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 2018

Commission File Number: 001-38164

CALEDONIA MINING CORPORATION

(Translation of registrant's name into English)

3rd Floor, Weighbridge House

Weighbridge

St Helier, Jersey JE2 3NF

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, 2018	Name: Steve Curtis Title: CEO and Director

Exhibit	Description
99.1	Annual Financial Statements
99.2	Annual MD&A

EX-99.1

Exhibit 99.1

Caledonia Mining Corporation Plc

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION

To the Shareholders of Caledonia Mining Corporation Plc:

Management has prepared the information and representations in these consolidated financial statements. The consolidated financial statements of Caledonia Mining Corporation Plc (“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.

Our independent auditor has the responsibility of auditing the consolidated financial statements and expressing an opinion on these financial statements.

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.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICOFR”). 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, 2017 management evaluated the effectiveness of the Group’s internal control over financial reporting and concluded that such internal control over financial reporting was effective based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organisations of the Treadway Commission.

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 generally accepted 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, 2017 were approved by the Board of Directors and signed on its behalf on March 21, 2018.

(Signed) S. R. Curtis	(Signed) J.M. Learmonth
Chief Executive Officer	Chief Financial Officer

1

Caledonia Mining Corporation Plc

INDEPENDENT AUDITOR'S REPORT

To the shareholders of Caledonia Mining Corporation Plc

We have audited the accompanying consolidated financial statements of Caledonia Mining Corporation Plc, which comprise the consolidated statements of financial position as at December 31, 2017 and 2016, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the years then ended, 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 Plc as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for each of the years then ended, 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 21, 2018

2

Caledonia Mining Corporation Plc

Consolidated statements of profit or loss and other comprehensive income

(In thousands of United States Dollars, unless indicated otherwise)
For the years endedDecember 31	Notes	2017			2016
Revenue			69,762			61,992
Less: Royalties			(3,498	)		(2,923	)
Production costs	8		(36,180	)		(32,086	)
Depreciation	15		(3,763	)		(3,491	)
Gross profit			26,321			23,492
Other income	9		2,594			1,330
Other expenses	10		(195	)		(55	)
Administrative expenses	12		(5,911	)		(7,263	)
Equity-settled share-based expense	23.1		(835	)		(170	)
Cash-settled share-based expense	23.2		(976	)		(618	)
Sale of Blanket Mine treasury bills	11		-			3,202
Net foreign exchange loss			(380	)		(505	)
Loss on settlement of hedge			-			(435	)
Operating profit			20,618			18,978
Finance income	13		38			16
Finance cost	13		(69	)		(192	)
Profit before tax			20,587			18,802
Tax expense	14		(8,691	)		(7,717	)
Profit for the year			11,896			11,085
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences of foreign operations			373			262
Total comprehensive income for the year			12,269			11,347
Profit attributable to:
Owners of the Company			9,384			8,526
Non-controlling interests			2,512			2,559
Profit for the year			11,896			11,085
Total comprehensive income attributable to:
Owners of the Company			9,757			8,788
Non-controlling interests			2,512			2,559
Total comprehensive income for the year			12,269			11,347
Earnings per share
Basic earnings -per share ($)	21		0.86			0.79
Diluted earnings - per share ($)	21		0.86			0.79

The accompanying notes on page 7 to 58 are an integral part of these consolidated financial statements.

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

3

Caledonia Mining Corporation Plc

Consolidated statements of financial position

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

	Notes
As at 31December		2017			2016
Assets
Property, plant and equipment	15		82,078			64,873
Deferred tax asset	14		65			44
Total non-current assets			82,143			64,917
Inventories	16		9,175			7,222
Prepayments			709			810
Trade and other receivables	17		4,962			3,425
Cash and cash equivalents	18		13,067			14,335
Total current assets			27,913			25,792
Total assets			110,056			90,709
Equity and liabilities
Share capital	19		55,102			55,002
Reserves	20		143,452			142,374
Retained loss			(135,287	)		(141,767	)
Equity attributable to shareholders			63,267			55,609
Non-controlling interests	33		5,944			3,708
Total equity			69,211			59,317
Liabilities
Provisions	22		3,797			3,456
Deferred tax liability	14		19,620			15,909
Long-term portion of term loan facility	24		-			1,577
Cash-settled share-based payments	23.2		1,826			618
Total non-current liabilities			25,243			21,560
Short-term portion of term loan facility	24		1,486			1,410
Trade and other payables	25		12,660			8,077
Income tax payable	14		1,145			345
Overdraft	18		311			-
Total current liabilities			15,602			9,832
Total liabilities			40,845			31,392
Total equity and liabilities			110,056			90,709

The accompanying notes on page 7 to 58 are an integral part of these consolidated financial statements.

4

Caledonia Mining Corporation Plc

Consolidated statements of changes in equity

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

	Share capital			Foreign Currency Translation Reserve			Contributed Surplus		Equity- settled Share- based payment reserve		Retained Loss			Equity attributable to shareholders			Non- controlling interests (“NCI”)			Total Equity
Balance at January 1, 2016		54,569			(6,520	)		132,591		15,871		(147,654	)		48,857			1,504			50,361
Transactions with owners:
Equity settled share-based expense transactions		-			-			-		170		-			170			-			170
Shares issued – Option exercises (note 23.1)		433			-			-		-		-			433			-			433
Dividends paid		-			-			-		-		(2,639	)		(2,639	)		(355	)		(2,994	)
Total comprehensive income:
Profit for the year		-			-			-		-		8,526			8,526			2,559			11,085
Other comprehensive income for the year		-			262			-		-		-			262			-			262
Balance at December 31, 2016		55,002			(6,258	)		132,591		16,041		(141,767	)		55,609			3,708			59,317
Transactions with owners:
Equity-settled share-based expense transactions		-			-			-		705		-			705			130			835
Shares issued – Option exercises (note 23.1)		246			-			-		-		-			246			-			246
Shares repurchased (note 19)		(146	)		-			-		-		-			(146	)		-			(146	)
Dividends paid		-			-			-		-		(2,904	)		(2,904	)		(406	)		(3,310	)
Total comprehensive income:
Profit for the year		-			-			-		-		9,384			9,384			2,512			11,896
Other comprehensive income for the year		-			373			-		-		-			373			-			373
Balance at December 31, 2017		55,102			(5,885	)		132,591		16,746		(135,287	)		63,267			5,944			69,211
Notes		19			20			20		23.1								33

The accompanying notes on page 7 to 58 are an integral part of these consolidated financial statements.

5

Caledonia Mining Corporation Plc

Consolidated Statements of cash flows

For the years ended  December 31

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

	Note		2017			2016
Cash flows from operating activities		26		28,885			25,671
Interest received				38			16
Interest paid				(199	)		(210	)
Tax paid		14		(4,212	)		(2,466	)
Net cash from operating activities				24,512			23,011
Cash flows from investing activities
Acquisition of property, plant and equipment				(21,639	)		(19,885	)
Proceeds from sale of property, plant and equipment				-			3
Net cash used in investing activities				(21,639	)		(19,882	)
Cash flows from financing activities
Dividends paid				(3,310	)		(2,994	)
Term loan repayments				(1,500	)		-
Term loan proceeds				-			3,000
Term loan transaction costs				-			(73	)
Proceeds from issue of share capital				246			433
Share repurchase cost				(146	)		-
Net cash (used in)/from financing activities				(4,710	)		366
Net (decrease)/increase in cash and cash equivalents				(1,837	)		3,495
Effect of exchange rate fluctuation on cash held				258			(40	)
Cash and cash equivalents at beginning of year				14,335			10,880
Net cash and cash equivalents at year end		18		12,756			14,335

The accompanying notes on page 7 to 58 are an integral part of these consolidated financial statements.

6

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

1 Reporting entity

Caledonia Mining Corporation Plc (the “Company”) is a company domiciled in Jersey, Channel Islands. The address of the Company’s registered office is 3rd Floor, Weighbridge House, St Helier, Jersey, Channel Islands. These consolidated financial statements of the Group as at and for the years ended December 31, 2017 and December 31, 2016 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.

Caledonia’s shares are listed on the NYSE American stock exchange (symbol - “CMCL”) and on the Toronto Stock Exchange (symbol - “CAL”). Depositary interests in Caledonia’s shares are admitted to trading on AIM of the London Stock Exchange plc (symbol - “CMCL”).

2 Basis for preparation

(i) Statement of compliance

The consolidated financial statements have been prepared on a going concern basis, 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 21, 2018.

(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;

· cash-settled share-based payment arrangement measured at fair value on the grant and re-measurement dates; and

· derivative financial instruments measured at fair value.

(iii) Functional currency

These consolidated financial statements are presented in United States dollars (“$”), which is also the functional currency of the Company. All financial information presented in United States dollars have been rounded to the nearest thousand, unless indicated otherwise.

7

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

3 Use of accounting assumptions, estimates and judgements

In preparing these consolidated financial statements, management has made accounting assumptions, estimates and judgements that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recognised prospectively.

(a) Assumptions and estimation uncertainties

i) Depreciation of Property, plant and equipment

Depreciation on mine development, infrastructure and other assets in the production phase is computed on the units-of-production method over the life-of-mine based on the estimated quantities of reserves (proven and probable) and resources (measured, indicated and inferred), which are planned to be extracted in the future from known mineral deposits. Where items have a shorter useful life than the life-of-mine, the mine development, infrastructure and other assets are depreciated over their useful life. Confidence in the existence, commercial viability and economical recovery of reserves and resources included in the life-of-mine may be based on historical experience and available geological information. This is in addition to the drilling results obtained by the Group and management’s knowledge of the geological setting of the surrounding areas, which would enable simulations and extrapolations to be done with a sufficient degree of accuracy. In instances where management is able to demonstrate the economic recovery of resources with a high level of confidence, such additional resources, are included in the calculation of depreciation.

Other items of property, plant and equipment are depreciated as described in note 4(e)(iv) Useful lives.

(ii) Mineral reserves and resources

Mineral reserves and resources are estimates of the amount of product that can be economically and legally extracted. In order to calculate the reserves and resources, estimates and assumptions are required about a range of geological, technical and economic factors, including but not limited to quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity prices and exchange rates. Estimating the quantity and grade of mineral reserves and resources requires the size, shape and depth of orebodies to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and difficult geological assumptions and calculations to interpret the data. Estimates of mineral reserves and resources may change due to the change in economic assumptions used to estimate mineral reserves and resources and due to additional geological data becoming available during the course of operations.

The Group estimates its reserves (proven and probable) and resources (measured, indicated and inferred) based on information compiled by a Qualified Person in terms of the Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) relating to geological and technical data of the size, depth,

8

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

3 Use of accounting assumptions, estimates and judgements (continued)

(a) Assumptions and estimation uncertainties (continued)

(ii) Mineral reserves and resources (continued)

shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires geological and engineering assumptions to interpret the data. These assumptions include:

· correlation between drill-holes intersections where multiple reefs are intersected;

· continuity of mineralization between drill-hole intersections within recognized reefs; and

· appropriateness of the planned mining methods.

The Group estimates and reports reserves and resources in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards for Mineral Resources and Mineral Reserves. Complying with the CIM code, NI 43-101 requires the use of reasonable assumptions to calculate the recoverable resources. These assumptions include:

· the gold price based on current market price and the Group’s assessment of future prices;

· estimated future on-mine costs, sustaining and non-sustaining capital expenditures;

· future non-sustaining capital investment;

· cut-off grade;

· dimensions and extent, determined both from drilling and mine development, of ore bodies; and

· planned future production from measured, indicated and inferred resources.

Changes in reported reserves and resources may affect the Group’s financial results and position in a number of ways, including the following:

· asset carrying values may be affected due to changes in the estimated cash flows;

· depreciation and amortisation charges to profit or loss may change as these are calculated on the unit-of-production method or where useful lives of an asset change; and

· decommissioning, site restoration and environmental provisions may change in ore reserves and resources which may affect expectations about the timing or cost of these activities.

iii) Blanket mine’s indigenisation transaction

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

9

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

3. Use of accounting assumptions, estimates and judgements (continued)

(a) Assumptions and estimation uncertainties (continued)

iv) 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 a further internal assessment for additional areas of disturbance in 2016 and 2017. The restorations provision for Eersteling Gold Mining Company Limited was estimated based on an internal management assessment. Assumptions and estimates 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. The final cost of the currently recognized site rehabilitation provisions may be higher or lower than currently provided for (Refer to note 22).

v) Exploration and evaluation (“E&E”) assets

The Group also makes assumptions and estimates regarding the possible impairment of E&E assets 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. Assumptions and estimates 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 exploration and evaluation assets depends on the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.

vi) Income taxes

Significant assumptions and estimates 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 makes assumptions and estimates in recognising 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.

10

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

3 Use of accounting assumptions, estimates and judgements (continued)

(a) Assumptions and estimation uncertainties (continued)

vii) Share-based payment transactions

Equity-settled share-based payment arrangements

The Group measures the cost of equity-settled share-based payment transactions with employees, directors and Blanket’s indigenous shareholders (refer notes 5 and 23.1) 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 and 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 assumptions and estimates for estimating fair value for share-based payment transactions are disclosed in note 23.1.

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

Cash-settled share-based payment arrangements

The fair value of the amount payable to employees in respect of share-based awards which will be settled in cash is recognised as an expense with a corresponding increase in liabilities over the period over which the employee becomes unconditionally entitled to payment. The liability is re-measured at each reporting date. Any changes in the fair value of the liability are recognised as an expense in profit or loss.

Additional information about significant assumptions and estimates used to determine the fair value of cash settled share-based payment transactions are disclosed in note 23.2.

viii) 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 assumptions and estimates. Financial assets are also reviewed regularly for impairment.

3(b) Judgements

Judgement is required when assessing whether an entity is controlled by the group or not. Controlled entities are consolidated. Further information is given in notes 4(a) and 5.

4 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

11

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(a) Basis of consolidation

i) Subsidiaries and structured entities

Subsidiaries and certain structured entities 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

i) Foreign operations

As stated in note 2(iii) the presentation currency of the Group is the United States Dollar. The functional currency of the Company and all its subsidiaries is the United States Dollar except for the South African subsidiaries that use the South African Rand (“ZAR”) as functional currency. Subsidiary financial statements have been translated to the presentation currency 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.

12

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(b) Foreign currency (continued)

i) Foreign operations (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 over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are reclassified to profit or loss. If the Group 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 reattributed between controlling and non-controlling interests.

All resulting translation differences are reported in OCI and accumulated in the foreign currency translation reserve.

ii) Foreign currency translation

In preparing the financial statements of the Group entities, transactions in currencies other than the functional currency (foreign currencies) of these Group entities 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.

13

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(c) Financial instruments

i) Non-derivative financial assets

The Group initially recognises loans and receivables on the date that which they originate. 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 from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

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

Loans and receivables

Loans and receivables include trade and other receivables and cash and cash equivalents.

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 year 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 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.

14

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(c) Financial instruments (continued)

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, cancelled or expire.

Non-derivative financial liabilities consist of bank overdrafts, loans and borrowings 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.

iii) Derivative financial instruments

During 2016 the Group held derivative financial instruments to hedge its gold price exposure. Derivatives are recognised initially at fair value, attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value. The Group does not hold derivatives that are classified as cash flow hedges, embedded derivatives or hedges that qualify as highly effective. Therefore, all changes in the fair value of derivative instruments are accounted for in profit or loss.

iv) Offsetting

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.

(d) Share capital

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

15

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

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 in profit or loss.

ii) Exploration and evaluation assets

Exploration costs are capitalised as incurred, unless the exploration costs are related to speculative drilling on unestablished orebodies, general administrative or overhead costs associated with exploration drilling. The costs related to speculative drilling on unestablished orebodies, general administrative or overhead costs are expensed as incurred. Exploration and evaluation costs capitalised are disclosed under property, plant and equipment. 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 and moved to the mine development, infrastructure and other asset category within Property, plant and equipment. Capitalised direct costs related to the acquisition, exploration and development of mineral properties remain capitalized until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. Exploration and evaluation assets are tested for impairment before the assets are transferred to mine development, infrastructure and other assets.

