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Keh - Keaton Energy Holdings Limited - Preliminary Summarised Audited Group

Release Date: 30/05/2012 09:00:04      Code(s): KEH
KEH - Keaton Energy Holdings Limited - Preliminary summarised audited group     
results for the year ended 31 March 2012                                        
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")                               
PRELIMINARY SUMMARISED AUDITED GROUP RESULTS                                    
FOR THE YEAR ENDED 31 MARCH 2012                                                
KEY FEATURES                                                                    
2.7Mtpa production platform established across two operations                   
1.2Mt coal produced and sold                                                    
Revenue soars to R474m from R35m                                                
145% increase in HEPS to 25.2cps                                                
31% increase in NAV per share to R4.45                                          
COMMENTARY                                                                      
Dear shareholder                                                                
The 2012 financial year has seen the Keaton Energy group - now in its fifth     
year of existence - firmly establish the platform required to comfortably       
exceed its stated target of 2Mt production a year. We have attained this both   
through greenfields exploration and development and through acquisition, our    
landmark achievements being the exploration, development and start of           
production at our Vanggatfontein Colliery (Vanggatfontein) in South Africa`s    
Mpumalanga province, and our acquisition of a controlling interest in Leeuw     
Mining and Exploration (Pty) Limited (LME). A key focus in respect of the       
latter has been turning around LME`s under-performing Vaalkrantz Colliery       
(Vaalkrantz) in KwaZulu-Natal province. The ensuing commentary briefly covers   
some of the year`s activities, ahead of publication of our integrated report    
in June 2012.                                                                   
Safety                                                                          
Our safety performance, while showing a pleasing level of achievement, points   
to a need for continued effort. This is expected in a group such as ours,       
simultaneously operationalising a new mine and turning around another.          
At Vanggatfontein, where production ramp-up began late in FY11 and continued    
apace in FY12, the Lost Time Injury Frequency Rate (LTIFR) deteriorated from    
zero to 0.38 per million man hours worked. The imperative here is to ensure     
that - through intensive safety training initiatives and rigorous management    
- safety standards measure up to the challenges of increasing production.       
During the year the outsourced safety, health and environment (SHE) service-    
provider was replaced with an experienced in-house SHE manager.                 
At Vaalkrantz, there was a marked improvement in safety performance. The        
LTIFR declined to 0.45 per million man hours worked from 3.4. This shows that   
improved safety performance can go hand in hand with improved production        
performance.                                                                    
Markets                                                                         
Our coal is sold into three distinct markets:                                   
- domestic thermal coal contracted to Eskom;                                    
- 5 Seam coal and premium low-ash anthracite to domestic metallurgical          
customers; and                                                                  
- mid-ash anthracite exported to Brazil for iron ore pellet production, by      
our offtake partner, Gunvor International.                                      
Our washed product supplied to Eskom has been well-received by Eskom`s power    
stations. However, the challenge to meet Eskom`s demand for our coal remains.   
Provided we continue producing a consistent, quality product we believe         
Eskom`s power stations will take everything we can produce.                     
The 5 Seam market has been resilient, despite smelter operators cutting back    
on electricity usage. Prices are good, and it is unlikely that our 5 Seam       
product will be substituted by other coal blends as all the alternative         
blends include high-cost imported coking coal.                                  
Domestic anthracite demand is the strongest of the markets we sell into, and    
as a consequence enjoys premium prices. This is because the coal`s              
specific application, in particular in the ferro-chrome smelting industry, is   
only substitutable by imported coking coal.                                     
Iron ore pellet production capacity in Brazil is being expanded when Brazil`s   
annual demand for anthracite already exceeds South Africa`s anthracite export   
capacity. The alternative is to import anthracite from countries further        
afield, like the Ukraine. South Africa has a logistics advantage which we       
expect to result in support for the current prices.                             
Group operating and financial performance                                       
In FY12, the group produced and sold a total of 1.2Mt of coal, reflecting       
both the continued production build-up at Vanggatfontein and the inclusion of   
production from LME`s Vaalkrantz. Revenue of R474 365 518, which includes       
R78m in transport revenues of Eskom coal, was substantially higher than the     
previous year`s R35 162 539.                                                    
Cost of sales increased to R408 123 144, reflecting the increase in sales.      
After accounting for mining and related expenses of R10 349 958 and other       
expenses and income, operating profit for the year was R56 605 065. A gain of   
R114 384 579, reflecting the LME acquisition, boosted operating profit,         
before finance income and costs, to R170 989 644. Profit for the year, after    
taxation of R8 283 269, was R149 300 760 compared with R7 197 179 in the        
previous year.                                                                  
Headline earnings per share (HEPS) increased by 145% to 25.2c, earnings per     
share (EPS) by 783% to 90.9c, and net asset value per share by 31% to R4.45.    
Detailed operational review                                                     
Vanggatfontein                                                                  
At Vanggatfontein, total run of mine (ROM) production increased to 2.1Mt from   
some 137 000t, reflecting the on-going production build-up during the year.     
Total saleable production rose to 1.1Mt from around 57 000t.                    
Work continues apace to achieve the planned steady-state 4 and 2 Seam           
production level of 175 000tpm of saleable coal from the 145 000tpm             
production achieved in the period.                                              
Production of 5 Seam metallurgical coal from Vanggatfontein for the domestic    
market increased by 146% to 140kt. While the quality of 5 Seam product is       
consistently good, geological conditions in Pit 1 have been more variable       
than anticipated, resulting in disappointing levels of 5 Seam production.       
