CALEDONIA MINING CORP

CALEDONIA MINING CORP FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 05/15/14 for the Period Ending 12/31/13 Telephone CI...
1 downloads 2 Views 3MB Size
CALEDONIA MINING CORP

FORM 20-F

(Annual and Transition Report (foreign private issuer))

Filed 05/15/14 for the Period Ending 12/31/13

Telephone CIK Symbol SIC Code Industry Sector Fiscal Year

(44) 1534-702-998 0000766011 CALVF 1040 - Gold And Silver Ores Gold Basic Materials 12/31

http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 20-F ANNUAL REPORT []

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

[x]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 OR

[]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ……………………………… to ……………………………… OR

[]

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 …………………………………………… Commission file number 000-13345 CALEDONIA MINING CORPORATION (Exact name of Registrant as specified in its charter) Canada (Jurisdiction of incorporation or organization) Greenstone Management Services (Pty) Ltd 24 Ninth Street, Lower Houghton, Johannesburg, Gauteng 2198, South Africa (Address of principal executive offices) Steven Curtis, +27 11 447 2499, [email protected] , 24 Ninth Street, Lower Houghton, Johannesburg, Gauteng 2198, South Africa (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: None Securities registered or to be registered pursuant to Section 12(g) of the Act Common Shares, without par value 52,117,908

(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None 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: 52,117,908 Indicate by check mark if the registration is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes

[X] No

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

[X] No

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 [X] Yes [ ] No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] 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: 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 [ ]

2

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

[X] No

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: N/A 3

TABLE OF CONTENTS ITEM 1 - Identity of Directors, Senior Management and Advisers ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE ITEM 3 - KEY INFORMATION A. Selected Financial Data B. Capitalization and Indebtedness C. Reasons for the Offer and Use of Proceeds D. Risk Factors ITEM 4 - INFORMATION ON THE COMPANY A. History and Development of the Caledonia B. Business Overview C. Organizational Structure D. Property, Plant and Equipment ITEM 4A - UNRESOLVED STAFF COMMENTS ITEM 5- OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. Operational Results B. Trend Information C. Off-Balance Sheet Arrangements D. Tabular Disclosure of Contractual Obligations ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management B. Compensation C. Board Practices D. Employees E. Share Ownership ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders B. Related Party Transactions C. Interests of Experts and Counsel ITEM 8 - FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information B. Significant Changes ITEM 9 - THE OFFERING AND LISTING A. Offering and Listing Details ITEM 10 - ADDITIONAL INFORMATION A. Share Capital B. Memorandum and Articles of Association C. Material Contracts D. Exchange Controls E. Taxation F. Dividends and Paying Agents G. Statement by Experts H. Documents on Display I. Subsidiary Information ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A. Currency Risk B. Interest Rate Risk C. Concentration of Credit Risk D. Liquidity Risk

9 9 9 9 10 10 11 17 17 19 30 30 31 31 31 35 35 35 35 35 39 40 41 42 43 43 44 44 44 44 45 45 45 47 47 47 48 49 49 53 53 53 54 54 54 55 55 55 4

E. Commodity Price Risk ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ITEM 13 - DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ITEM 15 - CONTROLS AND PROCEDURES A- Disclosure Controls and Procedures B- Managements annual report on internal control over financial reporting (“ICOFR”) C- Attestation Report of registered public accounting firm D. Changes in internal controls over financial reporting ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B - CODE OF ETHICS ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ITEM 16F - CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT ITEM 16G - CORPORATE GOVERNANCE ITEM 16H - MINE SAFETY DISCLOSURE ITEM 17 - FINANCIAL STATEMENTS ITEM 18 - FINANCIAL STATEMENTS ITEM 19 – EXHIBITS

5

55 56 56 56 56 56 56 57 57 57 57 58 58 58 58 59 59 59 59 59

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 20-F (" Annual Report ") and the exhibits attached hereto contain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation that involve risks and uncertainties relating, but not limited to, Caledonia’s current expectations, intentions, plans, and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “target”, “intend”, “estimate”, “could”, “should”, “may” and “will” or the negative of these terms or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Examples of forward-looking information in this Annual Report include: production guidance, estimates of future/targeted production rates, planned mill capacity increases, estimates of future metallurgical recovery rates and the ability to maintain high metallurgical recover rates, timing of commencement of operations and Caledonia’s plans and timing regarding further exploration, drilling and development, the prospective nature of exploration and development targets, the ability to upgrade and convert mineral resources to mineral reserves, capital costs, our intentions with respect to financial position and third party financing and future dividend payments. This forward-looking information is based, in part, on assumptions and factors that may change or prove to be incorrect, thus causing actual results, performance or achievements to be materially different from those expressed or implied by forward-looking information. Such factors and assumptions include, but are not limited to: failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, success of future exploration and drilling programs, reliability of drilling, sampling and assay data, assumptions regarding the representativeness of mineralization being inaccurate, success of planned metallurgical test-work, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, changes in government regulations, legislation and rates of taxation, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Such factors include, but are not limited to: risks relating to estimates of mineral reserves and mineral resources proving to be inaccurate, fluctuations in gold price, risks and hazards associated with the business of mineral exploration, development and mining (including environmental hazards, industrial accidents, unusual or unexpected geological or structural formations, pressures, power outages, explosions, landslides, cave-ins and flooding), risks relating to the credit worthiness or financial condition of suppliers, refiners and other parties with whom the Company does business; inadequate insurance, or inability to obtain insurance, to cover these risks and hazards, employee relations; relationships with and claims by local communities and indigenous populations; political risk; availability and increasing costs associated with mining inputs and labor; the speculative nature of mineral exploration and development, including the risks of obtaining or maintaining necessary licenses and permits, diminishing quantities or grades of mineral reserves as mining occurs; global financial condition, the actual results of current exploration activities, changes to conclusions of economic evaluations, and changes in project parameters to deal with un-anticipated economic or other factors, risks of increased capital and operating costs, we are affected by environmental, safety or regulatory risks, expropriation, the Company’s title to properties including ownership thereof, increased competition in the mining industry for properties, equipment, qualified personnel and their costs, risks relating to the uncertainty of timing of events including targeted production rate increase and currency fluctuations. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. Caledonia reviews forward-looking information for the purposes of preparing each Annual Report, however Caledonia undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements . STATUS AS AN EMERGING GROWTH COMPANY Recently the United States Congress passed the Jumpstart Our Business Startups Act of 2012 (the " JOBS Act "), which provides for certain exemptions from various reporting requirements applicable to public companies that are reporting companies but not "emerging growth companies." We are an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and we will continue to qualify as an "emerging growth company" until the earliest to occur of: (a) the last day of the fiscal year during which we had total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation every 5 years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer", as defined in Exchange Act Rule 12b-2. Therefore, we expect to continue to be an emerging growth company for the foreseeable future. 6

Generally, a registrant that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to registrants that are neither an "accelerated filer" or a "larger accelerated filer" (as those terms are defined in Exchange Act Rule 12b-2), an auditor attestation report on management's assessment of internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in its annual reports filed under the Exchange Act, even if we were to qualify as an "accelerated filer" or a "larger accelerated filer". CURRENCY All references to dollar amounts are expressed in the lawful currency of Canada, unless otherwise specifically stated. Per share amounts are expressed in Canadian dollars. FOREIGN PRIVATE ISSUER FILINGS As a foreign private issuer registered under section 12(b) of the Securities Exchange Act of 1934 (the " Exchange Act "), we are subject to section 13 of the Exchange Act, and we are required to file Annual Reports on Form 20-F and Reports of Foreign Private Issuer on Form 6-K with the SEC. However, we are exempt from the proxy rules under section 14 of the Exchange Act, and the short-swing profit rules under section 16 of the Exchange Act. CAUTIONARY NOTE TO U.S. INVESTORS REGARDING RESOURCE AND RESERVE ESTIMATES This Annual Report has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves , adopted by the CIM Council, as amended. These definitions differ from the definitions in United States Securities and Exchange Commission (“ SEC ”) Industry Guide 7 under the United States Securities Act of 1993, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures. 7

Accordingly, information contained in this Annual Report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder . 8

All references in this Annual Report to the terms “we”, “our”, “us”, “the Company” and “Caledonia” refer to Caledonia Mining Corporation. ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable. ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. ITEM 3 - KEY INFORMATION A.

Selected Financial Data

Table 3 A shows the applicable selected financial data for 2010, 2011, 2012 and 2013 pursuant to IFRS and for the 1-year period 2009 in Canadian Generally Accepted Accounting Principles Table 3 A (i) shows the applicable selected financial data for the 1-year period 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, 2014. Table 3A - Selected Financial Information prepared for 2013, 2012, 2011 and 2010 pursuant to IFRS and for 2009 pursuant to Canadian Generally Accepted Accounting Principles - the figures presented being for the year ended or as of the end of each such year as applicable in the circumstances. Canadian GAAP

IFRS Financial – All in C$ 000’s unless otherwise indicated Revenue Gross Profit Expense - (General and administration, interest and foreign exchange including provisions and impairments) Net Income /(Loss) – after income taxes from operations Net Income /(Loss) – after income taxes from continuing operations Cash and cash equivalent Current Assets Total Assets Current Liabilities Long Term Liabilities Working Capital Net Assets Total Capital Expenditures including Mineral Properties Financing Raised (repaid)

2013

2012

2011

2010

2009

65,113 29, 881

75,221 40,915

55,705 29,115

22,388 6,360

(20,474) (490) (490) 25,222 36,154 69,602 7,534 10,094 28,620 51,974 11,738 2,266

(20,658) 7,358 7,358 27,942 35,294 71,827 9,280 6,928 26,014 55,619 7,909 544

(8,359) 12,130 12,130 9,686 18,159 52,402 4,566 7,822 13,588 40,014 8,528 (279)

(3,866) 1,455 1,455 1,145 6,176 38,159 4,629 7,050 1,547 26,480 7,304 159

9

11,559 2,916 (6,007) (3,950) (3,950) 1,623 5,917 22,090 2,759 2,589 3,158 16,742 1,547 588

Share Information IFRS 2012

2013 Market Capitalization ($ Thousands) at December 31 Shares Outstanding (Thousands) (1) Options Outstanding (Thousands) (1) Basic and diluted net income (loss) per share for continuing operations Basic and diluted net income (loss) per share for the year

(1)

39,088 52,117 2,848

2011

46,301 51,446 3,330

Canadian GAAP 2009

2010 55,060 50,549 4,254

80,021 50,169 3,258

32,508 50,169 3,258

$

(0,061)

$

0.17

$

0.24

$

0.03

$

(0.08)

$

(0,061)

$

0.17

$

0.24

$

0.03

$

(0.08)

All share and option numbers are stated on the basis of the 1:10 reverse split that took place in 2013

Table 3A (ii) - Summary of Exchange Rates for the 5-year Period - 2009 to 2013 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. On April 28, 2014, the exchange rate in effect for Canadian dollars exchanged for US dollars, expressed in terms of Canadian dollars was $1.1033. This exchange rate is based on the noon buying rates of the Bank of Canada, as obtained from the website www.bankofcanada.ca. Exchange Rate

2013

2012

2011

2010

2009

Rate at the End of the Period (1)

1.0696

0.9935

0.9767

0.9999

1.049

Average Rate (2)

1.0300

0.9998

0.9892

1.03

1.14

High Rate (1)

1.0707

1.0414

1.0468

1.0766

1.036

Low Rate (1)

0.9836

0.9676

0.9748

0.9966

1.2907

B.

Capitalization and Indebtedness

Not Applicable. C.

Reasons for the Offer and Use of Proceeds

Not Applicable. 10

D.

Risk Factors

An investment in our common shares involves a high degree of risk and should be considered speculative. You should carefully consider the following risks set out below and other information before investing in our common shares. If any event arising from these risks occurs, our business, prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of our common shares could decline and all or part of any investment may be lost. Our operations are highly speculative due to the high-risk nature of our business, which include the acquisition, financing, exploration, development of mineral properties and operation of mines. The risks and uncertainties set out below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial, may also impair our operations. If any of the risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common shares could decline and investors could lose part or all of their investment. Our business is subject to significant risks and past performance is no guarantee of future performance. 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. Country Risk The jurisdictions in which the Company operates are unpredictable. Assets and investments in these foreign jurisdictions are subject to risks that are usually associated with operating in a foreign country and, any of these could result in a material adverse effect on the business, results of operations or financial performance of the Company. These risks include, but are not limited to, access to assets, labor disputes and unrest; arbitrary revocation of government orders, approvals, licenses and permits; corruption; uncertain political and economic environments; bribery; war; civil disturbances and terrorist actions; sudden and arbitrary changes to laws and regulations; delays in obtaining government permits; limitations on foreign ownership; more onerous foreign exchange controls; currency devaluations; import and export regulations; inadequate, damaged or poorly maintained infrastructure; and endemic illnesses. There can be no guarantee that governments in these jurisdictions will not unilaterally expropriate the property of companies that are involved in mining or that, have a majority foreign ownership or for any other reason. Significant operations of Caledonia are currently conducted in Zimbabwe and, as such, these operations are exposed to various levels of political, economic and other risks and uncertainties in addition to those set out above. These risks and uncertainties include, but are not limited to, expropriation and nationalization, or mandatory levels of Zimbabwean ownership beyond currently mandated levels; renegotiation or nullification of existing concessions, licences, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. 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;

11

                 

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. 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. Subsequent to the evaluation of the latest drilling results at Nama in 2013, the Board has decided to impair the full carrying value of the Nama development assets and no further exploration funds will be allocated to the projects. As a result of the foregoing, Caledonia’s exploration, development and production activities in 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. 12

The Company needs to identify new resources to replace ore which has been depleted by mining activities and to commence new projects. No assurance can be given that exploration conducted by the Company will be successful in identifying sufficient mineral resources of an adequate grade and suitable metallurgical characteristics suitable for further development or production. Other than the Blanket Mine, the Company’s properties are in the exploration stage and are without any known bodies of commercial ore. Further development of the properties will only proceed upon obtaining satisfactory exploration results. There is no assurance that the Company’s mineral exploration activities will result in any discoveries of commercial bodies of mineral reserves. The long-term profitability of the Company’s operations will, in part, be directly related to the costs and success of its exploration programs, which may be affected by a number of factors. Government Approvals, Permits and Licenses Government approvals, permits and licenses are required in connection with a number of the Company’s activities and additional approvals, permits and licenses may be required in the future. The duration and success of the Company’s efforts to obtain approvals, permits and licenses are contingent upon many variables outside of the Company’s control. Obtaining governmental approvals, permits and licenses can increase costs and cause delays depending on the nature of the activity and the interpretation of applicable requirements implemented by the relevant authority. While the Company or its affiliates currently hold the necessary licenses to conduct its operations there can be no assurance that all necessary approvals, permits and licenses will be maintained or obtained or that the costs involved will not exceed the Company’s estimates or that the Company will be able to maintain such permits or licenses. To the extent such approvals, permits and licenses are not obtained or maintained, the Company may be prohibited from proceeding with planned drilling, exploration, development or operation of properties which could have a material adverse effect on the Company’s business, results of operations and financial performance. 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, 2011 and 2012. As at December 31, 2013, the consolidated accumulated deficit was $161,651,000. Failure to achieve and maintain profitability may adversely affect the market price of our common shares. There can be no assurance that we will achieve profitability in the future or at all. 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. Development Risk The Company is engaged in further development activities at Blanket Mine. Construction and development of projects are subject to numerous risks including, but not limited to: obtaining equipment, permits and services; changes in regulations; currency rate changes; labor shortages; fluctuations in metal prices; and the loss of community support. Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes to extract metal(s) from ore and to develop the mining, processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities or grades, or the estimated operating costs of the mining venture are sufficient, to justify development of the deposit, or that the funds required for development can be obtained on a timely and economically acceptable basis. The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond the Company’s control and which cannot be predicted, such as metal price and market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. Depending on the price of minerals produced, the Company may determine that it is not commercially feasible to commence or continue commercial production. 13

Production Estimates Estimates for future production, including those at Blanket Mine, are based on mining plans and are subject to change. Production estimates are subject to risk and no assurance can be given that future production estimates will be achieved. Actual production may vary from estimated production for a variety of reasons including un-anticipated variations in grades, mined tonnages and geological conditions, accident and equipment breakdown, changes in metal prices and the cost and supply of inputs and changes to government regulations. 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. The Company’s revenues, operations and exploration and development projects are, and are expected to be, heavily derived from and influenced by the price of gold, which is particularly subject to fluctuation and has fluctuated significantly in recent years. The price of gold is affected by numerous factors beyond the Company’s control including, but not limited to: international economic and political conditions; expectations of inflation; international currency exchange rates; interest rates; global or regional consumption patterns; speculative activities; levels of supply and demand; increased production due to new mine developments and improved mining and production methods; availability and costs of metal substitutes and; inventory carrying costs. The effect of these factors on the price of gold, and therefore the economic viability of the Company’s operations cannot be accurately predicted. Caledonia has not adopted any strategies to control the effect of mineral price fluctuations because the Company’s cash resources currently exceed its planned and foreseeable commitments. 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. The operating results and financial position of Caledonia are reported in Canadian dollars in the Annual Financial Statements. The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of Caledonia and may also affect the carrying amount of Caledonia’s assets and the amount of shareholders’ equity. Caledonia does not use any derivative instruments to reduce its foreign currency risks. In 2009, the government of Zimbabwe made foreign currencies legal tender in Zimbabwe and abolished the Zimbabwe dollar. However, there is no guarantee that Zimbabwe will not reintroduce the local currency. Credit Risk Exposure Credit risk is the risk that a party with a contractual obligation to Caledonia will default causing a loss to Caledonia. New regulations introduced by the Zimbabwean Ministry of Finance in January 2014 require that all gold produced in Zimbabwe must now be sold to Fidelity, a company which is controlled by the Zimbabwean authorities. Accordingly, all of Blanket’s production is sold to Fidelity. To date, Blanket has received all payments due from Fidelity in full and on time. This arrangement introduces a new credit risk, beyond the control of Caledonia or Blanket, that receivables and contractual performance due from Fidelity will not be paid or performed in a timely manner, or at all. In 2009, gold bonds were issued by the Reserve Bank of Zimbabwe to Blanket Limited as a result of non-payment for gold previously sold by Blanket Mine to the Reserve Bank of Zimbabwe since 2008. The Reserve Bank of Zimbabwe has failed to redeem the gold bonds and also failed to give any reliable verification of when Blanket Mine would be paid. As a result of this failure, Caledonia was required to write off the gold bonds to $nil value. Further, if Fidelity or the Zimbabwean government were unable or unwilling to conduct business with the Company, or satisfy obligations to the Company, the Company could experience a material adverse effect upon its operations and financial performance. Black Empowerment and Indigenization 14

The governments of the Southern African countries in which the Company operates, currently Zimbabwe, have, or are proposing, legislation (typically referred to as “black economic empowerment” or indigenisation”) requiring companies to allow participation in their shareholdings and business enterprises by the indigenous population. In not all instances is it assured that such interests will have to be paid for at full fair value, which may result in increased political and economic risks of operating in that area. As reported the Blanket Mine in Zimbabwe has complied with the requirements of the Indigenisation Act in Zimbabwe whereby new indigenous shareholders in Blanket acquired 51% ownership of Blanket Mine (1983) (Pvt) Ltd in 2012. Government Regulation Failure to comply with applicable laws, regulations and requirements in the countries in which Caledonia operates may result in enforcement action, including orders calling for the curtailment or termination of operations on its property, or calling for corrective or remedial measures requiring considerable capital investment. Although the Company believes that its activities are currently carried out in all material respects in accordance with applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner that could limit or curtail production or development of the Company’s properties or otherwise have a material adverse effect on the Company’s business, results of operations and financial performance. Need for Additional Funds The Company expects that for at least 2014, 2015 and 2016, 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. However there can be no guarantees and the situation will be consistently monitored. 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. The loss of the services of any of these persons could have a materially adverse effect on the Company’s business, prospects results of operations and financial performance. The limited availability of mining and other technical skills and experience in Zimbabwe and the difficulty of attracting appropriately skilled employees to Zimbabwe creates a risk that appropriate skills may not be available if, for whatever reason, the current skills base at the Blanket Mine is depleted. 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. 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’s shares are listed on the Toronto Stock Exchange, 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. Mineral Title The Company is not aware of any significant competing ownership claims or encumbrances respecting title to its properties. There can be no guarantee, however, that there are no competing ownership claims or encumbrances respecting its properties or that challenges to title will not be made in the future. Increasing input costs Mining companies generally have experienced higher costs of steel, reagents, labor and electricity and from local and national government for levies, fees, royalties and other direct and indirect taxes. Blanket’s planned growth should allow the fixed cost component to be absorbed over increased production, thereby helping to alleviate somewhat the effect of any further price increases. 15

Infrastructure and Related Risks Infrastructure, including electricity supplies, that may be currently available and used by Caledonia may, as result of natural disaster, incorrect or inadequate maintenance, sabotage or for other reasons, be destroyed or made unavailable or available in a reduced capacity. Were this to occur, operations at the Company’s properties may become more costly or have to be curtailed or even terminated, potentially having serious adverse consequences to the Company’s financial condition and viability that could, in turn, have a material adverse effect on the Company’s business, results of operations or financial performance. Operational Hazards and Risks The Company is subject to risks typical in the mining business. These include, but are not limited to, operational issues such as unexpected geological conditions or earthquakes causing unanticipated increases in the costs of extraction or leading to falls of ground and rock bursts, particularly as mining moves into deeper levels. Major cave-ins, flooding or fires could also occur under extreme conditions. Although equipment is monitored and maintained and all staff receives safety training, accidents caused by equipment failure or human error could occur. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. As a result, the Company may incur significant liabilities and costs that could have a material adverse effect upon its business, results of operations and financial performance. Legal Risks Caledonia may become party to legal claims arising in the ordinary course of business. There can be no assurance that unforeseen circumstances resulting in legal claims will not result in significant costs or losses. In the event of a dispute arising in respect of Caledonia’s foreign operations, Caledonia may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Canada or international arbitration. The legal and political environments in which the Company operates may make it more likely that laws will not be enforced and that judgments will not be upheld. If Caledonia is unsuccessful in enforcing its rights under the agreements to which it is a party or judgments that have been granted, or if laws are not appropriately enforced, it could have a material adverse effect on Caledonia’s business, results of operations and financial performance. Illegal mining There has been an increase in illegal mining activities on properties controlled by Blanket. This gives rise to increased security costs and an increased risk of theft and damage to equipment. Blanket has received adequate support and assistance from the Zimbabwean police in investigating such cases. Labor Relations Most of the employees are members of the Associated Mine Workers Union of Zimbabwe. Pay rates for all wage-earning staff are negotiated on a Zimbabwe industry wide basis between the union and representatives of the mine owners. Any industrial action called by the Union may affect the Company’s operations even though the Company’s operations may not be at the root cause of the action. Strikes, lockouts or other work stoppages could have a material adverse effect on the Company’s business, results of operations and financial performance. In addition, any work stoppage or labor disruption at key customers or service providers could impede the Company’s ability to supply products, to receive critical equipment and supplies for its operations or to collect payment from customers encountering labor disruptions. Work stoppages or other labor disruptions could increase the Company’s costs or impede its ability to operate one or more of its operations. 16

Environmental, Health and Safety Factors The Company’s exploration, development and operations are subject to environment, health and safety laws and regulations (“EH&S”) in the countries in which the relevant activity is being conducted. There is no assurance that future changes in EH&S, if any, will not adversely affect the Company’s exploration and development programs or its operations. There is no assurance that regulatory and environmental approvals required under EH&S will be obtained on a timely basis or at all. A breach of EH&S may result in the temporary suspension of operations, the imposition of fines, other penalties (including administrative penalties and regulatory prosecution), and government orders, which could potentially have a material adverse effect on operations. Future Acquisitions Caledonia continually seeks to replace and expand its reserves through the exploration of its existing properties and may expand through acquisitions of interests in new properties or of interests in companies which own such properties. Acquisitions involve a number of risks, including: the possibility that the Company, as a successor owner, may be legally and financially responsible for liabilities of prior owners; the possibility that the Company may pay more than the acquired company or assets are worth; the additional expenses associated with completing an acquisition and amortizing any acquired intangible assets; the difficulty of integrating the operations and personnel of an acquired business; the challenge of implementing uniform standards, controls, procedures and policies throughout an acquired business; the inability to integrate, train, retain and motivate key personnel of an acquired business; and the potential disruption of the Company’s ongoing business and the distraction of management from its day-to-day operations. These risks and difficulties, if they materialize, could disrupt the Company’s ongoing business, distract management, result in the loss of key personnel, increase expenses and otherwise have a material adverse effect on the Company’s business, results of operations and financial performance. ITEM 4 - INFORMATION ON THE COMPANY A.

History and Development of the Company

Caledonia was incorporated, effective February 5, 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 16 th 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. The addresses and telephone numbers of Caledonia’s principal offices are: African Office - South Africa

Representational Offices - Canada

Greenstone Management Services (Pty) Ltd 24, 9th Street, Lower Houghton South Africa (27) 11 447 2499

Suite 4009, 1 King Street West Toronto, Ontario, Canada M5H 1A1 (1)(416) 369-9835

Background 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, Caledonia Holdings Zimbabwe (Private) Ltd., which held the shares of “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. 17

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. Description of Our Business Caledonia’s activities are focused in Southern Africa. The Company’s business during the past three completed fiscal years has been focused primarily on: (i) the operation of the Blanket Mine; (ii) increasing gold production at Blanket Mine; and (iii) achieving the indigenisation of the Blanket Mine as described below. The Company has, during the past three completed fiscal years, conducted exploration activities in Zimbabwe and Zambia. The Company’s main exploration efforts have been focused on: (i) gold exploration in the vicinity of the Blanket Mine in Zimbabwe; and (ii) Nama Project in Zambia. Generally, gold mining, development and exploration in Southern Africa is not seasonal, except where heavy seasonal rainfall can affect surface mining or exploration. Production operations at Blanket Mine are not seasonal, however, exploration activities at the Nama Project are. Total gold production at Blanket Mine in: (i) 2013, was 45,527 ounces; (ii) 2012, was 45,464 ounces; and (iii) 2011, was 35,826 ounces. The aggregate production at Blanket Mine for January through March of 2014, was 10,241 ounces. Indigenization of Blanket Limited In 2008, the Zimbabwean parliament passed the Indigenisation and Economic Empowerment Act 2007, which stipulated that indigenous Zimbabwean citizens must hold at least 51% of all Zimbabwean companies. On February 20, 2012, Caledonia announced it had signed a Memorandum of Understanding with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe, pursuant to which Caledonia agreed that indigenous Zimbabweans would acquire an effective 51% ownership interest in Blanket Mine (Pvt) Limited at a transactional value of US$30.09 million. Accordingly, Caledonia entered into agreements with each of the following indigenous shareholders to allow them to subscribe for an aggregate 51% ownership interest in Blanket Limited as follows: •

a 16% interest was sold to the National Indigenisation and Economic Empowerment Fund for US$11.74 million;



a 15% interest was sold to Fremiro Investments (Private) Limited (“Fremiro”), which is owned by indigenous Zimbabweans, for US$11.01 million;



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



a 10% interest was donated to the Gwanda Community Share Ownership Trust (“Community Trust”). Blanket paid a non-refundable donation of US$1 million to the Community Trust.

Effective November 14, 2012, four Zimbabweans were appointed to the Board of Directors of Blanket Limited, each representing one of the four entities to whom the 51% of the shares of Blanket were issued. The other four directors of Blanket Limited are appointed by Caledonia. Although a 51% shareholding in Blanket Mine was acquired by the Indigenisation Shareholders. The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”) a wholly owned subsidiary of the Company, performed an assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), to determine whether Blanket Mine should continue to be consolidated by CHZ. Following the IFRS 10 assessment, it was concluded that CHZ retained control and should continue to consolidate Blanket Mine. 18

Employees As of December 31, 2013, the Company had employees comprised of 762 permanent employees and 290 contractors. Of this number, Blanket Mine has 739 permanent employees and 289 contractors. Significant Acquisitions Caledonia did not complete any significant dispositions or significant acquisitions for which disclosure is required since the end of the most recently completed financial year. Subsequent Events The Company’s authorized capital consists of (i) an unlimited number of Common Shares of which 52,117,908, were issued as of March 28, 2014 and an unlimited number of preference shares, of which none have been issued. The holders of the Common Shares are entitled to one vote per share at meetings of Shareholders and to receive dividends if, as and when declared by the directors of the Company. In the event of voluntary or involuntary liquidation, dissolution or winding-up of the Company, after payment of all outstanding debts, the remaining assets of the Company available for distribution would be distributed to the holders of the Common Shares. In January 2014, new regulations were introduced by the Zimbabwean Ministry of Finance requiring that all gold produced in Zimbabwe be sold to Fidelity Printers and Refiners Limited (“Fidelity”), a company which is controlled by the Zimbabwean authorities. Accordingly, all of Blanket’s production is sold to Fidelity. To date, Blanket has received all payments due from Fidelity in full and on time . B.

Business Overview

Mining and Exploration Activities: Gold Production Blanket Mine (1983) Private Limited (“Blanket”) Blanket currently sells its gold production to Fidelity Printers and Refiners in Harare Zimbabwe and only receives 98.5% of the sale proceeds in US dollars within 7 days of sale in full settlement. This sales arrangement came into effect in January 2014, prior to this gold was sold to Metalor in Switzerland. In terms of current regulations Blanket Mine pays a 7% royalty on gold sales revenue to the Zimbabwe Government on a monthly basis. Blanket Mine also pays an annual fee to protect the various claims amounting to approximately $120,000 pa. All fees and royalties are paid up to date. Background 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 southeast 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. Geological Setting Like 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, from a gold resource area that has given rise to no less than 268 gold mines. 19

Property Geology Blanket is part of the group of mines that makes up the North Western Mining camp also called the Sabiwa group of mines. Blanket’s deposits 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 be mineralized. It is generally on this lithology type that the various mine tailings disposal sites have been located. Above this basal felsic unit is the ultramafic unit that includes the banded iron formations hosting the eastern ‘dormant’ cluster of mines and the mineralized bodies of the adjacent Vubachikwe Mine complex. The active Blanket bodies (sections) are found on the overlying unit, the mafics and an 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 syn-metamorphic regionally developed deformation zone characterized by areas of high strain, wrapping around relatively un-deformed remnants of the original basaltic lava flows. It is within the higher strain regime (highly sheared rocks) that the majority of the ore bodies are located. Production Operations Mining Operations As a result of the completion of the No. 4 Shaft Expansion Project in late 2010, the underground mining areas can now produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. Blanket Mine now produces in excess of 45,000 ounces per year and is implementing a four year expansion program to progressively increase gold production by the end of 2016. Metallurgical Process In terms of Blanket’s 4 year Expansion Program the crushing and milling circuits will be expanded to handle 3,000 tons per day capacity by additions and improvements to them. Their throughput capacity is more than sufficient to handle the planned increases in mine production from the No. 6 Winze Expansion Project, and will in future be able to process any mineralised material that may be found at the Satellite Properties (as defined below). All run of mine ore is crushed underground to minus 150mm, hoisted to surface and crushed to minus 12mm in the surface 2-stage crushing circuit. This material is then currently 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 Gold Concentrators where approximately 49% of total mill gold production is recovered as ‘gravity’ concentrate. 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 are done on site. During electro winning the gold is deposited on steel wool cathodes, the loaded cathodes are acid-digested and the resultant gold solids from this acid digestion together with the re-dressed gold concentrate from Knelson Concentrators are smelted into Dore bars. The granular activated carbon is kiln regenerated before it is re-circulated back to the CIL section. The CIL plant has an overall design capacity of 3,800 tons of milled ore per day. The Dore bars are delivered and sold, as required by Zimbabwean law, to Zimbabwe Government-operated Fidelity. After refining Fidelity export the gold to Rand Refineries in South Africa. Rand Refineries undertakes final refining and buys the resultant gold from Fidelity. Blanket gets paid for 98.5% value of the gold sold to Fidelity within a week of delivery to Fidelity. Blanket gets paid in US dollars into its Zimbabwean bank account. Fidelity also buys the silver that is refined out of the Dore bars delivered at a rate of 90% of what is refined and sold. 20

Mineral Reserve Calculations A technical report entitled “NI 43-101 Technical Report on the Blanket Gold Mine, Zimbabwe” (the “ Technical Report ”) relating to the Blanket Mine, with an effective date of June 28, 2011, was prepared by MSA Geoservices (Pty) Ltd. (“ MSA ”), in compliance with National Instrument 43-101 - Standards for Disclosure of Mineral Projects of the Canadian Securities Administrators (“ NI 43-101 ”), and was published on June 28, 2011. MSA is a geological consulting company based in South Africa. MSA reviewed the reserve and resource calculation procedures for the Blanket Mine as at December 31, 2010. MSA’s calculation figures are shown in the following table: MINERAL RESERVES – December 31, 2010 Classification Proven Reserves Total Proven Reserves including pillars* Probable Reserves Operating and Development Areas Total Proven + Probable Reserves Reserve estimate is based on a gold price of US$1,100/oz. MINERAL RESOURCES ** – December 31, 2010 Classification Indicated Inferred

Tons

Grade (Au g/t)

Gold Content-ounces

1,326,000

4.02

171,400

2,513,700 3,839,800

3.66 3.78

295,800 467,200

Tons 510,000 2,408,000

Grade (Au g/t) 3.79 5.27

Gold Content-ounces 62,100 ***

Tonnages and ounces are rounded to the nearest 100. Mineral Resources and Mineral Reserves are estimates and are based on a gold price of US$1,100/oz. Note * Pillar tonnages have been discounted by 50% Note ** Mineral Resources are reported exclusive of Mineral Reserves Note *** Inferred Resources are reported without estimates of metal quantities. Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot be assumed that all or any part of the inferred resource with be updated to a higher resource category 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. The full Technical Report can be viewed on the Company’s website – www.caledoniamining.com or under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“ SEDAR ”) at www.sedar.com. Since the calculation of the above December 31, 2010 figures, the Company has mined 1,054,400 tons with an average recovered gold grade of 3.99 grams per tonne, some of which has been from within the reserve and resource blocks to produce 126,718 ounces of gold at a recovery of 93.3%. 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 internal estimate of Blanket’s mineral reserves and resources as at December 31, 2013 has been prepared by Blanket Mines’ Technical Department following the standards and procedures required by NI 43-101. In preparing the Mineral Resource and Mineral Reserve estimates, the following assumptions and modifying factors were applied. A cut-off grade (pay limit) of 2.09 g/t based on a gold price of US$1300/oz, was applied. Production tonnages were increased by 8% to allow for dilution at zero grade and the grade adjusted accordingly. A metallurgical recovery of 93% was applied, marginally less than the historical 93.3% recovered grade. The Mineral Reserve and Mineral Resource calculations estimates included in this report have been reviewed and approved by Dr Pearton, Caledonia’s Qualified Person and the results are presented in the following table: 21

MINERAL RESERVES as at December 31, 2013 (based on a Gold Price of US$1,300/oz) Classification Proven Reserves Total Proven Reserves including pillars* Probable Reserves Operating and Development Areas Total Proven + Probable Reserves

Tons

MINERAL RESOURCES *** (based on a Gold Price of US$1,300/oz) Classification Indicated Inferred

Grade (Au g/t)

Gold Content (oz)

1,349,000

3.84

166,600

2,121,000 3,471,000

3.56 3.67

243,000 409,400

3.81 5.02

Gold Content ounces 54,900 **

Tons

Grade(Au g/t) 448,000 2,871,100

Note Pillar * tonnages are discounted by 50% Note Inferred Resources are reported without estimates of metal quantities. Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot ** be assumed that all or any part of the inferred resource with be updated to a higher resource category. Note Mineral *** Resources are reported exclusive of Mineral Reserves. Relative to the previous independent estimate of mineral reserves and mineral resources as at December 2010, the Reserves have decreased by 10% in terms of tonnage. Resources expressed in terms of tonnage have declined by 1.6% over the same period. While Blanket Mine has generally recorded greater than 100% conversion of resources to reserves, this positive conversion factor cannot be assumed to occur in future. Blanket Mine is situated in a country which is widely considered to be politically unstable, and this may impact on the reserve life of the mine which at present is estimated at between 6 and 7 years. However, Blanket Mine is fully indigenised and compliant with all legislation within Zimbabwe and as such is expected to be able to operate within normal parameters for the foreseeable future. Dr. Trevor Pearton, B.Sc. Eng. (Mining Geology), Ph.D. (Geology), Pr.Sci.Nat., F.G.S.S.A., VP Exploration is the Corporation’s Qualified Person as defined by NI 43-101. Dr. Pearton has reviewed and approved the scientific and technical information included in this report. MINE UNDER CARE AND MAINTENANCE Eersteling Gold Mining Company Limited This mine remains on care and maintenance and an additional $399,000 impairment has been made against the carrying value. See Note 12 of the Consolidated Audited Financial Statements of Caledonia for the year ended December 31, 2013 (the “Annual Financial Statements”). Interested parties continue to investigate the merits of purchasing the mine and the Corporation continues to seek a suitable purchaser. MARKETING From 2009 until December 2013 Blanket was entitled to export and sell its entire gold production in its own name. However since January 2014 Blanket is required to deliver and sell it’s entire gold production to Fidelity Printers and Refiners which is an organization controlled by the Zimbabwe authorities. To date, Blanket has received all payments due from Fidelity in full and on time. KEY PERFORMANCE FACTORS As a result of the completion of the No. 4 Shaft Expansion Project in late 2010, the underground mining areas can now produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. Blanket Mine now produces in excess of 45,000 ounces per year and is implementing a four year Expansion Program to progressively increase gold production to 48,000 ounces in 2014, 52,000 ounces in 2015 and beyond by the end of 2016. 22

OPERATIONAL REVIEW AND RESULTS OF OPERATIONS Safety, Health and Environment (“SHE”) The following safety statistics have been recorded for the Q4 2013 and the preceding six quarters. Blanket management recognises the continued need to reinforce strict adherence to prescribed operating procedures by all employees. Accordingly NOSA, an occupational health and safety specialist, has been engaged to review the SHE management system and to participate in staff training. During the Quarter, in addition to the usual training courses: 106 personnel have been trained on incident investigation and the implementation of the SHE management system; 45 senior managers and line managers were trained on level 3 incident investigation; and 4 senior employees were trained on the Safety Supervisors Training Course. There were no significant adverse environmental issues during the Quarter. Social Investment and Contribution to the Zimbabwean Economy Blanket’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket’s employees, the payments made to the GCSOT in terms of Blanket’s indigenisation, and payments of royalties, taxation and other non-taxation charges taxes to the Government of Zimbabwe and its agencies are set out in the table below. Blanket Mine Safety Statistics

Incident Classification Fatal Lost time injury Restricted work activity First aid Medical aid Occupational illness Total Incidents Near misses Disability Injury Frequency Rate (i) Total Injury Frequency Rate (ii) Man-hours worked (thousands)

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

0 1 4 2 1 0 8 11 2 0.3

0 0 7 4 1 0 12 11 3 0

0 3 7 5 1 0 16 10 5 0.81

0 2 0 4 2 0 8 12 3 0.52

0 1 7 2 3 0 13 12 4 0.25

1 7 5 2 2 0 17 11 7 1.75

0 2 9 0 3 0 14 17 3 0.46

2.38

3.04

4.34

2.09

3.25

4

3.2

670

688

738

767

801

800

865

(i) A measurement of total injuries, deaths and permanent disability occurring per 200,000 man-hours worked. (ii) A measurement of all accidents that have occurred regardless of injury or not expressed per 200,000 man-hours worked. This includes accidents that could have caused injuries. Blanket management recognises the continued need to reinforce strict adherence to prescribed operating procedures by all employees. Accordingly NOSA, an occupational health and safety specialist, has been engaged to review the SHE management system and to participate in staff training. During the Quarter, in addition to the usual training courses: 106 personnel have been trained on incident investigation and the implementation of the SHE management system; 45 senior managers and line managers were trained on level 3 incident investigation; and 4 senior employees were trained on the Safety Supervisors Training Course. There were no significant adverse environmental issues during the Quarter. Social Investment and Contribution to the Zimbabwean Economy Blanket’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket’s employees, the payments made to the GCSOT in terms of Blanket’s indigenisation, and payments of royalties, taxation and other non-taxation charges taxes to the Government of Zimbabwe and its agencies are set out in the table below. 23

Payments to the Community and the Zimbabwe Government (US$’000’s)

Period Year 2011 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year 2012 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year 2013

Year 2011 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013

Community and Social Investment

Payments to Zimbabwe Government

Payments to GCSOT 306 147 38 108 123 416 5 2,135 7 2,147

1,000 2,000 3,000 1,000 1,000 2,000

Total 13,614 3,353 5,042 6,366 5,808 20,569 4,584 3,555 3,646 3,569 15,354

13,920 3,500 6,080 8,474 5,931 23,985 5,589 6,690 3,653 3,569 19,501

The final installment of the advance dividend payments that were payable to GCSOT in terms of Blanket’s indigenisation transaction was made in the second quarter of 2013. No further dividends will be payable to GCSOT until the advance dividends have been repaid by the offset of future dividends on Blanket shares that are owned by GCSOT. Payments to the Zimbabwe government were lower in 2013 than in 2012 due to the effect of the lower gold price which resulted in lower royalty payments and lower taxable profits in the Year and increased capital expenditure which reduced income tax payments. Gold Production Tons milled, average grades, recoveries and gold produced and the average realized price per ounce during the Quarter, the preceding 7 quarters and Q1 2014 are shown in the table below. Blanket Mine Production Statistics

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Quarter 1

Year 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 2014

Tons Milled (t) 83,353 90,315 93,049 96,598 363,315 86,502 101,174 99,386 105,258 392,320 92,846

Gold Head (Feed) Grade (g/t Au) 3.67 4.24 4.59 4.08 4.16 4.04 3.82 4.03 3.63 3.88 3.67

Gold Recovery (%) 93.2 93.9 94.1 93.3 93.7 93.3 93.2 93.6 93.1 93.3 93.6

Gold Produced (oz) 9,164 11,560 12,918 11,821 45,464 10,469 11,587 12,042 11,429 45,527 10,241

Average Realized Price per Ounce of Gold Sold (US$/oz) 1,689 1,597 1,673 1,711 1,666 1,600 1,373 1,330 1,277 1,402 1,288

Gold production at the Blanket mine in the Quarter decreased from the preceding quarter due to the lower grade and recovery the effects of which were partially offset by increased ore throughput. Production in the Quarter was also adversely affected by the additional public holiday for the President of Zimbabwe’s inauguration. Combined production in Q1 2014 was approximately 1,700 ounces below plan primarily as a result of the achieved grade being lower than the targeted grade of 3.83 g/t Au. Underground production tonnages and grades are discussed further in Section 4.5 of the MD&A. for 2013. 24

Production Costs A narrow focus on the direct costs of production (mainly labor, electricity and consumables) does not fully reflect the total cost of gold production. Accordingly, cost per ounce data for the Quarter, the preceding three quarters and for 2012 and 2011 have been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases: i.

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

ii. All-in Sustaining Cost per ounce , which shows the operating cost per ounce plus additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg and Toronto) and the costs associated with maintaining the operating infrastructure and resource base (i.e. “Sustaining Capex”) that are required to maintain production at the current levels; and iii. All-in Cost per ounce , which shows the all-inclusive Sustaining cost per ounce plus the additional costs associated with activities that are undertaken with a view to increasing production.

Blanket Mine: Costs per Ounce of gold produced (US$/oz) Year 2011 586 72 1 8 667

Year 2012 570 116 5 6 698

Q1 2013 653 112 2 7 774

Q2 2013 587 96 3 7 692

Q3 2013 558 93 3 7 660

Q4 2013 666 69 3 6 745

Year 2013 613 101 3 7 724

On-Mine cash cost (ii) Royalty (i) Community costs relating to ongoing production Permitting costs related to current operations 3 rd party smelting, refining and transport costs Operating cost per ounce Corporate general and administrative costs 207 124 (incl. share based remuneration) 94 90 97 113 93 Reclamation and remediation of operating sites 1 2 2 2 2 5 2 Exploration and study costs 1 1 2 5 2 Capital expenditure 183 67 51 147 110 213 125 All-in Sustaining Cost per ounce (ii) 944 857 924 956 866 1,175 977 Costs not related to current production Community costs 25 181 8 49 Permitting costs 17 3 3 3 1 2 Exploration and study costs 1 3 3 4 3 Capital expenditure 12 29 45 69 107 97 78 All-in Cost per ounce (ii) 956 929 972 1,211 986 1,277 1,109 (i) Blanket pays a royalty to the Zimbabwean government on gross revenue. Since 1 January 2012 the royalty rate has been 7% prior to which it was 4% (ii) Non-IFRS measures such as “On-Mine Cash Cost per Ounce”, “All-in Sustaining Cost per Ounce” and “All-in Cost per Ounce” are used throughout this document. Refer to Section 10 of the MD&A of 2013 for a discussion of non-IFRS measures.

The on-mine cash cost per ounce of gold sold increased in the Q4 2013 due to the lower production compared to the previous quarter and to the lower sales compared to the previous quarter as a result of work-inprogress as at December 31, 2013. Over 60% of Blanket’s costs are fixed, therefore lower production means that fixed costs are absorbed over fewer production ounces. The value attributed to work-in-progress only includes direct labor at the mine, electricity and consumables; on-mine administration costs are therefore absorbed into the ounces of gold sold in the quarter, further increasing the cost per ounce of gold sold. In light of the increased production cost in the Quarter, management has focused on measures to reduce operating costs. 25

The royalty cost per ounce decreased during the year as a result of the lower gold prices from April 2013. Capital investment to sustain current operations and capital expenditure not related to current production is discussed in Sections 4.7, 5.3 and 6 of the MD&A for 2013. All-in sustaining costs increased in the Quarter compared to the previous quarter due to the effect of higher administrative expenses and sustaining capital investment in the Quarter which were allocated across the 9,545 ounces that were sold in the Quarter rather than the 11,429 ounces of gold that were produced in the Quarter. Underground AR South continued to be the most important production area during Q4 2013 with ore being trammed on the 630 and 750 meter haulages. Production tonnages from all areas was at planned levels in the Quarter. However, the achieved ore grade in the Quarter and in Q1 2014 was lower than planned due to a sub-horizontal fault which was encountered at the AR South ore body between 680 and 695 meters below surface. This sub-horizontal fault had displaced the ore zone to the west and south and resulted in a barren block of ground, which unavoidably had to be mined, resulting in dilution the otherwise high grade material. This dilution meant that the grade on certain stoping panels at AR Main was un-economic. Production on these panels was stopped and re-development was required to establish other panels at the required grade. Management believes that the above measures have been successful and that an average head grade of between 3.60 to 3.83 g/t Au can be maintained, although closer attention will be paid to grade control in future. Production in February 2014 was also adversely affected by an unstable mains power supply and the unscheduled requirement to replace the winding rope on No. 4 Shaft. In the weeks while the new ropes were in transit from Europe, hoisting was restricted to half speed. Hoisting was suspended completely for three days in early March 2014 whilst the new Lebus type coiling sleeves were fitted to the winder drums and the new winding ropes were successfully installed and commissioned. Underground development activities continued throughout the Quarter and the total development advance was 1,427 meters compared to a planned advance of 1,377 meters. The development advance in the Quarter was 29% higher than the 1,110 meters achieved in the preceding quarter due to a reduction in lost shifts and better machine availability. Machine availability in the previous quarter had been adversely affected by the closure of a supplier of spare parts for drilling equipment. As a result an increased number of drilling machines were inoperative for longer than usual awaiting suitable replacement parts. Alternative suppliers with satisfactory levels of service and equipment quality have been identified and are now being used resulting in the improved machine availability in the Quarter. Installation of the new Centac compressor has been stalled by the inability of the Zimbabwe Electricity Transmission and Distribution Corporation (“ZETDC”), the state-owned electricity distribution company, to service their faulty transformer and equipment. Blanket has repeatedly offered to undertake this service and maintenance itself, but ZETDC is unwilling to accept this offer. Development has been planned such that it should allow mine production to catch up the shortfall in milled tonnage that was experienced in the first quarter of 2014 and for production to be sustained at the target rate of approximately 1,200 tons per day (“tpd”) for 2014 and 1,300tpd in 2015. Metallurgical Plant During the Quarter, the metallurgical plant continued to operate at better than budgeted efficiency. Throughput was 49.8 tons per hour compared to the planned throughput of 43.0 tons per hour; while gold recovery was 93.1% compared to the budgeted rate of 93.0%. All equipment operated to expectations and no significant unplanned downtime was experienced during the Quarter. The planned relining of Rod Mill No 4 took 80 hours and resulted in a reduction of the tons milled by the plant in February 2014. Capital Projects The main capital developments are: • •

the haulage extension on 22 Level from AR Main to Lima; the northern extension to 18 Level haulage to Lima; 26

• • •

the 14 Level haulage extension between the Eroica and Lima; the No. 6 Winze Shaft Deepening Project to the 1,080 meter level; and the erection of a new mill house in anticipation of the installation of new mills to increase milling capacity which will be required to process additional material from the No. 6 Winze Project.

Further information on each of these Projects is set out below; an analysis of the expenditure on of the main investment projects is set out in Section 6 of the MD&A for 2013. 22 Level Haulage Extension Project The 22 Level haulage extension project will link the Blanket and Lima ore bodies on the 22 Level (750 meters below surface) and will allow for the rapid commencement of mining in any new mining areas defined above 750 meters. Crosscuts from the 22 Level Haulage are also being developed to provide the required drilling platforms for the exploration drilling below 750 meters for resource evaluation purposes. Work on the 22 Level Haulage extension project and its associated crosscuts is being carried out simultaneously with normal mining production. During the Quarter, the 22 Level haulage advanced a further 158 meters towards Lima (182 meters in the preceding quarter) against a plan of 162 meters. This haulage reached the Eroica ore body in early December 2013 and further work on advancing the face was suspended in order to allow for exploration drilling into the Eroica zone. Five holes were drilled and all identified mineralization, although the grades were rather lower than anticipated. The crosscut from the 750 meter haulage towards the AR Main zone advanced 71 meters against a plan of 105 meters. Work on the intermediate drilling chamber was completed and diamond drilling commenced. One hole was drilled which intersected the AR Main mineralization as expected and a second hole has been commenced. Development to extend the crosscut to the AR Main zone has re-commenced. 18 Level Haulage Extension Project The 18 Level haulage extension (630 meters below surface) was planned to provide access to explore for the extension of the Sheet zone between 630 meters and 510 meters below surface. The haulage reached its destination in the second quarter of 2013 and diamond drilling to locate a possible down-dip extension to the Sheet ore body has commenced. Some exploration drilling below 750 meters is also being carried out from 18 Level, in addition to the planned exploration from 22 Level. During the Quarter two further exploration holes were drilled into the Blanket zone below 750 meters in addition to the six exploration drill holes which were completed in previous quarters. As expected, all of the eight holes into the Blanket ore body below 750 meters have intersected mineralised zones. 14 Level Haulage Project The 14 Level Haulage between Eroica and Lima (510 meters below surface) reached the position of the Lima ore body in the second quarter of 2013. Exploration and development work has commenced on the Lima ore body above 14 Level with the objective of upgrading the current indicated and inferred mineral resources to mineral reserves. The ability to upgrade the mineral resources in this area to mineral reserves is an important part of Blanket Mine’s strategy to increase mining production in future years. Note that Blanket Mine reports mineral resources exclusive of mineral reserves and that mineral resources have no demonstrated economic viability. It is anticipated that production activities at Lima above the 510 meter level will commence in the second quarter of 2014. No. 6 Winze Project The No. 6 Winze project will provide access to the Blanket 2 Ore body below 22 Level by upgrading and deepening, the existing No. 6 Winze. The pre-production capital cost of this project is estimated to be US$4 million, which will be funded from Blanket’s internal cash flows. Work on this project continues: a specialist mechanised shaft sinking crew have commenced work and will be responsible for the high-speed sinking of the shaft. Exploration drilling during the Year has located the Blanket 4 Ore body on strike of the 2 Ore body, which adds substantially to the strike of mineralized zones present in this area and which can be fully evaluated using the access gained via the No. 6 Winze Mill Building Upgrade A new building measuring approximately 20m width x 51m length and 14 m high was constructed over the current structure that houses the primary rod mills. The new structure is equipped with a 70 ton overhead crane that can transverse the entire length and width of the building and is designed to cater for servicing all the current and future primary mills. A total of more than 50 tons of steel was used during this project. The entire structure is sheeted, roof and sides down to within 3 m from the ground which will be bricked. The old mill building and its 10 ton overhead gantry will be relocated and become the new compressor house. The existing compressor house will be dismantled and re-erected as a core shed at the exploration offices. 27

The 22 Level Haulage Project, the 18 Level Haulage Project, the 14 Level Haulage Project and the No.6 Winze Projects are all intended to open up areas for further exploration. Accordingly, none of these projects is the subject of a new technical report Outlook The surplus capacity of the Blanket leach section and crushing and milling plant enables it to immediately treat additional feed material. There is upward pressure on costs, taxes and regulatory fees in Zimbabwe and the regulatory environment is subject to unexpected adverse changes. Nevertheless, Blanket has surplus metallurgical plant capacity and is sufficiently cash generative so that, if the investment climate is acceptable, it could invest in projects with a view to further increasing production, thereby helping to maintain downward pressure on the cost per ounce of gold produced at Blanket Mine. EXPLORATION AND PROJECT DEVELOPMENT Nama Cobalt Project, Zambia Caledonia holds four, contiguous large scale mining licenses covering approximately 800 square kilometers on the Zambian Copperbelt. The northern boundary of Caledonia’s licensed area is the Democratic Republic of Congo border and the eastern boundary abuts against the Lubambe mining license area that is held by a joint venture between Vale and African Rainbow Minerals where a new copper mine was commissioned in 2012. These licenses have been explored both for their cobalt and their copper potential. In September 2012, Caledonia was provided with various conditions by the Mines Development Department of Zambia in connection with its mining licenses, one of which was a requirement to commence cobalt mining by July 2013. Commencement of cobalt mining operations is, however, contingent upon the approval of an environmental impact assessment (“EIA”) by the Zambian Environmental Management Agency (“ZEMA”) which, owing to various additional requirements requested by ZEMA, is still to be granted. In the interim, Caledonia has decided that, in view of the small scale of the planned operations and the small economic return, the company will engage with current operators in Zambia who already have the necessary infrastructure and operation. The purpose of these discussions is to enter into an agreement whereby a second party may operate the proposed cobalt mine. The remaining carrying value of costs previously incurred and capitalized at the Nama Cobalt Project are therefore impaired as at December 31, 2013 because substantive expenditure on further development activities in the specific area is neither budgeted nor planned and Caledonia has decided to discontinue such activities in the specific area. Nama Copper Project, Zambia The Nama Copper Project is located on the mining license adjacent to the Lubambe Copper Mine which is being operated as a joint venture between VALE and African Rainbow Minerals. Caledonia carried out a drilling programme at the Nama Copper Project between April 2011 and June 2013 to assess the potential for copper mineralization in the area. The results of this program were compiled and submitted to the Mines Development Department of Zambia (ZMDD) in accordance with the conditions set out by the ZMDD to maintain the licenses. Subsequent to the submission of results of the exploration programme to the ZMMD, a preliminary technical study based on limited technical information was carried out by African Mining Consultants. The provisional findings of this exercise were that the surface leaching of copper had resulted in a low grade cap zone and that additional stripping of waste rock would be required to access the better grades below the oxidized zone. In addition, in view of the low grades of copper encountered, i.e. between 0.4% and 0.5% copper over a mineralized zone of between 15 meters and 25 meters thick, management believes that the capital requirements of this project are such that Caledonia would be unlikely to achieve an acceptable return on the project. Accordingly the full carrying value of costs previously incurred and capitalized at the Nama Copper Project were impaired in the Year. 28

No further copper exploration work was conducted in the Quarter due to the onset of the wet season which restricts access to the field area. Blanket Gold Mine, Zimbabwe Caledonia’s primary exploration activities in Zimbabwe are undertaken by the Blanket Mine and are discussed in Section 4.7 of the MD&A for 2013. Blanket Mine also has exploration title holdings in the form of registered mining claims in the Gwanda Greenstone Belt totaling 78 claims, including a small number under option, covering properties with a total area of about 2,500 hectares. Blanket’s main exploration efforts on these satellite properties are focused at this stage on the GG Project and the Mascot Project Area (which comprises three former mining operations i.e. Mascot, Eagle Vulture and Penzance) which are believed to have the greatest potential of success. GG Project The GG Project is located approximately seven kilometers southeast of Blanket Mine. Surface drilling programs have been carried out at the GG Project over the past eight years consisting of seventeen diamond-cored holes totaling 4,751m of drilling. Two zones of gold mineralization warranting further exploration have been established down to a depth of at least 300m, each with a strike length of approximately 150m. During the Quarter work continued on opening up the 120 meter level in order to provide platforms for lateral diamond drilling. 70 meters of development were completed in the Quarter, including two diamond drilling cubbies from which horizontal and inclined holes will be drilled to probe the zones that were identified by surface drilling. At the same time two raises were developed from 120 meter level to the 60 meter level which will be used to handle waste rock from future sub-level development. Metallurgical test work continues on fresh material from this project. The preliminary indications are that material from the GG Project is not compatible with Blanket’s metallurgical plant. Exploration work will continue with the objective of identifying the extent and characteristics of mineralization at the GG Project so that an assessment can be made of the optimal processing methodology for material from the GG Project. Mascot Project Area Mascot was previously mined down to approximately 300 meters, exploiting an east-west trending mineralised body the extent of which decreased at depth. Previous surface drilling undertaken by Blanket has indicated the existence of two further mineralised zones, to the north and south of the mined out area. Development towards the north zone on the 60 meters level (1 Level) entered the identified mineralised zone in the first quarter of 2013 and further development on this level was suspended until metallurgical investigations have been successfully completed and handling systems installed to allow material to be hoisted to surface. In the Quarter, a new headgear and bin was fabricated and is ready for installation. This will facilitate the handling of material and allow for crushing to produce a more uniform product and improve truck loading factors. During the Quarter development and exploration has continued on the 90 meter level (2 Level) and mineralization has now been exposed covering a strike of 100 meters between 60 and 120 meter levels. A drilling programme was also initiated to test the main Mascot shear below the deepest workings. Two holes were drilled, both intersecting a mineralised zone approximately 60 meters below the known bottom of the old workings. Drilling will continue on a success-driven basis to test the lateral extent of the main Mascot shear. Sabiwa Project Electrical power, a headgear, single drum winder and water supply has been installed at Sabiwa, the shaft collar has been concreted, and shaft sinking has been completed to a depth of 20 meters and the initial 15 meters of the shaft has been concreted. Further work on Sabiwa is currently on hold pending an improvement in the Zimbabwean investment climate before further significant expenditure is incurred. Environmental Policy Caledonia is committed to maintaining the highest environmental standards such that its operations and/or its products do not present an unacceptable risk to its employees, its customers, the public or the environment. Caledonia and its subsidiaries operate under Caledonia’s Environmental Policy which encompasses the following: •

Caledonia directs its employees and its subsidiary companies to conduct their exploration and operational activities in a professional, environmentally responsible manner, in compliance with or above the standards of all applicable legislation and policies in the jurisdictions in which they undertake business. 29



Caledonia liaises closely with the applicable government regulatory bodies and the public to optimize communication and an understanding of the Caledonia’s activities in relation to environmental protection.