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.

16

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(e) Property, plant and equipment (continued)

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. On commencement of commercial production, depreciation of mine development, infrastructure and other assets is calculated on the unit-of-production method using the estimated measured, indicated and inferred resources which are planned to be extracted in terms of Blanket’s life-of-mine plan (“LoMP”). Resources that are not included in the LoMP are not included in the calculation of depreciation.

For other categories, 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, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Inferred resources are included in the LoMP to the extent that there is a successful history of upgrading inferred resources. Blanket reports its resources inclusive of reserves. As a result, resources included in the LoMP and hence in the calculation of depreciation include material from measured, indicated and inferred resource classes as detailed below under the following types of resources:

· Measured resources – all proven reserve blocks plus 50% of the remnant pillar blocks.

· Indicated resources – all probable reserves plus indicated resources which occur within the mine extent as defined by the LoMP infrastructure.

· Inferred resources – inferred resources (discounted by approximately 30%) that are well defined in terms of geometry (position, width, extent) falling within the planned infrastructure as per the LoMP.

In addition, inferred resources are included in the LoMP if it is expected that the inferred resources can be economically recovered in the future. Economic recovery is expected if a history can be proven that the recovered grade of the inferred resources exceeded the pay limit grade and when this trend can be expected in the future. Refer to note 15 for the evaluation of the pay limit.

Land is not depreciated.

The calculation of the units of production rate could be affected to the extent that actual production in the future is different from the current forecast production based on reserves and resources. This would generally result from the extent to which there are significant changes in any of the factors or assumptions used in estimating mineral reserves and resources.

These factors include:

· changes in mineral reserves and resources;

· differences between actual commodity prices ad commodity price assumptions;

· unforeseen operational issues at mine sites; and

· changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange rates.

17

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(e) Property, plant and equipment (continued)

iv) Depreciation (continued)

Useful lives

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

· buildings 10 to 15 years (2016: 10 to 15 years);

· plant and equipment 10 years (2016: 10 years);

· fixtures and fittings including computers 4 to 10 years (2016: 4 to 10 years);

· motor vehicles 4 years (2016: 4 years); and

· mine development, infrastructure and other assets in production, units-of-production method.

Depreciation methods, useful lives and residual values are reviewed each financial year 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. Gold in process is measured at the lower of cost and net realisable value. The cost of gold in process 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.

(g) Impairment

i) Non-derivative 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 non-derivative 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, the absence or disappearance of an active market for a bond or other security. 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 non-derivative 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.

18

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(g) Impairment (continued)

i) Non-derivative financial assets (including receivables) (continued)

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”).

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a CGU to which a corporate asset is allocated 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. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amount of 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 (“E&E”) assets

The test for impairment of E&E assets, included in Mineral properties not depreciated, 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 specific 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 required in the event that the circumstances that resulted in impairment have changed.

19

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(g) Impairment

iii) Impairment of exploration and evaluation (“E&E”) assets (continued)

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. 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.

(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) Equity-settled share-based payments to employees and directors

The grant date fair value of equity-settled 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 meet the related service and non-market vesting conditions at the vesting date.

Where the terms and conditions of equity-settled share-based payments are modified, the increase in the fair value, measured immediately before and after the modification date, is charged to profit or loss over the

20

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(I) Share-based payment transactions (continued)

i) Equity-settled share-based payments to employees and directors

remaining vesting period or immediately for vested awards. Similarly 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. Additional information about significant judgements, estimates and the assumptions used in the quantifying of the equity-settled share-based payment transactions and modification are disclosed in note 23.1.

ii) Cash-settled share-based payments to employees and directors

The grant date fair value of cash-settled awards granted to employees and directors is recognised as an expense, with a corresponding increase in the liability, over the vesting period of the awards. At each reporting date the fair value of the awards are re-measured with a corresponding adjustment to profit or loss. The method of calculating the fair value of the cash-settled share-based payments changed during quarter 1 of 2017 from the intrinsic valuation method to the Black-Scholes method. The Black-Scholes method includes the effect of share volatility in calculating the fair value of the share-based payment awards. The change was applied prospectively and did not have a significant effect on the liability value. Additional information about significant judgements, estimates and the assumptions used to estimate the fair value of cash-settled share-based payment transactions are disclosed in note 23.2.

(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 if the time value of money is considered significant. 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 these 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. Future rehabilitation costs are discounted using a pre-tax risk free rate that reflects the time-value of money. 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 an increased footprint due to gold production are charged to profit or loss for the year. The cost of on-going current programs to prevent and control pollution is charged against profit or loss as incurred.

21

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(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 when the receipt of proceeds are substantially assured. Revenue is measured at the fair value of the receivable at the date of the transaction.

(m) Government grants

The Company recognises an unconditional government grant related to gold proceeds in profit or loss as other income when the grant becomes receivable. Government grants are initially recognised as deferred income at fair value if there is reasonable assurance that they will be received.

(n) 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, interest on bank overdraft balances, effective interest on loans and borrowings and also include commitment costs on overdraft facilities. Finance costs is recognised in profit or loss using the effective interest rate method and excludes borrowing costs capitalised.

(o) Income tax

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.

(p) Current tax

Current tax is the tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Current tax also includes withholding tax on management fees and dividends paid between companies within the Group.

22

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

4 Significant accounting policies (continued)

(q) Deferred tax

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. 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.

(r) Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its shares. Basic EPS is calculated by dividing the adjusted profit or loss attributable to shareholders of the Group (see note 21) by the weighted average number of shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding, adjusted for own shares held, for the effects of all dilutive potential 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.

(s) Borrowing cost

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

Other borrowing costs are expensed in the period in which they are incurred and recognised as finance costs.

23

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

(t) 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*
IFRS 15	In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”). IFRS 15 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 Transactions Involving Advertising Services”, and is effective for annual periods beginning on or after January 1, 2018. The standard contains a single model that applies to contracts with customers and two approaches to recognizing 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 recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Group will adopt IFRS 15 for the annual period beginning January 1, 2018 using the modified retrospective approach. The Group has completed its assessment of the impact of IFRS 15 and concluded that the new standard will have no impact on the consolidated financial statements.	January 1, 2018
IFRS 9	In July 2014, the IASB issued the final version of IFRS 9 “Financial Instruments” (“IFRS 9”), which replaces IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Group will adopt IFRS 9 for the annual period beginning January 1, 2018 on a retrospective basis, using certain available transitional provisions. IFRS 9 provides a revised model for classification and measurement of financial assets, including a new “expected credit loss” (ECL) impairment model. The revised model for classifying financial assets results in classification according to their contractual cash flow characteristics and the business models under which they are held. IFRS 9 introduces a reformed approach to hedge accounting. IFRS 9 also largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The Group has performed a preliminary assessment and expects no material result on the Group’s financial statements.	January 1, 2018

24

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

Standard/Interpretation		Effective date and expected adoption date*
IFRS 16	In January 2016, the IASB issued IFRS 16 “Leases” (“IFRS 16”), which replaces IAS 17 “Leases”. The standard is effective for annual periods beginning on or after January 1, 2019, and permits early adoption, provided IFRS 15 has been applied, or is applied at the same date as IFRS 16. IFRS 16 requires lessees to recognize assets and liabilities for most leases on its balance sheet, as well as corresponding depreciation and interest expense. The Group will adopt IFRS 16 for the annual period beginning January 1, 2019. The Group has performed a preliminary assessment and expects no significant effect on the results.	January 1, 2019
IFRIC 22	In December 2016, the IASB issued IFRIC Interpretation 22 “Foreign Currency Transactions and Advance Consideration” (“IFRIC 22”). IFRIC 22 is applicable for annual periods beginning on or after January 1, 2018, and permits early adoption. IFRIC 22 clarifies which date should be used for translation when a foreign currency transaction involves an advance payment or receipt. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of the advance consideration. The Group will adopt IFRIC 22 in its financial statements for the annual period beginning January 1, 2018 on a prospective basis. The Group has completed its assessment of the impact of IFRIC 22 and does not expect the interpretation to have a material impact on the consolidated financial statements.	January 1, 2018

^{* Annual periods ending on or after}

25

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

5 Blanket Zimbabwe Indigenisation Transaction

On February 20, 2012 the Group announced it had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe pursuant to which the Group agreed that indigenous Zimbabweans would acquire an effective 51% ownership interest in the Blanket Mine for a transactional value of $30.09 million. Pursuant to the above, the Group entered into agreements with each Indigenisation Shareholder to transfer 51% of the Group’s 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 Investments (Private) Limited (“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. 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. Subsequent to the Indigenisation Transaction the facilitation loans relating to the Group were transferred as a dividend in specie to wholly-owned subsidiaries in the Group.

Accounting treatment

The directors of Caledonia Holding Zimbabwe (Private) Limited (“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; and

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

26

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

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, 2017 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.

Amendments to the facilitation and advanced dividend loan agreements

Interest modification

On June 23, 2017, the Group, Blanket Mine and the Indigenous Shareholders of Blanket Mine reached agreement to change the interest terms of the facilitation and advanced dividend loan agreements. The agreements changed the interest rate from the previously agreed 12 month LIBOR + 10% to the lower of a fixed 7.25% per annum, payable quarterly or 80% of the Blanket Mine dividend in the quarter. The modification was considered beneficial to the Indigenous Shareholders and gave rise to an equity-settled share based expense of $806 on June 23, 2017 when all parties reached agreement to modify the interest charged. It was agreed that the interest change was to be applied to the facilitation and advanced dividend loan balances from January 1, 2017. The assumptions and methodologies used to quantify the equity-settled share-based payment expense relating to the beneficial interest modification are detailed in note 23.1.

Dividend and interest moratorium

Blanket Mine suspended dividend payments from January 1, 2015 until August 1, 2016 to facilitate capital expenditure on the Blanket Mine investment programme. As a result the repayments of facilitation loans by the Indigenous Shareholders were also suspended. A moratorium was placed on the interest of the facilitation and advanced dividend loans until such time as dividends resumed. Due to the suspension of dividends and the moratorium on interest, no repayments were made or interest accumulated from December 31, 2014 until July 31, 2016. The dividends and interest resumed on August 1, 2016, when Blanket Mine declared a dividend. The amendment was not considered beneficial to the Indigenous shareholders.

27

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

5 Blanket Zimbabwe Indigenisation Transaction (continued)

Blanket’s indigenisation shareholding percentages and facilitation loan balances

										Balance of facilitation loan #
USD 000's	Shareholding			NCI Recognised			NCI subject to facilitation  loan			Dec, 31, 2017		Dec, 31 2016
NIEEF		16	%		3.2	%		12.8	%		11,879		11,990
Fremiro		15	%		3.0	%		12.0	%		11,504		11,682
Community Trust		10	%		10.0	%		-			-		-
BETS		10	%		-	*		-	*		7,669		7,788
		51	%		16.2	%		24.8	%		31,052		31,460

The balance on the facilitation loans is reconciled as follows:

Balance at January 1, 2016	31,336
Interest accrued	1,359
Dividends used to repay loans	(1,235	)
Balance at December 31, 2016	31,460
Interest accrued	1,136
Dividends used to repay loans	(1,544	)
Balance at December 31, 2017	31,052

*The shares held by BETS are effectively treated as treasury shares (see above). The BETS facilitation loan earnings are accounted for under IAS19 Employee Benefits as an employee charge under Production cost.

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

28

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

5 Blanket Zimbabwe Indigenisation Transaction (continued)

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:

Advances made 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 at the lower of a fixed 7.25% per annum, payable quarterly or the Blanket Mine dividend in the quarter to the advanced dividend loan holder. The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the Community Trust. Advances made to NIEEF as an advanced dividend loan before 2013 has been settled through Blanket Mine dividend repayments in fiscal 2014.

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.

The movement in the advance dividend loan to the Community trust is reconciled as follows:

	Total
Balance at January 1, 2016		3,237
Interest accrued		133
Dividends used to repay advance dividends		(370	)
Balance at December 31, 2016		3,000
Interest accrued		104
Dividends used to repay advance dividends		(500	)
Balance at December 31, 2017		2,604

29

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

6 Financial risk management

Overview

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

· Currency risk (refer note 27)

· Interest rate risk (refer note 27)

· Credit risk (refer note 27)

· Liquidity risk (refer note 27)

· Market risk (refer note 27)

This note and note 27 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. The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Group’s Audit Committee oversees management’s compliance with the Group’s financial risk management policy. The fair value of the Group’s financial instruments approximates their carrying value due to the short period to maturity. The types of risk exposure and the way in which such exposures are managed are described below:

(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.

(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 and term loan. Management’s policy is to invest cash in financial institutions with an investment grade credit-rating. The Group has not entered into interest rate swap agreements and mitigates the interest rate risk by remaining in a positive consolidated net cash position.

(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.

30

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

6 Financial risk management (continued)

(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 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.

(e) Market risk

Market risk is the risk that changes in the gold price will affect the group’s profitability. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising returns.

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.

	2017		2016
Total equity		69,211		59,317

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 and accommodate any rehabilitation provisions and to pursue growth opportunities. As at December 31, 2017, the Group is not subject to externally imposed capital requirements other than the term loan which is secured by a notarial bond over moveable assets (refer notes 15 and 24) and there has been no change with respect to the overall capital risk management strategy.

31

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

8 Production costs

	2017		2016
Salaries and wages		13,440		12,206
Cash-settled share-based payments (note 23.2)		311		-
Consumable materials		18,617		16,291
Site restoration		58		32
Pre-feasibility exploration cost		410		408
Safety		323		221
On mine administration		3,004		2,898
Other production cost		17		30
		36,180		32,086

9 Other income

	2017		2016
Government grant – Gold sale export incentive		2,446		1,104
Other		148		226
		2,594		1,330

Government grant – Gold sale export incentive

From May, 2016 the Reserve Bank of Zimbabwe announced an export incentive on the gold proceeds received for all large scale gold mine producers. For fiscal 2017, Blanket was awarded an increased export incentive of 3.5% from the previous 2.5% on all proceeds for gold sold to Fidelity Printers and Refiners Limited. All incentives granted by the Zimbabwean government were included in other income when determined receivable.

10 Other expenses

	2017		2016
Impairment provision - 2016 royalty rebate (note 17)		181		-
Other		14		55
		195		55

11 Sale of Blanket Mine treasury bills

On May 16, 2016 the Company announced that Blanket Mine had sold treasury bills (“Bills”) issued by the Government of Zimbabwe for a gross value of approximately $3,202. The Bills were issued to Blanket in 2015 which replaced the Special Tradeable Gold Bonds (“Bonds”) which were issued to Blanket in 2009 as part consideration for gold sales that were made by Blanket in 2008 under the terms of the sales mechanism that existed at that time for Zimbabwean gold producers. The Bonds were carried at a fair value of nil in previous years.

32

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

12 Administrative expense

	2017		2016
Investor  relations		541		543
Audit fee		231		267
Advisory services fee		684		2,266
Listing fees		402		328
Directors fees company		247		211
Directors fees Blanket		40		48
Employee costs		2,781		2,803
Office costs  - Zambia		-		17
Other office administration costs		444		185
Travel costs		399		484
Eersteling Gold Mine administration costs		142		111
		5,911		7,263

13 Finance income and finance costs

Finance income	2017			2016
Interest received – Bank		38			16
Finance cost
Interest paid – Term loan		155			103
Interest paid – Capitalised to Property, plant and equipment (note 15)		(155	)		(103	)
Unwinding of rehabilitation provision		25			25
Finance charges – Overdraft		44			167
		69			192

33

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

14 Tax expense

	2017		2016
Tax recognised in profit or loss
Current tax		4,995		3,106
Income tax– current year		3,702		2,414
Income tax – Prior year under/(over) provision		71		49
Withholding tax expense		1,222		643
Deferred tax expense		3,696		4,611
Origination and reversal of temporary differences		3,696		4,611
Tax expense – recognised in profit or loss		8,691		7,717
Tax recognised in other comprehensive income
Income tax - current year	-		-
Tax expense		8,691		7,717

Unrecognised deferred tax assets

	2017		2016
Tax losses carried forward		5,105		4,989

Taxable losses do not expire for the entities incurring taxable losses within the group. Tax losses carried forward relate to Greenstone Management Services Holdings Limited (UK) and Eersteling Gold Mine Limited. Deferred tax assets have not been recognised in these entities as future taxable income is not deemed probable to utilise these losses against.

