Caledonia Update on Operations

Market Wire, October, 2008

Caledonia and Mitsubishi Corporation have extended the deadline for the completion of the suspensive conditions of the Heads of Agreement by four months in order to accommodate transfer and registration by the South African Department of Mineral and Energy Affairs of the various prospecting rights into the names of the two companies that will hold the assets for the respective projects. Once registration has been completed and other conditions are satisfied, the Joint Venture will come into effect and exploration will commence immediately.

Eersteling

In the unaudited financial statements for the six months to June 30, 2008 Caledonia reported that it had issued a notice of default to Oretech Resources Inc. ("Oretech") in respect of the purchase by Oretech of the shares in Eersteling Gold Mining Company Limited. Caledonia has not formally cancelled the agreement but Oretech has advised that it will not be able to complete the purchase as it could not raise the required funding.

Healthy Cash Position to Weather Current Economic Turmoil

Following the sale of Barbrook Mines Limited earlier this year, Caledonia maintains sufficient net cash holdings and is well-placed to weather the prevailing market conditions for some time without further funding requirements until completion of the Nama CFS demonstrating that the project is viable.

Next Update

Caledonia will provide a further update to shareholders in the 3rd Quarter Management Discussion and Analysis which will be distributed to shareholders by November 14, 2008.

Contacts: Caledonia Mining Corporation Mark Learmonth VP Corporate Development and Investor Relations 27 11 447 2499 Email: marklearmonth@caledoniamining.com Website: www.caledoniamining.com BuckBias Alex Buck 44 7932 740 452 RBC Capital Markets Martin Eales 44 20 7029 7881