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Buffalo Coal Corp - Managements Discussion And Analysis For The Three And Nine Months Ended September 30 2016

Release Date: 30/11/2016 14:25:00      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"

INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS - QUARTERLY HIGHLIGHTS 
For the three and nine months ended September 30, 2016
(Presented in South African Rands)

BASIS OF PREPARATION

The following Interim Management's Discussion and Analysis - Quarterly Highlights ("Interim MD&A") relates to the financial position and results of operations of Buffalo Coal Corp. and its
subsidiaries ("our", "BC Corp", the "Company" or collectively the "Group") for the three and nine months ended September 30, 2016 and should be read in conjunction with the audited annual
consolidated financial statements for the years ended December 31, 2015 and  December 31, 2014, the Management's Discussion and Analysis for the year ended December 31, 2015 and the unaudited
condensed interim consolidated financial statements for the three and nine months ended  September 30, 2016. The condensed interim consolidated financial statements ("Interim Results") and
related notes have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are in compliance with IAS 34, Interim Financial Reporting. Certain non-IFRS measures
are discussed in this Interim MD&A which are clearly disclosed as such. Additional information and press releases have been filed electronically through the System for Electronic Document
Analysis and Retrieval ("SEDAR") and are available online under the Buffalo Coal Corp. profile at www.sedar.com.

This Interim MD&A reports our activities through November 29, 2016 unless otherwise indicated. References to FY2016 refer to the financial year ending December 31, 2016 and FY2015 refers to the
financial year ended  December 31, 2015. References to Q3 2016, Q2 2016 and Q1 2016 refer to the three months ended September 30, 2016, June 30, 2016 and March 31, 2016 and Q3 2015 refers to the
three months ended September 30, 2015.

Unless otherwise noted all amounts are recorded in South African Rands ("R" or "Rands"). References to "C$" mean Canadian Dollars and to "US$" mean United States Dollars. Amounts stated in
Canadian Dollars or US Dollars are translated at the date of transaction, unless otherwise stated. These other amounts stated in Canadian Dollars were translated at C$1:R10.5482 and amounts in US
Dollars were translated at US$1:R13.863.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Interim MD&A contains forward-looking information under Canadian securities legislation. Forward-looking information includes, but is not limited to, information with respect to the
Company's expected production from, and further potential of, the Company's properties; financial and operational planning and strategic goals; the Company's ability to raise additional funds;
the timing and amount of advances under existing loan facilities; the future price of minerals, particularly coal and overall market conditions for resource issuers; the estimation of mineral
reserves and mineral resources; conclusions of economic evaluations; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production;
capital expenditures; success of exploration activities; mining or processing issues; currency exchange rates; government regulation of mining operations; labour relations and future collective
agreements; and environmental risks. In general, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "budget",
"scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or
results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on the opinions, estimates and assumptions of management as of the date
such statements are made and the Company can give no assurance that such opinions, estimates and assumptions are correct. Estimates regarding the anticipated timing, amount and cost of
exploration, and development and production activities are based on assumptions underlying mineral reserve and mineral resource estimates and the realization of such estimates. Capital and
operating cost estimates are based on extensive research of the Company, purchase orders placed by the Company to date, recent mining costs and other factors.

Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include: risks relating to the requirement for additional
capital; production estimate risks; the price of coal; labour and employment risks; cost estimate risks; mineral legislation risks; title to mineral holdings risks; power supply risks; risks
relating to the depletion of mineral reserves; litigation risks; South Africa country risks; infrastructure risks; environmental risks and other hazards; risks relating to dependence on key
personnel; dependence on outside parties; exploration and development risks; risks relating to foreign mining tax regimes; insurance and uninsured risks; competition risks; the Company's
securities may experience price volatility; risks relating to owning foreign assets; currency fluctuation risks; and the Company's directors and officers may have conflicts of interests. Although
management of the Company 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 information. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any
forward-looking information, except in accordance with applicable securities laws.

OVERVIEW OF THE COMPANY

BC Corp is a coal mining and supply company operating in South Africa. The Company is listed on the TSX Venture Exchange ("TSXV") and the Alternative Exchange ("AltX") operated by JSE Limited
("JSE"). BC Corp trades under the symbol "BUF" on the TSXV and "BUC" on the AltX.