34

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

14 Tax expense (continued)

Reconciliation of tax rate

	2017			2016
Profit for the year		11,896			11,085
Total tax expense		8,691			7,717
Profit before tax		20,587			18,802
Income tax at Company's domestic tax rate (1)		-			-
Tax rate differences in foreign jurisdictions		6,546			6,293
Management fee – non-deductible withholding tax portion		427			427
Management fee – Withholding tax on deemed dividend portion (2)		538			-
Management fee – non-deductible income tax portion (2)		925			-
Withholding tax on intercompany dividend		90			49
Non-deductible royalty expenses		901			753
Other non-deductible expenditure		107			64
Export incentive income credit 2016 (3)		(284	)		-
Export incentive income exemption 2017 (3)		(630	)		-
Change in tax estimate		(45	)		49
Change in unrecognized deferred tax assets		116			82
Tax expense - recognised in profit or loss		8,691			7,717

^{(1) Enacted tax rate in Jersey, Channel Islands is 0% (2016:0%)}

^{(2) Zimbabwean tax legislation changed during 2017 that gave rise to an additional 15% withholding tax on a portion of the intercompany management fee considered to be a deemed dividend. The new legislation resulted in this portion of the management fee being not deductible for income tax purposes in Zimbabwe from January 1, 2017.}

^{(3) On March 23, 2017, the Zimbabwean revenue authority enacted a new finance act that provided for the export incentive income to be tax exempt. The 2018 finance bill indicated that the export incentive income will be tax exempt from June 1, 2016. The new finance bill resulted in an income tax credit being applied in the 2017 income tax calculation giving rise to a credit for the export incentive income of 2016.}

Tax paid	2017			2016
Net income tax (payable)/receivable at January 1		(345	)		344
Current tax expense		(4,995	)		(3,106	)
Foreign currency movement		(17	)		(49	)
Tax paid		4,212			2,466
Net income tax payable at December 31		(1,145	)		(345	)

35

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

14 Tax expense (continued)

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	Assets				Liabilities						Net
	2017		2016		2017			2016			*2017			*2016
Property, plant and equipment		-		-		(20,985	)		(17,092	)		(20,985	)		(17,092	)
Allowance for obsolete stock		35		12		-			-			35			12
Prepayments		-		-		(4	)		(3	)		(4	)		(3	)
Unrealised foreign exchange		97		-		-			-			97			-
Share based payments		12		-		-			-			12			-
Provisions		1,290		1,218		-			-			1,290			1,218
Tax assets/ (liabilities)		1,434		1,230		(20,989	)		(17,095	)		(19,555	)		(15,865	)

^* The deferred tax liability consists of a deferred tax asset of $65 (2016: $44) from the South African operations and a deferred tax liability of $19,620 (2016: $15,909) due to the Zimbabwean operations. The amounts are in different tax jurisdictions and cannot offset. The amounts are presented as a Non-current asset and a Non-current liability in the Statement of financial position. The deferred tax asset recognised is supported by evidence of probable future taxable income.

Movement in recognised deferred tax assets and liabilities

	Balance January 1, 2017			Recognised in profit or loss			Foreign exchange movement		Balance December 31, 2017
Property, plant and equipment		(17,092	)		(3,893	)		-		(20,985	)
Allowance for obsolete stock		12			23			-		35
Prepayments		(3	)		(1	)		-		(4	)
Unrealised foreign exchange		-			97			-		97
Share based payments		-			12			-		12
Provisions		1,218			66			6		1,290
Total		(15,865	)		(3,696	)		6		(19,555	)

	Balance January 1, 2016			Recognised in profit or loss			Foreign exchange movement			Balance December 31, 2016
Property, plant and equipment		(12,988	)		(4,104	)		-			(17,092	)
Allowance for obsolete stock		-			12			-			12
Prepayments		(3	)		2			(2	)		(3	)
Provisions		733			477			8			1,218
Assessed loss recognised		998			(998	)		-			-
Total		(11,260	)		(4,611	)		6			(15,865	)

36

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

15 Property, plant and equipment

	Land and buildings		Mine development, infrastructure and other			Exploration and Evaluation assets		Plant and equipment			Fixtures and fittings			Motor vehicles			Total
Cost
Balance at January 1, 2016		7,989		31,158			6,224		20,626			1,277			2,069			69,343
Additions **		-		*17,545			739		572			73			230			19,159
Disposals and scrappings		-		-			-		-			(502	)		(55	)		(557	)
Reallocations between asset classes		361		(3,699	)		-		3,338			-			-			-
Foreign exchange movement		17		74			4		-			28			11			134
Balance at December 31, 2016		8,367		45,078			6,967		24,536			876			2,255			88,079
Balance at January 1, 2017		8,367		45,078			6,967		24,536			876			2,255			88,079
Additions**		-		*17,464			-		3,377			36			72			20,949
Impairments		-		-			-		(12	)		-			-			(12	)
Disposals and scrappings		-		-			-		-			-			(2	)		(2	)
Reallocations between asset classes		1,051		(1,051	)		-		(20	)		20			-			-
Foreign exchange movement		16		7			-		-			11			4			38
Balance at December 31, 2017		9,434		61,498			6,967		27,881			943			2,329			109,052

There are commitments to purchase plant and equipment totalling $2,125 (2016: $2,122) at year end.

* Included in additions to mine development, infrastructure and other assets is an amount of $218 (2016: $557) relating to rehabilitation asset capitalised refer note 22.

** Included in additions is an amount of $19,556 (2016: $17,731) relating to capital work in progress (“CWIP”) and contains $155 (2016:$ 103) of borrowing costs capitalized from the term loan. As at year end $48,943 of CWIP was included in the closing balance (2016: $34,086).

37

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

15 Property, plant and equipment (continued)

	Land and buildings		Mine development, infrastructure and other		Exploration and Evaluation assets		Plant and equipment		Fixtures and fittings			Motor vehicles			Total
Accumulated depreciation and Impairment losses
Balance at January 1, 2016		2,321		3,781		-		11,524		996			1,503			20,125
Disposals and scrappings		-		-		-		-		(502	)		(8	)		(510	)
Impairments		-		-		-		-		20			-			20
Depreciation for the year		629		699		-		1,705		106			352			3,491
Foreign exchange movement		-		61		-		-		22			(3	)		80
Balance at December 31, 2016		2,950		4,541		-		13,229		642			1,844			23,206
Balance at January 1, 2017		2,950		4,541		-		13,229		642			1,844			23,206
Depreciation for the year		686		631		-		2,153		115			178			3,763
Foreign exchange movement		-		-		-		-		4			1			5
Balance at December 31, 2017		3,636		5,172		-		15,382		761			2,023			26,974
Carrying amounts
At December 31, 2016		5,417		40,537		6,967		11,307		234			411			64,873
At December 31, 2017		5,798		56,326		6,967		12,499		182			306			82,078

38

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

15 Property, plant and equipment (continued)

Economic recovery

Items of Property, plant and equipment depreciated over the LoMP are depreciated inclusive of inferred resources included in the LoMP. These inferred resources are included in the calculation when the economic recovery thereof is demonstrated by the achieved recovered grade relative to the mine’s pay limit for the period 2006 to 2016. The pay limit has ranged from 2.3 g/t in 2008 to 1.9 g/t in 2017 while the recovered grade has ranged from 4.0 g/t to 3.42 g/t over the period. All-in-sustaining-cost^* has remained consistently below the gold price received over this period resulting in economic recovery of the inferred resources.

* All-in sustaining cost (“AISC”) per ounce, is calculated as the on-mine cost per ounce to produce gold (which includes production costs before intercompany eliminations and exploration costs) plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg, London and Jersey), costs associated with maintaining the operating infrastructure and resource base that are required to maintain production at the current levels (sustaining capital investment), the share-based expense arising from the LTIP less silver by-product revenue and the export incentive credit

16 Inventories

	2017		2016
Consumable stores		8,776		6,884
Gold in process		399		338
		9,175		7,222

Consumables stores are disclosed net of any write downs or provisions for obsolete items, which amounted to $894 (2016: $862).

17 Trade and other receivables

	2017		2016
Bullion revenue receivable		1,386		1,059
VAT receivables		2,947		1,901
Deposits for stores and equipment and other receivables		629		465
		4,962		3,425

The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables is disclosed in notes 6 and 27.

During 2016 Blanket mine obtained a reduced royalty award of $181 for all incremental gold production in 2016. A receivable was recognised for the royalty amount overpaid to the revenue authorities in 2016 based on the pre-award rate. Due to the reduced royalty amount being outstanding as at December 31, 2017 and at the approval date of these financial statements an impairment provision of $181 (2016: Nil) was raised against the receivable.

39

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

18 Cash and cash equivalents

	2017			2016
Bank balances		13,067			14,335
Cash and cash equivalents in the statement of financial position		13,067			14,335
Bank overdrafts used for cash management purposes		(311	)		-
Net cash and cash equivalents at year end		12,756			14,335

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 27.

Blanket Mine arranged an unsecured bank overdraft facility of $4,000 of which $311 (2016; Nil) was utilised at December 31, 2017. The overdraft facility bears interest at 6.5% per annum, 4.65% above the base rate. The facility is repayable on demand.

19 Share capital

Authorised

Unlimited number of ordinary shares of no par value.

Unlimited number of preference shares of no par value.

	Number of fully paid shares*			Amount
Issued ordinary shares
December 31, 2015		10,510,232			54,569
Issued during the year		141,704			433
December 31, 2016		10,651,936			55,002
Share repurchased		(118,063	)		(146	)
Issued during the year		69,280			246
December 31, 2017		10,603,153			55,102

* Amounts stated after the 1:5 share consolidation

Share consolidation and repurchase

At the Company’s annual general meeting of shareholders held on June 19, 2017 resolutions were passed, amongst others, which:

(a) authorised the consolidation of the Company’s share capital on the basis of 1 share for every 100 shares held;

(b) approved the repurchase of fractions of shares created by the consolidation which were held by shareholders with fewer than 100 shares prior to the consolidation at a price of CAD1.664 per pre-consolidation share held;

40

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

19 Share capital (continued)

(c) authorised the division of the consolidated shares immediately following the steps above on the basis of 20 shares for every 1 share; and

(d) approved the repurchase of fractions of shares remaining following the steps above at the same price as at (b) payments made for repurchases pursuant to (b) and (d) were subject to a minimum with the Company being entitled to retain amounts of GBP5 or less.

The combined effect of the above steps which was effected on June 26, 2017 was an effective consolidation of the company’s shares on the basis of 1 share for every 5 shares previously held, the repurchase and cancellation of all shareholdings of fewer than 100 shares before the implementation of the 1 for 100 consolidation and the repurchase and cancellation of all remaining fractions following the 20 for 1 division. This resulted in an effective repurchase of 118,063 shares at a cost of $146 and a reduction in the number of issued shares of 42,135,492 shares arising from the consolidation.

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. The Company has no preference shares in issue.

20 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 Blanket’s indigenisation shareholders under Blanket’s 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

	2017			2016
Foreign currency translation reserve		(5,885	)		(6,258	)
Equity-settled share-based payment reserve (Note 23.1)		16,746			16,041
Contributed surplus		132,591			132,591
Total		143,452			142,374

41

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

21 Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the year ended December 31, 2017 was based on the adjusted profit attributable to shareholders of $9,174 (2016: $8,288), and a weighted average number of shares outstanding of 10,607,882 (2016: 10,457,242).

Weighted average number of shares

(In number of shares)	Note	2017			2016
Issued shares at beginning of year	19		52,787,428			52,078,908
Share consolidation (note 19)			(42,135,492	)		(41,663,126	)
Issued shares post consolidation			10,651,936			10,415,782
Weighted average shares repurchased			(60,978	)		-
Weighted average shares issued			16,924			41,460
Weighted average number of shares at December 31			10,607,882			10,457,242

	2017			2016
Profit attributable to shareholders		9,384			8,526
Blanket Mine Employee Trust Adjustment		(210	)		(238	)
Adjusted profit attributable to shareholders		9,174			8,288
Basic earnings per share - $		0.86			0.79

· 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.

42

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

21 Earnings per share (continued)

The interest of NIEEF and Fremiro shareholding were anti-dilutive in the current and prior 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 shareholders. The calculation of diluted earnings per share at December 31, 2017 was based on the adjusted profit attributable to shareholders of $9,174 (2016: $8,288), and a weighted average number of shares and potentially dilutive shares outstanding of 10,617,504 (2016: 10,480,691), calculated as follows:

Weighted average number of shares (In number of shares)	2017		2016
Weighted average shares at December 31		10,607,882		10,457,242
Effect of dilutive options		9,622		23,449
Weighted average number of  shares (diluted) at December 31		10,617,504		10,480,691
Diluted earnings per share - $		0.86		0.79

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. Options of 18,378 (2016: 68,795), were excluded from the dilutive earnings per share calculation as these options were anti-dilutive. The quantity of options outstanding as at year end that were out of the money and that had an anti-dilutive effect amounted to 5,000 (2016: 18,000) options.

22 Provisions

Site restoration

Site restoration relates to the estimated cost of closing down the mines and represents the site and environmental restoration costs, estimated to be paid throughout the period up until closure due to areas of environmental disturbance present at the reporting date as a result of mining activities. In the case of Blanket Mine the costs of site restoration are discounted based on the estimated life of mine. The Eersteling mine is under care and maintenance and the provision is not discounted. 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	2017			2016
Balance at January 1		3,456			2,762
Foreign exchange movement		62			80
Unwinding of discount		25			25
Rehabilitation performed		(22	)		-
Change in estimate during the year
-       adjusted through profit or loss		58			32
-       adjustment capitalised in Property, plant and equipment		218			557
Balance at December 31		3,797			3,456

43

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

22 Provisions (continued)

The discount rates currently applied in the calculation of the net present value of the Blanket mine provision is 0.64% (2016: 0.86%), based on a risk free rate and cash flows estimated at 0% inflation (2016: 0%). The gross rehabilitation costs before discounting amounted to $3,354 (2016: $3,159) for Blanket mine and $669 (2016: $571) for Eersteling mine.

23.1 Equity-settled share-based expense

The Group has expensed the following Equity-settled share-based payment arrangements for the year ended December 31

	Note	2017		2016
Share option programmes	23.1 (a)		29		170
Facilitation and advanced dividend loan modification	23.1 (b)		806		-
			835		170

(a) Share option programmes

The Omnibus Equity Incentive Compensation Plan (“OEICP”) was established for grants after May 2015. Share options issued before May 2015 were issued in terms of the Rolling Stock Option Plan (“RSOP”), which was superseded by the OEICP. In accordance with the OEICP, options are granted at an exercise price equal to the greater of volume weighted average trading price for the five days prior to grant or the closing price on the day immediately prior to the date of grant. The options vest according to dates set at the discretion of the Compensation Committee of the Board of Directors at the date of grant. All outstanding option awards that have been granted, pursuant to the plan, vest immediately.

Terms and conditions of share option programmes

The maximum term of the options under the OEICP is 10 years and under the RSOP 5 years. The terms and conditions relating to the grant of options under the RSOP are that all options are to be settled by physical delivery of shares. Equity settled share based payments under the OEICP will also be settled by physical delivery of shares. Under both plans the aggregate number of shares that may be issued pursuant to the grant of options, or under any other share compensation arrangements of the Company, will not exceed 10% of the aggregate issued and outstanding shares issued of the Company.

