UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.20549
 
 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, 2014
 
 OR
 
 [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 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 ...................................................
 
 For the transition period from .................................... to ....................................
 
 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 Proprietary Limited
 24 Ninth Street, Lower Houghton, Johannesburg, Gauteng 2198, South Africa
 (Address of principal executive offices)
 
 Steven Curtis, +27 11 447 2499, scurtis@caledoniamining.com, 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
   2
  Item 17 [   ]   Item 18 [   ]
 
 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 [   ] Yes  [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
9ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
9ITEM 3 - KEY INFORMATION
9A.Selected Financial Data
9B.Capitalization and Indebtedness
10C.Reasons for the Offer and Use of Proceeds
10D.Risk Factors
11ITEM 4 - INFORMATION ON THE COMPANY
17A.History and Development of the Company
17B.Business Overview
19C.Organizational Structure
32D.Property, Plant and Equipment
32ITEM 4A - UNRESOLVED STAFF COMMENTS
32ITEM 5- OPERATING AND FINANCIAL REVIEW AND PROSPECTS
32A.Operational Results
32B.Trend Information
38C.Off-Balance Sheet Arrangements
39D.Tabular Disclosure of Contractual Obligations
39ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
39A.Directors and Senior Management
39B.Compensation
42C.Board Practices
44D.Employees
44E.Share Ownership
45ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
47A.Major Shareholders
47B.Related Party Transactions
47C.Interests of Experts and Counsel
48ITEM 8 - FINANCIAL INFORMATION
48A.Consolidated Statements and Other Financial Information
48B.Significant Changes
49ITEM 9 - THE OFFERING AND LISTING
49A.Offering and Listing Details
49ITEM 10 - ADDITIONAL INFORMATION
50A.Share Capital
50B.Memorandum and Articles of Association
50C.Material Contracts
52D.Exchange Controls
52E.Taxation
52F.Dividends and Paying Agents
57G.Statement by Experts
57H.Documents on Display
57I.Subsidiary Information
58ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
58A.Currency Risk
58B.Interest Rate Risk
58C.Concentration of Credit Risk
59D.Liquidity Risk
59E.Commodity Price Risk
59
   4
  ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
59ITEM 13 - DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES
60ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
60ITEM 15 - CONTROLS AND PROCEDURES
60ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT
61ITEM 16B - CODE OF ETHICS
61ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES
61ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
61ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
62ITEM 16F - CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
62ITEM 16G - CORPORATE GOVERNANCE
62ITEM 16H - MINE SAFETY DISCLOSURE
62ITEM 17 - FINANCIAL STATEMENTS
62Responded to in Item 18.
62ITEM 18 - FINANCIAL STATEMENTS
62ITEM 19 – EXHIBITS
63
   5
 
 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 on management’s assessment of internal controls over financial reporting 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.
  NON-IFRS FINANCIAL INFORMATION
  This Annual Report contains financial statements of the Company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.  In addition, this Annual Report also contains non-IFRS financial measures (“Non-IFRS Measures”) including “on-mine cash cost per ounce”, “all-in sustaining cost per ounce”, “all-in cost per ounce”, “average realized gold price” and “adjusted earnings per share” as we believe these are useful metrics for measuring our performance. However, these Non-IFRS Measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS.
   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.
   7
  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.
 
 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.
 
 All references in this Annual Report to the terms “we”, “our”, “us”, “the Company” and “Caledonia” refer to Caledonia Mining Corporation.
   8
  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, 2013 and 2014 pursuant to IFRS.
 
 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 ended March 27, 2015.
 
 
 Table 3A - Selected Financial Information prepared for 2014, 2013, 2012, 2011 and 2010 pursuant to IFRS - the figures presented being for the year ended or as of the end of each such year as applicable in the circumstances.
 
 Financial – All in C$ 000’s unless otherwise indicated
2014
2013
2012
2011
2010Revenue
59,082
65,113
75,221
55,705
22,388Gross Profit
20,473
29, 881
40,915
29,115
6,360Expense - (General and administration,  interest and foreign exchange including  provisions and impairments)
(7,304)
(20,474)
(20,658)
(8,359)
(3,866)Net Income /(Loss) – after income taxes from operations
6,565
(490)
7,358
12,130
1,455Net Income /(Loss) – after income taxes from continuing operations
6,565
(490)
7,358
12,130
1,455Cash and cash equivalent
26,838
25,222
27,942
9,686
1,145Current Assets
36,908
36,154
35,294
18,159
6,176Total Assets
77,296
69,602
71,827
52,402
38,159Current Liabilities
5,781
7,534
9,280
4,566
4,629Long Term Liabilities
12,980
10,094
6,928
7,822
7,050Working Capital
31,127
28,620
26,014
13,588
1,547Net Assets
58,535
51,974
55,619
40,014
26,480Total Capital Expenditures including Mineral Properties
6,786
11,738
7,909
8,528
7,304Financing Raised(repaid)
(1,796)
2,266
544
(279)
159
 
 
 9
 
 Share Information
 2014
2013
2012
2011
2010Market Capitalization (USD Thousands) at December 31
31,791
39,088
46,301
55,060
80,021Shares Outstanding (Thousands)(1)
52,117
52,117
51,446
50,549
50,169Options  Outstanding (Thousands)(1)
2,565
2,848
3,330
4,254
3,258Basic and diluted net income (loss) per share for continuing operations
$ 0,093
$ (0,061)
$0.172
$0.24
$0.03Basic and diluted net income (loss) per share for the year
$ 0,093
$ (0,061)
$0.172
$0.24
$0.03
 
 (1)
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 -2010 to 2014
 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 March 27, 2015, the exchange rate in effect for Canadian dollars exchanged for US dollars, expressed in terms of Canadian dollars was $0.8019. 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
2014
2013
2012
2011
2010Rate at 31 December (1)
0.0862
1.0696
0.9935
0.9767
0.9999Average Rate (2)
0.9054
1.0300
0.9998
0.9892
1.03High Rate (1)
0.8589
1.0707
1.0414
1.0468
1.0766Low Rate (1)
1.0164
0.9836
0.9676
0.9748
0.9966
 
 Notes:
 (1)
The rate of exchange is the Bank of Canada closing rate for the period 1 C$ to US$.
 
 (2)
The average rate means the average of the exchange rates during the year.
 
 The high and low rates of exchange for each of the months from December 2014 to March 27, 2015 are as follows:
 
 Sept 2014
Oct 2014
Nov 2014
Dec 2014
Jan 2015
Feb 2015
March 2015Closing
0.8929
0.8872
0.8741
0.8620
0.7867
0.7998
0.8019Average
0.9826
0.8917
0.8827
0.8672
0.8260
0.7800
0.7934Hi
0.9826
0.8885
0.8741
0.8650
0.8226
0.7960
0.7901Low
0.9109
0.8948
0.8799
0.8694
0.8294
0.8035
0.7969
 
 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, labour 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 favour 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;
 -           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;
 
 
 
 11
 
 -           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; and
  
 Such risks could potentially arise in any country in which Caledonia operates.
 
 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. Effective January 1, 2014, there was a change in the regulations which means that the royalty payable to the Zimbabwe government was no longer allowable as a deduction for the purposes of calculating income tax.  With effect from October 1, 2014 the royalty rate was reduced to 5%.  Changes to Zimbabwean legislation in January 2014 required all Zimbabwean gold producers to sell their production to Fidelity Printers and Refiners Limited (“Fidelity”) for a sale value which represents 98.5% of the value of the gold contained.  Prior to this change, Blanket sold its gold to a non-Zimbabwean refiner and received 100% of the value of the gold contained.  Effective February 2015 the realised gold price in 2014 represents 98.5% of the value of the gold that is received by Blanket in terms of its sale agreement to Fidelity. With effect from February 3, 2015, Blanket receives 98.75% of the value of the gold it delivers to Fidelity.
 
 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 profit tax of 15% for net profit 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% during 2014 and we make the observation that at low cobalt prices, the royalty can give rise to a very significant tax burden on the project.
   12
  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.
 
 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, 2012 and 2014.  As at December 31, 2014, the consolidated accumulated deficit was $159,459,000.  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 and its surrounding properties.  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 consolidated financial statements. The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of Caledonia and may also affect the 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 the Zimbabwe government 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 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.
 
   14
 
 Indigenization
 The government of Zimbabwe has introduced legislation (typically referred to as indigenisation) requiring companies to facilitate 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 indigenous shareholders legally own 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 2015, 2016 and 2017, 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 functions. Mr. S.E. Hayden resigned as President and Chief Executive Officer on November 18, 2014 and resigned as a Director on 6 December, 2014. Mr. S.R. Curtis was appointed as a suitable candidate with the necessary experience and skills to act in his new role as President and Chief Executive Officer to replace Mr. S.E Hayden.
 
 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.
   15
  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.
 
 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.
 
 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.
 
  16
  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 16th 1998, Caledonia announced that NASDAQ would no longer quote Caledonia’s securities for trading.  Caledonia’s common stock then commenced trading on NASDAQ’s OTC Bulletin Board system.  In June 2005 Caledonia was admitted to the London Stock Exchange’s AIM market under the ticker symbol “CMCL”.  Its Toronto Stock Exchange trading symbol is “CAL”.  Effective October 10, 2011 the shares commenced trading in the U.S. on the OTCQX under the ticker symbol CALVF.
 
 The addresses and telephone numbers of Caledonia’s principal offices are:
  African Office - South Africa
Representational Offices - CanadaGreenstone Management Services Proprietary Limited
Suite 4009, 1 King Street West24, 9th Street, Lower Houghton
Toronto, Ontario, CanadaJohannesburg, Gauteng, 2198
M5H 1A1South Africa
(1)(416) 369-9835(27) 11 447 2499
  
 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 Limited 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 Proprietary Limited.
 
 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.
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  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.
 
 Total gold production at Blanket Mine in: (i) 2014, was 41,771 ounces (ii) 2013, was 45,530 ounces; (iii) 2012, was 45,464 ounces.  The aggregate production at Blanket Mine from January 1, 2015 to February 28, 2015 was 6,796 ounces.
 
 Indigenization of Blanket Mine (1983) (Private) 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 (1983) (Private) 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 Mine (1983) (Private) 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.
 
 Employees
 
 As of December 31, 2014, the Company’s employees comprised of 721 permanent employees and 307 contractors. Of this number, Blanket Mine has 707 permanent employees and 303 contractors.
 
 Significant Acquisitions or Developments
 
 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.
   18
  Subsequent Events
 
 There were no material or significant events from December 31, 2014 to the date of the document.
   
 19
  B.
Business Overview
  Mining and Exploration Activities:
 
 Gold Production
 
 Blanket Mine (1983) Private Limited (“Blanket”)
 
 Blanket currently sells its gold production to Fidelity in Harare Zimbabwe and in 2014 received 98.5% of the value of the gold contained 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.  As from February 3, 2015, Blanket will receive 98.75% of the value of the gold sold to Fidelity Printers and Refiners:  all other terms of sale remain unchanged.
 
 In terms of the regulations, from January 1, 2014 to September 30, 2014 Blanket Mine paid a 7% royalty on gold sales revenue to the Zimbabwe Government on a monthly basis.  With effect from October 1, 2014, the royalty rate was reduced to 5%.  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.
 
 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
  Following the completion of the No. 4 Shaft Expansion Project in late 2010, the underground mining areas can produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. Blanket Mine now produces approximately 42,000 ounces of gold per year.  In November 2014 Blanket embarked on a Revised Investment Plan (“Revised Plan”) the objectives of which are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up.  In addition to the completion of the existing No. 6 Winze project, the infrastructure improvements will include the development of a “Tramming Loop” and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters.  The increased investment pursuant to the Revised Plan is expected to give rise to production from inferred resources of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from proven and probable mineral reserves of approximately 6,000 ounces.  The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.
 
 A preliminary economic assessment (the “PEA”) has been prepared in respect of the inferred resources which is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be classified as mineral reserves.  There is no certainty that the PEA will be realised. The PEA was published on December 2, 2015 and is available on the System for Electronic Data Analysis and Retrieval at www.sedar.com and Caledonia’s website (www.caledoniamining.com).
   20
  Metallurgical Process
  In terms of Blanket’s Revised Plan the crushing and milling circuits will be expanded to handle 3,000 tons of ore 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 Project and the Central Shaft.
 
 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.  During 2014 the Pressure Swing Absorption (“PSA”) plant which produces oxygen was re-commissioned and produces oxygen at approximately half of the cost of purchased liquid oxygen.  Oxygen from the PSA plant is now sparged in the CIL system, which has improved recovery and also reduced cyanide consumption.  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. In 2014, Blanket received 98.5% of the value of the gold sold to Fidelity.  With effect from February 3, 2015, Blanket receives 98.75% of the value of the gold delivered and sold to Fidelity.  Blanket gets paid in US dollars into its Zimbabwean bank account within 7 days of delivery.
 
   21
  Mineral Reserve Calculations
 
 A technical report entitled “A Technical Report on the Blanket Mine in the Gwanda Area, Zimbabwe” (the “Technical Report”) relating to the Blanket Mine, with an effective date of December 1, 2014, was prepared by Minxcon Proprietary Limited, (“Minxcon”), 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 December 2, 2014.
 
 Minxcon is a mining industry consulting company based in South Africa.  Minxcon reviewed the mineral reserve and mineral resource calculation procedures for the Blanket Mine as at August 31, 2014.  Minxcon’s mineral resource and mineral reserve estimates are set out in the following tables:
 
 MINERAL RESOURCES – August 31, 2014
 Mineral Resource Category
Tonnes

(metric)
Grade

(Au g/t)
Gold Content (ounces)Measured Resources
1,572,700
3.91
197,600Indicated Resources
2,478,900
3.77
300,300Total Measured and Indicated
4,051,600
3.82
497,900Inferred Resources*
3,344,800
5.11
550,000
 Notes:
 Mineral Resources are reported inclusive of Mineral Reserves**.
 Resource estimate is based on a gold price of US$1,300/oz
 Mineral Resources are stated at a 1.96 g/t cut-off.
 Tonnages and ounces are rounded to the nearest 100.
 Tonnages are stated at an in-situ relative density of 2.86 t/m3.
 Inferred Resources are expressed separately from the Measured and Indicated category.
 
 Note *    Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically or legally. It cannot be assumed that all or any part of the inferred resource will be upgraded to a higher resource or reserve category.
 
 MINERAL RESERVES – August 31, 2014
 Mineral Reserve Category
Tonnnes

(metric)
Grade

(Au g/t)
Gold Content (ounces)Proven Reserves
856,000
3.40
93,640Probable Reserves
2,077,800
3.78
252,760Total Proven & Probable Reserves
2,933,800
3.67
346,400
 Notes:
 Mineral Resources are reported inclusive of Mineral Reserves**.
 Reserve estimate is based on a gold price of US$1,250/oz and a cash cost of US$71/tonnes milled.
 Blanket pay limit is 2.03 g/t.
 Reserve tonnages have been diluted by 7.5% at zero grade to yield RoM tonnages (delivered to mill).
 Tonnages and ounces are rounded to the nearest 100.
 
 Note **  Prior to the preparation of the Minxcon Technical Report, Blanket Mine reported resources exclusive of reserves. However, as the mine matured an increasing proportion of the “reserve” accumulated in pillars which are unlikely to be mined in the immediate future. In order to distinguish between the currently available reserves and pillar blocks which are not immediately available, Blanket Mine’s Technical Department has elected to report mineral resources inclusive of mineral reserves. Accordingly, these pillar tonnages are now reported under the Measured Resource category until they are scheduled in the mine plan.
 
 
 Cautionary note to U.S. Investors concerning estimates of Inferred and Indicated Resources.
 
 The above tables use the terms “inferred resources” and “indicated resources.”  While these terms are recognized and required by Canadian regulations, the US Securities and Exchange Commission does not recognize them.  They have a great amount of uncertainty as to their existence, and great uncertainty as to their economic feasibility.  It cannot be assumed that all or any part of an Inferred or Indicated Mineral Resource will ever be upgraded to a higher category.  Investors are cautioned not to assume that part or all of an inferred or indicated resource exists or is economically mineable.
   22
  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 August 31, 2014 figures, the Company has mined 131,500 tons with an average recovered gold grade of 3.16 grams per ton, the majority of which has been from within the reserve blocks to produce 13,349 ounces of gold at a recovery of 93.2%.   An updated internal estimate of Blanket’s mineral reserves and resources as at December 31, 2014 has been prepared by Blanket Mines’ Technical Department following the standards and procedures required by NI 43-101. In preparing the Mineral Resource and Mineral Reserve estimates, the following assumptions and modifying factors were applied. A cut-off grade (pay limit) of 2.03 g/t based on a gold price of US$1,250/oz, was applied. Tonnages were increased by 7.5% to allow for dilution at zero grade and the grade adjusted accordingly. A metallurgical recovery of 93% was applied, marginally less than the 3 year historical 93.3% recovered grade.  The Mineral Reserve and Mineral Resource estimates included in this report have been reviewed and approved by Dr Pearton, Caledonia’s Qualified Person and the results are presented in the following tables:
 
 MINERAL RESOURCES – December 31, 2014
 Mineral Resource Category
Tonnes

(metric)
Grade

(Au g/t)
Gold Content (ounces)Measured Resources
1,547,400
3.89
193,700Indicated Resources
2,493,400
3.75
300,250Total Measured and Indicated
4,040,800
3.80
493,950Inferred Resources*
3,344,800
5.11
550,000
 Notes:
 Mineral Resources are reported inclusive of Mineral Reserves**.
 Resource estimate is based on a gold price of US$1,300/oz
 Mineral Resources are stated at a 1.96 g/t cut-off.
 Tonnages and ounces are rounded to the nearest 100.
 Tonnages are stated at an in-situ relative density of 2.86 t/m3.
 Inferred Resources are expressed separately from the Measured and Indicated category.
 
 Note *    Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically or legally. It cannot be assumed that all or any part of the inferred resource will be upgraded to a higher resource or reserve category.
 
 MINERAL RESERVES – December 31, 2014
 Mineral Reserve Category
Tonnnes

(metric)
Grade

(Au g/t)
Gold Content (ounces)Proven Reserves
872,900
3.33
93,550Probable Reserves
2,034,000
3.60
235,650Total Proven & Probable Reserves
2,906,900
3.52
329,200
 Notes:
 Mineral Resources are reported inclusive of Mineral Reserves**.
 Reserve estimate is based on a gold price of US$1,250/oz and a cash cost of US$71/tonnes milled.
 Blanket pay limit is 2.03 g/t.
 Reserve tonnages have been diluted by 7.5% at zero grade to yield RoM tonnages (delivered to mill).
 Tonnages and ounces are rounded to the nearest 100.
 
 Relative to the independent estimate of mineral resources and mineral reserves as at August 31, 2014, the Reserves have decreased by 0.9% in terms of tonnage.  Resources expressed in terms of tonnage have declined by 0.3% over the same period.
 
