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Buffalo Coal Corp - Interim Managements Discussion And Analysis -quarterly Highlights For The Three And Six Months Ended June 30 2017

Release Date: 23/08/2017 17:19:00      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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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 August 22, 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 Q3 2017, Q2 2017 and Q1 2017 mean the three months ended September 30, 2017, June 30,
2017 and 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:R10.0545 and amounts in US Dollars were translated at US$1:R13.0535.

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
Q2 2017. A redistribution of the Quattro scheme tonnage is still expected, at which stage the group's participation
will cease. The precise timing of the redistribution is not, however, known.

Most export sales are already structured on an FCA basis.

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

Bituminous

The API4 coal index remains persistently in backwardation. Nevertheless, there is significant support in the market
keeping the short term index running in the high USD70's and low USD80's.

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
shortage of sized coal persists in the domestic markets, and pricing remains stable.

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 remains strong, and all planned production is committed with only very small quantities
available for ad hoc agreements.

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.

The Magdalena mine current LOM has a main development panel, which is Panel 417. 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 had to develop through this dyke in order to access the LOM block towards South-West of the
reserves, to 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.

On April 13, 2017, BC Dundee entered into a sixth amendment to the term loan and revolving credit agreement and
the undrawn working capital facility balance was made available for drawdown. The terms of the 6th amendment,
all of which have been put in place, were as follows:

    -   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 14, 2017.
    -   Investec will review the terms and conditions of the facility after July 14, 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 which was mined from the Magdalena
        reserve.
    -   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.

As of the date of this Interim MD&A, the Company has drawn R79.7 million from the working capital facility.

BC Dundee was required to meet specified debt covenants at March 31, 2017 and June 30, 2017 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. 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 continued cash constraints, the scheduled R7.5 million repayments of the term loan facility were not made on
March 31, 2017 and June 30, 2017, constituting an event of default. Default notices were received from Investec in
this regard as well as the breach in covenants.

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 R185.1 million be
classified as current borrowings.

The Company is in the process of negotiating the 7th amendment to the term loan and revolving credit agreement.

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
R14.7 million (including interest and penalties) for the period December 2012 to February 2016. The Company
applied to SARS to suspend payment, however this request was denied. As per a request received from SARS,
payment was made in three equal instalments of R4.9 million between March 2017 and May 2017. The Company has
disputed the disallowance of diesel refunds and believes it has a defendable case.

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 June 30, 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. During August 2017, SARS advised that they have offset VAT refunds of R4.3million due
to Zinoju against this tax liability.

Aviemore adit Pre-feasibility study

The Aviemore mine has sufficient resources to support a mine life in excess of 15 years. The current adit provides
access to the reserves from the eastern side of the mine and is expected to reach its limits with regards to ventilation
and power supply during the next 18 to 24 months. As a result, a new adit closer to the centre of gravity of the
resource is being considered. A pre-feasibility study ("PFS") is currently underway to assess the different options
available to extend the life of the mine. The PFS is expected to be completed by the end of August 2017.

CONSOLIDATED OPERATIONAL RESULTS FOR THE QUARTERS ENDED JUNE 30, 2017 AND JUNE 30, 2016

The operational highlights for the quarter ended June 30, 2017 compared to the quarters ended June 30, 2016 and
March 31, 2017 are presented below. The Group achieved run of mine ("ROM") production (excluding buy-in tonnes)
of 333 kilotonne "kt", saleable production (excluding calcine) of 190kt and sales of 196kt for the quarter ended June
30, 2017.

