PETMIN LIMITED. Reporting Accountants. Advisers to the Transaction

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. THIS DOCUMENT SHOULD BE READ IN CONJUNCTION WITH PETMIN S INTEGRATED REPORT, ANNUAL FINANCIAL STATEMENTS, PRELIMINARY 2015 RESULTS AND THE DETAILED COMPETENT PERSONS REPORT WHICH ARE ALL AVAILABLE ON THE COMPANY S WEBSITE AT If you are in any doubt as to the action you should take in relation to this circular, please consult your CSDP, stockbroker, banker, accountant, attorney or other professional advisor immediately. Action required If you have disposed of all your ordinary shares in Petmin, then this circular and all annexures hereto, together with the attached notice of general meeting and form of proxy should be handed to the purchaser of such ordinary shares or to the stockbroker, CSDP, banker or other agent through whom the disposal was effected. Ordinary shareholders holding certificated shares and own name dematerialised shareholders, registered in their own name, who are unable to attend the general meeting to be held at 10:00 on Monday, 9 November 2015 at 37 Peter Place, Bryanston, Johannesburg, should complete the attached form of proxy in accordance with the instructions contained therein and lodge it with the transfer secretaries, Computershare, at 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) so as to be received by not later than 10:00 on Friday, 6 November Shareholders holding dematerialised shares, other than own name dematerialised shareholders, who wish to attend the general meeting or to vote by way of proxy, must contact their CSDP or stockbroker who will furnish them with the requisite authority(letter of Representation) to attend the general meeting or to be represented thereat by proxy. This must be done in terms of the relevant custody agreement. Petmin does not accept any responsibility and will not be held liable for any failure on the part of any CSDP or broker of a dematerialised shareholder to notify such shareholder of the general meeting or any business to be concluded thereat. PETMIN LIMITED Incorporated in the Republic of South Africa Registration number 1972/001062/06 Share code JSE: PET ISIN: ZAE ( Petmin or the Company ) CIRCULAR TO SHAREHOLDERS OF PETMIN regarding the approval of the BEE Transaction; and the sanctioning of any financial assistance to be provided by the Company in relation to the BEE Transaction; and incorporating a notice convening a general meeting of Petmin shareholders; and a form of proxy for use by certificated shareholders and own name dematerialised shareholders registration only. Sponsor and Corporate Advisor Reporting Accountants Competent Person RIVER GROUP Attorney and Legal Adviser Financiers and Transaction Funder srk consulting Siyakhula Sonke Empowerment Corp (Pty) Ltd Advisers to the Transaction Simukai Consulting CC Date: 6 October 2015 This circular is available in English only. Copies may be obtained from the registered office of Petmin and from the transfer secretaries, whose addresses are set out in the Corporate Information section of this circular.

2 CORPORATE INFORMATION Registered address First Floor 37 Peter Place Bryanston 2021 Johannesburg (PO Box 6070, Rivonia, 2128) Sponsor and corporate advisor River Group No. 1, Kloof Trio 211 Kloof Street Waterkloof 0181 (PO Box 2579, Brooklyn Square, 0075) Transfer secretaries Computershare Investor Services (Proprietary) Limited 70 Marshall Street Johannesburg 2001 (PO Box 61051, Marshalltown, 2107) Company secretary Mondial Consultants (Proprietary) Limited Block D, Midridge Office Estate International Business Gateway Corner New Road and 6th Street Midrand 1686 Johannesburg Independent expert SRK Consulting 265 Oxford Road Illovo 2196 Johannesburg (PO Box 55291, Northlands, 2116) Reporting accountants and auditors KPMG Inc KPMG Crescent, 85 Empire Road Parktown 2193 (Private Bag 9, Parkview, 2122) Legal advisors Cliffe Dekker Hofmeyr Inc 1 Protea Place Sandown 2196 Sandton Johannesburg (Private Bag X40, Benmore, 2010)

3 TABLE OF CONTENTS CORPORATE INFORMATION Page Inside front cover INTERPRETATION AND DEFINITIONS 2 IMPORTANT DATES AND TIMES 6 EXECUTIVE SUMMARY 7 CIRCULAR TO SHAREHOLDERS Introduction 11 Prospects of the business 11 THE TRANSACTION Introduction and rationale 12 The Transaction 12 Pro forma effects of the Transaction 20 GENERAL General meeting of shareholders 23 Share capital 23 Directors 24 Costs 25 King Code 25 Advisors and experts consents 26 Litigation statement 26 Material changes 26 Working capital statement 26 Material contracts 26 Documents available for inspection 27 Documents incorporated by reference 27 Annexure A: Petmin Limited Preliminary Results for the year ended 30 June Annexure B: Historical Financial Information of Tendele Coal Mining (Proprietary) Limited 38 Annexure C: Reporting Accountants Report on the Historical Information of Tendele Coal Mining (Proprietary) Limited 61 Annexure D: Independent Reporting Accountants Assurance Report on the compilation of Pro forma Financial Information on Petmin 64 Notice of general meeting 66 Form of proxy Attached 1

4 INTERPRETATION AND DEFINITIONS In this circular and the annexures hereto, unless inconsistent with the context: the singular includes the plural and vice versa; the masculine gender includes the other genders; a reference to a person includes a body corporate or unincorporated and vice versa; and the following words and terms in the first column shall have the meanings assigned to them in the second column A Preference Shares A Preference Share Subscription Agreement 54 (fifty four) cumulative redeemable A preference shares of BEE SPV to be designated as A Preference Shares and issued by BEE SPV to Depfin pursuant to the terms of the A Preference Share Subscription Agreement; the agreement headed Preference Share Subscription Agreement dated 24 July 2015, entered into between BEE SPV, Depfin and Nedbank, in terms of which Depfin will subscribe for the A Preference Shares in order to fund a portion of the BEE Transaction; B-BBEE Act the Broad-Based Black Economic Empowerment Act, No.53 of 2003; BEE black economic empowerment as contemplated in the BBBEE Act and the BEE Codes; BEE Codes the Codes of Good Practice on BEE published on 11 October 2013 in terms of section 9 of the BBBEE Act; BEE SPV Business Venture Investments No 1770 (RF) Proprietary Limited, registration number 2013/145357/07, a limited liability private company duly incorporated in South Africa which will be the 20% shareholder of Tendele after the approval of this transaction and will be owned by the Share Trust (20%) and the Community Trust (80%); BEE SPV MOI the memorandum of incorporation of BEE SPV adopted on or about 24 July 2015 and filed with the CIPC; BEE SPV Subscription Agreement the agreement headed Subscription Agreement entered into on 24 July 2015 between the Share Trust, the Community Trust and BEE SPV in terms of which, inter alia, the Share Trust and the Community Trust will subscribe for ordinary shares in BEE SPV; BEE Subscription Shares 40 (forty) Tendele Shares which will constitute, after their issue, 20% (twenty percent) of all of the issued shares in Tendele; BEE Transaction or transaction B Preference Shares B Preference Share Subscription Agreement Board of Directors or directors or Board business day certificated shareholder the BEE transaction which is the subject of this circular as set out in the Transaction Agreements in terms of which, inter alia, BEE SPV will acquire 20% (twenty percent) of all of the issued shares in Tendele with the effect from the Effective Date; 80 (eighty) cumulative redeemable B preference shares of BEE SPV to be designated as B Preference Shares and issued pursuant to the terms of the B Preference Share Subscription Agreement; the agreement headed B Preference Share Subscription Agreement entered into on 24 July 2015 between Petmin and BEE SPV in terms of which Petmin will subscribe for the B Preference Shares in order to fund a portion of the BEE Transaction; the board of directors of Petmin as at the last practicable date; any day other than Saturday, Sunday or an official public holiday in South Africa; a holder of certificated shares; 2

5 certificated shares CIPC circular Community Community Trust Companies Act Computershare C Preference Shares C Preference Share Subscription Agreement CSDP custody agreement dematerialised dematerialised shareholder dematerialised shares shares which are not dematerialised, title to which is represented by physical documents of title; Companies and Intellectual Property Commission; this circular dated 5 October 2015, including the annexures and attachments thereto, as well as the notice of general meeting and form of proxy; means any natural person or persons who are Black People up to and including the age of 25 (twenty five) years forming part of the Community and who was born and/or is ordinarily residing in the Community, designated as such by the Trustees from time to time in their sole discretion; the trustees for the time being of the Mpukunyoni Youth Development Trust, Master s reference number 235/2015 (G), a trust established in accordance with the laws of South Africa and of which at least 50% of the trustees must be independent; the Companies Act, No 71 of 2008, as amended; Computershare Investor Services (Proprietary) Limited, registration number 2004/003647/07, a private company incorporated in South Africa; a maximum of 400 (four hundred) cumulative redeemable C preference shares of BEE SPV to be designated as C Preference Shares and issued pursuant to the terms of the C Preference Share Subscription Agreement; the agreement headed C Preference Share Subscription Agreement entered into or to be entered into between Petmin, BEE SPV and Depfin, on 24 July 2015, in terms of which Depfin will have the right to require Petmin to subscribe for a certain number of C Preference Shares if and to the extent that BEE SPV does not have sufficient available funds to pay preference dividends and/or redemption amounts that are scheduled to be paid on account of the A Preference Shares; a Central Securities Depository Participant, accepted as a participant in terms of the Financial Markets Act, appointed by an individual shareholder for the purposes of, and in regard to dematerialisation; the custody mandate agreement between a dematerialised shareholder and a CSDP or broker governing their relationship in respect of dematerialised shares held by the CSDP or broker; the process whereby share certificates, certified transfer deeds, balance receipts and any other documents of title to shares in a tangible form are replaced with electronic records of ownership for purposes of incorporation into Strate; holder of dematerialised shares; shares which have been dematerialised and incorporated into Strate and which are no longer evidenced by share certificates or other physical documents of title, but the evidence of ownership of which is determined electronically and recorded in the sub-register maintained by a CSDP; Depfin Depfin Investments Proprietary Limited, registration number 1982/006127/07, a limited liability private company duly incorporated in South Africa and a subsidiary of Nedbank; Effective Date the 5th (fifth) business day after the date on which the last of the suspensive conditions to the Transaction Agreements is fulfilled or waived, as the case may be; Facility a revolving credit facility provided by Nedbank to Tendele in a maximum principal amount of R (two hundred and thirty million Rand); Financial Markets Act Financial Markets Act, 2012 (Act 19 of 2012), as amended; general meeting the general meeting of Shareholders to be held in the boardroom, 37 Peter Place, Bryanston, Johannesburg on Monday, 9 November 2015, or any adjournment thereof; 3

6 the Group or the Petmin Group JIBAR JSE Listings Requirements last practicable date Management and Marketing Agreement the Company and any of its direct or indirect subsidiaries; in relation to any interest period, the rate for the period which most closely approximates such interest period which appears on the Reuters Screen SAFEY Page as at 11:00 South African standard time on the 1st (first) day of such interest period; JSE Limited, registration number 2005/022939/06, a public company incorporated in South Africa being registered as an exchange under the Financial Markets Act; the listings requirements of the JSE as amended from time to time; 5 October 2015, being the last practicable date prior to the finalisation of this circular; the agreement headed Management and Marketing Agreement dated 24 July 2015 entered into between Tendele and Petmin, in terms of which Petmin will provide certain management and marketing services to Tendele; MMC Mpukunyoni Mining Proprietary Limited, registration number 2005/034981/07, a limited liability private company duly incorporated in South Africa Petmin s contract miner; Mpukunyoni Community means the local Mpukunyoni traditional community in the Hlabisa Local Municipality in the Province of KwaZulu-Natal, South Africa, recognised as such in terms of Traditional Law, provided that such community constitutes a sector of the general public at large and is not a small and exclusive group; Mining Charter the Broad-Based Socio-Economic Empowerment charter for the South African Mining and Minerals Industry; Nedbank Nedbank Limited (acting through its Nedbank Capital division), registration number 1951/000009/06, a registered bank and public company duly incorporated according to the banking and company Laws of South Africa; own name dematerialised shareholders Petmin or the Company Preference Share Subscription Agreements Rand or R Restricted Period RCF Agreement shareholders that have dematerialised their shares through their CSDP and have instructed their CSDP to register their shares in their own name on the sub-register (the list of shareholders maintained by the CSDP and forming part of Petmins share register); Petmin Limited, registration number 1972/001062/06, a limited liability public company duly incorporated in South Africa; the A Preference Share Subscription Agreement, B Preference Share Subscription Agreement and C Preference Share Subscription Agreement; the currency of South Africa; the period commencing on the issue date of the A Preference Shares and ending on the day falling three years and one day after such issue date; the agreement headed ZAR revolving credit facility agreement dated 24 July 2015, entered into between Tendele and Nedbank in terms of which, Nedbank will make the Facility available to Tendele; Relationship Agreement the agreement headed Relationship Agreement dated 24 July 2015, entered into or to be entered into between Petmin, Tendele, the trustees for the time being of the Community Trust, the trustees for the time being of the Share Trust and BEE SPV governing, inter alia, the BEE considerations pertaining to the relationships between Tendele, Petmin and BEE SPV; registered shareholder a shareholder of shares registered as such in the share register of Petmin; SENS the Stock Exchange News Service of the JSE; shares ordinary shares of 25 cents each in the issued share capital of Petmin; shareholders the registered holders of ordinary shares in Petmin; 4

