Wrap Text
Unaudited quarterly results for the three months ended 31 March 2015
BUFFALO COAL CORP.
(previously Forbes & Manhattan Coal Corp.)
(Registration number: 001891261)
(External company registration number: 2011/011661/10)
Share code on the Toronto Stock Exchange: BUF
Share code on the JSE Limited: BUC
ISIN: CA1194421014
"Buffalo Coal" or "the Company"
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
For the three months ended
March 31, 2015 and February 28, 2014
(Presented in South African Rands)
BUFFALO COAL CORP.
Condensed Interim Consolidated Statements of Financial Position
(Presented in South African Rands)
March 31, December 31, March 31,
2015 2014 2015
(Note 1)
Notes R R C$
Assets
Non-current assets
Property, plant and equipment 562 541 552 561 403 916 58 824 184
Investment in financial assets 31 376 939 29 134 182 3 281 043
Deferred tax asset 34 186 032 15 495 588 3 574 786
Other receivables 6 065 813 14 238 959 634 294
Long-term restricted cash 11 200 000 11 200 000 1 171 168
Total non-current assets 645 370 336 631 472 645 67 485 475
Current assets
Trade and other receivables 86 396 306 95 474 959 9 034 341
Inventories 30 329 804 27 034 967 3 171 545
Non-interest bearing receivables 1 620 402 1 587 765 169 443
Taxation receivable 928 397 2 336 605 97 081
Cash and cash equivalents 52 590 950 12 120 081 5 499 362
Total current assets 171 865 859 138 554 377 17 971 772
Total assets 817 236 195 770 027 022 85 457 247
Equity and liabilities
Capital and reserves
Share capital 946 177 963 937 966 442 98 940 507
Currency translation reserve (219 945 085) (219 945 085) (22 999 350)
Reserves 16 242 223 19 599 807 1 698 427
Accumulated retained loss (527 974 214) (497 359 808) (55 209 526)
Equity attributable to owners of the company 214 500 887 240 261 356 22 430 058
Non-controlling interest 4 339 142 4 339 142 453 738
Total equity 218 840 029 244 600 498 22 883 796
Non-current liabilities
Borrowings 127 774 139 132 047 902 13 361 163
Warrant liability 8 121 478 8 818 534 849 252
RCF loan facilities 3 160 873 703 132 542 252 16 822 338
Conversion option liability 3 50 908 655 54 088 555 5 323 447
Asset retirement obligation 20 088 085 18 758 187 2 100 583
Total non-current liabilities 367 766 060 346 255 430 38 456 783
Current liabilities
Trade and other payables 180 918 124 170 506 885 18 918 355
Current portion of borrowings 12 000 000 6 000 000 1 254 823
Current portion of RCF loan facilities 3 32 342 623 - 3 382 023
Current tax liability 2 705 150 - 282 874
Current portion of asset retirement obligation 2 664 209 2 664 209 278 593
Current liabilities 230 630 106 179 171 094 24 116 668
Total liabilities 598 396 166 525 426 524 62 573 451
Total equity and liabilities 817 236 195 770 027 022 85 457 247
Commitments and contingencies 5
Approved on behalf of the Board:
Signed "Craig Wiggill", Director Signed "John Dreyer", Director
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
BUFFALO COAL CORP.
Condensed Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income
(Presented in South African Rands)
3 months 3 months 3 months
ended ended ended
March 31, February 28, March 31,
2015 2014 2015
(Note 1)
R R C$
Revenue 164 700 360 163 316 248 17 222 486
Cost of sales (181 449 958) (182 652 384) (18 973 968)
Gross loss (16 749 598) (19 336 136) (1 751 482)
Other income/(expense) - net 4 433 320 (166 771 447) 463 586
General and administration expenses (19 550 485) (27 211 012) (2 044 367)
Loss before the undernoted (31 866 763) (213 318 595) (3 332 263)
Finance income 295 736 909 778 30 925
Finance expense (16 978 050) (6 651 985) (1 775 371)
Loss before income tax (48 549 077) (219 060 802) (5 076 709)
Income tax benefit 14 577 087 18 873 852 1 524 306
Loss for the period (33 971 990) (200 186 950) (3 552 403)
Other comprehensive loss - - -
Total comprehensive loss for the period (33 971 990) (200 186 950) (3 552 403)
Loss attributable to:
- Owners of the parent (33 971 990) (200 186 950) (3 552 403)
- Non-controlling interest - - -
(33 971 990) (200 186 950) (3 552 403)
Net loss per share - basic and diluted (0.55) (5.58) (0.06)
Headline loss per share - basic and diluted (0.60) (5.40) (0.06)
Weighted average number of common shares outstanding:
- Basic 62 065 181 35 863 564 62 065 181
- Diluted 62 065 181 35 863 564 62 065 181
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
BUFFALO COAL CORP.
