Caledonia Mining. Outlook. Investment summary: Solid gold base. Price 6.0p Market Cap 30m. The uncertainty of indigenisation

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1 Outlook 25 July 2011 Caledonia Mining Year End Revenue (C$m) PBT* (C$m) EPS* (c) DPS (c) P/E (x) Yield (%) 12/ (6.6) (1.6) N/A N/A N/A Price 6.0p Market Cap 30m Share price graph 12/ N/A 92.4 N/A 12/11e N/A 2.7 N/A 12/12e N/A 2.3 N/A Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items. Forex: C$1.54/. Investment summary: Solid gold base Despite the political situation in Zimbabwe, Caledonia Mining (CMCL) has managed to significantly increase production at its wholly owned Blanket gold mine every year for the last three years. Assuming an annual production rate of c 40koz Au is achieved from 2012, we value Caledonia at C$0.23 ( 0.15) per share based on a 10-year mine life. Blanket has significant growth potential which we expect to be realised subject to the outcome of ongoing exploration. If the company increases production to the nameplate capacity of the existing metallurgical plant of approximately 70koz Au, our valuation increases to C$0.41 ( 0.27). Assuming 51% of Blanket is transferred to an indigenous partner for zero consideration, our valuation reduces to C$0.16 ( 0.10) at current production levels, or C$0.28 ( 0.18) at the expanded c 70koz Au per annum rate. However, it should be noted that this is only indicative pending further clarification of how the Zimbabwean government intends to implement its indigenisation policy. The uncertainty of indigenisation Once the government has finalised how it will implement the indigenisation policy, Caledonia will be able to more accurately plan its capital expenditures. Assuming this happens by end 2011, we consider an illustrative scenario in which production from the Blanket mine and environs increases to c 70koz Au annual production by mid (from its current production rate of 34koz Au pa). This could be achieved by implementing a plan of extensive exploration at Blanket and at four brownfield satellite deposits within trucking distance of Blanket s processing plant. The capex requirements to increase production would be very low: there is existing surplus capacity at the Blanket metallurgical plant and the cost of redeveloping each satellite project would be US$0.5m to US$0.7m. Valuation: Greater upside with indigenisation & expansion Based on Blanket s current annual production rate of 34koz Au increasing to 40koz from 2012 to 2021 we value Caledonia at C$0.23 per share, with significant upside geared to increased capacity. No value has been given for the company s Nama Cu-Co exploration project in Zambia. Share details Code Listing Sector Shares in issue CMCL/CAL/CALVF AIM/TSE/NASDAQ Metals and mining 500m Price 52 week High Low 9.25p 4.25p Balance Sheet as at 31 December 2010 Debt/Equity (%) N/A NAV per share (c) 3.8 Net cash (C$m) 0.4 Business Caledonia mines gold at its main operating asset, the Blanket Gold Mine, in southern Zimbabwe. Caledonia also holds large-scale mining licences for base metals (primarily copper and cobalt) at its Nama project in Zambia and exploration licences for PGEs, nickel and copper at its Rooipoort and Mapochs platinum projects in South Africa. Valuation e 2012e P/E relative 612% 29% 26% P/CF EV/Sales ROE 4% 48% 39% Revenues by geography UK Europe US Other N/A N/A N/A 100% Analysts Charles Gibson +44 (0) Tom Hayes +44 (0) mining@edisoninvestmentresearch.co.uk Caledonia Mining is a research client of Edison Investment Research Limited

2 2 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Investment summary: Solid gold base Company description: Solid production base Caledonia s main operating asset, the Blanket gold mine in Zimbabwe, is currently increasing production to its planned 40koz Au per annum rate. Provided the Zimbabwean government finalises its indigenisation policy on a sensible commercial basis this year, we expect gold production could ramp up to c 70koz Au per annum by mid-2013 as some or all four initial satellite deposits come online and by increasing production from the existing mining operations. Valuation: Upside with and without indigenisation Our base case valuation of C$0.23 per share is based on valuing Blanket at a c 40koz Au per annum production rate for 10 years. With much of the detail surrounding the proposed policy of indigenisation still unknown, we also provide a second scenario whereby 51% is relinquished by 2015 to an indigenisation partner (for zero consideration) and Caledonia also undertakes a programme of capital expenditures