Interim Results

Caledonia Mining Corporation
14 August 2006


                         Caledonia Mining Corporation

                        2nd Quarter Interim Results 2006

Toronto, Ontario - August 14, 2006: Caledonia Mining Corporation ('Caledonia')
(TSX: CAL, NASDAQ-OTCBB: CALVF and AIM:CMCL) is pleased to announce its key
financial and operating results for the second quarter ended June 30, 2006. The
financial results are reported in thousands of Canadian dollars except where
otherwise stated.

Operational Highlights

Barbrook Gold Mine - South Africa

- Quarterly gold production increased 94% to 1,749 ounces over the previous 
  quarter. However the two quarters are not truly comparable because
  of disruptions in January while the plant expansion was completed.
- Plant throughput has increased steadily reaching 12,397 tonnes in June, 
  following completion of the plant expansion to 15,000 tonnes per month capacity 
  from 6,000 tonnes per month.
- Production improvements continued during the second quarter. 32,133 tonnes 
  were treated in the plant during the quarter, an increase of 66% over the first 
  quarter.


Blanket Gold Mine - Zimbabwe

- Purchased the Blanket Gold Mine in Zimbabwe from Kinross Gold.
The transaction closed on July 5, 2006 and the results for Q2 will not be
consolidated for regulatory issues, despite the effective date of transaction
being from 1 April 2006. Blanket's results will incorporated from July 1, 2006.

- Quarterly gold production of 6,045 ounces.


Nama Cobalt Project - Zambia

- Ongoing evaluation of metallurgical process for this large cobalt oxide 
resource continued. Additional samples were extracted from the Nama
'A' Discovery trench and dispatched to test facilities in China and South Africa
for additional Wet High Intensity Magnetic Separation, flotation and
pyrometallurgical testing. The results of all these tests are encouraging,
additional tests are ongoing as are negotiations regarding multiple large long
term off-take agreements.

Corporate/Financial

- During Q2 2006 the company completed a private placement. This placement 
raised $3.92 million after expenses from the sale of 34,828,259 units.
Each unit consists of one common share and one share purchase warrant. These
funds will be used for general working capital and opportunities as they may
arise.

For the quarter ended June 30, 2006 Caledonia recorded a net loss of $2.9
million ($0.007 per share) compared to a net loss of $3.3 million ($0.011 per
share) for the same period in 2005 and a net loss of $1.4 million ($0.005 per
share) in the second quarter of 2004. The loss in 2006 results from ongoing
exploration costs, operations at Barbrook, and the normal administration
expenses during the quarter.

Reviewing the quarter, Stefan Hayden, President and CEO, said 'The acquisition
of the Blanket Gold Mine in Zimbabwe is a significant step towards expanding the
Company's gold production and developing Caledonia into a significant
diversified mining company. Blanket has a long history of gold production, with
the reported proven and probable reserves exceeding 3 million tonnes Blanket
reserves should continue to produce gold profitably for many years to come.

At the Barbrook Gold Mine our efforts on optimizing the metallurgical circuit
and ramping up tonnage from the underground mine to reach and exceed the planned
tonnage of 15,000 tonnes per month are showing encouraging results, but have not
yet brought Barbrook to a cash positive position. The tonnage milled increased
by 66% and gold production increased by 94% over the first quarter's results, as
noted the two quarters are not truly comparable because of production
disruptions in January as a result of plant expansion activities.

Regarding the Nama cobalt project, I am pleased to report that the interest
remains high.  Negotiations regarding long-term cobalt off-take agreements with
a number of large cobalt refiners are in the final stages. Technical and
economic studies related to the production of suitable cobalt carbonates and
hydroxides at Nama are presently underway in South Africa and China.'

As required by the AIM Rules, the Company confirms that, under the block listing
arrangement for warrants issued pursuant to a private placement, of the
33,287,626 common shares which were admitted to trading on AIM on 15 February
2006 under this arrangement, none have been issued in the six months to 14
August 2006.

