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Buffalo Coal Corp - Condensed Interim Consolidated Financial Statements For The Three And Six Months Ended 30 June 2016

Release Date: 26/08/2016 09:20:00      Code(s): BUC     
BUFFALO COAL CORP.
Registration number: 001891261
External company registration number: 2011/011661/10
Share code on the TSX Venture Exchange: BUF
Share code on the JSE Limited: BUC
ISIN: CA1194421014
"Buffalo Coal" or "the Company"

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three and six months ended June 30, 2016 and June 30, 2015 (Presented in South African Rands)  



Condensed Interim Consolidated Statements of Financial position (Presented in South African Rands)  


                                                         June 30, 2016  December 31, 2015  June 30, 2016
                                                                                                 (Note 1)
                                                Notes                R                  R             C$
Assets
Non-current assets
Property, plant and equipment                              321 598 003        340 649 540     28 186 615
Investment in financial assets                              39 394 815         35 674 589      3 452 778
Deferred tax asset                                           2 508 829          1 743 492        219 888
Other receivables                                            4 111 786          4 099 242        360 380
Long-term restricted cash                                   11 200 000         11 200 000        981 630
Total non-current assets                                   378 813 433        393 366 863     33 201 291
Current assets
Trade and other receivables                                 74 763 573         75 633 197      6 552 690
Inventories                                                 49 922 402         42 225 872      4 375 473
Non-interest bearing receivables                             1 847 333          1 697 948        161 910
Cash and cash equivalents                                    9 647 505         20 365 446        845 560
Non-current assets held for sale                                     -         25 000 000              -
Total current assets                                       136 180 813        164 922 463     11 935 633
Total assets                                               514 994 246        558 289 326     45 136 924
Equity and liabilities
Capital and reserves
Share capital                                     4,5    1 061 182 607      1 038 096 502     93 007 871
Currency translation reserve                              (219 945 085)      (219 945 085)   (19 277 195)
Reserves                                                    15 841 114         16 726 895      1 388 402
Accumulated retained loss                               (1 052 367 600)    (1 055 512 401)   (92 235 276)
Equity attributable to owners of the company              (195 288 964)      (220 634 089)   (17 116 198)
Non-controlling interest                                     4 339 142          4 339 142        380 306
Total equity deficiency                                   (190 949 822)      (216 294 947)   (16 735 892)
Non-current liabilities
Borrowings                                          3      166 362 830        143 535 994     14 580 952
Warrant liability                                              721 152          2 144 609         63 206
RCF loan                                            4      293 618 598        299 753 845     25 734 346
Conversion option liability                         4       64 202 117        124 378 349      5 627 026
Asset retirement obligation                                 19 501 877         14 992 013      1 709 252
Total non-current liabilities                              544 406 574        584 804 810     47 714 782
Current liabilities
Trade and other payables                                   126 215 810        161 400 974     11 062 247
Current portion of borrowings                       3       30 000 000         25 714 284      2 629 365
Current tax liability                                        2 657 479                  -        232 916
Current portion of asset retirement obligation               2 664 205          2 664 205        233 506
Current liabilities                                        161 537 494        189 779 463     14 158 034
Total liabilities                                          705 944 068        774 584 273     61 872 816
Total equity deficiency and liabilities                    514 994 246        558 289 326     45 136 924

Commitments and contingencies                     1,7

Approved on behalf of the Board:

Signed, "Craig Wiggill" Director
Signed, "Robert Francis" Director

The accompanying notes are an integral part of the condensed interim consolidated financial statements.




