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Buffalo Coal Corp - Managements Discussion And Analysis Quarterly Highlights

Release Date: 12/05/2017 15:30:00      Code(s): BUC     
BUFFALO COAL CORP.
Registration number: 001891261
External company registration number: 2011/011661/10
Share code on the TSX Venture Exchange: BUF (Primary listing)
Share code on the JSE Limited: BUC (Secondary listing)
ISIN: CA1194421014
"Buffalo Coal" or "the Company"

INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS - QUARTERLY HIGHLIGHTS

For the three months ended March 31, 2017
(Presented in South African Rands)

BASIS OF PREPARATION

The following Management's Discussion and Analysis ("MD&A") relates to the financial condition and results of operations of
Buffalo Coal Corp. and its subsidiaries ("we", "our", "us", "BC Corp", the "Company" or the "Group") for the three months ended
March 31, 2017 and should be read in conjunction with the audited annual consolidated financial statements for the years ended
December 31, 2016 and December 31, 2015, the Management's Discussion and Analysis for the year ended December 31, 2016
and the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2017. 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 May 11, 2017 unless otherwise indicated. References to FY2017 refer to the
financial year ending December 31, 2017 and FY2016 refers to the financial year ended December 31, 2016. References to 
Q1 2017 mean the three months ended March 31, 2017 and Q4 2016, Q3 2016, Q2 2016 and Q1 2016 refer to the three months
ended December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016, respectively.

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:R10.0623 and
amounts in US Dollars were translated at US$1:R13.4124.

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, 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 the 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 energy bituminous coal and anthracite to both the export and domestic markets.

The Group has continued to utilize allocation in Richards Bay Coal Terminal ("RBCT") under the Quattro scheme for Q1 2017. The
Department of Mineral Resources ("DMR") had previously advised the group that its participation would cease, but it is
anticipated that access to railing capacity will continue for at least a number of months, since no new allocations have been made
by the DMR under Quattro.

No reduction in exports is however forecast, as contracts with customers have been restructured in such a way as to utilize rail
capacity allocated to those customers irrespective the destination terminal.

Bituminous

The API4 coal index remains in backwardation, but not as pronounced as in Q4 2016. Short term international pricing is
supported by the Chinese price maintenance strategy, and by cyclonic weather that affected Australian mines and ports. The
index peaked briefly in the quarter at around US$90 before settling back into a range in the high US$70's, where it now remains.

Most group export bituminous sales for 2017 have been fixed in Rand for relatively short periods, guaranteeing cash flow in local
currency.

Domestically, the bituminous market remains fairly stable in volume terms, with little variation predicted for 2017. A major
shortage of sized coal persists in the domestic markets resulting in higher listed prices from all suppliers that have product
available. The Group increased domestic prices from January 2017, with another small increment implemented in April 2017.

Anthracite

Anthracite's use as a source of carbon reductant in metallurgical processes means that the market, both domestically and for
export, does not correlate well with movements in the steam coal markets. Settlements for anthracite supplies are therefore on
an individually negotiated basis, with no real reference pricing available.

2017's anthracite demand has improved overall, which has been reflected in improved pricing. Domestic sized anthracite off-take
has increased with the closure of two competing Kwa-Zulu Natal mines. All planned production is committed with only very small
quantities available for ad hoc agreements. The prices for domestic anthracite have also been increased in Q1 2017, with a
further small increase in April 2017.

The overall outlook for 2017 is still very positive for both the bituminous and anthracite sectors of the business, with both
demand and pricing healthier than during 2016.

Investec funding

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, comprising two tranches of R25.0 million each. The conditions to the first and second tranche were
fulfilled and drawn in December 2015 and March 2016 respectively. On December 18, 2015, BC Dundee entered into a third
amendment to the Investec loan agreement ("Third Amendment"), in terms of which the repayment schedule for the term loan
facility was replaced with a new schedule with principal repayments commencing on March 31, 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 ("Fourth Amendment") 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 each 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 ("Fifth Amendment")
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 each of September 30, 2016 and December 31, 2016 the company made the term loan facility repayments of R7.5 million.