Condensed Interim Consolidated Statements of Changes in Equity
(Presented in South African Rands)
Attributable to owners of the Group
Currency Non-
No. of shares Share Reserves BEE option Accumulated translation controlling
issued capital Option reserve reserve retained loss reserve Total interest Total equity
R R R R R R R R
Balance at November 30, 2013 35 070 108 937 251 979 21 669 502 9 073 711 (186 324 916) (247 266 389) 534 403 887 4 339 142 538 743 029
Shares issued in relation to RCF
Convertible Loan 2 356 974 3 423 719 - - - - 3 423 719 - 3 423 719
Stock options expired/cancelled - - (1 065 270) - 1 065 270 - - - -
Other comprehensive
gain/(loss) for the period - 8 140 754 194 122 - - (21 590 833) (13 255 957) - (13 255 957)
Net loss for the period - - - - (200 186 950) - (200 186 950) - (200 186 950)
Balance at February 28, 2014 37 427 082 948 816 452 20 798 354 9 073 711 (385 446 596) (268 857 222) 324 384 699 4 339 142 328 723 841
Other comprehensive
gain/(loss) due to change in
functional currency - - - - (48 912 137) 48 912 137 - - -
Balance at 1 March 2014 37 427 082 948 816 452 20 798 354 9 073 711 (434 358 733) (219 945 085) 324 384 699 4 339 142 328 723 841
Shares issued in relation to RCF
Convertible Loan 20 119 629 24 014 735 - - - - 24 014 735 - 24 014 735
Stock-based compensation - - 302 734 - - - 302 734 - 302 734
Stock options expired/cancelled - - (10 574 992) - 10 574 992 - - - -
Cancellation of shares in escrow (1 350 000) (34 864 745) - - 34 864 745 - - - -
Net loss for the period - - - - (108 440 812) - (108 440 812) - (108 440 812)
Balance at December 31, 2014 56 196 711 937 966 442 10 526 096 9 073 711 (497 359 808) (219 945 085) 240 261 356 4 339 142 244 600 498
Shares issued in relation to
convertible RCF loan facilities 10 447 788 8 211 521 - - - - 8 211 521 - 8 211 521
Stock options expired - - (3 357 584) - 3 357 584 - - - -
Net loss for the period - - - - (33 971 990) - (33 971 990) - (33 971 990)
Balance at March 31, 2015 66 644 499 946 177 963 7 168 512 9 073 711 (527 974 214) (219 945 085) 214 500 887 4 339 142 218 840 029
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
BUFFALO COAL CORP.
