Reviewed condensed interim consolidated results for the ... · Reviewed condensed interim...

Reviewed condensed interim consolidated results for the six months ended 30 September 2016Preparation of condensed interim consolidated financial statementsThe condensed interim consolidated financial statements for the six months ended 30 September 2016 have been reviewed in terms of the Companies Act of South Africa. Their preparation was supervised by the Chief Financial Officer, Jacques Rossouw, a Chartered Accountant (SA). The directors of the company take responsibility for these results.

The condensed interim consolidated financial statements were published on 28 November 2016 and can be found on the company’s website.

Salient features

Results for the six months ended 30 September 2016

HEPS from con=nuing opera=ons 13 cents

per share up from 2.6 cents

Improved safety performance

SALIENT FEATURES

Solid performance at VanggaIontein

Integrated water use

license granted for

Moabsvelden

R31 million gain on conclusion of seJlement agreement with IDC

Current liabili=es decreased by R76 million

1

Cash generated from opera=ons R228 million

R63 million debt repaid

Revenue from con=nuing opera=ons

R580 million (1HFY16 -‐ R563 million)

Opera=ng profit from con=nuing opera=ons

of R78 million

(1HFY16 – R59 million)

Revenue from continuing operations R580 million

(1H FY16 – R563 million)





SALIENT FEATURES



license granted for

Moabsvelden



1






of R78 million


Integrated Water Use Licence granted for Moabsvelden

Operating profit from continuing operations of R78 million (1H FY16 – R59 million)

Total borrowings decreased by R82 million





SALIENT FEATURES



license granted for

Moabsvelden



1






of R78 million







SALIENT FEATURES



license granted for

Moabsvelden



1






of R78 million

(1HFY16 – R59 million) HEPS from continuing operations

13 cents per share up from 2.6 cents





SALIENT FEATURES



license granted for

Moabsvelden



1






of R78 million


R31 million gain on conclusion of a settlement

agreement with the IDC

Keaton Energy Results for the six months ended 30 September 2016

Dear shareholder

The six months ended 30 September 2016 (the period or 1H FY17) were characterised by continued steady-state operations at Vanggatfontein and the placing of loss making Vaalkrantz Colliery on care and maintenance from 1 May 2016 whilst awaiting section 11 ministerial consent for its disposal. Following the end of the reporting period, the Moabsvelden Project was finally awarded its Integrated Water Use Licence. The significant recovery in global coal prices has given the group flexibility to pursue alternative options in respect of the Moabsvelden offtake.

SafetySafety remains a management focus area and Keaton continues to strive for a zero-harm environment at all operations. Safety statistics are released quarterly. During Q2 FY17, Vanggatfontein reported an improved progressive rolling LTIFR per 200 000 man hours worked of 0.46 (Q1 FY17: 0.92) and Vaalkrantz a LTIFR of 0.00 (Q1 FY17: 0.01). However, this operation was placed on care and maintenance on 1 May 2016 and thus the numbers are not comparable.

Operational reviewVanggatfontein delivered 1.139Mt of washed 2 and 4-Seam thermal coal to Eskom (1H FY16: 1.192Mt), a decrease of 52 372t or 4%. Temporary pit sequencing constraints were largely responsible for the decrease in Eskom sales. 5-Seam metallurgical coal sales decreased 36% over the comparable period to 35 961t from 56 156t in line with the geological model. Discard and slurry sales were 242 415t (1H FY16: 17 704t).

Group financial performanceDuring the six months, Vanggatfontein generated revenue of R434.6 million from coal sales (1H FY16: R453.5 million). The decrease in revenue was as a result of reduced 5-Seam and Eskom sales volumes. The reduced Eskom sales were however offset by the annual contractual price adjustment. Transport revenue for the period was R145.8 million (1H FY16: R109.8 million) as a result of longer delivery distances. Transport cost paid to suppliers similarly increased. The gross profit from continuing operations was R89.5 million or 15% of revenue (1H FY16: R119.2 million or 21% of revenue). The decrease was as a result of the reduced 5-Seam sales discussed above, a decrease in yields achieved on the Eskom product and a higher than planned strip ratio.

Other income of R31.7 million for the six months is mainly attributable to the recognition of a once-off credit of R30.8 million after concluding a settlement agreement with the Industrial Development Corporation (IDC). The company reached an agreement with the IDC on 31 August 2016 to acquire their preference shares in LME for R8.8 million in full and final settlement of the preference share liability of R39.6 million.

Net profit before taxation from continuing operations was R50.4 million (1H FY16: R33.8 million). Earnings and headline earnings per share from continuing operations were 13.0 cents (1H FY16: 2.6 cents).

