BUFFALO COAL CORPORATION - Interim Management's Discussion and Analysis - Quarterly Highlights for the three months ended March 31, 2018

Release Date: 17/05/2018 11:56
Code(s): BUC
 
Wrap Text
Interim Management's Discussion and Analysis -
Quarterly Highlights for the three months ended March 31, 2018

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"

INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS -
QUARTERLY HIGHLIGHTS

For the three months ended March 31, 2018
(Presented in South African Rands)

BASIS OF PREPARATION

The following Management's Discussion and Analysis ("MD&A") relates to the financial condition and results of
operations of Buffalo Coal Corp. and its subsidiaries ("we", "our", "us", "BC Corp", the "Company" or the "Group") for
the three months ended March 31, 2018 and should be read in conjunction with the audited annual consolidated
financial statements for the years ended December 31, 2017 and December 31, 2016, the Management's Discussion
and Analysis for the year ended December 31, 2017 and the unaudited condensed interim consolidated financial
statements for the three months ended March 31, 2018. The condensed interim consolidated financial statements
("Interim Results") and related notes have been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with IAS 34, Interim Financial Reporting. Certain non-IFRS measures are
discussed in this Interim MD&A which are clearly disclosed as such. Additional information and press releases have
been filed electronically through the System for Electronic Document Analysis and Retrieval ("SEDAR") and are available
online under the Buffalo Coal Corp. profile at www.sedar.com.

This Interim MD&A reports our activities through May 17, 2018 unless otherwise indicated. References to Q1 2018
mean the three months ended March 31, 2018 and Q4 2017, Q3 2017, Q2 2017 and Q1 2017 refer to the three months
ended December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively.

Unless otherwise noted all amounts are recorded in South African Rands ("R" or "Rands" or "ZAR"). References to "C$"
mean Canadian Dollars and to "US$" mean United States Dollars. Amounts stated in Canadian Dollars or US Dollars are
translated at the date of transaction, unless otherwise stated. These other amounts stated in Canadian Dollars were
translated at C$1:R9.1683 and amounts in US Dollars were translated at US$1:R11.8255.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Interim MD&A contains forward-looking information under Canadian securities legislation. Forward-looking
information includes, but is not limited to, information with respect to the Company's expected production from, and
further potential of, the Company's properties; financial and operational planning and strategic goals; the Company's
ability to raise additional funds; the timing and amount of advances under existing loan facilities; the future price of
minerals, particularly coal and overall market conditions for resource issuers; the estimation of mineral reserves and
mineral resources; conclusions of economic evaluations; the realization of mineral reserve estimates; the timing and
amount of estimated future production; costs of production; capital expenditures; success of exploration activities;
mining or processing issues; currency exchange rates; government regulation of mining operations; labour relations
and future collective agreements; and environmental risks. In general, forward-looking information can be identified
by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words
and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken",
"occur" or "be achieved". Forward-looking information is based on the opinions, estimates and assumptions of
management as of the date such statements are made, and the Company can give no assurance that such opinions,
estimates and assumptions are correct. Estimates regarding the anticipated timing, amount and cost of exploration,
development and production activities are based on assumptions underlying mineral reserve and mineral resource
estimates and the realization of such estimates. Capital and operating cost estimates are based on extensive research
of the Company, purchase orders placed by the Company to date, recent mining costs and other factors.

Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking information. Such factors include: risks
relating to the requirement for additional capital; production estimate risks; the price of coal; labour and employment
risks; cost estimate risks; mineral legislation risks; title to mineral holdings risks; power supply risks; risks relating to the
depletion of mineral reserves; litigation risks; South Africa country risks; infrastructure risks; environmental risks and
other hazards; risks relating to dependence on key personnel; dependence on outside parties; exploration and
development risks; risks relating to foreign mining tax regimes; insurance and uninsured risks; competition risks; the
Company's securities may experience price volatility; risks relating to owning foreign assets; currency fluctuation risks;
and the Company's directors and officers may have conflicts of interests. Although management of the Company has
attempted to identify important factors that could cause actual results to differ materially from those contained in
forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such information will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance
on forward-looking information. The Company does not undertake to update any forward-looking information, except
in accordance with applicable securities laws.