Condensed Interim Consolidated Statements of Cash Flow
(Presented in South African Rands)
3 months 3 months 3 months
ended ended ended
March 31, February 28, March 31,
2015 2014 2015
(Note 1)
R R C$
Cash flows from operating activities
Cash generated from/(utilized in) operations 5 065 928 (32 226 884) 529 735
Interest received 295 736 355 226 30 925
Interest paid (3 211 229) (3 683 639) (335 794)
Taxation paid - - -
Net cash utilized in operating activities 2 150 435 (35 555 297) 224 866
Cash flows from investing activities
Investment in financial assets (1 222 139) (1 146 471) (127 795)
Purchase of property, plant and equipment (28 620 304) (13 979 899) (2 992 785)
Proceeds from the disposal of property, plant and equipment 2 500 000 6 901 872 261 422
Movement in non-current other receivables 8 173 146 - 854 654
Movement in non-interest bearing receivables (32 637) (160 286) (3 413)
Movement in restricted cash - (4 245 076) -
Net cash utilized in investing activities (19 201 934) (12 629 860) (2 007 917)
Cash flows from financing activities
Proceeds from RCF convertible loan and bridge loan 57 656 620 44 471 132 6 029 072
Issuance costs related to the RCF Convertible Loan (134 252) (3 733 251) (14 039)
Proceeds from borrowings - 7 906 061 -
Movement in loans payable - (214 798) -
Net cash generated from financing activities 57 522 368 48 429 144 6 015 033
Net increase in cash and cash equivalents 40 470 870 243 987 4 231 982
Cash at the beginning of the period 12 120 081 18 174 486 1 267 380
Exchange loss on cash and cash equivalents - (3 835 473) -
Cash at the end of the period 52 590 950 14 583 000 5 499 362
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
BUFFALO COAL CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2015 and February 28, 2014
(Presented in South African Rands)
1. BASIS OF PREPARATION
The unaudited condensed interim consolidated financial statements (the "Interim Results") of Buffalo Coal Corp. ("BC
Corp" or the "Company") and its subsidiaries (the "Group") for the period ended March 31, 2015 have been prepared in
accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS"), as
issued by the International Accounting Standards Board ("IASB") and have been prepared in accordance with accounting
policies based on the IFRS standards and International Financial Reporting Interpretations Committee ("IFRIC")
interpretations and are in compliance with IAS 34, Interim Financial Reporting.
The Interim Results have not been audited by the Group's external auditors. The Interim Results do not include all the
information and disclosures required in the annual financial statements and should be read in conjunction with the
Group's annual financial statements for the year ended December 31, 2014, which have been prepared in accordance
with IFRS. The Group has adopted the required new or revised accounting standards in the current period, as further set
out in note 2 below, none of which had a material impact on the Group's results.
The preparation of the Interim Results requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. In
preparing these Interim Results, the significant judgments made by management in applying the Group's accounting
policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated annual
financial statements for the year ended December 31, 2014.
The Interim Results have been prepared on the basis of accounting principles applicable to a going concern, which
assume that the Group will continue in operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations. The Company entered into a second amended and restated
agreement with Resource Capital Fund V L.P ("RCF") ("Second Amended RCF Agreement") on March 27, 2015 which
included a bridge loan of US$4,0 million which will be advanced to the Company for working capital purposes (note 3).
The performance at Magdalena has deteriorated significantly over the past financial year which resulted in the Company
implementing a restructuring at the mine in March 2015. The Company continues to incur operating losses and is
dependent upon reaching profitable levels of operation in the future to support working capital needs. The Company
believes that, barring any further unforeseen incidents and subject to meeting the current forecasts, the current steps
the Company is taking and has taken (including obtaining additional funding from RCF and the restructuring of the mine
operations) will enable it to operate profitably in the foreseeable future and generate positive cash flows. The current
material uncertainties cast significant doubt as to whether the various steps being taken will be completed as expected
and whether or when the Company can attain profitability and positive cash flow from operations and continue as a
going concern.
If the going concern assumption was not appropriate for the Interim Results of the Group then adjustments would be
necessary to the carrying values of assets and liabilities, the reported revenues and expenses and the statement of
financial position classifications used. Such adjustments could be material and adverse in nature.
References to CYQ1 2015 mean the three months ended March 31, 2015 and references to PYQ4 2014 mean the three
months ended February 28, 2014.
References to "R", "Rands" mean South African Rands, "C$" mean Canadian Dollars and to "US$" mean United States
Dollars.
Convenience rate translation
The Company's functional and presentation currency is Rands. The Canadian Dollar amounts provided in the condensed
interim consolidated financial statements represent supplementary information solely for the convenience of the
reader. The financial position as of March 31, 2015 and the financial results for the three months ended March 31, 2015
were translated into Canadian Dollars using a convenience translation at the rate of C$1:R9.5631, which is the exchange
rate published on Oanda.com as of March 31, 2015. Such presentation is not in accordance with IFRS and should not be
construed as a representation that the Rand amounts shown could be readily converted, realized or settled in Canadian
Dollars at this or at any other rate.
2. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
The following standards, amendments and interpretations are issued and effective for the first time for the
period ended March 31, 2015:
Amendments to IAS 19 – 'Defined Benefit Plans: Employee Contributions'
These narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The
objective of the amendments is to simplify the accounting for contributions that are independent of the number of years
of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary.
