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BUFFALO COAL CORPORATION - Management's Discussion and Analysis for the three and twelve months ended December 31, 2018

Release Date: 25/04/2019 15:01
Code(s): BUC     PDF:  
 
Wrap Text
Management's Discussion and Analysis for the three and twelve months ended December 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
 
MANAGEMENT'S DISCUSSION AND ANALYSIS


For the three and twelve months ended December 31, 2018
(Presented in South African Rands)

BUFFALO COAL CORP.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2018

BASIS OF PREPARATION

This Management's Discussion and Analysis ("MD&A") of the consolidated financial position and results of
operations reviews the activities, audited consolidated results of operations and financial position of Buffalo Coal
Corp. and its subsidiaries ("we", "our", "us", "BC Corp", the "Company" or the "Group") for the three and twelve
months ended December 31, 2018, together with certain trends and factors that are expected to have an impact
in the future.

This MD&A is intended to supplement and compliment the audited annual consolidated financial statements for
the year ended December 31, 2018 and the notes thereto (collectively the "Financial Statements") which have been
prepared in accordance with International Financial Reporting Standards ("IFRS"). Information in this MD&A is
current as at April 24, 2019, unless otherwise indicated.

Certain non-IFRS measures are discussed in this 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 and on the Group's
website at www.buffalocoal.co.za.

References to FY 2018 and FY 2017 mean the financial years ended December 31, 2018 and December 31, 2017,
respectively. References to Q4 2018, Q3 2018, Q2 2018 and Q1 2018 mean the three months ended December 31,
2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively and references to Q4 2017, Q3 2017,
Q2 2017 and Q1 2017 mean the three months ended December 31, 2017, September 30, 2017, June 30, 2017 and
March 31, 2017.

Unless otherwise noted all amounts are recorded in South African Rands ("R" or "Rands"). 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:R10.5610 and amounts in US Dollars were translated at US$1:R14.3959.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This 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.

GROUP OVERVIEW

BC Corp is a coal mining and supply company operating in South Africa. The Company is primarily listed on the TSX
Venture Exchange ("TSXV") and has a secondary listing on the Alternative Exchange ("AltX") operated by the JSE.
BC Corp trades under the symbol "BUF" on the TSXV and "BUC" on the AltX. As at March 20, 2019, BC Corp had
421 352 596 common shares outstanding, of which 347 945 097 common shares (82.6%) were held by Resource
Capital Fund V LP. ("RCF") and 41 713 907 common shares (9.9%) were held by STA Coal Mining Company (Pty) Ltd
("STA").

In July 2010, the Company acquired 100% of the shares in Buffalo Coal Dundee Proprietary Limited ("BC Dundee"),
a South African company, with an interest in two coal mines in South Africa ("BC Dundee Properties"). 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 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.

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 Group is in the process of restructuring its BEE framework. The restructuring is aimed at
expanding the structure to comply with Broad Based Black Economic Empowerment ("BBBEE") objectives and to
ensure full economic participation of all BBBEE shareholders.

The BC Dundee Properties comprise Aviemore anthracite mine ("Aviemore") and Magdalena bituminous mine
("Magdalena"). The Group is currently only engaged in underground coal mining at Aviemore, having suspended its
mining operations at Magdalena in the last quarter of 2018.

Aviemore is located eight kilometers from the town of Dundee in KwaZulu-Natal and encompasses approximately
5 592 hectares. As reported in the Company's National Instrument 43-101 report, Aviemore had a mineable
measured and indicated coal resource of 35.35 million tonnes of in situ coal with an estimated volume of 23.57
million cubic meters as at October 1, 2012. From October 1, 2012 to December 31, 2018, 2.9 million tonnes of ROM
was extracted from Aviemore at an average extraction rate of 62%.

The Aviemore underground mine has an estimated production capacity of 41 000 tonnes of anthracite per month.

Magdalena is located twenty-two kilometers from the town of Dundee in KwaZulu-Natal, South Africa and
encompasses approximately 1 844 hectares. As reported in the Company's National Instrument 43-101 report,
Magdalena, which until March 2015 consisted of the Magdalena underground mine and the Magdalena opencast
operation, had an estimated mineable coal resource, all in the measured resource category, of 50.29 million tonnes
of in situ coal with an estimated volume of 33.52 million cubic meters as at October 1, 2012. From October 1, 2012
to October 31, 2018, 5.9 million tonnes of run of mine ("ROM") was extracted from Magdalena at an average
extraction rate of 49%.

STA, a contract mining operator, provided contract mining services at Magdalena under a mining services contract
dated October 28, 2015 ("STA Contract Mining Agreement"). The STA Contract Mining Agreement came to an end
at the end of October 2018.

On August 31, 2018 BC Dundee embarked on a Section 189 process following STA's notification to the Company of
its intention not to renew their mining contract at the Magdalena mine at the end of October 2018. STA raised the
following main issues/concerns that lead to the issue of their notification letter:

 -    challenging workforce resulting in Run of Mine (ROM) production not being enough to cover STA's fixed costs
 -    difficult geological conditions and high methane gas

BC Dundee also recognized that at the production rates achieved for the year-to-date and based on the anticipated
increased Run of Mine (ROM) mining fee that STA intended on charging, Magdalena would have had a negative
impact on the profitability and cash flow generation of the overall operations. This situation led to the start of the
Section 189 process at Magdalena.

On October 29, 2018 the mine and STA concluded the Section 189 process with the signing of a retrenchment
agreement by all parties/unions involved, setting out the retrenchment of 152 BC Dundee employees (Refer Note
2.1 of the Financial Statements).

The Magdalena underground mining activities ceased at the end of October 2018 and an initial 125 employees were
retrenched on November 1, 2018. BC Dundee retained 27 of the employees for a further four months to assist in
stripping out all equipment and infrastructure from underground that the mine can use elsewhere or dispose of
before they were also retrenched at the end of February 2019. Following this action, the mine was placed on care
and maintenance. STA removed their equipment from underground over a period of 3-4 months after their contract
was terminated. Pursuant to the terms of the agreement with STA, BC Dundee paid de-commissioning costs in the
order of R2.72 million to STA in November 2018.

The Company has two processing plants, of which, one is located on the Magdalena property and has been placed
on care and maintenance following the closure of the Magdalena underground mining activities. BC Dundee's head
office is located in the town of Dundee and is known as the Coalfields site. The second processing plant is located
at Coalfields, as is the Company's rail siding.

On February 11, 2019, the chief executive officer ("CEO") at the time had resigned from the Company. The board
of directors of Buffalo Coal is in the process of identifying and appointing a successor. As an interim measure, the
Board has taken the decision to appoint the Company's current chief financial officer ("CFO") as interim CEO from
February 11, 2019 until a new CEO is appointed.

GROUP RESOURCES

Below is an extract of the National Instrument 43-101, Resource statement dated October 1, 2012 as
disseminated on SEDAR. Mr. IA MacFarlane (B.Eng. (Mining Wits), MBL (UNISA), FSAIMM), a qualified
person as defined in National Instrument 43-101 has read and approved the scientific and technical
information included in this table. The table sets forth the mineable coal resource estimate for the BC Dundee
Properties.Mineable Coal Resources for the BC Dundee Properties as at October 1, 2012  
                                                                                                                                                                                                                                                                                                                                                                                 
                                 Resource                                                                                           
                                     Seam   Resource          Seam                                         Fixed               Inherent
                                    Width   Classification   Width   Volume       RD  Tonnage      Ash    Carbon          CV   moisture    Sulphur   Volatiles     Yield

Area             Seam             Cut-Off   Category
                                        m                        m    Mm(3)   t/m(3)       Mt        %         %       MJ/Kg          %          %           %         %
                                  
Magdalena
                 Gus                  0.8   Measured          1.90     8.48      1.5    12.72    14.89     65.79       29.46       1.23       1.62       17.76     77.52
Magdalena        Alfred               0.8   Measured          2.10    10.72      1.5    16.08    15.62     66.21       30.16       1.39       1.48       16.76     79.02
Underground      Combined             0.8   Measured          4.10    13.98      1.5    20.97    14.77     67.84       29.25       1.39       1.55       15.27     82.98
                                   Total Measured                     33.18      1.5    49.77    15.08     66.79       29.60       1.35       1.55       16.39     80.31
Magdalena        Gus                  0.8   Measured          1.90     0.10      1.5     0.16    22.35     54.28       25.63       1.83       1.68       21.52     89.01
Opencast         Alfred               0.8   Measured          2.00     0.24      1.5     0.36    26.58     51.97       23.53       1.93       1.90       19.51     95.04
                                   Total Measured                      0.34      1.5     0.52    25.30     52.67       24.16       1.90       1.83       20.12     93.22


Hilltop          Gus                  0.8    Inferred         1.50     1.97      1.5      2.96   21.24         -       22.11       0.98       1.84       13.19       100
                 Alfred               0.8    Inferred         1.60     5.64      1.5      8.46   21.07         -       22.24       0.94       1.86       13.47       100
                                   Total Inferred                      7.61      1.5     11.42   21.11         -       22.21       0.95       1.85       13.40       100
Aviemore
Aviemore Mine    Gus                  0.8    Measured         1.80     0.82      1.5      1.23   13.34     77.76       30.15       1.84       2.01        7.19     74.31
                 Total Measured                                        0.82      1.5      1.23   13.34     77.76       30.15       1.84       2.01        7.19     74.31
Leeuw Mining &
Exploration      Gus                  0.8    Indicated        1.72     9.72      1.5    14.58    13.55     77.53       29.00       2.21       1.80        6.73     63.51
Zinoju Coal      Gus                  0.8    Indicated        1.72    13.03      1.5    19.54    13.46     75.51       28.93       2.59       1.60        8.28     57.00
                 Total Indicated                                      22.75      1.5    34.12    13.50     76.37       28.96       2.43       1.69        7.62     59.78
                 Total Measured & Indicated                           23.57      1.5    35.35    13.49     76.42       29.00       2.41       1.70        7.60     60.29

Leeuw Mining &
Exploration      Gus                  0.8    Inferred         1.72     1.09      1.5      1.63   14.97     74.78       27.29       1.77       1.41        8.50     55.98
Zinoju Coal      Gus                  0.8    Inferred         1.72     8.99      1.5    13.48    14.14     74.72       28.85       2.49       1.71        8.64     59.60
                 Total Inferred                                       10.08      1.5    15.11    14.23     74.75       28.69       2.41       1.68        8.63     59.23

Notes:
1.  Coal Resources are inclusive of Coal Reserves.
2.  Coal Resources are inclusive of tonnes mined since the effective date of October 1, 2012.
3.  Tonnes and qualities have been rounded and this may result in minor adding discrepancies.
4.  The coal qualities are stated for the ash content ("Ash"), fixed carbon, calorific value ("CV"), inherent moisture, sulphur content ("Sulphur"), volatile matter
    ("Volatiles") and yield.
5.  The coal qualities assays were determined on an air-dried moisture basis.
6.  A 15% geological loss has been applied to the Gross in situ tonnes.
7.  The declared tabulation of coal resources prepared by Minxcon has been prepared in accordance with the NI 43-101 reporting code and is compliant with
    this Code.
8.  A cut-off seam thickness of 0.8 m has been applied to the Gross in situ Coal Resource statements.
9.  The Coal Resources for the Magdalena and Aviemore areas are calculated on 1.7 t/m3 float density coal quality values and the Hilltop Coal Resources are
    calculated on raw coal quality values.
10. The coal density for all areas is 1.5 t/m3.
11. The Hilltop data received from the Client did not include fixed carbon values.
12. The mining right to Leeuw Mining & Exploration properties has been transferred to Zinoju.


