Caledonia Mining - 20-F annual report

CALEDONIA MINING CORPORATION

2OF FILING

U.S. SECURITIES & EXCHANGE

COMMISSION

2004

FORM 2OF

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2004

Commission file Number: 0-13345

CALEDONIA MINING CORPORATION

CANADA

Unit #9, 2145 Dunwin Drive, Mississauga,

Ontario, Canada L5L 4L9

Tel: (905) 607-7543

Securities registered or to be registered pursuant to Section 12(b) of the Act.

             NIL                                                       NIL                               

(Title of each class)                                 (Name of each exchange on which registered)

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Common shares without par value

(Title of class)

Securities for which there is a reporting obligation Pursuant to Section 15(d) of the Act.

        NIL        

(Title of class)

Number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report.

  301,112,286                                            (as of December 31, 2004)

(Common shares)

Indicate whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes              X                                                     No      

Indicate which financial statement item the Registrant has elected to follow:

Item 17         X                                                     Item 18

NOTE:

Caledonia Mining Corporation was created on February 5, 1992 following the amalgamation of its three predecessor companies, namely Golden North Resource Corporation, Thorco Resources Inc. and Doelcam Mining Corporation.  For accounting purposes, the Amalgamation was treated as a purchase acquisition by Doelcam Mining Corporation of the other two predecessor companies.

NOTE:

  That all reference to monies herein are to Canadian dollars unless otherwise specifically indicated.

PART 1

1.

IDENTITY of DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

1.

Directors and senior management

Not required as this is an “annual report under the Exchange Act’.

2.

Advisers

Not required as this is an “annual report under the Exchange Act”.

3.

Auditors

Not required as this is an “annual report under the Exchange Act”.

However, the information required above can readily be determined from the 2004 Annual Report of the respondent on pages 46 and 47.

2.

OFFER STATISTICS AND TIMETABLE

1.

Offer Statistics

Not required as this is an “annual report under the Exchange Act”.

2.

Method and expected timetable

Not required as this is an “annual report under the Exchange Act”.

3.

KEY INFORMATION

1.

Selected Financial Data

Table 3 A shows the applicable selected financial data for the 5-year period 2000 to 2004 in Canadian Generally Accepted Accounting Principles.

Table 3 A (i) shows the applicable selected financial data for the 5-year period 2000 to 2004 in United States Generally Accepted Accounting Principles.

Table 3 A (ii) shows the US$ exchange rates against the $ Canadian for each of the 5 year periods indicated, for the period end and average exchange rate and the range of high and low rates for each year and the high and low exchange rates for the individual last six months ending February 2005.

Table 3A - Selected Financial Information - Canadian Generally Accepted Accounting Principles

⁽¹⁾            Restated for the adoption of the Asset Retirement Obligations change in accounting policy.

Table 3A (i) - Selected Financial Information - United States Generally Accepted Accounting Principles

Table 3A (ii) - Summary of Exchange Rates for the 5-year Period - 2000 to 2004

The following table sets forth, for each of the years indicated, the exchange rate of the United States dollar into Canadian currency at the end of such year, the average exchange rate during each such year and the range of high and low rates for each such year as supplied by the Bank of Canada.

Notes:

(1)

The rate of exchange is the Bank of Canada closing rate for the period.

(2)

The average rate means the average of the exchange rates during the year.

The high and low rates of exchange for each of the 6 months from September 2004 to February 2005 are as follows:

        Sept. 2004      Oct. 2004     Nov. 2004      Dec. 2004        Jan. 2005        Feb. 2005                

 Closing             1.2616             1.2180           1.1860            1.2020              1.2412

               1.2335

Average             1.2878             1.2469           1.1961            1.2191              1.2253

               1.2397

Hi                      1.3069              1.2727           1.2243            1.2414              1.2412

               1.2584

Low                   1.2616             1.2180            1.1759            1.1837              1.2003

               1.2314

B.

Capitalization and indebtedness.

Not required as this is an “annual report under the Exchange Act"

C.

Reason for the offer and use of proceeds

Not required as this is an “annual report under the Exchange Act"

D.

Risk Factors

An investment in the securities involves a high degree of risk.  Investors need to carefully consider the following risk factors, in addition to the other information contained in this section “C” and the Exhibits hereto.

Industry Competition

The mining industry is a highly diverse and competitive international business.  The selection of geographic areas of interest are only limited by the degree of risk a company is willing to accept by the acquisition of  properties in emerging or developed markets and/or prospecting in explored or virgin territory.  Mining by its nature, is a competitive business with the search for fresh ground with good exploration potential and the raising of the requisite capital to move projects forward to production.  Globally the mining industry is prone to cyclical variations in the price of the commodities produced by it, as dictated by supply and demand factors, speculative factors and industry-controlled marketing cartels.  Nature provides the ultimate uncertainty with geological and occasionally climatic surprises. Commensurate with the acceptance of this risk profile is the potential for high rewards.

Exploration and Development

• The exploration, and development of, and the production from mineral deposits is potentially subject to a number of political, economic and other risks.  Exploration, development and production activities are potentially subject to political, economic and other risks, including:

• cancellation or renegotiation of contracts;

• changes in local and foreign laws and regulations;

• changes in tax laws;

• delays or refusal in granting prospecting permissions, mining authorizations and work permits for foreign management staff;

• environmental controls and permitting

• expropriation or nationalization of property or assets;

• foreign exchange controls;

• government mandated social expenditures, such as comprehensive health care for HIV/AIDS infected employees and families;

• import and export regulation, including restrictions on the sale of their production in foreign currencies;

• industrial relations and the associated stability thereof;

• inflation of cost that is not compensated for by a currency devaluation;

• requirement that a foreign subsidiary or operating unit have a domestic joint venture partner, possibly which the foreign company must subsidize;

• restrictions on the ability of local operating companies to sell their production for foreign currencies, and on the ability of such companies to hold these foreign currencies in offshore and/or local bank accounts;

• restrictions on the ability of a foreign company to have management control of exploration and/or development and/or mining operations;

• restrictions on the remittance of dividend and interest payments offshore;

• retroactive tax or royalty claims;

• risks of loss due to civil strife, acts of war, guerrilla activities, insurrection and terrorism;

• royalties and tax increases or claims by governmental entities;

• unreliable local infrastructure and services such as power, communications and transport links;

• other risks arising out of foreign sovereignty over the areas in which Caledonia’s operations are conducted.

Such risks could potentially arise in any country in which Caledonia operates; however the risks are regarded as greater in South Africa and Zambia.  In South Africa, the Black Economic Empowerment Legislation and a number of economic and social issues may result in an increased perceived political and economic risk weighting of operating in that country.

Consequently, Caledonia’s exploration, development and production activities may be substantially affected by factors beyond Caledonia’s control, any of which could materially adversely affect Caledonia’s financial position or results from operations. Furthermore, in the event of a dispute arising from such activities, Caledonia may be subject to exclusive jurisdiction of courts outside North America or may not be successful in subjecting persons to the jurisdiction of the courts in North America, which could adversely affect the outcome of a dispute.

History of Losses; Accumulated Deficit; No Assurance of Revenue or Operating Profit

Since inception from February 1992, Caledonia has recorded a loss in every year except 1994 and 2000.  As at December 31, 2004 the consolidated accumulated deficit was $151.9 million.  72.9% of the accumulated loss relates to capital asset and mineral property write-downs, 7.2% is due to discontinued operations prior to 1998, and the balance of 19.9% relates to operational and administration activity.  Operational activity is defined as gross profit from mining operations less expenses such as amortization, general and administration, interest on debt and other miscellaneous expenses.

Write-downs on capital assets and mineral properties are typical for the mining industry.  Caledonia’s   policy is to review the carrying value of assets relative to current market conditions on an annual basis.  In 1997, Caledonia reduced the carrying value of its investment in the two South African gold mines by recording a write-down of $44.9 million. This reduction was made in response to a decline in the average price of gold per ounce from about US$364 in 1996 to US$327 in 1997 and the placing of the two mines onto "care and maintenance".  Similarly in 1998 and 1999 these assets were further reduced by $10.6 million and $2.4 million respectively when the gold price fell to about US$ 250 per oz. In 2004, the mineral property of Eersteling Gold Mine was written down by $223,000 to $0.  Similarly, in 2004 the Eersteling plant and equipment was written down from $1.596 million to $ 0.887 million at the year end.

During  2003 the Rand price of gold held steady at between R82,000 and R88,000 per kilogram despite a slow but gradual increase in the price of gold to about  US $415 per ounce at the 2003 year end from a price of $347 per ounce at the beginning of 2003. As the gold price recovers to acceptable levels and the South African mines recommence production, a substantial portion of the write-down could be recovered as earnings.  However, there is no assurance the Rand price of gold will be sustainable.  During 2004, despite the gold price in US dollars increasing to a high of $458, the price of gold in South African Rands at the end of the year declined by about 9.5% over that at the end of 2003. The Rand appreciated by 14.8% against the US$ over the 2004 year whilst the US$ gold price increased by about 6.6% over the year.

In 2002, the carrying value of Caledonia’s Kadola exploration property in Zambia, amounting to $2.6 million was written down to $1 as no exploration funding was available for this project at that time. In 2003, the carrying value of the Nama group exploration property in Zambia, $9,534,000, was written down to $1 due to lack of significant exploration activity on the property during the year and despite there being strong interest shown on purchasing a cobalt concentrate from Nama by two potential end-users.  In 2004, development work was re-started on the Nama cobalt project due to increases in the prices of base metals and the continuing strength of the price of cobalt.

At the end of 2004, an amount of $1.671 million had been spent on exploration of the Rooipoort Platinum Project

and the Roodepoort Gold Project and had been capitalized under Canadian GAAP in the books of the Corporation. Of the above $1.671 million, $520,000 was spent in 2003 and the balance was spent in 2004.

In general, mining companies react to changing commodity prices by searching for new methods of operating to either increase the volume of production from existing ore reserves or reduce operating costs.  Caledonia is continuously searching for new production methods and operating cost efficiencies in an attempt to mitigate the effects of lower commodity prices on operating profits. However, there is no guarantee that Caledonia  will be successful in its efforts.  Caledonia at its Barbrook mine  recommenced gold production in the 2^nd quarter of 2003  and introduced the relatively new technology of Resin leaching to increase its gold recovery and enhance economics. In late 2003 and during 2004 Caledonia introduced additional new flotation equipment and concentrate oxidation technology at Barbrook to further improve the gold recovery and production economics. It is further evaluating alternat ive metallurgical processes to determine whether further improvements in recoveries and mine economics can be attained.

Need for Additional Funds

It is the belief of  Caledonia  that the  financing by a group of private investors that  closed on the 30^th June 2004 and which provided gross funding of  about $15.0 million and the exercise of common share purchase warrants of about  $ 0.761 million will sustain  Caledonia  for the year 2005. The resumption of gold production at Caledonia’s Barbrook mine also generated some cash flow in 2004 and will continue in 2005. However, if funds fall short of requirements, Caledonia  will undertake financing options such as private placements with private investors, and, if this is still insufficient for its needs, will investigate either project joint ventures or project or bank funding.   The funds raised by the 2004 financing have been and will be mainly used by Caledonia on its exploration, development and production activities such as:

• at Barbrook by developing access to ore resources below the 10 level and to the east along strike; providing continuity of the mining operations; making capital additions to the Barbrook metallurgical plant, such as a Biox® circuit and/or ultra-fine milling;

• by further drilling at Caledonia’s Rooipoort Platinum Project;

• by the purchase of additional exploration property at Caledonia’s Grasvally Platinum Project;

• drilling of Caledonia’s Grasvally project once the Prospecting permit has been issued;

• by further  bulk sampling and concentration testwork on Caledonia’s Nama Cobalt/Copper Project in Zambia;

• by further exploration and drilling at the Roodepoort gold project of Eersteling;

• by possible drilling of target exploration areas at Eersteling gold mine; and

• by further drilling/bulk sampling and processing of material from the Goedgevonden Diamond project.

.  The Mulonga Plains Joint Venture with the BHP-Billiton Entity is subject to joint venture agreements and is fully funded by the joint venture partner through to commercial production. Similarly, the Kikerk Lake joint venture with Ashton Mining (Canada) Limited is fully funded by Ashton. Caledonia continues to actively review the benefits, to Caledonia and its shareholders, of seeking joint venture partners for most, if not all of its exploration properties.

Dependence upon Key Personnel

Caledonia’s success depends (i) on the continued contributions of its directors, executive officers, management and consultants, and (ii) on Caledonia’s ability to attract new personnel whenever Caledonia  seeks to implement its business strategy.  During  Caledonia ’s limited operating history and the continuous shortage of funding between 1997 and mid 2002, most of the key responsibilities within  Caledonia  have been assigned to a small number of individuals. With  recommencement of production at  the Barbrook mine and the expansion of other Southern African projects, various consultants and staff have been engaged to assist with the increased technical and administrative workload.  In late 2003 and early 2004 additions were made to the corporate staff at senior levels to strengthen the management and operations team in South Africa and to address some of the successio n planning needs of Caledonia.;

To follow on from the previously disclosed appointments,  Mr. Mike Tombs as was appointed Vice President Finance and Chief Financial Officer at mid year, and Mr. Roland Fasel of Geneva, Switzerland was appointed to the Board of Directors in August 2004. Mr. Rupert Pardoe of Johannesburg, South Africa was appointed as Chairman of the Board of Directors of the Corporation in February 2005. Mr. Hayden stepped down as the Chairman at that time

but continues as the Corporation’s President and CEO.

Absence of Dividends

The Company has never paid, and does not intend at this stage, to declare or pay cash dividends on Common Stock in the foreseeable future.

Possible Volatility of Share Price

Market prices for mining company securities, by their nature,  are volatile.  Factors, such as rapidly changing commodity prices, political unrest globally and in countries where  Caledonia  operates, speculative interest in mining stocks etc. are but a few factors affecting the volatility of the share price.  The volatility of Caledonia’s  stock may also be affected by the relative lack of institutional and stock analyst coverage of  Caledonia . However, Caledonia intends to list its shares on the London Stock Exchange’s  Alternative Investment Market (“AIM”) in 2005 and to try to attract more institutional and stock analyst coverage of its shares.

4

INFORMATION ON THE COMPANY

A.

History and Development ofCaledonia

Caledonia Mining Corporation ("Caledonia") was incorporated, effective February 05, 1992, by the amalgamation pursuant to the laws of the Province of British Columbia, Canada of two "public" companies and one "private" company.  The two public companies were Golden North Resource Corporation ("Golden North"), a British Columbia company and Thorco Resources Inc. ("Thorco"), an Ontario company.  The private company was Doelcam Mining Corporation ("Doelcam"), an Ontario company.  Such three companies being herein variously referred to as the "Amalgamating Companies".

One of the Amalgamating Companies, Golden North was itself created, effective October 1, 1986 by the amalgamation, pursuant to the laws of the Province of British Columbia, Canada, of two "public" British Columbia companies named Golden North Resource Corporation ("Golden North") and Good Hope Resources Ltd. ("Good Hope") - such two companies being herein variously referred to as the "Predecessor Companies".  Predecessor Corporation Golden North was itself created by an amalgamation, which became effective on August 30, 1984, of three companies incorporated in the Province of British Columbia, Canada, named Grove Explorations Ltd., Rosmac Resources Ltd. and N.W.P. Resources Ltd.

The amalgamation of companies under the British Columbia Corporation Act is in effect a merger of the Amalgamating Companies into a single new corporate entity, which replaces the original Amalgamating Companies.  As a result of the amalgamation, Caledonia became possessed of all the assets and assumed responsibility for all of the liabilities, of the Amalgamating Companies.

As a result of the amalgamation, all of the issued and outstanding shares of the Amalgamating Companies were exchanged for fully paid and non-assessable common shares in the capital of Caledonia.  As a result of the share exchange Caledonia issued a total of 10,632,567 common shares to the shareholders of the Amalgamating Companies.  The share exchange was on the following basis:

-  0.71672 shares of Caledonia for one share of Golden North;

-  0.19426 shares of Caledonia for one share of Thorco;

-  0.70810 shares of Caledonia for one share of Doelcam

The shares of Golden North and Thorco were, prior to the amalgamation, listed on the Toronto Stock Exchange in Toronto Ontario, Canada.  Additionally, up to 1991, Golden North was listed on the Vancouver Stock Exchange in Vancouver British Columbia, Canada and was also quoted on NASDAQ in the U.S.A.  Following the amalgamation, the shares of Caledonia were listed for trading on the Toronto Stock Exchange and quoted on the NASDAQ small caps market.  In October 1995, Caledonia was elevated to the NASDAQ National Market from the small caps market.

