MD - Filed by Filing Services Canada Inc. (403) 717-3898

20-F 1 caledonia20f05032012.htm CALEDONIA MINING CORPORATION - FORM 20-F MD - Filed by Filing Services Canada Inc. (403) 717-3898

Caledonia Mining Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

April 30, 2012

FORM 20-F

ANNUAL REPORT

(Mark One)

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……………………………… to ………………………………

Commission file number 013345

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ……………………………………………

CALEDONIA MINING CORPORATION

(Exact name of Registrant as specified in its charter)

Caledonia Mining Corporation is variously referred to in this Report

as “Caledonia”, “the Corporation” or “the Company”

Canada

(Jurisdiction of incorporation or organization)

24 Ninth Street, Lower Houghton, Johannesburg, Gauteng 2198, South Africa

(Address of principal executive offices)

Carl R. Jonsson, 1710-1177 West Hastings Street,

Vancouver, BC V6E 2L3, Canada; tel: (604) 640-6357; fax: (604) 681-0139

email: jonsson@securitieslaw.bc.ca

(Name, telephone, email and/or facsimile number and address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

(Title of Class)

Caledonia Mining Corporation

Securities registered or to be registered pursuant to Section 12(g) of the Act

Title of each class

Name of each exchange on which registered

Common shares

Toronto Stock Exchange

London Stock Exchange Alternative Investment Market

U.S. OTCQX

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the closing of the period covered by the annual report

507,299,303

Indicate by check mark if the registration is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes_______________ No _________x_________

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes_______________ No _________x_________

Note – checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days

Yes _______x_______ No __________________

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ______ Accelerated filer _________ Non-accelerated filer _____x_____

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

Caledonia Mining Corporation

U.S. GAAP …… International Financial Reporting Standards as issued by the International Accounting Standards Board X

Other: __________

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow

Item 17 __________________ Item 18 ____________

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes __________________ No __________x___________

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ____________ No_________________

NOTE: All references to monies herein are to Canadian dollars unless otherwise specifically indicated

FORWARD LOOKING STATEMENTS

The Company cautions readers regarding forward looking statements found in this Annual Report and in any other statement made by, or on behalf of the Company, whether or not in future filings with the United States Securities Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by or on behalf of the Company. The Company disclaims any obligation to update forward looking statements.

PART 1

1.	IDENTITY of DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required as this is an annual report under the Securities Exchange Act of 1934 (“Exchange Act”).

However, the information required above can readily be determined from Caledonia’s Proxy and Information Circular dated April 15, 2011 attached as Exhibit #14b. Information is also given in Section 14A.

Caledonia Mining Corporation

2. OFFER STATISTICS AND TIMETABLE

Not required as this is an annual report under the Exchange Act.

3. KEY INFORMATION

Selected Financial Data

Table 3 A shows the applicable selected financial data for 2010 and 2011 pursuant to IFRS and for the 3-year period 2007 to 2009 in Canadian Generally Accepted Accounting Principles

Table 3 A (i) shows the applicable selected financial data for the 3-year period 2007 to 2009 in United States Generally Accepted Accounting Principles.

Table 3 A (ii) shows the US$ exchange rates against the Canadian $ for each of the 5-year periods indicated, for the period end and average exchange rate and the range of high and low rates for each year and the high and low exchange rates for the individual months ending April 30, 2012.

Caledonia Mining Corporation

Table 3A - Selected Financial Information prepared for 2011and 2010 pursuant to IFRS and for three preceding years pursuant to Canadian Generally Accepted Accounting Principles - the figures presented being as of the end of each such year.

	IFRS		Canadian GAAP
Financial – All in C$ 000’s unless otherwise indicated	2011	2010	2009	2008	2007
Revenue from Sales	55,705	22,388	11,559	7,696	10,039
Gross Operating Profit (Loss)	29,115	6,360	2,916	3,039	166
Expense - (General and administration, interest and foreign exchange including provisions and impairments)	(8,359)	(3,866)	(6,007)	(7,543)	(4,195)
Net loss from discontinued operations	-	-	-	(436)	(582)
Net Income /(Loss) – after income taxes	12,130	1,455	(3,950)	(4,940)	(4,615)
Cash and cash equivalent	9,686	1,145	1,623	3,652	76
Current Assets	18,154	6,176	5,917	5025	4,408
Assets	52,402	38,159	22,090	23,657	29,492
Current Liabilities	4,566	4,629	2,759	1,308	4,343
Long Term Liabilities	7,822	7,050	2,589	1,153	1,054
Working Capital	13,588	1,547	3,158	3,717	65
Shareholders’ Equity	40,014	26,480	16,742	21,196	24,095
Total Capital Expenditures including Mineral Properties	8,528	7,304	1,547	3,023	3,250
Financing Raised (repaid)	(279)	159	588	1,106	4,380

Share Information

Market Capitalization ($ Thousands) at December 31	55,060	80,021	32,508	32,511	53,666
Shares Outstanding (Thousands)	500,549(1)	500,169	500,169	500,169	487,869
Warrants & Options (Thousands)	42,540	32,580	32,580	46,430	34,026
Basic and diluted net income (loss) per share for continuing operations	$0.024	$0.003	($0.008)	($0.010)	($0.009)
Basic and diluted net income (loss) per share for discontinued operations	-	-	-	($0.000)	($0.000)
Basic and diluted net income (loss) per share for the year	$0.024	$0.003	$(0.008)	$(0.010)	$(0.009)

(1) During 2011 the Company issued 380,000 shares for a cash price of $0.09 per share.

Table 3A (i) - Selected Financial Information – prepared pursuant to United States Generally Accepted Accounting Principles for the years 2007 – 2009 - the figures presented being as of the end of each such year

	US GAAP
	2009	2008	2007
- In Thousands of Canadian Dollars except per share amounts
Revenue from Operations	11,559	7,696	10,039
Gross Profit (Loss)	3,930	851	(2,467)
Expenses (General and Administration, Interest and foreign exchange)	6,247	7,543	4,195
Net Income (Loss) from continuing operations	(3,176)	(6,692)	(6,662)
Loss from discontinued operations	-	(436)	(582)
Net Income(Loss)	(3,176)	(7,128)	(7,248)
Cash	1,622	3,652	76
Current Assets	5,917	5,025	4,408
Total Assets	12,691	13,484	21,507
Current Liabilities	2,759	1,308	4,343
Long Term Liabilities	2,589	1,153	1,054
Working Capital (Deficiency)	3,158	3,717	65
Shareholders’ Equity (Deficiency)	7,343	11,023	16,110
Capital Expenditures (excluding Mineral Property expenditure)	830	136	571
Expenditures on Mineral Properties	650	-	45
Financing Raised (repaid)	588	1,119	4,380
Deemed Dividends	-	-	134

Caledonia Mining Corporation

Table 3A (ii) - Summary of Exchange Rates for the 5-year Period - 2007 to 2011

The following table sets forth, for each of the years indicated, the exchange rate of the United States dollar into Canadian currency at the end of such year, the average exchange rate during each such year and the range of high and low rates for each such year as supplied by the Bank of Canada.

Exchange Rate	2011	2010	2009	2008	2007
Rate at the End of the Period (1)	0.9767	0.9999	1.049	1.218	0.982
Average Rate (2)	0.9892	1.03	1.14	1.066	1.0744
High Rate (1)	1.0468	1.0766	1.036	0.9711	1.185
Low Rate (1)	0.9748	0.9966	1.2907	1.3008	0.9145

Notes:

(1)	The rate of exchange is the Bank of Canada closing rate for the period.

(2)	The average rate means the average of the exchange rates during the year.

The high and low rates of exchange for each of the 5 months from December 2011 to 20 April 2012 are as follows:

	Dec. 2011	Jan 2012	Feb 2012	March 2012	April 2012
Closing	1.0198	1.0039	0.9967	0.9972	0.9800
Average	1.0236	1.0154	0.9978	0.9931	0.9934
Hi	1.0384	1.0285	1.0013	1.0005	1.0031
Low	1.0098	1.0017	0.9927	0.9870	0.9800

C.	Risk Factors

An investment in the securities involves a high degree of risk. Investors need to carefully consider the following risk factors, in addition to the other information contained in this document and the Exhibits hereto.

Industry Competition

The mining industry is a highly diverse and competitive international business. The selection of geographic areas of interest are only limited by the degree of risk a company is willing to accept by the acquisition of properties in emerging or developed markets and/or prospecting in explored or virgin territory. Mining, by its nature, is a competitive business with the search for fresh ground with good exploration potential and the raising of the requisite capital to move projects forward to production. Globally the mining industry is prone to cyclical variations in the price of the commodities produced by it, as dictated by supply and demand factors, speculative factors and industry-controlled marketing cartels. Nature provides the ultimate uncertainty with geological and occasionally climatic surprises. Commensurate with the acceptance of this risk profile is the potential for high rewards.

Caledonia Mining Corporation

Exploration and Development

Exploration, development and production activities are subject to political, economic and other risks, including:

- cancellation or renegotiation of contracts;

- changes in local and foreign laws and regulations;

- changes in tax laws;

-	delays or refusal in granting prospecting permissions, mining authorizations and work permits for foreign management staff;

- environmental controls and permitting

- expropriation or nationalization of property or assets;

- foreign exchange controls;

government mandated social expenditures;

-	import and export regulation, including restrictions on the sale of their production in foreign currencies;

- industrial relations and the associated stability thereof;

- inflation of cost that is not compensated for by a currency devaluation;

-	requirement that a foreign subsidiary or operating unit have a domestic joint venture partner, which, possibly, the foreign company must subsidize;

-	restrictions on the ability of local operating companies to sell their production for foreign currencies, and on the ability of such companies to hold these foreign currencies in offshore and/or local bank accounts;

-	restrictions on the ability of a foreign company to have management control of exploration and/or development and/or mining operations;

- restrictions on the remittance of dividend and interest payments offshore;

- retroactive tax or royalty claims;

- risks of loss due to civil strife, acts of war, guerrilla activities, insurrection and terrorism;

- royalties and tax increases or claims by governmental entities;

- unreliable local infrastructure and services such as power, communications and transport links;

- demands or actions by native or indigenous groups;

-	other risks arising out of foreign sovereignty over the areas in which operations are conducted.

-	lack of uninterrupted power supplies

-	lack of investment funding

Such risks could potentially arise in any country in which Caledonia operates. In Southern Africa, Black Economic Empowerment Legislation and a number of economic and social issues may result in increased political and economic risks of operating in that area.

Zimbabwe brought its Indigenisation and Economic Empowerment Act into law in March 2008. The law requires that a majority stake (at least 51%) in all companies is held by indigenous Zimbabweans. On February 20, 2012 the Company signed a Memorandum of Understanding (“MOU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe (the “Government of Zimbabwe”) pursuant to which Caledonia has agreed that Indigenous Zimbabweans will acquire an effective 51% of the Blanket Mine in Zimbabwe (“Blanket”) for a paid transactional value of U.S. $30.09 million on the following basis:

·	16% will be sold to the National Indigenisation Economic Empowerment Fund;

·	10% will be sold to a Management and Employee Trust for the benefit of the present and future managers and employees of Blanket;

·	15% will be sold to identified Indigenous Zimbabweans; and

·	10% will be donated to the Gwanda Community Share Ownership Trust. Caledonia will also make a non-refundable donation of US $1,000,000 to the Trust as soon as it has been established.

Caledonia will facilitate the vendor funding of these transactions which will be repaid by way of future dividends from Blanket.

Caledonia has undertaken to complete the implementation of all the components of the indigenisation transaction as soon as possible - which is currently underway. The Government of Zimbabwe has agreed that implementation of the terms of the MOU will constitute full compliance by Blanket and Caledonia with the requirements of the Indigenisation Act. However, there is no assurance that the implementation of the terms can be achieved without further difficulties – nor when the completion of the implementation will occur.

Caledonia Mining Corporation

Effective January 1, 2012, Zimbabwe increased the gross royalty payable to the Zimbabwe Government from 4.5% to 7% of the gross revenues received by mining companies operating in Zimbabwe from gold sales.

In January 2008 the Zambian government announced the following changes to its tax laws that would have had a bearing on the Nama Project. The key changes were:

· Increase in mineral royalty from 0.6% to 3%

· Increase in profit tax rate from 25% to 30%

· Introduction of variable profits tax of 15% for net profits above 8%

· Introduction of a windfall profit tax for copper and cobalt mines

· Capital allowances reduced from 100% to 25%

These measures were highly controversial with mining companies, many of which invested in the country under specific tax incentives and formalized their business models accordingly. Various representations were made by the mining companies both directly and through the Chamber of Mines to the government following the budget announcement at the end of January 2008. The Zambian government in January 2009 announced improvements to the taxation of mining companies, in particular:

·	the abolition of windfall tax

·	the return of capital allowances back to 100%.

Whilst these changes are welcome, the royalty remains unchanged at 3% and we make the observation that at low cobalt prices, the royalty can give rise to a very significant tax burden on the project.

As a result of the foregoing, Caledonia’s exploration, development and production activities in Zambia and Zimbabwe may be substantially affected by factors beyond Caledonia’s control, any of which could materially adversely affect Caledonia’s financial position or results from operations. Furthermore, in the event of a dispute arising from such activities, Caledonia may be subject to exclusive jurisdiction of courts outside North America or may not be successful in subjecting persons to the jurisdiction of the courts in North America, which could adversely affect the outcome of a dispute.

