Competent person's report (CPR)

Executive summary of the technical aspects of the Somkhele anthracite mine

The information in paragraphs (A) to (R) below is extracted from the updated independent CPR that was compiled by SRK Consulting South Africa (Pty) Limited. The CPR has an effective date of 30 June 2015 and the full document may be found on Petmin’s website at http://www.petmin.co.za/news_article.php?articleID=2951.

(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 licence held by Tendele is given in Table ES 1. Tendele has approved mining rights over all areas that are currently operational and have applied for New Order Mining Rights (“NOMR”) over all the prospecting rights; this application was accepted by the Department of Mineral Resources in September 2013. Final approval is still outstanding although Tendele do expect to receive this shortly.

The Water Use Licence was issued on 4 August 2014; all water uses are now authorised.

There are no other outstanding permits.

(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 an 18% ash duff product for export, mainly to Brazil and a 15% ash duff, small and large nut and pea products for local consumption. Thermal coal is produced from rewashed discard for the export market.

The mine operations consist of a number of operational pits (North Pit 1, North Pit 2, South Pit and Luhlanga); mined out pits used to dispose of slurry (Pit A) and coarse discard (Pits B, C, D and E); waste, discard and overburden stockpiles; haul and access roads; a process Plant area 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 4.5km2 with approximately 3km2 with active mining operations.

CPR

Table ES 1: Summary of Mineral and Surface Rights and Water Use Licence

Title Covered Rights Held By Area (ha) Expiry Date Minerals Covered Comments
Mining Rights:
Area 1 on Reserve No. 3
(Somkhele) No. 15822

Area 2 and 3 on Reserve
No. 3 (Somkhele) No.1582
Tendele Coal Mining (Pty) Ltd


Tendele Coal Mining (Pty) Ltd
660.5321


779.8719
2034


2031
Coal


Coal
New Order Mining Right


Converted Old Order Mining Right
Total for New Order Mining Right   1 440.404    
Prospecting Rights (covered by 2013 Mining Right Application):      
Area 5 On Reserve
No. 3 No. 15822

Area 4 On Reserve
No. 3 (Somkhele) No 15822
Tendele Coal Mining (Pty) Ltd


Tendele Coal Mining (Pty) Ltd
13 951.0054


7 988.0637
2013


2013
Coal


Coal
Initial PRs valid to 04/12/2009; renewed to 29/06/2013; a New Order Mining Right application (covers both areas) accepted 09/09/2013; all queries have been attended to and response is awaited.
Total for Mining Right Application   21 939.0691    
Surface Rights:          
Area 1 on Reserve
No. 3 No. 15822
Ingonyama Trust Board       Included in Mining Surface Lease signed on 11/12/2002 by way of addendum dated 18/8/2008
Area 2 on Reserve
No. 3 No. 15822
Ingonyama Trust Board       Mining Surface Lease signed on 11/12/2002
Area 3 on Reserve
No. 3 No. 15822
Ingonyama Trust Board       Mining Surface Lease signed on 11/12/2002
Areas 4 and 5         In relation to the area covered by the pending mining right application there is no surface use compensation agreement with the land owner. However, this can only be extended in the main agreement once the right has been executed.
Water Use Licence        
Portion 0 of Reserve
No. 3 No.15822 GV
Tendele Coal Mining (Pty) Ltd: Somkele Anthracite Mine   2025 Coal mining and
associated activities

Water uses covered:
Section 21 (b), (c), (g), (i), (j)
Portion 0 of Reserve
No. 3 No.15822 GV
Tendele Coal Mining (Pty)
Ltd: Somkele Anthracite Mine
  2025 Coal mining and
associated activities
Water uses covered:
Section 21 (a)

(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 strata have been preserved along the eastern limb of the Natal Monocline with steep dips (12 - 250) 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 subparallel mining blocks (Figure ES-1). Dolerite intrusions have further subdivided some of the mining 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.

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

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

FUTURE EXPLORATION PROGRAMME

Future exploration will be focused on three areas; namely:

Tholokuhle-Mvutshini;
Mahujini-Tholokuhle; and
The current known blocks.

Somkhele’s future exploration programme is set out in Table ES-2. SRK believes the provision made is appropriate and sufficient and that the cost estimates are reasonable.

Table ES-2: Future planned exploration budget

Area Percussion
Drill Holes
Total Length
(m)
Core
Drill Holes
Total Length
(m)
Samples
Planned
Cost (ZARm)
Tholokuhle - Mvutshini 110 12 750 54 4 650 375 16.5
Mahujini - Tholokuhle 80 9 500 25 2 150 175 11
Known blocks 180 19 800 120 12 000 840 33
Total 370 42 050 199 18 800 1 390 60.5

(D) COAL RESOURCES SUMMARY

The Coal Resources are reported inclusive of the Coal Reserves.

All Coal Resources and Coal Reserves as stated in this CPR are reported as at 30 June 2015 in accordance with the terms and definitions of The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“The SAMREC Code”).

A summary of the raw Coal Resources for the Material Assets estimated and classified in accordance with the SAMREC Code as at 30 June 2015 is set out in Table ES-3. These resources are for the full seam including all partings and have been estimated by Applied Geology and Mining (Pty) Ltd and reviewed by SRK.

Table ES-4 shows the expected coal qualities for each area according to SRK.

SRK has used publicly available Coal Resource estimates for Area 3. Table ES-5 shows the raw Coal Resources; while the estimated product coal qualities are shown in Table ES-6. Note that these estimates are not for the full seam or 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 mined.

