What is Corporate Identity (CI)? - Keaton Energy · Corporate Identity Brief What is Corporate Identity (CI)?A company s CI is the look and feel that is associated with and attributed

Integrated Annual R

eportt 2014

Co

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applications produced in DTP

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The PA

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ystem (P

MS

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ossible

to use PA

NTO

NE colours, the C

MY

K process equivalents

may be substituted.

The RG

B (m

onitor colour) eq

uivalents are only for

electronic use, for example in television, w

ebsites andaudio-visual presentations.

All colours m

ust always be solid.

The logo and typeface may only be used in the prim

arycolour palette show

n above or in white, reversed out of

these colours.

The logo may not be used as a background elem

ent.

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The positioning guide above and below show

show

the elements of the logo w

ork together,and how

much clear space m

ust be left aroundthe identity w

hen using copy or other graphicelem

ents. This space is a function of X which

is the height of the entire logo.

The identity may only be used in full colour,

on a white or a black background.

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www.keatonenergy.co.za

Questio

ns relating to

corp

orate id

entity

Please co

ntactN

ame S

urname

Keaton E

nergy Holdings Lim

itedE

mail: nam

[email protected]

Keato

n Energ

y Ho

lding

s Limited

Tel: +27 (11) 317 1700 ¥ Fax: +

27 (11) 463 4759G

round Floor, Eland H

ouse, The Braes, 3 E

aton Road

Bryanston, S

andton

Prim

ary colours

Secondary colours

PA

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ON

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82M

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52R

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73B

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PAN

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PMS 376 C

C50

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Integrated Annual Report 2014

Focused

Corporate Identity Brief

What is Corporate Identity (CI)?A companys CI is the look and feel that is associated with and attributedto that company. It is more than just the logo; rather, it is the way we, as a company,portray ourselves through a range of media to the outside world.

TYPE

Primary typeface

45 Helvetica LightABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz1234567890123456789-=,./[]\

Secondary typeface

66 Helvetica Medium ItalicABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz1234567890123456789-=,./[]\

Electronic typeface (to be used in DTP software)

The graphic typeface (Arial) is to be used on printapplications produced in DTP software.

The PANTONE Matching System (PMS) is preferred inprint for its colour accuracy. Where it is not possibleto use PANTONE colours, the CMYK process equivalentsmay be substituted.

The RGB (monitor colour) equivalents are only forelectronic use, for example in television, websites andaudio-visual presentations.

All colours must always be solid.

The logo and typeface may only be used in the primarycolour palette shown above or in white, reversed out ofthese colours.

The logo may not be used as a background element.

BLACK

C 0M 0Y 0K 100R 24G 21B 18

COLOURS

The positioning guide above and below showshow the elements of the logo work together,and how much clear space must be left aroundthe identity when using copy or other graphicelements. This space is a function of X whichis the height of the entire logo.

The identity may only be used in full colour,on a white or a black background.

Core logo colours

PANTONEPMS 186 CC 0M 100Y 81K 4R 231G 10B 39

COLOUR USAGELOGO AND LOGOTYPE

1/2X 1/2X

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Questions relating to corporate identity

Please contactName SurnameKeaton Energy Holdings LimitedEmail: [email protected]

Keaton Energy Holdings LimitedTel: +27 (11) 317 1700 ¥ Fax: +27 (11) 463 4759Ground Floor, Eland House, The Braes, 3 Eaton RoadBryanston, Sandton

Primary colours

Secondary colours

P A N T O N EPMS 5473 CC 82M 0Y 28K 52R 0G 73B 80


WelcomeWelcome to Keaton Energy Holdings Limited’s

(Keaton Energy, Keaton, the company or group)

Integrated Annual Report for the year ended

31 March 2014. This report should be read

together with our accompanying Sustainable

Development Report for 2014. Details regarding

the report preparation are provided on page 3.

This report represents a significant element of the

company’s integrated reporting strategy, combining with

our Sustainable Development Report, Annual Financial

Statements, Mineral Resource and Reserve Statement,

and communication through our website and other media.

We trust that you will find this report valuable in

understanding and assessing Keaton Energy.

SCOPE AND BOUNDARIESThis 2014 Integrated Annual Report presents a holistic

review of the company’s financial and non-financial

performance for its financial year from 1 April 2013 to

31 March 2014. In this report, we provide a concise outline

of the material activities of the holding company and its

subsidiaries. Our intention in this report is to provide the

information that will enable shareholders, potential investors

and all stakeholders to make an accurate assessment of

the value creation offered by Keaton Energy. Our social and

environmental impacts are addressed in the accompanying

Sustainable Development Report.

The source data for this report were gathered at our collieries

and head office. Unless noted otherwise, the information

provided is directly comparable to previous financial years.

InsIde thIs year’s report:

IntroductIon to Keaton energy’s 2014 Integrated report

Integrated Annual R

eportt 2014

Co

rpo

rate

Iden

tity

Bri

ef

Wha

t is

Co

rpo

rate

Iden

tity

(CI)?

A c

ompa

nys

CI i

s th

e lo

ok a

nd fe

el th

at is

ass

ocia

ted

with

and

att

ribut

edto

that

com

pany

. It i

s m

ore

than

just

the

logo

; rat

her,

it is

the

way

we,

as

a co

mpa

ny,

port

ray

ours

elve

s th

roug

h a

rang

e of

med

ia to

the

outs

ide

wor

ld.

TYP

E

Prim

ary typeface

45 Helvetica Light

AB

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nop

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23

45

67

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89

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Seco

ndary typ

eface

66 Helvetica M

edium

ItalicA

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KL

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software.

The PA

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may be substituted.

The R

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(mo

nitor co

lour) eq

uivalents are only fo

relectronic use, for exam

ple in television, websites and

audio-visual presentations.

All colours m





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ent.

BLAC

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LOG

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Questio

ns relating to

corp

orate id

entity

Please co

ntactN

ame S

urname

Keaton E

nergy Holdings Lim

itedE

mail: nam

[email protected]

Keato

n Energ

y Ho

lding

s Limited

Tel: +27 (11) 317 1700 ¥ Fax: +

27 (11) 463 4759G



aton Road

Bryanston, S

andton

Prim

ary colours

Secondary colours

PA

NT

ON

EPM

S 5473 CC

82M

0Y

28K

52R

0G

73B

80

PAN

TO

NE

PMS 376 C

C50

M0

Y100

K0

R110

G171

B36

Integrated Annual Report 2014

Focused



TYPE

Primary typeface


Secondary typeface









BLACK

C 0M 0Y 0K 100R 24G 21B 18

COLOURS



Core logo colours



1/2X 1/2X

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Primary colours

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IFC Welcome2 About this Integrated

Annual Report3 Basis for preparation 4 – 5 Our six capitals

01 group oVerVIeW Keaton EnergyIntegrated Annual Report 2014

76

GROUP OVERVIEW

01Corporate profile 8

Geographical footprint 9

Highlights of the year 10

Key milestones 12 – 13

Corporate structure 14 – 15

Snapshot of current operations 16 – 17

Strategic review 18 – 21

Our business case 22 – 23

Keaton Energy’s medium-term strategic intent is to grow to a safe, profitable, 5Mtpa saleable coal producer, having due consideration for our environment and contributing to the health and well-being of our employees and the local communities.

GROUP OVERVIEW page 6 – 23

Keaton EnergyIntegrated Annual Report 2014

76

8 Corporate profile9 Geographical footprint10 Highlights of the year12 – 13 Key milestones14 – 15 Corporate structure16 – 17 Snapshot of current operations18 – 21 Strategic review22 – 23 Our business case

02 LeadersHIp reVIeWs LEADERSHIP REVIEWS page 24 – 37


2524

LEADERSHIP REVIEWS

02Chairman’s review 26 – 29

Chief Executive Officer’s review 30 – 33

Chief Financial Officer’s review 34 – 37

Coal will be in high demand in South Africa, as in many other countries around the world for at least the next 20 years. Although renewable energy sources such as solar and wind are being introduced, base load power for national grids will be generated primarily by coal fuelled power stations for at least the next two decades.

26 – 29 Chairman’s review30 – 33 Chief Executive Officer’s

review34 – 37 Chief Financial Officer’s

review

03 operatIonaL reVIeW Keaton EnergyIntegrated Annual Report 2014

3938

OPERATIONAL REVIEW

03Safety and health 40 – 41

Vanggatfontein Colliery 42 – 43

Vaalkrantz Colliery 44 – 45

Pipeline projects 46 – 49

Coal Resource and Reserve Statement 50 – 60

3938

OPERATIONAL REVIEW page 38 – 61

Our two existing operations are the Vanggatfontein Colliery (Delmas, Mpumalanga) and the Vaalkrantz Colliery (Vryheid, KwaZulu-Natal). Vanggatfontein produces thermal coal for Eskom and metallurgical coal for domestic industrial consumers, while Vaalkrantz produces anthracite for domestic consumption and export to Brazil.

40 – 41 Safety and health42 – 43 Vanggatfontein Colliery44 – 45 Vaalkrantz Colliery46 – 49 Pipeline projects50 – 60 Coal Resource and

Reserve Statement

04 FInancIaL perFormance reVIeW

63


62


6362

FINANCIAL PERFORMANCE REVIEW

04Financial performance and value creation 64 – 67

Five-year financial performance 68

Value created and distributed 69

6362

A steady state Vanggatfontein and the changed business model at Vaalkrantz should ensure ongoing satisfactory results in the short to medium term which should be borne out when our interim results are released in November 2014.


page 62 – 69

64 – 67 Financial performance and value creation

68 Five-year financial performance

69 Value created and distributed

05 operatIng conteXt

71


70


7170

OPERATING CONTEXT

05The future of South African coal 72 – 75

Risks and opportunities 76 – 77

Material issues 78 – 79

OPERATING CONTEXT page 70 – 79

Coal has the potential to provide secure and affordable energy, extend employment and increase export revenues. These benefits are particularly relevant in light of South Africa’s development priorities of job creation and economic growth.

72 – 75 The future of South African coal

76 – 77 Risks and opportunities78 – 79 Material Issues

06 goVernance

GOVERNANCE page 80 – 99

8180


GOVERNANCE

06Board of Directors 82 – 83

Corporate governance 84 – 93

Report of the Remuneration Committee 94 – 99

82 – 83 Board of directors84 – 93 Corporate governance94 – 99 Report of the

Remuneration Committee

07 annuaL FInancIaL statements COPY TO BE

SUPPLIED

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 31 MARCH 2014

ANNUAL FINANCIAL STATEMENTS

07Directors’ responsibility for the Annual Financial Statements 102

Declaration by the Company Secretary 102

Directors’ report 103 – 107

Report of the Audit Committee 108

Independent auditor’s report 109

Statements of profit or loss and other comprehensive income 110

Statements of financial position 111

Statements of changes in equity 112 – 113

Statements of cash flows 114

Notes to the Financial Statements 115 – 185

The preparation of the Financial State- ments as set out on pages 110 to 185 have been supervised by the group CFO, J Rossouw, a Chartered Accountant (SA). The Annual Financial Statements have been audited by KPMG Inc., in compliance with the requirements of the Companies Act, 2008, as amended, whose audit report is presented on page 109.

The Annual Financial Statements were published on August 2014.

ANNUAL FINANCIAL STATEMENTS page 100 – 185

101


100

102 Directors’ responsibility for the Annual Financial Statements

102 Declaration by the Company Secretary

103 – 107 Directors’ report108 Report of the Audit

Committee109 Independent Auditor’s

report110 Statements of profit or loss

and other comprehensive income

111 Statements of financial position

112 – 113 Statements of changes in equity

114 Statements of cash flows115 – 185 Notes to the Financial

statements

08 sHareHoLders’ InFormatIon

188 Analysis of shareholders189 – 198 Notice of Annual

General Meeting199 Form of proxy200 Notes to the form of proxyIBC Administration and contact

details

186

SHAREHOLDERS’ INFORMATION

186

08Analysis of shareholders 188

Notice of Annual General Meeting 189 – 198

Form of proxy 199

Notes to the form of proxy 200

Administration and contact details IBC

SHAREHOLDERS’ INFORMATION page 186 – 200

187


1

Keaton EnergyIntegrated Annual report 2014

IntrodUCtIon page 1 – 5

DIreCtors’ statement oF responsIBIlIty The Keaton Energy Holdings Limited Board of directors (the Board) acknowledges its responsibility in ensuring the accuracy of this 2014 Integrated Annual Report. The Board has applied its collective expertise to this report and, in its opinion, this report addresses all material issues and presents an integrated and accurate view of Keaton Energy’s performance in the year under review. The Board approved this report for issue on 21 August 2014.

David salter mandi GladNon-Executive Chairman Chief Executive Officer

Jacques rossouwChief Financial Officer

ForwarD lookInG statementsCertain statements in this Integrated Annual Report include, without limitation, those concerning the economic outlook for the coal industry, expectations regarding commodity prices, production, cash costs, other operating results, whilst drawing attention to possible growth prospects and the outlook for Keaton Energy’s operations, including the completion and initiation of commercial operations of certain Keaton Energy exploration and production projects, its liquidity and capital resources and expenditure, and contain a measure of forward looking statements regarding Keaton Energy’s operations, economic performance and financial condition.

Although Keaton Energy believes that the expectations and the outcome reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will in fact be realised. Accordingly, results could differ materially from those set out in the forward looking statements if differentiating factors change, such as changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government action. Other factors that could influence the forward looking statements are fluctuations in commodity prices and exchange rates as well as business and operational risk management. For a discussion of such factors, refer to the Risks and Opportunities section beginning on page 76 of this report.

aBout thIs InteGrateD annual report

2

Frameworks applIeDThis Integrated Annual Report has been prepared in accordance with the International Integrated Reporting Council’s <IR> Framework (the Framework).

The Board and management have considered the fundamental concepts, guiding principles and content elements recommended in the framework and have endeavoured to apply these recommendations in the report.

This report also accords with the parameters of the Companies Act 71 of 2008, the JSE Listings Requirements and, where possible, the recommendations of the King Report on Governance for South Africa 2009 (King III report).

The consolidated and separate financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The statement of Mineral Resources and Reserves has been prepared in compliance with the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC Code).

purposeThe purpose of this report is to provide a wide range of stakeholders with a concise communication regarding our strategy, governance, performance and prospects, in the context of the external environment, and our creation of value over the short, medium and long term.

prImary auDIenCeIn terms of the Framework, integrated reports are prepared primarily for the providers of financial capital to help inform their decision-making regarding financial capital allocations.

Matters not related to finance or governance also impact the ability of Keaton Energy to create value over the short, medium and long term. These matters, be they social or environmental, are of interest to other stakeholders and are addressed briefly in this report. The Sustainable Development Report issued alongside this report provides greater insight and information regarding environmental and social matters.

A summary of the group’s Mineral Resources and Reserves is provided in this report, with additional details available on the company’s website at www.keatonenergy.co.za.

restatements or ChanGes From the prIor perIoDThere have been no restatements made to previously reported figures referenced in this report.

the BusIness moDel, the sIx CapItals anD value CreatIonThe six capitals referenced in the Framework are used as a basis for describing the company’s allocation of resources, its achievement of project goals, risks and opportunities and its ability to create value, both now and in the future. Besides generating financial capital and developing built capital, the group aims to grow our intellectual, social and human capital to support ongoing expansion.

materIal mattersMaterial matters presented in this report represent those matters that the Board and senior management believe are of sufficient relevance and importance that they could influence significantly the assessments of the report users with regard to the company’s ability to create value over the short, medium and long term. Potential material matters were identified through our risk management process, management workshops and our stakeholder engagement process, before being assessed by the Board and management. Matters raised through our stakeholder engagement process are assessed in terms of the stakeholder’s influence, legitimacy and urgency.

We have responded to legitimate key stakeholder issues in our Sustainable Development Report, which provides more detail regarding stakeholder needs, interest and expectations.

The Executive Directors and senior management have been instrumental in the preparation of this report. The Board has fulfilled its responsibilities in terms of the recommendations of the King III report.

assuranCeKeaton Energy’s financial statements for the period were audited by KPMG Inc. The Board is of the opinion that independent assurance of the significant non-financial performance indicators is not warranted.

BasIs For preparatIon anD presentatIon

oBtaInInG your keaton enerGy reportsDownload these in PDF format from www.keatonenergy.co.za or request your printed copies from:Keaton Energy Holdings LimitedGround Floor, Eland HouseThe Braes, 3 Eaton Road, Bryanston, 2191South AfricaTel: +27 (0) 11 317 1700Fax: +27 (0) 11 463 4759

FeeDBaCk on reportWe welcome your feedback on this report. Please email your comments to [email protected].

Web

This icon denotes additional information on a particular subject discussed in the Integrated Annual Report to be found on the website

Sustainability

This icon denotes a sustainability theme discussed in a particular section of the Integrated Annual Report

Learn more about Keaton Energywww.keatonenergy.co.za

3


INTRODUCTION page 1 – 5

our sIx CapItals

For the purpose of integrated reporting, the factors that flow through Keaton Energy for it to create its value are divided into “six capitals”, being financial, built, intellectual, human, social (relationship) and natural capital. These capitals underlie much of the disclosure in this Integrated Annual Report and the accompanying Sustainable Development Report.

The Framework does not require organisations to report on capitals that aren’t material to their operations, nor does it prescribe how these are to be reported. To keep these reports concise and to the point, we have split the capitals between the Integrated Annual Report and the accompanying Sustainable Development Report. Social capital is reported on as part of stakeholder relations, while intellectual capital is bound up in the management and employee expertise reported on as human capital.

FinancialCapital

BuiltCapital

Social and Relationship

Capital

NaturalCapital

IntellectualCapital

HumanCapital

Keaton’s 2014 Integrated Annual

Report

Keaton’s 2014 Sustainable

Development Report

How we report on our capitals

4

our natural CapItalOur natural capital is represented by our coal resources and reserves. Refer to pages 50 to 60 for the Resources and Reserves Statements.

our BuIlt CapItalOur built capital is represented by the two operational collieries and the processing plants and infrastructure present on these sites.

A summary of the type and capacities of the processing plants and the ancillary infrastructure is provided on pages 16 and 17 of this report.

our FInanCIal CapItalOur financial capital is represented by shareholder funds, short and long-term borrowings from financial and other institutions and trade payables. Control of financial capital rests with the Executive Committee and the Chief Financial Officer. The Audit Committee, per its Terms of Reference (ToR), may also seek any information regarding the financial affairs of the company.

Financial capital is applied in the business model towards facilitating sustainable and profitable business through:• Funding ongoing day-to-day operations at the operating

collieries• Funding prospecting activities and evaluation activities at the

company’s projects• Investing in capital equipment and capital projects to optimise

production and plant capacities•Acquiring Mining and Prospecting Rights both directly and

through business combinations • Funding the development of new collieries

Formal procedures are in place and enforced to govern the application of financial capital. Included in these procedures are due diligence processes, formal budgeting and forecasting processes, delegated authority levels and internal controls.

A combination of financial return and risk management is evaluated in deciding how best to allocate financial capital. The group has a short- to medium-term targeted net debt/equity ratio of 40% which it applies when securing longer term financial capital for purposes of acquisitions and the development of projects.

For more information regarding the group’s management of financial risks, refer to note 33 to the financial statements on page 167 of this report.

During the FY14 the group made two notable changes:• In terms of a Scheme of Arrangement Keaton Energy acquired

the entire issued share capital of Australian Stock Exchange (ASX) listed Xceed Resources Limited (Xceed) partly by issuing 32 647 838 new Keaton ordinary shares to Plusbay Limited, a wholly owned subsidiary of Gunvor Group Limited for cash, at an issue price of R1.78, raising approximately R58 million

•Concluded a R350 million financing facility with Investec Bank Limited. The proceeds of this facility have been applied as follows:– R170 million of the term loan was used to retire the project

finance facility advanced by Nedbank in 2011 for the construction of the Vanggatfontein coal washing plant and ancillary facilities

– R130 million of the term loan was applied as part of the purchase consideration for Xceed

– A R50 million working capital facility is available for general purposes

5


INTRODUCTION page 1 – 5

6

Group overvIew

6

keaton energyIntegrated Annual Report 2014

7

01Corporate profile 8

Geographical footprint 9

highlights of the year 10

key milestones 12 – 13

Corporate structure 14 – 15

snapshot of current operations 16 – 17

strategic review 18 – 21

our business case 22 – 23

Keaton Energy’s medium-term strategic intent is to grow to a safe, profitable, 5Mtpa saleable coal producer, having due consideration for our environment and contributing to the health and well-being of our employees and the local communities.

GroUp oVerVIeW page 6 – 23

keaton energyIntegrated Annual Report 2014

7

Corporate proFIle

Keaton Energy is a South African-based coal mining holding

company that operates two colleries in South Africa. The group

is acquiring and developing new coal mining opportunities that

are strategically situated and value accretive for shareholders.

Its ordinary shares trade on the main board of the JSE under the

share code KEH. At 31 March 2014 the company had a market

capitalisation of R565 million.

In the past eight years Keaton has displayed consistent growth

in transitioning from a junior explorer to a mid-tier coal producer.

Keaton Energy’s intention, since its founding in 2006, has been

to take its South African exploration prospects rapidly up the

value curve through exploration and development to mining

and to grow to 5Mtpa of saleable coal in the medium term.

During FY14, the group sold 2.6 million tonnes (Mt) (FY13: 1.9Mt)

Our two existing operations are the Vanggatfontein Colliery

(Delmas, Mpumalanga) and the Vaalkrantz Colliery (Vryheid,

KwaZulu-Natal). Vanggatfontein produces thermal coal for

Eskom and metallurgical coal for domestic industrial consumers,

while Vaalkrantz produces anthracite for domestic consumption

and export to Brazil.

During FY14, the group concluded the acquisition of Xceed

through a Scheme of Arrangement. This transaction was partly

funded by the issue of 32 647 838 new Keaton Energy ordinary

shares for cash, at an issue price of R1.78 per share (30-day

VWAP as at 22 August 2013), to Plusbay Limited, a wholly

owned subsidiary of Gunvor Group Limited with the balance

funded through a financing facility with Investec Bank Limited

and own cash. This transaction provided access to the

undeveloped Moabsvelden colliery with a reserve of some 43Mt

of coal just 3.5 kilometres from the Vanggatfontein Colliery.

Mining at Moabsvelden is expected to begin in 2015.

Besides the Moabsvelden Project (Delmas) Keaton Energy has

development projects at Braakfontein (Newcastle), Koudelager

(Vryheid), Balgray (Utrecht), Mooiklip (Louwsburg) and

Sterkfontein (Bethal).

Keaton Energy is working to reduce its environmental footprint

at both Vanggatfontein and Vaalkrantz. Besides being

environmentally responsible, waste reduction programmes

impact positively on the group’s long-term environmental

liability and reduce the capital and operational expenditure

incurred in having to build waste disposal facilities. Keaton

has developed markets for both slurry and course discard,

thereby generating additional sources of revenue.

As at 31 March 2014, the group employed 1 180 people

(95 employees and 1 085 contractors).

Keaton Energy’s corporate office is located in Bryanston,

Johannesburg, South Africa.

8

vanggatfontein Colliery

Sterkfontein Project

Braakfontein Project

vaalkrantz Colliery

Koudelager Project

Balgray Project

Moabsvelden Project

Richards Bay coal lineNational road City Colliery ProjectTown Power station

GeoGraphICal FootprInt

9



Vanggatfontein LOM increased to 17+ years

R219 million gross profit for FY14 compared with a gross loss of R27 million for FY13

Vanggatfontein achieved steady state with sales increasing by 45% to 2.3 million tonnes

49% increase in group revenue to R1.4 billion

Acquisition of Xceed for R195 million concluded

R350 million financing facility concluded

LTIFR at Vaalkrantz improved to 0.23 compared with 0.36 for FY13

200% increase in HEPS to 30.3 cps

Fatality-free since inception in 2006

hIGhlIGhts oF the year

10

11



key mIlestones

• Earthworks at Vanggatfontein commence in February

• First 5-seam coal delivered from Vanggatfontein in December

• Keaton Energy established



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• 163Mt resource and 25.9Mt reserve declared at Vanggatfontein in May

• Keaton Energy listed on the main board of the JSE in April

2010

2009

2008

2007

12

• Zero LTIFR at Vanggatfontein

• 94% increase in revenue to R919 million

• 58% increase in Eskom sales to 1.5Mt

• 200% increase in HEPS to 30.3 cps

• 49% increase in group revenue to R1.4 billion

• Acquisition of Xceed concluded

• R350 million financing facility concluded

• First Eskom coal produced from Vanggatfontein in June

• Acquisition of Leeuw Mining and Exploration concluded in December

• 1 249% increase in revenue to R474 million

• 99% increase in ROM production to 560kt at Vaalkrantz

2013

2014

2012

2011



13

CorporatestruCture

Keaton administrative and technical services

proprietary Limited

Xceed resources Limited

Labohlano trading 46 proprietary Limited

amalahle exploration proprietary Limited

Keaton mining proprietary Limited

Leeuw mining and exploration proprietary

Limited

Keaton energy HoLdIngs LImIted

Keaton energy holdings Limited

100%


74%

rutendo Mining

proprietary Limited

26%

100%Keaton energy

holdings Limited


74%Moneybox

Investments 156 proprietary Limited

26%


74%JpI Leeuw and

associates proprietary Limited

26%


74%Camden Bay

Investments 64 proprietary Limited

26%

Colliery/Projects:• Vanggatfontein• sterkfontein

Projects:• sterkfontein

Colliery/Projects:• Vaalkrantz• Koudelager• Balgray

Projects:• Mooiklip

14

ausco services proprietary Limited

neosho trading 86proprietary Limited

Focus coal Investments proprietary Limited

Leeuw Braakfontein colliery proprietary

Limited

100%Xceed resources

Limited

ausco Finance proprietary Limited

100%Xceed resources

Limited

100%Xceed resources

Limited

Leeuw Mining and exploration

proprietary Limited

100%

Focus Coal Investments

proprietary Limited

74%

dL sikhosanaap sikhosanaMe dhladhla

26%

richtrau no. 377proprietary Limited


proprietary Limited

15%

humpfuna Miningand exploration

proprietary Limited

85%

richtrau no. 379proprietary Limited


proprietary Limited

15%

humpfuna Miningand exploration

proprietary Limited

85%

Projects:• Moabsvelden

Projects:• roodepoort

Projects:• Bankfontein

Projects:• Braakfontein

15



snapshot oF Current operatIons

vanggatfontein

location

• 16km east of Delmas, Mpumalanga

products

• 2- and 4-seam washed thermal coal supplied to Eskom

• 5-seam low contaminant, vitrinite dominant, bituminous coal

supplied into the domestic metallurgical market

type of mining

•Opencast

2014 sales (mt)

• 2.3 (FY13: 1.6)

2014 sales (rm)

• 1 127.2 (FY13: 645.9)

resource (mt)

• 145.6 (FY13: 70.3)

rom reserve (mt)

• 57.2 (FY13: 45.2)

life of mine (years)

• 17+ (FY13: 13+)

Infrastructure

•A 100tph 5-seam coal washing plant producing duff, peas and nuts

•A 500tph coal washing plant producing domestic thermal coal

•Change houses, offices and clinic

•Pollution control facilities, twin lined co-disposal discard facilities

with related dirty water management systems

•Bulk water and power reticulation, extensive road infrastructure,

stockpile areas, weighbridge facilities and access roads

• Laboratory and workshop

workforce (including contractors)

• 430 (FY13: 416)

ltIFr (per 200 000 man hours)

• 0.09 (FY13: 0.00)

16

vaalkrantz

location

• 20km east of Vryheid, KwaZulu-Natal

products

•Anthracite – primary product sold into the domestic metallurgical

market

•Anthracite – secondary product sold into the Brazilian iron ore

pelletising market

type of mining

•Conventional bord and pillar underground mining

2014 sales (mt)

• 0.30 (FY13: 0.33)

2014 sales (rm)

• 245.4 (FY13: 272.9)

resource (mt)

• 15.2 (FY13: 17.8)

rom reserve (mt)

• 2.7 (FY13: 2.2)

life of mine (years)

• 4+ (FY13: 3+)

Infrastructure

•A 110tph two-stage coal washing plant producing duff, peas and

nuts across both the Gus and Alfred seams

•An extensive fleet of underground mining equipment

•Change houses, offices, clinic and lamp room

•Rail siding for shipment of anthracite products both domestically

and for export

•Related water and power reticulation, extensive road infrastructure,

stockpile areas, weighbridge facilities and access roads

• Laboratory and workshop

workforce (including contractors)

• 722 (FY13: 778)

ltIFr (per 200 000 man hours)

• 0.23 (FY13: 0.36)

17



strateGIC revIew

prInCIples oF our strateGy Keaton Energy’s medium-term strategic intent is to grow to a safe, profitable, 5Mtpa saleable coal producer, having due consideration for our environment and contributing to the health and well-being of our employees and the local communities.

The group mines thermal coal of varying quality, metallurgical coal and anthracite. We will add to our sources and range of coal products as and when development and acquisition opportunities allow.

P r o f i t a b i l i t y

P r o f i t a b i l i t y

P ro f

i t

a b i l it y

P r o c e s s i ngD

ev e

l opm

e nt

H e a l t h a n d S a f e t y

E n v i ro n m

e nt

S o c i a l

5 M t p a



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E x p l o r a t i o n

M i n i n g

M a r k e t in g

18

strateGy In praCtICeoperating collieries – vanggatfontein and vaalkrantz

Our current emphasis is to manage each mine for optimal

production at minimised unit cost per tonne, while improving

our already excellent safety record. Total current installed

processing capacity of approximately 4.8Mtpa of Run of Mine

(ROM). Where a plant is underutilised, it is made available for

other revenue generating purposes such as the “toll washing” of

coal at Vanggatfontein. However, as production increases and

other projects come into production, fewer opportunities for toll

washing will arise.

Additional revenue and cost savings are being investigated

through initiatives such as the pilot slurry treatment filtration

project plant at Vanggatfontein, which will generate a return on

a stand-alone basis and reduce our environmental footprint.

Fine coal agglomeration research projects at both our collieries

are intended to process coal discard into saleable products.

anchor sites and satellites

Where possible, Keaton Energy seeks to share infrastructure,

services, management and labour between collieries located

geographically close to one other. As Moabsvelden and

Vanggatfontein are only 3.5 kilometres apart, operating costs

will be minimised by processing all ROM coal through existing

and new processing facilities at Vanggatfontein. In addition,

the shared infrastructure will reduce the development capital

significantly for Moabsvelden thereby improving returns.

Similarly, Vaalkrantz facilities will be used to process coal from

satellite operations being explored in the area surrounding

Vaalkrantz. These include both brownfields remnant blocks

in the immediate vicinity as well as greenfields regional

opportunities. Bringing these additional coal streams into the

Vaalkrantz production mix will continue to extend its life of mine.

proJeCt pIpelIne moabsvelden

The greenfields Moabsvelden Project was acquired in February

2014 when Keaton Energy acquired the entire issued

share capital of Xceed. Moabsvelden represents a significant

opportunity for the group to grow its Delmas footprint by utilising

processing capacity, infrastructure and management already in

place at Vanggatfontein. Minimal infrastructure is therefore

required at the Moabsvelden property itself, with the plan being

to operate Moabsvelden as a satellite pit with all coal processing

channelled through existing capacity at Vanggatfontein, as

well as an additional two-stage plant to be constructed

at Vanggatfontein to process the higher-quality coal from

Moabsvelden.

Moabsvelden ROM coal will be trucked to Vanggatfontein via a

5km purpose-built haul road. Once in full production,

Moabsvelden will produce 2.4Mtpa ROM coal, which will

generate a combined total of approximately 1.4Mtpa of Eskom

and export quality thermal coal. This colliery project is at an

advanced stage with commissioning planned for the last

quarter of the 2015 calendar year.

Braakfontein

Braakfontein is a project which already has a Mining Right. It is

located 10km south-east of the town of Newcastle in KwaZulu-

Natal and has the potential to contribute 1.6Mtpa to Keaton

Energy’s ROM production, largely from underground operations.

In-situ coal qualities at Braakfontein will generate a primary

export thermal product with a secondary middlings product

suitable for domestic Eskom consumption.

Feasibility study drilling on Braakfontein was completed in

December 2013, including 17 in-fill boreholes and an eight-hole

opencast underground interface line to establish the conditions

that could be expected along the axis of the underground

access decline. This study is being expanded to include remote

geophysics to provide the detail required for underground mine

planning. Upon conclusion of this final phase of exploration, a

feasibility study will be conducted to establish the economics of

an export and domestic quality thermal coal producer in the

Newcastle area.

koudelager

Located 40km via road from the Vaalkrantz operation, the

Koudelager property is being explored as a reserve replacement

project for Vaalkrantz. Existing Vaalkrantz infrastructure and

local resources will be refocused on Koudelager when the

transition process begins.

During this financial year 13 additional boreholes were drilled to

develop our understanding of all five of the Vryheid Coalfield

seams present on the property. Koudelager’s geological model

and coal resource have been updated and a feasibility study is

planned to commence by the end of the 2014 calendar year.

The coal resource currently stands at 12.3Mt, but determining

the best extraction method remains a challenge. An application

for a Prospecting Right over a contiguous property has been

submitted to the Department of Mineral Resources (DMR) and it

19



strateGIC revIew ContInueD

is our intention to extend the drilling grid into this property with

a view to expanding the Koudelager coal resource.

sterkfontein

This feasibility stage project is located near Bethal in

Mpumalanga, adjacent to Sasol Mining’s Twistdraai East Shaft

approximately 90km south-east of Vanggatfontein Colliery. The

underground resource at Sterkfontein will generate a primary

export thermal fraction and a secondary Eskom middlings

product. The group is presently conducting an options analysis

to establish the best development strategy for the project.

exploratIon proJeCtsBalgray

Balgray is a project located 5km north-east of the town of

Utrecht in KwaZulu-Natal, and approximately 100km via road

from the Vaalkrantz operation for which a Mining Right

application has been submitted. A geological model constructed

using historical drilling data on the property indicates a target

Gus Seam deposit of between 10Mt and 14Mt with an average

seam thickness of 1.3 metres. The coal qualities expected from

Balgray are comparable with the Gus Seam currently mined at

Vaalkrantz Colliery. A comprehensive confirmatory and in-fill

drilling programme has been planned and will be executed

upon the award of the Mining Right at Balgray, which is expected

before the end of the second quarter of FY15.

mooiklip

Mooiklip is a greenfields project located approximately 6km south-

west of the town of Louwsburg in KwaZulu-Natal, and

approximately 40km via road from Vaalkrantz Colliery for which a

Prospecting Right application has been submitted. Indications

from historical data suggest a Dundas coal seam of approximately

1.4 metres average thickness, which has the potential to deliver

an in-situ coal resource of between 3.5Mt and 4.5Mt. A first phase

of exploration drilling will be conducted during the second half of

the 2014 calendar year with a view to understanding whether the

property will deliver an anthracite resource of economic quantity.

It is intended to develop Mooiklip as a satellite reserve replacement

shaft for Vaalkrantz.

Bankfontein

This project was acquired as one of the exploration assets in the

Xceed stable in February 2014. The project is located

approximately 30km north-west of the town of Ermelo in

Mpumalanga, and hosts a coal resource of 16.1Mt across the

A, B-lower, C-lower and D coal horizons of the Eastern

Mpumalanga coalfield. A combination of 11 historical holes

drilled between 1952 and 1981 and a further 22 recent holes

drilled during late 2011 and early 2012 have been modelled to

generate the combined 16.1Mt resource. Keaton Energy

currently holds a 15% interest in the project, with an option to

increase this shareholding through a farm-in arrangement by

funding further exploration. Its in-situ qualities are encouraging

and the existing resource is being evaluated in order to

understand whether further exploration is warranted. Due to the

fact that the Bankfontein Prospecting Right farm portions

are not contiguous, the opportunity to consolidate the broader

Bankfontein farm into a single exploration tenement is also

being pursued.

roodepoort

The Roodepoort Project was similarly acquired as part of the

Xceed transaction in February 2014. The project is located

approximately 6km north of the town of Kriel in Mpumalanga

and hosts a total coal resource of 26.3Mt across the 2-upper,

2-lower, 1 and 1A coal horizons of the Witbank coalfield. The

current resource is based on 23 boreholes drilled during late

2011 and early 2012. As with Bankfontein, Keaton Energy holds

a 15% interest in the Roodepoort Project, with the option to

increase this shareholding by funding further exploration.

Opportunities to expand the resource through additional drilling

and consolidation are being evaluated.

operatIonal optImIsatIon proJeCtsThe group is currently evaluating numerous technologies with

the potential of eliminating the fine coal tailings streams from

our operations. These technologies include fine coal slurry

dewatering as well as fine coal agglomeration – both aimed at

reducing our environmental footprint and generating additional

revenue.

At Vanggatfontein a slurry filter press plant will be constructed

during FY15, which will eliminate the current fine coal discard

stream, and in so doing commercialising a discard stream that

was previously a liability.

We are also investigating the commercial viability of fine coal

agglomerating/briquetting that would utilise the filter cake

generated through the filter press plant as feed material. The

production cost of manufacturing a briquette that meets the

strength and quality requirements of traditional thermal and

metallurgical markets will therefore determine the viability of this

initiative. Early indications are encouraging and this research

project will be pursued as an environmentally beneficial process,

as well as one having economic merit in an industry which

discarded fine coal for many decades due to physical transport

challenges rather than quality shortcomings.

20

lonG-term vIaBIlItyKeaton Energy’s longer-term viability will be secured by pursuing the following strategic initiatives:• Todeliverconsistentoperationalandfinancialresults• Tocontinuetooptimiseexistingoperationsandmovecurrentprojectsalongthevaluechain• Tomonitorourkeyenvironmentalperformanceindicatorsregularlyandsettargetstomitigateourimpactontheenvironment

and to implement our Social Labour Plans (SLPs) as Keaton Energy’s social investment and contribution to local communities• Tocontinuetoenhanceouroperatingmodelofasmallheadofficeteamsupportingdecentralisedminemanagementteamsby

allocating functions and responsibilities optimally• TomanageourminecontractorsefficientlyandtoensuretheymeetKeatonEnergy’scosttargetsandsocialresponsibilityand

ethics stipulations• Tocontinuetosecureadditionalexploration,developmentandoperationalassetsafterappropriateduediligence• TocontinuedevelopingourB-BBEEstrategyintermsoftheMiningCharter

21



The desired and achieved outcomes of the business model are: sustainable growth: the company is well on track to meet its current growth targets.

production of various coal products: the group is diversifying its range by producing B-grade coal and fines and discards products.

profitability: revenue and margins support sustainable growth and meet shareholder expectations.

a skilled workforce: the continual training of our workforce enables us to improve productivity, while also giving employees invaluable portable skills.

Diversity through all management levels: talented and skilled individuals from diverse backgrounds are being appointed to

senior management positions based solely on merit, which contributes to a transformed economy and society.

Community development: there is a constant inflow of employee earnings into the community, while the group invests into schools, community infrastructure, skills development centres and creating non-mining business opportunities for our host communities. Particular examples, as described in the Sustainable Development Report, are the development of the Ezinyambe Early Childhood Development Centre and a building donated to the Koudelager community for a clinic. Other initiatives include supplying school uniforms, scholar transport and upgrading community sports fields.

the InteGrateD “sIx CapItals” approaChFor the purpose of integrated reporting, Keaton Energy has categorised its resources into ‘six capitals’, being financial, built, intellectual, human, social (relationship) and natural capital. These capitals underlie much of the disclosure in this Integrated Annual Report and the accompanying Sustainable Development Report. More details regarding our natural and financial capitals are provided on pages 4 and 5.

The capitals are channelled into the Keaton Energy business model as inputs, which are summarised as follows:

Coal, land, water and energy: these are the physical inputs. Core leadership skills and experience: the Non-Executive Chairman is well versed in the macro-economic and mining “big picture”, while also being sensitive to investor expectations. The CEO is a highly regarded hands-on operational leader and the CFO is qualified to instil the necessary financial controls, risk management and discipline. The Board offers a well-balanced mix of mining industry, broader business and financial insight.

operational leadership: the management teams at the collieries are well respected for their competence, safety focus and tight controls. Keaton Energy’s continuing zero fatality rate and production results are testimony to this.

Finding opportunities and feeding the development pipeline: the company is skilled in seeking out the “right fit” operating collieries and development opportunities for the Keaton Energy growth model.

resources: Keaton Energy already has sizeable coal resources and reserves being developed, while seeking out further resources.

motivating the workforce: to be profitable, collieries need satisfied and productive workers. The company offers a mix of incentives, market-related pay scales, recognition and community support to ensure that production targets are routinely reached or exceeded.

harmonious community relations: the company endeavours to meet its SLP obligations in a difficult administrative environment and to introduce additional projects in the vicinity of its collieries. Its safety, health and wellness programmes are improving occupational health and other indicators.

Innovative technology: new techniques, such as producing saleable products from waste and slurry, are reducing our environmental impacts while generating additional revenue.

environmental awareness: implementing mitigation measures to minimise our impacts on the environment, such as lining our pollution control facilities and optimising our raw water usage.

BusIness moDelThe Keaton Energy business model is founded on an experienced Board and a dedicated hands-on management team utilising the best practices available in coal mining. They are supported by skilled on-mine management teams and mining contractors

Inputs to our business model

that are known for their safety-first approach and ability to meet rigorous Service Level Agreements (SLAs).

The company operates on a “lean and mean” basis, with a small head office team providing support in administration

outcomes from our business model

our BusIness Case

22

Checks and balances are in place to monitor their compliance and performance, with remedial action taken when necessary.

The key outputs of the Keaton Energy business model are as follows:

anthracite

eskom thermal coal

Domestic thermal coal

export thermal coal

metallurgical coal

Fine coal slurry

waste water

Coarse discard

atmospheric emissions

outputs from our business model

Business activities

and other specialist disciplines to relatively autonomous mine management teams.

Keaton Energy operates a cost-efficient, target-driven outsourced mining model. Under this model both the initial

capital outlay, capital maintenance and a significant fixed cost base is reduced.

The success of this model depends on target driven SLAs being reached with each consultant and contractor.

Find

secure

minesell

Distribute

Investor and media relations

Strategy development and planning

Stakeholder engagement

Overall management control

Oversight of HR, SHE and SLP performance against targets

Compliance with legislation

Ongoing refinementof business andoperational processes

Financial control and monitoring of SLAs

Project and exploration activities

Marketing our coal products to local and international buyers


23


24

Leadership reVieWs

Leadership reVieWs page 24 – 37

Keaton energyIntegrated Annual Report 2014

25

02Chairman’s review 26 – 29

Chief executive Officer’s review 30 – 33

Chief Financial Officer’s review 34 – 37

Coal will be in high demand in South Africa, as in many other countries around the world for at least the next 20 years. Although renewable energy sources such as solar and wind are being introduced, base load power for national grids will be generated primarily by coal fuelled power stations for at least the next two decades.

26

david salter Non-Executive Chairman

Chairman’s reVieW

R219 million gross profit for FY14 compared with a gross loss of

R27 million for FY13.

27



This year Keaton Energy delivered on its promises. We are safe.

We are profitable. We are growing towards 5Mtpa of saleable

coal. Vanggatfontein, our long life open pit colliery has reached

steady state, while production at Vaalkrantz has stabilised in the

face of difficult mining conditions and labour issues.

At the same time we concluded the acquisition of Xceed for

R194.7 million, thereby acquiring the Moabsvelden Colliery,

sited a mere 3.5km from Vanggatfontein. This will be brought

into production by end 2015 and contribute an additional

1.4Mtpa of domestic and export saleable thermal coal

per annum.

Although Vaalkrantz is nearing the end of its life, its experienced

narrow seam workforce and established infrastructure make

Vaalkrantz the springboard for unlocking value from the potential

new anthracite resources that we are evaluating in its vicinity. At

this time we are examining how we can develop the Balgray,

Koudelager and Mooiklip projects quickly and efficiently to

continue producing the high quality anthracite that is in demand

by local and export markets.

The future looks bright for Keaton Energy.

saFety and heaLthI am delighted to report that Keaton Energy remains fatality-free

since its incorporation in 2006 and maintains an excellent safety

record. This is a remarkable and most welcome achievement,

especially as our miners at Vaalkrantz work underground in an

exceptionally difficult narrow seam environment. Vanggatfontein

ended the period with a lost-time injury frequency rate (LTIFR) of

0.09 and Vaalkrantz improved its LTIFR to 0.23 as a result of

unrelenting discipline in adhering to our safety procedures,

for which our mine and contractor management must be

congratulated.

COaL mining at this timeCoal mining in general and Keaton Energy in particular, have so

far remained outside of the troubles affecting hard rock mining

in South Africa. As a company formed under the new mining

legislation we do not carry the baggage of the socio-economic

legacies that weigh down other mining companies. Importantly,

our workforces are mainly drawn from the local communities

where our collieries are sited. They usually live at home with their

families; therefore do not face the social and financial hardships

of migrant workers.

Coal will be in high demand in South Africa, as in many other

countries around the world for at least the next 20 years.

Although renewable energy sources such as solar and wind are

being introduced, base load power for national grids will be

generated primarily by coal fuelled power stations for at least

the next two decades.

Eskom’s new Medupi and Kusile coal fired power stations will

be among the world’s largest. These and Eskom’s other coal

fired plants will demand substantially more coal than South

Africa’s collieries currently provide – while some of Eskom’s

older collieries are about to close down. This has precipitated a

countrywide scramble to introduce new coal production.

Keaton Energy is clearly in the right mining sector and our policy

of strategic acquisitions supported by strict cost control is the

route to sustainable growth. As long as we continue sourcing

coal and anthracite of the right qualities, our contracts with

Eskom and Gunvor (export anthracite) assure the revenue

stream to fund that growth.

materiaL issues and staKehOLder engagementKeaton Energy’s management conducted a structured risk

identification process in late 2013, through which we identified

and prioritised the issues most pertinent to the group and our

stakeholders at this time. In this Integrated Annual Report

we focus primarily on these issues, as well as our operational

and financial performances. The accompanying Sustainable

Development Report discusses Keaton Energy’s most

material social and environmental matters.

By adopting this approach, which is becoming an international

corporate reporting best practice, we endeavour to publish

reports that enlighten through clear and concise reporting. For

further information on Keaton Energy, you are welcome to view

our website www.keatonenergy.co.za, or contact the group’s

investor relations office at [email protected].

By processing our discard for commercial sale, Keaton Energy can operate much ‘cleaner’ collieries by reducing the need for slurry ponds and waste dumps, while reducing our overall environmental impact.

28

Chairman’s reVieW COntinued

Our stakeholders include shareholders, analysts, customers,

suppliers, government, communities, our employees and

special interest groups such as industry associations

and unions. We are deeply committed to ongoing and effective

stakeholder engagement as it keeps us in touch with

shareholder, employee and community concerns, while also

providing an early warning of rising issues and potential

problems. Staying close to stakeholders ensures that our

community initiatives are targeted correctly and gain the

endorsement of shareholders for new projects, while also

building our brand and reputation.

LegisLatiVe COmpLianCeSouth Africa’s mining industry is highly regulated and

considerable management time is expended on ensuring that

Keaton Energy complies with legislation and its body of

supporting regulations. The group has a strict policy

of compliance and endeavours to exceed requirements where

this will benefit our employees, their communities and mining

operations materially.

A key aspect of compliance is the SLPs linked to our collieries,

which are intended to enable local communities, enterprises

and our employees to benefit from our mining operations. We

found that the SLPs attached to Vanggatfontein and Vaalkrantz

that expired in 2013 were not aligned fully with the actual needs

of local communities and enterprises. We inherited an SLP

registered by the previous owners of Vaalkrantz, who had not

implemented much of it. Similarly Vanggatfontein’s SLP did not

reflect the opportunities appropriate to a changed local

environment.

Revising existing SLPs is a drawn out process involving the

sign-off by various stakeholders and authorities, therefore

Keaton Energy implemented appropriate corporate social

investment projects that were outside of the scope of the SLPs

while we underwent the process of revisiting the SLPs and

preparing new versions for the 2014 to 2018 period.

Unfortunately the DMR inspectors did not consider these

reasons sufficient and issued section 93 non-compliance

directives for both collieries. A comprehensive report submitted

to the DMR led to the section 93 for Vanggatfontein being

withdrawn, while negotiations are still under way for the

Vaalkrantz SLP, where we have proposed several initiatives that

will be of real benefit to the local community.

Our proposed 2014 to 2018 SLPs, which list a range of

interventions that we believe are most worthwhile locally, have

been submitted to the DMR for approval.

aCCepting Our OppOrtunities and ChaLLengesLast year I reported that we had commenced with pilot projects

at Vanggatfontein aimed at processing fine coal slurry into filter

cake and potentially agglomerated into coal briquettes. Both

products are of sufficient quality to be suitable for various

markets which have grown progressively over the past year. If

proved feasible, this project would introduce an additional

revenue stream from an effluent stream which currently

represents a liability.

Similarly, we are investigating a fine coal screening technology

at Vaalkrantz as a means of upgrading the quality of certain fine

coal size fractions. The technology has delivered encouraging

results to date, and we have signed technology and marketing

agreements for the upgrade and sale of duff recovered from

Vaalkrantz’s slurry stream and are considering investing further

capital into developing this technology. The applicability of the

agglomeration technology being investigated at Vanggatfontein

is also being investigated for possible future application

at Vaalkrantz.

By processing our discard for commercial sale, Keaton Energy

can operate much “cleaner” collieries by reducing the need for

slurry ponds and waste dumps, while reducing our overall

environmental impact. In this period we overcame geological

setbacks at our existing collieries, but geological testing at our

prospective collieries is also presenting challenges. The initial

survey of the Koudelager site has indicated certain structural

challenges that need further geological examination to gain a

better understanding of how mining there should be approached.

This may result in Balgray being brought into production before

Koudelager, which was not as planned originally.

Future strategyOur business strategy is straightforward and proving effective in

driving Keaton Energy steadily towards becoming a 5Mtpa coal

29



direCtOrate and bOard mOVementsI am pleased to welcome Mr Jeroen Schurink to the Board as

a Non-Executive Director, with effect from 7 March 2014.

Mr Schurink brings considerable commercial expertise to the

Board. He is the Chief Investment and Operating Officer for the

Gunvor Group. Also, Mrs Anelia Schutte-Bouwer joined us as

our Company Secretary, with effect from 7 March 2014,

following the resignation of Mrs Michelle Taylor. Subsequent to

the end of the reporting period, Mr Dirk Jonker resigned from

the Board due to increased business commitments in Europe.

I thank him for his valuable input during his time with us and

wish him well for the future.

david salter

Non-Executive Chairman

producer by 2017. In terms of it we optimise the efficiency of

existing collieries and broaden our range of coal products to

build cash flow, while identifying acquisition opportunities

geographically close enough for existing infrastructure to be

shared or redeployed cost-effectively. Acquisitions are made

when we can bring these into operation relatively quickly.

I foresee that this next period will be for consolidation,

optimisation, diversifying our products and bringing new

operations, such as Moabsvelden, into production. However,

we will evaluate all opportunities of merit and act on them

appropriately.

gOVernanCeIn the previous year Keaton Energy implemented the corporate

governance changes required by the latest Companies Act and

the King III regulations instituted by the JSE.

