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Morupule South

Mining section of the pre-feasibility study Client: Shumba Energy Prepared by: Ukwazi Mining Studies (Pty) Ltd

Morupule South PFS Page 2 of 63 Shumba Energy Ukwazi© 18 September 2017

Hazel Close, Unit 4B, First Floor, 141 Witch-hazel Avenue, Highveld, Centurion, South Africa

Private Bag X159, Centurion, 0046 Tel. +27 (0)12 665 2154 Email. [email protected] Registration Number: 2016/224365/07 Directors: JJ Lotheringen, H Tukker, Ntokoza Xaba, Rogers Sitole

Table of contents 1. Introduction ....................................................................................... 6 1.1. Study approach ................................................................................................... 6 1.2. Definition and reporting standards .................................................................... 6 1.3. List of acronyms .................................................................................................. 9 2. Property location and description .................................................. 11 2.1. Geographical location ....................................................................................... 11 2.2. Background information ................................................................................... 12 2.3. Local rivers and streams .................................................................................. 12 2.4. Rainfall ............................................................................................................... 13 2.5. Prospecting license .......................................................................................... 14 2.6. Ownership and surface rights .......................................................................... 14 3. Geology ............................................................................................ 15 3.1. Regional geology .............................................................................................. 15 3.2. Geology modelling ............................................................................................ 17 3.3. Targeted seams ................................................................................................. 18

Seam depths .............................................................................................................. 18 3.3.1. Seam thickness ......................................................................................................... 21 3.3.2.

3.4. Geophysics ........................................................................................................ 24 3.5. Coal Resource statement ................................................................................. 25 4. Mining model ................................................................................... 29 5. Mine design criteria ......................................................................... 31 5.1. Environmental ................................................................................................... 31 5.2. Infrastructure ..................................................................................................... 31 5.3. Servitudes .......................................................................................................... 31 5.4. Groundwater ...................................................................................................... 31 5.5. Geotechnical ...................................................................................................... 32 5.6. Access ramps and haul roads ......................................................................... 32 6. Basis of estimate ............................................................................. 33 6.1. Mining related modifying factors ..................................................................... 33 6.2. Equipment selection ......................................................................................... 33 6.3. Mining block layout ........................................................................................... 33 7. Productivity ...................................................................................... 33 7.1. Excavator productivity rates ............................................................................ 33 7.2. Productivity ramp-up ........................................................................................ 34 8. Labour .............................................................................................. 34 9. Processing parameters ................................................................... 34 10. Mine design ...................................................................................... 34 10.1. Mining target areas ........................................................................................... 34 10.2. Mining blocks .................................................................................................... 36 10.3. Pit design ........................................................................................................... 38 10.4. Mine design ....................................................................................................... 38 10.5. Boxcut location ................................................................................................. 38 10.6. Wash analysis.................................................................................................... 40 11. Life of mine scheduling ................................................................... 40 11.1. Mine scheduling ................................................................................................ 40 11.2. Scheduling model ............................................................................................. 40




11.3. Scheduling calendar ......................................................................................... 41 11.4. Boxcut establishment ....................................................................................... 41 11.5. Steady state ....................................................................................................... 42 11.6. Production profile ............................................................................................. 42 12. Mineral Reserve estimate ................................................................ 50 13. Cost estimate ................................................................................... 51 13.1. Introduction ....................................................................................................... 51 13.2. Scope of work .................................................................................................... 51 13.3. Basis of estimate ............................................................................................... 51 13.4. Assumptions...................................................................................................... 52 13.5. Scenarios ........................................................................................................... 52 13.6. Study inputs ...................................................................................................... 52

Production schedule ................................................................................................. 52 13.6.1. Washability ................................................................................................................ 53 13.6.2.

13.7. Operating costs ................................................................................................. 53 Industry related contractor mining .......................................................................... 53 13.7.1. Site establishment ..................................................................................................... 54 13.7.2. Equipment mobilisation ............................................................................................ 54 13.7.3. Preliminary and general ............................................................................................ 54 13.7.4. Industry related processing costs ........................................................................... 54 13.7.5. Management labour .................................................................................................. 55 13.7.6. Other production costs ............................................................................................. 55 13.7.7. General and overhead costs..................................................................................... 55 13.7.8.

13.8. Capital costs ...................................................................................................... 56 Capital estimates ....................................................................................................... 56 13.8.1.

13.9. Scenario outputs ............................................................................................... 56 Preferred scenario highlight results ........................................................................ 57 13.9.1. Preferred scenario production costs ....................................................................... 57 13.9.2.

13.10. Recommendation .............................................................................................. 57 14. Mining risk analysis ........................................................................ 58 15. Future studies .................................................................................. 58 16. Certificate of Competent person .................................................... 59




List of figures Figure 1: General relationship between Coal Resource and Coal Reserve ................................6 Figure 2: Locality map .............................................................................................................. 11 Figure 3: Project locality and infrastructure .............................................................................. 12 Figure 4: Lotsane river with other water courses ...................................................................... 13 Figure 5: Prospecting license .................................................................................................... 14 Figure 6 : General stratigraphy .................................................................................................. 15 Figure 7: Geological structures ................................................................................................. 16 Figure 8: Coal extend ................................................................................................................ 17 Figure 9: Seam SLB depth ....................................................................................................... 18 Figure 10: Seam S2B3 depth ................................................................................................... 19 Figure 11: Seam S2B2 depth ................................................................................................... 19 Figure 12: Seam S2B depth ..................................................................................................... 20 Figure 13: Seam SMT depth .................................................................................................... 20 Figure 14: Seam SMB depth ..................................................................................................... 21 Figure 15: Seam SLB thickness ................................................................................................ 21 Figure 16: Seam S2B3 thickness ............................................................................................. 22 Figure 17: Seam S2B2 thickness ............................................................................................. 22 Figure 18: Seam S2B thickness ............................................................................................... 23 Figure 19: Seam SMT thickness .............................................................................................. 23 Figure 20: Seam SMB thickness .............................................................................................. 24 Figure 21: Morupule South potential discontinuity .................................................................... 25 Figure 22: Seam SLB Coal Resource classification ................................................................. 26 Figure 23: Seam S2B3 Coal Resource classification ............................................................... 26 Figure 24: Seam S2B2 Coal Resource classification ................................................................ 27 Figure 25: Seam S2B Coal Resource classification ................................................................. 27 Figure 26: Seam SMT Coal Resource classification ................................................................. 28 Figure 27: Seam SMB Coal Resource classification ................................................................ 28 Figure 28: Total prospecting area ............................................................................................ 29 Figure 29: Reconciliation focus area ........................................................................................ 30 Figure 30: Estimated resource boundary on google earth ........................................................ 31 Figure 31: Seam SMB depth plan with identified mining areas ................................................. 35 Figure 32: Seam SMT depth plan with identified mining areas ................................................. 35 Figure 33: Mine operational footprint ........................................................................................ 38 Figure 34: Boxcut orientation with surface infrastructure .......................................................... 39 Figure 35: Boxcut position 3 dimensional ................................................................................. 39 Figure 36: Typical boxcut design .............................................................................................. 41 Figure 37: Period progress plot ................................................................................................ 42 Figure 38: LOM ROM tonnes (CAD) ........................................................................................ 42 Figure 39: LOM Waste volumes ............................................................................................... 43 Figure 40: LOM ash (CAD) ...................................................................................................... 43 Figure 41: LOM CV (CAD) ....................................................................................................... 44 Figure 42: LOM yield ................................................................................................................ 44




