Caledonia Mining Corporation

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Blanket Gold Mine

Blanket Expansion and Development Projects

Exploration and Development

Blanket Mine's exploration interests in Zimbabwe include both producing claims (i.e on-mine) and a portfolio brownfields exploration projects ("satellite projects").

On-Mine Exploration and Development

The current Blanket Mine mining area has eight near-vertical ore shoots between Jethro and Lima shafts (see figure NN under Property Geology). An additional six ore shoots occur outside the above mining limits but are included within the producing claims area. The longer term future of Blanket Mine depends primarily on the remaining life of these 14 ore shoots. Exploration at Blanket is therefore focussed on determining the continuity of these mineralised shoots to depth. Ore shoots AR Main, AR South and Blanket Reef, which comprise the deepest areas of mining at Blanket, have been exposed down to 750 meters below surface. However, the ore shoots on neighbouring Vubachikwe Mine have been mined down to 1,100 meters below surface, suggesting that Blanket has at least this potential to increase its resources.

Blanket is equipped to carry out its own underground exploration, both in terms of machines and drilling skills. Blanket's exploration team is being increased so that it can manage the increased workload more effectively as the scale of exploration activity increases. Blanket also receives the support and technical assistance of Caledonia's geological and exploration team.

The on-mine exploration and development projects comprise the 22 Level, 18 Level and 14 Level Haulages and the No.6 Winze development. It is anticipated that all of the on-mine developments should result in Blanket achieving annual gold production of 76,000 ounces.

Level 22 Haulage: AR South to Lima

The 22 Level Haulage Extension Project will link the Blanket and Lima ore bodies on 22 Level and will also allow for the further down-dip exploration of the Blanket Mine's known ore bodies. Crosscuts (side tunnels) on 18 Level have been completed and the crosscuts on the 22 Level Haulage are now being excavated to provide the required drilling platforms from which the ore bodies below the 22 Level can be drilled for resource evaluation purposes. If this exploration is successful, this haulage will also allow for the rapid commencement of mining in any new mining areas defined above 750m as a result of exploration from the 630m haulage (see below). Work on the 22 Level Haulage Extension Project and its associated crosscuts will be carried out simultaneously with normal mining production with its completion anticipated for mid-2014. It is planned that the underground exploration drilling of the ore zones below 750m Level, which will be undertaken from the completed crosscuts, will continue into 2014 and beyond.

It is anticipated that the above drilling program will lead to a complete reassessment of Blanket's resource base and provide an opportunity to review the mine's production strategy, specifically in terms of further increases in production and the requirement for additional infrastructure to achieve such incremental production.

18-Level Haulage

The 18 Level Haulage extension will allow access to explore for the extension of the Sheet ore body between 630m and 510m. The haulage has reached its currently planned extension and exploration drilling has commenced.

This project will open up new mining areas on known resources at AR South and Lima and will allow a 100tpd increase in ore production commencing in Q1 of 2015 and should result in incremental gold production of approximately 4,000oz from 2015.

14-Level Haulage: Eroica to Lima

The 14 Level Haulage has reached the Lima ore body. Development work will commence on the Lima ore body between 510 and 230m levels. This production section is expected to add an additional daily 200 tonnes of ore production from early 2014 at the average mine grade of 3.84 g/t and should result in incremental gold production of 8,000oz from 2014.

No. 6 Winze Project

This project, which was recently approved by the new Blanket Board, will provide access to the Blanket ore body below 22 Level by deepening the existing No. 6 Winze. An existing Double Drum Winder is currently being upgraded and refurbished and will be installed in a new winder chamber to be excavated on 18 Level. The winze, from 120m above 22 Level, will be widened to accommodate the tipping station for the two x 3 tonne ore skips, and the shaft will then be sunk down to 1,080m with stations and main haulage levels being developed on 870m (26 Level) and 1,000m (30 Level) and with the skip loading station at 1060m. Ore and development waste will then be hoisted up the deepened No. 6 winze to 22 Level where it will be tipped into the No 4 shaft system for crushing and hoisting to surface via the No 4 Shaft. The pre-production capital cost of this project is estimated to be US$3 million, which will be funded from Blanket's internal cash flows.

Work on this project has commenced and it is expected that this project will be completed in late 2015. Once complete, management expects that production from the Blanket ore body below 22 Level will progressively increase to approximately 600 tonnes of ore per day at the average mine grade of 3.84 g/t and should result in incremental gold production of 24,000oz from 2016. This production will be in addition to the continued target production from other areas of Blanket mine of 1,300 tonnes of ore per day from early 2015 following the development of the 18 and 14 Level Haulages.



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Gwanda Greenstone Belt - Blanket Mine Producing Claims
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GG
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Mascot
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Exploration and Development of Non-Producing Claims ("Satellite Properties")

Blanket has 18 brownfields projects in the vicinity of the existing mine operations, many of which were mined commercially from the early 1900s until the 1960's. At the time of their closure, only the highest grade portions of these mines had been extracted, leaving significant amounts of lower grade mineralisation in the workings which are likely payable given the current gold price. In addition, these old ore shoots remain open to depth and require further exploration and development to determine their full potential. Advances in exploration, mining and metallurgical technologies over the last 40 years means that such old workings may now potentially be economically viable on a sustainable basis and not just because of the high gold prices which currently prevail.