History of Losses; Accumulated Deficit; No Assurance of Revenue or Operating Profit

Since inception in February 1992, Caledonia has recorded a loss in every year except 1994, 2000, 2010 and 2011. As at December 31, 2011, the consolidated accumulated deficit was $158.4 million.

Write-downs on capital assets and mineral properties are typical for the mining industry. Caledonia’s policy is to review the assets relative to current market conditions on an annual basis.

Fluctuating Minerals Prices and Foreign Currency Exchange Rates

As Caledonia’s activities primarily relate to the exploration, development and production of minerals, the fluctuating World prices for such minerals have a significant potential effect on the Company’s future activities and the profitability of any of its minerals production activities. There is never any assurance, when activities are undertaken, or production operations are commenced, that the World price of the minerals involved will continue at a sufficiently high price to justify the ongoing activities or the continuation of the production.

Most costs incurred by the Company in its exploration, development and production activities in southern Africa have to be paid in local currencies. However, mineral prices are generally quoted in United States dollars. The profitability of any production operations of the Company and the potential profitability of its exploration and development activities will therefore be seriously affected by adverse changes in the currency exchange rates.

Black Empowerment and Indigenization

The governments of the southern African countries in which the Company operates have, or are proposing, legislation (typically referred to as “black empowerment”) requiring companies to allow participation in their shareholdings and business enterprises by the indigenous (i.e. black) population. In not all instances is it assured that such interests will have to be paid for at full fair value. In Zimbabwe, when Caledonia purchased the Blanket Mine, it agreed to establish a trust for the benefit of the employees of the Blanket Mine into which up to 30% of the issued shares of the wholly owned subsidiary which it acquired and is operating the Blanket Mine would be placed. As a result of the Indigenisation Law which has been passed by the Government of Zimbabwe it is now expected that the proposed trust will be established during the second quarter of 2012, but only at 10% of the issued shares.

Caledonia Mining Corporation

Need for Additional Funds

The Company expects that for at least 2012 and 2013, it can fund all of its exploration, development and production operations from internal funds – and that it will not have to seek externally sourced funding for those years.

Joint Venture Negotiations

Two of the three Rooipoort platinum prospecting rights applied for have been granted to prospect for PGMs on major portions of the Mapochsgronde tribal trust land and are currently in the process of registration. The remaining property to the north of the area where the current rights are under appeal with the DME and its decision is awaited.

When the exploration rights are registered joint venture partners will be sought for this project.

Dependence upon Key Personnel

Caledonia’s success depends (i) on the continued contributions of its directors, executive officers, management and consultants, and (ii) on Caledonia’s ability to attract new personnel whenever Caledonia seeks to implement its business strategy. There is no assurance that the Company will always be able to locate and hire all of the personnel that it may consider that it requires. The Company, where it considers it appropriate, engages consulting and service companies to undertake some of the work function.

Chris Harvey retired from his position as Technical Director in December 2005, but continues as a Director and was appointed as a member of the Audit Committee in June 2009. James Johnstone retired from his position as Chief Operating Officer in September, 2006, also continues as a Director and was appointed as a member of the audit committee in December 2010.

Steven Curtis was appointed Vice President Finance and Chief Financial Officer in April 2006, and was appointed as a Director on June 1, 2008. Mark Learmonth, previously a Director of Macquarie First South, was appointed as VP Corporate Development and Investor Relations on July 10, 2008.

Stefan Hayden stepped down as the Chairman in 2005 but continues as a Director and as President and CEO.

Carl Jonsson, a Director was appointed Chairman of the Board in December 2010. Robert W. Babensee was appointed as a Director and a member of the Audit Committee on October 31, 2008 and became Chairman of the Audit Committee in December 2010.

Absence of Dividends

The Company has never paid or declared any dividends and has no dividend policy.

Possible Volatility of Share Price

Market prices for mining company securities, by their nature, are volatile. Factors, such as rapidly changing commodity prices, political unrest globally and in countries where Caledonia operates, speculative interest in mining stocks etc. are but a few factors affecting the volatility of the share price. Caledonia listed its shares on the London Stock Exchange’s Alternative Investment Market (“AIM”) in June 2005 – and secured the quotation of its shares in the U.S. on the OTCQX commencing October 10, 2011.

4	INFORMATION ON THE COMPANY

A. History and Development of Caledonia

Caledonia was incorporated, effective February 05, 1992, by the amalgamation of three predecessor companies. It exists pursuant to the Canada Business Corporations Act

Following the creation of Caledonia its shares were listed for trading on the Toronto Stock Exchange and quoted on the NASDAQ small caps market. On October 16th 1998, Caledonia announced that NASDAQ would no longer quote Caledonia’s securities for trading. Caledonia’s common stock then commenced trading on NASDAQ’s OTC Bulletin Board system. In June 2005 Caledonia was admitted to the London Stock Exchange’s AIM market under the ticker symbol “CMCL”. Its Toronto Stock Exchange trading symbol is “CAL”. Effective October 10, 2011 the shares commenced trading in the U.S. on the OTCQX under the ticker symbol CALVF.

Caledonia Mining Corporation

The addresses and telephone numbers of Caledonia’s three principal offices are:

	African Office - South Africa		Representational Offices - Canada

	Greenstone Management Services		67 Yonge Street, Suite 1201
	24, 9th Street, Lower Houghton		Toronto, Ontario, Canada
	Johannesburg, Gauteng, 2198		M5E 1J8
	South Africa		(416) 369-9507
	(27) 11 447 2499
			1710-1177 West Hastings Street
			Vancouver, B.C. , Canada V6E21
			(604) 640-6357

Exploration activities – since 1995

In 1995 the Company acquired ownership of the shares of the companies which owned the Barbrook and Eersteling Mines in South Africa. The original acquisition was of only 96.4% of the issued shares of Eersteling Gold Mining Company Ltd. - with the remaining 3.6% being acquired in mid 2004. On May 31, 2008 an agreement to sell Barbrook Mine was concluded and Caledonia was paid the full purchase price of $9,130,000 by Eastern Goldfields SA (Pty) Ltd.

Effective April 1, 2006 the Company purchased 100% of the issued shares of the Zimbabwean company “Blanket Mine (1983) (Private) Limited, the owner of the operating Blanket Gold Mine. The purchase consideration was $1,000,000 (U.S.) and the issuance to the vendor of 20,000,000 shares in the capital of Caledonia. Because the Company bought the shares of the company owning the Blanket Mine it thereby acquired all of the assets of that company and assumed all of its liabilities.

From time to time Caledonia receives mineral property and business proposals from third parties for review as potential investment opportunities. With the potential of improved political conditions in other Southern African countries, Caledonia’s management is reviewing mining opportunities in certain of these countries.

Pages 23,24 and 25 are maps respectively of northern South Africa, Zimbabwe and Zambia – which show the locations of the Company’s exploration and operating properties in those countries.

B. Business Overview

Mining and Exploration Ac tivities:

Gold Production

Blanket Mine (1983) Private Limited (“Blanket”) - Gold

Blanket exports its gold production to Rand Refineries in Johannesburg, South Africa and receives 100% of the sale proceeds in US dollars within 5 days of sale. Cash flow at Blanket continues to improve as gold production increases and the production unit costs decrease.

Background

Blanket is wholly owned by the Corporation. The mine is located approximately 560 km south of Harare, the capital city of Zimbabwe and 150 km south of Bulawayo, the country’s second largest city. The town of Gwanda, the provincial capital of Matabeleland South, is located 16 km east of the mine and is approximately 197 km north north-west of the South African border post of Beit Bridge. The mine is situated in the Gwanda Greenstone Belt from which gold was first produced in the 1800’s. Blanket holds extensive exploration properties throughout this belt. The Blanket property was first staked in 1904 with mining and metallurgical plant operations starting in 1906 and has since produced over a million ounces of gold.

Caledonia Mining Corporation

Geological Setting

In common with most of the gold mines in Zimbabwe, Blanket is situated in a typical greenstone terrain, the 70 km long by 15 km wide Gwanda Greenstone belt. This terrain comprises supra crustal metavolcanic rocks similar to those found in the Barberton area of South Africa and the Abitibi area of Canada. The Blanket property is the largest of the three remaining large gold producers on the Gwanda Belt, an area that has given rise to no less than 268 gold mines.

Property Geology

Blanket is part of the group that makes up the North Western Mining camp also called the Sabiwa group of ore zones extending from Sabiwa and Jethro in the south, through Blanket itself to the Feudal, AR South, AR Main, Sheet, Eroica and Lima ore bodies. The geological sequence strikes north-south, dips vertically and consists, from east to west, of a basal felsic unit which is not known to carry mineralization. It is generally on this lithology type that the various mine tailings disposal sites are located. Above this unit is the ultramafic unit that includes the banded iron formations hosting the eastern dormant cluster of mines and the ore bodies of the adjacent Vubachikwe mine complex. The active Blanket ore bodies are found in the mafic lavas, while the andesitic unit which lies to the west, caps this whole stratigraphy. A regional dolerite sill cuts the entire sequence from Vubachikwe through Blanket to the Smiler prospect. Ore bodies at Blanket are epigenetic and are associated with a later, regionally developed deformation zone characterized by areas of high strain, wrapping around relatively under formed remnants of the original basaltic lava flows. It is within this higher strain regime (highly sheared rocks) that the wider of the ore bodies are located.

Production Operations

Mining

Subsequent to the completion of the No. 4 Shaft Expansion Project during Q3 2010, the underground mining areas can now produce up to 1,100 tonnes of ore daily using predominately long-hole open stoping methods. Certain ore handling limitations still existed at the underground on 18 and 22 Levels at the year end. These limitations have been partially addressed by raise boring an ore pass connecting 18 Level to the No. 2 ore bin grizzly tip on 22 Level. The 120 metre long and 1.5 metre diameter ore pass has dramatically improved the efficiency of delivering ore to the new underground crushing and hoist loading station by eliminating the previous necessity to double handle ore and waste generated on 18 Level down to 22 Level via the No 6 winze before it is crushed and hoisted from the underground loading station to surface. The raise boring operations had an adverse impact on gold production in the first quarter of 2011resulting in 7,322 ounces being produced which was lower than the increased capacity target equivalent of 10,000 ounces per quarter. The second quarter production was higher than the first quarter but the planned annualized gold production rate of 40,000 ounces was not be achieved in 2011as a result of the lower production rates in the first and second quarters.

Metallurgical Process

The present crushing and milling circuit has been expanded from 600 tonnes per day to about 1,800 tonnes per day capacity. This is more than sufficient to handle the planned increases in mine production from the No. 4 Shaft Expansion Project, and, in future, from any ore mined from the satellite exploration properties currently being developed.

All run of mine (“ROM”) ore is crushed underground to minus 80mm, hoisted to surface and crushed to minus 12mm in the surface 2-stage crushing circuit. This material is then fed into two 1.8m by 3.6m rod mills where it is milled down to approximately 70% passing 75 microns, after which the milled slurry is pumped through two 30 inch Knelson Gravity Concentrators where approximately 49% of total mill gold production is recovered as ‘gravity’ gold. The Knelson Concentrator tails are pumped through cyclones whose underflow reports to the open-circuit regrind ball mill. The product from the Knelson tails cyclone overflow and the regrind mill discharge are pumped into a carbon-in-leach (“CIL”) plant consisting of eight, 600 cubic meter leach tanks where alkaline-cyanide leaching and simultaneous absorption of dissolved gold onto granular activated carbon takes place. Elution of the gold from the loaded carbon and subsequent electro-winning is done on site. During electro winning the gold is deposited on wire wool cathodes, the loaded cathodes are acid-digested and the resultant gold solids from acid digestion and the re-dressed gold concentrate from Knelson Concentrators are smelted into bars. The granular activated carbon is kiln regenerated before it is recirculated back to the CIL section. The gold bullion, in the form of Dore bars is delivered, as required by Zimbabwean gold-mining law, to the Government-operated Fidelity for sampling and onward delivery to the Rand Refineries in South Africa. Rand Refineries undertakes the final refining and sells the resultant gold with 100% of the proceeds being credited to Blanket’s Zimbabwean bank account in US dollars within 5 days of sale.

The CIL plant has an overall design capacity of 3,800 tonnes of milled ore per day, from its previous use for reclaimed tailings processing. The plant tailings from CIL are reduced in cyanide content and deposited on two licensed tailing impoundment areas sited close to the plant. The maximum amount of tailings water is pumped back to the metallurgical plant for re-use. Daily management and operation of the tailing deposition area is contracted out to the Zimbabwean subsidiary of specialized South African company “Fraser Alexander Tailings”

Caledonia Mining Corporation

Mineral Reserve Calculations

The Company has had the Blanket Mine gold reserve calculations verified. The work was done by the South African based independent consulting company, MSA Geoservices (Pty) Ltd. ("MSA"). MSA has completed a technical report on the Blanket Mine dated June 28, 2011. A summary of the Report - including the reserve calculations - is attached as Exhibit 14.e. The full Report can be viewed on the Company's website at www.caledoniamining.com. It can also be viewed on SEDAR at www.sedar.com.

Since the calculation of the above December 31, 2010 figures the Company has mined approximately 298,758 tonnes with an average gold grade of 4.01 grams per tonne from within the reserves and resource figures set out above. Management of Blanket Mine has concluded that on-going work and exploration on the property has resulted in the establishment of replacement reserves and resources. An updated calculation of Blanket’s reserves and resources as at December 31st 2011 has been prepared by Blanket’s Technical Department and the results are presented in the following table.

