by increasing the amount of ore and waste that can be transported to the No. 4 Shaft. The benefits arising from completion of this project are apparent in the increase in tonnages milled in Q3 and Q4 of 2015 and the resultant modest increases in production in those quarters.

No. 6 Winze Project - Shaft Deepening to 930 meters

The No. 6 Winze Project will provide access to the four Blanket resource bodies below 750m Level, viz. Blanket 1 Ore Body, Blanket 2 Ore Body, Blanket 4 Ore Body and Blanket Quartz Reef. Sinking of the shaft was completed in Q2 of 2015, the shaft was subsequently fully equipped. Horizontal development entered the Blanket 2 Ore Body in mid-March 2016 and accordingly, the on-reef development material is now contributing to gold production as envisaged in the Revised Investment Plan at a rate of approximately 10 tonnes per day. Production from No. 6 Winze is expected to increase progressively to the target production of 500 tonnes per day in mid-2017; No. 6 Winze is expected to provide the majority of the projected increase in Blanket’s production in 2016 and 2017.

Central Shaft

The Central Shaft is the main component of the Revised Investment Plan which is discussed in Section 4.10 of this MD&A. The shaft will be sunk in one single continuous phase from surface to 1,080 meters. The estimated completion date of the shaft is mid-2018; first production from the Central Shaft is expected shortly thereafter as pre-development in the areas to be mined will be effected via the No. 6 Winze.

The required equipment for the sinking phase of the project has been acquired and is on-site. The pre-sink using the Scotch Derrick at a daily advance of 1.2 meters per day down to 90 meters is complete. Progress on the pre-sink phase was slower than anticipated due to adverse ground conditions, which required that the shaft barrel be concrete lined during the pre-sinking phase rather than at the end of the pre-sink phase, and other technical issues. The surface infrastructure is complete which include offices, substation, work-shop and the permanent rock hoist which will be used as the kibble winder during the main sink phase. The changeover from the pre-sink phase to the main sink phase is currently taking place along with the commissioning of the kibble winder, the erecting of the sinking headgear and the installation of the sinking stage and the jumbo drill rig. The main sink phase will commence during the first half of April 2016. The main sink will continue down to 1,080 meters below surface. During the main sinking phase, it is anticipated that shaft-sinking will progress at a rate of approximately 3 meters per day due to the use of the jumbo drill rig.

Five generator units have been acquired which have a combined generating capacity of 2 MVA as a back-up power supply to the kibble winder in the full sink phase.

The Central Shaft remains on track in terms of the timing of completion in mid-2018 and capital costs.

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 Lima Section in the north over a distance of 2,500 metres on the 22 Level (750 meters below surface). Following completion of the Tramming Loop, work resumed on this project in September 2015. A further 450 metres remains to be completed.

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 pillar blocks 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 – (October, 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 resource estimates as at August 31, 2014, the Company has mined 571,580 tonnes with an average recovered gold grade of 3.03 grams per tonne, the majority of which has been from within the reserve blocks to produce 56,162 ounces of gold at a recovery of 93.0%. An updated internal estimate of Blanket’s mineral reserves and resources as at December 31, 2015 has been prepared by Blanket Mine’s 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 2.11 g/t based on a gold price of US$1200/oz was applied for the Mineral Resources;

a pay limit of 2.30 g/t based on a gold price of US$1100/oz was applied for Mineral Reserves;

tonnages were increased by 7.5% to allow for dilution at zero grade and the grade adjusted accordingly; and

a metallurgical recovery of 93% was applied, marginally less than the 4 year historical 93.2% 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, 2015

Mineral Resource Category	Tonnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Measured Resources	1,412,100	3.91	177,700
Indicated Resources	3,334,800	4.30	460,700
Total Measured and Indicated	4,746,900	4.18	638,400
Inferred Resources*	2,591,000	5.03	419,000

Notes:

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

Resource estimate is based on a gold price of US$1,200/oz
Mineral Resources are stated at a 2.11 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, 2015

Mineral Reserve Category	Tonnnes (metric)	Grade (Au g/t)	Gold Content (ounces)
Proven Reserves	717,700	3.41	78,640
Probable Reserves	1,912,200	3.56	218,860
Total Proven & Probable Reserves	2,629,900	3.52	297,500

Notes:

Mineral Resources are reported inclusive of Mineral Reserves**.

Reserve estimate is based on a gold price of US$1,100/oz and a cash cost of US$70.30/ tonne milled.

