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Caledonia Mining Corporation

SUITE 4009
P O BOX 834

1 KING STREET WEST, TORONTO,
SAXONWOLD 2132

ONTARIO, CANADA, M5H 1A1
SOUTH AFRICA

TEL 1 416 369 9835
TEL. 27 11 447 2499

FAX 1 416 369 0449
FAX. 27 11 447 2554

September 30, 2014

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street, NE

Washington, D.C. 20549-4238

Attention:  Ms. Tia L. Jenkins, Senior Assistant Chief Accountant, Office of Beverages, Apparel and Mining

Re:

Caledonia Mining Corporation (“Caledonia” or the “Company”)

Form 20-F for the Fiscal Year Ended December 31, 2013 (the “Filing”)

Filed May 15, 2014

File No. 000-13345

Dear Ms. Jenkins:

We have received your comment letter of September 17, 2014 regarding the Filing and provide our responses to the Staff comments below.  For ease of reference, we have repeated the Staff comments in italicized type and followed each comment with our response.

Form 20-F for the Year Ended December 31, 2013

Operational Review and Results of Operation, page 23

Production Costs, page 25

1.

We note you disclose non-IFRS measures such as “On-Mine Cash Cost per Ounce,” “All-in Sustaining Cost per Ounce,” and “All-in Cost per Ounce” for your Blanket mine. Please provide additional disclosures as required by Item 10 (e) of Regulation S-K. We were unable to locate the cross-referenced “Section 10 of the MD&A of 2013” which appeared to include the explanatory disclosures.

1

Response:

Please see the table below for IFRS reconciliation to Non-IFRS measures:

Management believes non-IFRS performance measures such as “On-Mine cash cost per ounce”, “All-in sustaining cost per ounce” and “All-in cost per ounce” assist investors and other stakeholders in understanding the economics of gold mining over the life-cycle of a mine.  These measures are calculated on the basis set out by the World Gold Council in a Guidance Note published on June 23, 2013.

Year 2011

Year 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Year 2013

Production costs (IFRS) (C$’000)

21,093

25,653

8,019

6,602

6,872

5,919

27,412

Less site restoration costs (c$’000)

(50
)

(43
)

(25
)

(24
)

(24
)

(78
)

(151
)

Less exploration costs (C$’000)

(21
)

(831
)

(300
)

140

(112
)

(121
)

(393
)

Reversal of claim fee provision (C$’000)

-

-

-

-

-

970

970

Reallocated admin costs

(526
)

(247
)

(55
)

(103
)

(114
)

(65
)

(337
)

Realisation charges

-

-

-

-

-

(284
)

(284
)

Non-Blanket production costs

(108
)

(121
)

(24
)

(25
)

(26
)

(27
)

(102
)

Intercompany profit elimination

261

1,353

284

375

342

331

1,332

Adjusted production costs (C$’000)

20,649

24,779

7,899

6,965

6,938

6,645

28,447

Exchange rate (C$/US$)

0.99

1.00

1.01

1.03

1.02

1.06

1.03

On-mine Production costs (US$’000 )

20,805

25,769

7,806

6,797

6,714

6,301

27,619

Gold Sales (oz.)

35,504

45,181

11,964

11,588

12,042

9,454

45,048

On-mine cash cost (US$/oz.)

586

570

653

587

558

666

613

Royalty

72

116

112

96

93

69

101

Community cost relating to ongoing production

-

-

-

-

-

-

-

Permitting costs relating to current operations

1

5

2

3

3

3

3

3rd party smelting costs

8

6

7

7

7

6

7

Corporate general and administrative costs

94

90

97

113

93

207

124

Reclamation and remediation of operating sites

1

2

2

2

2

5

2

Exploration and study costs

-

-

1

1

2

5

2

Capital expenditure

183

67

51

147

110

213

125

All in sustain costs per ounce

944

857

924

956

866

1,175

977

Costs not relating to current production

Community costs

-

25

-

181

8

-

49

Permitting costs

-

17

3

3

3

1

2

Exploration and study costs

-

-

1

3

3

4

3

Capital expenditure

12

29

45

69

107

97

78

All in cost per ounce

956

929

972

1,211

986

1277

1,109

We did not incorporate the reconciliation from production costs (IFRS) (C$’000) to on mine cash costs (US$/oz.) within the Form 20-F for the year ended December 31, 2013. The cross-references to Section 10 of the MD&A 2013 were inadvertent. The disclosure will be revised in our future filings.

2

Operating and Financial Review and Prospects, page 31

2.