                                                    6 months ended                     3 months ended
                                                 June 30,      June 30,     June 30,     June 30,     March 31,
Operational results                                  2017          2016         2017         2016          2017
ROM (t)                                           721 373       792 734      361 046      415 655       341 756
- Aviemore (t)                                    226 914       244 737      120 852      126 386       106 062
- Anthracite (t) (bought-in)                        4 490             -        2 601            -             -
- Magdalena (t)                                   448 048       547 997      212 354      289 269       235 694
- Bituminous (t) (bought-in)                       41 921             -       25 239            -             -
Saleable production (excluding calcine) (t)       384 241       477 996      189 739      248 511       194 502
- Anthracite (t)                                  137 239       182 528       71 252       94 979        65 987
- Anthracite (t) (bought-in)                        3 088             -        1 549            -         1 539
- Bituminous (t)                                  214 184       295 468       98 307      153 532       115 877
- Bituminous (t) (bought-in)                       29 730             -       18 631            -        11 099
Yield on plant feed (excluding calcine) (%)         54.3%         59.7%        53.9%        60.6%         54.7%
- Anthracite (%)                                    63.0%         70.4%        61.3%        72.7%         65.0%
- Anthracite (%) (bought-in)                        68.8%             -        59.6%            -         81.5%
- Bituminous (%)                                    48.3%         55.2%        47.3%        55.0%         49.2%
- Bituminous (%) (bought-in)                        70.9%             -        73.8%            -         66.5%
Sales (t)                                         360 896       426 260      170 194      228 508       188 054
- Anthracite (t)                                  104 836       139 292       49 343       79 726        52 845
- Bituminous (t)                                  234 959       278 743      114 141      144 847       120 818
- Calcine (t)                                      21 101         8 225        6 710        3 935        14 391
Anthracite discard sales (t)                       64 513             -       25 558            -        38 955
Saleable inventory tons                            75 223       100 859       75 223      100 859        54 990
- Anthracite (t)                                   55 837        83 980       55 837       83 980        47 929
- Bituminous (t)                                   12 785        15 020       12 785       15 020         7 061
- Calcine (t)                                       6 601         1 859        6 601        1 859             -

An analysis of the operational results for the quarter ended June 30, 2017 compared to the quarter ended
June 30, 2016 is discussed below:

ROM Production

Total ROM production (excluding buy in tonnes) for Q2 2017 was 333kt compared to 416kt produced in Q2 2016, a
decrease of 19.8%.

ROM production from Magdalena underground for Q2 2017 was 212kt compared to 289kt produced in Q2 2016, a
decrease of 26.6%. The decrease in tonnes is as a result of difficult geological mining conditions and pit-room
constraints encountered during Q2 2017. During Q3 2017 one section moved into panel 417, with more sections
expected to move as pit-room is created in this panel. The panel 417 is in a combined seam and the extraction is
expected to improve, which will increase production for the rest of the year.

ROM production from Aviemore for Q2 2017 was 121kt compared to 126kt produced in Q2 2016, a decrease of 4.4%.
The decrease is as a result of dykes encountered early in Q2 2017.

The production shortages was offset to an extent by the buy-in of bituminous and anthracite ROM from other mines
in the area. A total of 25kt and 3kt was bought-in for bituminous and anthracite respectively.

Saleable Production

Saleable coal production for Q2 2017 was 190kt (excluding calcine) compared to 249kt in Q2 2016, a decrease of
23.6%, 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 12.7kt for Q2 2017 compared to 4.9kt in Q2 2016, an increase of 159.2%, primarily as a
result of market demand.

The total calculated yield from plant feed was 53.9% for Q2 2017 compared to 60.6% for Q2 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 Q2 2017 were 170kt compared to 229kt sold in Q2 2016, a
decrease of 25.5%. This decrease is mainly as a result of higher anthracite and bituminous sold during Q2 2016
because of higher production.

Bituminous sales for Q2 2017 were 114kt, of which 46.0% were export sales and 54.0% were domestic sales
compared to 145kt sold in Q1 2016 of which 59.4% were export sales and 40.6% were domestic sales, a decrease of
21.2% in line with the decrease in bituminous saleable production.

Anthracite sales (including calcine) for Q2 2017 were 56kt, of which 71.1% were export sales and 28.9% were
domestic sales compared to 84kt sold in Q2 2016 of which 77.7% were export sales and 22.3% were domestic sales,
down by 33.0%. The decrease in anthracite sales is as a result of a decrease in anthracite saleable production.

The decrease in sales were offset to an extent by the conclusion of a contract to sell anthracite discard to one of the
Group's major export customers, of which 26kt was sold during Q2 2017 (Q2 2016: Nil).

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 1 429 FFPS at Aviemore Colliery.