MINERAL RESERVES – December 31, 2011

Classification	Tonnes	Grade (Au g/t)	Gold Content-ounces
Proven Ore
Total Proven Ore including pillars*	1,495,000	3.86	185,500
Probable Ore
Operating and Development Areas	2,234,000	3.79	272,200
Total Proven + Probable Ore	3,729,000	3.82	457,700

Reserve estimate is based on a gold price of US$1,500/oz.

MINERAL RESOURCES

Classification	Tonnes	Grade (Au g/t)	Gold Content-ounces
Indicated	454,000	3.82	55,700
Inferred	2,344,000	5.28	**

Tonnages and ounces are rounded to the nearest 1000 and 100 respectively

Resource estimate is based on a gold price of US$1,500/oz.

Note * Pillar tonnages have been discounted by 50%

Note ** In keeping with the requirements of NI 43-101, Inferred Resources are reported without estimates of metal quantities

(i) 1 tonne = 1,000 kilograms = 2,205.6 pounds

(ii) Some numbers may not add due to rounding

Cautionary note to U.S. Investors concerning estimates of Inferred and Indicated Resources. The above table uses 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 Resources 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.

Dr. T. N. Pearton, BSc Eng. (Mining Geology), PhD (Geology), and Fellow of the Geological Society of South Africa is the “Qualified Person” for Blanket’s reserves and resources as required by National Instrument 43-101 of the Canadian Securities Administrators.

Relative to the previous and independent estimate of reserves and resources as at December 2010, the Reserves have decreased by 2.0% in terms of contained gold. Resources expressed in terms of tonnage have declined by 4.1% over the same period.

Caledonia Mining Corporation

DISCONTINUED OPERATIONS

Eersteling Gold Mining Company Limited

The mine is no longer disclosed as “held for sale” but the Board’s decision to sell remains intact. The change in disclosure is as a result of no offer being made for the mine since 2008. No additional impairment has been made against the carrying value as the previously offered price by a 3rd party potential buyer was significantly higher than the carrying value and the Corporation has rejected a purchase offer also in excess of the carrying value. Interested parties continue to investigate the merits of purchasing the mine and the Corporation continues to seek a suitable purchaser.

MARKETING

During 2009 Blanket became entitled to export and sell its entire gold production in its own name. Blanket has since then delivered and sold its gold production to Rand Refineries Limited in South Africa.

KEY PERFORMANCE FACTORS

During 2011, the US$ gold price per ounce continued to increase and the increased gold production from Blanket has enabled Blanket to remain cash-flow positive throughout 2011. The cash flow, together with a loan facility from Blanket’s Zimbabwean bankers, allowed Blanket to fund all of the 2011 capital expenditure at the mine. Subsequent to the completion of the No. 4 Shaft Expansion Project the mining of the Level 22 Haulage Extension Project, has recommenced. This project will allow for the further up-dip and down-dip exploration of the Blanket mine-site’s known ore bodies and, provided this exploration is successful, will also allow for the rapid commencement of mining on the new mining areas defined and an increase in the mine’s mineral reserves and resources. It is expected that the remaining 1,500metres of the 2,400 metre long Level 22 Haulage Development Project will be completed by the end of 2013. The frequency of electrical supply interruptions has decreased significantly since the new supply agreement was signed with ZESA in December 2010. Nevertheless the Company installed four 2.5MVA diesel generator sets and the associated transformers, switchgear, and diesel storage to ensure continuous power supply is available to the entire surface and underground operations in the event of any power interruption.

OPERATIONAL REVIEW AND RESULTS OF OPERATIONS

The plans for the non-revenue generating exploration projects continue to be determined by the availability of funds and are more fully described below.

8.1 Gold Production

Blanket Mine – Zimbabwe

The operational statistics reported below refer to the period from January 1 to December 31, 2011.

Capital Projects

Ore Pass from 18 Level (630m) to 22 Level

A 115 meter long by 1.5 metre diameter ore pass was raise-bored which has improved the efficiency and reduced the costs of moving mined ore from 18 Level to the underground crushing station. Sustained production at a continuous 1,000 tonnes per day has been achieved since this ore pass and its 18 Level tipping station were completed in April 2011.

22 Level (750m) Haulage Development Project - from Blanket #4 shaft to Lima shaft

The 22 level Haulage Development Project is currently behind the original schedule in the mine plan due to the decision taken in 2010 to concentrate financial resources on completing the No. 4 Shaft Expansion Project. Work on this Project will now be recommenced to link the Blanket and Lima shafts. Included in the work is a 230 meter ventilation raise that was raise bored to improve ventilation in this area and that will allow for double-shift blasting if required.. As the 22 level haulage project advances, crosscuts (short side tunnels) will be mined each with a length of up to several hundred meters in order to provide the required drilling platforms from which the deeper ore bodies above and below the 22 level can be drilled, evaluated and developed. It is planned that all of the work on the 22 Level Haulage Project and its cross-cuts will be done alongside normal mining production and should be completed by the end of 2013. The budgeted cost of the 22 level Project utilizing internal resources is about US$ 900 per meter advanced and equipped for the planned 1,500m plus lateral tunnels totalling about $US 2.2 million to be funded from internal cash flows.

Caledonia Mining Corporation

Mine Operations

Quarterly gold production has increased since mining and milling operations were resumed from 2,746 ounces in Q2 of 2009 to 10,533 ounces in Q4 of 2011. Monthly production and costs have however been subject to significant fluctuations largely due to the incidence of interruptions to electrical power, particularly prior to the installation of new electrical generators, and the increased labour costs.

Annual Production Results		2011	2010	2009*
Ore mined	Tonnes	314,698	149,372	94,714
Development advance (ROM)	Meters	3,013	2,455	1,267
Development advance (Capital)	meters	548	365	165
Ore milled	Tonnes	298,759	153,500	103,444
Head grade	grams/tonne	4.01	3.9	3.75
Recovery	percentage	92.90	92.00	90.96
Gold produced	Ounces	35,826	17,707	11,295
Gold Sold	Ounces	35,504	17,598	10,517
Average gold price per ounce sold	USD	1,577	1,273	1,099
Production cost per ounce	USD	581	751	744

* Figures given are for 9 months April to December 2009 as production was suspended from October, 2008 until April, 2009.

Underground

The AR South ore body above 18 Level (630m below surface datum) remains the most productive mining area and provided 30% of the total ore mined during the Quarter. Production from this area benefitted from the completion in the preceding quarter of the new raise bored ore pass which enabled ore to be moved from the draw points on 18 Level to the 18 Level grizzlies and dropped directly via the new ore pass onto the 22 Level grizzlies feeding the ore bins above the crushing station and automated skip loading system. The more widespread use of long-hole stoping has increased mining productivity, but at the expense of a marginal dilution in achieved grade.

Production from AR South between 22 Level and 18 Level provided approximately 21% of production in the Quarter. Long-hole stoping was successfully introduced to this area and has resulted in increased production tonnages albeit with some associated grade dilution which has been exacerbated by some faulting in the current mining areas. It is anticipated, however, that the planned delivered ore grades will be achieved during the remainder of 2012.

The balance of mining production (approximately 49%) came from the AR Main, Blanket, Lima and Eroica ore bodies.

The main development activities include:

• Extension of the 14 Level haulage (510m below surface datum) to link the Eroica and Lima ore bodies to provide access to resources at Lima between 510m and 230m;

• Development at Eroica to open the resource block between 630m and 510m; and

• Development at AR Main to provide access between 630m and 510m.

• An existing crosscut on 18 Level has been refurbished and equipped and will now be used to carry out resource drilling below 750m pending further development of the Level 22 Haulage.

Management is confident that the development work outlined above and the recent and continuing improvements to the underground haulages and other infrastructure will allow mine production to be sustained at the average target rate of 1,000 tonnes per day.

Gold Production

Gold produced in Q4 of 2011 was 10,533oz, an 8.1% increase on the 9,743oz produced in the preceding quarter and a 69% increase on the 6,227oz produced in the comparative 2010 quarter. This was the seventh consecutive quarterly increase in gold production. Total gold production in 2011 was 35,826oz, a 102% increase over the annual gold production in 2010 of 17,707oz.

Caledonia Mining Corporation

The tonnes milled, average mill feed grades, plant gold recovery and gold produced during January and February 2012, the whole 2011 year, the fourth quarter of 2011 and the preceding four quarters are shown in the table below.

Blanket Mine Production Statistics
	Year	Tonnes Milled (t)	Gold Head (Feed) Grade (g/t)	Gold Recovery	Gold Produced (oz)	Average sales price per ounce of gold sold (US$/oz)
February	2012	26,206	3.71	93.1%	2,914	1,734
January	2012	27,410	3.30	92.8%	2,695	1,675
TOTAL 2011	2011	298,759	4.01	92.9%	35,826	1,577
Fourth quarter qqquarterOctober	2011	90,967	3.86	93.4%	10,533	1,681
Third quarter	2011	85,442	3.81	93.1%	9,743	1,740
Second quarter	2011	60,913	4.52	92.9%	8,226	1,512
First quarter	2011	61,437	4.02	92.2%	7,322	1,397
TOTAL 2010	2010	153,500	3.90	92.0%	17,707	1,273

Gold production during Q4 was higher than in previous quarters reflecting the higher mined tonnages which resulted from improved efficiencies in the underground operations and improvement in the ore transportation on the 630 and 750 levels. This resulted from the completion in the preceding quarters of the raise-bored ore pass between these major ore transporting levels, improvements to the track condition of the main underground haulages and maintenance of underground ore production and transport equipment.

The gold head grade in Q4 2011 was 3.86g/t which was consistent with the mine plan for Q4; the average grade achieved in 2011 was 4.01g/t Au, which was somewhat better than the planned grade of 3.85g/t Au. The reduction in gold grades during the last 2 quarters of 2011, which has continued into early 2012, is the result of a combination of factors which include: the mining of lower grade areas which are commercially viable at the prevailing gold price; the more widespread use of long-hole stoping which, whilst allowing increased mining tonnages, has an adverse effect on grade control; and the incidence of some faulting at AR South which had an adverse effect on realised grades.

Plant recoveries showed a further improvement during Q4 2011 increasing to 93.4% compared to a target of 91.0%. This is due to investments made in improvements to the crushing and carbon-in-leach (CIL) sections earlier in the year. The two new gyratory crushers and the associated triple-deck crushed ore sizing screen continued to operate well and are capable of providing adequate sized crushed ore for the mill feed at a rate well in excess of the targeted 1,000 tonnes per day (tpd). The improved consistency of smaller product ore size delivered to the mills contributed to an improvement in gravity gold recovery circuit.

The CIL plant improvements included new agitator gearboxes and mixers, and the installation of an automated cyanide leach-reagent dosing and control system.

Power availability in Q4 2011 remained reasonably stable although as anticipated, ZESA was unable to maintain a completely uninterrupted supply. The power loss for the Year was significantly lower at 120.5 hours compared to 1,718 hours during 2010. The standby generators operated as designed for 63.7 hours during Q4 and allowed full operations to continue during the ZESA power interruptions to normal electricity supply.

As advised previously, essential maintenance work on the No. 4 Shaft and head structure had an adverse effect on production during January and February 2012. However, this work will allow for increased hoisting speeds which will be required to allow increased future production if sufficient ore can be made available from underground. This No. 4 shaft work had largely been completed by early March and production in March was approximately 3,600 ounces of gold. Mine production tonnages and gold production thereafter have now improved to the level required to reach the targeted gold production of 40,000oz for 2012.

Outlook

Blanket has achieved its annualized targeted production rate of 40,000 ounces per annum, which is expected to be sustained as a result of the 2011 improvements in the underground handling systems and ongoing mine development. Essential maintenance work on the No. 4 Shaft and Headgear Structure in early 2012 had a temporary and minor effect on production during that period. Increased hoisting speeds will soon be possible and these are required to allow increased future production if sufficient ore can be made available from the Blanket underground.

Caledonia Mining Corporation

The surplus capacity of the Blanket crushing and milling plant enables it to immediately treat additional feed material from the Blanket underground and from the GG and Mascot Project Area mines if the planned exploration/development work is successful.

There is significant upward pressure on costs, taxes and regulatory fees in Zimbabwe. Nevertheless, Blanket has surplus capacity at the metallurgical plant and is sufficiently cash generative that it can invest in projects with a view to further increasing production, thereby helping to maintain downward pressure on the cost per ounce of gold produced.

EXPLORATION AND PROJECT DEVELOPMENT

Base Metals

Copper and Cobalt Base Metals

Nama Project – Zambia

Property

Caledonia Nama Limited (“Nama”), a wholly owned subsidiary of the Corporation, holds four, contiguous large scale mining licenses covering approximately 800 square kilometres on the Zambian Copperbelt. The northern boundary of Caledonia’s licenced area is the Democratic Republic of Congo (“DRC”) border and the eastern boundary abuts the licence area that is held by a joint venture between Vale and African Rainbow Minerals where a new copper mine is currently under construction.

Prior to the 2011 programme, exploration activities had defined three main styles of mineralization in the Nama Licence area:

“A-type” cobalt oxide mineralisation;

“D-type’ iron oxide bodies which are mostly enriched in Cobalt; and

Copper dominated ore shale hosted copper-cobalt mineralisation, commonly observed elsewhere in the Copperbelt and which is being exploited by neighbouring mines to the east and south of the Nama Licence Areas.