to expand production to c 70koz per annum. On this basis we value Blanket at C$0.28. The following exhibit details further valuations based on differing combinations of development scenarios. Exhibit 1: Sensitivity to different project development scenarios Expansion of Blanket 51% indigenisation Zero indigenisation 51% indigenisation & no indigenisation and expansion and no expansion and no expansion NPV (C$) Sensitivities: Indigenisation The Zimbabwean government s indigenisation legislation presently requires that 51% of all significant businesses be owned by indigenous partners by March Several sets of regulations have been issued which attempt to convert the general terms of the Act into practical measures, the most recent of which was issued in late March For valuation purposes we assume a worst case position in which there is a transfer of 51% for zero consideration in Caledonia has submitted its indigenisation plan, which it will implement if it receives approval. Financials: Cash-flows from Blanket to fund projects With the issue of indigenisation still unresolved Caledonia has decided to restrict its spending at Blanket to the completion of the Level 22 Haulage drive and associated infrastructure and all essential items required to keep Blanket running at its forecast production rate of 40koz Au per annum. Caledonia is also progressing preliminary drilling at Nama at an estimated cost of US$1.2m. We forecast no near-term funding requirement with the aforementioned expenditures at Blanket and Nama already sourced through projected cash flows. Further exploration and preliminary development of the Nama project in Zambia will be funded by Caledonia s treasury. It is likely that Caledonia would only need to raise additional debt and equity if it were to progress with the full development of a full-scale copper and cobalt operation. However, this eventuality is probably several years off and will depend entirely on the outcome of exploration at Nama.

3 3 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Company description Caledonia Mining was formed and listed on the Toronto Stock Exchange on 5 February 1992 and later listed on the London bourse in June Caledonia purchased Blanket from Kinross in 2006 and operates its principal asset, the Blanket Mine in southern Zimbabwe, 560km south of the Zimbabwean capital Harare and 150km south of Bulawayo, the country s second largest city. The company reopened the mine in 2009 after a six-month temporary shutdown due to the economic conditions in Zimbabwe at that time. Blanket Mine: A long-established mining area Blanket was originally staked in 1904 with mining and metallurgical plant operations starting in 1906 and has since produced over one million ounces of gold. The following exhibit details the past owners of the Blanket mine and the recorded ounces produced during each company s period of ownership. Exhibit 2: Historical gold production at the Blanket Mine Period Production Recorded Au Implied head Implied annual tonnes oz grade Au production Matabele Reefs and Estate Co to ,000 34, ,68 8 Forbes Rhodesia Syndicate 1912 to ,000 4, ,090 No activity 1917 to 1941 N/A N/A N/A N/A F.D.A Payne (Bhoboza) 1942 to ,150 46, ,121 Falconbridge 1965 to Sept ,028, , ,223 Kinross Gold Corporation Oct 1993 to June ,425, , ,756 Caledonia Mining Corporation June 2006 to Q ,600 65, ,775 Grand total 6,8 04,550 1,08 0,661 Source: Caledonia Mining Of note is that Kinross achieved annual average production of c 33,756oz Au during its tenure. However, Kinross s production was not solely from underground operations but also from the reprocessing of large surface waste dumps (which have now all been exhausted). It should be noted that Caledonia is now producing at an annual rate of c 34koz gold (forecast 2011 production) from solely underground sources. Regional and mine geology: The Gwanda Greenstone Belt The regional geology in which the Blanket Mine is situated consists of the 70km long, 15km wide Gwanda Greenstone Belt, which has been host to 268 of Zimbabwe s mines. Blanket is one of only three large gold producing mines that still exist along this greenstone belt. The other two mines are the neighbouring Vubachikwe (privately owned by Clarity Capital) and the Jessie Mine on the southeastern end of the belt (privately owned by FA Stewart and Son). The Blanket Mine forms a part of the Sabiwa mining group (aka North Western Mining camp), which comprises a number of ore zones extending from Sabiwa and Jethro in the south, through Blanket to Feudal, AR South, AR Main, Sheet, Eroica and Lima.