This amendment has not had a significant impact on the Group.
Annual Improvements to IFRSs 2010-2012 Cycle:
IFRS 2, 'Share-based Payments' - The amendments clarify the definition of a 'vesting condition' and separately define
'performance condition' and 'service condition'.
IFRS 3, 'Business Combinations' – The amendments clarify that a contingent consideration that is classified as an asset or
a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration
is a financial instrument within the scope of IFRS 9 or IAS 39 or a non-financial asset or liability. Changes in fair value
(other than measurement period adjustments) should be recognized in profit or loss.
IFRS 8, 'Operating Segments' - The amendments require an entity to disclose the judgments made by management in
applying the aggregation criteria to operating segments, including a description of the operating segments aggregated
and the economic indicators assessed in determining whether the operating segments have 'similar economic
characteristics'; and clarify that a reconciliation of the total of the reportable segments' assets to the entity's assets
should only be provided if the segment assets are regularly provided to the chief operating decision-maker.
IFRS 13, 'Fair Value Measurements' - The amendments to the basis for conclusions of IFRS 13 and consequential
amendments to IAS 36 and IFRS 9 did not remove the ability to measure short-term receivables and payables with no
stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial.
IAS 16 and IAS 38 - The amendments remove perceived inconsistencies in the accounting for accumulated
depreciation/amortization when an item of property, plant and equipment or an intangible asset is revalued. The
amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the
carrying amount of the asset and that accumulated depreciation/amortization is the difference between the gross
carrying amount and the carrying amount after taking into account accumulated impairment losses.
IAS 24, Related Party Disclosure - The amendments clarify that a management entity providing key management
personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity
should disclose as related party transactions the amounts incurred for the service paid or payable to the management
entity for the provision of key management personnel services. However, disclosure of the components of such
compensation is not required.
The amendments did not have a significant impact on the Group.
Annual Improvements to IFRSs 2011-2013 Cycle:
IFRS 3 - The amendment clarifies that the standard does not apply to the accounting for the formation of all types of
joint arrangements in the financial statements of the joint arrangement itself.
IFRS 13 – The amendment clarifies that the scope of the portfolio exception for measuring the fair value of a group of
financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted
for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial
liabilities within IAS 32.
IAS 40, 'Investment Property' - The amendment clarifies that IAS 40 and IFRS 3 are not mutually exclusive and application
of both standards may be required. The guidance in IAS 40 assists preparers to distinguish between investment property
and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the
acquisition of an investment property is a business combination.
The amendments did not have a significant impact on the Group.
3. RCF LOAN FACILITIES
On March 27, 2015, BC Corp entered into the Second Amended RCF Agreement to secure an additional US$4,0 million
loan facility. Under the terms set out in the Second Amended RCF Agreement, the US$4,0 million will be advanced as a
bridge loan ("2015 Bridge Loan") and, subject to receiving regulatory and shareholder approvals as required (the
"Approval"), will roll over into the US$25,0 million loan facility ("Existing RCF Convertible Loan"), under the same terms
and conditions except for the proposed amendments to the interest rate and conversion price on the full
US$29,0 million facility ("RCF Convertible Loan").
The 2015 Bridge Loan proceeds will be used for general working capital and to implement the restructuring process at
Buffalo Coal Dundee (Pty) Ltd ("BC Dundee"), as announced on March 11, 2015. The Bridge Loan bears interest at a rate
of 15% per annum, payable on the maturity date which is the earlier of the date on which the Approval is received or
June 30, 2015. Subject to receipt of the Approval, interest will be payable in common shares of the Company ("Common
Shares") at a price per share equal to the 20-day volume weighted average price ("VWAP") as at the date the payment is
due. No establishment fees were incurred on the 2015 Bridge Loan. If the Approval is not received by June 30, 2015, the
2015 Bridge Loan and all accrued but unpaid interest due to RCF will be immediately due and payable in cash.
Subject to receipt of the Approval, the interest rate on the RCF Convertible Loan will be increased to 15% per annum and
the conversion price will be decreased to C$0.0469, a 25% discount to the 5-day VWAP as at January 30, 2015.
