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<SEC-DOCUMENT>0001137171-09-000263.txt : 20090407
<SEC-HEADER>0001137171-09-000263.hdr.sgml : 20090407
<ACCEPTANCE-DATETIME>20090407122049
ACCESSION NUMBER:		0001137171-09-000263
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20090406
FILED AS OF DATE:		20090407
DATE AS OF CHANGE:		20090407

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:		09736908

	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>caledonia6k040709.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 April, 2009</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;April 6, 2009<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"><a href="financials.htm">Financial
Statements</a></p>
<p style="margin-top: 0pt; margin-bottom: -12pt">99.2</p>
<p style="margin: 0pt; padding-left: 216pt"><a href="mda.htm">Management's
Discussion &amp; Analysis</a></p>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<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="04/06/2009">
</HEAD>
<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0 width="100%"><TR height=0 style="font-size:0"><TD></TD></TR>
<TR><TD style="background-color: #000000" valign=top><P style="line-height:16pt; margin-top:6.2px; margin-bottom:6.2px; font-family:Shruti; font-size:14pt" align=justify><font color="#FFFFFF">MANAGEMENT&#146;S RESPONSIBILITY FOR FINANCIAL INFORMATION</font></P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>To the Shareholders of Caledonia Mining Corporation:</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Management has prepared the information and representations in this annual report. The consolidated financial statements of Caledonia Mining Corporation have been prepared in conformity with generally accepted accounting principles applied in Canada and, where appropriate, these statements include some amounts that are based on best estimates and judgment. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Financial information used elsewhere in the Annual Report is consistent with that in the financial statements. The MD&amp;A also includes information regarding the impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>&nbsp;</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation maintains adequate systems of internal accounting and administrative controls, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that relevant and reliable financial information is produced. Our independent auditors have the responsibility of auditing the annual consolidated financial statements and expressing an opinion on them.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Management have concluded that as a result of the relatively small size of the Corporation&#146;s head office finance department personnel, the Internal Controls over Financial Reporting (&#147;ICFR&#148;) assessment concluded that &nbsp;there were limited resources to adequately segregate duties and to permit or necessitate the comprehensive documentation of all policies and procedures that form the basis of an effective design of ICFR.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In order to mitigate the risk of material misstatement in the Corporation&#146;s consolidated financial statements, the Corporation implemented additional cash flow review and monitoring controls at head office on a monthly basis and as part of their monitoring and oversight role the Audit Committee performs additional analysis and other post closing procedures. No material exceptions were noted based on the additional year end procedures and no evidence of fraudulent activity was found.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Audit Committee is composed of three unrelated directors. This Committee meets periodically with management and the external auditors to review accounting, auditing, internal control and financial reporting matters.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The consolidated financial statements have been audited on behalf of the shareholders by the Corporation&#146;s independent auditors, BDO Dunwoody LLP, in accordance with generally accepted auditing standards in Canada and the standards of the Public Accounting Oversight Board (United States). &nbsp;The auditors&#146; report outlines the scope of their examination and their opinion on the 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></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; text-indent:28.8px; font-size:11pt" align=justify>S. E. Hayden</P>
<P style="line-height:13pt; margin:0px; text-indent:283.533px; font-size:11pt" align=justify>&nbsp;S. R. Curtis</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; text-indent:28.8px; font-size:11pt" align=justify>President and Chief Executive Officer</P>
<P style="line-height:13pt; margin:0px; text-indent:288px; font-size:11pt" align=justify>Vice-President, Finance and Chief Financial Officer</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top: 7.333px; margin-bottom: 0px; padding-top: 4px" align=right><BR>
<BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="margin:0px; page-break-before:always" align=justify><BR></P>
<P style="border-bottom: 2px solid #000000; margin: 0px; padding-bottom: 4px" align=justify><BR></P>
<P style="line-height:16pt; margin-top:9.333px; margin-bottom:0px; text-indent:28.8px; font-size:14pt" align=right><B>Auditors&#146; Report</B></P>
<P style="margin:0px; padding-bottom:4px; border-bottom:2px solid #000000" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-size:11pt" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></P>
<P style="margin:0px; font-size:11pt" align=justify><B>To the Shareholders of</B></P>
<P style="margin:0px; font-size:11pt" align=justify><B>Caledonia Mining Corporation</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>We have audited the consolidated balance sheets of Caledonia Mining Corporation as at December 31, 2008 and 2007 and the consolidated statements of changes in shareholders&#146; equity, operations and comprehensive loss and cash flows for each of the years in the three year period ended December 31, 2008. &nbsp;These consolidated financial statements are the responsibility of the Company&#146;s management. &nbsp;Our responsibility is to express an opinion on these consolidated financial statements based on our audits.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Accounting Oversight Board (United States). &nbsp;&nbsp;Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. &nbsp;The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. &nbsp;Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we express no such opinion.<FONT style="color:#FF00FF"> &nbsp;</FONT>An audit includes examining, on a test basis, evidence supporting the amounts and di
sclosures in the consolidated financial statements. &nbsp;An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2008 in accordance with Canadian generally accepted accounting principles. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>(Signed) BDO Dunwoody LLP</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>Chartered Accountants, Licensed Public Accountants</P>
<P style="margin:0px; font-size:11pt" align=justify>Toronto, Ontario</P>
<P style="margin:0px; font-size:11pt" align=justify>March 31, 2009</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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="margin:0px; 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:0px; padding-bottom:4px; border-bottom:2px solid #000000" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; text-indent:28.8px; font-size:11pt" align=center><B>Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict</B></P>
<P style="margin:0px; padding-bottom:4px; border-bottom:2px solid #000000" align=justify><BR></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Corporation&#146;s ability to continue as a going concern, such as those described in the summary of significant accounting policies. The United States reporting standards also require the addition of an explanatory paragraph when changes in accounting policies, such as those described in Note 1, has a material effect on the consolidated financial statements. Our report to the shareholders dated March 31, 2009 is expressed in accordance with Canadian reporting standards which do not require a reference to such events and conditions in the auditors&#146; report when these are adequately disclosed in the 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; font-size:11pt" align=justify>(Signed) BDO Dunwoody LLP</P>
<P style="margin:0px; font-size:11pt" align=justify>&nbsp;</P>
<P style="margin:0px; font-size:11pt" align=justify>Chartered Accountants, Licensed Public Accountants</P>
<P style="margin:0px; font-size:11pt" align=justify>Toronto, Ontario</P>
<P style="margin:0px; font-size:11pt" align=justify>March 31, 2009</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<HR style="margin-top:9.6px; margin-bottom:9.6px" noshade size=1.333>
<P style="margin:0px; page-break-before:always" 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=641.733></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=641.733><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=641.733><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Consolidated Balance Sheets</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=641.733><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>(in thousands of Canadian dollars )</B></P>
</TD></TR>
</TABLE>
<P style="line-height:14pt; margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=432></TD><TD width=96></TD><TD width=102></TD></TR>
<TR><TD valign=top width=432>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="justify"><b>December
    31</b>
</TD><TD valign=top width=96>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right"><b>2008</b>
</TD><TD valign=top width=102>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">2007
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Assets</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Current</B></P>
</TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=102><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>3,652</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>76</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable </P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>132</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,064</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Inventories (Note 11)</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,059</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,085</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>27</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>17</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Assets - held for sale </P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>106</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>166</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>4,976</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,408</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD><TD valign=top width=102><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Capital assets and mineral properties - held for sale</B> </P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>681</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>11,424</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Accounts receivable</B> (Note 10)</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>2,890</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Investments</B> (Note 1)</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>22</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Capital assets</B> (Note 2)</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>173</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>213</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Mineral properties</B> (Note 3)</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>14,566</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>13,425</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>18,322</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>25,084</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>23,298</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" 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=432></TD><TD width=93.267></TD><TD width=104.733></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Liabilities and Shareholders&#146; Equity</B></P>
</TD><TD valign=top width=93.267><P>&nbsp;</P></TD><TD valign=top width=104.733><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Current</B></P>
</TD><TD valign=top width=93.267><P>&nbsp;</P></TD><TD valign=top width=104.733><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Bank overdraft</P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>13</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable </P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>933</B></P>
</TD><TD valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,743</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Liabilities - &nbsp;held for sale</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>16</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,587</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>949</B></P>
</TD><TD valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,343</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD valign=top width=93.267><P>&nbsp;</P></TD><TD valign=top width=104.733><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Long term liability </B>(Note 15)</P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>11</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Asset retirement obligation </B>(Note 4)</P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>839</B></P>
</TD><TD valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>732</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Asset retirement obligation &nbsp;- held for sale </B>(Note 4)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>314</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>311</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=93.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>2,102</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104.733><P style="margin:0px; text-indent:28.8px; font-family:Times" 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=432></TD><TD width=103.933></TD><TD width=94.067></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Shareholders&#146; Equity</B></P>
</TD><TD valign=top width=103.933><P>&nbsp;</P></TD><TD valign=top width=94.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>196,125</B></P>
</TD><TD valign=top width=94.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Contributed surplus </P>
</TD><TD valign=top width=103.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,902</B></P>
</TD><TD valign=top width=94.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,040</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>3</B></P>
</TD><TD valign=top width=94.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(57)</P>
</TD></TR>
<TR><TD valign=top width=432><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>(176,834)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.067><P style="margin:0px; text-indent:20.4px; font-family:Times" align=right>(171,894)</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>21,196</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>24,095</P>
</TD></TR>
<TR><TD valign=top width=432><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>23,298</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>29,492</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>On behalf of the Board:</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:48px; font-family:Times" align=justify>&#147;S E Hayden&#148; </P>
<P style="margin:0px; text-indent:192px; font-family:Times" 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; font-family:Times" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:48px; font-family:Times" align=justify>&#147;G R Pardoe&#148;</P>
<P style="margin:0px; text-indent:192px; font-family:Times" align=justify>&nbsp;Director</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:8pt" 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></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>
<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=678.2></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=678.2><P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=678.2><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" 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=678.2><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>(in thousands of Canadian dollars )</B></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=678.2></TD></TR>
<TR><TD valign=top width=678.2><P style="margin:0px; font-family:Times" align=right><B>For the years ended December 31, 2008, 2007 and 2006 &nbsp;&nbsp;&nbsp;</B></P>
</TD></TR>
</TABLE>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px; font-family:Times" 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;</B></P>
<P style="margin:0px; text-indent:240px; font-family:Times" align=justify><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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=217.4></TD><TD width=56.667></TD><TD width=66.2></TD><TD width=85></TD><TD width=104></TD><TD width=75.6></TD><TD width=75.6></TD></TR>
<TR><TD valign=top width=217.4><P>&nbsp;</P></TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P>&nbsp;</P></TD><TD valign=top width=85><P>&nbsp;</P></TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>Accumulated </P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=217.4><P>&nbsp;</P></TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P>&nbsp;</P></TD><TD valign=top width=85><P>&nbsp;</P></TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>&nbsp;Other</P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=217.4><P>&nbsp;</P></TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="margin:0px; font-family:Times" align=right>Share </P>
</TD><TD valign=top width=85><P style="margin:0px; font-family:Times" align=right>Contributed</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>&nbsp;Comprehensive </P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=217.4><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify>Note</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="margin:0px; font-family:Times" align=right>Capital</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85><P style="margin:0px; font-family:Times" align=right>Surplus</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="margin:0px; font-family:Times" align=right>&nbsp;Income/(loss)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>Deficit</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>Total</P>
</TD></TR>
<TR><TD valign=top width=217.4><P>&nbsp;</P></TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=85><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Balance at December 31, 2005</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>180,053</P>
</TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>923</P>
</TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(161,604)</P>
</TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>19,372</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Shares issued</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>10,573</P>
</TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>10,573</P>
</TD></TR>
<TR><TD valign=bottom width=217.4><P style="margin:0px; font-family:Times">Equity-based compensation expense</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>66</P>
</TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>66</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Net loss for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(5,675)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(5,675)</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Balance at December 31, 2006</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>190,626</P>
</TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>989</P>
</TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(167,279)</P>
</TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>24,336</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Change in Accounting Policy</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify>1</P>
</TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>31</P>
</TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>31</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Warrants exercised</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify>5(d)</P>
</TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>4,380</P>
</TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>4,380</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times">Adjustment to opening </P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD></TR>
<TR><TD valign=bottom width=217.4><P style="margin:0px; font-family:Times" align=justify>Equity-based compensation expense</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify>5 (c)</P>
</TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>51</P>
</TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>51</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Investments revaluation to fair value</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify>1</P>
</TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(88)</P>
</TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(88)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Net loss for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(4,615)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(4,615)</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Balance at December 31, 2007</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>195,006</P>
</TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>1,040</P>
</TD><TD valign=top width=104><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(57)</P>
</TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(171,894)</P>
</TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>24,095</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Shares issued</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify><U>5(b)(v)</U></P>
</TD><TD valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>1,119</P>
</TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>1,119</P>
</TD></TR>
<TR><TD valign=bottom width=217.4><P style="margin:0px; font-family:Times" align=justify>Equity-based compensation expense</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify><U>5(c)</U></P>
</TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>862</P>
</TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>862</P>
</TD></TR>
<TR><TD valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Investments revaluation to fair value</P>
</TD><TD valign=top width=56.667><P style="margin:0px; font-family:Times" align=justify><U>1</U></P>
</TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(10)</P>
</TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(10)</P>
</TD></TR>
<TR><TD width=217.4><P style="margin:0px; font-family:Times">Reclassification adjustment for other than temporary decline in value</P>
</TD><TD valign=top width=56.667><P>&nbsp;</P></TD><TD valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align=right><BR></P>
<P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>70</P>
</TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD valign=top width=75.6><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align=right><BR></P>
<P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>70</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Net loss for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=85><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(4,940)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(4,940)</P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=217.4><P style="margin:0px; font-family:Times" align=justify>Balance at December 31, 2008</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=66.2><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>196,125</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>1,902</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>3</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>(176,834)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="font-family: Times; text-indent: 28.8px; margin: 0px" align=right>21,196</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-family:Times" 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>&nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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=648.933></TD></TR>
<TR><TD style="border-top:2px solid #000000" valign=top width=648.933><P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=648.933><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Consolidated Statements of Operations and Comprehensive Loss</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=648.933><P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>(in thousands of Canadian dollars except per share amounts)</B></P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right><BR></P>
<P style="line-height:0.65pt; margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=340.2></TD><TD width=104></TD><TD width=83.8></TD><TD width=96></TD></TR>
<TR><TD valign=top width=340.2>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="justify"><B>For the years ended December 31</B>
</TD><TD valign=top width=104>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right"><b>2008</b>
</TD><TD valign=top width=83.8>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">2007
</TD><TD valign=top width=96>
    <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">2006
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Revenue and operating costs</B></P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Revenue from sales</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>7,696</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>10,039</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>13,586</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Operating costs (Note 11)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>4,438</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>9,745</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>8,572</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Gross profit </B></P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>3,258</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>294</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>5,014</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=340.2></TD><TD width=104></TD><TD width=83.8></TD><TD width=96></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Costs and expenses</B></P>
</TD><TD valign=top width=104><P>&nbsp;</P></TD><TD valign=top width=83.8><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;General and administrative</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>3,896</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,123</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,096</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Interest (received)/paid (Note 9)</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(385)</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>309</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>54</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Amortization</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>397</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>18</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>40</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Write-down of mineral properties</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,168</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>750</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Exchange loss/(gain)</P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,876</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,012</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(143)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;Other expense (income) (Note 8)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>591</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(17)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>7,543</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,195</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,047</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=340.2></TD><TD width=104></TD><TD width=83.8></TD><TD width=96></TD></TR>
<TR><TD width=340.2><P style="margin:0px; padding-left:29.8px; font-family:Times"><B>Income (loss) before income tax and discontinued operations</B></P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(4,285)</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(3,901)</P>
</TD><TD valign=top width=96><P style="margin:0px; padding-left:4.2px; font-family:Times" align=right>2,967</P>
</TD></TR>
<TR><TD valign=bottom width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times"><B>Income tax (Note 6)</B></P>
</TD><TD valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(5)</P>
</TD><TD valign=top width=96><P style="margin:0px; padding-left:4.2px; font-family:Times" align=right>(652)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Net income(loss) from continuing operations</B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(4,285)</B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(3,906)</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px; padding-left:4.2px; font-family:Times" align=right>2,315</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=340.2></TD><TD width=104></TD><TD width=83.8></TD><TD width=96></TD></TR>
<TR><TD width=340.2><P style="margin-top:6.667px; margin-bottom:0px; text-indent:28.8px; font-family:Times"><B>Loss from discontinued operations </B></P>
</TD><TD style="border-bottom:2px solid #000000" width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(655)</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(709)</P>
</TD><TD style="border-bottom:2px solid #000000" width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(7,990)</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:6.667px; margin-bottom:0px; padding-left:29.8px; text-indent:-1px; font-family:Times"><B>Net loss</B></P>
</TD><TD width=104><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(4,940)</B></P>
</TD><TD width=83.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(4,615)</P>
</TD><TD width=96><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(5,675)</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:6.667px; margin-bottom:0px; text-indent:28.8px; font-family:Times"><B>Revaluation of investments to fair value (Note 1)</B></P>
</TD><TD width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(10)</B></P>
</TD><TD width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(88)</P>
</TD><TD width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:6.667px; margin-bottom:0px; padding-left:29.8px; text-indent:-1px; font-family:Times"><B>Reclassification adjustment for other than temporary decline in value</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>70</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:6.667px; margin-bottom:0px; text-indent:28.8px; font-family:Times"><B>Comprehensive loss</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=104><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(4,880)</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=83.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(4,703)</P>
</TD><TD style="border-bottom:2px solid #000000" width=96><P style="margin:0px; text-indent:31px; font-family:Times" align=right>(5,675)</P>
</TD></TR>
<TR><TD width=340.2><P>&nbsp;</P></TD><TD valign=top width=104><P>&nbsp;</P></TD><TD valign=top width=83.8><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD width=340.2><P style="margin-top:0px; margin-bottom:6.667px; padding-left:29.8px; font-family:Times" align=justify>Net income/(loss) per share</P>
</TD><TD valign=top width=104><P>&nbsp;</P></TD><TD valign=top width=83.8><P>&nbsp;</P></TD><TD valign=top width=96><P>&nbsp;</P></TD></TR>
<TR><TD width=340.2><P style="margin-top:0px; margin-bottom:6.667px; padding-left:29.8px; font-family:Times" align=justify>Basic and diluted from continuing operations</P>
</TD><TD width=104><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right><B>(0.009)</B></P>
</TD><TD width=83.8><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>(0.008)</P>
</TD><TD width=96><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>0.005</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:0px; margin-bottom:6.667px; padding-left:29.8px; font-family:Times" align=justify>Basic and diluted from discontinued operations</P>
</TD><TD style="border-bottom:2px solid #000000" width=104><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right><B>(0.001)</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=83.8><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>(0.001)</P>
</TD><TD style="border-bottom:2px solid #000000" width=96><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>(0.018)</P>
</TD></TR>
<TR><TD width=340.2><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=justify>Basic and diluted for the year</P>
</TD><TD style="border-bottom:2px solid #000000" width=104><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right><B>(0.010)</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=83.8><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>(0.009)</P>
</TD><TD style="border-bottom:2px solid #000000" width=96><P style="margin-top:0px; margin-bottom:6.667px; text-indent:28.8px; font-family:Times" align=right>(0.013)</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:8pt" 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></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="font-family: Times; margin: 0px" align=center>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=648.933></TD></TR>
<TR><TD valign=top width=648.933><P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
</TD></TR>
<TR><TD valign=top width=648.933><P style="line-height:14pt; margin:0px; font-family:Times; font-size:14pt" align=right><B>Consolidated Statements of Cash Flows</B></P>
</TD></TR>
<TR><TD style="border-bottom:2px solid #000000" valign=top width=648.933><P style="line-height:14pt; margin:0px; font-family:Times; font-size:14pt" align=right><B>(in thousands of Canadian dollars)</B></P>
</TD></TR>
</TABLE>
<P style="line-height:14pt; margin:0px" align=right><BR></P>
<P style="line-height:0.65pt; 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=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
  <tr>
    <TD valign=top width=340.2>
      <p style="font-family: Times; margin: 0px" align="justify"><B>For the years ended December 31</B>
</TD><TD valign=top width=104>
      <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right"><b>2008</b>
</TD><TD valign=top width=83.8>
      <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">2007
</TD><TD valign=top width=96>
      <p style="text-indent: 28.8px; font-family: Times; margin: 0px" align="right">2006
</TD>
  </tr>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Cash provided by (used in)</B></P>
</TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=96.4><P>&nbsp;</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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Operating activities</B></P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>&nbsp;&nbsp;Income(loss) from continuing operations</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(4,285)</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(3,906)</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,315 </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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Adjustments to reconcile net cash from operations (Note 9) </P>
</TD><TD valign=top width=83.333><P style="margin:0px; font-family:Times" align=right><B>2,228</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; font-family:Times" align=right>908</P>
</TD><TD valign=top width=96.4><P style="margin:0px; font-family:Times" align=right>161</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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Changes in non-cash working capital balances (Note 9)</P>
</TD><TD valign=top width=83.333><P style="margin:0px; font-family:Times" align=right><B>(1,359)</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; font-family:Times" align=right>1,318</P>
</TD><TD valign=top width=96.4><P style="margin:0px; font-family:Times" align=right>(619)</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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(3,416)</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(1,680)</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,857 </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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Investing activities</B></P>
</TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=96.4><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Expenditures on capital assets and mineral properties</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(2,713)</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(3,250)</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(2,657)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; padding-left:10.933px; font-family:Times" align=justify>Investment in Blanket Mine net of cash received on acquisition &nbsp;(Note 19)</P>
</TD><TD valign=top width=83.333><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=96.4><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(859)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; padding-left:10.933px; font-family:Times" align=justify>Proceeds on the sale of Barbrook Mine</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>9,359</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>6,646</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(3,250)</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(3,516)</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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=96.4></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Financing activities</B></P>
</TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=96.4><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Bank overdraft</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(13)</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>13</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(3)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Issue of share capital net of issue costs </P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>1,119</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>4,380</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>7,559</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:9.467px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>1,106</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>4,393</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>7,556</P>
</TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=96.4><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Cash flow from discontinued operations</B></P>
</TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=96.4><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:9.467px; font-family:Times" align=justify>Operating activities</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(646)</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(680)</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(4,551)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:9.467px; font-family:Times" align=justify>Investing activities</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(922)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:9.467px; font-family:Times" align=justify>Financing activities</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>6</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(194)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; text-indent:9.467px; font-family:Times" align=justify>Effect of foreign currency translation on cash</P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(4)</P>
</TD><TD valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(9)</P>
</TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(646)</B></P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(678)</P>
</TD><TD style="border-top:2px solid #000000; border-bottom:2px solid #000000" valign=top width=96.4><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(5,676)</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=349.667></TD><TD width=83.333></TD><TD width=94.6></TD><TD width=94.6></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Effect of foreign currency translation on cash</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>(112)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(7)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Increase (decrease) in cash for the year</B></P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>3,578</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>(1,222)</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>222</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Cash and cash equivalents, beginning of year</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>76</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,298</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,076</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Cash and cash equivalents, end of year</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>3,654</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>76</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,298</P>
</TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Cash and cash equivalents at end of year relate to:</B></P>
</TD><TD valign=top width=83.333><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD><TD valign=top width=94.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Continuing operations</B></P>
</TD><TD valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>3,652</B></P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>76</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,252</P>