4 4 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Blanket mine resources and reserves Resources and reserves for the Blanket Mine are given in the following exhibit: Exhibit 3: Summary of Caledonia resources and reserves as at December 31, 2010 Note: *Caledonia does not report quantities of contained gold for the inferred category with the number given in this exhibit derived by Edison using the company s stated tonnages and grade. Resources are reported exclusive of reserves. Based on a gold price of US$1,100/oz. Category Tonnes Grade (g/t) Gold contained (oz) Proven reserves 1,326, ,400 Probable reserves 2,514, ,8 00 Reserves sub total 3,8 40,000 N/A 467,200 Indicated resource 510, ,100 Inferred resource* 2,408, ,998 Grand Total 6,758,000 N/A 937,298 Source: MSA Consulting in NI compliant Technical Report dated 28 June Mining Access to the underground mine at Blanket is via four vertical shafts. Underground workings are then accessed with internal ore drives and inclines along its length at 30m intervals. Development is by hand-held jack-leg drills. Stoping of the ore body is generally by conventional long-hole blasthole mining, and hand-held drills are used close to the ore body limits to limit dilution. Once liberated the ore is then transported to the recently completed crushing and automated loading system at 765m below surface. A shaft expansion and automated loading system was installed at a cost of approximately US$8m. The new crushing and loading facility has resulted in an increased hauling capacity (1,000 tonnes can be hoisted in just over 10 hours) and improved operational efficiency. Exhibit 4: Longitudinal section of part of the Blanket Mine (NW to SE) Note: Coloured zones indicate resource blocks with tonnages (blue) and grade (red) given adjacent. Grey shaded areas are mined out. The Blanket Mine also extends 3km further to the SE of this section. Source: Caledonia Mining 22 Level development key to expanding production at Blanket The development of a new ore pass between 18 and 22 levels (completed in May 2011) means that the 40koz Au per annum production target can be achieved while the extension to the main Level 22 haulage is developed. This development, at 750m below surface, aims to link up all of the known ore bodies to the north of the main No. 4 Shaft, allowing 3km of strike to become accessible. Cross cuts from the 18 and 22 levels will also provide numerous positions from which

5 5 Edison Investment Research Outlook Caledonia Mining 25 July 2011 to drill and delineate further underground resources. Depending on the outcome of exploration work Caledonia aims to delineate sufficient resources to increase annual gold production. Management has indicated an aspirational production target of c 100koz per annum and the bulk of this increase would come from increased production at Blanket, with the balance being provided by several satellite projects (see below). The extent to which production can be increased to 100koz depends on exploration success, although we note that Blanket s immediate neighbour is already mining down to a depth of approximately 1,100m, compared to the current maximum mining depth at Blanket of 750m. The main targets to be drilled will be below and between the known mineralised trends. Processing The processing plant at Blanket is conventional crushing, milling and carbon-in-leach circuits, with approximately 50% recovered as free gold. Of significance is that Blanket has substantial surplus capacity at its processing plant. Production of 40koz per annum equates to a daily throughput of approximately 1,000 tonnes per day (tpd). However, the plant currently has crushing capacity of over 2,400tpd and milling capacity of 1,800tpd and CIL capacity of 3,800tpd. Thus about 800 tonnes of incremental ore over and above 1,000tpd could be processed immediately without the need for capital investment and increased overheads. The only cost implication of increased throughput would be an increase in the use of consumables. Furthermore, approximately 60-65% of processing costs are fixed so any increase in production from surplus capacity should result in a reduced unit cost of production. Satellite deposits quick and cheap expansion possible Caledonia has 18 brownfield exploration licences in close proximity to Blanket, out of which it aims to bring online the first group of four contingent upon exploration success and a satisfactory indigenisation transaction being finalised. The four deposits are called Eagle Vulture, Mascot, Penzance and GG and are all within reasonable trucking distance of the Blanket processing plant. The GG project is only 7km from Blanket and the other three are just over 40km from Blanket. The remaining 14 properties will be addressed in subsequent development phases. For the purposes of forecasting the potential value of the satellite deposits we have assumed that an indigenisation transaction is finalised by the end of Two important factors that underpin the commercial attraction of such developments in the current Zimbabwe investment environment are the surplus processing capacity at Blanket and the existence of serviceable infrastructure at three of the four sites, which reduces the cost, and increases the speed, of their redevelopment. On an indicative basis Caledonia estimates that each of the four developments could potentially produce approximately 150tpd at a grade of 4-5g/t. Using a recovery rate of approximately 90%, each of these developments could therefore produce around five to seven thousand ounces of gold per annum. Other projects Konkola copper project, Zambia Caledonia, through its wholly owned subsidiary Caledonia Nama, is the owner of four contiguous large-scale mining licences covering approximately 800km 2 in the Solwezi and Chililabombwe Districts in north-west Zambia.