Caledonia is committed to the diligent application of technically proven, economically feasible, environmental protection measures throughout its exploration, development, mining, processing and decommissioning activities.



Caledonia, on a regular basis, monitors its environmental protection management programs to ensure their compliance at or above the standards of applicable national and international regulatory requirements.

It is the responsibility of all the employees and management of Caledonia and its subsidiaries to carry out their employment activities in accordance with this code of practice. Operational line management personnel have the direct responsibility for regular environmental protection management. Matters relating to safety, health and environment are a regular agenda item at the Company’s board meetings. 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

The Company has the following subsidiaries, all of which are wholly-owned by the Company, (unless otherwise indicated) and whose assets and revenues exceed 10% of the consolidated assets or revenues of the Company: Subsidiaries of the Company Greenstone Management Services (Proprietary) Limited Greenstone Management Services Limited Blanket Mine (1983) (Private) Limited (1) (1) Blanket Mine (1983) (Private) Limited does not have any subsidiary companies. D.

Country of Incorporation South Africa United Kingdom Zimbabwe

Percentage held by Company 100 100 49

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 or to in any way expand or improve the facilities. 30

(b)

Zimbabwe:

The Blanket Mine, in Zimbabwe, which the Company indirectly owns 49% of through its ownership of 49% of the shares of Blanket Mine (1983) (Private) Limited, 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. ITEM 4A - UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5- OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.

Operational Results

Annual Operational Highlights 2013 – 2012 •

11,429oz of gold were produced during Q4, a 3% decrease in gold production on Q4 2012 (the “comparable quarter”) of 11,821oz and an 5% decrease on Blanket’s record quarterly gold production in Q3 2013 (the “preceding quarter”) of 12,042oz. Gold production was lower than the preceding quarter due to a 3-day planned shut down for essential maintenance and a lower head grade. The gold production of 11,429oz achieved in Q4 was 14% higher than the targeted production of 10,000oz/quarter.



Gold production for the 12 months to December 31, 2013 was 45,527oz, a 0.1% increase over the gold production in the 12 months to December 31, 2012 (45,464oz). Gold production for 2013 is a new annual production record for Blanket since it commenced operations in 1906.



Blanket’s cash operating costs in Q4 increased to US$666 per ounce of gold produced compared to US$558 in the preceding quarter and US$603 in the comparable quarter. The increase in costs in the Quarter was due to the reduced production compared to the previous quarter and the higher labor and consumable costs incurred in the Quarter.



Blanket’s cash operating costs for the Year were US$613 per ounce compared to US$570 in 2012. The increase in costs was due primarily due to increased gold in process at December 2013.



All-in sustaining costs per ounce of gold produced for the Quarter (i.e. including sustaining capital investment and general and administrative expenses) were US$1,175/oz compared to US$866/oz in the preceding quarter and US$937/oz. in the comparable quarter.



All-inclusive costs for the year 2013 were US$1,109/oz compared to US$929/oz in 2012, the increase being largely due to the CSI donation.

2012-2011 •

11,821oz of gold were produced during Q4, a 12% increase in gold production on Q4 2011 (the “comparable quarter”) of 10,533oz and an 8% decrease on Blanket’s record quarterly gold production in Q3 2012 (the “preceding quarter”) of 12,918oz. Gold production was lower than the preceding quarter as the mined ore gold grade returned towards the planned long term mine reserve grade average of 3.84g/t. The gold production of 11,821oz achieved in Q4 was 18% higher than the targeted production of 10,000oz/quarter.



Gold production for the 12 months to December 31, 2012 was 45,465oz, a 27% increase over the gold production in the 12 months to December 31, 2011 (35,826oz). Gold production for 2012 is a new annual production record for Blanket since it commenced operations in 1906.



Blanket’s cash operating costs in Q4 increased to US$554 per ounce of gold produced compared to US$508 in the preceding quarter and US$521 in the comparable quarter. The increase in costs in the Quarter was due to the reduced production compared to the previous quarter and the higher labor and consumable costs incurred in the Quarter.



Blanket’s cash operating costs for the Year were US$571 per ounce compared to US$581 in 2011. The reduction in costs was due primarily to increased production which offset increases in input costs. 31



All-inclusive costs per ounce of gold produced for the Quarter (i.e. including sustaining capital investment and general and administrative expenses) were US$741/oz compared to US$669/oz in the preceding quarter and US$752/oz. in the comparable quarter.



All-inclusive costs for the year 2012 were US$759/oz compared to US$895/oz in 2011, the reduction being largely due to the higher level of production in 2012 than 2011 which meant that fixed costs were spread over more ounces of gold produced.

Financial Highlights 2013 – 2012 •

Gold Sales during Q4 were 9,454oz at an average sales price of US$1,277/oz compared to 12,042oz at an average sales price of US$1,330/oz in the preceding quarter and 10,337oz at an average sales price of US$1,703/oz in the comparable quarter.



Gold Sales for the 2013 Year were 45,048oz at an average sales price of US$1,402oz compared to 45,181oz at an average sales price of US$1,666/oz in 2012.



Gross profit (i.e. after depreciation and amortization but before administrative expenses) for Q4 was $4,484,000 compared to $7,719,000 in the preceding quarter and $9,250,000 in the comparative quarter.



Gross profit for the Year decreased by 27% to $29,881,000 (2012: $40,915,000).



Net (loss)/profit after tax for Q4 attributable to Caledonia shareholders was $(14,436,000) compared to a profit of $3,733,000 in the preceding quarter and a profit of $3,353,000 in the comparable quarter. The increase in the loss in 2013 was attributable to the impairment of the Nama Projects.



Net income/(loss) after tax for the Year attributable to Caledonia shareholders was $(3,055,000) compared to $8,720,000 in 2012.



Net income/(loss) for 2013 and the net loss for the preceding quarter was after a non-cash, non-recurring charge of $14,203,000 for impairment of the Nama Projects and Eerstelling Gold Mining Corporation mineral property. Further explanation of the basis of this charge is set out in Note 12 to the Consolidated Financial Statements.



At December 31, 2013, the Company had cash and cash equivalents of $23,426,000 compared to $25,099,000 at September 30, 2013, and $27,942,000 at December 31, 2012.



Cash flow from operations in 2013 before capital investment was $14,686,000 (2012: $29,721,000).



During Q4 Blanket made payments to the community and payments in respect of direct and indirect taxes, royalties, license fees, levies and other payments to the Government of Zimbabwe totaling US$3,569,000 compared to US$3,653,000 in the preceding quarter, and US$5,931,000 in the comparative quarter. The total of such payments in 2013 was $19,501,000 (2012: $23,985,000).

2012-2011 •

Gold Sales during Q4 were 10,337oz at an average sales price of US$1,703/oz compared to 12,918oz at an average sales price of US$1,664/oz in the preceding quarter and 9,329oz at an average sales price of US$1,681/oz in the comparable quarter.



Gold Sales for the 2012 Year were 45,181oz at an average sales price of US$1,666oz compared to 35,504oz at an average sales price of US$1,577/oz in 2011.



Gross profit (i.e. after depreciation and amortization but before administrative expenses) for Q4 was $9,250,000 compared to $12,602,000 in the preceding quarter and $9,012,000 in the comparative quarter.



Gross profit for the Year increased by 41% to $40,915,000 (2011: $29,115,000).



Net profit after tax for Q4 attributable to Caledonia shareholders was $3,353,000 compared to a loss of $7,240,000 in the preceding quarter and a profit of $1,369,000 in the comparable quarter.



Net profit after tax for the Year attributable to Caledonia shareholders was $8,720,000 compared to $12,130,000 in 2011. 32



Net profit for 2012 and the net loss for the preceding quarter was after a non-cash, non-recurring charge of $14,569,000 for share based payments of which $14,161,000 was due to the sale of 41% of Blanket to Indigenous Zimbabweans, for which Blanket provided facilitation loans, and for the donation of 10% of Blanket to the Gwanda Community Share Ownership Trust (“GCSOT”) in terms of the Indigenisation Agreements signed by Blanket Mine. Further explanation of the basis of this charge is set out in Note 5 to the Consolidated Financial Statements.



At December 31, 2012, the Company had cash and cash equivalents of $27,942,000 compared to $24,615,000 at September 30, 2012, and $9,686,000 at December 31, 2011.



Cash flow from operations in 2012 before capital investment was $29,721,000 (2011: $17,428,000).



During Q4 Blanket made payments to the community and payments in respect of direct and indirect taxes, royalties, license fees, levies and other payments to the Government of Zimbabwe totaling US$5,931,000 compared to US$8,474,000 in the preceding quarter, and US$5,024,000 in the comparative quarter. The total of such payments in 2012 was $23,985,000 (2011: $13,920,000).

Indigenisation • Transactions that implemented the Indigenisation of Blanket were completed on September 5 th 2012. Following completion of these transactions Caledonia now owns 49% of Blanket. • Caledonia has received the Certificate of Compliance from the Government of Zimbabwe which confirms that Blanket is fully compliant with the Indigenisation and Economic Empowerment Act. • As an indigenised entity, Blanket can now develop and is now implementing its long term growth strategy. The recently re-constituted Blanket board, which includes representatives of the Indigenous Zimbabwean shareholders, approved a capital investment programme for 2013 and a 4 year growth strategy for 2014 to 2017. This investment programme, which was endorsed by the Caledonia Board, is estimated at US$37m, will be funded from Blanket’s internally generated cash, and is expected to result in progressive increases in gold production to approximately 76koz in 2016. Exploration Highlights •

Exploration continued at the Blanket Mine focused on the potential to extend the Blanket mineralization below the 750 meter level and at certain of its satellite properties. The down plunge extent of the Blanket 4 Ore body was intersected with three boreholes, all of which returned favorable gold values. Work is in progress to incorporate this mineralization into the mineral resource basis for the Blanket Mine.



Exploration development and diamond drilling at the two satellite projects, the GG Project and the Mascot Project have established the existence of multiple mineralized zones with potentially favorable gold grades. Further work is being done to define the extent and viability of these mineralized zones.

Corporate Highlights •

On January 24, 2013 a Special Meeting of the Caledonia Shareholders passed special resolutions approving a reduction of Stated Capital of Caledonia’s common shares by $140m and approving the consolidation of Caledonia’s issued and outstanding common shares on the basis of one (1) post-consolidation common share for every ten (10) common shares currently issued. Pursuant to these resolutions being passed:



on February 22, 2013 Caledonia paid its maiden dividend of one-half Canadian cent ($0.005) per pre-consolidation share; and



the share consolidation took effect on April 13 th 2013.

Investing During the Quarter Caledonia invested $3,268,000 ($2,996,000 – 2012, $1,017,000 – 2011) in property, plant and equipment including mineral properties. Of the amount invested $297,000 ($1,775,000 – 2012, $859,000 – 2011) was spent at Nama and $2,942,000 ($1,207,000 – 2012, $108,000 – 2011) at Blanket and its satellite properties. 33

During the 2013 Caledonia invested $11,738,000 ($7,909,000 – 2012, $8,528,000 – 2011) in property, plant and equipment including mineral properties. Of the amount invested $2,637,000 ($3,614,000 – 2012, $2,709,000 – 2011) was spent at Nama and $9,066,000 ($4,280,000 - 2012, $5,769,000 – 2011) at Blanket, and its satellite properties. Financing Caledonia financed all its operations using funds on hand and those generated by its operations. During the Year, share options for 671,730 options were exercised raising $470,000. No other equity financing took place in the Year and none is currently planned. Blanket has an unsecured US$2.5 million loan facility in Zimbabwe which is repayable on demand. At December 31, 2013 this facility was drawn to the extent of $1,796,000. Cash and cash equivalents 2013 $ 25,222 25,222 (1,796) 23,426

Bank balances Cash and cash equivalents in the statement of financial position Bank overdrafts used for cash management purposes Cash and cash equivalents in the statement of cash flows

2012 $ 27,942 27,942 27,942

The bank overdraft facility of US$2.5 million bears interest at 8% above the bank’s base rate. The facility is unsecured and valid for 12 months and is renewable. The facility is repayable on demand. Liquidity and Capital Resources An analysis of the sources and uses of Caledonia’s cash is set out in the Consolidated Statement of Cash Flows in the Consolidated Annual Financial Statements. As of December 31, 2013, Caledonia had a working capital surplus of $28,620,000 ($26,014,000 – 2012, $13,593,000 - 2011). As of December 31, 2013, Caledonia had potential liabilities for rehabilitation work on the Blanket and Eersteling Mines - if and when those Mines are permanently closed - at an estimated present value cost of $1,572,000 ($1,015,000 – 2012, $1,785,000 - 2011). The South African rehabilitation trust held $154,000 on cash deposit as at December 31, 2013. The Company’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 Company’s capital includes shareholders’ equity, comprising issued common shares, reserves, accumulated other comprehensive income, accumulated deficit, bank loans and non-controlling interest The Company’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. The Company uses available cash resources to fund and maximize ongoing exploration efforts, the Company has paid a maiden dividend and declared a further dividend based on its available cash resources. It is intended that all of the capital investment which will be required to fund the planned growth and development at Blanket over the next four years will be funded by Blanket’s internal cash flows. There are no exchange control restrictions on the remittance in full of dividends declared, loans or advances out of trading profits of subsidiary companies such as Blanket (Pty) Ltd to the Group In the opinion of the Company, the working capital is sufficient for the company’s present needs.. 34

B.

Trend Information

As a result of the completion of the No. 4 Shaft Expansion Project in late 2010, the underground mining areas can now produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. Blanket Mine now produces in excess of 45,000 ounces per year and is implementing a four year Expansion Program to progressively increase gold production to 48,000 in 2014, 52,000 in 2015 and beyond by the end of 2016. The Company does not have a hedging programme. C.

Off-Balance Sheet Arrangements

Not applicable. Tabular Disclosure of Contractual Obligations Payments due by Period – in thousands of Canadian Dollars 1-3 years 3-5 years More than 5 years -

Within 1 Year Short term debt Trade and other payables Asset retirement obligations Capital expenditure commitments

1,796 4,600 178

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.

Directors and Senior Management

The following is a list of our current directors and officers as of December 31, 2013. There are no family relationships between the directors and officers.

35

Total 2,516 -

1,796 4,600 2,516 178

Name, Office Held and Municipality of Residence

Principal Occupations During Past Five Years

Positions held Since

Number of Shares Beneficially Owned, Controlled or Directed as of March 1, 2014

Stefan E. Hayden (3)(4)(5)(6)(7) President, Chief Executive Officer & President and Chief Executive Officer of the Company and Director of all the Director Company’s subsidiary companies. Johannesburg, South Africa (2) (5)(6)(7) James Johnstone Retired. Formerly Chief Operating Officer of the Company and Director of Director several of its subsidiary companies. Gibsons, British Columbia, Canada Steven Curtis (4)(5)(7) Financial Director Avery Dennison SA (Pty) Ltd. until March 2006. Since VP Finance, Chief Financial Officer & Director, Johannesburg, then, VP Finance, Chief Financial Officer and Director of the Company and South Africa Director of certain of its subsidiary companies. (2)(3)(7) Richard Patricio Vice President Corporate and Legal Affairs at Pinetree Capital Ltd Director, Toronto, Ontario Canada Leigh Wilson (1)(2)(3)(4)(5)(7) Chairman of the Victory Portfolios Director, Rowayton, Connecticut, USA (1)(2)(3)(7) John Kelly Chief Operating Officer of Liquidnet Holdings, Inc. Director, Pound Ridge, New York, USA (1)(2)(5)(6)(7) Johan Holtzhausen Business consultant and ex Audit partner of KPMG Inc. Director, Cape Town, South Africa Dana Roets (6)(7) VP and Head of Operations at Kloof Gold Mine. More recently, Dana was the Chief Operating Officer COO at Great Basin Gold which had gold mining operations in the United Johannesburg, South Africa States of America and South Africa. (5)(7) Mark Learmonth Vice-President of the Company focused on investor and shareholder relations Vice-President, Business Development, Johannesburg, South Africaand corporate development

1997

1,038,000

1997

16,000

2006

270,000

2012

Nil

2012

42,300

2012

Nil

2013

Nil

2013

Nil

2008

186,730

Trevor Pearton (6)(7) Vice-President Exploration Johannesburg, South Africa

2004

Nil

Vice-President of the Company acting as Exploration Manager of the Company and its subsidiaries

Notes: (1) Member of Audit Committee. (2) Member of Compensation Committee. (3) Member of Corporate Governance Committee. (4) Member of Nominating Committee. (5) Member of Disclosure Committee. (6) Member of Technical Committee. (7) Member of Strategic Planning Committee. A brief profile of each of the Directors and the senior management is given below: 36

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. 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, 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. 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. Leigh Wilson - Director Mr. Leigh Alan Wilson has an international business and financial services background having served in senior executive and management positions with Union Bank of Switzerland (Securities) Ltd. in London and with the Paribas Group in Paris and New York where he served as CEO of Paribas North America between 1984 and 1990. Mr. Wilson has served on the Victory Fund Board since 1993 and currently serves as Independent Chairman of its Board of Trustees. The Victory Funds are a US $7 billion mutual fund complex. Mr Wilson is also the Chief Executive Officer of New Century Home Health Care Inc., a role he has held since 1995. In March 2006, Mr. Wilson received the Mutual Fund Trustee of the Year Award from Institutional Investor Magazine. Between March 2008 and October 2008, Mr. Wilson was an Independent Non-Executive Director of Caledonia. 37

John Kelly - Director Mr. John Lawson Kelly has over 30 years of experience in the financial services industry in the U.S.A and international markets including emerging markets in Asia. He is registered with the Financial Industry Regulatory Authority of the U.S.A. as a General Securities Principal. Mr. Kelly is currently the Chief Operating Officer of Liquidnet Holdings, Inc. and a director of the AmeriCares Foundation. Within the last five years Mr. Kelly has been a managing director of JL Thornton & Co, LLC and CrossRoad LLC and he has also been an Independent Trustee of The Victory Funds. Richard Patricio – Director Mr. Richard Patricio is Vice President Legal and Corporate Affairs at Pinetree Capital Ltd. ("Pinetree"), a Toronto-based resource-specialist investor. Mr. Patricio currently holds directorships with several Canadabased publicly quoted resource companies. He previously practiced law at Osler Hoskin & Harcourt LLP in Toronto, and worked as in-house General Counsel for Teknion Corporation. Mr Patricio is also currently Vice-President Corporate & Legal Affairs of Mega Uranium Ltd. and Brownstone Ventures Inc. Johan Holtzhausen - Director Mr. Johan Andries Holtzhausen is a retired partner of KPMG South Africa with 42 years of audit experience, of which 36 years were as a partner focused on the mining sector. Mr Holtzhausen chaired the Mining Interest Group at KPMG South Africa and his clients included major listed mining companies operating in Africa and elsewhere, which operated across a broad range of commodities. In addition to his professional qualifications, Mr Holtzhausen holds a B.Sc. from the University of Stellenbosch, majoring in chemistry and geology. Mr Holtzhausen is chairman of the Finance, Audit and Risk Committees of Strategic Partners in Tourism and its related party the Tourism Micro Enterprises Support Fund, both of which are not-for-profit organisations. Until 28 February 2011, Mr Holtzhausen served as a director of KPMG Inc. and KPMG Services (Pty) Ltd, both of which are private companies registered in South Africa and which provided audit, taxation and advisory services. Dana Roets – Chief Operating Officer Dana Roets is a qualified Mining Engineer and holds a B.Sc. Mining Engineering degree from Pretoria University (1986) and an MBA from the University of Cape Town (1995). Dana is a South African national with over 24 years of operational and managerial experience in the South African gold and platinum industry. He started his career with Gold Fields at the St Helena Gold Mine as a graduate trainee and progressed via various operational roles from being an underground shift boss to become Vice President and Head of Operations at Kloof Gold Mine in January 1999 at which time Kloof produced over 1,000,000 ounces of gold per annum. More recently, Dana was the COO at Great Basin Gold which had gold mining operations in the United States of America and South Africa. Dana Roets is located at Caledonia’s Africa office in Johannesburg, South Africa. Dr. Trevor Pearton - B.Sc. Eng. (Mining Geology), Ph.D. (Geology), Pr.Sci.Nat., F.G.S.S.A – 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. 38

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 of experience in corporate finance and investment banking, predominantly in the resources sector. Mr. Learmonth graduated from Oxford University and is a chartered accountant. Arrangements, Understandings, etc. Caledonia has 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

Summary Compensation Table Name and principal position

Year

Salary ($)

Share based awards ($)

Option-based awards

(a)

(b)

(c)

(d)

(e)

Stefan Hayden (1) Chief Executive Officer Steve Curtis Chief Financial Officer Mark Learmonth VP Business Development and Investor Relations Caxton Mangezi General Manager and Director of the Blanket Mine Trevor Pearton VP Exploration

2013

485,724

2012 2011 2013

483,655 467,156 328,691

2012 2011 2013

279,188 255,428 179,928

2012 2011 2013

176,821 180,230 304,321

2012 2011 2013 2012 2011

262,932 166,965 161,704 170,688 180,230

_

Non-equity incentive plan compensation ($) (f) Long-term Annual incentive plans incentive plans (f1) (f2) 131,552 _

– –

_ – – _ – –

61,600(2)

– – _ – –

_

Total compensation $

(h) (4)

(i)

153,599

770,875

– –

136,673 119,572 35,000

790,922 821,958 417,241

– –

25,000 25,000

393,588 497,928 205,632

108,994 34,230 53,550

52,800(2) 167,500(3) -

36,600 50,000 25,704

39,600(2) 100,500(3)

20,628 15,000 44,702

– – –

– – –

– – 11,158

237,049 295,730 360,181

18,802 56,003 13,880 13,752 10,000

– –

– –

– –

325,734 356,968 175,584 195,440 206,980

44,000(2) 134,000(3) 11,000(2) 16,750(3)

– –

All other

201,000(3) -

-

_

Pension value ($) (g)

_

_ – –

_

_

_

_

_ – –

_ – –

– –

(1)

Mr. S. E. Hayden is employed indirectly by the Company through an agreement with a management company, as detailed in 7B. The amounts shown are the amounts paid to the management company. Of the amount shown in column (h), $118,599 was paid to reimburse unvouchered expenses and $35,000 was director fees. (2)

The share purchase options shown were granted to the NEOs on September 10, 2012 and expire on September 10, 2017. They were all fully vested at the date of being granted and are all exercisable at $0.90 per share. The fair value is calculated using the Black Scholes methodology using the following assumptions: •

Risk-free interest rate – 1.0%



Expected stock price volatility – 58.37%



Expected option life in years – 5 years



Fair value at grant date - $0.44 39

(3) The share purchase options shown were granted to the NEOs on January 31, 2011 and expire on January 31, 2016. They were all fully vested at the date of being granted and are all exercisable at $1.30 per share . The fair value is calculated using the Black Scholes methodology using the following assumptions:

(4)



Risk-free interest rate – 1.1%



Expected stock price volatility – 60.47%



Expected option life in years – 5 years



Fair value at grant date - $0.67

Apart from S E Hayden, the total amount shown in (h) relates to directors fees paid to the NEO.

A $45,000 fee is paid to each director annually. This revised fee was effective from July 1, 2013. 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 favor 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. There are no service contracts between Caledonia and any of the Directors of Caledonia or its subsidiaries except for: (a)

a “Key Executive Severance Protection Plan” between Caledonia and S.E. Hayden dating from 1996 and the indirect employment of Mr. S.E. Hayden through a management and administrative agreement with the management company. The “Severance Plan” calls for severance payments of two years’ compensation to Mr. Hayden if his employment is terminated as a result of a change of control of Caledonia. If this was triggered as at Dec 31, 2013 the payment would have been $1,208,646

(b)

a service agreement between Caledonia and Mr. Curtis dated April 1, 2008. This agreement includes an option for Mr. Curtis to terminate the contract in the event of a change in control of the Company and to receive a severance payment of two years’ compensation plus a payment for the balance of any existing contract at the time of a change in control. If this was triggered as at Dec 31, 2013 the payment would have been $657,382

Details concerning Caledonia’s Board Composition, Audit, Compensation, Nominating, Disclosure and Corporate Governance committees are given in the 2013 Information Circular attached as Exhibit #14b. The following persons comprise the following committees: Audit J Holtzhausen L Wilson J Kelly

Compensation L Wilson J Kelly J Holtzhausen J Johnstone R Patricio

Technical S E Hayden J Johnstone J Holtzhausen D Roets T Pearton

Strategic S E Hayden L Wilson J Kelly S R Curtis R Patricio M Learmonth D Roets T Pearton J Holtzhausen J Johnstone

Governance L Wilson J Kelly S E Hayden R Patricio

Nominating L Wilson S E Hayden S R Curtis

40

Disclosure L Wilson S E Hayden S R Curtis J Johnstone J Holtzhausen M Learmonth

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 or, on request, from the Company’s offices listed in this report. The Company’s Audit Committee is comprised of the following Directors (i) Johan Holtzhausen (Chair), (ii) Leigh Alan Wilson, and (iii) John Lawson Kelly. Each member of the Audit Committee is considered independent as defined under NI 52-110 and as defined pursuant to Section 803 of the NYSE MKT Company Guide (as such definition may be modified or supplemented) and considered to be financially literate as such terms are defined under National Instrument 52-110 Audit Committees. The SEC has indicated that the designation of an audit committee financial expert does not make that person an "expert" for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the audit committee. D.

Employees

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. Total Employees South Africa (African Office) Zimbabwe – approx. (i) South Africa (Mine Security and Operations and Exploration) Zambia (Head Office and Security) Total Employees at all Locations (i) the

2009

2010

2011

2012

2013

8 750

10 794

10 856

10 860

13 1,028

2 8 768

1 8 813

1 8 875

1 8 879

1 8 1,050

2009 9 7 2 4 22

2010 30 7 2 4 43

2011 30 7 2 4 43

2012 32 7 2 4 45

2013 32 12 1 4 49

number of employees in Zimbabwe varies slightly from month-to-month.

Management and Administration: Employee Locations: Canada Zimbabwe South Africa (African Office) South Africa (Exploration and Operations) Zambia (Head Office and Security) Total Management and Administration

41

E.

Share Ownership (a)

The direct and indirect shareholdings of the Company’s Directors and Officers as at April 28, 2014 were as follows: Number of shares L Wilson 42,300 S Hayden 1,038,000 J Johnstone 16,000 S Curtis 270,000 M Learmonth 186,730 P. Patricio Nil J. Kelly Nil D Roets Nil T. Pearton Nil Total

Percentage share holding 0.08% 1.99% 0.03% 0.52% 0.36% -

1,553,030

2.98%

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 2.98% of the Company’s issued shares. As at March 28, 2014, the Directors and Officers, collectively, owned 1,553,030 Common Shares, being approximately 2.9% of the issued Common Shares. The information as to shares beneficially owned or controlled or directed, not being within the knowledge of the Company, has been furnished by the respective directors and officers individually (c)

Share purchase options outstanding as of April 28, 2014: Name C Harvey C Harvey SE Hayden SE Hayden J Johnstone J Johnstone L Wilson C Jonsson C Jonsson M Kater M Kater A Pearton A Pearton J Liswaniso J Liswaniso M Learmonth M Learmonth A Lawson A Lawson A Lawson T Pearton T Pearton T Pearton Dr P Maduna SR Curtis SR Curtis SR Curtis Caledonia Holdings Africa (1) Caledonia Holdings Africa (1) R Babensee R Babensee P Human P Human S Smith S Smith J Kelly R Patricio D Roets J Holtzhausen TOTAL

(1)

Exercise Price C$ 1.30 0.90 1.30 0.90 0.90 1.30 0.90 0.90 1.30 0.90 1.30 0.90 1.30 0.90 1.30 0.90 1.30 0.70 0.90 1.30 0.70 0.90 1.30 1.30 0.70 0.90 1.30 0.90 1.30 0.90 1.30 0.90 1.30 1.30 0.90 0.90 0.90 0.72 0.72

Expiry Date 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31 August, 2017 31, January, 2016 31 August, 2017 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 29 April, 2014 31 August, 2017 31, January, 2016 29 April ,2014 31 August, 2017 31, January, 2016 31, January, 2016 11 May, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31 August, 2017 31, January, 2016 31, January, 2016 31 August, 2017 31 August, 2017 31 August, 2017 21 November, 2018 21 November, 2018

Number of Options

The options granted to Caledonia Holdings (Africa) Limited – a subsidiary of Caledonia – are for the benefit of certain employees of a subsidiary of Caledonia. 42

160,000 40,000 300,000 140,000 40,000 160,000 90,000 40,000 160,000 3,000 7,500 3,000 7,500 7,500 10,000 89,020 150,000 6,000 3,000 7,500 15,000 25,000 25,000 10,000 30,000 120,000 250,000 103,000 207,500 40,000 175,000 5,000 10,000 6,000 2,400 90,000 90,000 100,000 90,000 2,617,920

ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.

Major Shareholders

To the best of Caledonia's knowledge, as of December 31, 2013 there was one shareholder that beneficially owned, directly or indirectly, or exercises control or direction over more than 5% of the voting shares of Caledonia – being Pinetree Resource Partnership which is believed to own or control 4,000,000 (approx. 7.6%) 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 on April 28, 2014, 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

21,516,276

41.28%

USA

22,102,648

42.41%

Other

8,499,022

16.31%

There are 2,591 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. 43

The foregoing information in this paragraph 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

Caledonia had the following related party transactions:

Management fees, bonuses and expense allowances paid or accrued to a company which provides the services of the Corporation’s President Rent paid to a company owned by members of the President’s family Legal fees paid to a law firm where a previous Director is a partner, to date of retirement. (1) Other fees paid to Directors (1)

2013 $’000 736 38 88 285

2012 $’000 704 43 111 215

Legal fees were paid on an arms’ length commercial basis to Tupper, Jonsson & Yeadon in respect of legal services. Other fees paid to directors were in respect of their contractual remuneration.

Caledonia has a management agreement with Epicure Overseas S.A. (“Epicure”), a Panamanian corporation, for management services provided by the President. Caledonia is required to pay a base annual remuneration adjusted for inflation and bonuses set out in the agreement. In the event of a change of control of the Group, 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. The President has no ownership or control of any securities of Epicure, to the knowledge of Caledonia, Epicure holds no shares of Caledonia. These related party transactions were in the normal course of operations and are recorded at the exchange amount. C.

Interests of Experts and Counsel

Not Applicable. ITEM 8 - FINANCIAL INFORMATION A.

Consolidated Statements and Other Financial Information

This Annual Report contains the audited consolidated financial statements which comprise the consolidated statements of financial position as at December 31, 2013 and December 31, 2012 and the consolidated statements of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the 12 month periods ended December 31, 2013, December 31, 2012 and December 31, 2011. Reference is made to page 60 where the financial statements are filed as part of this annual report on pages F1 – F54 Dividend Policy Caledonia paid two dividends amounting to $0.0998 per Common Share during 2013. The second dividend paid in April 2013 was in respect of the earnings for the year ended December 31, 2012. On November 25, 2013 Caledonia announced a dividend policy pursuant to which it intends to pay a dividend of 6 Canadian cents per Common Share in 2014, split into 4 equal quarterly payments of 1.5 Canadian cents per share. The first quarterly dividend was paid on January 31, 2014. Caledonia will continue to maintain its strong financial position so that it can implement its stated growth strategy and retain the flexibility to take advantage of any further opportunities that may arise without the need to raise third party finance. 44

There are currently no restrictions on the Company which would prevent it from paying dividends. With effect from December 5, 2013, Caledonia appointed Computershare Investor Services Inc. as its transfer agent and registrar and dividend disbursing agent. Following the appointment of Computershare, Shareholders in the USA and UK now receive their dividends denominated in US Dollars and Pounds Sterling respectively. All other shareholders will continue to be paid in Canadian dollars. Computershare also offers Direct Registration System (“DRS”) services for Caledonia shareholders who do not wish to hold their shares in nominee accounts in the name of their financial adviser or stock-broker. Shareholders who wish to participate in the DRS should contact Computershare using the contact details set out below: Computershare Canada and USA Computershare UK

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

Legal Proceedings and Regulatory Actions To our knowledge, there are no legal proceedings material to us to which we are or were a party to or of which any of our properties are or were the subject of, during the financial year ended December 31, 2013 nor are there any such proceedings known to us to be contemplated, which would materially impact our financial position or ability to continue as a going concern. During the twelve-month period ended December 31, 2013, there were no (i) penalties or sanctions imposed against us by a court relating to securities legislation or by a securities regulatory authority; (ii) penalties or sanctions imposed by a court or regulatory body against us that would likely be considered important to a reasonable investor in making an investment decision, or (iii) settlement agreements we entered into before a court relating to securities legislation or with a securities regulatory authority. B.

Significant Changes

We have not experienced any significant changes since the date of the financial statements included with this Annual Report except as disclosed in this Annual Report. ITEM 9 - THE OFFERING AND LISTING A.

Offering and Listing Details

The Common Shares of the Company are quoted for trading in the U.S. on the OTCQX under “CALVF” since October 2011, and on the AIM Market in London under “CMCL” since June 27, 2005. The principal marketplace for the Company is the listing of the Common Shares on the Toronto Stock Exchange under symbol “CAL”. During the year ended December 31, 2013, 11,310,379 Common Shares were traded on the Toronto Stock Exchange at prices that ranged between a high of $1.40 and a low of $0.67 per Common Share (on a post-consolidated basis). The high and low market prices expressed in Canadian dollars on the Toronto Stock Exchange for our Common Shares for the last five financial years, for the last six months, and each quarter for the last three fiscal years: 45

TSX Exchange (Canadian Dollars) Last Six Months March 2014 February 2014 January 2014 December 2013 November 2013 October 2013

High 0.92 0.81 0.85 0.83 0.80 0.82

Low 0.81 0.61 0.70 0.68 0.67 0.69

2014 First Quarter ended March 31, 2014

High 0.92

Low 0.61

2013 Fourth Quarter ended December 31, 2013 Third Quarter ended July 31, 2013 Second Quarter ended June 30, 2013 First Quarter ended March 31, 2013

High 0.82 0.98 1.20 1.40

Low 0.67 0.74 1.15 0.95

2012 Fourth Quarter ended December 31, 2012 Third Quarter ended July 31, 2012 Second Quarter ended June 30, 2012 First Quarter ended March 31, 2012

High 1.10 1.10 0.90 1.25

Low 0.90 0.60 0.65 0.80

Last Five Fiscal Years 2013 2012 2011 2010 2009

High 1.40 1.25 1.45 1.70 0.95

Low 0.67 0.60 0.65 0.55 0.50

The high and low market prices expressed in United States dollars on the OTCQX for our Common Shares for the last five financial years, for the last six months, and each quarter for the last three fiscal years OTCQX (United States Dollars) Last Six Months March 2014 February 2014 January 2014 December 2013 November 2013 October 2013

High 0.84 0.73 0.78 0.85 0.75 0.71

Low 0.71 0.53 0.72 0.75 0.71 0.65

2014 First Quarter ended March 31, 2014

High 0.84

Low 0.53

2013 Fourth Quarter ended December 31, 2013 Third Quarter ended July 31, 2013 Second Quarter ended June 30, 2013 First Quarter ended March 31, 2013

High 0.85 0.94 1.21 1.35

Low 0.65 0.68 1.20 0.95

2012 Fourth Quarter ended December 31, 2012 Third Quarter ended July 31, 2012 Second Quarter ended June 30, 2012 First Quarter ended March 31, 2012

High 1.12 1.10 0.96 1.25

Low 0.88 0.65 0.68 0.84

Last Five Fiscal Years 2013 2012 2011 2010 2009

High 1.45 1.25 1.58 1.60 0.84

Low 0.65 0.65 0.63 0.52 0.45

46

ITEM 10 - ADDITIONAL INFORMATION A.

Share Capital

Not Applicable. B.

Memorandum and Articles of Association

Securities Registrar Computershare Investor Services Inc. is the transfer agent and registrar for the common shares at its principal office in the City of Toronto, with branch registrars of transfers at Computershare Trust Company, N.A office in the City of Golden, Colorado. Computershare Investor Services at its principal office in Bristol, United Kingdom is the Transfer Agent for the Depositary Interests. Place of Incorporation and Purpose The Company was incorporated, effective February 5, 1992, by the amalgamation of three predecessor companies. It exists pursuant to the Canada Business Corporations Act (the “CBCA”). Memorandum and Articles of Incorporation The Company’s articles of incorporation do not place any restrictions on the Company’s business. The authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of preference shares. As of April 30, 2014 52,117,908 Common Shares were issued and outstanding and there were no preference shares issued or outstanding. The holders of the Common Shares are entitled to one vote per share at all meetings of the shareholders of the Company. The holders of Common Shares are also entitled to dividends, if and when declared by the directors of the Company and the distribution of the residual assets of the Company in the event of a liquidation, dissolution or winding up of the Company. The Company's Common Shares do not have pre-emptive rights to purchase additional shares. No preference shares are currently issued and outstanding. Preference shares may be issued from time to time in one or more series composed of such number of shares with such preference, deferred or other special rights, privileges, restrictions and conditions as fixed before such issuance by a resolution passed by the directors and confirmed and declared by articles of amendment. The preference shares shall be entitled to preference over Common Shares in respect of the payment of dividends and shall have priority over the Common Shares in the event of a distribution of residual assets of the Company in the event of a liquidation, dissolution or windup of the Company. Please see Exhibits 1.1 and 1.2 for details in respect of the rights, privileges, restrictions and conditions attaching to the Common Shares and Preferred Shares. The rights attaching to the Common Shares and the Preferred Shares can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of shareholders called for that purpose. 47

Certain Powers of Directors The CBCA requires that every director or officer who is a party to a material contract or transaction or a proposed material contract or transaction with the Company, or who is a director or officer of, or has a material interest in, any person who is a party to a material contract or transaction or a proposed material contract or transaction with the Company, shall disclose in writing to the Company or request to have entered in the minutes of the meetings of directors the nature and extent of his or her interest, and shall refrain from voting in respect of the material contract or transaction or proposed material contract or transaction unless the contract or transaction is: (a) one relating primarily to his or her remuneration as a director, officer, employee or agent of the Company or an affiliate; (b) one for indemnity of or insurance for directors as contemplated under the CBCA; or (c) one with an affiliate. However, a director who is prohibited by the CBCA from voting on a material contract or proposed material contract may be counted in determining whether a quorum is present for the purpose of the resolution, if the director disclosed his or her interest in accordance with the CBCA, the directors approved the contract or transaction and the contract or transaction was reasonable and fair to the Company at the time it was approved. The directors may, by resolution, amend or repeal any by-laws that regulate the business or affairs of the Company unless the articles, the bylaws or a unanimous shareholder agreement provide otherwise. The CBCA requires the directors to submit any such amendment or repeal to the Company’s shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the amendment or repeal. Meetings of Shareholders The CBCA requires the Company to call an annual shareholders' meeting within 15 months after holding the last preceding annual meeting but not later than six months after the end of the Company’s preceding financial year and permits the Company to call a special shareholders' meeting at any time. In addition, in accordance with the CBCA, the holders of not less than 5% of the Company’s shares carrying the right to vote at a meeting sought to be held may requisition the Company’s directors to call a special shareholders' meeting for the purposes stated in the requisition. The Company is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 days and not more than 60 days prior to the date of any annual or special shareholders' meeting. These materials also are filed with Canadian securities regulatory authorities. The Company’s by-laws provide that a quorum of two shareholders in person or represented by proxy holding or representing by proxy not less than 5% of the Company’s issued shares carrying the right to vote at the meeting is required to transact business at a shareholders' meeting. Shareholders, and their duly appointed proxies and corporate representatives, as well as the Company's auditors, are entitled to be admitted to the Company's annual and special shareholders' meetings. Limitations on the Right to Own Securities There are no limitations on the rights to own securities. Limitations on Restructuring There is no provision in our Articles or Bylaws that would have the effect of placing any limitations on any corporate restructuring in addition to what would otherwise be required by applicable law. Disclosure of Share Ownership There are no provisions in our Bylaws governing the ownership threshold above which shareholder ownership must be disclosed. C.

Material Contracts

We enter into various contracts in the normal course of business. However, there are no material contracts outside of the normal course of business to report here. 48

D.

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. E.

Taxation

Certain United States Federal Income Tax Considerations The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Shares. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition of Common Shares. No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary are based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary. Scope of this Summary Authorities This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation. U.S. Holders For purposes of this summary, the term "U.S. Holder" means a beneficial owner of Common Shares that is for U.S. federal income tax purposes: •

an individual who is a citizen or resident of the U.S.;



a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; 49



an estate whose income is subject to U.S. federal income taxation regardless of its source; or



a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of Common Shares. If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares. Ownership and Disposition of Common Shares The following discussion is subject to the rules described below under the heading “Passive Foreign Investment Company Rules.” Taxation of Distributions A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares (see “Sale or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction”. Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules. 50

Sale or Other Taxable Disposition of Common Shares A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such Common Shares are held for more than one year. Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code. Passive Foreign Investment Company Rules If the Company were to constitute a PFIC for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Shares. The Company believes that it was not a PFIC during the tax year ended December 31, 2013. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold Common Shares. In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621. The Company generally will be a PFIC under Section 1297 of the Code if, after the application of certain “look-through” rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied. If the Company were a PFIC in any tax year during which a U.S. Holder held Common Shares, such holder generally would be subject to special rules with respect to “excess distributions” made by the Company on the Common Shares and with respect to gain from the disposition of Common Shares. An “excess distribution” generally is defined as the excess of distributions with respect to the Common Shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the Common Shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Shares ratably over its holding period for the Common Shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply. While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner. 51

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any subsidiary that also is classified as a PFIC. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of Common Shares, and the availability of certain U.S. tax elections under the PFIC rules. Additional Considerations Additional Tax on Passive Income Certain individuals, estates and trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from disposition of property (other than property held in certain trades or businesses). U.S. Holders should consult their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of Common Shares. Receipt of Foreign Currency The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency. Foreign Tax Credit Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the Common Shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules. Backup Withholding and Information Reporting 52

Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U. S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938. Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules. F.

Dividends and Paying Agents

Not Applicable. G. Statement by Experts Not Applicable. H. Documents on Display Any statement in this Annual Report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed to modify the description contained in this Annual Report. Readers must review the exhibits themselves for a complete description of the contract or document. Readers may review a copy of our filings with the SEC, including exhibits and schedules filed with it, at the SEC's public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. Readers may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC maintains a Web site (http://www.sec.gov) that contains reports, submissions and other information regarding registrants that file electronically with the SEC. We have only recently become subject to the requirement to file electronically through the EDGAR system most of its securities documents, including registration statements under the Securities Act of 1933, as amended and registration statements, reports and other documents under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We also file certain reports with the Canadian Securities Administrators that you may obtain through access of the SEDAR website, www.sedar.com . 53

Readers may read and copy any reports, statements or other information that we file with the SEC at the address indicated above and may also access them electronically at the Web site set forth above. These SEC filings are also available to the public from commercial document retrieval services. We are required to file reports and other information with the SEC under the Exchange Act. Reports and other information filed by us with the SEC may be inspected and copied at the SEC's public reference facilities described above. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in section 16 of the Exchange Act. Under the Exchange Act, as a foreign private issuer, we are not required to publish financial statements as frequently or as promptly as United States companies. Copies of our material contracts are kept at our principal executive office. I.

Subsidiary Information

Not Applicable. ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 Company 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 Company’s Audit Committee oversees management’s compliance with the Company’s financial risk management policy. The fair value of the Company’s financial instruments approximates their carrying value unless otherwise noted. The types of risk exposure and the way in which such exposures are managed are as follows: A.

Currency Risk

As the Group operates in an international environment, some of the Group’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Group’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Group are reported in Canadian dollars in the Group’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 Group and may also affect the value of the Group’s assets and liabilities and the amount of shareholders’ equity. As noted below, the Group has certain financial assets and liabilities denominated in foreign currencies. The Group does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, the Group maintains cash and cash equivalents in the currencies used by the Group to meet short ‐ term liquidity requirements. Below is a summary of the assets and liabilities denominated in a currency other than the Canadian dollar that would be affected by changes in exchange rates relative to the Canadian dollar. The values are the Canadian dollar equivalent of the respective asset or liability that is denominated in US dollars or South African rand. 54

2013 $ 25,042 (1,796) 3,887 (5,160) -

Cash and cash equivalents Bank overdraft Trade and other receivables Trade and other payables Zimbabwe advance dividend accrual B.

2012 $ 26,451 1,687 (4,858) (1,987)

Interest Rate Risk

Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Unless otherwise noted, it is the opinion of management that the Group is not exposed to significant interest rate risk as it has no debt financing apart from short term borrowings utilized in Zimbabwe. The Group’s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Group manages its interest rate risk by endeavoring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Group’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions. In the monetary policy statement announced by the Governor of the Reserve Bank of Zimbabwe (“RBZ”) in February 2009, the debt owing by RBZ to Blanket Mine was converted into a Special Tradable Gold-Backed Foreign Exchange Bond, with a term of 12 months and an 8% interest rate. The Bond plus accrued interest is guaranteed by RBZ on maturity. Blanket Mine has been unable to sell the Bond at an acceptable discount rate and the RBZ did not redeem the Bond on the initial maturity date nor any subsequently advised maturity dates. As a result of the uncertain redemption date and the lack of information coming from the RBZ, the Bond has been written down to nil whilst Blanket continues to retain legal ownership of the RBZ debt. C.

Concentration of Credit Risk

Credit risk is the risk of a financial loss to the Company if a gold sales customer fails to meet its contractual obligation. In 2013, gold sales were made to Rand Refineries in South Africa and Metalor Technologies in Switzerland and the payment terms stipulated in the service delivery contract have been adhered to in all instances. All funds outstanding at December 31, 2013, for bullion delivered have subsequently been received in full. D.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company 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 Company’s holdings of cash and cash equivalents. The Company 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. 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 Company’s mineral resource properties is related to the price of gold, platinum, copper 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 Company’s cash flows. 55

Gold prices historically have fluctuated widely and are affected by numerous factors outside of the Company'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. ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not Applicable. ITEM 13 - DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES Not Applicable. ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not Applicable. ITEM 15 - CONTROLS AND PROCEDURES A.

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, 2013. 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, 2013, and we have concluded our disclosure controls and procedures were effective as at December 31, 2013. B.

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

Caledonia maintains adequate systems of internal accounting and administrative controls, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced. Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICOFR”). Any system of internal controls over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. At December 31, 2012 we reported a material weakness relating to segregation of duties at the Africa office in South Africa. During the year ended December 31, 2013 we remediated this weakness by appointing an assistant to the Chief Financial Officer (“CFO”) to assume responsibility for the preparation of Caledonia’s consolidated financial statements and allow the CFO to oversee the reporting process which enhanced the ICOFR. This represented a material change in our internal controls. 56

At December 31, 2013 we have tested our ICOFR and management has evaluated the effectiveness of Caledonia’s internal control over financial reporting and concluded that such internal control over financial reporting was effective and there were no material weaknesses. As part of their monitoring and oversight role, the Audit Committee performs a review and conducts discussions with management. No material exceptions were noted based on the additional procedures and no evidence of fraudulent activity was found. The Company has evaluated ICOFR using independent consultants in the past who assessed the effectiveness of controls over financial reporting using an internationally acceptable framework considered appropriate for the group.

C.

Attestation Report of registered public accounting firm

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits us to provide only management's report in this Annual Report; the Dodd-Frank Act permits a "non-accelerated filer" to provide only management's report on internal control over financial reporting in an Annual Report and omit an attestation report of the issuer's registered public accounting firm regarding management's report on internal control over financial reporting and (ii) as we qualify as an "emerging growth company" under section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and are therefore exempt from the attestation requirement. D.

Changes in internal controls over financial reporting.

Apart from the appointment of the assistant to the CFO 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. ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT Caledonia’s Board of Directors has determined, as at April 30, 2014 that the three members of its Audit Committee are considered independent as defined under NI 52-110 and as defined pursuant to Section 803 of the NYSE MKT Company Guide (as such definition may be modified or supplemented) and considered to be financially literate as such terms are defined under National Instrument 52-110 Audit Committees and one of the members can be considered to be an expert. The financial expert serving on the audit committee is Mr. Johan Holtzhausen. Mr. Holtzhausen and Messrs., J. Kelly and L. Wilson are all independent directors under the applicable rules. The SEC has indicated that the designation of an audit committee financial expert does not make that person an "expert" for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the audit committee. ITEM 16B - CODE OF ETHICS 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. 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 20-F Annual Report and is incorporated herein by reference. It has not been amended. The text of this code of ethics has been posted on the Company website. ( www.caledoniamining.com ) 57

ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the audit service fees billed by our external auditors, BDO Canada LLP and KPMG Inc., for the periods indicated:

Audit fees Audit – related fees Tax fees All other fees TOTAL

2013 (1) $ -Cdn

2012 (2) $-Cdn.

275,000 32,000 1,500 308,500

261,000 125,100 4,900 391,000

Notes: (1)

Represents fees charged by KPMG Inc. (see Item 16F below)

(2)

Represents fees charged by BDO Canada LLP 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 preapproval of the fees, the Audit Committee recommend to the board of directors to accept the estimated audit fees given by the auditors.

ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not Applicable. ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not Applicable. ITEM 16F - CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT The Audit Committee of the board of directors of the Company conducted a review of the Corporation's audit requirements, and as a result of the review, the audit committee resolved to recommend changing the Company's auditors from BDO Canada LLP (“BDO”) to KPMG Inc.(“KPMG”) effective as of April 30, 2013, being the expiry of BDO's current appointment following the filing of the Corporation’s 2012 Form 20F. On March 19, 2013, the board of directors of the Company approved the recommendation of the audit committee described above. (i)

The report issued by BDO for the years ended December 31, 2011 and 2012 did not contain an adverse opinion nor a disclaimer opinion nor was qualified nor modified as to uncertainty, audit scope or accounting principles.

(ii)

During the two most recent reporting periods of December 31, 2011 and 2012 there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

(iii)

During the reporting period December 31, 2012 KPMG consulted to the Company on the application of accounting principles relating to the indigenisation transaction of Blanket Mine whereby the Company disposed of 51% of the shareholding of Blanket Mine. The accounting principles determined to be appropriate are reflected in the annual financial statements for the Company for the year ended December 31, 2012.

(iv)

During the December 31, 2011 year end KPMG consulted to the Company on the transition to IFRS accounting principles. 58

ITEM 16G - CORPORATE GOVERNANCE Not Applicable. ITEM 16H - MINE SAFETY DISCLOSURE Not Applicable. ITEM 17 - FINANCIAL STATEMENTS Responded to in Item 18 The financial statements and schedules appear on pages F-1 through F-54 of this Annual Report and are incorporated herein by reference. Our audited financial statements as prepared by our management and approved by the audit committee include: Consolidated Statement of Profit and loss and other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the consolidated financial statements All the above statements are available on the Company’s website – www.caledoniamining.com or under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“ SEDAR ”) at www.sedar.com ITEM 19 – EXHIBITS Financial Statements Description Financial Statements and Notes

Page F1- F54

Exhibit List Exhibit No. 1.1 1.2 4.1 12.1 12.2 13.1 15.1 15.2 15.3 15.4

Name Articles of Incorporation By-laws Stock Option Plan Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Summary of Independent Technical Report on the Blanket Mine Property in Zimbabwe date June 28, 2011 Property and Claims Information Blanket Shareholder Rights Plan Share Subscription Agreements – Blanket Mine 59

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION To the Shareholders of Caledonia Mining Corporation: Management has prepared the information and representations in these consolidated financial statements. The consolidated financial statements of Caledonia Mining Corporation (“the Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and, where appropriate, these statements include some amounts that are based on best estimates and judgment. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects. The Management Discussion and Analysis (“MD&A”) also includes information regarding the impact of current transactions, sources of liquidity, capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected. The Group maintains adequate systems of internal accounting and administrative controls, 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 consolidated financial statements and expressing an opinion on them. Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICOFR”). Any system of internal controls over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. At December 31, 2012 we reported a material weakness relating to segregation of duties at the Africa office in South Africa. During the year ended December 31, 2013 we remediated this weakness by appointing an assistant to the Chief Financial Officer (“CFO”) to assume responsibility for the preparation of Caledonia’s consolidated financial statements and the CFO will now oversee the reporting process which will enhance the ICOFR. This represents a material change in our internal controls. At December 31, 2013 we have tested our ICOFR and management has evaluated the effectiveness of Caledonia’s internal control over financial reporting and concluded that such internal control over financial reporting was effective and there were no material weaknesses. As part of their monitoring and oversight role, the Audit Committee performs a review and conducts discussions with management. No material exceptions were noted based on the additional procedures and no evidence of fraudulent activity was found. The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Audit Committee is composed of three independent directors. This Committee meets periodically with management and the external auditor to review accounting, auditing, internal control and financial reporting matters. The consolidated financial statements have been audited by the Group’s independent auditor, KPMG Inc., in accordance with Canadian Auditing Standards. The independent auditors’ 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, 2013 were approved by the Board of Directors and signed on its behalf on March 28, 2014. (Signed) S. E. Hayden

(Signed) S. R. Curtis

President and Chief Executive Officer

Vice-President, Finance and Chief Financial Officer

F-1

REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders Caledonia Mining Corporation Inc.: We have audited the accompanying consolidated statement of financial position of Caledonia Mining Corporation Inc. and subsidiaries (“the Company”) as of December 31, 2013, and the related consolidated statements of profit or loss and other comprehensive income, cash flows, and changes in equity for the year ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Caledonia Mining Corporation Inc. and subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year ended December 31, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

KPMG Inc. /s/ KPMG Inc. KPMG Crescent 85 Empire Road Parktown South Africa May 15, 2014 F-2

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 statement of financial position as at December 31, 2012, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years ended December 31, 2012 and 2011, 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, 2012 and its financial performance and its cash flows for the years ended December 31, 2012 and 2011 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 26, 2013 F-3

Caledonia Mining Corporation

Consolidated statements of profit or loss and other comprehensive income (In thousands of Canadian dollars)

For the years ended December 31,

Note

Revenue Less: Royalty Production costs Depreciation Gross profit Administrative expenses Share-based payment expense Indigenisation expenses Foreign exchange gain/(loss) Impairment Results from operating activities Finance income Finance cost Net finance costs Profit before tax Tax expense (Loss)/Profit for the year Other comprehensive income Items that are or may be reclassified to profit or loss Foreign currency translation differences of foreign operations Other comprehensive income for the year, net of income tax Total comprehensive income for the year (Loss)/Profit attributable to:

8

9 20 5 12 10 10 11

Shareholders of the Company Non-controlling interests

2013 $ 65,113 (4,544) (27,412) ( 3,276) 29, 881 (7,772) (68) 1,677 (14,203) 9,515 24 (132) (108) 9,407 (9,897) (490)

2012 $ 75,221 (5,261) (25,653) (3,392) 40,915) (4,055) (14,569) (1,700) (4) (330) 20,257 79 (160) (81) 20,176 (12,818) 7,358

2011 $ 55,705 (2,514) (21,093) (2,983) 29,115 (3,351) (1,101) (326) 303 (3,884) 20,756 55 (217) (162) 20,594 (8,464) 12,130

2,254 2,254 1,764

(1,589) (1,589) 5,769

265 265 12,395

)

8,720

)

(1,362) 7,358

(3,055 2,565

(Loss)/Profit for the year Total comprehensive income attributable to:

(490

12,130 )

Shareholders of the Company Non-controlling interests Total comprehensive income for the year (Loss)/Earnings per share Basic (loss)/earnings - $ per share

(726 2,490 1,764 18

(0,061) ) (0,061

Diluted (loss)/earnings - $ per share The accompanying notes on page 8 to 53 are an integral part of these consolidated financial statements. On behalf of the Board: “S.E. Hayden”

- Director and “S.R.Curtis” - Director F-4

12,130 -

7,112 (1,343) 5,769 0.172 0.172

12,395 12,395 0.24 0.24

Caledonia Mining Corporation

Consolidated statements of financial position (In thousands of Canadian dollars) Note

2013 December 31

2012 December 31

12 11

33,448 33,448

36,471 62 36,533

13

6,866 177 3,889 25,222 36,154 69,602

5,508 126 1,718 27,942 35,294 71,827

16 17

57,607 156,069 (161,651) 52,025 (51) 51,974

197,137 13,677 (153,399) 57,415 (1,796) 55,619

21 11

1,572 8,522 10,094

1,015 5,913 6,928

22 5

4,600 1,138 1,796 7,534 17,628 69,602

5,775 1,987 1,518 9,280 16,208 71,827

As at Assets Property, plant and equipment Deferred tax asset Total non-current assets Inventories Prepayments Trade and other receivables Cash and cash equivalents Total current assets Total assets

14 15

Equity and liabilities Share capital Reserves Retained loss Equity attributable to shareholders Non-controlling interests Total equity Liabilities Provisions Deferred tax liability Total non-current liabilities Trade and other payables Advance dividend accrual - indigenisation Income taxes payable Bank overdraft Total current liabilities Total liabilities Total equity and liabilities

15

The accompanying notes on page 8 to 53 are an integral part of these consolidated financial statements. On behalf of the Board: “S.E. Hayden” - Director and “S.R.Curtis” - Director F-5

Caledonia Mining Corporation

Consolidated statements of changes in equity (In thousands of Canadian dollars)

Note

Share capital

$ Balance at December 31, 2011 Transactions with owners: Share based payment transaction – on indigenisation transaction Shares-based payment transaction Advance dividend paid to NCI Shares issued Blanket Mine indigenisation NCI introduced Total comprehensive income: Profit/(loss) for the year Other comprehensive income for the year Balance at December 31, 2012 Transactions with owners: Reduction of stated capital Shares-based payment transaction Dividends paid Shares issued Movement within equity Total comprehensive income: (Loss)/profit for the year Other comprehensive income for the year Balance as December 31, 2013

Investment Revaluation Reserve

$

Foreign Currency Translation Reserve

$

$

Retained Loss

40,014

-

-

11,867 408 -

-

11,867 408 974

2,294 -5,707 -

14,161 408 -5,707 974

-

737

-

-

-3,697

-2,960

2,960

-

197,137

5

-1,608 -2,010

-

15,682

8,720 -153,399

8,720 -1,608 57,415

-1,362 19 -1,796

7,358 -1,589 55,619

-140,000 470 -

-5

-

140,000 -

68 -

-5,202 5

68 -5,202 470 -

-745 -

68 -5,947 470 -

57,607

-

2,329 319

140,000

15,750

-3,055 -161,651

-3,055 2,329 52,025

2,565 -75 -51

-490 2,254 51,974

5 20 5 16

974

-

5

-

The accompanying notes on page 8 to 53 are an integral part of these consolidated financial statements. On behalf of the Board: “S.E. Hayden” - Director and “S.R.Curtis” - Director F-6

$

$

$ -

Total Equity

-158,422

-1,139

$

Total

Noncontrolling interests (“NCI”)

3,407

5

16

Share based payment

$ -

196,163

17 20

Contributed Surplus

40,014

Caledonia Mining Corporation

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

Note

Cash flows from operating activities Cash generated by operating activities Interest received Interest paid Tax paid Cash from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Proceeds on sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Dividends paid Advance dividend paid Proceeds from the exercise of share options Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at year end

2013 $

2012 $

2011 $

23 10 10 11

22,768 24 (132) (7,974)

41,420 79 (160) (11,618)

25,300 55 (217) (7,710)

14,686

29,721

17,428

12

(11,738) (11,738)

(7,909) 38 (7,871)

(8,528) (8,528)

(5,947) (1,987) 470 (7,464) (4,516) 27,942 23,426

(3,739) 974 (2,765) 19,085 9,256 (399) 27,942

38 38 8,938 398 (80) 9,256

5 16

15

The accompanying notes on page 8 to 53 are an integral part of these consolidated financial statements. On behalf of the Board: “S.E. Hayden”- Director and “S.R.Curtis” - Director F-7

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 1

Reporting entity

Caledonia Mining Corporation (the “Company”) is a company domiciled in Canada. The address of the Company’s registered office is Suite 4009, 1 King Street West, Toronto, Ontario, M5H 1A1, Canada. The consolidated financial statements of the Group as at and for the year ended December 31, 2013 comprises the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is primarily involved in the operation of a gold mine and the acquisition, exploration and development of mineral properties for the exploration of base and precious metals. 2

Basis for preparation

(i) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements were authorised for issue by the Board of Directors on March 28, 2014. (ii) 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: •

equity-settled share-based payment arrangements measured at fair value on grant date.

