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<SEC-DOCUMENT>0001137171-08-001048.txt : 20081117
<SEC-HEADER>0001137171-08-001048.hdr.sgml : 20081117
<ACCEPTANCE-DATETIME>20081114173318
ACCESSION NUMBER:		0001137171-08-001048
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20081114
FILED AS OF DATE:		20081117
DATE AS OF CHANGE:		20081114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CALEDONIA MINING CORP
		CENTRAL INDEX KEY:			0000766011
		STANDARD INDUSTRIAL CLASSIFICATION:	GOLD & SILVER ORES [1040]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			A1
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-13345
		FILM NUMBER:		081193276

	BUSINESS ADDRESS:	
		STREET 1:		SUITE 1201 - 67 YONGE STREET
		CITY:			TORONTO
		STATE:			A6
		ZIP:			M5E 1J8
		BUSINESS PHONE:		4163699835

	MAIL ADDRESS:	
		STREET 1:		SUITE 1201 - 67 YONGE STREET
		CITY:			TORONTO
		STATE:			A6
		ZIP:			M5E 1J8

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	GOLDEN NORTH RESOURCE CORP
		DATE OF NAME CHANGE:	19920302
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>caledonia6k111708.htm
<DESCRIPTION>CALEDONIA MINING FORM 6-K
<TEXT>
<!doctype html public "-//IETF//DTD HTML//EN">
<HTML>
<HEAD>
<TITLE>CC Filed by Filing Services Canada Inc. 403-717-3898</TITLE>
<META NAME="author" CONTENT="rszczype">
<META NAME="date" CONTENT="08/04/2006">
</HEAD>
<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
<P style="margin-top:4.15pt; margin-bottom:4.15pt" align=center><B>FORM 6-K<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B></P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt" align=center><B>Report of Foreign Private Issuer </B></P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt" align=center><B>Pursuant to Rule 13a-16 or 15d-16 <BR>
of the Securities Exchange Act of 1934</B></P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">For the month of November 2008</P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Commission File Number: <FONT COLOR=#3F3F3F>000-13345</FONT></P>
<P style="margin:0pt" align=center><B>Caledonia Mining Corporation</B> <BR>
(Translation of registrant's name into English)</P>
<P style="margin:0pt" align=center><b>1710 - 1177 West Hastings Street</b></P>
<P style="margin:0pt" align=center><b>Vancouver</b></P>
<P style="margin:0pt" align=center><b>British Columbia&nbsp; V6E 2L3</b></P>
<P style="margin:0pt" align=center><B>Canada<BR>
</B>(Address of principal executive offices)<BR>
</P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.</P>
<P style="margin:0pt" align=center>Form 20-F _X__ Form 40-F_____</P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): <U>____</U> </P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): <U>____</U> </P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.</P>
<P style="margin:0pt" align=center>Yes <U>____</U> No <U>__X___</U></P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">If &quot;Yes&quot; is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- <U>_______</U> </P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt" align=center><B>Signatures</B></P>
<P style="margin-top:4.15pt; margin-bottom:4.15pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.</P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:360pt"><B>Caledonia Mining Corporation<BR>
</B>(Registrant)</P>
<P style="margin:0pt; padding-left:360pt; text-indent:144pt">&nbsp;<BR>
</P>
<P style="margin:0pt; padding-left:324pt; text-indent:36pt">By:_/s/ Carl Jonsson</P>
<P style="margin:0pt; padding-left:360pt">Name: Carl Jonsson</P>
<P style="margin:0pt; padding-left:360pt">Title: Director and Secretary</P>
<P style="margin:0pt"><BR></P>
<P style="margin:0pt">Dated: &nbsp;&nbsp;November 14, 2008</P>
<P style="margin:0pt" align=center><BR>
<BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="margin:0pt; page-break-before:always" align=center><B>Exhibit Index</B></P>
<P style="margin:0pt"><BR></P>
<P style="margin-top:0pt; margin-bottom:-12pt">Exhibit</P>
<P style="margin:0pt; text-indent:216pt">Description</P>
<P style="margin:0pt"><BR></P>
<P style="margin-top: 0pt; margin-bottom: -12pt">99.1</P>
<P style="margin:0pt; padding-left:216pt"><U><a href="newsrelease.htm">Press Release &nbsp;November
14, 2008</a></U></P>
<P style="margin-top: 0pt; margin-bottom: -12pt">99.2</P>
<P style="margin:0pt; padding-left:216pt"><a href="financials.htm">Financial
Statements for the period ending September 30, 2008</a></P>
<P style="margin-top: 0pt; margin-bottom: -12pt">99.3</P>
<P style="margin:0pt; padding-left:216pt"><a href="mda.htm">Management's
Discussion and Analysis</a></P>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>newsrelease.htm
<DESCRIPTION>NEWS RELEASE
<TEXT>
<!doctype html public "-//IETF//DTD HTML//EN">
<HTML>
<HEAD>
<TITLE>CC Filed by Filing Services Canada Inc. 403-717-3898</TITLE>
<META NAME="author" CONTENT="Alexandra Buck">
<META NAME="date" CONTENT="11/14/2008">
</HEAD>
<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
<P style="margin:0px"><img border="0" src="caledoniaheader.jpg" align="left" width="629" height="110"><img border="0" src="caledoniarelease.jpg" align="right"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px">&nbsp;</P>
<P style="margin:0px">&nbsp;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="line-height:14pt; margin:0px; padding-left:-24px; padding-right:16.133px; font-family:Arial; font-size:12pt" align=center><B>Caledonia Mining Announces Third Quarter 2008 Results</B></P>
<P style="margin:0px" align=center><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:-24px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify><B>Toronto, Ontario &#150; November 14, 2008: &nbsp;</B>Caledonia Mining Corporation (&#147;Caledonia&#148;) (TSX: CAL, NASDAQ-OTCBB: CALVF, AIM: CMCL) is pleased to announce its third quarter 2008 operating and financial results. These are available on the Company&#146;s website <FONT style="color:#0000FF"><U>www.caledoniamining.com</U></FONT> and are also filed on www.sedar.com. &nbsp;The financial results below are reported in Canadian dollars, except where otherwise stated.</P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:-24px; padding-right:16.133px; font-family:Arial; font-size:11pt" align=justify><B>Financial highlights for the Quarter and the nine months ended September 30</B></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=319.067></TD><TD width=66.133></TD><TD width=66.2></TD><TD width=66.133></TD><TD width=56.667></TD></TR>
<TR><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=319.067><P>&nbsp;</P></TD><TD style="background-color:#FFFFFF; border-top:1.333px solid #000000; border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" width=132.333 colspan=2><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center><B>Three months ended &nbsp;&nbsp;September 30</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" valign=top width=122.8 colspan=2><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center><B>Nine months ended September 30</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" valign=top width=319.067><P style="line-height:13pt; margin:0px; padding-right:16.133px; font-family:Arial; font-size:11pt"><B>(C$ 000&#146;s)</B></P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000; border-bottom:1.2px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center><B>2008</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center>2007</P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center><B>2008</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.2px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt" align=center>2007</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Sales from continuing operations</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000" valign=bottom width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>2,280</B></P>
</TD><TD style="border-right:1.333px solid #000000" valign=bottom width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>1,950</P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>7,668</B></P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>6,808</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Operating costs</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000; border-bottom:1.333px solid #000000" valign=bottom width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>1,978</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=bottom width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>1,176</P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>4,595</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>7,534</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Gross profit/(loss) from continuing operations</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>302</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>774</P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>3,073</B></P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>(726)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">G&amp;A expenses</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000" width=66.133><P style="margin:0px; font-family:Arial; font-size:11pt" align=right><B>2,016</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>542</P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>3,174</B></P>
</TD><TD style="border-right:1.333px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>1,584</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Other costs/(income)</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000; border-bottom:1.333px solid #000000" width=66.133><P style="margin:0px; font-family:Arial; font-size:11pt" align=right><B>1,035</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>1,086</P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>2,119</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>2,087</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Loss after tax before discontinued operations</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000" width=66.133><P style="margin:0px; font-family:Arial; font-size:11pt" align=right><B>(2,749)</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>(855)</P>
</TD><TD style="border-right:1.333px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>(2,220)</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>(4,400)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000" valign=bottom width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Net loss for the period after discontinued operations</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>(2,779)</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>(935)</P>
</TD><TD style="border-right:1.333px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>(2,343)</B></P>
</TD><TD style="border-right:1.333px solid #000000" width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>(4,860)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=319.067><P style="line-height:13pt; margin:0px; font-family:Arial; font-size:11pt">Net loss per share before discontinued operations, basic and fully diluted</P>
</TD><TD style="background-color:#FFFFFF; border-right:1.2px solid #000000; border-bottom:1.333px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>($0.005)</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" width=66.2><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>($0.002)</P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" width=66.133><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right><B>($0.004)</B></P>
</TD><TD style="border-right:1.333px solid #000000; border-bottom:1.333px solid #000000" width=56.667><P style="line-height:13pt; margin:0px; padding-left:-24px; font-family:Arial; font-size:11pt" align=right>($0.010)</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:7.333px" align=justify>&nbsp;</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:7.333px; padding-left:-23.8px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>For the quarter ended September 30, 2008 Caledonia reported revenue of $2.28 million from the sale of 2,466 (2,262 in 2007) ounces of gold, which resulted in an operating profit of $302,000. &nbsp;Gold sales for the nine months were 8,364 (9,471 in 2007) ounces.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:7.333px; padding-left:-23.8px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>During the quarter Caledonia incurred certain non-cash expenses namely, unrealized foreign exchange loss of $992,000 ($1,017,000 in 2007), amortization of $101,000 ($4,000 in 2007) and share option expenses of $616,000 ($40,000 in 2007) which combined contributed $1.709 million of the net loss of $2.779 million or $0.005 per fully diluted share. </P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:7.333px; padding-left:-23.8px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>For the nine months the non-cash expenses were unrealized foreign exchange loss of $1,752,000 ($1,468,000 in 2007), amortization of $302,000 ($510,000 in 2007) and share option expenses of $684,000 ($40,000 in 2007) which combined contributed $2.738 million of the net loss of $2.343 million or $0.004 per fully diluted share.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:7.333px; padding-left:-23.8px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>Cash available at the quarter end totaled $5.499 million and working capital amounted to $9.105 million.</P>
<P style="line-height:11.55pt; margin:0px; padding-left:-23.8px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>Management published a recent operational update in a press release dated October 23, 2008, and further information is included in this quarter&#146;s MD&amp;A.</P>
<P style="margin-top:0px; margin-bottom:5.333px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:9.467px; font-family:Arial; font-size:11pt" align=justify><B>For more information, please contact:</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:9.467px; font-family:Arial; font-size:11pt" align=justify><B>Mark Learmonth</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:245.8px; font-family:Arial; font-size:11pt" align=justify><B>Alex Buck</B></P>
<P style="line-height:13pt; margin:0px; padding-left:-28.4px; padding-right:6.067px; text-indent:425.333px; font-family:Arial; font-size:11pt" align=justify><B>Martin Eales</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:9.467px; font-family:Arial; font-size:11pt" align=justify>Caledonia Mining</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:245.8px; font-family:Arial; font-size:11pt" align=justify>BuckBias</P>
<P style="line-height:13pt; margin:0px; padding-left:-28.4px; padding-right:6.067px; text-indent:425.333px; font-family:Arial; font-size:11pt" align=justify>RBC Capital Markets</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:9.467px; font-family:Arial; font-size:11pt" align=justify>Tel: +27 11 447 2499 </P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:-28.4px; padding-right:6.067px; text-indent:245.8px; font-family:Arial; font-size:11pt" align=justify>Tel: +44 7932 740 452</P>
<P style="line-height:13pt; margin:0px; padding-left:-28.4px; padding-right:6.067px; text-indent:425.333px; font-family:Arial; font-size:11pt" align=justify>Tel: +44 20 7029 7881 </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:-18.933px; padding-right:44.2px; font-family:Arial; font-size:11pt" align=justify>Further information regarding Caledonia&#146;s exploration activities and operations along with its latest financials may be found at <FONT style="color:#0000FF"><U>www.caledoniamining.com</U></FONT><FONT style="font-family:Times New Roman; font-size:12pt"></FONT>.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
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<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>3
<FILENAME>financials.htm
<DESCRIPTION>FINANCIALS
<TEXT>
<!doctype html public "-//IETF//DTD HTML//EN">
<HTML>
<HEAD>
<TITLE>CC Filed by Filing Services Canada Inc. 403-717-3898</TITLE>
<META NAME="author" CONTENT="##">
<META NAME="date" CONTENT="11/14/2008">
</HEAD>
<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
<P style="margin-top:13.333px; margin-bottom:3.333px" align=justify><BR></P>
<P style="margin-top:13.333px; margin-bottom:3.333px" align=justify><BR></P>
<P style="margin-top:13.333px; margin-bottom:3.333px; text-indent:28.8px" align=justify><B>Management&#146;s Responsibility for Financial Reporting </B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B><I>To the Shareholders of Caledonia Mining Corporation:</I></B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px" align=justify>The accompanying unaudited consolidated financial statements as at September 30, 2008 were prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied and within the framework of the summary of significant accounting policies in these consolidated financial statements. &nbsp;Management is responsible for all information in the quarterly report. &nbsp;All financial and operating data in the quarterly report is consistent, where appropriate, with that contained in the consolidated financial statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px" align=justify>The Board of Directors discharges its responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee composed of three directors, all of whom are not members of management. This Committee meets with management to assure that it is performing its responsibility to maintain financial controls and systems and to approve the quarterly consolidated financial statements of Caledonia. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px" align=justify>The consolidated financial statements have not been reviewed by Caledonia&#146;s auditors.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify>&nbsp;<B>S. E. Hayden</B></P>
<P style="margin:0px; text-indent:432px" align=justify><B>S.R. Curtis</B></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify>President and</P>
<P style="margin:0px; text-indent:432px" align=justify>Vice-President Finance</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Chief Executive Officer</P>
<P style="margin:0px; text-indent:432px" align=justify>and Chief Financial Officer</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR><BR>
<BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=right><BR>
<BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=309.4></TD><TD width=112></TD><TD width=9.333></TD><TD width=93.067></TD><TD width=1.2></TD><TD width=94.533></TD></TR>
<TR><TD style="border-top:1px solid #000000" valign=top width=619.533 colspan=6><P style="margin:0px; padding-top:4px; text-indent:28.8px; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=619.533 colspan=6><P style="margin:0px; text-indent:28.8px" align=right><B>Consolidated Balance Sheets</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=309.4><P style="margin:0px; padding-right:1.333px; text-indent:28.8px"><B>Unaudited</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=310.133 colspan=5><P style="margin:0px; padding-right:1.333px; text-indent:28.8px" align=right><B>(in thousands of Canadian dollars)</B></P>
</TD></TR>
<TR><TD valign=top width=430.733 colspan=3><P>&nbsp;</P></TD><TD valign=top width=94.267 colspan=2><P style="margin:0px; padding-right:1.333px" align=right><B>September 30</B></P>
</TD><TD valign=top width=94.533><P style="margin:0px; padding-right:1.333px" align=right>December 31</P>
</TD></TR>
<TR><TD valign=top width=430.733 colspan=3><P>&nbsp;</P></TD><TD valign=top width=94.267 colspan=2><P style="margin:0px; padding-right:1.333px" align=right><B>2008</B></P>
</TD><TD valign=top width=94.533><P style="margin:0px; padding-right:1.333px" align=right>2007</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify><B>Assets</B></P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>Current</P>
</TD><TD valign=top width=102.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=95.733 colspan=2><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>5,499</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>76</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>3,424</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>2,064</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Inventories</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>860</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>2,085</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>25</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>17</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Assets held for sale </P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>98</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>166</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>9,906</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>4,408</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=102.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=95.733 colspan=2><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify><B>Capital Assets and Mineral properties held for sale</B> </P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>701</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>11,424</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=102.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=95.733 colspan=2><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify><B>Investments</B> (Note 1)</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>24</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>22</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify><B>Capital assets</B> (Note 2)</P>
</TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>190</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>213</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=justify><B>Mineral properties</B> (Note 3)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>14,570</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>13,425</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P>&nbsp;</P></TD><TD valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>15,485</B></P>
</TD><TD valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>25,084</P>
</TD></TR>
<TR><TD valign=top width=421.4 colspan=2><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=102.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>25,391</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=95.733 colspan=2><P style="margin:0px; text-indent:28.8px" align=right>29,492</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=425.267></TD><TD width=102.733></TD><TD width=96></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify><B>Liabilities and Shareholders&#146; Equity</B></P>
</TD><TD valign=top width=102.733><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>Current</P>
</TD><TD valign=top width=102.733><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Bank overdraft</P>
</TD><TD valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>13</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable </P>
</TD><TD valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>777</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>2,743</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Liabilities held for sale</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>24</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>1,587</P>
</TD></TR>
<TR><TD valign=top width=425.267><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>801</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>4,343</P>
</TD></TR>
<TR><TD valign=top width=425.267><P>&nbsp;</P></TD><TD valign=top width=102.733><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify><B>Long term liability </B>(Note 11)</P>
</TD><TD valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>11</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify><B>Asset retirement obligation </B>(Note 4)</P>
</TD><TD valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>852</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>732</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify><B>Asset retirement obligation &nbsp;- held for sale </B>(Note 4)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>181</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>311</P>
</TD></TR>
<TR><TD valign=top width=425.267><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=102.733><P style="margin:0px; text-indent:28.8px" align=right><B>1,834</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>5,397</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=425.267></TD><TD width=103.933></TD><TD width=94.8></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify><B>Shareholders&#146; Equity</B></P>
</TD><TD valign=top width=103.933><P>&nbsp;</P></TD><TD valign=top width=94.8><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Share capital (Note 5)</P>
</TD><TD valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>196,125</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Contributed surplus </P>
</TD><TD valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>1,724</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px" align=right>1,040</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income/(loss)</P>
</TD><TD valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>(55)</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px" align=right>(57)</P>
</TD></TR>
<TR><TD valign=top width=425.267><P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Deficit</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>(174,237)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:20.4px" align=right>(171,894)</P>
</TD></TR>
<TR><TD valign=top width=425.267><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>23,557</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px" align=right>24,095</P>
</TD></TR>
<TR><TD valign=top width=425.267><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; text-indent:28.8px" align=right><B>25,391</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px" align=right>29,492</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify>On behalf of the Board:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:48px" align=justify>&#147; S E Hayden&#148; </P>
<P style="margin:0px; text-indent:192px" align=justify>&nbsp;Director</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:48px" align=justify>&#147;G R Pardoe&#148;</P>
<P style="margin:0px; text-indent:192px" align=justify>&nbsp;Director</P>
<P style="margin:0px; text-indent:28.8px" align=justify>The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>2</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=349.667></TD><TD width=349.733></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=699.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=699.4 colspan=2><P style="margin:0px; text-indent:28.8px" align=right><B>Consolidated Statements of Changes in Shareholders&#146; Equity</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=349.667><P style="margin:0px; text-indent:28.8px"><B>Unaudited</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=349.733><P style="margin:0px; text-indent:28.8px" align=right><B>(in thousands of Canadian dollars )</B></P>
</TD></TR>
</TABLE>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; text-indent:240px" align=justify><B>&nbsp;</B></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=699.4></TD></TR>
<TR><TD valign=top width=699.4><P style="margin:0px" align=center><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the periods ended September 30, 2008, December 31, 2007 and 2006</B></P>
</TD></TR>
</TABLE>
<P style="margin:0px; text-indent:28.8px" align=justify><B>&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=189.067></TD><TD width=65.667></TD><TD width=81.933></TD><TD width=122.867></TD><TD width=75.6></TD><TD width=85.067></TD></TR>
<TR><TD valign=top width=189.067></TD><TD valign=top width=65.667>
    <p style="margin: 0px" align="right">Share Capital
</TD><TD valign=top width=81.933>
    <p style="margin: 0px" align="right">Contributed Surplus
</TD><TD valign=top width=122.867>
    <p style="margin: 0px" align="right">Accumulated other comprehensive income
</TD><TD valign=top width=75.6>
    <p style="margin: 0px" align="right">Deficit
</TD><TD valign=top width=85.067>
    <p style="margin: 0px" align="right">Total
</TD></TR>
<TR><TD valign=top width=189.067><P>&nbsp;</P></TD><TD valign=top width=65.667><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=81.933><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=122.867><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=85.067><P style="margin:0px" align=right>$</P>
</TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Balance at December 31, 2005</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=65.667><P style="margin:0px" align=right>180,053</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=81.933><P style="margin:0px" align=right>923</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=122.867><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(161,604)</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>19,372</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Shares issued</P>
</TD><TD valign=top width=65.667><P style="margin:0px" align=right>10,573</P>
</TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>10,573</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Stock options expense</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P style="margin:0px" align=right>81</P>
</TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>81</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Options forfeited</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P style="margin:0px" align=right>(15)</P>
</TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>(15)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Net Loss for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=81.933><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=122.867><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(5,675)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>(5,675)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Balance at December 31, 2006</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.667><P style="margin:0px" align=right>190,626</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=81.933><P style="margin:0px" align=right>989</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.867><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(167,279)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>24,336</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Warrants exercised note 5(b)(iv)</P>
</TD><TD valign=top width=65.667><P style="margin:0px" align=right>4,380</P>
</TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>4,380</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px">Adjustment to opening </P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Balance, change in accounting</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Policy</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P style="margin:0px" align=right>31</P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>31</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Stock options expense note </P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P style="margin:0px" align=right>61</P>
</TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>61</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Options forfeited</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P style="margin:0px" align=right>(10)</P>
</TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>(10)</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Investments revaluation</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>To fair value</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P style="margin:0px" align=right>(88)</P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>(88)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Net Loss for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=81.933><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=122.867><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(4,615)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>(4,615)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Balance at December 31, 2007</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.667><P style="margin:0px" align=right>195,006</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=81.933><P style="margin:0px" align=right>1,040</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.867><P style="margin:0px" align=right>(57)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(171,894)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>24,095</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Shares issued</P>
</TD><TD valign=top width=65.667><P style="margin:0px" align=right>1,119</P>
</TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>1,119</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Stock options expense note 5(c)</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P style="margin:0px" align=right>684</P>
</TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>684</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Investments revaluation</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>To fair value</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P style="margin:0px" align=right>2</P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px" align=right>2</P>
</TD></TR>
<TR><TD valign=top width=189.067><P style="margin:0px" align=justify>Net Profit for the period</P>
</TD><TD valign=top width=65.667><P>&nbsp;</P></TD><TD valign=top width=81.933><P>&nbsp;</P></TD><TD valign=top width=122.867><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px" align=right>(2,343)</P>
</TD><TD valign=top width=85.067><P style="margin:0px" align=right>(2,343)</P>
</TD></TR>
<TR><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=189.067><P style="margin:0px" align=justify>Balance at September 30, 2008</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=65.667><P style="margin:0px" align=right>196,125</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=81.933><P style="margin:0px" align=right>1,724</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=122.867><P style="margin:0px" align=right>(55)</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>(174,237)</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right>23,557</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>3</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=255.2></TD><TD width=37.8></TD><TD width=207.867></TD><TD width=217.333></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=718.2 colspan=4><P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=718.2 colspan=4><P style="margin:0px; text-indent:28.8px" align=right><B>Consolidated Statements of Operations and Comprehensive Income/ (Loss)</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=255.2><P style="margin:0px; text-indent:28.8px"><B>Unaudited</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=463 colspan=3><P style="margin:0px; text-indent:28.8px" align=right><B>(in thousands of Canadian dollars except share and per share amounts)</B></P>
</TD></TR>
<TR><TD valign=top width=293 colspan=2><P>&nbsp;</P></TD><TD width=207.867><P style="margin:0px" align=right>For the three months ended September 30</P>
</TD><TD width=217.333><P style="margin:0px" align=right>For the nine &nbsp;months ended September 30</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=292.533></TD><TD width=75.533></TD><TD width=66.667></TD><TD width=66.133></TD><TD width=18.933></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD valign=top width=208.333 colspan=3><P>&nbsp;</P></TD><TD valign=top width=18.933><P>&nbsp;</P></TD><TD valign=top width=198.4 colspan=3><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD width=75.533><P style="margin:0px" align=right><B>2008</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>2007</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2006</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>2008</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>2007</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2006</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Revenue and operating costs</B></P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>$</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>$</P>
</TD><TD width=66.133><P style="margin:0px" align=right>$</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>$</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>$</P>
</TD><TD width=66.133><P style="margin:0px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Revenue from sales</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>2,280</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>1,950</P>
</TD><TD width=66.133><P style="margin:0px" align=right>4,540</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>7,668</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>6,808</P>
</TD><TD width=66.133><P style="margin:0px" align=right>4,540</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Operating costs</P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>1,978</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>1,176</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>2,163</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>4,595</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>7,534</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>2,710</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Gross profit (loss)</B></P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>302</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>774</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2,377</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>3,073</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>(726)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>1,830</P>
</TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Costs and expenses</B></P>
</TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;General and administrative</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>2,016</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>542</P>
</TD><TD width=66.133><P style="margin:0px" align=right>986</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>3,174</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>1,584</P>
</TD><TD width=66.133><P style="margin:0px" align=right>1,719</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Interest expense/(income)</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>(106)</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>65</P>
</TD><TD width=66.133><P style="margin:0px" align=right>(3)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>(133)</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>120</P>
</TD><TD width=66.133><P style="margin:0px" align=right>1</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Amortization</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>101</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>4</P>
</TD><TD width=66.133><P style="margin:0px" align=right>79</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>302</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>510</P>
</TD><TD width=66.133><P style="margin:0px" align=right>99</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Unrealised &nbsp;Foreign exchange loss/(gain)</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>992</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>1,017</P>
</TD><TD width=66.133><P style="margin:0px" align=right>(1,054)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>1,752</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>1,468</P>
</TD><TD width=66.133><P style="margin:0px" align=right>1,432</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Other expense (income) (Note 7)</P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>48</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>4</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>198</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(11)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(3)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD width=75.533><P style="margin:0px" align=right><B>3,051</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>1,628</P>
</TD><TD width=66.133><P style="margin:0px" align=right>12</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>5,293</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>3,671</P>
</TD><TD width=66.133><P style="margin:0px" align=right>3,248</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Income (loss) before discontinued operations</B></P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>(2,749)</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>(854)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2,365</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>(2,220)</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>(4,397)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>(1,418)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Current Income Tax </B></P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>(1)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(106)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(3)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(107)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Net income(loss) before discontinued operations</B></P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>(2,749)</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>(855)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2,259</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>(2,220)</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>(4,400)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>(1,525)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Discontinued operations (loss)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>(30)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>(80)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(5,333)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>(123)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(460)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(6,708)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Net Income/(loss) after discontinued operations</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>(2,779)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>(935)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(3,074)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>(2,343)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(4,860)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(8,233)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P style="margin:0px" align=justify><B>Revaluation of Investments to fair value (Note 1)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>(6)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>(76)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>2</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(76)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD width=292.533><P style="margin:0px" align=justify><B>Comprehensive Income/(Loss) </B></P>
</TD><TD style="border-bottom:1px solid #000000" width=75.533><P style="margin:0px" align=right><B>(2,785)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.667><P style="margin:0px" align=right>(1,011)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(3,074)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right><B>(2,341)</B></P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(4,936)</P>
</TD><TD style="border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=right>(8,233)</P>
</TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD width=292.533><P style="margin:0px" align=justify>Income/(loss) per share (Note 6)</P>
</TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD width=292.533><P style="margin:0px" align=justify>Basic and diluted from continuing operations</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>($0.005)</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>($0.002)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>$0.006</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>($0.004)</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.009)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.004)</P>
</TD></TR>
<TR><TD width=292.533><P style="margin:0px" align=justify>Basic and diluted from discontinued operations</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>-</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>-</P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.013)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.001)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.017)</P>
</TD></TR>
<TR><TD width=292.533><P style="margin:0px" align=justify>Basic and diluted for the year</P>
</TD><TD width=75.533><P style="margin:0px" align=right><B>($0.005)</B></P>
</TD><TD width=66.667><P style="margin:0px" align=right>($0.002)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.007)</P>
</TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P style="margin:0px" align=right><B>($0.004)</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.010)</P>
</TD><TD width=66.133><P style="margin:0px" align=right>($0.021)</P>
</TD></TR>
<TR><TD width=292.533><P>&nbsp;</P></TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=292.533><P>&nbsp;</P></TD><TD width=75.533><P>&nbsp;</P></TD><TD width=66.667><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=18.933><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD><TD width=66.133><P>&nbsp;</P></TD></TR>
</TABLE>
<P style="margin:0px; padding-left:-37.8px" align=justify>The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>4</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=311.867></TD><TD width=47.2></TD><TD width=15.667></TD><TD width=64.867></TD><TD width=80.2></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=718.2 colspan=8><P style="margin:0px" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=718.2 colspan=8><P style="margin:0px" align=right><B>Consolidated Statement of Cash Flows</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=359.067 colspan=2><P style="margin:0px"><B>Unaudited</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=359.133 colspan=6><P style="margin:0px" align=right><B>(in thousands of Canadian dollars)</B></P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD width=207.933 colspan=4><P>&nbsp;</P></TD><TD width=198.4 colspan=3><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD width=207.933 colspan=4><P style="margin:0px" align=right>For the three months ended September 30</P>
</TD><TD width=198.4 colspan=3><P style="margin:0px" align=right>For the Nine months ended September 30</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD width=62.867 colspan=2><P style="margin:0px" align=right><B>2008</B></P>
</TD><TD width=64.867><P style="margin:0px" align=right>2007</P>
</TD><TD width=80.2><P style="margin:0px" align=right>2006</P>
</TD><TD width=66.133><P style="margin:0px" align=right><B>2008</B></P>
</TD><TD width=66.133><P style="margin:0px" align=right>2007</P>
</TD><TD width=66.133><P style="margin:0px" align=right>2006</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Cash provided by (used in)</B></P>
</TD><TD valign=top width=62.867 colspan=2><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=64.867><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=80.2><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Operating activities</B></P>
</TD><TD valign=top width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=top width=64.867><P>&nbsp;</P></TD><TD valign=top width=80.2><P>&nbsp;</P></TD><TD valign=top width=66.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>&nbsp;&nbsp;Income(loss) before discontinued operations</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(2,749)</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>(855)</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(2,259)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>(2,220)</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(4,400)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(1,525)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px">&nbsp;Adjustments to reconcile net cash from operations (Note 8) </P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>835</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>3</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>297</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>1,073</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>415</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>356</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Changes in non-cash working capital balances (Note 8)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(73)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>396</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>3,357</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>(2,142)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>1,766</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>669</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(1,987)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>(456)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>5,913</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>(3,289)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(2,219)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(500)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Investing activities</B></P>
</TD><TD valign=bottom width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=bottom width=64.867><P>&nbsp;</P></TD><TD valign=bottom width=80.2><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Expenditures on capital assets and mineral properties</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(993)</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>(904)</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(1,304)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>(1,493)</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(2,284)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(1,436)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Investment in Blanket net of cash received</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(859)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(859)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Sale of Barbrook Mine</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(19)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>9,213</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(1,012)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>(904)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>(2,163)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>7,720</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(2,284)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(2,295)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Financing activities</B></P>
</TD><TD valign=bottom width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=bottom width=64.867><P>&nbsp;</P></TD><TD valign=bottom width=80.2><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>&nbsp;Bank overdraft</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>(13)</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(197)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Shares held in Escrow</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(3,014)</P>
</TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>&nbsp;Issue of share capital net of issue costs </P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>2,160</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>1,119</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>4,380</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>7,559</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>(854)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>1,106</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>4,380</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>7,362</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Cash flow from discontinued operations</P>
</TD><TD valign=bottom width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=bottom width=64.867><P>&nbsp;</P></TD><TD valign=bottom width=80.2><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Operating activities</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(29)</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>(80)</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(5,333)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>(123)</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(460)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(6,708)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Amortization</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>1</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>5</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>1,767</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>9</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>21</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>2,893</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Financing activities</P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify>Investing activities</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>(55)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>262</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(55)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(922)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(28)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>(130)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>(3,304)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>(114)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(494)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(4,737)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Increase (decrease) in cash for the period</B></P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(3,027)</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>(1,490)</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>(408)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>5,423</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(617)</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>(170)</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Cash and cash equivalents, beginning of the period</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>8,526</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>2,171</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>1,314</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>76</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>1,298</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>1,076</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Cash and cash equivalents, end of the period</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>5,499</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>681</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>906</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>5,499</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>681</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>906</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD valign=bottom width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=bottom width=64.867><P>&nbsp;</P></TD><TD valign=bottom width=80.2><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Cash and cash equivalents at end of the period relate to:</B></P>
</TD><TD valign=bottom width=62.867 colspan=2><P>&nbsp;</P></TD><TD valign=bottom width=64.867><P>&nbsp;</P></TD><TD valign=bottom width=80.2><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD><TD valign=bottom width=66.133><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Continuing operations</B></P>
</TD><TD valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>5,500</B></P>
</TD><TD valign=bottom width=64.867><P style="margin:0px" align=right>691</P>
</TD><TD valign=bottom width=80.2><P style="margin:0px" align=right>863</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right><B>5,500</B></P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>691</P>
</TD><TD valign=bottom width=66.133><P style="margin:0px" align=right>863</P>
</TD></TR>
<TR><TD valign=top width=311.867><P style="margin:0px" align=justify><B>Discontinued operations</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>(1)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>(10)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>43</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>(1)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>(10)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>43</P>
</TD></TR>
<TR><TD valign=top width=311.867><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=62.867 colspan=2><P style="margin:0px" align=right><B>5,499</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=64.867><P style="margin:0px" align=right>681</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=80.2><P style="margin:0px" align=right>906</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right><B>5,499</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>681</P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=66.133><P style="margin:0px" align=right>906</P>
</TD></TR>
</TABLE>
<P style="margin:0px; padding-left:-37.8px" align=justify>The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>5</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Summary of Significant Accounting Policies </B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>Nature of Business</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>The Corporation is engaged in the acquisition, exploration and development of mineral properties for the exploitation of base and precious metals. &nbsp;The ability of the Corporation to recover the amounts shown for its capital assets and mineral properties is dependent upon the existence of economically recoverable reserves; the ability of the Corporation to obtain the necessary financing to complete exploration and development; and future profitable production or proceeds from the disposition of such capital assets and mineral properties.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin: 0px; padding-left: 28.4px" align=justify>The Corporation operates in a number of operating segments but its assets located in Zimbabwe, including its interests in gold properties, are subject to a hyperinflationary environment and may be subject to sovereign risks, including political and economic instability, government regulations relating to mining, currency fluctuations and inflation, all or any of which may impede the Corporation's activities in this country or may result in the impairment or loss of part or all of the Corporation's interest in the properties<B>.</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>Basis of Presentation and Going Concern</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify>These unaudited interim consolidated financial statements of Caledonia Mining Corporation (&#147;Caledonia&#148; or the &#147;Corporation&#148;) have been prepared by management in accordance with accounting principles generally accepted in Canada (&quot;Canadian GAAP&quot;) for interim financial statements. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with Canadian GAAP have been condensed or excluded. As a result, these unaudited interim consolidated financial statements do not contain all disclosures required to be included in the annual consolidated financial statements and should be read in conjunction with the most recent audited annual consolidated financial statements and notes thereto for the year ended December 31, 2007. </P>
<P style="margin:0px; padding-left:28.333px" align=justify>These unaudited consolidated financial statements have been prepared on the basis of a going concern, which contemplates that the Corporation will be able to realize assets and discharge liabilities in the normal course of business. &nbsp;The Corporation&#146;s ability to continue as a going concern is dependent upon attaining profitable operations, realising proceeds from the disposal of mineral properties and obtaining sufficient financing to meet its liabilities, its obligations with respect to operating expenditures and expenditures required on its mineral properties.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:12.667px; text-indent:28.4px" align=justify><B>Significant Accounting Policies: </B></P>
