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BUFFALO COAL CORP - Proposed Capital Raising Transactions

Release Date: 25/11/2015 16:30:00      Code(s): BUC     
Buffalo Coal Corp.
(previously Forbes & Manhattan Coal Corp.)
(Registration number: 001891261)
(External company registration number: 2011/011661/10)
Share code on the Toronto Stock Exchange: BUF
Share code on the JSE Limited: BUC
ISIN: CA1194421014
(?Buffalo? or ?the Company?)

  Not for distribution to United States newswire services or for release, publication, distribution or
         dissemination directly, or indirectly, in whole or in part, in or into the United States

Buffalo advises shareholders that the Company proposes to secure additional funding from Investec
Bank Limited (?Investec?) and Resource Capital Fund V L.P. (?RCF?).

As shareholders have been previously advised, Buffalo has been through an extended period of
restructuring, which has included, inter alia, raising capital from the Company?s largest shareholder,
RCF, restructuring its South African debt facilities with Investec, and extensive operational restructurings
including two retrenchment processes, the second one of which was implemented on October 31, 2015,
as announced on October 29, 2015. From an operational perspective, the initiatives have resulted in
improved performance at site, however as a result of a continued decline in global bituminous coal and
anthracite markets since mid-2015, Buffalo has again had to approach its funders for financial support.

Investec Loan

Investec has agreed to extend Buffalo Coal Dundee Proprietary Limited?s (?Buffalo Coal Dundee?)
working capital facility from R30 million to R80 million (the ?Working Capital Facility?), which funds are
expected to be made available in two tranches of R25 million each (the ?Supplemental Investec Loan?).
The Supplemental Investec Loan is conditional upon securing the RCF funding arrangements described
below and remains subject to execution of definitive documentation. In addition, the second tranche of
the Supplemental Investec Loan is subject to the Company demonstrating its plan to sell the majority of
its anthracite stockpile, which has built up as a result of depressed markets both domestically and
globally, as referred to above.

RCF Facility Conversion and Private Placement

RCF has to date advanced US$29 million to the Company, by way of a convertible loan (the ?Convertible
Loan?) and currently holds approximately 77.4% of Buffalo?s issued and outstanding common shares
(?Common Shares?).
As a condition precedent to the Supplemental Investec Loan, RCF is expected to convert US$20 million
of the Convertible Loan into Common Shares over a two year period at the agreed conversion price of
C$0.0469 per Common Share (the ?RCF Conversion?), subject to a minimum conversion of US$10 million
within the first year. This includes an initial amount of US$2 million on closing of the funding
arrangements as set out below (the ?RCF First Tranche Conversion?).

RCF will also release all security currently held in respect of the Convertible Loan, including the
guarantee from Buffalo Coal Dundee. The balance of the Convertible Loan of US$9 million will remain in
place on existing terms, other than in respect of interest which will be payable as follows:

    -   Prior to the date of completion of the RCF Conversion, interest will be settled through the
        issuance of Common Shares, priced at the 20 day volume weighted average price (?VWAP?).
        Following the date of completion of the RCF Conversion, interest will be payable in cash subject
        to Buffalo Coal Dundee having paid Investec its scheduled principal repayment for the prior
        quarter. If Investec?s principal repayment has not been made, RCF?s interest will accrue until
        such time as Investec has been paid, subject to RCF?s election for interest to be settled through
        the issuance of Common Shares.

    -   The percentage interest rate will be determined as follows:

            o   If the 20 day VWAP is greater than C$0.05 per Common Share then the interest rate will
                be 15% per annum;

            o   If the 20 day VWAP is less than or equal to than C$0.0313 per Common Share then the
                interest rate will be 24% per annum; and

            o   If the 20 day VWAP is greater than C$0.0313 but less than C$0.05 per Common Share
                then the interest rate will be calculated as being between 15% and 24% per annum.

The foregoing amendments to the interest rate will only come into effect concurrently with the listing of
the Common Shares on the TSX Venture Exchange (the ?TSXV?), which listing is further discussed below.

In addition to the above, as a further condition precedent to the Supplemental Investec Loan, RCF is
required to subscribe for a further US$2 million of equity in Buffalo by way of a private placement (the
?Private Placement?). Pursuant to the Private Placement, RCF will acquire 72,272,480 Common Shares
(representing approximately 51% of the currently issued and outstanding Common Shares) at a price of
C$0.0367 per Common Share.

Following completion of the Private Placement and the RCF First Tranche Conversion, the Company will
have an aggregate of 269,253,247 Common Shares issued and outstanding (subject to certain
adjustments to give effect to the applicable exchange rate on the date of the RCF First Tranche
Conversion). Of these, RCF will hold an aggregate of 237,559,655 Common Shares, representing
approximately 88% of the then currently issued and outstanding Common Shares.
Completion of the Private Placement remains subject to execution of definitive documentation and
approval of the Toronto Stock Exchange (the ?TSX), as further discussed below.

