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BUFFALO COAL CORPORATION - Management's discussion and analysis - quarterly highlights for the three months ended 31 March 2019

Release Date: 31/05/2019 15:02
Code(s): BUC     PDF:  
 
Wrap Text
Management's discussion and analysis - quarterly highlights for the three months ended 31 March 2019

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                                     


INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS - QUARTERLY HIGHLIGHTS                             
For the three months ended March 31, 2019        
(Presented in South African Rands) 

Management's Discussion and Analysis
For the three months ended March 31, 2019


BASIS OF PREPARATION

The following Management's Discussion and Analysis ("MD&A") relates to the financial condition and results of
operations of Buffalo Coal Corp. and its subsidiaries ("we", "our", "us", "BC Corp", the "Company" or the "Group") for
the three months ended March 31, 2019 and should be read in conjunction with the audited annual consolidated
financial statements for the years ended December 31, 2018 and December 31, 2017, the Management's Discussion
and Analysis for the year ended December 31, 2018 and the unaudited condensed interim consolidated financial
statements for the three months ended March 31, 2019. The condensed interim consolidated financial statements
("Interim Results") and related notes have been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with IAS 34, Interim Financial Reporting. Certain non-IFRS measures are
discussed in this Interim MD&A which are clearly disclosed as such. Additional information and press releases have
been filed electronically through the System for Electronic Document Analysis and Retrieval ("SEDAR") and are available
online under the Buffalo Coal Corp. profile at www.sedar.com.

This Interim MD&A reports our activities through May 29, 2019 unless otherwise indicated. References to Q1 2019
mean the three months ended March 31, 2019, Q1 2018 mean the three months ended March 31, 2018 and Q4 2018
refer to the three months ended December 31, 2018.

Unless otherwise noted all amounts are recorded in South African Rands ("R" or "Rands" or "ZAR"). References to "C$"
mean Canadian Dollars and to "US$" mean United States Dollars. Amounts stated in Canadian Dollars or US Dollars are
translated at the date of transaction, unless otherwise stated. These other amounts stated in Canadian Dollars were
translated at C$1:R10.8454 and amounts in US Dollars were translated at US$1:R14.4789.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

OVERVIEW OF THE COMPANY

BC Corp is a coal mining and supply company operating in South Africa. The Company is 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 May 29, 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").

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

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.

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.

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, such role to be reviewed no later than June 30, 2019.

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   
March 31, 2019               96 188            832         0.00     17 842   218 852         82 726        48 362      102 347      387 060   
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   

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

Summary results for Q1 2019

The Group recorded R96.2 million in revenue for Q1 2019 (Q1 2018: R190.4 million) and R157.4 million for Q4 2018.
The lower revenue compared to Q1 2018 was mainly driven by the closure of the Magdalena underground mine during
Q4 2018 which resulted in an overall decrease in tonnes sold of 59% compared to Q1 2018. The lower revenue
compared to Q4 2018 was driven by a combination of the closure of the Magdalena underground mine during Q4 2018
along with a slower start-up of orders from customers and train delays due to bad weather which resulted in an overall
decrease in tonnes sold of 45% compared to Q4 2018.

The Group reported a consolidated profit of R0.8 million in Q1 2019 (consolidated loss in Q1 2018: R34.5 million) and
R26.5 million in Q4 2018. Profits in Q1 2019 were lower compared to Q4 2018, primarily due to lower sales generated
during Q1 2019. The improvement from a loss in Q1 2018 to a profit in Q1 2019 can be largely attributed to a positive
fair value adjustment on conversion option and warrant liability of R3.0 million in Q1 2019 (Q1 2018: negative fair value
adjustment of R60.6 million) partially offset by lower operating profits in Q1 2019.

