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Condensed interim consolidated financial statements for the three moths ended 31 March 2016
BUFFALO COAL CORP.
Registration number: 001891261
External company registration number: 2011/011661/10
Share code on the TSX Venture Exchange: BUF
Share code on the JSE Limited: BUC
ISIN: CA1194421014
"Buffalo Coal" or "the Company"
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
For the three months ended
March 31, 2016 and March 31, 2015
(Presented in South African Rands)
Condensed Interim Consolidated Statements of Financial Position
(Presented in South African Rands)
March 31, December 31, March 31,
2016 2015 2016
(Note 1)
Notes R R C$
Assets
Non-current assets
Property, plant and equipment 332 830 886 340 649 540 29 097 679
Investment in financial assets 38 070 482 35 674 589 3 328 305
Deferred tax asset 1 704 962 1 743 492 149 056
Other receivables 4 186 985 4 099 242 366 047
Long-term restricted cash 11 200 000 11 200 000 979 158
Total non-current assets 387 993 315 393 366 863 33 920 245
Current assets
Trade and other receivables 91 031 462 75 581 681 7 958 409
Inventories 48 181 849 42 225 872 4 212 289
Non-interest bearing receivables 1 820 783 1 697 948 159 182
Taxation receivable - 51 516 -
Cash and cash equivalents 21 228 119 20 365 446 1 855 864
Non-current assets held for sale - 25 000 000 -
Total current assets 162 262 213 164 922 463 14 185 744
Total assets 550 255 528 558 289 326 48 105 989
Equity and liabilities
Capital and reserves
Share capital 1 043 281 546 1 038 096 502 91 208 696
Currency translation reserve (219 945 085) (219 945 085) (19 228 658)
Reserves 33 157 235 16 726 895 2 898 765
Accumulated retained loss (1 065 985 326) (1 055 512 401) (93 193 570)
Equity attributable to owners of the company (209 491 630) (220 634 089) (18 314 767)
Non-controlling interest 4 339 142 4 339 142 379 349
Total equity (205 152 488) (216 294 947) (17 935 418)
Non-current liabilities
Borrowings 3 167 711 784 143 535 994 14 662 172
Warrant liability 1 458 990 2 144 609 127 552
RCF loan facilities 290 133 823 299 753 845 25 364 896
Conversion option liability 118 917 193 124 378 349 10 396 314
Asset retirement obligation 18 127 749 14 992 013 1 584 815
Total non-current liabilities 596 349 539 584 804 810 52 135 749
Current liabilities
Trade and other payables 128 701 964 161 400 974 11 251 745
Current portion of borrowings 27 692 308 25 714 284 2 420 995
Current portion of asset retirement obligation 2 664 205 2 664 205 232 918
Current liabilities 159 058 477 189 779 463 13 905 658
Total liabilities 755 408 016 774 584 273 66 041 407
Total equity and liabilities 550 255 528 558 289 326 48 105 989
Commitments and contingencies 1, 4
Approved on behalf of the Board:
Signed, "Craig Wiggill" Director Signed, "Robert Francis" Director
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income
(Presented in South African Rands)
3 months ended
March 31, March 31, March 31,
2016 2015 2016
(Note 1)
R R C$
Revenue 142 488 373 164 700 360 12 457 020
Cost of sales (139 006 633) (181 449 958) (12 152 630)
Gross profit/(loss) 3 481 740 (16 749 598) 304 390
Other income/(expense) - net 23 343 186 4 433 320 2 040 774
General and administration expenses (16 186 654) (19 550 485) (1 415 115)
Profit/(loss) before the undernoted 10 638 272 (31 866 763) 930 049
Finance income 431 156 295 736 37 693
Finance expense (22 295 216) (16 978 050) (1 949 155)
Loss before income tax (11 225 788) (48 549 077) (981 413)
Income tax (867 773) 14 577 087 (75 864)
Loss for the period (12 093 561) (33 971 990) (1 057 277)
Other comprehensive loss - - -
Total comprehensive loss for the period (12 093 561) (33 971 990) (1 057 277)
Loss attributable to:
- Owners of the parent (12 093 561) (33 971 990) (1 057 277)
- Non-controlling interest - - -
(12 093 561) (33 971 990) (1 057 277)
Net loss per share - basic and diluted (0.04) (0.55) (0.00)