7 Share Trust or EBS the trustees for the time being of the Tendele Economic Benefits Sharing Scheme Trust, Master s reference number 234/2015 (G), a trust established in accordance with the laws of South Africa and of which Tendele may only appoint two of the six trustees the other four have to be appointed by the employees and the unions; Somkhele or mine Somkhele anthracite mine owned and operated by Tendele, situated approximately 85 (eighty five) kilometres North of Richards Bay, in KwaZulu- Natal, South Africa; South Africa the Republic of South Africa; Strate Strate (Proprietary) Limited, registration number 1998/022242/07, a private company duly incorporated in accordance with the laws of South Africa and which company operates the settlement and clearing system used by the JSE; Subordination Agreement the agreement headed Subordination Agreement dated 24 July 2015 entered into between Petmin, BEE SPV, Tendele, Depfin and Nedbank in terms of which Petmin will subordinate its claims against Tendele and BEE SPV in favour of Depfin and Nedbank; Tendele Tendele Coal Mining Proprietary Limited, registration number: 1997/021507/07, a limited liability private company duly incorporated in South Africa and wholly owned subsidiary of Petmin; Tendele MOI the memorandum of incorporation of Tendele as at the Effective Date; Tendele Shareholders Agreement Tendele Shares Tendele Subscription Agreement the agreement headed Shareholders Agreement entered into on 24 July 2015 between Petmin, BEE SPV and Tendele governing the relationships between the shareholders of Tendele inter se and between Tendele and its shareholders; ordinary shares of R1.00 (one Rand) each in Tendele; the agreement headed Subscription Agreement dated 24 July 2015 entered into between BEE SPV and Tendele in terms of which BEE SPV will subscribe for the BEE Subscription Shares; Traditional Law the Traditional Leadership and Governance Framework Act, No.4 of 2003, the KwaZulu-Natal Traditional Leadership and Governance Act, No. 5 of 2005 and any other law applicable to the governance of the Mpukunyoni Community; Transaction Agreements shall have the meaning ascribed to Transaction Documents in the A Preference Share Subscription Agreement, being the agreements in relation to the BEE Transaction including, but not limited to, the trust deed of the Community Trust, the trust deed of the Share Trust, the Relationship Agreement, the Preference Share Subscription Agreements, the BEE SPV MOI, the BEE SPV Subscription Agreement, the Tendele MOI, the Tendele Subscription Agreement, Tendele Shareholders Agreement, the Management and Marketing Agreement, the RCF Agreement and the Subordination Agreement; a subsidiary a subsidiary company as defined in the Companies Act; and transfer secretaries the transfer secretaries of Petmin, namely Computershare. 5

8 IMPORTANT DATES AND TIMES The dates and times below relate to the transaction 2015 Record date in order to determine which shareholders are entitled to receive the circular Last day to trade in order to be eligible to vote at the general meeting on Record date in order to be eligible to vote at the general meeting on Last day for receipt of forms of proxy for the general meeting by the Transfer secretaries, by 10:00 on General meeting to be held at 10:00 at 37 Peter Place, Bryanston, Johannesburg on Results of general meeting announced on SENS on Friday, 25 September Friday, 23 October Friday, 30 October Friday, 6 November Monday, 9 November Tuesday, 10 November Notes: 1. The above dates and South African times are subject to change. Any changes will be released on SENS. 2. The general meeting will be held to consider and, if deemed fit, to pass, with or without modification, the resolutions necessary to approve the BEE Transaction. 3. Shareholders who hold certificated shares or hold own name dematerialised shares, who are unable to attend the general meeting but wish to be represented thereat must complete and return the attached form of proxy (white) in accordance with the instructions contained therein to the transfer secretaries, to be received by no later than 10:00 on Friday, 6 November Beneficial shareholders who have dematerialised their shares through a CSDP or stockbroker, other than those in own name, must provide the CSDP or stockbroker with their voting instruction in the manner and time stipulated in the relevant custody agreement. Alternatively, they must request the CSDP or stockbroker to provide them with a letter of representation should they wish to attend the meeting in person in terms of the custody agreement entered into between the beneficial shareholder and the CSDP or stockbroker. 6

9 EXECUTIVE SUMMARY 1. INTRODUCTION From inception, it has been Petmin s strategic intention to embrace the spirit of BEE for the mining industry, as determined in the Mining Charter and the Mineral and Petroleum Resources Development Act (MPRDA). Petmin believes that to ensure long term sustainable empowerment at all its operations, it is imperative that, in addition to B-BBEE shareholding in Petmin, local communities and employees become owners so that they can participate and share in the rewards of its operations. As part of this commitment to transformation and the imperative for B-BBEE at operational level, Petmin wishes to advise shareholders that it has entered into a comprehensive BEE Transaction. On conclusion of the BEE Transaction, Petmin s shareholding in Tendele, the company that owns Petmin s flagship Somkhele anthracite mine, will be reduced from 100% to 80%. The remaining 20% shareholding in Tendele will be held directly by BEE SPV, which in turn will be held 80% by the Community Trust and 20% held by EBS. Additionally, Tendele will contribute to the Community Trust: a founder s contribution of ZAR2.4 million; an annual guaranteed payment of ZAR1 million and; an additional annual payment of ZAR for every tonnes of anthracite produced at the mine in excess of tonnes, capped at ZAR1 million. Furthermore, Tendele will pay to the EBS: an annual guaranteed payment of ZAR1 000 per employee; and an additional annual payment of ZAR1 000 per employee during any financial year in which annual production at the mine exceeds tonnes of anthracite. 2. THE BEE TRANSACTION BEE SPV will subscribe for 20% of all of the ordinary shares in Tendele for a subscription consideration of R350 million based on Tendele s Somkhele project valuation of R1,56 billion as set out in the CPR available on the Petmin website at to this circular. BEE SPV will be capitalised through the issue of A redeemable preference shares to Depfin, a wholly owned subsidiary of Nedbank Limited, for ZAR270 million and B redeemable preference shares to Petmin for ZAR80 million, comprising of an aggregate subscription consideration of ZAR350 million. The subscription proceeds will be solely used by the BEE SPV to subscribe for new shares to be issued by Tendele, resulting in the BEE SPV directly owning 20% shareholding in Tendele. The Community Trust will acquire 80% (eighty percent) of the ordinary shares in the BEE SPV and will be entitled to nominate two directors to the board of the BEE SPV. The Community Trust will be entitled to nominate one director to the Tendele Board. The beneficiaries of the Community Trust are the youth of the Mpukunyoni community and all benefits flowing from the equity holding will be used for their development. In addition, Tendele will contribute to the Community Trust (for the sole purpose of supporting projects benefiting the beneficiaries), the following: a founder s contribution, in aggregate, not exceeding an amount of ZAR2.4 million; an annual guaranteed payment of ZAR1 million; and an additional annual payment of ZAR for every tonnes of anthracite produced at the mine in excess of tonnes, capped at ZAR1 million. 7

10 A member of the Traditional Council of the Mpukunyoni Community, established in terms of Traditional Law, will be a permanent trustee and at least 50% of the trustees will be independent. No trustee fees will be paid for serving as such. EBS will acquire 20% (twenty percent) of the ordinary shares in BEE SPV and will be entitled to nominate two directors to the board of the BEE SPV. The EBS Trust will be entitled to nominate one director to the Tendele Board. Furthermore, Tendele will pay to the EBS: an annual guaranteed payment of ZAR1 000 per employee; and an additional annual payment of ZAR1 000 per employee during any financial year in which annual production at the mine exceeds tonnes of anthracite. Those eligible to be beneficiaries of the EBS are employees of Tendele, employees of any company in which Tendele holds at least 35% of the total issued shares, and employees of any company which has a current service agreement with a duration of longer than 1 (one) year with Tendele or Mpukunyoni Mining (Pty) Ltd, where such service is directly related to mining and or processing of waste or run-ofmine material. A maximum of three out of a maximum of six trustees per union will be appointed by the unions that have a recognition agreement with Tendele, resulting in a minimum of 50% of the trustees being independent. As soon as reasonably possible after the BEE SPV has discharged all of its obligations under the Preference Share Subscription Agreements BEE SPV will be required to distribute its 20% equity in Tendele as a dividend in specie to the Community Trust and EBS. EBS has a further option to acquire an additional 4% of Tendele Equity at fair value at the time all preference shares of the BEE SPV are redeemed. The Community Trust and EBS will not be entitled to dispose of their equity in Tendele, other than as permitted or expressly implied in the Transaction Agreements. 3. FINANCING TERMS OF THE TRANSACTION The transaction will be financed by a series of redeemable preference shares to be issued by the BEE SPV as follows: Depfin will subscribe for A redeemable Preference Shares at an aggregate subscription price of ZAR (two hundred and seventy million Rand); Petmin will subscribe for 80 (eighty) B redeemable Preference Shares at an aggregate subscription price of ZAR (eighty million Rand); and Petmin may be obliged to subscribe for C Preference Shares if, and to the extent that the BEE SPV defaults in respect of its payment obligations under the A Preference Shares, effectively guaranteeing the obligations of the BEE SPV to ensure its sustainability. The A redeemable Preference Shares will be redeemed from dividends to be received from Tendele, and the B redeemable Preference Shares will rank behind the A redeemable Preference Shares. 4. CONDITIONS PRECEDENT The transaction is subject to the approval by the various regulatory and statutory authorities and fulfilment of all of the conditions precedent which inter alia require that the shareholders of Petmin have provided any and all approvals required for the implementation of the B-BBEE Transaction, including any approvals required in terms of the Companies Act and the Listings Requirements of the JSE Limited. Each of the parties to the BEE Transaction will, to the extent it is within their control, use their reasonable commercial endeavours to procure fulfilment of the aforementioned conditions precedent as soon as reasonably possible. 5. FINANCIAL EFFECTS The table below sets out the pro forma financial effects of the above transaction, based on Petmin s reviewed preliminary results for the year ended 30 June The financial effects are presented for illustrative purposes only and because of their nature may not provide a fair reflection of the Group`s results, financial position, changes in equity after the transaction, results of operations or cash flows. 8

11 It has been assumed for the purposes of the pro forma financial effects that the above transaction took place as at 30 June 2015 for the statement of financial position and for the period 1 July 2014 to 30 June 2015 for the income statement. The directors of Petmin are responsible for the preparation of the financial effects. These pro forma financial effects should be read in conjunction with the pro forma financial information as set out in paragraph 2.3 of the circular to shareholders and the Independent Reasonable Reporting Accountants report on the pro forma financial effects as set out in Annexure C. It has been assumed that Tendele will, on closing, receive ZAR350 million in cash and will utilise this cash to reduce its debt (including a repayment to Petmin of a portion of Petmin s existing loan claim against Tendele in an amount equal to the difference between the Cash held by Tendele and ZAR ) and hence will in future benefit from a reduced interest cost. Before the transaction (1) Adjustments (2) Reviewed 30 June 2015 Pro forma after the transaction Percentage change Weighted average number of shares (000 s shares) Shares for net asset value calculation (000 s shares) Basic earnings per share (cents) (1.67) (7.27) Basic headline earnings per share (cents) (1.67) (6.88) Net asset value per share (cents) (0.00) Tangible net asset value per share (cents) (0.00) Notes and assumptions: 1. the before financial information has been extracted, without adjustment, from the published preliminary group results of Petmin for the year ended 30 June 2015 reviewed by KPMG Inc. 2. the adjustments column reflects the effects of the transaction contemplated above and includes the impact of the ZAR2.4 million founder s contribution to the Community Trust. The assumptions used above are: historical earnings remain constant; the cash received of R500 million has been utilised to settle debt of R236 million, transactions costs of R16 million and with surplus cash used to settle R230 million of the new debt facility; an interest saving of R5 million has been accounted for the year; the profits and cash flow of Tendele will finance the financing structure; and transaction costs of R16 million will be capitalised to cost of debt. 9

12 3. BEFORE AND AFTER STRUCTURE The current structure of Tendele before the conclusion of the BEE Transaction: Petmin 100% Tendele The new structure of Tendele after the conclusion of the BEE Transaction: Mpukunyoni Youth Development Trust Tendele Economic Benefits Sharing Scheme Trust Petmin 80% 20% 80% BEE SPV 20% Tendele 10

13 Directors Executive: ALK Mogotsi (Executive Deputy Chairman) JC Du Preez (Chief Executive Officer) BP Tanner (Financial Director) BB Doig (Business Development Director) Non-executive: I Cockerill (Non-executive Chairman) E Greyling M Arnold K Kalyan TD Petersen PETMIN LIMITED Incorporated in the Republic of South Africa Registration number 1972/001062/06 Share code JSE: PET ISIN: ZAE ( Petmin or the Company ) 1. CIRCULAR TO SHAREHOLDERS 1.1 Introduction Petmin is a high growth multi-commodity mining company, geographically diversified with mining operations in South Africa, and a development project in Canada and North America. The Company is focused on commodities that support the steel value chain and are required for urbanisation and infrastructure growth. It is South Africa s leading producer of metallurgical anthracite, and is developing a high-potential iron sands to pig iron project in Canada. The purpose of this circular and the accompanying notice of general meeting and form of proxy is to provide shareholders with the relevant information relating to the BEE Transaction, to give notice of the general meeting to shareholders and to enable shareholders to make an informed decision as to whether or not they should vote in favour of the resolutions proposed and set out in the notice of the general meeting. Details of Petmin subsidiaries including name, date, registrations number and share capital details are available in Petmin s Annual Financial Statements 2014 on pages at Prospects of the business Petmin s management teams have a track record of delivering value to shareholders through operational efficiency combined with well-timed acquisitions and disposals. Petmin s vision is to develop into a geographically diversified multi-commodity mining company that delivers sustained and superior returns to shareholders through capital growth and payment of dividends. The Company s strategy is to grow through expansion of its cash-producing assets, and acquisition and development of high-potential projects into profitable operations, while retaining the option to dispose of assets at the maximum point of return. Petmin is currently focusing on projects that are either in production and/or near cash. Petmin is focused on the steel value chain and commodities required for urbanisation and infrastructure. The Company continues to diversify geographically and by commodity. A mix of quality cash-producing assets and phased investment in high-potential projects enables Petmin to reduce its risk and retain a high degree of optionality. 11

