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Keaton EnergyAnnual Report 2010

Keaton Cover AR10 6/10/10 10:49 AM

This Annual Report presents the operating and financial results for the year 1 April 2009 to 31 March 2010

for Keaton Energy Holdings Limited (Keaton Energy or the company or the group).

The financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRS), and this report has been prepared in compliance with the South African Companies

Act No. 61 of 1973 and the Listings Requirements of the JSE Limited (JSE). King III became effective on

1 March 2010, and the company and its directors will ensure compliance with the revised principles of

good governance during the coming year. The Annual Report is submitted to the JSE as this is the

company's registered exchange.

The report includes an analysis of the key factors affecting the company’s performance over the period,

the steps taken by the company to operate within its risk framework to maximise stakeholder returns,

and a detailed review of the financial and technical aspects of the company over the year. Also included

in this report is a self-declared C level, GRI-compliant review of the company’s sustainability procedures

and practices.

The two key events during the period were the mining right award and subsequent development decision

on Phase 1 of the Vanggatfontein Project and the area extension secured at the Sterkfontein Project.

Post-balance sheet events include the declaration of an increase to the Sterkfontein Project’s Coal

Resource to 69 million tonnes and resolution of the legal dispute which led to the delay of the

Vanggatfontein Project.

Abbreviations used throughout this report are defined in the glossary of terms on pages 74 to 76.

Copies of the printed version can be requested from the contacts listed at the end of this report.

Scope of thereport

Forward-looking statementsCerta in s ta tements conta ined in th is Annua l Repor t inc lud ing, w i thout l im i ta t ion, those concern ing the economic out look for the coa lindust r y, expectat ions regard ing commodi ty pr ices, product ion, cash costs and other operat ing resu l ts , growth prospects and theout look for Keaton Energy’s operat ions, inc lud ing the complet ion and in i t ia t ion o f commerc ia l operat ions o f cer ta in Keaton Energyexp lorat ion and product ion pro jects , i ts l iqu id i ty and cap i ta l resources and expend i ture , conta in cer ta in forward- look ing s ta tementsregard ing Keaton Energy’s operat ions, economic per formance and f inanc ia l cond i t ion.

A l though Keaton Energy be l ieves that the expectat ions and the outcome re f lected in such forward- look ing s ta tements are reasonable ,no assurance can be g iven that such expectat ions wi l l p rove to have been cor rect . Accord ing ly, resu l ts cou ld d i f fe r mater ia l l y f romthose set out in the forward- look ing s ta tements as a resu l t o f , among other factors , changes in economic and market cond i t ions,success o f bus iness and operat ing in i t ia t i ves , changes in the regu la tor y env i ronment and other government act ion, f luctuat ions incommodi ty pr ices and exchange ra tes , and bus iness and operat iona l r i sk management . For a d iscuss ion o f such factors , re fer to ther isk factors as deta i led in the corporate governance sect ion o f th is Annua l Repor t . 3369/10 Russe l l and Assoc ia tes

Keaton Cover AR10 6/10/10 10:49 AM

1Keaton Energy Annual Report 2010

Contents

Corporate profile and highlights pg2

Timeline pg3

Chairman’s review pg4

Managing Director’s review pg6

Financial Director’s review pg8

Coal Resource and Reserve Statement pg10

Sustainable development review pg14

GRI index pg19

Directorate pg20

Corporate governance pg22

Remuneration report pg25

Annual financial statements

Directors’ responsibility pg29

Independent auditors’ report pg30

Directors’ report pg31

Statements of comprehensive income pg34

Statements of financial position pg35

Statements of changes in equity pg36

Statements of cash flows pg37

Accounting policies pg38

Notes to the annual financial statements pg48

Shareholders’ information pg73

Glossary of terms pg74

Notice of Annual General Meeting pg77

Form of proxy pg81

Administration and contact details pg83

2

Corporate profileand highlights

Corporate profileKeaton Energy is a coal exploration, development and miningcompany, created to pursue opportunities arising from boththe increased demand for coal domestically and abroad andthe changes in mineral legislation in South Africa. Fundamentalto the company’s strategy is the pursuit of exploration andgreenfield development projects in partnership with blackeconomic empowerment (BEE) entities.

The company’s focus lies in South Africa’s MpumalangaProvince, at its Vanggatfontein (formerly the Delmas Project)and Sterkfontein Projects, with its medium-term objectivetargeting annual production of two million tonnes of saleablesteam coal, rising to five million tonnes in the longer term. The1 635-hectare Vanggatfontein Project was granted a 20-yearmining right in June 2009, the first phase of development isunder way and will proceed in sync with commercial off-takeagreements. The Sterkfontein Project area was expanded bysome 71% in April 2009, and the drilling programme initiated inAugust 2009 led to a revised Coal Resource of 69 milliontonnes being declared post the financial year-end.

The Klip Colliery continued to provide cash flows through theyear, and reached the end of its mine life in November 2009having produced and sold a total of 247 000 tonnes of run-of-mine coal.

As at 31 March 2010, the company employed nine people(six employees and three permanent contractors).

Keaton Energy is listed on the main board of the JSE Limited(JSE) and trades under the share code KEH. The companyhas an authorised share capital of 250 million ordinary sharesof which 144 841 293 shares have been issued. The JSElisting reinforces the company’s commitment to provide returnsfor all its stakeholders, and particularly, its BEE partners.Keaton Energy’s corporate office is located in Bryanston,Johannesburg, South Africa.

HighlightsSterkfontein Project area increased by

71%, extended dril l ing programme

leads to a 100% increase in Coal

Resource to 69 million tonnes

First major project, Vanggatfontein

Project – Phase 1, given green light,

25.9 million tonne Coal Reserve declared

International and domestic coal

markets strengthened with the global

recovery keeping demand steady,

particularly in China and India

Board strengthened with business

development and operational expertise

during the period


Timelinefrom April 2006 to May 2010

2006

2008

2009

2010

April Keaton Energy established

2007 December R312 million seed capital raised at R7 per share

March 206 million tonne Coal Resource at Vanggatfontein and Sterkfontein

declared in published CPR; mining right application submitted for

Vanggatfontein

April R100 million raised prior to JSE listing at R10 per share; Amalahle

prospecting rights awarded

May Resource upgrade – 213 million tonne Coal Resource at Vanggatfontein

and Sterkfontein declared

September Klipfontein mining permit awarded

October Klip Colliery (Klipfontein) begins production

April Sterkfontein Project area expansion announced

May 25.9 million tonne Coal Reserve announced for Vanggatfontein (as part

of a 163 million Coal Resource)

June Vanggatfontein mining right awarded

August Extension drilling programme begins at Sterkfontein

November Go-ahead announced for Vanggatfontein Project – Phase 1

April Sterkfontein Coal Resource doubled to 69 million tonnes

May Vanggatfontein land access secured; plant construction begins

4

Dear shareholderIt is my pleasure to present to you your

company’s third Annual Report for the year

to 31 March 2010. This period has been

very eventful. Our large Vanggatfontein

Project cleared the last, major pre-

development hurdles, allowing construction

of the first phase of the mine to begin in

May of this year. This coincided with our

first small mine, the Klip Colliery, reaching

the end of its economic life. Importantly, I

commend management for having operated

through the year without a single lost time

accident.

Markets

The period under review has been

characterised by the gradual recovery from

the market crash of late 2008. Keaton

Energy is well positioned to benefit from

this recovery, having carefully husbanded

its cash resources, which are sufficient for

the company to proceed with the

development of the first phase of the

Vanggatfontein Project, at a time of

increasing coal demand and better pricing.

It has been said in some quarters that our

conservative cash preservation plans and

the matching of our development and

growth to that of the global recovery –

effectively a risk averse, ‘batten down the

hatches’ approach – was detrimental to our

share price performance during the year.

This may have been so. We believe,

however, that our approach was correct as

we have emerged extremely well positioned

to leverage off strengthening coal markets.

Export coal prices have recovered from

their lows of 2009 and appear to have

stabilised above US$80 per tonne, ex-

Richards Bay Coal Terminal (RBCT).

Domestically the South African national

power utility, Eskom, has embarked on a

programme to contract 20 million tonnes a

year of medium-term supplies for its

existing power stations, and there are signs

of recovery in the domestic demand for

coal by industrial consumers.

Most significantly, it appears that a genuine

shortage of low-phosphorous, high-vitrinite,

bituminous metallurgical coal – the product

from Phase 1 of our Vanggatfontein Project

– has occurred in the local market, forcing

furnace operators to turn to more expensive

substitutes such as coking coal, creating an

immediate market for our Vanggatfontein

5-Seam product.

Strategy

The group’s previously-stated intention to

produce two million tonnes of saleable coal

a year in the medium-term is now likely to

be achieved within the next two years from

the Vanggatfontein Project alone, subject to

the suitable conclusion of contract

negotiations with Eskom. In spite of the

immediate challenges of negotiating such a

contract, and then building and

commissioning Phase 2 of the

Vanggatfontein Project, the Board of

directors (the Board) has reiterated the

mandate given to executive management

to develop the strategy to grow Keaton

Energy into a mid-tier coal producer in the

longer term.

The group’s two-tiered approach – to

pursue both a limited number of large, long-

life, resource-intensive projects and a

portfolio of smaller, quick-to-cash-flow

projects to provide the group with

operational flexibility – will now change in

emphasis as the first of the larger projects

comes on stream. While we will continue to

pursue smaller projects such as the Klip

Colliery, the larger projects will enjoy priority

for at least the next 12 months.

The experience gained from opening,

running and subsequently de-

commissioning the Klip Colliery was

invaluable. Sadly, one of the most salutary

lessons learned related to security. The

mine experienced no fewer than nine armed

robberies in its 20 months of operation. We

recognise the priority we will have to attach

to this aspect of our business in the future.

The challenges we face now, as the group

grows, are to remain lean, particularly in the

face of the burdens of regulatory compliance;

to avoid bureaucracy; to retain quick

decision-making; and to keep fixed costs to

a minimum.

Corporate governance andreporting

The Board and its committees have

continued to function well during the

period. During the year, our technical

Chairman’s review


director, Dr Steven Rupprecht, resigned

from the Board to pursue other

opportunities, and we were very pleased

that Mr Peet Snyders, a 29-year veteran of

the South African mining industry – many of

those years spent in coal mining, accepted

an appointment to the Board in the executive

role of Operations Director. Mr John

Wallington resigned from the Board with

effect from 31 May 2010 and the Board

acknowledges with thanks his contribution

to the group.

We acknowledge the company’s

responsibility to report on its activities

timeously and meaningfully to all of its

stakeholders – shareholders, employees,

communities in which it operates, and the

country’s citizens as a whole. As a

consequence, we embarked on a process

to adopt sustainable development reporting

in 2009. This Annual Report is the

company’s second to include this important

element, and it takes us closer to

compliance with the recommendations of

King III. We expect to apply all

recommendations (and seek external

assurance) with our 2011 Annual Report.

Keaton Energy has self-certified its

sustainability report, which is included in

the Annual Report.

The Board views sound performance in the

‘triple bottom line’, comprising economic

prosperity, the management of

environmental impacts and social

development, as fundamental to the

continued sustainability of the company for

the benefit of all stakeholders. The company

is committed to the King Committee’s

recommendation for integrated

sustainability reporting and has adopted a

phased approach in line with the Global

Reporting Initiative’s (GRI) G3 guidelines.

Keaton Energy has self-certified its

sustainability review at a C level, with the

intention to incrementally improve the level

of reporting on sustainability issues.

Outlook

Keaton Energy ended the financial year in

a strong financial position, in an excellent

project development position, with a

positive market outlook and with a small,

young executive team that has grown

through weathering and succeeding in

difficult circumstances. We start the

new year enthusiastically with the

Vanggatfontein Project in construction and

with prospects for conducting an Eskom

supply contract. The outlook is very positive.

David SalterChairman28 May 2010

6

IntroductionThis Annual Report is being issued at a very

important time in Keaton Energy’s

development. Klip Colliery, our small,

‘starter’ operation, reached the end of its

economic life during the period under

review. It weathered an extremely volatile

time in the domestic coal market, opening

just months before the crash of October

2008. The lessons learned with this

operation are being put to good effect in

the development of our second, much

larger, longer-life Vanggatfontein Project.

The construction of this mine started in

earnest after the close of the review period,

following amicable settlement of a land

access dispute between ourselves and the

landowners concerned.

The development of the VanggatfonteinProject will result in the permanent staffcomplement of the company starting torise, although it remains the operatingphilosophy of the group to carry as lowas possible a fixed cost base whilstmaking extensive use of outsourcing andcontracting. Preferred contractors havebeen selected for the core processes ofplant construction, plant operation andopencast mining. Service level agreementshave also been entered into with consultants,who will provide support functions such asongoing survey, geology and mine planning.

The period under review also saw the releaseof an interim resource statement for our

major Sterkfontein Project. This reported adoubling of the project Coal Resource to69 million tonnes (mineable in situ), after theconclusion of the first phase of the2009/2010 exploration drilling campaign.

Safety, health andthe environmentThe safety, health and environmentalperformance of the group in the periodunder review has been acceptable, with81 749 hours worked on site with no lost timeinjuries recorded. We continue to work toimplement fully the safety and health statementand policy adopted in 2009. The closurephase of Klip Colliery will be monitoredcarefully to ensure that there is no complacencyregarding safety, health and the environment.The codes of practice developed for KlipColliery will be revised and supplemented forthe Vanggatfontein Project, and significanteffort will be made to ensure that safety,health and environmental policies andprocedures are properly developed andimplemented at the new operations.

Project review:large, long-lifeprojectsVanggatfontein Project (previouslythe Delmas Project)The Vanggatfontein mining right is held byKeaton Energy’s 74%-held subsidiary,Keaton Mining (Pty) Limited (KeatonMining). Bulk earthworks began on thisproject subsequent to the end of thereporting period, with first coal from theproject expected before the end of the2010 calendar year.

The original plan to bring the VanggatfonteinProject into operation by late 2009 wasdelayed in part due to market conditionsand in part as a consequence of the decision

Managing Director’s review

SOUTHAFRICA

Johannesburg

AFRICA

0 500km

Keaton Energyoperations

CapeTown

Keaton Energy: location map


by the Department of Mineral Resources

(DMR) in mid-2009 no longer to accept

rehabilitation guarantees underwritten by

insurance companies. This change

increased the amount of upfront capital

required for the development of the project

materially. As a consequence both of this

and the general adverse economic

environment, management revised the

development schedule of the project.

Working within the existing approved Mine

Works Programme, a phased approach was

determined, in terms of which a stand-

alone 5-Seam metallurgical coal operation

would first be developed, followed by a

second phase in which a larger (by volume)

2 and 4-Seam domestic power station coal

project would be developed. This plan

reduced the upfront capital required to

cover first-year closure costs and allowed

short-term development of a project to

meet a physical shortage of 5-Seam

metallurgical coal in the domestic market.

It also allowed the company to participate

in Eskom’s medium-term coal procurement

programme, our engagement in which has

not yet concluded.

The Board approved the first phase

development of the 5-Seam operation in

November 2009 and fabrication of the plant

began in January 2010. The mining right

became effective on 23 February 2010.

Subsequent to the aforementioned

amicable resolution of the dispute over land

access, construction has begun in earnest.

The Board has approved total capital

expenditure of R172 million, with land

acquisition costs and the plant construction

costs making up most of the early investment.

SNC Lavalin South Africa is the managing

contractor on the project, with DRA Mineral

Projects responsible for plant design and

construction, and Epoch Resources for

residue facility design. Minopex has been

selected as the preferred plant operator and

Megacube Mining, a subsidiary of Sentula

Mining Limited, as the preferred opencast

mining contractor.

The design of the second phase of the

project is now being optimised as a

consequence of the engagement with Eskom.

This may result in this phase being larger

than originally anticipated in order to further

reduce the per tonne costs of production,

and provides further motivation for the

group to explore raising project finance for

the second phase of the project.

Sterkfontein ProjectThe Sterkfontein Project prospecting rightsare held by Keaton Mining and LabohlanoTrading 46 (Pty) Limited. Limited explorationwas done on the project in the 2009financial year, following the declaration of a34 million tonne Coal Resource in May2008. Exploration drilling resumed inearnest in mid-2009 following thesuccessful conclusion of the transaction toacquire a 74% interest in a 3 271-hectareprospecting right over properties intermingledwith the existing 4 009 hectares of prospectingrights. The transaction resulted in aconsolidated project area of 7 280 hectareswith the potential for establishing a large-scale underground mine.

An updated resource estimate was declaredfollowing the conclusion of a 31-hole drillingprogramme and inclusion of the data fromthe 25 holes drilled by the previous holderof the prospecting right. Further details arecontained in the Coal Resource Statementsection of this report; however, what ismost significant is that the Coal Resourceestimate has been doubled to 69 milliontonnes of coal (mineable in situ).

It was anticipated that the second phase ofthe drilling programme would be completedby June 2010, although the unseasonablywet weather has negatively affected drillingprogress.

Once drilling and geological modelling hasbeen completed over the consolidated area,a full feasibility study is planned with theview to determining the economics of anunderground mine producing both exportand domestic coal.

Project review:smaller, short-lifeproject portfolioand the explorationpipelineKlip CollieryThe Klip Colliery mining permit is held byKeaton Mining. Klip Colliery has reachedthe end of its economic life and the minesite will be rehabilitated during 2010.Although opencast mining is complete, somesurface operations are still being undertakenon site. All remaining coal has been sold.Keaton Mining intends to make an applicationfor a closure certificate prior to the end ofthe 2011 financial year.

Amalahle prospectsAmalahle Exploration (Pty) Limited, a 74%-held subsidiary of Keaton Energy,was granted four separate prospecting rightsby the DMR in April 2008. The prospectingrights covered six discrete propertiestotalling 1 597 hectares. Only two of theproperties were found to be of economicinterest and were added to the group’ssmall projects portfolio. There is someregulatory uncertainty relating to both theLeeuwfontein and Braamspruit Projects and,as a consequence, the Board felt it prudentto impair the associated explorationexpenditure.

Other prospectsThe group awaits granting and/or executionof three pending prospecting rights forrelatively small properties contiguous toboth the Vanggatfontein and SterkfonteinProjects. Once these prospecting rightshave been executed, suitableannouncements will be made toshareholders.

Looking aheadLarge, long-life projectsThe Vanggatfontein Project is in developmentand will be the focus of attention for thegroup in 2010. Now that the SterkfonteinProject’s resource base has beensignificantly increased, it is the group’sintention to move the project beyondexploration drilling and resource definitionto the feasibility study phase this year.

Smaller project portfolioThese projects will be placed on the ‘back-burner’ while the VanggatfonteinProject is developed. However, the groupwill continue to review any opportunities thatmay arise to add additional projects to thisportfolio.

While 2010 was a challenging financial year,we have cleared the major hurdles andestablished a strong base for future growth.

Paul Miller

Managing Director

28 May 2010

8

The financial results included in this Annual

Report are presented for the year ended

31 March 2010, and compared with the

results for the year ended 31 March 2009.

Review of thegroup’s cash positionand forecastThe group’s available cash as at 31 March

2010 amounted to R335 million with a further

R20 million pledged against the group’s

future environmental liabilities. R158 million

of the available cash is committed towards

the first phase of the group’s Vanggatfontein

Project development and surface right

acquisitions. The remaining cash of

R177 million is set aside to fund the

development of Phase 2 of the Vanggatfontein

Project and further resource exploration/

evaluation on existing and new prospecting

rights. It is the group’s intention to explore

raising project finance for the second phase

of the Vanggatfontein Project, with a view

to, in part, reduce the overall cost of capital

for the project.

Review of thegroup’s activitiesduring the yearThe Chairman’s and Managing Director’s

reviews on pages 4 to 7 include a detailed

discussion of the group’s activities. The

financial impact of the various group

activities during the year is as follows:

Vanggatfontein Project (previously the

Delmas Project): During the year

R21 million has been capitalised on

Phase 1 development and further

exploration, feasibility and related costs

(R44 million to date). A R17 million EMP

guarantee has been issued to the DMR

by Investec Bank Limited (fully backed by

cash collateral).

Sterkfontein Project (Bethal): During the

year R39 million has been capitalised on

this project (R62 million to date), mainly

as a result of the R30 million acquisition

of a contiguous prospecting right. In

terms of the shareholders’ agreement the

acquisition of this right coincided with the

acquisition of a 74% interest in

Labohlano Trading 46 (Pty) Limited (refer

to notes 7 and 14 on pages 54 and 59

respectively). The 74% Labohlano

acquisition involved a cash payment

(R5.0 million) and a share-based payment

of 2 000 000 ordinary shares of the

company (valued at R17.3 million) to the

existing shareholder of Labohlano, the

same day that Labohlano acquired the

prospecting right (its only asset) at a

significant discount. The final recognition

of the fair value of the prospecting right

was determined by grossing up the 74%

acquisition price of Labohlano (R22 million)

to 100% (R30 million), with the difference

being attributed to the non-controlling

shareholder (Money Box Investments

156 (Pty) Limited). The group will

consolidate the contiguous prospecting

rights at its Sterkfontein Project as soon

as sufficient geological data is available.

Klip Colliery (Balmoral/Ogies): Revenue

for the year, including a damages claim,

amounted to R23 million (R29 million to

date, representing 247 000 tonnes sold).

Operations at the colliery have been

downscaled which resulted in

impairments and net realisable value

losses of R6 million (refer to group results

below). However, the overall cash

contribution of the colliery over its life

amounted to R5 million.

Amalahle Projects (Bethal/Middelburg/

Ermelo): During the year R0.5 million has

been capitalised to exploration and

evaluation expenditure (R2 million to

date). A Measured Coal Resource of

922 000 mineable tonnes in situ (MTIS) of

open pittable coal has been declared at

the Leeuwfontein Project.

Review of thegroup’s resultsfor the yearRevenue and other income for the year

consisted mainly of Klip Colliery coal sales

of R21.8 million (2009: R5.4 million) and a

damages claim of R1.6 million in terms of

the defaulting coal buyer at Klip Colliery.

The total administration, other operational,

mining and related expenses amounted to

R24.7 million (2009: R23.7 million) and

include (prior year figures in brackets):

Financial Director’s review


employee benefit costs (excluding the

share appreciation rights income) of

R9.8 million (R9.0 million). As at

31 March 2010, the group had nine (10)

permanent employees/contractors;

consulting, legal, audit and professional

fees of R4.2 million (R5.6 million);

non-executive directors’ fees of the

company of R2.0 million (R1.6 million);

listing and investor relations costs of

R1.6 million (R2.0 million);

head office lease costs of R0.7 million

(R0.7 million); and

depreciation charges not included in cost

of sales of R0.7 million (R0.7 million).

Note: Mining and related expenses mainly

include that portion of management and

employee time spent directly on exploration

and production subsidiaries, direct

consulting fees by mining and exploration

contractors, and compensation paid to

surface right holders. Administration and

other operating expenses mainly include the

remainder of the employee benefit costs,

non-executive directors’ fees, and listing

and investor relations costs.

One of the main participants of the share

incentive scheme resigned during the year.

The net positive adjustment of R4.3 million

is a result of the reversal of the share

appreciation right expenses recognised in

previous periods (2009: R4.6 million).

Impairment and net realisable value losses

of R7.8 million (2009: R4.2 million) include:

Operations at Klip Colliery were

downscaled during the year, resulting in a

sharp decrease in the remaining life-of-

mine tonnages. This decrease resulted in

the weighted average cost per tonne

increasing significantly, and low quality

stockpiles having to be written down by

R4.9 million to their net realisable value.

An additional impairment of R1.1 million

resulted from capitalised mine

development costs at Klip Colliery.

As a result of the regulatory uncertainty

regarding the remaining prospects in

Amalahle Exploration (Pty) Limited (74%

subsidiary of Keaton Energy), an impairment

loss of R1.8 million was raised during the

year to impair fully the associated

exploration expenditure.

The income for the year from the group’s

externally invested funds was R29 million

(2009: R45 million). This equates to an

average return of 8.0% (2009: 11.6%)

before tax. The company’s funds invested

in its subsidiaries’ exploration projects and

mining operations earn a return of prime

plus 5% after tax, cumulative and

compounded quarterly. This return (in the

form of preference dividends) has, however,

not yet been recognised as the dividends

have not yet been declared by the

subsidiaries.

Income taxation expense mainly comprises

current taxation expense of R5.7 million

(2009: R10.2 million) and a secondary tax

on companies (STC) of R1.6 million (2009:

R1.1 million). It should be noted that the

total STC accrual to date of R2.9 million will

be reassessed in future years pending new

taxation legislation. The group has also

accrued for Royalty Tax which became

effective on 1 March 2010.

The group early adopted IAS 27 (AC 132)

amendments Consolidated and Separate

Financial Statements (effective for annual

periods beginning on or after 1 July 2009)

during the current financial year. One of the

amendments requires that losses in

subsidiaries have to be allocated to the

non-controlling interest even if doing so

causes the non-controlling interest to be in

a deficit position. In the past, losses were

allocated only until the non-controlling

interests had a zero balance. The basic

earnings per share of 4.1 cents is therefore

based on the profit for the year (attributable

to owners of the company) of R6.0 million.

IAS 27 does not allow the retrospective

adjustment of the calculation of basic

earnings per share, which remains at

3.4 cents.

The group’s net asset value per share is

R3.14 (2009: R3.06).