Caledonia Management's Discussion and Analysis was published on August 14, 2006
and is available on the company's website: www.caledoniamining.com.

For more information, please contact:

Stefan Hayden                                     Alex Buck / Nick Bias
President and CEO, Caledonia Mining               buck-bias
Tel: [phone]                              Tel: [phone]

Further information regarding Caledonia's exploration activities and operations
along with its latest financials may be found at www.caledoniamining.com.

Certain statements included herein are 'forward-looking statements'.  Management
cautions that forward-looking statements are not guarantees and that actual
result could differ materially from those expressed or implied in the
forward-looking statements.  Important factors that could cause the actual
results of operations, exploration or development programs, or the financial
condition of the Company, to differ include, but are not necessarily limited to,
the risks and uncertainties discussed in documents filed by the Company with the
various regulatory authorities having jurisdiction.

2006 OBJECTIVES

- Improve safety awareness at Barbrook Mine and further develop necessary 
programs to ensure a safe operation.
- Optimise gold production at Barbrook Mine in South Africa by treating at 
least 15,000 tonnes per month.
- Continue developing additional reserves/resources at Barbrook Mine.
- Complete metallurgical studies to confirm viability of economic gold recovery 
from Daylight & Victory zones at Barbrook Mine.
- Continue with negotiations to conclude agreements with cobalt
refiners to purchase cobalt concentrate produced at Nama and/or form strategic
alliances to achieve this objective.
- Seek a joint-venture partner to commence an exploration program at the Kadola 
copper/cobalt and the Eureka copper/gold properties in Zambia.
- Further explore the polymetallic resource on the Rooipoort and Grasvally 
properties which form the Rooipoort PGE/Ni/Cu Exploration Project in South 
Africa.
- Increase the land holdings around the Rooipoort Exploration property.
- Drill identified extensions to the known ore zones on the Eersteling and 
Zandrivier Mining Licence areas.

- Pursue possible acquisitions and/or strategic partnerships to expand 
Caledonia's portfolio of properties.
- 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.
- Conclude necessary agreements to satisfy the South African Black Economic 
Empowerment ('BEE') requirements.
- Arrange necessary financing to support the activities required to meet these 
objectives.
- Expedite the Number 4 shaft expansion project at the newly acquired Blanket 
Gold Mine to increase gold production to 50,000 ounces per annum.


President's Message

The acquisition of the Blanket Gold Mine in Zimbabwe is a significant step
towards Caledonia's goal of developing the asset base into a significant
diversified international mining company. Gold has been mined in the Blanket
area for close on 100 years. In 2005 Blanket's reported historic gold production
exceeded one million ounces, and with the reported proven and probable ore
reserves exceeding 3 million tonnes Blanket should continue to produce gold for
many years to come. I am delighted to welcome the Blanket management team and
staff to Caledonia where I am sure they will make a significant impact on
Caledonia's future revenue. The Number 4 shaft expansion project at Blanket is
currently well underway and should be completed by the end of the first quarter
2007. This project will allow Blanket to increase production to 50,000 ounces
per year. The new monetary policy in Zimbabwe, which allows mines to retain 75%
of their foreign exchange proceeds, will have a significant impact on Blanket
and will further facilitate the cost cutting program which is rapidly being
implemented. The metallurgical tests proposed by Caledonia have been completed
and the circuit changes are being finalized as these will result in increased
gold recoveries and lower reagent usages.

Our efforts on optimizing the metallurgical circuit at Barbrook and ramping up
tonnage from the underground mine to reach and exceed the planned tonnage of
15,000 tonnes per month are showing pleasing results. The tonnage milled
increased by 66% and gold production increased by 94% over the first quarter's
results. However, it should be noted that production during the first quarter
was disrupted by plant expansion activities and the two quarters are not truly
comparable. It is disappointing that Barbrook is still not yet cash positive.