14 2. THE TRANSACTION 2.1 Introduction and rationale Further to its commitment to transformation in South Africa and the imperative for broad-based BEE ( B-BBEE ), Petmin has taken the strategic decision to implement the BEE Transaction. Somkhele is South Africa s largest producer of metallurgical-grade anthracite and is operated by Petmin s wholly-owned subsidiary Tendele. Somkhele has significantly enhanced the lives of thousands of people in the Community, which Community provides more than 80% of the people employed by the mine. Petmin has created more than 900 permanent jobs at Somkhele since the mine was commissioned from a greenfield site in One of the long-term objectives of Somkhele is to enhance the lives of people in the Mpukunyoni Community over the life of the mine and beyond. It is Petmin s strategic intention to embrace the spirit of BEE and, while Petmin has adhered to the requirements as determined by the Mining Charter and the Mineral and Petroleum Resources Development Act, No. 28 of 2002, Petmin believes that to ensure long term sustainable empowerment at all its operations, it is imperative that the local community and employees become owners and share in the risk and rewards of a business. The Board has therefore decided to align the interests of the employees of the mine and the Community with that of Petmin s shareholders by offering an ownership interest in shares in Tendele to members of the Community and employees at the mine by way of an issue of shares for cash to BEE SPV for R based on Tendele s Somkhele project valuation of R1,56 billion as set out in the CPR available on the Petmin website at tendele-cpr-2015-final.pdf. This issue of shares for cash in Tendele is classified under the Listings Requirements as a Category 1 disposal which requires shareholder approval and is therefore the subject of this circular. 2.2 The Transaction Petmin will enter into the Transaction Agreements to which it is a party in terms of which, inter alia, the BEE SPV will subscribe for the BEE Subscription Shares, representing 20% (twenty percent) of the post-transaction issued share capital of Tendele, at an aggregate subscription price of R (three hundred and fifty million Rand), subject to the fulfilment or waiver, as the case may be, of certain conditions precedent Acquisition and funding steps As part of the BEE Transaction: Step 1: the Community Trust and the EBS will become ordinary shareholders of BEE SPV. In terms of the BEE SPV Subscription Agreement: the Community Trust will subscribe for 800 (eight hundred) ordinary no par value shares in BEE SPV at an aggregate nominal subscription price of R1.00 (one Rand), pursuant to which the Community Trust will hold 80% (eighty percent) of all of the issued shares in BEE SPV; and the Share Trust will subscribe for and acquire 200 (two hundred) ordinary no par value shares in BEE SPV at an aggregate nominal price of R2.00 (two Rand), pursuant to which the Share Trust will hold 20% (twenty percent) of all of the issued shares in BEE SPV Step 2: Depfin will subscribe for, and BEE SPV will issue to Depfin, the A Preference Shares at an aggregate subscription price of R (two hundred and seventy million Rand), in terms of the A Preference Share Subscription Agreement; 12

15 Step 3: Petmin will subscribe for, and BEE SPV will issue to Petmin, the B Preference Shares at an aggregate subscription price of R (eighty million Rand), in terms of the B Preference Share Subscription Agreement; Step 4: BEE SPV will utilise the aggregate subscription proceeds on account of the A Preference Shares and the B Preference Shares to subscribe for the BEE Subscription Shares at an aggregate subscription price of R (three hundred and fifty million Rand) in terms of the Tendele Subscription Agreement The BEE Transaction is therefore intended, with effect from the Effective Date, to put in place the following structures which will allow the Community (and, indirectly, the larger Mpukunyoni community) to benefit from the mining operations carried on by Tendele the Community Trust will be entitled to receive 80% (eighty percent) of any distributions made to the holders of ordinary shares in BEE SPV from time to time. The Community Trust is a discretionary trust and will have the Community as beneficiaries; the EBS will be entitled to receive 20% (twenty percent) of any distributions made to the holders of ordinary shares in BEE SPV from time to time. The beneficiaries of the EBS will, inter alia, be all employees of Tendele and employees of MMC who have been permanently employed by such entities for a continuous period for at least 1 (one) year. All of the components of the BEE Transaction are conditional upon one another and form one composite transaction Proposed Financing under the BEE Transaction A Preference Shares Depfin will provide the funding for a portion of the subscription price of the BEE Subscription Shares, being R (two hundred and seventy million Rand) in terms of the A Preference Share Subscription Agreement, the salient features thereof being: Depfin will subscribe for the 54 (fifty four) A Preference Shares at an amount of R (five million Rand) per A Preference Share, being an aggregate amount of R (two hundred and seventy million Rand); the issue date of the A Preference Shares will be the Effective Date, provided that payment has been received in full from Depfin; the A Preference Shares are cumulative redeemable preference shares and governed by the terms of the A Preference Shares forming part of the BEE SPV MOI; each A Preference Share will confer on the holder thereof (being Depfin as at the Effective Date) the right to receive distributions of BEE SPV in priority to holders of any other shares in BEE SPV, including any holders of B Preference Shares or C Preference Shares, whether upon final liquidation or otherwise; BEE SPV will be obliged to declare and pay semi-annual cumulative preferential cash dividends in arrears on each A Preference Share every 6 (six) months (commencing on the 6th (sixth) month following the Effective Date); each A Preference Share will confer on the holder thereof (being Depfin as at the Effective Date) the right to receive ongoing cumulative preferential cash dividends at a rate of 90% of the prime rate, nominal annual compound monthly; 13

16 arrear dividends or late redemptions by BEE SPV accrue additional dividends at the rate referred to in paragraph above plus 2% (two percent); BEE SPV will redeem the A Preference Shares in semi-annual redemptions as follows: Number of A Preference Shares to be redeemed Redemption Amount Scheduled Redemption The first Business Day following the expiry of the Restricted Period ( First Redemption Date ) 11 R The date falling six months after the First Redemption Date 11 R The date falling 12 months after the First Redemption Date 11 R The date falling 18 months after the First Redemption Date 11 R Final Redemption Date (being the 5th (fifth) anniversary of the issue date) 10 R BEE SPV shall be obliged to redeem all A Preference Shares by not later than the 5th (fifth) anniversary of the issue date thereof (namely the 5th (fifth) anniversary of the Effective Date); if an event occurs that has the effect that Depfin would be in a worse position, in terms of net after tax return, than it would have been in had that event not occurred, Depfin shall be entitled to give written notice thereof to BEE SPV, requiring that BEE SPV declares an additional dividend or decrease the dividend by such an amount or margin as to place Depfin in the same position as if that event had not taken place; and if certain trigger events occur (being default events) the holders of the A Preference Shares shall be entitled to require BEE SPV to redeem the A Preference Shares prior to their scheduled redemption dates (which will require additional dividends to be paid on account of the holders of the A Preference Shares incurring tax liabilities pursuant to such early redemption) B Preference Shares Petmin will provide the funding for a portion of the subscription price of the BEE Subscription Shares, being R (eighty million Rand) in terms of the B Preference Share Subscription Agreement, the salient features thereof being: Petmin will subscribe for the B Preference Shares at an amount of R (one million Rand) per B Preference Share, being an aggregate amount of R (eighty million Rand), from available funds; the issue date of the B Preference Shares will be the first business day after the conditions precedent set out in the B Preference Share Subscription Agreement become unconditional, provided that payment has been received in full from Petmin; the B Preference Shares are cumulative redeemable preference shares and governed by the terms of the B Preference Shares forming part of the BEE SPV MOI; 14

17 each B Preference Share will confer on the holder thereof (being Petmin as at the Effective Date) the right to receive distributions of BEE SPV in priority to the payment of dividends in respect of any other classes of shares in the Company, save for: the A Preference Shares, which shall rank ahead of the B Preference Shares in all respects; and the C Preference Shares, which shall rank ahead of the B Preference Shares in all respects; each B Preference Share will confer on the holder thereof (being Petmin as at the Effective Date) the right to receive ongoing cumulative preferential cash dividends at a rate of 90% of the prime rate, nominal annual compound monthly, provided that the cash flow waterfall referred to in paragraph is complied with for as long as there are any A Preference Shares or C Preference Shares in issue; BEE SPV will be obliged to declare and pay semi-annual cumulative preferential cash dividends in arrears on each B Preference Share every 6 (six) months, provided that all payments required to be made in terms of the A Preference Shares and/or the C Preference Shares have been made; arrear dividends payable by BEE SPV accrue additional dividends at the rate referred to in paragraph above plus 2% (two percent); BEE SPV shall be obliged to redeem all B Preference Shares by not later than the 7th (seventh) anniversary of the issue date thereof; if an event occurs that has the effect that Petmin would be in a worse position, in terms of net after tax return, than it would have been in had that event not occurred, Petmin shall be entitled to give written notice thereof to BEE SPV, requiring that BEE SPV declares an additional dividend or decrease the dividend by such an amount or margin as to place Petmin in the same position as if that event had not taken place; and if certain trigger events occur (being default events) the holders of the B Preference Shares shall be entitled to require BEE SPV to redeem the B Preference Shares prior to their scheduled redemption dates (which will require additional dividends to be paid on account of the holders of the B Preference Shares incurring tax liabilities pursuant to such early redemption) C Preference Shares Once the BEE Transaction has been implemented, Petmin may become obliged to subscribe for C Preference Shares in terms of the C Preference Share Subscription Agreement if and to the extent that BEE SPV is unable to discharge its payment obligations under the A Preference Share Subscription Agreement or the terms of the A Preference Shares as a result of not having sufficient available funds ( A Preference Share Shortfall ), the salient features thereof being: should an A Preference Share Shortfall arise at any time, Depfin will be entitled, by way of written notice to Petmin, to require Petmin to subscribe for such number of C Preference Shares as is equal to the A Preference Share Shortfall divided by the subscription price per C Preference Share (being R (one million Rand) per C Preference Share), and upon receipt of such written notice, Petmin shall subscribe for such C Preference Shares; the whole of the subscription price of any and all C Preference Shares will only be utilised by BEE SPV to discharge the A Preference Share Shortfall; 15

18 the C Preference Shares are cumulative redeemable preference shares and governed by the terms of the C Preference Shares forming part of the BEE SPV MOI; each C Preference Share will confer on the holder thereof (being Petmin in terms of the C Preference Share Subscription Agreement) the right to receive distributions of BEE SPV in priority to the payment of dividends in respect of any other classes of shares in the Company, save for the A Preference Shares, which shall rank ahead of the C Preference Shares in all respects; each C Preference Share will confer on the holder thereof (being Petmin in terms of the C Preference Share Subscription Agreement) the right to receive ongoing cumulative preferential cash dividends at a rate of 90% of the prime rate, nominal annual compound monthly, provided that the cash flow waterfall referred to in paragraph is complied with for as long as there are any A Preference Shares or C Preference Shares in issue; BEE SPV will be obliged to declare and pay cumulative preferential cash dividends in arrears 2 (two) business days after BEE SPV receives payment of any distributions (less any taxes and costs); arrear dividends are payable by BEE SPV at the rate referred to in paragraph above plus 2% (two percent); BEE SPV shall be obliged to redeem all C Preference Shares by not later than the 7th (seventh) anniversary of the issue date thereof; if an event occurs that has the effect that the holder of C Preference Shares (which will be Petmin) would be in a worse position, in terms of net after tax return, than it would have been in had that event not occurred, such holder of C Preference Shares shall be entitled to give written notice thereof to BEE SPV, requiring that BEE SPV declares an additional dividend or decrease the dividend by such an amount or margin as to place such holder of C Preference Shares in the same position as if that event had not taken place; and if certain trigger events occur (being default events) the holders of the C Preference Shares shall be entitled to require BEE SPV to redeem the C Preference Shares prior to their scheduled redemption dates (which will require additional dividends to be paid on account of the holders of the C Preference Shares incurring tax liabilities pursuant to such early redemption) Cash flow waterfall Unless otherwise agreed in writing by the majority holders of the A Preference Shares, all monies received by BEE SPV from time to time from whatever source (including, but not limited to, dividends, other income and Special Distributions) (Proceeds) may only be used to make payment of the following amounts and, to the extent of any shortfall, in the following order of priority: first, towards payment of any applicable taxes; second, towards payment of evidenced administrative costs and disbursements incurred by BEE SPV in respect of the Funding Documents (as such term is defined in the A Preference Share Subscription Agreement) and its day-to-day administration, in an aggregate amount not exceeding ZAR per annum; third, towards the payment of A Preference Share dividends that ought to have been paid but have not been paid; 16

19 fourth, towards the payment of A Preference Share dividends which have accrued but not been paid; fifth, prior to the expiry of the Restricted Period, towards (and in the following order of priority): the payment of dividends accrued in respect of the C Preference Shares (to the extent applicable); and any voluntary redemption of the A Preference Shares; sixth, but only after the expiry of the Restricted Period, towards (and in the following order of priority): redemption of unredeemed A Preference Shares on their scheduled redemption dates; the payment of dividends accrued in respect of the C Preference Shares (to the extent applicable); any voluntary redemption of the C Preference Shares (to the extent applicable), provided that the ratio that the redemption amount of the C Preference Shares bears to the aggregate issue price of the unredeemed C Preference Shares on such date (prior to the redemption) does not exceed the ratio that the redemption amount of the A Preference Shares payable in terms of the A Preference Share Subscription Agreement bears to the issue price of the unredeemed A Preference Shares on that date (prior to the redemption); and any voluntary redemption of the A Preference Shares; seventh, provided that no trigger event under the A Preference Share Subscription Agreement has occurred and is continuing, towards payment by BEE SPV (at the discretion of BEE SPV) of dividends accrued in respect of the B Preference Shares in accordance with their terms; and eight, provided that no trigger event under the A Preference Share Subscription Agreement has occurred and is continuing, towards payment by BEE SPV (at the discretion of BEE SPV) in the ordinary course of business to the holders of ordinary shares in BEE SPV, provided always that, subject to the provisions of the above cash flow waterfall having been met, BEE SPV may, in its discretion, apply any surplus proceeds not applied in accordance with paragraphs to above towards an investment which is permitted in terms of the A Preference Share Subscription Agreement RCF Agreement As part of the BEE Transaction, Nedbank will make the Facility available to Tendele in terms of the RCF Agreement, the salient features thereof being: Nedbank will make a revolving credit facility in a maximum amount of R (two hundred and thirty million Rand) available to Tendele in replacement of the current Standard Bank facility for normal working capital requirements; the Facility is available to Tendele for a period of 5 (five) years from the date on which Nedbank confirms in writing to Tendele that all of the conditions precedent set out in the RCF Agreement have been fulfilled or waived, as the case may be ( Financial Close ); Tendele will be entitled to utilise the Facility by requesting Nedbank in writing to make an amount available for draw-down, provided that the amount in each request is at least R (fifteen million Rand) unless the available Facility is less than such amount; 17

