INTEGRATED REPORT 2016 - overendstudio.co.za · Directors’ biographies 16 Shareholders spread 20...

INTEGRATED REPORT 2016

CONTENTS

Highlights for the year ended 30 June 2016 2

Chairman’s letter to shareholders 4

Petmin’s history 8

Business overview 10

About Petmin 11

Petmin board and management governance structure 12

Major shareholders (in excess of 5%) 13

Global asset footprint 14

Directors’ biographies 16

Shareholders spread 20

Directors’ interests 21

Summarised group financial performance 22

Vision and strategy 30

Operations review 34

Somkhele 34

Development and growth (Somkhele Community) 44

Updated competent persons report on Somkhele 48

Projects 82

North Atlantic Iron Corporation (NAIC) 82

Veremo 85

Risk management 86

Stakeholder engagement 98

Petmin’s mining charter scorecard 104

Corporate Governance review 108

Report of the Remuneration Committee 114

Report of the Social, Ethics and Transformation Committee 124

PETMIN INTEGRATED REPORT 2016 1

SCOPE OF THIS REPORT

This integrated report covers the activities of Petmin and all of the operating subsidiaries over which it has financial and management control for the financial reporting period 1 July 2015 to 30 June 2016. The report should be read together with Petmin’s audited financial statements.

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Financial information in this integrated report has been extracted from the audited financial statements.

EXTERNAL ASSURANCE

The Petmin Board, assisted by the Petmin Audit and Risk Committee, is ultimately responsible for overseeing the integrity of the integrated report. This has been achieved by setting up appropriate teams and structures to support the reporting process.

External assurance obtained in the financial year under review was limited to the audit opinion expressed on Petmin’s financial statements, and review by SRK of Somkhele’s resources and reserves.

APPROVAL OF THE INTEGRATED REPORT

The Petmin Board acknowledges its responsibility to ensure the integrity of this integrated report. The Board of Directors confirm they have collectively reviewed the contents of the report and believe it is a fair representation of Petmin’s performance and addresses all material issues. The release of the Petmin Integrated Report for the reporting period 1 July 2015 to 30 June 2016 was approved by the Petmin Board on 15 December 2016. Petmin’s Integrated Report and Annual Financial Statements are available at www.petmin.co.za

FORWARD-LOOKING STATEMENTS

The content of this integrated report is for general information purposes only and is not intended to serve as financial, investment or any other type of advice. In particular, the information contained herein is not intended to be and shall not be deemed to be an invitation or inducement to invest in or otherwise deal in any securities of Petmin or in any other investment. Any reliance on the information contained herein is at the user’s own risk.

Furthermore, this integrated report may contain certain forward- looking statements concerning Petmin’s operations, economic performance and financial condition, and plans and expectations. These statements, including without limitation, those concerning the market outlook for the company’s products, expectations of prices, production, the commencement and completion of certain exploration and production projects, may contain forward-looking views. Such views involve both known and unknown risks, assumptions, uncertainties and other important factors that could materially influence the actual performance of the company. No assurance can be given that these will prove to be correct and no representation or warranty expressed or implied is given as to the accuracy or completeness of such views or as to any of the other information in this integrated report.

Petmin’s future results may differ materially from past or current results, and actual results may differ materially from those projected in the forward-looking statements. Petmin will not be responsible for any loss or damage whatsoever arising of any nature, including consequential loss or damage suffered or incurred, directly or indirectly, pursuant to or as a result of the use of, or any reliance on, this integrated report or the information contained herein. You are hereby deemed to have agreed that any dispute of whatsoever nature relating to or arising out of any use of this integrated report, whether directly or indirectly, shall be governed by the laws of the Republic of South Africa, and shall be subject to the exclusive jurisdiction of the courts of the Republic of South Africa.

You are further hereby deemed to have acknowledged that you have read and understood this disclaimer and agree to be bound by these terms and conditions. Use of this integrated report indicates acceptance of these terms and conditions.

Petmin is pleased to present its integrated report for the year ended 30 June 2016. Petmin has incorporated

its broader social, environmental and financial performance throughout this report, in accordance with

the King Code of Governance Principles for South Africa 2009 (King III). The aim of this report is to give

all Petmin stakeholders – including shareholders, investors, employees, suppliers, regulatory authorities

and governments – an informative description of Petmin operations and their impact. The integrated

report provides an understanding of the company’s strategy, its business model and management, and its

social, economic and environmental impacts. The report also demonstrates the ability of Petmin to create

and sustain value over the short, medium and long term. The principle of materiality has been applied in

determining the content and extent of disclosure in this report. In particular, Petmin has made an effort to

link its reporting on activity to the Group’s strategy and identified risks.

PETMIN INTEGRATED REPORT 2016 PETMIN HIGHLIGHTS2

FINANCIAL HIGHLIGHTS

For the year ended 30 June 2016

• Revenue R1,283 billion (2015: R1,274 billion)

• Dividend declared of five cents per share (8 Sept 2015: five cents)

• Petmin has now declared dividends seven years in a row

• Strong balance sheet with R174m cash on hand (2015: R237 million)

• Unutilised banking facilities of R330 million (2015: R140 million)

• Net gearing 7.66% (2015: 12.66%)

• Like for like earnings per share up 7% to 26.15 cents (2015: 24.43 cents)

OPERATIONAL HIGHLIGHTS

For the year to 30 June 2016

• Consistent performance at Somkhele anthracite mine

• Mining right awarded over the remaining Somkhele mining areas

• R350m BBBEE deal for 20% of Tendele implemented for the benefit of the local community and employees of Tendele

• Shareholding in NAIC increased to 40% (2015: 35%)

• Final draft BFS received for NAIC and project economics remain robust

PETMIN HIGHLIGHTSto 30 June 2016

SALEABLE TONNES

OF ANTHRACITE

PRODUCED

TONNES OF

ANTHRACITE

SOLD

SALEABLE TONNES

OF ENERGY COAL

PRODUCED

1,335m

1,236m 1,122m

1,222m

349k

368k

n 2015 n 2016 n 2015 n 2016 n 2015 n 2016


TONNES OF

ENERGY COAL

SOLD

442k

352k

n 2015 n 2016

PETMIN INTEGRATED REPORT 20164

Ian Cockerill | NON-EXECUTIVE CHAIRMAN

Welcome to the Petmin Integrated Report for the 2016 fiscal year

Despite some minor geological challenges, during the year under review Somkhele maintained production at more than its nameplate capacity, with 1,236m tonnes produced and 1,122m tonnes sold, marginally down on the previous year.

We produced 349 000 tonnes of saleable energy coal and sold 442 000 tonnes, significantly more than last year.

One of the biggest challenges facing both the mine and the community was the severe drought afflicting KwaZulu-Natal, forcing us to restrict production and processing during parts of the year.

Rains in the second half of the year and mitigating actions by management have now ensured sufficient process water at full production for the foreseeable future.

During this dry period, Somkhele’s team has gone to extreme lengths to mitigate the worst effect of the drought on the community, including the drilling and maintenance of new boreholes, and bringing water tankers to community water points.

We maintained our exemplary safety record at Somkhele and management retains safety as its first priority.

Production costs per tonne were well controlled in the year, and we have been granted mining rights which means Somkhele has all the rights required for the life of its operation.

Importantly, it is the sustained success of Somkhele which keeps Petmin cash-positive and enabled us to pay a dividend for the seventh year in a row. We declared a five cents dividend for 2015/16, which means Petmin has paid more than R170m to shareholders in dividends to date.

Mining remains a challenging business in South Africa and Petmin is pleased to have maintained a

steady performance under difficult conditions. The Somkhele mine is repaying our investment, and

the North Atlantic Iron Corporation project is moving forward at a very satisfactory pace.


CHAIRMAN’S LETTERto shareholders

CHAIRMAN’S LETTER TO SHAREHOLDERS

PROGRESS ON THE NAIC PIG IRON PROJECT

While Somkhele is Petmin’s reliable cash-generating operational asset, we continue to seek value from projects in the steel value chain. For the past five years we’ve been developing the North Atlantic Iron Corporation (NAIC), an industrial project in North America.

Our phased investment has now seen us reach 40% of the equity in NAIC, and we retain an option on a further 9.9%.

NAIC was established to produce 425 000 tonnes per annum of high-quality low-cost merchant pig iron (MPI) from traditional and non-traditional raw material sources.

Subsequent to 30 June 2016, the final draft bankable feasibility study for NAIC (BFS), prepared by the Tenova Group of Companies and SNC Lavilan, has been received and is being reviewed by management.

NAIC will take advantage of low-cost clean energy sources in Quebec (gas and hydro-electricity) and the significant logistical advantages of its location in the Port of Saguenay. These factors combined with best of breed technology will make NAIC amongst the lowest cost producers, and at the top end of global environmental standards.

The project economics remain robust, and funding for the plant construction will commence once the BFS is concluded.

Petmin has approved an additional $4 million equity investment into NAIC subject to certain conditions, including a similar investment from its partner. It remains our aim to sign off the BFS in 2016 and to commence capital raising.

VEREMO

The Veremo pig iron project in Mpumalanga remains a disappointment and is now fully impaired on Petmin’s books. The mining right awarded in January 2014 has still not been executed by the Department of Mineral Resources (DMR), and we continue to pursue through legal channels the R195m distribution due to Petmin by the majority shareholder.

LOOKING AHEAD

While the political and economic climate remains volatile in South Africa and the wider world, we are able to look ahead with a degree of cautious optimism and to manage those issues over which we have some control.

Our sales are fully booked for the coming year in respect of both anthracite and energy coal. We anticipate a modest 4% increase in anthracite production and sales up by as much as 20% as we work through an accumulated stockpile. We anticipate production costs up around 6%.


CHAIRMAN’S LETTERto shareholders

CHAIRMAN’S LETTER TO SHAREHOLDERS

Energy coal production is expected to increase by 20% with sales up around 9% and prices to increase 20%. Following the planned expansion of Somkhele’s third plant, during the next five years we anticipate saleable production of energy coal to increase by 90,000 tonnes per annum, with an increase of around 70,000 tonnes to June 2017.

Capital expenditure to June 2017 is expected to be approximately R50m, with approximately half on a planned expansion of capacity at Somkhele and development of new mining areas.

COMMUNITY BENEFITS FROM MINING

In recent months we’ve seen renewed activism across the mining sector, prompted in part by community dissatisfaction with a lack of services and a perception that local people don’t see enough benefits from mining.

Communities should of course benefit from mining, while recognising that South Africa’s resources belong to all the country’s people, and our mineral wealth is to be shared.

Petmin’s Somkhele mine operates in a community of 175,000 people coming off a very low socio-economic development base. We’ve worked tirelessly for ten years to ensure that as many people as possible benefit from our mining operation, and our commitment to the community is unwavering.

We have robust communication and consultation structures in place, but have recognised in the past year that we need to be better at explaining how we operate and what a mining operation can be expected to deliver to a local community. This has led to an internal restructuring of the business and creation of a community and employee cluster to deal with all community and employee related issues.

We are also forming a new communication structure to represent all groups in the local community, including the Traditional Council, Royal House, Indunas, area committees, entrepreneurs, church and academic institutions, the municipality and employees.

ONGOING CHALLENGES

We have created 900 jobs at Somkhele, more than 80% of them local, and we recruit outside of the mine’s immediate area only as a last resort. But this is cold comfort for those who remain unemployed.

We have spent some R933m in the community in the ten years of our operations, including R580m in salaries, R208m on procurement from local entrepreneurs, R55m on community development projects under our Social and Labour Plan, and some R100m on infrastructure development. Yet there is still a severe lack of infrastructure for water, education, health and transport in the area.

Although we have provided training, skills development and adult education to hundreds of people, there are too few new employment opportunities.

Our landmark BBBEE deal implemented in the past year has given 20% of the Somkhele mine to the local community, but the direct benefits will be felt not only immediately but during decades to come.

These are some of the challenges facing a mining operation in South Africa.

No amount of commitment, investment or hard work will fix things quickly. But we are mindful of the contribution we should play as a responsible corporate citizen, noting that a mining company can’t shoulder the burden alone.

What needs to be made plain is that mining companies are not solely responsible for provision of services and infrastructure.

This is primarily a role of national and local government, and it is neglected in too many cases through corruption and a lack of capacity. The result is that mining companies become the target for community dissatisfaction.

Petmin sees this as a natural side effect of operating in a young and dynamic democracy recovering from generations of injustice.

We are keen to see government fulfil its role more efficiently, and show more initiative and commitment to alternative industrial opportunities which benefit the people of northern KwaZulu-Natal.

Government’s own ambitions for industrial development, jobs, and community upliftment are in are in too many cases hampered by corruption and policy uncertainty.

Government departments such as DMR take longer than necessary to grant the licences which enable good business to get on with

PETMIN INTEGRATED REPORT 2016 7CHAIRMAN’S LETTER TO SHAREHOLDERS

the activities which lead to the growth necessary for social and economic progress.

This needs to change and we call on government at all levels to urgently start delivering on its commitments. For our part, Petmin remains committed to working with communities and government to play what role we can in development, economic opportunities and addressing valid community grievances.

SUSTAINING SOMKHELE

An essential part of this will be ensuring that Somkhele remains a productive and profitable mining operation. That’s the only way we can maintain the positive impact that Somkhele has on the community around it.

A STABLE AND RELIABLE TEAM

Petmin has always traded on the stability of its excellent management and operational teams. Our three executive directors, Jan, Brad and Bruce, have been with the company since inception and continue to perform to the highest standards.

I would also like to thank Lebo Mogotsi for her contribution as an executive director for almost 10 years. Pleasingly, Lebo will retain her role as deputy chair, but in a non-executive capacity, and will offer much needed continuity in her fields of expertise.

At Somkhele we have a first class crew sustaining production, ensuring safety, and making sure that the local community sees the benefit of our operations.

These are the men and women who make Petmin a sustained success in a tough climate. They bring benefits to shareholders and to ordinary South Africans, and we thank them.

Ian CockerillChairman


PETMIN’S HISTORY

PETMIN’S HISTORY

PETMIN INTEGRATED REPORT 2016 9PETMIN’S HISTORY

Petmin has for 11 years been a sustainably profitable JSE-listed

company and an entrepreneurial mining success story. Today’s

core management team of Jan du Preez, Bradley Doig and Bruce

Tanner have been at the heart of the business since 2004.

Petmin has for ten years focused on the steel value chain and

associated commodities, with a history of strategic local and

international investment guided by a robust investment strategy.

Petmin’s phased investment strategy has been proven

through its approach to investment in the North Atlantic

Iron Corporation (NAIC), and its steady development of the

Somkhele anthracite mine.


BUSINESS OVERVIEW

BUSINESS OVERVIEW

PETMIN INTEGRATED REPORT 2016 11BUSINESS OVERVIEW

ABOUT PETMIN

PETMIN

ANTHRACITE PIG IRON

SOMKHELESOUTH AFRICA

80%

Operating Asset

NAIC CANADA

VEREMOSOUTH AFRICA

40% 25%

Exploration and development projects

Petmin is a high-growth multi-commodity mining company which generates cash from operations and pays a dividend to shareholders. It is geographically diversified with mining operations in South Africa and exploration and development projects in Canada and South Africa.

Petmin is focused on commodities that support the steel value chain and are required for urbanisation and infrastructure growth. It is South Africa’s leading producer of metallurgical anthracite,

and is developing a pig iron industrial project in Canada. Petmin is listed on the JSE Ltd.

Petmin’s corporate and operational management teams have a substantial stake in the business and a track record of delivering value to shareholders through operational efficiency combined with well-timed acquisitions and disposals. Petmin runs a decentralised management model with operational teams empowered by the executive to deliver.

* In terms of the BEE transaction entered into on 12 November 2015, Petmin now holds 80% of Tendele and 20% is held by a special purpose vehicle (SPV) controlled by the local community and employees of Tendele. As management has determined that Petmin controls the SPV by the application of the principles of IFRS 10 - Consolidated Financial Statements, Petmin includes 100% of Tendele in the consolidated financial statements of the Group.

*


BUSINESS OVERVIEW

BUSINESS OVERVIEW

PETMIN BOARD AND MANAGEMENT GOVERNANCE STRUCTURE

EXECUTIVE DIRECTORSJan du Preez – Chief Executive, Bradley Doig – Business Development Director,

Bruce Tanner – Financial Director

NON-EXECUTIVE DIRECTORS (NED)Ian Cockerill – Non-executive Chairman, Lebo Mogotsi – Non-executive Deputy Chairman

Trevor D Petersen – Lead Independent NED, Millard Arnold - Independent NED, Enrico Greyling - Independent NED, Koosum Kalyan - Independent NED

TENDELE COAL MINING PROPRIETARY LIMITED (SOMKHELE ANTHRACITE MINE)

Jan du Preez: Chief Executive Officer, Jarmi Steyn: Chief Operating Officer, Derek Cooper: General Manager – Mining,

Carl Klingenberg: General Manager – Finance, Joyce Makhema: General Manager – Community Relations (Resigned September 2016),

Elton Bvumbi: Engineering Manager, Sean Hayes: Infrastructure Development Manager, Davie Coetzee: Human Resources Manager,

Sigoga Mkhwanazi: IR Manager, Robert Moseme: Planning Manager (Resigned September 2016),

Danny Kole: Safety, Health and Environmental Manager

HEALTH, SAFETY AND ENVIRONMENT COMMITTEEDerek Cooper – Chairman, Established as operational management committee

AUDIT AND RISK

COMMITTEE

REMUNERATION

COMMITTEE

SOCIAL ETHICS AND

TRANSFORMATION

COMMITTEE

NOMINATIONS

COMMITTEE

Trevor D Petersen(Chairman)

Enrico Greyling Millard Arnold

Jan du Preez(invitee)

Bruce Tanner(invitee)

Lebo Mogotsi(invitee)

Enrico Greyling(Chairman)

Ian Cockerill Koosum Kalyan

Trevor D Petersen Jan du Preez

(invitee)

Millard Arnold(Chairman)

Lebo Mogotsi Koosum Kalyan

Bruce Tanner (Operations

representatives)

Ian Cockerill(Chairman)

Lebo MogotsiEnrico Greyling Koosum Kalyan Millard Arnold

Trevor D Petersen


PETMIN’S SHAREHOLDER BASE AT 30 JUNE 2016

BBBEE SHAREHOLDERS

•Dark Capital Group

• Lebo Mogotsi

• Lebone Resources

• Imbasa Trust

• Clidet 449

• Institutional BBBEE

• 6% institutions included in BBBEE

EXECUTIVE MANAGEMENT

AND DIRECTORS

• 2.1% BBBEE included in management

32%Management and BBBEE

• 2.1% BBBBEE included in management

and BBBEE shareholders

68%Free Float

• Excludes BBBEE and management

INST

ITU

TIO

NA

L SH

ARE

HO

LDER

S38

%

INSTITUTIONAL SHAREHOLDERS

• Afena Capital

• Investec

• 36ONE Asset Management

•Deutsche Securities

•Deutsche Bank AG London

•Old Mutual Investment Group

• Legacy Africa Fund Managers

• Peregrine Capital

• Public Investment Corporation

•Government Employees Pension Fund

• Bank Julius Baer & Company

• Coronation Fund Managers

• Lombard Odier Darier Hentsch & Cie

•Magnitude Capital

• Cannon Asset Management

22%

BBBE

E SH

ARE

HO

LDER

S

12%

EXEC

UTI

VE

MA

NA

GEM

ENT

AN

D D

IREC

TOR

S

30%

PUBL

IC


BUSINESS OVERVIEW

PIG IRON

NAIC40%

ANTHRACITE

Somkhele mine80% (20% held by local community

after BBBEE Transaction implemented on 12 November 2015)

CANADA

global asset footprint

BUSINESS OVERVIEW


PIG IRON

Veremo25%SOUTH

AFRICA


BUSINESS OVERVIEW

BUSINESS OVERVIEW

executive biographies


From 2002 to 2006 he was an executive director and the chief investment officer of Decorum Capital Partners, fund manager for the New Africa Mining Fund, SA’s first private equity fund specialising in the mining sector.

Prior to that, Bradley spent 10 years with BHP Billiton Ltd in various roles, including international business development and strategy for Samancor Manganese where he travelled extensively evaluating growth opportunities in numerous jurisdictions. During his tenure at BHP Bradley was seconded to merchant bank Dresdner

Kleinwort Benson, based in London. Between BHP and Decorum Capital Partners, Bradley was an investment banking consultant to IBSA and a group executive of the management consulting group the IQ Business Group. In addition to his operational experience, Bradley is a seasoned deal-maker with experience in identifying and investing in opportunities both in and outside of the mining sector. Aside from new business identification, evaluation and funding, Bradley is responsible for the commercial aspects of the Group including sales and group marketing, market development and managing the revenue line.

Bruce obtained a Bachelor of Commerce degree from the University of Cape Town, a BCom (Hons) (CTA) from the University of South Africa (Unisa), and qualified as a chartered accountant whilst serving articles at Deloitte & Touche.

He has 19 years of experience in mining finance and administration of which five included involvement in the marketing of coal and copper at Metorex Ltd. From

June 2002 to November 2004, Bruce was the Chief Operating Officer of AfriOre Ltd’s coal operations and Chief Financial Officer of AfriOre Ltd. AfriOre is a company that was then listed on the Toronto Stock Exchange and had exploration and mining projects in Africa.

Bruce has experience of mining finance and administration of developmental mining start-ups and of mature operating mines.

Jan qualified as a chartered accountant with Deloitte & Touche in 1990 and has a Master of Commerce degree in Financial Management (including the field of mergers and acquisitions). He has been involved in various aspects of the mining industry and, among other positions, was for eight years an Executive Director of JIC Mining Proprietary Limited, which at the time was the largest mining

services company in South Africa with approximately 20,000 employees. Jan has been part of the Petmin management team since 1992 and has facilitated various BBBEE transactions in mining and other industries. Over the years he has harnessed his skills in the building and leading of teams and the development and execution of a “team developed” strategy.

Bradley Doig (52)

BA, HDip in Company Law, AMP (Harvard)Business Development Director

Bruce Philip Tanner (46)

BCom CA(SA)Financial Director

Jan du Preez (52)

MCom CA(SA)Chief Executive Officer

Jan is a proven entrepreneur in various industry sectors and has 23 years

of mining experience. He was appointed Chief Executive Officer of

Petmin on 1 February 2006.

Bruce was appointed Financial Director on 1 July 2009. Bruce joined

the Petmin Group in 2005 as group Financial Manager and CFO and has

served on the Petmin Executive Committee since joining the Group.

Bradley has 28 years of mining and mining finance experience and was appointed a non-executive director of Petmin from 30 November 2005, becoming Chief Operating Officer in February 2006 and Business Development Director with effect from 1 July 2011.


BUSINESS OVERVIEW

BUSINESS OVERVIEW

non-executive biographies

Ian Cockerill (62)BSc (Hons) Geology, MSc (DIC)Non-executive Chairman

Lebogang (Lebo) Mogotsi (45) BCom, MDP (Gibs)Non-executive Deputy Chairman

From June 2008 to December 2009, Ian was the Chief Executive Officer of Anglo Coal. He was President and Chief Executive Officer of Gold Fields Ltd from 2002 to 2008, having joined that company as Chief Operating Officer in 1999. During his years at the helm of Gold Fields, the company became a producer of gold in four countries around the globe, concentrating on large high-quality long-life assets.

Ian’s history with Anglo American dates back to 1979 with various managerial positions held mainly in the Gold and Uranium Division, later AngloGold Ltd. Between 1996 and 1999, he was Executive Officer, Business Development and African International Operations for AngloGold.

Ian has more than 40 years’ experience in the global resources industry. In addition to his role at Petmin, Ian is Chairman of Blackrock World Mining Trust, and a Non-Executive Director at Ivanhoe Mines, Endeavour Mining Corporation and Orica in Australia. Ian is Chairman of Leadership for Conservation in Africa, a not-for-profit initiative in partnership with the South African Parks Board, global business leaders and the IUCN. Its aim is to stimulate conservation and lead sustainable development across the African continent.

Ian is a well-rounded and seasoned natural resource sector executive, with extensive global experience in mining operations, project development, M&A, and leadership across a variety of commodities. He has a proven track record of team building, delivery, growth and value accretion.

Lebo is a seasoned entrepreneur with strong business acumen and 17 years’ experience in the mining industry. She was appointed a Non-Executive Director of Petmin from January 2004, becoming an Executive Director and Deputy Chairman of the Company on 30 November 2005. During her 10 years as Executive Director of Petmin, she helped to build Petmin from a cash shell to a company with a turnover of R1.3 billion and employing almost 1000 people. Lebo stepped down from an executive role and assumed the role of Non-Executive Director in February 2016.

She has provided leadership and guidance in various strategic areas such as risk management, corporate governance, deal negotiating strategies, strategic planning, stakeholder and investor engagement. She serves on the Eskom Pension and Provident Fund’s Strategic Investment Committee which invests in assets with a market value of over R120 billion. She also has wide-ranging experience in managing government relations, regulatory compliance, transformation and empowerment matters. She has built an effective network with various governmental stakeholders, mining industry players and financial institutions among others, and has played a key role in a number of public-private initiatives in the South African mining industry.