</TD></TR>
<TR><TD valign=top width=349.667><P style="margin:0px; font-family:Times" align=justify><B>Discontinued operations</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>2</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>46</P>
</TD></TR>
<TR><TD valign=top width=349.667><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=83.333><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right><B>3,654</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>76</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:9.467px; font-family:Times" align=right>1,298</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:8pt" align=justify>See Note 9 for supplementary cash flow information</P>
<P style="margin:0px; text-indent:28.8px; font-family:Times; font-size:8pt" 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="line-height:14pt; margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin:0px" align=justify><BR></P>
<P style="font-family: Times; margin: 0px" align=center>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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies </B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Nature of Business</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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:30px; text-indent:-1.2px; font-family:Times" 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; font-family:Times" align=justify><B>Basis of Presentation and Going Concern</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>These 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:0px; text-indent:28.8px; font-family:Times" align=justify><B>Measurement Uncertainties</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. &nbsp;The more significant areas requiring estimates relate to mineral resources, future cash flows associated with capital assets and mineral properties. &nbsp;Management&#146;s calculation of reserves and resources and cash flows are based upon engineering and geological estimates and financial estimates including gold prices and operating costs. &nbsp;The Corporation&#146;s realization of its accounts receivable and its Blanket Mine assets are highly reliant on the monetary policies being implemented by the Zimbabwe government. The amount ultimately recovered could be materially different than the estimated values.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Principles of Consolidation</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>The consolidated financial statements include the accounts of the Corporation together with all its subsidiaries. &nbsp;All significant inter-Corporation balances and transactions have been eliminated on consolidation.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>The Corporation&#146;s consolidated subsidiaries (all 100% owned) are:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=288.867></TD><TD width=324.467></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Blanket Mine (1983) (Private) Limited (&#147;Blanket&#148;)</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Caledonia Nama Limited (&#147;Nama&#148;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Blanket (Barbados) Holdings Limited (&#147;Barbados&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Caledonia Western Limited (&#147;Western&#148;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Caledonia Holdings (Africa) Limited (&#147;CHA&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Eersteling Gold Mining Corporation Limited &nbsp;(&quot;Eersteling&quot;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Caledonia Holdings Zimbabwe (Private) Limited (&#147;CHZ&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Fintona Investments (Proprietary) Limited (&#147;Fintona&#148;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Caledonia Mining Services Limited (&#147;CMS&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Greenstone Management Services (Proprietary) Limited (&#147;Greenstone&#148;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Caledonia Kadola Limited (&#147;Kadola&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Maid O&#146; The Mist (Pty) Ltd (&#147;Maid&#148;)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=288.867><P style="margin:0px; font-family:Times" align=justify>Caledonia Mining (Zambia) Limited (&#147;CMZ&#148;)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=324.467><P style="margin:0px; font-family:Times" align=justify>Mapochs Exploration (Pty) Ltd</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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" align=justify><BR>
<BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=288.867></TD><TD width=324.467></TD></TR>
</TABLE>
<P style="margin:0px; padding-left:28.4px; font-family:Times; font-size:11pt" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Cash and Cash Equivalents</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>Cash and cash equivalents represent cash on hand in operating bank accounts, and money market funds with initial maturities less than three months.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Inventories</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:30px; font-family:Times" 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; padding-left:24px; text-indent:4.4px; font-family:Times" align=justify><B>Investments</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:30px; font-family:Times" align=justify>The marketable securities are recorded at fair value. Changes in fair value are recognized in the statements of operations and comprehensive loss except for losses that are considered other than temporary which are recognised in operations.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Revenue Recognition</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>Revenue from the sale of precious metals is recognized when the metal is delivered to the respective refineries, benefits of ownership are transferred and the receipt of proceeds is substantially assured. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Capital Assets</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B><I>Producing Assets</I></B></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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; font-family:Times" 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 remains for sale and is thus presented as assets for sale in these consolidated financial statements. Barbrook Mine was sold during 2008 but was presented as assets for sale in 2007 and 2006.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B><I>Non-Producing Assets</I></B></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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>
<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="font-family: Times; margin: 0px" align=center>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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify><B><I>Assets held for sale and discontinued operations</I></B></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>Eersteling Gold Mining Corporation has been on care and maintenance since 1997and in 2007 the decision to sell Eersteling was taken by the Board. Despite the fact that the sale of Eersteling to Oretech Resources fell through in 2008, the property continues to be disclosed under assets held for sale as other interested parties are conducting due diligence investigations at the present time. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>The components held for sale 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=210></TD><TD width=101.933></TD><TD width=101.933></TD><TD width=101.933></TD><TD width=101.933></TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=203.867 colspan=2><P style="margin:0px; font-family:Times" align=center>Eersteling Gold Mine</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=203.867 colspan=2><P style="margin:0px; font-family:Times" align=center>Barbrook Mine</P>
</TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>2007</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>2008</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>2007</P>
</TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px; font-family:Times" align=justify>Capital assets and mineral properties</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>681</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>645</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>10,779</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px; font-family:Times" align=justify>Current assets</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>106</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>78</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>88</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px; font-family:Times" align=justify>Current liabilities</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>(16)</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>(38)</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>(1,549)</P>
</TD></TR>
<TR><TD valign=top width=210><P style="margin:0px; font-family:Times" align=justify>Asset retirement obligation</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>(314)</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>(204)</P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=101.933><P style="margin:0px; font-family:Times" align=right>(107)</P>
</TD></TR>
<TR><TD valign=top width=210><P>&nbsp;</P></TD><TD valign=top width=101.933><P>&nbsp;</P></TD><TD valign=top width=101.933><P>&nbsp;</P></TD><TD valign=top width=101.933><P>&nbsp;</P></TD><TD valign=top width=101.933><P>&nbsp;</P></TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>As a consequence of this decision, Eersteling Mine&#146;s results for 2008 and prior years have been disclosed under discontinued operations. Revenue from discontinued operations is $0 ($60 in 2007 and $2,973 in 2006). The loss from discontinued operations for 2008 included a loss of $364 arising from the sale of Barbrook. There is no tax applicable to discontinued operations.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Mineral Properties</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B><I>Producing Properties</I></B></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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 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; font-family:Times" 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; font-family:Times" 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" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>A decision to abandon, reduce or &nbsp;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" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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>
<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="font-family: Times; margin: 0px" align=center>7</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>
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<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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify><B>Asset Impairment</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>Long-lived assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognised based on the fair value of the assets. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Asset retirement obligation </B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>The fair value of the liability of an asset retirement obligation is recorded when it is legally incurred and the corresponding increase to the mineral property is depreciated over the life of the mineral property. The liability is adjusted over time to reflect an accretion element considered in the initial measurement at fair value and revisions to the timing or amount of original estimates and for draw downs as asset retirement expenditures are incurred.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Strategic Alliances</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>In the past the Corporation has entered into various agreements under which the participants earn a right to participate in the mineral property by incurring exploration expenditures in accordance with the conditions of the agreements. Upon satisfaction of the conditions of the agreement a joint venture may be formed with customary joint venture terms and provisions and then accounted for on a proportionate consolidation basis. Until a joint venture is formed, only the expenditures on the properties incurred by the Corporation are reflected in these consolidated financial statements. Currently there are no active strategic alliances that would result in a joint venture.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Foreign Currency Translation</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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; font-family:Times" align=justify>(i)</P>
<P style="margin:0px; padding-left:113.4px; font-family:Times" 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; font-family:Times" align=justify>(ii)</P>
<P style="margin:0px; padding-left:113.4px; font-family:Times" 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; font-family:Times" align=justify>(iii)</P>
<P style="margin:0px; padding-left:114.2px; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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 and comprehensive loss is an exchange loss of $1,899 (loss $1,203 &#150; 2007, gain $291 -2006) relating to the translation of Blanket Mine.</P>
<P style="line-height:0.9pt; margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify><B>Income Taxes</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>The Corporation accounts for income taxes using the asset and liability method. &nbsp;Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. &nbsp;Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. &nbsp;The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>8</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>
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<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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" align=justify><B>Equity-based compensation</B> </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" align=justify>The Corporation operates a share option plan as described in note 5(c). &nbsp;The Corporation accounts for equity-based compensation granted under such plans using the fair value method of accounting. Under such method, the cost of equity-based compensation is estimated at fair value and is recognized in the statement of operations and comprehensive loss as an expense. &nbsp;This cost is amortized over the relevant vesting period for grants to directors, officers and employees, and measured in full at the earlier of performance completion or vesting for grants to non-employees. &nbsp;Any consideration received by the Corporation on exercise of share options together with amounts previously credited to contributed surplus for these options is credited to share capital.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify><B>Financial Instruments</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>All financial instruments are classified into one of the following five categories: held for trading, held-to-maturity, loans and receivables, available-for-sale financial assets, or other financial liabilities. Initial and subsequent measurement and recognition of changes in the value of financial instruments depends on their initial classification.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" 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:48px; text-indent:-24px; font-family:Times" align=justify>1.</P>
<P style="margin:0px; padding-left:48px; font-family:Times" 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. The Corporation has no derivative financial instruments that would have been classified on a similar basis.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Times" align=justify>2.</P>
<P style="margin:0px; padding-left:48px; font-family:Times" align=justify>Investments are classified as &#147;assets available for sale&#148;. Investments are presented at fair value and the gains/losses arising from their revaluation at the end of each quarter will be included in comprehensive income. When a decline in fair value is other than temporary, the accumulated loss that had been recognized directly in 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-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Times" align=justify>3.</P>
<P style="margin:0px; padding-left:48px; font-family:Times" align=justify>Trade 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>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Times" align=justify>4.</P>
<P style="margin:0px; padding-left:48px; font-family:Times" align=justify>Bank overdraft is classified as &#147;other financial liability&#148; as there is a contractual obligation to deliver cash. It is measured at fair value which is the carrying 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 and comprehensive loss.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Times" align=justify>5.</P>
<P style="margin:0px; padding-left:48px; font-family:Times" align=justify>Accounts payable and long term liability are classified under &#147;other financial liability&#148;. They are recorded at their fair value upon initial recognition. Subsequent measurement will be at amortized cost using the effective interest rate method. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify><B>Changes in accounting policies:</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:76.4px; text-indent:-48px; font-family:Times" align=justify><B>(i)</B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:76.4px; font-family:Times" align=justify><B>Financial Instruments &#150; Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px; font-family:Times" 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; font-family:Times" 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:15.267px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>9</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>
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<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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:6.667px; padding-left:28.333px; font-family:Times" 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>. &nbsp;</B>The Corporation has included disclosures recommended by these sections in Note 17 in the consolidated financial statements.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:76.4px; text-indent:-48px; font-family:Times" align=justify><B>(ii)</B></P>
<P style="margin-top:0px; margin-bottom:5px; padding-left:76.4px; font-family:Times" align=justify><B>Capital Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px; font-family:Times" 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; font-family:Times" align=justify>The Corporation has included disclosures recommended by the new section in Note 18 in the consolidated financial statements. </P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:28.4px; font-family:Times" align=justify><B>(iii) &nbsp;Financial Statements Presentation </B></P>
<P style="margin-top:0px; margin-bottom:24.467px; padding-left:28.4px; font-family:Times" 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. There was no impact on the financial statements due to the adoption of these amendments.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:28.4px; font-family:Times" align=justify>&nbsp;<B>(iv)</B></P>
<P style="margin:0px; padding-left:28.4px; text-indent:28.333px; font-family:Times" align=justify><B>&nbsp;Inventories:</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.4px; font-family:Times" 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. &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. Additional disclosures required by the standard are included in Note 11.</P>
<P style="margin:0px; padding-left:28.8px; font-family:Times" 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-top:0px; margin-bottom:15.267px; padding-left:28.333px; font-family:Times" align=justify>International Financial Reporting Standards (&#147;IFRS&#148;) </P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.333px; font-family:Times" 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, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at
 this time. All of the Companies foreign subsidiaries operate in environments where IFRS has already been adopted.</P>
<P style="margin-top:0px; margin-bottom:12.8px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>10</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>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Summary of Significant Accounting Policies (continued)</B></P>
<P style="margin:0px; padding-bottom:4px; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right>(in thousands of Canadian Dollars)<B> &nbsp;&nbsp;December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" align=justify>Goodwill and intangible assets</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" 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 January 1, 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>
<P style="margin:0px; text-indent:28.8px; font-family:Arial" align=justify>&nbsp;</P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" align=justify>Business Combinations</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; text-indent:0.4px; font-family:Times" align=justify>In January 2009, the CICA issued Handbook Sections 1582 &#150; Business Combinations, 1601 &#150; Consolidated Financial Statements and 1602 &#150; Noncontrolling Interests which replace CICA Handbook Sections 1581 &#150; Business Combinations and 1600 &#150; Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (&#147;<B>IFRS</B>&#148;). Section 1582 is applicable for the Corporation&#146;s business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Corporation&#146;s interim and annual consolidated financial statements for its f
iscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Corporation chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.</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="font-family: Times; margin: 0px" align=center>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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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; padding-left:56.8px; text-indent:-28px; font-family:Times" align=justify>1.</P>
<P style="margin:0px; padding-left:56.8px; font-family:Times" align=justify><B>Investments</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" 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; font-family:Times" align=justify>The adoption of CICA Handbook Sections 3855 and 1530, retrospectively from January 1, 2007, determined that the Corporation&#146;s investments in Motapa Diamonds Inc. and in Old Mutual Plc were classified as instruments &#147;available for sale&#148; and they are thus recorded at fair value. The adjustment upon adoption of these sections was an increase in marketable securities and other comprehensive income of $31. The adjustment to the fair value during 2008 of an unrealized loss of $10 ($88 loss- 2007) is recorded in comprehensive income. As the decline in the value of the Motapa investment is seen as other than temporary the accumulated write down of $70 has been removed from comprehensive income and is expensed in the statement of operations and comprehensive income/(loss).</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>The fair value of the investment in Motapa Diamonds Inc is $9 ($20 &#150; 2007) and the fair value of the shares held in Old Mutual Plc is $3 ($2- 2007). </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:56.8px; text-indent:-28px; font-family:Times" align=justify>2.</P>
<P style="margin:0px; padding-left:56.8px; font-family:Times" align=justify><B>Capital Assets</B></P>
<P style="margin:0px; text-indent:384px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=180></TD><TD width=96></TD><TD width=96></TD><TD width=96></TD></TR>
<TR><TD valign=top width=180></TD><TD valign=top width=288 colspan="3">
    <p align="center"><B>2008</B>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><U>Cost</U> <FONT style="font-size:8pt"><SUP>(1)</SUP></FONT></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px; font-family:Times" align=center>Accumulated</P>
<P style="margin:0px; font-family:Times" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px; font-family:Times" align=center>Net</P>
<P style="margin:0px; font-family:Times" align=center><U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=180><P>&nbsp;</P></TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>Land &#150; plant sites</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" 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; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- producing <FONT style="font-size:8pt"><SUP>(2)</SUP></FONT></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>24</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>4</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>20</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- non-producing <FONT style="font-size:8pt"><SUP>(3)</SUP></FONT> </P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>229</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>229</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>Office equipment</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>908</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>858</B></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>50</B></P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>Vehicles</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>296</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>91</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; font-family:Times" 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; font-family:Times" align=right><B>1,387</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>173</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; text-indent:288px; font-family:Times; font-size:8pt" 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; font-family:Times" align=justify>&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=96></TD><TD width=96></TD><TD width=96></TD></TR>
<TR><TD valign=top width=180></TD><TD valign=top width=288 colspan="3">
    <p align="center">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; font-family:Times" align=right><U>Cost</U> <FONT style="font-size:8pt"><SUP>(1)</SUP></FONT></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px; font-family:Times" align=center>Accumulated</P>
<P style="margin:0px; font-family:Times" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=96><P style="margin:0px; font-family:Times" align=center>Net</P>
<P style="margin:0px; font-family:Times" 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; font-family:Times" align=right>$</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>Land &#150; plant sites</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>12</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>-</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>12</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" 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; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- producing <FONT style="font-size:8pt"><SUP>(2)</SUP></FONT></P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>24</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>23</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;- non-producing <FONT style="font-size:8pt"><SUP>(3)</SUP></FONT> </P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>229</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>229</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" align=justify>Office equipment</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>887</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>838</P>
</TD><TD valign=top width=96><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>49</P>
</TD></TR>
<TR><TD valign=top width=180><P style="margin:0px; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times; font-size:8pt" align=justify><SUP>(1)</SUP></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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; font-family:Times; font-size:8pt" align=justify><SUP>(2)</SUP></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The producing plant and equipment relates to the Blanket operation which effective October 2008 has suspended gold production.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:75.6px; text-indent:-18.867px; font-family:Times; font-size:8pt" align=justify><SUP>(3)</SUP><FONT style="font-size:10pt"> </FONT></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The net book value of non-producing plant and equipment represents Zambian operations. </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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" align=justify><BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Amortization of $77 ($18 &#150; 2007) was charged against Capital Assets.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px; font-family:Times" align=justify><B>3.</B></P>
<P style="margin:0px; text-indent:56.733px; font-family:Times" align=justify><B>Mineral Properties</B></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=260.6></TD><TD width=103></TD><TD width=138></TD><TD width=102></TD></TR>
<TR><TD valign=top width=260.6></TD><TD valign=top width=343 colspan="3">
    <p align="center"><b>2008</b>
</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=103><P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-family:Times" align=center><U>Cost</U> <FONT style="font-size:8pt"><SUP>(1)</SUP></FONT></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=138><P style="margin:0px; font-family:Times" align=center>Accumulated</P>
<P style="margin:0px; font-family:Times" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=102><P style="margin:0px; font-family:Times" align=center>Net <U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>Producing:</P>
</TD><TD valign=top width=103><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Blanket, Zimbabwe - gold property </P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right><B>5,006</B></P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>303</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>4,703</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>Non-producing - exploration:</P>
</TD><TD valign=top width=103><P>&nbsp;</P></TD><TD valign=top width=138><P>&nbsp;</P></TD><TD valign=top width=102><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Rooipoort , South Africa</P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right><B>4,399</B></P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>4,399</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Goedgevonden, South Africa<SUP>(3)</SUP></P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Nama, Zambia</P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right><B>5,464</B></P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>5,464</B></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Mulonga, Zambia<SUP>(2)</SUP></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</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=103><P style="margin:0px; font-family:Times" align=right><B>14,869</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>303</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>14,566</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<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=260.6></TD><TD width=103></TD><TD width=138></TD><TD width=102></TD></TR>
<TR><TD valign=top width=260.6></TD><TD valign=top width=343 colspan="3">
    <p align="center">2007
</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=103><P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-family:Times" align=center><U>Cost</U> <FONT style="font-size:8pt"><SUP>(1)</SUP></FONT></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=138><P style="margin:0px; font-family:Times" align=center>Accumulated</P>
<P style="margin:0px; font-family:Times" align=center><U>Amortization</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=102><P style="margin:0px; font-family:Times" align=center>Net <U>Book Value</U></P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>Producing:</P>
</TD><TD valign=top width=103><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Blanket, Zimbabwe - gold property </P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right>4,951</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,949</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>Non-producing - exploration:</P>
</TD><TD valign=top width=103><P>&nbsp;</P></TD><TD valign=top width=138><P>&nbsp;</P></TD><TD valign=top width=102><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Rooipoort , South Africa</P>
</TD><TD valign=top width=103><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,236</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,236</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Goedgevonden, South Africa</P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right>102</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>102</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Nama, Zambia</P>
</TD><TD valign=top width=103><P style="margin:0px; font-family:Times" align=right>3,094</P>
</TD><TD valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>3,094</P>
</TD></TR>
<TR><TD valign=top width=260.6><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Mulonga, Zambia<SUP>(2)</SUP></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103><P style="margin:0px; font-family:Times" align=right>1,044</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,044</P>
</TD></TR>
<TR><TD valign=top width=260.6><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=103><P style="margin:0px; font-family:Times" align=right>13,427</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=138><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=102><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>13,425</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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-family:Times; font-size:8pt" align=justify><SUP>(1)</SUP></P>
<P style="margin:0px; padding-left:61.8px; font-family:Times" 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; font-family:Times" align=justify>&nbsp;</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; text-indent:-24px; font-family:Times; font-size:8pt" align=justify><SUP>(2)</SUP></P>
<P style="margin:0px; padding-left:61.8px; font-family:Times" align=justify>The Corporation had entered into <A NAME="OLE_LINK9"></A><A NAME="OLE_LINK10"></A>strategic alliances with a third party on a Zambian property (Mulonga) valued at $0 ($1,044 &#150; 2007). &nbsp;The Zambian strategic alliance partner, Motapa Diamonds Inc., has terminated 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. As a consequence of the current economic climate, lack of exploration in the past 2 years and no planned expenditure for 2009 the Mulonga property has been fully written down to $Nil. It is still the Corporation&#146;s intention to form a joint venture with a new strategic partner.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; text-indent:-24px; font-family:Times; font-size:8pt" align=justify><SUP>(3)</SUP></P>
<P style="margin:0px; padding-left:61.8px; font-family:Times" align=justify>Due to the current economic climate, lack of exploration expenditure in the past 2 years, no planned expenditure for 2009 and the fact that prospecting licences are still to be granted, the Goedgevonden property has been written down to $Nil in 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Amortization of $301 ($2 &#150; 2007) was charged against Mineral Properties. </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"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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">&nbsp;</P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px; padding-left:37.8px; font-family:Times">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="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px; font-family:Times" align=justify><B>4.</B></P>
<P style="margin:0px; text-indent:66.2px; font-family:Times" 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=287.133></TD><TD width=103.933></TD><TD width=118.333></TD></TR>
<TR><TD valign=top width=287.133><P>&nbsp;</P></TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center><U>2007</U></P>
</TD></TR>
<TR><TD valign=top width=287.133><P>&nbsp;</P></TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>$</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>$</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times">Continuing operation </P>
</TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>732</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>811</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times">Accretion expense</P>
</TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>19</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>35</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times">Foreign exchange loss (gain)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>88</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>(114)</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times">Closing balance &#150; continuing operations </P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>839</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>732</P>
</TD></TR>
<TR><TD valign=top width=287.133><P>&nbsp;</P></TD><TD valign=top width=103.933><P>&nbsp;</P></TD><TD valign=top width=118.333><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Discontinued operations</P>
</TD><TD valign=top width=103.933><P>&nbsp;</P></TD><TD valign=top width=118.333><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Opening balance </P>
</TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>311</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>364</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Accretion expense</P>
</TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>20</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>-</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Sale of Barbrook Mine</P>
</TD><TD valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>(107)</B></P>
</TD><TD valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>-</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Foreign exchange loss (gain)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>90</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>(53)</P>
</TD></TR>
<TR><TD valign=top width=287.133><P style="margin:0px; font-family:Times" align=justify>Closing balance &#150; held for sale</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=103.933><P style="margin:0px; font-family:Times" align=center><B>314</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=118.333><P style="margin:0px; font-family:Times" align=center>311</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>The asset retirement obligations relate to Blanket Mine $839 ($732 &#150; 2007), Barbrook Gold Mine $0 ($107 - 2007) and Eersteling Gold Mine $314 ($204 - 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%. The undiscounted obligation for the Blanket Mine is $1,280 ($1,499 - 2007). During the year the expected life of the Blanket Mine has been extended by one year.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:28.8px; font-family:Times" align=justify><B>5.</B></P>
<P style="margin:0px; text-indent:66.2px; font-family:Times" align=justify><B>Share Capital</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:66.2px; text-indent:-28.4px; font-family:Times" align=justify>(a) </P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>Authorized</P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>An unlimited number of common shares</P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>An unlimited number of preference shares.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:65.8px; text-indent:-28px; font-family:Times" align=justify>(b)</P>
<P style="margin:0px; padding-left:65.8px; font-family:Times" align=justify>Issued</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=311.133></TD><TD width=132.267></TD><TD width=113.4></TD></TR>
<TR><TD valign=top width=311.133><P>&nbsp;</P></TD><TD valign=top width=132.267><P style="margin:0px; font-family:Times"><U>Number of Shares</U></P>
</TD><TD valign=top width=113.4><P style="margin:0px; padding-right:1.467px; text-indent:48.733px; font-family:Times" align=justify><U>Amount</U></P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; text-indent:0.733px; font-family:Times" align=justify>Common shares</P>
</TD><TD valign=top width=132.267><P>&nbsp;</P></TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">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; font-family:Times" 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; font-family:Times" align=right>180,053</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Issued pursuant to private placement (i)</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right>1,475</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Issued pursuant to a private placement (ii)</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right>3,924</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Issued pursuant to acquisition (ii) </P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right>3,014</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Issued pursuant to a private placement (iii)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>17,000,000</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px; font-family:Times" align=right>2,160</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Balance - December 31 , 2006</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>457,981,021</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px; font-family:Times" align=right>190,626</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Warrants exercised (iv)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>29,888,259</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=113.4><P style="margin:0px; padding-left:20.4px; text-indent:8.4px; font-family:Times" align=right>4,380</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times">Balance - December 31 , 2007</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times"><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; font-family:Times" 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; font-family:Times" align=right><B>1,119</B></P>