(iii) Presentation currency These consolidated financial statements are presented in Canadian dollars, which is the reporting currency of the Company. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (iv) Going concern These consolidated financial statements have been prepared on a going-concern basis. 3

Use of estimates and judgments

Management makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and assumptions are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual experience may differ from these estimates and assumptions. The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income. F-8

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 3

Use of estimates and judgments - (continued)

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 also discussed below: i)

Indigenisation transaction

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

Site restoration provisions

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

Exploration and evaluation (“E&E”) expenditure

The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgments when determining which expenditures are recognised as exploration and evaluation assets (“E&E properties”). The Group also makes estimates and assumptions regarding the possible impairment of E&E properties by evaluating whether it is likely that future economic benefits will flow to the Group, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

F-9

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

3

Use of estimates and judgments - (continued)

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

Income taxes

Significant estimates and assumptions are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities. In addition, the Group applies judgment in recognizing deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized or sufficient estimated taxable income against which the losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped. v)

Share-based payment transactions

The Group measures the cost of equity-settled share based payment transactions with employees, directors as well as with Indigenisation Shareholders (refer note 5 and 20) by reference to the fair value of the equity instruments on the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the appropriate valuation model, considering the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield. Additional information about significant judgments and estimates and assumptions for estimating fair value for share-based payment transactions are disclosed in note 20. Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Group’s stock options.

F - 10

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

3

Use of estimates and judgments - (continued) vi)

Impairment

At each reporting date, the Group determines if impairment indicators exist, and if present, performs an impairment review of the non-financial assets held in the Group. The exercise is subject to various judgmental decisions and estimates. Financial assets are also reviewed regularly for impairment. Further details of the judgments 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 judgment decisions. The determination of the functional currency has a bearing on the translation process and ultimately the foreign currency translation reserve. viii)

Measurement of fair values

Some of the Group’s accounting policies and disclosure require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has established a control framework with respect to the measurement of fair values. This includes a valuation team member who has overall responsibility for overseeing all significant fair value measurements. Significant valuation issues are reported to the Group’s Audit Committee. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Where applicable, fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation technique as follows:

4



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



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



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

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

F - 11

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies - (continued)

(a) Basis of consolidation i)

Subsidiaries

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

Loss of control

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

Non-controlling interests

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

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (b) Foreign currency i)

Foreign operations

The functional currencies of Caledonia Mining Corporation and its subsidiaries are the Canadian dollar, US dollar, Zambian Kwacha and South African Rand (“ZAR”). These consolidated financial statements have been translated to Canadian dollars as follows: • Assets and liabilities are translated using the exchange rate at period end; and • Income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions.

F - 12

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies - (continued)

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from the item are considered to form part of the net investment in a foreign operation and are recognized in Other Comprehensive Income (“OCI”). When the Group disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are recognized in profit or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in OCI related to the subsidiary are reallocated between controlling and non-controlling interests. All resulting translation differences are reported in OCI. ii)

Foreign currency translation

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

Non-derivative financial assets

The Group initially recognizes loans and receivables on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognizes 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 recognized 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 realize the asset and settle the liability simultaneously. F - 13

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies - (continued) The Group has the following non-derivative financial assets: trade and other receivables as well as cash and cash equivalents. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. The impairment loss on receivables is based on a review of all outstanding amounts at period end. Bad debts are written off during the year in which they are identified. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial . Loans and receivables include trade and other receivables as well as cash and cash equivalents. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. ii)

Non-derivative financial liabilities

Financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Group has the following non-derivative financial liabilities: bank overdrafts, Zimbabwe advance dividend accrual as recognized in 2012 and trade and other payables. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. (d) Share capital Share capital is classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

F - 14

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( 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 labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets. ii)

Exploration and evaluation expenditure

Once the legal right to explore a property has been acquired, costs directly related to exploration and evaluation expenditure (“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, direct administrative costs and depreciation on plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the year in which they occur. Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development. Exploration and evaluation assets are tested for impairment before the assets are transferred to mine under development. All direct costs related to the acquisition, exploration and development of mineral properties are capitalized until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. If economically recoverable ore reserves are developed, capitalized costs of the related property are reclassified as mineral properties being depleted. Purchased software that is integral to the functionality of the related equipment is capitalized 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 recognized within other income in profit or loss. iii)

Subsequent costs

The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow F - 15

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued)

to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. iv)

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 recognized 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



fixtures and fittings including computers 4 to 10 years



motor vehicles 4 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (f) Inventories Consumable stores are measured at the lower of cost and net realizable value. The cost of consumable stores is based on the weighted average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of gold in process, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the common course of business, less the estimated costs of completion and selling expenses.

F - 16

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued)

(g) Impairment (i) Financial assets (including receivables) A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost provides objective evidence of impairment. The Group considers evidence of impairment for receivables at both the specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”). F - 17

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued)

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognized if the carrying amount of a CGU exceeds its estimated recoverable amount. The estimated recoverable amount is the greater of its fair value less cost to sell and its estimated value in use. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amount of other assets in the unit (group of units) on a pro rata basis. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been an indication of reversal and a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (iii) Impairment of exploration and evaluation assets The test for recoverability of E&E assets can combine several CGUs as long as the combination is not larger than a segment. The definition of a CGU does, however, change once development activities have begun. There are special impairment triggers for E&E assets. Despite certain relief in respect of impairment triggers and the level of aggregation, the impairment standard is applied in measuring the impairment of E&E assets. Reversals of impairment losses are permitted in the event that the circumstances that resulted in impairment have changed. E&E assets are only assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount and upon transfer to development assets (therefore there is no requirement to assess for indication at each reporting date until the entity has sufficient information to reach a conclusion about the commercial viability and technical feasibility of extraction). Indicators of impairment include the following: •

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



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



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



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

F - 18

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued) (h) Employee benefits (i) Short-term employee benefits Short-term employee benefits are expensed when the related services are provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (ii) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value. (i) Share-based payment transactions (i) Share-based payment relating to employees and directors The grant date fair value of share-based payment awards granted to employees and directors is recognized as an expense, with a corresponding increase in equity, over the vesting period of the award. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period or immediately for awards already vested. Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive income. F - 19

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies – (continued) (ii) Share-based payment relating to the indigenisation transaction

The grant date fair value of equity-settled share-based payment transactions with Indigenisation Shareholders (note 5) was recognized immediately as an expense in 2012 in the statement of comprehensive income, with a corresponding increase in equity, when the transaction became effective. (j) Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. (k) Site restoration The Group recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to mineral properties along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pre-tax rate that reflects the time value of money and are related to the provision are used to calculate the net present value. The Group’s estimates of rehabilitation costs, which are reviewed annually, could change as a result of changes in regulatory requirements, discount rates, effects of inflation and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mineral properties with a corresponding entry to the rehabilitation provision. Changes resulting from production are charged to profit and loss for the period. The costs of rehabilitation projects that were included in the rehabilitation provision are recorded against the provision as incurred. The cost of on-going current programs to prevent and control pollution is charged against profit and loss as incurred. (l) Revenue Revenue from the sale of precious metals is recognized when the metal is accepted at the refinery, risk and benefits of ownership are transferred and the receipt of proceeds is substantially assured. Revenue is measured at the fair value of the gold price at the date of the transaction. (m) Finance income and finance costs Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on the rehabilitation provisions and impairment losses recognized on financial assets and also includes interest F - 20

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies – (continued)

on bank overdraft balances. Finance income and finance costs further include foreign exchange differences on financial assets and financial liabilities. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method. (n) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax expense are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (o) Earnings per share The Group presents basic and diluted earnings per share (“EPS”) data for its shares. Basic EPS is calculated by dividing the adjusted profit or loss attributable to shareholders of the Group (see note 18) by the weighted average number of shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding, adjusted for own shares held, for the effects of all dilutive potential shares, which comprise share options granted to employees and directors as well as any dilution in Group earnings originating from dilutive partially recognized non-controlling interests at a subsidiary level.

F - 21

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued)

(p) Changes in accounting policies The Group has adopted the following new standards, including any consequential amendments to other standards, with a date of 1 January 2013. •

Disclosures - Offsetting Financial Assets and Financial Liabilities ( Amendments to IFRS 7)



IFRS 10 - Consolidated Financial Statements (2011)



IFRS 12 - Disclosure of Interest in Other Entities



IFRS 13 - Fair Value Measurement



Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)



IAS 19 - Employee Benefit (2011)



Recoverable Amount Disclosure for Non-Financial Assets (Amendments to IAS 36) ( 2013)

The nature and effects of the changes are explained below. Offsetting of financial assets and financial liabilities The Group does not have financial assets and financial liabilities that are offset. As a result, the amendments to IFRS 7 did not require expanded disclosure about the offsetting of financial assets and financial liabilities. Subsidiaries As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. IFRS 10 (2011) introduces a new model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the ability to use its power to affect those returns. In accordance with the transition provisions of IFRS 10 (2011), the Group reassessed the control conclusion for its investees at 1 January 2013. The results of the assessment did not require a change in its control conclusion in respect of its investments. Refer to note 5 for the assessment of the control in Blanket Mine. F - 22

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies – (continued)

Disclosure of interest in other entities As a result of IFRS 12, the Group has expanded its disclosure about its interests in subsidiaries (see Note 5). Fair value measurement IFRS 13 establishes a single framework for measuring fair value and making disclosure about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurements date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the Group has included additional disclosure in this regard (see Note 3(viii). In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Group’s assets and liabilities. Presentation of items of OCI As a result of the amendments to IAS 1, the Group has modified the presentation of items of OCI in its statement of profit or loss and OCI, to present separately items that would be reclassified to profit or loss from those that would never be reclassified to profit or loss. (q) Standards, amendments and interpretations issued but not yet effective There are new or revised Accounting Standards and Interpretations in issue that are not yet effective. Management have considered all of these Standards and Interpretations and have concluded that those that may have an impact on future consolidated financial statements are the following:

F - 23

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

4

Significant accounting policies – (continued)

IFRS 9 IAS 32 amendment IAS 36 amendment

Standard/Interpretation Financial Instruments Financial Instruments: Presentation & Financial Instruments: Disclosures Disclosure of recoverable amount for non-financial assets

Effective date* To be decided January 1, 2014 January 1, 2014

Adoption date by the Group To be decided 31 December 2014 31 December 2014

* Annual periods beginning on or after IFRS 9 Financial Instruments IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. The effective date of IFRS 9 was 1 January 2015. The effective date has been postponed and a new date is yet to be specified. The Group will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised and impairment and macro-hedge accounting guidance is still outstanding. There may be an impact on the Group’s statement of financial position and statement of comprehensive income resulting from the new guidance on financial instruments. Management continues to monitor the development of the new standards on financial instruments and the potential impact the new standards may have as the date of adoption draws closer. Amendments to IAS 32 Financial Instruments: Presentation The amendments to IAS 32 will be adopted by the Group in the year ending December 31, 2014. An entity may offset financial assets and financial liabilities when it currently has a legally enforceable right to set off the recognized amounts. IAS 32 previously did not provide guidance on what was meant F - 24

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 4

Significant accounting policies – (continued)

by “currently has a legally enforceable right to set off”. The amendment provides guidance in IAS 32 to clarify the criteria. The amendments clarify that an entity currently has a legally enforceable right to set-off if that right is: • •

Not contingent on a future event; and

Enforceable in all of the following circumstances: - The normal course of business; - The event of default; - The event of insolvency or bankruptcy.

IFRS 7 disclosure requirements have been amended so that the IASB and the US Financial Accounting Standards Board will have common disclosure requirements. The amendment’s impact is limited to presentation and disclosure and will not impact recognition and measurement of financial instruments of the Group. IAS 36 Amendment - Disclosure of recoverable amount for non-financial assets The Group will adopt the amendments to IAS 36 (2013) in the year ending 31 December 2014. To the extent that impairment is recognized and the recoverable amount is determined with reference to fair value less costs of disposals, the required additional disclosure will be provided. 5

Blanket Zimbabwe Indigenisation Transaction On February 20, 2012 the Group announced it had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe pursuant to which the Group agreed that indigenous Zimbabweans would acquire an effective 51% ownership interest in the Blanket Mine for a paid transactional value of US$30.09 million. Pursuant to the above, the Group entered into agreements with each Indigenisation Shareholder to sell its 51% ownership interest in Blanket Mine as follows:

• A 16% interest was sold to the National Indigenisation and Economic Empowerment Fund (“NIEEF”) for US$11.74 million. • A 15% interest was sold to Fremiro, which is owned by Indigenous Zimbabweans, for US$11.01 million. • A 10% interest was sold to Blanket Employee Trust Services (Private) Limited (“BETS”) for the benefit of present and future managers and employees for US$7.34 million. The shares in BETS are

F - 25

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

5 Blanket Zimbabwe Indigenisation Transaction – (continued) •

held by the Blanket Mine Employee Trust (Employee Trust) with Blanket Mine’s employees holding participation units in the Employee Trust. A 10% interest was donated to the Gwanda Community Share Ownership Trust (“GCSOT”). Blanket Mine undertook and paid a non-refundable donation of US$1 million to the GCSOT.

The Group facilitated the vendor funding of these transactions (other than the 10% interest which was donated to the GCSOT) which are repaid by way of dividends from Blanket Mine. 80% of dividends declared by Blanket Mine are used to repay such loans and the remaining 20% unconditionally accrues to the respective Indigenous Shareholders. Outstanding balances on the facilitation loans attract interest at a rate of 10% over the 12-month LIBOR. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. In order to ensure the repayment from Blanket Mine to Caledonia of the vendor funding , Reserve Bank of Zimbabwe approval was obtained for the facilitation loans to be declared by Caledonia Holdings Zimbabwe (Blanket Mine’s parent company) to a wholly-owned subsidiary of Caledonia Mining Corporation as a dividend in specie on February 14, 2013 and withholding tax amounting to US$1.504 million was paid and expensed on March 5, 2013. The Government of Zimbabwe has confirmed that the implementation of the terms of the MoU and the underlying subscription agreements constitute full compliance with the requirements of the Indigenisation Act and the Regulations and Blanket Mine has received its certificate of compliance which confirms that Blanket Mine is fully compliant with the requirements of Section 3(1)(a) of the Indigenisation and Economic Empowerment Act (Chapter 14.33). Completion of the above agreements was subject to specified conditions as contemplated in the MoU, underlying agreements and related transactions to give effect to the Indigenisation Transaction. The final condition precedent was met on September 5, 2012 and on that date, the Indigenisation Shareholders effectively acquired 51% ownership and economic interest in the Blanket Mine. Accounting treatment Further to the implementation of the Indigenisation Transaction, a 51% shareholding in Blanket Mine was acquired by the Indigenisation Shareholders. The directors of Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”) a wholly owned subsidiary of the Company, performed an assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), to determine whether Blanket Mine should continue to be consolidated by CHZ. Following the IFRS 10 assessment, it was concluded that CHZ retained control and should continue to consolidate Blanket Mine and accordingly

F - 26

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

5

Blanket Zimbabwe Indigenisation Transaction – (continued)

the subscription agreements will be accounted for as a transaction with non-controlling interests and share based payments. Control as contemplated in IFRS 10 was considered to exist on the basis of exercisable power conferred on Caledonia Holdings Zimbabwe to cast majority votes at board level as contained in the registered founding documents of Blanket Mine as well as consideration of the de facto control aspects of the relative shareholdings in Blanket Mine. The aspect of control under IFRS 10 is reviewed at each reporting period. Accordingly, on the effective date of the transaction, the subscription agreements were accounted for as follows: • Non-controlling interests (“NCI”) were recognized on the portion of shareholding upon which dividends declared by Blanket Mine will accrue unconditionally to equity holders as follows: (a) 20% of the 16% shareholding of NIEEF; (b) 20% of the 15% shareholding of Fremiro; • • • • •

(c) 100% of the 10% shareholding of the GCSOT. This effectively means that NCI is recognized at Blanket Mine level at 16.2% of the net assets. The remaining 80% of the shareholding of NIEEF and Fremiro is recognized as non-controlling interests to the extent that their attributable share of the net asset value calculated at fair value of Blanket Mine exceeds the balance on the facilitation loans including interest. At December 31, 2013, the attributable net asset value calculated at fair value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognized. As the facilitation loans are only repayable from dividends declared by Blanket Mine, a loan receivable is not recognized and the arrangement is accounted for within equity. The difference between the fair value of the equity instruments granted and facilitation loans, taking into account all the interest terms and advance dividend rights (see below), was recognized as a share based payment expense (refer Note 20). The transaction with the BETS will be accounted for in accordance with IAS 19 Employee Benefits (profit sharing arrangement) as the ownership of the shares does not ultimately pass to the employees. The employees are entitled to participate in 20% of the dividends accruing to the 10% shareholding in Blanket Mine if they are employed at the date of such distribution. To the extent that 80% of the attributable dividends exceed the balance on the BETS facilitation loan they will accrue to the employees at the date of such declaration.

F - 27

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

5

Blanket Zimbabwe Indigenisation Transaction – (continued) The Employee Trust and BETS are structured entities which are effectively controlled and consolidated by Blanket Mine. Accordingly the shares held by BETS are effectively treated as treasury shares in Blanket Mine and no NCI is recognized. Balance of facilitation loan at Shareholding NCI recognized NCI subject to facilitation loan Dec 31, 2013 # Dec 31 2012 US$ US$ NIEEF 16% 3.2% 12.8% 11,742 11,742 Fremiro 15% 3.0% 12.0% 11,360 11,402 GCSOT 10% 10.0% 10% -* -* 7,573 7,602 BETS 51% 16.2% 24.8% 30,675 30,746

The balance on the facilitation loans is reconciled as follows: US$ 30,090 2,705 (2,120) 30,675

Subscription price funded on loan account – at 5 September 2012 Interest accrued Dividends used to repay loans Balance at December 31, 2013 * The shares held by BETS are effectively treated as treasury shares (see above). ~ Accounted for under IAS19 Employee Benefits. # Facilitation loans are accounted for as equity instruments and are accordingly not recognized as

loans receivable (see above).

The following Indigenisation costs have been incurred: 2013 $ -

Donation to Gwanda GCSOT Legal fees Professional consulting fees Advance dividends

In anticipation of completion of the underlying subscription agreements, Blanket Mine agreed to an advance dividend arrangement with NIEEF and the GCSOT as follows: (a) Advances to the GCSOT against their right to receive dividends declared by Blanket Mine on their shareholding as follows:

F - 28

2012 $ 1,140 21 539 1,700

2011 $ 326 326

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

5

Blanket Zimbabwe Indigenisation Transaction – (continued) • • •

A US$2 million payment on or before September 30, 2012; A US$1 million payment on or before February 28, 2013; and A US$1 million payment on or before April 30, 2013.

These advance payments have been recorded to a loan account bearing interest at a rate of 10% over the 12-month LIBOR. The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the GCSOT. (b) An advance payment of US$1.8 million to NIEEF against their right to receive dividends declared by Blanket Mine on their shareholding. The advance payment has been debited to an interest-free loan account and is repayable by way of set off of future dividends on the Blanket Mine shares owned by NIEEF. Whilst any amount remains outstanding on the NIEEF advance dividend loan account, interest on the NIEEF facilitation loan is suspended. The advance dividend payments have been recognized as a distribution to shareholders on the effective date of the subscription agreements. The loans arising are not recognized as loans receivable by Blanket Mine as they are only repayable by set off of future dividend entitlements and are accordingly regarded as equity instruments. The movement in the advance dividend loans is reconciled as follows: NIEEF US$ 1,800 1,800 (1,442) 358

Balance at January 1, 2012 Paid Interest accrued Balance at December 31,2012 Paid Interest accrued Dividends used to repay advance dividends Balance at December 31, 2013

GCSOT US$ 2,000 62 2,062 2,000 346 (901) 3,507

Total US$ 3,800 62 3,862 2,000 346 (2,343) 3,865

The advance payments to the GCSOT of US$2 million, payable in February and April 2013, were recognized as a liability in the year ended 2012 as Blanket Mine had a present obligation to make the payments. These amounts were paid in 2013. The dividends paid by Blanket Mine to NCI as presented in the statement of changes and equity represented the cash flows to NCI. F - 29

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

6

Financial risk management Overview

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

Currency risk (refer note 24) Interest rate risk (refer note 24) Credit risk (refer note 24) Liquidity risk (refer note 24)

This note and note 24 presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements. The Group is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital, and protecting current and future Group assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets. The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Group’s Audit Committee oversees management’s compliance with the Group’s financial risk management policy. The fair value of the Group’s financial instruments approximates their carrying value unless otherwise noted. The types of risk exposure and the way in which such exposures are managed are as follows: (a) Currency risk The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities. The Group does not apply hedge accounting to manage its exposure to currency risk. (b) Interest rate risk The Group is exposed to interest rate risk arising from its cash and cash equivalents invested with financial institutions as well as its overdraft facility. Management’s policy is to invest cash in financial institutions that offer competitive interest rates. F - 30

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

6

Financial risk management – (continued)

(c) Credit risk Credit risk is the risk of a financial loss to the Group if a third party fails to meet its contractual obligation. Gold sales were made to Rand Refineries in South Africa and Metalor Technologies in Switzerland during the year and the payment terms were stipulated in the service delivery contract and are adhered to in all instances. Cash is deposited only with “A” grade banks. Gold sales are only made to one refinery at a time. (d) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity by ensuring that there is sufficient capital to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be sufficient to cover the anticipated cash requirements. Senior management is also actively involved in the review and approval of planned expenditure by regularly monitoring cash flows from operations and anticipated investing and financing activities. Since the inception of dollarization in Zimbabwe in 2009, all appropriate insurance cover has been reinstated. The Zimbabwean operations are now covered for public liability risk, assets all risk and comprehensive cover on all motor vehicles. 7

Capital Management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue the mining operations and exploration potential of the mineral properties. The Group’s capital includes shareholders’ equity, comprising issued share capital, reserves, accumulated other comprehensive income, accumulated deficit, bank loans and non-controlling interests. 2013 $ Total equity 51,974

2012 $ 55,619

The Group’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its on-going operations, to provide returns for shareholders, accommodate any rehabilitation provisions and to pursue growth opportunities. As at December 31, 2013, the Group is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy. F - 31

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

8

Production costs

Salaries and wages Consumable materials Site restoration Exploration Safety On mine administration 9

2012 $ 8,491 13,286 43 831 251 2,751 25,653

2011 $ 6,197 12,117 50 21 290 2,418 21,093

2013 $ 723 879 333 439 28 340 364 1,785 216 2,096 569 7,772

2012 $ 447 704 443 189 83 151 194 1,648 196 4,055

2011 $ 196 779 298 103 41 270 145 1,368 151 3,351

Administrative expense

Investor relations Management contract fee Audit fee Legal fee and disbursements Accounting services fee Listing fees Directors fees Salaries and wages Employee benefits relating to indigenisation Donation to scholarship fund Other

10

2013 $ 10,105 14,470 151 (288) 595 2,379 27,412

Finance income and finance costs 2013 $ 24 (132) (108)

Finance income on financial assets measured at amortized cost Interest expense on financial liabilities measured at amortized cost

F - 32

2012 $ 79 (160) (81)

2011 $ 55 (217) (162)

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

11

Tax expense 2013 $

2012 $

Current and withholding tax Deferred tax expense Origination and reversal of temporary differences Tax expense

2011 $

7,712

12,547

8,005

2,185 9,897

271 12,818

459 8,464

Reconciliation of tax rate 2013 % (Loss)/Profit for the year Total tax expense Profit before tax Income tax using Company's domestic tax rate Tax rate differences in foreign jurisdictions Change in tax rate Foreign currency difference Withholding taxes Share based payment expenses and other non-deductible expenses Accrual for tax dispute Change in unrecognized deferred tax assets Tax expense

26.5

2013 $ (490) 9,897 9,407

2012 %

2012 $ 7,358 12,818 20,176

2,493

26.5

5,347

2011 %

28.25

2011 $ 12,130 8,464 20,594

5,818

(1,450) (12) 1,837

(210) (254) 439 1,763

(1,476) 1,075 2,589

1,222 -

4,364 806

613 -

5,807 9,897

563 12,818

(155) 8,464

Changes in the applicable domestic tax rate are the result of enacted tax rate changes in Canada in 2012. Deferred tax assets and liabilities Unrecognized deferred tax assets Deferred tax assets have not been recognized in respect of the following items: 2013 $ 3,594 16,029 19,623

Deductible temporary differences Non-capital tax loss carried forward

F - 33

2012 $ 3,338 10,478 13,816

2011 $ 3,427 9,826 13,253

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars ) 11

Tax expense – (continued)

recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Property, plant and equipment Unrealized foreign exchange Inventories Provisions Other items Non-capital tax loss carry forwards Tax assets (liabilities)

Assets 2013 $ 221 221

2012 $ 61 4 (3) 62

Liabilities 2013 $ (8,619) (85) (39)

2012 $ (6,156) 66 177 -

Net 2013 $ (8,619) (85) 221 (39)

2012 $ (6,156) 61 66 181 (3)

(8,743)

(5,913)

(8,522)

(5,851)

The company has not recognized deferred tax liabilities in respect of unremitted earnings in foreign subsidiaries as it is not considered probable that this temporary difference will reverse in the foreseeable future. At December 31, 2013, these earnings amount to $22,241 (2012- $14,689; 2011- $8,351). As December 31, 2013 the Company has a capital loss carry forwards of $70,701 (2012- $51,245) in Canada for which the benefits have not been recognized in these consolidated financial statements. The non-capital tax losses expire as set out below. The deductible temporary differences do not expire under the current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilize the benefits there from.

Year 2014 2015 2026 2027 2028 2029 2030 2031 2032 No Expiry

Amount $ 1,583 1,863 2,780 3,054 2,660 1,661 1,617 2,238 2,667 39,316 59,039

F - 34

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

11

Tax expense – (continued)

Movement of net deferred taxes on temporary differences 2013 Property Plant and Equipment Unrealized forex Inventories Provisions Other items Non capital tax loss carry forward

2012 Property Plant and Equipment Unrealized forex Inventories Provisions Other items Non capital tax loss carry forward

Recognized in other comprehensive income $

Balance December 31, 2013 $

158 40 (36) 0 (2 186)

(115) (61) (309) 0 0 0 (485)

(8 619) 0 (85) 221 (39) 0 (8 522)

Balance January 1, 2012 $

Recognized in profit or loss $

Recognized in other comprehensive income $

Balance December 31, 2012 $

(6 466) 119 59 373 (3) 206 (5 712)

143 (49) 8 (182) 0 (191) (271)

167 9 (1) (10) 0 (15) 132

(6 156) 61 66 181 (3) 0 (5 851)

Balance January 1, 2013 $

Recognized in profit or loss $

(6 156) 61 66 181 (3) 0 (5 851)

(2 348)

F - 35

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

2011 Property Plant and Equipment Unrealized forex Inventories Provisions Other items Non capital tax loss carry forward

Balance January 1, 2011 $

Recognized in profit or loss $

Rrecognized in other comprehensive income $

Balance December 31, 2011 $

(5,595) 9 40 384 11 (5,151)

(759) 110 18 (19) (3) 194 (459)

(112) 1 8 1 (102)

(6 466) 119 59 373 (3) 206 (5 712)

Tax paid 2013 $ 1,518 7,712 (118) (7,974) 1,138

Income tax payable at January 1 Tax expense – current year Foreign currency movement Tax paid Income tax payable at December 31 F - 36

2012 $ 295 12,547 294 (11,618) 1,518

2011 $ 8,005 (7,710) 295

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

12

Property, plant and equipment

Land and buildings $ Cost Balance at January 1, 2012 Additions Disposals (1) Impairment Foreign exchange movement Balance at December 31, 2012

4,200 472 (138) 4,534

Mineral properties Mineral properties depreciated not depreciated $ $ 9,934 2,280 (622) (267) 11,325

7,443 3,614 (219) 10,838

Plant and equipment Fixtures and fittings $ $ 19,998 767 (773) (646) 19,346

Balance at January 1, 2013 4,534 11,325 10,838 19,346 Additions 3,240 2,695 4,451 979 Foreign exchange movement 378 971 1,031 1,151 8,152 14,991 16,320 21,476 Balance at December 31, 2013 (1) This represents the disposal of the rehabilitation asset as a result of the reduced present value of the rehabilitation provision as assessed at year end. There are commitments to purchase plant and equipment totaling $178 (2012 - $1,030) at year end.

F - 37

Motor vehicles $

Total $

1,152 74 (30) 1,196

1,155 702 (39) (36) 1,782

43,882 7,909 (661) (773) (1,336) 49,021

1,196 85 25 1,306

1,782 288 149 2,219

49,021 11,738 3,705 64,464

Caledonia Mining Corporation Notes to the Consolidated Financial Statements For the years ended December 31, 2013 and 2012 ( in thousands of Canadian dollars )

12

Property, plant and equipment - (continued)

Depreciation and Impairment losses Balance at January 1, 2012 Depreciation for the year Disposals DE recognition Foreign exchange movement Balance at December 31, 2012 Balance at January 1, 2013 Depreciation for the year Impairment (1) Foreign exchange movement Balance at December 31, 2013 Carrying amounts At December 31, 2012 At December 31, 2013

Land and buildings $ 737 262 -

Mineral properties depreciated $ 1,528 543 -

Mineral properties not depreciated $ -

(21) 978

(43) 2,028

-

978 272

(b) 13,713

85 1,734

2,028 620 178 2,826

3,556 6,418

9,297 12,165

(a) 399

F - 38

Plant and equipment $ 6,178 2,279 (443) (255) 7,759

Fixtures and fittings $ 923 82 -

Motor vehicles $ 598 226 (3)

(23) 982

(18) 803

Total $ 9,964 3,392 (3) (443) (360) 12,550

620 14,333

7,759 2,016 91 20 9,886

982 70 11 1,063

803 298 73 1,174

12,550 3,276 14,203 987 31,016

10,838 1,987

11,587 11,590

214 243

979 1,045

36,471 33,448

-

12 (1)

Property, plant and equipment - (continued) The impairments detail herein relate to the following: (a) This relates to the cost attributable to mineral rights held by Eersteling Gold Mine. Due to changed legislation this cost no longer has value to the Group. This mineral right does not relate to the application lodged for the New Order Mining Right applied for by Eersteling Gold Mine. (b) This relates to exploration expenditure incurred at Caledonia Nama Limited in Zambia. The full carrying value of costs previously incurred and capitalized are impaired in 2013 for the following reasons:

13



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



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

Inventories 2013 $ 5, 995 871 6,866

Consumable stores Gold in process

2012 $ 4,720 788 5,508

Inventory comprises gold in process at the Blanket Mine and consumable stores utilized by Blanket Mine. Consumables stores are disclosed net of any write downs or provisions of obsolete items. Inventory expensed during the year amounted to $14,470 (2012 - $13,286: 2011 - $12,117 14

Trade and other receivables 2013 $ 1,662 1,331 896 3,889

Bullion revenue receivable VAT receivables Deposits for stores and equipment and other receivables

The bullion revenue receivable was received shortly after the delivery of the gold and no provision for non-recovery is required. The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables is disclosed in notes 6 and 24. F - 39

2012 $ 1,103 615 1,718

15

Cash and cash equivalents 2013 $ 25,222 25,222 (1,796) 23,426

Bank balances Cash and cash equivalents in the statement of financial position Bank overdrafts used for cash management purposes Cash and cash equivalents in the statement of cash flows

2012 $ 27,942 27,942 27,942

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 24. The bank overdraft facility of US$2.5 million bears interest at 8% above the bank’s base rate. The facility is unsecured and valid for 12 months and is renewable. The facility is repayable on demand. 16

Share capital

Authorized Unlimited number of shares of no par value Unlimited number of preference shares of no par value. (1) Number

of fully paid shares 50,054,928 1,391,250 51,446,178 671,730 52,117,908

Issued December 31, 2011 Share options exercised during the year December 31, 2012 Reduction in stated capital(note 17) Share options exercised during the year December 31, 2013

The holders of share capital are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Group. (1) The

directors of the Group took a decision to consolidate the issued shares on a 10:1 basis. Subsequent to the consolidation all the fully paid shares are stated after the consolidation effect. F - 40

Amount $ 196,163 974 197,137 (140,000) 470 57,607

17

Reserves

Investment revaluation reserve The investment revaluation reserve arises from the valuation of investments at fair value through statement of comprehensive income. The amount has been transferred to retained loss in the current year since the investment has been disposed. Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations with functional currencies that differ from the presentation currency. Share-based payment reserve The share-based payment reserve comprises the fair value of equity instruments granted to employees, directors and service providers under share option plans and equity instruments issued to Zimbabwe indigenisation shareholders under the Indigenisation Transaction (refer Note 5). Contributed surplus The contributed surplus reserve comprises the reduction in stated capital as approved by shareholders at the special general meeting on 24 January 2013 so as to be able to commence dividend payments. Reserves reconciliation 2013 $ 319 15,750 140,000 156,069

Investment revaluation reserve Foreign currency translation reserve Share-based payment reserve Contributed surplus Total - December 31 18

2012 $ 5 (2,010) 15,682 13,677

(Loss)/earnings per share

Basic (loss)/earnings per share The calculation of basic (loss)/earnings per share at December 31, 2013 was based on the (loss)/profit attributable to shareholders of ($3,160) (2012: $8,720, 2011- $12,130), and a weighted average number of shares outstanding of 51,986,466 (2012: 50,597,068, 2011- 50,039,623). F - 41

18

(Loss)/Earnings per share – (continued)

Weighted average number of shares (In number of shares)

Note

Issued share capital at January 1 Weighted average issues during the year Weighted average number of shares at December 31

16

2013

2012

2011

51,446,178 540,288 51,986,466

50,054,928 542,140 50,597,068

50,016,928 22,695 50,039,623

The weighted average number of shares as at 31 December 2012 was 505,970,684. The directors of the Group took a decision to consolidate the issued shares on a 10:1 basis. Subsequent to the consolidation, the weighted average number of shares was restated to 50,597, 068.

(Loss)/profit attributable to shareholders Blanket Mine Employee Trust Adjustment Adjusted (loss)/profit attributable to shareholders Diluted (loss/)earnings attributable to shareholders

2013 $ (3,055) (105) (3,160) (3,160)

2012 $ 8,720 8,720 8,720

2011 $ 12,130 12,130 12,130

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

(0.061)

0.172

0.24

• •

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

The interest of NIEEF and Fremiro shareholding were anti-dilutive in the current year (i.e. the value of the options was less than the outstanding loan balance) and accordingly there was no adjustment to fully diluted earnings attributable to common shareholders. F - 42

18

(Loss)/Earnings per share – (continued)

The calculation of diluted earnings per share at December 31, 2013 was based on the (loss)/profit attributable to shareholders of ($3,160) (2012: $8,720, 2011- $12,130), and a weighted average number of shares and potentially dilutive shares outstanding of 52, 007,646 (2012: 50,833,182, 2011- 50,987,987), calculated as follows: Weighted average number of common shares (In number of shares) Weighted average number of shares (basic) at December 31 Effect of dilutive options Weighted average number of shares (diluted) at December 31 Diluted (loss)/earnings - $ per share

2013

2012

2011

51,986,466 21,180 52,007,646 ($0.061)

50,597,068 236,114 50,833,182 $0.172

50,039,623 948,363 50,987,987 $0.24

The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. The potential dilutive effect of 2,576,920 options (2012 – 2,577,900, 2011- 1,640,000) was excluded from the above calculations because these options were anti-dilutive. 19

Defined Contribution Plan

Under the terms of the Mining Industry Pension Fund (“Fund”) in Zimbabwe, eligible employees contribute a fixed percentage of their eligible earnings to the Fund. Blanket Mine makes a matching contribution plus an inflation levy as a fixed percentage of eligible earnings of these employees. The total contribution by Blanket Mine for the year ended December 31, 2013 was $445 (2012: $341, 2011- $288). 20

Share-based payments

At December 31, 2013 the Group has the following share-based payment arrangements: (a) Share option programme (equity-settled) The Group has established a rolling stock option plan (the "Plan") for employees, officers, directors, consultants and other service providers. In accordance with the Plan, options are granted with exercise prices equal to the market price of the shares at the date of grant. Terms and conditions of share option program The terms and conditions relating to the grants under the Plan are that all options are to be settled by physical delivery of shares. Under the current Plan, the maximum term of the options is 5 years. Under the Plan, the aggregate number of shares that may be issued will not exceed 10% of the number of the shares issued of the Company. At December 31, 2013, the Company has the following options outstanding: F - 43

20

Share-based payments – (continued) Number of Options 21,000 30,000 1,646,000 30,000 930,920 190,000 2,847,920

(1)

Expiry Date (1)

Exercise Price $ 0.70 0.70 1.30 0.70 0.90 0.72

April 29, 2014 Mar 23, 2014 Jan 31, 2016 May 11, 2016 Sept 10, 2017 Nov 21,2018

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

The continuity of the options granted, exercised, cancelled and expired under the Plan during 2013 and 2012 are as follows: Number of Options 4,254,000 (1,391,250) 931,900 (465,000) 3,329,650 (671,730) 190,000 2,847,920

Options outstanding and exercisable at December 31, 2011 Exercised Granted Expired Options outstanding and exercisable at December 31, 2012 Exercised Granted Options outstanding and exercisable at December 31, 2013

Weighted Avg. Exercise Price $ 0.93 0.70 0.90 0.70 1.05 0.70 0.72 1.11

The weighted average remaining contractual life of the outstanding options is 2.76 years (2012: 2.92 years). The weighted average share price at the date of exercise for the options exercised in the year was $1.16. The vesting of options is determined at the discretion of the board of directors, at the time the options are granted. As of December 31, 2013 there are 2,363,871 stock options available to grant (2012: 1,814,968 stock options) Inputs for measurement of grant date fair values The fair value of share based payments noted above was estimated using the Black-Schöles Option Pricing Model with the following assumptions for the years ended December 31, 2013 and 2012. F - 44

20

Share-based payments – (continued)

Risk-free interest rate Expected dividend yield Expected stock price volatility (based on historical volatility) Expected option life in years Exercise price Share price at grant date Fair value at grant date Expected forfeiture rate

2013

2012

0.95% Nil 57.88% 5 0.72 0.72 0.356 0%

0.1% Nil 58.37% 5 0.90 0.90 0.44 0%

(b) Equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction The equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction (refer note 5), excluding Blanket Mine Employee Trust Services (Private) Limited (BETS), were accounted for as sharebased payments under IFRS 2 Share Based Payment , whilst the equity instruments granted to BETS have been accounted for under IAS 19 Employee benefits . The fair value of the equity instruments on the grant date of September 5, 2012 was determined for each transaction as being the sum of the present value of the following components: • The value of the shares at the point that any loans provided to purchase the shares or fund advance dividends are paid off; • The value of any advance dividends paid to participants; • The value of any “trickle dividends”, being the 20% entitlements, paid to participants while the loans to purchase the shares are outstanding. To determine the fair value of the equity-settled share-based payment and take into account the unique features of each transaction, the Monte Carlo Simulation technique was used as the valuation model to allow for the uncertainty around the potential scenarios that affect the value of each arrangement. Projected market values were estimated using a stochastic modelling methodology based on Geometric Brownian Motion model. Assumptions used based on the grant date of September 5, 2012 were as follows: Fair value of Blanket Mine Expected volatility (based on historical volatility) Risk free rates Country specific adjustment Dividend yield Withholding tax Interest on loans

C$45,065 65% USD swap curve with country specific adjustments 17.3% 14.8% 5% of dividends 10% F - 45

20 Share-based payments – (continued) The share based payment expense in the current year was as follows: Share-based payment expenses Note Share options granted Option value of the Blanket Mine indigenisation transaction Total costs 21

2013 $ 68

2012 $ 408

2011 $ 1,101

68

14,161 14,569

1,101

5

Provisions

Site restoration Site restoration relates to the net present value of the estimated cost of closing down the mine and site and environmental restoration costs, estimated to be paid in 2022 (Blanket Mine) based on the estimated life of mine. Site restoration costs are capitalized to mineral properties at initial recognition and amortized systematically over the estimated life of the mine. $ 1,785 (58) 43 (755) 1,015

Balance at January 1, 2012 Foreign currency adjustment Unwind of discount Change in estimate during the year Balance at December 31, 2012 Balance at January 1, 2013 Foreign currency adjustment

1,015

1 (1) 557 1,572 1,572

Unwind of discount Change in estimate during the year Balance at December 31, 2013 Non-current The discount rates currently applied in the calculation of the net present value of the Blanket Mine provision is 2.75% (2012 – 15.00%). F - 46

22

Trade and other payables 2013 $ 1,026 3,574 4,600

Trade payables Other payables and accrued expenses

2012 $ 4,855 920 5,775

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 6 and note 24. The Directors consider the carrying amounts of trade and other payables as a reasonable approximation of their fair values. 23

Cash flow information

Non-cash items and information presented separately on the cash flow statement: (Loss)/Profit for the year Adjustments for: Net finance costs Income tax expense Site restoration Share-based payment expense Depreciation Impairment Other Cash generated by operations before working capital changes Inventories Prepayments Trade and other receivables Trade and other payables Cash generated by operating activities 24

Financial instruments

Credit risk Exposure to credit risk The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure. The trade receivable relate to gold bullion sold to Metalor Technologies before year end. The amount was settled in January 2014. F - 47

2013 $ (490)

2012 $ 7,358

2011 $ 12,130

108 9,897 556 68 3,276 14,203 27,618 (1,767) (51) (2,226) (806) 22,768

81 12,818 (91) 14,569 3,392 330 38,457 (1,151) 195 1,846 2,073 41,420

162 8,464 67 1,101 2,983 3,884 (13) 28,778 (1,858) (241) (1,338) (41) 25,300

24

Financial instruments – (continued)

Based on past experience, the directors believe that the outstanding receivable by Metalor Technologies is of good credit quality. The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was: Carrying amount

2013 $ 3,889

Canada Other regions Impairment losses

2012 $ 30 1,683

None of the trade and other receivables is past due at the year-end date. Liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. December 31, 2013 $ Non-derivative financial liabilities Trade and other payables Bank overdraft

December 31, 2012

Carrying amount

6 months or less $

4,600 1,796 6,396

4,600 1,796 6,396

Carrying amount $

Non-derivative financial liabilities Trade and other payables Advance dividend accrual - indigenisation

6 months or less $

5,775 1,987 7,762

5,775 1,987 7,762

Currency risk As the Group operates in an international environment, some of the Group’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Group’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Group are reported in Canadian dollar in the Group’s consolidated financial statements. F - 48

24 Financial instruments – (continued) The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Group and may also affect the value of the Group’s assets and liabilities and the amount of shareholders’ equity. As noted below, the Group has certain financial assets and liabilities denominated in foreign currencies. The Group does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, the Group maintains cash and cash equivalents in the currencies used by the Group to meet short ‐ term liquidity requirements. Below is a summary of the assets and liabilities denominated in a currency other than the Canadian dollar that would be affected by changes in exchange rates relative to the Canadian dollar. The values are the Canadian dollar equivalent of the respective asset or liability that is denominated in US dollars or South African rand. 2013 2012 $ $ Cash and cash equivalents 25,042 26,451 Bank overdraft (1,796) Trade and other receivables 3,887 1,687 Trade and other payables (5,160) (4,858) Advance dividend accrual – Indigenisation (1,987) The following exchange rates applied during the year: (In Canadian dollars) USD 1 Rand 1 Kwacha

Average rate during the year 2013 $ 1.0300 0.1071 0.1895

2012 $ 0.9998 0.122 0.0002

Spot rate December 31, 2013 $ 1.0696 0.1019 0.1921

December 31, 2012 $ 0.9935 0.1162 0.0002

Sensitivity analysis A strengthening/weakening of the Canadian dollar, against the USD and Rand at December 31 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2012. Equity Profit or loss (Effect in thousands of Canadian dollars) $ $ December 31, 2013 USD (for each 1 percent movement) 2 132 Rand (for each 1 percent movement) 10 101 24 Financial instruments – (continued) December 31, 2012 USD (for each 1 percent movement) Rand (for each 1 percent movement)

325 3 F - 49

71 2

Interest rate risk Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Unless otherwise noted, it is the opinion of management that the Group is not exposed to significant interest rate risk as it has no debt financing apart from short term borrowings utilized in Zimbabwe. The Group’s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Group manages its interest rate risk by endeavoring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Group’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions. In the monetary policy statement announced by the Governor of the Reserve Bank of Zimbabwe (“RBZ”) in February 2009, the debt owing by RBZ to Blanket Mine was converted into a Special Tradable GoldBacked Foreign Exchange Bond, with a term of 12 months and an 8% interest rate. The Bond plus accrued interest is guaranteed by RBZ on maturity. Blanket Mine has been unable to sell the Bond at an acceptable discount rate and the RBZ did not redeem the Bond on the initial maturity date nor any subsequently advised maturity dates. As a result of the uncertain redemption date and the lack of information coming from the RBZ, the Bond has been written down to $nil whilst Blanket Mine continues to retain legal ownership of the RBZ debt. The basis for determining all other fair values is disclosed in note 4. 25

Dividends

The following dividends were declared and paid by the Company (excluding NCI) for the year ended December 31, 2013. 2013 $ 5,202

$0.0998 per qualifying share (2012: nil) 26

Contingencies

The Group may be subject to various claims that arise in the normal course of business. Management believes there are no contingent liabilities of the Group arising from claims. F - 50

2012 $ -

27

Related parties

Transactions with key management personnel Key management personnel compensation: In addition to their salaries, the Group also contributes to a defined contribution plan on behalf of eligible employees. For the terms of the plan refer to note 19: Defined Contribution Plan. Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 20). Key management personnel compensation comprised. 2013 $ 1,526 36 1,562

Short-term benefits Share-based payments

2012 $ 1,357 401 1,758

2011 $ 1,289 947 2,336

Key management personnel and director transactions: A number of key management personnel, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of those entities transacted with the Group in the reporting period. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows: F - 51

27

Related parties – (continued) Note

Management fees, allowances and bonus paid or accrued to a company for management services provided by the Group’s President

(i)

Balance As at December 31, 2013 2012 $ $

2013 $

2012 $

2011 $

736

704

588

-

-

38 88 285

43 111 215

48 97 145

-

6 48

Rent for office premises paid to a company owned by members of the President’s family. Legal fees and disbursements up to retirement. Directors fees paid

(i)

The Group has entered into a management agreement with Epicure Overseas S.A. (“Epicure”), a Panamanian Group, for management services provided by the President. The Group is required to pay a base annual remuneration adjusted for inflation and bonuses set out in the agreement. In the event of a change of control of the Group, 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.

28

Group entities Country of incorporation

Subsidiaries of the Company Caledonia Holdings Zimbabwe (Private) Limited Caledonia Mining Services Limited Caledonia Kadola Limited Caledonia Mining (Zambia) Limited Caledonia Nama Limited Caledonia Western Limited Dunhill Enterprises Inc. Eersteling Gold Mining Corporation Limited Fintona Investments (Proprietary) Limited Greenstone Management Services (Proprietary) Limited Greenstone Management Services Limited Maid O’ Mist (Proprietary) Ltd Mapochs Exploration (Proprietary) Ltd Caledonia Holdings (Africa) Limited Blanket (Barbados) Holdings Limited Blanket Mine (1983) (Private) Limited (3) Blanket Employee Trust Services (Private) Limited (BETS) (1) Blanket Mine Employee Trust (Employee Trust) (1)

Zimbabwe Zimbabwe Zambia Zambia Zambia Zambia Panama South Africa South Africa South Africa United Kingdom South Africa South Africa Barbados Barbados Zimbabwe Zimbabwe Zimbabwe

Legal shareholding 2013 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (2) 49 -

( 1 ) BETS

and the Employee Trust are consolidated as structured entities. to Note 5, for the effective shareholding. NCI has a 16.2% interest in cash flows of Blanket only. (3) Blanket has no subsidiary companies. (2) Refer

F - 52

2012 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 -

29

Operating Segments

The Group's operating segments have been identified based on geographic areas. The Group has four reportable segments as described below, which are the Group's strategic business units. The strategic business units are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s President reviews internal management reports on at least a quarterly basis. The following geographical areas describe the operations of the Group's reportable segments: Corporate, Zimbabwe, South Africa and Zambia. The accounting policies of the reportable segments are the same as described in note 4. The Zimbabwe operating segments comprise an operating gold mine. The Zambia segments consist of Nama copper project and cobalt project. The South Africa geographical segment comprise a gold mine as well as sales made by Greenstone Management Services (Proprietary) Limited to the Blanket Mine. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management report that are reviewed by the Group's CFO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. F - 53

29

Operating Segments – (continued)

Information about reportable segments

2013

Corporate $

External Revenue Royalty Production costs Management fee Other income/(expense) Administrative expenses Share-based payment expenses Depreciation Impairment Finance income Finance expense Foreign exchange gain/(loss) Segment profit before income tax Tax expense Segment profit after income tax Geographic segment assets: Current Non-Current Expenditure on property, plant and equipment Intercompany balances Geographic segment liabilities Current Non-current Intercompany balances

Zimbabwe $

-

South Africa $

Inter-group eliminations adjustments

Zambia $

$

Total

5,770 (2,872) (68) 24 111 2,965 (1,842) 1,123

10,618 (9,749) 4,820 (2,304) (15) (399) 2,336 5,307 (1,573) 3,734

(13,713) (13,713) (13,713)

10,917 (216)

15,064 55 60,893

10,599 34,840 9,461 1,773

10,446 331 35 6,287

45 2,637 -

(1,778) (395) (68,953)

36,154 33,448 11,738 -

160 3,601

5,731 9,360 783

1,635 734 38,623

8 25,946

(68,953)

7,534 10,094 -

F - 54

-

$

65, 113 (4,544) (28,580) (4,820) (5,770) (2,380) (3,491) (91) (132) 1 15,306 (6,482) 8,824

(10,618)

230 (771) (458) (458)

65,113 (4,544) (27,412) (7,772) (68) (3,276) (14,203) 24 (132) 1,677 9,407 (9,897) (490)

2012 External revenues Royalty Production costs Management fee Administrative expenses Share-based payment expenses Depreciation Impairment Finance income Finance expense Indigenisation costs Foreign exchange gain/(loss) Segment profit before income tax Tax expense Segment profit after income tax Geographic segment assets: Current Non-current Expenditure on property, plant and equipment Intercompany balances Geographic segment liabilities Current Non-current Intercompany balances

Corporate $

Zimbabwe $ (2,390) (408)

South Africa $

Inter-group eliminations adjustments

Zambia $

$ -

Total $

17 (292) (3,073) (3,073)

75,221 (5,261) (26,842) (4,761) (214) (14,161) (3,414) (330) 62 (160) (1,396) (4) 18,740 (11,482) 7,258

8,054 (7,202) 4,761 (1,451) (183) (12) 453 4,420 (1,336) 3,084

(8,054) 8,391 205 (453) 89 89

19,581 55 -

9,847 25,129 4,371

5,824 608 15

42 10,741 3,614

66,008

-

6,616

-

(91) (72,624)

-

909 13,680

7,259 6,620 1,422

1,106 308 35,966

6 21,556

(72,624)

9,280 6,928 -

-

Major customer Revenues from Rand Refinery in South Africa and Metalor Technologies in Switzerland amounted to $65,113 in 2013. In 2012, revenue from Rand Refinery in South Africa amounted to $75,221. F - 55

75,221 (5,261) (25,653) (4,055) (14,569) (3,392) (330) 79 (160) (1,700) (4) 20,176 (12,818) 7,358 35,294 36,533 7,909

2011

Corporate $

External Revenue Royalty Production costs Management fee Administrative and share-based payment expenses Depreciation Impairment Finance income Finance cost Foreign exchange gain/(loss) Segment profit before income tax Income tax expense

Zimbabwe $

1 -

South Africa $

Inter-group eliminations adjustments

Zambia $

$

Total $

55,704 (2,514) (20,751) (3,647)

9,331 (9,249) 3,647

-

(9,331) 8,907 -

(3,411) -

(305) (2,947) -

(1,062) (210) (3,884) 55

-

174 -

(4,778) (2,983) (3,884) 55

173 (3,237) -

(217) 130 25,453

592 (780)

-

(592) (842)

(217) 303 20,594

(8,791)

327

-

(3,237)

16,662

(453)

-

-

55,705 (2,514) (21,093) -

(8,464)

Segment profit after income tax

F - 56

(842)

12,130

SIGNATURE The registrant 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 Annual Report on its behalf. Date

April 30, 2014 CALEDONIA MINING CORPORATION By:

F - 57

/s/ Stefan Hayden Stefan Hayden Chief Executive Officer

COMPANY ACT ARTICLES - of CALEDONIA MINING CORPORATION PART 1 - INTERPRETATION 1.1

In these Articles, unless the context otherwise requires: (a) "Board of Directors" or "Board" means ths directors of the Company for the time being; (b) "Company Act" means the Company Act of trie Province of British Columbia from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act; (c)

"directors" means the directors of the Company for the time being;

(d) "month" means calendar month; (e) "ordinary resolution" has the meaning assiqned thereto by the Company Act; (f) "register" means the register of membeis to be kept pursuant to the Company Act; (g) "registered address" of a member shall be his address as recorded in the register; (h) "registered address" of a director means his address as recorded in the Company's register of directors to be kept pursuant to the Company Act; (i) "seal" means the common seal of the Company, if the Company has one; (j) "special resolution" has the meaning assigned thereto by the Company Act. 1.2 form. 1.3

Expressions referring to writing shall be construed as including references to printing, lithography, typewriting, photography and other modes of representing or reprodicing words in a visible Words importing the singular include the pi.ural and vice versa; and words importing a male person include a female person and a corporation;

1.4

The definitions in the Company Act siall with the necessary changes and so far as applicable apply to these Articles.

1.5

The regulations contained in Table "A" in the First Schedule to the Company Act shall not apply to the Company. PART 2 - SHARE AND SHARE CERTIFICATES

2.1 Every member is entitled, without charge, to one certificate representing the share or shares of each class held by him or, upon paying a sum not exceeding the amount permitted by the Company Act as the directors may from time to time determine, several certificates each for one or more of those shares; provided that, in respect of a share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders or to his duly authorized agent shall be sufficient delivery to all; and provided further that the Company shall not be bound to issue certificates representing redeemable shares, if such shares are to be redeemed within one* month of the date on which they were allotted. Any share certificate may may be sent through the post by registered prepaid mail to the member entitled thereto at his registered address, and the Company shall not be liable for any loss occasioned to the member owing to any such share certificates so sent being lost in the post or stolen. 2.2

If a share certificate:

(a) is worn out or defaced, the directors may, upon production to them of that certificate and upon such other terms, if any, as they may think fit, order the certificate to be cancelled and may issue a new certificate in lieu thereof; (b) is lost, stolen or destroyed, then upon proof thereof to the satisfaction of the directors and upon such indemnity, if any, as the directors deem adequate being given, a new share certificate in place thereof shall be issued to the person entitled to the losrt, stolen or destroyed certificate, or (c) represents more than one share and the registered owner thereof surrenders it to the Company with a written request that the Company issue registered in his name two or more certificates each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate so surrendered, the Company shall cancel the certificate so surrendered and issue in place thereof certificates in accordance with the request.

A sum, not exceeding that permitted by the Company Act, as the directors may from time to time fix, shall be paid to the Company for each certificate issued under this Article. 2.3 Except as required by law or statute or these Articles, no person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by law or statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. 2.4 Every share certificate shall be signed manually by at least one officer or director of the Company, or by or on behalf of a registrar, branch registrar, transfer agent or branch transfer agent of the Company and any additional signatures nay be printed or otherwise mechanically reproduced and a certificate signed in either of those fashions shall be as valid as if signed manually, notwithstanding that any person whose signature is so printed or mechanically reproduced on a share certificate has ceased to hold the office that he is stated on such certificate tD hold at the date of the issue of a share certificate. 2.5 Save as provided by the Company Act, the Company shall not give financial assistance by means of a loan, guarantee, the provision of security or otherwise for the purpose of or in connection with the purchase of or subscription by any person for shares or debt obligations issued by the Company or an affiliate of the Company or upon the security in whole or in part, of a pledge or other charge upon the shares or debt obligations issued by the Company or an affiliate of the Company. 2.6

Every share certificate issued by the Company shall be in such form as the directors approve and shall comply with the Company Act.

2.7

The certificates of shares registered in the name of two or more persons shall be delivered to the person first named on the register.