 While Blanket Mine has generally recorded 100% conversion of resources to reserves (past 10 years), this high rate of conversion cannot be assumed to occur in future. Blanket Mine is situated in a country which is widely considered to be politically unstable, and this may impact on the reserve life of the mine which at present is estimated at between 7 and 8 years based on the current mine plan. However, Blanket Mine is fully indigenized and compliant with all legislation within Zimbabwe and as such is expected to be able to operate within normal business parameters for the foreseeable future.
   23
  Dr. Trevor Pearton, B.Sc. Eng. (Mining Geology), Ph.D. (Geology), Pr.Sci.Nat., F.G.S.S.A., VP Exploration is the Company’s Qualified Person as defined by NI 43-101.  Dr. Pearton has reviewed the scientific and technical information included in this document and has approved the disclosure of this information for the purposes of the Form 20-F to be filed with the SEC.
 
 MINE UNDER CARE AND MAINTENANCE
 
 Eersteling Gold Mining Company Limited
 
 This mine remains under care and maintenance. Interested parties continue to investigate the merits of purchasing the mine and the Company continues to seek a suitable purchaser.
  MARKETING
  From 2009 until December 2014, 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 its entire gold production to Fidelity 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
  Following completion of the No. 4 Shaft Expansion Project in late 2010, the underground mining areas can produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. The Revised Plan provides for proposed investment of approximately US$50 million between 2015 and 2017 and a further US$20 million in the period 2018 to 2020.  The increased investment pursuant to the Revised Plan is expected to give rise to an increasing production profile that is expected to result in additional production from resources currently in the inferred category of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from current mineral reserves of approximately 6,000 ounces.  The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.
  A PEA has been prepared in respect of the inferred resources which is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be classified as mineral reserves.  There is no certainty that the PEA will be realized.  The PEA was published on December 2 2015 and is available on the System for Electronic Data Analysis and Retrieval at www.sedar.com and Caledonia’s website (www.caledoniamining.com).
  OPERATIONAL REVIEW AND RESULTS OF OPERATIONS
  Safety, Health and Environment (“SHE”)
  The following safety statistics have been recorded for the quarter and the preceding six quarters.
 
 Blanket Mine Safety StatisticsIncident Classification
Q2

2013
Q3

2013
Q4

2013
Q1

2014
Q2

2014
Q3

2014
Q4

2014Fatal
0
1
0
0
0
0
0Lost time injury
1
7
2
1
2
2
1Restricted work activity
7
5
9
6
4
12
9First aid
2
2
0
2
2
4
0Medical aid
3
2
3
3
2
2
1Occupational illness
0
0
0
0
0
0
0Total
13
17
14
12
10
20
11Incidents
12
11
17
10
6
4
19Near misses
4
7
3
2
2
4
1Disability Injury Frequency Rate (i)
0.25
1.75
0.46
0.24
0.49
0.49
0.24Total Injury Frequency Rate (ii)
3.25
4.00
3.20
2.86
2.46
4.94
4.32Man-hours worked (thousands)
801
800
865
840
812
810
833(i)  A measurement of total injuries, deaths and permanent disability occurring per 200,000 man-hours worked.

(ii) A measurement of all accidents that have occurred regardless of injury or not expressed per 200,000 man-hours worked.  This includes accidents that could have caused injuries.
 
  24
  The number of injuries incurred in Q4 was 45% lower than in the preceding quarter and reflects the intensive focus on the area of safety and health by Blanket management in recent quarters.  Management continues to be concerned at the relatively high proportion of reportable injuries compared to total incidents and the relatively low number of reported Near Misses, which may be symptomatic of a failure by workers to report minor incidents which did not result in an injury.  It is only by full and transparent reporting of all incidents, no matter how minor, that management can identify areas where systems and procedures should be improved or where adherence to approved procedures needs to be reinforced.  NOSA, an occupational health and safety specialist, continues to be involved in training staff on SHE auditing.
  During the Quarter, in addition to the usual training courses, 154 personnel received induction training and 238 employees were trained on incident investigation and the implementation of the SHE management systems.
  There were no significant adverse environmental issues during 2014.
 Social Investment and Contribution to the Zimbabwean Economy
 
 Blanket’s investment in community and social projects which are not directly related to the operation of the mine or the welfare of Blanket’s employees, the payments made to the Gwanda Community Share Ownership Trust (“GCSOT”) in terms of Blanket’s indigenisation, and payments of royalties, taxation and other non-taxation charges to the Government of Zimbabwe and its agencies are set out in the table below.
 
 Payments to the Community and the Zimbabwe Government

(US$’000’s)Period
Year
Community and Social Investment
Payments to GCSOT
Payments to Zimbabwe Government
TotalYear 2011
2011
306
-
13,614
13,920Quarter 1
2012
147
-
3,353
3,500Quarter 2
2012
38
1,000
5,042
6,080Quarter 3
2012
108
2,000
6,366
8,474Quarter 4
2012
123
-
5,808
5,931Year 2012
2012
416
3,000
20,569
23,985Quarter 1
2013
5
1,000
4,584
5,589Quarter 2
2013
2,135
1,000
3,555
6,690Quarter 3
2013
7
-
3,646
3,653Quarter 4
2013
-
-
3,569
3,569Year 2013
2013
2,147
2,000
15,354
19,501Quarter 1
2014
-
-
3,026
3,026Quarter 2
2014
5
-
3,617
3,622Quarter 3
2014
-
-
3,090
3,090Quarter 4
2014
30
-
2,586
2,616Year 2014
2014
35
-
12,319
12,354
 
 The final installment of the advance dividend payments that were payable to GCSOT in terms of Blanket’s indigenisation transaction was made in the second quarter of 2013.  No further dividends will be payable to GCSOT until the advance dividends have been repaid by the offset of future dividends on Blanket shares that are owned by GCSOT.  From January 1, 2014, Blanket has sold its gold production to Fidelity, a subsidiary of the Reserve Bank of Zimbabwe.  Blanket was paid 98.5% of the value of the gold it delivers to Fidelity, the balance of 1.5% is retained by Fidelity and is included in the payments shown above.  With effect from February 3, 2015 Blanket is expected to receive 98.75% of the value of the gold it delivers to Fidelity.
 
 25
 
 Gold Production
 
 Tonnes milled, average grades, recoveries and gold produced and the average realised price per ounce during the Quarter, the preceding 7 quarters and January and February 2015 are shown in the table below.
  Blanket Mine Production StatisticsYear
Tons Milled

(t)
Gold Head (Feed) Grade (g/t Au)
Gold Recovery

(%)
Gold Produced

(oz)
Average Realised Price per Ounce of Gold Sold

(US$/oz)Quarter 1
2012
83,353
3.67
93.2
9,164
1,689Quarter 2
2012
90,315
4.24
93.9
11,560
1,597Quarter 3
2012
93,049
4.59
94.1
12,918
1,673Quarter 4
2012
96,598
4.08
93.3
11,821
1,711Year
2012
363,315
4.16
93.7
45,464
1,666Quarter 1
2013
86,502
4.04
93.3
10,470
1,600Quarter 2
2013
101,174
3.82
93.2
11,588
1,373Quarter 3
2013
99,386
4.03
93.6
12,043
1,330Quarter 4
2013
105,258
3.63
93.1
11,429
1,277Year
2013
392,320
3.88
93.3
45,530
1,402Quarter 1
2014
92,846
3.67
93.6
10,241
1,269Quarter 2
2014
99,229
3.74
94.1
11,223
1,271Quarter 3
2014
98,575
3.34
93.4
9,890
1,256Quarter 4
2014
100,085
3.47
93.2
10,417
1,260Year
2014
390,735
3.55
93.4
41,771
1,265January
2015
38,582
3.10
92.9
3,573
1,268February
2015
33,308
3.25
92.7
3,223
1,212
 
 Gold production in the Quarter increased from the preceding quarter due to the higher grade and increased tonnes processed the effects of which were partially offset by a slight reduction in gold recovery.  Combined production in January and February 2015 was on target.
  Production Costs
 
  A narrow focus on the direct costs of production (mainly labour, electricity and consumables) does not fully reflect the total cost of gold production.  Accordingly, cost per ounce data for the Quarter, the Year and the comparative quarter and year have been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases:
  i.
On-mine Cost per ounce(i), which shows the on-mine cash costs of producing an ounce of gold;
  ii.
All-in Sustaining Cost per ounce(i), which shows the On-mine Cost per ounce plus additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg and Toronto) and the costs associated with maintaining the operating infrastructure and resource base  that are required to maintain production at the current levels; and
  iii.
All-in Cost per ounce(i), which shows the All-in Sustaining Cost per ounce plus the additional costs associated with activities that are undertaken with a view to increasing production.
  26
 Blanket Mine: Cost per Ounce of Gold Sold

(US$/oz)Year

2012



Q4 2013


Year

2013



Q4 2014


Year

2014On-Mine Cost(i)


570



666



613



704



652Royalty(i)


116



89



98



59



82Permitting costs related to current operations


5



3



3



3



33rd party smelting, refining and transport costs


6



6



7



-



-Operating cost per ounce


698



766



721



766



736Corporate general and administrative costs (incl. share based remuneration)


90



207



167



265



173Community costs included in G&A not related to current production










(44
)Reclamation and remediation of operating sites


2



5



2



2



2Exploration and study costs


-



5



2



3



3Capital expenditure


67



213



125



82



55All-in Sustaining Cost per ounce(i)


857



1,196



973



1,118



969Costs not related to current productionCommunity costs


25



-



47



-



-Permitting costs


17



1



2



1



1Exploration and study costs


-



4



3



2



2Capital expenditure


29



97



78



76



89All-in Cost per ounce(i)


929



1,298



1,103



1,198



1,062
 Per-ounce costs are calculated on the basis of sales and not production, so that an accurate value can be ascribed to the royalty. The ounces of gold sold in 2014 were 4.7% and 5.0% lower than in 2013 and 2012 respectively.  Approximately 60% of Blanket’s costs are fixed, therefore lower production and sales results in a higher cost per ounce for 2014 when compared to 2013 and 2012.  The average grade of ore milled in 2014 was 3.55g/t compared to 3.88 g/t in 2013 and 4.16 g/t in 2012 as discussed further below.  Unit mining and processing costs are determined by the tonnage of material processed, irrespective of the gold contained.  Thus the lower grades tend to increase the cost per ounce of gold produced.  The On-Mine Cost per ounce in the Quarter and the Year remained within the anticipated range, given the actual level of sales and the actual grade of the material processed. Certain changes to the mining method at the AR Main body have tended to increase On-Mine Costs in Quarter 4.  The incidence of working capital at the end of Q4 in each year has the effect of increasing the Q4 cost per ounce.
  The royalty is payable to the Zimbabwean government.  The reduction in the royalty cost per ounce in Q4 of 2014 reflects the reduction in the royalty rate from 7% to 5% with effect from October 1, 2014.  The lower royalty per ounce in 2014 compared to previous years reflects the lower gold price.  Third party smelting and refining costs have reduced significantly since Blanket commenced sales of gold to Fidelity Printers and Refiners in Zimbabwe.  From January 1, 2014, such charges have been absorbed into revenues and are therefore shown as a reduction in the realised price of gold.
  Corporate general and administrative costs increased in the quarter due to higher legal and consulting fees, a significant proportion of which were incurred in respect of events and activities which are not expected to recur.  Management has taken measures which are expected to progressively reduce the dollar-cost of general and administrative costs over the course of 2015.  Thereafter, the general and administrative cost per ounce is expected to decrease further as production increases from 2016 onwards in terms of the revised life of mine plan.
  Sustaining capital expenditure varies from quarter to quarter depending on the timing of the purchase of specific higher value items of equipment. Over the course of 2014, sustaining capital investment was close to the target of approximately $50 per ounce.
  Expansion capital investment includes investment in respect of Blanket’s capital projects. In terms of Blanket’s Revised Plan, which was announced on November 3, 2014, capital investment is expected to increase significantly in 2015, 2016 and 2017 before the resultant increases in production materialise.  Thus the expansion capital investment cost per ounce of gold sold is expected to increase substantially in future years.
  Cost per ounce
  Non-IFRS performance measures such as “On-Mine Cost per ounce”, “All-in Sustaining Cost per ounce” and “All-in Cost per ounce” are used in this document.  Management believes these measures assist investors and other stakeholders in understanding the economics of gold mining over the life-cycle of a mine.  These measures are calculated on the basis set out by the World Gold Council in a Guidance Note published on June 23, 2013 and accordingly differ from the previous basis of calculation.  The table below reconciles “On-mine Cost per ounce”, “All-in Sustaining Costs per ounce” and “All-in Cost per ounce” to the production costs shown in the financial statements which have been prepared under IFRS.
   27
  Reconciliation of IFRS Production CostsYear

2012
Q4

2013
Year

2013
Q4

2014
Year

2014Production costs (IFRS) (C$’000’s)
25,653
5,919
27,412
7,082
30,812Less site restoration costs (C$’000’s)
(43)
(78)
(151)
41
(32)Less exploration costs (C$’000’)
(831)
(121)
(393)
(89)
(379)Reversal of claim fee provision (C$’000’s)
-
970
970
-
-Reallocated admin costs
(247)
(65)
(337)
(508)
(466)Realisation charges (i)
-
(284)
(284)
-
-Non-Blanket production costs
(121)
(27)
(102)
317
-Inter company profit elimination
1,353
331
1,332
599
727Adjusted production costs (C$’000’s)
25,764
6,645
28,447
7,443
30,662Exchange rate (US$1 to C$)
1.00
1.06
1.03
1.10
1.10On-mine  Production costs (US$’000’s )
25,769
6,301
27,619
6,766
27,969Gold Sales (oz)
45,181
9,454
45,048
9,604
42,927On-mine Cost (US$/oz)
570
666
613
704
652Royalty (US$’000’s)
5,262
845
4,412
568
3,521Permitting costs (US$’000’s)
225
33
135
25
110Refining and 3rd party smelting (US$’000’s) (i)
290
60
301
-
-Administrative expenses (C$’000’s) (ii)
4,055
2,067
7,772
2,687
8,157Exchange rate (US$1 to C$)
1.00
1.06
1.03
1.10
1.10Administrative expenses (US$’000’s)
4,056
1,960
7,532
2,446
7,441Community cost not related to current production


(2,000)Reclamation and remediation of operating sites (US$’000)
90
45
107
19
75Exploration and study costs (US$’000’s)
3
43
85
26
120Sustaining capital investment (US$’000’s)
3,044
2,017
5,653
785
2,348All-in Sustaining cost (US$’000)
38,739
11,303
43,844
10,634
41,485Gold sales (oz)
45,181
9,454
45,048
9,604
42,927All-in Sustaining Cost per ounce (US$/oz)
857
1,196
973
1,118
969Costs not related to current productionCommunity costs (US$’000’s)
1,137
-
2,100
-
-Permitting (US$’000’s)
785
14
106
14
55Exploration (US$’000’s)
15
38
120
23
106Capital investment (US$’000’s)
1,306
917
3,530
733
3,833All-in Costs (US$’000’s)
41,981
12,272
49,701
11,403
45,479Gold Sold (oz)
45,181
9,454
45,047
9,604
42,927All-in Cost per ounce (US$/oz)
929
1,298
1,103
1,198
1,062
 
 (i)
Third party smelting and refining costs have reduced significantly since Blanket commenced sales of gold to Fidelity Printers and Refiners in Zimbabwe.  From January 1, 2014, such charges have been absorbed into revenues and are therefore shown as a reduction in the realised price of gold.
 (ii)
In 2013 the Administrative expenses were shown in the reconciliation net of the US$2 million community cost not related to current production.  The 2013 administrative expense for 2013 in the reconciliation is now shown inclusive of this amount which corresponds to the Administrative expense set out in the Consolidated Financial Statements for 2013.  This amount, in addition to a further amount of US$100,000, is shown as a community cost not related to current production in the reconciliation.
 
 
  28
 Underground
  Low grades continue to be encountered at AR Main due to internal waste and this situation is expected to continue for several quarters.  The average head grade achieved over the entire mining operations in the Quarter was 3.47 g/t, which compares to target grade of 3.83 g/t.  To minimise dilution at AR Main and improve grade control, the mining method at AR Main has been changed from long-hole stoping to short-hole sub-level benching and this contributed to a slight improvement in the average achieved head grade from 3.34 g/t, which was achieved in the previous quarter.
  Production early in the Quarter was adversely affected by the introduction of capital equipment onto 22-Level to commence work on the Tramming Loop.  Tonnes hoisted in the quarter were approximately 4% lower than target.  By the end of the quarter, the situation had improved following the introduction of an additional locomotive on 22-Level.
  To address the lower grades and reduced mining rate at AR Main, new production areas have been opened up at Lima and Eroica.  The new production areas are further away from the No. 4 Shaft, which is the main rock-hoisting shaft, and this has put further pressure on the single-track underground haulage system. This constraint is being addressed by the development of the Tramming Loop, which is part of the Revised Plan, and will, when complete in mid-2015, significantly improve the ability to haul mineralised material and waste.
  On November 3, 2014 Caledonia announced the Revised Plan for Blanket Mine.  The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up.  The infrastructure improvements include the development of a “Tramming Loop” parallel to the existing 22 Level haulage, which allows one-way travel and facilitates tramming efficiency.
  Blanket’s installed compressor capacity during 2014 was only just sufficient to provide the required amount of compressed air.  Any breakdowns of this equipment meant there was insufficient compressed air to carry out production as well as development work: in these circumstances development work was suspended in order to maintain production.  Installation of the new Centac compressor remained stalled due to the continued inability of the Zimbabwe Electricity Transmission and Distribution Corporation, the state-owned electricity distribution company, to service their faulty transformer and equipment.  Blanket has therefore purchased its own transformer which was commissioned in January 2015 and has significantly improved the supply of compressed air with the Centac now operational.
  Blanket’s 2015 budget includes provision for the recruitment of additional workers so that leave requirements can be accommodated without a resultant loss in shifts.
  Metallurgical Plant
  
 During 2014 the metallurgical plant continued to operate at budgeted efficiency – recovery was 93.2%, compared to the target of 93.3%.  Throughput was 47.5 tonnes per hour compared to the planned throughput of 51.0 tonnes per hour.  All equipment operated to expectations and no significant unplanned downtime was experienced.
  Capital Projects
  The main capital developments are:
  ·
the Tramming Loop;
 ·
the No. 6 Winze Project - Shaft Deepening from 750 to the 930 meter level; and
 ·
the haulage extension on 22 Level from AR Main to Lima;
 ·
the Central Shaft
 Further information on these Projects is set out below.
  Tramming Loop
 The Tramming Loop is being developed on 22 Level to improve underground logistics by increasing the amount of mineralized material and waste that can be transported to the No. 4 Shaft.  Work on the Tramming Loop commenced at the end of October 2014.  Of the 800 meters required to complete the loop, 16 meters had been completed at November 7, 2014.  As at the end of February 2015, 450 meters had been completed and this project is on schedule for completion as planned.
  29
  No. 6 Winze Project - Shaft deepening to 930 meters
  The No. 6 Winze Project will provide access to the four Blanket resource bodies below 22 Level, viz. Blanket 1 Ore Body, Blanket 2 Ore Body, Blanket 4 Ore Body and Blanket Quartz Reef.  The pre-production capital cost of this project is estimated to be US$5 million, which will be funded from Blanket’s internal cash flows.  Progress on sinking was hampered by the continued inability to clear waste rock using mechanical cleaning.  Removal of waste is now done manually and sinking progress is now at an acceptable rate.  The shaft reached 890 meters below surface, which will be the main production level and the main station has been mined at this level.  A further 40 meters remains to be sunk to accommodate rock handling facilities.  This project is expected to be completed according to the revised schedule at the end of July 2015.
  22 Level Haulage Extension
 The 22 Level haulage extension will eventually complete the link between all sections of the Blanket Mine, from the Blanket Section to the Lima section in the north over a distance of 2,000 meters on the 22 Level (750 meters below surface).  Work on the 22 Level haulage has been temporarily suspended so that work can progress with the Tramming Loop.  To date, the haulage has advanced as far as Eroica where reef development is taking place between 750m and 630m.  This work will provide access to the depth continuity of Eroica where an inferred resource of 300,000 tonnes at a gold grade of 3.5g/t has been outlined.
 