2011 Exploration Programme

The 2010 exploration programme identified two resource targets at Nama (being “Konkola East” and “Kafwira”) which were characterised as belonging to the ore shale-hosted copper-cobalt style of mineralisation. The 2011 programme was focussed initially on Konkola East where a four-hole diamond drilling programme was carried out with the primary objective of confirming the existence of the Ore Shale member of the Copperbelt stratigraphy. The results of this programme confirmed the existence of Ore Shale in all holes. The Ore Shale intersection in holes 1 and 2 was found at depths and copper grades that do not merit further exploration at this stage.

Evaluation of the drill core extracted from holes 3 and 4 identified a zone of mineralisation which occurs at considerably shallower depths than the Ore Shale and does not occupy a specific stratigraphic layer as would be expected. Assays of the mineralised zones identified in holes 3 and 4 were sufficiently encouraging to warrant a fifth hole that was drilled in late 2011 and which also intersected the newly identified mineralised zone.

Preliminary Evaluation of the Results of the 2011 Drilling Programme

The new mineralised zone identified in holes 3, 4 and 5 is considered to be a contiguous zone. The assay results for the three intersections have a weighted average of 0.47% copper over a weighted average width of 41 metres at depths between 280 and 450 metres. Holes 3 and 4 are approximately 1,650 metres apart representing a minimum strike length of the mineralisation. The interpreted structure of the mineralised zone suggests that the zone may extend to surface within the Nama Licence.

Although the copper grades of the newly identified zone are lower than existing mines in the region, the zone is relatively shallow and the ore mineralogy found in holes 3, 4 and 5 is un-oxidised chalcopyrite, a mineral which is readily recoverable by conventional flotation that is recognized as a relatively low-cost metallurgical process.

Caledonia Mining Corporation

2012 Exploration Programme

Caledonia’s Board has reviewed the results of the 2011 exploration programme and the recommendations of management. Caledonia believes that it should focus on the Konkola prospect and accordingly, it has approved an exploration programme for Nama in 2012 which has the following objectives:

Phase 1: Drilling of additional relatively-shallow holes comprising approximately a total 2,400 metres with the objective of identifying a continuation of the newly discovered mineralized zone towards surface. This phase of the exploration programme is expected to start as soon as ground/weather conditions permit and results of this work are expected 4 to 5 months thereafter.

Phase 2: Drilling of additional deeper holes comprising approximately a total of 6,000 metres with the objective of identifying the nature of a deeper continuation of the above mineralised zone. This work will take place after completion of Phase 1 and is expected to take approximately 8 to 10 months.

Phase 3: Provided the results of the Phase 1 programme are positive, a further shallow hole drilling programme focussed on delineating and evaluating resources compliant with NI 43-101 will be presented to the Caledonia Board for approval prior to possible commencement. This Phase may commence during Phase 2 activities.

Substantial additional exploration work may be required in future years to arrive at a NI 43-101 compliant resource estimate at Nama.

Further information with respect to the Nama properties is given in Exhibits 14c, 14d and 14g.

PGE’s

Rooipoort & Mapochs Platinum, Gold, Palladium /Ni/Cu (“PGM”) Project - South Africa

The Rooipoort rights are held by Maid O’ the Mist, which is a wholly owned subsidiary of the Corporation. Maid O’ the Mist is the vehicle that will be used to manage the Rooipoort platinum exploration program.

An application in terms of the provisions of the applicable Act is in progress to treat the 5 adjoining prospecting rights at Rooipoort as a single right and to extend the period of this consolidated right for a further three years.

The prospecting rights granted to the Corporation to prospect for Platinum Group Elements (PGE)s on the major portions of the Mapochsgronde tribal trust land are currently in the process of registration. A further application has been made for an adjoining property to the north of the current rights applied for. The Corporation is still waiting the issuing of the prospecting right following its registration.

Activities at Rooipoort/Mapochs properties were suspended during 2010 due to the lack of progress on the part of the South African Department of Mineral Resources in registering the licence areas in the names of Caledonia’s local subsidiaries. This has now been completed but work remains suspended until the prospecting right renewals have been granted.

Further information with respect to the Rooipoort property is given in Exhibits 14c, 14f and 14g.

Gold

Zimbabwe Exploration

The Corporation’s primary exploration activities in Zimbabwe are at the Blanket Mine, which are discussed in section 6.6 (Lima Haulage). Other than at Blanket Mine itself, Blanket’s current exploration title holdings in the form of registered mining claims in the Gwanda Greenstone Belt total 78 claims, including a small number under option, covering an area of about 2,500 hectares. Blanket’s main exploration efforts on its satellite properties are focused at this stage on the GG prospect and the Mascot Project Area which are believed to have the greatest potential of success and both of which are within an economic trucking distance of the Blanket plant.

Caledonia Mining Corporation

Drilling programs were carried out at GG over the past eight years. Seventeen diamond-cored holes were drilled amounting to 4,751 metres of drilling. Two zones of potentially economic gold mineralization have been established down to a depth of approximately 200m, each with a strike length of approximately 150 metres. A prospect shaft will be sunk down to a depth of 140 metres and underground development is planned at the 60m and 120m levels to expose the extent of the mineralization. During 2011 work was suspended pending ZESA’s connection of the project to the electricity grid. This connection was delayed due to ZESA’s inability to fund the equipment required for the connection. Blanket has now purchased the required equipment and provided financial assistance to ZESA so that it can complete the construction of this connection. ZESA expects to complete the GG sub-station by the end of the second quarter of 2012. In order to accelerate this project a shaft-sinking contractor has been appointed and a camp is currently being built to accommodate its staff. As soon as the ZESA connection is installed, the deepening of the existing prospect shaft can continue and underground development on the first and second levels will commence to expose the extent of the mineralization and to facilitate its evaluation, sampling and mine planning. Depending on the successful outcome of exploration work and mining development, it is intended that economic ore extracted would be trucked approximately 7km to the Blanket plant for processing.

The Mascot Project Area comprises three existing shafts (Mascot, Penzance and Eagle Vulture) which extend down to various depths of up to 450 metres. These shafts and other infrastructure are in need of extensive rehabilitation. Production at these shafts ceased decades ago due to a combination of political difficulties and the limitations of the technology that was then available. Blanket Mine Management believes that the application of modern exploration and processing techniques may allow some or all of these shafts to operate profitably for a period of time, and not just at the prevailing high gold price. Priority has been given to the rehabilitation and installation of infrastructure at Mascot and Eagle Vulture shafts. Work at Eagle Vulture has continued during the Quarter with one development crew. Work at Mascot was suspended due to the lack of a connection to the electricity grid. Blanket has now purchased the required equipment and provided financial assistance to ZESA so that it can complete the construction of this connection. Work on this connection has now commenced and ZESA expects to complete this work by the end of April 2012. Depending on the outcome of exploration work, it is intended that economic ore would be trucked a distance of approximately 40 km to the Blanket Mine plant for processing.

The Blanket Mine metallurgical plant has existing surplus treatment capacity and could immediately handle up to an additional 800 tonnes per day of ore without any further capital investment nor increased overheads.

Blanket is formulating an exploration and project development strategy to prioritize work on its other properties in the Gwanda area.

Outlook

The outlook for the aforementioned exploration properties is not possible to quantify. Exploration by its nature is speculative with a high degree of risk accompanied by the potential for high returns. The Corporation manages this risk by using well-qualified exploration professionals. Continuing lower prices for platinum group metals and reduced investor appetite for South African base metals has resulted in a severe contraction of exploration expenditures for platinum group metals by mining companies and could negatively affect the likelihood of the Corporation negotiating joint venture agreements for its wholly-owned PGE exploration properties.

The Corporation intends, where possible, to continue to focus its exploration activities of prospective properties by developing the properties through strategic alliances with other mining companies and metal producers.

The Zimbabwe economy continues to be depressed and Zimbabwe’s economic capacity may struggle to expand further. Pressure for unrealistic wage and price increases from labour and Zimbabwean suppliers continues. There is also continuing pressure for higher taxes, both from national and local government and Blanket has accepted increased supply tariffs from the state-owned electricity utility (ZESA) to secure a more reliable power supply. The resuscitation of the mining industry is a stated high priority of the Government as its ability to quickly generate foreign currency is of paramount importance, but blatant political manoeuvring may over take this. Notwithstanding these difficulties, and in the absence of any unforeseen changes to the operating and commercial environment, Blanket has now achieved sufficient critical mass and should be able to realise substantial economies of scale and an improvement in its cash-generative capacity.

However, the Government’s aim to foster the rapid regeneration of the Zimbabwean mining sector has been severely undermined by recent regulations and other pronouncements which seek to immediately enforce stringent indigenization requirements which will deter new investment into the Zimbabwean mining industry and result in a further contraction of the mining industry.

Caledonia Mining Corporation

General Comments

Caledonia’s activities are centered in Southern Africa. Generally, in the gold mining industry the work is not seasonal except where heavy seasonal rainfall can affect surface mining or exploration. Caledonia is not dependent, to any material extent, on patents, licenses, contracts, specialized equipment or new manufacturing processes at this time. However, there may be occasions that Caledonia may wish to adopt such patents, licenses, specialized equipment, etc. if these are economically beneficial to its operations.

All mining and exploration activities are conducted under the various Economic, Mining and Environmental Regulations of the country where the operations are being carried out. It is always Caledonia’s standard that these regulations are complied with by Caledonia. Otherwise its activities risk being suspended.

(C)	Organizational Structure - Subsidiaries

Caledonia Mining Corporation owns 100% of the shares of the following incorporated subsidiary companies:

	Zambia:	Barbados:

	- Caledonia Mining (Zambia) Limited	- Blanket (Barbados) Holdings Limited
	- Caledonia Western Limited	- Caledonia Holdings (Africa) Limited
	- Caledonia Nama Limited
	- Caledonia Kadola Limited

	South Africa:	Zimbabwe:

	- Eersteling Gold Mining Company Limited	- Blanket Mine (1983)(Private)( Limited)
	- Greenstone Management Services (Pty)Limited	- Caledonia Holdings Zimbabwe Limited
	- Fintona Investments (Pty) Ltd	- Caledonia Mining Services Limited
	- Maid O’Mist (Pty) Limited
	- Mapochs Exploration (Pty) Ltd

	England:	Panama:

	- Greenstone Management Services Limited	- Dunhill Enterprises Inc.

(D) Property, Plant and Equipment

(a) South Africa:

The Eersteling gold mine, indirectly owned by the Company through its ownership of 100% of the shares of Eersteling Gold Mining Company Limited, is essentially a fully equipped mine with all of the underground and surface equipment needed to conduct mining operations and the treatment and concentration of ore mined from the properties. Due to the lengthy period of care and maintenance at Eersteling there has been some deterioration in the facilities which will require rehabilitation work before operations can be recommenced. The underground workings at Eersteling were allowed to flood and will require dewatering before mining access can be resumed. Because the mine is on care and maintenance the Company has no plans to expend further amounts on plant or equipment for them or to in any way expand or improve the facilities.

The sale of Barbrook gold mine indirectly owned by the Company through its ownership of 100% of the shares of Barbrook Mines Limited was concluded on May 31, 2008.

(b) Zimbabwe:

The Blanket Mine, in Zimbabwe, which the Company indirectly owns through its ownership of 100% of the shares of Blanket Mine (1983) (Private) Limited, the owner and operator of the Mine. It is a fully equipped mine with all of the necessary plant and equipment to conduct mining operations and the production of gold from the ore mined from the Mine.

5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Caledonia Mining Corporation

A	Operating Results

The following information is given for the last two fiscal year-ends of the Corporation:

C$000’s except for earnings per share amounts.	December 31, 2011	December 31, 2010
Revenue from sales	55,705	22,388
Net income (loss) before income tax and discontinued operations :	20,594	2,497
Net Income (loss) before discontinued operations , after tax	12,130	1,455
Net income/(loss) per share - basic and diluted	$0.024	$0.003
Comprehensive Income (loss)	12,395	6
Total assets	52,402	38,159
Total long-term liabilities	7,822	7,050
Cash dividends declared per share	Nil	Nil

The Corporation achieved a gross operating profit of $ 29,115,000 for the year ($6,360,000 – 2010 ) on gold sales of 35,504 ounces (17,598 – 2010 ) at an average gold price of $1,577 ($1,273 – 2010).

Total gold production for the year was 35,826 ounces (17,707 – 2010).

Finance charges paid amounted to $217,000 ($267,000 – 2010) and were as a result of Blanket requiring borrowed funding.

During 2011, the Corporation invested $8,528,000 in capital assets and mineral properties ($7,304,000 in 2010). Of the amount invested in 2011, Blanket accounted for $5,768,000 ($6,706,000 - 2010), Nama accounted for $2,709,000 ($609,000 - 2010) and Rooipoort accounted for $30,000 ($37,000 - 2010).

The basic and diluted net income per share for 2011 was $0.024 ($0.003 in 2010). This has been calculated using a weighted average number of shares of 500,396,239 (500,169,280 in 2010).

As at December 31, 2011, the Corporation is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy.


	As at December 31, 2011	As at December 31, 2010
	$000	$000
Issued common shares	196,163	196,125
Contributed surplus	3,407	2,306
Other comprehensive income/(loss)	(1,134)	(1,399)
Deficit	(158,422)	(170,552)
Total	40,014	26,480

B. Trend Information

With the completion of the No. 4 Shaft expansion project, annual gold production will increase from the 2011 level of 35,826 ounces to approximately 40,000 ounces during 2012. It is anticipated that the employee headcount will increase to approximately 820 employees. The productions costs per ounce are therefore expected to reduce at above the 40,000 ounce production level as the fixed employment costs are amortized over higher monthly production volumes.