From October 1, 2012 (the date of the National Instrument 43-101 Resource statement) to December 31, 2018,
the following ROM has been extracted (1):

-        Magdalena opencast (t):                689 377
-        Magdalena underground (t):             5 182 079
-        Aviemore primary underground (t):      2 676 978
-        Aviemore secondary underground (t)     246 589

The information above was read and approved by Mr. IA MacFarlane (B.Eng. (Mining Wits), MBL
(UNISA), FSAIMM), a qualified person as defined in National Instrument 43-101.

(1) At an average extraction rate of 49% for Magdalena underground, 95% for Magdalena opencast and 62%
    (primary and secondary mining) for Aviemore underground mine.

BUSINESS OVERVIEW

Summary of quarterly results

The table below sets out selected financial data for the periods indicated as derived from BC Corp's interim and
annual consolidated financial statements which was prepared in accordance with IFRS:

                                                  Basic &                                                                               
                                                  diluted                                               (A)                             
                                      Profit     earnings                               Total         Asset          (B)          (C)   
                                  (loss) for   (loss) per   Adjusted     Total    liabilities    retirement   Borrowings     RCF loan   
                        Revenue   the period        share    EBITDA*    assets   (excl A,B,C)   obligations   (Investec)   facilities   
Fiscal quarters ended     R'000        R'000      R/share      R'000     R'000          R'000         R'000        R'000        R'000   
December 31, 2018       157 367       26 541         0.06     39 923   228 808         99 321        49 891      100 983      381 087   
September 30, 2018      206 404     (70 474)       (0.18)     18 300   277 214        162 100        50 274      123 170      370 687   
June 30, 2018           204 321       10 399         0.03     41 600   334 176        156 342        35 653      145 639      356 163   
March 31, 2018          190 425     (34 482)       (0.08)     31 420   330 132        198 317        40 432      158 914      303 859   
December 31, 2017       228 762     (90 800)       (0.22)     65 800   360 308        159 457        35 898      187 956      314 763   
September 30, 2017      183 494     (30 200)       (0.08)     24 900   539 604        224 889        34 247      187 270      341 734   
June 30, 2017           154 442      (6 900)       (0.02)    (6 100)   504 037        179 835        33 486      185 070      325 707   
March 31, 2017          171 424        4 200         0.01     13 700   519 244        206 910        33 944      162 177      331 437   
December 31, 2016       183 887     (19 395)       (0.05)      (576)   504 248        199 289        29 358      161 016      336 288   
September 30, 2016      178 148     (25 536)       (0.07)     13 530   523 727        195 982        22 666      182 988      336 035   
June 30, 2016           156 059       11 481         0.03    (6 090)   514 994        223 796        22 166      166 363      293 619   
March 31, 2016          142 488     (12 094)       (0.04)      4 639   550 256        276 770        20 792      167 712      290 134   

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

Summary results for Q4 2018 and FY 2018

The Group recorded R157.4 million in revenue for Q4 2018 (Q4 2017: R228.8 million) and R206.4 million for Q3
2018. The lower revenue compared to Q4 2017 and Q3 2017 was mainly driven by the closure of the Magdalena
underground mine during Q4 2018 which resulted in a 39% decrease in sales tonnes compared to Q4 2017 and a
24% decrease compared to Q3 2018. The Group recorded R758.5 million in revenue for FY 2018 (FY 2017: R738.1
million), an overall increase of 3% over the comparative period. The increase in revenue was mainly driven by higher
sales prices which more than offset the 14% decrease in sales tonnes year-over-year.

The Group reported a consolidated profit of R26.2 million in Q4 2018 (consolidated loss in Q4 2017: R90.8 million)
and a consolidated loss of R70.5 million in Q3 2018. The Group reported a consolidated loss of R68.4 million in FY
2018 compared to a consolidated loss of R123.7 million in FY 2017. The losses incurred in Q4 2017, FY 2017, Q3
2018 and FY 2018 was mainly driven by the R175.6 million and R67.5 million impairment of property, plant and
equipment recorded in FY 2017 and FY 2018, respectively (Refer to Note 7 of the Financial Statements).

The Group generated R25.0 million cash from its operations in Q4 2018 (Q4 2017: R17.1 million) and R22.4 million
in Q3 2018. The Group generated R105.9 million in cash from its operations in FY 2018 (FY 2017: R28.3 million).
The Group spent R2.2 million in Q4 2018 (Q4 2017: R7.7 million), R7.2 million in Q3 2018 and R27.1 million in FY
2018 (FY 2017: R42.1 million) on capital expenditures during its operations. During Q4 2018 and FY 2018, BC
Dundee settled R25 million and R95 million, respectively, of the outstanding Investec debt (Q3 2018: R25 million).
In Q2 2017, BC Dundee utilized R21.5 million of the additional working capital facility provided by Investec Bank
(Refer to Note 21 of the Financial Statements).

Total assets amounted to R228.8 million as at December 31, 2018 (December 31, 2017: R360.3 million) and mainly
included property, plant and equipment of R58.5 million (December 31, 2017: R106.9 million), investment funds
supporting the asset retirement obligations of R54.9 million (December 31, 2017: R53.2 million) and current assets
of R96.2 million (December 31, 2017: R183.6 million).

As at December 31, 2018, the Group's current assets were R96.2 million (December 31, 2017: R183.6 million) and
mainly comprised trade and other receivables of R48.3 million (December 31, 2017: R121.2 million), inventories of
R41.8 million (December 31, 2017: R38.1 million) and cash and cash equivalents of R5.2 million (December 31, 2017:
R21.4 million).

As at December 31, 2018, the Group's total liabilities (excluding asset retirement obligations, borrowings and RCF
loan facilities) amounted to R96.2 million (December 31, 2017: R159.4 million) and consisted primarily of 
R95.4 million in trade and other payables (December 31, 2017: R156.5 million). Trade and other payables included
R22.1 million owing to STA as at December 31, 2018 (December 31, 2017: R93.1 million).

The Group's asset retirement obligation (current and long-term) amounted to R49.9 million as at December 31, 2018 
(December 31, 2017: R35.9 million) (Refer to Note 23 of the Financial Statements).

BC Corp's R101.0 million borrowings owing to Investec Bank Limited ("Investec") on December 31, 2018 was
substantially reduced from the December 31, 2017 balance of R188.0 million with the settlement of R95 million in
cash (Refer to Note 21 of the Financial Statements).

BC Corp also had a convertible loan to RCF of US$27 million as at December 31, 2018 (December 31, 2017: 
US$27 million). The main driver of the increase in the ZAR value of the RCF loan balance was the weakening of the ZAR
against the US$ which resulted in a higher closing balance on conversion at the end of the year (Refer to Note 22
of the Financial Statements).

STRATEGIC REVIEW AND OUTLOOK

In prior years, in response to conditions at the time, the Group implemented various restructurings at BC Dundee
including two retrenchment processes and arrangements with STA. The arrangements with STA included the STA
Contract Mining Agreement, the sale of certain underground mining equipment to STA and, in order to alleviate
cash flow pressures, an equity settlement arrangement ("STA Equity Settlement Agreement"), the terms of which
provided that a portion of the contract mining fees were settled through the issuance of Common Shares of BC
Corp. As discussed under the 'Group overview' section of this MD&A, the STA Contract Mining Agreement ended
on October 31, 2018.

During March 2018 and November 2018, the Company negotiated further amendments to the Term Loan and
Revolving Credit Agreement with Investec (Refer to Note 21 of the Financial Statements).

As of November 2018, following the closure of the Magdalena mine, the business case and cash flow of the Group
relies primarily on the production from the Aviemore anthracite mine.

Considering this, management embarked on a process to ensure sustainable operations at Aviemore mine by
identifying short, medium and long-term opportunities/projects to increase the overall life of the mine. Through
this process, management has revised the current Aviemore mining plan to include pillar extraction, extending the
end of the current Aviemore life of mine from February 2020 to June 2021. Other short-term opportunities
identified include leasing of the Magdalena wash plant to third parties or toll washing of third-party product, selling
the Magdalena slurry pond reserves to third parties, leasing of the Magdalena adit to a neighbouring mine and
increasing anthracite buy-in tonnes. Successful pursuit and implementation of these opportunities should allow the
Company to settle its outstanding liabilities over the next 18 months and also provide the additional time required
to raise financing for the medium (old Balgray mine) to longer term (North Adit) projects identified.

Short-term opportunities at Aviemore

During Q3 2018 the Group engaged a Rock Mechanic Consultant to look at pillar extraction options at Aviemore to
extend the life of the current Aviemore life of mine, which at that point in time was expected to come to an end in
February 2020. A conservative pillar extraction methodology (L-ing) was identified to increase the extraction ratio.
Based on this methodology, the mine planner adjusted the Aviemore mine schedule accordingly. By implementing
pillar extraction, the current Aviemore life of mine has been extended by approximately 16 months from February
2020 to June 2021. As of Q4 2018, the mine implemented pillar extraction in its mining schedule to ensure the
maximum potential reserves are mined out as the Aviemore mining areas are mined out. This change in mining
schedule requires minimal capital and does not result in material changes in working cost.

Management is also exploring ways to increase the current mining rate at Aviemore and further methods to
increase the current Aviemore reserves.

Short-term opportunities related at Magdalena

Following the closure of the Magdalena underground mine, the wash plant at Magdalena has also been placed on
care and maintenance. The mine is considering options to either obtain additional buy-in bituminous tonnes from
third parties to process through the wash plant and/or to lease out the wash plant to third parties to wash their
own product.

Management is also considering the sale of slurry from its slurry pond based at the Magdalena site. The slurry pond
currently holds approximately 700 000 tonnes of slurry which can be extracted over the next 15 months with the
potential to generate cash inflow of between R0.9m and R1.6m per month.

Management has also been approached by a neighbouring mine adjacent to the Magdalena underground mine,
interested in mining its coal reserves through the adjacent Magdalena adit. The neighbouring mine has sufficient
reserves to mine 25 000 ROM tonnes per month for four years with one continuous miner "CM" section. Their
indicative offer for using the access was R18 per ROM tonne.

Medium term opportunity (old Balgray mine)

In order to increase the Group's anthracite production capacity and delay the longer-term Aviemore North project,
a decision was made to assess the viability of developing the old Balgray mine.

The Balgray mine is a decommissioned underground coal mine located immediately north of the town of Dundee
in the KwaZulu-Natal Province. It was previously owned by Graham Beck in 1965 and was then sold to Anglo
American. Anglo never mined Balgray and the mine was officially closed in 1967.

Zinoju holds two new order mining rights ("NOMR") and one prospecting right over 5 513 hectares at Aviemore.
These mining rights and prospecting right cover the Balgray resource area. Zinoju has applied for the conversion of
PR258 to a mining right MR10083 and is awaiting final approval from the DMR.

A concept study for the Balgray mine project was completed during Q4 2018. The study indicates that there is a
business case for Balgray. Following the outcome of the study, BC Corp commenced a Pre-feas/Feasibility study.
The environmental impact assessment ("EIA") and integrated water user license application ("IWULA") for
Aviemore will also need to be amended to include Balgray. Since this is a very time-consuming process, the
environmental study work required for these amendments was also started in December 2018. The Balgray project
requires approximately R120 million in capital and construction, funded from Aviemore operations and
commissioning will take up to 9 months. The Balgray project holds huge potential as the capital to coal extraction
ratio is much lower than the capital required for the Aviemore North Adit project. If successful, the Balgray mine
project could add an estimated 6 years (with two drill & blast underground sections) to the Group's life of mine,
subject to the anthracite qualities. The additional life provided by this project will allow BC Corp to construct the
Aviemore North Adit during this time. This project will be key in the Group's strategy to obtain funding for the North
Adit project.