List of Tables Table 1: Definitions ....................................................................................................................7 Table 2: Acronyms .....................................................................................................................9 Table 3: Rainfall data ............................................................................................................... 13 Table 4: Borehole density for resource classification ................................................................ 18 Table 5: Coal Resource statement (2012) ................................................................................ 25 Table 6: Reconciliation –Surpac vs Minex ................................................................................ 30 Table 7: Pit geotechnical design criteria ................................................................................... 32 Table 8: Modifying factors ........................................................................................................ 33 Table 9: Excavator instantaneous productivity rate .................................................................. 34 Table 10: Identified mining areas quality and quantities ........................................................... 36 Table 11: Identified mining areas waste volumes ..................................................................... 37 Table 12: Mine design parameters ........................................................................................... 38 Table 13: Excavator scheduling calendar ................................................................................. 41 Table 14: Detail schedule results for the 1.5Mtpa..................................................................... 45 Table 15: ROM coal reserve estimates .................................................................................... 50 Table 16: Product coal reserve estimates ................................................................................ 50 Table 17: Price ZAR/tonne (per scenario) ................................................................................ 52 Table 18: Seam practical average yields .................................................................................. 52 Table 19: Mining quantities ...................................................................................................... 53 Table 20: Unit rates for current contract mining at Morupule .................................................... 54 Table 21: Site establishment .................................................................................................... 54 Table 22: Equipment mobilisation ............................................................................................ 54 Table 23: Preliminary and general ........................................................................................... 54 Table 24: Processing costs ...................................................................................................... 55 Table 25: Handling costs .......................................................................................................... 55 Table 26: Management labour ................................................................................................. 55 Table 27: Other production costs ............................................................................................. 55 Table 28: General and overhead costs .................................................................................... 56 Table 29: Capital estimates ...................................................................................................... 56 Table 30: NPV per scenario ..................................................................................................... 56 Table 31: Key financial measures ............................................................................................ 57 Table 32: Summary of OPEX ................................................................................................... 57 Table 33: Production unit costs ................................................................................................ 57




1. Introduction 1.1. Study approach Ukwazi Mining Studies (Pty) Ltd (“Ukwazi”) conducted the mining section of the prefeasibility study (“PFS”) to define the mine configuration, technical and economic potential of the Morupule South coal project. This estimate type is used for the selection of technical options to proceed to a feasibility study and a Coal Reserve estimate. The estimate detail developed during this study is not adequate to allow for sufficient control during implementation. This study represented the most realistic assessment of the project's capital requirement. The PFS specifically focused on the mine configuration, access, production, equipment, mine design, mining schedule, and an appropriately detailed cost model. The overall study level of accuracy was sufficient for a Competent Person, acting reasonably, to determine if all or part of the Coal Resource could classify as a Coal Reserve. 1.2. Definition and reporting standards The South African Coal Resource Code 2016 (“SAMREC”) was used as the compliance requirement for this project. This code provides the framework and standards for Coal Reserve reporting and contains general coal specific standards. The SANS 10320:2004 South African guide to the systematic evaluation of Coal Resources and Coal Reserves was applied as a supplementary guideline. Based on SAMREC, Public Reports dealing with Exploration Results, Coal Resources and Coal Reserves must use the terms Proved or Probable Coal Reserves, Measured, Indicated and Inferred Coal Resources and Exploration Results as set out in Figure 1.

Figure 1: General relationship between Coal Resource and Coal Reserve




The terms set out in Table 1 shall, unless the context otherwise indicated, apply in relation to this Code. Table 1: Definitions Criteria Explanation Dilution/ Contamination Waste material that is mined during the course of coal mining operations and thereby forms part of the Reserve

Discard and Reject Coal

Discard and Reject Coal are coal or carbonaceous material resulting from mining or coal processing operations with quality parameters that place it outside the current range of saleable coals.

Economical Mineable Extraction of the Coal Reserve has been demonstrated to be viable and justifiable under a defined set of realistically assumed modifying factors.

Life of Mine Plan

A design and costing study of an existing operation in which appropriate assessments have been made of realistically assumed geological, mining, metallurgical, economic, marketing, legal, environmental, social, governmental, engineering, operational and all other modifying factors, which are considered in sufficient detail to demonstrate at the time of reporting that extraction is reasonably justified.

License, Permit, Lease of similar entitlement

Any form of license, permit or lease, including new- or old order rights or other entitlement granted by the relevant Government in accordance with its mining legislation that confers on the holder certain rights to explore for or extract Coals (or both) that might be contained in the designated area. Alternatively, any form of title that may prove ownership of the Coals.

Mineable Those parts of the ore body, both economic and uneconomic, that can be extracted during the normal course of mining.

Mine design

A framework of mining components and processes taking into account such aspects as mining methods used, access to the ore body, personnel and material handling, ventilation, water, power, and other technical requirements, such that mine planning can be undertaken.

Mine planning

Production planning and scheduling, within the Mine Design, taking into account such aspects as geological structures and mineralization and associated infrastructure and constraints.