Cash and cash equivalents, which includes discontinued operations, decreased by R14.6 million during the six months to R34.3 million. Operations generated net cash of R228.3 million (1H FY16: R307.4 million). The main reason for the decrease of R79.1 million is the decrease in gross profit explained above. Investing activities utilised cash of R190.5 million during the six months (1H FY16: R277.5 million). This is mainly due to additions to property, plant and equipment of R200.1 million (1H FY16: R241.5 million) primarily spent on ongoing mine development at Vanggatfontein. This was offset by a net withdrawal from restricted cash/investments of R9.3 million (1H FY16: R9.9 million). Financing activities utilised cash of R52.4 million during the six months (1H FY16: R34.1 million), due to borrowings of R54.4 million (1H FY16: R34.1 million) being repaid, offset by an additional drawdown of R2 million on the Investec Bank Limited working capital facility (1H FY16: Rnil).

Coal Resource and Coal Reserve statementOther than normal coal depletion as a result of mining activities during the six months to 30 September 2016, there were no significant changes to the previously reported group Coal Resource and Reserve estimates as reported in the 31 March 2016 Integrated Annual Report.

Looking ahead In the short term, our growth focus will be on securing both an offtake agreement and development funding for the Moabsvelden Project along with obtaining the long awaited section 11 consent for the LME transaction. Our operational focus will remain on ensuring Vanggatfontein’s consistent performance.

With the pending attractive Vanggatfontein/Moabsvelden expansion and a significantly simplified and lean corporate structure we are well placed for the future.

On behalf of the Board

David Salter Mandi GladNon-Executive Chairman Chief Executive Officer

Bryanston25 November 2016

Commentary01


Condensed interim consolidated statement of profit or loss and other comprehensive income

Six months ended Year ended

30 September 2016

30 September 2015

31 March 2016

R’000 Notes (Reviewed) (Reviewed) (Audited)

CONTINUING OPERATIONSRevenue 2 580 405 563 286 1 032 080

Cost of sales (490 861) (444 054) (868 777)

Gross profit 2 89 544 119 232 163 303

Other income 3 31 750 626 41 192

Mining and related expenses (20 332) (10 758) (181 966)

Administrative expenses (22 630) (50 309) (139 036)

Operating profit/(loss) before net finance cost 78 332 58 791 (116 507)

Net finance cost (27 889) (24 953) (54 160)

Finance income 2 165 1 557 4 046

Finance cost (30 054) (26 510) (58 206)

Net profit/(loss) before taxation 50 443 33 838 (170 667)

Income taxation (expense)/credit 4 (12 191) (24 319) 2 168

Net profit/(loss) from continuing operations 38 252 9 519 (168 499)

DISCONTINUED OPERATIONSLoss from discontinued operations, net of taxation 5 (17 240) (106 461) (128 776)

Net profit/(loss) for the period 21 012 (96 942) (297 275)

Other comprehensive income

Items that may be reclassified to profit or loss

Foreign currency translation reserve gain 106 249 1 841

Total comprehensive income 21 118 (96 693) (295 434)

Net profit/(loss) attributable to:

Owners of the company 20 835 (66 252) (250 588)

Non-controlling interest 177 (30 690) (46 687)

21 012 (96 942) (297 275)

Total comprehensive income attributable to:

Owners of the company 20 941 (66 003) (248 747)

Non-controlling interest 177 (30 690) (46 687)

21 118 (96 693) (295 434)

Earnings per share

Basic earnings per share (cents) 6 7.1 (29.4) (99.7)

Diluted earnings per share (cents) 6 7.1 (29.4) (99.7)

Earnings per share – continuing operations

Basic earnings per share (cents) 6 13.0 2.6 (62.2)

Diluted earnings per share (cents) 6 13.0 2.5 (62.2)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

02


R’000 Notes

At30 September

2016(Reviewed)

At31 March

2016(Audited)

At30 September

2015(Reviewed)

ASSETSProperty, plant and equipment 7 646 280 668 297 691 106Intangible assets 503 665 504 568 662 808Investments and loans 5 221 5 221 5 216Restricted cash 7 423 7 423 10 986Restricted investments 30 326 35 226 32 616

Total non-current assets 1 192 915 1 220 735 1 402 732

Restricted cash – 4 168 –Inventory 34 394 36 651 49 230Trade and other receivables 128 564 105 149 102 002Taxation – 917 898Cash and cash equivalents 34 251 43 379 58 249Assets held-for-sale 8 63 056 83 812 120 281

Total current assets 260 265 274 076 330 660

Total assets 1 453 180 1 494 811 1 733 392

EQUITYStated capital 850 051 850 051 701 977Share-based payment reserve 35 616 33 665 29 567Other reserves 21 031 20 925 19 334Accumulated loss (444 975) (465 810) (54 903)

Total equity attributable to owners of the company 461 723 438 831 695 975Non-controlling interest 54 189 54 012 7 621

Total equity 515 912 492 843 703 596

LIABILITIESBorrowings 9 183 128 189 605 228 796Mine closure and environmental rehabilitation provision 264 161 263 472 238 104Vendor liability 31 769 30 226 30 987Deferred taxation 130 810 124 275 153 475Deferred income – – 5 418