Long term opportunities (Aviemore North Adit)

The Aviemore mine has sufficient resources to support a mine life in excess of 15 years; however, the current adit
provides access to the reserves from the eastern side of the mine and is expected to reach its limits by June 2021.
A new adit (the "Aviemore North Adit") closer to the centre of gravity of the resource is required. A pre-feasibility
study for the Aviemore North Adit was successfully completed during 2017, with a bankable feasibility study
completed in September 2018. External funding is required to fund the north adit expansion. The Aviemore North
Adit project requires approximately R335 million in capital and construction and commissioning will take up to 18
months. It is projected that the Aviemore North Adit project will extend the Aviemore life of mine by 13-15 years.

Cash flow and funding

The Group's ability to continue as a going concern and ultimately continue long term operations, is dependent on
its ability to realize these short-term opportunities and to secure the funding required for the medium to longer
term projects. Early in 2018, BC Corp appointed a Financial Advisor, Northcott Capital Limited ("Northcott") to
undertake a strategic review process to obtain funding for the Company's capital requirements.

A bidding process commenced at the start of June 2018, which allowed interested bidders to do a high-level due
diligence via site visits and a data room was setup for this purpose. The Company received indicative offers at the
end of June, following which a formal due diligence process commenced to give shortlisted candidates the
opportunity to obtain more detailed information in order to firm up their indicative offers. The due diligence
process ended at the end of August 2018. Uncertainty surrounding the mining services contract and future of the
Magdalena mine resulted in a suspension of the Northcott process in September 2018 in order to allow for the
conclusion of the Section 189 process and the closure of the Magdalena mine.

In October 2018, the Board formed a Special Committee to monitor developments and undertake a further strategic
review of the Company and its capital structure in order to review further strategic alternatives considered to be in
the interest of Buffalo Coal and its stakeholders following the conclusion of the Section 189 process at Magdalena
Mine. In November 2018, the bidding process was re-opened and indicative bidders were provided an opportunity
to do a due diligence during Q1 2019. The bidders were required to submit their final binding offers on March 29, 2019.
In order to be successful, the offers need to address the Group's outstanding debt obligations with Investec and RCF as
well as funding for new projects. The bidding process closed on March 29, 2019 and the Board is currently assessing
the offers received.

As at December 31, 2018, R105.3 million (December 31, 2017: R200.3 million) of the drawn Investec loan facilities
was still outstanding and the Group continued to be in breach of certain covenants with respect to its loan
agreements with Investec.

Lower than planned sales volumes during December 2018 and the beginning of calendar 2019 resulted in a slower
realization of cash from inventories and consequently less cashflow generated from operations over the first
quarter of 2019. As a result, management approached Investec at the end of January 2019 with the request for a
deferral of its agreed March loan instalment as well as proposed revisions to its quarterly instalment profile to settle
the outstanding loan facilities.

On March 05, 2019, the Company accepted and agreed to Investec's amendment to the Term Loan and Revolving
Credit Facility Agreement. Pursuant to the amended agreement, the final maturity date has been extended from
December 31, 2019 to September 30, 2020, with revised quarterly repayment instalments of R25.5 million at the
end of June 2019, R20 million at the end of September 2019 and December 2019, R10 million at the end of March
2020, and R15 million at the end of June 2020 and September 2020. The Corporation is obliged to pay any accrued
royalties payable to Investec at the end of September 2020 (R5.6 million as at December 31, 2018). In addition,
Investec agreed not to exercise its acceleration rights with respect to any existing events of default under the
Investec Facility until June 30, 2019.

As of December 31, 2018, the RCF Convertible Loan balance remained at US$27.0 million (R388.7 million). Pursuant
to the agreement, the RCF loan of US$27 million is due and payable on June 30, 2019. As at April 15, 2019, RCF
agreed to extend the maturity date until December 31, 2019 to allow the Company to obtain other financing in
order to settle this amount as it currently does not expect to have the means to repay this amount in full on the
June due date.

It is uncertain at this point in time what the outcome of the above-mentioned bidding process will be and if the
Company will be able to obtain financing to settle its debt obligations. As such, management has reviewed its cash
flow forecast based on revised production including pillar extraction over the next two years, to determine whether
the Company (Group) will be able to meet its obligations in the normal course of business. The cash flow forecast
over the next two years, assuming realization on the short-term opportunities, indicates that Buffalo Coal should
be able to service all its liabilities (excluding the RCF loan) during this period.

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
production and sales forecasts, it should be able to generate positive cash flows in the foreseeable future. 

However, there is no assurance that the Company will be able to meet its covenants in the future, or that Investec 
will provide future waivers or that RCF will provide further extensions, if required. These matters constitute material
uncertainties which cast significant doubt as to whether the Group can continue as a going concern.

Should the going concern assumption not be appropriate for the Annual Results of the Group then, adjustments
would be necessary to the carrying values of assets and liabilities, the reported revenues and expenses and the
statement of financial position classifications. Such adjustments could be material.

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 rehabilitation trust investment balance and the closure cost
assessment. This triggered a review of the structure of the financial provisions for rehabilitation 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
provides the DMR with the required financial guarantees for the mining rehabilitation liability calculated in terms
of NEMA.

In FY 2017, the Company completed the restructuring and provided the DMR with the required guarantee of
R63.0 million.

During August 2017, the existing Trust was dissolved and the fund balance at the time was transferred to the
investment, resulting in no further cash contributions required for the R63.0 million financial guarantees issued to
the DMR, provided there are no changes to the closure cost liability. Any shortfall between the DMR required
guarantee amount and the investment value will be funded over the Life of Mine through the growth in the
investment.

MARKET OVERVIEW

The Group supplied high energy bituminous and anthracite coal to both the export and domestic markets, during
the FY 2018, but ceased production of its bituminous products on November 1, 2018 and had depleted all stock of
bituminous products by the financial year ended December 31, 2018. Going forward, the Group's focus remains
primarily on anthracite coal, however the API4 index cannot be ignored as it has a very strong influence on the
markets available for high-ash anthracite products.

During FY 2018, the Group continued to utilize an export allocation of 51 125 tonnes per quarter through the
Quattro scheme at Richards Bay Coal Terminal (RBCT). The Department of Mineral Resources ("DMR"), restricted
applications to those companies producing standard RB1 and RB3 qualities, since only 2 grades/stockpiles are
allocated to Quattro in RBCT. It is anticipated that Buffalo's use of Quattro allocation will cease when the new
allocations become applicable in April 2019, although no overall impact is expected on export tonnages regardless
of whether the Company has an allocation under the Quattro program or not.

Bituminous

The coal price index for Richards Bay averaged $98.04 for FY 2018 compared to $84.35 during FY 2017, a very strong
performance. This price level largely reflects an on-going tightness in the supply of RB1 quality coal for export, while
the gap/discount between the RB1 and lower quality RB3 has widened considerably, even though the dominant
export grade from RBCT (by far) is now RB3. Q4 2018's average pricing was, slightly lower at $95.89, and the
softening movement has continued into early 2019 with pricing in the lower $80's in February 2019.

The ZAR exchange rate to the US$ was volatile during 2018, having ranged from a monthly average of R11.83 in
February 2018 to a low of R14.76 in September 2018 and ending on R14.28 at the FY 2018 year-end. The Company's
ZAR receipts for the year did not fluctuate significantly with these movements, as most of the export tonnage
moved during FY 2018 was already locked in at pricing fixed in ZAR.

Domestically, the bituminous industrial market remained stable in volume terms, with little variation in the demand
during the FY 2018. Demand far exceeded Buffalo Coal's ability to supply despite very attractive market pricing
levels.

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 the Group's products, particularly from the domestic consumers, continues to be positively impacted
by the fact that no new production has been forthcoming to close the availability gap after some mine closures in
recent years and as a result, the limited supply places upward pressure on domestic pricing.

A short-term spike in domestic demand for sized products for home heating was experienced during the winter
quarter, with demand far exceeding the available supply from any source. Many end-users were unable to acquire
any supply at all. Some local distributors are therefore already beginning to build stock to handle a similar peak in
the 2019 winter months.

Overall, demand for the 2019 year remains buoyant. The outlook therefore remains positive for the anthracite
sector which is now the core of the business, with both demand and pricing remaining strong.

HEALTH AND SAFETY REVIEW

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, and the environment within which the Company operates, in order to ensure
compliance and achieve zero harm. Operating safely and responsibly 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 Company employed 451 employees and engaged 163 contractors as at April 24, 2019.

Occupational Health

The health and wellness of our employees plays a pivotal role in the Company's health and safety performance as
well as productivity. The main aim is to ensure that the mining industry milestones for occupational health are
achieved. The Company continues to strive towards improving the health of its employees as well as interested and
affected parties.

The Company has established a medical surveillance link between exposure to occupational health hazards and
medical surveillance systems. The medical surveillance is linked to the occupational health programs for noise,
airborne pollutants and thermal stress, which are directly linked to minimum standards of fitness to work. Other
occupational hygiene factors are duly considered.

The Company operates its own occupational health facilities, which are staffed with highly qualified and
experienced professionals who render a high-level service to direct as well as indirect clients, whilst ensuring legal
compliance as well as compliance with in-house standards. On average, compliance is above 80% on ventilation,
occupational hygiene and occupational medicine systems.

Occupational Safety

As at December 31, 2018, the Group had achieved more than 7 000 fatality free production shifts at Coalfields (FY
2017: 6 000) and Aviemore had achieved 2 000 fatality free production shifts (FY 2017: 1 679). Magdalena ended
on 674 fatality free production shifts at the end of October 2018 when the mine was closed. Having recorded a fatal
accident in April 2017, it is noted that, an application was lodged to the Department of Mineral Resources to exclude
this as a fatal accident due to the post mortem result, which concluded that the deceased individual did not pass
away as a result of the injuries that he sustained during the accident. The response from the DMR is still
outstanding.

BCD completed FY 2018 with two lost time injuries ("LTIs"). One occurred at Magdalena (STA) and one at Aviemore.
Coalfields had zero LTIs for FY 2018, compared to six LTIs during FY 2017, representing a substantial improvement
in the safety performance record.

The Company runs a Visible Felt Leadership ("VFL") program as part of an ongoing improvement measurement to
the safety behavior of our workforce and to provide management with the opportunity to have one-on-one safety
discussions and interactions with the employees at the work force.

The company achieved a lost time injury free rate of 0.22 (per 200 000 hours) for FY 2018 against a target rate of 0.4.

