Wrap Text
Management's Discussion and Analysis -
Quarterly Highlights
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 and nine months ended September 30, 2018
(Presented in South African Rands)
Management's Discussion and Analysis
For the three and nine months ended September 30, 2018
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 and nine months ended September 30, 2018 and should be read in conjunction with the audited annual
consolidated financial statements for the years ended December 31, 2017 and December 31, 2016, the Management's
Discussion and Analysis for the year ended December 31, 2017 and the unaudited condensed interim consolidated
financial statements for the three and nine months ended September 30, 2018. The condensed interim consolidated
financial statements ("Interim Results") and related notes have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and are in compliance with IAS 34, Interim Financial Reporting. Certain non-IFRS
measures are discussed in this Interim MD&A which are clearly disclosed as such. Additional information and press
releases have been filed electronically through the System for Electronic Document Analysis and Retrieval ("SEDAR")
and are available online under the Buffalo Coal Corp. profile at www.sedar.com.
This Interim MD&A reports our activities through November 21, 2018 unless otherwise indicated. References to Q3
2018 mean the three months ended September 30, 2018, Q2 2018 mean the three months ended June 30, 2018 and
Q4 2017, Q3 2017, Q2 2017 and Q1 2017 refer to the three months ended December 31, 2017, September 30, 2017,
June 30, 2017 and March 31, 2017, respectively. References to 2018 YTD mean the nine months ended September 30,
2018 and 2017 YTD mean the nine months ended September 30, 2017.
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:R10.9623 and amounts in US Dollars were translated at US$1:R14.1437.
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.
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 the Magdalena bituminous mine ("Magdalena") and the Aviemore anthracite mine
("Aviemore"). The Group is currently engaged only in underground coal mining at Aviemore. Until October 31, 2018,
the Magdalena underground mining operations were contracted to STA Coal Mining Company (Pty) Ltd ("STA"), a
contract mining operator under a mining services contract dated October 28, 2015. The STA contract came to an end
at the end of October 2018.
On August 31, 2018 BC Dundee embarked on a Section 189 process following STA's notification to the Company of its
intention not to renew their mining contract at the Magdalena mine at the end of October 2018. STA raised the
following main issues/concerns that lead to the issue of their notification letter:
- challenging workforce resulting in Run of Mine (ROM) production not enough to cover STA's fixed costs
- difficult geological conditions and high methane gas
BC Dundee also recognized that at the production rates achieved for the year-to-date and based on the anticipated
increased Run of Mine (ROM) mining fee that STA intended on charging, Magdalena would have had a negative impact
on the cash flow of the overall operations; hence the start of the Section 189 process.
On October 29, 2018 the mine and STA concluded the Section 189 process with the signing of a retrenchment
agreement by all parties/unions involved, setting out the retrenchment of 196 BC Dundee employees.
As a result, the Magdalena underground mining activities ceased at the end of October 2018. As a result, 163 employees
were retrenched on November 1, 2018. BC Dundee has retained 33 of the employees to be retrenched 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, following which the mine will be closed. These employees will be retrenched at the end of
February 2019, following the closure of the mine.
STA will remove their equipment from underground over a period of 2-3 months. Pursuant to the terms of the
agreement with STA, BC Dundee is obliged to pay de-commissioning costs in the order of R2.72 million to STA.
OVERVIEW OF THE PERIOD AND OUTLOOK FOR THE GROUP
Production and cash flow
As of November 2018, following the closure of the Magdalena 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 with 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 of third-party product 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.
A bidding process commenced at the start of June 2018, which allowed interested bidders to do a high-level due
diligence via a data room setup for this purpose and site visits. The Company received indicative offers at the end of
June following which a formal due diligence process commenced to give shortlisted candidates the opportunity to
obtain more detailed information in order to firm up their indicative offers. The due diligence process ended at the end
of August 2018. Uncertainty surrounding the mining services contract and future of the Magdalena mine, resulted in a
suspension of the Northcott process in September 2018 in order to allow for the conclusion of the section 189 process
and the closure of the Magdalena mine.
In October 2018, the Board formed a Special Committee to monitor developments and undertake a further strategic
review of the Company and its capital structure in order to review further strategic alternatives that may be in the
interests of Buffalo Coal and its stakeholders following the conclusion of the section 189 process at Magdalena Mine.
It is uncertain at this point in time what the outcome of this process will be. As such, management has reviewed its
cash flow forecast based on revised production including pillar extraction over the next 14 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 14 months, assuming realization on the short-term opportunities, indicates that Buffalo Coal
should be able to service all its liabilities at 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 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.