 Central Shaft
 The Central Shaft is the main component of the Revised Plan.  Sinking work on the Central Shaft is scheduled to commence in July 2015.  The shaft sinking methodology has been amended:  instead of the shaft being sunk in two simultaneous phases, the shaft will now be sunk in one single continuous phase from surface to 1,080 meters.  The estimated completion date of the shaft has been moved from mid-2017 to early 2018.  This change has no effect on the projected timing for the start of production from the Central Shaft and no adverse effect on economic return arising from the project as set out in the PEA.  Early in 2015 work commenced on clearing the ground so that pre-sink work can commence in late March, 2015.  Also in 2015, two 3,100 kW double-drum winders have been purchased which, once refurbished, will be adequate for the sinking phase and eventual production and have the capability to reach a  depth of 2,000 meters below surface.
 
 Outlook
  On November 3, 2014 Caledonia announced the Revised Plan and production projections for the Blanket Mine. The objectives of the Revised Plan are to improve the underground infrastructure and logistics and allow an efficient and sustainable production build-up.  The infrastructure improvements will include the development of a “Tramming Loop” and the sinking of a new 6-meter diameter Central Shaft from surface to 1,080 meters.
 
 The Revised Plan provides for proposed investment of approximately US$50 million between 2015 and 2017 and a further US$20 million in the period 2018 to 2020.  The increased investment pursuant to the Revised Plan is expected to give rise to an increasing production profile that is expected to result in additional production from resources currently in the inferred category of approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from current mineral reserves of approximately 6,000 ounces.  The Revised Plan is also expected to improve Blanket’s long term operational efficiency, flexibility and sustainability.
 
 The Revised Plan includes a revised life of mine plan for the Blanket Mine (the “LOM Plan”) in terms of which it is anticipated that the approximate production from existing proven and probable mineral reserves above 750 m level will be as set out below.
  Approximate production from proven and probable mineral reserves above 750m (per LOM Plan)2015
2016
2017
2018
2019
2020
2021Tonnes milled (‘000)
430
460
430
380
230
100
50Gold production (koz)
42
45
43
39
23
10
6
  30
 The new Central Shaft and the deepening of No 6 winze will provide access to the current inferred mineral resources below 750 meters and allow for further exploration, development and mining in these sections along the known Blanket strike, which is approximately 3 kilometers in length.  The PEA has been prepared in respect of the inferred mineral resources below 750 meters.  Based on the PEA, additional approximate production from current inferred mineral resources (excluding the projected production set out above) may be achieved in the following indicative ranges:
  Possible production from inferred mineral resources below 750m

(per PEA)2015
2016
2017
2018
2019
2020
2021Tonnes milled (‘000)
0
35
160
215
390
550
600Gold production (koz)
0
4-5
20-22
27-30
46-50
63-67
70-75
  Canadian regulations do not allow planned production from inferred resources to be added to those from proven and probable reserves for disclosure purposes.
  Minxcon completed a scoping level study on Blanket’s revised LOM Plan in the form of a PEA, a summary of which is included in the Technical Report. The key conclusions arising from the PEA are as follows:
 ·
the IRR arising from the Revised Plan was calculated at 267 per cent;
 ·
the NPV for the Blanket Mine arising from reserves and the inferred resources used in the Revised Plan was calculated at US$147 million; and
 ·
of the gold that will need to be produced so that the cumulative cash flow arising from the Revised Plan becomes positive (i.e. the “Payback Area”), only 3 per cent will come from resources that are currently classified as inferred.
 The Technical Report was authored by Daan van Heerden, Uwe Englemann, Dario Clemente, Johan Odendaal and Jaco Burger of Minxcon, each of whom is a qualified person who is independent of Caledonia for the purposes of National Instrument 43-101.  The Technical Report, which includes the PEA, is available for download on the System for Electronic Data Analysis and Retrieval at www.sedar.com or from Caledonia’s website at www.caledoniamining.com
  The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves.  There is no certainty that the PEA will be realized. Diamond drilling and development will continue with the objective of increasing confidence in order to upgrade the categorization of the resources.   The most important assumptions on which the PEA is based include, a gold price of US$1,250 per ounce, achievement of the targeted production set out above and the accuracy of the projected capital costs.
  EXPLORATION AND PROJECT DEVELOPMENT
  Caledonia’s primary exploration activities are focused on the growth and development of Blanket Mine and its satellite properties.
  Blanket Exploration
  Exploration activities on Blanket Mine target the depth extensions of the current Blanket ore bodies as well as the AR Main and AR South ore bodies and involves drilling downhole from chambers on 18 and 22 Levels to intersect the depth continuation of these ore bodies.  Drilling activities in 2014 were hampered by numerous machine breakdowns.
  Caledonia has a conservative approach to accruing new resources: only resource blocks with an estimated grade in excess of the current pay limit are taken into account.  Resources that are below the pay limit are reviewed on an annual basis.
  Blanket Satellite Prospects
  Blanket Mine has exploration title holdings in the form of registered mining claims in the Gwanda Greenstone Belt totalling 78 claims, including a small number under option, covering properties with a total area of about 2,500 hectares. Included within these claim areas are 18 previously operated small gold workings which warrant further exploration, i.e. the Satellite Projects.  Blanket’s main exploration efforts on these satellite properties are focused at this stage on the GG Project and the Mascot Project Area which, based on past production records, are likely to have the greatest potential.
   31
 GG Project
  The GG Project is located approximately seven kilometers southeast of Blanket Mine.  Surface drilling programs have been carried out at the GG Project over the past eight years consisting of 24 diamond-cored holes totaling 6,360 meters of drilling.  Two zones of gold mineralization have been established down to a depth of at least 300 meters, each with a potential strike length of up to 150 meters. Current activities involve the definition of the extent and characteristics of this mineralizationby way of a prospect shaft and level development.
  During Q1 2014 the development on the 120 meter level was completed to approximately 160 meters east of the shaft and four drill cubbies were completed from which horizontal and inclined holes were drilled into the two zones (North and South zones) that were identified by surface drilling.  The horizontal and inclined drilling intersected the identified zones, with the North zone hosting the more extensive mineralization. In Q2 2014, development reached the North Zone where the mineralisation that had been identified by drilling in previous quarters was opened up exposing a mineralised zone over a strike of 50 meters over which chip sampling returned an average value of 3.9g/t over an average width of 4 meters. Locally the mineralisation reaches a width of 10 meters and it is open on strike.  Based on this encouraging result further horizontal development has been suspended so that the shaft can be deepened to 240 meters. In Q3 2014 the shaft was sunk from 120 meters to 150 meters; in Q4 2014, the shaft was sunk further to 180 meters and development of the station on that level is in progress.
  As noted in the previous quarters, metallurgical test work continues on fresh material from this zone.  The test work has confirmed that the mineralized material is refractory and test work is ongoing to optimise recovery.
  Mascot Project Area
  The Mascot Project Area includes three sections, viz. the Mascot prospect, the Penzance prospect and the Eagle Vulture prospect.  Mascot was previously mined to a depth of approximately 250 meters, exploiting an east-west trending mineralised body the strike extent of which decreased at depth but which was accompanied by a doubling in width.  Previous surface drilling undertaken by Blanket has indicated the existence of two further mineralised zones, one to the north and one to the south of the mined out area.
  Underground development on Levels 1 and 2 (60m and 90m below surface respectively) confirmed the existence of potentially payable mineralisation on the North Parallel.   In Q2 and Q3 of 2014 development continued along the North Parallel on the 150m level.  This development has provided access to the mineralized area over a strike extent of 80 meters and a vertical extent of 90 meters.  In Q4 development on the North zone reached the 180 meter level.
  Mine de-watering to below 180 meter level has continued, with the objective of accessing higher grade material below the current workings in 2015.  The mine has now been de-watered and the bottom of the shaft is now being cleaned to expose the shaft bottom, with the possibility to deepen the shaft by a further 120 meters.  This would allow access to the Main Shear at depth which, based on old mine records, had a substantially higher grade than the associated North Parallel and South Shear and, if successful, would improve the economic potential of this project.
  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.
 
 ·
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.
  
 32
 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 Zimbabwe. 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 or revenues exceed 10% of the consolidated assets or revenues of the Company:
 
 Subsidiaries of the Company
Country of Incorporation
Percentage held by CompanyGreenstone Management Services Proprietary Limited
South Africa
100Greenstone Management Services Limited
United Kingdom
100Blanket Mine (1983) (Private) Limited(1)
Zimbabwe
49(1)Blanket Mine (1983) (Private) Limited does not have any subsidiary companies.
 D.
Property, Plant and Equipment
  (a)           South Africa:
 
 The Eersteling gold mine is indirectly owned by the Company through its ownership of 100% of the shares of Eersteling Gold Mining Company Limited.  Eersteling has been under care and maintenance since September 1994.  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 could be recommenced.  The underground workings at Eersteling were allowed to flood and will require dewatering before mining access can be resumed.  The Company has no plans to expend further amounts on plant or equipment or to in any way expand or improve the facilities.
 
 (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
   33
 2014– 2013
  Year 2013
Year 2014
CommentGold produced (oz)
45,530
41,771
Gold production in 2014 was adversely affected by the lower head grade.On-mine cost (US$/oz)1
613
652
On-mine costs for 2014 were higher than 2013 due to lower sales which means that on-mine fixed costs are spread over fewer ounces.All-in Sustaining Cost (US$/oz) (“AISC”)
973
969
AISC decreased due to lower royalties, lower refining charges, lower community costs and lower sustaining capital investment the combined effects of which were reduced by higher administrative costs.
  2013 – 2012
  Year 2012
Year 2013
CommentGold produced (oz)
45,465
45,530
Gold production in 2013 was similar to 2012 despite lower head grades and recovery which were offset by higher tonnage throughput.   The head grade in 2013 was 3.88 grams per tonne, compared to 4.16 grams per tonne in 2012 and the gold recovery in 2013 was 93.3 per cent compared to 93.7 per cent in 2012.  Tonnage throughput in 2013 was 392,320 tonnes compared to 363,315 tonnes in 2012On Mine cash cost (US$/oz)2
570
613
On-mine costs in 2013 were adversely affected by higher labour and electricity costs in 2013 compared to 2012 and also by the higher level of work-in-progress at December 31, 2013.All-in sustaining cost (US$/oz)
759
973
All-in sustaining costs were adversely affected in Q4 2013 by higher administrative expenses and sustaining capital investment
  2012-2011
  Year 2011
Year 2012
CommentGold produced (oz)
35,826
45,465
Gold production increased by 27% due to a 21% increase in tonnes milled, a 3% increase in grade and a 1% increase in metallurgical recoveryOn Mine cash cost (US$/oz)3
581
570
On-mine costs were reduced in 2012 due to the higher production which meant that fixed costs were spread across more production ounces.  This effect was offset somewhat by higher electricity and other costsTotal inclusive cost per ounce
895
759
Total inclusive costs were reduced in 2012 due to the reduction in sustaining capital investment, offset somewhat by higher royalty payments
  
 1 Non-IFRS measures such as “On-Mine Cost per ounce”, “All-in Sustaining Cost per ounce” and “average realised gold price” are used throughout this document.
 2 Non-IFRS measures such as “on-mine cash cost per ounce” “all-in sustaining cost per ounce” and “average realised gold price” are used throughout this document.
 3  “On mine cash costs” and “Total inclusive cost per ounce” calculated in 2011 pre-date the adoption by Caledonia of the Guidance Note issued by the World Gold Council on June 23, 2013 relating to the suggested reporting of cash costs, sustaining costs and all-in costs.
  
 34
  Financial Highlights
  2014-2013
  Year 2013
Year 2014
CommentGold Sales (oz)
45,048
42,927
Sales in 2014 were lower than 2013 due to lower production gold ounces.Average realised gold price (US$/oz)
1,402
1,245
Lower realised gold prices in 2014 primarily due to the lower quoted gold price.Gross profit ($’m)4
29.9
20.5
Lower gross profit in 2014 compared to 2013 mainly due to the lower realised gold prices and lower production and sales.Net (loss)/profit attributable to  shareholders ($’m)
(3.1)
4.9
Net loss in 2013 was after an impairment charge of $14.2m in respect of the Nama project in Zambia. Profit for 2014 was adversely affected by lower gold production and the lower realised gold price.Adjusted basic (loss)/earnings per share5(cents)
27.6
12.1
Adjusted basic earnings per shareexcludes impairment charges, foreign exchange profits or losses, indigenisation expenses, deferred taxation and tax adjustments in respect of prior years and the costs of the Zambian operation.Cash and cash equivalents ($’m)
25.2
26.8
Caledonia’s cash is held in Canadian, UK and South African banks.Cash from operating activities ($’m)
14.7
13.7
Cash flow in Q4 and the year were lower due to the lower realised gold price and, for the year, the lower number of ounces sold the effect of which was reduced by lower tax payments.
  2013 – 2012
  Year 2012
Year 2013
CommentGold Sales (oz)
45,181
45,048
Lower sales in 2013, despite higher production, due to the higher level of work in progress at December 31, 2013 of 1,978 oz.Average realised gold price (US$/oz)
1,666
1,402
Lower realised gold prices in 2013 were due to the lower quoted gold price.Gross profit ($’m)6
40.9
29.9
Lower gross profit mainly due to the lower realised gold prices.Net (loss)/profit attributable to  shareholders ($’m)
8.7
(3.1)
Net loss in 2013 is after an impairment charge of $14.2m mainly in respect of the Nama Project.Adjusted basic earnings per share7 (cents)
41.2
27.7
Adjusted basic earnings per shareexclude the impairment charge, foreign exchange profits or losses, indigenisation expenses and deferred taxation.Cash and cash equivalents ($’m)
27.9
25.2
Caledonia’s cash is held in Canadian, UK and South African banks.Cash from operating activities ($’m)
29.7
14.7
Cash flow in Q4 was adversely affected by higher work-in progress at December 31, 2013.  Cash flow in the Year and the Quarter was also adversely affected by the lower realised gold price.
   4 Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses.
 5 Adjusted earnings per share (“EPS”) is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance.  The adjusted EPS calculation excludes any share based expense arising on the implementation of indigenisation and the impairment and the foreign exchange profit, all of which are included in the calculation of EPS under IFRS.
  35
 2012-2011
  Year 2011
Year 2012
CommentGold Sales (oz)
35,504
45,181
Higher sales in 2012 reflects the higher productionAverage realised gold price (US$/oz)
1,577
1,666
Higher realised gold prices in 2012 was due to the higher quoted gold priceGross profit ($’m)8
29.1
40.9
Higher gross profit due to the higher realised gold price, higher sales and lower cost per ounceNet (loss)/profit attributable to  shareholders ($’m)
12.1
8.7
Net loss in 2012 is after a non-cash, non-recurring charge of $14,569,000 for share based payments of which $14,161,000 was due to the sale of 51% of Blanket to Indigenous Zimbabweans, for which Blanket provided facilitation loans, and for the donation of 10% of Blanket to the Gwanda Community Share Ownership Trust (“GCSOT”).Adjusted basic earnings per share9 (cents)
31.4
41.2
Adjusted basic earnings per shareexcludes the charge for share based payments arising on indigenisation, foreign exchange profits or losses, indigenisation expenses and deferred taxation.Cash and cash equivalents ($’m)
9.7
27.9
Cash increased due the increase profit and reduced capital investment, offset by higher taxation payments, indigenisation expenses and other costs associated with indigenisationCash from operating activities ($’m)
17.4
29.7
Cash flow in 2012 benefitted from increased profit and reduced capital investment, offset by higher taxation payments, indigenisation expenses and other costs associated with indigenisation
  _________________________________
 6 Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses.
 7 Adjusted earnings per share (“EPS”) is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance.  The adjusted EPS calculation excludes any share based expense arising on the implementation of indigenisation and the impairment and the foreign exchange profit, all of which are included in the calculation of EPS under IFRS.
 8 Gross profit is after deducting royalties, production costs and depreciation but before administrative expenses.
 9 Adjusted earnings per share (“EPS”) is a non-IFRS measure which aims to reflect Caledonia’s ordinary trading performance.  The adjusted EPS calculation excludes any share based expense arising on the implementation of indigenisation and the impairment and the foreign exchange profit, all of which are included in the calculation of EPS under IFRS.
   36
   Average realised gold price per ounce
 “Average realised price per ounce” is a non-IFRS measure which, in conjunction with the cost per ounce measures described above, allows stakeholders to assess our performance.  The table below reconciles “Average realised price per ounce” to the Revenue shown in the financial statements which have been prepared under IFRS.
  Reconciliation of Average Realised Gold Price per Ounce to IFRSYear 2012
Q1

2013
Q2

2013
Q3

2013
Q4

2013
Year

2013
Q1

2014
Q2

2014
Q3

2014
Q4

2014
Year

2014Revenue (IFRS) (C$’000’s)
75,221
19,218
17,190
16,591
12,114
65,113
17,063
15,555
13,492
12,972
59,082Less miscellaneous income
-
-
(947)
-
-
(947)
-
-
-
-
-Revenue from precious metal sales (C$’000s)
75,221
19,218
16,243
16,591
12,114
65,113
17,063
15,555
13,492
12,972
59,082Exchange rate (1US$: C$)
0.99
1.00
1.02
1.04
1.00
1.02
1.10
1.09
1.09
1.14
1.10Revenue  from precious metal sales (US$’000’s)
75,340
19,148
15,922
16,013
12,133
63,216
15,480
14,233
12,401
11,343
53,513Revenues from sales of silver (US$’000s)
(72)
(5)
(15)
-
(57)
(77)
(3)
(31)
(15)
(12)
(61)Revenues from sales of gold (US$’000s)
75,268
19,143
15,907
16,013
12,076
63,138
15,477
14,202
12,386
11,331
53,452Gold ounces sold (oz)
45,181
11,965
11,587
12,042
9,454
45,048
12,210
11,223
9,890
9,604
42,927Average realised gold price per ounce (US$)
1 666
1 600
1 373
1,330
1,277
1,402
1,268
1,265
1,252
1,180
1,245
 
 Adjusted earnings per share
 “Adjusted earnings per share” is a non-IFRS measurewhich management believes assists investors in understanding the company’s underlying performance. The table below reconciles “adjusted earnings per share” to the Profit/Loss attributable to Owners of the Company shown in the financial statements which have been prepared under IFRS.
 