OPERATIONAL REVIEW

Consolidated operational results for FY 2018, FY 2017, Q4 2018, Q4 2017 AND Q3 2018

Operational results                             FY 2018     FY 2017   % Change   Q4 2018   Q4 2017   % Change   Q3 2018   % Change   
ROM (t)                                       1 048 546   1 341 918      (22%)   182 882   290 381      (37%)   310 811      (41%)   
- Aviemore (t)                                  487 398     487 162         0%   122 196   119 219         2%   121 229         1%   
- Aviemore (t) (bought-in)                       70 455      23 111       205%    16 324     9 053        80%    21 397      (24%)   
- Magdalena (t)                                 462 013     788 361      (41%)    39 517   162 109      (76%)   145 405      (73%)   
- Bituminous (t) (bought-in)                     28 680      43 284      (34%)     4 845         -       100%    22 780      (79%)   

Saleable production (excluding calcine) (t)     682 052     793 547      (14%)   118 714   200 328      (41%)   193 588      (39%)   
- Anthracite (t)                                323 078     321 208         1%    76 079    87 854      (13%)    77 931       (2%)   
- Anthracite (t) (bought-in)                     45 570      15 180       200%    10 345     6 283        65%    13 719      (25%)   
- Bituminous (t)                                296 975     426 471      (30%)    29 347   106 191      (72%)    89 087      (67%)   
- Bituminous (t) (bought-in)                     16 429      30 688      (46%)     2 943         -       100%    12 851      (77%)   

Yield on plant feed (excluding calcine) (%)       64.4%       59.3%         9%     62.7%     67.8%       (7%)     61.7%         2%   
- Anthracite (%)                                  66.7%       66.1%         1%     62.9%     69.8%      (10%)     65.0%       (3%)   
- Anthracite (%) (bought-in)                      64.7%       65.7%       (2%)     63.4%     69.4%       (9%)     64.1%       (1%)   
- Bituminous (%)                                  64.0%       54.3%        18%     69.1%     66.2%         4%     61.9%        12%   
- Bituminous (%) (bought-in)                      57.3%       70.9%      (19%)     60.7%         -       100%     56.4%       191%   

Sales (t)                                       787 348     918 786      (14%)   159 492   261 581      (39%)   209 687      (24%)   
- Anthracite (t)                                307 089     317 434       (3%)    78 001   138 802      (44%)    74 046         5%   
- Bituminous (t)                                325 611     440 431      (26%)    32 126    93 756      (66%)   107 972      (70%)   
- Calcine (t)                                    50 665      37 158        36%     9 268     6 620        40%    11 641      (20%)   
- Anthracite high-ash sales (t)                 103 983     123 763      (16%)    40 097    22 403        79%    16 028       150%   

Sales (t) (excluding high-ash sales)            683 365     795 023      (14%)   119 395   239 178      (50%)   193 659      (38%)   
Saleable inventory tonnes                        43 010      48 303      (11%)    43 010    48 303      (11%)    45 060       (5%)   

- Anthracite (t)                                 31 518      26 444        19%    31 518    26 444        19%    31 847       (1%)   
- Bituminous (t)                                  5 821      20 239      (71%)     5 821    20 239      (71%)     6 732      (14%)   
- Calcine (t)                                     5 671       1 620       250%     5 671     1 620       250%     6 481      (12%)   

An analysis of the operational results for Q4 2018 and FY 2018 compared to Q4 2017 and FY 2017, respectively, as
well as Q4 2018 compared to Q3 2018 are discussed below:

ROM Production

Total ROM production for Q4 2018 and FY 2018 decreased with 37% and 22%, respectively, compared to Q4 2017
and FY 2017. The decreases over comparative periods were primarily driven by a combination of lower ROM tonnes
produced at Magdalena during Q4 2018 and FY 2018 along with less bituminous buy-in tonnes obtained, partially
offset by an increase in anthracite buy-in tonnes acquired. The 41% decrease in total ROM from Q3 2018 to Q4
2018 was mainly due to the closure of the Magdalena operations during Q4 2018 along with less anthracite and
bituminous buy-in tonnes obtained during Q4 2018.

Aviemore's ROM production for Q4 2018 and FY 2018 was consistent with the ROM production of Q4 2017 and FY
2017. The ROM production for Q4 2018 was also in line compared to Q3 2018, confirming that Aviemore continues 
to perform in line with historic and budgeted performance levels. Magdalena's ROM production for Q4 2018 and
FY 2018 was 76% and 41% lower compared to Q4 2017 and FY 2017, respectively, primarily as a result of difficult
geological mining conditions and pit-room constraints that resulted in only three sections being mined during FY
2018 compared to four sections mined during the comparative periods of FY 2017. The lower production levels at
Magdalena along with safety concerns were the major factors taken into consideration in the closure of Magdalena
at the end of October 2018.

In order to mitigate the loss of production at Magdalena and to improve the overall cash flow of the Group, the
Company has entered into an arrangement with a neighbouring coal miner during FY 2018, to buy-in approximately
6 000 tonnes of anthracite coal per month. The buy-in tonnes may increase, subject to increase in production of
the neighbouring coal mine.

Saleable Production

The total saleable coal production for Q4 2018 was 41% lower compared to Q4 2017 and 39% lower compared to
Q3 2018 mainly due to a combination of lower ROM production and lower yields achieved over comparative
periods.

The overall saleable coal production for FY 2018 was only 14% lower compared to FY 2017 due to lower ROM
production for the year (22%) partially offset by better overall yields achieved (9%).

The overall yield achieved for FY 2018 improved by 9% compared to FY 2017 and was mainly the result of additional
spirals added on the Magdalena wash plant cycles that resulted in better yields, along with the mining of the
combined seem and Gus seem areas at Magdalena which resulted in less contamination.

Sales

Overall sales (excluding high-ash sales) for Q4 2018 and FY 2018 were 50% and 14% lower, respectively, compared
with Q4 2017 and FY 2017 and decreased by 38% compared to Q3 2018.

Anthracite sales for FY 2018 were in line compared to FY 2017, however Q4 2018 sales were 44% lower compared
to sales in Q4 2017, mainly as a result of the 13% lower saleable production in Q4 2018 along with an increase of
19% saleable inventory carried forward to the next financial period (FY 2019). Anthracite sales for Q4 2018
improved with 5% compared to Q3 2018, however sales were lower than scheduled as a result of train delays caused
by bad weather.

Bituminous sales for Q4 2018 and FY 2018 was 66% and 26% lower compared to Q4 2017 and FY 2017 and Q4 2018
sales were 70% lower compared to Q3 2018, which is in line with the lower saleable production achieved that was
primarily driven by lower ROM production and the closure of Magdalena during Q4 2018.

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

Logistics

Coal is normally transported by rail and truck to domestic customers, while export coal is transported to RBCT and
the Navitrade Terminal by rail. The Company utilizes the RBCT and Navitrade Terminals through contracts
structured with customers with export allocations at the terminals.

Environmental Management

The Company endeavors to conduct its business in a manner that demonstrates an understanding that the
environment is borrowed from future generations and as such, must be conserved. The Company aims to leave the
environment in a better state than it was prior to the start of operations. Compliance with legal and other
requirements, environmental management plans and requirements on water use licenses as well as managing all
environmental aspects and impacts is one of the key principles of the Company. The Company has its own in-house
environmental management department focusing on the elements of ISO 14001, 9001 and ensuring continual
improvement in compliance.

Minerals Royalty

All operations at BC Dundee are subject to South African law, including the Mineral and Petroleum Resources
Royalty Act, 28 of 2008 ("Royalty Act"). In terms of the Royalty Act, all companies extracting minerals in South Africa
are required to pay royalties at a rate of between 0.5% and 7% based on gross sales, less allowable deductions,
depending on the refined condition of the mineral resources.

Coal is classified as an unrefined mineral and the percentage royalty payable is therefore calculated according to
the following formula:

% royalty payable = 0.5 + [Earnings before interest and tax/(Gross sales x 9)] x 100

The Group paid mining royalties of R1.2 million in Q4 2018 (Q4 2017: R0.7 million) and R3.7 million in FY 2018 (FY
2017: R5.0 million) under terms of the Royalty Act.

Other Royalties

Other royalties include the LOMR payable to Investec, which came to an end with the closure of Magdalena. (Refer
to the 'Investec Facilities' under the "Strategic review and Outlook" section of this MD&A). The LOMR payable to
Investec amounted to R1.1 million in Q4 2018 (Q4 2017: R2.8 million) and R10.5 million in FY 2018 (FY 2017: R6.1
million).

The Company is also obliged to pay R2.50/tonne royalty on future production from Aviemore, subject to a minimum
monthly amount of R25 000 per month, pursuant to a settlement arrangement with Avemore Trust that was
concluded in May 2017 (Refer Note 29 of the Financial Statements). Royalties payable to Avemore Trust amounted
to R0.3 million in Q4 2018 (Q4 2017: R0.3 million) and R1.2 million in FY 2018 (FY 2017: R1.4 million).

Social Development

A key component of the Company's strategy involves social development and the enrichment of the local
community, which is carried out through the Company's social and labour plans.

The development of people, both employees and local community members, is a fundamental principle in the
business strategy. The Company provides opportunities and resources for employees to be fully developed in job
disciplines that form part of the occupational structures of the Company.

The Company's human resource development includes:

-     Portable skills training for employees, retrenched employees and the community.
-     An Adult Education and Training ("AET") project which aims to improve the literacy rate of employees and
      members of the community. AET learners are offered the opportunity to become functionally literate and
      numerate.
-     The starting of Grade 13 classes in various fields.
-     An internship program for unemployed graduates.
-     Bursary programs in all fields. The bursars are given the opportunity to do vacation work (where applicable),
      to gain experience and do in-service training to meet graduation requirements.
-     Engineering, processing and mining learnership programs.
-     Experiential training for the Dannhauser Municipal area for Community Members that have completed
      Further Education and Training ("FET"), to do experiential work to decide on their career paths.

The Company's local economic development projects during FY 2018 included:

-     Advancement of Small, Medium and Micro-sized Enterprises ("SMMEs") within the local community
      including the development of a sewing project and various agricultural projects such as a piggery and a
      nursey.
-     The construction of two creches near the Magdalena Mine in the Dannhauser Municipal District.
-     The construction of two sports complexes in the mining right of Aviemore and Magdalena Mines.

On December 20, 2018, the Corporation received a Section 29(b) notice from the DMR following the outcome of a
Social and Labour Plan audit conducted by the DMR at the mines in August 2018. The DMR raised issues with regards to:

-     Human resource development ("HRD") costs as a percentage of the total FY 2018 payroll costs - the DMR
      requires proof that the HRD costs for FY 2018 complies with the 5% requirement, if the HRD spend for FY
      2018 was below the 5%, the Company needs to indicate how it plans to top-up the difference;
-     The Corporation's strategy on how the company intends to achieve Employment Equity targets as required
      in the 2018 Mining Charter (specifically on senior management level which currently does not meet the
      required targets);
-     Mining charter 2 compliance for procurement spend - need to report on final procurement numbers for FY
      2018 and report on compliance status in terms of the charter;
-     Contracts issued to key suppliers to enhance empowerment; and
-     Preferential procurement policy - the DMR requires the policy to incorporate the Mining Charter 3
      requirements.

Representatives of the Company met with the DMR on February 22, 2018 to discuss the issues raised by the DMR
in the Section 29(b) notice and how to address those issues. Based on the outcome of the meeting, the Corporation
had to provide certain requested information to the DMR by March 15, 2019 which was provided to the DMR at
such date.

The Company is currently awaiting feedback from the DMR as to their review of the information provided.