Total non-current liabilities 609 868 607 578 656 780

Borrowings 9 125 913 201 682 111 552Trade and other payables 129 341 106 183 145 423Taxation 7 793 2 732 –Liabilities held-for-sale 8 64 353 83 793 116 041

Total current liabilities 327 400 394 390 373 016

Total equity and liabilities 1 453 180 1 494 811 1 733 392

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Condensed interim consolidated statement of financial position03


R’000Stated capital

Share- based

payment reserve

Other reserves

(Accu-mulated

loss)/retained

earnings

Total equity

attributable to owners

of the company

Non-controlling

interest (NCI)

Total equity

Balance at 31 March 2015 692 929 26 546 19 085 103 073 841 633 (3 375) 838 258

Net loss for the period – – – (66 252) (66 252) (30 690) (96 942)Other comprehensive income for the period – – 249 – 249 – 249 Transactions with owners of the company recognised directly in equity

Ordinary shares issued 9 048 – – – 9 048 – 9 048

Share-based payments – 3 021 – – 3 021 – 3 021

Change in ownership interest in subsidiaries – – – (91 724) (91 724) 41 686 (50 038)

Balance at 30 September 2015 701 977 29 567 19 334 (54 903) 695 975 7 621 703 596

Balance at 31 March 2016 850 051 33 665 20 925 (465 810) 438 831 54 012 492 843

Net profit for the period – – – 20 835 20 835 177 21 012 Other comprehensive income for the period – – 106 – 106 – 106 Transactions with owners of the company recognised directly in equityShare-based payments – 1 951 – – 1 951 – 1 951

Balance at 30 September 2016 850 051 35 616 21 031 (444 975) 461 723 54 189 515 912

Condensed interim consolidated statement of changes in equity04



R’000

30 September 2016

(Reviewed)

30 September 2015

(Reviewed)

31 March 2016

(Audited)

Cash flows from operating activities(1) 228 302 307 397 470 184

Cash flows from investing activities(2) (190 468) (277 523) (404 356)Cash flows from financing activities(3) (52 440) (34 102) (89 489)

Net decrease in cash and cash equivalents (14 606) (4 228) (23 661) Cash and cash equivalents at the beginning of the period 48 885 72 546 72 546

Cash and cash equivalents at the end of the period 34 279 68 318 48 885

(1) Operations generated net cash of R228.3 million during the six months (30 September 2015: R307.4 million) after taking net finance cost of R7.4 million (30 September 2015: R13.2 million) into account. Refer to note 2 for additional information regarding the reasons for the decrease in cash generated by operations.

(2) Investing activities utilised cash of R190.5 million during the six months (30 September 2015: R277.5 million). This is mainly due to cash additions to property, plant and equipment of R200.1 million (30 September 2015: R241.5 million), which was offset by a net withdrawal from restricted cash/investments of R9.3 million (30 September 2015: R9.9 million).

(3) Financing activities utilised cash of R52.4 million during the six months (30 September 2015: R34.1 million). This is mainly due to borrowings repaid of R54.4 million (30 September 2015: R34.1 million), which was offset by an additional drawdown of R2 million on the Investec Bank Limited working capital facility (30 September 2015: Rnil).

Condensed interim consolidated statement of cash flows05


RevenueOperating profit/(loss) before

depreciation/amortisation Depreciation/amortisationOperating profit/(loss) after depreciation/amortisation Segment assets Segment liabilities

R’000

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

At 30 September

2016At 31 March

2016

At 30 September

2015

At 30 September

2016At 31 March

2016

At 30 September

2015

Vanggatfontein Colliery(1)(4) 580 405 1 032 080 563 286 285 766 620 228 343 875 (225 473) (442 377) (238 118) 60 293 177 851 105 757 863 549 881 547 933 996 1 025 295 1 051 402 1 094 843

Vaalkrantz Colliery(1)(5)(7) 18 626 176 822 103 082 (16 574) (138 870) (113 842) (107) (3 992) (3 080) (16 681) (142 862) (116 922) 116 293 137 063 149 508 489 978 469 253 437 401

Sterkfontein Project – – – – – – – – – – – – 66 007 66 043 66 064 76 615 74 971 74 201

Keaton Energy Holdings Limited(2) 61 784 130 082 52 260 7 884 (169 248) (84 520) – – – 7 884 (169 248) (84 520) 996 054 954 511 932 764 58 680 24 009 69 827

Keaton Administrative and Technical Services Proprietary Limited(2) 18 174 35 621 24 255 2 673 (9 378) (2 151) (1 525) (3 267) (1 620) 1 148 (12 645) (3 771) 13 011 11 623 25 176 57 335 56 444 53 210

Leeuw Braakfontein Project – – – 3 390 (174 518) (10 738) – – – 3 390 (174 518) (10 738) 154 285 153 527 311 664 123 027 124 129 116 925

Koudelager Project(7) – – – – – – – – – – – – 3 730 3 730 5 785 – – –

Moabsvelden Project(2) – – – 3 374 (59 428) (297) – – – 3 374 (59 428) (297) 304 494 342 107 340 433 96 072 134 367 72 934