Condensed Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income (Presented in South African Rands)  

                                                                        6 months                     3 months             6 months
                                                                           ended                        ended                ended
                                                                June 30,       June 30,       June 30,       June 30,      June 30,
                                                                   2016           2015           2016           2015          2016
                                                                                                                          (Note 1)
                                                                      R              R              R              R            C$
                                                    Notes
Revenue                                                     298 547 480    343 920 026    156 059 107    179 219 667    26 166 341
Cost of sales                                              (302 925 383)  (377 296 860)  (163 918 749)  (195 846 902)  (26 550 044)
Gross loss                                                   (4 377 903)   (33 376 834)    (7 859 642)   (16 627 235)     (383 703)
Other income/(expense) - net                           6     80 651 809    (42 718 303)    57 308 623    (47 151 622)    7 068 767
General and administration expenses                         (32 002 099)   (37 722 014)   (15 815 446)   (18 171 530)   (2 804 840)
Profit/(loss) before the undernoted                          44 271 807   (113 817 151)    33 633 535    (81 950 387)    3 880 224
Finance income                                                  811 010        842 714        379 854        546 978        71 080
Finance expense                                             (43 749 814)   (36 063 517)   (21 454 598)   (19 085 467)   (3 834 474)
Profit/(loss) before income tax                               1 333 003   (149 037 954)    12 558 791   (100 488 876)      116 830
Taxation                                                     (1 945 461)    26 710 145     (1 077 688)    12 133 057      (170 510)
(Loss)/profit for the period                                   (612 458)  (122 327 809)    11 481 103    (88 355 819)      (53 680)
Other comprehensive loss                                              -              -              -              -             -
Total comprehensive (loss)/profit for the period               (612 458)  (122 327 809)    11 481 103    (88 355 819)      (53 680)

Loss attributable to:
- Owners of the parent                                         (612 458)  (122 327 809)    11 481 103    (88 355 819)      (53 680)
- Non-controlling interest                                            -              -              -              -             -
                                                               (612 458)  (122 327 809)    11 481 103    (88 355 819)      (53 680)

Net (loss)/profit per share - basic and diluted                   (0,00)         (1,77)          0,03          (1,16)        (0,00)
Headline (loss)/profit per share - basic and diluted              (0,00)         (1,72)          0,03          (1,15)        (0,00)
Weighted average number of common shares outstanding:
- Basic                                                     316 411 592     69 088 164    339 409 951     76 138 298   316 411 592
- Diluted                                                   316 411 592     69 088 164    339 409 951     76 138 298   316 411 592

The accompanying notes are an integral part of the condensed interim consolidated financial statements.


Condensed Interim Consolidated Statements of Changes in Equity (Presented in South African Rands)  

                                                                                                         Attributable to owners of the Group
                                                                                                                       Reserves

                                                               No. of shares   Share capital       Option     Equity-settled           BEE      Accumulated         Currency         Total          Non-          Total 
                                                                      issued                      reserve       non-employee        option    retained loss      translation                 controlling         equity
                                                                                                            benefits reserve       reserve                           reserve                    interest 
                                                                                          R             R                  R             R                R                R              R            R              R
Balance at December 31, 2014                                      56 196 711    937 966 442    10 526 096                  -     9 073 711     (497 359 808)    (219 945 085)   240 261 356    4 339 142    244 600 498
Shares issued in relation to RCF convertible loan                 26 195 466     17 252 743             -                  -             -                -                -     17 252 743            -     17 252 743
Stock-based compensation                                                   -              -       491 840                  -             -                -                -        491 840            -        491 840
Stock options expired/cancelled                                            -              -    (3 377 351)                 -             -        3 377 351                -              -            -              -
Net loss for the period                                                    -              -             -                  -             -     (122 327 809)               -   (122 327 809)           -   (122 327 809)
Balance at June 30, 2015                                          82 392 177    955 219 185     7 640 585                  -     9 073 711     (616 310 266)    (219 945 085)   135 678 130    4 339 142    140 017 272
Shares issued in relation to RCF convertible 
loan and private placement to RCF                                192 811 872     80 547 732             -                  -             -                -                -     80 547 732            -     80 547 732
Shares issued to management and directors                          5 525 000      2 329 585             -                  -             -                -                -      2 329 585            -      2 329 585
Stock-based compensation                                                   -              -       307 309                  -             -                -                -        307 309            -        307 309
Stock options expired/cancelled                                            -              -      (294 710)                 -             -          294 710                -              -            -              -
Net loss for the period                                                    -              -             -                  -             -     (439 496 845)               -   (439 496 845)           -   (439 496 845)
Balance at December 31, 2015                                     280 729 049  1 038 096 502     7 653 184                  -     9 073 711   (1 055 512 401)    (219 945 085)  (220 634 089)   4 339 142   (216 294 947)
Shares issued in relation to RCF convertible loan                 57 000 240     19 600 805             -                  -             -                -                -     19 600 805            -     19 600 805
Shares issued to STA                                               6 136 353      3 485 300             -                  -             -                -                -      3 485 300            -      3 485 300
Stock-based compensation                                                   -              -       225 888          2 645 590             -                -                -      2 871 478            -      2 871 478
Stock options expired/cancelled                                            -              -    (3 757 259)                 -             -        3 757 259                -              -            -              -
Net loss for the period                                                    -              -             -                  -             -         (612 458)               -       (612 458)           -       (612 458)
Balance at June 30, 2016                                         343 865 642  1 061 182 607     4 121 813          2 645 590     9 073 711   (1 052 367 600)    (219 945 085)  (195 288 964)   4 339 142   (190 949 822)

