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Keaton Energy Holdings Limited - Press Release

Release Date: 29/11/2012 08:30:00      Code(s): KEH     
Keaton Energy Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/011090/06)
JSE code: KEH ISIN code: ZAE000117420
("Keaton Energy" or ?the company?)



PRESS RELEASE

IMPROVED PRODUCTION IGNITES KEATON ENERGY?S PROSPECTS


    -   Improvement in group safety performance
    -   183% increase in group production to 1.8 million tonnes compared with 1H
        FY2012
    -   Significantly improved performance at Vanggatfontein after the appointment of a
        new mining contractor in June 2012.
    -   Loss of R64.2 million for 1H FY2013 compared with profit of R8.4 million for 1H
        FY2012
    -   Productivity gains at Vaalkrantz despite poor geological conditions
    -   255% increase in group revenue to R417.3 million compared with 1H FY2012
    -   Commenced development of pit 3 at Vanggatfontein
    -   Sterkfontein and Braakfontein studies due by end 2012

Johannesburg. 29 November 2012 - Keaton Energy (JSE:KEH) reported a 255% increase in
group revenue to R417.3 million for the six months ended 30 September 2012 versus R117.7 million
for the previous comparable period. The group increased production by 183% to 1.8 million tonnes of
coal compared with the first half of FY2012.

The significant increase in revenue is attributable to the ramp-up in sales to Eskom, nearing full
capacity and the inclusion of six months? sales from the Leeuw Mining & Exploration (Pty) Limited
(LME), which was acquired in December 2011.

The increase in production is due to the significantly improved performance at Vanggatfontein after
the appointment of a new mining contractor in June 2012 as well as productivity gains at Vaalkrantz,
despite poor geological conditions.

Chief Executive Officer, Mandi Glad said, ?The period under review was a company maker.
Despite losses being incurred, difficulties were overcome and opportunities taken at both
mining operations, which have laid the foundation for sustainable, safe and profitable
operations going forward.?

Safety, Health and Environment

The group continued to focus on safety, health and environmental matters showing operational
improvements at both Vanggatfontein and Vaalkrantz.
?We remain vigilant and continue to strive towards a zero-harm environment,? said Ms
Glad.
Operational Summary

A total of 738 498 tonnes of 4 and 2-seam coal were delivered to Eskom in the period under review
(1H FY2012: 230 042 tonnes). As expected, 5-seam coal production declined in line with the mine
plan as 5-seam from Pit 1 was depleted; 31 272 tonnes of 5-seam was sold into the domestic
metallurgical market (1H FY2012: 99 232 tonnes). In the second half of FY2013, 5-seam coal
production is set to increase as Pit 3 develops.

Since June 2012 Vanggatfontein benefitted greatly from the appointment of a new mining contractor,
Liviero Mining ,replacing the previous underperforming contractor. A smooth transition led to
productivity improvements, successive monthly production records and simultaneous decreases in
unit costs. Mine management?s optimisation of the available mining faces saw significant in-pit and
run-of-mine inventories being available at the end of the period. A significant quantity of product
stock remained undelivered at the end of the period as a direct result of the transport strike that took
place during the last week of September. This will deliver immediate benefits in the second half of the
financial year.

Performance at Vaalkrantz was pleasing with investment in underground mining equipment leading to
immediate productivity improvements. However, difficult geological conditions encountered during the
period offset much of these gains.
During the period under review 53 445 tonnes of mid-ash export anthracite were produced and sold
(since acquisition for the three months ended 31 March 2012: 43 500 tonnes), while 97 873 tonnes of
premium low-ash anthracite were sold into the domestic metallurgical market (since acquisition for
the three months ended 31 March 2012: 69 463 tonnes).

Financial Summary

The group?s revenue gains were unfortunately offset by the impact of the transport strike, the under-
performance of the original mining contractor at Vanggatfontein, challenging geological conditions at
the Vaalkrantz operation and the expected decline in 5-seam production.
The group recorded a gross loss of R37.9 million compared with the gross profit of R22.3 million for
the comparative period in FY2012, mainly due to:

    -   Sales of R31 million deferred to 2H FY2013 due to transport strike
    -    decline in 5-seam production and sales
    -   Poor performance by original mining contractor at Vanggatfontein
    -   Poor geological conditions at Vaalkrantz
    -   Increased depreciation charges as a result of the early adoption of an accounting
        interpretation (IFRIC 20)

Costs were well contained during the first half of 2013 although were negatively impacted by winter
electricity tariffs. Further cost-saving initiatives are planned for the second half of FY2013.
The group recorded a total comprehensive loss of R64.2 million for 1H FY2013 compared with a profit
of R8.4 million for 1H FY2012 and the R103.7 million profit for 2H FY2012 (largely made up of a gain
on the acquisition of LME.)

Cash and cash equivalents decreased by R33.1 million due to capital investment of R71.4 million
largely at Vanggatfontein and the repayment of R34.7 million of the Nedbank project finance facility,
which were offset by cash generated from operations and R8.7 million cash raised from investors in
July 2012.

The Group reported a headline loss of 21.1 cents per share compared with headline earnings of 8.4
cents per share for the 1H FY2012.

Litigation

Keaton Mining terminated its contract mining agreement with Megacube Mining (Pty) Limited at
Vanggatfontein on 5 July 2012 in accordance with the provisions of the agreement. This subsequently
led to Megacube lodging a claim for R42.5 million against Keaton Mining. Keaton Mining is defending
this claim vigorously in terms of the contract?s dispute resolution provisions. Furthermore, Keaton
Mining has lodged a damages claim for R119 million against Megacube relating to breaches of several
provisions of the contract.

Looking ahead

Chief Executive Officer, Mandi Glad concludes, ?Keaton Energy is well positioned with a
balanced portfolio of producing assets and a pipeline of internal growth projects. We
continue to evaluate external growth opportunities in line with our stated growth
objectives for future expansion.?

Stringent unit cost control and continuous performance improvement remain paramount and will
receive attention in the months ahead.

Operationally, Vanggatfontein is benefitting from a change in mining contractor and improved plant
performance. The long term 2- and 4-seam Eskom contract continues to provide the backbone of the
operation. The development of Pit 3 at Vanggatfontein, funded from cashflow, will make additional 5-
seam coal available. In addition, a 40 000-tonne per month toll washing contract was entered into
with Eskom to ensure full utilisation of the 5-seam plant.

Vaalkrantz continues to produce niche metallurgical coals and, when the current geologically
challenging areas are worked through, will increase production. Work to extend the existing life-of-
mine at Vaalkrantz continues.

Two major internal growth projects, Braakfontein (a 48 million tonne resource) and Sterkfontein (a 69
million tonne resource), are the subject of studies by external consultants to be completed by the end
of 2012, allowing the Group to make investment decisions early in 2013.

Ends.

Enquiries:

Mandi Glad, Chief Executive Officer Tel: (011) 317 7000
Jacques Rossouw, Financial Director Tel: (011) 317 7000

Notes to Editors:

Keaton Energy Holdings Limited, a South African-based coal mining and development company,
producing thermal coal and a range of metallurgical coals. The company supplies product to SA?s
electricity utility, Eskom, and to the domestic and export metallurgical industries.

Keaton Energy has two operating collieries: Vanggatfontein Colliery in Mpumalanga and Vaalkrantz
Colliery in Kwa-Zulu Natal. The group also has three development projects in Kwa-Zulu Natal and one
in Mpumalanga. The company was listed on the JSE on 22 April 2008.


Keaton Energy www.keatonenergy.co.za

Date: 29/11/2012 08:30:00 Supplied by www.sharenet.co.za                     
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