In March 1995, Caledonia decided to de-register as a Corporation registered under the laws of the

Province of British Columbia, and simultaneously, was registered as a Canadian Corporation under the provisions of the Canadian Business Corporations Act (CBCA).

 The addresses and telephone numbers of Caledonia’s two principal offices are:

Head Office - Canada

Africa Office - South Africa

Caledonia Mining Corporation

Greenstone Management Services

Suite 9, 2145, Dunwin Drive,

24, 9th Street, Lower Houghton

Mississauga, L5L 4L9

Johannesburg, Gauteng, 2198

Ontario, Canada

South Africa

(1) 905 607 7543

(27) 11 447 2499

The above principal Canadian and South African office addresses are the same as those given in the 2002 and the 2003 Form 20F.

In 1997, the NASDAQ stock market put Caledonia on notice that new listing requirements were in the process of being implemented. A minimum bid price of US$1.00 per share for a period of ten consecutive trade days is required for Caledonia to regain compliance with the new listing requirements.  Caledonia was unable to regain compliance and on October 16^th 1998, Caledonia announced that the NASDAQ Stock Market, Inc. would no longer quote Caledonia’s securities for trading.  In addition to trading on the Toronto Stock Exchange, Caledonia’s common stock commenced trading on NASDAQ’s OTC Bulletin Board system under the same symbol, CALVF, immediately after removal from the NASDAQ National Market.

On April 6, 2000, the Board of Directors of Caledonia approved a letter of intent dated April 4, 2000 whereby Caledonia disposed of its investment in Filon Sur S.A. ("Filon Sur") and Fynegold Exploration Limited ("Fynegold").  In relation to the above transaction, reference is made to note 5 (b) of Caledonia’s financial statements contained in the 2000 Annual Report, which information was incorporated therein by reference in the 2000 Form 20F.

In August 2000, Caledonia was notified by its joint venture partner on its Mulonga Plain properties in Zambia that it had expended more than US$ 3 million on exploration on the properties and as such had earned a 60% interest in that property.  The joint venture party has continued work on the Mulonga Plain properties in 2004 in its search for diamondiferous kimberlite pipes and has planned further exploration work for the 2005 exploration season.

In August 2000, Caledonia concluded a deal with a major mining company whereby the company would   spend a total of $750,000 over a 3-year period on Caledonia’s Kikerk Lake diamond property in northern Canada to earn a 52.5% interest in the property from Caledonia who at that time held a 70% interest.  By the end of 2002 the mining group had spent in excess of $750,000 on the Kikerk property and had earned a 52.5% interest.  The joint venture parties have signed a 3-way joint venture exploration agreement in early 2002 and the operator of the joint venture has completed an approximate $1.5 million winter and summer exploration program in 2002 a further $600,000 program in 2003 and a $300,000 exploration program in 2004. At the date of this report, the operator had not set a cost of its 2005 program of exploration expenditure.

In August 2000, Caledonia signed a heads of agreement with a major mining group over Caledonia’s Nama group licences in Zambia – the “Kalimba project”.  The mining group undertook to spend US$ 2,500,000 over a 4-year period to earn a 30% interest in the property by funding all of the exploration work on the Kalimba project.  The mining group could have increased its interest to 50% by spending a further $4,000,000 in the same 4-year period.  The mining group carried out exploration work on the Kalimba project between 2000 and March 2002 when it withdrew from the joint venture as part of its overall cutback in worldwide exploration.  The property is again fully owned by Caledonia.  Talks were held with another potential joint venture partner in 2002 but without any agreement being reached.  In late 2003 talks were held with a smelting company in Zambia rega rding the sale of concentrates from Nama as smelter feed. Further discussions with the Zambian Smelter and other cobalt end-users were held in 2004.  Caledonia collected a 10-tonne bulk sample from Nama during the 3rd quarter of 2004 and conducted

metallurgical tests to produce a concentrate and confirm whether or not the specifications required by the smelter can be met. The tests continued into the 1^st quarter of 2005.

Caledonia has not been involved in any significant reorganization, mergers, receiverships or bankruptcies. However in January 2002, Caledonia’s management service agreement with the Filon Sur Gold Mine in Southern Spain was effectively terminated due to the placing of Filon Sur into liquidation by its major shareholder.

In 2002, the Corporation raised about $ 4.2 million equity financing (net of fees) from private placements and a convertible debenture and about $1.5 million from the exercise of warrants. In early 2003, Caledonia raised approximately $1.2 million from equity financing (net of fees) from the portion of the private placement carried over from December 2002, about $1.2 million from the exercise of warrants and about $0.037 million from the exercise of share options. A second private placement in August 2003 raised a further $4.6 million (net of fees). For details of these equity financings and the sale of the warrants please refer to Note 4 of the Financial Statements on pages 31 and 32 of the 2003 Annual Report that are incorporated herein by reference or in Note 4 b (1), (3), (4) and (5) of the 2004 Annual Report that is incorporated as Exhibit 14a herein by reference.

In 2004 a private placement and exercise of warrants raised $14.3 million net of financing costs. For details of this financing please refer to Note 4 b (6) of the Financial Statements on page 34 of the 2004 Annual Report that is incorporated as Exhibit 14a herein by reference.

A full description of Caledonia's involvement in its various subsidiaries is given in the following section - 4 (B).  From time to time Caledonia receives mineral property and business proposals from third parties for review as potential investment opportunities.  The Board of Directors or the officers of Caledonia will review and evaluate those opportunities of merit and interest to Caledonia.  In 2002 Caledonia became involved with the “Rooipoort” mineral exploration property in South Africa following the review procedure outlined above.

With the imminent potential of improved political conditions in other Southern African countries, Caledonia is reviewing mining opportunities in these countries.  These activities are and will be undertaken through joint ventures or direct exploration expenditures.

B.

Business Overview

Mining and Exploration Properties:

(1)

Filon Sur gold mine

Until June 30 2000, Caledonia owned a 99.5% interest in the Filon Sur gold mine located at Tharsis in the Province of Huelva in the Andalusia area of southern Spain.  The Filon Sur mine had the right to mine, reclaim and process all gossans and morrongo ores from the 10,000 acre Tharsis and La Zarza lands and mining concessions, historic mining districts located on the world famous Iberian pyrite belt.

The operation at the mine in early 2001 and the latter part of the year was severely affected by wet weather that affected all of the feed sources to the plant and reduced production significantly.  Despite various efforts to reduce costs and increase production, operating losses were made throughout the year - especially from August 2001 onwards.  Despite seeking respite from the critical cash flow shortage by attempting to obtain Government funding for the depressed Spanish mining industry, the mine could not produce a viable on-going operating plan and was placed into liquidation at a shareholders’ meeting in January 2002.  This effectively terminated the management services contract with the mine. Because of the poor operating and economic results, there was no free cash from the mine in 2001 and therefore no fees were paid to Caledonia for management services.

(2)

Barbrook gold mine

The 100% owned Barbrook gold mine is located near the town of Barberton in the Mpumalanga province of the Republic of South Africa. Pretoria and Johannesburg are approximately 375 km to the west. Barberton is the natural and historic center of the gold mining district in the Mpumalanga province.  The town has a history of mining dating back more than 100 years. The present property, which covers an area of 10,625 acres and extends for a distance of about 28 km along strike, represents a consolidation of about 20 old mines.

The Barbrook gold deposits occur in the Barberton Greenstone belt, the host for the other gold deposits in the area. The belt is of Achaean age and includes some of the oldest volcanic and sedimentary rocks in South Africa.  The belt trends southwest to the northeast and has been intruded and deformed by various granite plutons at the margins. The Barbrook property covers two steeply dipping banded iron formations oriented in an east-west direction.  These two shear zones, called the Zwartkoppie and Barbrook Lines are the host to the Barbrook gold deposits.

During 1997, prior to the suspension of activities, the mine was operating at a rate of 17,000 tonnes per month and the process plant was operating at about 20,000 tonnes per month of underground ore.  The plant has, in the past, processed oxide ore at rates in excess of 30,000 tonnes per month. Through 2000, operations remained suspended at Barbrook due to the continuing low gold price.  The underground mine was operated on a very small-scale basis in early-mid 2001 to generate cash flow to enable the plant and the mine to be re-started.  This operation was terminated in September 2001 due to uneconomic operation at the low production rate. The mine was returned to a care and maintenance basis. Reference is made to page 7 of the 2004 Annual Report for information on the reserves and resources, which information is incorporated herein by reference.

Barbrook was re-started in January 2002, again mining a low-tonnage, high grade payshoot to provide cash flow to commence rehabilitation of the Mine planned to re-start processing at a rate of 6,000 tonnes per month and to pilot test the new process technology for gold recovery developed by Caledonia. However, due to poor economic returns on the low tonnage, high-grade ore, operations were suspended in April 2002. A full geological and mining re-evaluation was carried out on the Taylor’s orebody from May 2002, which has led to the rehabilitation of the mine and plant and the resumption of operations in the 2^nd quarter of 2003. Information on the production of Barbrook in 2004 is shown on Page 10 of the 2004 Annual Report that is incorporated herein by reference. The characteristics of the Taylors ore fed to the plant in 2003 and 2004 were not as expected, or as used in earlier test work, and recoveries have been below projections.  The ore was much more refractory with considerably more arsenopyritic ore than expected, although these ores are of higher grade than the pyritic ore zones tested previously.

A number of alternative metallurgical circuits have been tested and circuit improvements have been identified.  In late 2003 and during 2004 Caledonia introduced new flotation equipment, organic carbon separation systems and concentrate oxidation technology at Barbrook to improve the gold recovery and therefore the production economics. Commissioning and modifying these circuit changes is continuing.  In early 2005, Barbrook is further evaluating “dense-media-separation”, ‘ultra-fine milling’ and ‘whole-plant Biox®’ metallurgical processes to determine whether further recovery improvements and improved economics can be attained. Further information on the detailed work carried out in the Barbrook metallurgical plant is shown on pages 10, 11 and 12 of the 2004 Annual Report that is incorporated herein by reference.

As future test work is completed, and following an internal, feasibility study, it is probable that more revisions to the metallurgical plant can be expected.

In 2004 it was decided to develop mining operations at Taylors on the Barbrook line below the 10 level, at the upper levels of Taylors and easterly along strike towards the Crescent area and on the Zwartkoppies line in order to provide additional ore to the metallurgical plant when the new metallurgical processes are proven successful. Development of an incline shaft to access these levels was started in 2004.  A hoist has been purchased and will be installed and commissioned during 2005. Further information on exploration and mining at Barbrook is shown on pages 6, 7

and 10 of the 2004 Annual Report that is incorporated herein by reference.

(3)

Eersteling gold mine

The 100% owned Eersteling gold mine, is located 36 kilometers from the town of Polokwane (Pietersburg) in the rolling terrain of the Northern Province of the Republic of South Africa.  Pretoria and Johannesburg are 250 km and 300 km, respectively, to the south.

The first gold discovered in South Africa was on a farm named "Eersteling" which was located near the village of Marabastad, 30 km southeast of Pietersburg.  Mining started in May 1874 and continued until the second Anglo-Boer War (1899 - 1902) when the mine was shut down. The mining rights of the fragmented mining and exploration properties were consolidated. On July 16 1987, Eersteling Gold Mining Company Limited was formed and was listed on the Johannesburg Stock Exchange.

The Eersteling Mine property has an area of 47,000 acres (19,000 hectares), extends for a distance of about 25 km and is located in the Pietersburg Greenstone belt which is of Achaean age and which consists of an upper and lower sequence.  The upper sequence is mainly conglomerate, grit and sandstone. The lower sequence is undifferentiated mafic and ultramafic volcanic rocks and intrusives, with banded iron formation and chert.  The feature that most dominates gold mineralization in the area is the Willemse shear.  During 2003 and 2004 operations remained suspended at Eersteling.

A full geological review of the Eersteling property, including the mine plans and other technical data, was commenced in October 2004.  The resources at Eersteling were evaluated and a development program prioritized. Other prospective areas, which should be investigated as potential ore sources, were identified and a surface exploration program has been proposed to test some of these areas.  This program of work included a high resolution aeromagnetic survey which was completed in January 2005 and will be combined with results of previous work as well as a detail gold-in-soil sampling survey over the property that is currently nearing completion. Following the above survey and sampling program, and depending on the results attained, potential target zones will be identified that may lead to possible drilling in 2005.

Platinum/Base-metals Properties:  In 2002, Eersteling obtained the Rooipoort platinum prospect from Anglo American Platinum Corporation (Amplats). The property is about 30 km southwest of the Eersteling metallurgical plant and is located in an area that is presently undergoing a surge in platinum group metal exploration.  In the third quarter of 2003 a stratigraphic exploration-drilling program was commenced on the Rooipoort property and continued into 2004.  Exploration drilling to define a reserve/resource is continuing in 2005 concentrating on the extreme southern and northern areas of the Rooipoort license area where the platinum group metals/gold/base copper and nickel metals mineralization seems to be closer to surface.

Initial exploration results indicate that there is PGM and base metal (nickel and copper) mineralization in most of the holes drilled to date over a 6 km strike length. A provisional interpretation of the drill results indicates that the northern and extreme southern portions of the Rooipoort property are most prospective for mineralization at even shallower depths. Future exploration activity will be concentrated in these areas and in the Grasvally property following receipt of the prospecting permit.

At the end of 2004, flotation amenability test work was performed at the SGS Lakefield laboratories in Johannesburg, South Africa on mineralized composite samples from 5 lithological units prepared from the diamond drill-hole cores to verify the flotation amenability of the ore. The tests included milling and basic flotation to produce a flotation concentrate. The tests indicated that from each of the 5 mineralized zones, a re-cleaner flotation concentrate of low mass recovery can be produced that contains medium to high recovery of the platinum, palladium, gold, copper and nickel. This initial test work indicates that a simple metallurgical process route could process a

flotation concentrate from a high-tonnage lower grade feed ore from an open-pit ore source.

Following upon the successful 2003/2004 drilling, a further 342 hectares of prospecting rights were purchased in the Grasvally area contiguous to the southern boundary of Rooipoort. A prospecting permit covering the Grasvally property was applied for during April 2004. However, in early March 2005 the Corporation was notified by the South African Department of Mines and Energy that its application had been refused on the grounds only of not having a shareholder’s agreement in place with a black economic empowerment partner. The Corporation believes that this refusal has no basis in South African law and continues to actively pursue this permit by all available means. Exploration work in the Grasvally area will commence immediately once the necessary exploration permits are received by the Corporation from the South African Department of Mines and Energy.

Gold Exploration Properties: In 2003, Eersteling identified a near-surface gold exploration prospect (“Roodepoort”). In 2004, Eersteling tested this Roodepoort gold property, located 22 km north east of the Eersteling mine area and 8 km east of the Zandrivier mine area. Roodepoort is situated on an area of historical gold mining and an unusual gold-bearing albitite intrusive (a hydrothermally altered granodiorite). A diamond drill program, consisting of three angled (-45º) core holes, was completed during September 2004.  Although some results are interesting, the best intersections are 100m deep and are not reflected in the results from the other holes drilled.  These intersections are believed to correspond to the down dip extension of a number of old workings to the east whose workings extended to the 30m level. Caledonia has on a further rev iew of the drill core, concluded that the potential for an open-pit operation, based on reported gold mineralization in the albitite, as previously envisaged requires further exploration.  Additionally the potential also exists for narrower higher grade vein mineralization on this property that will require further evaluation as a source of ore for the Eersteling metallurgical plant

Reference is made to page 7 and 8 respectively of the 2004 Annual Report for information on the resources of Barbrook and Eersteling and on pages 13 and 15 respectively for a description of the Roodepoort gold and the Rooipoort/Grasvally platinum prospects, which information is incorporated herein by reference.

Because of the poor liquidity of trading and the high costs of maintaining Eersteling Gold Mining Company Limited (“Eersteling”) as a listed company, Caledonia redeemed the minority shareholders and subsequently delisted Eersteling from the Johannesburg Stock Exchange (“JSE”) in mid-2004.

(4)

General Comments

Caledonia’s activities are centered in Southern and Central Africa and in Northern Canada.  Generally, in the gold mining industry the work is not seasonable except where heavy seasonal rainfall can affect surface mining or exploration.  Caledonia is not dependent, to any material extent, on patents, licenses, contracts, specialized equipment or new manufacturing processes at this time.  However, there may be occasions that Caledonia may wish to adopt such patents, licenses, specialized equipment etc. if these are economically beneficial to its operations. For example, at the present time Caledonia’s subsidiary, Barbrook Mines Ltd, has negotiated a license agreement with Biomin Technologies SA of Switzerland to allow Biomin’s “BIOX®” process and has purchased or hired specialized equipment such as the Kemix/Anglo American leach pump-cells, the G-Cell cleaner f lotation cells and the Aachen high-efficiency oxygen dispersers that are currently used at the Barbrook Gold Mine.  Additional details of the BIOX® process are given on page 11 of the 2004 Annual Report which is incorporated herein by reference.

