Wrap Text
Condensed interim consolidated financial statements
Forbes & Manhattan Coal Corp.
(Registration number: 002116278)
(External company registration number: 2011/011661/10)
Share code on the Toronto Stock Exchange: FMC
Share code on the JSE Limited: FMC
ISIN: CA3451171050
(“Forbes Coal” or “the Company”)
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended November 30, 2013 and 2012
(Presented in Canadian dollars)
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Financial Position
(Presented in Canadian dollars)
Notes November 30, 2013 February 28, 2013
ASSETS
Current
Cash $ 2,225,084 $ 3,025,664
Restricted cash 50,000 50,000
Accounts and other receivables 24 11,294,672 13,610,214
Inventories 9 9,372,263 10,153,759
Other assets 13 - 1,879,946
Prepaid expenses 44,765 83,235
Total current assets 22,986,784 28,802,818
Property, plant and equipment 10 60,599,915 68,951,509
Intangibles 11 4,021,913 4,561,205
Goodwill 12 13,879,944 15,239,856
Other assets 13 2,619,277 3,024,084
Long-term restricted cash 1,318,793 1,421,040
Deferred income taxes 1,532,313 428,109
Total assets $ 106,958,939 $ 122,428,621
LIABILITIES
Current
Accounts payable and accrued liabilities 14,22 $ 18,450,688 $ 16,590,646
Other financial liabilities 15 5,638,417 10,674,912
Asset retirement obligations 17 277,343 305,317
Loans payable 22,360 24,616
Total current liabilities 24,388,808 27,595,491
Convertible long-term loan 16 4,896,294 -
Other financial liabilities 15 9,862,105 14,568,444
Asset retirement obligations 17 3,228,643 3,388,467
Deferred income taxes 7,476,310 9,852,429
Total liabilities 49,852,160 55,404,831
SHAREHOLDERS' EQUITY
Issued capital 19 97,567,931 97,342,142
Reserves 16, 20 4,524,953 7,387,684
Deficit (23,829,095) (19,703,918)
Currency translation reserve (21,796,022) (18,641,130)
Equity attributable to the owners of the Company 56,467,767 66,384,778
Non-controlling interest 639,012 639,012
Total shareholders' equity 57,106,779 67,023,790
Total liabilities and shareholders' equity $ 106,958,939 $ 122,428,621
Commitments and contingencies 1, 23, 24, 25
Subsequent events 25
APPROVED ON BEHALF OF THE BOARD:
Signed “Stephan Theron” , Director Signed “Bernie Wilson” , Director
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Operations and Comprehensive Loss
(Presented in Canadian Dollars)
For the three months ended For the nine months ended
Notes
November 30, 2013 November 30, 2012 November 30, 2013 November 30, 2012
REVENUE $ 16,639,389 $ 10,831,529 $ 55,797,170 $ 55,021,998
COST OF SALES
Operating expenses 9 14,422,718 11,133,620 48,021,066 45,615,100
Amortization and depletion 2,187,127 1,992,563 7,945,138 7,538,013
Stock based compensation 20 - - 146,000 -
16,609,845 13,126,183 56,112,204 53,153,113
Gross profit (loss) 29,544 (2,294,654) (315,034) 1,868,885
EXPENSES
Consulting and professional fees 22 916,459 1,908,775 2,649,288 3,377,919
General and administration 22 839,161 1,248,314 2,918,799 4,458,659
Stock based compensation 20 - 6,447 229,790 35,229
Mineral properties investigation costs - 1,629 - 16,052
1,755,620 3,165,165 5,797,877 7,887,859
Net loss before other items (1,726,076) (5,459,819) (6,112,911) (6,018,974)
OTHER ITEMS
Other income 225,419 213,998 768,408 702,792
Net accretion and interest (expense) 8,16 (577,856) (587,882) (1,626,481) (1,577,353)
Foreign exchange gain (loss) (1,236,050) (128) (1,235,860) (2,383)
Unrealized (loss) on marked-to-market securities (23,438) (26,786) (43,527) (512,277)
Gain on disposition of equipment - - 7,458 -
NET LOSS before income tax (3,338,001) (6,133,510) (8,242,913) (7,681,088)
Income and other tax (expense) recovery 898,152 1,161,041 (144,414) 892,999
NET LOSS for the period (2,439,849) (4,972,469) (8,387,327) (6,788,089)
Other comprehensive loss items
Unrealized gain (loss) on foreign currency translation 692,261 (3,302,740) (3,154,892) (11,982,957)
COMPREHENSIVE LOSS for the period $ (1,747,588) $ (8,275,209) $ (11,542,219) $ (18,771,046)
Net loss per share - basic and diluted (0.07) (0.14) (0.24) (0.19)
Headline loss per share - basic and diluted (0.07) (0.14) (0.24) (0.19)
Weighted average number:
of common shares outstanding - basic 34,887,190 34,836,922 34,551,872 34,856,189
of common shares outstanding - diluted 34,887,190 34,836,922 34,551,872 34,856,189
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Cash Flows
(Presented in Canadian Dollars)
For the three months ended For the nine months ended
November 30, 2013 November 30, 2012 November 30, 2013 November 30, 2012
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period $ (2,439,849) $ (4,972,469) $ (8,387,327) $ (6,788,089)
Adjustments:
Amortization and depletion 2,187,127 1,992,563 7,945,138 7,538,013
Fair value adjustment on financial assets (132,906) (139,501) (346,590) (470,601)
Deferred income taxes (898,152) (1,012,381) 168,978 (1,767,566)
Accretion 2,696 87,506 150,324 132,007
Unrealized foreign exchange (gain) 87,619 (68,959) 84,514 (69,365)
Unrealized loss on marked-to-market securities 23,438 26,785 43,527 512,276
Stock based compensation - 6,447 375,790 35,229
Loan accretion 115,251 - 115,251 -
Interest on loan 125,883 - 125,883 -
Gain on disposition of equipment - - (7,458) -
(928,893) (4,080,009) 268,030 (878,096)
Net change in non-cash working capital (442,581) 2,280,473 3,581,994 2,970,207
(1,371,474) (1,799,536) 3,850,024 2,092,111
INVESTING ACTIVITIES
Deposit on cancelled acquisition - (5,524,418) - (5,524,418)
Prepaid financing costs - (2,039,394) - (2,039,394)
Changes in accounts payable attributable to prepaid financing costs - 1,915,941 - 1,915,941
Long-term prepaid expenses - (30,734) - (275,293)
Additions to property, plant and equipment (1,706,259) (1,771,507) (4,885,250) (5,636,308)
Proceeds from disposition of equipment - - 30,093 -
Additional (contribution to) recovery from other financial assets 2,598,851 970,802 2,103,283 1,444,542
Restricted cash (27,872) (1,247,354) (27,872) 296,850
864,720 (7,726,664) (2,779,746) (9,818,080)
FINANCING ACTIVITIES
Convertible long-term loan - drawdown net of costs 5,844,926 - 5,844,926 -
Investec loan facility - drawdowns - - - 5,831,288
Investec loan facility - repayments (3,180,958) - (5,427,636) (2,043,576)
Instalment sale agreements - repayments (1,819,928) (124,422) (2,061,319) (378,573)
Other loans drawdowns (repayments) - 4,840 - (194,265)
Change in non-current accounts receivable 1,730 (1,363,872) 5,307 (402,155)
Payments to BEE partners - 1,477 - (59,275)
Repurchase of shares under NCIB - (243,365) - (243,365)
845,770 (1,725,342) (1,638,722) 2,510,079
Effect of exchange rate change on cash 10,076 347,306 (232,136) (535,759)
CHANGE IN CASH 339,016 (11,251,542) (568,444) (5,215,890)
CASH, beginning of the period 1,875,992 14,633,665 3,025,664 9,481,078
CASH, end of the period $ 2,225,084 $ 3,729,429 $ 2,225,084 $ 3,729,429
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Changes in Equity
(Presented in Canadian dollars)
Reserves Currency
Number of Issued Shareholders'
Deficit translation
shares issued capital Warrant Option Equity portion BEE option Treasury equity
reserve
reserve reserve of loan reserve shares
Balance as at February 29, 2012 34,865,717 $ 98,792,926 $ 2,149,853 $ 7,812,941 $ - $ 1,245,529 $ - $ (14,519,284) $ (6,106,530) $ 89,375,435
Repurchase of shares (243,365) (243,365)
Cancellation of repurchased shares (90,356) (273,279) - - - - 61,672 211,607 - -
Stock-based compensation - - - 35,229 - - - - - 35,229
Stock options expired - - - (1,551,876) - - - 1,551,876 - -
Broker warrants expired - - (993,053) - - - - 993,053 - -
Dividends declared to BEE partners (59,275) - (59,275)
Other comprehensive loss for the period - - - - - - - - (11,982,957) (11,982,957)
Net loss for the period - - - - - - - (6,788,089) - (6,788,089)
Balance as at November 30, 2012 34,775,361 $ 98,519,647 $ 1,156,800 $ 6,296,294 $ - $ 1,245,529 $ (181,693) $ (18,610,112) $ (18,089,487) $ 70,336,978
Repurchase of shares - - - - - - (43,601) - - (43,601)
Cancellation of repurchased shares (389,326) (1,177,505) - - - - 225,294 952,211 - -
Stock-based compensation - - - 3,075 - - - - - 3,075
Stock options expired - - - (157,214) - - - 157,214 - -
Broker warrants expired - - (1,156,800) - - - - 1,156,800 - -
Dividends declared to BEE partners - - - - - - - 901 - 901
Other comprehensive loss for the period - - - - - - - - (551,643) (551,643)
Net loss for the period - - - - - - - (3,360,932) - (3,360,932)
Balance as at February 28, 2013 34,386,035 $ 97,342,142 $ - $ 6,142,155 $ - $ 1,245,529 $ - $ (19,703,918) $ (18,641,130) $ 66,384,778
Shares issued related to loan 684,073 225,789 - - - - - - - 225,789
Stock-based compensation - - - 375,790 - - - - - 375,790
Stock options expired - - - (4,262,150) - - - 4,262,150 - -
Equity portion of loan net of issue costs - - - - 1,023,629 - - - - 1,023,629
Other comprehensive loss for the period - - - - - - - - (3,154,892) (3,154,892)
Net loss for the period - - - - - - - (8,387,327) - (8,387,327)
Balance as at November 30, 2013 35,070,108 $ 97,567,931 $ - $ 2,255,795 $ 1,023,629 $ 1,245,529 $ - $ (23,829,095) $ (21,796,022) $ 56,467,767
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
1) NATURE OF OPERATIONS AND GOING CONCERN
(a) Nature of operations
Forbes & Manhattan Coal Corp. (individually, or collectively with its subsidiaries, as applicable, “Forbes Coal” or the "Company") is a coal
mining company. The Company is listed on the Toronto Stock Exchange (“TSX”) and the Johannesburg Stock Exchange (“JSE”). The
Company’s head office is located at 65 Queen Street West, Suite 815, Toronto, Ontario, Canada. These consolidated financial statements
were approved and authorized for issue by the Board of Directors on January 10, 2014.