(E) RECONCILIATION TO HISTORICAL COAL RESOURCE ESTIMATES

Mining has only occurred in Area 1 and Luhlanga since the previous (2014) CPR compiled by SRK. A comparison between the Coal Resource estimates for these mining blocks was undertaken and is shown in Table ES-7.

Table ES-3: 2015 SRK Average B Seam Coal Resource Estimates and Average Raw Coal Qualities (adb)

Area Seam SAMREC
Category
Mining
Method
Average Raw
ARD
RAW GTIS
Mt
Geological
Loss
%
RAW MTIS
Mt
Area 1 B Measured OP + UG 1.70 18.56 5 17.63
Emalahleni B Measured OP + UG 1.72 15.23 5 14.47
Gwabalanda B Measured OP 1.92 5.93 5 5.63
KwaQubuka B Measured OP   Nil   Nil
KwaQubuka North B Measured OP 1.80 3.65 5 3.47
Luhlanga B Measured OP 1.64 10.20 5 9.69
Mahujini B Measured OP 1.79 5.90 5 5.60
Ophondweni B Measured OP 1.96 5.05 5 4.80
Subtotal B Measured OP + UG 1.75 64.52 5 61.29
Area 1 B Indicated OP + UG 1.90 21.49 10 19.336
Emalahleni B Indicated OP + UG 1.73 2.12 10 1.91
Gwabalanda B Indicated OP 1.99 1.22 10 1.1
KwaQubuka B Indicated OP 1.73 4.61 10 4.15
KwaQubuka North B Indicated OP 1.74 0.72 10 0.65
Luhlanga B Indicated OP 1.70 2.74 10 2.46
Mahujini B Indicated OP 1.84 1.28 10 1.15
Ophondweni B Indicated OP 1.98 0.66 10 0.59
Subtotal B Indicated OP + UG 1.85 34.84 10 31.36
Area 1 B Inferred OP + UG 2.00 17.92 15 15.228
Emalahleni B Inferred OP + UG   Nil   Nil
Gwabalanda B Inferred OP 1.94 1.77 10 1.59
KwaQubuka B Inferred OP   Nil   Nil
KwaQubuka North B Inferred OP 1.89 2.28 15 1.94
Luhlanga B Inferred OP 1.61 7.77 15 6.6
Mahujini B Inferred OP 1.95 0.71 15 0.6
Ophondweni B Inferred OP 1.98 0.12 10 0.11
Subtotal B Inferred OP 1.89 30.57 15 26.07
TOTAL B M +ID + IF OP + UG 1.81 129.93 8.6 118.72

        Average Raw Qualities (air dried)
Area Seam SAMREC
Category
Mining
Method
Calorific Value
(MJ/kg)
Ash Content
(%)
Volatile Matter
(%)
Fixed Carbon
(%)
Moisture Content
(%)
Total Sulphur
(%)
Area 1 B Measured OP + UG 22.31 32.6 8.0 57.6 1.8 0.58
Emalahleni B Measured OP + UG 19.38 40.1 5.7 52.1 1.8 0.70
Gwabalanda B Measured OP 24.32 28.3 4.3 62.6 4.8 0.28
KwaQubuka B Measured OP No Measured Coal Resources
KwaQubuka North B Measured OP 16.10 45.1 5.8 46.5 2.7 0.63
Luhlanga B Measured OP 21.04 36.2 6.9 55.3 1.6 0.86
Mahujini B Measured OP 23.32 31.0 6.0 59.8 3.1 0.59
Ophondweni B Measured OP 17.64 41.7 3.6 50.4 4.4 0.35
Subtotal B Measured OP + UG 21.01 35.8 6.3 55.5 2.4 0.62
Area 1 B Indicated OP + UG 14.82 52.5 7.1 38.7 1.7 0.47
Emalahleni B Indicated OP + UG 19.09 40.8 5.7 52.0 1.5 0.67
Gwabalanda B Indicated OP 22.09 32.7 3.6 59.3 4.5 0.27
KwaQubuka B Indicated OP 18.86 41.8 5.2 51.2 1.9 0.64
KwaQubuka North B Indicated OP 18.44 40.3 5.9 51.1 2.7 0.69
Luhlanga B Indicated OP 18.42 42.3 6.6 49.3 1.8 0.92
Mahujini B Indicated OP 22.62 31.4 6.1 59.6 2.9 0.66
Ophondweni B Indicated OP 16.13 45.0 3.6 47.1 4.3 0.28
Subtotal B Indicated OP + UG 16.49 47.8 6.5 43.8 1.9 0.53
Area 1 B Inferred OP + UG 14.25 54.3 7.1 37.0 1.6 0.44
Emalahleni B Inferred OP + UG No Inferred Coal Resources
Gwabalanda B Inferred OP 23.33 30.8 3.9 60.9 4.4 0.34
KwaQubuka B Inferred OP No Inferred Coal Resources
KwaQubuka North B Inferred OP 15.00 50.3 5.7 41.6 2.4 0.62
Luhlanga B Inferred OP 22.26 33.2 6.9 58.4 1.6 0.67
Mahujini B Inferred OP 18.97 45.1 6.0 46.2 2.7 0.54
Ophondweni B Inferred OP 15.08 46.4 3.6 456.0 4.1 0.27
Subtotal B Inferred OP 16.98 47.0 6.7 44.4 1.9 0.51
TOTAL B M +ID + IF OP + UG 18.91 41.5 6.5 49.9 2.1 0.57

