independent competent persons' report

CPR of the Temo Coal ProjectC A Telfer
B.Sc. (Hons) Geol, (DMS) Dip. Bus. Man. Pr. Sci. Nat, FGSSA, MAusIMM Senior Manager and Competent Person
E S De Klerk
B. Sc. (Geol.), M.Sc. (Exploration Geol.) Pr.Sci.Nat., FGSSA Senior Manager and Competent Person
P J Hancox
B.Sc. (Hons) Geol & Palaeon, PhD. Geol & Palaeon, Pr. Sci. Nat, MGSSA Competent Person
K Dippenaar
L Raaths
B.Tech (Mining), B.Sc. (Operations Research), MBL MSCMA, MSAIMM Competent Person
C W de Vries
Reference No:- VMD2127R Effective Date:- 31 January 2017 SR9.1(iii); SV1.13; JSE12.9(a)
i KEHL CPR – 31 January 2017
Independent Competent Persons’ Report on the coal assets of Keaton Energy Holdings Limited
Synopsis
Introduction
The directors of Keaton Energy Holdings Limited (KEHL or the company) (Registration No. 2006/011090/06) have
requested that Venmyn Deloitte (Pty) Limited (Venmyn Deloitte) prepare an independent Competent Persons’ Report
(CPR) on specific coal assets held by the company, and / or their subsidiaries, which will form part of the proposed
acquisition of 100% of the company’s ordinary share capital by Wescoal Holdings Limited (Wescoal), as announced on 2
February 2017.
KEHL is a coal mining and development company holding thermal and metallurgical coal assets in South Africa. These
assets are situated on four coalfields as illustrated in the figure overleaf. The coal assets that form part of this transaction
are summarised in the table below.
COLLIERY / PROJECT
LICENCE TYPE
Moabsvelden Development 250.00 Neosho Trading 86 (Pty) Limited Mining
Roodepoort Early stage exploration
(Pty) Limited Prospecting
Bankfontein Ermelo Early stage exploration
913.12 Hampfuna Mining and Exploration
(Pty) Limited Prospecting
Mining
TOTAL 14,233.88
The Vaalkrantz Colliery, which was placed on care and maintenance in May 2016, is specifically excluded from the Wescoal
offer and is therefore not covered in this CPR. The colliery is currently held by KEHL’s subsidiary, Leeuw Mining and
Exploration (Pty) Limited (LME), but forms part of a disposal process and is subject to a Section 11 Ministerial consent.
LME’s other exploration assets are also excluded from this sale.
KEHL is listed on the Johannesburg Stock Exchange (JSE) and as such, this CPR is required in terms of Chapter 12 of the
JSE Listing Requirements pertaining to a Category 1 transaction. Venmyn Deloitte understands that this CPR will be
submitted to the JSE as part of a circular to shareholders.
The CPR serves the purpose of identifying the value of the coal assets (see table above) as at 31 January 2017. This CPR
describes these coal assets in terms of their historical and recent exploration and mining data, which would have a bearing
on the techno-economic value of the assets. The effective date of this CPR is 31 January 2017.
This CPR has been prepared in compliance with and to the extent required by The South African Code for the Reporting
of Exploration Results, Mineral Resources and Mineral Reserves (The SAMREC Code or SAMREC) 2016 Edition, The South
African Code for the Reporting of Mineral Asset Valuation (The SAMVAL Code, or SAMVAL) as amended on 20 December
2016 as well as Chapter 12 of the JSE Listing Requirements.
Location of KEHL’s coal assets in relation to the South African Coalfields and major infrastructure
Figure 01
SWAZILAND
MOZAMBIQUE
Coalfields: Kangwane Witbank Ermelo South Rand Vereeniging/Sasolburg Utrecht Highveld Vryheid Klipriver Nongoma Somkele
1 2 3 4 5 6 7 8 9 10 11
National Road Secondary Road Town Power Station Port Rail Richard’s Bay Coal Line
Lesotho
Swaziland
The KEHL shareholders are; Rutendo Holdings (Pty) Limited (Rutendo) 23.95%, Plusbay Limited 26.88%, the Pouroulis
Family 26.41% with the balance being held by various individuals and other legal entities. KEHL’s current corporate
structure, with reference to the sale coal assets is presented in the KEHL corporate structure diagram overleaf.
This CPR was prepared by Mrs C Telfer and Mrs E de Klerk, currently employed by Venmyn Deloitte, who both have
relevant and appropriate experience and independence to appraise the coal assets. Both Mrs C Telfer and Mrs E de Klerk
are considered Competent Persons, and each have more than five years’ relevant experience in the assessment and
evaluation of the types of coal exploration and mining properties discussed in this report. Mr C de Vries, currently employed
by Venmyn Deloitte, is the Competent Valuator as defined by the SAMVAL code, by way of relevant education,
qualifications and experience. Ultimate responsibility for this CPR rests with Mrs C Telfer.
Venmyn Deloitte has based its review on information provided by KEHL and its subsidiary companies, along with technical
reports and information supplied by its contractors and associates and other relevant published data. Venmyn Deloitte
has performed a high level review of the Coal Resource and Coal Reserve estimates reported in this CPR, however ultimate
responsibility for the Coal Resource and Coal Reserve estimates rests with the respective CPs who are co-authors of this
CPR.
This CPR has been co-authored by Dr PJ Hancox of Caracle Creek International Consulting Coal (Pty) Limited (CCIC Coal),
Mr K Dippenaar of Gemecs (Pty) Limited (Gemecs) and Mr L Raaths of Miptec (Pty) Limited (Miptec). The Coal Resources
reported in this CPR were prepared by Dr PJ Hancox of CCIC Coal for the Vanggatfontein, Sterkfontein and Braakfontein
coal assets and Mr K Dippenaar of Gemecs, for the Moabsvelden, Roodepoort and Bankfontein coal assets. The Coal
Reserves reported in this CPR were prepared by Mr L Raaths of Miptec for the Vanggatfontein and Moabsvelden coal
assets. All these experts are independent of KEHL, although they are contracted by the company to prepare their Coal
Resource and Coal Reserve estimates on an annual basis.
These Coal Resources and Coal Reserves have been defined in accordance with the SAMREC Code. The SAMREC Code
requires the use of the South African National Standard: South African Guide to the Systematic Evaluation of Coal
Resources and Coal Reserves (SANS10320:2004) when classifying and reporting Coal Resources and Coal Reserves in
South Africa. SANS10320:2004 uses the guideling of relative distances from boreholes or concentration of boreholes per
100ha, with quality data, for the classification of Coal Resources. This standard was utilised by Gemecs and CCIC Coal for
both the projects.
The total Coal Resources and Coal Reserves, as estimated at 31 January 2017, are summarised in the tables overleaf by
resource classification category and by project.
Neither Venmyn Deloitte nor its staff or co-authors have, or have had, any interest in these projects capable of affecting
their ability to give an unbiased opinion and, have not received, and will not receive, any pecuniary or other benefits in
connection with this assignment, other than normal consulting fees. Neither Venmyn Deloitte nor any of its personnel or
co-authors involved in the preparation of this CPR have any material interest in either KEHL or in any of the properties
described herein. It must be noted that Dr PJ Hancox has an indirect beneficial interest in KEHL through the holding of
350,000 shares in the company.
Venmyn Deloitte conducted site visits to KEHL’s Vanggatfontein Colliery and Sterkfontein Project on 17 August 2015.
Venmy Deloitte also conducted site visits to Vanggatfontein and Moabsvelden in March 2017. During these site visits, all
site infrastructure, workings and operations were inspected. These site visits have substantiated the existence of KEHL’s
Coal Resources and Coal Reserves which are supported by the exploration and production results detailed herein. No site
visits were undertaken by Venmyn Deloitte to Roodepoort, Bankfontein and Braakfontein. These have been visited by Dr
Hancox, Mr Dippenaar and Mr Raaths regularly, the latest visit by Dr Hancox being September 2015 and by Mr Dippenaar
being in 2016. Mr Raaths visits Vanggatfontein on a bimonthly basis. Dr Hancox and Mr Dippenaar and Mr Raaths are
Competent Persons and co-authors to this report.
Venmyn Deloitte has conducted a valuation of the coal assets with the aim of identifying the attributable value on an
asset-by-asset basis as at the effective date of this report. Each asset has been valued according to its respective
development stage by applying appropriate valuation methods.