Ian was appointed a Non-Executive Director of Petmin

in October 2007, an Executive Director with effect from

1 March 2010 and Executive Chairman with effect from

1 July 2010. He assumed the role of Non-Executive

Chairman of Petmin in 2014.


Enrico Greyling (73)BA (Hons) Business Economics

Enrico was a Non-Executive Director of a number of PSG Group Ltd subsidiaries and various private companies. Prior to becoming active in the PSG Group, Enrico was a Director of FBC Fidelity Bank, now part of Nedcor Ltd. He also served on the Board of RMB Holdings Ltd as an executive prior to its merger with First Rand Ltd. For a time, during his career as a banker, he was a board member of the Banking Council of South Africa.

Millard Arnold (70)BA (Political Science), Juris Doctorate

Millard currently serves as a Senior Adviser to Bowmans, is an Honorary Business Representative for the government of Singapore in South Africa and is the Executive Director of the South African Business Schools Association. He was formerly an Executive Director and Group Legal Counsel of Murray and Roberts. Previously, he was Executive Chairman of Black and Veatch Africa, a Member of the Board of Directors of Bell Equipment, and under President Bill Clinton served the government of the United States as its first Minister Counsellor of Commercial Affairs for the South Africa Region. He was also a former Deputy Assistant Secretary of State for Human Rights and Humanitarian Affairs under President Jimmy Carter, and a former journalist with the Washington Post newspaper.

Trevor D. Petersen (60)BCom (Hons) CA (SA)Lead Independent director

Trevor is a chartered accountant and a former Managing Partner of the Cape Town office of audit firm PwC. He also held the position of Chairman of PwC Western Cape and is the past Chairman of the South African Institute of Chartered Accountants. Trevor was a Member of the University of Cape Town Council from 2002 to June 2016. He is a Non-Executive Director on the Board of Mediclinic International Plc, as well as Media24 Proprietary Limited.

Koosum Kalyan (61)B Com (Law) (Hons Economics) Senior Executive Management (LBS)

Koosum is Chairman of Edgo Merap Energy Services in London, and a Non-Executive Director of the MTN Group Ltd, Eaglestone Capital, Anglo American South Africa, Aker Solutions and AOS Orwell. She was previously on the boards of Standard Bank Group, South African Bank Note Company and the Mint Company.

Koosum has worked in the resource sectors in oil and gas at Shell International in London and South Africa and in the mining sector. She is a member of the Advisory Council of the Thabo Mbeki Foundation. She previously served as Private Sector Liaison on Tony Blair’s African Commission, Chairman of the G8 Anti-Corruption Committee and Advisory Council Member of the CBC.


BUSINESS OVERVIEW

BUSINESS OVERVIEW

SHAREHOLDERS SPREAD

* Includes funds managed on behalf of third parties

The information below is extracted from the Computershare report dated 24 June 2016

TYPE OF SHAREHOLDER NO. OF SHARES % NO. OF SHAREHOLDERS %

Non-public shareholders 172 561 542 30% 19 1%

Public shareholders 404 346 646 70% 2687 99%

TOTAL 576 908 188 100% 2 706 100%

The non-public shareholders figure includes the following shareholder groupings:• directors, who held 61 983 898 ordinary shares • strategic shareholder (in excess of 10%), who held 64 284 663 ordinary shares • own holding by Group company which held 46 292 981 ordinary shares

Major shareholders (in excess of 5%) at 30 June 2015

SHAREHOLDER NO. OF SHARES HELD % HOLDING OF SHARES

Dark Limited 64 284 663 11,1%

Investec 44 753 813 7,8%

Afena Capital* 40 845 907 7,1%

J C du Preez (Direct and Indirect) 38 764 735 6,7%

Deutsche Bank 33 637 683 5,8%

First Rand 30 000 000 5,2%

TOTAL 252 286 801 44%


DIRECTORS INTERESTS

The interests of the directors in the ordinary shares of the Company at 30 June 2016 and at the date of this report are as follows:

30 June 2016 30 June 2015

DIRECTOR Direct Indirect IndirectNon-Beneficial

Direct Indirect IndirectNon-Beneficial

I. Cockerill - - 5 783 333 - - 5 783 333

L. Mogotsi 3 298 494 - 5 214 600 3 298 494 - 6 425 105

J du Preez 6 696 374 - 32 068 361 6 696 374 - 32 068 361

B. Doig 760 849 678 902 1 500 000 670 319 851 902 1 500 000

B Tanner 1 712 985 - - 1 712 985 - -

E de V Greyling 4 270 000 - - 4 270 000 - -

M Arnold - - - - - -

K Kalyan - - - - - -

TD Petersen - - - - - -

Total 16 738 702 678 902 44 566 294 16 648 172 851 902 45 776 799

The directors held no share options at 30 June 2016 (2015: nil).

PETMIN INTEGRATED REPORT 2016 SUMMARISED GROUP FINANCIAL PERFORMANCE22

SUMMARISED group financial performance

PETMIN INTEGRATED REPORT 2016 23SUMMARISED GROUP FINANCIAL PERFORMANCE


The summarised financial information presented below has been extracted from the audited consolidated annual financial statements for the year ended 30 June 2016. The unqualified audit report is available for inspection at the Group’s registered office. The summarised consolidated financial information presented here does not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated annual financial statements for the year ended 30 June 2016.

The audited annual financial statements of the group for the year ended 30 June 2015 are available on www.petmin.co.za or a copy can be obtained on request from our company secretary: [email protected].

NORMALISED EARNINGS YEAR ENDED 30 JUNE 2016

R’000

YEAR ENDED 30 JUNE 2015

R’000

Profit for the year 11 041 125 043

Adjust for after-tax effect of:

• Loss on disposal of property plant and equipment 12 9

• Provision for bad debt 7 613 789

• NAIC one-off flow-through expenses 2 105 -

• NAIC Deferred Tax Asset write-down 3 572 -

• Impairments 115 403 7 064

Normalised profit after tax for the year 139 746 132 905

Adjusted profit per share 26,15 24,43

Weighted average shares in issue 534million 544 million

% annual increase in profit per share 7%

SOMKHELE PRODUCTION PERFORMANCE

YEAR ENDED 30 JUNE 2016 PERCENTAGE CHANGE YEAR ENDED 30 JUNE 2015

Run of Mine (ROM) tonnes washed 2 809 488 -7% 3 025 567

Yield 44,01% 0% 44,13%

Anthracite saleable tonnes produced 1 236 433 -7% 1 335 233

Anthracite tonnes sold 1 122 162 -8% 1 222 150

Discard tonnes washed 1 183 353 -14% 1 374 716

Yield 29,53% 10% 26,80%

Energy coal saleable tonnes produced 349 405 -5% 368 413

Energy coal sold 441 579 25% 352 255

SUMMARISED GROUP FINANCIAL PERFORMANCE


30 JUNE 2016R’000

30 JUNE 2015R’000

ASSETS

Non-current assets 1 531 469 1 569 463

Property, plant and equipment 1030 543 1062 878

Investment in equity accounted investees 434 019 420 452

Loan due from equity accounted investees 66 907 61 133

Investments - 25 000

Current assets 608 440 621 395

Inventory 266 982 250 118

Trade and other receivables 133 739 110 249

Derivative asset 20 131 -

Current tax assets 2 960 3 681

Cash and cash equivalents 184 628 257 347

Total assets 2 139 909 2 190 858

EQUITIES AND LIABILITIES

Total equity attributable to equity holders of the Company 1 310 373 1 284 849

Share capital 132 654 136 026

Share premium 278 036 292 438

Share option reserve 20 297 20 297

Foreign currency translation reserve 69 513 14 425

Retained earnings 809 873 821 663

Non-current liabilities 635 374 451 362

Interest-bearing loans and borrowings 270 000 108 405

Deferred taxation liabilities 244 653 258 632

Environmental rehabilitation provision 120 721 84 325

Current liabilities 194 162 454 647

Trade and other payables 177 368 136 864

Revenue received in advance 1 029 147 562

Current portion of interest-bearing loans and borrowings 3 436 143 671

Derivative liability - 4 628

Shareholders for dividend 1 772 1 513

Bank overdraft 10 557 20 409

Total equity and liabilities 2 139 909 2 190 858

SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2016



30 JUNE 2016R’000

30 JUNE 2015R’000

Revenue 1 282 619 1 274 165

Cost of sales (1045 655) (1020 531)

Gross Profit 236 964 253 634

Operating income/(expenses) 14 423 (19 861)

Administration expenses (21 045) (16 605)

Profit from operating activities 230 342 217 168

Net finance expense (29 663) (32 521)

• Finance income 15 276 7 317

• Finance expenses (44 939) (39 838)

Impairment of investments in equity accounted investees (115 403) (3 317)

Impairment loss on property, plant and equipment - (3 747)

Share of (loss)/profit of equity accounted investees, net of tax (10 480) 2 397

Profit before income tax 74 796 179 980

Income tax expense (63 755) (54 937)


Earnings per share

Basic earnings per ordinary share (cents) 2,07 22,98

Diluted earnings per ordinary share (cents) 2,07 22,98

30 JUNE 2016R’000

30 JUNE 2015R’000


Other comprehensive income (after tax)

Items that may be reclasssified to profit or loss

Foreign currency translation gains/(losses) on equity accounted investees 55 088 (3 437)

Share of fair value gain in equity accounted investees 4 004 54 583

Cash flow hedges reclassified to profit or loss - -

Other comprehensive income for the year, net of income tax 59 092 51 146

Total comprehensive income for the year 70 133 176 189

SUMMARISED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016


30 JUNE 2016R’000

30 JUNE 2015R’000

Profit from operating activities before net finance (expense)/income 230 342 217 168

Adjustments for:

• depreciation 584 211 559 692

• effect of exchange rate fluctuation on cash held (24 780) -

• write down to net realisable value of inventory 55 063 27 590

• notional interest 11 364 3 064

• Loss on disposal of property, plant and equipment 17 12

Operating cash flows before changes in working capital 856 217 807 526

(Increase)/decrease in trade and other receivables (23 490) 11 300

Increase in inventory (71 927) (13 175)

Increase in trade and other payables 40 504 21 466

(Decrease)/increase in revenue received in advance (146 533) 147 562

(Decrease)/increase in hedging liability (4 628) 4 628

Increase in hedge asset (20 131) -

Cash generated by operations 630 012 979 307

Income tax paid (77 015) (46 133)

Interest received 15 276 7 317

Interest paid (41 503) (39 838)

Net cash flow from operating activities 526 770 900 653

Cash flows from investing activities

Acquistion of subsidiary (net of cash acquired) - (11 974)

Investment in equity accounted investees (55 359) (32 115)

(Increase)/decrease in loans to equity accounted investees (5 774) 5 709

Acquisition of property, plant and equipment (526 862) (475 639)

• to expand operations (44 276) (11 276)

• to expand operations - capitalised pre-strip (474 601) (447 745)

• to maintain operations (7 985) (16 618)

Net cash flows used in investing activities (587 995) (514 019)

Cash flows from financing activities

Treasury shares acquired (17 774) (43 613)

Repayment of borrowings (452 036) (112 125)

Proceeds from new borrowings 469 960 -

Dividends paid (26 572) (16 857)

Net cash flows from financing activities (26 422) (172 595)

Effect of exchange rate fluctuation on cash held 24 780 -

Net (decrease)/increase in cash and cash equivalents (62 867) 214 039

Cash and cash equivalents at beginning of the year 236 938 22 899

Cash and cash equivalents at end of the year 174 071 236 938

SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016



SEGMENT REPORTING

Segment information is presented in the funancial statements in respect of the Group’s segments.The segment reporting format reflects the Group’s management and internal reporting structure as reviewed by the chief operating decision makers.Segment revenue represents revenue to external customers. There was no inter-segment revenue.Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

ANTHRACITE EXPANSION PROJECTS ELIMINATIONS CONSOLIDATED

Units of measure

Year ended

30 June 2016

Year ended 30 June 2015

Year ended

30 June 2016


Year ended

30 June 2016


Year ended

30 June 2016


Anthracite – saleable tonnes produced (#) (tonnes) 1 236 433 1 335 233 – – – – 1 236 433 1 335 233

Anthracite – tonnes sold (#) (tonnes) 1 122 162 1 222 150 – – – – 1 122 162 1 222 150

Energy – saleable tonnes produced (#) (tonnes) 349 405 368 413 – – – – 349 405 368 413

Energy – tonnes sold (#) (tonnes) 441 579 352 255 – – – – 441 579 352 255

Segment revenue R’000 1 282 619 1 274 165 – – – – 1 282 619 1 274 165

Segment finance (expense)/income R’000

Finance income R’000 3 768 6 615 – – 16 914 702 20 682 7 317

Finance expense R’000 (48 522) (35 517) – – (1 823) (4 321) (50 345) (39 838)

• segment results R’000 191 974 184 201 (12 077) 10 302 (1 773) 190 199 179 980

• impairment of equity accounted investees – – (115 403) – – (115 403) –

Segment profit/(loss) before tax R’000 191 974 184 201 (127 480) (198 725) 10 302 (1 773) 74 796 179 980

Segment tax expense R’000 (58 994) (50 220) – – (4 760) (4 716) (63 755) (54 937)

Segment profit/(loss) after tax R’000 132 980 133 981 (127 480) (198 725) 5 542 (6 489) 11 041 125 043

Segment capital expenditure – combined R’000 551 772 473 835 – – (24 910) 1 804 526 862 475 639

Segment capital expenditure R’000 77 171 26 091 – – 121 1 804 77 292 27 894

Segment capital expenditure – pre-strip R’000 474 601 447 745 – – – – 474 601 447 745

Segment depreciation – combined R’000 583 969 559 324 – – 243 368 584 211 559 692

Segment depreciation R’000 52 306 54 433 – – 243 368 52 549 54 801

Segment depreciation – pre-strip* R’000 531 663 504 891 – – – – 531 663 504 891

Share option costs included in segment profit/(loss) before tax R’000 – – – – – – – –

Segment assets R’000 1 611 519 1 727 114 416 719 352 018 101 114 33 583 2 129 352 2 190 858

Percentage of segment assets of total assets (percent) 76% 79% 20% 17% 5% 2% 100% 100%

Segment liabilities R’000 1 008 649 949 784 – – (189 670) (43 776) 818 979 906 008

Percentage of segment liabilities to total liabilities (percent) 123% 105% 0% 0% -23% -5% 100% 100%


REPORTABLE SEGMENTS

The group comprises the following main reportable segments:• Anthracite mining and marketing (“Anthracite”) - this includes Tendele Coal Mining Proprietary Ltd, BVI 1770 Proprietary Ltd, the Employee

and Community Trusts at Tendele Somkhele Plant Hire Proprietary Ltd.• Expansion projects, which includes Petmin’s exploration and development projects.

ANTHRACITE EXPANSION PROJECTS ELIMINATIONS CONSOLIDATED

Units of measure

Year ended

30 June 2016


Year ended

30 June 2016


Year ended

30 June 2016


Year ended

30 June 2016


Anthracite – saleable tonnes produced (#) (tonnes) 1 236 433 1 335 233 – – – – 1 236 433 1 335 233

Anthracite – tonnes sold (#) (tonnes) 1 122 162 1 222 150 – – – – 1 122 162 1 222 150

Energy – saleable tonnes produced (#) (tonnes) 349 405 368 413 – – – – 349 405 368 413

Energy – tonnes sold (#) (tonnes) 441 579 352 255 – – – – 441 579 352 255

Segment revenue R’000 1 282 619 1 274 165 – – – – 1 282 619 1 274 165

Segment finance (expense)/income R’000

Finance income R’000 3 768 6 615 – – 16 914 702 20 682 7 317

Finance expense R’000 (48 522) (35 517) – – (1 823) (4 321) (50 345) (39 838)

• segment results R’000 191 974 184 201 (12 077) 10 302 (1 773) 190 199 179 980

• impairment of equity accounted investees – – (115 403) – – (115 403) –

Segment profit/(loss) before tax R’000 191 974 184 201 (127 480) (198 725) 10 302 (1 773) 74 796 179 980

Segment tax expense R’000 (58 994) (50 220) – – (4 760) (4 716) (63 755) (54 937)

Segment profit/(loss) after tax R’000 132 980 133 981 (127 480) (198 725) 5 542 (6 489) 11 041 125 043

Segment capital expenditure – combined R’000 551 772 473 835 – – (24 910) 1 804 526 862 475 639

Segment capital expenditure R’000 77 171 26 091 – – 121 1 804 77 292 27 894

Segment capital expenditure – pre-strip R’000 474 601 447 745 – – – – 474 601 447 745

Segment depreciation – combined R’000 583 969 559 324 – – 243 368 584 211 559 692

Segment depreciation R’000 52 306 54 433 – – 243 368 52 549 54 801

Segment depreciation – pre-strip* R’000 531 663 504 891 – – – – 531 663 504 891

Share option costs included in segment profit/(loss) before tax R’000 – – – – – – – –

Segment assets R’000 1 611 519 1 727 114 416 719 352 018 101 114 33 583 2 129 352 2 190 858

Percentage of segment assets of total assets (percent) 76% 79% 20% 17% 5% 2% 100% 100%

Segment liabilities R’000 1 008 649 949 784 – – (189 670) (43 776) 818 979 906 008

Percentage of segment liabilities to total liabilities (percent) 123% 105% 0% 0% -23% -5% 100% 100%

PETMIN VISION

Petmin’s vision is to develop into a geographically-diversified multi-commodity mining company which delivers sustained and superior returns to shareholders through capital growth and payment of dividends; and to make a positive impact on the communities in which it operates.

PETMIN STRATEGY

Petmin’s strategy is to grow through expansion of its cash-producing assets, and acquisition and development of high-potential projects into profitable operations, while retaining the option to dispose of assets at the maximum point of return.

Due to the current state of the commodities market, cash preservation is critical and, despite a strong balance sheet, Petmin will in the short-term focus on projects that are cash generating and in the bottom quartile of the cost curve.

Petmin is focused on the steel value chain and commodities required for urbanisation and infrastructure development. The company continues to diversify geographically and by commodity. A mix of quality cash-producing assets and phased investment in high-potential projects enables Petmin to reduce its risk and retain a high degree of optionality.

LEADERSHIP

The executive team at the Petmin corporate office executes strategies approved by the Board and sets the tone for the business. The executive team allocates capital and deploys skills and experienced teams to projects and operations. Operational management is decentralised with a high degree of independence and decision making by disciplined, innovative and entrepreneurial teams. Members of the executive team are all significant shareholders in Petmin.

PETMIN INTEGRATED REPORT 2016 VISION AND STRATEGY 30

VISION AND STRATEGY

PETMIN INTEGRATED REPORT 2016 31VISION AND STRATEGY

THREE STRATEGIC PILLARS

Delivery of the Petmin strategy is based on the three pillars of operational excellence, value-added growth and securing the future.

OPERATIONAL EXCELLENCE

Health and safety Maintaining a culture of injury-free and fatality-free operations

Entrepreneurial management Disciplined and innovative management teams

Margin management Ensuring Petmin is in the bottom 50% of the cost curve and striving for innovation to optimise margins

Innovative technology Seeking cost and operational efficiencies in exploration and operations

VALUE-ADDED GROWTH

Organic growth Maximising the potential of existing assets

Acquisitive growth Investing in and developing projects which match Petmin’s strategic focus and investment criteria

Exploration Focused high potential exploration for Petmin’s key commodities

SECURING THE FUTURE

Ongoing training Improving productivity through skills development

Licence to operate Embracing the spirit of the Mining Charter in South Africa and all relevant legislation in countries where Petmin operates

Stakeholder management Effective and open communication with stakeholders

Community benefit Ensuring sustainable benefits for people and communities in the areas where we operate

Environmental responsibility Minimising the impact of mining

Governance, risk and compliance Maintaining a culture of performance discipline to ensure compliance with global governance and risk standards

LEADERSHIP

PETMIN INTEGRATED REPORT 2016 VISION AND STRATEGY32

VISION AND STRATEGY

DELIVERY AGAINST STRATEGY TO JUNE 2016

PETMIN STRATEGIC OBJECTIVE ACHIEVED HOW IT WAS ACHIEVED

Achieve superior growth and returns for shareholders

g

• 2015/16 revenue slightly up at R1,283 billion (2014/15 R1,274 billion)• Profit from operating activities increased 6% to R230m from R217m • Normalised earnings increased 7% to 26.15 cents per share (2015: 24.43 cents) • Steady performance at cash-producing Somkhele anthracite mine, Petmin’s main

operating asset• Material progress advancing the NAIC project

Minimise risk by reducing dependence on a single commodity in one country

g

• Further R55m invested in Petmin’s North Atlantic Iron Corporation industrial project to take NAIC shareholding to 40%, completing the phased NAIC investment programme totalling US$25 million

• Draft Bankable Feasibility Study (BFS) for NAIC project being reviewed by management - project remains economically robust

• Petmin has approved an additional $4 million equity investment into NAIC subject to certain conditions

• Energy coal product line at Somkhele selling into different geographical and industrial markets has diversified Somkhele’s sales from only metallurgical anthracite markets

Continuously evaluate asset performance to ensure superior returns through investment and divestment

g • Investment in Somkhele yielding reliable returns in a tough market• Acquisitive deals evaluated during the year did not meet Petmin’s investment criteria• Insufficient progress made at the Veremo project – Petmin has impaired its

Veremo investment in full, totaling R115m

Ensure sustainable organic growth in cash-producing assets

g

• Continuous productivity and efficiency improvements at Somkhele operations • Stable production and sales of main anthracite product at Somkhele • Year on year sales of Somkhele energy product significantly up from 353 000 to

442 000 tonnes • Somkhele production costs per tonne well controlled • An updated CPR values Somkhele at R1.18 billion

Maintain dividend policy of paying 20% of HEPS g

• Dividend declared of five cents per share on 2 Sept 2016 • Dividends declared for seven years in a row with a total of R179 million paid to

shareholders

Maintain a debt to equity ratio below 30% g

• Net gearing reduced to 7.66% (2015: 12.66%) (Net gearing= interest bearing debt to equity ratio, net of cash on hand)

Acquire and develop cash-producing assets at a price ensuring a long-term return well in excess of capital costs

g• Patient and disciplined approach to acquisitions• Phased acquisition model to reduce risk on investment • Acquisitive deals evaluated during the year did not meet Petmin’s investment criteria


PETMIN’S INVESTMENT CRITERIA

The success of Petmin investments is underpinned by rigorous investment criteria.

OPERATIONAL CRITERIA FOR INVESTMENT FINANCIAL CRITERIA FOR INVESTMENT

Life of mine in excess of 15 years Acquisition to enhance earnings and enable long-term growth in share price and payment of dividends

High margin ore bodies with upside scalability Phased investment with options to increase the Petmin stake based on well-defined milestones

Production to be reliably in the lower quartile of the cost curve Potential yield of at least 15% (IRR)

Security of tenure over the asset in a region characterised by political stability

Able to generate cash within 36 months of initial investment In the short term our focus is on projects that are in production and generating cash

Strong local partners and joint management control from the first investment

Investment should enable Petmin to maintain its dividend and gearing policies

VISION AND STRATEGY

g achieved g neutral g not achieved

PETMIN STRATEGIC OBJECTIVE ACHIEVED HOW IT WAS ACHIEVED

Secure our license to operate

g

• Conclusion of BBBEE transaction granting local community and employees a 20% stake in the Somkhele anthracite mine

• Continued investment in community and local businesses around Somkhele • R933m invested in the ten years of operations including R580m in local salaries,

and R208m on procurement from local entrepreneurs• Tendele awarded mining right for Somkhele Areas 4 and 5 – now has all required

mining rights for the life of its mining operations• Mining right awarded for the Veremo project (awaiting execution)

Maintain a culture of zero harm to employees and minimum environmental impact

g

• Strict operational safety standards applied at Somkhele – no deaths or material health and safety issues reported during FY2015/16

• Current Progressive Lost Time Injury Frequency Rate (LTIFR) for the period 2007 – 2016 is a commendable 0.227

• Rigorous monitoring of employee health• Compliance with environmental legislation and standards• Continuous management and assessment of impact of operations on local

community• Community complaint monitoring and response system actively managed

Ensure a sustainable benefit to communities in areas where Petmin operates

g

• Conclusion of BBBEE transaction granting the local community and employees a 20% stake in the Somkhele anthracite mine

• Social and labour plan (SLP) commitments in the Somkhele local community of R55m (R26 million has been spent to December 2015, the balance (R29 million) as per approved SLP to December 2020)

• More than 900 jobs created at Somkhele, of which 80% are for people from the local community

PETMIN INTEGRATED REPORT 2016 SOMKHELE OPERATIONS REVIEW34

SOMKHELEoperations review

SOMKHELE ANTHRACITE MINE – RICHARDS

BAY, SOUTH AFRICA

80%-owned cash-generating Somkhele anthracite mine

South Africa’s largest producer of metallurgical anthracite

PETMIN INTEGRATED REPORT 2016 35SOMKHELE OPERATIONS REVIEW


SALEABLE TONNES

OF ANTHRACITE

PRODUCED

1,335m

1,236m

n 2015 n 2016

SOMKHELE OPERATIONS REVIEW

OPERATIONS REVIEW

FINANCIAL HIGHLIGHTS

• Revenue stable at R1.3 billion (2015: R1.3 billion)

• Production costs per tonne well controlled, increasing by 10% from 2015

• Unit production cost increase of 9% after reductions of 7% in 2015 and 9% in 2014

• Updated CPR values Somkhele at R1.175 billion

PROFIT AFTER TAX

STABLE AT R133m

134m

133m

n 2015 n 2016

CAPEX

(EXCLUDING CAPITAL PRE-STRIP)

52m

26m

n 2015 n 2016

OPERATIONAL HIGHLIGHTS

• Production restricted slightly by geological disturbances and drought

• Tendele awarded mining right for Somkhele Areas 4 and 5 - now has all the required mining rights for the life of its mining operations

• Tendele BBBEE transaction implemented, giving children of the local community and employees a 20% equity stake in Somkhele mine

• Improved relations and communication with unions and employees and no work stoppages due to industrial action

• No material health and safety issues in FY2015/16

SALEABLE TONNES

OF ENERGY COAL

PRODUCED

349k

368k

n 2015 n 2016

TONNES OF

ANTHRACITE

SOLD

1,122m

1,222m

n 2015 n 2016

PETMIN INTEGRATED REPORT 2016 37OPERATIONS OVERVIEW

TONNES OF

ENERGY COAL

SOLD

442k

352k

n 2015 n 2016

PETMIN INTEGRATED REPORT 201638 SOMKHELE OPERATIONS REVIEW

OPERATIONS REVIEW

Location • 85 km north of Richards Bay in KwaZulu-Natal Province

Acquired by Petmin • 2005 in pre-feasibility stage

Operated by • Tendele Coal Mining (Tendele), a Petmin subsidiary

Commissioning • Commissioned opencast mine and first plant in June 2007

Reserves • SAMREC-compliant open pit reserves of 20.41 million run-of-mine tonnes

Resources • SAMREC-compliant resources (inclusive of coal reserves but excluding Area 3) of 98.41 million mineable tonnes in-situ.