 Reconciliation of Adjusted Earnings per Share to IFRS Profit/(Loss) Attributable to Owners of the Company

(C$’000’s except per share numbers)Year

2012
Q1

2013
Q2

2013
Q3

2013
Q4

2013
Year

2013
Q1

2014
Q2

2014
Q3

2014
Q4

2014
Year

2014Profit/(loss) attributable to owners of the company (IFRS)
8,721
4,593
3,055
3,733
(14,436)
(3,055)
2,425
1,840
1,112
(380)
4,897Blanket Mine Employee Trust adjustment (refer Note 18 to the Consolidated Financial Statements)
-
-
-
-
(105)
(105)
-
-
-
(54)
(54)Add back amounts attributable to owners of the company in respect of:Indigenisation expenses, advance dividends, donations etc.
16,034
-
1,640
-
-
1,640
-
-
-
-
-Foreign exchange loss/(profit)
3
-
-
-
(1,677)
(1,677)
(257)
129
(389)
(659)
(1,176)Asset impairment
330
-
-
-
14,203
14,203
-
-
-
196
196Deferred tax
271
-
-
54
2,131
2,185



801
801Withholding tax on distributions in specie
-
1,531

-
-
1,531Reversal of Zambian G&A
-
-
-
-
-
-
142
198
309
340
989Under accrual for 2013 UK tax
-
-
-
-
(375)
(375)
-
-
-
375
375Prior year adjustment in respect of GMS (SA) tax
(100)



(100)
(100)



300
300Adjusted profit
25,258
6,124
4,695
3,787
(359)
14,247
2,310
2,167
1,032
819
6,328Weighted average shares (m)
50.8
51.5
51.8
52.1
52.1
52.0
52.1
52.1
52.1
52.1
52.1Adjusted EPS (cents)
49.8
11.9
9.1
7.3
(0.7)
27.6
4.4
4.2
2.0
1.9
12.1
 
 Q4 2013 and Year 2013 adjusted EPS calculations have been adjusted to reflect the under-accrual for UK income tax arising in respect of 2013 on interest receivable by GMS (UK) on the facilitation loans.
 
 37
 
 
 Indigenisation
 Transactions that implemented the Indigenisation of Blanket were completed on September 5th 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.
 
 Investing
 During 2014 Caledonia invested $6,786,000 ($11,738,000 – 2013, $7,909,000 – 2012) in property, plant and equipment including mineral properties.  Of the amount $6,786,000 ($9,066,000 – 2013, $4,280,000 - 2012) at Blanket, and its satellite properties.
 
 
 Financing
 Caledonia financed all its operations using funds on hand and those generated by its operations.  No 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, 2014 this facility was unused.
 
 Cash and cash equivalents
 2014
2013$Bank balances

26,838
25,222Cash and cash equivalents in the statement of financial position

26,838
25,222Bank overdrafts used for cash management purposes

-
(1,796)Cash and cash equivalents in the statement of cash flows

26,838
23,426
  The available 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.
  38
 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 Financial Statements.  As of December 31, 2014, Caledonia had a working capital surplus of $31,127,000 ($28,620,000-2013, $26,014,000 – 2012).  As of December 31, 2014, 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 $2,888,000 ($1,572,000 – 2013, $1,015,000 – 2012).  The South African rehabilitation trust held $155,942 on cash deposit as at December 31, 2014.
  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.
  On November 25, 2013 Caledonia announced a revised dividend policy in terms of which it intended to pay a dividend of 6 Canadian cents per share in 2014, split into 4 equal quarterly payments of 1.5 Canadian cents per share.  The first quarterly dividend was paid on January 31, 2014 and subsequent quarterly dividends were paid at the end of April, July and October 2014 and at the end of January 2015.  It is currently envisaged that the existing dividend policy of 6 cents per annum paid in equal quarterly instalments will be maintained in 2015.  Caledonia will consider further dividends thereafter in the context of the prevailing commercial environment and expects to provide guidance for dividend payments in 2016 at or about the time of the Q2 results in August 2015.
  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 7 years will be funded by Blanket’s internal cash flows and debt facilities.
  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 Mine (1983)(Private) Limited to the Group.
 
 In the opinion of the Company, the working capital is sufficient for the company’s present needs.
  B.
Trend Information
  As a result of the completion of the No. 4 Shaft Expansion Project in late 2014, the underground mining areas can now produce up to 1,200 tons of ore daily using predominately long-hole open stoping methods. Blanket Mine produced 41,771 ounces in 2014 and is implementing a 7 year Expansion Program to progressively increase gold production from inferred resources to approximately 70-75,000 ounces in 2021, this being in addition to projected production in 2021 from proven and probable mineral reserves of approximately 6,000 ounces.
 
 The surplus capacity of the Blanket leach section and crushing and milling plant enables it to immediately treat additional feed material when compatible.  The inflationary environment is subdued and the regulatory environment is subject to unexpected adverse changes.  Nevertheless, Blanket Mine has surplus metallurgical plant capacity and is sufficiently cash flow positive if the investment climate is acceptable, and could invest in projects with a view to further increase production, thereby helping to maintain downward pressure on the cost per ounce of gold produced at Blanket Mine.
 
 39
 Our ability to meet production targets could be impacted by, amongst other factors, failure to achieve the production targets set, unforeseen changes in ore grades and recoveries, unexpected changes in the quality or quantity of reserves, technical production issues, environmental and industrial accidents and environmental factors.
 
 C.
Off-Balance Sheet Arrangements
  Not applicable.
 
 D.
Tabular Disclosure of Contractual Obligations
   Payments due by Period – in thousands of Canadian DollarsWithin 1

Year
1-3 years
3-5 years
More than

5 years
TotalTrade and other payables
3,791
-
-
-
3,791Asset retirement obligations
-
-
-
2,888
2,888Capital expenditure commitments
642
-
-
-
642
 
 
 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, 2014. There are no family relationships between the directors and officers.
 
 40
 
 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 27, 2015James Johnstone (2) (5)(6)(7)

Director

Gibsons, British Columbia, Canada
Retired.  Formerly Chief Operating Officer of the Company and Director of several of its subsidiary companies.
1997
16,000Steven Curtis (4)(5)(7)

President, Chief Executive Officer  & Director

Johannesburg, South Africa
Financial Director Avery Dennison SA (Pty) Ltd. until March 2006.  Since then, VP Finance, Chief Financial Officer and Director of the Company and Director of certain of its subsidiary companies. Former VP Finance and Chief Financial Officer, of the company
Director since 2006

President and Chief Executive since 2014
270,000Richard Patricio(2)(3)(7)

Director, Toronto, Ontario

Canada
Chief Executive Officer at Pinetree Capital Ltd
2012
NilLeigh Wilson(1)(2)(3)(4)(5)(7)

Director, Stuart, Florida, USA
Chairman of the Victory Portfolios.
2012
72,500John Kelly(1)(2)(3)(7)

Director, Pound Ridge, New York, USA
Partner at Endgate Commodities LLC.
2012
NilJohan Holtzhausen(1)(2)(5)(6)(7)

Director,

Cape Town, South Africa
Business consultant and ex Audit partner of KPMG Inc. Director of DRDGOLD Limited and First Food Brands Limited.
2013
NilDana Roets(6)(7)

Chief Operating Officer

Johannesburg, South Africa
VP and Head of Operations at Kloof Gold Mine. More recently, Dana was the COO at Great Basin Gold which had gold mining operations in the United States of America and South Africa.
2013
NilMark Learmonth(5)(7)

VP Finance, Chief Financial Officer & Director Johannesburg, South Africa
Vice-President of the Company focused on financial reporting, investor and shareholder relations and corporate development. Former Vice President Business Development, of the company
Director since 2008

Vice-President, Business Development since 2014
186,730Trevor Pearton(6)(7)

Vice-President Exploration Johannesburg, South Africa
Vice-President of the Company acting as Exploration Manager of the Company and its subsidiaries
2004
Nil
 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.
 
 41
 Mr. S.E. Hayden resigned as a Director on 6 December 2014.
 
 A brief profile of each of the Directors and the senior management is given below:
 
 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,  President and Chief Executive Officer
 
 Mr. Curtis is a Chartered Accountant with over 24 years of 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 and served in the position until Dec 2014 when he was appointed as President and Chief Executive Officer.
 
 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. He currently serves as Independent Chairman of the Board of Trustees of the Victory fund and of the Munder Fund. The Victory and Munder Funds have assets aggregating to US $40 billion.



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.
 
 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 partner at Endgate Commodities LLC 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 the Chief Executive Officer of Pinetree Capital Ltd. ("Pinetree"), a Toronto-based investment company. Mr. Patricio currently holds directorships with several Canada, US and Australian-based publicly quoted resource companies. He previously practiced law at Osler Hoskin & Harcourt LLP in Toronto. Mr Patricio is also currently Chief Executive Officer of Mega Uranium Ltd.
 
 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 organizations. 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.
 
 
 42
 
 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 under care and maintenance) and the assessment of the Nama project in Zambia. This work resulted in the identification of the Nama copper target and was followed up by the 2009 to 2012 exploration program which identified a large low-grade copper deposit (uneconomic in the current market).  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 registered professional with the South African Council for Natural Scientific Professions and is Caledonia’s Qualified Person (QP) for all technical disclosures. He is a member of the Geological Society of South Africa; elected a Fellow of the Society in 2004, a member of the South African Institute for Mining and Metallurgy and a member of the Witwatersrand University Mining Engineers Association.
 
 Mark Learmonth–Vice-President Finance and Chief Financial Officer
 
 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.  He is a member of the Executive Committee of the Chamber of Mines, Zimbabwe and is also a member of the Gold Producers Sub-Committee.
 
 Mr. Learmonth was appointed Vice-President Finance and Chief Financial Officer of the Company in Dec 2014.
 
 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.
 
 
 43
 B.
Compensation
  Summary Compensation Table
  Name and principal position
Year
Salary ($)
Share based awards ($)
Option-based awards
Non-equity incentive plan compensation

($)
Pension value

($)
All other

compensation
Total compensation $(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)(4)
(i)Annual incentive plans

(f1)
Long-term incentive plans

(f2)Stefan Hayden(1)

Chief Executive Officer
2014

2013

2012
938,425

485,724

483,655
-

_

–
-

-

61,600(2)
-

131,552

108,994
-

_

–
-

_

–
45,000

153,599

136,673
983,425

770,875

790,922Steve Curtis

Chief(3)

Executive Officer
2014

2013

2012
452,763

328,691

279,188
-

_

–
-

-

52,800(2)
66,258

53,550

36,600
-

_

–
-

_

–
45,000

35,000

25,000
564,021

417,241

393,588Dana Roets

Chief Operating Officer
2014

2013
441,720

119,335
-

-
-

-
66,258

10,305
-

-
-

-
-

-
507,978

129,640Mark Learmonth(3)

Chief Financial Officer
2014

2013

2012
303,682

179,928

176,821
-

_

–
-

-

39,600(2)
66,258

25,704

20,628
-

_

–
-

_

–
-

_-

–
369,940

205,632

237,049Caxton Mangezi

General Manager and Director of the Blanket Mine
2014

2013

2012
369,940

304,321

262,932
-

_

–
-

-

44,000(2)
30,828

44,702

18,802
-

–

–
-

–

–
11,043

11,158

–
411,811

360,181

325,734Trevor Pearton

VP Exploration
2014

2013

2012
237,425

161,704

170,688
-

_

–
-

-

11,000(2)
19,786

13,880

13,752
-

_

-
-

_

-
-

_

–
257,211

175,584

195,440
 
 (1)      Mr. S. E. Hayden was 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. Mr Hayden resigned as Chief Executive Officer on 6 December 2014 and is no longer employed by the company.
  (2)      The share purchase options shown were granted to the Non-Executive Directors (“NED”) 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
 (3)      Mr S Curtis was appointed as Chief Executive Officer in November 2014 and was replaced by Mr M Learmonth as Chief Financial Officer. Mr Learmonth served as VP Business Development and Investor Relations in previous periods.
  (3)
Apart from S E Hayden, the total amount shown in (h) relates to directors fees paid to the NED.
  (4)
Dana Roets was employed in during 2013. The increase in salary occurred due to the cost of his employment being included for a full year during 2014.
  A $45,000 fee is paid to each director annually. This revised fee was effective from July 1, 2013. In addition, certain directors received further fees for their service on certain sub-committees of the board.
 
 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.
 
 44
 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 service agreement between Greenstone Management Services Proprietary Limited and Mr. Curtis which includes an option to terminate the contract in the event of a change in control of the Company and to receive a severance payment equal to two years’ compensation.  If this was triggered as at December 31, 2014 the severance payment would have amounted to US $820,000. The contract also includes a payment of one month’s pay per year of service rendered by Mr Curtis if Caledonia terminates his services. A change in control would constitute:
  ·           the acquisition of more than 50% of the ordinary shares; or
 ·           the acquisition of right to exercise the majority of the voting rights of ordinary shares; or
 ·           the acquisition of the right to appoint the majority of the board of directors; or
 ·           the acquisition of more than 50% of the assets; of
 Greenstone Management Service Proprietary Limited or Caledonia Mining Corporation.
 
 The following persons comprise the following committees:
 
 Audit
Compensation
Governance
Nominating
DisclosureJ Holtzhausen
L Wilson
L Wilson
L Wilson
M LearmonthL Wilson
J Kelly
J Kelly
S R Curtis
S R CurtisJ Kelly
J Holtzhausen
R Patricio

J HoltzhausenJ Johnstone


T PeartonR Patricio


L WilsonTechnical
Strategic
Life of MineJ Johnstone
L Wilson
L WilsonJ Holtzhausen
J Kelly
J JohnstoneD Roets
S R Curtis
J HoltzhausenT Pearton
R PatricioM LearmonthD RoetsT PeartonJ Holtzhausen

J Johnstone
 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.
 
 45
 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

2010


2011


2012


2013


2014Total EmployeesSouth Africa (African Office)


10



10



10



13



14Zimbabwe – approx.(i)


794



856



860



1,028



1,007South Africa (Mine Security and Operations and Exploration)


1



1



1



1



1Zambia (Head Office and Security)


8



8



8



8



6Total Employees at all Locations


813



875



879



1,050



1,028
 (i) the number of employees in Zimbabwe varies slightly from month-to-month.
 
 Management and Administration:Employee Locations:

2010


2011


2012


2013


2014Canada


-



-



-



-



-Zimbabwe


30



30



32



32



36South Africa (African Office)


7



7



7



12



12South Africa (Exploration and Operations)


2



2



2



1



1Zambia (Head Office and Security)


4



4



4



4



4Total Management and Administration


43



43



45



49



53
 
 E.
Share Ownership
  (a)           The direct and indirect shareholdings of the Company’s Directors and Officers as at March 27, 2015 were as follows:
 Number of shares
Percentage share

holdingL Wilson
72,500
0.14%J Johnstone
16,000
0.03%S Curtis
270,000
0.52%M Learmonth
186,730
0.36%P. Patricio
Nil
-J. Kelly
Nil
-D Roets
Nil
-T. Pearton
Nil
-Total
545,230
1.04%
 
 46
 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.
 
 As at March 27, 2015, the Directors and Officers, collectively, owned 545,230 Common Shares, being approximately 1.04% 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
 
 (a)
Share purchase options outstanding as of March 27, 2015:
  
 Name
Exercise Price C$

Expiry Date

Number of OptionsJ Johnstone
0.90

August 31, 2017

40,000J Johnstone
1.30

January 31, 2016

160,000L Wilson
0.90

August 31, 2017

90,000C Jonsson
0.90

August 31, 2017

40,000C Jonsson
1.30

January 31, 2016

160,000J Liswaniso
0.90

August 31, 2017

7,500J Liswaniso
1.30

January 31, 2016

10,000M Learmonth
0.90

August 31, 2017

89,020M Learmonth
1.30

January 31, 2016

150,000A Lawson
0.90

August 31, 2017

3,000A Lawson
1.30

January 31, 2016

7,500T Pearton
0.90

August 31, 2017

25,000T Pearton
1.30

January 31, 2016

25,000SR Curtis
0.70

May 11, 2016

30,000SR Curtis
0.90

August 31, 2017

120,000SR Curtis
1.30

January 31, 2016

250,000Caledonia Holdings Africa(1)
0.90

August 31, 2017

103,000Caledonia Holdings Africa(1)
1.30

January 31, 2016

207,500R Babensee
0.90

August 31, 2017

40,000R Babensee
1.30

January 31, 2016

175,000P Human
0.90

August 31, 2017

5,000P Human
1.30

January 31, 2016

10,000S Smith
1.30

January 31, 2016

6,000S Smith
0.90

August 31, 2017

2,400J Kelly
0.90

August 31, 2017

90,000R Patricio
0.90

August 31, 2017

90,000D Roets
0.72

November 21, 2018

100,000J Holtzhausen
0.72

November 21, 2018

90,000TOTAL




2,125,920
 
 (1)The options granted to Caledonia Holdings (Africa) Limited – a subsidiary of Caledonia – are for the benefit of certain employees of a subsidiary of Caledonia.
 
 47
 
 ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
  Major Shareholders
  To the best of Caledonia's knowledge, as of December 31, 2014 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 Allan Gray, a South African investment trust/fund manager, which owns 6,382,500 ordinary shares of the Company, representing 12.25 per cent of the current issued share capital 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 January 24, 2015, the portion of the common shares of Caledonia is held in the following geographic locations:
 
 Geographic Area
Number of Shares Held
Percentage of Issued SharesUSA
22,108,122
42.42%Canada
16,796,148
32.23%South Africa
8,542,838
16.39%England
3,350,860
6.43%Other
1,319,940
2.53%52,117,908
100%
 
 There are 2,578 recorded holders of the Company’s issued shares.
 
 Caledonia is not, to the best of its knowledge, directly or indirectly owned or controlled by another corporation or corporations, by any other natural or legal person or persons severally or jointly or by any foreign government.
 
 Caledonia is not aware of any arrangement, the operation of which may at some subsequent date result in a change of control of Caledonia.
 
 The foregoing information in this paragraph 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 the identity of the beneficial owners of the shares who are registered in two large intermediaries.
 
 
 Related Party Transactions
 
  Caledonia had the following related party transactions:
 Note
2014
2013
2012
2014
2013$
$
$
$
$Management contract fees, allowances and bonus paid or accrued to a company for management services provided by the Group’s former President and Chief Executive Officer.
(i)
938
736
704
-
-Rent for office premises paid to a company owned by members of the former President’s family.
(ii)
142
38
43
-
-Legal fees and disbursements up to retirement.

-
88
111
-
-Directors fees paid.

326
285
215
-
-
 
  (i)
On July 15, 2014 Caledonia served a six month notice to Epicure Overseas S.A. for the termination of the contract between Caledonia and Epicure for the provision of the services of Mr. Stefan Hayden, who was at that time Caledonia’s President and Chief Executive Officer (“CEO”).  Negotiations for alternative arrangements to secure the continued services of Mr. Hayden as President and CEO failed to reach agreement.  Accordingly, on November 18, 2014 Mr. Hayden stepped down as President and CEO and on December 6, 2014, Mr. Hayden resigned as a director of Caledonia.  No payments other than the contractual payments that were due to Epicure Overseas SA for the provision of the services of Mr. Hayden during the notice period were made.
   48
 (ii)
The contract expires September 2015.
   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, 2014 and December 31, 2013 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, 2014, December 31, 2013 and December 31, 2012.
  Reference is made to page 62 where the financial statements are filed as part of this annual report on pages F1 – F48
  Dividend Policy
  On November 25, 2013 Caledonia announced a revised dividend policy in terms of which it intended to pay a dividend of 6 Canadian cents per share in 2014, split into 4 equal quarterly payments of 1.5 Canadian cents per share.  The first quarterly dividend was paid on January 31, 2014 and subsequent quarterly dividends were paid at the end of April, July and October 2014 and at the end of January 2015.  It is currently envisaged that the existing dividend policy of 6 cents per annum paid in equal quarterly instalments will be maintained in 2015.  Caledonia will consider further dividends thereafter in the context of the prevailing commercial environment and expects to provide guidance for dividend payments in 2016 at or about the time of the Q2 results in August 2015.
  