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted
2. GTIS = Gross Tonnes In Situ; MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred; OP = Open Pit; UG = Underground
3. Emalahleni qualities cannot be divided into separate OP and UG categories Emalahleni and KwaQubuka qualities from AG & M (Pty) Ltd
4. Average ARDs and qualities have been weighted by the GTIS
5. Slight differences may arise due to rounding
6. Effective date 30 June 2015

Table ES-4: 2015 SRK Average B Seam Coal Resource Estimates and Average Product Coal Qualities (adb)

               
Area Seam SAMREC
Category
Mining
Method
Average Raw
ARD
RAW GTIS
Mt
Geological
Loss
%
RAW MTIS
Mt
Area 1 B Measured OP + UG 1.70 18.56 5 17.63
Emalahleni B Measured OP + UG 1.72 15.23 5 14.47
Gwabalanda B Measured OP 1.92 5.93 5 5.63
KwaQubuka B Measured OP   Nil   Nil
KwaQubuka North B Measured OP 1.80 3.65 5 3.47
Luhlanga B Measured OP 1.64 10.20 5 9.69
Mahujni B Measured OP 1.79 5.90 5 5.60
Ophondweni B Measured OP 1.97 5.05 5 4.80
Subtotal B Measured OP + UG 1.75 64.52 5 61.29
Area 1 B Indicated OP + UG 1.90 21.49 10 19.34
Emalahleni B Indicated OP + UG 1.73 2.12 10 1.91
Gwabalanda B Indicated OP 1.97 1.22 10 1.10
KwaQubuka B Indicated OP 1.73 4.61 10 4.15
KwaQubuka North B Indicated OP 1.74 0.72 10 0.65
Luhlanga B Indicated OP 1.66 2.74 10 2.46
Mahujni B Indicated OP 1.84 1.28 10 1.15
Ophondweni B Indicated OP 1.96 0.66 10 0.59
Subtotal B Indicated OP + UG 1.88 34.84 10 31.35
Area 1 B Inferred OP + UG 2.00 17.92 15 15.23
Emalahleni B Inferred OP + UG   Nil   Nil
Gwabalanda B Inferred OP 1.94 1.77 10 1.59
KwaQubuka B Inferred OP   Nil   Nil
KwaQubuka North B Inferred OP 1.89 2.28 15 1.94
Luhlanga B Inferred OP 1.61 7.77 15 6.60
Mahujni B Inferred OP 1.95 0.71 15 0.60
Ophondweni B Inferred OP 1.98 0.12 10 0.11
Subtotal B Inferred OP + UG 1.89 30.57 15 26.07
Total B M +ID + IF OP + UG 1.82 129.93 8.5 118.71

        Average Product Qualities (air dried)
Area Seam SAMREC
Category
Mining
Method
Product
Density
(g/cm3)
Calorific
Value
MJ/kg
Ash Content
%
Volatile
Matter
%
Fixed Carbon
%
Moisture
Content
%
Total Sulphur
%
Theoretical
Yield
%
Area 1 B Measured OP + UG 1.60 28.94 16.8 8.6 72.9 1.7 0.65 59.4
Emalahleni B Measured OP + UG 1.60 28.54 17.9 6.1 74.2 1.9 0.76 45.2
Gwabalanda B Measured OP 1.80 28.45 18.4 4.8 71.5 5.4 0.21 35.5
KwaQubuka B Measured OP No Measured Coal Resources
KwaQubuka North B Measured OP 1.65 24.32 25.8 6.1 65.7 2.5 0.73 39.9
Luhlanga B Measured OP 1.60 28.99 16.9 7.0 74.6 1.5 0.68 59.2
Mahujni B Measured OP 1.80 26.22 17.2 5.7 73.4 3.6 0.53 53.4
Ophondweni B Measured OP 1.85 25.63 18.0 3.7 72.6 5.8 0.23 39.0
Subtotal B Measured OP + UG 1.67 27.95 17.8 6.8 72.7 2.7 0.56 52.6
Area 1 B Indicated OP + UG 1.60 28.04 19.4 8.6 70.4 1.6 0.79 31.0
Emalahleni B Indicated OP + UG 1.60 28.31 18.4 6.2 73.7 1.8 0.73 43.7
Gwabalanda B Indicated OP 1.80 28.01 18.7 4.2 71.1 5.2 0.19 26.5
KwaQubuka B Indicated OP 1.60 29.01 16.0 5.7 75.5 1.8 0.69 47.0
KwaQubuka North B Indicated OP 1.65 25.57 22.5 6.0 69.0 2.6 0.74 42.2
Luhlanga B Indicated OP 1.60 28.99 16.8 7.0 74.6 1.6 0.70 59.8
Mahujni B Indicated OP 1.80 26.42 17.7 6.0 73.1 3.3 0.63 50.9
Ophondweni B Indicated OP 1.85 25.43 18.0 3.2 72.9 6.0 0.21 31.0
Subtotal B Indicated OP + UG 1.63 27.90 23.9 7.8 64.1 2.0 0.73 34.0
Area 1 B Inferred OP + UG 1.60 27.99 19.6 8.7 70.2 1.5 0.78 28.1
Emalahleni B Inferred OP + UG No Inferred Coal Resources
Gwabalanda B Inferred OP 1.80 28.30 18.8 4.4 71.9 5.0 0.19 33.4
KwaQubuka B Inferred OP No Inferred Coal Resources
KwaQubuka North B Inferred OP 1.65 25.20 24.0 6.0 67.8 2.3 0.76 35.0
Luhlanga B Inferred OP 1.60 28.89 17.1 6.8 74.5 1.5 0.62 63.4
Mahujni B Inferred OP 1.80 24.72 22.5 6.1 68.4 3.1 0.64 38.8
Ophondweni B Inferred OP 1.85 25.19 18.0 3.3 72.5 5.9 0.23 29.9
Subtotal B Inferred OP + UG 1.62 27.94 19.3 7.7 71.2 1.8 0.70 38.2
Total B M +ID + IF OP + UG 1.65 27.93 18.6 7.4 71.8 2.3 0.64 44.0