The Group completed Q2 2017 with two Lost Time Injuries ("LTIs"). 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 JUNE 30, 2017 AND JUNE 30, 2016

                                                                     6 months ended                  3 months ended
                                                                 June 30,     June 30,     June 30,     June 30,     March 31,
Financial results                                                    2017         2016         2017         2016          2017
Revenue (R'millions)                                                325.9        298.5        154.4        156.1         171.4
Net Revenue (R'millions) (*)                                        313.1        287.9        149.3        149.7         163.9
Operating profit (R'millions)                                        20.1         44.3          1.9        33.6           18.2
Adjusted EBITDA (R'millions) (*)                                      7.6        (1.5)        (6.1)        (6.1)          13.7

Average selling price per ton sold (R) (excluding discard)            845          700          858          683           845
Cash cost of sales per ton (R) (excluding discard export
costs)                                                                768          633          826          644           727
Cash (utilized in)/generated from operating activities
(R'millions)                                                        (2.3)       (23.8)        (6.6)        (6.0)           4.3
Cash (utilized in) investing activities (R'millions)               (23.1)       (11.9)       (15.5)        (5.5)         (7.6)
Cash generated from financing activities (R'millions)                21.5         25.0         21.5            -             -
CAD:ZAR (average)                                                    9.91        11.58         9.81        11.64         10.00
USD:ZAR (average)                                                   13.21        15.41        13.20        15.01         13.23

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

An analysis of the financial results for the quarter ended June 30, 2017 compared to the quarter ended
June 30, 2016 is discussed below:

Net Revenue

Net revenues earned during Q2 2017 were R149.3 million compared to R149.7 million earned during Q2 2016, a
decrease of 0.3%. During Q2 2017, the Group's sales were 196kt compared to sales of 229kt for Q2 2016, decreased
mainly due lower anthracite and bituminous sales in line with a decrease in production, offset by 26kt anthracite
discard sold during Q2 2017 (Q2 2016: Nil).

Net bituminous revenue for Q2 2017 was R47.5 million for domestic (62kt) and R44.9 million for export (52kt),
compared to R40.7 million for domestic (59kt) and R50.3 million for export (86kt) for Q2 2016.

Net anthracite revenue (including calcine but excluding discard) for Q2 2017 was R19.3 million for domestic (16kt)
and R33.2 million for export (40kt), compared to R17.9 million for domestic (19kt) and R40.8 million for export (65kt)
for Q2 2016.

Anthracite discard net revenue for Q2 2017 was R4.0 million (25kt) (Q2 2016: Nil).

Average selling prices (excluding discard) for Q2 2017 were R858 per tonne compared to an average selling price of
R683 per tonne for Q2 2016. In Q2 2017, the overall selling price per tonne improved due to the negotiations of new
contracts with the Group's significant customers.

Cost of Sales

Cost of sales for Q2 2017 was R159.9 million (cash cost of sales of R826 per tonne sold) compared to R163.9 million
(cash cost of sales of R644 per tonne sold) for Q2 2016, a decrease of 2.4%. The cash cost per tonne increased due to
the decrease in sales tonnes. 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 R17.2 million (R88 per tonne sold) during Q2 2017
compared to R15.8 million (R69 per tonne sold) during Q2 2016, an 8.7% increase 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 Centurion including Canadian expenses. The increase in general and administration
expenses are in part due to fees incurred to prepare updated resource and reserve statements, which are currently ongoing.

Other Income - net

During Q2 2017 the Group recorded net other income amounting to R24.6 million compared to R57.3 million during
Q2 2016, a decrease of 57.1%. 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 R13.7 million for Q2 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 R56.3 million recorded in Q2 2016.

A net foreign currency exchange gain of R9.2 million was recorded in Q2 2017 compared to a R0.3 million net foreign
currency exchange gain for Q2 2016.

Finance Costs/Income-net

The Group recorded net interest and accretion expense of R10.1 million during Q2 2017 compared to a net interest
and accretion expense of R21.1 million for Q2 2016, a decrease of 51.9%.