We also adopted the JSE’s recommendation to publish

integrated and sustainability reports annually in line with the

international IIRC and GRI reporting standards. However,

I stand by my view that these annual reporting requirements

demand excessive management time, cost and effort, which is

ludicrous for a company of our size – one which would be

considered a micro-cap company in global terms. I continue to

question the appropriateness of the reporting requirements and

note the clear disconnect between the realities of running a

business and the demands of such detailed corporate reporting

and the assurance thereof. Last year I said that only a handful of

people read these reports. I think I may have been optimistic in

estimating the readership. I wish the efforts of those who

worked long hours to produce these documents would be

rewarded by interest from shareholders and other stakeholders.

Last year circumstances led to two changes of CEO in rapid

succession. At that juncture the Board asked me to take on an

Executive Chairman role to assist incoming CEO Mandi Glad

who was faced with significant operational challenges at

Vaalkrantz and Vanggatfontein, as well as negotiating the Xceed

acquisition. These challenges having been overcome, I returned

to the Non-Executive Chairmanship in September 2013. In

addition, Dr Fanie Botha was appointed as Chief Operating

Officer during the year. Lastly, on 25 April 2014 Investec Bank

replaced Nedbank Capital as our JSE sponsor.

30

ChieF exeCutiVe OFFiCer’s reVieW

mandi glad Chief Executive Officer

200% increase in HEPS to 30.3 cps.

31



This year we achieved what we said we would.

We reported a gross profit of R218.7 million after a loss of

R27.3 million last year. Our after-tax net profit was

R64.4 million compared to the previous year’s net loss

after tax of R132.3 million. Group revenue was up 49% at

R1.4 billion mostly due to Vanggatfontein’s improved

performance. Cash generated from operations amounted to

R416.9 million, though this was offset by capital investments of

R307 million and debt repayments of R213.9 million.

We increased thermal coal production from our long life

Vanggatfontein Colliery by 45% to 2.2 million tonnes and its

metallurgical coal production by 49% to 97 635 tonnes.

Vaalkrantz production slipped by 7% to 303 837 tonnes (FY13:

326 597) due to challenging mining conditions, though problem

areas were addressed and output improved steadily towards

the year-end. Importantly, both operations remained fatality-free

with excellent safety records.

Thus, in this year, Keaton Energy took major strides towards

reaching our goal of becoming a 5Mtpa producer of coal. The

key events were ensuring our Vanggatfontein Colliery achieved

steady state production, acquiring Xceed and thus the

nearby Moabsvelden Project, to produce additional production

tonnages, and optimising our operations.

saFetyI am delighted to report that Keaton Energy remains fatality-

free since inception. Vaalkrantz reduced its lost-time injury

frequency rate (LTIFR) to 0.23 (FY13: 0.36), despite the inherent

risks in its underground, narrow seam operation. Unfortunately

Vanggatfontein’s LTIFR increased slightly to 0.09 (FY13: 0.00)

and is the subject of intensified management oversight.

VanggatFOntein Vanggatfontein has been developed into a long-life, reliable

asset generating cash flows to reduce debt and make strategic

capital investments into other Keaton Energy projects. We are

now broadening Vanggatfontein’s range of coal products by

washing B-grade coal and processing tailings into saleable

products. Previously, when Vanggatfontein had spare capacity

on its 5-seam plant, we would undertake toll washing for other

collieries, but we are now washing our own coal to varied sizes

for diverse end-users.

Discard and slurry sales totalled 844 334 tonnes for FY14,

compared with 454 083 tonnes in FY13, an increase of 86%.

VaaLKrantz and KWazuLu-nataLMaintaining production levels at our Vaalkrantz anthracite

colliery remains an ongoing challenge, as unlike Vanggatfontein,

it is an old mine nearing the end of its economically viable

resources.

Deteriorating and extremely difficult mining conditions in the

West Alfred section of the mine slowed production, but

management spent considerable effort in opening new coal

blocks and improving operational efficiencies. Mining at

Vaalkrantz has become so arduous that other companies would

probably have shut it down, but we are loathe to terminate

800 jobs when these are so scarce in the Vryheid region of

KwaZulu-Natal – and support thousands of dependants.

Keaton Energy is actively exploring other anthracite mining

opportunities in the region that can be exploited by Vaalkrantz’s

experienced workforce and established infrastructure.

In this regard, we intend rejuvenating our KwaZulu-Natal

anthracite output through prospective collieries at Balgray,

Koudelager and Mooiklip in the broad vicinity of Vaalkrantz, as

well as a thermal coal site at Braakfontein, near Newcastle.

mOabsVeLdenThe primary asset gained in our recent acquisition of Xceed was

the undeveloped Moabsvelden colliery project, which we

anticipate will produce a combined total of about 1.4 million

tonnes of export and Eskom-quality thermal coal per annum

when it commences production in 2015.

Keaton Energy took major strides towards reaching our goal of becoming a 5Mtpa producer of coal.

32

ChieF exeCutiVe OFFiCer’s reVieW COntinued

Moabsvelden offers clear-cut operational and financial synergies

with Vanggatfontein due to these collieries being just 3.5km

apart. Xceed’s initial feasibility and design study visualised

the project as a stand-alone colliery, but has been updated

to integrate the processing of its output through

Vanggatfontein’s infrastructure.

COnVerting sLurry and disCard intO reVenueFine coal and dense medium separation (DMS) discard material

continue to be stockpiled on co-disposal dumps on both our

mine sites. Both unfortunately contribute to our long-term

environmental footprint, but both constitute a potential source

of value. With regard to our slurry stream at Vanggatfontein, we

plan to make a significant investment in a filtration initiative

which, in the medium term, aims to eliminate our slurry stream

entirely. This will in turn enable us to re-mine our historically

deposited discards, enabling us to reduce, rather than grow,

our discard footprint. Markets for this fine coal are still immature,

but are developing on the basis of improving furnace

technologies, filtration techniques and agglomeration methods.

We similarly continue to invest in a fine coal agglomeration

initiative, which has the potential to create a competitive product

for use in traditional thermal and metallurgical applications. If

successful, both operations stand to benefit significantly from

this initiative.

In addition to the potential economic benefits that may flow

from these development projects, we regard them as

fundamental to our approach to business in an industry where

new ideas will be critical to our success in an ever more stringent

environmental regulatory regime.

xCeed aCquisitiOnAcquiring Xceed was a major step in securing Keaton Energy’s

future growth. Xceed’s primary asset was the Moabsvelden

colliery project, with other prospects in Roodepoort and

Bankfontein. Its combined total resource for the three projects

is 97.9 million tonnes on a Mineable Tonnes In-Situ (MTIS) basis.

The purchase was funded by own cash, R130 million from the

new Investec debt facility and the issuance of 32.6 million new

ordinary shares in Keaton Energy to Gunvor Group Limited

through a wholly owned subsidiary Plusbay at R1.78 a share.

Optimising Our debt FinanCingIn this period Keaton Mining secured a R350 million financing

facility from Investec Bank that has reduced our overall cost of

capital. This facility combines a R300 million term loan and a

R50 million working capital facility.

Keaton Mining allocated R170 million of the term loan to retire

the Nedbank project finance facility advanced in 2011 for the

construction of our Vanggatfontein coal washing plant and

ancillary facilities. The other R130 million of the term loan partly

funded the acquisition of Xceed. Coupled with our growing

cash reserves, the R50 million working capital facility positions

Keaton Energy to take advantage of opportunities that may

arise in the market.

COaL priCing and KeatOn energy’s business mOdeLIn this period the price of coal remained generally low, with

the international price (API4) of our anthracite exports

falling somewhat.

The thin margins earned from our products dictate that Keaton

Energy has to run a low-cost business model. We do this by

employing a lean complement of specialist and administrative

support staff at head office; with each mine’s line functions

being conducted by on-site mine management teams. Mining is

outsourced to mining contractors and coal processing activities

are performed in accordance with contracts and SLAs.

Much of our management time is expended in ensuring that our

contractors are producing coal in accordance with agreed

targets and SLAs.

suppLying Our CLientsUntil last year our coal was supplied to three primary markets.

By far our biggest client is Eskom, which presently takes all our

thermal coal. Shareholder and off-take partner Gunvor exports

much of our anthracite production to Brazil, and we also supply

5-seam and premium anthracite coal to South African buyers.

33



Future pLanning Over the past three years our management team has worked

hard to optimise our existing collieries and to bring new

resources into the project pipeline for continued growth. Our

table is now brimming with projects in Mpumalanga and

KwaZulu-Natal; therefore we see FY15 as a year of turning

prospects into operating collieries while making further

improvements in operating efficiencies at our existing operations.

We anticipate growing into a 5Mtpa coal producer by 2017.

Having said that, our standing policy of aggressive acquisition

means that we constantly look for new opportunities to

complement our existing operations and development projects.

At the same time Keaton Energy intends diversifying its product

mix to include export thermal coal and B-grade domestic coal,

supplemented by the coal briquettes and other products we

process from slurry and discard. Growing our coal offering will

make the group less dependent on cyclical demand for specific

products and will broaden our spread of clients.

Looking forward, Keaton Energy has worked itself into a position

that clears the way to let our strategy unfold along the growth

path to a sustainable, profitable mid-tier coal miner.

mandi gladChief Executive Officer

New acquisitions, the ramping up of our slurry processing

capacity and market-specific coal washing is enabling Keaton

Energy to broaden its product range and service a wider spread

of customers. Washing coal to domestic B-grade is making our

products suitable for South African clients that use boilers, while

slurry products can be used by Eskom and for a variety of

heating purposes in manufacturing. Our planned new anthracite

collieries in KwaZulu-Natal will be able to supply an expanded

export stream through Gunvor SA.

reguLatOry enVirOnmentThe amended Mineral and Petroleum Resources Development

Act (MPRDA) has passed through Parliament and its regulations

must now be drawn up, which will doubtlessly take up further

months of negotiations. As coal is now defined as a strategic

resource, we can only wait and see what the impact of this

definition may be on Keaton Energy. At this stage we anticipate

it to be slight, if any, as Keaton Energy is still a junior producer

and the bulk of our production is already contracted to Eskom.

LitigatiOnThe matters between Keaton Mining and DRA Mineral Projects

Proprietary Limited and Megacube Mining Proprietary Limited

as previously reported are proceeding to arbitration. The DRA

matter is set down for arbitration in October 2014 whilst the

Megacube matter is set down for February 2015.

neW appOintmentsThis past year has seen Keaton Energy’s management team

strengthened by the appointment of Dr Fanie Botha as

Chief Operating Officer, Anelia Schutte-Bouwer as Company

Secretary, Graham Stacey as Group Projects Manager,

Karen Chetty as Group Environmental Manager, Sonny Nkomo

as Group SLP Manager and Samantha Brown as Group Investor

Relations Manager. Each of them brings a wealth of experience

and expertise to Keaton.

34

ChieF FinanCiaL OFFiCer’s reVieW

Jacques rossouw Chief Financial Officer

49% increase in group revenue to

R1.4 billion.

35



Fy14 at a gLanCeThe 2014 financial year has seen Keaton Energy complete the

operational and financial turnaround promised in the second

half of FY13. The challenges at Vanggatfontein Colliery with the

mining contractor and plant throughput are now a distant

memory. Vanggatfontein is now operating at steady state.

Geological and mining conditions remained challenging at the

Vaalkrantz Colliery but the adoption of the outsourced mining

model used at Vanggatfontein in the second half of FY14 has

allowed operations to continue at a managed pace with a

greater proportion of our cost now being variable in nature and

therefore aligned with production volumes.

In February 2014 we concluded the acquisition of Xceed for

R194.7 million, which brought a further 43 million tonnes of

attributable coal reserves under our control. Moabsvelden offers

clear-cut operational and financial synergies with Vanggatfontein

due to these mines being just 3.5km apart. The acquisition was

financed through a specific issue of 32.6 million ordinary no par

value shares for cash to Plusbay Limited, a wholly owned

subsidiary of Gunvor Group Limited, which raised R58.1 million

and the balance through a financing facility with Investec Bank

Limited and own cash.

It is pleasing to note that the group’s net debt-to-equity ratio

has decreased from 39% in FY13 to 35% in FY14, despite an

increase in long-term debt as a result of the acquisition of

Xceed. This improvement was as a result of cash balances

increasing from R19.6 million in FY13 to R69.6 million in FY14

on the back of generating R416.9 million in cash from operations,

up 117% on the R191.8 million generated in FY13.

It is envisaged that Moabsvelden, with its higher margin export

thermal coal element and the combination of Vanggatfontein

and Moabsvelden into a single complex, will further increase

group profitability that will see return on shareholders’ equity

increase form 7% in FY14 to over 10% in the short to

medium term.

Our ability to work through the challenges of coal mining,

sometimes in difficult social and environmental conditions, has

been rewarded with much improved financial results culminating

in the group’s return to profitability and positive cash flow.

FinanCiaL perFOrmanCe

Headline earnings per share

FY11 FY12 FY13FY10 FY14-40

-30

-20

-10

0

10

20

30

40

5.610.3

(30.2)

9.5

30.3

Cen

ts p

er s

hare

Headline earnings per share increased by 200% to 30.3 cents per share (cps) in FY14 from a loss of 30.2 cps in FY13, evidencing the turnaround in financial performance. This increase was as a result of:

•Group revenue increasing by 49% from R918.8 million in

FY13 to R1 372.6 million in FY14 due to improved deliveries

of both thermal coal to Eskom and 5-seam metallurgical coal

from the Vanggatfontein Colliery.

•Gross profit improving from a loss of R27.3 million in FY13 to

a profit of R218.7 million in FY14. This improvement in results

began in the second half of FY13 and has continued with

increased production at Vanggatfontein, improved operational

efficiencies and the changed business model at Vaalkrantz.

•Group EBITDA increased from R87.7 million in FY13 to

R498.8 million in FY14, which includes once-off Xceed

acquisition-related costs of R13.2 million.

Our ability to work through the challenges of coal mining, sometimes in difficult social and environmental conditions, has been rewarded with much improved financial results culminating in the group’s return to profitability and positive cash flow.

36

ChieF FinanCiaL OFFiCer’s reVieW COntinued

0

100

200

300

400

500

600

700

Group net debt (Rm)

265

307 31

Net

deb

t 1

Ap

ril 2

013

1

(58)

195

(420)

3

324

Cap

ital a

nd

othe

r ad

diti

ons

Tax

pai

d

Xce

ed

acq

uisi

tion

Oth

er n

et

inve

stin

g ac

tiviti

es

Eq

uity

rai

sed

Net

deb

t31

Mar

ch 2

014

Net

cas

h ge

nera

ted

from

op

erat

ions

Fina

nce

cost

an

d fo

rex

loss

es

Cash flow from operations increased to R416.9 million for the

year, after paying tax of R2.8 million, an increase of 117% on

the R191.8 million generated in FY13.

Investment for capital development was R307 million, up from

the R210.5 million in FY13. The increase was mainly attributable

to the expansion of operations at Vanggatfontein with the

opening of Pit 4, which creates further mining flexibility and

optionality, and stripping costs in Pit 3.

Group net debt increased from R265.2 million in FY13

to R324 million in FY14 on the back of an increase in interest-

bearing borrowings from R284.8 million to R393.6 million as a

result of the acquisition of Xceed.

Cash balances, however, also increased from R19.6 million

at the end of FY13 to R69.6 million at the end of FY14.

The group was successful in concluding a medium-term

financing facility with Investec Bank Limited for R300 million, of

which approximately R170 million was utilised to retire the

previous Nedbank Limited project finance facility and the

balance being utilised for the acquisition of Xceed. A

further R50 million working capital facility was secured with

Investec which remained undrawn at year-end. The group was

in full compliance with its debt covenants during the

financial year.

Gross pro�t (%)

FY11 FY12 FY13FY10 FY14

0

300

600

900

1 200

1 500

0

5

10

15

20

25

30

35

Rev

enue

(Rm

)

GP

%

3%

34%

3%

(3%)

16%

-5

Vanggatfontein reached steady state during the year. The

colliery delivered 2 192 519 tonnes of washed 2- and 4-seam

thermal coal to Eskom, an increase of 45% from the previous

year’s 1 509 681 tonnes. 5-seam metallurgical coal sales

increased 49% to 97 635 tonnes from 65 661 tonnes.

Vaalkrantz dispatched 303 837 tonnes of anthracite to domestic

and international metallurgical markets, a 7% decrease over the

previous year’s 326 597 tonnes.

Costs of sales increased 22% from R946.1 million in FY13 to

R1 153.9 million in FY14. The increase was largely a result of the

increased mining volumes at Vanggatfontein but also included

an inflationary linked price adjustment afforded to our major

suppliers.

The majority of our mining costs are contractor driven, which in

turn are mainly influenced by mining machinery, labour and

consumables. With the weakening of the rand against the

US dollar (USD) in FY14 the cost of mining machinery increased

significantly. This, together with the instability in the mining

sector, which in turn led to significant increases in labour costs,

brought about extreme pressure to escalate costs in FY14. We,

however, managed to curb these price increases and were able

to limit these to inflationary linked increases only.

37



diVidendsNo dividends have been declared nor are any proposed for the

year ended 31 March 2014 (31 March FY13: R nil). The

development of Moabsvelden in FY15 will utilise a significant

portion of existing and future cash reserves as the group aims

to meet its short-term gearing targets. However, on the back of

the solid financial performance in FY14 and this trend continuing

in the early months of FY15, the payment of the group’s first

dividend now becomes more likely in the short term.

LOOKing aheadFollowing the optimisation of our Vanggatfontein operation we

will now focus on advancing our internal pipeline of projects.

Planning for the commissioning of Moabsvelden by the end of

the 2015 calendar year will be our single biggest goal for 2015.

A steady state Vanggatfontein and the changed business model

at Vaalkrantz should ensure ongoing satisfactory results in the

short to medium term which should be borne out when our

interim results are released in November 2014.

In order to realise our goal of producing 5Mtpa, we will also

continue to pursue acquisition opportunities where these offer

value for our shareholders. With the improved results, the group

believes that it is well positioned to explore various opportunities,

both internally and externally. Funding for these projects should

now be more accessible and more favourably priced.

During FY14 the group’s net asset value per share increased by

14% to 408 cents per share. However, our share was trading at

290 cents towards the end of July 2014, a discount of 29% to

its net asset value. That, coupled with a price earnings of

approximately 10 compared to a market average of 18 and

significant growth prospects signifies good long-term value in

our share.

Jacques rossouwChief Financial Officer

The group’s targeted short-term net debt-to-equity ratio of 40%

suggests further room for debt compared to the year-end ratio

of 35%. The development of Moabsvelden in FY15 will see an

increase in this ratio, and will approximate the target ratio over

the short term as the group takes on further debt.

Group liquidity improved significantly year on year as a result of

an increase in cash and bank balances on the back of a solid

financial performance in FY14. Credit risk is actively managed

with no risk attached to the recoverability of FY14 year-end

customer balances. The improved financial performance

continued in the first few months of the new financial year

thereby further improving group liquidity.

Consistent with FY13, full provision has been made for the two

litigation claims of approximately R75.5 million disclosed in

trade and other payables, note 28 to the financial statements.

The group has lodged counter claims in excess of these third

party claims for damages and losses sustained. The litigation is

ongoing at year-end and both matters are expected to be

resolved in FY15.

A breakdown of the repayment profile of interest-bearing

borrowings in the next 12 months is included in note 24 to the

financial statements which will cast further light on the impact

on group liquidity in the next financial year.

The group’s capital commitments at 31 March 2014 were

R62.9 million (FY13: R70.7 million), designated mainly for the

group’s development projects and capital projects at

Vanggatfontein. The majority of this value has not been

contracted at year-end. Refer to note 31 in the financial

statements for further detail.

A detailed analysis of the group’s financial performance is

provided on pages 64 to 67 of this report. A five-year review of

the group’s results, together with key performance ratios, is

provided on page 68 of this report. Our value added statement

appears on page 69.

38

OPERATIONAL REVIEW

38


39

03Safety and health 40 – 41

Vanggatfontein Colliery 42 – 43

Vaalkrantz Colliery 44 – 45

Pipeline projects 46 – 49

Coal Resource and Reserve Statement 50 – 60

39


Our two existing operations are the Vanggatfontein Colliery (Delmas, Mpumalanga) and the Vaalkrantz Colliery (Vryheid, KwaZulu-Natal). Vanggatfontein produces thermal coal for Eskom and metallurgical coal for domestic industrial consumers, while Vaalkrantz produces anthracite for domestic consumption and export to Brazil.

40

We are delighted to have recorded another zero fatality year, so that Keaton Energy has remained fatality-free since inception in 2006.

Our people have the right to work in a safe and healthy environment, therefore we are committed to conducting operations within the spirit and detail of the Mine Health and Safety Act (MHSA) and the Occupational Health and Safety Act (OHSA).

The Board monitors Keaton Energy’s safety and health performance through the Safety, Health and Environmental (SHE) Committee, which meets at least quarterly. This Committee is chaired by Dr David Salter and its members include Gerard Kemp and Mandi Glad.

MANAgEMENT Of SAfETy ANd HEALTHEach operation maintains a safety and health management structure that:•Complies with legislated requirements•Accords with accepted industry practice•Encourages safety and health beyond our workforce to

include contractors, communities, customers and visitors

Each operation has a SHE manager, a safety and health committee and full-time safety and health representation. On-mine management is supported by the group SHE Committee.

Specific safety and health functions include:• Identifying risks and hazards, implementing appropriate

controls and training employees accordingly•Setting safety and health targets, which are monitored

through internal and external auditing• Instilling a culture of continuous safety and health awareness

and improvement•Conducting monthly mass safety meetings with each entity,

supported by monthly visible felt leadership (VFL) days.

SAfETy ANd HEALTH ACTIONS THIS yEAR•A safety communication strategy was developed•Consistent disciplinary codes were applied equally across

all levels•Revised hazard identification and risk assessment (HIRA) and

VFL standards were implemented throughout the group.

SAfE dAyS RECOgNITION dRIVEIn January 2014, Keaton Mining launched a safety recognition award for teams reaching their Safe Day targets and achieving year-on-year LTIFR improvements. As safety is the responsibility of all, any fatality and reportable accidents disqualifies the business unit from any award for 12 months.

SAfETy ANd HEALTH

41



•HIV testing is offered to all TB diagnosed employees.• TB affected employees receive nutritional support. •Diagnostic X rays are repeated once prescribed TB treatment

has been completed. •All TB cases are investigated in terms of section 11.5 of the

MHSA and submitted on South African Mines Occupational Disease Database (SAMODD) documentation and to the Compensation Commissioner for consideration.

•Our HIV/Aids strategy is rigorous and accords with national and DMR guidelines. A Voluntary Counselling and Testing (VCT) programme was piloted at Vaalkrantz and is being rolled out to Vanggatfontein. HIV positive employees are managed in accordance with current best practice which entails: Pre- and post-HIV test counselling at the on-mine occupational health clinic.

•Employees who test HIV positive at Vaalkrantz are referred to the Hlobane local clinic for anti-retroviral (ARV) medication which they collect once a month. Employees who test HIV positive at Vanggatfontein are referred to the local clinic at Delmas or Botleng Clinic for ARV medication which they collect monthly.

•Contact cards are supplied and HIV positive employees are encouraged to disclose their status to their partners.

•HIV positive employees report back to the on-mine healthcare clinic on a monthly basis for continuous HIV counselling and follow up during which CD4 counts and viral loads are monitored.

•HIV positive employees continue to receive treatment for opportunistic infections and immunisations (flu vaccinations), as well as nutritional support.

At Vaalkrantz the Occupational Clinic gives a weekly tool box talk on health matters and at Vanggatfontein a hypertension and diabetes awareness programme has been launched under the guidance of its Occupational Clinic.

HEALTH PERfORMANCEIn this period we endeavoured to ensure that pre-existing occupational diseases were reported properly, identified health risks and provided regular health briefings to workers. These measures included:•Checking employee health status through risk-based medical

surveillance programmes.•Encouraging employees to be vigilant about conditions that

could affect their own safety and health or that of their colleagues.

•Providing information on the health implications of exposure to various workplace risks.

•Educating employees on measures to maintain good health.

In line with the DMR milestones for the elimination of noise induced hearing loss (NIHL) and occupational lung diseases in the workplace, the keys to prevention are technical engineering programmes to suppress noise and dust in the workplace, employee education and involvement, and lastly provision of protective equipment. Surveillance, a requirement of the MHSA, is currently outsourced to third parties. At Vaalkrantz, Occursure (Pty) Ltd and at Vanggatfontein, Kriel Healthcare Services, are the occupational healthcare service providers. At regular DMR audits the occupational clinics and medical surveillance programmes offered received consistently high scores.

Employees diagnosed with TB are managed according to the National Health Guidelines and may continue to work in their normal positions once they are non-infectious:•Once an employee has been diagnosed with a TB infection,

the employee is not required to report for duty for two weeks and additionally at Vaalkrantz (which is an underground mine) removed from underground work until the Occupational Medical Practitioner deems the employee fit for duty.

• Treatment is obtained for the employees from local supporting provincial healthcare clinics and the directly observed treatment system (DOTS) strategy is implemented.

SAfETy PERfORMANCEVanggatfontein Vaalkrantz

fy14 FY13 fy14 FY13

Fatality-free man hours 4 549 624 4 645 394 65 582 129 63 741 555

Fatality-free shifts 2 570 455 1 576 714 7 282 255 7 082 395

Lost-time injuries 2 – 5 3

LTIFR per 200 000 man hours worked 0.09 0.00 0.23 0.36

Medicals conducted 1 046 1 411 1 334 979

Cases of occupational disease 1 – 13 37

42

VANggATfONTEIN COLLIERy

KEy fACTSOwnershipKeaton Mining Proprietary Limited (74% Keaton Energy, 26% Rutendo Mining Proprietary Limited)

Location15km east of Delmas on the edge of the central Witbank Coalfield in Mpumalanga

Infrastructure•A 100tph 5-seam coal washing plant producing duff, peas

and nuts•A 500tph coal washing plant producing domestic thermal coal• Twin-lined slimes facilities and a coarse discard facility with related

water dams and drainage system•Related water and power reticulation, stockpile areas and

access roads• Tailings facilities

Mining methodOpencast: 5-, 4- and 2-seams

Washing capacity600tph DMS

Products produced• 2- and 4-seam washed thermal coal supplied to Eskom• 5-seam low contaminant, vitrinite dominant, bituminous coal for

supply to the domestic metallurgical industry

Reserve57.2Mt (FY13: 45.2Mt)

Resource145.6 (FY13: 70.3Mt)

Life of mine17+ years

Property, plant and equipment carrying value at 31 March 2014 (Rm)678.9

PermittingMining Right

43



OVERVIEWOperations at our Vanggatfontein opencast colliery have matured

well after a challenging ramp-up phase. In simple terms the

operation comprises a contractor-operated opencast operation

which delivers 5-, 4- and 2-seam ROM coal to our two coal

processing facilities – a 100tph 5-seam plant and a 500tph

2- and 4-seam plant. Both plants are owned by Keaton Mining

but operated by a specialist contractor. Products from both

plants are presently all trucked from site to various domestic

metallurgical customers, in the case of 5-seam products, and to

Eskom in the case of the 2- and 4-seam products. The potential

to rail product from a regional siding will be a focus area for our

logistics team going forward.

Value drivers fy14 fy13 % change

ProductionSales (Mt) 2.3 1.6 44ROM (Mt) produced 3.4 2.8 21Waste (Mm3) moved 9.9 9.7 2Strip ratio achieved 2.9 3.2 (9)

financialCapex (Rm) 294.3 210.5 40

SafetyLTIFR 0.09 0.00 100Fatality-free man hours 4 549 624 4 645 394 (2)

PeopleNumber of employees (including contractors) 430 416 3

financial performance

Revenue (Rm) 1 127.2 645.9 75Gross profit/(loss) (%) 21 (5) >100EBITDA (Rm) 545.1 98.1 >100Depreciation/amortisation (Rm) 308.6 184.6 67Operating profit/(loss) (Rm) 236.4 (86.5) >100

LOOKINg fORWARdHaving reached steady-state, Vanggatfontein with its 17+ year life, is set to deliver consistent production, profit and cash over the long term. Management will continue to seek cost reduction and optimisation opportunities where possible. As a primarily Eskom producer, and with Eskom’s demand expected to continue increasing, Vanggatfontein’s future looks bright.

The recent acquisition of Xceed, and in particular Xceed’s

Moabsvelden Project located 3.5km west of Vanggatfontein, will

change the complexion of Vanggatfontein during the coming

years. Key to the development of Moabsvelden is the existing

operating and management infrastructure already in place on

Vanggatfontein. The business model will therefore not change

materially, we simply plan to produce significantly larger volumes

from an existing site. Savings in terms of direct infrastructure

costs, as well as reduced construction timeframes all work

in favour of the planned expansion around the existing

Vanggatfontein operation.

44

VAALKRANTz COLLIERy

KEy fACTSOwnershipLeeuw Mining and Exploration Proprietary Limited (74% Keaton Energy, 26% JPI Leeuw and Associates Proprietary Limited)

Location20km east of Vryheid in KwaZulu-Natal

Infrastructure• Two shaft complexes comprising four underground access portals•A 110tph two-stage anthracite washing plant producing duff, peas

and nuts•Extensive power, water and road infrastructure•A fleet of underground mining equipment•Railway siding

Mining methodUnderground: Alfred and Gus Seams

Washing capacity110tph two-stage DMS

Products produced•Primary product sold into the domestic metallurgical market•Secondary product sold into the Brazilian iron ore pelletising

market

Reserve2.7Mt (FY13: 2.2Mt)

Resource15.2Mt (FY13: 17.8Mt)

Life of mine4.5 years

Property, plant and equipment carrying value at 31 March 2014 (Rm)115.8


45



OVERVIEWThe operation at Vaalkrantz comprises the Enyati and West Adits,

each with portals accessing the Alfred and Gus Seams

respectively. While high quality, the seams are narrow and present

arguably the most challenging underground mining conditions in

the South African coal industry. ROM production is trucked from

the respective adits to the central double-stage DMS coal

processing facility where sized products of various qualities are

produced. All of our saleable coal is trucked from the plant to our

rail siding at Hlobane from where products are either trucked or

railed to both domestic and export customers.

The ROM Coal Reserve currently stands at 2.7Mt which will

sustain the operation in its current form for the next 4.5 years.

Value drivers fy14 fy13 % change

ProductionSales (Mt) 0.30 0.33 (9)ROM (Mt) produced 0.43 0.55 (22)

financialCapex (Rm) 3.8 6.3 (40)

SafetyLTIFR 0.23 0.36 (36)Fatality-free man hours 65 582 129 63 741 555 3PeopleNumber of employees (including contractors) 722 778 (7)

financial performance

Revenue (Rm) 245.4 272.9 (10)Gross (loss)/profit (%) (7.3) 2 (>100)EBITDA (Rm) 2.1 30.8 (93)Depreciation/amortisation (Rm) 39.4 42.3 (7)Operating loss (Rm) (37.3) (11.4) (>100)

LOOKINg fORWARdAlthough the Vaalkrantz Colliery has an expected LOM of 4.5 years, several options are being examined to extend its life. Keaton Energy intends bringing two nearby projects into production in the near future that will utilise Vaalkrantz’s skilled workforce, underground mining fleet and washing plant.

Keaton Energy will continue exploration in the region, while working to reduce the unit cost of production at Vaalkrantz.

Additional resources are constantly being sought and investigated

in order to ensure a sustainable long-term operation at Vaalkrantz.

While this remains a management challenge, the nature of

anthracite resources in KwaZulu-Natal is such that numerous

straddled opportunities exist in the region which will not survive

stand-alone. The extensive infrastructure that exists at Vaalkrantz

positions us well to take advantage of these regional opportunities.

Despite the challenging underground conditions, the operation

has continued to achieve an excellent safety record. We are

particularly proud that the operation has been fatality-free since

inception, a record we are constantly aware of and strive

to maintain.

46

PIPELINE PROJECTS


Location10km south-east of Newcastle in KwaZulu-Natal

Highlights fy14• In-fill and box-cut placement drilling completed March 2014•Decline structural drilling and feasibility study to be completed

FY15

Mining methodOpencast and underground

Planned washing capacity250tph

Planned products•Primary product for supply into the A-grade export market•Secondary product for supply to Eskom

ROM reserve24.9Mt

Resource64.9Mt

Life of mine12 years


KEy fACTSOwnershipNeosho Trading 86 Proprietary Limited (74% Keaton Energy, 26% Minority grouping)

Location13km east of Delmas, Mpumalanga

Highlights fy14•Acquisition of Xceed completed February 2014•Options analysis under way to incorporate Moabsvelden into the

Vanggatfontein operational footprint

Mining methodOpencast


Planned products•Primary RB3 specification export thermal•Secondary middling product suitable for domestic power

generation

ROM reserve42.6Mt

Resource55.5Mt



MOABSVELdEN

BRAAKfONTEIN

47



BALgRAy

KOudELAgER


Location5km north-east of Utrecht, KwaZulu-Natal

Highlights fy14•Re-model of historical drilling data completed November 2013•Preliminary coal resource estimate compiled January 2014

Mining methodUnderground

Planned washing capacityTo be processed at Vaalkrantz

Planned products•Primary anthracite product for supply into the domestic

metallurgical market•Secondary export anthracite product

ResourceNot classified


PermittingMining Right Application


Location40km east of Vryheid in KwaZulu-Natal

Highlights fy14• Indicated Resource feasibility drilling completed November 2013,

resource estimate upgraded to 12.34Mt



Planned products•Primary product for supply into the domestic metallurgical market•Secondary product for supply into the Brazilian iron ore pelletising

market

Resource12.3Mt



48

PIPELINE PROJECTS CONTINuEd

KEy fACTSOwnershipAmalahle Exploration Proprietary Limited (74% Keaton Energy, 26% Camden Bay Investments 64 Proprietary Limited)

Location40km north-east of Vryheid in KwaZulu-Natal

Highlights fy14•Signature of Option and Acquisition agreement with BSC

Resources to acquire 100% of the project



Planned products•Primary anthracite product for supply into the domestic

metallurgical market•Secondary export anthracite product

ResourceNot classified

Life of mine10+ years (estimate)

PermittingProspecting Right

KEy fACTSOwnershipKeaton Mining Proprietary Limited (74% Keaton Energy, 26% Rutendo Mining Proprietary Limited) and Labohlano Trading Proprietary Limited (74% Keaton Energy, 26% Moneybox Investments Proprietary Limited)

Location10km south-west of Bethal in Mpumalanga

Highlights fy14•Executed two further Prospecting Rights covering adjoining

properties•Options analysis under way



Planned products•Primary product for supply into the A-grade export market•Secondary product for supply to Eskom

ROM reserve23.6Mt

Resource90.8Mt


PermittingProspecting Rights

STERKfONTEIN

MOOIKLIP

49



KEy fACTSOwnership15% investment through focus Coal Investments Proprietary Limited

Location30km north of Ermelo, Mpumalanga

Highlights fy14•Acquisition of Xceed completed February 2014

Mining methodOpencast and underground

Coal seamsA, B-lower, C-lower, D

Resource16.1Mt


KEy fACTSOwnership15% investment through focus Coal Investments Proprietary Limited

Location6km north of Kriel, Mpumalanga

Highlights fy14•Acquisition of Xceed completed February 2014


Coal seams2-upper, 2-lower, 1/1A seam

Resource26.3Mt


BANKfONTEIN

ROOdEPOORT

50

coal resource and reserve statement

our natural capitalThe Keaton Energy Group Coal Resource and Coal Reserve estimates have been compiled in terms of the South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code) as prepared by the South African Mineral Resource Committee (SAMREC) under the auspices of The South African Institute of Mining and Metallurgy (SAIMM) (2009). Under the SAMREC Code particular reference is made to the South African guide to the systematic evaluation of coal resources – South African National Standard (SANS 10320:2004).

Material changes to the 2013 Coal Resource and Coal Reserve Estimate are largely accounted for by the resource model upgrade at Vanggatfontein and the incorporation of the Moabsvelden, Bankfontein and Roodepoort Project resources via Keaton Energy’s acquisition of Xceed. The Vanggatfontein model update was commissioned with the view to optimising our exploitation of the resource to essentially ignore non-geological boundaries, such as the provincial road which split the resource into discrete eastern and western resource blocks. With the opening of the VG3/VG4 boxcut, the manner in which we mined these pits brought into question the feasibility of diverting the road to enable more optimal mining of these two pits. The resource was therefore re-evaluated from a broader Mining Right point of view, adding 69Mt to the Vanggatfontein MTIS Coal Resource. Life of mine planning for Pits VG3 and VG4 was therefore revised to incorporate the broader resource footprint, supplementing the ROM Coal Reserve from these pits by 16Mt.

The inclusion of the West Resource Block (WRB) into the Vanggatfontein Coal Resource is more a return to our historical reporting approach than the inclusion of new resources into our inventory. The WRB has been incorporated into the global Vanggatfontein model rather than being modelled as a separate geological block, which has returned a total of 80.8Mt on an MTIS basis to the previously reported 70.3Mt. The East Resource Block (ERB) contributes 64.8Mt to the total resource, which accounts for depletions during the 2014 financial year and the removal of a remnant block in advance of the now closed VG1 pit. The total MTIS Coal Resource for Vanggatfontein now stands at 145.6Mt.

The inclusion of the Moabsvelden Project Coal Resource into the group Coal Resource inventory added 65.3Mt on Gross Tonnes In-Situ (GTIS) basis (55.5Mt MTIS). The opencast ROM Coal Reserve at Moabsvelden was re-estimated after the acquisition of Xceed to take account of certain boundary pillar, dolerite and wetland buffer exclusion zones. Moabsvelden now contributes 42.6Mt to our 2014 ROM Coal Reserve.

The Bankfontein and Roodepoort Projects added 16.1Mt and 26.3Mt respectively on a MTIS basis to our coal resource. As stated previously, options are being evaluated to grow these resources through additional exploration and consolidation of contiguous properties to create critical mass.

The additional drilling and model update at Braakfontein during the latter part of 2013 and early 2014 improved the in-situ coal resource from 60.7Mt to 64.9Mt. Similarly, the additional drilling at Koudelager upgraded the resource to an Indicated Coal Resource, as well as increasing the in-situ resource marginally from 11.8Mt to 12.3Mt.

Geological work conducted at Vaalkrantz focused more on resource utilisation rather than resource growth. The total coal resource decreased from 17.8Mt to 15.2Mt as a result of depletions, but also the removal of certain remnants from the resource base that were unlikely to be mined using current infrastructure. The ROM Coal Reserve improved from 2.2Mt to 2.7Mt, which was very encouraging in an increasingly challenging geological setting.

51



inferredmt

indicatedmt

measuredmt

total coal resource

mtprobable

mtproved

mt

total rom coal

reservemt

vanGGatFontein collierY 5-seam – 2.9 3.5 6.4 0.8 2.2 3.04-seam – 45.9 38.5 84.4 3.1 27.0 30.12-seam – 13.7 41.1 54.8 2.0 22.1 24.1Sub-total – 62.5 83.1 145.6 5.9 51.3 57.2

moaBsvelden proJect5-seam – – 3.0 3.0 – 2.7 2.74-seam – 0.8 24.8 25.6 1.2 18.1 19.32-seam – 1.0 21.8 22.8 – 17.4 17.41-seam – 0.2 3.9 4.1 – 3.2 3.2Sub-total – 2.0 53.5 55.5 1.2 41.4 42.6

BanKFontein proJect*A seam 0.5 – – 0.5 – – –B lower seam 5.6 3.9 – 9.5 – – –C lower seam 2.3 1.1 – 3.4 – – –D seam 2.6 0.1 – 2.7 – – –Sub-total 11.0 5.1 – 16.1 – – –

roodepoort proJect*2-upper seam 2.5 7.6 5.6 15.7 – – –2-lower seam 2.0 3.4 2.1 7.5 – – –1-seam 0.6 1.2 0.9 2.7 – – –1A-seam 0.2 – 0.2 0.4 – – –Sub-total 5.3 12.2 8.8 26.3 – – –

sterKFontein proJect4-seam 40.6 50.2 – 90.8 23.6 – 23.6

vaalKrantZ collierYAlfred seam – 9.6 – 9.6 1.9 0.1 2.0Gus seam – 5.6 – 5.6 0.6 0.1 0.7Sub-total – 15.2 – 15.2 2.5 0.2 2.7

BraaKFontein proJectTop seam – 39.7 – 39.7 13.6 – 13.6Bottom seam – 25.2 – 25.2 11.3 – 11.3 Sub-total – 64.9 – 64.9 24.9 – 24.9

KoudelaGer proJectUpper Alfred seam – 2.4 – 2.4 – – – Lower Alfred seam – 1.1 – 1.1 – – – Gus seam 0.9 0.5 – 1.4 – – – Upper Dundas seam – 2.1 – 2.1 – – – Lower Dundas seam – 5.3 – 5.3 – – – Sub-total 0.9 11.4 – 12.3 – – – total 57.8 223.5 145.4 426.7 58.1 92.9 151.0 Keaton attriButaBle* 33.2 155.3 102.4 290.9 43.0 68.7 111.7Full Project Resources and Reserves are stated, AD – Air Dried, AR – As Received

* Bankfontein and Roodepoort Projects 15% held by Keaton Energy, all other collieries/projects held 74% by Keaton Energy

coal resource (mtis) (ad) rom coal reserve (mt) (ar)

52

coal resource and reserve statement continued

The Moabsvelden, Bankfontein and Roodepoort Project Coal Resource estimates were prepared by Kobus Dippenaar of Gemecs Proprietary Limited. The estimates are an extract of Competent Person’s Reports authored by Mr Dippenaar in compliance with the recommendations and guidelines set out in the revised 2009 SAMREC Code. By virtue of his extensive experience in the South African Coal industry Mr Dippenaar meets the requirements of the definition of a Competent Person in the SAMREC Code. Particular reference is made to section 6 of the SAMREC Code, Commodity Specific Reporting For Coal, as well as the guidelines laid out in the South African Guide to the systematic evaluation of coal resources and coal reserves (SANS 10320:2004) which provides a detailed framework for the reporting of coal resources and coal reserves for the purpose of the Securities Exchanges and defines common terminology to be used in public reporting with the SAMREC Code. For full details on all Coal Resource and Coal Reserve estimates, the basis on which these were prepared and details of Competent Persons, refer to the group’s website, www.keatonenergy.co.za.

With the exception of the Moabsvelden, Bankfontein and Roodepoort Projects, the Coal Resource estimates and classifications for the balance of Keaton Energy’s Collieries and Projects were prepared under the supervision of Dr Philip John Hancox of Caracle Creek International Consulting Coal Proprietary Limited. Dr Hancox is a member in good standing of the South African Council for Natural Scientific Professions (SACNASP No 400224/04) as well as a Member and Fellow of the Geological Society of South Africa. He is also a Member of the Geostatistical Association of South Africa, the Society of Economic Geologists, the Fossil Fuel Foundation, and a Core Member of the Prospectors and Developers Association of Canada. Recently he has been appointed as a Council Member of the Fossil Fuel Foundation. He has 15 years’ experience in the South African Coal and Coals industries, holds a PhD from the University of the Witwatersrand (South Africa), and has authored a number of published and unpublished academic articles on the Karoo Basin and its contained coal deposits, as well as over 60 peer reviewed scientific papers on various aspects of sedimentary geology, basin analysis, coal and palaeontology. He is also a regular presenter and contributor at coal conferences, and is currently a member of the SABS TC-27 working group, which is currently rewriting the SANS 10320 guidelines.

53



vanGGatFontein collierY


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

5-seam – 2.9 3.5 6.4 0.8 2.2 3.0

4-seam – 45.9 38.5 84.4 3.1 27.0 30.1

2-seam – 13.7 41.1 54.8 2.0 22.1 24.1

total – 62.5 83.1 145.6 5.9 51.3 57.2

0 1000m

Delmas

15km

Leandra

25kmO28 50'E O28 51'E O28 52'E O28 53'E

O2

61

0'S

O2

611

'SO

26

12

'S

Vanggatfontein 251IR

Transnet Pipeline

West ResourceBlock

East ResourceBlock

N

555

R

f f

54

0 2000m

West Adit Workings

Enyati AditWorkings

Block 2

Block 3

Block 4

Block 5

Alfred Seam Sub-outcrop

f

Vryheid 25km

Block 1

Swart Umfolozi 20km

f

fff

f

f

f

O2

74

6'S

O2

74

7'S

O2

74

8'S

O2

74

9'S

O2

75

0'S

O2

75

1'S

Rustplaats 165HU Ptn3

Rustplaats165HU RE

LeeuwnekSection

O31 00'E O31 01'E O31 02'E O31 03'E O31 04'E O31 05'EO30 59'E

vaalKrantZ collierY


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

Alfred seam – 9.6 – 9.6 1.9 0.1 2.0

Gus seam – 5.6 – 5.6 0.6 0.1 0.7

total – 15.2 – 15.2 2.5 0.2 2.7


N

555

R

f f

55



moaBsvelden proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

5-seam – – 3.0 3.0 – 2.7 2.7

4-seam – 0.8 24.8 25.6 1.2 18.1 19.3

2-seam – 1.0 21.8 22.8 – 17.4 17.4

1-seam – 0.2 3.9 4.1 – 3.2 3.2

total – 2.0 53.5 55.5 1.2 41.4 42.6

Wetland(Indicated Resource)

No-coalZone

Delmas14km

Kendal17km

Leandra30km

O28 48'E O28 49'E

0 500m

O26

09'S

O26

10'SPan

Vanggatfontein

Colliery 2.2kmFarm road

Farm Dam

N

555

R

f f

56

0 2000m R542R36

Bankfontein 215IS Ptn 1


Extent of B Lower Coal Seam

Carolina18km

R36

O29 54'E O29 55'E O29 56'E O29 57'E O29 58'E O29 59'E O30 00'E

O2

61

3'S

O2

61

4'S

O2

61

5'S

O2

61

6'S

O2

61

7'S

O2

61

8'S

Ermelo25km

Breyton


Carolina30km

Hendrina26km

Hendrina

20km

BanKFontein proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

A seam 0.5 – – 0.5 – – –

B-lower seam 5.6 3.9 – 9.5 – – –

C-lower seam 2.3 1.1 – 3.4 – – –

D seam 2.6 0.1 – 2.7 – – –

total 11.0 5.1 – 16.1 – – –


N

555

R

f f

57



Rietspruitdam

R547

R545

R54

4

0New Clydesdale CollieryDiepspruit Section

Roodepoort 40ISPtn 6

Diepspruit 41ISPtn 6

Thubelihle

Krie

l 5km

O2

60

9'S

O2

611

'SO

26

13

'S

0 2000m

Roodepoort 40ISPtns 11,17

O29 11'E O29 13'E O29 15'E O29 17'E

TavistockColliery

0

0Albion Collieries

0Phoenix Colliery

Ogies

18km

Kriel2km

roodepoort proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

2-upper seam 2.5 7.6 5.6 15.7 – – –

2-lower seam 2.0 3.4 2.1 7.5 – – –

1-seam 0.6 1.2 0.9 2.7 – – –

1A seam 0.2 – 0.2 0.4 – – –

total 5.3 12.2 8.8 26.3 – – –

N

555

R

f f

58


Resource Block 1

Resource Block 2b

0 2000m

Resource Block 3

Bethal

f

f

f

f

Sec

unda

7km

Morg

enzo

n

23km

O29 21'E O29 23'E O29 25'E O29 27'E O29 29'E

O2

63

0'S

O2

63

2'S

O2

63

4'S

O2

55

8'S

O2

63

6'S

Resource Block 2a

Tutu

ka P

ow

er

Sta

tion

12km

N17

R38

R35

N17

Davel18km

sterKFontein proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

4-seam 40.6 50.2 – 90.8 23.6 – 23.6

total 40.6 50.2 – 90.8 23.6 – 23.6

N

555

R

f f

59



0 1000m

RailwayPortion 1

Remainder ofMadadeni15961HT

Remainder ofBraakfontein

4278HT

Remainder ofDrycut

8198HT

Newca

stle

10km

O30 01'E O30 02'E O30 03'E O30 04'E

O2

74

6'S

O2

74

7'S

O2

74

8'S

BraaKFontein proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

Top seam – 39.7 – 39.7 13.6 – 13.6

Bottom seam – 25.2 – 25.2 11.3 – 11.3

total – 64.9 – 64.9 24.9 – 24.9

N

555

R

f f

60




0 1000m

R618

Dundas SeamSub-outcrop

Alfred SeamSub-outcrop

RE Koudelager115HU

Vryheid

40km

Portion 1:Koudelager

115HU

O2

74

7'S

O2

74

8'S

O2

74

9'S

O31 12'E O31 13'E O31 14'E

Nongom

a

50kmSwart

Umfolozi

20km

KoudelaGer proJect


InferredMt

IndicatedMt

MeasuredMt

total coal resource

mtProbable

MtProved

Mt

total romcoal

reservemt

Upper Alfred seam – 2.4 – 2.4 – – –

Lower Alfred seam – 1.1 – 1.1 – – –

Gus seam 0.9 0.5 – 1.4 – – –

Upper Dundas seam – 2.1 – 2.1 – – –

Lower Dundas seam – 5.3 – 5.3 – – –

total 0.9 11.4 – 12.3 – – –

N

555

R

f f

61



6262


62

63

Keaton EnergyIntegrated Annual report 2014Keaton EnergyIntegrated Annual Report 2014

63

04Financial performance and value creation 64 – 67

Five-year financial performance 68

Value created and distributed 69

63

A steady state Vanggatfontein and the changed business model at Vaalkrantz should ensure ongoing satisfactory results in the short to medium term which should be borne out when our interim results are released in November 2014.


page 62 – 69

64

FINANCIAL PERFORMANCE AND VALUE CREATION

Extracts from the consolidated statement of profit or loss and other comprehensive income.

Year ended 31 March

R million FY14 FY13%

change

Revenue 1 372.6 918.8 49 Cost of sales (1 153.9) (946.1) (22) Gross profit/(loss) 218.7 (27.3) >100 Mining and related expenses (11.5) (70.5) 84Administrative expenses (70.9) (54.7) (30) Operating profit/(loss) before net finance cost 150.1 (139.4) >100 Net finance costs (47.7) (32.2) (48) Income taxation (expense)/credit (38.0) 39.3 (>100) Net profit/(loss) for the year 64.4 (132.3) >100

Revenue (Rm)

FY13 FY140

200

400

600

800

1 000

1 200

1 400

■ Coal sales

■ Anthracite sales

■ Transportation income

■ Toll washing

779.3

245.4

336.811.1

433.7

272.9

196.615.6

Group revenue increased by 49%, from R918.8 million in FY13 to R1 372.6 million in FY14. The increase was as a result of improved operational performance at Vanggatfontein leading to increased deliveries of both thermal coal to Eskom and 5-seam metallurgical coal to domestic customers.

Segmental revenue (Rm)

FY13 FY14

0

200

400

600

800

1 000

1 200

■ Coal sales

■ Anthracite sales

■ Transportation income

■ Toll washing

433.7

196.6

15.6

272.9

11.1336.8

779.3

245.4

Vanggatfontein Vaalkrantz Vanggatfontein Vaalkrantz

Vanggatfontein delivered 2.2Mt of washed 2- and 4-seam thermal coal to Eskom during FY14, an increase of 45% from the previous year’s 1.5Mt. Sales of 5-seam metallurgical coal increased by 49% to 0.10Mt from 0.07Mt in line with the mine plan. The increased utilisation of the 5-seam plant allowed limited washing of other coals: 0.1Mt were toll washed and 0.01Mt of B-grade market development product was produced.