Movements in the group’s plant, equipment,

exploration and evaluating assets have

been discussed under the review of

activities above. In terms of the group’s

accounting policy, R22.7 million has been

transferred from the intangible exploration

and evaluation assets to plant and

equipment upon determination of the

technical feasibility and commercial viability

of the Vanggatfontein Project at the

beginning of the year.

Trade and other receivables amounted to

R6.4 million and consists mainly of interest

receivable (R3.5 million) and March 2010

coal sales (R2.2 million). Trade and other

payables amounted to R15.3 million and

consists mainly of amounts owing to the

group’s plant, equipment and exploration

vendors (R11.5 million).

Johan Schönfeldt

Financial Director

28 May 2010

10

Keaton MiningGeoCoal Services (GeoCoal) was appointed

by Keaton Energy Holdings Limited (Keaton

Energy) to complete a March 2010

Independent Competent Person’s Report

(CPR) on the coal bearing potential of the

Sterkfontein Project area. This follows the

March 2008 CPR completed by Coffey

Mining (Pty) Limited, on both the Sterkfontein

and Vanggatfontein (formerly known as

Delmas) Project areas, and the May 2009

Coal Resource estimation completed by Coffey

Mining (Pty) Limited on the Leeuwfontein

Project area. In all instances the Competent

Person responsible was Mr David van Wyk.

Sterkfontein Project

Subsequent to the March 2008 CPR,

Keaton Energy’s 74%-held subsidiary,

Labohlano Trading No. 46 (Pty) Limited

(Labohlano), acquired a prospecting right

over 3 270.94 hectares contiguous to the

prospecting rights (the Labohlano

extension) already held by Keaton Mining

(Pty) Limited, also a 74%-held subsidiary of

Keaton Energy.

The areas under consideration in this Coal

Resource Statement for Keaton Energy thus

consist of three prospecting rights over a

total of 7 279.82 hectares, held by Keaton

Mining and Labohlano in the Bethal district

of Mpumalanga, South Africa. The project

area is located 143km east-southeast of the

centre of Johannesburg.

Subsequent to the acquisition of the

Labohlano extension, a 93-hole drill

campaign was planned. The first phase of

this campaign has been completed, with

30 boreholes having been drilled during the

2009 calendar year. The purpose of the

CPR is to provide an update on the coal

bearing potential of the expanded project

area based on the additional information

from the first phase of the drilling

campaign, combined with the data

obtained from the 25 boreholes drilled

Coal Resource and Reserve Statement

Sterkfontein Project0 30km

HeidelburgProjects

Town

National roads

Main road

Power station

LEGEND

SOUTH AFRICASOUTH AFRICA

JohannesburgJohannesburg

CapeTown 0 500 km

A F R I C A

Leeuwfontein Project

29°

29°

30°

30°

26°

26°

R38

R3

5

Standerton VolksrustHarrismith

Mokopane

Bel

fast

Bela-Bela

Pie

tRet

ief

Mba

bane

PRETORIA

JOHANNESBURG

WITBANK

ERMELO

Bethal

Middelburg

Delmas

N17

N12

N4

N3

N1

N11

Kendal

GrootvleiTutuka

KrielMatla

Duvha

Hendrina

Arnot

Secunda

Vanggatfontein Project

City

Map showing the relative geographic location of the Sterkfontein, Vanggatfontein and Leeuwfontein Project areas

11

by previous holders of the Labohlano

prospecting right.

The classification of the Coal Resources of

the Sterkfontein Project is based on the

South African Code for Reporting of Mineral

Resources and Mineral Reserves (the

SAMREC Code) prepared by the South

African Mineral Resource Committee

(SAMREC) under the auspices of The South

African Institute of Mining and Metallurgy

(2007). Under the SAMREC Code, particular

reference is taken of the South African

National Standard (SANS 10320:2004), the

South African guide to the systematic

evaluation of Coal Resources. The Coal

Resource estimations and classifications for

the Sterkfontein Project areas were

prepared by Mr David van Wyk, a registered

natural scientist with the South African

Council for Natural Scientific Professions

(SACNASP) (Reg. No. 401964/83),

280 Pretoria Street, Silverton, which is a

recognised body by SAMREC, of which he

is a member. Mr van Wyk is a Competent

Person as defined in the 2007 edition of the

SAMREC Code. Mr van Wyk has more than

25 years’ experience in the South African

coal industry and is also familiar with and

adheres to the new South African Minerals

and Petroleum Resources Development Act

of 2002 (ACT No. 28 of 2002) (MPRDA) and

the SAMREC code; namely SANS

10320:2004. Mr van Wyk resides at

26 Croyden Circle, Port Alfred.

Mr David van Wyk has given his consent for

the public reporting of the Coal Resource

Statement.

Prospecting rights of the Sterkfontein Project areas held by Keaton Mining and Labohlano

Keaton Energy Holdings Limited – Sterkfontein ProjectSummary of beneficially held prospecting rights

Property Area Prospecting right

(hectares) Application number Expiry date

Sterkfontein Project Area – Keaton Mining held prospecting rights

Palmietfontein 307 IS, Portion 3

Sterkfontein 299 IS, Portion 1 932.87 MP/30/5/1/1/2/443PR 18/12/2011

Kaffirskraal 148 IS, RE of Portion 3, Remaining Extent

Wildan 577 IS, Remaining Extent

Sterkfontein 299 IS, Portion 20, 21, 25, 26, 34 and RE Portion 4

Goedehoop 301 IS, Portion 4 3.076.00 MP/30/5/1/1/2/444PR 09/11/2011

Sterkfontein Project Area – Labohlano held prospecting rights

Kaffirskraal 148 IS, Portion 1, 2, 5, 6, 8, 9, 10, 11, 12

Sterkfontein 299 IS, Portion 3, 5, 6, 8, 9, 10, 11, 12, 13, 15, 16, 17

18, 19, 22, 24, 30, 31, 32 and RE Portion 14 3 270.94 MP/30/5/1/1/2/1720PR 05/05/2011

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LEGEND

2009 campaign

2010 campaign

Total Sterkfontein Project

Keaton Mining

Keaton Mining

Labohlano

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These properties are referred to collectively as the Sterkfontein Project areaand are shown in the following diagram

12

Keaton Mining and Labohlano have incurred

exploration expenditure of R13.8 million and

R2.5 million respectively to date at the

Sterkfontein Project area. Keaton Mining

and Labohlano intend to drill an additional

56 boreholes to further expand the

Sterkfontein Project area resource base,

and to increase confidence levels of the

current resource estimates.

Keaton Energy, to the best of its knowledge,

is unaware of any land claims over any

parts of the project areas and is unaware of

any outstanding legal proceedings that

could prevent any prospecting and mining

activities planned on the properties listed

above. Labohlano has agreed with the

Govan Mbeki Municipality to apply to the

Department of Mineral Resources to amend

prospecting right MP/30/5/1/1/2/1720PR to

exclude a small portion of the prospecting

right adjacent to Extension 6 of the Mzinoni

Township. This amendment does not affect

the resource blocks identified in this Coal

Resource Statement.

Coal Resources

The geological investigation is at an advanced

exploration stage with about 50% of the

resources drilled to a measured resource.

The resource would be suitable for export

quality coal or to supply the Eskom power

stations in the vicinity. A total of 192 boreholes

have been drilled to date, with 176 having

full analyses.

All boreholes were drilled vertically by means

of diamond drilling using TNW (60mm) or

NQ (47.6mm) core size. Core recoveries

were good and the quality of the drilling

was acceptable. There were a number of

minor data discrepancies which could not

be rectified, however these discrepancies

were not material to the overall conclusion

of the report. Coal samples were analysed

at Inspectorate M&L.

In the Sterkfontein Project area, the No. 4

Seam is the only coal seam of economic

interest. The No. 5 Seam is present in most

of the holes at an average depth of 132m

and forms a thin (usually less than 30cm)

dull coal seam, which is a prominent marker

horizon, between 15m to 60m above the

No. 4 Seam. The No. 4 Seam occurs as a

composite seam with a number of different

coal zones identified. In places the No. 4 Seam

is split by a sandstone or siltstone parting,

creating No. 4 Upper and No. 4 Lower Seam.

Typically the quality of the No. 4 Lower Seam

is better than that of the No. 4 Upper Seam.

The No. 4 Seam is on average 1.9m thick

across the property. In the south, the No. 4

Seam is thicker with an average width of

3.0m. Intra-seam partings are common,

although are mostly of insignificant widths

(<0.30cm) except for in the southeast of

where the parting reaches a maximum

thickness of 2.5m.

As at March 2010, the Gross Tonnes In Situ

(GTIS) of 82 million tonnes for the No. 4 Seam

in the three resource blocks identified on

Sterkfontein Project area was estimated using

1.40m as a minimum seam width.

Geological losses ranging from 10% to

20% were assumed depending on the

density of geological data and a MTIS Coal

Resource of 69 million tonnes has been

estimated. No material risk factors have

been identified that could impact on the

Coal Resource Statement.

The Coal Resource Statement was

prepared using SANS 10320ED South

African guide to the systematic evaluation

of Coal Resources and Coal Reserves

section 6 and the definitions from section 3.

Coal Resource and Reserve Statement

(continued)

The expected expenditure for the Sterkfontein Project area for the next 12 months.

Sterkfontein ProjectCoal exploration budget 2010

Project area Planned activity Number of boreholes Cost (R’million)

Sterkfontein Exploration and infill drilling 56 5.5

The drilling status for the area where the 4L Seam width is greater than 60cm

Area (sq m) Volume (cu m) Raw RD GTIS Boreholes Hectares Ha/bh

48 125 067 75 622 970 1.6 119 484 293 200 4 812.5067 24.06


The weighted average theoretical borehole

yield for the three resource blocks is 44.22%

for an export 27 CV (MJ/kg) product and

35.29% for a 19.5 CV (MJ/kg) Eskom type

product.

Vanggatfontein Project

The Coal Resource and Reserve Statement

for the Vanggatfontein Project remains as

was declared in the May 2009 statement

and the 2009 Annual Report. Please refer to

the aforementioned documents, available

on www.keatonenergy.co.za for the full

disclosure. There has been no change to

the May 2009 statement.

AmalahleExplorationLeeuwfontein Project

The Coal Resource Statement for the

Leeuwfontein Project remains as was

declared in the May 2009 statement and

the 2009 Annual Report. Please refer to the

aforementioned documents, available on

www.keatonenergy.co.za for the full

disclosure. There has been no change to

the May 2009 statement.

The Coal Resources of the Sterkfontein Project area

Block Area Volume Ave RD GTIS Geological MTIS SAMREC(sq m) (cu m) width (m) loss classification

North 01 3 070 006 7 974 608 2.60 1.59 12 645 274 20% 10 116 219 Indicated

South 01 10 855 009 22 380 454 2.06 1.60 35 868 823 20% 28 695 058 Indicated

South 02 9 055 022 21 448 936 2.37 1.56 33 499 169 10% 30 149 252 Measured

Total 22 980 037 51 803 998 82 013 266 68 960 529

Modifying factors:Minimum seam width 1.4m; minimum dry ash free volatiles 26%; geological losses 10% to 20%; maximum raw uncontaminated ashof 50%

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Limits of the three resource blocks indentified on Sterkfontein Project area

Pre-2009 campaigns

LEGEND

2009 campaign

2010 campaign

North 01 – 10Mt MTIS

South 01 – 28Mt MTIS

South 02 – 30Mt MTIS

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The diagram below shows the limits of the three resource blocks identified onSterkfontein Project area

Keaton Energy’s strategy remains to

produce two million tonnes of saleable coal

in the medium term, growing into a mid-tier

coal producer in the longer term – with

production from greenfields and brownfields

projects where Keaton Energy is able to use

its intellectual and financial resources to

take projects up the value curve, through

rapid project development to production.

Keaton Energy has made progress towards

its two million tonnes per year objective by

advancing its development and exploration

projects, and this is discussed in the review

of operations. The Klip Colliery reached the

end of its economic life during the year and,

consequently, the group returned to being

an exploration and development company

until the first coal is produced at the

Vanggatfontein Project, which is expected

by the third quarter of the 2011 financial year.

The company’s social and environmental

footprint is planned to increase, as the

Vanggatfontein Project is brought to

account, and significant progress is

expected to be made in the year ahead.

Commitment tosustainabledevelopmentKeaton Energy’s objective is to become a

long-term sustainable enterprise, profitably

producing a primary commodity that

remains vital as both a source of energy

and foreign exchange for South Africa,

thereby contributing to economic growth,

job creation and socio-economic

development within the country.

The Board of Keaton Energy believes that

mining companies have unique

responsibilities relating to the safety and

health of employees, contractors and

communities, the natural environment and

the socio-economic development of both

the communities where they operate and

the country generally. Mines by their very

nature are declining assets that have finite

lives in which their contributions can be

made, and during which their negative

impacts must be minimised. It is the

Board’s firm view that sound performance

in the ‘triple bottom line’, comprising

economic prosperity, the management of

environmental impacts and social

development, is fundamental to the

continued sustainability of the company for

the benefit of all stakeholders.

Governance andrisk managementKeaton Energy is committed to good

corporate governance and disclosure.

Corporate governance matters are dealt

with on pages 22 to 24 of this report.

Keaton Energy has noted the new

disclosure requirements and

recommendations within the Companies

Act and the recently issued King report on

Corporate Governance (King III) and will, in

its 2011 Annual Report, report in compliance

with these. King II’s recommendation for

integrated sustainability reporting has

already been adopted by Keaton Energy

and the company continues to adopt a

phased approach to the reporting in line

with the Global Reporting Initiative’s (GRI)

G3 guidelines.

In line with the requirements of GRI, Keaton

Energy has self-declared a C level of

reporting and an index in this regard may

be found on page 19 of this report. Given

that the company is currently in a start-up

stage of business, little quantitative data is

available. However, it is our intention to set

up quantitative data collation systems for

the primary sustainability parameters as

soon as practicable. Keaton Energy does

not produce a separate sustainability report

but has chosen to incorporate this

information into the Annual Report. Further

information may also be found on the

company’s website at www.keatonenergy.co.za

under the sustainability section.

The Board-level Safety, Health and

Environmental Committee is chaired by

Managing Director Paul Miller, and

comprises David Salter, Peet Snyders and

John Wallington. Its role is to guide and

review safety, health and environmental

policy and practice and it has been

delegated this authority by the Board, to

which it reports. The group regards health

and safety as the responsibility of each

individual within the company and, to this

end, a group Health and Safety Committee

has been established consisting of

management and employee

representatives, which meets quarterly.

Furthermore each work site has either a

designated health and safety representative

14

Sustainable development review


or a Health and Safety Committee,

depending on the number of employees

and contractors on the site.

Safety, health and environment, and issues

relating to employee development and

transformation, are overseen on an ongoing

basis by the company’s executive committee.

Further details may be found on the company’s

website.

Risk management is accorded priority as an

essential component in ensuring the

sustainability of the business. Risk

management is an inherent part of every

role and job description and formal structures

exist to ensure that risk management

processes are in place. The Board Risk

Committee, which comprises the full Board,

meets at least on a quarterly basis to

review all risk management processes,

procedures and outcomes. Their role is

supported by external experts retained to

facilitate risk identification and the

identification of suitable mitigation

measures.

EthicsKeaton Energy subscribes to the highest

principles of integrity and members of the

Board and employees are required to

commit to a policy on ethical behaviour.

Keaton Energy’s ethical code of conduct is

available in the corporate governance

section of the company’s website. The

company has extended these requirements

for standards of behaviour to its contractors.

Keaton Energy‘s permanent staff

complement is very small and all staff

members have direct access to non-executive

members of the Board. As a result, no

formal whistle-blowing process is in place

at this stage. The Board is committed to

ensuring that no legitimate whistle-blower

will be discriminated against.

Keaton Energy has not made any political

or charitable donations, and no policy is in

place to cover such donations.

The Board will only consider this position

once the operations are all cash flow positive.

StakeholderengagementKeaton Energy has identified its

stakeholders and, through both formal and

informal processes, engages with these

stakeholders on an ongoing basis.

Keaton Energy’s operating model makes

extensive use of outsourcing and

contracting to limit its fixed overhead costs,

while at the same time employing

competent resources that would otherwise

be unaffordable to a small company.

Employees and suppliers are viewed as

critical stakeholders within the business.

A commercial dispute arose between the

landowners of the land subject to the

Vanggatfontein Project mining right and

Keaton Mining, the subsidiary that holds

that mining right, over the quantum of

financial compensation payable for access

to the land. The dispute was settled

amicably before the matter was heard in

court, a step which Keaton Energy was

forced to pursue.

EconomicsustainabilityKeaton Energy recognises that its primary

role is the development and long-term

sustainability of the company, and to ensure

that these benefit a broad range of

stakeholders.

Keaton Energy has continued to invest in

the development of the Vanggatfontein and

Sterkfontein Projects. In total, the group

spent R39.5 million on exploration and

evaluation in the 2010 financial year, and

R24.1 million in respect of mine

development and capital expenditure.

Value-added statement

The value-added statement illustrates the

wealth created by Keaton Energy through

exploration, mining, trading and investing

operations and how this was disbursed

among the group’s stakeholders. During

2010, the group began investing extensively

in mine development and this will continue

in 2011.

Stakeholder engagement

Stakeholders Engagement Issues

Shareholders Formal, through regulatory and other announcements, Company progress on projects

and informal, through meetings and presentations

Employees Informal, employee numbers are limited and all Company performance, benefits

employees have access to senior management and prospects

Regulatory authorities, such as the DMR and the Informal and external, through permitting Reporting and compliance

Department of Water and Environment Affairs and other applications

Contractors Informal and formal Company performance and

prospects

Community members Informal and formal, extensive consultation is Proposed company operations

conducted with community members through the and timing thereof

required environmental regulatory framework

Group value-added statementsfor the year ended 31 March 2010 (unaudited)

31 March Wealth 31 March Wealth2010 created 2009 created

R % R %

Cash generated:

Proceeds from private placement (co-inciding with listing) – 90 483 396

Cash derived from sales and services 23 980 392 6 100 555

Income from investments and interest received 29 204 689 43 120 439

Paid to suppliers for goods and services (30 801 981) (46 787 991)

Cash value added 22 383 100 100 92 916 399 100

Cash utilised:

Paid to suppliers for mine development/infrastructure 23 799 596 106 5 187 669 6

Remunerate employees and directors for services 11 884 639 53 11 206 578 12

Pay direct taxes to government 6 199 529 28 10 060 051 11

Cash disbursed among stakeholders 41 883 764 187 26 454 298 28

Cash (invested)/retained in the group to maintain and develop operations (19 500 664) (87) 66 462 101 72

Notes to the group value-added statements

1. Tax contribution

Direct taxes (as above) 6 199 529 10 060 051

Value-added taxes levied on purchases of goods and services 7 644 221 8 076 322

13 843 750 18 136 373

2. Additional amounts collected by the group on behalf of government

Value-added tax and other duties charged on turnover 5 144 106 2 250 683

Employees’ tax deducted from remuneration paid 3 576 753 3 344 028

Unemployment insurance fund 20 043 17 627

8 740 902 5 612 338

3. Levies paid to government

Rates and taxes paid to local authorities – 57 485

Royalties payable to government 9 771 –

Workers’ compensation fund 20 282 5 000

Unemployment insurance fund 20 043 17 627

Skills development 105 789 102 978

155 885 183 090

16


(continued)


The first coal to be produced from Keaton

Mining’s Vanggatfontein Project is 5-Seam

metallurgical coal. This is a niche product,

bituminous coal, prized for its low

phosphorous and high vitrinite content, and

is applied in metallurgical processes. There

is currently a physical shortage of such coal

in the domestic market and it is eagerly

sought after by particularly producers of

silicon manganese and, to a lesser extent,

producers of steel and a variety of ferro-

alloys. The development of a new source of

5-Seam coal will be of direct benefit to

South Africa’s metallurgical industries.

Further, Keaton Energy expects to play a

role in contributing to easing South Africa’s

power crisis by contributing up to 2.4 million

tonnes a year of consistent quality domestic

thermal coal to Eskom’s power stations.

This will however depend on the successful

conclusion of contract negotiations.

Economic transformation andblack economicempowerment (BEE)Keaton Energy recognises the role that

the company can and should play in the

transformation of the economy. The company’s

role is broadly in three areas:

first, in respect of increasing the

economic interest by historically

disadvantaged persons (HDPs) in the

resources industry;

second, to encourage the development

of BEE business entities and to provide

opportunities for these companies to

provide goods and services.

third, to transform the demographics of

corporate South Africa by recruiting,

training and developing HDPs within the

business. This is dealt with in greater

detail below.

Equity ownership

Keaton Energy was established as a

company with strong BEE credentials, and

to identify and develop projects in line with

the tenets of the Mineral and Petroleum

Resources Development Act (MPRDA). All

the group’s operating subsidiary companies

are fully empowered, in line with the

requirements of the Mining Charter. HDPs,

including women, are represented as owners

and as directors of the operating subsidiaries

and the holding company, and as employees

in senior executive roles in the group.

Keaton Energy was established in 2006 andits establishment is a direct benefit of theMPRDA. The group has been designed tocomply with the Act from inception: KeatonEnergy was established through theacquisition of 74% interests in prospectingrights previously owned 100% by BEEentities. The 74% interest was acquired forcash or through the issue of unencumberedlisted shares. The remaining 26% interest inthe operating entities continues to be heldby the BEE entity. Keaton Energy hasentered into funding, management andshareholder agreements relating to eachoperating company. As a consequence,26% of each operating company is held bya BEE entity and a further approximately8% of the listed company itself is also heldby BEE entities. These interests are allunencumbered.

The company is also pleased to report thatKeaton Mining, Keaton Energy’s principleoperating subsidiary, has received a Level 3BBBEE rating.

ProcurementKeaton Energy’s procurement policyensures that where possible procurementopportunities are afforded to HDPs andBEE entities. This is not only by purchasinggoods and services from entities with blackownership but also by ensuring thatsupplier companies similarly comply withthe BBBEE codes. All quotes and proposalsreceived from suppliers require thesubmission of BEE credentials, and thesecredentials are taken into account whenadjudicating supplier selection.

Much effort has gone into ensuring that thegroup has the administrative capacity toeffectively track preferential procurementwith a view to providing detailed disclosurein future reporting periods.

As noted above, Keaton Mining achieved aLevel 3 BBBEE rating during August 2009.With regards to Code Series 805 of theCodes of Good Practice (PreferentialProcurement), Keaton Mining achieved acompliance target of 42.5%, which is abovethe first five years’ target of 40%. Thisresulted in an actual score of 25 out of 25 interms of BBBEE procurement spend from

all suppliers based on the BBBEEprocurement recognition levels as a percentageof total measured procurement spend.

Social equity andperformanceEmployment

Keaton Energy is committed to being aresponsible employer and neighbour. At theend of March 2010, the company employednine people (six employees and threepermanent contractors). As at 31 March2009, the group provided directemployment for 10 people – sevenpermanent employees and three contractors.In addition a further 30 people wereemployed indirectly at the Klip Colliery.

Extensive human rights conventions existwith the South African Constitution and theLabour Relations Act, and these are upheldby Keaton Energy. Keaton Energy supportsemployees right to freedom of associationand collective bargaining.

Employment equity

Keaton Energy has developed a recruitmentpolicy to ensure fair and equitablerecruitment processes, prevents unfairdiscrimination and to address injusticesfaced by HDPs in the past. Where practical,and subject to the recruitment policy, it isKeaton Energy’s policy to recruit employeesfrom historically disadvantagedcommunities residing near its operations.Keaton Energy will also ensure thatcontractors employed by the group applysimilar practices in their recruitment process.

For all of its projects Keaton Energy hasprepared a detailed Social and Labour Planin compliance with the MPRDA and theMining Charter. These plans detail humanresource development, employment equity,equity ownership, procurement, housingand living conditions, local economicdevelopment, amongst other issues. Theseplans have been developed in consultationwith local stakeholders and will be alignedwith the integrated development plans oflocal communities to ensure maximumbenefits accrue to these communities. Thecompany will ensure that the contributionsit makes will directly benefit local people,with specific aims of contributing to povertyalleviation and job creation.

18

Health and safetyKeaton Energy has in place acomprehensive policy on health and safetythat is aligned with the requirements of theMine Health and Safety Act. All personnelengaged in exploration and mining activitiesundergo comprehensive medicalsurveillance. The company is in the pleasingposition that, to date, there has been noincidence of lost time injuries or fatalities.Notwithstanding this, adequate training inmatters related to health and safety isprovided to all employees and vigilance inrespect of safety performance will continue.

Plans are also in place to ensure thatadequate education and care is provided toemployees in respect of HIV and AIDS.

SecurityThe group has found the physicalprotection of its employees and assets tobe a challenge in the current environmentand security arrangements are constantlybeing reviewed. Regrettably, the KlipColliery was attacked by armed robbers onnine occasions in its 20 months ofoperation. Contracted security personnelare required to be trained to the appropriateindustry standard and are provided withelectronic alarm systems and on-call backup. The security measures put in placehave thus far successfully preventedsignificant losses in the period. However,this continues to be a risk to thesustainability of operations and one that thegroup will continue to seek to mitigate.

EnvironmentKeaton Energy has a group environmentalpolicy in place and, as a minimum, ensurescompliance with South Africa’senvironmental legislation. In anticipation ofmining activities, environmental impactassessments (EIAs) and EnvironmentalManagement Programmes (EMPs) havebeen or are being developed with theassistance of independent externalconsultants.