BC Dundee was required to meet specified debt covenants at March 31, 2017 and was in breach of certain of these covenants at
this date. Such breach constitutes an event of default under the debt agreement whereby Investec is entitled to request early
payment of the outstanding debt. 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 R162.5 million be classified as current borrowings.

Due to continued cash constraints, the scheduled R7.5 million repayment of the term loan facility was not made on 
March 31, 2017, constituting an event of default.

Subsequent to quarter end, BC Dundee entered into the sixth amendment to the term loan and revolving credit agreement and
the undrawn working capital facility balance of R22.0 million was made available. Refer to Subsequent Events.

South African Revenue Service ("SARS") Correspondence

During the year ended December 31, 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 applied to SARS to suspend payment, however this request was denied.
SARS has requested payment in three equal instalments of R4.9 million between March 2017 and May 2017. The Company
requested SARS to enter into more favorable instalment terms and is awaiting feedback from SARS. The Company has disputed
the disallowance of diesel refunds and believes it has a defendable case, however the outstanding amount owing has been
included in trade and other payables. During March 2017 and April 2017 the Company made the first and second instalment
repayment of R4.9 million.

During the year ended December 31, 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 of R1.8 million, all of which have been provided for as at March 31, 2017. The Company
raised an objection to SARS disputing the penalties and interest levied, however the objection was disallowed. The Company has
lodged an appeal to the SARS Commissioner to defend its case and is awaiting feedback from SARS.

CONSOLIDATED OPERATIONAL RESULTS FOR THE QUARTERS ENDED MARCH 31, 2017 AND MARCH 31, 2016

The operational highlights for the quarter ended March 31, 2017 compared to the quarters ended March 31, 2016 and December
31, 2016 are presented below. The Group achieved run of mine ("ROM") production of 342 kilotonne "kt", saleable production
(excluding calcine) of 195kt and sales of 227kt for the quarter ended March 31, 2017.

                                                           3 months ended
                                               March 31,       March 31, December 31,
Operational results                                 2017            2016        2016
ROM (t)                                          341 756         377 079     363 650
- Aviemore (t)                                   106 062         118 351     130 264
- Magdalena (t)                                  235 694         258 728     233 386
Saleable production (excluding calcine) (t)      194 502         229 485     214 876
- Anthracite (t)                                  65 987          87 549      86 034
- Anthracite (t) (bought-in)                       1 539             -           -
- Bituminous (t)                                 115 877         141 936     128 842
- Bituminous (t) (bought-in)                      11 099             -           -

Yield on plant feed (excluding calcine) (%)        54.7%           58.6%       57.2%
- Anthracite (%)                                   65.0%           68.1%       65.5%
- Anthracite (%) (bought-in)                       81.5%             -           -
- Bituminous (%)                                   49.2%           54.0%       52.8%
- Bituminous (%) (bought-in)                       66.5%             -           -
Sales (t)                                        227 009         197 752     246 762
- Anthracite (t)                                  52 845          59 566      91 294
- Anthracite (t) (discard)                        38 955             -        14 290
- Bituminous (t)                                 120 818         133 896     130 856
- Calcine (t)                                     14 391           4 290      10 323
Saleable inventory tonnes                         54 990          91 875      57 846
- Anthracite (t)                                  47 929          77 678      50 801
- Bituminous (t)                                   7 061          13 659       4 802
- Calcine (t)                                        -               538       2 243

An analysis of the operational results for the quarter ended March 31, 2017 compared to the quarter ended
March 31, 2016 is discussed below:

ROM Production

Total ROM production for Q1 2017 was 342kt compared to 377kt produced in Q1 2016, a decrease of 9.4%.

ROM production from Magdalena underground for Q1 2017 was 236kt compared to 259kt produced in Q1 2016, a decrease of
8.9%. The decrease in tonnes is as a result of difficult geological mining conditions and pitroom constraints encountered during
Q1 2017.

ROM production from Aviemore for Q1 2017 was 106kt compared to 118kt produced in Q1 2016, a decrease of 10.4%. The
decrease is as a result of dykes encountered during Q1 2017, which slowed down production.