The Company owns 100% of the shares in Buffalo Coal Dundee Proprietary Limited ("BC Dundee"), a South African company, with an interest in two operating coal mines in South Africa ("BC Dundee
Properties"). The BC Dundee Properties comprise the Magdalena bituminous mine ("Magdalena") and the Aviemore anthracite mine ("Aviemore").  BC Dundee's Magdalena opencast operation reached the
end of its life in March 2015 and the Group is now engaged only in underground coal mining.  BC Dundee indirectly holds a 70% interest in the BC Dundee Properties through its 70% interest in
Zinoju Coal Proprietary Limited ("Zinoju"), which holds all of the mineral rights with respect to the BC Dundee Properties. The remaining 30% interest in Zinoju is held by South African Black
Economic Empowerment ("BEE") partners.

OVERVIEW OF THE PERIOD AND OUTLOOK FOR THE GROUP

Markets

The Group supplies high quality bituminous coal and anthracite to both the export and domestic markets.

Bituminous

The API 4 coal index, the benchmark pricing index for coal exports meeting the RB1 specification, is currently at levels of around US$85 per tonne and has steadily increased from US$51 per tonne
since the beginning of 2016. The short-to-medium term outlook for the API 4 coal price index is in contango (source IHS/McCloskey). Currently the majority of the Company's export bituminous
contracts are priced in fixed Rand terms and are expected to be completed towards the end of 2016.

Anthracite

The domestic anthracite market remains weak in terms of demand and is expected to remain depressed throughout 2016. During Q1 2016 the Group negotiated a short-term blended anthracite and
bituminous contract with a major export customer, as well as a contract for sized anthracite. Furthermore, during Q2 2016 and Q3 2016 the Group secured additional contracts for sized anthracite
products, the first of which started railing in Q3 2016. These contracts will reduce the existing built-up anthracite stockpiles. The Group continues to pursue various marketing opportunities for
all anthracite and calcine products with a number of parties, although at reduced prices when compared to historic levels.

Investec Bank Limited ("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 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 was to 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. To date, no cash has been swept to reduce the working
capital facility.

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
extended the restriction on the outflows of funds from BC Dundee to BC Corp to September 30, 2016, unless prior written consent was obtained from Investec.

On September 30, 2016 the company made the first term loan facility repayment of R7.5 million.

BC Dundee was required to meet specified debt covenants at March 31, 2016, June 30, 2016 and September 30, 2016 and was in breach of certain of these covenants at these dates. Such breach
constitutes an event of default under the debt agreement whereby, 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 waived the breach of the covenants as at March 31, 2016 and June 30, 2016. With respect to the period ending September 30, 2016, the breached
undertakings and resultant event of default continue. On November 22, 2016, Investec provided a forbearance letter stating that it does not intend to exercise its rights to request early payment
of the outstanding debt; however, it has reserved its right to review this decision periodically, with no obligation to keep the Company advised in this regard.

Due to Investec being entitled to request early payment of the outstanding debt, as a result of the breach in covenants referred to preceding, management has determined that the total Investec
debt of R183.7 million be classified as current borrowings.

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 (R0.53).

Effective September 30, 2016, the Company entered into an amended convertible loan agreement with RCF (the "2016 Amendment"), the terms of which were substantially agreed upon on September 30,
2016. In terms of the 2016 Amendment, RCF agreed to an interest holiday beginning July 1, 2016, with a reduction in the interest rate to 1.29% during the interest holiday period.

In accordance with IAS 39, Financial Instruments: Recognition and Measurement, the terms of the 2016 Amendment were considered substantially different to the RCF convertible loan agreement, as
amended on December 2, 2015. Consequently, IAS 39 required an extinguishment of the RCF convertible loan and the recognition of a new financial liability. A resultant loss on extinguishment of
debt of R50.6 million was recognized during the period, which had no cash flow impact on the Group.

The new financial liability has again been recognized in two parts, a component liability and a conversion option liability. An embedded derivative exists due to the RCF convertible loan being
denominated in US Dollars, the conversion feature being exercisable in Canadian Dollars and the functional currency of BC Corp being Rands. The new component liability will be accreted to its
face value of US$27 million (approximately R374.3 million) using the effective interest rate method at 5.3%. The carrying value of the conversion option liability was obtained using the Black-
Scholes option pricing model and the following assumptions: expected volatility of 94.3%, life of 2.75 years, risk-free interest rate of 0.51% and expected dividend yield of 0%.

Issuance of Common Shares to STA Coal Mining Company Proprietary Limited ("STA")

On April 25, 2016 and July 8, 2016, the Company issued shares to STA pursuant to an equity settlement agreement entered into with STA in FY2015 ("STA Equity Settlement Agreement"). An additional
6 136 353 and 4 459 284 Common Shares were issued at C$0.05 (R0.53) respectively.

TSXV Delisting Review

In January 2016, the Company was notified by the Compliance and Disclosure Department of the TSXV that it had 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.

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.