Optimisation of Vanggatfontein`s mine plan is well in hand and will involve     
development of the colliery`s third open pit during calendar 2012. Pit 3 is     
expected to produce a steady supply of 5 Seam and higher yielding 4 and 2       
Seam coal.                                                                      
Vaalkrantz                                                                      
At Vaalkrantz, where Keaton Energy took effective control form mid-December     
2011, total ROM production almost doubled to 560 000t with total saleable       
production up by 94% to 351 000t for the full 12 months.                        
Total anthracite sales rose by 76% to 376 000t: 169 000t was exported, an       
increase of 83%, and 207 000t was sold into the domestic market, an increase    
of 70%.                                                                         
Contributing factors to this turnaround, included:                              
- Keaton Energy`s early 2011 refinancing of LME, which meant existing capital   
equipment could be refurbished and new equipment bought, and development of     
the West Adit could be completed; and                                           
- new management appointments and the moving in-house of certain previously     
outsourced functions.                                                           
Capital expenditure was down 19% to R30 300 001 as the development of the       
West Adit is now complete.                                                      
Development pipeline                                                            
The Braakfontein and Sterkfontein projects must be advanced in FY 2013. This    
will see a regulatory review being completed at Braakfontein, followed          
by the initiation of permitted mining activities.                               
This will not immediately result in coal production but will lay the            
groundwork for accelerated development once all ancillary regulatory            
approvals are received (the project already has a mining right).                
The Sterkfontein project will see the completion of a scoping study as the      
first step towards a full feasibility study.                                    
Reserve and Resource Statement                                                  
The Reserve and Resource statement will be included in the Integrated Report,   
to be released in June 2012.                                                    
Corporate activities                                                            
During the year under review, there were several Board changes and re-          
assignments. Jacques Rossouw succeeded Johan Schonfeldt as Financial            
Director; Peet Snyders resigned as an executive director; and Dirk Jonker,      
Managing Director of Gunvor International BV, joined as a non-executive         
director. Executive Director: Marketing and New Business Development Mandi      
Glad assumed responsibility for the company`s operations as Executive           
Director: Operations and continues to have responsibility for coal marketing    
and regulatory matters. Managing Director Paul Miller assumed responsibility    
for new business development.                                                   
Looking ahead                                                                   
In the short term, to consolidate our position as a 2Mtpa producer delivering   
thermal and metallurgical coal into domestic and export markets, our primary    
objectives are to complete the production build-up at Vanggatfontein, so that   
this operation delivers consistently in terms of both quantity and quality      
into our Eskom contract obligation, and to complete the operational             
turnaround at Vaalkrantz.                                                       
Longer term, our strategy is to attain 5Mtpa mid-tier producer status. We now   
have a track-record of success in terms of greenfields exploration and          
development on which to advance our projects and prospects, and we have also    
proved our ability to identify distressed assets and turn these to account.     
Stakeholders can expect us to vigorously pursue both avenues of growth in the   
years ahead.                                                                    
On behalf of the Board                                                          
David Salter                                                                    
(Chairman)                                                                      
Paul Miller                                                                     
(Managing Director)                                                             
30 May 2012                                                                     
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME                       
                                                                Year ended      
                                                 31 March         31 March      
                                                     2012             2011      
Note                 R                R      
Revenue                                        474 365 518       35 162 539     
Cost of sales                                 (408 123 144)     (23 094 923)    
Gross profit                           2        66 242 374       12 067 616     
Other income                           3        25 544 215          383 302     
Mining and related expenses                    (10 349 958)     (10 924 236)    
Net gain on financial instruments                1 689 569                -     
Administrative and other                                                        
operating expenses                             (26 521 135)     (19 602 216)    
Results from operating activities               56 605 065      (18 075 533)    
Gain on business combination           4       114 384 579                -     
Operating profit/(loss) before                                                  
net finance (cost)/income                      170 989 644      (18 075 533)    
Net finance (cost)/income                      (13 405 615)      18 698 910     
Finance income                                  17 541 785       20 193 307     
Finance costs                         11       (30 947 400)      (1 494 397)    
Net profit before taxation                     157 584 029          623 377     
Income taxation (expense) /credit               (8 283 269)       6 573 802     
Profit for the year                            149 300 760        7 197 179     
Other comprehensive income for                                                  
the year, net of tax                                     -                -     
Total comprehensive income for                                                  
the year                                       149 300 760        7 197 179     
Total comprehensive income                                                      
attributable to:                                                                
Owners of the company                          159 543 956       15 186 005     
Non-controlling interest                       (10 243 196)      (7 988 825)    
Total comprehensive income for                                                  
the year                                       149 300 760        7 197 179     
Basic earnings per share (cents)       5              90.9             10.3     
Diluted earnings per share (cents)     5              90.9             10.3     
The accompanying notes are an integral part of these summarised consolidated    
financial statements.                                                           
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION                         
                                                       At               At      
                                                 31 March         31 March      
2012             2011      
                                   Note                 R                R      
Assets                                                                          
Non-current assets                                                              
Property, plant and equipment          6       884 372 226      479 452 733     
Intangible assets                      7       423 887 606       65 074 564     
Deferred tax                                     2 170 949        6 659 583     
Long-term financial assets             8                 -      131 611 684     
Restricted cash                                  7 423 204        6 280 204     
Restricted investments                 9        13 027 029                -     
Total non-current assets                     1 330 881 014      689 078 768     
Current assets                                                                  
Inventory                                       23 117 016        7 938 819     
Trade and other receivables                    104 324 841       47 389 166     
Restricted cash                                  6 600 000       12 000 000     
Cash and cash equivalents                       60 549 397       27 000 085     
Total current assets                           194 591 254       94 328 070     
Total assets                                 1 525 472 268      783 406 838     
Equity                                                                          
Share capital                         10           188 752          171 547     
Share premium                         10       632 053 833      567 717 887     
Share-based payment reserve                      6 180 562        2 394 727     
Other reserves                                 (18 751 111)               -     
Retained earnings                              186 593 754       21 019 688     
Total equity attributable to                                                    
owners of the company                          806 265 790      591 303 849     
Non-controlling interest                        34 270 652       (9 757 139)    
Total equity                                   840 536 442      581 546 710     