F ig
u re
0 3
KEHL’s corporate structure
Leeuw Braakfontein Colliery (Pty) Ltd
Leeuw Mining and Exploration
Roodepoort Project (Kriel)
Bankfontein Project
100%
Plusbay Ltd (Gunvor)
26%
100%
*Option granted to Moneybox to acquire 100% in Labohalano, as well as the Keaton Mining Prospecting Rights on Sterkfontein (i.e. 443PR, 444PR,1827PR,2053PR) which constitutes 100% of the Sterkfontein Project
**The ratio of respective shareholdings has not been calculated as KEHL holds 100% of the Sterkfontein Project through its respective subsidiaries
Keaton Energy Holdings Limited
15%74% 15% 100%100% 100%**
v KEHL CPR – 31 January 2017
KEHL Coal Resource estimates as at 31 January 2017 (SAMREC, 2016) by classification
(inclusive of Coal Reserves, where relevant)
RAW QUALITIES (AD) PRODUCT QUALITIES (AD)
PROJECT COAL
Vanggatfontein
Measured
87.37 16.99 38.67 18.39 39.16 1.02 3.88 63.66 22.04 26.15 20.69 48.92 0.86 4.18
Moabsvelden 47.77 17.82 35.16 20.65 40.27 0.84 3.92 60.33 21.15 24.07 22.96 48.79 0.65 4.18
Roodepoort 8.88 14.12 45.91 18.03 32.87 0.62 2.57 17.79 25.45 15.93 24.36 54.13 0.63 3.46
Sterkfontein 0.00
Bankfontein 0.24 22.07 27.44 22.64 38.90 0.97 3.02 75.80 25.10 20.00 24.50 51.64 0.76 3.10
Braakfontein 0.00
TOTAL MEASURED COAL RESOURCE 144.26 17.10 37.93 19.12 39.14 0.93 3.81 59.76 21.96 24.82 21.67 49.20 0.78 4.13
Vanggatfontein
Indicated
21.40 16.38 40.11 18.53 37.53 0.91 3.85 58.73 22.43 25.02 21.52 48.98 0.72 4.30
Moabsvelden 0.00
Roodepoort 12.23 13.87 46.23 17.99 32.62 0.62 2.54 18.00 25.94 16.00 26.22 53.72 0.68 3.04
Sterkfontein 50.29 20.79 29.31 26.13 41.09 1.42 2.05 55.60 26.50 14.90 31.40 49.63 1.28 4.09
Bankfontein 0.98 21.85 28.54 21.23 39.22 0.94 3.00 72.60 25.10 20.10 22.60 53.39 0.71 3.20
Braakfontein 60.06 24.58 28.74 22.34 47.26 1.62 2.13 64.86 27.10 17.87 24.86 55.12 1.17 2.18
TOTAL INDICATED COAL RESOURCE 144.96 21.13 32.09 22.72 42.39 1.36 2.40 56.84 26.09 17.75 26.74 52.18 1.10 3.23
Vanggatfontein
Inferred
0.00
Moabsvelden 0.00
Roodepoort 5.24 14.07 47.38 17.89 31.37 0.80 2.55 19.78 25.31 15.71 25.97 51.86 0.71 3.79
Sterkfontein 40.64 18.70 33.80 25.08 37.58 1.21 2.33 49.86 26.51 14.52 32.44 48.99 1.20 4.08
Bankfontein 10.56 18.95 36.14 19.86 32.93 0.95 3.07 57.87 25.16 20.76 22.84 52.51 0.86 3.03
Braakfontein 0.00
TOTAL INFERRED COAL RESOURCE 56.44 18.32 35.50 23.43 36.13 1.13 2.49 48.57 26.15 15.80 30.04 49.91 1.10 3.86
TOTAL VANGGATFONTEIN 108.77 16.87 38.95 18.42 38.84 1.00 3.80 62.69 22.12 25.93 20.85 48.93 0.84 4.20
TOTAL MOABSVELDEN 47.77 17.82 35.16 20.65 40.27 0.84 3.92 60.33 21.15 24.07 22.96 48.79 0.65 4.18
TOTAL ROODEPOORT 26.35 14.00 46.35 17.99 32.46 0.65 2.55 18.29 25.65 15.92 25.54 53.48 0.67 3.33
TOTAL STERKFONTEIN 90.93 19.86 31.31 25.66 39.52 1.33 2.18 53.03 26.51 14.73 31.86 49.34 1.25 4.09
TOTAL BANKFONTEIN 11.78 19.25 35.33 20.03 33.58 0.95 3.06 59.47 25.15 20.69 22.85 52.56 0.85 3.04
TOTAL BRAAKFONTEIN 60.06 24.58 28.74 22.34 47.26 1.62 2.13 64.86 27.10 17.87 24.86 55.12 1.17 2.18
GRAND TOTAL COAL RESOURCE 345.66 18.99 35.09 21.34 40.01 1.14 2.98 56.71 24.38 20.38 25.16 50.57 0.97 3.71
Note:
Coal Resources reported in decreasing order of geological confidence. Weighted average qualities estimated on MTIS.
vi KEHL CPR – 31 January 2017
KEHL Coal Reserves as at 31 January 2017 (SAMREC, 2016)
ROM QUALITIES (AR) SALEABLE QUALITIES (AR)
PROJECT
COAL
RESERVE
CATEGORY
ROM
Vanggatfontein
Proved 31.65 20.04 100.00 16.75 38.79 18.41 1.00 64.32 21.77 26.49 21.60 0.88
Moabsvelden 35.91 19.82 100.00 16.42 38.49 19.69 0.83 69.12 22.04 24.85 23.14 0.78
TOTAL PROVED COAL RESERVE 67.56 39.86 100.00 16.57 38.63 19.09 0.91 66.71 21.91 25.67 22.37 0.83
Vanggatfontein Probable
9.61 5.81 100.00 16.64 39.37 18.46 0.95 61.24 21.88 25.95 21.80 0.78
Moabsvelden 3.95 2.03 100.00 16.15 39.02 17.36 0.73 64.10 22.02 24.75 21.63 0.64
TOTAL PROBABLE COAL RESERVE 13.56 7.84 100.00 16.50 39.26 18.14 0.88 61.98 21.92 25.64 21.75 0.74
TOTAL VANGGATFONTEIN 41.26 25.85 100.00 16.72 38.93 18.42 0.99 63.63 21.79 26.37 21.64 0.86
TOTAL MOABSVELDEN 39.86 21.85 100.00 16.39 38.54 19.46 0.82 68.66 22.04 24.84 23.00 0.77
GRAND TOTAL COAL RESERVE 81.12 47.70 100.00 16.56 38.74 18.93 0.91 65.93 21.91 25.67 22.27 0.82
Note:
vii KEHL CPR – 31 January 2017
At the exploration phase, coal projects are valued dependent upon the geological prospectivity and prospects for eventual
economic extraction of that deposit. The Cost and Market approaches are the primary valuation methodologies applied in
the valuation of exploration properties mainly dependent on the extent of exploration carried out and technical studies
conducted on the asset. Production and development properties are valued using the Income and Market approaches as
being most appropriate to the development status of the assets.
The mineral asset valuations have been based on exploration, concept study and production information available up to
and including the 31 January 2017. The valuation results are shown in the table below.
Summary of mineral asset valuation of KEHL's coal assets as at 31 January 2017 (SAMVAL, 2016)
PROJECT COST
APPROACH* (ZARm)
MARKET APPROACH*
Moabsvelden N/A 377.38 527.64 527.64 74% 390.45
Roodepoort 16.67 41.75 N/A 41.75 15% 6.26
Sterkfontein 301.00 119.03 N/A 119.03 100% 119.03
Bankfontein 16.67 8.41 N/A 8.41 15% 1.26
Braakfontein 372.40 108.11 N/A 108.11 100% 108.11
TOTAL 765.32 1,431.57 1,476.27 1,821.03 1,641.20
Notes:
* 100% project value excluding debt and other balance sheet liabilities
viii KEHL CPR – 31 January 2017
Vanggatfontein
The Vanggatfontein Colliery (Vanggatfontein) is an open cast coal mining operation, situated in the Witbank Coalfield in
South Africa (see location of KEHL’s coal assets in relation to the South African coalfields and major infrastructure figure).
The Colliery mines the No.5, No.4 and No.2 Seams using truck and shovel roll-over mining methods at an average rate
of 300,000tpm run of mine (RoM) (January 2014 – January 2017). The No.5 Seam is processed through a 100tph plant
for domestic metallurgical and boiler markets (No.5 Seam Plant), whilst the No.4 and No.2 Seams are processed through
a 480tph plant which produces thermal coal for Eskom.
Location
Vanggatfontein is situated approximately 16km east-southeast of Delmas in the Mpumalanga Province of South Africa,
approximately 65km southwest of Emalahleni and approximately 94km east of Johannesburg.
Ownership and tenure
Vanggatfontein is 100% owned by Keaton Mining (Pty) Limited (Keaton Mining), in turn 100% owned by KEHL. In July
2015 Rutendo flipped its 26% shareholding in Keaton Mining to 23.95% at the listed KEHL level.
On 23 February 2010 Prospecting Right (416PR) held by Keaton Mining was successfully converted into a 20 year Mining
Right (309MR) covering an area of 1,651.98ha expiring on 22nd February 2030.
Regional geology
The coal seams, from the base upward, include the No.1, No.2, No.3, No.4 and No.5 Seams. The No.1 Seam is best
developed in the northern part of the Witbank Coalfield, where it is between 1.5m and 2.0m thick.
The No.2 Seam contains some of the best quality coal. Its average thickness is 6.5m in the main-central part of the
Witbank Coalfield and thins to approximately 3.0m towards the west and east.
The No.3 Seam is poorly developed and is usually less than 0.5m thick. It is, therefore, not generally economically
extracted.