I participated in the Cobalt Development Institute's conference in May and am
pleased to report that the interest in rapidly bringing Nama into production is
high. Negotiations regarding long term cobalt off-take agreements with a number
of large cobalt refiners are advancing and the technical and economic studies
related to the production of suitable cobalt carbonates and hydroxides at Nama
are presently underway in South Africa and China.

___'Signed'__________________
S. E. Hayden
President and Chief Executive Officer

Management's Discussion and Analysis
Expressed in Canadian Dollars

This discussion provides updated information to the Management Discussion and
Analysis contained in the Caledonia's Annual Report for 2005 and the first
quarter report for 2006 which have been filed on SEDAR and are available at
www.sedar.com or on the Corporation's website at www.caledoniamining.com. Where
no comments are made there are no updates to report.

OPERATIONAL REVIEW


Barbrook Mines Limited - South Africa

Plant throughput at Barbrook gradually improved during the quarter, reaching
12,397 tonnes in June. This was due to improved and more consistent production
from underground. Plant throughput increased by 66% over that in the first
quarter when the plant commissioning interrupted operations. Most significantly
gold produced increased by 94% in the second quarter compared to the first
quarter. However, it should be noted that production during the first quarter
was disrupted by plant expansion activities and the two quarters are not truly
comparable.

Metallurgical testing continues with a view to resolving the unexplained gold
losses. These tests indicate that changes in the operating parameters may have a
considerable impact on reducing unexplained gold dissolution in the
pre-oxidation circuit. The final results of the confirmatory testwork are
awaited before the operating parameters are modified to accommodate the changes.

Barbrook Mines - 2006 Production Results

                               First          Second        Six Month     July
                             Quarter         Quarter            Total
Ore mined      Tonnes         27,565          29,886           57,431   14,052
Development
advance        Meters            795             737            1,532      220
Ore milled     Tonnes         19,357          32,133           51,490   12,292
Grade milled   g/t              3.78            3.37             3.53     4.53
Gold recovered Ounces            902           1,749            2,651      708

Blanket Mine (1983) Private Limited - Zimbabwe


The acquisition of the Blanket Mine was effective on April 1, 2006 although the
final closing did not take place until July 5th. Thus, operating control of the
mine was not transferred to Caledonia until July, however the results are the
responsibility of and for the benefit of Caledonia from April 1, 2006. Blanket's
operating results for the three months ending June 30, 2006 are detailed in the
table below. For regulatory reasons Blanket's Q2 results are NOT consolidated
into the Caledonia numbers and will only be consolidated from 1 July 2006.

Blanket Mine - 2006 Production Results

                                                  Second Quarter          July
Ore mined                  Tonnes                         50,700        17,600
Development advance        Meters                            772           258
Ore milled                 Tonnes                         51,500        18,100
Grade milled               g/t                              4.10          3.90
Gold recovered             Ounces                          6,045         2,076



CONSOLIDATED FINANCIAL RESULTS - Excluding Blanket Mine


For the quarter ended June 30, 2006 Caledonia recorded a net loss of $2.9million
($0.007 per share) compared to a net loss of $3.3 million ($0.011 per share)
during the same period in 2005 and a net loss of $1.4 million ($0.005 per share)
in the second quarter of 2004. The loss in 2006 results from operations at
Barbrook, the normal administration expenses and ongoing exploration costs
during the quarter.



Financing

During Q2 2006 the company completed a private placement. This placement raised
$3.92 million after expenses from the sale of 34,828,259 units. Each unit
consists of one common share and one share purchase warrant. These funds will be
used for general working capital and opportunities as they may arise. A further
placement of 17 million units, each consisting of one common share and one share
purchase warrant, was completed in July 2006 and raised $2.16 million after
expenses.


Summary of Quarterly Results


The following information is provided for each of the eight most recently
completed quarters of the company: (in thousands of Canadian dollars except per
share amounts)

The Q2 2006 Net Loss includes a depreciation charge of $965,000 greater than Q1
due to increased production levels and the use of the unit-of-production
amortization method.