Investec funding
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.
Also, in terms of the Amendment signed with Investec on March 19, 2018, Investec agreed not to exercise its
acceleration rights with respect to any existing events of default under the Investec Facility until June 30, 2018, which
was subsequently further extended to September 28, 2018.
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.
As of November 20, 2018, R125.3 million (December 31, 2017: R200.3 million) of the drawn Investec loan facilities was
still outstanding (See Note 13 to the Financial Statements).
Markets
The Group supplies high energy bituminous coal and anthracite to both the export and domestic markets.
The Group continues to utilise an export allocation of 51,125 tonnes per quarter through the Quattro scheme at
Richards Bay Coal Terminal (RBCT). The Department of Mineral Resources restricted applications to those companies
producing standard RB1 and RB3 qualities, since only 2 grades/stockpiles are allocated to Quattro in RBCT. It is
anticipated that Buffalo's use of Quattro allocation will cease when the new allocations become applicable in April
2019. As previously reported, no overall impact is expected on export tonnages regardless of whether the Company
has an allocation under the Quattro program or not.
Bituminous
The API4 coal index averaged $101.60 per ton in Q3 2018 compared to $100.29 in Q2 2018, a very strong performance.
This price level largely reflects an on-going tightness in the supply of RB1 quality coal for export, despite the fact that
the (by far) dominant export grade from RBCT is now RB3.
The ZAR exchange rate to the US$ weakened during Q3 2018, having averaged R14.07, against a Q2 2018 average of
R12.63 and a Q1 2018 average of R11.96. However, the Company's ZAR receipts for the quarter did not benefit
significantly as most of the export tonnage moved in Q3 2018 was already locked in at a ZAR price.
The API4 index still remains solidly in backwardation, which has precluded settling any significantly long-term sales
agreements.
Domestically, the bituminous industrial market remains stable in volume terms, with little variation in the demand
predicted for the remainder of 2018 or early 2019. Additional demand from Eskom has, however, continued to tighten
the overall domestic market. Availability remains particularly tight for sized coal fractions, causing on-going upward
pressure on pricing.
Anthracite
Anthracite's use as a source of carbon reductant in metallurgical processes means that the market, both domestically
and for export, does not correlate well with movements in the steam coal markets. Settlements for anthracite supplies
are therefore on an individually negotiated basis, with no real reference pricing available.
Demand for the Group's products, particularly from the domestic consumers, continues to be positively impacted by
the fact that no new production has been forthcoming to close the availability gap after some mine closures in recent
years and as a result the limited supply places upward pressure on domestic pricing.
A short-term spike in domestic demand for sized products for home heating was experienced during the (winter)
quarter, with demand far exceeding the available supply from any source. Many end-users were unable to acquire any
supply at all.
Demand for the remainder of calendar 2018 and calendar 2019 remains buoyant, and the Group has already begun
placing planned production into both the domestic and export markets for 2019. The outlook is therefore very positive
for the anthracite sector of the business, with both demand and pricing remaining strong.
CONSOLIDATED OPERATIONAL RESULTS FOR Q3 2018, Q3 2017 AND Q2 2018
% % %
Operational results 2018 YTD 2017 YTD VARIATION Q3 2018 Q3 2017 VARIATION Q2 2018 VARIATION
ROM (t) 865 664 1 051 537 (18%) 310 811 327 821 (5%) 288 055 8%
- Aviemore (t) 365 202 367 943 (1%) 121 229 141 029 (14%) 119 721 1%
- Aviemore (t) (bought-in) 54 131 14 058 285% 21 397 7 225 196% 23 427 (9%)
- Magdalena (t) 422 496 626 252 (33%) 145 405 178 204 (18%) 144 907 0%
- Bituminous (t) (bought-in) 23 835 43 284 (45%) 22 780 1 363 1571% - 100%
Saleable production (excluding calcine) (t) 563 338 593 219 (5%) 193 588 208 978 (7%) 189 175 2%
- Anthracite (t) 246 998 233 354 6% 77 931 97 704 (20%) 85 015 (8%)