1. adb = air dry basis; ARD = Apparent Relative Density; Gross Calorific Value is quoted
2. GTIS = Gross Tonnes In Situ; MTIS = Mineable Tonnes In Situ; M = Measured; ID = Indicated; IF = Inferred; OP = Open Pit; UG = Underground
3. Emalahleni qualities cannot be divided into separate OP and UG categories Emalahleni and KwaQubuka qualities from AG & M (Pty) Ltd
4. Average ARDs and qualities have been weighted by the GTIS
5. Slight differences may arise due to rounding
6. Effective date 30 June 2015

Table ES-5: Area 3 Raw Coal Resource Estimate (Coal Only)

Seam SAMREC Category GTIS (Mt) Geological Loss (%) MTIS (Mt)
B Measured Nil - -
B Indicated Nil - -
B Inferred 42.847 50 21.424
B Total 42.847 50 21.424

1. adb = air dry basis
2. GTIS = Gross Tonnes In Situ; MTIS = Mineable Tonnes In Situ
3. These are publicly available figures
4. Effective date 15 August 2006

Table ES-6: Area 3 Resource Estimate and Average Product Qualities (Coal Only) (adb)

SAMREC Category MTIS
(Mt)
Product
Density
(t/m3)
Calorific
Value
(MJ/kg)
Ash
Content
(%)
Volatile
Matter
(%)
Moisture
Content
(%)
Theoretical
Yield
(%)
Measured Nil - - - - - -
Indicated Nil - - - - - -
Inferred 21.424 1.6 29.1 16.1 7.0 1.45 68.6
OVERALL AVERAGE 21.424 1.6 29.1 16.1 7.0 1.45 68.6

1. adb = air dry basis; Gross Calorific Value is quoted
2. MTIS = Mineable Tonnes In Situ
3. These are publicly available figures

Table ES-7: Reconciliation between 2014 and 2015 Area 1 and Luhlanga Coal Resources (adb)

Seam SAMREC Category Area 1 MTIS (Mt) Luhlanga MTIS (Mt)
    2014 2015 2014 2015
B Measured 18.91 17.63 11.29 9.69
B Indicated 19.34 19.34 2.46 2.46
B Inferred 15.23 15.23 6.60 6.60
B Total M + ID + IF 53.48 52.19 20.35 18.75

1. Note that this comparison refers to Coal Resource estimates as of 30 June 2014 and 30 June 2015.
2. adb = air dry basis.
3. MTIS = Mineable Tonnes In Situ
4. Slight differences may arise due to rounding.

(F) 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 Area 3, KwaQubuka, KwaQubuka North, 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 in which Tendele has an effective shareholding of 35%.

(G) 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 12%. Practical plant yields are in the order of 83%, while theoretical yields vary from 30 to 60%, depending on the area under consideration.

(H) 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 2015 is set out in Table ES-8 as scheduled in the 2015 Life of Mine (“LoM”) plan. Coal qualities are shown in Table ES-9.

Previous underground Coal Reserve estimates have been excluded in the current plan (2015) as SRK is of the opinion that the Coal Reserves for the proposed underground operations cannot be supported by a suitable mining method and hence cannot be declared as Coal Reserves or used in the LoM plan. Somkhele plans to conduct additional feasibility assessments to properly assess the underground mining strategy.

Some of the pits in the mine plan are classed as Coal Reserves based upon their economic evaluation and not on a pre-feasibility study; they are classified here as Probable Coal Reserves.

(I) RECONCILIATION TO HISTORICAL COAL RESERVE ESTIMATES

Table ES-8 compares the historical Coal Reserve estimates with the current Coal Reserve estimates for 2015.

The Coal Resources classified in the Measured and Indicated categories were converted to Mineable In Situ Reserves for 2015. The Mineable In Situ Reserves were categorised as Proved or Probable Coal Reserves.

The Coal Reserves quoted for 2014 for all areas remain as per the 2014 statement as scheduled in the 2014 LoM plan, apart from:

Depletion due to mining during 2014/15 (Area 1 and Luhlanga);
A reduction of the Coal Reserves for Area 1 during a review to classify the tonnes as either within the economic shell or external to the pit shell.
Exclusion of all underground reserves;
Exclusion of the Tholokuhle pit not supported by the geological model; and
Exclusion of the KwaQubuka North pit, which reverts to Coal Resources.

The use of Inferred Coal Resources with an economic analysis presents some risk in declaring these as Coal Reserves and consequently using them in the schedule for LoM 2015.

Within the schedule the discard coal processed in Somkhele Plant 3 is supplemented by additional coal deposited in the worked out pits. This coal has not been included in Coal Resource or Coal Reserve estimates despite the fact that it contributes to the overall revenue of the mine.