            Q2 -   Q1-2006   Q4-2005   Q3-2005   Q2-2005   Q1-2005       Q4-      Q3-
            2006                                                        2004     2004
Net Sales
or Total
Revenues  $1,304      $418      $453      $743      $965      $481      $469     $202

(Net loss)    
- total  ($2,893)  ($2,266)  ($2,054)  ($2,564)  ($3,276)  ($1,786)  ($4,569) ($2,250) 

- per share     
undiluted ($0.007) ($0.006)  ($0.006)  ($0.008)  ($0.011)  ($0.007)  ($0.015) ($0.008)

- per share
diluted   ($0.007) ($0.006)  ($0.006)  ($0.008)  ($0.011)  ($0.007)  ($0.015) ($0.008)


Note: As there are no extraordinary items the disclosed net loss per share is
identical to the total loss before extraordinary items.



EXPLORATION AND PROJECT DEVELOPMENT


Eersteling Gold Mining Company Limited - South Africa


Gold Exploration Project

Significant progress has been made with digital compilation of historic
underground and exploration data in preparation for review of mineral resources
on the property.


Rooipoort and Grasvally Nickel, Copper, PGE Exploration Project

Application for conversion of the Old Order Rooipoort Prospecting Permit to New
Order Prospecting Rights was submitted to South African Department of Minerals
and Energy. The issuance of these new order rights is expected later this year.
The combination of the Rooipoort rights with those of the adjoining rights
acquired during the first quarter from Falconbridge Ventures of Africa
('Falconbridge') has doubled the area available for prospecting by the Company.
Plans are in place to commence drilling on the Central Target area once the New
Order rights have been granted. Research is in progress into the morphology of
the significant PGE, Ni, Cu intersections on the '321 Reef' on the Moordrift
property acquired from Falconbridge, prior to planning of further follow up work
on this Western Target area. See maps in our Press Release of March 13, 2006
which is available in the Investor Centre at www.caledoniamining.com under Press
Releases for location of these Target areas.

Caledonia Nama Limited - Zambia
Nama Cobalt Project

Ongoing evaluation of metallurgical process for this large cobalt oxide resource
continued. Additional samples were extracted from the Nama 'A' Discovery trench
and dispatched to test facilities in China and South Africa for additional Wet
High Intensity Magnetic Separation, flotation and pyrometallurgical testing. The
results of all these tests are encouraging and testing is ongoing.

Kadola Copper, Cobalt, Gold Project- Zambia

Representatives of a potential joint-venture partner made a technical visit to
the Eureka Cu/Au prospect and their assessment of the extensive database of work
done by Caledonia on the Kadola property is in progress.

SUPPLEMENT TO THE FINANCIAL STATEMENTS

As at June 30, 2006 the following securities were outstanding:

   • 440,981,021 common shares.
   • 17,238,000 common share purchase options at an average price of $0.21
     maturing at various dates until May 11, 2016.

   • 33,287,626 common share purchase warrants exercisable at a price of $0.20
     per share until February 3, 2008, 32,638,259 share purchase warrants
     exercisable at a price of $0.15 per share until May 12, 2007 and 2,190,000
     share purchase warrants exercisable at a price of $0.18 per share until May
     12, 2007.

20,000,000 shares were being held in escrow on June 30, 2006 pending closure of
the Blanket Mine acquisition.



Management's Responsibility for Financial Reporting

To the Shareholders of Caledonia Mining Corporation:

The accompanying unaudited consolidated financial statements of Caledonia were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the summary
of significant accounting policies in these consolidated financial statements.
Management is responsible for all information in the quarterly report. All
financial and operating data in the quarterly report is consistent, where
appropriate, with that contained in the consolidated financial statements.

The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee
composed of three directors, two of whom are not members of management. This
Committee meets with management to assure that it is performing its
responsibility to maintain financial controls and systems and to approve the
quarterly consolidated financial statements of Caledonia.