Saleable Production

Saleable coal production for Q1 2017 was 195kt (excluding calcine) compared to 229kt in Q1 2016, a decrease of 15.2%, which is
in line with the decrease in ROM and yield achieved. The decrease was partially offset by additional coal bought in during the
quarter.

Saleable calcine product was 12.2kt for Q1 2017 compared to 3.0kt in Q1 2016, an increase of 304.0%, primarily as a result of
market demand.

The total calculated yield from plant feed was 54.7% for Q1 2017 compared to 58.6% for Q1 2016. The decrease in the yield is
due to a reduction in densities at the wash plants in order to improve the qualities on export products, and also due to high
contamination experienced at Magdalena.

Sales

Total sales of bituminous coal and anthracite products for Q1 2017 were 227kt compared to 198kt sold in Q1 2016, an increase of
14.8%. This increase is mainly as a result of 39kt anthracite discard sold during Q1 2017 (Q1 2016: Nil).

Bituminous sales for Q1 2017 were 121kt, of which 50.9% were export sales and 49.1% were domestic sales compared to 134kt
sold in Q1 2016 of which 55.3% were export sales and 44.7% were domestic sales, a decrease of 9.8% in line with a decrease in
bituminous saleable production.

Anthracite sales (including calcine) for Q1 2017 were 106kt, of which 71.3% were export sales and 28.7% were domestic sales
compared to 64kt sold in Q1 2016 of which 77.5% were export sales and 22.5% were domestic sales, up by 66.3%. The increase
in anthracite sales is mainly as a result of the conclusion of a contract to sell discard to one of the Group's major export
customers.

Health and Safety

The Company operates an integrated Health, Safety and Environment ("HSE") 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 Company operates, in order to ensure compliance and achieve zero
harm. The Company 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 Company undertakes training and development initiatives and related
ventures on a regular basis in order to improve individual outlook on safety, health and the environment. The Company currently
employs 590 employees, and has 513 contractors on site.

The Group has achieved more than six thousand fatality free production shifts ("FFPS") at Magdalena Colliery and the Coalfields
process plant and 1 319 FFPS at Aviemore Colliery.

The Group completed Q1 2017 with one Lost Time Injury ("LTI") at Coalfields. It should be noted however that since Q4 2016,
there has been a significant improvement in safety performance due to key safety drivers being implemented.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTERS ENDED MARCH 31, 2017 AND MARCH 31, 2016

                                                                                              3 months ended
                                                                                March 31,          March 31,  December 31,
 Financial results                                                                   2017               2016          2016
 Revenue (R'millions)                                                               171.4              142.5         183.9
 Net Revenue (R'millions) (*)                                                       163.9              138.3         181.0
 Operating profit (R'millions)                                                       18.2               10.6           1.3
 Adjusted EBITDA (R'millions) (*)                                                    13.7                4.6         (0.6)
 Average selling price per tonne sold (R)                                             755                721           745
 Cash cost of sales per tonne (R)                                                     631                620           668
 Cash generated from/(utilized in) operating activities
 (R'millions)                                                                         4.3             (17.7)          28.3
 Cash utilized in investing activities (R'millions)                                 (7.6)              (6.4)         (9.5)
 Cash generated from/(utilized in) financing activities
 (R'millions)                                                                           -               25.0        (23.0)

 CAD:ZAR (average)                                                                  10.00              11.52         10.43
 USD:ZAR (average)                                                                  13.23              15.82         13.93

(*) See Non-IFRS Performance Measures section of this MD&A.

An analysis of the financial results for the quarter ended March 31, 2017 compared to the quarter ended
March 31, 2016 is discussed below:

Net Revenue

Net revenues earned during Q1 2017 were R163.9 million compared to R138.3 million earned during Q1 2016, an increase of
18.6%, as a result of higher realized sales prices. During Q1 2017, the Group's sales were 227kt compared to sales of 198kt 
for Q1 2016, mainly due to 39kt anthracite discard sold during Q1 2017 (Q1 2016: Nil).

Net bituminous revenue for Q1 2017 was R42.6 million for domestic (59kt) and R48.4 million for export (61kt), compared to
R40.4 million for domestic (60kt) and R43.1 million for export (74kt) for Q1 2016.

