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Keh - Keaton Energy Holdings Limited - Reviewed Interim Condensed Group Results

Release Date: 08/12/2010 14:30:02      Code(s): KEH
KEH - Keaton Energy Holdings Limited - Reviewed interim condensed group results 
for the six-month period ended 30 September 2010                                
KEATON ENERGY HOLDINGS LIMITED                                                  
(Incorporated in the Republic of South Africa)                                  
(Registration number 2006/011090/06)                                            
JSE share code: KEH ISIN: ZAE000117420                                          
("Keaton Energy" or "the Company" or "the Group")                               
Key features                                                                    
- Vanggatfontein Project fast-tracked                                           
- 24% increase in coal reserve to 32.2Mt                                        
- R255 million credit-approved offer of project finance for completion          
- first Phase 1 5 Seam metallurgical coal mined, processed and dispatched to    
 domestic buyers                                                                
- first production of Phase 2 steam coal for Eskom in second quarter 2011       
- Sterkfontein Project moves towards feasibility stage                          
REVIEWED INTERIM CONDENSED GROUP RESULTS                                        
for the six-month period ended 30 September 2010                                
Condensed Consolidated Statement of Comprehensive Income                        
                                  Six months to   Six months to       Year to   
30 Sep          30 Sep        31 Mar   
                                           2010            2009          2010   
R`000                       Note      (Reviewed)      (Reviewed)     (Audited)  
Revenue                        3               -           9 853        21 957  
Cost of sales                  3               -         (9 413)      (21 191)  
Gross profit                                   -             440           766  
Other income                                 277           1 779         2 023  
Administrative and other                                                        
operating expenses             4         (7 618)         (7 744)      (13 220)  
Mining and related expenses    4         (4 708)         (5 671)      (11 452)  
Share appreciation rights                                                       
(expense)/income               5           (856)           4 521         4 346  
Impairment and net                                                              
realisable value losses        6               -         (5 926)       (7 813)  
Operating loss before net                                                       
finance income                          (12 905)        (12 601)      (25 350)  
Net finance income                        10 711          15 493        29 107  
Net (loss)/profit before                                                        
taxation                                 (2 194)           2 892         3 757  
Income taxation benefit/                                                        
(expense)                      7             712         (3 891)       (7 279)  
Loss for the period                      (1 482)           (999)       (3 522)  
Total comprehensive income                                                      
for the period                           (1 482)           (999)       (3 522)  
Loss and total comprehensive                                                    
income for the period                                                           
attributable to:                                                                
Owners of the Company                      2 509           3 883         5 974  
Non-controlling interest                 (3 991)         (4 882)       (9 496)  
                                        (1 482)           (999)       (3 522)   
Number of shares (`000)                                                         
Weighted average (basic)                 144 841         143 552       144 173  
Weighted average (diluted)               144 841         143 587       144 173  
Earnings per share (cents)                                                      
Basic                          8             1.7             2.7           4.1  
Basic diluted                  8             1.7             2.7           4.1  
Condensed Consolidated Statement of Financial Position                          
                                                         30 Sep        31 Mar   
                                                           2010          2010   
R`000                                        Note     (Reviewed)     (Audited)  
Assets                                                                          
Non-current assets                              9        331 909       129 698  
Current assets                                 10        208 342       343 710  
Total assets                                             540 251       473 408  
Equity and liabilities                                                          
Total equity attributable to owners                                             
of the Company                                           459 483       456 118  
Non-controlling interest                                 (5 759)       (1 768)  
Total equity                                             453 724       454 350  
Non-current liabilities                        11         23 005             -  
Current liabilities                            12         63 522        19 058  
Total equity and liabilities                             540 251       473 408  
Condensed Consolidated Statement of Cash Flows                                  