6 6 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Exhibit 5: Konkola project location (left) and mining licence (right) maps Source: Caledonia Mining The licence areas lie on the north-western flank of the Zambian Copperbelt and Caledonia has historically explored for a large, low-grade cobalt-copper-nickel mineralisation with the objective of producing cobalt hydroxide. Although this aspect of the Nama project continues, exploration activity both on the Nama property and at neighbouring properties suggests that the traditional copper belt mineralisation extends into the Nama licence areas. In particular, a joint venture between Vale and African Rainbow Minerals has identified a copper resource of approximately 240mt at 2.6% copper on an area immediately to the east and south-east of the Nama licence areas, and is now progressing a substantial mine development. Caledonia commenced an initial four-hole drill programme on the first of two target areas in March 2011 with the objective of identifying copper belt mineralisation. The results of this programme are expected in Q411. Rooipoort Platinum project, South Africa Caledonia currently holds exploration licences in South Africa covering 8,473 hectares underlain by Bushveld rocks prospective for platinum group metals, nickel and copper. The project has had over 18km of drilling undertaken and some preliminary metallurgical work. The latter showed platinum/palladium, gold and copper could be concentrated at very low mass-pull. Expenditures on the project are being restricted while the company awaits clarification by the South African authorities of several issues relating to Caledonia s licences. Valuation: With and without indigenisation & expansion To value Caledonia we have undertaken two separate methods; the first is to value the Blanket mine on a 100% ownership basis with no account for indigenisation or expansion of the mine base case valuation. Secondly, we provide a second scenario whereby 51% ownership is passed on to an indigenous partner (the full amount under current guidelines) for zero consideration and Blanket increases production to approximately 70koz Au per annum (being the current processing capacity) by accessing additional ore from Blanket and/or the satellite projects. We assume these satellite projects are brought online and start to contribute to Caledonia s total group gold production in early Management s aspirational production target of 100koz will require not only exploration success (in common with our illustrative expansion to 70koz) but also further investment (which is currently un-quantified) in additional processing equipment and mine development. Accordingly, until we have further information on how Caledonia proposes to achieve its aspirational production target of 100koz per annum, we have only considered for illustrative purposes an expansion to 70koz per annum, being the current maximum throughput of the plant.

7 7 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Assumptions for base case valuation (Scenario 1) Our base case valuation assumes only the Blanket mine is in operation and that production is maintained at a steady state rate of c 40koz Au per annum by end 2011 and onwards. We take no account of any satellite deposits coming online as any capital expenditure on such projects is contingent upon the outcome of any final indigenisation transaction. On this basis, Blanket has sufficient mineable reserves for at least a 10 year life of mine and so we have used 2021 as the final year of operations in our valuation. During 2011 an annual tonnage of c 295,000 tonnes is forecast to be mined at a head grade of 3.93g/t Au and processed at a recovery factor of 91.5% to produce c 34koz Au. From 2012 onwards the company forecasts increased gold production of approximately 40koz. We use the 2015 annual production forecast as the basis to extend the period of valuation at Blanket to This is in line with management s guidance. Exhibit 6: Assumptions used in base case valuation of the Blanket mine Parameter Unit Value Annual ore processed at Blanket kt Grade at Blanket g/t Au 3.93 Gold recovery at Blanket % 91.5 Maximum annual gold production oz 40,579 Year max. annual production achieved year 2012 Raw consumable cost per tonne (excl. diesel) - Variable US$/t 31 Cost per tonne mined and processed (incl. diesel) - Fixed US$/t 70 Total cost per tonne US$/t 101 Average unit cost at Blanket US$/oz 58 4 Long-term gold price US$/oz 1,350 Base case valuation In our first scenario we outline a valuation for Caledonia based only on the operating Blanket Mine with no account made for indigenisation or expansion of the mine. Current mineable reserves are sufficient to meet the company s stated base case production rate of c 40koz Au per annum for at least 10 years. Our valuation is calculated using a dividend discount model, which is analogous to a conventional discounted cash flow model. Further, this variation takes account of all (including corporate) expenditures rather than just those pertaining to the mine. Our dividend discount model then discounts all free-cash produced annually back to current money terms at a base case discount rate of 10% (to reflect general equity risk). This leads to the following EPS and theoretical DPS profile. Exhibit 7: Edison estimate of base case EPS, fully diluted EPS and theoretical DPS, FY11-FY Cents DDF (cents) Year EPS (dil) DPS NPV of DPS On this basis we value Blanket at C$0.23 per share.