The No.4 Seam varies in thickness from approximately 2.5m to 6.5m. In places, the seam is divided into the No.4 Lower,
No.4 Upper and No.4 A Seams, separated by sandstone and siltstone/mudstone partings. The seam usually contains dull
to dull lustrous coal.
The No.5 Seam has been extensively eroded over large areas, and where present has an average thickness of 1.8m,
being between 0.5m and 2.0m thick The seam is generally a high quality, low phosphorus coal, and is a source of blend
coking and other metallurgical coal.
Local geology
Vanggatfontein is divided into an East Resource Block (ERB) and West Resource Block (WRB) separated by the D2543
provincial road which passes through the property. In places both the ERB and WRB host the complete sequence of the
Witbank Coalfield coal seams, namely the No’s.1, 2, 3, 4 and 5 Seams, although the No.3 Seam is not usually developed
and the No.5 Seam is eroded away in places. The stratigraphy of the ERB and WRB may be subdivided into three main
sequences, these being a basal No.2 Seam Sequence, overlain by the No.4 Seam Sequence, which in turn is overlain by
the No.5 Seam Sequence.
Historical exploration
Data from the Council of Geoscience (CGS) Geode spatial coal database shows that between 1962 and 1963 a total of 40
boreholes were drilled on the property by Brakfontein Navigation Steam Collieries; with an additional hole drilled by the
CGS itself (no date is given).
ix KEHL CPR – 31 January 2017
The No.5, No.4 and No.2 Seams were intersected in the historical drilling programmes, and all of the holes, with the
exception of one in the east, intersected coal. Only borehole collar co-ordinates and coal intersections were made available
to KEHL.
Recent exploration
Recent exploration refers to all exploration carried out since Keaton Mining’s involvement.
Between 2007 and 2010 three phases of exploration drilling were undertaken by Keaton Mining on the property, with a
total of 230 boreholes drilled including seven twin, and five orientated geotechnical boreholes. In 2011 an additional 12
boreholes were drilled, mainly to increase the level of understanding of the ERB geology. In March of 2015 an additional
six cored boreholes were drilled on the project area, mainly on the western fringe of the ERB.
In summary all exploration resource drilling undertaken by Keaton Mining to date has been vertically orientated diamond
drilling using conventional equipment and TNW (60.0mm), or NQ (47.6mm) core size. All boreholes were logged and
sampled by Caracle Creek International Consulting (Pty) Limited (CCIC) prior to September 2008, CCIC Coal or Keaton
Mining geologists.
As part of the original Phase 1 exploration programme a ground-borne resistivity survey was undertaken. During
December 2013, a high resolution low-level aeromagnetic and radiometric survey was flown over the Vanggatfontein
Mining Right. This work included 350 line kilometres over 16.3km2.
Geological modelling
After the completion of the Phase 3 drilling, CCIC Coal was tasked by Keaton Mining to create a geological model and
resource estimation for Vanggatfontein 251IR ERB. A total of 246 boreholes collared on the farm Vanggatfontein 251IR
were used for the structural model, six of which were drilled in early 2015. In addition to this, 23 boreholes that resulted
out of a data swap with the neighbouring Rietkuil farm were also used to improve the structural model.
The basis for geological modelling is the lithological data obtained from the drilling of diamond core vertical boreholes and
the analytical data obtained from the sampling of intersected coal seams. Cognisance was also taken of the new
geophysical interpretation and wetland definitions.
Modelling of Vanggatfontein was undertaken in Datamine and included the generation of wireframes of the level of
weathering, of the major coal seams and dolerite intrusions. This was followed by geological interpretation, specifically
focused on the structure and the relationship between the dolerite intrusions and their effect on the coal seams. A number
of cross-sections were generated to test the geological model and to gain a better understanding of the changes in the
seam floor elevations in order to see where faults potentially occur.
The seam wireframes were then converted into block models with a 50m by 50m by seam height cell size. As estimation
parameter, Inverse Distance to the Power of 2 (IDP2) was used with a search radius of 750m, and a minimum of one and
maximum of five samples per search.
Coal mining
Vanggatfontein is an open cast operation that produced an average of approximately 300,000tpm (Jan 2016 – Jan 2017)
RoM coal through mining from the VG2, VG3 and VG4 pits. Mining operations focus on the No.5, No.4 and No.2 Seams.
Mining operations at Vanggatfontein are contracted by Keaton Mining to Liviero Mining (Pty) Limited (Liviero) which is
supported by an on-site Keaton Mining management team. Mining activities are currently confined to the ERB of the
Vanggatfontein property.
Open cast mining began in July 2010 with the establishment of a boxcut for the first pit (VG1) in the east of the property,
which then progressed to steady state mining and is now mined out. Current mining takes place in the VG3 and VG4 pits.
The VG2 pit was mined out in April 2016 and is currently being rehabilitated.
x KEHL CPR – 31 January 2017
Coal processing
KEHL owns two coal handling and processing plants (CHPPs) on Vanggatfontein. The plants, with processing capacities of
100tph and 480tph respectively, process RoM from the three seams. The 100tph plant (No.5 Seam plant) processes RoM
from the No.5 Seam, producing high quality products for domestic metallurgical and boiler markets, third party coal on
short term contracts as well as No.2 and No.4 Seam coal as capacity allows. The 480tph plant processes RoM from the
No.2 and No.4 Seams producing exclusively washed Eskom power station coal.
Coal Resources and Coal Reserves
The Vanggatfontein Coal Resource estimate has been independently estimated, classified and signed off by Dr PJ Hancox
of CCIC Coal. The Vanggatfontein MTIS Coal Resource estimate declared as at 31 January 2017 comprises 89.07Mt
Measured Coal Resource and 21.40Mt Indicated Coal Resource for a total of 110.47Mt.
The Vanggatfontein Coal Reserve estimate has been independently estimated, classified and signed off by Mr L Raaths of
Miptec. The Vanggatfontein RoM Coal Reserve estimate declared as at 31 January 2017 comprises 31.65Mt AR RoM Proved
and 9.61Mt AR RoM Probable for a total of 41.26Mt AR RoM Coal Reserve.
Conclusions
Vanggatfontein is a medium to large-sized Production property with thermal Coal Resources (108.7Mt MTIS) amenable to
open cast (surface) mining. The resource estimate is founded on a well-constrained geological model, which in turn is
based on reliable and auditable data. Vanggatfontein hosts a Saleable Coal Reserve of 25.85Mt (AR).
The provincial permission for moving the road in order to access the WRB cost effectively is a key risk to Vanggatfontein.
However, this block is not included in the current LOM plan and comprises only 7% of the value of Vanggatfontein.
Through the application of the Cost, Market and Income Approaches, the preferred value of KEHL’s attributable share
(100%) of Vanggatfontein (ERB and WRB) is ZAR1,016.1m. For the valuation of the ERB the Income Approach was
selected for the preferred value, whilst the Market Approach was selected for the WRB preferred value.
xi KEHL CPR – 31 January 2017
Moabsvelden
Moabsvelden is a Development property situated on the Witbank Coalfield in South Africa. It is planned to be operated as
a satellite pit of the neighbouring Vanggatfontein Colliery. Moabsvelden RoM will be processed through a dedicated coal
handling and processing plant at the KEHL Vanggatfontein Colliery as well as through existing capacity within the 5 Seam
plant.
Location
Moabsvelden is located approximately 15km east-southeast of Delmas in the Mpumalanga province of South Africa,
approximately 55km southwest of eMalahleni (previously Witbank) and approximately 77km east of Johannesburg.
On 16 October 2013 the Moabsvelden prospecting right (4043PR) was successfully converted into an 18 year mining right
(10025 MR), issued to Neosho Trading 86 (Proprietary) Limited (Neosho Trading). The Moabsvelden Mining Right covers
portion 8 of the farm Moabsvelden 248IR, an area of 250ha, and is valid until October 2031.
As a result of KEHL’s acquisition of 100% of the issued shares in Xceed Resources Limited (Xceed) (74% owners of Neosho
Trading) in February 2014, Neosho Trading effectively became a 74% held KEHL subsidiary. The remaining 26% stake is
held by three remaining founding shareholders – DL Sikhosana, AP Sikhosana and ME Dhladla.
Regional geology
For an overview of the Witbank coal field, in which Moabsvelden is located, the reader is referred to the regional geology
summary for neighbouring Vanggatfontein (above).
Local geology
At Moabsvelden, the typical Witbank Coalfield seam sequences of No.1 to No.5 Seams are present, but in a somewhat
compressed manner. This has resulted in the Moabsvelden area being characterised by a thicker than usual sequence of
the lower most seams which represents a combination of the No.4U and No.4L, No.2U and No.2L and No.1 Seams. The
thinner uppermost seam at Moabsvelden represents the Witbank Coalfield’s uppermost No.5 Seam.
This has resulted in a specific seam nomenclature being adopted for Moabsvelden which is somewhat different to the
more conventional Witbank Coalfield nomenclature. Instead the thicker lower seam complex has been termed as the
Bottom Seam and the top thinner seam as the Mid Seam. In turn the Bottom and Mid Seams have been divided into plies
identified by using geophysical log data with relation to the in-seam partings. These plies are well developed and extend
across the Moabsvelden area.