Compliance with regulations necessarilyrequires extensive consultation with allstakeholders, especially land owners,occupiers of the affected land and anyparty that may register itself as aninterested and affected party. On receipt ofregulatory approval, the group will conductits operations in a manner that is incompliance with all the conditions ofregulatory approval.

No environmental incidents were recordedat Klip Colliery prior to the cessation ofoperations. Rehabilitation of this operationwas largely undertaken as the miningoperations progressed. Certain surfacerehabilitation operations are still in progress,and it is anticipated that Keaton Mining willbe in a position to make formal applicationto the DMR for a closure certificate late inthe 2011 financial year.

The group’s project EMPs detail potentialimpacts and mitigation measures andmonitoring systems and audits are put inplace to ensure compliance.

As an energy user and an energy company(through the mining of fossil fuels for energyproduction) Keaton Energy is highly awareof the need to consider the risks andopportunities related to climate changeboth for the company and its surroundingcommunities. In planning and operating itsmines Keaton Energy take critical accountof energy efficiency and aims, wherepractical, to limit its total use of energy,from whatever source.

A sustainablecompanyKeaton Energy is beginning a process ofimplementing sustainability reporting andrecognises that it is at the beginning of thisjourney. Shareholders are referred to thecompany’s website, www.keatonenergy.co.za,for additional information in this regard.


(continued)


GRI indexReporting in line with GRI – C level of reporting Pages

G3 profile disclosures 1 Strategy and analysis

1.1 Statement by senior decision-maker 4-9

2 Organisational profile

2.1 – 2.10 Information on the company 2

3 Report parameters

3.1 – 3.4 Report profile IFC

3.5 – 3.11 Report scope and boundary 5

3.12 Content index 1

4 Governance, commitments and engagements

4.1 – 4.10 Governance 22-24

4.14 – 4.17 Stakeholder engagement 15

G3 performance indicators Economic performance indicators

Management approach 8

EC1 Direct economic value generated and distributed 8

EC2 Financial implications and other risks and opportunities for the

organisation’s activities due to climate change 18

EC4 Significant financial assistance received from government 16

EC6 Policy, practices, and proportion of spending on locally-based

suppliers at significant locations of operation 17

EC7 Procedures for local hiring and proportion of senior management hired

from the local community at locations of significant operation 17

EC8 Development and impact of infrastructure investments and services

provided primarily for public benefit through commercial, in kind, or

pro bono engagement 15

Environmental performance indicators


EN23 Total number and volume of significant spills 18

Labour practices and decent work


LA1 Total workforce by employment type, employment contract, and region 17

LA4 Percentage of employees covered by collective bargaining agreements 17

LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and

number of work-related fatalities by region 18

Human rights


Society performance indicators


20

David Salter (51)Independent Non-executive ChairmanBSc (Hons), PhD, FSAIMM

Appointed to the Board in January 2008.

David Salter has 29 years of international

mineral technology, project development

and senior mining executive management

experience, and has previously served as

the Managing Director of the Salene Group

and JSE-listed Barplats Investments

Limited and Eland Platinum Holdings

Limited. David currently serves on the

Board of TransAfrika Resources Limited

and Kameni Limited.

Zelda Mostert (37)Independent Non-executive DirectorBCom (Hons), MCom, CA (SA)

Appointed to the Board in July 2008.

Zelda Mostert was previously Chief

Financial Officer of Great Basin Gold

Limited and Treasurer of Harmony Gold

Mining Company Limited before joining

Keaton Energy. She has extensive mining

finance skills and experience and was

involved in several capital and debt raising

activities within the mining industry over the

past seven years. She has considerable

experience and knowledge of risk financing

pertaining to mining related risks.

Lizwi Mtumtum (38)Independent Non-executive DirectorBA (Economics/Accounting)

Appointed to the Board in March 2008.

Lizwi Mtumtum is the Executive Chairman

of Ikamva Lethu Investments, a BEE

investment holding company and is also

chairman of Jua-Ina-Linga Properties, a

property investment and development

company. He previously held positions at

the listed Pangbourne Properties, Yard

Capital (a BEE investment holding

company), Nedbank and Nedcor. He serves

as an independent non-executive director

of Kameni Limited, where he also chairs the

Audit Committee and has previously served

as an independent non-executive director

of Eland Platinum, where he chaired the

Audit Committee.

John Wallington (52)Independent Non-executive DirectorBSc (Mining Engineering)

Appointed to the Board in October 2008.

John Wallington was Chief Executive Officer

of the Coal Division of Anglo American plc

from January 2005 until May 2008, having

joined the division in 1981 as a mining

graduate at its Arnot Colliery. He was

instrumental in the development and

implementation of strategy at Anglo Coal,

played a major role in the completion of its

black economic empowerment transaction

in 2007, and built and maintained key

regulator and customer relations

internationally.

He joined the Firestone Energy Board in

May 2009 and was appointed as an interim

Managing Director of Firestone Energy with

effect from November 2009.

Phoevos Pouroulis (35)

Non-executive Director

BSc (Business Admin)

Appointed to the Board in March 2007.

Phoevos Pouroulis, who holds a BSc

degree in Business Science from Boston

University, is a businessman who has

started and partnered various businesses

locally and throughout Africa. He was a

commercial consultant involved in the

development of mining projects across

Africa, including advising Chromex Mining

plc on its establishment, where he was later

appointed Commercial Director. He is

Chairman of Spitfire Music South Africa and

was involved in the founding of Keaton

Energy. He is also a founding member and

Chairman of Music for The Children

Foundation an umbrella charity organisation

raising funds for underprivileged children in

South Africa. He is also the Executive

Chairman of Arxo Logistics (Pty) Limited, a

newly formed logistics business responsible

for the export of commodities. Phoevos has

been a Non-executive Director since

January 2008.

Directorate


Antoinette Sedibe (44)Non-executive DirectorBA (Admin)

Appointed to the Board in April 2006.

Antoinette Sedibe, who is the Managing

Director of Andisa Capital, and a co-

founder of Rutendo Mining, started her

career with Nedbank’s graduate programme

in 1988, before moving on to AECI’s

Treasury Department as a foreign exchange

dealer, and later spent two years in the

internal audit department. She assisted

in setting up Polifin (Sasol and AECI joint

venture) Treasury, and also gained extensive

management, financial and treasury

operations experience as a portfolio

manager at Standard Bank’s treasury

outsourcing operation, where she was

appointed a director. Antoinette became an

executive director of Andisa Capital in 2003.

Paul Miller (40)Managing DirectorBCom (Hons)

Appointed to the Board in September 2007.

Paul Miller was involved as an advisor to

Keaton Energy in mid-2006, prior to his

appointment to the Board. He was

appointed Managing Director in September

2007. Formerly with Andersen Consulting

(now Accenture), Nedcor Investment Bank

and Nedbank Capital, he has 14 years’

experience in South Africa’s consulting,

finance and mining industries.

Mandi Glad (39)Business Development andMarketing Director

Appointed to the Board in May 2009.

Mandi Glad, who is a co-owner of Rutendo

Mining, is an entrepreneur who has more

than 15 years’ experience in owning and

operating businesses ranging from coal

marketing to IT. She has also gained

strategic industrial relations skills from

her interests in several businesses. Her

involvement with HDPs and women-led

coal mining initiatives has given her detailed

knowledge of the MPRDA and related

regulatory processes. She played an integral

role in the establishment of Keaton Energy.

Johan Schönfeldt (39)Financial DirectorBCom (Hons), MCom, CA (SA)


Johan Schönfeldt gained international

banking experience while working in

London on contracts with major banking

groups. He has also held senior financial

management positions with the Indequity

Group and the IQ Business Group, after

which he consulted to a number of

PricewaterhouseCoopers’ clients on their

conversions from SA GAAP to IFRS. Most

recently he was the Financial Manager at

Eland Platinum until that company was

acquired by Xstrata.

Peet Snyders (49)Operations DirectorMCom, BEng


Peet Snyders has 29 years’ working

experience in the South African mining

industry. Previously he held senior positions

in Riversdale Holdings (Pty) Limited, Anglo

Platinum, Kumba Coal, Iscor Mining, Anglo

Coal and Sasol Coal. He began his mining

career as a Gencor bursar.

22

GeneralThe Keaton Energy group and its directors

are committed to the principles of good

corporate governance and to applying the

highest ethical standards in conducting

business.

The group strives constantly to develop and

improve existing corporate governance

structures and practices to ensure continued

good governance. The group has substantially

complied with the recommendations of

King II. King III became effective on 1 March

2010 and the group and its directors will

apply the revised principles of good

corporate governance during the coming

year and will explain any instances of non-

compliance in the next Annual Report.

The Companies Act No. 71 of 2008, which

was signed into law during April 2009 by

the President, is being examined and will

be dealt with when it is brought into effect.

Board of directorsThe Board comprises four executive

directors and six non-executive directors,

of whom four are independent. The

independent non-executive directors are

noted under the directors’ section of this

report (pages 20 and 21). The Board is

responsible to shareholders for the conduct

of the business of the Keaton Energy group,

which includes providing Keaton Energy

with clear strategic direction. The schedule

of matters reviewed by the Board includes:

approval of the group's strategy and

annual budget;

overseeing group operational

performance and management;

ensuring that there is adequate

succession planning at senior levels;

overseeing director selection, orientation

and evaluation;

approval of major capital expenditure or

disposals, material contracts, material

acquisitions and developments;

reviewing the terms of reference of Board

committees;

determining policies and processes

which seek to ensure the integrity of the

group's risk management and internal

controls;

maintaining and monitoring the group's

systems of internal control and risk

management;

communication with shareholders,

including approval of all circulars,

prospectuses and major public

announcements;

approval of the interim statement and

Annual Report and accounts (including

the review of critical accounting policies

and accounting judgements and an

assessment of the company's position

and prospects); and

recommendation of dividends.

The Board retains full and effective control

over the business of Keaton Energy. The

Board has defined levels of materiality

through a written delegation of authority,

which sets out decisions the Board wishes

to reserve for itself. The delegation will be

regularly reviewed and monitored. The four

executive directors have fixed terms of

employment.

In accordance with the company's articles

of association, all directors, except the

managing director and any other executive

directors, are subject to retirement by

rotation and re-election by shareholders at

least every three years. The Board intends

to meet at least four times a year, or more

frequently if circumstances so require.

Information relevant to meetings is supplied

on a timely basis to the Board, ensuring

directors can make informed decisions. The

directors have unrestricted access to

information, management and the company

secretary in relation to Keaton Energy. All

directors are entitled to seek the advice of

independent professionals on matters

concerning the affairs of the group, at

Keaton Energy's expense.

Appointment to the Board

The Nomination Committee is responsible

for reviewing the composition of the Board

and identifies and makes recommendations

to the Board regarding the appointment of

new directors. Appointments to the Board

are made taking into account the need for

ensuring that the Board provides a diverse

range of skills, knowledge and expertise,

the necessity of achieving a balance between

skills and expertise and the professional

and industry knowledge necessary to meet

the company's strategic objectives, and the

need for ensuring demographic representation.

Upon appointment, each director receives

an induction programme into the group with

guidance on their responsibilities.

Division of responsibility

There is a clear division between the roles

of the chairman and the managing director.

The Board is chaired by an independent

non-executive director. The chairman is

responsible for providing leadership to the

Board, overseeing its efficient operation and

has been tasked with ensuring effective

corporate governance practices. The

managing director is responsible for

formulating, implementing and maintaining

the strategic direction of Keaton Energy,

and ensuring that the day-to-day affairs of

the group operations are appropriately

supervised and controlled. The non-

executive directors all have a high degree of

integrity and credibility, and the

composition of the Board provides for

objective input into the decision-making

process, thereby ensuring that no one

director holds unfettered decision-making

Corporate governance


powers or too much influence. The directors

come from diverse backgrounds and bring

to the Board a wide range of experience.

Board committeesThe Board has appointed five committees

to which it has delegated specific

responsibilities. All committees operate

within written terms of reference approved

by the Board, which are available on the

company’s website at www.keatonenergy.co.za.

Audit Committee

The Audit Committee comprises three

independent non-executive directors,

namely Lizwi Mtumtum (chairman), David

Salter and Zelda Mostert. The financial

director, financial manager, company

secretary, the internal auditors and the

external auditors all attend meetings by

invitation.

The Audit Committee maintains terms of

reference, which are reviewed annually and

if necessary, are amended to meet market,

regulatory and internal needs. These terms

set out the basis for the committee’s

functioning, including the requirement to

consider and monitor the independence of

external auditors and the appropriate

rotation of the lead partner and to make

recommendations to the Board on the

appointment or dismissal of the external

auditor. The Audit Committee’s duties relate

to the management of financial risk across

the group, the safeguarding of assets, the

maintenance of adequate systems and

control process and compliance with legal

and accounting standard requirements in

the group’s financial reporting and

accounting statements. It also reviews the

internal audit charter, internal audit annual

plan, the external audit scope and

accounting, taxation and financial reporting

issues. The Audit Committee monitors

proposed changes in accounting policy and

considers the accounting and taxation

implications of transactions. It also

considers the appropriateness of the

expertise and experience of the group

financial director. The findings and

recommendations of the internal and

external auditors are used to determine the

effectiveness of internal control systems.

Consultation between internal and external

auditors is encouraged to achieve an

efficient audit process.

The external auditors attend the Audit

Committee meetings and have unrestricted

informal access to the chairman of the

Audit Committee. The Audit Committee has

approved a non-audit services policy and

set the principles for recommending the use

of external auditors for non-audit services.

The Audit Committee is satisfied that the

independence of the external auditors is

maintained at all times and is not

compromised by the relationship the

external auditors are building with the

executive directors during their external

audit function.

The Audit Committee met formally four

times during the financial year to consider

financial reporting issues and to advise the

Board on a range of matters, including

corporate governance practices, internal

control policies and procedures, and

internal and external audit management.

The chairman of the Audit Committee is

required to report to the Board after each

meeting.

During the year under review, the Audit

Committee was appointed by the subsidiaries

of Keaton Energy to perform the roles and

responsibilities of their Audit Committee.

Furthermore, the Audit Committee appointed

PricewaterhouseCoopers Inc. as the

internal auditors, determined their fees and

terms of engagement, and received internal

audit reports as per the internal audit plan

(whose findings confirmed the group’s tight

internal control policies and procedures and

made further recommendations on improving

others). The internal auditors have a direct

reporting line to the chairman of the Audit

Committee with the operational reporting

line to the managing director and/or his

designate. The internal auditors attend all

Audit Committee meetings by invitation and

have direct access to the chairman of the

Audit Committee.

In addition, the Audit Committee

recommended the re-appointment of KPMG

Inc. as the external auditors, determined

the fees to be paid to KPMG and their

terms of engagement, and reviewed and

recommended the approval of the interim

and annual financial statements to the Board.

The Board has determined that the Audit

Committee fulfilled its responsibilities for

the year under review, and as required

reports that it is satisfied with the expertise

and experience of the financial director and

the independence of KPMG.

Nomination Committee

The Nomination Committee is made up of

David Salter (chairman), Antoinette Sedibe,

Lizwi Mtumtum and John Wallington. The

primary role of the Nomination Committee

is to review the composition of the Board

and to identify and make recommendations

regarding the appointment of new directors.

It also satisfies itself that appropriate

succession plans are in place for the Board

and senior management of the Keaton

Energy group, and reviews the performance

of non-executive directors to ensure that they

have devoted sufficient time to their duties.

Remuneration Committee

The Remuneration Committee comprises

David Salter (chairman), Phoevos Pouroulis

and John Wallington. The Remuneration

Committee approves the remuneration policies

for the executive directors and senior

management, having considered relevant

market norms and independent advice

where appropriate. No director or manager

is involved in any decision as to his or her

own remuneration. A remuneration report

has been included on pages 25 to 28 which

shareholders will be asked to approve through

a non-binding approval at this year’s Annual

General Meeting (AGM).

Risk Committee

The Risk Committee is chaired by David

Salter and includes all the members of the

Board. The Risk Committee's role is to ensure

the management of all business risks,

including operational and financial risks, with

a view to enhancing the value of shareholders'

investments, safeguarding assets and

ensuring the safety of the workforce and

other stakeholders.

Safety, Health andEnvironmental Committee

The Safety, Health and Environmental

Committee (SHE) is chaired by Paul Miller

and includes David Salter, Peet Snyders

and John Wallington. The role of the Safety,

Health and Environmental Committee is to

monitor and review safely, health and

environmental performance and standards.

Code of BusinessEthics and ConductThe Board has approved and adopted a

Code of Business Ethics and Conduct (the

code) which reaffirms the high standard of

business conduct required of all employees,

officers and directors of Keaton Energy. It

has been adopted as part of the company's

continuing effort to ensure that it has an

effective programme to prevent and detect

violations of the law, and for the education

24

and training of employees, officers and

directors. In most circumstances, the code

sets standards higher than that required by

law. The code is available on the company’s

website at www.keatonenergy.co.za

Share dealingsIn line with best practice, the Securities

Services Act and the JSE Listings

Requirements, the company operates

closed periods prior to the announcement

of its interim and annual financial results.

During these closed periods, directors,

officers and other employees who are likely

to be in possession of price-sensitive

information may not deal in the shares or

other instruments pertaining to the shares

of the company. This principle is also

applied at other times whenever there is a

corporate action or similar circumstances.

Written requests to trade in the company’s

shares by directors, officers and senior

personnel and the requisite approval to

trade in the company shares, outside of

closed periods, are kept on record at the

company’s offices.

OtherThe Board is committed to honest, open

and regular communication with all

stakeholders on both financial and non-

financial matters. The company reports

formally to shareholders when half-year and

full-year results are announced. Shareholders

are invited to attend AGMs and to pose

questions to the directors. All executive

and non-executive directors are required to

attend this meeting. The AGM provides an

opportunity for the chairman to present to

the shareholders a report on current

operations and developments and enables

the shareholders to question and express

their views about the company's business.

A separate resolution is proposed on each

substantially separate issue, including the

receipt of the financial statements and

shareholders are entitled to vote either in

person or by proxy. The company secretary

acts as advisor to the Board and plays a

pivotal role in ensuring compliance with

statutory regulations, the code and the King

Code, the induction of new directors, tabling

information on relevant regulatory and

legislative changes, and giving guidance to

the directors regarding their duties and

responsibilities. The directors have unlimited

access to the advice and services of the

company secretary. Attendance at meetings

for the financial year ended 31 March 2010,

is indicated below.

Corporate governance(continued)

Name Board Audit Remuneration Nomination SHE Risk Committee Committee Committee Committee Committee

(4) (4) (4) (4) (4) (4)

David Salter 4 4 4 4 4 4

Zelda Mostert 4 4 n/a n/a n/a 3

Lizwi Mtumtum 4 4 n/a 4 n/a 4

John Wallington 3 n/a 3 4 4 4

Phoevos Pouroulis 4 n/a 4 n/a n/a 3

Antoinette Sedibe 4 n/a n/a 4 n/a 4

Paul Miller 4 n/a n/a n/a 4 4

Mandi Glad 4 n/a n/a n/a n/a 3

Peet Snyders 1(1) n/a n/a n/a 1(1) 1(1)

Johan Schönfeldt 4 n/a n/a n/a n/a 4

Steven Rupprecht 2(2) n/a n/a n/a 2 (2) 2 (2)

(1) Appointed 1 January 2010 (2) Resigned 10 November 2009


RemunerationCommitteeComposition and terms ofengagement

The Remuneration Committee (the

committee) is a subcommittee of the Board

and is comprised of three non-executive

directors, the majority of whom are

independent. Meetings of the committee

are held at least twice a year and additional

meetings are held when deemed necessary.

Current members of the committee are:

David Salter (chairman)

Phoevos Pouroulis

John Wallington

All members of the committee are

appropriately qualified non-executive

directors of the company and are

considered by the Board to be independent

of the company’s executives and

management and, apart from one member,

free from any business or other relationship

which could interfere with the exercise of

their independent judgement. The Board

appoints the committee’s chairman, who is

fully independent, and determines the

period for which he shall hold office.

The committee will apply (and explain

where not) all the recommendations of the

King III Code of Corporate Practice and

Conduct by 2011. The Board considers its

composition to be appropriate in terms of

the necessary blend of knowledge, skill and

experience of its members.

The committee is authorised by the Board

to seek any information it requires from any

employee of the company in order to

perform its duties. The managing and

financial directors may attend meetings,

unless deemed inappropriate, to discuss

the remuneration of executives and senior

management, but may not participate in

any discussion or decision regarding their

own remuneration.

The company secretary (Routledge Modise

Inc. practising as Eversheds) acts as the

secretary and attends all meetings of the

committee, and the committee is required

by the Board to select, set the terms of

reference, and appoint remuneration

consultants, at the company’s expense.

The committee met four times during the

year. Attendance at meetings is noted on

page 24 of this Annual Report. Where a

member did not attend he submitted

apologies and was granted a leave of

absence in terms of the company’s articles

of association. The managing and financial

directors were invited to all four meetings.

Role and responsibilities

The committee chairman reports formally to

the Board on its proceedings after each

meeting of the committee and attends the

AGM to respond to any questions from

shareholders regarding the committee’s

areas of responsibility.

The responsibilities of the committee are in

accordance with its mandate and terms of

reference as set by the Board, and include

among others:

Determining and agreeing with the Board

the framework or broad policy for the

remuneration of the managing director,

the executive directors, executives and

senior management.

Ensuring that executive directors,

executives and senior management of

the company are provided with

appropriate incentives to encourage

enhanced performance and are, in a fair

and responsible manner, rewarded for

their individual contributions to the

success of the company.

Determining targets for the performance

related pay schemes operated by the

company and asking the Board, when

appropriate, to seek shareholder approval

for any long-term performance incentive

arrangements and amendments thereto.

Determining the total individual

remuneration package of each executive

director, executives and senior

management, including basic salary,

benefits in kind, annual cash incentive

payments and allocations of share

appreciation rights.

Determining the policy for and scope of

retirement fund arrangements, service

agreements for the executive directors,

executives and senior management,

termination payments and compensation

commitments.

Ensuring that contractual terms on

termination and any payments made are

fair to the individual and the company,

that failure is not rewarded and that the

duty to mitigate loss is fully recognised.

Being aware of and overseeing any major

changes in employee benefit structures

throughout the company or group.

Reviewing annually the reimbursement

of any claims for expenses from the

chairman of the company, executive

directors and non-executive directors.

Producing the remuneration report for

inclusion in the Annual Report, in line

with the guidelines of King III, JSE

Listings requirements and any other

regulatory requirements.

Remuneration report

26

A complete version of the committee’s

terms of reference is available on the

company’s website.

Reward strategyintent and principles Keaton Energy is committed to a reward

philosophy which will prevail throughout

the company, and will accommodate its

transition from a development to an

operating concern. The company has

recently implemented a clearly defined and

documented reward strategy.

Although still a small company with a

limited human resource, Keaton Energy is

keen to ensure that all remuneration

polices are in accordance with best

practice and the remuneration guidelines of

King III, and are aligned with the overall

objective of enabling the company to

attract, recruit and retain the necessary

skills to enhance and promote superior

business performance.

Keaton Energy has an integrated and

balanced reward strategy, which

encompasses maintaining guaranteed pay

levels that reflect an individual’s worth to

Keaton Energy, a performance

management system that serves to

differentiate individual performance, and

incentives that recognise and reward where

appropriate both operational performance

and strategic performance in a volatile

business environment.

Executive remune-ration policies In setting executive remuneration policy,

Keaton Energy aims to pay overall

packages that are competitive in the mining

and resources sector and, where

appropriate, in the general market, whilst

recognising that its reward strategy and

each of its component policies are dynamic

and should be revisited regularly to ensure

continuing alignment with best market

practice, and Keaton Energy’s evolving

organisational context and objectives.

Policy on guaranteed pay

Keaton Energy’s total employment cost, of

which guaranteed pay is the major

component, forms a significant portion of

total operating costs. Therefore guaranteed

pay is managed efficiently in terms of a

single entity, namely total cost to company

(TCC), which includes salary, benefits,

allowances, and company contributions to

retirement funding and medical aid.

Keaton Energy undertook an initial survey

of remuneration benchmarks at its

inception in 2007 and from now onwards

will be comparing itself to both the general

market and, more specifically, the mining

and resources surveys as published

annually.

Additionally the pay levels of top executive

positions in Keaton Energy will be

benchmarked against national market

executive remuneration surveys aspublished annually.

Guaranteed packages within the KeatonEnergy group are structured to be in linewith the median of the market but with theproviso that for key talent, bothprofessional and executive, a positioningcloser to or at the upper-quartile level ofpeer companies may be required.

Policy on performancemanagement

Keaton Energy has adopted a formal

framework for performance management

that is linked to and drives the annual cash

incentive scheme. Performance scorecards,

linked to strategic delivery and defined

financial targets set each year, and also the

company’s social and environmental

performance, have been derived for each

role and are used in the assessment

process. All executive and management

employees receive regular performance

management reviews which also provide an

opportunity for comment on career

development. The company intends that

these will occur at least twice a year.

Policy on pay mix

Keaton Energy has adopted a pay mix

policy that supports the philosophy that,

over time, the performance-based pay of

executives should rank alongside or exceed

guaranteed pay in the mix of total expected

compensation, and furthermore that, within

the performance-based pay of the most

Remuneration report(continued)


senior executives, the orientation should be

towards rewarding long-term sustainable

performance (through long-term and/or

share-based incentives), more so than

operational performance (through annual

cash incentives).