Liabilities                                                                     
Non-current liabilities                                                         
Borrowings                            11       248 156 340                -     
Long-term financial liabilities                    612 909                -     
Mine closure and environmental                                                  
rehabilitation provision              12       112 856 645       46 052 596     
Deferred tax                                    93 837 860                -     
Total non-current liabilities                  455 463 754       46 052 596     
Current liabilities                                                             
Borrowings                            11        49 176 373                -     
Mine closure and environmental                                                  
rehabilitation provision              12           326 211          326 211     
Trade and other payables                       179 355 824      154 872 462     
Taxation                                           613 664          608 859     
Total current liabilities                      229 472 072      155 807 532     
Total equity and liabilities                 1 525 472 268      783 406 838     
The accompanying notes are an integral part of these summarised consolidated    
financial statements.                                                           
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY                          
for the year ended 31 March 2012                                                
Share-                      
                                                     based                      
                           Share         Share     payment        Retained      
                         capital       premium     reserve        earnings      
R             R           R               R      
Balance at                                                                      
31 March 2010             144 841   449 935 213     203 923       5 833 683     
Profit and total                                                                
comprehensive income                                                            
for the year                    -             -           -      15 186 005     
Transactions with                                                               
owners of the company                                                           
recognised directly                                                             
in equity                                                                       
Ordinary shares                                                                 
issued for cash            14 484    65 164 096           -               -     
Ordinary shares                                                                 
issued for                                                                      
consideration                                                                   
other than cash            12 222    54 987 777           -               -     
Share-based payments            -             -   2 190 804               -     
Share issue expenses            -    (2 369 199)          -               -     
Balance at                                                                      
31 March 2011             171 547   567 717 887   2 394 727      21 019 688     
Profit and total                                                                
comprehensive income                                                            
for the year                    -             -           -     159 543 956     
Transactions with                                                               
owners of the                                                                   
company recognised                                                              
directly in equity                                                              
Ordinary shares                                                                 
issued for                                                                      
consideration                                                                   
other than cash            17 205    76 402 795           -               -     
Share-based payments            -             -   3 785 835               -     
Share issue expenses            -       (66 848)          -               -     
Reserves attributable                                                           
to business                                                                     
combination                     -             -           -               -     
Share-based payments                                                            
transferred                                                                     
(refer note 13)                 -   (12 000 000)          -               -     
Changes in ownership                                                            
interests in                                                                    
subsidiaries                                                                    
Business combination                                                            
(refer note 4)                  -             -           -               -     
Dilution of non-                                                                
controlling interests                                                           
(refer note 4)                  -             -           -       6 030 109     
Balance at                                                                      
31 March 2012             188 752   632 053 834   6 180 562     186 593 753     
The accompanying notes are an integral part of these summarised consolidated    
financial statements.                                                           
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)              
for the year ended 31 March 2012                                                
                                         Total                                  
                                        equity                                  
                                  attributable        Non-                      
to owners    control-                      
                           Other        of the        ling           Total      
                        reserves       company    interest          equity      
                               R             R           R               R      
Balance at                                                                      
31 March 2010                   -   456 117 660  (1 768 314)    454 349 346     
Profit and total                                                                
comprehensive income                                                            
for the year                    -    15 186 005  (7 988 825)      7 197 180     
Transactions with                                                               
owners of the company                                                           
recognised directly                                                             
in equity                                                                       
Ordinary shares                                                                 
issued for cash                 -    65 178 580           -      65 178 580     
Ordinary shares                                                                 
issued for                                                                      
consideration                                                                   
other than cash                 -    54 999 999           -      54 999 999     
Share-based payments            -     2 190 804           -       2 190 804     
Share issue expenses            -    (2 369 199)          -      (2 369 199)    
Balance at                                                                      
31 March 2011                                                                   
(Audited)                       -   591 303 849  (9 757 139)    581 546 710     
Profit and total                                                                
comprehensive income                                                            
for the year                    -   159 543 956 (10 243 196)    149 300 760     
Transactions with                                                               
owners of the                                                                   
company recognised                                                              
directly in equity                                                              
Ordinary shares                                                                 
issued for                                                                      
consideration                                                                   
other than cash                 -    76 420 000           -      76 420 000     
Share-based payments            -             -   3 785 835               -     
Share issue expenses            -       (66 848)          -         (66 848)    
Reserves attributable                                                           
to business                                                                     
combination           (30 751 111)  (30 751 111)          -     (30 751 111)    
Share-based payments                                                            
transferred                                                                     
(refer note 13)        12 000 000             -           -               -     
Changes in ownership                                                            
interests in                                                                    
subsidiaries                                                                    
Business combination                                                            
(refer note 4)                  -             -  60 301 096      60 301 096     