Blanket pay limit (cut-off) is 2.30 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 10% in terms of tonnage. Resources expressed in terms of tonnage have increased by 17% 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 8 and 9 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. Blanket suspended dividend payments in 2015 and they will remain suspended into 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, 2015 was $31.3 million (December 31, 2014, $31.3 million. Blanket has suspended dividend payments so that all cash generated by Blanket can be used to fund the Revised Investment Plan as described in Section 4.10 and a moratorium has been placed on interest on the loans until dividends are resumed by Blanket Mine. Accordingly, there was no change in the outstanding balance of the facilitation loans during the Year.

Although the price of gold has recovered in recent months, the average realised price in 2015 was lower than the level of $1,200 per ounce which was used as the basis for planning the funding of the Revised Investment Plan at Blanket. Accordingly, to ensure that Blanket retains the financial capacity to implement the Revised Investment Plan, Caledonia will provide additional funding of $5m to Blanket. This funding will come from Caledonia’s treasury which has been maintained at a high level to cater for this eventuality. The new funding will be introduced into Blanket by way of a rights issue which is expected to be implemented in late March 2016, following receipt of the necessary approvals from the Reserve Bank of Zimbabwe on March 14, 2016; Caledonia provided facilitation funding to the indigenous Zimbabwean shareholders so that they could follow their rights and participate without affecting Blanket’s indigenised status. Interest accruals on the facilitation loans and repayments on the facilitation loans will resume when Blanket resumes dividend payments, the timing of which largely depends on the future gold price.

The vendor facilitation loans are not shown as receivables in Caledonia’s 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 Financial Statements and in a Frequently Asked Questions page which is available on Caledonia’s website.

4.10 Opportunities and Outlook

Revised Investment Plan to Increase Production

On November 3, 2014 Caledonia announced its Revised Investment Plan and production projections for the Blanket Mine. The objectives of the Revised Investment 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” (completed in June 2015) deepening the No.6 Winze (completed in July 2015) and sinking a new 6-meter diameter Central Shaft from surface to 1,080 meters. As discussed in Section 4.7, implementation of the Revised Investment Plan is proceeding on schedule and the Tramming Loop and the sinking of the No. 6 Winze were both completed slightly ahead of target.

The Revised Investment 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 Revised Investment 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. In October 2014, Caledonia commissioned Minxcon (Pty) Ltd. (“Minxcon”) to complete a scoping level study on the Blanket Mine which comprises an initial extension from below 750 m Level to 1,080 m Level, in the form of a Preliminary Economic Assessment (“PEA”). The PEA includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized. 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 planned production from inferred resources to be added to those from proven and probable reserves for disclosure purposes.

On July 17, 2015 at the request of the Ontario Securities Commission Caledonia filed an updated Technical Report containing a summary of the revised PEA. The revised PEA considers the expansion project below 750 m as a stand-alone project. The revised PEA thus reflects the Project economics on a stand-alone basis, and the economic analysis is based on an assumed requirement to raise money for the expansion capital expenditures, despite the fact that Caledonia expects to fund those capital expenditures from cash flow from the existing mine operations.

There is no certainty that the PEA will be realised. The updated Technical Report was authored by Daan van Heerden, Uwe Englemann, Dario Clemente, Johan Odendaal and Jaco Burger of Minxcon (Pty) Ltd., each of whom is a qualified person who is independent of Caledonia for the purposes of National Instrument 43-101.

Exploration

Caledonia intends to continue its exploration efforts both at the Blanket Mine; further exploration at the first two of Blanket’s portfolio of satellite properties (Mascot and GG) continues as discussed in Section 5.2 No production forecasts are currently attributed to either GG or Mascot pending further metallurgical evaluations. Subject to Blanket’s cash generation, it is intended to construct a pilot plant to treat material from GG and Mascot in order to identify a commercial treatment process. Further information on Blanket’s exploration is set out in Section 5 of this MD&A.

Strategy

Caledonia’s main strategic focus remains on implementing the Revised Investment Plan at Blanket on schedule and within budget. Caledonia’s board and management believe the successful implementation of the Revised Investment Plan remains in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and greater flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long term future.

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 and evaluation activities on Blanket Mine are targeting the depth extensions of all the known Blanket Mine ore bodies, viz. Blanket 1 Ore Body, Blanket 2 Ore Body, Blanket 4 Ore Body, Blanket Quartz Reef, AR Main, AR South, Eroica and Lima sections. This involves drilling downholes from chambers on 18 and 22 Levels to intersect the depth continuation of these ore bodies. Drilling re-commenced in November 2015 after a brief stoppage due to the old machines breaking down and to allow for the commissioning of new machines. 3,211 meters were drilled in the Quarter compared to 3,790 meters drilled in the previous quarter and a plan of 4,780 meters. The new drills are performing well: over 2,000 meters were drilled in January 2016 compared to the average monthly rate of approximately 1,260 in the Q4 of 2015 and less than 700 meters per month in the whole of 2015.