OVERVIEW OF THE COMPANY

BC Corp is a coal mining and supply company operating in South Africa. The Company is listed on the TSX Venture
Exchange ("TSXV") and the Alternative Exchange ("AltX") operated by the JSE. BC Corp trades under the symbol "BUF"
on the TSXV and "BUC" on the AltX.

The Company owns 100% of the shares in Buffalo Coal Dundee Proprietary Limited ("BC Dundee"), a South African
company, with an interest in two operating coal mines in South Africa ("BC Dundee Properties"). The BC Dundee
Properties comprise the Magdalena bituminous mine ("Magdalena") and the Aviemore anthracite mine ("Aviemore").
The Group is currently engaged only in underground coal mining. BC Dundee indirectly holds a 70% interest in the BC
Dundee Properties through its 70% interest in Zinoju Coal Proprietary Limited ("Zinoju"), which holds all of the mineral
rights with respect to the BC Dundee Properties. The remaining 30% interest in Zinoju is held by South African Black
Economic Empowerment ("BEE") partners.

OVERVIEW OF THE PERIOD AND OUTLOOK FOR THE GROUP

Markets

The Group supplies high energy bituminous coal and anthracite to both the export and domestic markets.

The Group continues to utilise an export allocation of 51,125 tonnes per quarter through the Quattro scheme at
Richards Bay Coal Terminal (RBCT). A meeting of the Coal Industry Task Team took place in late April, following which
an announcement was made by the Department of Mineral Resources that the application process for allocation in the
Quattro system will be completely restarted. No application date has yet been announced. The evaluation criteria to
be applied are also not yet fully known, but it is expected that these will remain unchanged. Should the criteria not
change, it is highly unlikely that Buffalo Coal will be able to participate in future.

Buffalo Coal has been anticipating the withdrawal of its Quattro allocation for some time now, and whilst direct access
to RBCT through this route remains a desirable goal, the Company can, and already does, utilise alternatives to avoid
any impact of a potential withdrawal on the Group's export business. Sales agreements can be structured to utilise rail
and port capacity belonging to the buyers of the product. No overall impact is therefore expected on export tonnages
regardless of whether the Company has an allocation under the Quattro program.

Bituminous

The API4 coal index, based on an RB1 specification coal on a heat value of 6000 kcal/kg NAR shipped from RBCT which
is also the benchmark for the pricing of all steam coal exports from South African terminals, maintained a very
satisfactory average level of US$94.29 per ton in the first quarter of 2018.

The ZAR were reasonably stable and strong against the US$ during Q1 2018 (averaging R11.96:US$1), a situation which
is very positive for South Africa overall, but nevertheless negative for exporters in the short-term, putting ZAR receipts
for export sales under pressure.

The API4 index remains solidly in backwardation, weighing against the fixing of any long-term sales agreements.

As a result of the above, the Group's export bituminous sales are fixed in ZAR for relatively short periods, guaranteeing
cash flow in local currency.

Domestically, the bituminous market remains stable in volume terms, with little variation on demand predicted for
2018. Availability remains tight for sized coal fractions, causing continuing upward pressure on pricing. Consequently,
the 2018 price levels has improved considerably from 2017 price levels, although this positive impact is not fully
reflected yet in Q1 2018, due to some major supplies only being repriced from April onwards.

Anthracite

Anthracite's use as a source of carbon reductant in metallurgical processes means that the market, both domestically
and for export, does not correlate well with movements in the steam coal markets. Settlements for anthracite supplies
are therefore on an individually negotiated basis, with no real reference pricing available.

Demand for 2018 remains buoyant, and the Group has already placed the vast majority of planned production into the
markets at significantly better prices than prices achieved in 2017. Anthracite sales have therefore made a very positive
contribution to the Q1 2018 financial results.

Demand for the Group's products, particularly from the domestic consumers, continues to be assisted by the fact that
no new production has been forthcoming to close the availability gap after some mine closures in recent years.

The outlook for the remainder of 2018 is positive for both the bituminous and anthracite sectors of the business, with
both demand and pricing remaining strong.

