Caledonia Announces Terms of Filon Sur Loan Restructuring.

TORONTO--(BUSINESS WIRE)--Oct. 28, 1998--Caledonia Mining Corporation of Toronto (TSE-CAL) announced today that it has signed a Heads of Agreement with its Lender regarding the restructuring of the $8.4 million US project loan balance of its Spanish gold mining subsidiary, Filon Sur S.A. The original loan was guaranteed by Caledonia.

In terms of the restructuring, Caledonia's guarantee covering the full original project loan is replaced with a non-interest bearing convertible promissory note (the "Note") to a maximum principal amount of $4.2 million US. No amount is payable under the Note unless there is an event of default under the loan agreement with Filon Sur. Filon Sur's indebtedness is to be repaid to its Lender in minimum blended payments of principal and interest commencing on December 31, 1998 and thereafter semi annually. The Filon Sur indebtedness will now bear interest at the reduced rate of LIBOR plus 1.5% per annum. Filon Sur payments will apply 100% of net cash flow to service the debt after the monthly payment of agreed amounts to Caledonia for technical and management services.

Once the principal amount of Filon Sur's indebtedness to the Lender is repaid to an amount of $4.2 million US, the Note amount will reduce on a dollar for dollar basis as the principal amount of Filon Sur's debt is repaid. The Note will be convertible:

(i) at the option of the Lender at any time after December 31, 2000,

or

(ii) at the option of either the Lender or Caledonia, (a) at any time

after the Lender determines that the operation of Filon Sur's

mine is no longer economic or, (b) at such time as the shares of

Filon Sur are disposed of.

The Note will be convertible into common shares of Caledonia at a conversion price equal to the average closing price of the shares for the preceding 21 trading days, taking into account only those days on which the shares trade. Upon conversion, Caledonia has the right to pay the then outstanding amount of the Note in cash or common shares.

Caledonia will issue to the Lender 1,283,333 common shares as payment of a $200,000 US restructuring fee and 1,000,000 warrants exercisable at $0.35 Canadian expiring on February 28, 2001.

The restructuring of the loan with the Lender is subject to the conversion of Caledonia's $20.4 million Canadian convertible debenture and receipt of necessary regulatory approval. The effect of this restructuring is to reduce Caledonia's potential liability for the Filon Sur project loan guarantee to a maximum of $4.2 million US from the current $8.4 million US, and in the absence of default allows settlement of any potential liability with the issuance of common shares or, at the option of Caledonia, cash.

Caledonia Mining Corporation Suite 16, 2150 Winston Park Drive Oakville, Ontario L6H 5V1 Tel: [phone] Fax: [phone]

To contact Caledonia Mining via the Internet: e-mail: [e-mail] World Wide Web: http://www.CaledoniaMining.com/