                                   Six months to   Six months to      Year to   
                                          30 Sep          30 Sep       31 Mar   
                                            2010            2009         2010   
R`000                        Note      (Reviewed)      (Reviewed)    (Audited)  
Cash flows from operating                                                       
activities                               (12 883)           2 973        9 916  
Cash flows from investing                                                       
activities                     16       (131 815)        (11 055)     (48 533)  
Cash flows from financing                                                       
activities                                      -               -            -  
Net decrease in cash and                                                        
cash equivalents                        (144 698)         (8 082)     (38 617)  
Cash and cash equivalents                                                       
at the beginning of the period            335 081         373 698      373 698  
Cash and cash equivalents                                                       
at the end of the period                  190 383         365 616      335 081  
Condensed Consolidated Statement of Changes in Equity                           
                                                      Share-         Retained   
                                       Share           based        earnings/   
capital and         payment     (Accumulated   
R`000                                 premium         reserve            loss)  
Balance at 31 March 2009 (Audited)    432 780           4 550            (141)  
Total comprehensive income                                                      
for the period                              -               -            3 883  
Share-based payment transactions       17 300         (4 521)                -  
Non-controlling interest resulting                                              
from acquisition of a subsidiary            -               -                -  
Balance at 30 September 2009                                                    
(Reviewed)                            450 080              29            3 742  
Total comprehensive income                                                      
for the period                              -               -            2 092  
Share-based payment transactions            -             175                -  
Balance at 31 March 2010 (Audited)    450 080             204            5 834  
Total comprehensive income for                                                  
the period                                  -               -            2 509  
Share-based payment transactions            -             856                -  
Balance at 30 September 2010                                                    
(Reviewed)                            450 080           1 060            8 343  
                                Total equity                                    
attributable to            Non-                    
                                   owners of     controlling            Total   
R`000                             the Company        interest           equity  
Balance at 31 March 2009 (Audited)    437 189               -          437 189  
Total comprehensive income                                                      
for the period                          3 883         (4 882)            (999)  
Share-based payment transactions       12 779               -           12 779  
Non-controlling interest resulting                                              
from acquisition of a subsidiary            -           7 727            7 727  
Balance at 30 September 2009                                                    
(Reviewed)                            453 851           2 845          456 696  
Total comprehensive income                                                      
for the period                          2 092         (4 613)          (2 521)  
Share-based payment transactions          175               -              175  
Balance at 31 March 2010 (Audited)    456 118         (1 768)          454 350  
Total comprehensive income for                                                  
the period                              2 509         (3 991)          (1 482)  
Share-based payment transactions          856               -              856  
Balance at 30 September 2010                                                    
(Reviewed)                            459 483         (5 759)          453 724  
Notes                                                                           
1. The financial results are presented for the six-month period ended 30        
September 2010. Comparable period figures represent the six-month period ended  
30 September 2009, and comparable period figures to the notes have been included
in brackets below. Comparable period figures for the statement of financial     
position notes represent 31 March 2010 figures. Although not required in terms  
of IAS 34: Interim Financial Reporting, the comparative statement of            
comprehensive income, statement of changes in equity and statement of cash flows
for the year ended 31 March 2010 have also been included.                       
The condensed consolidated results for the six-month period ended 30 September  
2010 have been prepared in accordance with the recognition, measurement,        
presentation and disclosure requirements of IAS 34: Interim Financial Reporting 
and are presented in accordance with the South African Companies Act, 61 of 1973
(as amended) and the AC 500 standards as issued by the Accounting Practices     
Board. The accounting policies applied are consistent with those applied in the 
annual financial statements for the year ended 31 March 2010.                   