 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                      Toll-free North American Number 1-800-564-6253
 For Shareholders outside North America 1-514-982-7555
 
 Computershare UK                                           +44 (0)870 702 0000
 
 49
 
 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, 2014 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, 2014, 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, 2014, 15,332,415 Common Shares were traded on the Toronto Stock Exchange at prices that ranged between a high of $1.20 and a low of $0.60 per Common Share.
 
 The high and low market prices expressed in Canadian dollar 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:
  TSX Exchange

(Canadian Dollars)Last Six Months
High
LowMarch 2015
0.73
0.72February 2015
0.74
0.72January 2015
0.78
0.75December 2014
0.70
0.67November 2014
0.75
0.70October 2014
0.85
0.832014
High
LowFourth Quarter ended December 31, 2014
0.81
0.77Third Quarter ended September 31, 2014
1.10
1.07Second Quarter ended June 30, 2014
0.87
0.85First Quarter ended March 31, 2014
0.80
0.772013
High
LowFourth Quarter ended December 31, 2013
0.82
0.67Third Quarter ended September 31, 2013
0.98
0.74Second Quarter ended June 30, 2013
1.20
1.15First Quarter ended March 31, 2013
1.40
0.952012
High
LowFourth Quarter ended December 31, 2012
1.10
0.90Third Quarter ended September 31, 2012
1.10
0.60Second Quarter ended June 30, 2012
0.90
0.65First Quarter ended March 31, 2012
1.25
0.80Last Five Fiscal Years
High
Low2014
0.90
0.862013
1.40
0.672012
1.25
0.602011
1.45
0.652010
1.70
0.55
 
 50
 The high and low market prices expressed in United States dollar 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 Dollar)Last Six Months
High
LowMarch 2015
0.59
0.58February 2015
0.60
0.57January 2015
0.64
0.62December 2014
0.61
0.58November 2014
0.65
0.62October 2014
0.76
0.702014
High
LowFourth Quarter ended December 31, 2014
0.71
0.56Third Quarter ended September 31, 2014
1.01
0.98Second Quarter ended June 30, 2014
0.80
0.78First Quarter ended March 31, 2014
0.73
0.702013
High
LowFourth Quarter ended December 31, 2013
0.85
0.65Third Quarter ended September 31, 2013
0.94
0.68Second Quarter ended June 30, 2013
1.21
1.20First Quarter ended March 31, 2013
1.35
0.952012
High
LowFourth Quarter ended December 31, 2012
1.12
0.88Third Quarter ended September 31, 2012
1.10
0.65Second Quarter ended June 30, 2012
0.96
0.68First Quarter ended March 31, 2012
1.25
0.84Last Five Fiscal Years
High
Low2014
0.81
0.782013
1.45
0.652012
1.25
0.652011
1.58
0.632010
1.60
0.52
 
  ITEM 10 - ADDITIONAL INFORMATION
  A.
Share Capital
  Not Applicable.
  51
 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 March 27, 2015 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.
 
 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.
 
 
 52
 
 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.
 
 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.
  53
 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;
  ·
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.
  54
 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 limitationsand 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.
  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.
  55
 
  
 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 for the tax year ended December 31, 2014. 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.
  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.
  56
  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.  Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the Common Shares. 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
 
 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.
 
 57
 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.
 
 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.
 
 58
 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.
 
 
 2014
2013$
$Cash and cash equivalents
26,512
25,042Bank overdraft
-
(1,796)Trade and other receivables
773
3,887Trade and other payables
(2,199)
(5,160)
 
 
 B.
Interest Rate Risk
  Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates.
  59
 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. From 2014, gold sales were made to Fidelity in Zimbabwe and the payment terms stipulated in the service delivery contract have been adhered to in all instances. No funds were outstanding at December 31, 2014, for bullion delivered.
 
 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 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.
 
 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 descending but the effect of devaluation of the Canadian $ and the South African Rand against the US$ has mitigated somewhat against the lower 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.
  60
 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, 2014.  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, 2014, and we have concluded our disclosure controls and procedures were effective as at December 31, 2014.
 
 B.  Management’s annual report on internal control over financial reporting (“ICOFR”)
  Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting has been designed to provide reasonable assurance with respect to the reliability of financial reporting and the presentation of financial statements for external purposes in accordance with IFRS. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.
  Under the supervision and with the participation of the CEO and CFO, Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making their assessment, Management used criteria established in the framework on 1992 Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon that assessment, Management concluded that the Company’s internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2014.
  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.
  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.
 
 61
 
 ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT
  Caledonia’s Board of Directors has determined, as at March 27, 2015 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)
  ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES
  The following table sets forth the audit service fees billed by our current external auditors, unless stated otherwise, for the years indicated:
 
 
 2014(1)

$ -Cdn
2013(1)

$ -CdnAudit fees
305,633
275,000Audit – related fees
-
32,000Tax fees (2)
62,285
1,500All other fees
-
-TOTAL
367,918
308,500
 
 Notes:
  (1)
Prior to the start of the audit process, Caledonia’s Audit Committee receives an estimate of the costs, from its auditors and reviews such costs for their reasonableness. After their review and pre-approval of the fees, the Audit Committee recommend to the board of directors to accept the estimated audit fees given by the auditors.
  (2)
Tax fees were for assistance provided regarding international tax matters relating to a possible permanent establishment tax exposure and a tax transfer pricing review.
  ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 Not Applicable.
 62
 
  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, 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)
No disagreements with BDO relating to the comparative period of December 31, 2012, 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, which was audited and signed off by BDO.
 
 ITEM 16G - CORPORATE GOVERNANCE
 
 Not Applicable.
  ITEM 16H - MINE SAFETY DISCLOSURE
 
  Not Applicable.
  ITEM 17 - FINANCIAL STATEMENTS
 Responded to in Item 18.
  ITEM 18 - FINANCIAL STATEMENTS
 
  The financial statements and schedules appear on pages F-1 through F-48 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 Statements of Profit and loss and other Comprehensive Income
 Consolidated Statements of Financial Position
 Consolidated Statements of Changes in Equity
 Consolidated Statements 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
 
 63
  ITEM 19 – EXHIBITS
  Financial Statements
 
 Description

PageFinancial Statements and Notes

F4- F48
 
 Exhibit List
 
 Exhibit No.
Name1.1
Articles of Incorporation1.2
By-laws4.1
Stock Option Plan12.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
Summary of Independent Technical Report and PEA on the Blanket Mine Property in Zimbabwe15.2
Property and Claims Information Blanket15.3
Shareholder Rights Plan15.4
Share Subscription Agreements – Blanket Mine
 
 
 64
 
 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION
  To the Shareholders of Caledonia Mining Corporation:
  Management has prepared the information and representations in these consolidated financial statements. The consolidated financial statements of Caledonia Mining Corporation (“Group”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and, where appropriate, these statements include some amounts that are based on best estimates and judgment. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects.
  The Management Discussion and Analysis (“MD&A”) also includes information regarding the impact of current transactions, sources of liquidity, capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.
  The Group maintains adequate systems of internal accounting and administrative controls, within reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced. Our independent auditor has the responsibility of auditing the consolidated financial statements and expressing an opinion on them.
  Management is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”). Any system of internal controls over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
  At December 31, 2014 management evaluated the effectiveness of the Group’s internal control over financial reporting and concluded that such internal control over financial reporting was effective and there were no material weaknesses or changes in internal controls identified by management.
  The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Audit Committee is composed of three independent directors. This Committee meets periodically with management and the external auditor to review accounting, auditing, internal control and financial reporting matters.
  The consolidated financial statements have been audited by the Group’s independent auditor, KPMG Inc., in accordance with Canadian Auditing Standards.  The independent auditor’s report outlines the scope of their examination and their opinion on the consolidated financial statements.
  The consolidated financial statements for the year ended December 31, 2014 were approved by the Board of Directors and signed on its behalf on March 27, 2015.
 
 
 (Signed) S. R. Curtis                                                                            (Signed) M. Learmonth
 Chief Executive Officer
Chief Financial Officer
 F-1
 
 INDEPENDENT AUDITOR'S REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
  To the shareholders of Caledonia Mining Corporation
  We have audited the accompanying consolidated financial statements of Caledonia Mining Corporation, which comprise the consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of profit or loss and other comprehensive income, consolidated changes in equity and consolidated cash flows for the years ended December 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory information, as set out on pages F-4 to F-48.
  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 ouropinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caledonia Mining Corporation as at December 31, 2014 and 2013, and its financial performance and its cash flows for the years ended December 31, 2014 and 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
   /s/ KPMG Inc.
  KPMG Inc.
 Chartered Accountants
 
 
 85 Empire road
 Parktown
 Johannesburg
 South Africa
 March 27, 2015
 
 
 F-2
 Independent Auditor’s Report of Registered Public Accounting Firm
 
 To the Shareholders of Caledonia Mining Corporation
 
 We have audited the accompanying consolidated statements of profit or loss and other comprehensive income and cash flows of Caledonia Mining Corporation for the year ended December 31, 2012, and a summary of significant accounting policies and other explanatory information (“consolidated financial statements”).
  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 audit.  We conducted our audit 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 audit is sufficient and appropriate to provide a basis for our audit opinion.
  Opinion
 In our opinion, the consolidated statements of profit or loss and other comprehensive income and cash flows present fairly, in all material respects, the financial performance and cash flows of Caledonia Mining Corporation for the year ended December 31, 2012 in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
  (Signed) BDO Canada LLP
   Chartered Professional 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



2014



2013



2012$



$



$Revenue





59,082



65,113



75,221Less: Royalty





(3,889
)


(4,544
)


(5,261
)Production costs


8



(30,812
)


(27,412
)


(25,653
)Depreciation






(3,908
)


(3,276
)


(3,392
)Gross profit






20,473



29, 881



40,915Other income






28



-



-Administrative expenses


9



(8,157
)


(7,772
)


(4,055
)Share-based payment expense


20



-



(68
)


(14,569
)Foreign exchange gain






1,176



1,677



(4
)Indigenisation expenses






-



-



(1,700
)Impairment


12



(196
)


(14,203
)


(330
)Operating profit






13,324



9,515



20,257Finance income


10



15



24



79Finance cost


10



(170
)


(132
)


(160
)Net finance costs






(155
)


(108
)


(81
)Profit before tax






13,169



9,407



20,176Tax expense


11



(6,604
)


(9,897
)


(12,818
)Profit/(Loss) for the year






6,565



(490
)


7,358Other comprehensive incomeItems that are or may be reclassified to profit or lossForeign currency translation differences of foreign operations






3,848



2,254



(1,589
)Tax on other comprehensive income


11



122



-



-Other comprehensive income for the year, net of income tax






3,970



2,254



(1,589
)Total comprehensive income for the year






10,535



1,764



5,769Profit/(Loss) attributable to:Owners of the Company






4,897



(3,055
)


8,720Non-controlling interests






1,668



2,565



(1,362
)Profit/(Loss) for the year






6,565



(490
)


7,358Total comprehensive income attributable to:Owners of the Company






8,833



(726
)


7,122Non-controlling interests






1,702



2,490



(1,343
)Total comprehensive income for the year






10,535



1,764



5,769Earnings/(Loss) per shareBasic earnings/(loss) -  per share ($)


18



0.093



(0,061
)


0.172Diluted earnings/(loss) - per share ($)


18



0.093



(0,061
)


0,172
  The accompanying notes on page F-8 to F-48are an integral part of these consolidated financial statements.
 
 On behalf of the Board:  “S.R. Curtis” - Director and “M. Learmonth”
 
 
 F-4
 Caledonia Mining Corporation 
 Consolidated statements of financial position(In thousands of Canadian dollars)
Note

2014
2013As at


December 31
December 31$
$AssetsProperty, plant and equipment
12

40,388
33,448Total non-current assets


40,388
33,448Inventories
13

7,571
6,866Prepayments


348
177Trade and other receivables
14

2,040
3,889Income tax receivable


111
-Cash and cash equivalents
15

26,838
25,222Total current assets


36,908
36,154Total assets


77,296
69,602Equity and liabilitiesShare capital
16

57,607
57,607Reserves
17

159,883
156,069Retained loss


(159,759)
(161,651)Equity attributable to shareholders


57,731
52,025Non-controlling interests
29

804
(51)Total equity


58,535
51,974LiabilitiesProvisions
21

2,888
1,572Deferred tax liability
11

10,092
8,522Total non-current liabilities


12,980
10,094Trade and other payables
22

3,791
4,600Income tax payable


1,990
1,138Bank overdraft
15

-
1,796Total current liabilities


5,781
7,534Total liabilities


18,761
17,628Total equity and liabilities


77,296
69,602
 
 The accompanying notes on page F-8 to F-48 are an integral part of these consolidated financial statements.
  On behalf of the Board:  “S.R. Curtis”- Director and “M. Learmonth”
   F-5
 Caledonia Mining Corporation
 Consolidated statements of changes in equity
 (In thousands of Canadian dollars)
  Note
Share

capital
Investment Revaluation Reserve
Foreign

Currency Translation Reserve
Contributed

Surplus
Share-

based

payment

reserve
Retained

Loss
Total
Non-

controlling interests

(“NCI”)
Total

Equity$
$
$
$
$
$
$
$
$Balance at December 31, 2012

197,137
5
(2,010)
-
*15,682
(153,399)
57,415
(1,796)
55,619Transactions with owners:Reduction of stated capital
17
(140,000)
-
-
140,000
-
-
-
-
-Share-based payment transaction
20
-
-
-
-
68
-
68
-
68Dividends paid

-
-
-
-
-
(5,202)
(5,202)
(745)
(5,947)Shares issued
16
470
-
-
-
-
-
470
-
470Movement in equity


(5)



5Total comprehensive income:(Loss)/profit for the year

-
-
-
-
-
(3,055)
(3,055)
2,565
(490)Other comprehensive income for the year

-
-
2,329
-
-
-
2,329
(75)
2,254Balance at December 31, 2013

57,607
-
319
140,000
15,750
(161,651)
52,025
(51)
51,974Transactions with owners:Dividends paid

-
-
-
-
-
(3,127)
(3,127)
(847)
(3,974)Total comprehensive income:Profit for the year

-
-
-
-
-
4,897
4,897
1,668
6,565Other comprehensive income for the year

-
-
3,814
-
-
122
3,936
34
3,970Balance at December 31, 2014

57,607
-
4,133
140,000
15,750
(159,759)
57,731
804
58,535
  * Refer to notes 5 and 20.
 
 The accompanying notes on page F-8 to F-48 are an integral part of these consolidated financial statements.
 
 On behalf of the Board:  “S.R. Curtis” - Director and “M. Learmonth”
   F-6
 Caledonia Mining Corporation
 Consolidated statements of cash flows(In thousands of Canadian dollars)For the years ended  December 31,
Note
2014

2013

2012$

$

$Cash flows from operating activities
23
18,822

22,768

41,420Interest received

15

24

79Interest paid

(133)

(132)

(160)Tax paid
11
(4,999)

(7,974)

(11,618)Cash from operating activities

13,705

14,686

29,721Cash flows from investing activitiesAcquisition of property, plant and equipment

(6,786)

(11,738)

(7.909)Proceeds from sale of property, plant and equipment

-

-

38Net cash used in investing activities

(6,786)

(11,738)

(7,871)Cash flows from financing activitiesDividends paid

(3,974)

(5,947)

-Advance dividend paid

-

(1,987)

(3,739)Proceeds from the exercise of share options
16
-

470

974Net cash used in financing activities

(3,974)

(7,464)

(2,765)Net increase/(decrease) in cash and cash equivalents

2,945

(4,516)

19,085Cash and cash equivalents at beginning of year

23,426

27,942

9,256Effect of exchange rate fluctuations on cash held

467

-

(399)Cash and cash equivalents at year end
15
26,838

23,426

27,942
 
 The accompanying notes on page F-8 to F-48 are an integral part of these consolidated financial statements.
 
 On behalf of the Board:  “S.R. Curtis”- Director and “M. Learmonth”
 
  
 F-7
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
  1           Reporting entity
  Caledonia Mining Corporation (the “Company”) is a company domiciled in Canada. The address of the Company’s registered office is Suite 4009, 1 King Street West, Toronto, Ontario, M5H 1A1, Canada. These consolidated financial statements of the Group as at and for the year ended December 31, 2014 comprises the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is primarily involved in the operation of a gold mine and the exploration and development of mineral properties for precious metals.
  2          Basis for preparation
  (i) Statement of compliance
  The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
  The consolidated financial statements were authorised for issue by the Board of Directors on March 27, 2015.
  (ii) Basis of measurement
  The consolidated financial statements have been prepared on the historical cost basis except for equity-settled share-based payment arrangements measured at fair value on grant date.
  (iii) Functional and presentation currency
  These consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
  (iv) Going concern
  These consolidated financial statements have been prepared on a going-concern basis.
  3          Use of estimates and judgements
  In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group‘s accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.
  Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions in estimates are recognised prospectively.
  (a)
Judgements
  i)  Indigenisation transaction
  The indigenisation transaction of the Blanket Mine (1983) (Private) Limited (“Blanket Mine”) required management to make significant judgements and assumptions which are explained in Note 5.
 
