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Consolidated Financial Statements for the year ended 31 December 2017
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")
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017 and December 31, 2016
(Presented in South African Rands)
251 Consumers Road,
Suite 800
Toronto, Ontario
M2J 4R3
Tel 416-496-1234
Fax 416-496-0125
Email infor@uhymh.com
Web www.uhymh.com
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Buffalo Coal Corp.:
We have audited the accompanying consolidated financial statements of Buffalo Coal Corp. and its subsidiaries, which
comprise the consolidated statements of financial position as at December 31, 2017 and 2016, and the consolidated
statements of profit or loss and other comprehensive loss, consolidated statements of changes in equity and consolidated
statements of cash flow for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Buffalo Coal
Corp. and its subsidiaries as at December 31, 2017 and 2016, and their financial performance and cash flows for the years
then ended, in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2.1 in the consolidated financial statements which indicates that as at
December 31, 2017, the Company has a shareholders' deficiency and a working capital deficiency, and incurred a loss for the
year ended December 31, 2017. The Company is in breach of certain covenants with respect to its borrowings. The Company
has experienced operational challenges, and has a significant need for equity capital and financing for operations and working
capital. These conditions along with other matters set forth in Note 2.1 indicate the existence of material uncertainties that cast
significant doubt about the Company's ability to continue as a going concern.
UHY McGovern Hurley LLP
Chartered Professional Accountants
Licensed Public Accountants
TORONTO, Canada
March 19, 2018
A member of UHY International, a network of independent accounting and consulting firms.
Consolidated Statements of Financial Position
(Presented in South African Rands)
December 31, December 31, December 31,
2017 2016 2017
(Note 2)
Notes R R C$
Assets
Non-current assets
Property, plant and equipment 9 106 885 916 311 730 638 10 846 825
Investment in financial assets 10 181 465 41 633 486 18 415
Other receivables - restricted 12 53 211 988 - 5 399 974
Other receivables 13 5 179 462 4 032 570 525 614
Long-term restricted cash 16 11 200 000 11 200 000 1 136 580
Total non-current assets 176 658 831 368 596 694 17 927 408
Current assets
Trade and other receivables 13 121 244 825 84 773 344 12 303 973
Inventories 14 38 095 072 35 222 250 3 865 903
Non-interest bearing receivables 15 2 015 578 1 902 205 204 542
Current tax assets 24 864 710 - 87 751
Cash and cash equivalents 17 21 428 994 13 753 934 2 174 623
Total current assets 183 649 179 135 651 733 18 636 792
Total assets 360 308 010 504 248 427 36 564 200
Equity and liabilities
Capital and reserves
Share capital 18 1 082 396 917 1 075 881 497 109 842 068
Currency translation reserve (219 945 085) (219 945 085) (22 320 114)
Reserves 19 14 125 416 13 308 821 1 433 453
Accumulated retained loss (1 218 681 917) (1 095 286 547) (123 672 324)
Equity (deficiency) attributable to owners of the
company (342 104 669) (226 041 314) (34 716 917)
Non-controlling interest 4 339 142 4 339 142 440 338
Total equity (deficiency) (337 765 527) (221 702 172) (34 276 579)
Non-current liabilities
RCF loan facilities 21 314 762 527 336 288 222 31 942 226
Conversion option liability 21 28 289 31 905 346 2 871
Asset retirement obligation 22 30 244 737 26 694 012 3 069 248
Total non-current liabilities 345 035 553 394 887 580 35 014 345
Current liabilities
Trade and other payables 23 156 497 655 158 262 414 15 881 444
Current Tax Liabilities 24 2 901 399 8 775 360 294 435
Current portion of borrowings 20 187 955 977 161 016 413 19 073 847
Warrant liability 20 29 507 344 627 2 994
Current portion of asset retirement obligation 22 5 653 446 2 664 205 573 714
Current liabilities 353 037 984 331 063 019 35 826 434
Total liabilities 698 073 537 725 950 599 70 840 779
Total equity (deficiency) and liabilities 360 308 010 504 248 427 36 564 200
Commitments and contingencies 1, 2.1, 28
Approved on behalf of the Board:
Signed "Craig Wiggill", Director Signed "Robert Francis", Director
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Profit or Loss and Other Comprehensive Income
(Presented in South African Rands)
Year ended Year ended Year ended
December 31, December 31, December 31,
Notes 2017 2016 2017
(Note 2)
R R C$
Revenue 738 121 411 660 581 569 74 904 853
Cost of sales 5 (636 407 361) (641 833 612) (64 582 871)
Gross profit 101 714 050 18 747 957 10 321 982
Other income/(expense) - net 6 (102 087 603) 76 998 108 (10 359 890)
General and administration expenses 5 (69 851 646) (61 990 584) (7 088 573)
Profit before the undernoted (70 225 199) 33 755 481 (7 126 481)
Finance income 7 2 077 824 1 547 684 210 858
Finance expense 7 (54 434 070) (72 672 258) (5 523 991)
(Loss) before income tax (122 581 445) (37 369 093) (12 439 614)
Income tax expense 8 (1 107 529) (8 174 931) (112 393)
(Loss) and total comprehensive (loss) for the year (123 688 974) (45 544 024) (12 552 007)
Loss attributable to:
- Owners of the parent (123 688 974) (45 544 024) (12 552 007)
- Non-controlling interest - - -
(123 688 974) (45 544 024) (12 552 007)
Net profit/(loss) per share - basic and diluted (0.31) (0.14) (0.03)
Headline profit/(loss) per share - basic and diluted (0.31) (0.12) (0.03)
Weighted average number of common shares outstanding:
- Basic 402 103 783 336 932 882 402 103 783
- Diluted 402 103 783 336 932 882 402 103 783
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Changes in Equity
(Presented in South African Rands)
Attributable to owners of the Group
Reserves Currency Non-
No. of shares Share Option reserve Equity-settled BEE option Accumulated translation Total controlling Total equity
issued capital non-employee reserve retained loss reserve interest
Notes benefits
R R R R R R R R R
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 18 98 909 640 29 164 195 - - - - - 29 164 195 - 29 164 195
Shares issued to STA 18 15 164 333 8 620 800 - - - - - 8 620 800 - 8 620 800
Stock-based compensation - - 176 514 2 175 290 - - - 2 351 804 - 2 351 804
Stock options expired/cancelled 19 - - (5 769 878) - - 5 769 878 - - - -
Net loss for the year - - - - - (45 544 024) - (45 544 024) - (45 544 024)
Balance at December 31, 2016 394 803 022 1 075 881 497 2 059 820 2 175 290 9 073 711 (1 095 286 547) (219 945 085) (226 041 314) 4 339 142 (221 702 172)
Shares issued to STA 18 13 005 259 6 515 420 - - - - - 6 515 420 - 6 515 420
Stock-based compensation - - 40 839 1 069 360 - - - 1 110 199 - 1 110 199
Stock options expired/cancelled 19 - - (293 604) - - 293 604 - - - -
Net (loss) for the year - - - - - (123 688 974) - (123 688 974) - (123 688 974)
Balance at December 31, 2017 407 808 281 1 082 396 917 1 807 055 3 244 650 9 073 711 (1 218 681 917) (219 945 085) (342 104 669) 4 339 142 (337 765 527)
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flow
(Presented in South African Rands)
Year ended Year ended Year ended
Notes December 31, December 31, December 31,
2017 2016 2017
(Note 2)
R R C$
Cash flows from operating activities
Cash generated from operations 26 58 009 833 52 078 497 5 886 861
Interest received 2 077 824 1 547 684 210 858
Interest paid (23 962 072) (21 104 264) (2 431 681)
Taxation paid (7 855 733) (504 100) (797 203)
Net cash generated from operating activities 28 269 852 32 017 817 2 868 835
Cash flows from investing activities
Investment in financial assets (7 277 877) (5 145 187) (738 561)
Purchase of property, plant and equipment (35 243 543) (21 084 772) (3 576 529)
Proceeds from the disposal of property, plant and equipment 540 000 58 688 54 799
Movement in non-interest bearing receivables (113 372) (204 258) (11 505)
Net cash utilized in investing activities (42 094 792) (26 375 529) (4 271 796)
Cash flows from financing activities
Drawdowns from the revolving credit facility 21 500 000 25 000 000 2 181 829
Repayment of borrowings - (37 253 800) -
Net cash generated from/(utilized in) financing activities 21 500 000 (12 253 800) 2 181 829
Net increase/(decrease) in cash and cash equivalents 7 675 060 (6 611 512) 778 868
Cash at the beginning of the year 13 753 934 20 365 446 1 395 755
Cash at the end of the year 21 428 994 13 753 934 2 174 623
Non-cash investing and financing transactions
Common shares issued in settlement of the interest owing
on the RCF loan facilities - 29 164 195 -
Common shares issued to STA 6 515 420 8 620 800 661 187
Change in working capital related to property, plant and
equipment - 25 000 000 -
Total 6 515 420 62 784 995 661 187
The accompanying notes are an integral part of the consolidated financial statements.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017 and December 31, 2016
(Presented in South African Rands)
1 NATURE OF OPERATIONS
Buffalo Coal Corp. (individually, or collectively with its subsidiaries, as applicable, the "Company", "BC Corp" or the "Group") is a coal
mining company incorporated in Ontario, Canada. The Company is listed on the TSX Venture Exchange ("TSXV") and the Alternative
Exchange ("AltX") operated by the JSE Limited ("JSE"). As at financial year end December 31, 2017, Resource Capital Fund V L.P.
("RCF") owned 347 945 097 common shares of the Company ("Common Shares") representing approximately 85.3% of the then
issued and outstanding Common Shares. The registered office of the Company is Brookfield Place, Bay/Wellington Tower, 181 Bay
Street, Suite 2100, Toronto, Ontario M5J 2T3. The head office of the Company is located at Manhattan Office Park, Building 1, 1st
Floor, 16 Pieter St, Centurion, South Africa, 0157. These consolidated financial statements were approved and authorized for issue
by the Board of Directors on March 19, 2018.
The Company owns a 100% interest in Buffalo Coal Dundee Proprietary Limited ("BC Dundee"), a South African company with an
interest in two operating coal mines in South Africa, namely the Magdalena bituminous mine ("Magdalena") and the Aviemore
anthracite mine ("Aviemore") which are both engaged in underground coal mining. BC Dundee holds a 70% interest in Zinoju Coal
Proprietary Limited ("Zinoju") (collectively "BC Dundee Group") which holds the mineral rights relating to the mining properties. The
remaining 30% interest in Zinoju is held by 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 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, land claims and non-compliance with regulatory
and environmental requirements.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Nature of operations
These annual consolidated financial statements of the Group 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 below were consistently applied to all the years presented unless otherwise noted below.
The annual consolidated financial statements have been prepared under the historical cost convention, as modified by financial
assets at fair value through profit or loss and compound financial instruments.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of applying the accounting policies of the Group. The areas involving a
higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in note 4.
The consolidated financial statements 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. In prior years, in response to conditions at the time, the Group implemented
various restructurings at BC Dundee including two retrenchment processes and the conclusion of agreements with STA Coal Mining
Company Proprietary Limited ("STA"). 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 the Company ("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. During the year ended December 31, 2017, Investec agreed to release
R22.0 million of undrawn Working Capital Facility funds, which was subject to agreement being reached on the revised terms and
conditions to the term loan and revolving credit agreement (refer to Note 20). Although the Group has implemented various
restructuring initiatives, the Group continues to experience operational challenges. The Group remains dependent upon sustaining
profitable levels of operation, as well as the continued support of Investec, RCF and other stakeholders and believes that subject to
its ability to meet current forecasts, it should be able to generate positive cash flows in the foreseeable future. The Company negotiated
further amendments to the term loan and revolving credit agreement with Investec subsequent to year end (Refer Subsequent events).
A new adit is being considered at Aviemore in order to access the remainder of the reserve. This is due to the current adit reaching
its limits by 2020, and will extend the life-of-mine ("LOM") to 2033. The Group's ability to continue long term operations and
ultimately continue as a going concern, is dependent on its ability to secure funding required for the adit expansion at Aviemore.
