Caledonia Mining Corp Plc

Notes (continued)

Where the conversion feature meets the definition of an equity instrument under IAS 32, the Notes are accounted for as a compound financial instrument. On initial recognition, the liability component is measured at the fair value of a similar financial liability that does not contain an equity conversion feature. The equity component is measured as the residual amount of the proceeds received after deducting the fair value of the liability component. Directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

The liability component is subsequently measured at amortised cost using the effective interest method. Interest expense recognised in profit or loss comprises the contractual coupon interest and the amortisation of the initial discount and allocated transaction costs. The equity component is not remeasured after initial recognition.

Where the conversion feature or other embedded features do not meet the criteria for equity classification, the relevant feature is recognised separately as a derivative financial liability measured at fair value through profit or loss, (“FVTPL”) at each reporting date. Fair value changes are recognised directly in the profit or loss as fair value gains or losses. Any directly attributable transaction costs are allocated to the liability and derivative components in proportion to their initial carrying amounts. Such allocated transaction costs for the derivative component are recognised in the profit or loss.

Upon conversion, redemption, repurchase, maturity or other extinguishment of the Notes, the carrying amounts of the host debt liability and derivative financial liability are derecognised. The consideration paid or issued is allocated between the extinguishment of the host debt liability and settlement of the derivative financial liability based on their respective fair values at the transaction date. Any resulting gain or loss on extinguishment or remeasurement is recognised in profit or loss.

As the Notes were issued to primarily fund the development of the Bilboes project, a qualifying asset under IAS 23, the borrowing costs are capitalised to the asset in accordance with IAS 23.

5Blanket Zimbabwe Indigenisation Transaction

On February 20, 2012 the Group announced it had signed a Memorandum of Understanding (“MoU”) with the Minister of Youth, Development, Indigenisation and Empowerment of the Government of Zimbabwe pursuant to which the Group agreed that indigenous Zimbabweans would acquire an effective 51% ownership interest in the Zimbabwean company owning the Blanket Mine (also referred to herein as “Blanket” or “Blanket Mine” as the context requires) for a paid transactional value of $30.09 million. Pursuant to the above, members of the Group entered into agreements with each indigenous shareholder to transfer 51% of the Group’s ownership interest in Blanket Mine whereby it:

5Blanket Zimbabwe Indigenisation Transaction (continued)

The Group facilitated the vendor funding of these transactions which is repaid by way of dividends from Blanket Mine.80% of dividends declared by Blanket Mine are used to repay such loans and the remaining 20% unconditionally accrues to the respective indigenous shareholders. Following a modification to the interest rate on June 23, 2017, outstanding balances on these facilitation loans attract interest at a rate of the lower of a fixed 7.25% per annum payable quarterly or 80% of the Blanket Mine dividend in the quarter. The timing of the loan repayments depends on the future financial performance of Blanket Mine and the extent of future dividends declared by Blanket Mine. The Group related facilitation loans were transferred as dividends in specie intra-group and now the loans and most of the interest thereon is payable to the Company.