Dilution of non-                                                                
controlling interests                                                           
(refer note 4)                  -     6 030 109  (6 030 109)              -     
Balance at                                                                      
31 March 2012         (18 751 111)  806 265 790  34 270 652     840 536 442     
The accompanying notes are an integral part of these summarised consolidated    
financial statements.                                                           
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS                                 
Year ended      
                                                 31 March         31 March      
                                                     2012             2011      
                                                        R                R      
Cash flows from operating activities                                            
Cash receipts from customers                   438 300 224       15 162 539     
Cash paid to suppliers and employees          (296 993 535)     (27 559 562)    
Cash generated from /                                                           
(utilised in) operations                       141 306 689      (12 397 023)    
Finance income received                          3 798 613       18 034 802     
Finance costs paid                                (702 302)         (19 620)    
Taxation paid                                   (1 608 653)      (2 642 296)    
Net cash flows from operating activities       142 794 347        2 975 863     
Cash flows from investing activities                                            
Additions to property, plant and                                                
equipment to expand operations                (329 214 525)    (294 303 716)    
Acquisition of LME loans and                                                    
instalment sale agreement                                -      (71 222 667)    
Loans advanced to LME                           (5 242 513)               -     
Acquisition of subsidiary,                                                      
net of cash acquired                            21 129 619                -     
Proceeds on disposal of                                                         
Intangible, exploration                                                         
and evaluation asset                             1 754 386          297 261     
Additions to exploration and                                                    
evaluation assets                                  (52 309)      (3 858 572)    
Investment in restricted investments              (965 571)               -     
Net decrease in restricted cash balances         3 438 534          826 444     
Net cash flows from investing activities      (309 152 379)    (368 261 251)    
Cash flows from financing activities                                            
Proceeds from the issue of shares                        -       65 178 581     
Payment of share issue expenses                    (66 847)      (2 369 199)    
Borrowings repaid                                 (311 716)               -     
Borrowings raised                              204 540 594                -     
Transaction costs relating to                                                   
project finance arrangements                    (4 254 687)      (5 604 460)    
Net cash flows from financing activities       199 907 344       57 204 921     
Net increase/(decrease) in cash and                                             
cash equivalents                                33 549 312     (308 080 467)    
Cash and cash equivalents at the                                                
beginning of the year                           27 000 085      335 080 552     
Cash and cash equivalents at the                                                
end of the year                                 60 549 397       27 000 085     
NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS                       
1. ACCOUNTING POLICIES                                                          
Basis of accounting                                                             
The preliminary summarised consolidated results for the year ended 31 March     
2012 incorporate extracts of the group`s unqualified audited financial          
statements. The summarised consolidated financial statements for the year       
ended 31 March 2012 have been prepared in accordance with the recognition and   
measurement requirements of IFRS and the presentation and disclosure            
requirements of IAS 34: Interim Financial Reporting and are presented in        
accordance with the South African Companies Act 2008 and the AC 500 standards   
as issued by the Accounting Practices Board.                                    
These summary financial statements have been extracted from the complete set    
of financial statements on which the auditors, KPMG Inc, have expressed an      
unqualified audit opinion. KPMG has also issued an unqualified audit report     
on these summary financial statements stating that these summarised results     
are consistent in all material respects with the complete financial             
statements. A copy of the auditor`s reports is available for inspection at      
the Company`s registered office.                                                
For a better understanding of the group`s financial position and results of     
operations, these summarised consolidated results are to be read in             
conjunction with the group`s audited annual financial statements for the year   
ended 31 March 2012, which have been prepared in accordance with                
International Financial Reporting Standards, and which are expected to be       
posted on or about 30 June 2012.                                                
The accounting policies applied are consistent with those applied in the        
annual financial statements for the year ended 31 March 2011.                   
2. REVENUE AND GROSS PROFIT                                                     
The group sold 140 133 metric tonnes of 5 Seam coal from its Mpumalanga-based   
Vanggatfontein Colliery into the domestic metallurgical market for the year     
ended 31 March 2012 (31 March 2011: 48 397 metric tonnes), whilst thermal       
coal sales to Eskom amounted to 957 225 metric tonnes (no production in prior   
periods).                                                                       
Revenue also includes approximately three and a half months of anthracite       
sales from the Kwa-Zulu Natal-based Vaalkrantz Colliery amounting to            
R92.5 million. Refer to note 4.                                                 
The group achieved a gross profit of R66.2million or 14% of revenue for the     
year ended 31 March 2012 (31 March 2011: R12.1 million or 34%).                 
The decrease in gross profit is as a result of the product mix, which weighed   
more towards thermal coal for the year from its Vanggatfontein Colliery.        
Gross profit includes three and a half months of higher margin anthracite       
sales from the Vaalkrantz Colliery.                                             
3. OTHER INCOME                                                                 
Included in other income is gain of R19.1 million relating to the refinancing   
of LME, which was concluded in the 2011 financial year. The group obtained a    
loan and preference shares from Anglo Operations Limited at a discount to       
their carrying values at that point in time in the records of LME, when the     
arrangement was concluded in the 2011 financial year. On                        
14 December 2011, the effective date of the LME acquisition (refer to note 4    
below), the group recognised the difference in the fair value of loans in the   
records of the company and their carrying values in the records of LME in the   
statement of comprehensive income.                                              
4. GAIN ON BUSINESS COMBINATION                                                 
On 14 December 2011, following Ministerial consent, the group obtained          
control (71.11% of the issued share capital) of LME, an anthracite producer     
in the Northern parts of Kwa-Zulu Natal.                                        
By acquiring an interest in LME, the group obtained an approximate 200 000      
tonne Quattro Scheme Participation of the Richards Bay Coal Terminal (RBCT)     
per annum, a foothold in the local anthracite market and various coal           
resources and projects in the region.                                           
In the three and a half months following the effective date up to the           
reporting date, the LME group contributed revenue of R92,5 million and profit   
before tax, before eliminating inter group transactions of                      
R14,5 million.                                                                  
The following summarises the major classes of consideration transferred, and    
the recognised amounts of assets acquired and liabilities assumed at the        
acquisition date.                                                               
Consideration transferred:                                                      
Equity instruments (16 622 222 ordinary                                         
shares in Keaton Energy Holdings Limited                                        
(the Holding Company))                                           74 799 999     
Purchase price adjustment on equity                                             
instruments issued 1                                            (30 751 111)    
Cash claimed from non-controlling                                               
interest (NCI) 2                                                (10 000 000)    
Total consideration transferred                                  34 048 888     
- 1 The fair value of shares issued was based on the listed share price of      
the holding company at 14 December 2011 (bid price) being R2,65 per share.      