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:

                                                                               June 30,      December 31,
                                                                                   2017              2016
                                                                                  R'000             R'000
Property, plant and equipment                                                   302 978           311 731
Investments and long-term receivables                                            49 224            45 666
Cash and cash equivalents                                                         9 860            13 754
Trade and other receivables                                                      79 378            84 773
Other short-term receivables                                                      1 958             1 902
Inventories                                                                      49 439            35 222
Restricted cash                                                                  11 200            11 200
Total assets                                                                    504 037           504 248
                                 
Trade and other payables                                                        163 433           158 262
Total borrowings                                                                185 120           161 361
RCF loan facilities                                                             332 941           368 194
Other liabilities                                                                42 604            38 133
Total liabilities                                                               724 098           725 950
Total equity                                                                  (220 061)         (221 702)

Assets

Total assets were R504.0 million at June 30, 2017 compared to R504.2 million at December 31, 2016, a 0.04%
decrease. The most significant movement in assets related to property, plant and equipment and inventories.
As of June 30, 2017, property, plant and equipment decreased mainly as a result of depreciation recognized during
the current year.

As of June 30, 2017, inventory had increased from December 31, 2016 mainly as a result of an increase in anthracite
sized product. The inventory is committed under a sales agreement, however the Company only started railing the
product towards the end of the quarter.

Liabilities

Total liabilities were R724.1 million at June 30, 2017 compared to R726.0 million at December 31, 2016, a 0.3%
decrease.

The most significant movement related to the increase in borrowings of R23.8 million, mainly as a result of a R21.5
million draw down made from the Investec working capital facility. This was offset by a decrease in the RCF
convertible loan, which was mainly as a result of a gain of R24.0 million recognized on the revaluation of the
conversion option liability for the six months ended June 30, 2017, which decreased the conversion option liability.

At June 30, 2017, the Group had outstanding debt with Investec of R200.2 million and US$27.3 million (R355.7
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 R79.7 million outstanding on the
working capital facility.

CASH FLOW REVIEW

The condensed consolidated statements of cash flows are summarized below:

                                                                                            6 months ended
                                                                                     June 30,             June 30,
                                                                                         2017                 2016
                                                                                        R'000                R'000
Net cash utilized in operating activities                                             (2 295)             (23 777)
Net cash utilized in investing activities                                            (23 100)             (11 941)
Net cash generated from financing activities                                           21 500               25 000
Change in cash and cash equivalents                                                   (3 895)             (10 718)

Operating activities

Cash utilized in operating activities during the six months ended June 30, 2017 was R2.3 million compared to R23.8
million utilized during the six months ended June 30, 2016.

The net loss for the six months ended June 30, 2017 was R2.7 million compared to a net loss of R0.6 million for the six
months ended June 30, 2016. Included in the loss for the six months ended June 30, 2017 is interest paid of R9.7
million (six month ended June 30, 2016: R10.5 million). Non-cash items included in the net loss for the period were:
depreciation and amortization of R29.7 million (Q2 2016: R33.2 million); net gains on the fair value adjustment on
financial assets, conversion option liability and warrant liability of R24.9 million (Q2 2016: R66.3million) and net
unrealized foreign exchange gains of R17.4 million (Q2 2016: R12.9 million).

The Group's net working capital decreased by R1.1 million for the six months ended June 30 2017, in comparison to a
R17.1 million decrease for the six months ended June 30, 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 R23.1 million in cash during the six months ended June 30, 2017 compared to cash utilized
of R11.9 million during the six months ended June 30, 2016.

During the six months ended June 30, 2017, the Group spent R20.3 million on property, plant and equipment relating
to sustaining capital compared to expenditure of R9.2 million for the six months ended June 30, 2016.

Financing activities

Financing activities generated R21.5 million during the six months ended June 30, 2017 and R25.0 million during the
six months ended June 30, 2016.

During the six months ended June 30, 2017, the Group drew down R21.5 million from the Investec working capital
facility, which was used for the panel 417 development and working capital purposes. The R25.0 million drawn
during the six months ended June 30, 2016 was also drawn from the Investec working capital facility, and was used
for working capital purposes.