The Bottom Seam sequence, representing plies SBA, SBB, SBC, SBD, SBE and SBF (each corresponding in turn to the
No.4U and No.4L, No.2U and No.2L and No.1 Seams) are the most widely distributed across Moabsvelden which was
intersected in most of the drillholes, except for those drilled in the south-western corner where a palaeo-high was
intersected. The Bottom Seam shows remarkable lateral continuity with respect to internal partings and thin individual
layers which has been confirmed by the geophysical logs. The average thickness of the Bottom Seam is 18.80m.
The Mid Seam, or ply SM which corresponds to No.5 Seam, is situated approximately 11m above the No.4U Seam and is
limited to the central part of Moabsvelden. In the northern and western areas of Moabsvelden the No.5 Seam has been
eroded away. The coal seams are underlain by Dwyka Group tillites which range in thickness from 1m to 20m and are in
turn underlain by basement dolomite and chert formations of the Malmani Group which typically display karst features.
Historical Exploration
The first phase of exploration ever completed on Moabsvelden was in 2010 when 10 drillholes were drilled by Xceed, the
results of which justified a follow-up drilling campaign in 2011 of 31 drillholes. No exploration of Moabsvelden prior to
2010 is recorded, nor has any historical mining ever occurred on Moabsvelden.
xii KEHL CPR – 31 January 2017
These two initial exploration drilling campaigns were managed by Gemecs which culminated in almost 3,000m being
drilled. The results of the exploration undertaken were used to declare a maiden Coal Resources on Moabsvelden in July
2013.
In addition, an aeromagnetic geophysical survey was performed over the property by Xcalibur Airborne Geophysics in
2011. The data collected during the survey was magnetic, radiometric and elevation. The aim of the survey was to
delineate any dolerite intrusions, with a 12m thick sill identified in the western and northern portions of Moabsvelden.
The results of the exploration formed the basis of a feasibility study completed on Moabsvelden by Belton Projects and
Exploration (Belton) in April 2012, pre the acquisition of Moabsvelden by KEHL in February 2014. These feasibility study
results are no longer considered relevant since a decision has subsequently been made to integrate Moabsvelden into
KEHL’s neighbouring Vanggatfontein Colliery.
Recent exploration
Recent exploration refers to all exploration carried out since KEHL’s acquisition of Moabsvelden in February 2014.
A single additional phase of exploration was completed on Moabsvelden. Six diamond drillholes were drilled in the planned
box-cut area during December 2014 with a total of 482.77m drilled during this campaign in order to better understand
the coal structure and quality within the planned box-cut, as well as to generate a sample for submission to Eskom for
combustion test work. The drilling was managed in-house by Neosho Trading with the logging and sampling undertaken
by CCIC Coal according to the Moabsvelden seam nomenclature. All of these boreholes were wireline logged by Geoline
Services.
Following the completion of this drilling campaign, RSV ENCO Consulting (Proprietary) Limited (RSV ENCO) completed a
Project Execution Report (PER) on Moabsvelden in March 2016 for a 2.4Mtpa opencast operation, the results of which
supersede the April 2012 Feasibility Study.
A geological, structural and coal quality model was constructed by Gemecs using Gemcom MinexTM, an appropriate
geological modelling software package which provides geology and mine planning tools for coal and other tabular deposits.
All seven of the Moabsvelden coal plies (SM, SBA, SBB, SBC, SBD, SBE and SBF) and associated parting bands (SBP1,
SBP2 and SBP3) were modelled within the Moabsvelden Mining Right boundary.
Proposed coal mining
Moabsvelden is proposed to be a typical opencast mining operation utilising the truck & shovel rollover methodology. As
the coal seams on Moabsvelden do not outcrop, an initial boxcut will comprise a large volume of waste prior to the
commencement of coal production. The mining philosophy therefore aims to minimise the total volume of waste material
and therefore cost and time to first commercial production.
The initial box-cut has been planned in an east-west orientation at a length of 600m and to a depth of 70m to the floor
of the No.1 seam, with the access ramp extending toward the west. The ramp has been designed at 10% to intersect the
floor of the No.2L at the western end-wall of the initial cut.
Mining will take place in three different pits. Pit MV1 will mine southwards for approximately five cuts before the Pit MV2
boxcut construction commences. The MV2 cut will be a pushback of the existing MV1 ramp with access to pit-bottom then
achieved via a low-wall ramp. The northern MV3 pit has been designed to commence in mid-2026 with MV1 pit depleted
in 2030. From 2031 onward mining will be conducted on the remainder of the MV2 and MV3 pits.
Proposed coal processing
Moabsvelden RoM will be processed through a new, dedicated 350tph plant at KEHL’s Vanggatfontein Colliery, to be
constructed adjacent to the existing 480tph Eskom plant. RoM coal will be trucked from Moabsvelden to both the new
350tph plant feed stockpile as well as the 5 Seam feed stockpile.
xiii KEHL CPR – 31 January 2017
The relatively short cut length, and having only one pit at the beginning of the LoM does not allow for a great degree of
flexibility within the pit. As a result, different quality RoM stockpiles will be maintained both on Moabsvelden and at the
plant feed to ensure flexibility within the new plant to meet the product specification. The resultant saleable quality will
be managed on a ply-by-ply basis with the respective RoM qualities being batch fed through the plant and the process
flow sheet modified to dynamically deal with the feed quality. Although a number of product scenarios have been modeled
for Moabsvelden, including domestic B-grade, Eskom-only and hybrid Eskom/export flow sheets, KEHL currently plans to
produce a 4,800kcal/kg net as received (NAR) (22.0MJ/kg AD) product for the export market.
The No.5 Seam RoM will similarly be processed using excess capacity within the 100tph No.5 Seam plant on
Vanggatfontein to produce a 4,800kcal/kg NAR product. However, the plant will retain flexibility to produce low
phosphorous sized coal for domestic metallurgical and boiler markets. The No.2, 4 and 1 Seams RoM will be processed
through the new dedicated 350tph single-stage DMS plant.
The Moabsvelden Coal Resource estimate has been independently estimated, classified and signed off by Dr PJ Hancox of
CCIC Coal. The Vanggatfontein MTIS Coal Resource estimate declared as at 31 January 2017 comprises a total of 47.77Mt
in the Measured Coal Resource category.
The Moabsvelden Coal Reserve estimate has been independently estimated, classified and signed off by Mr L Raaths of
Miptec. The Vanggatfontein RoM Coal Reserve estimate declared as at 31 January 2017 comprises 35.91Mt AR Proved
and 3.95Mt AR Probable for a total of 39.96Mt AR.
Conclusion
Moabsvelden is a medium sized (47.77Mt MTIS Measured Coal Resource) thermal Development property amenable to
opencast extraction. The Coal Reserve amounts to 39.86Mt ROM (AR). The Coal Resource and Coal Reserve estimates are
founded on well-constrained models based on reliable and auditable exploration data.
KEHL does not own the surface rights to portion 8 of Moabsvelden 248IR, although negotiations have advanced to a final
stage, the signature of the agreement has not been obtained. The timing of the development of Moabsvelden will be
essential to the success of the project, both from a technical and market perspective.
Through the application of the Market and Income Approaches, the preferred value of KEHL’s attributable share (74%) in
Moabsvelden is ZAR390.45m. For the valuation of Moabsvelden, the Income Approach was selected for the preferred
value.
Roodepoort
The Roodepoort Project (Roodepoort) is a potential export and domestic coal exploration project located on the Witbank
Coalfield in South Africa. The Roodepoort Project targets the No.1 and No.2 Seams of the Witbank Coalfield. It is planned
for the Roodepoort coal to be mined using opencast mining methods. The coal quality lends itself to a double-stage
washing process to produce a primary export thermal product and a middlings product for potential sale to Eskom.
Location
Roodepoort is located 17km directly north of the town of Kriel, which is 48km northwest of the town of Bethal, in the
Mpumalanga Province, South Africa. The project covers a total area of 1,120.25ha comprising portions 6, 11, 12 and 17
of the farm Roodepoort 40IS and portion 6 of the farm Diepspruit 41IS.
KEHL holds a 15% stake in Hampfuna Mining and Exploration (Pty) Limited (Hampfuna) (see corporate structure). The
project comprises a single Prospecting Right (30018PR) held in the name of Hampfuna. The Prospecting Right renewal
was granted on 23 February 2017 but had not been executed at the date of this report.
Regional geology
The reader is referred to Vanggatfontein for a description of the regional geology pertaining to Roodepoort.
Local geology
The local geology is typical of the Witbank Coalfield. The No.1 and 1A Seams, at the base of the sequence, are present
but were only intersected in a few boreholes. The 1A Seam is present at an average depth of 3.5m below No.1 Seam. It
has an average thickness of 0.8m. A portion of No.1A Seam with a thickness of more than 0.5m was only intersected
towards the northeastern part of Roodepoort 401IS. The No.1A Seam was not intersected on Diepspruit. The No.1 Seam
is situated on average 9m below the No.2L Seam and has an average thickness of 0.9m. Boreholes that intersected the
No.1 Seam are located in the north and eastern parts of the farm Roodepoort portions 6 and 12.