Assuming TSX approval for the Private Placement is secured, it is currently anticipated that all
transactions contemplated herein, including the advance of the first tranche of the Supplemental
Investec Loan, the RCF First Tranche Conversion and the Private Placement, will take place during the
week of November 30, 2015.

Use of Proceeds

The Company intends to use the proceeds of the Private Placement and the Supplemental Investec Loan
to address its immediate liquidity concerns and for working capital requirements.

Financial Hardship Application

As the number of Common Shares issuable to an insider of the Company pursuant to the Private
Placement exceeds 10% of the currently issued and outstanding Common Shares, the Company would
ordinarily be required to obtain disinterested shareholder approval pursuant to the applicable policies of
the TSX. However, the Company has applied to the TSX, pursuant to the provisions of Section 604(e) of
the TSX Company Manual (the ?Manual?), for a ?financial hardship? exemption from the requirement to
obtain shareholder approval, on the basis that the Company is in serious financial difficulty.

The Company?s decision to rely on the financial hardship exemption in the Manual was made upon the
recommendation of a special committee (the ?Special Committee?) comprised of Messrs. Craig Wiggill,
Robert Francis, John Wallington and Edward Scholtz, each of whom is an independent member of the
board of directors of the Company (the ?Board?), free from interest in the Private Placement and
unrelated to the parties involved in the Private Placement. The Special Committee was established for
the purposes of reviewing the Private Placement and ascertaining whether it is reasonable for the
Company to proceed with such transaction in the circumstances.

After considering and reviewing all of the circumstances currently surrounding the Company and the
Private Placement (including (i) the Company?s current financial difficulties and immediate capital
requirements, (ii) the lack of alternate financing arrangements and the fact that the Supplemental
Investec Loan and the Private Placement are the only viable financing options at the present time, (iii)
the fact that the Private Placement is being conducted at market price) and all other relevant factors
available to the Special Committee, the Special Committee determined that (i) the Company is in serious
financial difficulty; (ii) the Private Placement is not subject to court approval, or a court has not ordered
that a transaction be effected, under bankruptcy or insolvency law or Section 191 of the Canada
Business Corporations Act or equivalent thereof; (iii) the members of the Special Committee are
independent directors in respect of the Private Placement and represent at least two-thirds of the
Company?s independent directors; (iv) the Private Placement is designed to improve the financial
condition of the Company; and (v) the terms of the Private Placement are reasonable in the
circumstances of the Company (collectively, the ?Special Committee Determinations?). As such, the
Special Committee recommended that the Company: (i) proceed with the Private Placement, and (ii)
given the immediate need for a capital infusion, apply for the financial hardship exemption (collectively,
the ?Special Committee Recommendations?).

The Board, relying in part on the recommendation of the Special Committee, unanimously agreed with
the Special Committee Determinations and adopted the Special Committee Recommendations.

There can be no assurance that the TSX will accept the application for the use of the financial hardship
exemption from the requirement to obtain shareholder approval for the Private Placement.

In addition, despite the transactions contemplated herein, the Company will not be in a position to meet
the continuous listing requirements of the TSX following completion of such transactions. As previously
announced, the Common Shares are expected to be delisted from the TSX on or about December 11,
2015. The Company has applied to list the Common Shares on the TSXV. Such listing process is ongoing
but there is no guarantee that such listing will be completed prior to the TSX delisting date or at all. The
Common Shares continue to be listed and posted for trading on the JSE, however, as previously
announced, the Company intends to make an application to the JSE to transfer its listing from the Main
Board of the JSE to the Alternative Exchange in order to maintain its JSE listing as a secondary listing to
the TSXV.

Background and Relevant Considerations

The Company has been through an extended period of financial difficulty caused in large part by
deteriorating market conditions. In recent years, coal producers in South Africa have experienced less
than optimal operating conditions resulting from both the continuing decline in the bituminous export
price and the significant weakening in the domestic anthracite market.

Although the Company has made significant efforts over the last few years to explore and secure
alternative financing options, appetite from the equity markets, from both existing and new investors
has been limited, aligned with the general market view on the risks of investing in the South African
junior coal sector under then and current market conditions. In addition to poor market conditions, the
South African political and regulatory environment specifically further limits the potential investor
audience, with risks in the existing regime outweighing the prospects of any returns. Further to the
above, the controlling stake by RCF makes it difficult to introduce new investors, particularly for the
smaller quantum of funding required relative to the funding RCF has already advanced. As noted above,
post-completion of the Private Placement and the RCF First Tranche Conversion, RCF will hold
approximately 88% of the issued and outstanding Common Shares. In addition, as further detailed in the
Company?s management information circular dated May 19, 2015, in the event that RCF decides to
convert the entire balance of the RCF Facility, RCF would hold approximately 95% of the then issued and
outstanding Common Shares.