The Company does not have a hedging programme.

6. INVESTING

Caledonia Mining Corporation

FINANCING

Caledonia financed its operations, except Blanket, using funds on hand. No equity raisings programs took place in 2011. Caledonia’s operations will be financed from existing cash resources and dividend payments from Blanket. Blanket has a facility of US$2.5 million with its bank in Zimbabwe and had an outstanding balance of $430,000 ($747,000-2010) owing at the year end pursuant to such facility.

8.	LIQUIDITY AND CAPITAL RESOURCES

With the increase of production at Blanket, inventory levels of consumables, spares and gold in process have risen to $4,482,000 ($2,624,000 - 2010). Accounts payable levels of $3,841,000 ($3,882,000 - 2010) have increased accordingly with production. Blanket had $430,000 ($747,000 – 2010) of bank borrowing outstanding at the year end. The Rand Refinery payments continue to be cleared within the contracted period thereby assisting cash management.

Caledonia has potential liabilities to do rehabilitation work on the Blanket and Eersteling Mines - if and when those Mines are permanently closed - at an estimated current cost of $1,785,000 ($1,899,000 - 2010).

9. OFF-BALANCE SHEET ARRANGEMENTS

There are no off balance sheet arrangements.

10. CONTRACTUAL OBLIGATIONS

	Payments due by Period – in thousands of Canadian Dollars
	Within 1 Year	1-3 years	3-5 years	More than 5 years	Total
Short term debt	430,000		-	-	430,000
Trade and other payables	3,841,000		-	-	3,841,000
Asset retirement obligations	-	-	-	1,785,000	1,785,000

11. RELATED PARTY TRANSACTIONS

The Corporation had the following related party transactions measured at the exchange amount:

C$ 000s	2011	2010
Fees and allowances paid to a Corporation which provides the services of the Corporation's President and CEO	588	552
Rent for office premises paid to a company owned by members of the President’s family	48	49
Legal fees paid to a law firm where a Director is a partner	97	58
Fees, allowances and interest paid to the past Chairman of the Board	-	38

The Corporation has a management agreement with Epicure Overseas S.A. (“Epicure”), for management services provided by the President and CEO. The Corporation is required to pay a base annual remuneration and an expense allowance adjusted for inflation and bonuses as set out in the agreement. In the event of a change of control of the Corporation, Epicure can terminate the agreement and receive a lump sum payment equal to 200% of the remuneration for the year in which the change occurs.

These related party transactions were in the normal course of operations and are recorded at the exchange amount.

On January 1, 2005 the Corporation entered into an agreement with the Corporation’s former Chairman for services as the non-executive Chairman of the Board of Directors of the Corporation. This agreement was terminated in December 2010.

12 CRITICAL ACCOUNTING POLICIES

Caledonia Mining Corporation

The major areas where accounting estimates are made are asset impairment, asset retirement obligations, share based payments, future tax liabilities and functional currency. As significant impairment provisions have already been made against the assets, and there is a reasonable level of certainty around the estimates, it is considered unlikely that any change in estimates would result in a material impact on the results of Caledonia. The asset retirement obligations are also considered to be estimated with a reasonable degree of certainty, although the original estimations were calculated some years ago. The estimation for Blanket was recalculated before December 31, 2009. The estimations are accreted annually at rates between 1.7% and 5% and thus any change in circumstances is considered unlikely to have a material impact on the results of Caledonia or its operations.

A detailed description of the Company’s accounting policies is contained in Note 4 of the Company’s 2011 audited financial statements which are attached as Exhibit 14a.

The accounting policies set out in Note 4 of the Company’s 2011 audited financial statements been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at January 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated. The accounting policies have been applied consistently by the Group entities.

Recently issued accounting pronouncements issued and not yet effective.

Standard/Interpretation		Effective date
IFRS 7 amendment	Disclosures – Transfers of Financial Assets	Annual periods beginning on or after July 1, 2011
IFRS 9	Financial Instruments	Annual periods beginning on or after January 1, 2015
IFRS 10	Consolidated Financial Statements	Annual periods beginning on or after January 1, 2013
IFRS 11	Joint Arrangements	Annual periods beginning on or after January 1, 2013.
IFRS 12	Disclosure of Interests in Other Entities	Annual periods beginning on or after January 1, 2013
IFRS 13	Fair Value Measurement	Annual periods beginning on or after January 1, 2013
IAS 1 amendment	Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income	Annual periods beginning on or after July 1, 2012

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

The assessment of the impact of the above Standards and Interpretations is as follows:

Amendment to IFRS 7 Financial Instruments: Disclosures

The amendments to IFRS 7 will be adopted by Caledonia Mining Corporation for the first time for its financial reporting period ending December 31, 2012.

In terms of the amendments, additional disclosure will be provided regarding transfers of financial assets that are:

·	Not derecognised in their entirety and

·	Derecognised in their entirety but for which Caledonia Mining retains continuing involvement.

To the extent that Caledonia Mining concludes transactions which involve transfer of its financial assets, it will comply with the required disclosures.

IFRS 9 Financial Instruments

Caledonia Mining Corporation

IFRS 9 will be adopted by Caledonia Mining for the first time for its financial reporting period ending December 31, 2015. The standard will be applied retrospectively, subject to transitional provisions.

IFRS 9 addresses the measurement and classification of financial liabilities and will replace the relevant sections of IAS 39.

Under IFRS 9, the classification and measurement requirements of financial liabilities are the same as per IAS 39, except for the following two aspects:

fair value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair value through profit or loss that are attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed.

·	Under IFRS 9 (2010) derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, are measured at fair value.

IFRS 9 incorporates, the guidance in IAS 39 dealing with fair value measurement and accounting for derivatives embedded in a host contract that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives.

IFRS 9 may impact the current classification of financial assets from amortised cost to fair value. The current classification of financial liabilities is not expected to be impacted.

IFRS 10 Consolidated Financial Statements

IFRS 10 will be adopted by Caledonia Mining for the first time for its financial reporting period ending December 31, 2013. The standard will be applied retrospectively if there is a change in the control conclusion between IAS 27/SIC 12 and IFRS 10.

IFRS 10 introduces a single control model to assess whether an investee should be consolidated. This control model requires entities to perform the following in determining whether control exists:

·	Identify how decisions about the relevant activities are made,

·	Assess whether the entity has power over the relevant activities by considering only the entity’s substantive rights,

·	Assess whether the entity is exposed to variability in returns, and

·	Assess whether the entity is able to use its power over the investee to affect returns for its own benefit

Control should be assessed on a continuous basis and should be reassessed as facts and circumstances change.

IFRS 10 may result in certain subsidiaries no longer being consolidated or others to be consolidated under the new requirements.

IFRS 11 Joint Arrangements

IFRS 11, Joint Arrangements, establishes principles for financial reporting by parties to a joint arrangement. The IFRS is to be applied by all entities that are a party to a joint arrangement. It provides a new definition of joint arrangement focusing on the rights and obligations of the arrangement, rather than its legal form. The IFRS defines joint control as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities (i.e. activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control. IFRS 11 classifies joint arrangements into two types—joint operations and joint ventures, defines the two types, and requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement. IFRS 11 addresses the inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities. IFRS 11 supersedes IAS 21 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Nonmonetary Contributions by Venturers.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 will be adopted by Caledonia Mining for the first time for its financial reporting period ending December 31, 2013.

IFRS 12 combines, in a single standard, the disclosure requirements for subsidiaries, associates and joint arrangements, as well as unconsolidated structured entities.

The required disclosures aim to provide information to enable user to evaluate:

Caledonia Mining Corporation

·	The nature of, and risks associated with, an entity’s interests in other entities, and

·	The effects of those interests on the entity’s financial position, financial performance and cash flows.

The adoption of the new standard will increase the level of disclosure provided for the entity’s interests in subsidiaries, joint arrangements, associates and structured entities.

IFRS 13 Fair Value Measurement

IFRS 13 will be adopted by Caledonia for the first time for its financial reporting period ending December 31, 2013. The standard will be applied prospectively and comparatives will not be restated.

IFRS 13 introduces a single source of guidance on fair value measurement for both financial and non-financial assets and liabilities by defining fair value, establishing a framework for measuring fair value and setting out disclosures requirements for fair value measurements. The key principles in IFRS 13 are as follows:

·	Fair value is an exit price

·	Measurement considers characteristics of the asset or liability and not entity-specific characteristics

·	Measurement assumes a transaction in the entity’s principle (or most advantageous) market between market participants

·	Price is not adjusted for transaction costs

·	Measurement maximises the use of relevant observable inputs and minimises the use of unobservable inputs

·	The three-level fair value hierarchy is extended to all fair value measurements

Currently the impact on the financial statements for Caledonia is expected to be minimal as Caledonia Mining only has limited items measured at fair value.

Amendment to IAS 1 Presentation of Financial Statements

The amendment to IAS 1 will be adopted by Caledonia Mining for the first time for its financial reporting period ending December 31, 2013.

The company will present those items of other comprehensive income that may be reclassified to profit or loss in the future separately from those that would never be reclassified to profit or loss. The related tax effects for the two sub-categories will be shown separately.

This is a change in presentation and will have no impact on the recognition or measurement of items in the financial statements.

This amendment will be applied retrospectively and the comparative information will be restated.

Additional amendments are of a presentation nature and will not have a significant impact on the Company’s financial statements.

13. FINANCIAL RISK EXPOSURE AND RISK MANAGEMENT

The Corporation 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 Corporation 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 Corporation’s Audit Committee oversees management’s compliance with the Corporation’s financial risk management policy.

The fair value of the Corporation’s financial instruments approximates their carrying value unless otherwise noted. The types of risk exposure and the way in which such exposures are managed are as follows:

Caledonia Mining Corporation

(a) Currency Risk

As the Corporation operates in an international environment, some of the Corporation’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar, mainly the South African Rand and the US$. The results of the Corporation’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Corporation are reported in Canadian dollars in the Corporation’s consolidated financial statements.

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

As noted below, the Corporation has certain financial assets and liabilities denominated in foreign currencies. The Corporation does not use any derivative instruments to reduce its foreign currency risks.

Below is a summary of the cash or cash equivalents denominated in a currency other than the Canadian dollar that would be affected by changes in exchange rates relative to the Canadian dollar. The values are the Canadian dollar equivalent of the respective asset or liability that is denominated in a currency other than the Canadian dollar.

C$‘000s	2011	2010
Cash	9,210	1,067
Bank overdraft	(430)	(747)
Accounts Receivable Receivable	3,474	2,302
Accounts payable	(3,413)	(3,474)

(b) Interest Rate Risk

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

Unless otherwise noted, it is the opinion of management that the Corporation is not exposed to significant interest rate risk as it is debt free apart from short term borrowings utilized in Zimbabwe. The Corporation’s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Corporation manages its interest rate risk by endeavouring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Corporation’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions.

Cash held in foreign banks is subject to the interest rates ruling in those particular countries and this can have an effect on the results of the Corporation due to higher interest rates being paid in African countries compared to Canada. At December 31, 2011 cash held in interest bearing accounts amounted to $9,686,000 ($1,145,000 - 2010) and short term borrowings in Zimbabwe were $430,000 ($747,000 – 2010). At December 31, 2011, with all other variables unchanged, a 1% increase in interest rates would result in an increase of interest (income)/expense of ($93,000) (($4,000 – 2010).

Fluctuations in market interest rates have not had a significant impact on the Corporation’s results of operations.

Credit risk is the risk of a financial loss to the Corporation if a gold sales customer fails to meet its contractual obligation. Current gold sales are made to Rand Refineries in South Africa and the payment terms stipulated in the service delivery contract have been adhered to in all instances. There are no plans to change the existing relationship with Rand Refineries.

(d) Liquidity Risk

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

The Corporation manages its liquidity by ensuring that there is always sufficient capital to meet its estimated cash requirements, after taking into account cash flows from operations and the Corporation’s holdings of cash and cash equivalents. The Corporation 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.

Caledonia Mining Corporation

The Zimbabwean operations are now covered for Public Liability risk, assets all risk and Comprehensive cover on all motor vehicles.

(e) Commodity Price Risk

The value of the Corporation’s mineral resource properties is related to the price of gold, platinum and cobalt, and the outlook for these minerals. In addition, adverse changes in the price of certain key or high cost operating consumables can significantly impair the Corporation’s cash flows.

Gold prices historically have fluctuated widely and are affected by numerous factors outside of the Corporation's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and macro-economic variables, and certain other factors related specifically to gold. Recent $US gold price movements have been ascending but the effect of devaluation of the US$ against the Canadian $ and the South African Rand has mitigated against the higher US$ gold price.

Caledonia has not hedged any of its past or future gold sales.

14. CAPITAL MANAGEMENT

The Corporation’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue its mining operations and exploration potential of its mineral properties.

The Corporation’s capital includes short-term debt, long-term debt and equity, comprising issued common shares, contributed surplus, accumulated deficit and accumulated other comprehensive income.

The Corporation’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its ongoing operations, to provide returns for shareholders, accommodate any asset retirement obligation and to pursue growth opportunities.

In order to fund and maximize ongoing exploration efforts, the Corporation does not pay dividends.