8 8 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Scenario 2: 51% indigenisation with increased production With many important details still outstanding concerning the proposed 51% ownership of significant businesses by indigenous partners, we provide the second valuation scenario in which a 51% interest is passed to an indigenous partner with effect from March In this case we have assumed that there is no consideration payable for the 51% interest. While we do not consider this a likely scenario (both in terms of the percentage and the zero-consideration) and expect the transaction to be more in line with South Africa s Black Economic Empowerment legislation, it is presented here only to show the effect of a worst-case outcome. Further, we forecast that Blanket increases production to c 70koz per annum by mid To achieve this Caledonia has embarked on various exploration projects at Blanket and at several satellite brown field properties. Whether any or all of these exploration projects eventually results in increased production depends on a range of factors, not least of which are exploration success and the investment environment in Zimbabwe. We expect that further information will be provided as exploration results emerge, which will provide more substance to the achievability (or otherwise) of the 70koz per annum target. In the absence of detailed information, we have assumed that Blanket increases daily throughput from the base case level of 1,000tpd (which equates to approximately 40koz per annum) to 1,800tpd by Q313 (which equates to c 70koz Au), which represents the existing maximum capacity of Blanket s milling plant. At this level, Blanket would still have a further unused CIL capacity of 2,000 tpd requiring an as yet unquantified investment to develop and increase mine production and crushing and milling capacity. On this basis we value Blanket at C$0.28 per share. Assumptions used in our indigenisation and growth scenario While no NI compliant resources as yet exist at Eagle Vulture, Mascot, Penzance or GG, the first three deposits are brownfield sites that have some mining infrastructure in place, requiring low capital expenditure to bring them back online. We assume that Caledonia will provide sufficient evidence of mineable reserves at these projects to support the commencement of production. The following exhibit details Caledonia s current expectations for bringing these projects into production. Exhibit 8: Assumptions used in Scenario 2 Blanket plus expansion and satellite deposits online Indicative parameters for Unit Eagle Mascot GG Penzance Vulture Indicative comissioning date Year Dec-11 early-12 mid-12 mid-2013 Annual ore produ ction kt Grade g/t Au Gold recovery % Maximum annual gold production oz 6,134 6,134 6,134 4,051 Year max. annual production achieved Year 2012 Q Capex per annual ounce produced US$/oz Initial capex US$m Annual exploration budget US$m Consumable cost per tonne (excl. diesel) US$/t Distance from Blanket Mine km Estimated haulage cost Cents/tonne/km Source: Caledonia Mining A separate process plant will not be required once these projects start to produce ore, as the material will be transported to Blanket s process facility for treatment. Capacity at Blanket for processing ore is sufficient for annual tonnage of c 0.6Mt in the mill (ie 1,800tpd) and c 1.25Mt of

9 9 Edison Investment Research Outlook Caledonia Mining 25 July 2011 capacity in the CIL circuit (ie 3,800tpd). For illustrative purposes and in the absence of any information on the costs of increasing Blanket s capacity above 1,800tpd, we have only taken into account increased production up to this level. Further, we assume that the final indigenisation policy requires the full 51% ownership of Caledonia s Zimbabwean assets with this taking effect in March 2015 (please refer to the sensitivities section below for additional information on indigenisation). Based on management s guidance, once details of the process for implementation of indigenisation have been clarified (which we assume happens by end 2011), Caledonia will then start to undertake its capital expenditure programmes to bring the initial four satellite deposits online. Scenario 2 valuation On the basis of our second scenario (51% indigenisation and increased production) we value the Blanket mine at C$0.28 per share. It should be clearly noted that