- Anthracite (t) (bought-in) 35 226 8 897 296% 13 719 4 220 225% 16 329 (16%)
- Bituminous (t) 267 628 320 280 (16%) 89 087 106 096 (16%) 87 831 1%
- Bituminous (t) (bought-in) 13 486 30 688 (56%) 12 851 958 1241% - 100%
Yield on plant feed (excluding calcine) (%) 64.8% 56.9% 14% 61.7% 62.8% (2%) 65.6% (6%)
- Anthracite (%) 68.0% 64.8% 5% 65.0% 68.5% (5%) 70.4% (8%)
- Anthracite (%) (bought-in) 65.1% 63.3% 3% 64.1% 58.4% 10% 69.7% (8%)
- Bituminous (%) 63.5% 51.3% 24% 61.9% 58.5% 6% 60.9% 2%
- Bituminous (%) (bought-in) 56.6% 70.9% (20%) 56.4% 70.3% (20%) N/A N/A
Sales (t) 627 856 657 205 (4%) 209 687 231 797 (10%) 210 821 (1%)
- Anthracite (t) 229 088 178 632 28% 74 046 73 797 0% 84 180 (12%)
- Bituminous (t) 293 485 346 675 (15%) 107 972 111 716 (3%) 91 198 18%
- Calcine (t) 41 397 30 538 36% 11 641 9 437 23% 12 493 (7%)
- Anthracite high-ash sales (t) 63 886 101 360 (37%) 16 028 36 847 (57%) 22 950 (30%)
Sales (t) (excluding high-ash sales) 563 970 555 845 1% 193 659 194 950 (1%) 187 871 3%
Saleable inventory tonnes 45 060 88 800 (49%) 45 060 88 800 (49%) 46 428 (3%)
- Anthracite (t) 31 847 79 416 (60%) 31 847 79 416 (60%) 31 580 1%
- Bituminous (t) 6 732 8 092 (17%) 6 732 8 092 (17%) 13 195 (49%)
- Calcine (t) 6 481 1 292 402% 6 481 1 292 402% 1 653 100%
An analysis of the operational results for Q3 2018 and 2018 YTD compared to Q3 2017 and 2017 YTD, respectively, as
well as Q3 2018 compared to Q2 2018 are discussed below:
ROM Production
Total ROM production for Q3 2018 and 2018 YTD decreased with 5% and 18%, respectively, compared to Q3 2017 and
2017 YTD. The decreases over comparative periods were primarily due to a combination of decreased production at
Magdalena offset marginally by increases in the combined bought-in tonnes. The 8% improvement in total ROM tonnes
from Q2 2018 to Q3 2018 was the result of additional buy-ins at Magdalena offset by lower buy-ins at Aviemore.
Aviemore's ROM production for Q3 2018 was 14% lower compared to Q3 2017, mainly due to more dykes being
encountered than in comparative period. Notwithstanding the lower production in Q3 2018, Aviemore's ROM
production for 2018 YTD remained the same compared to 2017 YTD, reflecting the overall good performance at
Aviemore during the current year to date.
Magdalena's ROM production for Q3 2018 and 2018 YTD was 18% and 33% lower compared to Q3 2017 and 2017 YTD,
respectively, primarily as a result of difficult geological mining conditions and pit-room constraints that resulted in only
three sections being mined to date during calendar 2018 versus four sections that were mined during the comparative
periods in calendar 2017.
In order to mitigate the loss of production at Magdalena and to improve the overall cash flow of the Group, the
Company has entered into an arrangement with a neighbouring coal miner, to buy in approximately 6 kt of anthracite
coal per month. The buy-in tonnes may increase, subject to availability.
Saleable Production
The overall saleable coal production for Q3 2018 and 2018 YTD were only slightly lower than its comparative periods,
mainly as a result of improvement in overall yields from plant feed over the comparative periods which negated the
decrease in ROM production to a large extent.
Anthracite yields for Q3 2018 was 5% lower compared to Q3 2017, however, the yields for 2018 YTD compared to 2017
YTD improved with 5%. Anthracite yields for Q3 2018 was 8% lower compared to Q2 2018.
Bituminous yields for Q3 2018 and 2018 YTD improved with 6% and 24% compared to Q3 2017 and 2017 YTD,
respectively, and improved with 2% compared to Q2 2018.
The main reason for the overall improved yields compared to Q3 2017 and 2017 YTD, were the mining of combined
seem and Gus seem areas which had less contamination.
Sales
Overall sales of anthracite products and bituminous coal for Q3 2018 and 2018 YTD was 10% and 4% lower, respectively,
compared to Q3 2017 and 2017 YTD and decreased by 1% compared to Q2 2018.
Anthracite sales for 2018 YTD improved with 28% compared to 2017 YTD, mainly as a result of an increase in saleable
anthracite production along with sales from inventories carried over at the beginning of the year. Anthracite sales
decreased with 12% compared to Q2 2018 mainly due to a decrease of 8% in saleable production.