The colliery generated revenue of R779.3 million from coal sales compared to R433.7 million in FY13, transport revenue of R336.8 million compared to R196.6 million in FY13 and R11.1 million from toll washing compared to R15.6 million in FY13.

Vaalkrantz dispatched 0.3Mt of anthracite to domestic and international metallurgical markets, a 9% decrease over the previous year’s 0.33Mt. The operation continued to suffer from extremely difficult mining conditions in the West Alfred section of the mine which limited production.

The colliery generated revenue of R245.4 million compared to R272.9 million in FY13. The decrease in sales was mainly attributable to a decrease in sales volumes although export product prices also decreased year on year.

COST OF SALESCost of sales increased by 22% from R946.1 million in FY13 to R1 153.9 million in FY14. The increase was mainly attributable to an increase in production volumes at Vanggatfontein.

65


Cash cost increased by 26% from R868.2 million in FY13 to R1 093.1 million in FY14. The increase was largely a result of the increased mining volumes at Vanggatfontein but also included an inflationary linked price adjustment afforded to our major suppliers in circumstances where the majority of our costs were influenced by a weakening rand against the USD and instability in the mining sector which led to significant increases in labour cost.

Depreciation and amortisation charges recognised in cost of sales increased by 53% from R227.1 million in FY13 to R348.1 million in FY14, mainly as a result of the increase in production volumes at Vanggatfontein.

GROSS PROFIT/(LOSS)

Gross profit (%)

FY13 FY14

0

200

400

600

800

1 000

1 200

1 400

918.8

1 372.6

0

10

20

30

16%

■ R

even

ue (R

m)

GP

%

(3%)

The group recorded a gross profit of R218.7 million for FY14 compared to a gross loss of R27.3 million in FY13. This improvement in results began in the second half of FY13 and has continued with increased production at Vanggatfontein, improved operational efficiencies and the changed business model at Vaalkrantz. Production costs were controlled tightly and cost containment remains a key focus at both operations.

Mining and related expensesMining and related expenses decreased from R70.5 million in FY13 to R11.5 million in FY14 as a result of recognising a loss on the derecognition of assets to the value of R51.2 million in FY13 after a decision was taken to close Pit 1 at Vanggatfontein as it was no longer economic to mine.

Administrative expensesAdministrative expenses increased by 30% from R54.7 million in FY13 to R70.9 million in FY14 mainly as a result of acquisition-related cost to the value of R13.2 million attributable to the acquisition of Xceed.

Segmental cost of sales (Rm)

FY13 FY140

200

400

600

800

1 000

1 200

■ Vanggatfontein

■ Vaalkrantz

890.6

263.3

675.6

270.5

At Vanggatfontein ROM coal production volumes increased by 21% from 2.8Mt in FY13 to 3.4Mt in FY14. Waste volumes increased 2% from 9.7Mm³ in FY13 to 9.9Mm³ in FY14.

At Vaalkrantz ROM anthracite production volumes decreased by 22% from 0.55Mt in FY13 to 0.43Mt in FY14

Year ended 31 March


change

Cash cost 1 093.1 868.2 26 Depreciation 348.1 227.1 53 Deferred stripping capitalised (290.7) (135.1) (>100) Inventory movement 3.4 (14.1) >100

1 153.9 946.1 22%

Cost of sales (Rm)

FY13 FY14-200

0

200

400

600

800

1 000

1 200

■ Cash cost, net of stripping cost capitalised

■ Depreciation

■ Inventory movement

802.4

348.13.4

(14.1)

733.1

227.1


page 62 – 69

66

FINANCIAL PERFORMANCE AND VALUE CREATION CONTINUED

Operating profit/(loss) before net finance costFor a further breakdown of the contribution by each operating segment to operating profit/(loss) before net finance cost refer to the segment report on pages 176 to 178.

EBITDA (%)

FY13* FY140

200

400

600

800

1 000

1 200

1 400

1 000

1 200

1 400

1 500

918.8

15%

1 372.6

0

20

40

60

36%

■ R

even

ue (R

m)

EB

ITD

A %

* EBITDA for 2013 excludes the once-off loss on derecognition of assets of R51.2 million.

Net finance costNet finance cost increased by 48% from R32.2 million in FY13 to R47.7 million in FY14 mainly as a result of the settlement of the Nedbank project finance facility which led to the once-off recognition of the remaining balance of debt raising fees to the value of R7 million as well as an increase in rehabilitation interest of R6.1 million due to the unwinding of the mine closure and environmental rehabilitation liability.

Income taxation (expense)/creditA tax expense of R38 million was recorded in FY14 compared to a credit of R39.3 million in FY13. The expense recorded in FY14 was mainly attributable to the utilisation of estimated tax losses and unredeemed capital expenditure by Keaton Mining Proprietary Limited (Keaton Mining), as a result of the improved operational and financial performance of Vanggatfontein. The deferred tax asset in the statement of financial position accordingly decreased when compared to FY13.

Extracts from the consolidated statement of financial position

At 31 March


change

Non-current assets 1 612.4 1 286.1 25 Property, plant and equipment 797.2 776.1 3 Intangible assets 700.7 424.1 65 Deferred tax 17.1 51.8 (67) Trade and other receivables 37.6 – 100 Other 59.8 34.1 75 Current assets 259.5 143.3 81 Cash and cash equivalents 69.6 19.6 >100 Other 189.9 123.7 53

Total assets 1 871.9 1 429.4 31

Equity 916.2 686.0 34

Non-current liabilities 675.6 460.5 47 Borrowings 341.8 235.4 45 Mine closure and environmental rehabilitation provision 215.2 137.5 57 Other 118.6 87.6 35 Current liabilities 280.1 282.9 (1)Borrowings 51.7 49.4 5 Other 228.4 233.5 (2)

Total liabilities 955.7 743.4 29

For a breakdown of total assets and liabilities per operation refer to the segment report on pages 176 to 178.

Property, plant and equipment increased by 3% from R776.1 million in FY13 to R797.2 million in FY14. The main reason for the increase relates to capital investments at Vanggatfontein of R294.3 million, mainly attributable to mine development in Pit 3 and Pit 4. The rehabilitation assets at Vanggatfontein also increased by R79.4 million as a result of an increase in the rehabilitation liability. These were offset by depreciation charges of R359.3 million in FY14 compared to R235.2 million in FY13 as a result of an increase in production volumes in FY14.

Intangible assets increased by 65% from R424.1 million in FY13 to R700.7 million in FY14. The main reason for the increase relates to the acquisition of Xceed whereby the majority of the purchase consideration was allocated to the Moabsvelden mining right of R284.7 million. The acquisition was accounted for as an asset acquisition under IFRS. This increase was offset by the sale of the Impati Prospecting Right for R12 million.

Group net deferred tax liabilities increased from R35.5 million in FY13 to R70.2 million in FY14. The increase in net liabilities was mainly attributable to the utilisation of estimated tax losses and unredeemed capital expenditure by Keaton Mining, as a result of the improved operational and financial performance of Vanggatfontein.

67


Extracts from the consolidated statement of cash flow

Year ended 31 March


change

Cash flows from operating activities 416.9 191.8 >100 Cash flows from investing activities (500.1) (216.9) (>100) Cash flows from financing activities 133.2 (15.8) >100 Net increase/(decrease) in cash and cash equivalents 50.0 (40.9) >100 Cash and cash equivalents at the beginning of the year 19.6 60.5 (68)Cash and cash equivalents at the end of the year 69.6 19.6 >100

0

50

100

150

200

250

300

350

400

450

Cash generated from operations (Rm)

FY13 FY14

191.8

416.9

Operations generated net cash of R416.9 million in FY14 compared to R191.8 million in FY13 after taking working capital outflow of R67 million (FY13: inflow of R66.3 million) and net finance cost of R14.4 million (FY13: R23.8 million) into account. The increase in operational cash was as a result of the improved operational performance at Vanggatfontein.

Cash invested in investing activities increased from R216.9 million in FY13 to R500.1 million in FY14. The main reason for the increase was the acquisition of Xceed, net of cash acquired of R192 million, and an increase in capital investment, mainly at Vanggatfontein, of R294.3 million. The increase in capital investment was financed through cash generated from operations.

Financing activities generated cash of R133.2 million in FY14, mainly as a result of an increase in borrowings of R300 million and R58 million in cash generated by a specific issue of shares to Plusbay Limited, net of transaction cost of R6 million, for the acquisition of Xceed. The cash generated was offset by the repayment of borrowings of R213.9 million, mainly as a result of the settlement of the Nedbank project finance facility of R169.3 million.

Non-current trade and other receivables of R37.6 million represents the discount to the fair value of shares issued to Plusbay Limited as part of the Xceed acquisition that was accounted for as a share-based payment. The discount was recognised as an asset as it relates to future financing that will be obtained in the form of a USD4 million prepayment for coal offtake from Moabsvelden.

0

100

200

300

400

500

600

700

Group net debt (Rm)

265

307 31

Net

deb

t 1

Ap

ril 2

013

1

(58)

195

(420)

3

324

Cap

ital a

nd

othe

r ad

diti

ons

Tax

pai

d

Xce

ed

acq

uisi

tion

Oth

er n

et

inve

stin

g ac

tiviti

es

Eq

uity

rai

sed

Net

deb

t31

Mar

ch 2

014

Net

cas

h ge

nera

ted

from

op

erat

ions

Fina

nce

cost

an

d fo

rex

loss

es

Group net debt (borrowings less cash and cash equivalents) increased from R265.2 million in FY13 to R324 million in FY14 on the back of an increase in interest-bearing borrowings from R284.8 million to R393.6 million as a result of the acquisition of Xceed. Cash balances, however, also increased from R19.6 million at the end of FY13 to R69.6 million at the end of FY14 as a result of the improved operational performance at Vanggatfontein.

Mine closure and environmental rehabilitation provision increased from R140.3 million in FY13 to R215.2 million in FY14. The rehabilitation liability at Vanggatfontein increased by R75.8 million during the year. The increase is mainly attributable to the additional ground disturbances at Pit 3, the opening up of Pit 4 as well as the unwinding of interest on previously recognised rehabilitation liabilities of R11.4 million. These increases were offset by rehabilitation work completed at Pit 1 of R15.1 million. The rehabilitation liability at Vaalkrantz increased by R2 million during the year, due to additional environmental disturbances. The short-term portion of the mine closure and environmental rehabilitation provision decreased by R2.9 million due to rehabilitation work completed at Klip Colliery.


page 62 – 69

68

FIVE-YEAR FINANCIAL PERFORMANCE

FY14 FY13 FY12 FY11 FY10Statement of profit or loss and other comprehensive income (Rm)Revenue 1 372.6 918.8 474.4 35.2 22.0 Gross profit 218.7 (27.3) 14.6 12.1 0.8 EBITDA 498.8 87.7 242.9 (13.8) (12.5)Net profit/(loss) before tax 102.4 (171.6) 105.9 0.6 3.8 EPS (cents) 30.3 (44.2) 75.2 10.3 4.1 HEPS (cents) 30.3 (30.2) 9.5 10.3 5.6

Statement of financial position (Rm)Property, plant and equipment 797.2 776.1 832.7 479.5 48.0 Cash and cash equivalents 69.6 19.6 60.5 27.0 335.1 Total assets 1 871.9 1 429.4 1 488.3 783.4 473.4 Equity attributable to owners of the company 865.0 709.2 778.7 591.3 456.1 Total equity 916.2 686.0 803.3 581.5 454.3 Borrowings 393.6 284.8 297.3 – – Total liabilities 955.7 743.4 685.0 201.9 19.1

Statement of cash flows (Rm)Cash flow from operating activities 416.9 191.8 129.5 3.0 9.9 Cash flow from investing activities (500.1) (216.9) (295.9) (368.3) (48.5)Cash flow from financing activities 133.2 (15.8) 199.9 57.2 –

Share price performance– High (rand per share) 3.40 3.74 3.68 6.01 10.50 – Low (rand per share) 1.00 1.55 2.20 2.85 5.11 – At year-end (rand per share) 2.52 1.90 2.85 3.15 6.16 Volumes traded (million) 16.7 16.7 13.4 20.6 18.4 Number of ordinary shares in issue at year-end (million) 224.3 191.7 188.8 171.5 144.8

Financial statisticsLiquidity ratios– Current ratio 0.93 0.51 0.85 0.61 18.03 – Quick ratio 0.80 0.37 0.75 0.55 18.03

Profitability– Gross profit/(loss) margin (%) 16 (3) 3 34 3 – EBITDA margin (%) 36 10 51 (39) (57) – Net profit/(loss) before taxation

margin (%) 7 (19) 22 2 17 – Return on equity (%) 7 (8) 2 3 2

Debt leverage– Debt-to-equity ratio 43 42 37 – – – Net debt-to-equity ratio 35 39 29 – – – Interest cover 2.97 ( 4.06) 0.16 (12) (770)

Other– NAV per share (cents per share) 408 358 426 339 314 – Market cap at year-end (million) 565.3 364.2 537.9 540.4 892.2 – Effective tax rate (%) 37.1 22.9 (5.8) (1 054.5) 193.7

Current ratio •Current assets/current liabilities

Quick ratio •Current assets less inventories divided by current liabilities

EBITDA margin •EBITDA as percentage of sales

Net profit/(loss) before taxation margin

•Net profit/(loss) before taxation divided by sales

Return on equity •Headline earnings divided by ordinary shareholders’ interest in capital and reserve

Debt-to-equity ratio • Total debt divided by total equity. Total debt comprises long-term borrowings, overdrafts and short-term borrowings. Total equity comprises total shareholders’ interest

Net debt-to-equity ratio • Total debt less cash and cash equivalents divided by total equity. Total debt comprises long-term borrowings, overdrafts and short-term borrowings. Total equity comprises total shareholders’ interest

Interest cover •Profit before exceptional items and finance costs divided by finance costs

0

200

400

600

800

1000

1200

1400

22.0

FY12FY11FY10 FY13 FY14

918.8

474.4

35.2

1 372.6

Revenue (Rm)

3 3


16

34

(3)-10

0

10

20

30

40

Gross margin (%)

473.4


1 429.41 488.3

783.4

1 871.9

0

380

760

1 140

1 520

1 900

Total assets (Rm)

69


VALUE CREATED AND DISTRIBUTED

VALUE ADDED STATEMENTGroup

31 March2014

Rm

Wealth created

%

31 March 2013

Rm

Wealth created

%

Cash generated:Cash derived from sales and services 1 313.5 842.8 Proceeds from shares issued for cash 58 9 Cash generated from increase in borrowings 300 –Cash acquired through asset acquisition 2.6 –Income from investments and interest received 2.2 2.1 Cash generated from the disposal of intangible assets 12 –Net cash invested in restricted cash and restricted investments (13.2) (3.9) Paid to suppliers for goods and services (853) (598.6)

Cash value added 822.1 100 251.4 100

Cash utilised to:Pay to suppliers for mine development/infrastructure/exploration 307 37 213 85 Paid for asset acquisitions 194.7 24 – –Repayment of borrowings 213.9 26 – –Remuneration to employees and directors for services 53.8 7 77.2 31 Direct taxes paid to government 2.8 – 2.1 1

Cash disbursed among stakeholders 772.2 94 292.3 117

Cash generated/(invested) in the group to maintain and develop operations 49.9 6 (40.9) (17)

NOTES TO THE GROUP VALUE ADDED STATEMENT1. Tax contributionDirect taxes (as above) 2.8 2.1 Value added taxes levied on purchases of goods and services 143.7 124.5

146.5 126.6

2. Additional amounts collected by the group on behalf of governmentValue added tax and other duties charged on turnover 187.6 117.7 Employees’ tax deducted from remuneration paid 13.9 14.7 Unemployment insurance fund 0.3 0.4

201.8 132.8

3. Levies paid to governmentRates and taxes paid to local authorities 0.2 0.1 Royalties paid to government 4.5 1.7 Unemployment insurance fund 0.3 0.4 Skills development levy 0.6 0.7

5.6 2.9

The value added statement shows the wealth the group has created through mining, exploration, trading and investing activities and how it was disbursed among the group’s stakeholders.

The information used to prepare these graphics has been extracted from the group’s Annual Financial Statements and books of prime entry.


page 62 – 69

7070

OPERATING CONTEXT

71

Keaton EnergyIntegrated Annual report 2014Keaton EnergyIntegrated Annual Report 2014

71

05The future of South African coal 72 – 75

Risks and opportunities 76 – 77

Material issues 78 – 79


Coal has the potential to provide secure and affordable energy, extend employment and increase export revenues. These benefits are particularly relevant in light of South Africa’s development priorities of job creation and economic growth.

72

ThE fuTuRE Of SOuTh AfRICAN COAl

COAl MARKET PROjECTIONSCoal accounts for 41% of the world’s electricity generation, with most countries relying on coal as their key fuel for generating stable base load electricity. According to the International Energy Agency (IEA), growth in coal usage has been greater than for any other fuel in recent years.

Glencore CEO, Ivan Glasenberg, expects demand for coal to remain solid in key regions amid high gas prices and the recovering global economy: “Coal remains the prime choice to fuel economic growth in Asia,” he said, adding that Australian and Indonesian coal supply growth was expected to be significantly lower in 2014 as a result of capital expenditure having been slashed and projects suspended.

According to the World Resources Institute, almost 1 200 new coal facilities are proposed for construction in 59 countries. Over the last 10 years, the majority of new coal-fired power plants were built in China, where 70% of electricity generation is coal-fired. China plans to increase energy output from current levels of about 1 145 gigawatts to 2 000 gigawatts by 2025. The country already burns some 3.8 billion tonnes of coal each year.

Demand growth in Africa is also high, albeit off a lower base. The continent needs an additional 7 000MW of electricity each year to keep up with its estimated growth rate. It is estimated that 20% of South African households are still awaiting electricity connections.

Source: London Commodity Brokers.

World coal flows Import region

Import/export (swing) region

Export region

FOB IndO (Sub Bit)

FOB QHd

CFR S. CHIna

FOB BOL

FOB nEWC (nEWC)

CFR Japan/KOREa/TaIWan

dES aRa (apI#2)

FOB RBCT (apI#4)

CFR IndIa

Coal will remain the largest source of electricity generation globally (TWh)

Coal

14 000

12 000

10 000

8 000

6 000

4 000

2 000

01990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Renewables Gas Nuclear Oil Source: London Commodity Brokers

Twh

73



COAl ANd SOuTh AfRICAN POwER SuPPlIESExisting South African power stations do not have enough coal

contracted to the end of their service lives. In some cases

shortfalls may occur as early as 2015. Most existing coal-fired

power stations need to secure coal supplies well into the

2030s, with four stations requiring significant volumes of coal

beyond 2040.

In March this year, South Africans endured the country’s first

load shedding in six years, reminiscent of the 2008 blackouts

that cost the economy billions of rands. Eskom requires

continuous coal supplies as it generates approximately 95% of

the electricity used in South Africa through its coal-fired power

stations. Approximately 60Mt of new coal supply is needed by

2020 to keep the power stations burning.

Eskom and government are investigating alternative power

sources, but planned nuclear stations are on hold and renewable

energy from wind and solar is not yet economically viable or

suitable for base load electricity. Gas is the only other viable

option that can be introduced relatively quickly. This assumes

that suitable and affordable sources of gas are found. The

quickest available source would be the gas fields off Mozambique

and further up Africa’s east coast to Kenya, but imported gas

reduces energy security and is vulnerable to potential conflict

and pricing. Recent findings in the Karoo region could offer a

reliable and cheap local source and have been called a “game

changer”, but this option has already attracted controversy and

will require at least a decade to explore and develop.

In short, coal will be filling South Africa’s power gaps for many

years to come. Coal-fired power stations offer the benefit of

having a guaranteed feedstock, and South African generating

experience is primarily with coal-fired power. Nevertheless,

should gas become an electricity feedstock in fewer years than

forecast, it would free up coal for export at significantly higher

prices than Eskom pays. Coal miners would benefit and so

would South Africa through increased foreign revenue inflows.

Coal mining in South Africa is currently in a growth phase that is

forecast to continue for at least the next 20 years.

170

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

02013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2049 2050 2051

Mtpa

Based on a 50-yearoperational lifespan.Only five stations still in operation after 2040

Contracted

Waterberg Uncontracted Junior miners contracted Contracted

Waterberg

Uncontracted

Eskom coal demand (Mtpa)

74

ThE fuTuRE Of SOuTh AfRICAN COAl CONTINuEd

ChAllENGESGlobal and domestic energy needs give South Africa’s coal

sector a healthy future, but the sector does face challenges in

mining and distributing its resources.

Most of the country’s easily accessible deposits, such as the

Witbank coalfields, are now depleted. The resources being

targeted are often more geologically complex and expensive to

mine. The economic value of a coal resource must take into

account a realistic assessment of its mining complexities, which

requires investors to be especially vigilant with interpreting

exploration results and feasibility studies before starting any

new project.

The shortage of national rail infrastructure is a further challenge

for coal producers. Bheki Sibiya, Chamber of Mines CEO,

commented at the 2014 Mining Indaba conference that: “It is a

challenge in that when one looks at the coal deposits, we

struggle to transport it to the market as we should because

there is limited rail capacity, and the Richards Bay port is not

fully utilised.” Sibiya said Richards Bay has an official capacity of

91 million tonnes a year, but last year handled only 70.6 million

tonnes. With rail capacity so limited, coal is frequently

transported via road, which is expensive and limits export

potential. With issues such as road degradation and safety

added to the cost, Eskom is undertaking major projects to

transfer the transport of coal from road to rail where feasible.

Beyond national coal needs, the export market is a substantial

source of foreign revenue for South Africa. Indications are that,

even in a low carbon world, there will still be a demand for

export coal to 2040 and beyond.

Although more collieries are needed urgently in South Africa,

mining is a costly undertaking and requires significant investment.

At present, investment in South Africa is being deterred due to

the unfavourable policy and legislative environment, labour risks

and better returns in other commodities and geographies. If the

desirability of investing in South African collieries declines

further, this could lead to future reductions in the availability of

coal for both local and export markets. Electricity supply

could fail to meet growing demand and could even force

potentially sub-optimal investments to be made into “quick

fix” generating capacity.

Over the next 10 years, some of the larger South African coal

mines will be depleted and decommissioned. More junior coal

miners will be essential in replacing this coal production. With

the introduction of the Minerals and Petroleum Resources

Development Act in 2002, coal “juniors” were born. These

smaller mining companies typically each produce an average of

around 1Mt of coal annually and together account for 7% of

South Africa’s total annual coal output. Government wants BEE

entities to preferentially access these opportunities, but the lack

of investment funding remains a constant obstacle.

75



SuSTAINAbIlITy, ENvIRONMENT, ClEAN COAlSouth Africa’s water resources are under strain and new

collieries can only be brought on stream if they find innovative

ways to meet their water needs. Securing stable and cost-

effective water is crucial to long-term mining security.

Responsible coal miners are now emphasising water

management issues and broader environmental sustainability.

Solid waste, local air pollutants as well as land transformation

and biodiversity impacts are a priority. At a mine’s end of life,

miners are obliged to rehabilitate their sites, with more stringent

rehabilitation procedures in recent decades making mine

closures more expensive.

A carbon tax is planned for South Africa from 2016 that will

affect the coal sector, among others. Companies will need to

account for greenhouse gas (GHG) emissions from fossil fuels in

their financial analyses. In the March 2012 budget review, a

structure and magnitude of the tax was proposed, with

suggestions that it could be introduced in the 2013/14

budgetary year. The proposal included a base tax of R120/t

CO2e, with a tax-free threshold of 60%.

Research into new technologies is enabling innovative and

cleaner uses of coal. Carbon Capture and Storage (CCS) and

more efficient power stations are two potential routes to reduce

GHG emissions from coal. CCS may yet prove to be more

effective in reducing emissions in the medium term than any

renewable energy technology, although regulatory; cost and

implementation challenges must be overcome, as well as

finding suitable geology for long-term underground CO2 storage.

The efficiency of coal-based electricity generation is being

advanced continually, with ultra-supercritical pulverised coal

combustion technologies offering improved thermal efficiencies.

Oxy-fuel combustion is another future power generating

possibility, in which coal is burnt in oxygen rather than air.

It is evident that replacing the world’s coal powered grids with

renewable energy versions may not be feasible within this

century: cleaner coal technologies are the most logical solutions

for the next decades.

ThE fuTuRE Of SOuTh AfRICAN COAlGiven South Africa’s abundant coal resources and the capital

already invested along its coal value chain, South Africa is likely

to continue using coal as the major component of its energy

mix. The giant Medupi and Kusile coal-fired power stations

presently under construction will generate nearly 4 800MW of

power each, which will constitute about 25% of South Africa’s

baseload power supply. A third new coal power station (“Coal 3”)

has already been approved in principle by the South

African government.

Coal has the potential to provide secure and affordable energy,

extend employment and increase export revenues. These

benefits are particularly relevant in light of South Africa’s

development priorities of job creation and economic growth.

Global demand for coal will continue, regardless of how

aggressively the world pursues a low carbon economy. This

demand will be from existing power stations and new coal-fired

power stations currently under construction. These power

stations will still be operating in 2040 and beyond. The

assumption of continued global demand for coal is consistent

with all projections made by the International Energy Agency,

although coal demand may begin declining after 2020.

Solar and wind power are not yet able to provide the steady

power needed by modern societies, while nuclear has fallen out

of favour after Japan’s Fukushima disaster. Although alternative

power generating technologies will grow in prominence as

these are perfected, coal, with the possibility of “clean coal” in

the near future, will remain a primary energy feedstock for

decades to come.

API4 forward curve projection

API4

8583817977757371696765

Cal18

Cal17

Cal16

Cal15

Q4-15

Q3-15

Q2-15

Q1-15

Q4-14

Oct-14

Sept-14

Aug-14

Coa

l Pric

es U

SD

/t

76

RISKS ANd OPPORTuNITIES

Many of our potential material issues are informed by our risk management process. Risk management is an inherent part of every role and job description, and formal structures exist to ensure that risk management processes are in place. The Board’s Risk Committee, which comprises the full Board, meets at least once a quarter to review all risk management processes, procedures and outcomes. When necessary, external experts are retained to facilitate risk identification and suitable mitigation measures.

More details of the management approach to managing risks are provided in the corporate governance section.

We list our risks and opportunities, together with our activities, to mitigate or enhance them in order to provide the reader with a fuller picture of Keaton Energy’s operating environment.

RISKS ANd OPPORTuNITIES

Risk/opportunity Mitigation/enhancement strategy Status

Maintain our social licence to operate

•Act in a responsible manner with regard to social and environmental matters

•Meet and exceed obligations of the group’s SLPs and the Mining Charter

•Proactive involvement as a responsible corporate citizen in sustainable socio-economic development initiatives

•Review legislative compliance for our entire legislative universe on a regular basis

•Engage regularly with all stakeholders, in particular communities and local and national government

•Revisions to the operations’ SLPs submitted•No fines or sanctions relating to breaches

recorded•Stakeholder engagement is founded on regular

meetings with the community, regulators and local government

Recruitment and retention of key staff having specialised skills

• Innovative recruitment initiatives and succession planning

•Market-related remuneration•Short and long-term incentive schemes• Training and development programmes•Outsourced mining model reduces the

requirement of in-house specialist skills•Appropriate policies and procedures govern

all aspects of employment

•Due to the dismissal of employees at Vaalkrantz who participated in unprotected industrial action and the subsequent restructuring of the operations, the group’s employee turnover for the current year amounted to 72.5%. Ignoring the impact of the above, the group’s employee turnover would have amounted to 2.6%

Production interrupted by industrial action

•Procedures to be implemented in the event of industrial action are documented and reviewed frequently

•Continuous engagement with unions and other worker representatives

•Multiple contractors appointed to undertake specific activities at operations

•Written performance agreements are in place between the company and contractors requiring contractor employees to operate in terms of the company’s policies and procedures, Environmental Management Plan (EMP) and SLP

• Illegal industrial action at Vaalkrantz during the year resulted in the dismissal of workers and the subsequent restructuring of operations to a contractor operated mine

•No other interruptions• Improving productivity•No significant incidents of non-performance

recorded during the year

77



Risk/opportunity Mitigation/enhancement strategy Status

Compliance with regulations and legislation, in particular providing a safe work place and meeting our environmental obligations

•Employees trained in the policies, procedures and standard operating procedures in place at all operations

•Safety and Health Committees•SHE Manager at each operation•Corporate functions and external advisors

assistance with compliance.•EMPs•Reporting and monitoring of key performance

indicators

•No monetary fines relating to breaches recorded

• Independent Sustainable Development Report produced recording our safety and environmental performance

Increasing operating costs as a result of exchange rate fluctuations, administered prices, and labour rates

•Supply contracts for both domestic and export products and services include price adjustment mechanisms for cost increases based on various baskets of indices

•Customer basket of indices aligned to combined supplier basket

•Stringent procurement policies•All supply contracts are priced in SA rand•Outsourced mine models reduce fixed cost

• In the process of alignment of major customer basket of indices with supplier indices to address risk of reduced profitability over time

•Outsourced mine models result in improved performance and align payment with performance

•Multi-year wage agreements signed by major contractors

Market conditions •Multi-product company• Further diversification of products including

waste sales

• Long-term offtake contract for 84% of the group’s existing production

• Four distinct products are currently produced and sold

• Increased demand for the group’s discard

Fraud and corruption •Visible and tangible zero-tolerance approach to fraud, corruption and bribery through applicable policies, awareness campaigns, reporting mechanisms and disclosure

• There were no incidents of theft involving Keaton Energy employees. Where employees of contractors are suspected of involvement in criminal activities the appropriate remedial action and disciplinary intervention is taken

Raising growth capital for South African mining operations

• The company’s major shareholders have many years of experience in the South African mining industry and have access to resources should opportunities arise

• Financial performance improves accessibility to bank funding

•Both equity and loan capital were raised for the Xceed acquisition within the group’s targeted debt-to-equity ratio

78

MATERIAl ISSuES

MATERIAlITyIn the Board and Executive Management’s opinion, the

information presented in this Integrated Annual Report is the

most relevant or ‘material’ to the interests of our shareholders

and key stakeholders. The Board, Executive Management and

those involved with Keaton Energy’s governance evaluated the

source information with two primary questions in mind: “Who is

our reporting aimed at” and “what decisions will they be able to

make from our reporting”?

Paragraph 1.7 of the International Integrated Reporting

Committee (IIRC) International <IR> Framework states that:

“The primary purpose of an Integrated Report is to explain to

providers of financial capital how an organisation creates value

over time.”

In the framework’s paragraph 1.8, it qualifies the above by

stating: “An integrated report benefits all stakeholders…,

including employees, customers, suppliers, business partners,

local communities, legislators, regulators and policy makers.”

When deciding what information should be included in this

report, the Board and Management considered the relative

importance of each matter in terms of the known or potential

effects of these on Keaton Energy’s ability to continue creating

value. These were then prioritised for relevance to the report

users, so that non-pertinent information could be set aside.

We intend the result to be an accurate and complete Integrated

Annual Report, yet unburdened with the peripheral data

that tend to confuse rather than enlighten. Should you

have specific queries, please email your requirements

to [email protected].

Material matters

Through our stakeholder engagement activities we hope to

identify and respond to all reasonable and legitimate

expectations of shareholders, investors and stakeholders. As

an operator of two collieries, we also need to prioritise our

environmental and other sustainability impacts. We employ,

both directly and indirectly, a large workforce in rural areas and

therefore have a significant impact on their communities.

Once identified, relevant topics are subjected to a materiality

process which considers both a topic’s qualitative and

quantitative aspect; the influence, legitimacy and urgency of the

stakeholder raising the topic; the boundary of the topic; and

Keaton Energy’s ability to affect change with regard to our

impact on the topic. The materiality process involves the plotting

of identified issues in terms of their potential impact and

likelihood of occurrence. This materiality graph is segmented

into quadrants, with issues categorised as primary, secondary

and tertiary. Ultimately the decision to report a topic as a material

issue is based on the Board’s and Management’s view of

the topic.

Our responses to the material issues identified are split between

this report and our accompanying Sustainable Development

Report, with this report focusing on matters more closely

associated with the financial and operational aspects of our

performance. The material issues facing Keaton Energy and

addressed in this Integrated Annual Report and the

accompanying Sustainable Development Report are:

1. Safety

The safety of every person on our sites is our number one

concern. Detailed information regarding our safety

programmes and statistics is provided on pages 40 and 41

of this Integrated Annual Report and pages 38 and 39 in the

2014 Sustainable Development Report.

2. labour

Safe, profitable and sustainable mining requires a diverse

range of skills and abilities. In addition, the workforce needs

to be adequately motivated, through a combination of

remuneration, development opportunities and job

satisfaction. Ensuring that the workforce operates efficiently,

reliably and in a disciplined manner underpins our operations

and safety record. Minimising the risk of industrial action

and work stoppages requires a multi-faceted approach to

human capital management. Information regarding our

management of the workforce appears on pages 24, 26, 38

and 41 of our 2014 Sustainable Development Report.

3. Production

The majority of our production is sold to Eskom with the

balance being exported to the iron ore pelletising market or

sold locally into the domestic metallurgical industry. Sales to

Eskom are in terms of a long-term Coal Supply Agreement.

Producing to plan and minimising stock levels is an

important element in the group’s strategy. More details on

our business model and production plans appear on pages

18 to 23 of this report.

4. Compliance

Mining in South Africa is subject to a myriad of legislative

obligations, from compliance with the Mining Charter to

specific mining, health and safety, labour and environmental

laws. Ensuring that Keaton Energy is compliant with all laws

79



within our regulatory universe is challenging and requires a

focus on governance and reporting. Our compliance is

addressed on pages 76 to 77 and 84 to 93 of this 2014

Integrated Annual Report and in our 2014 Sustainable

Development Report.

5. Stakeholder engagement

Identifying, understanding and responding appropriately to

issues and concerns raised by a broad stakeholder base

are critical to Keaton Energy’s ongoing success. Efforts to

advance our stakeholder engagement programmes allow

us to achieve this and communicate to our stakeholders the

benefits and value created by our operations. More

information regarding our stakeholder engagement activities

is provided on pages 17 and 18 of our 2014 Sustainable

Development Report.

6. Environmental best practice (over and above

compliance)

Minimising environmental effects at our operations is an

ever-increasing concern. Mitigating our environmental

impacts by applying appropriate environmental management

plans also offers opportunities to improve operating

efficiencies and contain costs. Details of our environmental

impacts and our efforts to mitigate them are provided on

pages 28 to 36 of our 2014 Sustainable Development

Report.

7. Management of resources and reserves

The mineral resources and reserves to which the company

has the Mining and/or Prospecting Rights represent the

bedrock of our strategy and the reason for our continued

existence. Understanding and managing this natural

resource is fundamental to the long-term success of our

collieries and our sustainable development strategy. Read

more about our mineral resources and reserves on

pages 50 to 60 of this report.

8. vaalkrantz Colliery

Our Vaalkrantz operation faces significant operational

challenges, including difficult geological and working

conditions, an ageing but experienced workforce and an

ageing mining fleet. As this colliery nears the end of its life,

we are focused on ensuring that replacement reserves are

secured and the necessary skills to mine these are

preserved. Information regarding our response to these

challenges appears throughout this 2014 Integrated Annual

Report and our 2014 Sustainable Development Report.

80

GOVERNANCE


81


06Board of Directors 82 – 83

Corporate governance 84 – 93

Report of the Remuneration Committee 94 – 99

82

Jeroen Schurink (44)

Non-Executive Director, member of the Risk and Social and Ethics CommitteesMasters in International Management

Appointed in March 2014Jeroen Schurink completed his master’s degree in International Management at the Lausanne School of Business in 1992. He has 21 years’ experience in finance having served as an associate director for Procter and Gamble and as the Chief Financial Officer for the Gunvor Group. In 2013 Jeroen was appointed as Chief Investment and Operating Officer at Gunvor.

BOARD Of DiRECtORS

David Salter (55)

Non-Executive Chairman of the Board, Chairman of the SHE and Nomination Committees, member of the Risk, Remuneration and Social and Ethics Committees BSc (Hons), PhD, FSAIMM

Appointed in January 2008David Salter has 34 years of international mineral technology, project development and senior mining executive management experience, and has previously served as the managing director of the Salene Group, and JSE-listed Barplats Investments Limited and Eland Platinum Holdings Limited. David currently serves on the boards of TransAfrika resources Limited, Kameni Limited and Tharisa Limited.

Gerard Kemp (59)

Independent Non-Executive Director, member of the Audit, Risk, Nomination, Remuneration, SHE and Social and Ethics Committees MSc Mining Engineering

Appointed in November 2012Gerard Kemp holds an MSc in Mining Engineering from the University of the Witwatersrand and has completed development programmes in labour relations and management at the University of South Africa, School of Leadership. Gerard is currently the Chief Executive Officer of Kaouat Iron Limited, a division of TransAfrika resources. He has significant operational, investment banking and corporate finance experience. During his career he has spearheaded several large, successful black economic empowerment transactions and brings significant experience in corporate finance and executive mine management.

Dirk Jonker (63)*

Non-Executive Director, member of the Risk and Social and Ethics Committees BA (Business Admin)

Appointed in May 2011Dirk Jonker, a senior business executive with many years’ experience in international commodity trading and processing, is currently the managing director of IPP. An employee of Cargill from 1974, Dirk rose to the position of General Manager of the European juice division in 1986, and was appointed the company’s vice president in 1996 where he was responsible for coordinating the business marketing activities of the Cargill Food Division in Europe. Dirk has also served in senior positions for companies including Fennema Chocolate Products, B&S International and, from 2009 to 2011, as the interim Chief Executive of Meelunie, where he reorganised and refocused the business to achieve an all-time record year in volumes and profit.

* Mr Jonker resigned with effect from 1 July 2014.

Lizwi Mtumtum (43)

Lead Independent Non-Executive Director, Chairman of the Audit and Remuneration Committees, member of the Risk, Nomination and Social and Ethics Committees BA (Economics/Accounting)

Appointed in March 2008Lizwi Mtumtum is Executive Chairman of Emangweni Investments Proprietary Limited, an investment holding company, and Emangweni Properties Proprietary Limited, a black-owned and managed property investment company. He previously held positions at Pangbourne Properties (a property loan stock company), Yard Capital (a BEE investment holding company), Nedbank and Nedcor. He serves as an Independent Non-Executive Director of Synergy Income Fund Limited (convenience retail property). He serves as an Independent Non-Executive Director of Kameni Limited, where he is also Chairman of the Audit Committee.

83



Mandi Glad (43)

Chief Executive Officer, member of the SHE, Risk and Social and Ethics Committees Appointed in May 2009Mandi Glad, who is co-owner of both rutendo Holdings and rutendo Mining, is an entrepreneur with more than 20 years’ experience in owning and operating a wide range of businesses. In this time she has gained strategic industrial relations skills and her involvement with HDPs and women-led coal mining initiatives have given her detailed knowledge of the MPrDA and related regulatory processes. She played an integral role in the establishment of Keaton Energy and has held the positions of both Marketing and Business Development Director and Operations Director before being appointed as CEO in September 2012.

Paul Sadler (76)

Independent Non-Executive Director, Chairman of the Risk Committee, member of the Audit, Nomination and Social and Ethics CommitteesRetired chartered accountant

Appointed in October 2010Paul Sadler has extensive auditing experience, much of which involved the mining sector, and thus brings valuable expertise to the Board. He was a partner at auditing firm KPMG from 1980 until his retirement in 2003, after which he joined the Salene Group as a financial consultant. During his auditing career, he was involved with various mining companies including De Beers, Aquarius and Barplats. He has also served as a member of the Barplats Investments Audit Committee for two years.

Antoinette Sedibe (48)

Non-Executive Director, Chairman of the Social and Ethics Committee, member of the Risk Committee BA (Admin)

Appointed in April 2006Antoinette Sedibe, who is the Managing Director of Andisa Capital and a co-founder of rutendo Mining, started her career with Nedbank’s graduate programme in 1988, before moving on to AECI’s treasury department as a foreign exchange dealer, money market dealer and later spending two years in the internal audit department. She assisted in setting up Polifin Treasury (a Sasol and AECI joint venture), and also gained extensive management, financial markets and treasury operations experience as a Treasurer at Standard Bank’s treasury outsourcing operation, where she was appointed a director. Antoinette became an executive director of Andisa Capital in 2003.

Phoevos Pouroulis (40)

Non-Executive Director, member of the Risk and Social and Ethics Committees BSc (Business Science)

Appointed in January 2008Phoevos Pouroulis started and partnered various businesses locally and throughout Africa. He was involved in advising Chromex Mining plc on its establishment, where he was later appointed Commercial Director. Phoevos is Chief Executive Officer of JSE-listed Tharisa Limited, a chrome and platinum producer. He is a founder of Keaton Energy and has been a Non-Executive Director of Keaton Energy since January 2008.

Jacques Rossouw (38)

Chief Financial Officer, member of the Risk and Social and Ethics Committees BCom (Hons) Accounting, CA(SA)

Appointed in December 2011Jacques rossouw is a Chartered Accountant (SA). He completed his articles with PwC following which he was appointed PwC National Middle Market Manager where he focused on risk management, audit methodology and best practice, annual and financial reporting and budgeting for all middle market offices in South Africa. He subsequently worked in both the high-technology and mining industries. Before joining Keaton Energy in 2011, he worked as manager of corporate reporting at Harmony Gold Mining Company Limited for three years.

84

CORPORAtE GOVERNANCE

thE iMPERAtiVE fOR GOOD CORPORAtE GOVERNANCEThe Board recognises that corporate governance is essential to enhance sustainable shareholder value and to protect the interest of all stakeholders. The Board further recognises that good corporate governance contributes to Keaton Energy’s operational and strategic successes.

The Board therefore remains committed to sound and robust corporate governance principles based on the four values underpinning good corporate governance as provided for in King III, namely fairness, responsibility, transparency and accountability.

thE GOVERNANCE StRuCtuREThe Board and its various statutory and non-statutory committees are guided by the Tor. The Tor for each committee provides for the composition of the committee, a brief description of the mandate of the Committee and the number of meetings to be held by the Committee in any year.

The Board has reviewed the composition of each committee to ensure compliance with the JSE Listings requirements, the Companies Act, 71 of 2008 and King III. The Tors have been uploaded onto the group’s website.

the BoardThe Board strives to achieve a balance of power with the majority of directors being Non-Executive Directors. At present the Board does not consist of a majority of Independent Non-Executive Directors due to the number of shareholder appointed directors. The Board is aware of the risks associated with this practice and takes all measures available to it to mitigate the risks and operate in an independent manner for the benefit of all shareholders.

The Chairman of the Board is, by virtue of his previous appointment as Executive Chairman, not considered to be independent; however, he became Non-Executive again as from September 2013. The Board believes that the value added by Dr JD Salter as Chairman is significant and therefore elected Mr LX Mtumtum as Lead Independent Non-Executive Director (LID).

When considering academic qualifications, technical expertise, relevant industry knowledge and experience, age, race and gender of each individual director the company can be considered as having a diversified board.

The Board retains full and effective control over the business of the group and has defined levels of authority through a written delegation of authority framework, which sets out decisions the Board wishes to reserve for itself.

Governance structure

Audit Committee

Safety, Health and Environmental

Committee

RiskCommittee

Socialand EthicsCommittee

RemunerationCommittee

NominationCommittee

Company Secretary

Board of Directors

85



Name Appointment Reason

Mr JHM Schurink March 2014 Appointed by the Board since the previous AGM

Dr JD Salter January 2008 re-election by rotation

Mr P Pouroulis January 2008 re-election by rotation

Ms APE Sedibe April 2006 re-election by rotation

Audit CommitteeThe composition of the Audit Committee was revised to ensure that all members of the Audit Committee are Independent Non-Executive Directors of the Board. Both the Chief Executive Officer and the Chief Financial Officer are permanent invitees to this Committee.

The shareholders elect or re-elect the members of the Audit Committee annually at the AGM based on recommendations made by the Nomination Committee to the Board. The following members will stand for election at the upcoming AGM:•Mr LX Mtumtum as the Chairman of the Audit Committee;•Mr GH Kemp; and•Mr OP Sadler.

The Audit Committee is a statutory committee as provided for in section 94 of the Companies Act, 71 of 2008. The main purpose of the Audit Committee is to ensure responsible financial reporting including:• satisfying itself and the Board of the company’s continued

status as going concern• ensuring the company’s finance function is suitably qualified

and experienced• recommending the external auditor to be approved by the

shareholders at the AGM• negotiating the external audit fee and the extent of non-audit

services to be provided by the external auditors• continuously reviewing the independence of the external

auditor•monitoring the risk assessment processes• ensuring legislative compliance.

The directors have unrestricted access to information, management and the Company Secretary so that they may exercise full and effective control over the business. Directors are further entitled to seek the advice of independent professionals on matters concerning the affairs of the group, at the group’s expense.

There is a clear division of responsibilities between the executive responsibility for the running of the company’s business and the leadership of the Board, such that no one individual has unfettered powers of decision making.

The Chairman is responsible for providing leadership to the Board, overseeing its efficient operation and has been tasked with ensuring effective corporate governance practices. The CEO is responsible for formulating, implementing and maintaining the strategic direction of the company and ensuring that the day-to-day affairs of the group operations are appropriately supervised and controlled.

The company conducts an annual evaluation of its Board, Board Committees and individual directors and is confident that this process would raise concerns should any particular individual have too much influence.

Various statutory and non-statutory committees have been established to assist the Board in fulfilling its responsibilities. These committees and the Board meet as set out in the Tors.

One-third of the Board’s Non-Executive Directors must retire from office at each AGM in accordance with King III and the company’s Memorandum of Incorporation (MoI).

The Non-Executive Directors retiring in each year will be those who have been the longest serving since their last election. In addition, directors appointed since the previous AGM are expected to stand for re-election by shareholders at the AGM following their respective appointments.

Accordingly, the following directors are required to retire by rotation for election or re-election by the shareholders at the upcoming AGM:

86

CORPORAtE GOVERNANCE CONtiNuED

Risk CommitteeThe risk Committee consists of the full Board. Even though the Chairman of the Board is a member of the risk Committee he does not chair meetings of the risk Committee.

The Board believes strongly that risk management is the responsibility of every director and cannot be delegated to a small committee.

Amongst other matters, the risk Committee is responsible for: • overseeing the development and annual review of a policy

and plan for risk management to be approved by the Board• ensuring a systematic, documented, formal risk assessment

is conducted at least once a year which assessment should be continually reviewed, updated and applied

• submitting an annual report to the Board on the effectiveness of the total risk management and assessment process and outcomes, including a register of the company’s key risks

• ensuring coordination with the Audit Committee that will be responsible for the risk management process as far as internal controls, financial reporting and IT risks are concerned.

Social and Ethics CommitteeThis Committee is another statutory committee as provided for in section 72 of the Companies Act, 71 of 2008 and should consist of at least three members of whom at least one is a Non-Executive Director.

Due to the important nature of this Committee, the Board agreed that all Board members must form part of this Committee. The main purpose of this Committee as provided for in section 72(4) of the Companies Act, 71 of 2008 and Item 43 of the Companies regulations, 2011 is to ensure the group is and remains a committed, socially responsible corporate citizen by creating a sustainable business and having regard to its economic, social and environmental impacts on the communities in which it operates.

With the initial establishment of the Social and Ethics Committee, it was agreed that only one meeting per year would be required. However, the company has revisited this requirement and changed it to at least four times a year going forward.

The company has subsequently established an Employment Equity Committee at management level to assist the Social and Ethics Committee with the execution of its responsibilities.

During the year the Committee has applied itself to its responsibilities and the results appear throughout this Integrated Annual report and the accompanying Sustainable Development report.

Nomination CommitteeThe Nomination Committee consists of four members of whom the majority are Independent Non-Executive Directors. The Chairman, however, is a Non-Independent Non-Executive Director. The Chief Executive Officer is not a member of this Committee but is invited from time to time.

During the past financial year the Board has revised the composition of this Committee and has subsequently replaced Mr P Pouroulis and Ms APE Sedibe with Mr GH Kemp and Mr OP Sadler.

The primary objective of the Nomination Committee is to identify individuals that are eligible and qualified to act as directors in order to be elected as members of the Board and Board Committees. However, the appointment of directors is considered by the Board as a whole. Other responsibilities of the Committee include:• establishing formal and transparent procedures for the

appointment of directors of the company• reviewing, on an annual basis, the Board and Board

Committees’ structure, composition and size and the balance between Executive and Non-Executive Directors, the required mix of skills and experience of the directors and make recommendations to the Board regarding any adjustments deemed necessary to enhance the effectiveness of the Board and Board Committees

• evaluating the Audit Committee in terms of King III and the Companies Act, 71 of 2008, and make an annual recommendation to the Board with regard to the composition of the Audit Committee for election or re-election by the shareholders at the next AGM

• annually evaluating the competence, qualifications and experience of the Company Secretary

• reviewing the independence of Non-Executive Directors and make recommendations to the Board thereon on an annual basis

• developing and overseeing the induction programme for new directors to ensure their understanding of the business environment and market in which the company operates.

Remuneration CommitteeThe remuneration Committee consists of at least three Non-Executive Directors of whom the majority are independent. During the past financial year the Board has re-used the composition of this committee and has subsequently replaced Mr P Pouroulis with Mr GH Kemp. The Chairman of the Board is a member but does not chair the Committee. Both the Chief Executive Officer and the Chief Financial Officer are permanent invitees to this Committee.

87



Company SecretaryThe main purpose of the Company Secretary is to provide a central source of advice to the Board with respect to matters relating to the JSE Listings requirements, the Companies Act, 71 of 2008, King III and other corporate governance matters. In addition to the Company Secretary’s statutory and other duties, she should provide the Board as a whole, directors individually and the various Committees with guidance as to the manner in which their responsibilities should be discharged in the best interest of the group.

As the appointment of the Company Secretary remains the responsibility of the Board, the Board will only consider the appointment of a Company Secretary once recommended by the Nomination Committee after being satisfied that such person has the necessary experience, expertise and qualifications to serve the group as Company Secretary.

In addition the Board reviews the Company Secretary’s independence annually by determining whether the Company Secretary still has an arm’s length relationship with the Board. The Board, also on an annual basis, considers and satisfies itself of the competence, qualifications and experience of the Company Secretary.

The Board was assisted by a suitably qualified Company Secretary, Ms Michelle Taylor, who recently resigned. Subsequent to her resignation, the Board appointed Ms Anelia Schutte-Bouwer to serve as Company Secretary for the group with effect from 7 March 2014.

The Committee’s primary objectives are to:• consider and recommend remuneration policies for the

group, particularly for Executive Management and Executive Directors, and to advise on the remuneration of Non-Executive Directors

•monitor and strengthen the objectivity and credibility of the remuneration system of the group’s directors and executives by correlating remuneration to individual performance, the group’s performance and market conditions.

A detailed report from the remuneration Committee appears on pages 94 to 99. ShE CommitteeThe Board-level SHE Committee consists of three members being the Chief Executive Officer, an Independent Non-Executive Director as well as the Non-Independent Non-Executive Chairman of the Board. Both mine managers, the safety managers of the two collieries and the Chief Operating Officer are permanent invitees to this Committee.