Please revise your future filings to provide a more detailed explanation of the material factors that have affected your financial condition and results of operations for the periods covered by the financial statements. For example, describe in greater detail the reasons for the increases in production costs in 2013, such as labor and consumable costs. Also discuss unusual or infrequent events or new developments that materially affect your income. For example, you disclose that your all-inclusive costs for 2013 increased primarily due to the CSI donation, without further analysis as to whether this was a one-time event or may continue in the future and the impact on future income. Refer to Item 5 of Form 20-F and SEC Release No. 33-8350, available at www.sec.gov./rules/interp/33-8350.htm. Please also provide us with your proposed language.

Response:

Item 5A requires the Company to provide information regarding significant factors, including unusual or infrequent events or new developments, materially affecting the Company’s income from operations, indicating the extent to which income was so affected. We acknowledge that we have to describe any other significant component of revenue or expenses necessary to understand the Company’s results of operations.

In response to the Staff’s comment above, please see the below for additional disclosure:

Revenues in 2013 were lower than 2012 due mainly to the lower realised gold price:  gold sales in 2013 were 45,048 ounces, 133 ounces (i.e. 0.3%) lower than in 2012, but the average realised gold price in 2013 was US$1,402 per ounce – 16% lower than the average realised gold price per ounce in 2012.

Administrative expenses in the Year were $7,772,000 compared to $4,055,000 in 2012.  Administrative expenses are analysed in Note 9 to the Consolidated Financial Statements.  The increased administrative expense for the year includes the donation of US$2 million to the Presidential Scholarship Fund which was made in the second quarter of 2013.  Wages and Salaries and Director’s fees were also higher, reflecting the strengthening of Caledonia’s management team and Board of Directors.  Director’s fees also include fees payable to the directors of Blanket Mine.

The impairment of $14,203,000 primarily reflects the impairment of the Company’s cobalt exploration project in Zambia (the “Nama Cobalt Project”) and the copper exploration project in Zambia (the “Nama Copper Project”).  The full carrying value of costs previously incurred and capitalised at the Nama Project are impaired in the Year because substantive expenditure on further exploration activities in the specific area is neither budgeted nor planned and Caledonia has decided to discontinue such activities in the specific area. The discontinuation of activities at the Nama Copper and Cobalt Projects will have no effect on Caledonia’s future profitability as all costs incurred at the projects have historically been capitalised.  The discontinuation of activities at the Project will reduce Caledonia’s future capital investment.

Production Costs

A narrow focus on the direct costs of production (mainly labour, electricity and consumables) does not fully reflect the total cost of gold production.  Accordingly, cost per ounce data for the Quarter, the preceding three quarters and for 2012 and 2011 have been prepared in accordance with the Guidance Note issued by the World Gold Council on June 23, 2013 and is set out in the table below on the following bases:

3

i.

On-mine Cash Cost per ounce, which shows the on-mine cash costs of producing an ounce of gold;

ii.

All-in Sustaining Cost per ounce, which shows the operating cost per ounce plus additional costs incurred outside the mine (i.e. at offices in Harare, Johannesburg and Toronto) and the costs associated with maintaining the operating infrastructure and resource base (i.e. “Sustaining Capex”) that are required to maintain production at the current levels; and

iii.

All-in Cost per ounce, which shows the all-inclusive Sustaining cost per ounce plus the additional costs associated with activities that are undertaken with a view to increasing production.

Blanket Mine: Costs per Ounce of gold produced

(US$/oz.)

Year

2011

Year

2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Year

2013

On-Mine cash cost (ii)

586

570

653

587

558

666

613

Royalty(i)

72

116

112

96

93

69

101

Community costs relating to ongoing production

-

-

-

-

-

-

-

Permitting costs related to current operations

1

5

2

3

3

3

3

3rd party smelting, refining and transport costs

8

6

7

7

7

6

7

Operating cost per ounce

667

698

774

692

660

745

724

Corporate general and administrative costs (incl. share based remuneration)

94

90

97

113

93

207

124

Reclamation and remediation of operating sites

1

2

2

2

2

5

2

Exploration and study costs

-

-

1

1

2

5

2

Capital expenditure

183

67

51

147

110

213

125

All-in Sustaining Cost per ounce (ii)

944

857

924

956

866

1,175

977

Costs not related to current production

Community costs

-

25

-

181

8

-

49

Permitting costs

-

17

3

3

3

1

2

Exploration and study costs

-

-

1

3

3

4

3

Capital expenditure

12

29

45

69

107

97

78

All-in Cost per ounce (ii)

956

929

972

1,211

986

1,277

1,109

(i)Blanket pays a royalty to the Zimbabwean government on gross revenue. Since 1 January 2012 the royalty rate has been 7% prior to which it was 4%

(ii)Non-IFRS measures such as “On-Mine Cash Cost per Ounce”, “All-in Sustaining Cost per Ounce” and “All-in Cost per Ounce” are used throughout this document.