The accompanying notes are an integral part of the condensed interim consolidated financial statements.



Condensed Interim Consolidated Statements of Cash Flow (Presented in South African Rands)  


                                                                            6 months ended

                                                                June 30, 2016 June 30,  2015  June 30, 2016
                                                                                                    (Note 1)
                                                                           R               R             C$
Cash flows from operating activities
Cash utilized in operations                                      (13 800 683)     (8 804 323)    (1 209 568)
Interest received                                                    811 010         842 714         71 080
Interest paid                                                    (10 501 052)     (6 414 577)      (920 369)
Taxation paid                                                       (286 018)        (96 149)       (25 068)
Net cash utilized in operating activities                        (23 776 743)    (14 472 335)    (2 083 925)
Cash flows from investing activities
Investment in financial assets                                    (2 559 158)     (2 444 277)      (224 299)
Purchase of property, plant and equipment                         (9 238 707)    (34 535 377)      (809 731)
Proceeds from the disposal of property, plant and equipment            6 053       5 500 000            530
Movement in non-interest bearing receivables                        (149 386)        (57 924)       (13 092)
Net cash utilized in investing activities                        (11 941 198)    (31 537 578)    (1 046 592)
Cash flows from financing activities
Proceeds from RCF convertible loan                                         -      57 656 620              -
Issuance costs related to the RCF convertible loan                         -        (134 250)             -
Drawdowns from working capital facility                           25 000 000               -      2 191 137
Net cash generated from financing activities                      25 000 000      57 522 370      2 191 137
Net (decrease)/increase in cash and cash equivalents             (10 717 941)     11 512 457       (939 380)
Cash and cash equivalents at the beginning of the period          20 365 446      12 120 081      1 784 940
Cash and cash equivalents at the end of the period                 9 647 505      23 632 538        845 560

The accompanying notes are an integral part of the condensed interim consolidated financial statements.


Notes to the Condensed Interim Consolidated Financial Statements For the periods ended June 30, 2016 and June 30, 2015

1 BASIS OF PREPARATION
The unaudited condensed interim consolidated financial statements (the "Interim Results") of Buffalo Coal Corp. ("BC Corp" or the "Company") and its subsidiaries (the "Group") for the periods ended June 30, 2016 and June 30, 2015 have
been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") and have been prepared in accordance
with accounting policies based on the IFRS standards and International Financial Reporting Interpretations Committee ("IFRIC") interpretations and are in compliance with IAS 34, Interim Financial Reporting.

The Interim Results have not been audited by the Group's external auditors. The Interim Results do not include all the information and disclosures required in the consolidated annual financial statements and should be read in conjunction
with the Group's consolidated annual financial statements for the year ended December 31, 2015, which have been prepared in accordance with IFRS. The Group has adopted the required new or revised accounting standards in the current 
period, as further set out in note 2 below, none of which had a material impact on the Group's results.