The No.2 Seam in this area has developed into a No.2U Seam and No.2L Seam, with a shale or mudstone inter-seam
parting. The No.2U and No.2L Seams are the most widely distributed over the area and were intersected in most of the
exploration boreholes. No.2L Seam has an average thickness of 1.4m in this area. The parting thickness between the
No.2U and the No.2L Seams is 0.6m. The No.2L Seam pinches out towards the north and western side of the farm
Roodepoort portion 6. The No.2U Seam has an average thickness of 2.5m and thins towards the southwest of the farm
Roodepoort. The No.2U Seam was intersected in most boreholes drilled in the project area (Figure 69). The limit of the
coal seam was identified in the south and west of the farm. The depth from surface varies between 5m and 36m with an
average depth of 21m. A trough occurs between the two farms.
The No.4U Seam only attains a thickness of an average of 7cm, whilst the No.4L Seam was only intersected in a few
boreholes with an average thickness of 22cm.
Of the 26 boreholes drilled, only borehole RT261 intersected a dolerite dyke with a thickness of 1m.
Historical drilling was undertaken by Ingwe and Anglo American Corporation of South Africa Limited (AAC). No information
was provided to Gemecs on the drilling and sampling methodology, protocols or contractors used by these companies.
However, drilling by both companies has historically been of a high standard. No historical mining has taken place on any
of the contributing properties associated with Roodepoort.
xv KEHL CPR – 31 January 2017
Historical exploration by Xceed
During November 2011, four boreholes were drilled - one on portion 12 and three on portion 6 of the farm Roodepoort
40IS by Xceed. The purpose of these boreholes was to twin historical boreholes to validate the data received from these
historical boreholes.
In February 2012 another 21 boreholes were drilled – fourteen on portion 6 and three on portion 12 of farm Roodepoort
40IS, and four on portion 6 of the farm Diepspruit 41IS. All borehole samples were analysed at the NOKO laboratory in
Witbank. NOKO laboratories received accreditation from South African National Accreditation System (SANAS) in August
2011.
Recent exploration
KEHL has not conducted any exploration on Roodepoort since its acquisition of the project in February 2014.
A geological structural and coal quality model was built using Gemcom MinexTM modelling software. The Gemcom MinexTM
general algorithm, also known as the Growth Technique, was used for modelling (gridding) of both structural and quality
parameters. Gridding was done on a mesh size of 25m x 25m within a polygon limit for the data’s existence.
Roodepoort is proposed to be an open pit mining operation. The average strip ratio for the combined No.2U, No.2L and
No.1 Seams is 5.62bcm waste:1t coal. No further mine design criteria have been applied to Roodepoort, due to its stage
of exploration.
Washability simulations were performed on the No.2U, No.2L, No.1 and the No.1A seams for an export coal product with
a target primary product calorific value (CV) of 26MJ/kg (AD) and a secondary product of 21.5MJ/kg (AD) for local power
station coal. A washability simulation was also performed for a product washed at a 1.80 RD washing density which
effectively simulates a de-stoning process.
The Roodepoort Coal Resource has been independently estimated, classified and signed off by Mr K Dippenaar of Gemecs.
The Roodepoort MTIS Coal Resource estimate declared as at 31 January 2017 comprises 8.88Mt Measured, 12.23Mt
Indicated Coal Resource and 5.24Mt Infererd Coal Resource for a total of 26.35Mt.
No Coal Reserve has been declared for Roodepoort.
Conclusion
Roodepoort is a relatively small sized (26.35Mt MTIS) thermal Coal Resource with seam thicknesses and depths amenable
to open cast mining. It is an Early stage exploration stage property. Additional studies will be required to modify the Coal
Resources into Coal Reserves.
The small attributable shareholding which KEHL has in Roodepoort poses a risk to their control over the development of
the project and the decision whether to invest futher in the project.
Through the application of the Cost and Market Approach, the preferred value of KEHL’s attributable share (15%) of
Roodepoort is ZAR6.26m. For the valuation of Roodepoort, the Market Approach was selected for the preferred value.
xvi KEHL CPR – 31 January 2017
Sterkfontein
The Sterkfontein Project (Sterkfontein) is an Advanced stage exploration property with qualities which lend the project to
both export and domestic thermal markets. Sterkfontein is situated on the Highveld Coalfield in South Africa (Figure 1).
Sterkfontein extends over portions of ten farms and covers a footprint measuring approximately 16km in a north south
direction and approximately 9km in an east west direction for a total area of 7,926ha. Sterkfontein targets the No.4 Lower
(No.4L) and No.4 Upper (No.4U) Seams of the Highveld Coalfield. It is planned for the Sterkfontein coal to be mined using
an underground bord and pillar method with the use of continuous miners. The coal is intended to be processed using a
double-stage circuit to produce a primary export thermal product and a middlings product for potential sale to Eskom. A
number of alternative product scenarios are being investigated.
Location
The northern edge of the Sterkfontein Project is located approximately 5km southwest of Bethal in the Mpumalanga
Province, approximately 89km south of Witbank (now Emalahleni) and approximately 149km east southeast of
Johannesburg. The southern limit is situated approximately 17km south of Bethal.
The project is situated on the farms Kaffirskraal 148IS, Blesbok 150IS, Sterkfontein 296IS, Pieksdal 298IS, Sterkfontein
299IS, Dikkop Alias Verkorting 300IS, Goedehoop, 301IS, Palmietfontein 307IS and Wildan 577IS and covers a total of
7,926ha.
The project comprises five Prospecting Rights held in the names of Keaton Mining and Labohlano Trading 46 (Pty) Limited
(Labohlano). Prospecting Rights, 443PR and 444PR, held by Keaton Mining, were both renewed on 26 November 2014
and now expire in November 2017. Prospecting Right number 1827PR, held by Keaton Mining, remains valid until
December 2017. Prospecting Right number 2053PR, also held by Keaton Mining, expired in December 2015. The
application for renewal was submitted to the DMR timeously and remained in process at the date of this report. Prospecting
Right 1720PR is held by Labohlano. The Prospecting Right was renewed in 2014 and will now expire in November 2017.
Regional geology
The Sterkfontein project is situated on the Highveld Coalfield (see figure), which has historically been one of the most
important producers in South Africa (Barker, 1999). The coal deposits of the Highveld Coalfield are restricted to rocks of
the Vryheid Formation, which range in thickness from 70m to over 500m, being thickest in the northeast and east of the
preserved outcrop area, to the south-southwest of the town of Vryheid, where the basin was the deepest.
Five depositional sequences are recognised within the Vryheid Formation in the Highveld Coalfield, each with the potential
for coal seam development at the top. These are numbered from No.1 Seam at the base to No.5 Seam at the top. Of
these, by far the most important economic seam of the Highveld Coalfield is the No.4 Seam.
Local geology
The Sterkfontein Project area only hosts the No.5 and No.4 Seams with the No.2 Seam represented only by a carbonaceous
siltstone unit.
The No.4 Seam is a composite seam which is often split by a sandstone or siltstone parting, creating a No.4 Upper and
No.4 Lower Seam. Typically, the quality of the No.4 Lower Seam is better than that of the No.4 Upper Seam and is the
main seam present on the project area. The No.4 Lower Seam ranges in thickness from a minimum of 0.18m to a
maximum of 4.50m with an average of 1.64m.
The overlying No.4 Upper Seam shows elevation differences similar to those for the No.4 Lower Seam as would be
expected. Based on statistical analysis of the boreholes in the database the No.4 Upper Seam (where present) ranges in
thickness from a minimum of 0.02m to a maximum of 2.24m, averaging 0.74m.
xvii KEHL CPR – 31 January 2017
For exploration purposes the No.5 Seam forms a distinctive marker approximately 55m above the No.4 Upper Seam. The
No.5 Seam is thin, mostly being less than 40cm over the property. It occurs in most of the holes drilled at a depth of
between 130m and 175m.
Two major dolerite sills have been identified on Sterkfontein which has an impact on the No.4 Seam structure on the
property.
Prior to KEHL’s involvement, only four historical boreholes had been drilled on the Sterkfontein Project area. These were
drilled by AAC in 1969. Data for these boreholes were obtained from the CGS and, although they all intersected coal, no
information regarding the lithologies and coal qualities is currently available. Subsequent to AAC relinquishing its rights,
no additional boreholes were drilled on the property prior to the KEHL exploration programmes.
Recent exploration - Labohlano
During July 2008 to April 2009 and in 2012 exploration was conducted for Labohlano and managed by Beacon Rock
Corporate Service (Pty) Limited (Beacon Rock). This work comprised a total of 4,920m of diamond drilling on the
properties Sterkfontein 299IS portion 24, 22, 5, 6, 10, 8, 3, 15, 32, 14, 11, 18, 19 and Kaffirskraal 148IS Portions 6, 10,
11.
Recent exploration - KEHL
With the acquisition of a 74% share in Labohlano in 2009, Keaton Mining received data from 25 boreholes on the
contributing 1720PR properties.