PART 3 - ISSUE OF SHARES 3.1 Subject to the Company Act and to any direction to the contrary contained in a resolution passed at a general meeting authorizing any increase of capital, the issue of shares, whether in the original or any increased capital of the Conpany, shall be under the control of the directors who may, subject: to the rights of the holders of the shares of the Company for the time being issued, allot or otherwise dispose of, and/or grant options on, shares authorized but not yet issued at such times and to such persons, including directors, and in such classes, and in such manner and upon such terms and conditions, and at sush price or for such consideration, as the directors, in their absolute discretion, may determine. 3.2 If the Company is not a reporting company then before allotting any shares of the Company, the directors shall first offer those shares pro rata to the members; but if there are classes of shares, the directors shall first offer the shares to be allotted pro rata to the members holding shares of the class proposed to be allotted and if any shares remain, the directors shall then offer the remaining shares pro rata to the other members. The offer shall be made by notice specifying the number of shares offered and limiting a time for acceptance. After the expiration of the time for acceptance or on receipt of written confirmation from the person to whom the offer is made that he declines to accept the offer, and if there are no other members holdings shares who should first receive an offer, the directors may for three months thereafter offer the shares to such persons and in such manner as they think most beneficial to the Company; but the offer to those persons shall not be at a price less than, or on terms more favourable than, the offer to the members. Except as otherwise provided in the Company Act, the Company or its directors on behalf of the Company may pay a commission or allow a discount to any person in 3.3 consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares with or without par value in the Company, or procuring or agreeing to procure subscriptions, whether absolutely or conditionally, for any such shares provided that the rate of the commission or discount shall not in the aggregate exceed that permitted by the Company Act. The Company may also pay such brokerage as may be lawful on any shares of the Company whether with or without par value. 3.4 No share may be issued until it is fully paid by the receipt by the Company of the full consideration therefor in cash, property or past services actually performed for the Company. .. A document evidencing indebtedness of the person to whom the shares are allotted is not property for the purpose of this Article. The value of property and services for the purpose of this Article shall be the value determined by the directors by resolution to be, in all circumstances of the transaction, the fair market value thereof•

PART 4 - SHARE TRANSFERS 4.1 Subject to the restrictions, if any, set forth in these Articles, any member may transfer his shares by instrument in writing executed by or on behalf of such member and delivered to the Company or its transfer agent. The instrument of transfer of any share of the Company shall be in the form, if any, on the back of the Company's form of share certificates, and in any form which the directors may approve. If the directors so require, each instrument of transfer shall be in respect of only one class of share. 4.2 Every instrument of transfer shall be executed by the transferor and left at the registered or records office of the Company or at the office of its transfer agent or registrar for registration together with the share certificate for the shares to be transferred and such other evidence, if any, as the directors or the transfer agent or registrar may require to prove the title of the transferor or his right to transfer the shares. All instruments of transfer where the transfer is registered shall be retained by the Company or its transfer agent or registrar and any instrument of transfer, where the transfer is not registered, shall be returned to the person depositing the same together with the share certificate which accompanied the same when tendered for registration. The transferor shall remain the holder of the share until the name of the transferee is entered on the register in respect of that share. 4.3 The signature of the registered owner of c.ny shares, or of his duly authorized attorney, upon the instrument of transfer constitutes an authority to the Company to register the shares specified in the instrument of transfer in the name of the person named in that instrument of transfer as transferee or, if no person is so named, then in any name designated in writing by the person depositing the share certificate and the instrument of transfer with the Company or its agents. 4.4 The Company, and its directors, officers and agents are not bound to enquire into any title of the transferee of any shares to be transferred, and are not liable to the registered or any intermediate owner of those shares, for registering the transfer. 4.5

There shall be paid to the Company in respect of the registration of any transfer a sum, not exceeding that permitted by the Company Act, as the directors deem fit.

PART 5 - TRANSMISSION OF SHARES 5.1 In the case of the death of a member the legal personal representative of the deceased shall be the only person recognized by the Company as having any title to or interest in the shares registered in the name of the deceased. Before recognizing any legal personal representative the directors may require him to obtain a grant of probate or letters of administration in British Columbia. 5.2 Any person, who becomes entitled to a shcire as a result of the death or bankruptcy of any member, upon producing the evidence required by the Company Act, or who become?; entitled to a share as a result of an order of a court of competent jurisdiction or a statute, upon producing such evidence as the directors think sufficient that he is so entitled, may be registered as holder of the share or may transfer the share. PART 6 - ALTERATION OF CAPITAL 6.1

Company may by ordinary resolution f:.led with the Registrar amend its memorandum to increase the share capital of the Company by: (a)

6.2

creating shares with par value or shares without par value, or both;

(b)

increasing the number of shares with par value or shares without par value, or both;

(c)

increasing the par value of a class of shares with par value, if no shares of that class are issued. The directors may determine the price or consideration at or for which shares without par value may be issued.

6.3 Except as otherwise provided by conditions imposed at the time of creation of any new shares or by these Articles, any addition to the authorized capital resulting from the creation of new shares shall be subject to the provisions of these Articles. 6.4 Unless these Articles elsewhere specifically otherwise provide, the provision of these Articles relating to general meetings shall apply, with the necessary changes and so far as they are applicable, to a class meeting of members holding a particular class of shares.

PART 7 - PURCHASE OF SHARES 7.1 Subject to the special rights and restrictions attached to any class of shares, the Company may, by a resolution of the directors and in compliance with the Company Act, redeem or purchase any of its shares at the price and upon the terms specified in such resolution, but no such purchase shall be made if the Company is insolvent at the time of the proposed purchase or the proposed purchase would render the Company insolvent. Unless the Company is purchasing the shares from a dissenting member pursuant to the Company Act, the Company shall make its offer to purchase through the facilities of a stock exchange, if a reporting company, or pro rata to every member who holds shares of the class proposed to be purchased. The shares so purchased by the Company may be sold by it but the Company shall not exercise any vote in respect of these shares while they are held by the Company. PART 8 - BORROWING POWERS 8.1 The directors may from time to time at their discretion authorize the Company to borrow any sum or sums of money or to undertake any obligation (including obligations oi: guarantee or indemnity) for the purposes of the Company and may raise or secure the repayment of that sum or sums or the performance of any such obligation in such manner and upon such terms and conditions, in all respects, as they think fit, and in particular, and without limiting the generality of the foregoing, by the issue of bonds or debentures, or any mortgage or charge, whether specific or floating, or other security on the undertaking of the whole or any part of the property of the Company, both present and future. 8.2 The directors may make any debenture, bonds* or other debt obligations issued by the Company by their terms, assignable free from any equities between the Company and the perso:n to whom they may be issued, or any other person who lawfully acquires the same by assignment, purchase or otherwise, howsoever. 8.3 The directors may authorize the issue of any debentures, bonds or other debt obligations of the Company at a discount, premium or otherwise, and with special or other rights or privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending at general meetings of the Company and otherwise as the directors may determine at or before the time of issue.

8.4

The Company shall keep or cause to be kept in accordance with the Company Act; (a) a register of its debentures and debt obligations, and (b) a register of the holders of its bonds, debentures and other debt obligations,

and subject to the provisions of the Company Act may keep or cause to be kept one or more branch registers of the holders of its bonds, debentures, or other debt obligations within or without the Province of British Columbia as the directors may frDm time to time determine and the directors may by resolution, regulations or otherwise make such provisions as they think fit respecting the keeping of such branch registers. 8.5 If the directors so authorize, or if any instrument under which any bonds, debentures or other debt obligations of the Company are issued so provides, any bonds, debentures and other debt obligations of the Company, instead of being manually signed by the directors or officers authorized in that behalf, may have the facsimile signatures of such directors or officers printed or otherwise mechanically reproduced thereon and in either case, shall be as valid as if signed manually, but no such bond, debenture or other debt obligation shall be issued unless it is manually signed, countersigned or certified by or on behalf of a trust company or other transfer agent or registrar duly authorized by the directors or the instrument under which such bonds, debentures or other debt obligations are issued so to do. Notwithstanding that any persons whose facsimile signature is so used shall have ceased to hold the office that he is stated on such bond, debenture or other debt obligation to hold at the date of the actual issue: thereof, the bond, debenture or other debt obligation shall be valid and binding on the Company. PART 9 - GENERAL MEETINGS 9.1 Subject to Article 9.2 and to the Company Act the first annual general meeting of the Amalgamated Company shall be held within 15 months from the date of amalgamation and thereafter an annual general meeting shall be held once in every calendar year at Z' such time, not being more than 13 months after the holding of the last preceding annual general meeting, and place as the directors shall appoint.

9.2 If the Company is not a reporting company and if all members entitled to attend and vote at the annual general meeting of the Company consent in writing each year to the business required to be transacted at the annual generaL meeting that business shall be as valid as if transacted at an annual general meeting, duly convened and held and, it is not necessary for the Company to hold an annual general meeting that year. 9.3

Every general meeting, other than an annual general meeting, shall be called an extraordinary general meeting.

9.4 The directors may whenever they think fit, and they shall, promptly on the receipt of a requisition of a member or members of the Company representing not less than one-twentieth of such of the issued shares in the capital of the Conpany as at the date of the requisition carry the right of voting in all circumstances at general meetings, call a general meeting of the Company. 9.5

Any such requisition, and the meeting to be called pursuant thereto, shall comply with the provisions of the Company Act.

9.6 Not less than 21 days' notice of any general meeting specifying the time and place of meeting and in case of special business, the general nature of that business shall be given in the manner mentioned in Article 21, or in such other manner, if any, as may be prescribed by ordinary resolution whether previous notice thereof has been given or not, to any person as may by law or under these Articles or other regulations of the Company be entitled to receive such notice from the Company. But the accidental omission to give notice of any meeting to, or the non-receipt of any such notice by, any of such person shall not invalidate any proceedings at that meeting. 9.7 Persons entitled to notice of a general mecsting may waive or reduce the period of notice convening the meeting, by unanimous consent in writing, and may give such waiver before, during or after the meeting. 9.8 Where any special business includes the presenting, considering, approving, ratifying or authorizing of the execution of any document, then the portion of any notice relating to such document shall be sufficient if the same states that a copy of the document or proposed document is or will be available for inspection by members at a place in the Province of British Columbia specified in such notice during business hours in any specified working day or days prior to the date of the meeting.

PART 10 - PROCEEDINGS AT GENERAL MEETINGS 10.1

The following business at a general meoting shall be deemed to be special business: (a) all business at an extraordinary general meeting, and (b) all business that is transacted at an annual general meeting, with the exception of the consideration of the financial statement and the report of the directors and auditors, the election of directors, the appointment of the auditors and such other business as , under these Articles, ought to be transacted at an innual general meeting, or any business which is Drought under consideration by the report of the directors.

10.2 Save as otherwise herein provided a quorun for a general meeting shall be: two members or proxyholders representing two members, or one member and a proxyholder representing another member or two proxyholders personally present at the commencement of the meeting and together holding or representing by proxy not less than 5.0% of the issued shares of a class of shares the holders of which are entitled to attend and to vote at such meeting. 10.3 No business, other than the election of a chairman and the adjournment of the meeting shall be transacted -it any general meeting unless the quorum requisite was present at ths commencement of the meeting. 10.4 If within 1/2 hour from the time appointed for a meeting a quorum is not present, the meeting, if convened by requisition of the members, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place. If at such adjourned meeting a quorum j.s not present within 1/2 hour from the time appointed, the members present or any proxyholder shall be a quorum. 10.5

The Chairman of the Board, if any, or in his absence the President of the Company shall be entitled to preside as chairman at every general meeting of the Company.

10.6 If at any meeting neither the Chairman of the Board, if any, nor President is present within fifteen minutes after the time appointed for holding the meeting or is willing to act as chairman, the directors present shall choose someone of their number to be chairman. If no director be present or if all the directors present decline to take the chair or shall fail to s;o choose, the members or proxyholders present entitled to vote shall choose some person present to be chairman.

10.7 The chairman of the meeting may, with the consent of any meeting at which a quorum is present and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of a general meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at any adjourned meeting. 10.8 Subject to the provisions of the Company Act every question submitted to a general meeting shall be decided on a show of hands unless a poll is, before or on the declaration of the result of the show of hands, directed by the chairman or demanded by a member entitled to vote who is present in person or by proxy, and the chairman shall declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, and such decision shall be entered in the book of proceedings of the Company. A declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 10.9

No resolution proposed at a meeting need be seconded and the chairman of any meeting shall be entitled to move or second a resolution.

10.10 In case of an equality of votes upon a resolution, the chairman shall, either on a show of hands or on c. poll, have a casting or second vote in addition to the vote or votes to which he may be entitled as a member or proxyholder. 10.11 Subject to the provisions of Article 10.12 if a poll is duly demanded as aforesaid, it shall be taken in such manner and at such time within seven days from the date of the meeting and place as the chairman of the meeting directs, and either at once or after an interval or adjournment not exceeding seven days, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded. A demand for a poll may be withdrawn. In the case of any dispute as to the admission or rejection of a vote, the chairman shall determine the same and such determination made in good faith shall be final and conclusive. 10.12

A member entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way.

10.13

No poll may be demanded on the election o:: a chairman of a meeting and a poll demanded on a question of adjournment shall be taken at the meeting without adjournment.

10.14

The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business ether than the question on which a poll has been demanded.

10.15 Every ballot cast upon a poll and every proxy appointing a proxyholder who cast a ballot upon a poll shall be retained by the Secretary for the period and be subject to the inspection as the Company Act may provide, and if not so provided then as may be decided by the meeting at which the proxy or ballot was used. PART 11 - VOTES OF MEMBERS 11.1 Subject to any special rights or restrictions for the time being attached to any shares, on a show of hands every member present in person shall have one vote, and on a poll every member, present in person or by proxy, shall have one vote for each share of which he is the holder. 11.2 Any person who is not registered as a member but is entitled to vote at any general meeting in respect of a share, may vote the share in the same manner as if he were a member; but, unless the directors have previously admitted his right to vote at that meeting in respect of the share, he shall satisfy the directors of his right to vote the share before the time for holding the meeting, or adjourned meeting, as the case may be, at which he proposes to vote. 11.3 Where there are joint members registered in respect of any share, any one of the joint members may vote at. any meeting, either personally or by proxy, in respect of the share as if he were solely entitled to it. If more than one of the joint members is present at any meeting, personally or by proxy, the joint member present whose name stands first on the register in respect of the share shall alone be entitled to vote in respect of that share. Several executors or administrators of a deceased member in whose sole name any share stands shall, for the purpose of this Article, be deemed joint members. 11.4 A corporation, not being a subsidiary, thct is a member may vote by its proxyholder or by its duly authorized representative, who is entitled to speak and vote, and in all other respects exercise the rights of a member and any authorized representative shall be deemed to be a member for all purposes in connection with any general meeting of the Company.

11.5

A member for whom a committee has been duly appointed may vote, whether on a show of hands or on a poll, by his committee and his committee may appoint a proxyholder.

11.6 A member holding more than one share in respect of which he is entitled to vote shall be entitled to appoint one or more proxyholders to attend, act and vote for him on the same occasion. If such member should appoint more than one proxyholder for the same occasion he shall specify the number of shares each proxyholder shall be entitled to vote. 11.7 A proxy or an instrument appointing a cluly authorized representative of a corporation shall be in writing, under the hand of the appointor or of his attorney duly authorized in writing, or, if such appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorized. 11.8 Any person of full age may act as proxyholder whether or not he is entitled on his own behalf to be present and to vote at the . meeting at which he acts as proxyholder. The proxy may authorize the person so appointed to act as proxyholder for the appointor for the period, at such meeting or meetings to the extent permitted by the Company Act. 11.9 A proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice calling the meeting, not less than 48 hours before the time for holding the meeting at which the person named in the proxy proposes to vote, or shall be deposited with the chairman of the meeting prior to the commencement thereof. In addition to any other method of depositing proxies provided for in these Articles, the directors may from time to time make regulations permitting the lodging of proxies appointing the proxyholders at some place or places other than the place at which a meeting or adjourned meeting of members is to be held and for particulars of such proxies to be cabled or telegraphed or sent in writing before 1;he meeting or adjourned meeting to the Company or any agent of the Company for the purpose of receiving such particulars and providing that proxies appointing a proxyholder so lodged may be voted upon as though the proxies themselves were produced to the chairman of the meeting or adjourned meeting as required by this Part and votes given in accordance with such regulations shall be valid and shall be counted. 11.10 A vote given in accordance with the terms of a proxy shall be valid notwithstanding the previous death or insanity of the member or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided no prior notice in writing of the death, insanity, revocation or transfer as aforesaid shall have been received at the registered office o:: the Company or by the chairman of the meeting or adjourned meetiig at which the vote was given.

11.11 Unless, in the circumstances, the Company Act requires any other form of proxy, a proxy appointing a proxyholder, whether for a specified meeting or otherwise, shall be in the form following, or in any other form that the directors or the chairman of the meeting at which the form of proxy is to be used shall approve: (Name of Company) The undersigned hereby appoints _________________________ (or failing him ___________________ of _________________ ) as proxyholder for the undersigned to attend at and vote for and on behalf of the undersigned at the general meeting of the Company to be held on theday of ________ , 19 ____ , and at any adjournment of that meeting. Signed this ___________________ day of ________________ ., 198 ___ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (Signature of Member) PART 12 - DIRECTORS 12.1 The management of the business of the Company shall be vested in the directors and the directors may exercise all such powers and do all such acts and things as the Company is, by its Memorandum or otherwise, authorized to exercise and do, and which are not by these Articles or by statute or otherwise lawfully directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the previsions of all laws affecting the Company and of these Articles and to any regulations not being inconsistent with these Articles which shall from time to time be made by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act of the directors that would have been valid if that regulation had not been made.

12.2 The persons specified in the Amalgamation Agreement are the first directors of the Amalgamated Company. The directors to succeed the first directors and the number of directors may be determined in writing by a majority of the Directors. The number of directors may be changed from time to time by ordinary resolution, whether previous notice thereof has been given or not, but shall never be less than one while the Company is not' a reporting company and three while the Company is a reporting Company. Further, the number of directors can be increased pursuant to Article 15.5. 12.3 A director shall not be required to have any share qualification but any person not being a member of i:he Company who becomes a director shall be deemed to have agreed to be bound by the provisions of the Articles to the same extent e.s if he were a member of the Company. 12.4 The remuneration of the directors as suai may from time to time be determined by the members, unless by ordinary resolution the directors are authorized to determine their remuneration. Such remuneration to be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director. The directors shall be repaid such reasonable expenses as they may incur in and about the business of the Company and if any director shall perform any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specifically occupied in or about the Company's business he may be paid a remuneration to be fixed by the Board, or, at the option of such director, by the Company in general meeting, and such remuneration may be either in addition to, or in substitution l:or, any other remuneration that he may be entitled to receive, and the same shall be charged as part of the ordinary working expenses. Unless otherwise determined by ordinary resolution the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his spouse or dependants and may make contributions to any fund and pay preniums for the purchase or provision of any such gratuity, pension or allowance. The directors may from time to time and .it any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by 12.5 the directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions, not exceeding those vested in or exercisable by the directors under these Articles, and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the directors may think fit and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.

12.6 A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract or transaction with the Company shall declare the nature and extent of his interest at a meeting of the directors or in ary resolution to be signed by the directors relating to such contract or proposed contract in accordance with the provisions of the Company Act. A director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so his vote shall not be counted, but he mey be counted in the quorum present at the meeting at which such vote is taken. Subject to the Company Act, the foregoing shall not apply to (a) any contract or transaction relating to a loan to the Company, which a director or a specified corporation or a specified firm in which he has an interest has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan, or (b) any contract or transaction made or to be made with, or for the benefit of a holding corporation or a subsidiary corporation of which a director is a director, or (c) any contract by a director or by any company of which the director is a shareholder, officer or director to subscribe for or underwrite shares, debentures or debt obligations to be issued by the Company or a subsidiary of the Company, or any contract, or transaction in which a director is, directly or indirectly, interested if cill the other directors are also, directly or indirectly interested in the contract or transaction, or (d) if authorized by ordinary resolution pursuant to Article 12.4, the remuneration of the directors. Subject to the Company Act the foregoing prohibitions and exceptions thereto may from time to time be suspended or amended to any extent by ordinary resolution, either generally or in respect of any particular contract or transaction or for any particular period.

12.7 A director may hold any office or place of profit under the Company, other than auditor, in conjunction with his office of director for such period and on such terms, as to remuneration or otherwise, as the directors may determine. Subject to compliance with the Company Act, no director or intended director shall be disqualified by his office from contracting with the office or place of profit or as vendor, purchaser or otherwise, and, subject to compliance with the Company Act, no contract c»r transaction entered into by or on behalf of the Company in which a director is in any way interested shall be liable to be avoided. 12.8 were not a director.

Any director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he

12.9 A director whose permanent place of residence is outside the city where the registered office of the Company is situate, or who is about to leave or is temporarily outside the said city, or who may be expecting to be absent Prom the place where a meeting of the Board is to be held, or is otherwise unable to attend the meeting of the Board, may appoint any person, whether a member or director of the Company or not, to act on his behalf as an alternate director and while such other person holds office as an alternate director, he shall be entitled to notice of meetings of the directors and to attend and vote thereat accordingly and he shall, if present, be included in computing the quorum, and if he be a director, shall be entitled to two votes, one as a director and the other as an alternate director, and shall further be empowered to sign resolutions of the Board of directors, and shall ipso facto vacate office if and when the appointor vacates or is removed from office as director and any appointment or removal under this clause shall be effected by notice which may be in writing under the hand of the director making the same or may be made by telegram, cable or telex. An appointment under this Article may be a general appointment, or may be restricted to a single specified meeting of the Board and any adjourned portion thereof, or may be otherwise restricted in its operation or duration. PART 13 - TERMINATION OF DIRECTORSHIP OF DIRECTORS 13.1 The directorship of a director shall be immediately terminated: (a) if he is found to be incapable of managing his own affairs by reason of mental infirmity; (b) on the date of resignation stated in any notice in writing to the Company at its registered office by the director; (c) if he is removed pursuant to Article 14.2; (d) if he has been convicted within or without the Province of an indictable offence and the other directors resolve to remove him; or (e) if he ceases to be qualified to act as a director under the Company Act.

PART 14 - RETIREMENT AND ELECTION OF DIRECTORS 14.1 At each annual general meeting of the Company all the directors shall retire in which case the Company shall elect a Board of Directors consisting of the number of directors for the time being fixed pursuant to these Articles but which shall not be less than that required by the Company Act. If in any calendar year the Company does not hold an annual general meeting the directors appointed at the last annual general meeting of the Company shall be deemed to have been elected or appointed as directors on the last day on which the meeting could have been held pursuant to the Company Act and the directors so appointed or elected may hold office, unless other directors have been appointed in the meantime, until other directors are appointed or elected or until the day on which the next annual general meeting is held.* 14.2 The Company may by special resolution remove any director and, by ordinary resolution, appoint another person in his stead. Any director so appointed shall hold office only until the next following annual general meeting of the Company, but shall be eligible for re-election at such meeting. 14.3 The directors shall have power at any time and from time to time to appoint any person as a director, to fill a casual vacancy on the Board or a vacancy resulting from an increase of the number of directors necessitated by the Company Act upon the Company becoming a reporting company. Any director so appointed shall hold office only until the next following annual general meeting of the Company at which directors are to be elected, but be eligible for re-election at such meeting. PART 15 - PROCEEDINGS OF DIRECTORS 15.1 The directors may meet together at such places as they think fit for the dispatch of business, adjourn and otherwise regulate their meetings and proceedings, as they see fit. The directors may from time to time fix the quorum necessary for the transaction of business and unless so fixed such quorum shall be a majority of the Board. The Chairman of the Board, if any, or in his absence the President of the Company, shall be chairman of all meetings of the Board, but if at any meeting neither the Chairman of the Board, if any, nor the President shall be present within 30 minutes after the time appointed for holding the same or if both the Chairman of the Board and the President, being present decline to act, the directors present may choose someone of their number to be chairman at such meeting. A director interested is to be counted in a quorum notwithstanding his interest.

15.2 A director may at any time, and the Secretary upon the written request of a director shall, call a meeting of the directors. Notice thereof specifying the time and place of such meeting shall be mailed, postage prepaid, addressed to each of the directors at his registered address at least 48 hours before the time fixed for the meeting or such lesser period as may be reasonable under the circumstances, or such notice may be given to each director either personally or by leaving it: at his usual business or residential address or by telephone, telegram, telex or other method of transmitting visually recorded messages, at least 48 hours before such time or such lesser period as may be reasonable under the circumstances. It shall not be necessary to give to any director notice of a meeting of directors immediately following a general meeting at which such director has been elected or notice of a meeting of directors at which such director shall have been appointed. Accidental omission to give notice of a meeting of directors to, or the non-receipt of notice by, any director, shall not invalidate the proceedings of that meeting. 15.3 Any director of the Company may from time to time file with the Secretary a writing waiving notice of any meeting of the directors being sent to him and agreeing to ratify and confirm any business transacted at any meeting of the directors: though he may not be present at such meeting and though no notice has been sent to him of such meeting and any and all meetings of the directors of the Company so held (provided that the quorum of the directors be present) shall be valid and binding upon the Company; provided that the director in such waiver may specify the period for which such waiver shall be effective. 15.4 directors.

A meeting of the directors at which a quorum is present shall be competent to exercise all or any of the authorities, power and discretions for the time being vested in or exercisable by the

15.5 The continuing directors may act notwithstanding any vacancy in their body but, if and so long as their number is reduced below the number fixed pursuant to these Articles as the necessary quorum of directors, the continuing directors or director may act for the purpose of filling any vacancies in or increasing the number of directors to that number, or for the purpose of summoning a general meeting of the Company, but for no other purpose. The Board may, at any time and from time to time, appoint one or more additional directors of the Company in addition to the number of directors elected pursuant to Article 12.2. 15.6 The directors may delegate any but not all of their powers to committees consisting of such of the directors as they think fit. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed on it by the directors, and shall report every act or thing done in exercise of such powers to the earliest meeting of the directors to be held next after the s;ame shall have been done.

15.7 A committee may elect a chairman of its meetings; if no such chairman is elected, or if at any meetings the chairman is not present within 30 minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting. 15.8 The members of a committee may meet and cidjourn as they think proper. Questions arising at any meeting shall, be determined by a majority of votes of the members present and in case of an equality of votes the chairman shall have a second casting vote. 15.9 All acts done by any meeting of the directors or by a committee of directors or by any person acting as a director shall, notwithstanding that it shall be afterwards discovered that there was some defect in the appointment of any such director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director. 15.10 For the first meeting of the Board to be held immediately following the appointment or election of a director or directors at an annual or general meeting of shareholders or for a meeting of the Board at which a director is appointed to fill a vacancy in the Board, no notice of such meetings shall be necessary to the newly elected or appointed director or directors in order for the meeting to be duly constituted, provided that a quorum of directors is present. 15.11 Any director of the Company who may be absent either temporarily or permanently from the Province of British Columbia may file at the office of the Company a waiver of notice which may be by letter, telegram or cable of any meeting of the directors and may at any time withdraw such waiver, and until such waiver is withdrawn, no notice of meetings of directors shall be sent to such director, and any and all meetings of the directors of the Company, notice of which shall not have been given to such director, shall, provided a quorum of the directors is present, be valid and binding upon the Company. 15.12

Questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the Chairman shall have a second or casting vote.

15.13 A resolution in writing, signed by each director or his alternate shall be as valid and effectual as if it heid been passed at a meeting of directors duly called and held. Such resolution may be in one or more counterparts each signed by one or more directors or alternate directors which together shall be deemed to constitute one resolution in writing, but the provision of Article 12.6 shall apply, mutatis mutandis, to any resolution passed in accordance herewith.

PART 16 - OFFICERS 16.1 The Board of Directors shall from time to time appoint a President, a Secretary and such other officers of the Company as it may determine, none of whom, save the Chairman of the Board, if any, and the President, need be directors. 16.2 All appointments of officers shall be made upon such terms and conditions and at such remuneration, whether by way of salary, fee, commission, participation in profits, or otherwise, as the directors may determine, and every such appointment shall be subject to termination at the pleasure of the directors unless otherwise fixed by contract. 16.3 Every officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict. PART 17 - MINUTES, DOCUMENTS AND RECORDS 17.1

The directors shall cause minutes to be duly entered in books providing for the purposes: (a) of all appointments of officers; (b) of the names of the directors or their alternates present at each meeting of directors and of any committee of directors; (c)

of all orders made by the directors or committees of directors;

(d) of all resolutions and proceedings of general meetings of the Company and of all meetings of the directors and of committees of the directors.

17.2 The directors shall cause the Company to keep at its records office or at such other place as the Company Act may permit, the documents, copy documents, registers , minutes, and records which the Company is required by the Company Act to keep at its records office or such other place. PART 18 - EXECUTION OF DOCUMENTS 18.1 thereof.

The directors may provide a common seal for the Company and for its use and the directors shall have power from time to time to destroy the same and substitute a new seal in place

18.2 Subject to the provisions of the Company Act, the directors may provide for use in any other Province, State or Country an official seal, which shall have on its face of the name of the Province, Territory, State or Country where it is to be used. 18.3 The directors shall provide for the safe custody of the common seal of the Company, if any, which shall not be affixed to any instrument except in the presence of any two directors of the Company by the authority of a resolution of the directors or by such person or persons as may be authorized by such resolution; and such person or persons shall sign every instrument to which the seal of the Company is affixed in his or their prescmce; provided that a resolution of the directors directing the general use of the seal, if any, may at any time be passed by the directors and shall apply to the use of the seal until countermanded by another resolution of the directors. 18.4 The signature of any officer of the Company may, if authorized by the directors, be printed, lithographed, engraved or otherwise mechanically reproduced upon all instruments executed or issued by the Company or any officer thereof; and any instrument on which the signature of any such person is so reproduced, shall be deemed to have been manually signed by such person whose signature is so reproduced and shall be as valid to all intents and purposes as if such instrument had been signed manually, and notwithstanding that the person whose signature is so reproduced may have ceased to hold office at the date of the delivery or issue of such instrument. The term "instrument” as used in this Article shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, agreements, releases, receipts and discharges for the payment of money or other obligations, certificates of the Company's shares, share warrants of the Company, bonds, debentures and other debt obligations of the Company and all paper writings but shall not include share certificates or debentures which shall be signed in accordance with the Company Act.

PART 19 - DIVIDENDS 19.1 The directors may declare dividends and fix the date of record therefor and the date for payment thereof. No notice need be given of the declaration of any dividend. If no date of record is fixed, the date of record shall be determined under the provisions of the Company Act. 19.2

Subject to the terms of the shares with special rights or restrictions, all dividends shall be declared according to the number of shares held.

19.3

No dividend shall bear interest against the Company.

19.4 The directors may direct payment of any clividend wholly or partly by the distribution of specific assets or of paid-up shares, bonds, debentures or other debt obligations of the Company, or in any one or more of those ways, and, where any difficulty arises in regard to the distribution, the directors may settle the same as they think expedient, and in particular may fix the value for the distribution of specific assets, and may determine that cash payments shall be made to a member upon the basis of the value so fixed in place of fractional shares, bonds, debentures or other debt obligations in order to adjust the rights of all parties, and may vest any of those specific assets in trustees upon such trusts for the persons entitled as may seem expedient to tie directors. 19.5 Notwithstanding anything contained in these Articles the directors may from time to time capitalize any undistributed surplus on hand of the Company and may from time to time issue as fully paid and non-assessable any unissued shares or any bonds, debentures or other debt obligations of the Company as a dividend representing such undistributed surplus on hand or any part thereof. 19.6 Any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder, or, in the case of joint holders, to the registered address of that one of the joint holders who is first named on the register or to such person and to such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses or other moneys payable in respect of the shares held by them as joint holders.

19.7

A transfer of shares shall not pass the right to any dividend declared thereon before the registration of the transfer in the register.

19.8 Notwithstanding any other provisions ol these Articles should any dividend result in any shareholders being entitled to a fractional part of a share of the Company, the directors shall have the right to pay such shareholders in place of -hat fractional share, the cash equivalent thereof calculated on the par value thereof or, in the case of shares without par value, calculated on the price or consideration for which such shares were or were deemed to be issued, and shall have the further right and complete discretion to carry out such distribution and to adjust the rights of the shareholders with respect thereto on as practical and equitable a basis as possible including the right to arrange through a fiscal agent or otherwise for the sale, consolidation or other disposition of those fractional shares on behalf of those shareholders of the Company. 19.9 The directors may, before declaring any dividend, set aside out of the profits of the Company such sums as they think proper as appropriations from income, which shall at the discretion of the directors, be applicable for meeting contingencies, or for equalizing dividends, or for any other purpose to which the profits of the Company may be properly applied, and pending such application may, either be employed in the business of the Company or be invested in such investments as the directors in their discretion may from time to time determine. PART 20 - ACCOUNTS 20.1 The directors shall cause records and books of accounts to be kept as necessary to properly record the financial affairs and conditions of the Company and to comply with th« provisions of statutes applicable to the Company. 20.2 The directors shall determine the place at which the accounting records of the Company shall be kept ancl those records shall be open to the inspection of any director during the normal business hours of the Company.

PART 21 - NOTICES 21.1 A notice may be given to any member or director, either personal,y or by sending it to him by prepaid post, envelope or wrapper addressed to the member or director at his registered address. 21.2 A notice may be given by the Company to joint members in respect of a share registered in their names by giving the notice to the joint member first named in the register of members in respect of that share. 21.3 A notice may be given by the Company to the persons entitled to a share in the consequence of the death or bankruptcy of a member by sending it through the post in a prepaid letter, envelope or wrapper addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description, at the address, if any, supplied for the purpose by the persons claiming to be so entitled, or until that address has been so supplied, by giving the notice irs any manner in which the same might have been given if the death or bankruptcy had not occurred. 21.4 Any notice or document sent by post to or left at the registered address of any member shall, notwithstanding that member is then deceased and whether or not the Company has notice of his death, be deemed to have been duly served in respect of any registered shares, whether held solely or jointly with other persons by that deceased member, until some other person is registered in his place as the member or joint member in respect of those shares, and that service shall for all purposes of these Articles be deemed a sufficient service of such notice or document on his personal representatives and all persons, if any, jointly interested with him in those shares. 21.5 A member, or a member's authorized representative, shall be entitled to give a notice to the Company by giving it in writing and sending it by prepaid post, or delivering it, to the registered office of the Company. 21.6 Any notice sent by post shall be deemed to have been served on the business day following that on which the letter, envelope or wrapper containing that notice is posted, and in proving service thereof it shall be sufficient to prove that the letter, envelope or wrapper containing the notice was properly addressed and put in a Canadian Government post office, postage prepaid. 21.7 If a number of days' notice or a notice extending over any other period, is required to be given, the day of service shall not, unless it is otherwise provided in these Articles, be counted in the number of days or other period required.

21.8

Notice of every general meeting shall be given in the manner authorized by these Articles, to: (a) (b) (c) (d) (e)

21.9

every member holding a share or shares carrying the right to vote at such meetings on the record date or, if no record date was established by the directors, on the date of the meeting; the personal representative of a deceased member; the trustee in bankruptcy of a bankrupt member; the auditor of the Company; any other person entitled to receive notice under the Company Act; All notices given pursuant to these Articles must be in writing. PART 22 - INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS EMPLOYEES AND CERTAIN AGENTS

22.1 The Company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether or not brought by the Company or by a corporation or other legal entity or enterprise as hereinafter mentioned and whether civil, criminal or administrative, by reason of the fact that he is or was a director, officer, employee, or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trust or other enterprise, against all costs, charges and expenses including legal fees and any amount paid to settle the action or proceeding or satisfy a judgment, if he acted honestly and in good faith with a view to the best interests of the corporation or other legal entity or enterprise as aforesaid of which he is or was a director, officer, employee or agent, as the caso may be, and exercised the care, diligence and skill of a reasonably prudent person, and with respect to any criminal or administrative, action or proceeding, he had reasonable grounds for believing that his conduct was lawful; provided that the Company shall not be bound to indemnify any such person, other than a director, officer or an employee of the Company, who shall have notice or who shall be deemed to have notice of this Article and to have contracted with the Company in the terms hereof solely by virtue of his acceptance of such office or employment, if in acting as agent for the Company or as a director, officer, employee or agent of another corporation or other legal entity or enterprise as aforesaid, he does so by written request of the Company containing an express reference to this Article; provided that no indemnification of a director or former director of the Company, or director or former director of a corporation in which the Company is or was a shareholder, shall be made except to the extent approved by the Court pursuant to the Company Act or any other statute. The determination of any action, suit or proceeding by judgment, order, settlement, conviction or otherwise shall not, of itself, create a presumption that the person did not act honestly and in good faith and in the best interests of the Company and did not exercise the care, diligence and skill of a reasonably prudent person and, with respect to any criminal action or proceedings, did not have reasone.ble grounds to believe that his conduct was lawful.

22.2 The Company may indemnify any person other than a director in respect of any loss, damage, costs: or expenses whatsoever incurred by him while acting as an officer, employee or agent for the Company unless such loss, damage, costs or expenses arises out of failure to comply with instructions, willful act or default or fraud by such person in any of which events the Company shall only indemnify such person if the directors, in their absolute discretion, so decide or the Company by ordinary resolution shall so direct. 22.3 The indemnification provided by this Part shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any other Part, or any valid and lawful agreement, vote of members or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall enure to the benefit of the heirs, executors and administrators of such person. The indemnification provided by this Article shall not be exclusive of any powers, rights, agreements or undertakings which may be legalLy permissible or authorized by or under any applicable law. Notwithstanding any other provisions set forth in this Part, the indemnification authorized by this Part shall be applicable only to the extent that any such indemnification shall not duplicate indemnity or reimbursement which that person has received or shall receive otherwise than under this Part. 22.4 The directors are authorized from time to time to cause the Company to give indemnities to any directors, officer, employee, agent or other person who has undertaken or is about to undertake any liability on behalf of the Company or any corporation controlled by it.

22.5 Subject to the Company Act, no director or officer or employee for the time being of the Company shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or act for conformity, or for any loss, damage or expense happening to the Company through the insufficiency or deficiency cf title to any property acquired by order of the Board for the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Company shall be invested or for any loss or damages arising from the bankruptcy, insolvency, or tortious act of any person, firm or corporation with whom or which any moneys, securities or effects shall be lodged or deposited or for any loss occasioned by any error of judgment or oversight on his part or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his own willful act or default, negligence, breach of trust of breach of duty. 22.6 Directors may rely upon the accuracy oi: any statement of fact represented by an officer of the Company to be correct or upon statements in a written report of the auditor of the Company and shall not be responsible or held liable for any loss or damage resulting from the paying of any dividends or otherwise acting in good faith upon any such statement. 22.7 The directors may cause the Company to purchase and maintain insurance for the benefit of any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trust or other enterprise against any liability incurred by him as a director, officer, employee or agent.

Part 23

Preference Shares A. Issuable in Series The Preference shares may be issued from time to time in one or more series composed of such number of shares and with such preference, deferred or other special rights, privileges, restrictic ns and conditions attached thereto as shall be fixed hereby or from time to time before issuance by any resolution or resolutions providing for the issue of the shares of any series which may be passed by the directors of the Corporation and confirmed and declared by articles of amendment including, without limiting the generality of the forecioing: (i) the rate, amount or method of calculation of any dividends, and whether such rate, amount or method of calculation shall be subject to change or adjustment in the future, the* currency or currencies of payment, the date or dates and place or places of payment thereof and tf*e date or dates from which any such dividends shall accrue; (ii) any right of redemption and/or purchase and the redemption or purchase prices and terms and conditions of any such right; (iii) any right of retraction vested in the holders of Preference shares of such series and the prices and terms and conditions of any such rights; (iv) (v) (vi) (vii)

any right upon dissolution, liquidation or winding-up of the Corporation; any voting rights; any rights of conversion; and any other provisions attaching to any such series of Preference shares.

B. Priority of Dividends The Preference shares of each series shall, with respect to the payment of dividends, be entitled to a preference over the common shares and over any other shares of the Corporation ranging junior to the Preference shares. C.

Liquidation, Dissolution and Winding-Up Subject to the rights, privileges, restrictions and conditions that may be attached to a particular series of Preference shares by the directors of the Corporation in accordance with section A of the conditions attaching to the Preference shares, in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among sha'eholders for the purpose of winding up its affairs, the holders of the Preference shares shall be entitled to receive, before any distribution of any part of the assets of the Corporation among the holders of the common shares or any other shares of the Corporation ranking junior to the Preference shares for each Preference share, an e.mount equal to the price at which such Preference share was issued together with, in the case of any Preference share that is part of a series of Preference shares entitled to cumulative dividends, all unpaid cumulative dividends (which for such purpose shall be calculated as if such cumulative dividends were accruing from day-to-day for the period from the expiration of the last period for which cumulative dividends have been paid up to and including the date of distribution) and, in the case of any Preference share that is part of a series of Preference shares entitled to ioncumulative dividends, any dividends declared thereon and unpaid. After payment to the holders of the Preference shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation in connection with the events contemplated by this Section.

D. Parity of Series No rights, privileges, restrictions or conditions attached to any series of Preference shares shall confer upon the shares of such series a priority in respect of dividends or distribution of assets, or return of capital in the event of the liquidation, dissolution or winding up of the Corporation over the sharos of any other series of Preference shares. The Preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or wind ng-up of the Corporation, whether voluntary or involuntary, rank on a parity with the Preference shares of eve 7 other series; provided however that in case such assets are insufficient to pay in full the amount due on all Preference shares, then such assets shall be applied, firstly, to the payment equally and rateably of an amount equal to the price at which the Preference shares of each series were issued and the premium payable thereon, if any and secondly, rateably in payment of all accrued and unpaid cumulative dividends and declared but unpaid non-cumulative dividends. E. Notices and Voting (i) Subject to the rights, privileges, restrictions and conditions that may be attachod to a particular series of Preference shares by the directors of the Corporation in accordance with section A of ihe conditions attaching to the Preference shares, the holders of a series of Preference shares shall not, as such, be entitled to receive notice of or to attend any meeting of the shareholders of the Corporation and shall not be entitled to vote at any such meeting (except where the holders of a specified class or series of shares are entitled to vote separately as a class as provided in the Canada Business Corporations Act (the “Act”)). (ii) The holders of Preference shares, or of any series of Preference shares, shall not be entitled to vote separately as a class or series (and no rights, privileges, restrictions or conditions attached to the Preference shares or any series of Preference shares shall entitle any holder of Preference shares or of any series of Preference shares to vote separately as a class or series) upon any proposal to amend the articles of the Corporation to: (a) increase or decrease any maximum number of authorized Preference shares or increase any maximum number of authorized shares of a class having rights or privileges equal or superior to the Preference shares; (b) effect an exchange, reclassification or cancellation of all or part of the Preference shares; or (c) create a new class of shares equal or superior to the Preference shares. (iii) Notwithstanding the aforesaid rights, privileges, restrictions and conditions on the right to vote, the holders of a series of Preference shares are entitled to notice of meetings of shareholders called for the purpose of authorizing the dissolution of the Corporation or the sale, lease or exchange of all or substantially all the property of the Corporation other than in the ordinary course of business of the Corporation undor subsection 189(3) of the Act, as such subsection may be amended from time to time.

Common Shares A.

Dividends Subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of the Corporation the holders of the common shares shall be entitled to receive any dividends declared by the Corporation. B. C.

Liquidation, Dissolution and Winding-Up The holders of the common shares shall be entitled to receive the remaining property of the Corporation upon the liquidation, dissolution or winding-up of the Corporation, whether voluntary of involuntary.

Notices and Voting The holders of the common shares shall be entitled to one vote for each common share held at all meetings of shareholders, except meetings at which only holders of another specified class or series of shares are entitled to vote.

1 +1 In du st ry Ca n ad a In d u stri e Ca na d a C erti fic at e of C o n ti nu a nc e C an ad a B usi n ess Co rp ora ti o ns Act C erti fic at d e pro ro ga ti o n Lo i ca n ad ie n ne su r l es so ci et e p a r ac ti on s C ALEDONIA M INING C ORP ORATION Naa e of co rpo rat io n -Den o min a ti on da l a s oc ie te I h ere by cert ify t h at th e ab o v e-n ame d , c o rp o rat io n was co n ti n ue d u n de r se ct io n 1 87 of t h e Ca na d a B u si ne ss C o rpo rat io n s Ac t, a s se t ou t in th e at ta ch ed a rti cl es of co nt i nu an c e. . 3 12 9 7 5-6 C orp o rat io n n ua b er-Nu mero d e la so ci et e Je ce rti fi e q ue l a soc ie te su sme n ti oi n ee a et e p ro rog u e en v e rt u d e 1'a rti cl e 1 8 7 d e la Lo i ca n ad ie n ne su r l es sex t et te p ar a ct io n s, te l q u 'il e st in d iq u e da n s l es cl au ses d e p ro rog a ti on ci-j o in te s. Dire ct or - Dire ct eu r M arc h 17 , 19 9 5 /t o 1 7 mars 19 9 5 Dat e o f Co n ti n ua n ce - Dat e d e l a pro ro ga ti o n C an ad a IC3 4 1 l(IO-d 4)(cc * 2l 4 0)

|+| Ind u stry C a na da In d us trla C an ad a FOR M 1 1 FOR MUL E 1 1 > C a rt ld a B us in asa L oi re mnt l ai l o di tl i ART ICL ES OF CONT INUANC E CL AUSES DE PR OR OGAT ION * ' C o rpo ra ti on s Act p ar a ct io n a da rfgfe na fM iri l (SEC TION 1 8 7) (AR TIC LE 1 8 7) 1 - Na me o f co rpo fat i on De n om in at io n d a la so ci et e C ALHTNIA M INING C OR PORAT ION 2 - T ha p l ace In C an a da wh ere th a reg i ste re d o ffl ca l a to b e sit u at ed Ua u au C an a da o d d o lt t tra at tu i la # IAg a so c ia l TOwn o f Oa k vi ll e, R eg io n al M mi cl p al it y of Hal te n , Pro vi n ce o f C ht ari o 3 - T ha c la ia aa an d a ny max im um o f sh are s t ha t th a Ca tAg o ria s a t to u t rt o mb ra ma x ima l d'a ct k xi e qu a la co rp o ra ti o n la a ut h orb ad t o l asu a to c Ml A a s! a ut o rM a * Ams tt re Th e co rp ora ti o n is au th o riz ed t o i ssu e a n u nl im it ed n u mb er o f c arme n sh ares . 4 - R aa tri ct lo n a, II an y , on sha re tran sfer* R a at ri cUo n a sur la t ra n sfert da a ac ti on * , s'D y a Dau No ne . 5 - Nu mt o ar (o r mi ni mu m an d ma xi mu m nu mb a r) of dl rac to ra Nomb ra (ou no mb ra min i mal a t max i mal ) d 'ad ml nl at rat au ra Th e co rp ora ti o n sh al l h a ve a i td n imm n mfce r of 3 d lran t ors an d a ma xi mu m rn mb er of 1 5 d i re ct o rs 6 - Oa it rlc tl on i . H an y , o n b u si na sa th a co rp ora ti on may c an y o n Uml ta a Imp o aft aa * C ac tM t A co mm ard al e d a la a oc tt tt , a'l l y a Hau No ne . 7 - (1 ) H c h an g a o f n a ma affac tad , p rav jo u a na ma (1) S'll y a ch a ng a man t d a de no mi n at io n , < Mn o ml na tk >n a n tt ri au ra N/A (2 ) Dat ai la o f In co rpo rat io n (2 ) M t aM a da l a co n sti tu t io n M em ora nd u m o f Ass oc ia ti o n (B . C. ) d ate d Fe bru ary 5 , 1 99 2 8 - Ot h ar p ro vi si on s. If an y Au tra a dl ap o at tl o ns, s'U y a li au See a tt ac he d Sch e du l e "A"

SC HEDULE A Oth e r p ro v i sio n s: Th e b oa rd o f d irec to rs m ay fro m t ime t o ti me , i n su ch a mo u nt s a n d on suc h t erms as i t d ee ms e xp e di en t ch a rge , m ort g ag e, h yp o th e ca te o r p le dg e al l o r an y o f t he c urren t ly o wn ed o r su b se qu e nt ly a cq u ire d real o r p e rs on al , mo va b le o r i mmo va b le , p ro pe rty o f t h e c o rp o rat io n , in cl u di n g bo o k d eb t s, ri g ht s, po we rs , fran c hi ses an d u n d erta k in g , t o se cu re a n y d eb t ob l ig at io n s o r a n y mo ne y b o rro wed , o r o th er de bt o r l ia b il it y o f th e co rp ora ti on . Th e b oa rd o f d irec to rs m ay a pp o in t o n e o r m ore d ire cto rs, wh o sh al l ho l d offi ce for a t erm ex p iri ng no t la te r t ha n th e cl o se of th e ne x t an n ua l mee ti n g of sha reh o ld ers, b u t th e to ta l n umb e r o f d irec to rs s o ap p oi n te d may no t ex c eed on e th i rd of th e nu mb e r o f d irec to rs e le ct ed a t th e p re v io u s a nn u al me et in g o f sh are ho l de rs.

In du st ry Ca n ad a In d u stri e Ca na d a C erti fic at e Ce rt ifi ca t of Am en d men t d e m od i fica ti o n C an ad a Bu si n ess Lo i ca na di en n e su r Co rp o ra ti o ns Act l es so ci et es p a r ac ti o ns C ALEDONIA M INING C ORP ORATION 3 1 29 7 5 -6 Nam e o f c o rp o rat io n -Den om in at io n d e la so c ie te I h ere by cert ify t h at th e art ic le s o f t he ab o v e-n ame d co rp o ra ti o n were ame n de d a) un d er sec ti on 13 o f t h e C a na da B us in ess C orp o ra ti o ns Act i n ac co rd an ce wit h t he a tt ac he d n ot ic e; b ) u nd e r sec ti o n 2 7 of th e Ca n ad a B us in ess C orp o ra ti o ns Act a s se t ou t i n th e at ta ch e d arti cl es o f am en dm en t d esi gn a ti ng a seri es of sha res; c) un d er sec ti on 17 9 o f t he C an ad a K) B us in ess C orp o ra ti o ns Act a s se t ou t i n th e at ta ch ed arti cl es o f ame n dm en t; d ) u nd e - sec ti o n 1 91 o f t h e C a na d a B us in ess C orp o ra ti o ns Act a s se t ou t i n th e at ta ch e d arti cl es o f reo rga n iz at io n ; C orp o rat io n n um be r-Num6 ro d e la so ci &i Je ce rti fi e q ue l es sta tu t s d e la so ci & s usm en ti o nn d e o nt && mo d ifi es: a) en v ert u d e l 'art ic le 1 3 d e la Lo i ca n ad ie nn e su r l es soc ii ti s pa r ac ti o ns, c on fo rmd men t h 1 'av is ci -jo i nt ; b ) en ve rtu d e l'a rti cl e 2 7 d e la L oi c an ad i en n e su r l es soc ii ti s p a r ac ti o ns, t el q u 'il es t i n di q u6 da n s l es cl au ses mo di flc at ric es c i-j o in te s d &i g na n t u n e s6 rie d 'act i on s; c) en v ert u d e l 'art ic le 1 7 9 de l a Lo t ca na di en n e su r le s so c ii ti s p ar ac ti on s, t el q u'i l est i n di q u da n s l es cl au ses mo d iflc at ric es ci -j o in te s; d ) en ve rtu d e l'a rti cl e 1 9 1 d e la Lo i ca n ad ie n ne su r l es so ci it is pe r ac ti o ns , t el q u 'il e st in d iq u l da ns l es c la u ses de rd o rg a ni sa ti on c i-j o in te s; Di rec to r - Di rect eu r M ay 4 , 19 9 9 / le 4 m al 1 99 9 Da te o f Ame nd me n t - Dat e d e mo d ific at io n C an ad a

I. to c reat e a cl ass of an u n li mit ed n u mb er of Pre feren c e s ha res, is sua b le in seri es; an d II. t o p rov i de t h at th e rig h ts , p riv i le ge s, rest ri ct io n s an d co n d it io n s a tt ach i n g to t h e Pre feren ce sh a re s a n d th e co mmo n sh a re s a re a s s et fort h in th e an n ex ed Sc h ed u le "A".

SC HEDULE "A" Prefe re n ce Sh ares A. Issu ab le i n Seri es Th e Prefere n ce sh ares ma y be i ssu ed fro m t im e t o t ime i n o ne o r mo re seri es co mp os ed o f su ch nu mb er of sha res an d wi th su ch pre fe ren ce , de ferred o r o th e r sp ec ia l ri g ht s, p ri v il eg es, re stri cti o n s an d c o nd i ti on s at ta ch ed t h eret o as sh al l be fi xe d h ereb y o r fro m t ime t o ti me b efo re i ssu an c e b y a ny re so lu t io n o r reso l ut io n s p ro v id in g fo r t he i ssu e o f t h e s ha res of a n y seri es whi ch may b e p asse d b y th e d irec to rs o f t h e Co rp ora ti on a n d co n firme d an d d ec la re d b y art ic le s o f a men d men t in c lu d in g , wi t ho u t li mit i ng t h e g e ne ral it y o f th e fore go i ng : (i) di e rate , amo u n t o r m et ho d o f c al cu la ti o n of an y d iv id e nd s, a nd wh e th er suc h rat e, am ou n t o r met h od of c al cu l at io n sh al l be su b je ct t o ch a ng e o r ad j ust me nt In t h e fu tu re, t he c urre nc y o r cu rren ci es o f p ay men t , t h e da te o r d at es an d p la ce o r p la ce s o f p ay me nt t h ereo f a nd th e da te o r d at es fro m whi ch an y su ch d i vi d en d s sh al l ac cru e; (ii ) a ny ri g ht o f red e mp ti on a n d/ o r p urc ha se an d t he re de mp ti o n or pu rch a se pri ce s a nd t erms an d c on d it i on s of a n y su ch ri gh t ; (ii i) an y rig h t of re tra ct io n v est ed in t he h o ld ers o f Prefere nc e sha res of su ch se ri es an d t h e p ri ces an d t erms an d c on d it io n s o f a ny suc h rig h ts ; (iv ) a n y ri g h t u p o n d isso l ut io n , li q ui d at io n o r win d in g -u p of th e Co rp ora ti on ; (v ) an y v o ti ng ri g ht s; (v i) a n y ri g h ts of c o nv e rs io n ; an d (v ii ) an y o th e r p ro v is io n s a tt ac hi n g to a n y su ch se rie s o f Prefere n ce sh ares . B . Pri o ri ty of Di v id en d s Th e Prefere n ce sh ares o f ea ch se rie s sh al l , wi th re sp ect t o d ie p ay me nt o f d i vi d en d s, b e en t id ed to a p refere nc e ov e r th e co mmo n sh a res a n d o ve r an y o t he r sh are s o f d ie C o rp o rat io n ran k in g j u ni o r to t h e Pre feren c e s ha res. C . L iq u id a ti on , Diss ol u ti on an d Wi nd i ng -Up Su b je ct to th e ri g ht s, p ri v il eg es , re stri ct io n s a nd c o nd i ti on s th at m ay b e at ta ch ed t o a p arti cu l ar se rie s o f Prefe ren ce sh are s b y th e d ire ct ors of th e Co rp ora ti o n in a cc ord an c e wi th sec ti on A o f th e co n d it io n s a tt ac hi n g to t h e P re feren c e sh a re s, in t h e ev en t o f th e li q ui d at io n , d i sso lu t io n o r win d in g -u p of th e Co rp ora ti o n, wh et he r v o lu n ta ry or in v ol u nt ary , or ot h er d i stri bu t io n o f as set s o f t he C o rp o rat io n a mo ng s ha reh o ld ers fo r t h e pu rp ose o f wi nd i n g up it s a ffa irs, th e h ol d ers o f t h e P re feren ce sh a re s s ha ll b e en ti tl ed

-2 t o re ce iv e , b efo re an y d ist rib u ti o n o f an y p art o f th e as set s o f t he C o rp o rat io n a mo ng t h e h o l de rs o f t he c omm on sha res or an y o th er sh ares o f th e Co rp o ra ti o n ran k in g ju n i or t o t he Pre fe ren ce sh are s fo r ea ch Pre feren ce sh a re , an a mo un t eq u al t o th e p ric e a t whi ch suc h Prefe re n ce sh are was iss ue d to g et h er wi th , in t h e cas e o f a ny Preferen c e s ha re t h at i s p art o f a seri es of Pre feren c e s ha res en ti tl ed t o cu mu l at iv e d iv id e nd s, al l u np a id c um ul at iv e d iv id e nd s (wh i ch fo r su ch pu rp os e sh a ll b e ca lc ul at ed a s i f su ch c u mu la ti ve d iv i de n ds were ac cru in g fro m d ay -t o-d ay fo r t h e p e ri o d fro m th e ex p ira ti on of d i e la st pe rio d fo r whi ch cu mu la ti v e d i vi d en d s h av e b ee n pa id u p t o an d i n cl ud i ng 1h e d at e o f d i stri bu t io n ) an d , in d i e c ase o f a ny Pre feren ce sh a re t h at is p art o f a serie s o f Pre fe ren ce sh a re s e n ti tl ed t o n on -cu mu l at iv e di v id en d s, an y d iv i de n ds d ec la re d th e re o n an d u n pa id . Afte r p ay men t t o th e h ol d ers o f t h e Pre feren ce sh a re s o f t h e a mo u nt s so pa y ab le t o th em , t h ey sh a ll n o t b e en t it le d to sha re i n a ny fu rth e r d ist rib u ti on of t h e pro p erty or asse ts of di e Co rp ora ti o n in c o nn e cti o n wit h t he e ve n ts co nt em pl at ed b y t h is Sec ti on . D. Pari ty o f Se ri es No rig h ts , p riv i le ge s, rest ric ti on s or co n di ti o ns at ta ch ed to a ny serie s o f Pre fe ren ce sh a re s sh a ll co n fer u p o n d ie sh are s o f su ch s erie s a p rio rit y i n re sp ec t of di v id en d s o r d i stri bu t io n o f ass et s o r ret u rn of c ap i ta l in d ie e ve n t of d i e li qu i da ti o n, d is sol u ti o n or win d in g u p o f th e C orp o rati o n o ve r d ie sh are s o f a ny ot h er se rie s o f Prefe re n ce sh ares . Hi e Preferen c e s ha res of eac h se ri es sh al l, wit h res pe ct t o th e p ay men t o f d iv i de n ds an d t he d is trib u t io n o f ass et s o r ret u rn of c ap i ta l i n d ie e ve n t o f l iq u id a ti on , d iss ol u ti on or wi n di n g -u p o f t he C o rp o rat io n , whe th er vo l un t ary o r i nv o lu n ta ry , ra nk o n a p ari ty wi th t h e Pre feren c e s ha res of e v ery o th e r seri es; p ro vi d ed h o wev er t h at i n ca se suc h as set s a re i n suffi cie n t to p ay in fu ll t he a mo un t d u e o n a ll Pre fe ren ce sh are s, th en su c h ass ets sh al l be a p pl ie d , fi rs dy , to t h e pa y men t eq u al ly a n d rat eab l y o f an a mo un t e qu a l t o t he p ric e at wh ic h th e Prefere nc e sh ares of ea ch se ries were i ssu ed a nd t h e pre miu m pa y ab le t he reo n , i f a ny , an d se co n dl y , ra te ab ly in p ay me n t o f a ll a cc ru e d an d u n pa id c u mu la ti ve d iv i de n ds an d d ec la red b u t un p ai d n o n-c um ul at iv e d iv id e nd s. E. No ti ce s a nd Vot in g (1 ) Su bj ec t to d i e ri g ht s, pri v il eg es, res tric ti o ns an d c on d it i on s th at ma y b e att ac h ed t o a pa rti cu la r se rie s o f Prefere n ce sh ares b y th e d irec to rs o f t h e Co rp ora ti on i n a cco rd an ce wi th s ect io n A of di e co n di ti o ns at ta ch i ng to t he Pre fe ren ce sh are s, th e ho l d ers o f a se ri es o f Prefere nc e sh ares sh al l no t , a s su c h, b e en ti tl ed to rec ei v e n o ti ce o f o r t o at te nd an y me et in g o f th e sh are ho l de rs o f t he C o rp o rat io n a nd s ha ll n o t be e nt id e d to v o te a t an y su ch m eet i ng (e xc ep t wh ere th e h ol d ers o f a sp e ci fi ed c la ss o r s crie s o f sh a re s a re e n ti de d t o vo t e s ep ara tel y a s a cl ass as p ro v i de d in th e Ca na d a B u si ne ss C o rpo rat io n s Ac t (di e "Act * )). (ti ) Th e h o ld ers of Pre feren c e sh a res, o r o f an y se ri es o f Prefere nc e sh ares, sh a ll n ot b e en t id ed to v o te se pa rat el y as a c la ss o r s erie s (a nd n o ri gh t s, pri v il eg es, rest ric ti o ns o r co n d it io n s a tt ac he d to t h e Pre feren c e s ha res or an y seri es of Preferen c e s ha res sha ll

-3en t it le a ny h o ld e r o f Prefere nc e sh ares o r of an y se ri es o f Re feren c e s ha res t o v o te se pa rat el y as a c la ss o r s erie s) u p on an y p ro p o sal t o am en d d ie art ic le s o f d ie C o rp o rat io n t o: (a) i n crea se o r d ecre ase a ny m ax im um n um be r o f au t ho ri zed Pre feren c e s ha res or in cre ase an y ma x imu m nu mb e r o f au th o riz ed sh a res o f a c la ss h av i ng ri g ht s or p ri vi le g es eq ua l o r su pe rio r t o th e Prefe re n ce sh ares ; (b ) effec t an e xc h an g e, recl as sific at io n o r c an ce ll at io n o f a ll o r p art o f th e Prefere n ce sh ares ; o r (c) c rea te a n ew c la ss o f sh a re s e q ua l or su pe rio r t o th e Prefere nc e sh ares. (ii i) Not wit h sta nd i n g th e afo resa id ri gh t s, p ri vi le g es, rest ric ti on s an d co n d it io n s o n t h e ri gh t t o v ot e, t he h o ld ers of a s erie s o f Pre fe ren ce sh are s a re e nt it l ed t o n ot ic e of m ee ti ng s of sha reh o ld ers ca ll ed fo r (h e p u rp ose o f a ut h ori zi ng di e di sso lu t io n o f t he C o rp o rat io n o r t he sa le , lea se o r ex ch a ng e o f al l o r su bs tan t ia ll y al l th e p ro p ert y o f th e C orp o rati o n o th er th an i n t he o rd in ary c ou rse o f b us in ess o f th e C orp o ra ti o n u nd e r su bs ect io n 1 8 9 (3 ) o f t h e Ac t, a s su ch sub se ct io n ma y b e a me nd ed fro m ti me to t im e. C om mo n Sh ares A. Di v id en d s Su b je ct to di e ri g ht s, p ri v il eg es , re stri ct io n s a nd c o nd i ti on s at ta ch in g t o an y o t he r cl ass o f sh are s o f th e C orp o rat io n t he h o ld ers of th e co mmo n sh are s sh a ll b e en ti d ed t o rec ei ve a ny d i vi d en d s d ec la red b y t he C o rp o rat io n . B . L iq u id a ti on , Diss ol u ti on an d Wi nd i ng -Up Th e h ol d ers of t h e co mmo n sh are s sh al l b e e n ti de d t o rece iv e d ie rem ain i n g pro p ert y of th e Co rp ora ti o n up o n t he l iq u id at io n , d isso l ut io n o r wi nd i ng -u p o f th e C orp o rat io n , wh et h er v o lu n ta ry o f in v o lu n ta ry . C . No t ic es an d Vo ti ng Th e h ol d ers of d i e co mmo n sh are s sh al l b e e n ti tl ed t o o ne v o te fo r ea ch c o mmo n sh are h el d at al l me et in g s o f sh are ho l de rs, ex ce pt me et in g s a t whi ch on l y ho l d ers o f a no t he r sp ec ifi ed c la ss o r se rie s o f sh are s a re e nt i de d to vo t e.