Caledonia Mining will need to prove up sufficient ore reserves to increase production at Blanket, and also bring the satellite deposits into production. Exhibit 9: Edison estimate of Scenario 2 fully diluted EPS and theoretical DPS, FY11 to FY Cents DDF (cents) Sensitivities and risks The main risks that Caledonia is exposed to are the obvious Zimbabwean sovereign and political risks, geological risk associated with delineating sufficient resources and reserves to increase its production profile, operational risk (in part mitigated by the section below commenting on electrical power supply) and development risk associated with expanding the Blanket mine and bringing the satellite deposits on line. In addition we have identified the following risks that have particular relevance to Caledonia. Indigenisation Our general feeling is that the debate surrounding indigenisation is being used as a tool by the ruling Zanu PF party (with the MDC in tow due to its participation in the governing coalition) to rally patriotic support prior to holding elections. Zanu PF had been asking for elections to be held early, but has since played this down, probably due to Mugabe s age and reports of his deteriorating health. Vigorous debate continues in Zimbabwe in terms of how indigenisation will be implemented with respect to percentage ownership and timeframe. Power Year EPS (dil) DPS NPV of DPS Electrical power supply in Zimbabwe is notoriously intermittent, with outages in mid-2010 seriously affecting operations at Blanket, as well as costs and cash generation. To remove the effect of such

10 10 Edison Investment Research Outlook Caledonia Mining 25 July 2011 outages Caledonia has installed a 10MVA diesel power plant as well as securing a more reliable electricity supply from local utility company Zesa, at a cost of c US$460,000 per month (up from US$140,00 previously), however this is still cheaper than running on-site generators alone. Caledonia is now capable of running the Blanket mine completely independently from the national grid, allowing for uninterrupted production. Change in government Robert Mugabe has been in power since Zimbabwe obtained independence from the UK in 1980 and is 87 years of age. Mr Mugabe s health has been increasingly scrutinised in recent years, with concerns that it is deteriorating and thus posing the question of how long he will be able to maintain his presidency and who would succeed him. The following exhibits give an indication of how different development scenarios (Exhibit 10) and a change in certain parameters (Exhibits 11 to 13) could affect our C$0.23 base case valuation: Exhibit 10: Sensitivity to different project development scenarios Expansion of Blanket 51% indigenisation Zero indigenisation 51% indigenisation & no indigenisation and expansion and no expansion and no expansion NPV (C$) Exhibit 10 above clearly reflects the value inherent in the Blanket mine both at the 40koz Au per annum rate and also by increasing production to c 70koz Au per annum with and without 51% ownership by an indigenous partner. Exhibit 11: Base case sensitivity to gold price Gold price (US$/oz) 1,000 1,200 1,350 1,500 1,700 NPV (C$) Exhibit 12: Base case sensitivity to discount rate Note: 23% discount rate = approximate TSE share price. Discount rate (%) NPV (C$) Exhibit 13: Base case sensitivity to percentage change in operating costs % change in operating costs (20) (10) NPV (C$) Financials With the issue of indigenisation still unresolved Caledonia has decided to restrict its spending at Blanket to the completion of the Level 22 Haulage drive and associated infrastructure and all essential items required to keep Blanket running at its forecast production rate of 40koz Au per annum. Caledonia is also progressing preliminary drilling at Nama in Zambia at an estimated cost of US$1.2m. We forecast no near-term funding requirement with the aforementioned expenditures at Blanket and Nama already sourced through projected cash flows. Further exploration and preliminary development of the Nama project will be funded by Caledonia s treasury. It is likely that Caledonia would need to raise additional debt and equity if it were to progress with the full development of a full-scale copper and cobalt operation. However, this eventuality is probably several years off and will depend entirely on the outcome of exploration at Nama.