Two separate phases of exploration were undertaken by Keaton Mining on their Prospecting Rights associated with the
Sterkfontein Project area; the first between 2007 and 2008 and the second between 2009 and 2011.
The first phase was conducted by Keaton Mining during March 2007 to January 2008. This included approximately
27,200m of diamond drilling on the properties Palmietfontein 307IS portion 3, Sterkfontein 299IS Portions 1, 4, 20, 21,
25, 26, 34, Kaffirskraal 148IS portion 3, RE, Wildan 577IS RE, and Goedehoop 301IS portion 4.
CCIC Coal managed the first phase of this work. This work was undertaken in order to create an initial resource for KEHL’s
listing on the JSE.
In order to more fully understand the resource and to increase the level of confidence in the main target area a second
phase of drilling was undertaken by Keaton Mining, beginning in September of 2009. The second phase was managed by
Coffey Mining South Africa (Pty) Limited (Coffey Mining). The second phase was documented in the Geocoal Services
Independent Competent Persons Report on the Sterkfontein Coal Project (2010), as well as in a Coffey Mining Exploration
Report dated August 2010. The protocols used during this phase of exploration are documented in the 2010 Exploration
Report, were as per the initial programme.
No further drilling has been conducted on the Sterkfontein properties by Keaton Mining since 2011.
A total of 257 boreholes were available for modelling, of which 228 were used in the generation of the geological model.
Modelling of Sterkfontein was undertaken in Datamine and included the generation of wireframes, the level of weathering,
slices and sections of the major coal seams and dolerite intrusions.
This was followed by geological interpretation, specifically focused on the structure and the relationship between the
dolerite intrusions and their effect on the coal seams. A number of sections were generated to test the geological model
and to gain a better understanding of the changes in the floor elevation of the No.4 Seam in order to see where faults
potentially occur.
Sterkfontein is proposed to be an underground operation making use of the mechanised continuous miner bord and pillar
mining method. The mine design and production schedule for Sterkfontein originated from work done by RSV ENCO in
March 2013, as part of the Sterkfontein May 2013 Concept Study.
Mining on Sterkfontein is proposed to be largely in the south of the property, where the No.4 Lower Seam is mostly
greater than the determined 1.4m minimum mining height. The northern portion of the resource is mostly less than 1.4m,
with only a few isolated blocks that are greater than the mining height, these blocks have therefore not been included in
the preliminary mine plan.
Production at Sterkfontein has been estimated to be 33,750tpm per production section. A maximum of four production
sections were planned, resulting in total production of 135,000tpm. The proposed LoM plan results in 15 years of mining
at a steady state RoM of 1.62Mtpa, including an 18-month construction phase.
KEHL contracted Taggart South Africa (Taggart) to complete the coal process design component of the May 2013 Concept
Study on Sterkfontein which defined the scope of supply, basis of design and the capital and operating cost for the CHPP,
which included RoM coal handling, coal washing, slurry filtration, product and discard handling. The CHPP was planned to
be a double-stage process targeting a 27.0MJ/kg export thermal product and a 21.5MJ/kg middlings product for domestic
power station consumption. Practical yields of 43.1% and 21.7% of plant feed were simulated for the two products,
respectively.
The Coal Resources for Sterkfontein were independently estimated, classified and signed off by Dr PJ Hancox of CCIC
Coal. The Sterkfontein MTIS Coal Resource estimate declared as at 31 January 2017 comprises 50.29Mt Indicated Coal
Resource and 40.64Mt Inferred Coal Resource for a total of 90.93Mt.
No Coal Reserve has been declared for Sterkfontein.
Conclusion
The Sterkfontein is an Advanced stage exploration property with a medium-sized (90.93Mt MTIS) thermal Coal Resource
at a seam thickness amenable to underground extraction. Additional exploration drilling will however be required to better
understand the geological complexity of the resource, as well as to increase the level of confidence in the project area to
the Measured Coal Resource category.
KEHL has granted an option to Moneybox Investments (Pty) Limited, previously a shareholder in Labohlano Tranding 46
(Pty) Limited, to acquire 100% of the Sterkfontein Project. This option expires on 30 April 2017.
The technical and economic risks of relatively deep coal mining is a key risk to Sterkfontein.
Sterkfontein is ZAR119.03m. For the valuation of Sterkfontein, the Market Approach was selected for the preferred value.
xix KEHL CPR – 31 January 2017
Bankfontein
The Bankfontein Project (Bankfontein) is an Early stage exploration property with potential to produce thermal export and
domestic coal. Bankfontein is situated on the Ermelo Coalfield in South Africa. The project targets primarily the B and C
Seams of the Ermelo Coalfield. It is planned for Bankfontein coal to be mined initially open cast methods and later moving
into underground mining. The coal quality lends itself to a double stage washing process to produce a primary export
thermal product and a middlings product for potential sale to Eskom.
Location
Bankfontein is located approximately 8km northwest of the town of Breyten in the Mpumalanga Province, South Africa.
Breyten lies approximately 29km north of the town of Ermelo. The project is situated on portions 1, 10 and 13 on the
farm Bankfontein 215IS and covers a total area of 913.12ha
The project comprises a single Prospecting Right (3041PR) issued to Hampfuna. The Prospecting Right was issued on 25
August 2009 and expired on 24 August 2012. Hampfuna applied for a renewal timeously but the renewal was only
executed on 26 May 2016, expiring on 25 May 2019.
Regional geology
The coal deposits of the Ermelo Coalfield are located between the Carolina and Dirkiesdorp districts of Hendrina, Breyten,
Davel, Ermelo and Morgenzon covering an area of 11.5Mha, and are restricted to the Vryheid Formation reaching
thicknesses of between 200m and 400m in this area. The Ermelo Coalfield Coal occurs as five distinct seams from E Seam
at the base to the A Seam at the top of the sequence. The mining potential of these seams varies considerably throughout
the Coalfield, but the C Seam is the most prospective. In certain areas the C and B Seams split into Upper and Lower
Seams.
The seams are generally flat lying with a gentle dip to the southwest. Major faulting, in places with displacements of as
much as 250m, are commonly associated with dolerite intrusions. Dykes are common throughout the coalfield and the
frequency of sills also increases southwards. Dolerite sills displace the coal seams causing structural complications as well
as devolatolisation.
Local geology
The upper and lower sub-seams of the A, B and C Seams were intersected during the exploration drilling, as well as the
D and E Seams. The A Lower Seam was intersected in 12 boreholes with a thickness varying between 0.12m and 1.03m
with an average of 0.55m.
The B Upper Seam was intersected in seven boreholes with an average of 0.49m variying between 0.03m and 1.18m.
Insufficient analytical data is present to grid qualities for this specific seam. The B Lower Seam is the prime economic
seam due to its good raw quality (19.6MJ/kg AD) and average thickness of 2.19m. The seam was intersected in 24
boreholes.
The C Upper Seam is also a relatively thin seam with an average thickness of only 0.34cm and was intersected in only
four boreholes. The C Lower Seam is the second most intersected seam after the B Lower Seam. It was intersected in 22
boreholes with an average thickness of 0.80m and maximum of 1.68m. The average raw CV of the seam is 23.0MJ/kg
AD. The seam is approximately 7m below the B-Lower seam. The D seam was intersected in 19 boreholes with an average
thickness of 0.60m.
11 historical boreholes was obtained from the CGS.
xx KEHL CPR – 31 January 2017
No information was provided to Gemecs on the drilling and sampling methodology, protocols or contractors used by these
companies. No historical mining has taken place on any of the contributing properties on Bankfontein.
Historical exploration by Xceed
During 2011 five of the 11 historical boreholes were twinned. Based on the confirmatory results obtained from this data,
Xceed embarked on an exploration programme targeting Bankfontein 215IS portion 13 and, to a lesser degree, portions
1 and 10. The intention of the drilling programme was to confirm information obtained from historical boreholes and to
increase geological confidence of the project area. In February and March 2012 a further 21 boreholes were drilled on
portions 1, 10 and 13. All the borehole samples were analysed at NOKO laboratory in Witbank.
Recent exploration
KEHL has not conducted any exploration on Bankfontein since acquiring a 15% interest in the project through its
acquisition of Xceeed in February 2014.
A geological structural and coal quality model was built using Gemcom MinexTM modelling software. The Gemcom MinexTM
general algorithm, also known as the Growth Technique, was used for modelling (gridding) of both structural and quality
parameters. Gridding was done on a mesh size of 25m x 25m within a polygon limit for the data’s existence.
The B Upper Seam attains thicknesses sufficient to be considered for underground mining and therefore has prospects for
eventual economic extraction. The other seams (B Lower and C Lower) are generally less than 1m in thickness and would
therefore only be considered for opencast mining. The A Seam and D Seam are too thin and poorly developed and would
therefore not be considered for mining.
Washability simulations were performed on the B Upper, B Lower and C Lower Seams for an export coal product with a
target CV of 26.0MJ/kg AD and a secondary product of 21.5MJ/kg AD for local power station consumption. The results of
this simulation will guide the design of the coal processing circuit.