Other segments(3)(8) – – – (57 766) (19) (2 851) – – – (57 766) (19) (2 851) 21 873 334 043 322 098 67 822 129 485 117 268

Total segments 678 989 1 374 605 742 883 228 747 68 767 129 476 (227 105) (449 636) (242 818) 1 642 (380 869) (113 342) 2 539 296 2 884 194 3 087 488 1 994 824 2 064 060 2 036 609Reconciliation to statements of profit or loss and other comprehensive income and financial positionIntersegment, deferred taxation and other consolidation adjustments (79 958) (165 703) (76 515) 59 343 134 723 65 672 107 863 – 59 450 135 586 65 672 (1 086 116) (1 389 383) (1 354 096) (1 057 556) (1 062 092) (1 006 813)

599 031 1 208 902 666 368 288 090 203 490 195 148 (226 998) (448 773) (242 818) 61 092 (245 283) (47 670) 1 453 180 1 494 811 1 733 392 937 268 1 001 968 1 029 796

Net finance cost(6) (27 889) (54 160) (24 953)

Elimination of discontinued operations 17 240 128 776 106 461

Net profit/(loss) before taxation 50 443 (170 667) 33 838

Total assets and liabilities 1 453 180 1 494 811 1 733 392 937 268 1 001 968 1 029 796

(1) Revenue represents sales to external customers only.(2) Revenue represents intersegment sales only.(3) Includes the subsidiaries Amalahle Exploration Proprietary Limited, Labohlano Trading 46 Proprietary Limited, Ausco Finance Proprietary Limited, Ausco Services

Proprietary Limited, Focus Coal Investments Proprietary Limited, Xceed Resourced Limited and the Balgray prospecting rights.(4) Coal sales to a major customer as a percentage of revenue exceeded 95% (31 March 2016 and 30 September 2015: 92%).(5) Coal sales to a major customer as a percentage of revenue amounted to 100% (31 March 2016: three major customers 73%, 14% and 10%. 30 September 2015:

two major customers 67% and 19%).(6) Net finance cost is not reported as forming part of each segment profit or loss as these are not measured or reported to the chief operating decision maker (CODM) in

connection with the segment but rather on a collective company/group basis.(7) Classified as a discontinued operation, refer to note 5.(8) Amalahle Exploration Proprietary Limited and the Balgray prospecting rights included in other segments are classified as discontinued operations, refer to note 5.

Segment report06


RevenueOperating profit/(loss) before

depreciation/amortisation Depreciation/amortisationOperating profit/(loss) after depreciation/amortisation Segment assets Segment liabilities

R’000

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

Six months ended 30

September 2016

Year ended 31 March

2016

Six months ended 30

September 2015

At 30 September

2016At 31 March

2016

At 30 September

2015

At 30 September

2016At 31 March

2016

At 30 September

2015

Vanggatfontein Colliery(1)(4) 580 405 1 032 080 563 286 285 766 620 228 343 875 (225 473) (442 377) (238 118) 60 293 177 851 105 757 863 549 881 547 933 996 1 025 295 1 051 402 1 094 843

Vaalkrantz Colliery(1)(5)(7) 18 626 176 822 103 082 (16 574) (138 870) (113 842) (107) (3 992) (3 080) (16 681) (142 862) (116 922) 116 293 137 063 149 508 489 978 469 253 437 401

Sterkfontein Project – – – – – – – – – – – – 66 007 66 043 66 064 76 615 74 971 74 201

Keaton Energy Holdings Limited(2) 61 784 130 082 52 260 7 884 (169 248) (84 520) – – – 7 884 (169 248) (84 520) 996 054 954 511 932 764 58 680 24 009 69 827

Keaton Administrative and Technical Services Proprietary Limited(2) 18 174 35 621 24 255 2 673 (9 378) (2 151) (1 525) (3 267) (1 620) 1 148 (12 645) (3 771) 13 011 11 623 25 176 57 335 56 444 53 210

Leeuw Braakfontein Project – – – 3 390 (174 518) (10 738) – – – 3 390 (174 518) (10 738) 154 285 153 527 311 664 123 027 124 129 116 925

Koudelager Project(7) – – – – – – – – – – – – 3 730 3 730 5 785 – – –

Moabsvelden Project(2) – – – 3 374 (59 428) (297) – – – 3 374 (59 428) (297) 304 494 342 107 340 433 96 072 134 367 72 934

Other segments(3)(8) – – – (57 766) (19) (2 851) – – – (57 766) (19) (2 851) 21 873 334 043 322 098 67 822 129 485 117 268

Total segments 678 989 1 374 605 742 883 228 747 68 767 129 476 (227 105) (449 636) (242 818) 1 642 (380 869) (113 342) 2 539 296 2 884 194 3 087 488 1 994 824 2 064 060 2 036 609Reconciliation to statements of profit or loss and other comprehensive income and financial positionIntersegment, deferred taxation and other consolidation adjustments (79 958) (165 703) (76 515) 59 343 134 723 65 672 107 863 – 59 450 135 586 65 672 (1 086 116) (1 389 383) (1 354 096) (1 057 556) (1 062 092) (1 006 813)