The Company’s subsidiary Forbes Coal (Pty) Ltd. (formerly known as Slater Coal (Pty) Ltd.) (“Forbes Coal Dundee”), a South African
company, holds an interest in coal mines in South Africa (“Forbes Coal Dundee Properties”). The Forbes Coal Dundee Properties
comprise of the operating Magdalena bituminous mine (the "Magdalena Property") and the Aviemore anthracite mine (the "Aviemore
Property"). Forbes Coal Dundee is engaged in open-pit and underground coal mining.
Forbes Coal Dundee indirectly holds a 70% interest in the Forbes Coal Dundee Properties through its 70% interest in Zinoju Coal (Pty) Ltd.
(“Zinoju”) which holds all of the mineral rights and prospecting permits with respect to the Forbes Coal Dundee Properties. The remaining
30% interest in Zinoju Coal (Pty) Ltd. is held by the South African Black Economic Empowerment ("BEE") partners. BEE is a statutory
initiative on behalf of the South African government, enacted to increase access by historically disadvantaged South Africans (“HDSA”) to
the South African economy by increasing HDSA ownership in South African enterprises.
The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that current operations will
result in profitable mining operations. The recoverability of the carrying value of property, plant and equipment, intangibles and goodwill
and the Company's continued existence is dependent upon the preservation of its interests in the underlying properties, the discovery of
economically recoverable reserves, the achievement of profitable operations, ability to transport and sell its coal, or the ability of the
Company to raise additional financing, if necessary, or alternatively upon the Company's ability to dispose of its interests on an
advantageous basis. Changes in future conditions could require material write-downs to the carrying values. The Company’s assets may
also be subject to increases in taxes and royalties, renegotiation of contracts, currency exchange fluctuations and restrictions, and political
uncertainty.
Although the Company has taken steps to verify title to the properties on which it is conducting its exploration, development and mining
activities, these procedures do not guarantee the Company’s title. Property title may be subject to government licensing requirements or
regulations, unregistered prior agreements, unregistered claims, aboriginal land claims and non-compliance with regulatory and
environmental requirements.
(b) Going concern
These unaudited condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable
to a going concern, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its
assets and discharge its liabilities in the normal course of operations. The Company has a significant need for equity capital and financing
for operations and working capital. Because of continuing operating losses and a working capital deficiency, the Company's continuance
as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. The Company
has not met certain debt Facility Covenants (see Note 15) and while the bank has waived the breach of the debt facility as at November
30, 2013 and the date of this report, it is not possible to predict whether financing efforts will be successful or if the Company will attain
profitable levels of operations. During September 2013, the Company closed a secured US$ 6 million convertible loan facility (See Note
16). During December 2013, an additional financing, subject to various approvals and conditions was proposed (See Note 25). Should the
additional financing as described in Note 25 not come to fruition there is significant uncertainty about the Company’s ability to continue as
a going concern.
The mining industry in South Africa has been experiencing tense labor relation issues including labour disruptions. During fiscal 2013, the
Company experienced labour disruptions which negatively impacted its financial results While the dispute has been resolved and the
disruption has ceased, if new labour disruptions were to take place at the Company’s mines, they could have further and significant
negative impacts on the operations and financial results of the Company.
If the going concern assumption was not appropriate for these consolidated financial statements then adjustments would be necessary to
the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Such
adjustments could be material.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
2) BASIS OF PREPARATION
These condensed interim consolidated financial statements of the Company and its subsidiary were prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and have been
prepared in accordance with accounting policies based on the IFRS standards and International Financial Reporting Interpretations
Committee (“IFRIC”) interpretations. The policies set out in the Company’s annual consolidated financial statements for the year ended
February 28, 2013 were consistently applied to all the periods presented unless otherwise noted below.
The preparation of condensed interim financial statements in accordance with IAS 34 requires the use of certain critical accounting
estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.
These condensed interim consolidated financial statements have been prepared on a historical cost basis except for financial instruments
classified as held-for-trading, which are stated at their fair value. In addition, these condensed interim consolidated financial statements
have been prepared using the accrual basis of accounting, except for cash flow information.
Certain comparative amounts have been reclassified to conform to the current year's presentation.
3) NEW ACCOUNTING POLICIES
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are
mandatory for accounting periods beginning after January 1, 2013 or later periods. Updates that are not applicable or are not
consequential to the Company have been excluded thereof.
IFRS 10 Consolidated Financial Statements (“IFRS 10”) provides a single model to be applied in the control analysis for all investees,
including entities that currently are special purpose entities in the scope of SIC 12. In addition, the consolidation procedures are carried
forward substantially unmodified from IAS 27 Consolidated and Separate Financial Statements. This standard became effective for the
Company for the period beginning on or after March 1, 2013. There was no significant impact on the consolidated financial statements as a
result of this change.
IFRS 11 Joint Arrangements (“IFRS 11”) replaces the guidance in IAS 31 Interests in Joint Ventures. Under IFRS 11, joint arrangements
are classified as either joint operations or joint ventures. IFRS 11 essentially carves out of previous jointly controlled entities, those
arrangements which although structured through a separate vehicle, such separation is ineffective and the parties to the arrangement have
rights to the assets and obligations for the liabilities and are accounted for as joint operations in a fashion consistent with jointly controlled
assets/operations under IAS 31. In addition, under IFRS 11 joint ventures are stripped of the free choice of equity accounting or
proportionate consolidation; these entities must now use the equity method.
Upon application of IFRS 11, entities which had previously accounted for joint ventures using proportionate consolidation shall collapse the
proportionately consolidated net asset value (including any allocation of goodwill) into a single investment balance at the beginning of the
earliest period presented. The investment’s opening balance is tested for impairment in accordance with IAS 28 Investments in Associates
and IAS 36 Impairment of Assets. Any impairment losses are recognized as an adjustment to opening retained earnings at the beginning
of the earliest period presented. The Company adopted IFRS 11 in its consolidated financial statements for the period beginning on March
1, 2013. The Company currently has no joint ventures and therefore there is no impact of IFRS 11 to the Company’s consolidated financial
statements.
IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”) requires extensive disclosures relating to a company’s interests in
subsidiaries, joint arrangements, associates, and unconsolidated structured entities. This IFRS enables users of the financial statements to
evaluate the nature and risks associated with its interests in other entities and the effects of those interests on its financial position and
performance. IFRS 12 became effective for the Company for the period beginning March 1, 2013. There was no significant impact of IFRS
12 to the Company’s consolidated financial statements
IFRS 13 Fair Value Measurement (“IFRS 13”) converges IFRS and US GAAP on how to measure fair value and the related fair value
disclosures. The new standard creates a single source of guidance for fair value measurements, where fair value is required or permitted
under IFRS, by not changing how fair value is used but how it is measured. The focus will be on an exit price. IFRS 13 became effective
for the Company for the period beginning March 1, 2013. Adoption of this standard had no significant impact on the Company’s
consolidated financial statements.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
3) NEW ACCOUNTING POLICIES (Continued)
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (“IFRIC 20”) provides guidance on the accounting for costs related to
stripping activity in the production phase of surface mining. When the stripping activity results in the benefit of useable ore that can be used
to produce inventory, the related costs are to be accounted for in accordance with IAS 2 Inventories; when the stripping activity results in
the benefit of improved access to ore that will be mined in future periods, the related costs are to be accounted for in accordance with
IFRIC 20 as additions to non-current assets when specific criteria are met. IFRIC 20 became effective for the Company for the period
beginning March 1, 2013. The Company is in compliance with IFRIC 20. There was no significant change to the consolidated financial
statements as a result of this change.
IAS 1 Presentation of Financial Statements (“IAS 1”), has been amended to require entities to separate items presented in other
comprehensive income (“OCI”) into two groups, based on whether or not items may be recycled in the future. Entities that choose to
present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment became
effective for the Company for the period beginning March 1, 2013. There was no significant impact to the Company’s consolidated financial
statements as a result of this change.
4) FUTURE ACCOUNTING CHANGES
IFRS 9 Financial Instruments (“IFRS 9”) was issued in November 2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for
debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss.
IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit
or loss or at fair value through other comprehensive income. This standard is required to be applied for accounting periods beginning on or
after January 1, 2015, with earlier adoption permitted. The Company is currently assessing the impact of IFRS 9 on its consolidated
financial statements.
5) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries, Forbes Coal Dundee, Zinoju,
Corondale Prospecting and Mining Company Pty Ltd and Bowwood and Main No33 (Pty) Ltd (“Bowwood”).
Subsidiaries
Subsidiaries are entities over which the Company has control, where control is defined as the power to govern financial and operating
policies of an entity so as to obtain benefit from its activities. Generally, control is obtained when the Company has a shareholding of more
than one half of the voting rights in its subsidiaries. The effects of potential voting rights that are currently exercisable are considered when
assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-
consolidated from the date control ceases.
Business Combinations and Goodwill
On the acquisition of a subsidiary, the purchase method of accounting is used to account for the acquisition as follows:
- cost is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of
exchange;
- directly attributable transaction costs are expensed rather than included in the acquisition purchase price;
- identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date except for non-current
assets that are classified as held for sale in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’,
which are recognized and measured at fair value less costs to sell;
- the excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill;
- if the acquisition cost is less than the fair value of the net assets acquired, the difference is recognized directly in profit or loss;
the interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholder’s fair value; and
- the measurement of contingent consideration at fair value on the acquisition date is performed with subsequent changes in the fair
value recorded through the consolidated statement of operations.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
5) PRINCIPLES OF CONSOLIDATION (Continued)
All material intercompany transactions are eliminated on consolidation. After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is not amortized and is tested for impairment annually. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash generating units that
are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units. The level at which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is
monitored for internal purposes, but shall not be larger than an operating segment determined in accordance with IFRS 8 Operating
Segments. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal
of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the
portion of the cash-generating unit retained.
Transactions with non-controlling interests
Transactions with non-controlling interests are treated as transactions with equity owners of the Company. For purchases from non-
controlling interests, the difference between the consideration paid and the non-controlling share of the carrying value of net assets
acquired is recorded in equity. Gains or losses on disposals to non-controlling interests are similarly computed and also recorded in equity.
6) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments,
estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related
notes to the financial statements. Although these estimates are based on management’s best knowledge of the amount, event or actions,
actual results may differ from those estimates and these differences could be material.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying values and
amounts include, but are not limited to:
- Assets’ carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value
less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets
indicating impairment. These determinations and their individual assumptions require that management make a decision based on the
best available information at each reporting period.
- Capitalization of exploration and evaluation costs
Management has determined that exploration and evaluation costs incurred during the year have future economic benefits and are
economically recoverable. In making this judgment, management has assessed various sources of information including but not
limited to the geologic and metallurgic information, history of conversion of mineral deposits to proven and probable mineral reserves,
scoping and feasibility studies, proximity of operating facilities, operating management expertise and existing permits.
- Mineral reserve estimates
The figures for mineral reserves and mineral resources are determined in accordance with National Instrument 43-101, “Standards of
Disclosure for Mineral Projects”, issued by the Canadian Securities Administrators. There are numerous uncertainties inherent in
estimating mineral reserves and mineral resources, including many factors beyond the Company’s control. Such estimation is a
subjective process, and the accuracy of any mineral reserve or mineral resource estimate is a function of the quantity and quality of
available data and of the assumptions made and judgments used in engineering and geological interpretation. Differences between
management’s assumptions including economic assumptions such as coal prices, foreign exchange rates and market conditions
could have a material effect the Company’s reserves and resources, and as a result, could also have a material effect on the
Company’s financial position and results of operation.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
6) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
- Impairment of exploration and evaluation assets
While assessing whether any indications of impairment exist for exploration and evaluation assets, consideration is given to both
external and internal sources of information. Information the Company considers includes changes in the market, economic and legal
environment in which the Company operates that are not within its control that could affect the recoverable amount of exploration and
evaluation assets. Internal sources of information include the manner in which exploration and evaluation assets are being used or
are expected to be used and indications of expected economic performance of the assets. Estimates include but are not limited to
estimates of the discounted future after-tax cash flows expected to be derived from the Company’s mining properties, costs to sell the
properties and the appropriate discount rate. Reductions in metal price forecasts, increases in estimated future costs of production,
increases in estimated future capital costs, depreciation of US dollar relative to the South African Rand, reductions in the amount of
recoverable mineral reserves and mineral resources and/or adverse current economics could result in a write-down of the carrying
amounts of the Company’s assets.
- Estimation of decommissioning and restoration costs and the timing of expenditure
The cost estimates are updated annually during the life of a mine to reflect known developments, (e.g. revisions to cost estimates and
to the estimated lives of operations), and are subject to review at regular intervals. Decommissioning, restoration and similar liabilities
are estimated based on the Company’s interpretation of current regulatory requirements, constructive obligations and are measured
at fair value. Fair value is determined based on the net present value of estimated future cash expenditures for the settlement of
decommissioning, restoration or similar liabilities that may occur upon decommissioning of the mine. Such estimates are subject to
change based on changes in laws and regulations and negotiations with regulatory authorities.
- Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future
taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood
that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management
gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are
based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. The Company considers
whether relevant tax planning opportunities are within the Company’s control, are feasible, and are within management’s ability to
implement. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax
position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing
varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of
income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from the
deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period.
- Share-Based Payments
Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-
based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques.
Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating
the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option
exercise behaviors and corporate performance. Such judgments and assumptions are inherently uncertain. Changes in these
assumptions could materially affect the fair value estimates.
- Contingencies
Refer to Notes 1, 23 and 24.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
7) SEGMENTS
The Company operates in Canada and South Africa. The Company’s revenue from external customers and information about its assets by
geographical location are detailed below:
Current Property, plant Other non- Total
Intangibles
assets and equipment current assets assets
February 28, 2013
Canada $ 1,255,200 $ - $ - $ 60,268 $ 1,315,468
South Africa 27,547,618 68,951,509 4,561,205 20,052,821 121,113,153
$ 28,802,818 $ 68,951,509 $ 4,561,205 $ 20,113,089 $ 122,428,621
November 30, 2013
Canada $ 568,054 $ - $ - $ 16,741 $ 584,795
South Africa 22,418,730 60,599,915 4,021,913 19,333,586 106,374,144
$ 22,986,784 $ 60,599,915 $ 4,021,913 $ 19,350,327 $ 106,958,939
All of the Company’s revenues are earned from production in South Africa.
8) NET ACCRETION AND INTEREST (EXPENSE)
Nine months ended
November 30, 2013 November 30, 2012
Interest bearing borrowings $ 1,606,799 $ 1,716,445
Unwinding of provisions 150,325 132,007
Loan accretion 115,250 -
Accretion and interest expense 1,872,374 1,848,452
Cash and restricted cash 245,893 271,099
Interest income 245,893 271,099
Net accretion and interest (expense) $ (1,626,481) $ (1,577,353)
9) INVENTORIES
November 30, 2013 February 28, 2013
Consumables $ 546,200 $ 338,164
Work in progress 555,464 808,126
Finished goods 8,270,599 9,007,469
$ 9,372,263 $ 10,153,759
As at November 30, 2013, $7,268,208 of inventories are presented at cost and $2,104,055 of inventories are presented at net realizable
value after recording a write-down of approximately $401,195. As at February 28, 2013, $5,988,941 of inventories are presented at cost
and $4,164,818 of inventories are presented at net realizable value after recording a write-down of approximately $734,638.