Modifying factors “Modifying Factors’ include mining, metallurgical, economic, marketing, legal, environmental, social and governmental considerations.

Coal Reserve

A ‘Coal Reserve’ is the economically mineable material derived from a Measured or Indicated Coal Resource or both. It includes diluting and contaminating materials and allows for losses that are expected to occur when the material is mined. Appropriate assessments to a minimum of a Pre-Feasibility Study for a project and a Life of Mine Plan for an operation must have been completed, including consideration of, and modification by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors (the modifying factors). Such modifying factors must be disclosed.

Ore Reserve

Although the term Coal Reserve is used throughout this Code, it is recognized that the term Ore Reserve is still in general use. For the purposes of reporting under the SAMREC 2009 Code, these terms are considered to be synonymous.

Prefeasibility study

A comprehensive study of the viability of a range of options for a Coal project that has advanced to a stage at which the preferred mining method in the case of underground mining or the pit configuration in the case of an open pit has been established and an effective




method of mineral processing has been determined. It includes a financial analysis based on realistic assumptions of technical, engineering, operating, economic factors and the evaluation of other relevant factors that are sufficient for a Competent Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve. The overall confidence of the study should be stated. A Pre-feasibility Study is at a lower confidence level than a Feasibility Study.

SAMREC The South African Mineral Resource Committee




1.3. List of acronyms Table 2: Acronyms Abbreviation Description Ad Air dry ADB Air dry basis Ar As received ASH% Raw ash content BCM Bank cubic metre BMT Basement Capex Capital expenditure CAD Contaminated and air dried CAR Contaminated and as received CHPP Coal Handling Preparation Plan CF Contamination factor CM Continuous miner PL Prospecting license PLA Prospecting license Area CV Calorific value CV (MJ/kg) Raw calorific value expressed in mega joules per kilogram DAFVM Dry ash free volatile matter DB Dry basis Deg Degree (angle) or reference to temperature Dia Diameter FC Fixed carbon FLF Fines loss factor g Gramme GTIS Gross tonnes in situ H Hours h/a Hours per annum ha Hectare IH2O Inherent moisture IM Inherent moisture

JORC Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012)

SAMREC South Afircan Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves kg Kilogram LDV Light duty vehicle LHD Load haul dumper LOM Life of mine M Million m Metre m2 Square metre m3 Cubic metre m/s Metre per second m3/s Cubic metres per second m3/h Cubic metres per hour mamsl Metres above mean sea level MJ/kg Mega-joules per kilogramme Microstation Bentley Microstation software mm Millimetre Mtpa Million tonnes per annum Mt Million tonnes OEM Original equipment manufacturer Opex Operating expenditure R South African Rand PFS Pre-feasibility study RD Relative density ROM Run of mine SF Safety factor SIBC Stay in business capital t Tonne (metric) t/m3 Tonnes per cubic metre




Abbreviation Description TS Total sulphur UC Uncontaminated UCAD Uncontaminated Air Dried ( In situ volume) CAD Contaminated Air Dried ( volume includes modifying factors) Ukwazi Ukwazi Mining Studies (Pty) Ltd USD United States Dollar USD-million Million United States Dollar UV Utility vehicle VM Volatile matter WACC Weighted Average Cost of Capital WBS Work breakdown structure Xpac Xpac mine scheduling software by RungePincockMinarco




2. Property location and description 2.1. Geographical location The locality of Morupule South is indicated in Figure 2. It is situated between 5km and 25km to the west of the A1 main road and 15km south of the Morupule Coal Mine (“MCM”) and power station in Botswana and ideally positioned for road and rail infrastructure.

Figure 2: Locality map




Figure 3 illustrates the project boundary in relation to local infrastructure such as the roads, railway, and river and water courses (or streams) based on the available GIS information.

Figure 3: Project locality and infrastructure 2.2. Background information Shumba Energy is listed on the Botswana Stock Exchange with a focus to become a leading coal producer. The selected mine configuration, for surface and mining infrastructure, is to produce a cost effective 1.2Mtpa product or in the order of 1.5Mtpa ROM. Mining layouts and boxcut designs were designed and scheduled. The compilation of the cost estimate was based on a combination of estimation techniques, including market quotations, benchmarking, factoring and unit costs. The principal use of these estimates was to:

Evaluate and qualify the project for further study Evaluate a go forward case to be investigated in the next level of study Estimate an appropriate level of detail operational and capital cost estimates.

2.3. Local rivers and streams The study area falls within the upper catchment area of the Lotsane river, an ephemeral river that drains eastwards to the Limpopo river. The Lotsane river rises from spring lines formed at the base of the sandveld escarpment to the west. The study area lies at an elevation of approximately 950 metres above mean sea level (“mamsl”) within the Lotsane river catchment, which is characterised by gently rolling plains. The topographic gradient is southeast sloping towards the town of Palapye, approximately 5km away. The ephemeral Lotsane river rises at the Serowe escarpment some 30km to the west and runs west to east and is the major drainage feature in the area, having incised a channel 2m to 3m below the surrounding landscape. The depth of the incised Lotsane river channel is believed to be due primarily to drain off the Serowe escarpment with slight contribution from the prospecting license area. A spring line marks the base of the sandveld escarpment; the springs were active during an older pluvial period and no




longer flows. Figure 4 illustrates the mineral prospecting area, which is larger than the current prospecting license area, in relation to the Lotsane river.

Figure 4: Lotsane river with other water courses 2.4. Rainfall The climate of the study area is typical of semi-arid regions, with relatively cold, dry winters and hot wetter summers. Climatological data, regularly monitored by Botswana Power Corporation (“BPC”), includes rainfall, temperature and wind speed and direction. These details are made available to the Department of Waste Management and Pollution Control, who compile the results in the annual air pollution control reports. Annual rainfall averages show temporal and spatial variation, which is typical of arid and semi-arid environments. The prevalent wind directions at the Power Station are in an eastern and north-eastern direction. Temperatures show large seasonal and daily variation. The average monthly high summer temperature is 30°C and the average monthly low winter temperature is 7°C. The total rainfall in the 2013 water year was above average (446mm for 2012 to 2013 ‘wet season’) compared to the long term average (1989/90 to 2012/3) of just under 400mm/year. Serowe has by comparison a higher rainfall average for the same period at 450mm/year. Table 3 indicates the rainfall data gathered from in the region for the years 1989 to 2014. Table 3: Rainfall data

Weather station Period Mean average [mm] Max [mm] Min [mm] Palapye 1989 to 2014 397 780 150 Serowe 1994 to 2014 450 820 230

No major rivers exist on the project area although various water courses may be active during the rainy season in a southern direction from the Lotsane river.