The Group generated R2.6 million cash from its operations in Q1 2019 (Q1 2018: R29 million) and R25 million in Q4
2018. The Group spent R1.7 million in Q1 2019 (Q1 2018: R6.6 million) and R2.2 million in Q4 2018 on capital
expenditures at its operations. Low sales volumes in Q1 2019 resulted in limited cash being generated by operations
and as a result no payment could be made to Investec Bank Limited ("Investec") to decrease the outstanding Investec
debt. BC Dundee settled R30 million and R25 million, respectively, of the outstanding Investec debt in Q1 2018 and Q4
2018.

Total assets amounted to R218.9 million as at March 31, 2019 (December 31, 2018: R228.8 million) and mainly included
property, plant and equipment of R56.7 million (December 31, 2018: R58.5 million), investment funds supporting the
asset retirement obligations of R55.7 million (December 31, 2018: R54.9 million) and current assets of R82.9 million
(December 31, 2018: R96.2 million).

As at March 31, 2019, the Group's current assets mainly comprised trade and other receivables of R31.4 million
(December 31, 2018: R48.3 million), inventories of R45.3 million (December 31, 2018: R41.8 million) and cash and cash
equivalents of R6.2 million (December 31, 2018: R5.2 million).

As at March 31, 2019, the Group's total liabilities (excluding A, B, C) amounted to R82.7 million (December 31, 2018:
R99.3 million) and consisted primarily of R77.4 million in trade and other payables (December 31, 2018: R95.4 million).
Trade and other payables included R20.1 million owing to STA as at March 31, 2019 (December 31, 2018: R22.1 million).

The Group's asset retirement obligation (current and long-term) amounted to R48.4 million as at March 31, 2019
(December 31, 2018: R49.9 million) (Refer to Note 8 of the Interim Financial Statements).

BC Corp owed R102.3 million in borrowings to Investec on March 31, 2019 (December 31, 2018 balance of R101.0
million) (Refer to the Note 7 of the Interim Financial Statements).

BC Corp also had a convertible loan to RCF of US$27 million as at March 31, 2019 (December 31, 2018: 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 Q1 2019 (Refer to the Note 6 of the Interim
Financial Statements).

OVERVIEW OF THE PERIOD AND OUTLOOK FOR THE GROUP

Production

During Q1 2019 the Company continued mining out the current Aviemore reserves, by incorporating pillar extraction
(L-ing). Production for the quarter went according to schedule with the mine delivering 118,428 run of mine ("ROM")
tonnes for the quarter (Q1 2018: 124,252 ROM tonnes) at an average of 39,476 ROM tonne per month. However, sales
for the quarter was much lower than planned, mainly as a result of a slow start-up of orders from customers and train
delays due to bad weather. This resulted in a slower realization of cash from inventories and consequently less cashflow
generated from operations during Q1 2019 and leading into the second quarter of 2019.

Cash flow and funding

The slow start-up of sales at the beginning of Q1 2019 lowered the projection of the cash flow to be generated from
operations for Q1 2019. Consequently, 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 5, 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 (R5.7 million as at March 31, 2019). 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 March 31, 2019, the RCF Convertible Loan balance remained at US$27.0 million (R390.9 million). Pursuant to the
agreement, the RCF loan of US$27 million was 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 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.

Going concern

The Group's ability to continue as a going concern and ultimately continue long term operations, is dependent on its
ability to realize on the identified short-term opportunities and to secure the funding required for its medium to longer
term projects.

In October 2018, the Board formed a Special Committee to monitor developments. The Special Committee has
undertaken a further strategic review of the Company and its capital structure and is in the process of reviewing further
strategic alternatives that may be in the interests of Buffalo Coal and its stakeholders.

It is uncertain at this point in time what the outcome of the strategic review process will be. As such, management has
reviewed its cash flow forecast based on revised production including pillar extraction over the next 18 months 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 18 months, assuming realization on identified short-term opportunities, indicates that
Buffalo Coal should be able to service all its liabilities by the end of that 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 appropriate for the Interim Results of the Group, then adjustments would be
necessary to the carrying values of assets and liabilities, the reported revenues and expenses and the statement of
financial position classifications. Such adjustments could be material.