Bituminous sales for Q3 2018 and 2018 YTD were 3% and 15% lower, compared to Q3 2017 and 2017 YTD, respectively,
mainly due to lower production in current periods. Bituminous sales for Q3 2018 was 18% higher compared to Q2 2018
due to additional buy-in tonnes achieved at Magdalena during Q3 2018.
Calcine sales and anthracite high-ash sales fluctuates from quarter to quarter, based on demand for these products.
Health and Safety
The Company's operations maintain an integrated Health, Safety and Environment ("HSE") management system,
established using the OHSAS18001 and ISO14001 frameworks as well as minimum standards, and fully supports the co-
existence of occupational health, safety and the environment within which the Company operates, in order to ensure
compliance and achieve zero harm. Operating safely and responsibility is an integral part of our business strategy. We
strive to obtain an injury free workplace and to create a company culture that protects employees and visitors from
harm. The Company undertakes training and development initiatives and related ventures on a regular basis in order
to improve individual outlook on health, safety and the environment. As at November 20, 2018, the Group had achieved
more than seven thousand fatality free production shifts at Coalfields. Aviemore Colliery achieved 2,065 and
Magdalena Colliery 690 fatality free production shifts. The Company achieved a Lost time injury free rate of 0.22 (per
200,000 hours) for the year to date against the 0.4 targeted rate.
CONSOLIDATED FINANCIAL RESULTS FOR Q3 2018, Q3 2017 AND Q2 2018
% % %
Financial results 2018 YTD 2017 YTD VARIATION Q3 2018 Q3 2017 VARIATION Q2 2018 VARIATION
Revenue (R'millions) 601.2 509.4 18% 206.4 183.5 12% 204.3 1%
Net Revenue (R'millions) (*) 587.7 489.7 20% 202.9 176.5 15% 199.5 2%
Cost of sales (452.9) (473.4) (4%) (156.7) (155.5) 1% (151.6) 3%
Impairment (loss) on property, plant
and equipment (66.3) - 100% (66.3) - 100% - 100%
Other income/(expenses) - net (56.3) 19.7 (386%) (3.1) (25.1) 88% (9.6) 68%
General and administration expenses (77.8) (50.5) 54% (37.2) (17.8) (109%) (20.6) (80%)
Operating (loss)/profit (R'millions) (52.2) 5.2 (1103%) (56.8) (14.9) (281%) 24.9 (328%)
Finance (costs)/income - net (42.7) (37.0) 16% (14.6) (15.2) 4% (14.5) 1%
Income tax (0.05) (1.1) (96%) 1.0 - 100% - 100%
Adjusted EBITDA (R'millions) (*) 91.3 32.5 181% 18.3 24.9 (26%) 41.6 (56%)
Average selling price per ton sold (R)
(excluding high-ash sales) 1 024 856 20% 1 030 877 17% 1 042 (1%)
Cash cost of sales per ton (R)
(excluding high-ash export costs) 748 740 1% 758 686 10% 750 1%
Cash generated from/(utilized in)
operating activities (R'millions) 80.4 11.2 (618%) 21.9 13.5 (62%) 29.5 (26%)
Cash (utilized in) investing activities
(R'millions) (24.4) (34.4) (29%) (6.8) (11.3) (40%) (11.1) 39%
Cash (used in)/generated from
financing activities (R'millions) (70.0) 21.5 (426%) (25.0) - 100% (15.0) 67%
CAD:ZAR (average) 10.01 10.11 (1%) 10.77 10.51 2% 9.78 10%
USD:ZAR (average) 12.89 13.20 (2%) 14.08 13.17 7% 12.64 11%
(*) See Non-IFRS Performance Measures section of this MD&A.
An analysis of the financial results for Q3 2018 and 2018 YTD compared to Q3 2017 and 2017 YTD, respectively, as well
as Q3 2018 compared to Q2 2018 are discussed below:
Revenue
% % %
R'000 2018 YTD 2017 YTD VARIATION Q3 2018 Q3 2017 VARIATION Q2 2018 VARIATION
Anthracite 243 181 153 057 59% 79 298 64 449 23% 88 698 (11%)
- Domestic 69 411 41 123 69% 22 324 17 588 27% 24 005 (7%)
- Export 173 770 111 934 55% 56 974 46 861 22% 64 693 (12%)
Bituminous 265 642 277 861 (4%) 101 038 93 258 8% 86 266 17%
- Domestic 150 550 143 112 5% 54 018 52 986 2% 48 582 11%
- Export 115 092 134 749 (15%) 47 020 40 272 17% 37 684 25%
Calcine 68 526 44 530 54% 19 152 13 133 46% 20 737 (8%)
Revenue (excluding high-ash sales) 577 349 475 448 21% 199 488 170 840 17% 195 701 2%
Export (high-ash) 23 402 33 304 (30%) 6 786 12 427 (45%) 8 465 (20%)
Sundry sales (slurry/discard) 399 608 (34%) 130 226 (42%) 155 (16%)
Total Revenue 601 150 509 360 18% 206 404 183 494 12% 204 321 1%
Revenues (excluding high-ash sales) for Q3 2018 and 2018 YTD improved with 17% and 21%, respectively, compared to
Q3 2017 and 2017 YTD, primarily due to higher anthracite and calcine sales partially offset by lower bituminous sales.
