Wrap Text
Condensed Consolidated Financial Results for the three and nine months ended 30 Sept 2018
BUFFALO COAL CORP.
REGISTRATION NUMBER: 001891261
EXTERNAL COMPANY REGISTRATION NUMBER: 2011/011661/10
SHARE CODE ON THE TSX VENTURE EXCHANGE: BUF
SHARE CODE ON THE JSE LIMITED: BUC
ISIN: CA1194421014
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three and nine months ended
September 30, 2018 and September 30, 2017
(Presented in South African Rands)
Condensed Interim Consolidated Statements of Financial Position (Unaudited)
(Presented in South African Rands)
September 30, December 31, September 30,
2018 2017 2018
(Note 1)
Notes R R C$
Assets
Non-current assets
Property, plant and equipment 3 59 392 291 106 885 916 5 417 882
Investment in financial assets 4 201 872 181 465 18 415
Other receivables - restricted 4 54 251 997 53 211 988 4 948 974
Other receivables 7 863 604 5 179 462 717 333
Long term restricted cash 11 200 000 11 200 000 1 021 686
Total non current assets 132 909 764 176 658 831 12 124 289
Current assets
Trade and other receivables 99 789 595 121 244 825 9 103 003
Inventories 34 666 102 38 095 072 3 162 310
Non interest bearing receivables 1 540 066 2 015 578 140 488
Current tax assets 864 710 864 710 78 881
Cash and cash equivalents 7 443 791 21 428 994 679 037
Total current assets 144 304 264 183 649 179 13 163 719
Total assets 277 214 028 360 308 010 25 288 008
Equity and liabilities
Capital and reserves
Share capital 7 1 086 857 377 1 082 396 917 99 145 266
Currency translation reserve (219 945 085) (219 945 085) (20 063 823)
Reserves 13 330 886 14 125 416 1 216 070
Accumulated retained loss (1 313 598 303) (1 218 681 917) (119 829 019)
Equity (deficiency) attributable to owners of the company (433 355 125) (342 104 669) (39 531 506)
Non controlling interest 4 339 142 4 339 142 395 825
Total equity (deficiency) (429 015 983) (337 765 527) (39 135 681)
Non-current liabilities
RCF loan facilities 5 - 314 762 527 -
Conversion option liability 4 - 28 289 -
Asset retirement obligation 8 44 620 081 30 244 737 4 070 332
Total non-current liabilities 44 620 081 345 035 553 4 070 332
Current liabilities
Trade and other payables 12 148 227 872 156 497 655 13 521 637
Current tax liability 860 035 2 901 399 78 454
Current portion of borrowings 6 123 169 505 187 955 977 11 235 764
RCF loan facilities 5 370 687 345 - 33 814 828
Conversion option liability 4 12 860 737 - 1 173 182
Warrant liability 4 150 990 29 507 13 774
Current portion of asset retirement obligation 8 5 653 446 5 653 446 515 718
Current liabilities 661 609 930 353 037 984 60 353 357
Total liabilities 706 230 011 698 073 537 64 423 689
Total equity (deficiency) and liabilities 277 214 028 360 308 010 25 288 008
Commitments and contingencies 1, 12
Subsequent events 13
Approved on behalf of the Board:
Signed, "Craig Wiggill" Signed, "Robert Francis"
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Loss and Other Comprehensive Loss (Unaudited)
(Presented in South African Rands)
9 months 3 months 9 months
ended ended ended
September 30, September 30, September 30, September 30, September 30,
2018 2017 2018 2017 2018
(Note 1)
Notes R R R R C$
Revenue 601 150 187 509 359 751 206 404 312 183 493 596 54 838 102
Cost of sales (452 856 185) (473 415 863) (156 676 062) (155 458 428) (41 310 431)
Gross profit 148 294 002 35 943 888 49 728 250 28 035 168 13 527 670
Impairment (loss) on property, plant and equipment 3 (66 290 726) - (66 290 726) - (6 047 170)
Other income/(expense) - net 9 (56 335 444) 19 718 584 (3 080 759) (25 139 000) (5 139 030)
General and administration expenses 10 (77 848 731) (50 464 331) (37 176 289) (17 822 907) (7 101 514)
Profit before the undernoted (52 180 900) 5 198 141 (56 819 525) (14 926 739) (4 760 044)
Finance income 1 980 534 1 469 870 452 482 426 790 180 668
Finance expense 11 (44 666 803) (38 458 504) (15 073 870) (15 663 983) (4 074 594)
(Loss) before income tax (94 867 169) (31 790 493) (71 440 913) (30 163 932) (8 653 970)
Income tax (49 217) (1 107 529) 966 856 - (4 490)
(Loss) for the period (94 916 386) (32 898 022) (70 474 057) (30 163 932) (8 658 460)
Other comprehensive (loss)/profit - - - - -
Total comprehensive (loss) for the period (94 916 386) (32 898 022) (70 474 057) (30 163 932) (8 658 460)
(Loss) attributable to:
- Owners of the parent (94 916 386) (32 898 022) (70 474 057) (30 163 932) (8 658 460)
- Non controlling interest - - - - -
(94 916 386) (32 898 022) (70 474 057) (30 163 932) (8 658 460)
Net (loss) per share - basic and diluted (0.23) (0.08) (0.18) (0.08) (0.02)