During Q3 2016, Zinoju received correspondence from SARS after conducting an audit of the 2012 to 2014 tax returns, disallowing an expense claimed in the 2012 tax return. The total exposure is
approximately R3.0 million plus penalties of R1.5 million and interest. The company has raised an objection to SARS disputing the penalties and interest levied and is awaiting feedback from SARS.

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.

Appointment of Officers

On October 13, 2016, the Company announced the appointment of Mr. Rowan Karstel as Interim Chief Executive Officer and Mr. Graham du Preez as Interim Chief Financial Officer and Corporate
Secretary of the Company.

CONSOLIDATED OPERATIONAL RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015

The operational highlights for the quarter ended September 30, 2016 compared to the quarters ended September 30, 2015 and June 30, 2016 are presented below. The Group achieved run of mine ("ROM")
production of 401kt, saleable production (excluding calcine) of 249kt and sales of 247kt for the quarter ended September 30, 2016.

                                                          9 months ended                                    3 months ended
Operational results                          September 30,2016  September 30, 2015  September 30, 2016  September 30, 2015  June 30, 2016
ROM (t)                                              1 194 174           1 403 678             401 440             408 570        415 655
- Aviemore (t)                                         366 079             364 929             121 342             124 563        126 386
- Magdalena (t)                                        828 095           1 038 749             280 098             284 007        289 269

Saleable production (excluding calcine) (t)            726 656             780 013             248 660             261 953        248 511
- Anthracite (t)                                       265 912             229 523              83 384              79 288         94 979
- Bituminous (t)                                       460 744             550 490             165 276             182 665        153 532

Yield on plant feed (excluding calcine) (%)              60,5%               55,4%               62,2%               57,1%          60,6%
- Anthracite (%)                                         70,0%               63,2%               69,0%               66,9%          72,7%
- Bituminous (%)                                         56,6%               53,7%               59,3%               53,7%          55,0%

Sales (t)                                              673 460             765 154             247 200             243 131        228 508
- Anthracite (t)                                       225 423             167 833              86 131              47 475         79 726
- Bituminous (t)                                       430 949             570 769             152 206             188 688        144 847
- Calcine (t)                                           17 088              26 552               8 863               6 968          3 935

Saleable inventory tons (t)                             80 038              67 429              80 038              67 429        100 859
- Anthracite (t)                                        69 413              57 498              69 413              57 498         83 980
- Bituminous (t)                                         9 708               8 550               9 708               8 550         15 020
- Calcine (t)                                              917               1 381                 917               1 381          1 859


An analysis of the operational results for the quarter ended September 30, 2016 compared to the quarter ended September 30, 2015 is discussed below:

ROM Production

Total ROM production for Q3 2016 was 401kt compared to 409kt produced in Q3 2015, a decrease of 1.8%.

ROM production from Magdalena underground for Q3 2016 was 280kt compared to 284kt produced in Q3 2015, a decrease of 1.4%. The production was impacted by difficult mining conditions and pitroom
constraints encountered during Q3 2016.

ROM production from Aviemore for Q3 2016 was 121kt compared to 125kt produced in Q3 2015, a decrease of 2.6%. The mine lost production after the Department of Mineral Resources put the mine on
stop for two days after a fall of ground occurred which resulted in a Lost Time Injury ("LTI").

Saleable Production

Saleable coal production for Q3 2016 was 249kt (excluding calcine) compared to 262kt in Q3 2015, a decrease of 5.1%. This is due to bituminous ROM stock that built up during Q2 2015, that had to
be washed during Q3 2015, as well as the decrease in ROM production, offset by an improved yield achieved.

Saleable calcine product was 7.7kt for Q3 2016 compared to 7.8kt in Q3 2015, a decrease of 2.0%.

The total calculated yield from plant feed was 62.2% for Q3 2016 compared to 57.1% for Q3 2015. The increase in the yield is due to an improved yield achieved on anthracite and bituminous due to
the optimisation of the densities at the wash plants.

Sales

Total sales of bituminous coal and anthracite products for Q3 2016 were 247kt compared to 243kt sold in Q3 2015, an increase of 1.7%.

Bituminous sales for Q3 2016 were 152kt, of which 54.6% were export sales and 45.4% were domestic sales compared to 189kt sold in Q3 2015 of which 59.3% were export sales and 40.7% were domestic
sales, a decrease of 19.3% which is mainly as a result of the decrease in the bituminous production.