Mineral rights • New Order Mining Rights valid to 2031 and 2034 for extension to existing mining areas• Tendele has all the required mining rights for the life of its mining operations

Mining • Current operations cover approximately 10% of the 22,000 hectares on which Petmin has either existing rights or has submitted rights applications. Open-pit, truck and shovel mining method.

Plant • First plant capacity of 550,000 saleable tonnes of anthracite per annum• Second plant capacity of 650,000 saleable tonnes of anthracite per annum• Third plant capacity of 400,000 tonnes per annum of energy product

Products & markets • Petmin’s metallurgical anthracite competes with bituminous coals, chars and cokes as a carbon feedstock in the metallurgical industry

• Anthracite is exported via Richards Bay (46% of 2015/16 sales) to iron ore pelletising and sintering markets, mostly in Brazil

• The balance of Somkhele production is sold to the South African ferro-alloy industry (54%)• Petmin’s thermal product (targeting 26% ash content) is exported to various markets around the world and

is primarily used in the cement and low-volatile power station markets

People • More than 900 employees (including on-site contractors)• Approximately 80% from the local community

SOMKHELE KEY FACTS

SOMKHELE PRODUCTION AND SALES PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2016

Year ended 30 June 2016 Percentage change Year ended 30 June 2015

Run of Mine (ROM) tonnes washed 2 809 488 (7%) 3 025 567

Yield 44.01% 0% 44.13%

Anthracite saleable tonnes produced 1 236 433 (7%) 1 335 233

Anthracite tonnes sold 1 122 162 (8%) 1 222 150

Discard tonnes washed 1 183 353 (14%) 1 374 716

Yield 29.53% 10% 26.80%

Energy coal saleable tonnes produced 349 405 (5%) 368 413

Energy coal sold 441 579 25% 352 255

PETMIN INTEGRATED REPORT 2016 39OPERATIONS OVERVIEW

PETMIN INTEGRATED REPORT 201640 SOMKHELE OPERATIONS REVIEW

OPERATIONS REVIEW

SOMKHELE

During the year to end-June 2016, Somkhele produced 1,236m saleable tonnes of anthracite (2015: 1,335m) and sold 1,122m tonnes (2015: 1,222m).

The mine produced 349 000 tonnes of saleable energy coal (2015: 368 000 tonnes) and sold 442 000 tonnes (2015: 352 000 tonnes).

Anthracite production was slightly down by 7% due to a minor geological disturbance encountered in one of the three mining areas. Production from Plant 3 was restricted during the first half of FY16 to conserve process water as the impact of the drought in KwaZulu-Natal resulted in low water levels in mine storage dams.

Rains in the second half and mitigating actions by management resulted in an improved water balance, and there is sufficient process water at full production for the foreseeable future.

Production costs per tonne were well controlled in the year ended 30 June 2016, increasing by 9% from 2015. Increased state royalty payments contributed 3% of the 9%.

No exploration was conducted during the year ended 30 June 2016.

Tendele was notified by the Department of Mineral Resources (DMR) in a letter dated 31 May 2016 that it had been awarded the mining right for Somkhele Areas 4 and 5, which means Tendele now has all the required mining rights for the life of its mining operations.

SOMKHELE: BBBEE TRANSACTION

The Tendele BBBEE transaction was implemented during the period under review, in terms of which the children of the local community and employees now hold a 20% equity stake in the Somkhele mine.

MINING AT SOMKHELE

Somkhele uses conventional open pit truck and shovel mining at depths less than 120 m. The current pits are exploited using down dip mining extraction with a bench width of approximately 40 m. Mining is currently taking place in Area 1 and at Luhlanga Pit.

All mining is done by a contractor, Mpukunyoni Mining Proprietary Limited, in which Tendele has an effective shareholding of 35%.

COAL PROCESSING AT SOMKHELE

Somkhele consists of three processing plants fed from various mining areas. The design capacities of the three plants are:• Somkhele Plant 1 – 220 tonnes per hour (tph) • Somkhele Plant 2 – 330 tph• Somkhele Plant 3 – 250 tph

Somkhele produces a wide range of products and exhibits operational flexibility to alter product sizes and qualities.

SOMKHELE MARKET REVIEW

Market conditions were challenging during the period under review. Anthracite demand from major local and export customers remained in line with expectations, while pricing on the export front saw a decline relative to much of the bulk sector.

Average prices for inland sales were 5% down from 2015. Average rand prices achieved on the export market increased by 16% from 2015, largely as a result of the weaker rand. The average dollar price of export sales decreased by 14% compared to 2015.

Demand for Somkhele’s high-ash energy product found some momentum. Sales of a new blended energy product improved on the export market due to global supply constraints, though pricing remains under pressure.

The average at-mine-gate selling price of energy coal increased by 38% in 2016 with continued strong demand for this product.

SOMKHELE PROSPECTS

Anthracite production at Somkhele is expected to increase by 4% and sales volumes are expected to increase by 20% as a result of sales of inventory built up in 2016. Production cost per tonne is expected to increase by approximately 6% over costs for the year to June 2016.

Local demand is expected to increase 7% and local prices are expected to increase 3% over those achieved in 2016. Somkhele is running at maximum capacity across all products in the local market.

PETMIN INTEGRATED REPORT 2016 41SOMKHELE OPERATIONS REVIEW

Petmin expects the average export price in rands for the year ahead to be 2% higher than in 2016, with a 5% reduction in the average dollar price of exports being offset by a forecast weaker rand.

Management expects dollar prices for exports in the six months to 31 December 2016 to reduce by 19%, due to one-off sales from stockpiles. Prices for the six months to June 2017 are expected to be 9% higher than 2016, in line with current increases in global coal prices.

Energy coal production is expected to increase by 20% from 2016, with sales volumes expected to increase by 9%. At-mine-gate energy coal sales prices are expected to increase by 20% from 2016.

Capital expenditure to June 2017 is expected to be approximately R50 million, with approximately half on a planned expansion to increase throughput capacity in the third wash plant, and for the development and relocation costs to open up new mining areas. Saleable production from Plant 3 will increase by 90 000 tonnes per annum over the next five years with an increase of approximately 70 000 tonnes to June 2017.

In terms of sales to June 2017, Petmin is fully committed in respect of anthracite and energy coal.

Total committed sales volumes of anthracite and energy coal to June 2017 are 1 460 000 tonnes and 453 000 tonnes respectively. In terms of export sales and opening dollar debtors, we have hedged $34 million of sales protecting R15.50 to the dollar with balance of $42m unhedged and we will actively look to hedge a further $20m.

LABOUR RELATIONS

No work stoppages were experienced during the year ended 30 June 2016 as efforts to continuously improve communication and relations with employees bore fruit.

LEGAL DISPUTE WITH CUSTOMER

As described in more detail in Note 15 of Petmin’s December 2015 Interim Financial Statements published on SENS on Monday

7 March 2016, Petmin’s subsidiary, Tendele Coal Mining Proprietary Limited, withdrew from the arbitration with a customer and has sought declaratory relief from the High Court that the contract concerned is void or voidable.

This course of action was taken due to information coming to Tendele’s and Petmin’s attention during the course of the arbitration proceedings which is being considered and dealt with by Petmin.

Tendele’s legal advisors have filed a High Court action to declare the contract void or voidable. It is anticipated that a court date will be set for early 2017 to commence arguments on this action.

Additionally, the first court hearings for the High Court application to have the arbitration award made an order of court are anticipated for early 2017.

Tendele and its legal advisors believe that the prospect of success in the High Court to declare the contract void or voidable is good. No liability will be recorded in relation to the award made by the arbitrator.

HEALTH AND SAFETY

Management applies strict operational safety standards at Somkhele, and no material health and safety issues were reported during FY2015/2016.

Somkhele had a Lost Time Injury Frequency Rate (LTIFR) of 0.3 for the 2015/2016 Financial Year, a 0.1 increase from the previous year, yet still a remarkable achievement.

The current Progressive LTIFR for the operation (for the period 2007 to 2016) is a commendable 0.227 (increased from 0.214 reported in 2015). Management is committed to maintaining the safety record at Somkhele.


INJURY FREQUENCY 2007 TO 2016 ANNUAL COMPARISON

Prog LTIFR Prog RIFR Prog FIFR

INCIDENT COMPARISON 2007 TO 2016

■ Annual FI ■ Annual RI ■ Annual LTI ■ Annual FAC

27

24

21

18

15

12

9

6

3

007/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

0 0 0 0 0

2

01

00 0 0 0 0

8

20

2726

21

3

0

23

0

23

0 0 0 0 0 0 0 0 0

07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

0.50

0.40

0.30

0.20

0.10

0.00 0.00

0.50

0.00

0.30

0.00

0.45

0.00

0.308

0.00

0.282

0.00

0.05

0.27

0.00

0.217

0.00

0.214

0.00

0.227

0.04260.04950.039


HEALTH MONITORING

The management of Somkhele mine undertakes rigorous health monitoring of its employees and surrounding communities, including examinations of any health impact caused by dust. There is a network of monitoring stations in the local community to measure dust from the mine, and a management programme to ensure it remains within acceptable levels.

Results from Personal Dust Exposure surveys performed on employees during the period under review indicated that all exposures were within the occupational exposure limits of 2.0 mg/m3 for coal dust and 0.1 mg/m3 for Alpha-Quartz. There were no occupational medical cases reported for the FY 2015/2016 period.

OPERATIONS REVIEW



ENVIRONMENT

SOMKHELE’S ENVIRONMENTAL MONITORING PROGRAMME INCLUDES THE FOLLOWING:

DUST DEPOSITION RESULTS

Monitoring Frequency Responsible party

Blasting During blasting events Mine and independent blasting consultant

Surface water Quarterly Mine and independent environmental consultants

Ground water Quarterly Mine and independent environmental consultants

SASS monitoring Bi-Annual Mine and independent environmental consultants

Dust monitoring Monthly Independent experts

Somkhele annually commissions an environmental management plan (EMP) performance assessment report from an independent environmental consultant. In its latest report Somkhele was generally compliant with its approved EMP and is addressing identified areas of improvement.

2100

1800

1500

1200

900

600

300

0Magazine Maye. Dam Main Entr. New Dam Workshop Ground Solar Mfolozi Dam

g JUL 15 g AUG 15 g SEP 15 g OCT 15 g NOV 15 g DEC 15 g JAN 16 g FEB 16 g MAR 16 g APR 16 g MAY 16 g JUN 16

INDUSTRIAL LIMIT

mg/

m2 /d

ay

SAMPLED AREAS

There were no environmental incidents reported for the period ending 30 June 2016. Fall-out dust levels and background noise measurements were determined by the external Health and Occupational Hygiene Laboratory.

Fall-out dust monitoring sites are classified as industrial sites as they are situated within the Somkhele mine boundaries where mining or dust-producing activities take place. Fall out dust samples for

FY2015/2016 were sent to an independent laboratory for analysis and results plotted on the graph below. Measurements were mainly within the recommended levels except in the MM Workshop area where heavy traffic is experienced as well as dust deposition during windy conditions due to large stockpiles. High dust deposition values were also experienced from August-December 2015 due to the drought and high temperatures. However, this anomaly was managed by increasing the scope of the dust suppression strategy.

PETMIN INTEGRATED REPORT 201644 COMMUNITY BENEFITS

Petmin’s commitment to community benefits from mining

Petmin’s Somkhele anthracite mine has brought huge benefit to local communities. Over 10 years the mine

has directly or indirectly invested some R933 million into the community, including R580 million in salaries

and R208 million in procurement from local businesses.

COMMUNITY BENEFITS

R933 million directly or indirectly invested into Somkhele community

R580 million in salaries to local employees

R208 million procurement from local businesses

1,000JOBS CREATED

191local women in Somkhele

mining workforce

Direct impact on 10,000 people

> R50 million spent on community development

R21 million budgeted for local development to 2020

20% OF SOMKHELE MINE OWNED BY

LOCAL COMMUNITY

PETMIN INTEGRATED REPORT 2016 45COMMUNITY BENEFITS

Petmin has made a massive difference to the area surrounding the Somkhele mine. Jobs, business

opportunities and development projects have transformed the community. We are committed to Somkhele’s

future and will continue to ensure that the benefits of mining reach as many local people as possible.

> 600HOUSEHOLDS

trained in organic crop-farming

employees and community members have done adult basic education and training

> 600

R56 millionin contracts for

local business

community in

a year

OF WATER TRUCKED TO LOCAL COMMUNITY EACH WEEK

192,000 litres


AGRICULTURAL HUB

The Somkhele Agricultural Hub provides skills development and a

space where small local businesses can make and sell traditional products.

The Hub gives local people a market for their

crops and is a centre for community events.

Tendele has trained more than 600 households in

organic crop-farming.

SPORTS

Tendele has upgraded community sports fields and donated kits to

eight local soccer teams.

EMPOWERING LOCAL BUSINESS

Tendele is creating work and jobs for local businesses. This was worth R56 million to the local business community in 2015, and

includes contracts for transporting coal, building bridges and roads, construction, security, plant hire, tourism, skills training and IT.

We helped to set up the Mpukunyoni Business Association to link small businesses to the mine. Twenty taxis owned by local entrepreneurs have

a contract to transport Somkhele mine employees to and from work.

SUPPLY OF WATER

The drought has created very difficult conditions for the Somkhele community. We have helped to alleviate some of these hardships, including the weekly delivery of 192,000 litres of water

to the community. Petmin has also repaired boreholes and fitted new hand pumps.


EDUCATION AND TRAINING

Tendele is helping to educate children and adults living around the mine. We built a primary school and created a training and skills centre. More than 600 employees and community members have attended Tendele’s adult basic education and training. In 2013 we set up the Tendele Edu-Centre to offer maths, science and English to local students, and to create a learning environment for local schools and community members.

JOBS

Nearly 1,000 jobs have been created at Somkhele anthracite mine, with a direct impact on 10,000 people. We have paid R580 million in salaries and wages over the past ten years to local employees. We make sure that most mine employees come from communities around the mine.

COMMUNITY DEVELOPMENT

More than R50 million has been spent to date on community development, including new homes with water, electricity and community gardens.

Petmin has built roads, bridges, dams, schools, training centres, dip tanks and community halls. We expect to spend another R21 million on local development in the five years to 2020.

COMMUNICATING WITH THE COMMUNITY

Petmin and Tendele Coal Mining work hard to have an inclusive and consultative relationship with the Mpukunyoni community and its leadership, and have many channels and structures for communication. All community issues and complaints are fully investigated and remedial action taken where required. We also work closely with local NGOs and environmental groups, with which we have a largely cordial and constructive relationship.

SOMKHELE MATERNITY WARD

Tendele has built a new maternity ward at the Somkhele clinic used by mine employees and local villages.

PETMIN INTEGRATED REPORT 201648 COMPETENT PERSON’S REPORT (CPR)

COMPETENT PERSON’S REPORT (CPR)

The information in paragraphs (A) to (S) below is extracted from an updated independent CPR that was compiled by SRK Consulting South Africa (Pty) Limited. The CPR has an effective date of 30 June 2016. The Lead Competent Person has provided written confirmation that the information provided in this extract is compliant with the SAMREC Code and where applicable, the relevant Section 12 requirements and it may be published.

(A): Overview of the Material Assets and Legal Status

The Material Assets of Tendele comprise Somkhele Anthracite Mine (“Somkhele”). A summary of the mineral and surface rights and water use licences held by Tendele is given in Table ES - 1 and shown in Figure ES - 1 and Figure ES - 4.

Tendele have approved mining rights over all areas that are currently operational. In addition, a thirty year mining right has been granted over Areas 4 and 5, previously covered by prospecting rights. The Mining Surface Agreement for this mining right is currently under discussion; SRK is of the opinion that the level of risk in not obtaining a lease agreement is very low.

The Water Use Licences are valid until 2025.

(B): Project Outline

Somkhele is located eighty-five kilometres northwest of Richards Bay, KwaZulu-Natal in the Mtubatuba Local Municipality (Figure ES-1). Somkhele mines anthracite for export and local markets and produces thermal coal from rewashed discard. The anthracite is extracted from the B Seam from a number of pits (currently four pits are operating) and processed to produce a 18% ash duff product for export, mainly to Brazil and 15% ash duff, small and large nut and pea products for local consumption. In addition, a thermal product targeting 26% ash content on a blended product based upon a mix of rewashed discards and spiral plant products is produced for the export market.

The mine operations consist of a number of operational pits (In Area 1 and Luhlanga); mined out pits used to dispose of slurry and coarse discard (In Area 2); waste, discard and overburden stockpiles; haul and access roads; a Coal Handling Preparation Plant with associated Run of Mine (“RoM”) and product stockpiles; a return water dam and a process water storage dam; pollution control and settling dams; and office and workshop buildings. The current operations cover an area of 4.5 km2 with approximately 3 km2 with active mining operations.

EXECUTIVE SUMMARY OF THE TECHNICAL ASPECTS OF THE SOMKHELE ANTHRACITE MINE

PETMIN INTEGRATED REPORT 2016 49COMPETENT PERSON’S REPORT (CPR)


CPR

Figure ES-1: General Location of the Material Assets

TENDELE COAL MINING (PTY) LTDGENERAL LOCATION OF THE MATERIAL ASSETS

Project No. 504109


AREA/PORTION

RIGHT/LICENCE RIGHT/LICENCE HELD BY

AREA (HA) EXPIRY DATE

MINERALS COVERED

COMMENTS

MINING RIGHTS:

Area 1(includes North Pits 1 and 2, South Pit)

KZN30/5/1/2/2/135MR Tendele Coal Mining (Pty) Ltd

660.5321 21 Jun. 2034 Coal New Order Mining Right

Areas 2 and 3 (Luhlanga, KwaQubuka, KwaQubuka North)

KZN30/5/1/2/2/2/216MR Tendele Coal Mining (Pty) Ltd

779.8719 29 Feb. 2031 Coal Converted Old Order Mining Right

Areas 4 and 5 KZN30/5/1/2/2/10041MR Tendele Coal Mining (Pty) Ltd

21 233.0525 25 Oct. 2046 Coal New Order Mining Right

SURFACE RIGHTS:

Area 1(includes North Pits 1 and 2, South Pit)

Ingonyama Trust Board

Included in Mining Surface Lease signed on 11/12/2002 by way of addendum dated 18/8/2008

Area 2 and 3 (Luhlanga, KwaQubuka, KwaQubuka North)

Ingonyama Trust Board

Mining Surface Lease signed on 11/12/2002

Areas 4 and 5 Mining Surface Lease currently under discussion

WATER USE LICENCES:

Portion 0 06/W23A/BCGIJ/2549;File No. 27/2/2/a123/11/9

Tendele Coal Mining (Pty) Ltd: SomkeleAnthracite Mine

4 Aug. 2025 Coal mining and associated activities

Water uses covered: National Water Act: Act 36 of 1998; Section 21 (b), (c), (g), (i), (j)

Portion 0 06/W23A/BCGIJ/2549;File No. 16/2/7/W23D/1/1

Tendele Coal Mining (Pty) Ltd: SomkeleAnthracite Mine

10 Sept. 2025

Coal mining and associated activities

Water uses covered: National Water Act: Act 36 of 1998; Section 21 (a)

Table ES - 1: Summary of Mining and Surface Rights and Water Use Licences on Reserve No. 3 No. 15822


CPR

HANGING WALL SANDSTONE

B3 (1 – 2m)

TMP (0 – 3m)

B2 (2 – 4m)

MBP (0 – 3.5m)

B1 (3 – 5m)

FOOT WALL SHALE

(C): Geological Setting

Somkhele Mine is situated in the Somkhele Coalfield of northern KwaZulu-Natal. The coal-bearing strata are found in the lower Emakwezini Formation of the Beaufort Group. Four coal seams have been developed, but only the B Seam (Figure ES-2) consistently attains mineable thickness over significant areas. The B Seam is subdivided from the base upwards into the B1, B2 and B3 coal-rich sub-seams, separated by the coal-poor Middle Bottom Parting (“MBP”) and Top Middle Parting (“TMP”), respectively. The strata

have been preserved along the eastern limb of the Natal Monocline with steep dips (12 - 25°) to the east-southeast. The mining areas are separated one from another by large-scale faulting with downthrows of up to 600 metres in places; these faults have caused repetition of the strata, resulting in a number of sub-parallel mining blocks (Figure ES-1). Dolerite intrusions have further subdivided some of the mining and exploration blocks, and also impacted on the rank of the coal. In general, the coal is semi-anthracitic in the south and anthracitic in the north.

Not to scale

Figure ES-2: B Seam Stratigraphic Column at Somkhele Mine

TENDELE COAL MINING (PTY) LTDB SEAM STRATIGRAPHY

Project No. 504109


(D): Future Exploration Programme

Future exploration in the next five years will be focused on three areas to better define the Coal Resources; namely:• Tholokuhle to Mvutshini region;• Mahujini to Tholokuhle region; and• The current known blocks in Areas 1 - 5.

Somkhele’s future exploration programme is set out in Table ES - 2 although this has not yet been committed. SRK believes the provision made is appropriate and sufficient and that the cost estimates are reasonable.

Table ES - 2: Somkhele Future Exploration Plan and Budget (not yet committed).

AREA PERCUSSION DRILL HOLES

TOTAL LENGTH (M)

CORE DRILL HOLES

TOTAL LENGTH (M)

SAMPLES PLANNED

COST (ZARM)

Tholokuhle to Mvutshini region 110 12 750 54 4 650 375 16.5

Mahujini to Tholokuhle region 80 9 500 25 2 150 175 11

Known blocks (in Areas 1-5) 180 19 800 120 12 000 840 33

Total 370 42 050 199 18 800 1 390 60.5

(E): Coal Resources Summary

The Coal Resources are reported inclusive of the Coal Reserves. All Coal Resources and Coal Reserves as stated in this CPR and as signed off by SRK are reported as at 30 June 2016 in accordance with the terms and definitions of The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves 2016 Edition (“The SAMREC Code”). Only areas for which Coal Resources have been estimated and declared are included in the summary. Thus already mined areas (eg. Area 2) and some exploration areas (i.e. Area 3, Machibini, Tholokuhle, and all three Mvutshini areas) are not included in the summary. The areas for which Coal Resources have been declared are shown in Figure ES - 1; generalised open pit and underground Coal Resource areas are shown in Figure ES - 3.

A summary of the 2016 SRK Coal Resources and average raw coal qualities on an air dry basis for the Material Assets estimated and classified in accordance with the SAMREC Code as at 30 June 2016 is set out in Table ES - 3 and Table ES - 4. A summary of the 2016 SRK Product Coal Resources and average product coal qualities on an air dry basis for the Material Assets estimated and classified in accordance with the SAMREC Code as at 30 June 2016 is set out in Table ES - 5 and Table ES - 6. These Coal Resources are for the full seam including all partings and have been estimated by Applied Geology and Mining (Pty) Ltd and reviewed by SRK.

Note that the wash density for the product coal is different for the different areas:• Area 1 and Luhlanga Product density = 1.60 t/m3;• KwaQubuka North Product density = 1.65 t/m3;• Mahujini and Gwabalanda Product density = 1.80 t/m3; and• Ophondweni Product density = 1.85 t/m3.

The following geological losses have been taken into consideration in all areas when estimating the Coal Resources:• Measured Coal Resources - 5%• Indicated Coal Resources - 10%; and• Inferred Coal Resources - 15%, except for Ophondweni - 10%.