All Mining and exploration activities are conducted under the various Economic, Mining and Environmental Regulations of the country where the operations are being carried out.  It is always Caledonia’s standard that these regulations are complied with by Caledonia otherwise its activities risk being suspended.

(5)

Exploration and Development properties

As in 2002 and 2003 Caledonia continued to focus its efforts in 2004 on those exploration properties with the greatest potential in Africa and in Northern Canada.  In 2001, Caledonia obtained interests in the Konkola West property in Northern Zambia and the Pruissen and the Vier-en-Twintig Rivier properties in the Limpopo Province of South Africa. In 2002, Caledonia obtained a 100% interest in the Rooipoort platinum prospect, also in the Limpopo Province of South Africa.  Due to their lower prospectivity than Caledonia’s other exploration properties, the option agreements at the Pruissen and Vier-en-Twintig properties were dropped in 2002.  In 2003 Caledonia added the Lukulu license area in Western Zambia to the Mulonga Plain Joint Venture lands. In late 2003 and early 2004 Caledonia increased its property holdings adjacent to its Rooipoort platinum project in South Africa in t he Grasvally area more fully described in clause 3 above.

Reference is made to pages 4, 5 and 6 of the 2001 Annual Report which was incorporated into the 2001 Form 20F and pages 4 to 8 inclusive of the 2002 Annual Report for historic information on Caledonia’s exploration and development properties which information is incorporated herein by reference. Further information on the more current exploration and project development is shown on pages 13 to 16 of the 2004 Annual Report which information is incorporated herein by reference.  

(C)

Organizational Structure - Significant Companies

AFRICA:

Zambia:

Caledonia Mining Corporation owns 100% of the shares of the following Zambian registered and incorporated companies:

- Caledonia Mining (Zambia) Limited

- Caledonia Western Limited

- Caledonia Nama Limited

- Caledonia Kadola Limited

These companies are collectively known as "Caledonia Zambia" throughout this Form 20 F.   However, on the joint venture on the Mulonga Plain properties, the other parties have now obtained a 60% interest after spending in excess of US$ 3,500,000. The joint venture parties have now spent in excess of US$ 5.5 million on the Mulonga Plain joint venture property. It is intended that these properties, that are the sole assets of Caledonia Western, will be transferred to a new Zambian company in which Caledonia will hold a 40% interest.

South Africa:

Caledonia Mining Corporation owns the following interests in South African registered and incorporated companies:

- 100% of Eersteling Gold Mining Company Limited, a company which was delisted from the Johannesburg Stock Exchange in mid 2004 when Caledonia redeemed the minority shareholders

-  100% of Barbrook Mines Limited - a private South African registered company.

-  100% of Greenstone Management Services Limited- a private South African registered company

-  100% of Fintona Investments (Proprietary) Ltd - a private South African registered company, and

-  100% of Maid O’Mist (Proprietary) Limited - a private South African registered company

(D)       Property, Plant and Equipment

The only producing area of involvement of Caledonia in 2001 was the Filon Sur Gold Mine in Spain.  The mine produced a gold and silver product containing high amounts of copper.  This product was sold to a refiner for further processing and the sale of precious metals. Caledonia sold Filon Sur on June 30, 2000.  From this date, Caledonia managed Filon Sur for a fee equivalent to 30% of the excess cash flow from the mine.  In 2000, the fee received from Filon Sur was $109,000 but in 2001, due to the severe cash flow problems, there was no management service fees received from Filon Sur. The mine has been more fully described earlier in section 4.B.1 and, as stated previously, was placed into Liquidation in January 2002 by its major shareholder.

Caledonia owns two gold assets in South Africa that were placed on “care and maintenance” in 1997. These are the Eersteling gold mine in Limpopo Province and the Barbrook gold mine in the Mpumalanga Province. These mines have previously been discussed in sections 4.B.2 and 4.B.3.  Both of the mines and plants produced a dore bar product, which was sold to a South African refining company.  Generally the gold content of the dore was in excess of 90% with silver and copper making up the other 10%.  As discussed earlier, the Barbrook mine was rehabilitated in 2002 and early 2003 and re-commenced limited gold production during the second half of 2003 and through 2004. The Eersteling mine may be re-habilitated in 2005, dependant on exploration results from the recently completed aeromagnetic survey and soil geochem sampling program and any resultant exploration drilling program from t he results of the survey and sampling programs and if a sustainable economic Rand price of gold prevails.

Reserve and resource estimates for the Barbrook Gold Mine and a resource estimate for the Eersteling Gold Mine are available on pages 7 and 8 of the 2004 Annual Report which information is incorporated herein by reference.  The Barbrook reserve and resource estimates were certified by Mr. David Grant, C.Geol., FGS, Pr.Sci.Nat., an independent consultant and “Independent Qualified Person” as required by National Instrument 43-101 of the Canadian Securities Administrators.  The resource estimate for the Eersteling Gold Mine is a historic resource estimate and is qualified as such on page 8 of the 2004 Annual Report which information is incorporated herein by reference.

Production results for the Barbrook Mine in 2004 are available on page 10 of the 2004 Annual Report which information is incorporated herein by reference.

5

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 A

Operating Results

A discussion on the ‘Operations’ for 2004 is shown on pages 10 to 13 of the 2004 Annual Report of  Caledonia under section "Management Discussion and Analysis – ‘Operational Review’ which are incorporated herein by reference. Discussions on the   “Financial Results and Liquidity” are shown on pages 17, 18, 19 and 20 of the 2004 Annual Report, which are incorporated herein by reference.

Reference is made to pages 41 to 45 of the 2004 Annual Report GAAP reconciliation (Note 15) for the impact of the difference between Canadian and U.S. accounting principles - the Public Accounting Oversight Board (United States) on the operations of Caledonia which are incorporated herein by reference.

The most critical accounting policies for Caledonia under Canadian and US GAAP are:

1.

Measurement Uncertainties

Preparation of the financial statements in conformity with GAAP 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.  The more significant areas requiring estimates relate to mineral resources, future cash flows associated with capital assets and mineral

properties.  Management’s calculation of mineral resources and cash flows are based upon engineering and geological estimates and financial estimates including gold prices and operating costs. The amount ultimately recovered could be materially different than the estimated values.

2.

Capital Assets

Producing Assets

Producing assets are recorded at cost less government grants, accumulated amortization and write-downs.

Producing assets are amortized using the straight-line method based on the estimated useful lives of the assets.  The estimated useful life of the producing assets range from 3 to 5 years.  Repairs and maintenance expenditures are charged to operations; major improvements and replacements that extend the useful life of an asset are capitalized and amortized over the remaining useful life of that asset.  As of December 31, 2004, Caledonia’s only producing capital asset was the Barbrook gold mine in South Africa.

Non-Producing Assets

Non-producing assets are recorded at cost less write-downs.  During non-producing periods, no amortization is recorded.  

At the time of commercial production, the assets are reclassified as producing and amortized in the manner described above.

3.

Mineral Properties

 Producing Properties

When and if properties are placed in production, the applicable capitalized costs 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.  As of December 31, 2002, 2001 and 2000, Caledonia did not have any producing mineral properties. As of December 31, 2003 and 2004 the Barbrook gold mine in South Africa was the company’s only operating mineral property.

Non-Producing Properties

Costs relating to the acquisition, exploration and development of non-producing resource properties which are held by Caledonia, 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.  

A decision to abandon, reduce or expand activity on a specific project is based upon many factors including general and specific assessments of mineral reserves, anticipated future mineral prices, anticipated costs of developing and operating a producing mine, the expiration date of mineral property leases, and the general likelihood that Caledonia will continue exploration on the project.  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.

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.  The amounts shown for non-producing resource properties do not necessarily reflect present or future values.

However US GAAP requires that mineral properties with no proven resources be reflected as expenses in the period incurred.

Caledonia had three major capital expenditure programs for the year 2004 that included the Rooipoort platinum exploration project, the Roodepoort/Eersteling mine gold exploration projects and the previously discussed refurbishment and commissioning of its Barbrook mine.  The major capital expenditure commitments for the year 2005 are the previously discussed metallurgical plant additions/modifications (that may include the construction of a Biox ® plant)  at its Barbrook Mine that requires capital expenditure of  about US$8.0 to $9.0 million if a Biox ® plant is constructed. It is planned to carry out further drilling on the Rooipoort platinum group metals property, drill platinum exploration targets at Grasvally as soon as a Prospecting Permit is obtained, drill gold exploration targets on the Eersteling mine property, possible further shallow exploration at the Roodepoort proper ty, and a bulk sampling and pilot-plant test at the Nama cobalt/copper property in Zambia.  As discussed earlier, and depending upon  a sustainable Rand gold price and the exploration results from the exploration drilling on the property, it is possible that  Caledonia  will commence the refurbishment at its Eersteling gold  mine in South Africa  in 2005.

B

Liquidity and Capital Resources

A discussion on the ‘Liquidity and Capital Resources’ for 2004 and its comparison to 2003 is given in the 2004 Annual Report of Caledonia under the section "Management Discussion and Analysis – ‘Liquidity and Capital Resources’ and ‘Uses of Liquidity’”. These are   shown on pages 17 and 18 of the 2004 Annual Report, which section is incorporated herein by reference.

Reference is also made to the Section D above, titled “Risk Factors” for further information concerning liquidity and capital resources.

Reference is made to the “Comments by Auditors for U.S. Readers on Canada-US Reporting Conflict” which is shown on page 23 (un-numbered) of the 2004 Annual Report and which is incorporated here by reference.  

The cash flows from operations and investing activities has varied between 2002, 2003 and 2004.  Cash is invested in an interest-bearing money market fund.  In 2002 financing by private placement and exercise of warrants raised $5.2 million, net of fees. This allowed repayment of loans in an amount of S1.0 million by a combination of $0.4 million in cash and the issuance of shares. In 2003, financing by private placements and the exercise of warrants and share options raised $9.459 million net of fees and in 2004, financing by private placements and the exercise of warrants  raised $14.314 million net of fees . These transactions are discussed in more detail later in this section.

Following previous cost curtailment programs and a significant reduction of expenditures on mineral and capital properties to conserve cash resources, the company requires about $1.4 to 2.0 million annually to maintain Caledonia as a reporting issuer in North America and maintain its assets. Cash flow from operations has been affected in 2002 by the uneconomic operations at Filon Sur that resulted in zero fees received from the management services contract. Filon Sur was placed into liquidation by its major shareholder in January 2002. In 1999, 2000 and 2001 certain officers and directors of Caledonia deferred a significant portion of salaries. The combination of deferral of salaries, short-term loans and equity financing kept Caledonia in operation over this period. In 2002, equity financing and exercise of warrants enabled the company to maintain its operation.

 In 2003, cash to continue operations was obtained by the issuance of share capital from private placements and from the exercise of warrants or share options. Due to unexpected metallurgical recoveries the positive cash flow from the restart of Caledonia’s Barbrook gold mine did not materialize. In the 1^st quarter of 2003, an amount of about $2.39 million, net of financing costs was raised from the portion of the private placement financing carried over from December 2002, the exercise of warrants and share options. A further $4.6 million (net of costs) was raised by private placement in August 2003. In April 2004, the company raised  a net amount of  $14.3 million from private placements and from the exercise of warrants The funds raised by the 2004 financing will mainly be used on activities which will allow Caledonia to maintain and/or re-start operations, make capital additions to the Barbrook mine and metallurgical plant, for drilling  the Eersteling and Roodepoort gold and the Rooipoort and Grasvally

platinum projects in South Africa and bulk sampling and processing of material from  Caledonia’s Nama copper/cobalt project in Zambia. The funds raised will be sufficient to move forward with the direct development of some of the assets if economically and technically justified.  Should additional funding be required it is likely that the company will raise further funds by private placement financings with arms-length subscribers as has been its practice in recent years.

C

Research and Development, Patents and Licenses, New Technology, etc.

Except for minor expenditures, $10,000 in 1999 and a similar amount in 2001, Caledonia has carried out no work on research and development over the past 5 years.  In 1999, a small amount was spent on research of three flotation concentrates from Caledonia’s Barbrook Gold Mine by the EMR Microwave Technology Corporation to develop the potential of a new processing route to recover gold from the three refractory concentrates.  The preliminary results from the tests were inconclusive and it was decided to suspend further tests until the microwave technology process was more industrially developed.  Generally, the R & D work by Caledonia is limited to the development of more efficient metal extraction procedures.  In 2001, development work was carried out on a sample of ore from the Taylor’s section of the Barbrook Mine at the Mintek Laboratory in South Africa.   A bulk flotation concentrate was produced from the ore and tested for oxidation and gold recovery procedures. These tests were carried out to try to attain a relatively inexpensive oxidation of the refractory minerals present and a higher gold recovery using the “resin-in-leach” process rather than the “carbon-in-leach" previously used at Barbrook. The “oxidation” test work proved to be inconclusive but the “resin-in-leach” process tested, incorporating kerosene or diesel addition to blind the carbonaceous material in the Barbrook ore that are highly preg-robbing, gave consistently higher gold recoveries in the leach process. The “resin-in-leach” process was included in the metallurgical plant at Barbrook. Management also decided that the Anglo American Corporation/Kemix’s pump cell technology would be incorporated into the new resin-in-leach circuit. The metallurgical circuit has included flash flotation and the Knelson gravity concentration technology in the gold milling circuit to aim to increase early gold recovery and reduce gold lock up in the primary mill. The metallurgical circuit also includes two G-cell flotation cleaner cells that are designed to increase the gold grades reporting to the regrind and leach circuits and two Aachen reactors which provide high-intensity oxidation and should result in higher gold recovery for the Taylor’s ore. During 2004, Caledonia’s subsidiary, Barbrook Mines Ltd, negotiated a license agreement with Biomin Technologies SA of Switzerland to allow Biomin’s “BIOX®” process   to be used at the Barbrook Gold Mine. Additional details of this process are given on page 11 of the 2004 Annual Report which is incorporated herein by reference.

D

Trend Information

Following the closure of the Filon Sur gold mine in January 2002, Caledonia has not had any involvement in producing operations until 2003. The Barbrook gold mine was restarted in the 2^nd quarter of 2003. The possible re-commencement of the Eersteling gold mine in the latter part of 2005 will depend on the price of gold, the Rand / US$ exchange rate and the results of the Eersteling exploration program, all of which have been discussed previously in this report. Caledonia will continue to raise finance from time to time as needed to continue in business until its operations are self funding. Until this self-financing is achieved it is likely that the practice used in previous years of entering into private placements with arms-length subscribers will continue. Similarly, as in the past, to minimize its own cash expenditures on its portfolio of exploration properties, Caledonia will cont inue, where possible and desirable to joint venture certain of  its properties to major mining companies.

E.

Off-balance sheet arrangements

The company has no off-balance sheet arrangements.

F.

Tabular Disclosure of Contractual Obligations

 The above relate to the South African regional office costs. Caledonia has minor cost obligations in respect of licenses and prospecting fees for its exploration and mining properties some of which are paid by Caledonia’s joint venture partners.

6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A

Directors and Senior Management

A list of the directors and the officers of Caledonia is given on page 46 of the 2004 Annual Report that is incorporated by reference.  A brief profile of each of the Directors and the senior management is given below:

Stefan E. Hayden, President and Chief Executive Officer

Mr. Hayden has extensive experience as a company manager in South Africa. Initially he founded, developed and managed an engineering company that manufactured flameproof mining machinery. He followed this by managing a company holding the Massey Ferguson franchise in the Transvaal and the Orange Free State and returned it to profitability for the then owners Standard Corporate Merchant Bank. He then founded and managed the South African agency for heavy electrical equipment sales and installations for Toshiba Corporation of Japan.  He has been Managing Director of Industrial Brokers, a family company specializing in the procurement of steel and mining machinery, since 1971 and continues in this position.  

With his wide managerial, electrical and mechanical, and mining experience Mr. Hayden has acted as technical advisor to numerous mines and companies in Southern Africa.  Prior to the Caledonia acquisition, Mr. Hayden as the Chief Executive Officer of Eersteling Gold Mining Company Limited and Barbrook Mines Limited was responsible for both operations. He joined Caledonia in 1995 and was appointed Managing Director, African Operations responsible for the development of Caledonia’s business in Africa. In June 1996, Mr. Hayden was elected as a Director of Caledonia and subsequently appointed Deputy Chairman of Caledonia. In January 1997 he was appointed Chairman of Caledonia and in June 1997 the position of President and Chief Executive Officer was added to his responsibilities. In February 2005, Mr. Hayden relinquished the position of Chairman when Mr. Rupert Pardoe was elected as a director and appointed as Chairman by the Board.