15.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A	Directors and Senior Management

A brief profile of each of the Directors and the senior management is given below:

Carl Jonsson, LL B- Chairman, Director, Secretary and legal adviser to Caledonia

Mr. Jonsson is a lawyer and has been associated with the resource industry for over 40 years. In his legal practice he has specialized in securities and corporate work. He has been a director of Caledonia since February 1992 and prior to that date he was a director of one of its predecessor companies. Mr. Jonsson resides in Vancouver, British Columbia, Canada and is a principal of the law firm Tupper, Jonsson and Yeadon. Mr. Jonsson acts as the Company’s principal Canadian lawyer. Mr. Jonsson sits on the board of directors of several public companies in Canada.

Stefan E. Hayden, Director, President and Chief Executive Officer

Mr. Hayden has extensive experience as a company manager in South Africa. Initially he founded, developed and managed an engineering company that manufactured flameproof mining machinery. He followed this by managing a company holding the Massey Ferguson franchise in the Transvaal and the Orange Free State and returned it to profitability for the then owners Standard Corporate Merchant Bank. He then founded and managed the South African agency for heavy electrical equipment sales and installations for Toshiba Corporation of Japan. He has been Managing Director of Industrial Brokers, a family company specializing in the procurement of steel and mining machinery, since 1971 and continues in this position.

Caledonia Mining Corporation

With his wide managerial, electrical and mechanical, and mining experience Mr. Hayden has acted as technical advisor to numerous mines and companies in Southern Africa. Prior to the Caledonia acquisition, Mr. Hayden as the Chief Executive Officer of Eersteling Gold Mining Company Limited and Barbrook Mines Limited was responsible for both operations. He joined Caledonia in 1995 and was appointed Managing Director, African Operations responsible for the development of Caledonia’s business in Africa. In June 1996, Mr. Hayden was elected as a Director of Caledonia and subsequently appointed Deputy Chairman of Caledonia. In January 1997 he was appointed Chairman of Caledonia and in June 1997 the position of President and Chief Executive Officer was added to his responsibilities. In February 2005 he resigned as Chairman.

James Johnstone, B.Sc., ARCST, P.Eng., Director

A graduate-mining engineer Mr. Johnstone has 40 years experience in mine operations in North America, Africa and Europe. He has experience in both underground and open pit operations. For the 20 years prior to his retirement he was employed as General Manager or Vice-President Operations for mining companies producing gold, base metals and industrial minerals. Mr. Johnstone has been responsible for the construction, start up and commissioning of two major mines in addition to the commissioning of Caledonia's Filon Sur operation. He has also been involved in the orderly closure of three operations. He has operated successfully in environmentally sensitive areas and has a good understanding of the permitting process in Canada and the United States. Mr. Johnstone joined Caledonia in April 1997 as Vice President Operations and was responsible for Caledonia's operations in Zambia and South Africa and for all activities in Canada. He was elected a Director of Caledonia in June 1997. He retired from active employment with Caledonia in September, 2006.

Christopher Harvey, LRIC, HNC (Chem.), Director

A Chemistry graduate from Wigan Mining College, Mr. Harvey has spent his career in the international mineral processing industry. Prior to immigrating to Canada in 1987 he worked for the Anglo American Group in a number of senior metallurgical positions. These included projects associated with gold and copper/cobalt production, gold, uranium and sulfuric acid production. Mr. Harvey joined Doelcam, a predecessor company of Caledonia in 1989 as Vice-President Operations and was responsible for a number of property evaluations in several countries. He was appointed Senior Vice President of Caledonia at its inception in 1992 and has been a Director since 1993. He has since held a number of senior positions within the company and was the company's Technical Director until December 2005 when he retired. He continues as a Director of Caledonia. From late 1996 to the end of September 1998, Mr. Harvey was seconded to Filon Sur in Spain for the construction, commissioning and ongoing operation of the expansion to the heap-leach expansion project. He has also coordinated metallurgical studies for most of the company's projects, such as the Nama copper/cobalt project, the Eureka copper/gold project and the Kadola copper project in Zambia, Barbrook gold mine refractory gold recovery project and the provisional Rooipoort platinum project in South Africa and the Cononish gold project in Scotland.

Steven Curtis, CA(SA) – Director,Vice-President Finance and Chief Financial Officer

Mr. Curtis is a Chartered Accountant with over 24 years experience and has held a number of senior financial positions in the manufacturing industry. Before joining Caledonia in April 2006, he was Director Finance and Supply Chain for Avery Dennison SA and prior to this, Financial Director and then Managing Director of Jackstadt GmbH South African operation. Mr. Curtis is a member of the South African Institute of Chartered Accountants and graduated from the University of Cape Town.

Mr. Curtis was appointed Vice-President Finance and Chief Financial Officer of the Company in April, 2006.

Robert W. Babensee – Director

Mr Babensee is based in Toronto, Ontario, Canada and joined Caledonia’s Board in October 2008. He has been a member of the Institute of Chartered Accountants of Ontario, Canada since 1968.

From 1984 until his retirement in 2004, he was a partner of the Canadian accounting firm BDO Dunwoody LLP as an assurance specialist. He served as Chief Financial Officer for Golden China Resources Corporation, a natural resource company, between February 2005 and July 2006.

Mr Babensee was formally a non-executive Director and a member of the audit, compensation and nominating committees of Apollo Gold Corporation (now Brigus Gold Corporation), which is listed on the Toronto, New York and American Stock Exchanges whose business focus is on gold exploration, development and production in North America and has gold exploration, development and producing assets in Canada, the USA and Mexico.

Caledonia Mining Corporation

Dr. Trevor Pearton – Vice President Exploration

Dr. Pearton has worked for Caledonia since 2001. During the time, he was responsible for the establishment and management of the resource bases at the Blanket Mine (operating) and the Barbrook and Eersteling Mines (now on care and maintenance) and the assessment of the Nama project, resulting in a reinterpretation of the ore body and an improved definition of the resources and mineralogical characteristics. This work provided the basis for the 2007 (completed) and the 2008 exploration programs. Prior to joining Caledonia, Dr. Pearton worked for a number of financial institutions in South Africa as a highly rated gold analyst, as well as consulting to a number of mining companies. He graduated from the University of the Witwatersrand with a BSc Eng (Mining Geology) and was awarded a PhD in Geology for research into Archaean gold and antimony deposits (Witwatersrand University). He is a member of the Geological Society of South Africa; elected a Fellow of the Society in 2004, a member of the South African Institute for Mining and Metallurgy and a member of the Witwatersrand University Mining Engineers Association.

Mark Learmonth - Vice President, Corporate Development and Investor Relations

Mr Learmonth joined Caledonia in July 2008. Prior to this, he was a Division Director of Investment Banking at Macquarie First South in South Africa, and has over 17 years experience in corporate finance and investment banking, predominantly in the resources sector. Mr Learmonth graduated from Oxford University and is a chartered accountant.

Caxton Mangezi – General Manager Blanket Mine

Mr Mangezi who holds a Certificate in geology and survey, a Miner’s Ticket, and a Mine Manager’s Diploma, joined Blanket Mine in February 1969 as a sampler progressing to mine survey and geological technician. He switched to mining as a Learner Mine Official graduating in 1974 and was appointed to the position of overseer miner. He continued to rise through the ranks to the position of Underground Manager in 1981 and was appointed Resident Manager in 1988 and then General Manager/ Director in 1993 the position he still holds today.

Arrangements, Understandings, etc.

To the best knowledge of Caledonia, there are no arrangements or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person referred to above, was selected as a director or member of senior management.

B. Compensation

The amount of compensation paid, and benefits in kind granted to Caledonia’s directors who are also senior management is given under the "Summary Compensation Table" in the 2011 Information Circular attached as Exhibit # 14b, incorporated herein by reference.

A $25,000 fee is paid to each director annually.

A $5,000 fee is also paid to the Directors who comprise Caledonia’s Audit Committee – and the Chairman is paid a further $5,000.

The Company has a Stock Option Plan pursuant to which it grants options to directors, offices and key employees from time to time. The numbers of shares covered by the various options granted are determined by the Company’s Compensation Committee subject to approval by the Board of Directors. One hundred percent (100%) of the share purchase options which are presently outstanding are in favour of directors, offices and key employees of the Company and, in some cases, its subsidiaries, and providers of services to the Company or its subsidiaries.

Caledonia does not have a bonus or profit-sharing plan. Caledonia does not have a pension, retirement or similar benefits scheme.

C Board Practices

The directors all hold their positions for an indefinite term, subject to re-election at each annual general meeting of the shareholders. The officers hold their positions subject to being removed by resolution of the Board of Directors. The term of office of each Director expires as of the date that an Annual General Meeting of the shareholders is held - subject to the re-election of the Directors at such Annual General Meeting.

Caledonia Mining Corporation

There are no service contracts between Caledonia and any of the Directors of Caledonia or its subsidiaries except for (i) a "Key Executive Severance Protection Plan" between Caledonia and its President dating from 1996, and (ii) the indirect employment of Caledonia’s president and CEO through a management and administrative agreement. The Corporation has Appointment Letters with each of the other directors; there is no allowance for any termination benefit in these agreements.

Details concerning Caledonia’s Board Composition, Audit, Compensation, Nominating, Disclosure and Corporate Governance committees are given in the 2011 Information Circular attached as Exhibit #14b.

The following persons – all of whom are Directors – comprise the following committees:

Audit	Compensation	Governance	Nominating	Disclosure
R W Babensee	R W Babensee	S E Hayden	S E Hayden	S E Hayden
F C Harvey	C Jonsson	C Jonsson	C Jonsson	C Jonsson
J Johnstone				S R Curtis

Terms of reference of the Audit Committee are given in the Charter of the Audit Committee. The Charters of Company Committees are available on the Company’s website at www.caledoniamining.com or, on request, from the Company’s offices listed in Section 4A of this report.

D Employees – of Caledonia and its subsidiaries

The average, approximate number of employees, their categories and geographic location for each of the last 5 years are summarized in the table below:

Geographic Location and Number of Employees:

Employee Location etc.	2007		2008		2009		2010		2011
Total Employees
South Africa (African Office)		7		9		8		10		10
Zimbabwe		700		500		750		794		856
South Africa (Mine Security and Operations and Exploration)		1		-		2		1		1
Zambia (Head Office and Security)		8		8		8		8		8
Total Employees at all Locations		715		517		768		813		875

Management and Administration:
Employee Locations:	2007		2008		2009		2010		2011
Canada		-		-		-		-		-
Zimbabwe		4		4		9		30		30
South Africa (African Office)		6		7		7		7		7
South Africa (Exploration and Operations)		1		1		2		2		2
Zambia (Head Office and Security)		4		4		4		4		4
Total Management and Administration		15		15		22		43		43

Caledonia Mining Corporation

E Share Ownership

(a) The direct and indirect shareholdings of the Company’s Directors and Officers are as follows:

Stefan Hayden	-	4,380,000
F. Christopher Harvey	-	1,204,300
Carl R. Jonsson	-	559,469
TOTAL	-	6,143,769

All of the shares held by the Directors are voting common shares and do not have any different voting or other rights than the other outstanding common shares of the Company. Their aggregate shareholdings amount to 1.21% of the Company’s issued shares.

(b)

Share purchase options outstanding as of April 30, 2012:

Name	Exercise Price C$	Expiry Date	Number of Options
FC Harvey	0.07	18 March, 2013	400,000
FC Harvey	0.13	31, January, 2016	1,600,000
SE Hayden	0.07	18 March, 2013	6,000,000
SE Hayden	0.13	31, January, 2016	3,000,000
J Johnstone	0.07	18 March, 2013	400,000
J Johnstone	0.13	31, January, 2016	1,600,000
C Jonsson	0.07	18 March, 2013	1,000,000
C Jonsson	0.13	31, January, 2016	1,600,000
A Lawson	0.07	29 April, 2014	60,000
A Lawson	0.07	18 March, 2013	75,000
A Lawson	0.13	31, January, 2016	75,000
T Pearton	0.07	29 April ,2014	150,000
T Pearton	0.07	18 March, 2013	400,000
T Pearton	0.13	31, January, 2016	250,000
SR Curtis	0.07	11 May, 2016	300,000
SR Curtis	0.07	31 May, 2012	400,000
SR Curtis	0.07	18 March, 2013	2,300,000
SR Curtis	0.13	31, January, 2016	2,500,000
Caledonia Holdings Africa(1)	0.07	31 May, 2012	900,000
Caledonia Holdings Africa(1)	0.07	18 March, 2013	600,000
Caledonia Holdings Africa(1)	0.13	31, January, 2016	2,075,000
R Babensee	0.07	23 March, 2014	500,000
R Babensee	0.13	31, January, 2016	1,750,000
Dr P Maduna	0.07	18 March, 2013	300,000
Dr P Maduna	0.13	31, January, 2016	100,000
M Kater	0.07	18 March, 2013	75,000
M Kater	0.13	31, January, 2016	75,000
M Learmonth	0.07	1 July, 2013	1,000,000
M Learmonth	0.13	31, January, 2016	1,500,000
A Pearton	0.07	18 March, 2013	100,000
A Pearton	0.13	31, January, 2016	75,000
Edmund Merringer	0.07	18 March, 2013	70,000
J Liswaniso	0.07	18 March, 2013	100,000
J Liswaniso	0.13	31, January, 2016	100,000
A Tang	0.07	18 March, 2013	250,000
S Smith	0.13	31, January, 2016	60,000
P Human	0.13	31, January, 2016	100,000
TOTAL			31,840,000

(1) The options granted to Caledonia Holdings (Africa) Limited – a subsidiary of Caledonia – are for the benefit of certain employees of a subsidiary of Caledonia.