At December 31, 2017, the Company has the following options outstanding:

Number of Options		Exercise Price		Expiry Date
		Canadian $
	5,000		4.00	Oct 8, 2020
	18,000		11.50	Oct 13, 2021
	5,000		8.10	May 30, 2022
	28,000

44

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

23.1 Equity-settled share-based expense (continued)

(a) Share option programmes (continued)

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

	Number of Options*			Weighted Avg. Exercise Price
				Canadian $*
Options outstanding and exercisable at December 31, 2015		448,184			5.40
Expired or forfeited		(232,200	)		6.50
Granted		18,000			11.50
Exercised		(141,704	)		4.15
Options outstanding and exercisable at December 31, 2016		92,280			5.85
Granted		5,000			8.10
Exercised		(69,280	)		4.50
Options outstanding and exercisable at December 31, 2017		28,000			9.55

* Amounts stated after the 1:5 share consolidation, refer note 19.

The weighted average remaining contractual life of the outstanding options is 3.72 years (2016: 3.08 years).

Inputs for measurement of grant date fair values

The fair value of share-based payments noted above was estimated using the Black-Scholes Option Pricing Model as the fair value of the services could not be estimated reliably. Service and non-market performance conditions attached to the arrangements were not taken into account in measuring fair value. The following assumptions were used in determining the fair value of the options:

Options granted	* 5,000			*18,000
Grant date	May 30, 2017			October 13, 2016
Risk-free interest rate		2.40	%		0.53	%
Expected stock price volatility (based on historical volatility)		118	%		119	%
Expected option life in years		3			5
Exercise price		* CAD 8.10			* CAD 11.50
Share price at grant date		* CAD 8.10			* CAD 11.50
Fair value at grant date		* USD 5.81			* USD 9.45

On May 30, 2017 a grant of 5,000 share options was made to Mr. J Staiger, who provides investor relations services in continental Europe for the Company. The exercise price was determined as the prevailing Toronto Stock Exchange share price on the day of the grant. Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price. The expected term has been based on historical experience. The share based payment expense relating to the grant amounted to $29.

* Amounts stated after the 1:5 share consolidation, refer note 19.

45

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

23.1 Equity-settled share-based expense (continued)

(b) Facilitation and advance dividend loan modification

On June 23, 2017, the Group, Blanket Mine and the Indigenous Shareholders reached agreement to change the interest rate on the facilitation and advanced dividend loans from the previously agreed 12 month LIBOR + 10% to the lower of a fixed rate of 7.25% per annum, payable quarterly or 80% of the dividends paid in the financial quarter. The modification was beneficial to the Indigenisation Shareholders and resulted in an equity-settled share-based payment expense of $806. The Monte Carlo simulation approach was followed to value the fair value of the Indigenisation Shareholders’ equity before and after the modification date. The fair value of the Indigenisation Shareholders’ equity was based on simulating the future Blanket Mine dividend yields.

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

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

23.2 Cash-settled share-based expense

The Group has expensed the following Cash-settled share-based payment arrangements for the year ended December 31

	Note	2017		2016
Restricted Share units and Performance Share Units	23.2 (a)		853		618
Caledonia Mining South Africa employee incentive scheme	23.2 (b)		123		-
			976		618

(a) Restricted Share units and Performance Share Units

Certain key management members were granted Restricted Share units (“RSU’s”) and Performance Share Units (” PSU’s”) pursuant to provisions of the 2015 Omnibus Equity Incentive Compensation Plan. All RSU’s and PSU’s were granted and approved by the Compensation Committee of the Board of Directors.

The RSU’s will vest three years after grant date given that the service condition of the relevant employees are fulfilled. The value of the vested RSU’s will be the number of RSU’s vested multiplied by the fair market value of the Company’s shares, as specified by the plan, on date of settlement.

The PSU’s have a service condition and a performance period of three years. The performance condition is a function of production cost, gold production and central shaft depth targets on certain specified dates. The number of PSU’s that will vest will be the PSU granted multiplied by the Performance Multiplier, which will reflect the actual performance in terms of the performance conditions compared to expectations on the date of the award.

46

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

23.2 Cash-settled share-based expense (continued)

(a) Restricted Share units and Performance Share Units (continued)

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

The fair value of the RSU’s, at the reporting date, was based on the Black Scholes option valuation model. The fair value of the PSU’s, at the reporting date, was based on the Black Scholes option valuation model less the fair value of the expected dividends during the vesting period multiplied by the performance multiplier expectation. At the reporting date it was assumed that there is a 94% probability that the performance conditions will be met and therefore a 94% performance multiplier was used in calculating the estimated liability. The liability as at December 31, 2017 amounted to $1,782 (2016:$618). Included in the liability as at December 31, 2017 is an amount of $311 (2016:Nil) that was expensed and classified as production costs, refer note 8.

The following assumptions were used in estimating the fair value of the cash settled share-based payment liability on December 31:

		*2017					*2016
		RSUs		PSUs			RSUs		PSUs
Fair value (USD)	$	7.37	$	7.17		$	5.50	$	5.25
Share price (USD)	$	7.37	$	7.37		$	5.50	$	5.50
Performance multiplier percentage		-		94	%		-		100	%

Share units granted:

	RSUs		PSUs		RSUs		PSUs
Grant - January 11, 2016		60,645		242,579		60,645		242,579
Grant - March 23, 2016		10,965		43,871		10,967		43,871
Grant - June 8, 2016		5,117		20,470		5,117		20,470
Grant - January 19, 2017		4,443		17,774		-		-
RSU dividend reinvestments		7,324		-		3,505		-
Total awards at December 31		88,494		324,694		80,234		306,920

^* Amounts are presented after the 1:5 share consolidation that took place on June 26, 2017. All fractional entitlements due to the share consolidation were rounded down.

(b) Caledonia Mining South Africa employee incentive scheme

In July, 2017 the Group granted 37,330 cash-settled share awards to certain employees based in South Africa. These cash-settled share awards will vest in 3 equal tranches on November 30, 2017, 2018 and 2019 subject to the employees fulfilling their service condition. The cash-settled share-based payment liability was calculated based on the number of awards expected to vest multiplied by the Company’s Black Scholes option valuation fair value of £5.10 at the reporting date. The liability relating to these cash-settled share based payment awards amounted to $44 (2016:Nil) and the expense amounted to $123 (2016:Nil) for the year ended December 31, 2017. 12,447 of the cash-settled share awards vested on November 30, 2017 and an amount of $79 was paid out to these employees.

47

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

24 Loans and borrowings

	2017		2016
Non-current portion of term loan facility		-		1,577
Current portion of term loan facility		1,486		1,410
		1,486		2,987

On October 19, 2016 Blanket Mine received $3 million in terms of a term facility with Barclays Bank of Zimbabwe Limited bearing interest at an interest rate of 7.25% per annum and an upfront arrangement fee of $73. The term facility will be paid back over 8 quarterly instalments of $375 starting January 19, 2017. The term facility is secured in terms of a general notarial bond registered over the moveable assets of Blanket Mine to the value of $3,000. The agreement also incorporates an endorsement by the insurer of these movable assets. The endorsement provides Barclays Bank of Zimbabwe Limited with the cession of the insurance cover on the movable assets against all risk insured.

At the inception of the loan the liability was recognised at its fair value plus transaction cost. The imputed finance costs on the liability was determined at an incremental borrowing rate of 7.25%. Finance costs are accounted for in note 13 on the effective interest rate method. The fair value of the term facility approximates the carrying amount as the market rate approximated the actual rate at year end.

25 Trade and other payables

	2017		2016
Trade payables		2,939		2,851
Electricity accrual		5,827		1,685
Audit fee		231		173
Other payables		584		343
Financial liabilities		9,581		5,052
VAT payable and other taxes		-		242
Production and management bonus accrual - Blanket Mine		789		1,156
Other employee benefits		552		123
Leave pay		1,738		1,504
Non-financial liabilities		3,079		3,025
Total		12,660		8,077

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 6 and note 27.

48

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

26 Cash flow information

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

	2017			2016
Profit for the year		11,896			11,085
Adjustments for:
Tax expense		8,691			7,717
Net finance cost		31			176
Loss on sale of Property, plant and equipment		2			44
Impairment of Property, plant and equipment		12			20
Foreign exchange gains on cash held		121			(105	)
Site restoration		36			32
Cash-settled share-based payment expense		1,208			788
Equity-settled share-based payment expense		835			-
Depreciation		3,763			3,491
Allowance for obsolete stock		32			862
Provision for impairment – royalty rebate (note 17)		181			-
Cash generated by operations before working capital changes		26,808			24,110
Inventories		(1,975	)		(1,990	)
Prepayments		82			(99	)
Trade and other receivables		(1,437	)		555
Trade and other payables		5,407			3,095
Cash flows from operating activities		28,885			25,671

27 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, 2017		December 31, 2016
Zimbabwe		2,015		1,523

Impairment losses

None of the trade and other receivables are past due at year-end other than the royalty rebate of 2016 (refer note 17). Trade and other receivables have a past history of payment shortly after year end and

49

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

27 Financial instruments

i) Credit risk (continued)

management identified no factors at year end that could cause doubt about the credit quality or recoverability of the trade and other receivables.

ii) Liquidity risk

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

Non-derivative financial liabilities

December 31, 2017	Carrying amount		12 months or less		1-2 Years
Trade and other payables		9,581		9,581		-
Term loan facility		1,486		1,486		-
Overdraft		311		311		-
		11,378		11,378		-

December 31, 2016	Carrying amount		12 months or less		1-2 Years
Trade and other payables		5,052		5,052		-
Term loan facility		2,987		1,410		1,577
		8,039		6,462		1,577

iii) Currency risk

The Group is exposed to currency risk to the extent that there is a mismatch between the currency that it transacts in and the functional currency. 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 currencies that entities, within the Group, may transact in will consequently have an impact upon the profitability of the Group and may also affect the value of the Group’s assets and liabilities. As noted below, the Group has certain financial assets and liabilities denominated in currencies other than the functional currency of the Company. The Group does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, the Group predominantly maintains cash and cash equivalents in US Dollar to avoid foreign exchange exposure and to meet short-term liquidity requirements.

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

50

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

27 Financial instruments (continued)

iii) Currency risk (continued)

currency. The table below indicates net monetary assets/(liabilities) in the group that have a different functional currency and foreign currency.

	2017 USD‘000				2016 USD‘000
	Functional currency				Functional currency
	ZAR		USD		ZAR		USD
Cash and cash equivalents		57		601		457		265
Trade and other payables		-		-		-		43
		57		601		457		308

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 and equity for the group:

	2017 USD‘000				2016 USD’000
	Functional currency				Functional currency
	ZAR		USD		ZAR		USD
Cash and cash equivalents		3		30		23		13
Trade and other payables		-		-		-		2

iv) Interest rate risk

The group's interest rate risk arises from Loans and borrowings, overdraft facility and cash held. The Loans and borrowings, overdraft facility and cash held have variable interest rate borrowings. Variable rate borrowings expose the group to cash flow interest rate risk. The group has not entered into interest rate swap agreements.

The Group’s assets and liabilities exposed to interest rate fluctuations as at year end is summarized as follows:

	2017		2016
Term loan		1,486		2,987
Cash and cash equivalents		12,756		14,335

51

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

27 Financial instruments (continued)

iii) Interest rate risk (continued)

Interest rate risk arising is offset by available cash and cash equivalents. The table below summarises the effect of a change in finance cost on the Group’s profit or loss and equity, had the rates charged differed.

Sensitivity analysis – Term loan	2017			2016
Increase by 100 basis points		(15	)		(30	)
Decrease by 100 basis points		15			30

Sensitivity analysis – Cash and cash equivalents	2017			2016
Increase by 100 basis points		128			143
Decrease by 100 basis points		(128	)		(143	)

v) Market risk - Gold price

In February 2016, the Company entered into a derivative contract in respect of 15,000 ounces of gold over a period of 6 months and accordingly, the contract expired during the year. The contract protected the Company if the gold price fell below $1,050 per ounce but gave Caledonia full participation if the price of gold exceeded $1,079 per ounce. The derivative contract was entered into by the Company for economic hedging purposes and not as a speculative investment. The derivative contract resulted in a loss of $435 that was included in profit or loss. The Company settled the contract with the $435 margin call deposited at the inception of the hedge transaction. Blanket continued to sell all of its gold production to Fidelity Printers and Refiners Ltd (“Fidelity”), as required by Zimbabwean legislation, and received the spot price of gold less an early settlement discount of 1.25%.

As at December 31, 2017 no financial instruments were in place to manage the gold price risk.

28 Dividends

	2017		2016
Dividends paid to owners of the Company (Excluding NCI)		2,904		2,639

The quarterly dividend of 6,875 cents per share represents Caledonia’s current dividend policy.

29 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.

52

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

30 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.

Employee contracts between Caledonia Mining South Africa Proprietary Limited, the Company 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, 2017 the severance payment would have amounted to $5,015 (2016: $4,646). A change in control would constitute:

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

· the acquisition of right to exercise the majority of the voting rights of 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 the Group.

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:

	2017		2016
Key management salaries and bonuses		2,041		2,033
Cash-settled share-based expense*		1,164		788
		3,205		2,821

Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 23). Group entities are set out in note 31.

Refer to note 5 and note 33 for transactions with Non-controlling interests. Refer to note 32 for management fees between Caledonia Mining South Africa Proprietary Limited and Blanket Mine (1983) (Private) Limited.

^* Amount inclusive of $311 of the cash settled share based payment that is classified as production costs.

53

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

31 Group entities

	Functional currency	Country of incorporation	Legal shareholding		Intercompany balances with Holding company
			2017	2016	2017			2016
Subsidiaries of the Company			%	%
Caledonia Holdings Zimbabwe (Private) Limited	USD	Zimbabwe	100	100		-			-
Caledonia Mining Services Limited	USD	Zimbabwe	100	100		-			-
Eersteling Gold Mining Company Limited	ZAR	South Africa	100	100		(12,956	)		(12,793	)
Fintona Investments Proprietary Limited	ZAR	South Africa	100	100		(14,859	)		(14,859	)
Caledonia Mining South Africa Proprietary Limited	ZAR	South Africa	100	100		(941	)		(87	)
Greenstone Management Services Holdings Limited	USD	United Kingdom	100	100		20,879			13,527
Caledonia Holdings (Africa) Limited	USD	Barbados	100	100		-			-
Blanket (Barbados) Holdings Limited	USD	Barbados	100	100		-			-
Blanket Mine (1983) (Private) Limited(3)	USD	Zimbabwe	(2)49	(2)49		-			-
Blanket Employee Trust Services (Private) Limited (BETS) (1)	USD	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

54

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

32 Operating Segments

The Group's operating segments have been identified based on geographic areas. 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. Zimbabwe and South Africa describe the operations of the Group's reportable segments. The Zimbabwe operating segment comprise Caledonia Holdings Zimbabwe Limited and subsidiaries. The South Africa geographical segment comprise a gold mine, that is on care and maintenance, as well as sales made by Caledonia Mining South Africa Proprietary Limited to the Blanket Mine. The holding company and Greenstone Management Services Holdings Limited (UK) responsible for administrative functions within the group are taken into consideration in the strategic decision-making process of the CEO and are therefore included in the disclosure below. Corporate and other reconciling amounts do not represent a separate segment. 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 2017	Zimbabwe			South Africa			Inter-group eliminations adjustments			Corporate and other reconciling amounts			Total
Revenue		69,762			-			-			-			69,762
Inter-segmental revenue		-			15,247			(15,061	)		(186	)		-
Royalties		(3,498	)		-			-			-			(3,498	)
Production costs		(36,753	)		(14,751	)		15,324			-			(36,180	)
Depreciation		(4,019	)		(53	)		309			-			(3,763	)
Management fee*		(3,960	)		3,960			-			-			-
Other income		2,358			205						31			2,594
Other expenses					(195	)								(195	)
Administrative expenses		(40	)		(2,258	)		-			(3,613	)		(5,911	)
Cash-settled share-based payment expense		(581	)		-			-			(395	)		(976	)
Equity-settled share-based payment expense		(806	)		-			-			(29	)		(835	)
Net Foreign exchange gain		(375	)		207			-			(212	)		(380	)
Net finance cost		(69	)		10			-			28			(31	)
Profit before tax		22,019			2,372			572			(4,376	)		20,587
Tax expense		(7,587	)		(1,104	)		-			-			(8,691	)
Profit for the year		14,432			1,268			572			(4,376	)		11,896

^* Of the management fee $561 was receivable and payable at year end (2016: $641).