Net anthracite revenue (including calcine) for Q1 2017 was R35.6 million for domestic (30kt) and R37.3 million for export
(including discard sales) (76kt), compared to R14.4 million for domestic (14kt) and R40.4 million for export (50kt).

Average selling prices for Q1 2017 were R755 per tonne compared to an average selling price of R721 per tonne for
Q1 2016.

The increase in net revenue for Q1 2017 compared to Q1 2016 is primarily due to an overall increase in sales tonnes during the
current quarter as well as a higher selling price per tonne sold.

Cost of Sales

Cost of sales for Q1 2017 was R158.0 million (cash cost of sales of R631 per tonne sold) compared to R139.0 million (cash cost of
sales of R620 per tonne sold) for Q1 2016, an increase of 1.7%. The Group continues to be cost conscious in ensuring expenditure
is kept to a minimum in order to ensure the sustainability of the Group.

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

General and administration expenses

The Company recorded general and administration expenses of R15.4 million (R68 per tonne sold) during Q1 2017 compared to
R16.2 million (R82 per tonne sold) during Q1 2016, a 4.6% 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. The reduction in general and administration expenses is due to
cost control measures in place at both operational and corporate levels.

Other Income - net

During Q1 2017 the Group recorded net other income amounting to R20.3 million compared to R23.3 million during Q1 2016, a
decrease of 13.2%. Other income and expense comprises profit on sale of assets, foreign exchange gains/losses, discounts
received, commissions paid and fair value adjustments on financial assets and conversion option liabilities.

The Company recorded a fair value adjustment gain of R11.1 million for Q1 2017 in relation to the valuation of the conversion
option liability (RCF convertible loan), the warrant liability (Investec warrants) and financial assets compared to a gain of 
R10.0 million recorded in Q1 2016.

A net foreign currency exchange gain of R8.3 million was recorded in Q1 2017 compared to a R12.5 million net foreign currency
exchange gain for Q1 2016.

Finance Costs/Income-net

The Group recorded net interest and accretion expense of R12.9 million during Q1 2017 compared to a net interest and accretion
expense of R21.9 million for Q1 2016, a decrease of 41.2%.

The decrease is due to the new terms subsequent to 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 24%.

FINANCIAL CONDITION REVIEW

A summary of the statements of financial position is shown below:

                                    March 31,       December 31,
                                         2017               2016
                                        R'000              R'000
Property, plant and equipment         304 207            311 731
Other long-term receivables            47 504             45 666
Cash and cash equivalents              10 507             13 754
Trade and other receivables           102 554             84 773
Other short-term receivables            1 930              1 902
Inventories                            41 341             35 222
Restricted cash                        11 200             11 200
Total assets                          519 243            504 248

Trade and other payables              175 932            158 262
Total borrowings                      162 510            161 361
RCF loan facilities                   352 128            368 194
Other liabilities                      43 898             38 133
Total liabilities                     734 468            725 950
Total equity                        (215 225)          (221 702)

Assets

Total assets were R519.2 million at March 31, 2017 compared to R504.2 million at December 31, 2016, a 3.0% increase.

This increase is primarily as result of an increase in trade and other receivables as a result of improved revenues in March 2017
relative to December 2016.

Liabilities

Total liabilities were R734.5 million at March 31, 2017 compared to R726.0 million at December 31, 2016, a 1.2% increase.

The most significant movement related to the increase in trade and other payables of R17.6 million, mainly as a result of an
increase in the amount owing to STA. This was offset by a decrease in the RCF convertible loan, which was mainly as a result of a
gain of R10.7 million recognized on the revaluation of the conversion option liability for the quarter ended March 31, 2017, which
decreased the conversion option liability.

At March 31, 2017, the Group had outstanding debt with Investec of R178.6 million and US$27.3 million (R365.6 million)
(including accrued interest) outstanding on the RCF convertible loan. The Investec debt consists of R75.0 million outstanding on
the term loan facility, R45.5 million on the bullet facility and R58.1 million outstanding on the working capital facility.