Table ES-8: SRK Proved and Probable Coal Reserve Estimates LoM 2015 (adb)

Area SAMREC
Category
Mining
Method
Seam 2014 RoM
(Mt)
2015 RoM
(Mt)
Practical
Plant Yield
(%)
Theoretical
Yield
(%)
Saleable
(Mt)
Area 1 Proved OP B 3.27 3.27 83.6 59.4 1.62
Area 1 Probable OP B 1.52 1.52 83.6 31.0 0.39
Luhlanga Proved OP B 5.91 1.79 83.6 59.2 0.88
Emalahleni Proved OP B 8.35 6.45 83.6 45.2 2.44
Emalahleni Probable OP B 0.65 0.50 83.6 43.7 0.18
Gwabalanda Probable OP B 1.93 1.97 83.6 34.0 0.56
KwaQubuka Probable OP B 3.74 3.39 83.6 47.0 1.33
Luhlanga Probable OP B 1.00 0.30 83.6 59.8 0.15
Mahujini Probable OP B 4.34 3.60 83.6 53.0 1.59
Ophondweni Probable OP B 1.61 1.76 83.6 38.1 0.56
Total Proved &
Probable
OP B 33.66 24.54 83.6   9.70

1. OP = Open Pit
2. adb = air dry basis
3. MTIS = Mineable Tonnes In Situ; RoM = Run of Mine
4. The previous RoM estimates are as per LOM 2014 and current as per LoM2015
5. If no practical yield is quoted, this figure has been calculated from the Sales and RoM tonnes
6. All tonnes are on a bulk mining basis
7. Luhlanga pit shell modified in 2015 LoM plan to exclude high strip ratio corner
8. Slight differences may arise due to rounding
9. Effective date of Coal Reserves 30 June 2015

Table ES-9: SRK Proved and Probable Coal Reserve Qualities LoM 2015 (adb)

          Average Theoretical Product Qualities (adb)
Area SAMREC
Category
Mining
Method
Seam Saleable
(Mt)
Ash
Content
(%)
Volatile
Matter
(%)
Fixed
Carbon
(%
Moisture
Content
(%)
Area 1 Proved OP B 1.62 16.80 8.60 72.90 1.70
Area 1 Probable OP B 0.39 18.36 8.60 70.40 1.60
Luhlanga Proved OP B 0.88 16.88 7.01 74.58 1.53
Emalahleni Proved OP B 2.44 17.90 0.70 38.2 -
Emalahleni Probable OP B 0.18 18.40 - - -
Gwabalanda Probable OP B 0.56 18.42 4.69 71.42 5.32
KwaQubuka Probable OP B 1.33 No product qualities available
Luhlanga Probable OP B 0.15 16.87 7.01 74.58 1.53
Mahujini Probable OP B 1.59 17.33 5.76 73.38 3.53
Ophondweni Probable OP B 0.56 17.94 3.60 72.62 5.84
Total Proved &
Probable
OP B 9.70 17.34 6.48 70.80 2.58

1. OP = Open Pit
2. adb = air dry basis
3. Qualities are the theoretical qualities as per the 2015 Average Product Coal Qualities (Table ES-4)
4. Slight differences may arise due to rounding
5. Effective date of Coal Reserves 30 June 2015

(J) 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 tonnes per hour (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.

(K) TAILINGS AND DISCARD

While there is an existing discard dump on site, the current practice is to dispose of coal discard in the mined out pits, with all carbonaceous material stored below the water table to create anaerobic conditions and hence minimize oxidation and the formation of Acid Mine Drainage. 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 Area 1 and the use of a slurry pit to increase the longevity of disposal areas.

(L) 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 01 July 2014 to 30 June 2015 indicated that the mine has not exceeded the agreed Notified Maximum Demand.

The access to the mine is strictly controlled via a perimeter fence around the mine, security personnel and CCTV cameras positioned at strategic points around the mine. The mine’s administration offices, workshops and weighbridges seemed to be properly maintained and well laid out to support the life of mine plan.

(M) ENVIRONMENTAL AND SOCIAL COMPLIANCE AND WATER MANAGEMENT

Approved EMPs cover the current operations and washing plants. The mine has approved Water Use Licences for abstraction from the Mfolozi River and other water uses (Table ES1).

Estimated closure costs may be higher than expected, due to higher than expected water treatment costs and extra costs if a backfilling backlog develops. Groundwater management and acid mine drainage is not foreseen to be problematical. Although pit dewatering will be required, ground water quality is not expected to deteriorate significantly and impact on the Mfolozi River is likely to be low. However, decant in Area 1 may cause contaminated water to affect surrounding surface water bodies and aquifers.