Anthracite sales (including calcine) for Q3 2016 were 95kt, of which 78.5% were export sales and 21.5% were domestic sales compared to 54kt sold in Q3 2015 of which 72.7% were export sales and
27.3% were domestic sales, an increase of 74.5%. The increase in anthracite sales is mainly as a result of the conclusion of a bituminous/anthracite blend as well as sized anthracite contracts
with an export customer. Domestic sales demand remains depressed, and the Company continues to negotiate with export customers to maintain and improve sales levels.
Health and Safety

The Group runs an integrated Safety, Health and Environment ("SHE") management system, established using the OHSAS18001 and ISO14001 frameworks as well as minimum standards, and fully supports
the co-existence of safety, occupational health and the environment within which the Group operates, in order to ensure compliance and to work towards the achievement of zero harm. The Group
values the contribution of a safe and healthy workforce to its overall productivity and is continually striving towards an incident and injury free workplace. The Group undertakes training and
development initiatives and related ventures on a regular basis in order to improve each individual's outlook on safety, health and the environment. The Group currently employs 565 employees, and
has 376 contractors on site.

The Group has achieved more than five thousand fatality free production shifts at Magdalena, six thousand fatality free production shifts at the Coalfields wash plant as well as one thousand
fatality free production shifts at Aviemore Colliery. The last fatality recorded for both Magdalena and Coalfields was in 2004. Aviemore had one fatal incident during September 2014.

The Group's safety performance has been disappointing, with ten LTIs having been reported to the date of this Interim MD&A, compared to four accidents for FY2015. Accidents were related to
isolation and lock, maintenance of trackless mobile machinery, inadherence to blasting procedures as well as poor roof conditions with subsequent fall of ground incidents. Some system changes
have since been effected in order to prevent any such or similar incidents in future. More effort has been placed on the training of people. This is aligned with the campaign of putting people
first, placing more focus on human capital in order to achieve more favourable safety performance. In addition to safety training, there is a strong focus on leading indicator reporting, focusing
on incident reporting (good practices and high potential incidents) as well as quality Planned Task Observations ("PTOs"), daily tool box talks and risk assessments.

The Group aims to improve its current performance record through supervision and monitoring of leading indicators as well as through the application of zero tolerance on unsafe conditions and
unsafe acts, drug and alcohol testing, fatigue management and awareness and visibility of management in the field.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015


                                                                                  9 months ended                                    3 months ended
Financial results                                                    September 30, 2016  September 30, 2015  September 30,2016  September 30, 2015  June 30,2016
Revenue (R'millions)                                                              476,7               503,8              178,1               159,9         156,1
Net Revenue (R'millions) (*)                                                      460,2               462,4              172,3               146,8         149,7
Adjusted EBITDA (R'millions) (*)                                                   12,1               (56,7)              13,6               (24,2)         (6,1)

Average selling price per tonne sold (R)                                            708                 658                721                 658           683
Cash cost of sales per tonne (R)                                                    624                 665                608                 696           644

Cash from/(utilized in) operating activities (R'millions)                           3,7               (12,5)              27,5                 2,0          (6,0)
Cash utilized in investing activities (R'millions)                                (16,9)              (43,0)              (4,9)              (11,5)         (5,5)
Cash generated from/(utilized in) financing activities (R'millions)                10,7                58,6              (14,3)                1,1           0,0

CAD:ZAR (average)                                                                 11,32                9,74              10,80                9,93         11,64
USD:ZAR (average)                                                                 14,97               12,27              14,09               12,98         15,01
* See Non-IFRS Performance Measures section of this Interim MD&A.

An analysis of the financial results for the quarter ended September 30, 2016 compared to the quarter ended September 30, 2015 is discussed below:

Net Revenue

The Group restructured several of its offtake contracts during Q1 2016 from a free on board shipping ("FOB") basis to short-term Rand denominated free carrier ("FCA") contracts, resulting in
revenue not being directly comparable quarter on quarter. The Group has therefore compared net revenue after railage, port handling and wharfage costs, which has been defined under the Non-IFRS
Performance Measures section of this Interim MD&A. Net revenues earned during Q3 2016 were R172.3 million compared to R146.8 million earned during Q3 2015, an increase of 17.3%. During Q3 2016,
the Group's sales tonnes were 247kt compared to sales of 243kt for Q3 2015.

Net bituminous revenue for Q3 2016 was R104.4 million, of which R48.7 million was domestic (69kt) and R55.7 million was export (83kt), compared to R113.4 million in Q3 2015, of which R52.5
million was domestic (77kt) and  R60.9 million was export (112kt), a decrease of 8.1%.

Net anthracite revenue (including calcine) for Q3 2016 was R67.9 million, of which R21.4 million was domestic (20kt) and R46.5 million was export (75kt), compared to R33.4 million in Q3 2015, of
which R16.5 million was domestic (15kt) and R16.9 million was export (40kt), an increase of 103.3%.
The increase in net revenue for Q3 2016 compared to Q3 2015 is primarily due to the conclusions of the blended anthracite and bituminous as well as sized anthracite contracts, as well as sales
being conducted at higher prices.