Publicly available Coal Resource estimates for Area 3 dating to the 2006 Petmin AIM listing document were prepared in accordance with the 2000 version of the SAMREC Code, but do not satisfy the requirements of the 2016 version. These estimates are not for the full seam or the mining height, but for the coal sub-seams only; the partings have been excluded. Thus it is not possible to reconcile these estimates with the actual tonnes or qualities that could be mined. In order to rectify this, Tendele is undertaking additional exploration including drilling, sampling, coal analysis and environmental studies.

(F): Reconciliation to Historical Coal Resource Estimates

Mining has only occurred in Area 1 and Luhlanga since the 2015 CPR. A comparison between the Coal Resource estimates for these mining blocks was undertaken and is shown in Table ES - 7; the differences are due to mining that occured during the intervening twelve months.


Table ES - 3: 2016 Summary - SRK Average B Seam Underground Coal Resource Estimates and Average Raw Coal Qualities (adb)

AREA SEAM SAMRECMINING

METHODAVERAGE

ARDMTIS(MT)

Area 1 B Measured UG 1.70 9.01

Emalahleni B Measured UG 1.65 3.52

Subtotal B Measured UG 1.69 12.53

Area 1 B Indicated UG 1.83 6.90

Emalahleni B Indicated UG 1.66 0.95

Subtotal B Indicated UG 1.81 7.85

Area 1 B Inferred UG 1.90 10.72

Emalahleni B Inferred UG -

Subtotal B Inferred UG 1.90 10.72

TOTAL B M +ID + IF UG 1.79 31.10


CPR

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted2. MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred3. Theoretical Mining Height is assumed to be from the base upwards; i.e. for the full subseams B1, MBP and B24. Coal qualities are thus for the full seam height and not a theoretical mining height section5. UG = Underground; top and bottom depth cut-offs are 110 and 350 m for Area 1 and 160 and 300 m for Emalahleni6. Average ARDs and qualities have been weighted by the MTIS7. FC + proximate analysis values may not sum exactly to 100% due to rounding and averages; however, the difference is ≤0.10%8. Slight differences may arise due to rounding9. Effective date 30 June 2016


AVERAGE RAW COAL QUALITIES (ADB)

CALORIFIC VALUE(MJ/KG)

ASH CONTENT VOLATILE MATTER FIXED CARBON MOISTURE CONTENT

TOTAL SULPHUR

21.46 35.2 8.1 55.1 1.6 0.51

21.77 34.6 5.9 58.2 1.2 0.54

21.55 35.0 7.5 56.0 1.5 0.52

16.66 47.6 7.7 43.2 1.5 0.45

21.93 34.2 5.9 58.6 1.2 0.55

17.29 46.0 7.5 45.0 1.5 0.46

14.89 52.2 7.4 38.9 1.6 0.40

No Inferred Coal Resources

14.89 52.2 7.4 38.9 1.6 0.40

18.18 43.7 7.4 47.3 1.5 0.46



CPR

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted2. MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred3. OP = Open Pit; top and bottom depth cut-offs are 15 m and 160 m, respectively except for Area 1 where the bottom depth cut-off is 110 m4. Theoretical Mining Height Loss = 0% (full seam extraction)5. Average ARDs and qualities have been weighted by the MTIS6. FC + proximate analysis values may not sum exactly to 100% due to rounding and averages; however, the difference is ≤0.10%7. Slight differences may arise due to rounding8. Effective date 30 June 2016

Table ES - 4: 2016 Summary - SRK Average B Seam Open Pit Coal Resource Estimates and Average Raw Coal Qualities (adb)

AREA SEAMSAMREC

CATEGORYMINING

METHODAVERAGE

ARDMTIS (MT)

Area 1 B Measured OP 1.60 6.74

Emalahleni B Measured OP 1.72 8.69

Gwabalanda B Measured OP 1.92 5.63

KwaQubuka B Measured OP 1.72 4.20

KwaQubuka North B Measured OP 1.80 3.47

Luhlanga B Measured OP 1.64 8.50

Mahujini B Measured OP 1.79 5.61

Ophondweni B Measured OP 1.96 4.80

Subtotal B Measured OP 1.80 47.63

Area 1 B Indicated OP 2.09 5.71

Emalahleni B Indicated OP 1.73 1.31

Gwabalanda B Indicated OP 1.99 1.10

KwaQubuka B Indicated OP 1.75 0.23

KwaQubuka North B Indicated OP 1.74 0.65

Luhlanga B Indicated OP 1.70 2.17

Mahujini B Indicated OP 1.84 1.15

Ophondweni B Indicated OP 1.98 0.59

Subtotal B Indicated OP 1.93 12.91

Area 1 B Inferred OP 1.64 0.39

Emalahleni B Inferred OP 1.78 0.29

Gwabalanda B Inferred OP 1.94 1.59

KwaQubuka B Inferred OP 1.81 0.11

KwaQubuka North B Inferred OP 1.89 1.94

Luhlanga B Inferred OP 1.61 6.60

Mahujini B Inferred OP 1.95 0.60

Ophondweni B Inferred OP 1.98 0.11

Subtotal B Inferred OP 1.73 11.63

TOTAL B M + ID + IF OP 1.81 72.17


AVERAGE RAW COAL QUALITIES (ADB)

CALORIFIC VALUE (MJ/KG)

ASH CONTENT(%)

VOLATILE MATTER(%)

FIXED CARBON(%)

MOISTURE CONTENT

(%)

TOTAL SULPHUR(%)

24.17 27.3 7.9 62.7 2.0 0.65

19.45 40.0 5.6 52.3 2.2 0.77

24.33 28.3 4.3 62.6 4.8 0.28

19.97 39.1 5.3 53.8 1.9 0.65

16.11 45.0 5.8 46.5 2.7 0.64

21.05 36.2 6.9 55.3 1.6 0.85

23.32 31.0 6.0 59.8 3.1 0.59

17.63 41.7 3.6 50.4 4.4 0.35

21.66 36.7 6.0 57.5 2.8 0.65

11.28 61.7 6.4 30.1 1.8 0.43

19.42 39.9 5.6 52.3 2.1 0.76

22.08 32.7 3.6 59.2 4.5 0.27

19.56 40.1 4.9 53.4 1.7 0.71

18.44 40.3 5.9 51.1 2.7 0.69

20.28 37.9 6.8 53.6 1.7 0.85

22.60 31.5 6.1 59.6 2.9 0.66

16.11 45.0 3.6 47.1 4.3 0.28

16.28 48.1 5.9 43.7 2.3 0.55

24.26 26.8 8.2 62.7 2.2 0.55

16.71 46.6 5.9 45.9 1.6 0.60

23.34 30.8 3.9 60.9 4.4 0.34

18.25 43.4 4.4 50.8 1.4 0.65

14.98 50.4 5.7 41.5 2.4 0.62

22.26 33.2 6.9 58.4 1.5 0.67

19.02 44.9 6.0 46.4 2.7 0.54

15.12 46.2 3.6 46.1 4.1 0.26

20.85 36.7 6.2 54.9 2.2 0.60

20.56 38.7 6.0 54.6 2.6 0.62


CPR

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted2. MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred3. Theoretical Mining Height is assumed to be from the base upwards; i.e. for the full subseams B1, MBP and B24. Coal qualities are thus for the full seam height and not a theoretical mining height section5. UG = Underground; top and bottom depth cut-offs are 110 and 350 m for Area 1 and 160 and 300 m for Emalahleni6. Average ARDs and qualities have been weighted by the MTIS; qualities and theoretical yields are for the full seam in the entire project area,

not for the Coal Resources within the pit shells7. FC + proximate analysis values may not sum exactly to 100% due to rounding and averages; however, the difference is ≤0.10%8. Slight differences may arise due to rounding9. Effective date 30 June 2016

Table ES - 5: 2016 Summary - SRK Average B Seam Underground Coal Resource Estimates and Average Product Coal Qualities (adb)

AREA 1 SEAMSAMREC

CATEGORYMINING

METHODAVERAGE

ARDMTIS (MT)

Area 1 B Measured UG 1.60 9.01

Emalahleni B Measured UG 1.60 3.52

Subtotal B Measured UG 1.60 12.53

Area 1 B Indicated UG 1.60 6.90

Emalahleni B Indicated UG 1.60 0.95

Subtotal B Indicated UG 1.60 7.85

Area 1 B Inferred UG 1.60 10.72

Emalahleni B Inferred UG - -

Subtotal B Inferred UG 1.60 10.72

TOTAL B M +ID + IF UG 1.60 31.10


AVERAGE RAW QUALITIES (DRIED)Theoretical

Yield(%)

Calorific Value(MJ/kg)

Ash Content(%)

Volatile Matter(%)

Fixed Carbon(%)

Moisture Content

(%)

Total Sulphur(%)

29.05 16.76 8.7 72.9 1.5 0.6 55.8

28.93 17.16 6.29 75.29 1.26 0.67 51.51

29.02 16.87 8.05 73.58 1.46 0.63 54.57

28.62 18.10 8.87 71.60 1.42 0.65 40.05

28.92 17.16 6.36 75.18 1.30 0.71 48.97

28.66 17.99 8.57 72.03 1.41 0.65 41.13

28.52 18.30 8.78 71.46 1.44 0.65 32.84

No Inferred Coal Resources

28.52 18.30 8.78 71.46 1.44 0.65 32.84

28.76 17.65 8.43 72.46 1.44 0.64 43.69


CPR

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted2. GTIS = Gross Tonnes In Situ ; MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred3. OP = Open Pit; ; top and bottom depth cut-offs are 15 m and 160 m, respectively except for Area 1 where the bottom depth cut-off is 110 m4. Theoretical Mining Height Loss = 0% (full seam extraction)

Table ES - 6: 2016 Summary - SRK Average B Seam Open Pit Coal Resource Estimates and Average Product Coal Qualities (adb)

AREA SEAMSAMREC

CATEGORYMINING

METHODAVERAGE RAW ARD

MTIS(MT)

Area 1 B Measured OP 1.6 6.74

Emalahleni B Measured OP 1.72 8.69

Gwabalanda B Measured OP 1.92 5.63

KwaQubuka B Measured OP 1.72 4.20

KwaQubuka North B Measured OP 1.8 3.47

Luhlanga B Measured OP 1.64 8.50

Mahujni B Measured OP 1.79 5.60

Ophondweni B Measured OP 1.97 4.80

Subtotal B Measured OP 1.75 47.63

Area 1 B Indicated OP 2.09 5.71

Emalahleni B Indicated OP 1.73 1.31

Gwabalanda B Indicated OP 1.97 1.10

KwaQubuka B Indicated OP 1.75 0.23

KwaQubuka North B Indicated OP 1.74 0.65

Luhlanga B Indicated OP 1.66 2.17

Mahujni B Indicated OP 1.84 1.15

Ophondweni B Indicated OP 1.96 0.59

Subtotal B Indicated OP 1.92 12.91

Area 1 B Inferred OP 1.64 0.39

Emalahleni B Inferred OP 1.78 0.29

Gwabalanda B Inferred OP 1.94 1.59

KwaQubuka B Inferred OP 1.81 0.11

KwaQubuka North B Inferred OP 1.89 1.94

Luhlanga B Inferred OP 1.61 6.60

Mahujni B Inferred OP 1.95 0.60

Ophondweni B Inferred OP 1.98 0.11

Subtotal B Inferred OP 1.73 11.63

Total B M + ID + IF OP 1.78 72.16


5. Average ARDs and qualities have been weighted by the MTIS; qualities and theoretical yields are for the entire project area, not for the Coal resources within the pit shells

6. FC + proximate analysis values may not sum exactly to 100% due to rounding and averages; however, the difference is ≤0.10%7. Slight differences may arise due to rounding8. Effective date 30 June 2016

AVERAGE PRODUCT COAL QUALITIES (ADB)THEORETICAL

YIELD(%)

PRODUCT DENSITY(G/CM3)

CALORIFIC VALUE

(MJ/KG)

ASH CONTENT

(%)

VOLATILE MATTER

(%)

FIXED CARBON

(%)

MOISTURE CONTENT

(%)

TOTAL SULPHUR

(%)

1.60 29.11 16.1 8.6 73.5 1.8 0.66 66.14

1.60 28.45 17.95 6.0 73.8 2.2 0.77 43.81

1.80 28.45 18.4 4.8 71.5 5.4 0.21 35.52

1.60 28.98 16.1 5.7 75.4 1.8 0.69 47.39

1.65 24.32 25.8 6.1 65.7 2.4 0.73 39.96

1.60 28.99 16.9 7.0 74.6 1.5 0.68 59.22

1.80 26.22 17.2 5.7 73.4 3.6 0.53 53.40

1.85 25.63 17.9 3.7 72.6 5.8 0.23 38.98

1.68 27.84 17.9 6.1 73.0 2.9 0.58 49.41

1.60 27.50 20.7 8.4 69.3 1.6 0.86 16.12

1.60 27.97 18.9 6.0 72.8 2.3 0.71 41.88

1.80 28.25 18.9 4.3 71.7 5.2 0.19 26.82

1.60 29.47 15.9 5.4 77.2 1.5 0.64 40.89

1.65 25.59 22.4 6.0 69.1 2.6 0.74 42.05

1.60 28.99 16.8 7.0 74.6 1.6 0.70 59.91

1.80 26.41 17.8 5.9 73.1 3.2 0.63 50.90

1.85 25.45 17.9 3.2 72.9 5.9 0.21 31.03

1.65 27.61 19.3 6.9 71.4 2.4 0.70 32.53

1.60 29.18 15.6 8.6 74.0 1.9 0.60 61.77

1.60 28.28 18.1 6.6 73.4 2.0 0.61 34.78

1.80 28.30 18.7 4.4 71.9 5.0 0.19 33.48

1.60 30.14 14.5 4.8 79.5 1.2 0.60 31.62

1.65 25.20 24.0 6.0 67.7 2.3 0.76 34.95

1.60 28.89 17.2 6.7 74.5 1.5 0.62 63.40

1.80 24.74 22.4 6.1 68.5 3.1 0.64 39.08

1.85 25.26 18.2 3.3 72.7 5.8 0.23 30.13

1.65 27.95 18.7 6.3 72.7 2.2 0.58 51.93

1.67 27.82 18.3 6.3 72.7 2.7 0.60 46.80


CPR

SEAM SAMREC CATEGORY

MINING METHOD

AREA 1 LUHLANGA

MTIS (Mt)

20141

MINED MTIS (Mt)

20152

MINED MTIS (Mt)

20163

MTIS (Mt)

20141

MINED MTIS (Mt)

20152

MINED MTIS (Mt)

20163

B Measured OP 8.17 0.70 7.47 0.74 6.73 11.28 1.59 9.69 1.20 8.49

B Indicated OP 6.99 0.63 6.36 0.66 5.70 2.46 0.00 2.46 0.30 2.16

B Inferred OP 0.39 0.00 0.39 0.00 0.39 6.60 0.00 6.60 0.00 6.60

B Total M + ID + IF OP 15.55 1.33 14.22 1.40 12.82 20.34 1.59 18.75 1.50 17.25

1. 30 November 20142. 30 June 20153. 30 June 20164. adb = air dry basis

5. MTIS = Mineable Tonnes In Situ6. Slight differences may arise due to rounding7. Effective Date 30 June 2016

(G): Rock Engineering

The geotechnical design for the Tendele open pits is based on a combination of design analyses considering limited data and a depth of mining of 100 m, and empirical evidence of the implemented design performance, the latter being facilitated by the introduction of an on-site Strata Control Officer in late 2014. There may be significant upside potential if mining to deeper levels is considered. However, if future slopes do exceed 100 m in height, they will no longer be within the detailed numerical design considerations. Therefore, the proposed slope design investigation to depths greater than 100 m should be expedited, and should be based on the results of the recent drilling and testing programme as validated by the empirical slope performance records. Identified risks are: • Quality of Information: The structural complexity observed

at Luhlanga cannot be accurately predicted at practical drill spacing intervals, and may thus be present to some degree in the proposed new mining areas. If this is the case (i.e. unforeseen dykes and coal seam displacements), there may be a greater potential for slope failure, although experience from the current operations suggests this would likely be on bench scale for a limited number of benches, and not on the overall slope;

• Slope Stability Analysis: The current slope designs only consider mining depths of up to 100 m. There may be significant value to considering greater mining depths before or in conjunction with opening new mining areas. The recent geotechnical drilling and testing programme will facilitate a design study to depths of at least 150 m; current LoM plans do not exceed 100 m;

• Groundwater: The current understanding of groundwater should be validated by site observations to identify the potential for unforeseen dewatering and depressurization requirements with deeper pits. At this stage, significant dewatering is not expected to be required, but there is no data to confirm this. If large-scale dewatering becomes necessary, additional provision for boreholes, pumps, etc. would be required. In addition, there may potentially be time delays and operational inefficiency during the implementation phase until the dewatering reaches maturity; and

• Slope Design: Adversely orientated joints have combined to cause bench scale collapse in places, resulting in a rock fall risk. Remediation measures may require a single geotechnical step-out of nominally 10 – 20 m (depending on the results of stability analyses) and result in a consequent loss of coal or an increase in stripping ratio.

Table ES - 7: Reconciliation between 2014, 2015 and 2016 SRK Area 1 and Luhlanga Open Pit Coal Resource Estimates (adb)


(H): Mining

Somkhele uses conventional open pit truck and shovel mining at depths less than 120 m. The current pits are exploited using down dip mining extraction with a bench width of approximately 40 m. Mining is presently taking place in Area 1 (North Pit 1, North Pit 2 and South Pit) and at Luhlanga Pit. The targeted strip ratio for the open pit operations is 4:1, average pit slope angles are 62° and benches are drilled at 70°. These methods will also be employed at the future open pit mining areas of KwaQubuka, Gwabalanda, Mahujini, Ophondweni and Emalahleni. Area 2 was mined out in 2011 and is currently being backfilled, according to schedule. All mining is done by a contractor, Mpukunyoni Mining (Pty) Ltd.

The only risks to mining, as identified by SRK, are:• Faulting at Mahujini that may restrict the practical pit design and

is likely to present some challenges to the mining. The decrease on the Coal Reserves is not currently known, although additional exploration and cover drilling, improving the ore body knowledge, will assist in quantifying this; and

• The cost to access new mining areas on the opposite side of the R618 provincial road and relocate the residents, which requires sufficient budget capital and time to plan the relocation.

(I): Key Modifying Factors

The RoM Coal Reserves are adjusted by taking into account several modifying factors:• Mining Losses/Production losses;• Moisture – added moisture;• Contamination; and• Processing losses.

Average losses, excluding processing losses, are estimated at 8%. Practical plant yields are in the order of 90%, while theoretical yields vary from 30 to 60%, depending on the area under consideration.

(J): Coal Reserves Summary

A summary of the Coal Reserves for the Material Assets, estimated and classified in accordance with the SAMREC Code as at 30 June 2016 is set out in Table ES - 8 as scheduled in the 2016 Life of Mine (“LoM”) plan. Saleable Coal Reserves and coal qualities are shown in Table ES - 9 and Table ES - 10. The thermal product targets 26% ash on a blended product based upon a mix of rewashed discards and spiral plant products.

Previous underground Coal Reserve estimates have been excluded in the current plan (2016) as SRK is of the opinion that insufficient work has been done to prove that underground operations can be supported by a suitable mining method or demonstrate economic viability and hence cannot be declared as Coal Reserves or used in the LoM plan. A study is underway to definitively prove the economic viability of underground mining at Somkhele.

Some of the pits in the mine plan are classed as Coal Reserves based upon their economic evaluation and have been the subject of a feasibility study. However, they are on the opposite side of the R618 road, and thus will need some form of bridge, intersection or underpass (dependent upon traffic density) for access and will also require the relocation of people. The process of relocation of stakeholders is not new but the risk lies in extended timelines for completion. Consequently, these pits present a higher risk compared with the existing pits. These pits have sufficient density of drilling to be declared as Proved Coal Reserves but are declared as Probable Coal Reserves when these additional risks are considered. The location of the assets included in the Coal Reserve estimation is shown in Figure ES - 1, Figure ES - 3 and Figure ES - 4.


CPR

AREA SAMREC CATEGORY

SEAM SCHEDULED ROM 2015

(MT)

SCHEDULED ROM 2016

(MT)

COMMENTS

Area 1 Proved B 4.79 3.00 Mined 1.36 Mt in 2016

KwaQubuka Proved B 3.39 2.84

Luhlanga Proved B 2.09 1.39 Mined 1.48 Mt in 2016

Subtotal Proved B 10.27 7.23

Emalahleni Probable B 6.95 5.51

Gwabalanda Probable B 1.97 2.04

Mahujini Probable B 3.60 3.85

Ophondweni Probable B 1.76 1.79

Subtotal Probable B 14.28 13.19

KwaQubuka North - B 0.00 0.00 Not declared as Coal Reserves

Total Proved & Probable B 24.55 20.41

1. OP = Open Pit; LoM = Life of Mine; RoM = Run of Mine2. adb = air dry basis; con = contaminated3. All tonnes are on a bulk mining basis4. Slight differences may arise due to rounding5. Effective date of Coal Reserves 30 June 2016

Table ES - 8: SRK 2015 RoM Estimate vs Somkhele 2016 RoM Estimate (adb, con)


Figure ES-3: Open Pit and Underground Areas

TENDELE COAL MINING (PTY) LTDOPEN PIT AND UNDERGROUND ASSETS

Project No. 504109


Figure ES-4: Previous, Current and Future Mining Operations

TENDELE COAL MINING (PTY) LTDPREVIOUS, CURRENT AND FUTURE MINING OPERATIONS

Project No. 504109

CPR


CPR

Table ES - 9: 2016 SRK Proved and Probable LoM Open Pit Anthracite Coal Reserves and Qualities (adb, con)

AREASAMREC

CATEGORYMINING

METHODSEAM

ROM 2016(MT)

WASH DENSITY(G/CM3)

THEORETICAL YIELD

(%)

PLANT FACTOR

SALEABLE ANTHRACITE COAL

RESERVES(MT)

Area 1 Proved OP B 3.00 1.60 48.48 0.91 1.32

KwaQubuka Proved OP B 2.84 1.60 44.79 0.91 1.16

Luhlanga Proved OP B 1.39 1.60 48.20 0.91 0.61

Subtotal Proved OP B 7.23 1.60 46.97 0.91 3.09

Emalahleni Probable OP B 5.50 1.60 46.59 0.91 2.33

Gwabalanda Probable OP B 2.04 1.80 29.18 0.91 0.54

Mahujini Probable OP B 3.85 1.80 49.33 0.91 1.73

Ophondweni Probable OP B 1.79 1.85 47.76 0.91 0.78

Subtotal Probable OP B 13.18 Various 44.84 0.91 5.38

Total Proved & Probable OP B 20.41 45.60 0.91 8.47

1. OP = Open Pit; LoM = Life of Mine; RoM = Run of Mine2. adb = air dry basis; con = contaminated3. Slight differences may arise due to rounding4. Effective date of Coal Reserves 30 June 2016


AVERAGE THEORETICAL PRODUCT QUALITIES (ADB)

CALORIFIC VALUE(MJ/KG)

ASH CONTENT(%)

VOLATILE MATTER(%)

FIXED CARBON(%)

MOISTURE CONTENT

(%)

SULPHUR CONTENT

(%)

27.31 17.5 8.4 71.8 1.6 0.75

28.97 13.8 5.6 78.0 1.9 0.73

28.25 18.2 7.3 72.6 1.4 0.59

28.12 16.3 7.1 74.2 1.7 0.71

29.10 16.8 6.2 74.0 2.1 0.85

19.48 29.2 4.3 61.0 5.3 0.27

25.78 18.1 5.8 72.0 3.7 0.49

25.42 18.8 3.8 71.5 5.8 0.29

26.53 18.7 5.5 71.7 3.5 0.59

27.11 17.8 6.1 72.6 2.8 0.64


CPR

(K): Reconciliation to Historical Coal Reserve Estimates

Table ES - 8 compares the historical Coal Reserve estimates with the current Coal Reserve estimates for 2016.

In comparison with the 2015 estimate, the Coal Reserves for 2016 were derived from the detailed pit shell designs and blocks, which were accumulated from the geological models. The pit shells have been checked for a match to the economic criteria and are constrained by the geotechnical limits imposed. The modifying factors have then been applied and the final Coal Reserves estimated. The Coal Reserves quoted for 2016 were scheduled in the 2016 LoM plan, apart from:

• Depletion due to mining during 2015/2016 (Area 1 and Luhlanga);• Exclusion of all potential underground Coal Resources;• Exclusion of the Tholokuhle pit not yet supported by a geological

model; and• Exclusion of the KwaQubuka North pit as it is too small to mine,

and therefore reverts to Coal Resources; and• Exclusion of Area 3 as it is still in the process of evaluation.

There are no Inferred Coal Resources within the current pit shells used to estimate Coal Reserves.

Within the schedule the discard coal processed in Somkhele Plant 3 is supplemented by additional coal previously deposited in the worked out pits. This coal has not been included in the Coal Resource or Coal Reserve estimates despite the fact that it contributes to the overall revenue of the mine. Additional work is required regarding the correct yield and economic value of this material before it can be correctly included into the estimates.