The mix of fixed and variable pay is thus

designed to meet Keaton Energy’s

operational needs and strategic objectives,

based on targets that are stretching,

verifiable and relevant.

It should be borne in mind, however, that in

practice the mix will vary as annual cash

incentives may be less or greater than

targeted, and similarly the rewards from

share-based incentives will vary from year

to year depending on vesting and exercise

patterns, and the impact on share price

performance of not only company

performance but also external factors, such

as market sentiment, interest rates,

commodity prices and exchange rates.

Policy on annual incentivebonuses

Keaton Energy has recently completed the

design of an appropriate executive and

management incentive scheme in which an

incentive pool is created from a weighted

scorecard of company performance

measures, and is then allocated to

participants according to their relative

performance.

The central theme behind the design is to

accommodate the requirement of the

company for incentive payments to be

funded from incremental performance,

whilst at the same time recognising the

need to secure its human capital in what is

a volatile and unpredictable business

environment, and to reward high-performing

employees commensurate with their value

contributions.

The company performance scorecard

includes measures of investment return,

cash flow management and comparative

share price performance, whilst individual

balanced scorecards will be aligned to the

key performance areas in each role as

identified in individual role descriptions.

Bonuses will be calculated in May of each

year, based on the audited financial

performance of Keaton Energy and the

results from the performance management

process, and will be paid in June of each

year. The major determinants of the size of

an incentive bonus will be the individual’s

guaranteed package times the on-target

bonus percentage (from the reward strategy

– pay mix) times an individual performance

factor, modified to reflect the available

funds in the incentive pool.

Long-term, share-basedincentives

Currently long-term incentivisation is

available to be offered in terms of the

Keaton Energy Long-Term Performance

Incentive Scheme (LTIP), tabled and

approved by the shareholders of Keaton

Energy in 2007. Offers have already been

made to key executives in terms of the LTIP

(refer to page 71 of the Annual Report).

The main purpose of the LTIP is to

incentivise and retain key executive and

management talent by providing an incentive

to employees to advance the (long-term)

interests and growth of the company.

Until now, allocations have been made at

the discretion of the Board and there has

been no formal linkage to its reward

strategy. However it is Keaton Energy’s

intention to re-visit not the architecture or

documentation of the scheme but its

implementation, and to move towards

making annual allocations in terms of a

set policy.

Policy on servicecontracts andseverancearrangementsExecutive directors are subject to Keaton

Energy’s standard terms and conditions of

employment where notice periods are six

months. In line with the remuneration

guidelines of King III, none of the executives

have extended employment contracts,

special termination benefits or balloon

payments linked to any restraint of trade.

Keaton Energy’s policy when terminating

the services of an individual for operational

reasons is to pay a minimum of two weeks

of the annual TCC for each completed year

of service. Keaton Energy aims to apply this

policy to all employees, including executive

directors, but it is subject to negotiation in

special circumstances.

Pensions During the year, the relevant group companies

made contributions for executive directors

to the Keaton Administrative and Technical

Services Provident Fund (the fund), as part

of their TCC. The rate of contribution is between

3% and 15%, based on the pensionable

salary of these individuals. The value of

contributions for each executive director

appears in the summary of directors’

emoluments on page 71 of this Annual Report.

None of the non-executive directors of

Keaton Energy contributed to the fund

during the year or had any accrued pension

fund benefits in the fund as at 31 March 2010.

The committee has assessed the levels of

funding and benefits of the fund and

medical aid scheme and satisfied itself that

both were solvent and did not pose a risk

to any of the group’s employees or retirees.

Other benefits In addition to the benefits already described

as part of their guaranteed packages,

executive directors also receive a death-in-

service benefit. No ex-gratia payments or

deferred awards of any nature were made

during the review period.

Non-executivedirectors’ fees The remuneration of non-executive

directors is a matter for the executive

members of the Board, and is approved by

the company’s shareholders in general

meeting, acting pursuant to a

recommendation of the Board.

28

The Board applies principles of good

corporate governance relating to directors’

remuneration and also keeps abreast of

changing trends. Governance of directors’

remuneration is undertaken by the committee.

The committee takes cognisance of market

norms and practices, as well as the

additional responsibilities placed on Board

members by new legislation and corporate

governance principles.

Keaton Energy's policy on remuneration for

non-executive directors is that this should be:

fee based, comprising a retainer and per

committee components;

market related with respect to fees paid

and number of meetings attended by

non-executive directors of companies of

similar size and structure to Keaton

Energy and operating in the mining and

resources sector; and

not linked to share price or Keaton

Energy performance.

The group pays for all travel and

accommodation expenses incurred by

directors to attend Board meetings and

visits to company businesses.

No non-executive director has an

employment contract with the company

although non-executive directors are

required to conclude service agreements

with the company which set out the duties

and responsibilities expected of them as

non-executive directors.

Keaton Energy non-executive directors do

not receive bonuses or share options,

recognising that this can create potential

conflicts of interest which can impair the

independence which non-executive

directors are expected to bring to bear in

decision-making by the Board.

At Keaton Energy’s AGM to be held on

22 July 2010, shareholders will be required

to approve the non-executive director fees

set out in the notice of AGM on pages 77 to

80 of this Annual Report.

Annual fees for membership ofvarious committees for the reviewperiod were:

2009 2010Chairman* 220 000 236 500

Director 220 000 236 500

Chairman of a subcommittee 44 000 47 300

Member of a subcommittee 33 000 35 475

* The chairman’s fee is on an all

inclusive basis.

Disclosure of directors’ emoluments andshare appreciation rights

Refer to page 71 of the Annual Report.

Remuneration report(continued)


The directors are responsible for the preparation and fair presentation of the group and company annual financial statements, comprising the

statements of financial position at 31 March 2010, and the statements of comprehensive income, the statements of changes in equity and the

statements of cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant

accounting policies and other explanatory notes, and the directors’ report, in accordance with International Financial Reporting Standards

and in the manner required by the Companies Act of South Africa.

The directors’ responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair

presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying

appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The directors’ responsibility also includes maintaining adequate accounting records and an effective system of risk management as well as

the preparation of the supplementary schedules included in these financial statements.

The directors have made an assessment of the group and company’s ability to continue as a going concern and there is no reason to believe

the group’s or company’s businesses will not be a going concern in the year ahead.

The auditor is responsible for reporting on whether the group and company annual financial statements are fairly presented in accordance

with the applicable financial reporting framework.

Approval of group and company annual financial statementsThe group and company annual financial statements, as identified in the first paragraph above, were approved by the Board of directors on

28 May 2010 and signed on their behalf by:

J D Salter P B M Miller

Chairman Managing Director

28 May 2010 28 May 2010

Declaration by the company secretaryIn terms of section 268(G)(d) of the South African Companies Act 1973, as amended, we declare that, to the best of our knowledge, the

company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act

and that all such returns are true, correct and up to date in respect of the financial period reported upon.

On behalf of

Routledge Modise Inc. practising as Eversheds

28 May 2010

Directors’ responsibilityfor the annual financial statements

30

To the members of Keaton Energy Holdings LimitedWe have audited the group annual financial statements and the annual financial statements of Keaton Energy Holdings Limited, which

comprise the statements of financial position at 31 March 2010, and the statements of comprehensive income, the statements of changes in

equity and the statements of cash flows for the year then ended, and the notes to the financial statements, which include a summary of

significant accounting policies and other explanatory notes, and the directors' report as set out on pages 31 to 72.

Directors’ responsibility for the financial statements The company's directors are responsible for the preparation and fair presentation of these financial statements in accordance with

International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes:

designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free

from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with

International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The

procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's

preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Keaton

Energy Holdings Limited at 31 March 2010, and its consolidated and separate financial performance and consolidated and separate cash

flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies

Act of South Africa.

KPMG Inc.

Registered Auditor

Per Shaun van den Boogaard KPMG Forum

Chartered Accountant (SA) 1226 Schoeman Street

Registered Auditor Hatfield

Director Pretoria

28 May 2010 0083

Independentauditors’ report


The directors have pleasure in presenting the directors’ report to the financial statements for the year ended 31 March 2010.

1. Nature of businessKeaton Energy is a holding company of mining interests. It’s subsidiaries are involved in the exploration for and evaluation of coal prospects,

as well as the development and operation of coal projects in South Africa.

2. Subsidiary companiesKeaton Energy's interests in subsidiary companies at 31 March 2010 were as follows:

Total issued % share capital shareholding

(R)

Keaton Administrative and Technical Services (Pty) Limited 100 100%

Keaton Mining (Pty) Limited 100 74%

Amalahle Exploration (Pty) Limited 100 74%

Mafla Coal (Pty) Limited 100 74%

Labohlano Trading 46 (Pty) Limited 100 74%

The company acquired 74% in Labohlano during the year. This coincided with Labohlano acquiring a prospecting right contiguous to the

group’s Sterkfontein Project (refer to notes 7, 14 and 23). The transaction was accounted for as an asset acquisition rather than a business

combination as Labohlano was dormant up to the date of two transactions.

During the financial year, application was made to de-register Izwi Coal (Pty) Limited (60%), Rafcoal Mining (Pty) Limited (74%) and Intshe Coal

(Pty) Limited (60%), as they were no longer operational and had no assets or liabilities. The de-registration is in process for these entities. It is

the company's intention to apply for the de-registration of Mafla Coal (Pty) Limited during this coming year.

3. Review of business and operationsThe group began the year with a total short-term cash position of R373.7 million. This position decreased to R335.1 million as at 31 March 2010,

with a further R19.1 million invested in longer term deposits.

During the year the group generated mining revenue of R21.8 million (2009: R5.4 million), resulting in a gross profit of R0.8 million

(2009 : R3.6 million). After accounting for:

other income of R2.0 million (2009: R0.7 million);

administration and other operating expenses of R13.2 million (2009: R13.6 million);

mining and related costs of R11.5 million (2009: R10.1 million);

a share appreciation rights income of R4.3 million (2009 : expense of R4.1 million);

an impairment loss/net realisable value loss of R7.8 million (2009: R4.2 million);

net finance income of R29.1 million (2009: R44.5 million); and

a taxation charge of R7.3 million (2009: R11.9 million),

the loss for the year was R3.5 million (2009: profit of R4.8 million).

The group early adopted the revised version of IAS 27: Consolidated and Separate Financial Statements (refer to the accounting policies for a

detailed explanation in this regard). Amongst others, non-controlling shareholders in the group are responsible for their share of a subsidiary’s

losses, effective from 1 April 2009. This resulted in losses of R9.5 million being attributed to non-controlling interests during the year. The

profit attributable to owners of the company is therefore R6.0 million, or a basic earnings per share of 4.1 cents (2009: 3.4 cents). Headline

earnings per share was 5.6 cents (2009: 6.4 cents).

Directors’ reportfor the year ended 31 March 2010

32

4. Share capitalAuthorised share capital:250 000 000 (2009: 250 000 000) ordinary shares with a par value of R0.001 (one tenth of a cent) each (2009: R0.001 each).

Issued share capital:144 841 293 (2009: 142 841 293) ordinary shares with a par value of R0.001 (one tenth of a cent) each (2009: R0.001 each).

Two million shares were issued at R8.65 each during the year as part of the acquisition price of Labohlano Trading 46 (Pty) Limited. In the

2009 financial year 10 million shares were issued for cash at R10.00 each as part of the company’s listing.

5. DirectorateDuring the year, Dr SM Rupprecht resigned as a director with effect from 10 November 2009 and Mr PCCH Snyders was appointed as the

operations director with effect from 1 January 2010. Accordingly, Mr Snyders will resign as a director at the AGM to be held in July 2010,

having been appointed by the Board during the year, and is available for re-election.

Ms APE Sedibe and Mr P Pouroulis, who have served the longest on the Board of directors, shall retire by rotation at the AGM in July 2010

and are both available for re-election. On 24 May 2010, shareholders were advised that Mr Wallington resigned from the Board with effect

from 31 May 2010. The directors that held office at the date of this report are:

Name Position Independent

JD Salter (British) Non-executive Chairman Yes

Z Mostert Non-executive Director Yes

LX Mtumtum Non-executive Director Yes

JN Wallington Non-executive Director Yes

P Pouroulis (South African/Cypriot) Non-executive Director No

APE Sedibe Non-executive Director No

PBM Miller Executive Director No

AB Glad Executive Director No

JG Schönfeldt Executive Director No

PCCH Snyders Executive Director No

South African unless otherwise stated

6. AuditorsAt the forthcoming AGM, shareholders will be requested to reappoint KPMG Inc. as auditors of the company and to hold office for the

ensuring year until the conclusion of the next AGM. The engagement director will remain the same as he has not yet reached the five year

rotational requirement.

Directors’ reportfor the year ended 31 March 2010 (continued)


7. Significant events after 31 March 2010 up to the date ofthis report

On 6 April 2010, Keaton Energy announced that it had doubled the total Coal Resource at its Sterkfontein Project in South Africa’s

Mpumalanga Province to 69 million mineable tonnes in situ, following the conclusion of the first phase of its current drilling campaign.

On 4 May 2010, Keaton Mining (Pty) Limited (Keaton Mining), reached an amicable settlement with local landowners, in terms of which

Keaton Mining will acquire four properties totalling 850 hectares relating to its Vanggatfontein Project, in the Delmas district of Mpumalanga.

8. Company secretaryThe company secretary is Routledge Modise Inc. practising as Eversheds.

Their contact details are:

22 Fredman Drive

Sandton

Johannesburg

2146

9. Registered addressGround floor

Eland House

The Braes

3 Eaton Avenue

Bryanston

2191

10. DividendsNo dividends for the year ended 31 March 2010 (year ended 31 March 2009: Rnil) have been declared nor are any proposed.

11. Going concernAt 31 March 2010, the group had adequate funding resources to continue to operate for the foreseeable future and has therefore continued to

adopt the going-concern basis in preparing the group's financial statements.

The company has subordinated its claims against all of its subsidiaries in favour and for the benefit of other creditors of these companies,

subject to certain claims and conditions as set out in the subordination agreements.

12. Special resolutionsSpecial resolutions approved for the company and its subsidiaries are as follows:

Company Special resolution Date registered

Keaton Energy Holdings limited Repurchase of shares by way of a general authority to acquire the issuedordinary shares of the company 1 September 2009

Labohlano Trading 46 (Pty) Limited Adoption of new memorandum and articles of association, increase of authorised shares 7 May 2009

Labohlano Trading 46 (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009

Amalahle Exploration (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009

Keaton Mining (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009

34

Statements of comprehensiveincomefor the year ended 31 March 2010

Group CompanyYear to Year to Year to Year to

31 March 2010 31 March 2009 31 March 2010 31 March 2009

Note R R R R

Revenue 1 21 957 053 5 423 590 – –

Cost of sales (21 191 150) (1 873 553) – –

Gross profit 765 903 3 550 037 – –

Other income 2 023 339 676 965 2 274 160 1 258 749

Administrative and other operating expenses (13 219 548) (13 623 366) (11 576 516) (8 400 151)

Mining and related expenses (11 452 590) (10 078 118) – (1 198 808)

Share appreciation rights income/(expense) 4 346 229 (4 126 146) (149 674) –

Impairment and net realisable value losses (7 813 009) (4 213 734) (3 679 217) (17 664 937)

Operating loss before net finance income 2 (25 349 676) (27 814 362) (13 131 247) (26 005 147)

Net finance income 3 29 106 713 44 508 863 28 893 849 44 749 399

Finance income 29 139 649 44 508 863 28 893 849 44 749 399

Finance costs (32 936) – – –

Net profit before taxation 3 757 037 16 694 501 15 762 602 18 744 252

Income taxation expense 4 (7 278 698) (11 853 152) (5 637 878) (10 114 082)

(Loss)/Profit for the year (3 521 661) 4 841 349 10 124 724 8 630 170

Total comprehensive income for the year (3 521 661) 4 841 349 10 124 724 8 630 170

(Loss)/Profit and total comprehensive income

attributable to:

Owners of the company 5 974 510 4 841 349

Non-controlling interest (9 496 171) –

(Loss)/Profit for the year (3 521 661) 4 841 349

Basic earnings per share (cents) 5 4.1 3.4

Diluted earnings per share (cents) 5 4.1 3.3


Statements of financial position

Group Company31 March 2010 31 March 2009 31 March 2010 31 March 2009

Note R R R R

Assets

Plant and equipment 6 47 972 728 11 510 671 – –

Investment in subsidiary companies 7 135 668 662 74 458 403

Intangible exploration and evaluation asset 8 62 374 122 47 472 256 – –

Deferred tax 9 244 478 128 866 244 478 128 866

Restricted cash 12.1 19 106 648 – 774 648 –

Total non-current assets 129 697 976 59 111 793 136 687 788 74 587 269

Inventory 10 – 6 959 079 – –

Trade and other receivables 11 6 352 681 3 840 341 3 565 175 3 609 717

Value added taxation receivable 2 276 595 1 740 427 – –

Cash and cash equivalents 12.2 335 080 552 373 697 854 334 764 066 373 704 419

Total current assets 343 709 828 386 237 701 338 329 241 377 314 136

Total assets 473 407 804 445 349 494 475 017 029 451 901 405

Equity

Share capital 13 144 841 142 841 144 841 142 841

Share premium 13 449 935 213 432 637 213 449 935 213 432 637 213

Share-based payment reserve 13 203 923 4 550 153 203 923 4 550 153

Retained earnings/(Accumulated loss) 5 833 683 (140 827) 22 704 066 12 579 342

Total equity attributable to owners of the

company 456 117 660 437 189 380 472 988 043 449 909 549

Non-controlling interest (1 768 314) –

Total equity 454 349 346 437 189 380 472 988 043 449 909 549

Liabilities

Trade and other payables 15 15 337 223 5 387 285 1 491 378 1 043 063

Provisions 16 326 211 572 586 – –

Taxation 3 395 024 2 200 243 537 608 948 793

Total current liabilities 19 058 458 8 160 114 2 028 986 1 991 856

Total equity and liabilities 473 407 804 445 349 494 475 017 029 451 901 405

for the year ended 31 March 2010

36

Statements of changes in equity

GroupShare- Retained

based earnings/ Non-

Share Share payment (Accumu- controlling Total

capital premium reserve lated loss) Total interest equity

R R R R R R R

Balance at 31 March 2008 132 741 341 163 917 424 007 (4 982 176) 336 738 489 – 336 738 489

Total comprehensive

income for the year – – – 4 841 349 4 841 349 – 4 841 349

Issue of ordinary shares 10 000 99 990 000 – – 100 000 000 – 100 000 000

Share-based payments 100 999 900 4 126 146 – 5 126 146 – 5 126 146

Share issue expenses – (9 516 604) – – (9 516 604) – (9 516 604)

Balance at 31 March 2009 142 841 432 637 213 4 550 153 (140 827) 437 189 380 – 437 189 380

Total comprehensive income

for the year – – – 5 974 510 5 974 510 (9 496 171) (3 521 661)

Share-based payments 2 000 17 298 000 (4 346 230) – 12 953 770 – 12 953 770

Non-controlling interest

resulting from acquisition of

a subsidiary (refer to note 14) – – – – – 7 727 857 7 727 857

Balance at 31 March 2010 144 841 449 935 213 203 923 5 833 683 456 117 660 (1 768 314) 454 349 346

CompanyShare-

based

Share Share payment Retained

capital premium reserve earnings Total

R R R R R

Balance at 31 March 2008 132 741 341 163 917 424 007 3 949 172 345 669 837


for the year – – – 8 630 170 8 630 170

Ordinary shares issued for cash 10 000 99 990 000 – – 100 000 000

Share-based payments 100 999 900 4 126 146 – 5 126 146

Share issue expenses – (9 516 604) – – (9 516 604)

Balance at 31 March 2009 142 841 432 637 213 4 550 153 12 579 342 449 909 549


for the year – – – 10 124 724 10 124 724

Share-based payments 2 000 17 298 000 (4 346 230) – 12 953 770

Balance at 31 March 2010 144 841 449 935 213 203 923 22 704 066 472 988 043



Statements of cash flows



Note R R R R

Cash flows from operating activities

Cash utilised in operations 19.1 (13 055 985) (25 670 401) (8 997 342) (12 316 262)

Interest received 29 204 689 43 120 439 29 081 055 43 360 976

Interest paid (32 936) – – –

Taxation paid 19.2 (6 199 529) (10 060 051) (6 164 676) (10 060 051)

Net cash flows from operating activities 9 916 239 7 389 987 13 919 037 20 984 663

Cash flows from investing activities

Investment in subsidiary companies 19.3 (52 084 742) (44 505 748)

Acquisition of plant and equipment to expand

operations 19.4 (15 110 652) (5 697 197) – –

Proceeds on disposal of plant and equipment – 25 682 – –

Additions to exploration and evaluation assets 19.5 (14 316 241) (25 739 767) – –

Investment in restricted cash (19 106 648) – (774 648) –

Net cash flows from investing activities (48 533 541) (31 411 282) (52 859 390) (44 505 748)

Cash flows from financing activities

Proceeds from the issue of shares – 90 483 396 – 90 483 396

Net cash flows from financing activities – 90 483 396 – 90 483 396

Net (decrease)/increase in cash and cash equivalents (38 617 302) 66 462 101 (38 940 353) 66 962 311

Cash and cash equivalents at the beginning

of the year 373 697 854 307 235 753 373 704 419 306 742 108

Cash and cash equivalents at the end of

the year 12.2 335 080 552 373 697 854 334 764 066 373 704 419


38

Accounting policies

Reporting entityKeaton Energy Holdings Limited (the company) is a company domiciled in the Republic of South Africa (Registration number:2006/011090/06). The address of the company’s registered office is Ground floor, Eland House, The Braes, 3 Eaton Road, Bryanston, 2191.The consolidated financial statements of the company as at and for the year ended 31 March 2010 comprise the company and itssubsidiaries (together referred to as the group or individually as group entities). The group is primarily involved in coal exploration andproduction activities.

Basis of preparationThe accounting policies have been applied consistently to all periods presented in these financial statements and have been appliedconsistently by group entities, except as explained in changes to accounting policies (later in these accounting policies). Any reference to‘financial statements’ includes both the consolidated and separate financial statements unless specifically identified.

The group has applied revised IAS 1 Presentation of Financial Statements (2007) which became effective for years beginning on or after1 January 2009.

Statement of complianceThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the requirements ofthe South African Companies Act, 1973, as amended.

Basis of measurementThe financial statements are prepared on the historical cost basis.

Functional and presentation currency These financial statements are presented in South African Rands (R), which is the company’s functional currency. All financial informationpresented in South African Rand has been rounded to the nearest Rand.

Use of estimates and judgementsThe preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions thataffect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates andassociated assumptions are based on historical experience and various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the estimates and judgements about carrying amounts and fair values of assetsand 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 periodin which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revisionaffects both current and future periods.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have themost significant effect on the amount recognised in the financial statements are described in the following notes:

Note 6 – Plant and equipmentNote 8 – Intangible exploration and evaluation asset Note 9 – Deferred tax Note 10 – InventoryNote 14 – Measurement of share-based paymentsNote 16 – ProvisionsNote 21 – Contingent liabilities



Basis of consolidationBusiness combinations

The group has changed its accounting policy with respect to accounting for business combinations. See later in these accounting policies for

further details.

Subsidiaries

Subsidiaries are entities controlled by the group. The financial statements of subsidiaries are included in the consolidated financial statements

from the date that control begins until the date that control ceases. The accounting policies of subsidiaries have been changed when

necessary to align them with the policies adopted by the group.

Special purpose entities

The group does not currently have any direct or indirect shareholdings in special purpose entities (SPEs), which are normally used for trading

and investment purposes. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the group and the SPE’s

risks and rewards, the group concludes that it controls the SPE. SPEs controlled by the group would typically be established under terms that

impose strict limitations on the decision-making powers of the SPEs’ management and that result in the group receiving the majority of the

benefits related to the SPEs’ operations and net assets, being exposed to the majority of risks incident to the SPEs’ activities, and retaining

the majority of the residual or ownership risks related to the SPEs or their assets.

Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the group are

accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that

common control was established; for this purpose comparatives are revised. The assets and liabilities acquired are recognised at the carrying

amounts recognised previously in the group controlling shareholder’s consolidated financial statements. The components of equity of the

acquired entities are added to the same components within group equity except that any share capital of the acquired entities is recognised

as part of share premium. Any cash paid for the acquisition is recognised directly in equity.

Investments in associates and jointly controlled entities (equity accounted investees)

Associates are those entities in which the group would have significant influence, but not control, over the financial and operating policies.

Significant influence is presumed to exist when the group holds between 20 and 50 per cent of the voting power of another entity. Joint

ventures are those entities over whose activities the group would have joint control, established by contractual agreement and requiring

unanimous consent for strategic financial and operating decisions. IAS 31.57 Investments in associates and jointly controlled entities are

accounted for using the equity method (equity accounted investees) and are recognised initially at cost. The group’s investment includes

goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the group’s share

of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with

those of the group, from the date that significant influence or joint control begins until the date that significant influence or joint control

ceases. When the group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including

any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the group has an

obligation or has made payments on behalf of the investee.

Jointly controlled operations

A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint operations. The

consolidated financial statements would include the assets that the group controls and the liabilities that it incurs in the course of pursuing

the joint operation, and the expenses that the group incurs and its share of the income that it earns from the joint operation.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in

preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated

against the investment to the extent of the group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised

gains, but only to the extent that there is no evidence of impairment.