In du st ry Ind u stri e C an ad a C an ad a C erti fic at e of Am en d men t C erti fic at d e m od i fica ti o n C an ad a B usi n ess Co rp ora ti o ns Act L oi c an ad i en ne su r l es so ci et es pa r ac ti o ns C ALEDONIA M INING C ORP ORATION C orp o rat e n a me / De n om in at io n so c ia le 3 1 29 7 5 -6 C orp o rat io n n um be r / Nu in d ro de so c ie ty I HE RE BY CE RT IFY th a t t h e a rti cl es of th e ab o ve -na me d co rpo ra ti on a re ame nd e d un d er sec ti on 17 8 o f t he C an a da B u sin es s C orp o rat io n s Ac t a s se t o ut i n th e at ta ch e d arti cl es o f ame n dm en t. JE C ER TIFIE q u e le s st at u ts de l a s oc ie te su sme nt i on n ee so n t mo di fie s a ux t erme s d e 1 'arti cl e 1 78 d e l a L oi c an ad i en n e s ur le s so ci et es p ar a ct io n s, tel q u 'il e st in d iq u e da n s l es cl au ses mo d ific at ric es ci-j o in te s. M arc ie Giro u ard Dire ct or / Direc te u r 2 0 13 -0 2-0 5 Dat e o f Amen d men t (YYYY-M M-DD) Da te d e mo di fic at io n (AAAA-MM -JJ) C an ad a

In du st ry Ca n ad a In d u stri e Ca na d a C orp o rat io n s C an ad a C orp o rat io n s C an ad a Fo rm 4 In stru ct io n s ID An y ch a ng e s In t he a rt i cle s o l (h e c o rpo rat io n mu st b a mad e In ac co rd an ce wi th se ct io n 2 7 o r 1 7 7 ol t h e C B CA. A: If an a me nd me nt i n vo l ve s a c ha n ge o l co rp ora te n ame (i nc lu d in g t he a dd i ti o n of th e En g li sh o r Fren ch ve rsio n o f t he c orp o ra te i ia mu ). t h e n e w n ame rr,u sl co mp l y wit h se cti o n s 1 0 en d 1 2 o l th e C BC A a s we ll as p art 2 Ol th e reg u la ti on s, a nd Hi e Arti cl es o l Ame n dme n t mu st ii e a cc o mpa n ie d b y a C a na d a-b ia sed Nl lANS sea rc h rep o rt da te d n ot mo re th a n ni n et y SO) d ay s p ri or to t h e re cei p l ol t h e a rti cl es by Co ip a aB o ns Ca n ad a. A n u mb ere d na me ma y be a ssig n ed un d er s ub se ct io n 1 1 (2 ) o f th e CB C A wi th o ut a NUANS se arc h, D: An y ot h er a men d me nt s m us t c o rre sp on d t o th e p arag ra ph s an d su b pa rag rap h s refe re n ced in t h e a rti cl es be in g a mert ed t l th e sp ace a va il ab l e Is Ins uffic ie n t, p la ase at ta ch a sc h ed u le to U" l orm. H De cl arat io n Th i s l orm mu st b e s ig n ed b y a d irec to r o r a n o ffi ce r o f th e co rp ora ti on (s ub se ct io n 2 6 2(2 ) o l th e C8 C A). Gen e ra l Th e in fo rmat io n y o u p ro v id e i n th is d oc u men t i s co l le ct ed u n d er t he a ut h ori ty ol t he C B CA an d wil l b e st o red i n p erso n al in fo rmat io n b an k n u mb er IC /PPU-0 4 9. Pe rson a l in forma ti o n th at y o u p rov i de i s p ro te ct ed u n de r t he p rov i sio n s o l t he Pri va cy Ac t- Hm ww, p Lfe ii c ri rct are p ursu an t t o sec # on 3 6 o l th e CB C A i s p ermi tt ed u n d er t h e Pri v acy fi d If y o u re q ui re mo re i n fo rma ti on , p le ase co n su lt o o r web si te a t www. co rpo ra li on sc an ad a. lc .0 c. ca n r co n ta ct u s at 6 13 -M I -9 04 2 (Ot ta wa re gi o n), l ol l fre e al 1 -8 66 -3 3 3-5 5 56 or by e mai l at c ot p ora tl o nsc an a da Sic .g c. ca . Presc rib ed Fee s o C o rp o rat io n s C an a da On li n e fi li n g Ce n tre: $ 2 00 o B y ma il o r Ian : $ 20 0 p ai d b y cl wq ie p ay ab l e to t he R ec ei v er Ge ne ral l ot C an ad a o r b y cre di t ca rd (Am eric an E x pre ss, Ma st erC ard * or Visa }. Imp o rt an t R emi n de rs C ha n ge s o l reg i ste re d o ffi ce a dd ress an d /o r m ai li ng ad dre ss: C om pe te a nd ffl e C h an g e d Re g ist ered Ct fli ce Ad dre ss (Fo rm 3 ). C ha n ge s o f d h ec to re or ch an g es of a c Bre ct or's ad d ress; C om pfe tE an d fil e Ch a ng e s R eg ard i ng Di rec to rs (Fo rm 6 ). Th e se fo rms can be We d et ed ro ni ca ly , b y mai l o r b y la x fre e ol c h arg e. Fi le d oc u men t s o n li ne : C orp o rat io n s C an ad a On li ne Fi li n g Ce n tre: www.c orp o rat io n sca na d a.i c. g c.c a Or se n d do c um en ts b y mai l: Dire ct or Gen era l, C orp o rat io n s C an ad a Je an Ed mo n d s T owe r So ut h 9 th Flo o r 3 6 5 Lau ri er Av e. We st Ott awa ON K1 A 0 C 8 B y Fac sim il e: 6 1 3-9 4 1-0 9 99 Arti cl es o f Amen d men t (Sec ti o n 27 or 17 7 o f t he C an a da B us in ess C orp o rat io n s Act (C BC A)) I C o rp o rat io n n am e C ALEDONIA M INING C ORP ORATION 2 | Co rp ora ti on nu mb e r Th e art ic le s a re e men d ed a s fo ll o ws: (Ple ase n o te t ha t mo re t h an o n e sec ti on c an b e fil le d o ut ) A: Th e co rp ora ti on ch an g es it s n am e t o : B : Th e c o rpo rat io n c ha n ge s t h e p ro v in ce o r t errit ory i n C an ad a wh ere th e reg is te re d o ffi ce i s si tu at ed to : (Do no t In di ca te t he fu ll a dd res s) C : Th e c o rpo rat io n c ha n ge s t h e m in im um an d /o r m ax im um n um be r o f d ire cto rs to : (Fo r a fi x ed n u mb er o f d i re ct o rs , p l ea se i n di ca te t h e sa me n um be r i n bo t h th e mi ni mu m an d ma xi mu m o p ti o ns ) mi ni mu m: ma xi mu m: D: Oth e r ch an g es: (e .g ., to th e cl asse s o f sh a re s, to re stri ct io n s o n sh am tra ns fe rs, to res tri cti o ns o n th e b us in ess es of t h e co rpo rat io n o r t o an y o t he r p rov i sio n s t h at are p ermi tt ed b y t h e C B CA to b e set o u t in t h e Art ic le s) Pl ea se s pe ci fy. As a Sp e cia l Re so lu t io n t ha t th e sta te d ca p it al ac co u n t m ai nt ai n ed i n resp ec t o f th e co mmo n sh a re s i s h e re b y red u ced by $ 1 4 0 ,0 00 , 00 0 C d n. a nd t o t he e xt en t p ermi tt ed b y t h e C o mp an y 's a cco u n ti n g sta n da rds an o ffset ti n g in cre ase sh al l b e m ad e to t h e c o nt rib u te d su rpl u s a cco u n t to b e rec ord ed o n t h e C o mp an y 's fi na n cia l sta te me nt s As a Sp e cia l Re so lu t io n l ha t th e iss ue d an d o u tst an d in g c om mo n sh ares in t h e cap i ta l of th e Co mp an y b e co n so li d ate d o n th e b asi s o f o n e (1 ) p o st -o o n so li ci at io n co mm on s ha re fo r e ve ry te n (1 0) c o mmo n sh are s c urren t ly i ssu ed a n d o ut sta n di n g 4 De cl arat io n I h ere by cert ify t h at I a m a d irec to r o r a n o ffi ce r o f th e co rp ora ti o n. ( 6 0 4} 6 4 0 -63 5 7 No te : Mi srep res en ta ti o n co n sti tu t es an o ffe n ce an d . on s um ma-y c on v ic ti o n, a p erso n i s l ia bl e to a t in e no t e xc ee di n g $ 50 0 0 o r to imp ris on me nt fo r a te rm n o t ex ce ed i ng s ix mo n th s of bo t h (su bse ct io n 2 5 0 {1 ) o t th e C BC A). C an ad a IC 3 06 9 (20 0 6 /1 2 ) M 5 FE B '1 3 3: 4 6

BY-LAW NO. 1 -ofCALEDONIA MINING CORPORATION Adopted April 2,2012 INDEX Page Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Part 8 Part 9 Part 10 Part 11 Part 12 Part 13 Part 14 Part 15 Part 16 Part 17 Part 18 Part 19 Part 20 Part 21 Part 22 Part 23

Interpretation Shares and Share Certificates Issue of Shares Share Transfers Transmission of Shares Alteration of Capital Purchase of Shares Borrowing Powers General Meetings Proceedings at General Meetings Votes of Members Directors Termination of Directorship of Director Retirement and Election of Directors Proceedings of Directors Officers Minutes, Documents and Records Execution of Documents Dividends Accounts Notices Indemnification and Protection of Directors, Officers, Employees and Certain Agents Preference Shares

1 2 3 4 5 5 5 5 6 7 8 10 11 11 12 13 13 14 14 15 15 16 17

PART 1 – INTERPREATION

1.1

In this By-Law, unless the context otherwise requires: (a) “Board of Directors” or “Board” means the directors of the Company for the time being; (b) “CBCA” means the Canada Business Corporations Act from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act; (c) “directors” means the directors of the Company for the time being; (d) “member” means a security holder who is the registered holder of voting common shares in the capital of the Company; (e) “month” means calendar month; (f) “ordinary resolution” has the meaning assigned thereto by the CBCA; (g) “registered address” of a member shall be his address as recorded in the register; (h) “registered address” of a director means his address as recorded in the Company’s register of directors to be kept pursuant to the CBCA; (i) “seal” means the common seal of the Company, if the Company has one; (j) “securities register” means the register of members to be kept pursuant to the CBCA; (k) “special resolution” has the meaning assigned thereto by the CBCA.

1.2

Expressions referring to writing shall be construed as including references to printing, lithography, typewriting, photography and other modes of representing or reproducing words in a visible form.

1.3

Words importing the singular include the plural and vice versa; and words importing a male person include a female person and a corporation;

1.4

The definitions in the CBCA shall, with the necessary changes and so far as applicable, apply to this By-Law. PART 2 - SHARE AND SHARE CERTIFICATES

2.1 Every member is entitled, without charge, to one certificate representing the share or shares of each class held by him or, upon paying a sum not exceeding the amount permitted by the CBCA as the directors may from time to time determine, several certificates each for one or more of those shares; provided that, in respect of a share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders or to his duly authorized agent shall be sufficient delivery to all; and provided further that the Company shall not be bound to issue certificates representing redeemable shares, if such shares are to be redeemed within one month of the date on which they were allotted. Any share certificate may be sent through the post by registered prepaid mail to the member entitled thereto at his registered address, and the Company shall not be liable for any loss occasioned to the member owing to any such share certificates so sent being lost in the post or stolen.

2.2

If a share certificate: (a) is worn out or defaced, the directors may, upon production to them of that certificate and upon such other terms, if any, as they may think fit, order the certificate to be cancelled and may issue a new certificate in lieu thereof; (b) lost, stolen or destroyed, then upon proof thereof to the satisfaction of the directors and Upon such indemnity, if any, as the directors deem adequate being given, a new share certificate in place thereof shall be issued to the person entitled to the lost, stolen or destroyed certificate, or (c) represents more than one share and the registered owner thereof surrenders it to the Company with a written request that the Company issue registered in his name two or more certificates each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate so surrendered, the Company shall cancel the certificate so surrendered and issue in place thereof certificates in accordance with the request.

A sum, not exceeding that permitted by the CBCA, as the directors may from time to time fix, shall be paid to the Company for each certificate issued under this Part 2. 2.3 Except as required by law or statute or this By-Law, no person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by law or statute or this By-Law provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. 2.4 Every share certificate shall be signed manually by at least one officer or director of the Company, or by or on behalf of a registrar, branch registrar, transfer agent or branch transfer agent of the Company and any additional signatures may be printed or otherwise mechanically reproduced and a certificate signed in either of those fashions shall be as valid as if signed manually, notwithstanding that any person whose signature is so printed or mechanically reproduced on a share certificate has ceased to hold the office that he is stated on such certificate to hold at the date of the issue of a share certificate. 2.5 Save as provided by the CBCA, the Company shall not give financial assistance by means of a loan, guarantee, the provision of security or otherwise for the purpose of or in connection with the purchase of or subscription by any person for shares or debt obligations issued by the Company or an affiliate of the Company or upon the security in whole or in part, of a pledge or other charge upon the shares or debt obligations issued by the Company or an affiliate of the Company. 2.6

Every share certificate issued by the Company shall be in such form as the directors approve and shall comply with the CBCA.

2.7

The certificates of shares registered in the name of two or more persons shall be delivered to the person first named on the register. PART 3 - ISSUE OF SHARES

3.1 Subject to the CBCA and to any direction to the contrary contained in a resolution passed at a general meeting authorizing any increase of capital, the issue of shares, whether in the original or any increased capital of the Company, shall be under the control of the directors who may, subject to the rights of the holders of the shares of the Company for the time being issued, allot or otherwise dispose of, and/or grant options on, shares authorized but not yet issued at such limes and to such persons, including directors, and in such classes, and in such manner and upon such terms and conditions, and at such price or for such consideration, as the directors, in their absolute discretion, may determine.

3.2 If the Company is not a reporting company or reporting issuer then before allotting any shares of the Company, the directors shall first offer those shares pro rata to the members; but if there are classes of shares, the directors shall first offer the shares to be allotted pro rata to the members holding shares of the class proposed to be allotted and if any shares remain, the directors shall then offer the remaining shares pro rata to the other members. The offer shall be made by notice specifying the number of shares offered and limiting a time for acceptance. After the expiration of the time for acceptance or on receipt of written confirmation from the person to whom the offer is made that he declines to accept the offer, and if there are no other members holdings shares who should first receive an offer, the directors may for three months thereafter offer the shares to such persons and in such manner as they think most beneficial to the Company; but the offer to those persons shall not be at a price less than, oron terms more favourable than, the offer to the members. 3.3 Except as otherwise provided in the CBCA. the Company or its directors on behalf of the Company may pay a commission or allow a discount to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares with or without par value in the Company, or procuring or agreeing to procure subscriptions, whether absolutely or conditionally, for any such shares provided that the rate of the commission or discount shall not in the aggregate exceed that permitted by the CBCA. The Company may also pay such brokerage as may be lawful on any shares of the Company whether with or without par value. 3.4 No share may be issued until it is fully paid by the receipt by the Company of the full consideration therefor in cash, property or past services actually performed for the Company. A document evidencing indebtedness of the person to whom the shares are allotted is not property for the purpose of this Part 3. The value of property and services for the purpose of this Section shall be the value determined by the directors by resolution to be, in all circumstances of the transaction, the fair market value thereof. PART 4 - SHARE TRANSFERS 4.1 Subject to the restrictions, if any, set forth in this By-Law, any member may transfer his shares by instrument in writing executed by or on behalf of such member and delivered to the Company or its transfer agent. The instrument of transfer of any share of the Company shall be in the form, if any, on the back of the Company's form of share certificates, and in any form which the directors may approve. If the directors so require, each instrument of transfer shall be in respect of only one class of share. 4.2 Every instrument of transfer shall be executed by the transferor and left at the registered or records office of the Company or at the office of its transfer agent or registrar for registration together with the share certificate for the shares to be transferred and such other evidence, if any, as the directors or the transfer agent or registrar may require to prove the title of the transferor or his right to transfer the shares. All instruments of transfer where the transfer is registered shall be retained by the Company or its transfer agent or registrar and any instrument of transfer, where the transfer is not registered, shall be returned to the person depositing the same together with the share certificate which accompanied the same when tendered for registration. The transferor shall remain the holder of the share until the name of the transferee is entered on the register in respect of that share. 4.3 The signature of the registered owner of any shares, or of his duly authorized attorney, upon the instrument of transfer constitutes an authority to the Company to register the shares specified in the instrument of transfer in the name of the person named in that instrument of transfer as transferee or, if no person is so named, then in any name designated in writing by the person depositing the share certificate and the instrument of transfer with the Company or its agents. 4.4 The Company, and its directors, officers and agents are not bound to enquire into any title of the transferee of any shares to be transferred, and are not liable to the registered or any intermediate owner of those shares, for registering the transfer. 4.5 There shall be paid to the Company in respect of the registration of any transfer a sum, not exceeding that permitted by the CBCA, as the directors deem fit.

PART 5 - TRANSMISSION OF WORKS 5.1 In the case of the death of a member the legal personal representative of the deceased shall be the only person recognized by the Company as having any title to or interest in the shares registered in the name of the deceased. Before recognizing any legal personal representative the directors may require him to obtain a grant of probate or letters of administration in British Columbia. 5.2 Any person, who becomes entitled to a share as a result of the death or bankruptcy of any member, upon producing the evidence required by the CBCA, or who becomes entitled to a share as a result of an order of a court of competent jurisdiction or a statute, upon producing such evidence as the directors think sufficient that he is so entitled, may be registered as holder of the share or may transfer the share. PART 6 - ALTERATION OF CAPITAL 6.1

Company may by ordinary resolution filed with the Registrar amend its memorandum to increase the share capital of the Company by:

6.2

(a) creating shares with par value or shares without par value, or both; (b) increasing the number of shares with par value or shares without par value, or both; (c) increasing the par value of a class of shares with par value, if no shares of that class are issued. The directors may determine the price or consideration at or for which shares without par value may be issued.

6.3 Except as otherwise provided by conditions imposed at the time of creation of any new shares or by this By-Law, any addition to the authorized capital resulting from the creation of new shares shall be subject to the provisions of this By-Law. 6.4 Unless this By-Law elsewhere specifically otherwise provides, the provision of this By-Law relating to general meetings shall apply, with the necessary changes and sofar as they are applicable, to a class meeting of members holding a particular class of shares. PART 7 - PURCHASE OF SHARES 7.1 Subject to the special rights and restrictions attached to any class of shares, the Company may, by a resolution of the directors and in compliance with the CBCA, redeem or purchase any of its shares at the price and upon the terms specified in such resolution, but no such purchase shall be made if the Company is insolvent at the time of the proposed purchase or the proposed purchase would render the Company insolvent. Unless the Company is purchasing the shares from a dissenting member pursuant to the CBCA, the Company shall make its offer to purchase through the facilities of a stock exchange, if a reporting company, or pro rata to every member who holds shares of the class proposed to be purchased. The shares so purchased by the Company may be sold by it but the Company shall not exercise any vote in respect of these shares while they are held by the Company. PART 8 - BORROWING POWERS 8.1 The directors may from time to time at their discretion authorize the Company to borrow any sum or sums of money or to undertake any obligation (including obligations of guarantee or indemnity) for the purposes of the Company and may raise or secure the repayment of that sum or sums or the performance of any such obligation in such manner and upon such terms and conditions, in all respects, as they think fit. and in particular, and without limiting the generality of the foregoing, by the issue of bonds or debentures, or any mortgage or charge, whether specific or floating, or other security on the undertaking of the whole or any part of the property of the Company, both present and future.

8.2 The directors may make any debenture, bonds or other debt obligations issued by the company by their terms, assignable free from any equities between the Company and the person to whom they may be issued, or any other person who lawfully acquires the same by assignment, purchase or otherwise, howsoever. 8.3 The directors may authorize the issue of any debentures, bonds or other debt obligations of the Company at a discount, premium or otherwise, and with special or other rights or privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending at general meetings of the Company and otherwise as the directors may determine at or before the time of issue. 8.4

The Company shall keep or cause to be kept in accordance with the CBCA: (a)

a register of its debentures and debt obligations, and

(b)

a register of the holders of its bonds, debentures and other debt obligations,

and subject to the provisions of the CBCA may keep or cause to be kept one or more branch registers of the holders of its bonds, debentures, or other debt obligations within or without the Province of British Columbia as the directors may from time to time determine and the directors may by resolution, regulations or otherwise make such provisions as they think lit respecting the keeping of such branch registers. 8.5 If the directors so authorize, or if any instrument under which any bonds, debentures or other debt obligations of the Company are issued so provides, any bonds, debentures and other debt obligations of the Company, instead of being manually signed by the directors or officers authorized in that behalf, may have the facsimile signatures of such directors or officers printed or otherwise mechanically reproduced thereon and in either case, shall be as valid as if signed manually, but no such bond, debenture, or other debt obligation shall be issued unless it is manually signed, countersigned or certified by or on behalf of a trust company or other transfer agent or registrar duly authorized by the directors or the instrument under which such bonds, debentures or other debt obligations are issued so to do. Notwithstanding that any persons whose facsimile signature is so used shall have ceased to hold the office that he is stated on such bond, debenture or other debt obligation to hold at the date of the actual issue thereof, the bond, debenture or other debt obligation shall be valid and binding on the Company. PART 9 - GENERAL MEETINGS 9.1 Subject to Section 9.2 and to the CBCA the first annual general meeting of the Company shall be held within 15 months from the date of the Company’s creation and thereafter an annual general meeting shall be held once in every calendar year at such time, not being more than 13 months after the holding of the last preceding annual general meeting, and place as the directors shall appoint. 9.2 If the Company is not a reporting company and if all members entitled to attend and vote at the annual general meeting of the Company consent in writing each year to the business required to be transacted at the annual general meeting that business shall be as valid as if transacted at an annual general meeting, duly convened and held and, it is not necessary for the Company to hold an annual general meeting that year. 9.3

Every general meeting, other than an annual general meeting, shall be called an extraordinary general meeting.

9.4 The directors may whenever they think fit, and they shall, promptly on the receipt of a requisition of a member or members of the Company representing not less than one-twentieth of such of the issued shares in the capital of the Company as at the date of the requisition carry the right of voting in all circumstances at general meetings, call a general meeting of the Company. 9.5

Any such requisition, and the meeting to be called pursuant thereto, shall comply with the provisions of the CBCA.

9.6 Not less than 21 days' notice of any general meeting specifying the time and place of meeting and in case of special business, the general nature of that business shall be given in the manner mentioned in Part 21, or in such other manner, if any, as may be prescribed by ordinary resolution whether previous notice thereof has been given or not, to any person as may by law or under this By-Law or other regulations of the Company be entitled to receive such notice from the Company. But the accidental omission to give notice of any meeting to, or the non-receipt of any such notice by, any of such person shall not invalidate any proceedings at that meeting.

9.7 meeting.

Persons entitled to notice of a general meeting may waive or reduce the period of notice convening the meeting, by unanimous consent in writing, and may give such waiver before, during or after the

9.8 Where any special business includes the presenting, considering, approving, ratifying or authorizing of the execution of any document, then the portion of any notice relating to such document shall be sufficient if the same states that a copy of the document or proposed document is or will be available for inspection by members at a place in the Province of British Columbia specified in such notice during business hours in any specified working day or days prior to the date of the meeting. PART 10 - PROCEEDINGS AT GENERAL MEETINGS 10.1

The following business at a general meeting shall be deemed to be special business: (a) all business at an extraordinary general meeting, and (b) all business that is transacted at an annual general meeting, with the exception of the consideration of the financial statement and the report of the directors and auditors, the election of directors, the appointment of the auditors and such other business as, under this By-Law, ought to be transacted at an annual general meeting, or any business which is brought under consideration by the report of the directors.

10.2 Save as otherwise herein provided a quorum for a general meeting shall be: two members or proxyholders representing two members, or one member and a proxyholder representing another member or two proxyholders personally present at the commencement of the meeting and together holding or representing by proxy not less than 5.0% of the issued shares of a class of shares the holders of which are entitled to attend and to vote at such meeting. 10.3 meeting.

No business, other than the election of a chairman and the adjournment of the meeting shall be transacted at any general meetingunlessthequorumrequisitewaspresentatthecommencement ofthe

10.4 If within 1/2 hour from the time appointed fora meeting a quorum is not present, the meeting, if convened by requisition ofthe members, shall be dissolved; but in any other case it shall stand adjourned tothesameday in the next week at the same time and place. I f at such adjourned meeting a quorum is not present within 1 12 hourfromthetimeappointed,thememberspresentorany proxyholder shallbeaquorum. 10.5

The Chairman of the Board, if any, or in his absence the President of the Company shall be entitled to preside as chairman at every general meeting ofthe Company.

10.6 If at any meeting neither the Chairman ofthe Board, if any, nor President is present within fifteen minutes after the time appointed for holding the meeting or is willing to act as chairman, the directors present shall choose someone of their number to be chairman. If no director be present or if all the directors present decline to take the chair or shall fail to so choose, the members or proxyholders present entitled to vote shall choose some person present to be chairman. 10.7 Thechairmanofthemeetingmay,with theconsentofany meetingal which a quorum is present and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting otherthan the business leftunfinishedatthemeetingfrom which the adjournment look placc. When a meeting is adjourned for 30days or more, notice ofthe adjourned meeting shall be given as in the case of a general meeting, save as aforesaid, it shall not be necessary to give any notice of an adjournmentor of the businesstobe transacted atany adjourned meeting.

10.8 Subject to the provisions of the CBCA every question submitted to a general meeting shall be decided on a show of hands unless a poll is. before or on the declaration of the result of the show of hands, directed by the chairman or demanded by a member entitled to vote who is present in person or by proxy, and the chairman shall declare to the meeting the decision on every question in accordance with the result of the show of handsorthe poll, andsuchdecisionshallbeenteredinthebook of proceedings of the Company. A declaration by the chairman that a resolution has been carried or carried unanimously or by aparticularmajority or lostornot carried by a particular majority, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 10.9

No resolution proposed at a meeting need be seconded and the chairman of any meeting shall be entitled to moveorsecond a resolution.

10.10 In case of an equality of votes upon a resolution, the chairman shall, either on a show of hands or on a poll, have' a casting or second vote in addition to the vote or votesto which he may be entitled as a member or proxyholder. 10.11 Subject to the provisions of Section 10.12 if a poll is duly demanded as aforesaid, it shall be taken in such manner and at such time within seven days from the date of the meeting and place as the chairman of the meeting directs, and either at once or after an iiiterva!oradjoummentnotexceedingsevendays,andtheresult ofthe poll shall be deemed to be theresolution ofthe meeting at which thepoll is demanded. A demand for a poll may be withdrawn. In the case of any dispute as to the admission or rejection of a vote, the chairman shall determine the same and such determination made ingood faith shall be final and conclusive. 10.12

A member entitled to more than onevoteneednot,ifhe votes,use allhisvotesorcastallthe votes heusesinthesame way.

10.13

No poll may be demanded on the election of a chairman of ameeting and apolldemanded ona question of adjournmentshallbe taken atthe meeting without adjournment.

10.14

The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on whicha poll hasbeen demanded.

10.15 Every ballot cast upon a poll and every proxy appointing a proxyholder who cast a ballot upon a poll shall be retained by the secretary fortheperiod and be subject to the inspection as LheCBC'Amayprovide,andif notsoprovidedthenasmaybe decided bythe meeting atwhichtheproxy or ballot was used. PART 11 - VOTES OF MEMBERS 11.1 subject to any special rights or restrictions for the time being attached to any shares, on a show of hands everymember present inperson shall have one vote, and on a poll every member, present in person or by proxy, shall have one vote for eachshare ofwhichhe isthe holder. 11.2 Any person who is not registered as a member but is entitled to vote at any general meeting in respect ofa share, may vote the share in the same manner as if he were a member; but, unless the directors have previously adm itted his right to voteat that meeting in respect of the share, he shall satisfy the directors of his right to vote the share before the time for holding the meeting, or adjourned meeting, as the case may be, at which he proposes to vote. 11.3 Where there are joint members registered in respect of any share, any one of thejoint members may voteat any meeting, eitherpersonally or by proxy, in respect ofthe share as if he were solely entitled to it. Ifmore than one of the joint members ispresentatany meeting, personally or by proxy, thejoint member present whose name stands first on the register in respect ofthe share shall alone be entitled to vote in respect of that share. Several executors or administrators ofa deceased member in whose sole name any share stands shall, for the purpose of this Section, be deemed joint members. 11.4 A corporation, not being a subsidiary, that is a member may vote by its proxyholder or by its duly authorized representative, who is entitled to speak and vote, and in all other respects exercise the rights of a member and any authorized representative shall be deemed to be a member for all purposes in connection with any general meeting oftheCompany.

11.5

A member for whom acommitteehasbeenduly appointedmay vote, whetheronashowofhandsoronapoll,by hiscommittee and his committee may appoint a proxyholder.

11.6 A member holding more than one share in respect of which he is entitled to vote shall be entitled to appoint one or more proxyholders to attend, act and vote for him on the same occasion. If such member shouldappoint more than one proxyholder for the same occasion he shall specify the number of shares each proxyholder shall bcentitledtovote. 11.7 A proxy or an instrument appointing a duly authorized representative of a corporation shall be in writing, underthehand ofthe appointor or of his attorney duly authorized in writing,or, if such appointor is a corporation, either under itssealorunder the hand of an officer or attorney duly authorized. 11.8 Any person of full age may act as proxyholder whetheror not he is entitled on hisown behalf to be present and to vote at the meeting at which he acts as proxyholder. The proxy may authorize the person so appointed to actas proxyholder forthe appointorfortheperiod.atsuchmeetingormeetingstolheextent permitted bytheCBCA. 11.9 A proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof shall be deposited at the registered office ofthe Company or at such other place as is specified for that purpose in the notice calling the meeting, not less than 48 hours before the time for holding the meeting at which the person named in the proxy proposes to vote, or shall be deposited with the chairman ofthe meeting prior to the commencement thereof. In addition to any other method of depositing proxies provided for in this By-Law, the directors may from time to time make regulations permitting the lodging ol proxies appointing the proxyholders at some place or placesotherthan the placeat which a meeting or adjourned meeting of members isto be held and for particulars of such proxies to be cabled or telegraphed or sent in writing before the meeting or adjourned meeting to the Company or any agent ofthe Company for the purpose of receiving such particulars and providing that proxies appointing a proxyholder so lodged may be voted upon as though the proxies themselves were produced to the chairman of the meeting or adjourned meeting as required by this Part and votes giveninaccordancewith such regulationsshall bevalid and shall be counted. 11.10 A vote given in accordance with the terms of a proxy shall be valid notwithstanding the previous death or insanity of the member or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided no prior notice in writing of the death, insanity, revocation or transfer as aforesaid shall have been received at the registered office of the Company or by the chairman ofthe meeting or adjourned meeting atwhichthe vote was given. 11.11 Unless, in the circumstances, the CBCA requires any other form ofproxy, a proxy appointing a proxyholder, whether for a specified meeting or otherwise, shall be in the form following, or in any other form that the directorsorthechairman of the meeting at which the form of proxy isto be used shall approve: (Name of Company) The undersigned hereby appoints ) as proxyholder forthe undersigned to attend at and vote forandon behalf of the undersigned atthegeneral meeting of (or failing him the Company to be held on the _____ day of ____, 20___, and at any adjournment of that meeting. Signed this

day of ____________________, 20_______ ______________________________________________ (Signature of Member)

PART 12-DIRECTORS 12.1 The management ofthe business of the Company shall be vested in the directors and the directors may exercise all such powers and do all such acts and things as the Company is, by its Memorandum or otherwise, authorized to exercise and do, and which are not by this By-Law or by statute or otherwise lawfully directed or required to be exercised or done by the Company in general meeting, butsubjectneverthelesstotheprovisionsofall laws affecting the Company and of this By-Law and to any regulations not being inconsistent with this By-Law which shall from time to time be made by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act ofthe directors that would havebeen valid ifthat regulation had not been made. 12.2 Thepersonsspecified in the Amalgamation Agreementare the first directors ofthe Company. The directors to succeed the first directors and the number of directors may be determined in writing by a majority ofthe Directors. The number of directors may be changed from time to time by ordinary resolution, whether previous notice thereof has been given or not, but shall never be less than one while the Company is not- a reporting company and three while the Company is a reporting Company. Further, the number of directors can be increased pursuant to Section 15.5. 12.3 A director shall not be required to have any share qualification but any person not being a member ofthe Company who becomes a director shall be deemed to have agreed to be bound by the provisions of the Sectionstothesame extentasif he were a member ofthe Company. 12.4 Theremunerationofthedirectorsassuchmay from time to timebedetermined bythemembers, unless by ordinary resolution thedirectorsareauthorizedtodeterminetheir remuneration, such remunerationto be inaddition to any salary or other rem uneration paid to any officer oremployee ofthe Company as such, who is also adirector. The djrectorsshall berepaidsuch reasonable expenses as they may incur in and about the business oftheCompany andif any director shall perform any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specifically occupied in or about the Company's business he may be paid a remuneration to be fixed by the Board, or, at the optionof such director, by thecompany in general meeting, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he may be entitled to receive, and the same shall be charged as part of the ordinary working expenses. Unless otherwise determined by ordinary resolution the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place ofprofit withtheCompanyortohisspouseordependantsand may make contributions to any fund and pay premiums for the purchase or provision of anysuch gratuity,pension or allowance. 12.5 The directors may from li me to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions, not exceeding those vested in or exercisable by the directors under this By-Law, and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons deal ing with any such attorney as the directors may think fit and may alsoauthorize any such attorneytodelegatealloranyofthe powers, authorities and discretions vested inhim. 12.6 A director who is in any way, whether directly or indirectly, interested in a contract of proposed contract or transaction with theCompany shall declare the natureand extent of his interest ata meeting ofthedirectors or in any resolution to be signed by the directors relat ing to such contract or proposed contract in accordance with the provisions of the CBCA. A director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so his vote shall not be counted, but he may be counted in the quorum present at the meeting at which such vote is taken. Subject to the CBCA, the foregoing shall not apply to (a) any contract or transaction relating to a loan to the Company, which a director or a specified corporation or a specified firm in which he has an interest has guaranteed or joined in guaranteeing the repayment oftheloan orany partofthe loan, or (b) any contract or transaction made or to be made with, or for the benefit of a holding corporation or a subsidiary corporation ofwhich adirector isadirector, or (c) any contract by a director or by any company of which the director is a shareholder, officer or director to subscribe for or underwriteshares, debentures or debt obligations to be issued by the Company or a subsidiary of the Company, or any contract, or transaction in which a director is, directly or indirectly, interested if all the other directors are also, directly or indirectly interested in the contract or transaction, or

(d)

if authorized by ordinary resolution pursuant to Section 12.4, the remuneration of the directors.

Subject to the CBCA the foregoing prohibitions and exceptions thereto may from time to time be suspended or amended to any extent by ordinary resolution, either generally or in respect of any particular contract or transaction or for any particular period. 12.7 A director may hold any officeorplaceofprofitunder the Company, other than auditor, in conjunction with his office of director for such period and on such terms, as to remuneration or otherwise, as the directors may determine. Subject to compliance with the CBCA, no director or intended director shall be disqualified by his office from contracting with the office .or place of profit or as vendor, purchaser or otherwise, and, subject to compliance with the CBCA, no contract or transaction entered into by or on behalf of the Company in which a directoris in anyway interested shall beliabletobeavoided. 12.8

Any director may act by hims elf or his firm in a professional capacity for the Company, and he or hisfirm shall be entitledto remuneration forprofessional services as if he were nota director.

12.9 A director whose permanent place of residence is outside the city where the registered office of the Company Ls situate, or who is about to leave or is temporarily outside the said city, or who may be expecting to be absent from the place where a meeting ofthe Board is to be held, or ^otherwise unable to attend the meeting ofthe Board, may appoint any person,whether amemberordirectoroftheCompanyornot.toacton his behalf as an alternate director and while such other person holds office as an alternate director, he shall be entitled to notice of meetings of the directors and to attend and votethereat accordingly and he shall, i f present, be included in computing the quorum, and if he be a director, shall be entitled to two votes, one as a director and the other as an alternate director, and shall further be empowered to sign resolutions Ofthe Board ofdirectors.andshall ipso facto vacaleoffice if and when the appointor vacates or is removed from office as director and any appointment or removal under this clause shall be effected by notice which may be in writing under the hand ofthe director making the same or may be made by telegram, cable or telex. An appointment under this Section may be a general appointment, or may be restricted to a single specified meeting of the Board and any adjourned portion thereof , or may be otherwise restricted in its operation or duration. PART 13 - TERMINATION OF DIRECTORSHIP OF DIRECTORS 13.1 The directorship of a director shall be immediately terminated: (a) if he is found to beincapable of managing his own affairs by reason of mental infirmity; (b) on the date of resignation stated in any notice in writing to the Company at its registered office by the director; (c) ifhe is removed pursuant to Section 14.2; (d) ifhe has been convicted within or without the Province of an indictable offence and the other directors resolve to removehim;or (e) if he ceases to be qualified to act as a director under the CBCA . PART 14 - RETIREMENT AND ELECTION OF DIRECTORS 14.1 At each annual general meeting ofthe Company all the directors shall retire in which case the Company shall electa Board of Directors consisting ofthe number of directors forthe time being fixed pursuanttothis By-Law but which shall not be less than that required by the CBCA. If in any calendar year the Company does not hold an annual general meeting the directors appointed at the last annual general meeting of the Company shall be deemed to have been elected or appointed as directors on the last day on which the meeting could have been held

pursuant to the CBCA and the directors so appointed or elected may hold office, unless other directors have been appointed in the meantime, until other directors are appointed or elected or until the day on which the next annual general meeting is held. 14.2 The Company may by special resolution remove any director and, by ordinary resolution, appoint another person in his stead. Any director so appointed shall hold office only until the next following annual general meetingofthe Company, butshallbe eligible for re-election atsuch meeting. 14.3 The directors shall have power at any time and from time to time to appoint any person as a director, to fill a casual vacancy on the Board ora vacancy resulting from an increase ofthe number of directors necessitated by the CBCA upon the Company becoming a reporting company. Any director so appointed shall hold office only until the next following annual general meeting ofthe Company at which directors are to be elected, but be eligibfefor re-election atsuch meeting. PART 15 - PROCEEDINGS OF DIRECTORS 15.1 The directors may meet together at such places as they think fit for the dispatch of business, adjourn and otherwise regulate their meetings and proceedings, as they see fit. The directors may from time to time fix the quorum necessary forthe transaction of business and unlessso fixed such quorum shall bea majority ofthe Board. The Chairman ofthe Board, if any. or in his absence the President ofthe Company, shall be chairman of all meetings ofthe Board, but ifatany meeting neither the Chairman oftheBoard, ifany, nor the President shall be present within30 minutes afterthe time appointed forholding the same or if both the Chairman oftheBoard andthe President, being present decline to act, the directors present may choose someone of their number to be chairman at such meeting. A directorinterestedis to be counted inaquorum notwithstandinghisinterest. 15.2 a director may at any time, and the Secretary upon the written request of a director shall, call a meeting of the directors. Notice thereof specifying the time and place of such meeting shall be mailed, postage prepaid, addressed to each of the directors at his registered address at least 48 hours before the time fixed for the meeting or such lesser period as may be reasonable under the circumstances, or such notice may be given to each director either personally or by leaving it at his usual business orresidentialaddrcssor by telephone, telegram, telex or other method of transmitting visually recorded messages, at least 48 hours before such time or such lesser period as may be reasonable under the circumstances. It shall not be necessary to give to any director notice of a meeting of directors immediately following a general meeting at which such director has been elected or notice of a meeting of directors at which such director shall have been appointed. Accidental omission to give notice of a meeting of directors to, or the non-receipt of notice by, any director, shall not invalidate the proceedings of that meeting. 15.3 Any director ofthe Company may from time to time file with the Secretary a writing waiving notice of any meeting of the directors being sent to him and agreeing to ratify and confirm any business transacted at any meeting ofthe directors though he may not be present at such meeting and though no notice has been sent to him ofsuch meetingand any and all meetmgsofthedirectorsof the Company so held (providedthat the quorum ofthe directors be present) shall be valid and binding upon the Company; provided that the director in such waiver may specify the period forwhichsuch waiver shall beeffective. 15.4

A meeting of the directors at which a quorum is present shall be competent to exercise all or any of the authorities, power and discretions for the time being vested in or exercisable by the directors.

15.5 The continuing directors may act notwithstanding any vacancy in their body but, if and so long as their number is reduced below the number fixed pursuant to this By-Law as the necessary quorum of directors, the continuing directors or director may act forthe purpose of filling any vacancies in or increasing the number of directors to that number, or for the purpose of summoning a general meeting of the Company, but for no other purpose. The Board may,at any time ana from timeto time, appointoneormoreadditionaldirectorsolihecompanyin addit ion to the number ofdirectors elected pursuantto Section 12.2. 15.6 The directors may delegate any but not all of their powers to committees consisting of such of the directors as they think fit. Any committee so formed shall in the exercise ofthe powers so delegated conform to any regulations that may from time to time be imposed on it by the directors, and shall report every act or thing done in exercise of such powers to the earliest meeting ofthedirectorstobeheld next after thesame shall have been done. 15.7 A committee may elect a chairman of its meetings; if no such chairman is elected, or if at any meetings the chairman is not present within 3 0 minutes after the time appointed for holding the same, the members present may chooseone of their number to be chairman ofthe meeting.

15.8 Themembersofacommitteemaymeetandadjournasthey think proper. Questionsarisingatanyineetingshall be determined by a majority of votes of the members present and in case of an equality of votes the chairman shall havea second casting vote. 15.9 All acts done by any meeting of the directors or by a committee of directors or by any person acting as a director shall, notwithstanding that it shall be afterwards discovered that there was some defect in the appointment of any such director or person acting asaforesaid. orthatthey orany oflhem were disqualified, be as valid as ifevery such personhad beendulyappointedandwas qualified to bea director. 15.10 For the first meeting ofthe Board to be held immediately followingtheappointmentorelectionofadirectoror directorsat an annual or general meeting of shareholders or fora meeting of the Board at which adirector isappointed to fill a vacancy in the Board, no notice ofsuchmeetingsshall be necessary to the newly elected or appointed directoror directorsinorderforthe meeting to be duly constituted, provided that a quorum of directors is present. 15.11 Any director of the Company who may be absent either temporarily or permanently from the Province of British Columbia may fileattheofFiceoftneCompanyawaiverofnotice which may be by let ter, telegram or cable of any meeting ofthe directors and may at any time withdraw such waiver, and until such waiver'is withdrawn, no noticeofmeetingsofdirectorsshall besenttosuch director, and any and allmeetingsofthedirectorsofthe Company, notice of which shall not have been given to such director, shall, provided a quorum of the directors is present, be valid and binding uponthe Company. 15.12

Questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the Chairman shallhavea second orcasting vote.

15.13 A resolution in writing, signed by each director or his alternate shall be as valid and effectual as if it had been passed at a meeting of directors duly called and held. Such resolution may be in one or more counterparts each signed by one or more directors or alternate directors which together shall be deemed to constitute one resolution in writing, but the provision of Section 12.6 shall apply, mutatis mutandis, to any resolution passed in accordance herewith. PART 16 - OFFICERS 16.1 The Board of Directors shall from time to time appoint a President, a Secretary and such other officers of the Company as it may determine, none of whom, save the Chairman of the Board, if any, and the President, need be directors. 16.2 All appointments of officers shall be made upon such terms and conditions and at such remuneration, whether by way of salary, fee, commission, participation in profits, or otherwise, as the directors may determine, and every such appointment shall be subject to termination at the pleasure of the directors unless otherwise lixed by contract. 16.3 Every officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, dutiesorinterestsmightbecreatedinconflictwithhisdutiesor interestsasanofficeroftheCompanyshall, in writing, disclose to the President the fact and the nature, character and extent of the conflict. PART 17 - MINUTES, DOCUMENTS AND RECORDS 17.1

Thedirectorsshallcauseminutestobedulyenteredin books providingforthepurposes: (a) of allappointments of officers; (b) of the names of the directors or their alternates present at each meeting of directors and of any committee of directors;

(c) of all orders made by the directors or committees of directors; (d) of all resolutions and proceedings of general meetings of the Company and of all meetings of the directors and of committees ofthe directors. 17.2 The directors shall cause the company to keep at its records office or at such other place as the CBCA may permit, the documents, copy documents, registers, minutes, and records which the Company is required by the CBCAtokeepat its recordsol flee orsuchother place. PART 18 - EXECUTION OF DOCUMENTS 18.1

The directors may provide a common seal for the Company and for its use and the directors shall have power from time to time to destroy the same and substitute a new seal in place thereof.

18.2 Subject to the provisions of the CBCA, the directors may provide for use in any other Province, State or Country an official seal, which shall have on its face of the name of the Province, Territory, State or Country where it is to be used. 18.3 Thedirectorsshall provide forthe safe custody ofthe common seal oftheCompany, ifany,which shall not be affixed to any instrument except in the presence ofany two directors ofthe Company by the authority ofa resolution of the directors or by such person or persons as may be authorized by such resolution;and such person or persons shall sign every instrument to which the seal ofthe company isaffixed inhisortheir presence; provided thataresolutionof thedirectorsdirecting the general useofthe seal, ifany. may atany time be passed by the directors and shall apply to the use of the seal until countermanded by another resolutionofthedirectors. 18.4 The signature of any officer of the Company may, if authorized by the directors, be printed, lithographed, engraved or otherwise mechanically reproduced upon all instruments executed or issued by the Company or any officer thereof; and any instrument on which the signature ofany such person is so reproduced, snail be deemed to have been manually signed by such person whose signature is so reproduced and shall be as valid to all intents and purposes as if such instrument had been signed manually, and notwithstanding that the person whose signature is so reproduced may have ceased to hold office at the date of the delivery or issue of such instrument. The term "instrument" as used in this Section shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, agreements, releases, receipts and discharges forthe payment of money or other obligations, certificates ofthe Company's shares, share warrants of the Company, bonds, debentures and other debt obligations of the company and all paper writings but shall not include share certificates or debentures whichshallbesigned in accordance with the CBCA. PART 19-DIVIDENDS 19.1 The directors may declare dividends and fix the date of record therefor and the date for payment thereof. No notice need be Riven ofthe declaration ofany dividend. If no date of record is fixed, the date of record shall be determined under the provisions ofthe CBCA. 19.2

Subject to the terms of the shares with special rights or restrictions, all dividends shall be declared according to the number of shares held.

19.3

No dividend shall bear interest against the Company.

19.4 The directors may direct payment ofany dividend wholly or partly by the distribution of specific assets or of paid-up shares, bonds, debentures or other debt obligations ofthe Company, or in any one or more of those ways, and, where any difficulty arisesin regard to thedistrihution, the directors may settle the same as they think expedient, and in particular may fix the value for the distribution of specific assets, and may determine that cash pavmentsshall bemadetoamemberuponthebasisofthe value so fixed in place of fractional shares, bonds, debenturesor other debt obligations inorderloadjusttherightsofall parties, and may vest any of those specific assets intrusteesupon such trusts forthe persons entitledasmayseem expedient tothedirectors. 19.5 Notwithstanding anything contained in this By-Law the directors may from time to time capitalize any undistributed surplus on hand ofthe Company and may from time to time issue as fully paid and nonassessable any unissued shares or any bonds, debentures or other debt obligations of the Company as a dividend

representing such undistributed surplus on hand or any part thereof. 19.6 Any dividend, interest or other moneys payable incash inrespectofsharesmay bepaid bychequeor warrant sent through the post directed to the registered address ofthe holder, or, in the case of joint holders, to the registered address of that one of the joint holders who is first named on the register or to such person and to such address as the holder or joint holders may in writingdirect. Every such chequeor warrant shall bemadc payable to the order ofthe person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses or other moneys payable inrespect ofthe shares held by themasjoint holders. 19.7

A transfer of shares shall not pass the right to any dividend declared thereon before the registration of the transfer intheregister.

19.8 Notwithstanding any other provisions of this By-Law should any dividend result in any shareholders being entitled to a fractional part of a share of the Company, the directors shall have the right to pay such shareholders in place of that fractional share, the cash equivalent thereof calculated on the par value thereof or, in the case of shares without par value, calculated on the price or consideration for which such shares were or were deemed to be issued, and shall havethefurtherright and complete discretion to carry out such distribution and to adjustthe rights of the shareholders with respect thereto on as practical and equitable a basis as possible including the right to arrange through a fiscal agent or otherwise for the sale, consolidation or other disposition of those fractional shareson behalfof those shareholders ofthe Company. 19.9 The directors may, before declaring any dividend, set aside out of the profits of the Company such sums as they think properasappropriationsfrom income,which shall atthediscretion ofthe directors, be applicable for meeting contingencies, orfor equalizingdividends, or for any other purpose to which theprofits of the Company may be properly applied, and pending such application may, either beemployedinthebusinessoftheCompany or be invested in such investments as the directors in their discretion mayfromtimetotimedetermine. PART 20-ACCOUNTS 20.1 The directors shall cause records and books of accounts to be kept as necessary to properly record the financial affairs and conditions of the Company and to comply with the provisions of statutes applicable to the Company. 20.2 The directors shall determine the place at which the accounting records of the Company shall be kept and those records shallbeopento the inspection ofany director during the normal businesshours ofthe Company. PART 21 - NOTICES 21.1 21.2 ofthat share.

A notice may be given to any member or director, either personally or by sending it to him by prepaid post, envelope or wrapper addressedto the member or directorat his registered address. A notice may be given by the Company to j oint members in respect of a share registered in their names by giving the notice tothejoint member first named intheregister of members inrespect

21.3 A notice may be given by the Company to the persons entitled to a share in the consequence of the death or bankruptcy of a member by sending it through the post in a prepaid letter, envelope or wrapper addressed to them by name, or by the titlcof representatives ofthe deceased, or trustee ofthe bankrupt, or by any like description, at the address, if any, supplied for the purpose by the persons claiming to be so entitled, or until that address has been so supplied, by giving the notice in any manner in which the same might have been given if thedeath or bankruptcy had notoccurred. 21.4 Any notice or document sent by post to or left at the registered address ofany member shall, n ot withstanding that member is then deceased and whether or not the Comp any has notice of his death, be deemed to held solely or jointly with other persons lis place as the member or joint member in have been duly served in respect of any registered shares, whether by that deceased member, until some other person is registered in respect of those shares, and that service shall for all purposes of these Sections be deemed a sufficient service of such notice or document on his personal representatives and all persons, if any, jointly interested with him in those shares.

21.5 A member, or a member’s authorized representative, shall be entitled to give a notice to the Company by giving it in writing and sending it by prepaid post, or delivering it, to the registered office of the Company. 21.6 Any notice sent by post shall be deemed to have been served on the business day following that on which the letter, envelope or wrapper containing that notice is posted, and service thereof it shall be sufficient to prove that the letter, envelope or wrapper containing the notice was properly addressed and put in a Canadian Government postoffice,postage prepaid.

in proving

21.7 If anumberof days notice oranoticeextending over any other period, isrequired to begiven,theday of service shall not, unless it is otherwise provided in this By-Law, be counted in the number of days or other period required. 21.8

Notice of every general meeting shall begiveninthe manner authorized by this By-Law, to: (a) eveiy member holding a share or shares carrying the right to vote at such meetings on the record date or, if no record date wasestablished by the directors, onthedate ofthemeeting; (b) (c) (d) (e)

21.9

the personal representative ofa deceased member; the trustee in bankruptcy a bankrupt member; theauditor oftheCompany; any other person entitled to receive notice under the CBCA. All notices given pursuant to this By-Law must be in writing. PART 22-INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS, EMPLOYEES AND CERTAIN AGENTS

22.1 The company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether or not brought by the Company or by a corporation or other legal entity or enterprise as hereinafter mentioned and whether civil, criminal or administrative, by reason ofthe fact that he is or was a director, officer, employee, or agent of the Companyorisorwasservingat the request of the Company as a director, officer, employeeor agentofanother corporation, a partnership, joint venture, trust or other enterprise, against all costs, charges and expenses including legal fees and any amount paid to settle the action or proceeding or satisfy a judgment, if he acted honestly and in good faith with a view to the best interests of the corporation or other legal entity or enterprise as aforesaid of which he is or was a director, officer, employee or agent, as the case may be, and exercised the care. diligence and skill ofa reasonably prudent person, and withrespecttoany criminal or administrative, action or proceeding, he had reasonable grounds for believing that his conduct was lawful; provided that the company shall not be bound to indemnify any such person, other than a director, officer or an employee of the Company, whoshallhave notice or who shallbe deemed to havenoticeofthis Section andto have contracted with the Company in the terms hercofsolely byvirtueofhisacceptance ofsuchofliceoremploymenufinaetingas agent for the Company or as a director, officer, employee or agent of another corporation or other legal entity or enterprise as aforesaid, he does so by written request ofthe Company containing an express reference to this Section; provided that no indemnification of a directoror former director ofthe Company, or director or former director of a corporation in which the Company is or was a shareholder, shall be made except to the extent approved by the Court pursuant to the CBCA or any other statute. The determination of any action, suit or proceeding by judgment, order, settlement, conviction or otherwise shall not, of itself, create a presumption that the person did not act honestly and in good faith and in the best interests of the Company and did not exercise the care, diligence and skill ofa reasonably prudent person and, with respect to any criminal action or proceedings,did not have reasonable grounds to believe thathisconduct waslawful.