(L): Coal Processing

Somkhele consists of three plants, fed from various mining areas. Somkhele Plants 1, 2 and 3 each consist of a single stage wash only coarse circuit, a double stage wash smalls circuit (except for Somkhele Plant 3, which is single stage) and a fines circuit. The design capacities of the three plants are: Somkhele Plant 1 – 220 tph; Somkhele Plant 2 - 330 tph; and Somkhele Plant 3 – 250 tph. Somkhele produces a wide range of products and exhibits operational flexibility to alter product sizes and qualities.

AREASAMREC

CATEGORYMINING

METHODSEAM

ROM 2016(MT)

DISCARD FEED(MT)

THEORETICAL YIELD

(%)

THERMAL SALEABLE

(MT)

Area 1 Proved OP B 3.00 1.34 28.00 0.38

KwaQubuka Proved OP B 2.84 1.37 28.00 0.38

Luhlanga Proved OP B 1.39 0.63 28.00 0.18

Subtotal Proved OP B 7.23 3.34 28.00 0.94

Emalahleni Probable OP B 5.50 2.56 28.00 0.72

Gwabalanda Probable OP B 2.04 1.25 28.00 0.35

Mahujini Probable OP B 3.85 1.70 28.00 0.48

Ophondweni Probable OP B 1.79 0.81 28.00 0.23

Subtotal Probable OP B 13.18 6.32 28.00 1.78

Total Proved & Probable OP B 20.41 9.66 28.00 2.72

1. OP = Open Pit; RoM = Run of Mine2. adb = air dry basis; con = contaminated3. Thermal product quality targets 26% ash based on a combination of rewashed discards and spirals product from Plants 1 &24. Slight differences may arise due to rounding5. Effective date of Coal Reserves 30 June 20166. Typical thermal product: Moisture Content 8.8%, Ash Content 28.3%, Volatile Matter 6.9%, Calorific Value 23.35MJ/kg

Table ES - 10: 2016 SRK Open Pit Thermal Coal Reserves (adb, con)


(M): Tailings and Discard

There is an existing discard dump for coarse material on site, while the slurry is disposed of in the mined out pits, with all carbonaceous material stored below the water table to create anaerobic conditions and hence minimise oxidation and the formation of Acid Mine Drainage. However, this has not been achieved and currently, with approval from the Department of Water and Sanitation (no evidence seen), discard is being disposed of above the water table. Various options are being investigated for the management of this. Similarly, slurry is disposed of in the mined out pits. Initiatives currently underway at the mine include the use of co-disposal in North Pit 1 and the use of a slurry pit to increase the longevity of disposal areas. Current practice is to recover discard for reprocessing into a thermal product and the subsequent rejects are then placed back into the open pit.

Current discard and slurry disposal options will only need to be revised in the event that the planned use of the open pits for such disposal is found, as a result of further ground water modelling and / or monitoring, to be no longer acceptable.

The identified risks ascribed to Tailings and Discard are:• Discard and Slurry Disposal: If future monitoring of the ground

water plume originating from the south east wall of Pit A (used for discard disposal) indicates continued sulphate contamination, the numerical model should be revisited to ensure it correctly reflects this monitoring data. Thereafter, the potential impact of this plume on the surrounding water courses needs to be determined and appropriate steps taken to mitigate any identified risks;

• Groundwater Contamination: There is a risk that ground water contamination may be more significant than anticipated and unforeseen remediation of ground water may be required; Somkhele is monitoring the situation and with adequate management this risk can be managed; and

• Possible implications of new regulatory requirements in terms of which mine waste is classified as hazardous and becomes subject to authorisation in terms of a Waste Management Licence. These relate particularly to new areas into which discards are placed, with the authorities potentially requiring that these areas be protected with multicomponent barrier systems prior to disposal.

(N): Engineering and Infrastructure

The mine has an agreed Notified Maximum Demand of 3.8 MVA at 22 kV with Eskom. Eskom power supply to the mine is by means of a 20 km long single 22 kV overhead line from the main substation located in Mtubatuba. There is allowance for four 1 MVA 400 V generators to supply power to the whole mine in the event of a power failure. The monthly electricity bills from May 2015 to June 2016 indicated that the mine has not exceeded the agreed Notified Maximum Demand.

An automatic fire suppression system has been installed in the main incoming substation, substation 1 and substation 2. The low voltage motor control centre rooms, although equipped with automatic fire detection system, have no automatic fire suppression, but are equipped with hand held fire extinguishers. The mine indicated that prolonged power outages experienced in the month of November 2015 was due to a lightning strike that affected Eskom power supply to the mine. The fire suppression system in the main incoming substation was automatically deployed and thus damage was limited. The mine needs to engage with Eskom to establish if adequate protection has been implemented on the infrastructure supplying the mine, or if any protection upgrades are required.

The access to the mine is strictly controlled via a perimeter fence, security personnel and CCTV cameras positioned at strategic points. The mine’s administration offices, workshops and weighbridges appeared to be adequately maintained and well laid out to support the LoM plan. A new weighbridge has been installed to better manage traffic flow and the old weighbridge, which was not compatible with the latest weighbridge management system, has become redundant. A fire rated ablative coating has been applied to all cables leading from substations, to minimise potential fire risk.


CPR

Date Area Author and Title

2002 Area 2 GCS (Pty) Ltd, (Apr. 2002). Environmental Management Programme Report for the Somkele Anthracite Mine

2006 Area 1(North Pits 1 and 2, South Pit)

GCS (Pty) Ltd, (Sept. 2006). Tendele Coal Mining (Pty) Limited: Environmental Management Programme Report - Amendment 1. Somkhele Anthracite Mine. Area 1.

2011 Luhlanga, KwaQubuka GCS (Pty) Ltd, (Mar. 2011). Environmental Management Plan for Luhlanga and KwaQubuka mining Extension. Version 1

2011 Area 2, 2nd wash plant GCS (Pty) Ltd, (Mar. 2011). Environmental Management Plan Amendment to Area 2 to Include a Second Washing Plant with an Associated Calcining Plant. Version 1.

2012 Area 2, 3rd wash plant GCS (Pty) Ltd, (Nov. 2012). Addendum to Environmental Management Plant to Include 3rd Washing Plant, Version – Final.

2012 Fuel Storage Tanks (August 2012). Authorisation for the fuel storage tanks EDTEA

2014 Areas 4 and 5 GCS (Pty) Ltd, (March 2014). Somkhele Anthracite Mine Extension Environmental Impact Assessment and Environmental Management Programme

Table ES - 11: Approved Environmental Management Plans

In terms of the National Water Act (NWA, Act 36 of 1998), a Water Use License (“WUL”) must be obtained before undertaking certain activities. The mine has approved WULs for abstraction from the Mfolozi River and other water uses. The approved WUL does allow for extraction of water from boreholes should the Mfolozi River not be able to meet the supply demands. However, boreholes themselves also require approval. The mine does not have a specific approval for extraction of water from boreholes. Thus, although allowed in terms of the licence, SRK recommended that a separate 21 (a) WUL be applied for to specifically address long term pumping from these boreholes; Tendele is currently applying to licence these boreholes. Water is presently being pumped from the boreholes.

The current net closure cost estimate is ZAR121 million. This is based on the mine’s assumption that roll over mining will be undertaken and minimal rehabilitation backlog will develop. Should the mine not adhere to the mine plan and backfill during operations, additional unplanned liability for rehabilitation may result. Furthermore, the liability estimate is based on the assumption that post closure water treatment will not be required, although the mine’s consultant preparing the liability assessment acknowledges that there may be a risk of decant particularly from Area 1; this is being closely monitored. It is SRK’s experience however, that the majority of coal mining operations in South Africa require post closure treatment as water levels increase in the void. Should there be a need to treat water in the post closure phase, significant additional liability would result. It is not currently possible to

estimate the quantum of potential liability associated with the back log or water treatment.

Identified Environmental Compliance risks are:

• Additional Capital Expenditure as SRK believes that there is likely to be a post closure water management cost, which has not been included in the liability estimate;

• Historically mine residues have been managed under the MPRDA as opposed to NEMA, which is responsible for the management of other industrial waste, including hazardous waste. In response to initial pressure from the mining industry, the Department of Environmental Affairs (“DEA”) released draft regulations which provide a mechanism to change the classification of specific mine residues, from hazardous to general (non-hazardous), if it could be demonstrated that the intrinsic properties of the residue were not hazardous. These regulations have however, not yet been promulgated. The implication of the new requirements for mine residues is that where new residue management facilities are required, the costs will be significantly higher than for a similar facility which did not previously require a barrier system to be incorporated in the design. Irrespective of whether the mining industry challenge to NEM:WAA is successful or not, SRK’s observation is that the Department of Water and Sanitation (“DWS”) is using the requirements of the Norms and Standards (Assessment and Disposal) to enforce the National Water Act (Act 36 of 1998) (“NWA”) requirements in Section 19 of the act to prevent contamination of water resources;

(O): Environmental and Social Compliance and Water Management

Approved Environmental Impact Assesments (“EIA”) in terms of the National Environmental Management Act (NEMA, Act 107 of 1998) and Environmental Plans (“EMP”) in terms of the Mineral and Petroleum Resources Development Act (“MPRDA”, Act 28 of 2002) and relevant amendments, cover the current operations and washing plants (Table ES - 11).


• Similarly, the Norms and Standards for the Remediation of Contaminated Land and Soil Quality in the Republic of South Africa (Notice 467 of 2013) requires remediation of contaminated lands. If contaminated land exists and has the potential to impact water resources and should soil remediation be required, the closure liability could increase;

• The risk of Acid Mine Drainage during the closure phase and the potential of the waste disposed to generate AMD are considered to be low. There is however a risk that the salinity likely to be associated with the seepage from the residues may not meet compliance criteria, requiring additional management both during the operational and closure phases;

• Information currently available indicates that ground water management does not represent a significant liability with no impact on groundwater users and minimal influence on the Mfolozi River. However, groundwater migrating away from the pits may contain elevated levels of certain contaminants, especially sulphate. The Department of Water and Sanitation may view a change in water quality from ambient as a legal nonconformance which could require remediation;

• Pit dewatering will be required. Water make in the pits is not excessive and can be absorbed in the process water system. Mine dewatering is unlikely to impact directly on the flow volumes in the Mfolozi River; and

• Decant in Area 1 may cause contaminated water in the pit area to daylight onto surface, impacting surrounding surface water bodies and aquifers.

Identified Social Compliance risks are:

• Social and Labour Plan (“SLP”) Commitments: Failure to address all commitments set out in the 2013 - 2017 SLP during the five year period incurs the risk of the imposition of fines and the risk of strained relations between the mine and its internal and/or external stakeholders. As at April 2016, the community development commitments made for the 2013 - 2017 period appear to be on track and the indication is that Somkhele will meet the commitments contained in the SLP;

• Two SLPs: A new SLP for the period of 2016 - 2020 applies, with commitments overlapping with the 2013 - 2017 SLP. The SLP of 2016 - 2020 addresses the proposed future expansion into Areas 4 and 5. The overlap in SLP commitments during the period of 2016 - 2017 may confuse stakeholders, potentially contributing to community unrest. It is not evident that this risk has been managed through appropriate stakeholder engagement processes; and

• Stakeholder Engagement Planning: The stakeholder engagement plan is in the process of being revised, and engagement activities during 2016 appear to have focused on revising the plan in collaboration with key stakeholders. The apparent lack

of engagement with other stakeholders through a structured engagement plan heightens the risk of community unrest. The plan has to be completed and implemented as a matter of urgency. The implementation of the completed plan will manage the risk of community unrest in that it gives attention to: relevant issues; building relationships; collaborative compliance planning; direct channels for engagement with vulnerable people and community members.

Identified risks associated with the Water Supply are:

• The WUL provides for the authorised volume of water abstracted from the Mfolozi River to be halved during water stressed times, such as is currently the case. This could have negative consequences for mine operation;

• Due to unregulated flow of the Mfolozi River, there may be insufficient flow in the river for any form of abstraction resulting in insufficient supply to meet operational requirements of the mine;

• The WULA allows for extraction of water from boreholes should the Mfolozi River not be able to meet the supply demands. However, the boreholes themselves are not registered and a seperate 21 (a) WUL is recommended;

• There are some ambiguous/unclear conditions in the existing WUL. These vary from the borehole concern raised above to compliance requirements that are unreasonable and/or unattainable. Somkele is aware of these issues and has asked for clarification; there has been no response as yet from the Department of Water and Sanitation. Once clarification has been received, these issues can be resolved in the next WUL submission; and

• With the limited availability of alternate water supply sources, additional contingency measures over and above those already employed, will need to be implemented. These could include additional storage capacity, process demand reduction and efficient water re-cycling systems. Although the probability of this is very low, the costs could be extensive and should be assessed. Note that the costs could also include those related to low production or no production.

Risks associated with the Capacity Constraints are:

• Although there is a Safety, Health and Environmental officer on site, most of the environmental work is undertaken by an external consultant. Should relationships with the consultancy, or indeed staff at the consultancy, no longer be available, this would result in a significant amount of knowledge being lost; and

• At the time of the site visit (20 July 2016), the social/community liaison manager had resigned and it was unclear what succession plans were in place. The risk is the community may distrust a new manager/structure, with possible resultant community dissatisfaction and the potential for protest action.


CPR

ITEM VALUES(ZARm)

Somkhele ([email protected]% nominal) 987.6

Coal Resources not in LoM plans 299.0

Sub-total 1286.5

Adjustments

Cash on hand 101.1

Consolidated debt -215.0

Net Current Assets (accounts receivable – current liabilities) -17.9

Hedge contracts – mark to market 20.1

Environmental liabilities included in cash flows

Net Tendele Value 1174.9

Table ES - 17: Tendele Summary Market Valuation (at 30 June 2016)

(P): Summary Valuation

The summary Market Valuation for Tendele at 30 June 2016 has been done on a sum-of-the-parts basis, as set out in Table ES - 17. The effects of debt/loans and debt servicing have been excluded in the derivation of the market value for Somkhele. Adjustments have been made in Table ES - 17 for balance sheet items at the Tendele level, which include cash on hand, consolidated debt and net current assets.

SRK developed a range of minimum and maximum values for Somkhele (LoM schedule) and the Coal Resources not used in the LoM to develop a range for the market value.

In SRK’s opinion, the market value for Tendele is ZAR1 175 million, in the range of ZAR1 100 million to ZAR1 340 million. It should be noted that this preferred value refers to 100% of Tendele and does not reflect the value attributable to Petmin.


TYPE OPPORTUNITY

Coal Resources Continuing exploration focusing on the Tholokuhle-Mvutshini and Mahujini-Tholokuhle areas may identify additional exploitable Coal Resources, while further exploration in Area 3 may allow an upgrade to either Indicated or Measured Coal Resources, available for conversion to Coal Reserves

Coal Reserves Area 3, which is adjacent to the Hluhluwe-Imfolozi Park, needs to be evaluated for its environmental impact and its possible inclusion into the Coal Reserves

The pits in existing operations must be fully evaluated for possible extensions of the highwall before closing the final voids

After suitable studies, it may be found to be possible to mine the underground Coal Resources that are not currently included in the Coal Reserves and therefore the LoM. This could result in a potential LoM around 14 years

Production Schedule

To optimise the production schedule by reducing the large swings in production from one year to the next, thereby reducing the working capital requirements of holding large RoM stockpiles

ITEM VALUES (ZARm)

2016 2015 VARIANCE

Somkhele ([email protected]% nominal) - 1324.3 -336.8

Somkhele ([email protected]% nominal) 987.6 -

Resources not in LoM plans 299.0 421.3 -122.4

Sub-total 1286.5 1745.7 -459.2

Adjustments

Cash on hand 101.1 261.4 -160.3

Consolidated debt -215.0 -399.6 184.7

Net Current Assets (accounts receivable – current liabilities) -17.9 -43.0 25.1

Hedge contracts – mark to market 20.1 -4.6 24.8

Environmental liabilities Included in cash flows Included in cash flows -

Net Tendele Value 1174.9 1559.8 -384.9

Table ES - 18: Comparison of 2016 and 2015 Tendele Summary Market Valuation

PREVIOUS VALUATIONSThe 2015 CPR compiled by SRK assigned a market value to Somkhele of ZAR1 560 million.

A comparison of the summary market valuation from the 2015 CPR and this current CPR is set out in Table ES - 18.

(Q): Opportunities

The opportunities identified within the Somkhele mining operation are shown in Table ES - 19:

The variances in the valuation at 30 June 2016 relative to that at 30 June 2015 are explained as follows:• The reduction in Somkhele NPV is attributable to shorter LoM

(ZAR222.3 million) and increased WACC (ZAR114.5 million);• The reduction in value for the Coal Resources not in the LoM plan is

due to valuing the underground Coal Resources separately and the change in the reporting of the underground Coal Resources; and

• Somkhele’s balance sheet has improved by ZAR74 million since June 2015, due to reduced debt and net current assets and increase in market value of hedge contracts.

Table ES - 19: Summary of Identified Opportunities


CPR

(R): Risks

The key risks in SRK’s opinion are summarised in Table ES - 20. Note that risks associated with ground water appear under the geotechnical, tailings and discard, and environmental sections.

RISK DESCRIPTION SUGGESTED MITIGATION POTENTIAL CONSEQUENCE AFTER POSITIVE MITIGATION

GEOTECHNICAL

Quality of information• The structural complexity observed at Luhlanga cannot be accurately predicted at practical drill

spacing intervals, and may thus be present to some degree in the proposed new mining areas• Structural mapping as pits develop to validate models

• Better known localised slope instability and coal seam displacement

Slope stability analysis • Current slope designs may exclude potentially mineable coal • Revise design, considering mining depths up to 150 m for the new mining areas • Increased Coal Reserves

Slope design • Adversely orientated joints have combined to cause bench scale collapse in places, resulting in a rock fall risk • Geotechnical step-out and/or adjusted blast design • Loss of coal; increase in stripping ratio

Groundwater • Potential dewatering and depressurization requirements with deeper pits • Clarify potential and requirements • Improved slope stability

MINING

Faulting • Faulting at Mahujini may restrict the practical pit design and present some challenges to mining • Increase exploration drilling density to increase prediction of faults • Increased Coal Reserves

Cost of access to new mining areas

• A bridge across the R618 road and relocation of residents will be required for future mining areas • Allow sufficient capital in the budget ; plan sufficient time for community relocation• No production delays in bringing new pits on-

stream

TAILINGS AND DISCARD

Additional closure costs• Disposal of coal discard and slurry in the worked out pits may result in long term post closure water

management requirements (e.g. water treatment, covers over residue to prevent water ingress and seepage generation, revision of the current disposal method) with significant additional closure costs

• Consider alternative disposal strategies where potential contamination can be more effectively managed at source

• Reduced environmental impact and costs

Groundwater contamination• Ground water contamination may be more significant than anticipated, requiring unforeseen

remediation• Undertake an updated groundwater investigation (including in-pit slurry

disposal) to ensure adequate provisioning for contamination management• Remediation measures suited to current situation

New waste disposal regulations• New regulations may classify mine waste as hazardous, requiring a Waste Management Licence. New

residue may need to be placed in a multicomponent barrier system• Engage with the authorities to understand the licencing requirements • No residual legal risk

ENVIRONMENTAL

Additional closure costs • Implementation of soil decontamination measures may require additional funding • Better understanding of remediation needs • Reduced costs

Acid mine drainage • AMD may be generated during mine closure and from waste disposal• Separate overburden from waste material to prevent contamination of the

waste rock stockpile• Residual AMD risk low

Groundwater contamination• Groundwater migrating away from the pit areas may transport contaminants, specifically sulphate

compounds• Monitor plume to understand rate of movement and sulphate concentrations

• Pro-active management may reduce long-term risks

Pit dewatering• Pit dewatering will be required but ground water quality is not likely to deteriorate significantly except

in terms of sulphate concentration• As above • As above

Decant• Decant in Area 1 may cause contaminated water in the pit area to daylight onto surface, impacting

surrounding surface water bodies and aquifers• Ensure adequate separation of clean and dirty water; manage decant as far as

possible• Lower risk of surface water contamination from

groundwater

Table ES - 20: Summary of Identified Risks



GEOTECHNICAL

Quality of information• The structural complexity observed at Luhlanga cannot be accurately predicted at practical drill

spacing intervals, and may thus be present to some degree in the proposed new mining areas• Structural mapping as pits develop to validate models

• Better known localised slope instability and coal seam displacement

Slope stability analysis • Current slope designs may exclude potentially mineable coal • Revise design, considering mining depths up to 150 m for the new mining areas • Increased Coal Reserves

Slope design • Adversely orientated joints have combined to cause bench scale collapse in places, resulting in a rock fall risk • Geotechnical step-out and/or adjusted blast design • Loss of coal; increase in stripping ratio

Groundwater • Potential dewatering and depressurization requirements with deeper pits • Clarify potential and requirements • Improved slope stability

MINING

Faulting • Faulting at Mahujini may restrict the practical pit design and present some challenges to mining • Increase exploration drilling density to increase prediction of faults • Increased Coal Reserves

Cost of access to new mining areas

• A bridge across the R618 road and relocation of residents will be required for future mining areas • Allow sufficient capital in the budget ; plan sufficient time for community relocation• No production delays in bringing new pits on-

stream

TAILINGS AND DISCARD

Additional closure costs• Disposal of coal discard and slurry in the worked out pits may result in long term post closure water

management requirements (e.g. water treatment, covers over residue to prevent water ingress and seepage generation, revision of the current disposal method) with significant additional closure costs

• Consider alternative disposal strategies where potential contamination can be more effectively managed at source

• Reduced environmental impact and costs

Groundwater contamination• Ground water contamination may be more significant than anticipated, requiring unforeseen

remediation• Undertake an updated groundwater investigation (including in-pit slurry

disposal) to ensure adequate provisioning for contamination management• Remediation measures suited to current situation

New waste disposal regulations• New regulations may classify mine waste as hazardous, requiring a Waste Management Licence. New

residue may need to be placed in a multicomponent barrier system• Engage with the authorities to understand the licencing requirements • No residual legal risk

ENVIRONMENTAL

Additional closure costs • Implementation of soil decontamination measures may require additional funding • Better understanding of remediation needs • Reduced costs

Acid mine drainage • AMD may be generated during mine closure and from waste disposal• Separate overburden from waste material to prevent contamination of the

waste rock stockpile• Residual AMD risk low

Groundwater contamination• Groundwater migrating away from the pit areas may transport contaminants, specifically sulphate

compounds• Monitor plume to understand rate of movement and sulphate concentrations

• Pro-active management may reduce long-term risks

Pit dewatering• Pit dewatering will be required but ground water quality is not likely to deteriorate significantly except

in terms of sulphate concentration• As above • As above

Decant• Decant in Area 1 may cause contaminated water in the pit area to daylight onto surface, impacting

surrounding surface water bodies and aquifers• Ensure adequate separation of clean and dirty water; manage decant as far as

possible• Lower risk of surface water contamination from

groundwater


CPR


SOCIAL

Imposition of fines; strained relations between mine and internal/external stakeholders

• Failure to address all commitments set out in the 2013 - 2017 SLP during the five year period • Address commitments with the timeframe • No fines; harmonious relationships

Community unrest• The overlap in SLP commitments during the period of 2016 and 2017 may confuse stakeholders• No appointed social/community liaison manager at the time of the site visit (20 July 2016)

• Clearly define which commitments fall within which period • No community unrest

Breach of legislation - Mining Charter

• The level of agreement between the Department of Mineral Resources ("DMR") and Tendele regarding compliance with the Mining Charter needs clarification and differences need to be addressed

• Clarify compliance with the DMR; address any differences • No legislation breach

WATER MANAGEMENT

Security of supply

• The authorized volume of water abstracted from the Mfolozi River may be halved during water stressed times

• Insufficient river flow for any form of abstraction• Limited storage capacity within the various dams on the mine to provide emergency supply• Inability of the river to meet development needs of surrounding area may lead to demand

management and reduced abstraction limits• Extended drought

• Investigate additional storage capacity, water conservation and demand management initiatives, and efficient water re-cycling systems

• Increased security of supply

Legislation• Although licence for extraction when the Mfolozi River currently cannot meet demands, the

abstraction boreholes are not yet registered for long term abstraction• Register the boreholes via a Section 21 (a) regulation • Legislative compliance

Ambiguous/unclear conditions in the existing WULA

• Clarification has been requested but there has been no response from DWS to date • Follow up with DWS • Legislative compliance

Costs related to additional storage

• These could be extensive and may also include costs related to low/no production• Reduce silt load in collected and returned water; reduce seepage from

impoundments by retrofitting dams with an impermeable membrane• Increased security of supply

SKILLS CAPACITY

Loss of knowledge of environmental aspects

• The environmental work is undertaken by an external consultant. Should relationships with the consultancy, or indeed staff at the consultancy, no longer be available, this would result in a significant amount of knowledge being lost

• Ensure a Tendele staff member is thoroughly conversant with all aspects of the environmental work; ensure copies of all documentation, models, calculations, etc. are maintained at the mine