</TD></TR>
<TR><TD valign=top width=311.133><P style="margin:0px; font-family:Times"><B>Balance - December 31 , 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; font-family:Times" 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; font-family:Times" align=right><B>196,125</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; padding-left:66.2px; text-indent:-28.4px; font-family:Times; font-size:14pt" align=justify><B>&nbsp;</B></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</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; font-family:Times" align=justify>&nbsp;(i) &nbsp;</P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>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. 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.</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:66.2px; text-indent:-28.4px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>The private placement agent was 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="text-indent: -28.4px; font-family: Times; line-height: 14pt; margin-top: 0px; margin-bottom: -18.667px; padding-left: 66.2px" align=justify>(ii)</P>
<P style="font-family: Times; margin: 0px; padding-left: 66.2px" align=justify>In April 2006 the Corporation, in a private 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. The common share purchase warrants are exercisable for one common share at $0.15 per warrant for a period of 12 months from the date of the issuance.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>In April 2006 the Corporation acquired 100% of the shares in Blanket (Barbados) Holdings Limited (&#147;Barbados&#148;). Barbados owns through a holding company 100% of the shares of Blanket Mine (1983) (Private) Limited. The purchase price consideration was made up of $1,120 in cash and by the issue of 20,000,000 shares at an assigned value of $3,009.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="font-family: Times; line-height: 14pt; text-indent: -28.4px; margin-top: 0px; margin-bottom: -18.667px; padding-left: 66.2px" align=justify>(iii)&nbsp;</P>
<P style="font-family: Times; margin: 0px; padding-left: 66.2px" align=justify>In July 2006 the Corporation, in a private placement, raised $2,160 after expenses from the sale of 17,000,000 units, each consisting of one common share and one share purchase warrant. The common share purchase warrants are exercisable for one common share at $0.16 per warrant for a period of 12 months from the date of the issuance.</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; font-family:Times" align=justify>(iv)</P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" 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="font-family: Times; margin: 0px; padding-left: 66.2px" align=justify>In February 2008 the Corporation, in a private 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 at $0.15 exercisable before February 21, 2009. &nbsp;These warrants expired unexercised on February 21, 2009.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:66.2px; text-indent:-28.4px; font-family:Times" align=justify>&nbsp;(c) </P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>Stock Option Plans and Equity Based Compensation</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>The Corporation has established incentive stock option plans (the &quot;Plans&quot;) for employees, officers, directors, consultants and other service providers. Under the current plan the maximum term of the options is 5 years. &nbsp;Under the Plans the aggregate number of shares that may be issued will not exceed 10% of the number of the shares issued of the Corporation and, as at December 31, 2008, the Corporation has the following options outstanding:</P>
<P style="margin:0px" align=justify><BR></P>
<TABLE style="font-size:10pt" cellspacing=0 align=center><TR height=0 style="font-size:0"><TD width=136.533></TD><TD width=113.4></TD><TD width=145></TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; font-family:Times" align=right><U>Number of Options</U></P>
</TD><TD valign=top width=113.4><P style="margin:0px; font-family:Times" align=right><U>Exercise Price-$</U></P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><U>Expiry Date</U></P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>9,950,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>&nbsp;&nbsp;0.235</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>April 24, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>150,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>&nbsp;&nbsp;0.345</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>June 2, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>410,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>&nbsp;&nbsp;0.260</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>April 29, 2014</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>4,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>&nbsp;&nbsp;0.110</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>February 15, 2015</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>&nbsp;0.140</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>July 10, 2010</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>300,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.125</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>May 11, 2016</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>200,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.110</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>January 23, 2017</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,300,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.1125</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>May 31, 2012</P>
</TD></TR>
<TR><TD valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,000,000</P>
</TD><TD valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.155</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>July 1, 2013</P>
</TD></TR>
<TR><TD style="border-bottom:1px solid #000000" valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>15,820,000</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.155</P>
</TD><TD valign=top width=145><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>Mar 18, 2013</P>
</TD></TR>
<TR><TD style="border-bottom:1px solid #000000" valign=top width=136.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>34,130,000</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=113.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>0.173</P>
</TD><TD valign=top width=145><P>&nbsp;</P></TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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=264.6></TD><TD width=122.8></TD><TD width=179.6></TD></TR>
<TR><TD valign=top width=264.6><P>&nbsp;</P></TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=center><U>Number of Options</U></P>
</TD><TD valign=top width=179.6><P style="margin:0px; font-family:Times"><U>Weighted Avg. Exercise Price</U></P>
</TD></TR>
<TR><TD valign=top width=264.6><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; font-family:Times" align=center>$</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" 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; font-family:Times" 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; font-family:Times" align=center>0.21</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Granted</P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right>450,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>0.13</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Forfeited or expired</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px; font-family:Times" 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; font-family:Times" align=center>(0.27)</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Options outstanding at December 31, 2006</P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right>17,238,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>0.21</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Forfeited or expired</P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right>(150,000)</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>(0.115)</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Granted</P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right>200,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>0.11</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Granted</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px; font-family:Times" 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; font-family:Times" align=center>0.1125</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Options outstanding at December 31, 2007</P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right>18,588,000</P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center>0.198</P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Forfeited or expired</B></P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right><B>(1,778,000)</B></P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B>(0.28)</B></P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Granted</B></P>
</TD><TD valign=top width=122.8><P style="margin:0px; font-family:Times" align=right><B>17,320,000</B></P>
</TD><TD valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B>0.155</B></P>
</TD></TR>
<TR><TD width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times"><B>Options outstanding at December 31, 2008</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px; font-family:Times" align=right><B>34,130,000</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B>0.173</B></P>
</TD></TR>
<TR><TD valign=top width=264.6><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify><B>Options exercisable at December 31, 2008</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=122.8><P style="margin:0px; font-family:Times" align=right><B>33,696,667</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=179.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B>0.173</B></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; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;The weighted average remaining contractual life of the outstanding options is 4.1 years (2007 - 5.8 years)</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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. As of December 31, 2008 there are 15,886,928 stock options available to grant.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>During 2008, equity based compensation expense of $862 for the grant of 16,990,000 fully vested options was charged to expense and credited to contributed surplus (2007 - $61 for 1,500,000; 2006 - $81 for 450,000). The weighted average grant date fair value of options was $862 (2007 - $84, 2006 - $81).</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The fair value of compensation expenses noted above was estimated using the Black-Scholes Option Pricing Model with the following assumptions for the periods ended December 31, 2008, 2007 and 2006.</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=177></TD><TD width=58.867></TD><TD width=65.533></TD><TD width=65.533></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=177><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.867><P style="margin:0px; font-family:Times" 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=65.533><P style="margin:0px; font-family:Times" align=center>2007</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>2006</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=177><P style="margin:0px; font-family:Times">Risk-free interest rate</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.867><P style="margin:0px; font-family:Times" align=center><B>3%</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>3 &#150; 4%</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>3 - 4%</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=177><P style="margin:0px; font-family:Times">Expected dividend yield</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.867><P style="margin:0px; font-family:Times" align=center><B>Nil</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>Nil</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>Nil</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=177><P style="margin:0px; font-family:Times">Expected stock price volatility</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.867><P style="margin:0px; font-family:Times" align=center><B>55-62%</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>60 &#150; 65%</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>70 &#150; 78%</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=177><P style="margin:0px; font-family:Times">Expected option life in years</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.867><P style="margin:0px; font-family:Times" align=center><B>5</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>3 &#150; 5</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=65.533><P style="margin:0px; font-family:Times" align=center>3 &#150; 5</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>Option pricing models require the input of highly subjective assumptions including the expected price volatility. &nbsp;Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Corporation&#146;s stock options.</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="font-family: Times; margin: 0px" align=center>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:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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; padding-left:37.8px; font-family:Times" align=justify>(d)</P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px; font-family:Times" align=justify>Warrants &nbsp;</P>
<P style="line-height:8pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The Corporation has issued the following common share purchase warrants pursuant to private placements which are outstanding as of December 31, 2008:</P>
<P style="line-height:8pt; 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; font-family:Times" align=justify><U>Number of Warrants</U></P>
</TD><TD valign=top width=122.867><P style="margin:0px; font-family:Times" align=justify><U>Shares for Warrants</U></P>
</TD><TD valign=top width=102.2><P style="margin:0px; font-family:Times" align=center><U>Exercise Price</U></P>
</TD><TD valign=top width=134><P style="margin:0px; font-family:Times" align=justify><U>Expiry Date</U></P>
</TD></TR>
<TR><TD valign=top width=141.733><P style="margin:0px; font-family:Times" align=center>12,300,000</P>
</TD><TD valign=top width=122.867><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>1 for 1</P>
</TD><TD valign=top width=102.2><P style="margin:0px; text-indent:28.8px; font-family:Times" align=justify>$0.15</P>
</TD><TD valign=top width=134><P style="margin:0px; font-family:Times">February 21, &nbsp;2009</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify>The detail of the warrants issued is detailed below.</P>
<P style="margin:0px" align=justify><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=98.333></TD><TD width=203.4></TD><TD width=102.467></TD><TD width=143.867></TD></TR>
<TR><TD style="border-bottom:1px solid #000000" valign=bottom width=98.333><P style="margin:0px" align=right><B>Number</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=203.4><P style="margin:0px"><B>&nbsp;Description</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=102.467><P style="margin:0px" align=center><B>&nbsp;Exercise Price </B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=143.867><P style="margin:0px" align=center><B>Expiry</B></P>
</TD></TR>
<TR><TD width=98.333><P>&nbsp;</P></TD><TD width=203.4><P>&nbsp;</P></TD><TD width=102.467><P style="margin:0px" align=center>$</P>
</TD><TD width=143.867><P>&nbsp;</P></TD></TR>
<TR><TD width=98.333><P style="margin:0px" align=right>12,300,000 </P>
</TD><TD width=203.4><P style="margin:0px">Common share purchase warrants </P>
</TD><TD width=102.467><P style="margin:0px" align=center>0.15 </P>
</TD><TD width=143.867><P style="margin:0px">Until February 21, 2009</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" 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=251.133></TD><TD width=132.267></TD></TR>
<TR><TD valign=top width=251.133><P>&nbsp;</P></TD><TD valign=top width=132.267><P style="margin:0px; font-family:Times" align=center><U>Number of Warrants</U></P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" 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; font-family:Times" align=right>17,850,000</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" 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; font-family:Times" align=right>67,265,885</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify>Outstanding December 31, 2006</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>85,115,885</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify>Exercised</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(29,888,259)</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" 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; font-family:Times" align=right>(39,790,000)</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify>Outstanding December 31, 2007</P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>15,437,626</P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify><B>Expired</B></P>
</TD><TD valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(15,437,626)</B></P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify><B>Issued pursuant to private placement</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12,300,000</B></P>
</TD></TR>
<TR><TD valign=top width=251.133><P style="margin:0px; font-family:Times" align=justify><B>Outstanding December 31, 2008</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=132.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12,300,000</B></P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>These warrants expired unexercised on February 21, 2009</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; font-family:Times" align=justify><B>6. </B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify><B>Income Taxes</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The following table reconciles the expected income tax recovery at the Canadian statutory income tax rate to the amounts recognized in the consolidated statements of operations for continuing operations:</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=302.4></TD><TD width=75.6></TD><TD width=57.733></TD><TD width=65.133></TD></TR>
<TR><TD valign=top width=302.4><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>2008</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>2007</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>2006</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Income tax rate</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>33.5%</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>36.12%</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>36.12%</P>
</TD></TR>
<TR><TD valign=top width=302.4><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Income taxes (recovery) at statutory rate</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>(1,436)</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>(1,409)</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>1,072</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Tax rate difference</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>259</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>541</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>(167)</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Foreign currency difference</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>83</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>0</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>(28)</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Permanent differences</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>87</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>36</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>170</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Interest at special rates subject to withholding tax</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>5</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Losses expired</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>(576)</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>216</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Change in tax rate</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>186</B></P>
</TD><TD valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>1,153</P>
</TD><TD valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>847</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Change in valuation allowance</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>1,397</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>(537)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>(1,242)</P>
</TD></TR>
<TR><TD valign=top width=302.4><P style="margin:0px; font-family:Times" align=justify>Current income tax </P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=57.733><P style="margin:0px; font-family:Times" align=right>5</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=65.133><P style="margin:0px; font-family:Times" align=right>652</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:66.2px; font-family:Times" align=justify>The following table reflects future income tax assets and liabilities</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=207.933></TD><TD width=94.467></TD><TD width=101.467></TD><TD width=101.467></TD></TR>
<TR><TD valign=top width=207.933><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>2008</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>2007</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>2006</P>
</TD></TR>
<TR><TD valign=top width=207.933><P>&nbsp;</P></TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Non-capital loss carry forwards</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>11,411</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>10,181</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>10,009</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Unrealized foreign exchange</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>158</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>249</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>1,422</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Site reclamation costs</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>91</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>137</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Other</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>304</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>2</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Capital assets</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>(1)</B></P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>(3)</P>
</TD><TD valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>(328)</P>
</TD></TR>
<TR><TD valign=top width=207.933><P style="margin:0px; font-family:Times" align=justify>Valuation allowance</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>(11,963)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>(10,566)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>(11,103)</P>
</TD></TR>
<TR><TD valign=top width=207.933><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=101.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66px; text-indent:0.2px; font-family:Times" align=justify>The Corporation has available tax losses for income tax purposes of approximately $36,985 (2007 - $32,830 and 2006 - $30,598) in Canada and South Africa which may be carried forward to reduce taxable income derived in future years. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>The expiry of these losses is as follows:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=94.467></TD><TD width=104></TD></TR>
<TR><TD style="border-bottom:1.333px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right><B>Year</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=104><P style="margin:0px; font-family:Times" align=right><B>Amount</B></P>
</TD></TR>
<TR><TD valign=top width=94.467><P>&nbsp;</P></TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2028</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>2,260</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2027</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>3,054</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2026</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>2,780</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2015</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>1,863</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2014</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>1,583</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2010</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>18,984</P>
</TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2009</P>
</TD><TD valign=top width=104><P style="margin:0px; font-family:Times" align=right>3,611</P>
</TD></TR>
<TR><TD valign=top width=94.467><P>&nbsp;</P></TD><TD valign=top width=104><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>No expiry</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="margin:0px; font-family:Times" align=right>2,850</P>
</TD></TR>
<TR><TD valign=top width=94.467><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=104><P style="margin:0px; font-family:Times" align=right>36,985</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>A valuation allowance has been provided as the potential income tax benefits of these carry-forward non-capital losses and deductible temporary differences and the realization thereof is not considered more likely than not.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>The Corporation also has approximately $70,713 in capital losses which can be applied to reduce future capital gains. &nbsp;The right to claim these capital losses is carried forward indefinitely but can only be claimed against capital gains. The Corporation also has the following expenses which are available to be applied against future income for income tax purposes:</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=292.933></TD><TD width=94.533></TD></TR>
<TR><TD valign=top width=292.933><P style="margin:0px; font-family:Times" align=justify>Canadian exploration and development expenses</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>7,560</P>
</TD></TR>
<TR><TD valign=top width=292.933><P style="margin:0px; font-family:Times" align=justify>Foreign exploration and development expenses</P>
</TD><TD valign=top width=94.533><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,811</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:66.2px; font-family:Times" align=justify>For discontinued operations, the Corporation&#146;s effective tax rate, which differs from the Canadian statutory income tax rate, may be reconciled as follows:</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="font-family: Times; margin: 0px" align=center>18</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></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=246.467></TD><TD width=94.533></TD><TD width=94.467></TD><TD width=94.467></TD></TR>
<TR><TD valign=top width=246.467><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=94.533><P style="margin:0px; font-family:Times" align=right><B>2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2007</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2006</P>
</TD></TR>
<TR><TD valign=top width=246.467><P>&nbsp;</P></TD><TD valign=top width=94.533><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=246.467><P style="margin:0px; font-family:Times" align=justify>Basic rate applied to pre-tax loss</P>
</TD><TD valign=top width=94.533><P style="margin:0px; font-family:Times" align=right><B>(219)</B></P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>(256)</P>
</TD><TD valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>(2,886)</P>
</TD></TR>
<TR><TD valign=top width=246.467><P style="margin:0px; font-family:Times" align=justify>Losses and other benefits not recognised</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.533><P style="margin:0px; font-family:Times" align=right><B>219</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>256</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>2,886</P>
</TD></TR>
<TR><TD valign=top width=246.467><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=94.533><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=94.467><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
</TABLE>
  </center>
</div>
<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; font-family:Times" align=justify><B>7.</B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" 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; font-family:Times" align=justify>The net income/(loss) per share figures have been calculated using the weighted average number of common shares outstanding during the respective fiscal years which amounted to 498,450,650 (2007 -477,930,290; 2006 &#150; 423,838,628;). &nbsp;Fully diluted income/(loss) per share has also been calculated only for 2006 as the Corporation achieved an income before discontinued operations. Fully diluted income/(loss) per share have not been calculated for 2008 or 2007 as it would be anti-dilutive. &nbsp;&nbsp;The fully diluted number of shares amounts to 499,217,712 (2007 - 478,553,886 and 2006 &#150; 425,984,395). </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; font-family:Times" align=justify><B>8.</B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify><B>Other Expense (Income) </B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px; font-family:Times" 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=330.8></TD><TD width=75.6></TD><TD width=75.6></TD><TD width=64.4></TD></TR>
<TR><TD valign=top width=330.8><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><U>2007</U></P>
</TD><TD valign=top width=64.4><P style="margin:0px; font-family:Times" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=330.8><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=64.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=330.8><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Fair value adjustment to RBZ accounts receivable</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>526</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=64.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD width=330.8><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Reclassification adjustment for other than temporary decline in value</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>70</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=64.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=330.8><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Other</P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(5)</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(17)</P>
</TD><TD valign=top width=64.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=330.8><P>&nbsp;</P></TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>591</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(17)</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=64.4><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</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; font-family:Times" align=justify><B>9.</B></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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=293></TD><TD width=66.133></TD><TD width=93.267></TD><TD width=93.267></TD></TR>
<TR><TD valign=top width=293><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right><U>2007</U></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=293><P>&nbsp;</P></TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Amortization</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>397</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>18</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>40</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Rehabilitation accretion incl. foreign currency adjustment</P>
</TD><TD valign=top width=66.133><P style="margin:0px; text-indent:20.333px; font-family:Times" align=right><B>275</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:20.333px; font-family:Times" align=right>35</P>
</TD><TD valign=top width=93.267><P style="margin:0px; text-indent:20.333px; font-family:Times" align=right>81</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Equity based compensation expense</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>862</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>61</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>81</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Blanket long term liability</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>(11)</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>(35)</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Write down of mineral properties</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>1,168</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>750</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD width=293><P style="margin:0px; font-family:Times" align=justify>Reclassification adjustment for other than temporary decline in value</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>70</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Unrealized foreign exchange </P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>(482)</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=293><P style="margin:0px; font-family:Times" align=justify>Other</P>
</TD><TD valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>(51)</B></P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>44</P>
</TD><TD valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>(6)</P>
</TD></TR>
<TR><TD valign=top width=293><P>&nbsp;</P></TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=66.133><P style="margin:0px; font-family:Times" align=right><B>2,228</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>908</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:2px solid #000000" valign=top width=93.267><P style="margin:0px; font-family:Times" align=right>161</P>
</TD></TR>
</TABLE>
  </center>
</div>
<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="font-family: Times; margin: 0px" align=center>19</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:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" 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=263></TD><TD width=94.6></TD><TD width=94.8></TD><TD width=94.8></TD></TR>
<TR><TD valign=top width=263><P>&nbsp;</P></TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; font-family:Times" align=right><U>2007</U></P>
</TD><TD valign=top width=94.8><P style="margin:0px; font-family:Times" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=263><P>&nbsp;</P></TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Accounts payable</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(1,973)</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(1,832)</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,408</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Accounts receivable</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(374)</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(651)</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,217</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Inventories</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,026</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>3,653</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(3,263)</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Prepaid expenses</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(10)</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>44</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>334</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Assets held for sale</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(28)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>104</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(315)</P>
</TD></TR>
<TR><TD valign=top width=263><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(1,359)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,318</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(619)</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" 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=263></TD><TD width=94.6></TD><TD width=94.8></TD><TD width=94.8></TD></TR>
<TR><TD valign=top width=263><P>&nbsp;</P></TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B><U>2008</U></B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; font-family:Times" align=right><U>2007</U></P>
</TD><TD valign=top width=94.8><P style="margin:0px; font-family:Times" align=right><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=263><P>&nbsp;</P></TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Interest paid </P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>103</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>485</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>54</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Interest received</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(488)</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(31)</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Tax paid </P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>237</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Withholding tax paid on interest in Zimbabwe</P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>5</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=263><P style="margin:0px; font-family:Times" align=justify>Blanket acquisition </P>
</TD><TD valign=top width=94.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=94.8><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>3,009</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; text-indent:-37.8px; font-family:Times" align=justify><B>10. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts Receivable</B></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>Included in accounts receivable is an amount owing by the Reserve Bank of Zimbabwe (&#147;RBZ&#148;) of $2,890 ($1,780 &#150; 2007) for gold sold, plus interest accrued, during 2008. In the monetary policy statement announced by the Governor of the RBZ in February 2009, this debt was converted into a Special Tradable Gold-Backed Foreign Exchange Bond, with a term of 12 months and an 8% interest rate. This bond can be sold to any interested party locally, regionally or internationally at an agreed to time maturity discount. This bond plus interest is guaranteed by RBZ on maturity.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The Corporation has disclosed this receivable as a long term asset at its estimated fair value. The receivable has been written down by $526 to the estimated fair value at December 31, 2008. Due to the subsequent conversion of the receivable into a bond, the fair value was estimated by applying a risk premium of 18% to the bond value as if converted at the year end. Although it is the intention of the Corporation to sell the bond within the next 12 months due to a lack of a market to liquidate, the Corporation has classified the receivable as long term based on the legal term of the bond to January 31, 2010.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>If the risk premium was increased by 5% the value of the receivable would reduce by a further $119. &nbsp;&nbsp;&nbsp;If the risk premium was decreased by 5% the value of the receivable would increase by a further $130.</P>
<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; font-family:Times" align=justify><B>11. </B></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify><B>Inventory</B></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The only items valued at December 31, 2008 are the fast moving inventory items on hand at Blanket Mine at December 31, 2008 that have been purchased for the operations during 2008 which have been valued at $1,059 (2007 - $1,671). </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="font-family: Times; margin: 0px" align=center>20</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=200.667></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=44.4></TD><TD width=44.4></TD></TR>
<TR><TD valign=top width=200.667><P style="margin:0px; font-family:Times" align=justify>Inventory items as at December 31</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=44.4><P style="margin:0px; font-family:Times" align=justify><B>2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=44.4><P style="margin:0px; font-family:Times" align=justify>2007</P>
</TD></TR>
<TR><TD valign=top width=200.667><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=200.667><P style="margin:0px; font-family:Times" align=justify>Consumable stores</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right><B>1,059</B></P>
</TD><TD valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right>1,671</P>
</TD></TR>
<TR><TD valign=top width=200.667><P style="margin:0px; font-family:Times" align=justify>Gold in circuit</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right>414</P>
</TD></TR>
<TR><TD valign=top width=200.667><P style="margin:0px; font-family:Times" align=justify>Total</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right><B>1,059</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=bottom width=44.4><P style="margin:0px; font-family:Times" align=right>2,085</P>
</TD></TR>
</TABLE>
  </center>
</div>
<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; padding-left:75.6px; font-family:Times" align=justify>During the year the Corporation wrote down inventory of $700 (2007 - $nil) related to its consumable stores.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The components of operating costs were as follows</P>