599 031 1 208 902 666 368 288 090 203 490 195 148 (226 998) (448 773) (242 818) 61 092 (245 283) (47 670) 1 453 180 1 494 811 1 733 392 937 268 1 001 968 1 029 796

Net finance cost(6) (27 889) (54 160) (24 953)

Elimination of discontinued operations 17 240 128 776 106 461

Net profit/(loss) before taxation 50 443 (170 667) 33 838

Total assets and liabilities 1 453 180 1 494 811 1 733 392 937 268 1 001 968 1 029 796

(1) Revenue represents sales to external customers only.(2) Revenue represents intersegment sales only.(3) Includes the subsidiaries Amalahle Exploration Proprietary Limited, Labohlano Trading 46 Proprietary Limited, Ausco Finance Proprietary Limited, Ausco Services

Proprietary Limited, Focus Coal Investments Proprietary Limited, Xceed Resourced Limited and the Balgray prospecting rights.(4) Coal sales to a major customer as a percentage of revenue exceeded 95% (31 March 2016 and 30 September 2015: 92%).(5) Coal sales to a major customer as a percentage of revenue amounted to 100% (31 March 2016: three major customers 73%, 14% and 10%. 30 September 2015:

two major customers 67% and 19%).(6) Net finance cost is not reported as forming part of each segment profit or loss as these are not measured or reported to the chief operating decision maker (CODM) in

connection with the segment but rather on a collective company/group basis.(7) Classified as a discontinued operation, refer to note 5.(8) Amalahle Exploration Proprietary Limited and the Balgray prospecting rights included in other segments are classified as discontinued operations, refer to note 5.

07


Notes to the condensed interim consolidated financial statements

1 Basis of preparation and accounting policies

The condensed consolidated interim financial statements are prepared in accordance with International Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards and are consistent with those applied in the previous annual financial statements.

2 Revenue and gross profit

Vanggatfontein delivered 1.139Mt of washed 2- and 4-Seam thermal coal to Eskom (30 September 2015: 1.192Mt and for the year ended 31 March 2016: 2.238Mt), a decrease of 52 372t or 4%. Sales of 5-Seam metallurgical coal decreased by 36% over the comparable period to 35 961t in line with the geological model (30 September 2015: 56 156t and for the year ended 31 March 2016: 98 252t). Production of B-grade coal was discontinued as reported previously (30 September 2015 and for the year ended 31 March 2016: 25 951t).

During the six months Vanggatfontein generated revenue of R434.6 million from coal sales (30 September 2015: R453.5 million and for the year ended 31 March 2016: R830 million). The decrease in revenue was as a result of reduced 5-Seam and Eskom sales volumes. The impact of reduced sales volumes to Eskom was offset by the annual contractual price adjustment.

Transport revenue for the period was R145.8 million (30 September 2015: R109.8 million and for the year ended 31 March 2016: R202.1 million). The increase in transport revenue was as a result of longer delivery distances.

The gross profit from continuing operations was R89.5 million or 15% of revenue (30 September 2015: R119.2 million or 21% of revenue and for the year ended 31 March 2016: R163.3 million or 16% of revenue). The decrease was as a result of the reduced 5-Seam and B-grade sales discussed above, a decrease in yields achieved on the Eskom product and a higher than expected strip ratio impacted by a temporary sequencing constraint in the two pits.

3 Other income

Other income of R31.7 million for the six months ended 30 September 2016 is mainly attributable to the recognition of a once-off credit of R30.8 million after concluding a settlement agreement with the Industrial Development Corporation (IDC) for the Leeuw Mining and Exploration Proprietary Limited (LME) preference share obligation.

During November 2004, the IDC subscribed for 60 cumulative redeemable preference shares in LME. In terms of the agreement, LME had to pay, on each dividend date, the relevant preference dividend and had to commence redeeming the preference shares in equal instalments during the 2008 financial year. During the 2011 financial year, the IDC agreed to reschedule repayments on the preference shares when the company acquired LME, and an addendum to the preference shares agreement was concluded with the new settlement date, being 31 October 2015. Due to the operational underperformance of LME, the liability could not be settled on 31 October 2015. During the 2016 financial year, the company entered into a Sale of Shares and Claims Agreement with Bayete Energy Resources Proprietary Limited (BER) to dispose of LME (refer to note 5). The IDC preference shares were specifically excluded from the sale and the company agreed to take over this liability from LME.

The company reached an agreement with the IDC on 31 August 2016 to acquire the preference shares from the IDC for R8.8 million in full and final settlement of the preference share liability of R39.6 million. In terms of the agreement the R8.8 million is payable in five equal monthly instalments, which commenced in October 2016.