The purpose of this Committee is to:• develop the framework, policies and guidelines for safety,

health and environmental management• review the policies and performances of the company and its

subsidiaries and the progressive implementation of its safety, health and environmental policies

• receive reports covering matters relating to substantive safety, health and environmental risks and liabilities

•monitor key indicators on accidents and incidents and, where appropriate, ensure that such information is communicated to the Board

• consider substantive national and international regulatory and technical developments in the fields of safety, health and environmental management.

AttENDANCE At MEEtiNGS

Name Board Audit Nomination Remuneration Risk ShESocial and

Ethics

JD Salter 4/4 4/4+ 4/4 4/4 4/4 4/4 3/3

LX Mtumtum 4/4 4/4 4/4 4/4 4/4 – 3/3

P Pouroulis 4/4 – 1/4 1/4 4/4 – 3/3

J rossouw 4/4 4/4+ – 4/4+ 4/4 – 3/3

APE Sedibe 4/4 – 1/4+ – 4/4 – 3/3

OP Sadler 4/4 4/4 3/4 – 4/4 – 3/3

AB Glad 4/4 3/4+ – 4/4+ 4/4 4/4 3/3

D Jonker 4/4 – – – 4/4 – 3/3

GH Kemp 4/4 4/4 3/4 3/4 4/4 4/4 3/3

JHM Schurink* 1/4 – – – – – –

Note: All members attended all specified meetings during the year. The reason for any incomplete attendance is attributed to the changes in composition of the Committees during the year.

+ By invitation.* Mr Schurink was appointed as director on 7 March 2014 subsequent to all Committee meetings held and therefore did not attend any Committee meetings

during the year.

88

StAKEhOLDER ENGAGEMENtThe Board is committed to honest, open and regular communication with all stakeholders on both financial and non-financial matters. The group reports formally to shareholders when half-year and full-year results are announced. Shareholders are invited to attend AGMs and all Executive and Non-Executive Directors are required to attend this meeting in order to provide feedback if required.

Further details regarding the group’s approach, frequency and results of engagement with the various stakeholder bodies is provided in the accompanying Sustainable Development report.

RiSK MANAGEMENtThe Board recognises that the achievement of the group’s objectives is dependent on a full understanding of the risks it faces and that risk management is an important aspect of the business. It has therefore separated the risk Committee from the Audit Committee and has delegated the latter’s responsibility for overseeing the adequacy and effectiveness of risk management to the risk Committee.

The risk Committee met four times during the financial year under review and comprises all the Board members with Mr OP Sadler, an Independent Non-Executive Director, as the Chairman. The understanding of risk management at all levels of the group is important and a risk aware culture among employees is imperative to manage risks faced by the group.

The Board is therefore committed to a risk management process that is aligned with the principles of corporate governance as provided for in King III. The process involves formal risk assessment workshops held at both operations as well as at head office, where risks are identified, the potential impact is quantified, probability of occurrence is assessed and adequacy of the control to mitigate the risk is considered.

The group is in the process of reviewing its risk register. In order to create a culture of awareness of potential risks by all employees, the risk Committee proposed that separate risk registers be compiled and managed at both operations and at head office.

All identified risks are evaluated as to their residual risk and should they fall outside the group’s risk tolerance, which is currently classified as a zero risk tolerance, further actions to address those risks are considered and implemented. Existing controls designed to mitigate identified risks are reviewed on a regular basis to ensure they remain effective.

This approach assists the group in the management of risks to an acceptable level and to strengthen its ability to fulfil its responsibilities to its stakeholders.

refer to pages 76 and 77 for a list of the group’s primary risks.

GENERALCode of EthicsAs it is the Board’s responsibility to ensure the group is managed and operated in an ethical manner, the Board approved a Code of Ethics which is based on integrity and designed to create a culture that promotes ethical conduct, and is intolerant of fraud and corruption.

Complying with legislationThe Board endeavours to ensure that the company complies with all applicable laws and considers adherence to non-binding rules, codes and standards.

The company is therefore in the process of conducting an external legal compliance audit on legislation most relevant to the group and its business to obtain assurance that existing processes and procedures ensure complete regulatory compliance.

Memorandum of incorporationThe company’s new MoI was approved by the shareholders at a General Meeting of shareholders on 28 May 2013.

Following the recent Xceed acquisition, the company is in the process of aligning Xceed’s corporate policies, procedures and corporate governance principles with the rest of the group.

Restrictions on share dealingsEmployees and directors are prohibited from dealing in the company’s shares during price-sensitive periods. Employees are obliged, in terms of regulatory and governance requirements, to disclose any dealings in the company’s shares by themselves or related parties to the Company Secretary.

The clearance procedure for directors to deal in the company’s shares is regulated by a share dealing policy.


89



KiNG iii APPLiCAtiONAs a highly regulated mining company, the application of the corporate governance principles contained in King III is vital to the group’s ability to operate. The company therefore strives to apply these principles wherever practicable.

Companies are required to disclose the extent of their application of the corporate governance principles contained in King III in the current reporting year. The table below summarises the company’s compliance with a detailed version being presented on the group’s website.

As recommended by the JSE, we include below a table describing our application of the principles contained in Chapter 2 of the King III report.

Area Requirement Status Comments

2 BOARD AND DiRECtORS

2.1 The Board should act as the focal point for and custodian of corporate governance

Compliant The Board advocates effective responsible leadership and aims to lead by example. Corporate governance structures and processes are being reviewed to accommodate best practices while considering the best interest of the company.

2.2 The Board should appreciate that strategy, risk, performance and sustainability are inseparable

Compliant The Board, in accordance with the Board’s Tor, is responsible for aligning the strategic objectives, vision and mission of the group with performance and sustainability considerations. The group’s formalised risk management process takes into account the full range of risks including strategic and operational risks and its impact on performance and sustainability.

2.3 The Board should provide effective leadership based on an ethical foundation

Compliant The role and responsibilities of the Board are regulated by the company’s MoI and the Board’s Tor. The Board is the guardian of the values and ethics of Keaton Energy and its subsidiaries. The Board is responsible for ensuring that management creates a culture of ethical conduct and sets the values to which the group adheres. The adherence to ethical values is also monitored by the Social and Ethics Committee which is a Statutory Committee of the Board.

2.4 The Board should ensure that the company is and is seen to be a responsible corporate citizen

Compliant The Board acknowledges that it is not merely responsible for the group’s financial bottom line, but rather for the group’s performance within the complete context in which it operates. Through the Social and Ethics Committee the Board ensures the company remains a committed, socially responsible corporate citizen.

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2.5 The Board should ensure that the company’s ethics are managed effectively

Compliant The Board takes responsibility for building and sustaining an ethical corporate culture within the group. The Board acts in accordance with its Code of Ethics which promotes and enforces ethical standards and ensures that the group’s ethical standards are integrated into all the group’s strategies and operations. Both the Audit Committee and the Social and Ethics Committee assist the Board in ensuring ethics are effectively managed.

2.6 The Board should ensure that the company has an effective and independent Audit Committee

Compliant Shareholders elect the members of the Audit Committee annually, all of whom are Independent Non-Executive Directors. Tor for the Audit Committee have been approved by the Board. refer to the detailed Audit Committee report on page 108.

2.7 The Board should be responsible for the governance of risk

Compliant The Board has approved and implemented a policy and risk management plan for a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, as well as the related internal controls, compliance and governance processes within the group. Both the Audit and risk Committees assist the Board with the evaluation and management of risk.

2.8 The Board should be responsible for information technology governance

Compliant The Board ensures that IT governance is an integral part of corporate governance and that it is monitored and assessed on a regular basis. The Audit Committee assists the Board with IT governance.

2.9 The Board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards

Compliant The company is in the process of conducting an external legal compliance audit on legislation most relevant to the group and its business to obtain assurance that existing processes and procedures ensure compliance with the company’s regulatory universe

2.10 The Board should ensure that there is an effective risk-based internal audit

Compliant The internal audit function is responsible for assisting the Board and management by independently reviewing the adequacy and effectiveness of the company’s systems of internal control. The company’s internal audit function is outsourced to PwC who in turn reports back to the Audit Committee.

2.11 The Board should appreciate that stakeholders’ perception affect the company’s reputation

Compliant The Board recognises the importance of developing and nurturing positive and stable relationships with key stakeholders as a key driver of business success. The group applies various policies and methodologies to govern engagement with its various stakeholders.

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2.12 The Board should ensure the integrity of the company’s Integrated Annual report

Compliant The Integrated Annual report is reviewed by the Audit Committee and recommended to the Board for approval. The company strives to provide a balanced view of its commitment to ensuring that financial, social and environmental sustainability permeate the entire business.

2.13 The Board should report on the effectiveness of the company’s system of internal controls

Compliant The Board through the Audit Committee continuously ensures the soundness of the group’s system of internal controls through independent review by internal and external audit.

2.14 The Board and its directors should act in the best interest of the company

Compliant The Board debates issues rationally and with sufficient information from management to reach an objective assessment. All directors are mindful of their duty to act in the best interest of the company.

The Board has approved a policy for dealing in the company’s securities which applies to directors, prescribed officers and selected employees.

2.15 The Board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act

Compliant The Board reviews the financial performance of the company quarterly to assess its financial position. The solvency and liquidity tests are performed in accordance with the Companies Act, 71 of 2008 to support the going concern statements.

Should the company ever become financially distressed, the Board will consider appropriate mechanisms to address this matter.

2.16 The Board should elect a Chairman of the Board who is an Independent, Non-Executive Director. The CEO of the company should not also fulfil the role of Chairman of the Board

Compliant The Chairman of the Board, due to his previous appointment as Executive Chairman, which ended in September 2013, is not considered to be independent. The Board believes that the value added by Dr JD Salter as Chairman is significant and therefore elected Mr LX Mtumtum as Lead Independent Non-Executive Director. This appointment is in line with the requirements of King III to assist the Board in managing any actual or perceived conflicts of interest.

The role of the Chairman and the Chief Executive Officer (CEO) are separate and governed by the Board’s Tor and the delegation of authority framework.

2.17 The Board should appoint the CEO and establish a framework for the delegation of authority

Compliant The Board, through its Nomination Committee, has previously appointed the CEO. The existing delegation of authority framework is regularly reviewed in terms of levels of authority and required approvals for decisions and transactions.

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2.18 The Board should comprise a balance of power, with the majority of Non-Executive Directors. The majority of Non-Executive Directors should be independent

Partiallycompliant

The Board strives to achieve a balance of power with the majority of directors being Non-Executive Directors. At present the Board does not consist of a majority of Independent Non-Executive Directors due to the number of shareholders appointed directors. The Board is aware of the risks associated with this practice and takes all measures available to it to mitigate the risks and operate in an independent manner for the benefit of all shareholders.

The composition of the Board ensures a balance of power with no single member having the majority influence.

2.19 Directors should be appointed through a formal process

Compliant The Nomination Committee is responsible for ensuring that procedures governing appointments to the Board are formal and transparent. The Nomination Committee therefore makes recommendations to the Board, which are considered by the Board as a whole. The Chairman of the Board chairs the Nomination Committee.

2.20 The induction of and ongoing training and development of directors should be conducted through formal processes

Compliant New appointees to the Board are familiarised with the group through an informal induction programme. Ongoing director development is encouraged to enhance the effectiveness of the Board.

2.21 The Board should be assisted by a competent, suitably qualified and experienced Company Secretary

Compliant Ms Anelia Schutte-Bouwer was appointed as the Company Secretary from 7 March 2014. The Board has on recommendation from the Nomination Committee considered her qualifications, experience and competency. The Board is satisfied that Ms Anelia Schutte-Bouwer is sufficiently qualified and experienced to act as the group’s Company Secretary.

The Board is further satisfied that Ms Anelia Schutte-Bouwer is not appointed as a director and that she maintains an arm’s length relationship with the Board.

2.22 The evaluation of the Board, its Committees and the individual directors should be performed every year

Compliant The Board performs an annual assessment of its effectiveness, and of the Board Committees and individual directors.

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2.23 The Board should delegate certain functions to well-structured committees but without abdicating its own responsibilities

Compliant To assist the Board in discharging its duties, certain responsibilities have been delegated to various Board Committees through its delegation of authority framework and the Committees’ Tor.

The Committees consist of the Nomination, remuneration, Social and Ethics, risk and SHE Committees. The Committees do not reduce the Board’s overall responsibilities.

2.24 A governance framework should be agreed between the group and its subsidiary boards

Compliant The Board has approved a delegation of authority framework that includes subsidiary companies. In addition approved policies and processes apply to all subsidiaries within the group.

2.25 Companies should remunerate directors and executives fairly and responsibly

Compliant The remuneration Committee approves the overall remuneration structure of the group in line with the group’s philosophy and strategy. Details of the group’s remuneration Policy appear in the remuneration report as set out on pages 94 to 99.

2.26 Companies should disclose the remuneration of each individual director and certain senior executives

Compliant The group provides full disclosure of all Executive and Non-Executive Directors’ remuneration, giving details as required in the Companies Act, 71 of 2008 and in terms of the JSE Listings requirements of base pay, bonuses, share-based payments, granting of options and all other benefits in the notes to the financial statements. refer to note 35 on page 179 of the notes to the Financial Statements.

2.27 Shareholders should approve the company’s remuneration policy

Compliant The remuneration policy is tabled for a non-binding vote by shareholders at each Annual General Meeting.

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also ensures that collective agreements reached between the employer and organised labour are fair and in line with the group’s financial standing and market-related remuneration. At Vaalkrantz Colliery, almost 90% of the workforce is represented by a bargaining unit, either AMCU or NUM, and accordingly their remuneration and benefits are negotiated annually by the bargaining unit.

The Committee currently comprises three Non-Executive Directors, two of whom are independent. The current chairman of the remuneration Committee, Mr Lizwi Mtumtum, is also the Lead Independent Non-Executive Director of the group, and was elected on the basis of his business knowledge and experience, and familiarity with the challenges facing directors and executive managers. He ensured that decisions were fair and unbiased.

POLiCy GuiDELiNES ON PAy MixThe group has adopted a pay mix policy that supports the philosophy that, over time, the performance-based pay of executives should equal or exceed guaranteed pay in the mix of total expected compensation, and furthermore that, amongst the most senior executives, the orientation should be towards rewarding long-term sustainable performance (through long-term and/or share-based incentives), more so than operational performance (through annual cash incentives). The mix of guaranteed and variable pay is thus designed to meet both the group’s operational needs and its strategic objectives.

The remuneration Committee ensures that the pay mix of guaranteed and performance-driven pay in cash, shares and other elements, not only meets the group’s needs but also provides a true reflection of sustained group and individual performance, whilst ensuring that guaranteed pay is a sufficient proportion of total remuneration to allow for a fully flexible incentive scheme to operate.

In reviewing and approving levels of guaranteed pay, the remuneration Committee ensures that these reflect the market sector in which the group operates, and the contribution of employees, particularly Executive Directors and senior management. For all positions, other than those for which specific premiums are deemed appropriate due to scarcity or criticality of skills, the targets are the market median of the appropriate market. In the context of guaranteed pay, all other benefits, including pensions, other financial arrangements and, where applicable, benefits in kind are scrutinised to ensure they are justified, appropriately valued and suitably disclosed.

REPORt Of thE REMuNERAtiON COMMittEE

thE GROuP’S REwARD StRAtEGy iNtENt Keaton Energy recognises that remuneration is a business as much as a human resources issue. The group’s reward strategy has a direct impact on company culture, employee behaviour, operational expenditure and the company’s ongoing strategic sustainability. As such it is aligned with its long-term strategic planning and business practices, clearly defined, and monitored and managed to ensure sustained validity and effectiveness.

The reward strategy has the following objectives:•Attract critical, scarce and high-performing individuals from a

shrinking pool of talent• Implement and maintain a retention strategy for employees

who contribute to enhance business performance• Fairly reward employee performance which contributes

towards the employer attaining its business objectives and to reinforce, encourage and promote superior performance

•Direct employees’ energies and activities towards key business goals

•Achieve the most effective returns (employee productivity) for total employee spend

•Address diverse employee needs across differing cultures

To achieve this, the group rewards its employees in a manner that reflects the dynamics of the market and the context in which it operates.

REMuNERAtiON GOVERNANCEThe Board has established a remuneration Committee to guide it in its responsibility in establishing, maintaining and governing the group’s remuneration policies. These policies ensure fair and equitable remuneration and rewards to group directors, executives and employees, for their individual contributions to the group’s overall performance. In maintaining and monitoring compliance with these policies the interests of shareholders are protected and the financial well-being of the group is ensured.

The Committee mainly concerns itself with the remuneration of executives and senior management by ensuring that remuneration is market-related and not only linked to individual performance but also to the group’s operational and financial performance and the market. The responsibilities and duties of the remuneration Committee are detailed in its Tor that governs its activities.

Along with its primary duties to address reward strategies for executives and senior management, the Committee advises the Board on the remuneration of Non-Executive Directors, and

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POLiCy GuiDELiNES ON GuARANtEED PAy (tCC)The group maintains an integrated pay line with pay levels which will ensure that it is able to remain competitive, whilst managing costs. The following steps are in place to ensure competitive pay levels:•Establishing a target market for all job families and any

particularly hot skills •Managing total employment cost in light of its significant

contribution to overall operating costs• To achieve effective cost management, manage guaranteed

pay levels in terms of a single entity, TCC, which includes basic salary, allowances and company contributions to retirement funds and medical aid

•Utilise various market data sources, published annually, that provide remuneration information in both a sectoral and a general sense

•Additionally review pay levels of top executive positions in the group against national executive remuneration survey benchmarks

•Percentile within market data

For all positions other than hot skills, the group has positioned itself relative to the market median of the market, for TCC guaranteed pay, ie excluding incentives.

For hot skills, the group has targeted itself relative to the upper quartile of the market, or otherwise applies a specific premium to the median.

SALARy REViEwSThe group’s annual increase process is performed during November/December each year. The funds that the Board makes available for the increase process is a function of the salary increases granted in the market with regard to TCC, individual performance, other relevant economic indicators and potentially the performance of the group.

POLiCy GuiDELiNES ON PERfORMANCE MANAGEMENtThe group has established a formal framework for performance management. Individual performance is assessed in terms of a scorecard of Key Performance Areas (KPAs) which are derived from existing job descriptions and are aligned to the overall performance measures of the group. The KPAs include financial and non-financial measures and, where appropriate, are shared rather than individually owned.

Personal skills and competencies are also included in individual scorecards. Weightings are given to the scorecard elements and the overall score is established by summing the weighted scores attained. The performance management scorecard and the assessment process also provide an opportunity to comment on developmental plans for the individual.

The pay mix policy addresses the major components of remuneration, namely:• Total cost to company guaranteed pay (TCC)•Variable pay for performance:

– Short-term incentives in the form of annual cash incentives (ACI); and

– Long-term (share-based) Incentive Plan (LTIP) expected reward.

The schematic below illustrates the pay mix for the CEO position and for a senior executive position.

Chief Executive Officer

TCC ACI

48%

24%

28%

LTIP

Senior Executive

TCC ACI

50%

23%

27%

LTIP

Notes• Totalcosttocompanyguaranteedpayarepositionedatthemedianofthe

market for similar size companies.• Theannualcashincentivesarebasedontheachievementofan“ontarget”

but stretch performance, although not a maximum.• Theexpectedvaluesofthelong-termincentiveplanarepresentvaluesof

the targeted future monetary value arising from an annual offer.

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REPORt Of thE REMuNERAtiON COMMittEE CONtiNuED

The performance management process occurs during October/November and April/May of each year.

POLiCy GuiDELiNES ON ANNuAL iNCENtiVE PAyThe offer and payment of annual incentive pay to executives and senior management is entirely at the discretion of the remuneration Committee. An incentive pool is created from a weighted scorecard of group performance measures, and is then allocated to participants according to their relative performance.

The group continuously strives towards a balance that reflects and/or accommodates inter alia:• Incentive payments which are to be funded from incremental

performance• The group’s human capital is to be secured in what is a

volatile and unpredictable business environment• Variable pay for performance is to be commensurate with

value contributions, and in accordance with best practice in the mining and resources market

For head office employees the group performance scorecard includes performance measures in the areas of health and safety, production, operational growth, profitability and comparative share price performance. Individual scorecards are aligned to key performance areas in each role which aligns to the overall group measures.

For on-mine employees, quarterly cash bonuses are offered to operational teams at both operating collieries based on stringent production and safety performance criteria. All full-time employees of both operating colleries are participants and no contractors participate.

POLiCy GuiDELiNES ON LONG-tERM (ShARE-BASED) iNCENtiVESLong-term Performance incentive Scheme2007 Share PlanThe group’s previous LTIP was established in terms of which eligible employees would receive a bonus award equal to the increase in the value of the notional shares between the date on which the remuneration Committee approved the award to the date of its exercise. In normal circumstances, the bonus award was to be applied exclusively to the subscription and/or purchase of the group’s shares.

Directors (excluding Non-Executives) and employees of any participating company were eligible to participate in this LTIP, and awards were made on the recommendation of the remuneration Committee.

The offer of bonus awards was conditional upon the participant being and remaining employed within the group over the minimum employment period and upon the achievement of performance targets as specified in the bonus award certificates, over a three-year performance cycle.

Details of all unvested awards are disclosed in note 22 on page 153 to the Financial Statements.

2013 Share PlanAt the 2013 Annual General Meeting (AGM) shareholders approved the design and implementation of the Keaton Energy 2013 Share Plan (Plan) which serves to reward the required attributes of shareholder alignment, retention of key talent and long-term, sustained performance, all in what may become an increasingly more difficult and volatile market. The Plan will provide for the inclusion of a number of additional performance conditions, designed to align the interests of participants with those of Keaton Energy’s shareholders. Share allocations under the 2013 Share Plan will only commence during FY15.

Executives and selected senior managers of the company and its subsidiaries will be offered annually a weighted combination from: •Allocations of Share Appreciation rights (similar to the 2007

Share Plan)•Conditional awards of (full value) Performance Shares •Grants of (full value) restricted Shares

Share Appreciation Right elementAnnual allocations of Share Appreciation rights will be available to be settled in equal thirds on the third, fourth and fifth anniversaries but need not be exercised until the seventh anniversary, at which time they must be exercised or they will lapse.

On settlement, the value accruing to participants will be the appreciation of Keaton Energy’s share price. Settlement may be in shares, which shares may be issued and allotted, or acquired and transferred to participants or via the settlement of a cash bonus of equivalent value.

Performance criteria will be stipulated in which the number of Share Appreciation rights vesting in relation to the full number allocated is reduced if performance targets are not met.

In the past “bonus awards” (allocations) have been made using multiples of guaranteed package to define the face values and, therefore, given the prevailing share (strike) price, the number of share options to be offered. This same methodology is to be retained for allocations of Share Appreciation rights, but the set multiple will be reduced in order to accommodate the parallel offer of two other elements, both forms of a full value share.

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In the schematic below performance vesting is illustrated but without defining either of the specific performance metric by which vesting will be governed.

Perfomance vesting (%)

y zxPerformance metric

■ Percentage of target vesting

3002752502252001751501251007550250

Per

cent

of t

arge

t ve

stin

g

The performance curve above illustrates the following relationships:• If the group’s performance over the three-year period is “y”

(median or 3.5 out of 5), then the targeted number (one-third of the maximum number) of Performance Shares awarded will vest.

• If the group’s performance over the three year period is “z” (upper quartile or 4.5 out of 5) or better, then the maximum number (three times the targeted number) of Performance Shares awarded will vest.

• If the group’s performance over the three-year period is “x” (lower quartile or 2.5 out of 5) or worse, then all Performance Shares awarded will be forfeited.

• If the group’s performance over the three-year period lies between any of the above points, then a pro-rated number of Performance Shares will vest.

No retesting against the performance criteria will be allowed, and any Performance Shares not vesting will be forfeited.

Thus a form of appreciation unit will continue to be offered in the future, but at a reduced level in terms of target reward, the balance being made up from a weighted combination of the other two elements that are described below.

Full value sharesWhen a participant exercises a share option or share appreciation right (or bonus award) the value that accrues to him is the positive gain (appreciation) of the underlying share above the strike price. Full value shares differ in that there is no strike price; the full value of the share accrues to a participant on vesting. As such full value shares are not so reliant on share price growth, and not so sensitive to the volatility of share prices, the timing of offers and the external factors that can drive share prices more so than company performance. They are, however, emphatically tied to the performance of the company or individual, more so than the happy or unhappy coincidence of economic factors.

Performance Share elementAnnual conditional awards of Performance Shares will be made to executives and senior management. Performance Shares will vest on the third anniversary of their award, to the extent that the company has met specified performance criteria over the intervening period. Essentially the value per share that vests is the full value of the share (there is no strike price), but the number of shares that will vest will depend on whether the company’s performance over the intervening three-year period has been on target, an under-performance, or an over-performance against the performance targets set at award date.

The Board, through the remuneration Committee, will dictate the performance criteria for each award, and it is intended that, until there is a change in policy, vesting will be governed by an equally weighted combination of:• the group’s Total Shareholder return (TSr) in relation to a

comparator group TSr; and • a weighted scorecard of operational and strategic metrics,

providing for safety, production, profitability and growth elements.

In selecting the comparator group with which to rank the company’s TSr performance, it was deemed inappropriate to select only those few companies that directly compete with the group. rather, the intent is to select a comparator group which represents an alternative portfolio of investments in small cap companies that the shareholders of Keaton Energy could have made, and which in aggregate are likely to be similarly affected by the same external influences.

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REPORt Of thE REMuNERAtiON COMMittEE CONtiNuED

Performance Shares closely align the interests of shareholders with that of executives and senior management by rewarding superior shareholder and financial performance in the future. Performance Shares will be awarded predominantly to executives and senior management who can influence and impact long-term strategic performance.

Restricted Share elementOn an annual basis, executives, senior managers and key talent may receive a grant of restricted Shares. The value of restricted Shares granted will be linked to the annual cash bonus scheme, in one of, or a combination of:•Bonus matching: Matching, according to a specified ratio,

the actual annual cash incentive accruing to the participating employee. Standard matching ratios will be set for each grade, based on: – The on-target bonus percentage for the grade– The required balance within the offers of full value shares

between Performance Shares and restricted Shares

The standard matching ratio (although designed in relation to the on-target bonus) will be applied to the actual bonus achieved, irrespective of how this relates to on-target.

•Bonus deferral: An elective, prior year-end deferral of a portion (25%, 33% or 50%) of a participating employee’s bonus calculation and its immediate conversion into restricted Shares, with one-for-one matching with additional restricted Shares.

As the individual is effectively opting to put an element of cash bonus that would otherwise accrue to him at risk, this sub-element of the Plan may be seen as a form of “co-investment”.

restricted Shares will vest after three years, subject only to continued employment.

restricted Shares will be predominantly granted to high-performing executives and senior managers to assist in their retention. They provide for share-based retention of those employees who through their performance on an annual basis, or their commitment to invest in the company’s future, have demonstrated their value to the company.

It is firmly believed that the combining of the Share Appreciation right element with a full value share plan element (in its two balanced variations) will serve to reward the required attributes of shareholder alignment, retention of key talent and long-term, sustained performance, as well as share price growth.

It is envisaged that settlement will be via shares (equity settlement) for the Share Appreciation rights, Performance Shares and restricted Shares, although the documentation allows, at the remuneration Committee’s discretion, for either equity or cash settlement in respect of all three elements. In equity settlement, the documentation also allows for settlement to be via issue and allotment (incurring shareholder dilution) or acquisition and transfer (requiring the purchase of shares in the open market).

The approval of the JSE and of shareholders requires that the number of shares which may be issued to all participants under the Plan is not to exceed 10 000 000 (ten million) shares in aggregate, or 1 500 000 (one million, five hundred thousand) shares to any one individual.

Shares which have been purchased through the JSE, and transferred to participants in settlement, will not be taken into account in these aggregate amounts. Furthermore, once a share has been settled it shall not again thereafter be counted in the number of shares comprising the aggregate amounts.

NON-ExECutiVE DiRECtORS’ PAyThe remuneration Committee ensures that directors are fairly rewarded for their individual contributions to overall performance. The remuneration of Non-Executive Directors is a matter for the Executive members of the Board, and is approved by the company’s shareholders in General Meeting, acting pursuant to a recommendation of the Board. The Board applies principles of good corporate governance relating to directors’ remuneration and also keeps abreast of changing trends. Governance of directors’ remuneration is undertaken by the Committee. The Committee takes cognisance of market norms and practices, as well as the additional responsibilities placed on Board members by new legislation and corporate governance principles.

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employment the Executive Director shall be entitled to a severance payment equal to his/her annual cost to company employment package less any other payments made or becoming due to the Executive Director as a result of the termination of employment.

REtiREMENt BENEfitSDuring the year, the relevant group companies made contributions for all Executive Directors and employees to the Keaton Energy Administrative and Technical Services Provident Fund with Liberty Life (Corporate Benefits) (Liberty), the Keaton Mining Provident Fund with Liberty and the Leeuw Mining and Exploration Provident and Pension Fund with Liberty, as part of their TCC. The rate of contribution is between 3% and 15%, based on the pensionable salary of these individuals. The value of contributions for each Executive Director appears in the summary of directors’ remuneration and benefits on page 179 of this Integrated Annual report.

None of the Non-Executive Directors of the group contributed to the funds during the year or had any accrued pension fund benefits in the fund as at 31 March 2014. The group has co-established a management committee operating according to terms of reference relevant to umbrella funds. This committee agreed a service level agreement with the consultant/financial adviser to the funds and drew up an investment policy statement.

OthER BENEfitSIn addition to the benefits already described as part of their guaranteed packages, Executive Directors and employees also receive a death-in-service benefit. No ex-gratia payments or deferred awards of any nature were made during the review period.

Lizwi Mtumtum Chairman of the Remuneration Committee

The group’s policy on remuneration for Non-Executive Directors is that this should be:• Fee-based, comprising a retainer and per Committee

components•Market-related with respect to fees paid and number of

meetings attended by Non-Executive Directors of companies of similar size and structure to the group and operating in the mining and resources sector

•Not linked to share price or the group’s performance

The group pays for all travel and accommodation expenses incurred by directors to attend board meetings and visits to group businesses. None of the Non-Executive Directors have an employment contract with the group although Non-Executive Directors are required to conclude service agreements with the group which set out the duties and responsibilities expected of them as Non-Executive Directors. The group’s Non-Executive Directors do not receive bonuses or share options, recognising that this can create potential conflicts of interest, which can impair the independence which Non-Executive Directors are expected to bring to bear in decision-making by the Board. At the group’s AGM, to be held on 6 October 2014, shareholders will be required to approve the Non-Executive Director fees set out in the notice of AGM on page 194 of this Integrated Annual report.

CONtRACtS, SEVERANCE AND tERMiNAtiONExecutive Directors are subject to the group’s standard terms and conditions of employment where notice periods are six months. In line with the remuneration guidelines of King III, none of the executives have extended employment contracts, special termination benefits or balloon payments linked to any restraint of trade. The group’s policy when terminating the services of an individual is to remunerate according to the guidelines established by governing labour law and, more specifically, as per the regulations of the Basic Conditions of Employment Act prevalent at time of termination. The group aims to apply this policy to all employees, but it is subject to negotiation in special circumstances. For Executive Directors, unless termination of employment occurs as a result of the misconduct or poor performance of the Executive Director or his/her resignation (other than under circumstances of constructive dismissal, death, injury, illness or retirement), upon termination of

ANNUAL FINANCIAL STATEMENTS

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COPY TO BE

SUPPLIED

notes to the financial statements continued

foR the YeaR ended 31 maRch 2014

07Directors’ responsibility for the Annual Financial Statements 102

Declaration by the Company Secretary 102

Directors’ report 103 – 107

Report of the Audit Committee 108

Independent Auditor’s report 109

Statements of profit or loss and other comprehensive income 110

Statements of financial position 111

Statements of changes in equity 112 – 113

Statements of cash flows 114

Notes to the Financial Statements 115 – 185

The preparation of the Financial State- ments as set out on pages 110 to 185 have been supervised by the group CFO, J Rossouw, a Chartered Accountant (SA). The Annual Financial Statements have been audited by KPMG Inc., in compliance with the requirements of the Companies Act, 2008, as amended, whose audit report is presented on page 109.

The Annual Financial Statements were published on 4 September 2014.

AnnuAl finAnciAl stAtements page 100 – 185

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DIRECToRS’ RESpoNSIbILITy FoR THE ANNUAL FINANCIAL STATEMENTS

The directors are responsible for the preparation and fair presentation of the consolidated and separate Annual Financial Statements of Keaton Energy Holdings Limited, comprising the statements of financial position at 31 March 2014, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa. In addition, the directors are responsible for preparing the directors’ report.

The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management.

The directors have made an assessment of the ability of the company and its subsidiaries to continue as going concerns and have no reason to believe that the businesses will not be going concerns in the year ahead.

The auditor is responsible for reporting on whether the consolidated and separate financial statements are fairly presented in accordance with the applicable financial reporting framework.

AppRovAL oF CoNSoLIDATED AND SEpARATE ANNUAL FINANCIAL STATEMENTSThe consolidated and separate Annual Financial Statements of Keaton Energy Holdings Limited, as identified in the first paragraph, were approved by the Board of Directors on 21 August 2014 and signed by:

Lizwi Mtumtum Jacques RossouwLead independent non-Executive director Chief Financial Officer

I certify, in accordance with the Companies Act, No 71 of 2008, as amended, that for the year ended 31 March 2014 Keaton Energy has lodged with the Companies and Intellectual Property Commission all such returns and notices as are required of a public company in terms of this Act, and that all such returns and notices appear to be true, correct and up to date.

A Schutte-bouwerCompany secretary21 August 2014

DECLARATIoN by THE CoMpANy SECRETARy

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DIRECToRS’ REpoRT

The directors have pleasure in presenting the directors’ report to the financial statements for the year ended 31 March 2014.

1 NATURE oF bUSINESS Keaton Energy holds interest in subsidiaries that develop and operate collieries in South Africa. The collieries produce thermal

coal for supply to Eskom, South Africa’s power utility, and metallurgical coal of varying quality for sale to domestic and export customers.

2 REvIEw oF bUSINESS AND opERATIoNS The financial results for Keaton Energy are presented for the year ended 31 March 2014 and the comparative results are

presented for the year ended 31 March 2013.

The group’s intention, since its founding in 2006, has been to take its South African exploration prospects rapidly up the value curve – through exploration and development to mining – to produce 2Mtpa of saleable coal in the short term, a target it comfortably achieved and to grow into a mid-tier, 5Mtpa coal producer in the medium term.

The 2014 financial year saw the Keaton Energy group not only achieve the targets it set for itself of being safe, being profitable and growing towards 5Mtpa but also advance its portfolio of development projects significantly. The following commentary summarises the group’s key activities during the year:

Safety Safety is of paramount importance to the Keaton Energy group and we are pleased to announce another fatality-free year of

operation. Our continuous focus on safety, coupled with intensive safety training initiatives and rigorous management, resulted in improved safety statistics at Vaalkrantz and a slight deterioration at Vanggatfontein which reported a zero LTIFR in 2013. We congratulate all involved in keeping our workplaces safe.

Markets Our coal is sold into four distinct markets: 1. Domestic thermal coal contracted to Eskom; 2. 5-seam coal and premium anthracite to domestic metallurgical customers; 3. B-grade coal to domestic customers; and 4. Anthracite exported to Brazil, through our off-take partner Gunvor International BV.

Our relationship with Eskom, our biggest customer by volume, has continued to strengthen through the delivery of a consistent quality product to a number of their power stations. Our entire 5-seam and premium anthracite production remains in great demand locally and all product is sold as it is produced. Domestic metallurgical coal prices have been under pressure for the past 12 months. We did, however, maintain our price position despite the challenges faced in the market. This is directly linked to the current global market conditions with escalated cost pressures and reduced output from furnace operators. The export market for anthracite did not show any recovery over the past year, with market conditions still being challenging. The indications are that we should see the markets stabilise in the next 12 months, although there is no guarantee that this will happen.

operational review Vanggatfontein FY14 saw Vanggatfontein reach steady state. The colliery delivered 2 192 519 tonnes of washed 2- and 4-seam thermal coal to

Eskom, an increase of 45% from the previous year’s 1 509 681 tonnes. 5-seam metallurgical coal sales increased 49% to 97 635 tonnes from 65 661 tonnes. The increased utilisation of the 5-seam plant for own coal allowed limited washing of other coals: 145 785 tonnes were toll-washed and 10 328 tonnes of B-grade market development product was produced.

Discard and slurry sales totalled 844 334 tonnes for FY14, compared with 454 083 tonnes in FY13, an increase of 86%. While generating revenue, these sales also steadily reduce our environmental footprint.

This long-life colliery now forms the backbone of the soon to be enlarged Vanggatfontein-Moabsvelden complex which will, with the Braakfontein Project, form the core of the growing Keaton group of companies.


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Vaalkrantz Vaalkrantz dispatched 303 837 tonnes of anthracite to domestic and international metallurgical markets, a 7% decrease over the

previous year’s 326 597 tonnes. The operation continued to suffer from extremely difficult mining conditions in the West Alfred section of the mine which limited production. Unprotected industrial action in August 2013 resulted in the group restructuring this operation and outsourcing the mining to a contractor. Our steadfast efforts in turning this operation to profitability have started delivering results in the new financial year.

It is pleasing to note that despite these difficulties, the colliery’s safety performance improved, a testament to the dedication and application of all those involved.

Group operating and financial performance Group revenue increased by 49% from R919 million in FY13 to R1 373 million in FY14. The increase was as a result of improved

operational performance at Vanggatfontein leading to increased deliveries of both thermal coal to Eskom and 5-seam metallurgical coal to domestic customers.

The group recorded a gross profit of R219 million for FY14 compared to a gross loss of R27 million in FY13. This improvement in results began in the second half of FY13 and has continued with increased production at Vanggatfontein, improved operational efficiencies and the changed business model at Vaalkrantz. Production costs were controlled tightly and cost containment remains a key focus at both operations.

Depreciation for the year increased 53% to R359 million, in line with the increased production at Vanggatfontein. Administrative expenses increased by 30%. While our head office team has been strengthened with the appointment of a Chief Operating Officer and Environmental and SLP managers, the main driver of this increase is the transaction costs associated with the Xceed acquisition.

Total comprehensive income increased to R65 million compared to a loss of R132 million in FY13. Headline earnings per share increased 200% from a loss of 30.2 cents in FY13 to a profit of 30.3 cents in FY14. The net asset value per share increased 14% to 408 cents.

Capital investment for the group totalled R301 million in FY14 compared to R210 million in FY13. The majority of capital was spent at Vanggatfontein, with some R294 million being invested, mainly applied to stripping costs and the opening up of Pit 4.

Cash and cash equivalents at the end of the year increased by R50 million as a result of improved operational cash flows. The group concluded a R350 million financing facility with Investec Bank Limited. The proceeds of this facility were applied to the Xceed transaction and the retirement of the Nedbank project finance facility used for the development of Vanggatfontein.

Development pipeline Over the past three years our management team has worked hard to optimise our existing collieries and to bring new resources

into the pipeline for continued growth.

Moabsvelden The greenfields Moabsvelden Project was acquired in February 2014 when Keaton Energy purchased the entire issued share

capital of Australian Stock Exchange (ASX) listed Xceed Resources Limited. Moabsvelden represents a significant opportunity for the group to grow its Delmas footprint by utilising existing processing capacity, infrastructure and management at Vanggatfontein.

Koudelager During FY13 additional boreholes were drilled to develop our understanding of all five of the Vryheid Coalfield seams. Koudelager’s

geological model and coal resource have been updated and ongoing feasibility work is planned for the second half of 2014. The coal resource currently stands at 12.3Mt, but determining the best extraction method remains a challenge. An application for a

DIRECToRS’ REpoRT CoNTINUED

104

Prospecting Right over a contiguous property has been submitted to the DMR and it is our intention to extend the drilling grid into this property with a view to expanding the Koudelager coal resource.

Braakfontein A final phase of feasibility drilling on Braakfontein was completed in December 2013, which included 17 in-fill boreholes and an

8-hole opencast-underground interface line to establish the conditions that could be expected along the axis of the underground access decline. This process is being expanded to include remote geophysics to provide the detail required for underground mine planning. Upon conclusion of this final phase of exploration, a feasibility study will be conducted to establish the economics of an export and domestic quality thermal coal producer in the Newcastle area.

other exploration projects A comprehensive confirmatory and in-fill drilling programme has been planned and will be executed upon the award of the

Mining Right at Balgray, which is expected before the end of the first quarter of FY15. Balgray is located 7km north-east of the town of Utrecht in KwaZulu-Natal. Historical drilling data on the property indicates a target Gus seam deposit of between 10Mt and 14Mt with an average seam thickness of 1.3 metres. At Mooiklip, a first-phase of exploration drilling will be conducted during the first half of FY15 with a view to determining whether the property will deliver an anthracite resource of economic quantity.

3 SHARE CApITAL Authorised stated capital: increased to 750 000 000 (FY13: 250 000 000 ordinary shares with a par value of R0.001 each (one

tenth of a cent)) ordinary shares with no par value.

Issued stated capital: 224 310 979 (FY13: share capital: 191 663 141) ordinary shares with no par value (FY13: par value of R0.001 (one tenth of a cent) each).

During May 2013 a special resolution was adopted whereby ordinary par value shares were converted into ordinary shares with no par value. This resolution also approved the increase in authorised stated capital from 250 million shares to 750 million shares.

4 DIRECToRATE Dr David Salter ceased to act as Executive Chairman for the group on 10 September 2013 and reverted to being the group’s

Non-Executive Chairman. The Board was strengthened further in March 2014 with the appointment of Mr Jeroen Schurink as Non-Executive Director. Mr Dirk Jonker resigned as a Non-Executive Director of the company subsequent to the year end.

The directors that held office at the date of this report are:

Name and nationality (South African, unless otherwise stated) position Independent

JD Salter (British) Non-Executive Chairman No

LX Mtumtum Lead Independent Non-Executive Director Yes

OP Sadler Non-Executive Director Yes

P Pouroulis (South African/Cypriot) Non-Executive Director No

APE Sedibe Non-Executive Director No

GH Kemp Non-Executive Director Yes

JH Schurink (Dutch) Non-Executive Director No

AB Glad Executive Director No

J Rossouw Executive Director No


105


5 AUDIToRS At the forthcoming AGM, shareholders will be requested to reappoint KPMG Inc. as auditors of the company and to hold office

for the ensuing year until the conclusion of the next AGM. The designated partner will not be required to rotate as he has not yet reached the five-year rotational requirement.

6 CoMpANy SECRETARy Ms Michelle Louise Taylor resigned as Company Secretary during the year and the company appointed Ms Anelia Schutte-

Bouwer as Company Secretary on 7 March 2014. Her contact details are the same as the company’s registered address given below.

Registered address Ground Floor Eland House The Braes 3 Eaton Avenue Bryanston 2191

7 SpECIAL RESoLUTIoNS Special resolutions approved for the company and its subsidiaries during the financial year are as follows:

Company Special resolutions Date

Keaton Energy GM: 28 May 2013• Special resolution number 1: Conversion of par value shares

to no par value shares• Special resolution number 2: Increase in authorised share

capital• Special resolution number 3: Adoption of new Memorandum

of Incorporation

Keaton Energy AGM: 17 September 2013• Special resolution number 1: Keaton Energy’s Long-Term

Performance Incentive Scheme• Special resolution number 2: Non-Executive Directors’ fees

for the year ended 31 March 2014• Special resolution number 3: Financial assistance in terms of

section 44 and section 45• Special resolution number 4: General authority to repurchase

shares

Keaton Mining Written resolution: • Special resolution for the entering into a facility agreement

with Investec Bank to provide for the granting of a ZAR-denominated term loan facility to Keaton Mining. For more information please refer to note 24 of the financial statements

16 January 2014

DIRECToRS’ REpoRT CoNTINUED

106

8 DIRECToRS’ INTEREST IN SHARE CApITAL

Director Nature of interestNumber of

ordinary shares

percentage of issued

share capital at 31 March

31 March 2014P Pouroulis(1) Indirect, beneficial 41 688 428 18.59JD Salter(1)* Indirect, beneficial 2 450 000 1.09AB Glad(3) Indirect, beneficial – –AB Glad/APE Sedibe(1) Indirect, beneficial 6 209 260 2.77OP Sadler(1) Direct, beneficial 114 285 0.05

50 461 973 22.50

31 March 2013P Pouroulis(1) Indirect, beneficial 41 688 428 21.75JD Salter(2)* Indirect, beneficial 2 450 000 1.28AB Glad(3) Indirect, beneficial 11 100 0.01AB Glad/APE Sedibe(1) Indirect, beneficial 6 209 260 3.24PBM Miller(4) Indirect, beneficial 2 725 000 1.42PBM Miller(4) Direct, beneficial 1 018 008 0.53OP Sadler(1) Direct, beneficial 114 285 0.06

54 216 081 28.29

Note: (1) Non-Executive director.(2) Executive chairman.(3) Indirect, beneficial shares attributed to AB Glad in 2013 were reported in error. This error was rectified in the current year.(4) Resigned June 2012.* Refer to the corporate governance section in the Integrated Annual Report on page 84 for details on dr Jd Salter’s classification as a Non-Executive

director during 2014.

There has been no change in the directors’ interest in the share capital of the company between the end of the financial year and the date of approval of the Annual Financial Statements.



107

108

The Companies Act, No 71 of 2008, not only requires certain companies to establish an Audit Committee but also prescribes the composition and functions of such committee. The Audit Committee therefore comprises three Independent Non-Executive Directors, namely LX Mtumtum, GH Kemp and OP Sadler.

The main purpose of the Audit Committee as provided for in the Companies Act, No 71 of 2008 includes, among others:• To assist the Board in discharging its duties on safeguarding assets.• To monitor the operation of an adequate system of internal control and control processes.• To monitor the preparation of accurate financial reporting and statements in compliance with all applicable legal and corporate governance

requirements and accounting standards.

In terms of the Companies Act, No 71 of 2008, the following members, serving on the Audit Committee at 31 March 2014, will be recommended to the shareholders for re-election as Audit Committee members for the ensuing financial year at the company’s AGM:

Name Status Date appointed period served for

Mr LX Mtumtum (chairman) Lead Independent Non-Executive Director March 2008 6 yearsMr GH Kemp Independent Non-Executive Director November 2012 1.5 yearsMr OP Sadler Independent Non-Executive Director October 2010 3.5 years

The proposed individuals satisfy the requirements to serve as members of the Audit Committee as provided for in section 94 of the Companies Act, No 71 of 2008, contributing to the committee and having adequate and relevant knowledge and experience for the committee to perform its functions.

In terms of the Audit Committee’s formal, approved ToR and as part of its function in assisting the Board to discharge its duties during the period under review, the committee not only met four times during the financial year under review, but also:• reviewed the company’s quarterly results• considered the appointment of the external auditor, KPMG, as the registered independent auditor for the ensuing year • satisfied itself with KPMG’s independence• evaluated the independence and effectiveness of the internal audit function and external auditors• evaluated and co-ordinated internal and external audit processes• received and considered reports from the internal and external auditors• reviewed and approved internal and external audit plans, terms of engagement and fees, as well as the nature and extent of non-audit

services rendered by the external auditors (up to a maximum of 15% of the agreed audit fee)• held separate meetings with management and the external auditors• satisfied itself with the appropriateness and expertise of the Chief Financial Officer and finance function, and• considered whether IT risks are adequately addressed and that adequate controls are in place.

Name June 2013 September 2013 November 2013 March 2014

LX Mtumtum ✓ ✓ ✓ ✓

GH Kemp ✓ ✓ ✓ ✓

OP Sadler ✓ ✓ ✓ ✓

The Chairman of the Audit Committee is required to report back to the Board after each Audit Committee meeting held.

Consultation between internal and external auditors is encouraged to achieve an efficient audit process. The external (KPMG) and internal (PwC) auditors attend the Committee’s quarterly meetings and have unrestricted access to the Chairman of the Audit Committee. The Audit Committee has approved a non-audit service policy and set the principles for recommending the use of external auditors for non-audit services.

The Committee noted that the designated audit partner rotated during the month of October 2013 when Mr Willem Pretorius was appointed as the new designated audit partner. Due to the rotations, the Audit Committee was satisfied with KPMG’s independence and recommended them to be reappointed as external auditors at the upcoming AGM where the shareholders will have the opportunity to reappoint KPMG as the external auditor.

On recommendation from the Audit Committee, the Board approved:• the Annual Financial Statements for the year ended 31 March 2014. The Audit Committee reviewed these to ensure they presented a true,

balanced and understandable assessment of the financial position and performance of the company• the Integrated Annual Report for the year ended 31 March 2014 in accordance with King III and the JSE Listings Requirements, and• the notice of the Annual General Meeting to be held on 6 October 2014.

LX MtumtumLead independent non-Executive director21 August 2014

REpoRT oF THE AUDIT CoMMITTEE

INDEpENDENT AUDIToR’S REpoRT

To the Shareholders of Keaton Energy Holdings Limited

REpoRT oN THE FINANCIAL STATEMENTSWe have audited the consolidated and separate financial statements of Keaton Energy Holdings Limited, which comprise the statements of financial position at 31 March 2014, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, as set out on pages 110 to 185.

DIRECToRS’ RESpoNSIbILITy FoR THE FINANCIAL STATEMENTS The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDIToR’S RESpoNSIbILITy Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

opINIoN In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Keaton Energy Holdings Limited at 31 March 2014, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

oTHER REpoRTS REqUIRED by THE CoMpANIES ACT As part of our audit of the financial statements for the year ended 31 March 2014, we have read the Directors’ report, the Audit Committee’s report and the Company Secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports.