<P style="margin:0px" align=justify><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=318.467></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=14.8></TD><TD width=44.4></TD><TD width=44.4></TD></TR>
<TR><TD valign=top width=318.467><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:1px solid #000000" valign=top width=44.4><P style="margin:0px; font-family:Times" align=justify><B>2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=44.4><P style="margin:0px; font-family:Times" align=justify>2007</P>
</TD></TR>
<TR><TD valign=top width=318.467><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=318.467><P style="margin:0px; font-family:Times" align=justify>Wages</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right><B>1,510</B></P>
</TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right>3,125</P>
</TD></TR>
<TR><TD valign=top width=318.467><P style="margin:0px; font-family:Times" align=justify>Consumable materials (including amounts written down)</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right><B>2,527</B></P>
</TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right>5,311</P>
</TD></TR>
<TR><TD valign=top width=318.467><P style="margin:0px; font-family:Times" align=justify>Reclamation accretion</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right><B>19</B></P>
</TD><TD width=44.4><P style="margin:0px; font-family:Times" align=right>36</P>
</TD></TR>
<TR><TD valign=top width=318.467><P style="margin:0px; font-family:Times" align=justify>Mine administration and safety</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" width=44.4><P style="margin:0px; font-family:Times" align=right><B>382</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=44.4><P style="margin:0px; font-family:Times" align=right>1,273</P>
</TD></TR>
<TR><TD valign=top width=318.467><P style="margin:0px; font-family:Times" align=justify>Total</P>
</TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD valign=top width=14.8><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" width=44.4><P style="margin:0px; font-family:Times" align=right><B>4,438</B></P>
</TD><TD style="border-bottom:2px solid #000000" width=44.4><P style="margin:0px; font-family:Times" align=right>9,745</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:1.467px; text-indent:26.933px; font-family:Times" align=justify><B>12.</B></P>
<P style="margin:0px; padding-left:1.467px; text-indent:74.133px; font-family:Times" align=justify><B>Related Party Transactions</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:37.8px; text-indent:37.8px; font-family:Times" align=justify>The Corporation had the following related party transactions: &nbsp;&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=406.4></TD><TD width=47.2></TD><TD width=47.267></TD><TD width=47.267></TD></TR>
<TR><TD valign=top width=406.4><P>&nbsp;</P></TD><TD valign=top width=47.2><P style="margin:0px; font-family:Times" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; font-family:Times" align=center><U>2007</U></P>
</TD><TD valign=top width=47.267><P style="margin:0px; font-family:Times" align=center><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=406.4><P>&nbsp;</P></TD><TD valign=top width=47.2><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; font-family:Times" align=justify>Fees and allowances paid to a Corporation which provides the services of the Corporation's president</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>635<SUP>(1)</SUP></B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>560</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>534</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; font-family:Times" align=justify>Rent for office premises paid to a company owned by members of the President&#146;s family</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>43</B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>46</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>47</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; font-family:Times" align=justify>Interest paid to directors on outstanding fees and expenses</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>4</B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Consulting fees paid to Directors</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>65</B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>19</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>27</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Legal fees paid to a law firm where a Director is a partner</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>117</B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>85</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>42</P>
</TD></TR>
<TR><TD valign=top width=406.4><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Fees, allowances and interest paid to the Chairman of the Board net of accruals</P>
</TD><TD width=47.2><P style="margin:0px; font-family:Times" align=right><B>334</B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>46</P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right>44</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:99.6px; text-indent:-24px; font-family:Times" align=justify><SUP>(1)</SUP></P>
<P style="margin:0px; padding-left:99.6px; font-family:Times" align=justify>Included in this amount is $63 back pay for prior years.</P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The Corporation has entered into a management agreement with Epicure Overseas S.A. (&#147;Epicure&#148;), a Panamanian corporation, for management services provided by the president. &nbsp;The Corporation is required to pay a base annual remuneration adjusted for inflation and bonuses set out in the agreement. In the event of a change of control of the Corporation, Epicure can terminate the agreement and receive a lump sum payment equal to 200% of the remuneration for the year that the change occurs.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>On January 31, 2005, the Corporation entered into an agreement (the &#147;Chairman&#146;s Agreement&#148;) with the Corporation&#146;s Chairman for services as the non-executive Chairman of the board of directors of the Corporation. &nbsp;The Chairman&#146;s Agreement provides for the payment of an annual fee and a fee for services provided by the Chairman. &nbsp;The Chairman&#146;s Agreement provides that the fees will be reviewed annually by the Chairman and the Corporation&#146;s compensation committee with the object that the parties will bona fide negotiate any changes in the fees. &nbsp;No such reviews subsequent to the above date have been made by the Chairman and the compensation committee.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>21</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>These related party transactions were in the normal course of operations and are recorded at the exchange amount. &nbsp;The Corporation has the following related party balances:</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=415.8></TD><TD width=47.267></TD><TD width=47.267></TD><TD width=47.267></TD></TR>
<TR><TD valign=top width=415.8><P>&nbsp;</P></TD><TD width=47.267><P style="margin:0px; font-family:Times" align=right><B><U>2008</U></B></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=center><U>2007</U></P>
</TD><TD width=47.267><P style="margin:0px; font-family:Times" align=center><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=415.8><P style="margin:0px; font-family:Times">Included in accounts payable</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=415.8><P style="margin:0px; font-family:Times">- owing to a Corporation that provides the services of the Corporation&#146;s President</P>
</TD><TD valign=top width=47.267><P style="margin:0px; font-family:Times" align=right><B>85</B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; font-family:Times" align=right>&nbsp;70</P>
</TD><TD valign=top width=47.267><P style="margin:0px; font-family:Times" align=right>&nbsp;-</P>
</TD></TR>
<TR><TD valign=top width=415.8><P style="margin:0px; font-family:Times">- owing to directors for unpaid salaries, consulting &nbsp;and directors&#146; fees</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right><B>220</B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right>511</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right>322</P>
</TD></TR>
<TR><TD valign=top width=415.8><P style="margin:0px; font-family:Times">- unsecured loan due to a shareholder <FONT style="font-size:8pt"><SUP>(1)</SUP></FONT></P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right>580</P>
</TD><TD valign=top width=47.267><P style="margin:0px; text-indent:10.867px; font-family:Times" align=right>450</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="line-height:10pt; margin:0px; text-indent:49.467px; font-family:Times; font-size:8pt" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="line-height:10pt; margin-top:0px; margin-bottom:-13.333px; padding-left:96.733px; text-indent:-24px; font-family:Times; font-size:8pt" align=justify>(1)</P>
<P style="line-height:10pt; margin:0px; padding-left:96.733px; text-indent:-2.2px; font-family:Times; font-size:8pt" align=justify>This refers to a short term loan received prior to the finalization of a private placement, subsequent to the year end in 2006 and 2007, of which this loan formed a part. The loan is unsecured and bears interest at prime plus 3%. &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; font-family:Times" align=justify><B>13.</B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify><B>Segmented Financial Information</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The Corporation has been engaged directly or through subsidiaries in the production of and the exploration for precious metals in various geographical locations.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The Corporation&#146;s operating segments have been identified based on geographic areas as follows:</P>
<P style="margin:0px" align=center><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=center>&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;&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;&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;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=243.067></TD><TD width=75.267></TD><TD width=76.8></TD><TD width=89></TD><TD width=60.467></TD><TD width=54.933></TD></TR>
<TR><TD valign=top width=243.067></TD><TD valign=top width=354 colspan="5">
    <p align="center">For the year ended December 31, 2008
</TD></TR>
<TR><TD valign=top width=243.067><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=75.267><P style="margin:0px; font-family:Times" 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; font-family:Times" align=center><B><U>Zimbabwe</U></B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=89><P style="margin:0px; font-family:Times" 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; font-family:Times" 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; font-family:Times" align=center><B><U>Total</U></B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P>&nbsp;</P></TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Revenue from sales</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>12</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>7,684</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>7,696</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Operating costs</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>(3,855)</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(583)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(4,438)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">General and administrative</P>
</TD><TD valign=top width=75.267><P style="margin:0px; font-family:Times" align=right><B>(3,670)</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>(73)</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(153)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(3,896)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Interest income</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>299</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>78</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>8</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>385</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Amortization</P>
</TD><TD valign=top width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>(381)</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(16)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(397)</B></P>
</TD></TR>
<TR><TD valign=bottom width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">&nbsp;Foreign exchange gains/(loss)</P>
</TD><TD valign=bottom width=75.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>237</B></P>
</TD><TD valign=bottom width=76.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(1,899)</B></P>
</TD><TD valign=bottom width=89><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(102)</B></P>
</TD><TD valign=bottom width=60.467><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(112)</B></P>
</TD><TD valign=bottom width=54.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(1,876)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Write down of mineral property</P>
</TD><TD valign=bottom width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=bottom width=76.8><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=bottom width=89><P style="margin:0px; font-family:Times" align=right><B>(124)</B></P>
</TD><TD valign=bottom width=60.467><P style="margin:0px; font-family:Times" align=right><B>(1,044)</B></P>
</TD><TD valign=bottom width=54.933><P style="margin:0px; font-family:Times" align=right><B>(1,168)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Other income (expense) </P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=75.267><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(70)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=76.8><P style="margin:0px; font-family:Times" align=right><B>(526)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=89><P style="margin:0px; font-family:Times" align=right><B>5</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=60.467><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=54.933><P style="margin:0px; font-family:Times" align=right><B>(591)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Income (loss) for continuing operations</P>
</TD><TD valign=top width=75.267><P style="margin:0px; font-family:Times" align=right><B>(3,192)</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>1,028</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(965)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; font-family:Times" align=right><B>(1,156)</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(4,285)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Discontinued operations (loss)</P>
</TD><TD valign=top width=75.267><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(655)</B></P>
</TD><TD valign=top width=60.467><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(655)</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Income tax expense</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Net income (loss) for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.267><P style="margin:0px; font-family:Times" align=right><B>(3,192)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=76.8><P style="margin:0px; font-family:Times" align=right><B>1,028</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=89><P style="margin:0px; font-family:Times" align=right><B>(1,620)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=60.467><P style="margin:0px; font-family:Times" align=right><B>(1,156)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right><B>(4,940)</B></P>
</TD></TR>
<TR><TD valign=bottom width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times" align=right>Identifiable assets &#150; continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=75.267><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>3,658</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=76.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>8,798</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=89><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>4,597</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=60.467><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>5,458</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=54.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>22,511</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Identifiable assets &#150; discontinued operations Capital and Current assets</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; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=89><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>787</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; font-family:Times" align=right><B>-</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; font-family:Times" align=right><B>787</B></P>
</TD></TR>
<TR><TD valign=top width=243.067><P style="margin:0px; text-indent:1.467px; font-family:Times">Expenditures on capital assets &amp; mineral properties continuing operations</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; text-indent:28.8px; font-family:Times" 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; font-family:Times" align=right><B>90</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=89><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>253</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; font-family:Times" align=right><B>2,370</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; font-family:Times" align=right><B>2,713</B></P>
</TD></TR>
</TABLE>
  </center>
</div>
<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><BR></P>
<P style="margin:0px; text-indent:37.8px; font-family:Times">&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px" align=justify><BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>22</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=right><BR></P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=236.267></TD><TD width=77.933></TD><TD width=73.067></TD><TD width=68></TD><TD width=56.733></TD><TD width=54.933></TD></TR>
<TR><TD valign=top width=236.267></TD><TD valign=top colspan="5">
<P style="font-family: Times; margin: 0px" align=center>For the year ended December 31, 2007</P>
</TD></TR>
<TR><TD valign=top width=236.267><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=77.933><P style="margin:0px; font-family:Times" align=center><U>Corporate</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=center><U>Zimbabwe</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=68><P style="margin:0px; font-family:Times" align=center><U>South Africa</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=center><U>Zambia</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=center><U>Total</U></P>
</TD></TR>
<TR><TD valign=top width=236.267><P>&nbsp;</P></TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Revenue from sales</P>
</TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>5</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>10,034</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>10,039</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Operating costs</P>
</TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(9,288)</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>(457)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(9,745)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">General and administrative</P>
</TD><TD valign=top width=77.933><P style="margin:0px; font-family:Times" align=right>(1,697)</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(151)</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>(275)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(2,123)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Interest income (expense)</P>
</TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>5</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(316)</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>2</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(309)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Amortization</P>
</TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(4)</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>(14)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(18)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Write off of mineral property</P>
</TD><TD valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(750)</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(750)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px"><BR></P>
<P style="margin:0px; text-indent:1.467px; font-family:Times">Other income (expense) incl. foreign exchange gains/(loss)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(6)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=73.067><P style="margin:0px; font-family:Times" align=right>(1,811)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=68><P style="margin:0px; font-family:Times" align=right>786</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=56.733><P style="margin:0px; font-family:Times" align=right>36</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=54.933><P style="margin:0px; font-family:Times" align=right>(995)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Income (loss) for continuing operations</P>
</TD><TD valign=top width=77.933><P style="margin:0px; font-family:Times" align=right>(2,443)</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(1,536)</P>
</TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>42</P>
</TD><TD valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>36</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(3,901)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Discontinued operations (loss)</P>
</TD><TD valign=top width=77.933><P>&nbsp;</P></TD><TD valign=top width=73.067><P>&nbsp;</P></TD><TD valign=top width=68><P style="margin:0px; font-family:Times" align=right>(709)</P>
</TD><TD valign=top width=56.733><P>&nbsp;</P></TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(709)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Income tax expense</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=77.933><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(5)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P>&nbsp;</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; font-family:Times" align=right>(5)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Net income (loss) for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=77.933><P style="margin:0px; font-family:Times" align=right>(2,443)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(1,541)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px; font-family:Times" align=right>(667)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>36</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(4,615)</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Identifiable assets &#150; continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>106</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>9,257</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px; font-family:Times" align=right>4,415</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>4,124</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>17,902</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Identifiable assets &#150; discontinued operations Capital and Current assets</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px; font-family:Times" align=right>11,590</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>11,590</P>
</TD></TR>
<TR><TD valign=top width=236.267><P style="margin:0px; text-indent:1.467px; font-family:Times">Expenditures on capital assets &amp; mineral properties continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=77.933><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>616</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68><P style="margin:0px; font-family:Times" align=right>164</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>2,470</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>3,250</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=right><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=right>&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=244.6></TD><TD width=69.333></TD><TD width=73.067></TD><TD width=68.267></TD><TD width=56.733></TD><TD width=54.933></TD></TR>
<TR><TD valign=top width=244.6></TD><TD valign=top width=320 colspan="5">
    <p align="center">For the year ended December 31, 2006
</TD></TR>
<TR><TD valign=top width=244.6><P>&nbsp;</P></TD><TD style="border-top:2px solid #000000" valign=top width=69.333><P style="margin:0px; font-family:Times" align=center><U>Corporate</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=center><U>Zimbabwe</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=center><U>South Africa</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=center><U>Zambia</U></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=center><U>Total</U></P>
</TD></TR>
<TR><TD valign=top width=244.6><P>&nbsp;</P></TD><TD valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Revenue from sales</P>
</TD><TD valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>8</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>13,575</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>3</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>13,586</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Operating costs</P>
</TD><TD valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(8,121)</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(451)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(8,572)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">General and administrative</P>
</TD><TD valign=top width=69.333><P style="margin:0px; font-family:Times" align=right>(1,787)</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(100)</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(209)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(2,096)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Interest</P>
</TD><TD valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(54)</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(54)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Amortization</P>
</TD><TD valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(20)</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(20)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(40)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Other income (expense) incl. foreign exchange gains/(loss)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=69.333><P style="margin:0px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(276)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=73.067><P style="margin:0px; font-family:Times" align=right>292</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=68.267><P style="margin:0px; font-family:Times" align=right>128</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=56.733><P style="margin:0px; font-family:Times" align=right>(1)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=bottom width=54.933><P style="margin:0px; font-family:Times" align=right>143</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Income (loss) for continuing operations</P>
</TD><TD valign=top width=69.333><P style="margin:0px; font-family:Times" align=right>(2,055)</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>5,572</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(549)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>(1)</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>2,967</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Discontinued operations (loss)</P>
</TD><TD valign=top width=69.333><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(7,990)</P>
</TD><TD valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(7,990)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Income tax expense</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>(652)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(652)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Net income (loss) for the year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; font-family:Times" align=right>(2,055)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>4,920</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>(8,539)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>(1)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>(5,675)</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Identifiable assets &#150; continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>965 </P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>12,544</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>4,521</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>1,662</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>19,692</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Identifiable assets &#150; discontinued operations Capital and Current assets</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>11,764</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>11,764</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Expenditures on capital assets &amp; mineral properties continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>1,998</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>382</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; text-indent:20.333px; font-family:Times" align=right>277</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>2,657</P>
</TD></TR>
<TR><TD valign=top width=244.6><P style="margin:0px; text-indent:1.467px; font-family:Times">Expenditures on capital assets &amp; mineral properties &#150; discontinued operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=69.333><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=73.067><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=68.267><P style="margin:0px; font-family:Times" align=right>922</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=56.733><P style="margin:0px; text-indent:20.333px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=54.933><P style="margin:0px; font-family:Times" align=right>922</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=right><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>23</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:37.8px; font-family:Times" align=justify><B>14.</B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify><B>Contingent Liability</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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, 2008 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 clarity of the anticipated Zimbabwe laws relating to the indigenization of the mining industry, as it is recognized that the Zimbabwean laws when passed, will likely have a material
 impact on the structure of 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; font-family:Times" align=justify><B>&nbsp;&nbsp;&nbsp;15. &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; font-family:Times" align=justify>The long term liability refers to a provision for the Service Bonus Fund relating to employees at Blanket Mine in Zimbabwe. The fund was established in 1975 to provide a gratuity to permanent employees of Blanket Mine on cessation of employment at Blanket Mine 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 capped maximum. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>This fund represents a defined contribution future employee benefit fund for which the funds have not been segregated by the Corporation. The expense for the year, representing the required contributions in the year, was $Nil ($2 &#150; 2007).</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; text-indent:37.8px; font-family:Times" align=justify><B>16. </B></P>
<P style="margin:0px; text-indent:75.6px; font-family:Times" align=justify><B>Comparative Figures</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The prior period figures have been reclassified to conform to the current presentation.</P>
<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>17.</B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" align=justify><B>Financial Risk Exposure and Risk Management </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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; font-family:Times" align=justify>The fair value of the Corporation&#146;s financial instruments approximate their carrying value unless otherwise noted. 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><BR></P>
<P style="margin:0px"><BR></P>
<P style="margin:0px"><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>24</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:6.133px; padding-left:56.733px; text-indent:18.867px; font-family:Times" align=justify><B>(a) Currency Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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; font-family:Times" align=justify>As noted below, the Corporation has certain financial assets and liabilities denominated in foreign currencies. The Corporation&#146;s 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 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; padding-left:75.6px; font-family:Times" align=justify>As disclosed in Note 19 below, 12 zeroes were scrapped from the value of the Zimbabwe dollar in February 2009. As a result the Zimbabwe dollar liabilities disclosed below are effectively eliminated in their entirety.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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. </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=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; font-family:Times" align=justify>C$&#145;000s</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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times">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; font-family:Times" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>1,386</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; font-family:Times">Accounts receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; font-family:Times" align=right>3,187</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; font-family:Times" align=right>10</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>197</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; font-family:Times">Accounts payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; font-family:Times" align=right>175</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>64</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" align=justify>The table below illustrates by how much a 5% 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; font-family:Times" align=justify>C$&#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; font-family:Times" 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; font-family:Times" 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; font-family:Times" 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; font-family:Times">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; font-family:Times" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>69</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; font-family:Times">Accounts receivable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; font-family:Times" align=right>159</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; font-family:Times" align=right>1</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>10</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; font-family:Times">Accounts payable</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=77.533><P style="margin:0px; font-family:Times" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=122.8><P style="margin:0px; font-family:Times" align=right>9</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=75.6><P style="margin:0px; font-family:Times" align=right>3</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px"><BR></P>
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<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>25</P>
<P style="margin:0px" align=justify><BR></P>
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<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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:15.267px; text-indent:75.6px; font-family:Times" align=justify><B>(b) Interest Rate Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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 high credit quality financial institutions. </P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>Cash held in foreign banks is subject to the interest rates ruling in those particular countries, this can have an effect on the results of the Corporation due to higher interest rates being paid in African countries compared to Canada. Cash held in interest bearing accounts amounted to $3,451. At December 31, 2008, with all other variables unchanged, a 1% change in interest rates would result in an increase or reduction of interest income of $35. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>Fluctuations in market interest rates have not had a significant impact on the Corporation&#146;s results of operations but the magnitude of deposits on hand has resulted in higher interest receipts.</P>
<P style="margin:0px"><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:29.2px; text-indent:46.4px; font-family:Times" align=justify><B>(c) Concentration of Credit Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" align=justify>At December 31, 2007 the RBZ owed Blanket US$1,780,000 and at December 31, 2008 this had increased to US$2,400,000 (at fair value) despite having received two payments of US$325,000 and US$1,125,000 and having paid roughly US$806,000 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>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" 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-top:0px; margin-bottom:15.267px; padding-left:38.333px; text-indent:37.267px; font-family:Times" align=justify>&nbsp;<B>(d) Liquidity Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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 </P>
<P style="margin-top:0px; margin-bottom:15.267px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>26</P>
<P style="margin:0px" align=justify><BR></P>
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<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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" align=justify>anticipated cash requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities. </P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>Due to the hyperinflationary environment in Zimbabwe the Zimbabwe dollar based local insurance coverage was valueless and therefore terminated by the year end. The lack of foreign currency and the magnitude of the potential premiums prevented Blanket from acquiring insurance coverage in US dollar terms. As a result Blanket is uninsured for any loss. This matter will be addressed as soon as foreign currency funds are available on a sustained basis. 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; font-family:Times" align=justify><B>(e) Commodity Price Risk </B></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" 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; font-family:Times" align=justify>The major factor influencing commodity price risk is that RBZ does not pay Blanket market value for gold produced. The amount paid is dependent on the exchange rate applied by the RBZ at the time of the transaction which results in a discount on the Zimbabwe dollar value received on the market price of the gold.</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; text-indent:-37.8px" align=justify><B>18</B><FONT style="font-size:12pt">. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT style="font-family:Times"><B>Capital Management </B></FONT></P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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; font-family:Times" align=justify>The Corporation&#146;s capital includes short-term debt, long-term debt and equity, comprising issued common shares, contributed surplus, accumulated deficit and accumulated other comprehensive income.</P>
<P style="margin-top:0px; margin-bottom:15.267px; padding-left:75.6px; font-family:Times" 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, accommodate any asset retirement obligation and to pursue growth opportunities. &nbsp;</P>
<P style="margin:0px; padding-left:75.6px; font-family:Times">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; font-family:Times" align=justify>As at December 31, 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>
<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="font-family: Times; margin: 0px" align=center>27</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:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px"><BR></P>
<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; font-family:Times">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; font-family:Times" align=right><B>As at December 31, 2008</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px; font-family:Times" 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; font-family:Times">Issued common shares</P>
</TD><TD valign=top width=189.867><P style="margin:0px; font-family:Times" align=right><B>196,125</B></P>
</TD><TD valign=top width=180.133><P style="margin:0px; font-family:Times" align=right>195,006</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px; font-family:Times">Contributed surplus</P>
</TD><TD valign=top width=189.867><P style="margin:0px; font-family:Times" align=right><B>1,902</B></P>
</TD><TD valign=top width=180.133><P style="margin:0px; font-family:Times" align=right>1,040</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px; font-family:Times">Other comprehensive income</P>
</TD><TD valign=top width=189.867><P style="margin:0px; font-family:Times" align=right><B>3</B></P>
</TD><TD valign=top width=180.133><P style="margin:0px; font-family:Times" align=right>(57)</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px; font-family:Times">Deficit</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=189.867><P style="margin:0px; font-family:Times" align=right><B>(176,834)</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px; font-family:Times" align=right>(171,894)</P>