James Johnstone, B.Sc., ARCST, P.Eng.  Director, Vice President Operations and Chief Operating Officer

A graduate-mining engineer Mr. Johnstone has 40 years experience in mine operations in North America, Africa and Europe. He has experience in both underground and open pit operations.  For the past 20 years he has been employed as General Manager or Vice-President Operations for mining companies producing gold, base metals and industrial minerals. Mr. Johnstone has been responsible for the construction, start up and commissioning of two major mines in addition to the commissioning of Caledonia's Filon Sur operation. He has also been involved in the orderly closure of three operations. He has operated successfully in environmentally sensitive areas and has a good understanding of the permitting process in Canada and the United States. Mr. Johnstone joined Caledonia in April 1997 as Vice President Operations and is responsible for Caledonia's operations in Zambia and South Africa and

for all activities in Canada. He was elected a Director of Caledonia in June 1997. Mr. Johnstone is a director of several of Caledonia’s subsidiaries and of Fynegold Exploration Limited (UK).

Christopher Harvey, LRIC, HNC (Chem.), Director, Company Secretary and Technical Director

A Chemistry graduate from Wigan Mining College, Mr. Harvey has spent his career in the international mineral processing industry. Prior to immigrating to Canada in 1987 he worked for the Anglo American Group in a number of senior metallurgical positions. These included projects associated with gold and copper/cobalt production, gold, uranium and sulfuric acid production from old gold tailings and the investigation and development of a copper/cobalt flow sheet. Mr. Harvey joined Doelcam, a predecessor company of Caledonia in 1989 as Vice-President Operations and was responsible for a number of property evaluations in several countries. He was appointed Senior Vice President of Caledonia at its inception in 1992 and has been a Director since 1993.  He has since held a number of senior positions within the company and is currently the company's Technical Director.  From late 1996 to the end of Sep tember 1998, Mr. Harvey was seconded to Filon Sur in Spain for the construction, commissioning and ongoing operation of the expansion to the heap-leach expansion project. He has also coordinated metallurgical studies for most of the company's projects, such as the Nama copper/cobalt project, the Eureka copper/gold project and the Kadola copper project in Zambia, Barbrook gold mine refractory gold recovery project and the provisional Rooipoort platinum project in South Africa and the Cononish gold project in Scotland.  He is also a director of Fynegold Exploration Limited (UK) and subsidiary companies, Barbrook Gold Mines Limited and Eersteling Gold Mining Company Limited of South Africa.

Jeff Smith, B.Sc.  Vice President Exploration

A geologist with over 30 years experience in the international mining industry.  Mr. Smith worked as a mine geologist for Consolidated Murchison in South Africa and Turkey before moving to JCI's head office. With JCI he was responsible for various exploration and evaluation projects in southern Africa and Europe and managed a joint venture lead project. Mr. Smith worked for Caledonia as an independent consultant for a number of years, initially drawing on his wide knowledge of the Iberian pyrite belt and then on a worldwide basis. He joined Caledonia as Vice President - Exploration in November 1996.   He presently works for Caledonia on a consulting basis and operates a consulting service covering the Iberian Peninsula and Europe.

Mike D. Tombs, M.B.A., F.C.M.A. Vice-President Finance and Chief Financial Officer

Mr. Tombs holds an MBA degree from Heriot-Watt University, Edinburgh, Scotland, and is a member of the Chartered Institute of Management Accountants.  He was involved in the manufacturing industry in the United Kingdom before moving to South Africa where he joined the mining division of Anglovaal. At Anglovaal he held a number of senior financial management positions, culminating in his appointment as General Manager: Finance and Administration of Avgold, the groups focused gold mining and exploration company.  After a period running his own company consulting to both mining and non-mining operations in Southern and East Africa Mr. Tombs joined Caledonia in March 2004 as Financial Manager: Africa.  Mr. Tombs will be based in Caledonia’s Johannesburg office.

Ian Forrest - Non- executive Director

Mr. Forrest is an accountant by profession and has wide experience as an executive in the resource industry.  He has been a director of Caledonia since inception in February 1992 and prior to that date he was a director of one of the predecessor companies for many years. He is a member of the board of directors of Mengold Resources Inc. (Montreal, Canada), Georex S.A. (Paris, France), Desire Petroleum plc (London, AIM, UK), Polymet Mining Corp (Toronto, Canada and OTCBB), Viatrade plc (London, OFEX, UK) and Belmore Resources plc (Ireland).  Mr. Forrest is based in Geneva, Switzerland.

Carl Jonsson - Non- executive Director and legal adviser to Caledonia

Mr. Jonsson is a lawyer by profession and has been associated with the resource industry for over 30 years.  In his legal practice he has specialized in securities and corporate work. He has been a director of Caledonia since February 1992 and prior to that date he was a director of one of the predecessor companies, Golden North Resources Inc. for many years.  Mr. Jonsson is resident in Vancouver, British Columbia, Canada and is a principal of the law firm Tupper, Jonsson and Yeadon.  Mr. Jonsson sits on the board of directors of several companies in Canada, including, Acrex Ventures, Altima Resources Ltd., Bonterra Energy Income Trust, Comet Industries Ltd., Dolly Varden Resources Inc., Earthworks Industries Inc. – (Secretary only), Novitas Energy Ltd, TelcoPlus Enterprises Ltd. and Comaplex Minerals Corporation.

Roland G. Fasel - Non- executive Director

Mr. Fasel is a qualified accountant and is a director of several public companies in Switzerland.  He is currently Director of Progesco Geneve SA (“Progesco”) a public accounting firm.  Prior to joining Progesco Mr. Fasel spent many years in senior positions with the European divisions of the AMF Group until their reorganization.  M. Fasel is based in Geneva, Switzerland.

Rupert Pardoe – Non-executive Chairman

Rupert Pardoe (48) graduated from the University of Cape Town with a BA in Comparative African Government and Law and completed his honors degree cum laude in Development Administration and Politics at the University of South Africa. After a year in Paris, studying at the Sorbonne, he joined Anglo American as a management trainee in 1981, where he held various roles over a twenty year period, including Personal Assistant to Gavin Reilly, then Chairman, Finance Director of Anglo American Industrial Corporation (AMIC) and Finance Director of the Corporation from 1997 to 2001.  Mr. Pardoe was also a member of the Corporation’s Executive Committee, Audit Committee, Administration Committee and Credit Committee, which he chaired.  He was also a member of the Investment Committee of Anglo American plc. At ABSA, he was a member of the Group Executive Committee and its Group Investment Committee. He was also Chairman of both ABSA’s Retail Bank Board and its Commercial Bank Board.

Mr. Pardoe has served on a number of boards, both in South Africa and abroad, including AECI, Amgold, Anglo Coal, Anglo Platinum, Boart Longyear, FirstRand, Highveld Steel and Vanadium, Rand Merchant Bank and Mondi.  He currently operates as a business consultant in South Africa and specializes in assisting South African companies with black economic empowerment matters.

Mr. Pardoe was appointed to the Caledonia board and elected Chairman in February 2005.

Family Relationships:

There are no known family relationships between the officers, key employees and directors.

Arrangements, Understandings, etc.

To the best knowledge of Caledonia, there are no arrangements or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person referred to above, was selected as a director or member of senior management.

B

Compensation

The amount of compensation paid, and benefits in kind granted to Caledonia’s directors and senior management is given under the "Summary Compensation Table" on page 6 of the 2005 Management Proxy Circular to the shareholder that is incorporated herein by reference.  This table lists the compensation to the three executive directors and to Messer’s. Poad, Du Plessis, Tombs and Smith.  As stated in the notes to the table, in view of the cash situation of Caledonia, senior management deferred receiving a part of their salaries in 1999, 2000 and 2001.  No compensation was deferred in 2002 or 2003. Some deferred compensation was paid during 2003 and 2004. There was no deferred compensation owing at December 31, 2004.

There was a $ 5,000 fee paid to each of the directors annually until 2003. This was increased to $10,000 annually in June 2004 with the fee for 2004 being calculated pro-rata as $7,500. Mr. Fasel who was appointed at mid-year received $5000 for 2004. The adverse cash situation from 1999 to 2001 caused each of the directors to defer receiving this fee since 1998. However during 2003, the deferred director’s fees owing to all directors, and amounting to $20,000 each, were paid out in full. There were no stock options awarded to senior management or the directors in 1999, 2000 and 2001. In 2002, a total of 10,000,000 stock options were granted to the directors of Caledonia. The exercise price of the options was $0.235 and the options expire in April 2012. A total of 225,000 options were granted to officers of Caledonia at $0.35 and expiring in June 2012. Mr. J. du Plessis, the General Manager - South A frica, was granted 500,000 share options with an exercise price of $0.28 and an expiry date of November 03, 2013 when he joined the company in 2003. An amount of 300,000 of these share options are un-exercisable until various productivity targets in South Africa had been met. In April 2004, 1,010,000 stock options were granted to an officer and senior management of Caledonia with an exercise price of $0.26 and an expiry date of April 29^th 2014.  Mr. Roland Fasel was granted 200,000 stock options with an exercise price of $0.26 and an expiry date of August 2014 on his appointment to the Board of Directors.  An amount of 50,000 of these options vested effective as of the date of his appointment, the remainder will vest in lots of 50,000 on the first, second and third anniversaries of his appointment.  Mr. Pardoe, the Chairman of the Corporation was granted 4,000,000 stock options on his appointment as a director and chairman in February 2005 with an exercise price of $0.11 and expirin g in February 2015. An amount of 2,000,000 options were granted in February and the remaining 2,000,000 options will be vested in February 2006. The total share options granted to the senior management, in 2004 and prior years are given in the table "Summary Compensation Table" on page 6 of the 2005 Management Proxy Circular to the shareholder that is incorporated herein by reference.

Caledonia does not have a bonus or profit-sharing plan.  Caledonia does not have a pension, retirement or similar benefits scheme.

C

Board Practices

The directors all hold their positions for an indefinite term, subject to re-election at each annual general meeting of the shareholders.  The officers hold their positions subject to being removed by resolution of the Board of Directors. Furthermore, the "Election of Directors" is discussed on page 4 of the 2005 Management Proxy Circular that is incorporated herein by reference.  The Table on page 4 of the 2005 Management Proxy Circular provides the term of office for each director.  In addition, the shareholdings of those directors named on the table hold about 0.015% collectively of the total shares of Caledonia outstanding at December 31, 2004.  Officers of Caledonia who are not directors do not own any shares as at December 31, 2004.

There are no service contracts between Caledonia and any of the Directors of Caledonia or its subsidiaries except for (i) a "Key Executive Severance Protection Plan" between Caledonia and two of its directors - namely Mr. S. Hayden and Mr. F. C. Harvey dating from 1996, (ii) the indirect employment of Caledonia’s president and CEO through a management and administrative agreement and (iii) an employment contract with a director, Mr. J. Johnstone.  The “Severance Plan” calls for severance payments to these executives if employment is terminated as a result of a change of control of Caledonia.  Mr. Johnstone’s employment contract with Caledonia has a termination clause whereby Mr. Johnstone is paid a severance payment of one year of salary in the event of his termination due to change of control or without cause. Details concerning Caledonia’s Board Composition, Audit, Compensation, Nominating and Corporate Governance committees are given in the 2005 Management Proxy Circular on pages 8, 10 &11, which are incorporated herein by reference.

 The following directors are members of the following committees:

AUDIT

COMPENSATION

NOMINATING

GOVERNANCE

Mr. C. Jonsson

Mr. C. Jonsson

Mr. R. Pardoe

Mr. R. Pardoe

Mr.  R. Fasel

Mr. S. Hayden

Mr. R. Fasel

Mr. S. Hayden

Mr. I. Forrest

Mr. I. Forrest

Mr. C. Jonsson

Mr. R.Pardoe

Mr. I. Forrest

Prior to Mr. Fasel’s appointment to the Board of Directors and to the Audit committee in August 2004, Mr. Hayden was a member of the Audit committee.

D

Employees

The average, approximate number of employees, their categories and geographic location for each of the last 3 years are summarized in the table below:

Geographic Location and Number of Employees:

E

Share Ownership

As of the date of the 2005 Management Proxy Circular (March 18^th, 2005) the individual share ownership of each of the directors of Caledonia is depicted in the Table on page 4 of the Management Proxy Circular that is incorporated herein by reference. The combined total share ownership of Caledonia’s directors, senior management and officers is less than 1% of the total issued common shares.  

Caledonia has established "Incentive Stock Option Plans" (the "Plans") that have been approved and accepted by the Toronto Stock Exchange (“TSX”) and Caledonia’s shareholders – the “1995 Plan” and the “1996 Plan”.  Another Plan was amended in 2001 and this amended Plan was approved by a majority of shareholders at the Special and Annual General Meeting of the shareholders held on the 29^th June 2001.  However, the three Plans that were approved by the shareholders for the years 1999 to 2001 were never registered with the TSX. Due to financial constraints in 1999 to 2001, Caledonia decided not to implement these plans and in September 2001 requested the TSX to withdraw all requests to register these plans as no options had been issued under the plans at that time. The TSX agreed to this request and the plans were cancelled. In 2002 a new Plan was prepared, the “2002 Plan”, and approval was sought and obtained from the Shareholders at the 2002 Annual General and Special Meeting held on the 21^st June 2002. Details of the new Share Option plan was reported in the 2002 Management Information Circular to the shareholders, that was incorporated therein by reference in the Form 20F 2001. In 2004 another Plan was prepared, the “2004 Plan”, and approval was sought and obtained from the Shareholders at the 2004 Annual General and Special Meeting held on the 21^st June 2004. Details of the 2004 stock option plan are given on pages 10 and 11 of the 2004 Management Information Circular to the shareholders, that was incorporated by reference in the Form 20F 2004.

SHARE OPTION REGISTER LISTING OF OPTIONS OUTSTANDING as of December 31^st 2004       

                                                                                            Option Price      Option Expiry           Options

Name

Plan

Cdn. $

Date

  O/S

Forrest, W.I.L.

1995 Plan

0.75

Apr. 28, 2005

12,500

Forrest, W.I.L.

1996 Plan

0.33

Feb. 09, 2008

66,000

Forrest, W.I.L.

2002 Plan

0.235

Apr. 24, 2012       500,000

Forrest, TOTAL

All Plans

             578,500

Harvey, F.C.

1995 Plan

0.75

Apr. 28, 2005

  93,750

Harvey, F.C.

1996 Plan

0.33

Feb. 09, 2008

135,000

Harvey, F.C.

2002 Plan

0.235

Apr. 24, 201        2,000,000

 Harvey TOTAL

All Plans

           2,228,750

Hayden, S.

1995 Plan

0.75

Apr. 28, 2005

125,000

Hayden, S.

1996 Plan

0.33

Feb. 09, 2008

175,000

Hayden, S.

2002 Plan

0.235

Apr. 24, 2012      4,000,000

Hayden, TOTAL

All Plans

                           4,300,000

Johnstone, J.

1995 Plan

0.75

Apr. 28, 2005

  37,500

 Johnstone, J.

1996 Plan

0.33

Feb. 09, 2008

135,000

Johnstone, J.

2002 Plan

0.235

Apr. 24, 2012      2,000,000

Johnstone, TOTAL

All Plans

           2,172,500

Jonsson, C.R.

1995 Plan

0.75

Apr. 28, 2005

  12,500

Jonsson, C.R.

1996 Plan

0.33

Feb. 09, 2008

  66,000

Jonsson, C.R.

2002 Plan

0.235

Apr. 24, 2012      1,450,000

Jonsson, TOTAL

All Plans

                                          1,616,000   

Poad, S.W.

1995 Plan

0.75

Apr. 28, 2005

  18,825

 Poad, S.W.

1996 Plan

0.33

Feb. 09, 2008

  80,000

Poad, S W.  

2002 Plan

0.345

June 02, 2012

150,000

Poad, S.W.

2002 Plan

0.26

Apr.29, 2014

200,000

Poad, TOTAL

All Plans

              448,825

Smith, J.

1995 Plan

0.75

Apr. 28, 2005

 23,750

 Smith, J.