As at December 31, 2017, the Company had a shareholders' deficiency and a working capital deficiency, and for the year ended
December 31, 2017, had a loss of R123.7 million. The Group continues to be in breach of certain covenants with respect to its
borrowings from Investec at December 31, 2017. The Company was in default of the scheduled R7.5 million repayments of the term
loan facility at March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, and default notices were received from
Investec in this regard as well as the breach in covenants. On November 22, 2016, Investec provided a forbearance letter stating
that it does not intend to exercise its rights to request early payment of the outstanding debt; however, no covenant waiver has
been provided and Investec has reserved its right to review this decision periodically, with no obligation to keep the Company
advised in this regard. There is no assurance that the Company will be able to meet its covenants in the future, or that Investec will
provide future waivers, if required. 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 these annual consolidated financial statements 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. Such adjustments could be material.
References to "R", "Rands" mean South African Rands, "C$" mean Canadian Dollars and "US$" mean United States Dollars.
Convenience rate translation
The Company's functional and presentation currency is Rands. The Canadian Dollar amounts provided in the financial statements
represent supplementary information solely for the convenience of the reader. The financial position as of December 31, 2017 and
the financial results for the year ended December 31, 2017 were translated into Canadian Dollars using a convenience translation at
the rate of C$1:R9.85412, which is the exchange rate published on Oanda.com as of December 31, 2017. 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.
2.2 New standards, amendments and interpretations
The following standards, amendments and interpretations are issued and effective for the first time for the December 31, 2017
financial year-end:
IAS 7 - Disclosure Initiative - effective January 1, 2017
The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities
arising from financing activities. The Group does not anticipate that the application of these amendments did not have a significant
impact on the Group's consolidated financial statements.
IAS 12 - Recognition of Deferred Tax Assets for unrealized losses - effective January 1, 2017
The amendments were issued to clarify the requirements for recognising deferred tax assets on unrealised losses. The amendments
clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. They
also clarify certain other aspects of accounting for deferred tax assets.
The amendments clarify the existing guidance under IAS 12. They do not change the underlying principles for the recognition of
deferred tax assets. The application of these amendments did not have a significant impact on the Group's consolidated financial
statements.
The following standards, amendments and interpretations are issued but not yet effective for the December 31, 2017 financial
year-end:
IFRS 9 -'Financial Instruments' - effective January 1, 2018
IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9
was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities
and for their derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised
version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited
amendments to the classification and measurement requirements by introducing a 'fair value through other comprehensive income'
("FVTOCI") measurement category for certain simple debt instruments.
All recognized financial assets that are within the scope of IAS 39, Financial Instruments: Recognition and Measurement are required
to be subsequently measured at amortized cost or fair value. In addition, entities may make an irrevocable election to present
subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only
dividend income generally recognized in profit or loss.
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the
amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented
in other comprehensive income ("OCI"), unless the recognition of the effects of changes in the liability's credit risk in OCI would
create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not
subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in fair value of the financial liability
designated as fair value through profit or loss is presented in profit or loss.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss
model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those
expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.
The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS
39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically
broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items
that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an
'economic relationship'. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure
requirements about an entity's risk management activities have also been introduced.
The Group does not anticipate that the application of IFRS 9 will have a significant impact on the Group's consolidated financial statements.
IFRS 15 - 'Revenue from Contracts with Customers' - effective January 1, 2018
IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18, Revenue; IAS 11,
Construction Contracts and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or
services. Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when 'control' of the
goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance
has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
The Group does not anticipate that the application of IFRS 15 will have a significant impact on the Group's consolidated financial statements.
IFRIC 22 - Foreign Currency Transactions and Advance Consideration - effective January 1, 2018
IFRIC 22 was issued in December 2016 and addresses foreign currency transactions or parts of transactions where there is
consideration that is denominated in a foreign currency; a prepaid asset or deferred income liability is recognised in respect of that
consideration, in advance of the recognition of the related asset, expense or income; and the prepaid asset or deferred income
liability is non-monetary. The interpretation committee concluded that the date of the transaction, for purposes of determining the
exchange rate, is the date of initial recognition of the non-monetary prepaid asset or deferred income liability.
The Group does not anticipate that the application of IFRIC 22 will have a significant impact on the Group's consolidated financial statements.
IFRS 2 - Share-based payments - effective January 1, 2018
This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that
change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an
award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax
obligation associated with a share-based payment and pay that amount to the tax authority.
The Group does not anticipate that the application of these amendments will have a significant impact on the Group's consolidated
financial statements.
IFRS 16 - 'Leases' - effective January 1, 2019
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors
and lessees. It will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions
of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting and is replaced by a
model where a right-of-use asset and a corresponding liability have to be recognized for all leases by lessees except for short-term
lessees and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease
payments. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications,
amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are
presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and interest
portion which will be presented as financing and operating cash flows respectively. It is not practicable to provide a reasonable
estimate of the effect of IFRS 16 until the Group undertakes a detailed review.
IFRIC 23 - Uncertainty over Income Tax Treatments - effective January 1, 2019
IFRIC 23 provides a framework to consider, recognise and measure the accounting impact of tax uncertainties. The Interpretation
provides specific guidance in several areas where previously IAS 12 was silent. The Interpretation also explains when to reconsider
the accounting for a tax uncertainty. Most entities will have developed a model to account for tax uncertainties in the absence of
specific guidance in IAS 12. These models might, in some circumstances, be inconsistent with IFRIC 23 and the impact on tax
accounting could be material. Management should assess the existing models against the specific guidance in the Interpretation and
consider the impact on income tax accounting.
The Group does not anticipate that the application of IFRIC 23 will have a significant impact on the Group's consolidated financial
statements.
2.3 Consolidation
The annual consolidated financial statements comprise the financial statements of the Company and its subsidiaries, BC Dundee,
Zinoju, Zinoju Rehabilitation Trust ("the Trust") and Buffalo Coal Proprietary Limited ("BC").
(a) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Company
reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the
three elements of control.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity
interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date.
The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognized amounts of the acquiree's identifiable net assets. If the business
combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in
accordance with IAS 39 either in profit or loss or as a change to OCI. Contingent consideration that is classified as equity is not
remeasured, and its subsequent settlement is accounted for within equity.
The excess of the consideration transferred, in respect of the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is
recorded as goodwill. If the total consideration transferred, non-controlling interest recognized and previously held interest
measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognized directly in profit or loss.
Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits or
losses resulting from inter-company transactions that are recognized in assets are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Acquisition-related
costs are expensed as incurred.
(b) Transactions with non-controlling interests
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from
non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net
assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value,
with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts
previously recognized in OCI in respect of that entity are accounted for as if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognized in OCI are reclassified to profit or loss. If the ownership interest in an
associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in OCI is
reclassified to profit or loss where appropriate.
2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker,
who is responsible for allocating resources and assessing the performance of the operating segments. The chief operating decision-
maker has been identified as the Board of Directors.
2.5 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic
environment in which the entity operates. The consolidated financial statements are presented in Rands, which is the Group's
presentation currency and the Company's functional currency. The functional currency of the Company's subsidiaries, namely BC
Dundee, Zinoju, the Trust and BC, is South African Rands.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in profit or loss. Foreign exchange gains and losses are presented in profit or loss within "other
income/(expense) - net".
2.6 Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the
asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
costs are charged to profit or loss during the financial period in which they are incurred.
Land is not depreciated. Depreciation of mineral rights is calculated using the units-of-production ("UOP") method based on total
run of mine tonnes of coal expected to be mined per the LOM plan. Depreciation on the remaining assets is calculated using the
straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:
Buildings 10 to 20 years
Development costs 5 to 20 years
Mining assets 5 to 25 years
Office equipment and fixtures and fittings 3 to 10 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An
asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in profit or loss.
Mineral rights
Mineral rights are recorded at cost. This includes costs incurred to explore, sample, drill and perform feasibility tests when incurred
before the research proves the land to be technically feasible and commercially viable, at which point the costs are reclassified as
mining assets within property, plant and equipment. Exploration and evaluation costs incurred before mineral rights are acquired
are expensed in profit or loss. Depreciation of mineral rights is calculated using the UOP method.
2.7 Leased assets
Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified
as finance leases. Finance leases are capitalized at the lower of the fair value of the leased property or the estimated present value
of the underlying lease payment. Each lease payment is allocated between the liability and finance charges so as to achieve a
constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in
interest bearing borrowings. The interest element of the finance charges is charged to the profit or loss over the lease period.
Property, plant and equipment acquired under finance leasing contracts are depreciated over the useful lives of the assets. Leases in
which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line
basis over the period of the lease.
2.8 Impairment of non-financial assets
At least annually, or when events and circumstances warrant a review, the Group reviews the carrying amounts of its non-financial
assets to determine whether there is any indication that those assets have suffered an impairment loss. The carrying value of an
asset is considered to be impaired when the recoverable amount of such an asset is less than its carrying value. In this instance, a
loss is recognized based on the amount by which the carrying value exceeds the recoverable amount.
The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets (including goodwill) are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units). In assessing value in use, the estimated future cash flows are discounted to their present value using a discount
rate that reflects current market assessments of time value of money and the risks specific to the asset.
Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable
willing parties, less the costs of disposal.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognized immediately in profit or loss, unless it relates to goodwill, in which case it is not reversed.
2.9 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a
sale transaction rather than through continuing use. This condition is regarded as met only when the asset is available for
immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset and its sale is highly
probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
2.10 Financial instruments
2.10.1 Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss and as loans and receivables.
The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of
its financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if
acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as such unless they are designated
as hedges. Assets in this category are classified as current assets if expected to be settled within twelve months, otherwise they are
classified as non-current. The Group's financial assets held for trading comprise of cash equivalents and other long-term investments
which are included in 'investment in financial assets' in the statement of financial position.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than twelve months after the statement of
financial position date, which are classified as non-current assets. The Group's loans and receivables comprise of trade and other
receivables, cash and long term receivables, and interest and non-interest bearing receivables in the statement of financial position.
(c) Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade-date, being the date on which the Group commits to
purchase or sell the asset. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and
transaction costs are expensed in profit or loss. Loans and receivables are initially carried at fair value and subsequently at amortized
cost using the effective interest rate method.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred
and the Group has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value
of the financial assets at fair value through profit or loss are presented in profit or loss within 'other income/(expense) - net'.
(d) Impairment
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be
impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the financial asset have been affected. For financial assets carried at amortized
cost, the amount of the impairment loss recognized is the difference between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the financial asset's original effective interest rate. The carrying amount of the financial
asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables (Refer to note 2.12).
(e) Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another party.
2.10.2 Financial liabilities
Financial liabilities are classified as other financial liabilities and include borrowings, RCF loan facilities, loans payable and trade and
other payables. Other financial liabilities are subsequently measured at amortized cost using the effective interest rate method.
The Group derecognizes financial liabilities when the Group's obligations are discharged, cancelled or they expire. The difference
between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
2.10.3 Compound financial instruments
Compound financial instruments issued by the Group comprise convertible loans that can be converted to share capital at the option
of the holder. The instrument is classified separately as a financial liability and equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-
convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until
extinguished upon conversion or at the instrument's maturity date.
The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of
the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently
remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in
which case, the balance recognized in equity will be transferred to issued capital. When the conversion option remains unexercised
at the maturity date of the convertible note, the balance recognized in equity will be transferred to retained earnings/loss.
No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.
Foreign-currency-denominated convertible loans that will be settled by the Company delivering a variable number of its shares for a
fixed amount of foreign currency will be classified as a financial liability. The conversion option is an embedded derivative, which is
separated as it is not closely related to the debt host. Changes in the fair value of the embedded derivative liability will be recorded
in profit or loss.
Transaction costs that relate to the issue of the convertible loans are allocated to the liability and equity components in proportion
to the allocation of the gross proceeds. Transactions costs relating to the equity component are recognized directly in equity.
Transaction costs relating to the liability component are included in the carrying amount of the liability component and are
amortized over the lives of the convertible loans using the effective interest rate method.
2.10.4 Derivative financial instruments
Derivatives are initially recognized at fair value on the date the derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument. The Group's derivative instruments are not designated as hedging instruments and do not qualify for hedge accounting.
Accordingly, changes in the fair value of the derivative instruments are recognized immediately in profit or loss within 'other
income/(expense) - net'.