- 2 Cash claimed from NCI refers to a contractual claim which the company had   
in terms of the sales of shares agreement against the total consideration       
paid to the NCI for the equity stake acquired, following the due diligence      
process.                                                                        
Identifiable assets acquired and liabilities assumed:                           
Property, plant and equipment                                   189 798 330     
Intangible, exploration and                                                     
evaluation assets                                               359 139 360     
Cash and cash equivalents                                        11 129 619     
Restricted investments                                           11 911 139     
Inventory: consumables                                            2 561 846     
Inventory: anthracite stockpiles                                  4 541 087     
Trade and other receivables                                      27 384 799     
Borrowings                                                     (254 220 443)    
Deferred taxation                                               (91 656 683)    
Mine closure and environmental                                                  
rehabilitation provision                                        (15 878 833)    
Trade and other payables                                        (35 975 658)    
Total                                                           208 734 563     
Net cash acquired                                                               
Cash and cash equivalents acquired                                              
through business combination                                     11 129 619     
Cash claimed from NCI                                                           
(refer to note above)                                            10 000 000     
Net cash acquired through business                                              
combination                                                      21 129 619     
Included in the acquisition date                                                
values above are the following                                                  
fair value adjustments:                                                         
Property, plant and equipment                                   112 778 504     
Intangible, exploration and evaluation                                          
assets                                                          341 723 777     
Anthracite stockpiles                                             1 330 350     
Long-term financial liabilities                                    (612 909)    
Total                                                           455 219 722     
Fair value adjustments disclosed above are supported by:                        
- Property, plant and equipment - independent valuations by competent persons   
and indexing based on historical producer price indexes (PPI).                  
- Intangible exploration and evaluation assets - Geological data, initial       
feasibility studies, assumptions regarding future cost structures and mining    
models, assumptions regarding future coal prices and the Weighted Average       
Cost of Capital (WACC) of the group adjusted to incorporate assumptions and     
risks associated with each cash generating unit identified.                     
- Anthracite stockpiles - market prices.                                        
- Trade and other liabilities - independent valuations by competent persons.    
If new information obtained within one year from the acquisition date about     
facts or circumstances that existed at the acquisition date identifies          
adjustments to the above amounts, or any additional provisions that existed     
at the acquisition date, then the acquisition values will be revised.           
Gain on business combination                                                    
A gain on business combination was recognised as a result of the acquisition    
as follows:                                                                     
Total consideration transferred                                  34 048 888     
Non-controlling interest based on                                               
their proportionate interest in the                                             
recognised amounts of the assets and                                            
liabilities of LME                                               60 301 096     
Fair value of identifiable net assets                          (208 734 563)    
Gain on business combination                                   (114 384 579)    
At the time the company concluded the refinancing agreement with LME in         
October 2010, the LME group was a financially distressed, capital-scarce        
group facing possible liquidation. The injection of additional capital          
assisted the completion of developing the West Adit, purchasing of urgently     
required equipment and payment of overdue trade payables. Various other         
changes were also implemented in areas such as management, marketing, payroll   
and human resources. Between this date and the date the last of the             
conditions precedent were met, which was approximately one year later the       
group turned around production, generated cash, and serviced its debt as well   
as invested in additional capital. The above initiatives as well as the         
initial value placed on the undeveloped properties owned by the LME group,      
resulted in a valuation at the effective date which exceeded the acquisition    
consideration and consequently resulted in a gain on the business combination   
being recognised.                                                               
The group incurred acquisition-related costs of R2.6 million related to         
external legal fees, due diligence costs and brokerage fees. These costs have   
been recognised in administrative and other operating expenses in the           
consolidated statements of comprehensive income.                                
Dilution of non-controlling interest                                            
At reporting date, the company exercised a call option in terms of the          
R10 million convertible loan granted to LME in the 2011 financial year.         
In terms of the loan agreement, the company had the right to acquire the        
shares held by Leeuw Braakfontein Colliery (Proprietary) Limited (LBC), a       
100% subsidiary of LME, in LME, through the settlement of the convertible       
loan. The effect of the settlement resulted in a dilution of the non-           
controlling interest by 2.89%, thereby increasing the company`s shareholding    
in the LME group to a 74% equity interest.                                      