Average selling prices for Q3 2016 were R721 per tonne compared to an average selling price of R658 per tonne for Q3 2015. In Q3 2016, the overall selling price per tonne improved due to the
negotiations of new contracts with the Group's significant export customers.

Cost of Sales

Cost of sales for Q3 2016 was R166.7 million (cash cost of sales of R608 per tonne sold) compared to R189.4 million (cash cost of sales of R696 per tonne sold) for Q3 2015, a decrease of 12.6%
per tonne sold. The Group has succeeded in reducing fixed costs as a result of restructuring initiatives and continues to be cost conscious in ensuring expenditure is kept to a minimum in order
to ensure the sustainability of the Group. Mining contractor fees increased by R14.8 million due to the introduction of STA as a mining contractor, offset by a decrease in salaries and wages by
R7.4 million due to the restructurings implemented during the prior year. Railage, port handling and wharfage costs decreased by R7.1 million, which was due to the restructuring of several
offtake contracts from a FOB to FCA basis.

Cost of sales includes mining and processing costs, salaries and wages, depreciation, transportation, railage, port handling and wharfage costs.

General and administration expenses

The Company recorded general and administration expenses of R15.5 million during Q3 2016 compared to R15.8 million during Q3 2015, a 1.9% decrease quarter on quarter. The expenses include
general and administration expenses relating to BC Dundee's head office at Coalfields and the Company's corporate office in Johannesburg including Canadian expenses.

Other Income/(Expense) - net

During Q3 2016 the Group recorded net other expenses amounting to R7.8 million compared to net other expenses of R148.1 million during Q3 2015, a decrease of 94.8%. Other income and expense
comprises of profit on sale of assets, foreign exchange gains/losses, discounts received, commissions paid, loss on extinguishment of debt and fair value adjustments on financial assets and
conversion option liabilities.

The Company recorded a fair value adjustment gain of R21.9 million for Q3 2016 with regards to the valuation of the conversion option liability (RCF convertible loan), the warrant liability
(Investec warrants) and financial assets compared to a gain of R16.2 million recorded in Q3 2015.

A net foreign currency exchange profit of R19.8 million was recorded in Q3 2016 compared to a R30.9 million loss recorded in Q3 2015.

In accordance with IAS 39, Financial Instruments: Recognition and Measurement, the terms of the 2016 Amendment to the RCF loan were considered substantially different to the RCF convertible loan
agreement, as amended on December 2, 2015. Consequently, IAS 39 required an extinguishment of the RCF convertible loan and the recognition of a new financial liability. A resultant loss on
extinguishment of debt of R50.6 million was recognized during the period, which had no cash flow impact on the Group.

As of September 30, 2015, the Company was in negotiations to sell two continuous miners to STA. The carrying value of the two continuous miners exceeded the current fair value less costs to sell
and was therefore written-down to fair value and disclosed as non-current assets held for sale. A loss on remeasurement of the non-current assets held for sale of R10.8 million was recognized.

At September 30, 2015, an impairment loss of R123.3 million was recognized. The fair value less costs to sell, based on the BC Dundee Group's life of mine model was less than the carrying value
of its mineral interests at Magdalena and Aviemore as of September 30, 2015. No such entry has been recorded in Q3 2016.

Finance Costs/Income-net

The Group recorded net interest and accretion expense of R14.1 million during Q3 2016 compared to a net interest and accretion expense of R24.9 million for Q3 2015, a decrease of 43.5%. The
decrease is due to the new terms of the 2016 Amendment of the RCF loan. RCF agreed to an interest holiday beginning July 1, 2016, with a reduction in the interest rate to 1.29% during the
interest holiday period. The interest rate during the comparative period was 15%.

FINANCIAL CONDITION REVIEW

A summary of the Company's financial position is shown below:

                                   September 30, 2016   December 31, 2015
                                                R'000               R'000
Property, plant and equipment                 309 115             340 650
Other long-term receivables                    48 346              41 517
Cash and cash equivalents                      17 946              20 365
Trade and other receivables                    87 217              75 633
Other short-term receivables                    1 874               1 698
Inventories                                    48 028              42 226
Restricted cash                                11 200              11 200
Non-current assets held for sale                    -              25 000
Total assets                                  523 727             558 289

Trade and other payables                      156 996             161 401
Total borrowings                              183 706             171 395
RCF loan                                      374 302             424 132
Asset retirement obligation                    22 666              17 656
Total liabilities                             737 671             774 584
Total equity                                 (213 943)           (216 295)

Assets

Total assets were R523.7 million at September 30, 2016 compared to R558.3 million at December 31, 2015, a 6.2% decrease.