</TD></TR>
<TR><TD valign=top width=173.933><P style="margin:0px; text-indent:2.267px; font-family:Times">Total</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=189.867><P style="margin:0px; font-family:Times" align=right><B>21,196</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=180.133><P style="margin:0px; font-family:Times" align=right>24,095</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>19.</B></P>
<P style="margin:0px; padding-left:75.6px" align=justify><B>Acquisition of Blanket Mine</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>During 2006 Caledonia Mining Company through its wholly owned subsidiary Caledonia Holdings (Africa) Limited purchased 100% of the shares in Blanket (Barbados) Holdings Limited (&#147;Barbados&#148;) from Kinross Gold Corporation. &nbsp;&#147;Barbados&#148; owns 100% of the shares in Caledonia Holdings Zimbabwe Limited who owns 100% of the shares in Caledonia Mining Services (Private) Limited (dormant) and Blanket Mine (1983) (Private) Limited.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The effective date of the share sale agreement was April 1, 2006 but Caledonia Mining Corporation effectively only took control after payment of the purchase price and thus the Zimbabwe operations are consolidated into the results of Caledonia Mining Corporation from July 1, 2006. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify>The purchase price consideration was made up of $1,120 (US$1,000) in cash and by the issue of 20,000,000 shares in Caledonia Mining Corporation at an assigned value of $3,009. This resulted in an effective purchase consideration of $4,129.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:75.6px; text-indent:2.4px; font-family:Times" align=justify>The allocation of the purchase price is presented in the abridged balance sheet below:</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=304.333></TD><TD width=85.067></TD></TR>
<TR><TD valign=top width=304.333><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Current Assets</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>4,548</P>
</TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; padding-right:83.267px; font-family:Times" align=justify>Capital Assets and Mineral Properties</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>&nbsp;&nbsp;2,519</P>
</TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Total Assets</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>&nbsp;&nbsp;7,067</P>
</TD></TR>
<TR><TD valign=top width=304.333><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Current Liabilities</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(2,107)</P>
</TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Other Long Term Liabilities</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>&nbsp;&nbsp;(831)</P>
</TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Total Liabilities</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(2,938)</P>
</TD></TR>
<TR><TD valign=top width=304.333><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=304.333><P style="margin:0px; font-family:Times" align=justify>Total Purchase Consideration</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>4,129</P>
</TD></TR>
</TABLE>
  </center>
</div>
<P style="margin:0px; padding-left:78px; font-family:Times" align=justify>There are no outstanding purchase price considerations.</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="font-family: Times; margin: 0px" align=center>28</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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; padding-left:75.6px; text-indent:-47.2px" align=justify><B>20.</B></P>
<P style="margin:0px; padding-left:75.6px; font-family:Times" align=justify><B>Subsequent Events</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Zimbabwe Monetary Policy announcement.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>In the February 2009, as a result of RBZ Monetary Policy announcement and a revised budget presentation announced in March, 2009 significant changes were made to the rules governing gold production in Zimbabwe, in summary these are:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>all changes are effective February 1 , 2009</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>each gold producer who delivers gold to Fidelity Printers and Refiners (&#147;Fidelity&#148;) will be issued with a gold export certificate by Fidelity and will then be entitled to market and ship the gold to a refiner of their choice.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>the net export proceeds from the sale of the gold will be paid by the refinery into the producers foreign currency account (&#147;FCA&#148;) at a Zimbabwean commercial bank.</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>the producer will be entitled to retain 100% of the proceeds indefinitely in their FCA. The gold producer will be entitled to access gold loans, collateralised by physical gold retained.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Any amounts owing by RBZ to the gold producer for previously unpaid gold sales will be converted into Special Tradeable Gold-backed Foreign Exchange Bonds (&#147;Bond&#148;) that have the following features;</P>
<P style="margin:0px" align=justify><BR></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; font-family:Times" align=justify>Term of 12 months</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; font-family:Times" align=justify>Interest at 8% pa on maturity</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; font-family:Times" align=justify>Bonds may be sold locally, regionally or internationally at an agreed price</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; font-family:Times" align=justify>RBZ will honour the full principal plus interest on maturity</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>In addition to the above, the RBZ has relaxed numerous exchange control measures which will make the operating environment for Blanket more &#147;normal&#148; if and when these announcements are in fact implemented on a sustainable basis without modification.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Blanket is currently applying for all the necessary permissions and licences to be able to implement the new gold export measures and will announce a return to production as soon as the regulatory permissions are all received and the first gold has been successfully delivered to Rand Refineries in South Africa.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>In addition to the above, RBZ devalued the Zimbabwe dollar in this monetary policy announcement by scrapping 12 zeroes.</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="font-family: Times; margin: 0px" align=center>29</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:56.733px; text-indent:-28.333px; font-family:Times" align=justify><B>21. &nbsp;</B></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify><B>Generally Accepted Accounting Principles in Canada and the United States</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>The Corporation&#146;s accounting policies do not differ materially from accounting principles generally accepted in the United States (&quot;US GAAP&quot;) except for the following:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:28.4px; font-family:Times" align=justify>(a)</P>
<P style="margin:0px; padding-left:28.4px; text-indent:28.333px; font-family:Times" align=justify>Mineral Properties</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>US GAAP requires that expenditures on mineral properties with no proven reserves be reflected as expenses in the period incurred.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:28.4px; font-family:Times" align=justify>(b) &nbsp;&nbsp;&nbsp;Employee and Directors Stock Options</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Prior to 2003, the Corporation accounted for employee and director stock options under APB Opinion No. 25 under which no compensation cost was recognized when the exercise price equals or exceeds the fair value at the date of grant. Effective January 1, 2003, the Corporation has, for US reporting purposes, prospectively applied the fair-value recognition provisions of SFAS 123. Under Canadian GAAP, effective January 1, 2002 on a prospective basis, the Corporation adopted the new CICA policy of accounting for stock based compensation. Prior to adoption no compensation expense on stock options granted to directors, officers and employees, was not recorded. However, disclosure of the effects of accounting for the compensation expense, utilizing the fair value method estimated using the Black-Scholes Option Pricing Model, was disclosed as pro-forma information. For 2002, a compensation expense was shown reflecting the intrinsic value a
ttributable to stock options granted to directors, officers and employees.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Under Canadian GAAP, effective January 1, 2003 on a prospective basis, the Corporation commenced the expensing of all stock based compensation for new stock option grants applying the fair value method estimated by using the Black-Scholes Option Pricing Model.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-28.333px; font-family:Times" align=justify>(c)</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Warrants</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>In 2007 the expiry period of certain warrants was extended. Under US GAAP the fair value of the warrants </P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>extended are considered to be a benefit awarded to certain shareholders. This would be considered to be a deemed dividend to these shareholders. The fair value of the warrants was calculated using the Black-Scholes Option Pricing Model. The assumptions used in the calculation are: Risk free interest rate &#150; 3%; Expected dividend yield &#150; nil; Expected stock volatility &#150; 62%; Expected warrant life in years &#150; 0.178.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; text-indent:-28.333px; font-family:Times" align=justify>Recently Issued United States Accounting Standards</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-26.733px; font-family:Times" align=justify>(d)</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>In September 2006, the FASB issued SFAS No. 158, &quot;Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R),&quot; which requires employers to: (a) recognize in its statement of financial position an asset for a plan's over-funded status or a liability for a plan's under-funded status; (b) measure a plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. These changes will be reported in comprehensive income of a business entity. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending December 15, 2006 for entities with publicly traded equity securities. The requirement t
o measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Corporation has no defined benefit pension plans.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>30</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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:-26.733px; font-family:Times" align=justify>(e)</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Business Combinations</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007),<I> Business Combinations.</I> SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:</P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; font-family:Times" align=justify>Acquisition costs will be generally expensed as incurred; </P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; font-family:Times" align=justify>Non-controlling interests (formerly known as &quot;minority interests&quot; -- see Statement 160 discussion below) will be valued at fair value at the acquisition date; </P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:144px; font-family:Times" align=justify>Acquired contingent liabilities will be recorded at fair value at the acquisition date</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; text-indent:480px; font-family:Times" align=justify>and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;</P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; font-family:Times" align=justify>In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; </P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; font-family:Times" align=justify>Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and</P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:144px; text-indent:-24px; font-family:Symbol" align=justify>?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:144px; font-family:Times" align=justify>Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. </P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption <I>is prohibited.</I> </P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Accordingly, a calendar year-end Corporation is required to record and disclose business combinations following existing GAAP until January 1, 2009. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-26.733px; font-family:Times" align=justify>(f)</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Statement No. 160, Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>On December 4, 2007, the FASB issued FASB Statement No. 160,<I> Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51.</I> Statement 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>Specifically, this statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of </P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Like SFAS 141R discussed above, earlier adoption is prohibited.</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="font-family: Times; margin: 0px" align=center>31</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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-top:0px; margin-bottom:-16px; padding-left:56.733px; text-indent:-26.733px; font-family:Times" align=justify>(g)</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133 </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify><B>&nbsp;</B>On March 19, 2008, the FASB issued FASB Statement No. 161, <I>Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133.</I> SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (<I>a</I>) an entity uses derivative instruments; (<I>b</I>) derivative instruments and related hedged items are accounted for under SFAS No. 133, <I>Accounting for Derivative Instruments and Hedging Activities;</I> and (<I>c</I>) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Specifically, SFAS 161 requires:</P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:148px; text-indent:-24px; font-family:Symbol">?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:148px; text-indent:-4px; font-family:Times">Disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation; </P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:148px; text-indent:-24px; font-family:Symbol">?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:148px; text-indent:-4px; font-family:Times">Disclosure of the fair values of derivative instruments and their gains and losses in a tabular format; </P>
<P style="margin-top:5.533px; margin-bottom:-16px; padding-left:148px; text-indent:-24px; font-family:Symbol">?</P>
<P style="margin-top:0px; margin-bottom:5.533px; padding-left:148px; text-indent:-4px; font-family:Times">Disclosure of information about credit-risk-related contingent features; and </P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:148px; text-indent:-24px; font-family:Symbol">?</P>
<P style="margin:0px; padding-left:148px; text-indent:-4px; font-family:Times">Cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed.</P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged but not elected by the Corporation</P>
<P style="margin:0px" align=justify><BR><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>32</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:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; padding-left:56.733px; font-family:Times" align=justify>The impact of the foregoing on the consolidated financial statements is as follows:</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; text-indent:-24px; font-family:Times" align=justify>(a)</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:61.8px; font-family:Times" align=justify>&nbsp;Statement of operations and comprehensive income</P>
<P style="margin:0px; padding-left:61.8px; text-indent:563.667px; font-family:Times" align=justify>&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=370.2></TD><TD width=72></TD><TD width=72></TD><TD width=72></TD></TR>
<TR><TD valign=top width=370.2><P>&nbsp;</P></TD><TD valign=top width=72><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=72><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><U>2007</U></P>
</TD><TD valign=top width=72><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=370.2><P>&nbsp;</P></TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Income/(Loss) for continuing operations per Canadian GAAP</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(4,285)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(3,906)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>2,315</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Mineral property expenditure with no proven reserves (expensed) or previously expensed under US GAAP</P>
</TD><TD valign=top width=72><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(1,878)</B></P>
</TD><TD valign=top width=72><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right>(2,633)</P>
</TD><TD valign=top width=72><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right>(659)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Net income (loss) from continuing operations </P>
</TD><TD style="border-top:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(6,163)</B></P>
</TD><TD style="border-top:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(6,539)</P>
</TD><TD style="border-top:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>1,656</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Loss from discontinued operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(655)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(709)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(7,990)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Net income (loss)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(6,818)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(7,248)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(6,334)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Deemed Dividend</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(134)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Net income (loss) available for common shareholders</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(6,818)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(7,382)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(6,334)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Net income (loss)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(6,818)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(7,248)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(6,334)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Other comprehensive (loss)/gain</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>60</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(88)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>85</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Total comprehensive loss</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(6,758)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(7,336)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=72><P style="margin:0px; font-family:Times" align=right>(6,249)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Basic and diluted income/(loss) per share continuing operations</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(0.013)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.01)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.00)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Basic and diluted income/(loss) per share &nbsp;discontinued operations</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(0.001)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.00)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.02)</P>
</TD></TR>
<TR><TD valign=top width=370.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Basic and diluted income/(loss) per share for the year</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right><B>(0.014)</B></P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.01)</P>
</TD><TD valign=top width=72><P style="margin:0px; font-family:Times" align=right>(0.02)</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:61.8px; text-indent:-24px; font-family:Times" align=justify>(b)</P>
<P style="margin:0px; padding-left:61.8px; font-family:Times" align=justify>&nbsp;&nbsp;&nbsp;Balance Sheets</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=387.467></TD><TD width=75.6></TD><TD width=75.6></TD></TR>
<TR><TD valign=top width=387.467><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><U>2007</U></P>
</TD></TR>
<TR><TD valign=top width=387.467><P>&nbsp;</P></TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Total assets per Canadian GAAP</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>23,298</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>29,492</P>
</TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Mineral properties with no proven reserves expensed</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>(9,863)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>(7,985)</P>
</TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Total assets per US GAAP</P>
</TD><TD style="border-bottom:3px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>13,435</B></P>
</TD><TD style="border-bottom:3px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>21,507</P>
</TD></TR>
<TR><TD valign=top width=387.467><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Total liabilities per Canadian and US GAAP</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>2,102</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>5,397</P>
</TD></TR>
<TR><TD valign=top width=387.467><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Shareholders&#146; equity</P>
</TD><TD valign=top width=75.6><P>&nbsp;</P></TD><TD valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Shareholders&#146; equity per Canadian GAAP</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>21,196</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>24,095</P>
</TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Mineral properties with no proven reserves expensed</P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>(9,863)</B></P>
</TD><TD valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>(7,985)</P>
</TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Shareholders&#146; equity per US GAAP</P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right><B>11,333</B></P>
</TD><TD style="border-top:1.333px solid #000000; border-bottom:1.333px solid #000000" valign=top width=75.6><P style="margin:0px; font-family:Times" align=right>16,110</P>
</TD></TR>
<TR><TD valign=top width=387.467><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=75.6><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=387.467><P style="margin:0px; font-family:Times" align=justify>Total liabilities &amp; shareholder&#146;s equity per US GAAP</P>
</TD><TD style="border-bottom:3px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:10.933px; font-family:Times" align=right><B>13,435</B></P>
</TD><TD style="border-bottom:3px solid #000000" valign=top width=75.6><P style="margin:0px; text-indent:10.933px; font-family:Times" align=right>21,507</P>
</TD></TR>
</TABLE>
  </center>
</div>
<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></P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="font-family: Times; margin: 0px" align=center>33</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="line-height:1.35pt; margin:0px; page-break-before:always" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; padding-top:4px; text-indent:28.8px; font-family:Times; font-size:14pt; border-top:2px solid #000000" align=right><B>Caledonia Mining Corporation</B></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:14pt" align=right><B>Notes to the Consolidated Financial Statements</B></P>
<P style="margin:0px; text-indent:28.8px; font-family:Times" 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; text-indent:28.8px; font-family:Times; border-bottom:1.333px solid #000000" align=right><B>December 31, 2008, 2007 and 2006</B></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; font-family:Times" align=justify>&nbsp;(c) &nbsp;&nbsp;&nbsp;&nbsp;Statement of Cash Flows</P>
<P style="margin:0px; padding-left:37.8px; text-indent:251.667px" align=justify>&nbsp;</P>
<div align="center">
  <center>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=340.2></TD><TD width=85.067></TD><TD width=85.067></TD><TD width=85.067></TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><B><U>2008</U></B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><U>2007</U></P>
</TD><TD valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=center><U>2006</U></P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Cash provided by (used in)</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>$</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>$</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>$</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Operating activities for continuing operations per Canadian GAAP</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>(3,416)</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(1,680)</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>1,857</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Mineral properties expenditure by continuing operations</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>(1,878)</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(2,633)</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>(659)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Operating activities per US GAAP</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>(5,294)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(4,313)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>1,198</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Investment activities for continuing operations per Canadian GAAP</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>6,646</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(3,250)</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(3,516)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Mineral properties expenditure</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right><B>1,878</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>2,633</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>659</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Investment activities per US GAAP</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>8,524</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(617)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(2,857)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Financing Activities per Canadian and US GAAP</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>1,106</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>4,393</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>7,556</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Effects of foreign currency translations on cash per Canadian and US GAAP</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right><B>(112)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right>(7)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px" align=right><BR></P>
<P style="margin:0px; font-family:Times" align=right>1</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P>&nbsp;</P></TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Increase (decrease) in cash for continuing operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>4,224</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(544)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>5,898</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Cash flow from discontinued operations per Canadian and US GAAP</P>
</TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Operating activities </P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>(646)</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(680)</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(4,551)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Investment activities </P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(922)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Financing activities </P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>6</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(194)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Effects of foreign currency translations on cash</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>-</B></P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(4)</P>
</TD><TD style="border-bottom:1.333px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(9)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Decrease in cash from discontinued operations</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>(646)</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(678)</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(5,676)</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; text-indent:1.467px; font-family:Times" align=justify>Increase (decrease) in cash for the year</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right><B>3,578</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>(1,222)</P>
</TD><TD valign=top width=85.067><P style="margin:0px; font-family:Times" align=right>222</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; font-family:Times" align=justify>Cash and cash equivalents, beginning of year</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:18px; font-family:Times" align=right><B>76</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,298</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,076</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; font-family:Times" align=justify>Cash and cash equivalents, end of year</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:18px; font-family:Times" align=right><B>3,654</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>76</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,298</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; font-family:Times" align=justify><B>Cash and cash equivalents at end of year relate to:</B></P>
</TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD><TD valign=top width=85.067><P>&nbsp;</P></TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; font-family:Times" align=justify><B>Continuing operations</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; text-indent:18px; font-family:Times" align=right><B>3,652</B></P>
</TD><TD valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>76</P>
</TD><TD valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,252</P>
</TD></TR>
<TR><TD valign=top width=340.2><P style="margin:0px; font-family:Times" align=justify><B>Discontinued operations</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:18px; font-family:Times" align=right><B>2</B></P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>-</P>
</TD><TD style="border-bottom:1px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>46</P>
</TD></TR>
<TR><TD valign=top width=340.2><P>&nbsp;</P></TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:18px; font-family:Times" align=right><B>3,654</B></P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>76</P>
</TD><TD style="border-bottom:2px solid #000000" valign=top width=85.067><P style="margin:0px; text-indent:28.8px; font-family:Times" align=right>1,298</P>
</TD></TR>
</TABLE>
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<P style="font-family: Times; margin: 0px" align=center>34</P>
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<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>3
<FILENAME>mda.htm
<DESCRIPTION>MD&A
<TEXT>
<!doctype html public "-//IETF//DTD HTML//EN">
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<HEAD>
<TITLE>CC Filed by Filing Services Canada Inc. 403-717-3898</TITLE>
<META NAME="author" CONTENT="Stefan Hayden">
<META NAME="date" CONTENT="04/06/2009">
</HEAD>
<BODY style="line-height:12pt; font-family:Times New Roman; font-size:10pt; color:#000000">
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<P style="line-height:16pt; margin:0px; padding-left:192px; text-indent:-192px; font-family:Shruti; font-size:14pt"><B>CALEDONIA MINING CORPORATION as at March 31, 2009</B></P>
<P style="line-height:16.15pt; margin-top:0px; margin-bottom:15.533px; padding-right:165.533px; font-size:14pt" align=justify><B>Management&#146;s Discussion and Analysis </B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>This discussion and analysis of the consolidated operating results and financial condition of Caledonia Mining Corporation (&#147;Caledonia&#148; or &#147;the Corporation&#148;) for the fiscal year ended December 31, 2008, and the period ending March 2009 should be read in conjunction with the Consolidated Financial Statements and Press Releases issued by the Corporation, 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 Consolidated Financial Statements and related notes have been prepared in accordance with Canadian Generally Accepted Accounting Principles (&#147;GAAP&#148;). </P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Note that all currency references in this document are to Canadian dollars unless otherwise specified.</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Overall Performance</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:19.733px; font-size:11pt" align=justify>The Corporation was formed in February 1992 and 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="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>1. &nbsp;&nbsp;&nbsp;&nbsp;VISION AND STRATEGY</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>Caledonia is an exploration, development and mining corporation focused on Africa. &nbsp;The Corporation&#146;s primary assets are a gold operation in Zimbabwe, that has temporarily suspended gold production due to non-payment for its gold deliveries, a base metals exploration project in Zambia, a PGE project in South Africa and a non-producing gold mine in South Africa which has been identified for disposal, and in respect of which negotiations with interested parties are ongoing. &nbsp;The Corporation also has diamond projects in Zambia and South Africa. &nbsp;The Corporation&#146;s objective is to continue to develop its asset base as a diversified multi-commodity international miner.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The Corporation&#146;s business model is to identify and/or acquire properties or projects early in the development cycle which have the potential to become low cost operations, and then add value by developing the asset, either as an operator or through joint venture agreements. &nbsp;The possibility of divestiture in whole or part will be considered at different points in time and will be governed by the benefit to shareholders. &nbsp;Where appropriate, Caledonia will seek strategic alliances through existing or new joint ventures. </P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The Corporation has a strong management team and Board of Directors with diverse expertise in mineral exploration, mine development, finance, production and marketing.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:19.733px; font-size:11pt" align=justify>With the expectation that commodity prices will strengthen over the long term, the Corporation is following the strategy of diversification through its current exploration activities for cobalt, gold, platinum group metals, base metals and diamonds. &nbsp;</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:19.733px; font-size:11pt" align=justify>The sale of the Barbrook Mine was competed in May 2008 and Eersteling Gold Mine continues to be held for sale. </P>
<P style="line-height:normal; margin:0px; font-size:11pt"><B>2. THE CURRENT ECONOMIC CRISIS AND THE IMPLICATIONS FOR CALEDONIA</B><FONT style="font-family:Arial; font-size:12pt"><B>.</B></FONT></P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Due to the sudden, dramatic change in the world economic climate in late 2008, management has conducted a review of its operations and strategy to assess the impact on Caledonia. The areas reviewed and the conclusions drawn are summarized below: </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B><I>2.1</I></B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B><I>&nbsp;Debt and Equity raising and the cost thereof &nbsp;</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>At present, Caledonia has cash, is free of long-term debt and is not in need of essential credit. However, </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>1</P>
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<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>the future ability of the Corporation to access credit lines could have a direct impact on the expansion plans at its Blanket Gold Mine (&#147;Blanket&#148;) and the continued development of its Nama Cobalt Project (&#147;Nama&#148;). </P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>&nbsp;</P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The Reserve Bank of Zimbabwe (&#147;RBZ&#148;) recently announced that the amounts it owes to Zimbabwean gold miners in respect of historic gold deliveries have been converted into Special Tradable Gold-backed Foreign Exchange Bonds (&#147;Bonds&#148;), which will mature on January 31, 2010 and the details of which are set out in Section 3. &nbsp;As at December 31, 2008 Blanket was owed US$2.954 million in terms of such Bonds, and in the absence of immediate settlement for historic gold deliveries, Blanket will require working capital finance to recommence gold production. &nbsp;The Corporation has received indications that acceptable credit lines may be available in Zimbabwe and thus the global &#147;credit crunch&#148; should not hamper the resumption of Blanket&#146;s operations. &nbsp;Blanket and Caledonia are also exploring the feasibility of selling some or all the Bonds. </P>
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<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The global &#147;credit crunch&#148; has severely limited the amount of finance available to junior exploration companies to raise development capital and in particular for base mineral projects. &nbsp;In light of this, the recent significant decline in the price and demand for cobalt products and consent to a delay in production from the various companies who have signed off-take agreements with Nama, Caledonia has decided to suspend work on the Chinese Feasibility Study (&#147;CFS&#148;) on Nama. The completion of the CFS will only be authorized once Caledonia is satisfied that the Nama resource meets the CFS requirements and that the appropriate debt and equity funding for the development of Nama is available on acceptable terms. In the meantime, Caledonia will continue exploration work at Nama. </P>
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<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The JV&#146;s with Mitsubishi, when concluded, on the Corporation&#146;s PGE properties in South Africa will be fully funded by Mitsubishi for the first US$40 million of expenditures on the Rooipoort and Mapochs properties and thus will not require any funding input from Caledonia.</P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B><I>2.2</I></B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B><I>&nbsp;<A NAME="_Ref224556675"></A>Commodity prices and demand.</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The gold price has benefited from the &#147;credit crunch&#148; and has remained strong over the past few months. &nbsp;It will be advantageous to the Corporation when the Blanket Gold Mine is returned to production once the recently announced requirements of the RBZ monetary policies and the National Budget are implemented, the gold dealer and gold exporter licenses are issued, and the sustainability of the current regulatory, economic and political environment in Zimbabwe allows.</P>
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<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The decline in cobalt and base metals has impacted on production forecasts for 2009, with a number of companies cutting production, and some junior companies facing insolvency. &nbsp;Whilst the short term price outlook remains depressed, prices are expected to recover in the longer term. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>Although the platinum and palladium prices are depressed, this should not delay the start-up of the exploration joint ventures with Mitsubishi once the Shareholders Agreements are finalized and signed. </P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B>2.<i>3</i>&nbsp;</B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B> <I>Currencies</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The RBZ Monetary Policy Statement in late January 2009 and their subsequent Exchange Control Directives of February 23, 2009 and March 20, 2009 and the National Budget Presentation of March 18, 2009, establish a framework within which (subject to administrative implementation) Zimbabwean gold mines may export &nbsp;all of their gold production directly to a refinery of their choice, and receive the full foreign exchange for gold sales directly into their Foreign Currency Account (&#147;FCA&#148;) with a commercial bank in Zimbabwe, all of which will be available for use by the gold mine. &nbsp;In terms of this policy, future gold sales from Blanket will be denominated in US dollars and Blanket will receive the full proceeds of gold sales in US dollars directly from the refiner of its choice. &nbsp;The current US dollar strength should be positive for Blanket as many of Blanket&#146;s cost inputs are sourced in South 