55

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

32 Operating Segments (continued)

Information about reportable segments 2017	Zimbabwe			South Africa			Inter-group elimination adjustments			Corporate and other reconciling amounts			Total
Geographic segment assets:
Current (excluding intercompany)		20,368			2,766			(60	)		4,839			27,913
Non-current (excluding intercompany)		82,798			381			(1,076	)		40			82,143
Expenditure on property, plant and equipment		21,007			(7	)		(51	)		-			20,949
Intercompany balances		-			8,021			(58,087	)		50,066			-
Geographic segment liabilities
Current (excluding intercompany)		(13,969	)		(1,276	)		-			(357	)		(15,602	)
Non-current (excluding intercompany)		(23,041	)		(714	)		293			(1,781	)		(25,243	)
Intercompany balances		(2,720	)		(32,724	)		58,087			(22,643	)		-

Information about reportable segments 2016	Zimbabwe			South Africa			Inter-group eliminations adjustments			Corporate and other reconciling amounts			Total
Revenue		61,992			-			-			-			61,992
Inter-segmental revenue		-			11,873			(11,348	)		(525	)		-
Royalties		(2,923	)		-			-			-			(2,923	)
Production costs		(33,081	)		(10,185	)		11,180			-			(32,086	)
Depreciation		(3,733	)		(47	)		289			-			(3,491	)
Management fee		(3,960	)		3,960			-			-			-
Other income		1,194			16			-			120			1,330
Other expenses		(55	)		-			-			-			(55	)
Administrative expenses		(128	)		(3,119	)		674			(4,690	)		(7,263	)
Share-based payment expenses		(342	)		(106	)		-			(340	)		(788	)
Net Foreign exchange gain		2			(529	)		-			22			(505	)
Margin call on hedge		-			-			-			(435	)		(435	)
Net finance cost		(191	)		15			-			-			(176	)
Sale of Blanket Mine treasury		3,202			-			-			-			3,202
Profit before tax		21,977			1,878			795			(5,848	)		18,802
Tax expense		(6,795	)		(922	)		-			-			(7,717	)
Profit for the year		15,182			956			795			(5,848	)		11,085

56

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

32 Operating Segments (continued)

2016	Zimbabwe			South Africa			Intergroup elimination adjustment			Corporate and other reconciling amounts			Total
Geographic segment assets:
Current		19,501			1,616			(375	)		5,050			25,792
Non-current (excluding intercompany)		65,824			388			(1,335	)		40			64,917
Additions to property, plant and equipment		19,000			36			123			-			19,159
Intercompany balances		-			7,080			(49,951	)		42,871			-
Geographic segment liabilities
Current		(8,801	)		(718	)		-			(313	)		(9,832	)
Non-current (excluding intercompany)		(21,043	)		(517	)		-			-			(21,560	)
Intercompany balances		(2,184	)		(32,867	)		49,951			(14,900	)		-

Major customer

Revenues from Fidelity Printers in Zimbabwe amounted to approximately $69,762 (2016: $61,992).

33        Non-controlling interests

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

	2017			2016
Current assets		15,559			13,151
Non-current assets		82,798			65,823
Current liabilities		(16,232	)		(8,698	)
Non-current liabilities		(23,041	)		(20,185	)
Net assets		59,084			50,091
Carrying amount of NCI		5,944			3,708
Revenue		69,762			61,992
Profit		15,506			15,800
Total comprehensive income		15,506			15,800
Profit allocated to NCI		2,512			2,559
Dividend paid to NCI		(406	)		(355	)

57

Caledonia Mining Corporation Plc

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and December 31, 2016

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

34 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, 2017 was $583 (2016: $567).

58

Caledonia Mining Corporation Plc

Additional information

DIRECTORS AND OFFICERS at March 21, 2018

BOARD OF DIRECTORS	OFFICERS
L.A. Wilson (2) (3) (4) (5) (7) Chairman of the Board	S. R. Curtis (5) (6) (7) Chief Executive Officer
Non-executive Director	Johannesburg, South Africa
Florida, United States of America
S. R. Curtis (5) (6) (7)	D. Roets (5) (6) (7)
Chief Executive Officer Johannesburg, South Africa	Chief Operating Officer Johannesburg, South Africa
J. L. Kelly (1) (2) (3) (5) (7)	M. Learmonth (5) (7)
Non-executive Director Connecticut, United States of America	Chief Financial Officer Jersey, Channel Islands
J. Holtzhausen (1) (2) (4) (5) (6) (7)	M. Mason (5) (7)
Chairman Audit Committee Non-executive Director, Cape Town, South Africa	VP Corporate Development and Investor Relations London, England
M. Learmonth (5) (7)	A. Chester (5)
Chief Financial Officer Jersey, Channel Islands	General Counsel, Company Secretary and Head of Risk and Compliance Jersey, Channel Islands
John McGloin (1) (3) (4) (6) (7)	Board Committees
Non-executive Director	(1) Audit Committee
Bishops Stortford, United Kingdom	(2) Compensation Committee
	(3) Corporate Governance Committee
	(4) Nomination Committee
	(5) Disclosure Committee
	(6) Technical Committee (7) Strategic Planning Committee

59

Caledonia Mining Corporation Plc

Additional information

CORPORATE DIRECTORY as at March 21, 2018

CORPORATE OFFICES	SOLICITORS
Jersey – Head and Registered Office	Walkers
Caledonia Mining Corporation Plc	Jersey, Channel Islands
3rd Floor	PO Box 72, Walkers House
Weighbridge House	28-34 Hill street, St Helier, Jersey, Channel Islands
St Helier
Jersey JE2 3NF
South Africa	Borden Ladner Gervais LLP (Canada)
Caledonia Mining South Africa Proprietary Limited	Suite 4100, Scotia Plaza
P.O. Box 4628	40 King Street West
Weltevreden park	Toronto, Ontario M5H 3Y4 Canada
South Africa
Tel: +27(11) 447-2499 Fax: +27(11) 447-2554	Memery Crystal LLP (United Kingdom)
	44 Southampton Buildings
Zimbabwe	London WC2A 1AP
Caledonia Holdings Zimbabwe (Private) Limited	United Kingdom
P.O. Box CY1277
Causeway, Harare	AUDITORS
Zimbabwe	KPMG Inc.
	85 Empire Road
Capitalization (March 21, 2017)	Parktown 2193
Authorised:  10,603,153	South Africa
Shares, Warrants and Options Issued:	Tel: +27 83 445 1400, Fax: + 27 11 647 6018
Shares:           10,603,153
Options:                38,000	REGISTRAR & TRANSFER AGENT
	Computershare
SHARE TRADING SYMBOLS	100 University Ave, 8th Floor,
NYSE American - Symbol "CMCL"	Toronto, Ontario, M5J 2Y1
AIM - Symbol “CMCL”	Tel:+1 416 263 9483
Toronto Stock Exchange - Symbol “CAL”
	BANKERS
	Barclays
	Level 11
	1 Churchill place, Canary Wharf, London, E14 5HP

60

EX-99.2

Exhibit 99.2

CALEDONIA MINING CORPORATION PLC March 21, 2018

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 Plc (“Caledonia” or the “Company”) is for the quarter ended December 31, 2017 (“Q4 2017” or the “Quarter”), the year ended December 31, 2017 (the “Year”) and the period ended March 21, 2018. It should be read in conjunction with the Consolidated Financial Statements of Caledonia for the year ended December 31, 2017 (“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 “Group”, the “Company”, “we”, “our” and “us” refer to the consolidated operations of Caledonia Mining Corporation Plc and its subsidiaries unless otherwise specifically noted or the context requires otherwise.

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

1

TABLE OF CONTENTS

1. Overview

2. Highlights

3. Summary Financial Results

4. Operations at Blanket Mine

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. Indigenisation

4.9. Opportunities and Outlook

5. Exploration and Project Development

5.1. Blanket Exploration

5.2. Blanket Satellite Prospects

6. Investing

7. Financing

8. Liquidity and Capital Resources

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

10. Non-IFRS Measures

10.1. Cost per ounce

10.2. Average realised gold price

10.3. Adjusted earnings per share

11. Related Party Transactions

12. Critical Accounting Policies

13. Financial Instruments

14. Dividend Policy

15. Management and Board

16. Securities Outstanding

17. Risk Analysis

18. Forward-Looking Statements

19.	Controls
20.	Qualified Person

2

1. OVERVIEW

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 on the NYSE American stock exchange (symbol - “CMCL”) and on the Toronto Stock Exchange (symbol - “CAL”). Depositary interests in Caledonia’s shares are admitted to trading on AIM of the London Stock Exchange plc (symbol - “CMCL”).

2. HIGHLIGHTS

	3 months ended December 31		12 months ended December 31		Comment
	2016	2017	2016	2017
Gold produced (oz)	13,591	16,425	50,351	56,133	Increased gold production due to higher tonnes milled and higher grade
On-mine cost per ounce ($/oz)1	614	556	636	633	On-mine costs are stable for the year but 9% lower in the Quarter compared to the fourth quarter of 2016 due to the higher production in the Quarter which meant that fixed costs were spread over more production ounces
All-in sustaining cost ($/oz) (“AISC”)1	843	901	912	847	AISC in the fourth quarter of 2016 was low due to the recognition of the entire 2016 export incentive credit in the quarter. Lower year-on-year AISC reflects lower administrative expenses and higher export incentive credit and sales ounces
Average realised gold price ($/oz)1	1,187	1,256	1,232	1,243	The average realised gold price reflects changes in the price of gold
Gross profit 2	6,888	8,411	23,492	26,321	Higher gross profit in the Quarter and Year reflects increased sales ounces and a higher realised gold price
Net profit attributable to shareholders	3,258	3,232	8,526	9,384	Increased net profit for the Year reflects increased gross profit and reduced administrative costs
Adjusted basic earnings per share (“EPS”)3 (cents)	41.4	48.6	98.6	135.4	Higher adjusted EPS reflects increased net profit in the Year and the elimination from adjusted EPS in 2016 of the profit arising on the sale of treasury bills
Cash and cash equivalents	14,335	12,756	14,335	12,756	Cash balance remains robust but should be seen in the context of increased trade payables at Blanket due to the shortage of foreign currency in Zimbabwe
Cash from operating activities	6,940	7,914	23,011	24,512	Cash from operating activities remains strong

__________________________
¹ Non-IFRS measures such as “On-mine cost per ounce”, “AISC” 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, other income, interest and finance charges and taxation.

³ Adjusted 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. Per share data for current and prior periods has been adjusted to reflect the effective 1-for-5 share consolidation which was effected on June 26, 2017.

3

Safety

Regrettably, there were two fatal accidents in Year and a third fatal accident occurred on February 23, 2018. The directors and management of Caledonia and Blanket express their sincere condolences to the families and colleagues of each of the deceased.

Management has provided the necessary assistance to the Ministry of Mines Inspectorate Department (the “Inspectorate”) in its enquiries into this incident.

Caledonia takes the safety of its employees very seriously and, accordingly, measures have been taken to re-inforce adherence to prescribed safety procedures through increased training activities.

Record production

16,425 ounces of gold were produced during the Quarter, 14% more than the 14,396 ounces produced in the third quarter of 2017 (the “preceding quarter”), which was itself a new production record. 56,133 ounces of gold were produced in the Year, 11.5% more than in 2016. The increased production was due to higher tonnes mined as the remedial measures that were taken in previous quarters to address logistical constraints bore fruit and improved grades which resulted from increased mining of higher grade areas as mine flexibility continues to improve.

Resource upgrade

On November 2, 2017 the company announced that total Measured and Indicated gold ounces at Blanket Mine had increased by 6% from 671,000 ounces in December 2016 to 714,000 ounces as at August 31, 2017. Total Measured and Indicated resources at August 31, 2017 were 5.62 million tonnes at a grade of 3.95g/t. Inferred gold resources at Blanket increased by 47% from 604,000 ounces in December 2016 to 887,000 ounces at August 31, 2017. Total Inferred resources at August 31, 2017 were 5.53 million tonnes at a grade of 4.99g/t.

The update resulted in a modest decline in the average grade of the resources in the Indicated category as a result of additional infill drilling data although the average resource grade remains well above the current mill feed grade. Caledonia expects the mined grade to trend upwards over time as higher-grade resources are accessed at depth.

This resource update marks the 6th successive year of sustained resource growth at Blanket mine. Blanket’s resources (both in terms of Measured & Indicated resources and Inferred resources) have grown by approximately 69 per cent since 2011 despite mining over 250,000 ounces over this period.

Extension of the Central Shaft Project at Blanket Mine

Following the announcement of an updated resource statement on November 2, 2017, on November 10, 2017 Caledonia announced that it plans to extend the depth of the Central Shaft which is currently under construction at Blanket by a further 250 metres to a shaft bottom depth of 1,330 metres. The extension of the Central Shaft will add two further production levels on 34 level at 1,110 metres and on 38 level at 1,230 metres in addition to the two levels that are already planned on 26 level (870 metres) and 30 level (990 metres). It is expected that the extended shaft will be fully commissioned by the end of the first quarter of 2020.

The extension of the shaft and associated capital development of additional production levels will cost approximately $18 million which will be funded by Blanket’s internal cash generation. The additional capital investment is not expected to have any effect on the continuation of Caledonia’s existing dividend.

4

The addition of two further production levels will provide access to the Indicated and Inferred resources below 30 level and potentially increase Blanket’s projected life of mine by a further four years to 2031.

The extension of the Central Shaft before it has been completed, equipped and commissioned is understood to be significantly cheaper, quicker and less disruptive than a subsequent extension after commissioning.

Caledonia has also initiated a mid-shaft loading system at Blanket using the existing Central Shaft infrastructure to handle development waste. This is expected to improve Blanket’s waste handling capacity and alleviate pressure on Number 4 shaft which in turn should have a positive effect on both production flexibility and horizontal development.

The extension of the Central Shaft and the introduction of mid-shaft loading will extend the completion date for Central Shaft from late 2019 until early 2020, but will not delay the target production of 80,000 ounces of gold by 2021.

Dividend Policy

On July 4, 2017, following the consolidation on June 26, 2017 of the company’s shares, the Company announced an increased quarterly dividend of 6.875 cents per share which was paid on July 28, 2017 and a further quarterly dividend of the same amount was paid on October 27, 2017 and January 26, 2018. The dividend of 6.875 cents per share effectively maintains the dividend at the previous level of 1.375 cents per share, after adjusting for the effect of the one-for-five consolidation. The quarterly dividend of 6.875 cents per quarter is Caledonia’s current dividend policy which it is envisaged will be maintained.

Strategy and Outlook

Caledonia’s strategic focus continues to be the implementation of the Investment Plan at Blanket, which was announced in November 2014 and has been revised as discussed above to reflect the recent resource upgrade. Caledonia’s board and management believe that the successful implementation of the Investment Plan is in the best interests of all stakeholders because it is expected to result in increased production, reduced operating costs and increased flexibility to undertake further exploration and development, thereby safeguarding and enhancing Blanket’s long term future.

Changes to the Indigenisation Legislation

Pronouncements from the Zimbabwe Government following the appointment of the new President in late 2017 announced a relaxation in the indigenisation policy which, amongst other things, includes the removal of an indigenisation requirement for gold mining companies. These pronouncements were passed into law in March 2018. In light of the changed legislation, the Blanket (which expression in this paragraph means the company owning Blanket Mine) and Caledonia boards have agreed to implement a transaction which is expected to result in the dilution of the shareholdings of Blanket’s indigenous shareholders and a corresponding increase in Caledonia’s shareholding in Blanket from 49% to slightly over 50%. Caledonia will also evaluate the potential to buy back the shareholdings in Blanket that are currently held by certain indigenous partners. However, it is our intention to retain the employee and community shareholders (both of which currently hold 10% of Blanket each) as long term shareholders of Blanket. Any transactions would reflect the value of the indigenous shareholders’ shareholding in Blanket after deducting the value of the outstanding facilitation loans. At this stage there is no certainty that agreement will be reached on transactions in respect of any shareholding.