4 Income taxation expense

The income taxation expense of R12.2 million for the six months ended 30 September 2016 is mainly attributable to Keaton Mining Proprietary Limited’s normal taxation expense of R5.7 million as well as deferred taxation expense of R6.7 million, driven by the continued profitable performance at Vanggatfontein. The deferred taxation liability in the statement of financial position accordingly increased when compared to the liability at 31 March 2016.

5 Discontinued operations

As reported in the prior year, the Board of Directors committed to a plan to dispose of the Vaalkrantz operation, Balgray Project, Koudelager Project as well as the Mooiklip Project. This disposal group is classified as a discontinued operation as it is part of a single coordinated plan to dispose of the group’s anthracite assets (separate major line of business) which are all situated in KwaZulu-Natal (geographic area of operations).

The Braakfontein Thermal Coal Project, held by Leeuw Braakfontein Colliery Proprietary Limited (LBC), a wholly owned subsidiary of LME, is specifically excluded. LBC, which will be unbundled from LME, will become a direct wholly owned subsidiary of the company.

The company entered into a Sale of Shares and Claims Agreement with BER on 11 February 2016 to dispose of the disposal group. Only one material suspensive condition has to be met for the sale to become effective, being the section 11 consent from the Minister of Mineral Resources in terms of the Mineral Petroleum and Resources Development Act, 28 of 2002 (MPRDA). The company also simultaneously entered into a management agreement with Witbank Mineral Resources Proprietary Limited (WMR), a related party to BER, for the management of LME up to and until the Sale of Shares and Claims Agreement with BER becomes unconditional.

As a consequence of the occurrence of a force majeure event, namely the drought, management decided to place Vaalkrantz Colliery on care and maintenance with effect from 1 May 2016. The Sale of Shares and Claims Agreement as well as the Management Agreement are still effective although some of the clauses of the Management Agreement have been temporarily suspended as a result of the force majeure event.

08


5 Discontinued operations continued

Results – discontinued operations


R’000

30 September 2016

(Reviewed)

30 September 2015

(Reviewed)

31 March 2016

(Audited)

DISCONTINUED OPERATIONS

Revenue 18 626 103 082 176 822Cost of sales (30 311) (130 197) (209 022)

Gross loss (11 685) (27 115) (32 200)Other income – – 4 715Operating expenses (4 966) (79 487) (99 651)

Operating loss before net finance (cost)/income (16 651) (106 602) (127 136)Net finance (cost)/income (589) 141 (1 640)Finance income 710 417 1 102Finance cost (1 299) (276) (2 742)Net loss before taxation (17 240) (106 461) (128 776)Taxation – – –

Loss from discontinued operations, net of taxation (17 240) (106 461) (128 776)

Net loss attributable to:Owners of the company (17 240) (72 011) (94 326)

Non-controlling interest – (34 450) (34 450)

(17 240) (106 461) (128 776)

No gain or loss was recognised for the remeasurement in terms of IFRS 5 as the carrying amount of the disposal group was lower than the fair value less costs to sell.

Cash flows – discontinued operations


R’000

30 September 2016

(Reviewed)

30 September 2015

(Reviewed)

31 March 2016

(Audited)

Cash flows from operating activities (21 420) (18 702) (36 921)Cash flows from investing activities 77 (10 964) (13 700)Cash flows from financing activities (29) (8) (74)

Notes to the condensed interim consolidated financial statements continued

09


6 Earnings and net asset value per share

The calculation of basic and diluted earnings per share is based on a profit for the six months ended 30 September 2016 (attributable to owners of the company) of R20.8 million (30 September 2015: loss of R66.3 million and for the year ended 31 March 2016: loss of R250.6 million). The weighted average number of shares used in calculating basic earnings per share for the year was 292 million (30 September 2015: 225.5 million and for the year ended 31 March 2016: 251.3 million). The weighted average number of shares used in calculating diluted earnings per share for the six months was 292.4 million (30 September 2015: 229 million and for the year ended 31 March 2016: 251.3 million).


30 September 2016

(Reviewed)

30 September 2015

(Reviewed)

31 March 2016

(Audited)

Basic earnings per share (cents) 7.1 (29.4) (99.7)

Continuing operations 13.0 2.6 (62.2)

Discontinued operations (5.9) (32.0) (37.5)

Diluted earnings per share (cents)(1) 7.1 (29.4) (99.7)

Continuing operations(2) 13.0 2.5 (62.2)

Discontinued operations(3) (5.9) (32.0) (37.5)

Headline earnings per share (cents) 7.1 (6.2) (26.9)

Continuing operations 13.0 2.6 (16.5)

Discontinued operations (5.9) (8.8) (10.4)

Diluted headline earnings per share (cents)(1) 7.1 (6.2) (26.9)

Continuing operations(2) 13.0 2.6 (16.5)

Discontinued operations(3) (5.9) (8.8) (10.4)

(1) Anti-dilutive for the period ended 30 September 2015 and for the year ended 31 March 2016.(2) Anti-dilutive for the year ended 31 March 2016.(3) Anti-dilutive.