• Limited knowledge loss

FINANCIAL

Prices • Forecast anthracite prices are not realized• Lock in forecast prices for part of sales volumes through hedge contracts• Secure longer term sales contracts to fix prices for longer

• Revenue fluctuations less severe• Reduced risk to servicing of debt/loan obligations

Maintain operating margins

Plant yields • Plant yields are lower than forecast in the short term

• Modify short-term mine plan to change RoM anthracite mix sent to plant• Adjust wash densities to increase yields without materially affecting product

qualities materially Understand price discount vs. quality to allow negotiation of quality specifications

• Maintain product mix, sales volumes and sales revenues

Costs • Operating costs are higher than projected• Alternative sources of consumables Alternative sources of energy Introduction

of productivity initiatives• Pressure on operating margin reduced

Table ES - 20: Summary of Identified Risks (continued)



SOCIAL

Imposition of fines; strained relations between mine and internal/external stakeholders

• Failure to address all commitments set out in the 2013 - 2017 SLP during the five year period • Address commitments with the timeframe • No fines; harmonious relationships

Community unrest• The overlap in SLP commitments during the period of 2016 and 2017 may confuse stakeholders• No appointed social/community liaison manager at the time of the site visit (20 July 2016)

• Clearly define which commitments fall within which period • No community unrest

Breach of legislation - Mining Charter

• The level of agreement between the Department of Mineral Resources ("DMR") and Tendele regarding compliance with the Mining Charter needs clarification and differences need to be addressed

• Clarify compliance with the DMR; address any differences • No legislation breach

WATER MANAGEMENT

Security of supply

• The authorized volume of water abstracted from the Mfolozi River may be halved during water stressed times

• Insufficient river flow for any form of abstraction• Limited storage capacity within the various dams on the mine to provide emergency supply• Inability of the river to meet development needs of surrounding area may lead to demand

management and reduced abstraction limits• Extended drought

• Investigate additional storage capacity, water conservation and demand management initiatives, and efficient water re-cycling systems

• Increased security of supply

Legislation• Although licence for extraction when the Mfolozi River currently cannot meet demands, the

abstraction boreholes are not yet registered for long term abstraction• Register the boreholes via a Section 21 (a) regulation • Legislative compliance

Ambiguous/unclear conditions in the existing WULA

• Clarification has been requested but there has been no response from DWS to date • Follow up with DWS • Legislative compliance

Costs related to additional storage

• These could be extensive and may also include costs related to low/no production• Reduce silt load in collected and returned water; reduce seepage from

impoundments by retrofitting dams with an impermeable membrane• Increased security of supply

SKILLS CAPACITY

Loss of knowledge of environmental aspects

• The environmental work is undertaken by an external consultant. Should relationships with the consultancy, or indeed staff at the consultancy, no longer be available, this would result in a significant amount of knowledge being lost

• Ensure a Tendele staff member is thoroughly conversant with all aspects of the environmental work; ensure copies of all documentation, models, calculations, etc. are maintained at the mine

• Limited knowledge loss

FINANCIAL

Prices • Forecast anthracite prices are not realized• Lock in forecast prices for part of sales volumes through hedge contracts• Secure longer term sales contracts to fix prices for longer

• Revenue fluctuations less severe• Reduced risk to servicing of debt/loan obligations

Maintain operating margins

Plant yields • Plant yields are lower than forecast in the short term

• Modify short-term mine plan to change RoM anthracite mix sent to plant• Adjust wash densities to increase yields without materially affecting product

qualities materially Understand price discount vs. quality to allow negotiation of quality specifications

• Maintain product mix, sales volumes and sales revenues

Costs • Operating costs are higher than projected• Alternative sources of consumables Alternative sources of energy Introduction

of productivity initiatives• Pressure on operating margin reduced


NAME PROFESSIONAL REGISTRATION

QUALIFICATIONS PROFESSIONAL MEMBERSHIP

DISCIPLINE

Andrew McDonald

C Eng BSc, MSc (Geophysics), MBL FSAIMM, MIMMM Mineral Economics

Anita Bron BA, MA (Research Psychology) Social Return on Investment Network

Social Compliance

Des Mossop* Pr Eng BSc (Min. Eng.), MSc (Min. Eng.), GDE (Rock Eng.)

FSAIMM, MSANIRE, AMMSA Geotechnical Engineering

James Lake Pr.Sci.Nat. BSc, MSc (Env., Geochem.) Mine Closure

Jenny Lancaster* Pr.Sci.Nat. BSc, MSc, PhD (Socio-Ecology) MIAIAa Environmental Compliance

Kenneth Mahuma Pr Tech Eng NTC6 (Elec. Eng. - Heavy Current) Electrical Engineering & Infrastructure

Kobie Badenhorst Nat. High. Dip (Extractive Metallurgy)

MSACPS Coal Processing

Lesley Jeffrey * Pr.Sci.Nat. BSc (Geo.), MSc (Min. Eng.) MGSSA, MFFF Tenure, Geology, Exploration, Coal Resources, Logistics, Material Contracts, Utilisation & Marketing Overview

Norman McGeorge*

Pr Eng BSc (Min. Eng.), MSc (Min. Eng.) MSAIMM Mining, Coal Reserves

Roger Dixon PR Eng BSc (Hons) (Min. Eng.), MDP, EDP HLFSAIMM, CM SAMREC-SAMVAL; RSA Rep. CRIRSCO

Final Review and SRK Responsibility

Ross Winckworth Pr.Sci.Nat. BCom, BSc, MSc (Hydrology) Surface Water Management

Wadzanai Chimhanda

Pr.Sci.Nat. BSc, MSc (Applied Environmental Geosciences)

Ground Water Management

Table 1-2: Consultant Contributors


CPR

(S): Qualifications of Consultants

SRK is part of an international group (the SRK Group) which has more than 1 300 staff worldwide and offers expertise in a wide range of resource engineering disciplines. The SRK Group’s independence is ensured by the fact that it holds no equity in any project. The SRK Group has a demonstrated track record in undertaking independent assessments of resources and reserves, project evaluations and audits, Independent Engineer’s Reports, Competent Persons’ Reports, Mineral Experts’ Reports, and independent feasibility evaluations to bankable standards on behalf of exploration and mining companies and financial institutions worldwide. The SRK Group has also worked with a large number of major international mining companies and on their projects, providing mining industry consultancy services. SRK also has specific experience in commissions of this nature.

The consultants who have provided input to this CPR and are listed alphabetically by name in Table 1-2, have extensive experience in the mining industry and are members in good standing of appropriate professional institutions.

All of SRK House, 265 Oxford Road, Illovo, 2196, Johannesburg, except for Kobie Badenhorst* Consultants who attended the site visits


The CP with overall SRK responsibility for the CPR is Mr. Roger Dixon Pr Eng (Engineering Council of SA “ECSA”), 20000060), Honorary Life Fellow of the Southern African Institute of Mining and Metallurgy (“HLFSAIMM”), who is a Corporate Consultant with SRK. Mr Dixon is a mining engineer with over 40 years’ experience in the mining industry and has supervised many due-diligence reviews and engineering studies in Southern Africa and internationally.

The CP with responsibility for the reporting of the Coal Resources is Mrs. Lesley Sharon Jeffrey, Pr.Sci.Nat. (South African Council for Natural Scientific Professions, 400115/01). She is a member of the Geological Society of South Africa and is a Principal Geologist with SRK. Mrs. Jeffrey is a coal geologist with more than 30 years’ experience in the mining industry and has been responsible for the reporting of Coal Resources on various properties in southern Africa during the past 30 years. Mrs. Jeffrey has relied on the work of the CPs listed in Table 4-4 of the full CPR for the Coal Resources in all areas except Area 1. Mrs. Jeffrey takes overall responsibility for this report.

The CP with responsibility for the reporting of the Coal Reserves is Mr. Norman McGeorge, Pr Eng (Engineering Council of South Africa, 20080141). He is a member of the Southern African Institute of Mining and Metallurgy and is a Principal Mining Engineer with SRK. Mr. McGeorge is a mining engineer with more than 30 years’ experience in the mining industry, primarily in coal.

The CP with responsibility for the valuation of the project is Mr. Andrew J McDonald, C Eng (UK, 334897), a Fellow of the South African Institute of Mining and Metallurgy and Member of the Institute of Materials, Minerals and Mining. Mr. McDonald is a fulltime associate of SRK and a Competent Valuator (SAMVAL). He has been involved in the financial valuation of mining-related projects for over 20 years.

PETMIN INTEGRATED REPORT 2016 PROJECTS - NORTH ATLANTIC IRON CORPORATION82

PROJECTSNorth Atlantic Iron Corporation (NAIC)

NAIC was originally established in 2010 to develop a vertically-integrated business based on its iron sands

deposit in Goose Bay, Labrador, in Canada. In 2013, NAIC decided to forego vertical integration and buy

raw materials on the open market, considering the decline in price and surfeit of raw material supply.

The North Atlantic Iron Corporation (NAIC) is a development-stage industrial company established to

produce 425 000 tonnes per annum of high-quality low-cost merchant pig iron (MPI) for supply to the iron

and steel industries. It will focus on ductile iron foundries in North America and Europe.

INVESTMENT IN NAIC

Petmin now holds 40% of the NAIC equity (2015: 35%), having completed its stepped-investment programme totalling US$25 million. The balance of the NAIC equity is held by Grand River Ironsands Inc (GRI), a private Canadian company.

PETMIN INVESTMENTS IN NAIC

PETMIN INVESTMENTS IN NAIC

NAIC EQUITY

for the year ended 30 June 2015

for the year ended 30 June 2016

35%

40%

R55mR29m

Petmin holdings 2015

Petmin holdings 2016

PETMIN INTEGRATED REPORT 2016 83PROJECTS - NORTH ATLANTIC IRON CORPORATION

NAIC will take advantage of low-cost clean-energy sources in Canada (gas and hydro-electricity), and process-specific differentiators including state-of-the-art Direct Reduced Iron (DRI) HYL reduction technology. NAIC has significant logistical advantages through its location in the Port of Saguenay in Quebec, Canada.

Petmin has approved an additional US$4 million equity investment into NAIC subject to certain specific conditions. These include finalisation of a detailed construction budget, a pro-rata contribution by its investment partner on the same terms, appointment of full-time executives with responsibility for project fund raising and development, and appointment of an NAIC board of directors.

It remains the intention of both Petmin and GRI to ensure a single entry point for shareholders into the project through the consolidation of the legal entities and the ultimate unbundling thereof to shareholders.

The process can only begin in earnest once the pending bankable feasibility study (BFS) is signed off by the NAIC Board.

BFS PROGRESS

Subsequent to 30 June 2016, the final draft bankable feasibility study (BFS) for NAIC, prepared by the Tenova Group of Companies and SNC Lavalin, has been received and is being reviewed by management.

The project economics remain robust. Key elements of the draft BFS, particularly the market, key supply and offtake agreements, as well as the revised execution timelines, are being re-evaluated and confirmed by Petmin prior to formally engaging with funders.

Debt and equity fund raising for the plant construction will commence once the BFS is concluded and signed-off by the NAIC Board.

This review process is expected to be concluded by December 2016. Final project timelines will be published at that time.

PETMIN INTEGRATED REPORT 201684 PROJECTS - NORTH ATLANTIC IRON CORPORATION

PROJECTS - NAIC

In the first quarter of 2016, NAIC engaged with local authorities which emphasised their substantially greater support for projects rated at the top end of global environmental standards.

Government’s importance as a major party of interest and potentially large stakeholder in the project led to further investigation focused on improving NAIC’s already high environmental standards.

This, together with the potential to improve the operating cost base, resulted in the decision to convert the DRI reduction unit in the NAIC process from coal to gas-based.

Tonnes of carbon dioxide per tonne of pig iron in the coal case is 1.5 compared to 1.1 in the gas case, both superior to a conventional blast furnace (1.8).

NOX emissions in the gas-based process are less than 60% of the coal-based process.

Despite additional re-design engineering work causing delays and increased capital costs (total capex now estimated to be US$365m), project operating costs were ultimately improved and NAIC environmental standards elevated to potential global leader status relative to its iron-making peers.

Compared to other plants equipped with similar technologies, including gas-based DRI reduction and an electric arc furnace, the NAIC process has two further features that will make it a global leader for minimising the environmental impact of iron making. These include internal dust and fines recycling and low water usage and treatment.

The Environmental Permitting application was submitted in Q3 2016 and approval is expected in Q3 2017.

ENVIRONMENTAL STANDARDS DRIVING NAIC TECHNICAL DESIGN CHANGE

PETMIN INTEGRATED REPORT 2016 85PROJECTS - VEREMO

The balance (75%) of the equity in Veremo is held by Framework Investments Ltd (Framework), a wholly-owned subsidiary of Kermas Ltd (Kermas), which is managing the project. Petmin has no funding obligations for operating or development capital required at Veremo.

The controlling shareholders were to fund and develop the project to commence production within 48 months of 30 April 2008. Veremo was to distribute to Petmin the larger of a cash payment of R65 million per year for three years, or 25% of the profit after tax from Veremo, failing which the controlling shareholder was to pay the R65 million per year for three years to Petmin.

Petmin’s discussions with the controlling shareholders over the settlement of the cash payments have not resulted in a negotiated settlement acceptable to Petmin and Petmin has instituted proceedings against Framework and Kermas.

Petmin’s impairment of the Veremo project in no way detracts from its continuing arbitration and court procedings.

THE VEREMO DEPOSIT

The Veremo deposit contains high concentrations of Ti-magnetite (43.4% Fe and 14.7% TiO2) and Veremo is evaluating development options for the potential annual production of a million tonnes of high-quality pig iron and titanium-rich slag as a by-product.

The Veremo drilling programme has shown Measured Mineral Resources of 44.3 million tonnes at 43.4% Fe in the outcropping weathered zone of the ore body; and 498.3 million tonnes at 42.5% Fe in the fresh zone to a depth of 120m below surface.

The table below depicts the SAMREC-compliant measured resources of the Veremo project. The figures were extracted from a report, dated 19 January 2010, prepared by MSA Geoservices Proprietary Limited on behalf of Veremo Minerals Proprietary Limited.

The competent persons responsible for the report were:Frieder Reichhardt, Principal consultant (Pr.Sci.Nat., GSSA)Mike Hall, Resource consultant, (MAusIMM, GSSA)Craig Blaine, Field Geologist, GSSA.

Petmin has a 25% shareholding in the Veremo iron ore to pig iron project near Stofberg in Mpumalanga Province, South Africa. During the year ended 30 June 2016, the investment was fully impaired in the amount of R115m. This was due to the continued lack of acceptable progress in discussions with the majority shareholders of Veremo on how best to take the project forward, continued downward pressure on iron ore prices, and the fact the mining right awarded in January 2014 had still not been executed.

SAMREC-compliant resources in the weathered portion

Tonnes ‘000

Bulk Density

AL2O3 %

CAO % FE % FE203 %

MGO % P2O5 % SIO2 % TIO2 % V2O5 %

Measured 44,252 3.51 5.01 0.71 43.39 61.99 1.83 0.07 12.86 14.69 0.15

Petmin’s effective economic interest*

15,444

SAMREC-compliant resources in the fresh portion (to a depth of 120 metres below the surface)

Tonnes ‘000

Bulk Density

AL2O3 %

CAO % FE203 %

MGO % P2O5 % SIO2 % TIO2 % V2O5 %

Measured 498,313 4.20 5.54 1.73 60.77 3.43 0.08 15.06 14.23 0.16

Petmin’s share* 173,911

* Petmin holds a 25% stake in Veremo Holdings Proprietary Limited, which in turn holds 70% of Veremo Minerals Proprietary Limited which holds the mineral rights of the Veremo project. Petmin also holds a 30% stake in Veremo Empowerment Holdings Proprietary Limited (VEH) which holds the remaining 30% Veremo Minerals Proprietary Limited. Additionally, Petmin holds a preference share that grants Petmin the right to 40% of any distributions made by VEH.

PROJECTSVEREMO

PETMIN INTEGRATED REPORT 2016 RISK MANAGEMENT86

RISK MANAGEMENT

Petmin is committed to effectively managing its

risks when pursuing its strategic objectives. We

continually assess our capability to pro-actively

manage change and uncertainty in a very

challenging economic environment.

PETMIN INTEGRATED REPORT 2016 87RISK MANAGEMENT

PETMIN INTEGRATED REPORT 201688 RISK MANAGEMENT

RISK MANAGEMENT

Petmin’s Enterprise Risk Management (ERM) process is aligned to the principles of the global risk management standard ISO 31 000: 2009, which has been adopted by the South African Bureau of Standards as SANS 31 000:2009.

Our approach to ERM requires an understanding of the company strategies and the related objectives as a prerequisite to accurately identify and manage the associated risks. We recognise that change brings uncertainty and our risk management process inherently recognises this uncertainty. Every time a material change is considered, the range of associated risks are identified, documented and managed following a board-approved and systematic process. All risks identified during these processes are assigned to risk owners throughout the organisation who are responsible for managing and reporting on these risks.

RISK MANAGEMENT GOVERNANCE AND REPORTING STRUCTURE

The Audit and Risk Committee (ARC) assists the Board in carrying out its responsibility for the governance of risk and provides objective oversight of risk management within Petmin. Material risk management issues are presented to the ARC on a quarterly basis, whereafter the Board is updated on the continued effectiveness of the risk management process and on material risks facing the Group.

The Petmin and Somkhele management teams are responsible for implementing the Group’s risk management process and for reporting on risks and actions taken to treat these risks. The risk management process is continually monitored in terms of a Risk Management Plan as approved by the Petmin executive team.

OUR CONTEXT AND RISK PROCESS

Petmin’s ERM process is aligned to global risk management standard ISO 31000: 2009, and includes a review and context of our business from an integrated perspective as set out here.

PETMIN’S STRATEGICOBJECTIVES

Material operational

risks

Operational challenges and

other key internal factors

Material stakeholder

issues

External factors that could

impact Petmin objectives

New and emerging risks

and scan of environment

Material strategic issues facing the

business


BOARD & AUDIT & RISK COMMITTEE (ARC)

OPERATIONAL MANAGEMENT

ROLES AND RESPONSIBILITIES

PETMIN EXCO

ARC AND BOARD

• ARC assists the Board in carrying out its risk responsibility and ensures material risks are identified and managed

• ARC assists the Board in evaluation of the adequacy effectiveness of the control environment and the Group’s risk profile

• Board determines the Risk Appetite and Tolerance guidelines and Severity Rating Scale based on ARC’s recommendation

PETMIN EXCO

• Implements the Group’s Risk Management Process according to the Group ERM Framework and policy

• Regular review and update of material risks (strategic and operational) and ensuring controls are effective in the management of material risks

• Reports on risk based combined assurance to ARC

OPERATIONAL MANAGEMENT

• Implements the operational risk management process (risk owners and control owners ensure actions are identified and recorded)

• Performs HSE Baseline risk assessments

• Reports on combined assurance to Petmin Exco and ARC

• Monthly reporting of risk issues and quarterly review of material operational risks and controls (Risk & HSE Committees at mine)


RISK MANAGEMENT

A context is established by determining, prior to performing the risk assessment, the key objectives, key stakeholders and all internal and external factors that could have an impact on the achievement of the strategic, operational and investment objectives.

This context is integrated into a structured risk assessment process, which entails the following:• Identifying the risks and considering their respective causes,

consequences and current controls

• Analysing the risks by considering their consequences and the likelihood that the consequences could occur, in both instances taking into account the adequacy and the effectiveness of current controls in place

• Evaluating the risks to determine if additional controls are required. The risk context, its relation to other risks, legislative requirements and financial impact are considered in order to determine justification for any additional treatment

• Considering the optimal treatment in order to respond to a particular risk and putting a plan in place to ensure complete and timely implementation of new controls

• Monitoring the effectiveness of all steps of the risk management process to promote continuous improvement and to ensure changing circumstances do not alter priorities

The outcome of this process is detailed risk registers clearly indicating material risks, their causes, impacts and the controls that have been identified to treat these risks. All material risks are recorded in risk registers at corporate, operational and investment level and these are updated continually whenever a change occurs which could impact on a specific risk issue or event. Risks that are deemed to be material are subjected to a more detailed risk Bow-tie analysis aimed at ensuring that there is a clear link between risk causes and mitigating controls.

Somkhele also has a Health, Safety and Environmental Baseline Risk assessment for the mine, which is task, discipline and geographical area specific. This risk assessment focuses on the underlying

operational risks, and in respect of those rated above a certain level, an issue-based risk assessment is performed and appropriate operating procedures and task observations are created to manage such risks.

Should any of these risks, after treatment and after taking controls into account, still reflect ratings above a certain level, these are then escalated to the operational risk register reviewed by Petmin at corporate level. Based on agreed materiality levels - all risks with a residual risk rating above the agreed level are considered to be material and elevated to the Petmin Risk Register.

KEY MILESTONES ACHIEVED DURING THE FINANCIAL YEAR ENDING JUNE 2016

• The following Codes of Practice, as governed by the DMR guidelines, were reviewed:• Emergency preparedness and response• Mine residue deposit (including discard dumps)• Occupational health programme on thermal stress• Safe use of conveyor belt installations for the transportation

of mineral, material and personnel• Risk-based fatigue management at the mine• Personal Protective Equipment (PPE) for women in mining• The right to refuse dangerous work and leave dangerous

working places - Section 23 • Implementation and ongoing review of the site specific Traffic

Management Plan which minimises the risks pertaining to mobile machinery

• The use of Proximity Detection Systems (PDS) and Collision Avoidance Systems (CAS) for TMM has been thoroughly assessed and as part of the investigation the mine is currently trialling the two most suitable systems

• Improved access management and compliance to periodical medical examinations and attendance of mine induction – ensuring no entry of persons with expired medicals and/or inductions onto the mine. The mine orientation/induction programme was reviewed during the reviewing period.


MATERIAL RISKS FACING THE MINING INDUSTRY AND SOUTH AFRICA

The table below highlights the top 10 risks facing the mining industry and South Africa according to industry experts.

IRMSA’S TOP 10 SA COUNTRY LEVEL RISKS

IRMSA’S TOP 10 SA INDUSTRY LEVEL RISKS

KPMG’S TOP 10 SA MINING RISKS

TOP 10 BUSINESS RISKS FACING MINING AND

METALS, 2016–2017

1 Insufficient electricity supply Regulatory / legislative changes Access to energy and water Cash optimisation

2 Increasing corruption Insufficient electricity supplyIncreased unionization and high wage demand

Capital access

3 Skills shortage Skills shortage Commodity price risk Productivity

4Education and skills development

Increasing corruptionCommunity relations, social license to mine

Social license to operate

5 Water crisis Government policy changes Economic slowdown Transparency

6Structurally high unemployment /underemployment

Reputational damage or adverse media / social media attention

Productivity Switch to growth

7 Lack of leadershipMassive incident of data fraud / theft

Controlling operating costs Access to energy

8 Increasing strike actionProfound political and social instability

Capital allocation Joint ventures

9Failure / shortfall of critical infrastructure

Water crisis Infrastructure access Cybersecurity

10 Severe income disparityFailure / shortfall of critical infrastructure

Access to new projects Innovation

* IRMSA – the Institute of Risk Management South Africa – is the professional body for risk management in South Africa


RISK MANAGEMENT

PETMIN’S RISK PROFILE

The bubble chart below indicates Petmin’s material risks identified through our ERM process and approved by the Board. The risks indicated as red are considered to have a high severity level and a medium to high likelihood of occurring and are regularly monitored, reviewed and managed.

RISK # MATERIAL RISKS 2016

1 Concentration of earnings

2 Commodity price volatility

3 Increased regulation (Mining Charter & Environmental) & uncertainty in respect of socio-economic environment in South Africa

4 Negative outcome of arbitration proceedings with Tendele’s customer (Tendele and its legal advisors believe that our case is good and consequently no liability is recorded for this)

5 Community instability and loss of licence to operate

6 Veremo – non-payment of R195 million distribution and project delivery delays. Project now fully impaired

7 Foreign exchange rate volatility

8 Non-compliance with Mining Charter (Current charter compliance is well managed. The proposed new Mining Charter is a potential increased risk)

9 Investment & project development pipeline delays

10 Delays in processing of mineral rights

11 Variability of Somkhele ore body

12 Labour instability affecting operations

13 Succession planning

14 Severe water shortage impacting operations

15 Liquidity constraints


The most material risk issue to Petmin continues to be its concentration of earnings in Somkhele (one operation, one commodity, one source of revenue, and supplying one key customer).

8

11 9

12

1413

high

1510

7

23

1

645

Seve

rity

fact

or

Likelihood factorlow high


The table below illustrates Petmin’s material risks as considered by the Board.