2.5. Prospecting license Morupule South Resources (Pty) Ltd is the holder of prospecting license PL121/2010 as illustrated in Figure 5 that is the only statutory rights at the time of compiling this report.

Figure 5: Prospecting license 2.6. Ownership and surface rights Shumba Energy owns an effective 75% of the prospecting license to the Morupule South project and SDNP Manufacture Mining & Construction Services (Pty) Ltd the balance of 25%. The Department of Environmental Affairs (“DEA”) requires the issuing of surface rights over the Morupule South project area, by the Botswana Land Board, before approval can be given for the EIA process to commence. At the time of compiling this report Shumba Energy has applied for the provincial surface rights over the Morupule South project area in order to facilitate the EIA process. The EIA must be complete and approve by the DEA before any substantive rights can be applied for by Shumba Energy.




3. Geology 3.1. Regional geology The Morupule area is underlain by Ecca and Dwyka Group strata of the Karroo SuperGroup composed predominantly of shale and mudstone, with subordinate amounts of siltstone, coal, sandstone and tillite. The Karroo strata rest unconformably on red and green shales and flaggy quartzite’s of the Waterberg System, which sub outcrops to the East of the area. Overlying these rocks is a “blanket‟ of up to 30m of Kalahari Beds, consisting of sand, unconsolidated and semi-consolidated pebble beds and gravels, calcrete and ferricrete. The coal-bearing sequence is overlain by a variable development of the so-called “Serowe Siltstone” unit and underlain by the “Kamotaka Formation”, equated to the Dwyka Group sediments. The general stratigraphic column is shown in Figure 6

Figure 6 : General stratigraphy




Four principal coal zones can be recognised within a sequence of predominantly argillaceous material forming the “coal measures” in this locality. The coal zones may be correlated to the Volksrust Formation within the Ecca Group as described in South Africa. At or towards the base of each of the coal “zones” a “selected” sub-zone (or “seam”) enriched in coaly material can generally be recognised. The No.1 “Coal zone‟ containing the Morupule Main seam is the thickest and most consistently developed seam at Morupule. All four seams are, however, mineable in some places, although No. 2 seam tends to be generally of more inferior quality, while No. 3 seam and No.4 seam, also known as the Lotsane coal seams, are relatively thin. The Serowe Bright seam is located at the top of the overlying Serowe formation. The coal seams are relatively flat-lying with mostly a gentle (2º to 3º) dip towards the axis of an inferred paleo-valley feature which crosses the area. Due to the low dip of the strata the coal seams tend to sub-outcrop against a relatively flat surface beneath the superficial deposits. Dolerite intrusions of Stormberg Age are known in parts of the area, occurring as sills as well as dykes and fault-zone infill. The structure of the area is relatively complex with a predominant fault pattern which trends NNW-SSE and which is mimicked by the dolerite dyke pattern. Secondary faults with NW-SE and NE-SW orientation are also present. The overall structure is in the form of a “horst and graben” type environment. The structural geology is illustrated in Figure 7

Figure 7: Geological structures The coal measures dip mainly in a north-easterly direction at a shallow angle towards a major paleo-drainage feature. The dolerite dyke intensity in this area is indicated as being considerable, resulting in the splitting of resources into relatively restricted sub-blocks. There is evidence of some structural disturbance with elongate blocks of strata displaced to different elevations. The distribution of coal in this area appears, based on precursory examination of the available data to be controlled by a combination of the following factors:

Weathering of the coal along sub-outcrop, due to the overall dip of the strata (sub-outcropping beneath superficial deposits)

Structurally controlled by fault displacements Possible unconformity between the underlying formation and the coal measures

resulting in non-deposition of the lowermost seam(s).

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Morupule Main seam is correlated and modelled across the prospect area, as it is the main economical coal zone and been positive identified and correlated in most boreholes. The Serowe Bright Seam has been correlated in a number of boreholes and seems to be limited to the deeper north-western areas. Figure 8 indicates extend of the coal seams to be scheduled and excavated.

Figure 8: Coal extend 3.2. Geology modelling Gemecs (Pty) Ltd (“Gemecs”) constructed the project geological model in Geovia Minex (“Minex”). A Coal Resource estimate was stated on behalf of Shumba. Roof and floor surfaces were created in three dimensions (“3D”) and thickness grids estimated for each layer. Coal extrapolation was limited to 500m from the last borehole with data which is deemed to be appropriate for this geological setting and data distribution. Raw coal qualities were modelled for each seam and consisted of:

Relative Density (“RD”) Calorific Value (“CV”) Ash (“AS”) Inherent Moisture (“IM”) Volatile Matter (“VM”) Total Sulphur (“TS”).

Dry ash-free volatiles (“DAVF”) was calculated from the relevant grids and reported with the raw coal qualities. All coal qualities were reported on an air dried basis. The coal resource category was defined based on borehole density and spatial distribution of the cored and sampled boreholes. Boreholes with insufficient or no analytical data were excluded from this classification process. The borehole density used as basis of the resource classification is based on the SAMREC classification guidelines as shown in Table 4 below.

N




Table 4: Borehole density for resource classification SAMREC Resource classification Drill density boreholes/ 100ha Approximate drill grid size Measured >8 0m x 350m Indicated 4-8 350m x 500m Inferred 1 500m x 1000m

The geological cut-off criteria applied in the Coal Resource estimate was based on a minimum seam thickness of 1m. Geological losses were applied based on the level of uncertainty of the estimation and to make provision for expected losses that might result from unidentified dolerite dykes, faults, sills, devolatilised coal, burnt coal zones and weathering as is evident from the available aeromagnetic and structural interpretations. These losses were applied per Coal Resource classification zone:

Measured = 5% Indicated =10% Inferred = 40% Un-class = 60%.