2.11 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it
relates to items recognized directly in equity. In this case, the tax is recognized directly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of
financial position date in the countries where the Company and its subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if
they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor
taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of
financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax
liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax
liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net
basis.
2.12 Trade and other receivables
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate
method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables and is
recognized in profit or loss within 'operating expenses'. Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade
receivable is impaired. When a trade receivable is uncollectible, it is written off against the provision. Subsequent recoveries of
amounts previously written off are credited against 'operating expenses' in profit or loss.
2.13 Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first in, first out ("FIFO") method. The
cost of finished goods and work in progress comprises operating costs which are absorbed into stock on hand, based on the level of
extraction during the period in which such stock was mined and the costs incurred during such period. Overheads are allocated on
the same basis. Inventories exclude borrowing costs. Net realizable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses.
2.14 Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities
on the statement of financial position.
2.15 Share-based payments
The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees and
consultants as consideration for equity instruments (options) of the Group. The fair value of the employee and consulting services
received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted and is recognized within profit or loss. At the end of each reporting period, the
Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It
recognizes the impact of the revision in the income statement, with a corresponding adjustment to equity.
For those options which vest immediately and are subsequently cancelled, the adjustments are made directly in equity between the
reserves and retained loss.
The fair value of common shares issued as compensation is based on the quoted market price.
The fair value of stock options and compensation warrants is determined using the Black-Scholes option-pricing model. The
compensation expense is recognized over the vesting period. At the end of each reporting period, the Group revises its estimates of
the number of options that are expected to vest based on the vesting conditions. The Group recognizes the impact of the revision to
original estimates in profit or loss, with a corresponding adjustment to equity.
When the options and warrants are exercised, the Company issues new shares. The proceeds received, net of any directly
attributable transaction costs, together with any related amount in reserves, are credited to share capital.
2.16 Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognized initially
at fair value and subsequently measured at amortized cost using the effective interest rate method.
2.17 Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not
recognized for future operating losses.
The Group's provision for asset retirement obligations ("ARO") is measured at the present value of the amount expected to be
required to settle the obligation using a risk-free rate that reflects the rate of interest on monetary assets that are essentially free of
default risk, adjusted for the effect of any entity's credit standing. Future costs to retire an asset, including dismantling, remediation
and ongoing treatment and monitoring of the site, are recognized and recorded as a provision for close down rehabilitation costs at
fair value in the accounting period in which the legal obligation arising from the disturbance occurs. The liability is accreted over time
through periodic charges to operations. The fair value of the costs is capitalized as part of the assets' carrying value and amortized
over the assets' estimated useful lives.
A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a
valid expectation in those affected that it will carry out a restructuring by starting to implement the plan or announcing its main
features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the
restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with ongoing
activities of the entity.
2.18 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of coal in the ordinary course of the
Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts.
The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.
(a) Sale of coal
The Group extracts, washes and sells coal. Sales are recognized when the entity has delivered products to the customer, the
customer has full discretion over the products, and there is no unfulfilled obligation that could affect the customer's acceptance of
the products. Delivery does not occur until the products have either been shipped (for certain foreign sales), or the date upon which
the goods are dispatched to the customer, the risks of obsolescence and loss have been transferred to the customer, and either the
customer has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for
acceptance have been satisfied.
(b) Interest income
Interest income is recognized on a time-proportion basis using the effective interest rate method. When a receivable is impaired, the
Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original
effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired
loans is recognized using the original effective interest rate.
(c) Other income
Other income is recognized on an accrual basis and comprises primarily foreign exchange gains and losses, profit on sale of assets
and scrap sales.
2.19 Employee benefits
(a) Defined contribution plans
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has
no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the
benefits relating to employee service in the current and prior periods. The contributions are recognized as an employee benefit
expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in
future payments is available.
(b) Short-term employee benefits
The cost of short-term employee benefits (those payable within twelve months after the service is rendered), such as paid vacation
leave and sick leave, bonuses, and non-monetary benefits such as medical, are recognized in the period in which the service is
rendered and are not discounted.
2.20 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized
cost using the effective interest rate method, and any difference between proceeds (net of transaction costs) and the redemption
value is recognized in profit or loss over the period of the borrowings.
Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity
services and amortized over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 months after the statement of financial position date.
2.21 Loss per share
Basic loss per common share has been computed by dividing the loss applicable to common shareholders by the weighted average
number of common shares outstanding during the representative period. Diluted loss per common share is determined under the
assumption that deemed proceeds on the exercise of stock options and other dilutive instruments are considered to be used to
reacquire common shares at the average price for the period with the incremental number of shares being included in the
denominator of the diluted loss per share calculation. The diluted loss per share calculation excludes any potential conversion of
options and warrants that would decrease loss per share. As at December 31, 2017, outstanding options, loans and warrants, as well
as the potential shares issuable with regards to the RCF Convertible Loan, referred to in note 21, were excluded from the diluted loss
per share calculation as they were anti-dilutive.
Headline earnings/(loss) per share is a basis for measuring earnings per share which accounts for all the profits and losses from
operational, trading, and interest activities that have been discontinued or acquired at any point during the year. Excluded from this
figure are profits or losses associated with the sale or termination of discontinued operations, fixed assets or related businesses, or
from any permanent devaluation or write-off of their values. For the current financial year, the Company's headline loss per share
was adjusted for the profit on sale of property, plant and equipment of R0.5 million (period ended December 31, 2016: loss of R4.0
million).
3 FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The Group's activities expose it to a variety of financial risks such as foreign exchange risk, price risk, cash flow interest rate risk,
credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on the Group's financial performance.
Risk management is carried out by head office management under policies approved by the Board of Directors. The Group identifies,
evaluates and manages financial risks in close co-operation with the Group's subsidiaries.
3.2 Market risk
(a) Foreign exchange risk
The Company's functional currency is the Rand. The Group operates internationally and is exposed to foreign exchange risk arising
from currency exposures with respect to the US Dollar and Canadian Dollar. The Group's foreign exchange risk arises primarily from
the sale of coal, based on the API 4 coal price index in US Dollars to foreign customers, external loans denominated in US Dollars and
translation differences arising from the translation of share capital and other equity items.
At December 31, 2017, a 10% increase/(decrease) in the year average foreign exchange rate between the Canadian Dollar and the
Rand would have increased/(decreased) the Group's profit or loss by approximately R0.4 million (period ended December 31, 2016:
R3.5 million).
A 10% increase/(decrease) in the year end foreign exchange rate between the US Dollar and the Rand would have
increased/(decreased) the Group's profit or loss by approximately R33.2 million (period ended December 31, 2016: R36.4 million).
(b) Price risk
The Group is exposed to commodity price risk, primarily due to fluctuations in the API 4 coal price index, by which foreign coal sales
are priced. Commodity prices fluctuate on a daily basis and are affected by numerous factors beyond the Group'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 commodity prices. Such
external economic factors are in turn influenced by changes in international investment patterns and monetary systems and political developments.
At December 31, 2017, a 10% change in the API 4 coal price index would have resulted in a corresponding change in export coal
revenue of approximately R3.1 million (year ended December 31, 2016: R2.1 million).
(c) Cash flow interest rate risk
The Group's interest rate risk arises from deposits held with banks and interest-bearing liabilities. Borrowings issued at variable rates
expose the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. During the current and prior
financial year the Group's borrowings at variable rates were denominated in South African Rands.
Based on the simulations performed, the impact on profit or loss of a 1% shift of interest rates on borrowings would be a maximum
increase/(decrease) in profit or loss of R1.6 million (year ended December 31, 2016: R1.4 million).
3.3 Credit risk
Credit risk is managed at a Group level, except in respect of trade receivables which are managed at an operational level.
Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to
customers, including outstanding receivables and committed transactions (refer to notes 13 and 28, respectively). The Group has
banking relationships, and places deposits, only with high quality financial institutions.
Risk control assesses the credit quality of customers, taking into account their financial position, past experience and other factors.
The utilization of credit limits is regularly monitored. No credit limits were exceeded during the reporting period, and management
does not expect any losses from non-performance by these counterparties.
Restricted cash totaling R11.2 million was on deposit with First National Bank ("FNB") to be released to the relevant counterparties if
payments are not made to them (note 16).
3.4 Liquidity risk
Cash flow forecasting is performed by Group finance. Group finance monitors rolling forecasts of the Group's liquidity requirements
to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the Group's debt/equity
financing plans, covenant compliance and external legal requirements.
Below is an analysis of the Group's non-derivative financial liabilities disclosed in maturity groupings based on the remaining period
at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
Between 1 and 5 Greater than 5
Not later than 1 year years years
At December 31, 2017
Borrowings 200 345 633 - -
RCF loan facilities - 333 961 380 -
Trade and other payables 156 497 655 - -
At December 31, 2016
Borrowings 178 541 211 - -
RCF loan facilities - 370 958 400 -
Trade and other payables 158 262 414 - -
3.5 Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may
adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net
debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in
the consolidated statements of financial position) less cash and cash equivalents. Total capital is calculated as "equity" as shown in
the consolidated statements of financial position plus net debt.
The gearing ratios at December 31, 2017 and December 31, 2016 were as follows:
December 31, December 31,
2017 2016
Total borrowings 502 776 300 529 554 608
Less: cash and cash equivalents (21 428 994) (13 753 934)
Net debt 481 347 306 515 800 674
Total equity (337 765 527) (221 702 172)
Total capital 143 581 779 294 098 502
Gearing ratio (net debt/total capital) 335% 175%
Included within total borrowings is a convertible loan of R334.0 million (year ended December 31, 2016: R371.0 million). The
Company's capital management objectives, policies and processes have remained unchanged during the year ended December 31,
2017 except for the Investec loan as discussed in note 20 and the RCF loan facilities as discussed in note 21.
The Company is not subject to any externally imposed capital requirements with the exceptions as discussed in note 20 and 21, and
the capital requirements of the TSXV which requires adequate working capital or financial resources of the greater of (i) C$50 000
and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.
As of December 31, 2017, the Company may not be compliant with the policies of the TSXV. The impact of this violation is not known
and is ultimately dependent on the discretion of the TSXV.
3.6 Fair value estimation
Financial instruments carried at fair value are assigned to different levels of the fair value hierarchy, by valuation method. The
different levels have been defined as follows:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices) (level 2).
- Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3).
The following table presents the group's financial assets and liabilities that are measured at fair value at December 31, 2017 and
December 31, 2016:
Level 1 Level 2 Level 3
R R R
December 31, 2017
Investment in financial assets 181 465 - -
Other receivable - restricted - 53 211 988 -
Conversion option liability - 28 289 -
Warrant liability - 29 507 -
December 31, 2016
Investment in financial assets 41 633 486 - -
Conversion option liability - 31 905 346 -
Warrant liability - 344 627 -
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the consolidated financial statements in conformity with IFRS requires the Group's management to make
judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial
statements and related notes thereto. Although these estimates are based on management's best knowledge of the amounts,
events or actions, actual results may differ from those estimates and these differences could be material. The areas which require
management to make significant judgements, estimates and assumptions in determining the carrying values and amounts include,
but are not limited to:
4.1 Provisions
Significant judgement and use of assumptions is required in determining the Group's provisions. Management uses its best estimates
based on current knowledge in determining the amount to be recognized as a provision. Key assumptions utilized in the
determination of the rehabilitation provision, which is measured at fair value, include the estimated life of mine, estimates of
reserves and discount rates. Fair value is determined based on the net present value of estimated future cash expenditures for the
settlement of the liability 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.
4.2 Property, plant and equipment, mineral rights and other intangible assets
The Group makes use of experience and assumptions in determining the useful lives and residual values of property, plant and
equipment, mineral rights and other intangible assets (other than goodwill). Management reviews annually whether any indications
of impairment exist. Information that the Group considers includes changes in the market, economic and legal environment in which
the Group operates as well as internal sources of information. 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 coal price forecasts, increases in estimated future costs of production, increases in
estimated future capital costs, depreciation of the Rand relative to the US Dollar, 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
Group's assets. Should an impairment exist, it is recorded in 'other income/(expense) -net' within profit or loss.