CASH FLOW REVIEW

The condensed consolidated statements of cash flows are summarized below:

                                                                                               3 months ended
                                                                                             March 31,           March 31,
                                                                                                  2017                2016
                                                                                                 R'000               R'000
Net cash generated from/(utilized in) operating activities                                       4 306            (17 742)
Net cash utilized in investing activities                                                       (7 553)            (6 395)
Net cash generated from financing activities                                                       -                25 000
Change in cash and cash equivalents                                                             (3 247)                863

Operating activities

Cash generated from operating activities during the three months ended March 31, 2017 was R4.3 million compared to 
R17.7 million utilized during the three months ended March 31, 2016.

The net profit for the quarter ended March 31, 2017 was R4.2 million compared to a net loss of R12.1 million for the quarter
ended March 31, 2016. Non-cash items included in the net profit for the period were: depreciation and amortization of 
R14.9 million (Q1 2016: R16.3 million); net gains on the fair value adjustment on financial assets, conversion option liability and warrant
liability of R11.1 million (Q1 2016: R10.0 million) and net unrealized foreign exchange gains of R8.3 million 
(Q1 2016: R12.5 million).

The Group's net working capital decreased by R4.7 million for the quarter ended March 31, 2017, in comparison to a R19.5
million increase for the quarter ended March 31, 2016.

The net change in working capital reported on the cash flow statement identifies the changes in trade and other receivables,
inventory and trade and other 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 R7.6 million in cash during the quarter ended March 31, 2017 compared to cash utilized of R6.4 million
during the quarter ended March 31, 2016.

During the quarter ended March 31, 2017, the Group spent R6.2 million on property, plant and equipment relating to sustaining
capital compared to expenditure of R5.0 million for the quarter ended March 31, 2016.

Financing activities

Financing activities generated RNil million during the quarter ended March 31, 2017 and R25.0 million during the quarter ended
March 31, 2016.

During the quarter ended March 31, 2016, the Group drew down R25.0 million from the Investec working capital facility, which
was used for working capital purposes.


RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2017 and March 31, 2016, the Company entered into the following transactions in the
ordinary course of business with related parties:

                                                                                                     3 months ended
                                                                                         March 31, 2017            March 31, 2016
Payments for services rendered
RCF ?                                                                                            37 749                   114 784

The following balances were outstanding as at March 31, 2017 and March 31, 2016:

                                                                                                    3 months ended
                                                                                        March 31, 2017             March 31, 2016
Related party payables
RCF ?                                                                                        1 645 361                  1 077 120

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

? 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 RCF Agreement,
RCF has invoiced the Company for costs incurred relating to the loan facilities, which are disclosed above.

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 period were as follows:

                                                                                              3 months ended
                                                                                      March 31, 2017      March 31, 2016
Short-term benefits                                                                        2 800 745           3 837 106
Share-based payments                                                                          26 889             149 916
Total                                                                                      2 827 634           3 987 022

Amounts owing to directors and other members of key management personnel were R0.4 million as of March 31, 2017 
(March 31, 2016: RNil million).

OUTSTANDING LEGAL PROCEEDINGS

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

Investec facility revised terms

The Magdalena mine current LOM has a main development panel, which is Panel 417. It is critical this panel be developed to
allow sufficient pit-room for the mining sections. Drilling results in panel 417 revealed a dyke of 22 meters thick, with a 13.5
meter down-throw. In terms of the life of mine planning for Magdalena, the mine must develop through this dyke in order to
access the LOM block towards South-West of the reserves, which would establish additional pit-room. Funding was required for
this development, and Investec was approached to make the undrawn R22.0 million Working Capital Facility available for this
purpose.

Investec has agreed to release the funds, subject to agreement being reached on the following revised terms and conditions:

     -   The Panel 417 project implementation shall be reviewed and its completion verified by a Project Oversight Committee
         appointed by Investec.
     -   Investec agrees to not exercise its rights arising from events of default until July 15, 2017.
     -   Investec will review the terms and conditions of the facility after July 15, 2017, with a view to agreeing terms and
         conditions of an extension of the final maturity date for a period of no less than 2 years, subject to the project having
         been successfully completed to the Project Oversight Committee's satisfaction.
     -   Investec will release the R22.0 million as working capital for the purpose of ensuring the project is completed
         timeously.
     -   A Life of Mine Royalty ("LOMR") shall be payable to Investec on all bituminous coal sales with effect from July 1, 2017,
         calculated at a rate of 3.54% on all bituminous coal sold.
     -   If all amounts owing under the facility are paid on or before June 30, 2018, the Company shall pay Investec a fee equal
         to the greater of the aggregate amount of the LOMR which was payable until the date of repayment, and R22.0 million,
         minus the aggregate amount of the LOMR which was paid to Investec up to that date. The LOMR shall be terminated if
         the facilities are fully repaid before June 30, 2018.