3.3. Targeted seams Not all the coal seams were available in the prospecting area. In situ Coal Resources are reported for four coal seams that have economic potential in the area:

1) Serowe Bright seam (“SSB”) 2) Lotsane Bright seam (“SLB”) 3) No.2 Bottom seam (“S2B”) 4) No.2 Middle seam (”S2B2”) 5) No.2 Top seam (“S2B3”) 6) Morupule main seam that is split into a top (“SMT”) and bottom (“SMB”) unit.

The Upper coal zone, SSB is not present in the area due to the weathering.

Seam depths 3.3.1.The Lower bottom seam (“SLB”) seam depth varies from 20m to 200m below surface with the bulk of the resource at a depth of 20m to 80m as seen in Figure 9.

Figure 9: Seam SLB depth




Figure 10 shows the bulk of the S2B3 seam that exists at a depth below surface of 20m to 100m.

Figure 10: Seam S2B3 depth Figure 11 shows the bulk of the S2B2 seam that exists at a depth below surface of 20m to 80m.

Figure 11: Seam S2B2 depth




Figure 12 shows the bulk of the S2B seam that exists at a depth below surface of 40m to 80m.

Figure 12: Seam S2B depth Figure 13 shows the bulk of the SMT seam that exists at a depth below surface of 40m to 80m and marks it more viable for open cut mining methodology due to the extent of the Coal Resource in relation to the prospecting area.

Figure 13: Seam SMT depth




Figure 14 shows the bulk of the SMB seam that exists at a depth below surface of 60m to 80m, the lowest seam on the stratigraphy. Favourable for open cut mining methodology due to the continuity of the coal seam.

Figure 14: Seam SMB depth

Seam thickness 3.3.2.The multiple coal seams within the project area continue laterally. Individual seam thicknesses range from 1m to 4m. The thickness of the main seam ranges between 6m to 12m. Figure 15 shows the SLB seam thickness.

Figure 15: Seam SLB thickness




The S2B3 seam thicknesses range from 1m to 3m with the majority within the range of 2m to 3m as shown in Figure 16.

Figure 16: Seam S2B3 thickness The S2B2 seam thicknesses range from 1m to 3m with the majority within the range of 0.1m to 2m as shown in Figure 17.

Figure 17: Seam S2B2 thickness




The S2B seam thicknesses range from 1m to >12m with the majority within the range of 3m to 12m as shown in Figure 18 (This statement is not correct – see below)

Figure 18: Seam S2B thickness The SMT seam thicknesses range from 6m to 12m as shown in Figure 19

Figure 19: Seam SMT thickness




The SMB seam thicknesses range from 1m to 12m with the majority within the range of 1m to 5m as shown in Figure 20

Figure 20: Seam SMB thickness 3.4. Geophysics It is clear that the Morupule magnetic domains of which roughly 60% are probably dolerite sills, the balance being capping basalts and basement granite. The project area is cut in roughly a northern and southern section by a major east west to east south east trending basement discontinuity, the latter being associated with what appears to be a mafic dyke. The discontinuity is disrupted significantly by north-west trending faults. The horizontal displacement of an inferred basement mafic dyke is more than 2.5km over the south. Dense network (spider web) of dolerite sills is evident over the north quadrant of the project area, the presence of which could pose serious challenges to coal mining.




Another prominent feature of the survey area, as inferred from the magnetic data, is the frequent and common occurrence of (stratigraphic) level changes of the dolerite sills which has significant implications in terms of loss-of-ground, burning of the coal seams. Figure 21 illustrates the discontinuities of Morupule South.

Figure 21: Morupule South potential discontinuity 3.5. Coal Resource statement This Coal Resource statement was prepared based on a geological Coal Resource model created in Gemcom MinexTM from base principles by NJ Denner, a full-time geologist at Gemecs. (ref. Morupule South_Resource_Report_JUL2012(Gemecs)). In situ Coal Resources are reported for four coal seams that have economic potential in the area:

7) Serowe Bright seam (“SSB”) 8) Lotsane Bright seam (“SLB”) 9) No.2 Bottom seam (“S2B”) 10) Morupule main seam that is split into a top (“SMT”) and bottom (“SMB”) unit.

In situ Coal Resources are reported for the total prospect licence area. A total gross in situ Coal Resource of an estimated 2.4Billion tonnes Tonnes are reported for the Morupule South prospect, of which 2.0Billion tonnes (83%) are attributed to the Morupule Main seam. Table 5 below indicates the coal resource statement. Table 5: Coal Resource statement (2012)

Seam Resource area [km2]

Coal area [km2]

GTIS [Mt]

Geological loss [%]

Insitu tonnes

[Mt]

Thickness [m] Average depth [m]

SSB 120 16 32 15 27 1.2 63.0 SLB 73 319 271 2.6 88.0 S2B 13 40 34 1.9 94.0 SMT 57 1 010 859 10.3 110.0 SMB 83 965 820 7.3 128.0

2 366 2 011

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4. Mining model A mining block model was constructed on a 50m x 50m data grid spacing in Geovia Surpac (“Surpac”) based on the data grids as in the Minex geological model. The mining model was used to determine the target mining area for the application of mining related modifying factors, general mine planning and to provide an import to the scheduling software for Coal Reserve reporting purposes. Global reconciliation within the Coal Resource polygons was done within both the Minex grid model and the Surpac mining block model to ensure that no Coal Resources were created or destroyed in the mining model. Morupule South prospecting area consists of a strike distance of approximately 30km with 50% of the strike for possible opencast mining and 50% for underground operation. The reconciliation model focused on the opencast portion which was determined based on stripping ratio, ratio of the volume of overburden (bcm’s) required to extract one tonne of ROM coal. Figure 28 illustrates the total strike extent of the prospecting area.

Figure 28: Total prospecting area




Figure 29 illustrates the focus area for the reconciliation of the mining model and the Coal Resource model.