4.3 Taxes and recoverability of potential deferred tax assets
The Company is subject to income, value added, withholding and other taxes in various jurisdictions. Significant judgment is required
in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding
and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. The Company's
interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax
authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement
reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.
In assessing the probability of realizing deferred 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 forecast cash flows from operations and the application of existing tax laws in South Africa.
4.4 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 judgements and assumptions are inherently uncertain. Changes in these
assumptions could materially affect the fair value estimates.
4.5 Compound financial instruments
The Group has entered into agreements in the form of foreign-currency-denominated convertible loans and warrants which are
accounted for as compound financial instruments. The fair value of the embedded derivative liabilities (conversion option liability
and warrant liability) are determined at the date of the transaction and are fair valued at each reporting date through profit or loss
using generally accepted valuation techniques. Assumptions are made and judgments are used in applying valuation techniques.
These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield and risk free
rate of return.
Such judgements and assumptions are inherently uncertain. Changes in these assumptions could materially affect the fair value estimates.
4.6 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 Group'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 on the Group's reserves and resources, and as a result, could also have a material effect on the Group's
financial position and results of operation.
4.7 Going concern assumption
The consolidated financial statements 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. 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 statement of financial position classifications. Such adjustments could be material (refer to note 2.1).
4.8 Contingencies
Refer to note 28.
5 NATURE OF EXPENSES
Year ended
December 31, 2017 December 31, 2016
Raw materials and consumables 21 506 540 18 518 324
Changes in inventories (2 955 233) 7 384 481
Mining overheads 99 525 116 90 717 104
Mining sub-contractors 181 891 274 215 983 927
Depreciation and amortization 65 726 728 57 025 517
Repairs and maintenance 48 005 515 51 608 002
Salaries and wages 178 022 793 161 231 956
Social development expenditure 9 470 615 7 715 537
Royalty tax expense 4 970 105 5 780 092
Movement in provision for bad debts (482 509) 881
Auditors' remuneration 2 691 308 3 331 973
Transport costs - internal 33 047 197 31 393 436
Railage, handling and wharfage 24 756 772 19 397 837
Legal, consulting and other professional fees 10 301 210 10 948 443
Shareholder communication and listing fees 748 609 1 178 900
Stock-based compensation 40 839 176 514
Other expenses 28 992 128 21 431 272
Total 706 259 007 703 824 196
Cost of sales 636 407 361 641 833 612
General and administration expenses 69 851 646 61 990 584
Total 706 259 007 703 824 196
6 OTHER INCOME/(EXPENSES) - NET
Year ended
December 31, 2017 December 31, 2016
Foreign exchange gain/(loss) - net 34 594 328 36 740 256
Impairment of property, plant and equipment (175 624 399) -
Net profit/(loss) on disposal of property, plant and equipment 452 436 (4 008 157)
Scrap sales 491 958 188 392
Insurance proceeds 82 035 206 177
Fair value adjustment on financial assets 5 634 636 878 220
Unrealized marked-to-market loss on securities 104 410 (59 215)
Sundry recoveries - 2 650 662
Fair value adjustment on conversion option and warrant liability 32 027 824 92 543 617
Loss on extinguishment of debt - (50 647 288)
Penalties (2 450 000) (1 517 752)
Other income 2 599 169 23 196
Total (102 087 603) 76 998 108
Impairment loss
An impairment loss of R175.6 million was recognized for the year ended December 31, 2017 (December 31, 2016: RNil). The
impairment loss relates to the impairment of property, plant and equipment which was impaired as the carrying value of the BC
Dundee Group properties exceeded the estimated recoverable amounts as at December 31, 2017. At this date, management
identified indicators of impairment and determined the recoverable amount of the BC Dundee Group on a value in use basis. The fair
value calculations were determined using pre-tax cash flow projections on constant terms, based on the BC Dundee Group's LOM.
The main reason for the impairment is the reduction of the LOM at Magdalena from 12 years to 5 years due to economic factors
including expected increased mining cost, reduced mining productivity (increased distance from the adit) and a change in the
specification of the coal.
If the discount rate had been 1% higher than management's estimates, the Group would have recorded a further impairment of
approximately R15.9 million. If the foreign exchange rate between the Rand and the US Dollar had been 5% higher than
management's estimates, the Group would have recorded R27.5 million less impairment at December 31, 2017. If the sales prices
had been 1% higher than management's estimates, the Group would have recorded R35.8 million less impairment at
December 31, 2017, and had the sales prices been 1% less than management's estimates, the Group would have recorded a further
impairment of approximately R40.2 million. No impairment loss was recorded at December 31, 2016.
The fair value calculation is categorized as level 3 in terms of the fair value hierarchy. A significant portion of the inputs into the
model were unobservable, as defined, and were based on Company specific assumptions. The key assumptions used in the pre-tax
cash flow projection are as follows: estimates of future production based on a LOM model, assuming that all production is sold and
using forecast macro assumptions, which are based on observable market expectations. The pre-tax discount rate was estimated by
calculating the Company's weighted average cost of capital which was based on peer company information and other observable
market inputs.
There was no change in the valuation techniques during the year ended December 31, 2017.
There was significant estimation and judgment used when performing the fair value calculations (note 4.2 and 4.6). The key
assumptions used in the value in use calculations as at December 31, 2017 and December 31, 2016 are as follows:
December 31, 2017 December 31, 2016
Pre-tax discount rate 12.25% 12.25%
Gross fair value R121.1 million R400.7 million
Costs to sell R6.0 million R8.0 million
Recoverable amount R115.1 million R392.7 million
7 FINANCE INCOME AND EXPENSE
Year ended
December 31, 2017 December 31, 2016
Finance income
Cash and restricted cash 2 077 824 1 547 684
Total 2 077 824 1 547 684
Finance expense
Interest on borrowings (26 836 340) (20 907 639)
Interest on the RCF loan facilities (1 117 300) (21 544 901)
Interest on STA accounts payable (6 089 748) (1 620 005)
Interest to South African Revenue Service ("SARS") (351 804) (2 286 451)
Unwinding discount on asset retirement obligation (1 113 829) (1 076 979)
Loan accretion (17 737 176) (22 689 496)
Other (1 187 873) (2 546 787)
Total (54 434 070) (72 672 258)
8 INCOME TAX
Income tax expense is comprised as follows:
Year ended
December 31, 2017 December 31, 2016
Current tax:
Current tax on profits - South Africa (1 107 529) (3 035 504)
Withholding tax - Canada - (3 395 935)
Deferred taxes - current year timing differences - (1 743 492)
Income tax expense (1 107 529) (8 174 931)
The major items causing the Company's income tax expense to differ from the South African statutory rate of 28% (year ended
December 31, 2016: 28%) are as follows:
Loss before income taxes (122 581 446) (37 369 093)
Expected tax benefit at statutory tax rates 34 322 805 10 463 346
Adjustments resulting from:
Benefits of tax losses not recognized (55 371 942) (20 311 242)
Income not subject to tax 22 500 174 1 685 614
Permanent differences (4 322 913) (1 242 428)
Foreign tax rate differential - (395 458)
Other temporary differences 1 764 347 1 625 237
Income tax expense (1 107 529) (8 174 931)
9 PROPERTY, PLANT AND EQUIPMENT
Office
equipment,
Land and fixtures and Development
buildings Mining assets fittings costs capitalized Mineral rights Total
Year ended December 31, 2017
Opening net book value 6 346 623 212 224 515 1 051 303 63 926 082 28 182 115 311 730 638
Additions - 18 973 205 578 400 15 691 938 - 35 243 543
Change in asset retirement
obligation - 1 440 780 - - - 1 440 780
Disposals - (163 178) (14 740) - - (177 918)
Impairment loss (3 577 872) (114 771 878) (735 209) (43 980 533) (12 558 907) (175 624 399)
Depreciation (591 239) (47 852 686) (432 302) (8 870 708) (7 979 793) (65 726 728)
Net book value at end of year 2 177 512 69 850 758 447 452 26 766 779 7 643 415 106 885 916
Year ended December 31, 2017
Cost 10 078 054 566 345 428 8 349 584 99 388 528 328 943 756 1 013 105 350
Accumulated depreciation (4 322 670) (381 722 792) (7 166 923) (28 641 216) (308 741 434) (730 595 035)
Impairment loss (3 577 872) (114 771 878) (735 209) (43 980 533) (12 558 907) (175 624 399)
Net book value at end of year 2 177 512 69 850 758 447 452 26 766 779 7 643 415 106 885 916
Office
equipment, Development
Land and fixtures and costs
buildings Mining assets fittings capitalized Mineral rights Total
Year ended December 31, 2016
Opening net book value 6 495 900 240 150 717 1 517 618 62 286 748 30 198 557 340 649 540
Additions 382 586 12 642 312 132 462 7 927 410 - 21 084 770
Change in asset retirement
obligation - 11 088 687 - - - 11 088 687
Disposals - (4 066 841) - - - (4 066 841)
Depreciation (531 863) (47 590 360) (598 777) (6 288 076) (2 016 442) (57 025 518)
Net book value at end of year 6 346 623 212 224 515 1 051 303 63 926 082 28 182 115 311 730 638
Year ended December 31, 2016
Cost 10 078 055 546 095 456 7 785 907 83 696 591 328 943 756 976 599 764
Accumulated depreciation (3 731 432) (333 870 941) (6 734 603) (19 770 509) (300 761 642) (664 869 126)
Net book value at end of year 6 346 623 212 224 515 1 051 303 63 926 082 28 182 115 311 730 638
Office equipment includes items to the value of R0.2 million (year ended December 31, 2016: R0.1 million) that are not directly used
in production and operations and relate to property, plant and equipment in the Company's corporate office in South Africa. All
property, plant and equipment is located in South Africa. Depreciation expense of R65.0 million (year ended December 31, 2016:
R56.1 million) was recognized in 'cost of sales'.
An impairment loss of R175.6 million was recognized for the year ended December 31, 2017 (December 31, 2016 RNil). The
impairment loss of R175.6 million recognized during the year ended December 31, 2017, relates to the impairment of property, plant
and equipment which were impaired as the carrying value of the BC Dundee Group properties exceeded the estimated recoverable
amount as determined by the impairment review performed by management (note 6). The main reason for the impairment is the
reduction of the LOM at Magdalena from 12 years to 5 years due to economic factors including expected increased mining cost,
reduced mining productivity (increased distance from the adit) and a change in the specification of the coal.
The main inputs in determining the recoverable amount were as follows:
2018 - 2021
Input (Average) Long-term
Bituminous sales prices - ZAR (real) 935 885
Bituminous sales prices - US$ (real) 84 70
Anthracite sales prices - ZAR (real) 1 071 1 074
Rand:US$ Exchange rate 13.20 13.30
Pre-tax discount rate 12.25% 12.25%
The majority of bituminous sales prices were based on the median of API4 forecasts provided by international price analysts. The
API4 index is currently in backwardation and the long-term API4 index price used was US$70, compared to the current index price in
the high US$80's.
10 INVESTMENT IN FINANCIAL ASSETS
December 31, 2017 December 31, 2016
Long-term investments - 41 547 927
Security investments 181 465 85 559
Total 181 465 41 633 486
The movement in the investment in financial assets is as follows:
December 31, 2017 December 31, 2016
Opening balance 41 633 486 35 674 589
Current year contributions 7 277 877 5 145 187
Fair value adjustment 4 717 045 878 220
Unrealized marked-to-market gain on securities 104 410 (58 200)
Reallocation of Investment (53 534 717) -
Effect of foreign currency exchange difference (16 636) (6 310)
Closing balance 181 465 41 633 486
The investment in financial assets consists of long-term security investments held by the Group. During the prior year, it also
included long-term investments to fund payment requirements associated with its rehabilitation obligations. The investment was
held by the Trust which was formed with the sole purpose of applying its property for the rehabilitation of land in order to discharge
the statutory obligations of Zinoju, and was only to be used by Zinoju to carry out the statutory obligations as and when so required.
This investment was restructured during the current year, and reallocated to 'Other receivables - restricted' (refer note 12).
Changes in the fair value of the investment are recorded in 'other income/(expense) -net' within profit or loss.
