Leeuw Mining and Exploration
joins the fold
Paul Miller
Managing Director
Site visit
March 2012
Disclaimer
All statements in this presentation, other than historical facts, that address exploration activities and
mining potential are forward-looking statements. Although Keaton Energy believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions, such
statements should not in any way be construed as guarantees of future performance. Factors that
could cause developments to differ materially from those expressed include exploration results,
technical analysis and lack of availability to the company of necessary capital to progress its
projects. The company is subject to specific risks inherent in the exploration and mining business
and general economic and business conditions.
March 2012 | Leeuw Mining and Exploration joins the fold 2
About KEH: pre-February 2011
» Coal exploration, development and mining company
» Four years in business
» Empowered in each operating company (26%)
» SA domiciled and funded
» JSE-listed
» 234Mt resource
» Targeting 5Mtpa longer term
» First major project fast-tracked into production
• Vanggatfontein
» Advanced exploration project
• Sterkfontein
March 2012 | Leeuw Mining and Exploration joins the fold 3
KEH: timeline
4 March 2012 | Leeuw Mining and Exploration joins the fold
April 2006
Keaton Energy
established
May 2008
Vanggatfontein, Sterkfontein
resource upgrade: 213Mt
March 2008
206Mt Vanggatfontein,
Sterkfontein resource declared
Vanggatfontein mining right
application submitted
May 2009
Vanggatfontein
25.9Mt reserve,
163Mt resource declared
June 2009
Vanggatfontein
mining right awarded
November 2009
Vanggatfontein
Phase 1 go-ahead
February 2010
Phase 1
earthworks begin
May 2010
Surface access
dispute settled
Phase 1 plant
construction begins
July 2010
Eskom power station
coal contract negotiations
concluded
Vanggatfontein
Phase 2 go-ahead
October 2010
Phase 1 first 5 Seam coal
April 2011
Phase 2 first Eskom coal
April 2008
Listing on the
main board
of the JSE
About LME: pre-February 2011
» Coal mining and exploration junior
» BEE-controlled
» Unlisted
» KZN-located assets
» One operating anthracite mine
• Vaalkrantz
» 207 000tpa RBCT Quattro export allocation
» Four exploration projects
• Koudelager
• Braakfontein
• Balgray
• Mpati
» Under-performing
» Under-funded
March 2012 | Leeuw Mining and Exploration joins the fold 5
About LME: background
» Formed in 2002 to acquire remaining Anglo Coal KZN assets
• followed BEE transaction process (old order mineral rights and land holdings)
» Focus on Vaalkrantz:
• IDC funding to acquire moveable assets of Capital Coal (in liquidation)
• Anglo Khula, Anglo Zimele start-up funding
• Anglo Coal guarantee to Nedbank for financing of coal processing plant
• designed, built by DRA Mineral Projects
» BEE deal structure required marketing agent appointment
» Anglo Coal provides significant data, on-going technical support
» Mine re-commissioned
• production started, debt serviced
» 2009: anthracite market collapsed in wake of financial crises
March 2012 | Leeuw Mining and Exploration joins the fold 6
LME assets: location
March 2012 | Leeuw Mining and Exploration joins the fold 7
LME assets: description
Asset
Vaalkrantz Anthracite
Colliery
Operating colliery with relatively short remaining life; well placed for
expansion; potential to generate cash in short term
Koudelager Project Life extension project for Vaalkrantz: mining right in place
Braakfontein Project Permitted project: estimated 48Mt (non-Samrec) coal resource near
Newcastle. Potential for 660 000tpa thermal coal mine with a
+20-year life
Mpati Project Sale to Slater Coal agreed
Balgray Project Relatively speculative project to pursue future anthracite production
for Vaalkrantz plant
March 2012 | Leeuw Mining and Exploration joins the fold 8
100%
Loans
Transaction re-visited: LME
March 2012 | Leeuw Mining and Exploration joins the fold 9
JPI Leeuw and
Associates
(Pty) Ltd Anglo Zimele
Leeuw Mining and Exploration
(Pty) Ltd
Other
Minority BEE
shareholders
DW Leeuw Aral Trust
Anglo Khula
Mining Fund
African Spirit
Trading 307
(Pty) Ltd
Leeuw Braakfontein
Colliery (Pty) Ltd
Anglo Khula
Mining Fund
Industrial Development Corporation
Preference share funding
40%
60%
11% 89%
12.5% 25%
100%
14.2% 14.2%
22.3%
KC Morgan
11.8%
Anglo
American
Thermal Coal
Nedbank
Industrial Development Corporation
Gu
ara
nte
e
Transaction re-visited:
background
» LME in financial distress
• anthracite market collapse in 2009, following ferrochrome market collapse
post 2008 financial crises
• insufficient cash flow to service debt and open new West Adit
• R45m in urgent funding from Anglo Coal
» Keaton Energy proposed acquiring 74%, preceded by refinancing the business