5

3.       SUMMARY FINANCIAL RESULTS

The table below sets out the consolidated profit and loss for the quarters ended December 31, 2017 and 2016 and the years ended December 31, 2017, 2016 and 2015 prepared under IFRS.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income
($’000’s)	3 months ended December 31			12 months ended December 31
	2016	2017	2015		2016	2017
Revenue	15,251	19,599	48,977		61,992	69,762
Royalty	(583)	(986)	(2,455)		(2,923)	(3,498)
Production costs	(6,873)	(9,188)	(30,019)		(32,086)	(36,180)
Depreciation	(907)	(1,014)	(3,322)		(3,491)	(3,763)
Gross profit	6,888	8,411	13,181		23,492	26,321
Other income	1,244	535	110		1,330	2,399
Other expenses	(55)	-	-		(55)	-
Administrative expenses	(2,030)	(1,370)	(7,622)		(7,263)	(5,911)
Foreign exchange (loss)/gain	(173)	(396)	2,850		(505)	(380)
Cash settled share based expense	129	(369)	(24)		(618)	(976)
Equity settled share based expense	(170)	-	-		(170)	(835)
Sale of Blanket Mine treasury bills	(1)	-	-		3,202	-
Margin call on gold hedge	-	-	-		(435)	-
Operating profit	5,832	6,811	8,495		18,978	20,618
Net finance cost	(34)	(7)	(535)		(176)	(31)
Profit before tax	5,798	6,804	7,960		18,802	20,587
Tax expense	(1,920)	(2,815)	(2,370)		(7,717)	(8,691)
Profit for the period	3,878	3,989	5,590		11,085	11,896
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations	216	350	(3,291)		262	373
Tax credit on other comprehensive income	-	-	199		-	-
Total comprehensive income for the period	4,094	4,339	2,498		11,347	12,269
Profit attributable to:
Shareholders of the Company	3,258	3,232	4,779		8,526	9,384
Non-controlling interests	620	757	811		2,559	2,512
Profit for the period	3,878	3,989	5,590		11,085	11,896
Total comprehensive income attributable to:
Shareholders of the Company	3,474	3,582	1,687		8,788	9,757
Non-controlling interests	620	757	811		2,559	2,512
Total comprehensive income for the period	4,094	4,339	2,498		11,347	12,269
Earnings per share (i)
Basic	30.5	29.5	44.5		79.5	86.5
Diluted	31.0	29.4	44.5		79.0	86.4
Adjusted earnings per share (i) (ii)
Basic	41.4	48.6	44.5		98.6	135.4

(i) Earnings per share (“EPS”) and adjusted EPS for current and prior periods have been adjusted to reflect the effective 1-for-5 share consolidation which was effected on June 26, 2017

(ii) Adjusted EPS is a non-IFRS measure. Refer to Section 10 for a discussion of non-IFRS measures

6

Revenues comprise the proceeds of gold sales to Fidelity Printers and Refiners Limited (“Fidelity”) after deducting a 1.25% early settlement discount and other realisation costs, including refining costs, but before the royalty which is payable to the Zimbabwe Government and before the export incentive credit which is categorised in Other income and is discussed below. Revenues in the Quarter were 28.5% higher than in the fourth quarter of 2016 (the “comparable quarter”). 15,594 ounces of gold were sold in the Quarter representing a 21.5% increase on the 12,833 ounces that were sold in the comparable quarter. The average realised gold price^[4] in the Quarter was $1,256 per ounce – 5.8% higher than the average realised price in the comparable quarter of $1,187 per ounce. Revenues in the Year were 12.5% higher than in 2016 due to an 11.5% increase in the ounces of gold sold and a 0.9% increase in the average realised gold price.

The royalty rate payable to the Zimbabwe Government was unchanged at 5%.

Production costs increased in the Quarter and the Year primarily due to the increase in the tonnes mined and milled. The on-mine cost per ounce⁴ decreased by 9.4% from $614 per ounce in the comparable quarter to $556 per ounce in the Quarter. The on-mine cost per ounce for the Year decreased by 0.4% from $636 per ounce in 2016 to $633 per ounce. AISC⁴ per ounce increased by 6.9% in the Quarter compared to the comparable quarter from $843 per ounce to $901 per ounce largely due to the recognition in the comparable quarter of the export incentive credit for the full year of 2016 as discussed further below. Thereafter, the export incentive credit was recognised on an accrual basis. A more accurate representation of the change in AISC per ounce is provided by comparing the cost for the Year to the cost for 2016. The AISC per ounce in the Year was $847, 7.1% lower than the AISC per ounce of $912 in 2016. The reduction was due to a higher export incentive credit (due to an increase in the rate from 2.5% of gold revenues to 3.5% of gold revenues and higher gold revenues) and lower general and administrative expenses.

The depreciation charge increased because it is calculated on the basis of units of production and production was higher than in the comparable quarter.

Other income and expenses in the Quarter includes the export incentive credit of $689 (2016: $1,104) received from the Government of Zimbabwe. The export incentive credit for the Year was $2,446 (2016: $1,104). In May 2016, the Reserve Bank of Zimbabwe announced a scheme to encourage increased gold production and thereby increase the quantity of gold exports from Zimbabwe. In terms of the scheme, in 2016 Blanket received an export incentive credit to the value of 2.5% of the sale proceeds of the gold sold to Fidelity. From January 1, 2017 to December 31, 2017 the export incentive credit rate was increased to 3.5%. The accumulated value of the export incentive credit for the whole of 2016 was recognised in the comparable quarter after receiving payment in December 2016 for the amount due as at November 30, 2016. Thereafter the amount receivable in terms of this scheme was recognised as part of Other income and expenses on a receivable basis. The increase in the export credit for the Year compared to 2016 was due to the increased export incentive rate from 2.5% to 3.5% and the increase in the value of gold revenues primarily due to higher ounces sold.

Administrative expenses in the Quarter were 32.5% lower than the comparable quarter and 18.2% lower in the Year compared to 2016. The reduction was due largely to lower third party consulting and advisory fees which was partly due to the appointment of in-house legal counsel in early 2017 which reduced the Company’s reliance on external legal advice and a reduction in the use of external consultants to evaluate investment opportunities.

Foreign exchange movements in the profit and loss statement relate to gains and losses arising on US Dollar-denominated cash balances and transactions made within the group other than in the reporting currency of the Group.

__________________________

⁴ “Average realised gold price”, “on-mine cost per ounce” and “AISC” are non-IFRS measures. Refer to Section 10 for a discussion of non-IFRS measures

7

The cash settled share based payment expense (or credit) is an accrual for a payment which is expected to arise from the awards (the “LTIP” or “LTIP awards”) which were made in 2016 pursuant to the Company’s 2015 Omnibus Equity Incentive Compensation Plan (“OEICP”) to certain executives in the form of Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”). In addition, during the Quarter, Caledonia Mining South Africa (“CMSA”) granted cash-settled share awards to certain employees based in South Africa which were designed as a substitute for employees’ annual bonuses to introduce an incentivisation element based on the Company share price. The cash-settled share-based expense in the Quarter was $680 (2016; credit $129). The cash-settled share-based expense in the Year was $976 (2016: $369). The charge reflects a combination of factors which include the estimated share price of the awards at vesting, the erosion of the time period until vesting, the increase in the number of RSUs due to the re-investment of attributable dividends and estimated performance criteria. Further information on the calculation of the charge is set out in note 23.2 to the Consolidated Financial Statements.

The tax expense comprises the following:

Analysis of Consolidated Taxation Charge for the Year
($’000’s)
	Blanket Mine	CMSA	Total
Income tax	3,248	526	3,774
Withholding tax	629	593	1,222
Deferred tax	3,710	(15)	3,695
	7,587	1,104	8,691

The overall effective taxation rate in the Quarter was 41.3%, compared to 33.1% in the comparable quarter. The overall effective taxation rate in the Year was 42.2% compared to 41.0% in 2016. The current income tax rate in the Year was 18.3%, due to the continued high level of capital expenditure, which is deducted from taxable income for the purposes of calculating income tax in Zimbabwe. The combined rate of income tax and deferred tax is 36.3%, which is higher than the rate of income tax in Zimbabwe (which is 25.75%), largely due to the non-deductibility for Zimbabwean income tax of the royalty and the management fee payable from Blanket to CMSA, the combined effect of which is reduced by the exemption from Zimbabwean income tax of the export incentive credit. Withholding tax is levied on certain remittances from Zimbabwe and reflects the value of such transactions. Withholding tax increased from $503 in 2016 to $1,222 in the Year due to a change in the tax regulations in Zimbabwe which meant that the majority of the management fee paid by Blanket to CMSA is treated as a dividend and therefore gives rise to an incremental withholding tax charge. Deferred taxation is a non-cash item which reflects the difference between the treatment of capital expenditure for tax purposes and for accounting purposes.

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.

Per share information reflects the revised shares in issue following the share consolidation on June 26, 2017. Per share information for all prior periods has been restated accordingly throughout this document.

Adjusted EPS 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 and non-cash items such as the charges for deferred tax and the equity-settled share based expense arising on the modification of the facilitation loans (as discussed below) in the second quarter of 2017. Refer to Section 10 of this MD&A for a discussion of non-IFRS measures.

8

The table below sets out the consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015 prepared under IFRS.

Condensed Consolidated Statement of Cash Flows ($’000’s)
	12 months ended December 31
	2015	2016	2017
Cash flows from operating activities
Cash generated from operations	8,823	25,671	28,885
Net interest paid	(492)	(194)	(161)
Tax paid	(1,462)	(2,466)	(4,212)
Cash from operating activities	6,869	23,011	24,512
Cash flows from investing activities
Acquisition of property, plant and equipment	(16,567)	(19,885)	(21,639)
Proceeds from property, plant and equipment	-	3	-
Net cash used in investing activities	(16,567)	(19,882)	(21,639)
Cash flows from financing activities
Dividends paid	(2,504)	(2,994)	(3,310)
Term loan proceeds/(repayments)	-	3,000	(1,500)
Term loan - transaction cost	-	(73)	-
Shares issued	-	433	246
Share re-purchase cost	-		(146)
Net cash (used in)/from financing activities	(2,504)	366	(4,710)
Net (decrease)/ increase in cash and cash equivalents	(12,202)	3,495	(1,837)
Effect of exchange rate fluctuations on cash held	-	(40)	258
Cash and cash equivalents at beginning of the period	23,082	10,880	14,335
Cash and cash equivalents at end of the period	10,880	14,335	12,756

Risks that may affect Caledonia’s future financial position are discussed in Section 17 of the MD&A.

Cash generated from operating activities is analysed in note 26 to the Consolidated Financial Statements. Cash generated by operating activities in the Year was $24,512 (2016: $23,011); the increase was due mainly to higher operating profit, which is discussed above in the discussion of the consolidated profit and loss. The charge in respect of the share based expense arising from the LTIP awards is added back to operating profit as it is not a cash expense in the Year.

Net cash investment in property, plant and equipment in the Year was $21,639 (2016: $19,885) in terms of the Investment Plan, which is discussed further in Section 4.7 of this MD&A and expenditure on sustaining capital investment.

The dividends paid in the Year relate to the dividends paid by Caledonia and the share of dividends paid by Blanket which accrued to Blanket’s indigenous Zimbabwean shareholders after repayments of the facilitation loans and servicing of the facilitation loans.

Cash at December 31, 2017 was $12,756 (2016: $14,335) of which $1,914 was held by Blanket as part of its normal working capital, $4,383 was held by Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”), a wholly owned subsidiary of the Company, in Zimbabwe, and the balance was held primarily in the UK, South Africa and Jersey. The amount held by CHZ reflects a receipt of approximately $2 million a few days before the Year end in respect of a dividend paid by Blanket and the related repayments of facilitation loans. The cash balance should be seen in the context of the increased trade and other payables, which reflects the general shortage of foreign exchange in Zimbabwe.

9

The table below sets out the consolidated statements of Caledonia’s financial position at December 31, 2017, 2016 and 2015.

Consolidated Statements of Financial Position
($’000’s)	As at	December 31	December 31	December 31
		2015	2016	2017
Total non-current assets		49,276	64,917	82,143
Inventories		6,091	7,222	9,175
Prepayments		667	810	709
Income tax receivable		397	-	-
Trade and other receivables		3,839	3,425	4,962
Cash and cash equivalents		12,568	14,335	13,067
Total assets		72,838	90,709	110,056
Total non-current liabilities		14,080	21,560	25,243
Current portion of term loan facility		-	1,410	1,486
Trade and other payables		6,656	8,077	12,660
Income taxes payable		53	345	1,145
Bank overdraft		1,688	-	311
Total liabilities		22,477	31,392	40,845
Total equity		50,361	59,317	69,211
Total equity and liabilities		72,838	90,709	110,056

Non-current assets increased due to the continued investment in terms of the Investment Plan and investment to sustain existing operations.

The increase in inventories reflects the increased scale of operations at Blanket. Inventories includes consumables such as explosives which will be used in the capital projects and gold-in-progress at the end of the Year. The level of gold-in-progress at each year end is determined by the timing of deliveries of bullion during the year-end holiday period in Zimbabwe. All of the gold-in-progress was converted to doré immediately after the end of the Year and has subsequently been sold to Fidelity. Prepayments represents deposits and advance payments for goods and services, including capital items that are being fabricated and which will be delivered to Blanket in due course.

Trade and other receivables are analysed in note 17 to the Consolidated Financial Statements and includes $1,386 due from Fidelity in respect of gold deliveries immediately prior to the close of business on December 31, 2017 and $2,407 due from the Zimbabwe Government in respect of VAT refunds. The amount due from Fidelity was received in full in January 2018; partial payment has been received following the end of the Year in respect of the VAT receivable.

The increase in trade and other payables reflects the shortage of foreign exchange to make payments from Zimbabwe to offshore creditors, the largest of which is in respect of electricity supplies.

10

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 audited and unaudited financial statements that have been prepared using accounting policies consistent with IFRS.

($’000’s except per share amounts)	Mar 31, 2016		Jun 30, 2016		Sept 30, 2016		Dec 31, 2016		Mar 31, 2017		Jun 30, 2017		Sept 30, 2017		Dec 31, 2017
Revenue from operations		13,423		15,681		17,637		15,251		16,449		15,484		18,230		19,599
Profit attributable to owners of the Company		543		3,607		1,118		3,258		2,338		694		3,120		3,232
Earnings per share – basic (cents) (i)		5		33.5		10		30.5		21.5		6.1		29.4		29.5
Earnings per share – diluted (cents) (i)		5		33.5		9.5		31		21.4		6.1		29.4		29.4
Cash and cash equivalents (net)		8,841		10,581		12,390		14,335		11,722		10,878		11,830		12,765

(i) Per share data have been adjusted to reflect the effective 1-for-5 share consolidation which was effected on June 26, 2017

The 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 and share based payment costs. Significant changes relating to prior quarters are discussed in the relevant MD&As and financial statements.

4.       OPERATIONS AT BLANKET MINE

4.1 Safety, Health and Environment

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

Blanket Mine Safety Statistics
Classification	Q1 2016	Q2 2016	Q3 2016	Q4 2016	Q1 2017	Q2 2017	Q3 2017	Q4 2017
Fatal	0	0	0	0	0	1	1	0
Lost time injury	2	0	1	3	0	1	5	0
Restricted work activity	6	4	6	4	12	3	2	4
First aid	4	2	2	0	1	7	1	2
Medical aid	1	5	2	1	6	11	9	4
Occupational illness	0	0	0	0	1	0	0	0
Total	13	11	11	8	20	23	18	10
Incidents	13	9	10	10	10	10	10	11
Near misses	9	5	6	2	4	9	6	2
Disability Injury Frequency Rate	0.44	0.00	0.20	0.55	0.00	0.33	0.95	0.00
Total Injury Frequency Rate	2.87	2.30	2.16	1.46	3.51	3.81	2.86	1.57
Man-hours worked (thousands)	906	957	1,019	1,093	1,140	1,206	1,257	1,271

Total injuries in the Quarter were 10, compared to 18 in the previous quarter. The improved safety performance in the Quarter reflects an increase in management focus on safety during the year as a result of the fatalities and an increase in injuries earlier in 2017. Initiatives that were taken in the Quarter include the introduction of a safety booklet which sets out safety standards and procedures and which has been rolled out to all employees to ensure that they understand and adhere to the prescribed procedures.