Figure 29: Reconciliation focus area Reconciliation variances in Table 6 exist within an acceptable level of accuracy for this level of study. Table 6: Reconciliation –Surpac vs Minex

Seam Class name Coal area [%] Coal volume [%] Insitu tonnes [%]

SMB

Measured -2 -2 -2 Indicated -3 -3 -3 Inferred -1 -4 -4

Unclassed 20 -6 -6

SMT


Unclassed -11 -9 -8

S2B

Measured -3 -3 -3 Indicated -3 -3 -3 Inferred 0 -2 -2

Unclassed 6 41 41

S2B2

Measured -3 -3 -3 Indicated -3 -3 -3 Inferred 4 0 0

Unclassed 19 18 18

S2B3

Measured -3 -3 -3 Indicated -3 -2 -2 Inferred 4 1 1

Unclassed 25 16 17

SLB


Unclassed -28 7 7




5. Mine design criteria 5.1. Environmental There are farms within the project area that only keep livestock, with some farms that grow traditional crops such sorghum, maize and beans. Some residents collect firewood for household consumption, while others sell firewood collected from the area to generate cash income to sustain household livelihoods. The prospecting license area is currently not densely populated for its designated land use. Due to the lands areas proximity to Palapye and Serowe, most people have now made the area their permanent residence. Figure 30 illustrates the resource boundary indicated in red in relation to the town of Palapye.

Figure 30: Estimated resource boundary on google earth 5.2. Infrastructure No infrastructure exists in the project area that constituted a design constraint. 5.3. Servitudes Only a powerline on the eastern side of the project forms part of the servitudes, which constituted a design constraint. 5.4. Groundwater The groundwater potential of the Ecca Group, Kamatoka sandstone aquifer is unknown in the study area. Notwithstanding, the Ecca Group sandstones elsewhere in Botswana constitute a major groundwater resource with wellfields established at Jwaneng, Botlhapatlou, Dukwi, Chidumela and near Toteng. The sandstone occurs at shallow depth in eastern portion of the Morupule South prospecting area and is not therefore considered as an aquifer. Down dip, to the east, in to the sedimentary basin the Kamatoka sandstone is thought to have the potential to meet the MSR water demand. Ecca groundwater tend to be hard and can be both corrosive and have a high encrustation potential.

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5.5. Geotechnical The Kalahari sand appears to be absent over the proposed opencast area of the lease area, and no significant sand slopes are to be expected. The immediate surface material that can be dug freely will be expected to have a loose angle of repose of 37 degrees. The in situ weathered materials (both hard and soft weathering) in the benches are expected to be stable at a dug angle of 70º to 80º, with a bench height equivalent to the reach of the equipment in use. This is typically 8m to13m; however the bench heights can be designed on site to comply with the lifts that must be dug to expose the coal. No spoiling is allowed into water, as this will greatly decrease the slope stability of the material. Partings above 1m in thickness could be mined in a separate process and must have dedicated mining benches. Pre-split blasting is the engineered technique used to mitigate some of the geological disturbances that may occur. When the pre-split is correctly designed and implemented, it is easier for mine operators to determine for themselves the normality of the wall where they are working. The pre-split blast can be vertical as the number of mining benches are expected to be relatively low in a steady state pit. Deep weathered strata (Free dig conditions) maintain the bench face angle at 60º or as custom and practise dictates as the formation is opened up. The wall or bench height is controlled by the thickness of the formation exposed, but must not exceed the reach of mining equipment used. “Solid Rock” includes fine and coarse-grained sandstone and the clastic mudstone, in these conditions, 90º highwalls can be implemented. No geological structures identified in the core logging, apart from bedding planes, jointing may be expected. The geotechnical design parameters are shown in Table 7. Table 7: Pit geotechnical design criteria

Parameter Unit Criteria Weathered material bench angle Degrees 60 Weathered material berm width m 10 Weathered material bench height m To be modelled Hard material bench angle Degrees 90 Hard material berm width m 10 Hard material bench height m To be modelled Coal material bench angle Degrees 90 Coal material bench height m To be modelled Topsoil bench angle Degrees 45 Topsoil height m 1

5.6. Access ramps and haul roads Ramps and haul roads were designed based on the mining footprint and method. Haul roads and ramps incorporated the best fit purpose of equipment and layouts. Roads and ramps were designed at 3.5 times the width of the largest selected truck to allow for a dual carriage way. Appropriate allowance was made in the ramp and road width to separate the mining equipment and light vehicle traffic. Ramps for the mining trucks were designed to 1:10 inclination.




6. Basis of estimate 6.1. Mining related modifying factors Modifying factors are based on considerations used to convert Coal Resources to run of mine (“ROM”) coal and include, but are not restricted to: mining, processing, infrastructure, economic, marketing, legal, environmental, social and governmental factors. Table 8 indicates the modifying factor applied. Table 8: Modifying factors Description Unit Value Minimum seam thickness cut-off m 1.0 Contamination (per seam) cm 10 Mining losses cm 5 on top and 5 on the bottom of the seam Geological losses (measured) % 5 Geological losses (indicated) % 10 Geological losses (inferred) % 40 Geological losses (unclassified) % 60 Surface moisture % 5 Inherent moisture % modelled Capital footprint definition Boxcut waste volumes and initial mining infrastructure 6.2. Equipment selection The following equipment was selected for this study:

Backhoe hydraulic excavators on coal Articulated dump trucks (“ADT”) or rigid frame dump trucks (“RDT”) Hauler selection is based on the optimal fit and number of passes with excavators and

loaders with standardization if appropriate. 6.3. Mining block layout The mining layout developed was based on a 50m x 50m mining block size. The purpose of a square mining layout was to increase the ease of strategic mine scheduling. The start of the mining block layout was based on the mining boundary. The mining block layout was elevated by 4m mining benches. 7. Productivity 7.1. Excavator productivity rates The result of the productivity estimate is a theoretical instantaneous production rate for 100% availability and 100% utilisation of the equipment configuration and specifications. The instantaneous rate estimated is multiplied by 70% to derive the practical productivity rate achievable per direct operating hour (“DOH”). Table 9 illustrates the theoretical calculation for DOH dig rate.