Investec funding

On March 19, 2018, BC Dundee entered into a further amendment to its existing term loan and revolving credit
agreement with Investec Bank (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 is June 29, 2018;
    -   Buffalo Coal Dundee Proprietary Limited had to immediately repay to Investec the amount of R36.6 million due
        to Investec at the time under the existing Investec Facility, of which R30.0 million reduced the aggregate
        amount outstanding on the Investec Facility, with the remaining R6.6 million applied to the R6.1 million mine
        royalty payment 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 was extended to June
        29, 2018;
    -   Investec agreed not to exercise its acceleration rights with respect to any existing events of default under the
        Investec Facility and appointed a technical advisor to provide certain monthly reports to Investec until June 30,
        2018; and
    -   The Group had to 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 replaced the agreement in place with Northcott at the time and will terminate
        no later than June 30, 2018.

All the above conditions have been met by April 10, 2018.

The R158.9 million current liability at March 31, 2018 comprised of the R169.6 million loan owing to Investec less the
R9.6 million warrant asset and R1 million balance in deferred costs. The R188 million current liability at December 31,
2017 comprised of R200.3 million loan owing to Investec less the R11.2 million warrant asset and R1.1 million balance
in deferred costs.

As of the date of this interim MD&A, the group had R16.0 million available from the Working Capital Facility.

Due to Investec being entitled to request early payment of the outstanding debt, as a result of the breach in covenants
pursuant to the terms of the Investec loan agreements, Management has determined that the total Investec debt be
classified as current borrowings.

CONSOLIDATED OPERATIONAL RESULTS FOR Q1 2018, Q1 2017 AND Q4 2017

The operational highlights for Q1 2018 compared to Q1 2017 and Q4 2017 are presented below.

                                                                          %                     %   
Operational results                           Q1 2018   Q1 2017   VARIATION   Q4 2017   VARIATION   
ROM (t)                                       265,243   360,327       (26%)   290,381        (9%)   
- Aviemore (t)                                124,252   106,062         17%   119,219          4%   
- Aviemore (t) (bought-in)                      7,752     1,889        310%     9,053       (14%)   
- Magdalena (t)                               132,184   235,694       (44%)   162,109       (18%)   
- Bituminous (t) (bought-in)                    1,055    16,682       (94%)         -          0% 

Saleable production (excluding calcine) (t)   180,575   194,502        (7%)   200,328       (10%)   
- Anthracite (t)                               84,052    65,987         27%    87,854        (4%)   
- Anthracite (t) (bought-in)                    5,178     1,539        236%     6,283       (18%)   
- Bituminous (t)                               90,710   115,877       (22%)   106,191       (15%)   
- Bituminous (t) (bought-in)                      635    11,099       (94%)         -          0% 

Yield on plant feed (excluding calcine) (%)     68.1%     54.7%         25%     67.8%          0%   
- Anthracite (%)                                68.6%     65.0%          6%     69.8%        (2%)   
- Anthracite (%) (bought-in)                    66.8%     81.5%       (18%)     69.4%        (4%)   
- Bituminous (%)                                67.8%     49.2%         38%     66.2%          2%   
- Bituminous (%) (bought-in)                    60.2%     66.5%        (9%)         -          0%

Sales (t)                                     214,910   227,009        (5%)   261,581       (18%)   
- Anthracite (t)                               70,862    52,845         34%   138,802       (49%)   
- Bituminous (t)                               94,314   120,818       (22%)    93,756          1%   
- Calcine (t)                                  17,263    14,391         20%     6,620        161%   
- Anthracite high-ash sales (t)                32,471    38,955       (17%)    22,403         45% 

Sales (t) (excluding high-ash sales)          182,439   188,054        (3%)   239,178       (24%) 

Saleable inventory tonnes                      44,923    54,990       (18%)    48,303        (7%)   
- Anthracite (t)                               28,123    47,929       (41%)    26,444          6%   
- Bituminous (t)                               16,800     7,061        138%    20,239       (17%)   
- Calcine (t)                                       -         -           -     1,620      (100%)   


An analysis of the operational results for Q1 2018 compared to Q1 2017 and Q4 2017, respectively, are discussed below:

ROM Production

Total ROM production (excluding buy-in tonnes) decreased with 26% compared to Q1 2017 and 9% compared to Q4
2017. The decreases over comparative periods are a combination of decreased production at Magdalena offset
marginally by improved production at Aviemore.

Aviemore's ROM production for Q1 2018 was 17% higher compared to Q1 2017, mainly due to dykes encountered in
the mining areas in Q1 2017 which slowed down production during the comparative period. ROM production improved
with 4% compared to Q4 2017, mainly as a result of less dykes encountered during Q1 2018.