Risk #

Change Material Risks 2016 Key Controls

1 Concentration of earnings

• Diversification into other commodities that are key input material into the steel value chain • Diversification into other geographical locations• Broaden the customer base and develop new markets for anthracite and energy products• Energy coal strategy at Somkhele bearing fruit with production of high-ash, low-volatile energy product • Improve mix of cash producing/development assets

2 Commodity price volatility

• Negotiate long-term off-take agreements for local and export markets• Review Life of Mine plans and implement mine optimisation plan to reduce costs• Right-size the business to meet market requirements• Continue to monitor market dynamics and impact of prices on operations• Implement the commodity and geographic diversification strategy• Preserve cash and maintain a relatively conservative balance sheet

3 Increased regulation (Charter & EMPR) & uncertainty with respect to the socio-economic environment in SA

• Continuously monitor changes in mining legislation and regulatory environment• Continuously monitor changes in labour environment and potential impact on mining • Participate in industry discussions and relevant industry associations• Maintain a good relationship with unionised labour and union representatives• Maintain a strong, open and transparent relationship with government at national, provincial

and local level4 Negative outcome of

arbitration proceedings• Retained legal counsel to defend arbitration award• Declaratory relief sought in High Court action• Ensure contract for limited damages in standard terms and conditions• Alternative markets arranged for disputed product

5 Community instability & loss of licence to operate

• Ensure pro-active engagement of key stakeholders and strengthen relationship with the local community around Somkhele

• Implemented an economic benefits sharing scheme for employees and the local community around Somkhele in November 2015

• Build strong relationships with communities around operations and address community issues and complaints as they arise

• Improve social delivery processes with respect to community development projects • Co-ordinate community development initiatives in a manner that improves the socio-

economic conditions of the local community• Establish a foundation at Somkhele and increase community development delivery efforts to

benefit the wider community• Assist and liaise with local municipalities, traditional authorities, local businesses, local

activists and interested and affected parties to ensure a pooling of efforts to ensure meaningful socio-economic upliftment in areas around our mines

6 Veremo – non-payment of R195 million distribution and project delivery delays. (Project fully impaired during FY2016)

• Institute legal proceedings to recover guaranteed payments of R195 million• Continue to evaluate ways of resolving claim/funding issues with Framework/Kermas • Ensure regulatory requirements regarding mineral license are met (Mining right was granted by

Department of Mineral Resources in January 2014)• Maintain consultations with regulators to secure execution of mining right granted in January

20147 Foreign Exchange Rate

volatility• Hedge when appropriate to protect budgeted foreign currency denominated sales• Adapt sales mix of export vs local dependent on market dynamics • Continually monitor exchange rate volatility

RISK MANAGEMENT

RISK MANAGEMENT


8 Non-compliance with Mining Charter. (Current charter compliance is well managed. Proposed new charter is a potential increased risk)

• Liaise with regulatory authorities regularly to address compliance gaps• Conduct internal audits of Mining Charter Scorecard performance and Social and Labour Plan

commitments• In November 2015, the BEE shareholding in Tendele was enhanced by the BEE transaction• 20% of Tendele shareholding now in the hands of employees and local community• Regularly report on progress on Mining Charter and SLP commitments• Speed up delivery of community development projects• Communicate effectively with local community

9 Investment & project development pipeline delays

• Implement phased approach to investment in projects• Apply internal M&A hurdle rates and selection criteria • Apply risk appetite and tolerance guidelines• Ensure detailed risk management process implemented for each project• Maintain right to joint management control in joint venture projects• Maintain close relationships with key providers of capital/debt• Ensure that the project has a dedicated and competent technical and legal team• Adhere to detailed project plan developed• Ensure sufficient funds to execute on plan

10 Delays in processing of mineral rights

• Risk reduced as mining right granted in May 2016 for all remaining mining areas at Tendele • Ensure early submission of mineral rights • Ensure regular communication with regulatory authorities to speed up approval of minerals rights• Conduct internal audits of, EMP, Mining Charter and social and labour plan compliance

11 Variability of Somkhele ore body

• Accelerate development and mining of new areas to blend different coal qualities to meet customer requirements

• Comprehensive mine planning review to ensure optimisation of mine scheduling• Regular customer feedback sessions on performance and quality specifications• Conduct regular sampling in pits to ensure compliance with product specifications

12 Labour instability affecting operations

• Negotiate and sign multi-year wage agreements with employees• Monitor changes and developments in the industrial relations landscape• Ensure pre-strike stockpile build-up to minimise disruption in production• Review and harmonise employee salaries and benefits• Strengthen relationships and communication with local community, employees and unions • Establish bargaining forum for wage negotiations • Monitor and review business continuity and strike management plans• Implemented economic benefits sharing scheme for employees at Somkhele in FY2016 as part

of the Tendele BEE transaction13 Succession planning • Ensure succession plan of all key executives positions within the Group

• Identify, develop and mentor key talent within the Group• Ensure development and support of key staff carrying legal appointments in terms of MPRDA

and MHSA• Ensure competitive remuneration in line with the industry• Design appropriate long term incentive scheme and retain scheme for key staff

14 Severe water shortage impacting operations

• Maintain the abstraction license for the Mfolozi River• When the Mfolozi River does run, ensure top-up of storage dams • Retention of water when it rains• Ensure sufficient storage capacity • Ensure maximum recovery of water throughout the process to ensure minimum water losses• Implement a number of projects/initiatives to obtain and retain water

15 Liquidity constraints • Negotiate extension of short term facility to bridge cash requirements at operations when required• Ensure key covenants are constantly monitored through rolling cash-flow forecasts• Ensure the Group’s long term debt/equity ratio is below 30% • Manage capital expenditure judiciously

RISK MANAGEMENT

LEGEND g risk increased g unchanged g risk decreased


RISK MANAGEMENT

PETMIN’S COMBINED RISK ASSURANCE PROCESS

During the financial year ending June 2016, Petmin continued to embed its integrated assurance model in line with the Group’s Enterprise Risk Management (ERM) Framework. This integrated approach aims to facilitate the optimal assurance obtained from management, internal and external assurance providers on the risks and exposures that may have a material impact on the Group’s strategic objectives and is based on three key lines of defence – management based assurance, internal audit based assurance and external based assurance providers.

External Audits conducted by experts and regulators during the year to June 2016

The following key external audits were conducted by consultants and the regulator in the period under review:• A comprehensive, independent legal, financial and technical due

diligence was undertaken on the Petmin Group during the year and this has been used by management to address weaknesses identified.

• An updated Competent Persons Report has been prepared reporting on the reserves and resources of Tendele as at 30 June 2016.

• During the year ended 30 June 2016, independent experts were commissioned to prepare a feasibility study on the NAIC project. A draft report has been received and is being reviewed by management.

• Health and safety systems audits by NOSA on an annual basis. Last audit conducted was on 29 June to 01 July 2016. Four NOSA STARS were accomplished.

• Department of Mineral Resources (DMR) inspections are conducted on a regular basis for mining, machinery, occupational medicals and hygiene, as well as environmental compliance

• Nine visits from the DMR during the period under review

• 31 recommendations were received

• 34 observations were done

• No Section 54 or 55 instructions were issued

• Action plans are in place to address the identified recommendations

• Department of Water Affairs and Sanitation audit conducted in May 2016 on IWUL (water use licence) compliance

• Carbon footprint evaluation conducted by independent 3rd party - Climate Africa (dated August 2015)

• Department of Environmental Affairs (DEA) requested Somkhele to partake in the phase 1 allocation of carbon budgets and the

mine has submitted its emissions data for the past 5 years as well as its predicted emissions for the next five years

• Inspections and EMPR compliance audits are conducted by an independent 3rd party – Ground Water Consultants and regulator audits by DMR and DWA

• Annual Integrated Water Use License Application audit

• Quarterly water monitoring

• Bi-annual SASS monitoring

• Annual dam safety inspection

• Annual Storm Water Management Plan audit

• Annual groundwater model update inspection

• Bi-annual soil sampling inspection

• Annual Rehabilitation Strategy and Implementation Programme inspection

• Bi-annual EMP internal assessment

• Annual EMP Performance Assessment audit

• Highwall/slope stability inspections and audits are conducted bi-monthly by an independent registered qualified Rock Engineer – Applied Rock Engineering

• Monthly and quarterly surveys are conducted by independent 3rd parties, namely; LexisNexis and SGS for:

• Personal noise areas

• Personal areas airborne pollutants

• Silica dust

• Respirable dust

• Trackless mobile machinery illumination

• Environmental dust sampling

• Fallout dust sampling

• Product qualities are verified on-site by BVIL (Bureau Veritas Inspectorate Laboratories), an accredited SANAS laboratory, and customer certificates issued monthly as per ISO 17025. Export shipment qualities are also verified through Bureau Veritas Laboratories as per ISO 17025

• Independent stockpile and in-pit measurements, i.e. surveys, are done bi-annually through Premier Mapping Services and formal reports utilised for auditing purposes


Compliance Management Processes

Formal structures are implemented to manage regulatory and legal compliance requirements as follows:• Legal appointments

• Risk assessments

• Regulatory training

• Safety officers legal inspections

• Safety representatives inspections

• Visible, coaching leadership tours

• Internal audits

• 3rd party audits

• Dust sampling

• Water sampling

• Airborne pollutants surveys

• Occupational Hygiene audits

• Thermal stress

Somkhele’s subscription to LexisNexis informs of changes, amendments and or repealed sections of the legislation. Somkhele also receives the DMR newsletters which addresses legislative topics as well as learnings from other mines. Subsequently, relevant Codes of Practice and standard operating procedures are updated or amended, and communicated to all relevant forums through the Health and Safety committee structure. Training of personnel takes place through the onsite training centre on on-the-job structures.

Quarterly tripartite meetings are held between the DMR and regional mines. Somkhele’s delegate attends these meetings where changes to legislation, benchmark practices, new technology, key

learnings regarding HSE are discussed. Information from these meetings is cascaded to the Health and Safety committee for notification or action where necessary.

As part of the substantive negotiations during the year, it was agreed that a fulltime health and safety representative will be elected by the workforce. This process has been concluded and the individual appointed on a three year term basis during which he will be involved in all HSE related matters. An HSE agreement has also been drafted and signed between the organised labour and the mine to ensure all parties’ participation and commitment towards HSE.

The Health and Safety management system is the cornerstone of the holistic health, safety and environmental legislative compliance. As a result, internal audits, risk assessments, training etc. are utilised to measure compliance with the internal risk management process, but also with legal compliance.

Apart from external audits, management also has an obligation to ensure that controls are in place and reviews are conducted. To this end, an Action Manager is the process adopted to record and follow up on identified deficiencies. All identified shortcomings, non-compliances, corrective or preventative actions or recommendations from either internal or external processes are recorded formally and actioned for close-out by the required responsible departments. Review meetings are held to ensure monitoring and actions to completion are executed.

In light of the risk management process in place, and the

monitoring and regular reporting of key risks impacting on

the Group’s objectives, Petmin believes that the risk control

environment is satisfactory, and necessary action has been taken

to address and control weaknesses where required to ensure that

the overall risk control effectiveness in respect of material risks is

at a level that is acceptable.

PETMIN INTEGRATED REPORT 2016 STAKEHOLDER ENGAGEMENT98

STAKEHOLDER ENGAGEMENTfor the year ending 30 June 2016

PETMIN INTEGRATED REPORT 2016 99STAKEHOLDER ENGAGEMENT

At Petmin, we recognise the importance of fostering a relationship of mutual understanding and trust

with our stakeholders through effective and open communication, and a willingness to listen, discuss

and respond to issues that are important to stakeholders. The diversity and complexity of these groups

requires different forms of engagement and dialogue which depends on their key areas of interest and

concern, and on the intensity of the relationship.

PETMIN INTEGRATED REPORT 2016100 STAKEHOLDER ENGAGEMENT

STAKEHOLDER ENGAGEMENT

The categories below highlight the key stakeholders that can materially impact our ability to deliver on our strategic objectives

• Shareholders, investors and analysts and empowerment shareholders• Employees, which includes full time employees, labour unions, Joint Venture employees, contractors, management and directors• Communities around our operations including recognised traditional authority structures within the communities• Government (national, provincial and local), regulators and policy makers• Suppliers and key customers• Environmental interest groups• Joint Venture partners• Debt providers and other key funders

The table below provides an overview of our stakeholders’ key areas of interest, and the frequency and method of engagement to address material issues that were raised.

KEY STAKEHOLDER

PRIORITY INTERESTS AND EXPECTATIONS SUMMARY OF KEY ENGAGEMENTS AND KEY MILESTONES IN YEAR ENDING 30 JUNE 2016

Shareholders, investors and analysts and empowerment shareholders

• Require superior and sustainable earnings

• Consistent payment of dividend in line with dividend policy

• Capital allocation and plans to reduce debt levels in the business

• Long term growth in performance of the Group in line with strategy

• Management of risks that could affect delivery of the company’s objectives

• Operational and financial performance of the Group

• Compliance with mining licence requirements and Mineral and Petroleum Resources Development Act (MPRDA)

• Progress on the development of NAIC and unbundling strategy and timeline

• Bi-annual investor roadshows and conference calls in Cape Town and Johannesburg

• Strong operational and financial performance achieved in 2016, with normalised earnings showing steady growth over the past 3 years

• Dividend of 5 cents declared for the year ending June 2016 in line with dividend policy

• Debt to equity ratio reduced to 7.66% (2015: 12.66%)

• Engagement with analysts. Research reports on Petmin in March and September 2016 by MacQuarie concludes with an “Outperform” recommendation

• Due to volatility in the equity markets and to avoid the additional cost burden of a separate listing at this time, the decision to delay the unbundling of NAIC was taken by Petmin and our project partners Grand River Inc.


KEY STAKEHOLDER


Employees and contractors

• Remuneration, benefits and incentive schemes for employment and services rendered

• Training and development of employee skills and career opportunities

• Job and contractor security

• Healthy and safe environment to operate in

• Compliance with employment and labour legislation, Employment Equity Act and BBBEE codes

• Harmonisation of salaries between full time and contractor employees

• Regular, open and transparent communication on material issues affecting employees

• Business continuity and sustainability of mining operation

• Willingness to negotiate

• Fair and equitable treatment and payment of all employees

• Consultation and communication on material operational changes impacting employees

• Lost Time Injury Frequency rate of 0.30 was achieved at Somkhele. The mine’s safety record since it was commissioned in June 2007 is a commendable 0.227 progressive LTIFR, which is an improvement on the 0.214 achieved in the 2015 financial year. Somkhele’s safety efforts were recognised by NOSA during their safety compliance audit where Somkhele was awarded a certificate of excellence and the winner of the NOSA 5 Star system award in the Opencast Mining Category for the Eastern Region

• Somkhele successfully concluded an agreement with the local community and employees to acquire a 20% stake in the mine, thereby sharing in the economic benefits of Somkhele

• Wage negotiation undertaken by the mine in May 2015 successfully concluded with a two-year wage agreement being executed and implemented without any strike action or work stoppages by employees

• The mine has various policies including Information and Communication Technology policy, Sexual Harassment, and ethics related policies at Somkhele to ensure they are effective and aligned to current legislation

Local communities and Traditional Authority Structures (Somkhele)

• Management engages in dialogue with community and responds to concerns raised by community. Numerous meetings were held during the year ended 30 June 2016 with local community members, social activists, traditional leaders and other interested parties in an attempt to find common ground and a shared-understanding to ensure that the Somkhele mine and the local communities and employees can operate harmoniously and in a mutually-beneficial relationship

• Target of 80% of total employee requirements of the mine to be sourced from local community (currently 79% attained)

• Local economic development in communities around the operation

• Implementation of initiatives to address identified community needs as per base-study and new Social and Labour Plan for the period 2013 to 2017

• Preferential procurement for local businesses around the operations

• Community to participate and share in the economic benefits of the mine

• Agreement reached with community and employees to acquire 20% of Somkhele and transaction implemented on 12 November 2015

• Scarcity of water in the area continues to be a key concern for the community. The mine has established water points throughout the community and is supplying water at its own cost via deliveries with water carts. The mine is in discussions with the municipality to develop a long term sustainable solution to the water problem

• The mine is accelerating development of its community projects including ABET training and skills development in the community. R2.9 million was spent on projects in the community during the year ended 30 June 2016

PETMIN INTEGRATED REPORT 2016102 STAKEHOLDER ENGAGEMENT

STAKEHOLDER ENGAGEMENT

KEY STAKEHOLDER


Business / Joint Venture partners

• Accountability and transparency

• Financial returns and sustainability of the business

• Delivery by each JV party on contractual agreements

• Petmin’s discussions with Framework regarding the Veremo project and the non-payment of R195 million due to Petmin have not resulted in a negotiated settlement that is acceptable to Petmin. Petmin has instituted proceedings against Framework and Kermas

• Petmin NAIC project team makes regular visits to Canada to meet with the NAIC project management team and with external project consultants

• Somkhele Plant Hire (Pty) Ltd holds monthly Exco meetings with the Mining JV partners to review monthly performance

Government, regulator and policy maker (incl. DMR, DWA, DEA)

• Ensure compliance with laws and rules of the regulator (including MPRDA; Mining Charter, health and safety legislation, environmental laws, social and labour plans, and environmental management plans)

• Audits, inspections and conduct other compliance activities to assess and enforce compliance with laws and regulations

• Job creation and poverty alleviation of communities around operations and economic development

• Actions to ensure sustainable use of water resources during mining activities in an integrated manner

• Ensure payment of royalties and taxes

• Consultation & communication on issues of public interest and concern around the mine

• 11 audits were conducted by DMR during the year under review. Gaps identified are being addressed by management

• SLP progress report and Mining Charter compliance audit and monitoring of progress continue to be managed by the mine in consultation with the DMR

• Continued participation and consultation with municipality through its IDP and LED forums

Customers and commodity traders

• Quality products according to contract specifications

• Consistent and reliable supply of product and competitive prices

• Early warning on possible interruption of production and potential impact on supply commitments

• New off-take agreements and quality specifications of product were negotiated with local suppliers and export market

• New markets for energy product have been negotiated

• Somkhele withdrew from the arbitration process with its energy customer and has now instituted proceedings in the high Court to have the contract with the customer declared void or voidable


KEY STAKEHOLDER


Suppliers of goods and services

• Integrity, and continuity of business relationship

• Delivery on contractual obligations

• Compliance with mine policies and mining legislation applicable to contractor

• Somkhele Plant Hire (Pty) Ltd, the joint venture (SPH JV) with Sandton Plant Hire (Pty) Ltd, is fully operational and jointly managed by the partners

• Contractors employed by the SPH JV and remuneration and benefits continue to be harmonised with Somkhele benefits

• A Joint Venture with the community has been signed for a 30% equity stake held by the local community in Mpukunyoni Mining (Pty) Ltd, the mining contractor at the Somkhele mine

Environmental Interest Groups

• Respect for the environment and responsible mining in manner than limits negative impact on the environment

• Noise, visual, dust and vibration impact on wilderness and game life in the area

• Proximity of mining activity to game park and buffer zones are required

• Somkhele continued to consult with interested and affected parties regarding its mining operations

• Somkhele established buffer zones for mining areas, which were also included in its EMP for the new mining right application

• Bio-diversity assessments were conducted and sensitive ecological areas have been identified and mapped

Providers of debt and banking institutions

• Ability to repay loans and meet financial covenants

• Strong financial performance

• Impact of key drivers in business on the company’s cash flows

• Available credit lines of R330 million unutilised as at 30 June 2016

• Concluded a R350 million BEE transaction for community and employees to acquire a 20% shareholding in Somkhele

• Debt to equity ratio was reduced to 7.66% (2015: 12.56%)

PETMIN INTEGRATED REPORT 2016104 PETMIN’S MINING CHARTER SCORECARD

PETMIN’S MINING CHARTER SCORECARD

ELEMENT DESCRIPTION MEASURE MINING

CHARTER

TARGET 2015

PERFORMANCE AS AT 30 JUNE 2016 TRAFFIC

LIGHT

COMPLIANCE

STATUS

Reporting Has the company reported the level of compliance with the Charter for the calendar year?

Documentary proof of receipt from the department is required

Submit by March 2016

Reports were submitted to the DMR for the period

g

Ownership Minimum target for effective HDSA ownership

Meaningful economic participation

Full shareholder rights

26%

26%

37.84%

37.84%

BBBEE shareholding at Petmin includes BBBEE in institutional shareholding as per BBBEE Codes.

Additional 20% shareholding at Somkhele Agreement was reached with the Somkhele community and employees to participate and share in the economic benefits of Somkhele through a fully-funded equity transaction where the community and employees will acquire 20% of Somkhele for R350 million. The transaction was concluded on 12 November 2015.

g

Housing and living conditions

Conversion and upgrading of hostels to attain the occupancy rate of one person per room

% reduction of occupancy rate towards 2014 target

100% N/ANo hostel accommodation provided at the operation g

Conversion and upgrading of hostels into family unit

% of conversion of hostels into family units

100% N/AEighty percent (80%) of employees live within a 30km a radius from the mine and commute to work with company-provided transport

A housing allowance is paid to all employees on the mine earning below a certain threshold per month to facilitate ownership and improvements to living conditions

g

The Mining Charter Scorecard applies to Tendele Coal Mining Proprietary Limited, as Tendele is the holder of the mineral rights for the Somkhele Antracite Mine.

PETMIN INTEGRATED REPORT 2016 105PETMIN’S MINING CHARTER SCORECARD

Procurement & enterprise development

Procurement spent from BBBEE entity

Capital goods 40% 45%

Employees’ transport continued to be outsourced to local suppliers. Coal transportation is done by 100% BBBEE companies

g

Services 70% 92%

Management fees and marketing fees paid to Petmin by Tendele Coal Mine were excluded in the procurement numbers.

g

Consumable goods

50% 81%g

Multinational supplier’s contribution to the social fund

Annual spend on procurement from multinational suppliers

0.00% N/ANo procurement was sourced from multinationals in the year under review

N/A

Employment Equity

Diversification of the workplace to reflect the country’s demographics to attain competitiveness

Top management (Board)

40% 50%Target achieved

g

Senior management (EXCO)

40% 60%

Target achieved

g

Middle management

40% 45%Development of employees is on track and ongoing

g

Junior management

40% 67%Development of employees is on track and ongoing

g

Core and critical Skills

40% 86%Target achieved g

LEGEND g fully compliant g partially compliant g not compliant

PETMIN INTEGRATED REPORT 2016106 PETMIN’S MINING CHARTER SCORECARD

PETMIN’S MINING CHARTER SCORECARD

Human Resource Development (HRD)

HRD expenditure as percentage of total annual payroll (excl. mandatory skills development levy)

5% 6.27%Target achieved

g

Mine community development

Conduct ethnographic community consultative and collaborative processes to delineate community needs analysis

Implement approved community projects

Up to date implementation of projects

During the year under review, total spend on community development projects was R2 972 186

Community engagement takes place through recognised structures of the Mpukunyoni Traditional Authority, Mtubatuba Municipality, community meetings and newsletters and radio broadcasts

g

Sustainable development & growth

Improvement of the industry’s environmental management

Implementation of approved EMPs

100% 100% compliance was achieved at the end of the financial year ending June 2016

Somkhele’s environmental management is in line with the approved EMP and annual compliance assessments are conducted by independent consultants. Financial provisions are provided in line with regulations.

g

Improvement of the industry’s mine health and safety performance

Implementation of the tripartite action plan on health and safety

Constant and continuous improvement on fatality and injury frequency rates.

Safety measures include a lost time injury frequency rate (LTIFR) of 0.30, Progressive Frequency Fatality Injury Rate of 0, Reportable Injury Frequency Rate of 0, and Increase in Lost Time Accidents by 1 (previous reporting year was 2)

No cases of Silicosis were reported and exposure limits of silica are below 0.01/mg/m3. Noise emitted by equipment is below 110 Db and no deterioration of hearing loss greater than 10% amongst employees. Tendele average is below 85Db. No reported noise-induced hearing loss.

g

PETMIN INTEGRATED REPORT 2016 107PETMIN’S MINING CHARTER SCORECARD

Utilisation of South African-based research facilities for analysis of samples across the mining value chain

Percentage of samples in South African facilities

100% 100% of samples in SA facilities

Approximately 14,623 samples were analysed in South Africa in the year under review. These included 9,624 process control samples, 128 washability samples, 4,706 dispatch samples and 165 sublot samples of 22 export shipments.

No coal samples are done abroad

g

Beneficiation Contribution of mining company towards beneficiation (this measure is effective from 2012)

Additional production volume contributory to local value addition beyond the base-line

Section of the MPRDA (% above baseline)

N/ANo beneficiation as no materials were calcined during the period.

g

LEGEND g fully compliant g partially compliant g not compliant

PETMIN INTEGRATED REPORT 2016 CORPORATE GOVERNANCE REVIEW108

CORPORATE GOVERNANCE REVIEW

PETMIN INTEGRATED REPORT 2016 109CORPORATE GOVERNANCE REVIEW

PETMIN INTEGRATED REPORT 2016110 CORPORATE GOVERNANCE REVIEW


INTRODUCTION

The directors of Petmin are committed to conducting the business of the Group with integrity and fairness and in accordance with good governance practice and the Code of Corporate Practices and Conduct, as set out in the King III report.

The directors have established mechanisms and policies which are appropriate to the business and risks of the Group and that will ensure the continuous reassessment of the quality of the Group’s corporate governance practices. The directors have reviewed the King III report and where areas of non-compliance have been identified, management implements programmes to address these gaps.

Areas where Petmin does not comply with King III are disclosed and explanations are provided. A statement that confirms Petmin’s application of each of the King III Code’s 75 principles is available on the company’s website at www.petmin.co.za.