The following summarises the effect of the company`s ownership interest in      
the LME group:                                                                  
Company`s ownership interest on the                                             
effective date                                                  148 433 465     
Effect of increase in the company`s                                             
ownership interest                                                6 030 351     
Fair value of identifiable net assets                            10 388 633     
Company`s ownership interest at                                                 
reporting date                                                  164 852 449     
5. EARNINGS AND NET ASSET VALUE PER SHARE                                       
The calculation of basic and diluted earnings per share is based on a profit    
for the year ended 31 March 2012 (attributable to owners of the company) of     
R159.5 million (31 March 2011: R15.2 million) and a weighted average number     
of shares in issue during the year of 175 584 048 (31 March 2011:               
148 102 328).                                                                   
                                                                Year ended      
                                                 31 March         31 March      
                                                     2012             2011      
Total earnings per ordinary share (cents)                                       
Basic earnings                                        90.9             10.3     
Diluted earnings                                      90.9             10.3     
Headline earnings                                     25.2             10.3     
Diluted headline earnings                             25.2             10.3     
Reconciliation of headline earnings net of tax and non-controlling interests:   
                                                                Year ended      
                                      31 March 2012          31 March 2011      
R              R          R           R      
                               Gross            Net      Gross         Net      
Net profit for the year                                                         
attributable to owners                                                          
of the company                           159 543 956             15 186 005     
Adjusted for:                                                                   
Loss on disposal of                                                             
property, plant and                                                             
equipment                     121 574         64 774          -           -     
Profit on disposal of                                                           
intangible, exploration                                                         
and evaluation assets        (538 215)      (286 761)                           
Reversal of impairment                                                          
of intangible,                                                                  
exploration and                                                                 
evaluation assets          (1 216 171)      (647 976)         -           -     
Gain on business                                                                
combination              (114 384 579)  (114 384 579)         -           -     
Total headline earnings                   44 289 414             15 186 005     
                                                    Cents            Cents      
Headline earnings per share                           25.2             10.3     
Diluted headline earnings per share                   25.2             10.3     
Net asset value per share (cents)                                               
                                                       At               At      
31 March         31 March      
                                                     2012             2011      
Number of shares in issue                      188 752 600      171 547 644     
Net asset value per share (cents)                      445              339     
6. PROPERTY, PLANT AND EQUIPMENT                                                
The increase of R404.9 million from 31 March 2011 is as a result of capital     
investments at the Vanggatfontein Colliery as well as items of property,        
plant and equipment acquired through the business combination (refer to note    
4).                                                                             
Investment at the Vanggatfontein Colliery comprised boxcut developments         
(R92.1 million) mainly in pit two, deferred stripping (R121.8 million) mainly   
in pit one, mine infrastructure development (R38.5 million), an increase in     
rehabilitation assets as a result of an increase in rehabilitation              
liabilities (R44.7 million) and other net additions                             
(R6.9 million). These have been offset by depreciation charges of               
R88.9 million.                                                                  
Property, plant and equipment acquired through the business combination         
amounted to R189.8 million.                                                     
7. INTANGIBLE ASSETS                                                            
The increase in intangible assets of R358.8 million mainly relates to           
acquisitions through the business combination (refer to note 4) to the value    
of R359.2 million, offset by amortisation expenses of R0.4 million.             
Intangible assets acquired in the business combination comprise                 
R301.3 million relating to mining rights and prospecting rights,                
R22.7 million relating to the RBCT Quattro Scheme Participation and             
R35.2 million relating to other exploration and evaluation expenses.            
8. LONG TERM FINANCIAL ASSETS                                                   
Long term financial assets comprise various loans advanced to LME and           
preference shares acquired in LME in terms of the refinancing agreements        
entered into between the company and LME during the 2011 financial year. On     
the effective date the loans were transferred to loans in subsidiaries which    
are eliminated for group purposes.                                              
9. RESTRICTED INVESTMENTS                                                       
Restricted investments include investments to the value of R11.9 million held   
by the environmental rehabilitation trusts which were acquired through the      
LME business combination. The environmental trust funds are irrevocable         
trusts under the group`s control. Contributions to the trusts are invested in   
Sanlam and Momentum unit trusts where the underlying funds invest in equity     
instruments and money market investments, both local and foreign. The unit      
trust investments are designated at fair value through profit or loss and       
recognised at fair value. These investments provide for the estimated cost of   
rehabilitation at the end of the life of the group`s mines. Income earned on    
the investments, consisting of dividend income and local and foreign interest   
are reinvested.                                                                 
10. SHARE CAPITAL AND SHARE PREMIUM                                             
During the year, the company issued 16.6 million shares relating to the         
acquisition of LME (refer to note 4) at a price of R4.50 per share.             
An additional 0.58 million shares were issued as settlement of brokerage fees   
relating to the LME acquisition. These shares were issued at a                  
price of R2.78 per share.                                                       
11. BORROWINGS                                                                  
On 1 April 2011 Keaton Mining (Proprietary) Limited (Keaton Mining) entered     
into a project financing facility with Nedbank Limited to the value of          
R230 million and a further standby debt facility of R25 million. The facility   
attracts interest at Jibar plus 5% and is repayable in sculptured quarterly     
payments commencing 30 June 2012 and ending 31 March 2017. Various              
guarantees, representations, warranties, undertakings, indemnities and          
pledges, normal to project financing arrangements, have been given by both      
Keaton Mining and the company (as guarantor). As at 31 March 2012 draw-downs    
to the value of R204.4 million have been made, whilst interest of               
R21.1 million has been accrued. These were offset by unamortised transaction    
costs amounting to R8.5 million. As at 31 March 2012 the group was in           
compliance with all project finance covenants related to the Vanggatfontein     
Colliery.                                                                       
As part of the project finance covering security arrangement the company had    
to restrict R50 million of its cash as a standby equity deposit in favour of    
the Vanggatfontein Colliery. At 31 March 2012 the entire deposit of             
R50 million had been invested in the project, to further finance development    
and working capital requirements.                                               
12. MINE CLOSURE AND ENVIRONMENTAL REHABILITATION PROVISION (LIABILITY)         
The increase in the rehabilitation liability of R66.8 million comprise          
additional disturbances at the Vanggatfontein Colliery amounting to             
R44.8 million and a rehabilitation liability assumed as part of the business    
combination of R15.9 million relating to the Vaalkrantz Colliery. Unwinding     
expenses of the previously recognised rehabilitation liability amounted to      
R6.1 million, which was included in finance costs for the year.                 