Revenues for Q3 2018 increased with 2% compared to Q2 2018 as a result of higher bituminous sales partially offset
with lower calcine sales.
The higher anthracite revenue for Q3 2018 and 2018 YTD compared to its comparative periods was a result of increased
anthracite sales volumes along with higher anthracite sales prices over the comparative periods. The 11% decrease in
anthracite revenue compared to Q2 2018 was mainly the result of lower anthracite sales volumes.
Bituminous revenue for Q3 2018 was 8% higher compared to Q3 2017 and 4% lower for 2018 YTD compared to 2017
YTD as a result of the lower production levels achieved at Magdalena during the current periods that resulted in lower
bituminous sales volumes offset to a large extent with higher bituminous sales prices. Bituminous revenue improved
with 17% compared to Q2 2018 due to a combination of improved bituminous sales volumes and higher bituminous
sales prices.
Average selling prices (excluding high-ash sales) for Q3 2018 and 2018 YTD reflected a 17% and 20% improvement
compared to Q3 2017 and 2017 YTD. The average selling prices for Q3 2018 were 1% lower compared to Q2 2018. In
2018, the overall selling price per ton were higher as a result of an increase in overall market prices that resulted in the
negotiation of better selling prices in new sales contracts entered into with the Group's significant customers.
Calcine revenue was also higher over comparative periods as result of higher calcine sales volumes at better sales
prices. There was a 7% decrease in calcine sales tonnes from Q3 2018 to Q2 2018 that resulted in calcine revenue
decreasing with 8% over comparative periods.
Cost of Sales
Cost of sales for 2018 YTD was 4% lower compared to 2018 YTD, whilst in line for Q3 2018 compared to Q3 2017. Cost
of sales for Q3 2018 was 3% higher compared to Q2 2018. The Group continues to be cost conscious and ensuring
expenditure is kept to a minimum in order to ensure the sustainability of the Group. Cost of sales includes mining and
processing costs, salaries and wages, depreciation and amortization, transportation, railage, port handling and
wharfage costs.
Cash cost of sales per ton 2018 YTD (1% increase) was in line with its comparative period. Cash cost of sales per ton for
Q3 2018 was 10% higher compared to Q3 2017 and 1% higher compared to Q2 2018. The overall lower costs compared
to comparative periods are attributable to overall reductions in costs at the mine in order to ensure the sustainability
of the Group.
Impairment loss on property, plant and equipment
An impairment loss of R66.3 million was recognized in Q3 2018. The decision to close the Magdalena 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 (See Note 3 to the Financial Statements).
Other income and expense comprises profit on sale of assets, foreign exchange gains/losses, discounts received,
commissions paid and fair value adjustments on financial assets and conversion option liabilities.
The R3.1 million net expense for Q3 2018 (Q3 2017: net expense of R25.1 million) was mainly attributable to a fair value
adjustment gain of R8.7 million in relation to the valuation of the conversion option liability (RCF convertible loan) and
the warrant liability (Investec warrants) (Q3 2017: R12.3 million loss) along with a positive fair value adjustment on
financial assets of R0.8 million (Q3 2018: R1.2 million) offset by a net foreign currency exchange loss of R12.0 million
(Q3 2017: loss of R14.0 million).
The R56.3 million net expense for 2018 YTD (2017 YTD: net income R19.7 million) was mainly attributable to a net
foreign currency exchange loss of R50.8 million (2017 YTD: gain of R3.4 million),a fair value adjustment loss of R8.7
million in relation to the valuation of the conversion option liability (RCF convertible loan) and the warrant liability
(Investec warrants) (2017 YTD: gain of R11.7 million) offset by a positive fair value adjustment on financial assets of
R2.3 million (2017 YTD: R2.0 million)
The net expense of R9.6 million for Q2 2018 was mainly attributable to a net foreign currency exchange loss of R54.3
million partially offset by a fair value adjustment gain of R44.1 million in relation to the valuation of the conversion
option liability (RCF convertible loan) and the warrant liability (Investec warrants) along with a positive fair value
adjustment on financial assets of R0.9 million.