Table 9: Excavator instantaneous productivity rate

Material type Unit Excavator (90t)

Seconds per hour sec 3 600 Bucket cycle time sec 36 Bucket size m³ 5.2 Material RD t/m³ 1.6 Conversion Factor (in-situ to loose) Factor 0.7 Material loose SG (t/m³) t/m³ 1.1 Swell % 30 Bucket fill factor % 100 Bucket BCM factor % 77 Bucket BCM per cycle BCM/cycle 4.0 Bucket tonne per cycle t/cycle 5.8 Availability % 100 Cycles/hour Cycles 100 BCM/hr (theoretical) BCM/hr 400 Tonne/hr (theoretical) t/hr 582 70% of instantaneous rate BCM/DOH 280 70% of instantaneous rate t/DOH 410 7.2. Productivity ramp-up Equipment productivity ramp up was applied post the production start date for approximately six months. 8. Labour Mining operation was based on contractor mining. 9. Processing parameters To estimate product tonnages, the theoretical yield of the various products were obtained from the exploration data, estimates for the tonnes and product qualities were based on wash tables. A net coal processing discount factor (“NCPDF” – plant efficiency) of 90% was applied to obtain the practical yield. The NCPDF must be confirmed and applied in the next level of study by obtaining improved wash information. 10. Mine design 10.1. Mining target areas Target areas were determined by focusing the mining study on areas with a reasonable expectation for inclusion as part of a low cost coal operation and fall within the project optimal economic mining limit. These target areas were selected through the consideration of surface constraints such as:

Topography Archaeological sites Rivers Faults and dykes Coal qualities Strip ratio Higher theoretical yield areas Measured and Indicated Coal Resources Minimum mine life.




Shumba Energy fast tracked the project and required possible mining areas based on qualities and depths. Three areas were identified by applying the depth diagrams with a high a level of Coal Resource confidence and seam thickness. The SMT and SMB with an average seam thickness of 10m and 7m respectively were selected as the main seams. Figure 31 and Figure 32 illustrates the mining areas identified which included surface infrastructure. The mining block areas; Polygon 1, 2 and 3, were identified under this phase of the study.

Figure 31: Seam SMB depth plan with identified mining areas

Figure 32: Seam SMT depth plan with identified mining areas




Table 11 illustrates the waste thickness and quantity of the three polygons based on the Coal Resource model. Table 11: Identified mining areas waste volumes

Polygon Waste Material Thickness[m] Volume [Mbcm]

1

Topsoil 1.00 1.44 OB Softs 20.05 28.87

Hob 9.53 13.30 IB/S2b3 21.19 16.05 IB/S2b2 14.17 20.38 IB/S2b 5.11 7.35 IB/Smt 5.49 7.91 IB/Smb 1.45 2.09 Total 97.39

2

Topsoil 1.00 1.85 OB Softs 20.75 38.28

Hob 10.50 19.35 IB/S2b3 - - IB/S2b2 - - IB/S2b 5.75 10.54 IB/Smt 7.58 13.98 IB/Smb 1.40 2.58 Total 86.57

3

Topsoil 1.00 1.71 OB Softs 24.74 42.24

Hob 8.50 14.25 IB/S2b3 - - IB/S2b2 5.70 3.50 IB/S2b 5.27 8.24 IB/Smt 7.76 13.25 IB/Smb 1.68 2.85 Total 86.05




10.3. Pit design Shumba Energy requested a mining footprint for approximately 20 to 30 years, whereby polygon three of the focus area was selected for the study. The selection was based on the reconciliation, coal qualities and Shumba Energy requirements. The project was designed on an opencast mining method with a truck and excavator configuration. Backfilling of the void was allowed for on a rollover basis from the third strip onwards. Figure 33 illustrates the mine operational footprint based on polygon no.3.

Figure 33: Mine operational footprint The design of the highwall and final pit limits were based on benchmarking of similar operations due to the lack of local geotechnical information and models available at the time of this study. The geotechnical design parameters were applied as per Table 7. 10.4. Mine design Block, strip and boxcut designs were based on practical considerations and the project geotechnical criteria. All design work was done in Surpac. Material handling was critical in the planning of the mining methodology. The mine was designed based on multiple coal benches to achieve full production. Parameters applied in the mined design are illustrated in Table 12. Table 12: Mine design parameters Parameter Value [m] Block length 50 Strip width 50 Berm 10 10.5. Boxcut location Initial access to the coal is achieved by establishing a boxcut. The boxcut location was driven by the following selection criteria:

Lowest capital cost Production ramp up period

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Strike length to achieve the required steady state production rate Geometry of the pit Coal depth and strip ratio for minimised cost.

Figure 34 and Figure 35 indicates the boxcut location relative to the project strip ratio distribution plot of polygon 3. The strip ratio was based on the volume of waste mined to expose 1 tonne of coal on a ROM tonnes basis.

Figure 34: Boxcut orientation with surface infrastructure

Figure 35: Boxcut position 3 dimensional

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The boxcut developed is done by conventional drill and blast operations in a truck and shovel configuration. The mining sequence during boxcut establishment is to strip the topsoil in the ramp position, stack it in line with environmental requirements and remove the weathered material for drill and blasting activities. After blasting, the hard material is excavated and stockpiled on the south side of the pit, for the interim, until sufficient space becomes available to backfill the boxcut with waste material on to the rolled over spoils. A rollover and rehabilitation program must run concurrently with the mining activities. 10.6. Wash analysis Limited wash analysis was done on the drilling. Various samples are composite samples per seam from the available boreholes that were washed. Close proximity holes were applied to establish a marginal level of confidence for the project area. The limited information evaluation focused on a 1.5t/m³, 1.6t/m³, 1.7t/m³, 1.8t/m³ and 1.9t/m³ wash density. 11. Life of mine scheduling The life of mine (“LOM”) schedule is based on a project start date, Year 1, with initial production volumes excavated from the boxcut position. A scheduled duration of 25 years is planned with a ROM production rate of 1.5Mtpa during steady state. 11.1. Mine scheduling The mine model and design created in Surpac, was exported to RungePincockMinarco Xpac (“Xpac”) scheduling software package. The mining modelling factors stated in Table 8, were applied in the Xpac scheduling model. Production scenario was scheduled for the mining of waste and ROM volume to achieve 100ktpm product at a wash density of 1.9t/m3. Schedule reports were created in Xpac for in-situ coal volumes, ROM tonnages and product volumes. The coal tonnes and qualities per seam were reported on an air dried and contaminated basis. Waste volumes were reported per waste material type. 11.2. Scheduling model The scheduling model was populated with the following data:

In situ volume In situ tonnes on an air dried and uncontaminated basis RD Ash CV IM VM Fixed carbon (“FC”) TS.

Limited washes were done on the drilling by the previous owners. The various samples are composite per seam from the available boreholes that were washed. The PFS was based mostly on RAW qualities. More work is required with infill drilling to increase the confidence level for product.