11 DEFERRED TAX
South Africa December 31, 2017 December 31, 2016
Deferred tax asset:
At beginning of year - 1 743 491
Current year timing differences - 9 189 706
Write off of deferred tax asset - (4 659 599)
At end of year - -
The above balance is comprised of the following:
South Africa December 31, 2017 December 31, 2016
Provisions 5 158 788 7 239 149
Tax losses 42 204 270 31 798 406
Property, plant and equipment and other long-term assets (47 369 618) (39 037 555)
Other 6 560 -
At end of year - -
Canada December 31, 2017 December 31, 2016
Deferred income tax liabilities:
At beginning of year (2 434 693) (1 683 380)
Current year timing differences (1 579 490) (751 313)
At end of year (4 014 183) (2 434 693)
Deferred tax asset:
At beginning of year 2 434 693 1 683 380
Current year timing differences 1 579 490 751 313
At end of year 4 014 183 2 434 693
Deferred tax asset/(liability) - net - -
The above balance is comprised of the following:
Canada December 31, 2017 December 31, 2016
Tax losses 4 014 183 2 434 693
Other (4 014 183) (2 434 693)
At end of year - -
No tax benefit has been recognized for the following temporary differences:
Canada December 31, 2017 December 31, 2016
Tax losses (expiring between 2027 and 2037) 249 212 348 275 220 335
Other 41 708 050 49 510 269
Total 290 920 398 324 730 604
Total C$ 29 522 705 31 769 680
As at December 31, 2017, the Company had an unrecognized deferred tax asset of approximately R442.2 million (year ended
December 31, 2016: R345.0 million) relating to investments in subsidiaries that has not been recognized because the Company
controls the timing of the reversal of the temporary differences and it is probable that these differences will not reverse in the
foreseeable future.
12 RESTRUCTURING OF INVESTMENTS
Following the transition of financial provisions for asset retirement obligations to the National Environmental Management Act
("NEMA"), Zinoju performed a closure cost assessment for financial provisions based on sudden closure, which resulted in a shortfall
between the trust investment balance and the closure cost assessment. This triggered a review of the structure of the financial
provisions in Zinoju.
After careful consideration of the alternative structures, it was proposed that Zinoju amend their method of financial provisioning
from a trust fund method to an insurance solution. The ultimate goal is to ensure that Zinoju provide the DMR with the required
financial guarantees for the mining rehabilitation liability calculated in terms of NEMA.
During the year ended December 31, 2017, the Company completed the restructuring and provided the DMR with the required
guarantee of R63.0 million. Zinoju was required to make an additional R4.1 million (excluding VAT) cash contribution in July 2017 to
the insurance facility, which increased the investment to R49.6 million. The existing trust funds of R49.6 million were dissolved and
the funds transferred to Centriq Insurance Company limited ("Centriq") during August 2017. The shortfall of R13.4 million will be
funded over the Life of Mine through the growth in the investment. Management believes that no further cash contributions will be
required for the R63.0 million financial guarantees issued to the DMR, provided there are no changes to the closure cost liability.
The funds have been reclassified as 'other receivables - restricted' for accounting purposes due to the fact that the funds will always
revert to Zinoju for rehabilitation purposes.
The movement in the investment is as follows:
December 31, 2017 December 31, 2016
Reallocation of Investment 53 534 717 -
Commission paid (1 260 015) -
Fair value adjustment 937 286 -
Closing balance 53 211 988 -
13 TRADE AND OTHER RECEIVABLES
December 31, 2017 December 31, 2016
Non-current other receivables:
- Deposits 5 179 462 4 032 570
Total non-current other receivables 5 179 462 4 032 570
Current trade and other receivables:
- Trade receivables 112 914 844 75 461 285
Less: Provision for impairment of receivables (40 000) (596 094)
- Trade receivables - net 112 874 844 74 865 191
- Value-Added Tax (VAT) 1 473 616 6 039 208
- Prepayments 3 729 463 3 460 892
- Harmonized Sales Tax (HST) 132 269 124 579
- Deposits 2 723 994 -
- Other receivables 310 639 283 474
Total current trade and other receivables 121 244 825 84 773 344
The fair values of trade and other receivables approximate their carrying values. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.
There is no significant concentration of credit risk in respect of any particular customer.
The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
December 31, 2017 December 31, 2016
Canadian Dollars 249 376 124 579
United States Dollars 2 242 087 6 977 173
Rands 118 753 362 77 671 592
Total 121 244 825 84 773 344
Movements on the Group's provision for impairment of receivables are as follows:
December 31, 2017 December 31, 2016
Opening balance 596 094 969 478
Provision (released)/raised, net (556 094) (373 384)
Closing balance 40 000 596 094
The creation and release of the provision for impairment of trade receivables has been included in profit or loss. The other classes
within trade receivables do not contain impaired assets.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period for which the Group has not
recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are
still considered recoverable.
Age of receivables that are past due but not impaired:
December 31, 2017 December 31, 2016
30-60 days 1 968 451 135 327
61-90 days 914 913 7 003
>91 days 219 325 1 025 199
Total 3 102 688 1 167 528
14 INVENTORIES
December 31, 2017 December 31, 2016
Consumables 2 465 354 2 547 765
Work in progress 1 496 908 233 772
Finished goods 34 132 810 32 440 713
Total 38 095 072 35 222 250
Depreciation of R4.3 million (period ended December 31, 2016: R0.4 million) is included within inventory at December 31, 2017.
15 NON-INTEREST BEARING RECEIVABLES
December 31, 2017 December 31, 2016
Other 2 015 578 1 902 205
The non-interest bearing receivables are unsecured, interest free and have no fixed terms of repayment.
16 RESTRICTED CASH
December 31, 2017 December 31, 2016
Guarantee to Transnet Freight Rail ("TFR") 8 000 000 8 000 000
Guarantee to Department of Mineral Resources ("DMR") & Eskom 3 200 000 3 200 000
Total 11 200 000 11 200 000
Restricted cash comprises of deposits with FNB of R3.2 million (year ended December 31, 2016: R3.2 million) in respect of
guarantees provided to the Department of Mineral Resources ("DMR") and Eskom, and R8.0 million (year ended December 31, 2016:
R8.0 million) in respect of guarantees provided to Transnet Freight Rail ("TFR").
17 CASH AND CASH EQUIVALENTS
December 31, 2017 December 31, 2016
Cash in bank 21 428 994 13 753 934
Cash is denominated in the following currencies:
Canadian Dollars (645) 1 272 694
United States Dollars 108 949 78 679
Rands 21 320 690 12 402 561
Total 21 428 994 13 753 934
18 SHARE CAPITAL
Number of shares Stated value
Balance at December 31, 2015 280 729 049 1 038 096 502
Shares issued in relation to RCF Convertible Loan 98 909 640 29 164 195
Shares issued to STA 15 164 333 8 620 800
Balance at December 31, 2016 394 803 022 1 075 881 497
Shares issued to STA 13 005 259 6 515 420
Balance at December 31, 2017 407 808 281 1 082 396 917
The Company is authorized to issue an unlimited number of Common Shares at no par value.
As set out in further detail in note 21, the Company has raised an aggregate US$29 million convertible loan from RCF, of which
US$27 million is currently outstanding, in respect of which interest is settled by the Company by way of the issue of Common Shares
to RCF at the 20-day volume weighted average price ("VWAP") as at the date the interest is due. The original convertible loan facility
of US$6.0 million ("RCF Original Convertible Loan") and the bridge loan facility of US$4.0 million ("RCF Bridge Loan") were entered
into in September 2013 and February 2014 respectively, and on July 3, 2014, BC Corp closed the final tranche of US$15.0 million
resulting in an aggregate US$25.0 million convertible loan facility ("RCF US$25 million Loan") ("First Amended RCF Agreement"). On
March 27, 2015, BC Corp entered into a second amended and restated convertible loan agreement with RCF ("Second Amended RCF
Agreement") to secure an additional US$4.0 million loan facility (collectively with the RCF US$25 million Loan, the "RCF Convertible
Loan"). On December 2, 2015, BC Corp entered into a third amended and restated convertible loan agreement with RCF ("Third
Amended RCF Agreement"). Effective September 30, 2016, the Company entered into an additional amendment to the convertible
loan agreement with RCF (the "2016 Amendment"), in terms of which RCF agreed to an interest holiday beginning July 1, 2016, with
a reduction in the interest rate to 1.29% during the interest holiday period. The interest holiday period ends the earliest of maturity,
occurrence of an event of default or lender's delivery of an interest holiday period termination notice. Accrued interest will be
payable on the maturity date in cash, or Common Shares.
During the financial year ended December 31, 2017, no Common Shares were issued to settle interest on the RCF Convertible Loan.
During the financial year ended December 31, 2016:
- The Company issued 14 990 400 Common Shares to RCF based on an agreed share price of C$0.05 to settle interest on the
RCF Convertible Loan for the period between December 1, 2015 and December 31, 2015. These shares were valued at
C$0.03 based on the market price of these shares on date of issue.
- The Company issued 42 009 840 Common Shares to RCF based on an agreed share price of C$0.05 to settle interest on the
RCF Convertible Loan for the period between January 1, 2016 and March 31, 2016. These shares were valued at C$0.03
based on the market price of these shares on date of issue.
- The Company issued 41 909 400 Common Shares to RCF based on an agreed share price of C$0.05 to settle interest on the
RCF Convertible Loan for the period between April 1, 2016 and June 30, 2016. These shares were valued at C$0.02 based
on the market price of these shares on date of issue.
As set out in note 2, the arrangement with STA includes an equity settlement arrangement in terms of which a portion of the
contract mining fees will be settled in Common Shares, in order to alleviate cash flow pressures.
During the financial year ended December 31, 2017:
- The Company issued 4 286 908 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between October 1, 2016 and December 31, 2016. These shares were valued at the fair
value of the services received.
- The Company issued 4 424 148 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between January 1, 2017 and March 31, 2017. These shares were valued at the fair
value of the services received.
- The Company issued 4 294 203 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between April 1, 2017 and June 30, 2017. These shares were valued at the fair value of
the services received.
During the financial year ended December 31, 2016:
- The Company issued 6 136 353 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between November 1, 2015 and March 31, 2016. These shares were valued at the fair
value of the services received.
- The Company issued 4 459 284 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between April 1, 2016 and June 30, 2016. These shares were valued at the fair value of
the services received.
- The Company issued 4 568 696 Common Shares to STA based on an agreed share price of C$0.05 to settle a portion of the
contract mining fees for the period between July 1, 2016 and September 30, 2016. These shares were valued at the fair
value of the services received.
19 RESERVES
Weighted average
Number of options exercise price (C$) Value of options
Closing balance at December 31, 2015 5 864 048 0.26 7 653 184
Granted and vested 600 000 0.05 317 005
Expired/cancelled (3 090 745) 0.38 (5 910 369)
Closing balance at December 31, 2016 3 373 303 0.12 2 059 820
Granted and vested - - 40 839
Expired/cancelled (30 000) 1.80 (293 604)
Closing balance at December 31, 2017 3 343 303 0.11 1 807 055
Employee share options plan
The Company has an ownership-based compensation scheme, administered by the Board of Directors of the Company, for directors,
officers, employees and consultants. A new plan was adopted by the Board of Directors on November 30, 2015, as required in terms
of the move by the Company from the TSX to the TSXV on December 18, 2015. The plan was ratified by shareholders at the annual
general meeting of the Company on June 28, 2016.
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, 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 discounted market price of the underlying Common Shares at the time of grant. Each 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.
No options were granted to employees during the year ended December 31, 2017.
On August 26, 2016, 600 000 share options were granted to employees of the Company. One third vested immediately and another
third on August 26, 2017. The balance will vest on August 26, 2018.
A negligible amount (year ended December 31, 2016: R0.2 million) is included in profit or loss as stock-based compensation expense
related to the fair value of the portion of options vested during the year for directors and officers. The options expire five years from
the date of issue, or immediately upon the resignation of the director, officer, employee or consultant.
Share options outstanding at the end of the financial year have the following exercise prices:
Grant date Exercise price (C$) December 31, 2017 December 31, 2016
January 25, 2012 1.80 - 30 000
August 13, 2013 0.29 638 000 638 000
August 12, 2014 0.11 250 000 250 000
April 20, 2015 0.07 1 880 303 1 880 303
November 10, 2015 0.04 125 000 125 000
August 26, 2016 (1) 0.05 450 000 450 000
Total 3 343 303 3 373 303
(1)600 000 share options were issued on August 26, 2016, however 150 000 shares options were forfeited prior to the year ended
December 31, 2016.