The preparation of the Interim Results requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. In
preparing these Interim Results, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated annual
financial statements for the year ended December 31, 2015.

References to "R", "Rands" mean South African Rands, "C$" mean Canadian Dollars and to "US$" mean United States Dollars.

Going Concern

The Interim Results have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Group will continue in operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations. Market conditions deteriorated significantly over the previous financial year necessitating the implementation of various restructurings at Buffalo Coal Dundee (Pty) Ltd
("BC Dundee") including two retrenchment processes and the conclusion of agreements with STA Coal Mining Company Proprietary Limited ("STA") during the financial year ended December 31, 2015. The arrangements with STA include the
provision of contract mining services by STA at Magdalena ("STA Contract Mining Agreement"), the sale of certain underground mining equipment to STA and an equity settlement arrangement ("STA Equity Settlement Agreement") in terms of
which a portion of the contract mining fees will be settled through the issuance of common shares of the Company ("Common Shares"), in order to alleviate cash flow pressures.  In addition, the Company secured additional funding from
Resource Capital Fund V L.P. ("RCF") and Investec Bank Limited ("Investec") in December 2015, of which the last tranche was drawn in March 2016.  Although the Company has implemented various restructuring initiatives, the company
continues to experience operational challenges. The Company remains dependent upon sustaining profitable levels of operation in the future to support working conditions and believes that subject to its ability to meet current
forecasts, it should be able to generate positive cash flows in the foreseeable future.

As at June 30, 2016, the Company had a shareholder's deficiency of R190.9 million (December 31, 2015: R216.3 million), a working capital deficiency of R22.7 million (December 31, 2015:  R47.2 million) and for the six month period ended
June 30, 2016, had a net loss of R0.6 million (June 30, 2015: R122.3 million). The Group was in breach of certain covenants with respect to its borrowings from Investec for which Investec has provided a waiver at June 30, 2016 as well
as a deferral of the capital repayment at that date.  There is no assurance that the Company will be able to meet its covenants in the future, or that Investec will provide future waivers or future deferrals, if required.  In addition,
RCF waived the settlement of interest owing for the quarter ended June 30, 2016.  These matters constitute material uncertainties which cast significant doubt as to whether the Group can continue as a going concern.

If the going concern assumption was not appropriate for the Interim Results of the Group then adjustments would be necessary to the carrying values of assets and liabilities, the reported revenues and expenses and the statement of
financial position classifications used.  Such adjustments could be material and adverse in nature.

Convenience rate translation

The Company's functional and presentation currency is Rands. The Canadian Dollar amounts provided in the Interim Results represent supplementary information solely for the convenience of the reader. The financial position as of 
June 30, 2016 and the financial results for the six months ended June 30, 2016 were translated into Canadian Dollars using a convenience translation at the rate of C$1:R11.4096, which is the exchange rate published on Oanda.com as 
of June 30, 2016. Such presentation is not in accordance with IFRS and should not be construed as a representation that the Rand amounts shown could be readily converted, realized or settled in Canadian Dollars at this or at any 
other rate.

2 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
The following standards, amendments and interpretations are issued and effective for the first time for the period ended June 30, 2016:

IFRS 11 - 'Joint Arrangements'
IFRS 11 was amended in May 2014 to require business combination accounting to be applied to acquisitions of interests in a joint operation that constitute a business.  The amendment did not have a significant impact on the Group.

IAS 1 - 'Presentation of Financial Statements'
IAS 1 was amended in December 2014 in order to clarify, among other things, that useful information should not be obscured by aggregating or disaggregating that information and that materiality considerations apply to all parts of the
financial statements and that even when a standard requires a specific disclosure, materiality considerations do apply. The amendment did not have a significant impact on the Group.

IAS 27 - 'Separate Financial Statements'
IAS 27 was amended in August 2014 to reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. The amendment did not have a
significant impact on the Group.