  F-8
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 3
Use of estimates and judgements – (continued)
  (b)
Assumptions and Estimation uncertainties
  i)
Site restoration provisions
  The site restoration provision has been calculated for the Blanket Mine based on an independent analysis of the rehabilitation costs as performed in 2012 and based on the internal assessment for Eersteling Gold Mining Company Limited. Estimates and assumptions are made when determining the inflationary effect on current restoration costs and the discount rate to be applied in arriving at the present value of the provision where the time value of money effect is significant. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation costs which will reflect the market condition at the time the rehabilitation costs are actually incurred.  The final cost of the currently recognized site rehabilitation provisions may be higher or lower than currently provided for.
  ii)
Exploration and evaluation (“E&E”) expenditure
  The application of the Group’s accounting policy for exploration and evaluation expenditures requires judgements when determining which expenditures are recognised as exploration and evaluation assets (“E&E properties”), disclosed under Property, plant and equipment as mineral properties not depreciated.
  The Group also makes estimates and assumptions regarding the possible impairment of E&E properties by evaluating whether it is likely that future economic benefits will flow to the Group, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.
  The recoverability of the carrying amount of the South African and Zambian mineral properties (if not impaired) is dependent upon the availability of sufficient funding to bring the properties into commercial production, the price of the products to be recovered, the exchange rate of the local currency relative to the currency of funding and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount.
 
 iii)  Income taxes
  Significant estimates and assumptions are required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.
  F-9
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 In addition, the Group applies judgement in recognizing deferred tax assets relating to tax losses carried forward to the extent that there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized or sufficient estimated taxable income against which the losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped.
  3          Use of estimates and judgements - (continued)
  iv)  Share-based payment transactions
  The Group measures the cost of equity-settled, share based payment transactions with employees, directors as well as with Indigenisation Shareholders (refer note 5 and 20) by reference to the fair value of the equity instruments on the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the appropriate valuation model, considering the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield. Additional information about significant judgements and estimates and assumptions for estimating fair value for share-based payment transactions are disclosed in note 20.
  Option pricing models require the input of highly subjective assumptions including the expected price volatility.  Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Group’s stock options.
  v)  Impairment
  At each reporting date, the Group determines if impairment indicators exist, and if present, performs an impairment review of the non-financial assets held in the Group. The exercise is subject to various judgemental decisions and estimates. Financial assets are also reviewed regularly for impairment. Further details of the judgements and estimates made for these reviews are set out in Note 4(g).
  vi)  Functional currency
 
 The functional currency of each entity in the Group is determined after considering various primary and secondary indicators which require management to make numerous judgement decisions. The determination of the functional currency has a bearing on the translation process and ultimately the foreign currency translation reserve.
  vii)  Measurement of fair values
  Some of the Group’s accounting policies and disclosure require the measurement of fair values, for both financial and non-financial assets and liabilities.
  The Group has established a control framework with respect to the measurement of fair values. This includes a valuation team member who has overall responsibility for overseeing all significant fair value measurements.
  Significant valuation issues are reported to the Group’s Audit Committee.
  When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Where applicable, fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation technique as follows:
  F-10
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  ·
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).
 4          Significant accounting policies
  Except as stated in note 4(p), the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by the Group entities.
  (a) Basis of consolidation
  i)
Subsidiaries
  Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variability in returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
  ii)
Loss of control
  When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
  iii)
Non-controlling interests
  NCI are measured at their proportionate share of the carrying amounts of the acquiree’s identifiable net assets at fair value at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
  iv)
Transactions eliminated on consolidation
  Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
  (b) Foreign currency
  i)
Foreign operations
  The functional currency of Caledonia Mining Corporation is the Canadian dollar, and for its subsidiaries it is US dollar, Zambian Kwacha and South African Rand (“ZAR”) respectively. Subsidiary financial statements have been translated to Canadian dollars as follows:
 
 
 ·
Assets and liabilities are translated using the exchange rate at period end; and
 ·
Income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions.
 
 F-11
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from the item are considered to form part of the net investment in a foreign operation and are recognized in Other Comprehensive Income (“OCI”). If settlement is planned or likely in the foreseeable future, foreign exchange gains and losses are included in profit or loss.
 
 4           Significant accounting policies - (continued)
 
 When the Group disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in OCI related to the foreign operation are recognized in profit or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in OCI related to the subsidiary are reallocated between controlling and non-controlling interests.
 
 All resulting translation differences are reported in OCI.
  ii)
Foreign currency translation
  In preparing the financial statements of the Group entities, transactions in currencies other than the Group entities’ functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary assets and liabilities are translated using the current foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in profit or loss for the year.
  (c)
Financial instruments
  i)
Non-derivative financial assets
  The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
  The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
  Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
  The Group has the following non-derivative financial assets: trade and other receivables, prepayments as well as cash and cash equivalents.
  Loans and receivables
  Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. The impairment loss on receivables is based on a review of all outstanding amounts at period end. Bad debts are written off during the year in which they are identified. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
 
 Loans and receivables include trade and other receivables and prepayments.
  F-12
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 4           Significant accounting policies - (continued)
  Cash and cash equivalents
  Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
  ii)
Non-derivative financial liabilities
  Financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
  Non-derivative financial liabilities consist of bank overdrafts and trade and other payables.
  Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.
  (d) Share capital
  Share capital is classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
  (e)
Property, plant and equipment
  i)
Recognition and measurement
  Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets.
  ii)
Exploration and evaluation expenditure
  Exploration costs are expensed as incurred, unless there is a high degree of confidence in the project's viability and it is probable that the project will return future economic benefits to the group when all further pre-production expenditure is capitalised. These costs include evaluation costs.
  Once the legal right to explore a property has been acquired, costs directly related to exploration and evaluation expenditures (“E&E”) are capitalized in addition to the acquisition costs and disclosed under Property, plant and equipment as mineral properties not depreciated These direct expenditures include such costs as materials used, surveying costs, drilling costs, payments made to contractors, direct administrative costs and depreciation on plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the year in which they occur.
  Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development. Exploration and evaluation assets are tested for impairment before the assets are transferred to mine under development. All direct costs related to the acquisition, exploration  and development of mineral properties are capitalized until the properties to which they relate are ready for their intended use, sold, abandoned or management has determined there to be impairment. If economically recoverable ore reserves are developed, capitalized costs of the related property are reclassified as mineral properties being depleted.
  F-13
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  4           Significant accounting policies – (continued)
 
 When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised within other income in profit or loss.
  iii)
Subsequent costs
  The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow
  to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
  iv)
Depreciation
  Depreciation is calculated to write off the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, except for mineral properties, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. On commencement of commercial production, depreciation of each mineral property and development is provided for on the unit-of-production basis using estimated proven and probable reserves. Where the total reserves are not determinable because ore bearing structures are open at depth or are open laterally, the straight-line method of depreciation is applied over the estimated life of the mine. Land is not depreciated.
  The estimated useful lives for the current and comparative periods are as follows:
 ·
buildings 10 to 15 years
 ·
plant and equipment10 years
 ·
fixtures and fittings including computers 4 to 10 years
 ·
motor vehicles 4 years
 Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
  (f)
Inventories
  F-14
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 Consumable stores are measured at the lower of cost and net realisable value. The cost of consumable stores is based on the weighted average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of gold in process, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
      F-15
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  4           Significant accounting policies – (continued)
  (g)
Impairment
  (i)
Financial assets (including receivables)
  A financial asset not classified as fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
  Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost provides objective evidence of impairment.
  The Group considers evidence of impairment for receivables at both the specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
  (ii)
Non-financial assets
  The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).
   F-16
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 4           Significant accounting policies – (continued)
  The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
  An impairment loss is recognised if the carrying amount of a CGU exceeds its estimated recoverable amount. The estimated recoverable amount is the greater of its fair value less cost to sell and its estimated value in use. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amount of other assets in the unit (group of units) on a pro ratabasis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been an indication of reversal and a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
  (iii)
Impairment of exploration and evaluation assets
  The test for recoverability of E&E assets can combine several CGUs as long as the combination is not larger than a segment. The definition of a CGU does, however, change once development activities have begun. There are special impairment triggers for E&E assets. Despite certain relief in respect of impairment triggers and the level of aggregation, the impairment standard is applied in measuring the impairment of E&E assets. Reversals of impairment losses are permitted in the event that the circumstances that resulted in impairment have changed.
  E&E assets are only assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount and upon transfer to development assets (therefore there is no requirement to assess for indication at each reporting date until the entity has sufficient information to reach a conclusion about the commercial viability and technical feasibility of extraction). Indicators of impairment include the following:
  ·
The entity's right to explore in the specific area has expired or will expire in the near future and is not expected to be renewed.
 ·
Substantive expenditure on further E&E activities in the specific area is neither budgeted nor planned.
 ·
The entity has not discovered commercially viable quantities of mineral resources as a result of E&E activities in the area to date and has decided to discontinue such activities in the specific area.
 ·
Even if development is likely to proceed, the entity has sufficient data indicating that the carrying amount of the asset is unlikely to be recovered in full from successful development or by sale.
 (h)
Employee benefits
  (i)
Short-term employee benefits
  Short-term employee benefits are expensed when the related services are provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
  (ii)
Defined contribution plans
  A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to
  F-17
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 4           Significant accounting policies – (continued)
  the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
  (I)
Share-based payment transactions
  (i)
Share-based payment relating to employees and directors
  The grant date fair value of share-based payment awards granted to employees and directors is recognised as an expense, with a corresponding increase in equity, over the vesting period of the award. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
  Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period or immediately for awards already vested.
  Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive income.
  (ii)
Share-based payment relating to the indigenisation transaction
  The grant date fair value of equity-settled share-based payment transactions with Indigenisation Shareholders (note 5) was recognised immediately as an expense in 2012 in the statement of comprehensive income, with a corresponding increase in equity, when the transaction became effective.
  (j)
Provisions
  A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
  (k)
Site restoration
  The Group recognises liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets.  The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to mineral properties along with a corresponding increase in the rehabilitation provision in the period incurred.  Discount rates using a pre-tax rate that reflects the time value of money and are related to the provision are used to calculate the net present value. The Group’s estimates of rehabilitation costs, which are reviewed annually, could change as a result of changes in regulatory requirements, discount rates, effects of inflation and assumptions regarding the amount and timing of the future expenditures.  These changes are recorded directly to mineral properties with a corresponding entry to the rehabilitation provision.  Changes resulting from production are charged to profit and loss for the period.  The costs of rehabilitation projects that were included in the rehabilitation provision are recorded against the provision as incurred.  The cost of on-going current programs to prevent and control pollution is charged against profit or loss as incurred.
  F-18
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 4          Significant accounting policies – (continued)
  (l)

Revenue
  Revenue from the sale of precious metals is recognized when the metal is accepted at the refinery, risk and benefits of ownership are transferred and the receipt of proceeds is substantially assured. Revenue is measured at the fair value of the gold price receivable at the date of the transaction.
  (m)
Finance income and finance costs
  Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on the rehabilitation provisions and impairment losses recognised on financial assets, interest on bank overdraft balances and also include commitment costs on overdraft facilities. Finance income and finance costs further include foreign exchange differences on financial assets and financial liabilities.
  Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
  (n)

Income tax
  Income tax expense comprises current and deferred tax. Current tax and deferred tax expense are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
  (i)
Current tax
  Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
  (ii)
Deferred tax
  Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
  Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
  F-19
  Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  4           Significant accounting policies – (continued)
  (o)
Earnings per share
  The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the adjusted profit or loss attributable to ordinary shareholders of the Group (see note 18) by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees and directors as well as any dilution in Group earnings originating from dilutive partially recognised non-controlling interests at a subsidiary level.
  (p)
Changes in accounting policies
  The Group has adopted the following new standards, including any consequential amendments to other standards, with a date of January 1, 2014. The nature and effects of the changes are explained below.
  Offsetting of financial assets and financial liabilities
  The Group does not have financial assets and financial liabilities that are offset. As a result, the amendments to IFRS 7 did not require expanded disclosure about the offsetting of financial assets and financial liabilities.
  IAS 36 Amendment - Disclosure of recoverable amount for non-financial assets
  The Group has adopted the amendments to IAS 36 (2013) in the year ended December 31, 2014. To the extent that impairment is recognised and the recoverable amount is determined with reference to fair value less costs of disposals, the required additional disclosure has been provided.
  (q)
Standards, amendments and interpretations issued but not yet effective
  There are new or revised Accounting Standards and Interpretations in issue that are not yet effective.  Management have considered all of these Standards and Interpretations and have concluded that those that may have an impact on future consolidated financial statements are the following:
  Standard/Interpretation
Effective date*
Adoption date by the GroupAmendments to IAS 1
Disclosure Initiative
January 1, 2016
January 1, 2016IFRS 15
Revenue from Contracts with Customers
January 1, 2017
January 1, 2017IFRS 9
Financial Instruments
January 1, 2018
January 1, 2018
  *Annual periods beginning on or after
  
 F-20
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 4          Significant accounting policies – (continued)
  Possible impact on the consolidated financial statements
 ·
Disclosure Initiative (Amendments to IAS 1)
 The amendments provide additional guidance on the application of materiality and aggregation when preparing financial statements. The amendments apply for annual periods beginning on or after January 1, 2016 and early application is permitted. The amendment is not expected to result in significant changes to the level of aggregation in the financial statements.
  ·
IFRS 15 Revenue from contracts with customers
 This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving Advertising Services.
 The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.
 This new standard is not expected to have a significant impact on the Group since it is not expected to change the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending December 31, 2016 financial statements.
  ·
IFRS 9 Financial Instruments
 On July 24, 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard is not expected to have a significant impact on the Group as measurement categories are similar to IAS 39 even though the criteria for classification into these categories are significantly different. The IFRS 9 impairment model has also been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model. The change is not expected to increase the provision for bad debts recognised in the Group because of the short gold sales collection period. The Group will adopt the standard in the first annual period beginning on or after January 1, 2018.
  5
Blanket Zimbabwe Indigenisation Transaction
  During 2012 the Group, to comply with Zimbabwean law that requires indigenous Zimbabweans own at least 51% of the Blanket Mine, entered into agreements to transfer a 51% ownership interest in Blanket Mine as follows:
 ·
Sold a 16% interest to the National Indigenisation and Economic Empowerment Fund (“NIEEF”) for US$11.74 million.
 ·
Sold a 15% interest to Fremiro, which is owned by Indigenous Zimbabweans, for US$11.01 million.
 
 ·
Sold a 10% interest to Blanket Employee Trust Services (Private) Limited (BETS) for the benefit of present and future managers and employees for US$7.34 million. The shares in BETS are held by the Blanket Mine Employee Trust (Employee Trust) with Blanket Mine’s employees holding participation units in the Employee Trust.
 ·
And donated a 10% ownership interest to the Gwanda Community Share Ownership Trust (Community Trust). In addition Blanket Mine paid a non-refundable donation of US$1 million to the Community Trust.
 
 The Group facilitated the vendor funding of these transactions which is repaid by way of dividends from Blanket Mine. 80% of dividends declared by Blanket Mine are used to repay such loans and the remaining 20% unconditionally accrues to the respective Indigenous Shareholders.
 
 F-21
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 5
Blanket Zimbabwe Indigenisation Transaction – (continued)
 
 Outstanding balances on the facilitation loans attract interest at a rate of 10% over the 12-month LIBOR. The timing of the repayment of the loans depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine.
 
 The facilitation loans relating to the group were declared by Caledonia Holdings Zimbabwe (Private) Limited (“CHZ”) (Blanket Mine’s parent company) to a wholly-owned subsidiary of Caledonia Mining Corporation as a dividend in specie on February 14, 2013 and withholding tax amounting to US$1.504 million was paid and expensed on March 5, 2013.
 
 Accounting treatment
 The directors of CHZ, a wholly owned subsidiary of the Company, performed an assessment, using the requirements of IFRS 10: Consolidated Financial Statements (IFRS 10), and concluded that CHZ should continue to consolidate Blanket Mine and accounted for the transaction as follows:
 ·
Non-controlling interests (NCI) are recognised on the portion of shareholding upon which dividends declared by Blanket Mine accrue unconditionally to equity holders as follows:
 (a)           20% of the 16%  shareholding of NIEEF;
 (b)           20% of the 15%  shareholding of Fremiro;
 (c)           100% of the 10% shareholding of the Community Trust.
 ·      This effectively means that NCI is recognised at Blanket Mine level at 16.2% of the net assets.
 ·
The remaining 80% of the shareholding of NIEEF and Fremiro is recognised as non-controlling interests to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. At December 31, 2014 the attributable net asset value did not exceed the balance on the respective loan accounts and thus no additional NCI was recognised.
 ·
The transaction with the BETS is accounted for in accordance with IAS 19 Employee Benefits (profit sharing arrangement) as the ownership of the shares does not ultimately pass to the employees. The employees are entitled to participate in 20% of the dividends accruing to the 10% shareholding in Blanket Mine if they are employed at the date of such distribution. To the extent that 80% of the attributable dividends exceed the balance on the BETS facilitation loan they will accrue to the employees at the date of such declaration.
 ·
The Employee Trust and BETS are structured entities which are effectively controlled and consolidated by Blanket Mine. Accordingly the shares held by BETS are effectively treated as treasury shares in Blanket Mine and no NCI is recognised.
   
 
 
 
 Indigenisation shareholding percentages and facilitation loan balancesShareholding
NCI

Recognised
NCI subject to

facilitation

loan
Balance of

facilitation

loan at Dec, 31

2014 #

US$’000
Dec, 31

2013

US$’000NIEEF
16%
3.2%
12.8%
11,907
11,742Fremiro
15%
3.0%
12.0%
11,657
11,402Community Trust
10%
10.0%
-
-
-BETS ~
10%
-*
-*
7,772
7,60251%
16.2%
24.8%
31,336
30,746
 
 
 F-22
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  5   Blanket Zimbabwe Indigenisation Transaction – (continued)
  The balance on the facilitation loans is reconciled as follows:
 USD ‘000’sBalance at December 31, 2011

30,090Interest accrued

656Dividends used to repay loans

-Balance at December 31, 2012

30,746Interest accrued

2,049Dividends used to repay loans

(2,120)Balance at December 31, 2013

30,675Interest accrued

2,407Dividends used to repay loans

(1,746)Balance at December 31, 2014

31,336
 
 *The shares held by BETS are effectively treated as treasury shares (see above).
 ~ Accounted for under IAS19 Employee Benefits.
 # Facilitation loans are accounted for as equity instruments and are accordingly not recognised as loans receivable.
 
 The following indigenisation costs have been incurred:
 
 2014
2013
2012Donation to Gwanda GSCOT
-
-
1,140Legal fees
-
-
21Professional consulting fees
-
-
539-
-
1,700
 
 Advance dividends
 
 In anticipation of completion of the underlying subscription agreements, Blanket Mine agreed to an advance dividend arrangements with NIEEF and the Community Trust as follows:
 
 (a)
Advances to the Community Trust against their right to receive dividends declared by Blanket Mine on their shareholding as follows:
  ·
A US$2 million payment on or before September 30, 2012;
 ·
A US$1 million payment on or before February 28, 2013; and
 ·
A US$1 million payment on or before April 30, 2013.
  These advance payments were debited to a loan account bearing interest at a rate of 10% over the 12-month LIBOR.  The loan is repayable by way of set off of future dividends on the Blanket Mine shares owed by the Community Trust.
 
 (b)
An advance payment of US$1.8 million to NIEEF against their right to receive dividends declared by Blanket Mine on their shareholding.  The advance payment was debited to an interest-free loan account and was repayable by way of set off of future dividends on the Blanket Mine shares owned by NIEEF. Whilst any amount remained outstanding on the NIEEF dividend loan account, interest on the NIEEF facilitation loan was suspended.
 
 The advance dividend payments were recognised as distributions to shareholders and they are classified as equity instruments. The loans arising are not recognised as loans receivable, because repayment is by way of uncertain future dividends to be declared.
 
 F-23
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 5   Blanket Zimbabwe Indigenisation Transaction – (continued)
 
 (c)
From January 1, 2015, Blanket will suspend dividend payments until early 2016 as a result of which the repayment of facilitation loans by Blanket’s indigenous shareholders are also suspended. During this period, there will be a moratorium on the interest roll-up on the outstanding facilitation loans.
 
 The movement in the advance dividend loans is reconciled as follows in USD 000’s:
 
 NIEEF
Community Trust
TotalUS$
US$
US$Balance at January 1, 2013


1,800
2,062
3,862Advanced dividends paid


-
2,000
2,000Interest accrued


-
346
346Dividends used to repay advance dividends


(1,442)
(901)
(2,343)Balance at December 31, 2013


358
3,507
3,865Interest accrued


-
334
334Dividends used to repay advance dividends


(358)
(604)
(962)Balance at December 31, 2014


-
3,237
3,237
  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.
  