Headline loss per share - basic and diluted (0.23) (0.08) (0.18) (0.07) (0.02)
Weighted average number of common shares outstanding:
- Basic 417 360 155 400 181 388 416 582 594 400 397 305 417 360 155
- Diluted 417 360 155 400 181 388 416 582 594 400 397 305 417 360 155
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Changes in Equity (Unaudited)
(Presented in South African Rands)
Attributable to owners of the Group
Reserves
Currency
No. of shares Share Option reserve Equity settled BEE option Accumulated Non controlling
translation Total Total equity
issued capital non employee reserve retained loss interest
reserve
benefits reserve
Notes R R R R R R R R R
Balance at December 31, 2016 394 803 022 1 075 881 497 2 059 820 2 175 290 9 073 711 (1 095 286 547) (219 945 085) (226 041 314) 4 339 142 (221 702 172)
Shares issued to STA 13 005 259 6 515 420 - - - - - 6 515 420 - 6 515 420
Stock options expired/cancelled - - (293 604) - - 293 604 - - - -
Stock-based compensation - - 39 298 (491 130) - - - (451 832) - (451 832)
Net (loss) for the period - - - - - (32 898 022) - (32 898 022) - (32 898 022)
Balance at September 30, 2017 407 808 281 1 082 396 917 1 805 514 1 684 160 9 073 711 (1 127 890 965) (219 945 085) (252 875 748) 4 339 142 (248 536 606)
Stock-based compensation - - 1 541 1 560 490 - - - 1 562 031 - 1 562 031
Net (loss) for the period - - - - - (90 790 952) - (90 790 952) - (90 790 952)
Balance at December 31, 2017 407 808 281 1 082 396 917 1 807 055 3 244 650 9 073 711 (1 218 681 917) (219 945 085) (342 104 669) 4 339 142 (337 765 527)
Shares issued to STA 7 8 774 313 4 460 460 - - - - - 4 460 460 - 4 460 460
Stock-based compensation - - 2 147 (796 677) - - - (794 530) - (794 530)
Net (loss) for the period - - - - - (94 916 386) - (94 916 386) - (94 916 386)
Balance at September 30, 2018 416 582 594 1 086 857 377 1 809 202 2 447 973 9 073 711 (1 313 598 303) (219 945 085) (433 355 126) 4 339 142 (429 015 983)
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Condensed Interim Consolidated Statements of Cash Flow (Unaudited)
(Presented in South African Rands)
9 months 3 months
ended ended
September 30, September 30, September 30, September 30, September 30,
2018 2017 2018 2017 2018
(Note 1)
R R R R C$
Cash flows from operating activities
Cash generated from operations 99 179 121 33 085 026 32 227 056 25 933 949 9 047 313
Interest received 1 980 534 1 469 870 452 482 426 790 180 668
Interest paid (20 142 024) (16 147 558) (6 454 149) (6 492 812) (1 837 395)
Taxation paid (98 664) (7 234 476) (4 297 495) (6 400 522) (9 000)
Net cash generated from operating activities 80 918 967 11 172 862 21 927 894 13 467 405 7 381 587
Cash flows from investing activities
Investment in financial assets - (7 277 877) - (4 557 492) -
Purchase of property, plant and equipment (24 904 170) (27 604 559) (6 763 792) (7 275 446) (2 271 807)
Proceeds from the disposal of property, plant and equipment - 540 000 - 534 386 -
Movement in non interest bearing receivables - (84 100) - (28 343) -
Net cash utilized in investing activities (24 904 170) (34 426 536) (6 763 792) (11 326 895) (2 271 807)
Cash flows from financing activities
Drawdowns from working capital facility - 21 500 000 - - -
Repayment of term loan (70 000 000) - (25 000 000) (6 385 538)
Net cash (utilized in)/generated from financing activities (70 000 000) 21 500 000 (25 000 000) (6 385 538)
Net (decrease)/increase in cash and cash equivalents (13 985 203) (1 753 674) (9 835 898) 2 140 510 (1 275 758)
Cash and cash equivalents at the beginning of the period 21 428 994 13 753 934 17 279 689 9 859 750 1 954 795
Cash and cash equivalents at the end of the period 7 443 791 12 000 260 7 443 791 12 000 260 679 037
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
For the periods ended September 30, 2018 and September 30, 2017
(Presented in South African Rands)
1 BASIS OF PREPARATION
The unaudited condensed interim consolidated financial statements (the "Interim Results") of Buffalo Coal Corp.
("BC Corp" or the "Company") and its subsidiaries (the "Group") for the periods ended September 30, 2018 and
September 30, 2017 have been prepared in accordance with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") and have
been prepared in accordance with accounting policies based on the IFRS standards and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations and are in compliance with IAS 34, Interim Financial Reporting.
These Interim Results were approved and authorized for issue by the Board of Directors on November 21, 2018.