Some of these workings therefore have developed shaft infrastructure in place which facilitates more rapid underground access for exploration, development, evaluation and the potential resumption of mining activity.

Blanket has commenced exploration on two of these areas (GG and Mascot) in order to better assess their suitability for further development as potential satellite operations. Depending on the successful outcome of exploration work, mining development and metallurgical test-work, it is intended that economic ore extracted from the satellites would be trucked to the Blanket plant for processing. The Blanket Mine metallurgical plant has existing surplus treatment capacity and when the planned crushing and milling plant extensions have been completed, could handle up to 3,500 tonnes per day of ore from Blanket underground and successful exploration project areas.

The brownfield projects that have been prioritised as targets for immediate exploration development are briefly described in the following paragraphs.

GG

The GG project was previously the site of small-scale surface workings and is located approximately 7km south east of Blanket Mine.

Drilling programs were carried out at GG over the past eight years included seventeen diamond-cored holes that were drilled amounting to 4,751 metres of drilling. Two zones of potentially economic gold mineralisation have been established down to a depth of approximately 200 metres, each with an estimated strike length of approximately 150 metres.

Work commenced on sinking a 3m by 2m shaft in the 3rd quarter of 2012 and the shaft has reached the target depth of 120m. During shaft sinking operations, the shaft encountered a mineralized quartz shear with a near vertical orientation. As the shaft sinking extended below 40m, this quartz shear swelled and occupied the full width of the shaft. This zone of mineralisation has persisted down to 60m and on assay returned an average grade of 6.0g/t gold. The sulphide intensity of this mineralised shear exposed by the shaft between the 60m and 90m levels appear to have weakened but the shear structure remains intact. Underground diamond drilling will be undertaken to evaluate the mineralisation of this structure.

Horizontal development has commenced on the 60,90 and 120m levels, short side excavations from the main haulage drive ("cubbies") have been made to allow for diamond drilling of the identified mineralised zones. To date, four holes, totalling 400 metres have been drilled to investigate the North Main Shear and three of these holes have intersected mineralization with averaged grades and thicknesses of about 4g/t over about 2 metres. Further diamond drilling is in progress to allow for a better understanding of the geometry of the identified zones. A total of 3,000m of diamond drilling is planned from these three development levels during 2013.

Mascot Project Area

The Mascot Project Area comprises three existing shafts (Mascot, Penzance and Eagle Vulture) which extend down to various depths of up to 450 metres. These shafts and other infrastructure need extensive rehabilitation. Production at these shafts ceased decades ago due to a combination of political difficulties and the limitations of the technology that was then available. Blanket Mine Management believes that the application of modern exploration and processing techniques may allow some or all of these shafts to operate profitably for a period of time, and not just at the prevailing high gold price. Priority has been given to the rehabilitation and installation of infrastructure at Mascot. Work at Penzance and Eagle Vulture has been deferred pending completion of work and underground development at Mascot.

Mascot

Mascot was previously mined down to approximately 300 metres, exploiting an ore body which narrowed continuously with depth. The decrease in the extent of the mined out ore at depth is thought to have been the result of limitations on mining localised low ore grades and thereby not exposing the full extent of the mineralized zone. Previous drilling undertaken by Blanket has indicated the existence of two further mineralised zones, one on either side of the mined out area.

During the 2nd quarter of 2012, following the installation of the ZESA electricity connection, surface infrastructure was installed (headgear, winder house and winder, electricity substation and reticulation, and a 1,000cfm air compressor) and the shaft was re-accessed down to the 120 metre level below surface and found to be in reasonably good condition.

During the 3rd quarter of 2012 work focussed on re-equipping the shaft: rope guides were installed down to 120metres, the ladder-ways and all station platforms were installed and the installation of air, water and pump lines is 90% complete at 21st February 2013.

Underground lateral development commenced in November 2012 simultaneously on 1 and 2 levels towards the two new mineralised zones which had been identified by Blanket's previous surface drilling. Development towards the north zone on the 60m level (1 Level) entered the identified mineralised zone in Q1 of 2013 and further development on this level was suspended until metallurgical investigations have been successfully completed and handling systems installed to allow material to be hoisted to surface.

During the Q3 of 2013 development and exploration commenced on the 90m level (2 Level). Work has commenced on cutting the 120m level off the Mascot shaft station and it is intended to repeat the same development as the upper levels.

Above ground, a new headgear and ore-bin was fabricated and it is 90% complete as at mid-November 2013. These works will facilitate automatic handling of any future ore from underground and allow for crushing to reduce the run-of-mine aggregate to a more uniform product which is easier and more cost-efficient to transport by road to Blanket.



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