20 Tendele may select an interest period of 1 (one), 3 (three) or 6 (six) months for any particular loan under the Facility; Interest will accrue on the loans under the Facility at a rate of JIBAR plus 2.85%, calculated as follows: Interest period Calculation of interest 1 month nominal annual compounded Monthly in arrears 3 months nominal annual compounded quarterly in arrears 6 months nominal annual compounded semi-annually in arrears Tendele will be required to repay all loans outstanding under the Facility, including all interest accrued thereon, within a period of 5 (five) years from the Financial Close; Tendele may not, without the prior written consent of Nedbank, be entitled to cancel all or that part of the unutilised portion of the Facility prior to the redemption in full of the A Preference Shares in accordance with the A Preference Share Subscription Agreement (Redemption) such that the aggregate amount outstanding under the Facility and the amount available under Facility at any time shall, following such cancellation, be less than R (thirty million Rand) Default interest shall accrue on all unpaid sums under the Facility at a rate of the applicable interest rate plus 2% (two percent); Tendele shall ensure that, in respect of any period of 12 months ending on the last day of June and December in each calendar year: the interest cover ratio (being the EBITDA of Tendele divided by the total interest payable by Tendele on account of its interest-bearing financial indebtedness during such period) shall not be less than four times; the ratio of its total net debt to EBITDA shall not be greater than two times; and the ratio of its total net debt to equity shall not be greater than 0,75 times Subordination agreement Petmin will subordinate all of its claims against Tendele and BEE SPV in favour of Nedbank and Depfin on account of the claims of Nedbank and Depfin under the Finance Documents (as defined in the Subordination Agreement), including the A Preference Share Subscription Agreement and the RCF Agreement Pledge and Cession in securitatem debiti The Community Trust and the Share Trust will guarantee BEE SPV s performance of its obligations to Depfin and Nedbank under the Funding Documents (as such term is defined in the A Preference Share Subscription Agreement) including the A Preference Share Subscription Agreement and the RCF Agreement, and as security for the obligations under such guarantee, each of the Community Trust and the Share Trust will pledge and cede in securitatem debiti to Depfin and Nedbank all of its shares in and claims against BEE SPV Conditions precedent The implementation of the BEE Transaction is subject to the fulfilment of all of the conditions precedent contained in the Transaction Agreements, which inter alia require that, by not later than [31 October 2015]: the board of directors of BEE SPV approves and ratifies the entering into of each Transaction Agreement to which it is a party; the board of directors of Petmin approves and ratifies the entering into of each Transaction Agreement to which it is a party; the board of directors of Tendele: 18

21 approves and ratifies the entering into of each Transaction Agreement to which it is a party; resolves to issue the BEE Subscription Shares in accordance with the provisions of the Tendele Subscription Agreement and acknowledges that the Subscription Price as defined in the Tendele Subscription Agreement constitutes adequate consideration for the purposes of section 40(1)(a) of the Companies Act; the Tendele Board has resolved to distribute ZAR (three hundred and twenty five million) ( Distribution Amount ) to Petmin, which distribution will be completed by the creation of a loan account in the Distribution Amount in the books of Tendele in favour of Petmin, and has reasonably concluded that Tendele will satisfy the solvency and liquidity test in terms of the Companies Act immediately after completing such distribution; Petmin, the sole shareholder of Tendele, authorises the board of directors of Tendele to issue the BEE Subscription Shares in accordance with the provisions of the Tendele Subscription Agreement; the Transaction Agreements have been entered into and have become unconditional in accordance with their respective terms, save for any condition requiring that this Agreement becomes unconditional; the shareholders of Petmin have given any and all approvals required for the implementation of the BEE Transaction, including any approvals required in terms of the Companies Act and the Listings Requirements of the JSE Limited Financial Assistance, Solvency and Liquidity Statement In terms of section 44(3)(a)(ii) of the Companies Act, a special resolution authorising Petmin to provide financial assistance to BEE SPV to acquire the BEE Subscription Shares is required. In terms of section 45(3)(a)(ii) of the Companies Act, a special resolution authorising Petmin to provide direct or indirect financial assistance in terms of the Transaction Agreements to BEE SPV and Tendele is required. These special resolutions will be proposed at the general meeting to the extent that they have not already been previously passed After considering the terms of the BEE Transaction, the Board is satisfied that subsequent to providing the financial assistance described above: Petmin and the Group will be able to pay their debts as they become due in the ordinary course of business; and the assets of Petmin and the Group, as fairly valued, will be equal or in excess of the liabilities of Petmin and the Group, as fairly valued. For this purpose, the assets and liabilities have been recognised and measured in accordance with the accounting policies used in the Group s latest audited consolidated annual financial statements. Furthermore, for this purpose, contingent liabilities have been accounted for as required in terms of section 4(2)(b)(i) of the Companies Act, provided that the Board will not authorise Petmin to provide such financial assistance in terms of sections 44 and/or 45 of the Companies Act until the special resolutions of the shareholders of Petmin contemplated in paragraph have been adopted. 2.3 Pro forma effects of the Transaction The pro forma financial effects set out below have been prepared for illustrative purposes only and because of their nature may not give a fair reflection of the financial position of the Company. The preparation of the financial effects is the responsibility of the directors of Petmin. 19

22 The table below sets out the pro forma financial effects of the BEE Transaction on Petmin, based on Petmin s reviewed preliminary results for the year ended 30 June The financial effects are presented for illustrative purposes only and because of their nature may not give a fair reflection of the Group s results, financial position and changes in equity after the implementation of the BEE Transaction. It has been assumed for purposes of the pro forma financial effects that the BEE Transaction took place as at 30 June 2015 for the Statement of Financial Position and for the Income Statement with effect from 1 July The directors of Petmin are responsible for the preparation of the financial effects. The pro forma financial effects are presented in a manner consistent with the basis on which historical financial information of Petmin has been prepared and in terms of Petmin s accounting policies Pro forma consolidated preliminary statement of financial position Before (#1) Reviewed 30 June 2015 Adjustments After Pro-forma after transaction R 000 R 000 R 000 Assets Non-current assets Property, plant and equipment Investment in equity accounted investee Loan due from joint venture Investments Current assets Inventory Trade and other receivables Taxation receivable Cash and cash equivalents (#2) Total assets Equity and liabilities Ordinary share capital and reserves Share capital Share premium Share option reserve Foreign currency translation reserve Retained earnings Non-current liabilities Long-term borrowings (#3) Environmental rehabilitation provision (#4) Deferred taxation Current liabilities Trade and other payables Revenue in advance Current portion of interest bearing loans and borrowings Hedge liability ( ) (#3) Shareholders for dividend Bank overdraft Total equity and liabilities Net asset value per share Tangible net asset value per share (#1) The before column has been extracted, without adjustment, from the reviewed results for the year ended 30 June

23 (#2) Cash and cash on hand has been adjusted for the following: R million Notes Cash inflow R270 million A Pref 270 As detailed in paragraph R230 million Nedbank RCF 230 As detailed in paragraph Cash outflow R100 million Standard Bank Term Loan repaid 41 R208 million Standard Bank RCF repaid 195 Transaction costs (after tax) 12 Surplus cash used to repay Nedbank RCF (#3) Interest bearing loans and liabilities has been adjusted as follows: Proforma Before After R million R million Standard Bank Term loan 41 0 Standard Bank RCF IDC Revenue in advance Nedbank A preference share 270 Nedbank RCF Representing the residual amount of the Nedbank RCF Deferred arrangement fees (16) Total interest-bearing loans and borrowings Less short term Long term portion (#4) The adjustment to deferred tax represents the tax effect of the R16 million deferred arrangement fees and expenses for the financing deal. Other than disclosed on pages 52 and 53 of the Annual Financial Statements for the year ended 30 June 2014, details of which are available at integrated-report/afs-2014.pdf and note 13 of the Condensed Consolidated Preliminary Financial Statements for the year ended 30 June 2015 included as Annexure A to this circular and the financial arrangements which are the subject of this circular, the Company has no other loans. 21

24 2.3.2 Pro forma consolidated preliminary income statement Notes Before(#1) Reviewed 30 June 2015 Adjustments Notes After Pro-forma after transaction R 000 R 000 R 000 Revenue Cost of sales ( ) ( ) Gross profit Other (loss)/income (19 861) (8 976) (#2) (28 837) Administrative expenses (16 605) (16 605) Profit from operating activities (8 976) Net finance expense (32 521) (27 230) Finance income Finance expenses (39 838) (#3) (34 547) Separately disclosed items: Impairment of investments in equity accounted investees, net of tax (3 317) (3 317) Impairment of property, plant and equipment (3 747) (3 747) Share of (loss)/profit of equity accounted investees, net of tax Profit/(Loss) before income tax (3 685) Income tax expense 17 (54 937) (5 432) (#4) (60 369) Profit/(Loss) for the period (9 117) Earnings per share Basic earnings per ordinary share (cents) (1.67) Headline earnings per ordinary share (cents) (1.67) (#1) The before column has been extracted, without adjustment, from the reviewed results for the year ended 30 June (#2) Cash and cash on hand has been adjusted for the following: (#3) Interest bearing loans and liabilities has been adjusted as follows: (#4) The adjustment to deferred tax represents the tax effect of the R16 million deferred arrangement fees and expenses for the financing deal. All adjustments are expected to have a continuing impact on Petmin, with the exception of the transaction cost and the founder s contribution to the Community Trust. 2.4 Opinion and recommendation The Directors of Petmin recommend that shareholders vote in favour of the resolutions proposed to implement the transaction and have indicated that they intend voting in favour thereof. To this end, shareholders are requested to consider, and if deemed appropriate, pass the resolutions in the accompanying notice of general meeting, which is included in and forms an integral part of this circular. 22

25 3. GENERAL 3.1 General meeting of shareholders A general meeting of shareholders of Petmin will be held at 37 Peter Place, Bryanston, at 10:00 on Monday, 9 November 2015, to consider the resolutions required to give effect to the BEE Transaction set out in this circular. Certificated shareholders or own name dematerialised shares who are unable to attend the general meeting are requested to complete the attached form of proxy and return it in accordance with the instructions and notes contained therein to the transfer secretaries to be received, by not later than 10:00 on Friday, 6 November Shareholders holding dematerialised shares other than in own name who wish to attend the general meeting or to vote by way of proxy, must contact their CSDP of stockbroker who will furnish them with the requisite Letter of Representation authority to attend the general meeting or to be represented thereat by proxy. Such authorisation must be obtained in terms of the custody agreement between the relevant shareholder and his CSDP or stockbroker. 3.2 Share capital Authorised and issued share capital The authorised and issued share capital of Petmin as at 30 June 2015 is as follows: R 000 Authorised share capital ordinary shares of 25 cents each Total authorised share capital Issued share capital* ordinary shares of 25 cents each Total issued share capital Share premium Total share capital and premium * Including treasury shares held by Petmin Management Company (Proprietary) Limited Alterations to share capital There were no shares issued during the year ended 30 June At the last practicable date, Petmin Management Company (Proprietary) Limited, a wholly owned subsidiary of Petmin, held treasury shares at an average price of 165 cents per share Major shareholders As at the last practicable date the major shareholders of the Company were as follows: Shareholder Direct/Indirect Number of shares held % holding of shares Dark Capital International Ltd** Indirect Afena Capital* Indirect Investec* Indirect Regarding Capital Management* Indirect JC du Preez Direct and Indirect FirstRand Indirect Total *Includes funds managed on behalf of third parties. ** The ultimate beneficial shareholder of Dark Capital International Ltd is Mr RM Martin. The directors are not aware of any controlling shareholders. 23

26 3.3 Directors There has been no change in the directors or management of Petmin or their remuneration since the last Annual General Meeting to date. As announced on 8 September 2015, Mrs Mogotsi will assume the role of non-executive Deputy Chairman with effect from the Company s next Annual General Meeting to be convened later this year. The remuneration received by the individual directors will not vary as a consequence of any of the actions contemplated in this circular and there will be no change in the directors of the Company as a result of the transaction Directors interest The table below sets out the direct and indirect interests of directors in the issued ordinary shares of Petmin as at the last practicable date, and no change has occurred since 30 June 2015 and the date of this circular: Current shareholding Shareholding as at 30 June 2015 Director Direct Indirect Indirect/ Non beneficial Direct Indirect Indirect/ Non beneficial I Cockerill L Mogotsi J du Preez B Doig B Tanner E de V Greyling M Arnold K Kalyan TD Petersen Total The directors held the following share options (with an exercise price of 250 cents per share) at 30 June 2015: *Management Options as at Name 30 June 2015 I Cockerill J du Preez L Mogotsi B Doig B Tanner Sub-total * These options were awarded during the year ended 30 June 2014 and expire on 30 June At the AGM held on 22 May 2015, it was resolved that the previously approved share option scheme is not implemented and that all outstanding option schemes be cancelled and replaced by a new long-term incentive scheme. The proposed new scheme will be brought before shareholders for approval once concluded. No share options were exercised during the year ended 30 June 2015 and, as a result of the resolution taken at the AGM held on 22 May 2015, the directors currently do not hold any share options Other than as disclosed above no other director of any of the subsidiaries holds any securities in the company Directors interest in transactions The directors and directors who have resigned during the last 18 months, have certified that they held no material beneficial interest, whether direct or indirect, in any transactions, 24

27 which significantly affected the business of the Company or any of its subsidiaries during the current or immediately preceding financial year, or during an earlier financial year and remain in any respect outstanding or unperformed. Accordingly, no conflict of interest with regards to directors interests in contracts exists. There have been no changes to the above since 30 June 2015 and up to the date of this circular Directors responsibility The directors as disclosed in paragraph 3.3 of this circular, collectively and individually accept full responsibility for the accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement herein false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that the circular contains all information required by law and the JSE Listings Requirements. 3.4 Costs The cash expenses of the transaction are estimated to be R16 million and relate, inter alia, to: R 000 Printing, publication and distribution cost of this circular 150 Fees payable to professional advisers: River Group KPMG SRK Legal advisors Nedbank arrangement fee Security transaction costs Corporate action fees to Strate and Computershare 100 JSE documentation fee 100 Other incidentals 286 Total Petmin has not incurred any other, preliminary or otherwise, expenses within the three years preceding the date of the circular regarding the transaction or any of the actions contemplated in this circular. 3.5 King code The Board of Directors endorses the Code of Good Corporate Practices and Conduct as detailed in the King III Report and uses the corporate governance requirements as a basis for the governance structure through which the Group is directed, controlled and managed. Notwithstanding the governance structure set in place the Board of Directors believes and, in fact, places great emphasis on ensuring compliance with the substance of corporate governance. The Board of Directors accepts that it is ultimately responsible for ensuring the effectiveness of corporate governance in Petmin Board of Directors The Company has a unitary Board of Directors with the roles of the Chairman and Chief Executive Officer separated and their responsibilities clearly defined. The Board is comprised of five non-executive directors and four executive directors. The recommendation in King III that the Board comprise of a majority of non-executive directors has been applied. As the non-executive Chairman is a former executive, the Board has elected a Lead Independent director as required by King III. The Board has adopted a policy detailing procedures for the appointments to the Board. All appointments are formal and transparent, and a matter for the Board as a whole. There exists a clear division of responsibilities at Board level that ensures a balance of power and authority, such that no one individual has unfettered powers of decision-making. 25