2. During the six-month period ended 30 September 2010 the Group generated a    
profit attributable to owners of the Company of R2.5 million (R3.9 million). The
R1.4 million decrease is mainly as a result of a decrease in its externally     
invested funds which resulted in lower net finance income of R10.7 million      
(R15.5 million), but offset by a reduction in income taxation as a result of    
deferred taxation benefit being recognised. The overall results for the period  
remain characteristic of a company in the process of financing its exploration  
and evaluation activities and developing its first major project, the           
Vanggatfontein Project.                                                         
3. The Group`s only revenue generating asset to date was the Klip Colliery as   
reflected in the comparative results. The Colliery sold all its coal during the 
previous year and rehabilitation of the Colliery is nearly complete. No revenue 
was generated at the Vanggatfontein Project for the period under review. First  
coal sales were in December 2010. Also refer to Commentary.                     
4. Administration, other operational, mining and related expenses include:      
- employee benefit costs (excluding the share appreciation rights expense) of   
R5.2 million (R5.6 million);                                                    
- consulting, legal, audit and professional fees of R2.8 million                
(R2.5 million);                                                                 
- non-executive directors` fees of R1.0 million (R1.0 million);                 
- listing and investor relations costs of R0.9 million (R1.0 million);          
- head office lease costs of R0.4 million (R0.4 million); and                   
- depreciation charges of R0.3 million (R0.4 million).                          
Note: Mining and related expenses included above mainly comprise that portion of
management and employees` time spent directly on exploration and production     
subsidiaries, direct consulting fees by mining and exploration contractors (not 
capitalisable under the Group`s accounting policy) and compensation for damages 
paid to surface right holders. Administration and other operating expenses      
included above mainly comprise the remainder of the employee benefit costs, non-
executive directors` fees, listing and investor relations costs.                
5. During the period under review 3.8 million share appreciation rights with a  
fair value of R6.1 million were awarded in terms of the Group`s Long-Term       
Performance Incentive Scheme and Remuneration Policy approved at the July 2010  
Annual General Meeting. This resulted in a share appreciation right expense of  
R0.9 million being recognised. The comparative period included a share          
appreciation right income of R4.5 million as a result of lapsed share           
appreciation rights.                                                            
6. As reported in November 2009 the comparative period included a net realisable
value loss due to low quality stockpiles having to be written down by R4.9      
million, and an additional impairment of R1.1 million resulting from capitalised
mine development cost at Klip Colliery.                                         
7. Income taxation expense mainly comprises an income taxation expense of R1.7  
million (R3.2 million), deferred taxation benefit of R3.7 million (R0.1 million)
and a secondary tax on companies of R1.3 million (R0.7 million).                
8. The calculation of basic earnings per share is based on the profit for the   
period (attributable to owners of the Company) of R2.5 million (R3.9 million)   
and a weighted average of 144 841 293 (143 551 676) ordinary shares in issue    
during the period.                                                              
The reconciliation to headline earnings is as follows:                          
                                              Six months to     Six months to   
                                                30 Sep 2010       30 Sep 2009   
R`000                                             (Reviewed)        (Reviewed)  
Gross/Net         Gross/Net   
Profit for the period (attributable to owners                                   
of the Company)                                        2 509             3 883  
Add back: Impairment losses attributable                                        
to owners of the Company                                   -             1 035  
Headline earnings for the period                       2 509             4 918  
Headline earnings per share (cents)                                             
Headline                                                 1.7               3.4  
Headline Diluted                                         1.7               3.4  
The calculation of diluted earnings per share is based on the same profit of    
R2.5 million (R3.9 million) and headline earnings of R2.5 million (R4.9         
million), with the weighted average number of ordinary shares not being adjusted
as the granted notional shares are anti-dilutive.                               
9. The increase in non-current assets of R202 million is mainly due to the      
increase in mine development (R187 million) at Vanggatfontein Project, which    
include:                                                                        
- R71 million for plant, tailings and infrastructure development;               
- R60 million for surface right and mining resource acquisitions;               
- R22 million for environmental rehabilitation;                                 
- R23 million for boxcut development; and                                       
- R10 million for ramp-up costs.                                                
The rest of the increase is mainly as a result of cash-backed guarantees        
(restricted cash) being issued for surface right acquisitions of R8 million,    
deferred tax asset of R4 million and further exploration and evaluation work    
of R3 million at the Group`s Sterkfontein Project.                              