The most significant movement related to the sale of mining equipment which was previously disclosed as non-current assets held for sale. During the prior year, the Company entered in an
agreement to sell two continuous miners to STA, which were subsequently reclassified as non-current assets held for sale, of which one was sold in the prior financial year and the second one in
Q1 2016.

Liabilities

Total liabilities were R737.7 million at September 30, 2016 compared to R774.6 million at December 31, 2015, a decrease of 4.8%.

The most significant movement related to the decrease in the RCF convertible loan, which was mainly as a result of a gain of R24.2 million recognized on the revaluation of the conversion option
liability at quarter-end, which decreased the conversion option liability. Borrowings increased by R10.7 million net drawings from the Investec working capital facility, offset by a decrease in
trade and other payables, due to the use of funds drawn from the Investec working capital facility to settle outstanding amounts with creditors.

At September 30, 2016, the Group had outstanding debt with Investec of R201.6 million and US$28.7 million (R398.0 million) (including accrued interest) outstanding on the RCF convertible loan.
The Investec debt consists of R82.5 million outstanding on the term loan facility, R45.5 million on the bullet facility and R73.6 million outstanding on the working capital facility. The working
capital facility had R6.4 million available for drawdown at quarter-end.

CASH FLOW REVIEW

The condensed consolidated statements of cash flows are summarized below:

                                                                          9 months ended
                                                             September 30, 2016   September 30, 2015
                                                                          R'000                R'000
Net cash generated from/(utilized in) operating activities                3 724              (12 484)
Net cash utilized in investing activities                               (16 876)             (43 042)
Net cash generated from financing activities                             10 733               58 582
Change in cash and cash equivalents                                      (2 419)               3 056

Operating activities

Cash generated from operating activities during the nine months ended September 30, 2016 was R3.7 million compared to R12.5 million utilized during the nine months ended September 30, 2015.

The net loss for the nine months ended September 30, 2016 was R26.1 million compared to a net loss of R384.1 million for the nine months ended September 30, 2015. Non-cash items included in the
net loss for the nine month period were: depreciation of R49.6 million (September 30, 2015: R58.2 million); net gains on the fair value adjustment on financial assets, conversion option liability
and warrant liability of R88.2 million (September 30, 2015: R88.5 million); profit on disposal of property, plant and equipment of a negligible amount (September 30, 2015: loss of R3.6 million);
net unrealized foreign exchange gains of R32.7 million (September 30, 2015: loss of R34.3 million); loss on remeasurement of non-current assets held for sale of RNil (September 30, 2015: R10.8
million); impairment of property, plant and equipment of RNil (September 30, 2015: R123.3 million) and loss on extinguishment of debt of R50.6 million (September 30, 2015: loss of R111.8
million).

The Group's net working capital decreased by R0.3 million for the nine months ended September 30, 2016, in comparison to a R45.8 million increase for the nine months ended September 30, 2015. The
net change in working capital reported on the cash flow statement identifies the changes in current assets and current liabilities that occurred during the period. An increase in a liability (or
a decrease in an asset) is a source of funds; while a decrease in a liability (or an increase in an asset) is a use of funds.

Investing activities

Investing activities utilized R16.9 million in cash during the nine months ended September 30, 2016 compared to cash utilized of R43.0 million during the nine months ended September 30, 2015.

During the nine months ended September 30, 2016, the Group spent R12.9 million on property, plant and equipment relating to sustaining capital compared to expenditure of R44.8 million for the
nine months ended September 30, 2015 relating to sustaining capital and the purchase of additional equipment financed by RCF under the RCF convertible loan agreement.

Financing activities

Financing activities generated R10.7 million during the nine months ended September 30, 2016 and R58.6 million during the nine months ended September 30, 2015. During the nine months ended
September 30, 2016, the Group drew down R25.0 million from the Investec working capital facility, which was used for working capital purposes, but also repaid R6.8 million of the working capital
facility and R7.5 million of the term loan. During the comparative period, the Group received approximately R74.4 million from RCF under the RCF convertible loan agreement which was used to
purchase additional equipment and for working capital purposes.

RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2016 and September 30, 2015, the Company entered into the following transactions in the ordinary course of business with related parties:

                                                3 months ended
                                    September 30,2016  September 30,2015
Payments for services rendered
RCF 1                                          28 859            552 593

The following balances were outstanding as at September 30, 2016 and September 30, 2015:

                                               3 months ended
                                  September 30, 2016  September 30, 2015
Related party payables
RCF 1                                      1 197 410           2 392 543

These amounts are unsecured, non-interest bearing with no fixed terms of repayment.