1996 Plan

0.33

Feb. 09, 2008

 80,000

Smith, J

2002 Plan

0.345

June 02, 2012

 75,000

Smith, TOTAL

All Plans

              178,750

du Plessis, J

2002 Plan

0.28

Nov. 03, 2013

500,000*

du Plessis, TOTAL

All Plans

500,000*

Fasel, R

1995 Plan

0.26

Aug. 15, 2014

200,000**

Fasel, TOTAL

All Plans

200,000**

Tombs, MD

2002 Plan

0.26

Apr. 29, 2014

100,000

Tombs, TOTAL

All Plans

100,000

Notes to the above Table:

The price of the options granted under the 1995 Plan were those, which had been re-priced and reduced in number granted, and which were approved by the shareholders of Caledonia at the 1998 Annual General Meeting.  The price of the Options granted under the 1996 Plan were those at the close of trading on the Toronto Stock Exchange on the day prior to the granting thereof.  The price of the Options granted under the 2002 Plan were those at the close of trading on the Toronto Stock Exchange on the day prior to the granting thereof.  Share options granted pursuant to the 2002 Plan above were approved at the Annual Meeting of Shareholders held on June 21, 2002. The 2002 Plan was discussed in the 2002 Management Proxy circular which was incorporated by reference in the 2001 Form 20 F.

The 2004 Plan was discussed in the 2004 Management Proxy circular which was incorporated by reference in the 2003 Form 20 F.

In 2003, an officer of Caledonia exercised 56,475 options priced at $0.50 and 50,000 options priced at $0.235 were exercised by a director of Caledonia. The balance of the $0.50 share options allocated, in total 1,175,625 options, expired on the 28^th of April 2003 without exercising.

• * An amount of 300,000 of the stock options awarded to Mr. du Plessis are non-exercisable until certain productivity targets associated with the two South African gold mines are achieved.

• ** An amount of 50,000 or 25% of the stock options awarded to Mr. Fasel vested on his appointment as Director in August 2004. An amount of 50,000 stock options will vest on each of the first, second and third anniversaries of his appointment.

• In February 2005 4,000,000 stock options were awarded to Mr. Pardoe on his appointment as a Director.  Of these, 500,000 stock options vested immediately, the remainder vest in quarterly tranches each of 500,000 options commencing on June 30, 2005.

7

 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Significant shareholders

To the best of Caledonia's knowledge, as of March 22, 2005 there are 1 known shareholder and 2 depository trusts that beneficially own, directly or indirectly, or exercise control or direction over more than 5% of the voting shares of Caledonia.  As at March 23, 2005 Caledonia had 301,112,286 shares outstanding and the known shareholders and depository trusts holding more than 5% of the shares of Caledonia are given in the table below:

The only shares issued by Caledonia are common shares.  Although Caledonia has an unlimited number of preferential shares available for issue, none of these have yet been issued. Caledonia’s major shareholders have the same voting rights as the other shareholders of Caledonia.

To the best of the knowledge of Caledonia, the portion of the common shares of Caledonia is held in the following geographic locations:

There are 1,312 record holders listed by Equity Transfer Services Inc. in Toronto, Canada that includes the two large depository trusts - CEDE & Co. and CDS & Co.

Caledonia is not, to the best of its knowledge, directly or indirectly owned or controlled by another corporation or corporations, by any other natural or legal person or persons severally or jointly or by any foreign government.

Caledonia is not aware of any arrangement, the operation of which may at some subsequent date result in a change of control of Caledonia.

B

Related party transactions

Until June 30, 2004, Caledonia has paid a company that employs Caledonia’s  President and CEO, a fee of $180,000 per annum in terms of the management and administration services agreement. This agreement, which has not changed for several years was renegotiated in 2004 such that the fee for the period July to December 2004 would increase equivalent to $270,000 per annum and then in January 2005 to $360,000 per annum. Caledonia pays Doelcam Inc. on a per diem rate for financial and administration services. Caledonia’s Controller is a major shareholder in Doelcam Inc.  Caledonia leases office premises in South Africa from a company of which the family of Caledonia’s President and CEO are shareholders. Note 10 on pages 39 and 40 of the 2004 Audited Financial Statements fully details the related party transactions, and forms part of the 2004 Annual Report that is herein incorporated by reference.

C

Interests of experts and counsel

Not required, as this is an “annual report under the Exchange Act”.

8

FINANCIAL INFORMATION

A

Consolidated Statements and Other Financial Information

Attached as Exhibit 14a is the 2004 Annual Report of Caledonia, which reports include the audited financial statements of Caledonia and which are incorporated herein by reference. Note 15  of these financial statements titled "Generally Accepted Accounting Principles in Canada and the United States" compares the differences in GAAP between the two countries.

The 2004 consolidated financial statements have been audited by BDO Dunwoody LLP and comprise the following:

Auditor’s report

Balance sheet

Income statement (Statement of Operations)

Statement of deficit

Statement of cash flows

Summary of significant accounting policies

Notes to  the financial statements

Note 4 of the 2004 financial statements – “Share Capital” which is incorporated herein by reference, shows the changes, in share capital since 31^st December 2001.

The 2004 financial statements cover the period from 2002 to 2004 and thus cover the requirements for the Form 20F disclosure.

Export sales are not a significant portion of the sales volume.

Caledonia has no ongoing legal or arbitration proceedings at the 31^st December 2004. To the best knowledge of Caledonia, neither any of its directors or senior management or its affiliates is a party adverse to Caledonia or its subsidiaries, or has a material interest adverse to Caledonia or its subsidiaries. However, in April 2001, Caledonia initiated civil legal proceedings against Mr. Gert Jordaan the principal of Spring Hills Trading to recover damages resulting from its non-fulfillment of its obligations in respect of its agreement with Caledonia for the purchase of a 49% interest in the Barbrook and Eersteling mines in South Africa. Mr. Jordaan has been declared insolvent and Caledonia, Barbrook and Eersteling have received a portion of the monies owed to them from the Liquidator of Jordaan's estate

The Company has never paid and does not intend, at this stage, to declare or pay cash dividends on Common Stock in the foreseeable future.

9

THE OFFER AND LISTING

Caledonia’s stock trades on the Toronto Stock Exchange under the symbol "CAL" and on the NASDAQ Stock Exchange’s "Over-the-counter Bulletin Board" under the symbol "CALVF".

The trading history is as follows:

(a)

5 Year Market Trading Record

(b)

2 Year Market Trading Record by Quarter – 2003, 2004 and 1^st Quarter 2005 (January and February)

(c)

6 Month Market Trading Record by Month – September 2004 to February 2005

B

Plan of distribution

Not required, as this is an “annual report under the Securities Act”.

C

Markets

Please refer to section 9A of this Form 20F for details of Caledonia’s trading history on the Toronto Stock Exchange and the NASDAQ OTCBB exchange. The Corporation is currently determining whether it should be listed on the London Stock Exchange’s “Alternative Investment Market (“AIM”).

D

Selling Shareholders

Not required as this is an “annual report under the Securities Act”.

E

Dilution

Not required as this is an “annual report under the Securities Act”.

F

Expenses of the issue

Not required as this is an “annual report under the Securities Act”.

10

ADDITIONAL INFORMATION

A

Share capital

Not required as this is an “annual report under the Securities Act”.

B

Memorandum and articles of association

The memorandum and articles of association of Caledonia have previously been provided. At a Special Meeting of the Shareholders held on January 18th 1999, the shareholders approved a resolution amending the articles of Caledonia by creating a class of preference shares of Caledonia. Such preference shares could be issued in series and the directors of Caledonia were authorized to divide such class into series and to fix the number in each series and the rights, privileges, restrictions and conditions thereof.

C

Material contracts

There are no material contracts other than contracts entered into in the ordinary course of business.

D

Exchange controls

There are no governmental laws, decrees or regulations existing in Canada (where Caledonia is incorporated), which restrict the export or import of capital, or the remittance of dividends, interest or other payments to non-resident holders of Caledonia's securities.  Nor does Canada have foreign exchange currency controls.

E

Taxation

To the best of Caledonia's knowledge, there are no taxes or similar levies which holders of Caledonia's shares resident in the United States are subject to; provided however, Caledonia understands that pursuant to a Canada - U.S. tax treaty, any dividends which Caledonia might declare will be subject to such Canadian withholding taxes as the then current provisions of the treaty may require.

F

Dividends and paying agents

Not required as this is an “annual report under the Securities Act”.

G

Statement by experts

Not required as this is an “annual report under the Securities Act”.

H

Documents on display

The documents referred to in this report are either attached as “Exhibits” to this report or can be viewed at the Canadian Head Office of Caledonia whose address is given in section 4 of this report.

I

Subsidiary information

To the best knowledge of Caledonia there is no other information related to Caledonia's subsidiaries that requires to be provided.

11

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As Caledonia is considered to be a “small business issuer” as defined, information is not required to be provided for this section.

12

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not required as this is an “annual report under the Securities Act”.

PART 2

13

DEFAULTS, DIVIDEND ARREARAGES and DELINQUENCIES

There have been no material defaults in the payment of interest or principal or any dividend arrearages or material delinquencies.

14

MATERIAL MODIFICATIONS to the RIGHTS of SECURITY HOLDERS and USE OF PROCEEDS

There has been no material modification to the rights of Caledonia's or subsidiaries security holders.

15

CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures.

The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act), as of the year end of December 31, 2004.  Based on such evaluation, they have concluded that as of such date, our disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms.

(b)

Management’s annual report on internal control over financial reporting

  Not yet required as the Registrant is a Foreign Private Issuer.

(c)

Attestation Report of registered public accounting firm

Not yet required as the Registrant is a Foreign Private Issuer.

(d)

Changes in internal controls over financial reporting. There were no significant changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period covered by this annual report that has affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting.

16

(RESERVED)

16A

Audit Committee Financial Expert

(a)

The registrant’s board of directors has determined that the registrant has at least two audit  committee financial experts serving on its audit committee.

(b)

The audit committee financial experts serving on the audit committee are Mr. W.I.L. Forrest and Mr. R. Fasel who are independent directors under the NASDAQ rules.

16B

Code of Ethics

(a)

On April 8, 2004 the registrant’s Board of Directors adopted a code of ethics that applies to the registrant’s chief executive officer, chief financial officer, principal accounting officer or controller, or persons performing similar functions.  

(b)

The registrant has filed with the Commission a copy of this code of ethics that applies to the registrant’s chief executive officer, chief financial officer, principal accounting officer or controller, or persons performing similar functions.  This Code of Ethics was filed as Exhibit 1 with the Form 20F 2003 and is incorporated herein by reference.

(c)

 The text of this code of ethics has been posted on the company website at http://www.caledoniamining.com  

(d)

The text of this code of ethics is available on request, without charge, by contacting the company at  either of the principal offices listed in part 4A of this report or by e-mail to info@caledoniamining.com

16C

Audit Fees

(a)

For 2003 Caledonia’s audit fees were $98,942. The audit fees for 2004 are estimated to be about $153,000.

(b)

     Nil.

(c)

     Nil.

(d)

     Nil.

(e)         

Prior to the start of the audit process, Caledonia’s audit committee receives an estimate of the costs, from its auditors and reviews such costs for their reasonableness. After their review and pre-approval of the fees, the audit committee recommend to the board of directors to accept the estimated audit fees given by the auditors.

(e)

      Not applicable

16D

Exemptions from the Listing Standards for Audit Committees

Not applicable.

16E

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases made by or on behalf of the issuer or any “affiliated purchaser “ as defined in §240.10b-18(a)(3), of shares or other units of any class of the issuer’s equity securities that is registered by the issuer pursuant to section 12 of the Exchange Act (15 U.S.C. 781).

PART 3

17.

FINANCIAL STATEMENTS

The audited consolidated financial statements and related notes of Caledonia at December 31, 2004, 2003 and 2002 are set forth in the Registrant's 2004 Annual Report that is incorporated herein as Exhibit 14a by reference.

18.

FINANCIAL STATEMENTS

The registrant has elected to provide financial statements pursuant to Item 17 that include as Note 15 the differences between Canadian and US GAAP's.

19.         EXHIBITS

The following Financial Statements and Exhibits are attached to and form part of this

Statement and are incorporated herein by reference:

12.   Certifications Pursuant to Rule 13a-14(a)(17CFR240.13a-14(a) or Rule 15d-14(a)(17CFR240.15d-14(a).

13.a Certification Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14.a

Caledonia Mining Corporation, 2004 Annual Report.

14.b

Caledonia Mining Corporation, 2005 Management Proxy Circular.

14.c

Schedules.

14.d

Mineral Properties.

14.e

Summary of Independent Qualified Person’s Report – “Barbrook Mines Limited”.

SIGNATURE

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement [Annual Report] on its behalf.

DATED at Mississauga, Ontario, Canada, on the 31^st  day of March 2005.

CALEDONIA MINING CORPORATION

Per:

(Signed)  F. C. Harvey

Technical Director

EXHIBIT #12

CALEDONIA MINING CORPORATION

302 CERTIFICATIONS

CERTIFICATIONS

I, Stefan E. Hayden, certify that:

1.

I have reviewed this annual report on Form 20-F of Caledonia Mining Corporation.

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.

The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.

Disclosed in this report   any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the company’s internal control over financial reporting; and

5.

The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function);

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to  adversely affect the company’s ability to record, process, summarize and report financial information; and

b.

Any, fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:     March 31^st  2005

(signed) S.E. Hayden

President and CEO

CERTIFICATIONS

I  Mike D. Tombs certify that:

1.

I have reviewed this annual report on Form 20-F of Caledonia Mining Corporation.

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.

The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Evaluated the effectiveness of the company’s disclosure controls and procedures  and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.

Disclosed in this report   any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the company’s internal control over financial reporting; and

5.

The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function);

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to  adversely affect the company’s ability to record, process, summarize and report financial information; and

b.

Any, fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:     March 31^st 2005

(signed) M.D. Tombs

Vice- President Finance and CFO

EXHIBIT #13

CALEDONIA MINING CORPORATION

Certification Pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 13a

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Caledonia Mining Corporation (the “Company”) for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, Stefan E. Hayden, President and Chief Executive Officer of  Caledonia , certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.

The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:

(signed) S. E. Hayden

Stefan E. Hayden, President and Chief Executive Officer

Caledonia Mining Corporation

A signed original of this written statement required by Section 906 has been provided by Stefan E. Hayden and will be retained by Caledonia Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Caledonia Mining Corporation (the “Company”) for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, Michael Tombs, Vice President Finance and Chief Financial Officer of  Caledonia , certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1

The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Caledonia.

By:   (signed) M.D. Tombs

Mike D. Tombs, Vice President Finance and Chief Financial Officer

Caledonia Mining Corporation

A signed original of this written statement required by Section 906 has been provided by Mike D. Tombs and will be retained by Caledonia Mining Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT #14a

CALEDONIA MINING CORPORATION

2004 ANNUAL REPORT

Barbrook Gold Mine

• Completed major modifications to Barbrook metallurgical plant and continued to improve gold recoveries in the resin-in-leach (RIL) circuit  

• Barbrook underground development continued at the French Bob’s, Taylors and Daylight/Victory zones to delineate the mine’s reserves and resources

Exploration

• Completed detailed soil sampling and a preliminary three hole (500m) drilling program at the Roodepoort Gold Exploration Project

• Commenced a detailed soil sampling programme at Eersteling, to complement a planned high resolution aeromagnetic survey that was flown in January 2005

• Phase 1 and 2 drilling implemented at the Rooipoort Platinum Exploration Project

• Purchased prospecting rights over an additional 342 hectares immediately adjacent to the Rooipoort Platinum Exploration Project property on the farm Grasvally 293 KR

• Gravity and magnetic Falcon® survey conducted at the Mulonga Plain Diamond Joint Venture and 73 heavy mineral samples collected at Kashiji Plain

• Heavy mineral sampling program completed at the Kikerk Lake Diamond Joint Venture

• Mini bulk sample at the Nama Cobalt Project in Zambia tested to confirm feasibility of producing economic cobalt. Initiated plans and environmental applications to excavate a larger sample which will be treated in pilot plant on site in 2005

Corporate / Financial

• Obtained shareholder approval to increase the Caledonia board of directors to six members and appointed Roland Fasel, a Swiss based businessman, to the Caledonia Board of directors

• Appointed Mike Tombs as Vice President Finance and Chief Financial Officer, based in Johannesburg, South Africa. Steven Poad has assumed the position of Controller

• Redeemed minority shareholdings in Eersteling, thus making Eersteling a 100% owned subsidiary of Caledonia

• Raised $13.4 million net of financing costs from private placement and $0.8 million from the exercise of warrants

• Return the Barbrook Gold Mine in South Africa to economic gold production

• Continue developing additional reserves/resources at the Barbrook Mine

• Complete the feasibility studies of installing a Biox® bacterial leach and/or ultra-fine milling and/or Dense Media Separation circuit at Barbrook and commence construction

• Obtain the prospecting licence for the Grasvally portions of the Rooipoort Platinum Exploration Project

• Identify the platinum resource on the farms Rooipoort and Grasvally which form the Rooipoort Platinum Exploration Project in South Africa

• From the existing exploration information together with the recently completed high resolution airborne Geophysics and Soil Chemical Programs identify and drill possible  extensions to the known ore zones on the Eersteling and Zandrivier Mining Licence areas

• Conclude an agreement with a cobalt end producer to purchase cobalt concentrate produced at Nama or possibly form a strategic alliance to achieve this objective

• Confirm the feasibility of producing an economic cobalt concentrate from the Nama property in Zambia. Construct a pilot plant at Nama to produce a cobalt concentrate for testing

• Seek a joint-venture partner to commence an exploration program at the Kadola copper/cobalt and the Eureka copper/gold properties in Zambia

• Expand the Board of Directors to address ongoing Corporate Governance requirements

• Implement succession plans for senior executive and operational staff

• Strengthen the Investor Relations and Public Relations functions within Caledonia

• List Caledonia on the London Stock Exchange Alternative Investment Market ("AIM")

• Arrange necessary financing to support the activities required to meet these objectives:

(1)

Filon Sur to June 30 for year 2000 only.