In order to counteract the effect of such unfavourable market conditions, the Company has, since 2013,
undertaken a number of restructuring initiatives to support and turn-around the financial performance
of the business. This restructuring has taken place throughout the group, and has included the following
initiatives: (i) the closure of the entire Canadian head office and termination of certain service contracts
with senior management; (ii) completing various rounds of restructuring in the form of dismissals under
the South African Labour Relations Act; (iii) raising a total of US$29,000,000 from RCF; (iv) implementing
various cost cutting initiatives; (v) restructuring the existing Investec debt facility; and (vi) entering into a
contract mining arrangement with STA Coal Mining Company Proprietary Limited, as further described
in our press release dated October 29, 2015.

Despite these ongoing initiatives, the Company remains in a cash flow shortfall position and additional
funding is required to sustain and turn the business around.

Based upon the comprehensive review of the Company?s commitments, prospects and funding
requirements, the Board, including the Special Committee, has concluded that the Supplemental
Investec Loan and the Private Placement offer the only practical and timely financing solution to meet
the needs of the Company. In addition, the Board and management of the Company believe that
reliance upon the financial hardship exemption is a necessary route given the serious immediate
financial needs facing the Company.

Related Party Transaction Exemption

The Private Placement constitutes a related party transaction pursuant to Multilateral Instrument 61-
101 - Take-over Bids and Special Transactions (?MI 61-101?). The Company is exempt from the valuation
requirements of MI 61-101 on the basis that this transaction is a distribution of securities for cash within
the scope of Section 5.5(c) of MI 61-101. In addition, the Company intends to rely on the financial
hardship exemption under Section 5.7(e) of MI 61-101 from the requirements to obtain majority of
minority shareholder approval.

About Buffalo

Buffalo is a coal producer in southern Africa. It holds a majority interest in two operating mines through
its 100% interest in Buffalo Coal Dundee, a South African company which has a 70% interest in Zinoju.
Zinoju holds a 100% interest in the Magdalena bituminous mine and the Aviemore anthracite mine in
South Africa. Buffalo has an experienced coal-focused management team.

Cautionary Notes:

This press release contains ?forward-looking information? within the meaning of applicable Canadian
securities legislation. Forward-looking information includes, but is not limited to, statements with
respect to: (i) completion of the transactions described in this press release, including Working Capital
Facility, the Supplemental Investec Loan, the RCF Conversion and the Private Placement, on the terms
set out herein or at all, (ii) the timing of such proposed transactions, (iii) the proposed use of proceeds,
(iv) the timing of the delisting of the Common Shares from the TSX and the listing of the Common Shares
on the TSX Venture Exchange, and (v) the future financial or operating performance of Buffalo and its
projects. Generally, forward-looking information can be identified by the use of forward-looking
terminology such as ?plans?, ?expects? or ?does not expect?, ?is expected?, ?budget?, ?scheduled?,
?estimates?, ?forecasts?, ?intends?, ?anticipates? or ?does not anticipate?, or ?believes?, or variations of
such words and phrases or state that certain actions, events or results ?may?, ?could?, ?would?, ?might?
or ?will be taken?, ?occur? or ?be achieved?. Forward-looking information is subject to known and
unknown risks, uncertainties and other factors that may cause the actual results, level of activity,
performance or achievements of Buffalo to be materially different from those expressed or implied by
such forward-looking information, including but not limited to: general business, economic, competitive,
foreign operations, political and social uncertainties; a history of operating losses; delay or failure to
receive board or regulatory approvals; timing and availability of external financing on acceptable terms;
not realizing on the potential benefits of the proposed transaction; conclusions of economic evaluations;
changes in project parameters as plans continue to be refined; future prices of mineral products; failure
of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of
the mining industry; and, delays in obtaining governmental approvals or required financing or in the
completion of activities. Although Buffalo has attempted to identify important factors that could cause
actual results to differ materially from those contained in forward-looking information, there may be
other factors that cause results not to be as anticipated, estimated or intended. There can be no
assurance that such information will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements. Accordingly, readers should not place undue
reliance on forward-looking information. Buffalo does not undertake to update any forward-looking
information, except in accordance with applicable securities laws.


Malcolm Campbell                                              Sarah Williams
Chief Executive Officer                                       Chief Financial Officer
+27 82 924 4444                                               +27 83 781 1405
Email: malcolm.campbell@buffalocoal.co.za                     Email : sarah.williams@buffalocoal.co.za

25 November 2015


Questco Proprietary Limited

Date: 25/11/2015 04:30:00 Supplied by www.sharenet.co.za                     
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