KpMG Inc.Registered Auditor

per wS pretoriusChartered Accountant (sA)Registered AuditorDirector21 August 2014

1226 Francis Baard StreetHatfieldPretoria0083


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110

FoR THE yEAR ENDED 31 MARCH 2014

STATEMENTS oF pRoFIT oR LoSS AND oTHER CoMpREHENSIvE INCoME

Notes

year ended 31 March

2014R

Year ended 31 March

2013R

year ended 31 March

2014R

Year ended 31 March

2013R

Revenue 4 1 372 605 263 918 807 387 108 178 337 90 490 337 Cost of sales 5 (1 153 868 958) (946 080 924) (2 999 866) (4 331 869)

Gross profit/(loss) 218 736 305 (27 273 537) 105 178 471 86 158 468 Other income 6 12 983 103 10 593 615 – – Mining and related expenses (11 476 127) (70 491 701) – – Net gain on financial instruments 7 780 786 2 484 669 – – Administrative expenses (70 893 112) (54 722 913) (41 452 243) (23 835 103)Impairment of investments in subsidiaries 14 – – (4 453 489) (2 342 203)

operating profit/(loss) before net finance (cost)/income 8 150 130 955 (139 409 867) 59 272 739 59 981 162 Net finance (cost)/income 9 (47 733 377) (32 198 738) 202 129 234 782

Finance income 2 834 446 2 109 111 264 673 246 833

Finance costs (50 567 823) (34 307 849) (62 544) (12 051)

Net profit/(loss) before taxation 102 397 578 (171 608 605) 59 474 868 60 215 944 Income taxation (expense)/credit 10 (37 975 490) 39 334 759 (3 465 560) (3 589 871)

Net profit/(loss) for the year 64 422 088 (132 273 846) 56 009 308 56 626 073

other comprehensive incomeItem that may be reclassified to profit or lossForeign exchange translation gain 23 355 566 – – –

Total comprehensive income 64 777 654 (132 273 846) 56 009 308 56 626 073

Net profit/(loss) attributable to:Owners of the company 59 528 868 (84 491 188)Non-controlling interest 4 893 220 (47 782 658)

64 422 088 (132 273 846) Total comprehensive income attributable to:Owners of the company 59 884 434 (84 491 188) Non-controlling interest 4 893 220 (47 782 658)

64 777 654 (132 273 846)

basic earnings per share (cents) 11 30.3 (44.2) Diluted earnings per share (cents) 11 30.0 (44.2)

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

Group Company

AT 31 MARCH 2014

STATEMENTS oF FINANCIAL poSITIoN

Notes

At 31 March

2014R

At 31 March

2013R

At 31 March

2014R

At 31 March

2013R

ASSETSProperty, plant and equipment 13 797 155 080 776 069 909 – – Interest in subsidiary companies 14 – – 915 875 527 807 285 394 Intangible assets 12 and 15 700 688 242 424 130 880 – – Investments and loans 12 5 151 877 – – – Deferred tax 16 17 143 586 51 832 156 – – Restricted cash 17.1 7 423 204 7 423 204 1 418 581 1 418 581 Restricted investments 12 and 18 47 268 749 26 682 869 – – Trade and other receivables 20 37 610 309 – 37 610 309 –

Total non-current assets 1 612 441 047 1 286 139 018 954 904 417 808 703 975

Restricted investments 3 452 896 – – – Inventory 19 35 081 202 38 492 562 – – Trade and other receivables 20 151 336 193 85 214 842 5 770 139 910 765 Cash and cash equivalents 17.2 69 556 044 19 614 150 2 119 338 421 656

Total current assets 259 426 335 143 321 554 7 889 477 1 332 421

Total assets 1 871 867 382 1 429 460 572 962 793 894 810 036 396

EqUITyStated capital 21 692 928 553 – 692 928 553 – Share capital 21 – 191 663 – 191 663 Share premium 21 – 640 711 274 – 640 711 274 Share-based payment reserve 21 18 788 161 12 496 640 13 220 294 8 673 572 Other reserves 23 19 214 764 (18 751 111) 18 859 198 (18 751 111)Retained earnings 134 101 846 74 572 978 231 159 207 175 149 899

Total equity attributable to owners of the company 865 033 324 709 221 444 956 167 252 805 975 297 Non-controlling interest 51 183 265 (23 184 564) – –

Total equity 916 216 589 686 036 880 956 167 252 805 975 297

LIAbILITIESBorrowings 24 341 837 771 235 389 698 – – Long-term financial liabilities 25 604 497 303 161 – – Mine closure and environmental rehabilitation provision 26 215 181 397 137 450 832 – – Provisions 12 and 27 30 575 067 – – – Deferred tax 16 87 357 077 87 353 356 2 176 842 907 112

Total non-current liabilities 675 555 809 460 497 047 2 176 842 907 112

Borrowings 24 51 712 852 49 428 420 – – Mine closure and environmental rehabilitation provision 26 – 2 858 620 – – Trade and other payables 28 227 101 440 229 801 120 4 256 469 2 315 502 Taxation 1 280 692 838 485 193 331 838 485

Total current liabilities 280 094 984 282 926 645 4 449 800 3 153 987

Total equity and liabilities 1 871 867 382 1 429 460 572 962 793 894 810 036 396

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

Group Company



111

112


STATEMENTS oF CHANGES IN EqUITy

Stated capital

R

Share capital

R

Share premium

R

Share-based

payment reserve

R

Other reserves

R

Retained earnings

R

Total equityattributable to owners

of the company

R

Non-controlling

interest (NCI)

R

Total equity

R

Notes 21 21 21 21 and 22 23

GRoUpbalance at 31 March 2012 – 188 752 632 053 834 6 180 562 (18 751 111) 159 064 166 778 736 203 24 598 094 803 334 297

Total comprehensive income for the year – – – – – (84 491 188) (84 491 188) (47 782 658) (132 273 846)Transactions with owners of the company recognised directly in equity Ordinary shares issued for cash – 2 911 9 019 767 – – – 9 022 678 – 9 022 678 Share issue expenses – – (362 327) – – – (362 327) – (362 327)Share-based payments – – – 6 316 078 – – 6 316 078 – 6 316 078

balance at 31 March 2013 – 191 663 640 711 274 12 496 640 (18 751 111) 74 572 978 709 221 444 (23 184 564) 686 036 880

Net profit for the year – – – – – 59 528 868 59 528 868 4 893 220 64 422 088 Other comprehensive income for the year – – – – 355 566 – 355 566 – 355 566 Transfer of share capital and share premium to stated capital(1) 640 902 937 (191 663) (640 711 274) – – – – – – Transactions with owners of the company recognised directly in equityOrdinary shares issued for cash (refer to notes 12 and 21) 58 047 856 – – – – – 58 047 856 – 58 047 856 Share issue expenses (refer to notes 12 and 21) (6 022 240) – – – – – (6 022 240) – (6 022 240) Share-based payments – – – 6 291 521 – – 6 291 521 – 6 291 521 Share-based payment reserve relating to the issue of shares at a discount (refer to notes 20 and 23) – – – – 37 610 309 – 37 610 309 – 37 610 309 Change in ownership interest in subsidiariesXceed asset acquisition (refer to note 12) – – – – – – – 69 474 609 69 474 609

balance at 31 March 2014 692 928 553 – – 18 788 161 19 214 764 134 101 846 865 033 324 51 183 265 916 216 589

(1) A special resolution in terms of Regulation 31 of the companies Act Regulations 2011 was adopted at the general meeting held on 28 May 2013, whereby all ordinary shares were converted into ordinary shares with no par value. It was resolved that all 250 million authorised shares and 191.7 million issued ordinary shares with a par value of 0.1 cents be converted into ordinary shares with no par value and that the share capital account and the share premium account of the company be transferred to the stated capital account.

Stated capital

R

Share capital

R

Share premium

R

Share-based

payment reserve

R

Other reserves

R

Retained earnings

R

Total equity

R

Notes 21 21 21 21 and 22 23

CoMpANy

balance at 31 March 2012 – 188 752 644 053 834 4 233 367 (30 751 111) 118 523 826 736 248 668

Total comprehensive income for the year – – – – – 56 626 073 56 626 073 Transactions with owners of the company recognised directly in equityOrdinary shares issued for cash – 2 911 9 019 767 – – – 9 022 678Share issue expenses – – (362 327) – – – (362 327)Share-based payments – – – 4 440 205 – – 4 440 205 Share-based payments transferred – – (12 000 000) – 12 000 000 – –

balance at 31 March 2013 – 191 663 640 711 274 8 673 572 (18 751 111) 175 149 899 805 975 297

Total comprehensive income for the year – – – – – 56 009 308 56 009 308 Transfer of share capital and share premium to stated capital(1) 640 902 937 (191 663) (640 711 274) – – – –Transactions with owners of the company recognised directly in equityOrdinary shares issued for cash (refer to notes 12 and 21) 58 047 856 – – – – – 58 047 856Share issue expenses (refer to notes 12 and 21) (6 022 240) – – – – – (6 022 240)Share-based payments – – – 4 546 722 – – 4 546 722Share-based payment reserve relating to the issue of shares at a discount (refer to notes 20 and 23) – – – – 37 610 309 – 37 610 309

balance at 31 March 2014 692 928 553 – – 13 220 294 18 859 198 231 159 207 956 167 252

(1) A special resolution in terms of Regulation 31 of the companies Act Regulations 2011 was adopted at the general meeting held on 28 May 2013, whereby all ordinary shares were converted into ordinary shares with no par value. It was resolved that all 250 million authorised shares and 191.7 million issued ordinary shares with a par value of 0.1 cents be converted into ordinary shares with no par value and that the share capital account and the share premium account of the company be transferred to the stated capital account.



113

114

FoR THE yEAR ENDED 31 MARCH 2014

STATEMENTS oF CASH FLowS

Notes

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

Cash flows from operating activitiesCash generated from/(utilised in) operations 30.1 434 156 956 217 763 118 (27 117 049) (16 453 277)Interest received 2 180 490 1 506 512 264 673 246 833 Interest paid (16 583 349) (25 353 430) (62 544) (12 051)Taxation paid 30.2 (2 840 992) (2 118 629) (2 840 984) (2 533 530)

Net cash from operating activities 416 913 105 191 797 571 (29 755 904) (18 752 025)

Cash flows from investing activitiesMovement in investments in subsidiary companies 30.3 – – 174 084 684 (6 047 202)Additions to property, plant and equipment to expand operations (301 629 924) (213 047 626) – – Additions to intangible assets (5 418 625) (1 757 791) – – Xceed asset acquisition, net of cash acquired (191 976 599) – (194 656 714) – Proceeds on disposal of property, plant and equipment 151 637 1 844 975 – – Proceeds on disposal of intangible asset 11 954 900 – – – Investment in restricted investments (21 678 943) (10 585 682) – – Withdrawal from restricted cash 8 474 743 6 600 000 – –

Net cash from investing activities (500 122 811) (216 946 124) (20 572 030) (6 047 202)

Cash flows from financing activitiesProceeds from the issue of shares 58 047 856 9 022 678 58 047 856 9 022 678 Payment of share issue expenses (6 022 240) (362 327) (6 022 240) (362 327)Borrowings repaid (213 902 979) (24 447 045) – – Borrowings raised 300 000 000 – – – Transaction costs relating to project finance arrangements (4 971 037) – – –

Net cash from financing activities 133 151 600 (15 786 694) 52 025 616 8 660 351

Net increase/(decrease) in cash and cash equivalents 49 941 894 (40 935 247) 1 697 682 (16 138 876)Cash and cash equivalents at the beginning of the year 19 614 150 60 549 397 421 656 16 560 532

Cash and cash equivalents at the end of the year 17.2 69 556 044 19 614 150 2 119 338 421 656

Group Company

1 GENERAL INFoRMATIoNKeaton Energy Holdings Limited (registration number: 2006/011090/06) (the company) and its subsidiaries (collectively Keaton or the group) are primarily involved in coal mining and related activities including exploration, extraction and processing of coal at its operations in the Republic of South Africa.

The company is a public company incorporated and domiciled in South Africa, with its registered office at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston, 2191.

The consolidated and separate financial statements were authorised for issue by the Board of Directors on 21 August 2014.

2 ACCoUNTING poLICIESThe principal accounting policies applied in the preparation of the consolidated and separate financial statements are set out below. These policies have been consistently applied by group entities in all years presented, unless otherwise stated. These financial statements are presented in South African rand (R), which is the company’s functional currency. All financial information presented has been rounded to the nearest rand.

Where reference is made in the financial statements to the group or company, it should be interpreted as being applied to the consolidated and separate financial statements as the context requires.

basis of preparationThe financial statements of the group and company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), IFRS Interpretations Committee, the Companies Act of South Africa and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting pronouncements as issued by the Financial Reporting Standards Council. The financial statements have been prepared under the historical cost convention, except for the following material items in the statement of financial position:• Derivative financial instruments are measured at fair value.• Non-derivative financial instruments at fair value through profit or loss are measured at fair value.• Share-based payments at fair value.

The preparation of the financial statements in conformity with IFRS requires the group’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In particular, information about significant areas of estimation uncertainty or where a higher degree of judgement or complexity is involved in applying accounting are disclosed in note 3 to the accounting policies.

New and amended standards adopted by the groupThe following new standards and amendments to standards are applicable and were adopted by the group for the first time for the financial year beginning 1 April 2013.

• IFRS 13, Fair value measurements, establishes a single framework for measuring fair value and making disclosure about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the group has included additional disclosures in this regard (refer to note 33).

In accordance with the transitional provisions of IFRS 13, the group has applied the new fair value measurements guidance prospectively and has not provided any comparative information for new disclosure. Notwithstanding the above, the change had no significant impact on the measurements of the group’s assets and liabilities.

• consolidated financial statements, joint arrangements and disclosure of interests in other entities: transition guidance (IFRS 10, IFRS 11 and IFRS 12) – refer to note 14 for additional disclosure impacting interest in subsidiary companies.

New standards, amendments to standards and interpretations to existing standards that are not yet effective and have not been early adoptedAt the date of authorisation of these financial statements, the standards, amendments to standards and interpretations listed below were in issue but not yet effective. These standards and interpretations have not been early adopted by the group and management is currently evaluating the impact of these on the group. The group plans to adopt these standards, amendments to standards and interpretations, where applicable, on the dates when they become effective.

The effective dates given are for financial periods beginning on or after the given date.

NoTES To THE FINANCIAL STATEMENTSFoR THE yEAR ENDED 31 MARCH 2014



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NoTES To THE FINANCIAL STATEMENTS CoNTINUED

2 ACCoUNTING poLICIES (continued)• Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (effective 1 April 2014)The amendments clarify that a qualifying investment entity is required to account for investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss; the only exception would be subsidiaries that are considered an extension of the investment entity’s investment activities. The consolidation exemption is mandatory and not optional.

• Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective 1 April 2014)The amendments clarify when an entity can offset financial assets and financial liabilities.

• Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (effective 1 April 2014)The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.

The amendments apply retrospectively for annual periods beginning on or after 1 January 2014 with early adoption permitted.

• IFRIC 21 Levies (effective 1 April 2014)Levies have become more common in recent years, with governments in a number of jurisdictions introducing levies to raise additional income. Current practice on how to account for these levies is mixed. IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37 Provisions, contingent Liabilities and Assets.

• IFRS 15 Revenue From Contracts With Customers (effective 1 January 2017)On 28 May 2014, the IASB and FASB jointly issued IFRS 15 Revenue From contracts With customers, which replaces the existing IFRS and US GAAP guidance, and introduces a new revenue recognition model for contracts with customers. It also requires extensive new disclosure.

• IFRS 9 Financial InstrumentsIFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities.

On 19 November 2013, the IASB issued a new general hedge accounting standard, part of IFRS 9 Financial Instruments (2013). The new standard removed the 1 January 2015 effective date of IFRS 9. A new mandatory effective date will be determined once the classification, measurement and impairment phases of IFRS 9 are finalised.

The group will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised and impairment and macro-hedge accounting guidance is still outstanding. The group will assess the impact once the standard has been finalised and the effective date is known.

Consolidation(i) Asset acquisition For an asset acquisition, the purchase price is allocated to the individual identifiable assets and liabilities on the basis of

their relative fair values at the acquisition date. Such a transaction or event does not give rise to goodwill. Refer to note 12 for details on the Xceed asset acquisition. The determination of whether the acquisition of Xceed is a business combination or an asset acquisition is an area of significant judgement. Refer to note 3.7 in this regard.

(ii) Subsidiaries Subsidiaries are entities controlled by the group. The group controls an entity when it is exposed to, or has rights to,

variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration arrangements. Cost also includes directly attributable costs of the investment.

(iii) Loss of control When the group loses control over the subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related

NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.



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2 ACCoUNTING poLICIES (continued)property, plant and equipment (continued)(i) Mining assets (continued)

At the group’s surface mines, when it has been determined that a mineral property can be economically developed as a result of establishing proved and probable reserves, costs incurred to develop the property are capitalised as incurred until the mine is considered to have moved into the production phase. These costs include costs to further delineate the coal seam and remove overburden to initially expose the coal seams.

Stripping costs incurred during the production phase of the group’s surface operations to remove overburden and expose the coal reserve are capitalised as a stripping activity asset only when:(a) it is probable that the future economic benefits (improved access to the coal reserve) associated with the stripping

activity will flow to the group;(b) the group can identify the component of the coal reserve exposed by the stripping activity; and(c) the costs relating to the stripping activity associated with that component can be measured reliably.

The stripping activity asset is accounted for as an addition to, or as an enhancement of an existing asset (mine development). The stripping activity asset is initially measured at cost, being the accumulation of costs directly attributable to the stripping activity, plus an allocation of directly attributable overhead costs. The group identifies a component as the smallest measurable portion of the coal reserve within a pit, which the stripping activity provides direct access to and is usually identified through survey results. After initial recognition, the stripping activity asset is measured at cost less accumulated depreciation and accumulated impairment losses. The stripping activity asset is depreciated on the unit of production method, over the expected production life of the identified component of the coal reserve.

At the group’s underground mines, all costs incurred to develop the property, including costs to access specific coal seams or other areas of the underground mine, are capitalised to the extent that such costs will provide future economic benefits. These costs include the cost of building access ways, continuing development, ramps, initial box cuts and other infrastructure development. These assets are depreciated on a systematic basis over the expected production life of the coal reserve.

Borrowing costs are capitalised to the extent that they are directly attributable to the acquisition and construction of qualifying assets. Qualifying assets are assets that take a substantial time to get ready for their intended use. These costs are capitalised until the asset moves into the production phase. Other borrowing costs are expensed. Where a depreciable asset is used in the construction or extension of a mine, the depreciation is capitalised against the mine’s cost.

Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment.

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised when the costs can be reliably measured and if it is probable that the future economic benefits embodied within the component will flow to the group. The carrying amount of the replaced component, if any, is derecognised and charged to the statement of profit or loss. Maintenance, day-to-day servicing and repairs, which neither materially add to the value of assets nor appreciably prolong their useful lives, are charged to the statement of profit or loss.

(ii) Non-mining assetsLand is shown at cost and not depreciated. Other non-mining items of property, plant and equipment, which include buildings and leasehold improvement, furniture and equipment, and other items (which include motor vehicles and computer equipment) are shown at cost less accumulated depreciation and accumulated impairment losses.

(iii) Depreciation and amortisationDepreciation and amortisation of mining assets are computed principally by the units of production method based on estimated quantities of economically recoverable proved and probable reserves, which can be recovered in future from known mineral deposits. In most instances, proved and probable reserves provide the best indication of the useful life of the group’s mines (and related assets).

(iv) Depreciation and amortisation of other mining assets and non-mining items of property, plant and equipmentOther mining assets and non-mining items of property, plant and equipment are depreciated either on the unit of production method or on a straight-line basis over their estimated useful lives as follows:• Buildings: life of the mine.• Plant and equipment: straight-line method (between 3 and 10 years).• Mine infrastructure: life of the mine.• Vehicles: 20% per year.• Computer equipment: 33.3% per year.• Furniture and equipment: between 10% and 20% per year.• Leasehold improvements on premises occupied under operating leases are written off over the term of the lease or its

useful life if shorter.

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised in the statement of profit or loss.

(v) Amortisation of mineral and surface use rightsMineral interests associated with development and exploration phase mineral interests are not amortised until such time as the underlying property is converted to the production stage.

Intangible assetsExploration and evaluation costs, including the costs of acquiring prospecting rights and directly attributable exploration expenditure, are capitalised as exploration and evaluation assets on a project-by-project basis, pending determination of the technical feasibility and commercial viability of each such project. Costs are recognised as exploration and evaluation costs from the date of granting of a prospecting right. The capitalised costs are presented as exploration and evaluation assets as a result of the nature of the assets acquired.

The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proved reserves are determined to exist. Upon determination of proved reserves, exploration and evaluation assets attributable to those reserves are first tested for impairment by allocating the relevant assets to cash-generating units or groups of cash-generating units, and then reclassified from exploration and evaluation assets to other appropriate categories of non-current assets. Amortisation of these assets commences once these assets are appropriately reclassified and are in commercial production.

Exploration and evaluation assets are assessed for impairment based on the guidance as provided by IFRS 6 Exploration for and Evaluation of Mineral Resources. These include:• the period to explore, as granted in terms of the Prospecting Rights acquired, has expired during the period; or will expire in

the near future; or is not expected to be renewed;• further exploration on the projects is neither budgeted nor planned for in the near future;• a decision was made not to develop a project; and• there is an indication that the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from

a successful development or the sale of the project.

If a project is abandoned, the related costs are expensed in the statement of profit or loss immediately.

Amortisation of exploration and evaluation assets commences when these assets are reclassified from exploration and evaluation assets to property, plant and equipment once these assets reach commercial production and is recognised in cost of sales in the statement of profit or loss.

Intangible assets include acquisition-related fair values of the Quattro Scheme Participation of the Richards Bay Coal Terminal (RBCT). These assets are amortised on a straight-line basis over the expected life of 10 years. Intangible assets are assessed for impairment indicators annually at the reporting date.



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2 ACCoUNTING poLICIES (continued)Impairment of non-financial assets

Assets that are subject to depreciation or amortisation are reviewed annually at the reporting date for impairment indicators or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised in the statement of profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Each operating colliery, along with allocated common assets such as plants and administrative offices, is considered to be a cash-generating unit as each colliery is largely independent from the cash flows of other collieries and assets belonging to the group.

Value in use is generally determined by using discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected coal prices (considering current and historical prices, price trends and related factors), production levels and cash costs of production, all based on life-of-mine plans. Future cash flows are discounted to their present value using a real discount rate that reflects current market assessments of the time value of money and risk specific to the asset. Refer to note 3 of the accounting policies for a list of assumptions used to determine recoverable amounts/fair values of non-financial assets

The term “recoverable minerals” refers to the estimated amount of coal that will be obtained from reserves and resources and all related exploration stage mineral interests after taking into account losses during coal processing and treatment. Estimates of recoverable minerals from such related exploration stage mineral interests will be risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from other asset groups. With the exception of other mine-related exploration potential and greenfields exploration potential, estimates of future undiscounted cash flows are included on an area-of-interest basis, which generally represents an individual operating mine.

In the case of mineral interests associated with other mine-related exploration potential and greenfields exploration potential, cash flows and fair values are individually evaluated based primarily on recent exploration results and recent transactions involving sales of similar properties, if any. Assumptions underlying future cash flow estimates are subject to significant risks and uncertainties.

Non-financial assets are reviewed annually for possible reversal of the impairment at the reporting date. Reversal of impairments is also considered when there is objective evidence to indicate that the asset is no longer impaired. Where an impairment subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but not higher than the carrying value that would have been determined had no impairment been recognised in prior years.

Financial instrumentsFinancial instruments are initially measured at fair value when the group becomes a party to contractual arrangements. Transaction costs are included in the initial measurement of financial instruments, with the exception of financial instruments classified as at fair value through profit or loss.

The subsequent measurement of financial instruments is discussed below.

A financial asset is derecognised when the right to receive cash flows from the asset has expired or the group has transferred its rights to receive cash and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the assets. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss recognised in equity is recognised in the statement of profit or loss. On derecognition of a financial liability, the difference between the carrying amount of the liability extinguished or transferred to another party and the amount paid is recognised in the statement of profit or loss.

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

The group classifies its financial assets in the following categories: loans and receivables, available-for-sale, held-to-maturity and at fair value through profit or loss. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Purchases and sales of financial assets are recognised on trade date, the date on which the group becomes a party to the contractual provisions.

(i) Financial assets(a) Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in

an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans and receivables are subsequently measured at amortised cost using the effective interest method less allowance for impairment. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables include trade and other receivables (excluding VAT and prepayments), investments and loans, restricted cash, and cash and cash equivalents.

Cash and cash equivalents are defined as cash on hand, deposits held at call with banks and short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents exclude restricted cash.

Allowance for impairment of receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The group considers evidence of impairment for trade and other receivables at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment, the group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of trade and other receivables is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the statement of profit or loss and reflected in an allowance for impairment account against trade and other receivables. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed (limited to the initial impairment loss recognised) through the statement of profit or loss.

When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables.

(b) Financial assets at fair value through profit or loss have two subcategories: financial assets held-for-trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management in terms of specified criteria:• The designation eliminates or significantly reduces a measurement or recognition inconsistency (applicable to

the group).• A group of financial assets is managed and its performance is evaluated on a fair value basis in accordance with a

documented risk management or investment strategy.• The item proposed to be designated at fair value through profit and loss is a hybrid contract that contains one or

more embedded derivatives.

These assets are subsequently measured at fair value with gains or losses arising from changes in fair value recognised in the statement of profit or loss in the period in which they arise. Refer to note 7, net gain on financial instruments and note 18, restricted investments for additional information.



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2 ACCoUNTING poLICIES (continued)Financial instruments (continued)

(c) Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the group’s management has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method.

The group assesses at the end of each reporting period whether there is objective evidence that a held-to-maturity investment is impaired as a result of an event. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the held-to-maturity investment’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in the consolidated statement of profit or loss.

If a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the

current effective interest rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the consolidated statement of profit or loss. Refer to note 17.1.

(ii) Financial liabilities(a) borrowings are initially recognised at fair value net of transaction costs incurred and subsequently measured at

amortised cost, comprising original debt less principal payments and amortisation, using the effective interest method. Any difference between proceeds (net of transaction cost) and the redemption value is recognised in the statement of profit or loss over the period of the borrowing using the effective interest method.

Fees paid on the establishment of loan facilities are capitalised as a prepayment and amortised over the period of the facility to which they relate.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(b) Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Payables are classified as current liabilities if payment is due within a year or less. If not, they are presented as non-current liabilities.

(iii) Derivative financial instrumentsEmbedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the combined instrument is not measured at fair value through profit or loss.

Derivatives are recognised initially at fair value and the attributable transaction cost is recognised in the statement of profit or loss. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in net gain on financial instruments in the statement of profit or loss. Refer to note 25 in this regard.

InventoriesInventories comprise coal run-of-mine stockpiles, coal product stockpiles and consumables. Inventories are measured at the lower of cost and net realisable value after appropriate allowances for obsolete, redundant and slow-moving stockpiles and consumables.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to perform the sale.

Cost is determined by reference to direct mining expenditure and an appropriate portion of overhead expenditure including amortisation and depreciation at the relevant stage of production based on normal production levels. Coal stockpiles are valued at average production cost.


Leased assets and lease paymentsCapitalised leased assets are depreciated over the shorter of their estimated useful lives and the lease terms. Refer to the accounting policy dealing with the group’s leases.

Leases of items of plant and equipment, where the group has substantially all the risks and rewards of ownership, are classified as finance leases. The assets are capitalised at the leases’ commencement at the lower of the fair value of the leased assets and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made or received under finance leases are apportioned between the finance expense or income and the reduction of the outstanding liability or receivable. The finance expense or income is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability or receivable.

Future lease payments, net of finance charges, are included in non-current borrowings, with the current portion included under current liabilities.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

Other leases are operating leases and the leased assets are not recognised on the group’s statement of financial position. Payments made under operating leases are recognised in the statement of profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease.

(i) Determining whether an arrangement contains a leaseAt inception of an arrangement, the group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the group’s incremental borrowing rate.

Environmental trust fundsContributions are made to the group’s trust funds, created in accordance with statutory requirements, to fund the estimated cost of pollution control, rehabilitation and mine closure at the end of the life of the group’s mines. The trusts are consolidated into the group as the group exercises full control of the trust. The measurement of the investments held by the trust funds is dependent on their classification under financial assets and income received and fair value movements are treated in accordance with these classifications.

provisionsProvisions are recognised when the group has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

The amount recognised as a provision is the present value of the best estimate of the expenditure required to settle the present obligation at reporting date using a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the obligation. This estimate takes into account the associated risks and uncertainties. The increase in the provision due to the passage of time is recognised as interest expense.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic benefits will be required, the provision is reversed.



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2 ACCoUNTING poLICIES (continued)provisions (continued)(i) Mine closure and environmental rehabilitation provision

An obligation to incur environmental restoration, rehabilitation and decommissioning costs arises when disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project as soon as the obligation to incur such costs arises.

These costs are recognised in the statement of profit or loss over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and recognised in the statement of profit or loss as extraction progresses.

Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work (that result from changes in the estimated timing or amount of the cash flow or a change in the discount rate), are added to or deducted from the cost of the related asset in the current period.

If a decrease in liability exceeds the carrying amount of the asset, the excess is recognised immediately in the statement of profit or loss. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy dealing with impairments of non-financial assets.

Current and deferred taxationThe current income tax charge is the expected tax payable on the taxable income for the year and is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the country where the group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Under this method deferred taxes are recognised for the tax consequences of temporary differences by applying expected tax rates to the differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except to the extent that deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and does not affect the accounting or taxable profit or loss at the time of the transaction. Deferred tax is charged to the statement of profit or loss, except where the tax relates to items recognised in OCI or directly in equity in which case the tax is also recognised in OCI or directly in equity. The effect on deferred tax of any changes in tax rates is recognised in the statement of profit or loss, except to the extent that it relates to items previously charged or credited directly to equity.

The principal temporary differences arise from amortisation and depreciation on property, plant and equipment, provisions, unutilised tax losses and unutilised capital allowances carried forward. Deferred tax assets relating to the carry forward of unutilised tax losses and unutilised capital allowances are recognised to the extent that it is probable that future taxable profits will be available against which the unutilised tax losses and unutilised capital allowances can be utilised.

Deferred tax is provided on temporary differences arising from investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Interest received from and paid to the tax authorities is classified as finance income and expense.

Employee benefits(i) Short-term employee benefits

The costs of all short-term employee benefits are recognised in the period in which the employee renders the related service. The accruals for employee entitlements to salaries, performance bonuses and annual leave represent the amounts which the group has a present obligation to pay as a result of the employees’ service provided. The accruals have been calculated at undiscounted amounts based on current salary levels.

(ii) Defined contribution planA defined contribution plan is a post-employment plan under which an entity pays fixed contributions into a separate entity in terms of the defined contribution provident plan and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an expense in the statement of profit or loss as incurred.

(iii) Equity compensation benefitsEntities within the group receiving goods or services shall measure the share-based payment transaction as equity-settled only when the awards granted are its own equity instruments, or the entity has no obligation to settle the share-based payment transaction. The entity settling a share-based payment transaction when another entity in the group receives the goods or services recognises the transaction as equity-settled only if it is settled in its own equity instruments. In all other cases, the transaction is accounted for as cash-settled.

Cash-settled share-based payments are remeasured at each reporting date. The expense recognised in the statement of profit or loss for the year represents that portion of the fair value that is attributable to the portion of the contractual period which had elapsed at the reporting date and the movement in fair value between the grant date/previous reporting date and the current reporting date, with a corresponding increase in liabilities.

Equity-settled share-based payments are measured at fair value that includes market performance conditions but excludes the impact of any service and non-market performance conditions of the equity instruments at the date of the grant. The share-based payments are expensed as an employee expense with a corresponding increase in equity over the vesting period, based on the group’s estimate of the shares that are expected to eventually vest. Share-based payment expenses recognised in current and previous financial years are reversed out of profit or loss in the event of termination of the share plan (forfeited/lapsed) for “fault” and “no fault” definitions, to the extent that shares have not become unconditional/not vested. The group used an appropriate option pricing model in determining the fair value of the options granted.

Non-market vesting conditions are included in assumptions about the number of the share appreciation rights or notional shares to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at each reporting date to reflect the best estimate or actual number of share appreciation rights that vest, with any adjustment being made to both equity and the statement of profit or loss as an employee cost. When the group issues share-based instruments to settle certain transactions, the payments are measured at the fair value of the goods and services provided. If the fair value of the goods or services cannot be determined, the share-based payment is measured at the fair value of the equity instrument at the date of the grant, the date the group obtains the goods or the counterparty renders the service.

(iv) Leave payThe group accrues for the cost of the leave days granted to employees during the period in which the leave days accumulate.

Stated capitalStated capital is classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.

Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must be met before revenue is recognised:

(i) Sale of coal and anthraciteThe group enters into contracts for the sale of coal and anthracite. Revenue arising from coal and anthracite sales under these contracts are recognised when the price is determinable, the product has been delivered in accordance with the terms of the contract, the significant risks and rewards of ownership have been transferred to the customer, collection of the sales price is probable and associated costs can be reliably estimated. As sales from coal and anthracite contracts are subject to a customer survey with regards to quality, sales are initially recognised on a provisional basis using the group’s best estimate of the product quality. Subsequent agreed quality adjustments are recognised directly in revenue, if different from the initial certificates. Income earned from the transport of coal to third parties is recognised as revenue in the statement of profit or loss as and when the coal exits the mine premises (over the weigh-bridge).



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2 ACCoUNTING poLICIES (continued)Revenue recognition (continued)(ii) Toll washing

Toll washing revenue is generated through third-party coal being washed at the group’s relevant plants. Revenue is recognised when the coal washed exits the mine premises (over the weigh-bridge). The revenue amount is calculated by multiplying the tonnes washed by the rate per tonne as agreed upon between the group and the relevant third party.

(iii) Management feesThe company has entered into a service agreement with one of its subsidiaries, Keaton Administrative and Technical Services Proprietary Limited (KATS), whereby its directors provide management services to other operating and exploration subsidiaries in the group. These services are on-charged on a monthly basis based on actual time spent managing the operating and exploration subsidiaries.

(iv) Investment income from subsidiariesIn the company’s separate financial statements investment income received by the company on loan capital and preference shares are classified as revenue and recognised using the effective interest method. Refer to note 4 in this regard.

other income(i) Discard sales

Course discard coal sales and slurry sales are sold to a number of local customers and are recognised as other income as and when it exits the mine premises (over the weigh-bridge).

(ii) Royalty income During prior years, the group concluded a sales agreement with Kleinfontein Colliery Proprietary Limited (Kleinfontein), a subsidiary of Umcebo Mining Proprietary Limited, in terms of a mining right disposed to Kleinfontein. The group generates royalty income over the life of the attributable resource.

(iii) Sundry incomeSundry income mainly consists of medical induction expenses recovered from customers as part of their safety induction course before entering the mining operation premises.

Finance income and costsFinance income comprises interest received and receivable on funds invested and dividend income. Interest income is recognised on a time-proportion basis in the statement of profit or loss as it accrues, taking into account the principal outstanding and using the effective interest method. Dividend income is recognised in the statement of profit or loss on the date the entity has a right to receive payment.

Finance costs comprise interest payable on borrowings calculated using the effective interest method, unwinding of the discount on provisions and dividends on preference shares classified as liabilities. Borrowing costs capitalised are excluded.

Dividends declaredDividends declared are recognised in the period in which they are approved by the board of directors. Dividends are payable in South African rand net of withholding tax.

Earnings per shareThe group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to owners of the company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by dividing the profit attributable to owners of the company by the weighted average number of ordinary shares outstanding, adjusted for the effects of all potential dilutive ordinary shares.

GuaranteesGuarantees are not recognised by the group, but the carrying value of the guarantees are disclosed. Refer to notes 17, 24, 26 and 28 in this regard.

Segment reportingThe segment report has been prepared in accordance with IFRS 8 Operating Segments which defines requirements for the disclosure of financial information of an entity’s operating segments. An operating segment is identified as a component of an entity:• that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses

relating to transactions with other components of the same entity;

• which operating results are reviewed regularly by the entity’s chief operating decision maker (CODM) in order to allocate resources and assess its performance; and

• for which discrete financial information is available.

CODM is defined as the Executive Committee of the group.

The basis of segment reporting is representative of the internal structure used for management reporting as well as the structure in which the CODM reviews the information, which are the group’s mining projects in the respective operating subsidiaries. The basis of segmental allocation is determined as follows:• Operating profit/loss (before net finance income/costs and taxation) that can be directly attributed to a segment and a

relevant portion of the operating profit/loss that can be allocated on a reasonable basis to a segment, including the effect of transactions with other operating segments.

• Total segment assets are those assets that are employed by a segment in its operating activities and that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis.

Measurement of fair valuesA number of the group’s accounting policies and disclosures require the measurement of fair values, for both financial assets and liabilities. The group has an established control framework with respect to the measurement of fair values. Significant valuation issues are reported to the group Audit Committee.

When measuring the fair value of an asset or liability, the group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or

indirectly• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:• Restricted investments (note 18)• Share-based payment transactions (note 22)• Long-term financial liabilities (note 25)• Financial instruments (note 33)

3 CRITICAL ACCoUNTING ESTIMATES AND JUDGEMENTSThe applied estimates are based on historical data and other factors that management considers appropriate under the given circumstances, but which are inherently uncertain and unpredictable. Such assumptions may be incomplete or inaccurate, and unexpected events or circumstances may occur. In addition, the group is subject to risks and uncertainties that may cause actual outcomes to deviate from these estimates.

It may be necessary to change previous estimates as a result of changes to the assumptions on which the estimates are based or due to new information or subsequent events. Estimates and underlying assumptions are reassessed on a regular basis. Changes to accounting estimates are recognised prospectively in the current and future periods if the change affects the current as well as future periods.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

3.1 Impairment of mining assetsThe recoverable amount of mining assets is generally determined utilising discounted future cash flows. Management also considers such factors as the quality of the individual mineral deposit, market risk, and asset-specific risks in determining the fair value.

Key assumptions for the calculations of the mining assets’ recoverable amounts are coal and anthracite prices, marketable real discount rates and the annual life-of-mine plans. The life-of-mine plans are based on the proved and probable reserves as included in the reserve declaration, which are determined in terms of SAMREC as well as where applicable resources where management has high confidence in the mineral deposit and economical recovery of coal, based on historic and similar geological experience.



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3 CRITICAL ACCoUNTING ESTIMATES AND JUDGEMENTS (continued)3.1 Impairment of mining assets (continued)

During the year under review, the group calculated the recoverable amounts (generally value in use) based on updated life-of-mine plans, contracted coal prices for Eskom and market-related coal prices for metallurgical coal and anthracite and a real discount rate, which ranges between 9.6% and 12.5% (2013: 9.6% to 12%), depending on the asset. Cash flows used in the impairment calculations are based on life-of-mine plans which are between 10.5 years and 12 years. No impairment adjustments were required for the current year. As at 31 March 2014 the group’s net asset value exceeded its market capitalisation, mainly due to poor market conditions that currently exist. This is normally a triggering event for an impairment indicator. However, based on the impairment calculations performed, as noted above, no impairment adjustments were required. Should management’s estimate of the future not reflect actual events, impairments may be identified. Factors affecting the estimates include:• changes to proved and probable reserves;• economical recovery of resources;• the yields of the coal reserves may vary significantly from time to time;• review of strategy;• unforeseen operational issues at the mines;• differences between actual commodity prices and commodity price assumptions;• changes in the discount rates; and• changes in capital, operating mining, processing and reclamation costs.

Sensitivity analyses are also performed where estimates and assumptions used in the impairment calculation are stretch-tested to determine the impact on the recoverable amount. One of the most significant assumptions that influences the life-of-mine plans and therefore impairments are the expected coal commodity prices at our Vaalkrantz operation. A 5% to 10% decrease in these price assumptions at the reporting date would have resulted in a potential impairment charge at the Vaalkrantz operation of between R29.8 million and R139.7 million. However, should the coal commodity prices at the same operation increase by between 5% and 10%, the head room available would increase by between R144.6 million and R229.9 million. This analysis assumes that all other variables remain constant.

3.2 Estimate of exposure and liabilities with regard to rehabilitation costsEstimated long-term environmental obligations, comprising pollution control, rehabilitation and mine closure, are based on the group’s environmental management plans in compliance with current technological, environmental and regulatory requirements. At year-end, the company uses independent third parties in quantifying the environmental rehabilitation liability estimates, which includes among others, surveyed measurements to estimate the volumes required at the group’s opencast mines, to fill the void at year-end. Significant judgement is applied in estimating ultimate rehabilitation cost that will be required in future to rehabilitate the group’s mines. The ultimate cost may significantly differ from current estimates.

Management used an inflation rate of 5.8% (2013: 5.5%) and the expected life of the mines according to the life-of-mine plans in the calculation of the estimated net present value of the rehabilitation liability. The discount rates used for the calculation are dependent on the operations’ life of mine and are as follows: for one to five years: 7.8% (2013: 6.1%); for six to nine years: 8.2% (2013: 6.5%); and for 10 years and beyond: 8.5% (2013: 7.3%). These estimates were based on recent yields determined on government bonds. Refer to note 26 for additional information.

3.3 Estimate of taxationSignificant judgement is required in determining the income tax liability. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax liabilities in the period in which such determination is made. Management has to exercise judgement with regards to deferred tax assets. Where the possibility exists that no future taxable income may flow against which these assets can be offset, the deferred tax assets are not recognised. Refer to note 10 and note 16 for additional information.

3.4 Fair value of share-based paymentsThe fair value of the share appreciation rights is determined by using the Black-Scholes formula. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on an evaluation of the company’s historic volatility, particularly over the historic period commensurate with the expected term), expected term of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Refer to note 22 for detail on each of these inputs used.

3.5 Assessment of contingenciesContingencies will only realise when one or more future events occur or fail to occur. The exercise of significant judgement and estimates of the outcome of future events are required during the assessment of the impact of such contingencies. Litigation and other judicial proceedings as a rule raise difficult and complex legal issues and are subject to uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in which the suit is brought and differences in applicable law. Upon resolution of any pending legal matter, the group may be forced to incur charges in excess of the presently established provisions and related insurance coverage. It is possible that the financial position, results of operations or cash flows of the group could be materially affected by the outcome of the litigation. Refer to note 31 for additional information.

3.6 Coal reserves and resourcesCoal reserves and resources are estimates of the amount of tonnes that can be economically and legally extracted from the group’s properties. In order to calculate the reserves and resources, estimates and assumptions are required about a range of geological, technical and economic factors, including quantities, yields, production techniques, recovery rates, production costs and commodity prices. Estimating the quantities and/or yields of the reserves and resources requires the size, shape and depth of the coal deposit to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and difficult geological judgements and calculations to interpret the data. Because the economic assumptions used to estimate the reserves and resources change from year to year, and because additional geological data is generated during the course of operations, estimates of the mineral reserves and resources may change from year to year. Changes in the reserves and resources may affect the group’s financial results and financial position in a number of ways, including:• asset carrying values may be affected due to changes in estimated cash flows;• depreciation and amortisation charged in the statement of profit or loss may change as they are calculated on the

units-of-production method; and• environmental provisions may change as the timing and/or cost of these activities may be affected by the change in

reserves.

At the end of each financial year, the estimate of proved and probable reserves and resources is updated. Depreciation of mining assets is prospectively adjusted, based on these changes.

3.7 Xceed asset acquisitionThe acquisition of an asset or group of assets is treated as an asset acquisition if it does not constitute a business. A business is an integrated set of activities and assets that are capable of being conducted or managed for the purpose to provide a return to the investor. A business consists of inputs and processes that have the ability to create output, but outputs are not always required to be a business. Accordingly, the main components in a business are:• Inputs, which includes economic resources that create/has the ability to create outputs when processes are applied

to it.• Processes, which are systems, conventions, protocols that can be applied to an input to create an output. • Outputs, which are the result of the inputs and processes and provide/has the ability to provide a return.

Other factors to consider: • Have planned principal activities begun;• Have employees, intellectual property and other inputs and processes that could be applied to these inputs, been

acquired;• Pursuing a plan to produce outputs; • Able to obtain access to customers that will purchase the outputs; and • Whether the integrated set is capable of being conducted by a market participant.

Based on the above factors, the following indicators supported an asset acquisition for the Xceed transaction:• The planned principal activities, being mining (and even setting up activities to develop the mine) has not commenced;• To start the planned principal activities, the group still has to secure funding, obtain surface rights to Moabsvelden and

install mining equipment. It is expected that mining will only be able to commence in 2015/2016 after all financing has been secured and operations have been set up;

• As the Moabsvelden Project is only 3.5km away from the group’s Vanggatfontein operation, the group has synergies which other market participants do not have;

• There were no employees transferred as part of the purchase.

Refer to note 12 for details on the Xceed asset acquisition.



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Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

4 REvENUECoal sales 779 295 600 433 691 193 – – Anthracite sales 245 389 932 272 947 606 – – Transportation income 336 802 126 196 643 740 – – Toll washing 11 117 605 15 524 848 – – Management fees – – 3 149 859 4 548 463 Investment income from subsidiaries – loans and receivables – – 29 448 967 26 048 211 Investment income from subsidiaries – preference share investment – – 75 579 511 59 893 663

1 372 605 263 918 807 387 108 178 337 90 490 337

5 CoST oF SALESMining contractors 506 465 456 428 277 263 – – Amortisation and depreciation of assets 346 896 213 235 016 536 – – Fuel 126 343 158 80 892 170 – – Ore purchases 13 487 985 – – –Labour 33 160 231 56 641 846 2 999 866 4 331 869 Consumables and maintenance costs 15 823 902 13 970 789 – – Other direct mining costs 63 733 057 66 617 623 – – Transport costs 320 201 981 194 012 644 – – Toll washing costs 10 606 749 13 238 196 – –Inventory movement 3 411 361 (11 394 861) – – Deferred stripping capitalised(¹) (290 739 106) (135 064 416) – – Royalty expense 4 477 971 3 873 134 – –

1 153 868 958 946 080 924 2 999 866 4 331 869 (1) The deferred stripping credit relates to costs incurred, in an opencast operation, in advance to pre-strip an area of waste in order to expose the coal

reserve. The costs are capitalised to mine development costs in property, plant and equipment until such time as the coal exposed is subsequently mined. The stripping activity asset is depreciated on the unit of production method, over the expected production life of the identified component of the coal reserve.

Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

6 oTHER INCoMEDiscard sales 8 842 332 4 719 426 – – Royalty income(1) 3 339 188 1 855 663 – – Sundry income 801 583 4 018 526 – –

12 983 103 10 593 615 – –

(1) during prior years, the group concluded a sales agreement with Kleinfontein colliery Proprietary Limited (Kleinfontein), a subsidiary of Umcebo Mining

Proprietary Limited, in terms of a mining right sold to Kleinfontein. The group generates royalty income over the life of the attributable resource.

Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

7 NET GAIN oN FINANCIAL INSTRUMENTSFair value through profit or loss financial assetsFair value gain on environmental trust funds and other financial assets(1) 1 082 122 2 174 921 – – Fair value movement on IDC equity-linked call option(2) (301 336) 309 748 – –

780 786 2 484 669 – –(1) Refer to note 18.(2) Refer to note 25.



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132



Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

8 opERATING pRoFIT/(LoSS) bEFoRE NET FINANCE (CoST)/INCoMEOperating profit/(loss) before net finance (cost)/income are stated after:professional and consultant fees 16 915 069 5 636 197 10 537 582 2 327 590

Consulting fees 16 720 139 5 512 308 10 342 652 2 203 701 Administration fees 194 930 123 889 194 930 123 889

Impairment losses/(reversals) – – 4 453 489 2 342 203 Reversal of impairment of investment in subsidiary(1) – – – (820 769)Impairment of investment in subsidiary(2) – – 4 453 489 3 162 972

Loss on derecognition of assets(3) – 51 173 671 – – Loss/(profit) on disposal of property, plant and equipment 12 484 (874 106) – – Amortisation of intangible assets 1 514 516 1 514 516 – –Loss on disposal of intangibles 50 544 – – – Depreciation 346 496 968 225 616 188 – –

Buildings and leasehold improvements 770 357 655 306 – – Plant and equipment 21 436 551 21 940 727 – – Furniture and equipment 384 427 352 101 – – Mine development 327 948 635 199 683 550 – – Mine infrastructure 7 930 607 11 660 853 – – Other 814 801 932 674 – – Total depreciation(3) 359 285 378 235 225 211 – – Movement to inventory (12 788 410) (9 609 023) – –

Depreciation recognised in: 346 496 968 225 616 188 – – Cost of sales 345 381 697 225 407 513 – – Administrative expenses 1 115 271 208 675 – –

(1) The reversal of impairment of investment in subsidiary in the 2013 financial year relates to Keaton Administrative and Technical Services Proprietary Limited. Refer to note 14 in this regard.

(2) The company has impaired certain investments in subsidiaries/loans to subsidiaries where impairment indicators were identified. Refer to note 14 in this regard.

(3) Refer to note 13 for additional disclosure.

Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

8 opERATING pRoFIT/(LoSS) bEFoRE NET FINANCE (CoST)/INCoME (continued)Directors’ remuneration and benefitsExecutive directors – for managerial services 11 845 525 14 025 906 11 845 525 14 025 906

Short-term employee benefits: salaries 7 577 135 7 182 512 7 577 135 7 182 512 Post-employment benefits: provident fund and group risk contributions 522 865 593 726 522 865 593 726 Termination benefits – 1 764 130 – 1 764 130 Share-based payments – equity settled 3 745 525 4 485 538 3 745 525 4 485 538

Non-Executive Directors – for services rendered as directors 3 502 826 2 586 743 3 502 826 2 586 743

Remuneration as Non-Executive Directors 3 043 578 2 586 743 3 043 578 2 586 743 Share-based payments – equity settled 459 248 – 459 248 –

Total directors’ emoluments 15 348 351 16 612 649 15 348 351 16 612 649

Key management remuneration and benefits (excluding executive directors)*

Short-term employee benefits: salaries as employees 406 067 4 713 297 406 067 – Post-employment benefits: provident fund and group risk contributions 27 267 669 498 27 267 – Share-based payments – equity settled – 683 101 – –

433 334 6 065 896 433 334 –

Employee remuneration and benefitsShort-term employee benefits: salaries as employees 37 916 627 55 004 022 1 578 073 3 429 526 Post-employment benefits: provident fund and group risk contributions 4 276 955 4 666 486 219 905 253 927 Share-based payments – equity settled 2 086 748 1 147 439 341 949 (45 333)

44 280 330 60 817 947 2 139 927 3 638 120

Total employee benefits 60 062 015 83 496 492 17 921 612 20 250 769

Audit fees 2 725 603 4 244 038 1 068 222 1 439 154 External audit services 2 165 973 3 380 761 946 973 1 311 761 Internal audit services 559 630 863 277 121 249 127 393

Legal fees 5 393 789 2 133 847 881 202 706 615 Marketing and investor relation costs 2 900 067 2 017 291 2 900 067 2 017 291 Net realisable value adjustment on inventory 3 307 225 – – – Rent paid for head office premises 951 902 887 490 – – Acquisition-related costs 13 066 287 – 13 066 287 – Foreign exchange loss 9 708 129 9 976 511 808 214 –

* chief Operating Officer appointed 1 February 2014.

31 March 2014 – Prescribed officers include the executive directors and key management (Chief Operating Officer).

31 March 2013 – Prescribed officers include the executive directors of the company and key management (general manager operations and the mine managers at Vanggatfontein and Vaalkrantz).



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Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

9 NET FINANCE (CoST)/INCoMEFinance income

Interest income – banks and money markets 2 180 490 1 506 512 264 673 246 833 Fair value through profit and loss financial assets – interest and dividend income(1) 653 956 602 599 – –

Total finance income 2 834 446 2 109 111 264 673 246 833 Finance costFinancial liabilities (37 178 260) (27 016 729) (62 544) (12 051)

Borrowings (26 560 588) (25 134 160) – – Amortisation of project finance cost(2) (8 543 521) (1 534 895) – – Unwinding expense of vendor provision(3) (503 109) – – –Interest expense – other (1 571 042) (347 674) (62 544) (12 051)

Non-financial liabilitiesUnwinding of discount on mine closure and environmental rehabilitation provision(4) (13 389 563) (7 291 120) – –

Total finance cost (50 567 823) (34 307 849) (62 544) (12 051)

Net finance (cost)/income (47 733 377) (32 198 738) 202 129 234 782 (1) Refer to note 18 for a breakdown of restricted investments.(2) Refer to note 24 for more detail on the project finance cost.(3) Refer to note 27 for additional information.(4) Refer to note 26 for additional information.