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.

Exploration activities in 2013 and 2014 have resulted in the definition of resource blocks between 90 and 120 m levels as follows.

Resource Category	Tonnage	Width	Au	Au Content	Ounces
	T	m	g/t	kg	oz.
Measured & Indicated Resource	182,301	3.90	4.41	805	25,872
Inferred Resource	110,242	2.73	2.87	316	10,173

In Q1 of 2015 the shaft was deepened to 210 metres, which is planned to be the main production level. In Q3 of 2015 the shaft was completed to the planned shaft bottom of 245 metres and haulage development resumed on the 210 metre level towards the North Main zone. Development in the quarter exposed 60 meters of payable ore. It is planned to expose the various mineralized zones between 210 metre Level and 90 metre Level above in order to fully evaluate these resources. As indicated in section 4.9, it is intended to construct a pilot plant to treat material from GG in order to develop a commercial treatment process.

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.

Underground development on Levels 1 and 2 (60 meters and 90 meters below surface respectively) has confirmed the existence of potentially payable mineralisation on the North Parallel. Exploration activities in 2013 and 2014 have resulted in the definition of resource blocks on the North Parallel between 60 and 150 m levels and on Mascot Main below 8 Level as follows.

Resource Category	Tonnage	Width	Au	Au Content	Ounces
	t	m	g/t	kg	oz.
Measured & Indicated Resource (North P.)	135,538	2.48	3.74	507	16,288
Inferred Resource (Mascot Main)	69,587	2.53	8.23	573	18,416

During Q1 2015 the mine was completely de-watered and the bottom of the shaft was cleaned to expose the shaft bottom which allows the possibility to deepen the shaft and allow access to the Main Shear at depth which, based on old mine records, has a substantially higher grade than the associated North Parallel and South Shear.

In Q2 of 2015 work started on excavating a cross-cut on the lowest level (8 Level) to create room to drill angled holes into the footwall to explore for downward continuation of the higher grade Mascot Main Reef mineralisation. This drive was completed in Q3 of 2015 and diamond drilling of four holes was completed, all of which intersected the mineralised zone. Based on the results of the drilling in the previous quarter, the development drive was extended by 65 meters so that further drilling can commence in Q1 of 2016 which will target a further extension of the mineralised zone between 12 and 14 Levels. Pending a review of these results and the metallurgical amenability of the ore, the shaft will be deepened a further 150 meters where an extraction level will be established.

GG and Mascot are not covered by the un-interruptible power agreement between Blanket Mine and ZESA. Accordingly, during the Quarter work at GG and Mascot was adversely affected by load-shedding due to the reduced power generation at the Kariba hydro-power plant due to abnormally low water levels in the Kariba Dam.

INVESTING

An analysis of Investment in the Quarter, the preceding quarters in 2015 and the Year and in 2014 is set out below

Capital Investment ($’000’s)
	2013 Year	2014 Year	2015 Q1	2015 Q2	2015 Q3	2015 Q4	2015 Year
Total Investment	11,396	6,060	2,086	2,819	5,148	6,514	16,567
Nama Project	2,560	96	-	-	-	-	-
Blanket	8,802	5,917	2,086	2,819	5,148	6,514	16,567
Other	34	47	-	-	-	-	-

All investment at Blanket is funded from Blanket’s internal cash flows and its Zimbabwean borrowing facilities. No further investment will take place at the Nama project in Zambia following the termination of all of Caledonia’s presence in Zambia during 2015.

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 $5 million loan facility in Zimbabwe which is repayable on demand. At December 31, 2015 the undrawn portion amounted to $3.31 million.

8.	LIQUIDITY AND CAPITAL RESOURCES

An analysis of Caledonia’s capital resources as at December 31, 2015 and each of the preceding 5 quarters is set out below.

Liquidity and Capital Resources ($’000’s)
As at	Sept 30 2014	Dec 31 2014	Mar 31 2015	June 30 2015	Sept 30 2015	Dec 31 2015
Overdraft	-	-	-	-	2,065	1,688
Cash and cash equivalents in the statement of cashflows (net of overdraft)	25,323	23,082	20,641	19,170	14,653	10,880
Working capital	29,227	26,771	25,649	24,000	19,625	15,165

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 overdraft 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, 2015 exceed its planned and foreseeable commitments as set out 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 $31.3 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, 2015.