Identified Environmental Compliance risks are:

Additional Capital Expenditure: Estimated closure costs may be higher than expected. SRK believes that the indicative additional closure costs are estimated at R15 million for water treatment, but this risk is essentially unquantified since requirements cannot be ascertained at this stage. The closure cost estimate currently being finalized assumes that there will be no post-closure decant and that remediation of the contaminated ground water plume can be remediated as an operational activity. Additional costs may be incurred at closure if a backfilling backlog develops. This will occur if planned backfilling open pits is not implemented and backfill has to be returned to the pit from overburden piles on surface during the closure phase, which will involve double handling. SRK estimates that indicative additional closure costs of R20 million for a backfilling backlog may be incurred;
Acid Mine Drainage: The risk of AMD during the closure phase and the potential of the waste disposal to generate AMD is considered to be low, provided that the separation of the overburden from waste material is done effectively to prevent this material falling into the waste rock stockpile;
Groundwater: Ground water management does not represent a significant liability. However, groundwater migrating away from the pit areas will transport contaminants, specifically sulphate compounds. There are no groundwater users that will be impacted and it is not expected that there will be any significant influence on the water quality of the Mfolozi River;
Pit Dewatering: Pit dewatering will be required but ground water quality is not likely to deteriorate significantly except in terms of sulphate concentration. 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: Decant in Area 1 may cause contaminated water in the pit area to daylight onto surface, impacting surrounding surface water bodies and aquifers. For the present mining operation, the flow of decant water will be towards the Mfolozi River, with possible limited deterioration in the sulphate concentrations.

Identified Social Compliance risks are:

Failure to comply with the Social and Labour Plan may result in community dissatisfaction and hence unrest, or prosecution; and
Two commitments have been rolled over to the 2013 – 2017 SLP. Failure to address all commitments before the end of the five year period incurs the risk of the imposition of fines. Failure to comply with SLP commitments could impact on relations between the mine and the community, possibly leading to labour unrest. Management is addressing this and has prioritised the delivery of the SLP projects, bearing in mind that certain of the project delays were due to obtaining the appropriate authorisations from the relevant authorities involved.

Identified risks associated with the Water Supply are:

The Water Use License provides for the authorized volume of water abstracted from the Mfolozi River to be halved during water stressed times. This could have negative consequences, but Somkhele currently abstracts less than 50% of its permitted volumes;
In addition, the Mfolozi River has unregulated flow (i.e. no dam) and during low flow conditions (i.e. drought) as is currently being experienced, there will be insufficient flow in the river for any form of abstraction. The mine has a limited capacity of storage within the various dams on the mine to provide emergency supply. If the drought is extended over two seasons, there is a risk that there will be insufficient supply to meet the operational requirements of the mine;
Furthermore, there is extensive development in the region, mostly housing, and the water resource in the Mfolozi River is becoming increasingly stressed to supply the needs of the development. The risk of demand management and reduced abstraction limits being enforced will increase, particularly in the near future;
With the limited availability of alternate water supply sources, contingency measures will need to be implemented. These could include additional storage capacity, process demand reduction and efficient water re-cycling systems; and
These costs could be extensive and should be assessed. Note that the costs could also include costs related to low production or no production.

(N) SUMMARY VALUATION

The summary Market Valuation for Tendele at 30 June 2015 has been done on a sum-of-the-parts basis, as set out in Table ES-10. The effects of debt/loans and debt servicing have been excluded in the derivation of the fair value for Somkhele. Adjustments have been made in Table ES-10 for balance sheet items at the Tendele level, which include cash on hand, consolidated debt and net current assets. Tendele confirmed to SRK that the Rand currency hedge contracts in place up to December 2015 have no material impact on the valuation.

Table ES-10: Tendele Summary Market Valuation

Item Values (ZARm)
Somkhele (NPV@15.47% nominal) 1324.3
Coal Resources not in LoM plans 421.3
Sub-total 1745.7
Adjustments  
Cash on hand 261.4
Consolidated debt -399.6
Net Current Assets (accounts receivable – current liabilities) -43.0
Hedge contracts – mark to market -4.6
Environmental liabilities incl in cash flows
Net Tendele Value 1559.8

In SRK’s opinion, the fair value for Tendele is is ZAR1 560 million, in the range of ZAR1 406 million to ZAR1 787 million.

(O) PREVIOUS VALUATIONS

In a SENS/RNS announcement of 3 March 2014, Petmin announced a fair value for Somkhele of ZAR1 639 million based on a LoM of 14 years. This was extracted from the 2014 CPR compiled by SRK.

A comparison of the summary market valuation from the 2014 CPR and Table ES-10 is set out in Table ES-11.

Table ES-11: Comparison of 2015 and 2014 Tendele Summary Market Valuation

  Values (ZARm)
Item 2015 2014 Variance
Somkhele (NPV@14.05% nominal) - 1690.5 -366.2
Somkhele (NPV@15.47% nominal) 1324.3 -  
Resources not in LoM plans 421.3 395.7 25.6
Sub-total 1745.7 2086.2 -340.5
Adjustments      
Cash on hand 261.4 -5.5 266.9
Consolidated debt -399.6 -379.6 -20.0
Net Current Assets (accounts receivable – current liabilities) -43.0 -62.6 19.6
Hedge contracts – mark to market -4.6 0 -4.6
Environmental liabilities Incl. in cash flows Incl. in cash flows -
Net Tendele Value 1559.8 1638.5 -78.7

The variances in the valuation at 30 June 2015 relative to that at 1 December 2013 are explained as follows:

The reduction in Somkhele NPV is attributable to shorter LoM and lower anthracite prices (ZAR316.5 million) and increased WACC (ZAR49.6 million);
The increase in value for the Coal Resources not in the LoM plan is due to a shorter LoM and exclusion of KwaQubuka North from the LoM plan offset by lower anthracite prices; and
Somkhele’s balance sheet has improved by ZAR266 million since December 2013, primarily due to improved cash on hand.