Group Company

year to 31 March

2014R

Year to 31 March

2013R

year to 31 March

2014R

Year to 31 March

2013R

10 INCoME TAXATIoN (EXpENSE)/CREDITCurrent tax expense

Current year 3 283 199 2 343 450 2 195 830 2 758 351 Deferred taxation

Origination and reversal of temporary differences 35 580 910 (41 678 209) 1 269 730 831 520 Overprovision prior year (888 619) – – –

37 975 490 (39 334 759) 3 465 560 3 589 871

Reconciliation of effective taxation rateNormal taxation rate for companies 28.00% 28.00% 28.00% 28.00%Adjusted for:

Non-deductible expenditure 11.14% (3.84%) 12.78% 4.71%Non-taxable income (5.85%) 0.50% (34.03%) (26.57%)CGT inclusion rate adjustment 1.64% 0.06% (0.92%) (0.18%)Deferred tax – prior year recognition (0.87%) – – – Deferred tax asset not recognised 3.03% (1.80%) – –

Effective taxation rate 37.09% 22.92% 5.83% 5.96%

Refer to note 16 for amounts available for offset against future taxable income.

year to 31 March

2014

Year to 31 March

2013

11 EARNINGS pER SHAREThe calculation of basic earnings per share is based on net profit/(loss) for the year, attributable to owners of the company, divided by the weighted average number of ordinary shares in issue during the year.Net profit/(loss) attributable to owners of the company (rand) 59 528 868 (84 491 188)Weighted average number of ordinary shares in issue 196 403 786 190 945 473

Basic earnings per share (cents) 30.3 (44.2)

Diluted earnings per shareThe calculation of diluted earnings per share is based on net profit/(loss) for the year attributable to owners of the company. The weighted average number of shares in issue is adjusted to assume conversion of all potential dilutive shares as a result of share options granted under the share option schemes in issue. A calculation is performed to determine the number of shares that could have been acquired at fair value, determined as the average annual market share price of the company’s shares, based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.Weighted average number of ordinary shares in issue 196 403 786 190 945 473 Potential shares 2 050 793 –

Weighted average number of shares for diluted earnings per share 198 454 579 190 945 473 Diluted earnings per share (cents) 30.0 (44.2)

Group



135

136



Group

year to 31 March 2014 Year to 31 March 2013

GrossR

NetR

GrossR

NetR

11 EARNINGS pER SHARE (continued)Headline earnings per shareThe calculation of headline earnings, net of tax and NCI, per share is based on the basic earnings per share calculation adjusted for the following items:Net profit/(loss) for the year attributable to owners of the company 59 528 868 (84 491 188)Adjusted for:Loss on derecognition of property, plant and equipment – – 51 173 671 27 265 332 Loss on disposal of property, plant and equipment 92 836 66 842 19 260 10 262 Loss on disposal of intangible asset 50 544 26 930 – – Profit on disposal of property, plant and equipment (80 352) (42 811) (893 366) (475 986)

Total headline earnings 59 579 829 (57 691 580)

Cents Cents

Headline earnings per share 30.3 (30.2)

Diluted headline earnings per share 30.0 (30.2)

Group

Numberof shares

2014

Numberof shares

2013

weighted/weighted diluted average number of ordinary shares:

Shares in issue at 1 April 2013 (1 April 2012) 191 663 141 188 752 600 Effect of shares issued 30 June 2012 – 2 192 873 Effect of shares issued 7 February 2014 4 740 645 –

Weighted number of ordinary shares at reporting date 196 403 786 190 945 473 Potential diluted shares 2 050 793 –

Diluted number of ordinary shares in issue at reporting date 198 454 579 190 945 473

Group

12 ACqUISITIoN oF XCEED RESoURCES LIMITEDOn 6 February 2014 (the effective date), the group acquired the entire issued share capital of Xceed Resources Limited for a cash consideration of R194.7 million (AUD19.7 million). The acquisition was funded by a specific issue of shares to Plusbay Limited (discussed below) and the balance by a combination of debt (refer to note 24) and own cash. The transaction was accounted for as an asset acquisition under IFRS.

A total of 32 647 838 ordinary no par value shares were issued to Plusbay Limited, a wholly owned subsidiary of Gunvor Group Limited, a majority shareholder, for cash, at an issue price of R1.7782 per share. The shares were issued at a 10% discount to the company’s 30-day volume weighted average price (VWAP) determined one day before 23 August 2013, being the date on which the Xceed acquisition was announced. The funds raised of R58 million, net of transaction costs of R6 million was utilised to partially fund the acquisition of Xceed.

Subsidiaries acquired as part of the Xceed group:

Xceed Resources Limited 100 Focus Coal Investments Proprietary Limited 100 Neosho Trading 86 Proprietary Limited 74 Ausco Finance Proprietary Limited 100 Ausco Services Proprietary Limited 100

The following summarises the major classes and the recognised amounts of assets and liabilities acquired and consideration transferred on the effective date: R

Consideration transferred

Cash(1) 194 656 714

Assets and liabilities acquiredNon-currentProperty, plant and equipment 260 940 Mining asset(2) 284 709 240 Restricted investments(3) 5 726 715 Investments and loans(4) 5 151 877 Vendor provision(5) (30 071 958)Non-controlling interest(6) (69 474 609)CurrentCash and cash equivalents 2 680 115 Trade and other receivables 396 789 Restricted investments 3 371 784 Provisions (3 639 872)Trade and other payables(7) (4 454 307)

Total 194 656 714 (1) cash consideration of AUd19 670 061, converted to rand using an exchange rate of R9.90 to the Australian dollar.(2) Moabsvelden Project owned by Neosho Trading 86 Proprietary Limited (Neosho). The Moabsvelden mining asset acquisition of R284.7 million is the

main reason for the increase in intangible assets in the statement of financial position.(3) The restricted investments are pledged as security for the environmental rehabilitation guarantees issued on behalf of Neosho.(4) Fifteen percent equity interest in two South African coal projects namely Roodepoort and Bankfontein. The loans to Focus coal Investments Proprietary

Limited and Ausco Services Proprietary Limited are interest-free with no fixed repayment terms.(5) Xceed is required to make payments in cash to the founding shareholders of the Moabsvelden Project for the acquisition of 74% of the issued share

capital of Neosho. These payments are due at various stages of project development in accordance with a schedule of performance milestones. Refer to note 27 in this regard.

(6) Represents the 26% non-controlling interest in Neosho.(7) Mainly consists of employee termination benefits relating to Xceed’s former management.

% Shareholding



137

138



Land, buildingsand leaseholdimprovements

R

Mine development

R

Assets under construction

R

Plant and equipment

R

Mine infrastructure

R

Furniture and equipment

R Other

R Total

R

13 pRopERTy, pLANT AND EqUIpMENT GroupCost31 March 2014Opening balance 38 195 570 788 965 426 2 022 555 234 089 984 109 459 448 2 966 316 2 915 883 1 178 615 182

Additions 623 029 294 542 685 – 1 007 571 1 543 186 961 862 2 385 745 301 064 078 Change in estimates – environmental rehabilitation assets – 83 589 701 – (117 971) (4 001 138) – – 79 470 592 Reclassification – – (2 022 555) – 2 022 555 – – –

Disposals – – – – – (219 717) (132 573) (352 290)

Closing balance 38 818 599 1 167 097 812 – 234 979 584 109 024 051 3 708 461 5 169 055 1 558 797 562

31 March 2013 Opening balance 38 195 570 598 077 217 4 661 746 224 550 362 94 790 981 2 470 162 2 818 410 965 564 448

Fully depreciated assets no longer in use – (16 630 686) – – – – – (16 630 686)Reclassification – – (3 309 333) 3 309 333 – – – – Additions – 187 772 371 670 142 5 754 015 14 668 467 509 403 1 139 885 210 514 283 Change in estimates – environmental rehabilitation assets – 19 746 524 – 476 274 – – – 20 222 798 Disposals – – – – – (13 249) (1 042 412) (1 055 661)

Closing balance 38 195 570 788 965 426 2 022 555 234 089 984 109 459 448 2 966 316 2 915 883 1 178 615 182

Accumulated depreciation and impairment losses 31 March 2014 Opening balance (2 669 795) (340 737 236) – (39 117 178) (16 941 271) (1 388 763) (1 691 030) (402 545 273)

Depreciation expense (770 357) (327 948 635) – (21 436 551) (7 930 607) (384 427) (814 801) (359 285 378) Disposals – – – – – 96 179 91 990 188 169

Closing balance (3 440 152) (668 685 871) – (60 553 729) (24 871 878) (1 677 011) (2 413 841) (761 642 482)

31 March 2013 Opening balance (2 014 489) (106 510 701) – (17 176 451) (5 280 418) (1 036 662) (843 148) (132 861 869)

Fully depreciated assets no longer in use – 16 630 686 – – – – – 16 630 686 Depreciation expense (655 306) (199 683 550) – (21 940 727) (11 660 853) (352 101) (932 674) (235 225 211) Loss on derecognition of assets(1) – (51 173 671) – – – – – (51 173 671) Disposals – – – – – – 84 792 84 792

Closing balance (2 669 795) (340 737 236) – (39 117 178) (16 941 271) (1 388 763) (1 691 030) (402 545 273)

Carrying amount 31 March 2014 35 378 447 498 411 941 – 174 425 855 84 152 173 2 031 450 2 755 214 797 155 080

31 March 2013 35 525 775 448 228 190 2 022 555 194 972 806 92 518 177 1 577 553 1 224 853 776 069 909

All plant and equipment, except leasehold improvements, are owned.

(1) during the 2013 financial year, a decision was taken to close Pit 1 at Vanggatfontein as it was no longer economic. This resulted in a loss on derecognition of assets of R51.2 million recorded in mining and related expenses in the statement of profit or loss with a corresponding decrease in mine development assets.

Land, buildingsand leaseholdimprovements

R

Mine development

R

Assets under construction

R

Plant and equipment

R

Mine infrastructure

R

Furniture and equipment

R Other

R Total

R

13 pRopERTy, pLANT AND EqUIpMENT GroupCost31 March 2014Opening balance 38 195 570 788 965 426 2 022 555 234 089 984 109 459 448 2 966 316 2 915 883 1 178 615 182

Additions 623 029 294 542 685 – 1 007 571 1 543 186 961 862 2 385 745 301 064 078 Change in estimates – environmental rehabilitation assets – 83 589 701 – (117 971) (4 001 138) – – 79 470 592 Reclassification – – (2 022 555) – 2 022 555 – – –

Disposals – – – – – (219 717) (132 573) (352 290)

Closing balance 38 818 599 1 167 097 812 – 234 979 584 109 024 051 3 708 461 5 169 055 1 558 797 562

31 March 2013 Opening balance 38 195 570 598 077 217 4 661 746 224 550 362 94 790 981 2 470 162 2 818 410 965 564 448

Fully depreciated assets no longer in use – (16 630 686) – – – – – (16 630 686)Reclassification – – (3 309 333) 3 309 333 – – – – Additions – 187 772 371 670 142 5 754 015 14 668 467 509 403 1 139 885 210 514 283 Change in estimates – environmental rehabilitation assets – 19 746 524 – 476 274 – – – 20 222 798 Disposals – – – – – (13 249) (1 042 412) (1 055 661)

Closing balance 38 195 570 788 965 426 2 022 555 234 089 984 109 459 448 2 966 316 2 915 883 1 178 615 182

Accumulated depreciation and impairment losses 31 March 2014 Opening balance (2 669 795) (340 737 236) – (39 117 178) (16 941 271) (1 388 763) (1 691 030) (402 545 273)

Depreciation expense (770 357) (327 948 635) – (21 436 551) (7 930 607) (384 427) (814 801) (359 285 378) Disposals – – – – – 96 179 91 990 188 169

Closing balance (3 440 152) (668 685 871) – (60 553 729) (24 871 878) (1 677 011) (2 413 841) (761 642 482)

31 March 2013 Opening balance (2 014 489) (106 510 701) – (17 176 451) (5 280 418) (1 036 662) (843 148) (132 861 869)

Fully depreciated assets no longer in use – 16 630 686 – – – – – 16 630 686 Depreciation expense (655 306) (199 683 550) – (21 940 727) (11 660 853) (352 101) (932 674) (235 225 211) Loss on derecognition of assets(1) – (51 173 671) – – – – – (51 173 671) Disposals – – – – – – 84 792 84 792

Closing balance (2 669 795) (340 737 236) – (39 117 178) (16 941 271) (1 388 763) (1 691 030) (402 545 273)

Carrying amount 31 March 2014 35 378 447 498 411 941 – 174 425 855 84 152 173 2 031 450 2 755 214 797 155 080

31 March 2013 35 525 775 448 228 190 2 022 555 194 972 806 92 518 177 1 577 553 1 224 853 776 069 909

All plant and equipment, except leasehold improvements, are owned.

(1) during the 2013 financial year, a decision was taken to close Pit 1 at Vanggatfontein as it was no longer economic. This resulted in a loss on derecognition of assets of R51.2 million recorded in mining and related expenses in the statement of profit or loss with a corresponding decrease in mine development assets.



139

140



Mining equipment

R

Computer equipment

RTotal

R

13 pRopERTy, pLANT AND EqUIpMENT (continued)Additional disclosure for leased assetsThe following assets are pledged as security for instalment sale and lease agreements:

Cost 4 567 546 707 761 5 275 307 Accumulated depreciation (3 101 084) (283 757) (3 384 841)

Carrying value 1 466 462 424 004 1 890 466

property, plant and equipment pledged as security for borrowingsAssets (including mineral rights) with a carrying value of R683 million of the Vanggatfontein Colliery in Delmas, Mpumalanga, have been secured by the registration of a general and special notarial bond as well as the registration of mortgage bonds over the fixed property in favour of Investec. Refer to note 24.

The surface rights and all moveable property, plant and equipment, except for the processing plant of Vaalkrantz Colliery in Vryheid, KwaZulu-Natal, with a carrying value of R87 million, have been committed as security for the loan agreement with the IDC. Refer to note 24.

The surface rights of Braakfontein in Newcastle, KwaZulu-Natal, have been committed as security for the loan agreement with Vitol SA. Refer to note 24.

InsuranceAll of the above assets, with the exception of land and mine development, are insured at approximate cost of replacement.

Land and buildingsPortion 3 of the farm Vanggatfontein 251, Registration Division I.R., Province of Mpumalanga, measuring 190.1501 haPortion 5 (a portion of portion 4) of the farm Vanggatfontein 251, Registration Division I.R., Province of Mpumalanga, measuring 204.8589 haRemaining extent of portion 4 of the farm Vanggatfontein 251, Registration Division I.R., Province of Mpumalanga, measuring 395.0091 haPortion 10 of the farm Straffontein 252, Registration Division I.R., Province of Mpumalanga, measuring 59.7374 haRemaining extent of portion 8 of the farm Langkrans 367, Vryheid, KwaZulu-Natal, measuring 61.0637 haRemaining extent of portion 1 of the farm Langkrans 367, Vryheid, KwaZulu-Natal, measuring 464.3193 haRemaining extent of portion 3 of the farm Bloemendal 18 , Vryheid, KwaZulu-Natal, measuring 239.4230 haRemaining extent of portion 2 of the farm Weltevreden 53, HT, Utrecht, KwaZulu-Natal, measuring 457.3486 haRemaining extent of portion 1 of the farm Weltevreden 53, HT, Utrecht, KwaZulu-Natal, measuring 642.9136 haRemaining extent of Farm Braakfontein 4278, HT, Newcastle, KwaZulu-Natal, measuring 1264.2861 haRemaining extent of the Farm Vaalkrantz 306, Vryheid, KwaZulu-Natal, measuring 607.4635 haPortion 3 of the farm Rustplaas 165, HU, Vryheid, KwaZulu-Natal, measuring 171.3064 haPortion 4 of the farm Rustplaas 165, HU, Vryheid, KwaZulu-Natal, measuring 85.6532 haPortion 5 of the farm Rustplaas 165, HU, Vryheid, KwaZulu-Natal, measuring 324.151 ha

14 Interest In subsIdIary companIesSet out below is a list of material subsidiaries of the group, (refer to note 37 for a list of subsidiaries):

Keaton energy Holdings Limited

Keaton Mining Proprietary Limited

Leeuw Mining and Exploration Proprietary

Limited and its subsidiariesNeosho Trading 86 Proprietary Limited

South Africa – Mpumalanga South Africa – KwaZulu-Natal South Africa – Mpumalanga

74% 74% 74%

The following table summarises the information relating to each of the group’s subsidiaries that has material NCI, before intra- group eliminations:

31 march 2014

Keaton Mining Proprietary Limited

Leeuw Mining and Exploration

Proprietary Limited and its subsidiaries

Neosho Trading 86 Proprietary Limited

NCI percentage 26% 26% 26%

Total non-current assets 735 204 901 527 868 218 290 713 532

Total current assets 204 138 591 45 336 557 3 427 669

Non-current liabilities (987 026 876) (375 297 132) (18 347 474)

Current liabilities (230 336 311) (90 917 332) (8 464 950)

Net (liabilities)/assets (278 019 695) 106 990 311 267 328 777

Carrying amount of NCI (72 285 121) 27 817 481 69 505 482

Revenue 1 127 215 331 245 389 932 175 000

Profit 51 586 566 (18 324 902) 118 744

Total comprehensive income 51 586 566 (18 324 902) 118 744

Profit allocated to NCI 13 412 507 (4 764 475) 30 873

Net increase in cash and cash equivalents 52 489 621 454 013 20 884

31 March 2013

Keaton MiningProprietary Limited

Leeuw Mining and Exploration

Proprietary Limited and its subsidiaries

NCI percentage 26% 26%

Total non-current assets 723 853 668 568 487 460

Total current assets 111 371 885 28 099 839

Non-current liabilities (940 362 458) (371 043 450)

Current liabilities (238 024 107) (66 200 106)

Net (liabilities)/assets (343 161 012) 159 343 743

Carrying amount of NCI (89 221 863) 41 429 373

Revenue 645 859 781 272 947 606

Profit (172 609 583) (7 554 409)

Total comprehensive income (172 609 583) (7 554 409)

Profit allocated to NCI (44 878 492) (1 964 146)

Net decrease in cash and cash equivalents (13 850 604) (10 057 276)



141

142


notes to tHe fInancIaL statements contInued

company

year to 31 march

2014r

Year to 31 March

2013R

14 Interest In subsIdIary companIes (continued)unlisted – shares at cost

Labohlano Trading 46 Proprietary Limited(1) 22 312 500 22 312 500 Keaton Mining Proprietary Limited(2) 12 000 074 12 000 074 Keaton Administrative and Technical Services Proprietary Limited(3) 100 100 Amalahle Exploration Proprietary Limited 74 74 Mafla Coal Proprietary Limited 74 74 Leeuw Mining and Exploration Proprietary Limited(4) 44 048 888 44 048 888 Xceed Resources Limited(5) 194 656 714 – Izwi Coal Proprietary Limited 180 180 Intshe Coal Proprietary Limited 60 60 Rafcoal Mining Proprietary Limited 74 74

273 018 738 78 362 024 (1) Labohlano Trading 46 Proprietary Limited – total acquisition price 22 312 500 22 312 500

– share-based payment 17 300 000 17 300 000 – cash 5 012 500 5 012 500

(2) Keaton Mining Proprietary Limited 12 000 074 12 000 074 – initial cash cost 74 74 – share-based payment 12 000 000 12 000 000

(3) Keaton Administrative and Technical Services Proprietary Limited 100 100 – initial cash cost 100 100

(4) Leeuw Mining and Exploration – total acquisition price 44 048 888 44 048 888 – share-based payment 34 048 888 34 048 888 – conversion of convertible loan 10 000 000 10 000 000

(5) Xceed Resources Limited – total acquisition price 194 656 714 – – cash 194 656 714 –

company

year to 31 march

2014r

Year to 31 March

2013R

14 Interest In subsIdIary companIes (continued)Loans receivable from subsidiary companies

Keaton Mining Proprietary Limited(1) – 124 839 648 Keaton Administrative and Technical Services Proprietary Limited(2) 7 159 976 6 573 021 Labohlano Trading 46 Proprietary Limited(3) 101 185 63 507 Keaton Administrative and Technical Services Proprietary Limited(4) 6 606 577 6 285 004 Mafla Coal Proprietary Limited(4) 690 969 690 969 Izwi Coal Proprietary Limited(4) 3 014 3 014 Intshe Coal Proprietary Limited(4) 1 022 087 1 022 087 Rafcoal Mining Proprietary Limited(4) 179 940 179 940 Amalahle Exploration Proprietary Limited(4) – – Leeuw Mining and Exploration Proprietary Limited(5) 12 625 390 5 066 341 Leeuw Mining and Exploration Proprietary Limited(6) 34 891 384 10 887 471 Leeuw Mining and Exploration Proprietary Limited(7) 71 298 850 63 423 030 Leeuw Mining and Exploration Proprietary Limited – instalment sales agreement(8) 10 389 977 12 892 942 Ausco Services Proprietary Limited(9) 1 578 107 – Xceed Resources Limited(9) 5 573 667 –

152 121 123 231 926 974 (1) This loan bears interest at prime plus 2%, is unsecured and has no repayment terms.(2) This loan bears interest at prime and has no repayment terms.(3) This loan bears interest at prime plus 2%, is unsecured and loan increases are settled on a monthly basis with the issue of unlisted cumulative

redeemable preference shares.(4) These loans are unsecured, interest-free and have no fixed terms of repayment. These loans have also been impaired to their recoverable amount. (5) This loan is unsecured, bears interest at an effective interest rate of 117% and has no fixed terms of repayment. Repayment may only be done after

the repayment of the IDC (refer to note 24).(6) This loan bears interest at prime plus 2%, is unsecured and has no capital repayment terms. Interest is settled monthly.(7) This loan bears interest at the 90-day JIBAR +7%, is unsecured and has no fixed terms of repayment. Repayment may only be done after the

repayment of the IDC (refer to note 24).(8) Keaton Energy leases a coal washing plant to Leeuw Mining and Exploration Proprietary Limited (LME) in terms of an instalment sale agreement taken

over from Nedbank Limited. The coal washing plant serves as security for the lease. The instalment sale carries interest at prime and is payable on demand.

(9) These loans are unsecured, interest-free and have no fixed terms of repayment.

company

year to 31 march

2014r

Year to 31 March

2013R

unlisted cumulative redeemable preference shares at cost (including accrued preference dividends)Keaton Mining Proprietary Limited(1) 473 471 536 479 985 037 Labohlano Trading 46 Proprietary Limited(1) 12 300 000 10 900 000 Amalahle Exploration Proprietary Limited(1) 8 000 000 8 000 000 Izwi Coal Proprietary Limited 860 000 860 000 Mafla Coal Proprietary Limited(1) 3 900 000 3 900 000 Leeuw Mining and Exploration Proprietary Limited(2) 16 995 834 13 689 574

515 527 370 517 334 611 (1) The preferences share investments are unsecured and attract preference dividends at prime plus 5%, compounded quarterly in arrears. The investment

in Mafla, Izwi, Intshe Coal and Rafcoal Mining consisting of preference shares and loans have been fully impaired. All preference dividends which are in arrear incur interest at prime plus 7%. Preference dividends become payable after the third anniversary of the issue date, which repayment period commenced in January 2011 for Keaton Mining Proprietary Limited, May 2011 for Amalahle Exploration Proprietary Limited and in July 2012 for Labohlano Trading 46 Proprietary Limited. To date repayments have been made of R3.1 million during 2014 (2013: R2.1 million) from Amalahle Proprietary Limited and R75.7 million during 2014 (2013: R nil) from Keaton Mining Proprietary Limited. No other repayments have been made.

(2) The preferences share investments are accounted for as financial assets in terms of IFRS, are unsecured and attract dividends at an effective interest rate of 22.75%, compounded quarterly in arrears. The preference shares have no fixed redemption date.



143

144



company

year to 31 march

2014r

Year to 31 March

2013R

14 Interest In subsIdIary companIes (continued)

total interest in subsidiary companies 940 667 231 827 623 609

provision for impairment of interest in subsidiary companies (refer to note 8) (24 791 704) (20 338 215)Keaton Administrative and Technical Services Proprietary Limited (10 135 232) (8 919 429)Mafla Coal Proprietary Limited (4 591 043) (4 591 043)Izwi Coal Proprietary Limited (863 194) (863 194)Intshe Coal Proprietary Limited (1 022 147) (1 022 147)Rafcoal Mining Proprietary Limited (180 014) (180 014)Amalahle Exploration Proprietary Limited (8 000 074) (4 762 388)

total carrying value of interest in subsidiary companies 915 875 527 807 285 394

represented by the carrying value of the interest in: 915 875 527 807 285 394

Keaton Mining Proprietary Limited 485 471 610 616 824 759 Labohlano Trading 46 Proprietary Limited 34 713 685 33 276 007 Keaton Administrative and Technical Services Proprietary Limited 3 631 421 3 938 696 Amalahle Exploration Proprietary Limited – 3 237 686 Mafla Coal Proprietary Limited – – Izwi Coal Proprietary Limited – – Intshe Coal Proprietary Limited – – Rafcoal Mining Proprietary Limited – – Leeuw Mining and Exploration Proprietary Limited 190 250 323 150 008 246 Ausco Services Proprietary Limited 1 578 107 –Xceed Resources Limited 200 230 381 –

The directors of the company consider the carrying amount of the unlisted interests in subsidiaries to be a fair representation of the value on the investments given the various stages of development of the underlying assets.

The company has issued a limited guarantee to Investec Bank Limited, supported by a pledge of shares and claims from subsidiaries, for the term facility. Refer to note 24.

The company has subordinated its claims of all loans, including preference share funding to Keaton Mining that existed on drawdown date in favour of Investec for the term facility, provided that these loans may be repaid at any time within the permitted distribution limitations as defined in the Investec Bank Limited facility agreement.

Mineral and Prospecting

Rights acquiredR

Drilling expenses

R

Other evaluation expenses

R

Richards Bay Coal Terminal

Quattro Scheme

participationR

TotalR

15 IntangIbLe assetsgroupcost31 march 2014Opening balance 338 442 161 15 466 064 49 398 074 22 717 726 426 024 025

Additions – 3 107 580 2 311 045 – 5 418 625 Mining assets acquired(¹) 284 709 240 – – – 284 709 240 Disposal of Prospecting Right(²) (12 005 444) – (50 543) – (12 055 987)

Closing balance 611 145 957 18 573 644 51 658 576 22 717 726 704 095 903

31 march 2013Opening balance 338 436 717 15 466 064 47 645 727 22 717 726 424 266 234

Additions 5 444 – 1 752 347 – 1 757 791

Closing balance 338 442 161 15 466 064 49 398 074 22 717 726 426 024 025

accumulated amortisation31 march 2014Opening balance – – – (1 893 145) (1 893 145)

Amortisation – – – (1 514 516) (1 514 516)

Closing balance – – – (3 407 661) (3 407 661)

31 march 2013Opening balance – – – (378 629) (378 629)

Amortisation – – – (1 514 516) (1 514 516)

Closing balance – – – (1 893 145) (1 893 145)

carrying amount

31 march 2014 611 145 957 18 573 644 51 658 576 19 310 065 700 688 242

31 March 2013 338 442 161 15 466 064 49 398 074 20 824 581 424 130 880 (1) Refer to note 12.(2) On 20 June 2013 the sale of the Impati mining right previously held by Leeuw Mining and Exploration Proprietary Limited, to Zinoju Coal Proprietary

Limited was effected following receipt of ministerial consent. The sale resulted in an amount of R12 million received in cash on 25 June 2013.

Intangible assets pledged as security for borrowingsAll mineral rights of Keaton Mining have been encumbered by Investec Bank Limited. Refer to note 24.

exploration and evaluation assets other



145

146



year to 31 march

2014 r

Year to31 March

2013R

year to31 march

2014 r

Year to31 March

2013R

16 deferred taXrecognised net deferred tax liabilityAt the beginning of the year (35 521 200) (77 199 409) (907 112) (75 592)

Recognised in the statement of profit or loss in income taxation (refer below) (34 692 291) 41 678 209 (1 269 730) (831 520)

Balance at the end of the year (70 213 491) (35 521 200) (2 176 842) (907 112)

movement in temporary differences during the yearRecognised in the statement of profit or loss:Group

Capital allowances 11 379 387 7 027 792 Property, plant and equipment 9 917 142 6 806 593 Other items 1 462 245 221 199

Keaton Energy Holdings Limited – CompanyEmployee benefit provisions 307 686 78 745 307 686 78 745 Loans to subsidiaries – CGT rate – (221 047) – (221 047)Loans to subsidiaries (1 577 416) (523 314) (1 577 416) (523 314)Other differences – (165 904) – (165 904)

Keaton Mining Proprietary LimitedCapital allowances (41 090 632) 32 433 235

Property, plant and equipment (61 506 633) 27 078 332 Provisions 20 416 001 5 354 903

Tax losses (12 397 794) 3 555 857 Employee benefit provisions 1 218 607 (3 929)Prior year underprovisions 888 619 – Other differences (84 591) 267 302

Leeuw Mining and Exploration Proprietary Limited

Capital allowances 7 476 232 4 896 816 Property, plant and equipment 5 391 858 2 485 275 Provisions 1 694 802 2 058 884 Other items 389 572 352 657

Tax losses (299 655) (4 954 151)Employee benefit provisions (512 734) 345 566

Amalahle Exploration Proprietary Limited

Tax losses – (1 058 759)

(34 692 291) 41 678 209 (1 269 730) (831 520)

unrecognised deferred tax assets

At the beginning of the year 12 768 677 6 072 420

Additions:Tax losses and capital allowances (refer to page 147) 9 000 804 6 696 257

Balance at the end of the year 21 769 481 12 768 677

group company

year to 31 march

2014 r

Year to31 March

2013R

16 deferred taX (continued)movement in unrecognised deferred tax assets during the yearDeferred tax assets that have been reversed during the year:

Amalahle Exploration Proprietary Limited – 1 058 759

Deferred tax assets that have not been recognised in respect of the following items during the year:Tax losses in:

Keaton Administrative and Technical Services Proprietary Limited (588 552) –Leeuw Braakfontein Colliery Proprietary Limited 860 228 1 695 746

Capital allowances/employee benefit provisions in:Keaton Administrative and Technical Services Proprietary Limited (389 920) 280 006 Leeuw Braakfontein Colliery Proprietary Limited 2 811 562 3 386 871 Labohlano Trading 46 Proprietary Limited 381 124 274 875 Amalahle Exploration Proprietary Limited (878 979) –Neosho Trading 86 Proprietary Limited 4 997 514 –Ausco Services Proprietary Limited 1 226 929 –Ausco Finance Proprietary Limited 580 898 –

9 000 804 6 696 257 The taxation losses normally expire within 12 months of the company not trading. The deductible temporary timing differences do not expire under current taxation legislation. Deferred taxation assets have not been recognised in terms of these items because the above companies do not have a history of taxable profits and taxable profits will not be available in the immediate future against which the company can utilise these losses.All of the above amounts have been calculated at the currently enacted income taxation rate of 28% (2013: 28%). Recognised amounts will be recovered from future taxable profits.

amounts available for offset against future taxable income:Unutilised tax losses 18 415 776 54 793 026 amounts available for offset against future taxable mining income:Exploration costs 90 089 816 56 739 529 Unredeemed capital expenditure 598 360 433 756 957 739

year to 31 march

2014 r

Year to31 March

2013R

year to31 march

2014 r

Year to31 March

2013R

17 casH17.1 restricted cash

Long-term restricted cash 7 423 204 7 423 204 1 418 581 1 418 581 These bank deposits are pledged and ceded against long-term environmental guarantees and creditor payment guarantees issued by/on behalf of the group.

17.2 cash and cash equivalentsShort-term deposits 963 963 963 963 Cash in bank and on hand 69 555 081 19 613 187 2 118 375 420 693

69 556 044 19 614 150 2 119 338 421 656

cash and cash equivalents ceded as security for borrowingsAll bank accounts, cash balances and investments of Keaton Mining, with a carrying value of R66 million have been ceded to Investec (2013: R12.9 million ceded to Nedbank). Refer to note 24.

group

group company



147

148



year to 31 march

2014 r

Year to31 March

2013R

year to31 march

2014 r

Year to31 March

2013R

18 restrIcted InVestmentsInvestments held by environmental trust funds(1) 10 370 277 17 101 680 – –

Other restricted investments(2) 36 898 472 9 581 189 – –

Total restricted investments 47 268 749 26 682 869 – –

Reconciliation of the movement in the environmental trust funds:Balance at the beginning of the year 17 101 680 11 919 446 – – Contributions made 1 773 545 3 430 218 – – Investments liquidated (8 474 743) – – – Interest income 335 070 474 047 – – Dividend income 5 175 16 980 – – Investment costs (360 181) (416 297) – –

Fair value movement (10 269) 1 677 286 – –

Balance at the end of the year 10 370 277 17 101 680 – –

Reconciliation of the movement in other restricted investments:Balance at the beginning of the year 9 581 189 1 107 583 – – Acquired through Xceed acquisition(3) 5 726 715 – – – Contributions made 20 574 279 7 905 641 – – Interest income 278 724 92 789 – – Dividend income 34 987 18 783 – – Investment costs (389 813) (41 242) – –

Fair value movement 1 092 391 497 635 – –


These restricted investments are pledged as security for environmental rehabilitation guarantees issued by/on behalf of the group.

(1) The environmental trust funds are irrevocable trusts under the group’s control. Contributions to the trusts are invested in Sanlam and Momentum unit trusts where the underlying funds invest in equity instruments and money market investments, both local and foreign. The unit trusts investments are designated at fair value through profit or loss investments and recognised at fair value. These investments provide for the estimated cost of rehabilitation at the end of the life of the group’s mines. Income earned on the investments, consisting of dividend income, local and foreign interest and fair value adjustments are reinvested.

(2) Included in other restricted investments are guarantees provided to Transnet for the rehabilitation of the railway siding at the group’s Vaalkrantz Mine. Contributions to the fund are invested in Momentum unit trusts where the underlying funds invest in equity instruments and money market investments, both local and foreign. The unit trusts investments are fair value through profit or loss financial assets and are recognised at fair value. Income earned on the investments, consisting of dividend income, local and foreign interest, is reinvested. Also included in other restricted investments is an investment relating to the Nedbank Bettabeta Green Exchange Traded Fund (BGreen ETF). The BGreen ETF tracks the Nedbank Green Index which has been developed by Nedbank Capital in line with its green principles and commitment to preserving the environment, and in response to the increased demand from environmentally conscious investors. The index consists of a selection of stocks from the top 100 largest South African companies listed on the JSE. The investment is fair value through profit or loss financial assets and recognised at fair value. Lastly, included in other restricted investments are various investments with Momentum unit trusts, where the underlying funds invest in equity instruments and money market investments, both local and foreign. The unit trusts investments are fair value through profit or loss financial assets and are recognised at fair value. Income earned on the investments, consisting of dividend income, local and foreign interest and fair value adjustments, is reinvested.

(3) Refer to note 12.

group company

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

19 InventoRYRun-of-mine stockpiles 13 386 062 17 662 573 – – Finished product stockpiles(1) 13 428 196 9 190 781 – – Consumables(1) 8 266 944 11 639 208 – –

Total inventory 35 081 202 38 492 562 – –

(1) During the 2014 financial year, impairment of inventories to net realisable value amounted to R3.3 million (2013: R nil), of which R0.6 million relates to consumables and R2.7 million to finished product stockpiles at Vaalkrantz.

All inventory balances of Keaton Mining of R23.4 million have been ceded to Investec Bank Limited (2013: R33.4 million ceded to Nedbank Limited). Refer to note 24.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

20 tRade and otheR ReCeIvables20.1 non-current trade and other receivables

Prepayment(1) 37 610 309 – 37 610 309 –

(1) Non-current trade and other receivables of R37.6 million represent the discount to the fair value of the shares issued to Plusbay Limited (refer to note 12) that is accounted for as a share-based payment. The discount was recognised as an asset as it relates to future financing that will be obtained in the form of USD4 million in prepayments for coal.



149

150



Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

20 tRade and otheR ReCeIvables (continued)

20.2 Current trade and other receivablesFinancial assetsTrade receivables 135 630 678 76 604 296 – – Allowance for impairment (634 639) (634 639) – –

Trade receivables – net 134 996 039 75 969 657 – – Other receivables(1) 8 157 216 2 234 065 4 507 635 – Non-financial assetsValue added tax receivable 8 182 938 7 011 120 1 262 504 910 765

151 336 193 85 214 842 5 770 139 910 765 (1) Other receivables consist of various prepayments

and loans. Refer to note 36 for related party loans.

The ageing of trade receivables at the reporting date was:Current 131 946 507 72 080 553 – – Past due by one to 30 days 2 894 566 1 007 122 – – Past due by 31 to 60 days 46 294 3 906 – – Past due by 61 to 90 days – – – – Past due by more than 90 days 743 311 3 512 715 – –

135 630 678 76 604 296 – –

The ageing of the allowance for impairment at the reporting date was:Current – – – – Past due by one to 30 days – – – – Past due by 31 to 60 days – – – – Past due by 61 to 90 days – – – – Past due by more than 90 days 634 639 634 639 – –

634 639 634 639 – –

The movement in the allowance for impairment:Balance at 31 March 2013 634 639 332 082 – – Allowance for impairment – 302 557 – –

Balance at 31 March 2014 634 639 634 639 – –

Based on past experience, the group believes that no impairment allowance is necessary in respect of fully performing receivables as the amount relates to customers that have a proven track record with the group.

During the year 2014 and 2013, there was no renegotiation of the terms of any receivable.

trade and other receivables ceded as security for borrowingsAll trade and other receivable balances of Keaton Mining with a carrying amount of R115.2 million have been ceded to Investec Bank Limited (2013: R64.4 million ceded to Nedbank Limited). Refer to note 24.

Group and company

Year to 31 March

2014number

of shares

Year to 31 March

2013Number

of shares

Year to 31 March

2014R

Year to 31 March

2013R

21 stated CapItal and shaRe-based paYMent ReseRveshare capitalauthorised share capital Ordinary shares of 0.1 cents each(2) – 250 000 000 250 000 Ordinary no par value shares(2) 750 000 000 – n/a –

Issued share capitalAt the beginning of the year 191 663 141 188 752 600 191 663 188 752 Par value shares issued for cash during the year – 2 910 541 – 2 911 Transferred to stated capital(2) (191 663 141) – (191 663) –

At the end of the year – 191 663 141 – 191 663

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

share premiumAt the beginning of the year 640 711 274 632 053 834 640 711 274 644 053 834 Par value shares issued for cash during the year(1) – 9 019 767 – 9 019 767 Share-based payment transferred to other reserves – – – (12 000 000)Share issue expenses(1) – (362 327) – (362 327)Transferred to stated capital(2) (640 711 274) – (640 711 274) –

At the end of the year – 640 711 274 – 640 711 274 (1) During the 2013 financial year a general issue of shares for cash was done, totalling 2 910 541 shares at R3.10 per share.(2) A special resolution in terms of regulation 31 of the Companies Act Regulations 2011 was adopted at the general meeting held on 28 May 2013,

whereby all ordinary shares were converted into ordinary shares with no par value. It was resolved that all 250 million authorised shares and 191.7 million issued ordinary shares with a par value of 0.1 cents be converted into ordinary shares with no par value and that the share capital account and the share premium account of the company be transferred to the stated capital account. It was also resolved that the authorised share capital increase from 250 million ordinary no par value shares to 750 million ordinary no par value shares.



151

152



Group and company

Year to 31 March

2014number

of shares

Year to 31 March

2014R

21 stated CapItal and shaRe-based paYMent ReseRve (continued)stated capitalAt the beginning of the year – –Transferred from share capital and share premium(2) 191 663 141 640 902 937Shares issued for cash during the year(3) 32 647 838 58 047 856Share issue expenses(3) – (6 022 240)

At the end of the year 224 310 979 692 928 553

(2) A special resolution in terms of regulation 31 of the Companies Act Regulations 2011 was adopted at the general meeting held on 28 May 2013, whereby all ordinary shares were converted into ordinary shares with no par value. It was resolved that all 250 million authorised shares and 191.7 million issued ordinary shares with a par value of 0.1 cents be converted into ordinary shares with no par value and that the share capital account and the share premium account of the company be transferred to the stated capital account. It was also resolved that the authorised share capital increase from 250 million ordinary no par value shares to 750 million ordinary no par value shares.

(3) A total of 32 647 838 ordinary no par value shares were issued to Plusbay Limited, a wholly owned subsidiary of Gunvor Group Limited for cash, at an issue price of R1.7782 per share. The shares were issued at a 10% discount to the company’s 30-day volume weighted average price (VWAP) determined one day before 23 August 2013, being the date on which the Xceed acquisition was announced. The funds raised of R58 million, net of transaction costs of R6 million, was utilised to partially fund the acquisition of Xceed.

The directors are authorised, by resolution of the shareholders and until the forthcoming annual general meeting, to allot, issue and otherwise dispose of the unissued shares. This is, however, subject to the Listings Requirements of JSE Limited. Also refer to the directors’ report for more detail on an upcoming general meeting.

Group Company

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

share-based payment reserve(4)

At the beginning of the year 12 496 640 6 180 562 8 673 572 4 233 367 Share appreciation rights expense arising from notional shares continued/granted during the year 6 291 521 6 316 078 4 546 722 4 440 205

At the end of the year 18 788 161 12 496 640 13 220 294 8 673 572

(4) Refer to note 22 for detail on the share-based payment transactions.

22 shaRe-based paYMent tRansaCtIonsThe group established a long-term performance incentive scheme, consisting of share appreciation rights (SARs), the objective of which is to recognise the contributions of staff to the group’s financial position and performance and to retain key employees. In terms of the scheme certain directors, employees and other third parties may receive a conditional right to a bonus award (conditional bonus award) equal to the increase in the value of a number of notional Keaton Energy ordinary shares (notional shares) between the date on which the Remuneration Committee of Keaton Energy approves the offer of the conditional bonus award to the end of the performance period (normally three years following the offer) applicable to the conditional bonus award.

The aggregate number of shares which may be allocated to the share plan on any day, when added to the total number of unexercised SARs, shall not exceed 33 646 647 shares. The limit applied to any one individual is 6 729 329 shares. The offer of SARs will be conditional upon achievement of performance targets as specified in the bonus award certificates, which is specific to each employee, and the minimum employment period.

Termination of employees’ participation in the share plan is based on “no fault” and “fault” definitions.

Fault definitionsAn award will lapse/be forfeited and revert back to the scheme and have no further force or effect on the earliest of:• the date on which the performance targets (or a portion thereof) are not achieved, as determined by the Remuneration

Committee; and• the date a participant’s employment with a member of the group terminates, if termination of employment occurs during the

minimum employment period.

no fault definitionsIn the event that a participant’s employment with the group is terminated by reason of death, ill health, incapacity or redundancy, disposal of the majority of the issued shares or business of the participating company, the Remuneration Committee may in its absolute discretion:• deem a pro rata portion of the bonus award to become unconditional and to be capable of being exercised within three

months. The Remuneration Committee will take into consideration, among other things, the extent to which performance targets have been satisfied and the portion of minimum employment period which has expired; and

• allow the scheme to apply to the whole or a portion of the bonus award, which were made by the participant as though the individual had not ceased to be an employee.

Should the Remuneration Committee determine in its discretion that no portion of the participant’s bonus award should become unconditional and be capable of being exercised, then the bonus award shall lapse upon termination of employment.

If a participant ceases to be an executive director or employee of a participating company for any reason and a bonus award shall already have become unconditional and shall not have lapsed for any reason before the date of cessation of employment, then the bonus award will lapse seven days after cessation of employment if it is not exercised before the expiry of that seven-day period.

The fair value of each notional share granted was estimated on the date of grant using the Black-Scholes option-pricing model. The cost is expensed over the vesting period. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the notional share award, share price volatility and applicable risk-free rate. Expected volatility is based on the historical average volatility of Keaton Energy’s share price. These estimates involve inherent uncertainties and the application of management judgement. In addition, the group is required to estimate the expected forfeiture rate and only recognise expense for those notional shares expected to vest. As a result, if other assumptions had been used, the recognised share-based appreciation right expense could have been different from that reported.

The SARs have an expiry date of six years from the grant date and the offer price equals the closing market price of the underlying shares on the 10-day volume weighted average share price immediately preceding the grant date.

The terms and conditions of the long-term performance incentive scheme stipulate that the Remuneration Committee of the group will determine the most appropriate manner to settle the amount due, it being the intention that the settlement will normally occur by way of an allotment and issue of new shares and/or the purchase and transfer of existing shares. However, if circumstances require, the group is entitled (on approval of the Remuneration Committee) to settle the amount due by way of a direct cash payment in rand, net of taxation. These cash payments must be applied in the subscription of new or the purchase of issued shares of the company. No employees have exercised any share appreciation rights in the 2014 or 2013 financial years.



153

154



22 shaRe-based paYMent tRansaCtIons (continued)The terms and conditions of the grants to date (excluding lapsed grants) are as follows:

Grant date1 July2010

25 August 2010

24 August2011

2 December2011

2 December2011

14 December2011

15 December2011

9 May2012

6 June2012

3 September2012

12 June2013

Number of notional shares granted 225 048 2 535 272 6 538 237 3 126 473 1 041 526 410 614 905 797 78 671 4 291 138 278 656 12 311 389

vesting conditions

Minimum employment

period of three years and certain

performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment

period of two years

and certain performance

targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Average contractual life of notional shares (excluding three-year exercise period after vesting) 3 years 3 years 3 years 3 years 2 years 3 years 3 years 3 years 3 years 3 years 3 yearsWeighted average share price (R) at grant date (offer or exercise price) 5.20 4.67 2.50 2.78 2.78 2.74 2.74 2.86 3.34 2.52 1.44 Fair value (R) per notional share at grant date 1.85 1.66 1.11 1.31 0.65 1.25 1.24 1.60 1.72 1.02 0.69 Expected volatility factor 39.1% 39.1% 48.5% 44.1% 44.1% 44.3% 44.3% 42.3% 42.6% 45.6% 57.3%Expected dividends N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Risk-free interest rate (based on government bonds) 7.9% 7.9% 6.2% 6.4% 6.4% 6.7% 6.7% 6.7% 7.2% 6.1% 6.8%

saRs – Group saRs – Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

number of share optionsShare options granted 33 743 150 21 431 761 23 072 603 15 591 603

Vested not exercised 4 692 286 – 1 606 613 – Unvested 24 232 591 18 247 454 16 714 986 10 840 599 Transferred to other group companies – – 2 785 886 2 785 886 Forfeited and lapsed 4 818 273 3 184 307 1 965 118 1 965 118

vesting periods of unvested sharesWithin one year 7 668 963 4 692 286 6 215 913 1 606 614 One to two years 4 252 239 8 906 703 3 018 073 6 215 912 Two to three years 12 311 389 4 648 465 7 481 000 3 018 073

Total number of unvested shares 24 232 591 18 247 454 16 714 986 10 840 599

22 shaRe-based paYMent tRansaCtIons (continued)The terms and conditions of the grants to date (excluding lapsed grants) are as follows:

Grant date1 July2010

25 August 2010

24 August2011

2 December2011

2 December2011

14 December2011

15 December2011

9 May2012

6 June2012

3 September2012

12 June2013

Number of notional shares granted 225 048 2 535 272 6 538 237 3 126 473 1 041 526 410 614 905 797 78 671 4 291 138 278 656 12 311 389

vesting conditions

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment

period of two years

and certain performance

targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Minimum employment


performance targets

Average contractual life of notional shares (excluding three-year exercise period after vesting) 3 years 3 years 3 years 3 years 2 years 3 years 3 years 3 years 3 years 3 years 3 yearsWeighted average share price (R) at grant date (offer or exercise price) 5.20 4.67 2.50 2.78 2.78 2.74 2.74 2.86 3.34 2.52 1.44 Fair value (R) per notional share at grant date 1.85 1.66 1.11 1.31 0.65 1.25 1.24 1.60 1.72 1.02 0.69 Expected volatility factor 39.1% 39.1% 48.5% 44.1% 44.1% 44.3% 44.3% 42.3% 42.6% 45.6% 57.3%Expected dividends N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Risk-free interest rate (based on government bonds) 7.9% 7.9% 6.2% 6.4% 6.4% 6.7% 6.7% 6.7% 7.2% 6.1% 6.8%


Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

number of share optionsShare options granted 33 743 150 21 431 761 23 072 603 15 591 603

Vested not exercised 4 692 286 – 1 606 613 – Unvested 24 232 591 18 247 454 16 714 986 10 840 599 Transferred to other group companies – – 2 785 886 2 785 886 Forfeited and lapsed 4 818 273 3 184 307 1 965 118 1 965 118

vesting periods of unvested sharesWithin one year 7 668 963 4 692 286 6 215 913 1 606 614 One to two years 4 252 239 8 906 703 3 018 073 6 215 912 Two to three years 12 311 389 4 648 465 7 481 000 3 018 073

Total number of unvested shares 24 232 591 18 247 454 16 714 986 10 840 599


number of shares

2014

Weighted average exercise price (R)

2014

number of shares

2014


2014

activity on options granted not yet exercisedBalance at the beginning of the year 18 247 454 3.09 10 840 599 3.15 Options granted 12 311 389 1.44 7 481 000 1.44 Options vested (4 692 286) (3.73) (1 606 613) (4.69) Options vested not exercised 4 692 286 3.73 1 606 613 4.69Options forfeited and lapsed (1 633 966) (2.87) – –

Balance at the end of the year 28 924 877 2.14 18 321 599 2.24


Number of shares

2013


2013

Number of shares

2013


2013

activity on options granted not yet exercisedBalance at the beginning of the year 14 331 588 3.05 7 822 526 3.08 Options granted 4 648 465 3.28 3 018 073 3.34 Options forfeited and lapsed (732 599) (3.53) – –

Balance at the end of the year 18 247 454 3.09 10 840 599 3.15



155

156



22 shaRe-based paYMent tRansaCtIons (continued) Number

of shares Option

price Remaining

life (years)

list of options granted not yet vested (listed by grant date)24 August 2011 4 463 820 2.52 0.40 2 December 2011 3 126 473 2.81 0.67 9 May 2012 78 671 2.86 0.67 6 June 2012 3 973 582 3.34 1.00 3 September 2012 278 656 2.52 1.42 12 June 2013 12 311 389 1.44 2.00

24 232 591

Group Company

31 March 2014

R

31 March 2013

R

31 March 2014

R

31 March 2013

R

Share-based payment expense recognised 6 291 521 6 316 078 4 546 722 4 440 205

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

23 otheR ReseRvesPurchase price adjustment(1) (30 751 111) (30 751 111) (30 751 111) (30 751 111)Share-based payment adjustment transferred from share premium(2) 12 000 000 12 000 000 12 000 000 12 000 000 Share-based payment reserve relating to the issue of shares at a discount(3) 37 610 309 – 37 610 309 – Foreign currency translation reserve 355 566 – – –

19 214 764 (18 751 111) 18 859 198 (18 751 111)

(1) Purchase price adjustment

The purchase price adjustment relates to the acquisition of LME, the purchase consideration of which was settled by the issue of shares of the company. The contractually agreed issue price of the shares was R4.50, which was based on the market value of the holding company’s shares by the end of 2010 when the acquisition agreements were concluded. On the effective date, 14 December 2011, the shares were trading at a closing bid price of R2.65. The difference between the contractual issue price and bid price was charged to equity.