The coal resource for Bankfontein was independently estimated, classified and signed off by Mr K Dippenaar of Gemecs.
The Bankfontein MTIS Coal Resource estimate declared as at 31 January 2017 comprises 0.24Mt Measured, 0.98Mt
Indicated Coal Resource and 7.32Mt Inferred Coal Resource for potential underground extraction and an additional 3.24Mt
Inferred Coal Resource for opencast extraction totalling 11.78Mt. No Coal Reserve has been declared for Bankfontein.
Conclusion
The Bankfontein Project (Bankfontein) is an Early stage exploration property with potential to produce thermal export and
domestic coal. Bankfontein is a small (11.78Mt MTIS) thermal coal resource with seam thicknesses amenable to both
open cast and underground extraction methodologies. Additional exploration drilling will however be required to better
understand the geology of the resource, as well as to increase the level of confidence in the open cast Coal Resources to
the Measured Coal Resource category. The relatively narrow seams, small size of the Coal Resource and the small
shareholding which KEHL has in the project represent its greatest risks to development.
Bankfontein is ZAR1.26m. For the valuation of Bankfontein, the Market Approach was selected for the preferred value.
xxi KEHL CPR – 31 January 2017
Braakfontein
The Braakfontein Project (Braakfontein) is an Advanced-stage exploration property situated on the Klip River Coalfield in
South Africa (see figure). Braakfontein extends over portions of three farms and covers a total area of 1,951.66ha.
Braakfontein targets the Top and Bottom Seams of the Klip River Coalfield. It is planned for the Braakfontein coal to be
mined using predominantly underground mining methods, making use of the bord and pillar mining method, with the use
of continuous miners. Shallow coal on the flanks of the resource area have potential to be extracted using opencast
methods. The coal is planned to be processed using a double-stage process targeting a primary export thermal product
and a middlings product for potential sale to Eskom. A number of alternative product scenarios are being investigated.
Location
Braakfontein is situated approximately 10km east-southeast of Newcastle in the KwaZulu-Natal province of South Africa.
The project is bordered immediately to the north by Madadeni Township and to the east by Osizweni Township.
The project is situated on the Remaining Extents of the farms Drycut 8198HU, Madadeni 15961HU and Braakfontein
4278HU and covers a total area of 1,951.66ha.
Braakfontein comprises a single Mining Right (143 MR) issued to Leeuw Braakfontein Colliery (Pty) Limited (LBC), which
is a 100% owned subsidiary of LME. LME is, in turn, 100% held by KEHL. The right was executed on 29 August 2007 valid
for 30 years expiring on 28 August 2037.
Regional geology
Braakfontein occurs in the north eastern part of the Klip River Coalfield, one of the most historically important coal
producing areas of South Africa. Large areas of the Klip River Coalfield are affected by Jurassic aged dolerite intrusions,
and these intrusives are probably the single most disruptive aspect of the coalfield. Displacements of up to 180m may be
associated with these intrusions. Coal within the Klip River Coalfield is hosted within the Vryheid Formation of the Ecca
Group, Karoo Supergroup.
Five seams are known in the coalfield and various nomenclatures exist. However, only two seams, known as the Top and
Bottom Seams, are usually commercially exploited. The two seams are considered to be the stratigraphic equivalents of
the Alfred and Gus Seams in the Utrecht Coalfield, and occur stratigraphically approximately 200m above the top of the
Pietermaritzburg Formation and 120m below the base of the Volksrust Formation.
The Top Seam comprises mainly dull coal and is the uppermost economic coal seam in the Klip River Coalfield. The seam
attains its maximum thickness of 3.6m to the northeast of Alcockspruit and Dannhauser and is also thicker in the northern
reaches of the coalfield. Elsewhere it is usually developed to a thickness of between 0.80m and 3.6m. The Bottom Seam
comprises mainly bright coal. The thickest development of the seam occurs in the east central parts of the coalfield, and
thins towards the west and southwest, thickening again to the far south in the vicinity of the town of Colenso.
The two seams are separated by between 0.3m and 15m of predominantly coarse-grained to pebbly, cross-stratified
sandstone, which fines upwards into carbonaceous siltstone and mudstone. Apart from where locally tilted by dolerite
intrusions, the seams (and strata) are generally flat lying although gently undulating with a regional dip to the south of
less than one degree.
Local geology
Braakfontein is underlain by Permian aged coal bearing sedimentary rocks of the Vryheid Formation of the Karoo
Supergroup, as well as later Jurassic intrusives. The target coal is defined as multiple seam type as per SANS 10320:2004.
Previous work has shown that all of the known coal seams of the Klip River Coalfield are present in the Braakfontein
project area, but that only the Alfred (Top) and Gus (Bottom) seams have real economic potential.
xxii KEHL CPR – 31 January 2017
Historical exploration data, obtained from the CGS, spans back to 1951 and 1956 when 1,486.33m and 1,254.86m were
drilled on the contributing properties, respectively. Drilling was again undertaken by Anglo Coal between 1989 and 1996
when a total of 185 diamond core boreholes were drilled and sampled in the so called then “Braakfontein Block”, most of
which is included in the current Braakfontein project area. Subsequent to LME’s acquisition of the Anglo Coal KwaZulu-
Natal assets in 2001, an additional 28 TNW (60.5mm) sized vertical diamond boreholes were drilled. The focus of the LME
drilling was around the shallow west and north coal seam extents on the farm Braakfontein, where the average depth to
the roof of the Bottom Seam is less than 20m. In total 131 of the historical drillholes were used in the construction of the
current geological model and resource estimation.
No historical mining has taken place on any of the contributing properties associated with the Braakfontein Project.
Recent exploration
There have been two phases of exploration since KEHL took ownership in 2012, both managed by CCIC Coal. The first
phase of drilling which included 17 boreholes was undertaken to increase the confidence in the existing data, and to better
understand the structural complexity and coal qualities. The second phase, drilled between October and November 2014,
consisted of 33 percussion boreholes spaced 50m apart on dip in three lines at 100m spacing along strike. The objective
of this second phase was to delineate the near-surface stratigraphy on the western flank of the resource and the potential
implications on underground mining access. No further drilling has been conducted on Braakfontein since 2014.
A total of 322 boreholes were available for modelling, of which 318 were used in the generation of the geological model.
The basis for geological modelling is the lithological data obtained from the drilling of diamond core and RC vertical
boreholes and the analytical data obtained from the sampling of intersected coal seams in the diamond boreholes.
Modelling of Braakfonetin was undertaken in Datamine and included the generation of wireframes, the level of weathering,
slices and sections of the major coal seams and dolerite intrusions. This was followed by geological interpretation,
specifically focused on the structure and the relationship between the dolerite intrusions and their effect on the coal
seams. A number of sections were generated to test the geological model and to gain a better understanding of the
changes in the floor elevation of the Bottom Seam in order to see where faults potentially occur.
Block models were then generated of the coal seam depth and thickness and raw qualities. The seam wireframes were
then converted into block models with a 50m by 50m by seam height cell size. As estimation parameter, Inverse Distance
to the Power of 2 (IDP2) was used with a search radius of 750m and a minimum of one and maximum of five samples
per search.
Braakfontein is proposed to be an integrated standalone open cast and underground mining operation, with the majority
being an underground operation making use of the mechanised continuous miner and bord and pillar mining method. The
mine design and production schedule for Braakfontein originated from the work completed by RSV ENCO in June 2013,
as part of the Braakfontein June 2013 Concept Study.
The Braakfontein resource was divided into opencast and underground blocks. The opencastable resource was found to
be relatively small (<2.5Mt) but suited to contract mining using truck and shovel equipment. Underground access was
planned via portals at the base of the opencast highwall with RoM coal marketed on a sized raw basis .to generate cash
flow until the CHPP can be constructed and the underground production ramped up to fully utilise the plant once
constructed.
Production at Braakfontein was estimated at 33,750tpm per underground production section. A maximum of four
production sections were planned, resulting in total production of 135,000tpm. The proposed LoM would be 12 years at a
maximum production rate of 1.62Mtpa.
xxiii KEHL CPR – 31 January 2017
As on Sterkfontein, KEHL contracted Taggart to complete the coal process design component of the June 2013
Braakfontein Concept Study. The proposed CHPP was planned to process underground RoM through a double-stage
process targeting a 27.0MJ/kg AD primary export thermal product and a 20.5MJ/kg AD middling product. A number of
coal product strategies are however being considered.
The Braakfontein Coal Resource has been independently estimated, classified and signed off by Dr PJ Hancox CCIC Coal.
The Braakfontein MTIS Coal Resource estimate declared as at 31 January 2017 comprises 60.06Mt in the Indicated Coal
Resource category.
Conclusion
Braakfontein is a mid-sized thermal Advanced stage exploration property (60.06Mt MTIS Indicated Coal Resource) located
in the Klip River Coalfield made up of two potentially economic seams. The current estimated Coal Resources are amenable
to a combination of opencast and underground extracton methods, predominantly underground. The project is at Concept
Study level and no Coal Reserves have been declared. A preliminary target of 1.6Mtpa plant feed has been estimated for
target product qualities of 27.0MJ/kg and 20.5MJ/kg CV for export and middling products, respectively.