The Interim Results have not been audited by the Group's external auditors. The Interim Results do not include all the
information and disclosures required in the consolidated annual financial statements and should be read in conjunction
with the Group's consolidated annual financial statements for the year ended December 31, 2017, which have been
prepared in accordance with IFRS. The Group has adopted the required new or revised accounting standards in the
current period, as further set out in note 2 below, none of which had a material impact on the Group's results.
The preparation of the Interim Results requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.
In preparing these Interim Results, the significant judgments made by management in applying the Group's accounting
policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated
annual financial statements for the year ended December 31, 2017.
References to "R", "Rands" mean South African Rands, "C$" mean Canadian Dollars and to "US$" mean United States
Dollars. References to Q3 2018 mean the three months ended September 30, 2018.
Going Concern
The Interim Results have been prepared on the basis of accounting principles applicable to a going concern, which
assume that the Group will continue in operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations.
In prior years, in response to conditions at the time, the Group concluded agreements with STA Coal Mining Company
Proprietary Limited ("STA"). The arrangements with STA included the provision of contract mining services by STA at
Magdalena ("STA Contract Mining Agreement"), the sale of certain underground mining equipment to STA and, in order
to alleviate cash flow pressures, an equity settlement arrangement ("STA Equity Settlement Agreement") in terms of
which a portion of the contract mining fees were settled through the issuance of common shares of the Company
("Common Shares"). A further 4 770 002 common shares remain to be issued to STA for services rendered up to
September 30, 2018 (refer to Note 7).
As at December 31, 2017, the Company fully utilised loan facilities totalling R200 million pursuant to the 6th amendment
of the term loan and revolving credit agreement entered into with Investec Bank. During March 2018 the Company
negotiated further amendments to the term loan and revolving credit agreement with Investec with further
amendments during November 2018 (refer to Note 6 and 13) particularly related to the repayment terms of the
remaining R130.3 million outstanding loan facilities existing as at September 30, 2018.
On August 31, 2018 the Company embarked on a Section 189 process following STA's notification to the Company of its
intention not to renew their mining contract at the Magdalena mine at the end of October 2018. On October 29, 2018
the mine and STA reached conclusion of the Section 189 process with the signing of a retrenchment agreement by all
parties/unions involved, setting out the retrenchment of 196 BC Dundee employees.
As a result, the Magdalena underground mining activities ceased at the end of October 2018. As a result, a total of
196 Buffalo Coal Dundee ("BC Dundee") employees were retrenched (163 employees on November 1, 2018 and 33 employees
at the end of February 2019) (refer to Note 10).
As of November 2018, following the closure of the Magdalena underground mine, the business case and cash flow of
BC Dundee rely primarily on the production from the Aviemore anthracite mine.
In light of this, management embarked on a process to ensure the sustainable operation of the Aviemore mine by
identifying short, medium and long term opportunities /projects to increase the life of the mine. Through this process
management has revised the current Aviemore mining plan to include pillar extraction, extending the life of the current
Aviemore mine by 14 months from February 2020 to June 2021. Other short-term opportunities include leasing of the
Magdalena wash plant to third parties or toll washing third party products and selling the Magdalena slurry dump
reserves (approximately 700,000 tonnes) to third parties. Successful pursuit and implementation of these opportunities
will allow the Company to settle its outstanding liabilities over the next 14 months and will also provide the additional
time required to raise financing for the medium (old Balgray mine) to longer term (North Adit) projects identified.
The Group's ability to continue as a going concern and ultimately continue long term operations, is dependent on its
ability to realise these short-term opportunities and to secure the funding required for the medium to longer term
projects. Early in 2018 BC Corp appointed a Financial Advisor, Northcott Capital Limited ("Northcott") to undertake a
strategic review process to obtain funding for the Company's capital requirements. Uncertainty surrounding the mining
services contract and future of the Magdalena mine resulted in a suspension of the Northcott process in September
2018 in order to allow for the conclusion of the section 189 process and the closure of the Magdalena mine.
In October 2018, the Board formed a Special Committee to monitor developments and undertake a further strategic
review of the Company and its capital structure in order to review further strategic alternatives that may be in the
interests to Buffalo Coal and its stakeholders following the conclusion of the section 189 process at Magdalena Mine.
As at September 30, 2018, the Company had a shareholders' deficiency of R423.0 million (December 31, 2017:
R337.8 million). The Company recorded a net loss of R64.4 million and R88.9 million, respectively, for the three and nine
months ended September 30, 2018. The Company recorded a net loss of R30.2 million and R32.9 million, respectively,
for the three and nine months ended September 30, 2017.
The Group continues to be in breach of certain covenants with respect to its borrowings from Investec at
September 30, 2018. On November 22, 2016, Investec provided a forbearance letter stating that it does not intend to
exercise its rights to request early payment of the outstanding debt; however, no waiver has been provided and Investec
has reserved its right to review this decision periodically, with no obligation to keep the Company advised in this regard.
As at September 30, 2018, R130.3 million (December 31, 2017: R200.3 million) of the drawn Investec loan facilities was
still outstanding. Pursuant to the Amended Investec term loan and revolving credit facility agreement dated November 8, 2018
(Note 13, Subsequent events), Investec agreed not to exercise its acceleration rights with respect to any existing events of
default under the Investec Facility until December 31, 2018.