11 11 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Exhibit 14: Financials (using base case assumptions in forecast years) C$'000s e 2012e Year end 31 December CAD GAAP CAD GAAP IFRS IFRS PROFIT & LOSS Revenue 11,559 22,401 46,669 52,591 Cost of Sales (10,550) (15,702) (19,520) (21,094) Gross Profit 1,009 6,699 27,149 31,497 EBITDA (2,655) 4,253 24,550 28,409 Operating Profit (before amort. and except.) (2,655) 4,253 24,550 28,409 Intangible Amortisation/depreciation (436) (566) (78 3) (2,493) Exceptionals Operating Profit (3,091) 3,687 23,768 25,916 Other (3,688) (1,624) 0 0 Net Interest (264) (3) Profit Before Tax (norm) (6,607) 2,626 24, ,793 Profit Before Tax (FRS 3) (7,043) 2,060 23, ,300 Tax (8 59) (1,430) (7,729) (8,039) Profit After Tax (norm) (7,466) 1,196 16, ,755 Profit After Tax (FRS 3) (7,902) ,073 18,262 Average Number of Shares Outstanding (m) EPS - normalised (c) (1.6) EPS - normalised and fully diluted (c) (1.6) EPS - (IFRS from 2011 onwards) (c) (1.6) Dividend per share (p) Gross Margin (%) EBITDA Margin (%) (23.0) Operating Margin (before GW and except.) (%) (23.0) BALANCE SHEET Fixed Assets 16,173 21,294 26, ,130 Intangible Assets 13,968 15, , ,8 54 Tangible Assets 2,146 5,435 11,019 12,271 Investments Current Assets 5,917 6,194 17,292 32,862 Stocks 2,58 9 2, Debtors 1,547 2,309 3,836 4,323 Cash 1,623 1,145 12,799 27,8 31 Other Current Liabilities (2,759) (4,629) (5,273) (4,217) Creditors (2,171) (3,882) (4,526) (3,470) Short term borrowings (588) (747) (747) (747) Long Term Liabilities (2,58 9) (4,017) (4,017) (4,017) Long term borrowings Other long term liabilities (2,58 9) (4,017) (4,017) (4,017) Net Assets 16,742 18, ,880 52,758 CASH FLOW Operating Cash Flow (773) 6,574 25,716 26,431 Net Interest (264) (3) Tax 0 (3) (7,729) (8,039) Capex (1,547) (7,290) (6,367) (3,745) Acquisitions/disposals Financing (35) Dividends Net Cash Flow (2,619) (665) 11,654 15,032 Opening net debt/(cash) (3,654) (1,035) (398) (12,052) HP finance leases initiated Other Closing net debt/(cash) (1,035) (398) (12,052) (27,08 4) Source: Caledonia Mining and Edison Investment Research

12 12 Edison Investment Research Outlook Caledonia Mining 25 July 2011 Growth Profitability Balance sheet strength Sensitivities evaluation EPS normalised (c) e 2012e ROCE 100% 80% 60% 40% 20% 0% -20% -40% -60% e 2012e Net cash e 2012e Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Growth metrics % Profitability metrics % Balance sheet metrics Company details EPS CAGR 07-11e N/A ROCE 10e 82 Gearing 10e N/A Address: Head office EPS CAGR 09-11e 430 Avg ROCE 07-11e N/A Interest cover 10e N/A Suite 1201, EBITDA CAGR 07-11e N/A ROE 10e 48 CA/CL 10e Yonge Street, Toronto, Ontario EBITDA CAGR 09-11e 159 Gross margin 10e 58 Stock turn 10e 4.2 Phone Sales CAGR 07-11e N/A Operating margin 10e 53 Debtor days 10e 30.0 Fax Sales CAGR 09-11e 53 Gr mgn / Op mgn 10e 1.1 Creditor days 10e Principal shareholders* % Selected management team Pinetree Resource Partnership 7.58 CEO: Stefan Hayden Epicure Overseas S.A Mr Hayden joined Caledonia in 1995 and was appointed Hayden (Stefan) 0.08 managing director, African operations, responsible for the development of Caledonia s business in Africa. In January Learmonth (Mark) he was appointed chairman of Caledonia and in June Harvey (Frederick Christopher) the position of president and chief executive officer was added to his responsibilities. Dimensional Fund Advisors, LP 0.04 Chairman: Mr Carl Jonsson Jonsson (Carl Roland) 0.01 Mr Jonsson is a lawyer and has been associated with the resource industry for over 40 years. He has been a director of Forthcoming announcements/catalysts Date ** Caledonia since February 1992 and prior to that date he was AGM May 2012 a director of one of its predecessor companies, Golden North Resources Inc. Interim results Mid August 2011 CFO: Steve Curtis Mr Curtis is a Chartered Accountant with 30 years experience and has held a number of senior financial positions in the manufacturing industry. Before joining Caledonia in April Note: * = sourced via Thomson Datastream ** = estimated Companies named in this report Kinross, Falconbridge 2006, he was director finance and supply chain for Avery Dennison SA and, prior to this, financial director and then managing director of Jackstadt GmbH s South African operation. EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is Europe s leading investment research company. It has won industry recognition, with awards in both the UK and internationally. The team of more than 70 includes over 40 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. 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