Magdalena's ROM production for Q1 2018 was 44% lower than Q1 2017 and 18% lower compared to Q4 2017, primarily
as a result of difficult geological mining conditions and pit-room constraints encountered during 2017 that continued
during Q1 2018. During Q3 2017, Magdalena underground had 4 operational sections, however, due to a lack of pit-
room, section 4 was closed towards the end of Q3 2017. Section 4 will only resume production again when sufficient
pit-room has been created in Panel 417. In order to mitigate the loss of production at Magdalena, the Company has
entered into an arrangement with a neighbouring coal miner, to buy in approximately 6 kt of anthracite coal per month.
The buy-in tonnes may increase, subject to availability.

During Q1 2018, the Company bought in 7.8 kt anthracite ROM (Q1 2017: 1.9 kt; Q4 2017: 9.1 kt) and 1.1 kt bituminous
ROM (Q1 2017: 16.7 kt; Q4 2017: Nil) from neighbouring coal miners. Buy-ins are subject to availability in the market
from time to time.

Saleable Production

The overall saleable coal production for Q1 2018 decreased by 7% compared to Q1 2017, due to a 25% improvement
in overall yield from plant feed over the quarter which reduced the decrease in ROM production (26%) to a large extent.

Anthracite yield for Q1 2018 improved with 6% compared to Q1 2017 and decreased marginally (2%) compared to Q4
2017. Bituminous yield for Q1 2018 improved with 38% compared to Q1 2017 and 2% compared to Q4 2017. The main
reason for the improved yields compared to Q1 2017, were the mining of combined seem and Gus seem areas which
had less contamination.

Sales

Overall sales of anthracite products and bituminous coal decreased by 5% compared to Q1 2017, a result of improved
anthracite sales offset by a decrease in bituminous coal. Sales decreased with 18% compared to Q4 2017 mainly due
to a decrease in anthracite sales.

Anthracite sales for Q1 2018 improved with 34% compared to Q1 2017, mainly due to an increase in anthracite saleable
production along with sales from inventory. Anthracite sales for Q4 1017 were significantly higher than the saleable
production due to additional sales from inventories carried over from Q3 2017.

Bituminous sales were 22% lower compared to Q1 2017 mainly due to lower production during Q1 2018.

Calcine sales and anthracite high-ash sales fluctuates from quarter to quarter, based on demand for these products.

Health and Safety

The Company's operations maintain an integrated Health, Safety and Environment ("HSE") management system,
established using the OHSAS18001 and ISO14001 frameworks as well as minimum standards, and fully supports the co-
existence of occupational health, safety and the environment within which the Company operates, in order to ensure
compliance and achieve zero harm. Operating safely and responsibility is an integral part of our business strategy. We
strive to obtain an injury free workplace and to create a company culture that protects employees and visitors from
harm. The Company undertakes training and development initiatives and related ventures on a regular basis in order
to improve individual outlook on health, safety and the environment.

The Group has achieved more than six thousand fatality free production shifts at Coalfields. Aviemore Colliery achieved
1801 and Magdalena Colliery 426 fatality free production shifts.

As at March 31, 2018, the Group achieved 213 lost time injury free days, the last lost time injury was recorded in August
2017, which represents a good safety performance over the last 6 months.

CONSOLIDATED FINANCIAL RESULTS FOR Q1 2018, Q1 2017 AND Q4 2017

                                                                                   %                     %   
Financial results                                      Q1 2018   Q1 2017   VARIATION   Q4 2017   VARIATION   
Revenue (R'millions)                                     190.4     171.4         11%     228.8       (17%)   
Net Revenue (R'millions) (*)                             185.3     163.9         13%     224.1       (17%)   
Operating profit/(loss) (R'millions)                    (20.2)      18.2      (211%)    (75.4)       (73%)   
Adjusted EBITDA (R'millions) (*)                          31.4      13.7        129%      65.8       (52%)   
Average selling price per ton sold (R) (excluding                                                            
high-ash sales)                                            999       845         18%       956          5%   
Cash cost of sales per ton (R) (excluding high-ash                                                           
export costs)                                              738       727          2%       578         28%   
Cash generated from operating activities                                                                     
(R'millions)                                              29.0       4.3        574%      17.1         70%   
Cash (utilized in) investing activities (R'millions)     (6.6)     (7.6)       (13%)     (7.7)       (14%)   
Cash (used in) financing activities (R'millions)        (30.0)         -                     -               
CAD:ZAR (average)                                         9.46     10.00        (5%)     10.74       (12%)   
USD:ZAR (average)                                        11.96     13.23       (10%)     13.64       (12%)   