The amount of inventories recognized as an expense during the nine months ended November 30, 2013 is $49,194,104 (November 30,
2012 - $45,615,100).
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
10) PROPERTY, PLANT AND EQUIPMENT
Mining Office Land and Development Mining rights Total
assets equipment buildings costs
and fixtures
Cost as at February 28, 2013 $ 52,000,506 $ 693,332 $ 992,216 $ 6,421,292 $ 35,403,836 $ 95,511,182
Effect of foreign currency exchange difference (4,764,444) (63,525) (90,910) (588,338) (3,243,807) (8,751,024)
Additions 3,378,069 15,779 13,386 204,850 1,249,200 4,861,284
Disposals (33,230) - - - - (33,230)
Cost as at November 30, 2013 $ 50,580,901 $ 645,586 $ 914,692 $ 6,037,804 $ 33,409,229 $ 91,588,212
Accumulated depreciation, depletion and
$ (18,632,673) $ (299,978) $ (106,273) $ (560,801) $ (6,959,948) $ (26,559,673)
impairment as at February 28, 2013
Effect of foreign currency exchange difference 1,707,181 27,485 9,737 51,382 637,692 2,433,477
Charge for the period (5,276,000) (148,274) (49,742) (308,233) (1,090,375) (6,872,624)
Disposals 10,523 - - - - 10,523
Depreciation and depletion as at November 30, 2013
$ (22,190,969) $ (420,767) $ (146,278) $ (817,652) $ (7,412,631) $ (30,988,297)
Net book value as at February 28, 2013 $ 33,367,833 $ 393,354 $ 885,943 $ 5,860,491 $ 28,443,888 $ 68,951,509
Net book value as at November 30, 2013 $ 28,389,932 $ 224,819 $ 768,414 $ 5,220,152 $ 25,996,598 $ 60,599,915
Land and building includes a net book value balance of approximately $72,000 for a property that is not directly used in production and
operations. Office equipment includes a net book value balance of approximately $49,000 for fixtures that are not directly used in
production and operations.
11) INTANGIBLES
Richards Bay Mineral and Total
Coal Terminal prospecting
entitlements rights
Cost as at February 28, 2013 $ 4,047,787 $ 859,500 $ 4,907,287
Effect of foreign currency exchange difference (370,871) (78,750) (449,621)
Cost as at November 30, 2013 $ 3,676,916 $ 780,750 $ 4,457,666
Accumulated depreciation and depletion as at February 28, 2013 $ (331,195) $ (14,887) $ (346,082)
Effect of foreign currency exchange difference 30,346 1,364 31,710
Charge for the period (114,098) (7,283) (121,381)
Depreciation and depletion as at November 30, 2013 $ (414,947) $ (20,806) $ (435,753)
Net book value as at February 28, 2013 $ 3,716,592 $ 844,613 $ 4,561,205
Net book value as at November 30, 2013 $ 3,261,969 $ 759,944 $ 4,021,913
12) GOODWILL
Balance as at February 28, 2013 $ 15,239,856
Effect of foreign currency exchange difference (1,359,912)
Balance as at November 30, 2013 $ 13,879,944
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
13) OTHER ASSETS
November 30, 2013 February 28, 2013
Endowment policy and long-term investments 2,263,275 $ 4,464,551
Security investments 16,741 60,268
Long-term receivables 339,261 379,211
$ 2,619,277 $ 4,904,030
The other assets included an endowment policy held by the Company to fund payment requirements associated with its instalment sale
agreement obligations. The endowment policy matured during the nine months ended November 30, 2013. The long-term investments are
held by the company to fund rehabilitation and asset retirement obligation (See Note 17). The investment in this financial asset is
classified as level 3 on the fair value hierarchy as the inputs required to determine fair value of the investment are actuarially determined
and not supported by market activity.
November 30, 2013 February 28, 2013
Current portion $ - $ 1,879,946
Long-term portion 2,619,277 3,024,084
$ 2,619,277 $ 4,904,030
The table below sets forth the summary of changes in the endowment policy and long-term investments for the period ended November
30, 2013:
Balance as at February 28, 2013 $ 4,464,551
Effect of foreign currency exchange difference (409,056)
Current year contributions 697,206
Fair value adjustment 333,818
Current year maturities (2,823,244)
Balance as at November 30, 2013 $ 2,263,275
14) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
November 30, 2013 February 28, 2013
Trade payables $ 8,295,932 $ 5,003,629
Payroll and other statutory liabilities 2,033,946 832,228
Current tax payable 244,116 292,706
Unrecognized revenue 3,843,048 5,693,382
Other payables and accruals 4,033,646 4,768,701
$ 18,450,688 $ 16,590,646
15) OTHER FINANCIAL LIABILITIES
November 30, 2013 February 28, 2013
Instalment sale agreements(*) $ 208,104 $ 2,496,344
Third party institutional loans (**) 15,292,418 22,747,012
Total interest bearing borrowings 15,500,522 25,243,356
Less:
Current portion of instalment sale agreements (208,104) (2,403,690)
Current portion of third party institutional loans (5,430,313) (8,271,222)
Total current portion of interest bearing borrowings (5,638,417) (10,674,912)
Total long-term portion of interest bearing borrowings $ 9,862,105 $ 14,568,444
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
15) OTHER FINANCIAL LIABILITIES (Continued)
(*) The instalment sale agreements related liabilities are payable over periods from three to five years, at interest rates linked to prime and
are secured by mining assets with a book value of approximately $1,917,000 and an endowment policy.
(**) The Company, through its subsidiary Forbes Coal Dundee, has secured a ZAR 230 million (approximately $24 million) loan facility from
Investec Limited (“Investec”). The loan facility consists of a five year senior secured amortizing term loan facility of up to ZAR 200 million
(approximately $21 million) and a revolving loan facility of up to ZAR 30 million (approximately $3 million). The facilities are secured
against the assets of Forbes Coal Dundee. Term loan bears interest at the 3 month JIBAR rate, plus 3%, compounded quarterly and the
revolving loan bears interest at prime interest rate less 1.5%. The interest rate has increased by 1% effective January 2013 as the earnings
before interest, taxes, depreciation and amortization of Forbes Coal Dundee fell below ZAR 100 million annually (approximately $10
million).
The loan is repayable in quarterly payments of ZAR 10,526,315 (approximately $1,100,000) commencing on March 1, 2012, with the first
capital payment made in July 2012. On September 10, 2013 the Company made a repayment on its revolving loan facility in the amount of
$2,082,000 (ZAR 20,000,000). As at November 30, 2013, an amount of $15,292,418 (ZAR 146,901,231) is recorded as owed under this
facility and repayable as follows:
In the next Amount
12 months $ 5,430,313
13-24 months 4,383,158
25-36 months 4,383,158
37-48 months 1,095,789
$ 15,292,418
The Investec loan is issued under the following terms:
Facilities
- First ranking security over the assets of the Company, including but not limited to mortgage bonds over the Company’s immovable
property and special and general notarial bonds over the Company’s movable property; (Forbes Coal Dundee assets only).
- Subordination of all claims by the affiliates of the Company and the shareholder against the Company;
- Negative pledge over assets of the Company.
Cession in Security
- Secured property consists of bank account, insurances, trade receivables, the borrower’s shares in Zinoju Coal Proprietary Limited
Ltd, all claims by and against group companies and related rights to the preceding.
Mortgage bond
- Secured bond over the property (land and buildings) within Forbes Coal Dundee (coal fields).
General bond
- Secured bond over the property (movable) within Forbes Coal Dundee, including:
a. all the plant, equipment, machinery, office furniture, fixtures and fittings, inventory and motor vehicles;
b. every claim and indebtedness of whatever kind or nature;
c. all the rights to quotas, permits, licenses and the like;
d. all the contractual rights, including without limitation, rights in respect of insurance policies taken out by or in favor of the mortgagor,
franchise rights and rights under agency agreements or other agreements of a like nature and rights as lessee or lessor;
e. all the goodwill of the business of the mortgagor and all its rights to trademarks and trade names,
Special bond
- Secured bond over the property (movable) within Forbes Coal Dundee, that is currently used as security over the finance lease
agreements.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
15) OTHER FINANCIAL LIABILITIES (Continued)
Covenants
This loan is a subject to a Net Debt/EBITDA, EBITDA/Net Interest and Debt/Equity covenants. As at November 30, 2013, the Company
was not in compliance with its covenants. The bank has waived the breaches that have taken place to November 30, 2013.
Investec agreed to release the security provided over the anthracite stockpile at July 31, 2013 in order for it to be pledged to Resource
Capital Fund V L.P ("RCF") in terms of the convertible loan agreement.