The consolidated financial statements have not been reviewed by Caledonia's
auditors.



___'Signed'__________________ ___'Signed'__________________
 S. E. Hayden                   S.R. Curtis
 President and                  Vice-President Finance
 Chief Executive Officer        and Chief Financial Officer



Consolidated Balance Sheet
(in thousands of Canadian Dollars)

                                         June 30,   December 31,       June 30,
(Unaudited)                                 2006           2005           2005
Assets

Current Assets
Cash and short term deposits               1,314          1,076          2,482
Accounts Receivable                          307            768            599
Inventories                                  332             90            839
Prepaid expenses                           3,320            330              3
                                    ____________   ____________   ____________
                                           5,273          2,264          3,923

Investment at cost                            79             79             79
Capital assets                             9,184          9,156          7,141
Mineral properties                        10,994         10,839         10,859
                                    ____________   ____________   ____________
                                          20,256         20,074         18,079
                                    ____________   ____________   ____________
Total assets                              25,530         22,338         22,002
                                    ____________   ____________   ____________
Liabilities and Shareholder
Equity

Current Liabilities
Bank overdraft                                 -            197              -
Accounts payable                           2,527          2,392          1,252

Provision for site restoration               325            377            397
                                    ____________   ____________   ____________
                                           2,851          2,966          1,649

Shareholders equity
Share capital                            188,466        180,053        176,470
Contributed surplus                          976            923            548
Compensation warrants                          -              -            321
Accumulated Deficit                     (166,763)      (161,604)      (156,986)
                                    ____________   ____________   ____________
                                          22,678         19,372         20,353
                                    ____________   ____________   ____________
Total Capital and liabilities             25,530         22,338         22,002
                                    ____________   ____________   ____________



Consolidated Statement of Deficit
(in thousands of Canadian Dollars)

              Three month period ended June 30,     Six month period ended June 30,
(Unaudited)        2006        2005        2004        2006        2005        2004
Deficit,
beginning      (163,870)   (153,710)   (143,670)   (161,604)   (151,924)   (141,945)
Net(loss) for
the period       (2,893)     (3,276)     (1,435)     (5,159)     (5,062)     (3,160)
              _________   _________   _________   _________   _________   _________
Deficit, end
of period      (166,763)   (156,986)   (145,105)   (166,763)   (156,986)   (145,105)



Consolidated Statement of Operations
(in thousands of Canadian Dollars except per share amounts)

                   Three month period ended June   Six month period ended June
                                              30,                           30,
(Unaudited)             2006      2005      2004      2006      2005      2004
Revenue and
operating costs
Revenue from
sales                  1,304       965        30     1,722     1,446       170
Operating
costs                  2,878     2,393     1,396     5,228     4,141     2,711
                     _______   _______   _______   _______   _______   _______
Operating
profit (loss)         (1,573)   (1,428)   (1,366)   (3,505)   (2,695)   (2,541)
                     _______   _______   _______   _______   _______   _______
Costs and expenses
General and
administration           477       728       660       732     1,224       959
Interest                   4         5        88         4         5       135
Unrealised
forex
loss(gain)              (124)      829       100      (226)      695       334
Other expenses
(income) (note 3)        963       286      (779)    1,143       443      (796)
                     _______   _______   _______   _______   _______   _______
                       1,320     1,848        69     1,653     2,367       632
                     _______   _______   _______   _______   _______   _______

(Loss) before
non
controlling
interest              (2,893)   (3,276)   (1,435)   (5,159)   (5,062)   (3,173)
non
controlling
interest                                                                   (13)
                     _______   _______   _______   _______   _______   _______
Net (loss) for
the period            (2,893)   (3,276)   (1,435)   (5,159)   (5,062)   (3,160)


Operating
(loss) per
share (Note 2)       ($0.004)  ($0.005)  ($0.005)  ($0.009)  ($0.009)  ($0.009)