<P style="margin:0px; padding-left:28.4px" align=justify>These unaudited interim consolidated financial statements are prepared with the following accounting policies consistent with the Corporation's audited annual consolidated financial statements and notes thereto for the year ended December 31, 2007, except for the following changes in accounting policies:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:23.867px" align=justify><B>Adoption of New Accounting Standards </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:23.867px" align=justify><B>a. Inventories: </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of the Canadian Institute of Chartered Accountants (&#147;CICA&#148;) Handbook Section 3031, Inventories. This standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-downs to net realizable</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>6</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.4px" align=justify>value. &nbsp;It also provides guidance on the cost formulas that are used to assign costs to inventories and requires the reversal of write downs, if applicable, on inventory. There were no changes to the Corporation&#146;s accounting policies required on implementation of this standard.</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify><B>b. Financial Instruments &#150; Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 3862, Financial Instruments - Disclosures; Section 3863, Financial Instruments &#150; Presentation. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify>Section 3862 on financial instrument disclosures, provides guidance on disclosures in the financial statements to enable users of the financial statements to evaluate the significance of financial instruments to the Corporation&#146;s financial position and performance and about risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new Section requires qualitative and quantitative information relating to concentrations of risk, credit risk, liquidity risk and price risk currently found in Section 3861. </P>
<P style="margin-top:0px; margin-bottom:24.467px; padding-left:28.4px" align=justify>Section 3863 carries forward unchanged the presentation requirements of Section 3861. This Section establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset<B>. </B></P>
<P style="margin-top:0px; margin-bottom:24.467px; padding-left:28.4px" align=justify>The Corporation has included disclosures recommended by these sections in Notes 12 and 13 to these unaudited interim consolidated financial statements. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:5px; padding-left:28.4px" align=justify><B>c. Capital Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 1535- Capital Disclosures. Section 1535 requires the disclosure of an entity&#146;s objectives, policies and processes for managing capital as well as quantitative data about what the entity regards as capital. Disclosure of externally imposed capital requirements is also required and whether the entity has complied with these and, if not, the consequences. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.4px" align=justify>The Corporation has included disclosures recommended by the new section in Note 14 to these unaudited interim consolidated financial statements </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px" align=justify><B>d. Financial Statements Presentation </B></P>
<P style="margin-top:0px; margin-bottom:24.467px; padding-left:28.4px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA amended Handbook Section 1400-General Standards of Financial Statements Presentation. The section provides revised guidance related to management&#146;s responsibility to assess and disclose the ability of an entity to continue as a going concern. &nbsp;</P>
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<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;</B></P>
<P style="margin:0px; padding-left:28.4px" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin:0px; padding-left:28.8px" align=justify><B>Recently issued accounting pronouncements issued and not yet effective</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.8px" align=justify>In February 2008, the Canadian Institute of Chartered Accountants (&#147;CICA&#148;) issued Section 3064 Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets.&nbsp; The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008.&nbsp; Accordingly, the Corporation will adopt the new standards for its fiscal year beginning 1 January 2009.&nbsp; It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises.&nbsp; Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.&nbsp; The Corporation is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.</P>
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<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.333px" align=justify><B>International Financial Reporting Standards (&#147;IFRS&#148;) </B></P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.333px" align=justify>In 2006, the Canadian Accounting Standards Board (&quot;AcSB&quot;) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for public accountable companies to use IFRS, replacing Canada's own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Corporation for the year ended December 31, 2010. While the Corporation has begun assessing the adoption of IFRS for 2011, or sooner if possible, the financial reporting impact of the transition to IFRS cannot be reasonably estimate
d at this time. </P>
<P style="margin:0px; padding-left:28.4px" align=justify><B>Other Existing Accounting Policies</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>Inventories</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:30px" align=justify>These include gold in circuit (WIP) and bulk consumable stores. &nbsp;WIP is valued at the lower of the cost of production, on an average basis, at the various stages of production or net realisable value if the cost of production exceeds the current gold price. &nbsp;Bulk consumable stores are valued at the lower of cost or net realisable value on an average basis. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>Capital Assets</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B><I>Producing Assets</I></B></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Producing assets are recorded at cost less grants, accumulated amortization and write-downs. &nbsp;Producing plant and equipment assets are amortized using the unit-of-production method on the ratio of tonnes of ore mined or processed to the estimated proven and probable mineral reserves as defined by the Canadian Institute of Mining, Metallurgy and Petroleum. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Other producing assets are amortized using the straight line method basis on the estimated useful lives of the assets. &nbsp;The estimated life of the producing assets ranges up to 10 years. Repairs and maintenance expenditures are charged to operations; major improvements and replacements which extend the useful life of an asset are capitalized and amortized over the remaining useful life of that asset. &nbsp;Eersteling Gold Mine has been put up for sale and is thus presented as assets for sale in these consolidated financial statements. </P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>8</P>
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<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B><I>Non-Producing Assets</I></B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Non-producing assets are recorded at cost less write downs. &nbsp;At the time of commercial production, the assets are reclassified as producing. &nbsp;During non-producing periods, no amortization is recorded on plant and equipment but vehicles and computer equipment continue to be amortized.</P>
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<P style="margin:0px; padding-left:28.4px" align=justify><B><I>Assets held for sale and discontinued operations</I></B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>The sale of Barbrook Mine was concluded on May 31, 2008 and is thus no longer shown as an asset for sale.</P>
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<P style="margin:0px; text-indent:28.8px" align=justify>The components shown as held for sale in the Balance Sheet are as follows: </P>
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  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=210></TD><TD width=102></TD><TD width=102></TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=204 colspan=2><P style="margin:0px" align=center>Eersteling Gold Mine</P>
</TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px" align=right><B>September 30</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px" align=right>December 31</P>
</TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px" align=right><B>2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px" align=right>2007</P>
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<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD valign=top width=102><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=102><P style="margin:0px" align=right><B>$</B></P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px" align=justify>Capital Assets and mineral properties</P>
</TD><TD valign=top width=102><P style="margin:0px" align=right><B>701</B></P>
</TD><TD valign=top width=102><P style="margin:0px" align=right>645</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px" align=justify>Current Assets</P>
</TD><TD valign=top width=102><P style="margin:0px" align=right><B>98</B></P>
</TD><TD valign=top width=102><P style="margin:0px" align=right>78</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px" align=justify>Current Liabilities</P>
</TD><TD valign=top width=102><P style="margin:0px" align=right><B>(24)</B></P>
</TD><TD valign=top width=102><P style="margin:0px" align=right>(38)</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px" align=justify>Asset Retirement obligation</P>
</TD><TD valign=top width=102><P style="margin:0px" align=right><B>(181)</B></P>
</TD><TD valign=top width=102><P style="margin:0px" align=right>(204)</P>
</TD></TR>
</TABLE>
  </center>
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<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>As a consequence of this Eersteling Mine&#146;s results for 2008 are disclosed as discontinued operations and the comparative results include Barbrook and Eersteling. Revenue from discontinued operations for the nine months ended September is nil ($61 in 2007 and $2,818 in 2006). There is no tax applicable to discontinued operations.</P>
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<P style="margin:0px; text-indent:28.8px" align=justify><B>Mineral Properties</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B><I>Producing Properties</I></B></P>
<P style="margin:0px; padding-left:28.4px" align=justify>When and if properties are placed in production, the applicable capitalized costs are amortized using the unit-of-production method as described above. Blanket Mine (1983) (Private) Limited (&#147;Blanket&#148;) was acquired during 2006 and has been consolidated into these results from July 1, 2006 and, as such, has been presented as a producing asset in these consolidated financial statements. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B><I>Non-Producing Properties</I></B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px" align=justify>Costs relating to the acquisition, exploration and development of non-producing resource properties which are held by the Corporation or through its participation in joint ventures are capitalized until such time as either economically recoverable reserves are established or the properties are sold or abandoned.</P>
<P style="margin:0px; padding-left:28.4px" align=justify>A decision to abandon, reduce or expand activity on a specific project is based upon many factors including general and specific assessments of mineral reserves, anticipated future mineral prices, anticipated costs of developing and operating a producing mine, the expiration date of mineral property leases, and the general likelihood that the Corporation will continue exploration on the project. &nbsp;However, based on the results at the conclusion of each phase of an exploration program, properties that are not suitable as prospects are re-evaluated to determine if future exploration is warranted and that carrying values are appropriate.</P>
<P style="margin:0px; padding-left:28.4px" align=justify>The ultimate recovery of these costs depends on the discovery and development of economic ore reserves or the sale of the properties or the mineral rights. &nbsp;The amounts shown for non-producing resource properties do not necessarily reflect present or future values.</P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>9</P>
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<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
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<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>Foreign Currency Translation</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Balances of the Corporation denominated in foreign currencies and the accounts of its foreign subsidiaries are translated into Canadian dollars as follows:</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:113.4px; text-indent:-47.2px" align=justify>(i)</P>
<P style="margin:0px; padding-left:113.4px" align=justify>monetary assets and liabilities at period end rates;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:113.4px; text-indent:-47.2px" align=justify>(ii)</P>
<P style="margin:0px; padding-left:113.4px" align=justify>all other assets and liabilities at historical rates, and</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:114.2px; text-indent:-48px" align=justify>(iii)</P>
<P style="margin:0px; padding-left:114.2px" align=justify>revenue and expense transactions at the average rate of exchange prevailing during the period.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Exchange gains or losses arising on these translations are reflected in income in the year incurred. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>Blanket is a self-sustaining operation and operates in Zimbabwe in a hyper inflationary economy. Accordingly the results of these operations have been translated into Canadian Dollars using the temporal method. Included in the statement of operations is an exchange loss for the nine month period of $2,203 (Loss $1,048 &#150; 2007) relating to the translation of Blanket. See note 16.</P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>10</P>
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<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
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<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:28.8px" align=justify><B>1.</B></P>
<P style="margin:0px; padding-left:28.8px; text-indent:67.2px" align=justify><B>Investments</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px" align=justify>On May 9, 2002, the Corporation participated in a private placement of the purchase of shares of Motapa Diamonds Inc. (&#147;Motapa&#148;) at a cost of $79. &nbsp;The shares of Motapa are listed on the TSX Venture Exchange in Canada. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px" align=justify>The adoption of CICA Handbook Sections 3855 and 1530, retrospectively from January 1, 2007, determines that the Corporation records its investments in Motapa Diamonds Inc. and in Old Mutual Plc as financial instruments &#147;available for sale&#148; and they are thus recorded at fair value. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px" align=justify>The fair value of the investment, at September 30 in Motapa Diamonds Inc is $20 ($19 -2007) and the fair value of the shares held in Old Mutual Plc is $4 ($8 - 2007). </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:28.8px" align=justify><B>2.</B></P>
<P style="margin:0px; padding-left:28.8px; text-indent:67.2px" align=justify><B>Capital Assets</B></P>
<center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=180>
      <p style="text-indent: 28.8px; margin: 0px" align="right"></TD><TD width=288 colspan="3">
<P style="margin: 0px" align=right><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 30,
2008</b></P>
    </TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><U>Cost</U> <SUP>(1)</SUP></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=center>Accumulated</P>
<P style="margin:0px" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=center>Net</P>
<P style="margin:0px" align=center><U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Land &#150; plant sites</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>12</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>12</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Plant and equipment</P>
</TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- producing <SUP>(2)</SUP></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>24</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>3</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>21</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- non-producing <SUP>(3)</SUP> </P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>229</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>229</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Office equipment</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>908</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>851</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>57</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Vehicles</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>387</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>287</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>100</B></P>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>1,560</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>1,370</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right><B>190</B></P>
</TD></TR>
</TABLE>
</center>
<P style="margin:0px; text-indent:288px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify>&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:336px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=180></TD><TD width=288 colspan="3">
      <p align="right">December 31, 2007</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><U>Cost</U> <SUP>(1)</SUP></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=center>Accumulated</P>
<P style="margin:0px" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=center>Net</P>
<P style="margin:0px" align=center><U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Land - plant sites</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>12</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=center>-</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>12</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Plant and equipment</P>
</TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- producing <SUP>(2)</SUP></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>24</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>1</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>23</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- non-producing <SUP>(3)</SUP></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>229</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>229</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Office equipment</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>887</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>838</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>49</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px" align=justify>Vehicles</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>387</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>258</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>129</P>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>1,539</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>1,326</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px" align=right>213</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-18.867px" align=justify><SUP>(1)</SUP></P>
<P style="margin:0px; padding-left:75.6px" align=justify>Cost is comprised of the original cost of the asset, less write-downs, removal of cost for disposals and government grants.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-18.867px" align=justify><SUP>(2)</SUP></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The producing plant and equipment relates to the Blanket operation.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-18.867px" align=justify><SUP>(3)</SUP> </P>
<P style="margin:0px; padding-left:75.6px; text-indent:20.4px" align=justify>The net book value of non-producing plant and equipment represents Zambian operations. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>11</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>3.</B></P>
<P style="margin:0px; text-indent:56.733px" align=justify><B>Mineral Properties</B></P>
<P style="margin:0px; text-indent:336px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=260.6></TD><TD width=283 colspan="3">
      <p align="right"><b>September 30, 2008</b></TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=79><P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=center><U>Cost</U> <SUP>(1)</SUP></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=110><P style="margin:0px" align=center>Accumulated</P>
<P style="margin:0px" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=94.467><P style="margin:0px" align=center>Net <U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>Producing:</P>
</TD><TD valign=top width=79><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Blanket, Zimbabwe - gold property </P>
</TD><TD valign=top width=79><P style="margin:0px" align=right><B>4,980</B></P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>244</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>4,736</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>Non-producing - exploration:</P>
</TD><TD valign=top width=79><P>&nbsp;</P></TD><TD valign=top width=110><P>&nbsp;</P></TD><TD valign=top width=94.467><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Rooipoort , South Africa</P>
</TD><TD valign=top width=79><P style="margin:0px" align=right><B>4,392</B></P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>4,392</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Nunavut, Canada <SUP>(2)</SUP></P>
</TD><TD valign=top width=79><P style="margin:0px" align=right><B>750</B></P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>750</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Goedgevonden, South Africa</P>
</TD><TD valign=top width=79><P style="margin:0px" align=right><B>120</B></P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>120</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Nama, Zambia</P>
</TD><TD valign=top width=79><P style="margin:0px" align=right><B>4,278</B></P>
</TD><TD valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>4,278</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Mulonga, Zambia<SUP>(2)</SUP></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=79><P style="margin:0px" align=right><B>1,044</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>1,044</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=79><P style="margin:0px" align=right><B>15,564</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=110><P style="margin:0px; text-indent:28.8px" align=right><B>994</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.467><P style="margin:0px; text-indent:28.8px" align=right><B>14,570</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:336px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=260.6></TD><TD width=270 colspan="3">
      <p align="right">December 31, 2007</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=85><P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=center><U>Cost</U> <SUP>(1)</SUP></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=94.533><P style="margin:0px" align=center>Accumulated</P>
<P style="margin:0px" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=91.467><P style="margin:0px" align=center>Net <U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>Producing:</P>
</TD><TD valign=top width=85><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Blanket, Zimbabwe - gold property </P>
</TD><TD valign=top width=85><P style="margin:0px" align=right>4,951</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>2</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>4,949</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>Non-producing - exploration:</P>
</TD><TD valign=top width=85><P>&nbsp;</P></TD><TD valign=top width=94.533><P>&nbsp;</P></TD><TD valign=top width=91.467><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Rooipoort , South Africa</P>
</TD><TD valign=top width=85><P style="margin:0px; text-indent:28.8px" align=right>4,236</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>4,236</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Nunavut, Canada</P>
</TD><TD valign=top width=85><P style="margin:0px; text-indent:28.8px" align=right>750</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>750</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Goedgevonden, South Africa</P>
</TD><TD valign=top width=85><P style="margin:0px" align=right>102</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>102</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Nama, Zambia</P>
</TD><TD valign=top width=85><P style="margin:0px" align=right>3,094</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>3,094</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px" align=justify>&nbsp;&nbsp;&nbsp;Mulonga, Zambia</P>
</TD><TD valign=top width=85><P style="margin:0px" align=right>1,044</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>1,044</P>
</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=85><P style="margin:0px" align=right>14,177</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=94.533><P style="margin:0px; text-indent:28.8px" align=right>752</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=91.467><P style="margin:0px; text-indent:28.8px" align=right>13,425</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; text-indent:-24px; font-size:8pt" align=justify><SUP>(1)</SUP></P>
<P style="margin:0px; padding-left:61.8px" align=justify>Cost is comprised of the original cost of the asset, less write-downs, removal of cost for disposals and government grants, and includes the capitalized value of the estimated asset retirement obligations.</P>
<P style="margin:0px; padding-left:37.8px; text-indent:28.8px" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; text-indent:-24px; font-size:8pt" align=justify><SUP>(2)</SUP></P>
<P style="margin:0px; padding-left:61.8px" align=justify>The Corporation has entered into <A NAME="OLE_LINK9"></A><A NAME="OLE_LINK10"></A>strategic alliances with third parties on a Canadian property (Nunavut) and a Zambian property (Mulonga) valued at $0 ($0 &#150; 2007) and $1,044 ($1,044 &#150; 2007) respectively. &nbsp;The third parties may earn varying percentage interests in these properties by carrying out exploration work on the properties. Due to a lack of recent exploration activity in the Canadian property strategic alliance the carrying value of $750 was written off in 2007. The Zambian strategic alliance partner, Motapa Diamonds Inc., has given notice of its desire to terminate the strategic alliance agreement. The Corporation has applied for a retention licence over the properties. &nbsp;All interest in the strategic alliance will be transferred to the Corporation by Motapa Diamonds Inc.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px">The recoverability of the carrying amount of the South African and Zambian mineral properties 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 US dollar and the undertaking of profitable mining operations. As a result of these uncertainties, the actual amount recovered may vary significantly from the carrying amount. &nbsp;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>12</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px"><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>4.</B></P>
<P style="margin:0px; text-indent:66.2px" align=justify><B>Asset Retirement Obligation</B></P>
<TABLE style="font-size:10pt" cellspacing=0 align=center><TR height=0 style="font-size:0"><TD width=333.4></TD><TD width=103.933></TD><TD width=126.733></TD></TR>
<TR><TD valign=top width=333.4><P>&nbsp;</P></TD><TD valign=top width=103.933><P style="margin:0px" align=center><B><U>September 30</U></B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center><U>December 31</U></P>
</TD></TR>
<TR><TD valign=top width=333.4><P>&nbsp;</P></TD><TD valign=top width=103.933><P style="margin:0px" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center><U>2007</U></P>
</TD></TR>
<TR><TD valign=top width=333.4><P>&nbsp;</P></TD><TD valign=top width=103.933><P style="margin:0px" align=center><B>$</B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center>$</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px">Continuing operation- balance at December 31, 2007</P>
</TD><TD valign=top width=103.933><P style="margin:0px" align=center><B>732</B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center>811</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px">Accretion expense</P>
</TD><TD valign=top width=103.933><P style="margin:0px" align=center><B>33</B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center>35</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px">Unrealised foreign exchange loss (gain)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px" align=center><B>87</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=126.733><P style="margin:0px" align=center>(114)</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px"><B>Closing balance &nbsp;at September 30, 2008</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px" align=center><B>852</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=126.733><P style="margin:0px" align=center>732</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px" align=justify>Held for sale operations- balance at December 31, 2007</P>
</TD><TD valign=top width=103.933><P style="margin:0px" align=center><B>311</B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center>364</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px" align=justify>Sale of Barbrook Mine</P>
</TD><TD valign=top width=103.933><P style="margin:0px" align=center><B>(106)</B></P>
</TD><TD valign=top width=126.733><P style="margin:0px" align=center>-</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px" align=justify>Unrealised foreign exchange loss (gain)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px" align=center><B>(24)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=126.733><P style="margin:0px" align=center>(53)</P>
</TD></TR>
<TR><TD valign=top width=333.4><P style="margin:0px" align=justify><B>Closing balance &#150; at September 30, 2008.</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px" align=center><B>181</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=126.733><P style="margin:0px" align=center>311</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify>The asset retirement obligations relate to Blanket $852 ($732 &#150; 2007) and Eersteling Gold Mine $181 ($311 &#150; 2007) and are estimates of costs of rehabilitation at the end of the mine life, increased annually for accretion expense at a rate of 5%. As Eersteling Gold Mine is on care and maintenance no accretion was made in 2008. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>5.</B></P>