FINANCIAL REVIEW

Consolidated financial results for FY 2018, FY 2017, Q4 2018, Q4 2017 AND Q3 2018

Financial results                            FY 2018   FY 2017   % Change   Q4 2018   Q4 2017   % Change   Q3 2018   % Change   
Revenue (R'millions)                           758.5     738.1         3%     157.4     228.8      (31%)     206.4      (24%)   
Net Revenue (R'millions) (*)                   737.2     713.4         3%     149.6     224.1      (33%)     202.9      (26%)   
Cost of sales (R'millions)                   (559.2)   (636.4)      (12%)   (106.3)   (163.0)      (35%)   (156.7)      (32%)   
Impairment loss on property, plant and                                                                                          
equipment (R'millions)                        (67.5)   (175.6)      (62%)     (1.2)   (175.6)      (99%)    (66.3)      (98%)   
Other (expenses)/income - net (R'millions)    (48.4)      76.0     (164%)       7.9      56.3      (86%)     (3.1)     (355%)   
General & administration expenses                                                                                               
(R'millions)                                  (97.2)    (72.3)        34%    (19.3)    (22.3)      (13%)    (37.2)      (48%)   
Operating (loss)/profit (R'millions)          (13.7)    (70.2)      (80%)      38.4    (75.4)       151%    (56.8)     (168%)   
Finance (costs)/income - net (R'millions)     (54.6)    (52.4)         4%    (11.9)    (15.4)      (22%)    (14.6)      (19%)   
Income tax (R'millions)                       (0.05)     (1.1)      (96%)         -         -          -       1.0     (100%)   
Profit (loss) for the period (R'millions)    (68.38)   (123.7)      (45%)     26.54    (90.8)     (128%)    (70.4)     (138%)   
Average selling price per ton sold (R)                                                                                          
(excluding high-ash sales)                     1 049       877        20%     1 166       956        23%     1 030        13%   
Cash cost of sales per ton (R)                                                                                                  
(excluding high-ash export costs)                803       691        16%       803       578        40%       758         6%   

CAD:ZAR (average)                              10.21     10.26       (1%)     10.82     10.74         1%     10.77         0%   
USD:ZAR (average)                              13.24     13.31       (1%)     14.30     13.64         5%     14.08         2%   

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

An analysis of the financial results for Q4 2018 and FY 2018 compared to Q4 2017 and FY 2017, respectively, as well
as Q4 2018 compared to Q3 2018 are discussed below:

Revenue

R'000                                        FY 2018   FY 2017   % Change   Q4 2018   Q4 2017   % Change   Q3 2018   % Change   
Anthracite                                   336 612   285 332        18%    93 431   132 275      (29%)    79 298        18%   
-Domestic                                    104 985    61 700        70%    35 575    20 577        73%    22 324        59%   
-Export                                      231 626   223 631         4%    57 856   111 698      (48%)    56 974         2%   
Bituminous                                   296 340   357 291      (17%)    30 697    79 430      (61%)   101 038      (70%)   
-Domestic                                    176 237   190 974       (8%)    25 686    47 862      (46%)    54 018      (52%)   
-Export                                      120 104   166 317      (28%)     5 012    31 568      (84%)    47 020      (89%)   
Calcine                                       83 645    53 854        55%    15 120     9 324        62%    19 152      (21%)   
Revenue (excluding high-ash sales)           716 597   696 477         3%   139 247   221 029      (37%)   199 488      (30%)   
Export (high-ash)                             41 394    40 897         1%    17 991     7 592       137%     6 786       165%   
Sundry sales (slurry/discard)                    527       748      (30%)       128       140       (8%)       130       (1%)   
Total Revenue                                758 517   738 121         3%   157 367   228 762      (31%)   206 404      (24%)   


Revenue (excluding high-ash sales) for Q4 2018 was 37% lower compared to Q4 2017, due to a 50% decrease in
sales volumes over comparative periods, partially offset by a 23% improvement in average selling prices. Revenue
(excluding high-ash sales) for Q4 2018 was 30% lower compared to Q3 2018, due to a 38% decrease in sales volumes
over comparative periods, partially offset by a 13% improvement in average selling prices.

Although sales volumes for FY 2018 were 14% lower compared to FY 2017, the 20% improvement in average selling
prices over the comparative periods resulted in the annual revenues (excluding high-ash sales) ending marginally
(3%) higher compared to FY 2017's revenues.

During the FY 2018, the overall selling prices per ton were higher as a result of an increase in overall market prices
that resulted in the negotiation of better selling prices in new sales contracts entered into with the Group's
significant customers.

Cost of Sales

Cost of sales for Q4 2018 and FY 2018 was 35% and 12% lower compared to its comparative periods, mainly due to
the lower production from Magdalena.

Cost of sales was also 32% lower in Q4 2018 compared to Q3 2018, mainly as a result of lower costs per tonne after
production ceased at Magdalena at the end of October 2018. Depreciation was also lower during Q4 2018
compared to Q3 2018 due to the initial impairment of the Magdalena assets recorded at the end of September
2018.

Cost of sales includes mining and processing costs, salaries and wages, depreciation and amortization,
transportation, railage, port handling and wharfage costs. The lower ROM production volumes at Magdalena during
the majority of FY 2018 until the closure of the mine resulted in the Company carrying fixed costs which could not
be recovered by sales from the lower tonnes produced at Magdalena. As a result, the Cash cost per sales ton
increased by 16% compared to FY 2017. The Q4 2018 costs remained higher compared to Q4 2017 and Q3 2018
due to certain costs elements for Magdalena that continued until the Magdalena mine and wash plant was put on
care and maintenance at the end of February 2019.

The Group continues to be cost conscious, ensuring expenditures are kept to a minimum in order to ensure the
sustainability of the Group.

Impairment loss on property, plant and equipment

An impairment loss of R67.5 million was recognized during FY 2018 (FY 2017: R175.6 million). The decision to close
Magdalena's underground mine obliged the Company to perform an impairment assessment with respect to the
net book values of Magdalena's assets at the end of Q3 2018. In assessing whether Magdalena's assets have been
impaired, the net book value is compared with its recoverable amount. In order to determine the initial recoverable
amount of Magdalena's assets, management reviewed Magdalena's asset register and identified assets that could
be re-purposed elsewhere in the operation and/or disposed of. The remaining assets were written down to zero.

The net book value of assets to be removed from underground was impaired by 50% to account for potential wear
and tear that may occur during the extraction process and resulted in an impairment of R66.3 million recognized
on September 30, 2018. Following the recovery of assets from underground, a final impairment assessment was
done, which resulted in an additional impairment of R1.2 million on December 31, 2018.

The impairment loss recognized in FY 2017 related to the carrying value of the BC Dundee Group property, plant
and equipment which exceeded their 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 was the reduction of the life of
mine at Magdalena from 12 years to 5 years due to economic factors including expected increased mining cost,
reduced mining productivity (increased distance from the mine adit) and a change in the specification of the coal.
The net book value of Magdalena's assets included in property, plant and equipment was R82.9 million as at
December 31, 2017 (Refer to Note 7 of the Financial Statements).

Other (expenses)/income - net

Other income and expenses comprise profit on sale of assets, foreign exchange gains/losses and fair value
adjustments on financial assets and conversion option liabilities.

The R48.4 million net expense for FY 2018 (FY 2017: R76.0 million gain) was mainly attributable to a net foreign
currency exchange loss of R57.4 million (FY 2017: R34.6 million gain), mainly as a result of the weakening of the
Rand in relation to the US Dollar with regards to the RCF Convertible Loan and US Dollar denominated revenues.

Also included was a fair value adjustment gain of R0.9 million (FY 2017: R32.0 million gain) in relation to the
valuation of the conversion option liability (RCF convertible loan) and the warrant liability (Investec warrants) along
with a positive fair value adjustment on financial assets of R2.9 million (FY 2017: R5.6 million) and net profit on
disposal of property, plant and equipment of R2.4 million (FY 2017: R0.5 million).

General and administration expenses

These expenses include the general and administration expenses relating to BC Dundee's head office at Coalfields,
the Company's corporate office in Centurion and the Canadian head office.

General and administration expenses for Q4 2018 were 13% lower compared to Q4 2017.
General and administration expenses for FY 2018 were 34% higher than FY 2017.

The higher general and administration expenses for FY 2018 were due mainly to:

- R12.4 million provision for retrenchments pursuant to the section 189 process in Q3 2018 (Refer to Overview of
  the Company);
- Salaries and wages increased by about 20% compared to FY 2017, of which 5% related to annual salary increases
  and further increases were due to various appointments at the mine as well senior level appointments at the
  Corporate office;
- Consulting fees for Q4 2018 and FY 2018 included R0.8 million (Q4 2017: RNil) and R3.3 million (FY 2017: R0.2
  million), respectively, for the strategic review process and bankable feasibility study costs related to the new
  adit at the Aviemore Mine;
- tax related fees of C$72 610 (approximately R0.9million) for tax related services in Canada included in Q3 2018;
- R1.7 million impairment of receivables related to a customer that went into business rescue during Q1 2018
  which resulted in R1.7 million in trade debt being written off; and
- R1.5 million impairment of non-interest-bearing receivables relating to the previous owners of the Company
  who had a long outstanding loan account in Q4 2018.

General and administration expenses for Q4 2018 were 48% lower compared to Q3 2018, mainly due to
retrenchment costs of R12.4 million included and provided for during Q3 2018 (Q4 2018: RNil).

Finance Costs/Income-net

Finance costs for FY 2018 were 4% higher compared to FY 2017, primarily due to the LOMR payable to Investec
during 2018 pursuant to the 6th Amendment Agreement whereby a LOMR is payable to Investec on all bituminous
coal sales mined from the Magdalena reserve with effect from July 1, 2017, calculated at a rate of 3.54% of sales.

The group recorded a net accretion expense of R13.6 million during the FY 2018 (FY 2017: R12.9 million) in relation
to the RCF Loan and a net accretion expense of R6.8 million (FY 2017: R4.8 million) in relation to the Investec warrant
asset.

Income tax

The company recorded income and other tax expenses of R0.05 million for FY 2018 compared to R1.1 million during
FY 2017.

CONSOLIDATED FINANCIAL POSITION

Balance sheet review

Summary balance sheet information

                                      December 31,   December 31,                           
R'000                                         2018           2017   ZAR Change   % Change   
Property, plant and equipment               58 484        106 886     (48 402)      (45%)   
Investments & long-term receivables          8 017          5 360        2 657        50%   
Trade and other receivables                 48 284        121 245     (72 961)      (60%)   
Inventories                                 41 824         38 095        3 729        10%   
Cash and cash equivalents                    5 232         21 429     (16 197)      (76%)   
Restricted cash                             11 200         11 200          (0)       (0%)   
Other receivables - restricted              54 902         53 212        1 690         3%   
Non-interest bearing receivables                 -          2 016      (2 016)     (100%)   
Current tax assets                             865            865            0         0%   
Total assets                               228 808        360 308    (131 500)      (36%)   
RCF loan facilities                        384 220        314 791       69 429        22%   
Other borrowings                           100 991        187 986     (86 995)      (46%)   
Trade and other payables                    95 352        156 498     (61 146)      (39%)   
Asset retirement obligation                 49 891         35 898       13 993        39%   
Current tax liabilities                        829          2 901      (2 072)      (71%)   
Total liabilities                          631 283        698 074     (66 791)      (10%)   
Total equity (deficiency)                (402 475)      (337 766)     (64 709)        19%   


Assets

The decrease in property, plant and equipment primarily comprised of the R67.5 million impairment related to the
closure of Magdalena mine along with depreciation of R22.3 million for FY 2018 partially offset by R29.7 million in
capital additions for FY 2018 and R12.0 million charge resulting from an increase in the rehabilitation obligation
from the change in estimates of the rehabilitation obligation driven by the closure of Magdalena mine.

The decrease in trade and other receivables comprised primarily of trade receivables recovered along with an
impairment of trade receivables. The impairment related to a customer that went into business rescue during the
FY 2018 that resulted in R1.7 million in trade debt being written off.

The non-interest-bearing receivables were outstanding for more than 6 years and are considered to be
unrecoverable and were accordingly written off at the end of FY 2018.

Liabilities

RCF loan facilities increased as a result of a R52.7 million foreign exchange loss on translation of the US$
denominated RCF loan liability on December 31, 2018, R13.6 million in accretion expenses for FY 2018, R0.8 million
decrease in fair value adjustment of the conversion option liability as well as a R4.0 million foreign exchange loss
on translation of the conversion option liability.