28 3.5.2 Board Committees The Board has appointed a number of committees to assist it in the performance of its duties. These committees include: Audit and Risk Committee The Committee s roles and responsibilities include its statutory duties as per the Companies Act and responsibilities assigned to it by the Board including an oversight role regarding the Company s integrated annual report and the reporting process, including the system of internal control. The Committee annually conducts objective evaluations in respect of its performance regarding its role and functioning. The Committee comprises of the following non-executive directors: E de V Greyling K Kalyan TD Petersen (Chairman) The Audit and Risk Committee meets quarterly Remuneration Committee This Committee is responsible for reviewing and recommending the remuneration of executive and non-executive directors. The Committee is chaired by an independent non-executive director and comprises another two non-executive directors: E de V Greyling (Chairman) K Kalyan TD Petersen The Committee meets at least once a year. 3.6 Advisors and experts consents The sponsor, reporting accountants, attorneys, Company Secretary, SRK and transfer secretaries have all provided their written consents to act in the capacity stated and to their names being used in this circular and have not withdrawn their consents prior to the publication of this circular. 3.7 Litigation statement As at the last practicable date, and other than as disclosed in the Annual Financial Statements for the year ended 30 June 2014 and as disclosed in the Condensed Consolidated Preliminary Financial Statements for the year ended 30 June 2015, the directors of the Company are satisfied that Petmin and its subsidiaries are not involved in any material legal or arbitration proceedings or legal actions, nor are the directors aware of any proceedings that are pending or threatened, that may have, or have had in the 12-month period preceding the last practicable date, a material effect on the Company s financial position. 3.8 Material changes There have been no material changes in the financial or trading position of Petmin and its subsidiaries since the publication of Petmins annual results for the period ended 30 June 2014 and preliminary results for the year ended 30 June Working capital statement It is the opinion of the directors that the working capital available to Petmin and its subsidiaries is sufficient for the group s present requirements, that is, for at least the next 12 months from the date of issue of the circular Material contracts Other than the contracts relating to this circular, Petmin and the Group have not entered into any material contracts in the last two years, either verbally or in writing, being restrictive funding 26

29 arrangements and/or other contracts that may contain obligations or settlements that are material, other than in the ordinary course of business Documents available for inspection Copies of the following documents will be available for inspection at the registered office of Petmin during normal business hours on any business day up to the close of business on 5 November 2015: Memorandum of Incorporation or Memorandum and articles of association of Petmin and subsidiaries; agreements affecting the governance of Petmin and the interests of shareholders; copies of the Transaction Agreements; the latest Competent Person s Report; copies of service agreements with directors and managers; all reports, letters, financial statements and statements by experts; audited annual financial statements of Petmin for the three preceding financial years; preliminary financial statements for the year ended 30 June 2015; agreements entered into the past three years other than in the normal course of business; and written consents of the appointed professional advisors Documents included by reference Document Competent Person s Report on the Material Assets of Tendele Coal Mining (Pty) Ltd 2014 Integrated Report and Annual financial statements Reference final.pdf afs-2014.pdf By order of the Board Company Secretary Johannesburg 5 October 2015 Registered office Transfer secretaries First Floor, 37 Peter Place Computershare Investor Services (Proprietary) Limited Bryanston 70 Marshall Street Johannesburg, 2021 Johannesburg, 2001 (PO Box 6070, Rivonia, 2128) (PO Box 61051, Marshalltown, 2107) 27

30 ANNEXURE A PETMIN LIMITED PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2015 Committed to growth, dedicated to value Condensed Consolidated Preliminary Financial Statements for the year ended 3 0 June Headline earnings per share (HEPS) cents, up 62% (2014: cents) as disciplined management and cost controls pay off. Salient features : PETMIN LIMITED (Incorporated in the Republic of South Africa) (Registration N umber 1972/001062/06) JSE code: PET ISIN: ZAE ( Petmin or the Group ) Normalised e arnings increase by 30% to R million (2014: R million) R 901 m illion net cash flow from operating activities up 35% (201 4 : R 668 million) Shareholding in North Atlantic Iron Corporation ( N AIC ) increased to 35 % (2014: 33%). Site selected for first plant and detailed engineering designs underway. Agreement reached with local community and Nedbank for a R350 million finance package for broad-based BEE transaction granting the local community and employees a 20% stake in the Somkhele anthracite mine. The transaction remains s ubject to shareholder approval. Preparation The se condensed consolidated preliminary financial statements for the year ended 30 June have been prepared under the supervision of Petmin s financial director, Mr BP Tanner CA(SA) (refer to Note 2 of these financial statements). Review of results These condensed consolidated preliminary financial statements for the year ended 30 June have been reviewed by the Group s auditors, KPMG Inc., ( refer to Note 6 of these financial statements ). 28

31 Condensed Consolidated Preliminary Income Statement for the year ended 30 June 2015 Reviewed Audited Year ended Year ended 30 June 30 June Note R 000 R 000 Revenue Cost of sales ( ) ( ) Gross profit Operating expenses (19 861) (14 527) Administration expenses (16 605) (20 597) Profit from operating activities Fair value adjustments on listed securities (13 464) Net finance expense (32 521) (32 546) Finance income Finance expenses (39 838) (39 083) Separately disclosed items: Impairment of investments in equity accounted investees, net of tax (3 317) ( ) Impairment loss on property, plant and equipment (3 747) Share of profit of equity accounted investees, net of tax Profit/(Loss) before income tax (77 968) Income tax expense (54 937) (41 457) Profit/(Loss) for the year ( ) Earnings per share Basic earnings/(loss) per ordinary share (cents) (20.70) Diluted earnings/(loss) per ordinary share (cents) (20.70) Condensed Consolidated Preliminary Statement of Comprehensive Income for the year ended 30 June 2015 Reviewed Audited Year ended Year ended 30 June 30 June R 000 R 000 Profit/(Loss) for the year ( ) Other comprehensive income (after tax) Items that may be reclasssified to profit or loss Foreign currency translation (losses)/gains on equity accounted investees (3 437) Share of fair value gain in equity accounted investee Cash flow hedges reclassified to profit or loss Other comprehensive income for the year, net of income tax Total comprehensive income/(loss) for the year (93 693) Condensed Consolidated Preliminary Statement of Financial Position as at 30 June 2015 Reviewed Audited 30 June 30 June Note R 000 R 000 ASSETS Non-current assets Property, plant and equipment Investment in equity accounted investee Loan due from joint venture Investments Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents Total assets EQUITY AND LIABILITIES Ordinary share capital and reserves Share capital Share premium Share option reserve Foreign currency translation reserve Retained earnings Non-current liabilities Interest bearing loans and borrowings Deferred taxation liabilities Environmental rehabilitation provision Current liabilities Trade and other payables Revenue in advance Current portion of interest bearing loans and borrowings Hedge liability Shareholders for dividend Bank overdraft Total equity and liabilities

32 Condensed Consolidated Preliminary Statement of Cash Flows for the year ended 30 June 2015 Reviewed Audited Year ended Year ended 30 June 30 June R 000 R 000 Profit from operating activities before finance (expense)/income Adjustments for: depreciation notional interest Loss on disposal of property, plant and equipment long-term rehabilitation expenditure incurred (429) Impairment of receivable on sale of subsidiary reversal of accrual (8 132) write down to net realisable value of inventory share options granted Operating cash flows before changes in working capital Decrease in trade and other receivables Increase in inventories (13 175) ( ) Increase/(Decrease) in trade and other payables (11 440) Increase in revenue received in advance Increase in hedging liability Cash generated by operations Income tax paid (46 133) (1 542) Interest received Interest paid (39 838) (39 083) Net cash flow from operating activities Cash flows from investing activities Acquistion of subsidiary (net of cash acquired) 8 (11 974) Investment in equity accounted investees 9 (32 115) (67 459) Decrease/(Increase) in loans to equity accounted investees (6 434) Acquisition of property, plant and equipment ( ) ( ) to expand operations (11 276) (25 326) to expand operations capitalised pre-strip 10 ( ) ( ) to maintain operations (16 618) (19 481) Proceeds from sale of property, plant and equipment Net cash flows used in investing activities ( ) ( ) Cash flows from financing activities Treasury shares acquired 7 (43 613) (4 152) Repayment of borrowings ( ) (19 562) Increase in borrowings Dividends paid (16 857) (17 245) Net cash flows from financing activities ( ) (878) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year (29 220) Cash and cash equivalents at end of year

33 Condensed Consolidated Preliminary Statement of Changes in Equity for the year ended 30 June 2015 Cash Foreign Share flow currency Share Share option hedging translation Retained capital premium reserve reserve reserve earnings Total GROUP R 000 R 000 R 000 R 000 R 000 R 000 R 000 Balance at 30 June (2 619) Total comprehensive income for the year, net of income tax ( ) (93 693) Loss for the year ( ) ( ) Share of fair value gain in equity accounted investee Effective portion of changes in fair value of cash flow hedges Foreign currency translation differences Transactions with owners, recorded directly in equity (425) (3 727) (17 229) (10 524) Treasury shares acquired during the year (425) (3 727) (4 152) Share options granted Dividends paid (17 229) (17 229) Balance at 30 June Total comprehensive income for the year, net of income tax (3 437) Profit for the year Share of fair value gain in equity accounted investee Foreign currency translation differences (3 437) (3 437) Transactions with owners, recorded directly in equity (7 124) (36 489) (17 031) (60 644) Treasury shares acquired during the year (7 124) (36 489) (43 613) Dividends paid (17 031) (17 031) Balance at 30 June

34 Condensed Consolidated Preliminary Financial Statements for the six months ended 30 June 2015 Segment reporting Segment information is presented in the financial statements in respect of the Group's segments. The segment reporting format reflects the Group s management and internal reporting structure as reviewed by the chief operating decision makers. Segment revenue represents revenue to external customers. There was no inter-segment revenue. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Reportable segments The group comprises the following main reportable segments: Anthracite mining and marketing ( Anthracite ) Expansion projects, which includes Petmin's exploration and development projects. Anthracite Expansion projects Eliminations Consolidated Year Year Year Year Year Year Year Year Units ended ended ended ended ended ended ended ended of 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June measure Anthracite Saleable tonnes produced (tonnes) Anthracite Tonnes sold (tonnes) Energy saleable tonnes produced (tonnes) Energy tonnes sold (tonnes) Segment revenue R Segment finance (expense)/income R 000 Finance income R Mark to market of listed securities R 000 (13 464) (13 464) Finance expense R 000 (35 517) (35 576) (4 321) (3 507) (39 838) (39 083) Segment profit/(loss) before tax R (2 448) ( ) (1 773) (29 025) (77 968) Segment tax expense R 000 (50 220) (39 237) (4 717) (2 220) (54 937) (41 457) Segment profit/(loss) after tax R (2 448) ( ) (6 490) (31 244) ( ) Segment capital expenditure combined R Segment capital expenditure R Segment capital expenditure pre-strip* R Segment depreciation combined R Segment depreciation R Segment depreciation pre-strip* R Share option costs included in segment profit/(loss) before tax R Segment assets R Percentage of segment assets to total assets (percent) Segment liabilities R (43 776) ( ) Percentage of segment liabilities to total liabilities (percent) (5) (20) (*) See note

35 Notes to the Condensed Consolidated Preliminary Financial Statements for the year ended 30 June Reporting entity Petmin is a company domiciled in South Africa. The condensed consolidated preliminary financial statements of the Group for the year ended 30 June 2015 comprise the Company and its subsidiaries and the Group s interests in associates and joint arrangements (together referred to as the Group ). The condensed consolidated preliminary financial statements were authorised for issue by the directors on 8 September Basis of preparation The condensed consolidated preliminary financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated preliminary financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements. 3. Accounting policies The accounting policies have been applied consistently by the Group to all periods presented in these condensed consolidated preliminary financial statements and are consistent to those applied by the Group in its consolidated financial statements for the year ended 30 June Functional and presentation currency The condensed consolidated preliminary financial statements are presented in South African Rands ( Rands ), which is the Company s functional currency. All financial information presented in Rands has been rounded to the nearest thousand. 5. Estimates and judgements The preparation of the condensed consolidated preliminary financial statements, in conformity with IAS 34 Interim Financial Reporting, requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated annual financial statements as at and for the year ended 30 June Review of results These condensed consolidated preliminary financial statements for the year ended 30 June 2015 have been reviewed by the Group s auditors, KPMG Inc., who expressed an unmodified review conclusion. The auditor s review report does not necessarily report on all of the information contained in these financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor s review engagement they should obtain a copy of the auditor s review report from the Company s registered office at 37 Peter Place, Bryanston, 2021, Johannesburg or at together with the preliminary financial statements identified in the auditor s report. 7. Earnings and diluted earnings per share Earnings per share ( EPS ) are based on the Group s profit for the period, divided by the weighted average number of shares in issue during the period. Reviewed Audited Year ended Year ended 30 June 30 June Profit for Number of Profit for Number of the year shares in Per share the year shares in Per share R 000 thousands in cents R 000 thousands in cents Basic earnings per share ( ) (20.70) Share options and contingent consideration* Diluted EPS ( ) (20.70) Headline earnings per share Headline earnings per share is based on the Group's headline earnings divided by the weighted average number of shares in issue during the period. Reconciliation between earnings and headline earnings per share Basic EPS ( ) (20.70) Adjustments: Loss on sale of property, plant and equipment Impairment of property, plant and equipment Impairment of equity accounted investees Headline EPS Share options and contingent consideration* Diluted headline EPS (*) At the reporting dates, the ruling share price of Petmin's shares was below the strike price of the options. As the exercise of the options would be anti-dilutive, they have been ingored for the dilution calculations. During the year ended 30 June 2015, the Group acquired of its own shares at an average acquisition price of R1.53 per share. At 30 June 2015, the Group held of its own shares in treasury stock, representing 5.69% of the total issued shares. 33