Markets

The Group only mined anthracite coal during Q1 2019, and sales were predominantly of anthracite, with a small
overhang of bituminous sales from stock created from the close out activities at the Magdalena underground
mine. Sales in the quarter were to both the export and domestic markets. The forward focus is therefore primarily on
anthracite coal, but the API4 index based on high grade (6000 kcal/kg) steam coal from Richards Bay Coal Terminal
("RBCT") cannot be ignored, as it has a very strong influence on the markets available for high-ash anthracite products.

For Q1 2019, the Group continued to utilize an export allocation of 51,125 tonnes per quarter through the Quattro
scheme at RBCT. As of mid-May 2019, the Department of Mineral Resources ("DMR") had advised successful applicants
for new allocations, but no listing of these allocations has been made available to the public yet. Transition
arrangements between the past members and those newly allocated have also not yet been made clear, and the Group
is still receiving Quattro train allocation from TFR. Buffalo's Quattro access will cease in the coming months, but it
remains unknown exactly when. It remains the case that no overall impact is anticipated on export sales.

API4 Index:

The coal price index for Richards Bay was in the low $80 range in February 2019, but continued to slide further during
Q1 2019, currently ranging around $68 in mid-May. Forward pricing is in mild contango, projecting to only reach the
$80 level in 2023.

US$: R Exchange Rate:

The ZAR exchange rate to the US$ was less volatile in Q1 2019 compared to 2018, having ranged from a monthly
average of R13.78 in February 2019 to a low of R14.38 in March 2019 and averaging at R14.34 during the first half of
May. The Company's ZAR receipts are minimally exposed to these fluctuations as most of the export tonnage is priced
in ZAR.

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 anthracite products remains generally strong, particularly from the domestic consumers. An exception to
this trend has been the Company's anthracite peas, where demand from metallurgical consumers (for both washed
peas and the further processed calcined product) reduced significantly from early in the new year. Sales have taken
place, although not to the same sales levels of calendar 2018. As a result of the low demand experienced during Q1
2019 to date, a significant (and unplanned) stock level of peas and calcined product were recorded at quarter end.

A short-term spike in domestic demand for sized products for home heating during the winter period is currently being
experienced, with demand far exceeding the available supply from any source. Tonnages are small, but margins are
good.

Export demand remains high for nuts and duff. Forecasts for duff demand for the latter part of the 2019 year are less
strong, however, as the important Brazilian demand (iron ore related) remains in question.

Overall, demand for the 2019 year remains positive. Importantly, forecasting organisation Afriforesight still has a
positive outlook for South African anthracite, both in demand and pricing terms.