Payments due by Period ($’000’s)
Falling due	Within 1 year	1-3 Years	4-5 Years	After 5 Years	Total
Trade and other payables	6,656	-	-	-		6,656
Provisions	-	-	-	2,762		2,762
Capital expenditure commitments	1,376	-	-	-		1,376

In addition to the committed purchase obligations set out above, Blanket currently intends to invest approximately $10.8 million between March, 2016 and December 2017 which is not yet committed and a further $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 and implement the Revised Investment Plan which are discussed in Sections 4.7 and 4.10 of this MD&A. 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, 2015, 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 $2,762,000 ($2,484,000 – 2014).

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 to Non-IFRS cost per Ounce ($’000’s unless otherwise indicated)
	3 Months to 31 December						12 months to 31 December
	2014			2015			2014			2015
Production costs (IFRS)		6,101			7,018			27,908			30,019
Less site restoration costs		(29	)		-			(29	)		-
Less exploration costs		(343	)		(80	)		(343	)		(380	)
Less safety costs		(203	)		(227	)		(473	)		(551	)
Other		1,240			886			433			1,011
On-mine production costs		6,766			7,597			27,969			30,099
Gold Sales (oz)		9,604			10,842			42,927			42,943
On-mine cash cost (US$/oz)		704			701			652			701
Royalties		568			589			3,521			2,455
Permitting costs		25			22			110			102
Administrative expenses		2,446			2,460			7,387			7,622
Less Zambian costs		-			-						(716	)
Reclamation and remediation of operating sites		19			27			75			108
Exploration and study costs		26			95			120			189
Sustaining capital investment		785			1,457			2,348			4,707
Other		-			-			54			718
All-in Sustaining cost		10,634			12,247			41,584			44,564
Gold sales (oz)		9,604			10,842			42,927			42,943
All-in sustaining cost per ounce (US$/oz)		1,118			1,130			969			1,038
Costs not related to current production
Permitting (US$’000’s)		14			2			55			43
Exploration (US$’000’s)		23			12			106			95
Capital investment (US$’000’s)		733			6,049			3,833			13,486
All-in Costs (US$’000’s)		11,403			18,310			45,578			58,188
Gold Sold (oz)		9,604			10,842			42,927			42,943
All-in Costs per ounce (US$/oz)		1,198			1,688			1,062			1,355

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 to IFRS ($’000’s)
	3 Months to 31 December						12 Months to 31 December
	2014			2015			2014			2015
Revenue (IFRS)		11,343			11,753			53,513			48,977
Revenues from sales of silver		(12	)		(10	)		(61	)		(48	)
Revenues from sales of gold		11,331			11,743			53,452			48,929
Gold ounces sold (oz)		9,604			10,842			42,927			42,943
Average realised gold price per ounce (US$/oz)		1,180			1,083			1,245			1,139

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 ($’000’s unless otherwise indicated)
	3 Months to 31 December						12 Months to 31 December
	2014			2015			2014			2015
Profit /(loss) attributable to owners of the Company (IFRS)		(251	)		1,940			4,435			4,779
Blanket Mine Employee Trust adjustment (refer note 18 to the Audited Consolidated Financial Statements) Add back/(deduct) amounts attributable to owners of the company in respect of:		-			(69	)		(42	)		(100	)
Foreign exchange		(590	)		(774	)		(1,065	)		(2,850	)
Asset impairment		178			-			178
Deferred tax		706			995			706			2,567
Reversal of Zambian G&A		485			-			896			716
Over-accrual for prior year GMS UK tax		-			(871	)		-			(871	)
Prior year adjustment in respect of South African tax		-			(765	)		300			(765	)
South African tax penalties and interest		-			-			-			744
Adjusted profit		1,118			456			5,405			4,220
Weighted average shares in issue (m)		52,117			52,095			52,117			52,095
Adjusted EPS (cents)		2,1			0.9			10.4			8.1

11.	RELATED PARTY TRANSACTIONS

There were no related party transactions in the Year.

12.	CRITICAL ACCOUNTING POLICIES

Caledonia's accounting policies are presented in the consolidated financial statements for the year ended December 31, 2015 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. Discussion of recently issued accounting pronouncements is set out in note 4(p) of the Consolidated Financial Statements.

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 transaction with 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.