The Company made the following drawdowns on the facility: in January 2012, the Company made a drawdown for ZAR 11,140,000
(approximately $1,160,000), in February 2012 for ZAR 142,000,000 (approximately $14,782,000) and in June 2012 for ZAR 46,860,000
(approximately $4,878,000). As at November 30, 2013, the senior term loan facility of ZAR 200,000,000 (approximately $21 million) was
fully drawn and the working capital facility of ZAR 30,000,000 (approximately $3 million) with ZAR 20,000,000 (approximately $2 million)
available to be drawn down.
See Cancelled Acquisition of Riversdale Holdings Proprietary Limited (Note 24) which discloses an additional loan facility, offered by
Investec to fund this potential acquisition.
The other financial liabilities are repayable as follows:
In the next Amount
12 months $ 5,638,417
13-24 months 4,383,158
25-36 months 4,383,158
37-48 months 1,095,789
$ 15,500,522
The interest rate exposure of borrowings of the Company was as follows:
Instalment sale agreements at floating rates $ 208,104
Investec loan at 9.19% 15,292,418
$ 15,500,522
16) CONVERTIBLE LONG-TERM LOAN
On September 4, 2013, the Company closed a secured US$6,000,000 ($6,372,000) convertible loan facility from RCF (the "Transaction").
The loan facility matures on June 30, 2016. The principal on the loan facility is convertible into common shares of Forbes Coal at a price of
$0.36 per common share.
Prior to receipt of shareholder approval, the loan had an interest rate of 10% per annum, payable on each calendar quarter. Upon receipt
of shareholder approval on September 11, 2013, the interest rate decreased to 8% per annum.
The Company recorded the convertible long-term loan in its component liability (loan) and equity (conversion option) parts. The loan was
recorded in the consolidated statements of financial position at the net present value of future payments using a discount rate of 16%. After
discounting the liability to its estimated fair value, the liability and equity portion of the convertible debentures was US$4,930,000
($5,172,556) and US$1,070,000 ($1,122,644), respectively. The liability portion will be accreted to its face value of US$6,000,000
($6,372,000) using the effective interest rate method at approximately 20%. Accretion of both liability portion and loan issue costs totaled
$115,250 for the nine months ended November 30, 2013 and was recorded as a finance cost in the consolidated statements of operations.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
16) CONVERTIBLE LONG-TERM LOAN (Continued)
Loan proceeds, gross, September 4, 2013 $ 6,295,200
Conversion option, equity (1,122,644)
Loan issue costs, gross (555,222)
Loan issue costs, attributable to conversion option 99,015
Loan accretion, liability portion 74,996
Loan accretion, issue costs portion 40,254
Effect of foreign currency exchange difference 64,695
Balance November 30, 2013 $ 4,896,294
The issuance of common shares to RCF upon conversion of the loan, interest payments and for the establishment fee were subject to
shareholder approval which was received at the annual and special meeting that was held on September 11, 2013. As a result of the
Transaction, RCF received a 3% establishment fee payable in cash or common shares. Following shareholder approval, 517,450 common
shares at a price of $0.36 per share were issued on September 19, 2013 to satisfy the establishment fee. Also 166,623 common shares at
a price of $0.2371 per share were issued on October 15, 2013 to satisfy interest payment on the loan to September 30, 2013.
Provided that the loan is outstanding and RCF holds common shares or the right to acquire common shares equal to at least 15% of the
issued and outstanding common shares of Forbes Coal, RCF has the right to participate in any future financings by Forbes Coal on a pro
rata basis to its partially diluted shareholding. In addition, provided that the loan is outstanding or if RCF holds common shares or the right
to acquire common shares equal to at least 15% of the issued and outstanding common shares, RCF will have the right to nominate one
individual to the board of directors.
Prior to the Transaction RCF owned 6,867,443 (19.97%) of the issued and outstanding common shares of Forbes Coal on a non-diluted
basis. Assuming an exchange rate of $1.00 = US$1.00 and a 20-day VWAP of $0.32 (being the 20 day VWAP as of August 9, 2013), if
RCF converts the entire amount of the loan, receives the establishment fee in common shares, and receives all interest payments under
the loan in common shares, RCF will be issued an aggregate of 21,427,284 common shares. Assuming no other issuances of shares by
Forbes Coal, this would result in RCF holding an aggregate of 28,294,767 (50.1%) of the issued and outstanding common shares of
Forbes Coal.
The closing of the US$6 ($6.372) million convertible loan facility with RCF triggered the change of control provision in certain consulting
contracts. Whether certain consultants will request payment is not yet known or determinable and as such no amounts have been recorded
in these financial statements (See Note 25).
17) ASSET RETIREMENT OBLIGATIONS
Balance as at February 28, 2013 $ 3,693,784
Effect of foreign currency exchange difference (338,436)
Accretion expense 8,112
Net additional provision 142,526
Balance as at November 30, 2013 $ 3,505,986
Current portion $ 277,343
Long-term portion 3,228,643
$ 3,505,986
The provision for close down rehabilitation costs reflects the net present value of the estimated cost of restoring the environmental
disturbance that has occurred up to the consolidated statements of financial position date and is generally expected to be paid out over 16
to 26 years. South African mining companies are required by law to undertake rehabilitation works as part of their ongoing operations.
These environmental rehabilitation costs are funded by contributions into endowment policies.
The expected timing of the cash outflows in respect of the provision is generally on the closure of the various mining operations. However,
certain current rehabilitation costs are charged to this provision as and when incurred.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
18) SHARES IN ESCROW
On July 20, 2010, the shareholders of Forbes Coal were issued 2,700,000 performance special warrants (the "Performance Special
Warrants"). Each Performance Special Warrant was automatically exercised into one common share of Forbes Coal (each "Performance
Share" and, collectively, the “Performance Shares") for no additional consideration immediately prior to the completion of the Nyah
acquisition, provided that such Performance Shares shall be deposited in escrow with an escrow agent (the "Escrowed Shares"), to be
released as follows:
i) 50% of the Escrowed Shares (the "First Tranche Escrowed Shares") to be released once the Company achieves US$22,000,000 in
EBITDA from the Forbes Coal Dundee Properties over a 12 consecutive month period by July 20, 2013. During the year ended
February 29, 2012, the US$22,000,000 in EBITDA from Forbes Coal Dundee Properties was achieved and the above mentioned
Escrowed Shares were released on October 26, 2011;
ii) The remaining Escrowed Shares will be released if the Company achieves US$35,000,000 in EBITDA from the Forbes Coal
Dundee Properties over a 12 consecutive month period within a three year period following the release of the First Tranche
Escrowed Shares. For further clarity, EBITDA generated from the Forbes Coal Dundee Properties will exclude any gains or losses
generated by the combined company from the disposition of the Forbes Coal Dundee Properties. In the event of not achieving
US$35,000,000 in EBITDA from the Forbes Coal Dundee Properties, the above mentioned Escrowed Shares will be cancelled.
(EBITDA is a non-IFRS measure and defined as earnings before interest, taxes, depreciation and amortization).
The model used to fair value the Performance Special Warrants applies standard Monte Carlo simulation techniques and was based on
correlated one-factor geometric Brownian motions. The key inputs used in the model include:
ZAR/USD FX: 7.3194
ZAR/CAD FX: 7.0897
Equity value of a comparable company: 3.45
API4 Coal Price: 91.81
ZAR/USD FX Volatility: 11.6%
ZAR/CAD FX Volatility: 8.1%
Volatility of a comparable company: 64.3%
19) ISSUED CAPITAL
Issued Number of shares Stated value
Balance as at February 28, 2013 34,386,035 $ 97,342,142
Shares issued related to loan 684,073 225,789
Balance as at November 30, 2013 35,070,108 $ 97,567,931
As a result of the Transaction, RCF received a 3% establishment fee payable in cash or common shares. Following shareholder approval,
517,450 common shares at a price of $0.36 per share were issued on September 19, 2013 to satisfy the establishment fee. Also 166,623
common shares at a price of $0.2371 per share were issued on October 15, 2013 to satisfy interest payment on the loan to September 30,
2013.
20) RESERVES
No. of Weighted Value of No. of Weighted Value of Total value
options average options vested warrants average warrants
exercise exercise vested
price price
Balance as at February 28, 2013 2,730,000 $ 3.18 $ 7,387,684 - $ - $ - $ 7,387,684
Granted and vested 2,347,500 0.29 375,790 - - - 375,790
Expired (1,795,000) 3.42 (4,262,150) - - - (4,262,150)
Equity portion of loan, net - - 1,023,629 - - - 1,023,629
Balance as at November 30, 2013 3,282,500 $ 0.99 $ 4,524,953 - $ - $ - $ 4,524,953
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
20) RESERVES (Continued)
Employee share options plan
The Company has an ownership-based compensation scheme, to be administered by the board of directors of the Company, for directors,
officers, employees and consultants. The plan provides for the issuance of share options to acquire up to 10% of the Company's issued
and outstanding capital. The number of shares reserved for issuance pursuant to the grant of share options will increase as the Company’s
issued and outstanding share capital increases. In accordance with the terms of the plan, as approved by shareholders at a previous
annual general meeting, directors, officers, employees and consultants of the Company may be granted options to purchase common
shares at an exercise price determined by the board of directors, but which shall not be lower than the market price of the underlying
common shares at the time of grant. Each employee share option converts into one common share of the Company on exercise. No
amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of their expiry.