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

An analysis of the financial results for Q1 2018 compared to Q1 2017 and Q4 2017 are discussed below:

Revenue                                                                                                      
                                                                                   %                     %   
R'000                                                  Q1 2018   Q1 2017   VARIATION   Q4 2017   VARIATION   
Anthracite                                              75,229    45,997         64%   132,416       (43%)   
-Domestic                                               23,103    14,424         60%    20,577         12%   
-Export                                                 52,126    31,573         65%   111,839       (53%) 

Bitimunious                                             78,385    91,709       (15%)    79,430        (1%)   
-Domestic                                               47,973    42,637         13%    47,862          0%   
-Export                                                 30,412    49,072       (38%)    31,568        (4%)  

Calcine                                                 28,637    21,216         35%     9,324        207%   
Revenue (excluding high-ash sales)                     182,251   158,922         15%   221,170       (18%)   
Export (high-ash)                                        8,174    12,502       (35%)     7,592          8%   
Total Revenue                                          190,425   171,424         11%   228,762       (17%)   

Revenues (excluding high-ash sales) during Q1 2018 improved with 15% compared to Q1 2017 due to higher anthracite
and calcine sales partially offset by lower bituminous sales. Revenues decreased with 18% compared to Q4 2017 as a
result of lower anthracite sales partially offset with higher calcine sales.

The 64% improvement in anthracite revenue compared to Q1 2017 was a result of increased anthracite sales volumes
along with higher anthracite sales prices over the comparative periods. The 43% decrease in anthracite revenue
compared to Q4 2017 was the result of lower anthracite sales volumes partially offset by higher anthracite sales prices
over the comparative periods.

Bituminous revenue decreased by 15% compared to Q1 2017 as a result of lower bituminous sales volumes partially
offset by higher bituminous sales prices.

Average selling prices (excluding high-ash sales) for Q1 2018 showed an 18% improvement compared to Q1 2017 and
a 5% improvement compared to Q4 2017. In both comparisons, the improvement was attributable to better selling
prices negating the impact of the lower sales volumes. In 2018, the overall selling price per ton improved due to the
negotiations of new contracts with the Group's significant customers.

Calcine revenue improved with 35% compared to Q1 2017 and 207% compared to Q4 2017. In both comparisons, the
improvement was a result of higher calcine sales volumes at better sales prices.

Cost of Sales

Cost of sales for Q1 2018 was 9% lower compared to Q1 2017 and 11% lower compared to Q4 2017. The Group
continues to be cost conscious in ensuring expenditure is kept to a minimum in order to ensure the sustainability of
the Group. Cost of sales includes mining and processing costs, salaries and wages, depreciation and amortization,
transportation, railage, port handling and wharfage costs.

Cash cost of sales per ton were 2% higher compared to Q1 2017, but 28% higher compared to Q4 2017. The higher
costs in both comparisons are attributable to the lower sales volumes that offset the impact of lower overall costs.

Other Income (Expense) - net

Other income and expense comprises profit on sale of assets, foreign exchange gains/losses, discounts received,
commissions paid and fair value adjustments on financial assets and conversion option liabilities.

The net expense of R43.7 million for Q1 2018 was mainly attributable to a fair value adjustment loss of R57.4 million in
relation to the valuation of the conversion option liability (RCF convertible loan), the warrant liability (Investec
warrants) and financial assets, partially offset by a net foreign currency exchange gain of R15.5 million.

The net income of R20.3 million for Q1 2017 was mainly attributable to a fair value gain of R11.1 million in relation to
the valuation of the conversion option liability (RCF convertible loan), the warrant liability (Investec warrants) and
financial assets along with a net foreign currency exchange gain of R8.3 million.

The net expense of R121.8 million for Q4 2017 was mainly attributable to an impairment loss of R175.6 million
recognised in respect of the impairment of property, plant and equipment partially offset by a fair value adjustment
gain of R20.3 million in relation to the valuation of the conversion option liability (RCF convertible loan), the warrant
liability (Investec warrants) and financial assets and a net foreign currency exchange gain of R29.9 million.