10. Current assets include:                                                     
- cash of R190.4 million (R335.1 million);                                      
- trade and other receivables of R2.3 million (R6.4 million); and               
- value-added tax recoverable of R15.6 million (R2.3 million).                  
11. Non-current liabilities include the Vanggatfontein Project environmental    
rehabilitation liability which has been estimated to be R23 million at 30       
September 2010. The liability will be recalculated in February 2011 to determine
the estimated environmental disturbances for the ensuing year. The R0.3 million 
remaining environmental rehabilitation liability for Klip Colliery is included  
in current liabilities.                                                         
12. Current liabilities include:                                                
- trade and other payables of R49.6 million (R15.3 million);                    
- taxation of R5.6 million (R3.4 million). Included is a Secondary Taxation on  
Companies (STC) accrual of R4.1 million which, under currently enacted          
legislation, becomes payable as soon as accrued dividends have been declared.   
The proposed new legislation provides for STC to be abolished and replaced with 
withholding tax. The total R4.1 million (R2.9 million) STC accrual will be      
reassessed in future years pending new taxation legislation; and                
- a further liability for a surface right/mineral resource acquisition of R8    
million.                                                                        
13. Issuances of equity during the period:                                      
                                                Six months to         Year to   
                                                  30 Sep 2010     31 Mar 2010   
R`000                                               (Reviewed)       (Audited)  
                                                      Number of shares (000)    
Issued share capital                                                            
At beginning of period                                 144 841         142 841  
Share-based payments                                         -           2 000  
At end of period                                       144 841         144 841  
14. No dividends have been declared nor are any proposed for the period under   
review (no change to the comparative period).                                   
15. The net asset value per share at 30 September 2010 is 313 cents (314 cents).
16. The cash flows from investing activities represent mainly the capital       
investments at the Group`s Vanggatfontein Project as discussed in note 9 above. 
17. Segment information:                                                        
Refer to the commentary below for a description of the projects (segments) of   
the Group. The Group can be segmented as follows:                               
                                                         30 Sep        31 Mar   
                                                           2010          2010   
R`000                                                 (Reviewed)     (Audited)  
Total segment assets                                                            
Keaton Mining (Pty) Limited                                                     
- Vanggatfontein Project                                 277 801        63 472  
Keaton Mining (Pty) Limited/Labohlano                                           
Trading 46 (Pty) Limited - Sterkfontein Project           65 080        62 374  
Keaton Mining (Pty) Limited - Klip Colliery                1 339         3 286  
Keaton Energy Holdings Limited                                                  
- Investments and cash resources                         480 362       474 773  
Total operating segments` assets                         824 582       603 905  
Assets not allocated to segments                           5 003         5 172  
Consolidation adjustments - investments in subsidiaries(289 334)     (135 669)  
Total assets                                             540 251       473 408  
                              Six months to     Six months to         Year to   
                                30 Sep 2010       30 Sep 2009     31 Mar 2010   
R`000                             (Reviewed)        (Reviewed)       (Audited)  
Segment revenue                                                                 
Keaton Mining (Pty) Limited                                                     
- Klip Colliery (all external customers)   -            11 447          23 401  
Keaton Administrative and                                                       
Technical Services                                                              
(Pty) Limited (inter-segment                                                    
revenues)                              5 175             5 724          10 639  
Total operating segments` revenue      5 175            17 171          34 040  
Klip Colliery - damages claim                                                   
disclosed under other income               -           (1 594)         (1 594)  
Consolidation adjustments            (5 175)           (5 724)        (10 489)  
                                          -             9 853          21 957   
Six months to     Six months to         Year to   
                                30 Sep 2010       30 Sep 2009     31 Mar 2010   
R`000                             (Reviewed)        (Reviewed)       (Audited)  
Segment profit or loss                                                          
Keaton Energy Holdings Limited */**  (5 388)           (4 913)         (9 302)  
Keaton Administrative and                                                       
Technical Services (Pty) Limited *      (20)             3 622           (118)  
Keaton Mining (Pty) Limited *        (5 625)           (9 514)        (14 704)  
Amalahle Exploration (Pty) Limited *   (259)           (1 087)         (3 231)  
Labohlano Trading 46 (Pty) Limited*    (429)                 -         (1 160)  
Other exploration subsidiaries*         (14)             (617)           (335)  
Total operating segments` results * (11 735)          (12 509)        (28 850)  
Non-cash flow items                    (625)                 -           (179)  
Consolidation adjustments              (545)              (92)           3 679  
                                   (12 905)          (12 601)        (25 350)   
* Operating (loss)/profit before net finance income and taxation.               