<P style="margin:0px; text-indent:66.2px" align=justify><B>Share Capital</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:66.2px; text-indent:-28.4px" align=justify>(a) </P>
<P style="margin:0px; padding-left:66.2px" align=justify>Authorized</P>
<P style="margin:0px; padding-left:66.2px" align=justify>An unlimited number of common shares</P>
<P style="margin:0px; padding-left:66.2px" align=justify>An unlimited number of preference shares.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:65.8px; text-indent:-28px" align=justify>(b)</P>
<P style="margin:0px; padding-left:65.8px" align=justify>Issued</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=311.133></TD><TD width=132.267></TD><TD width=113.4></TD></TR>
<TR><TD valign=top width=311.133><P>&nbsp;</P></TD><TD valign=top width=132.267><P style="margin:0px"><U>Number of Shares</U></P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-right:1.467px; text-indent:48.733px" align=justify><U>Amount</U></P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; text-indent:0.733px" align=justify>Common shares</P>
</TD><TD valign=top width=132.267><P>&nbsp;</P></TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Balance, December 31, 2005</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>370,715,136</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>180,053</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Issued pursuant to private placement (i)</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>15,437,626</P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>1,475</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Issued pursuant to a private placement (ii)</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>34,828,259</P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>3,924</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Issued pursuant to acquisition &nbsp;(Note 14)</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>20,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>3,014</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Issued pursuant to a private placement (iii)</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>17,000,000</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>2,160</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Balance - December 31 , 2006</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>457,981,021</P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>190,626</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Warrants exercised (iv)</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>29,888,259</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>4,380</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px">Balance - December 31 , 2007</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>487,869,280</P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px"><B>Issued pursuant to a private placement (v)</B></P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right><B>12,300,000</B></P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right><B>1,119</B></P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px"><B>Balance &#150; September 30 , 2008</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right><B>500,169,280</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px" align=right><B>196,125</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px" align=justify><B>&nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>13</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right>&nbsp;<B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px" align=justify>(b) (i) &nbsp;During December 2005, the Corporation commenced a private placement to raise $3,496. &nbsp;As at December 31, 2005, the first closing raised gross proceeds of $1,875 comprising 17,850,000 units. The balance of the offering was received by February 2006 upon completion of the second to fourth closings (see Note 14 below). &nbsp;A total of 33,287,626 units priced at $0.105 were subscribed for all closings. Each unit consisted of one common share and one common share purchase warrant. &nbsp;The common share purchase warrants are exercisable for one common share at $0.20 per whole warrant for a period of 24 months from the date of issuance. &nbsp;</P>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; padding-left:66.2px" align=justify>The private placement agents were paid a commission of 9% of the gross proceeds raised. Cash commissions paid on the first closing amounted to $168 and has been charged to share capital in 2005.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px" align=justify>(ii) &nbsp;<A NAME="OLE_LINK1"></A><A NAME="OLE_LINK2"></A>In April 2006 the Corporation commenced a private placement to raise additional funds. This placement raised $3,924 after expenses from the sale of 34,828,259 units. &nbsp;Each unit consists of one common share and one share purchase warrant.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px" align=justify>(iii) &nbsp;&nbsp;In July 2006 the Corporation completed a private placement to raise additional funds. This placement of 17,000,000 units, each consisting of one common share and one share purchase warrant, was completed in July 2006 and raised $2,160 after expenses.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:66.2px; text-indent:-28.4px" align=justify>(iv)</P>
<P style="margin:0px; padding-left:66.2px" align=justify>In April and May 2007 shareholders holding 29,888,259 warrants at $0.15 each exercised the warrants raising $4,380 after expenses.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:66.2px; text-indent:-28.4px" align=justify>(v)</P>
<P style="margin:0px; padding-left:66.2px" align=justify>In February 2008 the Corporation completed a private placement to raise additional funds. This placement raised $1,119 after expenses from the sale of 12,300,000 units. &nbsp;Each unit consists of one common share and one common share purchase warrant. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:37.8px" align=justify>&nbsp;(c) </P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px" align=justify>Stock Option Plans and Stock-Based Compensation</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The Corporation has established incentive stock option plans (the &quot;Plans&quot;) for employees, officers, directors, consultants and other service providers. Under the Plans, as at September 30, 2008, the Corporation has the following options outstanding:</P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0 align=center><TR height=0 style="font-size:0"><TD width=136.533></TD><TD width=113.4></TD><TD width=145></TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px" align=right><U>Number of Options</U></P>
</TD><TD valign=top width=113.4><P style="margin:0px" align=right><U>Exercise Price</U></P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right><U>Expiry Date</U></P>
</TD></TR>
<TR><TD valign=top width=136.533><P>&nbsp;</P></TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=145><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>10,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;&nbsp;0.235</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>April 24, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>150,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;&nbsp;0.345</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>June 2, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>610,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;&nbsp;0.260</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>April 29, 2014</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>200,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;&nbsp;0.260</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>August 15, 2014</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>4,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;&nbsp;0.110</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>February 15, 2015</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>1,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>&nbsp;0.140</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>July 10, 2010</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>300,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.125</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>May 11,2016</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>200,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.110</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>January 23, 2017</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>1,100,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.1125</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>May 31, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>200,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.1125</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>May 31, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>16,320,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.155</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px" align=right>Mar 18, 2013</P>
</TD></TR>
<TR><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=136.533><P style="margin:0px; text-indent:28.8px" align=right>34,080,000</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=113.4><P style="margin:0px; text-indent:28.8px" align=right>0.1740</P>
</TD><TD valign=top width=145><P>&nbsp;</P></TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>14</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The continuity of the options granted, exercised, cancelled and expired under the Plans during 2008, 2007 and 2006 are as follows:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=255.2></TD><TD width=122.8></TD><TD width=179.6></TD></TR>
<TR><TD valign=top width=255.2><P>&nbsp;</P></TD><TD valign=top width=122.8><P style="margin:0px" align=center><U>Number of Options</U></P>
</TD><TD valign=top width=179.6><P style="margin:0px"><U>Weighted Avg. Exercise Price</U></P>
</TD></TR>
<TR><TD valign=top width=255.2><P>&nbsp;</P></TD><TD valign=top width=122.8><P>&nbsp;</P></TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>$</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Options outstanding at December 31, 2005</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=122.8><P style="margin:0px" align=right>16,898,000</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.21</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Granted</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>450,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.13</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Forfeited or expired</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px" align=right>(110,000)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>(0.27)</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Options outstanding at December 31, 2006</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>17,238,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.21</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Forfeited or expired</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>(150,000)</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>(0.115)</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Granted</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>200,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.11</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Granted</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px" align=right>1,300,000</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.1125</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Options outstanding at December 31, 2007</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>18,588,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.198</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Forfeited or expired</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>(828,000)</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>(0.33)</P>
</TD></TR>
<TR><TD valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Granted</P>
</TD><TD valign=top width=122.8><P style="margin:0px" align=right>16,320,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.155</P>
</TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=255.2><P style="margin:0px; text-indent:1.467px" align=justify>Options outstanding at September 30, 2008</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px" align=right>34,080,000</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px" align=center>0.174</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:36px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; padding-left:75.6px" align=justify>The options to purchase common shares noted above, have been granted to directors, officers, employees and service providers at exercise prices determined by reference to the market value of the common shares on the date of grant. &nbsp;The vesting of options is made at the discretion of the board of directors at the time the options are granted. A stock option expense of $684 ($40 &#150; 2007) has arisen from the granting of 2,370,000 options during April, 2008 and a further 13,950,000 options during September 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:37.8px" align=justify>(d)</P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px" align=justify>Warrants &nbsp;</P>
<P style="line-height:10pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The Corporation has issued the following common share purchase warrants pursuant to private placements which are outstanding as of September 30, 2008:</P>
<P style="line-height:10pt; margin:0px" align=justify><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=141.733></TD><TD width=122.867></TD><TD width=102.2></TD><TD width=134></TD></TR>
<TR><TD valign=top width=141.733><P style="margin:0px" align=justify><U>Number of Warrants</U></P>
</TD><TD valign=top width=122.867><P style="margin:0px" align=justify><U>Shares for Warrants</U></P>
</TD><TD valign=top width=102.2><P style="margin:0px" align=center><U>Exercise Price</U></P>
</TD><TD valign=top width=134><P style="margin:0px" align=justify><U>Expiry Date</U></P>
</TD></TR>
<TR><TD valign=top width=141.733><P style="margin:0px" align=center>12,300,000</P>
</TD><TD valign=top width=122.867><P style="margin:0px; text-indent:28.8px" align=justify>1 for 1</P>
</TD><TD valign=top width=102.2><P style="margin:0px; text-indent:28.8px" align=justify>$0.15 </P>
</TD><TD valign=top width=134><P style="margin:0px">February 21, &nbsp;2009</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px" align=justify>The continuity of warrants issued and outstanding is as follows:</P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0 align=center><TR height=0 style="font-size:0"><TD width=226.8></TD><TD width=132.267></TD></TR>
<TR><TD valign=top width=226.8><P>&nbsp;</P></TD><TD valign=top width=132.267><P style="margin:0px" align=center><U>Number of Warrants</U></P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Outstanding December 31, 2005</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>17,850,000</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Issued pursuant to private placements</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>67,265,885</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Outstanding December 31, 2006</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>85,115,885</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Exercised</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>(29,888,259)</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Expired</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>(39,790,000)</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Outstanding December 31, 2007</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right>15,437,626</P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Expired</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right><B>(15,437,626)</B></P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify>Issued pursuant to private placements</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right><B>12,300,000</B></P>
</TD></TR>
<TR><TD valign=top width=226.8><P style="margin:0px" align=justify><B>Outstanding September 30, 2008</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px" align=right><B>12,300,000</B></P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>15</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:28.8px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>6.</B></P>
<P style="margin:0px; text-indent:75.6px" align=justify><B>Net Income/ (Loss) Per Share</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The net income/ (loss) per share figures have been calculated using the weighted average number of common shares outstanding during the respective quarter which amounted to 500,169,280 (2007 &#150; 487,869,280; 2006 &#150; 455,209,281). &nbsp;Fully diluted income/ (loss) per share have not been calculated as it would be anti-dilutive. &nbsp;&nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px" align=justify><B>7.</B></P>
<P style="margin:0px; text-indent:75.6px" align=justify><B>Other Expense (Income) before discontinued operations</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px" align=justify>Other expense (income) is comprised of the following:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=173.4></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.2></TD><TD width=75.6></TD><TD width=66.133></TD><TD width=66.133></TD></TR>
<TR><TD valign=top width=173.4><P>&nbsp;</P></TD><TD valign=bottom width=198.467 colspan=3><P style="margin:0px"><U>Three months ended September 30</U></P>
</TD><TD valign=top width=207.867 colspan=3><P style="margin:0px" align=right><U>&nbsp;</U></P>
<P style="margin:0px" align=right><U>Nine months ended September 30</U></P>
</TD></TR>
<TR><TD valign=top width=173.4><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.2><P style="margin:0px; text-indent:28.8px" align=right><U>2006</U></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=173.4><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.2><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=173.4><P style="margin:0px; text-indent:1.467px" align=justify>Realised foreign exchange loss on sale of Barbrook Mine</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>53</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=66.2><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>203</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=173.4><P style="margin:0px; text-indent:1.467px" align=justify>Other</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>(5)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="margin:0px; text-indent:28.8px" align=right>4</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>(5)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(11)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(3)</P>
</TD></TR>
<TR><TD valign=top width=173.4><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>48</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="margin:0px; text-indent:28.8px" align=right>4</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>198</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(11)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(3)</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-47.2px" align=justify><B>8.</B></P>
<P style="margin:0px; padding-left:75.6px" align=justify><B>Statement of Cash Flows</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px" align=justify>Items not involving cash are as follows:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=170.133></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=68></TD><TD width=75.6></TD><TD width=64.267></TD><TD width=68></TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=bottom width=200.267 colspan=3><P style="margin:0px" align=right><U>Three months ended September 30</U></P>
</TD><TD valign=top width=207.867 colspan=3><P style="margin:0px" align=right><U>&nbsp;</U></P>
<P style="margin:0px" align=right><U>Nine months ended September 30</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=68><P style="margin:0px" align=right><U>2006</U></P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=68><P style="margin:0px" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Amortization</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>101</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>4</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>79</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B>302</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>15</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>99</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Rehabilitation accretion </P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:20.333px" align=right><B>11</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:20.333px" align=right>(52)</P>
</TD><TD valign=top width=68><P style="margin:0px; text-indent:20.333px" align=right>-</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:20.333px" align=right><B>33</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px; text-indent:20.333px" align=right>(146)</P>
</TD><TD valign=top width=68><P style="margin:0px; text-indent:20.333px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Blanket long term liability</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B>(11)</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Share option expenses</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>616</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>40</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B>684</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>40</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Write down of mineral property</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>293</P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>495</P>
</TD><TD valign=top width=68><P style="margin:0px" align=right>293</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Other</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><B>107</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>11</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px" align=right>(75)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right><B>65</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=64.267><P style="margin:0px" align=right>11</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px" align=right>(36)</P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><B>835</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>3</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px" align=right>297</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px" align=right><B>1,073</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=64.267><P style="margin:0px" align=right>415</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px" align=right>356</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px" align=justify>The net changes in non-cash working capital balances for operations are as follows:</P>
<P style="margin:0px" align=justify><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=170.133></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=75.6></TD><TD width=64.267></TD><TD width=66.133></TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=198.4 colspan=3><P style="margin:0px" align=right><U>Three months ended September 30</U></P>
</TD><TD valign=top width=206 colspan=3><P style="margin:0px" align=right><U>Nine months ended September 30</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2006</U></P>
</TD><TD valign=top width=75.6><P style="margin:0px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Accounts payable</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>(36)</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right>163</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>232</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>&nbsp;(1,979)</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3,426)</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>314</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Accounts receivable</P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B>(537)</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(147)</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(368)</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>&nbsp;(1,359)</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>608</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>93</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Inventories</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>613</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>377</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>411</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>1,225</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>4,445</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>169</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Prepaid expenses</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>(11)</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(12)</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>3,082</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>(9)</B></P>
</TD><TD valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>33</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>93</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Assets held for sale</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>(102)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>15</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>(20)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>106</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><B>(73)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>396</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>3,357</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>(2,142) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=64.267><P style="margin:0px; text-indent:28.8px" align=right>1,766</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>669</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>16</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px" align=justify>Supplemental cash flow Information:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=170.133></TD><TD width=75.6></TD><TD width=56.667></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=198.4 colspan=3><P style="margin:0px"><U>Three months ended September 30</U></P>
</TD><TD valign=top width=198.4 colspan=3><P style="margin:0px" align=right><U>Nine months ended September 30</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=56.667><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2006</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2007</U></P>
</TD><TD valign=top width=66.133><P style="margin:0px" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=170.133><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=56.667><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Interest paid </P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>56</B></P>
</TD><TD valign=top width=56.667><P style="margin:0px; text-indent:28.8px" align=right>65</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>100</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>120</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>4</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Interest (received)</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>(162)</B></P>
</TD><TD valign=top width=56.667><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(3)</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>(233)</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>(3)</P>
</TD></TR>
<TR><TD valign=top width=170.133><P style="margin:0px" align=justify>Tax paid </P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=56.667><P style="margin:0px; text-indent:28.8px" align=right>1</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>107</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>3</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:28.8px" align=right>107</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-37.8px" align=justify><B>9. </B></P>
<P style="margin:0px; padding-left:75.6px" align=justify><B>Segmental Information </B></P>
<P style="margin:0px; padding-left:75.6px; text-indent:213.867px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the nine months ended September 30, 2008</B></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=203.6></TD><TD width=75.267></TD><TD width=76.8></TD><TD width=73.667></TD><TD width=60.467></TD><TD width=54.933></TD></TR>
<TR><TD valign=top width=203.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=center><B><U>Corporate</U></B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=center><B><U>Zimbabwe</U></B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=center><B><U>South Africa</U></B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=center><B><U>Zambia</U></B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=center><B><U>Total</U></B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P>&nbsp;</P></TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>$</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>$</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>$</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Revenue from sales</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>4</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>7,664</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>7,668</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Operating costs</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>(4,184)</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>(411)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>(4,595)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">General and administrative</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right><B>(2,864)</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>(49)</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>(260)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>(3,173)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Interest</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>226</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>(100)</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>7</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>133</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Amortization</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>(292)</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>(10)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>(302)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Foreign exchange gains/(loss)</P>