On April 13, 2017, BC Dundee entered into a sixth amendment to the term loan and revolving credit agreement and the undrawn
working capital balance was made available for drawdown. As of the date of this Interim MD&A, the Company has drawn the
full R80.0 million working capital facility.

Northcott Capital Limited Mandate

The Company engaged Northcott Capital Limited ("Northcott") to provide advisory services regarding potential funding for the
Company. Northcott is entitled to a success fee based on a percentage of any funding raised. The agreement may be terminated
on 30 days written notice.

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, 2016
for a list of the Company's risks and uncertainties.

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.

                                                                                             March 31,            December 31,
                                                                                                  2017                    2016
                                                                                                 R'000                   R'000
Current assets
Cash and cash equivalents                                                                       10 507                  13 754
Trade and other receivables                                                                    102 555                  84 773
Inventories                                                                                     41 341                  35 222
Non-interest bearing receivables                                                                 1 930                   1 902
                                                                                               156 333                 135 651
Current liabilities
Trade and other payables (excluding provisions)                                                175 932                 158 262
Current portion of borrowings                                                                  162 176                 161 361
Current Tax Liabilities                                                                          9 954                   8 775
                                                                                               348 062                 328 398
Net working capital                                                                          (191 729)               (192 747)

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization 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 loss to adjusted EBITDA is as follows:

                                                                       3 months ended
                                                             March 31,     March 31,  December 31,
R'000                                                             2017          2016          2016
Operating profit for the period                                 18 187        10 638         1 254

Depreciation and amortization                                   14 892        16 343         7 431
Impairment of receivables                                          (3)             -             -
Fair value adjustments of financial assets and conversion
option liability                                              (11 148)       (9 956)       (5 169)
Stock-based compensation                                            27           150         (102)
Foreign exchange gains                                         (8 266)      (12 537)       (3 990)
Adjusted EBITDA                                                 13 689         4 638         (576)

Net Revenue

The Group restructured several of its offtake contracts during FY2016 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 March 31, 2017 and March 31, 2016 to net revenue which
excludes all railage, port handling and wharfage related costs:

                                                 3 months ended
                                       March 31,     March 31,  December 31,
R'000                                       2017          2016          2016
Revenue                                  171 424       142 488       183 887
Railage, port handling and wharfage        7 500         4 221         2 880
Net revenue                              163 924       138 267       181 007

Headline profit & (loss) per share

Headline profit & (loss) is a profit measure required for JSE-listed companies as defined by the South African Institute of
Chartered Accountants. Headline loss per share is a basis for measuring earnings 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 profit & ( loss) for the periods to headline profit & ( loss) is disclosed below:

                                                                    3 months ended
                                                            March 31, 2017     March 31, 2016
Profit/(loss) for the period                                     4 224 911       (12 093 561)
Net profit on disposal of property, plant and equipment                  -              6 053
Headline profit/(loss) for the period                            4 224 911       (12 087 508)
Headline profit/(loss) per share - basic and diluted                  0.01             (0.04)

SUMMARY OF SECURITIES AS AT MAY 11, 2017

As at May 11, 2017 the following Common Shares, Common Share purchase options and share purchase warrants were issued
and outstanding:

-     399 089 930 Common Shares;
-     3 343 303 Common Share purchase options with exercise prices ranging from C$0.0387-C$0.29 with a weighted average
      remaining contractual life of 2.77 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                     Interim Chief Executive Officer
Graham du Preez          Interim Chief Financial Officer and Corporate Secretary

May 11, 2017

Sponsor: Questco Proprietary Limited



Date: 12/05/2017 03:30:00 Supplied by www.sharenet.co.za                     
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