** Excludes finance income of R10.7 million (R15.5 million).                    
18. The Group`s major capital commitments are:                                  
(R`000)                                                            30 Sep 2010  
Exploration and mine development expenditure authorised                         
and contracted                                                         160 083  
Exploration and mine development expenditure authorised,                        
but not contracted                                                     109 170  
All contracted amounts will be funded both through the existing funding         
mechanisms between the Company and its subsidiaries, and external debt finance  
for the Group`s Vanggatfontein Project.                                         
19. There was no change to the Group`s contingent liabilities during the        
period.                                                                         
20. Significant events after 30 September 2010 up to the date of this report    
(also refer to Commentary):                                                     
On 9 November 2010 the Company declared a 24% increase in the coal reserve of   
its 74%-held, Mpumalanga-based Vanggatfontein Project to 32.2 million tonnes -  
22.3 million tonnes in the proved category and 9.9 million tonnes in the        
probable category. The declaration is contained in an updated SAMREC- compliant 
East Resource Block: Coal Reserve and Resource Statement, released by the       
Company following further exploration drilling on the project and completion of 
a feasibility update report. The updated gross tonnes in situ coal resource     
estimate for the East Resource Block is 84.2 million tonnes.                    
21. KPMG Inc., the Company`s independent auditors, have reviewed the financial  
information contained in this condensed interim report and have expressed an    
unmodified conclusion on the condensed interim financial information. Their     
review report is available for inspection at the Company`s registered office.   
COMMENTARY                                                                      
The period under review was marked by fast-track development of both phases of  
the Group`s first major coal mining project, Vanggatfontein, near Delmas in     
South Africa`s Mpumalanga province. Delivery of the first 400 tonnes of No 5    
Seam metallurgical coal in terms of Phase 1, took place into the domestic market
on the afternoon of 3 December 2010.                                            
Cash position                                                                   
At 30 September 2010, the Group`s total available cash was  R190 million, most  
of which will be used for the continued development of  Vanggatfontein. On 6    
December 2010, Keaton Energy announced that its 74%-held  subsidiary, Keaton    
Mining, had secured a credit-approved offer of R255 million in project finance  
from Nedbank Capital to complete the development of the  project. First draw-   
down, which remains subject to conclusion of legal  documentations, is expected 
in early February 2011.                                                         
Safety, health and the environment                                              
The Group`s safety performance in the period under review was satisfactory, with
231 559 hours worked with no lost time injuries recorded. The Group experienced 
no material health or environmental issues in the period.                       
Corporate governance                                                            
John Wallington and Zelda Mostert resigned as directors on 31 May 2010 and 31   
July 2010 respectively. Paul Sadler was appointed as an independent non-        
executive director on 1 October 2010.                                           
Subsequent to Routledge Modise Inc, practicing as Eversheds, giving notice of   
closure of its corporate governance department and tendering its resignation as 
company secretary with effect from 30 September 2010, Michelle Taylor was       
appointed as company secretary to the Group with effect from 1 October 2010.    