Plant and equipmentMining assets

Mining assets typically include those costs incurred for the development of the mine, including the design of the mine plan, constructing and

commissioning the facilities, and preparation of the mine and necessary infrastructure for production. The mine development phase generally

begins after completion of a feasibility study and ends upon the start of commercial production.

40

Accounting policiesfor the year ended 31 March 2010 (continued)

Plant and equipment (continued)Mining assets (continued)

Mining assets are measured at cost less accumulated depreciation and less any accumulated impairment losses. Expenditure, including

evaluation costs, incurred to establish or expand productive capacity, to support and maintain that productive capacity prior to the start of

commercial levels of production, are capitalised to assets under construction, and transferred to mining plant and equipment when the mining

venture reaches commercial production. Development costs incurred to maintain current production are expensed.

Deferred stripping costs

All stripping costs incurred (costs incurred in removing overburden to expose the coal) during the production phase of a mine are treated as

variable production costs and as a result are included in the cost of inventory produced during the period that the stripping costs are

incurred. However, any costs of overburden stripping in excess of the expected open pit life average stripping ratio are deferred. Any costs

deferred will be included in inventories or expensed in future periods over the life of the remaining open pit, resulting in lower earnings in

future periods.

Assets under construction are not depreciated until they are available for use. Mine development assets are depreciated using the units-

of-production method based on estimated economically recoverable proved and probable mineral reserves. Proved and probable

reserves reflect estimated quantities of economically recoverable resources which can be recovered in the future from known mineral

deposits. Mining assets relating specifically to plant and equipment are depreciated using the straight-line method. Depreciation is first

charged on mining assets from the date on which they are available for use.

Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

General

‘Cost’ includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the

cost of materials, direct labour and an appropriate portion of normal production overheads. Directly attributable expenses relating to

major capital projects and site preparation are capitalised until the asset is brought to a working condition for its intended use. These

costs include dismantling and site restoration costs to the extent that these are recognised as a provision. Administrative and other

general overhead costs are expensed as incurred. Purchased software that is integral to the functionality of the related equipment is

capitalised as part of that equipment.

Borrowing costs directly attributable to the construction or acquisition of qualifying assets are capitalised directly to the cost of the qualifying

asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, these borrowings shall be determined

as the actual borrowing costs incurred on that borrowing. To the extent that funds are borrowed generally and used for the purpose of

obtaining a qualifying asset, the amount of borrowing costs shall be determined by applying a capitalisation rate to the expenditures on that

asset. Borrowing costs, specifically to finance the establishment of qualifying mining assets, are capitalised until commercial levels of

production are achieved. Otherwise, capitalisation of borrowing costs ceases when the asset is substantially complete.

Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as

separate items of plant and equipment.

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major

inspection and overhaul expenditure, is capitalised when the costs can be reliably measured and if it is probable that the future economic

benefits embodied within the component will flow to the group. The carrying amount of the replaced component, if any, is derecognised and

charged against profit or loss. Maintenance, day to day servicing and repairs, which neither materially add to the value of assets nor

appreciably prolong their useful lives, are charged against profit or loss.

Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying

amount of the item and are recognised net within ‘other income’ in profit or loss.


Depreciation

Depreciation, unless otherwise stated, is recognised in profit or loss on a straight-line basis at rates that will reduce the carrying amounts to

estimated residual values over the estimated useful lives of the assets. Leasehold improvements on premises occupied under operating

leases are written off over the term of the lease or its useful life if shorter.

Depreciation methods, residual values and useful lives are reviewed at least annually, and adjusted if appropriate, at each reporting date.

Depreciation for the current and prior period, unless already stated, is calculated as follows:

motor vehicles at 20% per annum;

computer equipment at 33.3% per annum; and

office furniture and equipment at between 10% and 20% per annum.

Intangible exploration and evaluation assetsExploration for and evaluation of mineral resources

Exploration and evaluation costs, including the costs of acquiring prospecting rights and directly attributable exploration expenditure,

are capitalised as exploration and evaluation assets on a project-by-project basis, pending determination of the technical feasibility and

commercial viability of each such project. Costs are recognised as exploration and evaluation costs from the date of granting of a

prospecting right. The capitalised costs are presented as exploration and evaluation assets as a result of the nature of the assets

acquired.

The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proved reserves are

determined to exist. Upon determination of proved reserves exploration and evaluation assets attributable to those reserves are first tested

for impairment and then reclassified from exploration and evaluation assets to other appropriate categories of non-current assets.

Amortisation of these assets begins once these assets are appropriately reclassified and are in commercial production.

Exploration and evaluation assets are assessed for impairment based on the guidance as provided by IFRS 6 Exploration for and Evaluation

of Mineral Resources. These include:

the period to explore, as granted in terms of the prospecting rights acquired, has expired during the period; or will expire in the near

future; or is not expected to be renewed;

further exploration on the projects is neither budgeted nor planned for in the near future;

a decision was made not to develop a project; and

there is an indication that the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from a

successful development or the sale of the project.

If a project is abandoned, the related costs are expensed in profit or loss immediately.

ImpairmentFinancial 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. Objective evidence includes default or delinquency by a debtor, restructuring of an amount due to the

group on terms that the group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance

of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value

below its cost is objective evidence of impairment.

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 of financial assets 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.

The reversal is recognised in profit or loss.

Non-financial assets

The carrying amounts of the group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to

determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill

and intangible assets that have indefinite lives or are not yet available for use, the recoverable amount is estimated at each reporting date.

42


Impairment (continued)Non-financial assets (continued)

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable

amount. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying

amount of any goodwill allocated to CGUs (group of units) and then, to reduce the carrying amount of the other assets in the CGU (group

of units) on a pro rata basis.

The recoverable amount of an asset or CGU is the greater of its fair value less costs to sell and its 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 assets. For an asset that does not generate largely independent cash inflows, the

recoverable amount is determined for the CGU to which the asset belongs.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are

assessed at each reporting date for any indication that the loss has decreased or no longer exists. 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. The impairment loss reversal is recognised in profit or loss.

Leased assets and lease paymentsLeases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial

recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding

liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the

remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining

term of the lease when the lease adjustment is confirmed.

Other leases are operating leases and the leased assets are not recognised on the group’s statement of financial position. Payments made

under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are

recognised as an integral part of the total lease expense, over the term of the lease.

InventoriesInventories comprising coal stockpiled are measured at the lower of cost and net realisable value. Cost is determined using the weighted

average method and includes direct mining expenditure and an appropriate portion of overhead expenditure based on normal production.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and cost to sell.

Obsolete, redundant and slow moving stock are identified and written down to net realisable values.

Financial instruments Non-derivative financial instruments

Non-derivative financial instruments comprise loans to subsidiaries, restricted cash, trade and other receivables, cash and cash equivalents,

and trade and other payables, and exclude investments in subsidiaries.


Non-derivative financial instruments are recognised initially at fair value, plus, for any instrument not at fair value through profit and loss, any

directly attributable transaction costs. These instruments are recognised when a group entity becomes a party to the contractual provisions of

the instrument. Financial assets are derecognised if the group entity’s contractual rights to the cash flows from the financial asset expire or if

the group entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.

Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the group entity commits itself to

purchase or sale of the asset. Financial liabilities are derecognised if the group entity’s obligations specified in the contract expire or are

discharged or cancelled.

Subsequent to initial recognition, these instruments are measured as set out below:

Financial assets Restricted cash

Restricted cash are measured at amortised cost using the effective interest method.

Loans and receivables

Loans and receivables include loans to subsidiaries and trade and other receivables. These instruments are measured at amortised cost

using the effective interest method, less any impairment losses.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. For the purposes of the cash flow statements, cash and cash equivalents

comprise cash on hand, restricted cash held at call with the banks, other short-term highly liquid investments and bank overdrafts.

Financial liabilitiesTrade and other payables

Trade and other payables are measured at amortised cost, using the effective interest method.

Share capitalOrdinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of the ordinary shares and share options are

recognised as a deduction from equity.

ProvisionsProvisions are recognised when the group has a present legal or constructive obligation as a result of past events where it is probable that an

outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the

obligation can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current

market assessments of the time value of money and the risks specific to the liability.

Long-term environmental obligations are based on the group’s environmental management plans, in compliance with the current

environmental and regulatory requirements.

Rehabilitation costs

The net present value of estimated future rehabilitation costs is recognised and provided for in the financial statements and recognised within

mining assets on initial recognition. Rehabilitation will generally occur on closure or after closure of a mine. Initial recognition of the provision

is at the time that the disturbance occurs and thereafter as and when additional disturbances take place. The estimates are reviewed annually

to take into account the effects of inflation and changes in estimates and are discounted using rates that reflect the time value of money.

Annual increases in the provision due to the passage of time are recognised in profit or loss as a finance expense. The present value of

additional disturbances and changes in the estimate of the rehabilitation liability are capitalised to mining assets against an increase in the

rehabilitation provision. The rehabilitation asset is depreciated as per the group’s accounting policy for mining assets. Rehabilitation projects

undertaken, included in the estimates, are charged to the provision as incurred.

Ongoing rehabilitation costs

Costs for restoration and rehabilitation which are created on an ongoing basis during production, are recognised in profit or loss.

44

Accounting policies

Provisions (continued)Other provisionsEnvironmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are recognised in profit or losswhen they are known, probable and may be reasonably estimated.

Gains or losses from the expected disposal of assets are not taken into account when determining the provision.

Foreign currencyForeign currency transactions are accounted for at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the reporting date are translated to Rand at the foreign exchange rate ruling at that date. Gains andlosses arising on settlement of such transactions and from the translation of foreign currency monetary assets and liabilities are recognised inprofit or loss.

Finance income and costsFinance income comprises interest received and receivable on funds invested, dividend income and foreign currency gains. Interest income isrecognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in profit or loss on the date theentity has a right to receive payment.

Finance costs comprise interest payable on borrowings calculated using the effective interest method, foreign currency losses, unwinding ofthe discount on provisions and dividends on preference shares classified as liabilities. Borrowing costs capitalised as per the plant andequipment note above are excluded.

Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliablymeasured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of coalThe group enters into contracts for the sale of coal. Revenue arising from coal sales under these contracts is recognised when the price isdeterminable, the product has been delivered in accordance with the terms of the contract, the significant risks and rewards of ownershiphave been transferred to the customer, collection of the sales price is probable and associated costs can be reliably estimated. These criteriaare met when the coal leaves the mines’ properties. As sales from coal contracts are subject to a customer survey adjustment with regards toquality, sales are initially recorded on a provisional basis using the group’s best estimate of the coal quality. Subsequent adjustments arerecorded in revenue to take into account final adjustments, if different from the initial certificates.

Rental incomeRental income is recognised in profit or loss on a straight-line basis over the term of the lease, as it accrued to the group.

Employee benefitsShort-term employee benefitsThe costs of all short-term employee benefits are recognised in the period in which the employee renders the related service. The accrualsfor employee entitlements to salaries, performance bonuses and annual leave represent the amounts which the group has a presentobligation to pay as a result of the employees’ service provided. The accruals have been calculated at undiscounted amounts based oncurrent salary levels.

for the year ended 31 March 2010 (continued)


Defined contribution planA defined contribution plan is a post employment plan under which an entity pays fixed contributions into a separate entity and will have nolegal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as anexpense in profit or loss as incurred.

Share-based payments – employeesThe grant date fair value of share appreciation rights or notional shares granted to employees, which are to be equity-settled, is recognisedas an employee expense with a corresponding increase in equity, over the period in which the employees become unconditionally entitled tothe equity instruments. Non-market vesting conditions are included in assumptions about the number of the share appreciation rights ornotional shares to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at eachreporting date to reflect the best estimate or actual number of share appreciation rights that vest, with any adjustment being made to bothequity and profit or loss as an employee cost.

Share-based payments – services rendered and goods receivedWhen the group issues share-based instruments to settle certain transactions, the payments are measured at the fair value of the goods andservices provided. If the fair value of the goods or services cannot be determined, the share-based payment is measured at the fair value ofthe equity instrument at the date of the grant, the date the group obtains the goods or the counterparty renders the service.

Income taxationIncome tax expense comprises current, secondary taxation on companies and deferred tax. Income tax expense is recognised in profit orloss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Taxable profit differsfrom profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible.

Current taxationCurrent tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reportingdate, and any adjustment to tax payable in respect of previous years.

Deferred taxationDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

initial recognition of goodwill;the initial recognition of assets or liabilities in a transaction that is not a business combination and that affect neither accounting nortaxable profit; anddifferences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets andliabilities, 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 temporarydifference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probablethat the related tax benefit will be realised.

Secondary taxation on companies (STC) on distribution of dividendsSTC and additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay therelated dividend, except for taxes relating to the preference share dividends which are accrued as the dividends are earned, and will besettled when the dividends become due and payable.

Segment reportingThe segment reporting has been prepared in accordance with IFRS 8 – Operating Segments which defines requirements for the disclosureof financial information of an entity’s operating segments. A segment is a distinguishable business component of the group that is engagedeither providing related products or services which are subject to risks and rewards that are different from those of other segments. The basisof segment reporting is representative of the internal structure used for management reporting as well as the structure in which the chiefoperating decision maker reviews the information, which is the group’s mining projects in the respective operating subsidiaries.

The basis of segmental allocation is determined as follows:

operating profit/loss (before net finance income/costs and taxation) that can be directly attributed to a segment and a relevant portionof the operating loss that can be allocated on a reasonable basis to a segment, including the effect of transactions with other operatingsegments. Although losses are currently being generated due to the long-term nature of mine development, management believes thatsuch information is the most relevant for evaluating the results of certain segments against other entities in the coal industry; andtotal segment assets are those assets that are employed by a segment in its operating activities and that are either directly attributableto the segment or can be allocated to the segment on a reasonable basis.

46


Earnings per shareThe group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit

attributable to owners of the company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is

determined by adjusting the profit attributable to owners of the company and the weighted average number of ordinary shares outstanding

for the effects of all potential dilutive ordinary shares.

Changes in accounting policiesDuring the year the group has changed its accounting policies in the following areas:

Accounting for business combinations:

The group has early adopted IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all

business combinations occurring in the financial year starting 1 April 2009. All business combinations occurring on or after 1 April 2009 are

accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on

earnings per share.

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,

the group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is

transferred to the acquiree. Judgement is applied in determining the acquisition date and determining whether control is transferred from one

party to another.

The group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling

interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all

measured as of the acquisition date.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the group to the previous owners of the

acquiree, and equity interests issued by the group. Consideration transferred also includes the fair value of any contingent consideration and

share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business

combination results in the termination of pre-existing relationships between the group and the acquiree, then the lower of the termination

amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and

recognised in other expenses.

When share-based payment awards exchanged (replacement awards) for awards held by the acquiree’s employees (acquiree’s awards) relate

to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require

future services, then the difference between the amount included in consideration transferred and the market-based measure of the

replacement awards is treated as post-combination compensation cost.

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises

from a past event, and its fair value can be measured reliably.

The group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.

Transaction costs that the group incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees, and

other professional and consulting fees are expensed as incurred.


Accounting for acquisition of non-controlling interests

IAS 27 (AC 132) amendments Consolidated and Separate Financial Statements is effective for annual periods beginning on or after

1 July 2009 but has been early adopted by the group for the first time in the current financial year.

Under the new accounting policy, acquisitions of non-controlling interests are accounted for as transactions with equity holders in their

capacity as equity holders and therefore no goodwill is recognised as a result of such transactions. Previously, goodwill was recognised

arising on the acquisition of a non-controlling interest in a subsidiary; and that represented the excess of the cost of the additional investment

over the carrying amount of the interest in the net assets acquired at the date of exchange. The change in accounting policy was applied

prospectively and had no material impact on earnings per share.

The amendments also require that losses (including negative ‘other comprehensive income’ as detailed in the revised IAS 1 (AC 101)

Presentation of Financial Statements (2007)) have to be allocated to the non-controlling interest even if doing so causes the non-controlling

interest to be in a deficit position. In the past losses were allocated only until the non-controlling interests had a zero balance. The change in

accounting policy was applied prospectively and the impact on earnings per share for the current year is shown in note 5.

New standards and interpretations not yet effectiveAt the date of authorisation of the financial statements of Keaton Energy a number of new standards, amendments to standards and

interpretations which were in issue, but not yet effective for the year ended 31 March 2010, have not been applied in preparing these financial

statements. All of these have been evaluated by the directors and the ones that are applicable to the group are:

IAS 24 (AC 126) (revised) Related Party Disclosures

IAS 24 (AC 126) (revised) is effective for annual periods beginning on or after 1 January 2011 and will be adopted by the group for the first

time for its financial reporting period ending 31 March 2012. The standard will be applied retrospectively. It addresses the disclosure

requirements in respect of related parties, with the main changes relating to the definition of a related party and disclosure requirements by

government-related entities. The definition of a related party has been amended with the result that a number of new related party

relationships have been identified.

IFRS 9 (AC 146) Financial Instruments

IFRS 9 (AC 146) is effective for annual periods beginning on or after 1 January 2013 and will be adopted by the group for the first time for its

financial reporting period ending 31 March 2014. The standard will be applied retrospectively, subject to transitional provisions. It addresses

the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39 (AC 133).

Under the new IFRS 9 (AC 146) there are two options in respect of classification of financial assets, namely, financial assets measured at

amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect

contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding.

All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid contracts that have a financial

asset host. There will be no impact on the financial statements of the group as it currently recognises its financial assets at amortised cost.

IFRIC 19 (AC 452) Extinguishing Financial Liabilities with Equity Instruments

IFRIC 19 (AC 452) is effective for annual periods beginning on or after 1 July 2010 and will be adopted by the group for the first time for its

financial reporting period ending 31 March 2012. The standard will be applied retrospectively. It addresses the accounting treatment for the

extinguishment of financial liabilities with equity instruments.

Equity instruments issued to a creditor to extinguish all or part of a financial liability will represent ‘consideration paid’. The equity instruments

will be measured on initial measurement at their fair value, unless such fair value cannot be reliably measured, in which case the fair value of

the financial liability will be used. The difference between the carrying amount of the financial liability (or part thereof) extinguished and the

initial measurement amount of the equity instruments shall be recognised in profit or loss. Currently there will be no impact on the financial

statements of the group.

48

Notes to the annual financialstatementsfor the year ended 31 March 2010



R R R R

1. Revenue 21 957 053 5 423 590 – –

Coal sales 21 807 496 5 423 590 – –

Other fees received (1) 149 557 – – –

2. Operating loss before net finance income

Operating loss before net finance income is stated after:

Other income (2 023 339) (676 965) (2 274 160) (1 258 749)

Rental received and recoveries (341 273) (472 226) – –

Consulting fees (72 000) (159 873) – –

Management fees received – – (2 274 160) (1 258 749)

Damages claim – Klip Colliery (1 593 954) – – –

Other (16 112) (44 866) – –

Professional and consultant fees 1 954 647 4 506 178 616 387 877 229

Technical fees – 121 972 – –

Consulting fees 1 787 012 2 189 582 452 952 712 223

Administration fees 167 635 2 194 624 163 435 165 006

Impairment and net realisable value losses 7 813 009 4 213 734 3 679 217 17 664 937

Exploration and evaluation assets (2) 1 887 797 3 990 700 – –

Reversal of prior year impairment (53 768) – – –

Plant and equipment 13 775 223 034 – –

Investment in subsidiary companies (3) 3 679 217 17 664 937

Net realisable value losses (4) 4 889 864 – – –

Mine development assets – Klip Colliery (4) 1 075 341 – – –

(1) For technical and administration services.

(2) As a result of the regulatory uncertainty regarding the two remaining prospects in Amalahle Exploration (Pty) Limited (74% subsidiary of Keaton

Energy) an impairment loss of R1.9 million was raised during the year to fully impair the associated exploration expenditure (refer to note 8).

(3) The company has impaired its investments in/loans to subsidiaries that are in a loss position and where it does not anticipate to generate

profits in the immediate future (refer to note 7).

(4) Operations at Klip Colliery have been downscaled during the year resulting in a sharp decrease in the remaining life of the mine.

This decrease resulted in the weighted average cost per tonne increasing significantly, and low quality stockpiles having to be written down

by R4.9 million to their net realisable value. An additional impairment of R1.1 million resulted from capitalised mine development.




R R R R

2. Operating loss before net finance income (continued)

Depreciation 12 848 606 1 505 578 – –

Leasehold improvements 385 289 343 758 – –

Motor vehicles 83 543 126 619 – –

Computer equipment 88 768 69 452 – –

Office furniture and equipment 112 882 129 567 – –

Other 72 439 6 419 – –

Mine development assets and mine infrastructure 9 454 627 3 480 821 – –

Total depreciation (refer to note 6) 10 197 548 4 156 636 – –

Movement from/(to) inventory 2 651 058 (2 651 058) – –

Depreciation recognised in: 12 848 606 1 505 578 – –

Cost of sales 12 105 685 829 763 – –

Administrative and other operating expenses 742 921 675 815 – –

Directors’ emoluments (refer to note 24)

Executive directors 3 445 738 9 099 857 4 859 340 3 404 884

For services rendered as directors 7 842 044 4 977 884 4 709 666 3 404 884

Share-based payments (4 396 306) 4 121 973 149 674 –

Non-executive directors 1 994 713 1 563 710 1 994 713 1 563 710

Total directors’ emoluments 5 440 451 10 663 567 6 854 053 4 968 594

Audit fees 1 496 887 624 667 925 387 461 391

External audit services 1 005 783 624 667 601 283 461 391

Internal audit services 491 104 – 324 104 –

Legal fees 709 537 451 623 35 461 200 254

Marketing and investor relations costs 1 614 345 1 573 950 1 614 345 1 551 891

Rent paid for head office premises 737 407 680 518 – –

Royalty tax 9 771 – – –

Employee benefits

Salaries and wages

Salaries as employees 1 313 023 667 755 362 190 216 990

Provident fund contributions 53 873 51 597 34 560 20 293

Share-based payments – equity settled 50 078 4 173 – –

1 416 974 723 525 396 750 237 283

Key management compensation (including executive

directors – note 24)

Salaries as employees 7 829 810 7 647 540 4 274 704 3 028 910

Provident fund contributions 617 220 603 976 434 963 375 974

Share-based payments – equity settled (4 396 306) 4 121 973 149 674 –

4 050 724 12 373 489 4 859 341 3 404 884

Total employee benefits 5 467 698 13 097 014 5 256 091 3 642 167

50

Notes to the annual financialstatements



R R R R

3. Net finance income

Finance income 29 139 649 44 508 863 28 893 849 44 749 399

Interest income – banks and money markets 29 138 186 44 507 648 28 662 689 44 487 266

Interest income – subsidiary companies 231 160 260 641

Interest income – other 1 463 1 215 – 1 492

Finance costs (32 936) – – –

Interest expense – other (32 936) – – –

29 106 713 44 508 863 28 893 849 44 749 399

4. Income taxation expense

Current tax expense

Current year 5 628 977 10 279 690 5 628 977 10 279 690

Under provision/(over provision) prior year 124 513 (36 742) 124 513 (36 742)

Deferred taxation

Origination and reversal of temporary differences (115 612) 493 219 (115 612) (128 866)

Donation tax 35 000 – – –

Secondary taxation on companies 1 605 820 1 116 985 – –

7 278 698 11 853 152 5 637 878 10 114 082

Reconciliation of effective taxation rate

Normal taxation rate for companies 28.0% 28.0% 28.0% 28.0%

Adjusted for:

Secondary taxation on companies 42.7% 6.7% – –

Non-deductible expenditure 57.8% 1.7% 7.0% 26.2%

Deferred tax asset not recognised 61.0% 35.2% – –

Other smaller reconciling amounts 4.2% (0.6%) 0.8% (0.2%)

Effective taxation rate 193.7% 71.0% 35.8% 54.0%

Refer to note 9 for amounts available for offset against future taxable income.



GroupYear to Year to

31 March 2010 31 March 2009

5. Earnings per share

Basic earnings per share (cents) 4.1 3.4

Headline earnings per share (cents) 5.6 6.4

Diluted earnings per share (cents) 4.1 3.3

Diluted headline earnings per share (cents) 5.6 6.2

The calculation of basic earnings per share is based on the

profit for the year (attributable to owners of the company)

of R5 974 510 (2009 – profit of R4 841 349) and a

weighted average of 144 172 800 (2009 – 142 248 143)

ordinary shares in issue during the year.

Headline earnings calculations: Gross/Net Gross/Net

Profit for the year (R) (Attributable to owners of the company) 5 974 510 4 841 349

– Add back: impairment losses attributable to owners of the company (R)

(refer to note 2 – excludes net realisable value losses) 2 163 128 4 213 734

Headline earnings for the year (R) 8 137 638 9 055 083

Group

Number of shares

2010 2009

Weighted/diluted average number of ordinary shares:

Shares in issue at 1 April 2009 (1 April 2008) 142 841 293 132 741 293

– Effect of shares issued on 22 April 2008 – 9 424 658

– Effect of shares issued on 5 June 2008 – 82 192

– Effect of shares issued 28 July 2009 1 331 507 –

Weighted number of ordinary shares at 31 March 144 172 800 142 248 143

– Notional shares granted (16 January 2008) – 2 000 000

– Notional shares granted (22 April 2008) – 1 500 000

– Notional shares granted (1 March 2009) (1) 35 211

– Notional shares granted (1 January 2010) (1) –

Diluted number of ordinary shares in issue at 31 March 144 172 800 145 783 354

(1) Anti-dilutive

IAS 27: Consolidated and Separate Financial Statements (revised) prohibits the retrospective adjustment of losses attributable to

non-controlling interests. The loss/total comprehensive income attributable to owners of the company would have been R3 521 661 had

IAS 27 revised not been applied for the year ended 31 March 2010, resulting in the basic and diluted loss per share being 2.4 cents.