4

The on-mine cash cost per ounce of gold sold increased in the Quarter due to the lower production compared to the previous quarter and to the lower sales compared to the previous quarter as a result of work-in- progress as at December 31, 2013.  Over 60% of Blanket’s costs are fixed, therefore lower production means that fixed costs are absorbed over fewer production ounces.  The value attributed to work-in-progress only includes direct labour at the mine, electricity and consumables;  on-mine administration costs are therefore absorbed into the ounces of gold sold in the quarter, further increasing the cost per ounce of gold sold.  In light of the increased production cost in the Quarter, management has focussed on measures to reduce operating costs.

The royalty cost per ounce decreased during the year as a result of the lower gold prices from April 2013.

Capital investment to sustain current operations and capital expenditure not related to current production is discussed in Sections 4.7, 5.3 and 6 of this MD&A.

All-in sustaining costs increased in the Quarter compared to the previous quarter due to the effect of higher administrative expenses and sustaining capital investment in the Quarter which were allocated across the 9,545 ounces that were sold in the Quarter rather than the 11,429 ounces of gold that were produced in the Quarter.

We will revise our future filings, similar to the above, to provide further explanation of possible one-time costs such as CSI and provide more detailed explanation of labor, electricity, royalty and consumables cost that affect the results of the Company in order to satisfy the following three principal objectives from SEC Release No. 33-8350:

•

to provide a narrative explanation of a company's financial statements that enables investors to see the company through the eyes of management;

•

to enhance the overall financial disclosure and provide the context within which financial information should be analyzed; and

•

to provide information about the quality of, and potential variability of, a company's earnings and cash flow, so that investors can ascertain the likelihood that past performance is indicative of future performance.

Operating and Financial Review and Prospects, page 31 (continued)

3.

We note numerous references in this section to the MD&A of 2013 filed with the Canadian Securities Regulators. It is unclear if you are attempting to incorporate by reference information from another filing. To the extent you are attempting to incorporate information by reference, tell us how your disclosure is consistent with Exchange Act Rule 12b-23 or include this information in future filings.

5

Response:

With respect to Rule 12b-23, we did not intend to incorporate by reference to the MD&A of 2013. The cross-references were inadvertent and we will include any required information in future filings. The requirements of to Rule 12b-23 will be revised for future filings.

Trend Information, page 35

4.

Please revise future filings to provide an enhanced discussion of known trends, uncertainties, demands, commitments or events that management views as most reasonably likely to have a material effect on the company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources. For example, you state that Blanket’s cash operating costs in Q4 increased compared to the preceding and comparable quarters due to reduced production and higher labor and consumable costs incurred in the quarter. If reduced production or certain higher costs are a known material trend or uncertainty, please describe. For guidance, refer to SEC Release 33-8350. Please also provide us with your proposed language.

Response:

Item 5D requires that the Company identify the most significant recent trends in production, sales and inventory, the state of the order book and costs and selling prices since the latest financial year. The Company also should discuss, for at least the current financial year, any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

Our proposed language for future filings is provided below:

As a result of completion of the no. 4 shaft Expansion Project in late 2010, the underground mining areas can now produce up to 1,200 tons of ore daily using predominantly long-hole stoping methods. Blanket Mine now produces approximately 45,000 ounces of gold per year and is implementing a four year expansion program to progressively increase gold production to 48,000 ounces in 2014 and 52,000 ounces in 2015 and beyond.

The surplus capacity of the Blanket leach section and crushing and milling plant enables it to immediately treat additional feed material.  There is upward pressure on costs, taxes and regulatory fees in Zimbabwe and the regulatory environment is subject to unexpected adverse changes.  Nevertheless, Blanket Mine has surplus metallurgical plant capacity and is sufficiently cash flow positive if the investment climate is acceptable, and could invest in projects with a view to further increase production, thereby helping to maintain downward pressure on the cost per ounce of gold produced at Blanket Mine.

Our ability to meet production targets could be impacted by, amongst other factors, failure to achieve the production targets set, unforeseen changes in ore grades and recoveries, unexpected changes in the quality or quantity of reserves, technical production issues, environmental and industrial accidents and environmental factors.

6

Controls and Procedures, page 56

Management’s Annual Report on Internal Control over Financial Reporting, page 56

5.

We note that your management assessed the effectiveness of your internal control over financial reporting as of December 31, 2013 using “an internationally acceptabl