The weighted average remaining contractual life on share options outstanding at December 31, 2017 is 2.13 years (December 31,
2016: 3.11 years). Of the 3 343 303 options outstanding at December 31, 2017 (December 31, 2016: 3 373 303), 3 193 303 options
(December 31, 2016: 2 554 873) were exercisable.
Details of options granted during the prior financial year are provided in the table below:
Valuation details December 31, 2016
Grant date August 26, 2016
Fair value (R) 26 340
Option strike price (C$) 0.05
Share price on grant date (C$) 0.02
Expiry date August 26, 2021
Remaining contractual life at year-end 4.66
Valuation assumptions:
Expected volatility (%) 62
Expected life of grant (years) 5
Annual risk-free interest rate (%) 0.63
Expected dividend yield (%) -
Restricted Share Units
The Company has a RSU Incentive Plan in place in terms of which 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 upon completion of certain
terms. The Common Shares will be repurchased from the open market and held in trust for subsequent issuance.
As of December 31, 2017 and December 31, 2016, no RSUs were granted.
Black Economic Empowerment option
During the year ended February 29, 2012, BC Dundee assisted one of its BEE partners in buying out the interest in Zinoju held by its
other BEE partner. This resulted in the issuance of a new call option to the continuing BEE partner which represented the issuance of
an equity-settled share-based payment. The value of the new call option on the date of issue of R9.1 million was reflected as an
expense in profit or loss in fiscal 2012 as part of 'loss on share-based payments' and as a credit in the statement of changes in equity
in the 'share-based payment reserves'.
20 BORROWINGS
Borrowings consist of the Investec loan facilities as detailed below:
December 31, 2017 December 31, 2016
Investec loan facilities 187 955 977 161 016 413
Current portion (187 955 977) (161 016 413)
Long-term portion - -
On July 3, 2014, BC Dundee finalized a restructuring of the Investec loan facilities ("First Amended Investec Agreement") on the
following terms:
- five-year senior secured amortizing term loan facility of R90.0 million (the "Term Loan Facility"). The Term Loan Facility
accrues interest monthly at JIBAR plus 4%, with only interest having been payable on a quarterly basis up to December 2015.
The first principal payment was due in December 2015 (refer below for the Third Amendment) and going forward, principal
payments are due on a quarterly basis. The First Amended Investec Agreement required the Company to make payments if
excess cash was available during the 18 month grace period up to December 2015 up to a maximum of R4.5 million on a
quarterly basis. No such payments were made during 2015;
- five-year senior secured loan facility of R50.0 million (the "Bullet Facility"). The Bullet Facility is repayable by way of a bullet
repayment at the end of the facility life. The Bullet Facility accrues interest monthly at JIBAR plus 4% with the first interest
payment having been due in December 2015 and quarterly repayments of interest to be made going forward; and
- five-year senior secured revolving credit facility of R30.0 million (the "Working Capital Facility"). The Working Capital Facility
is repayable on the final maturity date being July 3, 2019, and bears interest at prime plus 0.5%, payable monthly.
On December 2, 2015, BC Dundee closed a second amended and restated term loan and revolving credit facility with Investec
("Second Amended Investec Agreement"), whereby Investec agreed to extend BC Dundee's working capital facility from R30.0
million to R80.0 million, comprising two tranches of R25.0 million each. The conditions to the first and second tranche were fulfilled
and drawn in December 2015 and March 2016 respectively. On December 18, 2015, BC Dundee entered into a third amendment to
the Investec loan agreement ("Third Amendment"), in terms of which the repayment schedule for the term loan facility was replaced
with a new schedule with principal repayments commencing on March 31, 2016.
Due to continued cash constraints, Investec was approached during the first quarter of 2016 for a deferral of the term loan facility
repayment due on March 31, 2016. On March 31, 2016, BC Dundee entered into a fourth amendment to the Investec term loan and
revolving credit agreement ("Fourth Amendment") in terms of which the repayment schedule for the term loan facility was replaced
with a new schedule with principal repayments commencing on June 30, 2016.
In addition, surplus cash at each quarter-end in excess of R30.0 million will be used to reduce the R80.0 million working capital
facility back to R30.0 million and a clause was included restricting outflows of funds from BC Dundee to BC Corp between April 1,
2016 and June 30, 2016, unless prior written consent was obtained from Investec. To date, no cash has been swept to reduce the
working capital facility.
Investec was again approached for a deferral of the term loan facility repayment due on June 30, 2016. On
June 30, 2016, BC Dundee entered into a fifth amendment to the term loan and revolving credit agreement ("Fifth Amendment") in
terms of which the repayment schedule for the term loan facility was replaced with a new schedule with principal repayments
commencing on September 30, 2016. Investec extended the restriction on the outflows of funds from BC Dundee to BC Corp to
September 30, 2016, unless prior written consent was obtained from Investec.
On each of September 30, 2016 and December 31, 2016 the Company made the term loan facility repayments of R7.5 million.
The Magdalena mine current LOM has a main development panel, which is Panel 417. Drilling results in Panel 417 revealed a dyke
of 22 meters thick, with a 13.5 meter down-throw. In terms of the life of mine planning for Magdalena, the mine had to develop
through this dyke in order to access the LOM block towards South-West of the reserves, to establish additional pit-room. Funding
was required for this development, and Investec was approached to make the undrawn R22.0 million working capital facility
available for this purpose.
On April 13, 2017, BC Dundee entered into a sixth amendment to the term loan and revolving credit agreement ("Sixth
Amendment") and the undrawn working capital facility balance was made available for drawdown. The terms of the Sixth
Amendment, all of which have been fulfilled, were as follows:
- Investec will release the R22.0 million as working capital for the purpose of ensuring the Panel 417 project is completed timeously.
- The Panel 417 project implementation shall be reviewed and its completion verified by a Project Oversight Committee
appointed by Investec. The Panel 417 project was successfully completed on time and in budget to Investec's satisfaction.
- Investec will review the terms and conditions of the facility after July 14, 2017, with a view to agreeing terms and
conditions of an extension of the final maturity date for a period of no less than 2 years, subject to the project having been
successfully completed to Investec's satisfaction.
- Investec agreed to not exercise its rights arising from events of default until July 14, 2017, and also has not done so to date.
- A Life of Mine Royalty ("LOMR") shall be payable to Investec on all bituminous coal sales with effect from July 1, 2017,
calculated at a rate of 3.54% on all bituminous coal sold which was mined from the Magdalena reserve.
- If all amounts owing under the facility are paid on or before June 30, 2018, the Company shall pay Investec a fee equal to
the greater of the aggregate amount of the LOMR which was payable until the date of repayment, and R22.0 million,
minus the aggregate amount of the LOMR which was paid to Investec up to that date. The LOMR shall be terminated if the
facilities are fully repaid before June 30, 2018.
As of December 31, 2017, the Company has drawn R79.8 million from the working capital facility.
BC Dundee was required to meet specified debt covenants at March 31, 2017 June 30, 2017, September 30, 2017 and December 31,
2017 and was in breach of certain of these covenants at these dates. Such breach constitutes an event of default under the debt
agreement whereby Investec is entitled to request early payment of the outstanding debt. On November 22, 2016, Investec
provided a forbearance letter stating that it does not intend to exercise its rights to request early payment of the outstanding debt;
however, it has reserved its right to review this decision periodically, with no obligation to keep the Company advised in this regard.
Due to continued cash constraints, the scheduled R7.5 million repayments of the term loan facility were not made on March 31,
2017, June 30, 2017, September 30, 2017 and December 31, 2017, constituting an event of default.
Due to Investec being entitled to request early payment of the outstanding debt, as a result of the events of default referred to
preceding, management has determined that the total Investec debt of R200.3 million be classified as current borrowings.
On March 19, 2018, the Company entered into a further amendment to the term loan and revolving credit agreement (refer Subsequent events).
The amendment provides, among other things, for the deferral of capital repayments until June 29, 2018.
As of December 31, 2017, R200.3 million (December 31, 2016: R178.5 million) had been drawn pursuant to the Investec loan
facilities. The Group was fully drawn on each of the Term Loan Facility, Bullet Facility and Working Capital Facility. As of December
31, 2016, the Group was fully drawn on the Term Loan Facility and Bullet Facility, and had R22.0 million undrawn in the Working
Capital Facility.
The movement in the Investec borrowings is as follows:
December 31, 2017 December 31, 2016
Opening balance 161 016 413 169 250 278
Accretion of warrant asset 4 800 140 3 403 107
Amortisation of deferred cost 440 163 513 522
Interest accrued 199 261 103 306
Net drawdown from working capital facility 21 500 000 25 000 000
Repayments - (37 253 800)
Closing balance 187 955 977 161 016 413
Following the Sixth Amendment, the Investec facilities are repayable as follows, unless Investec elects to request early repayment of
the outstanding debt as a result of the covenant breach:
December 31, 2017 December 31, 2016
12 months 60 000 000 30 000 000
13-24 months 60 508 326 30 000 000
25-36 months 79 837 307 118 541 211
37-48 months - -
49-60 months - -
Greater than 60 months - -
Total 200 345 633 178 541 211
In connection with the First Amended Investec Agreement, Investec subscribed for 34 817 237 warrants in the Company with a strike
price of C$0.1446, the proceeds of which, if exercised, will be applied against settlement of the Bullet Facility. RCF has the right to
acquire the warrants from Investec at agreed pricing until July 3, 2019.
The Bullet Facility and the warrants have been treated as a compound financial instrument, as the Bullet Facility could effectively be
settled through the issuance of Common Shares. Furthermore, an embedded derivative exists due to the warrants being
denominated in Canadian Dollars and the functional currency of the Company being Rands. The Bullet Facility has been recognized in
two parts, a component liability and a warrant liability. The component liability will be accreted to its face value of R40.5 million
using the effective interest rate method at approximately 35.5%.
The initial carrying value of the warrant liability was obtained using the Black-Scholes option pricing model and the following
assumptions: expected volatility of 100.0%, life of 5.0 years, risk-free interest rate of 1.71% and an expected dividend yield of 0%.
The fair value of the warrant liability at December 31, 2017 was obtained using the Black-Scholes option pricing model and the
following assumptions: expected volatility of 114.0% (based on historical volatility in the share price), life of 1.5 years, risk-free
interest rate of 1.6% and an expected dividend yield of 0% (year ended December 31, 2016: expected volatility of 83.9%, life of 2.5
years, risk-free interest rate of 0.8% and an expected dividend yield of 0%).
The movement in the warrant liability is as follows:
December 31, 2017 December 31, 2016
Opening balance 344 627 2 144 609
Fair value adjustment (307 436) (1 790 373)
Foreign exchange differences (7 684) (9 609)
Closing balance 29 507 344 627
The Investec facilities are secured as follows:
BC Corp entered into the following security agreements with Investec - a cession in security over its bank account held with Investec,
a cession in security over its bank accounts held in Canada and a pledge and cession in securitatem debiti of all the shares, securities
and other ownership interests of BC Corp in BC Dundee and BC and debt claims against BC Dundee, BC and Zinoju.
BC Dundee entered into the following security agreements with Investec - a cession in security granted by BC Dundee in respect of
BC Dundee's rights, title, claims and interests in and to the relevant assets which include: all insurances and all the proceeds
receivable under those insurances, trade receivables, claims of BC Dundee under the mining contract with Zinoju and all the bank
accounts of BC Dundee and all rights to cash balances standing to the credit of those bank accounts. BC Dundee also entered into a
pledge and cession in securitatem debiti of all BC Dundee's shares in and claims against Zinoju.
BC Dundee has passed a first-ranking covering mortgage bond over certain land and a first-ranking special notarial bond over
specified movable property of BC Dundee and a first and second ranking general notarial bond over all of BC Dundee's movable assets.
21 RCF LOAN FACILITIES
RCF Original Convertible Loan
On September 4, 2013, the Company closed the secured US$6.0 million (approximately R61.0 million) RCF Original Convertible Loan.
The RCF Original Convertible Loan had an original maturity date of June 30, 2016. The principal on the RCF Original Convertible Loan
was convertible into Common Shares at a price of C$0.36 per share.