52


Group

Transfer Transfer to

from Environ- inventory

exploration mental (deferred

Opening and evaluation rehabilitation stripping Closing

balance assets Additions additions costs) Disposals balance

R R R R R R R

6. Plant and equipmentCost

31 March 2010

Leasehold improvements 1 156 569 – 12 390 – – – 1 168 959

Motor vehicles 833 391 – – – – (321 684) 511 707

Computer equipment 223 601 – 109 301 – – (12 139) 320 763

Office furniture and

equipment 1 009 838 – 21 855 – – (16 867) 1 014 826

Mine development assets 11 554 271 22 672 061 8 588 934 2 700 000 ( 1 711 989) – 43 803 277

Assets under construction – – 15 210 662 – – – 15 210 662

Mine infrastructure 1 444 228 – 21 718 – – – 1 465 946

Other 34 245 – 128 270 – – – 162 515

16 256 143 22 672 061 24 093 130 2 700 000 (1 711 989) (350 690) 63 658 655

Group

Transfer

from Environ-

exploration mental

Opening and evaluation rehabilitation Closing

balance assets Additions additions Disposals balance

R R R R R R

Cost

31 March 2009

Leasehold improvements 1 017 578 – 138 991 – – 1 156 569

Motor vehicles 625 998 – 207 393 – – 833 391

Computer equipment 193 609 – 59 691 – (29 699) 223 601

Office furniture and

equipment 946 230 – 69 208 – (5 600) 1 009 838

Mine development assets – 7 238 244 3 956 745 359 282 – 11 554 271

Mine infrastructure – – 1 230 924 213 304 – 1 444 228

Other – – 34 245 – – 34 245

2 783 415 7 238 244 5 697 197 572 586 (35 299) 16 256 143



Group

Impairment

Opening Depreciation loss (refer Closing

balance expense note 2) Disposals balance

R R R R R

6. Plant and equipment (continued)Accumulated depreciation and impairment losses

31 March 2010

Leasehold improvements (539 641) (385 289) – – (924 930)

Motor vehicles (421 179) (83 543) – 321 684 (183 038)

Computer equipment (96 231) (88 768) – 7 678 (177 321)

Office furniture and equipment (201 181) (112 882) (13 775) 16 847 (310 991)

Mine development assets (2 858 418) (8 611 084) (1 075 341) – (12 544 843)

Mine infrastructure (622 403) (843 543) – – (1 465 946)

Other (6 419) (72 439) – – (78 858)

(4 745 472) (10 197 548) (1 089 116) 346 209 (15 685 927)

31 March 2009

Leasehold improvements (195 883) (343 758) – – (539 641)

Motor vehicles (71 526) (126 619) (223 034) – (421 179)

Computer equipment (35 808) (69 452) – 9 029 (96 231)

Office furniture and equipment (72 202) (129 567) – 588 (201 181)

Mine development assets – (2 858 418) – – (2 858 418)

Mine infrastructure – (622 403) – – (622 403)

Other – (6 419) – – (6 419)

(375 419) (4 156 636) (223 034) 9 617 (4 745 472)

Group

31 March 2010 31 March 2009 1 April 2008

R R R

Carrying amount

Leasehold improvements 244 029 616 928 821 695

Motor vehicles 328 669 412 212 554 472

Computer equipment 143 442 127 370 157 801

Office furniture and equipment 703 835 808 657 874 028

Mine development assets 31 258 434 8 695 853 –

Assets under construction 15 210 662 – –

Mine infrastructure – 821 825 –

Other 83 657 27 826 –

47 972 728 11 510 671 2 407 996

All plant and equipment, except leasehold improvements, are owned.

Insurance

Plant and equipment, with the exception of motor vehicles, are insured at approximate cost of replacement. Motor vehicles are insured

at market value. Mine infrastructure is not insured.

54

Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)

Company31 March 2010 31 March 2009

R R

7. Investment in subsidiary companiesUnlisted – shares at cost (1)

Keaton Mining (Pty) Limited (2) 12 000 074 12 000 074

Amalahle Exploration (Pty) Limited 74 74

Labohlano Trading 46 (Pty) Limited (3) 22 312 500 –

Keaton Administrative and Technical Services (Pty) Limited (4) 54 987 4 550 253

Mafla Coal (Pty) Limited 74 74

34 367 709 16 550 475

(1) Subsidiaries that are in the process of deregistration (refer to the directors’ report) have been fully impaired in the prior year and are

not disclosed. Their prior year details are:

Unlisted shares Loan to Preference share Carrying

at cost subsidiary investment Impairment amount

Subsidiary R R R R R

31 March 2009

Intshe Coal (Pty) Limited 60 1 022 126 – (1 022 186) –

Rafcoal Mining (Pty) Limited 74 179 940 – (180 014) –

Izwi Coal (Pty) Limited 180 3 014 860 000 (863 194) –

314 1 205 080 860 000 (2 065 394) –

Company31 March 2010 31 March 2009

R R

(2) Keaton Mining (Pty) Limited 12 000 074 12 000 074

– initial cash cost 74 74

– share-based payment (prospecting right) 12 000 000 12 000 000

(3) Labohlano Trading 46 (Pty) Limited - total acquisition price 22 312 500 –

– share-based payment (refer to note 14) 17 300 000 –

– cash 5 012 500 –

(4) Keaton Administrative and Technical Services (Pty) Limited 54 987 4 550 253

– initial cash cost 100 100

– share-based payment (share appreciation rights) 54 887 4 550 153


Company

31 March 2010 31 March 2009

R R

7. Investment in subsidiary companies (continued)Loans receivable from subsidiary companiesKeaton Mining (Pty) Limited 46 664 12 085 Amalahle Exploration (Pty) Limited 87 983 27 787 Labohlano Trading 46 (Pty) Limited 55 386 –Keaton Administrative and Technical Services (Pty) Limited (1) 9 569 262 9 365 938 Mafla Coal (Pty) Limited (1) 680 349 61 592

10 439 644 9 467 402

(1) These loans are unsecured, interest free and without any fixed terms of repayment. They have also been impaired to their recoverable amount.

The remaining loans bear interest at prime plus 2%, are unsecured and loan increases are settled on a monthly basis with the issue of unlisted cumulative redeemable preference shares by the relevant subsidiary company.

Unlisted cumulative redeemable preference shares at costKeaton Mining (Pty) Limited 93 700 000 56 500 000 Amalahle Exploration (Pty) Limited 7 800 000 6 200 000 Labohlano Trading 46 (Pty) Limited 7 300 000 –Mafla Coal (Pty) Limited 3 900 000 3 900 000

112 700 000 66 600 000

The preferences share investments are secured and attract dividends at prime plus 5%,compounded quarterly in arrears.

Total investment in subsidiary companies 157 507 353 92 617 877

Impairment of investment in subsidiary companies (refer to note 2) (21 838 691) (18 159 474)

Keaton Administrative and Technical Services (Pty) Limited (9 370 211) (13 916 191)Mafla Coal (Pty) Limited (4 580 423) (4 243 283)Amalahle Exploration (Pty) Limited (7 888 057) –

Total carrying value of investment in subsidiary companies 135 668 662 74 458 403

Represented by the carrying value of the investment in: 135 668 662 74 458 403

Keaton Mining (Pty) Limited 105 746 738 68 512 159Labohlano Trading 46 (Pty) Limited 29 667 886 –Keaton Administrative and Technical Services (Pty) Limited 254 038 –Amalahle Exploration (Pty) Limited – 6 227 861Mafla Coal (Pty) Limited – (281 617)

The directors of the company consider the carrying amount of the unlisted investments in subsidiaries to be a fair representation of thevalue on the investments given the various stages of development of the underlying assets.

GroupProspecting Other

Drilling rights evaluationexpenses acquired expenses Total

R R R R

8. Intangible exploration and evaluation assetCarrying amount at 31 March 2008 16 832 889 14 000 000 6 693 615 37 526 504 Additions 6 639 826 – 14 534 870 21 174 696 Impairment loss (refer to note 2) (2 856 272) – (1 134 428) (3 990 700)Transfer to plant and equipment (213 044) (7 000 000) (25 200) (7 238 244)

Carrying amount at 31 March 2009 20 403 399 7 000 000 20 068 857 47 472 256

Additions 3 521 568 – 2 644 958 6 166 526Acquisition of subsidiary (refer to note 19.5) 2 459 801 30 135 155 700 242 33 295 198Impairment loss (refer to note 2) (645 191) – (1 242 606) (1 887 797)Transfer to plant and equipment (10 575 193) – (12 096 868) (22 672 061)

Carrying amount at 31 March 2010 15 164 384 37 135 155 10 074 583 62 374 122

56


Group Company

Year to Year to Year to Year to


R R R R

9. Deferred taxRecognised deferred tax asset

At beginning of the year 128 866 622 085 128 866 –

Recognised in profit or loss for the year (refer below) 115 612 (493 219) 115 612 128 866

Balance at end of the year 244 478 128 866 244 478 128 866

Movement in temporary differences during the year

Recognised in profit or loss for the year

Keaton Energy Holdings Limited

– Employee benefit provisions 73 704 104 170 73 704 104 170

– Share appreciation rights 41 908 – 41 908 –

– Other smaller differences – 24 696 – 24 696

Keaton Administrative and Technical Services

(Pty) Limited

– Tax losses – (413 703)

– Share appreciation rights – (118 722)

– Employee benefit provisions – (81 541)

– Other smaller differences – (8 119)

115 612 (493 219) 115 612 128 866

Unrecognised deferred tax assets

At beginning of the year 4 446 586 1 893 766

Additions:

– Tax losses and capital allowances (refer below) 2 054 122 2 552 820

Balance at end of the year 6 500 708 4 446 586


Group31 March 2010 31 March 2009

R R

9. Deferred tax (continued)Movement in unrecognised deferred tax assets during the year

Deferred tax assets have not been recognised in respect of the following items during the year:– Tax losses in:

– Keaton Administrative and Technical Services (Pty) Limited 324 927 839 388– Keaton Mining (Pty) Limited (13 021 494) 13 118 897

– Capital allowances in:– Keaton Administrative and Technical Services (Pty) Limited 250 611 –– Keaton Mining (Pty) Limited 15 427 538 (11 942 616)– Amalahle Exploration (Pty) Limited (1 306 020) 1 189 968– Labohlano Trading 46 (Pty) Limited 378 560 –– Mafla Coal (Pty) Limited – (170 071)– Other (1) – (482 746)

2 054 122 2 552 820

(1) This represents the subsidiaries that are currently in the process of deregistration (refer tothe directors’ report).

The taxation losses normally expire within 12 months of the company not trading. Thedeductible temporary timing differences do not expire under current taxation legislation.Deferred taxation assets have not been recognised in terms of these items because the abovecompanies do not have a history of taxable profits and taxable profits will not be available inthe immediate future against which the company can utilise the benefits therefrom.

All of the above amounts have been calculated at the currently enacted income taxation rateof 28%. Recognised amounts will be recovered from future taxable profits.

Amounts available for offset against future taxable income:Unutilised tax losses 5 401 178 49 851 021

Amounts available for offset against future taxable mining income:Exploration costs 68 102 296 _

Unredeemed capital expenditure 19 989 043 6 152 064


31 March 2010 31 March 2009 31 March 2010 31 March 2009R R R R

10. InventoryCoal stockpiles – 6 959 079 – –

11. Trade and other receivablesTrade receivables 2 432 935 38 129 – – Interest receivable on bank deposits 3 544 193 3 609 233 3 422 027 3 609 233 Other receivables 375 553 192 979 143 148 484

6 352 681 3 840 341 3 565 175 3 609 717

12.1 Restricted cashLong-term restricted cash 19 106 648 – 774 648 –

These bank deposits are pledged and ceded against long-term environmental guarantees issued on behalf of the group.

12.2 Cash and cash equivalentsShort-term deposits 329 422 157 350 640 907 329 145 133 350 640 907 Cash in bank and on hand 5 658 395 23 056 947 5 618 933 23 063 512

335 080 552 373 697 854 334 764 066 373 704 419

The company has pledged and ceded R485 171 (2009: R1 259 819) of its short-term deposits towards guarantees issued on behalf of itssubsidiaries (refer to note 20).

58


Company31 March 2010 31 March 2009 31 March 2010 31 March 2009

Number of shares R R

13. Ordinary share capital, share premium and share-based payment reserveAuthorised share capital

Ordinary shares of 0.1 cents each 250 000 000 250 000 000 250 000 250 000

Issued share capital

At beginning of year 142 841 293 132 741 293 142 841 132 741

Issued for cash during the year – 10 000 000 – 10 000

Share-based payments (1) 2 000 000 100 000 2 000 100

144 841 293 142 841 293 144 841 142 841

Share premium

At beginning of the year 432 637 213 341 163 917

Issued for cash during the year – 99 990 000

Share-based payments (1) 17 298 000 999 900

Share issue expenses – (9 516 604)

449 935 213 432 637 213

Share-based payment reserve (1)

At beginning of the year 4 550 153 424 007

Share appreciation rights lapsed during year (4 545 980) –

Notional shares granted 199 750 4 126 146

203 923 4 550 153

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at

meetings of the company.

The directors are authorised, by resolution of the shareholders and until the forthcoming annual general meeting, to allot, issue and

otherwise dispose of the unissued shares. This is however subject to the Listings Requirements of the JSE Limited.

(1) Refer to note 14 for detail on the share-based payment transactions.



Group Company



R R R R

14. Share-based payment transactionsRoutledge Modise Inc. (1) – 1 000 000 – 1 000 000

Money Box Investments 156 (Pty) Limited (2) 17 300 000 – 17 300 000 –

Total share-based payments settled 17 300 000 1 000 000 17 300 000 1 000 000

(1) For services rendered

During the prior year the group concluded transactions with service providers which accepted share-based payments as a method

of settlement. These services were performed at market related prices. The share-based payments have been accounted for at the

value of the services provided by the service providers as follows:

(2) For prospecting rights acquired

Pursuant to the shareholders’ agreement concluded between the company, Labohlano Trading 46 (Pty) Limited (Labohlano) and

Money Box Investments 156 (Pty) Limited (the 26% minority shareholder in Labohlano), written consent was received from the

DMR in terms of Section 11 of the MPRDA on 15 July 2009 that an exploration right be ceded and transferred to Labohlano from

Ibutho Mzinoni (Pty) Limited (Ibutho). In terms of the sale and shareholder’s agreement, the acquisition price for 74% in Labohlano

was settled through a R5 million cash payment and the issue of 2 000 000 ordinary shares in the share capital of the company.

This coincided with the payment by Labohlano to Ibutho for the prospecting right. An additional amount of R3.2 million cash was

paid by Labohlano for existing exploration and evaluation data on the property. As no valuation was done at the time of the

agreement, accounting rules require that the share-based payment be accounted for at the fair value of the shares on the date of

the grant, also the date that the vesting conditions were met (being 28 July 2009). The shares were therefore issued at a fair value

of R8.65 per share and the 74% interest in Labohlano therefore amounted to R22.3 million (refer to note 7). The implied value of

the prospecting right was therefore R30.1 million. The non-controlling interest recognised amounted to R7.7 million.

For share appreciation rights

The group established a long-term performance incentive scheme in terms of which certain directors and employees may receive a

conditional right to a bonus award (conditional bonus award) equal to the increase in the value of a number of notional Keaton Energy

ordinary shares (notional shares) between the date on which the Remuneration Committee of Keaton Energy approves the offer of the

conditional bonus award to the end of the performance period (normally three years following the offer) applicable to the conditional

bonus award.

The fair value of each notional share granted was estimated on the date of grant using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the notional

share award and share price volatility. The expected term of award granted is derived from current estimates by management

(where historical data is not yet available). Expected volatility is based on the historical volatility of Keaton Energy’s share price or the

average of a basket of coal exploration companies. These estimates involve inherent uncertainties and the application of management

judgement. In addition, the group is required to estimate the expected forfeiture rate and only recognise expense for those notional

shares expected to vest. As a result, if other assumptions had been used, the recognised share-based appreciation right expense

could have been different from that reported.

60


14. Share-based payment transactions (continued)

The terms and conditions of the grants to date (excluding lapsed grants) are as follows:

Grant date 1 March 2009 1 January 2010

Number of notional shares 35 211 894 454

Vesting conditions Minimum employment Minimum employment

period of 3 years period of 3 years

Contractual life of notional shares 3 years 3 years

Share price at grant date (offer price) R10.65 R5.59

Fair value per notional share at grant date R4.43 R2.01

Volatility factor 48.6% 39.1%

Volatility factor based on Keaton Energy’s Keaton Energy’s

share price share price

Group Company


R R R R

Total share-based payments outstanding

– beginning of the year 4 550 153 424 007 – –

Share appreciation rights lapsed during the year (4 545 980) – – –

Share appreciation rights expense arising from notional

shares continued/granted during the year 199 750 4 126 146 149 674 –

Total share-based payments outstanding 203 923 4 550 153 149 674 –

The terms and conditions of the long-term performance incentive scheme stipulate that the Remuneration Committee of the group

will determine the most appropriate manner to settle the amount due, it being the intention that the settlement will normally occur by

way of an allotment and issue of new shares and/or the purchase and transfer of existing shares. However, if circumstances require,

the group is entitled to settle the amount due by way of a direct cash payment in Rand, net of PAYE and any other taxation. These

cash payments must be applied in the subscription of new or the purchase of issued shares of the company. In terms of paragraphs

41 to 43 of IFRS 2: Share-based Payment, these payments have been accounted for as equity-settled. The notional shares were

fair-valued on the date of each grant. As it is the intention for the notional shares to be equity-settled it has not been fair-valued at

31 March 2010. Accordingly, the expense recognised in profit or loss for the year represents that portion of the initial fair value that

is attributable to the portion of the contractual period which had elapsed at 31 March 2010.

A summary of the notional share grants are as follows:

Available for

Number of notional shares Granted utilisation

Beginning of the year 3 535 211 –

Lapsed during the year (3 500 000) –

Granted during the year 894 454 –

End of the year 929 665 –


Group Company


R R R R

15. Trade and other payablesTrade payables – exploration vendors 1 320 274 1 247 471 – –

Trade payables – plant and equipment vendors 10 240 025 – – –

Sundry payables and accrued expenses 2 237 039 904 025 449 817 513 119

Salary accruals 1 385 045 1 182 558 1 041 561 529 944

Tenant installation allowance 85 800 165 000 – –

Royalty tax 9 771 – – –

Tenants deposits 5 024 18 890 – –

Income received in advance 5 744 1 817 107 – –

15 288 722 5 335 051 1 491 378 1 043 063

Straight-lining of operating leases 48 501 52 234 – –

15 337 223 5 387 285 1 491 378 1 043 063

Salary accruals

These accruals comprise leave pay accrual, bonus

accrual and other salary accruals. The leave pay

accrual relates to vesting leave pay to which employees

may become entitled on leaving the employment of the

group. The accrual arises as employees render a

service that increases their entitlement to future

compensated leave and is calculated based on an

employee’s total cost of employment.

The bonus accrual consists of both a guaranteed portion

and a performance-based portion based on the

employee’s achievement of performance targets. The

employee must be in service to qualify for the bonus.

16. ProvisionsOpening balance 572 586 – – –

Increase in provision during the year 2 700 000 572 586 – –

Rehabilitation costs incurred during the year (2 946 375) – – –

326 211 572 586 – –

The provision represents the total remaining estimate of cash flows that will be needed to rehabilitate the Klip Colliery. Cash flows relating

to rehabilitation costs will mostly occur in the next financial year. The discounting effect was calculated and is regarded as immaterial.

17. Financial instrumentsOverview

Exposure to credit, market and liquidity risks arise in the normal course of the group’s business from its use of financial instruments.

This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for

measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are included throughout these

consolidated financial statements.

The Board has overall responsibility for the establishment and oversight of the group’s risk management framework. The Risk Committee

is responsible for developing and monitoring the group’s risk management policies. This committee reports at least twice a year to the

Board on its activities.

The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits

and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect

changes in market conditions and the group’s activities. The group, through its training and management standards and procedures,

aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the group’s risk management framework in relation to risks

faced by the group. An internal audit function was established, and is assisting the Audit Committee in its oversight role. It undertakes

both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

62


17. Financial instrumentsCredit riskCredit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractualobligations, and arises principally from the group’s receivables from customers and deposits with financial institutions.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reportingdate was:

31 March 2010 31 March 2009Group Company Group Company

R R R R

Carrying amountsFinancial assetsRestricted cash 19 106 648 774 648 – –Loans to subsidiaries – 444 071 – 39 872Trade and other receivables 6 352 681 3 565 175 3 840 341 3 609 717Cash and cash equivalents 335 080 552 334 764 066 373 697 854 373 704 419

360 539 881 339 547 960 377 538 195 377 354 008

The company limits its counterparty exposures from its cash and cash equivalents by only dealing with well-established financialinstitutions of high quality credit standing. Customers are assessed on an individual basis to determine terms and conditions of saletransactions to limit the group’s exposure to bad debts. The maximum exposure to credit risk is represented by the carrying amount ofeach financial asset in the statement of financial position.

At the reporting date all of the group’s cash resources were deposited with reputable financial institutions of quality credit standing.The group has developed investment guidelines to ensure no significant concentration of credit risk. At the reporting date, the tradereceivables are neither past due nor impaired.

Liquidity riskLiquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managingliquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normaland stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. Refer to the maturity analysisunder market related risk below. The group holds at least 30 days worth of fixed overhead expenses in cash or call deposits.

Capital managementThe group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain futuredevelopment of the business. There were no changes to this policy during the year. The Board monitors both the demographic spreadof shareholders, as well as the return on capital, which the group defines as total shareholders’ equity, excluding minority interests, andthe level of dividends to ordinary shareholders. The income for the year from the group’s externally invested funds was R29.1 million(2009: R45.5 million). This equates to an average return of 8.0% (2009 : 11.6%) before tax. The company’s funds invested in itssubsidiaries’ exploration projects and mining operations earn a return of prime plus 5% after tax, cumulative and compounded quarterly.This return (in the form of preference dividends) has however not yet been recognised as the dividends have not yet been declared by thesubsidiaries.

Market riskMarket risk includes interest rate risk, currency risk and commodity price risk. Fluctuations in interest rates (prime rates) impact on thefinancing activities, giving rise to interest rate risk. Working capital and capital expenditure requirements are funded through cashgenerated by operations and the loan facilities provided to group entities. Interest rates are not hedged by the group. At 31 March 2010,the group did not consider there to be any significant concentration of currency risk or commodity price risk. The group’s Risk Committeemeets at least quarterly to specifically address and manage these risks as the group will be significantly exposed to these in future years.

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interestrates at the reporting date and the periods in which they mature.


Group

Average effective Fixed or Maturing – less Maturing – over

interest rate variable rate Total than 6 months one year

R R R

17. Financial instruments (continued)At 31 March 2010

Financial assets

Restricted cash (1) 7.4% Variable 19 106 648 19 106 648 –

Short-term deposits 8% – 8.5% Variable 329 422 157 329 422 157 –

Cash in bank and on hand 7.2% Variable 5 658 395 5 658 395 –

354 187 200 354 187 200 –

At 31 March 2009

Financial assets

Short-term deposits 8.6% – 12.4% Variable 350 640 907 350 640 907 –

Cash in bank and on hand 7% – 9% Variable 23 056 947 23 056 947 –

373 697 854 373 697 854 –

(1) These deposits are invested in rolling short-term deposits, but are pledged against long-term guarantees that are valid over the life of a

mining or prospecting right.

Company

Average effective Fixed or Maturing – less Maturing – over

interest rate variable rate Total than 6 months one year

R R R

At 31 March 2010

Financial assets

Restricted cash (1) 7.2% Variable 774 648 774 648 –

Loans to subsidiaries Prime + 2% Variable 190 033 190 033 –

Short-term deposits 8% – 8.5% Variable 329 145 133 329 145 133 –

Cash in bank and on hand 7.2% Variable 5 618 933 5 618 933 –

335 728 747 335 728 747 –

At 31 March 2009

Financial assets

Loans to subsidiaries Prime + 2% Variable 39 872 39 872

Short-term deposits 8.6% – 12.4% Variable 350 640 907 350 640 907 –

Cash in bank and on hand 7% – 9% Variable 23 063 512 23 063 512 –

373 744 291 373 744 291 –

(1) These deposits are invested in rolling short-term deposits, but are pledged against long-term guarantees that are valid over the life of a

prospecting right.