OPERATIONAL REVIEW

Consolidated operational results for Q1 2019, Q1 2018 and Q4 2018

                                                                                          %                           %   
Operational results                                    Q1 2019       Q1 2018      VARIATION      Q4 2018      VARIATION   
ROM (t)                                                130 240       265 243          (51%)      182 882          (29%)   
- Aviemore (t)                                         118 428       124 252           (5%)      122 196           (3%)   
- Aviemore (t) (bought-in)                              11 812         7 752            52%       16 324          (28%)   
- Magdalena (t)                                              -       132 184         (100%)       39 517         (100%)   
- Bituminous (t) (bought-in)                                 -         1 055         (100%)        4 845         (100%)   
Saleable production (excluding calcine) (t)             91 604       180 575          (49%)      118 714          (23%)   
- Anthracite (t)                                        82 277        84 052           (2%)       76 079             8%   
- Anthracite (t) (bought-in)                             7 992         5 178            54%       10 345          (23%)   
- Bituminous (t)                                         1 335        90 710          (99%)       29 347          (95%)   
- Bituminous (t) (bought-in)                                 -           635         (100%)        2 943         (100%)   
Yield on plant feed (excluding calcine) (%)              69.1%         68.1%             1%        62.7%            10%   
- Anthracite (%)                                         68.8%         68.6%             0%        62.9%             9%   
- Anthracite (%) (bought-in)                             67.7%         66.8%             1%        63.4%             7%   
- Bituminous (%)                                           N/A         67.8%            N/A        69.1%            N/A   
- Bituminous (%) (bought-in)                               N/A         60.2%            N/A        60.7%            N/A   
Sales (t)                                               87 744       214 910          (59%)      159 492          (45%)   
- Anthracite (t)                                        61 346        70 862          (13%)       78 001          (21%)   
- Bituminous (t)                                         3 338        94 314          (96%)       32 126          (90%)   
- Calcine (t)                                            6 399        17 263          (63%)        9 268          (31%)   
- Anthracite high-ash sales (t)                         16 661        32 471          (49%)       40 097          (58%)   
Sales (t) (excluding high-ash sales)                    71 083       182 439          (61%)      119 395          (40%)   
Saleable inventory tonnes                               63 882        44 923            42%       43 010            49%   
- Anthracite (t)                                        50 085        28 123            78%       31 518            59%   
- Bituminous (t)                                         4 737        16 800          (72%)        5 821          (19%)   
- Calcine (t)                                            9 060             -           100%        5 671            60%   


An analysis of the operational results for Q1 2019 compared to Q1 2018 and Q4 2018 are discussed below:

ROM Production

Total ROM production for Q1 2019 decreased 51% and 29% compared to Q1 2018 and Q4 2018, respectively. The
overall decreases over comparative periods were primarily due to the closure of the Magdalena operations during Q4
2018.

Aviemore's ROM production for Q1 2019 decreased 5% and 3% compared to Q1 2018 and Q4 2018, respectively.
Aviemore's current reserves are now being mined out and as a result there has been a decrease in its monthly ROM
production. The decrease in production had been factored into production forecasts.

Anthracite bought-in tonnes increased 52% compared to Q1 2018 and decreased 28% compared to Q4 2018. The
Company has an arrangement with a neighbouring coal miner to buy-in their anthracite coal. The neighbouring coal
company changed over to a new mining contractor during Q1 2019. This change-over along with weather constraints
limited their production during Q1 2019 and also limited production during the first two months of Q2 2019. Bought-
in tonnes may increase, subject to an increase in production of the neighbouring coal mine.

Saleable Production

The total overall saleable coal production for Q1 2019 was 49% lower compared to Q1 2018 and 23% lower compared
to Q4 2018 mainly due to a combination of lower ROM production primarily as a result of the Magdalena underground
mine closure, and also due to lower bought-in tonnes compared to Q4 2018.

Overall yield achieved for Q1 2019 was in line compared to Q1 2018 and improved with 10% compared to Q4 2018.

Saleable anthracite decreased 2% compared to Q1 2018. The 8% increase compared to Q4 2018 was primarily driven
by the improvement in yields achieved quarter over quarter.

Sales

Overall sales (excluding high-ash sales) for Q1 2019 were 61% and 40% lower compared with Q1 2018 and Q4 2018,
respectively.

Anthracite sales for Q1 2019 were 13% and 21% lower compared to Q1 2018 and Q4 2018, respectively. The lower sales
in Q1 2019 was due mainly to a slow start-up of orders from customers along with train delays due to bad weather.

Bituminous sales for Q1 2019 sales were from stock created from the close out activities at the Magdalena underground
mine.

Calcine sales and anthracite high-ash sales fluctuate from quarter to quarter, based on demand for these products.
Calcine sales for Q1 2019 were 63% and 31% lower compared to Q1 2018 and Q4 2018, respectively, due to the lower
calcine demand in the market.

In order to improve the Group's cash flow position during Q1 2019, management arranged with one of its main
customers for the upfront sale of 13,750 tonnes of high-ash and 5,500 tonnes of anthracite product for which payment
was received at the beginning of February. Deliveries into the sales were done over the quarter and all the tonnes had
been delivered to the customer by the end of Q1 2019.