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.

11

Payments to the Community and the Zimbabwe Government ($’000’s)
Period	Year	Community and Social Investment	Payments to GCSOT	Payments to Zimbabwe Government	Total
Year	2012	416	3,000	20,569	23,985
Year	2013	2,147	2,000	15,354	19,501
Year	2014	35	-	12,319	12,354
Year	2015	50	-	7,376	7,426
Year	2016	12	-	10,637	10,649
Quarter 1	2017	5	-	2,945	2,950
Quarter 2	2017	-	-	2,904	2,904
Quarter 3	2017	-	-	3,575	3,575
Quarter 4	2017	-	-	2,564	2,564
Year 2017	2017	5	-	11,988	11,993

4.3 Gold Production

Tonnes milled, average grades, recoveries and gold produced during the Quarter, the preceding 11 quarters, the years 2014, 2015, 2016 and 2017 and January and February 2018 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)
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
Quarter 1	2016	114,527	3.16	93.0	10,822
Quarter 2	2016	120,590	3.47	93.1	12,510
Quarter 3	2016	133,375	3.36	93.2	13,428
Quarter 4	2016	142,169	3.21	92.8	13,591
Year	2016	510,661	3.30	93.0	50,351
Quarter 1	2017	124,225	3.42	93.7	12,794
Quarter 2	2017	136,163	3.08	92.8	12,518
Quarter 3	2017	136,064	3.52	93.6	14,396
Quarter 4	2017	150,755	3.62	93.6	16,425
Year 2017	2017	547,207	3.41	93.4	56,133
January	2018	33,960	3.58	93.6	3,656
February	2018	38,509	3.51	93.5	4,064

Gold production for the Quarter was higher than previous quarters due to increased tonnes milled and higher grade. Tonnes milled and grade in the Quarter are discussed in Section 4.4 of this MD&A; gold recoveries in the Quarter are discussed in Section 4.5 of this MD&A.

12

4.4 Underground

Tonnes milled in the Quarter were 6.0% higher than the comparable quarter and 10.8% higher than the preceding quarter. The increase in tonnes milled reflects the measures taken in previous quarters to alleviate some of the remaining logistical constraints on 22 level (750 metres). However, it must be noted that the logistical issues on 22 level will not be fully resolved until the Central Shaft is commissioned. From early December, 2017, mid-shaft loading was instituted using the Central Shaft infrastructure. This allows horizontal development to take place on 26 level (870 metres below surface) from Central Shaft towards Number 4 Shaft and reduces the amount of waste that needs to be moved along 22 level, thereby alleviating some of the logistical pressure on this level and on Number 4 Shaft. The implications of mid-shaft loading are discussed in section 4.7.

The grade in the Quarter was higher than the previous quarter due to increased tonnage from below 750 metres from the Blanket and AR South declines and from Eroica above 750 metres.

The outlook for Caledonia, including production and earnings guidance for 2017 and 2018, is discussed in Section 4.9.

4.5       Metallurgical Plant

Plant throughput in the Quarter was 69.6 tonnes per hour (“tph”) compared to 66.2tph in the preceding quarter. The increase in plant throughput was due to the higher tonnes mined. Plant recovery in the Quarter remained unchanged from the preceding quarter at 93.6%.

The plant continues to operate to expectation with minimal disturbances and following the recent upgrades is now in a position to handle full production at 80,000 ounces per year.

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 and the comparable quarter 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:

i.	On-mine cost per ounce5, which shows the on-mine costs of producing an ounce of gold and includes direct labour, electricity, consumables and other costs that are incurred at the mine including insurance, security and on-mine administration;
ii.	All-in sustaining cost (“AISC”) per ounce5, which shows the on-mine cost per ounce plus royalty paid, additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg, London and Jersey), costs associated with maintaining the operating infrastructure and resource base that are required to maintain production at the current levels (sustaining capital investment), the share-based expense arising from the LTIP less silver by-product revenue and the export incentive credit; 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 (expansion capital investment).

Cost per Ounce of Gold Sold ($/ounce)
	3 Months to December 31		12 Months to December 31
	2016	2017	2016	2017
On-mine cost per ounce5	614	556	636	633
AISC per ounce5	843	901	912	847
All-in cost per ounce5	1,245	1,113	1,221	1,162

Per-ounce costs are calculated on the basis of sales (which is production adjusted for work-in-progress) and not production, so that an accurate value can be ascribed to the royalty. On-mine costs comprise labour, electricity, consumables and other costs which include security and insurance. The reconciliation of IFRS production costs to on-mine production costs set out in Section 10.1 shows that IFRS production costs were 29.1% higher in the Quarter compared to the comparable quarter but the on-mine production cost (i.e. after removing exploration and rehabilitation costs and intercompany adjustments) was only 10% higher. As the number of ounces sold in the Quarter was 20% higher than in the comparable quarter, the on-mine cost per ounce decreased by 9.5% from $614 per ounce to $556 per ounce. The on-mine cost per ounce for 2017 decreased by 0.4% from $636 per ounce to $633 per ounce.

__________________________

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

13

AISC per ounce increased by 6.9% in the Quarter compared to the comparable quarter from $843 per ounce to $901 per ounce. The increase was largely due to the recognition in the fourth quarter of 2016 of the export incentive credit of $1,104 for the full year of 2016 when the amount for the period January 1, 2016 to November 30, 2016 had been received from the Zimbabwean authorities in December 2016. Thereafter, the export incentive credit was recognised on an accrual basis. A more accurate representation of the change in AISC per ounce is therefore provided by comparing the cost for the whole Year to the cost for the full year 2016. The AISC for the Year reduced by 7.1% from $912 per ounce to $847 per ounce due to an increase in the export incentive and lower general and administrative expenses the combined effect of which was reduced by a higher charge in respect of the LTIP. The increase in the export incentive was due to the increase in the incentive rate from 2.5% to 3.5% of revenues as well as higher revenues.

All-in costs include investment in expansion projects which remained at a high level in the Quarter due to the continued investment in Blanket’s capital projects, which are discussed in Section 4.7 of this MD&A.

4.7       Capital Projects

The main capital development project is the Central Shaft, which was originally intended to be sunk in one single phase from surface to 1,080 metres. The shaft has reached 30 level (990 metres) and work has commenced on establishing the station on this level. The station on 26 level (870 metres) was established in the previous Quarter. The second winder at Central shaft has been installed and is mechanically complete; work on the power installation is approximately 60% complete.

Continued exploration over the past three years has improved the understanding of the ore bodies below 22 level and, as discussed in Section 5, has resulted in a further increase in resources below 750 metres. Accordingly, on November 10, 2017, the Company announced that it intends to continue to sink the Central Shaft by two further production levels to a depth of 1,330 metres.

In addition, as noted in Section 4.4, in early December 2017 mid-shaft loading of waste material on 26 level commenced using the infrastructure at Central Shaft. This increase in waste hoisting capacity should accelerate the horizontal development on 26 level from Central Shaft towards the Blanket section ore bodies and should facilitate the rapid opening of the AR Main and AR South ore bodies on 26 level. Mid-shaft loading should also reduce the logistical pressure on 22 level.

Capital development was curtailed in the Quarter so that ore production could be prioritised. 281 metres of capital development were achieved in the Quarter compared to 708 metres in the preceding quarter. Development work resumed in 2018 on the extraction haulages on 26 level on No.2 orebody, on 22 level at Eroica and at the Blanket Quartz Reef, on the deep-drilling exploration crosscuts and on the continuation of the declines at AR South and AR Main.

4.8       Indigenisation

Transactions that implemented the indigenisation of Blanket (which expression in this Section refers to the Zimbabwe company that owns Blanket mine) 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. The outstanding balance of the facilitation loans as at December 31, 2017 was $31.01 million (December 31, 2016: $31.46 million). The facilitation loans (including interest thereon) 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 facilitation loans are used to repay such loans and the remaining 20% unconditionally accrues to the respective indigenous shareholders. Blanket Mine declared dividends of $5 million in the Year which resulted in a reduction on the outstanding balance of the facilitation loans in the Year. The dividends attributable to GCSOT, which holds 10% of Blanket, will be withheld by Blanket to repay the advance dividends which were paid to GCSOT in 2012 and 2013 and which had an outstanding balance of $2.6 million at December 31, 2017 (December 31, 2016; $3.0 million). The reduction in the outstanding balance of the advance dividend was also due to the dividends which were declared by Blanket in the Year.

14

The facilitation loans are not shown as receivables in Caledonia’s financial statements in terms of IFRS. 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. On June 23, 2017 a modification to the facilitation loans was agreed which reduced the rate of interest on the facilitation loans from LIBOR plus 10% to the lower of 7.25% payable quarterly, or 80% of the dividend paid in the quarter by Blanket which is attributable to indigenous shareholders. The reduction in the interest rate is retrospectively applied from January 1, 2017 and reflects the general lowering of interest rates in Zimbabwe. Further information on the accounting effects of indigenisation at Blanket is set out in note 5 to the Consolidated Financial Statements and in a Frequently Asked Questions page which is available on Caledonia’s website.

Pronouncements from the Zimbabwe Government following the appointment of the new President in late 2017 announced a relaxation in the indigenisation policy which, amongst other things, includes the removal of an indigenisation requirement for gold mining companies. These pronouncements passed into law in March 2018. In light of the changed legislation, the Blanket (which expression in this paragraph means the company owning Blanket Mine) and Caledonia boards have agreed to implement a rights issue at Blanket of up to $4 million which will be underwritten by Caledonia’s 100% subsidiary in Zimbabwe. Blanket will use the proceeds of the rights issue to advance work on certain of Blanket’s satellite properties, as discussed in section 5.2 of this MD&A. Assuming that the Blanket’s indigenous shareholders do not subscribe for shares in accordance with their rights, it is expected that the shareholdings of Blanket’s indigenous shareholders will be diluted from the current level of 51% to below 50% and a corresponding increase in Caledonia’s shareholding in Blanket from 49% to over 50%. Caledonia will also evaluate the potential to buy back the shareholdings in Blanket that are currently held by certain indigenous partners. However, it is our intention to retain the employee and community shareholders (both of which currently hold 10% of Blanket each) as long term shareholders of Blanket. Any transactions would reflect the value of the indigenous shareholder’s shareholding in Blanket after deducting the value of the outstanding facilitation loans. At this stage there is no certainty that agreement will be reached on transactions in respect of any shareholding.

4.9       Opportunities and Outlook

Revised Investment Plan to Increase Production and Extend Mine Life

Continued exploration over the past three years has improved the understanding of the gold resources below 22 level and, as discussed in Section 5, has resulted in a further increase in resources below 750 metres. Accordingly, on November 10, 2017, the Company announced that it intends to continue to sink the Central Shaft by two further production levels to a depth of 1,330 metres. The decision to extend the Central Shaft to 1,330 metres will not adversely affect the targeted increase in production to 80,000 ounces of gold by 2021 but it will potentially increase Blanket’s projected life-of-mine by a further four years to 2031.

Production Guidance

On October 5, 2017 Caledonia narrowed the range of its production guidance for 2017 from between 52,000 and 57,000 ounces of gold to a range of 54,000 and 56,000 ounces of gold. Actual production for 2017 of 56,133 ounces was slightly higher than the top end of production guidance. Production guidance for 2018 is in the range of 55,000 to 59,000 ounces of gold. This is forward looking information as defined by National Instrument 51-102. Refer to Section 18 of the MD&A for further information on forward looking statements.

Cost Guidance

The estimated on-mine cost for 2017 was in the range of $615 to $645 per ounce; the actual on-mine cost per ounce for 2017 was $633 which was inside the target range. The estimated AISC per ounce for 2017 was in the range of $820 to $860 per ounce; the actual AISC per ounce in 2017 was $847 per ounce, which was inside the target range.

The estimated on-mine cost for 2018 is in the range of $650 to $685 per ounce and the estimated AISC for 2018 is in the range of $845 to $890 per ounce. The projected increased cost per ounce in 2018 is due to the introduction of new equipment to mine areas below 750 metres which will result in temporary, additional maintenance and operating costs prior to the commissioning of the Central Shaft in 2020.

15

Earnings Guidance

Earnings guidance for 2017 was between 120 cents and 155 cents per share, assuming a gold price of $1,275 per ounce and using the 2017 production and earnings guidance and excluding deferred taxation; adjusted EPS⁶ (the principal adjustment being the elimination of deferred taxation) for 2017 was 134.5 cents which was inside the target range. Earnings guidance for 2018 assuming a gold price of $1,260 per ounce and the guidance set out above for production and costs is between 130 and 150 cents per share.

Exploration

Caledonia intends to continue its exploration efforts at the Blanket Mine as discussed in Section 5.1 of this MD&A. Following the relaxation in the indigenisation legislation in Zimbabwe, the boards of Blanket (which expression in this paragraph means the company owning Blanket Mine) and Caledonia have approved a proposal for Caledonia to subscribe for up to $4 million of new equity in Blanket which will be used to conduct further evaluations on certain of Blanket’s satellite projects, as discussed further in Section 5.2 of the MD&A.

Changes in Indigenisation Legislation

As discussed in Section 4.8 of this MD&A, in light of the changed legislation, the Blanket (which expression in this paragraph means the company owning Blanket Mine) and Caledonia boards have agreed to implement a transaction which is expected to result in the dilution of the shareholdings of Blanket’s indigenous shareholders from the current level of 51% to below 50%. Caledonia will also evaluate the potential to buy back the shareholdings in Blanket that are currently held by certain Indigenous partners. However, it is our intention to retain the employee and community shareholders (both of which currently hold 10% of Blanket each) as long term shareholders of Blanket. Any transactions would reflect the value of the Indigenous shareholder’s shareholding in Blanket after deducting the value of the outstanding facilitation loans. At this stage there is no certainty that agreement will be reached on transactions in respect of any shareholding.

Strategy

Caledonia’s strategic focus is on implementing the Investment Plan at Blanket on schedule and within budget. Caledonia’s board and management believe the successful implementation of the 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 exploration activities are focussed on the growth and development of Blanket Mine and its satellite properties.

5.1       Blanket Exploration

A total of 6,684 metres of core drilling was completed in the Quarter compared to 6,235 metres in the preceding quarter. Drilling in the Quarter was targeted at Blanket Section, AR Main and AR South (North-South and East-West Limbs) between 22 level and 34 level elevations.

On November 2, 2017 the Company announced that total Measured and Indicated resources at Blanket Mine had increased by 14% from 4.94 million tonnes at December 2016 to 5.62 million tonnes as at August 31, 2017. Contained gold within the Measured and Indicated resources increased by 6% from 671,000 ounces in December 2016 to 714,000 ounces in August 31, 2017 at a grade of 3.95g/t. Inferred resources have increased by 47% from 3.76 million tonnes in December 2016 to 5.53 million tonnes as at August 31, 2017 containing 887,000 ounces of gold at a grade of 4.99g/t.

The update resulted in a modest decline in the average grade of the resources in the Indicated category as a result of additional infill drilling data although the average resource grade remains well above the current mill feed grade. Caledonia expects the mined grade to trend upwards over time as higher-grade resources are accessed at depth.

__________________________

⁶ Adjusted EPS is a non-IFRS measure. Refer to Section 10 of this MD&A for a reconciliation to IFRS.