1 RCF is a related party to the Company as a result of owning a controlling investment in the Company and having a representative, Mr. David Thomas on the Board of Directors of the Company. As
set out in the third amended and restated convertible loan agreement with RCF, RCF has invoiced the Company for costs incurred relating to the loan facilities, which are disclosed above. In
addition to these costs, the Company incurred interest on the RCF convertible loan during the quarter ended September 30, 2016, which amounted to R0.4 million (September 30, 2015: R13.9 million),
 which has not been settled in Common Shares subsequent to quarter-end (refer to Overview of the Period and Outlook for the Group for additional information).

Compensation of Key Management Personnel

In accordance with IAS 24 - Related-Party Disclosures, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Company directly or indirectly, including any directors (executive and non-executive) of the Company.

The remuneration of directors and other key members of management personnel (officers) during the three months ended September 30, 2016 and September 30, 2015 was as follows:

                              3 months ended
                        September 30   September 30
                                2016           2015
Short-term benefits        3 554 270      3 487 009
Share-based payments          52 471        134 106
Total                      3 606 741      3 621 115

Amounts owing to directors and other members of key management personnel were of a negligible amount as of September 30, 2016 (September 30, 2015: R0.9 million).

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.

SUBSEQUENT EVENTS

Issuance of Common Shares to STA

Subsequent to September 30, 2016, the Company issued 4 568 696 Common Shares to STA at C$0.05 per share pursuant to the STA Equity Settlement Agreement.

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.

OTHER RISKS AND UNCERTAINTIES

Investing in the Company involves risks that should be carefully considered. The business of the Company is speculative due to the high-risk nature of coal mining and exploration. Investors
should be aware that there are various risks, that could have a material adverse effect on, among other things, the operating results, earnings, properties, business and condition (financial or
otherwise) of the Company. Refer to the annual Management's Discussion and Analysis for the year ended December 31, 2015 for a list of the Company's risks and uncertainties.
In terms of risks relating to Mineral Legislation, a new draft South African Mining Charter was gazetted for public comment on April 15, 2016. Interested and affected parties were given 30 days
to comment. There has been no further draft released. Consequently, the draft Mining Charter remains in draft form only and the Broad-Based Socio Economic Empowerment Charter for the Mining and
Minerals Industry as amended in 2010, remains in force. This remains a risk to the Group.

The Company's application for a renewal of its export allocation at Richards Bay Coal Terminal ("RBCT") for the forthcoming year was unsuccessful. This may have an adverse effect on the
Company's business, results of operation and financial condition. All export business for the forthcoming year will have to be based on buyer's trains and export capacity, therefore all new
export contracts will be contracted on an FCA basis to ensure the supply of trains from the buyers.

Effective November 20, 2015, regulations governing financial provisions for asset retirement obligations was transitioned from the Mineral and Petroleum Resources Development Act ("MPRDA") to the
National Environmental Management Act ("NEMA"). There is currently substantial uncertainty regarding the revised requirements for financial provisions pursuant to NEMA. Management is currently
seeking clarification of the revised requirements in order to determine the expected impact of the change, which may result in a significant increase to the asset retirement obligation. One of
the key changes in the requirements is that closure cost assessment now has to be based on a "Sudden Closure" assessment and third party rates whereas pursuant to the MPRDA, it was based on the
end of mine life and prescribed rates. Uncertainty exists around the transitional arrangements although the implementation date of the new Act is expected to be February 20, 2019.

NON-IFRS PERFORMANCE MEASURES

The Company has included in this document certain non-IFRS performance measures that are detailed below. These non-IFRS performance measures do not have any standardized meaning prescribed by
IFRS and, therefore, may not be comparable to similar measures presented by other companies. The Company believes that, in addition to conventional measures prepared in accordance with IFRS,
certain investors use this information to evaluate the Company's performance. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS. The definition for these performance measures and reconciliation of the non-IFRS measures to reported IFRS measures are as
follows:

Working Capital

Working capital includes current assets and current liabilities, excluding provisions and non-financial instruments.