13. SHARE BASED PAYMENTS TRANSFERRED                                            
The transfer relates to a share based payment transaction concluded between     
the company, Keaton Mining and Rutendo Mining (Proprietary) Limited during      
the 2008 financial year. The transfer is made to ensure consistent treatment    
in transactions where share based payments are made. Shares issued in share     
based payment transactions are fair valued at transaction date and the          
difference in the issue price and the fair value is recorded in other           
reserves. Previously the difference was recorded in share premium.              
14. COMMITMENTS AND CONTINGENCIES                                               
The group`s capital commitments are:                                            
                                                       At               At      
                                                 31 March         31 March      
2012             2011      
Exploration and mine development                                                
expenditure authorised and contracted           13 955 382       42 118 108     
Exploration and mine development                                                
expenditure authorised but not                                                  
contracted                                      55 681 948       42 219 481     
                                               69 637 733       84 337 589      
All contracted amounts will be funded through existing funding mechanisms       
within the group.                                                               
Further rehabilitation guarantees to the value of R16 million were issued       
during the year. Payment guarantees of R3.5 million in favour of the            
electricity provider and R10 million in favour of the diesel provider,          
secured by bank deposits, were issued during the year. R28 million of           
existing payment guarantees expired and the related restricted cash released.   
Contingent liabilities                                                          
The Workforce Group (Pty) Ltd (Workforce) has issued summons against LME        
whereby it is claiming the sum of R3.2 million for alleged breaches of a        
staff management services agreement, in that LME has failed to pay certain      
invoices rendered by Workforce. LME is to defend the matter on the basis that   
the amounts claimed are incorrect and furthermore that it has a counterclaim    
against Workforce in respect of, inter alia, overpayments relating to VAT and   
breaches of the agreement by Workforce. Workforce have included in the          
summons a further claim against LME for the sum of                              
R1.1 million in respect of an alleged debt owed by Asambeni Mining (Pty) Ltd,   
which Workforce allege LME accepted liability for. LME will defend these        
claims vigorously.                                                              
15. SUBSEQUENT EVENTS                                                           
There were no significant events after 31 March 2012 up to the date of this     
report.                                                                         
16. DIVIDENDS                                                                   
No dividends have been declared nor are any proposed for the year ended         
31 March 2012 (31 March 2011: Rnil).                                            
17. COAL RESERVE AND RESOURCE STATEMENT                                         
An updated coal reserve and resource statement will be published with our       
annual report which is expected to be posted on or about 30 June 2012.          
During the 2012 financial year the Vanggatfontein Colliery produced             
0.96 million tonnes of thermal coal and 0.16 million tonnes of metallurgical    
coal. The Vaalkrantz Colliery produced 0.11 million tonnes of anthracite        
since the effective date of the business combination.                           
SEGMENT REPORT                                                                  
for the year ended 31 March 2012                                                
                                                         Operating profit/      
                                                             (loss) before      
                                                             depreciation/      
Revenue                amortisation      
                         Year to       Year to       Year to       Year to      
                        31 March      31 March      31 March      31 March      
                            2012          2011          2012          2011      
Vanggatfontein                                                                  
Project 1             381 827 963    35 162 539   106 507 660     3 755 599     
Sterkfontein                                                                    
Project                         -             -             -             -     
Keaton Energy                                                                   
Holdings Limited 2      4 187 736     4 460 219   (14 494 819)  (16 141 372)    
Keaton                                                                          
Administrative                                                                  
and Technical                                                                   
Services                                                                        
(Proprietary)                                                                   
Limited 2              11 782 788     9 998 199    (1 618 474)      (50 200)    
Vaalkrantz                                                                      
Colliery 1             92 537 556             -    36 762 701             -     
Leeuw Braakfontein                                                              
Colliery                        -             -             -             -     
Koudelager                      -             -             -             -     
Other segments 3                -             -     2 054 111    (1 153 035)    
Total segments         490 336 043   49 620 957   129 211 179   (13 589 008)    
Reconciliation to                                                               
statements of                                                                   
comprehensive                                                                   
income and                                                                      
financial                                                                       
position                                                                        
Intersegment and                                                                
other                                                                           
consolidation                                                                   
adjustments            (15 970 525) (14 458 418)   12 206 861      (198 059)    
                      474 365 518   35 162 539   141 418 040   (13 787 067)     
Gain on business                                                                
combination                                                                     
Net finance                                                                     
(cost)/income 4                                                                 
Assets/liabilities                                                              
not allocated to                                                                
segments                                                                        
Net profit before                                                               
taxation                                                                        
Total assets                                                                    
and liabilities                                                                 
SEGMENT REPORT (CONTINUED)                                                      
for the year ended 31 March 2012                                                
                                                         Operating profit/      
(loss) after      
                                 Depreciation/               depreciation/      
                                  amortisation                amortisation      
                         Year to       Year to       Year to       Year to      
31 March      31 March      31 March      31 March      
                            2012          2011          2012          2011      
Vanggatfontein                                                                  
Project 1             (69 643 278)   (3 869 781)   36 864 382      (114 182)    
Sterkfontein                                                                    
Project                         -             -             -             -     
Keaton Energy                                                                   
Holdings Limited 2              -       497 853   (14 494 819)  (15 643 519)    
Keaton                                                                          
Administrative                                                                  
and Technical                                                                   
Services                                                                        
(Proprietary)                                                                   
Limited 2                (315 350)     (511 423)   (1 933 824)     (561 623)    
Vaalkrantz                                                                      
Colliery 1            (14 854 347)            -    21 908 354             -     