During the nine months ended November 30, 2013, 2,347,500 (November 30, 2012 – nil) share options were granted to directors, officers,
employees and consultants of the Company. The fair value of these stock options was estimated to be $375,600 (November 30, 2012 -
$nil) using the Black-Scholes option pricing model and the following assumptions: expected dividend yield of 0% (November 30, 2012 –
nil%); expected life of 5 years (November 30, 2012 – nil years); expected volatility of 65% (November 30, 2012 – nil%); and a risk-free
interest rate of 1.88% (November 30, 2012 – nil%), vesting immediately. During the nine months ended November 30, 2013, an amount of
$229,790 (November 30, 2012 – $35,229) is included in loss and comprehensive loss as stock based compensation expense related to the
fair value of the portion of options vested during the period for directors, officers and consultants engaged at the corporate level. During the
nine months ended November 30, 2013, an amount of $146,000 (November 30, 2012 – $nil) is included in loss and comprehensive loss as
stock based compensation within cost of sales and is related to the fair value of the portion of options vested during the period for officers,
employees and consultants engaged at the site level. The options expire five years from the date of issue, or 30 days after the resignation
of the director, officer, employee or consultant.
The following share-based payment arrangements were in existence as at November 30, 2013:
Share options
Number of Number of Grant Expiration Exercise Grant date Expected Expected Expected Risk-free
options options date date price estimated volatility life dividend interest
outstanding exercisable fair value years yield rate
vested at grant
190,000 190,000 15-Mar-10 15-Mar-15 $ 2.80 $ 760,545 100% 5.00 0.00% 2.39%
25,000 25,000 13-Oct-10 13-Oct-15 $ 3.25 $ 60,750 100% 5.00 0.00% 1.74%
160,000 160,000 24-Mar-11 24-Mar-16 $ 4.10 $ 356,800 63% 5.00 0.00% 2.15%
100,000 100,000 6-Jun-11 6-Jun-16 $ 3.00 $ 160,000 61% 5.00 0.00% 2.23%
150,000 150,000 13-Jun-11 13-Jun-16 $ 2.77 $ 220,500 61% 5.00 0.00% 2.24%
320,000 320,000 25-Jan-12 25-Jan-17 $ 1.80 $ 323,200 67% 5.00 0.00% 1.36%
2,337,500 2,337,500 13-Aug-13 13-Aug-18 $ 0.29 $ 374,000 65% 5.00 0.00% 1.88%
3,282,500 3,282,500 $ 0.99 $ 2,255,795 5.00
For the nine months ended November 30, 2013, the diluted weighted average number of common shares outstanding excluded 3,282,500
options, as they were anti-dilutive.
Restricted Share Unit
The Company approved the adoption of a Restricted Share Unit (“RSU”) Incentive Plan. Upon adoption of the new plan, the Company is
authorized to grant and issue RSUs to directors and officers of the Company. Each RSU shall entitle the director or officer to receive one
common share of the Company upon completion of certain terms. The common shares will be repurchased from the open market and held
in trust for subsequent issuance. No RSU were issued as at November 30, 2013.
Equity portion of loan
Please refer to Note 16 for full description of convertible long-term loan and it’s convertible option that was allocated into reserves less
portion of loan issue costs associated with it.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
21) FINANCIAL INSTRUMENTS
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the bases of measurement, and
the bases for recognition of income and expenses) for each class of financial asset and financial liability are disclosed in Note 6 of the
annual financial statements for the years ended February 28, 2013 and February 29, 2012.
The Company's financial assets and financial liabilities as at November 30, 2013 and February 28, 2013 were as follows:
Assets / (liabilities) at
Cash, loans and Other financial
fair value through Total
receivables assets/(liabilities)
profit
February 28, 2013
Cash $ 3,025,664 $ - $ - $ 3,025,664
Restricted cash 50,000 - - 50,000
Accounts and other receivables 13,610,214 - - 13,610,214
Other assets 379,211 4,524,819 - 4,904,030
Long-term restricted cash 1,421,040 - - 1,421,040
Accounts payable and accrued liabilities - - (16,590,646) (16,590,646)
Other financial liabilities - current - - (10,674,912) (10,674,912)
Other financial liabilities - long-term - - (14,568,444) (14,568,444)
Loan payable - - (24,616) (24,616)
November 30, 2013
Cash $ 2,225,084 $ - $ - $ 2,225,084
Restricted cash 50,000 - - 50,000
Accounts and other receivables 11,294,672 - - 11,294,672
Other assets 339,261 2,280,016 - 2,619,277
Long-term restricted cash 1,318,793 - - 1,318,793
Accounts payable and accrued liabilities - - (18,450,688) (18,450,688)
Convertible long-term loan - - (4,896,294) (4,896,294)
Other financial liabilities - current - - (5,638,417) (5,638,417)
Other financial liabilities - long-term - - (9,862,105) (9,862,105)
Loan payable - - (22,360) (22,360)
At November 30, 2013, there are no significant concentrations of credit risk for loans and receivables designated at fair value through the
consolidated statement of operations and comprehensive loss. The carrying amount reflected above represents the Company’s maximum
exposure to credit risk for such loans and receivables.
CAPITAL MANAGEMENT
The capital of the Company consists of common shares, warrants, options and other financial liabilities.
The Company manages and adjusts its capital structure based on available funds in order to support the acquisition, exploration and
development of mining properties. The Company manages its capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company
may issue new shares, seek debt financing, or acquire or dispose of assets. The Board of Directors does not establish quantitative return
on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the
business.
The Company is not subject to any externally imposed capital requirements with the exception as discussed in Note 15.
Management reviews its capital management approach on an on-going basis and believes that this approach, given the relative size of the
Company, is reasonable. There have been no significant changes in the risks, objectives, policies and procedures in the nine months
ended November 30, 2013 and 2012, except for the Investec loan as discussed in Note 15 and convertible long-term loan as discussed in
Note 16.
As at November 30, 2013, the capital structure of the Company consists of equity attributable to the owners, reserves attributable to
owners, directors, officers, employees and consultants of the Company totaling $56,467,767 (February 28, 2013 - $66,384,778) and
interest bearing loans of $20,188,712 (February 28, 2013 - $22,747,012).
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
21) FINANCIAL INSTRUMENTS (Continued)
FINANCIAL RISK FACTORS
The Company is exposed to a variety of financial risks. The Company’s overall management program focuses on the unpredictability of
financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company does not use
derivative financial instruments, such as forward exchange contracts, to hedge certain exposures.
(a) Market risk
i. Foreign exchange risk
The Company’s functional currency is the Canadian dollar. The Company operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the South African Rand and the US dollar. Foreign exchange risk arises
from future commercial transactions and recognized assets and liabilities. The Company’s Investec loan facility is also denominated in
Rand. In addition, coal is priced on international markets in United States dollars and converted to Rand to support operations in South
Africa.
Management has set up a policy to require its companies to manage their foreign exchange risk against their functional currency. Foreign
exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the
entity’s functional currency.
A 10% increase (decrease) in the period average foreign exchange rate between the South African Rand and the Company’s functional
currency, the Canadian dollar, would have increased (decreased) the Company’s income by approximately $400,000 for the nine months
ended November 30, 2013. A 10% increase in the period average foreign exchange rate between the United States dollar and Forbes Coal
Dundee’s functional currency, the South African Rand, would have increased (decreased) the Company’s income by approximately
$2,500,000 for the period ended November 30, 2013, as only the export portion of sales is denominated in United States dollars.