Headline loss per share - basic and diluted (0.04) (0.60) (0.00)
Weighted average number of common shares outstanding:
- Basic 293 413 234 62 065 181 293 413 234
- Diluted 293 413 234 62 065 181 293 413 234
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Changes in Equity
(Presented in South African Rands)
Attributable to owners of the Group
Reserves
No. of shares Share Option Equity-settled BEE option Accumulated Currency Non-
issued capital reserve non-employee reserve retained loss translation Total controlling Total equity
benefits reserve interest
reserve
R R R R R R R R R
Balance at December 31, 2014 56 196 711 937 966 442 10 526 096 - 9 073 711 (497 359 808) (219 945 085) 240 261 356 4 339 142 244 600 498
Shares issued in relation to RCF
convertible loan 10 447 788 8 211 521 - - - - - 8 211 521 - 8 211 521
Stock options expired/cancelled - - (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
Shares issued in relation to RCF
convertible loan and private
placement to RCF 214 084 550 91 918 539 - - - - - 91 918 539 - 91 918 539
Stock options expired/cancelled - - (314 477) - - 314 477 - - - -
Stock-based compensation - - 799 149 - - - - 799 149 - 799 149
Net loss for the period - - - - - (527 852 664) - (527 852 664) - (527 852 664)
Balance at December 31, 2015 280 729 049 1 038 096 502 7 653 184 - 9 073 711 (1 055 512 401) (219 945 085) (220 634 089) 4 339 142 (216 294 947)
Shares issued in relation to RCF
convertible loan 14 990 400 5 185 044 - - - - - 5 185 044 - 5 185 044
Stock options expired/cancelled - - (1 620 636) - - 1 620 636 - - - -
Stock-based compensation - - 149 916 17 901 060 - - - 18 050 976 - 18 050 976
Net loss for the period - - - - - (12 093 561) (12 093 561) - (12 093 561)
Balance at March 31, 2016 295 719 449 1 043 281 546 6 182 464 17 901 060 9 073 711 (1 065 985 326) (219 945 085) (209 491 630) 4 339 142 (205 152 488)
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Cash Flow
(Presented in South African Rands)
3 months ended
March 31, March 31, March 31,
2016 2015 2016
(Note 1)
R R C$
Cash flows from operating activities
Cash (utilized in)/generated from operations (12 588 599) 5 065 928 (1 100 557)
Interest received 431 156 295 736 37 693
Interest paid (5 584 776) (3 211 229) (488 247)
Net cash (utilized in)/generated from operating activities (17 742 219) 2 150 435 (1 551 111)
Cash flows from investing activities
Investment in financial assets (1 279 579) (1 222 139) (111 867)
Purchase of property, plant and equipment (4 998 745) (28 620 304) (437 014)
Proceeds from the disposal of property, plant and equipment 6 052 2 500 000 529
Movement in non-current other receivables - 8 173 146 -
Movement in non-interest bearing receivables (122 836) (32 637) (10 738)
Net cash utilized in investing activities (6 395 108) (19 201 934) (559 090)
Cash flows from financing activities
Proceeds from RCF convertible loan - 57 656 620 -
Issuance costs related to the RCF convertible loan - (134 252) -
Drawdowns from working capital facility 25 000 000 - 2 185 620
Net cash generated from financing activities 25 000 000 57 522 368 2 185 620
Net increase in cash and cash equivalents 862 673 40 470 869 75 419
Cash and cash equivalents at the beginning of the period 20 365 446 12 120 081 1 780 445
Cash and cash equivalents at the end of the period 21 228 119 52 590 950 1 855 864
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Notes to the Condensed Interim Consolidated Financial Statements
For the periods ended March 31, 2016 and March 31, 2015
(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 periods ended March 31, 2016 and 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 consolidated annual financial statements and should be read in conjunction with the Group's
consolidated annual financial statements for the year ended December 31, 2015, which have been prepared in accordance with IFRS.