(2)

Restated for the adoption of the Asset Retirement Obligations change in accounting policy

Letter to Shareholders

2004 has been another challenging yet exciting year for Caledonia as we work towards bringing the Barbrook Gold Mine into profitable gold production and consolidate work on our exciting Nama Cobalt/Copper Deposit in Zambia.  While the macro-economic environment in South Africa continues to be favourable, the overall outlook for commodity prices is positive and a stronger rand has had a negative impact on the South African mining industry.

Work at the Barbrook Gold Mine in South Africa continues to focus on optimizing the metallurgical circuit and proving up additional reserves and resources to establish a sustainable and profitable production base.  Following improvements achieved during 2004, and further enhancements planned for 2005, we remain confident that we will be able to return Barbrook to economic gold production during 2005, despite the strong rand.  Extensive modifications have been made to the metallurgical circuit to improve gold recovery from the complex refractory sulphide ore body.  Following these changes, there has been a significant improvement in the operating efficiency in the resin-in-leach (“RIL”) section with a corresponding increase in gold recovery to above 80%. This should result in an immediate increase in tonnage throughput to between 7,000 and 8,000 tonnes per month. The full impact and sustainability of the above changes will be determined in March 2005 when all of the process changes are complete.  Metallurgical test work continued on a number of different process alternatives including Ultra-fine milling, Dense Media Separation and Biox®.  A decision on whether to implement the Biox® plant and/or Ultra-fine milling and/or Dense Media Separation is anticipated in the first half of 2005.    

Exploration work continued at the Rooipoort Platinum Project, south of Mokopane (previously Potgietersrus) with the completion of a stratigraphic diamond drill program and in November the initial drilling program, which is intended to define an indicated PGM resource at Rooipoort commenced.  Recent exploration results show that the mineralization is closer to surface near the northern, and extreme southern property boundaries and drilling is now concentrating in these areas. Caledonia also purchased an additional 342 hectares of mineral and prospecting rights on the farm Grasvally adjacent to the Rooipoort property to the south.  We believe Grasvally to be highly prospective as the mineralization in this area appears to be near surface with a shallow dip.  Caledonia’s application for the necessary Prospecting Permit from the Department of Minerals and Energy, which was filed on April 23, 2004, was refused on March 11, 2005 on the grounds only of not having a shareholders agreement in place with a black economic partner.  Caledonia believes that this refusal has no basis in law and continues to actively pursue this permit by all available means

Caledonia subscribes to the Black Economic Empowerment (“BEE”) legislation, which was introduced to reverse previous discriminatory practices in South Africa, and is actively seeking suitable BEE partners for its South African operations in the strong conviction that, in the long term, this approach will add significant value for Caledonia shareholders.  We hope to update shareholders on progress in this regard during the course of 2005.

Our exciting cobalt project Nama, in northern Zambia, has made steady progress.  Nama could be one of the largest primary cobalt deposits in the world.  Encouraging results from the mini bulk sample have been received. The sample was tested at MINTEK’s laboratory in South Africa and confirmed that a suitable cobalt concentrate can be extracted.  In 2005 a larger tonnage sample will be excavated and will be processed through a pilot plant to be built on site in order to produce a suitable cobalt concentrate for testing through a smelter or hydrometallurgical plant.  If this test is successful and satisfactory economic terms are obtained, it is expected that a long-term supply contract for the Nama cobalt/copper concentrate could be negotiated with a large cobalt user or users.  The entering into a joint venture with a suitable partner to assist developing this project further during 2005 is being investiga ted.

At the Mulonga Plain Diamond Project in Zambia and the Kikerk Lake Diamond Venture in Northern Canada our joint venture partners have continued their obligation to fund the exploration programs.  Based on the results of a 5,000 line km Falcon® airborne gravity and magnetic survey, flown over the identified kimberlite mineral clusters located in the most eastern portion of the Mulonga licence area, a drilling budget of US$520,000 has been allocated to follow up the identification of the targets derived from previous work and the 71 gravity anomalies identified by the preliminary interpretation of the Falcon® data. At Kashiji Plain, a number of samples were collected and are currently undergoing laboratory work.  Budget allocation and planning for 2005 has been deferred until these analyses are complete.  Caledonia’s interest in Mulonga Plain remains 40%.

Caledonia continues to believe the gold price will maintain its upward trend in the near term.  The US$ gold price has continued to rise, reaching in excess of US$450 per ounce in December 2004. Caledonia management believes that gold bullion and gold shares remain in a long-term bull market. To maximise the benefit of the current strong price Caledonia has decided to remain unhedged.  It should be noted, however, that the South African Rand gold price has decreased slightly due to ongoing Rand currency strength. As Barbrook’s operating costs are in Rand this continues to hamper the project economics.

Turning to the financial performance of the company Caledonia continues to be debt free having raised $14.3 million from private placements and exercise of options and warrants.  During 2004 the company suffered a loss of $10.0 million which included an operating loss of $5.6 million and a write–down of mineral properties of $1.1 million.  $3.8 million was invested in capital assets and mineral properties in South Africa.  Cash available at year end totalled $6.5 million

Caledonia plans during 2005 to list the company’s shares on the Alternative Investment Market in London, England in conjunction with a financing.  The Board believes this listing will introduce Caledonia to London’s institutional investors, offer Caledonia greater market exposure, and further broaden the shareholder base, ultimately benefiting all shareholders.

I am delighted to welcome two new non-executive members to the Board, Rupert Pardoe and Roland Fasel.  Mr Pardoe was elected non-executive Chairman in February 2005.  These two individuals bring additional experience to the Board, particularly in the sphere of corporate governance as both are independent of management.  This year, the company will focus on implementing succession plans for senior executive and operational staff, as well as expand the Board of Directors to address ongoing Corporate Governance requirements.

The future for Caledonia shareholders is promising, as the company is uniquely positioned to develop its gold production and diverse base metals projects, platinum exploration programs and the diamond joint venture exploration projects.  The further strengthening of its Board of Directors should also show benefits in ensuring that the company meets its Corporate Governance and Strategic objectives.

Finally, my thanks go to Caledonia’s management, directors, staff, joint venture partners, and particularly to our shareholders for supporting Caledonia during the challenges and opportunities of another year.  The management and directors look forward to your continued confidence as we work diligently towards the objective of building Caledonia into a significant diversified international mining company.

On behalf of the Board of Directors,

(signed)

S. E. Hayden                                                                                  Johannesburg, 18^th March 2005

President and Chief Executive Officer

CALEDONIA MINING CORPORATION

March 18, 2005

Management’s Discussion and Analysis

This discussion and analysis of the consolidated operating results and financial condition of the Caledonia Mining Corporation (the “Company”, “Caledonia”) for the fiscal years ended December 31, 2004 and December 31, 2003 should be read in conjunction with the Consolidated Financial Statements and the Annual Information Form and Press Releases issued by the company, all of which are available  from the System for Electronic Data Analysis and Retrieval at www.sedar.com or from the Company website at www.caledoniamining.com.website. The Consolidated Financial Statements and related notes have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”).

Caledonia was formed in February 1992 and is listed on the Toronto Stock Exchange as “CAL” and on NASDAQ-OTCBB as “CALVF”.

Caledonia is an exploration, development and mining company with a gold operation in South Africa and a diversified exploration portfolio of projects in Canada, South Africa and Zambia,   some of which are joint ventures.  Caledonia’s objective is to develop the asset base into a significant diversified international mining company through profitable gold production and successful exploration activity, focused primarily on Southern Africa.

Caledonia’s business model is to identify and 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 a joint venture agreement.  The possibility of divestiture in whole or part will be considered at different points in time on the valuation curve and will be governed by the benefit to shareholders.  Where appropriate, Caledonia will seek strategic alliances with well-managed exploration or operating companies through existing or new joint ventures.

The Company has a strong management team and Board of Directors with diverse expertise in gold production, mineral exploration, mine development, finance and marketing.

With the expectation of continuing improvements in commodity prices over the long term, Caledonia is following the strategy of diversification through its current exploration activities for diamonds, gold, platinum group metals and base metals. With the potential of improved political conditions in many Southern African countries, Caledonia is reviewing mining opportunities in these countries.  

GOLD MINING

Barbrook Mines Limited

The 100% owned Barbrook Mines Limited (“Barbrook”) is located near the historic gold-mining town of Barberton in the Mpumalanga province of the Republic of South Africa, approximately 375 km west of Pretoria and Johannesburg.  Barberton has a history of gold mining dating back more than 100 years. The Barbrook property, which covers an area of 10,625 acres and extends for a distance of about 28 km along strike, represents a consolidation of approximately 20 previously worked gold mines.

The Barbrook gold deposits occur in the Barberton Greenstone belt, the host for the other gold deposits in the area. The belt is of Archean age and includes some of the oldest volcanic and sedimentary rocks in South Africa.  The belt trends southwest to the northeast and has been intruded and deformed by various granite plutons at the margins. The Barbrook property covers two steeply-dipping, banded iron formations oriented in an east-west direction.  These two shear zones, called the Zwartkoppie and Barbrook lines, are the host to the Barbrook gold deposits.  The gold mineralization at Barbrook is complex, the gold is generally extremely fine-grained, associated with refractory minerals such as pyrite and arsenopyrite, and contains significant concentrations of "preg-robbing" organic carbon.

Mining at Barbrook is from underground using an open-stope, sub-level benching method.  Broken ore is transported to the surface crushing area along the main 10 level haulage way.  At present all workings are on or between 7 level and the main 10 level haulage.  A decline shaft is currently in development on the French Bob’s ore zone to access the ore block below 10 level.

The Barbrook Mine gold reserves and resources are as follows:

Mr. David Grant, C.Geol., FGS, Pr.Sci.Nat., an independent consultant is the “Independent Qualified Person” for Barbrook’s reserves and resources as required by National Instrument 43-101 of the Canadian Securities Administrators.

In the metallurgical processing plant, the broken ore is de-slimed, crushed to minus 13mm size and stored in a coarse ore storage bin.  From this bin, ore is conveyed to the 250 kW Vecor primary ball mill, with its associated flash flotation cell. This flash flotation cell recovers up to 70% of the gold in the mill feed. The milled ore passes to the flotation plant which includes a second flash cell, scavenger, cleaner and recleaner circuits.  The combined flotation concentrate with a gold grade of between 30 to 40 g/t is processed through a combined gravity/cyclone plant to remove most of the organic carbon that previously caused metallurgical problems in gold recovery. The organic carbon is discarded with the main flotation tailings. The “carbon-free” concentrate is re-ground in the Sala 90 kW regrind mill to produce a product of about 95% -25 microns This fine-milled concentrate is pumped to t he 2-stage, newly developed Aachen pre-oxidation circuit where oxygen gas is added to satisfy the high oxygen demand of the fine sulphide concentrate. Lime is then added to increase the pH to above 10 and thence the treated slurry is pumped to the resin-in-leach (RIL) circuit. Gold is recovered from the loaded resin in the elution and electrowinning circuits located in the smelt house. This produces high-grade gold bullion bars that are sent to a South African refinery for further processing and sale of gold.

The present metallurgical circuit, as designed can readily treat between 8,000 to 10,000 tonnes per month.  This throughput is planned to be increased to 10,000 tonnes per month as the underground and stope development progresses and provides greater mining flexibility. The on-site, un-utilized as yet, 1300 kW drive Vecor ball milling circuit is designed to process sulphide ore at the rate of 25,000 tonnes per month. Tailings are pumped to the tailings deposition area located about 3km from the mine site.  Tailings deposition operations are managed by a licensed contractor and are fully compliant with all requisite legislation and codes of practice.

There is a full mine infrastructure at Barbrook including administration areas, change-house, lamp room, security barracks, training and first aid rooms, mine stores, engineering/maintenance workshops, assay and metallurgical laboratories, explosive magazines and the tailings deposition area.  

Eersteling Gold Mining Company Limited

The 100% owned Eersteling Gold Mining Company Limited (“Eersteling”) is located 36 km south of the city of Polokwane in Limpopo Province of the Republic of South Africa, 300 km north of Johannesburg.

The Eersteling Mine property has an area of 47,000 acres (19,020 hectares), extends for a distance of about 25 km and is located in the Pietersburg Greenstone belt which is of Archean age consisting of an upper and lower sequence.  The upper sequence is mainly conglomerate, grit and sandstone and the lower sequence is undifferentiated mafic and ultramafic volcanic rocks and intrusives, with banded iron formation and chert.  The Willemse shear feature most dominates gold mineralization in the Eersteling area.

Eersteling listed on the JSE Securities Exchange South Africa on July 16 1987.  In June 2004, due to the illiquidity of trading and the high cost of maintaining the listed company, Caledonia redeemed the 3.6% of minority shareholders and subsequently de-listed Eersteling from the JSE.

The Eersteling mine has been on care and maintenance since early 1997 when production was suspended due to low gold prices.  Despite the high US dollar gold price, the strong rand and rand gold price have prevented the mine being returned to production at an economic level.  In 2002 Eersteling applied for its required Section 9 permanent mining licence which was granted during April 2003.  Caledonia intends, subject to a sustainable economic rand gold price and favourable Eersteling/Roodepoort exploration results, to re-commence commercial production at Eersteling in the future.

The Eersteling Mine gold resource estimate based on the 1997 data before the mine was placed on a care and maintenance is as follows:

The above resource estimate is historic and the company does not consider this estimate to be a defined resource in terms of National Instrument 43-101. The Company has not completed the work necessary to verify the classification of the resource in terms of National Instrument 43-101 and as such the historic estimate should not be relied upon.

Eersteling has a number of exploration prospects on its mineral holdings, including the Roodepoort Gold Exploration Project and the Rooipoort Platinum Exploration Project.  These are detailed further in the Exploration section of this report.

There is a full mine infrastructure at Eersteling including administration areas, change-house, lamp room, security barracks, training and first aid rooms, mine stores, engineering/maintenance workshops, assay and metallurgical laboratories, explosive magazines and a licensed tailings deposition area.   In the event that gold-mining operations resume at Eersteling these facilities will require some refurbishing prior to being returned to use.

All gold bullion produced is refined by Rand Refinery in Germiston, South Africa and sold at spot at the discretion of the company to Absa Bank Limited in Johannesburg, South Africa under contract. The company nominates the currency of settlement for each individual sale.

The key performance factor of a gold mine is the ability to produce gold at a cost per ounce that is low enough to pay all obligations and generate an acceptable return to shareholders. The price of gold is established in an international market and is considered a commodity. The future Rand price of gold plays a large part in determining the profitability of South African gold mines. During 2004, the South African Rand continued to strength by 14.8% against the United States dollar and this to a large extent negated the 6.6% increase in the US$ gold price, resulting in a 9.5% decrease in the Rand gold price per ounce over the year.

The successful operation of mining and exploration depends on the presence of economic in-situ resources, the availability of experienced and skilled management and employees and financial resources to be able to carry out the work, and the support of the holding company.

Caledonia initiated a human resources program focused on strengthening senior management.  This program commenced in late 2003 and is detailed in the 2003 Annual Report.  As an extension of this program to further strengthen the Board of Directors and Caledonia’s management team, two additional appointments were made in 2004 and a further appointment in 2005:  

• Mr. Mike Tombs was appointed Vice President Finance and Chief Financial Officer of the Corporation.  He is based in the Johannesburg office.