 F-24
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 6
Financial risk management – (continued)
  The types of risk exposure and the way in which such exposures are managed are as follows:
  (a)
Currency risk
  The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities. The Group does not use financial instruments to hedge its exposure to currency risk. Currency risk on the repayment of the sales and purchases are managed by regular repayments of the outstanding amounts.
  (b)
Interest rate risk
  The Group is exposed to interest rate risk arising from its cash and cash equivalents invested with financial institutions as well as its overdraft facility. Management’s policy is to invest cash in financial institutions with a credit –rating of at least “A” that offer the highest interest rates.
  (c)           Credit risk
  Credit risk includes the risk of a financial loss to the Group if a gold sales customer fails to meet its contractual obligation. Gold sales were made to Fidelity Printers and Refiners in Zimbabwe during the year.  The payment terms stipulated in the service delivery contract were adhered to in all circumstances. Cash is deposited only with “A” grade banks.
  (d)
Liquidity risk
 
 Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
 
 The Group manages its liquidity risk by ensuring that there is sufficient capital to meet its likely cash requirements, after taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents. The Group believes that these sources will be sufficient to cover the anticipated cash requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities. Since the inception of dollarization in Zimbabwe in 2009, all appropriate insurance cover has been reinstated. The Zimbabwean operations are now covered for public liability risk, assets all risk and comprehensive cover on all motor vehicles.
  7           Capital Management
  The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue the mining operations and exploration potential of the mineral properties.
 The Group’s capital includes shareholders’ equity, comprising issued share capital, reserves, accumulated other comprehensive income, accumulated deficit, bank loans and non-controlling interests.
  2014
2013$
$Total equity
58,535
51,974
 
 The Group’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its on-going operations, to provide returns for shareholders, accommodate any rehabilitation provisions and to pursue growth opportunities. As at December 31, 2014, the Group is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy.
 
  F-25
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 8              Production costs
 2014
2013
2012$
$
$Salaries and wages
11,056
10,105
8,491Consumable materials
16,081
14,470
13,286Site restoration
32
151
43Exploration
379
(288)
831Safety
522
595
251On mine administration
2,742
2,379
2,75130,812
27,412
25,653
  9               Administrative expense
  2014
2013
2012$
$
$Investor  relations
567
723
447Management contract fee
938
879
704Audit fee
393
333
443Legal fee and disbursements
797
439
189Accounting services fee
27
28
83Listing fees
351
340
151Directors fees
371
364
194Salaries and wages
2,542
1,785
1,648Office costs  - Zambia
989
-
-Employee benefits relating to indigenisation
155
216
-Donation to scholarship fund
-
2,096
-Professional consulting fees
541
-
-Other
486
569
1968,157
7,772
4,055
  10               Finance income and finance costs
  Finance income
2014
2013
2012$
$
$Interest received – Bank
15
24
79Finance costInterest paid – Bank
(22)
(30)
(60)Unwinding of rehabilitation provision
(37)
-
-Finance charges - Overdraft
(111)
(102)
(100)(170)
(132)
(160)
 
 
 F-26
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  11               Tax expense
 2014
2013
2012Tax recognised in profit or loss

$
$
$Current tax expense

5,824
7,712
12,547Income tax– current year

5,059
5,139
10,784Income tax – adjustment for current tax in prior years

(215)
-
-Withholding tax expense

980
2,573
1,763Deferred tax expense

780
2,185
271Origination and reversal of temporary differences

517
2,185
525Change in effective tax rate

263
-
(254)Tax expense – recognised in profit or loss

6,604
9,897
12,818
  Tax recognised in other comprehensive income
  Income tax - current year
(122)
-
-Net tax expense
6,482
9,897
12,818
  Unrecognised deferred tax assets
  Deferred tax assets have not been recognised in respect of the following items:
  2014

2013
2012$

$
$Deductible temporary differences
-

3,594
3,338Tax losses carried forward
23,205

16,029
10,47823,205

19,623
13,816
  Taxable losses expire as set out below for the entities making taxable losses within the group. Deferred tax assets have not been recognised for these items because future taxable income is not deemed probable to utilise these benefits against.
  Year
Amount2015
1,8632026
2,7802027
3,0542028
2,2602029
1,6612030
1,6172031
2,2382032
2,6672033
2,8962034
4,096No expiry
51,11676,248
 
 
 F-27
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 11           Tax expense - (continued)
  Reconciliation of tax rate
  2014
2014
2013
2013
2012
2012%
$
%
$
%
$Profit/(Loss) for the year

6,565

(490)

7,358Total tax expense

6,604

9,897

12,818Profit before tax

13,169

9,407

20,176Income tax using Company's domestic tax rate
26.5%
3,490
26.5%
2,493
26.5%
5,347Tax rate differences in foreign jurisdictions

(385)

(1,450)

(210)Change in effective tax rate

263

-

(254)Foreign currency difference

37

(12)

439Withholding tax – not offsetable

205

1,837

1,763Share based payment expenses and other non-deductible expenses

(373)

1,222

4,364Accrual for dispute

-

-

806Net over provision of taxes in prior years

(215)

-

-Change in unrecognized deferred tax assets

3,582

5,807

563Tax expense - recognised in Profit or loss

6,604

9,897

12,818
 
 Tax paid
2014

2013
2012$

$
$Income tax payable at January, 1
1,138

1,518
295Current and withholding tax expense
5,824

7,712
12,547Income tax recognised through other comprehensive income
(122)

-
-Foreign currency movement
38

(118)
294Tax paid
(4,999)

(7,974)
(11,618)Net Income tax payable at December, 31
1,879

1,138
1,518
 
 Net income tax
2014

2013
2012$

$
$Income tax receivable *
(111)

-
-Income tax payable
1,990

1,138
1,5181,879

1,138
1,518
 
 * Receivable is due to an overpayment made to ZIMRA during quarter 4 of 2014 which cannot be offset against other tax jurisdictions.
 
 F-28
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  11           Tax expense - (continued)
 
 Recognised deferred tax assets and liabilities
 
 Deferred tax assets and liabilities are attributable to the following:
 
 Assets
Liabilities
Net2014
2013
2014
2013
2014
2013$
$
$
$
$
$Property, plant and equipment
-
-
(10,339)
(8,619)
(10,339)
(8,619)Inventories
-
-
-


(85)Provisions
271
221
-
-
271
221Other items
-
-
(24)
(39)
(24)
(39)Tax assets (liabilities)
271
221
(10,363)
(8,743)
(10,092)
(8,522)
 
 
 Movement in recognised deferred tax assets and liabilities
 
 Balance

January 1, 2014
Recognised in

profit or loss
Recognised in

othercomprehensive income
Balance

December 31, 2014Property, plant and equipment
(8,619)
(914)
(806)
(10,339)Inventories
(85)
-
85
-Provisions
221
119
(69)
271Other
(39)
15
-
(24)Total
(8,522)
(780)
(790)
(10,092)
 
 Balance

January 1, 2013
Recognised in

profit or loss
Recognised in

other comprehensive income
Balance

December 31, 2013Property, plant and equipment
(6,156)
(2,348)
(115)
(8,619)Unrealised forex
61
-
(61)
-Inventories
66
158
(309)
(85)Provisions
181
40

221Other
(3)
(35)
(1)
(39)Total
(5,851)
(2,185)
(486)
(8,522)Balance

January 1, 2012
Recognised in

profit or loss
Recognised in

other comprehensive income
Balance

December 31, 2012Property, plant and equipment
(6,466)
143
167
(6,156)Unrealised forex
119
(49)
9
61Inventories
59
8
(1)
66Provisions
373
(182)
(10)
181Other
(3)
-
-
(3)Non capital loss carried forward
206
(191)
(15)
-Total
(5,712)
(271)
(486)
(5,851)
 
  F-29
 
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 12              Property, plant and equipment
  Land and

buildings
Mineral properties depreciated
Mineral properties not depreciated
Plant and equipment
Fixtures and fittings
Motor vehicles
Total$
$
$
$
$
$
$CostBalance at January 1, 2013

4,534
11,325
10,838
19,346
1,196
1,782
49,021Additions

3,240
2,695
4,451
979
85
288
11,738Foreign exchange movement

378
971
1,031
1,151
25
149
3,705Balance at December 31, 2013

8,152
14,991
16,320
21,476
1,306
2,219
64,464Balance at January 1, 2014

8,152
14,991
16,320
21,476
1,306
2,219
64,464Additions*

592
3,390
1,864
1,921
122
19
7,908Reallocations between asset classes

(640)
1,834
-
(1,197)
3
-
-Disposals

-
-
-
(304)
-
(9)
(313)Foreign exchange movement

742
1,689
(2,763)
2,482
(44)
61
2,167Balance at December 31, 2014

8,846
21,904
15,421
24,378
1,387
2,290
74,226
  There are commitments to purchase plant and equipment totalling $642 (2013 - $178) at year end.
  * Included in mineral properties depreciated is an amount of $1,122 relating to rehabilitation asset capitalised refer note 21.
  
 F-30
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 12           Property, plant and equipment - (continued)
  Land and

buildings
Mineral properties depreciated
Mineral properties not depreciated
Plant and equipment
Fixtures and

fittings
Motor vehicles
TotalAccumulated depreciation and Impairment losses

$
$
$
$
$
$
$Balance at January 1, 2013

978
2,028
-
7,759
982
803
12,550Depreciation for the year

272
620
-
2,016
70
298
3,276Impairment (1)

(a)399
-
(b)13,713
91
-
-
14,203Derecognition

-
-
-
(443)
-
-
(443)Foreign exchange movement

85
178
620
20
11
73
987Balance at December 31, 2013

1,734
2,826
14,333
9,886
1,063
1,174
31,016Balance at January 1, 2014

1,734
2,826
14,333
9,886
1,063
1,174
31,016Depreciation for the year

567
810
-
2,088
86
357
3,908Disposals

-
-
-
(236)
-
(9)
(245)Impairment

-
-
-
180
16
-
196Foreign exchange movement

(252)
358
(930)
(140)
(65)
(8)
(1,037)Balance at December 31, 2014

2,049
3,994
13,403
11,778
1,100
1,514
33,838Carrying amountsAt December 31, 2013

6,418
12,165
1,987
11,590
243
1,045
33,448At December 31, 2014

6,797
17,910
2,018
12,600
287
776
40,388
  
 F-31
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 12           Property, plant and equipment - (continued)
  (1)
The impairments detail herein relate to the following:
 (a)
This relates to the cost attributable to mineral rights held by Eersteling Gold Mine. Due to changed legislation this cost no longer has value to the Group. This mineral right does not relate to the application lodged for the New Order Mining Right applied for by Eersteling Gold Mine.
 (b)
This relates to Exploration expenditure incurred at Caledonia Nama Limited in Zambia. The full carrying value of costs previously incurred and capitalised were impaired in 2013 for the following reasons:
 ·
Substantive expenditure on further E&E activities in the specific area is neither budgeted nor planned, and
 ·
The Group has not discovered commercially viable quantities of mineral resources as a result of E&E activities in the area to date and has decided to discontinue such activities in the specific area.
 13              Inventories
  2014
2013$
$Consumable stores

6,932
5,995Gold in process

639
8717,571
6,866
 
 Inventory comprises gold in progress at the Blanket Mine and consumable stores utilised by Blanket Mine. Consumables stores are disclosed net of any write downs or provisions of obsolete items.
 
 14              Trade and other receivables
  2014
2013$
$Bullion revenue receivable

-
1,662VAT receivables

1,169
1,331Deposits for stores and equipment and other receivables

871
8962,040
3,889
  The Group's exposure to credit and currency risks, and impairment losses related to trade and other receivables is disclosed in notes 6 and 24.
 
 F-32
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  15              Cash and cash equivalents
  2014
2013$
$Bank balances

26,838
25,222Cash and cash equivalents in the statement of financial position

26,838
25,222Bank overdrafts used for cash management purposes

-
(1,796)Cash and cash equivalents in the statement of cash flows

26,838
23,426
  The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 24.
  The bank overdraft facility of US$2.5 million bears interest at 8% above the bank’s base rate. The facility is unsecured, valid for 12 months and is renewable. The facility is repayable on demand.
  16              Share capital
  AuthorisedUnlimited number of ordinary shares of no par value.Unlimited number of preference shares of no par value.Number of fully paid

ordinary shares (1)
Amount

$IssuedDecember 31, 2012
51,446,178
197,137Reduction in stated capital (note 17)
-
(140,000)Share options exercised during the year
671,730
470December 31, 2013
52,117,908
57,607December 31, 2014
52,117,908
57,607
 
 The holders of ordinary 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) During fiscal 2013 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.
  17               Reserves
  Investment revaluation reserve
  The investment revaluation reserve arises from the valuation of investments at fair value through OCI. The amount was transferred to retained loss in the previous year because the investment was disposed of.
  Foreign currency translation reserve
  The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations with functional currencies that differ from the presentation currency.
  F-33
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 Share-based payment reserve
  The share-based payment reserve comprises the fair value of equity instruments granted to employees, directors and service providers under share option plans and equity instruments issued to Zimbabwe indigenisation shareholders under the Indigenisation Transaction (refer Note 5).
  Contributed surplus
  The contributed surplus reserve comprises the reduction in stated capital as approved by shareholders at the special general meeting on January 24, 2013 so as to be able to commence dividend payments.
  Reserves
2014
2013$
$Foreign currency translation reserve
4,133
319Share-based payment reserve
15,750
15,750Contributed surplus
140,000
140,000Total - December 31
159,883
156,069
  18               Earnings/(Loss) per share
  Basic earnings/(loss) per share
  The calculation of basic earnings/(loss) per share at December 31, 2014 was based on the adjusted profit/(loss) attributable to shareholders of $4,843 (2013:($3,160), 2012: 8,720), and a weighted average number of shares outstanding of 52,117,908 (2013: 51,986,466, 2012:50,597,068).
  Weighted average number of shares
  (In number of shares)

Note


2014


2013


2012Issued share capital at January 1

16



52,117,908



51,446,178



50,054,928Weighted average issues during the year






-



540,288



542,140Weighted average number of shares at December 31






52,117,908



51,986,466



50,597,068
 
 2014


2013


2012$



$



$Profit/(Loss) attributable to shareholders


4,897



(3,055
)


8,720Blanket Mine Employee Trust Adjustment


(54
)


(105
)


-Adjusted profit/(loss) attributable to shareholders


4,843



(3,160
)


8,720Basic earnings/(loss) per share -$


0.093



(0.061
)


0.172
  
 F-34
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  18               Earnings/(Loss) per share – (continued)
  ·
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 ordinary shareholders.
  The calculation of diluted earnings per share at December 31, 2014 was based on the adjusted profit/(loss) attributable to shareholders of $4,843 (2013: ($3,160), 2012:8,720), and a weighted average number of shares and potentially dilutive shares outstanding of 52,145,469 (2013: 52,007,646, 2012: 50,833,182), calculated as follows:
  Weighted average number of shares
  (In number of shares)
2014
2013
2012Weighted average number of shares (basic) at December 31
52,117,908
51,986,466
50,597,068Effect of dilutive options
27,561
21,180
236,114Weighted average number of  shares (diluted) at December 31
52,145,469
52,007,646
50,833,182Diluted earnings per share - $
0.093
($0.061)
0.172
  The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. The potential dilutive effect of 2,538,359 options (2013 – 2,576,920, 2012 – 2,577,900) was excluded from the above calculations because these options were anti-dilutive.
  19              Defined Contribution Plan
  Under the terms of the Mining Industry Pension Fund (“Fund”) in Zimbabwe, eligible employees contribute a fixed percentage of their eligible earnings to the Fund. Blanket Mine makes a matching contribution plus an inflation levy as a fixed percentage of eligible earnings of these employees. The total contribution by Blanket Mine for the year ended December 31, 2014 was $489 (2013: $445).
 
 F-35
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 20              Share-based payments
  At December 31, 2014 the Group has the following share-based payment arrangements:
  (a) Share option programme (equity-settled)
  The Group has established a rolling stock option plan (the "Plan") for employees, officers, directors, consultants and other service providers. In accordance with the Plan, options are granted with exercise prices equal to the market price of the shares at the date of grant and vests immediately.
  Terms and conditions of share option program
  The terms and conditions relating to the grants under the Plan are that all options are to be settled by physical delivery of shares. Under the current Plan, the maximum term of the options is 5 years.  Under the Plan, the aggregate number of shares that may be issued will not exceed 10% of the number of the shares issued of the Company.
  At December 31, 2014, the Company has the following options outstanding:
 
 Number of Options
Exercise Price
Expiry Date(1)$1,461,000
1.30
Jan 31, 201630,000
0.70
May 11, 2016884,920
0.90
Sept 10, 2017190,000
0.72
Nov 21,20182,565,920
  (1)
In terms of the approved Plan, the expiry date of options that expire in a closed period will be extended by 10 days from the cessation of the close period.
  The continuity of the options granted, exercised, cancelled and expired under the Plan during 2014 and 2013 are as follows:
  Number of Options
Weighted Avg. Exercise Price$Options outstanding and exercisable at December 31, 2012
3,329,650
1.05Exercised
(671,730)
0.70Granted
190,000
0.72Options outstanding and exercisable at December 31, 2013
2,847,920
1.11Exercised
-
-Expired or forfeited
(282,000)
1.13Options outstanding and exercisable at December 31, 2014
2,565,920
1.11
  The weighted average remaining contractual life of the outstanding options is 1.81 years (2013: 2.76 years).
  F-36
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 20              Share-based payments – (continued)
  The vesting of options is determined at the discretion of the board of directors, at the time the options are granted.
  Inputs for measurement of grant date fair values
  The fair value of share based payments noted above was estimated using the Black-Scholes Option Pricing Model with the following assumptions.
  Risk-free interest rate


0.95%Expected dividend yield


NilExpected stock price volatility (based on historical volatility)


57.88%Expected option life in years


5Exercise price


0.72Share price at grant date


0.72Fair value at grant date


0.356Expected forfeiture rate


0%
 
 No share based payments were granted during 2014. Costs relating to share based payments granted amounted to Nil (2013: $68, 2012:14,569). The 2012 expense included and amount of 14,161 for the option value of the Blanket mine indigenisation transaction and 408 relating to share options granted to employees.
 
 (b) Equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction
 
 The equity instruments granted under the Blanket Mine Zimbabwe Indigenisation Transaction (refer note 5), excluding Blanket Mine Employee Trust Services (Private) Limited (BETS), were accounted for as share-based payments under IFRS 2 Share Based Payment, whilst the equity instruments granted to BETS have been accounted for under IAS 19 Employee benefits.
 
 The fair value of the equity instruments on the grant date of September 5, 2012 was determined for each transaction as being the sum of the present value of the following components:
 ·
The value of the shares at the point that any loans provided to purchase the shares or fund advance dividends are paid off;
 ·
The value of any advance dividends paid to participants;
 ·
The value of any “trickle dividends”, being the 20% entitlements, paid to participants while the loans to purchase the shares are outstanding.
 
 To determine the fair value of the equity-settled share-based payment and take into account the unique features of each transaction, the Monte Carlo Simulation technique was used as the valuation model to allow for the uncertainty around the potential scenarios that affect the value of each arrangement. Projected market values were estimated using a stochastic modelling methodology based on Geometric Brownian Motion model. Additional equity instruments will vest to the Non-controlling interest to the extent that their attributable share of the net asset value of Blanket Mine exceeds the balance on the facilitation loans including interest. Refer to note 5 for the accounting treatment of the Non-controlling interests.
 