</TD><TD valign=bottom width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>238</B></P>
</TD><TD valign=bottom width=76.8><P style="margin:0px" align=right><B>(1,878)</B></P>
</TD><TD valign=bottom width=73.667><P style="margin:0px" align=right><B>(9)</B></P>
</TD><TD valign=bottom width=60.467><P style="margin:0px" align=right><B>(103)</B></P>
</TD><TD valign=bottom width=54.933><P style="margin:0px" align=right><B>(1,752)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Other income (expense) </P>
</TD><TD valign=bottom width=75.267><P style="margin:0px; text-indent:28.8px" align=right><B>-</B></P>
</TD><TD valign=bottom width=76.8><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=73.667><P style="margin:0px" align=right><B>(198)</B></P>
</TD><TD valign=bottom width=60.467><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=bottom width=54.933><P style="margin:0px" align=right><B>(198)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Income (loss) for continuing operations</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><B>(2,396)</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=right><B>1,160</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=right><B>(881)</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=right><B>(103)</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><B>(2,220)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Discontinued operations (loss)</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=73.667><P style="margin:0px" align=right><B>(123)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right><B>(123)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Income tax expense</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Net income (loss) for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><B>(2,396)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=right><B>1,160</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=right><B>(1,004)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=right><B>(103)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><B>(2,343)</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Identifiable assets</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><B>5,473</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=right><B>8,775</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=right><B>5,032</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=right><B>5,312</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><B>24,592</B></P>
</TD></TR>
<TR><TD valign=top width=203.6><P style="margin:0px; text-indent:1.467px">Expenditure on capital assets and mineral properties</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>45</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.667><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>264</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>1,184</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>1,493</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px" align=justify><B>&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; padding-left:75.6px; text-indent:261.867px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>&nbsp;&nbsp;For the nine months ended September 30, 2007</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=208.8></TD><TD width=74.733></TD><TD width=75.267></TD><TD width=74.267></TD><TD width=56.733></TD><TD width=54.933></TD></TR>
<TR><TD valign=top width=208.8><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=center><U>Corporate</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=center><U>Zimbabwe</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=center><U>South Africa</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=56.733><P style="margin:0px" align=center><U>Zambia</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=center><U>Total</U></P>
</TD></TR>
<TR><TD valign=top width=208.8><P>&nbsp;</P></TD><TD valign=top width=74.733><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>$</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>$</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Revenue from sales</P>
</TD><TD valign=top width=74.733><P style="margin:0px; text-indent:28.8px" align=right>4</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>6,804</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>6,808</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Operating costs</P>
</TD><TD valign=top width=74.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>(5,975)</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>(1,559)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>(7,534)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">General and administrative</P>
</TD><TD valign=top width=74.733><P style="margin:0px" align=right>(1,290)</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>(1)</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>(293)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>(1,584)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Interest</P>
</TD><TD valign=top width=74.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>(119)</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>(1)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>(120)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Amortization</P>
</TD><TD valign=top width=74.733><P style="margin:0px; text-indent:28.8px" align=right>(495)</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>(3)</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>(12)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>(510)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Foreign exchange gains/(loss)</P>
</TD><TD valign=bottom width=74.733><P style="margin:0px; text-indent:28.8px" align=right>(3)</P>
</TD><TD valign=bottom width=75.267><P style="margin:0px" align=right>(2,373)</P>
</TD><TD valign=bottom width=74.267><P style="margin:0px" align=right>873</P>
</TD><TD valign=bottom width=56.733><P style="margin:0px" align=right>35</P>
</TD><TD valign=bottom width=54.933><P style="margin:0px" align=right>(1,468)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Other income (expense) </P>
</TD><TD valign=bottom width=74.733><P style="margin:0px; text-indent:28.8px" align=right>-</P>
</TD><TD valign=bottom width=75.267><P style="margin:0px" align=right>11</P>
</TD><TD valign=bottom width=74.267><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=56.733><P style="margin:0px" align=right>-</P>
</TD><TD valign=bottom width=54.933><P style="margin:0px" align=right>11</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Income (loss) for continuing operations</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=right>(1,784)</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right>(1,656)</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=right>(992)</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px" align=right>35</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right>(4,397)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Discontinued operations (loss)</P>
</TD><TD valign=top width=74.733><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=75.267><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=74.267><P style="margin:0px" align=right>(460)</P>
</TD><TD valign=top width=56.733><P style="margin:0px" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px" align=right>(460)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Income tax expense</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right>(3)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right>(3)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Net income (loss) for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=right>(1,784)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right>(1,659)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=right>(1,452)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px" align=right>35</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right>(4,860)</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Identifiable &nbsp;Assets</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=right>777</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right>7,317</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=right>3,886</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px" align=right>3,312</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right>15,292</P>
</TD></TR>
<TR><TD valign=top width=208.8><P style="margin:0px; text-indent:1.467px">Expenditure on capital assets and mineral properties</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.733><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>616</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=74.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>11</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>1,657</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>2,284</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>17</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=208.8></TD><TD width=74.733></TD><TD width=75.267></TD><TD width=74.267></TD><TD width=56.733></TD><TD width=54.933></TD></TR>
</TABLE>
<P style="margin:0px; padding-left:28.4px; padding-top:4px; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:213.867px" align=justify><BR>
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; padding-left:75.6px; text-indent:261.867px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:37.8px" align=justify><B>10.</B></P>
<P style="margin:0px; text-indent:75.6px" align=justify><B>Contingent Liability</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>In the Share Sale Agreement dated May 12, 2006 pursuant to which the Corporation purchased 100% of the shares of Blanket, the Corporation agreed that it would, as soon as reasonably practicable after the Closing of the Agreement, cause Blanket to implement a share incentive scheme considered by the Directors to be in the best interests of Blanket, pursuant to which a percentage of the shares of Blanket will be deposited in a Trust for the benefit of the management and employees of Blanket. &nbsp;As at December 31, 2007 no scheme had been established, nor were any shares of Blanket deposited in a Trust for the purposes of such a scheme. &nbsp;The Corporation and the Board of Directors of Blanket have delayed the establishment of the required scheme pending clarification of the anticipated Zimbabwe laws relating to the indigenization of the mining industry, as it is recognized that the Zimbabwean laws will likely have a material impact on the structure o
f the proposed scheme and the percentage of the issued shares of Blanket required to be put into trust for the purposes of the scheme.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px" align=justify><B>&nbsp;&nbsp;&nbsp;11. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long Term Liability</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The long term liability refers to a provision for the Service Bonus Fund relating to employees at Blanket in Zimbabwe. The fund was established earlier to provide a gratuity to permanent employees of Blanket on cessation of employment at Blanket for any reason apart from dismissal or resignation. The provision is built up by providing 15% of an employee&#146;s basic salary per year up to a maximum of Z$5,000,000 (old currency). The maximum payout to any employee is Z$5,000,000 (five million Zimbabwe Dollars &#150; old currency) in terms of the current rules. See note 16.</P>
<P style="margin:0px; padding-left:75.6px" align=justify>This fund represents a defined contribution future employee benefit fund for which the funds have not been segregated by the Corporation. </P>
<P style="margin:0px; padding-left:75.6px" align=justify>Due to the hyper-inflationary environment in Zimbabwe this liability is shown as Nil in the balance sheet due to the translation of the Zimbabwe dollar value into Canadian dollars.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:16pt; margin-top:0px; margin-bottom:-21.333px; padding-left:75.6px; text-indent:-37.8px" align=justify><B>12.</B></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify><B>Fair Value of Financial Instruments </B></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The Corporation has various financial instruments comprising of cash and cash equivalents, trade receivables, investments, accounts payable, bank overdrafts, accrued liabilities and long-term debts.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The various assets and liabilities were classified as follows on adoption:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:122.867px; text-indent:-47.267px" align=justify>(a) &nbsp;</P>
<P style="margin:0px; padding-left:122.867px" align=justify>Cash and cash equivalents are classified as &#147;assets held for trading&#148;. They are stated at fair value and any gains/losses arising on revaluation at the end of each period are included in the statement of operations. We have no derivative financial instruments that would have been classified on a similar basis.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:122.867px; text-indent:-47.267px" align=justify>(b)</P>
<P style="margin: 0px; padding-left: 122.867px" align=justify>Investments are classified as &#147;assets available for sale&#148;. They are presented at fair value and the gains/losses arising from their revaluation at the end of each quarter will be included in other comprehensive income. When a decline in fair value is other than temporary, the accumulated loss that had been recognized directly in other comprehensive income is removed from accumulated other comprehensive income and recognized in net income even though the financial asset has not been derecognized.</P>
<P style="margin: 0px; padding-left: 122.867px" align=justify>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:122.867px; text-indent:-47.267px" align=justify>(c)</P>
<P style="margin:0px; padding-left:122.867px" align=justify>Accounts receivables are classified under &#147;loans and receivables&#148;. They are recorded at their original cost which is deemed their fair value at that time. Subsequent measurement will be at amortized cost using the effective interest rate method.</P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>18</P>
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<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
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<P style="margin-top:0px; margin-bottom:-16px; padding-left:122.867px; text-indent:-47.267px" align=justify>(d)</P>
<P style="margin:0px; padding-left:122.867px" align=justify>Bank overdraft is classified as a &#147;financial liability held for trading&#148; as there is a contractual obligation to deliver cash. It is measured at fair value which is book value plus accrued interest. It is stated at fair value and any gains/losses arising on revaluation at the end of each period are included in the statement of operations.</P>
<P style="margin:0px; padding-left:122.867px" align=justify>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:120px; text-indent:-44.4px" align=justify>(e)</P>
<P style="margin:0px; padding-left:120px" align=justify>Accounts payable and accrued liabilities and long term debt are classified under &#147;other financial liabilities&#148;. They are recorded at their fair value at that time. Subsequent measurement will be at amortized cost using the effective interest rate method.</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-37.8px" align=justify><B>13.</B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify><B>Financial Risk Exposure and Risk Management </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Corporation is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital, and protecting current and future Corporation assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets. &nbsp;&nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Corporation&#146;s Audit Committee oversees management&#146;s compliance with the Corporation&#146;s financial risk management policy. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The types of risk exposure and the way in which such exposures are managed are as follows: </P>
<P style="margin-top:0px; margin-bottom:6.133px; padding-left:56.733px; text-indent:18.867px" align=justify><B>(a) Currency Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>As the Corporation operates in an international environment, some of the Corporation&#146;s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Corporation&#146;s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Corporation are reported in Canadian dollars in the Corporation&#146;s consolidated financial statements. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Corporation and may also affect the value of the Corporation&#146;s assets and the amount of shareholders&#146; equity. &nbsp;&nbsp;</P>
<P style="margin:0px; padding-left:75.6px" align=justify>A significant portion of the Corporation&#146;s assets and liabilities are denominated in South African rand and Zimbabwe dollars. &nbsp;Management do not consider that the fluctuation of the value of the South African Rand to the Canadian Dollar could have a significant impact on the results of operations. Blanket operation is subject to a hyperinflationary environment in Zimbabwe, foreign creditors are denominated in Rands and local costs increase with inflation. As the official exchange rate is fixed and the effective buying power of the Zimbabwe Dollar decreases accordingly there could be a significant impact on the results of the operations. The shareholder loan account in Zimbabwe is denominated in US Dollars and will generate foreign exchange losses for Blanket in Zimbabwe Dollar terms but the effect on the consolidated financial statements in Canadian Dollars is unlikely to be significant. &nbsp;The fair values of these financial instruments ap
proximate their carrying values, unless otherwise noted. &nbsp;The Corporation does not use any derivative instruments to reduce its foreign currency risks.</P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>19</P>
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<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px" align=justify><BR></P>
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<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>Below is a summary of the cash or near cash items denominated in a currency other than the Canadian dollar that would be affected by changes in exchanges rates relative to the Canadian dollar? All values are in thousands. See note 16.</P>
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<P style="margin:0px" align=justify><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=140></TD><TD width=77.533></TD><TD width=122.8></TD><TD width=75.6></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=415.933 colspan=4><P style="margin:0px" align=justify>As at September 30, 2008</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=140><P style="margin:0px" align=justify>&#146;000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=77.533><P style="margin:0px" align=justify>US Dollars</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=122.8><P style="margin:0px" align=justify>Zimbabwe Dollars</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=justify>SA &nbsp;Rand</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Cash</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; text-indent:8.6px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>(64)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>600</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>3,106</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; text-indent:7.2px" align=right>8,033</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1,813</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>77</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>17,223</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1,057</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The table below illustrates by how much a 1% change in the rate of exchange between the Canadian dollar and the currencies above will affect net income.</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=140></TD><TD width=77.533></TD><TD width=122.8></TD><TD width=75.6></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=140><P style="margin:0px" align=justify>&#146;000</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=77.533><P style="margin:0px" align=justify>US Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=122.8><P style="margin:0px" align=justify>Zimbabwe Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=justify>SA &nbsp;Rand</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Cash</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; text-indent:8.6px" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>30</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; text-indent:7.2px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>2</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px"><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:15.267px; text-indent:75.6px" align=justify><B>(b) Interest Rate Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>Unless otherwise noted, it is the opinion of management that the Corporation is not exposed to significant interest rate risk as it is debt free and only utilizes overdraft facilities for short periods if necessary. The Corporation&#146;s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Corporation 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 Corporation&#146;s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in &#147;A&#148; grade financial institutions. </P>
<P style="margin:0px; padding-left:75.6px" align=justify>Fluctuations in market interest rates have not had a significant impact on the Corporation&#146;s results of operations due to the short-term to maturity of the investments held.</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:29.2px; text-indent:46.4px" align=justify><B>(c) Concentration of Credit Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>Credit risk is the risk of a financial loss to the Corporation if a gold sales customer fails to meet its contractual obligation. Credit risk arises principally from the Corporation&#146;s receivables from the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) which is the sole buyer of gold produced in Zimbabwe, in terms of legislation. &nbsp;</P>
<P style="margin:0px; padding-left:75.6px" align=justify>At December 31, 2007 the RBZ owed Blanket US$1,780,000 (one million seven hundred and eighty thousand US dollars) and at September 30, 2008 this had increased to US$3,098,000 despite having received two payments of US$325,000 and US$1,125,000 and having paid roughly US$606,000 to various suppliers in Zimbabwe from the amounts due by RBZ. The lack of foreign currency in Zimbabwe affects all business sectors and management maintains close relations with RBZ to ensure payments are made whenever necessary, to sustain operations, within the capabilities of the RBZ.</P>
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<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>20</P>
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<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>In the Monetary Policy Statement announced by RBZ on April 30, 2008 an exporter who is owed foreign currency by RBZ is now allowed to sell the currency to a willing buyer through the commercial bank system at a negotiated rate. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>In light of the recent Monetary Policy Statement, which includes new methods to recover funds owed by the RBZ, no provision has been made against the trade receivable due by the RBZ. &nbsp;</P>
<P style="margin:0px; padding-left:75.6px; text-indent:-47.2px" align=justify><B>&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:38.333px; text-indent:37.267px" align=justify><B>(d) Liquidity Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Corporation manages its liquidity by ensuring that there is sufficient capital to meet its likely cash requirements, after taking into account cash flows from operations and the Corporation&#146;s holdings of cash and cash equivalents. The Corporation believes that these sources will be sufficient to cover the likely short and long term 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. </P>
<P style="margin:0px; text-indent:75.6px">Blanket in Zimbabwe continues to be self funding.</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify><B>(e) Commodity Price Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The value of the Corporation&#146;s mineral resource properties is related to the price of gold, platinum and cobalt, and the outlook for these minerals. In addition, adverse changes in the price of certain raw materials can significantly impair the Corporation&#146;s cash flows. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>Gold prices historically have fluctuated widely and are affected by numerous factors outside of the Corporation's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and macro-economic variables, and certain other factors related specifically to gold. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The major factor influencing commodity price risk is that RBZ does not pay Blanket market value for gold produced. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>During the quarter the RBZ bought gold for USD at a discount to the market price of approximately 25% or if sold for Zimbabwe dollars at a price determined by the inter-bank exchange rate.</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The profitability of the Blanket is highly correlated to the controlled price paid by RBZ and the hyperinflationary conditions experienced in Zimbabwe, currently 493 million % per month as at October 31, 2008. To the extent that the price of gold increases over time, asset value increases and cash flows improve; conversely, declines in the price of gold directly impact value and cash flows. </P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>21</P>
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<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
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<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:76.267px; text-indent:-29px" align=justify><B>14.</B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:76.267px" align=justify><B>Capital Management </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Corporation&#146;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. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Corporation&#146;s capital includes short-term debt, long-term debt and equity, comprising issued common shares, contributed surplus and accumulated deficit.</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px" align=justify>The Corporation&#146;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 and benefits for other stakeholders and to pursue growth opportunities. &nbsp;To secure additional capital to pursue these plans, the Corporation may attempt to raise additional funds through borrowing and/or the issuance of equity, debt or by securing strategic partners. </P>
<P style="margin:0px; padding-left:75.6px">In order to maximize ongoing exploration efforts, the Corporation does not pay dividends.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>As at September 30, 2008, the Corporation is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy. </P>
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<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=173.933></TD><TD width=189.867></TD><TD width=180.133></TD></TR>
<TR><TD valign=top width=543.933 colspan=3><P style="margin:0px">Shareholders&#146; Equity</P>
</TD></TR>
<TR><TD valign=top width=173.933><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=189.867><P style="margin:0px" align=right>As at September 30, 2008</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px" align=right>As at December 31, 2007</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px">Issued common shares</P>
</TD><TD valign=top width=189.867><P style="margin:0px" align=right>196,125</P>
</TD><TD valign=top width=180.133><P style="margin:0px" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px">Contributed surplus</P>
</TD><TD valign=top width=189.867><P style="margin:0px" align=right>1,724</P>
</TD><TD valign=top width=180.133><P style="margin:0px" align=right>1,040</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px">Other comprehensive income</P>
</TD><TD valign=top width=189.867><P style="margin:0px" align=right>(55)</P>
</TD><TD valign=top width=180.133><P style="margin:0px" align=right>(57)</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px">Deficit</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=189.867><P style="margin:0px" align=right>(174,237)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px" align=right>(171,894)</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px">Total</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=189.867><P style="margin:0px" align=right>23,557</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px" align=right>24,095</P>
</TD></TR>
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<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-28.333px" align=justify><B>15</B>.</P>
<P style="margin:0px; padding-left:75.6px" align=justify><B>Comparative Figures</B></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The prior period figures have been reclassified to conform to the current presentation.</P>
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<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-28.333px" align=justify><B>16.</B></P>
<P style="margin:0px; padding-left:75.6px" align=justify><B>Subsequent Events</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>The President of the Republic of Zimbabwe brought the Indigenisation and Economic Empowerment Act into law through decree during March 2008. The law seeks to ensure that a majority stake (at least 51%) in all companies is held by indigenous Zimbabweans. The acquisition of the 51% would be on a &#147;willing buyer willing seller&#148; basis. The statutory instrument enacting the above bill was passed on April 17, 2008. No further action has been taken in this regard.</P>
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<P style="margin:0px; padding-left:28.4px" align=right><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; padding-left:28.4px" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; padding-left:28.4px" align=right>(in thousands of Canadian Dollars unless otherwise indicated and except for share and per share amounts) </P>