64


17. Financial instruments (continued)The potential impact on the current year’s earnings, given a movement in interest rates of 100 basis points, are:

Effect on earnings (R)– Decrease in 100 basis points (Loss) (2 532 897)– Increase in 100 basis points (Profit) 2 532 897

Fair value of financial assets and liabilitiesThe fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

Group

31 March 2010 31 March 2009Carrying amount Fair value Carrying amount Fair value

R R R R

At 31 March 2010Financial assetsRestricted cash 19 106 648 19 106 648 – –Trade and other receivables 6 352 681 6 288 789 3 840 341 3 787 763 Cash and cash equivalents 335 080 552 335 080 552 373 697 854 373 697 854

Financial liabilitiesTrade and other payables (15 288 722) (15 204 616) (5 335 051) (5 284 790)

345 251 159 345 271 373 372 203 144 372 200 827

Company

31 March 2010 31 March 2009Carrying amount Fair value Carrying amount Fair value

R R R R

Financial assetsRestricted cash 774 648 774 648 – –Loans to subsidiaries 444 071 439 673 39 872 39 379Trade and other receivables 3 565 175 3 519 512 3 609 717 3 579 045Cash and cash equivalents 334 764 066 334 764 066 373 704 419 373 704 419

Financial liabilitiesTrade and other payables (1 491 378) (1 475 596) (1 043 063) (1 038 483)

338 056 582 338 022 303 376 310 945 376 284 360

Basis for determining fair valuesLoans to subsidiaries and trade and other receivables – the fair value is estimated as the present value of future cash flows, discounted atthe market rate of interest at the reporting date.

Trade and other payables – the fair value is calculated based on the future principal and interest cash flows, discounted at the marketrate of interest at the reporting date.

18. Retirement planProvident fundThe majority of the group’s salaried employees are members of the Keaton Administrative and Technical Services (Pty) Limited (KATS)provident fund. This provident fund operates as a defined contribution provident fund.

The provident fund is operated by Liberty Corporate Benefits on behalf of KATS, domiciled in the Republic of South Africa and isgoverned by the Pension Funds Act, (Act No.24 of 1956).

The total cost recognised in profit or loss for the year of R671 093 (2009: R655 572) represents contributions payable to this providentfund by the group at rates specified in the rules of the provident fund.


Group Company



R R R R

19. Notes to the cash flow statement

19.1 Cash utilised in operations

Net profit before taxation 3 757 037 16 694 501 15 762 602 18 744 252

Adjustments for:

Impairment losses 2 923 145 4 213 734 3 679 217 17 664 937

Deferred stripping costs 1 711 989 – – –

Finance income (29 139 649) (44 508 863) (28 893 849) (44 749 399)

Finance costs 32 936 – – –

Depreciation 12 848 606 1 505 578 – –

Share-based (income)/payments (4 346 229) 5 126 146 149 674 1 000 000

Loss on disposal of plant and equipment 4 479 – – –

Profit on foreign exchange – – (638) –

Changes in working capital (848 299) (8 701 497) 305 652 (4 976 052)

Inventory 4 308 021 (4 308 021) – –

Rehabilitation costs (refer to note 16) (2 946 375) – – –

Trade and other receivables (2 577 380) 18 211 (142 664) (484)

Value added taxation (536 162) 1 902 542 – –

Trade and other payables (excluding amounts owing

to plant, equipment and exploration vendors) 903 597 (6 314 229) 448 316 (4 975 568)

(13 055 985) (25 670 401) (8 997 342) (12 316 262)

19.2 Taxation paid

Balance at beginning of the year (2 200 243) (900 361) (948 793) (765 895)

Current income tax and STC charge (7 359 310) (11 359 933) (5 753 490) (10 242 949)

Donations tax charge (35 000) – – –

Balance at end of the year 3 395 024 2 200 243 537 607 948 793

Paid during the year (6 199 529) (10 060 051) (6 164 676) (10 060 051)

19.3 Investment in subsidiary companies

Increase in carrying amount (61 210 259) (30 966 958)

Impairment losses (3 679 217) (17 664 937)

Share-based payments (acquisition of subsidiary) 17 300 000 –

Share-based payments (share appreciation rights) (4 495 266) 4 126 147

(52 084 742) (44 505 748)

19.4 Acquisition of plant and equipment

Additions (refer to note 6) (24 093 130) (5 697 197) – –

Less: Amounts owing to vendors (current year) 8 982 478 – – –

(15 110 652) (5 697 197) – –

19.5 Additions to exploration and evaluation asset

Additions (refer to note 8) (6 166 526) (21 174 696) – –

Acquisition of subsidiary (8 267 341)

Prospecting right and related data (refer to note 8) (33 295 198) – – –

Less: share-based payment 17 300 000 – – –

Less: non-controlling interest 7 727 857 – – –

Reversal of impairment 53 769 – – –

Plus: Amounts owing to exploration vendors (prior year) (1 094 273) (5 659 344) – –

Less: Amounts owing to exploration vendors

(current year) 1 158 130 1 094 273 – –

(14 316 241) (25 739 767) – –

66



R R

20. Related party transactionsUnless stated otherwise, all related party transactions are concluded at arm’s length in the

normal course of business. All material intergroup transactions are eliminated on consolidation.

The following transactions were carried out with related parties:

Subsidiaries

Keaton Administrative and Technical Services (Pty) Limited (100% subsidiary):

– Inter-company loan balance (interest free) 9 569 262 9 365 938

– Share-based payments (refer to notes 13 and 14) (4 495 266) 4 126 146

– Management fee paid to Keaton Energy (excl. VAT) – management, administration and

accounting services 2 274 160 1 258 749

Keaton Mining (Pty) Limited (74% subsidiary):

– Preference share investment balance (dividends at prime + 5%) 93 700 000 56 500 000

– Inter-company loan balance (interest at prime + 2%) 46 664 12 085

– Interest paid to Keaton Energy 175 935 208 776

– Interest received from Keaton Energy – 43 177

– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf

of Keaton Mining 774 648 774 648

Amalahle Exploration (Pty) Limited (74% subsidiary)


– Inter-company loan balance (interest at prime + 2%) 87 983 27 787

– Interest paid to Keaton Energy 18 635 58 284

– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf of

Amalahle Exploration 360 000 360 000

Mafla Coal (Pty) Limited (74% subsidiary)


– Inter-company loan balance (interest at prime + 2 % up to 31 March 2009) 680 349 61 592

– Interest paid to Keaton Energy – 31 478

– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf of

Mafla Coal 125 172 125 172

Labohlano Trading 46 (Pty) Limited (74% subsidiary):

– Preference share investment balance (dividends at prime + 5%) 7 300 000 –

– Inter-company loan balance (interest at prime + 2%) 55 386 –

– Interest paid to Keaton Energy 36 591 –





R R R R

20. Related party transactions (continued)

Transactions with other related parties

Braeston Corporate and Consulting Services (Pty)

Limited (refer below)

– Professional, accounting and IT related services 2 044 761 2 355 043 434 801 415 280

– Rental paid 737 407 680 518 – –

– Rental received 242 500 – – –

LG Majola 175 000 –

Andisa Capital (Pty) Limited (refer below) – 33 500 – –

Salene Mining (Pty) Limited (refer below) – 84 525 – –

Key management compensation

Refer to note 2 and 24. Key management includes the executive directors of the company.

Interest of directors in contracts

PBM Miller and P Pouroulis are shareholders of Braeston Corporate and Consulting Services (Pty) Limited (Braeston). Braeston sub-lets

a portion of Eland House, The Braes, 3 Eaton Road, Bryanston, 2021 to Keaton Administration and Technical Services (Pty) Limited

(KATS), a subsidiary of the company. Braeston earns rental from the letting of the property and provides property management services

to the group in respect of the property. The lease is for three years and covers a total floor area of 456m2. During the year KATS entered

into a sub-lease with Braeston for a portion of its floor area. All of these rentals are at market related rates.

Braeston also provides information technology facilities and support, back-up power facilities, financial management and accounting

services and office support services including secretarial, cleaning, security and delivery services to the group. Braeston charges the

group on a cost recovery basis. No dividends are expected to be declared to shareholders of Braeston. Braeston provides similar

services to TransAfrika Resources Limited, Tharisa Minerals (Pty) Limited and Kameni Limited.

APE Sedibe, a non-executive director of the company, is the managing director of Andisa Capital (Pty) Limited, which assisted the

company in drafting an investment policy.

P Pouroulis, a non-executive director of the company, is a director of Salene Mining (Pty) Limited. The group provided geological

consultancy services to Salene Mining (Pty) Limited. In the prior year he was also a director of Chromex Mining Plc, but has resigned

during the year.

LG Majola was a non-executive director of Izwi Coal (Pty) Limited, a company currently in the process of being deregistered.

An exploration vehicle was donated to him during the year. The vehicle was fully impaired in the prior year.

Some of the directors of Keaton Energy are also directors of its subsidiaries. Various shareholders’ agreements, funding agreements and

management agreements have been entered between the group’s entities.

Other than listed above, no director of Keaton Energy has any material beneficial interests, whether direct or indirect, in transactions that

were effected by the group during the current or immediate preceding financial year, that remain in any respect outstanding or

unperformed.

21. Contingent liabilities and commitments

The group has the following contingent liabilities and commitments:

The company has entered into the shareholders’ agreements with the external shareholders in the company’s exploration subsidiaries.

The shareholders’ agreements contain put and call options. In terms of the call option, the company has the option to purchase (all and

not part of) the shares in the exploration subsidiary held by the relevant external shareholder for a purchase price equal to the fair market

value of such shares. The call option is exercisable by way of a written notice at any time from the date of listing to the later of 1 May 2014

and the date of fulfilment of the last condition in the call option paragraph. The call option is subject to the suspensive condition that all

statutory and regulatory permissions and authorities required to be able to exercise such call option are obtained within 150 days of

exercising the call option. The purchase consideration shall be satisfied by the issue by the company to the external shareholder of such

number of Keaton Energy ordinary shares which shall be equal to the purchase consideration. In calculating the value such Keaton

Energy ordinary shares, the parties shall use the volume weighted average price of the ordinary shares (post listing) as traded on the JSE

over the 10 trading days immediately preceding the exercise of the call option.

68


21. Contingent liabilities and commitments (continued)

The external shareholder has the option to sell to the company (all and not part of) its shares in the exploration subsidiary for a purchase

price equal to the fair market value of such shares. The put option is exercisable by written notice at any time for a period of 30 days

beginning 2 May 2014 and the date of fulfilment of the last condition precedent contained in the put option paragraph. The purchase

consideration shall be settled in the same way as the call option. The put option is subject to the suspensive conditions that at the time

of exercise of the put option the exploration subsidiary will not suffer any prejudice or adverse effects in terms of the Broad Based Black

Economic Empowerment Act 2003, the provisions of any charter, the MPRDA or any law relating to empowerment and that all statutory

and regulatory permissions and authorities required to be able to exercise such put option are obtained within 150 days of the exercising

of the option.

During the year Keaton Mining (Pty) Limited (Keaton Mining), a 74% subsidiary of the company, entered into an agreement with a

consortium representing certain landowners at its Sterkfontein Project (Bethal). This agreement will govern future negotiations between

Keaton Mining and the landowners in terms of its exploration and mining activities, as well as land access and acquisitions. The parties

have also agreed certain payment mechanisms for future compensation as required in terms of the MPRDA.

Keaton Mining is involved in a legal dispute as described below:

Keaton Mining (Pty) Limited vs Petronella Res

The surface right owner at Klip Colliery was entitled to a monthly rental determined by the amount of coal mined and sold. The surface

right owner up to August 2009 (Petronella Res) disputes the amount of coal mined and sold and is demanding R180 000 plus interest.

The directors of Keaton Mining are confident that the surface right owner has been paid correctly and timeously in terms of the rental

agreement and will defend its position in this regard.


R R

Capital commitments

Guarantees issued to the DMR 19 591 819 1 259 819

Guarantees issued in terms of farm acquisitions (subsequent to year-end) 50 000 000 –

Authorised but not contracted 58 829 000 38 155 000

Authorised and contracted 31 539 000 2 263 000

All contracted amounts will be funded through the existing funding mechanisms between the

company and its subsidiaries.


GroupYear to Year to

31 March 2010 31 March 2009

R R

22. Operating lease paymentsOne of the company’s subsidiaries, Keaton Administrative and Technical Services (Pty) Limited (KATS), leases the group’s head office premises under an operating lease. This lease runs for a period of three years up to 30 April 2011. Lease payments on this contract escalate by 7% each year. Another subsidiary, Keaton Mining, leased a weighbridge and a change house at Klip Colliery, and these have now expired. The commitments are:

Lease as lesseeNon-cancellable operating lease rentals are payable as follows:Less than one year 627 277 681 890One to five years 52 273 679 550

679 550 1 361 440

KATS also subleases a part of the group’s head office premises under an operating lease. This lease runs on a month to month basis.

31 March 2010 31 March 2009R R

23. Segmental informationTotal segment assetsKeaton Mining (Pty) Limited – Vanggatfontein Project 63 471 660 22 672 060Keaton Mining (Pty) Limited/Labohlano Trading 46 (Pty) Limited – Sterkfontein Project 62 374 102 23 287 756Keaton Mining (Pty) Limited – Klip Colliery 3 286 212 16 652 773Amalahle Exploration (Pty) Limited – Projects – 1 379 265Keaton Energy Holdings Limited – Investments and Cash resources 474 772 551 450 277 863(1)

Total operating segments’ assets 603 904 525 514 269 717Assets not allocated to segments 5 171 941 5 538 180 Consolidation adjustments – investments in subsidiaries (135 668 662) (74 458 403)

Total assets 473 407 804 445 349 494

(1) Restated to conform with current year’s amount.

Year to Year to31 March 2010 31 March 2009

R R

Segment revenueKeaton Mining (Pty) Limited – Klip Colliery (all external coal sales) (1) 23 401 450 5 423 590Keaton Administrative and Technical Services (Pty) Limited (intersegment revenues) 10 638 618 10 033 583

Total operating segments’ revenue 34 040 068 15 457 173Klip Colliery – damages claim disclosed under other income (1 593 954) –Consolidation adjustments (10 489 061) (10 033 583)

Revenue 21 957 053 5 423 590

(1) Coal sales to major customer as percentage of total sales. 89% 100%

Segment profit or lossKeaton Energy Holdings Limited (1) (9 302 355) (26 005 147)Keaton Administrative and Technical Services (Pty) Limited (117 715) (6 452 179)Keaton Mining (Pty) Limited (2) (14 704 259) (4 858 627)Amalahle Exploration (Pty) Limited (3) (3 230 829) (4 217 455)Labohlano Trading 46 (Pty) Limited (1 159 471) -Other subsidiaries (335 001) (3 945 891)

Total operating segments’ loss (28 849 630) (45 479 299)Non-cash flow items (179 263) –Consolidation adjustments 3 679 217 17 664 937

Operating loss before net finance income and taxation (25 349 676) (27 814 362)

(1) Excludes finance income of R28.9 million (2009: R44.7 million).(2) Includes depreciation of R12.1 million (2009: R0.8 million) and an impairment loss/net realisable value loss of R6.0 million (2009: Rnil).(3) Includes an impairment loss of R1.8 million (2009: R2.5 million).

70


23. Segmental information (continued)

Operational segments

Vanggatfontein Project (previously Delmas Project)

A Proved and Probable Coal Reserve of 25.9 million tonnes has been declared on this project during the year, whilst the DMR has also

awarded a 20-year mining right for this project. In November 2009 the Board approved the development of the first phase of the project

(5 Seam metallurgical coal) and off-site fabrication of the 100 tonne per hour coal processing plant began in January 2010. Subsequent

to year-end an amicable settlement has been reached with local landowners, in terms of which Keaton Mining will acquire four properties

totalling 850 hectares. The first 5 Seam metallurgical coal is expected to be produced by the end of the current year.

Sterkfontein Project

During the year the group added 3 271 hectares of prospecting rights to its 4 009-hectare Sterkfontein Project through the acquisition of

a prospecting right by the company’s 74% subsidiary, Labohlano Trading 46 (Pty) Limited. The acquisition ‘fills out’ the areas between

Sterkfontein’s North 2 and South Blocks and included data from a recently completed, 25-hole drilling programme.

The group has previously drilled 132 boreholes - a total of 25 000 metres - on the original 4 009-hectares, from which it has declared a

total coal resource of 34.8Mt, 17.5Mt in the indicated category in the North 1 and 2 blocks and 17.3Mt in the measured category in the

South Block. Results indicated that 50% is export coal and 33% domestic steam coal.

With subsequent exploration and evaluation the group has doubled the coal resource at this project to 69 million mineable tons in situ.

This brings the total number of holes drilled on the project to date area to 192.

The remainder of the drill programme is well under way and the remaining 56 holes planned for the two northern blocks of the property

should be completed by mid-2010. The group should then have defined the coal resource base to the level of confidence which will allow

it to launch a prefeasibility study for a major underground multiproduct mine, producing both export and domestic coal.

Klip Colliery

Operations at Klip Colliery have been downscaled during the year resulting in a sharp decrease in the remaining life of the mine tonnages.

This decrease resulted in the weighted average cost per tonne increasing significantly, and low quality stockpiles having to be written

down by R4.9 million to their net realisable value. An additional impairment of R1.1 million resulted from capitalised mine development

assets. Mining stopped during November 2009, and the mine site will be rehabilitated during 2010. Ownership of the coal stockpiles still

at the mine has been transferred to the buyer. These stockpiles are expected to be depleted by the end of the current year, where after

a mine closure certificate will be applied for.

Segment assets represent the last invoice issued for the Colliery’s coal and cash deposits pledged against environmental guarantees

issued to the DMR.

Amalahle Projects

Two properties, Leeuwfontein and Braamspruit, are of economic interest. A Measured Coal Resource of 922 000 tonnes (MTIS) of open

pittable coal has been declared at the Leeuwfontein Project. The group is currently evaluating its options in terms of the Leeuwfontein

Project, which is contiguous to a current operational mine. The asset has been impaired as a result of regulatory uncertainty.

The Braamspruit Project is currently involved in a legal dispute with a neighbouring mining company and the DMR in respect of the

validity of the DMR awarding the prospecting right to Amalahle. No exploration or evaluation work has been done during the financial

period and the assets have been impaired due to regulatory uncertainty.



23. Segmental information (continued)Keaton Energy Holdings Limited - Investments and Cash resourcesInvestments in subsidiaries’ preference shares do not generate any return yet. Loans to subsidiaries generate a return of prime plus 2%.The operating results include an impairment of R3.7 million (2009: impairment of R17.7 million) regarding investments in subsidiaries.

The company’s cash resources include long-term restricted cash, cash and cash equivalents and interest receivable, and which are notyet applied towards the funding of the group’s exploration and mine development activities. These investments generated net financeincome of R28.9 million during the year.

Assets not allocated to segmentsThe other assets represent the group’s head office assets, receivables and deferred tax assets and, due to their nature, are not allocatedto the respective projects discussed above.

24. Remuneration of directorsThe remuneration of the executive directors of the company is set out in the table below:

Basic Travel Medical Group Performancesalary (3) allowance aid benefits bonuses Total

Executive director R R R R R R

2010Paid by the company:PBM Miller 1 719 944 – 53 733 290 949 199 606 2 264 232JG Schönfeldt 1 385 970 – 68 937 233 170 162 282 1 850 359PCCH Snyders (2)/(4) 502 954 45 000 20 298 26 823 – 595 075

Paid by the subsidiary:SM Rupprecht (1)/(4) 1 080 673 80 000 39 440 148 302 – 1 348 415AB Glad (2) 1 427 635 120 000 – 74 046 162 282 1 783 963

6 117 176 245 000 182 408 773 290 524 170 7 842 044

2009Paid by the company:PBM Miller 1 602 767 – 4 319 263 183 – 1 870 269JG Schönfeldt 1 265 498 – 60 804 208 313 – 1 534 615

Paid by the subsidiary:SM Rupprecht 1 207 391 120 000 54 102 191 507 – 1 573 000

4 075 656 120 000 119 225 663 003 – 4 977 884

(1) Resigned as a director during the year.(2) Appointed as a director during the year.(3) Includes guaranteed annual bonuses. This was separately disclosed in the previous period.(4) A share appreciation right consisting of 894 454 notional shares at R5.59 each have been granted to PCCH Snyders on 1 January 2010

(refer to note 14). The total amount recognised in profit or loss during the year in terms of these share appreciation rights was R149 674.The share appreciation rights previously issued to SM Rupprecht lapsed upon his resignation and resulted in share appreciation rightsincome of R4 545 980 during the year.

The remuneration of the non-executive directors of the company is set out in the table below:

Board Committeemember fees fees Total

Non-executive director R R R

2010JD Salter 224 125 201 713 425 838JN Wallington 224 125 134 475 358 600LX Mtumtum 224 125 112 063 336 188Z Mostert 224 125 67 238 291 363P Pouroulis 224 125 67 238 291 363APE Sedibe 224 125 67 238 291 363

1 344 750 649 965 1 994 715

2009JD Salter 205 000 184 500 389 500LX Mtumtum 205 000 102 500 307 500P Pouroulis 205 000 61 500 266 500APE Sedibe 205 000 66 507 271 507Z Mostert 138 333 41 500 179 833JN Wallington 93 333 55 537 148 870

1 051 666 512 044 1 563 710

72


25. Directors’ interest in share capital

Percentage

Number of of issued

Nature of ordinary share capital

Director interest shares as at year-end

31 March 2010

PBM Miller Indirect, beneficial 2 725 000 1.9

PBM Miller Direct, beneficial 1 018 008 0.7

P Pouroulis (1) Indirect, beneficial 41 688 428 28.8

JD Salter (1) Indirect, beneficial 2 225 000 1.5

AB Glad Indirect, beneficial 7 321 0.01

AB Glad/APE Sedibe (1) Indirect, beneficial 8 000 000 5.5

SM Rupprecht Direct, beneficial 100 000 (2) 0.07

JG Schönfeldt Direct, beneficial 7 321 0.01

JG Schönfeldt Indirect, beneficial 1 300 000 0.9

57 071 078 39.39

31 March 2009

PBM Miller Indirect, beneficial 2 725 000 1.9

PBM Miller Direct, beneficial 1 000 000 0.7

P Pouroulis (1) Indirect, beneficial 41 688 428 29.2

JD Salter (1) Indirect, beneficial 1 225 000 0.9

APE Sedibe (1) Indirect, beneficial 8 500 000 5.9

SM Rupprecht Direct, beneficial 100 000 0.07

JG Schönfeldt Indirect, beneficial 1 300 000 0.9

56 538 428 39.57

Note: There has been no change in the directors’ interest in the share capital of the company between the end of the financial year and

the date of approval of the annual financial statements.

(1) Non-executive director.(2) Resigned as a director during the year.

26. Directors’ service contracts

The terms and conditions regulating the provision of services by the executive directors to the company are regulated by employment

contracts with the company or its subsidiaries. All executive directors have identical rolling service contracts, containing a six-month

notice period. Save for restrictions concerning the non-solicitation of staff for a period of 12 months after termination of employment, the

employment contracts do not contain any restraint of trade provisions. The terms and conditions contained in the agreements entered

into with the executive directors are normal for agreements of this nature. Unless termination of employment occurs as a result of the

misconduct or poor performance of the executive director or his resignation (other than under circumstances of constructive dismissal),

death, injury, illness or retirement, upon termination of employment the executive director shall be entitled to a severance payment equal

to his annual cost to company employment package less any other payments made or becoming due to the executive director as a result

of the termination of employment.


Analysis of ordinary shareholders as at 26 March 2010Number of Number of Percentage of issued

shareholders shares share capital

Holdings of < 100 000 shares 1 172 10 796 443 7.45%

Holdings of 100 000 to 499 999 75 14 187 828 9.80%

Holdings of 500 000 to 999 999 11 7 725 322 5.33%

Holdings of 1 000 000 to 4 999 999 28 49 715 586 34.32%

Holdings > 5 000 000 4 62 416 114 43.09%

Total 1 290 144 841 293 100.00%

Major shareholders as at 26 March 2010Number of Percentage of issued

shares share capital

Other smaller shareholders 81 466 751 56.25%

Langa Trust 19 208 428 13.26%

Axel Trust 18 480 000 12.76%

Mrs A Pouroulis 17 686 114 12.21%

Rutendo Holdings (Proprietary) Limited 8 000 000 5.52%

Total 144 841 293 100.00%

Public and non-public shareholders as at 26 March 2010Number of Number of Percentage of issued

shareholders shares share capital

Public 1 262 65 984 101 45.56%

Non-public

Directors and associates 10 57 971 078 39.33%

Persons interested (other than directors),directly or indirectly, in 10% or more 1 17 686 114 12.21%

Other non-public shareholders 17 4 200 000 2.90%

Total 1 290 144 841 293 100.00%

Shareholders’ information

74

‘A’ grade coal Domestic South African bituminous coal with an air dried basis CV between 27.5 – 28.5 MJ/kg.

Air dried or AD Coal mass that includes inherent moisture (IM).

As received or AR Coal mass that includes total moisture (TM).

‘B’ grade coal Domestic South African bituminous coal with a air dried basis CV between 26.5 – 27.5 MJ/kg.

BBBEE Broad-based black economic empowerment as defined in the MPRDA.

BEE Black economic empowerment.

Bituminous coal A medium quality coal mostly used in for raising steam for the generation of electricity.

Boxcut The initial cut driven in a property, where no open side exists; this results in a highwall on both sides of the cut.

‘C’ grade coal Domestic South African bituminous coal with a air dried basis CV between 25.5 – 26.5 MJ/kg.

Calorific value or CV The heating value of coal. To determine the calorific value (CV), a known mass of air dried coal is burnedunder standard conditions in an oxygen atmosphere contained in a constant volume. The gross CV is thestandard South African method for reporting CVs and is measured in MJ/kg – it can also be measured GJ/t(Gigajoules/tonne), kcal/kg or btu/lb.

Gross CV, or upper heating value is the CV under laboratory conditions. Net CV, or lower heating value or NetEffective Calories (NEC) is the useful calorific value in the boiler plant. The difference is essentially the latentheat in the water vapour produced.