The RCF loan of US$27 million is due and payable on June 30, 2019 (See Note 5, RCF loan facilities). The Company will
need to arrange for an extension or otherwise obtain other financing in order to settle this amount when it comes due
as it currently does not expect to have the means to repay this amount in full on the due date.
Although the Group has implemented various restructuring initiatives, the Group continues to experience operational
challenges. The Group remains dependent upon sustaining profitable levels of operation, as well as the continued
support of Investec, RCF and other stakeholders and believes that subject to its ability to meet current forecasts, it
should be able to generate positive cash flows in the foreseeable future.
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, if required. These matters constitute material uncertainties which cast significant doubt as to
whether the Group can continue as a going concern.
If the going concern assumption was not appropriate for 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.
Convenience rate translation
The Company's functional and presentation currency is Rands. The Canadian Dollar amounts provided in the Interim
Results represent supplementary information solely for the convenience of the reader. The financial position as of
September 30, 2018 and the financial results for the nine months period ended September 30, 2018 were translated
into Canadian Dollars using a convenience translation at the rate of C$1:R10.9623, which is the exchange rate published
on Oanda.com as of September 30, 2018. Such presentation is not in accordance with IFRS and should not be construed
as a representation that the Rand amounts shown could be readily converted, realized or settled in Canadian Dollars at
this or at any other rate.
2 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
The following standards, amendments and interpretations are issued and effective for the first time for the 9 months
ended September 30, 2018:
IFRS 9 Financial Instruments
IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial
assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and
measurement of financial liabilities and for their de-recognition, and in November 2013 to include the new requirements
for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment
requirements for financial assets and b) limited amendments to the classification and measurement requirements by
introducing a 'fair value through other comprehensive income' ("FVTOCI") measurement category for certain simple
debt instruments.
All recognized financial assets that are within the scope of IAS 39, Financial Instruments: Recognition and Measurement
are required to be subsequently measured at amortized cost or fair value. In addition, entities may make an irrevocable
election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other
comprehensive income, with only dividend income generally recognized in profit or loss.
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires
that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that
liability is presented in other comprehensive income ("OCI"), unless the recognition of the effects of changes in the
liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. Changes in fair value
attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire
amount of the change in fair value of the financial liability designated as fair value through profit or loss is presented in
profit or loss. The adoption of IFRS9 did not have a significant effect on the Group's accounting policies for financial
liabilities.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an
incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit
losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial
recognition. The group assumes that the credit risk on financial assets did not have a significant impact to attract any
credit losses during three and nine months ended September 30, 2018. Management is currently in the process of
assessing the potential impact on the credit risk of financial assets for the financial year end December 31, 2018.
The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently
available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge
accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk
components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been
overhauled and replaced with the principle of an 'economic relationship'. Retrospective assessment of hedge
effectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk management activities
have also been introduced.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers. IFRS 15 supersedes the previous revenue recognition guidance including IAS 18,
Revenue; IAS 11, Construction Contracts and the related Interpretations.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in
exchange for those goods or services. Under IFRS 15, an entity recognizes revenue when (or as) a performance
obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is
transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.
Furthermore, extensive disclosures are required by IFRS 15. The new standard did not have a significant impact on the
Group.
IFRIC 22 – Foreign Currency Transactions and Advance Consideration
IFRIC 22 was issued in December 2016 and addresses foreign currency transactions or parts of transactions where there
is consideration that is denominated in a foreign currency; a prepaid asset or deferred income liability is recognised in
respect of that consideration, in advance of the recognition of the related asset, expense or income; and the prepaid
asset or deferred income liability is non monetary. The interpretation committee concluded that the date of the
transaction, for purposes of determining the exchange rate, is the date of initial recognition of the non monetary
prepaid asset or deferred income liability. The new standard did not have a significant impact on the Group.
IFRS 2 – Share based payments
This amendment clarifies the measurement basis for cash-settled, share based payments and the accounting for
modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles
in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to
withhold an amount for the employee's tax obligation associated with a share based payment and pay that amount to
the tax authority. The amendment did not have a significant impact on the Group.