Risks relating to the Valuation of the Material Assets are as follows:

Tenure: The NOMR for Areas 4 and 5 has not yet been awarded to Tendele. This presents a risk, albeit low, to Tendele in terms of continued coal production once the coal in the current permitted areas is depleted (within five to six years). If the Mining Right Application is rejected, Tendele will no longer hold the coal rights over these properties; and
Mine Designs for Future Mining Areas: The mine designs on which the production schedules for future mining areas are based are largely at a conceptual level. The assumed slope geometry needs to be confirmed and the plans redone using a complete set of modifying factors.

(P) RISKS

The key risks in SRK’s opinion, associated with the Material Assets are:

Tenure:
The NOMR for Areas 4 and 5 has not yet been awarded to Tendele. If the NOMR application is rejected, Tendele will no longer hold the coal rights over these properties.
Geological: In SRK’s opinion, all previously identified risks have been adequately mitigated.
Geotechnical:
Quality of Information: No laboratory testing has been carried out, which will be required for the planned detailed design work when slope heights exceed 100 m in future;
Slope Stability Analysis: The Haines Terbrugge Method is not considered to be an appropriate method for design beyond pre-feasibility stage. The method is not applicable to the higher slopes at Somkhele which lie beyond the limit of the data set used and does not take the influence of major geological structures on slope stability into account;
Groundwater: The current understanding of groundwater is insufficient for slope stability analysis, potentially leading to unforeseen dewatering and depressurization requirements with deeper pits; and
Slope Design: Adversely orientated joints have combined to cause bench scale collapse in places, resulting in a rock fall risk. Remediation measures may result in a consequent loss of coal and an increase in stripping ratio.
Mining:
Faulting at Mahujini: The faulting may restrict the practical pit design and is likely to present some challenges to the mining. Additional exploration and cover drilling will improve the ore body knowledge; and
Mine Designs for Future Mining Areas: The mine designs on which the production schedules for future mining areas are based are largely at a conceptual level.
The assumed slope geometry needs to be confirmed and the plans redone using a complete set of modifying factors.
Coal Processing:
No risks were identified.
Tailings and Discard:
Discard and Slurry Disposal: The acceptability of the proposed use of the open pits for the disposal of coal discard and slurry, although authorized, may be questionable in terms of ongoing monitoring and updating of the ground water model, which may require the revision of the current disposal method;
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; and
Possible implications of new regulatory requirements in terms of which mine waste is classified as hazardous and becomes subject to authorization in terms of a Waste Management Licence.
Infrastructure:
Fire Risk in Substations:
Although the low voltage MCC rooms are equipped with fire detection systems and fire extinguishers, further mitigations need to be implemented at this areas by applying a fire rated ablative coating for the cableways under the substations.
Environmental Compliance:
Additional Capital Expenditure: Estimated closure costs may be higher than expected. SRK believes that the cost estimate for water treatment is significantly underestimated. The closure cost estimate currently being finalized assumes that there will be no post-closure decant and that remediation of the contaminated ground water plume can be remediated as an operational activity. Additional costs may be incurred at closure if a backfilling backlog develops. This will occur if planned backfilling open pits is not implemented and backfill has to be returned to the pit from overburden piles on surface during the closure phase, which will involve double handling. Indicative additional closure costs are estimated at R15 million for water treatment, but this risk is essentially unquantified since requirements cannot be ascertained at this stage, and R20 million for a backfilling backlog;
Acid Mine Drainage: The risk of AMD during the closure phase and the potential of the waste disposal to generate AMD is considered to be low, provided that the separation of the overburden from waste material is done effectively to prevent this material falling into the waste rock stockpile;
Groundwater: Ground water management does not represent a significant liability. However, groundwater migrating away from the pit areas will transport contaminants, specifically sulphate compounds. There are no groundwater users that will be impacted and it is not expected that there will be any significant influence on the water quality of the Mfolozi River;
Pit Dewatering: Pit dewatering will be required but ground water quality is not likely to deteriorate significantly except in terms of sulphate concentration. 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: Decant in Area 1 may cause contaminated water in the pit area to daylight onto surface, impacting surrounding surface water bodies and aquifers. For the present mining operation, the flow of decant water will be towards the Mfolozi River, with possible limited deterioration in the sulphate concentrations.
Social Compliance:
Failure to comply with the Social and Labour Plan may result in community dissatisfaction and hence unrest, or prosecution; and
Local Economic Development Projects: Two commitments have been rolled over to the 2013 – 2017 SLP. Failure to address all commitments before the end of the five year period incurs the risk of the imposition of fines. Failure to comply with SLP commitments could impact on relations between the mine and the community, possibly leading to labour unrest.
Water Management:
The Water Use License provides for the authorised volume of water abstracted from the Mfolozi River to be halved during water stressed times. This could have negative consequences. In addition, the Mfolozi Riverfor the authorised volume of water abstracted from the Mfolozi River to be halved during water stressed times. This could have negative consequences.
In addition, the Mfolozi River has unregulated flow (i.e. no dam) and during low flow conditions (i.e. drought) as is currently being experienced, there will be insufficient flow in the river for any form of abstraction. The mine has a limited capacity of storage within the various dams on the mine to provide emergency supply. If the drought is extended over two seasons, there is a risk that there will be insufficient supply to meet the operational requirements of the mine;
Furthemore, there is extensive development in the region, mostly housing, and the water resource in the Mfolozi River is becoming increasingly stressed to supply the needs of the development. The risk of demand management and reduced abstraction limits being enforced will increase, particularly in the near future;
With the limited availability of alternate water supply sources, contingency measures will need to be implemented. These could include additional storage capacity, process demand reduction and efficient water re-cycling systems; and
These costs could be extensive and should be assessed. Note that the costs could also include costs related to low production or no production.