Amendments to IAS 16 - 'Property, Plant and Equipment', and IAS 38 - 'Intangible Assets' - Clarification of Acceptable Methods of Depreciation and Amortization
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis
for amortization of an intangible asset. The presumption can only be rebutted in the following two limited circumstances: when the intangible asset is expressed as a measure of revenue; or when it can be demonstrated that revenue and
consumption of the economic benefits of the intangible asset are highly correlated.

Currently, the Group uses the straight-line or units of production method for depreciating its property, plant and equipment. The application of these amendments did not have a material impact on the Group.

Annual Improvements to IFRSs 2012-2014 Cycle:

IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations' - The amendments introduce specific guidance for when an entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or
vice versa).  The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply.  The amendments
also clarify the guidance for when held for distribution accounting is discontinued.

IFRS 7, 'Financial Instruments: Disclosures'- The amendments provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation
to transferred assets.

A further amendment removes the phrase 'and interim periods within those annual periods', clarifying that these IFRS 7 disclosures are not required in the condensed interim financial report.  However, IAS 34 requires an entity to
disclose 'an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period'.  Therefore, if the IFRS
7 disclosures provide a significant update to the information reported in the most recent annual report, it would be expected that the disclosures be included in the entity's condensed interim financial report.

IAS 19, 'Employee Benefits' - The amendments clarify that the rate used to discount post-employment benefits obligations should be determined by reference to market yields at the end of the reporting period on high quality corporate
bonds.  The assessment of the depth of a market for high quality corporate bonds should be at the currency level (i.e. the same currency in which the benefits are to be paid).  For currencies for which there is no deep market in such
high quality corporate bonds, the market yields at the end of the reporting period on government bonds denominated in that currency should be used instead.

IAS 34, 'Interim Financial Reporting'- The amendment states that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and
wherever they are included within the greater interim financial report (e.g. in the management commentary or risk report).

The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. If users do not have access to the other information in this manner, then
the interim financial report is incomplete.

The application of these amendments did not have a significant impact on the Group.

3 INVESTEC BORROWINGS

On December 2, 2015, BC Corp closed a second amended and restated term loan and revolving credit facility with Investec ("Second Amended Investec Agreement"), whereby Investec agreed to extend BC Dundee's working capital facility from
R30.0 million to R80.0 million, in two tranches of R25.0 million each. The conditions to the first tranche, which included the conclusion of the funding arrangements with Resource Capital Fund V L.P. ("RCF"), were fulfilled on signing
of the Second Amended Investec Agreement, and R25.0 million was drawn by BC Dundee from the facility in December 2015.  The second tranche remained subject to the Company demonstrating its plan to sell the majority of its anthracite
stockpile, which built-up as a result of depressed markets both domestically and globally. The condition was fulfilled to Investec's satisfaction during Q1 2016 and R25.0 million was drawn by BC Dundee in March 2016.

Due to continued cash constraints, Investec was approached during the first quarter of 2016 for a deferral of the term loan facility repayment due on March 31, 2016.  On March 31, 2016, BC Dundee entered into a fourth amendment to the
Investec term loan and revolving credit agreement in terms of which the repayment schedule for the term loan facility was replaced with a new schedule with principal repayments commencing on June 30, 2016.  In addition, surplus cash at
quarter-end in excess of R30.0 million will be used to reduce the R80.0 million working capital facility back to R30.0 million and a clause was included restricting outflows of funds from BC Dundee to BC Corp between April 1, 2016 and
June 30, 2016, unless prior written consent was obtained from Investec.

Investec was again approached for a deferral of the term loan facility repayment due on June 30, 2016.  On June 30, 2016, BC Dundee entered into a fifth amendment to the term loan and revolving credit agreement in terms of which the
repayment schedule for the term loan facility was replaced with a new schedule with principal repayments commencing on September 30, 2016.  Investec has extended the restriction on the outflows of funds from BC Dundee to BC Corp to
September 30, 2016, unless prior written consent is obtained from Investec.