3 PROPERTY, PLANT AND EQUIPMENT
Office
equipment, Development
Land and fixtures and costs
buildings Mining assets fittings capitalized Mineral rights Total
Year to date September 30, 2018
Opening net book value 2 177 512 69 850 758 447 452 26 766 779 7 643 415 106 885 916
Additions 93 756 16 394 911 915 645 7 499 858 - 24 904 170
Change in estimates of asset retirement obligation - 12 212 540 - - - 12 212 540
Impairment loss (548 298) (48 196 483) (12 864) (17 533 082) - (66 290 726)
Reclassification of impairment recorded at year-end 12 932 6 413 590 130 376 1 086 517 (7 643 415) -
Depreciation (170 793) (14 303 931) (268 385) (3 576 499) - (18 319 608)
Net book value at end of September 2018 1 565 109 42 371 386 1 212 222 14 243 574 - 59 392 291
Year to date September 30, 2018
Cost 9 000 275 558 351 750 8 820 916 106 957 687 14 009 756 697 140 384
Accumulated depreciation (6 886 868) (467 783 881) (7 595 830) (75 181 031) (14 009 756) (571 457 366)
Impairment loss (548 298) (48 196 483) (12 864) (17 533 082) - (66 290 726)
Net book value at end of September 2018 1 565 109 42 371 386 1 212 222 14 243 574 - 59 392 291
Office
equipment, Development
Land and fixtures and costs
buildings Mining assets fittings capitalized Mineral rights Total
Year ended December 31, 2017
Opening net book value 6 346 623 212 224 515 1 051 303 63 926 082 28 182 115 311 730 638
Additions - 18 973 205 578 400 15 691 938 - 35 243 543
Change in estimates of asset retirement obligation - 1 440 780 - - - 1 440 780
Classified to held for sale - - - - -
Disposals - (163 178) (14 740) (177 918)
Remeasurement of assets held for sale - - - - -
Impairment loss (3 577 872) (114 771 878) (735 209) (43 980 533) (12 558 907) (175 624 399)
Depreciation (591 239) (47 852 686) (432 302) (8 870 708) (7 979 793) (65 726 728)
Net book value at end of year 2 177 512 69 850 758 447 452 26 766 779 7 643 415 106 885 916
Year ended December 31, 2017
Cost 10 078 054 566 345 428 8 349 584 99 388 528 328 943 756 1 013 105 350
Accumulated depreciation (4 322 670) (381 722 792) (7 166 923) (28 641 216) (308 741 434) (730 595 035)
Impairment loss (3 577 872) (114 771 878) (735 209) (43 980 533) (12 558 907) (175 624 399)
Net book value at end of year 2 177 512 69 850 758 447 452 26 766 779 7 643 415 106 885 916
Office equipment included assets with a net book value of R0.1 million as at September 30, 2018 (year ended December
31, 2017: R0.2 million) that was not directly used in production and operations and relate to property, plant and
equipment in the Company's corporate office in South Africa. All property, plant and equipment are located in South
Africa.
Depreciation expense for the three and nine months ended September 30, 2018 included R6.2 million and R18.0 million,
respectively, that was recognized in 'cost of sales'. Depreciation expense for the three and nine months ended
September 30, 2017 included R14.7 million and R43.7 million, respectively, that was recognized in 'cost of sales'.
Impairment
An impairment loss of R66.3 million was recognized during the three and nine months ended September 30, 2018
(September 30, 2017: RNil; year ended December 31, 2017: R175.6 million). The impairment loss has been separately
disclosed in the statement of comprehensive loss.
As noted in Note 1, Basis of preparation – Going Concern, on August 31, 2018, the Company embarked on a Section 189
process in order to close the Magdalena underground mining operations at the end of October 31, 2018. The decision to
close the mine obliged the Company to perform an impairment assessment with respect to the net book value of
Magdalena's assets at the end of the September 30, 2018.
In assessing whether Magdalena's assets have been impaired, the net book value is compared with its recoverable
amount. In order to determine the initial recoverable amount of Magdalena's assets, management reviewed
Magdalena's asset register and identified assets that could be re-purposed elsewhere in the operation and/or disposed
of. The remaining assets were impaired to zero. The net book value of assets which will be removed from underground,
has been impaired by 50% to account for potential wear and tear that may occur during the extraction process.
At September 30, 2018, the net book value of Magdalena's assets included in property, plant and equipment was
R93.4 million before recognizing the impairment adjustment of R66.3 million. The net book value of Magdalena's assets included
in property, plant and equipment was R82.9 million as at December 31, 2017.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE
The following table presents the group's financial assets and liabilities measured at fair value at September 30, 2018 and
December 31, 2017:
Level 1 Level 2 Level 3
R R R
September 30, 2018
Investment in financial assets 201 872 - -
Other receivables - restricted 54 251 997
Conversion option liability - 12 860 737 -
Warrant liability - 150 990 -
December 31, 2017
Investment in financial assets 181 465 - -
Other receivables - restricted 53 211 988
Conversion option liability - 28 289 -
Warrant liability - 29 507 -
Warrant liability
On July 3, 2014, BC Dundee finalized a restructuring of the Investec loan facilities ("First Amended Investec Agreement").
In connection with the First Amended Investec Agreement, Investec subscribed for 34 817 237 warrants in the Company
with a strike price of C$0.1446, the proceeds of which, if exercised, will be applied against settlement of the Investec
five year senior secured loan facility of R50.0 million (the "Bullet Facility"). RCF has the right to acquire the warrants
from Investec at agreed pricing until July 3, 2019.
The Bullet Facility and the warrants have been treated as a compound financial instrument, as the Bullet Facility could
effectively be settled through the issuance of Common Shares. Furthermore, an embedded derivative exists due to the
warrants being denominated in Canadian Dollars and the functional currency of the Company being Rands. The Bullet
Facility has been recognized in two parts, a liability component (included in borrowings) and a warrant liability.
The liability component will be accreted to its face value of R40.5 million using the effective interest rate method at
approximately 35.5%.