Health and Safety

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

As at May 29, 2019, the Group had achieved more than 7 269 fatality free production shifts at Coalfields. Aviemore
Colliery achieved 2,389 and Magdalena Colliery 714 fatality free production shifts. The Company achieved a Lost time
injury free rate of 0 (per 200,000 hours) for the year to date against the target rate of 0.3.

FINANCIAL REVIEW

Consolidated financial results for Q1 2019, Q1 2018 and Q4 2018

                                                                                               %                            %   
Financial results                                            Q1 2019      Q1 2018      VARIATION      Q4 2018       VARIATION   
Revenue (R'millions)                                            96.2        190.4          (49%)        157.4           (39%)   
Net Revenue (R'millions) (*)                                    92.9        185.3          (50%)        149.6           (38%)   
Cost of sales (R'millions)                                    (70.9)      (145.2)          (51%)      (106.3)           (33%)   
Impairment (loss) on property, plant and equipment                 -            -            N/A        (1.2)          (100%)   
Other income/(expenses) - net (R'millions)                       2.4       (43.6)         (106%)          7.9           (69%)   
General and administration expenses (R'millions)              (17.2)       (21.9)          (21%)       (19.3)           (11%)   
Operating profit/(loss) (R'millions)                            10.5       (20.2)           152%         38.4           (73%)   
Finance (costs)/income - net (R'millions)                      (9.6)       (13.6)          (28%)       (11.9)           (19%)   
Income tax                                                         -        (1.0)         (100%)            -             N/A   
Profit/(loss) for the period (R'millions)                        0.8       (33.8)           102%         26.5           (97%)   
Adjusted EBITDA (R'millions) (*)                                17.8         31.4          (43%)         39.9           (55%)   
Average selling price per ton sold (R)                                                                                          
(excluding high-ash sales)                                     1 244          999            25%        1 166              7%   
Cash cost of sales per ton sold (R)                                                                                             
(excluding high-ash export costs)                                900          738            22%          803             12%   
CAD:ZAR (average)                                              10.54         9.46            11%        10.82            (3%)   
USD:ZAR (average)                                              14.01        11.96            17%        14.30            (2%)   


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

An analysis of the financial results for Q1 2019 compared to Q1 2018 and Q4 2018 are discussed below:

Revenue                                                                                    
                                                                                               %                           %   
R'000                                                        Q1 2019      Q1 2018      VARIATION      Q4 2018      VARIATION   
Anthracite                                                    74 048       75 229           (2%)       93 431          (21%)   
-Domestic                                                     31 657       23 103            37%       35 575          (11%)   
-Export                                                       42 391       52 126          (19%)       57 856          (27%)   
Bituminous                                                     2 985       78 385          (96%)       30 697          (90%)   
-Domestic                                                      2 985       47 973          (94%)       25 686          (88%)   
-Export                                                            -       30 412         (100%)        5 012         (100%)   
Calcine                                                       11 393       28 637          (60%)       15 120          (25%)   
Revenue (excluding high-ash sales)                            88 426      182 251          (51%)      139 247          (36%)   
Export (high-ash)                                              7 478        8 174           (9%)       17 991          (58%)   
Sundry sales (slurry/discard)                                    284            -           100%          128           122%   
Total Revenue                                                 96 188      190 425          (49%)      157 367          (39%)   


Revenue (excluding high-ash sales) for Q1 2019 was 51% lower compared to Q1 2018, due to a 61% decrease in sales
volumes over comparative periods, partially offset by a 25% improvement in average selling prices. Revenue (excluding
high-ash sales) for Q1 2019 was 36% lower compared to Q4 2018, due to a 40% decrease in sales volumes over
comparative periods, partially offset by a 7% improvement in average selling prices.