General and administration expenses

The Company recorded general and administration expenses were 45% higher compared to Q1 2017 and 16% higher
compared to Q4 2017.

The expenses include general and administration expenses relating to BC Dundee's head office at Coalfields and the
Company's corporate office in Centurion including Canadian expenses. The higher general and administration expenses
for Q1 2018 are in part due to a R1.7 million impairment of receivables as well as a R2 million penalty provision due to
the Calcine plant operating without an Air Emissions License ("AEL") (refer Other Risks and Uncertainties). The
impairment related to a customer that went into business rescue during the quarter which resulted in R1.7 million in
trade debt being written off.

Finance Costs/Income-net

Included in finance costs were net interest and accretion expense of R13.6 million for Q1 2018 (Q1 2017: R12.9 million
Q4 2017: R15.9 million).

Income tax

An additional provision of R1 million was made in Q1 2018 with regards to potential taxes payable.

FINANCIAL CONDITION REVIEW

A summary of the statements of financial position is shown below:

                                                                    March 31,   December 31,          %   
R'000                                                                    2018           2017   VARIANCE   
Property, plant and equipment                                         111 955        106 886         5%   
Other non-current assets - restricted                                  65 023         64 412         1%   
Other non-current assets                                                5 348          5 361       (0%)   
Cash and cash equivalents                                              13 807         21 429      (36%)   
Other current assets                                                  133 999        162 220      (17%)   
Total assets                                                          330 132        360 308       (8%)   
RCF loan facilities                                                   361 266        314 791        15%   
Other borrowings                                                      160 261        187 985      (15%)   
Trade and other payables                                              135 880        156 498      (13%)   
Asset retirement obligation                                            40 432         35 898        13%   
Current tax liabilities                                                 3 684          2 901        27%   
Total liabilities                                                     701 522        698 074         0%   
Total equity                                                          371 391        337 765        10%   

Assets

The 8% decrease in total assets was mainly due to a R19.1 million (16%) decrease in trade and other receivables, 
a R9.1 million (24%) decrease in inventories, a R7.6 million (36%) decrease in cash and cash equivalents and a R5.1 million
(5%) increase in property, plant and equipment.

The decrease in trade and other receivables comprised primarily of trade receivables recovered, but also included a
R1.7 million impairment of trade receivables. The impairment related to a customer that went into business rescue
during the quarter which resulted in R1.7 million in trade debt being written off.

The asset retirement obligation provision was increased with R4.1 million during Q4 2018.

The decrease in inventory was mainly as a result of inventory at the end of December 2017 being sold during Q1 2018.

Liabilities

The 15% increase in the RCF loan facilities was due to a loss of R57.4 million recognized on the revaluation of the
conversion option liability for the period ended March 31, 2018, partially offset by foreign exchange gains (R13 million)
as a result of the strengthening of the Rand in relation to the US Dollar and the R3 million accretion expense recognized
for Q1 2018. The negative movement in the conversion option liability was mainly driven by the annualised volatility of
the Company's stock price, which was 60.22% for Q4 2017 compared to 149% for Q1 2018.

The 15% decrease in other borrowings was primarily due to payment of R30 million against the Investec loan facility in
March 2018 (refer Overview of the Group and Outlook for the Group).

At March 31, 2018, the Group had outstanding debt with Investec of R169.6 million and R321.3 million (US$27.2 million)
(including accrued interest) outstanding on the RCF convertible loan. The Investec debt consists of R45.0 million
outstanding on the term loan facility, R45.5 million on the bullet facility and R79.1 million outstanding on the working
capital facility.

The R20.6 million decrease in trade and other payables was mainly attributable to the payment of accrued Investec
royalties, a decrease in the amounts owing to the mining contractor at Magdalena, as well as a decrease in cost of sales
for Q1 2018.

Current taxes payable increased with 27% as a result of the R1 million additional taxes provided for in Q1 2018.