36 8. Acquisition of subsidiary As previously disclosed in the Interim results for the six months ended 31 December 2014, on 1 December 2014, Petmin acquired 100% of the shares and loans of West Road Property 1 Proprietary Limited (WRP) for a total purchase consideration of R12.5 million. WRP owns the premises occupied by the Petmin corporate team. The acquisition has been treated as an asset acquisition. The acquisition had the following effect on the Group s assets and liabilities at acquisition on 1 December Recognised values Deferred tax (1 512) Fixed assets Bank and cash 526 Creditors (264) Paid in cash (12 500) Cash acquired 526 Net cash outflow (11 974) 9. Investments 9.1 Investment in NAIC During the year ended 30 June 2015 Petmin invested an additional R29 million (2014: R68 million) in North Atlantic Iron Corporation (NAIC). Petmin s shareholding in NAIC is now 35% (30 June 2013: 33%). 9.2 Investment in CPF Companhia Portuguesa Do Ferro, S.A. (CPF) During the year ended 30 June 2015, Petmin invested R3 million in the Moncorvo iron-ore to pig-iron project held by CPF. Petmin s deal with CPF was structured as stepped investments to assist funding of the project feasibility studies in three phases, ultimately taking Petmin s shareholding to 40%. The first tranche investment resulted in Petmin acquiring a 10% shareholding in CPF and was used to fund metallurgical test work. After receipt of initial metallurgical test results that did not meet Petmin s investment criteria, Petmin has decided to fully impair its investment in CPF. Petmin remains a shareholder in the project and will reassess its strategy for the project going forward. 10. Pre-stripping cost Year ended Year ended 30 June June 2014 R million R million Opening balance in statement of financial position Cash spend for the year Mining expensed on a units-of-production basis (depreciation) (505) (521) Closing balance in statement of financial position Petmin incurred cash stripping costs amounting to R448 million during the year ended 30 June 2015 (2014: R498 million). It is Petmin s accounting policy to record the cash cost incurred on these stripping activities as additions to mine development cost under property plant and equipment (a non-current asset). These capitalised cash costs are expensed (depreciated) as coal is extracted. This is done on a units-of-production basis over the life of the component of the ore body to which access is improved and amounted to R505 million during the year ended 30 June 2015 (2014: R521 million). This resulted in a net decrease in the expenditure capitalised to pre-stripping activities of R57 million during the current year (2014: R23 million). The depreciation is, in reality, the mining cost (stripping cost) that is expensed during the year when anthracite is produced (removed from the pit). 11. Liquidity and going concern The Group remains strongly cash generative and the directors believe that there is sufficient liquidity and funding available to finance the Group s operations for the foreseeable future and that the going concern assumption is appropriate. 12. Inventory R20.8 million (2014: R40.6 million) of inventory is plant feed that will only be processed in greater than 12 months. Inventory is recorded net of net realisable value provisions amounting to R27.6 million (2014: R3.4 million) after taking into account the depressed state of the market. 13. Revenue in advance During the year ended 30 June 2015, Petmin received prepayments for certain export sales, the prepayment recorded at 30 June 2015 is dollar denominated and interest is accrued on the outstanding balance at a rate of 3.5% per annum. 14. Contingent liability As announced on 21 May 2015, Petmin s subsidiary Tendele Coal Mining (Pty) Limited, has withdrawn from the arbitration with its customer, as described in Note 13 of Petmin's December 2014 Interim Financial Statements published on SENS on Tuesday 24 February 2015 and will now seek declaratory relief from the High Court that the contract concerned is void. This course of action has been taken due to information recently coming to Tendele's and Petmin's attention during the course of the arbitration proceedings which is being considered and dealt with by Petmin. Tendele and its legal advisors believe that the claims that were subject to the arbitration are unlikely to be successful hence no liability has been recognised at 30 June Broad-based BEE transaction for Tendele Coal Mining (Pty) Ltd (Tendele) On 10 June 2015, Petmin announced a R350 million Broad-Based Black Economic Empowerment deal with the community around its mine (the beneficiaries being the children of the community) and with its employees for a 20% stake in Somkhele anthracite mine The transaction is subject to the approval of Petmin shareholders at a general meeting. The transaction circular is expected to be distributed to shareholders during September 2015, with the General Meeting expected to be held before the end of October

37 16. Related parties The Group entered into various transactions with related parties which occurred under terms that are no more favourable than those arranged with independent third parties (None of these related parties include management or directors of Petmin.). 17. Subsequent events 17.1 Declaration of dividend On 8 September 2015, the Company announced that it had declared a dividend of 5 cents per share which is in line with the approved dividend policy. The record date for payment of the cash dividend is 16 October Please refer to the separate notice of the declaration of dividend dated 8 September Customer entered into business rescue On 26 August 2015, Tendele was informed that one of its local customers, International Ferro Metals (SA) (Pty) Limited (IFMSA) has entered into Business Rescue. All amounts due by IFMSA to Tendele that were included in accounts receivable at 30 June 2015 have been paid. Accounts receivable for deliveries made after 30 June 2015 to IFMSA amount to approximately R10 million and are subject to the Business Rescue Process Change in role of director On 8 September 2015, the Company announced that Mrs Lebo Mogotsi, the current executive Deputy Chairperson of Petmin, will assume the role of non-executive Deputy Chairperson with effect from the Company s annual general meeting (AGM) to be convened later this year. Mrs Mogotsi will remain on the Board and will be available on a consulting basis to Petmin, and will continue to be an integral part of the strategy, development and growth of the Company Wage agreement As announced on 6 August 2015, Tendele concluded a two-year wage agreement with NUM and AMCU, effective from 1 July 2015, comprising a Total Cost to Company (TCTC) increase of 8.6% for 2015/2016 and 6.5% for 2016/2017. In addition, a three-year wage agreement was signed with Solidarity comprising a TCTC increase of 6% for 2015/2016, 6.5% for 2016/2017 and 7% for 2017/2018. A TCTC increase of less than 6% for 2015/2016 was agreed with mine management Other subsequent events There have been no other events that have occurred subsequent to 30 June 2015 and before the condensed preliminary consolidated financial statements are authorised for issue which require adjustment of, or disclosure in the financial statements or notes thereto in accordance with IAS 10 Events After the Reporting Period. 35

38 Management commentary for the year ended 30 June 2015 This management commentary has been prepared by management and has not been reviewed by the Group s auditors. i. General overview of performance During the year under review, Tendele continued with its excellent safety record. Tendele s management and all its employees are commended for their efforts regarding safety, efficiencies, productivity and cost control. Following another strong operational performance at Somkhele, Petmin s headline earnings increased by 62% to cents per share (2014: cents). Normalised earnings (see table below) have shown steady growth over the past two years and were up 30% to R132.1 million (2014: R101.7 million; 2013: R82.3 million). Basic earnings per share was cents per share, compared to the loss of per share for The loss for the year ended 30 June 2014 was as a result of the impairment of the investment in Veremo of R181 million and the impairment of Iron Bird of R19 million. Year ended Year ended Year ended Normalised earnings 30 June June June 2013 Profit/(loss) for the year ( ) ( ) Adjust for after-tax effect of: Loss on sale of property plant and equipment Mark to market of listed investments (5 683) Impairments NRV impairment of inventory Reversal of accrual (5 855) Normalised profit after tax for the year Normalised profit per share % annual increase in profit per share Group capital expenditure, excluding pre-stripping, reduced by R17 million to R28 million (2014: R45 million) as capital expenditure at Somkhele was R26 million, down R13 million from the R39 million spent in Additionally, Petmin made the following investments in subsidiaries and equity accounted investees: Petmin acquired 100% of the shares and loans in WRP, whose only asset is the office building which houses the Petmin corporate team, for a total purchase consideration of R12.5 million. Petmin invested an additional R29 million (2014: R68 million) in NAIC, taking its shareholding in NAIC to 35% (2014: 33%). Petmin invested R3 million for a 10% shareholding in CPF which was subsequently impaired following test results which did not meet Petmin s investment criteria. Petmin s interest bearing debt to equity ratio (net of cash on hand) decreased to 12.56% at 30 June 2015 from the 29.19% recorded at 30 June During the year ended 30 June 2015, Petmin received prepayments for certain export sales, the prepayment recorded at 30 June 2015 is dollar denominated and interest is accrued on the outstanding balance at a rate of 3.5% per annum. Dividends and share buy-backs During the year ended 30 June 2015, Petmin paid a dividend of 3 cents per share and also acquired of its own shares at an average acquisition price of R1.53 per share for a total investment of R44 million. Management believes that Petmin s current share price significantly undervalues the Group s assets and Petmin will continue with a share buy-back programme when the opportunity arises. Anthracite Division Somkhele anthracite mine Year Year ended ended 30 June Percentage 30 June Somkhele production performance 2015 Change 2014 Run of Mine (ROM) tonnes washed % Yield 44.13% 5% 41.85% Anthracite saleable tonnes produced % Anthracite tonnes sold % Discard tonnes washed % Yield 26.80% 29% 20.80% Energy coal saleable tonnes produced % Energy coal sold % Production of saleable anthracite increased by 19% in the year ended 30 June 2015 with improved volumes and yields. The average prices achieved for inland sales were unchanged from those achieved in The average prices achieved on the export market reduced by 2% in % of Somkhele s export sales were dollar denominated with the remaining 29% denominated in Rands. The average dollar price of export sales reduced by 4%, but this was offset by a 9% weakening of the average exchange rate to Rand/$ from Rand/$ in Production of saleable re-washed discard ( energy coal ) increased by 51% in the year ended 30 June 2015 with improved volumes and yields being achieved as management continues to make design improvements to the discard processing plant. The average at-mine-gate selling price of energy coal increased by 9% in 2015 with continued strong demand for this product. 36

39 Expansion projects division Petmin focus remains on the development of the NAIC pig-iron project in North America. North Atlantic Iron Corporation ( NAIC ) Following an extensive independent trade-off analysis of the various proposed sites during the year, NAIC has selected a site at the Port of Saguenay in Quebec as the location for the first pig iron plant. Detailed engineering design and costing is now underway for the Saguenay site. The site selection process encompassed a study of 13 locations over 2 years. It is anticipated that the first plant based in Saguenay, Quebec will have a significant cost advantage over material currently delivered to the U.S. In particular, it will avoid the significant costs of material movement from New Orleans to the Midwest. 4 production scenarios were evaluated and reviewed by Tenova and NAIC: 2 production levels 425ktpa and 850ktpa 2 smelting furnaces electric arc furnace ( EAF ) and submerged arc furnace ( SAF ) All cases include pre-reduction in a rotary hearth furnace ( RHF ) NAIC has made the decision to proceed with a production scenario of 425ktpa using an EAF smelter In each case it is assumed the 425ktpa of production will be for foundry grade Merchant Pig Iron (MPI) which trades at significant premium to standard MPI. While the economics of each case presented similar IRRs, the qualitative aspects as well as the mitigation of certain risk parameters, ultimately lead to the decision to proceed on this basis. Iron-ore South Africa (Veremo project) Veremo still awaits the execution of the mining right for which notification of its award was received in January During the year ended 30 June 2015 additional metallurgical test work was conducted and a commercial scale campaign will be undertaken at Mogale Alloys on their 10 MW DC Arc Furnace. The Veremo ore will be smelted in their single electrode DC arc furnace to produce high purity Pig Iron and a titanium rich slag. The furnace will be modified and the engineering design for the modifications has been completed by GLPS Project Management Engineering Services. The arbitration proceedings against Framework Investments Limited and Kermas Limited for the payment of the three R65 million distributions payable from the Veremo project to Petmin will continue once dates have been scheduled for the arbitration hearings. ii. Prospects Anthracite division Tendele remains focussed on safety, efficiencies, productivity and cost control. Current anthracite production levels are expected to be maintained in the year ahead, with sales volumes expected to increase slightly as inventory levels are reduced. Local customers remain under pressure in the current market with demand looking slightly weaker. However, as a large proportion of local sales are contracted, prices are expected to remain at current levels. We expect the dollar prices to remain under pressure for our exports, with Rand receipts aided by the weakening of the Rand. Energy coal sales are expected to increase to approximately tonnes per annum with average at-mine-gate prices received in Rands expected to increase by approximately 15% due to improved pricing received from revised product blends and due to expected weakening of the Rand. Capital expenditure to June 2016 is expected to be approximately R83 million with approximately half of this on planned development and relocation expenditure to open up new mining areas. There is no additional capital pre-stripping forecast in the year ending June Tendele is expanding its efforts to build even stronger relationships with all stakeholders, including its employees and their families and with the community within which its operates (including the Tribal Authority, all traditional structures, schools, the youth, the business community and other parties in the community). We do not believe that the provision of basic services (water, electricity, health care and education) is our primary responsibility, however, we do believe that we are making a material difference in the community and we can work together with the authorities and the community to ensure a better future. Expansion projects division Petmin intends to invest the final US$4 million to take its shareholding in NAIC to 40% as the economics of the first plant in Saguenay remain favourable, notwithstanding the current market conditions. Tenova will conclude the detailed site specific engineering design work at Saguenay within 6 months which work will form the basis of the feasibility required to raise the capital for the construction of NAIC s first plant at Saguenay. During this period the environmental permitting process will also commence, which is expected to take 12 months. The total capex required for plant 1 including an overrun facility is currently estimated by Tenova at US$313m and discussions continue with the Government of Quebec and various Canadian federal development agencies regarding the funding options available to NAIC. Once this funding base is established and site specific feasibility is concluded the capital markets will be approached by NAIC for the balance of the capital required. In the current market environment and due to the volatility in the equity markets, our project partners, Grand River Inc. and Petmin believe it will be prudent to continue to develop the project jointly in its current structure rather than to attempt to list NAIC separately and overlay the project with the additional costs of a separate listing. For these reasons the proposed unbundling has been delayed indefinitely. Due to the current state of the commodities market, cash preservation is critical and, despite a solid balance sheet, Petmin will not investigate any opportunities that are not cash producing and not in the bottom quartile of the cost curve. Additional details on Petmin, including a detailed presentation on the results (which will be available from 9 September 2015) can be found on our website By order of the Board ID Cockerill Chairman JC du Preez Chief Executive Officer Johannesburg 8 September