Other borrowings decreased as a result of BC Dundee settling R95.0 million of the R200.3 million outstanding
Investec loan facility during FY 2018. The decrease in trade and other payables was mainly attributable to the
payment of 2017 accrued Investec interest and royalties in Q1 2018 and settling R71 million of the long outstanding
amounts owing to STA during FY 2018. As at December 31, 2018, the amount owing to STA was R22.1 million
(December 31, 2017: R93.1 million).

The asset retirement obligation increased mainly due to a R12.0 million charge relating to a reduction in
Magdalena's rehabilitation closure period period from 15 years to 7 years, as a result of based on the decision to
close Magdalena.

Working capital

The Company had a working capital deficit of R482.0 million as at December 31, 2018 compared to a working capital
deficit of R163.7 million at December 31, 2017 (see Non-IFRS Performance Measures). The decrease in working
capital was due to a decrease in trade and other receivables and cash and cash equivalents and a reclassification of
the RCF Loan Facility as a current liability during FY 2018 (refer to Financial Condition Review above) offset by a
decrease in borrowings and trade and other payables during the year.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

CASH FLOW REVEIW

The condensed consolidated statements of cash flows are summarized below:

R'000                                           FY 2018    FY 2017   % Change    Q4 2018   Q4 2017   % Change    Q3 2018   % Change   
Net cash generated from operating activities    105 876     28 270       275%     24 957    17 097        46%     22 404        11%   
Net cash utilized in investing activities      (27 073)   (42 095)      (36%)    (2 169)   (7 668)      (72%)    (7 239)      (70%)   
Net cash (utilized in)/generated from                                                                                                 
financing activities                           (95 000)     21 500     (542%)   (25 000)         -     (100%)   (25 000)         0%   
Change in cash and cash equivalents            (16 197)      7 675     (311%)    (2 212)     9 429       123%    (9 835)        78%   


The improvement in cash generated from operating activities for Q4 2018 and FY 2018 compared to cash generated
during Q4 2017 and FY 2017 was attributable to improved revenues and lower costs over the comparative periods.
Cash generated from operating activities for Q4 2018 improved compared to Q3 2018, due mainly to a decrease in
costs compared to Q3 2018.

Cash utilized in investing activities of R4.8 million in Q4 2018 (Q4 2017: R7.6 million) and R29.7 million in FY 2018
(FY 2017: R35.2 million) related to capital incurred on property, plant and equipment.

During the FY 2018, the Company recorded R2.6 million (FY 2017: R0.5 million) proceeds from the disposal of
property, plant and equipment.

During FY 2018, R95.0 million of cash was utilized to reduce the outstanding Investec loan balance, of which R25
million was paid in Q4 2018. In Q3 2017 the Corporation drew down R21.5 million from the additional working
capital facility made available by Investec to fund the Panel 417 development and to fund working capital
requirements.

LIQUIDITY AND CAPITAL RESOURCES

As discussed under the 'Strategic Review and Outlook' section of this MD&A, the Board formed a Special Committee
in October 2018 to monitor developments and undertake a further strategic review of the Company and its capital
structure in order to identify possible other strategic alternatives that may be in the interests of Buffalo Coal and
its stakeholders following the conclusion of the Section 189 process at Magdalena Mine. In November 2018, the
bidding process was re-opened and indicative bidders were provided an opportunity to do a due diligence during Q1 2019. 
The bidders were required to submit their final binding offers on March 29, 2019. In order to be successful,
the offers need to address the Group's outstanding debt obligations with Investec and RCF as well as funding for new projects.
The bidding process closed on March 29, 2019 and the Board is currently assessing the offers received.

At this point in time, it is uncertain what the outcome of the above-mentioned initiative will be. As such,
management has reviewed its cash flow forecast based on revised production, including pillar extraction over the
next two years, to determine whether the Company (Group) will be able to meet its obligations in the normal course
of business. The cash flow forecast over the next two years, assuming realization on the short-term opportunities,
indicates that Buffalo Coal should be able to service all its liabilities (excluding the RCF loan) during this period.

Although various restructuring initiatives have been implemented, 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 production
and sales forecasts, it should be able to generate positive cash flows in the foreseeable future.

However, there is no assurance that the Company will be able to meet its covenants in the future, or that Investec
will provide future waivers or that RCF will provide an extension, if required. These matters constitute material
uncertainties which cast significant doubt as to whether the Group can continue as a going concern.

Should the going concern assumption not be appropriate for the Annual Results of the Group, then adjustments
would be necessary to the carrying values of assets and liabilities, the reported revenues and expenses and the
statement of financial position classifications. Such adjustments could be material.

FINANCIAL INSTRUMENTS

During FY 2018, the Group relied primarily on cash generated from the sale of coal products produced at its mining
operations and from buy-in tonnes. During FY 2017, the Group arranged for an increase of R21.5 million in the
Investec working capital facility to assist in funding the Panel 417 development and managing its working capital
requirements. In the normal course of business, the Group is inherently exposed to currency and commodity price
risk. The Corporation does not currently hedge its exposure to currency or commodity price risk. For a discussion
of the methods used to value financial instruments refer to Note 3 of the Financial Statements.

COMMITMENTS AND CONTINGENCIES

Change in Control Provision

Certain management contracts require that payments of approximately R3.9 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 recognized as of December 31, 2018.

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, 2018   December 31, 2017   
                                                R                   R   
Property, plant and equipment           5 219 959           7 252 129   


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. During 2017, the Company commenced the phase in of such devices over a two-and-a-half-
year period.

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 amended Environmental Management Program
("EMP") or an amended Integrated Water Use License Application ("IWULA"). As a result, the mine had to apply for
a Section 24G retrospective Environmental Impact Analysis ("EIA"). R2.45 million had been provided for during
December 2017 to settle potential penalties for the non-compliance. The mine has not yet been issued with any
penalties in this regard. Accordingly, the full amount has been included in Provisions (Trade and other payables) as
at December 31, 2018. The Company's Calcine plant has been operating without an Air Emissions License ("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 an AEL. Once the plant has been
refurbished, it was agreed with the EDTEA that stack tests will be carried out and the results submitted. Once the
results are submitted, the 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. R2.0 million had been provided for during March
2018 to settle estimated fines for non-compliance. The mine has not yet been issued with any fines in this regard.
Accordingly, this amount has been included in provisions (Trade and other payables) as at December 31, 2018.

The Company is currently undertaking specialist studies to complete these environmental applications. The
Company has made, and expects to make in the future, expenditures to comply with environmental laws and
regulations.

Refer to the 'Other uncertainties and risks' section of this MD&A for non-compliance with laws and regulations
identified. The Company has made, and expects to make in the future, expenditures to comply with such laws and
regulations.

RELATED PARTY TRANSACTIONS

During the year, the Company entered into the following transactions in the ordinary course of business with
related parties:

                                                                         December 31, 2018   December 31, 2017   
                                                                                         R                   R   
Payments for services rendered                                                                                   
RCF (1)                                                                                  -             525 133   
Total                                                                                    -             525 133   

The following balances were outstanding at the end of the reporting year:                       

                                                                         December 31, 2018   December 31, 2017   
                                                                                         R                   R   
Related party payables                                                                                           
RCF (1)                                                                          4 845 820           3 279 545   
Total                                                                            4 845 820           3 279 545   


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. 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. Included in payables
    are accrued interest payable to RCF of R3.1 million (December 31, 2017: R2.2 million) on the RCF Convertible loan
    (Refer to Note 22 of the Financial Statements) as well as costs invoiced by RCF to the Company in previous years
    that have not been settled.

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 the period were
as follows:

                                                                         December 31, 2018   December 31, 2017   
                                                                                         R                   R   
Short-term benefits                                                             10 479 864          11 869 627   
Share-based payments                                                                 1 335              40 839   
Total                                                                           10 481 199          11 910 466   


No share options were granted to employees or directors during FY 2018 and FY 2017. Amounts owing to directors
and other members of key management personnel were R0.4 million as of December 31, 2018 as compared to R0.9
million at December 31, 2017.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of these consolidated financial statements in accordance with IFRS requires management to make
use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of
revenues and expenses during the period. Areas of judgement that have the most significant effect on the amounts
recognized in the financial statements are assessment of the provision for rehabilitation obligations of the Group,
estimation of asset lives, determination of ore reserve estimates, capitalization of exploration and evaluation costs.

Key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying
amounts of assets and liabilities are the estimation of close-down and restoration costs and the timing of
expenditures, the review of asset carrying values and impairment charges and reversals, the estimation of
environmental clean-up costs and the timing of expenditures and the recoverability of potential future income taxes.
A number of the key estimates noted above are impacted by movements in the market prices for coal and the ZAR/$
exchange rate. Financial results as determined by actual events could differ from those estimated. Management
estimates are also applied in arriving at the useful lives of items of property, plant and equipment and in determining
the fair value of stock options, the conversion option liability and the warrant liability. Note 2 to the Financial
Statements describes the BC Corp's significant accounting policies.

Provisions

Significant judgment 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.

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, appreciation 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.

Capitalization of exploration and evaluation costs

Management has determined that exploration and evaluation costs incurred during the year have future economic
benefits and are economically recoverable. In making this judgment, management has assessed various sources of
information including, but not limited to, the geological and metallurgic information, history of conversion of
mineral deposits to proven and probable mineral reserves, scoping and feasibility studies, proximity of operating
facilities, operating management expertise and existing permits.

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 forecasted cash flows
from operations and the application of existing tax laws in South Africa.

Share-based payments

Management determines costs for share-based payments using market-based valuation techniques. The fair value
of the market-based and performance-based share awards are determined at the date of grant using generally
accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These
assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield,
future employee turnover rates and future employee stock option exercise behaviors and corporate performance.
Such judgments and assumptions are inherently uncertain. Changes in these assumptions could materially affect
the fair value estimates.

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 judgments and assumptions are inherently uncertain. Changes in these
assumptions could materially affect the fair value estimates.

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.

Incorrect assumptions by management, 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.

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. Should the going concern
assumption not be 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.

NEW ACCOUNTING POLICIES

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the
International Accounting Standards Board ("IASB") or International Financial Reporting Interpretations Committee
("IFRIC") that are mandatory for accounting periods beginning after January 1, 2018 or later periods (Refer to Note
2.2 of the Financial Statements).

IFRS 9 - 'Financial Instruments' - effective January 1, 2018

The Group adopted IFRS 9 retrospectively without restating comparatives and therefore the comparative
information in respect of financial instruments for the year ended December 31, 2017 was accounted for in
accordance with the Company's previous accounting policy under IAS 39.

IFRS 15 - 'Revenue from Contracts with Customers' - effective January 1, 2018

The Group has adopted IFRS 15 on a retrospective basis during the financial year ended December 31, 2018. The
revenue recognition was substantially unchanged by the adoption of IFRS 15 and did not result in any adjustments.

IFRIC 22 - Foreign Currency Transactions and Advance Consideration - effective January 1, 2018

The application of IFRIC 22 did not have a significant impact on the Group's consolidated financial statements.

IFRS 2 - Share-based payments - effective January 1, 2018

The application of IFRS 2 did not have a significant impact on the Group's consolidated financial statements.

Future Accounting Changes

The following standards, amendments and interpretations are issued but not yet effective for the December 31,
2018 financial year-end:

IFRS 16 - 'Leases' - effective January 1, 2019
IFRIC 23 - Uncertainty over Income Tax Treatments - effective January 1, 2019

OTHER UNCERTAINTIES AND RISKS

Investing in the Company involves risks that should be carefully considered. The business of BC Corp is speculative
due to the high-risk nature of coal mining and exploration. Investors should be aware that there are various
uncertainties and 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.