The issuance of Common Shares to RCF upon conversion of the loan, for interest payments and for the establishment fee was
subject to shareholder approval which was received at the annual and special meeting that was held on
September 11, 2013. Prior to receipt of shareholder approval, the loan bore interest at a rate of 10% per annum, payable on each
calendar quarter in cash or Common Shares at a price per share equal to the 20-day VWAP as at the date the payment was due.
Upon receipt of shareholder approval, the interest rate decreased to 8% per annum.
The RCF Original Convertible Loan was secured by a cession of the shares of BC Dundee, a special notarial bond over the anthracite
stockpile as at July 31, 2013 and a cession of a specified bank account into which all proceeds from the sale of such anthracite
stockpile were transferred.
In addition, BC Dundee provided a guarantee to RCF guaranteeing the payment and performance of all liabilities and obligations of
the Company to RCF under the RCF Original Convertible Loan. The guarantee was limited to restrictions imposed by the South
African Reserve Bank, if any.
RCF Bridge Loan
On February 4, 2014, the Company entered into the First Amended RCF Agreement for the secured RCF US$25 million Loan which
comprised the RCF Bridge Loan, a convertible loan of up to US$15.0 million and a refinancing of the RCF Original Convertible Loan.
On February 5, 2014, the Company closed the secured US$4.0 million (approximately R42.9 million) RCF Bridge Loan, being the first
tranche of the RCF US$25 million Loan. The RCF Bridge Loan bore interest at 15% per annum, payable in arrears at the end of each
month, in cash or Common Shares at a price per share equal to the 20-day VWAP as at the date the payment was due. The RCF
Bridge Loan would roll up into the US$25 million Loan upon shareholder approval with the same terms and conditions as the RCF
US$25 million Loan.
The RCF Bridge Loan was secured by the security provided by the Company for the RCF Original Convertible Loan (other than the
special notarial bond over the anthracite stock pile which was released as set out below).
RCF Convertible Loan
On July 3, 2014, after receiving shareholder approval at the special and annual general meeting held on
June 27, 2014, BC Corp closed the final tranche of the RCF US$25 million Loan of US$15.0 million. Furthermore, the RCF Bridge Loan,
the RCF Original Convertible Loan and the final tranche were rolled up into one facility, the RCF Convertible Loan, which was
convertible at a price of C$0.1446 per Common Share and matured on June 30, 2019. The RCF Convertible Loan bore interest at 12%
per annum, payable in arrears at the end of each month, in cash or Common Shares at a price per share equal to the 20-day VWAP
as at the date the payment was due.
There were two types of advances per the First Amended RCF Agreement in respect of the advance of the final tranche of
US$15.0 million:
- scheduled advances of funds by RCF to BC Corp of approximately US$4.8 million (approximately R48.5 million); and
- equipment advances of approximately US$10.2 million (approximately R103.0 million), whereby funds were advanced
by RCF directly to equipment suppliers on behalf of the Company.
In terms of the First Amended RCF Agreement, RCF took a first ranking special notarial bond over the new equipment as specified in
the First Amended RCF Agreement and acquired using the proceeds of the RCF Convertible Loan. In addition, RCF took second
ranking security over BC Dundee's shares and all other moveable and immovable assets of the Company.
In terms of IAS 39, Financial Instruments: Recognition and Measurement, the roll up of the loan was treated as a modification as the
terms of the RCF Convertible Loan were not, by definition, substantially different from those of the RCF Bridge Loan and RCF Original
Convertible Loan facilities.
On March 27, 2015, BC Corp closed the Second Amended RCF Agreement and secured an additional US$4.0 million loan facility
which was advanced as a bridge loan ("2015 Bridge Loan"). On June 19, 2015, upon the Company receiving shareholder approval at
the annual and special meeting of shareholders, the 2015 Bridge Loan rolled over into the RCF Convertible Loan, under the same
terms and conditions except for the amendments to the interest rate and conversion price on the full US$29.0 million facility as set
out below.
The 2015 Bridge Loan bore interest at a rate of 15% per annum, payable on the maturity date which was the earlier of the date on
which the shareholder approval was received or June 30, 2015. No establishment fees were incurred on the 2015 Bridge Loan. Upon
receipt of the shareholder approval, interest became payable in Common Shares at a price per share equal to the 20-day VWAP as at
the date the payment was due. In addition, the interest rate on the RCF Convertible Loan was increased to 15% per annum and the
conversion price was decreased to C$0.0469, a 25% discount to the 5-day VWAP as at January 30, 2015.
In terms of IAS 39, Financial Instruments: Recognition and Measurement, the revised terms of the Second Amended RCF Agreement
were considered substantially different to those of the RCF US$25 million Loan. Consequently, IAS 39 required an extinguishment of
the RCF US$25 million Loan and the recognition of a new financial liability. A resultant loss on extinguishment of debt of R111.8
million was recognised during the year ended December 31, 2015, which had no cash flow impact on the Group.
On December 2, 2015, BC Corp entered into the Third Amended RCF Agreement, whereby RCF agreed to the RCF Conversion in
terms of which it will convert an aggregate of US$20.0 million of the RCF Convertible Loan into Common Shares over a two-year
period at the conversion price of C$0.0469 per Common Share, subject to a minimum conversion of US$10.0 million in the first year.
As a result of restrictions that prevented RCF from being able to exercise, this deadline has been extended indefinitely as at
December 31, 2016. The RCF First Tranche Conversion of US$2.0 million was converted on December 3, 2015 on the closing of the
transactions with RCF and Investec as described herein resulting in 56 963 752 Common Shares being issued to RCF.
The balance of the RCF Convertible Loan will remain in place on existing terms, other than the interest being settled quarterly not
monthly, and in respect of certain amendments to the interest provisions as detailed below:
- Prior to the date of completion of the RCF Conversion, interest will be settled through the issuance of Common Shares, priced
at the 20-day VWAP. Following the date of completion of the RCF Conversion, interest will be payable in cash subject to BC
Dundee having paid Investec its scheduled principal repayment for the prior quarter. If Investec's principal repayment has
not been made, RCF's interest will accrue until such time as Investec has been paid, subject to RCF's election for interest to be
settled through the issuance of Common Shares.
- As of the date the Company was delisted from the TSX, the percentage interest rate is determined as follows:
- If the 20-day VWAP is greater than C$0.05 per Common Share then the interest rate will be 15% per annum;
- If the 20-day VWAP is less than or equal to C$0.0313 per Common Share then the interest rate will be 24% per
annum; and
- If the 20-day VWAP is greater than C$0.0313 but less than C$0.05 per Common Share then the interest rate will be
calculated as 0.0075/20-day VWAP.
In terms of IAS 39, Financial Instruments: Recognition and Measurement, the revised terms of the Third Amended RCF Agreement
were considered substantially different to those of the Second Amended RCF Agreement. Consequently, IAS 39 required an
extinguishment of the RCF Convertible Loan as accounted for in terms of the Second Amended RCF Agreement and the recognition
of a new financial liability. A resultant loss on extinguishment of debt of R84.0 million was recognised during the year December 31,
2015, which had no cash flow impact on the Group. The new financial liability has been recognized in two parts as set out below.
In terms of the Third Amended RCF Agreement, RCF has also released all security held in respect of the RCF Convertible Loan,
including the guarantee from BC Dundee.
Effective September 30, 2016, the Company entered into the 2016 Amendment, the terms of which were substantially agreed upon
on September 30, 2016. In terms of the 2016 Amendment, RCF agreed to an interest holiday beginning July 1, 2016, with a
reduction in the interest rate to 1.29% during the interest holiday period. The interest holiday period ends the earliest of maturity,
occurrence of an event of default or lender's delivery of an interest holiday period termination notice. Accrued interest will be
payable on the maturity date in cash, or Common Shares.
In accordance with IAS 39, Financial Instruments: Recognition and Measurement, the terms of the 2016 Amendment were
considered substantially different to the RCF convertible loan agreement, as amended on December 2, 2015. Consequently, IAS 39
required an extinguishment of the RCF convertible loan and the recognition of a new financial liability. A resultant loss on
extinguishment of debt of R50.6 million was recognized during the year ended December 31, 2016, which had no cash flow impact
on the Group.
As of December 31, 2017, the Company was fully drawn on the US$27.0 million (R334.0 million) RCF Convertible Loan, after the RCF
First Tranche Conversion.
The movement in the RCF Convertible Loan is as follows:
December 31, 2017 December 31, 2016
Opening balance 336 288 222 299 753 845
Extinguishment of debt - 91 931 498
Conversion option liability - (38 266 953)
Accretion expense 12 932 321 19 285 822
Effect of foreign currency exchange difference (34 458 016) (36 415 990)
Long-term portion of RCF loan facilities 314 762 527 336 288 222
Conversion option liability
The RCF Convertible Loan has been recognized in two parts, a component liability and a conversion option liability. An embedded
derivative exists due to the convertible loan facility being denominated in US Dollars, the conversion feature being exercisable in
Canadian Dollars and the functional currency being Rands. The component liability will be accreted to its face value of US$27.0
million (approximately R334.0 million) (year ended December 31, 2016: US$27.0 million (approximately R371.0 million)) using the
effective interest rate method at approximately 5.3% (year ended December 31, 2016: 5.3%). The movement in the conversion
option liability is as follows:
December 31, 2017 December 31, 2016
Opening balance 31 905 346 124 378 349
Extinguishment of debt - (3 017 257)
Fair value adjustment (31 720 388) (90 753 244)
Foreign currency translation adjustment (156 669) 1 297 498
Closing balance 28 289 31 905 346
The initial carrying value of the conversion option liability at each advance was obtained using the Black-Scholes option pricing
model and the following assumptions: expected volatility between 51% and 107% (based on historical volatility in the share price),
life of between 3.9-5.0 years, risk-free interest rate of 0.5%-1.5% and expected dividend yield of 0%.
The fair value of the conversion option liability at December 31, 2017 was obtained using the Black-Scholes option pricing model and
the following assumptions: expected volatility of 60% (based on historical volatility in the share price), life of 1.5 years, risk-free
interest rate of 1.6% and expected dividend yield of 0% (year ended December 31, 2016: expected volatility of 91%, life of 2.5 years,
risk-free interest rate of 0.8% and expected dividend yield of 0%).
Security
In terms of the First Amended RCF Agreement, the Company was released from the security previously provided to RCF which
included a special notarial bond over the anthracite stockpile at July 31, 2013, the cession of a specified bank account into which all
the proceeds from the sale of such anthracite stockpile were transferred and security over BC Dundee's shares.
In terms of the Third Amended RCF Agreement, RCF has released all security held in respect of the RCF Convertible Loan, including
the guarantee from BC Dundee.
Private Placement
In addition to the above, BC Corp also entered into a subscription agreement with RCF on December 2, 2015, whereby RCF
subscribed for an additional US$2.0 million (approximately R28.7 million) in equity. Pursuant to the Private Placement, RCF acquired
72 272 480 Common Shares at a price of C$0.0367 per Common Share.
22 ASSET RETIREMENT OBLIGATION
December 31, 2017 December 31, 2016
Opening balance 29 358 217 17 656 218
Change in estimate 6 539 966 11 701 999
- Included in property, plant and equipment 1 440 780 11 088 687
- Reversal of provision - (463 667)
- Allocation to current provisions 3 985 358 -
- Unwinding of discount 1 113 828 1 076 979
Closing balance 35 898 183 29 358 217
Current portion (5 653 446) (2 664 205)
Non-current portion 30 244 737 26 694 012
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 long-term investments (note 12). A provision is recognized based
on the net present value of the estimated cost of restoring the environmental disturbance that has occurred at the statement of
financial position date and is expected to be paid out within 16 years. The expected timing of the cash outflows in respect of the
provision is on the closure of the various mining operations. However, certain current rehabilitation costs are charged to this
provision as and when incurred.
The provision is calculated using the following rates:
December 31, 2017 December 31, 2016
Discount rate (%) 9.43 9.68
Inflation rate (%) 5.20 5.60
23 TRADE AND OTHER PAYABLES
December 31, 2017 December 31, 2016
Trade payables 129 702 260 100 730 476
Audit fees 1 178 860 1 158 860
Receiver of Revenue - VAT 4 279 703 16 542 599
Deferred revenue - 21 882 268
Sundry payables and accruals 8 813 059 7 244 432
Leave pay provision 12 523 773 10 703 779
Total 156 497 655 158 262 414
The fair value of trade and other payables approximates their carrying amount, as the impact of discounting is not considered significant.