BC Dundee was required to meet specified debt covenants at March 31, 2016 and June 30, 2016 and was in breach of certain of these covenants at these dates.  Upon breach, Investec is entitled to request early payment of the outstanding
debt, however when it became apparent that the covenants were to be breached, Investec was approached and has waived the breach of the covenants as at March 31, 2016 and June 30, 2016.

Current borrowings of R30.0 million comprise capital repayments of R7.5 million per quarter for the next 12 months.

4 RCF LOAN

On April 6, 2016, the Company issued Common Shares to RCF in settlement of interest owing on the RCF convertible loan for the period January 1, 2016 to March 31, 2016. An additional 42 009 840 Common Shares were issued at C$0.05.

RCF waived the settlement of interest owing for the quarter ended June 30, 2016 and waived any event of default as a result of not settling the interest owing.  The interest will continue to accrue and will become due and payable at
September 30, 2016.

5 ISSUANCE OF COMMON SHARES TO STA

On April 25, 2016 and July 8, 2016, the Company issued shares to STA Coal Mining Company Proprietary Limited ("STA") pursuant to an equity settlement agreement entered into with STA during the financial year ended December 31, 2015. An
additional 6 136 353 and 4 459 284 Common Shares were issued at C$0.05 respectively.

6 OTHER INCOME/(EXPENSE) - NET

                                                                         6 months ended                  3 months ended           6 months ended
                                                                   June 30, 2016   June 30, 2015   June 30, 2016   June 30, 2015   June 30, 2016
                                                                                                                                        (Note 1)
                                                                               R               R               R               R              C$
Foreign exchange gain/(loss) - net                                    12 867 018      (3 306 946)        330 354      (2 868 345)      1 127 736
Fair value adjustment on financial assets                              1 157 079         898 616          43 957        (161 063)        101 413
Fair value adjustment on conversion option and warrant liability      65 107 090      71 520 530      56 264 463      65 704 454       5 706 343
Loss on extinguishment of debt                                                 -    (111 842 506)              -    (111 842 506)              -
Other income                                                           1 520 622          12 003         669 849       2 015 838         133 275
                                                                      80 651 809     (42 718 303)     57 308 623     (47 151 622)      7 068 767

7 COMMITMENTS AND CONTINGENCIES

Management Contracts

Certain management contracts require that payments of approximately R13.4 million be made upon the occurrence of a change of control, other than a change of control attributable to RCF. As no triggering event has taken place, no
provision has been recognized as of June 30, 2016.

During the year ended December 31, 2015, the Company entered into a retention agreement with key management personnel.  The agreement provides for a minimum commitment of R5.8 million until December 31, 2016.

STA Contract Mining Agreement

In terms of the STA Contract Mining Agreement, STA is mining four sections at Magdalena at a fixed contract mining fee per ton, effective October 31, 2015. The STA Contract Mining Agreement has a three year term, and the option for a
further two year extension if agreed to by all parties. In terms of the STA Equity Settlement Agreement, a portion of the contract mining fees will be settled in Common Shares, in order to alleviate cash flow pressures.

The STA Contract Mining agreement can be terminated on 60 days notice for which period the Company will be liable for payment for the tons mined at the fixed rate per ton.

Capital Commitments

Capital expenditures contracted for at the statement of financial position date but not recognized in the Interim Results are as follows:

                                 June 30, 2016   December 31, 2015  June 30, 2016
                                             R                   R             C$
Property, plant and equipment        4 778 672           1 754 679        418 829


Environmental and Regulatory Contingency

The Company's mining and exploration activities are subject to various laws and regulations governing the environment and mine operations.  These laws and regulations are continually changing and generally becoming more restrictive.
The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to continue to comply with such laws and regulations.