Uncertainties

There are a number of uncertainties in the mining business of BC Corp, some of which are beyond the Group's
control:

- the ability of the Corporation to continue as a going concern remains dependent upon sustaining profitable
  levels of operation, as well as the continued support of Investec, RCF and other stakeholders and its ability to
  meet current production and sales forecasts.
- the ability of the Corporation to continue operations over the longer term is dependent upon obtaining the
  necessary funding to implement the medium to longer-term projects in the required timelines (Refer to
  'Strategic Overview and Outlook' section of this MD&A);
- the ability of the Corporation to meet requirements of government legislation or the DMR in order to maintain
  its mining rights;
- the ability to maintain or secure, as the case may be, sufficient BBBEE investment in the Corporation in order to
  maintain compliance with BEE requirements as required by the applicable law;
- government legislation and implementation thereof regarding mining companies in South Africa, including
  without limitation, securing authorizations and permits required thereunder within the timeframes required to
  achieve BC Corp's plans and objectives;
- prices for the Corporation's production of coal;
- foreign exchange and interest rates;
- the supply and cost of re-agents and other substances used by the Corporation in the process to extract coal;
- the consistent and sufficient supply of economical electrical power;
- securities regulation regarding public listed companies in Canada and South Africa; and
- natural disasters, change in government, war or random occurrences or acts that could result in a material change
  to economic and market performance, business conditions or operations.

Business Risks

Mineral Legislation

The business of mineral exploration, development, mining and processing is subject to various national and local
laws and plans relating to permitting and maintenance of titles, environmental consents, employee relations, health
and safety, royalties, land acquisitions and other matters. There is a risk that the necessary permits, consents,
authorizations and agreements to implement planned exploration, development or mining may not be obtained
under conditions or within the time frames that make such plans economic, that applicable laws, regulations or the
governing authorities will change or that such changes will result in additional material expenditures or time delays.

On September 27, 2018, the South African Minister of Mineral Resources, Gwede Mantashe (the "Minister"),
published the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals
Industry, 2018 (the "2018 Mining Charter"). While the definition of "Mining Charter, 2018" refers to the 2018
Mining Charter as being "developed in terms of section 100 of the MPRDA", section 100 of the MPRDA does not
provide for the development of a further charter by the Minister. For this reason, the 2018 Mining Charter is
susceptible to judicial review if challenged on the basis that the Minister lacks authority in terms of the MPRDA for
the Minister to develop such a Charter.

Compliance with the 2018 Mining Charter may require significant capital outlay on behalf of the Company and may
cause material changes or delays in the Company's intended activities. Management is currently assessing options
to comply with the regulation. These regulations could have a material impact on the Company's operations.

Title to Mineral Holdings

BC Corp requires licenses and permits from various governmental authorities. BC Corp believes that it holds all
necessary licenses and permits under applicable laws and regulations in respect of the BC Dundee Properties and
that it is presently complying in all material respects with the terms of such licenses and permits. Such licenses and
permits, however, are subject to change in various circumstances. There can be no guarantee that the Company
will be able to obtain or maintain all necessary licenses and permits that may be required to explore and develop
or mine its properties. The validity of ownership of property holdings can be uncertain and may be contested.
Although BC Dundee has attempted to acquire satisfactory title to its properties, risk exists that some titles,
particularly titles to undeveloped properties, may be defective.

Mining and Prospecting Rights

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.

Refer to the 'Commitments and Contingencies' section of this MD&A for detail with regards to Section 24G, notices
issued by the DMR on environmental issues identified at the Group's mining operations.

Exploration and Development

The exploration and development of coal deposits involves significant risks, which even a combination of careful
evaluation, experience and knowledge may not eliminate. While the discovery of a mineable deposit may result in
substantial rewards, few properties that are explored are ultimately developed into producing mines.

Major expenses may be required to establish additional reserves, to develop metallurgical processes and to
construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration
programs planned by the Company will result in profitable commercial mining operations, and significant capital
investment is required to achieve commercial production from successful exploration efforts. There is no certainty
that exploration expenditures made by the Company will result in discoveries of commercial mineable quantities.
Exploration for coal is highly speculative, involves substantial expenditures, and is frequently non-productive.

Foreign Currency Exchange Rates

Currency fluctuations may affect the Company's costs and margins. Adverse fluctuations in the South African Rand
relative to the US Dollar and the Canadian Dollar and other currencies could materially and adversely affect the
Company's profitability, results of operation and financial position. BC Corp also holds a RCF convertible loan that
is US dollar denominated, which will result in increased expenses and increased liabilities in the case of any further
decreases in the value of the ZAR relative to the US dollar as the Corporation's reporting currency is in South African
Rand.

Insurance and Uninsured Risks

The Company's business is subject to a number of risks and hazards generally, including: adverse environmental
conditions; industrial accidents; labour disputes; unusual or unexpected geological conditions; ground or slope
failures; cave-ins; changes in the regulatory environment; and natural phenomena such as inclement weather
conditions, floods and earthquakes. Such occurrences could result in damage to mineral properties or production
facilities, personal injury or death, environmental damage to the Company's properties or the properties of others,
delays in mining, monetary losses and possible legal liability. The businesses and properties of the Company are
insured against loss or damage, subject to a number of limitations and qualifications. Such insurance will not cover
all the potential risks associated with a mining company's operations. The Company may also be unable to maintain
insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be
available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as
environmental pollution or other hazards as a result of exploration and production is not generally available to the
Company or to other companies in the mining industry on acceptable terms.

The Company might also become subject to liability for pollution or other hazards that may not be insured against
or that the Company may elect not to insure against because of premium costs or other reasons. Losses from these
events may cause the Company to incur significant costs that could have a material adverse effect upon its financial
performance and results of operations.

Litigation

All industries, including the mining industry, are subject to legal claims, with and without merit. Legal proceedings
may arise from time to time in the course of the Company's business. Such litigation may be brought against the
Company or one or more of its subsidiaries in the future from time to time or the Company or one or more of its
subsidiaries may be subject to another form of litigation. Defense and settlement costs of legal claims can be
substantial, even with respect to claims that have no merit. As of the date hereof, except as disclosed in the
Overview of the Period and Outlook for the Group section above, no other material claims have been brought
against the Company, nor has the Company received an indication that any claims are forthcoming. Due to the
inherent uncertainty of the litigation process, the process of defending such claims (or any other claims that may
be brought against the Company) could take away from management time and effort and the resolution of any
particular legal proceeding to which the Company or one or more of its subsidiaries may become subject could have
a material effect on the Company's financial position and results of operations.

Tax and Foreign Mining Tax Regimes

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.

Mining tax regimes in foreign jurisdictions are subject to differing interpretations and are subject to constant
change. The Company's interpretation of taxation law as applied to its transactions and activities may not coincide
with that of the tax authorities. As a result, transactions may be challenged by tax authorities and the Company's
operations may be assessed, which could result in significant additional taxes, penalties and interest. In addition,
proposed changes to mining tax regimes in foreign jurisdictions could result in significant additional taxes payable
by the Company, which would have a negative impact on the financial results of the Company.

Operational Risks

Depletion of Mineral Reserves

The Company must continually replace mining reserves depleted by production to maintain production levels over
the long-term. There is no assurance that the Company's exploration programs will result in any new commercial
mining operations or yield new reserves to replace or expand current reserves.

Additional Capital

The continued sustainability of the BC Dundee Properties, including the expansion of mining operations and the
continued sustainability of the Group, requires additional working capital and capital expenditures and therefore
requires additional financing. Failure to obtain sufficient financing may result in a delay or indefinite postponement
of development or production on the BC Dundee Properties. Additional financing may not be available when
needed or if available, the terms of such financing might not be favorable and might involve substantial dilution to
shareholders. Failure to raise capital when needed may have a material adverse effect on the Company's business,
financial condition and results of operations.

Estimates

Capital and operating cost estimates made in respect of BC Corp's mines and development projects may not prove
accurate. Capital and operating cost estimates are based on the interpretation of geological data, feasibility studies,
anticipated climatic conditions, other factors and assumptions regarding foreign exchange currency rates and
domestic inflation.

Any such events could affect the ultimate accuracy of such estimates; unanticipated changes in quality and tonnage
of coal to be mined and processed; incorrect data on which engineering assumptions are made; delay in
construction schedules, unanticipated transportation costs; the accuracy of major equipment and construction cost
estimates; labour issues; changes in government regulation (including regulations regarding prices, cost of
consumables and capital goods, royalties, duties, taxes, permitting and restrictions on production quotas on
exportation of minerals) and title claims.

Production Estimates

BC Corp has prepared estimates of future coal production for its existing mines. BC Corp cannot give any assurance
that it will achieve its production estimates. The failure by BC Corp to achieve its production estimates could have
a material adverse effect on any or all of its future cash flows, profitability, results of operations and financial
condition. The realization of production estimates is dependent on, among other things, the accuracy of mineral
reserve and resource estimates, the accuracy of assumptions regarding coal quality and recovery rates, ground
conditions (including hydrology), geological conditions, the physical characteristics of the coal, the presence or
absence of particular metallurgical characteristics, and the accuracy of the estimated rates and costs of mining and
processing.

Actual production may vary from estimates for a variety of reasons, including the actual coal mined varying from
estimates of quality or tonnage; dilution, metallurgical and other characteristics (whether based on representative
samples of coal or not); short-term operating factors such as the need for sequential development of production
panels and the processing of new or adjacent coal qualities from those planned; mine failures or section failures;
industrial accidents; natural phenomena such as inclement weather conditions, floods, droughts, rock slides and
earthquakes; encountering unusual or unexpected geological conditions; changes in power costs and potential
power shortages; shortages of principal supplies needed for mining operations including explosives, fuels, chemical
reagents, water, equipment parts, stonedust, magnetite and lubricants; plant and equipment failure; the inability
to process certain types of coals; labour shortages or strikes; and restrictions or regulations imposed by government
agencies or other changes in the regulatory environment.

Such occurrences could also result in damage to mineral properties or mines, interruptions in production, injury or
death to persons, damage to property of BC Corp or others, monetary losses and legal liabilities in addition to
adversely affecting coal production. These factors may cause a coal reserve that has been mined profitably in the
past to become unprofitable, forcing BC Corp to cease production.

Labour and Employment Matters

While the Company believes that it has good relations with both its unionized and non-unionized employees,
production at the Company's mining operations is dependent upon the efforts of the Company's employees and
those of its contractors. Relations between the Company and its employees may be impacted by changes in the
scheme of labour relations that may be introduced by the relevant governmental authorities in whose jurisdictions
the Company carries on business.

During FY 2018, BC Corp completed wage negotiations with the unions for the forthcoming financial year.

Power Supply

The supply of electric power is not guaranteed in South Africa. Currently the public supply is sufficient to power all
of the operations at the BC Dundee Properties; however South African power supply is limited, with limited reserve
capacity. In FY 2018 (particularly the second half of the year), the country had been plagued with a shortage of
supply, which has led to sporadic "loadshedding" of power in certain areas of the country. This has and could
continue to negatively affect the production at the mines in terms of lost production and increased costs. The
Company has procured diesel power generators for backup power to the various sub-stations that have been
installed on the surface and underground at the BC Dundee Properties.

Additionally, any production expansion plan for the BC Dundee operations would be dependent on additional
electrical supply, and the majority of new build projects in the country are behind schedule. While the Company
has taken steps to meet the need for additional supply of electricity from the public utility (Eskom), there can be
no assurance that the BC Dundee Properties will not be negatively affected by the power supply situation on either
an operating or cost basis, or both.