Included in trade payables as of December 31, 2017 is R93.1 million (December 31, 2016: R60.5 million) owing to STA. Interest is
accruing monthly on the deferred amount at the prime bank overdraft rate in South Africa.
The carrying amounts of the Group's trade and other payables are denominated in the following currencies:
December 31, 2017 December 31, 2016
Canadian Dollars 1 193 618 2 651 694
United States Dollars 3 761 017 1 957 564
Rands 151 519 206 153 609 919
Great British Pound 23 814 43 237
Total 156 497 655 158 262 414
24 CURRENT TAX ASSETS AND LIABILITIES
December 31, 2017 December 31, 2016
Current tax assets:
Tax refund receivable 864 710 -
Total 864 710 -
Current tax liabilities:
Income tax payable - 5 765 822
Withholding tax payable 2 901 399 3 009 538
Total 2 901 399 8 775 360
25 FINANCIAL INSTRUMENTS BY CATEGORY
The Company's financial assets and financial liabilities as at December 31, 2017 and December 31, 2016 were as follows:
Financial instruments Loans and Fair value Liabilities at Other Total
receivables through profit fair value liabilities at
or loss through profit amortized
or loss cost
December 31, 2017
Trade and other receivables (excluding
non-financial assets) 112 874 844 - - - 112 874 844
Investments in financial assets - 181 465 - - 181 465
Cash (excluding restricted cash) 21 428 994 - - - 21 428 994
Non-interest bearing receivables 2 015 578 - - - 2 015 578
Investec borrowings - - - (187 955 977) (187 955 977)
RCF loan facilities - - (28 289) (314 762 527) (314 790 816)
Trade and other payables (excluding
non-financial liabilities) - - - (152 217 953) (152 217 953)
Financial instruments Loans and Fair value Liabilities at Other Total
receivables through profit fair value liabilities at
or loss through profit amortized
or loss cost
December 31, 2016
Trade and other receivables (excluding
non-financial assets) 74 865 191 - - - 74 865 191
Investments in financial assets - 41 633 486 - - 41 633 486
Cash (excluding restricted cash) 13 753 934 - - - 13 753 934
Non-interest bearing receivables 1 902 205 - - - 1 902 205
Investec borrowings - - - (161 016 413) (161 016 413)
RCF loan facilities - - (31 905 346) (336 288 222) (368 193 568)
Trade and other payables (excluding
non-financial liabilities) - - - (119 837 547) (119 837 547)
26 CASH UTILIZED IN OPERATIONS
December 31, 2017 December 31, 2016
(Loss) before income tax (122 581 445) (37 369 091)
Adjusted for:
Depreciation and amortization 65 726 728 57 025 517
Impairment of property, plant and equipment 175 624 399 -
Unrealized foreign exchange (gain)/loss-net (34 702 467) (37 092 234)
Movement in provision for impairment of receivables (482 509) 881
Net (profit)/loss on disposal of property, plant and equipment (452 436) 4 008 157
Fair value adjustment on investments in financial assets (5 739 045) (819 006)
Fair value adjustment on conversion option and warrant liability (32 027 824) (92 543 617)
Movement in asset retirement obligation provision 996 951 (463 664)
Stock-based compensation 4 380 969 10 314 388
Penalties - 1 517 752
Investment in financial assets commission deducted from funds 1 260 016 -
Loss on extinguishment of debt - 50 647 288
Finance income - cash (2 077 824) (1 547 684)
Finance cost - cash 23 962 072 21 104 264
Finance cost - non-cash 30 471 996 51 567 993
Net changes in working capital (46 349 748) 25 727 553
Cash generated from operations 58 009 833 52 078 497
27 RELATED PARTIES
The Company has entered into the following transactions in the ordinary course of business with related parties:
December 31, 2017 December 31, 2016
Payments for services rendered
RCF(1) 525 133 909 173
Total 525 133 909 173
The following balances were outstanding at the end of the reporting period:
December 31, 2017 December 31, 2016
Related party payables
RCF(1) 3 279 545 2 342 508
Total 3 279 545 2 342 508
These amounts are unsecured and non-interest bearing with no fixed terms of repayment.
(1) RCF is a related party to the Company as a result of owning a controlling investment in the Company and having a representative,
Mr. David Thomas on the Board of Directors of the Company. As set out in the third amended and restated convertible loan
agreement with RCF, RCF has invoiced the Company for costs incurred relating to the loan facilities, which are disclosed above. In
addition to these costs, the Company settled interest on the RCF Convertible Loan in Common Shares during the financial year ended
December 31, 2016, which amounted to R29.2 million (year ended December 31, 2017: RNil) (note 18).
Compensation of key management personnel
In accordance with IAS 24 - Related-Party Disclosures, key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors
(executive and non-executive) of the Company.
The remuneration of directors and other members of key management personnel (officers) during the period was as follows:
December 31, 2017 December 31, 2016
Short-term benefits 11 869 627 15 902 633
Share-based payments 40 839 176 514
Total 11 910 466 16 079 147
No share options were granted to employees during the year ended December 31, 2017. During the year ended December 31, 2016,
600 000 share options were granted to officers of the Company on August 26, 2016, with a portion vesting immediately and the
balance vesting over a two-year period. The fair value of these share options were estimated to be a negligible amount using the
Black-Scholes option pricing model (year ended December 31, 2016: Negligible).
Amounts owing to directors and other key management personnel were R0.9 million as of December 31, 2017 as compared to R1.2
million at December 31, 2016.
28 COMMITMENTS AND CONTINGENCIES
Management Contracts
Certain management contracts require that payments of approximately R4.8 million be made upon the occurrence of a change of
control, other than a change of control attributable to RCF and/or Investec. As no triggering event has taken place, no provision has
been recognised as of December 31, 2017.
STA Contract Mining Agreement
In terms of the STA Contract Mining Agreement, STA is mining four sections at Magdalena underground mine at a fixed contract
mining fee per tonne, 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 tonnes mined at the fixed rate per tonne.
Capital Commitments
Capital expenditures contracted for at the statement of financial position date but not recognized in the consolidated financial
statements are as follows:
December 31, 2017 December 31, 2016
Property, plant and equipment 7 252 129 2 919 134
In terms of Regulation 8.10 of the Mine Health and Safety Act, 29 of 1996 Regulations, the Company is required to take reasonably
practicable measures to ensure that pedestrians are prevented from being injured as a result of collisions between trackless mobile
machines and pedestrians, by way of the installation of proximity devices on specified machines. The Company is
currently investigating its options in this regard. The Company has proposed the phase in of such devices over a five year period.
Avemore Trust settlement
On April 20, 2015, the trustees of the Avemore Trust brought an application in the High Court of South Africa against, among others,
the South African Minister of Mineral Resources ("the Minister"), BC Dundee and Zinoju in respect of Mining Right 174 ("MR174"). In
terms of the application, the trustees of the Avemore Trust challenged the decision by the Minister, subsequent to an internal
appeal process concluded during September 2014, to grant a converted mining right to BC Dundee and to grant consent for the
cession of the converted mining right to Zinoju. Settlement was reached between the parties on May 25, 2017, and the application
was withdrawn by the Avemore Trust.
On August 27, 2015, notice was received from the Minister that Mining Right 301 ("MR301") had been withdrawn together with the
approval by the Regional Manager of the Environmental Management Plan in respect of MR301 (the "Ministerial Decision"). The
reasons given by the Minister for the Ministerial Decision are procedural issues in respect of the award process, in relation to an
objection received from Avemore Trust in October 2013 against the awarding of the right. On September 15, 2015, an urgent court
order was granted, pending final determination, for the Ministerial Decision to be of no force and effect, to interdict the Minister
from awarding MR301 to any other party and for the Company to continue to mine in terms of MR301. A review application was
instituted by the Company in October 2015 to obtain final relief in the form of an order setting aside the Ministerial Decision. On
March 23, 2016, Avemore Trust filed a counter application for the Ministerial Decision to be remitted for consideration by the
Minister. Settlement was reached between the parties on May 25, 2017, and the application was withdrawn by the Avemore Trust.
Settlement with the Avemore Trust was reached on the following terms:
- R2.0 million on settlement of historic issues as well as an additional R280 thousand (being VAT on the amount of R2.0 million).
- 17.5k litres of water to be stored to allow the continued use of the borehole on the property.
- R2.50/tonne royalty on future production, subject to a minimum monthly amount of R25 thousand per month.
The Company is complying with these terms.
Environmental and Regulatory Contingency
The Company's mining and exploration activities are subject to various laws and regulations governing the environment and mine
operations. These laws and regulations are continually changing and generally becoming more restrictive.
The current operational adit at Magdalena does not have an Environmental Management Program ("EMP") or Integrated Water Use
License Application ("IWULA"). As a result the mine needs to apply for a Section 24G retrospective Environmental Impact Analysis ("EIA").
The Company's Calcine plant has been operating without an AEL, and this has necessitated that a Section 24G application be
submitted to the Economic Development, Tourism and Environmental Affairs ("EDTEA"). The Section 24G application relates to the
commencement of certain listed activities which have commenced at the Calcine plant at Coalfields, prior to obtaining
environmental authorization ("EA"). To comply with legislation, a full scoping and EIA report should be undertaken. With the aim to
continually strive to be compliant with the operations of the Calcine plant, the Company approached the EDTEA for AEL. Once the
plant has been refurbished it was agreed with EDTEA that stack tests will be carried out and the results submitted. Once the results
are submitted, EDTEA will issue a fine, and once paid, the EA will be issued. On approval of the EA, an AEL can then be obtained in
compliance with the Air Quality Act.
The Company is currently completing specialist studies to complete these environmental applications. The Company has made, and
expects to make in the future, expenditures to comply with any such laws and regulations.
29 SUBSEQUENT EVENTS
Issuance of Share Capital
Subsequent to December 31, 2017, the Company issued additional shares to STA in settlement of a portion of the contract mining
fees for the period between July 1, 2017 and September 30, 2017, and October 1, 2017 and December 31, 2017. An additional 3 194 097 and 2 965 683
Common Shares were issued respectively based on an agreed share price of C$0.05. The amounts included in equity for these Common
Shares at December 31, 2017 were R1.7 million and R1.6 million respectively.
Amendment to Investec facility
On March 19, 2018, BC Dundee entered into a further amendment to the term loan and revolving credit agreement (the "Amendment").
Pursuant to the Amendment, among other things and subject to customary terms and conditions:
- the working capital facility under the Investec Facility was increased by R16 million (the "Supplemental Credit") to R96 million,
with the aggregate Investec Facility increasing from R220 million to R236 million;
- the Supplemental Credit is available subject to the provision of a utilization report acceptable to Investec;
- the availability period of the working capital facility was extended to June 22, 2018;
- the maturity date for any amounts drawn against the Supplemental Credit will be June 29, 2018;
- Buffalo Coal Dundee Proprietary Limited will immediately repay to Investec the amount of R36.6 million currently due to Investec
under the existing Investec Facility, of which R30 million reduces the aggregate amount outstanding on the Investec Facility from
R200.3 million to R170.3 million, with the remaining R6.6 million applied to the mine royalty payment in the amount of R6.1 million
and the balance of R0.5 million applied to default interest, all of which were due and payable on March 16, 2018 (this payment was
affected on March 19, 2018);
- the due date for the principal payment amount of R7.5 million due on March 31, 2018 will be extended to June 29, 2018; and
- Investec agrees not to exercise its acceleration rights with respect to any existing events of default under the Investec Facility
and will appoint a technical advisor until June 30, 2018 to provide certain monthly reports to Investec.
- The Group shall provide Investec with a certified copy of a signed mandate with Northcott Capital Limited ("Northcott"), pursuant
to which Northcott will conduct a review of the strategic options available to the Group. The Northcott mandate will replace the
current agreement with Northcott and will terminate no later than June 30, 2018.
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 financial statements.
March 22, 2018
Sponsor: Questco Proprietary Limited
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