 F-37
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 20
Share-based payments – (continued)
 
 Assumptions used based on the grant date of September 5, 2012 were as follows:
 
 Fair value of Blanket Mine
$45,065Expected volatility (based on historical volatility)
65%Risk free rates
USD swap curve with country specific adjustmentsCountry specific adjustment
17.3%Dividend yield
14.8%Withholding tax
5% of dividendsInterest on loans
10%
 
  21
Provisions
  Site restoration
  Site restoration relates to the net present value of the estimated cost of closing down the mine and site and environmental restoration costs, estimated to be paid in 2026 (Blanket Mine) based on the estimated life of mine. Site restoration costs are capitalised to mineral properties depreciated at initial recognition and amortised systematically over the estimated life of the mine.
 
 $Balance at January 1,2013
1,015Foreign currency adjustment
1Unwinding of discount
(1)Change in estimate during the year
557Balance at December 31,2013
1,572Balance at January 1,2014
1,572Foreign currency adjustment
125Unwinding of discount
37Change in estimate during the year-adjusted through profit or loss
32-adjustment capitalised in Property, plant and equipment
1,122Balance at December 31,2014
2,888
  The discount rates currently applied in the calculation of the net present value of the Blanket mine provision is 2.32% (2013 - 2.75%). The Eersteling mine is under care and maintenance and the provision is not discounted. The gross rehabilitation costs before discounting amounted to $2,890 (2013 - $1,760) for Blanket mine and $716 (2013 - $697) for Eersteling mine.
  F-38
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 22              Trade and other payables
  $

$Trade payables



1,007

1,026Other payables and accrued expenses



2,784

3,5743,791

4,600
  The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 6 and note 24.
  The Directors consider the carrying amounts of trade and other payables as a reasonable approximation of their fair values.
  23               Cash flow information
  Non-cash items and information presented separately on the cash flow statement:
 2014
2013
2012$
$Operating profit
13,324
9,515
20,257Adjustments for:Loss on scrapping of Property, plant and equipment
68
-
-Site restoration
32
556
(91)Share-based payment expense
-
68
14,569Depreciation
3,908
3,276
3,392Impairment
196
14,203
330Cash generated by operations before working capital changes
17,528
27,618
38,457Inventories
(159)
(1,767)
(1,151)Prepayments
(234)
(51)
195Trade and other receivables
3,420
(2,226)
1,846Trade and other payables
(1,733)
(806)
2,073Cash flows from operating activities
18,822
22,768
41,420
  24               Financial instruments
  Credit risk
  Exposure to credit risk
  The carrying amount of financial assets as disclosed in the statements of financial position and related notes represents the maximum credit exposure.
  The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
  F-39
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  
 24               Financial instruments – (continued)



Carrying amount


2014

2013$

$Canada


98

-Other regions


773

3,889871

3,889
 
 Impairment losses
  None of the trade and other receivables is past due at the year-end date and were estimated at a level 3 fair value hierarchy. No factors existed at year end that could cause doubt about the credit quality or recoverability of the trade and other receivables.
   Liquidity risk
  The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.
 December 31, 2014
Carrying

amount
6 months or

less$
$Non-derivative financial liabilities – Level 3Trade and other payables
2,317
2,3172,317
2,317December 31, 2013
Carrying

amount
6 months or

less$
$Non-derivative financial liabilities – Level 3Trade and other payables
4,600
4,600Bank overdraft
1,796
1,7966,396
6,396
  Currency risk
  As the Group operates in an international environment, some of the Group’s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Group’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Group are reported in Canadian dollar in the Group’s consolidated financial statements.
  
 F-40
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 24               Financial instruments – (continued)
  The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Group and may also affect the value of the Group’s assets and liabilities and the amount of shareholders’ equity.
  As noted below, the Group has certain financial assets and liabilities denominated in foreign currencies. The Group does not use any derivative instruments to reduce its foreign currency risks. To reduce exposure to currency transaction risk, the Group maintains cash and cash equivalents in the currencies used by the Group to meet short‐term liquidity requirements.
  Below is a summary of the assets and liabilities denominated in a currency other than the Canadian dollar that would be affected by changes in exchange rates relative to the Canadian dollar.  The values are the Canadian dollar equivalent of the respective asset or liability that is denominated in US dollars or South African rands.
 
 2014

2013$

$Cash and cash equivalents
26,512

25, 042Bank overdraft
-

(1,796)Trade and other receivables
773

3,887Prepayments
348

177Trade and other payables
(2,199)

(5,160)
 
 The following exchange rates applied during the year:
 
 Average rate during the year
Spot rate2014
2013
December 31,

2014
December 31,

2013(In Canadian dollars)
$
$
$
$USD 1
1.1041
1.0300
1.1627
1.0696Rand 1
0.1018
0.1071
0.1001
0.1019Kwacha 1
0.1785
0.1895
0.1808
0.1921
  
 F-41
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  24
Financial instruments – (continued)
  Sensitivity analysis
  As a result of the group’s monetary assets and liabilities denominated in foreign currencies which is different to the functional currency of the underlying entities, the profit or loss in the underlying entities could be affected by movements between the functional currency and the foreign currency. The table below indicates net monetary assets/(liabilities) in the group that have a different functional currency and foreign currency. Amounts are indicated before elimination of intergroup balances.
  2014

2013CAD’000

CAD’000Functional currency

Functional currencyUSD denominated balance – Foreign currency
Rand
Kwacha

Rand
KwachaCash and cash equivalents
12,084
12

8,069
41Intercompany balances*
(70,280)
(29,321)

(64,640)
(26,968)*These intercompany balances represent the exposure to foreign currency risk between functional currencies and foreign currencies at a subsidiary level. These balances eliminates on consolidation.



A 5% strengthening or weakening of the various functional currencies against the foreign currencies, for cash and cash equivalents, would have the following effect on profit or (loss) after tax for the group:2014

2013CAD’000

CAD’000Functional currency

Functional currencyRand
Kwacha

Rand
Kwacha5% Strengthening
442
5

290
45% Weakening
(442)
(5)

(290)
(4)A 5% strengthening or weakening of the various functional currencies against the foreign currencies, for intercompany balances, which is allocated on consolidation to the foreign currency translation reserve within equity for the Group and have the following effect:2014

2013CAD’000

CAD’000Functional currency

Functional currencyRand
Kwacha

Rand
Kwacha5% Strengthening
3,510
1,456

2,327
1,3485% Weakening
(3,510)
(1,456)

(2,327)
(1,348)
  F-42
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  Interest rate risk
  Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Unless otherwise noted, it is the opinion of management that the Group is not exposed to significant interest rate risk as it has no debt financing apart from short term borrowings utilized in Zimbabwe.  The Group’s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Group manages its interest rate risk by endeavouring to maximize the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Group’s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in high credit quality financial institutions.
  25              Dividends
  The following dividends were declared and paid by the Company (excluding NCI) for the year ended December, 31 2014.
  2014

2013$

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

5,202
  26              Contingencies
  The Group may be subject to various claims that arise in the normal course of business. Management believes there are no contingent liabilities of the Group arising from claims.
  27              Related parties
 
 Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity. Directors of the company, as well as certain mine managers are considered key managers.
 
 A service agreement between Greenstone Management Services Proprietary Limited and Mr. Curtis includes an option to terminate the contract in the event of a change in control of the Company and to receive a severance payment equal to two years’ compensation.  If this was triggered as at December 31, 2014 the severance payment would have amounted to US $820. The contract also includes a payment of one month’s pay per year of service rendered by Mr Curtis if Caledonia terminates his services. A change in control would constitute:
 ·         the acquisition of more than 50% of the ordinary shares; or
 ·         the acquisition of right to exercise the majority of the voting rights of ordinary shares; or
 ·         the acquisition of the right to appoint the majority of the board of directors; or
 ·         the acquisition of more than 50% of the assets; of
 Greenstone Management Service Proprietary Limited or Caledonia Mining Corporation.
 2014
2013
2012$
$
$Directors fees, Salaries and bonuses
1,966
1,526
1,357Share-based payments
-
36
4011,966
1,562
1,758
  In addition, Blanket Mine also contributes to a defined contribution plan on behalf of eligible employees. For the terms of the plan refer to note 19: Defined Contribution Plan.
  F-43
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 27               Related parties – (continued)
 
 Employees, officers, directors, consultants and other service providers also participate in the Group's share option program (see note 20).
 
 Key management personnel and director transactions:
 
 A number of those entities transacted with the Group in the reporting period. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows:
 
 
 Outstanding balanceAs at December 31,Note
2014
2013
2012
2014
2013$
$
$
$
$Management contract fees, allowances and bonus paid or accrued to a company for management services provided by the Group’s former President and Chief Executive Officer.
(i)
938
736
704
-
-Rent for office premises paid to a company owned by members of the former President’s family.
(ii)
142
38
43
-
-Legal fees and disbursements up to retirement.

-
88
111
-
-Directors fees paid.

326
285
215
-
-
  (i)
On July 15, 2014 Caledonia served a six month notice to Epicure Overseas S.A. for the termination of the contract between Caledonia and Epicure for the provision of the services of Mr. Stefan Hayden, who was at that time Caledonia’s President and Chief Executive Officer (“CEO”).  Negotiations for alternative arrangements to secure the continued services of Mr. Hayden as President and CEO failed to reach agreement.  Accordingly, on November 18, 2014 Mr. Hayden stepped down as President and CEO and on December 6, 2014, Mr. Hayden resigned as a director of Caledonia.  No payments other than the contractual payments that were due to Epicure Overseas SA for the provision of the services of Mr. Hayden during the notice period were made.
  (ii)
The contract expires September 2015.
  Refer to note 5 and note 29 for transactions with Non-controlling interests.
  F-44
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 28              Group entities
  Country of

incorporation
Legal

shareholding
Intercompany balances

with Holding company2014
2013
2014
2013Subsidiaries of the Company

%
%Caledonia Holdings Zimbabwe (Private) Limited
Zimbabwe
100
100
-
-Caledonia Mining Services Limited
Zimbabwe
100
100
-
-Caledonia Kadola Limited
Zambia
100
100
-
-Caledonia Mining (Zambia) Limited
Zambia
100
100
(18,021)
(16,575)Caledonia Nama Limited
Zambia
100
100
(11,200)
(13,301)Caledonia Western Limited
Zambia
100
100
-
-Mulonga Mining Limited
Zambia
100
100
-
-Dunhill Enterprises Inc.
Panama
100
100
-
-Eersteling Gold Mining Corporation Limited
South Africa
100
100
(14,632)
(13,450)Fintona Investments (Proprietary) Limited
South Africa
100
100
(17,277)
(15,890)Greenstone Management Services (Proprietary) Limited
South Africa
100
100
(4,425)
(4,070)Greenstone Management Services Limited
United Kingdom
100
100
9,122
8,390Maid O’ Mist (Proprietary) Ltd
South Africa
100
100
-
-Mapochs Exploration (Proprietary) Ltd
South Africa
100
100
-
-Caledonia Holdings (Africa) Limited
Barbados
100
100
-
-Blanket (Barbados) Holdings Limited
Barbados
100
100
-
-Blanket Mine (1983) (Private) Limited(3)
Zimbabwe
(2)49
49
-
-Blanket Employee Trust Services (Private) Limited (BETS)(1)
Zimbabwe
-
-
-
-Blanket Mine Employee Trust (Employee Trust)(1)
Zimbabwe
-
-
-
-Mulonga Mining Guernsey
Guernsey
100
100
-
-
 () BETS and the Employee Trust are consolidated as structured entities.
 (2)Refer to Note 5, for the effective shareholding. NCI has a 16.2% interest in cash flows of Blanket only.
 (3)Blanket has no subsidiary companies.
 
 F-45
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 
 29               Operating Segments
  The Group's operating segments have been identified based on geographic areas.
 
 The Group has four reportable segments as described below, which are the Group's strategic business units. The strategic business units are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s CEO reviews internal management reports on at least a quarterly basis. The following geographical areas describe the operations of the Group's reportable segments: Corporate, Zimbabwe, South Africa and Zambia. The accounting policies of the reportable segments are the same as described in note 4.
 
 The Corporate segment comprise the holding company and Greenstone Management Services Limited (UK) responsible for administrative functions within the group. The Zimbabwe operating segments comprise of Caledonia Holdings Zimbabwe Limited and subsidiaries. The Zambia segments consist of Nama copper project and cobalt project. The South Africa geographical segment comprise a gold mine as well as sales made by Greenstone Management Services Proprietary Limited to the Blanket Mine.
 
 Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management report that are reviewed by the Group's CFO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
  Information about reportable segments
  2014

Corporate


Zimbabwe


South Africa


Zambia


Inter-group eliminations adjustments


Total$


$


$


$


$


$External Revenue


4,106



59,082



7,913



-



(12,019
)


59,082Royalty


-



(3,889
)


-



-



-



(3,889)Production costs


-



(31,506
)


(6,907
)


-



7,601



(30,812
)Management fee


-



(5,167
)


5,167



-



-



-Other income


-



18



10



-



-



28Administrative expenses


(3,439
)


(481
)


(3,248
)


(989
)


-



(8,157
)Depreciation


-



(3,888
)


(20
)


-



-



(3,908
)Impairment


-



(89
)


-



(107
)


-



(196
)Finance income


15



-



-



-



-



15Finance expense


-



(170
)


-



-



-



(170
)Foreign exchange gain/(loss)


54



-



1,122



-



-



1,176Segment profit before income tax


736



13,910



4,037



(1,096
)


(4,418
)


13,169Tax expense


(1,178
)


(3,968
)


(1,458
)


-



-



(6,604
)Segment profit after income tax


(442
)


9,942



2,579



(1,096
)


(4,418
)


6,565
 
  F-46
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
 28               Operating Segments – (continued)2014
Corporate
Zimbabwe
South Africa
Zambia
Inter-group eliminations adjustments
Total$
$
$
$
$
$Geographic segment assets:Current
12,520
12,148
13,700
51
(1,511)
36,908Non-Current (excluding intercompany)
56
41,646
356
-
(1,670)
40,388Expenditure on property, plant and equipment – cash
-
6,627
52
107
-
6,786Intercompany balances
118,502
1,748
33,788
-
(154,038)
-Geographic segment liabilitiesCurrent
(1,146)
(2,804)
(1,831)
-
-
(5,781)Non-current (excluding intercompany)
-
(12,291)
(689)
-
-
(12,980)Intercompany balances
(39,479)
(1,049)
(84,187)
(29,323)
154,038
-
    
 2013


Corporate



Zimbabwe



South Africa



Zambia



Inter-group eliminations adjustments



Total

$$



$



$



$External Revenue


-



65, 113



10618.00



-



(10618.00
)


65113.00Royalty


-



(4,544
)


-











(4,544 )Production costs


-



(28580.00
)


(9749.00
)


-



10917.00



(27412.00
)Management fee


-



(4820.00
)


4820.00



-



-



-Other income/(expense)


5770.00



(5770.00
)


-











-Administrative expenses


(2872.00
)


(2380.00
)


(2304.00
)


-



(216.00
)


(7772.00
)Share-based payment expenses


(68.00
)


-



-



-







(68.00
)Depreciation


-



(3491.00
)


(15.00
)


-



230.00



(3276.00
)Impairment


-



(91.00
)


(399.00
)


(13713.00
)






(14203.00
)Finance income


24.00



-



-



-







24.00Finance expense


-



(132.00
)


-



-







(132.00
)Foreign exchange gain/(loss)


111.00



1.00



2336.00



-



(771.00
)


1677.00Segment profit before income tax


2965.00



15306.00



5307.00



(13713.00
)


(458.00
)


9407.00Tax expense


(1842.00
)


(6482.00
)


(1573.00
)


-



-



(9897.00
)Segment profit after income tax


1123.00



8,824 113,64586



3734.00



(13713.00
)


(458.00
)


(490.00
)
 
  F-47
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  28               Operating Segments – (continued)
  2013


Corporate


Zimbabwe


South Africa


Zambia


Inter-group eliminations adjustments


TotalGeographic segment assets:Current



15,064



10,599



10,446



45



-



36,154Non-Current (excluding intercompany)



55



34,840



331



-



(1,778
)


33,448Expenditure on property, plant and equipment



-



9,461



35



2,637



(395
)


11,738Intercompany balances



60,893



1,773



6,287



-



(68,953
)


-Geographic segment liabilitiesCurrent



(160
)


(5,731
)


(1,635
)


(8
)


-



(7,534
)Non-current (excluding intercompany)



-



(9,360
)


(734
)


-



-



(10,094
)Intercompany balances



(3,601
)


(783
)


(38,623
)


(25,946
)


68,953



-
 Corporate



Zimbabwe



South Africa


Zambia



Inter-group eliminations adjustments



Total2012

$


$


$





$


$External Revenue


-



75221.00



8054.00



-



(8054.00
)


75221.00Royalty


-



(5,261
)


-



-



-



(5,261
)Production costs


-



(26842.00
)


(7202.00
)


-



8391.00



(25653.00
)Management fee


-



(4761.00
)


4761.00



-



-



-Other income/(expense)


5770.00



(5770.00
)


-











-Administrative expenses


(2390.00
)


(214.00
)


(1451.00
)


-



-



(4055.00
)Share-based payment expenses


(408.00
)


(14161.00
)


-



-



-



(14569.00
)Depreciation


-



(3414.00
)


(183.00
)


-



205.00



(3392.00
)Impairment


-



(330.00
)


-



-



-



(330.00
)Finance income


17.00



62.00



-



-



-



79.00Finance expense


-



(160.00
)


-



-



-



(160.00
)Indigenisation costs


(292.00
)


(1396.00
)


(12.00
)


-



-



(1700.00
)Foreign exchange gain/(loss)


-



(4.00
)


453.00



-



(453.00
)


(4.00
)Segment profit before income tax


(3073.00
)


18740.00



4420.00



-



89.00



20176.00Tax expense


-



(11482.00
)


(1336.00
)


-



-



(12818.00
)Segment profit after income tax


(3073.00
)


7,258 113,64586



3084.00



-



89.00



7358.00
 
  F-48
 Caledonia Mining Corporation
 Notes to the Consolidated Financial Statements
 For the years ended December 31, 2014 and 2013
 (in thousands of Canadian dollars)
  Major customer
  Revenues from Fidelity Printers in Zimbabwe amounted to approximately $59,082.Revenues from Rand Refinery and Metalor technologies in Switzerland amounted to $65,113 in 2013. In 2012 Revenue from Rand Refinery in South Africa amounted to $75,221.
  29
Non-controlling interests
  Blanket Mine (1983) (Private) Limited NCI % - 16.22014
2013$
$Current assets

12,148
10,599Non-current assets

43,394
34,840Current liabilities

(2,804)
(5,731)Non-current liabilities

(12,291)
(9,360)Net assets

40,447
30,348Carrying amount of NCI

804
(51)Revenue

59,082
65, 113Profit

10,301
15,833Other comprehensive income

-
-Total comprehensive income

10,301
15,8332014
2013
2012$
$
$Profit allocated to NCI
1,668
2,565
(1,362)OCI allocated to NCI
34
(75)
19Dividend paid to NCI
(847)
(745)
(5,707)
  30                Subsequent events
  No material subsequent events to report.
  
 F-49
  
  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           March 27, 2015
  CALEDONIA MINING CORPORATIONBy:
/s/ Steven CurtisSteven Curtis

Chief Executive Officer