The risks are summarized in Table ES-12.

Table ES-12: Summary of Identified Risks

Type Description of Risk Initial Risk Rating Mitigation Possible? Risk Rating after
Mitigation
Tenure NOMR approval outstanding Low No Low
Geological All previous risks adequately mitigated      
Geotechnical Quality of Information High Yes Low
  Analysis of Stability High Yes Low
  Groundwater Medium Yes Low
  Slope Design High Yes Low
Mining Faulting at Mahujini High Yes Low
  Conceptual Mine Designs Medium Yes Low
Coal Processing No risks identified      
Tailings and Discard Discard and Slurry Disposal Low Yes None
  Groundwater Contamination Medium Yes Low
Infrastructure Fire Risk in MCC rooms (cableways) High Yes Low
Environmental Compliance Additional Capital Expenditure Low Yes Very Low
  Acid Mine Drainage Low Yes Very Low
  Groundwater Medium Yes Low
  Pit Dewatering Low Yes Very Low
  Decant Medium Yes Low
Social Compliance Community Dissatisfaction Medium Yes Low
Water Management Reduction in Water Allocation Medium Yes Low
  Reduction in water availability due to: current drought conditions, local residential development Medium-High Limited Medium
  Costs associated with mitigation measures Medium Yes Medium

(Q) OPPORTUNITIES

The opportunities identified within the Somkhele mining operation are:

Production Schedule: The opportunity exists to optimise the production schedule, to reduce the large swings in production from one year to the next, thereby reducing the working capital requirements of holding large RoM stockpiles; and
Underground Potential: 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 18 years.

(R) 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. This permits the SRK Group to provide its clients with conflict-free and objective recommendations on crucial judgment issues. 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.

Table ES-13: Consultant Contributors

Name Professional
Registration
Qualifications Professional
Membership
Discipline
Andrew McDonald C Eng MSc, MBL FSAIMM, MIMMM Tenure, Mineral Economics
Andrew Smithen Pr Eng BSc (Civ. Eng.), MSc (Agric. Eng.), MBL MSAICE, MSAIAE, MSAIMM Environmental, Social, Tailings Disposal
James Morris Pr Eng BSc (Civ. Eng.) MSAICE, MWISA Hydrogeology
Kobie Badenhorst   Nat. High. Dip (Extractive Metallurgy) MSACPS Coal Processing
Kenneth Mahuma Pr Tech Eng NTC6 (Elec. Eng. - Heavy Current)   Electrical Engineering & Infrastructure
Lesley Jeffrey Pr.Sci.Nat. BSc (Geo.), MSc (Min. Eng.) MGSSA, MFFF Geology & Coal Resources
Roger Dixon PR Eng BSc (Hons) (Min. Eng.), MDP, EDP HLFSAIMM,
CM SAMREC- SAMVAL; RSA
Rep. CRIRSCO
Chairman and Final Review
Des Mossop Pr Eng BSc (Min. Eng.), MSc (Min. Eng.), GDE (Rock Eng.) FSAIMM,
MSANIRE,
AMMSA,
Geotechnical Engineering
Norman McGeorge Pr Eng BSc (Min. Eng.), MSc (Min. Eng.) MSAIMM Mining & Coal Reserves

All of SRK House, 265 Oxford Road, Illovo, 2196, Johannesburg, except for Kobie Badenhorst.

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 ES-13, have extensive experience in the mining industry and are members in good standing of appropriate professional institutions.

The CP with overall SRK responsibility for the CPR is Mr. Roger Dixon Pr Eng (Engineering Council of SA, 20000060), Fellow of the Southern African Institute of Mining and Metallurgy, who is Chairman and 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. Mr. Dixon also takes responsibility for the reporting of the Coal Reserves.

The CP with responsibility for the reporting of the Coal Resources is Mrs. Lesley Jeffrey, Pr.Sci.Nat. (South African Council for Natural Scientific Professions, 400115/01). She is a member of the Geological Society of South Africa, who 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 29 years. Mrs. Jeffrey has relied on the work of the CPs listed in Table ES-14 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, who 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. Mr. McGeorge has relied on the work of the CPs listed in Table ES-14 for the Coal Reserves in all areas except Area 1.

The CP with responsibility for the valuation of the project is Mr. Andrew 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.

Table ES-14: Somkhele Areas and respective Competent Persons

    Reviewer and Competent Person
Area Report Date Resources Reserves
Area 1 23 December 2014 Lesley Jeffrey Norman McGeorge
Emalahleni 16 March 2012 Liz de Klerk Morongwa Mothengu
Emalahleni Underground 03 April 2013 Liz de Klerk Morongwa Mothengu
Gwabalanda 25 May 2013 Liz de Klerk Morongwa Mothengu
KwaQubuka 16 March 2012 Liz de Klerk Morongwa Mothengu
KwaQubuka North 28 October 2013 Sello Nzama Xolani Gumede
Luhlanga 16 March 2012 Liz de Klerk Morongwa Mothengu
Luhlanga (updated Resources only) 25 October 2013 Sello Nzama -
Mahujini 28 October 2013 Sello Nzama Xolani Gumede
Ophondweni 7 May 2013 Liz de Klerk Morongwa Mothengu