Basic and fully
diluted

Net (loss) per
share (Note 2)       ($0.007)  ($0.011)  ($0.005)  ($0.013)  ($0.017)  ($0.011)

Basic and fully
diluted



Consolidated Statement of Cash Flows
(in thousands of Canadian Dollars)

                   Three month period ended June   Six month period ended June
                                             30,                           30,
       (Unaudited)      2006      2005      2004      2006      2005      2004
Cash provided by
(used in)

Operating
activities
Operating
(loss) for the
period                (1,573)   (1,428)   (1,366)   (3,505)   (2,695)   (2,541)

Other expenses
and
non-controlling 
interests             (1,320)   (1,848)      (69)   (1,653)   (2,367)     (632)

Adjustments to
reconcile net cash
from
operations
(note 4)                 973       326      (682)    1,185       518      (579)

Changes in non-cash
working capital
balances (note 4)     (3,434)      (99)     (169)   (2,688)     (242)     (157)
                     _______   _______   _______   _______   _______   _______
                      (5,354)   (3,049)   (2,286)   (6,661)   (4,786)   (3,909)
                     _______   _______   _______   _______   _______   _______
Investing
activities
Expenditures
on capex                 (57)      (69)     (927)     (787)     (256)   (1,114)
Expenditures
on mineral
properties              (225)     (956)     (496)     (530)   (2,112)     (679)
                     _______   _______   _______   _______   _______   _______
                        (282)   (1,025)   (1,423)   (1,317)   (2,368)   (1,793)
                     _______   _______   _______   _______   _______   _______
Financing
activities
Shares held in
eskrow -
Blanket Mine           3,014                         3,014
Issue of share
capital net of
costs (note 1)         3,924     3,166     4,885     5,399     3,166    14,167
                     _______   _______   _______   _______   _______   _______
                       6,938     3,166     4,885     8,413     3,166    14,167
                     _______   _______   _______   _______   _______   _______

Increase(decre
ase) in cash
for the period         1,302      (908)    1,176       435    (3,988)    8,465
Cash beginning
period                    12     3,390    11,468       879     6,470     4,179
                     _______   _______   _______   _______   _______   _______
Net Cash end
period                 1,314     2,482    12,644     1,314     2,482    12,644
                     _______   _______   _______   _______   _______   _______
                     _______   _______



Caledonia Mining Corporation
Summary of Significant Accounting Policies
(Unaudited) For the six months ended June 30, 2006, 2005 and 2004

Nature of Business

The Company is engaged in the acquisition, exploration and development of
mineral properties for the exploitation of base and precious metals. The ability
of the Company to recover the amounts shown for its capital assets and mineral
properties is dependent upon the existence of economically recoverable reserves;
the ability of the Company to obtain the necessary financing to complete
exploration and development; and future profitable production or proceeds from
the disposition of such capital assets and mineral properties.

Basis of Presentation

These financial statements have been prepared on the basis of a going concern,
which contemplates that the Company will be able to realize assets and discharge
liabilities in the normal course of business. The Company's ability to continue
as a going concern is dependent upon attaining profitable operations and
obtaining sufficient financing to meet its liabilities, its obligations with
respect to operating expenditures and expenditures required on its mineral
properties.

Measurement Uncertainties

Preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. The more significant areas
requiring estimates relate to mineral resources, future cash flows associated
with capital assets and mineral properties. Management's calculation of reserves
and resources and cash flows are based upon engineering and geological estimates
and financial estimates including gold prices and operating costs. The amount
ultimately
recovered could be materially different than the estimated values.

Subsequent Events

During the second quarter Caledonia finalised the acquisition of Blanket Mine in
Zimbabwe with an effective date of April 1, 2006. The purchase consideration was
US$ 1,000,000 and 20,000,000 shares in Caledonia Mining Corporation. The actual
closure date of the agreement and the payment of the purchase consideration was
July 5, 2006.