The carrying value of the warrant liability was calculated using the Black-Scholes option pricing model:
September 30, June 30, March 30, December 31, Initial
2018 2018 2018 2017 assumptions
Volatility (based on historical share price) 155.0% 160.6% 149.0% 114.0% 100.0%
Life (in years) to maturity date 0.8 1.0 1.3 1.5 5.0
Risk free interest rate 2.18% 1.77% 1.79% 1.64% 1.71%
Share price (C$) 0.01 0.01 0.02 0.01 0.10
Warrant no of shares 34 817 237 34 817 237 34 817 237 34 817 237 34 817 237
Warrant valuation (C$) 13 774 34 942 146 871 2 994 2 284 865
Warrant valuation (R) 150 990 365 129 1 346 562 29 507 22 987 796
Conversion option liability
The RCF Convertible Loan has been recognized in two parts, a liability component and a Conversion Option Liability.
An embedded derivative exists due to the convertible loan facility being denominated in US Dollars, the conversion feature
being exercisable in Canadian Dollars and the functional currency being Rands. The liability component will be accreted
to its face value of US$27.0 million (approximately R371.0 million) (December 31, 2017: US$27.0 million (approximately
R334.0 million)) using the effective interest rate method at approximately 5.3% (December 31, 2017: 5.3%).
The fair value of the Conversion Option Liability was calculated using the Black-Scholes option pricing model:
September 30, June 30, March 30, December 31, Initial
2018 2018 2018 2017 assumptions
Volatility (based on historical share price) 155.0% 160.6% 149.0% 60.2% 51.0%-107.0%
Life (in years) to maturity date 0.8 1.0 1.3 1.5 3.9-5.0
Risk-free interest rate 2.18% 1.77% 1.79% 1.64% 0.5%-1.5%
Share price (C$) 0.01 0.01 0.02 0.01 0.035-0.095
Potential shares 742 770 576 756 178 465 742 528 785 722 609 808 720 351 931
Value of convertible feature (C$) 1 173 182 1 959 061 6 261 389 2 871 18 191 938
Value of convertible feature (R) 12 860 737 20 471 270 57 406 576 28 289 182 348 706
Movement in the Conversion Option Liability was as follows during the nine months ended September 30, 2018 and year
ended December 31, 2017:
September 30, December 31,
2018 2017
Opening balance 28 289 31 905 346
Fair value adjustment 8 655 903 (31 720 388)
Foreign currency translation adjustment 4 176 545 (156 669)
Current portion 12 860 737 -
Long-term portion - 28 289
The Conversion Option Liability is linked to the RCF Loan facility which becomes due and payable as at June 30, 2019.
Consequently, the long term portion of the liability has been reclassified as current as of June 30, 2018.
5 RCF LOAN FACILITIES
Movement in the RCF Convertible Loan was as follows:
September 30, December 31,
2018 2017
Opening balance 314 762 528 336 288 222
Accretion expense 9 820 060 12 932 321
Effect of foreign currency exchange difference 46 104 759 (34 458 016)
Current portion 370 687 346 -
Long term portion - 314 762 528
The RCF loan becomes due and payable as at June 30, 2019. Consequently, the long term portion of the liability has
been reclassified as current as of June 30, 2018.
6 INVESTEC BORROWINGS
Borrowings consisted of the Investec loan facilities as detailed below:
September 30, December 31,
2018 2017
Opening balance 187 955 977 161 016 413
Accretion of warrant asset 4 868 611 4 800 140
Effect of foreign currency exchange difference 99 870 -
Amortisation of deferred cost 330 122 440 163
Interest accrued 14 510 942 20 523 512
Interest paid (14 596 018) (20 324 251)
Net drawdown from working capital facility - 21 500 000
Repayments (70 000 000) -
Current portion 123 169 505 187 955 977
On March 19, 2018, BC Dundee agreed to amendments to the term loan and revolving credit agreement (the
"Amendment") that resulted in:
- BC Dundee immediately paying Investec the amount of R36.6 million due to Investec under the existing Investec
Facility at the time, of which R30.0 million reduced the aggregate amount outstanding on the Investec Facility,
with the remaining R6.6 million applied to the mine royalty payment (R6.1 million) and the balance (R0.5 million)
applied to default interest, all of which were due and payable on March 16, 2018 (this payment was effected on
March 19, 2018);
payment of the R7.5 million instalment due on March 31, 2018 being extended to June 29, 2018;
- Investec agreeing not to exercise its acceleration rights with respect to any existing events of default under the
- Investec Facility and appointing a technical advisor until June 30, 2018 to provide certain monthly reports to
Investec; and
- The Group having to provide Investec with a certified copy of a signed mandate with Northcott, pursuant to
which Northcott conducted a review of the strategic options available to the Group. The Northcott mandate
replaced the agreement in place with Northcott at the time. In September 2018, the Company suspended the
strategic review process and accordingly also suspended Northcott's services.
On June 25, 2018, the Group also settled the required principal payments of R7.5 million for each of the March and June
2018 quarters (R15 million in total). On August 2, 2018, Investec again agreed not to exercise its acceleration rights with
respect to any existing events of default under the Investec Facility until September 28, 2018. On September 25, 2018,
the Group settled a further R25 million.