The Group has adopted the required new or revised accounting standards in the current period, as further set out in note 2 below,
none of which had a material impact on the Group's results.
The preparation of the Interim Results requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expenses. In preparing these
Interim Results, the significant judgments made by management in applying the Group's accounting policies and the key sources of
estimation and uncertainty were the same as those applied to the consolidated annual financial statements for the year ended
December 31, 2015.
The Interim Results have been prepared on the basis of accounting principles applicable to a going concern, which assume that the
Group will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the
normal course of operations. Market conditions deteriorated significantly over the previous financial year and remain depressed.
Although the Company has achieved an operating profit for the current quarter, it remains dependent upon sustaining profitable
levels of operation in the future to support working capital needs. The Company implemented various restructurings at Buffalo Coal
Dundee (Pty) Ltd ("BC Dundee") which included two retrenchment processes and the conclusion of agreements with STA Coal
Mining Company Proprietary Limited ("STA") during the financial year ended December 31, 2015. The arrangements with STA
include the provision of contract mining services by STA at Magdalena ("STA Contract Mining Agreement"), the sale of certain
underground mining equipment to STA and an equity settlement arrangement ("STA Equity Settlement Agreement") in terms of
which a portion of the contract mining fees will be settled through the issuance of common shares of BC Corp ("Common Shares"), in
order to alleviate cash flow pressures. In addition, the Company secured additional funding from Resource Capital Fund V L.P.
("RCF") and Investec Bank Limited ("Investec") in December 2015, of which the last tranche was drawn in March 2016. The
Company believes that barring any further deterioration in the market and subject to its ability to meet current forecasts, it should
be able to generate positive cash flows in the foreseeable future.
As at March 31, 2016, the Company had a shareholder's deficiency of R205.2 million (December 31, 2015: R216.3 million) and for the
period ended March 31, 2016, had a net loss for the period of R12.1 million (March 31, 2015: R34.0 million). The Group was in
breach of certain covenants with respect to its borrowings from Investec for which Investec has provided a waiver at March 31,
2016. There is no assurance that the Company will be able to meet its covenants in the future, or that Investec will provide future
waivers. These matters constitute material uncertainties which cast significant doubt as to whether the Group can continue as a
going concern.
If the going concern assumption was not appropriate for the Interim Results of the Group then adjustments would be necessary to
the carrying values of assets and liabilities, the reported revenues and expenses and the statement of financial position
classifications used. Such adjustments could be material and adverse in nature.
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 Interim Results
represent supplementary information solely for the convenience of the reader. The financial position as of March 31, 2016 and the
financial results for the three months ended March 31, 2016 were translated into Canadian Dollars using a convenience translation
at the rate of C$1:R11.4384, which is the exchange rate published on Oanda.com as of March 31, 2016. Such presentation is not in
accordance with IFRS and should not be construed as a representation that the Rand amounts shown could be readily converted,
realized or settled in Canadian Dollars at this or at any other rate.
2 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
The following standards, amendments and interpretations are issued and effective for the first time for the period ended March
31, 2016:
IFRS 11 – 'Joint Arrangements'
IFRS 11 was amended in May 2014 to require business combination accounting to be applied to acquisitions of interests in a joint
operation that constitute a business. The amendment did not have a significant impact on the Group.
IAS 1 – 'Presentation of Financial Statements'
IAS 1 was amended in December 2014 in order to clarify, among other things, that useful information should not be obscured by
aggregating or disaggregating that information and that materiality considerations apply to all parts of the financial statements and
that even when a standard requires a specific disclosure, materiality considerations do apply. The amendment did not have a
significant impact on the Group.
IAS 27 – 'Separate Financial Statements'
IAS 27 was amended in August 2014 to reinstate the equity method as an accounting option for investments in subsidiaries, joint
ventures and associates in an entity's separate financial statements. The amendment did not have a significant impact on the Group.
Amendments to IAS 16 – 'Property, Plant and Equipment', and IAS 38 – 'Intangible Assets' - Clarification of Acceptable Methods of
Depreciation and Amortization
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and
equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization
of an intangible asset. The presumption can only be rebutted in the following two limited circumstances: when the intangible asset is
expressed as a measure of revenue; or when it can be demonstrated that revenue and consumption of the economic benefits of the
intangible asset are highly correlated.