                                             September 30,            December 31, 
                                                     2016                    2015
                                                    R'000                   R'000
Current assets
Cash and cash equivalents                          17 946                  20 365
Trade and other receivables                        87 217                  75 633
Inventories                                        48 028                  42 226
Non-interest bearing receivables                    1 875                   1 698
                                                  155 066                 139 922
Current liabilities
Trade and other payables                          156 996                 161 401
Current portion of borrowings                     183 706                  25 714
                                                  340 702                 187 115
Net working capital                              (185 636)                (47 193)

The Company had a working capital deficit of R185.6 million as at September 30, 2016 compared to a working capital deficit of R47.2 million at December 31, 2015. Working capital has worsened due
to the total Investec debt of R183.7 million, as determined by management, now being classified as current liabilities. This is due to Investec being entitled to request early payment of the
outstanding debt, as a result of the breach in covenants referred to preceding.

Consolidated Adjusted EBITDA

Consolidated adjusted EBITDA is defined as earnings before interest, tax, depreciation and adding back the following: Impairment or reversal of an impairment of an asset, fair value adjustments
to financial instruments, stock-based compensation, foreign exchange gains and losses, and non-recurring transaction expenses or income.

The reconciliation of operating profit/(loss) to adjusted EBITDA is as follows:

                                                                                       9 months ended                                   3 months ended
R'000                                                                       September 30,2016  September 30,2015  September 30,2016  September 30,2015  June 30 2016
Operating profit/(loss) for the period                                                 32 501           (307 209)           (11 771)          (193 392)       33 634
Depreciation                                                                           49 595             58 218             16 412             20 106        16 840
Impairment of receivables                                                                   1                 (1)                 1                  -             -
Impairment of property, plant and equipment and intangible assets                           -            123 331                  -            123 331             -
Fair value adjustments of financial assets and conversion option liability            (88 194)           (88 545)           (21 930)           (16 158)      (56 308)
Loss on extinguishment of debt                                                         50 647            111 843             50 647                  -             -
Loss on remeasurement of non-current assets held for sale                                   -             10 833                  -             10 833             -
Stock-based compensation                                                                  278                626                 52                134            76
Foreign exchange (gains)/losses- net                                                  (32 716)            34 249            (19 849)            30 944          (330)
Adjusted EBITDA                                                                        12 112            (56 655)            13 562            (24 202)       (6 090)

Net Revenue

The Group restructured several of its offtake contracts during Q1 2016 from an FOB shipping basis to short-term Rand denominated FCA contracts, resulting in revenue not being directly comparable
quarter on quarter. Below is a reconciliation of revenue as disclosed in the Interim Results for the quarters ended September 30, 2016 and September 30, 2015 to net revenue which excludes all
railage, port handling and wharfage related costs:

                                                 9 months ended                                          3 months ended
R'000                                 September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015   June 30, 2016
Revenue                                          476 695              503 791              178 147              159 871         156 059
Railage, port handling and wharfage               16 518               41 429                5 897               13 037           6 400
Net revenue                                      460 177              462 362              172 250              146 834         149 659

Headline earnings/(loss) per share

Headline earnings/(loss) is a profit measure required for JSE-listed companies as defined by the South African Institute of Chartered Accountants. Headline earnings/(loss) per share is a basis
for measuring earnings/(loss) per share which accounts for all the profits and losses from operational, trading, and interest activities, that have been discontinued or acquired at any point
during the year. Excluded from this figure are profits or losses associated with the sale or termination of discontinued operations, fixed assets or related businesses, or from any permanent
devaluation or write off of their values.

Reconciliation of (loss)/profit for the periods to headline (loss)/profit is disclosed below:

                                                                      9 months ended                    3 months ended
                                                          September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015
Loss for the period                                              (26 148 252)        (384 145 227)         (25 535 794)        (261 817 416)
Net profit on disposal of property, plant and equipment               (6 053)          (3 612 659)                   -                    -
Headline loss for the period                                     (26 154 305)        (387 757 886)         (25 535 794)        (261 817 416)

Headline loss per share - basic and diluted                            (0,08)               (4,76)               (0,07)               (2,48)

SUMMARY OF SECURITIES AS AT NOVEMBER 29, 2016

As at November 29, 2016 the following Common Shares, share options and share purchase warrants were issued and outstanding:

- 352 893 622 Common Shares;
- 3 601 803 Common Share purchase options with exercise prices ranging from C$0.0387-C$1.80 with a weighted average remaining contractual life of 3.27 years;
- 34 817 237 warrants with a strike a price of C$0.1446 maturing on July 3, 2019.

LIST OF DIRECTORS AND OFFICERS

Craig Wiggill, Director, Chairman of the Board of Directors
Robert Francis, Director
Edward Scholtz, Director
David Thomas, Director
Rowan Karstel, Chief Executive Officer
Graham du Preez, Chief Financial Officer and Corporate Secretary

November 29, 2016

Sponsor: Questco Proprietary Limited



Date: 30/11/2016 02:25:00 Supplied by www.sharenet.co.za                     
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