22.2 The Company may indemnity any person other than a director in respect of any loss, damage, costs or expenses whatsoever incurred by him while acting as an officer, employee or agent for the Company unlesssuch loss, damage, costs or expenses arises out offai lure to comply with instructions, willful act or default or fraud by such person in any of which events the Company shall only indemnify such person if the directors, in then absolute discretion, so decide or the Company by ordinary resolution shall so direct. 22.3 The indemnification provided by Uiis Part shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any other Part, or any valid and lawful agreement, voteofmembersordisinteresteddirectorsor otherwise, both as to action in his official capacity and as to action in anothercapacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall enure to the benefit of the heirs, executors and administrators of such person. The indemnification provided by this Section shall not be exclusive of any powers, rights, agreements or undertakings which may be legally permissible or authorized by or under any applicable law. Notwithstanding any other provisions set forth in this Part, the indemnification authorized by this Part shall be applicable only to the extent that any such indemnification shall not duplicate indemnityor reimbursement which that person has received or shall receive otherwise thanunderthisPart. 22.4 The directors are authorized from lime to time to cause the Company to give indemnities to any directors, officer, employee, agent or other person who has undertaken or is about to undertake any liability on behalfoftheCompanyorany corporation controlled by it. 22.5 Subject to the CBCA. no director or officer or employee for the time being ofthe Company shall be liable forthe acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or act for conformity, or for any loss, damage or expense happeningto the Company through the insufficiency or deficiency of title to any property acquired by order of the Board forthe Company, or for the insufficiency or deficiency ofany security in or upon which any of the moneys of or belonging to the Company shall be invested or for any loss or damages arising from the bankruptcy, insolvency, or tortious act ofany person, firm or corporation with whom or which any moneys, securities or effects shall be lodged or deposited or for any loss occasioned by any error of judgment or oversight on his part or for any other loss, damage or misfortune whatever which may happen in the execution of the dutiesofh is respective office or trustor in relation thereto unless the same shall happen by or through hisown willful act or default, negligence, breach of trust of breach of duty. 22.6 Directors may rely upon the accuracy of any statement of fact represented by an officer of the Company to be correct or upon statements in a written report ofthe auditor of the Company and shall not be responsible or held liable for any lossordamage resulting from the paying of any dividends orotherwise acting in goodfaithupon anysuchstatement. 22.7 The directors may cause the Company to purchase and maintain insurance forthe benefit of any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trustorother enterprise againstany liability incurred byhim as a director, officer, employee or agent. PART 23 - PREFERENCE SHARES 23.1 The Preference shares may be issued from time to time in one or more series composed of such number of shares and with such preference, deferred or other special rights, privileges, restrictions and conditions attached thereto as shall be fixed hereby or from time to time before issuance by any resolution or resolutions providing for the issue of the shares of any series which may be passed by the directors of the Company and confirmed and declared by Sections of amendment including, without limiting the generality of the foregoing: (i)

the rate, amount or method of calculation of any dividends, and whether such rate, amount or method of calculation shall be subject to change or adjustment in the future, the currency or currencies of payment, the date or dates and place or places of payment thereof and the date or dates from which any such dividends shall accrue;

(ii) any right of redemption and/or purchase and the redemption or purchase prices and terms and conditions of any such right; (iii) any right of retraction vested in the holders of Preference shares of such series and the prices and terms and conditions of any such rights; (iv) any right upon dissolution, liquidation or winding-up of the Company; (v) any voting rights; (vi)

any rights of conversion; and

(vii) any other provisions attaching to any such series of Preference shares. 23.2 The Preference shares of each series shall, with respect to the payment of dividends, be entitled to a preference over the common shares and over any other shares of the Company ranking junior to the Preference shares. 23.3 Subject to the rights, privileges, restrictions and conditions that may be attached to a particular series of Preference shares by the directors of the Company in accordance with section A of the conditions attaching to the Preference shares, in the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or other distribution of assets of the Company among shareholders for the purpose of winding up its affairs, the holders of the Preference shares shall be entitled to receive, before any distribution of any part of the assets of the Corporation among the holders of the common shares or any other shares of the Company ranking junior to the Preference shares for each Preference share, an amount equal to the price at which such Preference share was issued together with, in the case of any Preference share that is part of a series of Preference shares entitled to cumulative dividends, all unpaid cumulative dividends (which for such purpose shall be calculated as if such cumulative dividends were accruing from day-to-day for the period from the expiration of the last period for which cumulative dividends have been paid up to and including the date of distribution) and, in the case of any Preference share that is part of a series of Preference shares entitled to non-cumulative dividends, any dividends declared thereon and unpaid. After payment to the holders of the Preference shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Company in connection with the events contemplated by this Section. 23.4 No rights, privileges, restrictions or conditions attached to any series of Preference shares shall confer upon the shares of such series a priority in respect of dividends or distribution of assets or return of capital in the event of the liquidation, dissolution or winding up of the Corporation over the shares of any other series of Preference shares. The Preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, rank on a parity with the Preference shares of every other series; provided however that in case such assets are insufficient to pay in full the amount due on all Preference shares, then such assets shall be applied, firstly, to the payment equally and rateably of an amount equal to the price at which the Preference shares of each series were issued and the premium payable thereon, if any, and secondly, rateably in payment of all accrued and unpaid cumulative dividends and declared but unpaid non-cumulative dividends.

23.5 Subject to the rights, privileges, restrictions and conditions that may be attached to a particular series of Preference shares by the directors of the Corporation in accordance with section A of the conditions attaching to the Preference shares, the holders of a series of Preference shares shall not, as such, be entitled to receive notice of or to attend any meeting of the shareholders of the Corporation and shall not be entitled to vote at any such meeting (except where the holders of a specified class or series of shares are entitled to vote separately as a class as provided in the Act. 23.6 The holders of Preference shares, or of any series of Preference shares, shall not be entitled to vote separately as a class or series (and no rights, privileges, restrictions or conditions attached to the Preference shares or any series of Preference shares shall entitle any holder of Preference shares or of any series of Preference shares to vote separately as a class or series) upon any proposal to amend the Sections of the Corporation to: (a) increase or decrease any maximum number of authorized Preference shares or increase any maximum number of authorized shares of a class having rights or privileges equal or superior to the Preference shares; (b) effect an exchange, reclassification or cancellation of all or part of the Preference shares; or (c) create a new class of shares equal or superior to the Preference shares. 23.7 Notwithstanding the aforesaid rights, privileges, restrictions and conditions on the right to vote, the holders of a series of Preference shares are entitled to notice of meetings of shareholders called for the purpose of authorizing the dissolution of the Corporation or the sale, lease or exchange of all or substantially all the property of the Corporation other than in the ordinary course of business of the Corporation under subsection 189(3) of the Act, as such subsection may be amended from time to time. 23.8 Subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of the Corporation the holders of the common shares shall be entitled to receive any dividends declared by the Corporation. 23.9 The holders of the common shares shall be entitled to receive the remaining property of the Corporation upon the liquidation, dissolution or winding-up of the Corporation, whether voluntary of involuntary. 23.10 The holders of the common shares shall be entitled to one vote for each common share held at all meetings of shareholders, except meetings at which only holders of another specified class or series of shares are entitled to vote. April 2, 2012 /s/ Carl R Jonsson, Secretary Carl R. Jonsson, Secretary

Exhibit 4.1 27 APPENDIX “C” CALEDONIA MINING CORPORATION (the "Corporation") INCENTIVE STOCK OPTION PLAN APRIL 10, 2007, as Amended March 31, 2011 (the "Plan") 1.

P urpose of this Plan

The purpose of this Plan is to assist the Corporation in attracting, retaining and motivating Directors, employees and service providers (as those terms are defined or recognized in the Manual of the Toronto Stock Exchange (“Exchange”), and which terms are hereinafter collectively referred to as "Directors, employees and other service providers for itself and its subsidiaries and to closely align the personal interests of such Directors, employees and service providers with those of the Corporation by providing them with the opportunity, through options, to acquire common shares in the capital of the Corporation. 2.

Implementation

This Plan and the grant and exercise of any options under this Plan are subject to compliance with the applicable requirements of each stock exchange or securities market ("Exchanges") on which the shares of the Corporation are listed or quoted at the time of the grant of any options under this Plan and of any governmental authority or regulatory body to which the Corporation is subject. 3.

Administration

This Plan shall be administered by the Board of Directors of the Corporation (“Board”) which shall, without limitation, subject to any necessary approval of the exchanges, have full and final authority in its discretion, but subject to the express provisions of this Plan, to interpret this Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of this Plan. The Board may delegate any or all of its authority with respect to the administration of this Plan and any or all of the rights, powers and discretions with respect to this Plan granted to it hereunder to such committee of Directors as the Board may designate and upon such delegation such committee, as well as the Board, shall be entitled to exercise any or all of such authority, rights, powers and discretions with respect to this Plan. When used hereafter in this Plan, "Board" shall be deemed to include a committee of Directors acting on behalf of the Board. 4.

Shares Issuable Under this Plan

Subject to any requirements of the Exchanges: (a) the aggregate number of shares (“Optioned Shares”) that may be issuable pursuant to options granted under this Plan will not exceed 10% of the number of issued shares of the Corporation, on an undiluted basis, at the time of the granting of options under this Plan; (b) no more than 5% of the issued shares of the Corporation, calculated at the date an option is granted, may be optioned to any one Optionee (as hereinafter defined); (c) no more than 2% of the issued shares of the Corporation, calculated at the date the option is granted, may be optioned to any one service provider; (d) no more than 10% of the issued shares of the Corporation, calculated, on an undiluted basis, may be issued or made issuable to insiders of the Corporation at any one time or within any one year period, under this and all other security based compensation arrangements of the Corporation.

28 5.

Eligibility Options may be granted under this Plan only to Directors, employees and service providers of the Corporation and any of its subsidiaries (collectively the "Optionees" and individually an "Optionee"). Subject to the provisions of this Plan, the total number of Optioned Shares to be made available under this Plan and to each Optionee, the time or times and price or prices at which options shall be granted, the time or times at which such options are exercisable, and any conditions or restrictions on the exercise of options, shall be in the full and final discretion of the Board.

6.

Terms and Conditions

All options under this Plan shall be granted upon and subject to the terms and conditions hereinafter set forth. 6.01

Exercise price

The exercise price to each Optionee for each Optioned Share shall be determined by the Board but shall not, in any event, be less than: (a)

the closing price of the Corporation’s shares on the Exchange on the trading day prior to the date of the grant of the option; and

(b)

the minimum price allowed by the exchanges.

6.02 Amendments to Plan (a)

Shareholder approval will be required in respect of any amendment or amendments to the Plan: (i)

as to the number of shares issuable under the Plan;

(ii)

which reduces the exercise price of an option;

(iii)

extending the term of an option beyond its original expiry date, except as otherwise permitted by the Plan;

(iv)

of this amending section of the Plan;

(v) (vi) (b) 6.03

as to the number of Options which may be granted to any class or category of optionees; amendments required to be approved by shareholders under applicable law.

Any amendments to the Plan other than those described in sub-clause (a) can be done by the Board of Directors of the Corporation without shareholder approval. Option Agreement

All options shall be granted under this Plan by means of an agreement (the "Option Agreement") between the Corporation and each Optionee in the form attached hereto as Schedule "A" or such other form as may be approved by the Board, such approval to be conclusively evidenced by the execution of the Option Agreement by any one director or officer of the Corporation, or otherwise as determined by the Board.

29 6.04

Length of Grant

Subject to sections 6.10 - 6.15 any options granted under this Plan shall expire not later than that date which is 5 years from the date such options are granted. 6.05

Non-Assignability of Options

An option granted under this Plan shall not be transferable or assignable (whether absolutely or by way of mortgage, pledge or other charge) by an Optionee other than by will or other testamentary instrument or the laws of succession and may be exercisable during the lifetime of the Optionee only by such Optionee. 6.06

Vesting

At the time of the granting of an option the Board may impose a vesting schedule, and in such case the vesting schedule shall be set forth in the Option Agreement. 6.07

Right to Postpone Exercise

Each Optionee, upon becoming entitled to exercise an option in respect of any Optioned Shares in accordance with the Option Agreement, shall thereafter be entitled to exercise the option to purchase such Optioned Shares at any time prior to the expiration or other termination of the Option Agreement or the option rights granted thereunder in accordance with such agreement. 6.08

Exercise and Payment

Any option granted under this Plan may be exercised by an Optionee or, if applicable, the legal representatives of an Optionee, by giving notice to the Corporation specifying the number of shares in respect of which such option is being exercised, accompanied by payment (by cash or certified cheque payable to the Corporation) of the entire exercise price (determined in accordance with the Option Agreement) for the number of shares specified in the notice. Upon any such exercise of an option by an Optionee the Corporation shall cause its transfer agent and registrar to promptly deliver to such Optionee or the legal representatives of such Optionee, as the case may be, a share certificate in the name of such Optionee or the legal representatives of such Optionee, as the case may be, representing the number of shares specified in the notice. 6.09

Rights of Optionees

Optionees shall have no rights whatsoever as shareholders of the Corporation in respect of any of the Optioned Shares (including, without limitation, voting rights or any right to receive dividends, warrants or rights under any rights offering) other than Optioned Shares in respect of which Optionees have exercised their option to purchase and which have been issued by the Corporation. 6.10

Third Party Offer

If at any time when an option granted under this Plan remains unexercised with respect to any common shares, an offer to purchase all of the common shares of the Corporation is made by a third party, the Corporation may upon giving each Optionee written notice to that effect, require the acceleration of the time for the exercise of the option rights granted under this Plan and of the time for the fulfilment of any conditions or restrictions on such exercise.

30 6.11

Alterations in Shares

In the event of a stock dividend, subdivision, redivision, consolidation, share reclassification (other than pursuant to this Plan), amalgamation, merger, corporate arrangement, reorganization, liquidation or the like of or by the Corporation, the Board may make such adjustment, if any, of the number of Optioned Shares, or of the exercise price, or both, as it shall deem appropriate to give proper effect to such event. If such an event is imminent, the Board may, in a fair and equitable manner, determine the manner in which all unexercised option rights granted under this Plan shall be treated including, without limitation, requiring the acceleration of the time for the exercise of such rights by the Optionees and of the time for the fulfilment of any conditions or restrictions on such exercise. All determinations of the Board under this section shall be full and final. 6.12

Termination for Cause

If an Optionee ceases to be either a Director, employee or service provider of the Corporation or of any of its subsidiaries as a result of having been dismissed from any such position for cause, all unexercised option rights of that Optionee under this Plan shall immediately become terminated and shall lapse, notwithstanding the original term of the option granted to such Optionee under this Plan. 6.13

Termination Other Than For Cause

If an Optionee ceases to be either a Director, employee or service provider of the Corporation or any of its subsidiaries for any reason other than as a result of having been dismissed for cause as provided in section 6.12 or as a result of the Optionee's death, such Optionee shall have the right for a period of 30 days (or until the normal expiry date of the option rights of such Optionee if earlier) from the date of ceasing to hold such position to exercise the option under this Plan with respect to all Optioned Shares of such Optionee to the extent they were exercisable on the date of ceasing to hold such position . Upon the expiration of such 30 day period all unexercised option rights of that Optionee shall immediately become terminated and shall lapse notwithstanding the original term of the option granted to such Optionee under this Plan. 6.14

Deceased Optionee

In the event of the death of an Optionee, the legal representatives of the deceased Optionee shall have the right for a period of one year (or until the normal expiry date of the option rights of such Optionee if earlier) from the date of death of the deceased Optionee to exercise the deceased Optionee's option with respect to all of the Optioned Shares of the deceased Optionee to the extent they were exercisable on the date of death. Upon the expiration of such period all unexercised option rights of the deceased Optionee shall immediately terminate and shall lapse notwithstanding the original term of the option granted to the deceased Optionee under this Plan. 6.15

Blackout Period

If an option expires during a trading blackout or within 10 business days after the date on which the blackout ends, then the expiry date of the option will be extended for a period of 10 business days after the date on which the trading blackout ends. 7.

Amendment and Discontinuance of Plan

Subject to any requirement of the exchanges, the Board may from time to time amend or revise the terms of this Plan or may discontinue this Plan at any time, provided that no such action may in any manner adversely affect the rights under any options earlier granted to an Optionee under this Plan without the consent of that Optionee.

31 8.

No Further Rights

Nothing contained in this Plan nor in any option granted hereunder shall give any Optionee or any other person any interest or title in or to any shares of the Corporation or any rights as a shareholder of the Corporation or any other legal or equitable right against the Corporation whatsoever other than as set forth in this Plan and pursuant to the exercise of any option, nor shall it confer upon the Optionees any right to continue as a Director, employee or service provider. 9.

Compliance with Laws

The obligations of the Corporation to sell shares and deliver share certificates under this Plan are subject to such compliance by the Corporation and the Optionees as the Corporation deems necessary or advisable with all applicable corporate and securities laws, rules and regulations. 10.

Withholding Taxes

Notwithstanding the other provisions and requirements set forth in this Plan the Corporation shall require, as a condition of the exercise of any options granted pursuant to this Plan, that an optionee exercising an option shall pay to the Corporation for remittance to the Canadian taxation authorities such amounts as are, by the tax laws and regulations applicable at the time, required in relation to the option being exercised to be collected and remitted. The Corporation must upon receiving the required monies from an optionee exercising an option, forthwith remit them to the Canadian taxation authorities accompanied by the appropriate forms to identify the optionee on behalf of whom the payment is being made. 11.

Previous Plans

All options granted under the Corporation’s previous Incentive Stock Option Plans will be deemed to have been granted pursuant to, and subject to the terms of, this Plan, to the extent that the provisions of such previously granted options are not inconsistent with the provisions of this Plan. DATED: April 10, 2007. SIGNED FOR IDENTIFICATION __________________________________ Carl Jonsson, Director and Secretary

32 SCHEDULE “A” CALEDONIA MINING CORPORATION INCENTIVE STOCK OPTION PLAN OPTION AGREEMENT This Option Agreement is entered into between Caledonia Mining Corporation (the "Company") and the Optionee named below pursuant to the Incentive Stock Option Plan of the Company dated April 10, 200, as amended March 31, 2011 (the "Plan"), and confirms that: 1.

on

2. 3.

,

;

(the "Optionee"); was granted the option to purchase

common shares (the "Optioned Shares") of the Company;

per Optioned Share;

4.

for the price of $

5.

exercisable from time to time up to but not after

,

;

all on the terms and subject to the conditions set out in the Plan. By signing this Option Agreement, the Optionee acknowledges that the Optionee has read and understands the Plan and agrees to the terms and conditions of the Plan and this Option Agreement. IN WITNESS WHEREOF the parties hereto have executed this Option Agreement as of the , .

day of

CALEDONIA MINING CORPORATION By: (the Optionee)

Authorized Signatory

Exhibit 12.1 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;

4.

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: a. 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;

5.

b.

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;

c.

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

d.

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

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); a. b.

Date:

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.

April 30, 2014

(signed) S.E. Hayden President and Chief Executive Officer

Exhibit 12.2 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; 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:

5.

a.

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;

b.

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;

c.

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

d.

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

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); a. b.

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, 2014

(signed) Steven Curtis Vice- President Finance and Chief Financial Officer

Exhibit 13.1 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, 2013 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, 2014

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, 2013 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, 2014

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.

Exhibit 15.1 SUMMARY OF INDEPENDENT TECHNICAL REPORT ON THE BLANKET MINE PROPERTY IN ZIMBABWE Prepared by The MSA Group on behalf of Caledonia Mining Corporation June 28, 2011 Qualified Persons who prepared the Report – Bruno Bvirakare (primary author) Mike Robertson (supervising principal)

3

SUMMARY

MSA Geoservices (Pty) Ltd (“The MSA Group”) was commissioned by Caledonia Mining Corporation (Caledonia) to prepare an Independent Technical Report on the Blanket Mine in Zimbabwe. The Report was required to verify Caledonia’s calculations of the Blanket Mine mineral reserves and resources on an annual basis. On the 20th June 2006 Caledonia acquired the Blanket Gold Mine, located near Gwanda in Zimbabwe, from Kinross Gold Corporation of Canada. Following a 2 year period of successful operation of the mine, the mine was forced to close for 6 months owing to the fact that the Zimbabwe Government did not pay for the gold sold to the State refiner. Operations commenced again in April 2009 and production has since risen steadily. Blanket Mine is situated about 15 km west of Gwanda, approximately 130 km to the south of Bulawayo, in south-western Zimbabwe. The mine has been in operation since 1906 and has reportedly produced 1,073,000 ounces of gold at an average grade of 4.53 g/t. The Mine comprises a series of deposits along a strike length of about 3 km, from Jethro in the south, through Blanket, Feudal, AR South, AR Main, Sheet, Eroica and Lima ore deposits. The gold enrichment occurs in near-vertical shoots spread out along an approximate north−south axis. The Blanket Mine exploits a fairly typical Archaean greenstone-hosted deposit situated on the northwest limb of the Gwanda Greenstone belt. Most mining activity takes place within AR South, AR Main, Eroica and Lima ore shoots. Two main types of mineralization are recognised, namely disseminated sulphide replacement (DSR) type mineralization forming the bulk of the orebodies, and gold-bearing quartz-filled shear zones. Three types of mining methods are used at the Blanket Mine: • Underhand stoping in the narrow ore bodies • Shrinkage stoping where blocky sidewalls are evident • Longhole stoping in the wider ore bodies, using 15 m sub-levels. The surrounding country rock at the Blanket Mine, a massive amphibolite, is generally very competent and support such as rock bolts are only installed on rare occasions where fractured rock conditions are encountered. All ore is trammed/tipped to the 22 Level Ore Bins where, after primary crushing, the ore is loaded and hoisted to surface. The completion of the 4 Shaft expansion project in 2010, which included plant upgrades, has increased the production capacity from 500 tpd to 1000 tpd of ore and consolidation at the higher level is in progress. The higher throughput rate enables the mine to produce 40,000 oz of gold per annum at the current Reserve grade and quantum over a period of at least 10 years. Current mineral reserves and resources are summarised in the table below:

Summary of Mineral Reserves and Resources at Blanket Mine at December 31, 2010 MINERAL RESERVES (based on a Gold Price of US$ 1100/oz) Classification Proven Ore Total Proven Ore including Pillars* Probable Ore Operating and Development Areas Total Proven + Probable Ore MINERAL RESOURCES (based on a Gold Price of US$ 1100/oz) Classification Indicated

Tons

Grade (Au g/t)

Gold Content (oz)

1,326,100

4.02

171,400

2,513,700 3,839,800

3.66 3.78

295,800 467,200

Tons

Grade (Au g/t)

Gold Content (oz)

510,000

3.79

62,100

Inferred 2,408,200 Tonnages and ounces are rounded to the nearest 100 Note * Pillar tonnages are discounted by 50% Note ** In keeping with the requirements of NI 43-101, Inferred Resources are reported without estimates of metal quantities. (i) 1 ton = 1,000 kilograms = 2,204.6 pounds (ii) Some numbers may not add due to rounding

5.01

**

Mr. Mike Robertson, Pr. Sci. Nat., and Mr. Bruno Bvirakare, Pr. Sci. Nat., both consultants with The MSA Group are the “Independent Qualified Persons” for Blanket’s reserves and resources as required by National Instrument 43-101 of the Canadian Securities Administrators. Cautionary note to U.S. Investors concerning estimates of Inferred Resources. The above table uses the term “inferred resources”. We advise U.S. investors that, while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or prefeasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally minable. Cautionary Note to U.S. Investors concerning estimates of Indicated Resources . The above table uses the term “indicated resources”. We advise U.S. investors that these terms are not recognised by the U.S. Securities and Exchange Commission. The estimation of measured resources and indicated resources involves greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. U.S. investors are cautioned not to assume that mineral resources in these categories will be converted into reserves. Major infrastructure consists of underground workings, a process plant, workshops and a tailings dam. The ROM process consists of three-stage crushing, twin rod mills, Knelson Concentrators, and a CIL (carbon-in-leach) circuit. Loaded carbon is eluted and electro-won in a compact PG Elution cell. Cathodes from the cell are acid digested and calcined before smelting together with the gravity gold concentrate from the Knelsons. Approximately 50% of the gold is recovered as free gold. Tailings from the CIL stream is pumped to a tailings dam, with the effluent being recycled to the plant. Two permits for effluent disposal have been issued to the Blanket Mine, covering the sewage effluent and mill tailings disposals. The Mine has implemented a pollution monitoring system around the current tailings dam with the installation of a number of piezometers, which are routinely monitored on an independent basis by Fraser Alexander personnel from its Harare office.

In terms of the Mining General Regulations, certain closure obligations are to be fulfilled. These are covered in a Closure Plan initially prepared by Knight Piesold. Management revised the quantum of the provisions in 2009. The Blanket Mine smelts gold Dore bars twice a month and delivers them to a local refinery which is operated by the Reserve Bank of Zimbabwe. The Dore bars are then sent to Rand Refinery in South Africa for refining and sale. The Report, authorized by Mike Robertson and Bruno Bvirakare, dated June 28, 2011, can be viewed on the Company’s website. pursuant to the links “Investors” and “Technical Reports” - and on SEDAR at: www.sedar.com

Exhibit 15.2

Property and Claims Information THE DATA PROVIDED BELOW FOR THE THREE PROPERTY AREAS IS CONSIDERED THE MATERIAL INFORMATION RELATING TO THE PROPERTIES AND CLAIMS. THE FULL TEXT OF THIS DATA AND INFORMATION IS AVAILABLE IN THE VARIOUS TECHNICAL REPORTS THAT ARE AVAILABLE ON THE COMPANY WEBSITE www.caledoniamining.com BLANKET GOLD MINE a) Nature of Ownership Interests Blanket Mine’s claims area is based on 2701 pegged claims. An application made to the Ministry of Mines to convert the claims area into a mining lease was approved and its issue is awaited. Blanket’s exploration properties are all pegged claims (see Table 14 g(i)) and held 100% by Blanket although some of the claims are subject to royalties. b) Salient Terms of Agreements, Royalties • 1.5 – 2.0% NSR. Blanket owns the claims totally. Based on current mining law in Zimbabwe, Blanket’s Mining Lease is valid in perpetuity. Prospecting claims are renewable on an annual basis (Table 14 g(i)) by payment of a claim fee based on the area of the claim. The claims may also be maintained by carrying out exploration activities on the claims. Royalties are payable on some of the claims (see Table 14 g(i)). c) Mineral Rights – Process of Acquisition Mineral rights in Zimbabwe may be acquired by pegging claims or by purchasing claims. In the case of the purchase of an operating mine the mining lease/ claim is transferrable together with the related conditions. Proposed changes to the Mining Law will require that indigenous persons hold a significant interest in mining companies. Claims are held indefinitely so long as they are serviced in terms of work done or fees paid. d) The Claim/Right type and Conditions Zimbabwe recognizes both precious metal (gold) and base metal claims regardless of the nature of the deposit. In the event of a gold mine being located on base metal claims, the claims can be converted to precious metal claims. The claims are awarded and monitored by the State. A mining lease is awarded over existing claims on application by the mining company. e) Property details See Table 14 g(i). f) Conditions of retention, Payments etc See Table 14 g(i). Claim fee payments are made by Blanket Gold Mine (responsible person – V. Naik). g) Property area – see Table 14 g (i) The protection of non-producing claims is the subject of ongoing discussions as the claim protection fees have been dramatically increased and the economic feasibility of protecting all claims is being assessed.

CLAIM BLOCK PROPERTY NAME GWANDA CLAIMS Blanket Mine Valentine Oqueil Havard Blanket

Feudal Lima Sheet Sabiwa Mbudzane Rock Jethro DT Smiler Site Cemetry Site Compound Site Compound Site Compound Site Dump Site Housing Site Housing Site Magazine Site Slimes Blanket Exploration Penzance Bunny's Luck Cinderella Eagle 16 Spruit Shakeshake Surprise Abercorn Banshee Dan's Luck South Abercorn

NUMBER OF CLAIM BLOCKS

26 36 1 11

CLAIM TYPE

CLAIM/BLOCK NUMBERS

EXPIRY DATES

AREA (ha)

Gold Gold Base Gold

GA2767-92 35928-63 5576BM GA512'GA547,GA247-8,GA349, GA5030,1817,31202,3958 6874BM,9627BM 31190,19918,21065,GA446, 10051BM,10358BM 36066-117,35753-68,34052-67, 10925BM 35628-39,34744,34747-51,34856,GA341, 9629BM GA281,GA513,1978,25610,9628BM, 9628BM,10922-23BM,10894-96BM,10049-50BM 36160-202 19923 21775 32939 577 701 575 574 646 573 645 578 613

21-Mar-16 29-Jan-16 02-Feb-15 06-Apr-16

240.6 270 25 114

11264BM,11265BM,8838BM 10443-48BM 11122-23BM,10824-26BM 11266BM 10623-24BM,GA532-4BM 10625-27BM 10628-29BM 11269BM,10602BM 11093BM GA537-38BM,11268BM 32251

07-Jan-15 15-Jan-15 19-Jan-15 21-Jan-15 24-Feb-15 24-Feb-15 24-Feb-15 11-May-15 14-Jul-15 11-Mar-15 28-Apr-15

Base 6 Gold Base 85 Gold Base 21 Gold Base 12 Gold Base 43 Gold 1 Gold 2 Gold 1 Gold 1 Site 1 Site 1 Site 1 Site 1 Site 1 Site 1 Site 1 Site 1 Site 3 6 5 1 5 3 2 2 1 3 1

Base Base Base Base Base Base Base Base Base Base Gold

26-Aug-15 10-May-16 25-Sep-15 02-Apr-16 23-Sep-15 03-Apr-16 26-Aug-15 11-Apr-16 23-Sep-15 21-May-16 23-Jul-16 01-Sep-16 20-Nov-15 14-Dec-15 15-Sep-15 14-Dec-15 14-Dec-15 15-Sep-15 17-Mar-15 15-Sep-15 14-Dec-15 21-Mar-15

77 828.5 179.6 594 353.9 9 10 10 2 10 17 7 18 23 8 29 28 99 150 428 51 388 288 196 216 135 135 10

Annette Dan's Luck Eagle Hawk GG Gum Lincoln Mascot Mazeppa Rubicon Valentine Vulture Will South Site Site Site Site Site Site Bubi Claims Stu Chikosi Sandy Ruswayi Lonely Spawn Kadoma Claims Goldern Donkey Headley NE Harare Apollo Electra Apollo Avlin TOTAL Exploration claims GG-GG6, GGA-GGE

3 2 1 7 2 1 3 1 23 3 2 1 1 1 1 1 1 1

Gold Gold Gold Gold Gold Gold Gold Gold Gold Gold Gold Gold Site Site Site Site Site Site

GA3258-60 32776,GA3769B 30544 GA3769-75 GA3060-61 30548 GA583,29657,32756 32769 34519-20,34794-805,34913-21 GA2994-96 5031, 8106 33143 649 607 608 609 610 512

03-Apr-16 13-May-15 08-Oct-16 06-Jul-16 10-Oct-16 01-Oct-16 03-May-16 26-May-15 23-Jan-16 11-Jul-16 13-Jan-16 30-Sep-15 08-May-15 24-Sep-15 24-Sep-15 24-Sep-15 24-Sep-15 31-Dec-15

24 18 10 162.9 12 10 30 3 220 30 20 5 4 1 1 1 1 1

4 7 2 6 5 3

Base Base Base Base Base Base

12072-74BM,12021BM 12011-17BM 12018-19BM 12022-27BM 12028-30BM,12075-76BM 12031-33BM

07-Jan-13 30-Jan-13 30-Jan-13 30-Jan-13 02-Feb-13 30-Jan-13

495 499.5 300 544 670 311

1254-55 1256-58

18-Mar-13 18-Mar-13

8 30

17438-46,28665-79,28734-36 19482BM 28382-84BM 28030-28044

27-Sep-13 13-Mar-13 27-Sep-13 08-Sep-13

208 12 96 117 8793.96

GA651,GA942-51

06-Jul-16

110

2 Gold 3 Gold 27 1 3 15 419

Gold Base Base Gold

11 Gold

Exhibit 15.3 SHAREHOLDER RIGHTS PLAN AGREEMENT DATED AS OF DECEMBER 5, 2013 BETWEEN CALEDONIA MINING CORPORATION AND COMPUTERSHARE INVESTOR SERVICES INC. AS RIGHTS AGENT

SHAREHOLDER RIGHTS PLAN AGREEMENT SHAREHOLDER RIGHTS PLAN AGREEMENT dated as of December 5, 2013 , between Caledonia Mining Corporation (the “Corporation”), a corporation existing under the laws of Canada, and Computershare Investor Services Inc., a company existing under the laws of Canada (the “Rights Agent”); WHEREAS: (a) the Board of Directors of the Corporation, in the exercise of its fiduciary duties, has determined that it is advisable and in the best interests of the Corporation to adopt a shareholder rights plan (the “Rights Plan”) to take effect immediately, subject to the approval of the Independent Shareholders at the next meeting of Shareholders, to be held in May, 2014, to ensure, to the extent possible, that all shareholders of the Corporation are treated fairly in connection with any offer or bid for the Voting Shares of the Corporation and to ensure that the Board of Directors is provided with sufficient time to evaluate unsolicited take-over bids and find an alternative value enhancing transaction, if appropriate in the circumstances; (b) in order to implement the adoption of the Rights Plan, the Board of Directors confirmed and authorized: (i) the issuance of one Right effective the Record Time in respect of each Common Share outstanding at the Record Time; and (ii) the issuance of one Right in respect of each Common Share issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time; (c) each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth in this Agreement;

-2(d) the Corporation has appointed the Rights Agent to act on behalf of the Corporation and the holders of Rights, and the Rights Agent has agreed to act on behalf of the Corporation in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of Rights and other matters referred to in this Agreement; and (e) capitalized terms used above without definition have the meanings given to such terms in Article 1 of this Agreement; NOW THEREFORE, in consideration of the premises and the respective agreements set forth herein, the Corporation and the Rights Agent agree as follows: ARTICLE 1 INTERPRETATION 1.1

Certain Definitions

For purposes of this Agreement, the following terms have the meanings indicated; (a) “Acquiring Person” means any Person who is the Beneficial Owner of 20% or more of the outstanding Voting Shares; provided, however, that the term “Acquiring Person” shall not include: (i) the Corporation or any Subsidiary of the Corporation; (ii) any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of one or any combination of: (A) a Voting Share Reduction, (B) a Permitted Bid Acquisition, (C) an Exempt Acquisition, (D) a Convertible Security Acquisition, or

-3(E)

a Pro Rata Acquisition;

provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of one or any combination of (A), (B), (C), (D) or (E) above and thereafter becomes the Beneficial Owner of additional Voting Shares in an amount greater than 1% of the outstanding Voting Shares (other than pursuant to one or any combination of (A), (B), (C), (D) or (E) above), then as of the date such Person becomes the Beneficial Owner of such additional Voting Shares, such Person shall become an “Acquiring Person”; (iii) for a period of 10 days after the Disqualification Date (as defined below), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Clause (B) of the definition of “Beneficial Owner” solely because such Person makes or proposes to make a Take-over Bid, either alone, through such Person’s Affiliates or Associates or by acting jointly or in concert with any other Person (for the purposes of this definition, “Disqualification Date” means the first date of public announcement that any Person is making or has announced an intention to make a Take-over Bid, either alone, through such Person’s Affiliates or Associates or by acting jointly or in concert with any other Person, and includes, without limitation, a report filed pursuant to Section 102.1 of the Securities Act); (iv) an underwriter or member of a banking or selling group that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution of securities of the Corporation, which includes, without limitation, a distribution of securities pursuant to a prospectus or by way of private placement; or (v) a Person (a “Grandfathered Person”) who is the Beneficial Owner of 20% or more of the outstanding Voting Shares determined as at the

-4Record Time, provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that (i) such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of any additional Voting Shares in an amount greater than 1% of the outstanding Voting Shares, other than through one or any combination of a Permitted Bid Acquisition, an Exempt Acquisition, a Voting Share Reduction, a Pro Rata Acquisition or a Convertible Security Acquisition or (ii) such Grandfathered Person shall, after the Record Time, cease to be the Beneficial Owner of 20% or more of the outstanding Voting Shares. (b) “Affiliate”, when used to indicate a relationship with a Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified Person. (c) “Agreement” means this shareholder rights plan agreement, as the same may be amended or supplemented from time to time; “hereof”, “herein”, “hereto” and similar expressions mean and refer to this Agreement as a whole and not to any particular part of this Agreement. (d) “Associate”, when used to indicate a relationship with a specified Person, means (i) a spouse of that Person, (ii) any Person of the same or opposite sex with whom that Person is living in a conjugal relationship outside marriage, (iii) a child of that Person or (iv) a relative of that Person or of a Person mentioned in items (i), (ii) or (iii) of this definition if that relative has the same residence as that Person. (e) A Person shall be deemed the “Beneficial Owner” of, to have “Beneficial Ownership” of, and to “Beneficially Own”: (i) any securities as to which such Person or any of such Person’s Affiliates or Associates is the owner at law or in equity; (ii) any securities as to which such Person or any of such Person’s Affiliates or Associates has the right to acquire or to become the owner at law or in

-5equity (whether such right is exercisable immediately or within a period of 60 days thereafter and whether or not on condition or the happening of any contingency) pursuant to any agreement, arrangement, pledge or understanding, whether or not in writing (other than (A) customary agreements with and between underwriters and/or banking group members and/or selling group members in connection with a distribution to the public or pursuant to a private placement of securities of the Corporation and (B) pledges of securities in the ordinary course of business); and (iii) securities which are Beneficially Owned within the meaning of Clauses 1.1(e)(i) or (ii) by any other Person with whom such Person is acting jointly or in concert; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to have “Beneficial Ownership” of, or to “Beneficially Own”, any security because: (A) the holder of such security has agreed pursuant to a Permitted Lock-up Agreement to deposit or tender such security to a Take-over Bid made by such Person, made by any of such Person’s Affiliates or Associates or made by any other Person acting jointly or in concert with such Person, or such security has been deposited or tendered pursuant to any Take-over Bid made by such Person, made by any of such Person’s Affiliates or Associates or made by any other Person acting jointly or in concert with such Person, until such deposited or tendered security has been taken up or paid for, whichever shall first occur; (B) such Person, any of such Person’s Affiliates or Associates or any other Person acting jointly or in concert with such Person holds such security provided that: (1) the ordinary business of any such Person (the “Investment Manager”) includes the management of mutual funds or other investment funds for others (which others, for greater certainty,

-6may include or be limited to one or more employee benefit plans or pension plans) and the Investment Manager holds such security in the ordinary course of such business in the performance of such Investment Manager’s duties for the account of any other Person (a “Client”), including nondiscretionary accounts held on behalf of a Client by a broker or dealer registered under applicable law, (2) such Person (the “Trust Company”) is licensed to carry on the business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an “Estate Account”) or in relation to other accounts (each an “Other Account”) and holds such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person or for such other accounts, (3) such Person is established by statute for purposes that include, and the ordinary business or activity of such Person (the “Statutory Body”) includes, the management of investment funds for employee benefit plans, pension plans, insurance plans or various public bodies, and the Statutory Body holds such security in the ordinary course of and for the purposes of its activities as such, (4) such Person is a Crown agent or agency (a “Crown Agent”), or (5) such Person (the “Administrator”) is the administrator or trustee of one or more pension funds or plans (a “Plan”) or is a Plan registered under the laws of Canada or any province thereof or the laws of the United States of America or any State thereof, and the Administrator holds such security in the ordinary course of and for the purposes of its activities as such;

-7provided, in any of the above cases, that the Investment Manager, the Trust Company, the Statutory Body, the Crown Agent, the Administrator or the Plan, as the case may be, is not then making a Take-over Bid or has not then announced an intention to make a Take-over Bid, other than an Offer to Acquire Voting Shares or other securities by means of a distribution by the Corporation or by means of ordinary market transactions (including prearranged trades entered into in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter market, in each case, alone, through its Affiliates or Associates or by acting jointly or in concert with any other Person; (C) such Person is (1) a Client of the same Investment Manager as another Person on whose account the Investment Manager holds such security, (2) an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security or (3) a Plan with the same Administrator as another Plan on whose account the Administrator holds such security; (D) such Person is the registered holder of securities solely as the result of carrying on the business of or acting as a nominee of a securities depositary; (E) such Person is (1) a Client of an Investment Manager and such security is owned at law or in equity by the Investment Manager, (2) an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company or (3) a Plan and such security is owned at law or in equity by the Administrator of the Plan; or (F) such security having been deposited or tendered pursuant to a Take-over Bid made by such Person or any of such Person’s Affiliates or Associates or any other Person referred to in Clause (iii) of this definition until the

-8earlier of such deposited or tendered security being accepted unconditionally for payment or exchange or being taken up and paid for. (f) “Board of Directors” means the board of directors of the Corporation. (g) “Business Day” means any day other than a Saturday, Sunday or a day on which banking institutions in the City of Toronto, Ontario, are authorized or obligated by law to close. (h) Canadian Dollar Equivalent" of: (i) any amount which is expressed in British pound sterling means on any date the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.K.-Canadian Exchange Rate in effect on such date; or (ii) any amount, which is expressed in United States dollars means, on any date, the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.S. - Canadian Exchange Rate in effect on such date. (i) "Canadian-U.K. Exchange Rate" means on any date the inverse of the U.K.- Canadian Exchange Rate. (j) “Canadian - U.S. Exchange Rate” means, on any date, the inverse of the U.S. - Canadian Exchange Rate in effect on such date. (k) “Close of Business” on any given date means the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the principal transfer office in the City of Toronto, Ontario of the transfer agent for the Common Shares (or, after the Separation Time, the principal transfer office in Toronto, Ontario of the Rights Agent) is closed to the public.

-9 (l) “Common Shares” means voting common shares in the capital of the Corporation, as such shares may be subdivided, consolidated, reclassified or otherwise changed from time to time. (m) “Competing Permitted Bid” means a Take-over Bid that: (i) is made after a Permitted Bid or another Competing Permitted Bid has been made and prior to the expiry of that Permitted Bid or Competing Permitted Bid (in this definition, the “Prior Bid”); (ii) satisfies all the provisions of the definition of a Permitted Bid, other than the requirement set out in Clause (ii) and (iv) of the definition of Permitted Bid; and (iii) contains, and the take-up and payment for securities tendered or deposited thereunder are subject to, irrevocable and unqualified conditions that: (A) no Voting Shares shall be taken up or paid for pursuant to such Take-over Bid (x) prior to the Close of Business on a date that is not earlier than the later of the last day on which the Takeover Bid must be open for acceptance after the date of such Take-over Bid under applicable Canadian provincial securities legislation and the earliest date on which Voting Shares may be taken up or paid for under any Prior Bid, and (y) then only if, at the time that such Voting Shares are first taken up or paid for, more than 50% of the then outstanding Voting Shares held by Independent Shareholders have been deposited or tendered pursuant to such Take-over Bid and not withdrawn provided that if the Take-over Bid is for less than all of the outstanding Voting Shares, no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the Close of Business at the end of the 10 Business Day period referenced in 1.1(j)(iii)(B); and

- 10 (B) in the event that the requirement set forth in Subclause (iii)(A)(y) of this definition is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Common Shares for not less than ten Business Days from the date of such public announcement; provided always that a Competing Permitted Bid will cease to be a Competing Permitted Bid at any time when such bid ceases to meet any of the provisions of this definition and provided that, at such time, any acquisition of Voting Shares made pursuant to such Competing Permitted Bid, including any acquisitions of Voting Shares theretofore made, will cease to be a Permitted Bid Acquisition. (n) A Person is “controlled” by another Person if: (i)

in the case of a corporation: (A) securities entitled to vote in the election of directors carrying more than 50 per cent of the votes for the election of directors are held, directly or indirectly, by or for the benefit of the other Person; or (B) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation; or

(ii) in the case of a Person that is not a corporation, more than 50% of the voting or equity interests of such entity are held, directly or indirectly, by or on behalf of the Person or Persons; and “controls”, “controlling” and “under common control with” shall be interpreted accordingly. (o) “Convertible Securities” means, at any time, any securities issued by the Corporation from time to time (other than the Rights) carrying any purchase, exercise, conversion or exchange right pursuant to which the holder thereof may

- 11 acquire Voting Shares or other securities which are convertible into, exercisable into or exchangeable for Voting Shares (in each case, whether such right is exercisable immediately or after a specified period and whether or not on condition or the happening of any contingency). (p) “Convertible Security Acquisition” means the acquisition by a Person of Voting Shares upon the exercise of Convertible Securities received by such Person pursuant to a Permitted Bid Acquisition, Exempt Acquisition or a Pro Rata Acquisition. (q) “Co-Rights Agents” has the meaning ascribed thereto in Subsection 4.1(a). (r) “Corporations Act” means the Canada Business Corporations Act, as amended, and the regulations made thereunder, and any comparable or successor laws or regulations thereto. (s) “Disposition Date” has the meaning ascribed thereto in Subsection 5.2(c). (t) “Election to Exercise” has the meaning ascribed thereto in Clause 2.2(d)(ii). (u) “Exempt Acquisition” means a Voting Share acquisition or a Convertible Securities Acquisition (i) in respect of which the Board of Directors has waived the application of Section 3.1 pursuant to the provisions of Section 5.2, (ii) pursuant to an amalgamation, arrangement or other statutory procedure requiring Shareholder Approval, (iii) pursuant to a distribution of Voting Shares or Convertible Securities (and the exercise of such Convertible Securities) pursuant to any equity incentive stock plan of the Corporation where the eligible participants include directors, employees (including officers) and consultants of the Corporation, (iv) which were made pursuant to a dividend reinvestment plan, or (v) pursuant to the exercise of Rights. (v) “Exercise Price” means, as of any date from and after the Separation Time, the price at which a holder may purchase the securities issuable upon exercise of one whole Right which, subject to adjustment in accordance with the terms hereof,

- 12 shall be an amount equal to five times the Market Price per Common Share determined as at the Separation Time. (w) “Expansion Factor” has the meaning ascribed thereto in Clause 2.3(a)(x). (x) “Expiration Time” means the Close of Business on that date that is the earliest of (i) the Termination Time, and (ii) the date of termination of this Agreement pursuant to Section 5.17 or, if this Agreement is confirmed pursuant to Section 5.17, the date of termination of this Agreement pursuant to Section 5.18 or, if this Agreement is reconfirmed pursuant to Section 5.18 at the third and sixth annual meetings of shareholders following the meeting at which this Agreement is confirmed pursuant to Section 5.17, upon the conclusion of the Corporation’s annual meeting of shareholders in 2022. (y) “Flip-in Event” means a transaction in or pursuant to which any Person becomes an Acquiring Person. (z) “Grandfathered Person” has the meaning ascribed thereto in Section 1.1(a)(v). (aa) “holder” has the meaning ascribed thereto in Section 2.8. (bb) “Independent Shareholders” shall mean holders of Voting Shares, other than: (i) any Acquiring Person; (ii) any Offeror, other than any Person who by virtue of Clause (B) of the definition of “Beneficial Owner” is not deemed to Beneficially Own the Voting Shares held by such Person; (iii) any Affiliate or Associate of any Acquiring Person or Offeror; (iv) any Person acting jointly or in concert with any Acquiring Person or Offeror; and (v) any employee benefit plan, deferred profit sharing plan, stock participation plan and any other similar plan or trust for the benefit of employees of the

- 13 Corporation unless the beneficiaries of the plan or trust direct the manner in which the Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a Take-over Bid. (cc) “Market Price” per security of any securities on any date of determination shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the adjustment provided for in Section 2.3 or as the Board of Directors shall otherwise determine in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day. The closing price per security of any securities on any date shall be: (i) the closing board lot sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices for each such security as reported by the principal stock exchange or securities quotation system on which such securities are listed or admitted to trading (based on the volume of securities traded during the most recently completed financial year); (ii) if for any reason none of the prices described in Clause (i) above are available for such date or the securities are not listed or admitted to trading on a stock exchange or securities quotation system, the last board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for each such security on such date as reported by such other

- 14 securities exchange or securities quotation system on which such securities are listed or admitted to trading (and if such securities are listed or admitted to trading on more than one other stock exchange or securities quotation system such prices shall be determined based on the stock exchange or securities quotation system on which such securities are then listed or admitted to trading on which the largest number of such securities were traded during the most recently completed financial year); (iii) if for any reason none of the prices described in Clauses (i) and (ii) above are available for such date or the securities are not listed or admitted to trading on a stock exchange or any other securities exchange or securities quotation system, the last sale price, or if no sale takes place, the average of the high bid and low asked prices for each such security on such date in the over-the-counter market, as quoted by any reporting system then in use (as determined by the Board of Directors); or (iv) if for such date none of the prices described in Clauses (i), (ii) and (iii) above are available or the securities are not listed or admitted to trading on a stock exchange and are not quoted by any reporting system, the average of the closing bid and asked prices for such date as furnished by a professional market maker making a market in the securities selected in good faith by the Board of Directors; provided, however, that if for any reason none of such prices is available on such day, the closing price per share of such securities on such date means the fair value per share of such securities on such date as determined by a nationally or internationally recognized firm of investment dealers or investment bankers selected by the Board of Directors and provided further that if an event of a type analogous to any of the events described in Section 2.3 hereof shall have caused any price used to determine the Market Price on any Trading Day not to be fully comparable with the price as so determined on the Trading Day immediately preceding such date of determination, each such price so used shall be

- 15 appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof in order to make it fully comparable with the price on the Trading Day immediately preceding such date of determination. The Market Price shall be expressed in Canadian dollars and if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in question in British pound sterling, such amount shall be translated into Canadian dollars on such date at the Canadian Dollar Equivalent thereof. (dd) “Nominee” has the meaning ascribed thereto in Subsection 2.2(c). (ee) “Offer to Acquire” includes: (i) an offer to purchase or a solicitation of an offer to sell Voting Shares or Convertible Securities; and (ii) an acceptance of an offer to sell Voting Shares or Convertible Securities, whether or not such offer to sell has been solicited; or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell. (ff) “Offeror” means a Person who has announced a current intention to make or who is making a Take-over Bid, but only to the extent such announced intention or Take-over Bid has not been withdrawn or terminated or has not expired; (gg) “Offeror’s Securities” means Voting Shares Beneficially Owned by an Offeror on the date of the Offer to Acquire. (hh) “Permitted Bid” means a Take-over Bid made by an Offeror by way of take-over bid circular which also complies with the following provisions: (i) the Take-over Bid is made to all holders of Voting Shares, other than the Offeror;

- 16 (ii) the Take-over Bid contains, and the take-up and payment for securities tendered or deposited is subject to, an irrevocable and unqualified provision that no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the Close of Business on the date which is not less than 60 days following the date of the Take-over Bid and only if at such date more than 50% of the Voting Shares held by Independent Shareholders shall have been deposited or tendered pursuant to the Take-over Bid and not withdrawn provided that if the Take-over Bid is for less than all of the outstanding Voting Shares, no Voting Shares will be taken up or paid for pursuant to the Take-over Bid prior to the end of the 10 Business Day period referenced in 1.1(ee)(iv); (iii) unless the Take-over Bid is withdrawn, the Take-over Bid contains an irrevocable and unqualified provision that Voting Shares may be deposited pursuant to such Take-over Bid at any time during the period of time described in Clause 1.1 (ee)(ii) and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; and (iv) the Take-over Bid contains an irrevocable and unqualified provision that in the event the deposit condition set forth in Clause 1.1(ee)(ii) is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than 10 Business Days from the date of such public announcement; provided always that a Permitted Bid will cease to be a Permitted Bid at any time when such bid ceases to meet any of the provisions of this definition and provided that, at such time, any acquisition of Voting Shares made pursuant to such Permitted Bid, including any acquisition of Voting Shares theretofore made, will cease to be a Permitted Bid Acquisition.

- 17 (ii) “Permitted Bid Acquisition” means an acquisition of Voting Shares made pursuant to a Permitted Bid or a Competing Permitted Bid. (jj) “Permitted Lock-up Agreement” means an agreement between a Person and one or more holders of Voting Shares or Convertible Securities (each a “Locked- up Person”) (the terms of which are publicly disclosed and a copy of which is made available to the public (including the Corporation) not later than the date the Lock-up Bid (as defined below) is publicly announced or, if the Lock-up Bid has been made prior to the date on which such agreement is entered into, forthwith, and in any event not later than the date of such agreement), pursuant to which each such Locked-up Person agrees to deposit or tender Voting Shares or Convertible Securities (or both) to a Take-over Bid (the “Lock-up Bid”) made or to be made by the Person or any of such Person’s Affiliates or Associates or any other Person referred to in Clause (iii) of the definition of Beneficial Owner; provided that: (i)

the agreement: (A) permits the Locked-up Person to terminate its obligation to deposit or tender, and permits the Locked-up Person to withdraw if already deposited or tendered, the Voting Shares or Convertible Securities (or both) from the Lock-up Bid in order to tender or deposit such securities to another Take-over Bid or to support another transaction that represents a price or value of consideration for each Voting Share or Convertible Security that exceeds the price or value of consideration represented or proposed to be represented by the Lock-up Bid; or (B) (1) permits the Locked-up Person to terminate its obligation to deposit or tender, and permits the Locked-up Person to withdraw if already deposited or tendered, the Voting Shares or Convertible Securities (or both) from the Lock-up Bid in order to tender or deposit the Voting Shares or

- 18 Convertible Securities to another Take-over Bid, or to support another transaction that provides for a price or value of consideration for each Voting Share or Convertible Security that exceeds by as much as or more than a specified amount (the “Specified Amount”) the price or value of consideration for each Voting Share or Convertible Security contained in or proposed to be contained in the Lock-up Bid; and (2) does not by its terms provide for a Specified Amount that is greater than 7% over the price or value of consideration for each Voting Share or Convertible Security contained in or proposed to be contained in the Lock-up Bid; and, for greater clarity, the agreement may contain a right of first refusal or permit a period of delay to give such Person an opportunity to at least match a higher price or value of consideration in another Take-over Bid and may provide for any other similar limitation on a Locked-up Person’s right to withdraw Voting Shares or Convertible Securities (or both) from the agreement, as long as the Locked-Up Person can accept another bid or tender to another transaction; and (ii) no “break-up” fees, “top-up” fees, penalties, expenses or other amounts that exceed in the aggregate the greater of: (A) the cash equivalent of 2^% of the price or value payable under the Lock-up Bid to a Locked-up Person; and (B) 50% of the amount by which the price or value payable under another Take-over Bid or transaction to a Locked-up Person exceeds the price or value of the consideration that such Locked-up Person would have received under the Lock-up Bid,

- 19 is payable by a Locked-up Person pursuant to the agreement in the event a Locked-up Person fails to deposit or tender Voting Shares or Convertible Securities (or both) to the Lock-up Bid, withdraws Voting Shares or Convertible Securities (or both) previously tendered thereto or supports another transaction. (kk) “Person” includes any individual, firm, partnership, association, trust, body corporate, corporation, unincorporated organization, syndicate, governmental entity or other entity. (ll)

“Pro Rata Acquisition” means an acquisition by a Person of Voting Shares or Convertible Securities pursuant to: (i) a stock dividend, stock split or other event in respect of securities of the Corporation of one or more particular classes or series pursuant to which such Person becomes the Beneficial Owner of Voting Shares or Convertible Securities on the same pro rata basis as all other holders of securities of the particular class, classes or series; (ii) the acquisition or the exercise by the Person of only those rights to purchase Voting Shares or Convertible Securities distributed to that Person in the course of a distribution to all holders of securities of the Corporation of one or more particular classes or series (other than holders resident in a jurisdiction where such distribution is restricted or impracticable as a result of applicable law) pursuant to a rights offering (other than the Rights) or pursuant to a prospectus provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or securities convertible into or exchangeable for Voting Shares, so offered than the Person’s percentage of Voting Shares owned immediately prior to such acquisition; (iii) a distribution of Voting Shares or Convertible Securities (and the conversion or exchange of such Convertible Securities), made pursuant to

- 20 a prospectus or by way of a private placement, provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or Convertible Securities, so offered than the Person’s percentage of Voting Shares Beneficially Owned immediately prior to such acquisition; or (iv) such other written agreements in respect of a Voting Share acquisition from treasury entered into by the Corporation after the date hereof, provided that the Person does not acquire a greater percentage of such Voting Shares offered in that distribution than the percentage of Voting Shares Beneficially Owned by that Person immediately prior to such distribution. (mm) “Record Time” means the close of business on the Effective Date. (nn) “Redemption Price” has the meaning ascribed thereto in Subsection 5.1(a). (oo)

“Right” means a right to purchase a Common Share upon the terms and subject to the conditions set forth in this Agreement.

(pp) “Rights Certificate” means the certificates representing the Rights after the Separation Time, which shall be substantially in the form attached hereto as Attachment I. (qq) “Rights Register” has the meaning ascribed thereto in Subsection 2.6(a). (rr) “Securities Act” means the Securities Act (Ontario), as amended from time to time, and the regulations thereunder, and any comparable or successor laws or regulations thereto.

- 21 (ss) “Separation Time” shall mean the Close of Business on the tenth Trading Day after the earlier of: (i)

the Stock Acquisition Date;

(ii) the date of the commencement of or first public announcement of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence a Take-over Bid (other than a Permitted Bid or a Competing Permitted Bid); and (iii) the date upon which a Permitted Bid or Competing Permitted Bid ceases to be such; or, in the case of clauses (ii) and (iii) of this definition, such later date as may be determined by the Board of Directors; provided that if any such Take-over Bid expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid shall be deemed, for the purposes of this provision, never to have been made. (tt) “Shareholder Approval” means approval by a majority of the votes cast by the holders of Voting Shares at a meeting called and held in accordance with applicable laws and the articles and by-laws of the Corporation or a written resolution approved by holders of a majority of the outstanding Voting Shares excluding, in all cases, Voting Shares held by Persons who are not Independent Shareholders. (uu) “Stock Acquisition Date” shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 102.1 of the Securities Act, the 1934 Exchange Act or any other applicable securities laws) by the Corporation or an Acquiring Person that an Acquiring Person has become such.

- 22 (vv) A corporation shall be deemed to be a “Subsidiary” of another corporation if: (i) it is controlled by: (A) that other; (B) that other and one or more corporations each of which is controlled by that other; or (C) two or more corporations each of which is controlled by that other; or (ii) it is a Subsidiary of a corporation that is that other’s Subsidiary. (ww) “Take-over Bid” means an Offer to Acquire, where the Voting Shares subject to the Offer to Acquire, together with (i) the Voting Shares into which securities subject to the Offer to Acquire are convertible and (ii) the Offeror’s Securities, constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire. (xx) “Termination Time” shall mean the time at which the right to exercise Rights shall terminate pursuant to Section 5.1(d) hereof. (yy) “Trading Day”, when used with respect to any securities, means a day on which the principal securities exchange (as determined by the Board of Directors) on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any securities exchange, a Business Day. (zz) U.K.-Canadian Exchange Rate" means on any date: (i) if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one British pound sterling into Canadian dollars, such rate; and

- 23 (ii) in any other case, the rate on such date for the conversion of one British pound sterling into Canadian dollars which is calculated in the manner which shall be determined by the Board of Directors from time to time acting in good faith. (aaa) “U.S. - Canadian Exchange Rate” means, on any date: (i) if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate; and (ii) in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars calculated in such manner as may be determined by the Board of Directors from time to time acting in good faith. (bbb) “Voting Share Reduction” means an acquisition or redemption by the Corporation of Voting Shares or any other transaction which, by reducing the number of Voting Shares outstanding, increases the proportionate number of Voting Shares Beneficially Owned by any person to 20% or more of the Voting Shares then outstanding. (ccc) “Voting Shares” shall mean the Common Shares of the Corporation and any other shares in the capital of the Corporation entitled to vote generally in the election of all directors. (ddd) “1933 Securities Act" means the Securities Act of 1933 of the United States, as amended, and the rules and regulations made thereunder, as now in effect or as the same may from time to time be amended, re-enacted or replaced. (eee) "1934 Exchange Act" means the Securities Exchange Act of 1934 of the United States, as amended, and the rules and regulations made thereunder, as now in effect or as the same may from time to time be amended, re-enacted or replaced.