R’000

30 September 2016

(Reviewed)

30 September 2015

(Reviewed)

31 March 2016

(Audited)

Reconciliation of headline earnings (net of tax and NCI):

Continuing operations

Net profit/(loss) for the period attributable to owners of the company 38 075 5 759 (156 262)

(Profit)/loss on disposal of property, plant and equipment (15) 109 135

Impairment of intangible assets – – 114 596

Headline earnings – continuing operations 38 060 5 868 (41 531)

Discontinued operations

Net loss for the period attributable to owners of the company (17 240) (72 011) (94 326)

Profit on disposal of property, plant and equipment (39) – –

Impairment of assets – 52 095 68 308

Headline earnings – discontinued operations (17 279) (19 916) (26 018)

Total headline earnings 20 781 (14 048) (67 549)

Net asset value per share

Number of shares in issue (millions) 292.0 228.3 292.0

Net asset value per share (cents) 177 308 169


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7 Property, plant and equipment

The net decrease of R22 million from 31 March 2016 is mainly attributable to capital investments at Vanggatfontein of R199.4 million (attributable mainly to mine development of R195.4 million). The rehabilitation assets increased by R4 million, relating to changes in estimates associated with the environmental rehabilitation liability.

These were offset by depreciation charges of R225.3 million.

8 Disposal group held-for-sale

As disclosed in note 5, the Board committed to a plan to sell Vaalkrantz Colliery, the Balgray Project, the Koudelager Project and the Mooiklip Project (disposal group).

The disposal group comprised of the following assets and liabilities:

R’000

At30 September

2016(Reviewed)

At31 March

2016(Audited)

At30 September

2015(Reviewed)

Assets

Property, plant and equipment 25 513 26 578 38 097

Intangible assets 5 962 5 962 9 155

Restricted investments 30 125 29 651 26 219

Inventory 578 4 633 8 829

Trade and other receivables 850 11 482 26 929

Taxation – – 983

Cash and cash equivalents 28 5 506 10 069

63 056 83 812 120 281

Liabilities

Borrowings 45 72 97

Mine closure and environmental rehabilitation provision 34 971 34 649 31 285

Trade and other payables 9 052 28 787 59 999

Provisions 20 285 20 285 24 660

64 353 83 793 116 041

At 30 September 2016, the fair value less costs to sell of the disposal group was unchanged at Rnil. No additional impairment loss was recognised. There are no cumulative income or expenses included in OCI relating to the disposal group.

9 Borrowings

Total borrowings decreased by R82.2 million, mainly as a result of debt repayments to the value of R62.9 million (R48.6 million on the Investec Bank Limited term loan, R7.4 million on the Vitol loan, R3.9 million on the Investec Bank Limited working capital facility and R3 million on the Gunvor loan (a related party)). Borrowings further decreased by R30.8 million as a result of the agreement reached with the IDC regarding the LME preference shares (refer to note 3) and by R7.5 million as a result of foreign exchange gains included in profit or loss. The decrease was offset by finance costs of R16.4 million.

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10 Commitments and contingencies

The group’s capital commitments are:

R’000

At30 September

2016(Reviewed)

At31 March

2016(Audited)

At30 September

2015(Reviewed)

Exploration and mine development expenditure authorised and contracted 4 752 5 696 2 681Exploration and mine development expenditure authorised but not contracted 17 725 22 629 23 014

22 477 28 325 25 695

All contracted amounts will be funded through existing funding mechanisms within the group and cash generated from operations.

Shareholders are referred to note 32 (iii) of the Annual Financial Statements for the year ended 31 March 2016, included in the company’s Integrated Annual Report. The litigation was successfully defended with Thebe Mining Resources Proprietary Limited and Main Street 1055 Proprietary Limited’s claims dismissed, as announced on 11 October 2016.

There have been no significant changes to the status of the group’s other contingent liabilities. For detailed disclosure on all contingent liabilities refer to Keaton Energy’s Integrated Annual Report for the year ended 31 March 2016, available on the group’s website at www.keatonenergy.co.za.

11 Financial risk management activities

Fair value determination

The following table presents the group’s assets and (liabilities) that are measured at fair value by level within the fair value hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets;

Level 2: Inputs other than quoted prices included within level 1 that are observable for the assets/(liabilities), either directly or indirectly (that is, as prices) or indirectly (that is derived from prices); and

Level 3: Inputs for the assets/(liabilities) that are not based on observable market data (that is unobservable inputs).

R’000

At30 September

2016(Reviewed)

At31 March

2016(Audited)

At30 September

2015(Reviewed)

Fair value through profit or loss

Level 1(1) 60 451 64 877 58 835

Level 2(2) – – (2 504)

(1) Level 1 financial assets relate to restricted investments which serve as collateral mainly for environmental guarantees provided to the DMR. Contributions are mainly invested in RMB, Peregrine, Momentum, Stanlib and Sanlam. These underlying funds invest in equity instruments and money market investments, both local and foreign. These investments are fair value through profit or loss financial assets and recognised at fair value.