As LBC is currently still held 100% by LME, and LME is being disposed of by KEHL, subsequent to the successful conclusion
of the disposal, LBC will be acquired by KEHL thus becoming 100% held by KEHL.
The key technical risks associated with the project relate to the structural complexity and high sulphur content of the Top
Seam.
Braakfontein is ZAR108.11m. For the valuation of Braakfontein, the Market Approach was selected for the preferred value.
xxiv KEHL CPR – 31 January 2017
Disclaimer and risks
Venmyn Deloitte and their co-authors have prepared this CPR and, in so doing, utilised information provided by KEHL and
its contractors as to its operational methods and forecasts. Where possible, this information has been verified from
independent sources with due enquiry in terms of all material issues that are a prerequisite to comply with the SAMREC
and SAMVAL Codes. Venmyn Deloitte and its co-authors accept no liability for any losses arising from reliance upon the
information presented in this report.
The authors of this CPR are not qualified to provide extensive commentary on legal issues associated with KEHL’s right to
the mineral properties. KEHL has provided certain information, reports and data to Venmyn Deloitte in preparing this CPR
which, to the best of KEHL’s knowledge and understanding, are complete, accurate and true. KEHL acknowledges that
Venmyn Deloitte has relied on such information, reports and data in preparing this CPR. No warranty or guarantee, be it
express or implied, is made by the authors with respect to the completeness or accuracy of the legal aspects of this
document.
Operational risks
The businesses of mining and mineral exploration, development and production by their natures contain significant
operational risks. The businesses depend upon, amongst other things, successful prospecting programmes and competent
management. Profitability and asset values can be affected by unforeseen changes in operating circumstances and
technical issues.
Factors such as political and industrial disruption, currency fluctuation, increased competition from other prospecting and
mining rights holders and interest rates could have an impact on Tshipi Borwa’s future operations, and potential revenue
streams can also be affected by these factors. The majority of these factors are, and will be, beyond the control of KEHL
or any other operating entity.
Forward looking statements
This report contains forward-looking statements. These forward-looking statements are based on the opinions and
estimates of Venmyn Deloitte, its co-authors and KEHL at the date the statements were made. The statements are subject
to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially
from those forward-looking statements anticipated by Venmyn Deloitte, its co-authors and KEHL. Factors that could cause
such differences include changes in world coal markets, equity markets, costs and supply of materials, and regulatory
changes. Although Venmyn Deloitte believes the expectations reflected in the forward-looking statements to be
reasonable, Venmyn Deloitte does not guarantee future results, levels of activity, performance or achievements.
xxv KEHL CPR – 31 January 2017
Independent Competent Persons Report on the coal assets of Keaton Energy Holdings Limited
List of contents
1. Introduction ............................................................................................................................................. 1
3. Statement of independence ....................................................................................................................... 4
4. Competent Persons declaration and qualifications ......................................................................................... 5
5. Reliance on experts .................................................................................................................................. 5
6. Forward looking statements ....................................................................................................................... 5
7. Units and currency.................................................................................................................................... 6
9. Sources of information .............................................................................................................................. 6
10. Personal inspection ................................................................................................................................... 6
11. KEHL’s corporate structure ........................................................................................................................ 7
12. Reporting and classification of Coal Resources and Coal Reserves ................................................................... 9
13. General mineral asset valuation approach .................................................................................................. 11
13.1. Cost approach ........................................................................................................................... 14 13.2. Market approach ........................................................................................................................ 15 13.3. Income approach ....................................................................................................................... 16
13.3.1. Discount Rate ............................................................................................................. 16
13.4. General mineral asset valuation assumptions ................................................................................ 21
14. Coal market review ................................................................................................................................. 23
14.1. Coal resources and reserves ........................................................................................................ 23 14.2. Supply ...................................................................................................................................... 23 14.3. Demand ................................................................................................................................... 24 14.4. Future demand .......................................................................................................................... 24 14.5. Future supply ............................................................................................................................ 25 14.6. Pricing trends ............................................................................................................................ 26
15. South Africa country profile ..................................................................................................................... 27
15.1. Political and economic climate ..................................................................................................... 27 15.2. Minerals industry ....................................................................................................................... 27 15.3. Coal and electricity supply industry .............................................................................................. 28 15.4. Minerals policy and legislative framework...................................................................................... 29 15.5. Types of rights applicable to the MPRDA ....................................................................................... 35
16. Vanggatfontein Colliery ........................................................................................................................... 37
16.1. Location and access ................................................................................................................... 37 16.2. Legal aspects ............................................................................................................................ 37
16.2.1. Ownership .................................................................................................................. 37 16.2.2. Mineral tenure ............................................................................................................ 37 16.2.3. Surface rights ............................................................................................................. 44 16.2.4. Royalties .................................................................................................................... 44
xxvi KEHL CPR – 31 January 2017
16.2.5. Environmental, social and governance (ESG) compliance status ........................................ 44
16.2.5.1. South African legislative framework ............................................................. 44 16.2.5.2. Permitting status ....................................................................................... 44 16.2.5.3. Any other legal issues ................................................................................ 44
16.2.6. Material contracts ....................................................................................................... 47
16.2.6.1. Offtake agreements ................................................................................... 47 16.2.6.2. Open cast mining ....................................................................................... 47 16.2.6.3. Coal processing plant operations .................................................................. 47 16.2.6.4. Security .................................................................................................... 47 16.2.6.5. Laboratory ................................................................................................ 48 16.2.6.6. Fine tailings and discard disposal ................................................................. 48 16.2.6.7. Coal transport services ............................................................................... 48
16.2.7. Any other legal issues .................................................................................................. 48
16.3. Climate..................................................................................................................................... 48 16.4. Topography ............................................................................................................................... 49 16.5. Vegetation ................................................................................................................................ 49 16.6. Local resources .......................................................................................................................... 49 16.7. Site infrastructure ...................................................................................................................... 49
16.7.1. Water ........................................................................................................................ 49 16.7.2. Power ........................................................................................................................ 51 16.7.3. Mining and plant equipment ......................................................................................... 51 16.7.4. Security ..................................................................................................................... 51 16.7.5. Roads ........................................................................................................................ 51 16.7.6. Railway siding ............................................................................................................ 51 16.7.7. Pipeline ...................................................................................................................... 51
16.8. Regional geological setting .......................................................................................................... 52 16.9. Witbank Coalfield ....................................................................................................................... 52 16.10. General geology ........................................................................................................................ 52
16.10.1. No.1 Seam ................................................................................................................. 55 16.10.2. No.2 Seam ................................................................................................................. 55 16.10.3. No.3 Seam ................................................................................................................. 55 16.10.4. No.4 Seam ................................................................................................................. 55 16.10.5. No.5 Seam ................................................................................................................. 56
16.11. Intrusions and structure ............................................................................................................. 56 16.12. Local geological setting ............................................................................................................... 56
16.12.1. No.1 Seam sequence ................................................................................................... 56 16.12.2. No.2 Seam sequence ................................................................................................... 58 16.12.3. No.4 Seam sequence ................................................................................................... 60 16.12.4. No.5 Seam sequence ................................................................................................... 60
16.13. Adjacent properties .................................................................................................................... 63 16.14. Historical ownership ................................................................................................................... 64 16.15. Historical exploration and mining ................................................................................................. 64 16.16. Recent exploration by KEHL ........................................................................................................ 65
16.16.1. Geophysical surveys .................................................................................................... 67 16.16.2. Collar surveying methods ............................................................................................. 67 16.16.3. Diamond drilling ......................................................................................................... 69
16.16.3.1. Drilling ..................................................................................................... 69 16.16.3.2. Adequacy of the drilling .............................................................................. 69 16.16.3.3. Logging .................................................................................................... 70 16.16.3.4. Sampling method ...................................................................................... 70
16.16.4. Percussion or open hole drilling ..................................................................................... 71 16.16.5. Down the hole geophysics / wireline logging ................................................................... 71
xxvii KEHL CPR – 31 January 2017
16.16.6. Bulk sampling ............................................................................................................. 72 16.16.7. Laboratory analyses .................................................................................................... 72
16.16.7.1. Sample preparation and analysis ................................................................. 73 16.16.7.2. Security .................................................................................................... 75 16.16.7.3. QA/QC ...................................................................................................... 75
16.17. Data management ..................................................................................................................... 76
16.17.1. Data acquisition and validation ..................................................................................... 76 16.17.2. Database management ................................................................................................ 78
16.18. Coal deposit modelling and results ............................................................................................... 78
16.18.1. Physical Results .......................................................................................................... 81 16.18.2. Quality Results ........................................................................................................... 81
16.18.2.1. Raw calorific value ..................................................................................... 81 16.18.2.2. Raw ash ................................................................................................... 81 16.18.2.3. Raw volatiles ............................................................................................. 81 16.18.2.4. Potential yields .......................................................................................... 85
16.19. Coal mining ............................................................................................................................... 85
16.19.1. Mining method ............................................................................................................ 85 16.19.2. Mine design parameters ............................................................................................... 87 16.19.3. Product

independent competent persons' report

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