11.3. Scheduling calendar The basis for the excavator production calendar is a six day week with a 12 hour production shift per day. Allowance of one hour per shift for shift change, pre-start inspections and fatigue breaks were allowed. Non-production days were allowed for in the calendar as quantified in Table 13. Table 13: Excavator scheduling calendar Description Unit Total Days per year days 365 Sunday non production days 52 Public holidays days 4 Shut days (Planned maintenance per excavator) days 12 Wet days (Rain day allowance) days 15 Mist (six hours per week. May, June, July) days 3 Day shift system (06:00 to 18:00) hours 12 Pre-start and fatigue breaks @ 1 hours per day days 11 Availability % 85 Utilisation % 85 Direct operating hours per year hours 2 095 11.4. Boxcut establishment The boxcut was designed at a 50m wide cut as defined in the mine design criteria. The highwall, lowwall and the endwall were based on the geotechnical design criteria with an access ramp at a gradient of 1:10 as seen in Figure 36 below.

Figure 36: Typical boxcut design The access ramp width was designed at 20m based on the dimensions of a 40 tonne ATD haul truck.

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11.5. Steady state Figure 37 shows the open cast boundaries and LOM schedule. This progress plot shows the schedule progress per year and boxcut establishment sequence. A single boxcut was designed to maintain the steady state production of 100ktpm product. The mining sequence of the boxcut was determined on coal quality, haul distance and coal classification. Only one of the three potential mining blocks was scheduled since it already has a LOM of 25 years.

Figure 377: Period progress plot 11.6. Production profile The ROM production profile is shown in Figure 38 with tonnes and qualities on a contaminated and air dried (cad) basis. The graph clearly shows the Coal Reserves over the LOM plan. The production ramp-up is in year one, with steady state production from year two onwards. The ramp-up allowed for the time required to build the access ramp, boxcut and to establish sufficient mining face length.

Figure 38: LOM ROM tonnes (CAD)



Private Bag X159, Centurion, 0046 Tel. +27 (0)12 665 2154 Email. [email protected] Registration Number: 2016/224365/07

Directors: JJ Lotheringen, H Tukker, NE Xaba, RA Sithole

14. Mining risk analysis Identified risks that could have a material effect on the project performance at execution phase include the following:

Surface water - water course pathways cross through the project area. During wet season, a volume of water could be channelled these paths which may result in flooding. Appropriate storm water management would be required in-pit and on surface.

Natural aquifers - water courses on surface which may create underground dams or water pockets. The dams or water pockets are formed by surface water filtering through the sands that can seep through to the mining void. Appropriate in-pit water management would be required.

Geological structures - high wall slope stability and strata failure need to be confirmed through the geotechnical design.

Washability data – Limited wash data available from the current boreholes and detail washability tests per coal seam must be conducted.

Labour - with a strategy to maximise the local employed compliment, appropriate measurements would have to be in place to ensure that competency levels and training programmes are maintained.

CHPP performance - due to a remote location of the project, the predictable supply of consumables and spares could put additional strain on the project performance.

Performance of the mining contractor - appropriate management and planning of the contractor activities and mining sequence is required to ensure that the mining section of the project execution progress in line with the mining plan to establish a predictable product delivery in terms of volume, quality and cost. Reconciliation of contamination and losses and management thereof should be conducted on an ongoing basis by the owner.

Equipment selection - incorrect mining equipment units mobilised to the operation could negatively affect the production performance in terms of volumes produced and increase cost per product tonne.

15. Future studies The following studies and technical work is highly recommended before the start of the next level of study (feasibility study).

Investigate selective mining - this would require material additional geological exploration, sample analysis and geological modelling and mining design optimisation.

Detail equipment selection and requirements per mining activity. Supplementary geophysics - supplementary geophysical modelling could add material

value in terms of the appropriate definition of sills and its effect on the coal seams. Additional exploration infill drilling - additional and focussed exploration drilling to

increase the geological level of confidence and to declare a JORC compliant Mineral Resource ad Ore Reserve.

Washability testing must be complete to increase the level of confidence of the saleable coal reserves. Detailed wash tables covering all coal seams should be compiled to enable full assessment of the available yields.

Define the processing plant criteria to get a better understanding of the practical yield Opportunities for electrical supply - further definition of the electrical supply solution

could reduce the FOM project cost materially and would add material value to the project.

Full market analysis to increase the confidence level of the Opex and Capex.



Private Bag X159, Centurion, 0046 Tel. +27 (0)12 665 2154 Email. [email protected] Registration Number: 2016/224365/07

Directors: JJ Lotheringen, H Tukker, NE Xaba, RA Sithole

16. Certificate of Competent person I, JJ Lotheringen, do hereby certify that

1) I am a Principal Mining Engineer at Ukwazi Mining Solutions (Pty) Ltd, Unit 4B, First Floor, 141 Witch-hazel Street, Highveld, Centurion, South Africa and have been employed in this position since 2004.

2) I am a graduate of the University of Pretoria, and obtained a Bachelor of Mining Engineering degree (1997). I furthermore hold a South African Mine Manager certificate of Competency (2000).

3) I am a practising Mining Engineer and have practised my profession continuously since 1997. I have 20 years’ experience in mining production management and technical mining engineering and the preparation of mineral reserve estimates for open pits and coal reserve estimates for opencast and underground coal mines and projects. More than five years of this experience is relevant to coal and the mining methods and subject matter of this report.

4) I am a registered member of the South African Institute of Mining and Metallurgy (SAIMM) and registered as a professional mining engineer with the Engineering Council of South Africa (ECSA).

5) I have read the definition of competent person set out in “The South African code for the reporting of exploration results, mineral resources and mineral reserves” (“The SAMREC code”), 2007 edition and amended in July 2009.

6) I am responsible for the mining chapter of this phase of study and the compilation of this report (“Morupule South: Mining section of the prefeasibility study”).

7) I do not own or expect to receive any interest (direct, indirect or contingent) in the property described herein.

8) As of the date of this certificate, to the best of my knowledge, information and belief, this report contains all the mining related scientific and technical information that is required to be disclosed to make this section of the report not misleading.

Dated – September 2017

Name: Jaco J Lotheringen Qualification: B Eng (Mining), Pr.Eng (RSA) Ukwazi: Principal Mining Engineer (coal)

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