RELATED PARTY TRANSACTIONS

During the three months ended June 30, 2017 and June 30, 2016, the Company entered into the following
transactions in the ordinary course of business with related parties:

                                                                                                3 months ended
                                                                                        June 30,            June 30,
                                                                                            2017                2016
Payments for services rendered                                      
RCF(1)                                                                                         -             175 725
                                      
                         
The following balances were outstanding as at June 30, 2017 and June 30, 2016:
              
                                                                                                3 months ended
                                                                                         June 30,            June 30,
                                                                                             2017                2016
Related party payables                                       
RCF(1)                                                                                  1 601 127           1 246 661

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

(1) RCF is a related party to the Company as a result of owning a controlling investment in the Company and having a
representative, Mr. David Thomas on the Board of Directors of the Company. As set out in the Third Amended 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 3 months
ended June 30, 2017 and June 30, 2016 were as follows:
         
                                                                                                3 months ended
                                                                                          June 30,            June 30,
                                                                                              2017                2016
Short-term benefits                                                                      2 843 909           3 972 926
Share-based payments                                                                         8 908             225 889
Total                                                                                    2 852 817           4 198 815
         
Amounts owing to directors and other members of key management personnel were R0.2 million as of June 30, 2017
(June 30, 2016: R0.7 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. Settlement
was reached between the parties on 25 May 2017, and the application is now expected to be withdrawn by the
Avemore Trust. While this is expected to occur by mid-December of 2017 at the latest, it has not occurred as of the
date of the approval of these interim results.

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. Settlement was reached between the parties on 25 May 2017, and the application is
now expected to be withdrawn by the Avemore Trust. While this is expected to occur by mid-December of 2017 at
the latest, it has not occurred as of the date of the approval of these interim results.

Settlement with the Avemore Trust was reached on the following terms:

    -   R2.0 million on settlement of historic issues as well as an additional R280.0k (being VAT on the amount of
        R2.0 million).
    -   17.5k litres of water to be stored to allow the continued use of the borehole on the property.
    -   R2.50/tonne on future production, subject to a minimum monthly amount of R25k.

SUBSEQUENT EVENTS

Restructuring of Investments

Following the transition of financial provisions for asset retirement obligations to NEMA, Zinoju performed a closure
cost assessment for financial provisions based on sudden closure, which resulted in a shortfall between the Trust
investment balance and the closure cost assessment. This triggered a review of the structure of the financial
provisions in Zinoju.

After careful consideration of the alternative structures, it was proposed that Zinoju amend their method of financial
provisioning from a Trust fund method to an Insurance solution. The ultimate goal is to ensure that Zinoju provide
the DMR with the required financial guarantees for the mining rehabilitation liability calculated in terms of NEMA.

Zinoju was required to make an additional R4.1 million (excluding VAT) cash contribution in July 2017 to the
insurance facility, which increased the investment to R49.1 million. The shortfall of R13.9 million will be funded over
the Life of Mine through the growth in the investment, resulting in no further cash contributions required for the
R63.0 million financial guarantees issued to the DMR, provided there are no changes to the closure cost liability. It is
expected that the existing Trust fund will be dissolved and the funds transferred to Centriq Insurance Company
limited during August 2017.

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.

On June 15, 2017, the Minister of the DMR ("the Minister") published an amended Mining Charter ("Mining Charter")
for implementation. The revised mining charter was not clearly drafted and is ambiguous in many areas, allowing for
a number of significantly different interpretations. The Chamber of Mines ("the Chamber"), representing 90% of the
South African mining industry by value, believes the new Mining Charter is unworkable and was formulated without
taking the Chamber's views into account, and is further of the opinion that the charter is not going to survive in its
present form. Unless the Minister agrees to reopen negotiations, the charter will be challenged on several legal
grounds, one of which is the lack of consultation with stakeholders in the industry.

The current operational adit at Magdalena does not have an Environmental Management Program ("EMP") or
Integrated Water Use License Application ("IWULA"). As a result the mine needs to apply for a Section 24G
retrospective Environmental Impact Analysis ("EIA"). Also, the Calcine Plant has been operating without an Air
Emission License ("AEL"), but to comply with legislation, a full scoping and EIA report should be undertaken. 
The Company is currently completing specialist studies to complete these environmental applications.

