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Buffalo Coal Corp - Unaudited Condensed Financial Results For The Three And Nine Months Ended 30 September 2016

Release Date: 30/11/2016 14:27:00      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 nine months ended September 30, 2016 and September 30, 2015 (Presented in South African Rands)

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

                                                                                         September 30
                                                   Note  September 30      December 30           2016
                                                                 2016             2015        (note 1)
                                                                    R                R             C$
Assets
Non-current assets                                                          
Property, plant and equipment                             309 115 264      340 649 540     29 305 025 
Investment in financial assets                             40 802 825       35 674 589      3 868 226
Deferred tax asset                                          3 494 249        1 743 492        331 265 
Other receivables                                           4 049 238        4 099 242        383 880
Long-term restricted cash                                  11 200 000       11 200 000      1 061 793
Total non-current assets                                  368 661 576      393 366 863     34 950 189

Current assets
Trade and other receivables                                87 217 196       75 633 197      8 268 444
Inventories                                                48 028 232       42 225 872      4 553 216
Non-interest bearing receivables                            1 874 327        1 697 948        177 692
Cash and cash equivalents                                  17 946 152       20 365 446      1 701 347
Non-current assets held for sale                                    -       25 000 000              -
Total current assets                                      155 065 907      164 922 463     14 700 699
Total assets                                              523 727 483      558 289 326     49 650 888

Equity and liabilities
Capital and reserves
Share capital                                    5,6    1 063 828 197    1 038 096 502    100 854 003
Currency translation reserve                             (219 945 085)    (219 945 085)   (20 851 433)
Reserves                                                   15 722 165       16 726 895      1 490 507
Accumulated retained loss                              (1 077 887 654)  (1 055 512 401)  (102 186 881)
Equity attributable to owners of the company             (218 282 377)    (220 634 089)   (20 693 804)
Non-controlling interest                                    4 339 142        4 339 142        411 363
Total equity deficiency                                  (213 943 235)    (216 294 947)   (20 282 441)

Non-current liabilities
Borrowings                                         4                -      143 535 994              -
Warrant liability                                                   -        2 144 609              -
RCF loan                                           5      336 035 425      299 753 845     31 857 135
Conversion option liability                        5       38 266 953      124 378 349      3 627 818
Asset retirement obligation                                20 002 121       14 992 013      1 896 259
Total non-current liabilities                             394 304 499      584 804 810     37 381 212

Current liabilities
Trade and other payables                                  153 830 237      161 400 974     14 583 554
Current portion of borrowings                      4      182 988 318       25 714 284     17 347 824
Warrant liability                                             717 770                -         68 047
Current tax liability                                       3 165 689                -        300 118
Current portion of asset retirement obligation              2 664 205        2 664 205        252 574
Current liabilities                                       343 366 219      189 779 463     32 552 117
Total liabilities                                         737 670 718      774 584 273     69 933 329
Total equity deficiency and liabilities                   523 727 483      558 289 326     49 650 888


Commitments and contingencies                     1, 7

Approved on behalf of the Board:

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

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)


                                                                        9 months                     3 months          9 months ended
                                                                          ended                         ended            September 30
                                                       Note   September 30    December 30   September 30    December 30          2016
                                                                      2016           2015           2016           2015       (Note 1) 
                                                                         R              R              R              R            C$
                                                                                                                         
Revenue                                                        476 694 980    503 791 141    178 147 500    159 871 114    45 192 069
Cost of sales                                                 (469 615 196)  (566 683 264)  (166 689 813)  (189 386 404)  (44 520 885)
Gross profit/(loss)                                              7 079 784    (62 892 123)    11 457 687    (29 515 290)      671 184
Other income/(expense) - net                              3     72 894 137   (190 831 839)    (7 757 672)  (148 113 537)    6 910 576
General and administration expenses                            (47 472 868)   (53 485 334)   (15 470 769)   (15 763 320)   (4 500 566)
Profit/(loss) before the undernoted                             32 501 053   (307 209 296)   (11 770 754)  (193 392 147)    3 081 194
Finance income                                                   1 138 573        634 094        327 563              -       107 939
Finance expense                                                (58 143 091)   (60 747 178)   (14 393 277)   (24 892 279)   (5 512 134)
Loss before income tax                                         (24 503 465)  (367 322 380)   (25 836 468)  (218 284 426)   (2 323 001)
Income tax                                                      (1 644 787)   (16 822 847)       300 674    (43 532 990)     (155 930)
Loss for the period                                            (26 148 252)  (384 145 227)   (25 535 794)  (261 817 416)   (2 478 931)
Other comprehensive loss                                                 -              -              -              -             -
Total comprehensive loss for the period                        (26 148 252)  (384 145 227)   (25 535 794)  (261 817 416)   (2 478 931)