As the closure date was after June 30, 2006 Blanket Mine will be consolidated
into Caledonia Mining Corporation as of July 1, 2006.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
together with all its subsidiaries (except Blanket Mine (1983) Private Limited
which will be consolidated from July 1, 2006). All significant inter-company
balances and transactions have been eliminated on consolidation.

For information purposes only, we include the following table comparing the
results with and without Blanket Mine for Q2 2006:

$ 000s                    Consolidated Q2 Results      Consolidated Q2 Results
                                Excluding Blanket            Including Blanket
Gold Sales                                  1,304                        4,696
Operating profit/(loss)                    (1,573)                          88
Net profit/(loss)                          (2,893)                      (3,434)
Unrealised translation
gain/(loss)                                   124                       (1,412)
Loss per share                            ($0.007)                     ($0.009)

The net loss for Q2 increases by $541,000 with the inclusion of Blanket Mine
although the mine operated at a profit for the period.

The inclusion of Blanket Mine resulted in an increase in the unrealised foreign
exchange translation loss of $1,536,000 during the reporting period.

The Company's consolidated (all 100% owned) subsidiaries are Barbrook Mines
Limited ('Barbrook'), Eersteling Gold Mining Company Limited (100% owned since
June 2004) ('Eersteling'), Greenstone Management Services (Proprietary) Limited,
Fintona Investments (Proprietary) Limited, Maid O' Mist (Proprietary) Limited,
Caledonia Holdings (Africa) Limited, Caledonia Mining (Zambia) Limited,
Caledonia Kadola Limited, Caledonia Nama Limited and Caledonia Western Limited.

Cash and Cash Equivalents

Cash and cash equivalents represent cash on hand in operating bank accounts and
money market funds

Inventories

Inventories are stated at the lower of cost, which is determined on the
first-in, first-out basis, and net realizable value. Inventories comprise gold
in circuit, stockpiled ore and consumable stores.

Revenue Recognition

Revenue from the sale of precious metals is recognized when the benefits of
ownership are transferred and the receipt of proceeds is substantially assured.

Capital Assets

Producing Assets
Producing assets are recorded at cost less grants, accumulated amortization and
write-downs. Producing assets are amortized using the unit-of-production method
on the ratio of tonnes of ore mined or processed to the proven and probable
mineral reserves as defined by the Canadian Institute of Mining, Metallurgy and
Petroleum.

Other producing assets are amortized using the straight line method basis on the
estimated useful lives of the assets. The estimated useful life of the producing
assets ranges up to 10 years. Repairs and maintenance expenditures are charged
to operations; major improvements and replacements which extend the useful life
of an asset are capitalized and amortized over the remaining useful life of that
asset.

Barbrook re-commenced commercial operations during 2003 and, as such has been
presented as a producing asset in these financial statements.

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.

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.
Barbrook re-commenced commercial operations during 2003 and, as such has been
presented as a producing asset in these financial statements.

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

Asset Impairment

Long-lived assets are reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If changes in circumstances indicate that the carrying amount of
an asset of an entity expects to hold and use may not be recoverable, future
cash flows expected to result from the use of the asset and it's disposition
must be estimated. If the undiscounted value of the future cash flows is less
than the carrying amount of the asset, impairment is recognised based on the
fair value of the assets.

Strategic Alliances

The Company has entered into various agreements under which the participants
earn a right to participate in the mineral property by incurring exploration
expenditures in accordance with the conditions of the agreements. Upon
satisfaction of the conditions of any agreement a joint venture may be formed
with customary joint venture terms and provisions and then accounted for on a
proportionate consolidation basis. Until a joint venture is formed only
expenditures on the properties incurred by the Company are reflected in these
financial statements.

Foreign Currency Translation

Balances of the Company denominated in foreign currencies and the accounts of
its foreign subsidiaries are translated into Canadian dollars as follows:

(i) monetary assets and liabilities at period end rates;
(ii) all other assets and liabilities at historical rates; and
(iii) revenue and expense transactions at the average rate of exchange
prevailing during the period.