African Rand, which has tended to show weakness against the US dollar. &nbsp;Blanket has some intercompany liabilities denominated in US dollars which could be affected by any significant future change in the US dollar: Canadian dollar exchange rate.</P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>2</P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B>2.4&nbsp;</B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B> <I>Counterparties</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The only long term counter party contracts in place are the cobalt supply agreements. These are priced in US dollars and the counterparties are not considered at risk in the current environment due to the financial crisis. &nbsp;As required by the agreements, the counter-parties were notified in writing during October 2008 of the delay in commencing production at Nama and are agreeable to such delay. &nbsp;None of these parties has requested that the agreements be cancelled. </P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B>2.5&nbsp;</B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B> <I>Liquidity</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>Caledonia is operating a policy of cash preservation. &nbsp;Exploration activities at Nama were minimized during December when the 2008 exploration program was completed and the wet season commenced. The resident staff at Nama commenced the 2009 exploration program with the planned geochemical sampling program in late January once climatic conditions allowed. &nbsp;Current cash resources are estimated to be sufficient to fund planned Corporation expenses for the next 12 months. The planned resumption of gold production at Blanket should enable Blanket to continue to be self-sufficient and could generate sufficient cash for the identified mine expansion and exploration projects at the mine and for the Corporation&#146;s working capital if necessary.</P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B>2.6&nbsp;</B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B><I>mpairments</I></B></P>
<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>As a result of the severe economic conditions and changed circumstances, Caledonia has made impairment write downs against two of its exploration assets. The Goedgevonden diamond exploration project in South Africa has been fully written down by $124,000 and the Mulonga Plains diamond project in Zambia has also been fully written down by $1,044,000. &nbsp;It is the Corporation&#146;s intention to form a new joint venture on the Mulonga Plains project. At Blanket Mine old inventory items of approximately $700,000 have been fully written down due to their age.</P>
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<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px" align=justify><B>2.7&nbsp;</B></P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px" align=justify><B> <I>Going concern</I></B></P>
<P style="margin:0px; padding-left:18.933px; font-size:11pt" align=justify>The 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<FONT style="font-family:Times; font-size:12pt">.</FONT></P>
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<P style="line-height:13pt; margin:0px; padding-left:18.933px; font-size:11pt" align=justify>Following the operational and strategic review, management is of the opinion that the global &#147;credit crunch&#148; and depressed commodity prices may impact on certain of Caledonia&#146;s projects in respect of timing and viability. &nbsp;However, the recent significant reductions in petroleum prices and other consumable costs may counteract these reduced commodity costs and increased financing costs. &nbsp;Only time will determine the relative effects of these on the economic viability of Blanket, Nama and the PGE projects. &nbsp;The strong gold price and new monetary policy announcements in Zimbabwe relating to the gold sector should create a more beneficial environment and provide opportunities to maximize these benefits and will be monitored if and as they materialize. &nbsp;There is insufficient definitive evidence at this time that the current and projected economic variations will change the &#147;<I>going
 concern</I>&#148; status of Caledonia or any of its subsidiaries.</P>
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<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OPERATIONS</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Blanket Mine (1983) Private Limited (&#147;Blanket&#148;) - Gold &nbsp;</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In late January 2009 the RBZ issued a Monetary Policy Statement which together with the subsequent Exchange Control Directives of February 23, 2009 and March 20, 2009 and the National Budget Presentation of March 18, 2009 made significant, favorable changes to the rules governing gold production and gold exports in Zimbabwe as summarized below:</P>
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<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>all changes are effective as of &nbsp;February 1, 2009;</P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>3</P>
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<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>each gold producer who has received a gold dealer&#146;s license from the Ministry of Finance and a gold exporter&#146;s license from the RBZ will be issued with a gold export certificate by Fidelity Printers and Refiners (&#147;Fidelity&#148;, a part of the RBZ) and will then be entitled to market and ship its produced gold bullion to a refiner of its choice;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the net export proceeds from the sale of the gold will be paid by the refinery directly into the producer&#146;s foreign currency account (&#147;FCA&#148;) at a Zimbabwean commercial bank;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the gold producer will be entitled to retain 100% of the proceeds indefinitely in its FCA; </P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the gold producer will be entitled to access gold loans, collateralized by physical gold retained;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>any amounts owing by RBZ to the gold producer for previously unpaid gold sales will be converted into Special Tradable Gold-backed Foreign Exchange Bonds (&#147;Bond&#148;) that have the following features:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:144px; text-indent:-24px; font-family:Wingdings; font-size:11pt" align=justify>&#167;</P>
<P style="line-height:13pt; margin:0px; padding-left:144px; font-size:11pt" align=justify>Term of 12 months maturing on January 31, 2010;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:144px; text-indent:-24px; font-family:Wingdings; font-size:11pt" align=justify>&#167;</P>
<P style="line-height:13pt; margin:0px; padding-left:144px; font-size:11pt" align=justify>Interest at 8% pa on maturity;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:144px; text-indent:-24px; font-family:Wingdings; font-size:11pt" align=justify>&#167;</P>
<P style="line-height:13pt; margin:0px; padding-left:144px; font-size:11pt" align=justify>Bonds may be sold locally, regionally or internationally at a price agreed between the holder of the Bonds and the purchaser; and</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:144px; text-indent:-24px; font-family:Wingdings; font-size:11pt" align=justify>&#167;</P>
<P style="line-height:13pt; margin:0px; padding-left:144px; font-size:11pt" align=justify>RBZ will honor the full principal plus interest on maturity.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In addition to the above, the Ministry of Finance and the RBZ have amended numerous exchange control measures which should &#147;normalize&#148; the operating environment for Blanket provided these measures are implemented on a sustainable basis without modification.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During early February 2009 Blanket applied for all the necessary permissions and licenses (primarily a gold export license and a gold dealer&#146;s license) to be able to implement the new gold export measures and intends, subject to receipt of these licenses and the availability of sufficient local borrowing, to re-commence gold production as soon as possible. Caledonia will make further announcements regarding Blanket&#146;s return to production as soon as the regulatory permissions are all received.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Background</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Blanket is 100% owned by the Corporation&#146;s 100% owned Zimbabwean registered subsidiary Caledonia Holdings Zimbabwe, and is located 560 km south of Harare, the capital city of Zimbabwe and 150 km south of Bulawayo, the country&#146;s second largest city. &nbsp;The town of Gwanda, the provincial capital of Matabeleland South, is located 16 km from the mine and is approximately 197 km north north-west of the South African border post of Beit Bridge. &nbsp;The mine is situated in the Gwanda Greenstone Belt from which gold was first produced in the 1800&#146;s. &nbsp;Blanket holds extensive exploration properties throughout this belt. The Blanket mine property was first pegged in 1904 with mining and metallurgical plant operations starting in 1906 and has since produced over a million ounces of gold. &nbsp;</P>
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<P style="line-height:13pt; margin-top:2.133px; margin-bottom:2px; font-size:11pt" align=justify><B>Geological Setting</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Like most of the gold mines in Zimbabwe, Blanket is situated in a typical greenstone terrain, the 70 km long by 15 km wide Gwanda Greenstone belt. &nbsp;This terrain comprises supra crustal metavolcanic rocks similar to those found in the Barberton area of South Africa and the Abitibi area of Canada. &nbsp;The Blanket property is the largest of the three remaining large gold producers, from a belt that has given rise to no less than 268 gold mines. &nbsp;</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Property Geology</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Blanket mine is part of the group that makes up the North Western Mining camp also called the Sabiwa group of mines extending from Jethro to the south, through Blanket itself, &nbsp;to the currently defunct Feudal, AR South, AR Main, Sheet, Eroica and Lima mines. &nbsp;Gold showings from Sabiwa, Jean, Provost, Redwick, Old Lima and Smiler form a northern continuation of the Vubachikwe property where gold is hosted by banded iron formations.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The geological sequence strikes north-south, dips vertically and consists, from east to west, of a basal felsic unit which is not known to carry mineralization. &nbsp;It is generally on this lithology type that the various tailings disposal sites are located. Above this unit is the ultramafic unit that includes the banded iron formations hosting the eastern dormant cluster of mines and the ore bodies of the nearby Vubachikwe mine </P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>4</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>complex. &nbsp;The active Blanket ore bodies are found on the next unit, the mafics. &nbsp;An andesitic unit which lies to the west, caps this whole stratigraphy. &nbsp;A regional dolerite sill cuts the entire sequence from Vubachikwe through Blanket to Smiler. Ore bodies at Blanket are epigenetic and are associated with a later, regionally developed deformation zone characterized by areas of high strain, wrapping around relatively undeformed remnants of the original basaltic lava flows. &nbsp;It is within the higher strain regime (highly sheared rocks) that the wider of the ore bodies is located.</P>
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<P style="line-height:14pt; margin:0px; font-family:Times; font-size:12pt" align=justify><B>Summary of Reserves and Resources at Blanket Mine at December 31, 2008 </B></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=248.133></TD><TD width=113></TD><TD width=113.4></TD><TD width=141.733></TD></TR>
<TR><TD style="border:3px solid #000000" width=616.267 colspan=4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>MINERAL RESERVES </B>( at a Gold price of US$750/oz)</P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Classification</B></P>
</TD><TD style="border-right:1px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Tonnes</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Grade Au g/t</B></P>
</TD><TD style="border-right:2px solid #000000; border-bottom:1px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Gold Content (oz)</B></P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-top:2px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>Proven Ore</B></P>
</TD><TD style="border-top:2px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=113><P>&nbsp;</P></TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113.4><P>&nbsp;</P></TD><TD style="border-right:2px solid #000000; border-bottom:1px solid #000000" width=141.733><P>&nbsp;</P></TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000; border-bottom:2px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify>Total Proven Ore including Pillars</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>1,295,000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>3.88</P>
</TD><TD style="border-right:2px solid #000000; border-bottom:2px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>161,400</P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>Probable Ore</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113><P>&nbsp;</P></TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113.4><P>&nbsp;</P></TD><TD style="border-right:2px solid #000000; border-bottom:1px solid #000000" width=141.733><P>&nbsp;</P></TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000; border-bottom:2px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify>Operating and Development Areas</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>2.498,000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>3.78</P>
</TD><TD style="border-right:2px solid #000000; border-bottom:2px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>303.400</P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000; border-bottom:3px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>Total Proven </B>and<B> Probable Ore</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:3px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>3,793,000</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:3px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>3.81</B></P>
</TD><TD style="border-right:2px solid #000000; border-bottom:3px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>464,800</B></P>
</TD></TR>
<TR><TD style="border-left:3px solid #000000; border-right:3px solid #000000; border-bottom:3px solid #000000" width=616.267 colspan=4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>MINERAL RESOURCES</B> (at a Gold price of US$750/oz)</P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Classification</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Tonnes</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Grade Au g/t</B></P>
</TD><TD style="border-right:2px solid #000000; border-bottom:1px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center><B>Gold Content (oz)</B></P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:2px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>&nbsp;Indicated</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>&nbsp;&nbsp;&nbsp;531,500</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>3.91</P>
</TD><TD style="border-right:2px solid #000000; border-bottom:2px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>66,800</P>
</TD></TR>
<TR><TD style="border-left:2px solid #000000; border-right:1px solid #000000; border-bottom:2px solid #000000" width=248.133><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>Inferred</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>2,467,000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:2px solid #000000" width=113.4><P style="line-height:14pt; margin:0px; font-size:12pt" align=center>5.27</P>
</TD><TD style="border-right:2px solid #000000; border-bottom:2px solid #000000" width=141.733><P style="line-height:14pt; margin:0px; font-size:12pt" 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=361.133 colspan=2><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify>Tonnages and ounces are rounded to the nearest 100</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P>&nbsp;</P></TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=141.733><P>&nbsp;</P></TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=616.267 colspan=4><P style="line-height:14pt; margin:0px; font-size:12pt" align=justify><B>Note **</B> &nbsp;In keeping with the requirements of NI 43-101, Inferred Resources are reported without estimates of metal quantities. &nbsp;&nbsp;&nbsp;&nbsp;</P>
</TD></TR>
</TABLE>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:96px; text-indent:-48px; font-size:12pt" align=justify>(i)</P>
<P style="line-height:14pt; margin:0px; padding-left:96px; font-size:12pt" align=justify>1 tonne = 1,000 kilograms = 2,204.6 pounds</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:96px; text-indent:-48px; font-size:12pt" align=justify>(ii)</P>
<P style="line-height:14pt; margin:0px; padding-left:96px; font-size:12pt" align=justify>1 ounce &nbsp;= 31.1035 grammes</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:96px; text-indent:-48px; font-size:12pt" align=justify>(iii)</P>
<P style="line-height:14pt; margin:0px; padding-left:96px; font-size:12pt" align=justify>g/t = gold grade in grammes per tonne</P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:96px; text-indent:-48px; font-size:12pt" align=justify>(iv)</P>
<P style="line-height:14pt; margin:0px; padding-left:96px; font-size:12pt" align=justify>Some numbers may not add due to rounding</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Mr. David Grant, C. Geol, FGS, Pr. Sci. Nat., an independent consultant is the &#147;Independent Qualified Person&#148; for Blanket&#146;s reserves and resources as required by National Instrument 43-101 of the Canadian Securities Administrators.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; font-size:11pt" align=justify><B>Production Operations</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Mining</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The production of gold was suspended due to lack of payment of a considerable portion of Blanket&#146;s previous gold production by RBZ and will only re-commence once all the new regulatory permissions are received and the economic, regulatory and political environment is considered stable and sustainable. &nbsp;During the period of temporary suspension Blanket retained about 500 staff members on full pay and benefits so as to retain scarce skills in the anticipation of an early resumption of production.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Prior to the suspension of activities the underground workings produced approximately 400 tonnes of ore daily using a long-hole open stoping method. &nbsp;&nbsp;Ore is trammed to one of a number of shafts and hoisted to surface. &nbsp;It is anticipated that the No. 4 shaft expansion program could be completed over a 10 &#150; 12 month period once gold production has resumed, subject to the availability of either sufficient internally-generated cash and/or external debt funding. &nbsp;The expansion project will increase and streamline the overall hoisting capacity of the mine so that the plant can be fed at a rate of 1,000 tonnes per day, 7 days a week from the ore stockpile and feed bin.</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="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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="line-height:13pt; margin:0px; font-family:Times; font-size:11pt" align=justify><B>Metallurgical Process </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The present crushing and milling circuit is being expanded from 600 tonnes per day to 1,000 tonnes per day ore throughput capacity to handle the planned increase in mine production from the No 4 shaft expansion project.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Run of mine (&#147;ROM&#148;) ore is crushed on surface to minus 12mm in the 3-stage crushing circuit. &nbsp;This material is then fed into two 1.8m by 3.6m rod mills where it is milled down to approximately 70% passing 75 microns, before being passed through two 30 inch Knelson Gravity Concentrators where approximately 49% of total gold production is recovered as gravity gold. &nbsp;The Knelson Concentrator tails are pumped through cyclones whose underflow reports to a 3.66m by 4.9m, 750 kW regrind ball mill. &nbsp;The products from the cyclone overflow and the regrind mill are pumped into a carbon-in-leach (&#147;CIL&#148;) plant consisting of eight, 600 cubic meter leach tanks each equipped with 45 kW mixers where alkaline-cyanide leaching at 50% solids and simultaneous absorption of dissolved gold onto activated carbon takes place. &nbsp;Elution of the gold from the loaded carbon and subsequent electro-winning is done on site. &nbsp;Du
ring electro winning the gold is deposited on wire wool cathodes, the loaded cathodes are acid-digested and the resultant gold solids from acid digestion and the gold concentrate from Knelson Concentrate tailings are smelted after which the gold bullion was delivered, as then required by Zimbabwean law, to the Government-operated Fidelity for sampling and payment. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The CIL plant has a design capacity of 3,800 tonnes of milled ore per day, from its previous use for reclaimed tailings processing. The plant tailings are reduced in cyanide content and deposited on two licensed tailing impoundment areas sited close to the plant. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:28.4px; text-indent:-28.4px; font-size:11pt" align=justify><B>4</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; padding-left:28.4px; font-size:11pt" align=justify><B>DISCONTINUED OPERATIONS</B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>Eersteling Gold Mining Company Limited</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The previously announced sale of Eersteling Gold Mine was terminated when the buyer failed to raise the necessary finance. &nbsp;The mine continues to be disclosed as &#147;held for sale&#148; as the Board&#146;s decision to sell remains intact. &nbsp;No impairment has been made against the carrying value as the previously offered price was significantly higher than the carrying value and the Corporation has recently rejected a purchase offer also in excess of the carrying value. &nbsp;A new interested party has signed a confidentiality agreement and is currently conducting its due diligence investigation on Eersteling. &nbsp;Further parties have shown interest and are currently proving their financial credentials to our financial advisors, ABSA Capital. &nbsp;It is expected that the Eersteling mine will be sold during 2009.</P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>5. &nbsp;&nbsp;&nbsp;&nbsp;MARKETING</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Up to the October 2008 suspension of gold production at Blanket the gold bullion produced was delivered to Fidelity in Harare and sold under various methods of election, more fully described in Section 6 below. &nbsp;In terms of the new RBZ monetary policy announcements made in January 2009 and on March 20, 2009, and the National Budget Presentation of March 18, 2009 Blanket will be entitled to export and sell its entire gold production in its own name. &nbsp;&nbsp;Blanket&#146;s chosen refiner or purchaser will pay the sale proceeds directly into Blanket&#146;s FCA held with a Zimbabwe commercial bank. The Ministry of Finance and the RBZ have also lifted many of the exchange control restrictions that prevented Blanket from completing its Number 4 Shaft expansion program, and operating and expanding the mine to its full potential. &nbsp;Blanket has applied for all the necessary dealer and export licenses so that it can operate within the n
ew legislation. &nbsp;The Corporation has extensive experience in production and marketing of gold products from its Barbrook, Eersteling and previously owned Spanish operating mines.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>6. &nbsp;&nbsp;&nbsp;&nbsp;KEY PERFORMANCE FACTORS </B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>During 2008, the USD gold price per ounce continued to strengthen but Blanket&#146;s ability to benefit from this was restricted by the RBZ rules relating to gold sales and which resulted in severely curtailed gold production during 2008. &nbsp;For the first 9 months of 2008 Blanket delivered gold to Fidelity but did not receive any significant US dollar sales revenue from the RBZ. &nbsp;As at December 31, 2008 the RBZ owed </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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; font-size:11pt" align=justify>Blanket $3,416,892 ( fair value $2,890,000) which includes accrued interest at 8% as at December 31, 2008 and which is accrued from the date on which payment should have been made for previous gold deliveries. &nbsp;Due to the critical lack of payment by RBZ, Blanket&#146;s stocks of essential consumables and spares had been depleted and as these could not be replenished to sustain gold production, the mine was forced to temporarily suspend gold production as announced by the Corporation on October 23, 2008. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The negotiations with Mitsubishi on the PGE Joint Ventures (&#147;JV&#146;s&#148;) have progressed successfully and it is anticipated that a Shareholders Agreement on the Rooipoort PGE JV Project will be the first of two Agreements to be signed once the DME requirements on BEE are finalized. Administrative delays have prevented the signing of the Mapochs JV.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:11.133px; font-size:11pt" align=justify><B>7. &nbsp;&nbsp;&nbsp;&nbsp;SELECTED ANNUAL INFORMATION - </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The following information is given for the last three fiscal year-ends of the Corporation: </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=340.867></TD><TD width=82.8></TD><TD width=85.067></TD><TD width=85.067></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=340.867><P style="margin-top:0px; margin-bottom:11.133px" align=justify><B>C$000&#146;s except for earnings per share amounts.</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:normal; margin:0px; font-size:11pt" align=center><B>December 31, 2008</B><FONT style="font-size:8pt"><B><SUP>(1)</SUP></B></FONT></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:normal; margin:0px; font-size:11pt" align=center><B>December 31, 2007 </B><FONT style="font-size:8pt"><B><SUP>(1)</SUP></B></FONT></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:normal; margin:0px; font-size:11pt" align=center><B>December 31, 2006 </B><FONT style="font-size:8pt"><B><SUP>(1)</SUP></B></FONT></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Net sales or total revenues</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>7,696</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>10,039</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>13,586</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Net (loss) income from continuing operations:</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>- per share basic and diluted continuing operations</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(4,285)</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=right>($0.009)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(3,906)</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=right>($0.008)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>2,315</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=right>$0.005</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt">Discontinued &nbsp;Operations</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(655)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(709)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(7,990)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt">Net loss</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(4,940)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(4,615)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(5,675)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>&nbsp;- per share basic and diluted </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>($0.010)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>($0.009)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>($0.013)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt">Comprehensive loss</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(4,880)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(4,703)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>(5,675)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Total assets</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>23,298</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>29,492</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>31,456</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Total long-term liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>1,153</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>1,054</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>1,221</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=340.867><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Cash dividends declared per share</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=82.8><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>Nil</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>Nil</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=85.067><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>Nil</P>
</TD></TR>
</TABLE>
<P style="margin:0px; padding-left:18.933px" align=justify>&nbsp;(1) Figures have been reclassified to reflect the Barbrook and Eersteling Mines under Discontinued Operations.</P>
<P style="margin:0px; padding-left:18.933px" align=justify>The above data was prepared in accordance with Canadian Generally Accepted Accounting Principles.</P>
<P style="line-height:11.55pt; margin:0px; padding-left:18.933px" align=justify>The results for 2008 and prior years have been presented on the basis that Barbrook (2007 and 2006)
and Eersteling Mines are discontinued operations and were classified as assets for sale.</P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt">Despite there being no gold production in Q4, 2008, Blanket achieved an operating profit of $3,258,000 for the year ($294,000 &#150; 2007 and $5,014,000 &#150; 2006) on gold sales of 8,364 ounces (13,985 &#150; 2007). &nbsp;&nbsp;No comparative ounces are quoted for 2006 as Blanket was only consolidated from July 1, 2006.</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>The reduced sales revenues in 2008 are as a result of Blanket suspending gold production in October. &nbsp;Total gold production for the year was 7,687 ounces (13,299 ounces 2007). &nbsp;During 2008 Blanket was required to sell all gold produced to Fidelity for proceeds in the ratio of 65% in US dollars and 35% in Zimbabwe dollars (&#147;Z$&#148;). &nbsp;Due to the hyperinflationary environment the interbank exchange rate used to convert the 35% to Zimbabwe dollars resulted in the Z$ proceeds being dramatically undervalued and resulted in the blend rate of exchange for sales as set out in the table below.</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>The loss of $4,940,000 includes a number of unusually large items, namely realized loss on the sale of Barbrook Mine of $364,000, an unrealized foreign exchange loss of $1,876,000 ($1,012,000 - 2007 and a gain $143,000 &#150; 2006), write offs on mineral properties of $1,168,000 ($750,000 &#150; 2007 and $Nil &#150; 2006), equity-based compensation expense of $862,000 ($51,000 &#150; 2007 and $66,000 &#150; 2006) and write down of the RBZ Bond of $526,000 ($Nil &#150; 2007). &nbsp;The loss on the sale of Barbrook was attributable to a change in exchange rates on intercompany loan accounts and the fact that the purchase price of R70,000,001, for the share capital and loan accounts, was fixed in South African Rand. &nbsp;Of the unrealized exchange loss of $1,876,000 the unrealized exchange loss at Blanket was $1,899,009 ($1,827,000 &#150; 2007 and $243,000 gain &#150; 2006). &nbsp;Also included in the loss of $4,940,000 is interest receiv
ed of $488,000 of which $180,443 is attributable to Blanket and the balance is interest received on the proceeds on the sale of Barbrook. The interest received by Blanket is an interest accrual based on the Bond created by RBZ in respect of the </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>outstanding gold payments owed to Blanket.</P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>Interest paid amounted to $103,000 and was as a result of Blanket Mine requiring occasional working capital finance, obtained in Z$ whilst waiting for payments from RBZ. </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>The loss on discontinued operations includes Barbrook for four months as the purchaser carried all costs during the six week extension period granted up to May 31, 2008 when the purchase price was paid in full and $364,000 being the loss on the sale of Barbrook Mine..</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During the year, the quarterly results (&#147;Q&#148;) of Blanket Mine have been translated into C$ using the rates of exchange (&#147;ROE&#148;) per the table below. The huge disparity in Q3 resulted from the RBZ slashing 10 zeros from the currency in August 2008.</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=198.467></TD><TD width=75.6></TD><TD width=75.6></TD><TD width=113.4></TD><TD width=85></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Z$&#146;s per C$1</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="line-height:13pt; margin:0px; font-size:11pt" align=center><B>Q4 ROE</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="line-height:13pt; margin:0px; font-size:11pt" align=center><B>Q3 ROE</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>Q2 ROE</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>Q1 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=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Sales revenue</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>48</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>333,670,326</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>4,877,709</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Other income statement items</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>2,234,808</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>53</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>3,736,329,101</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>10,019,210</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Monetary assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>6,575,238</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>122</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>10,631,984,967</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>22,960,635</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>All other assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=75.6><P style="line-height:13pt; margin:0px; font-size:11pt" 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="line-height:13pt; margin:0px; font-size:11pt" align=right>101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=113.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>101.19</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=85><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>101.19</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The use of the above rates is a change in estimate, and the rates are determined as follows:</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=198.467></TD><TD width=425.267></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Sales Revenue</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=425.267><P style="line-height:13pt; margin:0px; text-indent:1.133px; font-size:11pt" align=justify>The actual rate of exchange received on gold sales depending on the sale method chosen</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Other income statement items</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=425.267><P style="line-height:13pt; margin:0px; text-indent:1.133px; font-size:11pt" align=justify>The average effective rate of exchange determined by the gold support price during the quarter </P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Monetary assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=425.267><P style="line-height:13pt; margin:0px; text-indent:1.133px; font-size:11pt" align=justify>The quarter end effective rate of exchange determined by the gold support price during the quarter </P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=198.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>All other assets and liabilities</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=425.267><P style="line-height:13pt; margin:0px; text-indent:1.133px; font-size:11pt" align=justify>Historic rate determined at July 1, 2006</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During 2008, the Corporation invested $2,713,000 in capital assets and mineral properties ($3,250,000 in 2007 and $3,579,000 in 2006). &nbsp;&nbsp;Of the amount invested in 2008, Blanket Mine accounted for $91,000, Nama accounted for $2,370,000 and Rooipoort accounted for $163,000. During the year $1,119,000 ($4,380,000 in 2007 and $7,559,000 in 2006) was raised from private placements, all net of issue costs.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The basic net loss per share, <A NAME="OLE_LINK1"></A><A NAME="OLE_LINK2"></A>for continuing operations, of $0.009 ($0.008 loss in 2007, $0.005 profit in 2006) has been calculated using a weighted average number of shares of 498,450,650 (477,930,290 for 2007 and 423,838,628 for 2006). </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation had related party transactions with several of its Directors relating to their fees, compensation and premises leased from a company owned by members of the President&#146;s family in fiscal years 2008, 2007 and 2006. &nbsp;&nbsp;Payments made in 2008 were significantly higher than in previous years as all Directors had agreed to defer their fees and expenses through 2005, 2006, and 2007 against the Corporation until adequate funds were available. &nbsp;&nbsp;These payments are detailed below. &nbsp;Related party transaction payments to the Directors will be significantly lower during 2009 as most arrears were settled in 2008.</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=472.533></TD><TD width=56.667></TD><TD width=56.733></TD><TD width=47.267></TD></TR>
<TR><TD style="border-right:1px solid #000000" valign=top width=472.533 rowspan=2><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=56.667><P style="margin:0px; font-size:11pt" align=center><B><U>2008</U></B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=56.733><P style="margin:0px; font-size:11pt" align=center><U>2007</U></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=47.267><P style="margin:0px; font-size:11pt" align=center><U>2006</U></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=center><B>$</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=center><B>$</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=center><B>$</B></P>
</TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=472.533><P style="margin:0px" align=justify>Fees and allowances paid to a Corporation which provides the services of the Corporation's President</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>635<SUP>(1)</SUP></B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>560</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>534</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=472.533><P style="margin:0px" align=justify>Rent for office premises 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" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>43</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>46</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>47</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=472.533><P style="margin:0px" align=justify>Interest paid to directors on outstanding fees and expenses</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>4</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>-</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=472.533><P style="margin:0px; text-indent:1.467px" align=justify>Consulting fees paid to Directors</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>65</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>133</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>-</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=472.533><P style="margin:0px; text-indent:1.467px" align=justify>Legal fees paid to a law firm where a Director is a partner</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>117</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>85</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>42</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=472.533><P style="margin:0px; text-indent:1.467px" align=justify>Fees, allowances and interest paid to the Chairman of the Board net of accruals</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.667><P style="margin:0px; font-size:11pt" align=right><B>334</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=56.733><P style="margin:0px; font-size:11pt" align=right>46</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=47.267><P style="margin:0px; font-size:11pt" align=right>44</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><SUP>(1)</SUP>Included in this amount is $63 back pay for prior years.</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation has entered into a management agreement with Epicure Overseas S.A. (&#147;Epicure&#148;), a Panamanian corporation , for management services provided by the President. &nbsp;The Corporation is required to pay a base annual remuneration adjusted for inflation and performance bonuses set out in the agreement. In the event of a change of control of the Corporation, Epicure can terminate the agreement and receive a lump sum payment equal to 200% of the remuneration for the year that the change occurs.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>On January 31, 2005, the Corporation entered into an agreement (the &#147;Chairman&#146;s Agreement&#148;) with the Corporation&#146;s Chairman for services as the non-executive Chairman of the board of directors of the Corporation. &nbsp;The Chairman&#146;s Agreement provides for the payment of an annual fee and a fee for services provided by the Chairman. &nbsp;The Chairman&#146;s Agreement provides that the fees will be reviewed annually by the Chairman and the Corporation&#146;s compensation committee with the object that the parties will bona fide negotiate any changes in the fees. &nbsp;No such reviews subsequent to the above date have been made by the Chairman and the compensation committee.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>8.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; text-indent:48px; font-size:11pt" align=justify><B>OPERATIONAL REVIEW AND RESULTS OF OPERATIONS</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:14.667px; font-size:11pt" align=justify>The plans for the non-revenue generating exploration projects continue to be determined by the availability of funds and are more fully described below.<A NAME="OLE_LINK4"></A><A NAME="OLE_LINK5"></A></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>8.1 </B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; text-indent:37.8px; font-size:11pt" align=justify><B>Gold Production </B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:14.667px; font-size:11pt" align=justify><B>Blanket Mine &#150; Zimbabwe</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Due to the RBZ&#146;s inability to promptly pay Blanket for gold delivered, Blanket was forced to deplete its stocks of spare and consumables essential for the continued operation of the mine and the plant, and when these could no longer be replenished, gold production at Blanket Mine was temporarily suspended in October 2008. &nbsp;The operational statistics reported below therefore refer to the period from January 1<SUP>st</SUP> to September 30<SUP>th</SUP>, 2008.</P>
<P style="line-height:13pt; margin-top:4.867px; margin-bottom:4.867px; font-size:11pt" align=justify><B>&nbsp;</B></P>
<P style="line-height:13pt; margin-top:4.867px; margin-bottom:4.867px; font-size:11pt" align=justify><B>Safety, Health and Environment</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The mine had a good year from a safety perspective in that no lost time injuries (4 -2007) were recorded during the period while 5 restricted work activity cases occurred during the period (4 -2007). &nbsp;Incidents however increased to 61 (39 - 2007), and near misses increased to 39 (5 &#150; 2007) due largely to a campaign to report all safety incidents irrespective of their seriousness. &nbsp;Intensive safety training continues under the National Occupational Safety Association (&#147;NOSA&#148;). &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>An occupational health centre is established on site and all employees are screened for occupational ailments. &nbsp;There were no occupational health illnesses detected during the year. &nbsp;HIV/AIDS continues to be an area of concern and management has continued to put in place awareness programs to educate workers. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Mine continues to monitor the ground water in the ground-water pumping wells downstream of the tailings impoundment areas. Results continue to be well within the Governmental Environmental Management Agent (&#147;EMA&#148;) minimum levels. &nbsp;Re-grassing of the slopes on Dam B is ongoing. &nbsp;Blanket Mine has retained the yellow category rating received from the EMA for the slimes dam and management continues to strive for achievement of the highest (&#147;green&#148;) safety category.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Capital Projects</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>Number 4 Shaft Expansion Project</I></B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>This project was suspended through most of 2008 due to the lack of foreign currency. &nbsp;As the debt owed by RBZ has been converted into a Bond (refer section 2.1) which matures on January 31, 2010, the expansion program which involved the deepening and upgrading of the No. 4 shaft and the expansion and upgrading of the crushing/milling section of the plant will have to be financed out of current cash flow, borrowings and/or by selling some or all of the Bond. &nbsp;Capital works remaining to complete the No.4 Shaft Expansion Project &nbsp;include the equipping of loading and ore bin arrangements at the shaft bottom and the installation </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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="line-height:13pt; margin:0px; font-size:11pt" align=justify>of a crusher and conveyor system underground to reduce the size of the ore underground in order to maximize the hoisting capacity.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>This shaft expansion project is designed to facilitate the increase in underground production from 600 tonnes per day (&#147;tpd&#148;) to over 1,200 tpd. &nbsp;&nbsp;This increased mining tonnage and the plant crushing/milling expansion should enable the total gold recovered to increase from 25,000 oz to 40,000 oz per annum from the milling and processing of 1,000 tpd in the plant during a 7-day per week continuous plant operation. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The anticipated remaining cost for the completion of the No 4 Shaft Expansion Project is currently estimated at US$ 2.3 million</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>Operations</I></B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During the first 9 months of 2008 absenteeism, power supply problems, and the consistent withholding of foreign currency by the RBZ severely limited Blanket&#146;s ability to restore production to the sustainable 600 tpd level. There was no production during the fourth quarter as lack of payments for gold delivered to Fidelity forced the mine to temporarily suspend gold production as spare parts and consumables stocks were depleted and could not be replenished.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Gold production has averaged below 1,000 ounces per month since underground mining operations were resumed in July 2007 compared to the pre-shaft expansion target of 2,100 ounces per month due entirely to lack of payment for gold sold to the RBZ, the resultant lack of consumables and spare parts and disruptions in the electrical supply.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Foreign currency shortages have affected all aspects of production from mined volumes to the plant availability, in particular the crushing and screening plant and the CIL &nbsp;sections due to the inability to purchase critical wearing parts and maintenance spares. &nbsp;</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=209.333></TD><TD width=94.533></TD><TD width=71.933></TD><TD width=71.933></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=303.867 colspan=2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Production results for year to December 2008</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>2008<B>*</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>2007</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ore mined</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Tonnes</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>81,688</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>100,082</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Development advance (ROM)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Meters</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>472</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>669</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Development advance (Capital)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>meters </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>504</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ore milled</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Tonnes</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>81,688</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>100,082</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ore Gold Grade milled</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>grams/tonne</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>3.33</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>3.58</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ore &#150; Gold Recovered</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>7,687</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>9,885</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Sands Processed</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Tonnes</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>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=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Sands Grade</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>grams/tonne</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>1.29</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Sands Gold Recovered</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>-</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>3,414</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Gold produced</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>7,687</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>13,299</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=209.333><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Gold Sold</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=94.533><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Ounces</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>8,364</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.933><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>13,985</P>
</TD></TR>
</TABLE>
<P style="line-height:13pt; margin:0px; text-indent:96px; font-size:11pt" align=justify><B>* &nbsp;</B>Production was temporarily suspended in October 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>Outlook</I></B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The aims and objectives of Blanket Mine for 2009 are to: </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>focus employee and management attention and effort on issues of safety, health and environment and training; </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>acquire all the necessary permissions to be able to implement the revised rules relating to gold sales as announced by RBZ in the January Monetary Policy Statement;</P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>market the RBZ Bond thereby increasing the working capital;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>complete the No. 4 shaft project in order to realize the planned increase in ore milled to 1,000 tonnes per day and gold production to 3,330 ounces of gold per month;</P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" 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:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>fast track underground development initiatives in order to open up sufficient reserves to sustain the planned increase in ore production and access to new ore resources;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>explore ways of controlling input costs in the newly dollarized Zimbabwean economy;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>explore ways of retaining and attracting key staff;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>formulate a development strategy for the exploration properties in the Gwanda Greenstone Belt; and</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>focus on off-mine exploration to supply additional ore to the plant.</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="line-height:13pt; margin-top:0px; margin-bottom:7.333px; font-size:11pt" align=justify><B>8.2 &nbsp;&nbsp;&nbsp;&nbsp;Exploration and Project Development</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>COBALT AND BASE METALS </B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>Nama Cobalt Project &#150; Zambia</B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>&nbsp;</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>Property</I></B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>Caledonia Nama Limited (&#147;Nama&#148;), a wholly owned subsidiary of the Corporation, has been granted four contiguous 25 year Large Scale Mining Licenses in northern Zambia on which near-surface cobalt/copper and cobalt/iron mineralization zones have been discovered. This area lies immediately northwest of the operating Konkola Copper mine and adjoins the extensive land holdings of the newly established joint venture between Vale and African Rainbow Minerals and which were formerly held by Teal Mining and Exploration Limited. &nbsp;&nbsp;These Mining Licenses consist of four separate licenses covering an area of approximately 800 square kilometers and requires that mining be commenced in the area within two years.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The Zambian Development Agency has also granted Nama a 10 year investment license which provides for 10 years of income tax concessions which range from 100% exemption for the first 5 years, 50% exemption for years 6, 7 and 8 and 25% exemptions for years 9 and 10, together with Duty and VAT exemptions and deferrals on imported equipment and materials.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Zambian government recently announced further changes to the basis on which projects such as Nama will be taxed in Zambia. &nbsp;Whilst the abolition of windfall tax is welcome, at prevailing cobalt prices, it has little benefit for the project. &nbsp;We note that the royalty remains unchanged at 3% and we make the observation that at low cobalt prices, the royalty can give rise to a very significant tax burden on the project. &nbsp;Nama has suggested to the Ministry of Mines and Minerals Development that the imposition of the royalty be deferred until capital costs and interest have been repaid and that the royalty percentage to be levied should be calculated on a sliding scale to take into account the average metal prices prevailing during the quarter (i.e. the actual period of the past three months) </P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>Work Completed</I></B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Details of previous exploration work completed on Nama can be found in the MD&amp;A attached to our previous Annual Financial Statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Based on the results of the 2007 drilling program at the Anomaly area &#147;D&#148;, a Technical Report was prepared in order to quantify the resource and gain as much information as possible on this cobalt/iron-rich area prior to further drilling being undertaken. The Technical Report filed on Sedar in May 2008 was prepared by Mr. Grant and is compliant with NI 43-101. Mr. Grant estimates an Indicated Resource at D as 9,197,000 tonnes at a grade of 0.165% Co, 0.067% Cu and 0.050% Ni. &nbsp;While it appeared logical to link the near surface mineralization with a deep zone located to the north, the lack of drilling between the two zones prevented the deeper material being included in the Indicated Resource category. An upgrade in the resource category was therefore a priority for the 2008 drilling program. </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>11</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><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:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The 2008 drilling program commenced during the second quarter of the year, the primary objectives of the program being to improve the definition of the D resource body as well as a new Co-Cu discovery at Konkola West. &nbsp;In view of the requirement for detailed information on the physical nature of the material as well as the metal grades and content, all holes were diamond cored. The drilling program provided additional information on the shape, mineralogical characteristics, depth variations, rock engineering characteristics and internal dilution of the resource bodies. &nbsp;</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>&nbsp;</P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=71.467></TD><TD width=154></TD><TD width=124.667></TD><TD width=274.2></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><U>Anomaly</U></B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><U>Diamond Drill Holes</U></B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><U>Meters Drilled</U></B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><U>Comment</U></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=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>D</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>18</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>2,058</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Resource body D &#150; Fe-rich &nbsp;material</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>KW</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>13</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>1,754</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Konkola West Fe-rich body</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>LW</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>&nbsp;4</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=center>1,073</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Luamfula magnetic body</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>KN</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><U>&nbsp;4</U></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><U>&nbsp;&nbsp;907</U></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Kauni magnetic body</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=71.467><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Total</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=154><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>39</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=124.667><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>5,792</B></P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=274.2><P>&nbsp;</P></TD></TR>
</TABLE>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The diamond drill core was logged and split on site prior to dispatch to SGS Lakefield, an accredited analytical laboratory in Johannesburg, South Africa for analysis of cobalt, copper, nickel, iron and zinc. &nbsp;Quality Control and Quality Assurance control procedures were put in place to verify the accuracy of the drill core splitting, continuity of a handling and the laboratory analysis results.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Resource Body D</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The D-type material is essentially a mixture of hematite and magnetite with iron contents typically above 60%. &nbsp;A variety of hydrometallurgical and pyrometallurgical processes have been &nbsp;tested on D-type mineralization to extract cobalt selectively but the programs met with limited success. &nbsp;The pyrometallurgical test work on D-type mineralization was initially focused on extracting cobalt selectively but cobalt was found to be too complexly bound with iron and not readily extractable. &nbsp;Subsequent test work indicated that the production of ferro-cobalt and a high grade pig-iron was more likely to be an economic process route. &nbsp;Typically, a pyrometallurgical process is capital intensive and would only be viable if based on a sufficiently large resource base to provide high volume, long-life operations. &nbsp;A project on the basis of pyrometallurgical processing of D-type ore will therefore be in addition to or an a
lternative to the hydrometallurgical processing of oxide ores to produce cobalt hydroxide. &nbsp;A feasibility study for a pyrometallurgical plant to treat the high-iron &#147;D-Type&#148; mineralization is dependent on, inter alia, the definition of sufficient tonnage to support at least 25 years of production at the design capacity, resolution of logistic challenges associated with the economic sale of ferro-cobalt and pig-iron, capital costs and the cost and availability of sufficient electrical power.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>&nbsp;&nbsp;</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Although diamond drilling of the D body was undertaken primarily in order to upgrade the quality of the cobalt resources defined by the 2007 reverse circulation drilling program, it became apparent from the above metallurgical research work that a much larger resource would be required to justify the contemplation of a pyrometallurgical process at D. &nbsp;In addition, the grade of the resource would have to exceed 0.2% cobalt for the process to be able to work effectively. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>A total of 24 diamond drill bore holes were completed in the Resource Body D area. The total length drilled amounts to 2,668 meters, of which approximately 970 meters displayed signs of Co mineralization and were sampled. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Contrary to the earlier expectation that the D body consisted of a laterally continuous uniform zone of cobalt-iron enrichment, the diamond drilling revealed a more complex geology as a result of which the cobalt grades become more erratic with depth and the oxide minerals give way to fresh cobalt-bearing sulphide minerals at depth. Preliminary conclusions can be drawn from this work, viz. a reduction in the total resource owing to the increased amount of lower grade material with depth, and the change in ore character with depth would necessitate using two separate metallurgical processes.</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Notwithstanding the above, the requirement for a pyrometallurgical process to recover cobalt has increased the quantum of resources required to take this new aspect of the project to the feasibility stage. &nbsp;Therefore, </P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>12</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>the preparation and release of a Technical Report compliant with NI 43-101 has been delayed until such time as, inter alia, the resources are sufficient to meet the tonnage and grade requirements of a CFS.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>&nbsp;</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In view of the requirement to increase the quantity of iron-rich Co-bearing resources, the focus of the exploration program during Q4 was shifted to the investigation and exploration of other similar materials. These activities are described under the headings Yembela Clearing, Luamfula West and Kauni below. </P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Konkola West</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Following the location of Co and Cu enrichment in a trench excavated on a geochemical anomaly in the Konkola West area, a thirteen-hole diamond drilling program was completed over the prospect during Q3-Q4 2008. &nbsp;The occurrence is situated close to a position where both Copperbelt-style and D-style mineralization was expected. &nbsp;Assay results have confirmed the existence of a resource body similar in character to Resource Body D but more limited in extent. The mineralization has a lateral continuation of some 500m but the depth continuity is disrupted below 100m from surface. &nbsp;This body is essentially a D type iron-cobalt resource with relatively minor copper mineralization. &nbsp;This body will be incorporated as an addition to the D-type mineralization inventory. &nbsp;The drilling program also confirmed that the true position of the Copperbelt &#147;Ore Shale&#148; mineralization lies some 500m north-east of this Konkola W
est occurrence<B>. </B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Follow up field work aimed at defining the extent of the &#147;Ore Shale&#148; in this area has been successful in that a broad zone approximately 100m wide with abnormally high Co and Cu values has been located in an area covered by deep soil cover. &nbsp;The 2009 Exploration Program currently under way is aimed at linking this zone with Resource Body A which lies approximately 4 km to the north. It is anticipated that drilling will be undertaken in this area during Q2 of this year. &nbsp;&nbsp;Any mineralization encountered in this area will most likely resemble the typical Copperbelt-style mineralization which is more amenable to conventional hydrometallurgical cobalt extraction preferred for the production of cobalt hydroxide.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Yembela Clearing</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Located about 5 km south-west of Resource Body D, the Yembela Clearing consists of an area of iron enrichment with an iron content so high that trees do not grow on the site. &nbsp;An initial assessment of the area based on surface sampling and bore holes drilled by a previous company in 1964 have outlined an iron-cobalt resource body approximately 500m long and 250m wide and approximately 20m deep. &nbsp;The body is the result of surface enrichment in an area of decomposed dolomites. &nbsp;As in the case of Konkola West, this resource is also an additional source of the D-type mineralization inventory. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Luamfula West</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The exploration for iron-rich D-Type bodies referred to above was focused on two targets of high magnetic intensity expected to contain similar concentrations of magnetite to that found at D. &nbsp;Four holes were drilled into this target over a strike length of 6 km. &nbsp;Although widely spaced, the drilling was able to establish that the magnetite giving rise to the magnetic signal was not anomalously enriched in cobalt to the point where a cobalt resource could be defined but, in view of the size of the area, the target has the potential to contribute a large additional tonnage of D-type mineralization to the &nbsp;inventory. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Kauni</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Kauni prospect is defined by a magnetic anomaly similar to that at Luamfula West and, in addition, is the site of a strong cobalt-copper soil geochemical anomaly. &nbsp;During Q4 four diamond drill holes were drilled in this target area over a strike distance of 2 km. &nbsp;Drilling revealed a magnetite-bearing intrusive body similar to that at Luamfula West but which was cut by fractures containing significant cobalt-rich magnetite and copper minerals. &nbsp;In view of the large size of this body, it is not possible with the amount of drilling completed, to connect the fracture zones to define quantifiable cobalt resources. A work program is under way to provide more detailed information on the target area so that the source of the cobalt and Copper in the fractures can be located. &nbsp;Kauni has the potential to contribute a large additional tonnage to the D-type mineralization inventory as well as the more conventional Copperbelt c
opper-cobalt mineralization.</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt"><B>Further Developments</B></P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>13</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>China Nerin has been requested to suspend completion of its work on the CFS relating to the proposed hydrometallurgical extraction of cobalt and the production of cobalt hydroxide pending finalization of revised and additional resource data to support at least 5 years of production at design capacity, finalization of the metallurgical process, and stabilization of the financial market to a point where debt and equity funding of a base metal project is once again feasible on reasonable terms. &nbsp;If a positive CFS is received, discussions with the debt-funders will be recommenced and, if successful, will result in the Nama Project proceeding. &nbsp;The companies with whom we signed five year off-take agreements have been advised of the delays regarding the Nama project and have indicated their continued interest in purchasing product from Nama. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
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<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B><I>2009 Exploration Program</I></B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The 2009 Exploration Program at Nama has two primary aims, namely:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>to define and evaluate the link between Anomaly A (Resource Body A) and the Ore Shale unit of the Copperbelt which is located south of it; and</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>to systematically continue to evaluate the remaining geochemical anomalies.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Work carried out during 2008 in the area south of Resource Body A has established the presence of an ore shale type unit which appears to trend into an area of deep overburden south of the A Body. The fact that the rock sequence at &#147;A&#148; is inverted suggests that only a portion of the mineralised body has been discovered and that a link with the underlying ore shale will reveal further metallurgically amenable cobalt-copper mineralization. Exploration will be focused on this area and deep soil sampling will be used to locate the best positions for drill targets.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Only seven of the initial geochemical anomalies have been followed up to date. The remaining ten anomalies need to be examined and prioritised so that those with the greatest potential are followed up first. In determining the nature of the anomalies, they will be ranked according to style of mineralisation and structure which will enable the exploration team to select the most appropriate targets under the prevailing circumstances. Selected targets will be drilled in the latter period of the 2009 exploration season. </P>
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<P style="margin:0px; padding-left:3.4px; text-indent:-3.4px; font-size:12pt" align=justify><B>PGE&#146;s</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; padding-left:3.533px; text-indent:-3.533px; font-size:11pt" align=justify><B>Rooipoort &amp; Mapochs PGE/Ni/Cu Project - South Africa</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The Rooipoort platinum rights, previously held by Eersteling Gold Mine, have been 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 Rooipoort Joint Venture with Mitsubishi Corporation. &nbsp;Once the shareholders agreement with Mitsubishi has been signed funds will be released to proceed rapidly with the exploration of this area.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Two of the three prospecting rights applied for have been granted to the Corporation to prospect for PGMs on the major portions of the Mapochsgronde tribal trust land and are currently in the process of registration. &nbsp;The remaining property to the north of the current rights is under appeal with the DME and its decision is awaited on this prospecting right as it forms part of the intended second JV with Mitsubishi.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>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 JVs. &nbsp;</P>
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<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>GOLD</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>Zimbabwe Exploration - Gold</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation&#146;s exploration activities in Zimbabwe are conducted by the Blanket Mine&#146;s exploration department. &nbsp;Blanket&#146;s current exploration title holdings in the form of registered mining claims in the Gwanda Greenstone Belt total 78 claims, including a small number under option, covering a total area of 2,500 hectares. &nbsp;There are &nbsp;47 of these claims registered as precious metal (gold) blocks covering 415 hectares and &nbsp;31 claims were pegged and are registered as base metal (Cu, Ni, As) blocks covering a total area of 2,085 hectares. </P>
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<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Blanket&#146;s efforts have been focused in certain key areas in the Gwanda Greenstone Belt (that are within trucking distance of the Blanket plant) such as GG and Mbudzane where it is believed there is the greatest chance of success. A drilling program initiated in late 2005 to probe for down-dip and strike extension mineralization associated with the GG prospect was continued into 2007 with 281m of drilling completed. &nbsp;Two zones of potentially economic gold mineralization have been established. The main exploration activities involved diamond core drilling and the development of a prospect shaft down to the first level aimed at exposing the ore body and providing a bulk sample for metallurgical testing. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Bubi Greenstone Belt ground holding portfolio comprises a total of 27 base metal claims covering a combined total area of 2,820 hectares. &nbsp;&nbsp;Reconnaissance exploration work by soil sampling and geological mapping has been completed in all the claims areas. &nbsp;As soon as the economic climate stabilizes, follow-up work will be carried out to define drill targets within the geochemical anomalies defined by previous work. &nbsp;&nbsp;The work in the Sandy Claims will form part of this detailed follow-up exploration work. &nbsp;</P>
<P style="line-height:13pt; margin-top:7.333px; margin-bottom:0px; font-size:11pt" align=justify>Depending on the political stability and the availability of funds, Blanket&#146;s exploration focus will be centered on the Gwanda area with the main emphasis being delineation of a potentially economic ore resource at the GG prospect and Mbudzane. &nbsp;At GG, this will be achieved through continued core drilling from the surface to establish the strike extent of established economic mineralization as well as by deepening the prospect shaft and extending underground development. At Mbudzane, a second phase core-drilling program has been planned to follow up on several highly prospective deep seated IP-anomalies generated in 2006. </P>
<P style="line-height:13pt; margin-top:7.333px; margin-bottom:0px; font-size:11pt" align=justify>In addition, Blanket is conducting basic reconnaissance exploration work on the Bunny&#146;s Luck claims, the target being to determine the potential strike length of a 1m to 1.5m wide shear zone hosted quartz vein so far mapped over a strike length of 300m. &nbsp;Blanket needs to formulate a development strategy for its outside properties in the Gwanda area in particular and elsewhere in general, in order to prevent forfeiture under the current indigenization proposals.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify><B>DIAMONDS </B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>Kikerk Lake &#150; Canada </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Due to a lack of recent activity on this joint venture the carrying value of $750,000 was written off in 2007, and no further activity has been reported by the joint venture partner.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; padding-left:37.8px; text-indent:-37.8px; font-size:11pt" align=justify><B>Mulonga Plain &#150; Zambia</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation has applied for a retention license over the properties previously managed under the joint venture and awaits the granting of this license from the Zambian Ministry of Mines and Minerals Development. The carrying value of $1,044,000 has been fully written down in 2008 due to lack of activity over the past 2 years and the failure to acquire the retention license.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>Kashiji Plain &#150; Zambia </B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>This license expired in June 2008, however as stated above Caledonia has also applied for retention licenses covering the Kashiji and Lukulu areas. </P>
<P style="margin:0px"><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B>Goedgevonden - South Africa </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Granting of the New Order Prospecting Rights (not yet signed) gives the Corporation security of tenure. Discussions are in progress with other parties with a view to realizing value by joint venture or disposal of the properties in the Goedgevonden Diamond Project. The carrying value of $124,000 has been fully written down in 2008 due to lack of activity.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify><B><I>Outlook </I></B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The outlook for the aforementioned exploration properties is difficult to quantify. &nbsp;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;The recent decreases in the prices of PGM precious and base metals has resulted in a severe contraction of exploration expenditures by mining companies and could affect the likelihood of the </P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>15</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><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="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>Corporation negotiating joint venture agreements for its remaining wholly-owned exploration properties. &nbsp;However, in the longer term, the current contraction in industry-wide exploration may give rise to higher long-term commodity prices when global economic activity recovers.</P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" align=justify>The Corporation intends, where possible, to continue to focus its exploration activities on prospective properties by developing the properties through strategic alliances with senior mining companies and metal producers. </P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>In terms of the South Africa Minerals and Petroleum Resources Development Act (No 28 of 2002) (&#147;MPRDA&#148;) implemented May 1, 2004, all &#147;old order&#148; mineral rights in South Africa are required to be converted to &#147;new order&#148; rights, by a process of re-applying for these rights. Holders of all inactive prospecting and mining rights (immediately preceding May 1, 2004) were required to apply for conversion by April 30, 2005. Active prospecting right conversion applications closed on April 30, 2006 and active mining right conversions close on April 30, 2009. &nbsp;Apart from various technical requirements for conversion, the new legislation requires that companies give attention to the requirements of the <I>MPRDA as</I> defined in Section 2(d) as well the Mining Charter as &#147;s<I>ubstantially and meaningfully expand opportunities for historically disadvantaged persons, including women, to enter the mineral and p
etroleum industries and to benefit from the exploitation of the nation&#146;s mineral and petroleum resources.&#148; &nbsp;</I>The Mining Charter was formulated in negotiations between the Government, the mining industry as largely represented by the Chamber of Mines of South Africa, and organized labor. &nbsp;The Mining Charter seeks to address the implementation of section 2(d) in practical and measurable terms. Lack of clarity as to the status of prospecting under the Mining Charter has led to considerable debate and confusion in terms of the ability of companies involved in early stage prospecting work to meet or even indicate their commitment to meeting the terms of the Mining Charter, even before any sort of mineral resource has been established. &nbsp;This in part has been the cause of considerable delays in processing of the thousands of applications submitted as part of this process. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Zimbabwean economy continues to be depressed but the resuscitation of the mining industry is a high priority of the Government as the ability to generate foreign currency is of paramount importance. &nbsp;Management&#146;s focus is to complete the No. 4 shaft expansion and to bring the mining production up to the 1,000 tpd level. &nbsp;US Dollar-denominated sales proceeds will be used as far as possible to purchase materials and consumables outside Zimbabwe thereby protecting Zimbabwean operations from the very high US-Dollar denominated prices which currently prevail in Zimbabwe. &nbsp;This policy will continue until US Dollar-denominated prices fall so that they are at parity (after adjustment for duty, transport etc) with prevailing prices in the region. &nbsp;Management will, subject to generation of and continued availability of sufficient foreign exchange, re-commence exploration in the areas near the Blanket mine to enable Blank
et to be able to further expand its operations should economic improvements in Zimbabwe occur. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The President of the Republic of Zimbabwe brought the Indigenization and Economic Empowerment Act into law through decree in March 2008. The law seeks to ensure that a majority stake (at least 51%) in all companies is held by Indigenous Zimbabweans. Additionally the Mines and Minerals Amendment Bill was presented before the closure of the last session of Parliament but not passed into law, and has thus lapsed. The Mines and Minerals Amendment Bill if enacted into law also seeks to ensure among other things that a majority stake is held in all mining companies by either indigenous Zimbabweans or the Government of Zimbabwe. &nbsp;Whilst neither of the two pieces of legislation allow for compulsory acquisition, the Mines and Minerals Amendment Bill did provide for severe penalties in the form of extremely prohibitive taxes and potential withdrawal of mineral rights in the event of non voluntary compliance within certain time frames.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In January 2008 the Zambian government announced the following changes to its tax laws that would have had a bearing on the Nama Cobalt Project. &nbsp;The key&nbsp;changes were: </P>