Currently, the Group uses the straight-line or units of production method for depreciating its property, plant and equipment. The
application of these amendments did not have a material impact on the Group.
Annual Improvements to IFRSs 2012-2014 Cycle:
IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations' – The amendments introduce specific guidance for when an
entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments
clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in
IFRS 5 regarding the change of sale plan do not apply. The amendments also clarify the guidance for when held for distribution
accounting is discontinued.
IFRS 7, 'Financial Instruments: Disclosures'- The amendments provide additional guidance to clarify whether a servicing contract is
continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.
A further amendment removes the phrase 'and interim periods within those annual periods', clarifying that these IFRS 7 disclosures
are not required in the condensed interim financial report. However, IAS 34 requires an entity to disclose 'an explanation of events
and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the
end of the last annual reporting period'. Therefore, if the IFRS 7 disclosures provide a significant update to the information reported
in the most recent annual report, it would be expected that the disclosures be included in the entity's condensed interim financial
report.
IAS 19, 'Employee Benefits' – The amendments clarify that the rate used to discount post-employment benefits obligations should be
determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the
depth of a market for high quality corporate bonds should be at the currency level (i.e. the same currency in which the benefits are
to be paid). For currencies for which there is no deep market in such high quality corporate bonds, the market yields at the end of
the reporting period on government bonds denominated in that currency should be used instead.
IAS 34, 'Interim Financial Reporting'- The amendment states that the required interim disclosures must either be in the interim
financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included
within the greater interim financial report (e.g. in the management commentary or risk report).
The other information within the interim financial report must be available to users on the same terms as the interim financial
statements and at the same time. If users do not have access to the other information in this manner, then the interim financial
report is incomplete.
The application of these amendments did not have a significant impact on the Group.
3 INVESTEC BORROWINGS
On December 2, 2015, BC Corp closed a second amended and restated term loan and revolving credit facility with Investec ("Second
Amended Investec Agreement"), whereby Investec agreed to extend BC Dundee's working capital facility from R30.0 million to R80.0
million, comprising two tranches of R25.0 million each. The conditions to the first tranche, which included the conclusion of the RCF
funding arrangements, were fulfilled on signing of the Second Amended Investec Agreement, and R25.0 million was drawn by BC
Dundee from the facility in December 2015. The second tranche was subject to the Company demonstrating its plan to sell the
majority of its anthracite stockpile, which has built up as a result of depressed markets both domestically and globally. The condition
was fulfilled and R25.0 million was drawn by BC Dundee in March 2016.
Due to continued cash constraints, Investec was approached during the first quarter of 2016 for a further deferral of the term loan
facility repayment due on March 31, 2016. On March 31, 2016, BC Dundee entered into a fourth amendment to the Investec loan
agreement in terms of which the repayment schedule for the term loan facility was replaced with a new schedule with principal
repayments commencing on June 30, 2016. In addition, surplus cash at quarter-end in excess of R30.0 million will be used to reduce
the R80.0 million working capital facility back to R30.0 million and a clause was included restricting outflows of funds from BC
Dundee to BC Corp between April 1, 2016 and June 30, 2016, unless prior written consent is obtained from Investec.
BC Dundee was required to meet specified debt covenants at March 31, 2016 and was in breach of certain of these covenants at this
date. Upon breach, Investec is entitled to request early payment of the outstanding debt, however when it became apparent that
the covenants were to be breached, Investec was approached and has waived the breach of the covenants as at March 31, 2016.
4 COMMITMENTS AND CONTINGENCIES
Management Contracts
Certain management contracts require that payments of approximately R14.3 million be made upon the occurrence of a change of
control, other than a change of control attributable to RCF. As no triggering event has taken place, no provision has been recognized
as of March 31, 2016.
During the year ended December 31, 2015, the Company entered into a retention agreement with key management personnel. The
agreement provides for a minimum commitment of R5.7 million until December 31, 2016.