Loss attributable to:
- Owners of the parent                                         (26 148 252)  (384 145 227)   (25 535 794)  (261 817 416)   (2 478 931)
- Non-controlling interest                                               -              -              -              -             -
                                                               (26 148 252)  (384 145 227)   (25 535 794)  (261 817 416)   (2 478 931)

Net loss per share - basic and diluted                               (0,08)         (4,72)         (0,07)         (2,48)        (0,01)
Headline loss per share - basic and diluted                          (0,08)         (4,76)         (0,07)         (2,48)        (0,01)
Weighted average number of common shares outstanding:
- Basic                                                        326 996 820     81 442 267    347 937 162    105 747 621   326 996 820
- Diluted                                                      326 996 820     81 442 267    347 937 162    105 747 621   326 996 820

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 

                                                                                                                                Equity-settled                                                                                   
                                                                                                                                  non-employee                                    Currency                      Non-
                                                                                                       Share       Option             benefits   BBE option      Accumulated   translation               Controlling        Total 
                                                                                No. of shares        capital      reserve              reserve      reserve    retained loss       reserve        Total     Interest       Equity
                                                                                       issued              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                                  56 845 463     31 168 239            -                    -            -                -             -   31 168 239            -   31 168 239
Shares issued to management and directors                                           5 525 000      2 329 585            -                    -            -                -             -    2 329 585            -    2 329 585
Stock-based compensation                                                                    -              -      625 945                    -            -                -             -      625 945            -      625 945
Stock options expired/cancelled                                                             -              -   (3 672 062)                   -            -        3 672 062             -            -            -            -
Net loss for the period                                                                     -              -            -                    -            -     (384 145 227)            - (384 145 227)           - (384 145 227)
Balance at September 30, 2015                                                     118 567 174    971 464 266    7 479 979                    -    9 073 711     (877 832 973) (219 945 085)(109 760 102)   4 339 142  105 420 960)
Shares issued in relation to RCF convertible 
loan and private placement to RCF                                                 162 161 875     66 632 236            -                    -            -                -             -   66 632 236            -   66 632 236
Stock-based compensation                                                                    -              -      173 205                    -            -                -             -      173 205            -      173 205
Stock options expired/cancelled                                                             -              -            -                    -            -                -             -            -            -            -
Net loss for the period                                                                     -              -            -                    -            -     (177 679 428)            - (177 679 428)           - (177 679 428)
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                                                               10 595 637      6 130 890            -                    -            -                -             -    6 130 890            -     6 130 890
Stock-based compensation                                                                    -              -      278 359            2 489 910            -                -             -    2 768 269            -     2 768 269
Stock options expired/cancelled                                                             -              -   (3 772 999)                   -            -        3 772 999             -            -            -             -
Net loss for the period                                                                     -              -            -                    -            -      (26 148 252)            -  (26 148 252)           -   (26 148 252)
Balance at September 30, 2016                                                     348 324 926  1 063 828 197    4 158 544            2 489 910    9 073 711   (1 077 887 654) (219 945 085)(218 282 377)   4 339 142  (213 943 235)


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)

                                                                                  9 months  ended

                                                              September 30, 2016   September 30, 2015   June 30, 2016
                                                                                                              (Note 1)
                                                                               R                    R              C$
Cash flows from operating activities
Cash from/(utilized in) operations                                    18 867 524           (5 116 589)      1 788 696
Interest received                                                      1 138 573              634 094         107 939
Interest paid                                                        (16 050 278)          (9 313 512)     (1 521 612)
Taxation paid                                                           (232 308)           1 312 059         (22 023)
Net cash from/(utilized in) operating activities                       3 723 511          (12 483 948)        353 000
Cash flows from investing activities
Investment in financial assets                                        (3 838 737)          (3 666 415)       (363 924)
Purchase of property, plant and equipment                            (12 866 942)         (44 792 060)     (1 219 825)
Proceeds from the disposal of property, plant and equipment                6 053            5 500 000             574
Movement in non-interest bearing receivables                            (176 379)             (83 632)        (16 720)
Net cash utilized in investing activities                            (16 876 005)         (43 042 107)     (1 599 895)
Cash flows from financing activities
Proceeds from RCF convertible loan                                             -           74 395 051               -
Issuance costs related to the RCF convertible loan                             -             (134 152)              -
Drawdowns from working capital facility                               25 000 000            1 340 000       2 370 073
Repayment of working capital facility                                 (6 766 800)         (17 019 382)       (641 512)
Repayment of term loan                                                (7 500 000)                   -        (711 022)
Net cash generated from financing activities                          10 733 200           58 581 517       1 017 539
Net (decrease)/increase in cash and cash equivalents                  (2 419 294)           3 055 462        (229 356)
Cash and cash equivalents at the beginning of the period              20 365 446           12 120 081       1 930 703
Cash and cash equivalents at the end of the period                    17 946 152           15 175 543       1 701 347