Fuel

Rising costs of fuel impact the costs of running the plants and the transportation of labour and materials to the sites
and eventually the costs of moving rock from the underground mine and the metals that are to be produced at
both operations.

Environmental Risks and Other Hazards

All phases of the Company's operations are subject to environmental regulation in South Africa. Environmental
legislation in many countries is evolving and the trend has been toward stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects
and increasing responsibility for companies and their officers, directors and employees.

Compliance with environmental laws and regulations may require significant capital outlays on behalf of the
Company and may cause material changes or delays in the Company's intended activities. There can be no
assurance that future changes in environmental regulations and the manner in which the regulatory authorities
enforce these regulations will not adversely affect the Company's business, and it is possible that future changes in
these laws or regulations could have a significant adverse impact on some portion of the Company's business,
causing the Company to re-evaluate those activities at that time.

Mining involves various other types of risks and hazards, including industrial accidents, processing problems,
unusual or unexpected geological structures, structural cave-ins or slides, flooding, fires, and periodic interruptions
due to inclement or hazardous weather conditions. These risks could result in damage to, or destruction of, mineral
properties, production facilities or other properties, personal injury, delays in mining, increased production costs,
monetary losses and possible legal liability.

Infrastructure

Mining, processing, development and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are important determinants that affect
capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other
interference in the maintenance or provision of such infrastructure could adversely affect the Company's
operations, financial condition and results of operations.

Dependence on Outside Parties

The Company has relied upon consultants, engineers, contractors and others and intends to rely on these parties
for exploration, extraction, development, construction and operating expertise. Substantial expenditures are
required to develop coal properties, to establish mineral reserves through drilling, to carry out environmental and
social impact assessments, to develop processes to extract coal and, in the case of new properties, to develop the
exploration and infrastructure at any particular site. If such parties' work is deficient or negligent or is not completed
in a timely manner, it could have a material adverse effect on the Company.

Dependence on Key Personnel

The Company is dependent on a relatively small number of key personnel. The Company currently does not have
key person insurance on these individuals. Due to the Company's relatively small size, the loss of these persons or
the Company's inability to attract and retain additional highly skilled employees required for the operation of the
Company's activities may have a material adverse effect on the Company's business or future operations.

The Company's Directors and Officers may have Conflicts of Interests

Certain of the Company's directors and officers also serve as directors and/or officers of other companies involved
in natural resource exploration, development and production and as directors and/or officers of RCF who is the
major shareholder of the Company. Consequently, there exists the possibility that such directors may be in a
position of conflict in respect of proposed transactions or the operation of the Company.

The directors and officers of the Company are required by law to act honestly and in good faith with a view to the
best interests of the Company and to disclose any interests that they may have in any project or opportunity of the
Company. If a conflict of interest arises at a meeting of the Board of Directors of the Company, any director in a
conflict will be required to disclose his or her interest and abstain from voting on such matter.

Market risks

Price of Coal

The Company's profits are directly related to the cost of production, volume and price of coal sold. Price volatility
could have a significant impact on the future revenues and profitability of the Company.

Coal demand and price are determined by numerous factors that are beyond the control of the Company including
the demand for electricity: the supply and demand for domestic and foreign coal; interruptions due to
transportation delays; air emission standards for coal-fired power plants; regulatory, administrative and judicial
decisions; the price and availability of alternative fuels, including the effects of technology developments; the effect
of worldwide energy conservation efforts, future limitations on utilities' ability to use coal as an energy source due
to the regulation and/or taxation of greenhouse gases; proximity to, capacity of, and cost of transportation facilities;
and political and economic conditions and production costs in major coal producing regions.

The combined effects of any or all of these factors on coal price or volume are impossible for the Company to
predict. If realized coal prices fall below the full cost of production and remain at such level for any sustained period,
the Company will experience losses, which may be significant and as a result, the Company may decide to
discontinue affected operations forcing it to incur closure or care and maintenance costs, as the case may be.

South Africa Country Risks

The operations of the Company are subject to risks normally associated with the conduct of business in South Africa.
Risks may include, among others highlighted herein, problems relating to labour disputes, delays or invalidation of
governmental orders and permits, corruption and fraud, uncertain political and economic environments, civil
disturbances and crime, arbitrary changes in laws or policies, foreign taxation and exchange controls, opposition to
mining from environmental or other non-governmental organizations or changes in the political attitude towards
mining, limitations on foreign ownership, limitations on repatriation of earnings, infrastructure limitations and
increased financing costs.

There have been recent calls in South Africa for the nationalization and expropriation without compensation of
domestic mining assets. Any such development would have a significant adverse effect on the Company.

The labour situation in South Africa has been unstable across the mining industry, particularly in the platinum
industry and in the metal and engineering sector.

There is a risk that this instability extends into other sectors, including the coal sector. There have also been
retrenchments carried out by numerous companies across the industry.

HIV is prevalent in Southern Africa and tuberculosis is prevalent in the KwaZulu-Natal Province of South Africa,
where the Company's operations are situated. Employees of the Company may have or could contract either of
these potentially deadly illnesses. The prevalence of HIV and tuberculosis could cause substantial lost employee
man-hours and may influence the Company's ability to source skilled labour. The above risks may limit or disrupt
the Company's business activities.

The Company's mining operations must remain compliant with South African mining laws, including, inter alia, the
MPRDA and the Mining Charter, the conditions imposed by the licenses held by the Company, and the BEE
participation requirements. However, no assurance can be given that the Company will be able to meet the
objectives of South African mining laws going forward, including the 26% HDSA ownership objective and compliance
with the requirements of the Mining Charter. There is also no guarantee that the interests of the Company will be
wholly aligned with the interests of its (direct or indirect) BEE shareholders.

Competition

The mining industry is intensely competitive. Significant competition exists for the acquisition of properties
producing or capable of producing coal. The Company may be at a competitive disadvantage in acquiring additional
mining properties because it must compete with other individuals and companies, many of which have greater
financial resources, operational experience and technical capabilities than the Company. The Company may also
encounter increasing competition from other mining companies in its efforts to hire experienced mining
professionals. Increased competition could adversely affect the Company's ability to attract necessary capital
funding or acquire suitable producing properties or prospects for mineral exploration in the future.

The Company's Securities May Experience Price Volatility

Securities markets have a high level of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations in price that have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. Factors unrelated to the financial
performance or prospects of the Company include macroeconomic developments in North America and globally
and market perceptions of the attractiveness of particular industries.

There can be no assurance that continued fluctuations in coal prices will not occur. As a result of any of these
factors, the market price of the securities of the Company may not accurately reflect the longer-term value of the
Company.

As of the date of this MD&A, RCF owned 347 945 097 Common Shares representing approximately 82.6% of the
issued and outstanding Common Shares and STA owned 41 713 907 Common Shares representing approximately
9.9% of the issued and outstanding Common Shares. Assuming RCF converts the remaining US$27.0 million RCF
Convertible Loan before June 30, 2019 and interest on the RCF Convertible Loan is settled quarterly in Common
Shares at an interest rate of 1.29% per annum for the full term, STA is estimated to hold 1.1% and RCF would hold
98.1% of the issued and outstanding Common Shares on June 30, 2019 on a fully diluted basis. This excludes the
effects of potential dilution of the exercise of the Investec warrants, which are currently out of the money.

There is a risk that the Company's securities will not trade on the open market due to a majority holding by one
entity.

Foreign Assets

All of the assets of the Company are located in jurisdictions outside of Canada. As a result, it may be difficult for
shareholders resident in Canada or other jurisdictions to enforce judgments obtained against the Company in
Canada.

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:

Working Capital

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

                                           December 31,   December 31,   ZAR Change   % Change   
R'000                              Notes           2018           2017                           
Current assets                                                                                   
Cash and cash equivalents                         5 232         21 429     (16 197)      (76%)   
Trade and other receivables                      48 284        121 245     (72 961)      (60%)   
Inventories                                      41 824         38 095        3 729        10%   
Non-interest bearing receivables                      -          2 880      (2 880)     (100%)   
Taxation receivable                                 865              -          865              
                                                 96 205        183 649     (87 444)      (48%)   
Current liabilities                                                                              
Trade and other payables                         95 352        156 498     (61 146)      (39%)   
Current portion of borrowings          1        100 983        187 956     (86 973)      (46%)   
RCF Loan Facility                      2        381 087              -      381 087              
Current tax liability                               829          2 901      (2 072)      (71%)   
                                                578 251        347 355      230 896        66%   
Net working capital                           (482 046)      (163 706)    (318 340)       194%   


The decrease in net working capital was primarily due to the RCF Loan Facilities which were classified as a current
liability during FY 2018.

The net change in working capital included in 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.

Notes:
1) Current portion of borrowings comprised of the outstanding loan balance payable to Investec at the end of the respective
   period (Refer to Note 21 of the Financial Statements).
2) RCF loan facility comprised US$27 million outstanding and payable as at June 30, 2019 converted to ZAR at the end of the
   respective periods (Refer to Note 22 of the Financial Statements).

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                                                        FY 2018    FY 2017    Q4 2018    Q4 2017    Q3 2018   
Operating (loss)/profit for the period                      (13 744)   (70 225)     38 437   (75 423)   (56 820)   
Depreciation and amortization                                 22 297     65 727      3 977     20 904      6 290   
Impairment of receivables                                      1 668      (483)          -       (91)          -   
Impairment of property, plant and equipment                   67 490    175 624      1 200    175 624     66 291   
Fair value adjustments of financial assets and conversion                                                          
option liability                                             (3 885)   (37 767)   (10 279)   (24 019)    (9 462)   
Stock-based compensation                                           1         41        (1)          2          1   
Foreign exchange losses/(gains)                               57 404   (34 594)      6 589   (31 158)     12 008   
Adjusted EBITDA                                              131 231     98 323     39 923     65 839     18 308   


Net Revenue

Below is a reconciliation of revenue as disclosed in the Consolidated Financial Statements for FY 2018, FY 2017, Q4
2018, Q4 2017 and Q3 2018 to net revenue which excludes all railage, port handling and wharfage related costs:

R'000                                                        FY 2018    FY 2017    Q4 2018    Q4 2017    Q3 2018   
Revenue                                                      758 517    738 121    157 367    228 762    206 404   
Less: Railage, port handling and wharfage cost              (21 306)   (24 757)    (7 815)    (4 703)    (3 550)   
Net revenue                                                  737 212    713 364    149 552    224 059    202 854   


Headline loss per share

Headline 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 loss for the periods to headline loss is disclosed below:

R'000                                                        FY 2018    FY 2017    Q4 2018    Q4 2017    Q3 2018   
(Loss)/profit for the period                                (68 375)  (123 689)     26 541   (90 791)   (70 474)   
Net (profit) on disposal of property, plant and equipment    (2 355)      (452)    (2 355)          -          -   
Headline (loss)/profit for the period                       (70 730)  (124 141)     24 186   (90 791)   (70 474)   
Headline (loss)/profit per share - basic and diluted          (0.17)     (0.31)       0.06     (0.22)     (0.18)   


SUMMARY OF SECURITIES AS AT APRIL 24, 2019

As at April 24, 2019 the following Common Shares, Common Share purchase options and share purchase warrants
were issued and outstanding:

-     421 352 596 Common Shares;
-     2 258 954 Common Share purchase options with exercise prices ranging from C$0.0387-C$0.29 with a
      weighted average remaining contractual life of 1.27 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
Emma Oosthuizen               Chief Financial Officer and Interim Chief Executive Officer
Graham du Preez               Corporate Secretary

April 25, 2019

Sponsor: Questco Corporate Advisory Proprietary Limited



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