General and administration expenses
This expense includes general and administration expenses relating to BC Dundee's head office at Coalfields and the
Company's corporate office in Centurion including Canadian expenses.
The Company recorded general and administration expenses for Q3 2018 and 2018 YTD that were significantly higher
than its comparative periods. General and administration expenses for Q3 2018 were also significantly higher compared
to Q2 2018.
The higher general and administration expenses for Q3 2018 and 2018 YTD was mainly due to:
- tax related fees for of C$72 610 (approximately R0.8 million) for tax related services in Canada included in Q3 2018;
- R1.7 million impairment of receivables related to a customer that went into business rescue during Q1 2018 which
resulted in R1.7 million in trade debt being written off;
- consulting fees for Q3 2018 and 2018 YTD included R0.8 million (Q3 2017: R0.5 million) and R3.5 million (2017 YTD:
R0.6 million), respectively, for the strategic review process and bankable feasibility study costs related to the new
adit at Aviemore Mine;
- R1.3 million in fund administration fees for Q3 2018 related to the management of the funds invested to cover the
Company's rehabilitation obligations and the issue of the guarantees to the DMR – in 2017, the funds were placed
in a bank account held by the Rehabilitation Trust Fund;
- R2 million penalty provision in Q1 2018 due to the Calcine plant operating without an Air Emissions License ("AEL")
(refer Other Risks and Uncertainties);
- R13.5 million provision for retrenchments pursuant to the section 189 process (refer Overview of the Company);
Finance Costs/Income-net
Finance costs for Q3 2018 were 4% lower compared to Q3 2017, was due to the overall lower outstanding Investec
loan facilities compared to Q3 2017 that resulted in lower interest charges.
Finance costs for 2018 YTD were 16% higher compared to 2017 YTD, primarily due to royalties payable to Investec
during 2018 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.
Income tax
No income tax was payable during Q3 2018. An overprovision of R1 million was reversed in Q3 2018 following the
settlement of the related taxes during the quarter (Q3 2017: Rnil).
FINANCIAL CONDITION REVIEW
A summary of the statements of financial position is shown below:
September 30, December 31, % June 30, %
R'000 2018 2017 VARIANCE 2018 VARIANCE
Property, plant and equipment 59 392 106 886 (44%) 112 239 (47%)
Other non-current assets - restricted 65 452 64 412 2% 65 943 (1%)
Other non-current assets 8 065 5 361 50% 5 975 35%
Trade and other receivables 99 790 121 245 (18%) 96 893 3%
Inventories 34 666 38 095 (9%) 33 441 4%
Cash and cash equivalents 7 444 21 429 (65%) 17 280 (57%)
Other current assets 2 405 2 880 (17%) 2 405 (0%)
Total assets 277 214 360 308 (23%) 334 176 (17%)
RCF loan facilities 383 548 314 791 22% 376 634 2%
Other borrowings 123 320 187 985 (34%) 146 005 (16%)
Trade and other payables 148 228 156 498 (5%) 131 307 13%
Asset retirement obligation 50 274 35 898 40% 35 653 41%
Current tax liabilities 860 2 901 (70%) 4 199 (80%)
Total liabilities 706 230 698 074 1% 693 798 2%
Total equity 429 016 337 765 27% 359 622 19%
Assets
The 23% decrease in total assets was mainly due to a R47.5 million (44%) decrease in property, plant and equipment,
a R21.5 million (18%) decrease in trade and other receivables and a R14.0 million (65%) decrease in cash and cash
equivalents.
The decrease in trade and other receivables comprised primarily of trade receivables recovered, but also included a
R1.7 million impairment of trade receivables. The impairment related to a customer that went into business rescue
during the quarter which resulted in R1.7 million in trade debt being written off.
The decrease in property, plant and equipment primarily comprised of the R66.3 million impairment related to the
closure of the Magdalena mine along with depreciation of R18.3 million for 2018 YTD partially offset by R24.9 million
in additions for 2018 YTD and R12.2 million resulting from change in estimates of the rehabilitation obligation.