The current portion at September 30, 2018 and December 31, 2017 comprised of the following:
September 30, December 31,
2018 2017
Investec Loan Facilities Outstanding 130 260 553 200 240 472
Term Loan Facility (Refer Note 13) 5 000 000 75 000 000
Bullet Facility 45 508 327 45 508 326
Working Capital Facility 79 752 226 79 732 146
Less: Warrant asset (6 291 455) (11 154 781)
Less: Deferred costs (799 593) (1 129 715)
Current portion 123 169 505 187 955 977
7 ISSUANCE OF COMMON SHARES TO STA
The Company issued the following common shares to STA during the nine months ended September 30, 2018 pursuant
to the STA Equity Settlement Agreement entered into during the financial year ended December 31, 2015:
Common Shares Share price Share price
Date issued C$ R
January 22, 2018 3 194 097 0.05 0.48
February 14, 2018 2 965 683 0.05 0.47
June 26, 2018 2 614 533 0.05 0.51
These shares were valued at the fair value of the services received. As at September 30, 2018, STA held 36,943,905
shares (8.9%) in the Company (December 31, 2017: 28,169,592 (6.9%). A further 4,770,002 common shares still has to
be issued to STA for services rendered to the value of R2.5 million as at September 30, 2018, of which 2,745,348 shares
(R1.4 million) related to the three months ended June 30, 2018 and 2,024,654 shares (R1.1 million) related to the three
months ended September 30, 2018. Following the issue of the 4,770,002 common shares, STA would have reached the
9.9% shareholding, subject to no other additional common share issuances.
8 ASSET RETIREMENT OBLIGATION
September 30, December 31,
2018 2017
Opening balance 35 898 183 29 358 217
Change in estimate 14 375 344 6 539 966
- Included in property, plant and equipment 12 212 540 1 440 780
- Allocation to current provisions 1 217 696 3 985 358
- Unwinding of discount 945 108 1 113 828
Closing balance 50 273 527 35 898 183
Current portion (5 653 446) (5 653 446)
Non current portion 44 620 081 30 244 737
The change in estimates during the nine months ended September 30, 2018 included R12.0 million that resulted from a
reduction in rehabilitation period of the rehabilitation obligation associated with Magdalena from 15 years to 7 years based
on the decision to close Magdalena (Note 1, Basis of preparation – Going Concern).
The provision is calculated using the following rates:
September 30, December 31,
2018 2017
Discount rate (%) 8.25 9.43
Inflation rate (%) 5.35 5.20
9 OTHER INCOME/(EXPENSE) – NET
9 months 3 months
ended ended
September 30, September 30, September 30, September 30,
2018 2017 2018 2017
R R R R
Foreign exchange (loss)/gain - net (50 814 581) 3 436 472 (12 007 679) (13 984 526)
Fair value adjustment on financial 2 300 024 2 044 681 768 884 1 217 576
assets
Fair value adjustment on conversion
option and warrant liability (8 694 054) 11 702 863 8 692 951 (12 346 063)
Other income/(expenses) 873 167 2 534 568 (534 915) (25 987)
(56 335 444) 19 718 584 (3 080 759) (25 139 000)
10 GENERAL AND ADMINISTRATION EXPENSES
9 months 3 months
September 30, September 30, September 30, September 30,
2018 2017 2018 2017
R R R R
Audit and tax related fees 3 811 800 1 723 742 2 442 569 549 185
Bad debts 1 668 350 - - -
Consulting fees 7 397 579 4 681 393 2 072 062 1 215 909
Directors fees 2 141 968 2 359 575 670 764 837 073
Fund administration fees 1 260 015 - 1 260 015 -
Insurance 5 436 678 6 659 995 2 747 842 2 749 499
Legal fees 2 108 757 1 790 821 827 520 489 490
Penalties 2 000 000 - - -
Rehabilitation expenses 1 217 696 - 1 217 696 -
Retrenchment provision 13 520 735 - 13 520 735 -
Salaries and wages 28 833 928 24 361 634 9 731 154 8 424 509
Shareholder communication 511 444 654 683 124 229 181 957
Travel and accommodation 2 078 001 2 084 852 788 773 710 565
Telephone, internet and computer
expenses 1 492 316 1 648 497 369 934 586 532
Other 4 369 464 4 499 138 1 402 996 2 078 186
77 848 731 50 464 331 37 176 289 17 822 907
Audit and tax related fees for the three and nine months ended September 30, 2018 included C$72 610 (approximately
R0.8 million) for tax related services in Canada (September 30, 2017: RNil).
Consulting fees for the three months ended September 30, 2018 included R0.8 million (September 30, 2017:
R0.5 million) for the strategic review process and bankable feasibility study costs related to the new adit at Aviemore Mine.
Consulting fees for the nine months ended September 30, 2018 included R3.5 million (September 30, 2017: R0.6 million)
for the strategic review process and bankable feasibility study costs related to the new adit at Aviemore Mine.
As at September 30, 2018 a provision of R13.5 million was recognized for retrenchment costs related to the section 189
process referred to in Note 1, Basis of preparation – Going concern.