Anthracite revenue for Q1 2019 was 2% and 21% lower compared to Q1 2018 and Q4 2018, respectively, mainly due
to lower anthracite sales volumes.

Bituminous revenue for Q1 2019 related to sales out of remaining bituminous inventory. The major decreases
compared to Q1 2018 and Q4 2018, were as a result of the closure of the Magdalena underground mine.

During Q1 2019 the average selling price per ton was higher compared to Q1 2018 and Q4 2018 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.

Calcine revenue was 60% and 25% lower compared to Q1 2018 and Q4 2018, respectively, due to the lower sales
volumes achieved.

Cost of Sales

Cost of sales includes mining and processing costs, salaries and wages, depreciation and amortization, transportation,
railage, port handling and wharfage costs.

Cost of sales for Q1 2019 was 51% and 33% lower compared to Q1 2018 and Q4 2018, respectively, and correlates with
the decreases in ROM tonnes over the comparative periods. The main driver for the decreased costs were the closure
of the Magdalena underground mine at the end of October 2018 which resulted in a reduction in costs.

Cash cost per sales ton increased by 21% and 12% compared to Q1 2018 and Q4 2018, respectively. Although cost of
sales in ZAR terms decreased over the comparative periods, the cash cost per sales ton increased due to the lower sales
tonnes over the comparative periods which resulted in higher unit costs.

The Group continues to be cost conscious, limiting expenditures in order to ensure the sustainability of the Group.

Other Income (Expense) - 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 R2.4 million net income for Q1 2019 (Q4 2018: R6.9 million) was mainly attributable to a fair value adjustment gain
on the conversion option liability (RCF convertible loan) and the warrant liability (Investec warrants) of R3.0 million (Q4
2018: R9.6 million) along with a positive fair value adjustment on the financial assets of R0.8 million (Q4 2018: R0.7
million) partially offset a foreign exchange loss of R1.8 million (Q4 2018: R6.6 million).

The R43.6 million net loss for Q1 2018 was mainly attributable to a R60.6 million negative fair value adjustment on the
conversion option liability (RCF convertible loan) partially offset by a foreign exchange gain of R15.5 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 Q1 2019 were 21% and 11% lower compared to Q1 2018 and Q4 2018,
respectively.

The lower general and administration expenses for Q1 2019 compared to Q1 2018 were due mainly to a R1.1 million
reversal of the section 24G penalty provision related to calcine plant in Q1 2019 for which an initial R2 million provision
was made in Q1 2018, along with R1.5 million lower salaries and wages following the section 189 process and a R2.5
million positive adjustment in the rehabilitation provision partially offset by R3.7 million additional bad debts provided
for following two customers that went into business rescue during Q1 2018.

The lower general and administration expenses for Q1 2019 compared to Q4 2018 were due mainly to a R1.1 million
reversal of the section 24G penalty provision related to calcine plant in Q1 2019, along with R2.0 million lower salaries
and wages following the section 189 process and a R1.5 million positive adjustment in the rehabilitation provision
partially offset by R3.8 million additional bad debts provided for following two customers that went into business
rescue during Q1 2018.

Finance Costs/Income-net

Finance costs for Q1 2019 were 28% lower compared to Q1 2018 primarily due to the overall lower outstanding Investec
facilities and STA accounts payable balance over comparative periods that resulted in lower interest charges and in
addition, no more royalties payable to Investec following the closure of the Magdalena underground mine.

Finance costs for Q1 2019 were 19% lower compared to Q4 2018 primarily due to no more royalties payable to Investec
following the closure of the Magdalena underground mine.

The group recorded a net accretion expense of R3.6 million during Q1 2019 (Q1 2018: R3.0 million; Q4 2018: R3.8
million) in relation to the RCF Loan and a net accretion expense of R2.1 million (Q1 2018: R1.5 million; Q4 2018: R1.9
million) in relation to the Investec warrant asset.

Income tax

No income tax was recognized during Q1 2019, Q1 2018 or Q4 2018.