(2) Share-based payment adjustment transferred from share premium

The transfer relates to a share-based payment transaction concluded between the company, Keaton Mining and Rutendo Mining Proprietary Limited during the 2008 financial year. The transfer is made to ensure consistent treatment in transactions where share-based payments are made. Shares issued in share-based payment transactions are fair valued at grant date and the difference in the issue price and the fair value is recorded in other reserves. Previously the difference was recorded in share premium.

(3) Share-based payment reserve relating to the issue of shares at a discount

The share-based payment reserve relates to the issue of shares at a discount to its fair value, issued to Plusbay Limited (refer to notes 12 and 20). The shares were issued at R1.778 per share, with the fair value of these shares, at recording date in terms of IFRS 2, being equal to R2.93 per share.

24 boRRowInGsnedbank limitedOn 1 April 2011 Keaton Mining (cedent or borrower) concluded a project financing agreement with Nedbank Limited (agent or financing party) and its nominated security party (cessionary) to further fund the development of its Vanggatfontein Project. The loan facility comprised a senior loan facility of R230 million, a standby debt facility of R25 million for potential project cost overruns and a standby equity subscription agreement of R50 million.

On 29 January 2014 the senior loan facility was settled in full through the financing facility concluded with Investec Bank Limited. The Nedbank loan bore interest at the 91-day JIBAR plus a margin of 5% (interest rate). The facility was repayable in sculptured quarterly payments commencing 30 June 2012. Total interest accrued up to 29 January 2014 amounted to R15.9 million. As a result of the settlement of the Nedbank loan, the remaining capitalised debt raising fees of R8.4 million was amortised to the statement of profit and loss.

the debt covenant tests for the group were as follows:Maximum ratio of debt to equity 50:50Loan life cover ratio (minimum) 1.5:1Project life cover ratio (minimum) 1.7:1Debt service cover ratio (minimum) 1.3:1

No breaches of the covenants were identified throughout FY14, as well as FY13.

Investec bank limited – loanOn 17 January 2014 Keaton Mining (cedent or borrower) concluded a facility agreement with Investec Bank Limited acting through its Corporate and Institutional Banking Division (lender or arranger) to settle the project finance facility with Nedbank Limited and to partially fund the acquisition of Xceed (refer to note 12 for more detail). The loan facility comprises a term facility of R300 million and a working capital facility of R50 million.

At reporting date R300 million of the term facility had been drawn. The loan bears interest at the three-month JIBAR plus a margin of 4% (interest rate). Commitment fees of 1% annually of undrawn facilities applies, which is payable to the lender. The facility is repayable in quarterly payments commencing 31 July 2014 and ending 31 October 2018. Total interest accrued up to 31 March 2014 amounted to R4.2 million. In the event that the borrower defaults, interest will be levied at a margin of 2% above the interest rate. In the event that the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) on a six-monthly basis does not exceed R200 million the interest rate will be increased by a margin of 0.5% until such time that the group again achieves the targeted EBITDA.

At reporting date no drawdowns had been made against the working capital facility. The facility bears interest at the one month JIBAR plus a margin of 3.75% and the interest will be due and payable monthly. Commitment fees of 0.75% annually of undrawn facilities applies, which is payable to the lender. The working capital facility is renewable annually.

At 31 March 2014 facility fees of R5 million have been paid and set-off against borrowings.

Various guarantees, representations, warranties, undertakings, cessions, indemnities and pledges, normal to these financing arrangements, have been given by the borrower, Keaton Administrative and Technical Services Proprietary Limited (guarantor) and Keaton Energy Holdings Limited (guarantor) to the lender. These include:

The guarantors’ guarantees, the full, due, proper and timeous performance of all the guaranteed financial obligations of the borrower. The guarantors have also subordinated any claims they have against the borrower in favour of the lender until such time as all obligations of the borrower in terms of the financing facility have been discharged finally and in full.

As continuing covering security for the due compliance by the borrower with all obligations the following security exist:• Registration of general and special notarial bonds over all moveable assets owned by the borrower• Registration of mortgage bonds over all immovable properties owned by the borrower, to the extent legally possible• Registration of mortgage bonds over all Mining Rights and Prospecting Rights to the extent possible• Session of all bank accounts and investments of the borrower• Session in securitatem debiti of all existing and future debtors• Session of all insurance policies and insurance proceeds of the borrower.

the debt covenant tests for the group are as follows:Maximum total debt to equity 1:1Loan life cover ratio (minimum) 1.5:1Reserve tail ratio (minimum) 25%Debt service cover ratio (minimum) 1.3:1Current assets to current liabilities (minimum) 1.2:1Maximum total debt to EBITDA 4:1

The debt covenant tests are performed bi-annually. During FY14 there were no breaches of the debt covenants.



157

158



24 boRRowInGs (continued)Industrial development Corporation (IdC) – loan agreementLME entered into a loan agreement with the IDC during 2004 for further development of its Vaalkrantz Mine. LME defaulted on the loan when it failed to make payment to the IDC in terms of the loan agreement prior to the 2011 financial year. During the 2011 financial year Keaton Energy refinanced LME and concluded an agreement with the IDC whereby the IDC agreed to reschedule repayment terms on the loan.

In terms of the revised loan agreement, the loan is repayable in seven equal six-monthly instalments of R935 817 and a final instalment of R435 795 which commenced on 1 December 2012.

This loan attracts interest at prime plus 2.5% which is payable monthly in arrears. The loan is secured by a cession and pledge by the company of so many ordinary shares in LME constituting 20% of the issued share capital. The loan is further secured by a first mortgage bond over the surface rights, a general notarial bond over all movable assets, excluding the coal washing plant, and a special notarial bond over other moveable assets.

Industrial development Corporation (IdC) – lMe preference sharesDuring November 2004, the IDC subscribed to 60 cumulative redeemable preference shares with a par value of R1 and a premium of R127 082 in LME. In terms of the agreement LME had to pay on each dividend date the relevant preference dividend and start to redeem the preference shares in equal instalments in the 2008 financial year. LME defaulted when it failed to make payment to the IDC in terms of the preference share agreement.

During the 2011 financial year the IDC, similarly to the loan agreement above, agreed to reschedule repayment terms on the preference shares when Keaton Energy refinanced LME, and an addendum to the preference shares agreement was concluded. In terms of the addendum these shares are entitled to a preference dividend at a coupon rate of 14%, so as to provide the IDC with a real internal rate of return of 8% over the term of the agreement, with the understanding that any shortfall or excess be corrected on the “terminal redemption date” being 31 October 2015.

Dividends are compounded and payable quarterly. Payment of dividends are, however, dependent on LME’s operational cash flow requirements, but in any event is payable no later than the terminal redemption date together with the redemption of the cumulative preference shares. The preference shares and accumulated dividends are secured by a cession and pledge by the company of so many ordinary shares in LME constituting 20% of the issued share capital. In addition to the redemption of the preference shares and accumulated dividends, LME will also pay the IDC an amount linked to the share price of Keaton Energy. Refer to note 25 in this regard.

vitol sa – Us dollar loanDuring July 2008, LME entered into a coal sale agreement with Vitol SA for the supply of 500 000 tonnes of coal at a rate of 22 400 tonnes per month. This agreement has a prefinance loan clause where Vitol SA paid an amount of USD5 500 000 to LME to assist with the development of the Braakfontein Mine within LBC and to enable LME to meet its obligations to supply coal under the agreement.

This loan bears interest at the one-year USD LIBOR rate plus a margin of 3% prior to the commencement of coal supply, with an alternate margin of 2% once coal supply has commenced. The loan is repayable by reducing the sales price with USD12 per tonne of coal supplied to Vitol SA.

The loan is secured by a pledge of all interest (shares and claims on loan account) held by LME in LBC, as well as security cession of current and future right, title and interest in receivables and cash generated by sale of coal from LBC, as well as all surface rights relating to the Leeuw Braakfontein Colliery. A further unlimited guarantee by LME for the obligations of LBC under the agreement exists. Total repayments of R9 million relating to accrued interest were made during the current financial year (2013: R1.8 million).

Investec bank limited – instalment sale agreementLME currently has an instalment sale agreement in place with Investec Bank Limited for mining equipment. This instalment sale agreement accumulates interest at 9%, payable in arrears in monthly instalments of R76 439 over a period of five years and is secured under the instalment sale agreement. The final instalment was paid on 31 January 2014.

other borrowingsOne of the subsidiaries in the group, KATS, entered into lease agreements with an IT equipment supplier for the supply of computer equipment. These loans attract interest at 5% per annum compounded annually, and are repayable over a term of 36 months.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

24 boRRowInGs (continued)Interest-bearing borrowingsNon-current borrowings

Nedbank Limited – 147 561 755 – – Balance at the beginning of the year 147 561 755 170 942 324 – – Interest 15 930 239 19 236 356 – – Repayments (interest and capital) (218 458 455) (42 176 817) – – Issue costs – (1 392 358) – – Amortisation of issue costs 8 369 099 1 534 895 – – Net adjustments to current portion 46 597 362 (582 645) – –

Investec Bank Limited – loan 249 731 047 – – – Balance at the beginning of the year – – – – Drawdown 300 000 000 – – – Interest 4 177 353 – – – Issue costs (4 971 037) – – – Amortisation of issue costs 174 422 – – – Net adjustments to current portion (49 649 691) – – –

Industrial Development Corporation 2 338 168 4 199 308 – – Balance at the beginning of the year 4 199 308 6 050 697 – – Interest 605 743 775 523 – – Repayments (interest and capital) (2 466 883) (2 854 655) – – Net adjustments to current portion – 227 743 – –

Industrial Development Corporation – LME preference shares 27 989 417 24 566 339 – –

Balance at the beginning of the year 24 566 339 21 408 153 – – Dividends accrued 3 423 078 3 158 186 – – Net adjustments to current portion – – – –

Vitol SA 61 556 110 58 954 436 – – Balance at the beginning of the year 58 954 436 48 933 844 – – Interest 2 379 470 1 843 381 – – Repayment (9 002 810) (1 799 300) – – Foreign exchange loss 9 225 014 9 976 511 – –

Investec Bank Limited – instalment sale agreements – – – –

Balance at the beginning of the year – 737 155 – – Interest 28 775 102 258 – – Repayments (837 870) (1 036 170) – – Net adjustments to current portion 809 095 196 757 – –

Other borrowings 223 029 107 860 – – Balance at the beginning of the year 107 860 84 167 – – Lease agreements concluded 354 564 142 245 – – Interest 15 930 18 455 – – Repayments (214 127) (43 105) – – Net adjustments to current portion (41 198) (93 902) – –

total non-current borrowings 341 837 771 235 389 698 – –



159

160



Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

24 boRRowInGs (continued)Current borrowings

Current portion of loan from Nedbank Limited – 46 597 362 – – Current portion of loan from Investec Bank Limited 49 649 691 – – – Current portion of loan from Industrial Development Corporation 1 871 634 1 871 634 – – Current portion of instalment sale agreements with Investec Bank Limited – 809 095 – – Current portion of instalment sale agreements with other borrowers 191 527 150 329 – –

total current borrowings 51 712 852 49 428 420 – – total interest-bearing borrowings 393 550 623 284 818 118 – –

The future minimum payments on the instalment sale and lease agreements are as follows:Due within one year 192 943 996 561 – –

Capital 176 767 959 701 – –Interest 16 176 36 860 – –

Due between one and two years 154 868 82 522 – – Capital 147 158 79 208 – –Interest 7 710 3 314 – –

Due between two and five years 78 722 29 220 – – Capital 77 018 28 639 – –Interest 1 704 581 – –

426 533 1 108 303 – – The maturity of borrowings is as follows:

Current 51 712 852 49 428 420 – – Between one and two years 68 568 047 56 642 612 – – Between two and five years 273 269 724 178 747 086 – – Over five years – – – –

393 550 623 284 818 118 – –

25 lonG-teRM FInanCIal lIabIlItIes

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

IDC equity-linked call option 604 497 303 161 – – 604 497 303 161 – –

IdC equity-linked call optionIn addition to the rescheduled repayment terms relating to the preference shares held by the IDC in LME (refer to note 24), the IDC and LME also agreed to the payment of an additional amount. The additional amount is a derivative financial instrument, the host of which being the redeemable cumulative preference shares.

The value of the option is dependent on a factor of between one and five, which is linked to the date the preference shares are likely to be redeemed. The factor is multiplied by an agreed base price and also multiplied by the difference between the closing price of the holding company’s shares trading on the JSE on redemption date and the strike price of R4.32 offered to the IDC.

The option under consideration was valued by independent professional valuers, using a finite difference scheme for valuation. Assumptions used to value the option includes a probability linked to each of the likely redemption periods, the spot share price of the holding company on date of valuation, a term structure with JIBAR, FRA and swap data as inputs and volatility. The movement on the option is recognised in the statement of profit or loss.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

26 MIne ClosURe and envIRonMental RehabIlItatIon pRovIsIonBalance at the beginning of the year 140 309 452 113 182 856 – – Increase in provision 74 871 945 27 126 596 – –

Additional provision due to new disturbances allocated to property, plant and equipment 79 470 592 20 222 798 – – Rehabilitation work completed – Klip Colliery (2 858 620) – – – Change in estimate recognised in the statement of profit or loss (15 129 590) (387 322) – – Time value of money and inflation component of rehabilitation cost. Refer to note 9 13 389 563 7 291 120 – –


Long-term portion of provision 215 181 397 137 450 832 – – Short-term portion of provision – 2 858 620 – –

215 181 397 140 309 452 – –

The group’s mining and exploration activities are subject to extensive environmental laws and regulations. These laws and regulations are continually changing and are generally becoming more restrictive. Estimated future reclamation costs are based principally on legal and regulatory requirements. The above is a reconciliation of the total liability for environmental rehabilitation.

Refer to note 3 of the accounting policies for the accounting estimates used and judgement applied in calculating rehabilitation provisions. The rehabilitation liability represents management’s best estimate as at year-end. While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the group has estimated that, based on current environmental and regulatory requirements, the total cost for the mines, in the current monetary terms, is approximately R292.7 million (2013: R168.6 million).

The group intends to finance the ultimate rehabilitation costs from the money invested in environmental trust funds and other restricted investments (refer to notes 17 and 18), ongoing contributions, as well as the proceeds on sale of assets at the time of mine closure. The group has guarantees in place relating to the environmental liabilities as follows:

Group

Year to 31 March

2014

Year to 31 March

2013

GuaranteesEnvironmental rehabilitation guarantees issued to the DMR 119 106 337 37 305 951

These guarantees have been issued by third parties, R54.7 million (2013: R27.7 million) in bank deposits, unit trust and exchange traded funds (included in restricted cash – note 17.1 and restricted investments – note 18), as well as a limited indemnity by both Keaton Energy and Keaton Mining are being held as security by these third parties. The company is currently in the process to increase its guarantees to the DMR due to additional disturbances caused during the current financial year.



161

162



Group

Year to31 March

2014

Year to31 March

2013

27 non-CURRent pRovIsIonsvendor provisionBalance at the beginning of the year – –Liability acquired through Xceed asset acquisition 30 071 958 – Discount on provision unwound through profit or loss 503 109 –

vendor provision at year-end 30 575 067 –

Xceed is required to make payments in cash to the founding shareholders of the Moabsvelden Project for the acquisition of 74% of the issued share capital of Neosho. These payments are due at various stages of project development in accordance with a schedule of performance milestones. The performance milestones, their status at 31 March 2014 and their fair values at 31 March 2014 are as follows:

performance milestone

status at 31 March

2014

Fair value at 31 March

2014

Acceptance by the DMR of an application for a Mining Right at Moabsvelden achieved –

Granting of a Mining Right at Moabsvelden achieved –

Commencement of commercial production at Moabsvelden (includes a success fee of 1% of the vendor payment, payable to each of the two advisers)

not yet achieved 30 575 067

The estimated fair value attributable to these future payments has been determined using a discount rate of 9.9%. During the prior periods, the group made a milestone payment of R26.4 million in respect of the granting of a Mining Right at Moabsvelden by the DMR.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

28 tRade and otheR paYablesFinancial liabilitiesTrade and other payables(1) 191 230 363 205 562 783 778 495 312 879 Sundry payables and accrued expenses(2) 18 644 063 8 213 602 214 490 198 754 non-financial liabilitiesValue added tax 4 675 519 377 044 – – Payroll accruals(3) 11 729 861 14 481 653 3 263 484 1 803 869 Income received in advance 821 634 1 166 038 – –

227 101 440 229 801 120 4 256 469 2 315 502

The following payment guarantees exist:Payment guarantees issued to major suppliers 16 057 000 13 543 000 – –

These guarantees have been issued by third parties. R4.5 million (2013: R4.5 million) in bank deposits (included in restricted cash – note 17) are being held by third parties for the guarantees as security.

(1) Included in trade and other payables are amounts of R33 million owing to DRA Mineral Projects Proprietary Limited and R42.5 million owing to Megacube Mining Proprietary Limited. The group is disputing these amounts. Refer to note 31 in this regard.

(2) Included in sundry payables and accrued expenses is a provision of R7.5 million (2013: R3.4 million) for transportation costs of anthracite to RBCT.(3) Payroll accruals These accruals comprise leave pay accrual, bonus accrual and other salary accruals. The leave pay accrual relates to vesting leave pay to which

employees may become entitled on leaving the employment of the group. The accrual arises as employees render a service that increases their entitlement to future compensated leave and is calculated based on an employee’s total cost of employment. The bonus accrual consists of both a guaranteed portion and a performance-based portion based on the employee’s achievement of performance targets. The employee must be in service at date of payment to qualify for the performance bonus.

29 RetIReMent planprovident fundThe majority of the group’s salaried employees are members of the KATS provident fund, Keaton Mining provident fund, and LME provident fund. These funds are classified as defined contribution funds.

The provident funds are operated by Liberty Corporate Benefits on behalf of KATS, Keaton Mining and LME, are domiciled in the Republic of South Africa and are governed by the Pension Funds Act (Act No 24 of 1956).

The total cost recognised in the statement of profit or loss for the year of R4.8 million (2013: R5.9 million) represents contributions payable to these funds by the group at rates specified in the rules of the provident fund.



163

164



Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

30 notes to the stateMents oF Cash Flows

30.1 Cash generated from/(utilised in) operationsNet profit/(loss) before taxation 102 397 578 (171 608 605) 59 474 868 60 215 944 Adjustments for:

Impairment of investments in subsidiaries – – 4 453 489 2 342 203 Loss on derecognition of property, plant and equipment – 51 173 671 – – Finance income (2 834 446) (2 109 111) (264 673) (246 833)Finance costs 50 567 823 34 307 849 62 544 12 051 Depreciation and amortisation 348 011 486 227 130 704 – – Share appreciation rights expenses 6 291 521 6 316 078 4 546 722 4 440 205 Loss/(profit) on disposal of property, plant and equipment 12 484 (874 106) – – Loss on disposal of intangible asset 50 544 – – – Unrealised foreign exchange losses 9 225 014 9 976 511 – Change in estimate – environmental rehabilitation (15 129 590) (387 322) – – Fair value gains on financial instruments through profit and loss (780 786) (2 484 669) – – Net realisable value adjustment on inventory 3 307 225 – – – Non-cash items included in revenue from subsidiaries – – (92 471 592) (82 011 269)

Changes in working capital (66 961 897) 66 322 118 (2 918 407) (1 205 578)Inventory 12 892 546 (5 766 523) – – Trade and other receivables (65 724 560) 19 109 999 (4 859 374) (762 012)Trade and other payables (14 129 883) 52 978 642 1 940 967 (443 566)

434 156 956 217 763 118 (27 117 049) (16 453 277)

30.2 taxation paidBalance at the beginning of the year (838 485) (613 664) (838 485) (613 664)Current income taxation (3 283 199) (2 343 450) (2 195 830) (2 758 351)Balance at the end of the year 1 280 692 838 485 193 331 838 485

Paid during the year (2 840 992) (2 118 629) (2 840 984) (2 533 530)

30.3 Investment in subsidiary companiesIncrease in the carrying amount – – (108 590 133) (85 716 268)Acquisition of subsidiary – – 194 656 714 – Interest and preference dividends capitalised – – 92 471 592 82 011 269 Impairment loss – – (4 453 489) (2 342 203)

– – 174 084 684 (6 047 202)

31 ContInGent lIabIlItIes, CoMMItMents and leGal dIspUtesThe group has the following contingent liabilities, commitments and legal disputes:

Contingent commitmentsThe company has entered into the shareholders’ agreements with the external shareholders in the company’s exploration subsidiaries. The external shareholder has the option to sell to the company (all and not part of) its shares in the exploration subsidiary for a purchase price equal to the fair market value of such shares. The put option is exercisable by written notice at any time for a period of 30 days commencing on the later of 2 May 2014 and the date of fulfilment of the last condition precedent contained in the put option paragraph. The purchase consideration shall be satisfied by the issue by the company to the external shareholder of such number of Keaton Energy ordinary shares which shall be equal to the purchase consideration. In calculating the value of such Keaton Energy ordinary shares, the parties shall use the volume weighted average price of the ordinary shares (post-listing) as traded on the JSE over the 10 trading days immediately preceding the exercise of the put option. The put option is subject to the suspensive conditions that at the time of exercise of the put option the exploration subsidiary will not suffer any prejudice or adverse effects in terms of the Broad-Based Black Economic Empowerment Act 2003, the provisions of any charter, the MPRDA or any law relating to empowerment and that all statutory and regulatory permissions and authorities required to be able to exercise such put option are obtained within 150 days of the exercising of the option. Refer to note 40, significant events after 31 March 2014 up to date of this report.

During the 2010 financial year, Keaton Mining, a 74% subsidiary of the company, entered into an agreement with a consortium representing certain landowners at its Sterkfontein Project (Bethal). This agreement will govern future negotiations between Keaton Mining and the landowners in terms of its exploration and mining activities, as well as land access and acquisitions. The parties have also agreed certain payment mechanisms (for coal to be mined) for future compensation as required in terms of the MPRDA.

legal disputesKeaton Mining vs DRA Mineral Projects Proprietary Limited (DRA)Included in trade and other payables (note 28) is an amount of R33 million which DRA contends is owing to it as reported in Keaton Energy’s Integrated Annual Report for the year ended 31 March 2013. The litigation relates to whether the amount claimed by DRA is due and payable (due to various alleged breaches of the design, supply, construction and commissioning of the Vanggatfontein Coal Plant phase two processing agreement by DRA). Keaton Mining has lodged several counterclaims against DRA and the litigation is ongoing.

Keaton Mining vs Megacube Mining Proprietary Limited (Megacube)Included in trade and other payables (note 28) is an amount of R42.5 million for contract mining services rendered by Megacube to Keaton Mining for the period June 2012 to July 2012. As a result of several alleged breaches of the contract mining agreement, Keaton Mining disputes that this amount is due and owing to Megacube. As a result of Megacube’s breaches of the contract mining agreement, Keaton Mining has lodged several counterclaims against Megacube for damages and losses sustained. Keaton Mining delivered a notice of termination of the agreement to Megacube on 16 May 2012 in accordance with the provisions of the agreement and subsequently terminated the agreement on 5 July 2012. The litigation is ongoing.



165

166



31 ContInGent lIabIlItIes, CoMMItMents and leGal dIspUtes (continued)

Group

Year to 31 March

2014R

Year to 31 March

2013R

Capital commitmentsAuthorised but not contracted 61 361 450 66 844 971

Authorised and contracted 1 548 272 3 863 621

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

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

32 opeRatInG lease paYMentsLease payments(1) 1 365 852 1 376 640 – –

Recognised in profit and loss 1 365 852 1 376 640 – –

Non-cancellable operating lease rentals are payable as follows:(1)

Less than one year 1 527 861 1 297 052 – – Two to five years 2 364 886 – – –

Total 3 892 747 1 297 052 – –

(1) Mainly consists of leases relating to the rent of the head office building and the weighbridges at Keaton Mining’s Vanggatfontein Mine.

33 FInanCIal InstRUMentsoverviewThe group’s financial instruments expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and other price risk), credit risk and liquidity risk. The group may use derivative financial instruments to hedge certain risk exposures.

This note presents information about the group’s level of exposure to each of the above risks, the group’s objectives, policies and processes for measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board has overall responsibility for the establishment and oversight of the group’s risk management framework. The Risk Committee is responsible for developing and monitoring the group’s risk management policies. This Committee reports at least quarterly to the Board on its activities.

The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the group’s activities. The group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the group’s risk management framework in relation to risks faced by the group. Internal audit assists the Audit Committee in its oversight role. It undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

The group’s financial instruments are set out below:

Loans and receivables

R

Held-to-maturity

investmentsR

At fair value through profit

or loss financial assets

(designated)R

Financial liabilities at amortised

costR

Groupat 31 March 2014Investments and loans 5 151 877 – – – Restricted investments – 3 452 896 47 268 749 – Restricted cash – 7 423 204 – – Trade and other receivables 143 153 255 – – – Cash and cash equivalents 69 556 044 – – – Borrowings – – – 393 550 623 Long-term financial liabilities – – 604 497 – Vendor provision – – – 30 575 067 Trade and other payables – – – 209 874 426

at 31 March 2013Restricted investments – – 26 682 869 – Restricted cash – 7 423 204 – – Trade and other receivables 75 969 657 – – – Cash and cash equivalents 19 614 150 – – – Borrowings – – – 284 818 118 Long-term financial liabilities – – 303 161 – Trade and other payables – – – 213 776 385



167

168



Loans and receivables

R

Held-to-maturity

investmentsR

At fair value through profit

or loss financial assets

(designated)R

Financial liabilities at amortised

costR

33 FInanCIal InstRUMents (continued)Companyat 31 March 2014Loans to subsidiaries 140 089 881 – – – Preference shares in subsidiaries 502 767 295 – – – Restricted cash – 1 418 581 – – Trade and other receivables 4 507 635 – – – Cash and cash equivalents 2 119 338 – – – Trade and other payables – – – 992 985

at 31 March 2013Loans to subsidiaries 221 111 535 – – – Preference shares in subsidiaries 507 812 223 – – – Restricted cash – 1 418 581 – – Trade and other receivables – – – – Cash and cash equivalents 421 656 – – – Trade and other payables – – – 511 633

Credit riskCredit risk is the risk that a counterparty may default or not meet its obligations timeously. Financial instruments, which subject the group to concentrations of credit risk, consist predominantly of restricted cash, trade and other receivables (excluding non-financial instruments), and cash and cash equivalents.

Exposure to credit risk on trade and other receivables is monitored on a regular basis to ensure that customers remain within the negotiated terms. Customers are assessed on an individual basis to determine terms and conditions of sale transactions to limit the group’s exposure to impairments. The group uses a credit agency, Experian, to recommend the appropriate credit terms of each new customer. Refer to note 20 for an analysis of the movement in allowance for impairment on trade and other receivables.

The group limits its counterparty exposures from its restricted cash and cash and cash equivalents by only dealing with well-established financial institutions of high quality credit standing. At the reporting date all of the group’s cash resources were deposited with reputable financial institutions of quality credit standing. The group has developed cash investment guidelines to ensure no significant concentration of credit risk.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

33 FInanCIal InstRUMents (continued)Credit risk (continued)Cash and cash equivalents and restricted cashFinancial institutions’ credit rating by exposure:AA- 633 965 – – –BBB 69 977 442 27 037 354 4 955 884 1 840 237 BBB- 6 367 841 – 617 –

Cash and cash equivalents and restricted cash 76 979 248 27 037 354 4 956 501 1 840 237

Restricted cash included aboveBBB 1 448 204 1 219 842 1 418 581 1 418 581 BBB- 5 975 000 6 203 362 – –

Total restricted cash 7 423 204 7 423 204 1 418 581 1 418 581

The maximum exposure to credit risk is represented by the carrying amount of all financial asset determined to be exposed to credit risk at the reporting date. The total exposure at 31 March 2014 for the group was R276.0 million (31 March 2013: R129.7 million). The total exposure at 31 March 2014 for the company was R8.0 million (31 March 2013: R1.8 million). These are illustrated in the table under the overview section.

liquidity riskLiquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due, by delivering cash or another financial asset. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. In the ordinary course of business, the group receives cash from its operations and is required to fund working capital and capital expenditure requirements. The group’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient marketable securities or cash resources either from operations or committed credit facilities to meet its liabilities when it falls due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. Refer to a maturity analysis under the market risk section below. The group has also provided indemnities to third parties in terms of certain unfunded guarantees (refer note 28). Surplus cash is managed by investing in a manner to achieve market-related returns and to provide sufficient liquidity at the minimum risk. The group does not consider the long term financial liabilities (IDC option) to have a material impact on liquidity risk.



169

170



TotalR

CurrentR

Between one and two

yearsR

Between two and five

yearsR

Over five years

R

33 FInanCIal InstRUMents (continued)liquidity risk (continued)The following are the contractual maturities of financial liabilities (non-derivative):Group31 March 2014Borrowings 393 550 623 51 712 852 68 568 047 273 269 724 – Interest on borrowings 83 668 496 27 712 731 26 958 282 28 997 483 – Vendor provision 30 575 067 – 30 575 067 – – Trade and other payables (excluding non-financial liabilities) 209 874 426 134 282 152 75 592 274 – –

717 668 612 213 707 735 201 693 670 302 267 207 –

31 March 2013Borrowings 284 818 118 49 428 420 56 642 612 178 747 086 – Interest on borrowings 73 421 966 33 713 629 24 103 935 15 604 402 – Trade and other payables (excluding non-financial liabilities) 213 776 385 135 421 996 78 354 389 – –

572 016 469 218 564 045 159 100 936 194 351 488 –

Company31 March 2014Trade and other payables (excluding non-financial liabilities) 992 985 992 985 – – –

992 985 992 985 – – –

31 March 2013Trade and other payables (excluding non-financial liabilities) 511 633 511 633 – – –

511 633 511 633 – – –

Capital risk managementThe group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business in a way that optimises the cost of capital and matches the current strategic business plan. There were no changes to this policy during the year. The Board monitors both the demographic spread of shareholders, as well as the return on capital. Capital is defined as total shareholders’ equity, excluding non-controlling interests. The group’s target return on capital, once all operations are fully ramped-up, is between 15% and 20%.

The group’s externally invested funds produced income for the year of R2.8 million (2013: R2.1 million). This equates to an average return of 3.0% (2013: 1.3%) before tax.

The company’s funds invested in its subsidiaries’ mining operations and exploration projects earn a return of between prime plus 2 and 5% before tax, cumulative and compounded quarterly. The company only recognises this return once a proved and probable reserve has been declared in a subsidiary. The income for the year from the company’s financial assets were R105.0 million (2013: R86.2 million). This equates to an average return of 15.2% (2013: 12.6%) before tax.

The group's externally imposed capital requirements are that of the Investec Bank Limited loan and previously Nedbank Limited Loan. The group has complied with all the requirements present for the year 31 March 2014 and 2013, as detailed in note 24.

Refer to the table on page 171 for the achieved group debt to equity ratio.

Group

Year to 31 March

2014R

Year to 31 March

2013R

33 FInanCIal InstRUMents (continued)Capital risk management (continued)The group’s net debt to equity ratio as at the end of the reporting period was as follows:Interest-bearing debt 393 550 623 284 818 118 Less: Cash and cash equivalents (69 556 044) (19 614 150)

Net debt 323 994 579 265 203 968

Total equity 916 216 589 686 036 880

Net debt to equity ratio 35% 39%

Market risk(i) Foreign exchange riskThe group is exposed to foreign exchange risk primarily with respect to the USD. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

The group is mainly exposed to foreign exchange risk arising from borrowings denominated in a currency other than the functional currency. The group generally does not enter into forward sales, derivatives or other hedging arrangements to manage this risk.

Group Company

Year to 31 March

2014Usd

Year to 31 March

2013USD

Year to 31 March

2014Usd

Year to 31 March

2013USD

exposure to foreign exchange riskUnsecured loans 5 824 323 6 504 565 – –

Net exposure 5 824 323 6 504 565 – –

average for the year

2014

Year end spot rate

2014

Average for the year

2013

Year end spot rate

2013

ZAR to USD 10.11 10.57 8.49 9.23



171

172



33 FInanCIal InstRUMents (continued)sensitivity analysisThe group has reviewed its foreign currency exposure on financial assets and financial liabilities and has identified the following sensitivities for a 10% change in the exchange rate that will impact profit or loss (no impact on statement of changes in equity):

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

ZaR against the UsdIncrease by 10% (6 155 611) (5 895 444) – –

Decrease by 10% 6 155 611 5 895 444 – –

(ii) Cash flow and fair value interest rate riskWorking capital and capital expenditure requirements are funded through cash generated by operations and the loan facilities provided to group entities. The group’s interest rate risk arises mainly from long-term borrowings, cash and bank balances and restricted cash. The group has mainly variable interest rate borrowings. Variable rate borrowings expose the group to cash flow interest rate risk that will impact profit or loss. The group has not entered into any agreements, such as hedging, to manage this risk. The group’s Risk Committee meets at least quarterly to specifically address and manage these risks.

sensitivity analysisA change of 100 basis points in interest rates at the reporting date would have increased/(decreased) profit before tax by the amounts shown in the table below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis as in 2013.

Group Company

Year to 31 March

2014R

Year to 31 March

2013R

Year to 31 March

2014R

Year to 31 March

2013R

Increase by 100 basis points (2 489 276) (1 919 989) 6 885 795 6 959 754

Decrease by 100 basis points 2 489 276 1 919 989 (6 885 795) (6 959 754)

33 FInanCIal InstRUMents (continued)In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates the periods in which they mature:

Fixed or variable

rateTotal

R

Maturing – less than

six months(1)

R

Maturing – between six months and

one year(1)

R

Maturing –one to

five years(1)

R

Maturing –over

five years(1)

R

Groupat 31 March 2014Financial assets

Restricted investments Variable 50 721 645 – 3 452 896 – 47 268 749

Restricted cash(2) Variable 7 423 204 – – 7 423 204 –

Short-term deposits Variable 963 963 – – – Cash in bank and on hand Variable 69 555 081 69 555 081 – – –

127 700 893 69 556 044 3 452 896 7 423 204 47 268 749

Financial liabilities

Borrowings Fixed/variable 393 550 623 33 653 678 18 059 174 341 837 771 –

at 31 March 2013

Financial assets

Restricted investments Variable 26 682 869 – – – 26 682 869Restricted cash(2) Variable 7 423 204 – – 7 423 204 – Short-term deposits Variable 963 963 – – – Cash in bank and on hand Variable 19 613 187 19 613 187 – – –

53 720 223 19 614 150 – 7 423 204 26 682 869


Borrowings Fixed/variable 284 818 118 20 667 013 28 761 407 235 389 698 – (1) It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.(2) These deposits are invested in rolling short-term deposits, but are pledged against mining or Prospecting Right guarantees, Mining Permit Guarantees,

payment guarantees and a property transfer guarantee which all have different maturity dates.



173

174



Fixed or variable

rateTotal

R

Maturing – less than

six months(1)

R

Maturing – between six months and

one year(1)

R

Maturing –one to

five years(1)

R

Maturing –over

five years(1)

R

33 FInanCIal InstRUMents (continued)Companyat 31 March 2014Financial assetsRestricted cash(3) Variable 1 418 581 – – 1 418 581 – Loans to subsidiaries Variable 140 089 881 – – 140 089 881 – Preference shares in subsidiaries Variable 502 767 295 36 000 000 36 000 000 430 767 295 –

Short-term deposits Variable 963 963 – – – Cash in bank and on hand Variable 2 118 375 2 118 375 – – –

646 395 095 38 119 338 36 000 000 572 275 757 –

at 31 March 2013

Financial assets

Restricted cash(3) Variable 1 418 581 – – 1 418 581 – Loans to subsidiaries Variable 221 111 535 – – 221 111 535 – Preference shares in subsidiaries Variable 507 812 223 – – 507 812 223 –

Short-term deposits Variable 963 963 – – – Cash in bank and on hand Variable 420 693 420 693 – – –

730 763 995 421 656 – 730 342 339 –

(1) It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.(3) These deposits are invested in rolling short-term deposits, but are pledged against guarantees that are valid over the life of a Prospecting Right/Mining

Permit.

(iii) other price riskThe group is exposed to the risk of fluctuations in the fair value of its at fair value through profit or loss financial assets as a result of changes in market prices (other than changes in interest rates and foreign currencies). The company generally does not use any derivative instruments to manage this risk.

sensitivity analysisA 1% increase in the underlying JSE traded equity investments within units trust investments funds, with all other variables held constant, would have increased profit or loss by R0.5 million (2013: R0.3 million); an equal change in the opposite direction would have decreased profit or loss by R0.5 million (2013: R0.3 million). The analysis is performed on the same basis as in 2013. The financial assets to which these sensitivities have been performed are disclosed in note 18.

Commodity price sensitivityCommodity price risk exists at the Vaalkrantz operation as disclosed in note 3.1. The group did not consider there to be any other significant concentration of commodity price risk, as the majority of sales are bound by negotiated rates for commodities that escalate annually based on a contractually agreed basket of indicators.

Fair value determinationRestricted investments and long-term financial liabilities are carried at fair value. The carrying values (less any impairment allowance) of restricted cash, cash and cash equivalents, investments and loans, trade and other receivables, borrowings (excluding IDC preference shares), vendor provision and trade and other payables are assumed to approximate their fair values. Refer to table below for determination of financial assets and liabilities’ fair values.

the table below presents the group’s fair value measurement hierarchy:(1) Quoted prices (unadjusted) in active markets for identical assets (Level 1).(2) Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (that is, as prices)

or indirectly (that is, derived from prices) (Level 2).(3) Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (Level 3).

Carrying amount

R

Fair value

Accounting classificationLevel 1

R Level 2

R Level 3

R

33 FInanCIal InstRUMents (continued)31 March 2014GroupFinancial assetsRestricted investments At fair value through profit or loss

financial assets (designated) 47 268 749 47 268 749Financial liabilitiesLong-term financial liabilities At fair value through profit or loss

financial assets (designated) 604 497 604 497 Borrowings (IDC preference shares)

Financial liabilities at amortised cost 27 989 417 29 643 243

CompanyFinancial assetsLoans to subsidiaries Loans and receivables 140 089 881 152 588 181 Preference shares in subsidiaries

Loans and receivables 502 767 295 616 241 848

31 March 2013GroupFinancial assetsRestricted investments At fair value through profit or loss

financial assets (designated) 26 682 869 26 682 869 Financial liabilitiesLong-term financial liabilities At fair value through profit or loss

financial assets (designated) 303 161 303 161 Borrowings (IDC preference shares)

Financial liabilities at amortised cost 24 566 339 26 414 615

CompanyFinancial assetsLoans to subsidiaries Loans and receivables 221 111 535 164 993 057 Preference shares in subsidiaries

Loans and receivables 507 812 223 562 553 341

basis for determining fair valuesThe following table shows the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used.

Type Valuation technique Significant unobservable inputs

Interrelationship between unobservable inputs and fair value measurement

Financial assets

Loans to subsidiariesPreference shares in subsidiaries

Discounted cash flows: considers the present value of the expected payments discounted using risk adjusted discount rates.

• Risk adjusted rate of 9% (2013: 10%).

• Forecast repayment terms.

The estimated fair value would (increase)/decrease pending changes to the unobservable inputs.


Long-term financial liabilities

Refer to note 25 for the valuation technique used.

The value of the option is dependent on a factor of between one and five, which is linked to the date the preference shares are likely to be redeemed.

Refer to note 25 for additional interrelationships on the unobservable inputs.

Financial liabilitiesBorrowings

(IDC preference shares)

Discounted cash flows: considers the present value of the expected payments discounted using risk adjusted discount rates.

• Risk adjusted rate of 9% (2013: 10%).

• Forecast repayment terms.

The estimated fair value would (increase)/decrease pending changes to the unobservable inputs.



175

176



34 seGMent RepoRt FoR the YeaR ended 31 MaRCh 2014

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Vanggatfontein Colliery(1) (5) 1 127 215 331 645 859 781 545 060 021 98 139 784 (308 632 449) (184 640 885) 236 427 572 (86 501 101) 910 519 192 807 140 415 1 177 758 995 1 135 923 752 Sterkfontein Project – – – – – – – – 65 924 322 65 512 888 60 946 777 56 782 921 Keaton Energy Holdings Limited(2) 108 178 337 90 490 337 59 272 739 59 981 162 – – 59 272 739 59 981 162 962 793 894 801 362 823 4 449 796 4 061 094 Keaton Administrative and Technical Services Proprietary Limited(2) 26 468 973 20 241 749 (537 530) 1 917 487 (583 951) (208 675) (1 121 481) 1 708 812 10 752 757 7 424 245 20 887 874 16 186 376 Vaalkrantz Colliery(1) (6) 245 389 932 272 947 606 2 118 963 30 826 149 (39 417 314) (42 257 618) (37 298 351) (11 431 469) 176 429 217 196 697 237 294 685 179 329 598 778 Leeuw Braakfontein Project – – (9 420 482) (9 999 080) – – (9 420 482) (9 999 080) 331 212 382 317 199 376 81 156 204 67 247 505 Koudelager Project – – – – – – – – 25 989 939 23 552 160 – – Moabsvelden Project(2) 175 000 – (278 288) – – (278 288) 294 141 201 26 812 424 – Other segments(2) (3) 450 000 – (1 745 230) (1 367 927) – – (1 745 230) (1 367 927) 330 818 627 19 667 022 109 420 768 23 083 439

Total segments 1 507 877 573 1 029 539 473 594 470 193 179 497 575 (348 633 714) (227 107 178) 245 836 479 (47 609 603) 3 108 581 531 2 238 556 166 1 776 118 017 1 632 883 865

Reconciliation to statements of profit or loss and other comprehensive income and financial position Intersegment, deferred tax and other consolidation adjustments(7) (135 272 310) (110 732 086) (95 705 524) (91 800 264) – – (95 705 524) (91 800 264) (1 236 714 149) (809 095 594) (820 467 224) (889 460 173)

1 372 605 263 918 807 387 498 764 669 87 697 311 (348 633 714) (227 107 178) 150 130 955 (139 409 867) 1 871 867 382 1 429 460 572 955 650 793 743 423 692 Net finance cost(4) (47 733 377) (32 198 738)

net profit/(loss) before taxation 102 397 578 (171 608 605)

total assets and liabilities 1 871 867 382 1 429 460 572 955 650 793 743 423 692 (1) Revenue represents sales to external customers only.(2) Revenue represents intersegment sales only.(3) Includes the subsidiaries Amalahle Exploration Proprietary Limited, Labohlano Trading 46 Proprietary Limited, Ausco Finance Proprietary Limited, Ausco

Services Proprietary Limited, Xceed Resources Limited, Focus Coal Investments Proprietary Limited and the Balgray Prospecting Rights.(4) Net finance cost is not reported as forming part of each segment profit or loss as these are not measured or reported to the chief operating decision maker

(CODM) in connection with the segment but rather on a collective company/group basis.(5) Coal sales to a major customer exceeded 92% (2013: 91%).(6) Coal sales to two major customers amounted to 46% and 37% respectively (2013: three major customers 36%, 41% and 17%).(7) During the current financial reporting period the group changed the information that it presents to the CODM. The group no longer presents deferred tax

assets and liabilities per segment, but instead only considers deferred tax assets and liabilities on a group-wide basis. Accordingly, deferred tax assets and liabilities are now shown as a reconciling item between reportable segments and IFRS reported figures. For the prior period the segment report has not been restated to reflect this change, as management is of the view that the change in reportable amounts is not material.

Revenueoperating profit/(loss) before

depreciation/amortisation depreciation/amortisationoperating profit/(loss) after depreciation/amortisation segment assets segment liabilities

34 seGMent RepoRt FoR the YeaR ended 31 MaRCh 2014

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Year to 31 March

2014

Year to 31 March

2013

Vanggatfontein Colliery(1) (5) 1 127 215 331 645 859 781 545 060 021 98 139 784 (308 632 449) (184 640 885) 236 427 572 (86 501 101) 910 519 192 807 140 415 1 177 758 995 1 135 923 752 Sterkfontein Project – – – – – – – – 65 924 322 65 512 888 60 946 777 56 782 921 Keaton Energy Holdings Limited(2) 108 178 337 90 490 337 59 272 739 59 981 162 – – 59 272 739 59 981 162 962 793 894 801 362 823 4 449 796 4 061 094 Keaton Administrative and Technical Services Proprietary Limited(2) 26 468 973 20 241 749 (537 530) 1 917 487 (583 951) (208 675) (1 121 481) 1 708 812 10 752 757 7 424 245 20 887 874 16 186 376 Vaalkrantz Colliery(1) (6) 245 389 932 272 947 606 2 118 963 30 826 149 (39 417 314) (42 257 618) (37 298 351) (11 431 469) 176 429 217 196 697 237 294 685 179 329 598 778 Leeuw Braakfontein Project – – (9 420 482) (9 999 080) – – (9 420 482) (9 999 080) 331 212 382 317 199 376 81 156 204 67 247 505 Koudelager Project – – – – – – – – 25 989 939 23 552 160 – – Moabsvelden Project(2) 175 000 – (278 288) – – (278 288) 294 141 201 26 812 424 – Other segments(2) (3) 450 000 – (1 745 230) (1 367 927) – – (1 745 230) (1 367 927) 330 818 627 19 667 022 109 420 768 23 083 439

Total segments 1 507 877 573 1 029 539 473 594 470 193 179 497 575 (348 633 714) (227 107 178) 245 836 479 (47 609 603) 3 108 581 531 2 238 556 166 1 776 118 017 1 632 883 865

Reconciliation to statements of profit or loss and other comprehensive income and financial position Intersegment, deferred tax and other consolidation adjustments(7) (135 272 310) (110 732 086) (95 705 524) (91 800 264) – – (95 705 524) (91 800 264) (1 236 714 149) (809 095 594) (820 467 224) (889 460 173)

1 372 605 263 918 807 387 498 764 669 87 697 311 (348 633 714) (227 107 178) 150 130 955 (139 409 867) 1 871 867 382 1 429 460 572 955 650 793 743 423 692 Net finance cost(4) (47 733 377) (32 198 738)

net profit/(loss) before taxation 102 397 578 (171 608 605)

total assets and liabilities 1 871 867 382 1 429 460 572 955 650 793 743 423 692 (1) Revenue represents sales to external customers only.(2) Revenue represents intersegment sales only.(3) Includes the subsidiaries Amalahle Exploration Proprietary Limited, Labohlano Trading 46 Proprietary Limited, Ausco Finance Proprietary Limited, Ausco

Services Proprietary Limited, Xceed Resources Limited, Focus Coal Investments Proprietary Limited and the Balgray Prospecting Rights.(4) Net finance cost is not reported as forming part of each segment profit or loss as these are not measured or reported to the chief operating decision maker

(CODM) in connection with the segment but rather on a collective company/group basis.(5) Coal sales to a major customer exceeded 92% (2013: 91%).(6) Coal sales to two major customers amounted to 46% and 37% respectively (2013: three major customers 36%, 41% and 17%).(7) During the current financial reporting period the group changed the information that it presents to the CODM. The group no longer presents deferred tax

assets and liabilities per segment, but instead only considers deferred tax assets and liabilities on a group-wide basis. Accordingly, deferred tax assets and liabilities are now shown as a reconciling item between reportable segments and IFRS reported figures. For the prior period the segment report has not been restated to reflect this change, as management is of the view that the change in reportable amounts is not material.

Revenueoperating profit/(loss) before

depreciation/amortisation depreciation/amortisationoperating profit/(loss) after depreciation/amortisation segment assets segment liabilities



177

178



34 seGMent RepoRt FoR the YeaR ended 31 MaRCh 2014 (continued)vanggatfontein CollieryThe Vanggatfontein Colliery is an operating colliery in South Africa’s Mpumalanga province, some 80km east of Johannesburg. The colliery first produced 5-seam coal in December 2010 with the production of 2- and 4-seam thermal coal following in June 2011. Vanggatfontein delivered 2 192 519 tonnes of washed 2- and 4-seam thermal coal to Eskom during the 2014 financial year (2013: 1 509 681 tonnes). 5-seam metallurgical coal sales increased to 97 635 tonnes in 2014 (2013: 65 661 tonnes).

vaalkrantz CollieryThe Vaalkrantz Anthracite Colliery is near Vryheid in South Africa’s KwaZulu-Natal province and has been in production since 2003. The colliery sold 303 837 tonnes of anthracite to domestic and international metallurgical markets during the 2014 financial year (2013: 326 597 tonnes).

sterkfontein projectKeaton Energy’s Sterkfontein Project is located in the magisterial district of Bethal on the Highveld Coalfield in the Mpumalanga province. The project covers a total area of 8 020 hectares, for which a 90.8 million tonne coal resource and 23.6 million tonne underground run-of-mine coal reserve have been declared. The 4-lower seam averages 1.93m in thickness over the total project area and will on average yield 43% export quality thermal coal and 22% domestic power station steam coal.

leeuw braakfontein projectThe Leeuw Braakfontein Project is located 10km south-east of Newcastle, KwaZulu-Natal. The project has a mining right and the group owns the surface rights. A resource of 64.9 million tonnes and a reserve of 24.9 million tonnes have been declared.

Moabsvelden projectThe Moabsvelden Project is located in South Africa’s Mpumalanga province, in close proximity of the Vanggatfontein Colliery. First ROM production is planned to start between July and August 2015. A resource of 55.5 million tonnes and a reserve of 42.6 million tonnes have been declared.

Koudelager projectThe Koudelager Anthracite Project will provide future run-of-mine anthracite production to the Vaalkrantz Plant and is situated some 40km from the Vaalktantz Colliery. A resource of 12.3 million tonnes has been declared.

Keaton energy holdings limitedKeaton Energy Holdings Limited holds the group’s interest in the operating subsidiaries and provides funding to those subsidiaries in terms of preference share subscription agreements and loan agreements entered into between each subsidiary and KEHL.

Keaton administrative and technical services proprietary limitedKeaton Administrative and Technical Services, a 100% held subsidiary of KEHL, owns the group’s head office assets and provides management, technical and administrative services to the group’s operating and exploration subsidiaries.

other segmentsOther segments include the subsidiaries Amalahle Exploration Proprietary Limited, Labohlano Trading 46 Proprietary Limited, Ausco Finance Proprietary Limited, Ausco Services Proprietary Limited, Xceed Resources Limited, Focus Coal Investments Proprietary Limited, Klip Colliery and the Balgray Prospecting Rights.

assets not allocated to segmentsThe other assets represent VAT receivables and deferred tax assets and, due to their nature, are not allocated to the respective projects discussed above.