<P style="margin-top:0px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>Increase in mineral royalty from 0.6% to 3%</P>
<P style="margin-top:6.133px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:6.133px; padding-left:48px; font-size:11pt" align=justify>Increase in profit tax rate from 25% to 30%</P>
<P style="margin-top:6.133px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:6.133px; padding-left:48px; font-size:11pt" align=justify>Introduction of variable profits tax of 15% for net profits above 8%</P>
<P style="margin-top:6.133px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:6.133px; padding-left:48px; font-size:11pt" align=justify>Introduction of a windfall profit tax for copper and cobalt mines</P>
<P style="margin-top:6.133px; margin-bottom:-16px; padding-left:48px; text-indent:-24px; font-family:Symbol" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:6.133px; padding-left:48px; font-size:11pt" align=justify>Capital allowances reduced from 100% to 25%</P>
<P style="margin:6.133px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>16</P>
<P style="margin:0px" align=justify><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="line-height:13pt; margin:0px; font-size:11pt" align=justify>These measures were highly controversial with mining companies, many of which invested in the country under specific tax incentives and&nbsp;formalized their business&nbsp;models accordingly. Various representations were made by the mining companies both directly and through the Chamber of Mines to the government following the budget announcement at the end of January 2008. The Zambian government in January 2009 announced further changes to the taxation of mining companies, in particular:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:51.333px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:51.333px; font-size:11pt" align=justify>the abolition of windfall tax </P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:51.333px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:51.333px; font-size:11pt" align=justify>the return of capital allowances back to 100%. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Whilst these changes are welcome, at prevailing cobalt prices, they currently have little benefit for the Nama Cobalt Project. &nbsp;In particular we note that the royalty remains unchanged at 3% and we make the observation that at low cobalt prices, the royalty can give rise to a very significant tax burden on the project. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>9. &nbsp;&nbsp;&nbsp;&nbsp;ENVIRONMENTAL POLICY</B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>The Corporation is committed to maintain the highest environmental standards such that its operations and/or its products do not present an unacceptable risk to its employees, its customers, the public or the environment. The Corporation and its subsidiaries operate under the Corporation&#146;s Environmental Policy that encompasses the following: </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13.55pt; margin-top:0px; margin-bottom:-18.067px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:11.55pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>The Corporation directs its employees and its subsidiary companies to conduct their exploration and operational activities in a professional, environmentally responsible manner, in compliance with all applicable legislation and policies in the jurisdictions in which they undertake business. </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:13.55pt; margin-top:0px; margin-bottom:-18.067px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:11.55pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>The Corporation liaises closely with the applicable government regulatory bodies and the public to optimize communication and an understanding of the Corporation&#146;s activities in relation to environmental protection. </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:13.55pt; margin-top:0px; margin-bottom:-18.067px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:11.55pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>The Corporation is committed to the diligent application of technically proven, economically feasible, environmental protection measures throughout its exploration, development, mining, processing and decommissioning activities. </P>
<P style="line-height:11.55pt; margin:0px" align=justify><BR></P>
<P style="line-height:13.55pt; margin-top:0px; margin-bottom:-18.067px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:11.55pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>The Corporation on a regular ongoing basis monitors its environmental protection management programs to ensure their compliance with the applicable regulatory requirements. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>It is the responsibility of all the employees of the Corporation and its subsidiaries to carry out their employment activities in accordance with this code of practice. Operational line management has the direct responsibility for regular environmental protection management. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:37.8px; text-indent:-37.8px; font-size:11pt" align=justify><B>10.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; padding-left:37.8px; text-indent:10.2px; font-size:11pt" align=justify><B>SUMMARY OF QUARTERLY RESULTS - </B>(C$ 000&#146;s<B> </B>- except per share amounts.)</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" 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=181.4></TD><TD width=64.933></TD><TD width=64.933></TD><TD width=64.933></TD><TD width=59.2></TD><TD width=58.8></TD><TD width=58.8></TD><TD width=58.8></TD><TD width=59.2></TD></TR>
<TR><TD style="border:1px solid #000000" width=181.4><P>&nbsp;</P></TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=64.933><P style="margin:0px" align=right><B>Dec</B></P>
<P style="margin:0px" align=right><B>31/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=64.933><P style="margin:0px" align=right><B>Sept 30/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=64.933><P style="margin:0px" align=right><B>June 30/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=59.2><P style="margin:0px" align=right><B>Mar</B></P>
<P style="margin:0px" align=right><B>30/08</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=58.8><P style="margin:0px" align=right><B>Dec</B></P>
<P style="margin:0px" align=right><B>31/07</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=58.8><P style="margin:0px" align=right><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=58.8><P style="margin:0px" align=right><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=59.2><P style="margin:0px" align=right><B>Mar</B></P>
<P style="margin:0px" align=right><B>30/07</B></P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=181.4><P style="margin:0px">Sales from continuing operations</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>29</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=64.933><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" width=64.933><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" width=59.2><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" width=58.8><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" width=58.8><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" width=58.8><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" width=59.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>3,319</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=181.4><P style="margin:0px">Income/(loss) before discontinued operations</P>
<P style="margin:0px">-per share basic and diluted continuing operations</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,066)</P>
<P style="margin:0px" align=right>(0.0041)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,749)</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=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(261)</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=59.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>791</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=58.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>494</P>
<P style="margin:0px" align=right>0.001</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>(855)</P>
<P style="margin:0px" align=right>(0.002)</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>364</P>
<P style="margin:0px" align=right>0.001</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(3,909)</P>
<P style="margin:0px" align=right>(0.009)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=181.4><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=64.933><P style="margin:0px" align=right>(531)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>(30)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>(24)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right>(70)</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>(249)</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>(80)</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>(126)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right>(254)</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=181.4><P style="margin:0px">Net Income/ (loss) after discontinued operations</P>
<P style="margin:0px" align=justify>- per share basic and diluted </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,597)</P>
<P style="margin:0px" align=right>(0.0052)</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(2,779)</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=64.933><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(285)</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=59.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>721</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=58.8><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>245</P>
<P style="margin:0px" align=right>0.001</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>(935)</P>
<P style="margin:0px" align=right>(0.002)</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>238</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=59.2><P style="margin:0px" align=right><BR></P>
<P style="margin:0px" align=right>(4,163)</P>
<P style="margin:0px" align=right>(0.008)</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>17</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>
<BR>
<BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=181.4></TD><TD width=64.933></TD><TD width=64.933></TD><TD width=64.933></TD><TD width=59.2></TD><TD width=58.8></TD><TD width=58.8></TD><TD width=58.8></TD><TD width=59.2></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=181.4><P style="margin:0px" align=justify>No of shares basic &#145;000</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>500,169</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>500,169</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>500,169</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right>493,199</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=58.8><P style="margin:0px" align=right>487,869</P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right>457,981</P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=181.4><P style="margin:0px" align=justify>No of shares diluted &#145;000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><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=64.933><P style="margin:0px" align=right>500,951</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=64.933><P style="margin:0px" align=right>502,455</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><P style="margin:0px" align=right>494,992</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>487,975</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>488,612</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>489,454</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=59.2><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; font-size:11pt" align=justify>The discontinued operations relate to Barbrook and Eersteling Mines only up to Q1 2008, thereafter Eersteling is the only discontinued operation. The loss on sale of Barbrook Mine has been reclassified to discontinued operations in the fourth quarter 2008. During the fourth quarter 2008 the Eersteling asset retirement obligation accretion amounted to $129,003, the increased amount was due to the fact that no accretion in 2007 or during the first 3 quarters of 2008 was made. All foreign exchange gains or losses are reported in the results before discontinued operations. &nbsp;During 2008 gold sales at Blanket Mine were 2,809 (4,352 - 2007) ounces in the first quarter, 3,089 (2,922- 2007) ounces in the second quarter, 2,466 (2,262 -2007) ounces in the third quarter and 0 (4,512 -2007) ounces in the fourth quarter. Included in the loss before discontinued operations are the unrealized foreign exchange gains or (losses) of ($124,000) ($457,
000 gain -2007) in the fourth quarter, ($992,000) ($1,016,000 loss - 2007) in the third quarter, ($860,000) ($1,975,000 gain - 2007) in the second quarter and $100,000 ($2,427,000 loss &#150; 2007) in the first quarter. &nbsp;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><I>Note:</I></P>
<P style="line-height:13pt; margin:0px; text-indent:48px; font-size:11pt" align=justify><I>&nbsp;The effect of the dilution on the earnings per share has not been calculated as the result for 2008 and 2007 was a loss and the diluted earnings per share would be anti-dilutive. </I></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>11.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; text-indent:48px; font-size:11pt" align=justify><B>INVESTING </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During 2008 the Corporation invested $2,713,000 ($3,250,000 &#150; 2007) in capital assets and mineral properties. &nbsp;Of the amount invested in 2008 $2,370,000 ($2,482,000 &#150; 2007) was spent at Nama, $91,000 ($616,000 &#150; 2007) at Blanket Mine, and $163,000 ($141,000 &#150; 2007) at Rooipoort. The lower level of expenditure at Blanket was a direct result of a non payment for gold sales by RBZ. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>12.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; text-indent:48px; font-size:11pt" align=justify><B>FINANCING </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>During the year $1,119,000 was raised from a private placement ($4,380,000 in 2007 and $7,559,000 in 2006) all net of issue costs. In all 12,300,000 shares were issued with an equal number of warrants at a price of $0.15 and an expiry date of February 21, 2009. Due to the depressed share price as at February 21, 2009 the warrants were not exercised and have expired. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>On May 31, 2008 the sale of Barbrook was concluded and the full purchase price of $9,130,000 was received in cash. The available funds have been used to finance current liabilities, ongoing overhead expenses and the exploration program at Nama. None of the funds raised were utilized at Blanket as Blanket has continued to be self supporting, despite the extreme economic conditions in Zimbabwe.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>13.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; text-indent:48px; font-size:11pt" align=justify><B>LIQUIDITY AND CAPITAL RESOURCES </B></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>As of December 31, 2008, the Corporation had a working capital of $4,027,000 ($65,000 - 2007). Current assets of $4,976,000 ($4,408,000 &#150; 2007) have increased due to the increased cash on hand from the sale of Barbrook, inventory levels have reduced significantly due to the suspension of gold production at Blanket. </P>
<P style="margin:0px"><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>Included in accounts receivable (non- current) is $2,890,000 ($1,780,000 &#150; 2007) owed by RBZ to Blanket for gold delivered to Fidelity. &nbsp;Subsequent to December 31 the RBZ announced that the debt owed by RBZ would be converted into a Special Tradable Gold-Backed Foreign Exchange Bond, with a term of 12 months and an 8% interest rate. This Bond can be sold to any interested party locally, regionally or internationally at an agreed to time maturity discount. &nbsp;This bond plus interest is guaranteed by RBZ on maturity at January 31, 2010. &nbsp;It is the intention of the Corporation to sell in whole or part, this bond to liquidate the capital for use in the No.4 Shaft Expansion Project, and this process has already begun with discussions with financial institutions in Zimbabwe and South Africa. Due to the potentially illiquid nature of the Bond it has been written down by $526,000 to the fair value of $2,890,000.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>Blanket will require working capital loans to finance the start up of gold production as soon as it has obtained the gold export license and RBZ approval to become a legitimate gold exporter. These loans have been granted by local Zimbabwean commercial banks.. Inventory levels at Blanket are depleted and </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>18</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; font-size:11pt" align=justify>essential consumable items like cyanide, explosives and lime will have to be acquired before gold production can recommence. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-size:11pt" align=justify>It is anticipated that the Mitsubishi Shareholders Agreement for the Rooipoort PGE project will be extended past March 31, 2008, to deal with the Black Economic Empowerment issues raised by the Department of Mineral and Energy. Exploration activities, funded by Mitsubishi, will thus commence once the Shareholders Agreement is signed. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px; font-family:Times; font-size:11pt" align=justify>Anticipated cash inflows in 2009 will be used mainly by the Corporation on its production, and exploration, activities such as:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:76.4px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:14.667px; padding-left:76.4px; font-size:11pt" align=justify>at the Blanket Mine for the completion of the No. 4 Shaft Expansion Project, &nbsp;at an estimated cost of $750,000 to regain the 600 tpd ore delivery to the plant and an amount of $1,500,000 to reach the expanded rate of 1,000 tpd ore delivery, both amounts to be funded from internally generated cash flow and/or local borrowings;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:76.4px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; padding-left:76.4px; font-size:11pt" align=justify>the defined activities at Nama as available cash flow will allow;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:76.4px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; padding-left:76.4px; font-size:11pt" align=justify>at Rooipoort and the other exploration projects of the South African PGE &amp; Ni properties at an initial estimated cost of $1,250,000 to be funded by Mitsubishi; and</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:76.4px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; padding-left:76.4px; font-size:11pt" align=justify>corporate working capital</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Notwithstanding the estimated expenditure amounts for each of the programs described above, the Corporation cannot accurately predict the actual amounts that will be spent on those programs. &nbsp;It can be stated that the projects with the highest priority are the No. 4 Shaft Expansion Project at Blanket Mine and exploration at Nama subject to the availability of funds.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:11.55pt; margin:0px; font-size:11pt" align=justify>The Corporation does not have any long-term contractual obligations or commercial commitments other than the payment of its current liabilities and its four cobalt sales agreements. &nbsp;The Corporation has minor obligations in respect of license fees for its exploration and mining properties some of which are paid in full by the Corporation&#146;s joint venture partners. &nbsp;As of December 31, 2008 the Corporation had potential/contingent liabilities to do rehabilitation work on the Blanket and Eersteling Mines - if and when those Mines are permanently closed &#150; at an estimated cost of $1,024,000. With the proposed sale of Eersteling Mine, the obligation of $314,000 will pass on to the new owners.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>14. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OFF-BALANCE SHEET ARRANGEMENTS</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>There are no off balance sheet arrangements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>15. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOURTH QUARTER </B></P>
<P style="line-height:13pt; margin:0px; padding-right:0.733px; font-size:11pt" align=justify>The results for the fourth quarter reflect the fact that no mining activity took place at Blanket Mine, the revenue reported is a balancing number for the year to date revenue. The Corporation generated a gross operating profit of $184,000 at Blanket as a result of inventory adjustments. Further overheads and write downs led to a loss of $2,066,000 which included an unrealized loss from foreign currency translations of $124,000 and mineral property write downs of $1,168,000. Discontinued operations loss of $531,000 is made up of holding costs at Eersteling comprising of minimum charges for electricity, limited managerial employment costs, and ongoing security costs to safeguard the property,an accretion adjustment to the asset retirement obligation of $129,000 and the loss on sale of Barbrook Mine of $364,000. &nbsp;As Eersteling was on care and maintenance no amortization charge was provided for on plant and equipme
nt but $9,150 was provided for on vehicles and computer equipment for the entire year.</P>
<P style="margin:0px"><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>16. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CRITICAL ACCOUNTING POLICIES</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>There are three major areas where accounting estimates are made, asset impairment, asset retirement obligation and fair value of accounts receivable at Blanket. As significant impairment provisions have already been made against the assets and there is a reasonable level of certainty around the estimate it is </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>19</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:13pt; margin:0px; font-size:11pt" align=justify>considered unlikely that any change in estimate would result in a material impact on the results of the Corporation. Based on indicative purchase offers made for Eersteling Mines no further asset impairment has been made against this asset. &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="line-height:13pt; margin:0px; font-size:11pt" align=justify>The accounts receivable at Blanket is carried at fair value having applied a discount factor of 18% for country risk. If the risk premium was increased by 5% the value of the receivable would reduce by a further $119. &nbsp;&nbsp;&nbsp;If the risk premium was decreased by 5% the value of the receivable would increase by a further $130.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The following are the changes to accounting policies adopted during 2008:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:76.4px; text-indent:-48px; font-size:11pt" align=justify><B>(i)</B></P>
<P style="line-height:13pt; margin:0px; padding-left:76.4px; text-indent:-19.667px; font-size:11pt" align=justify><B>Financial Instruments &#150; Disclosures </B></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; font-size:11pt" 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:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; font-size:11pt" 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:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; font-size:11pt" 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>. &nbsp;</B>The Corporation has included disclosures recommended by these sections in Note 15 in the consolidated financial statements.</P>
<P style="margin:0px"><BR></P>
<P style="line-height:14pt; margin-top:0px; margin-bottom:-18.667px; padding-left:76.4px; text-indent:-48px; font-size:11pt" align=justify><B>(ii)</B></P>
<P style="margin:0px; padding-left:76.4px; text-indent:-19.667px; font-size:11pt" align=justify><B>Capital Disclosures </B></P>
<P style="margin-top:0px; margin-bottom:16.8px; padding-left:28.4px; font-size:11pt" 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:14.067px; padding-left:28.4px; font-size:11pt" align=justify>The Corporation has included disclosures recommended by the new section in Note 16 in the consolidated financial statements. </P>
<P style="line-height:13pt; margin:0px; padding-left:28.333px; font-size:11pt" align=justify><B>(iii) &nbsp;Financial Statements Presentation </B></P>
<P style="margin:0px; padding-left:28.333px; font-size:11pt" 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.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:28.333px; font-size:11pt" align=justify>&nbsp;<B>(iv)</B></P>
<P style="line-height:13pt; margin:0px; padding-left:28.333px; text-indent:28.4px; font-size:11pt" align=justify><B>&nbsp;Inventories:</B></P>
<P style="margin-top:0px; margin-bottom:12.8px; padding-left:28.4px; font-size:11pt" 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. &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<FONT style="font-family:Times; font-size:10pt">.</FONT></P>
<P style="margin-top:0px; margin-bottom:12.8px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>20</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><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="line-height:13pt; margin:0px; font-size:11pt" align=justify>These standards are effective for the Corporation for interim and annual consolidated financial statements beginning on January 1, 2008 and the Corporation is currently evaluating the impact of the adoption of these new Sections on its consolidated financial statements.</P>
<P style="margin:0px; padding-left:28.8px; font-size:11pt" 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-top:0px; margin-bottom:16.8px; padding-left:28.333px; font-size:11pt" align=justify>International Financial Reporting Standards (&#147;IFRS&#148;) </P>
<P style="margin-top:0px; margin-bottom:14.067px; padding-left:28.333px; font-size:11pt" 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, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at 
this time. All of the Companies foreign subsidiaries operate in environments where IFRS has already been adopted.</P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; text-indent:0.4px; font-size:11pt" align=justify>Goodwill and intangible assets</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; text-indent:0.4px; font-size:11pt" 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 January 1, 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>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; text-indent:0.4px; font-size:11pt" align=justify>Business Combinations</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-left:28.4px; text-indent:0.4px; font-size:11pt" align=justify>In January 2009, the CICA issued Handbook Sections 1582 &#150; Business Combinations, 1601 &#150; Consolidated Financial Statements and 1602 &#150; Noncontrolling Interests which replace CICA Handbook Sections 1581 &#150; Business Combinations and 1600 &#150; Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (&#147;<B>IFRS</B>&#148;). Section 1582 is applicable for the Corporation&#146;s business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Corporation&#146;s interim and annual consolidated financial state
ments for its fiscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Corporation chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:7.333px; padding-right:0.733px; font-size:11pt" align=justify><B>17. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECURITIES OUTSTANDING</B></P>
<P style="line-height:13pt; margin:0px; padding-right:208.333px; font-size:11pt" align=justify>As at March 31, 2009 the following securities were outstanding: &nbsp;</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify>(1)</P>
<P style="line-height:normal; margin:0px; text-indent:48px; font-size:11pt" align=justify>500,169,280 common shares<FONT style="font-family:Arial; font-size:12pt">;</FONT></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify>(2)</P>
<P style="line-height:13pt; margin:0px; text-indent:48px; font-size:11pt" align=justify>Options and warrants as follows: </P>
<TABLE style="font-size:10pt" cellspacing=0><TR height=0 style="font-size:0"><TD width=80.4></TD><TD width=213.6></TD><TD width=108.133></TD><TD width=195.733></TD></TR>
<TR><TD style="border:1px solid #000000" valign=top width=80.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><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=213.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>Description</B></P>
</TD><TD style="border-top:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" valign=top width=108.133><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><B>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=195.733><P style="line-height:13pt; margin:0px; font-size:11pt" align=center><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=80.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>34,130,000 &nbsp;</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=213.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Common share purchase options </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=108.133><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Average $0.173 </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=195.733><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Various until January 23, 2017 </P>
</TD></TR>
<TR><TD style="border-left:1px solid #000000; border-right:1px solid #000000; border-bottom:1px solid #000000" width=80.4><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>12,300,000</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=213.6><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Common share purchase warrants</P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=108.133><P style="line-height:13pt; margin:0px; font-size:11pt" align=right>$0.15 each </P>
</TD><TD style="border-right:1px solid #000000; border-bottom:1px solid #000000" width=195.733><P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Until February 21, 2009</P>
</TD></TR>
</TABLE>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>21</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>
<BR></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" 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, a further 15,836,928 options are available to be granted.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>(3) Expired warrants - all of the 12,300,000 warrants were not exercised and have thus been forfeited.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>18. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CONTROLS </B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Corporation's President and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. Management of the Corporation, with the participation of the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as at December 31, 2008 as required by Canadian securities laws.pursuant to the certification requirements of Multilateral Instrument 52-109. </P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation's ICFR is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable Canadian GAAP. </P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Because of its inherent limitations, the Corporation's ICFR may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Management, including the Chief Executive Officer and Chief Financial Officer, carried out an assessment of the effectiveness of the Corporation's internal controls over financial reporting using a framework designed by management and considered appropriate to the conditions of the various operating environments, and concluded that the following disclosable material weaknesses existed, as at December 31, 2008.</P>
<P style="margin:0px"><BR></P>
<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px">1.</P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px">Segregation of duties</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Due to limited resources, adequate segregation of duties within the accounting group was not achieved. &nbsp;This creates a risk that inaccurate entries could be made and not corrected on a timely basis. The result is that the Corporation is highly reliant on the performance of mitigating procedures during its financial close processes in order to ensure the financial statements present fairly in all material respects. The Corporation continues to enhance and monitor this process to ensure that its financial accounting reporting system is able to prevent and detect potential significant errors.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height: 13pt; font-size: 11pt; margin-top: 0px; margin-bottom: -17.333px">2.</P>
<P style="line-height: 13pt; font-size: 11pt; margin: 0px; padding-left: 48px">Effective operation of the remuneration committee</P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Review of Management Compensation- it was noted that the proper controls relating to the tracking, review and approval of executive compensation including stock options is not appropriate and highly reliant on other mitigating procedures.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Management has concluded, and the audit committee has agreed that taking into account the present stage of the Corporation's development, the Corporation does not have sufficient size and scale to warrant the hiring of additional staff to correct the segregation of duties weakness at this time There were no changes in the Corporation&#146;s internal controls over financial reporting during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation has a Disclosure Committee consisting of four Directors, and has disclosure<FONT style="font-family:Times"> </FONT>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 Corporation&#146;s Directors and Management, and the Disclosure Committee, are making all reasonable efforts to ensure that the Corporation&#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 Corporation&#146;s disclosure controls and procedures provide reasonable assurance that material information </P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>22</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><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="line-height:13pt; margin:0px; font-size:11pt" align=justify>relating to the Corporation, including its consolidated subsidiaries, is made known to the Corporation&#146;s Certifying Officers by others within those entities.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; font-size:11pt" align=justify><B>19. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FORWARD LOOKING STATEMENTS</B></P>
<P style="line-height:11.55pt; margin-top:0px; margin-bottom:14.067px; font-size:11pt" 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 unc
ertainties. Factors 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="line-height:13pt; margin:0px; font-size:11pt" 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" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; font-size:11pt" align=justify><B>20.</B></P>
<P style="line-height:13pt; margin:0px; text-indent:48px; font-size:11pt" align=justify><B>IFRS CHANGEOVER PLAN</B></P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>In February 2008, the Canadian Accounting Standards Board (&#147;<B>AcSB</B>&#148;) confirmed the mandatory changeover date to IFRS for Canadian profit-oriented publicly accountable entities (&#147;<B>PAE&#146;s</B>&#148;) such as the Corporation.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The AcSB requires that IFRS compliant financial statements be prepared for annual and interim financial statements commencing on or after January 1, 2011. For PAE&#146;s with a December 31 year-end, the first unaudited interim financial statements under IFRS will be the quarter ending March 31, 2011, with comparative financial information for the quarter ended March 31, 2010. The first audited annual financial statements will be for the year ending December 31, 2011, with comparative financial information for the year ended December 31, 2010. This also means that all the opening balance sheet adjustments relating to the adoption of IFRS must be reflected in the January 1, 2010 opening balance sheet which will be issued as part of the comparative financial information in the March 31, 2011 unaudited interim financial statements.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>The Corporation intends to adopt these requirements as set out by the AcSB and other regulatory bodies. At this time, the impact of adopting IFRS cannot be reasonably quantified. During fiscal 2009, the Corporation will continue to evaluate the impact of IFRS on the Corporation and develop and put in place a plan for the conversion to IFRS. The actual conversion work will occur in late 2009 and 2010, in anticipation of the preparation of the December 31, 2010 balance sheet that will be required for comparative purposes for all periods ending in 2011</P>
<P style="margin:0px" align=justify><BR></P>
<P style="margin:0px" align=justify><BR>
<BR></P>
<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>23</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:13pt; margin:0px; font-size:11pt" align=justify>The Corporation is in the preliminary stages of developing a changeover plan with emphasis on the following critical areas:</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the production of IFRS compliant financial statements from the first quarter 2011</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:96px; text-indent:-24px; font-family:Courier New; font-size:11pt" align=justify>o</P>
<P style="line-height:13pt; margin:0px; padding-left:96px; font-size:11pt" align=justify>identification of applicable accounting policies</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:96px; text-indent:-24px; font-family:Courier New; font-size:11pt" align=justify>o</P>
<P style="line-height:13pt; margin:0px; padding-left:96px; font-size:11pt" align=justify>description of the decision making process </P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:96px; text-indent:-24px; font-family:Courier New; font-size:11pt" align=justify>o</P>
<P style="line-height:13pt; margin:0px; padding-left:96px; font-size:11pt" align=justify>quantification of the impact of the adoption of IFRS on the financial statements</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>internal expertise required to implement IFRS</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the affect on business activities</P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:48px; text-indent:-24px; font-family:Symbol; font-size:11pt" align=justify>&#183;</P>
<P style="line-height:13pt; margin:0px; padding-left:48px; font-size:11pt" align=justify>the affect on control activities</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>At present the operations in Zimbabwe, Zambia and South Africa are all operating in environments that have adopted IFRS already. &nbsp;&nbsp;The Corporation 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="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:56.733px; text-indent:-56.733px; font-size:11pt" align=justify><B>21.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:9.333px; padding-left:56.733px; font-size:11pt" align=justify><B>QUALIFIED PERSON</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Dr Trevor Pearton BSc Eng (Mining Geology), PhD (Geology) FGSSA<FONT style="font-family:Times"> </FONT>is a qualified person as defined by NI 43-101. Dr. Pearton is responsible for the technical information provided on this MD&amp;A except where otherwise stated. He was assisted by employees of the Corporation who are qualified persons for the individual projects and, where appropriate, outside consultants and/or qualified persons for joint-ventured projects. &nbsp;</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:-17.333px; padding-left:56.733px; text-indent:-56.733px; font-size:11pt" align=justify><B>22.</B></P>
<P style="line-height:13pt; margin-top:0px; margin-bottom:12.2px; padding-left:56.733px; font-size:11pt" align=justify><B>BOARD AND SENIOR MANAGEMENT CHANGES</B></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Dr. Trevor Pearton was appointed VP Exploration on February 15, 2008. </P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; font-size:11pt" align=justify>Mr. Mark Learmonth, previously a Director of Macquarie First South, was appointed as VP Corporate Development and Investor Relations on July 10, 2008.</P>
<P style="margin:0px" align=justify><BR></P>
<P style="line-height:13pt; margin:0px; padding-right:4.133px; font-size:11pt" 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="line-height:13pt; margin:0px; padding-right:4.133px; font-size:11pt" 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. He replaced Mr. Wilson.</P>
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<P style="line-height:13pt; margin:0px; padding-right:4.133px; font-size:11pt" align=justify>Mr. Steve Curtis, VP Finance and Chief Financial Officer of Caledonia was appointed to the Board on June 1, 2008.</P>
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<P style="line-height:14pt; margin:0px; text-indent:28.8px; font-family:Times; font-size:12pt" align=center>24</P>
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