A 10% change in the value of the Canadian dollar relative to the US dollar and South African Rand would have an impact on net income of
approximately $500,000 based on the net assets of the Company at November 30, 2013.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
21) FINANCIAL INSTRUMENTS (Continued)
FINANCIAL RISK FACTORS (Continued)
(a) Market risk (continued)
The following assets and liabilities are presented in Canadian dollar values and denominated in different currencies as at November 30,
2013 and February 28, 2013:
Canadian operations balances (*) South African operations balances (**)
presented in CAD and denominated in presented in CAD and denominated in Total
CAD USD GBP ZAR ZAR USD
Cash $ 680,932 $ 463 $ - $ - $ 2,344,269 $ - $ 3,025,664
Restricted cash 50,000 - - - - - 50,000
Accounts and other receivables 453,959 - - - 11,735,687 1,420,568 13,610,214
Inventories - - - - 10,153,759 - 10,153,759
Other assets - current - - - - 1,879,946 - 1,879,946
Prepaid expenses 69,846 - - - 13,389 - 83,235
Property, plant and equipment - - - - 68,951,509 - 68,951,509
Intangibles - - - - 4,561,205 - 4,561,205
Goodwill - - - - 15,239,856 - 15,239,856
Other assets - long-term 60,268 - - - 2,963,816 - 3,024,084
Long-term restricted cash - - - - 1,421,040 - 1,421,040
Deferred income taxes - - - - 428,109 - 428,109
Accounts payable and accrued liabilties (739,066) (2,880) (8,878) (1,709) (11,331,185) (4,506,928) (16,590,646)
Other financial liabilities - current - - - - (10,674,912) - (10,674,912)
Other financial liabilities - long-term - - - - (14,568,444) - (14,568,444)
Asset retirement obligation - current - - - - (305,317) - (305,317)
Asset retirement obligation - long-term - - - - (3,388,467) - (3,388,467)
Loans payable - - - - (24,616) - (24,616)
Deferred income taxes - - - - (9,852,429) - (9,852,429)
Net exposure as at February 28, 2013 $ 575,939 $ (2,417) $ (8,878) $ (1,709) $ 69,547,215 $ (3,086,360) $ 67,023,790
Cash $ 86,938 $ 265,927 $ - $ - $ 1,872,219 $ - $ 2,225,084
Restricted cash 50,000 - - - - - 50,000
Accounts and other receivables 131,078 - - - 11,163,594 - 11,294,672
Inventories - - - - 9,372,263 - 9,372,263
Prepaid expenses 34,111 - - - 10,654 - 44,765
Property, plant and equipment - - - - 60,599,915 - 60,599,915
Intangibles - - - - 4,021,913 - 4,021,913
Goodwill - - - - 13,879,944 - 13,879,944
Other assets - long-term 16,741 - - - 2,602,536 - 2,619,277
Long-term restricted cash - - - - 1,318,793 - 1,318,793
Deferred income taxes - - - - 1,532,313 - 1,532,313
Accounts payable and accrued liabilties (1,077,747) (89,005) (1,238) - (16,906,666) (376,032) (18,450,688)
Convertible long-term loan - (4,896,294) - - - - (4,896,294)
Other financial liabilities - current - - - - (5,638,417) - (5,638,417)
Other financial liabilities - long-term - - - - (9,862,105) - (9,862,105)
Asset retirement obligation - current - - - - (277,343) - (277,343)
Asset retirement obligation - long-term - - - - (3,228,643) - (3,228,643)
Loans payable - - - - (22,360) - (22,360)
Deferred income taxes - - - - (7,476,310) - (7,476,310)
Net exposure as at November 30, 2013 $ (758,879) $ (4,719,372) $ (1,238) $ - $ 62,962,300 $ (376,032) $ 57,106,779
(*) Functional currency of Canadian operations is the Canadian dollar
(**) Functional currency of South African operations is the Rand
ii. Interest rate risk
The Company’s interest rate risk arises from deposits held with banks and interest-bearing liabilities. Borrowings issued at variable rates
expose the Company to cash flow interest rate risk which is partially offset by cash held at variable rates. A 1% increase in interest rates
would create additional expense of approximately $13,000 per month.
iii. Price risk
The Company is exposed to price risk with respect to commodity prices. Commodity prices fluctuate on a daily basis and are affected by
numerous factors beyond the Company's control. The supply and demand for commodities, the level of interest rates, the rate of inflation,
investment decisions by large holders of commodities including governmental reserves and stability of exchange rates can all cause
significant fluctuations in commodities prices. Such external economic factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. A 10% change in the market price of coal would have resulted in a
corresponding change in revenues of approximately $5,580,000 for the nine months ended November 30, 2013.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
21) FINANCIAL INSTRUMENTS (Continued)
FINANCIAL RISK FACTORS (Continued)
(b) Credit risk
The Company's credit risk is primarily attributable to cash and accounts and other receivables. Cash consist of deposits, which have been
made with reputable financial institutions, from which management believes the risk of loss to be remote. Other receivables primarily
consist of amounts owing from coal sales. Management believes that the credit risks concentration with respect to these amounts
receivables are remote.
Restricted cash totaling $50,000 was in GIC investment with Royal Bank of Canada held as collateral against credit card limits used by the
Company. Long-term portion of restricted cash totaling $1,275,960 was on deposit with First National Bank to be released to a supplier if
payments are not made to them. Also proceeds from a stockpile in the amount of $27,953 (ZAR 268,517) are recorded as long-term
restricted cash and are held in a new bank account which is also pledged to RCF under the convertible long-term loan agreement (Note
16).
(c) Liquidity risk
As at November 30, 2013, the Company had net working capital (deficiency) of ($1,402,024) (February 28, 2013 – $1,207,327) which
includes cash and restricted cash of $2,275,084 (February 28, 2013 – $3,075,664), accounts receivable and other receivables of
$11,294,672 (February 28, 2013 – $13,610,214), inventories of $9,372,263 (February 28, 2013 – $10,153,759) and other assets of $nil
(February 28, 2013 – $1,879,946), offset by current liabilities of $24,388,808 (February 28, 2013 – $27,595,491).
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through credit facilities. The Company
aims to maintain flexibility in funding by keeping committed credit lines available in its operating entities.
(d) Fair value of financial instruments
The Company has designated its investments and certain other assets as held-for-trading, measured at fair value. Accounts receivable,
other receivables, restricted cash and cash are classified as loans and receivables, which are measured at amortized cost. Accounts
payable and accrued liabilities, loans payable and other financial liabilities are classified as other financial liabilities, which are measured at
amortized cost.
The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at November 30, 2013, the carrying and fair value amounts of the Company's financial instruments are approximately the same due to
the limited term of these instruments. The following table illustrates the classification of the Company's financial instruments within the fair-
value hierarchy as at November 30, 2013 and February 28, 2013:
November 30, 2013
Level 1 Level 2 Level 3
Endowment policy and investments $ 16,741 $- $2,263,275
February 28, 2013
Level 1 Level 2 Level 3
Endowment policy and investments $ 60,268 $- $4,464,551
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
22) RELATED PARTY DISCLOSURE
During the period, the Company entered into the following transactions in the ordinary course of business with related parties:
Purchases of goods and services for the nine months ended
November 30, 2013 November 30, 2012
2227929 Ontario Inc. $ 472,460 $ 540,469
Forbes & Manhattan Inc. $ 288,150 $ 305,100
The Company shares office space with other companies who may have officers or directors in common with the Company. The costs
associated with this space, certain consulting, professional and general and administration services are administered by 2227929 Ontario
Inc.
Mr. Stan Bharti, a director of the Company, is the Executive Chairman of Forbes & Manhattan, Inc. An administration fee of $15,000 per
month was previously charged by Forbes & Manhattan, Inc. pursuant to a consulting agreement. On May 1, 2013 a consulting agreement
for administration fee of $15,000 per month by Forbes & Manhattan, Inc. was amended to include 3 months termination clause and 24
months change of control clause. Also on May 1, 2013 a consulting agreement with Mr. Stan Bharti, a director of the Company and the
Executive Chairman of Forbes & Manhattan, Inc. for a consulting fee of $15,000 per months was terminated.
The following balances were outstanding at the end of the reporting period:
Amounts owed to related parties as at
November 30, 2013 February 28, 2013
2227929 Ontario Inc. $ 105,168 $ 7,938
These amounts are unsecured, non-interest bearing with no fixed terms of repayment. The related party transactions are in the normal
course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the
related parties.
Certain directors of the Company are related to RCF. See Note 16 and 25 related to certain financing arrangements and related
transaction between RCF and the Company.
Compensation of key management personnel
In accordance with IAS 24, 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 members of key management personnel (officers) during the period were as follows:
Nine months ended
November 30, 2013 November 30, 2012
Short-term benefits $ 1,122,430 $ 1,076,063
Share-based payments 256,000 -
$ 1,378,430 $ 1,076,063
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
23) COMMITMENTS AND CONTINGENCIES
Management contracts
The Company is party to certain management contracts. These contracts require that additional payments of approximately $2,300,000 be
made upon the occurrence of a change of control. Minimum commitments remaining under these contracts were approximately $445,000
all due within one year.
The closing of the US$6 ($6.372) million convertible long-term loan facility with RCF (Note 16) triggered the change of control provision in
certain consulting contracts amounting up to $2.3 million.
Instalment sale agreements payment obligations
The Company is committed to minimum amounts under instalment sale agreements for plant and equipment. Minimum commitments
remaining under these leases were $208,104 and are payable in the current period.
Environmental contingency
The Company’s mining and exploration activities are subject to various laws and regulations governing the environment. These laws and
regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in
compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply
with such laws and regulations.