Liabilities
Although liabilities in total did not change much compared to December 31, 2017, there were material movements on
the following liability items:
- RCF loan facilities increased by 22% as a result of a R46.1 million foreign exchange loss on translation of the US$
denominated RCF loan liability on September 30, 2018, R9.8 million in accretion expenses for 2018 YTD, R8.7
million increase in fair value adjustment of the conversion option liability as well as a R4.2 million foreign exchange
loss on translation of the conversion option liability;
- Other borrowings decreased by 34% as a result of the Company settling R70 million of the R200.3 million
outstanding Investec loan facility during 2018 YTD;
- The decrease in trade and other payables was mainly attributable to the payment of 2017 accrued Investec
royalties at the end of Q1 2018 and a decrease in long outstanding amounts owing to the mining contractor at
Magdalena; and
- Asset retirement obligation increased by 40% mainly as a result of a R12.0 million increase due to a reduction in
the rehabilitation period, relating to Magdalena, from 15 years to 7 years based on the decision to close
Magdalena.
CASH FLOW REVIEW
The condensed consolidated statements of cash flows are summarized below:
% % %
R'000 2018 YTD 2017 YTD VARIATION Q3 2018 Q3 2017 VARIATION Q2 2018 VARIATION
Net cash generated from/(utilized in) operating
activities 80 919 11 173 624% 22 404 13 468 66% 29 517 (24%)
Net cash (utilized in) investing activities (24 904) (34 427) (28%) (7 239) (11 327) (36%) (11 045) (34%)
Net cash (utilized in)/generated from financing
activities (70 000) 21 500 (426%) (25 000) - (100%) (15 000) 67%
Change in cash and cash equivalents (13 985) (1 754) 697% (9 835) 2 141 559% 3 472 383%
Operating activities
The improvement in cash generated from operating activities for Q3 2018 and 2018 YTD compared to cash utilized
during Q3 2017 and 2017 YTD were attributable to improved revenues and lower costs over the comparative periods.
Cash generated from operating activities for Q3 2018 was lower compared to Q2 2018, mainly due to an increase in
costs compared to Q2 2018.
Investing activities
Cash on investing activities for Q3 2018 and 2018 YTD included R6.8 million and R24.9 million, respectively, related to
capital spent on property, plant and equipment (Q3 2017: R7.3 million; 2017 YTD: R27.6 million).
Financing activities
Financing activities utilized R25.0 million and R70 million, respectively, during Q3 2018 and 2018 YTD to partially settle
the Investec term loan facility.
RELATED PARTY TRANSACTIONS
During Q3 2018 and 2018 YTD, the Company did not enter into any transactions with related parties in the ordinary
course of business. During Q3 2017 and 2017 YTD, the Company entered into the following transactions in the ordinary
course of business with related parties:
R'000 2018 YTD 2017 YTD Q3 2018 Q3 2017
Payments for services rendered
RCF (1) - 52 184 - 14 435
The following balances were outstanding as at September 30, 2018 and December 31, 2017:
September 30, December 31,
R'000 2018 2017
Related party payables
RCF(1) 1 750 415 1 530 767
These amounts are unsecured, non-interest bearing with no fixed terms of repayment.
(1) RCF is a related party to the Company as a result of owning a controlling investment in the Company and having had
a representative, Mr. David Thomas on the Board of Directors of the Company until May 31, 2018. As set out in the
Third Amended RCF Agreement, RCF has invoiced the Company for costs incurred (US$123,759) relating to the loan
facilities during 2016, which are disclosed above.
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 Q3 2018 and 2018
YTD were as follows:
R'000 2018 YTD 2017 YTD Q3 2018 Q3 2017
Short-term benefits 7 706 8 729 2 374 3 085
Share-based payments 2 39 1 3
Total 7 708 8 769 2 375 3 088
Amounts owing to directors and other members of key management personnel were R0.1 million as of September 30,
2018 (December 31, 2017: R0.9 million).
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.
Amendment to Investec Term Loan and Revolving Credit Facility Agreement
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 RISKS AND UNCERTAINTIES
Investing in the Company involves risks that should be carefully considered. The business of the Company is speculative
due to the high-risk nature of coal mining and exploration. Investors should be aware that there are various risks,
including those discussed below, that could have a material adverse effect on, among other things, the operating
results, earnings, properties, business and condition (financial or otherwise) of the Company.
The current operational adit at Magdalena does not have an amended Environmental Management Program ("EMP")
or an amended Integrated Water Use License Application ("IWULA"). As a result, the mine needs to apply for a Section
24G retrospective Environmental Impact Analysis ("EIA"). The application was submitted on March 23, 2018 and the
mine is awaiting outcome from the DMR.
The Company's Calcine plant has been operating without an Air Emissions License ("AEL"), that 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 an 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. Initial tests have been completed and modeling of the results is in progress. Authorization of
the Section 24G is dependent on compliant monitoring results.
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.