• Mr. Roland Fasel was appointed to the Caledonia Board of Directors in August 2004.  Mr Fasel is a qualified accountant and a director of several public companies in Switzerland.  He is based in Geneva, Switzerland.  The addition of Mr Fasel strengthens the board, particularly in the area of Corporate Governance. Mr Fasel has been appointed to Caledonia’s Audit Committee, which is now comprised entirely of independent directors, as recommended by the Toronto Stock Exchange.

• Mr. Rupert Pardoe was appointed to the Caledonia Board of Directors and elected as non-executive Chairman, with immediate effect in February 2005.  He is based in Johannesburg, South Africa.  Mr Pardoe was previously Deputy Group Chief Executive of Absa Group Limited, the largest retail bank and financial services group in Southern Africa, which he joined in September 2001 after twenty years at Anglo American Corporation of South Africa Limited.  Mr Pardoe brings to Caledonia a wealth of international business experience, particularly in the mining and financial sectors.  With the election of Mr. Pardoe, Mr. Hayden relinquished his position as Chairman, thereby separating the posts of Chairman and CEO as recommended by the Toronto Stock Exchange.

• These two Board appointments bring the total number of independent Board directors to four.

The financings of 2003 and of April/May 2004 enabled Caledonia to carry out the planned development of its projects into 2005. The 2003 financing also permitted Caledonia to pay off its debt to its officers and it is now completely debt free.

For the year ended December 31, 2004, the Company recorded a net loss, after write downs, of $ 10,0 million ($0.034 per share) compared to a net loss of $14.5 million ($0.062 per share) in 2003 and a net loss of $4.4 million ($0.023 per share) in 2002.  The loss in 2004 included a write down of mineral properties of $1.1 million and losses from operations of $5.6 million.  There was a mineral property write down of $9.8 million in 2003 and $2.6 million in 2002.  The loss from operating activities of $5.6 million has increased from $3.0 million in 2003 and $0.1 million in 2002 reflecting a higher level of activity associated with ongoing activities to refurbish the Barbrook operation.  In 2004 general and administrative expense includes a charge of $0.2 million for stock option grant expense as compared to $0.1 million in 2003 and $0.2 million in 2002.  

Barbrook Mine

Operations at Barbrook during 2004 focused mainly on improving metallurgical circuits and gold recoveries.  When mining operations re-started during 2003, the characteristics of the French Bob’s ore fed to the plant were not as defined in earlier test work and as a result of this variability the gold recoveries were below projections.  The ore was considerably more refractory with more arsenopyritic previously. This resulted in lower than expected gold recovery as the organic, “preg-robbing” carbon content than expected, although these ores were of higher grade than the pyritic ore types tested  continued to contaminate and interfere with the gold recovery process.  A number of alternative metallurgical circuits were installed, tested and evaluated, and circuit improvements have now virtually been completed, resulting in improved gold recoveries during the later part of the first quarter 2005.

The mineability, geology, and mineralization of the French Bob's ore body, which is the main operating area of the mine, was re-evaluated and re-modeled during 2002 to determine the optimum mining methods to minimize grade dilution.  Mining has been concentrated in the French Bob's ore zone between 10 and 7 levels.  Geological sampling and evaluation on the Taylor's and the newly discovered Tswala zones, adjacent to, and along strike from, the French Bob's zone is ongoing.  Development and stope tonnages from these areas will supplement the present production allowing the mill throughput to be increased to the 8,000 building to 10,000 tonnes per month planned range for 2005.  

Bulk ore samples from the Daylight/Victory zones will be taken once these ore zones have been fully exposed and will be tested to confirm the metallurgical amenability of this material in a Biox® circuit. Previous and ongoing Biox® tests on Barbrook concentrates showed gold leach recovery in excess of 90%. Testing Daylight/Victory ores on Biox® will commence in 2005 and if, as anticipated, prove positive, and then the Daylight/Victory area could provide the plant with an additional potentially higher grade ore source than that of the French Bob’s ore zone.  To ensure the continuity of the ore supply from the French Bob’s and adjacent ore zones, development has started on a decline shaft, which will provide access to the French Bob’s zone below the 10 level elevation.  The mine plan is focused on converting Resources to Reserves by means of underground development and drilling and has now embarked on an aggressive development program to access the Taylor’s, Victory, Daylight, Crescent and newly discovered Naude’s Strike ore zones.

Circuit changes and necessary mechanical repairs at the Barbrook metallurgical plant resulted in sporadic operation during much of 2004.  The results achieved are as follows:

Owing to the extreme metallurgical variability of the Barbrook ores, the higher gold grades associated with the refractory arsenopyritic ore zones and lower gold metallurgical recoveries associated with these highly refractory ore types, Barbrook commissioned Goldfields of South Africa to carry out an economic study for the design and installation of a full-plant Biox® process of gold recovery.  Goldfields are internationally recognized for their expertise and experience in the bacterial oxidation of refractory gold ores such as those found at Barbrook.  Caledonia believes that the Goldfields Biox® technology, successfully used since 1988 at the Barberton Mines complex, located next to Barbrook, will be amenable to all of the different ore types at Barbrook.  If implemented, the Biox® plant will be designed in a modular form capable of being readily expanded to take concentrat es from Caledonia’s other mines and from toll processing.

Owing to the poorer than expected gold recoveries, a series of modifications were made to the metallurgical circuit to correct gold recovery problems or shortcomings identified when the expected improvements from previous plant changes did not meet expectation.  Between late February and May 2004 the operations at the plant were temporarily suspended to carry out modifications, aimed at improved metallurgical gold recovery and increased throughput to 8,000 tonnes per month. The plant modifications included:

• Installation of a “fines washing and screening” section in the crusher circuit to improve the existing crushing and screening efficiency and to allow for a finer screening size of the crusher product. However, this circuit did not provide the necessary washing efficiency and was by-passed.

• Tests at Barbrook and SGS Lakefield laboratories in Johannesburg have shown that satisfactory flotation gold recovery could be achieved by coarser flotation feed ore sizing. The 8 x 10 Vecor mill (that previously milled to a product size of about 85% minus 75 microns) was reconfigured to enable it to produce a coarser grind to about 65 to 75% minus 75 microns.

• An “organic carbon pre-float” circuit was added to the front of the flotation circuit to remove as much of this ‘preg-robbing’ material from the circuit as possible. This should have reduced the amount of blinding agent present in the leach circuit and consequently reduce the foaming problem in RIL. However, this “carbon pre-float”, although it successfully removed considerable amounts of the organic carbon from the sulphide concentrate, resulted in high gold losses with the carbon and was discontinued.

• Changes were made in the regrind/thickener section to achieve finer regrind sizes and more consistent concentrate feed densities to pre-oxidation and leaching.

• The PreOx and high-intensive agitation sections were not effective in maintaining consistent satisfaction of the concentrate oxygen demand and were replaced by 2 Aachen high-efficiency oxygen dispersion units. Pilot plant tests and plant operation at Barbrook have shown these units provide excellent oxygenation of the fine reground flotation concentrate and lead to more consistent leach gold recoveries.  However, the physical operating conditions encountered when using these units have required intense engineering testing of pumps, filters and instrumentation to keep the Aachen units operating in their design ranges.

• Automatic cyanide measurement and addition equipment has been installed in the RIL section to optimize gold recovery and reduce cyanide consumption.

• The size of the elution facility for loaded resin was redesigned by Caledonia and substantially increased. This now allows for improved gold security and greater flexibility of RIL operation.

• A flash flotation cell was added to the Vecor mill circuit treating 100% of the Vecor mill cyclone underflow circuit. This effectively concentrates up to 70% of the gold feeding the flotation section – the flash flotation concentrate being fed directly to the concentrate regrind circuit.

• A second G-cell was installed in flotation for re-cleaning of the cleaner flotation concentrate. This increased the gold grade in the final concentrate product whilst maintaining gold recovery and made operation of the flotation section less complex.

• Towards the year-end, a combined gravity/cyclone plant was designed, developed and installed by Barbrook to remove most of the organic carbon that consistently caused metallurgical problems in gold recovery. This circuit has now been optimized and removes most of the liberated organic carbon. The organic carbon is discarded with the main flotation tailings.

Despite the introduction of the above new processes, the improvements in gold recoveries at the year end and in January 2005 did not improve as significantly as anticipated, and were still recorded well below the level forecast.  It had been determined that the gold absorption activity of the resin used in the RIL circuit was much lower than the “fresh” or “new” resin. Despite many tests by the resin suppliers and developers, specific reasons for this reduction in absorption activity were not found. One of the most probable causes was thought to be ‘oxidation’ or ‘organic fouling’ of the resin. The presence of the fine organic carbon, addition of high paraffin (blinding agent), high oxygen gas addition in the RIL and possible high slurry temperatures gave a combined effect of foam formation in the RIL, and this coupled with the low resin gold absorption activity caused low leaching gold recoveries.

The following plant changes were made in late 2004 and early 2005 to remedy the above resin problems and to improve other areas of the process:

• A new crusher capable of crushing the ore finer was bought and installed. This, together with the fines washing system which was re-commissioned in early March 2005, should produce a finer mill feed which should result in an increased throughput.

• A second flash flotation cell was installed in the main flotation circuit to replace the large 4-cell rougher circuit that was proving difficult to control due to the high organic carbon presence.

• The combined gravity/cyclone plant was further optimized and has increased removal of more than 95% of the liberated organic carbon from the feed to the RIL. Since this optimisation there has been a further improvement in the Aachen and RIL circuits and has eliminated completely the frothing/foaming problem.

• The lower carbon content enabled a much lower dosage of paraffin addition.

• Gold losses in the carbon removal process at about 5% are presently acceptable in view of the improved RIL operation. It is believed that these losses can be removed by optimization of the cyclone circuit.

• Technical management visited the Penjom mine in Malaysia, where a similar RIL operation to Barbrook’s, but on a much larger scale, has operated for several years to gain experience of some of the problems faced by Penjom and their solution.

• The whole of the resin inventory was replaced by fresh resin.

• A test Metso ultra-fine grinding mill was introduced into the circuit.

• A number of Barbrook’s circuit changes have now been copied by a mine in the area with similar challenges.

Following the above circuit changes, there has been a significant improvement in the operating efficiency in the RIL section with a corresponding increase in gold recovery. The full effect of the above changes will only be determined during March 2005 when all of the process changes are complete and the new plant operation has been optimized. The effect of the changes will mean an immediate increase in tonnage throughput to about 8000 tonnes per month and possibly higher. The metallurgical circuits operating at present are completely different to that originally installed at Barbrook, save for portions of the crushing circuit.

Eersteling Gold Mine

A full geological review of the Eersteling property, including the mine plans and other technical data, was commenced in October 2004.  The resources at Eersteling were evaluated and a development program prioritized. Other prospective areas, which should be investigated as potential ore sources, were identified and a surface exploration program has commenced to test some of these areas.  This included a high resolution aeromagnetic and radiometric survey, which was completed in January 2005.  Potential target zones will be identified and are planned to be drilled during 2005.  In the soil geochemical program, 500 soil samples in a 3,500 sample program were collected at Eersteling, with the results currently pending.

Outlook

The forecast production and sale of Caledonia’s gold for 2005 is at this stage difficult to estimate, and will depend upon the rate and timing of the improved gold production expected at the Barbrook , which will be better established during March 2005, the Rand exchange rate and US Dollar gold price that will prevail during 2005.

Looking to the future, should the Biox® process tests prove positive, the Daylight/Victory ore zone could provide the Barbrook plant with a readily accessible, additional source of higher than average grade ore.  As highlighted, development is currently in progress on 10 level to provide access to other known ore shoots which extend 110 vertical meters above 10 level at Barbrook.  To ensure continuity of the ore supply from the French Bob’s ore zone, development has already started on a decline shaft which will provide access to the French Bob’s zone below the 10 level elevation.  Further, the mine has also embarked on an aggressive development program to access the lower portions of the French Bob’s, Victory/Daylight, Crescent and Browns ore zones, and the newly discovered Tswala’s and Naude’s Strike, all part of the Barbrook’s existing underground infrastructure.

Caledonia intends, subject to a sustainable economic rand gold price and favourable Eersteling/Roodepoort exploration results to re-commence commercial production at Eersteling at some time in the future.

GOLD

Roodepoort

The near-surface Roodepoort Gold Property is located 22 kms. north east of the Eersteling Mine area and 8 kms. east of the Zandrivier mine area. Roodepoort is situated on an area of historical gold mining and an unusual (for South Africa) gold-bearing albitite intrusive (a hydrothermally altered granodiorite).  Grab samples have returned values of up to 2 g/t gold from pyritic portions of this unit and values greater than 16g/t gold from younger shear zones.

A diamond drill program, consisting of three angled (-45º) core holes, was completed during September. Although some results are interesting, the best intersections are 100m deep and were not repeated in the results from the other drill holes.  These intersections are believed to correspond to the down dip extension of a number of old workings to the east, whose workings extend to the 30m level. Based on the recent re-evaluation of the drill results. Caledonia now has concluded that the potential for an open-pit operation, based on reported gold mineralization in the albitite body, as previously envisaged requires further exploration.  However potential exists for narrower higher grade vein mineralization on this property, which will require further evaluation as a source of ore for the Eersteling metallurgical plant. Further compilation of previous data and assessment of the intersect ions made will be conducted. Evaluation is planned for 2005 to determine any further work on this property.  Drill sections and drill logs from this program can be found for the Roodepoort Project in the “Maps and Reports” section of the Caledonia website.

DIAMONDS

Kikerk Lake

The Kikerk Lake property consists of 15 mineral leases currently pending approval by the Nunavut Mining Recorder. These leases cover 38,738 acres (15,677 hectares).  In 2001 and 2002, Caledonia announced the discoveries of two diamondiferous kimberlites, “Potentilla” and “Stellaria”, on the Kikerk Lake property in Nunavut Canada, by its joint venture partner and operator of the property, Ashton Mining of Canada Inc. (“Ashton”).  The two kimberlite pipes are approximately 700 metres apart.  All remaining heavy mineral follow-up samples collected from six separate areas on the property during the 2003 summer season were processed during 2004 in Ashton’s laboratory.  A total of 361 heavy mineral samples were collected during July and August 2004 by Ashton. The sampling program had two objectives.  The first was to better define known indicator mineral trains or confirm isolated indicator anomalies. The second was to increase the sample density across the property in those areas of the property where sampling was considered inadequate to confidently assess mineral potential.  Results from this sampling program are expected by the end of the second quarter 2005.

Caledonia’s 17.5% share of this program is funded by Ashton.  Ashton holds a 52.5% interest, having incurred in excess of $750,000 in exploration expenditures on the property.  This interest can be increased to 59.5% if Ashton funds Caledonia’s share of the costs through to a completed feasibility study.  The remaining 30% interest is held by Stornoway Diamond Corporation.

Mulonga Plain

Caledonia has a joint venture agreement with BHP World Exploration Inc. and its affiliate Motapa Diamonds Inc., (“Motapa”) collectively known as "the BHP Entity", on the Mulonga Plain, Kashiji Plain and Lukulu licences in Western Zambia. Motapa is the project operator on behalf of the joint venture.  The BHP Entity is now vested with a 60% participating interest, with Caledonia holding a 40% interest.  In terms of the joint venture, the BHP Entity will continue to fund operations through the completion of a feasibility study at which point their interest will increase to 75%. Caledonia will then have various options including that of BHP funding the project through to commercial production.

The Mulonga Plain licence area is located in Western Zambia, between the Zambezi River and the Angolan border.  Previous work by Motapa has identified four discrete prospective areas within the licence area. The eastern portion of the Mulonga Plain anomaly has been identified as having a higher probability for an initial kimberlite discovery.  In November and December 2004 Motapa completed a 5,000 line kilometre airborne gravity and magnetic survey over this eastern area.  This survey information has been processed and has identified 71 potential targets for further follow-up.  This evaluation will form the basis for drill test work planned for mid-2005 and budgeted at US$520,000.

Kashiji Plain

This licence area is located in northwest Zambia, adjacent to the Angolan border.  Prior work by Motapa has recovered 22 microdiamonds in association with numerous kimberlitic ilmenites.  Field work in 2004 focused on follow-up sampling and ground geophysical work in two discrete areas of anomalous kimberlite indicator mineral and diamond recoveries.  In the Chundra Falls anomaly area, located in the northern portion of the Kashiji Plain, 33 heavy mineral samples, ranging in size from 1000 kg bulk macrodiamond samples to 5 kg infill samples were collected.  In late 2003, the joint venture added the Lukulu licence area to its land holdings.  

The Lukulu licence consists of 1,900 km² and is immediately adjacent to the south-east portion of the Kashiji licence area.  During 2004 previous work, which has resulted in the recovery of anomalous diamond and kimberlitic ilmenites was followed-up by sampling and ground magnetic surveys. Results from the ground magnetic data and heavy mineral samples will determine the extent of drill test work that may be warranted in 2005.