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

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 September 30, 2016 and  September 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. References to Q1 2016, Q2 2016 and Q3 2016 refer to the periods ended
March 31, 2016, June 30, 2016 and September 30, 2016, respectively.

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,
during the financial year ended December 31, 2015, 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"). 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.  In Q3 2016, and subsequent to September 30,
2016, the Group entered into contracts with a significant export customer for the sale of built-up anthracite stockpiles at market-related pricing, which has and will inject cash into the Group.
Although the Group has implemented various restructuring initiatives, the Group continues to experience operational challenges. The Group remains dependent upon sustaining profitable levels of
operation, as well as the continued support of Investec, RCF and other stakeholders 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 September 30, 2016, the Company had a shareholder's deficiency of R213.9 million (December 31, 2015:  R216.3 million), a working capital deficiency of R185.6 million (December 31, 2015:
R47.2 million) and for the nine month period ended September 30, 2016, had a net loss of R26.1 million (September 30, 2015: R384.1 million). The Group was in breach of certain covenants with
respect to its borrowings from Investec at September 30, 2016. 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, no waiver has been provided and Investec has reserved its right to review this decision periodically, with no obligation to keep the Company advised in
this regard. There is no assurance that the Company will be able to meet its covenants in the future, or that Investec will provide future waivers, if required. 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  September 30, 2016 and the financial results for the nine months period ended September 30, 2016 were translated into Canadian Dollars using a convenience
translation at the rate of C$1:R10.5482, which is the exchange rate published on Oanda.com as of September 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 September 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 OTHER INCOME/(EXPENSE) - NET


                                                                                       9 months                    3 months                9 months
                                                                             September 30    December 30  September 30    December 30  September 30
                                                                                     2016           2015          2016           2015  2016 (Note 1)
                                                                                       R               R             R              R            C$
                                                                                                                                       
Foreign exchange gain/(loss) - net                                             32 715 788    (34 250 352)   19 848 770    (30 943 406)    3 101 552
Impairment of goodwill, intangible assets and property, plant and equipment             -   (123 330 795)            -   (123 330 795)            -
Loss on remeasurement of non-current assets held for sale                               -    (10 833 333)            -    (10 833 333)            -
Fair value adjustment on financial assets                                       1 292 108        504 558       135 029       (394 059)      122 496
Fair value adjustment on conversion option and warrant liability               86 901 627     88 072 666    21 794 537     16 552 136     8 238 527
Loss on extinguishment of debt                                                (50 647 288)  (111 842 509)  (50 647 288)                  (4 801 510)
Other income                                                                    2 631 902        847 926     1 111 280        835 920       249 511
                                                                               72 894 137   (190 831 839)   (7 757 672)  (148 113 537)    6 910 576

4 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 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. 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.

5 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 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%.

6 ISSUANCE OF COMMON SHARES TO STA

On April 25, 2016 and July 8, 2016, the Company issued Common Shares to STA pursuant to the STA Equity Settlement Agreement entered into 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 (R0.53) respectively.

7 COMMITMENTS AND CONTINGENCIES

Management Contracts

Certain management contracts require that payments of approximately R3.2 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 September 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 R2.2 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 tonne, 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 tonne mined at the fixed rate per tonne.

Capital Commitments

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

                                 September 30,2016  December 31, 2015  June 30,2016
                                                 R                  R           C$
Property, plant and equipment            2 283 629          1 754 679       216 495


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.

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.

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.

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.

8 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.

9 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.

10 SUBSEQUENT EVENTS

Appointment of Officers

On October 17, 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.

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.

Sponsor: Questco Proprietary Limited


Date: 30/11/2016 02:27:00 Supplied by www.sharenet.co.za                     
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