Cash cost Direct mining costs, direct processing costs, direct general and administration costs, consulting fees,management fees, transportation, treatment charges and profit sharing charges.

cm Centimetre or centimetres, as the context indicates.

Coal A black or brownish black solid, combustible substance formed by the partial decomposition of vegetablematter without access to air. The rank of coal, which may take the form of anthracite, bitumous coal, sub-bitumous coal and lignite, is based on its fixed carbon, volatile matter and heating values (CV). Coal rankindicates the progressive alteration, or coalification, from lignite to anthracite.

Coal Reserve The economically mineable material derived from a measured and/or indicated coal resource. It is inclusive ofdiluting materials and allows for losses that may occur when the material is mined. Appropriate assessments,which may include feasibility studies, have been carried out, including consideration of, and modification by,realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social andgovernmental factors. These assessments demonstrate at the time of reporting that extraction is reasonablyjustifiable. Coal reserves are subdivided in order of increasing confidence into probable coal reserves andproved coal reserves.

Coal Resource A concentration or occurrence of coal in or on the earth’s crust in such form and quantity that there arereasonable and realistic prospects for eventual economic extraction.

Colliery A coal mine together with its physical plant and buildings. In South Africa, the term colliery applies to bothunderground and open-pit coal mines.

Competent Person A person that is registered with any one of: the South African Council for Natural Scientific Professionals, theEngineering Council of South Africa, the South African Council for Professional Land Surveyors and TechnicalSurveyors; or any other statutory South African or international body that is recognised by SAMREC.

CPR Competent Persons’ Report.

Cut-offs The lowest grade of mineralised material that qualifies as Mineral Resources in a given deposit.

‘D’ grade coal Domestic South African bituminous coal with a air dried basis CV less than 25.5 MJ/kg.

DEAT The South African Department of Environment and Tourism.

Diamond drilling The act or process of drilling boreholes using bits inset with diamonds as the rock-cutting tool. The bits arerotated by various types and sizes of mechanisms motivated by steam, internal-combustion, hydraulic,compressed air, or electric engines or motors. A common method of prospecting for coal deposits.

Glossary of terms


DMR The South African Department of Mineral Resources.

DMS Dense Medium Separation.

Dry-Ash-Free Volatiles The volatiles expressed as percentage without the other proximate analyses (ash and moisture). or DAF Vols

Dry Basis (DB) Coal mass that excludes total moisture.

DWAF The South African Department of Water Affairs and Forestry.

EIA Environmental Impact Assessment.

EMP Environmental Management Plan.

Eskom The South African electricity public utility and a major purchaser of South Africa’s coal production.

Exploration results The results of exploration which are compiled by a competent person.

Export quality coal In the South African context, export quality coal generally refers to coal that meets the RB1 and RB2specification or alternatively is an ‘A’ or ‘B’ grade coal. Anthracite and metallurgical coal is also exported fromSouth Africa.

g Grams.

GIS Geographical Information System.

GRI Global Reporting Initiative.

GTIS Gross tonnage in situ with no modifying factors.

Ha, ha or hectare A measurement of area 100 metres by 100 metres.

HDP A historically disadvantaged person as defined in the MPRDA, being: any person, category of persons or community, disadvantaged by unfair discrimination before theConstitution of the Republic of South Africa No. 108 of 1996 took effect; any association, a majority of whose members are persons contemplated in the first bullet above; or any juristic person other than an association, in which persons contemplated in the first bullet above ownand control a majority of the issued capital or members’ interest and are able to control a majority of themembers’ votes.

HEPS Headline earnings (or loss) per share.

IFRS International Financial Reporting Standards.

In situ Generally used with reference to the reporting of coal resources to indicate a volume or tonnage of coalpresent undisturbed in the ground.

In situ tonnage Measure of mass of coal in the ground (each tonnage quoted needs to be specified whether it is air dried ormoisture free).

Indicated Coal Resource That part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and coalcontent can be estimated with a reasonable level of confidence. It is based on exploration, sampling andtesting information gathered through appropriate techniques from locations such as outcrops, trenches, pits,workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/orgrade continuity but are spaced closely for continuity to be assumed.

Inferred Coal Resource That part of a coal resource for which tonnage, grade and coal content can be estimated with a low level ofconfidence. It is inferred from geological evidence and assumed but not verified for geological and/or gradecontinuity. It is based on information gathered through appropriate techniques from locations such asoutcrops, trenches, pits, workings and drill holes that may be limited or of uncertain quality and reliability.

ISO International Standards Organisation.

JSE JSE Limited (Registration number 2005/022939/06), a public company registered and incorporated in SouthAfrica, licensed as an exchange under the South African Securities Services Act, No 36 of 2004, as amended.

kcal/kg Kilocalories per kilogram. An alternative measure of CV, used outside South Africa. To convert kcal/kg toMJ/kg divide kcal/kg by 238.8.

km Kilometre or kilometres, as the context indicates.

Long life Operation with life of greater than 10 years.

m or metre Metre or metres, as the context indicates.

Measured Coal Resource That part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and coalcontent can be estimated with a high level of confidence. It is based on detailed and reliable exploration,sampling and testing information gathered through appropriate techniques from locations such as outcrops,trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological andgrade continuity.

Medium life Operation with life of between five and 10 years.

Megawatt (MW) One million watts.

76

MJ/Kg Megajoules per kilogram, measure of heat generating capacity (cv).

mm Millimetre or millimetres, as the context indicates.

MPRDA or Mineral and The South African Mineral and Petroleum Resources Development Act No. 28 of 2002, as amended, which Petroleum Resources became effective legislation on 1 May 2004. Development Act or MPRDA

MT, t Metric tonnes where 1 MT = 1 000 kilograms = 2 204.6 lb. MT are the standard measure of mass in South Africa.

Mt Million tonnes.

MTIS Mineable tonnes in situ.

Open pit A mine working or excavation, open to the surface.

Quality or grade An informal classification of coal relating to its suitability for use for a particular purpose. Refers to individualmeasurements such as heat value (CV); fixed carbon; moisture; ash; sulphur; phosphorus; major, minor, andtrace elements; coking properties; petrologic properties; and particular organic constituents. The individualquality elements may be aggregated in various ways to classify coal for such special purposes asmetallurgical, gas, petrochemical and blending usages. Grade is inversely related to the percentage ofinorganic material in the coal and is largely determined during the depositional stage of the coal’s formation.The ash content of a coal is therefore the most convenient measure of its grade.

Domestic market coal is South Africa has traditionally been classified as ‘A’, ‘B’, ‘C’ or ‘D’ grade coal, gradedby calorific value (CV).

R or Rand The South African Rand, the lawful currency of South Africa.

RBCT The Richards Bay Coal Terminal.

RD Relative density.

RoM Run-of-mine.

SA or South Africa or RSA The Republic of South Africa.

SAMREC The South African Mineral Resource Committee.

SAMREC Code The South African Code for Reporting of Mineral Resources and Mineral Reserves including the guidelinescontained therein.

SANS South African National Standards.

Seam A bed of coal lying between a roof and floor; an equivalent term to bed, commonly used by the industry;alternatively a provincial term for a coal bearing layer.

Short life Operation with life of less than five years.

SLP or Social and Labour Plan A document that is submitted in terms of MPRDA and the Mining Charter as part of an application for aMining Right.

MWP or Mine Works A document that is submitted in terms of MPRDA and the Mining Charter as part of an application for a Programme Mining Right.

DALA The Mpumalanga Provincial Department of Agriculture and Land Affairs.

t Tonnes.

Tailings The gangue and other refuse material resulting from the washing, concentration, or treatment of ground ore.

VAT Value-added tax payable in terms of the South African Value-Added Tax Act, No 89 of 1991.

Working capital Expenditures required to fund the resulting change in the debtors, creditors and stores position at a point in time.

Glossary of terms(continued)


KEATON ENERGY HOLDINGS LIMITED

(Incorporated in the Republic of South Africa)

(Registration No. 2006/011090/06)

(the company or Keaton Energy)

JSE Code: KEH

ISIN Code: ZAE00117420

Notice is hereby given that the Annual General Meeting (AGM) of shareholders of the company will be held at The Graphite Room,

The Campus, 57 Sloane Street, Bryanston, 2191, South Africa on Thursday, 22 July 2010 at 10h00, for the following purposes:

Ordinary business1. To receive, consider and adopt the Annual Financial Statements for the year ended 31 March 2010 of the company and the group,

together with the auditor's report.

2. To elect, as an executive director, Mr PCCH Snyders, who was appointed as a director on 1 January 2010 and, being eligible makes

himself available for re-election.

3. To re-elect the directors who retire by rotation in terms of the Articles of Association and who, being eligible, offer themselves for re-election:

3.1 Ms APE Sedibe

3.2 Mr P Pouroulis

A brief curriculum vitae in respect of each director referred to in 2 and 3 above appears on pages 20 and 21 of this Annual Report.

The Board recommends the re-election of these directors.

4. To re-appoint KPMG Inc., with the designated audit partner (engagement director) being Mr S van den Boogaard, as auditors of the

company to hold office for the ensuing year until the conclusion of the next AGM.

5. To authorise the directors to fix the remuneration of the auditors.

6. To approve the non-executive directors' remuneration as set out on page 71.

Special businessIn addition, shareholders will be requested to consider and, if deemed fit, to pass the following ordinary and special resolutions with or

without amendment:

Ordinary resolution number 1

Control of authorised but unissued shares

"RESOLVED THAT all the authorised but unissued ordinary shares in the capital of the company, be and are hereby placed at the disposal

and under the control of the directors, and that the directors be and are hereby authorised to allot, issue and otherwise to dispose of all or

any of such shares at their discretion, in terms of and subject to the provisions of the Companies Act, 1973 (Act No. 61 of 1973), as amended

(the Act) and the JSE Limited (JSE) Listings Requirements and subject to the proviso that the aggregate number of ordinary shares which

may be allotted and issued in terms of this ordinary resolution number 1, shall be limited to 10% (ten per cent) of the number of ordinary

shares in issue from time to time."

A majority of the votes cast by all shareholders present or represented by proxy at the AGM, will be required to approve this resolution.

Notice of Annual General Meeting

78

Ordinary resolution number 2

General authority to issue shares for cash

"RESOLVED THAT the directors of the company be and are hereby authorised and empowered, by way of a general authority, to allot and

issue shares for cash to such persons, on such terms and conditions as the directors may from time to time at their discretion deem fit, but

subject to the provisions of the Act and the JSE Listings Requirements and the following limitations, namely that:

a. the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be

limited to such securities or rights that are convertible into a class already in issue;

b. any such issue will be made only to public shareholders as defined in the JSE Listings Requirements and not related parties, unless the

JSE otherwise agrees;

c. the number of shares issued for cash shall not in the aggregate in any one financial year exceed 10% (ten per cent) of the company's

issued share capital of ordinary shares. The number of ordinary shares which may be issued shall be based on the number of ordinary

shares in issue, added to those that may be issued in future (arising from the conversion of options/convertibles) at the date of such

application, less any ordinary shares issued, or to be issued in future arising from options/convertible ordinary shares issued during the

current financial year; plus any ordinary shares to be issued pursuant to a rights issue which has been announced, is irrevocable and is

fully underwritten, or an acquisition which has had final terms announced;

d. this authority be valid until the company's next AGM, provided that it shall not extend beyond 15 (fifteen) months from the date that this

authority is given;

e. a paid press announcement giving full details, including the impact on net asset value and earnings per share, will be published at the

time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of shares in

issue prior to the issue; and

f. in determining the price at which an issue of shares may be made in terms of this authority, the maximum discount permitted will be 10%

(ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the

price of the issue is determined or agreed to by the directors of the company."

Ordinary resolution number 2 is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in

favour of such resolution by all members present or represented by proxy and entitled to vote, at the AGM.

Ordinary resolution number 3:

Non-binding indicative approval of the remuneration policy

The King III Code of Governance recommends that the company's remuneration policy be tabled for a non-binding indicative vote by

shareholders at each annual general meeting.

"RESOLVED THAT the company's remuneration policy as set out on pages 25 to 28 of the Annual Report, be and is hereby accepted and

approved."

Special resolution number 1:

General authority to repurchase shares

"RESOLVED THAT, the company be and is hereby authorised by way of a general authority contemplated in sections 85(2) and 85(3) of the

Act, to acquire the issued ordinary shares of the company, upon such terms and conditions and in such amounts as the directors of the


(continued)


company may from time to time determine, but subject to the Articles of Association of the company, the provisions of the Act and the JSE

Listings Requirements, where applicable, and provided that:

a. the repurchase of shares will be effected through the main order book operated by the JSE trading system and done without any prior

understanding or arrangement between the company and the counter party;

b. this general authority shall only be valid until the company's next AGM, provided that it shall not extend beyond 15 (fifteen) months from

the date of passing of this special resolution;

c. in determining the price at which the company's ordinary shares are acquired by the company in terms of this general authority, the

maximum premium at which such ordinary shares may be acquired will be 10% (ten per cent) of the weighted average of the market price

at which such ordinary shares are traded on the JSE, as determined over the 5 (five) trading days immediately preceding the date of the

repurchase of such ordinary shares by the company;

d. the acquisition of ordinary shares in the aggregate in any one financial year does not exceed 20% (twenty per cent) of the company's

issued ordinary share capital from the date of the grant of this general authority;

e. the company and the group are in a position to repay their debt in the ordinary course of business for a period of 12 months from the

company first acquiring shares under this general authority and subject to (i) below;

f. the assets of the company and the group, being fairly valued in accordance with International Financial Reporting Standards, are in

excess of the liabilities of the company and the group at the time of the company first acquiring shares under this general authority and

subject to (i) below;

g. the ordinary capital and reserves of the company and the group are adequate for a period of 12 months from the company first acquiring

shares under this general authority and subject to (i) below;

h. the available working capital is adequate to continue the operations of the company and the group for a period of 12 months from the

company first acquiring shares under this general authority and subject to (i) below;

i. upon entering the market to proceed with the repurchase, the company's sponsor has compiled with its responsibilities contained in

Schedule 25 of the JSE Listings Requirements;

j. the company or its subsidiaries will not repurchase ordinary shares during a prohibited period as defined in paragraph 3.67 of the JSE

Listings Requirements, unless a repurchase programme (where the date and quantities of ordinary shares to be repurchased during the

prohibited period are fixed) is in place and full details thereof are announced on SENS prior to the start of the prohibited period;

k. when the company has cumulatively repurchased 3% of the initial number of the relevant class of shares, and for each 3% in aggregate

of the initial number of that class acquired thereafter, an announcement will be made; and

l. the company only appoints one agent to effect any repurchase(s) on its behalf."

Other disclosure in terms of Section 11.26 of the JSE Listings Requirements

The JSE Listings Requirements require the following disclosure, some of which is disclosed in the Annual Report of which this notice forms

part as set out below:

directors and management – pages 20 and 21;

major shareholders of Keaton Energy – page 71;

directors' interest in shares – page 72; and

share capital of Keaton Energy – page 32.

Material changes

There have been no material changes in the affairs of financial position of Keaton Energy and its subsidiaries since the date of signature of

the audit report and the date of this notice.

Directors' responsibility statement

The directors, whose names are given on pages 20 and 21 of the Annual Report, collectively and individually accept full responsibility for the

accuracy of the information pertaining to special resolution number 1 and certify that to the best of their knowledge and belief there are no

facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts

have been made and that this resolution contains all such information.

Litigation statement

In terms of section 11.26 of the JSE Listings Requirements, the directors, whose names are given on page 20 and 21 of the Annual Report of

which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that

may have or have had in the recent past, being at least the previous 12 months, a material effect on Keaton Energy's financial position.

80

Reason for and effect of special resolution number 1

The reason and effect for special resolution number 1 is to authorise the company by way of a general authority to acquire its own issued

shares on such terms, conditions and such amounts determined from time to time by the directors of the company, subject to the limitations

set out above.

Voting and proxies

A shareholder entitled to attend and vote at the AGM is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead.

A proxy need not be a shareholder of the company. For the convenience of registered shareholders of the company, a form of proxy is

enclosed herewith.

The attached form of proxy is only to be completed by those shareholders who are:

holding Keaton Energy ordinary shares in certificated from; or

recorded on the electronic sub-register in 'own name' dematerialised form.

Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker and wish to attend

the AGM, must instruct their CSDP or broker to provide them with a letter of representation, or they must provide the CSDP or broker with

their voting instructions in terms of the relevant custody agreement/mandate entered into between them and their CSDP or broker.

Forms or proxy must be lodged with the transfer secretaries of the company at the address given on page 83 by no later than 10h00 on

Tuesday, 20 July 2010. Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person

at the AGM.

By order of the Board


Company secretary

28 May 2010


(continued)


Form of proxy

KEATON ENERGY HOLDINGS LIMITED

(incorporated in the Republic of South Africa)(Registration No. 2006/011090/06)(the company or Keaton Energy)JSE Code: KEHISIN Code: ZAE000117420

For use at the Annual General Meeting (AGM) of the holders of ordinary shares in the company (Keaton Energy shareholders) to be held at The GraphiteRoom, The Campus, 57 Sloane Street, Bryanston, 2191, South Africa on Thursday, 22 July 2010 at 10h00.

Keaton Energy shareholders who have dematerialised their shares through a CSDP or broker must not complete this form of proxy but must providetheir CSDP or broker with their voting instructions, except for Keaton Energy shareholders who have elected 'own name' registration in the sub-registerthrough a CSDP or broker. It is these shareholders who must complete this form of proxy and lodge it with the transfer secretaries.

Holders of dematerialised Keaton Energy shares wishing to attend the AGM must inform their CSDP or broker of such intention and request theirCSDP or broker to issue them with the relevant authorisation to attend.

I/We (name in block letters)

of (address)

being the registered holder/s of ordinary shares in the capital of the company, hereby appoint (see note 1):

i) or, failing him/her ii) or, failing him/her

iii) the chairperson of the AGM.

as my/our proxy to represent me/us at the AGM for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutionsto be proposed thereat or at such adjournment or postponement thereof, and to vote for and/or against the resolutions and/or abstain from voting inrespect of the shares in the issued share capital of the company registered in my/our name (see note 2), as follows:

For Against Abstain1. The adoption of the Annual Financial Statements for the period ended 31 March 20102. To elect as an executive director Mr PCCH Snyders3.1. To re-elect as a non-executive director Ms APE Sedibe3.2. To re-elect as a non-executive director Mr P Pouroulis4. To re-appoint KPMG Inc as auditors of the company5. To authorise the directors to fix the remuneration of the auditors6. To approve the non-executive directors' remuneration7. Ordinary resolution number 1 – Control of authorised but unissued shares8. Ordinary resolution number 2 – General authority to issue shares for cash 9. Ordinary resolution number 3 – Remuneration policy10. Special resolution number 1 – General authority to repurchase shares

and generally to act as my/our proxy at the said AGM (indicate with an ‘X’ or the relevant number of votes, in the applicable space, how you wish yourvotes to be cast. If no directions are given, the proxy holder will be entitled to vote or to abstain from voting as that proxy holder deems fit).

A member entitled to attend and vote at the AGM may appoint one or more proxies to attend, vote and speak in his/her/its stead at the general meeting.A proxy need not be a member of the company.

Signed at on 2010

Signature of member(s)

Assisted by (where applicable) Please read the notes on the reverse side hereof.

82

Notes to the form of proxy(continued)

1. This form of proxy must only be used by certificated ordinary shareholders or dematerialised ordinary shareholders who hold dematerialised

ordinary shares with 'own name' registrations.

2. Dematerialised ordinary shareholders are reminded that the onus is on them to communicate with their CSDP or broker.

3. A Keaton Energy shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the spaces provided, with

or without deleting 'the chairperson of the AGM', but any such deletion must be initialled by the Keaton Energy shareholder concerned. If two or

more proxies attend the meeting, then that person attending the meeting whose name appears first on the form of proxy, and whose name is not

deleted, shall be regarded as the validly appointed proxy.

4. The authority of a person signing a form of proxy in a representative capacity must be attached to the form of proxy unless that authority has

already been recorded by the company's transfer secretaries or waived by the Chairperson of the AGM.

5. In order to be effective, forms of proxy must reach the registered office of the company or the company's transfer secretaries at least

48 hours before the time appointed for holding the meeting (excluding Saturdays, Sundays and public holidays).

6. Any alteration or correction made to this form of proxy must be initialled by the signatory/(ies).

7. If this form of proxy is returned without any indication as to how the proxy should vote, the proxy will be entitled to vote or abstain from voting as

he thinks fit.

8. The delivery of the duly completed form of proxy shall not preclude any member or his duly appointed representative from attending the meeting,

speaking and voting in stead of such duly appointed proxy.

9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have

been registered by the company.

10. Where there are joint holders of any shares:

any one holder may sign this form of proxy; and

the vote(s) of the senior shareholders (for that purpose seniority will be determined by the order in which the names of shareholders appear in

the company's register of members) who tenders a vote (whether in person or by proxy) will be accepted to the exclusion of the vote(s) of the

other joint shareholder(s).

Registered address Transfer secretaries

Ground floor, Eland House Computershare Investor Services (Pty) LimitedThe Braes Ground floor, 70 Marshall Street3 Eaton Road JohannesburgBryanston, 2191 2001South Africa South Africa


Administration and contact details

Keaton Energy Holdings Limited

Registration number: 2006/011090/06

Share code: KEH

ISIN code: ZAE000117420

Registered address

Ground floor

Eland House

The Braes

3 Eaton Road

Bryanston

2191

South Africa

Postnet Suite 464

Private Bag X51

Bryanston

2021

South Africa

Tel: +27 (0) 11 317 1700

Fax: +27 (0) 11 463 4759

Website: www.keatonenergy.co.za

Investor relations

James Duncan

Russell and Associates

Tel: +27 (0) 11 880 3924

Fax: +27 (0) 11 880 3788

Email: [email protected]

Company secretary and attorney


22 Fredman Drive

Sandton

Johannesburg

2149

PO Box 78333

Sandton City

2146

Transfer secretaries

Computershare Investor Services

Registration number: 2004/003647/07

Ground floor

70 Marshall Street

Johannesburg

2001

PO Box 61051

Marshalltown

2001

Investment bank, corporate advisorand sponsor

Nedbank Capital135 Rivonia RoadSandown2196

PO Box 1144Johannesburg2000

Reporting accountants and auditors

KPMG IncorporatedRegistered Accountants and AuditorsChartered Accountants (SA)

KPMG Forum1226 Schoeman StreetHatfieldPretoria0083

PO Box 11265Hatfield0028

84

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Notes

This Annual Report presents the operating and financial results for the year 1 April 2009 to 31 March 2010

for Keaton Energy Holdings Limited (Keaton Energy or the company or the group).

The financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRS), and this report has been prepared in compliance with the South African Companies

Act No. 61 of 1973 and the Listings Requirements of the JSE Limited (JSE). King III became effective on

1 March 2010, and the company and its directors will ensure compliance with the revised principles of

good governance during the coming year. The Annual Report is submitted to the JSE as this is the

company's registered exchange.

The report includes an analysis of the key factors affecting the company’s performance over the period,

the steps taken by the company to operate within its risk framework to maximise stakeholder returns,

and a detailed review of the financial and technical aspects of the company over the year. Also included

in this report is a self-declared C level, GRI-compliant review of the company’s sustainability procedures

and practices.

The two key events during the period were the mining right award and subsequent development decision

on Phase 1 of the Vanggatfontein Project and the area extension secured at the Sterkfontein Project.

Post-balance sheet events include the declaration of an increase to the Sterkfontein Project’s Coal

Resource to 69 million tonnes and resolution of the legal dispute which led to the delay of the

Vanggatfontein Project.

Abbreviations used throughout this report are defined in the glossary of terms on pages 74 to 76.

Copies of the printed version can be requested from the contacts listed at the end of this report.

Scope of thereport

Forward-looking statementsCerta in s ta tements conta ined in th is Annua l Repor t inc lud ing, w i thout l im i ta t ion, those concern ing the economic out look for the coa lindust r y, expectat ions regard ing commodi ty pr ices, product ion, cash costs and other operat ing resu l ts , growth prospects and theout look for Keaton Energy’s operat ions, inc lud ing the complet ion and in i t ia t ion o f commerc ia l operat ions o f cer ta in Keaton Energyexp lorat ion and product ion pro jects , i ts l iqu id i ty and cap i ta l resources and expend i ture , conta in cer ta in forward- look ing s ta tementsregard ing Keaton Energy’s operat ions, economic per formance and f inanc ia l cond i t ion.

A l though Keaton Energy be l ieves that the expectat ions and the outcome re f lected in such forward- look ing s ta tements are reasonable ,no assurance can be g iven that such expectat ions wi l l p rove to have been cor rect . Accord ing ly, resu l ts cou ld d i f fe r mater ia l l y f romthose set out in the forward- look ing s ta tements as a resu l t o f , among other factors , changes in economic and market cond i t ions,success o f bus iness and operat ing in i t ia t i ves , changes in the regu la tor y env i ronment and other government act ion, f luctuat ions incommodi ty pr ices and exchange ra tes , and bus iness and operat iona l r i sk management . For a d iscuss ion o f such factors , re fer to ther isk factors as deta i led in the corporate governance sect ion o f th is Annua l Repor t . 3369/10 Russe l l and Assoc ia tes

Keaton Cover AR10 6/10/10 10:49 AM Page 2

Annual Report2010www.keatonenergy.co.za

Keaton EnergyAnnual Report 2010

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