Caledonia Mining Corporation

16.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Significant shareholders

To the best of Caledonia's knowledge, as of December 31, 2011 there are two known shareholders that beneficially own, directly or indirectly, or exercises control or direction over more than 5% of the voting shares of Caledonia – being Epicure Overseas SA of Panama, which is believed to control 29,470,667 (5.82%) shares of the Company and Pinetree Resource Partnership which is believed to control 50,593,000 (10.0%) shares of the Company

The only shares issued by Caledonia are common shares. All shareholders have the same voting rights as all other shareholders of Caledonia.

To the best of the knowledge of Caledonia, based on information in its Share Register, the portion of the common shares of Caledonia is held in the following geographic locations:

Geographic Area	Number of Shares Held	Percentage of Issued Shares
Canada	396,602,902	79.35
USA	93,343,931	18.51
Other	10,602,470	2.14

There are 1,830 recorded holders of the Company’s issued shares.

Caledonia is not, to the best of its knowledge, directly or indirectly owned or controlled by another corporation or corporations, by any other natural or legal person or persons severally or jointly or by any foreign government.

Caledonia is not aware of any arrangement, the operation of which may at some subsequent date result in a change of control of Caledonia.

The foregoing information in this paragraph 15 is based exclusively on information with respect to recorded shareholders in the Company’s shareholders register. The Company does not have actual information available as to who may be the beneficial owners of the Company’s issued shares and, specifically, does not know who are the beneficial owners of the shares registered in two large intermediaries.

B	Related party transactions

During 2011 the Company made payments pursuant to what are designated as related party transactions. Details are provided in Note 26 to the 2011 Annual Financial Statements attached as Exhibit 14.a

There were no loans outstanding as at December 31, 2011 to any Company directors, officers or employees.

17.	FINANCIAL INFORMATION

A	Consolidated Statements and Other Financial Information

Attached as Exhibit 14a is the 2011 audited Consolidated Annual Financial Statements of Caledonia, which are incorporated herein by reference.

The 2011 consolidated financial statements have been audited by BDO Canada LLP and comprise the following:

Independent Auditor’s Report

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of cash flows

Notes to the consolidated financial statements

Caledonia has no significant ongoing legal or arbitration proceedings at December 31, 2011.

To the best knowledge of Caledonia, neither any of its directors or senior management or its affiliates is a party adverse to Caledonia or its subsidiaries, or has a material interest adverse to Caledonia or its subsidiaries.

The Company has never paid or declared any dividends.

Caledonia Mining Corporation

18.

LISTINGS

Caledonia’s stock trades on the Toronto Stock Exchange under the symbol "CAL" on the NASDAQ Stock Exchange’s "Over-the-counter Bulletin Board" under the symbol "CALVF" and since June 2005 on the AIM market in London, England under the symbol “CMCL”

The trading history is as follows:

(a)	5 Year Market Trading Record - for the following calendar years:

Stock Exchange	2007			2008			2009			2010			2011
TORONTO ($Cdn.)
High		0.23			0.20			0.095			0.17			0.145
Low		0.09			0.03			0.05			0.055			0.065
Volume (1000s)		105,226			119,534			99,885			77,420			37,313
NASDAQ/OTCQX(US$)
High		0.20			0.205			0.084			0.16			0.158
Low		0.07			0.03			0.045			0.052			0.063
Volume (1000s)		187,988			170,944			79,107			59,282			54,098
LONDON
(UK pence)
High		9.0	p		10.0	p		6.2	p		9.5	p		9.9	p
Low		4.09	p		2.5	p		2.5	p		3.5	p		4.5	p
Volume (1000s)		8,530			2,099			1,031			1,068			6,579

(b)	2 Year Market Trading Record by Quarter for the last 8 quarters – ending March 31, 2012

Stock Exchange	London AIM						TSE				NASDAQ
Share Price	High			Low			High		Low		High		Low
2010 - 2nd Qtr		4.8	p		4.1	p	$	0.07	$	0.06	$	0.075	$	0.053
2010 - 3rd Qtr		4.8	p		3.5	p	$	0.07	$	0.055	$	0.07	$	0.052
2010 - 4th Qtr		9.5	p		4.8	p	$	0.17	$	0.07	$	0.16	$	0.07
2011 - 1st Qtr		9.99	p		7.1	p	$	0.145	$	0.115	$	0.158	$	0.124
2011 – 2nd Qtr		8.75	p		6.0	p	$	0.14	$	0.09	$	0.151	$	0.101
2011 – 3rd Qtr		6.75	p		5.5	p	$	0.11	$	0.07	$	0.118	$	0.072
2011 – 4th Qtr		7.75	p		4.75	p	$	0.13	$	0.06	$	0.121	$	0.063
2012 – 1st Qtr		8.75	p		5.88	p	$	0.13	$	0.08	$	0.125	$	0.084

Caledonia Mining Corporation

(c)	6 Month Market Trading Record by Month – October 2011 to March 2012

Stock Exchange	London AIM						TSE				NASDAQ/OTCQX(1)
Share Price	High			Low			High		Low		High		Low
October 2011		6.6	p		5.5	p	$	0.09	$	0.07	$	0.089	$	0.063
November 2011		8.0	p		5.3	p	$	0.13	$	0.08	$	0.1209	$	0.088
December 2011		7.0	p		6.0	p	$	0.115	$	0.08	$	0.114	$	0.084
January 2012		8.8	p		5.5	p	$	0.13	$	0.08	$	0.125	$	0.084
February 2012		8.3	p		6.3	p	$	0.14	$	0.11	$	0.125	$	0.11
March 2012		7.9	p		5.9	p	$	0.11	$	0.08	$	0.12	$	0.09

(1)	The figures shown are a combination of the trading figures in the U.S. on NASDAQ – and on the OTCQX on which the Company’s shares commenced trading on October 10, 2011.

19.	ADDITIONAL INFORMATION

A	Memorandum and Articles

Copies of the Memorandum and Articles of Caledonia may be obtained upon request being made to one of Caledonia’s offices shown in section 4A of this document.

B	Material contracts

There are no material contracts other than contracts entered into in the ordinary course of business that create obligations.

C	Exchange controls

There are no governmental laws, decrees or regulations existing in Canada (where Caledonia is incorporated), which restrict the export or import of capital, or the remittance of dividends, interest or other payments to non-resident holders of Caledonia's securities. Nor does Canada have foreign exchange currency controls. Nor do any such restrictions exist in Zimbabwe.

Taxation

To the best of Caledonia's knowledge, there are no taxes or similar levies which holders of Caledonia's shares resident in the United States are subject to. However, Caledonia understands that pursuant to a Canada - U.S. tax treaty, any dividends which Caledonia might declare will be subject to such Canadian withholding taxes as the then current provisions of the treaty may require.

E	Documents on display

The documents referred to in this report are either attached as “Exhibits” to this report or can be viewed at Caledonia’s offices whose addresses are given in section 4 of this report – or can be viewed on the Company’s website: www.caledoniamining.com.

F	Subsidiary information

Caledonia Mining Corporation

To the best knowledge of Caledonia there is no other information related to Caledonia's subsidiaries that requires to be provided.

20	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As Caledonia is considered to be a “small business issuer” as defined, information is not required to be provided for this section.

21	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Caledonia has no outstanding – nor is it registering any – securities other than its common shares.

PART 2

22	DEFAULTS, DIVIDEND ARREARAGES and DELINQUENCIES

There have been no material defaults in the payment of interest or principal or any dividend arrearages or material delinquencies.

23	MATERIAL MODIFICATIONS to the RIGHTS of SECURITY HOLDERS and USE OF PROCEEDS

There has been no material modification to the rights of Caledonia's or subsidiaries security holders.

24 CONTROLS AND PROCEDURES

a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, and assessed the design of the Company’s internal control over financial reporting as of December 31, 2011. As required by Rule 13(a)-15 under the Exchange Act, in connection with this annual report on Form 20-F, under the direction of our Chief Executive Officer, we have evaluated our disclosure controls and procedures as of December 31, 2011, and we have concluded our disclosure controls and procedures were ineffective and that certain disclosable material weaknesses existed, as at December 31, 2011 as disclosed below.

Based on that evaluation the CEO and CFO have determined that the Company still has insufficient personnel to ensure appropriate segregation of duties within the Financial Reporting and Review Process. Specifically, the responsibilities assigned to the Company’s CFO include substantially all financial statement and note creation functions. No additional personnel in the Company, apart from the members of the Audit Committee, perform functions at a level of precision and involvement that would adequately prevent or detect material misstatements on a timely basis. As an additional result of the insufficient personnel the Company did not maintain formal policies and procedures regarding end-user computing control over the access to, completeness, accuracy, validity, and review of, certain spreadsheet information that supports the financial reporting process.

Management has concluded that, despite the lack of segregation of duties and computing controls, a material misstatement in financial reporting is not a “reasonable possibility” (as defined in applicable SEC guidance). The Blanket Mine (which is operated by the Company’s wholly owned subsidiary Blanket Mine (1983) (Private) (Limited) is the Company’s only operating mine and preparation of its operating results are performed by the CFO of the subsidiary and an accounting team in Zimbabwe. These results are reviewed by Company management and then incorporated into the consolidated financial statements of the Company.

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

Caledonia Mining Corporation

(b) Management’s annual report on internal control over financial reporting (“ICFR”)

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting by the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Corporation's President and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. Management of the Corporation, with the participation of the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as at December 31, 2010 as required by Canadian securities laws pursuant to the certification requirements of Multilateral Instrument 52-109.

The Corporation's internal controls over financial reporting (“ICFR”) are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable IFRS.

Because of its inherent limitations, the Corporation's ICFR may not prevent or detect any or all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Corporation has engaged independent consultants to carry out an assessment of the effectiveness of its internal controls over financial reporting using an internationally acceptable framework. Prior to this engagement, management concluded that the following disclosable material weakness existed and still exist as at December 31, 2011.

Based on the above and having carried out a review of the independent consultants report on the effectiveness of the Corporation's internal controls over financial reporting, management concluded that our internal control over financial reporting was not effective as of December 31, 2011, due to the existence of material weakness as described in greater detail below.

Segregation of duties

Due to limited personnel resources at the Corporation’s Africa office in Johannesburg, adequate segregation of duties within the accounting group was not achieved. This created a risk that inaccurate entries could be made and not identified or corrected on a timely basis. The result is that the Corporation was highly reliant on the performance of mitigating procedures during its financial close processes in order to ensure the financial statements are presented fairly in all material respects. The Corporation continues to enhance and monitor this process to ensure that its financial accounting reporting system is able to prevent and detect potentially significant errors.

Additional accounting staff have been recruited to the Corporation’s Africa office in Johannesburg and the Blanket Mine in Zimbabwe. This has improved but not entirely eliminated the deficiency in the segregation of duties and lightened the work load of existing staff and improved control of the accounting function.

Management has concluded, and the Audit Committee has agreed that the hiring of additional staff to correct segregation of duties weakness and excessive workloads need to be addressed at this time. There have been no changes in the Corporation’s internal controls over financial reporting since the year ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

Caledonia Mining Corporation

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

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this Annual Report.

(d) Changes in internal controls over financial reporting.

There were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting. See also the information given in section 5A with respect to critical accounting policies.

25A Audit Committee Financial Expert

(a)

Caledonia’s Board of Directors has determined that the three members of its Audit Committee are all financially literate and one of the members can be considered to be an expert.

(b)

The financial expert serving on the audit committee is Mr. Robert W. Babensee. Mr. Babensee, and Messrs. F.C Harvey and J. Johnstone are all independent directors under the NASDAQ rules.

25B Code of Ethics

(a)

On April 8, 2004 the registrant’s Board of Directors adopted a code of ethics that applies to the registrant’s Chief Executive Officer, Chief Financial Officer, principal accounting officer or controller, or persons performing similar functions.

(b)

The registrant has filed a copy of this code of ethics that applies to the registrant’s Chief Executive Officer, Chief Financial Officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics was filed as Exhibit 1 to the 2003 Form 20F Annual Report and is incorporated herein by reference. It has not been amended.

(c)

The text of this code of ethics has been posted on the Company website at http://www.caledoniamining.com

25C Fees charged by principal auditors

(a)	The fees charged or estimated for the past two fiscal years for auditing and the other services by the Company’s auditors have been:

	2011 $-Cdn.		2010 $-Cdn.
Audit fees		261,540		181,772
Audit – related fees		62,000		17,800
Tax fees		-		-
All other fees		-		-
TOTAL		323,540		199,572

Caledonia Mining Corporation

(b)

Prior to the start of the audit process, Caledonia’s Audit Committee receives an estimate of the costs, from its auditors and reviews such costs for their reasonableness. After their review and pre-approval of the fees, the Audit Committee recommend to the board of directors to accept the estimated audit fees given by the auditors.

25D Exemptions from the Listing Standards for Audit Committees

Nil.

25E Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases made by or on behalf of the issuer or any “affiliated purchaser“ of shares or other units of any class of the issuer’s equity securities that are registered by the issuer pursuant to section 12 of the Exchange Act.

PART 3

26. FINANCIAL STATEMENTS

The audited consolidated financial statements and related notes of Caledonia at December 31, 2011 and 2010 are attached as Exhibit 14a by reference.