(2) Level 2 financial liabilities related to Forward Exchange Contracts (FECs). The FECs were valued by an independent financial institution using forward looking market rates until the realisation date of the relevant instruments.

The carrying values (less any impairment allowance) of restricted cash, cash and cash equivalents, investments and loans, trade and other receivables, borrowings, vendor liability and trade and other payables approximate their fair values.


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12 Change in interests in subsidiaries

During the period, the company restructured certain subsidiaries in the group. As a result the following subsidiaries which were indirectly held through Xceed Resources Limited (Australian company) are now directly owned by Keaton Energy Holdings Limited: – Focus Coal Investments Proprietary Limited (100%)– Neosho Trading 86 Proprietary Limited (74%)– Ausco Finance Proprietary Limited (100%)– Ausco Services Proprietary Limited (100%)

There were no changes in the percentage shareholdings in any of the above mentioned subsidiaries.

13 Significant events after 30 September 2016 up to the date of this report

– The company successfully defended the Thebe Mining Resources Proprietary Limited and Main Street 1055 Proprietary Limited’s claims, as disclosed in note 10.

– The company agreed revised repayment terms with Gunvor, as disclosed in note 15.

There have been no significant changes to the status of the group’s other contingent liabilities. For detailed disclosure on all contingent liabilities refer to Keaton Energy’s Integrated Annual Report for the year ended 31 March 2016, available on the group’s website at www.keatonenergy.co.za.

14 Dividends

No dividends have been declared nor are any proposed for the period ended 30 September 2016 (30 September 2015: Rnil and for the year ended 31 March 2016: Rnil).

15 Going concern

At 30 September 2016, the group’s current liabilities exceeded its current assets by R67.1 million (30 September 2015: R42.4 million and for the year ended 31 March 2016: R120.3 million). Further to the going concern position disclosed in note 40 to the company’s Integrated Annual Report for the year ended 31 March 2016, current liabilities decreased during the current period due to a significant portion of the Gunvor liability being reclassified to non-current liabilities. Subsequent to 30 September 2016, the company and Gunvor (the Parties) again entered into negotiations to further revise the previously agreed repayment terms. Accordingly, the Parties agreed an extension to the tenor of repayment, which will further alleviate the group’s net current liability position. Current borrowings further decreased during the period as a result of the agreement reached with the IDC regarding the LME preference shares (refer to notes 3 and 9). The group continues to generate cash from its long-life Vanggatfontein Colliery whereby it delivers coal under a long-term offtake agreement to Eskom and through sales to its domestic metallurgical customers. Cash generated from this operation, together with the disposal of the significant loss making Vaalkrantz Colliery, the directors’ ability to issue further shares for cash and the group’s undrawn overdraft facility will ensure adequate funding for the group to continue to operate for the foreseeable future. Accordingly, the consolidated financial statements continue to be prepared on the going concern basis.

Review report

These condensed consolidated financial statements for the period ended 30 September 2016 have been reviewed by KPMG Inc, who expressed an unmodified review conclusion. A copy of the auditor’s review report is available for inspection at the company’s registered office together with the financial statements identified in the auditor’s report. The auditor’s report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are therefore advised, that in order to obtain a full understanding of the nature of the auditor’s engagement they should obtain a copy of the auditor’s report together with the accompanying financial information from the company’s registered office.

13


www.keatonenergy.co.za

Keaton Energy Holdings Limited (Incorporated in the Republic of South Africa) Registration number: 2006/011090/06JSE share code: KEH ISIN ZAE000117420(“Keaton Energy” or “the company” or “the group”)

Registered officeGround Floor, Eland House, The Braes, 3 Eaton Avenue Bryanston, 2191 Postnet Suite 464, Private Bag X51, Bryanston, 2021Tel: +27 11 317 1700Telefax: +27 11 463 4759Email: [email protected]

DirectorsNon-ExecutiveDr JD Salter (Chairman)* LX Mtumtum (Lead Independent Director)P Pouroulis** OP Sadler (Independent)APE SedibeGH Kemp (Independent)MT Witteveen***HG Mai****

ExecutiveAB Glad (Chief Executive Officer)J Rossouw (Chief Financial Officer)

*British **South African/Cypriot ***Dutch ****Swiss

Company SecretaryAC Schutte-Bouwer

SponsorInvestec Bank Limited100 Grayston Drive, Sandown, Sandton, 2196South AfricaPO Box 785700, Sandton, 2146, South Africa

Transfer secretariesComputershare Investor Services South Africa Proprietary Limited Ground Floor, 70 Marshall Street, Johannesburg, South Africa PO Box 61051, Marshalltown, 2107

AuditorsKPMG Inc. KPMG Hillside, Corner of Hillside street and Klarinet Road, Lynnwood, Pretoria, 0081PO Box 11265, Hatfield, 0028

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