<P style="margin:0px; padding-bottom:4px; border-bottom:1.333px solid #000000" align=right><BR></P>
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<P style="margin:0px; padding-left:75.6px" align=justify>In the Monetary Policy Statement announced by the Governor of the RBZ on July 30, 2008 the Zimbabwe dollar has been devalued by scrapping 10 zeros from the Zimbabwe dollar. The retention percentage of export proceeds was also decreased from 65% to 55% but has subsequently been adjusted to 75% i.e. Blanket will be allowed to retain 75% of proceeds from gold sales in US dollars. The balance of 25% will be converted into Zimbabwe dollars at the interbank rate.</P>
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<P style="margin:0px; padding-left:75.6px" align=justify>&nbsp;On October 23, 2008 it was announced that gold production at the Blanket had been temporarily suspended due to the continuing non-payment of foreign exchange by the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) for the sale of gold delivered to Fidelity Printers and Refiners (&#147;Fidelity&#148;), a subsidiary of the RBZ. Zimbabwean law requires 100% of gold produced in the country be sold and delivered to Fidelity regardless of whether previous sales have been paid for or not. </P>
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<P style="margin:0px; padding-left:75.6px" align=justify>The lack of payment depleted stocks of essential consumable stores, which once exhausted forced Blanket to suspend production.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>Blanket requires regular monthly access to foreign exchange in order to purchase the wide range of consumables and spares that are essential to the mining and metallurgical production requirements, and vital for the safety of its workforce.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px" align=justify>Since gold production was suspended Blanket has managed to convert two tranches of US Dollars owed by RBZ to enable management to pay and feed its workforce. We anticipate that this facility will continue.</P>
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<P style="margin:0px; padding-left:75.6px" align=justify>On July 31, 2008 Caledonia was advised by Oretech Resources Inc. (&#147;Oretech&#148;) that it was unable to raise the funds required to close the Sale of Shares Agreement for the purchase of Eersteling Gold Mine Limited. In terms of the agreement Caledonia has issued Oretech a notice of default which required Oretech to conclude the transaction within 14 days or Caledonia could cancel the agreement or exercise other legal remedies. Despite the notice of default Oretech failed to close the transaction, Caledonia has not cancelled the agreement as of November 10, 2008.</P>
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<TR><TD style="background-color:#000000; border:1px solid #000000" valign=top width=638.4><P style="margin-top:4.467px; margin-bottom:4.467px; text-indent:28.8px" align=justify><B>D</B><FONT style="color:#FFFFFF"><B>irectors and Management at </B></FONT><FONT style="color:#FFFFFF"><B>September</B></FONT><FONT style="color:#FFFFFF"><B> 30</B></FONT><FONT style="color:#FFFFFF"><B>, 2008 </B></FONT></P>
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<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>BOARD OF DIRECTORS</B></P>
<P style="margin:0px; text-indent:336px" align=justify><B>OFFICERS</B> </P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>G.R. Pardoe (1) (2) (3) (4) (5)</P>
<P style="margin:0px; text-indent:336px" align=justify>S. E. Hayden (3) (5) </P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Chairman of the Board,</I></P>
<P style="margin:0px; text-indent:336px" align=justify><I>President and Chief Executive Officer</I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Johannesburg, South Africa</I></P>
<P style="margin:0px; text-indent:336px" align=justify><I>Johannesburg, South Africa</I></P>
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<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>S. E. Hayden &nbsp;(3) (5)</P>
<P style="margin:0px; text-indent:336px" align=justify>&nbsp;S. R. Curtis (5)</P>
<P style="margin-top:0px; margin-bottom:-16px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>President and Chief Executive Officer</I></P>
<P style="margin:0px; text-indent:336px"><I>Vice-President Finance and Chief Financial officer</I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.4px" align=justify><I>Johannesburg, South Africa </I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:336px" align=justify><I>Johannesburg, South Africa</I></P>
<P style="margin:0px; text-indent:528px" align=justify><I>&nbsp;&nbsp;</I></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>J. Johnstone </P>
<P style="margin:0px; text-indent:336px" align=justify>Dr. &nbsp;T. Pearton</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Retired Mining Engineer</I></P>
<P style="margin:0px; text-indent:336px" align=justify><I>Vice President Exploration</I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Gibsons, British Columbia, Canada</I></P>
<P style="margin:0px; text-indent:336px" align=justify><I>Johannesburg, South Africa</I></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>F C. Harvey</P>
<P style="text-indent: 336px; margin: 0px" align=justify>C. R. Jonsson &nbsp;(2) (3) (5)</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify><I>Retired Executive</I> &nbsp;</P>
<P style="text-indent: 336px; margin: 0px" align=justify><I>Corporation Secretary</I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Oakville, Ontario, Canada</I></P>
<P style="margin:0px; text-indent:336px" align=justify><I>Vancouver BC</I></P>
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<P style="margin:0px; text-indent:336px" align=justify><B>BOARD COMMITTEE MEMBERS</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>C. R. Jonsson &nbsp;(2) (3) (5)</P>
<P style="margin:0px; text-indent:336px" align=justify>(1) &nbsp;Audit Committee</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Principal of Tupper Jonsson&amp; Yeadon </I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:336px" align=justify>(2) &nbsp;Compensation Committee</P>
<P style="margin:0px; text-indent:624px" align=justify><I>&nbsp;</I></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Barristers &amp; Solicitors</I></P>
<P style="margin:0px; text-indent:336px" align=justify>(3) &nbsp;Corporate Governance Committee</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Vancouver, British Columbia,</I></P>
<P style="margin:0px; text-indent:336px" align=justify>(4) &nbsp;Nominating Committee</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><I>Canada</I></P>
<P style="margin:0px; text-indent:336px" align=justify>(5) &nbsp;Disclosure Committee</P>
<P style="margin:0px; text-indent:28.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:28.8px" align=justify>R. Liverant (1)</P>
<P style="margin:0px; text-indent:28.8px" align=justify><I>Chartered Accountant -Retired</I></P>
<P style="margin:0px; text-indent:28.8px" align=justify><I>Vancouver, British Columbia, Canada</I></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px">R.W. Babensee (1)</P>
<P style="margin:0px; text-indent:28.8px" align=justify><I>Chartered Accountant -Retired</I></P>
<P style="margin:0px; padding-left:28.4px"><I>Toronto, Ontario, Canada</I></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px; padding-left:28.4px">S. R. Curtis (5)</P>
<P style="margin:0px; padding-left:28.4px" align=justify><I>Vice-President Finance and Chief Financial officer</I></P>
<P style="margin:0px; padding-left:28.4px"><I>Johannesburg, South Africa</I> </P>
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<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>24</P>
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<P style="margin:0px; padding-left:28.4px"><B>Corporate Directory</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>CORPORATE OFFICES</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:372px" align=justify><B>SOLICITORS</B></P>
<P style="margin:0px; text-indent:576px" align=justify><B>&nbsp;&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Canada - Head Office</B></P>
<P style="margin:0px; text-indent:372px" align=justify><B>Borden Ladner Gervais LLP</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px; text-indent:372px" align=justify>Suite 4100, Scotia Plaza</P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Suite 1201, 67 Yonge Street</P>
<P style="margin:0px; text-indent:372px" align=justify>40 King Street West</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Toronto, Ontario M5E 1J8 Canada</P>
<P style="margin:0px; text-indent:372px" align=justify>Toronto, Ontario M5H 3Y4 Canada</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Tel:(1)(416) 369-9835 Fax:(1)(416) 369-0449</P>
<P style="margin:0px; text-indent:372px" align=justify><B>Tupper, Jonsson &amp; Yeadon</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px; color:#0000FF" align=justify><U>info@caledoniamining.com</U><FONT style="font-family:Times; color:#000000"></FONT></P>
<P style="margin:0px; text-indent:372px" align=justify>1710-1177 West Hastings St, Vancouver,</P>
<P style="margin:0px; text-indent:372px">British Columbia V6E 2L3 Canada</P>
<P style="margin:0px; text-indent:28.8px" align=justify><B>South &#193;frica &#150; &#193;frica Office</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Greenstone Management Services (Pty) Ltd.</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:372px" align=justify><B>AUDITORS &nbsp;</B></P>
<P style="margin:0px; text-indent:576px" align=justify><B>&nbsp;&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>P.O. Box 834</P>
<P style="margin:0px; text-indent:372px" align=justify><B>BDO Dunwoody LLP</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Saxonwold 2132</P>
<P style="margin:0px; text-indent:372px" align=justify><B>Chartered Accountants</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>South Africa</P>
<P style="margin:0px; text-indent:372px" align=justify>Suite 3300, 200 Bay Street</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Tel: (27)(11) 447-2499 Fax: (27)(11) 447-2554</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:288px" align=justify>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:336px" align=justify>&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:372px" align=justify>Royal Bank Plaza, South Tower</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:192px" align=justify>&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:372px" align=justify>Toronto, Ontario M5J 2J8 Canada</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Zambia</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:192px" align=justify>``</P>
<P style="margin:0px; text-indent:372px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Caledonia Mining (Zambia) Limited</B></P>
<P style="margin:0px; text-indent:368.6px" align=justify><B>&nbsp;REGISTRAR &amp; TRANSFER AGENT &nbsp;&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>P.O. Box 36604</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:144px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:336px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; text-indent:372px" align=justify><B>Equity Transfer Services Inc</B>.</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify>Lusaka, Zambia</P>
<P style="margin:0px; padding-left:38.4px; text-indent:333.6px" align=justify>Suite 400 200 University Ave</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify>Tel:(260)(1) 29-1574 Fax(260)(1) 29-2154</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:336px" align=justify>&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:372px" align=justify>Toronto, Ontario M5H 4H1 Canada</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:192px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; text-indent:336px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tel: (416) 361-0152 Fax:(416) 361-0470</P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:28.8px" align=justify><B>Zimbabwe</B></P>
<P style="margin:0px; text-indent:288px" align=justify>&nbsp;&nbsp;&nbsp;</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify><B>Caledonia Holdings Zimbabwe (Limited)</B></P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify><B>BANKERS</B></P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify>P.O. Box CY1277</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify><B>Canadian Imperial Bank of Commerce</B></P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify>Causeway, Harare</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>6266 Dixie Road</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify>Zimbabwe</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>Mississauga, Ontario L5T 1A7 Canada</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: 0px" align=justify>Tel:(263)(4) 701 151/4 Fax:(263)(4) 702 248<B>
&nbsp;</B></P>
<P style="text-indent: 304.8px; margin: 0px; padding-left: 67.2px" align=justify><B>NOMAD AND BROKER (AIM)</B></P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify><B>CAPITALIZATION </B>at October 31, 2008</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify><B>RBC Capital Markets</B></P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify>Authorised: Unlimited</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>71 Queen Victoria Street</P>
<P style="text-indent: 28.8px; margin-top: 0px; margin-bottom: -16px" align=justify><B>Shares, Warrants and Options Issued:</B></P>
<P style="text-indent: 304.8px; margin: 0px; padding-left: 67.2px" align=justify>London EC4V 4DE</P>
<P style="text-indent: -38.8px; margin-top: 0px; margin-bottom: -16px; padding-left: 67.2px" align=justify>Common Shares: &nbsp;&nbsp;&nbsp;&nbsp;
500,169,280 </P>
<P style="margin:0px; padding-left:372px" align=justify>Tel: +44 20 7653 4000</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:67.2px; text-indent:-38.8px" align=justify>Warrants:</P>
<P style="margin:0px; padding-left:67.2px; text-indent:76.8px" align=justify>12,300,000</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:67.2px; text-indent:-38.8px" align=justify>Options:</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:67.2px; text-indent:76.8px" align=justify>34,080,000</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify><B>SHARES LISTED</B></P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>Toronto Stock Exchange Symbol &#147;CAL&#148;</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:67.2px; text-indent:-38.8px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:67.2px; text-indent:124.8px" align=justify>&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>NASDAQ OTC BB Symbol &quot;CALVF&quot;</P>
<P style="margin:0px; padding-left:67.2px; text-indent:304.8px" align=justify>London &#147;AIM&#148; Market Symbol &#147;CMCL&#148;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:372px" align=justify><B>Web Site: </B><U>http://www.caledoniamining.com</U><FONT style="font-family:Times"></FONT></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:576px" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>25</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
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<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>4
<FILENAME>mda.htm
<DESCRIPTION>MD&A
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<TITLE>CC Filed by Filing Services Canada Inc. 403-717-3898</TITLE>
<META NAME="author" CONTENT="SCurtis">
<META NAME="date" CONTENT="11/14/2008">
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<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
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<P style="margin-top:0px; margin-bottom:-16px; padding-left:192px; text-indent:-192px" align=justify><B>CALEDONIA MINING CORPORATION</B></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:192px; text-indent:96px" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; padding-left:192px; text-indent:240px" align=justify><B>&nbsp;&nbsp;November 10, 2008</B></P>
<P style="line-height:16.15pt; margin-top:0px; margin-bottom:11.133px; padding-right:165.533px" align=justify><B>Management&#146;s Discussion and Analysis </B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:12.8px" align=justify>This discussion and analysis of the consolidated operating results and financial condition of Caledonia Mining Corporation (&quot;the Corporation&#148;) for the nine months ended September 30, 2008, September 30, 2007 and September 30, 2006 should be read in conjunction with the unaudited Consolidated Financial Statements as at September 30, 2008 and the Annual Report for the year ended December 31, 2007, all of which are available from the System for Electronic Data Analysis and Retrieval at <FONT style="color:#0000FF"><U>www.sedar.com</U></FONT> or from the Corporation&#146;s website at <FONT style="color:#0000FF"><U>www.caledoniamining.com</U></FONT>. &nbsp;The Unaudited Consolidated Financial Statements and related notes have been prepared in accordance with Canadian Generally Accepted Accounting Principles (&#147;GAAP&#148;). </P>
<P style="margin:0px" align=justify><B>Note that all currency references in this document are to Canadian dollars, except where specifically stated. </B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Listings</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:17.933px" align=justify>The Corporation is listed on the Toronto Stock Exchange as &#147;CAL&#148;, on NASDAQ-OTCBB as &#147;CALVF&#148;, and on London&#146;s AIM as &#147;CMCL&#148;. </P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify><B>FORWARD LOOKING STATEMENTS</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:12.8px" align=justify>This Management Discussion and Analysis contains certain forward-looking statements relating but not limited to the Corporation&#146;s expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as &#147;anticipate&#148;, &#147;believe&#148;, &#147;expect&#148;, &#147;goal&#148;, &#147;plan&#148;, &#147;intend&#148;, &#147;estimate&#148;, &#147;could&#148;, &#147;should&#148;, &#147;may&#148; and &#147;will&#148; or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factor
s that could cause actual results to differ materially from any forward-looking statement 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, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results. </P>
<P style="margin:0px" align=justify>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. 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. The Corporation 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.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify><B>1.</B></P>
<P style="margin-top:0px; margin-bottom:11.133px; text-indent:48px" align=justify><B>OPERATIONAL REVIEW AND RESULTS OF OPERATIONS</B></P>
<A NAME="OLE_LINK4"></A><A NAME="OLE_LINK5"></A><P style="margin-top:0px; margin-bottom:-16px" align=justify><B>1.1 </B></P>
<P style="margin-top:0px; margin-bottom:6.667px; text-indent:37.8px" align=justify><B>GOLD PRODUCTION </B></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify><B>Blanket Mine (1983) (Private) Limited &#150; Zimbabwe (&#147;Blanket&#148;)</B></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>In view of the fact that the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) has not paid the mine the foreign exchange for gold purchased by it since May 2008, Blanket was unable to purchase essential imported consumables and has had no alternative but to suspend production, as announced in the press release on October 23, 2008, until revenue is forthcoming. &nbsp;The mine staff continues to keep the operations in a good state of repair and all staff have been retained, although their efforts have been redirected to maintenance projects.</P>
<P style="margin-top:4.467px; margin-bottom:4.467px; text-indent:28.8px" align=justify><B>Safety, Health and Environment</B></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol">&#183;</P>
<P style="margin:0px; padding-left:48px">The mine continued its good safety performance and recorded no lost time injuries during the quarter and the number of restricted work accident cases (reportable accidents) declined by 66% relative to the previous quarter. However, 8 medical aid and first aid incidents were recorded which is consistent with the previous quarter.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol">&#183;</P>
<P style="margin:0px; padding-left:48px">&nbsp;During the quarter 487 employees were trained in Hazard Identification and Risk Assessment (HIRA) while supervisors were trained in Planned Job Observations and Supervisory Skills.</P>
<P style="margin:0px"><BR>
<BR></P>
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<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:48px" align=justify>The mine retired 8 employees on medical grounds. &nbsp;No occupational health illnesses were detected during the quarter. &nbsp;27 employees and their dependents voluntarily underwent HIV tests during the quarter, of which only 1 person tested positive. &nbsp;HIV/AIDS education continues but confidentiality restricts management&#146;s ability to identify suspected cases. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>There were no adverse environmental issues during the quarter, and results from groundwater testing continue to show that the tailings dams are not affecting the quality of the groundwater. &nbsp;Used oil, scrap metal and spent batteries are sold to reputable dealers as a means of disposing of such potentially hazardous waste.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The economic situation in Zimbabwe has deteriorated significantly and the number of dismissals due to desertion remains high - 43 employees were dismissed during the quarter for being absent without permission. Under the current deteriorating economic conditions, formal employment is shunned in favor of work in the informal sector. As a result, the mine has had to intensify recruitment efforts in order to maintain critical staffing levels and has had to maintain a vigorous training program to prepare these replacement employees.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Capital Projects - Number 4 Shaft Expansion Project</B></P>
<P style="margin:0px" align=justify>Due to the ongoing critical shortage of foreign currency, no further work took place on the No 4 shaft project and the anticipated future expenditure is estimated at US$2,200,000. This expenditure, once made will enable production to be increased to 1,000 tonnes per day from which an annual gold production of 40,000 ounces is forecast.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Operations</B></P>
<P style="margin:0px" align=justify>During the past quarter the operation continued to be hampered by the following:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:37.8px; text-indent:-18.867px" align=justify>&#149;</P>
<P style="margin:0px; padding-left:37.8px" align=justify>Labour shortages caused by the rapidly deteriorating socio-economic situation in Zimbabwe. The overall manpower numbers are currently at approximately 50% of the normal requirement.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:37.8px; text-indent:-18.867px" align=justify>&#149;</P>
<P style="margin:0px; padding-left:37.8px" align=justify>The critical shortage of foreign currency receipts has curtailed the ability of the mine to replenish stocks of a wide range of consumable items which are essential for safety, mining and production. &nbsp;Consequently, mining activities were suspended.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The factors above have contributed directly to the current drop in production from the 25,000 ounce per annum level at the start of the No 4 shaft expansion project. </P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=141.8></TD><TD width=85></TD><TD width=86.4></TD><TD width=91.533></TD><TD width=86.667></TD><TD width=104></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=226.8 colspan=2><P style="margin:0px" align=justify><B>Production results</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=bottom width=86.4><P style="margin:0px" align=center><B>3<SUP>rd</SUP> Quarter 2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=bottom width=91.533><P style="margin:0px" align=center>3<SUP>rd</SUP> Quarter 2007</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=bottom width=86.667><P style="margin:0px" align=center><B>Nine months to Sept 2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=bottom width=104><P style="margin:0px" align=center><B>Nine months to Sept 2007</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px" align=justify>Ore milled</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Tonnes</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>22,884</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>14,042</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>81,688</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>60,559</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px" align=justify>Sands processed</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Tonnes</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>81,081</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>-</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>125,137</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px" align=justify>Ore Gold Grade milled</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Grams/tonne</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>3.09</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>1.90</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>3.33</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>3,05</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px" align=justify>Recovery % - Ore</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Per cent</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>88%</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>75%</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>88%</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>83%</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px">Gold produced - Total</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>2,028</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>2,672</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>7,687</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>8,784</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.8><P style="margin:0px" align=justify>Gold Sold</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="margin:0px" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.4><P style="margin:0px" align=right><B>2,466</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=91.533><P style="margin:0px" align=right>2,262</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=86.667><P style="margin:0px" align=right><B>8,364</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=104><P style="margin:0px" align=right>9,471</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The difference between gold produced and gold sold is the carry over gold work in progress from the previous period. In the first quarter of 2007, underground production was interrupted by the closure of the No. 4 shaft for expansion work and during this period sands from nearby dumps were used to supplement production, resulting in an overall decline in grade. &nbsp;The tonnage of ore milled in Q3 was 30% lower than in Q2 and the gold production decreased by 32% over the period. &nbsp;The reduced gold production is a function of the low tonnage of 22,884 milled and the lower head grade of 3.09 grams per tonne. The reduction in the number of underground production crews and the forced depletion of critical consumables were the main factors contributing to the lower gold production.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B><I>Outlook</I></B></P>
<P style="margin:0px">Since the two 2008 Zimbabwe elections and the inconclusive power sharing negotiations that followed, the economic future of the country continues to remain uncertain. &nbsp;Foreign currency remains in extremely short supply at government level and therefore it is likely to be some time before the mine receives payment for its gold sales. &nbsp;Dependant on the availability of foreign and local funds, management remains committed to:</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:48px">&#149;</P>
<P style="margin:0px; text-indent:96px">Completing the #4 shaft project;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>2</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:94.533px; text-indent:-47.267px">&#149;</P>
<P style="margin:0px; padding-left:94.533px">Returning Blanket to the 25,000 oz per annum production level, and as soon as possible thereafter increasing production to the planned 40,000 oz per annum level;</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:94.533px; text-indent:-46.533px">&#149;</P>
<P style="margin:0px; padding-left:94.533px">Re-commencing the down dip diamond drilling program to evaluate the main ore zones which are known to extend to depth below the 750 m level;</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; text-indent:48px">&#149;</P>
<P style="margin:0px; text-indent:96px">Re-commencing development work at Blanket&#146;s various exploration projects close to the mine;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px">Production operations at Blanket will remain in forced suspension until such time as the mine is paid for its gold sales. &nbsp;Efforts to look after the workforce in terms of basic foods and well being will continue during the period of suspended operations provided that Blanket is able to access the required tranches of funds from the RBZ.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>1.2 &nbsp;&nbsp;&nbsp;&nbsp;EXPLORATION AND PROJECT DEVELOPMENT</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>1.2.1 &nbsp;&nbsp;&nbsp;COBALT AND BASE METALS</B></P>
<P style="margin:0px" align=justify><B>&nbsp;</B></P>