Exchange gains or losses arising on these translations are reflected in income
in the period incurred. Gains and losses arising on translation of long term
foreign currency denominated liabilities at each year end are reflected in
income.

Asset Retirement Obligation

Effective January 1, 2004 the Company adopted the Canadian Institute of
Chartered Accountants Standard 3110, 'Asset Retirement Obligations'. This
standard requires that a liability for retirement obligations to be settled as a
result of an existing law, regulation or contract be recognized.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period that
substantive enactment or enactment occurs.

Caledonia Mining Corporation
Notes to the Consolidated Financial Statements
(Unaudited) For the six months ended June 30, 2006

1. Share Capital

Authorised:

An unlimited number of common shares
An unlimited number of preference shares

Issued - Common Shares
                                           Number of Shares      Amount (000's)
--------------------------                        -----------        -----------
Balance, December 31, 2005                      370,715,136           $180,053
--------------------------                        -----------        -----------
Issued pursuant to private placement             15,437,626              1,475
--------------------------                        -----------        -----------
Balance, March 31, 2006                         386,152,762           $181,528
--------------------------                        -----------        -----------
Issued pursuant to a private placement           34,828,259             $3,924
--------------------------                        -----------        -----------
Issued pursuant to acquisition *                 20,000,000             $3,014
--------------------------                        -----------        -----------
Balance , June 30 , 2006                        440,981,021           $188,466
--------------------------                        -----------        -----------

* 20,000,000 shares were issued but were being held in escrow on June 30, 2006
pending the closure of the Blanket Mine acquisition.

Issued - Preference Shares Nil

Stock Option Plans

The Company has established incentive stock option plans for employees,
officers, directors, consultants and other service providers. As at June 30,
2006, the Company has 17,238,000 common share options exercisable at an average
price of $0.205 maturing at various dates until May 11, 2016.

Share Purchase Warrants

The Company has 68,115,885 share purchase warrants outstanding exercisable at an
average price of $0.175 maturing at various dates until February 3, 2008

2. Net (Loss) Per Share

The net (loss) per share figures have been calculated using the weighted average
number of common shares outstanding during the second quarter which amounted to
398,142,213 and YTD which amounted to 390,345,589. Under the treasury method of
calculating fully diluted income per share, exercise of the outstanding stock
options and warrants would be anti-dilutive in 2006.
If the Q2 results of Blanket Mine had been consolidated since 1 April 2006 the
net (loss) per share figures would have been ($0.009) cps - 2005 ($0.011) - 2004
($0.005)

3. Other Expense (Income)

Included in other expense (income) are YTD unrealized exchange translation gain
of $226,000 (2005 - loss of $695,000, 2004 - loss of $334,000) and an
amortisation charge of $1,146,000
(2005 - $488,000, 2004 - $ nil). The amortization charge relates mainly to
Barbrook, where increasing production levels lead to increasing amortization
charges in terms of the accounting policies detailed under 'Mineral Properties'
on page 14 above.

If the Q2 results of Blanket Mine had been consolidated, then the YTD unrealised
exchange translation loss would have been $1,412,000 (2005 - loss $695,000, 2004
- loss $334,000) , and the amortization charge would have been $1,214,000 (2005
- $488,000 , 2004 - $ nil).

4. Supplemental cash flow info
Items not involving cash are as follows:
                                                     2006      2005      2004
Acretion asset retirement obligation                              -         4
non controlling interest                                0         -       (13)
amortisation                                        1,146       488         -
other                                                  39        30      (570)
                                                    1,185       518      (579)
Net changes in non cash working capital

Acc Payable                                            82       189      (193)
Acc Receivable                                        461      (283)     (147)
Inventories                                          (242)     (330)       57
Prepayments - Shares held in eskrow                (3,014)        -         -
Prepaid expenses                                       24       182       126
                                                   (2,688)     (242)     (157)





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