11 FINANCE EXPENSE
9 months 3 months
ended ended
September 30, September 30, September 30, September 30,
2018 2017 2018 2017
R R R R
Interest on borrowings 24 512 302 19 376 929 8 104 753 9 065 724
Interest on the RCF loan facilities 885 487 878 240 243 209 266 750
Interest on STA accounts payable 3 617 154 3 793 284 920 876 1 324 891
Interest to South African Revenue Service ("SARS") - 630 759 - 234 133
Unwinding discount on asset retirement obligation 945 108 796 616 356 602 261 612
RCF Loan accretion expense 9 820 060 9 527 700 3 656 238 3 246 522
Investec accretion of warrant asset 4 868 611 3 430 450 1 785 979 1 257 063
Other 18 082 24 526 6 214 7 287
Total 44 666 803 38 458 504 15 073 870 15 663 983
Interest on borrowings included royalties payable to Investec of R3.6 million for the three months ended
September 30, 2018 (September 30, 2017: R3.3 million) and R9.4 million for the nine months ended September 30, 2018
(September 30, 2017: R3.3 million) pursuant to the 6th Amendment Agreement in terms of which a Life of Mine Royalty
("LOMR") is payable to Investec on all bituminous coal sales with effect from July 1, 2017, calculated at a rate of
3.54% on all bituminous coal sold which was mined from the Magdalena reserve. As at September 30, 2018, R4.7 million
in royalties payable to Investec was included in Trade and other payables (December31, 2017: R6.1 million).
12 COMMITMENTS AND CONTINGENCIES
Management Agreements
Certain management contracts require that payments of approximately R7 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 September 30, 2018.
STA Contract Mining Agreement
In terms of the STA Contract Mining Agreement, STA was mining at Magdalena at a fixed contract mining fee per tonne,
effective October 31, 2015. The STA Contract Mining Agreement expired at the end of October 2018. Contract mining
fees for tonnes mined in the month of October amounted to R11.5 million.
Capital Commitments
Capital expenditures contracted for at the statement of financial position date but not recognized in the Interim Results
are as follows:
September 30, December 31, September 30,
2018 2017 2018
R R C$
Property, plant and equipment 4 630 950 7 252 129 422 444
In terms of Regulation 8.10 of the Mine Health and Safety Act, 29 of 1996 Regulations, the Company is required to take
reasonably practicable measures to ensure that pedestrians are prevented from being injured as a result of collisions
between trackless mobile machines and pedestrians, by way of the installation of proximity devices on specified
machines. During 2017 the Company commenced the phase in of such devices over a two-and-a-half-year period.
Environmental and Regulatory Contingency
The Company's mining and exploration activities are subject to various laws and regulations governing the environment
and mine operations. These laws and regulations are continually changing and generally becoming more restrictive.
The current operational adit at Magdalena does not have an amended Environmental Management Program ("EMP") or
an amended Integrated Water Use License Application ("IWULA"). As a result, the mine had to apply for a Section 24G
retrospective Environmental Impact Analysis ("EIA"). R2.5 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 September 30, 2018.
The Company's Calcine plant has been operating without an Air Emissions License ("AEL"), and this has necessitated that
a Section 24G application be submitted to the Economic Development, Tourism and Environmental Affairs ("EDTEA").
The Section 24G application relates to the commencement of certain listed activities which have commenced at the
Calcine plant at Coalfields, prior to obtaining Environmental Authorization ("EA"). To comply with legislation, a full
scoping and EIA report should be undertaken. With the aim to continually strive to be compliant with the operations of
the Calcine plant, the Company approached the EDTEA for an AEL. Once the plant has been refurbished it was agreed
with the EDTEA that stack tests will be carried out and the results submitted. Once the results are submitted, the EDTEA
will issue a fine, and once paid, the EA will be issued. On approval of the EA, an AEL can then be obtained in compliance
with the Air Quality Act. R2.0 million had been provided for during March 2018 to settle estimated fines for non-
compliance. The mine has not yet been issued with any fines in this regard. Accordingly, this amount has been included
in provisions (Trade and other payables) as at September 30, 2018.
The Company is currently undertaking specialist studies to complete these environmental applications. The Company
has made, and expects to make in the future, expenditures to comply with environmental laws and regulations.
13 SUBSEQUENT EVENTS
Amendment to Investec Term Loan and Revolving Credit Facility Agreement
On October 3, 2018 a further R5 million was paid to Investec, thereby settling the Term Loan Facility in full and reducing
the total outstanding loan owing to Investec to R125.3 million (Note 6, Investec Borrowings).
On November 7, 2018, 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 June
30, 2019 to December 31, 2019, with revised quarterly repayment instalments of R20 million at the end of December
2018 and R26 million at the end of each quarter of calendar 2019. In addition, Investec agreed not to exercise its
acceleration rights with respect to any existing events of default under the Investec Facility until December 31, 2018.
Other Matters
Except for the matters discussed above and specifically under Note 1, Basis of preparation Going Concern, 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.
November 21, 2018
Designated Advisor: Questco Corporate Advisory Proprietary Limited
Date: 21/11/2018 05:16:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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