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 2015 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) Functional and change in presentation currency

Effective December 31, 2015, Caledonia Mining Corporation changed its presentation currency in the consolidated financial statements from the Canadian dollar to the United States dollar (“US dollar”). The change in presentation currency was made to better reflect the Group's business activities and to improve investor ability to compare the Group's financial results with other publicly traded businesses in the industry. In making the change to a US dollar presentation currency, the Group applied the change retrospectively as if the new presentation currency had always been the Group's presentation currency. The change in presentation currency was applied retrospectively up to January 1, 2010, which was the date of initial adoption of IFRS by the Group. Equity was translated at the exchange rate at January 1, 2010, except for the foreign currency translation reserve which was reset to zero and with the balance recognised in retained earnings, in accordance with IFRS 1: First-time Adoption of International Financial Reporting Standards. The financial statements for all the years presented have been translated to a US dollar presentation currency. For comparative balances, assets and liabilities was translated into the presentation currency at the rate of exchange prevailing at the reporting date for those financial years, income and expenses was translated into the presentation currency using the exchange rate at the date of transaction or using a reasonable average exchange rate that approximates the exchange rates at the dates of the transactions in accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates. Exchange rate differences arising on translation to the presentation currency were recognised in the foreign currency translation reserve in shareholders' equity.

iv) 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.

v) 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.

vi) 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.

vii) 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.

13. FINANCIAL INSTRUMENTS

Commodity risk

Caledonia is exposed to fluctuations in the price of gold because Blanket produces and sells gold doré and receives the prevailing spot price for the gold contained therein. In light of the recent volatility in the gold price, Blanket’s continued investment in the Revised Investment Plan and Caledonia’s divided policy, in February 2016 Caledonia entered into a financial transaction in respect of 15,000 ounces of gold over a 6 month period which provides Caledonia with a guaranteed minimum gold price of $1,050 per ounce on the hedged ounces (the “Collar” price) and full price participation if the gold price is above $1,079 per once (the “Cap” price). The maximum cost to Caledonia of this transaction is $435,000 being 15,000 ounces at $29/oz. Blanket will continue to sell all of its production to Fidelity on the same terms as prevailed previously i.e. it will continue to receive the spot price of gold less a 1.25% “ early settlement” discount.

Caledonia will re-assess the requirement for any further hedging on the expiry of the existing arrangement in the context of, inter alia, the prevailing gold price and Blanket’s production rate and cash generation capacity.

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 trade receivable relates to gold bullion sold before quarter end. The amount was settled in January 2016.

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

A small proportion of Caledonia’s assets, financial instruments and transactions are denominated in currencies other than the United States Dollar. The financial results and financial position of Caledonia are reported in United States dollars in the Audited Consolidated Financial Statements.

The fluctuation of the United States 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 quarterly thereafter.

It is currently envisaged that the existing dividend policy of 4.5 United States cents per annum will be maintained in 2016.

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 17, 2016 Caledonia had 52,078,908 common shares issued.

As at March 17, 2016, outstanding options to purchase Common Shares (“Options”) are as follows:

Number of Options	Exercise Price	Expiry Date⁽¹⁾
	Canadian $
1,161,000	1.30	Jan 31, 2016
744,920	0.90	Sept 10, 2018
190,000	0.72	Nov 21,2018
25,000	0.80	Oct 8, 2025
90,000	0.74	Dec 22, 2025
2,210,920

⁽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. Thus the Options which were due to expire on January 31, 2016 (which was in a “closed period, being less than 2 months before the scheduled release of Caledonia’s 2015 results) will expire 10 days after the release of 2015 results.

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 2,966,970 shares at March 17, 2016.

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 sufficient 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 adopted a strategy to limit the effect of adverse gold price movements.

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.

Electricity supply: Zimbabwe produces and imports less electricity than it requires and has insufficient funds to adequately maintain or upgrade its distribution infrastructure. This has historically resulted in frequent interruptions to the power supply at Blanket Mine. The local supply situation has deteriorated due to low water levels in the Kariba Dam, which supplies water for a hydro-power station which accounts for approximately 50% of Zimbabwe’s installed generating capacity. Blanket has addressed the issue of interrupted power supply by installing stand-by generators and by entering into an un-interrupted power supply arrangement with the state-owned electricity company in return for paying a premium tariff. The un-interrupted power supply arrangement and the stand-by generators do not cover the GG and Mascot exploration properties

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 and Blanket management teams have recently been augmented so that, if required, it could provide appropriate support to Blanket if this was required.

Country risk: The commercial environment 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 and the availability of exchange to make payments from Zimbabwe; 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 because Fidelity has failed to pay Blanket in the past.

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, 2015 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, 2015, 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.

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