Goedgevonden

Caledonia has a Prospecting and Option Agreement over the Goedgevonden diamond bearing kimberlite pipe located approximately 20 kilometres north of the Stilfontein gold mine in the Klerksdorp district of the North West Province in South Africa.  In early 2002, Caledonia signed Prospecting and Option Agreements over adjacent areas of interest, including the exploration rights to the Syferfontein kimberlite pipe that is located about 1 km north east of the Goedgevonden pipe and other adjacent areas of interest.

Previous prospecting activities carried out in the mid 1970’s on Goedgevonden indicated that the pipe is oval in shape and covers a surface area of approximately 27,000 square metres.  This work also confirms that the pipe was drill intersected at a depth of 425 metres, and that further down dip extensions remain undefined.  Previous drilling reported an average diamond content of 35 to 45 cpht, with one hole yielding 65 cpht.  A fair portion of the diamonds recovered from the drilling were gem quality with a notable tendency toward pink coloured diamonds.

In 2001, Caledonia conducted a stratagem geophysical survey prior to planning a preliminary drilling program in 2002.  The preliminary drilling program consisted of 7”, 8” and 12” diameter reverse circulation drill holes, the collection of the drill samples and diamond recovery.  Four holes were drilled in the centre of the pipe, three to a depth of 150 metres, and the other to 120 metres.  The three remaining holes were drilled to delineate the pipe in more detail.  All of the 7 holes drilled entered the kimberlite at a depth of about 6 metres, and the 4 centrally-located holes were stopped whilst still in the kimberlite.  A total of about 56 tonnes of drilling sample was collected and processed through a Van Eck and Lurie dense-media separation (“DMS”) plant and wet Sortex machine.  From the diamond recoveries it was confirmed that the Goedgevonden pipe was diamondifero us, and sufficient gem-quality diamonds were recovered to warrant a larger bulk sample.  Geological interpretive work was completed during 2003 but there was no exploration activity on this property during 2004 as corporate resources were concentrated on Caledonia’s other projects which are considered as being of higher priority in adding shareholder value.

PLATINUM

Rooipoort

In 2002, Eersteling acquired the Rooipoort Platinum Prospect from Anglo Platinum. The property is located approximately 30 km southwest of the Eersteling Gold Mine property and is located in an area that is presently undergoing a surge in platinum group metal exploration along a well mineralised feature known as the “Platreef”.  To date Caledonia has drilled a total of 11,005 meters on the Rooipoort Platinum Exploration Project to complete Phases 1 and 2 of this exploration program. A total of 624 metres has been completed of a proposed initial 3,250 metre drilling programme to outline an indicated resource on the property.

Initial exploration results indicate that there is PGM and base metal (nickel and copper) mineralization in most of the holes drilled to date over a 6 km strike length. A provisional interpretation of the drill results indicates that the northern and extreme southern portions of the Rooipoort property are most prospective for mineralization at even shallower depths. Future exploration activity will be concentrated in these areas and in the Grasvally property following receipt of the prospecting permit.

At the end of 2004, flotation amenability test work was performed at the SGS Lakefield laboratories in Johannesburg, South Africa on mineralized composite samples from 5 lithological units prepared from the diamond drill-hole cores to verify the flotation amenability of the ore. The tests included milling and basic flotation to produce a flotation concentrate. The tests indicated that from each of the 5 mineralized zones,  a re-cleaner flotation concentrate of low mass recovery can be produced that contains medium to high recovery of the platinum, palladium, gold, copper and nickel . This initial test work indicates that a simple metallurgical process route could process a flotation concentrate from a high-tonnage lowish-grade feed ore from an open-pit ore source.

In 2004 Caledonia purchased and acquired prospecting rights over an additional 342 hectares on the farm Grasvally, immediately adjacent and to the south of the Rooipoort property. On March 11, 2005 Caledonia’s application for the necessary Prospecting Permit from the Department of Minerals and Energy, which was filed on April 23, 2004, was refused on the grounds only of not having a shareholders agreement in place with a black economic empowerment partner. Caledonia believes that this refusal has no basis in law and continues to actively pursue this permit by all available means. Exploration drilling in this area will commence once the necessary exploration permits are issued by the South African Department of Minerals and Energy.

Maps and drill logs for the “Rooipoort Platinum Project” shown on Caledonia’s website provide an appreciation of the exploration activity that has been carried out on the Rooipoort property.

BASE METALS

Nama

Caledonia Nama Limited, a wholly owned subsidiary of Caledonia, holds five contiguous exploration licences in northern Zambia which host open-pittable near-surface low grade cobalt /copper mineralization.  The 2001/2002 soil-sampling program carried out jointly by Caledonia and BHP Billiton was completed over the majority of the remaining licence area.  This program identified a number of high priority anomalous targets within the required geological setting.  These targets should be followed up in the search for the suspected presence of larger, deeper, sulphide ore bodies.   With the recent substantial increase in the price of copper, Caledonia will search for joint venture partners for the exploration of the potential deeper sulphide-ore zones. 

In the second quarter of 2004 a mini bulk sample was excavated at Nama and underwent successful screening tests and heavy media/gravity separation tests in South Africa. Following encouraging results, it is now planned to excavate a larger tonnage sample, in conjunction with a cobalt end-user, which will be screened and processed on site to produce a suitable cobalt concentrate for testing through a Zambian smelter. If the test, which is planned for 2005, is successful and satisfactory economic terms are obtained, it is expected that a long-term supply contract for the Nama cobalt/copper concentrate will be negotiated with a smelter or other end users. 

Kadola

This large exploration property consisting of three contiguous licence areas was previously joint ventured with Cyprus Amex and is prospective for copper and cobalt. With the recent substantial increase in the price of copper, Caledonia will search for joint venture partners for the exploration of the copper/cobalt potential of Kadola.

The Kadola properties also include the Eureka gold/copper/pyrite anomaly. With the significant increase in the price of gold and copper, this project area will be re-evaluated for either joint-venture or for further work by Caledonia.

OUTLOOK

The outlook for the aforementioned exploration properties is difficult to quantify.  Exploration by its nature is speculative with a high degree of risk accompanied by the potential for high returns.  Caledonia 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.  The recent “across-the-board” increases in the prices of precious and base metals should improve exploration expenditures of the major mining companies and could improve the likelihood of Caledonia negotiating joint ventures agreements for its remaining wholly-owned exploration properties.

STRATEGIC ALLIANCES

Exploration is a high-risk, high-cost but potentially high-reward business.  Caledonia’s strategy in this area is to position itself to participate in a significant part of the “reward” through joint venture interests in order to minimize early exploration costs.  Details of the strategic alliances with joint venture partners have been discussed above.

Caledonia currently has two joint venture interests in place, each of which is presently conducting aggressive diamond exploration programmes.  Caledonia intends to continue to focus its exploration activities of prospective properties by developing the properties through strategic alliances with senior producers.

Caledonia 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.

Caledonia and its subsidiaries operate under Caledonia’s Environmental Policy that encompasses the following:

• Caledonia directs its employees and its subsidiary companies to conduct their exploration and operations activities in a professional, environmentally responsible manner, in compliance with all applicable legislation and policies in the jurisdictions in which they undertake business.

• Caledonia liaises closely with the applicable government regulatory bodies and the public to optimize communication and an understanding of Caledonia’s activities in relation to environmental protection.

• Caledonia is committed to the diligent application of technically proven, economically feasible, environmental protection measures throughout its exploration, development, mining, processing and decommissioning activities.

• Caledonia on a regular ongoing basis monitors its environmental protection management programs to ensure their compliance with the applicable regulatory requirements.

It is the responsibility of all the employees of Caledonia 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.

During 2004 Caledonia invested $3.8 million on capital assets and mineral properties as compared to $2.3 million in 2003.  The majority of the $3.8 million invested in 2004 was spent in South Africa on Barbrook, Eersteling, Rooipoort and Roodepoort.

During the year, $14.3 million was raised from private placements, exercise of warrants and options as compared to $9.5 million in 2003 and $5.2 million in 2002 (all net of issue costs).  The increased financing level reflects improving investor confidence in gold mining and exploration companies in general.  

The majority of these funds will be used to finance the improvements in the processing of gold ore at Barbrook and exploration activity on the Company’s most prospective projects.

Caledonia and its subsidiaries are completely debt-free.

As of December 31, 2004 the Company had working capital of $6.4 million as compared to $3.8 million at December 31, 2003 and $0.8 million at December 31, 2002.   Cash and short term deposits increased from $4.2 million at the end of 2003 to $6.5 million at December 31, 2004.  

During 2004, Caledonia raised $13.3 million in equity financing net of expenses from a private placement by issuing 45,388,175 common shares and $0.8 million from the exercise of 3,449,114 common share purchase warrants and options.  Details of financing activities are presented in note 4 (b) of the notes to the consolidated financial statements.  During 2005 it is expected that further cash requirements of Caledonia will be met from equity financing activity in conjunction with the proposed listing on the Alternate Investment Market of the London Stock Exchange, and cash flow from gold production at Barbrook.

The following table summarizes cash flows and cash on hand ($ thousands):

It is the belief of Caledonia that the planned financing activity discussed in the previous paragraph will sustain Caledonia for 2005 and into the year 2006.  The anticipated increase of gold production at Caledonia’s Barbrook Mine will also generate cash flow in 2005.  However, if funds fall short of requirements, Caledonia will undertake financing options such as private placements with private investors, and if this is still insufficient for its needs, will investigate either project joint ventures or project bank funding.   The funds raised by the 2004 financing have been and will be used mainly by Caledonia on its exploration, development and production activities such as:

• at Barbrook by developing access to ore resources below the 10 level and to the east along strike, providing continuity of the mining operations, making capital additions to the Barbrook metallurgical plant, such as a Biox® circuit;  

• by further drilling/possible bulk sampling and processing of material from Caledonia’s Goedgevonden Diamond Project;

• by further drilling at Caledonia’s Rooipoort Platinum Project;

• by further bulk sampling and concentration test work on Caledonia’s Nama Cobalt/Copper Project; and

• by further exploration in respect of the Eersteling Mine to establish the prospects of re-opening it.

The funds raised will be sufficient to move forward with the direct development of the above assets if the projects are proven to be economically and technically justified.  The Mulonga Plain joint venture with the BHP Entity is subject to joint venture agreements and is fully funded by the joint venture partner through to commercial production. Similarly the Kikerk Lake joint venture with Ashton Mining is fully funded by Ashton. Caledonia continues to actively review the benefits, to Caledonia and its shareholders, of seeking new joint venture partners for most, if not all of its exploration properties.

The Company does not have any significant long-term contractual obligations or commercial commitments other than its responsibilities pursuant to two joint venture agreements discussed elsewhere in this document, except as given below.

The above relates to the South African head office. The company has minor obligations in respect of licence fees for its exploration and mining properties some of which are paid by Caledonia’s joint venture partners.

Selected Financial Highlights - 2004

Selected Financial Highlights – 2003⁽⁴⁾

⁽¹⁾

Includes a write down of mineral rights and capital assets at Eersteling in South Africa in the fourth quarter of $1,062

⁽²⁾    Represents basic and fully diluted loss per share, in $ per share

⁽³⁾    Includes a write down of mineral properties in Zambia and South Africa in the fourth quarter of $9,759

⁽⁴⁾

Restated for the adoption of the Asset Retirement Obligation change in accounting policy.

The fluctuation in operating costs through the year related primarily to variations in activities at Barbrook as various modifications were made to the gold-recovery plant.  The revenue increase in the last quarter is from the increase in gold production at Barbrook. The significant reduction in carrying value of capital assets and mineral properties is explained in Notes ⁽¹⁾ and ⁽³⁾. Gold production at Barbrook remained below target, due to poor metallurgical recoveries, despite an improvement during the second half of the year. Further laboratory and pilot plant test work is continuing into 2005 to ensure sustainable higher recoveries. A significant increase in gold recovery was obtained in February 2005 and is continuing into March.

Preparing financial statements requires management to make estimates and assumptions that affect the reported results. Estimates are based on historical experience and other assumptions that are believed to be reasonable under the circumstances. The Company’s accounting policies are those that affect the Consolidated Financial Statements and are summarized under the “Summary of Critical Accounting Policies”.  The critical accounting policies include accounting for foreign currency translation, capitalization of exploration expenditures and the recognition of impairment of those assets.

Costs relating to the acquisition, exploration and development of non-producing resource properties are capitalized until such time as either economically recoverable reserves are established or the properties are sold or abandoned. 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 The decision to capitalize exploration expenditures and the timing of the recognition that capitalized exploration is unlikely to have future economic benefits can materially affect the reported earnings of the Company.

A significant portion of the Company’s assets and liabilities are denominated in South African rand.  Fluctuations in the value of the rand relative to the Canadian dollar could have a significant impact on results of operations.  Exchange gains or losses arising from the translation of South African assets and liabilities are reflected through the income statement in the period in which they occur.  

2002

During 2002, the Company chose to present the impact of stock-based compensation as pro-forma information in the notes of the financial statements.

2003

Effective January 1, 2003, the Company adopted the new recommendations of the CICA in Handbook Section 3870, “Stock-based compensation and other stock-based payments”.  Section 3870 is applied prospectively to all stock-based payments granted on or after January 1, 2003.  The Company has chosen to reflect the stock-based compensation as an expense in the statement of operations from that date.

Effective January 1, 2003, the Company adopted a new accounting standard of the CICA in respect of the impairment or disposal of long-lived assets. During the year, the Company reviewed the carrying value of numerous long-lived assets under the new standard resulting in the recording of valuation adjustments as disclosed in Note 3 of the financial statements.  

2004

The Company has adopted the accounting guidelines issued by the CICA in respect of hedging relationships for Canadian reporting purposes. The new guidelines will be applied at such time as Caledonia undertakes any hedging contracts.  The Company does not anticipate that the new guidelines will have a material effect on the results of operations and financial condition.

Effective January 1, 2004, the Company has adopted CICA 1100, Generally Accepted Accounting Principles. CICA 1100 describes what constitutes Canadian GAAP and its sources.  The Company does not anticipate that this will have a material effect on the results of operations and financial condition.

Effective January 1, 2004, the Company has adopted the new CICA rules concerning the accounting for asset retirement obligations.  The adoption of this rule will bring Canadian and US GAAP into alignment. For Canadian reporting purposes the new rules have been adopted retrospectively to 1^st January 2002.

As at March 18, 2005 the following equity instruments were outstanding:

301,112,286 common shares and the following options and warrants:

This annual report contains certain forward-looking statements relating but not limited to the Company’s expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”, “estimate”, “could”, “should”, “may” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. 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.

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. Caledonia undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

To the Shareholders of Caledonia Mining Corporation:

Management has prepared the information and representations in this annual report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles applied in Canada and, where appropriate, reflect management’s best estimates and judgement. The financial information presented throughout this report is consistent with the data presented in the consolidated financial statements.

Caledonia 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 consolidated financial statements and expressing an opinion on them.

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.

The consolidated financial statements have been audited on behalf of the shareholders by the Company’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).  The auditors’ report outlines the scope of their examination and their opinion on the consolidated financial statements

(signed)

           (signed)

S. E. Hayden

M. D. Tombs

President and Chief Executive Officer

Vice-President, Finance and Chief Financial Officer

Auditors’ Report

To the Shareholders of

Caledonia Mining Corporation

We have audited the consolidated balance sheets of Caledonia Mining Corporation as at December 31, 2004 and 2003 and the consolidated statements of deficit, operations and cash flow for each of the years in the three year period ended December 31, 2004.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Accounting Oversight Board (United States).   Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flow for each of the years in the three year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Toronto, Ontario

February 11, 2005

Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company’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 an accounting policy, such as those involving asset retirement obligations, stock based compensation and impairment of long lived assets described in the summary of significant accounting policies, have a material effect on the consolidated financial statements. Our report to the shareholders dated February 11, 2005 is expressed in accordance with Canadian reporting standards which do not require a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.

Chartered Accountants

Toronto, Ontario

February 11, 2005

Caledonia Mining Corporation

Consolidated Balance Sheets

(in thousands of Canadian dollars)

On behalf of the Board:

(signed)      J.Johnstone

                  Director

(signed)       F.C.Harvey

                   Director

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

Caledonia Mining Corporation

Consolidated Statements of Deficit

(in thousands of Canadian dollars)

Consolidated Statements of Operations

(in thousands of Canadian dollars except share and per share amounts)

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

Caledonia Mining Corporation

Consolidated Statements of Cash Flows

(in thousands of Canadian dollars)