CONSOLIDATED FINANCIAL POSITION

Balance sheet review

Summary balance sheet information

                                                             March 31,       December 31,              %   
R'000                                                             2019               2018       VARIANCE   
Property, plant and equipment                                   56 737             58 484           (3%)   
Right of use assets                                              4 282                  -           100%   
Investments & long-term receivables                              8 023              8 017             0%   
Trade and other receivables                                     31 351             48 284          (35%)   
Inventories                                                     45 335             41 824             8%   
Cash and cash equivalents                                        6 187              5 232            18%   
Restricted cash                                                 11 200             11 200             0%   
Other receivables - restricted                                  55 738             54 902             2%   
Current tax assets                                                   -                865         (100%)   
Total assets                                                   218 852            228 808           (4%)   
RCF loan facilities                                            387 208            384 220             1%   
Other borrowings                                               102 347            100 991             1%   
Trade and other payables                                        77 444             95 352          (19%)   
Asset retirement obligation                                     48 362             49 891           (3%)   
Lease liabilities                                                4 282                  -           100%   
Current tax liabilities                                            851                829             3%   
Total liabilities                                              620 495            631 283           (2%)   
Total equity                                                 (401 643)          (402 475)           (0%)   


Assets

Right of use assets relating to lease agreements were recorded during Q1 2019 after implementing the now effective
IFRS 16 - Leases standard (Refer to Note 4 in the Interim financial statements).

The 35% decrease in trade and other receivables resulted mainly from low sales volumes during Q1 2019 along with
the R5.3 million provision for bad debts at the end of Q1 2019 as a result of two customers that went into business
rescue, the ultimate outcome of which is not yet known.

Liabilities

The 19% decrease in trade and other payables was mainly attributable to a R12.9 million reduction in trade creditors,
a R1.1 million reversal in the 24G penalty provisions related to the calcine plant and R3.0 million reduction in provisions
related to section 189 retrenchments paid out in Q1 2019.

Lease liabilities relating to lease agreements were recorded during Q1 2019 after implementing the now effective
IFRS 16 - Leases standard (Refer to Note 4 in the Interim financial statements).

CASH FLOW REVIEW

The condensed consolidated statements of cash flows are summarized below:

                                                                                         %                            %   
R'000                                                Q1 2019       Q1 2018       VARIATION       Q4 2018      VARIATION   
Net cash generated from operating activities           2 645        28 998           (91%)        24 957          (89%)   
Net cash (utilized in) investing activities          (1 690)       (6 620)           (74%)       (2 169)          (22%)   
Net cash (utilized in) financing activities                -      (30 000)          (100%)      (25 000)         (100%)   
Change in cash and cash equivalents                      955       (7 622)          (113%)       (2 212)         (143%)   


Operating activities

As discussed under the 'Overview of the period and outlook for the group' section earlier in this MD&A, cash flow was
limited during the quarter as a result of low sales volumes during Q1 2018.

Investing activities

Cash on investing activities related to capital spent on property, plant and equipment. Due to the Company's cash flow
constraints, cash on property, plant and equipment was limited as far as possible.

Financing activities

At the end of Q1 2018 and Q4 2018, the Company made installments of R30 million and R25 million, respectively, to
reduce the Company's outstanding Investec loan facility. Due to limited cash generated during Q1 2019, the Company
did not make a settlement on the outstanding Investec loan at the end of March 31, 2019 (Refer to Note 1 - Going
concern of the Interim Financial Statements).

RELATED PARTY TRANSACTIONS

During Q1 2019, Q1 2018 and Q4 2018, the Company did not enter into any transactions with related parties in the
ordinary course of business.