The Chamber applied for an urgent interdict on the Mining Charter. On July 14, 2017, the Minister gave a written
undertaking that the Minister and the DMR, will not implement or apply the provisions of the Reviewed Mining
Charter in any way, pending judgment in the urgent interdict application brought by the Chamber.

Also, on July 19, 2017 a notice was published in the Government Gazette by the Minister on his intention to suspend
the processing of the new section 11 of the Mineral and Petroleum Resources Development Act ("MPRDA"). The
notice also includes a restriction on the processing of the applications for renewal of a prospecting right and renewal
of a mining right. On July 25, 2017, the Chamber of Mines lodged an urgent interdict in the Pretoria High Court to
prevent the Minister from restricting the granting of any new application for prospecting rights and mining rights. On
August 3, 2017, the DMR formally agreed not to pursue the contemplated suspension of the processing of section 11
applications, new mining and prospecting rights applications and renewals of existing rights.

The Chamber's legal advice is that the notice constitutes an unlawful action for a number of reasons including the
damaging impact of the notice itself and its proposed further action on the mining sector, and that the minister acted
'ultra vires' or beyond his powers under the MPRDA and unconstitutionally by issuing the notice.

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.

                                                                                           June 30,       December 31,
                                                                                               2017               2016
                                                                                              R'000              R'000
Current assets                                    
Cash and cash equivalents                                                                     9 860             13 754
Trade and other receivables                                                                  79 378             84 773
Inventories                                                                                  49 439             35 222
Non-interest bearing receivables                                                              1 958              1 902
                                                                                            140 635            135 651
Current liabilities                                    
Trade and other payables (excluding provisions)                                             163 433            158 262
Current portion of borrowings                                                               185 120            161 361
Current tax liability                                                                         9 117              8 775
                                                                                            357 670            328 398
Net working capital                                                                       (217 035)          (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:

                                                       6 months ended                      3 months ended
                                                      June 30,       June 30,     June 30,      June 30,     March 31,
R'000                                                     2017           2016         2017          2016          2017
Operating profit for the period                         20 125         44 272        1 938        33 634        18 187

Depreciation and amortization                           29 694         33 183       14 802        16 840        14 892
Impairment of receivables                                  (3)              -            -             -           (3)
Fair value adjustments of financial assets 
and conversion
option liability                                      (24 876)       (66 264)     (13 728)      (56 308)      (11 148)
Stock-based compensation                                    36            226            9            76            27
Foreign exchange (gains)/losses                       (17 421)       (12 867)      (9 156)         (330)       (8 266)
Adjusted EBITDA                                          7 555        (1 450)      (6 135)       (6 090)        13 689

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 June 30, 2017 and June 30, 2016
to net revenue which excludes all railage, port handling and wharfage related costs:

                                                             6 months ended                    3 months ended
                                                       June 30,       June 30,     June 30,      June 30,     March 31,
R'000                                                      2017           2016         2017          2016          2017
Revenue                                                 325 866        298 547      154 442       156 059       171 424
Railage, port handling and wharfage                      12 721         10 621        5 191         6 400         7 500
Net revenue                                             313 145        287 926      149 251       149 659       163 924

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:

                                                                      6 months ended               3 months ended
                                                                     June 30,    June 30,       June 30,       June 30,
                                                                         2017        2016           2017           2016
(Loss)/profit for the period                                      (2 734 090)   (612 458)    (6 959 001)     11 481 103
Net (profit)/loss on disposal of property, plant and equipment    (1 281 436)       6 053    (1 281 436)              -
Headline (loss)/profit for the period                             (4 015 526)   (606 406)    (8 240 437)     11 481 103
Headline (loss)/profit per share - basic and diluted                   (0.01)         0.0         (0.02)           0.03

SUMMARY OF SECURITIES AS AT AUGUST 22, 2017

As at August 22, 2017 the following Common Shares, Common Share purchase options and share purchase warrants
were issued and outstanding:

-    403 514 078 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 2.49 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

August 22, 2017
Sponsor: Questco Proprietary Limited
Date: 23/08/2017 05:19:00 Supplied by www.sharenet.co.za                     
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