The Existing RCF Convertible Loan has been recognized in two parts, a component liability and a conversion option
liability. The component liability will be accreted to its face value of US$25,0 million (R302,3 million) using the effective
interest rate method at approximately 32.4%.
The initial carrying values of the conversion option liability at each advance during CYQ1 2015 were obtained using the
Black-Scholes option pricing model and the following assumptions: expected volatility of between 66.1% and 72.5%,
expected life of between 4.3-4.5 years, risk free rate of between 0.53% and 0.69% and expected dividend yield of 0%.
The fair value of the conversion option liability at March 31, 2015 was obtained using the Black Scholes option pricing
model and the following assumptions: expected volatility of 67.9%, expected life of 4.3 years, risk free rate of 0.59% and
expected dividend yield of 0%.
The Company issued Common Shares to RCF during CYQ1 2015 in settlement of interest owing on the Existing RCF
Convertible Loan for the periods ended December 31, 2014, January 31, 2015 and February 28, 2015. An additional
2 722 704, 3 752 803 and 3 972 281 Common Shares were issued at prices of C$0.0962, C$0.0812 and C$0.0752,
respectively.
As of March 31, 2015, the Company was fully drawn on the Existing RCF Convertible Loan (R302,3 million) pursuant to
the terms of the Existing RCF Convertible Loan and had drawn US$2,7 million (R32,3 million) from the 2015 Bridge Loan.
As of March 31, 2015, the Company had US$1,3 million available for drawdown on the 2015 RCF Bridge Loan.
4. RESTRUCTURING OF MINING OPERATIONS
On March 11, 2015, BC Dundee commenced with implementation of the restructuring of its operational and cost
structures, as announced on December 22, 2014. The consultation process in South Africa with organised labour and
relevant stakeholders was completed as required in terms of section 189A of the South African Labour Relations Act, No
66 of 1995 ("LRA"), and as a consequence, BC Dundee's workforce was reduced by approximately 25%.
5. COMMITMENTS AND CONTINGENCIES
Management Contracts
Management contracts in place require that payments of approximately R11,9 million be made upon the occurrence of a
change in control, other than a change of control attributable to RCF. As no triggering event has taken place, no
provision has been recognized as of March 31, 2015.
Capital Commitments
Capital expenditures contracted for at the statement of financial position date but not recognized in the condensed
interim consolidated financial statements are as follows:
March 31, December 31, March 31,
2015 2014 2015
R R C$
Property, plant and equipment 5 466 541 27 378 909 571 629
Included in the R27,4 million disclosed as of December 31, 2014 are commitments relating to the purchase of machinery
and equipment which will be funded by equipment advances from RCF.
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 continue to comply with such laws and regulations.
Outstanding Legal Proceedings
On March 20, 2015, the Association of Mineworkers and Construction Union ("AMCU") brought an application against
BC Dundee and Zinoju Coal (Pty) Ltd ("Zinoju") in the Labour Court of South Africa pertaining to the Section 189A
restructuring process in terms of the LRA which BC Dundee implemented, as announced on March 11, 2015. The matter
was heard in Court on April 14, 2015. On April 24, 2015, the LRA dismissed the application brought by AMCU with costs.
An application for leave to appeal was lodged by AMCU on April 29, 2015, which has been opposed by BC Dundee and
Zinoju.
6. SUBSEQUENT EVENTS
Issuance of Share Capital
Subsequent to March 31, 2015, the Company issued additional shares to RCF in settlement of interest owing on the
Existing RCF Convertible Loan for the periods ended March 31, 2015 and April 30, 2015. An additional 4 619 258 and
4 926 229 Common Shares were issued at prices of C$0.0682 and C$0.0610, respectively.
Legal Proceedings
On April 10, 2015, BC Dundee received notice that AMCU had referred a dispute to the Commission for Conciliation,
Mediation and Arbitration ("CCMA") in respect of the S189A restructuring process (note 5), which has been set down
for hearing on May 18, 2015.
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 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. BC Dundee and Zinoju intend to oppose the application.
Other Matters
Except for the matters discussed above, no other matters which management believes are material to the financial
affairs of the Company have occurred between the statement of financial position date and the date of approval of the
Interim Results.
Sponsor
Questco (Pty) Ltd
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