40 ANNEXURE B HISTORICAL FINANCIAL INFORMATION OF TENDELE COAL MINING (PROPRIETARY) LIMITED Basis of preparation The definitions and interpretations commencing on page 2 of this circular have been used in this Annexure B. The statements of financial position at 30 June 2014, 30 June 2013 and 30 June 2012 and the statements of comprehensive income, changes in equity and cash flows and the accounting policies and notes for the years then ended ( Historical Financial Information ) have been extracted from the audited consolidated financial statements of Tendele for the three years ended 30 June 2014, 30 June 2013 and 30 June 2012 ( Financial Statements ). Adjustments have been made to the presentation of the Historical Financial Information in order to comply with the JSE Listings Requirements. The historical financial information is presented in Rand. The Financial Statements were audited by KPMG Inc. in accordance with International Standards on Auditing, and an unqualified audit opinion on the Financial Statements was issued. As Tendele is a 100% held subsidiary of Petmin Limited, it is not Tendele s policy to prepare preliminary financial statements for the year ended 30 June The statement of financial position at 30 June 2015 and the Income Statement for the year ended 30 June 2015 have been reviewed by KPMG Inc. KPMG Inc. has issued the Reporting Accountants report on this report of Historical Financial Information included as Annexure C to this circular. The Directors of Tendele are responsible for the preparation of the report on Historical Financial Information contained in this Annexure B. COMMENTARY Nature of business The company carries on business in anthracite coal mining and related activities. Holding company The company s holding company is Petmin Limited incorporated in South Africa. Dividends No dividend was declared for the financial year end 30 June 2014 and 30 June On 19 September 2012, Tendele declared a cash dividend of R Events after the reporting date No significant events have occurred after 30 June 2014 other than as disclosed in note 23. Consolidated financial statements No consolidated financial statements have been prepared as the Company is a wholly owned subsidiary of Petmin Limited, a company incorporated in South Africa. Directors and directors remuneration The directors of Tendele are Mr JC du Preez and Mrs ALK Mogotsi. The directors remuneration is disclosed in paragraph of this circular. 38

41 Statement of financial position Notes Reviewed Year ended 30 June 2015 Audited Year ended 30 June 2014 Audited Year ended 30 June 2013 Audited Year ended 30 June 2012 R R R R Assets Non-current assets Property, plant and equipment Investment in Joint Venture shares Loan due from Joint Venture Current assets Inventory Trade and other receivables Taxation receivable Cash and cash equivalents Total assets Equity and liabilities Ordinary share capital and reserves Share capital Hedging reserve Retained earnings Non-current liabilities Long-term borrowings Environmental rehabilitation provision Deferred taxation Current liabilities Inter-company loan Hedge liability Trade and other payables Revenue in advance Bank overdraft Current portion of long-term borrowings Total equity and liabilities

42 Income statement Notes Reviewed Year ended 30 June 2015 Audited Year ended 30 June 2014 Audited Year ended 30 June 2013 Audited Year ended 30 June 2012 R R R R Revenue Cost of sales ( ) ( ) ( ) ( ) Gross profit Other (loss)/income ( ) ( ) Administrative expenses ( ) ( ) ( ) ( ) Operating profit before net finance cost Net finance costs 16 ( ) ( ,00) ( ) ( ) Net profit before taxation Income tax 17 ( ) ( ,00) ( ) ( ) Net profit for the year Statement of comprehensive income Note Reviewed Audited Audited Audited R R R R Net profit for the year Other comprehensive income (after tax) ( ) Items that may be reclassified to profit and loss Effective portion of changes in fair value of cash flow hedges ( ) Total comprehensive income for the year

43 Statement of changes in equity Share Retained Hedging capital earnings reserve Total R R R R Balance at 30 June 2011 Total comprehensive income for the year Net profit for the year Effective potion of change in fair value of cash flow hedges Transactions with owners, recorded directly in equity Dividends paid Balance at 30 June Total comprehensive income for the year Net profit for the year Effective potion of change in fair value of cash flow hedges ( ) Transactions with owners, recorded directly in equity ( ) ( ) Dividends paid ( ) ( ) Balance at 30 June ( ) Total comprehensive income for the year Net profit for the year Effective potion of change in fair value of cash flow hedges Transactions with owners, recorded directly in equity Dividends paid Balance at 30 June

44 Statement of cash flows Notes R R R Cash flows from operating activities Interest received Interest paid ( ) ( ) ( ) Income tax due/(paid) Net cash flows from operating activities Cash flows from investing activities Acquisition of property, plant and equipment ( ) ( ) ( ) Proceeds on disposal of property, plant and equipment Investment acquired in Joint Venture Shares 3 (100) Loan granted to Joint Venture 4 ( ) Loan repaid by Joint Venture Net cash flows from investing activities ( ) ( ) ( ) Cash flows from financing activities (Decrease)/Increase in inter-company loans ( ) ( ) Increase in long-term borrowings ( ) Repayment of long-term borrowings ( ) ( ) Dividends paid ( ) Net cash flows from financing activities ( ) Net movement in cash and cash equivalents ( ) Cash and cash equivalents beginning of the year 7 ( ) ( ) Cash and cash equivalents end of the year ( ) 42

45 1. SIGNIFICANT ACCOUNTING POLICIES Tendele Coal Mining Proprietary Limited (the Company ) is a company incorporated and domiciled in South Africa. 1.1 Basis of preparation Statement of compliance The financial statements of the Company has been prepared in accordance with International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, as well as the requirements of the South African Companies Act. The financial statements were authorised for issue by the directors on 19 December The financial statements are prepared on the historical cost basis, except for certain financial instruments which are measured at fair value in terms of IAS 39 Financial instruments: Recognition and measurement The directors have no reason to believe that the Company will not be a going concern in the foreseeable future, based on forecast and available cash resources. Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 9 Hedge reserve Note 12 Environmental rehabilitation provision The accounting policies set out below have been applied consistently to all periods presented in these company financial statements. 1.2 Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to rands at the foreign exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to rands at foreign exchange rates ruling at the dates the fair value was determined. 1.3 Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy 1.6). The cost of self-constructed assets includes the cost of materials, direct labour and the costs directly attributable to bringing the asset to a working condition for its intended use, the initial estimate, where relevant, of the costs of dismantling and 43

46 removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalised to the cost of those assets, until such time as the assets are substantially ready for their intended use. Subsequent costs The Company recognises, in the carrying amount of an item of property, plant and equipment, the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognised in the statement of comprehensive income as an expense is incurred. Depreciation Depreciation is charged to the Statement of comprehensive income on a straight line or units-ofproduction basis over the estimated useful lives of items of, plant and equipment. Property and water rights are not depreciated. The estimated useful lives are as follows: Useful life Method of depreciation Land Buildings foundations and civils years Units of production Mineral assets and mine development costs years Units of production Property, plant and mining equipment 5 30 years Units of production Office machines, computers and furniture and fittings 3 6 years Straight line Vehicles 5 years Straight line Capital work in progress Depreciation methods, useful lives and residual values are reassessed at the reporting date. No depreciation is charged on assets under construction. 1.4 Mineral development costs and exploration expenditure (mineral assets) The costs of acquiring mineral reserves and resources are capitalised on the statement of financial position as incurred. Capitalised costs (development expenditure) include expenditure incurred to expand the capacity of a mine and to maintain production. Qualifying, directly attributable exploration expenditure is capitalised when incurred. Capitalised development expenditure and capitalised exploration expenditure (mineral assets) is stated at cost less accumulated amortisation and impairment losses. Capitalised development expenditure and exploration expenditure (mineral assets) is amortised over its useful life on a units-of-production basis. 1.5 Impairment Non-financial assets The carrying amounts of the Company s non-financial assets, other than inventories (see note 1.8) and deferred tax assets (see note 1.14), are reviewed at each reporting to determine whether there is any indication of impairment. If there is any indication that an asset may be impaired, its recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. The recoverable amount of assets or cash generating units is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the assets belong. 44

47 An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed. Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. Interest is still recognised on any impaired financial assets. 1.6 Non-derivative financial assets The Company initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. The Company s classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. 1.7 Inventories Inventory of finished products is stated at the lower of its production cost and net realisable value. Production costs include mining, processing and materials handling costs as well as an appropriate share of overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventory is based on a monthly moving average and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In-progress inventory consists of stock-in-pit and run-of-mine (ROM) inventory. Stock-in-pit inventory is valued at the cost of mining (drilling and blasting costs). ROM inventory is valued at the cost of mining (drilling and blasting costs) and loading and hauling costs ex mine. Consumable stores are valued at actual cost calculated at the weighted moving average price. Allowances are made for slow moving or redundant items. 45

48 1.8 Trade and other receivables Trade and other receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate method less impairment losses (see accounting policy 1.6). 1.9 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable and form part of the Company s cash management are included as a component of cash and cash equivalents for the purpose of the statements of cash flows Share capital Ordinary shares Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Dividends Dividends are recognised as a liability in the period in which they are declared Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flows Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis Income tax Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to the tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends (secondary tax on companies) are recognised at the same time as the liability to pay the related dividend Revenue Goods sold Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue from the sale of goods is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods, or continuing management involvement with the goods. 46

49 1.15 Finance income and expenses Finance expense Net finance costs comprise interest payable on borrowings calculated using the effective interest rate method and the unwinding of the discount of the rehabilitation provision (refer to significant accounting policy 1.18). Finance income Net finance income comprises of interest receivable on funds invested and interest receivable on loan due from joint venture. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity s right to receive payments is established which, in the case of quoted securities, is usually the ex-dividend date Derivative financial instruments The Company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. When the forecasted transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or the forecast transaction for a non-financial asset or non-financial liability the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecasted transaction subsequently results in the recognition of a financial asset or financial liability, the associated gains and losses that were recognised directly in equity are reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss (i.e. when interest income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policy statements, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement Provisions A provision is recognised in the statement of financial position when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by 47

50 discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Environment rehabilitation Estimated rehabilitation costs, which are based on the Company s interpretation of current environmental and regulatory requirements, represent the present value of the expected future costs to rehabilitate the mine properties at termination of mining operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Provision is made for the Company s legal and constructive obligation to dismantle, remove and restore items of property, plant and equipment and remediation of disturbed areas in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. The provision is discounted using the current market-bases pre-tax discount rate and the unwinding of the discount is included in interest expense. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future benefit, and depreciated over its useful life on a units-of-production basis. If the related asset is measured using the cost model: (a) subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period. (b) the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss. (c) if the adjustment results in an addition to the cost of an asset, the entity shall consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, and shall account for any impairment loss, in accordance with IAS 36. Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of these obligations in its rehabilitation provision. However, it is reasonably possible that the Company s estimated of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the year ended 30 June These new standards and interpretations have not been early adopted by the company. The adoption of these standards are not expected to have a significant impact on the financial statements of the entity. Standard/interpretation Effective, annual periods commencing on/after IAS 16 and IAS 38 amendments Property, plant and equipment and Intangible assets 1 January 2016 IFRS 9 Financial instruments 1 January 2018 IFRS 11 amendment Joint arrangements 1 January 2016 IFRS 15 Revenue from contracts with customers 1 January Comparative figures Where applicable, comparative figures have been adjusted to disclose them on the same basis as current period figures to achieve fairer presentation. 48

51 2. PROPERTY, PLANT AND EQUIPMENT Accumulated Net book Cost depreciation value 30 June 2014 R R R Mineral assets and mine development costs ( ) Plant and mining equipment ( ) Assets under construction Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset/rehab asset ( ) Acquisition of water rights ( ) Cost Accumulated depreciation Net book value 30 June 2013 R R R Mineral assets and mine development costs ( ) Plant and mining equipment ( ) Assets under construction Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset ( ) Acquisition of water rights ( ) Cost Accumulated depreciation Net book value 30 June 2012 R R R Mineral assets and mine development costs ( ) Plant and mining equipment ( ) Assets under construction Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset ( ) Acquisition of water rights ( )

52 Net book value 1 July 2013 Net book value 30 June 2014 Cost/ Additions Transfers/ Disposals Depreciation/ Amortisation June 2014 R R R R R Mineral assets and mine development costs ( ) Plant and equipment ( ) ( ) Assets under construction Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset ( ) Acquisition of water rights ( ) ( ) Net book value 1 July 2012 Net book value 30 June 2013 Cost/ Additions Transfers/ Disposals Depreciation/ Amortisation June 2013 R R R R R Mineral assets and mine development costs ( ) Plant and equipment ( ) Assets under construction ( ) Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset ( ) Acquisition of water rights ( ) ( ) Net book value 1 July 2011 Net book value 30 June 2012 Cost/ Additions Transfers/ Disposals Depreciation/ Amortisation June 2012 R R R R R Mineral assets and mine development costs ( ) Plant and equipment ( ) Assets under construction ( ) Capital spares ( ) Capitalised pre-stripping ( ) Buildings ( ) Furniture and fittings ( ) Office equipment, computer and other equipment ( ) Motor vehicles ( ) Decommissioning asset ( ) Acquisition of water rights ( )

53 The second coal processing plant with a carrying amount of R145.9 million (2013 : R152.0 million: 2012: R0) commissioned early 2013 has been supplied as guarantee to the IDC (refer to note 11). As security for new loan facilities taken out during the year ended 30 June 2013 (refer to notes 11.1 and 11.1), Tendele Coal Mining Proprietary Limited have provided General Notarial Bonds over its movable assets other than Tendele s investment in the mining joint venture referred to in notes 4 and 5 below In addition, Tendele has provided a Special Notarial Bond over its moveable property (other than the second plant which is bonded under a pre-existing finance agreement). The carrying value of these assets amount to R334.5 million (2013: R351.9 million: 2012: R0) R R R 3. INVESTMENT IN JOINT VENTURE SHARES Investment in Joint Venture Shares Tendele Coal Mining (Proprietary) Limited acquired 50% of Somkhele Plant (Proprietary) Limited ordinary shares during the year ended 30 June LOAN DUE FROM JOINT VENTURE Opening balance Loan granted Loan repaid ( ) Interest accrued Loan due from joint Venture On 27 February, 2013, Tendele Coal Mining (Proprietary) Ltd, subscribed for 100 shares in Somkhele Plant (Proprietary) Limited for R100 which, after the issuance of the shares, grants Tendele a 50% shareholding in the issued ordinary share capital of the Somkhele Plant (Proprietary) Limited with the remaining 50% held by Sandton plant Hire (Pty) Ltd ( SPH ). SPH has been the mining contractor at the Somkhele Anthracite Mine since inception of the mine. Somkhele Plant (Proprietary) Limited is jointly controlled by Tendele and SPH Tendele acquired 50% of the shareholder loan in Somkhele Plant (Proprietary) Limited for a total cost of R70 million (R62 million cash plus plant and equipment of R8 million). The loans are unsecured and bear interest at bank prime lending rates. For the year ended 30 June 2013, the Somkhele Plant (Proprietary) Limited repaid R11.5 million of the loan to Tendele. The shareholders loans in the Mining JV have been ceded in favour of ABSA Bank as security for instalment credit facilities to the value of R (2013: R ) in the Mining JV R R R 5. INVENTORY Consumable stores Work-in-progress Finished coal product Inventory held by Tendele Coal Mining Proprietary Limited with a carrying value of R264.5 million (2013: R161 million: 2012: R0) is secured by a general notarial bond in favour of Standard Bank of South Africa Limited (see note 12). Inventory is recorded net of net realisable value provisions amounting to R (2013: R0 : 2012: R0) R R R 6. TRADE AND OTHER RECEIVABLES Trade receivables Other