Guarantees and pledges
The Company and its subsidiaries have made certain guarantees and pledges in the aggregate of approximately ZAR 20 million
($2,082,000).
Operating commitments
The Company is party to an off-take agreement, terminating December 31, 2013 that requires the Company to deliver 800,000 metric tons
of coal during 2013 (with 10% operational tolerance) on a price based upon the market price of coal. As at November 30, 2013, the
remaining requirement is 355,386 tonnes. The Company has subsequently noted that upon the completion of this contract, there was a
shortfall of 352,821 tonnes. The Company is currently in discussions with the other party involved in the off-take agreement regarding the
resolution of this shortfall.
The Company is party to an agreement, terminating December 31, 2013 that requires the Company to export 60,000 metric tons of coal
per month through the Navitrade Terminal. Should this requirement not be met, a penalty of ZAR 90 ($9) per ton is payable on the
difference between the actual number of tons shipped and the minimum commitment.
Outstanding legal proceedings
Sasfin Bank Limited has claimed advisory fees in relation to the successful conclusion of the Riversdale Mining Acquisition in the amount
of ZAR 5,660,000 ($590,000). The Company believes the claim is without merit and intends to defend itself against this claim. No amount
has been provided for related to this claim in these condensed interim consolidated financial statements.
An appeal was lodged in terms of section 96 of the Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”), by the
Avemore Trust challenging the Department of Mineral Resources (“DMR”) in relation to the grant of Mining Right 174 MR (“Mining Right
174”) to Zinoju Coal (Pty) Ltd. Zinoju has lodged its replying submission to the DMR and in the interim, pending the outcome of the process
embarked upon by Avemore Trust, Zinoju remains the holder of Mining Right 174 and is entitled to continue mining activity in the mining
area covered by Mining Right 174. The company is taking various steps to mitigate any potential risks in relation to the appeal.
Existing Investec loan facility and convertible long-term loan
Please refer to Notes 15 and 16.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
23) COMMITMENTS AND CONTINGENCIES (Continued)
Sale, transfer and cession of a notarial mining right to Zinoju
Zinoju entered into an agreement to acquire a prospecting right, for a total consideration of ZAR 14 million (approximately $1.4 million), of
which ZAR 2 million, was paid as a deposit and the balance of ZAR12 million was paid by Zinoju to the seller in June 2013, on fulfilment of
the conditions below:
- The granting of a mining right; and
- Zinoju obtaining the written consent of the Minister as required in terms of section 11 of the Mineral and Petroleum Resources
Development Act, 2002 (the “Assignment Approval”).
The mining right is included in property, plant and equipment as at November 30, 2013.
24) CANCELLED ACQUISITION OF RIVERSDALE HOLDINGS PROPRIETARY LIMITED
Proposed acquisition of Riversdale Holdings Proprietary Limited
On September 24, 2012, the Company and Rio Tinto PLC ("Rio Tinto") announced that they entered into a definitive agreement whereby
the Company was expected to acquire 100% ownership of the shares and shareholder claims of Riversdale Mining Limited (“RML”) in
Riversdale Holdings (Proprietary) Limited ("RHPL") (the ”Acquisition”), as a result of which, the Company would have acquired RHPL's
74% interest in the Zululand Anthracite Colliery ("ZAC"), a current producing anthracite mine, and RHPL's 74% interest in the Riversdale
Anthracite Colliery ("RAC"), an undeveloped anthracite resource.
Cancellation of proposed acquisition
In February 2013, the Company notified RML of the cancellation of the agreement between the Company and RML for the acquisition by
the Company of 100% of the shares and shareholder claims of RHPL.
Subsequent to the parties entering into the agreement in September 2012, and pending fulfillment of the conditions precedent contained in
the agreement, the performance of ZAC deteriorated materially. This deterioration, the Company believes, was attributable to a material
breach by RML of its obligations under the agreement and the Company cancelled the contract. The cancellation took place by written
notice from the Company to RML on February 1, 2013. RML has denied being in breach of the agreement. RML has also alleged damages
have been suffered by RML as a result of the termination of the agreement.
Flowing from the cancellation of the agreement between the company and RML two disputes have been declared with the company
seeking the return of the ZAR 45,500,000 ($4,736,550) held in escrow in the one matter and both the Company and RML seeking
damages in the amount of ZAR 299,500,000 ($31,177,950) resulting from the cancellation in the other. Arbitrators have been appointed
and arbitration dates have been set for March 2014 and September 2014 for the two cases respectively.
The deposits made totalling ZAR 45,500,000 ($4,736,550) are expected to be recovered and are included on the consolidated statements
of financial position as at November 30, 2013 in the line item accounts and other receivables.
Loan facility
Investec had agreed to underwrite the funding for the Acquisition, by the way of the provision of guarantees of ZAR 394.5 million
(approximately $40.5 million) to Riversdale Mining Limited, and ultimately by providing debt funding for the same amount, for the payment
of the purchase consideration.
As at November 30, 2013, no liability existed to Investec in respect of the transaction guarantees. The transaction guarantees expired on
May 31, 2013.
See additional securities in respect of the Investec term loan facility and revolving loan facility as disclosed in Note 15.
FORBES & MANHATTAN COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
November 30, 2013 and 2012
(Presented in Canadian dollars)
25) SUBSEQUENT EVENTS
On December 31, 2013, the Company announced that, subject to certain conditions, it has secured the offer of a significant funding
package by RCF into the Company, comprising up to a total of up to US$19.0 million (the "Transaction"). This funding package is
comprised of a bridge loan of US$4.0 million (the "Bridge Loan") and a convertible loan of up to US$15.0 million (the "Convertible
Loan").The Transaction is subject to, among other conditions, completion of definitive agreements, approval by Forbes Coal’s senior
lender, the successful closure of the Toronto office of Forbes Coal, negotiations with certain creditors and regulatory approvals, including
without limitation, Toronto Stock Exchange approval and approval of the South African Reserve Bank.
Bridge Loan
The Company will incur a 5% establishment fee in connection with the Bridge Loan and the Bridge Loan will bear interest at a rate of 15%
per annum, payable in arrears at the end of each calendar quarter. Subject to receipt of shareholder approval or an exemption therefrom,
the establishment fee will be payable in common shares of Forbes Coal at a price of $0.14 per share and interest payments will be payable
in cash or common shares of Forbes Coal at a price per share equal to the 20-day VWAP as at the date the payment is due. Provided that
Forbes Coal receives all necessary regulatory and/or shareholder approvals, as may be required, the Bridge Loan will convert into a
convertible loan with the same terms and conditions as the Convertible Loan. The Bridge Loan is expected to close on or around January
31, 2014 it matures on June 30, 2014.
Convertible Loan
Subject to receipt of shareholder approval or an exemption therefrom, the Convertible Loan is convertible into common shares of Forbes
Coal at a price of $0.14 per common share. The Company will incur a 5% establishment fee based on the amount drawn under the
Convertible Loan, and the Convertible Loan will bear interest at a rate of 12% per annum, payable in arrears at the end of each calendar
quarter. Subject to receipt of shareholder approval or an exemption therefrom, the establishment fee will be payable in cash or common
shares of Forbes Coal at a price of $0.14 per share and interest payments will be payable in cash or common shares at a price per share
equal to the 20-day VWAP as at the date the payment is due. The Convertible Loan is expected to close on or around April 30, 2014 and it
matures on June 30, 2017.
Subject to receipt of shareholder approval, the existing US$6.0 ($6.372) million convertible long-term loan (see Note 16) which closed on
September 4, 2013 will be amended to contain the same terms and conditions as the Convertible Loan. As a result and upon conversion of
the Bridge Loan, Forbes Coal will enter into a convertible loan facility with RCF for an aggregate amount up to US$25 million (which will
include the Convertible Loan).
Payment of the establishment fees and interest to RCF in connection with the Bridge Loan and the Convertible Loan in cash or common
shares of Forbes Coal, and the conversion of the principal amount of the Bridge Loan or the Convertible Loan into common shares of
Forbes Coal is subject to shareholder approval pursuant to the policies of the Toronto Stock Exchange (the "TSX"). In connection with the
Transaction and subsequent to November 30, 2013 the Company made an application to the TSX to rely on the financial hardship
exemption in connection with such payments and share issuances. As a result TXS only approved application in connection with the
Bridge Loan.
Upon completion of the Transaction, certain management changes are expected to take place and could result in certain changes of
control provision payments being made pursuant to certain management contracts (See Note 23).
TSX Delisting Review
The TSX has informed the Company that it will be placed under remedial delisting review in connection with the Company's application for
reliance on the financial hardship exemption from shareholder approval. Delisting review is customary practice under TSX policies when a
company requests relief in reliance on this exemption.
15 January 2014
Johannesburg
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 15/01/2014 01:37:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