<P style="line-height:11.55pt; margin:0px" align=justify><B>Nama Cobalt Project &#150; Zambia</B></P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Early in Q4 2008 Caledonia was granted four Large Scale Mining Licences in respect of the Nama cobalt project by the Mines Development Department of the Zambian Ministry of Mines and Minerals Development. &nbsp;In addition, Caledonia received a 10 year Investment Licence from the Zambia Development Agency in respect of the Nama Cobalt Project.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The 2008 drilling campaign commenced during the second quarter of this year. &nbsp;The primary objectives of the program were to improve the definition of Resource Body D as well as the Co/Cu mineralised zone discovered at Konkola West. Recently received results of research work carried out by two laboratories in South Africa and one in Canada has resulted in a flowsheet involving both hydrometallurgical and pyrometalurgical processes. &nbsp;In order to justify the implementation of a pyrometallurgical process, the resource base would have to be substantial increased and it is for this reason that current drilling efforts are focused on other very large D type iron-rich bodies about 10 kilometres to the west of the D area</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Resource Body D</B></P>
<P style="margin:0px" align=justify>Diamond drilling of the D body was undertaken primarily in order to upgrade the resources defined by the 2007 reverse circulation drilling program. This program is providing additional information on the shape, mineralogical characteristics, depth variations, engineering characteristics and internal dilution of the resource body. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>During the quarter 24 diamond drilled bore holes were drilled in the area, totalling 2,058 meters. &nbsp;All potentially mineralised sections of the core were split using a diamond saw, and half core samples submitted for assay for Co, Cu, Ni, Zn and Fe. &nbsp;A total of 969 samples were submitted for assay, of which about 70% of the results have been received to date. &nbsp;While provisional modelling of the resource is already under way, final computation of the revised resource statistics can only be completed once all the results have been received. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Exploration is currently focused on the drilling of the additional &#147;D-Type&#148; bodies identified earlier this year as well as other possible sources of large iron rich bodies that can supplement the D resource.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Konkola West</B></P>
<P style="margin:0px" align=justify>Both Co and Cu enrichment was encountered in a trench excavated on a geochemical anomaly in the Konkola West area. &nbsp;The occurrence is situated close to a position where both Copperbelt and iron rich mineralization styles can be expected. &nbsp;Twelve holes were completed in this target area during the quarter amounting to 1,588 meters of drilling and 804 drill core samples were submitted for assay. &nbsp;The drilling of this target was completed early in the 4<SUP>th</SUP> quarter but the computation of the resource is dependent on the final analytical results which are outstanding.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>3</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Further field work is currently being done in the area in order to define other targets to be drilled later in the season. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><B>Further Developments</B></P>
<P style="margin:0px" align=justify>China Nerin (Nanchang Engineering and Research Institute for Nonferrous Metals) Engineering Co Limited, a well established and experienced engineering company, has been requested to delay completion of their work on the Chinese Feasibility Study (CFS) pending finalisation of the revised and additional resource data, finalization of the metallurgical process and clarification of the Zambian taxation that will apply to the Nama project. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Finalization of the CFS is expected during the first half of 2009 and will be dependent on the definition of an increased Indicated Resource sufficient to support at least 5 years of production at design capacity, and finalization of the metallurgical research required to define an economic process route to treat the high-iron &#147;D-Type&#148; mineralisation, and clarification of the Zambian tax environment under which Nama would operate. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Any further unanticipated permitting, metallurgical, mining or funding delays will result in the construction commencement date being delayed. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>An Environmental Impact Statement for the planned mining and metallurgical plant operations covering resource bodies A and D has been submitted to the Environmental Council of Zambia for approval. It is anticipated that the document will require certain updates to reflect recent changes in the metallurgical and tailings facilities of the project. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>As announced earlier in Q3, the recently introduced taxation legislation in Zambia, whilst not rendering the project uneconomic, imposes an unreasonably heavy burden on investors. &nbsp;Caledonia has had constructive discussions with the Zambian authorities and has made detailed proposals to the requisite Ministries and Departments for a more appropriate taxation structure for the Nama project. &nbsp;&nbsp;The ability of the Zambian authorities to respond to our proposals was impaired by the unforeseen Presidential elections in Zambia that resulted from the untimely death of President Mwanawasa. &nbsp;Caledonia expects to be able to progress the discussions with the Zambian authorities when normal government resumes after the post-election period. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Market conditions for raising debt and equity are currently extremely difficult. However the prospective debt providers with whom Caledonia had entered preliminary discussions regarding debt funding have confirmed that they retain their interest in the Nama Cobalt Project and their capacity to participate in debt funding. &nbsp;Caledonia considers it prudent to defer any discussions with prospective equity providers until the technical and taxation aspects of the Nama Project have been clearly defined and the general equity market conditions improve. </P>
<P style="margin:0px" align=justify>.</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:12.8px; padding-left:3.533px; text-indent:-3.533px" align=justify><B>1.2.2 &nbsp;&nbsp;&nbsp;ROOIPOORT AND MAPOCHSGRONDE PGE/Ni/Cu PROJECTS &#150; SOUTH AFRICA</B></P>
<P style="line-height:11.55pt; margin:0px" align=justify><B>Property</B></P>
<P style="margin:0px" align=justify><B>Rooipoort and Mapochsgronde</B></P>
<P style="margin:0px" align=justify>The prospecting rights granted to the company to prospect for PGMs on the major portions of the Mapochsgronde tribal trust land are currently in the process of registration. &nbsp;A further application has been made for an adjoining property to the north of the current rights.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The Rooipoort platinum rights, previously held by Caledonia&#146;s subsidiary, Eersteling Gold Mine, are currently being registered under Maid O&#146; the Mist, also a wholly owned subsidiary of Caledonia. &nbsp;Maid O&#146; the Mist is the vehicle that will be used to manage the Joint Venture with Mitsubishi Corporation in the Rooipoort area. &nbsp;Once registered and all other due diligence matters are complete, funds are expected to be released by Mitsubishi Corporation to proceed with the exploration of this area.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>It was announced during the quarter that Caledonia and Mitsubishi Corporation of Japan signed a Heads of Agreement relating to potential Joint Ventures (JV) between the companies on both the above platinum properties. &nbsp;The JV&#146;s will come into effect as soon as certain due diligence conditions of the agreement have been completed to Mitsubishi&#146;s satisfaction. &nbsp;&nbsp;In terms of the agreement, Mitsubishi will fund 100% of all further exploration on each of the above two properties up to a bankable feasibility stage, or to the value of $40 million for the 2 JV&#146;s, whichever comes first, to earn a 50% interest in the JV&#146;s. &nbsp;The JV management team is planning a rapid escalation in exploration activity as soon as the registration of the prospecting rights is completed and the Shareholder Agreements are signed between Caledonia and Mitsubishi Corporation.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>4</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:12.8px" align=justify><B>1.2.3 &nbsp;&nbsp;&nbsp;GOLD</B></P>
<P style="line-height: 11.55pt; margin: 0px" align=justify><B>Zimbabwe Exploration &#150; Gold</B></P>
<P style="margin-top:0px; margin-bottom:6.667px" align=justify>Due to the lack of foreign currency no exploration work took place during the quarter.</P>
<P style="margin-top:0px; margin-bottom:6.667px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:6.667px" align=justify><B>1.2.4 &nbsp;&nbsp;&nbsp;DIAMONDS </B></P>
<P style="line-height: 11.55pt; margin: 0px" align=justify><B>Mulonga Plain &#150; Zambia</B></P>
<P style="margin:0px" align=justify>An application for a Retention Licence has been lodged with the Zambian authorities. The Zambian Government department responsible for the issuing of prospecting licences has been reorganised and this has temporarily delayed the process of awarding permits. &nbsp;No response had been received from the Zambian authorities by the date of this report.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify><B>Kashiji Plain - Zambia</B></P>
<P style="line-height:11.55pt; margin:0px" align=justify>No further field work was carried out on the Kashiji or Lukulu licenses in this quarter. This license expired in June 2008, at which time the Corporation had already applied for retention licenses covering these areas.</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify><B>Goedgevonden - South Africa</B></P>
<P style="margin:0px" align=justify>The Corporation holds prospecting rights over the Goedgevonden diamond bearing kimberlite pipe and surrounding area. This property is located approximately 20 km north of the now defunct Stilfontein gold mine in the Klerksdorp district of the North West Province in South Africa and 200 km south west of Johannesburg. </P>
<P style="margin:0px" align=justify>Although the New Order Prospecting Rights have been granted, the signature of the documentation is awaiting certain suspensive conditions. Discussions are in progress with other parties with a view to realizing value by either joint venture or disposal of the properties constituting the Goedgevonden Diamond Project.<FONT style="font-family:Times">No further work was carried out on this property during the quarter.</FONT></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify><B>1.2.5 &nbsp;&nbsp;&nbsp;GENERAL OUTLOOK </B></P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Exploration by its nature is speculative with a high degree of risk accompanied by the potential for high returns. &nbsp;The Corporation manages this risk by using well-qualified exploration professionals, senior mining company joint venture partners and by exploring in areas which are considered as having a better than average potential for discovery. &nbsp;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify><B>1.3 &nbsp;&nbsp;&nbsp;&nbsp;QUALIFIED PERSONS</B></P>
<P style="margin:0px" align=justify>Dr Trevor Pearton, BSc Eng (Mining Geology), PhD (Geology), FGSSA, VP Exploration is a qualified person as defined by NI 43-101. Dr. Pearton is responsible for the technical information provided in this MD&amp;A except where otherwise stated. He was assisted where appropriate by outside consultants and/or qualified persons for joint-ventured projects. Mr. David Grant is the Independent Qualified Person for the NI 43-101 compliant reports on the resources of the Nama Property, prepared by Applied Geology and Mining (Proprietary)Limited, whose Managing Director is Mr. Grant .</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>5</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:28.4px; text-indent:-28.4px" align=justify><B>2. </B></P>
<P style="margin:0px; padding-left:28.4px" align=justify><B>SUMMARY OF QUARTERLY RESULTS - </B>(C$ 000&#146;s<B> </B>- except per share amounts.)</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The following information is provided for each of the 8 most recently completed quarters of the Corporation - ending on the dates specified - in thousands of Canadian dollars. The figures are extracted from underlying financial statements that have been prepared according to Canadian GAAP.</P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=87.733></TD><TD width=61.267></TD><TD width=61.267></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.133></TD><TD width=66.2></TD><TD width=66.133></TD><TD width=66.133></TD></TR>
<TR><TD style="border:1px solid #000000" width=87.733><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=justify><B>Sept 30/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=justify><B>June 30/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=justify><B>Mar 31/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=justify><B>Dec</B></P>
<P style="margin:0px" align=justify><B>31/07</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=justify><B>Sept 30/07</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=66.2><P style="margin:0px" align=justify><B>June 30/07</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=justify><B>Mar</B></P>
<P style="margin:0px" align=justify><B>30/07</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=66.133><P style="margin:0px" align=justify><B>Dec</B></P>
<P style="margin:0px" align=justify><B>31/06</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=87.733><P style="margin:0px" align=justify>&nbsp;Sales before &nbsp;discontinued operations</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>2,280</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>2,883</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>2,504</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>3,231</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>1,950</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>1,539</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>3,319</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>9,044</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=87.733><P style="margin:0px" align=justify>Income/(loss) before discontinued operations</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>- per share</P>
<P style="margin:0px" align=justify>undiluted</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>- per share</P>
<P style="margin:0px" align=justify>Diluted</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,749)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0055)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0055)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(261)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0005)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0005)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>791</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0016</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0016</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>494</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0010</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0010</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(855)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0019)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0019)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>364</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0007</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0007</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(3,909)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0085)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0085)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>&nbsp;</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>3,841</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0084</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0084</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=87.733><P style="margin:0px" align=justify>Discontinued operations (loss)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(30)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(24)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(70)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(249)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(80)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(126)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(254)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(1,283)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=87.733><P style="margin:0px" align=justify>Net Income/ (loss) after discontinued operations</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>- per share</P>
<P style="margin:0px" align=justify>undiluted</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>- per share</P>
<P style="margin:0px" align=justify>Diluted</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,779)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0056)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0056)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(285)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0006)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0006)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>721</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0015</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0015</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>245</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0005</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0005</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(935)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0019)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0019)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>238</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0005</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0005</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(4,163)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0074)</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(0.0074)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>2,558</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0056</P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>0.0056</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=87.733><P style="margin:0px" align=justify>No of shares basic &#145;000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right>500,169</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=61.267><P style="margin:0px" align=right>500,169</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>493,199</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.2><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>457,981</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=66.133><P style="margin:0px" align=right>457,981</P>
</TD></TR>
</TABLE>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify>The discontinued operations in the quarter ended September 2008 relate to Eersteling Mines, Barbrook was included up to March 31, 2008. All foreign exchange gains or losses are reported in the results before discontinued operations. &nbsp;The gold sales at Blanket were 2,466 ounces in Q3 (3,089 ounces in Q2, 2,809 ounces in Q1, 4,352 ounces in Q1 2007, 2,922 ounces in Q2 2007, 2,262 ounces in Q3 2007 and 4,512 ounces Q4 2007). Included in the loss for the quarter, before discontinued operations, is the unrealized foreign exchange gain/ (loss) of ($992,000); (loss of ($860,000) in Q2, $100,000 gain in Q1 of 2008, and in 2007 $456,000 in Q4, ($1,016,000) in Q3, ($707,000) in Q2and $255,000 in Q1). The huge collapse in the value of the Zimbabwe dollar resulted in an unrealized foreign exchange loss of $856,000 at Blanket. As a result of the sale of Barbrook Mines shares and loan claims a loss of $203,000 has been realized due to foreign exchange fluctuati
ons. </P>
<P style="margin:0px"><BR></P>
<P style="margin:0px" align=justify>The gross profit of $302,000 ($1,526,000 in Q2 and $1,245,000 in Q1 2008) for the third quarter has been achieved despite inflationary factors in Zimbabwe (493 million % per month in October 2008) and is evidenced by the fact that the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) owed Blanket US$3,098,000 for gold sales at the end of the quarter compared to US$2,685,000 at the end of Q2 and US$2,680,000 at the end of Q1. During the quarter RBZ made no direct payments to Blanket but paid certain suppliers on the Mine&#146;s behalf to the amount of roughly US$270,000. </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify>The results of Blanket have been translated into Canadian dollars using the inter-bank rate that was introduced by the RBZ in May 2008. This rate of exchange (&#147;ROE&#148;) is established by the market on a &#147;willing buyer - willing seller&#148; basis. The table below illustrates the rates of exchange used per financial statement category; all rates of exchange before Q2 2008 were derived from the gold support price quoted by RBZ. Due to the introduction of the inter-bank rate the effective discount on gold sold in Zimbabwe dollars initially decreased from 90% to roughly 15% but as the inter-bank rate has not been allowed to move freely in the market the discount has widened again to about 90%. Blanket sold 719 ounces of gold during the quarter solely for Zimbabwe dollars at a discount of above 90% to the US$ based market price. This was necessary as Blanket had no Zimbabwe dollars to pay the </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>6</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify>work force. When introduced the inter-bank rate was set at Z$190 million per US$1 and is currently trading at about Z$600 (new currency 10 zeros removed).</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=189></TD><TD width=75.733></TD><TD width=97.8></TD><TD width=81.2></TD><TD width=75.6></TD><TD width=75.6></TD></TR>
<TR><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=center><B>2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=center><B>2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=center><B>2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=center><B>2007</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=center><B>2007</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P style="margin:0px" align=justify><B>Z$&#146;s per C$1</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=center><B>Q3 ROE</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=center><B>Q2 ROE</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=center><B>Q1 ROE</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=center><B>Q4 ROE</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=center><B>Q3 ROE</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P style="margin:0px" align=justify>Sales revenue</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=right>48</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=right>337,140,498</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=right>5,161,433</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>275,926</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>156,590</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P style="margin:0px">Other income statement items</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=right>53</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=right>3,736,329,101</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=right>10,019,210</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>260,870</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>150,507</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P style="margin:0px">Monetary assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=right>122</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=right>10,631,984,967</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=right>22,960,635</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>378,644</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>168,645</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=189><P style="margin:0px" align=justify>All other assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.733><P style="margin:0px" align=right>101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=97.8><P style="margin:0px" align=right>101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=81.2><P style="margin:0px" align=right>101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>&nbsp;&nbsp;101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=right>101.19</P>
</TD></TR>
</TABLE>
<P style="line-height:11.55pt; margin:0px" align=justify>&nbsp;</P>
<P style="margin:0px">On July 30, 2008 the RBZ announced a new monetary policy. Part of the announcement dealt with the devaluation of the Zimbabwe dollar and 10 zeros were removed from the value of the currency i.e. Z$100,000,000,000 became Z$10. Due to the rampant inflation all 10 zeros have returned to the devalued currency as of early November 2008.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify><B>3.</B></P>
<P style="margin-top:0px; margin-bottom:11.133px; text-indent:48px" align=justify><B>INVESTING </B></P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify>During the third quarter 2008 the Corporation invested $993,000 in capital assets and mineral properties ($959,000 in 2007 and $1,566,000 in 2006). &nbsp;Of the amount invested in 2008, $755,000 was spent at Nama on drilling exploration and $223,000 at Rooipoort acquiring the Falconbridge prospecting rights. Due to a lack of foreign currency there was negligible capital expenditure at Blanket. </P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify><B>4.</B></P>
<P style="margin-top:0px; margin-bottom:11.133px; text-indent:48px" align=justify><B>FINANCING </B></P>
<P style="margin:0px" align=justify>In February 2008 $1,119,000 (nil &#150; 2007 and $1,475,000 &#150; 2006) was raised from private placements (net of expenses). &nbsp;In all 12,300,000 shares, priced at $0.10 were issued in the private placement along with an equal number of warrants priced at $0.15, valid for 1 year. &nbsp;&nbsp;The funds were used to finance exploration activity on the Corporation&#146;s most prospective projects and working capital requirements. No further capital raising took place in the third quarter.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>On May 31, 2008 the sale of Barbrook Mine to Eastern Goldfields was concluded. The full purchase price of $9,213,000 was paid in cash. These funds are being used to finance exploration activities at Nama and other corporate expenses.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify><B>5.</B></P>
<P style="margin-top:0px; margin-bottom:11.133px; text-indent:48px" align=justify><B>LIQUIDITY AND CAPITAL RESOURCES </B></P>
<P style="line-height:11.55pt; margin:0px" align=justify>As of September 30, 2008, the Corporation had a working capital of $9,105,000 (surplus of $65,000 at December 31, 2007). The increase in working capital is due to the proceeds received for Barbrook Mine and the transfer of Barbrook liabilities to Eastern Goldfields. Due to the state of the Zimbabwean economy, Blanket is operating on a virtual cash basis as suppliers do not grant credit in the hyper-inflationary environment. &nbsp;During the quarter the US dollar amount owed by the RBZ has increased to US$3,098,000 from US$2,685,000 at June 30, 2008. Blanket has received no direct payments from RBZ during the quarter and as a result gold production has been temporarily suspended. Blanket will retain all staff as long as it can convert US dollars owed to it by RBZ at a favourable exchange rate to pay salaries and purchase food requirements. Blanket has managed to conclude two transactions with RBZ on this basis since production was suspended. RBZ has als
o paid certain of Blanket suppliers directly from the US dollars owed by RBZ namely for electricity and fuel supplies.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px" align=justify>The Corporation anticipates that the funds held by the RBZ (US$3,098,000) will only be available, in the immediate future, for use at Blanket in Zimbabwe. However, the Corporation&#146;s Board has decided that it is not necessary to, at this date, conclude that the amount is not going to be ultimately collectible &#150; and the full amount is still showing in its quarter-end Balance Sheet as a current asset.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px">Gold sales in Zimbabwe continued on the basis of a minimum of 75% of the proceeds being paid in US dollar and the balance paid in Zimbabwe dollars using the inter-bank rate. The 75% US dollar retention was increased from 55% in the latest Monetary Policy announcement and an extra 150% of the inter-bank rate was also added to the sales formula for the Zimbabwe dollar portion.</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px" align=justify>Blanket continues to be self funding. Little or no money is currently being spent on capital development due to a lack of foreign and local currency.</P>
<P style="margin:0px" align=justify>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>Anticipated cash inflows in 2008 will be used mainly by the Corporation on its exploration, development and
production activities. </P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>7</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>Future gold production at Blanket is totally dependent on the RBZ paying the outstanding US dollars owed to Blanket, so essential imported consumables can be acquired and the No 4 shaft expansion - at an estimated cost of $750,000 to regain the 600 tpd ore delivery to the plant and a further amount of $1,500,000 to reach the expanded rate of 1,000 tpd ore delivery and plant expansion needs, will be completed.</P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>Areas of focus outside Zimbabwe are as follows:</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:76.4px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin-top:0px; margin-bottom:13.333px; padding-left:76.4px" align=justify>the defined activities at the Corporation&#146;s Nama Cobalt/Copper Project at an estimated cost of &nbsp;$ 4,000,000</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:76.4px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin-top:0px; margin-bottom:13.333px; padding-left:76.4px" align=justify>the Rooipoort and Mapochsgronde South African PGE &amp; Ni properties which will be funded by Mitsubishi in terms of the JV agreements. </P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:76.4px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin-top:0px; margin-bottom:13.333px; padding-left:76.4px" align=justify>corporate working capital.</P>