STA Contract Mining Agreement
In terms of the STA Contract Mining Agreement, STA is mining four sections at Magdalena at a fixed contract mining fee per ton,
effective October 31, 2015. The STA Contract Mining Agreement has a three year term, and the option for a further two year
extension if agreed to by all parties. In terms of the STA Equity Settlement Agreement, a portion of the contract mining fees will be
settled in Common Shares, in order to further alleviate cash flow pressures.
The STA Contract Mining agreement can be terminated on 60 days notice for which period the Company will be liable for payment
for the tons mined at the fixed rate per ton.
Capital Commitments
Capital expenditures contracted for at the statement of financial position date but not recognized in the Interim Results are as
follows:
March 31, December 31, March 31,
2016 2015 2016
R R C$
Property, plant and equipment 4 905 047 1 754 679 428 823
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 retrenchment process undertaken in terms
of Section 189A of the South Africa Labour Relations Act ("LRA") which was concluded in March 2015. The matter was heard by the
Court on April 14, 2015, and on April 24, 2015, the LRA dismissed the application brought by AMCU with costs. AMCU has appealed
the judgment and the appeal was heard by the Labour Appeal Court on November 4, 2015. On May 11, 2016, the Labour Appeal
Court dismissed AMCU's appeal with no order as to costs.
On April 20, 2015, the trustees of the Avemore Trust brought an application in the High Court of South Africa against, among others,
the South African Minister of Mineral Resources ("the Minister"), BC Dundee and Zinoju in respect of Mining Right 174 ("MR174"). In
terms of the application, the trustees of the Avemore Trust challenged the decision by the Minister, subsequent to an internal
appeal process concluded during September 2014, to grant a converted mining right to BC Dundee and to grant consent for the
cession of the converted mining right to Zinoju. There have been various settlement offers between the parties, but should
settlement not be reached, BC Dundee and Zinoju intend to oppose the application. The Company's legal team, including senior
counsel have advised of a defendable case in terms of Avemore Trust's approach to the matter. The legal process on this matter is
currently ongoing.
On August 27, 2015, notice was received from the Minister that Mining Right 301 ("MR301") had been withdrawn together with the
approval by the Regional Manager of the Environmental Management Plan in respect of MR301 (the "Ministerial Decision"). The
reasons given by the Minister for the Ministerial Decision are procedural issues in respect of the award process, in relation to an
objection received from Avemore Trust in October 2013 against the awarding of the right. On September 15, 2015, an urgent court
order was granted, pending final determination, for the Ministerial Decision to be of no force and effect, to interdict the Minister
from awarding MR301 to any other party and for the Company to continue to mine in terms of MR301.
A review application was instituted by the Company in October 2015 to obtain final relief in the form of an order setting aside the
Ministerial Decision, and the Company's legal team, including senior counsel have indicated a strong likelihood of the review
application being successful. The legal process on this matter is currently ongoing.
5 SUBSEQUENT EVENTS
Issuance of Share Capital
Subsequent to March 31, 2016, the Company issued additional shares to RCF in settlement of interest owing on the RCF convertible
loan facilities for the period January 1, 2016 to March 31, 2016. An additional 42 009 840 Common Shares were issued at C$0.05.
Subsequent to March 31, 2016, the Company issued shares to STA pursuant to the STA Equity Settlement Agreement. An additional
6 136 353 Common Shares were issued at C$0.05.
South African Revenue Service ("SARS") Correspondence
Subsequent to March 31, 2016, BC Dundee received a notification from SARS with regards to an investigation conducted by them on
diesel refunds claimed by BC Dundee under the South African Customs and Excise Act, 91 of 1964. As per the notification, the SARS
Commissioner intends to disallow diesel refunds in the amount of R12.2 million for the period December 2012 to February 2016. BC
Dundee is currently drafting a response to the SARS Commissioner in order to defend its refund claims.
Other Matters
Except for the matters discussed above, no other matters which management believes are material to the financial affairs of the
Company have occurred between the statement of financial position date and the date of approval of the Interim Results.
Sponsor: Questco Proprietary Limited
Date: 13/05/2016 01:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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