35 RemuneRation of diRectoRs The remuneration of the executive directors of the company is set out in the table below:

executive director

Basic salary

R

Travel allowance

R

Medical aid

R

Groupbenefits

R

Leavepay

R

Termination pay

R

Performance bonuses

RTotal

R

2014Paid by the company:AB Glad 2 687 049 240 000 83 682 150 807 – – 1 300 000 4 461 538 J Rossouw 2 191 360 – 75 044 372 058 – – 1 000 000 3 638 462

4 878 409 240 000 158 726 522 865 – – 2 300 000 8 100 000

2013Paid by the company:AB Glad 2 198 258 240 000 75 249 123 612 – – 1 166 227 3 803 346 RA Karstel* 631 948 – 17 394 70 033 – 1 764 130 – 2 483 505 PBM Miller** 467 984 – 24 018 87 308 – – – 579 310 J Rossouw 1 832 347 – 62 893 312 773 – – 466 194 2 674 207

5 130 537 240 000 179 554 593 726 – 1 764 130 1 632 421 9 540 368

* Appointed 1 July 2012. Resigned during September 2012.** Resigned 30 June 2012.



179

180

Notes to the fiNaNcial statemeNts coNtiNued

foR the YeaR eNded 31 maRch 2014

35 RemuneRation of diRectoRs (continued)The movement in the number of share appreciation rights of the executive directors of the company is set out in the table below:

executive director

Opening balance

Number of shares

Share appreciation

rights awarded

during the year

Shareappreciation

rights exercised/

lapsed during the

yearClosing

balanceVesting

dates

Offer price

R

share appreciation

rights#

(unrealised) 31 march

2014R

Share appreciation

rights#

(unrealised) 31 March

2013R

PBM Miller** 981 070 – – 981 070 30 Jun 13 4.67 – 542 537 PBM Miller** 1 954 451 – – 1 954 451 31 Mar 14 2.52 – 582 773 PBM Miller** 1 752 746 – – 1 752 746 30 Nov 14 2.81 – 586 830 AB Glad 569 727 – – 569 727 30 Jun 13 4.67 78 766 315 062 AB Glad 1 134 989 – – 1 134 989 31 Mar 14 2.52 338 428 338 428 AB Glad 1 017 855 – – 1 017 855 30 Nov 14 2.81 341 720 340 784 AB Glad 1 284 431 – – 1 284 431 31 Mar 15 3.34 736 931 734 912 AB Glad – 3 150 000 – 3 150 000 31 Mar 16 1.44 723 315 – J Rossouw 355 872 – – 355 872 30 Nov 14 2.81 119 476 119 148 J Rossouw 1 616 766 – – 1 616 766 31 Mar 15 3.34 927 606 925 064 J Rossouw – 2 087 250 – 2 087 250 31 Mar 16 1.44 479 283 –

10 667 907 5 237 250 – 15 905 157 3 745 525 4 485 538

non-executive directorJd Salter• – 2 000 000 – 2 000 000 31 Mar 16 1.44 459 248 –

– 2 000 000 – 2 000 000 459 248 –

** Resigned 30 June 2012.# Refer to note 22 for a detailed discussion on the recognition and measurement of share appreciation rights.• Allocated to Dr JD Salter during his appointment as executive chairman.

The remuneration of the Non-executive directors of the company is set out in the table below:

non-executive director

Board member

feesR

Committee fees

RTotal

R

2014Jd Salter*** 287 918 224 129 512 047 d Jonker## 287 918 53 985 341 903 GH Kemp 287 918 173 364 461 282 LX Mtumtum 287 918 230 555 518 473 P Pouroulis 287 918 71 670 359 588 OP Sadler 287 918 137 070 424 988 A Sedibe 287 918 114 857 402 775 JH Schurink**** 22 522 – 22 522

2 037 948 1 005 630 3 043 578 2013Jd Salter*** 272 861 229 783 502 644 d Jonker 271 738 53 548 325 286 GH Kemp 99 418 47 666 147 084 LX Mtumtum 272 861 202 497 475 358 P Pouroulis 272 861 93 353 366 214 OP Sadler 272 861 106 996 379 857 A Sedibe 272 861 117 439 390 300

1 735 461 851 282 2 586 743

*** During 2013, the executive chairman, Dr JD Salter’s remuneration was disclosed as part of non-executive Directors due to the nature of his remuneration. In 2014, Dr JD Salter returned to being a non-executive Director of the group.

**** Appointed 7 March 2014. ## Mr D Jonker resigned with effect from 1 July 2014.

company company

Year to 31 march

2014R

Year to 31 March

2013R

36 Related-paRtY tRansactionsUnless stated otherwise, all related-party transactions are concluded at arm’s length in the normal course of business. All material intergroup transactions are eliminated on consolidation. The following transactions were carried out with related parties:

subsidiariesKeaton administrative and technical services proprietary limited (100% subsidiary)• Intercompany loan balance (interest-free) 6 606 577 6 285 004 • Intercompany loan balance (interest at prime) 7 159 976 6 573 021 • Interest on interest-bearing loan balance 586 956 529 893 • Management fee paid to Keaton energy (excluding VAT) – management,

administration and accounting services 3 149 859 4 548 463 Keaton mining proprietary limited (74% subsidiary)• Preference share investment balance (dividends at prime + 5%) 473 471 536 479 985 037• Interest on preference share investment (dividends at prime + 5%) 69 182 251 55 081 304 • Intercompany loan balance (interest at prime + 2%) – 124 839 648 • Interest on interest-bearing loan balance 11 014 700 11 050 520 • Pledge and cession of cash for the issue of guarantees on behalf of Keaton Mining 933 409 774 648 amalahle exploration proprietary limited (74% subsidiary)• Preference share investment balance (dividends at prime + 5% – not accrued) 8 000 000 8 000 000 • Interest on preference share investment (dividends at prime + 5%) 3 091 000 2 050 000 • Pledge and cession of cash for the issue of guarantees on behalf of Amalahle

exploration 360 000 360 000 mafla coal proprietary limited (74% subsidiary)• Preference share investment balance (dividends at prime + 5% – not accrued) 3 900 000 3 900 000 • Intercompany loan balance (interest at prime + 2% not accrued) 690 969 690 969 • Pledge and cession of cash for the issue of guarantees on behalf of Mafla Coal 125 172 125 172 labohlano trading 46 proprietary limited (74% subsidiary)• Preference share investment balance (dividends at prime + 5% – not accrued) 12 300 000 10 900 000 • Intercompany loan balance (interest at prime + 2%) 101 185 63 507 • Interest 11 745 10 697 leeuw mining and exploration proprietary limited (74% subsidiary)• Preference share investment balance (dividends at prime + 5%) 16 995 834 13 689 574 • Intercompany loan balances (interest at effective interest rate of 117%) 12 625 390 5 066 341 • Intercompany loan balance (interest at prime + 2%) 34 891 384 10 887 471 • Intercompany loan balance (interest at 90-day JIBAR + 7) 71 298 850 63 423 030 • Instalment sale (interest at prime) 10 389 977 12 892 942 • Interest on interest-bearing loan balance 16 873 138 13 350 607 • Interest on preference share investment (dividends at + 22.75%) 3 306 260 2 762 358 • Interest on instalment sale agreement 962 428 1 106 494 izwi coal proprietary limited (60% subsidiary)• Intercompany loan balance (interest-free) 3 014 3 014 • Preference share investment balance (dividends at prime + 5% – not accrued) 860 000 860 000 insthe coal proprietary limited (60% subsidiary)• Intercompany loan balance (interest-free) 1 022 087 1 022 087 Rafcoal mining proprietary limited (74% subsidiary)• Intercompany loan balance (interest-free) 179 940 179 940 Xceed Resources limited (100% subsidiary)• Intercompany loan balance (interest-free) 5 573 667 – ausco services proprietary limited*• Intercompany loan balance (interest-free) 1 578 107 –

* 100% subsidiary of Xceed Resources Limited.



181

182



Group company

Year to 31 march

2014R

Year to 31 March

2013R

Year to 31 march

20 14R

Year to 31 March

2013R

36 Related-paRtY tRansactions (continued)

transactions with other related partiesRoodepoort Hmpl proprietary limited(1)

• Interest-free loan 2 502 343 – – – Bankfontein Hmpl proprietary limited(1)

• Interest-free loan 2 650 134 – – – tharisa minerals proprietary limited• Rental paid – 755 720 – – Gunvor sa(2)

• Anthracite sales 112 530 520 97 652 082 – – Vizirama proprietary limited• Material handling and transportation 26 169 297 19 409 082 – – • Interest-free loan 1 500 000 2 814 385 – – • Payables 2 715 557 – – southlub proprietary limited• Consumables – 784 485 – – • Payables – 257 496 – – Jpi leeuw and associates proprietary limited• Interest-free loan 4 435 961 – 4 435 961 –andisa capital proprietary limited• Foreign exchange risk management 390 198 – 390 198 –

outstanding balances with other related partiesBraeston Corporate and Consulting Services Proprietary Limited (refer below)• Receivable/(payable) – 113 944 – – The balances are unsecured, interest-free and payable within 30 days after year-end.Gunvor sa(2)

• Receivable/(payable) 5 250 000 – – – The balances are unsecured, interest-free and payable within 30 days after year-end.(1) 15% equity investment held.(2) Plusbay is a 34.99% (2013: 23.92%) shareholder of the company and a subsidiary of Gunvor.

Key management compensation31 March 2014Refer to notes 8 and 35. Key management includes the executive directors and the Chief Operating Officer who was appointed on 1 February 2014.

31 March 2013Refer to notes 8 and 35. Key management includes the executive directors of the company, general manager operations and the mine managers at Vanggatfontein and Vaalkrantz.

36 Related-paRtY tRansactions (continued)interest of directors in contracts 31 march 2014A Sedibe is a director of Andisa Capital Proprietary Limited. Andisa Capital Proprietary Limited supplied foreign exchange risk management services to Keaton energy.

31 march 2014 and 2013W Leeuw and A Leeuw resigned as directors of Leeuw Mining and exploration Proprietary Limited on 31 March 2014. They are shareholders and directors of Vizirama Proprietary Limited (Vizirama) and Southlub Proprietary Limited (Southlub). Vizirama supplied material handling and yellow equipment rentals to the group, while Southlub supplied oil and other consumables to the group.

31 march 2013P Pouroulis and Jd Salter are directors of Tharisa Minerals Limited (Tharisa). Tharisa sublet a portion of eland House, The Braes, 3 eaton Road, Bryanston, 2021, to Keaton Administration and Technical Services Proprietary Limited (KATS), a subsidiary of the company. Tharisa earned rental income from the letting of the property and provided property management services to the group in respect of the property. The lease was on a month-to-month basis and covered a total floor area of 456m². The lease was terminated on 30 September 2012.

GeneralSome of the directors of Keaton energy are also directors of its subsidiaries. Various shareholders’ agreements, funding agreements and management agreements exist between the group’s entities.

Other than the interest of directors in contracts listed above, no director of Keaton energy has any material beneficial interests, whether direct or indirect, in transactions that were effected by the group during the current or immediate preceding financial year, that remain in any respect outstanding or unperformed.

37 suBsidiaRY companiesKeaton energy’s interests in subsidiary companies at 31 March 2014 were as follows:

% shareholding

Keaton Administrative and Technical Services Proprietary Limited 100 Keaton Mining Proprietary Limited 74 Amalahle exploration Proprietary Limited 74 Labohlano Trading 46 Proprietary Limited 74 Leeuw Mining and exploration Proprietary Limited 74 Leeuw Braakfontein Colliery Proprietary Limited* 74 Leeuw Koudelager Colliery Proprietary Limited* 74 Leeuw Vaalkrantz Colliery Proprietary Limited* 74 Xceed Resources Limited 100 Focus Coal Investments Proprietary Limited** 100 Neosho Trading 86 Proprietary Limited** 74 Ausco Finance Proprietary Limited** 100 Ausco Services Proprietary Limited** 100

Izwi Coal Proprietary Limited 60

Rafcoal Mining Proprietary Limited 74

Insthe Coal Proprietary Limited 60

Mafla Coal Proprietary Limited 74

* Indirect (subsidiaries of Leeuw Mining and exploration).** Indirect (subsidiaries of Xceed Resources Limited).



183

184



38 diVidendsNo dividends have been declared nor are any proposed for the year ended 31 March 2014 (31 March 2013: R nil).

39 GoinG conceRnAt 31 March 2014, the company and group had adequate funding resources to continue to operate for the foreseeable future and have therefore continued to adopt the going-concern basis in preparing the group’s financial statements. Funding resources are in the form of coal sales secured through eskom and other off-take agreements, the directors’ authority to issue further shares for cash and overdraft facilities. The company has subordinated its claims against a number of its subsidiaries in favour and for the benefit of other creditors of these companies, subject to certain claims and conditions as set out in the subordination agreements.

40 siGnificant eVents afteR 31 maRcH 2014 up to tHe date of tHis RepoRt(i) during May 2014, the external shareholder in one of the company’s subsidiaries exercised its put option as disclosed in

note 31 (contingent liabilities, commitments and legal disputes). The company has started the process of determining the fair market value of such shares and evaluating the necessary statutory and regulatory permissions required to give effect to the put option.

(ii) The company holds a 74% equity interest in LMe. A 26% equity interest in LMe is currently held by JPI Leeuw and Associates Proprietary Limited (JPI). On 27 June 2014, the company entered into a share purchase agreement with JPI to acquire 18% of the equity interest held by JPI in LMe for a purchase consideration of R26 million, with effect 30 September 2014 or such earlier or later date as the company may, in its sole discretion, nominate in writing (effective date).

The purchase consideration payable by the company plus interest to be settled is as follows:• Such portion of the purchase consideration which is equal to the amount owing by JPI to Keaton shall be settled by

way of set-off on 30 June 2014; and• The balance of the purchase consideration, after applying set-off, shall be settled in 11 monthly instalments starting on

30 June 2014 bearing and accruing interest at prime.

All the conditions relating to this acquisition have been fulfilled or waived.

(iii) On 23 June 2014, Mr d Jonker notified the Board of his intention to resign as a Non-executive director with effect from 1 July 2014.

Nature of interestNumber of

ordinary shares

Percentage of issued stated

capital as at year-end

41 diRectoRs’ inteRest in stated capitaldirector31 march 2014P Pouroulis# Indirect, beneficial 41 688 428 18.59Jd Salter# Indirect, beneficial 2 450 000 1.09AB Glad/APe Sedibe# Indirect, beneficial 6 209 260 2.77OP Sadler# direct, beneficial 114 285 0.05

50 461 973 22.50

31 march 2013P Pouroulis# Indirect, beneficial 41 688 428 21.75Jd Salter** Indirect, beneficial 2 450 000 1.28AB Glad*** Indirect, beneficial 11 100 0.01AB Glad/APe Sedibe# Indirect, beneficial 6 209 260 3.24PBM Miller* Indirect, beneficial 2 725 000 1.42PBM Miller* direct, beneficial 1 018 008 0.53OP Sadler# direct, beneficial 114 285 0.06

54 216 081 28.29# non-executive Director.* Resigned June 2012.** executive chairman in 2013.*** Indirect, beneficial shares attributed to AB Glad in 2013 were reported in error. This error was rectified in the current year.

There has been no change in the directors’ interest in the share capital of the company between the end of the financial year and the date of approval of the Annual Financial Statements.

42 diRectoRs’ seRVice contRacts The terms and conditions regulating the provision of services by the executive directors to the company are regulated by employment contracts with the company or its subsidiaries. All executive directors have identical rolling service contracts, containing a six-month notice period. Save for restrictions concerning the non-solicitation of staff for a period of 12 months after termination of employment, the employment contracts do not contain any restraint of trade provisions. The terms and conditions contained in the agreements entered into with the executive directors are normal for agreements of this nature. Unless termination of employment occurs as a result of the misconduct or poor performance of the executive director or his resignation (other than under circumstances of constructive dismissal), death, injury, illness or retirement, upon termination of employment the executive director shall be entitled to a severance payment equal to his annual cost to company employment package less any other payments made or becoming due to the executive director as a result of the termination of employment.



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186

shareholders’ information

186

08analysis of shareholders 188

notice of annual General meeting 189 – 198

form of proxy 199

notes to the form of proxy 200

administration and contact details iBC

shareholders’ information page 186 – 200

187

Keaton energyIntegrated Annual Report 2014

188

as at 31 marCh 2014

analYsis of shareholders

shareholders’ information as at 31 march 2014

analysis of ordinary shareholdersnumber of

shareholdersnumber of

shares

Percentage of issued share

capital

Holdings of <100 000 shares 2 304 19 116 177 8.52Holdings of 100 000 to 499 999 80 15 961 715 7.11Holdings of 500 000 to 999 999 8 5 756 338 2.57Holdings of 1 000 000 to 4 999 999 17 41 873 364 18.67Holdings >5 000 000 6 141 603 385 63.13

Total 2 415 224 310 979 100.00

major shareholdersnumber of

shares


capital

Shareholders holding 10% or morePlusbay Limited 78 476 411 34.99shareholders holding 5% or moreLanga Trust 19 208 428 8.56The Axel Trust 18 480 000 8.24Mrs A Pouroulis 14 898 714 6.64shareholders holding less than 5% Other shareholders 93 247 426 41.57

224 310 979 100.00

Public and non-public shareholders

number of shareholder

accountsnumber of

shares


capital

Public 2 407 95 371 698 42.51Non-publicDirectors and associates of the company and its subsidiaries 7 50 462 870 22.50Persons interested (other than directors), directly or indirectly, in 10% or more 1 78 476 411 34.99

Total 2 415 224 310 979 100.00

notiCe of annual General meetinG

Notice is hereby given that the Annual General Meeting of shareholders of Keaton Energy will be held at 9h30 on Monday the 6th of October 2014 at Indigo 2, Ground Floor, The Forum, Wanderers Building, The Campus (Dimension Data), 57 Sloane Street (corner Main Street) to consider and, if deemed fit, adopt with or without modification, the ordinary and special resolutions as set out in this notice of Annual General Meeting and to deal with such other business as may be dealt with at the Annual General Meeting.

The Board of Directors of the company (the Board) has determined that, in terms of section 62(3)(a), as read with section 59 of the Companies Act, No 71 of 2008, as amended (the Companies Act), the record date for the purpose of determining which shareholders of the company are entitled to participate in and vote at the Annual General Meeting is Friday, 26 September 2014. Accordingly, the last day to trade in the company’s shares in order to be recorded in the register to be entitled to vote will be Thursday, 18 September 2014.

Shareholders are advised that, in terms of section 63(1) of the Companies Act, any person attending or participating in an Annual General Meeting of shareholders must present reasonably satisfactory identification before being entitled to participate in and vote at the Annual General Meeting and the person presiding at the Annual General Meeting must be reasonably satisfied that the right of any person to participate in and vote (whether as shareholder or proxy for a shareholder) has been reasonably verified. Forms of identification that will be accepted include original and valid identity documents, driving licences or valid passports.

resolutions for Consideration and adoPtion

ordinary business

1. Ordinary resolution number 1

Acceptance of Annual Financial Statements

“RESOLVED THAT the audited Annual Financial Statements of the company and the group for the year ended 31 March 2014, including the Directors’ Report, Audit Committee’s Report and Independent Auditor’s Report be and are hereby received and accepted.”

Additional information in respect of ordinary resolution number 1

The complete Audited Annual Financial Statements of the company and the group for the year ended 31 March 2014, including the Directors’ Report, Audit Committee’s Report and Independent Auditor’s Report are included in the Integrated Annual Report of which this notice of Annual General Meeting forms part.

The shareholders are advised that the company’s complete audited Annual Financial Statements for the years ended 31 March 2013 and 31 March 2014 are available on the company’s website at the following address: www.keatonenergy.co.za.

The percentage of voting rights required for ordinary resolution number 1 to be adopted is 50% of the voting rights exercised on such resolution.


Re-election of director

“RESOLVED THAT Mr JHM Schurink, who retires in terms of the company’s Memorandum of Incorporation and who, being eligible, offers himself for re-election, be and is hereby re-elected as a director of the company.”


In terms of clause 32.5.1.2 of the company’s Memorandum of Incorporation, the Board has the power to appoint any person as an additional director to the Board, provided that such appointment is confirmed by the shareholders of the company, in accordance with clause 32.2.1 of the company’s Memorandum of Incorporation, at the next Annual General Meeting of the company.



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Mr JHM Schurink was appointed by the Board as an additional director to the Board on 7 March 2014. Accordingly, Mr JHM Schurink is required, in terms of the company’s Memorandum of Incorporation, to retire at the next Annual General Meeting of the company, but is eligible for re-election. Mr JHM Schurink, being eligible, has offered himself for re-election.

The reason for the proposed ordinary resolution number 2 is to elect, in accordance with the company’s Memorandum of Incorporation and by way of a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy, as required by section 68(1) of the Companies Act, Mr JHM Schurink as a director of the company. The effect of ordinary resolution number 2 is that Mr JHM Schurink will be elected as director of the company.

3. Ordinary resolution number 3 (comprising ordinary resolution numbers 3.1 to 3.3, all inclusive)

Re-election of director

“RESOLVED THAT by way of separate ordinary resolutions, each of: 3.1 Dr JD Salter, who retires in accordance with the company’s Memorandum of Incorporation and who, being eligible,

offers himself for re-election, be and is hereby re-elected as a director of the company and Chairman of the Board. 3.2 Mr P Pouroulis, who retires in accordance with the company’s Memorandum of Incorporation and who, being eligible,

offers himself for re-election, be and is hereby re-elected as a director of the company. 3.3 Mrs APE Sedibe, who retires in accordance with the company’s Memorandum of Incorporation and who, being

eligible, offers herself for re-election, be and is hereby re-elected as a director of the company.”


In terms of clause 32.3.3 of the company’s Memorandum of Incorporation one-third of the Non-Executive directors of the company for the time being are required to retire from office at each Annual General Meeting. The directors of the company to retire in every year shall be those who have been longest in office since their last election, but as between persons who were elected as directors of the company on the same day, those to retire shall, unless otherwise agreed among themselves, be determined by lot. A retiring director shall be eligible for re-election.

Dr JD Salter, Mr P Pouroulis and Mrs APE Sedibe all retire in accordance with clause 32.3.3 of the company’s Memorandum of Incorporation and, being eligible, offer themselves for re-election.

The reason for the proposed ordinary resolution number 3 is to elect, in accordance with the company’s Memorandum of Incorporation and by way of a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy, as required by section 68(1) of the Companies Act, Dr JD Salter as director of the company and chairman of the Board and Mr P Pouroulis and Mrs APE Sedibe as directors of the company. The effect of ordinary resolution number 3 is that Dr JD Salter will be elected as director of the company and Chairman of the Board and Mr P Pouroulis and Mrs APE Sedibe will be elected as directors of the company.

A brief curriculum vitae in respect of each director referred to in ordinary resolutions number 2 and 3 above appears on pages 82 and 83 of the Integrated Annual Report of which this notice of Annual General Meeting forms part. The Board recommends to shareholders the re-election of each of the retiring directors as set out in ordinary resolutions number 2 and 3.

The percentage of voting rights required for ordinary resolutions number 2 and 3 to be adopted is 50% of the voting rights exercised on such resolution.

notiCe of annual General meetinG Continued

4. Ordinary resolution number 4 (comprising ordinary resolution numbers 4.1 to 4.3, all inclusive)

Re-election of the Chairman and the Audit Committee members

“RESOLVED THAT, by way of separate ordinary resolutions: 4.1 Mr LX Mtumtum, be and is hereby re-elected as a member and Chairman of the company’s Audit Committee; 4.2 Mr OP Sadler, be and is hereby re-elected as a member of the company’s Audit Committee; 4.3 Mr GH Kemp, be and is hereby re-elected as a member of the company’s Audit Committee; in terms of section 94(2) of the Companies Act to hold office until the next Annual General Meeting of the company and to

perform the duties and responsibilities stipulated in section 94(7) of the Companies Act and King Report on Governance for South Africa 2009 (King III) and to perform such other duties and responsibilities as may from time to time be delegated by the Board for the company and all of its subsidiary companies.”


In terms of section 94(2) of the Companies Act, a public company must at each Annual General Meeting elect an Audit Committee comprising at least three members who are directors and who meet the criteria of section 94(4) of the Companies Act. In terms of Regulation 42 of the Companies Act Regulations, 2011, one-third of the members of the Audit Committee must have appropriate academic qualifications or experience in economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resources management.

A brief curriculum vitae of each of the Independent Non-Executive Directors mentioned in ordinary resolution number 4 appears on pages 82 and 83 of the Integrated Annual Report of which this notice of Annual General Meeting forms part.

The Board is satisfied that the proposed members of the Audit Committee meet all requirements of section 94(4) of the Companies Act and that they are independent according to King III and that they possess the required qualifications and experience as prescribed in the Companies Act Regulations, 2011.



Re-appointment of external auditors

“RESOLVED THAT KPMG Inc. (with Mr Willem Pretorius being the individual registered auditor), be and is hereby re-appointed as the external auditor of the company and of the group for the financial year ending 31 March 2015 and to hold office until conclusion of the next Annual General Meeting of the company, and that their remuneration for the financial year ending 31 March 2015 be determined by the Audit Committee.”


In accordance with section 90(1) if the Companies Act, KPMG Inc. is proposed to be re-appointed as the external auditors of the company, as nominated by the company’s Audit Committee, until the conclusion of the company’s next Annual General Meeting. The Audit Committee conducted an assessment of the performance and the independence of the external auditors and considered whether or not the external auditors comply with the requirements of sections 90(2) and 90(3) of the Companies Act and section 22 of the JSE Limited (JSE) Listings Requirements and the Board considered and accepted the findings.



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The Board is satisfied that the proposed external auditors, being KPMG Inc., and Mr Willem Pretorius, the individual registered auditor, who will undertake the audit of the company and the group for the financial year ending 31 March 2015, comply with the relevant provisions of the Companies Act and are duly accredited by the JSE.


special business


Control of authorised but unissued shares

“RESOLVED THAT the authorised but unissued shares in the capital of the company limited to 15% of the number of listed equity securities in issue at the date of this notice being 224 310 979 ordinary shares, be and are hereby placed under the control and authority of the directors and that they be and are hereby authorised to allot, issue and grant options over and otherwise dispose of such shares to such persons on such terms and conditions and at such times as they may from time to time and at their discretion deem fit, subject to the provisions of the Companies Act, as may be amended from time to time, the company’s Memorandum of Incorporation and the JSE Listings Requirements. Such authority shall be valid until the date of the next Annual General Meeting of the company or for 15 (fifteen) months from the date on which ordinary resolution number 7 is adopted, whichever period is shorter. ”


The reason for ordinary resolution number 6 is that in terms of the company’s Memorandum of Incorporation and subject to the provisions of the Companies Act, as may be amended from time to time and the JSE Listings Requirements, the shareholders of the company may authorise the directors to allot, issue, grant options over or otherwise dispose of such shares, as the directors in their discretion deem fit. The effect of ordinary resolution number 6 is to ensure that the directors have the necessary flexibility to allot and issue shares and grant options as they deem fit. It is noted that an issue as contemplated in sections 41(1) and (3) of the Companies Act must first be approved by way of special resolution in terms of section 41 of the Companies Act and is not authorised in terms of this resolution.



General authority to issue shares for cash

“RESOLVED THAT, subject to ordinary resolution number 6 being passed, the directors of the company be and are hereby authorised, by way of a general authority, to allot and issue shares (and/or any options or convertible securities) for cash to such persons on such terms and conditions as the directors may from time to time in their discretion deem fit, subject to the provisions of the company’s Memorandum of Incorporation, the Companies Act, as may be amended from time to time and the JSE Listings Requirements and subject to the following limitations, namely that:• The equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the

case, must be limited to such securities or rights that are convertible into a class already in issue;• Any such issue will only be made to “public shareholders” as defined in the JSE Listings Requirements and not to related

parties, unless the JSE otherwise agrees;


• In respect of securities which are the subject of the general issue of shares for cash, such issue may not exceed 33 646 647 (thirty-three million, six hundred and forty-six thousand, six hundred and forty-seven), representing 15% (fifteen percent) of the number of listed equity securities in issue as at the date of this notice being 224 310 979 ordinary shares, provided that: – any equity securities issued under this authority during the period must be deducted from the number above;– in the event of a sub-division or consolidation of issued equity securities during the period contemplated above, the

existing authority must be adjusted accordingly to represent the same allocation ratio;– the calculation of the listed equity securities is a factual assessment of the listed equity securities as at the date of the

notice of Annual General Meeting, excluding treasury shares;• This authority shall be valid until the company’s next Annual General Meeting or for 15 (fifteen) months from the date on which

this ordinary resolution is adopted, whichever period is shorter;• A paid press announcement giving full details of the issue, including the impact on net asset value and earnings per share,

will be published at the time of any issue representing, on a cumulative basis within the period of this authority, 5% (five percent) or more of the number of shares in issue prior to the issue concerned;

• The maximum discount permitted at which equity securities may be issued is 10% (ten percent) of the weighted average traded price on the JSE of those shares measured over the 30 (thirty) business days prior to the date that the price of the issue is agreed between the company and the party subscribing for the securities. The JSE should be consulted for a ruling if the company’s securities have not traded in such 30 (thirty) business day period.”


In accordance with the company’s Memorandum of Incorporation, as well as the JSE Listings Requirements, the shareholders of the company have to approve a general issue of shares for cash. The existing authorities granted by the shareholders of the company at the previous Annual General Meeting held on 17 September 2013 expire at the Annual General Meeting to be held on 6 October 2014, unless renewed. This authority will be subject to the company’s Memorandum of Incorporation, the Companies Act and the JSE Listings Requirements. The directors of the company consider it advantageous to renew this authority to enable the company to take advantage of any business opportunity that may arise in the future.

The effect of ordinary resolution number 7 is that the directors will be able to issue the authorised but unissued ordinary shares in the share capital of the company for cash, as and when suitable business opportunities arise, subject to the JSE Listings Requirements, the restrictions/conditions set out in the authority and the Memorandum of Incorporation of the company.

This ordinary resolution number 7 is required, under the JSE Listings Requirements, to be passed by achieving a 75% (seventy five percent) majority of the votes cast in favour of such resolution by all shareholders present or represented by proxy and entitled to vote at the Annual General Meeting.


Approval of remuneration policy

“RESOLVED THAT the group remuneration policy, as described in the remuneration report on pages 94 to 99 of the Integrated Annual Report of which this notice of Annual General Meeting forms part, is hereby approved by way of a non-binding advisory vote, as recommended in King III.”



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In terms of King III recommendations, every year, the company’s remuneration policy should be tabled for a non-binding advisory vote at the Annual General Meeting. The non-binding advisory vote is to enable shareholders of the company to express their views on the remuneration policies adopted and on their implementation. Accordingly, the shareholders of the company are requested to endorse the company’s remuneration policy as recommended by King III.

As this matter is non-binding, no minimum voting threshold is needed for ordinary resolution number 8.

9. Special resolution number 1

Non-Executive Directors’ remuneration

“RESOLVED THAT the fees payable to the Non-Executive Directors, for their service as directors, for the period 1 September 2014 until the next Annual General Meeting are hereby approved as follows:

Current annual fee

Proposed annual fee1 October

2014 until the next Annual

General Meeting

Chairman of main Board R291 455 R364 319Chairman of subcommittee R58 291 R62 954Non-Executive Director R291 455 R314 771Member of subcommittee (excluding Social and Ethics Committee) R43 718 R47 215Member of Social and Ethics Committee R10 929 R47 215*

* Previously the Social and Ethics Committee met once a year. The Committee now meets quarterly.

Additional information in respect of special resolution number 1

In terms of sections 66(8) and 66(9) of the Companies Act, remuneration may only be paid to directors for their services as directors in accordance with a special resolution approved by the shareholders of the company within the previous two years and if not prohibited in terms of the company’s Memorandum of Incorporation. Therefore, the reason for and the effect of special resolution number 1 is to approve the payment of and the remuneration payable by the company to its Non-Executive Directors for their services as directors of the company in terms of section 66 of the Companies Act. The fees payable to the Non-Executive Directors are detailed above. Details on the Remuneration Policy are included in the Remuneration Report on pages 94 to 99 of the Integrated Annual Report of which this notice of Annual General Meeting forms part.

Furthermore, in terms of King III, remuneration payable to Non-Executive Directors should be approved by shareholders in advance or within the previous two years.

The percentage of voting rights required for special resolution number 1 to be adopted is 75% of the voting rights exercised on such resolution.


Financial assistance as contemplated in sections 44 and 45 of the Companies Act

“RESOLVED THAT the Board may, as a general approval, authorise the company to provide direct or indirect financial assistance as contemplated in section 44 and/or section 45 of the Companies Act, by way of loans, guarantees, the provision of security or otherwise, to: • any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued

by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company; or


• a director or prescribed officer of the company or of a related or inter-related company, or to a related or inter-related company or corporation, or to a member of a related or inter-related corporation, or to a person related to any such company, corporation, director, prescribed officer or member for any purpose or in connection with any matter, subject to compliance with the requirements of:

(1) the Companies Act, in particular sections 44 and 45 thereof; (2) the JSE Listings Requirements; (3) the company’s Memorandum of Incorporation;

each as presently constituted and as amended from time to time; and (4) any other applicable laws that may exist from time to time such authority to endure until the forthcoming Annual General Meeting of the company.”


The Board may not authorise the company to provide direct or indirect financial assistance as contemplated in sections 44 and 45 of the Companies Act unless:• The particular provision of financial assistance is pursuant to a special resolution of the shareholders, adopted within the

previous two years, which approved such assistance, either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category.

• The Board is satisfied that, immediately after providing the financial assistance, the company would satisfy the “solvency and liquidity test” (being the test set out in section 4(1) of the Companies Act) and the terms under which the financial assistance is proposed to be given are fair and reasonable to the company.

• The Board has ensured that any conditions or restrictions in respect of granting the financial assistance set out in the company’s Memorandum of Incorporation have been satisfied.

Therefore the reason for special resolution number 2 is to obtain approval from the shareholders of the company to enable the company to provide financial assistance, when the need arises, in accordance with the provisions of sections 44 and 45 of the Companies Act, the company’s Memorandum of Incorporation, the JSE Listings Requirements and any other applicable laws that may exist from time to time. The effect of special resolution number 2 is that the company will have the necessary authority to authorise and provide the financial assistance as contemplated in sections 44 and 45 as and when required.

The percentage of voting rights required for special resolution number 2 to be adopted is 75% of the voting rights exercised on such resolution.


Issuing of shares for purposes of the Keaton Energy Long-Term Performance Incentive Scheme

“RESOLVED THAT all the ordinary shares required for the purpose of carrying out the rules of the Keaton Energy Long-Term Performance Incentive Scheme, other than those which have previously been issued for the Keaton Energy Long-Term Performance Incentive Scheme in terms of resolutions duly passed at previous Annual General Meetings of the company, be and are hereby specifically placed under the control of the directors, who be and are hereby authorised to issue those shares pursuant to the rules of the Keaton Energy Long-Term Performance Incentive Scheme, including the issue to persons contemplated in section 41(1) of the Companies Act.”


Issuing shares for the purposes of the Keaton Energy 2013 Share Plan

“RESOLVED THAT all the ordinary shares required for the purpose of carrying out the rules of the Keaton Energy 2013 Share Plan, be and are hereby specifically placed under the control of the directors, who be and are hereby authorised to issue those shares pursuant to the rules of the Keaton Energy 2013 Share Plan, including the issue to persons contemplated in section 41(1) of the Companies Act.”



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Additional information in respect of special resolution numbers 3 and 4

In terms of section 41(1) of the Companies Act, a special resolution is required to be passed by the shareholders of the company for the allotment and issue of shares to directors, future directors, prescribed officers or future prescribed officers of the company.

The reason for special resolutions number 3 and 4 is for the shareholders of the company to authorise the directors of the company to allot and issue shares to directors, future directors, prescribed officers and future prescribed officers of the company pursuant to and in accordance with the rules of the Keaton Energy Long-Term Performance Incentive Scheme and the Keaton Energy 2013 Share Plan.

The effect of special resolutions number 3 and 4 is to ensure that the directors have the authority to allot and issue shares to the directors, future directors, prescribed officers or future prescribed officers of the company pursuant to and in accordance with the rules of the Keaton Energy Long-Term Performance Incentive Scheme and the Keaton Energy 2013 Share Plan.

The percentage of voting rights required for special resolutions number 3 and 4 to be adopted is 75% of the voting rights exercised on such resolutions.


General authority to repurchase shares

“RESOLVED THAT the company, and any of its subsidiaries, be and is hereby authorised, by way of a general authority, in terms of the provisions of the JSE Listings Requirements, the Companies Act and as permitted by the company’s Memorandum of Incorporation, to acquire, as a general repurchase, the issued ordinary shares of the company, upon such terms and conditions and in such amounts as the Board may from time to time determine, but subject to the applicable requirements of the company’s Memorandum of Incorporation, the provisions of the Companies Act and the JSE Listings Requirements, where applicable, and provided that:(a) The number of ordinary shares in the aggregate acquired in any one financial year shall not exceed 20% (twenty percent)

of the company’s ordinary shares in issue at the date on which this special resolution number 5 is passed.(b) The repurchase of shares will be effected through the order book operated by the JSE trading system and done without

any prior understanding or arrangement between the company and the counterparty (reported trades are prohibited).(c) The company has been given authority to repurchase its shares by its Memorandum of Incorporation.(d) This general authority shall only be valid until the company’s next Annual General Meeting, provided that it shall not extend

beyond 15 (fifteen) months from the date of passing of this special resolution number 5.(e) In determining the price at which the company’s ordinary shares are acquired by the company in terms of this general

authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten percent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the 5 (five) business days immediately preceding the date of the repurchase of such ordinary shares by the company.

(f) At any point in time, the company may only appoint 1 (one) agent to effect any repurchase(s) on the company’s behalf.(g) A resolution has been passed by the Board confirming that the Board has authorised the repurchase, that the company

satisfied the solvency and liquidity test contemplated in the Companies Act and that since the solvency and liquidity test was performed, there have been no material changes to the financial position of the group.

(h) The company may not repurchase ordinary shares during a prohibited period, as defined in the JSE Listings Requirements, unless the company has a repurchase programme in place where the dates and quantities of the ordinary shares to be traded during the relevant period are fixed and not subject to any variation and full details of the programme have been disclosed in an announcement over SENS (the Securities Exchange News Service) prior to the commencement of the prohibited period.


(i) A press announcement will be published giving such details as may be required in terms of the JSE Listings Requirements as soon as the company has cumulatively repurchased 3% of the number of shares in issue at the date of the passing of this special resolution number 5 and for each 3% in aggregate of the initial number of shares acquired thereafter.

(j) The Board undertakes that it will not implement the proposed authority to repurchase shares, unless the directors are of the opinion that, for a period of 12 (twelve) months after the date of the repurchase that:• the company and the group will be able, in the ordinary course of business, to pay its debts;• the assets of the company and the group, fairly valued in accordance with International Financial Reporting

Standards, will be in excess of the liabilities of the company and the group;• the share capital and reserves of the company and the group will be adequate for ordinary business purposes; and• the working capital of the company and the group will be adequate for ordinary business purposes.”

The company will ensure that its sponsor has confirmed the adequacy of the company’s working capital, in writing, to the JSE in terms of the JSE Listings Requirements, prior to entering the market to proceed with the repurchase.


The reason for and effect of this special resolution number 5 is to grant the Board a general authority in terms of the JSE Listings Requirements, up to and including the date of the following Annual General Meeting of the company (provided that it shall not extend beyond 15 (fifteen) months from the date that this special resolution number 5 is passed), to approve the company’s purchase of shares in itself, subject to the restrictions contained in special resolution number 5 and to authorise the company to acquire shares issued by the company in terms of the aforesaid approval. Please refer to the additional disclosure of information contained in this notice of Annual General Meeting, which disclosure is required in terms of the JSE Listings Requirements.

The percentage of the voting rights required for special resolution number 5 to be adopted is 75% of the voting rights exercised on such resolution.

other disclosures in terms of section 11.26 of the Jse listings requirements

For the purposes of considering special resolution number 5 and in compliance with the JSE Listings Requirements, the information listed below has been included in the Integrated Annual Report of which this notice of Annual General Meeting forms part:• Directors and management – refer to pages 82 and 83 of the Integrated Annual Report;• Major shareholders of Keaton Energy – refer to page 188 of the Integrated Annual Report;• Directors’ interests in shares – refer to page 185 of the Integrated Annual Report; and• Share capital of Keaton Energy – refer to pages 151 and 152 of the Integrated Annual Report.

material changes

There have been no material changes in the affairs or the financial position of the company and its subsidiaries since the date of signature of the audit report and the date of this notice of Annual General Meeting.

directors’ responsibility statement

The directors, whose names are given on pages 82 and 83 of this Integrated Annual Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to special resolution number 5 and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that special resolution number 5 contains all such information required by law and the JSE Listings Requirements.



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litigation statement In terms of section 11.26 of the JSE Listings Requirements, save for the legal proceedings mentioned on pages 165 and 166 of the Integrated Annual Report, the directors, whose names appear on pages 82 and 83 of this Integrated Annual Report, are not aware of any other legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 (twelve) months, a material effect on the group’s financial position.

ProxiesAn ordinary shareholder entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy or proxies to attend and act in his/her stead. A proxy need not be a member of the company. For the convenience of registered members of the company, a form of proxy is attached hereto.

The attached form of proxy is only to be completed by those ordinary shareholders who:• hold ordinary shares in certificated form; or• are recorded on the sub-register in “own name” dematerialised form.

securities depository participantOrdinary shareholders who have dematerialised their ordinary shares through a central securities depository participant (CSDP) or broker other than with “own name” registration and who wish to attend the Annual General Meeting, must instruct their CSDP or broker to provide them with the relevant letter of representation to attend the Annual General Meeting in person or by proxy and vote. If they do not wish to attend in person or by proxy, they must provide the CSDP or broker with their voting instructions in terms of their custody agreement entered into between them and the CSDP or broker.

Unless you advise your CSDP or broker, in terms of your agreement, by the cut-off time stipulated therein, that you wish to attend the Annual General Meeting or send a proxy to represent you, your CSDP or broker will assume that you do not wish to attend the Annual General Meeting or send a proxy.

VotingOn a show of hands, every shareholder present in person or by proxy, and if a member is a body corporate, its representative, will have one vote and, on a poll, every shareholder present in person or by proxy and, if the person is a body corporate, its representative, will have one vote for every share held or represented by him/her.

If you are in any doubt as to what action you should take in respect of the resolutions provided for in this notice, please consult your CSDP, broker, banker, attorney, accountant or other professional adviser immediately.

lodgement of forms of proxyForms of proxy should be lodged with the company at its registered address at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston, 2191, South Africa or the company’s transfer secretaries, Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001, South Africa, or posted to the company’s transfer secretaries at PO Box 61051, Marshalltown, 2107, South Africa so as to be received by them by no later than 9h30 on Thursday, 2 October 2014 in accordance with clause 29.4.3 of the company’s Memorandum of Incorporation. Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the Annual General Meeting.

By order of the Board

aC schutte-BouwerCompany Secretary

21 August 2014Johannesburg


(Incorporated in the Republic of South Africa)(Registration number 2006/011090/06)

JSE share code: KEH ISIN: ZAE000117420(Keaton Energy or the company)

For use only by ordinary shareholders who:• hold ordinary shares in certificated form (certificated ordinary shareholders); or • have dematerialised their ordinary shares (dematerialised ordinary shareholders) and are registered with “own name” registration, at the Annual General Meeting of shareholders of the company to be held at 9h30 on Monday the 6th of October 2014 at Indigo 2, Ground Floor, The Forum, Wanderers Building, The Campus (Dimension Data), 57 Sloane Street (corner Main Street).

Dematerialised ordinary shareholders holding ordinary shares other than with “own name” registration who wish to attend the Annual General Meeting must inform their central securities depository participant (CSDP) or broker of their intention to attend the Annual General Meeting and request their CSDP or broker to issue them with the relevant letter of representation to attend the Annual General Meeting in person or by proxy and vote. If they do not wish to attend the Annual General Meeting in person or by proxy, they must provide their CSDP or broker with their voting instructions in terms of the relevant custody agreement entered into between them and the CSDP or broker. these ordinary shareholders must not use this form of proxy.

I/we

of (address)

being the holder(s) of Keaton Energy ordinary shares,

do hereby appoint (see note 2):

1. of or failing him/her

2. of or failing him/her

3. the Chairman of the Annual General Meeting,as my/our proxy to act for me/us and on my/our behalf at the Annual General Meeting which will be held for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against the resolutions and/or abstain from voting in respect of the Keaton Energy ordinary shares registered in my/our name(s), in accordance with the following instructions (see note 3):

Number of ordinary shares

For Against Abstain

Ordinary resolution number 1: Acceptance of Annual Financial Statements

Ordinary resolution number 2: Re-election of Mr JHM Schurink as a director

Ordinary resolution number 3.1: Re-election of Dr JD Salter as a director and Chairman of the Board

Ordinary resolution number 3.2: Re-election of Mr P Pouroulis as a director

Ordinary resolution number 3.3: Re-election of Mrs APE Sedibe as a director

Ordinary resolution number 4.1: Re-election of Mr LX Mtumtum as member and Chairman of the Audit Committee

Ordinary resolution number 4.2: Re-election of Mr OP Sadler as a member of the Audit Committee

Ordinary resolution number 4.3: Re-election of Mr GH Kemp as a member of the Audit Committee

Ordinary resolution number 5: Re-appointment of KPMG Inc. as external auditors of the company

Ordinary resolution number 6: Control of authorised but unissued shares

Ordinary resolution number 7: General authority to issue shares for cash

Ordinary resolution number 8: Approval, through a non-binding advisory vote, of the group remuneration policy

Special resolution number 1: Approval of Non-Executive Directors’ remuneration

Special resolution number 2: Financial assistance contemplated in sections 44 and 45 of the Companies Act

Special resolution number 3: Issuing of shares for purposes of the Keaton Energy Long-Term Performance Incentive Scheme

Special resolution number 4: Issuing of shares for purposes of the Keaton Energy 2013 Share Plan

Special resolution number 5: General authority to repurchase shares

Please indicate with an “X” in the space provided above how you wish your votes to be cast.

Signed at on 2014

Signature

Assisted by (where applicable)



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form of ProXY



199

200

Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder of the company) to attend, speak and vote in place of that shareholder at the Annual General Meeting.

summary of shareholders’ rightsIn respect of proxy appointments as contained in section 58 of the Companies Act, No 71 of 2008, as amended (the Companies Act).

Please note that in terms of section 58 of the Companies act:• This form of proxy must be dated and signed by the shareholder appointing the proxy.• You may appoint an individual as a proxy, including an individual who is not a shareholder of the company, to participate in, speak and vote at a shareholders’

meeting on your behalf.• Your proxy may delegate his/her authority to act on your behalf to another person, subject to any restriction set out in this proxy form.• This form of proxy must be delivered to the transfer secretaries of the company, namely Computershare Investor Services Proprietary Limited, before your proxy

exercises any of your rights as a shareholder at the Annual General Meeting.• The appointment of your proxy or proxies will be suspended at any time to the extent that you choose to act directly and in person in the exercise of any of your

rights as a shareholder at the Annual General Meeting.• The appointment of your proxy is revocable unless you expressly state otherwise in this form of proxy.• As the appointment of your proxy is revocable, you may revoke the proxy appointment by (i) cancelling it in writing, or making a later inconsistent appointment

of a proxy and (ii) delivering a copy of the revocation instrument to the proxy and to the company. Please note the revocation of a proxy appointment constitutes a complete and final cancellation of your proxy’s authority to act on your behalf as of the date stated in the revocation instrument, if any, or the date on which the revocation instrument was delivered to the company and the proxy as aforesaid.

• If this form of proxy has been delivered to the company, as long as that appointment remains in effect, any notice that is required by the Companies Act or the company’s Memorandum of Incorporation to be delivered by the company to you will be delivered by the company to you or your proxy or proxies, if you have directed the company to do so, in writing and paid any reasonable fee charged by the company for doing so.

• Your proxy is entitled to exercise, or abstain from exercising, any voting right of yours at the Annual General Meeting, but only as directed by you on this form of proxy.

• The appointment of your proxy remains valid only until the end of the Annual General Meeting or any adjournment or postponement thereof unless it is revoked by you before then on the basis set out above.

notes1. The person whose name stands first on the form of proxy and who is present at the Annual General Meeting will be entitled to act as a proxy to the exclusion

of those whose names follow thereafter.2. A shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that shareholder in the appropriate

box provided. If there is no clear indication as to the voting instructions to the proxy, the form of proxy will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat.

3. If no proxy is inserted in the spaces provided, then the chairman shall be deemed to be appointed as the proxy to vote or abstain as the chairman deems fit.4. A shareholder or his/her proxy is not obliged to use all the votes exercisable by the shareholder or by his/her proxy, but the total of the votes cast and in respect

of which abstention is recorded may not exceed the total of the votes exercisable by the shareholder or by his/her proxy. A proxy shall be entitled to demand that voting take place on a poll.

5. In order to be effective, forms of proxy must reach the registered address of the company or the company’s transfer secretaries no later than 09h30 on Thursday, 2 October 2014, being no later than 48 (forty-eight) hours before the Annual General Meeting to be held at 09h30 on Monday, 6 October 2014 provided that the chairman of the Annual General Meeting may, in his discretion, accept proxies that have been delivered after the expiry of the aforementioned period up to and until the time of commencement of the Annual General Meeting.

6. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the company or waived by the chairman of the Annual General Meeting. CSDPs or brokers registered in the company’s sub-register voting on instructions from beneficial owners of shares registered in the company’s sub-register, are requested that they identify the beneficial owner in the sub-register on whose behalf they are voting and return a copy of the instruction from such owner to the company or to the company’s transfer secretaries, together with this form of proxy.

7. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies, but may not be accepted by the chairman.8. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered

by the company.

registered address transfer secretariesGround Floor Computershare Investor Services Proprietary LimitedEland House Ground Floor The Braes 70 Marshall Street 3 Eaton Road Johannesburg Bryanston 2001 2191 South Africa South Africa

notes to the form of ProXY

KEATON ENERGY HOLDINGS LIMITEDRegistration number: 2006/011090/06Share code: KEHISIN: ZAE000117420

REGISTERED ADDRESSGround FloorEland HouseThe Braes3 Eaton RoadBryanston2191

Postnet Suite 464Private bag X51Bryanston2012

Tel: +27 (0) 11 317 1700Fax: +27 (0) 11 463 4759Website: www.keatonenergy.co.za

INVESTOR RELATIONSSamantha BrownTel: +27 (0) 11 317 1700Fax: +27 (0) 11 463 4759Email: [email protected]

COMPANY SECRETARYAnelia Schutte-BouwerTel: +27 (0) 11 317 1700Fax: +27 (0) 11 463 4759Email: [email protected]

TRANSFER SECRETARIESComputershare Investor Services Proprietary LimitedRegistration number: 2004/003647/0770 Marshall StreetJohannesburg2001

PO Box 61051Marshalltown2107

INVESTMENT BANK, CORPORATE ADVISER AND SPONSORInvestec Bank Limited100 Grayston Drive SandownSandton2196

PO Box 785700Sandton2146

REPORTING ACCOUNTANTS AND AUDITORSKPMG IncorporatedRegistered Accountants and AuditorsChartered Accountants (SA)

KPMG Forum1226 Francis Baard StreetHatfieldPretoria0083

PO Box 11265Hatfield0028

ADMINISTRATION AND CONTACT DETAILS

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Documents

What is Corporate Identity (CI)? - Keaton Energy · Corporate Identity Brief What is Corporate Identity (CI)?A company s CI is the look and feel that is associated with and attributed