16

Blanket Total Resources (effective August 31, 2017)
Resource Category	Tonnes (Mt)		Grade (g/t)		Contained Gold (koz)
	Dec 16	Aug 17	Dec 16	Aug 17	Dec 16	Aug 17	% change
Measured (M)	1.53	1.81	4.04	3.9	199	227	14%
Indicated (I)	3.41	3.81	4.31	3.98	473	488	3%
Total M&I	4.94	5.62	4.23	3.95	671	714	6%
Inferred	3.76	5.53	4.99	4.99	604	887	47%

Notes:

1. Tonnages refer to in-situ tonnes prior to the application of modifying factors.

2. All figures are in metric tonnes.

3. Pay limit for Blanket Mine is 1.96 g/t.

4. Pay Limit based on: gold = USD1,214/oz; Direct Cash Cost (C1) = 66 USD/t milled.

5. Tonnage and grade have been rounded and this may result in minor adding discrepancies.

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.

All resources for Blanket are shown on a 100% basis; Caledonia owns 49% of Blanket

The Mineral Reserve and Resource estimates set out below have been reviewed and approved by Paul Matthews, Caledonia’s Qualified Person.

Caledonia adopts a conservative approach to accruing new resources: only resource blocks with an estimated grade in excess of the current pay limit are taken into resource 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 93 claims 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.

Blanket’s main exploration efforts on the satellite properties were focused on the GG and the Mascot exploration prospects which, based on past production records, were believed to have the greatest potential. Due to the continued high level of capital investment in terms of the Investment Plan and Blanket’s limited funding capacity, exploration work at GG and Mascot was suspended in 2016 and resources were re-deployed at Blanket.

During the Quarter a pilot plant was commissioned to treat material from the GG prospect and 2,196 tonnes of material were processed during the Quarter at an average feed grade of 3.13g/t and a gold recovery of 54%. Further trials will be conducted to ascertain whether recoveries can be improved. However, at the current recovery rate, above feed grade and at the prevailing gold price, gold can be extracted profitably from GG material.

Following the relaxation in indigenisation legislation as discussed in Section 4.8, the boards of Blanket and Caledonia have agreed to implement at rights issue by Blanket in which Caledonia’s 100% Zimbabwean subsidiary is expected to subscribe for approximately $4 million of new equity in Blanket (on the assumption that the other shareholders of Blanket will not subscribe for shares) which will be used to undertake geological and metallurgical evaluations of the following satellite properties: GG, Mascot, Penzance, Abercorn, Cinderella and Eagle Vulture.

17

6. INVESTING

An analysis of investment in the Quarter, the quarters during 2017 and the years 2015, 2016 and 2017 is set out below.

($’000’s)	2015 Year	2016 Year	2017 Q1	2017 Q2	2017 Q3	2017 Q4	2017 Year
Total Investment	16,567	19,159	3,370	4,421	7,094	6,064	20,949
Blanket	16,567	19,146	3,370	4,421	7,094	6,054	20,939
Other	-	13	-	-	-	10	10

All further investment at Blanket and the satellite properties is expected to be funded from Blanket’s internal cash flows, the proceeds of its rights issue and its Zimbabwean borrowing facilities.

7. 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 $4 million overdraft facility in Zimbabwe which is repayable on demand. At December 31, 2017 0.3 million (2016 $Nil) of the facility was drawn. In October 2016 Blanket drew down a $3 million two-year term facility of which $1.486 million (2016:$2.028 million) remained payable as at December 31, 2017.

8. LIQUIDITY AND CAPITAL RESOURCES

An analysis of Caledonia’s capital resources as at December 31, 2017 and each of the preceding 5 quarters is set out below.

Liquidity and Capital Resources ($’000’s)
As at	Sept 30 2016	Dec 31 2016	Mar 31 2017	June 30 2017	Sept 30 2017	Dec 31 2017
Overdraft	1,549	-	130	-	-	311
Term facility	-	2,987	2,676	2,340	1,999	1,486
Cash and cash equivalents in the statement of cashflows (net of overdraft)	12,390	14,335	11,722	10,878	11,830	12,756
Working capital	14,682	15,960	16,245	14,284	11,828	12,311

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 term facility is held by Blanket with a Zimbabwean bank, is secured and has a two-year term with equal quarterly repayments. The Company’s liquid assets as at December 31, 2017 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 $31.05 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 as at December 31, 2017.

18

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	12,660	-	-	-		12,660
Term Loan	1,486	-	-	-		1,486
Provisions	928	65	282	2,522		3,797
Capital expenditure commitments	2,125	-	-	-		2,125

In addition to the committed purchase obligations set out above, Blanket currently intends to invest approximately $23.2 million between January and December 2018 to maintain Blanket’s existing operations and implement the Investment Plan which is discussed in Sections 4.7 and 4.9 of this MD&A. Blanket also intends to invest approximately $4 million on geological and metallurgical evaluations at certain of the satellite properties as discussed in section 5.2 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, 2017, Caledonia had potential liabilities for rehabilitation work on the Blanket and Eersteling Mines⁷ – if and when those mines are permanently closed – at an estimated discounted cost of $3.7 million.

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.

10.1       Cost per ounce

Non-IFRS performance measures such as “on-mine costs per ounce”, “AISC per ounce” and “all-in costs 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 costs per ounce”, “AISC per ounce” and “all-in costs per ounce” to the production costs shown in the financial statements which have been prepared under IFRS.

__________________________

⁷ Eersteling Mine is a South African gold property, which has been held on care and maintenance for several years.

19

Reconciliation of IFRS Production Cost to Non-IFRS Costs per ounce
($’000’s unless otherwise indicated)	3 Months to December 31		12 Months to December 31
	2016	2017	2016	2017
Production cost (IFRS)	6,873	9,188	32,086	36,180
Cash settled share-based payment expense included in production cost	-	(311)	-	(311)
Less exploration and site restoration costs	(307)	(602)	(661)	(933)
Other cost and intercompany adjustments	1,309	396	535	563
On-mine production cost	7,875	8,671	31,960	35,499
Gold sales (oz)	12,833	15,594	50,269	56,059
On-mine costs per ounce ($/oz)	614	556	636	633
Royalty	583	986	2,923	3,498
Export incentive	(1,104)	(689)	(1,104)	(2,446)
Exploration, remediation and permitting	57	245	311	316
Sustaining capital development	1,369	2,809	3,792	3,509
Administrative expenses	2,030	1,370	7,263	5,911
Less Zambian expenses	(17)	-	(17)	-
Silver by-product credit	(15)	(19)	(62)	(74)
Cash settled share-based payment expense	41	369	788	976
Cash settled share-based payment expense included in production cost	-	311		311
AISC	10,819	14,053	45,854	47,500
Gold sales (oz)	12,833	15,594	50,269	56,059
AISC per ounce ($/oz)	843	901	912	847
Permitting and exploration expenses	56	46	181	183
Non-sustaining capital expenses	5,120	3,256	15,367	17,441
Total all in cost	15,995	17,355	61,402	65,124
Gold sales (oz)	12,833	15,594	50,269	56,059
All-in costs per ounce ($/oz)	1,245	1,113	1,221	1,162

10.2       Average realised gold price per ounce

“Average realised gold 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 gold price per ounce” to the revenue shown in the financial statements which have been prepared under IFRS.

Reconciliation of Average Realised Gold Price per Ounce ($’000’s unless otherwise indicated)
	3 Months to December 31		12 Months to December 31
	2016	2017	2016	2017
Revenue  (IFRS)	15,251	19,599	61,992	69,762
Revenues from sales of silver	(15)	(18)	(62)	(74)
Revenues from sales of gold	15,236	19,581	61,930	69,688
Gold ounces sold (oz)	12,833	15,594	50,269	56,059
Average realised gold price per ounce (US$/oz)	1,187	1,256	1,232	1,243

20

10.3       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 (“Adjusted EPS”) to IFRS Profit Attributable to Owners of the Company ($’000’s unless otherwise indicated)
	3 Months to December 31		12 Months to December 31
	2016	2017	2016	2017
Profit attributable to owners of the Company (IFRS)	3,258	3,232	8,526	9,384
Add back/(deduct) amounts attributable to owners of the company in respect of:
IFRS 19 adjustment	40	50	80	100
Other income	(226)	-	(226)	-
Zambian expenses	17	-	17	-
Foreign exchange loss	173	464	505	380
Equity-settled share-based expense arising on modification to indigenisation loans	-	-	-	806
Deferred tax	1,067	1,408	4,611	3,696
Sale of Blanket Mine treasury bills	-	-	(3,202)	-
Adjusted profit	4,329	5,154	10,311	14,366
Weighted average shares in issue (m)*	10,457	10,608	10,457	10,608
Adjusted EPS (cents)	41.4	48.6	98.6	135.4

^{* On June 26, 2017 the Company consolidated its issued shares on an effective basis of 1 share for every 5 previously owned.}

Per share information for the Quarter reflects the revised shares in issue following the implementation of the effective 1 for 5 share consolidation on June 26, 2017. Per share information for all prior periods has been restated accordingly.

11. RELATED PARTY TRANSACTIONS

There were no related party transactions in the Quarter.

12. CRITICAL ACCOUNTING POLICIES

Caledonia's accounting policies are set out in the Consolidated Financial Statements 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(t) 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:

21

i)                 Indigenisation transaction

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

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

(a) 20% of the 16% shareholding of the National Indigenisation and Economic Empowerment Fund (“NIEEF”);

(b) 20% of the 15% shareholding of Fremiro Investments (Private) Limited (“Fremiro”); and

(c) 100% of the 10% shareholding of GCSOT.

· 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 NCI 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 June 30, 2017 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 Blanket Employee Trust Services (Private) Limited (“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 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 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. 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 presentation currency

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.

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

The Group 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 amounts of exploration and evaluation assets depends upon the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.

22

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 any related interest and penalties in the current tax provision. 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.

vi) Share-based payment transactions

The fair value of the amount payable to employees in respect of share-based awards, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period over which the employee becomes unconditionally entitled to payment. The liability is re-measured at each reporting date. Any changes in the fair value of the liability are recognised as a personnel expense in profit or loss. Additional information about significant judgements and estimates and the assumptions used to estimate fair value for cash settled share-based payment transactions are disclosed in note 23.2 to the Consolidated Financial Statements.

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 the Group. 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. Caledonia does not use any financial instruments to manage its exposure to commodity risk. Caledonia will re-assess the requirement for any hedging 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 the end of the Quarter and VAT receivables. The amount due in respect of bullion sales was settled in October 2017; the VAT receivable is outside the agreed terms of such refunds.

Impairment losses

None of the trade and other receivables is impaired.

Liquidity risk

All trade payables and bank overdraft have maturity dates that are expected to mature in under 6 months. The two-year term loan is repayable in equal quarterly instalments from April 2017 until October 2019.

Currency risk

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

23

The fluctuation of the US 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 limited debt financing. 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

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.

Following the announcement on December 16, 2015 that henceforth Caledonia would 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 US Dollars as 1.125 US cents. A further quarterly dividend of 1.125 US cents was paid at the end of April 2016.

On July 5, 2016 Caledonia announced an increased quarterly dividend of 1.375 US cents per share, which was paid at the end of July 2016; further dividends of 1.375 US cents were paid at the end of October 2016 and January and April 2017.

Following the share consolidation on June 26, 2017, the Company announced on July 4, 2017 an increased quarterly dividend of 6.875 US cents which was paid on July 28, 2017, on October 27, 2017 and on January 26, 2018. The dividend of 6.875 US cents per share effectively maintains the dividend at the previous level of 1.375 US cents per share, after adjusting for the effect of the consolidation. The quarterly dividend of 6.875 US cents per quarter is Caledonia’s current dividend policy which it is envisaged will be maintained.

15. MANAGEMENT AND BOARD

There were no changes to the management structure during the period under review. 

Mr Jim Johnstone retired as a non-executive director on August 14, 2017. He retired as an executive with the Company in 2006, but continued as a non-executive director. The board and management of Caledonia would like to express their sincere appreciation to Mr. Johnstone for his diligent and valued service to the Company during the last two decades and his astute and helpful contributions on the board as a non-executive director. Mr. Johnstone will continue to make himself available to provide his advice to the Company in a consultancy capacity. Following Mr. Johnstone’s retirement, the board comprises two executive and four non-executive directors.

16. SECURITIES OUTSTANDING

As at March 20, 2018 Caledonia had 10,603,153 common shares issued. As at March 20, 2018, outstanding options to purchase common shares (“Options”), as adjusted following the consolidation, are as follows:

24

Number of Options	Exercise Price	Expiry Date
	Canadian $
5,000	4.00	Oct 8, 2020
18,000	11.50	Oct 13, 2021
5,000	8.10	May 30, 2022
10,000	9.308	Aug 25, 2024
38,000

The OEICP allows that the number of shares reserved for issuance to participants under the OEICP, together with shares reserved for issue under any other share compensation arrangements of the Company, shall not exceed the number which represents 10% of the issued and outstanding shares from time to time. Accordingly, Caledonia could grant options on a further 1,032,315 shares as at March 20, 2018.

17. 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 27 to the Consolidated Financial Statements and mentioned at Section 13 above. 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. Liquidity risk also includes the risk that Caledonia may be unable to extract sufficient cash from Zimbabwe due to the shortage of foreign exchange in Zimbabwe.

· Availability of foreign exchange: The Company needs access to foreign exchange in Zimbabwe so that it can pay for imported goods and equipment and remit funds to Group companies outside Zimbabwe. No assurance can be given that sufficient foreign exchange will continue to be available.

· 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 Investment Plan as set out in Section 4.9 of this 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.

__________________________

⁸ The exercise price of CAD$9.30 per share for these and the options below was converted into a USD amount of $7.35 at the prevailing USD/CAD exchange rate.

25

· Mineral Rights: The Company’s existing mining claims, licences and permits are in good standing. The Company has to pay fees etc. to maintain its claims 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 claims and 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 does not hold any instruments to limit the effect of adverse gold price movements. Management regularly reviews future cash flow forecasts in the context of the prevailing gold price and likely downside scenarios for future gold prices.

· 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. 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. More recently, production at Blanket has been adversely affected by fluctuations in the voltage of the incoming electricity supply. Blanket has addressed this issue by installing equipment to regulate the incoming electricity supply.

· 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 Blanket Mine is depleted. The Caledonia and Blanket management teams have been augmented so that, if required, they 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 failed to pay Blanket in the period of hyper-inflation which existed prior to the adoption of the multi-currency system by Zimbabwe in early 2009.

26

18. 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”, “envisage”, “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 Investment Plan; costs associated with the life of mine 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.

Shareholders, 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 information. 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, fire, 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, 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, potential shareholders and prospective investors 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.

19. CONTROLS

The Company has established and maintains disclosure controls and procedures (“DC&P”) designed to provide reasonable assurance that material information relating to the Company is made known to the Chief Executive Officer and the Chief Financial Officer by others, particularly during the period in which annual filings are being prepared, and that information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified by such securities legislation.

27

The Company’s management, along with the participation of the Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the Company’s DC&P as of December 31, 2017. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as at December 31, 2017, the Company’s DC&P were effective.

The Company also established and maintains a system of internal controls over financial reporting (“ICFR”) designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS; however, due to inherent limitations, ICFR may not prevent or detect all misstatements and fraud. The Company’s board approves the financial statements and ensures that management discharges its financial responsibilities. The Audit Committee, which is composed of independent directors, meets periodically with management and auditors to review financial reporting and control matters and recommends the financial statements to the board of directors for approval.

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate ICFR, and evaluating the effectiveness of the Company’s internal control over financial reporting as at each fiscal year end. Management has used the 2013 Internal Control–Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission framework to evaluate the effectiveness of the Company’s ICFR as at December 31, 2017. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that as at December 31, 2017, the Company’s ICFR was effective.

There have been no changes in the Company’s ICFR during the period ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.

20. QUALIFIED PERSON

Paul Matthews (BSc (Hons) Geology) is the Company’s qualified person as defined by Canada’s National Instrument 43-101. Mr. Matthews is responsible for the technical information provided in this MD&A except where otherwise stated. Mr. Matthews 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.

28