Outstanding Legal Proceedings

On March 20, 2015, the Association of Mineworkers and Construction Union ("AMCU") brought an application against BC Dundee and Zinoju Coal (Pty) Ltd ("Zinoju") in the Labour Court of South Africa pertaining to the retrenchment process
undertaken in terms of Section 189A of the South Africa Labour Relations Act ("LRA") which was concluded in March 2015. The matter was heard by the Labour Court on April 14, 2015, and on April 24, 2015, the Labour Court dismissed the
application brought by AMCU with costs. AMCU appealed the judgment and the appeal was heard by the Labour Appeal Court on November 4, 2015. On May 11, 2016, the Labour Appeal Court dismissed AMCU's appeal with no order as to costs.
This matter is now closed.

On April 20, 2015, the trustees of the Avemore Trust brought an application in the High Court of South Africa against, among others, the South African Minister of Mineral Resources ("the Minister"), BC Dundee and Zinoju in respect of
Mining Right 174 ("MR174"). In terms of the application, the trustees of the Avemore Trust challenged the decision by the Minister, subsequent to an internal appeal process concluded during September 2014, to grant a converted mining
right to BC Dundee and to grant consent for the cession of the converted mining right to Zinoju. There have been various settlement offers between the parties, but should settlement not be reached, BC Dundee and Zinoju intend to oppose
the application.  The Company's external legal team, including senior counsel have advised of a defendable case in terms of Avemore Trust's approach to the matter.  The legal process on this matter is currently ongoing.

On August 27, 2015, notice was received from the Minister that Mining Right 301 ("MR301") had been withdrawn together with the approval by the Regional Manager of the Environmental Management Plan in respect of MR301 (the "Ministerial
Decision").  The reasons given by the Minister for the Ministerial Decision are procedural issues in respect of the award process, in relation to an objection received from Avemore Trust in October 2013 against the awarding of the
right.  On September 15, 2015, an urgent court order was granted, pending final determination, for the Ministerial Decision to be of no force and effect, to interdict the Minister from awarding MR301 to any other party and for the
Company to continue to mine in terms of MR301. A review application was instituted by the Company in October 2015 to obtain final relief in the form of an order setting aside the Ministerial Decision. On March 23, 2016, Avemore Trust
filed a counter application for the Ministerial Decision to be remitted for consideration by the Minister.  The Company's external legal team, including senior counsel have indicated a strong likelihood of the review application being
successful. The legal process on this matter is currently ongoing.

South African Revenue Service ("SARS") Correspondence

During Q2 2016, BC Dundee received a letter of demand from SARS with regards to an investigation conducted by them on diesel refunds claimed by BC Dundee under the South African Customs and Excise Act, 91 of 1964. As per the
notification, the SARS Commissioner has disallowed diesel refunds in the amount of R13.8 million (including interest) for the period December 2012 to February 2016. The Company has disputed the disallowance of diesel refunds and
believes it has a defendable case.

Subsequent to June 30, 2016, Zinoju received correspondence from SARS after conducting an audit of the 2012 to 2014 tax returns, intending to disallow an expense claimed in the 2012 tax return. The total exposure is R3.0 million plus
penalties and interest. SARS has given until August 31, 2016 to respond.

8 SUBSEQUENT EVENTS

TSXV Delisting Review
In January 2016, the Company was notified by the Compliance and Disclosure Department of the TSXV that it has been placed on notice for transfer to the NEX Board of the TSXV ("NEX") for failure to meet the public float continued
listing requirements of the TSXV. On July 13, 2016, the Company received notice from the TSXV that it had met the continued listing requirements of the exchange and that the TSXV had withdrawn the notice of transfer to the NEX.

Resignation of Director and Officers

On July 4, 2016, the Company announced the resignation of Mr. John Wallington as director of the Company, effective July 3, 2016.

On July 26, 2016, the Company announced the resignation of Mr. Malcolm Campbell as Chief Executive Officer and Ms. Sarah Williams as Chief Financial Officer and Corporate Secretary of the Company. Mr. Campbell and Ms. Williams will
continue in their current roles for a period of up to three months to facilitate the implementation of an orderly succession plan.

Other Matters

Except for the matters discussed above, no other matters which management believes are material to the financial affairs of the Company have occurred between the statement of financial position date and the date of approval of the
Interim Results.

Sponsor: Questco Proprietary Limited


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