Activities during the reporting period                                          
During the period under review, the Group`s activities have been focused on the 
following:                                                                      
Vanggatfontein Project, Delmas                                                  
An updated SAMREC-compliant coal reserve and resource statement for             
Vanggatfontein was declared after the reporting period, on 9 November 2010,     
reflecting a 24% increase in coal reserves to 32.2 million tonnes               
- 22.3 million tonnes in the proved category and 9.9 million tonnes in the      
probable category.                                                              
Phase 1: 5 Seam Project: Development of this phase has been fast-tracked since  
access to the site was secured in May 2010. With first No 5 Seam coal dispatched
into the domestic market on 3 December 2010, production and sales will continue 
to increase until January 2011 when full-scale plant operation at a rate of 50  
000 run-of-mine tonnes per month (tpm) is expected.                             
Phase 2: 2 and 4 Seam Project: Development of this phase, to deliver steam coal 
into the seven-year supply contract to Eskom announced in July this year, is    
well advanced. Production is expected to begin early in the second quarter of   
2010 at a rate of 50 000tpm, rising to 200 000tpm by July 2011.                 
Further development at Vanggatfontein is possible, particularly if the domestic 
market for the project`s mid- and low-volatile coal continues to strengthen in  
the medium- to longer term.                                                     
Sterkfontein Project, Bethal                                                    
The second phase of the Sterkfontein Extension drilling programme, comprising 56
holes totalling over 9 000 metres of drilling, was completed during the         
reporting period, and an updated SAMREC-compliant resource statement will be    
released in due course. The Sterkfontein Project is now approaching feasibility 
stage and capital estimates for its development are expected in Q2 of 2012.     
Looking ahead                                                                   
With Vanggatfontein Phase 1 scheduled to reach full production early in the new 
year, the Group is well placed to benefit from expected continued improvement in
demand - and thus pricing - for high-quality metallurgical coal in the domestic 
market. As Phase 1 beds down to steady state, our focus will shift increasingly 
to the commissioning of Phase 2 and servicing our long-term supply contract with
Eskom. Simultaneously, we expect to take our Sterkfontein Project to the next   
level - feasibility - with entry to a recovering export market envisaged in the 
longer term.                                                                    
Shareholders are referred to the cautionary announcement released on 7 October  
2010, and renewed on 18 November 2010 and are advised that the negotiations     
referred to in those announcements are still ongoing.                           
Accordingly, shareholders are advised to continue exercising caution when       
dealing in the Company`s securities until a further announcement is made.       
On behalf of the Board                                                          
David Salter                                    Paul Miller                     
(Chairman)                                      (Managing Director)             
8 December 2010                                                                 
Registered office                        Transfer secretaries                   
Ground Floor, Eland House                Computershare Investor Services        
The Braes, 3 Eaton Avenue                South Africa (Pty) Limited             
Bryanston, South Africa                  Ground Floor, 70 Marshall Street       
(Postnet Suite 464                       Johannesburg, South Africa             
Private Bag X51, Bryanston, 2021)        (PO Box 61051, Marshalltown, 2107)     
Auditors                                                                        
KPMG Inc.                                                                       
1226 Schoeman Street, Hatfield, Pretoria                                        
Directors                                                                       
Dr J D Salter (Chairman)*++, P B M Miller (Managing Director), A B Glad,        
L X Mtumtum++, P Pouroulis**+, O P Sadler++, J G Schonfeldt, A P E Sedibe+,     
P C C H Snyders                                                                 
*British **South African/Cypriot +Non-executive, ++Independent non-executive    
Telephone: +27 11 317 1700                                                      
Telefax: +27 11 463 4759                                                        
Email: info@keatonenergy.co.za                                                  
www.keatonenergy.co.za                                                          
Date: 08/12/2010 14:30:01 Supplied by www.sharenet.co.za                     
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