2018 Mining Charter
On 27 September 2018, the South African Minister of Mineral Resources, Gwede Mantashe (the "Minister"), published the
Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2018 (the
"2018 Mining Charter"). It is indicated that "implementation guidelines" are to be published in the near future.
While the definition of "Mining Charter, 2018" refers to the 2018 Mining Charter as being "developed in terms of
section 100 of the MPRDA", section 100 of the MPRDA does not provide for the development of a further charter by
the Minister. For this reason, the 2018 Mining Charter is susceptible to judicial review if challenged on the basis that
the Minister lacks authority in terms of the MPRDA for the Minister to develop such a Charter.
NON-IFRS PERFORMANCE MEASURES
The Company has included in this document certain non-IFRS performance measures that are detailed below. These
non-IFRS performance measures do not have any standardized meaning prescribed by IFRS and, therefore, may not be
comparable to similar measures presented by other companies. The Company believes that, in addition to conventional
measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's
performance. Accordingly, they are intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with IFRS. The definition for these
performance measures and reconciliation of the non-IFRS measures to reported IFRS measures are as follows:
Net Revenue
The Group's offtake contracts are a mixture of free-on-board shipping ("FOB") and free carrier ("FCA") contracts,
resulting in revenue not being directly comparable quarter on quarter. Below is a reconciliation of revenue as disclosed
in the Interim Results for Q3 2018, Q3 2017 and Q2 2018 to net revenue which excludes all railage, port handling and
wharfage related costs:
R'000 2018 YTD 2017 YTD Q3 2018 Q3 2017 Q2 2018
Revenue 601 150 509 360 206 404 183 494 204 321
Less: Railage, port handling and wharfage cost (13 490) (19 700) (3 550) (6 979) (4 835)
Net revenue 587 660 489 660 202 854 176 515 199 486
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 2018 YTD 2017 YTD Q3 2018 Q3 2017 Q2 2018
Operating (loss)/profit for the period (52 181) 5 198 (56 820) (14 927) 24 873
Depreciation and amortization 18 320 44 823 6 290 15 129 6 482
Impairment of receivables 1 668 (392) - (389) -
Impairment of property, plant and equipment 66 291 - 66 291 - -
Fair value adjustments of financial assets and conversion
option liability 6 394 (13 748) (9 462) 11 128 (44 113)
Stock-based compensation 2 39 1 3 1
Foreign exchange losses/(gains) 50 815 (3 436) 12 008 13 985 54 338
Adjusted EBITDA 91 309 32 484 18 308 24 929 41 581
Working Capital
Working capital includes current assets and current liabilities, excluding provisions and non-financial instruments.
September 30, June 30, December 31,
R'000 Notes 2018 2018 2017
Current assets
Cash and cash equivalents 7 444 17 280 21 429
Trade and other receivables 99 790 96 893 121 245
Inventories 34 666 33 441 38 095
Non-interest bearing receivables 1 540 1 540 2 880
Taxation receivable 865 865 -
144 305 150 019 183 650
Current liabilities
Trade and other payables (excluding provisions) 148 228 131 307 156 498
Current portion of borrowings 1 130 261 154 623 200 240
RCF Loan Facility 2 370 687 356 163 -
Current tax liability 860 4 199 2 901
650 036 646 292 359 639
Net working capital (505 731) (496 273) (175 989)
Notes:
1) Current portion of borrowings comprised of the outstanding loan balance payable to Investec at the end of the respective period. (See Note
6 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 5 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 2018 YTD 2017 YTD Q3 2018 Q3 2017 Q2 2018
(Loss)/profit for the period (94 916)
(32 898) (70 474) (30 164) 10 399
Net (profit)/loss on disposal of property, plant and equipment - (481) - 800 -
Headline (loss)/profit for the period (94 916) (33 379) (70 474) (29 364) 10 399
Headline (loss)/profit per share - basic and diluted (0.23) (0.08) (0.18) (0.07) 0.03
SUMMARY OF SECURITIES AS AT November 21, 2018
As at November 21, 2018 the following Common Shares, Common Share purchase options and share purchase warrants
were issued and outstanding:
- 416 582 594 Common Shares;
- 3 343 303 Common Share purchase options with exercise prices ranging from C$0.0387-C$0.29 with a weighted
average remaining contractual life of 2.91 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
Rowan Karstel Chief Executive Officer
Emma Oosthuizen Chief Financial Officer and Corporate Secretary
Graham du Preez Senior Executive
November 21, 2018
Designated Advisor: Questco Corporate Advisory Proprietary Limited
Date: 21/11/2018 05:18:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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