The following balances were outstanding as at March 31, 2019 and December 31, 2018:

R'000                                                     March 31, 2019       December 31, 2018   
Related party payables                                                                           
RCF (1)                                                            5 093                   4 846   

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 R3.3 million (December 31, 2018: R3.1 million) on the RCF Convertible loan 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 Q1 2019 and Q1
2018 were as follows:

R'000                                                          Q1 2019                   Q1 2018   
Short-term benefits                                              2 410                     2 844   
Share-based payments                                                 -                         1   
Total                                                            2 410                     2 845   


Amounts owing to directors and other members of key management personnel were R0.3 million as of March 31, 2019
(December 31, 2018: R0.4 million).

Management Agreements

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 recognised as of March 31, 2019.


SUBSEQUENT EVENTS

Other Matters

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

OTHER RISKS AND UNCERTAINTIES

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

Section 24G applications

The previously 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 March 31, 2019.

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"). An additional R2.0
million had been provided for in Q1 2018 to settle estimated fines for non-compliance. On April 24, 2019, the Company
received a fine letter from the EDTEA which imposed a fine of R925,000 for non-compliance. Accordingly, the provision
included in Trade and other payables was reduced to R0.9 million as at March 31, 2019.

The Company has made, and expects to make in the future, expenditures to comply with environmental laws and
regulations.

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:

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 profit to adjusted EBITDA is as follows:                                   
R'000                                                                      Q1 2019          Q1 2018        Q4 2018   
Operating profit/(loss) for the period                                      10 469         (20 235)         38 437   
Depreciation and amortization                                                4 078            5 548          3 977   
Impairment of receivables                                                    5 347            1 668              -   
Impairment of property, plant and equipment                                      -                -          1 200   
Fair value adjustments of financial assets and conversion                                                            
option liability                                                           (3 826)           59 969       (10 279)   
Stock-based compensation                                                         -                1            (1)   
Foreign exchange losses/(gains)                                              1 774         (15 531)          6 589   
Adjusted EBITDA                                                             17 842           31 420         39 923   


Working Capital

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

                                                                         March 31,     December 31,              %   
R'000                                                          Notes          2019             2018       Variance   
Current assets                                                                                                       
Cash and cash equivalents                                                    6 187            5 232            18%   
Trade and other receivables                                                 31 351           48 284          (35%)   
Inventories                                                                 45 335           41 824             8%   
Taxation receivable                                                              -              865         (100%)   
                                                                            82 873           96 206          (14%)   
Current liabilities                                                                                                  
Trade and other payables                                                    77 444           95 352          (19%)   
Current lease liabilities                                                    1 641                                   
Current portion of borrowings                                      1       102 347          100 983             1%   
RCF Loan Facility                                                  2       387 208          381 087             2%   
Current tax liability                                                          851              829             3%   
                                                                           569 491          578 251           (2%)   
Net working capital                                                      (486 618)        (482 046)             1%   

Notes:
(1) Current portion of borrowings comprised of the outstanding loan balance payable to Investec at the end of the respective period. 
    (See Note 7 to 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.
    (See Note 6 to the Financial Statements)

Headline profit & (loss) per share

Headline profit & (loss) is a profit measure required for JSE-listed companies as defined by the South African Institute
of Chartered Accountants. Headline loss per share is a basis for measuring earnings per share which accounts for all
the profits and losses from operational, trading, and interest activities, that have been discontinued or acquired at any
point during the year.

Excluded from this figure are profits or losses associated with the sale or termination of discontinued operations, fixed
assets or related businesses, or from any permanent devaluation or write-off of their values.

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

R'000                                                                     Q1 2019          Q1 2018       Q4 2018   
Profit/(loss) for the period                                                  832         (34 842)        26 541   
Net (profit) on disposal of property, plant and equipment                   (182)                -       (2 355)   
Headline profit/(loss) for the period                                         650         (34 842)        24 186   
Headline profit/(loss) per share - basic and diluted                         0.00           (0.08)          0.06   


SUMMARY OF SECURITIES AS AT May 29, 2019

As at May 29, 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 2.61 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

31 May, 2019

Sponsor: Questco Corporate Advisory Proprietary Limited



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