CASH FLOW REVIEW

The condensed consolidated statements of cash flows are summarized below:

                                                                                      %                     %   
R'000                                                     Q1 2018   Q1 2017   VARIATION   Q4 2017   VARIATION   
Net cash generated from operating activities               28 998     4 306        573%    17 097         70%   
Net cash utilized in investing activities                 (6 620)   (7 553)       (12%)   (7 668)       (14%)   
Net cash generated from/(used in) financing activities   (30 000)         -           -         -      (100%)   
Change in cash and cash equivalents                       (7 622)   (3 247)        135%     9 429      (181%)   


Operating activities

The improvement in cash generated from activities of Q1 2018 compared to Q1 2017 and Q4 2017, respectively, were
attributable to the improved revenues and lower costs over the comparative periods.

During Q1 2018 the Group's net working capital decreased by R7.8 million in comparison to a R4.7 million decrease
during Q1 2017.

The net change in working capital reported on the cash flow statement identifies the changes in trade and other
receivables, inventory and trade and other liabilities that occurred during the period. An increase in a liability (or a
decrease in an asset) is a source of funds; while a decrease in a liability (or an increase in an asset) is a use of funds.

Investing activities

Included in cash on investing activities for Q1 2018, was R6.6 million spent on property, plant and equipment relating
to sustaining capital (Q1 2017: R6.2 million; Q4 2017: R7.6 million).

Financing activities

Financing activities utilized R30.0 million during Q1 2018 to partially repay the Investec term loan facility.

RELATED PARTY TRANSACTIONS

During Q1 2018 and Q1 2017, the Company entered into the following transactions in the ordinary course of business
with related parties:

R'000                                                                                     Q1 2018                  Q1 2017
Payments for services rendered
RCF (1)                                                                                         -                   37 749

The following balances were outstanding as at March 31, 2018 and March 31, 2017:

R'000                                                                              March 31, 2018           March 31, 2017
Related party payables
RCF (1)                                                                                 1 463 506                1 645 361

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

(1) RCF is a related party to the Company as a result of owning a controlling investment in the Company and having a
representative, Mr. David Thomas on the Board of Directors of the Company. As set out in the Third Amended RCF
Agreement, RCF has invoiced the Company for costs incurred relating to the loan facilities, which are disclosed above.

Compensation of key management personnel

In accordance with IAS 24 - Related-Party Disclosures, key management personnel are those persons having authority
and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including
any directors (executive and non-executive) of the Company.

The remuneration of directors and other key members of management personnel (officers) during Q1 2018 and Q1
2017 were as follows:

R'000                                                                             March 31, 2018          March 31, 2017
Short-term benefits                                                                    2 843 545               2 800 745
Share-based payments                                                                         812                  26 889
Total                                                                                  2 844 357               2 827 634

Amounts owing to directors and other members of key management personnel were R0.4 million as of March 31, 2018
(March 31, 2017: R0.4 million).

SUBSEQUENT EVENTS

Other Matters

Except for the matters discussed above, no other matters which management believes are material to the financial
affairs of the Company have occurred between the statement of financial position date and the date of approval of the
Interim Results.

OTHER RISKS AND UNCERTAINTIES

Investing in the Company involves risks that should be carefully considered. The business of the Company is speculative
due to the high-risk nature of coal mining and exploration. Investors should be aware that there are various risks,
including those discussed below, that could have a material adverse effect on, among other things, the operating
results, earnings, properties, business and condition (financial or otherwise) of the Company.

The current operational adit at Magdalena does not have an amended Environmental Management Program ("EMP")
or an amended 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 retrospective 24G environmental
applications following which the EDTEA will finalise the way forward on the 24G process. Management is awaiting the
final outcome of this process and has provided for a R2 million provision for a potential 24G penalty (included in general
and administration expenses).

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

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

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

Following the appointment of a new President for South Africa in February 2018, the Presidency has been in discussion
with the Chamber of Mines to resolve the impasse over the Mining Charter and to facilitate a process of developing a
new Mining Charter that all stakeholders can support and defend.

The Chamber, on behalf of its members, has agreed jointly with the DMR to postpone its court application in respect
of the Reviewed Mining Charter, which was due to be heard in the High Court on February 19, 2018 to
February 21, 2018. The postponement serves to allow parties the space to engage and find an amicable solution.

