Mr. Stefan Hayden reports

CALEDONIA MINING REPORTS RECORD HIGH Q3 2012 PRODUCTION AND GROSS PROFITS

Caledonia Mining Corp. is releasing its operating and financial results for the third quarter 2012, ended Sept. 30, 2012, which are reported below in Canadian dollars.

Operational highlights

Gold produced at the Blanket mine in Zimbabwe in the third quarter reached a new all-time high of 12,918 ounces, 12 per cent higher than the 11,560 ounces produced in the quarter ended June 30, 2012, and 33 per cent higher than the 9,743 ounces produced in the third quarter of 2011.

Gold production from underground mining in the quarter was the highest ever produced by Blanket since its first recorded production in 1906.

Blanket's cash operating costs in the quarter decreased to $508 (U.S.) per ounce of gold produced, from $547 (U.S.) in the preceding quarter and $583 (U.S.) in the comparable quarter.

Financial highlights

Gold sales during the quarter were at an average sales price of $1,673 (U.S.) per ounce, compared with an average sales price of $1,599 (U.S.) in the preceding quarter and an average sales price of $1,737 (U.S.) in the comparable quarter.

Gross profit for the quarter (after depreciation and amortization but before administrative expenses and the indigenization-related expenses referred to below) was $12,602,000, a new record high, which was 25 per cent higher than the $10,067,000 achieved in the preceding quarter and 35 per cent higher than the $9,364,000 achieved in the comparable quarter.

Cash flow from continuing operations in the quarter, before capital investment, was $12,364,000, compared with $8,653,000 in the preceding quarter and $9,206,000 in the comparable quarter.

Net cash and cash equivalents generated per share in the quarter was 1.2 cents, compared with 0.36 cent in the preceding quarter, and 2.9 cents for the nine months to Sept. 30, 2012, compared with 1.14 cents for the nine months to Sept. 30, 2011.

At Sept. 30, 2012, Caledonia had cash and cash equivalents of $24,615,000, compared with $18,323,000 at June 30, 2012, and $6,847,000 at Sept. 30, 2011.

Caledonia's annualized return on shareholders' funds (before the non-cash-based expenses arising from the implementation of indigenization and non-cash adjustments arising from exchange rate movements on intercompany balances) was 61 per cent.

During the quarter, Blanket made payments in respect of direct and indirect taxes, royalties, licence fees, levies and other payments to the government of Zimbabwe totalling $8.4-million (U.S.), compared with $7.9-million (U.S.) in the preceding quarter and $3.8-million (U.S.) in the comparable quarter.

Nama base metals project, Zambia

The 2012 drilling program continued with the objectives of further identifying and defining extensions of the mineralized zone identified in 2011, and increasing the confidence level of the information on this mineralized zone. As at Oct. 25, 2012, 30 holes and 8,400 metres of drilling had been completed, and three rigs are currently working on the site.

To date, an area of copper mineralization has been defined as follows:

• Current identified strike length of 1.3 kilometres and a dip extent of 900 metres;
• Mineralization intersected at depths from 98 to 579 metres;
• Thickness of mineralized zone varies from 10 to 27 metres;
• Average copper grade of 0.52 per cent;
• Possible extensions of the mineralized zone to the west and to depths below 580 metres will be drill tested in future.

The 2012 drilling program is expected to be completed shortly, following which the drill results will be analyzed and interpreted. Caledonia expects to issue an NI 43-101-compliant copper resource and reserve statement by June 30, 2013.

Caledonia will continue to manage its cash resources so that it retains the financial capacity to progress this project as fast and as far as possible without requiring third party involvement or equity financing.

Indigenization:

• On Oct. 11, 2012, Caledonia announced the completion of the indigenization of Blanket following which Caledonia now owns 49 per cent of Blanket.
• Caledonia has received the certificate of compliance from the government of Zimbabwe which confirms that Blanket is fully compliant with the Indigenization and Economic Empowerment Act.
• Caledonia's strong operating performance was converted into an attributable net loss after tax for the quarter of $7.24-million after a non-cash, non-recurring charge of $14,161,000, due to the implementation of the indigenization of Blanket.
• As an indigenized entity, Blanket can now develop and implement its long-term growth strategy. The newly constituted Blanket board, which includes representatives of the indigenous Zimbabwean shareholders, has approved a capital investment program for 2013, and a four-year growth strategy for 2014 to 2017. Work has commenced on a new development project at Blanket (the No. 6 Winze project), which is expected to result in a 70-per-cent increase in ore production from 2015. This program will be financed from Blanket's internally generated cash and is expected to result in progressive increases in gold production over the next five years.

Commenting on Caledonia's performance, Stefan Hayden, president and chief executive officer, said: "The third quarter of 2012 showed a substantial improvement in gold production at the Blanket mine in Zimbabwe. Gold production in the quarter was 12,918 ounces, 12 per cent higher than the preceding quarter and 33 per cent higher than the third quarter of 2011. This was the highest quarterly gold production ever achieved by Blanket mine since its first recorded production in 1906, and whose previous owners include Falconbridge and Kinross Gold.

"Increased gold production, further improvements in gold recoveries and continued close attention to costs contributed to a reduction in average operating costs from $547 (U.S.) per ounce of gold produced in the preceding quarter to $508 (U.S.) per ounce of gold produced. Blanket is now one of the lowest cost gold producers in both Africa and the world.

"The strong operating performance is a testament to the hard work of the management and employees at Blanket, and shows the benefits of Caledonia's investments in the Blanket mine.

"Following the implementation of indigenization, Blanket, as a highly profitable and cash-generative gold producer, and with Caledonia's financial, technical and administrative support, is well positioned to implement its growth strategy. Work continues at Blanket's satellite development properties, and on the deeper-level development and exploration at the Blanket mine. In addition, work has also commenced on a new development project at Blanket mine, the No. 6 Winze, which is expected to give rise to an approximate 70-per-cent progressive increase in production, commencing in three to four years.

"As expected, the implementation of indigenization at Blanket resulted in a large non-cash accounting charge which adversely affected our reported profit. This charge, which is a non-recurring item, had no impact on Caledonia's strong cash generation. Details of the highly complex accounting for indigenization is set out in the unaudited consolidated financial statements for the quarter, which are available on Caledonia's website.

"Work continues at the Nama base metals project in Zambia. I expect that Caledonia will be in a position to issue a resource and reserve statement by the end of June, 2013, as previously advised.

"Caledonia's financial position continues to improve. With almost $25-million of cash on hand, Caledonia has sufficient cash resources to invest in its existing projects and also in potential new opportunities."

Dr. Trevor Pearton, BSc, Eng (mining geology), PhD (geology), FGSSA, vice-president of exploration, is the company's qualified person as defined by NI 43-101. Dr. Pearton is responsible for the technical information provided in this release.

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