<P style="margin:0px" align=justify>The prime area of focus will be the Nama Cobalt Project in Zambia. Notwithstanding the estimated expenditure amounts for each of the programs described above, the Corporation cannot predict the actual amounts that will be spent on those programs. &nbsp;Decisions will be made to go ahead on the programs from time to time by Management as they, at that time, determine appropriate, based on results achieved in previous programs and funding availability.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px" align=justify>The Corporation does not have any significant long-term contractual obligations or commercial commitments other than the payment of its current liabilities and its five cobalt sales agreements. &nbsp;It has two joint venture agreements with Ashton Mining of Canada Inc. and Motapa Diamonds Inc. In each case these partners were responsible for all property expenditures until a feasibility study had been completed. &nbsp;The Corporation has minor obligations in respect of licence fees for its exploration and mining properties some of which are paid in full by the Corporation&#146;s joint venture partners. &nbsp;&nbsp;Now that Motapa wishes to withdraw from its JV on Mulonga Plain, the Corporation will be responsible for maintaining the Licences. &nbsp;&nbsp;As of September 30, 2008 the Corporation had potential/contingent liabilities to do rehabilitation work on Blanket and Eersteling Mines - if and when those Mines are permanently closed - at an estimate
d cost of $1,033,000. With the completion of the sale of the Barbrook the rehabilitation liability of $93,000 has passed onto the new owners.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify><B>6. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OFF-BALANCE SHEET ARRANGEMENTS</B></P>
<P style="margin:0px" align=justify>There are no off balance sheet arrangements.</P>
<P style="margin:0px" align=justify>&nbsp;</P>
<P style="margin:0px" align=justify>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:37.8px; text-indent:-37.8px" align=justify><B>7.</B></P>
<P style="margin:0px; padding-left:37.8px" align=justify><B>RELATED PARTY TRANSACTIONS</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px" align=justify>The Corporation had the following related party transactions in the normal course of business:</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=432.667></TD><TD width=47.2></TD><TD width=47.267></TD><TD width=58.8></TD></TR>
<TR><TD style="border-right:1px solid #000000" valign=top width=432.667><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=153.267 colspan=3><P style="margin:0px" align=center><U>Year to date September 2008</U></P>
</TD></TR>
<TR><TD style="border-right:1px solid #000000" valign=top width=432.667><P style="margin:0px; text-indent:20.333px" align=justify>$ 000s</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.2><P style="margin:0px" align=center><B><U>2008</U></B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px" align=center><U>2007</U></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=center><U>2006</U></P>
</TD></TR>
<TR><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=432.667><P>&nbsp;</P></TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.2><P style="margin:0px" align=center><B>$</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px; text-indent:28.8px" align=center>$</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px; text-indent:28.8px" align=center>$</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=432.667><P style="margin:0px" align=justify>Management fees, allowances and Director fees paid or accrued to a company which provides the services of the &nbsp;Corporation&#146;s President</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.2><P style="margin:0px" align=right><B>423</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px" align=right>388</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right>356</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=432.667><P style="margin:0px" align=justify>Rent paid to a Company owned by members of the President&#146;s family</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.2><P style="margin:0px" align=right><B>32</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px" align=right>33</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right>34</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=432.667><P style="margin:0px" align=justify>Directors fees, travel expenses, consulting fees and salaries paid to the Chairman and Directors of the Board (note1)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><B>801</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>204</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>157</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Note 1: Since 2005 Caledonia has had limited cash resources to compensate the Chairman and other non-executive Directors for consulting work and related director responsibilities. The Chairman along with the other non-executive Directors agreed to defer their claims for time spent on Caledonia business until it had the cash resources to pay the claims. &nbsp;As Caledonia has now sold Barbrook, Caledonia has paid and accrued amounts to compensate the Chairman and non-executive directors for unbilled time spent on Caledonia business since 2005. An amount of $406,000 relates to fees for the periods 2005, 2006 and 2007.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>8</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:11.133px" align=justify><B>8. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CRITICAL ACCOUNTING POLICIES</B></P>
<P style="margin:0px" align=justify>There are two major areas where accounting estimates are made, asset impairment and asset retirement obligation. As significant impairment provisions have already been made against the assets and there is a reasonable level of certainty around the estimate it is considered unlikely that any change in estimate would result in a material impact on the results of the Corporation. Based on indicative purchase offer previously made for Eersteling Mine no further asset impairment has been made against these assets. &nbsp;The asset retirement obligation is also considered to be estimated with a reasonable degree of certainty, although the original estimation was calculated some years ago. The estimation is accreted annually at 5% and thus any change in circumstances is considered unlikely to have a material impact on the results of the Corporation or its operations.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The following accounting policy changes have been adopted as of January 1, 2008 and are more fully described in the Interim Consolidated Financial Statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>a. Inventories: </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of the Canadian Institute of Chartered Accountants (&#147;CICA&#148;) Handbook Section 3031, Inventories. This standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-downs to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories and requires the reversal of write downs, if applicable, on inventory. There were no changes to the Corporation&#146;s accounting policies required on implementation of this standard.</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>b. Financial Instruments &#150; Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 3862, Financial Instruments - Disclosures; Section 3863, Financial Instruments &#150; Presentation. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Section 3862 on financial instrument disclosures, provides guidance on disclosures in the financial statements to enable users of the financial statements to evaluate the significance of financial instruments to the Corporation&#146;s financial position and performance and about risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new Section requires qualitative and quantitative information relating to concentrations of risk, credit risk, liquidity risk and price risk currently found in Section 3861. </P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>Section 3863 carries forward unchanged the presentation requirements of Section 3861. This Section establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial assets and financial liabilities are offset<B>. </B>&nbsp;</P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify><B>c. Capital Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA Handbook Section 1535- Capital Disclosures. Section 1535 requires the disclosure of an entity&#146;s objectives, policies and processes for managing capital as well as quantitative data about what the entity regards as capital. Disclosure of externally imposed capital requirements is also required and whether the entity has complied with these and, if not, the consequences. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:12.8px" align=justify>The Corporation has included disclosures recommended by the new section in Note 14 to these unaudited interim consolidated financial statements </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>d. Financial Statements Presentation </B></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>Effective January 1, 2008, the Corporation adopted the new recommendations of CICA amended Handbook Section 1400-General Standards of Financial Statements Presentation. The section provides revised guidance related to management&#146;s responsibility to assess and disclose the ability of an entity to continue as a going concern. &nbsp;</P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>9</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:13.333px; padding-left:18.933px; text-indent:-18.933px" align=justify><B>9</B>. &nbsp;<B>FINANCIAL RISK EXPOSURE AND RISK MANAGEMENT </B></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>The Corporation is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities. The overall financial risk management program focuses on preservation of capital, and protecting current and future Corporation assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets. &nbsp;&nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The Board of Directors has responsibility to ensure that an adequate financial risk management policy is established and to approve the policy. The Corporation&#146;s Audit Committee oversees management&#146;s compliance with the Corporation&#146;s financial risk management policy. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The types of risk exposure and the way in which such exposures are managed are as follows: </P>
<P style="margin-top:0px; margin-bottom:6.133px" align=justify><B>a) Currency Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>As the Corporation operates in an international environment, some of the Corporation&#146;s financial instruments and transactions are denominated in currencies other than the Canadian Dollar. The results of the Corporation&#146;s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Corporation are reported in Canadian dollars in the Corporation&#146;s consolidated financial statements. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The fluctuation of the Canadian dollar in relation to other currencies will consequently have an impact upon the profitability of the Corporation and may also affect the value of the Corporation&#146;s assets and the amount of shareholders&#146; equity. &nbsp;&nbsp;</P>
<P style="margin:0px" align=justify>A significant portion of the Corporation&#146;s assets and liabilities are denominated in South African rand and Zimbabwe dollars. &nbsp;Management do not consider that the fluctuation of the value of the South African Rand to the Canadian Dollar could have a significant impact on the results of operations. Blanket operation is subject to a hyperinflationary environment in Zimbabwe, foreign creditors are denominated in Rands and local costs increase with inflation. As the official exchange rate is not free floating and the effective buying power of the Zimbabwe Dollar decreases accordingly there could be a significant impact on the results of the operations. The shareholder loan account in Zimbabwe is denominated in US Dollars and will generate foreign exchange losses for Blanket in Zimbabwe Dollar terms but the effect on the consolidated financial statements in Canadian Dollars is unlikely to be significant. &nbsp;The fair values of these financial instruments approximate
 their carrying values, unless otherwise noted. &nbsp;The Corporation does not use any derivative instruments to reduce its foreign currency risks.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The summary below details the cash or near cash items denominated in a currency other than the Canadian dollar that would be affected by changes in exchanges rates relative to the Canadian dollar. All values are in thousands.</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=140></TD><TD width=77.533></TD><TD width=122.8></TD><TD width=75.6></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=140><P style="margin:0px" align=justify>&#146;000</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=77.533><P style="margin:0px" align=justify>US Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=122.8><P style="margin:0px" align=justify>Zimbabwe Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=justify>SA &nbsp;Rand</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Cash</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; text-indent:8.6px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>(64)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>600</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>3,106</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; text-indent:7.2px" align=right>8,033</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1,813</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>77</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>17,223</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1,057</P>
</TD></TR>
</TABLE>
<P style="margin-top:0px; margin-bottom:5.533px" align=justify><BR></P>
<P style="margin:0px" align=justify>The table below illustrates by how much a 1% change in the rate of exchange between the Canadian dollar and the currencies above will affect net income.</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=140></TD><TD width=77.533></TD><TD width=122.8></TD><TD width=75.6></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=140><P style="margin:0px" align=justify>&#146;000</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=77.533><P style="margin:0px" align=justify>US Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=122.8><P style="margin:0px" align=justify>Zimbabwe Dollars</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="margin:0px" align=justify>SA &nbsp;Rand</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Cash</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; text-indent:8.6px" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>30</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; text-indent:7.2px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>2</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=140><P style="margin:0px">Accounts Payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px" align=right>1</P>
</TD></TR>
</TABLE>
<P style="margin:0px"><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:15.267px" align=justify><B>b) Interest Rate Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Unless otherwise noted, it is the opinion of management that the Corporation is not exposed to significant interest </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>10</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>rate risk as it is debt free and only utilizes overdraft facilities for short periods if necessary. The Corporation&#146;s cash and cash equivalents include highly liquid investments that earn interest at market rates. The Corporation 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 Corporation&#146;s policy focuses on preservation of capital and limits the investing of excess funds to liquid term deposits in &#147;A&#148; grade financial institutions. </P>
<P style="margin:0px" align=justify>Fluctuations in market interest rates have not had a significant impact on the Corporation&#146;s results of operations due to the short-term to maturity of the investments held.</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>c) Concentration of Credit Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Credit risk is the risk of a financial loss to the Corporation if a gold sales customer fails to meet its contractual obligation. Credit risk arises principally from the Corporation&#146;s receivables from the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) who is the sole buyer of gold produced. &nbsp;</P>
<P style="margin:0px" align=justify>At December 31, 2007 the RBZ owed Blanket US$1,780,000 (one million seven hundred and eighty thousand dollars) and at September 30, 2008 this had increased to US$3,098,000 despite having received US$1,450,000 in direct payments and a further US$606,000 in payments to suppliers made directly by RBZ . The lack of foreign currency in Zimbabwe affects all business sectors and management maintains close relations with RBZ to ensure payments are made whenever necessary, within the capabilities of the RBZ. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>In the Monetary Policy Statement announced by RBZ on April 30, 2008 an exporter who is owed foreign currency by RBZ is now allowed to sell the currency to a willing buyer through the commercial bank system at a negotiated rate. This enables Blanket to access Zimbabwe dollars required for the operation at rates more favourable than the official exchange rate. This has been proven possible on two occasions. &nbsp;<FONT style="font-family:Times">No provision has been made against the trade receivable due by the RBZ. &nbsp;</FONT></P>
<P style="margin:0px" align=justify><B>&nbsp;</B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>d) Liquidity Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The Corporation manages its liquidity by ensuring that there is sufficient capital to meet short and long term business requirements, after taking into account cash flows from operations and the Corporation&#146;s holdings of cash and cash equivalents. The Corporation believes that these sources will be sufficient to cover the likely short and long term 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. </P>
<P style="margin:0px">Blanket in Zimbabwe continues to be self funding even whilst production is suspended.</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><B>e) Commodity Price Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The value of the Corporation&#146;s mineral resource properties is related to the price and outlook of targeted precious metals, base metals and diamonds. In addition, adverse changes in the price of certain raw materials can significantly impair the Corporation&#146;s cash flows. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>Gold prices historically have fluctuated widely and are affected by numerous factors outside of the Corporation's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities, and macro-economic variables, and certain other factors related specifically to gold. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The major factor influencing commodity price risk is that RBZ does not pay Blanket market value for 100% of the gold produced. </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>During the quarter the RBZ bought gold for USD at a discount to the market price of approximately 25% or for Zimbabwe dollars at a controlled price not representative of the market price.</P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>11</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify>The profitability of Blanket is highly correlated to the controlled price paid by RBZ and the hyperinflationary conditions experienced in Zimbabwe, currently 493 million % per month as at October 31. To the extent that the price of gold increases over time, asset value increases and cash flows improve; conversely, declines in the price of gold directly impacts value and cash flows. A protracted period of unadjusted gold prices by RBZ could impair the Corporation&#146;s operations and development opportunities, and significantly erode shareholder value. &nbsp;</P>
<P style="margin-top:0px; margin-bottom:11.133px; padding-right:0.733px" align=justify><B>10. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECURITIES OUTSTANDING</B></P>
<P style="margin:0px; padding-right:208.333px" align=justify>As at September 30, 2008 the following securities were outstanding: &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13.55pt; margin-top:0px; margin-bottom:-18.067px" align=justify>(a)</P>
<P style="line-height:11.55pt; margin:0px; text-indent:48px" align=justify>500,169,280 common shares;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify>(b)</P>
<P style="margin:0px; text-indent:48px" align=justify>Options and warrants as follows:</P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=96></TD><TD width=228></TD><TD width=132></TD><TD width=177.2></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=96><P style="margin:0px" align=justify><B>Number</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=228><P style="margin:0px" align=justify><B>&nbsp;Description</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=132><P style="margin:0px" align=justify><B>&nbsp;Exercise Price </B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=177.2><P style="margin:0px" align=justify><B>Validity </B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=96><P style="margin:0px" align=justify>34,080,000 </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=228><P style="margin:0px" align=justify>Common share purchase options </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=132><P style="margin:0px" align=justify>Average $0.1740</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=177.2><P style="margin:0px" align=justify>Various until May 11, 2016 </P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=96><P style="margin:0px" align=justify>12,300,000 </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=228><P style="margin:0px" align=justify>Common share purchase warrants </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=132><P style="margin:0px" align=justify>$0.15 </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=177.2><P style="margin:0px" align=justify>Until January 11, 2009 </P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify>As the Corporation&#146;s Option Plan allows the granting of options on a number of shares equal to 10% of the issued shares, the Corporation could grant options on 50,016,928 shares. &nbsp;This figure includes the current unexercised options. On April 30, 2008 2,370,000 share purchase options were issued at $0.155 per share and a further 13,950,000 share purchase options were issued at $0.155 per share during September 2008.</P>
<P style="margin-top:0px; margin-bottom:13.333px" align=justify><B>11. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CONTROLS</B></P>
<P style="margin:0px" align=justify><B>&nbsp;</B><U>Evaluation of disclosure controls and procedures.</U></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The Company&#146;s Chief Executive Officer (&#147;CEO&#148;) and Chief Financial Officer (&#147;CFO&#148;) have evaluated the effectiveness of the design and operation of the Company&#146;s disclosure controls and procedures, and assessed the design of the Company&#146;s internal control over financial reporting as of December 31, 2007, pursuant to the certification requirements of Canadian Multilateral Instrument 52-109 and the requirements of the SEC. &nbsp;The CEO and CFO concluded that, despite the deficiencies noted below, the Company&#146;s disclosure controls and procedures were effective as of December 31, 2007.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Based on that evaluation the CEO and CFO have determined that the Company had insufficient personnel to ensure appropriate segregation of duties within the Financial Reporting and Review Process. Specifically, the responsibilities assigned to the Company&#146;s CFO include substantially all financial statement and note creation functions. No additional personnel in the Company, apart from the members of the Audit Committee, perform functions at a level of precision and involvement that would adequately prevent or detect immaterial misstatements on a timely basis. As an additional result of the insufficient personnel the Company did not maintain formal policies and procedures regarding end-user computing control over the access to, completeness, accuracy, validity, and review of, certain spreadsheet information that supports the financial reporting process. &nbsp;In 2008 the Company experienced and discovered an operational deficiency that caused the 2007 Form 20-F Annual R
eport to be filed prior to it being approved by the Disclosure Committee.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Management has concluded that, despite the lack of segregation of duties and computing controls, a material misstatement in financial reporting is not a &#147;reasonable possibility&#148; (as defined in applicable SEC guidance). Blanket (which is operated by the Company&#146;s wholly owned subsidiary Blanket Mine (1983) (Private) Limited is the Company&#146;s only operating mine and preparation of its operating results are performed by the CFO of the subsidiary and an accounting team in Zimbabwe. These results are reviewed by Company management and then incorporated into the consolidated financial statements of the Company.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>The Company has a Disclosure Committee consisting of four Directors and has disclosure controls and procedures which it follows in an attempt to ensure that it complies with all required disclosures on an adequate and timely basis. &nbsp;The Company&#146;s Directors and Management, and the Disclosure Committee, are making all reasonable efforts to ensure that the Company&#146;s disclosures are made in full compliance with the applicable rules and requirements. &nbsp;All reasonable efforts are also being made to ensure that the Company&#146;s disclosure controls and procedures provide reasonable assurance that the material information relating to the Company, including its consolidated subsidiaries, is made known to the Company&#146;s Certifying Officers by others within those entities and to allow timely decisions regarding required disclosures.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>12</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="line-height:5pt; margin-top:0px; margin-bottom:3.867px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px" align=justify><B>12.</B></P>
<P style="margin:0px; text-indent:48px" align=justify><B>IFRS CHANGEOVER PLAN</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Caledonia is in the preliminary stages of developing a changeover plan with emphasis on the following critical areas:</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:48px" align=justify>the production of IFRS compliant financial statements from the first quarter 2011</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:96px; text-indent:-24px; font-family:Courier New" align=justify>o</P>
<P style="margin:0px; padding-left:96px" align=justify>identification of applicable accounting policies</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:96px; text-indent:-24px; font-family:Courier New" align=justify>o</P>
<P style="margin:0px; padding-left:96px" align=justify>description of the decision making process </P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:96px; text-indent:-24px; font-family:Courier New" align=justify>o</P>
<P style="margin:0px; padding-left:96px" align=justify>quantification of the impact of the adoption of IFRS on the financial statements</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:48px" align=justify>internal expertise required to implement IFRS</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:48px" align=justify>the affect on business activities</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:48px" align=justify>the affect on control activities</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Caledonia will have to enlist the assistance of consultants or the auditors, where independence issues allow, to assist with the formulation of a detailed plan due to limited internal resources.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>A more detailed changeover plan will be discussed in the annual MD&amp;A at the end of 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-56.733px" align=justify><B>13.</B></P>
<P style="margin-top:0px; margin-bottom:11.133px; padding-left:56.733px" align=justify><B>BOARD AND SENIOR MANAGEMENT CHANGES</B></P>
<P style="margin:0px" align=justify>Dr. Trevor Pearton was appointed VP Exploration on February 15, 2008. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>Mark Learmonth, previously of Macquarie First South, was appointed as VP Development and Investor Relations on July 10, 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-right:4.133px" align=justify>Mr Leigh A. Wilson who was appointed as a non-executive Director of the Corporation and a member of the Audit Committee on March 28, 2008 and a member of the Disclosure Committee on May 26, 2008 resigned on October 31, 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-right:4.133px" align=justify>Mr Robert W. Babensee was appointed as a non-executive Director of the Corporation and a member of the Audit Committee on October 31, 2008 to replace Mr Wilson.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-right:4.133px" align=justify>Mr Steve Curtis, VP Finance and Chief Financial Officer of Caledonia was appointed to the Board on June 1, 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify>At the present time there is a worldwide shortage of senior mining industry professionals and the Corporation is one of many companies looking for suitable staff. &nbsp;With the anticipated sale of the South African gold mines and the planned expansion of the Zambian exploration, mining and metallurgical pilot plant programs the Corporation is re-evaluating its requirements for additional senior staff. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>13</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