NON-IFRS PERFORMANCE MEASURES

The Company has included in this document certain non-IFRS performance measures that are detailed below. These
non-IFRS performance measures do not have any standardized meaning prescribed by IFRS and, therefore, may not be
comparable to similar measures presented by other companies. The Company believes that, in addition to conventional
measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's
performance. Accordingly, they are intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with IFRS. The definition for these
performance measures and reconciliation of the non-IFRS measures to reported IFRS measures are as follows:

Net Revenue

The Group's offtake contracts are a mixture of free on board shipping ("FOB") and free carrier ("FCA") contracts,
resulting in revenue not being directly comparable quarter on quarter. Below is a reconciliation of revenue as disclosed
in the Interim Results for Q1 2018, Q1 2017 and Q4 2017 to net revenue which excludes all railage, port handling and
wharfage related costs:


R'000                                                                       Q1 2018          Q1 2017          Q4 2017
Revenue                                                                     190 425          171 424          228 762
Less: Railage, port handling and wharfage cost                                5 105            7 500            4 703
Net revenue                                                                 185 320          163 924          224 059

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization and adding back the
following: Impairment or reversal of an impairment of an asset, fair value adjustments to financial instruments, stock-
based compensation, foreign exchange gains and losses, and non-recurring transaction expenses or income.

The reconciliation of operating loss to adjusted EBITDA is as follows:

R'000                                                                                   Q1 2018    Q1 2017    Q4 2017   
Operating profit/(loss) for the period                                                 (20 235)     18 187   (75 423)   
Depreciation and amortization                                                             5 548     14 892     20 904   
Impairment of receivables                                                                 1 668        (3)       (91)   
Impairment of property, plant and equipment                                                   -               175 624   
Fair value adjustments of financial assets and conversion                                                               
option liability                                                                         59 969   (11 148)   (24 019)   
Stock-based compensation                                                                      1         27          2   
Foreign exchange gains                                                                 (15 531)    (8 266)   (31 158)   
Adjusted EBITDA                                                                          31 420     13 689     65 839   


Working Capital

Working capital includes current assets and current liabilities, excluding provisions and non-financial instruments.

R'000                                                                              March 31, 2018   December 31, 2017   
Current assets                                                                                                          
Cash and cash equivalents                                                                  13 807              21 429   
Trade and other receivables                                                               102 140             121 245   
Inventories                                                                                28 949              38 095   
Non-interest bearing receivables                                                            2 045               2 880   
Taxation receivable                                                                           865                   -   
                                                                                          147 806             183 650   
Current liabilities                                                                                                     
Trade and other payables (excluding provisions)                                           135 880             156 498   
Current portion of borrowings                                                             158 914             187 986   
Current tax liability                                                                       3 684               2 901   
                                                                                          298 478             347 385   
Net working capital                                                                     (150 671)           (163 735)   


Headline profit & (loss) per share

Headline profit & (loss) is a profit measure required for JSE-listed companies as defined by the South African Institute
of Chartered Accountants. Headline loss per share is a basis for measuring earnings per share which accounts for all
the profits and losses from operational, trading, and interest activities, that have been discontinued or acquired at any
point during the year. Excluded from this figure are profits or losses associated with the sale or termination of
discontinued operations, fixed assets or related businesses, or from any permanent devaluation or write-off of their
values.

Reconciliation of profit/(loss) for the periods to headline profit/(loss) is disclosed below:

                                                                                               Q1 2018        Q1 2017
(Loss)/profit for the period                                                                (34 841 751)    4 224 911
Headline (loss)/profit for the period                                                       (34 841 751)    4 224 911
Headline (loss)/profit per share - basic and diluted                                              (0.08)         0.01

SUMMARY OF SECURITIES AS AT MAY 17, 2018

As at May 17, 2018 the following Common Shares, Common Share purchase options and share purchase warrants were
issued and outstanding:

-    413 968 061 Common Shares;
-    3 343 303 Common Share purchase options with exercise prices ranging from C$0.0387-C$0.29 with a weighted
     average remaining contractual life of 1.76 years;
-    34 817 237 warrants with a strike a price of C$0.1446 maturing on July 3, 2019.

LIST OF DIRECTORS AND OFFICERS

Craig Wiggill                 Director, Chairman of the Board of Directors
Robert Francis                Director
Edward Scholtz                Director
David Thomas                  Director
Rowan Karstel                 Chief Executive Officer
Graham du Preez               Interim Chief Financial Officer and Corporate Secretary 


May 17, 2018

Sponsor: Questco Proprietary Limited



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