Leeuw Braakfontein                                                              
Colliery                        -             -             -             -     
Koudelager                      -             -             -             -     
Other segments 3                -             -     2 054 111    (1 153 035)    
Total segments        (84 812 975)   (3 883 351)   44 398 204   (17 472 359)    
Reconciliation to                                                               
statements of                                                                   
comprehensive                                                                   
income and                                                                      
financial                                                                       
position                                                                        
Intersegment and                                                                
other                                                                           
consolidation                                                                   
adjustments                     -      (405 115)   12 206 861      (603 174)    
                     (84 812 975)   (4 288 466)   56 605 065   (18 075 533)     
Gain on business                                                                
combination                                       114 384 579                   
Net finance                                                                     
(cost)/income 4                                   (13 405 614)   18 698 910     
Assets/liabilities                                                              
not allocated to                                                                
segments                                                                        
Net profit before                                                               
taxation                                          157 584 030       623 377     
Total assets                                                                    
and liabilities                                                                 
SEGMENT REPORT (CONTINUED)                                                      
for the year ended 31 March 2012                                                
                                       Segment                     Segment      
                                        assets                 liabilities      
                         Year to       Year to       Year to       Year to      
31 March      31 March      31 March      31 March      
                            2012          2011          2012          2011      
Vanggatfontein                                                                  
Project 1             830 255 022   554 042 570   940 514 657   614 692 025     
Sterkfontein                                                                    
Project                65 091 857    65 426 032    53 605 734    51 352 465     
Keaton Energy                                                                   
Holdings Limited 2    739 696 997   632 090 769     3 372 733     5 895 119     
Keaton                                                                          
Administrative                                                                  
and Technical                                                                   
Services                                                                        
(Proprietary)                                                                   
Limited 2              10 270 746     1 807 354    20 637 260    10 392 217     
Vaalkrantz                                                                      
Colliery 1            287 201 529             -   336 973 581             -     
Leeuw Braakfontein                                                              
Colliery              291 338 019             -    48 933 844             -     
Koudelager             23 552 160             -             -             -     
Other segments 3       19 998 712     1 849 166    18 333 174       331 250     
Total segments      2 267 405 042 1 255 215 891 1 422 370 983   682 663 076     
Reconciliation to                                                               
statements of                                                                   
comprehensive                                                                   
income and                                                                      
financial                                                                       
position                                                                        
Intersegment and                                                                
other                                                                           
consolidation                                                                   
adjustments          (741 932 774) (488 226 213) (737 435 158) (497 453 943)    
                   1 525 472 268   766 989 678   684 935 825   185 209 133      
Gain on business                                                                
combination                                                                     
Net finance                                                                     
(cost)/income 4                                                                 
Assets/liabilities                                                              
not allocated to                                                                
segments                             16 417 160                  16 650 995     
Net profit before                                                               
taxation                                                                        
Total assets                                                                    
and liabilities     1 525 472 268   783 406 838   684 935 825   201 860 128     
1 Revenue represents sales to external customers only                           
2 Revenue represents intersegment sales only                                    
3 Include the subsidiaries Amalahle Exploration (Proprietary) Limited and       
Labohlano Trading 46 (Proprietary) Limited and the Mpati and Balgray            
prospecting rights acquired through the business combination                    
4 Net finance (cost)/income is no longer reported as forming part of each       
segment profit or loss as these are not measured or reported to the chief       
operating decision maker(CODM) in connection with the segment, but rather on    
a collective company/group basis.                                               
Contact details                                                                 
Registered Office:                                                              
Ground Floor, Eland House, The Braes, 3 Eaton Avenue,                           
Bryanston, South Africa                                                         
(Postnet Suite 464, Private Bag X51, Bryanston, 2021)                           
Telephone: +27 11 317 1700                                                      
Telefax: +27 11 463 4759                                                        
E-mail: info@keatonenergy.co.za                                                 
Website: www.keatonenergy.co.za                                                 
Directors:                                                                      
Dr JD Salter (chairman)*++,                                                     
PBM Miller (managing director)                                                  
J Rossouw (financial director)                                                  
AB Glad (executive director)                                                    
LX Mtumtum++, P Pouroulis**+, OP Sadler++,                                      
APE Sedibe+, D Jonker***+                                                       
*British **South African / Cypriot ***Dutch                                     
+non-executive, ++independent non-executive                                     
Investor relations:                                                             
James Duncan                                                                    
Russell & Associates                                                            
Tel: +27 11 880 3924                                                            
Mobile: +27 82 892 8052                                                         
E-mail: james@rair.co.za                                                        
Company Secretary:                                                              
Michelle Taylor                                                                 
Transfer Secretaries:                                                           
Computershare Investor Services South Africa (Pty) Limited                      
Ground Floor, 70 Marshall Street, Johannesburg, South Africa                    
(PO Box 61051, Marshalltown, 2107)                                              
Sponsor:                                                                        
Nedbank Capital                                                                 
135 Rivonia Road                                                                
Sandown 2196                                                                    
Auditors:                                                                       
KPMG Inc.                                                                       
1226 Schoeman Street, Hatfield, Pretoria                                        
Date: 30/05/2012 09:00:03 Supplied by www.sharenet.co.za                     
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