54 The Company s exposure to credit and currency risks and impairment losses related to trade and other receivable are disclosed in note The book debts of Tendele Coal Mining Proprietary Limited with a value of R96.0 million (2013: R172.8 million: 2012: R0) have been ceded to Standard Bank of South Africa Limited as security for overdraft facilities of R50 million (2013: R50 million: 2012: R0). Other receivables of Tendele Coal Mining Proprietary Limited with a carrying value of R21.9 million (2013: R22.9 million: 2012: R0) are secured by a general notarial bond in favour of Standard Bank of South Africa Limited (see note 12) R R R 7. CASH AND CASH EQUIVALENTS Current accounts Call accounts Cash on hand (1 003) Cash and cash equivalents Bank overdraft ( ) ( ) ( ) ( ) At the reporting date, the Company has banking facilities of R50 million at its disposal. The overdraft bear interest at bank prime lending rates. The bank accounts of Tendele Coal Mining Proprietary Limited with a carrying value of R million (2013: R :2012: R0) have been ceded as security for banking facilities provided by Standard Bank of South Africa Limited (refer to note 12) R R R 8. SHARE CAPITAL Authorised ordinary shares of R1 each Issued 100 Ordinary shares of R1 each HEDGING RESERVE Opening balance Effective portion of changes in fair value of cash flow hedges ( ) Hedge (liability) at year end Deferred tax on effective portion of changes in fair value of cash flow hedges ( ) Charge through other comprehensive income and hedging reserve closing balance ( ) At 30 June 2013, Tendele Coal Mining held zero-cost collar and cap option contracts with delivery dates ranging from July 2013 to September 2013 to sell US Dollars for $ (2012: $ ) with collars of R8.00 and caps ranging from R (2012: R8.8430) to R At 30 June 2013, Tendele held a forward exchange contract for delivery during July 2013 to sell US Dollars for $ (2012: nil) with a price of Tendele has entered into cash flow hedges to manage the volatility of the Rand/ UD Dollar exchange rate and the Directors will deal with any future exposure of the foreign currency risk on an ad hoc basis. 52

55 R R R 10. TRADE AND OTHER PAYABLES Trade and other payables Royalty accruals Other accruals Payroll liabilities Related party BORROWINGS 11.1 Standard Bank of South Africa Limited Term Loan (Secured) Less: Current portion (23 767) Non-current portion This loan is a revolving credit facility. The loan bears interest at the Johannesburg Interbank Agreed Rate ( JIBAR ) plus 2.85% and is payable quarterly. The loan is repayable in one capital instalment on maturity in December The facility is subject to cash sweep calculations that apply surplus funds to the earlier settlement of this debt. As security, Tendele Coal Mining (Pty) Limited and Petmin Limited have ceded their bank accounts to Standard Bank and have provided General Notarial Bonds over their movable assets other than Tendele s investment in the mining joint venture referred to in note 4 above. In addition, Tendele has provided a Special Notarial Bond over its moveable property (other than the second plant which is bonded under a pre-existing finance agreement) Standard Bank of South Africa Limited Term Loan (Secured) Less: Current portion Non-current portion This loan is part of a medium-term debt facility of R225 million. The loan bears interest at the Johannesburg Interbank Agreed Rate ( JIBAR ) plus 3.4% and is payable quarterly. The loan is repayable in quarterly capital instalments commencing in December 2014 and ending in December The loan facility is subject to cash sweep calculations that apply surplus funds to the earlier settlement of this debt. As security, Tendele Coal Mining (Pty) Limited and Petmin Limited have ceded their bank accounts to Standard Bank and have provided General Notarial Bonds over their movable assets other than Tendele s investment in the mining joint venture referred to in note 4 above. In addition, Tendele has provided a Special Notarial Bond over its moveable property (other than the second plant which is bonded under a pre-existing finance agreement). 53

56 R R R 11.3 IDC (secured) Less: Current portion ( ) ( ) ( ) The loan is secured by a special notarial bond over the second coal crushing, screening and washing plant with a carrying value of R145.9 million (2012: R157.3 million). The loan bears interest at 6.3% per annum until 31 March 2015, where after the rate will be prime less 0.7%. The loan is repayable in 47 equal capital instalments of R each and one final instalment of R with the first payment commencing on 7 July Standard Bank of South Africa Limited instalment sale agreement (secured) Less: Current portion ( ) The Standard Bank instalment sale agreement is secured by a limited omnibus surety ship for R48 million by Petmin Limited. The instalment sale agreement is for the Somkhele Anthracite Project s coal processing plant (see note 2). The instalments are repaid over a period of 72 months commencing 31 October 2006, at an interest rate of prime less 1%. Total Less: Current portion ( ) ( ) ( ) ENVIRONMENTAL REHABILITATION PROVISION Environmental rehabilitation provision at beginning of the year Charged to income statement during the year notional interest Expenses paid from Bank ( ) Adjusted to decommissioning assets during the year change in estimate/new mining areas Provision at end of year The environmental provisions are based on management s best estimates of all known obligations. It is, however, reasonable to expect changes in the ultimate rehabilitation costs as a result of changes in regulations or cost estimates. Cost estimates are not reduced by potential proceeds from the sale of assets and from future clean up in view of the uncertainty in estimating those proceeds. Other environmental liabilities not directly relating to rehabilitation are expensed as incurred. The liability is secured by bank guarantees of R59.6 million (2013: R32.9 million: 2012: R22.6 million) (see note 22). Annual inflation rate used 7% 7% 7% Pre-tax risk-free rate for discounting 9.50% 9.50% 9.5% 54

57 R R R 13. DEFERRED TAX Balance at beginning of the period ( ) ( ) ( ) Current temporary differences(income statement) ( ) ( ) ( ) temporary differences(hedging reserve) ( ) ( ) ( ) ( ) Comprising: Tax loss carried forward ( ) Unredeemed capital Property, plant and equipment ( ) ( ) ( ) Environmental rehabilitation provision Hedging reserve Provisions Prepayments ( ) ( ) ( ) ( ) ( ) ( ) 14. INTER-COMPANY LOANS Petmin Limited The amount owing is interest free and unsecured with no fixed terms of repayment. 15. OPERATING PROFIT BEFORE NET FINANCE COST Operating profit before finance income have been arrived at after taking the following into account: Auditor s remuneration Audit fees Tax (amount paid to KPMG Tax) Depreciation of property, plant and equipment Amortisation of Eskom connection Employee costs Salaries and wages Foreign exchange gain ( ) ( ) ( ) MPRDA royalty expense Loss/(Profit) on disposal of property, plant and equipment ( ) 16. NET FINANCE COSTS Interest income Interest expense external financial liabilities ( ) ( ) ( ) Interest expense notional interest ( ) ( ) ( ) ( ) ( ) ( ) 17. INCOME TAX Deferred tax current year Reconciliation of tax rate % % % Tax charge as a percentage of net profit before taxation Standard tax rate

58 R R R 18. CASH FLOWS FROM OPERATING ACTIVITIES 18.1 Operating profit before finance income Adjusted for depreciation/amortisation pre-stripping amortisation loss/(profit) on disposal of property, plant and equipment ( ) rehabilitation expenditure ( ) ( ) Cash flow from operations before working capital changes (Increase)/Decrease in inventory ( ) ( ) ( ) Decrease/(Increase) in trade and other receivable ( ) Increase/(Decrease) in trade and other payables Amount (prepaid)/due at beginning of year ( ) Amount prepaid/(due) at year end Taxation (due)/paid RELATED PARTIES 19.1 Related parties of Tendele Coal Mining (Proprietary) Limited are identified as follows: The holding company of Tendele Coal Mining (Proprietary) Limited is Petmin Limited, incorporated in South Africa. Petmin Management Company (Proprietary) Ltd is a fellow subsidiary in which Petmin Limited held 100% of the company s ordinary shares during the year ended 30 June Somkhele Plant (Proprietary) Limited Refer Note 4. Mpukonyoni Mining (Proprietary) Limited is 100% held by Somkhele Plant (Proprietary) Limited R R R 19.2 Material related party transactions Management fee paid to Petmin Limited Marketing fee paid to Petmin Limited Cost incurred by Petmin Ltd and transferred to Tendele Coal Mining (Pty) Ltd s property, plant and equipment Mining and Plant Hire cost Paid to Mpukonyoni (Pty) Ltd Dividend paid to Petmin Ltd Proceeds on the disposal of asset to Somkhele Plant (Pty) Ltd Loan made to Somkhele Plant (Pty) Ltd Note 5 Note 5 Interest received from Somkhele Plant (Pty) Ltd. on loan Note 5 Note 5 Handling fee paid to Petmin Logistics (Pty) Ltd Trade and other payable to Petmin Ltd Trade and other payable to Mpukonyoni Mining (Pty) Ltd The directors are of the opinion that all of the related party transactions were concluded and executed on normal commercial terms as applicable to independent third parties. The directors are listed in the directors report 56

59 20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT This note presents information about the Company s exposure to risk emanating from the use of financial instruments. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework. The Executive Committee is responsible for developing and monitoring the Company s risk management policies. The Executive Committee reports regularly to the Board of Directors on its activities. The Company s risk management policies are established to identify and to analyse the risks faced by the Company, 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 Company s activities. The Company, 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 Group Audit Committee overseas how management monitors compliance with the Company s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company Foreign currency risk management Foreign currency risk for the Company represents the risk of adverse changes in foreign currency exchange rates of mainly the US Dollar and the South African Rand which will affect the value of the Company s assets, liabilities and forecast transactions. The directors are responsible for setting the foreign currency risk management strategies, and managing the foreign currency risk of the Company within the set parameters. At 30 June 2014, the Company held the following US Dollar denominated assets and liabilities denominated in foreign currencies R R R US Dollar denominated financial assets Trade receivables Cash The effect on profit and equity of the Company due to 10% change in the South African Rand to the US Dollar is as follows: R/$ plus 10% R/$ less 10% (3 416) ( ) ( ) 57

60 20.2 Interest rate risk management Interest rate risk for the Company represents the risk of changes in earnings due to variability of interest rates. The directors are responsible for setting the interest rate risk management strategies and the managing director is responsible for managing the interest rate risk of the Company within the set parameters. The Company has cash, with interest rates set for periods of between one day and one month. At this reporting date, the Company had no material exposure to interest rate risk other than as disclosed in note 10 and has no interest rate derivate contracts. The sensitivity analysis below is based on average annual values and not year-end values. At reporting date the Company had the following mix of financial assets and liabilities exposed to variable interest rate risk: R R R Financial assets Cash and cash equivalents Loan to Somkhele Plant (Pty) Ltd Financial liabilities Bank Overdraft Borrowings Interest rate plus 0.5% ( ) ( ) ( ) Interest rate less 0.5% Credit risk management Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company s receivable from customers and investment securities. Trade and other receivables The Company s exposure to credit risk is influenced by the individual characteristics of each customer. The Company has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company offers credit facilities to them. Trade receivable for the top three customers represent 91% (2012: 73%) of total trade receivables. Long-term relationships are built with these customers, who have a history of reliable debt settlement. The aging of trade and other receivable at the reporting date was: Current Past due 0 30 days Past due days Past due days Older Based on historic default rates, the Company believes that no impairment allowance is necessary in respect of trade receivables not past due or past due by up to 30 days; 100% of the balance which includes the amount owed by the Company s most significant customers (see above), relates to customers that have good payment record with the Company. The Company s cash, cash equivalents and derivative financial instruments are held with any one of the major South African financial institutions only. 58

61 At the reporting date the Company had the following mix of financial assets exposed to credit risk: R R R Cash and cash equivalents Trade and other receivables Liquidity risk and capital management The Company s cash is managed in such a way that surplus funds achieve maximum returns, while minimising risks, but also take into account the liquidity requirements of the Company s growth strategy. Budgets and forecasts are prepared regularly and monitored by management to ensure sufficient funds are available to support ongoing operations. Refer to note 12 for repayment terms of borrowings Commodity price risk The Company s major commodity price exposure is to the price of anthracite. The Company has not hedged against the movement in commodity prices. Profit after tax for the Company would increase/decrease by approximately R (2012: R ) with a 10% increase/decrease in the anthracite price Fair values The fair values of all financial instruments held by the Group approximate the carrying amounts reflected in the statement of financial position R R R 21. GUARANTEES Guarantees for environmental rehabilitation made to the Department of Minerals and Resources by the Standard Bank of South Africa Guarantees for EMPR made to the Department of Minerals and Resources by the Standard Bank of South Africa Guarantees for bulk sample made to the Department of Minerals and Resources by the Standard Bank of South Africa Guarantees for minimum payments on electricity supply agreements made by Eskom Holdings Limited by Standard Bank of South Africa Guarantees for credit facilities with South Africa Port Authorities COMMITMENTS Capital commitments authorised contracted for not contracted for

62 23. CONTINGENT LIABILITIES The dispute with one of Tendele s customers over the interpretation of the contracted qualities of Tendele s energy product (as disclosed in the reviewed results for the six months ended 31 December 2013 and in note 29 of the audited annual financial statements for the year ended 30 June 2013) has been rescheduled for arbitration hearings in May 2015, as there was insufficient time to complete the process during the hearings held in December The claimant has revised their position and has now instituted two claims totalling R60 million (previously R30 million) and a third claim that is contingent should Petmin not be ordered to perform its contractual obligations under the disputed contract. Tendele and its legal advisors believe that all the claims are unlikely to be successful hence no liability has been recognised at 30 June SURETY During the year ended 30 June 2014, Tendele Coal Mining Proprietary Limited has stood surety for its pro rata share of the instalment sale liabilities of Somkhele Plant Proprietary Limited. This surety is limited to a maximum amount of R100 million. 60

63 ANNEXURE C REPORTING ACCOUNTANTS REPORT ON THE HISTORICAL INFORMATION OF TENDELE COAL MINING (PROPRIETARY) LIMITED 61

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66 ANNEXURE D INDEPENDENT REPORTING ACCOUNTANTS ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION ON PETMIN 64

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