- 24 1.2

Currency

All sums of money, which are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified. 1.3

Headings

The division of this Agreement into Articles, Sections, Subsections, Clauses, Paragraphs, Subparagraphs or other portions hereof and the insertion of headings, subheadings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.4 Calculation of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares For purposes of this Agreement, the percentage of Voting Shares Beneficially Owned by any Person, shall be and be deemed to be the product (expressed as a percentage) determined by the formula: 100 x A/B where: A = the number of votes for the election of all directors generally attaching to the Voting Shares Beneficially Owned by such Person; and B = the number of votes for the election of all directors generally attaching to all outstanding Voting Shares. For the purposes of the foregoing formula, where any Person is deemed to Beneficially Own unissued Voting Shares, such Voting Shares shall be deemed to be outstanding for the purpose of calculating the percentage of Voting Shares Beneficially Owned by such Person in both the numerator and the denominator, but no other unissued Voting Shares which may be acquired shall, for the purposes of that calculation, be deemed to be outstanding.

- 25 1.5

Acting Jointly or in Concert

For the purposes of this Agreement, a Person is acting jointly or in concert with another Person if the second Person, as a result of any agreement, arrangement, or understanding, whether formal or informal and whether or not in writing, with the first Person or any Associate or Affiliate thereof, acquires or offers to acquire Voting Shares (other than (A) customary agreements with and between underwriters and/or banking group members and/or selling group members with respect to a distribution of securities by way of prospectus or private placement; or (B) pledges of securities in the ordinary course of business). ARTICLE 2 T H E RIGHTS 2.1 Issuance and Evidence of Holdings of Rights One Right in respect of each Common Share outstanding at the Record Time and each Common Share which may be issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time shall be issued in accordance with the terms hereof. Notwithstanding the foregoing, one Right in respect of each Common Share issued after the Record Time upon the exercise of rights pursuant to Convertible Securities outstanding at the Record Time may be issued after the Separation Time but prior to the Expiration Time. Certificates, if any, representing Common Shares which are issued after the date of this Agreement but prior to the earlier of the Separation Time and the Expiration Time shall also evidence one Right for each Common Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: “Until the Separation Time (as defined in the Shareholder Rights Agreement referred to below), this certificate also evidences and entitles to holder hereof to certain Rights described in a Shareholder Rights Plan Agreement dated as of December 5, 2013 (the “Shareholder Rights Agreement”) between Caledonia Mining Corporation (the “Corporation”) and Computershare Investor Services Inc. (the “Rights Agent”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive

- 26 offices of the Corporation. Under certain circumstances set out in the Shareholder Rights Agreement, the rights may expire, may be amended or redeemed, may become null and void or may be evidenced by separate certificates and no longer evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Shareholder Rights Agreement to the holder of this certificate without charge as soon as practicable, after the receipt of a written request therefor.” Certificates representing Common Shares that are issued and outstanding at the Record Time shall evidence one Right for each Common Share represented thereby, notwithstanding the absence of the foregoing legend, until the Close of Business on the earlier of the Separation Time and the Expiration Time. Registered holders of Common Shares who have not received a share certificate shall be entitled to Rights as if such certificates had been issued and such Rights shall for all purposes hereof be evidenced by the corresponding entries on the Corporation’s securities register for common shares. 2.2

Exercise of Rights; Detachment of Rights (a) Subject to adjustment as herein set forth and subject to Section 3.1 hereof, each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase one Common Share for the Exercise Price (which Exercise Price and number of Common Shares are subject to adjustment as set forth below). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void. (b) Until the Separation Time: (i) the Rights shall not be exercisable and no Right may be exercised; and (ii) each Right will be evidenced by the certificate for the associated Common Share registered in the name of the holder thereof (which certificate shall also be deemed to represent a Rights Certificate) and will be transferable

- 27 only together with, and will be transferred by a transfer of, such associated Common Share. (c)

From and after the Separation Time and prior to the Expiration Time: (i) the Rights shall be exercisable; and (ii) the registration and transfer of Rights shall be separate from and independent of the Common Shares. Promptly following the Separation Time, the Corporation will prepare and the Rights Agent will mail to each holder of record of Common Shares as of the Separation Time and, in respect of each Convertible Security converted into Common shares after the Separation Time and prior to the Expiration Time promptly after conversion by the holder so converting (other than an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights (a “Nominee”)) at such holder’s address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose): (x) a Rights Certificate appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule or regulation or with any rule or regulation of any self-regulatory organization, stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and (y) a disclosure statement describing the Rights,

- 28 provided that a Nominee shall be sent the materials provided for in (x) and (y) in respect of all Common Shares held of record by it which are not Beneficially Owned by an Acquiring Person. (d) Rights may be exercised, in whole or in part, on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent: (i) the Rights Certificate evidencing such Rights; (ii) an election to exercise such Rights (an “Election to Exercise”) substantially in the form attached to the Rights Certificate appropriately completed and executed by the holder or his executors or administrators or other personal representatives or his or their legal attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Rights Agent; and (iii) payment by certified cheque, banker’s draft or money order payable to the order of the Rights Agent, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised. (e) Upon receipt of a Rights Certificate, together with a duly completed Election to Exercise executed in accordance with Clause 2.2(d)(ii), which does not indicate that such Right is null and void as provided by Subsection 3.1(b), and payment as set forth in Clause 2.2(d)(iii), the Rights Agent (unless otherwise instructed by the Corporation in the event that the Corporation is of the opinion that the Rights cannot be exercised in accordance with this Agreement) will thereupon promptly: (i) requisition from the transfer agent or any co-transfer for the Common Shares certificates representing the number of such Common Shares to be

- 29 purchased (the Corporation hereby irrevocably agreeing to authorize its transfer agent to comply with all such requisitions); (ii) when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Common Shares; (iii) after receipt of the certificates referred to in Clause 2.2(e)(i), deliver the same to or upon the order of the registered holder of such Rights Certificates, registered in such name or names as may be designated by such holder; (iv) after receipt of the certificates referred to in Clause 2.2(e)(i), deliver any cash referred to in Clause 2.2(e)(ii) to or to the order of the registered holder of such Rights Certificate; and (v) tender to the Corporation all payments received on exercise of the Rights. (f) In case the holder of any Rights exercises less than all the Rights evidenced by such holder’s Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised (subject to the provisions of Subsection 5.6(a)) will be issued by the Rights Agent to such holder or to such holder’s duly authorized assigns. (g) The Corporation covenants and agrees that it will: (i) take all such action as may be necessary and within its power to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Common Shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable. (ii) take all such actions as may be necessary and within its power to comply with the requirements of the Corporations Act, the Securities Act and the securities laws or comparable legislation of each of the provinces of

- 30 Canada, the 1933 Securities Act and the 1934 Exchange Act and any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights Certificates and the issuance of any Common Shares upon exercise of Rights; (iii) use reasonable efforts to cause all Common Shares issued upon exercise of Rights to be listed on the stock exchanges on which such Common Shares were traded immediately prior to the Stock Acquisition Date; (iv) cause to be reserved and kept available out of the authorized and unissued Common Shares, the number of Common Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights; (v) pay when due and payable, if applicable, any and all federal, provincial and municipal transfer taxes and charges (not including any income or capital taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) which may be payable in respect of the original issuance or delivery of the Rights Certificates, or certificates for Common Shares to be issued upon exercise of any Rights, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being transferred or exercised; and (vi) after the Separation Time, except as permitted by the provisions hereof, not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

- 31 2.3

Adjustments to Exercise Price; Number of Rights

The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3. (a)

In the event the Corporation at any time after the Separation Time and prior to the Expiration Time: (i) declares or pays a dividend on Common Shares payable in Common Shares (or capital stock or other securities exchangeable for or convertible into or giving a right to acquire Common Shares or other capital stock) other than pursuant to any optional stock dividend program, dividend reinvestment plan or a dividend payable in Voting Shares in lieu of a regular periodic cash dividend; (ii) subdivides or changes the then outstanding Common Shares into a greater number of Common Shares; (iii) consolidates or changes the then outstanding Common Shares into a smaller number of Common Shares; or (iv) otherwise issues any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) in respect of, in lieu of or in exchange for existing Common Shares in a reclassification, amalgamation, merger, statutory arrangement, or consolidation, the Exercise Price, the number of Rights outstanding and the securities purchasable upon exercise of the Rights shall be adjusted as of the record or effective date as follows: (x) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by

- 32 the number of Common Shares (the “Expansion Factor”) that a holder of one Common Share immediately prior to such dividend, subdivision, change, consolidation or issuance would hold thereafter as a result thereof (assuming the exercise of any such exchange, conversion or acquisition rights); and (y) each Right held prior to such adjustment shall become that number of Rights equal to the Expansion Factor; and the adjusted number of Rights will be deemed to be allocated among the Common Shares with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision, change, consolidation or issuance, so that each such Common Share will have exactly one Right associated with it. To the extent that any such exchange, conversion or acquisition rights are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would be in effect, based on the number of Common Shares actually issued on the exercise of such rights. In the event the Corporation at any time after the Record Time and prior to the Separation Time issues any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares), each such Common Share shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such associated Common Share. (b) If, after the Record Time and prior to the Separation Time, the Corporation shall issue any shares of capital stock other than Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire shares of any such capital stock) in a transaction of a type described in Clause 2.3(a)(i) or (iv), the shares of such capital stock shall be treated herein as nearly equivalent to Common Shares to the extent practicable and appropriate under the

- 33 circumstances, as determined by the Board of Directors, and the shares purchasable upon exercise of Rights shall be adjusted as necessary such that the shares purchasable upon exercise of each Right after such adjustment will be the shares that a holder of the shares purchasable upon exercise of one Right immediately prior to such issuance would hold thereafter as a result of such issuance. Notwithstanding Section 5.5, the Corporation and the Rights Agent are authorized and agree to amend this Agreement in order to give effect to the foregoing. (c) In the event that at any time after the Record Time and prior to the Expiration Time there shall occur: (i) a reclassification or redesignation of the Common Shares or any change of the Common Shares into other shares (other than as the result of an event described in Subsection 2.3(a)) ; (ii) a consolidation, merger or amalgamation of the Corporation with or into another body corporate (other than a consolidation, merger or amalgamation which does not result in a reclassification of the Common Shares or a change of the Common Shares into other shares); or (iii) the transfer of all or substantially all of the assets of the Corporation to any other Person; a holder of a Right shall thereafter be entitled to receive and shall accept upon exercise of such Right, in lieu of the number of Common Shares to which such holder was entitled to acquire upon such exercise, the kind and amount of shares and/or other securities or property which such holder would have been entitled to receive as a result of such occurrence if, on the effective date thereof, such holder had been the holder of the number of Common Shares to which such holder was then entitled upon exercise of such Right. The Corporation shall take all necessary steps so that holders of Rights shall thereafter be entitled to acquire such shares and/or other securities or property, subject to adjustment thereafter in accordance

- 34 with provisions the same, as nearly as may be possible, as those contained in this Section 2.3. (d) Notwithstanding anything herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent in the Exercise Price; provided, however, that any adjustments which by reason of this Subsection 2.3(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2.3 shall be made to the nearest cent or to the nearest ten-thousandth of a share. Any adjustment required by this Section 2.3 shall be made no later than the earlier of: (i) three years from the date of the transaction which gives rise to such adjustment; and (ii) the Expiration Time. (e) Irrespective of any adjustment or change in the Exercise Price or the number of Common Shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Exercise Price per Common Share and the number of Common Shares which were expressed in the initial Rights Certificates issued hereunder. (f) In any case in which this Section 2.3 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to

- 35 receive such additional shares (fractional or otherwise) or other securities upon the occurrence of the event requiring such adjustment. (g) Notwithstanding anything contained in this Section 2.3 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in their good faith judgment the Board of Directors shall determine to be advisable, in order that any: (i)

consolidation or subdivision of Common Shares;

(ii) issuance (wholly or in part for cash) of Common Shares or securities that by their terms are convertible into or exchangeable for Common Shares; (iii)

stock dividends; or

(iv) issuance of rights, options or warrants, hereafter made by the Corporation to holders of its Common Shares, shall not be taxable to such shareholders. (h) Whenever an adjustment to the Exercise Price or a change in the securities purchasable upon exercise of the Rights is made pursuant to this Section 2.3, the Corporation shall promptly and in any event, where such change or adjustment occurs prior to the Separation Time, not later than the Separation Time: (i) file with the Rights Agent and with each transfer agent for the Common Shares a certificate specifying the particulars of such adjustment or change; and (ii) cause notice of the particulars of such adjustment or change to be given to the holders of the Rights. Failure to file such certificate or to cause such notice to be given as aforesaid, or any defect therein, shall not affect the validity of such adjustment or change.

- 36 (i) The Corporation covenants and agrees that, after the Separation Time, it will not, except as permitted by the provisions hereof, take (or permit any Subsidiary of the Corporation to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 2.4

Date on Which Exercise Is Effective

Each Person in whose name any certificate for Common Shares or other securities, if applicable, is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares or other securities, if applicable, represented thereon, and such certificate shall be dated the date upon which the Rights Certificate evidencing such Rights was duly surrendered in accordance with Subsection 2.2(d) (together with a duly completed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Share transfer books of the Corporation are open. 2.5

Execution, Authentication, Delivery and Dating of Rights Certificates (a) The Rights Certificates shall be executed on behalf of the Corporation by its Chief Executive Officer, Chief Financial Officer or any director under the corporate seal of the Corporation reproduced thereon. The signature of any of these individuals on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices either before or after the countersignature and delivery of such Rights Certificates.

- 37 (b) Promptly after the Corporation learns of the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature and disclosure statements describing the Rights, and the Rights Agent shall manually countersign (in a manner satisfactory to the Corporation) and send such Rights Certificates to the holders of the Rights pursuant to Subsection 2.2(c) hereof. No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid. (c) Each Rights Certificate shall be dated the date of countersignature thereof. 2.6

Registration, Transfer and Exchange (a) After the Separation Time, the Corporation will cause to be kept a register (the “Rights Register”) in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed registrar for the Rights (the “Rights Registrar”) for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided and the Rights Agent hereby accepts such appointment. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Subsection 2.6(c), the Corporation shall execute, and the Rights Agent shall manually countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder’s instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered. (b) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Corporation, and such Rights

- 38 shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder’s attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Rights Agent) connected therewith. 2.7

Mutilated, Destroyed, Lost and Stolen Rights Certificates (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time: (i) evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate; and (ii) such security or indemnity as may be reasonably required by each of them in their sole discretion to save each of them and any of their agents harmless; then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon the Corporation’s request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights

- 39 Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation or the Rights Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights, duly issued hereunder. 2.8

Persons Deemed Owners of Rights

The Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person, in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. In this Agreement, unless the context otherwise requires, the term “holder” of any Right means the registered holder of such Right (or, prior to the Separation Time, the associated Common Share). 2.9

Delivery and Cancellation of Certificates

All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights

- 40 Certificates cancelled as provided in this Section 2.9, except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable laws, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation on request. 2.10

Agreement of Rights Holders

Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights that: (a) such holder of Rights shall be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of all Rights held; (b) prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Share certificate representing such Right; (c) after the Separation Time, the Rights Certificates will be transferable only on the Rights Register as provided herein; (d) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary; (e) such holder of Rights has waived his right to receive any fractional Rights or any fractional shares or other securities upon exercise of a Right (except as provided herein);

- 41 (f) subject to the provisions of Section 5.5, without the approval of any holder of Rights or Voting Shares and upon the sole authority of the Board of Directors, this Agreement may be supplemented or amended from time to time to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with the intent of this Agreement or is otherwise defective, as provided here; and (g) notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation. 2.11

Rights Certificate Holder Not Deemed a Shareholder

No holder, as such, of any Rights or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose whatsoever the holder of any Common Share or any other share or security of the Corporation which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed or deemed or confer upon the holder of any Right or Rights Certificate, as such, any right, title, benefit or privilege of a holder of Common Shares or any other shares or securities of the Corporation or any right to vote at any meeting of shareholders of the Corporation whether for the election of directors or otherwise or upon any matter submitted to holders of Common Shares or any other shares of the Corporation at any meeting thereof, or to give or withhold consent to any action of the Corporation, or to receive notice of any meeting or other action affecting any holder of Common Shares or any other shares of the Corporation except as expressly provided herein, or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by Rights Certificates shall have been duly exercised in accordance with the terms and provisions hereof.

- 42 ARTICLE 3 ADJUSTMENTS TO T H E RIGHTS IN T H E EVENT OF CERTAIN TRANSACTIONS 3.1

Flip-in Event

(a) Subject to Subsection 3.1(b) and Sections 5.1 and 5.2, in the event that prior to the Expiration Time a Flip-in Event shall occur, the Corporation shall take such action as shall be necessary to ensure and provide, within 10 Business Days thereafter or such longer period as may be required to satisfy the requirements of applicable securities laws or comparable legislation so that, except as provided below, each Right shall thereafter constitute the right to purchase from the Corporation, upon exercise thereof in accordance with the terms hereof, that number of Common Shares having an aggregate Market Price on the date of consummation or occurrence of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in the event that after such occurrence, an event of a type analogous to any of the events described in Section 2.3 shall have occurred). (b) Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time or the Stock Acquisition Date by: (i) an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person); or (ii) a transferee of Rights, directly or indirectly, from an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), where such transferee becomes a transferee concurrently with or subsequent to the Acquiring Person becoming such in a transfer that the Board of Directors has determined is

- 43 part of a plan, understanding or scheme of an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), that has the purpose or effect of avoiding this Clause 3.1(b), shall become null and void without any further action, and any holder of such Rights (including transferees) shall thereafter have no right to exercise such Rights under any provision of this Agreement and further shall thereafter not have any other rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. (c) Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either Clause 3.1(b)(i) or (ii) or transferred to any nominee of any such Person, and any Rights Certificate issued upon the transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend: “The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person or a Person who was acting jointly or in concert with an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Shareholder Rights Plan Agreement). This Rights Certificate and the Rights represented hereby are void or shall become void in the circumstances specified in Subsection 3.1(b) of the Shareholder Rights Plan Agreement.” provided, however, that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall impose such legend only if instructed to do so by the Corporation in writing or if a holder fails to certify upon transfer or exchange in the space

- 44 provided on the Rights Certificate that such holder is not a Person described in such legend. 3.2 Fiduciary Duties of the Board of Directors of the Corporation Nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of the Voting Shares reject or accept any Take-over Bid or take any other action including, without limitation, the commencement, prosecution, defence or settlement of any litigation and the submission of additional or alternative Take-over Bids or other proposals to the shareholders of the Corporation with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties. ARTICLE 4 THE RIGHTS AGENT 4.1

General (a) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of the Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such co-Rights Agents (the “Co-Rights Agents”) as it may deem necessary or desirable. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses (including fees and disbursements of counsel) and other disbursements reasonably incurred in the execution and administration of this Agreement and the exercise and performance of its duties hereunder, with the prior approval of the Corporation. The Corporation will fully indemnify and hold the Rights Agent, its officers, directors, employees and agents harmless from and against any and all losses, damages, costs, charges, counsel

- 45 fees, payments, expenses and liabilities arising directly or indirectly out of its agency relationship to the Corporation as set forth in this Agreement (which right to indemnification will survive the termination of this Agreement or the resignation or removal of the Rights Agent) except for any liability arising out of the negligence, bad faith or intentional misconduct by the Rights Agent. In the absence of negligence, bad faith or intentional misconduct on its part, the Rights Agent shall not be liable for any action taken, suffered, omitted by it or for any error of judgement made by it in good faith in the performance of its duties under this Agreement. In no event will the Rights Agent be liable for special, indirect, consequential or punitive loss or damages of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the possibility of such damages. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Common Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. (c) The Corporation shall inform the Rights Agent in a reasonably timely manner of events which may materially affect the administration of this Agreement by the Rights Agent and, at any time upon request shall provide to the Rights Agent an incumbency certificate certifying the then current officers of the Corporation. 4.2

Merger, Amalgamation or Consolidation or Change of Name of Rights Agent (a) Any corporation into which the Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation, statutory arrangement or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the

- 46 shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case, at the time such successor Rights Agent succeeds to the agency created by this Agreement, any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights have not been countersigned, any successor Rights Agent may countersign such Rights Certificates in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3

Duties of Rights Agent

The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, all of which the Corporation and the holders of certificates for Common Shares and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) the Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and

- 47 complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the prior approval of the Corporation, consult with such other experts as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement; (b) whenever in the performance of its duties under this Agreement, the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a Person believed by the Rights Agent to be the Chief Executive Officer, Chief Financial Officer or any director of the Corporation and delivered to the Rights Agent, and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate; (c) the Rights Agent will be liable hereunder for its own negligence, bad faith or intentional misconduct; (d) the Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Common Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Corporation only; (e) the Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for a Common Share or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of

- 48 the Rights (including the Rights becoming void pursuant to Subsection 3.1(b) hereof) or any adjustment required under the provisions of Section 2.3 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.3 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Common Shares to be issued pursuant to this Agreement or any Rights or as to whether any Common Shares will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable; (f) the Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement; (g) the Rights Agent is hereby authorized and directed to accept instructions in writing with respect to the performance of its duties hereunder from any individual believed by the Rights Agent to be the Chief Executive Officer, Chief Financial Officer or any director of the Corporation, and to apply to such individuals for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such individual, it is understood that instructions to the Rights Agent shall, except where circumstances make it impracticable or the Rights Agent otherwise agrees, be given in writing and, where not in writing, such instructions shall be confirmed in writing as soon as reasonably possible after the giving of such instructions; (h) the Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the

- 49 Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement; (i) nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and (j) the Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4

Change of Rights Agent

The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 days’ notice (or such lesser notice as is acceptable to the Corporation) in writing mailed to the Corporation and to each transfer agent of Common Shares by registered or certified mail. The Corporation may remove the Rights Agent upon 30 days’ notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or certified mail. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent, then by prior written notice to the Corporation the resigning Rights Agent at the Corporation’s expense or the holder of any Rights (which holder shall, with such notice, submit such holder’s Rights Certificate, if any, for inspection by the Corporation), may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company in

- 50 the province of Ontario. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall, following payment of all outstanding fees and expenses owed to it under this Agreement, deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and mail a notice thereof in writing to the holders of the Rights in accordance with Section 5.11. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of any successor Rights Agent, as the case may be. 4.5

Compliance with Anti-Money Laundering Legislation

The Rights Agent shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Rights Agent reasonably determines that such an act might cause it to be in non-compliance with any applicable antimoney laundering or anti-terrorist legislation, regulation or guideline. Further, should the Rights Agent reasonably determine at any time that its acting under this Agreement has resulted in it being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days’ prior written notice to the Corporation, provided: (i) that the Rights Agent’s written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Rights Agent’s satisfaction within such 10 day period, then such resignation shall not be effective.

ARTICLE 5 MISCELLANEOUS 5.1

- 51 Redemption of Rights

(a) Until the occurrence of a Flip-in Event, as to which the application of Section 3.1 has not been waived pursuant to Section 5.2, the Board of Directors, (i) may, at any time prior to Separation Time, subject to receipt of Shareholder Approval, or (ii) may, at any time after the Separation Time, subject to receipt of the consent of holders of Rights given in accordance with Section 5.5, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right, appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3, if an event of the type analogous to any of the events described in Section 2.3 shall have occurred (such redemption price being herein referred to as the “Redemption Price”). (b) If a Person acquires, pursuant to a Permitted Bid or a Competing Permitted Bid or pursuant to an Exempt Acquisition occurring under Subsection 5.2(b) hereof, outstanding Voting Shares, the Board of Directors of the Corporation shall, immediately upon such acquisition and without further formality, be deemed to have elected to redeem the Rights at the Redemption Price. (c) Where a Take-over Bid that is not a Permitted Bid or Competing Permitted Bid expires, is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, the Board of Directors may elect to redeem all of the outstanding Rights at the Redemption Price. (d) If the Board of Directors elects to or is deemed to have elected to redeem the Rights (i) the right to exercise the Rights will thereupon, without further action

- 52 and without notice, terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price, and (ii) subject to Subsection 5.1(f), no further Rights shall thereafter be issued. (e) Within 10 Business Days of the Board of Directors electing or having been deemed to have elected to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at his last address as it appears upon the Rights Register of the Rights Agent, or, prior to the Separation Time, on the share register maintained by the Corporation’s transfer agent or transfer agents. Each such notice of redemption shall state the method by which the payment of the Redemption Price shall be made. (f) Upon the Rights being redeemed pursuant to Subsection 5.1(c), all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement, the Separation Time shall be deemed not to have occurred. 5.2

Waiver of Flip-In Events (a) The Board of Directors, may, at any time prior to the occurrence of a Flip-in Event that would occur by reason of an acquisition of Voting Shares or Convertible Securities otherwise than pursuant to a Take-over Bid made by means of a take-over bid circular to all holders of Voting Shares or otherwise than in the circumstances set forth in Subsection 5.2(c) and subject to receipt of Shareholder Approval, waive the application of Section 3.1 to such Flip-in Event by written notice delivered to the Rights Agent. In the event the Board of Directors proposes such a waiver, the Board of Directors shall extend the Separation Time to a date subsequent to and not more than ten Business Days following the meeting of Shareholders called to approve such waiver.

- 53 (b) The Board of Directors may, at any time prior to the occurrence of a Flip-in Event that would occur as a result of a Take-over Bid made by way of a take-over bid circular sent to all holders of Voting Shares, waive the application of Section 3.1 to such Flip-in Event by written notice delivered to the Rights Agent provided, however, that if the Board of Directors waives the application of Section 3.1 to such a Flip-in Event, the Board of Directors shall be deemed to have waived the application of Section 3.1 to any other Flip-in Event occurring by reason of any Take-over Bid that is made by means of a take-over bid circular to all holders of Voting Shares prior to the expiry of any Take-over Bid in respect of which a waiver is, or is deemed to have been, granted under this Subsection 5.2(b). (c) The Board of Directors may waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred. Any such waiver pursuant to this Subsection 5.2(c) must be on the condition that such Person, within 14 days after the foregoing determination by the Board of Directors or such earlier or later date as the Board of Directors may determine (the “Disposition Date”), has reduced its Beneficial Ownership of Voting Shares such that the Person is no longer an Acquiring Person. If the Person remains an Acquiring Person at the Close of Business on the Disposition Date, the Disposition Date shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto. 5.3

Expiration

No Person shall have any rights whatsoever pursuant to this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Subsection 4.1(a) of this Agreement.

- 54 5.4

Issuance of New Rights Certificates

Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the number or kind or class of securities purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. 5.5

Supplements and Amendments (a) The Corporation may, at any time without the approval of any holders of Rights or Shareholder Approval, make amendments to this Agreement to correct any clerical or typographical error or which are required to maintain the validity of this Agreement as a result of any change in any applicable legislation or regulations or rules thereunder. The Corporation may, prior to the date of the shareholders’ meeting referred to in Section 5.17, supplement, amend, vary, rescind or delete any of the provisions of this Agreement without the approval of any holders of Rights or Voting Shares where the Board of Directors acting in good faith deems such action necessary or desirable. Notwithstanding anything in this Section 5.5 to the contrary, no such supplement or amendment shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent to such supplement or amendment. (b) Subject to Subsection 5.5(a), the Corporation may, with the prior consent of the holders of Voting Shares obtained as set forth below, at any time prior to the Separation Time, supplement, amend, vary, rescind or delete any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is authorized by the affirmative vote of a majority of the votes cast by Independent Shareholders present or represented at and entitled to be voted at a meeting of the holders of Voting Shares duly called and held in compliance with applicable laws and the articles of the Corporation.

- 55 (c) The Corporation may, with the prior consent of the holders of Rights, at any time on or after the Separation Time, amend supplement, amend, vary, rescind or delete any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally), provided that no such amendment, variation or deletion shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent thereto. Such consent shall be deemed to have been given if such amendment, variation or deletion is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders and representing more than 50% of the votes cast in respect thereof. (d) Any approval of the holders of Rights shall be deemed to have been given if the action requiring such approval is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation’s articles and the Corporations Act with respect to meetings of shareholders of the Corporation. (e) Any amendments made by the Corporation to this Agreement pursuant to Subsection 5.5(a) which are required to maintain the validity of this Agreement as a result of any change in any applicable legislation or regulation thereunder shall: (i) if made before the Separation Time, be submitted to the shareholders of the Corporation at the next meeting of shareholders and the shareholders may, by the majority referred to in Subsection 5.5(b), confirm or reject such amendment; or (ii) if made after the Separation Time, be submitted to the holders of Rights at a meeting to be called for on a date not later than immediately following the next meeting of shareholders of the Corporation and the holders of

- 56 Rights may, by resolution passed by the majority referred to in Subsection 5.5(d), confirm or reject such amendment. (f) The Corporation shall give notice in writing to the Rights Agent pursuant to Section 5.11 of any supplement, amendment, deletion, variation or rescission to this Agreement within five Business Days of the date of any such supplement, amendment, deletion, variation or rescission, provided that failure to give such notice, or any defect therein, shall not affect the validity of any such supplement, amendment, deletion, variation or rescission. Any such amendment shall, unless the Board of Directors otherwise stipulates, be effective from the date of the resolution of the Board of Directors adopting such amendment, until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such amendment is confirmed, it continues in effect in the form so confirmed. If such amendment is rejected by the shareholders or the holders of Rights or is not submitted to the shareholders or holders of Rights as required, then such amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights, as the case may be. 5.6

Fractional Rights and Fractional Shares (a) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time, in lieu of issuing fractional Rights, the Corporation shall pay to the holders of record of the Rights Certificates (provided the Rights represented by such Rights Certificates are not void pursuant to the provisions of Subsection 3.1(b), at the time such fractional Rights would otherwise be issuable), an amount in cash equal to the fraction of the Market Price of one whole Right that the fraction of a Right that would otherwise be issuable is of one whole Right.

- 57 (b) The Corporation shall not be required to issue fractions of Common Shares upon exercise of Rights or to distribute certificates which evidence fractional Common Shares. In lieu of issuing fractional Common Shares, the Corporation shall pay to the registered holders of Rights Certificates, at the time such Rights are exercised as herein provided, an amount in cash equal to the fraction of the Market Price of one Common Share that the fraction of a Common Share that would otherwise be issuable upon the exercise of such Right is of one whole Common Share at the date of such exercise. (c) The Rights Agent shall have no obligation to make any payments in lieu of issuing fractions of Rights or Common Shares pursuant to paragraphs (a) or (b), respectively, unless and until the Corporation shall have provided to the Rights Agent the amount of cash to be paid in lieu of issuing such fractional Rights or Common Shares, as the case may be. 5.7

Rights of Action

Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights. Any holder of Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder’s own behalf and for such holder’s own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce such holder’s right to exercise such holder’s Rights, or Rights to which such holder is entitled, in the manner provided in such holder’s Rights and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement.

- 58 5.8

Regulatory Approvals

Any obligation of the Corporation or action or event contemplated by this Agreement shall be subject to the receipt of any requisite approval or consent from any governmental or regulatory authority. Without limiting the generality of the foregoing, any issuance of or delivery of debt or equity securities (other than non-convertible debt securities) of the Corporation upon the exercise of Rights and any amendment or supplement to this Agreement shall be subject to the prior written consent of the Toronto Stock Exchange and any other exchange upon which the Common Shares may be listed. 5.9

Declaration as to Non-Canadian Holders

If in the opinion of the Board of Directors (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance by the Corporation with the securities laws or comparable legislation of a jurisdiction outside Canada, the Board of Directors acting in good faith shall take such actions as it may deem appropriate to ensure such compliance. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada, in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes. If it would be necessary in any jurisdiction other than Canada to register any of the Rights or securities issuable on exercise of Rights prior to such issue or delivery, the Corporation will use its best efforts to establish procedures whereby shareholders entitled to such Rights, or holders of Rights entitled to securities upon the exercise of Rights, will have the ability to trade or exercise such Rights, or and be issued such securities, without the need to register those securities in the jurisdiction in which they reside, through the establishment of a trustee to hold and sell such securities in Canada, or such other mechanism as the Board of Directors believes is appropriate.

- 59 5.10

Privacy Legislation

The parties acknowledge that federal and/or provincial legislation that addresses the protection of individual’s personal information (collectively, “Privacy Laws”) applies to obligations and activities under this Agreement. Despite any other provision of this Agreement, neither party will take or direct any action that would contravene, or cause the other to contravene, applicable Privacy Laws. The Corporation will, prior to transferring or causing to be transferred personal information to the Rights Agent, obtain and retain required consents of the relevant individuals to the collection, use and disclosure of their personal information, or will have determined that such consents either have previously been given upon which the parties can rely or are not required under the Privacy Laws. The Rights Agent will use commercially reasonable efforts to ensure that its services hereunder comply with Privacy Laws. 5.11

Notices (a) Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered, sent by first class mail, postage prepaid, or sent by facsimile or other form of recorded electronic communication, charges prepaid and confirmed in writing, as follows: Caledonia Mining Corporation Suite 4009 1 King Street West Toronto, Ontario M5H 1A1 N3H 4R76 Attention: Corporate Secretary Facsimile No.: (416) 369-0449

- 60 with a copy to: Borden Ladner Gervais LLP 40 King Street West Scotia Plaza Suite 4100 Toronto, Ontario M5H 3Y4 Attention: Paul A.D. Mingay Facsimile No.: (416) 361-7098 Notices or demands authorized or required by this Agreement to be given or made by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered, sent by first class mail, postage prepaid, or sent by facsimile or other form of recorded electronic communication, charges prepaid and confirmed in writing, as follows: Computershare Investor Services Inc. 100 University Avenue 8 th Floor Toronto, Ontario M5J 2Y1 Attention: General Manager, Client Services Facsimile No.: (416) 263-9800 (b) Notices or demands authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the register of the Rights Agent or, prior to the Separation Time, on the register of the Corporation for the Common Shares. Any notice which is mailed or sent in the manner herein provided shall be deemed given, whether or not the holder receives the notice. (c) Any notice given or made in accordance with this Section 5.11 shall be deemed to have been given and to have been received on the day of delivery, if so delivered, on the third Business Day (excluding each day during which there exists any

- 61 general interruption of postal service due to strike, lockout or other cause) following the mailing thereof, if so mailed, and on the day of telegraphing, telecopying or sending of the same by other means of recorded electronic communication (provided such sending is during the normal business hours of the addressee on a Business Day and if not, on the first Business Day thereafter). (d) If mail service is or is threatened to be interrupted at a time when the Corporation or the Rights Agent wishes to give a notice or demand hereunder to or on the holders of the Rights, the Corporation or the Rights Agent may, notwithstanding the foregoing provisions of this Section 5.11, give such notice by means of publication once in each of two successive weeks in the business section of The Globe and Mail and notice so published shall be deemed to have been given on the date on which the first publication of such notice in any such publication has taken place. (e) Each of the Corporation and the Rights Agent may from time to time change its address for notice under Subsection 5.11(a) by notice to the other given in the manner aforesaid. 5.12

Costs of Enforcement

The Corporation agrees that if the Corporation fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation will reimburse the holder of any Rights for the costs and expenses (including legal fees) reasonably incurred by such holder to enforce his rights pursuant to any Rights or this Agreement. 5.13

Successors

All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder.

- 62 5.14

Benefits of this Agreement

Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; further, this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights. 5.15

Governing Law

This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the province of Ontario and for all purposes shall be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province. 5.16

Severability

If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective only as to such jurisdiction and to the extent of such invalidity or unenforceability in such jurisdiction without invalidating or rendering unenforceable or ineffective the remaining terms and provisions hereof in such jurisdiction or the application of such term or provision in any other jurisdiction or to circumstances other than those as to which it is specifically held invalid or unenforceable. 5.17

Effective Date

This Agreement is effective and in full force and effect in accordance with its terms from and after, December 5, 2013 (the “Effective Date”). If this Agreement is not approved by resolution passed by a majority of greater than 50% of the votes cast by (i) Independent Shareholders, and Independent Shareholders other than Grandfathered Persons, in each case present in person or voting by proxy at a meeting of those shareholders of the Corporation who vote in respect of such confirmation (ii) at a meeting to be held not later than six months from December 5, 2013, then this Agreement and all outstanding Rights shall terminate and be void and of no further force and effect on and from the date that is the earlier of (a) the date of termination of the meeting called

- 63 to consider the confirmation of the Agreement, and (b) the Close of Business on the date that is 6 months from the Effective Date. No person shall have any rights pursuant to this Agreement or in respect of any Rights after the Expiration Time, except the Rights Agent as specified in Subsection 4.1(a). 5.18

Reconfirmation

Notwithstanding the confirmation of this Agreement pursuant to Section 5.17, this Agreement must be reconfirmed by a resolution passed by a majority of the votes cast by the Independent Shareholders in each case present in person or voting by proxy at a meeting of those shareholders of the Corporation who vote in respect of such reconfirmation at every third annual meeting following the meeting at which this Agreement is confirmed pursuant to Section 5.17. If the Agreement is not so reconfirmed or is not presented for reconfirmation at such annual meeting, the Agreement and all outstanding Rights shall terminate and be void and of no further force and effect on and from the date of termination of the annual meeting; provided that termination shall not occur if a Flip-in Event has occurred (other than a Flip-in Event which has been waived pursuant to Subsection 5.2) , prior to the date upon which this Agreement would otherwise terminate pursuant to this Section 5.18. 5.19

Determinations and Actions by the Board of Directors

All actions, calculations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors, in good faith, shall not subject the Board of Directors or any director of the Corporation to any liability whatsoever to the holders of the Rights. 5.20 Time of the Essence Time shall be of the essence in this Agreement.

- 64 5.21

Execution in Counterparts

This Agreement may be executed by facsimile and in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. CALEDONIA MINING CORPORATION By:

“Steve Curtis ”

Name: Steve Curtis Title: Chief Financial Officer COMPUTERSHARE INVESTOR SERVICES INC. By: Name: Florence Smith Title: Professional Client Services By: “Graham Sheward” Name: Graham Sheward Title: Professional Client Services

“Florence Smith ”

ATTACHMENT I CALEDONIA MINING CORPORATION SHAREHOLDER RIGHTS PLAN AGREEMENT FORM OF RIGHTS CERTIFICATE Certificate No. ____________________________ Rights ____________________________ THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN T H E SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES OR TRANSFEREES OF AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID. Rights Certificate This certifies that is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Rights Plan Agreement, dated as of December 5, 2013, as the same may be amended or supplemented from time to time (the “Shareholder Rights Agreement”), between Caledonia Mining Corporation, a corporation existing under the laws of Canada (the “Corporation”) and Computershare Investor Services Inc., a company existing under the laws of Canada (the “Rights Agent”) (which term shall include any successor Rights Agent under the Shareholder Rights Agreement), to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Shareholder Rights Agreement) and prior to the Expiration Time (as such term is defined in the Shareholder Rights Agreement), one fully paid common share of the Corporation (a “Common Share”) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise (in the form provided hereinafter) duly executed and submitted to the Rights Agent at its principal office in the City of Toronto, Ontario. The Exercise Price shall be an amount expressed in Canadian dollars equal to five times the

-2Market Price (as such term is defined in the Shareholder Rights Agreement) per Common Share at the Separation Time, subject to adjustment in certain events as provided in the Shareholder Rights Agreement. This Rights Certificate is subject to all of the terms and provisions of the Shareholder Rights Agreement, which terms and provisions are incorporated herein by reference and made a part hereof and to which Shareholder Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Copies of the Shareholder Rights Agreement are on file at the registered office of the Corporation. This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Shareholder Rights Agreement, the Rights evidenced by this Rights Certificate may be, and under certain circumstances are required to be, redeemed by the Corporation at a redemption price set out in the Shareholder Rights Agreement. No fractional Common Shares will be issued upon the exercise of any Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Shareholder Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities which may at any time be issuable upon the exercise hereof; nor shall anything contained in the Shareholder Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to

-3any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Shareholder Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Shareholder Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal. Date: CALEDONIA MINING CORPORATION By :

Authorized Signature Countersigned: COMPUTERSHARE INVESTOR SERVICES INC. By: Authorized Signature

FORM OF ELECTION TO EXERCISE (To be exercised by the registered holder if such holder desires to exercise the Rights represented by this Certificate.) TO: AND TO: Computershare Investor Services Inc. The undersigned hereby irrevocably elects to exercise whole Rights represented by the attached Rights Certificate to purchase the Common Shares or other securities, if applicable, issuable upon the exercise of such Rights and requests that certificates for such securities be issued in the name of: (Name) (Address) (City and Province) (Social Insurance Number or other taxpayer identification number) If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: (Name) (Address) (City and Province) (Social Insurance Number or other taxpayer identification number) Dated: Signature Guaranteed:

Signature: (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.)

The signature(s) on this form must also be guaranteed by one of the following methods: In Canada and the US: a Medallion Guarantee obtained from a member of an acceptable Medallion Guarantee Program

-2(STAMP,SEMP or MSP). Many banks, credit unions and broker dealers are members of a Medallion Guarantee Program. The guarantor must affix a stamp in the space above bearing the actual words “Medallion Guaranteed”. In Canada: a Signature Guarantee obtained from a major Canadian Schedule I bank that is not a member of a Medallion Guarantee Program. The guarantor must affix a stamp in the space above bearing the actual words “Signature Guaranteed”. Outside Canada and the US: holders must obtain a guarantee from a local financial institution that has a corresponding affiliate in Canada or the US that is a member of an acceptable Medallion Guarantee Program. The corresponding affiliate must over guarantee the guarantee provided by the local financial institution.

-3CERTIFICATE (To be completed if true.) The undersigned party exercising Rights hereunder hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or a Person acting jointly or in concert with an Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall have the meaning ascribed thereto in the Shareholder Rights Agreement. Signature (please print name of signatory)

NOTICE In the event the certification set forth above in the Form of Election to Exercise is not completed upon exercise of the Right(s) evidenced hereby, the Corporation will deem the Beneficial Owner of the Right(s) evidenced by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void and not transferable or exercisable.

(To be attached to each Rights Certificate.)

FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights represented by this Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee.) the Rights represented by this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint transfer the within Rights on the books of the Corporation, with full power of substitution. Dated: Signature Guaranteed: change whatsoever.)

, as attorney, to

Signature: (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any

The signature(s) on this form must also be guaranteed by one of the following methods: In Canada and the US: a Medallion Guarantee obtained from a member of an acceptable Medallion Guarantee Program (STAMP,SEMP or MSP). Many banks, credit unions and broker dealers are members of a Medallion Guarantee Program. The guarantor must affix a stamp in the space above bearing the actual words “Medallion Guaranteed”. In Canada: a Signature Guarantee obtained from a major Canadian Schedule I bank that is not a member of a Medallion Guarantee Program. The guarantor must affix a stamp in the space above bearing the actual words “Signature Guaranteed”. Outside Canada and the US: holders must obtain a guarantee from a local financial institution that has a corresponding affiliate in Canada or the US that is a member of an acceptable Medallion Guarantee Program. The corresponding affiliate must over guarantee the guarantee provided by the local financial institution. CERTIFICATE (To be completed if true.) The undersigned party transferring Rights hereunder hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in

-2concert with an Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall have the meaning ascribed thereto in the Shareholder Rights Agreement. Signature (please print name of signatory) (To be attached to each Rights Certificate.)

-3NOTICE In the event the certification set forth above in the Form of Assignment is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void and not transferable or exercisable. TOR01: 5399074: v2

Exhibit 15.4 Share Subscription Agreements – Blanket Mine

SUBSCRIPTION AGREEMENT between NATIONAL INDIGENISATION ECONOMIC EMPOWERMENT FUND ( The NIEEF is established by Section 12 of the Indigenisation Act and is administered by NIEEB, a body corporate established by Section 7 of the Act.) ("the Subscriber") and BLANKET MINE (1983) (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 172/69) ("the Company" ) and CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 5/45) ("CHZ")

CONTENTS

No

Clause

1 DEFINITIONS 2 BACKGROUND 3 CONDITIONS PRECEDENT 4 SUBSCRIPTION 5 PRICE AND PAYMENT 6 FUNDING 7 DIRECTORS 8 MANAGEMENT 9 CONFIDENTIALITY 10 SUPPORT 11 DOMICILIUM CITANDI ET EXECUTANDI 12 BREACH AND TERMINATION 13 ARBITRATION 14 GOVERNING LAW AND JURISDICTION 15 INTERPRETATION 16 GENERAL 17 COSTS 18 WARRANTY SCHEDULE 1

Page No

1 2 2 3 3 4 5 6 6 7 7 8 9 10 11 11 12 12 THE MANAGEMENT AGREEMENT

1 DEFINITIONS In this Agreement, unless the context indicates otherwise, the words and expressions set out below shall have the meaning assigned to them and cognate expressions shall have a corresponding meaning, namely: 1.1

Agreement

means this subscription agreement and Schedule 1 hereto;

1.2

Auditors

1.3

Business Day

means the Company’s auditors as at the Signature Date or failing that, at the election of the board of directors of the Company, Deloitte, KPMG or Ernst & Young; means any day that is not a Saturday, Sunday or public holiday in Zimbabwe;

1.4

Closing Date

1.5

Directors

1.6

Indigenisation

1.7

Indigenisation Act

1.8

Interest

1.9

Loan Account

1.10

MOU

means the 5 th (fifth) Business Day after the fulfilment of the suspensive conditions in clause 3 ; means the directors of the Company from time to time appointed in accordance with clause 7 ; means the process and objectives contemplated in the Indigenisation Act and the Regulations; means the Indigenisation and Economic Empowerment Act [ Chapter 14.33 ]; means interest calculated monthly in arrears at 10 (ten) percentage points above the 12 (twelve) month London InterBank Offered Rate published by Thomson Reuters from time to time; means the loan account to be opened in the Subscriber's name in the books of the Company; means the memorandum of understanding concluded by Caledonia Mining Corporation, CHZ, the Company, and the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe on 20 February 2012;

1

1.11

Parties

1.12

Regulations

means CHZ, the Company, and the Subscriber and "Party" means any one of them, as the context may indicate; means the Indigenisation and Economic Empowerment (General) Regulations, 2010;

1.13

Signature Date

means the date of signature of this Agreement by the Party last in time to do so;

1.14

Subscription Price

means the subscription price for the Subscription Shares as set out in clause 5.1 ; and

1.15

Subscription Shares

means 6,848,000 (six million eight hundred and forty eight thousand) “A” class shares representing 16% (sixteen percent) of the issued share capital of the Company after the implementation of the transactions envisaged in the MOU.

2 BACKGROUND

2.1 CHZ and the Company have agreed to the Indigenisation of the Company in accordance with the provisions of the MOU. 2.2 In terms of the MOU, the Company is required to issue the Subscription Shares to the Subscriber. 2.3 The Parties wish to record the terms on which the Subscriber will subscribe for the Subscription Shares.

3

CONDITIONS PRECEDENT 3.1 The implementation of this Agreement is, save for the provisions of clauses 1 , 3 and 9 to 18 , inclusive, which will be of immediate force and effect, subject to: 3.1.1 receipt by CHZ and the Company of written confirmation from the Ministry of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe that the implementation of this Agreement and the other transactions envisaged in the MOU constitutes compliance by CHZ and the Company with the requirements of the Indigenisation Act and the Regulations; 3.1.2 receipt by CHZ and the Company of the approvals, to the extent certified in writing by the Auditors to be required by law, by the Reserve Bank of Zimbabwe of the transactions contemplated in the MOU and any related transactions and/or corporate re-organisation required to give effect to the Indigenisation by CHZ of the Company; and

2

3.1.3 receipt by CHZ and the Company of written confirmation of the unconditional withdrawal by the Zimbabwe Ministry of Mines and Mining Development of the letter sent by it to the Company dated 13 December 2011 requiring the Company to reach agreement with the Zimbabwean Mining Development Corporation regarding the Indigenisation of the Company. 3.2 The Parties shall use all commercially reasonable endeavours to procure the fulfilment of the conditions precedent stipulated in clause 3.1 . 3.3 The conditions in clause 3.1 above are stipulated for the benefit of CHZ and CHZ may waive any one or all of those conditions by way of written notice to the Subscriber. 3.4 In the event of the conditions stipulated in clause 3.1 not being fulfilled or waived on or before 30 September 2012, or on or before such later date as CHZ and the Company may agree upon in writing, this Agreement shall lapse and shall be of no further force or effect and no Party shall have any claim against the other Parties arising from the provisions of this Agreement or the termination thereof. 4 SUBSCRIPTION 4.1 The Subscriber hereby subscribes for the Subscription Shares. 4.2 The Company hereby accepts the subscription for the Subscription Shares as set out in clause 4.1 , and undertakes to allot and issue the Subscription Shares to the Subscriber on the Closing Date. 5 PRICE AND PAYMENT 5.1 The Subscription Price for the Subscription Shares shall be the sum of US$ 11,742,439.02 (eleven million seven hundred and forty two thousand four hundred and thirty nine US Dollars and two cents), which amount shall be debited to the Loan Account which shall:

3

5.1.1 bear compound Interest from the Closing Date to the date of repayment, both dates inclusive; and 5.1.2 be paid in instalments on the date of payment of dividends by the Company from time to time, in an amount equal to 80% (eighty percent) of the dividends payable to the Subscriber, after deduction of withholding or any other taxes, in respect of the Subscription Shares. Each such payment shall be credited to the Loan Account in part settlement of Interest in the first instance and thereafter in settlement of capital owing in respect of the Subscription Price. Such payments shall cease once the Loan Account has been settled. 5.2 The remaining 20% (twenty percent) of the dividends payable to the Subscriber shall be paid by the Company to the Subscriber after deduction of any Zimbabwean withholding or other tax or levies that may be applicable on the full amount of dividends declared by the Company. 5.3 The Subscriber hereby irrevocably authorises the Company to apply dividends declared and becoming due for payment to the Subscriber, in the manner set out in clause 5.1.2 . 5.4 The Subscriber shall be entitled to transfer the Subscription Shares to any party provided that: 5.4.1 the Company shall not register the transfer of the Subscription Shares unless the transferee acknowledges in writing to the Company that those shares are subject to the dividend rights in clause 5.1.2 ; and 5.4.2 any transfer of the Subscription Shares will not result in non-compliance by CHZ or the Company with the requirements of the Indigenisation Act and the Regulations. 5.5 The amount due in respect of the Subscription Price and Interest shall be payable free of any deduction or set off and any taxes that may be levied thereon, which shall be for the account of the Subscriber. 6 FUNDING 6.1 If the Directors should at any time resolve to call on the shareholders of the Company to advance capital to the Company, either by way of share capital or loans, the Subscriber shall advance such capital pro rata to its shareholding in the Company at the date on which the Directors determine that the capital is required. 4

6.1.1 If the Subscriber is unable or unwilling to provide the capital required in terms of clause 6.1 , then it shall notify the Company in writing to that effect within 30 (thirty) days of the date on which it is advised in writing (“the Finance Date”) by the Company that capital is required from it. 6.1.2 If the Company should receive a notice contemplated in clause 6.1.1 , or if the Subscriber should fail to give a notice as contemplated in clause 6.1.1 and should fail to comply with its obligation to advance capital to the Company in terms of this clause 6.1 within 90 (ninety) days from the Finance Date, and if CHZ is prepared to provide the amount of the finance which the Subscriber was required to advance to the Company, then CHZ shall notify the Company in writing to that effect within 10 (ten) Business Days of receipt of the notice referred to in clause 6.1.1 , or of failure by the Subscriber to advance capital as required in terms of this clause 6.1 . 6.2 If the Subscriber is called upon to advance an amount to the Company in terms of clause 6.1 above, and if the Subscriber has declined or, as the case may be, failed to comply with such request in accordance with the provisions of clauses 6.1.1 and 6.1.2 , then, if it shall have exercised the right to advance to the Company the amount which the Subscriber has declined to advance, CHZ shall have the right, to call upon the Subscriber to sell to it such number of shares at par as shall, after transfer thereof into the name of CHZ, result in CHZ holding such percentage of the issued voting capital of the Company as shall be equal to the percentage which the aggregate of loan capital and share capital contributed by CHZ to the Company constitutes of the total capital contributed by all shareholders by way of share capital and loan capital. 7 DIRECTORS 7.1 The board of Directors shall be comprised of a minimum of 8 (eight) Directors. 7.2 The Parties agree that: 7.2.1 the Subscriber shall be entitled to appoint 1 (one) Director who shall be acceptable to the majority of the board of directors of the Company whose acceptance shall not be unreasonably withheld; and 7.2.2 CHZ shall be entitled to appoint 4 (four) Directors. 7.3 The Subscriber and CHZ shall have the right, from time to time, by notice in writing to the Company, to remove a Director nominated by it in terms of clause 7.1 as a Director and to nominate, in accordance with clause 7.2 another person in the place of the Director so removed.

5

8 MANAGEMENT The management of the Company shall continue to be undertaken by Greenstone Management Services (Proprietary) Limited ("Greenstone") in terms of the existing management agreement between Greenstone and the Company on at least identical terms and conditions as set out in Schedule 1 hereto. 9 CONFIDENTIALITY 9.1 All communications between the Parties and all information and other materials supplied to or received by a Party from any of the other Parties which relates in any way to this Agreement and to the Company shall be kept confidential by the Parties unless or until the relevant Party can reasonably demonstrate that: 9.1.1 any such communication, information or material is, or part of it is, in the public domain through no fault of its own; or 9.1.2 any such communication, information or material has been lawfully obtained from any third party; or 9.1.3 the information is already lawfully known to the relevant Party at the time that Party receives such information; or 9.1.4 the relevant Party is obliged by law to disclose such information, whereupon this obligation in respect of that information shall cease. 9.2 The Parties shall use their best endeavours to procure the observance of these restrictions and shall take all reasonable steps to minimise the risk of disclosure of confidential information by ensuring that only they themselves and such of their employees, agents or consultants whose duties will require them to possess any of such information shall have access to such information, and will be instructed to treat the same as confidential. 9.3 The obligation contained in this clause 9 shall endure, even after the termination of this Agreement, without limit in point of time, except and until such confidential information falls within any of the provisions of clauses 9.1.1 to 9.1.4 , and shall be subject to the Company's confidentiality regime at the Signature Date. 6

10 SUPPORT The Parties undertake at all times to do all such things, perform all such actions and take such steps (including in particular the exercise of their voting rights in the Company) and to procure the doing of all such things, the performance of all such actions and taking of all such steps as may be open to them and necessary for or incidental to the putting into effect the provisions of this Agreement. 11

DOMICILIUM CITANDI ET EXECUTANDI 11.1 Each Party chooses the address set out opposite its name below as its domicilium citandi et executandi at which all notices, legal processes and other communications must be delivered for the purposes of this Agreement: 11.1.1 the Subscriber

12 th Floor, Social Security Centre cnr Sam Nujoma Street & Julius Nyerere Way Harare Zimbabwe Fax: +263 4 750 139 Email: [email protected] , [email protected] and [email protected] [For attention: Mr David Chapfika – Chairman NIEEB and Mr Wilson Gwatiringa – Chief Executive Officer [NIEEB]

11.1.2 the Company

6 th Floor Red Bridge NE Eastgate 3 rd Street and R. Mugabe Road Harare Zimbabwe Fax: 263 284 23193 Email: [email protected] [For attention: Mr. Caxton Mangezi]

11.1.3 CHZ

6 th Floor Red Bridge NE Eastgate 3 rd Street and R Mugabe Road Harare Zimbabwe Fax: +27 11 447 2554 Email: [email protected] [For attention: Mr. Steve Curtis] 7

11.2 Any notice or communication required or permitted to be given in terms of this Agreement shall be valid and effective only if in writing, and delivered by hand or sent or transmitted by registered post, telefax or by email. 11.3 Each Party may by written notice to the other Parties change its chosen address and/or its chosen telefax number and/or its email address to another physical address, telefax number or email, provided that the change shall become effective on the fourteenth day after the receipt of the notice by the addressee. 11.4 Any notice to a Party: 11.4.1 sent by prepaid registered post to it at its chosen address; 11.4.2 delivered by hand to a responsible person during ordinary business hours at its chosen address; 11.4.3 transmitted during ordinary office hours by facsimile to its chosen telefax number; or 11.4.4 transmitted during ordinary office hours by email to its chosen email address, unless the contrary is proved, shall be deemed to have been received, in the case of clause 11.4.1 , on the 7 11.4.4 , on the day of delivery or transmission as the case may be.

th

(seventh) Business Day after posting and, in the case of clauses 11.4.2 , 11.4.3 and

12 BREACH AND TERMINATION 12.1 Should a Party (“the Defaulting Party”) commit a breach of any provision of this Agreement and fail to remedy such breach within 14 (fourteen) days from the date of written notice from any other Party to this Agreement (“the Aggrieved Party”) calling upon it to do so, the Aggrieved Party shall have the right, without prejudice to any other rights available in law, either: 12.1.1 if the breach complained of can be fully remedied by the payment of money, to take whatever action may be necessary to obtain payment of the amounts required by the Aggrieved Party to remedy such breach; or 8

12.1.2 if the breach complained of cannot be fully remedied by the payment of money, or, alternatively, if it can be so remedied and payment of any amounts claimed by the Aggrieved Party in terms of clause 12.1.1 is not made to the Aggrieved Party within 7 (seven) days of the date of determination through arbitration or legal process of the amount legally payable, to take whatever action may be necessary to enforce its rights under this Agreement or to terminate this Agreement, and in either event to claim such damages as it may have suffered as a result of such breach of contract. 12.2 The Defaulting Party shall be liable for all costs and expenses (calculated on an attorney and own client scale) incurred as a result of or in connection with the default. 12.3 Without limiting the generality of this clause 12 , if at any time it is or becomes unlawful for the Company to perform or comply with any or all of its obligations under this Agreement or any of its obligations under this Agreement are not or cease to be legal, valid, binding and enforceable, the Company shall be entitled, without prejudice to any other rights or remedies which it may have under this Agreement or otherwise, by written notice to the Subscriber, to claim immediate payment of the balance of the Subscription Price and all Interest accrued in terms thereof regardless of whether or not such amounts are then otherwise due and payable. 12.4 Should the Company terminate this Agreement in the circumstances contemplated in this clause 12 , the Company shall have the right, exercisable by written notice given to the Subscriber to purchase from the Subscriber all of the Subscription Shares at a value determined by the Auditors less any amounts owed by the Subscriber to the Company in terms of clause 5.1 . 13

ARBITRATION 13.1 Any dispute arising out of this Agreement or the interpretation thereof, both while in force and after its termination, shall be submitted to and determined by arbitration in accordance with the provisions of the First Schedule to the Arbitration Act, 6 of 1996, (for the purpose of this clause 13 , ("the Act"). Such arbitration shall be held in Harare unless otherwise agreed and shall be held in a summary manner with a view to it being completed as soon as possible. 13.2 There shall be one arbitrator, who shall be, if the question in issue is: 9

13.2.1 primarily an accounting matter, an independent chartered accountant of not less than 10 (ten) years' standing; 13.2.2 primarily a legal matter, a practising Senior Counsel or commercial attorney of not less than 10 (ten) years' standing; and 13.2.3 any other matter, a suitably qualified independent person. 13.3 The appointment of the arbitrator shall be agreed upon between the Parties, but failing agreement between them within a period of 14 (fourteen) days after the arbitration has been demanded by a Party by notice in writing to the others, a Party shall be entitled to request the Commercial Arbitration Centre in Harare to make the appointment. 13.4 The arbitrator shall have the powers conferred upon an arbitrator under the Act. 13.5 A Party shall have the right to appeal against the decision of the arbitrator in accordance with the Act. The decision resulting from such appeal shall be final and binding on the Parties, and may be made an order of any court of competent jurisdiction. The Parties hereby submit to the jurisdiction of the High Court of Zimbabwe sitting at Harare should a Party wish to make the arbitrator's decision an order of Court. 13.6 The fact that any dispute has been referred to or is the subject of arbitration in terms of this clause 13 , as well as any information submitted or furnished to the arbitrators or in any other manner forming part of the record of any arbitration proceedings, shall be kept confidential by the parties to such arbitration proceedings, and the parties to such proceedings shall use their reasonable endeavours to procure that all their employees, agents or advisers who are involved in or who obtain knowledge of any confidential information disclosed during such proceedings, shall be made aware of, and shall undertake in writing to be bound by, and to comply with, the provisions of this clause 13 . 14

GOVERNING LAW AND JURISDICTION 14.1 The interpretation of this Agreement shall be governed by the law of Zimbabwe in all respects. 14.2 Any Party shall be entitled to institute all or any proceedings against any of the other Parties in connection with this Agreement in the High Court of Zimbabwe sitting at Harare.