27.	FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. These are the Group’s first consolidated financial statements prepared in accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Group is provided in note 30.

28. EXHIBITS

The following are attached to and form part of this

Statement and are incorporated herein by reference:

12. Certifications Pursuant to Rule 13a-14(a)(17CFR240.13a-14(a) or Rule 15d-14(a)(17CFR240.15d-14(a).

13. A Certification Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14.a Caledonia Mining Corporation, 2011 Consolidated Annual Audited Financial Statements.

14.b Proxy and Information Circular

14.c Mineral Properties.

14.d Summary of Report on Nama Property

14.e Summary of Report on Blanket Mine Property

14.f Summary of Report on Rooipoort property

14.g Property and Claims Information with respect to the Blanket, Nama and Rooipoort properties

Caledonia Mining Corporation

SIGNATURE

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amended Annual Report on its behalf.

DATED at Johannesburg, South Africa, on the 30th day of April, 2012.

CALEDONIA MINING CORPORATION

Per: (Signed) Stefan Hayden

President, Chief Executive Officer and Director

Caledonia Mining Corporation

EXHIBIT #12

CALEDONIA MINING CORPORATION

CERTIFICATIONS

Caledonia Mining Corporation

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stefan E. Hayden, certify that:

1. I have reviewed this annual report on Form 20-F of Caledonia Mining Corporation (the “Company”).

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company, and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the company’s internal control over financial reporting; and

5.	The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent function);

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

Any, fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 30, 2012 (signed) S.E. Hayden

President and Chief

Executive Officer

Caledonia Mining Corporation

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I Steven Curtis, certify that:

1. I have reviewed this annual report on Form 20-F of Caledonia Mining Corporation (the “Company”).

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the Company’s internal control over financial reporting; and

5.	The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function);

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

Any, fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 30, 2012 (signed) Steven Curtis

Vice- President Finance and Chief

Financial Officer

Caledonia Mining Corporation

EXHIBIT #13

CALEDONIA MINING CORPORATION

Certifications Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Caledonia Mining Corporation

Exhibit 13a

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Caledonia Mining Corporation (the “Company”) for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, Stefan E. Hayden, President and Chief Executive Officer of Caledonia , certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

By: (signed) S. E. Hayden

Stefan E. Hayden, President and Chief Executive Officer

Caledonia Mining Corporation

Date: April 30, 2012

A signed original of this written statement required by Section 906 has been provided by Stefan E. Hayden and will be retained by Caledonia Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Caledonia Mining Corporation (the “Company”) for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, Steven Curtis, Vice President Finance and Chief Financial Officer of Caledonia , certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1 The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

By: (signed) Steven Curtis

Steven Curtis, Vice President Finance and Chief Financial Officer

Caledonia Mining Corporation

Date: April 30, 2012

A signed original of this written statement required by Section 906 has been provided by Steven Curtis and will be retained by Caledonia Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Caledonia Mining Corporation

EXHIBIT #14a

CALEDONIA MINING CORPORATION

2010 ANNUAL AUDITED CONSOLIDATED FINANCIAL

STATEMENTS

Caledonia Mining Corporation

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION

To the Shareholders of Caledonia Mining Corporation:

Management has prepared the information and representations in this annual report. The consolidated financial statements of Caledonia Mining Corporation (“Company”) have been prepared in conformity with International Financial Reporting Standards (“IFRS”) 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.

Financial information used elsewhere in the Annual Report is consistent with that in the consolidated financial statements. The Management Discussions and Analysis (MD&A) also includes information regarding the impact of current transactions and events, sources of liquidity and 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 Company maintains adequate systems of internal accounting and administrative controls, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced. Our independent auditor has the responsibility of auditing the annual consolidated financial statements and expressing an opinion on them.

Management have concluded that as a result of the relatively small size of the Company’s head office finance department personnel, the Internal Controls over Financial Reporting (“ICFR”) assessment concluded that there were limited resources to adequately segregate duties and to permit or necessitate the comprehensive documentation of all policies and procedures that form the basis of an effective design of ICFR.

In order to mitigate the risk of material misstatement in the Company’s consolidated financial statements, the Company implemented additional cash flow review and monitoring controls at head office on a monthly basis and as part of their monitoring and oversight role the Audit Committee performs additional analysis and other post-closing procedures. No material exceptions were noted based on the additional year end procedures and no evidence of fraudulent activity was found.

The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The Audit Committee is composed of three unrelated 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 on behalf of the shareholders by the Company’s independent auditor, BDO Canada LLP, in accordance with Canadian generally accepted auditing standards and the standards of the Public Accounting Oversight Board (United States). 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, 2011 were approved by the Board of Directors and signed on its behalf on March 29, 2012.

S. E. Hayden S. R. Curtis

President and Chief Executive Officer Vice-President, Finance and Chief Financial Officer

Caledonia Mining Corporation

INDEPENDENT AUDITOR'S REPORT

OF REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of Caledonia Mining Corporation

We have audited the accompanying consolidated financial statements of Caledonia Mining Corporation, which comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and 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 and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caledonia Mining Corporation as at December 31, 2011, December 31, 2010 and January 1, 2010, and its financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

(Signed) BDO Canada LLP

Chartered Accountants, Licensed Public Accountants

Toronto, Ontario

March 29, 2012

Caledonia Mining Corporation

Consolidated statements of comprehensive income and (loss)

(In thousands of Canadian dollars except for earnings per share amounts)

For the years ended December 31,	Note	2011	2010
		$	$

Revenue	4k	55,705	22,388
Less: Royalty		(2,514)	(825)
Production costs	7	(21,093)	(12,617)
Depreciation		(2,983)	(2,586)
Gross profit		29,115	6,360

Administrative expenses	8	(3,677)	(2,807)
Share-based payment expense		(1,101)	(354)
Foreign exchange (loss)/gain		303	359
Impairment	12	(3,884)	-
Other (expenses)/income	9	-	(1,064)
Results from operating activities		20,756	2,494

Finance income	10	55	270
Finance cost	10	(217)	(267)
Net finance (costs)/income		(162)	3
Profit before income tax		20,594	2,497

Income tax expense	11	(8,464)	(1,042)

Profit for the year		12,130	1,455

Other comprehensive (loss)/income
Revaluation of investments to fair value		-	(45)
Foreign currency translation differences for foreign operations		265	(1,404)
Other comprehensive income for the year, net of income tax		265	(1,449)
Total comprehensive income for the year		12,395	6

Earnings per share
Basic earnings per share	18	0.024	0.003
Diluted earnings per share		0.024	0.003

Caledonia Mining Corporation

Consolidated statements of financial position
(In thousands of Canadian dollars)
		December 31,		December 31,	January 1,
As at	Note	2011		2010	2010
		$		$	$

Assets
Property, plant and equipment	12	33,918		31,978	28,219
Other investments	13	5		5	59
Trade and other receivables	15	-		-	810
Deferred tax asset	11	325		-	-
Total non-current assets		34,248		31,983	29,088

Inventories	14	4,482		2,624	2,587
Prepayments		334		93	130
Trade and other receivables	15	3,652		2,314	1,552
Cash and cash equivalents	16	9,686		1,145	1,622
Total current assets			18,154	6,176	5,891
Total assets			52,402	38,159	34,979

Equity and liabilities
Share capital	17	196,163		196,125	196,125
Contributed surplus		3,407		2,306	1,952
Accumulated other comprehensive income/(loss)		(1,134)		(1,399)	50
Accumulated deficit		(158,422)		(170,552)	(172,007)
Total equity		40,014		26,480	26,120

Liabilities
Provisions	21	1,785		1,899	1,789
Deferred tax liability	11	6,037		5,151	4,313
Total non-current liabilities		7,822		7,050	6,102

Trade and other payables	22	3,841		3,882	2,169
Income taxes payable		295		-	-
Bank overdraft	16	430		747	588
Total current liabilities			4,566	4,629	2,757
Total Liabilities			12,388	11,679	8,859
Total equity and liabilities			52,402	38,159	34,979

On behalf of the Board:

“S.E. Hayden” Director

“Robert W. Babensee” Director

Caledonia Mining Corporation

Consolidated statements of changes in equity

(In thousands of Canadian dollars)

	Note	Share capital	Investment Revaluation Reserve	Translation reserve	Contributed surplus	Accumulated deficit	Total
		$	$	$	$	$	$
Balance at January 1, 2010	30	196,125	50	-	1,952	(172,007)	26,1201
Comprehensive income/(loss) for the year			(45)	(1,404)		1,455	6
Share-based compensation expense	20				354		354
Balance at December 31, 2010		196,125	5	(1,404)	2,306	(170,552)	26,480
Comprehensive income for the year				265		12,130	12,395
Shares issued		38					38
Share-based compensation expense	20				1,101		1,101
Balance at December 31, 2011		196,163	5	(1,139)	3,407	(158,422)	40,014

Caledonia Mining Corporation

Consolidated statements of cash flows
(In thousands of Canadian dollars)
For the years ended December 31,	Note	2011	2010
		$	$
Cash flows from operating activities
Profit for the year		12,130	1,455
Tax paid		(8,005)	(1)
Adjustments to reconcile net cash from operations	23	16,648	4,210
Interest paid		(162)	(3)
Changes in non-cash working capital	23	(3,183)	950
Cash flows provided from continuing operations		17,428	6,611

Cash flows from investing activities
Property, plant and equipment additions		(8,528)	(7,304)
Proceeds on sale of investment		-	51
Net cash used in investing activities		(8,528)	(7,253)

Cash flows from financing activities
Bank overdraft increase (decrease)		(317)	159
Proceeds from the issue of share capital	17	38	-
Net cash from (used in) financing activities		(279)	159
Net increase/(decrease) in cash and cash equivalents		8,621	(483)
Cash and cash equivalents at beginning of year		1,145	1,622
Effect of exchange rate fluctuations on cash held		(80)	6
Cash and cash equivalents at year end	16	9,686	1,145

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

1 Reporting entity

Caledonia Mining Corporation is a company domiciled in Canada. The address of the Company’s registered office is Suite 1201, 67 Yonge Street, Toronto, Ontario M5E 1J8 Canada. The consolidated financial statements of the Company as at and for the year ended December 31, 2011 comprise the Company and its subsidiaries (together referred to as the “Group” or “Company” and individually as “Group entities”). The Group primarily is involved in the operation of a gold mine and the acquisition, exploration and development of mineral properties for the exploration of base and precious metals.

2 Basis for preparation

(a) Statement of compliance

The consolidated financial statements were authorised for issue by the Board of Directors on March 29, 2012.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following item in the statement of financial position:

·	available for sale financial assets are measured at fair value

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

3 Use of estimates and judgements

Management makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

3 Use of estimates and judgements

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the consolidated financial statements are discussed below:

i) Rehabilitation Provisions

Rehabilitation provisions have been created based on the Company’s internal estimates. 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 regularly 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 of the rehabilitation costs are actually incurred. The final cost of the currently recognized rehabilitation provisions may be higher or lower than currently provided for.

ii) Exploration and Evaluation (“E&E”)Expenditure

The application of the Company’s accounting policy for exploration and evaluation expenditure when determining when E&E properties are impaired requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalized, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalized is written off in the profit or loss in the period the new information becomes available.

iii) Title to Mineral Property Interests

Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

3 Use of estimates and judgements – (continued)

iv) Income Taxes

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

v) Share-based Payment Transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on 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 and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 20.

vi) Impairment

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

vii) Functional currency

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

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

4 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at January 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated. The accounting policies have been applied consistently by the Group entities.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of Group entities have been changed when necessary to align them with the policies adopted by the Group.

(ii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. 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) Functional currencies

The functional currencies of Caledonia Mining Corporation and its subsidiaries are the Canadian dollar, US dollar and South African Rand (“ZAR”). These consolidated financial statements have been translated into the Canadian dollar in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates. This standard requires that assets and liabilities be 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 (i.e. the average rate for the period).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 OCI.

When an entity disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are recognized in profit or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in OCI related to the subsidiary are reallocated between controlling and non-controlling interests.

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

4 Significant accounting policies - (continued)

All resulting translation differences are reported in other comprehensive income.

(ii) Foreign currency translation

In preparing the financial statements of the Group entities, transactions in currencies other than the Group entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each statement of financial position date, monetary assets and liabilities are translated using the year end 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 for the year.

(i) Non-derivative financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

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

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

The Group has the following non-derivative financial assets: trade and other receivables, cash and cash equivalents, and available-for-sale financial assets.

Loans and receivables

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

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

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

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or that are not classified in any other categories of financial assets. The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for sale equity instruments, are recognised in other comprehensive income and presented within equity in accumulated other comprehensive income. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

(ii) Non-derivative financial liabilities

Financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

The Group has the following non-derivative financial liabilities: bank overdrafts and trade and other payables.

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

(d) Share capital

Common shares

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

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(e) Property, plant and equipment

(i) Recognition and measurement

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

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

Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development. Exploration and evaluation assets are also tested for impairment before the assets are transferred to mine under development.

All direct costs related to the acquisition, exploration and development of mineral properties are capitalized until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. If economically recoverable ore reserves are developed, capitalized costs of the related property are reclassified as mineral properties being depleted and depreciated.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

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

Caledonia Mining Corporation

Notes to the Consolidated Financial Statements

For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

4 Significant accounting policies – (continued)

(e) Property, plant and equipment – (continued)

(ii) 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.

(iii) Depreciation

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

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

·	buildings 10 to 15 years

·	plant and equipment 10 years