COMPOSITION OF THE BOARD

At 30 June 2016, the Petmin Board comprised three executive directors and six non-executive directors (see page 12).The composition of the Board is designed to procure the necessary professional skills and experience required to judge, objectively, matters of the strategic and business direction of the Group.

As required by King III, Petmin’s Board of Directors re-elected Ian Cockerill as Non-executive Chairman until 26 November 2016. As the Chairman was previously an Executive Director, Petmin has also elected a Lead Independent Director. Mr Trevor D Petersen has served in this role since 28 November 2013. Mr Petersen was also re-elected as Chairman of the Audit and Risk Committee. Directors are subject to retirement by rotation and re-election at the Annual General Meeting of the members.

ROLE AND FUNCTION OF THE BOARD OF DIRECTORS

The Board is responsible for the management, direction and ultimate control of the Group. In order to meet this responsibility to shareholders and other stakeholders, the Board sets the

strategic objectives of the Group, determining investment and performance criteria, and taking ultimate responsibility for the management and ethical behaviour of the business of the Group.The Board meets on a formal basis or via electronic media at least quarterly, with additional meetings convened as the need arises. The Group’s overall daily operations are managed and overseen by the Executive Directors. An approval and authority frame work is in place which defines the powers and authority of the Board, its committees and the executive team.

There is a clear division of responsibilities at Board level that ensures a balance of power and authority. No one individual has unfettered powers of decision-making.

TERMS OF REFERENCE FOR THE BOARD OF DIRECTORS

In order to meet its responsibilities to shareholders and other key stakeholders, the Board is responsible for:• Approving the strategic objectives and annual budgets of the

Group, against which performance is measured• Ensuring that the Group carries out its risk responsibilities and

all material risks of the business are identified and managed• Validating the proposed investment criteria presented by

management• Providing guidance for the proper management and ethical

behaviour of the Group’s businesses• Appointing Board committee members and reviewing the scope

and adequacy of activities of the Board committees in order to evaluate how effectively the committees discharge their responsibilities in terms of statutory and corporate governance requirements

COMPANY SECRETARY

The company secretarial function is conducted on an arm’s length basis with an independent company, Mondial Consultants Pty Ltd. Mondial’s representative, Mr Johan van der Walt, who acts as Petmin’s company secretary, has an arm’s length relationship with Petmin. The Petmin Board is satisfied that Mondial is independent and consults extensively to other clients and the sustainability of its business is not is not reliant on Mr van der Walt’s appointment as Company Secretary.


The competence, qualifications and experience of the Company Secretary are reviewed annually by the Board and the Board has satisfied itself that the Company Secretary is competent and has the necessary qualifications and experience required to fulfil the role and the responsibilities placed upon a Company Secretary by the Companies Act, the JSE Listings Requirements, and King III. The Company Secretary qualified and was admitted as an Attorney of the High Court of South Africa in 1984 and practiced law and intellectual property law at two of Johannesburg’s leading law firms. He has over 32 years’ experience in law, corporate communications, as well as risk and project management.

Before the formation of Mondial in 2008, Mr van der Walt was employed for a period of 20 years by one of the world’s largest resource companies. During this period his main areas of focus were law, corporate governance and risk management. He was the Risk Manager for one of this organisation’s major divisions for a period of 10 years as well as the Company Secretary for the last 12 years of his service with the same group of companies.

SUPPORT TO THE BOARD

In order to facilitate the discharge of the duties and functions by Directors (Non-Executive Directors in particular), the Group will assist Directors by arranging:• Visits to and tours of its operations, along with interviews with

the responsible executive managers• Briefing sessions with individual Executive Directors or senior

managers responsible for particular areas of operation• Consultations with the Company Secretary for specific enquiries• In the event of a Director identifying an area of particular

concern or conflict in relation to their future conduct as a Director, they may, after consultation with and through the voice of the Chief Executive Officer, and/or the Company Secretary, seek independent professional advice at the expense of the Group

The table below sets out the attendance of Directors at the Group’s formal Board meetings held during the year. All Directors were actively involved at Board level:

Board meeting attendance for year to end-June 2016:

DIRECTOR DATE OF BOARD MEETING

3 Sept 2015 26 Nov 2015 3 Mar 2016 22 June 2016 24 June 2016

Ian Cockerill a a a a By phone

Lebo Mogotsi a a a a a

Jan du Preez a a a a a

Bradley Doig a a a a a

Bruce Tanner a a a a a

Trevor D Petersen a a a a By phone

Enrico Greyling a a a a By phone

Koosum Kalyan a a a a By phone

Millard Arnold a a a a a

PETMIN INTEGRATED REPORT 2016112 CORPORATE GOVERNANCE REVIEW


INDEPENDENCE OF THE BOARD

The Board’s independence is maintained by:• Non-Executive Directors not holding service contracts and their

remuneration not being tied to the financial performance of the Group• All the Directors having access to the advice and services of the

Company Secretary and, with prior agreement of the Chairman, being entitled to seek independent professional advice on the affairs of the Group at the Group’s expense

NON-EXECUTIVE DIRECTORS

The Board has a strong contingent of Non-Executive Directors who bring their diverse experience, insight and independent judgement to bear on issues of strategy, planning, performance, resources and standards of conduct.

For the year ended 30 June 2016 the Non-Executive Directors have no service contracts with the company and are appointed for specific terms. Recommendation of members for re-appointment is not automatic, but considered individually, based on that person’s contribution. As recommended and defined by King III, the majority of the Non-Executive Directors are independent.

EXECUTIVE DIRECTORS

The three executive directors involved with the day-to-day business activities of the Group are responsible for ensuring that the Board’s strategies are followed and its decisions implemented.

LEADERSHIP

The executive team at the Petmin corporate office executes strategies approved by the Board and sets the tone for the business. The executive team allocates capital and deploys skills and experienced teams to projects and operations. Operational management is decentralised with a high degree of independence and decision making by disciplined, innovative and entrepreneurial teams.

The members of the Executive team are all significant shareholders of Petmin.

DIRECTORS’ REMUNERATION

Details of Directors’ remuneration are given in the report of the Remuneration Committee.

BOARD MEETINGS

The Directors have set a framework for financial reporting, with internal and operating controls to ensure reasonable assurance as to timeous reporting of business information, safeguarding of Group assets, compliance with statutory laws and regulations, recording of Group results and general operation in terms of the Group’s standards of business conduct.

The Board is responsible for monitoring the ongoing effectiveness of these controls and operating frameworks. The external auditors have unrestricted access to the Chairman of the Board.

The minutes of Audit and Risk Committee (ARC) meetings are presented at the next meetings of the Board. There is close communication between the ARC and the external auditors. Areas of weakness in control are brought to the attention of all relevant parties and remedial action is taken immediately to ensure no loss or misstatement arises due to the inadequacy of the internal control environment.

HEALTH, SAFETY AND ENVIRONMENT COMMITTEE

Petmin’s Health, Safety and Environment Committee is based at its Somkhele mining operation. This committee comprises the General Manager Mining of Somkhele, senior operational management from Somkhele and various external consultants in the fields of safety, health and environment.

One of the main functions of the committee is to monitor health, safety and environmental performance and reporting in accordance with the applicable legislation and the GRI framework and guidelines. It further reviews, considers and comments on health, safety and environmental strategies, statistics, structures, systems and related policies at the operation. The committee meets on a quarterly basis.

NOMINATIONS COMMITTEE

The only members of the Nominations Committee are the six Non-Executive Directors, three of whom constitute a quorum. Executive directors are requested to attend meetings of the Nominations Committee as and when their input is required by the sub-committee.

The Nominations Committee, in nominating and recommending theappointment of directors to the Petmin board, takes into account therequirements of the Petmin Gender Diversity Policy.

The committee meets as and when required but not less than once per annum.


CODE OF ETHICS

The Group subscribes to certain values and ethical practices that apply throughout the organisation. These values and ethical practices are sustained by the Directors’ belief in free and fair dealings in good faith and with respect for the law and regulations.

The Board-approved Code of Business Ethics covers areas such as conflict of interest, confidentiality and the protection of proprietary and commercial information, political activities and government relationships, gifts and donations, use of company information systems, fraud, and approval frameworks.

Concerns and violations of the ethics policies can be reported, in confidence, to the dedicated email address: [email protected].

Incidents reported on this email address are reported to the Audit and Risk Committee. Petmin’s Ethics Policy is available on www.petmin.co.za.

ACCOUNTING AND AUDITING

The Board places strong emphasis on achieving the highest level of financial management, accounting, and reporting to shareholders. The Board is committed to compliance with International Financial Reporting Standards (IFRSs) and its framework concepts and measurement and recognition requirements, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the South African Companies Act. It is the Directors’ responsibility to prepare financial statements that fairly present:• The financial position as at year-end• Profit or loss for the year• Cash flows for the year• Non-financial information

The external auditors observe the highest level of business and professional ethics and their independence is not impaired in any way. The external auditors were given unrestricted access to all financial records and related data, including minutes of all shareholder and Board meetings. The Directors believe that all representations made to the independent auditors during their audit are valid and appropriate.

The Board set principles for using the external auditors for non-audit services.

COMMUNICATION WITH STAKEHOLDERS

The Group maintains that positive relations with all stakeholders is key to creating and sustaining value for all stakeholders. The company is committed to a policy of timeous and effective communication with shareholders and other stakeholders through shareholders’ meetings, the annual financial report and interim financial report.

Matters of both financial and non-financial nature are communicated to shareholders in a timeous and transparent fashion.

SHARE DEALINGS BY DIRECTORS

All dealings by Directors are regulated and monitored as required by the Listing Requirements of the JSE Ltd.

The Group observes closed periods from the end of the interim and year-end periods to the announcement of the interim or year-end results, and any other period when the company is trading under a cautionary announcement. During these periods, the Directors and senior employees of the company may not deal in the company’s shares.

Details of Directors’ shareholdings are provided in the Directors’ Report in the Annual Financial Statements.

PETMIN INTEGRATED REPORT 2016 REPORT OF THE REMUNERATION OF COMMITTEE114

REPORT OF THE REMUNERATION COMMITTEE

PETMIN INTEGRATED REPORT 2016 115REPORT OF THE REMUNERATION COMMITTEE

PETMIN INTEGRATED REPORT 2016116 REPORT OF THE REMUNERATION OF COMMITTEE


INTRODUCTION

This report sets out:

• Details pertaining to the Petmin Remuneration Committee (Remcom)• Petmin’s remuneration philosophy• Incentives earned for the year ended 30 June 2016• Summary of non-executive fees

REMUNERATION COMMITTEE

The Petmin Remuneration Committee, which meets at least once a year, has three members. The committee is chaired by an independent non-executive director and comprises another two non-executive directors and all non-executive directors can attend all meetings.

The committee is responsible for reviewing and recommending the remuneration of executive and non-executive directors. The Remuneration Committee bases its recommendations upon the Remuneration Scheme as approved by shareholders at the Annual General Meeting held on 22 May 2015 (Approved Scheme).

The Approved Scheme is outlined in Annexure 1 of the Notice of Annual General Meeting 2014, which is available on the Petmin website at www.petmin.co.za.

The determination of the incentives earned is based on the approved formulas as outlined in the Approved Scheme and the Committee takes into account the recommendations of the CEO as well as the Key Performance Indicators (KPIs) of senior executives.

The Chairman and CEO attend the committee meetings by invitation and assist the committee with its deliberations, except when issues relating to their own compensation are discussed. No directors are involved in deciding their own remuneration.

The full terms of reference and mandate of the committee can be found in the corporate governance framework on the Group’s website.

During the period under review, three meetings were held: on 2 September 2015 to approve the June 2015 allocation, on 26 November 2015 to finalise proposals on a new share incentive scheme that was ultimately withdrawn before the AGM held on 15 February 2016, and a meeting was held on 1 September 2016 to approve the June 2016 allocation.

COMMITTEE MEMBERS ROLE OF COMMITTEE

Enrico Greyling (Chairman)Koosum Kalyan Trevor D Petersen

• To consider and determine the basis on which the directors are to be paid

• To determine the cost of executive remuneration in terms of salaries, incentives, fees, related payments, participation in the group’s equity and benefits in kind

• To evaluate the performance of the Exco against the approved strategy, budgets and KPIs and to approve the amount of executive remuneration and the manner in which it is paid

• To disclose directors’ total emoluments, including their salary and performance-related payments, to shareholders

• To ensure that there is compliance with the Companies Act and any other legislation

The table below summarises the roles and membership of the remuneration committee:


DIRECTOR 2 SEPTEMBER 2015 26 NOVEMBER 2015 1 SEPTEMBER 2016

Enrico Greyling (Chairman) P P P

Koosum Kalyan P P P

Trevor D Petersen P P P

REMUNERATION COMMITTEE MEETINGS ATTENDANCE:

P = Present

REMUNERATION STRATEGY AND POLICY

Petmin’s remuneration strategy aims to attract, motivate and retain competent entrepreneurs and leaders in its drive to create sustainable shareholder value. We aim to attract entrepreneurs as executives to grow the value of the Petmin and to recognise top performance.

Our policies and practices align the remuneration and incentives of executives and employees to the Group’s long-term business strategy and we ensure that our Incentive Scheme is aligned with shareholders.

Details of the executive remuneration scheme which was approved by shareholders at the AGM on 22 May 2015 can be found in Annexure 1 of the 2014 Notice of AGM at www.petmin.co.za.

INCENTIVE SCHEME AND JUNE 2016 ALLOCATIONS

The remuneration of the Executive Committee (Exco) is predominantly performance-driven.

The salient features of the Approved Scheme and allocations to June 2016 are summarised below:

Total Cash Incentives earned to June 2016 amounted to R 32.3 million (as outlined below), vs. total earned to June 2015 (R 31.1 million). Amounts earned but deferred in line with the Approved Scheme amounted to R 3.7 million (amounts deferred June 2015: R 5.8 million).

Guaranteed remuneration of the Executive Committee amounted to R 7.038 million (2015: R 7.038 million).

A June 2014 base earnings per share of 14.95 cents per share was approved by shareholders in the Approved Scheme. This base escalated with CPI (of 6,2% in 2016 and 4,6% in 2015) to 16.61 cents (2015: 15.64 cents) and the actual HEPS achieved (using 576,908,188 shares in issue as a base) amounted to 21.92 cents (2015: 22.81 cents, thus a 14.9% (2015: 46%) real growth in HEPS (using 576,908,188 shares in issue as a base).

As the profit growth was between 10% and 15%, an incentive fee of 3.98% of the sustainable pre-tax profit was earned (2015: in excess of 20%, resulting in an incentive of 5% of the sustainable pre-tax profit being earned), and this amounted to R 7.464 million (2015: R 9.845 million) of which 50% is deferred and payable evenly in the years ending June 2017 and June 2018. Management fees of R 13.49 million (2015: R 14.24) were earned as Petmin achieved a return of 24.27% (2015: 24.18%) (above the 15% hurdle rate) on net operating assets of R 833.27 million (2015: R 883.31 million), and hence the 1% management fee increased to 1.62% (2015: 1.61%).

ALLOCATION OF INCENTIVES EARNED

50% of the allocation is done by Exco and 50% is done by Remcom.



EXECUTIVE REMUNERATION ALLOCATIONS FOR THE YEAR ENDED 30 JUNE 2016

J DU PREEZR’000

B DOIGR’000

B TANNERR’000

L MOGOTSIR’000

GROUP MANAGEMENT

R’000TOTALR’000

Guaranteed remuneration 7 038

Management fee 13 485

NAIC management fee 4 360

Profit share 7 464

Total remuneration cost accrued

32 347

Adjusted for: (2 022)

50% of the 2016 profit share deferred

(3 732)

25% of the 2015 profit share now payable

2 460

Management fee not yet allocated

(750)

Total remuneration to be allocated

30 325

Guaranteed remuneration 2 100 2 100 1 838 1 000 - 7 038

Incentived allocated 8 000 7 500 4 262 1 750 1 775 23 287

Total remuneration allocated

10 100 9 600 6 100 2 750 1 775 30 325

The approved allocation and split between the Executives is outlined in the table below:

This allocation took into account the performance of Petmin during the year to June 2016 and the various individual KPI’s of each executive.



DIRECTORS’ EMOLUMENTS

In compliance with the disclosure requirements of the listing requirements of the JSE, the aggregate remuneration paid to the directors of Petmin for the year ended 30 June 2016 is summarised in the table below.

DIRECTORS OF PETMIN LIMITED I COCKERILL

#

R’000

L MOGOTSI

**

R’000

J DU PREEZ

R’000

B DOIG

R’000

B TANNER

R’000

M ARNOLD

#

R’000

2016 EMOLUMENTS

a Director’s fees 368 117 - - - 334

b Salary - 1 000 2 100 2 100 1 838 -

c Incentive fee - 1 750 8 000 7 500 4 262 -

d Consulting fees 632 283 - - - -

Sub-total 1 000 3 150 10 100 9 600 6 100 334

Total

2015 EMOLUMENTS

a Director’s fees 368 - - - - 278

b Salary - 1 000 2 100 2 100 1 838 -

c Incentive fee - 1 000 6 900 6 400 3 500 -

d Consulting fees 632 - - - - -

Sub-total 1 000 2 000 9 000 8 500 5 338 278

Less: Amount capitalised to capital projects.

Total

All remuneration was payable by Petmin Limited and no remuneration was payable to the directors from Group subsidiary or associate companies.

RETIREMENT AND MEDICAL

Petmin does not have a retirement or medical scheme for its executives.

OTHER FRINGE BENEFITS

No other material fringe benefits are granted to Executive directors.


E GREYLING

#

R’000

K KALYAN

#

R’000

TD PETERSEN

#

R’000

A MARTIN

#

R’000

J TAYLOR

#

R’000

GROUP

EMPLOYEES

R’000

EARNED BUT

UNALLOCATED

R’000

TOTAL

R’000

312 312 335 - - - - 1 778

- - - - - - - 7 038

- - - - - 1 775 2 022 25 309

- - - - - - 915

312 312 335 - - 1 775 2 022 35 040

35 040

224 233 235 - - - - 1 338

- - - - - - - 7 038

- - - - - 750 5 533 24 083

- - - - - - 632

224 233 235 - - 750 5 533 33 091

5 130

27 961

NON-EXECUTIVE DIRECTORS’ REMUNERATION

In respect of non-executive directors, the Remuneration committee proposes fees to be paid for the membership of the Board and Board committees. Such fees are market related commensurate with the time required to undertake their duties and are approved by the Board and shareholders. Approved fees are set for the year and a portion of the fee is subject to attendance of meetings.

Remuneration is not linked to the performance of the Group or its share performance. Specifically, non-executive directors do not receive performance-related bonuses and are not granted share options.

The fees payable during the year ended 30 June 2016 were approved by shareholders at the AGM on 22 May 2015.


It is proposed that the 2016 approved fees as outlined below are to remain unchanged for the 2017 year (to be presented to shareholders for approval at the next AGM)

REPORT OF THE REMUNERATION OF COMMITTEE


NON-EXECUTIVE DIRECTOR FEES2017 PROPOSED

R2016 APPROVED

R

Fees payable for Chairman of the board of directors of the Company R 385 880 R 385 880

Fees payable for the Deputy-Chairman of the board of directors of the Company (previously Executive Director, to become non-executive from the 2015 AGM as announced on 8 September 2015)

R350 000 R350 000

Fees payable to non-executive directors for holding office (per meeting held by the board or sub-committee).

All non-executive directors R 6 064 R 6 064

Fees payable to non-executive directors for holding office (annual fee payable in addition to the fee payable per meeting)

Chairman of the Audit and Risk Committee R 60 640 R 60 640

Chairman of the Remuneration Committee R 38 590 R 38 590

Chairman of all other sub-committees R 29 770 R 29 770

Fee for attendance of a board or sub-committee meeting (payable in addition to the fee for holding office)

All non-executive directors R 24 310 R 24 310

Chairman of the Audit and Risk Committee R 24 420 R 24 420

Chairman of the Remuneration Committee R 24 230 R 24 230

Consultancy Fees for services that may be provided

Hourly Rate R 3 031.900/hr R 3 031.900/hr


TYPICAL REMUNERATION TO BE RECEIVED BY A BOARD MEMBER2017 PROPOSED

R2016 APPROVED

R

- Holding office R 24 230 R 24 230

- 4 Board Meetings per annum R 97 240 R 97 240

- 3 SUB-Committee meetings R 72 930 R 72 930

Total R 194 400 R 194 400

Percentage Change 5% 5%

Fees Received by Chairman R 385 880 R 385 880

Fees received by the Chairman of Audit

- As Chairman R 60 640 R 60 640

Total fees R 255 100 R 255 100

Fees received by the Chairman of Remcom

- As Chairman R 38 590 R 38 590

Total fees R 233 020 R 233 020

Fees received by all other Chairman of sub-committees

- As Chairman R 29 770 R 29 770

Total fees R 224 200 R 224 200

The typical remuneration to be earned by Non-Executive Directors is as follows (for illustrative purposes):

PETMIN INTEGRATED REPORT 2016 REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE124

REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEEfor the financial year ending June 2016

PETMIN INTEGRATED REPORT 2016 125REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE

PETMIN INTEGRATED REPORT 2016126 REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE

REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE

for the financial year ending June 2016

This is the report of the Social, Ethics and Transformation Committee (the committee or SET) for the financial year ending 30 June 2016. It has been prepared in compliance with Section 72 of the Companies Act 71 of 2008. In February 2013, the Board approved the incorporation of the responsibilities of the then Transformation Committee into the terms of reference of the current SET.

The Committee acts as the social conscience of the Company to ensure that it is a responsible corporate citizen. The Committee has terms of reference that comply with the Companies Act and King III Code of Corporate Governance and are approved by the Board.

ROLES AND RESPONSIBILITIES OF THE COMMITTEE

The role of the Committee is to monitor, review and report on the performance of each of the Company’s activities related to:• Social and economic development• Transformation• Corporate citizenship• Safety, health and environment• Labour and employment• Governance of ethics• Legislative and regulatory compliance• Stakeholder engagement

The full terms of reference of the Committee can be found on the Company’s website.

MEMBERS OF COMMITTEE

The members of the Social and Ethics Committee are Mr Millard Arnold (Chairman: independent non-executive director), Ms Koosum Kalyan (independent non-executive director), Ms Lebo Mogotsi (executive director to 15 February 2016 and non-executive thereafter); Mr Bruce Tanner (executive director). The operational managers reporting into the committee as permanent invitees are Ms Joyce Makhema (Somkhele Stakeholder Manager – resigned September 2016) and Ms Neliswa Rampago (committee secretary). Other operational managers are invited as and when required to report on their key areas of responsibilities.

COMMITTEE MEETING ATTENDANCE

During the year under review, three Committee meetings were held as outlined in the table below.

DIRECTOR 19 AUGUST 2015 2 NOVEMBER 2015 19 FEBRUARY 2016

Millard Arnold (Chairman) Present Present Present

Koosum Kalyan Present By telephone Present

Lebo Mogotsi Present Present Present

Bruce Tanner Present Present Present

Joyce Makhema (Invitee) Present Present Present

Neliswa Rampago (Invitee) Present Present Present

PETMIN INTEGRATED REPORT 2016 127REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE

1. We are pleased to report that Somkhele continues to apply strict operational safety standards and that the mine’s safety record since it was commissioned in June 2007 is a commendable 0.227 progressive LTIFR, which is marginally worse than the 0.214 reported in at June 2015. The Committee continues with its oversight role on safety, health and environment issues through the SHE committee established at the mine. There were no material SHE issues reported in the year under review.

2. As previously reported in 2015, a reported incident of unethical behaviour by a senior manager was uncovered at Somkhele. The Petmin management team has reviewed the ethical framework of the business to identify areas for strengthening and improving the ethics culture of the Group. To this end, all of the senior management at Somkhele have signed a written ethics undertaking whereby they commit themselves to adherence to Petmin’s Code of Ethics.

3. The Committee reviewed and recommended changes to several of the Group policies, including the Sexual Harassment Policy, Code of Ethics, Procurement and Tender Policy.

4. The Committee continues to review and monitor the labour and employment relations environment in the South African mining industry, and is pleased that the wage negotiation undertaken by the mine in May 2015 successfully resulted in a two-year wage agreement being executed and implemented without any strike action by employees.

5. Following two years of intensive negotiations, a BEE transaction was concluded at Somkhele, with the community and the Employees acquiring 16% and 4 % respectively, subject to shareholder approval. The Committee regards this achievement as a critical step in aligning the interest of all key internal stakeholders and the Company’s shareholders.

6. The Committee continues to monitor the mine’s engagement with all key stakeholders and the relationship with the community. To ensure that community complaints are addressed and that the Committee is appraised of crucial issues, an annual meeting of the Committee has been scheduled at the mine to provide Committee members with insights into the community and better awareness of the local environment. The meeting of August 2015 was held at Somkhele and the committee interacted with local community leaders and visited various of the Somkhele operational areas and projects related to its SLP programme.

7. The Committee is aware that a limited supply of water in the area continues to be a key concern for the community. To address the concern, mine management has established water points throughout the community and is supplying water at its own cost to the community by way of water bowsers. The mine is currently in discussion with the municipality in developing a long term sustainable solution to the problem.

Millard ArnoldChairman

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