10

15

INTERPRETATION 15.1 In this Agreement, unless the context requires otherwise: 15.1.1 words importing any one gender shall include the other 2 (two) genders; 15.1.2 the singular shall include the plural and vice versa ; and 15.1.3 a reference to natural persons shall include created entities (corporate or unincorporated) and vice versa . 15.2 In this Agreement, the headings have been inserted for convenience only and shall not be used for nor assist or affect its interpretation. 15.3 If anything in a definition is a substantive provision conferring rights or imposing obligations on anyone, effect shall be given to it as if it were a substantive provision in the body of this Agreement.

16

GENERAL 16.1 This Agreement contains the entire agreement between the Parties as to the subject matter hereof. 16.2 No Party shall have any claim or right of action arising from any undertaking, representation or warranty not included in this Agreement. 16.3 No failure by a Party to enforce any provision of this Agreement shall constitute a waiver of such provision or affect in any way that Party’s right to require performance of any such provision at any time in the future, nor shall the waiver of any subsequent breach nullify the effectiveness of the provision itself. 16.4 No agreement to vary, add to, or cancel this Agreement shall be of any force or effect unless reduced to writing and signed on behalf of all of the Parties to this Agreement. 16.5 No Party may cede any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties to this Agreement. 16.6 This Agreement may be signed in counterparts, in which event the originals together will constitute the entire agreement between the Parties. 11

17

COSTS

Each Party shall bear its own costs to be incurred in connection with the drafting and negotiation of this Agreement. 18

WARRANTY

The Company and CHZ warrant that the shareholder of the Company does not at the Signature Date have any liability for the unlawful conduct of the business and affairs of the Company. SIGNED at Johannesburg on 12 June 2012 For and on behalf of:

NATIONAL INDIGENISATION ECONOMIC EMPOWERMENT FUND

______________________________ Signatory: D. Chapfika Capacity: Chairman NIEEB Authority: Board Resolution

Witness:

______________________________ Name:

SIGNED at Johannesburg on 12 June 2012 For:

BLANKET MINE (1983) (PRIVATE) LIMITED ____________________________________ Signatory: S.R. Curtis Capacity: Director Authority: Board Resolution

Witness:

______________________________ Name:

12

SIGNED at Johannesburg on 12 June 2012 For:

CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED _________________________________ Signatory: S.E. Hayden Capacity: Director Authority: Board Resolution

Witness:

______________________________ Name:

SCHEDULE 1 MANAGEMENT AGREEMENT

14

SUBSCRIPTION AGREEMENT between FREMIRO INVESTMENTS (PRIVATE) LIMITED ( a company incorporated in Zimbabwe under registration number 5560/2011) ("the Subscriber") and BLANKET MINE (1983) (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 172/69) ("the Company" ) and CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 5/45) ("CHZ")

CONTENTS No

Clause Page No

No

Clause

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

DEFINITIONS BACKGROUND CONDITIONS PRECEDENT SUBSCRIPTION PRICE AND PAYMENT FUNDING DIRECTORS MANAGEMENT OF THE COMPANY CONFIDENTIALITY SUPPORT DOMICILIUM CITANDI ET EXECUTANDI BREACH AND TERMINATION ARBITRATION GOVERNING LAW AND JURISDICTION INTERPRETATION GENERAL COSTS WARRANTY

Page No

1 2 2 3 3 4 5 5 6 6 7 8 9 10 10 11 11 12

1

DEFINITIONS

In this Agreement, unless the context indicates otherwise, the words and expressions set out below shall have the meaning assigned to them and cognate expressions shall have a corresponding meaning, namely: 1.1

Agreement

means this subscription agreement;

1.2

Auditors

1.3

Business Day

means the Company’s auditors as at the Signature Date or failing that, at the election of the board of directors of the Company, Deloitte, KPMG or Ernst & Young; means any day that is not a Saturday, Sunday or public holiday in Zimbabwe;

1.4

Closing Date

1.5

Directors

1.6

Indigenisation

1.7

Indigenisation Act

1.8

Interest

1.9

Loan Account

1.10

MOU

means the 5 th (fifth) Business Day after the fulfilment of the suspensive conditions in clause 3 ; means the directors of the Company from time to time appointed in accordance with clause 7 ; means the process and objectives contemplated in the Indigenisation Act and the Regulations; means the Indigenisation and Economic Empowerment Act [ Chapter 14.33 ]; means interest calculated monthly in arrears at 10 (ten) percentage points above the 12 month LIBOR base rate published by REUTERS from time to time; means the loan account to be opened in the Subscriber's name in the books of the Company; means the memorandum of understanding concluded and signed by Caledonia Mining Corporation, CHZ, the Company, and the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe on 20 February 2012;

1

1.11

Parties

1.12

Regulations

means CHZ, the Company, and the Subscriber and "Party" means any one of them, as the context may indicate; means the Indigenisation and Economic Empowerment (General) Regulations, 2010;

1.13

Signature Date

means the date of signature of this Agreement by the Party last in time to do so;

1.14

Subscription Price

means the subscription price for the Subscription Shares as set out in clause 5.1 ; and

1.15

Subscription Shares

means 6,420,000 (six million four hundred and twenty thousand) “A” class shares representing 15% (fifteen per cent) of the issued share capital of the Company after the implementation of the transactions envisaged in the MOU which will total 42,800,000 shares.

2 BACKGROUND 2.1 CHZ and the Company have agreed to the Indigenisation of the Company in accordance with the provisions of the MOU. 2.2 In terms of the MOU, the Company and the Subscriber are required to conclude an agreement in terms of which the Subscriber will subscribe for the Subscription Shares. 2.3 The Parties wish to record the terms on which the Subscriber will subscribe for the Subscription Shares. 3

CONDITIONS PRECEDENT 3.1 The implementation of this Agreement is, save for the provisions of clauses 1 , 6.2 to 17 , inclusive, which will be of immediate force and effect, subject to: 3.1.1 receipt by CHZ and the Company of written confirmation from the Ministry of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe that the implementation of this Agreement constitutes compliance by CHZ and the Company with the requirements of the Indigenisation Act and the Regulations; 2

3.1.2 receipt by CHZ and the Company of the approvals, to the extent certified in writing by the Auditors to be required by law, by the Reserve Bank of Zimbabwe of the transactions contemplated in the MOU and any related transactions and/or corporate re-organisation required to give effect to the Indigenisation by CHZ of the Company; and 3.1.3 receipt by CHZ and the Company of written confirmation of the unconditional withdrawal by the Zimbabwean Ministry of Mines and Mining Development of the letter sent by it to the Company dated 13 December 2011 requiring the Company to reach agreement with the Zimbabwean Mining Development Corporation regarding the Indigenisation of the Company. 3.2 The Parties shall use all commercially reasonable endeavours to procure the fulfilment of the conditions precedent stipulated in clause 3.1 . 3.3 In the event that CHZ is unable to obtain the confirmation stipulated in 3.1 on or before 30 September 2012, CHZ may at its sole discretion, renegotiate the terms of this agreement. 4 SUBSCRIPTION 4.1 The Subscriber hereby subscribes for the Subscription Shares. 4.2 The Company hereby accepts the subscription for the Subscription Shares as set out in clause 4.1 , and undertakes to allot and issue the Subscription Shares to the Subscriber on the Closing Date. 5 PRICE AND PAYMENT 5.1 The Subscription Price for the Subscription Shares shall be the sum of US$ 11,008,536 (eleven million and eight thousand five hundred and thirty six dollars ), which amount shall be debited to the Loan Account which Loan Account shall: 5.1.1 bear compound Interest from the Closing Date to the date of repayment, both dates inclusive; and 5.1.2 be paid in instalments on the date of payment of dividends by the Company from time to time, in an amount equal to 80% (eighty percent) of the dividends payable to the Subscriber, after deduction of withholding or any other taxes, in respect of the Subscription Shares. Each such payment shall be credited to the Loan Account in part settlement of Interest in the first instance and thereafter in settlement of capital owing in respect of the Subscription Price. Such payments shall cease once the full loan amount has been settled. 3

5.2 The remaining 20% (twenty percent) of the dividends payable to the Subscriber shall be paid by the Company to the Subscriber after deduction of any Zimbabwean withholding or other tax or levies that may be applicable on these dividends declared. 5.3 The Subscriber hereby irrevocably authorises the Company to apply dividends declared and becoming due for payment to the Subscriber, in the manner set out in clause 5.1.2 . 5.4 For as long as any amounts are owed to the Company by the Subscriber in respect of the Subscription Price in terms of clause 5.1 the Subscriber may not, without prior written consent of CHZ, cede any right, title or interest in, pledge, or otherwise encumber any Subscription Share. 5.5 The amount due in respect of the Subscription Price and Interest shall be payable free of any deduction or set off and any taxes that may be levied thereon, which shall be for the account of the Subscriber. 6 FUNDING 6.1 If the Directors should at any time resolve to call on the shareholders of the Company to advance capital to the Company, either by way of share capital or loans, the Subscriber shall advance such capital pro rata to its shareholding in the Company at the date on which the Directors determine that the capital is required. 6.1.1 If the Subscriber is unable or unwilling to provide the capital required in terms of clause 6.1 , then it shall notify the Company in writing to that effect within 30 (thirty) days of the date on which it is advised in writing (“the Finance Date”) by the Company that capital is required from it. 6.1.2 If the Company should receive a notice contemplated in clause 6.1.1 , or if the Subscriber should fail to give a notice as contemplated in clause 6.1.1 and should fail to comply with its obligation to advance capital to the Company in terms of this clause 6.1 within 90 (ninety) days from the Finance Date, and if CHZ is prepared to provide the amount of the finance which the Subscriber was required to advance to the Company, then CHZ shall notify the Company in writing to that effect within 10 (ten) Business Days of receipt of the notice referred to in clause 6.1.1 , or of failure by the Subscriber to advance capital as required in terms of this clause 6.1 . 4

6.2 If the Subscriber is called upon to advance an amount to the Company in terms of clause 6.1 above, and if the Subscriber has declined or, as the case may be, failed to comply with such request in accordance with the provisions of clauses 6.1.1 and 6.1.2 , then, if it shall have exercised the right to advance to the Company the amount which the Subscriber has declined to advance, CHZ shall have the right to call upon the Subscriber to sell to CHZ such number of shares at par as shall, after transfer thereof into the name of CHZ, result in CHZ holding such percentage of the issued voting capital of the Company as shall be equal to the percentage which the aggregate of loan capital and share capital contributed by CHZ to the Company constitutes of the total capital contributed by all shareholders by way of share capital and loan capital 7 DIRECTORS 7.1 The board of Directors shall be comprised of a minimum of 8 (eight) Directors. 7.2 The Parties agree that: 7.2.1 the Subscriber shall be entitled to appoint 1 (one) Director who shall be acceptable to the majority of the Board of Directors of the Company whose acceptance shall not be unreasonably withheld; and 7.2.2 CHZ shall be entitled to appoint 4 (four) Directors. 7.3 The Subscriber and CHZ shall have the right, from time to time, by notice in writing to the Company, to remove a Director nominated by it in terms of clause 7.1 as a Director and to nominate, in accordance with clause 7.2 another person in the place of the Director so removed. 8 MANAGEMENT OF THE COMPANY For as long as any amounts are owed to the Company by the Subscriber on the Loan Account, the management of the Company shall continue to be undertaken by Greenstone Management Services (“Greenstone”) in terms of the existing management agreement between Greenstone and the Company on identical terms and conditions. The Parties undertake to vote in favour of all resolutions necessary to give effect to this clause 8 , failing which the vendor funding shall immediately be withdrawn and, the Subscriber asked to settle the outstanding balance in cash within 90 days of such notice, failing which the outstanding principal amount and interest shall automatically be converted into equivalent A shares and issued to CHZ.

5

9 CONFIDENTIALITY 9.1 All communications between the Parties and all information and other materials supplied to or received by a Party from any of the other Parties which relates in any way to this Agreement and to the Company shall be kept confidential by the Parties unless or until the relevant Party can reasonably demonstrate that: 9.1.1 any such communication, information or material is, or part of it is, in the public domain through no fault of its own; or 9.1.2 any such communication, information or material has been lawfully obtained from any third party; or 9.1.3 the information is already lawfully known to the relevant Party at the time that Party receives such information; or 9.1.4 the relevant Party is obliged by law to disclose such information, whereupon this obligation in respect of that information shall cease. 9.2 The Parties shall use their best endeavours to procure the observance of these restrictions and shall take all reasonable steps to minimise the risk of disclosure of confidential information by ensuring that only they themselves and such of their employees, agents or consultants whose duties will require them to possess any of such information shall have access to such information, and will be instructed to treat the same as confidential. 9.3 The obligation contained in clause 9.2 shall endure, even after the termination of this Agreement, without limit in point of time, except and until such confidential information falls within any of the provisions of clauses 9.1.1 to 9.1.4 , and shall be subject to the Company's confidentiality regime at the Signature Date. 10 SUPPORT The Parties undertake at all times to do all such things, perform all such actions and take such steps (including in particular the exercise of their voting rights in the Company) and to procure the doing of all such things, the performance of all such actions and taking of all such steps as may be open to them and necessary for or incidental to the putting into effect the provisions of this Agreement.

6

11

DOMICILIUM CITANDI ET EXECUTANDI 11.1 Each Party chooses the address set out opposite its name below as its domicilium citandi et executandi at which all notices, legal processes and other communications must be delivered for the purposes of this Agreement: 11.1.1 the Subscriber

58 Broadlands Road Emerald Hill, Harare, Zimbabwe Fa x: To be advised Email:[email protected] [ For attention: July Ndlovu ]

11.1.2 the Company

6 th Floor Red Bridge NEEastgate 3 rd Street and R. Mugabe Road Harare Zimbabwe Fax: 263 284 23193 Email: [email protected] [For attention: Mr. Caxton Mangezi]

11.1.3 CHZ

6 th Floor Red Bridge NEEastgate 3 rd Street and R Mugabe Road Harare Zimbabwe Fax: +27 11 447 2554 Email: [email protected] [ For attention: Mr. Steven Curtis]

11.2 Any notice or communication required or permitted to be given in terms of this Agreement shall be valid and effective only if in writing, and delivered by hand or sent or transmitted by registered post, telefax or by email. 11.3 Each Party may by written notice to the other Parties change its chosen address and/or its chosen telefax number and/or its email address to another physical address, telefax number or email, provided that the change shall become effective on the fourteenth day after the receipt of the notice by the addressee. 7

11.4 Any notice to a Party: 11.4.1 sent by prepaid registered post to it at its chosen address; 11.4.2 delivered by hand to a responsible person during ordinary business hours at its chosen address; 11.4.3 transmitted during ordinary office hours by facsimile to its chosen telefax number; or 11.4.4 transmitted during ordinary office hours by email to its chosen email address, unless the contrary is proved, shall be deemed to have been received, in the case of clause 11.4.1 , on the 7 11.4.4 , on the day of delivery or transmission as the case may be.

th

(seventh) Business Day after posting and, in the case of clauses 11.4.2 , 11.4.3 and

12 BREACH AND TERMINATION 12.1 Should a Party (“the Defaulting Party”) commit a breach of any provision of this Agreement and fail to remedy such breach within 14 (fourteen) days from the date of written notice from any other Party to this Agreement (“the Aggrieved Party”) calling upon it to do so, the Aggrieved Party shall have the right, without prejudice to any other rights available in law, either: 12.1.1 if the breach complained of can be fully remedied by the payment of money, to take whatever action may be necessary to obtain payment of the amounts required by the Aggrieved Party to remedy such breach; or 12.1.2 if the breach complained of cannot be fully remedied by the payment of money, or, alternatively, if it can be so remedied and payment of any amounts claimed by the Aggrieved Party in terms of clause 12.1.1 is not made to the Aggrieved Party within 7 (seven) days of the date of determination through arbitration or legal process of the amount legally payable, to take whatever action may be necessary to enforce its rights under this Agreement or to terminate this Agreement, and in either event to claim such damages as it may have suffered as a result of such breach of contract. 12.2 The Defaulting Party shall be liable for all costs and expenses (calculated on an attorney and own client scale) incurred as a result of or in connection with the default. 12.3 Without limiting the generality of this clause 12 , if at any time it is or becomes unlawful for the Company to perform or comply with any or all of its obligations under this Agreement or any of its obligations under this Agreement are not or cease to be legal, valid, binding and enforceable, the Company shall be entitled, without prejudice to any other rights or remedies which it may have under this Agreement or otherwise, by written notice to the Subscriber, to claim immediate payment of the balance of the Subscription Price and all Interest accrued in terms thereof regardless of whether or not such amounts are then otherwise due and payable. 12.4 Notwithstanding the aforesaid, should the Subscriber institute and/or cause to be instituted, any legal action of any nature whatsoever against the Company, the Company shall have the right, exercisable by written notice given to the Subscriber at any time after the institution of any such legal action, to terminate this Agreement and purchase from the Subscriber all of the Subscription Shares at a value determined by the Auditors less any amounts owed by the Subscriber to the Company in terms of clause 5.1 . 13 ARBITRATION 13.1 Any dispute arising out of this Agreement or the interpretation thereof, both while in force and after its termination, shall be submitted to and determined by arbitration in accordance with the provisions of the First Schedule to the Arbitration Act, 6 of 1996, (for the purpose of this clause 13 , ("the Act"). Such arbitration shall be held in Harare unless otherwise agreed and shall be held in a summary manner with a view to it being completed as soon as possible. 13.2 There shall be one arbitrator, who shall be, if the question in issue is: 13.2.1 primarily an accounting matter, an independent chartered accountant of not less than 10 (ten) years' standing; 13.2.2 primarily a legal matter, a practising Senior Counsel or commercial attorney of not less than 10 (ten) years' standing; and 13.2.3 any other matter, a suitably qualified independent person. 13.3 The appointment of the arbitrator shall be agreed upon between the Parties, but failing agreement between them within a period of 14 (fourteen) days after the arbitration has been demanded by a Party by notice in writing to the others, a Party shall be entitled to request the High Court of Zimbabwe to make the appointment. 8

13.4 The arbitrator shall have the powers conferred upon an arbitrator under the Act. 13.5 A Party shall have the right to appeal against the decision of the arbitrator in accordance with the Act. The decision resulting from such appeal shall be final and binding on the Parties, and may be made an order of any court of competent jurisdiction. The Parties hereby submit to the jurisdiction of the High Court of Zimbabwe sitting at Harare should a Party wish to make the arbitrator's decision an order of Court. 13.6 The fact that any dispute has been referred to or is the subject of arbitration in terms of this clause 13 , as well as any information submitted or furnished to the arbitrators or in any other manner forming part of the record of any arbitration proceedings, shall be kept confidential by the parties to such arbitration proceedings, and the parties to such proceedings shall use their reasonable endeavours to procure that all their employees, agents or advisers who are involved in or who obtain knowledge of any confidential information disclosed during such proceedings, shall be made aware of, and shall undertake in writing to be bound by, and to comply with, the provisions of this clause 13 . 14 GOVERNING LAW AND JURISDICTION 14.1 The interpretation of this Agreement shall be governed by the law of the Zimbabwe in all respects. 14.2 Any Party shall be entitled to institute all or any proceedings against any the other Parties in connection with this Agreement in the High Court of Zimbabwe sitting at Harare. 15 INTERPRETATION 15.1 In this Agreement, unless the context requires otherwise : 15.1.1 words importing any one gender shall include the other 2 (two) genders; 15.1.2 the singular shall include the plural and vice versa ; and 15.1.3 a reference to natural persons shall include created entities (corporate or unincorporated) and vice versa . 9

15.2 In this Agreement, the headings have been inserted for convenience only and shall not be used for nor assist or affect its interpretation. 15.3 If anything in a definition is a substantive provision conferring rights or imposing obligations on anyone, effect shall be given to it as if it were a substantive provision in the body of this Agreement. 16

GENERAL 16.1 This Agreement contains the entire agreement between the Parties as to the subject matter hereof. 16.2 No Party shall have any claim or right of action arising from any undertaking, representation or warranty not included in this Agreement. 16.3 No failure by a Party to enforce any provision of this Agreement shall constitute a waiver of such provision or affect in any way that Party’s right to require performance of any such provision at any time in the future, nor shall the waiver of any subsequent breach nullify the effectiveness of the provision itself. 16.4 No agreement to vary, add to, or cancel this Agreement shall be of any force or effect unless reduced to writing and signed on behalf of all of the Parties to this Agreement. 16.5 No Party may cede any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties to this Agreement. 16.6 This Agreement may be signed in counterparts, in which event the originals together will constitute the entire agreement between the Parties.

17

COSTS

Each Party shall bear its own costs to be incurred in connection with the drafting and negotiation of this Agreement.

18 WARRANTY The Company and CHZ warrant that the shareholder of the Company does not at the date of this agreement have any liability for the unlawful conduct of the business and affairs of the Company.

10

SIGNED at

on April 27, For:

2012 BLANKET MINE (1983) (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Director Authority: Resolution April 28, 2012

SIGNED at

on For:

2012 CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Authority: Resolution April 28, 2012

SIGNED at

on 27 April For:

2012

FREMIRO INVESTMENTS (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Director Authority: Resolution

11

SUBSCRIPTION AGREEMENT between BLANKET EMPLOYEE TRUST SERVICES (PRIVATE) LIMITED ( a company to be incorporated in Zimbabwe) ("the Subscriber") and BLANKET MINE (1983) (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 172/69) ("the Company" ) and CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 5/45) ("CHZ" )

CONTENTS No

Clause

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

DEFINITIONS BACKGROUND CONDITIONS PRECEDENT SUBSCRIPTION PRICE AND PAYMENT FUNDING DIRECTORS MANAGEMENT OF THE COMPANY CONFIDENTIALITY SUPPORT DOMICILIUM CITANDI ET EXECUTANDI BREACH AND TERMINATION ARBITRATION GOVERNING LAW AND JURISDICTION INTERPRETATION GENERAL COSTS WARRANTY

Page No

1 2 2 3 4 4 5 6 6 7 7 8 9 10 11 11 12 12

1 DEFINITIONS In this Agreement, unless the context indicates otherwise, the words and expressions set out below shall have the meaning assigned to them and cognate expressions shall have a corresponding meaning, namely: 1.1

Agreement

means this subscription agreement;

1.2

Auditors

1.3

Business Day

means the Company’s auditors as at the Signature Date or failing that, at the election of the board of directors of the Company, Deloitte, KPMG or Ernst & Young; means any day that is not a Saturday, Sunday or public holiday in Zimbabwe;

1.4

Closing Date

1.5

Directors

1.6

Indigenisation

1.7

Indigenisation Act

1.8

Interest

means interest calculated monthly in arrears at 10 (ten) percentage points above the 12 (twelve) month London InterBank Offered Rate published by Thomson Reuters from time to time;

1.9

Loan Account

1.10

MOU

means the loan account to be opened in the Subscriber's name in the books of the Company; means the memorandum of understanding concluded by Caledonia Mining Corporation, CHZ, the Company, and the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe on 20 February 2012;

means the 5 th (fifth) Business Day after the fulfilment of the suspensive conditions in clause 3 ; means the directors of the Company from time to time appointed in accordance with clause 7 ; means the process and objectives contemplated in the Indigenisation Act and the Regulations; means the Indigenisation and Economic Empowerment Act [ Chapter 14.33 ];

1

1.11

Parties

1.12

Regulations

means CHZ, the Company, and the Subscriber and "Party" means any one of them, as the context may indicate; means the Indigenisation and Economic Empowerment (General) Regulations, 2010;

1.13

Signature Date

means the date of signature of this Agreement by the Party last in time to do so;

1.14

Subscription Price

means the subscription price for the Subscription Shares as set out in clause 5.1 ; and

1.15

Subscription Shares

means 4,280,000 (four million two hundred and eighty thousand) “A” class shares representing 10% (ten percent) of the issued share capital of the Company after the implementation of the transactions envisaged in the MOU.

2 BACKGROUND 2.1 CHZ and the Company have agreed to the Indigenisation of the Company in accordance with the provisions of the MOU. 2.2 In terms of the MOU, the Company is required to issue the Subscription Shares to the Blanket Mine Employee Trust. 2.3 The Company has procured the incorporation of the Subscriber for the purpose of subscribing for and holding the Subscription Shares and the Blanket Mine Employee Trust will, on its formation, acquire the entire issued share capital of the Subscriber. 2.4 The Parties wish to record the terms on which the Subscriber will subscribe for the Subscription Shares. 3 CONDITIONS PRECEDENT 3.1 The implementation of this Agreement is, save for the provisions of clauses 1 , 3 and 7 to 18 , inclusive, which will be of immediate force and effect, subject to: 2

3.1.1 receipt by CHZ and the Company of written confirmation from the Ministry of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe that the implementation of this Agreement and the other transactions envisaged in the MOU constitutes compliance by CHZ and the Company with the requirements of the Indigenisation Act and the Regulations; 3.1.2 receipt by CHZ and the Company of the approvals, to the extent certified in writing by the Auditors to be required by law, by the Reserve Bank of Zimbabwe of the transactions contemplated in the MOU and any related transactions and/or corporate re-organisation required to give effect to the Indigenisation by CHZ of the Company; and 3.1.3 receipt by CHZ and the Company of written confirmation of the unconditional withdrawal by the Zimbabwe Ministry of Mines and Mining Development of the letter sent by it to the Company dated 13 December 2011 requiring the Company to reach agreement with the Zimbabwean Mining Development Corporation regarding the Indigenisation of the Company. 3.2 The Parties shall use all commercially reasonable endeavours to procure the fulfilment of the conditions precedent stipulated in clause 3.1 . 3.3 The conditions in clause 3.1 above are stipulated for the benefit of CHZ and CHZ may waive any one or all of those conditions by way of written notice to the Subscriber. 3.4 In the event of the conditions stipulated in clause 3.1 not being fulfilled or waived on or before 30 September 2012, or on or before such later date as CHZ and the Company agree upon in writing, this Agreement shall lapse and shall be of no further force or effect and no Party shall have any claim against the other Parties arising from the provisions of this Agreement or the termination thereof. 4 SUBSCRIPTION 4.1 The Subscriber hereby subscribes for the Subscription Shares. 4.2 The Company hereby accepts the subscription for the Subscription Shares as set out in clause 4.1 , and undertakes to allot and issue the Subscription Shares to the Subscriber on the Closing Date.

3

5 PRICE AND PAYMENT 5.1 The Subscription Price for the Subscription Shares shall be the sum of US$ 7,339,024 (seven million three hundred and thirty nine thousand and twenty four US Dollars), which amount shall be debited to the Loan Account which Loan Account shall: 5.1.1 bear compound Interest from the Closing Date to the date of repayment, both dates inclusive; and 5.1.2 be paid in instalments on the date of payment of dividends by the Company from time to time, in an amount equal to 80% (eighty percent) of the dividends payable to the Subscriber, after deduction of withholding or any other taxes, in respect of the Subscription Shares. Each such payment shall be credited to the Loan Account in part settlement of Interest in the first instance and thereafter in settlement of capital owing in respect of the Subscription Price. Such payments shall cease once the Loan Account has been settled. 5.2 The remaining 20% (twenty percent) of the dividends payable to the Subscriber shall be paid by the Company to the Subscriber after deduction of any Zimbabwean withholding or other tax or levies that may be applicable on the dividends declared by the Company. 5.3 The Subscriber hereby irrevocably authorises the Company to apply dividends declared and becoming due for payment to the Subscriber, in the manner set out in clause 5.1.2 . 5.4 For as long as any amounts are owed to the Company by the Subscriber in respect of the Subscription Price in terms of clause 5.1 , the Subscriber may not, without prior written consent of CHZ, cede any right, title or interest in, pledge, or otherwise encumber any Subscription Share. 5.5 The amount due in respect of the Subscription Price and Interest shall be payable free of any deduction or set off and any taxes that may be levied thereon, which shall be for the account of the Subscriber. 6 FUNDING 6.1 If the Directors should at any time resolve to call on the shareholders of the Company to advance capital to the Company, either by way of share capital or loans, the Subscriber shall advance such capital pro rata to its shareholding in the Company at the date on which the Directors determine that the capital is required. 4

6.1.1 If the Subscriber is unable or unwilling to provide the capital required in terms of clause 6.1 , then it shall notify the Company in writing to that effect within 30 (thirty) days of the date on which it is advised in writing (“the Finance Date”) by the Company that capital is required from it. 6.1.2 If the Company should receive a notice contemplated in clause 6.1.1 , or if the Subscriber should fail to give a notice as contemplated in clause 6.1.1 and should fail to comply with its obligation to advance capital to the Company in terms of this clause 6. within 90 (ninety) days from the Finance Date, and if CHZ is prepared to provide the amount of the finance which the Subscriber was required to advance to the Company, then CHZ shall notify the Company in writing to that effect within 10 (ten) Business Days of receipt of the notice referred to in clause 6.1.1 , or of failure by the Subscriber to advance capital as required in terms of this clause 6.1 . 6.2 If the Subscriber is called upon to advance an amount to the Company in terms of clause 6.1 above, and if the Subscriber has declined or, as the case may be, failed to comply with such request in accordance with the provisions of clauses 6.1.1 and 6.1.2 , then, if it shall have exercised the right to advance to the Company the amount which the Subscriber has declined to advance, CHZ shall have the right, to call upon the Subscriber to sell such number of shares at par as shall, after transfer thereof into the name of CHZ, result in CHZ holding such percentage of the issued voting capital of the Company as shall be equal to the percentage which the aggregate of loan capital and share capital contributed by CHZ to the Company constitutes of the total capital contributed by all shareholders by way of share capital and loan capital. 7 DIRECTORS 7.1 The board of Directors shall be comprised of a maximum of 8 (eight) Directors. 7.2 The Parties agree that: 7.2.1 the Subscriber shall be entitled to appoint 1 (one) Director, of the Company, who shall be acceptable to the majority of the board of directors of the Company whose acceptance shall not be unreasonably withheld; and 7.2.2 CHZ shall be entitled to appoint 4 (four) Directors of the Company. 5

7.3 The Subscriber and CHZ shall have the right, from time to time, by notice in writing to the Company, to remove a Director nominated by it in terms of clause 7.1 as a Director and to nominate, in accordance with clause 7.2 another person in the place of the Director so removed. 8 MANAGEMENT OF THE COMPANY For as long as any amounts are owed to the Company by the Subscriber on the Loan Account, the management of the Company shall continue to be undertaken by Greenstone Management Services (“Greenstone”) in terms of the existing management agreement between Greenstone and the Company on at least identical terms and conditions. The Parties undertake to vote in favour of all resolutions necessary to give effect to this clause 8 . Should the management agreement be terminated, for whatever reason, before the Loan Account has been settled, the balance of the Loan Account shall be payable by the Subscriber to the Company on demand. 9 CONFIDENTIALITY 9.1 All communications between the Parties and all information and other materials supplied to or received by a Party from any of the other Parties which relates in any way to this Agreement and to the Company shall be kept confidential by the Parties unless or until the relevant Party can reasonably demonstrate that: 9.1.1 any such communication, information or material is, or part of it is, in the public domain through no fault of its own; or 9.1.2 any such communication, information or material has been lawfully obtained from any third party; or 9.1.3 the information is already lawfully known to the relevant Party at the time that Party receives such information; or 9.1.4 the relevant Party is obliged by law to disclose such information, whereupon this obligation in respect of that information shall cease. 9.2 The Parties shall use their best endeavours to procure the observance of these restrictions and shall take all reasonable steps to minimise the risk of disclosure of confidential information by ensuring that only they themselves and such of their employees, agents or consultants whose duties will require them to possess any of such information shall have access to such information, and will be instructed to treat the same as confidential. 6

9.3 The obligation contained in this clause 9 shall endure, even after the termination of this Agreement, without limit in point of time, except and until such confidential information falls within any of the provisions of clauses 9.1.1 to 9.1.4 , and shall be subject to the Company's confidentiality regime at the Signature Date. 10

SUPPORT

The Parties undertake at all times to do all such things, perform all such actions and take such steps (including in particular the exercise of their voting rights in the Company) and to procure the doing of all such things, the performance of all such actions and taking of all such steps as may be open to them and necessary for or incidental to the putting into effect the provisions of this Agreement. 11

DOMICILIUM CITANDI ET EXECUTANDI 11.1 Each Party chooses the address set out opposite its name below as its domicilium citandi et executandi at which all notices, legal processes and other communications must be delivered for the purposes of this Agreement: 11.1.1 the Subscriber

Blanket Mine, P.O.Box 4 Gwanda, Zimbabwe Fax: 263 84 2 23259 Email: [email protected] [ For attention: Mr. Caxton Mangezi]

11.1.2 the Company

6 th Floor Red Bridge NE Eastgate 3 rd Street and R. Mugabe Road Harare Zimbabwe Fax: 263 284 23193 Email: [email protected] [ For attention: Mr. Caxton Mangezi]

11.1.3 CHZ

6 th Floor Red Bridge NE Eastgate 3 rd Street and R Mugabe Road Harare Zimbabwe Fax: +27 11 447 2554 Email: [email protected] [For attention: Mr. Steve Curtis] 7

11.2 Any notice or communication required or permitted to be given in terms of this Agreement shall be valid and effective only if in writing, and delivered by hand or sent or transmitted by registered post, telefax or by email. 11.3 Each Party may by written notice to the other Parties change its chosen address and/or its chosen telefax number and/or its email address to another physical address, telefax number or email, provided that the change shall become effective on the fourteenth day after the receipt of the notice by the addressee. 11.4 Any notice to a Party: 11.4.1 sent by prepaid registered post to it at its chosen address; 11.4.2 delivered by hand to a responsible person during ordinary business hours at its chosen address; 11.4.3 transmitted during ordinary office hours by facsimile to its chosen telefax number; or 11.4.4 transmitted during ordinary office hours by email to its chosen email address, unless the contrary is proved, shall be deemed to have been received, in the case of clause 11.4.1 , on the 7 11.4.4 , on the day of delivery or transmission as the case may be.

th

(seventh) Business Day after posting and, in the case of clauses 11.4.2 , 11.4.3 and

12 BREACH AND TERMINATION 12.1 Should a Party (“the Defaulting Party”) commit a breach of any provision of this Agreement and fail to remedy such breach within 14 (fourteen) days from the date of written notice from any other Party to this Agreement (“the Aggrieved Party”) calling upon it to do so, the Aggrieved Party shall have the right, without prejudice to any other rights available in law, either: 12.1.1 if the breach complained of can be fully remedied by the payment of money, to take whatever action may be necessary to obtain payment of the amounts required by the Aggrieved Party to remedy such breach; or 8

12.1.2 if the breach complained of cannot be fully remedied by the payment of money, or, alternatively, if it can be so remedied and payment of any amounts claimed by the Aggrieved Party in terms of clause 12.1.1 is not made to the Aggrieved Party within 7 (seven) days of the date of determination through arbitration or legal process of the amount legally payable, to take whatever action may be necessary to enforce its rights under this Agreement or to terminate this Agreement, and in either event to claim such damages as it may have suffered as a result of such breach of contract. 12.2 The Defaulting Party shall be liable for all costs and expenses (calculated on an attorney and own client scale) incurred as a result of or in connection with the default. 12.3 Without limiting the generality of this clause 12 , if at any time it is or becomes unlawful for the Company to perform or comply with any or all of its obligations under this Agreement or any of its obligations under this Agreement are not or cease to be legal, valid, binding and enforceable, the Company shall be entitled, without prejudice to any other rights or remedies which it may have under this Agreement or otherwise, by written notice to the Subscriber, to claim immediate payment of the balance of the Subscription Price and all Interest accrued in terms thereof regardless of whether or not such amounts are then otherwise due and payable. 12.4 Should the Company terminate this Agreement in the circumstances contemplated in this clause 12 , the Company shall have the right, without prejudice to any other rights available to it, exercisable by written notice given to the Subscriber to purchase from the Subscriber all of the Subscription Shares at a value determined by the Auditors less any amounts owed by the Subscriber to the Company in terms of clause 5.1 . 13

ARBITRATION 13.1 Any dispute arising out of this Agreement or the interpretation thereof, both while in force and after its termination, shall be submitted to and determined by arbitration in accordance with the provisions of the First Schedule to the Arbitration Act, 6 of 1996, (for the purpose of this clause 13 , ("the Act"). Such arbitration shall be held in Harare unless otherwise agreed and shall be held in a summary manner with a view to it being completed as soon as possible. 13.2 There shall be one arbitrator, who shall be, if the question in issue is: 9

13.2.1 primarily an accounting matter, an independent chartered accountant of not less than 10 (ten) years' standing; 13.2.2 primarily a legal matter, a practising Senior Counsel or commercial attorney of not less than 10 (ten) years' standing; and 13.2.3 any other matter, a suitably qualified independent person. 13.3 The appointment of the arbitrator shall be agreed upon between the Parties, but failing agreement between them within a period of 14 (fourteen) days after the arbitration has been demanded by a Party by notice in writing to the others, a Party shall be entitled to request the Commercial Arbitration Centre in Harare to make the appointment. 13.4 The arbitrator shall have the powers conferred upon an arbitrator under the Act. 13.5 A Party shall have the right to appeal against the decision of the arbitrator in accordance with the Act. The decision resulting from such appeal shall be final and binding on the Parties, and may be made an order of any court of competent jurisdiction. The Parties hereby submit to the jurisdiction of the High Court of Zimbabwe sitting at Harare should a Party wish to make the arbitrator's decision an order of Court. 13.6 The fact that any dispute has been referred to or is the subject of arbitration in terms of this clause 13 , as well as any information submitted or furnished to the arbitrators or in any other manner forming part of the record of any arbitration proceedings, shall be kept confidential by the parties to such arbitration proceedings, and the parties to such proceedings shall use their reasonable endeavours to procure that all their employees, agents or advisers who are involved in or who obtain knowledge of any confidential information disclosed during such proceedings, shall be made aware of, and shall undertake in writing to be bound by, and to comply with, the provisions of this clause 13 . 14 GOVERNING LAW AND JURISDICTION 14.1 The interpretation of this Agreement shall be governed by the law of the Zimbabwe in all respects. 14.2 Any Party shall be entitled to institute all or any proceedings against any the other Parties in connection with this Agreement in the High Court of Zimbabwe sitting at Harare. 10

15

INTERPRETATION 15.1 In this Agreement, unless the context requires otherwise : 15.1.1 words importing any one gender shall include the other 2 (two) genders; 15.1.2 the singular shall include the plural and vice versa ; and 15.1.3 a reference to natural persons shall include created entities (corporate or unincorporated) and vice versa . 15.2 In this Agreement, the headings have been inserted for convenience only and shall not be used for nor assist or affect its interpretation. 15.3 If anything in a definition is a substantive provision conferring rights or imposing obligations on anyone, effect shall be given to it as if it were a substantive provision in the body of this Agreement.

16

GENERAL 16.1 This Agreement contains the entire agreement between the Parties as to the subject matter hereof. 16.2 No Party shall have any claim or right of action arising from any undertaking, representation or warranty not included in this Agreement. 16.3 No failure by a Party to enforce any provision of this Agreement shall constitute a waiver of such provision or affect in any way that Party’s right to require performance of any such provision at any time in the future, nor shall the waiver of any subsequent breach nullify the effectiveness of the provision itself. 16.4 No agreement to vary, add to, or cancel this Agreement shall be of any force or effect unless reduced to writing and signed on behalf of all of the Parties to this Agreement. 16.5 No Party may cede any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties to this Agreement. 16.6 This Agreement may be signed in counterparts, in which event the originals together will constitute the entire agreement between the Parties. 11

17

COSTS

Each Party shall bear its own costs to be incurred in connection with the drafting and negotiation of this Agreement. 18

WARRANTY

The Company and CHZ warrant that the shareholder of the Company does not at the Signature Date have any liability for the unlawful conduct of the business and affairs of the Company.

SIGNED at Bulawayo

on 16 May For:

2012

BLANKET EMPLOYEE TRUST SERVICES (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Authority:

SIGNED at Bulawayo

on 16 May For:

2012

BLANKET MINE (1983) (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Authority:

SIGNED at Bulawayo

on 16 May For:

2012

CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED _________________________________ Signatory: Capacity: Authority: 12

SUBSCRIPTION AGREEMENT between GWANDA COMMUNITY SHARE OWNERSHIP TRUST ( a trust registered in Zimbabwe under registration number [●] ) ("the Subscriber") and BLANKET MINE (1983) (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 172/69) ("the Company" ) and CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED (a company incorporated in Zimbabwe under registration number 5/45) ("CHZ" )

CONTENTS No

Clause

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

DEFINITIONS BACKGROUND CONDITIONS PRECEDENT SUBSCRIPTION DONATION FUNDING DIRECTORS CONFIDENTIALITY SUPPORT DOMICILIUM CITANDI ET EXECUTANDI BREACH AND TERMINATION ARBITRATION GOVERNING LAW AND JURISDICTION INTERPRETATION GENERAL COSTS

Page No

1 2 3 4 4 4 5 6 6 7 8 9 10 10 10 11

1 DEFINITIONS In this Agreement, unless the context indicates otherwise, the words and expressions set out below shall have the meaning assigned to them and cognate expressions shall have a corresponding meaning, namely: 1.1

Agreement

means this subscription agreement;

1.2

Auditors

1.3

BETS

1.4

Business Day

means the Company’s auditors as at the Signature Date or failing that, at the election of the board of directors of the Company, Deloitte, KPMG or Ernst & Young; means Blanket Employee Trust Services (Private) Limited, a company registered in Zimbabwe under registration number [●], and which is a wholly owned subsidiary company of the Blanket Employee Trust ;; means any day that is not a Saturday, Sunday or public holiday in Zimbabwe;

1.5

Closing Date

1.6

Directors

1.7

Indigenisation

1.8

Indigenisation Act

1.9

MOU

means the 5 th (fifth) Business Day after the fulfilment of the suspensive conditions in clause 3 ; means the directors of the Company from time to time appointed in accordance with clause 7 ; means the process and objectives contemplated in the Indigenisation Act and the Regulations; means the Indigenisation and Economic Empowerment Act [ Chapter 14.33 ]; means the memorandum of understanding concluded by Caledonia Mining Corporation, CHZ, the Company, and the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe on 20 February 2012; 1

1.10

Parties

1.11

Regulations

1.12

NIEEF

1.13

Signature Date

1.14

Subscriber's Bank Account

1.15

Subscription Shares

1.16

Zimco

means CHZ, the Company, and the Subscriber and "Party" means any one of them, as the context may indicate; means the Indigenisation and Economic Empowerment (General) Regulations, 2010; means the National Indigenisation Economic Empowerment Fund established in terms of section 12 of the Indigenisation Act; means the date of signature of this Agreement by the Party last in time to do so; means the bank account nominated by the Subscriber for the payment of the amount referred to in clause 5 , the details of which are as follows: Bank: [•] Branch: [•] Branch Code: [•] Account Number: [•]; means 4,280,000 (four million two hundred and eighty thousand) B” class shares representing 10% (ten percent) of the issued share capital of the Company, which shall confer the right to receive the dividend described in clause 4.3 below; and means Zimco (Private) Limited, a company to be incorporated in Zimbabwe.

2 BACKGROUND 2.1 CHZ and the Company have agreed to the Indigenisation of the Company in accordance with the provisions of the MOU. 2.2 In terms of the MOU, the Company is required to issue the Subscription Shares to the Subscriber. 2

2.3 The Parties wish to record the terms on which the Subscriber will subscribe for the Subscription Shares. 3 CONDITIONS PRECEDENT 3.1 The implementation of this Agreement is, save for the provisions of clauses 1 , 3.2 and 7 to 16 , inclusive, which will be of immediate force and effect, subject to: 3.1.1 the following agreements being concluded and becoming unconditional according to their terms, save for the condition that this Agreement is concluded and becomes unconditional: 3.1.1.1 an agreement between the Company and BETS in terms of which BETS will subscribe for 4,280,000 (four million two hundred and eighty thousand) "A" class shares representing 10% (ten percent) of the issued share capital of the Company; 3.1.1.2 an agreement between the Company and Zimco in terms of which Zimco will subscribe for 6,420,000 (six million four hundred and twenty thousand) “A” class shares representing 15% (fifteen percent) of the issued share capital of the Company; and 3.1.1.3 an agreement between the Company and NIEEF in terms of which NIEEF will subscribe for 6,848,000 (six million eight hundred and forty eight thousand) "A" class shares representing 16% (sixteen percent) of the issued share capital of the Company; 3.1.2 receipt by CHZ and the Company of written confirmation from the Ministry of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe that the implementation of this Agreement and the agreements in clause 3.1.1 constitutes compliance by CHZ and the Company with the requirements of the Indigenisation Act and the Regulations; 3.1.3 receipt by CHZ and the Company of the approvals, to the extent certified in writing by the Auditors to be required by law, by the Reserve Bank of Zimbabwe of the transactions contemplated in the MOU and any related transactions and/or corporate re-organisation required to give effect to the Indigenisation by CHZ of the Company; and 3

3.1.4 receipt by CHZ and the Company of written confirmation of the unconditional withdrawal by the Zimbabwe Ministry of Mines and Mining Development to the Company of the letter sent by it to the Company dated 13 December 2011 requiring the Company to reach agreement with the Zimbabwean Mining Development Corporation regarding the Indigenisation of the Company. 3.2 The Parties shall use all commercially reasonable endeavours to procure the fulfilment of the conditions precedent stipulated in clause 3.1 . 3.3 The conditions in clause 3.1 above are stipulated for the benefit of CHZ and CHZ may waive any one or all of those conditions by way of written notice to the Subscriber. 3.4 In the event of the conditions stipulated in clause 3.1 not being fulfilled on or before 30 September 2012, or on or before such later date as CHZ and the Company agree upon in writing, this Agreement shall lapse and shall be of no further force or effect and no Party shall have any claim against the other Parties arising from the provisions of this Agreement or the termination thereof. 4 SUBSCRIPTION 4.1 The Subscriber hereby subscribes for the Subscription Shares. 4.2 The Company hereby accepts the subscription for the Subscription Shares as set out in clause 4.1 , and undertakes to allot and issue the Subscription Shares to the Subscriber on the Closing Date at a nominal value of US$ 1 (one US Dollar). 4.3 The Subscription Shares shall confer on the Subscriber the right to receive a dividend in the amount of US$1,000,000 (one million US Dollars), which shall be payable by the Company to the Subscriber within 12 (twelve) months of the Closing Date. 5 DONATION The Company hereby donates, and undertakes on the Closing Date to pay to the Subscriber, an amount of US$1,000,000 (one million US Dollars) in cash, by way of electronic transfer by the Company to the Subscriber's Bank Account. 6 FUNDING 6.1 If the Directors should at any time resolve to call on the shareholders of the Company to advance capital to the Company, either by way of share capital or loans, the Subscriber shall advance such capital pro rata to its shareholding in the Company at the date on which the Directors determine that the capital is required. 4

6.1.1 If the Subscriber is unable or unwilling to provide the capital required in terms of clause 6.1 , then it shall notify the Company in writing to that effect within 30 (thirty) days of the date on which it is advised in writing (“the Finance Date”) by the Company that capital is required from it. 6.1.2 If the Company should receive a notice contemplated in clause 6.1.1 , or if the Subscriber should fail to give a notice as contemplated in clause 6.1.1 and should fail to comply with its obligation to advance capital to the Company in terms of this clause 6.1 within 90 (ninety) days from the Finance Date, and if CHZ is prepared to provide the amount of the finance which the Subscriber was required to advance to the Company, then CHZ shall notify the Company in writing to that effect within 10 (ten) Business Days of receipt of the notice referred to in clause 6.1.1 , or of failure by the Subscriber to advance capital as required in terms of this clause 6.1 . 6.2 If the Subscriber is called upon to advance an amount to the Company in terms of clause 6.1 above, and if the Subscriber has declined or, as the case may be, failed to comply with such request in accordance with the provisions of clauses 6.1.1 and 6.1.2 , then, if it shall have exercised the right to advance to the Company the amount which the Subscriber has declined to advance, CHZ shall have the right, to call upon the Subscriber to sell CHZ such number of shares at par as shall, after transfer thereof into the name of CHZ, result in CHZ such percentage of the issued voting capital of the Company as shall be equal to the percentage which the aggregate of loan capital and share capital contributed by CHZ to the Company constitutes of the total capital contributed by all shareholders by way of share capital and loan capital. 7 DIRECTORS 7.1 The board of Directors shall be comprised of a maximum of 8 (eight) Directors. 7.2 The Parties agree that: 7.2.1 the Subscriber shall be entitled to appoint 1 (one) Director who shall be acceptable to the majority of the Board of Directors of the Company whose acceptance shall not be unreasonably withheld;; and 5

7.2.2 CHZ shall be entitled to appoint 4 (four) Directors. 7.3 The Subscriber and CHZ shall have the right, from time to time, by notice in writing to the Company, to remove a Director nominated by it in terms of clause 7.1 as a Director and to nominate, in accordance with clause 7.2 another person in the place of the Director so removed. 8 CONFIDENTIALITY 8.1 All communications between the Parties and all information and other materials supplied to or received by a Party from any of the other Parties which relates in any way to this Agreement and to the Company shall be kept confidential by the Parties unless or until the relevant Party can reasonably demonstrate that: 8.1.1 any such communication, information or material is, or part of it is, in the public domain through no fault of its own; or 8.1.2 any such communication, information or material has been lawfully obtained from any third party; or 8.1.3 the information is already lawfully known to the relevant Party at the time that Party receives such information; or 8.1.4 the relevant Party is obliged by law to disclose such information, whereupon this obligation in respect of that information shall cease. 8.2 The Parties shall use their best endeavours to procure the observance of these restrictions and shall take all reasonable steps to minimise the risk of disclosure of confidential information by ensuring that only they themselves and such of their employees, agents or consultants whose duties will require them to possess any of such information shall have access to such information, and will be instructed to treat the same as confidential. 8.3 The obligation contained in this clause 8 shall endure, even after the termination of this Agreement, without limit in point of time, except and until such confidential information falls within any of the provisions of clauses 8.1.1 to 8.1.4 , and shall be subject to the Company's confidentiality regime at the Signature Date. 9 SUPPORT The Parties undertake at all times to do all such things, perform all such actions and take such steps (including in particular the exercise of their voting rights in the Company) and to procure the doing of all such things, the performance of all such actions and taking of all such steps as may be open to them and necessary for or incidental to the putting into effect the provisions of this Agreement.

6

10

DOMICILIUM CITANDI ET EXECUTANDI 10.1 Each Party chooses the address set out opposite its name below as its domicilium citandi et executandi at which all notices, legal processes and other communications must be delivered for the purposes of this Agreement: 10.1.1 the Subscriber

[•] Fax: [•] Email: [•] [For attention: [•] ]

10.1.2 the Company

6 th Floor Red Bridge NE Eastgate 3 rd Street and R. Mugabe Road Harare Zimbabwe Fax: 263 284 23193 Email: [email protected] [ For attention: Mr. Caxton Mangezi]

10.1.3 CHZ

6 th Floor Red Bridge NE Eastgate 3 rd Street and R Mugabe Road Harare Zimbabwe Fax: +27 11 447 2554 Email: [email protected] [For attention: Mr. Steve Curtis]

10.2 Any notice or communication required or permitted to be given in terms of this Agreement shall be valid and effective only if in writing, and delivered by hand or sent or transmitted by registered post, telefax or by email. 10.3 Each Party may by written notice to the other Parties change its chosen address and/or its chosen telefax number and/or its email address to another physical address, telefax number or email, provided that the change shall become effective on the fourteenth day after the receipt of the notice by the addressee. 7

10.4 Any notice to a Party: 10.4.1 sent by prepaid registered post to it at its chosen address; 10.4.2 delivered by hand to a responsible person during ordinary business hours at its chosen address; 10.4.3 transmitted during ordinary office hours by facsimile to its chosen telefax number; or 10.4.4 transmitted during ordinary office hours by email to its chosen email address, unless the contrary is proved, shall be deemed to have been received, in the case of clause 10.4.1 , on the 7 10.4.4 , on the day of delivery or transmission as the case may be.

th

(seventh) Business Day after posting and, in the case of clauses 10.4.2 , 10.4.3 and

11 BREACH AND TERMINATION 11.1 Should a Party (“the Defaulting Party”) commit a breach of any provision of this Agreement and fail to remedy such breach within 14 (fourteen) days from the date of written notice from any other Party to this Agreement (“the Aggrieved Party”) calling upon it to do so, the Aggrieved Party shall have the right, without prejudice to any other rights available in law, either: 11.1.1 if the breach complained of can be fully remedied by the payment of money, to take whatever action may be necessary to obtain payment of the amounts required by the Aggrieved Party to remedy such breach; or 11.1.2 if the breach complained of cannot be fully remedied by the payment of money, or, alternatively, if it can be so remedied and payment of any amounts claimed by the Aggrieved Party in terms of clause 11.1.1 is not made to the Aggrieved Party within 7 (seven) days of the date of determination through arbitration or legal process of the amount legally payable, to take whatever action may be necessary to enforce its rights under this Agreement or to terminate this Agreement, and in either event to claim such damages as it may have suffered as a result of such breach of contract. 8

11.2 The Defaulting Party shall be liable for all costs and expenses (calculated on an attorney and own client scale) incurred as a result of or in connection with the default. 11.3 Should the Subscriber institute and/or cause to be instituted, any legal action of any nature whatsoever against the Company, the Company shall have the right, exercisable by written notice given to the Subscriber at any time after the institution of any such legal action, to terminate this Agreement and purchase from the Subscriber all of the Subscription Shares at a value determined by the Auditors. 12

ARBITRATION 12.1 Any dispute arising out of this Agreement or the interpretation thereof, both while in force and after its termination, shall be submitted to and determined by arbitration in accordance with the provisions of the First Schedule to the Arbitration Act, 6 of 1996, (for the purpose of this clause 12 , ("the Act"). Such arbitration shall be held in Harare unless otherwise agreed and shall be held in a summary manner with a view to it being completed as soon as possible. 12.2 There shall be one arbitrator, who shall be, if the question in issue is: 12.2.1 primarily an accounting matter, an independent chartered accountant of not less than 10 (ten) years' standing; 12.2.2 primarily a legal matter, a practising Senior Counsel or commercial attorney of not less than 10 (ten) years' standing; and 12.2.3 any other matter, a suitably qualified independent person. 12.3 The appointment of the arbitrator shall be agreed upon between the Parties, but failing agreement between them within a period of 14 (fourteen) days after the arbitration has been demanded by a Party by notice in writing to the others, a Party shall be entitled to request the High Court of Zimbabwe to make the appointment. 12.4 The arbitrator shall have the powers conferred upon an arbitrator under the Act. 12.5 A Party shall have the right to appeal against the decision of the arbitrator in accordance with the Act. The decision resulting from such appeal shall be final and binding on the Parties, and may be made an order of any court of competent jurisdiction. The Parties hereby submit to the jurisdiction of the High Court of Zimbabwe sitting at Harare should a Party wish to make the arbitrator's decision an order of Court. 9

12.6 The fact that any dispute has been referred to or is the subject of arbitration in terms of this clause 12 , as well as any information submitted or furnished to the arbitrators or in any other manner forming part of the record of any arbitration proceedings, shall be kept confidential by the parties to such arbitration proceedings, and the parties to such proceedings shall use their reasonable endeavours to procure that all their employees, agents or advisers who are involved in or who obtain knowledge of any confidential information disclosed during such proceedings, shall be made aware of, and shall undertake in writing to be bound by, and to comply with, the provisions of this clause 12 . 13 GOVERNING LAW AND JURISDICTION 13.1 The interpretation of this Agreement shall be governed by the law of the Zimbabwe in all respects. 13.2 Any Party shall be entitled to institute all or any proceedings against any the other Parties in connection with this Agreement in the High Court of Zimbabwe sitting at Harare. 14 INTERPRETATION 14.1 In this Agreement, unless the context requires otherwise: 14.1.1 words importing any one gender shall include the other 2 (two) genders; 14.1.2 the singular shall include the plural and vice versa ; and 14.1.3 a reference to natural persons shall include created entities (corporate or unincorporated) and vice versa . 14.2 In this Agreement, the headings have been inserted for convenience only and shall not be used for nor assist or affect its interpretation. 14.3 If anything in a definition is a substantive provision conferring rights or imposing obligations on anyone, effect shall be given to it as if it were a substantive provision in the body of this Agreement. 15

GENERAL 15.1 This Agreement contains the entire agreement between the Parties as to the subject matter hereof. 15.2 No Party shall have any claim or right of action arising from any undertaking, representation or warranty not included in this Agreement. 15.3 No failure by a Party to enforce any provision of this Agreement shall constitute a waiver of such provision or affect in any way that Party’s right to require performance of any such provision at any time in the future, nor shall the waiver of any subsequent breach nullify the effectiveness of the provision itself. 15.4 No agreement to vary, add to, or cancel this Agreement shall be of any force or effect unless reduced to writing and signed on behalf of all of the Parties to this Agreement. 15.5 No Party may cede any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties to this Agreement. 15.6 This Agreement may be signed in counterparts, in which event the originals together will constitute the entire agreement between the Parties.

16 COSTS Each Party shall bear its own costs to be incurred in connection with the drafting and negotiation of this Agreement.

10

SIGNED at

on For:

2012 GWANDA COMMUNITY SHARE OWNERSHIP TRUST

_________________________________ Signatory: Capacity: Authority: SIGNED at

on For:

2012 BLANKET MINE (1983) (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Authority:

SIGNED at

on For:

2012 CALEDONIA HOLDINGS ZIMBABWE (PRIVATE) LIMITED

_________________________________ Signatory: Capacity: Authority: 11