» ‘All-or-nothing’ deal on all loans, shares sort by Anglo
» R65m KEH advance to LME as rescue funding: KEH agrees to take out Anglo
(at a discount)
» LME enters into offtake agreement with Gunvor
» Gunvor agrees to fund KEH’s acquisition
» Refinancing concluded late 2010
» Regulatory approval for equity acquisition late 2011
March 2012 | Leeuw Mining and Exploration joins the fold 10
Transaction re-visited:
LME post transactions
March 2012 | Leeuw Mining and Exploration joins the fold 11
Loans JPI Leeuw and
Associates
(Pty) Ltd
Keaton
Energy
Leeuw Mining and Exploration
(Pty) Ltd
DW Leeuw Aral Trust
African Spirit
Trading 307
(Pty) Ltd
Leeuw Braakfontein
Colliery (Pty) Ltd
Keaton
Energy
Industrial Development Corporation
Preference Share Funding
40%
60%
74% 26%
100%
25%
100%
14.2% 14.2%
KC Morgan
11.8%
Keaton Energy
Gunvor
International
Industrial Development Corporation
24.4%
Loans
Transaction re-visited:
accounting for refinancing
March 2012 | Leeuw Mining and Exploration joins the fold 12
Full valuations in terms of IFRS 3 Business Combinations in progress for May 2012 release of results
Face value Allocated acquisition price
Reserve loan R15.4m R480 000
Emergency loan R47m R47m
Preference shares R14m R14m
Plant instalment sale R12m R12m
Total
R88.4
R73.48
February 2011: KEH plan for LME
» Effects for KEH
• controlling interest in second operating
mine
• substantially augmented exploration
portfolio – most value in Braakfontein
• export foothold
• broadens product range
• wider customer base
• major new shareholder
» Effects for LME
• R65 million capital injection
• 700+ jobs saved
March 2012 | Leeuw Mining and Exploration joins the fold 13
Vaalkrantz: turning around
March 2012 | Leeuw Mining and Exploration joins the fold 14
» 2011: transaction steering committee put in
place while regulatory approvals sought
» Capital injection used to:
• complete West Adit development
• acquire urgently-required equipment
• pay trade creditors
» New mine manager appointed
» Marketing contract terminated July 2011;
marketing function taken over by KEH
» Significantly better prices achieved
» Payroll and HR service provider replaced
by KEH in October 2011; concerted effort
to improve IR climate
Please see insert
Vaalkrantz: operational team
March 2012 | Leeuw Mining and Exploration joins the fold 15
General Manager
Operations
H. Papenfus
Plant Manager
A. Masongo
(Minopex)
Coal Logistics
De Beer (Sikhova)
GES
S. Victor
Production
Manager: H. Burger
(as of 1 April 2012)
Siding
Manager:
P. van Aswegen
Risk
Manager:
D. Ramsden
Procurement
Manager:
S. Govender
Human Resource
Manager:
S. Buthelezi
Mine Administration B. van Aswegen
Enyati Gus & Alfred Shafts
Occupational and Primary Healthcare
OCCUSURE
Sanbonani
Security
LME West Adit &
Alfred Shafts
LME Stores
M. Leeuw
Mine Manager
X. Khanyezi
Training Centre
OHS Induction
Vaalkrantz:
historic ROM production
March 2012 | Leeuw Mining and Exploration joins the fold 16
-
10 000
20 000
30 000
40 000
50 000
60 000
70 000
Jan-0
5
Ma
r-0
5
Ma
y-0
5
Jul-0
5
Sep-0
5
No
v-0
5
Jan-0
6
Ma
r-0
6
Ma
y-0
6
Jul-0
6
Sep-0
6
No
v-0
6
Jan-0
7
Ma
r-0
7
Ma
y-0
7
Jul-0
7
Sep-0
7
No
v-0
7
Jan-0
8
Ma
r-0
8
Ma
y-0
8
Jul-0
8
Sep-0
8
No
v-0
8
Jan-0
9
Ma
r-0
9
Ma
y-0
9
Jul-0
9
Sep-0
9
No
v-0
9
Jan-1
0
Ma
r-1
0
Ma
y-1
0
Jul-1
0
Sep-1
0
No
v-1
0
Jan-1
1
Ma
r-1
1
Ma
y-1
1
Jul-1
1
Sep-1
1
No
v-1
1
Jan-1
2
Tonnes Gus Enyati Alfred Enyati Alfred West Gus West Alfred (bought in)
Vaalkrantz: production profile
March 2012 | Leeuw Mining and Exploration joins the fold 17
-
10 000
20 000
30 000
40 000
50 000
60 000
70 000
Jan-0
5
Ma
y-0
5
Sep-0
5
Jan-0
6
Ma
y-0
6
Sep-0
6
Jan-0
7
Ma
y-0
7
Sep-0
7
Jan-0
8
Ma
y-0
8
Sep-0
8
Jan-0
9
Ma
y-0
9
Sep-0
9
Jan-1
0
Ma
y-1
0
Sep-1
0
Jan-1
1
Ma
y-1
1
Sep-1
1
Jan-1
2
Ma
y-1
2
Sep-1
2
Jan-1
3
Ma
y-1
3
Sep-1
3
Jan-1
4
Ma
y-1
4
Sep-1
4
Jan-1
5
Ma
y-1
5
Sep-1
5
Jan-1
6
Ma
y-1
6
Sep-1
6
Jan-1
7
Ma
y-1
7
Sep-1
7
Tonnes
Historic and planned ROM production
Gus Enyati Alfred Enyati Alfred West Gus West Alfred (bought in)
Vaalkrantz: anthracite market
» Not all anthracite the same
• most smelters sulphur-sensitive
» Demand for anthracite increasing
» Specialist niche market, supplying metallurgical reductants
» Premium anthracite:
• increasingly used to replace coke/thermal coal blends in ferrochrome smelting
• consumed locally
» Higher ash duff exported
March 2012 | Leeuw Mining and Exploration joins the fold 18
Vaalkrantz: historic pricing
March 2012 | Leeuw Mining and Exploration joins the fold 19
-
100
200
300
400
500
600
700
800
900
Aug-0
5
Oct-
05
De
c-0
5
Feb
-06
Apr-
06
Jun-0
6
Aug-0
6
Oct-
06
De
c-0
6
Feb
-07
Apr-
07
Jun-0
7
Aug-0
7
Oct-
07
De
c-0
7
Feb
-08
Apr-
08
Jun-0
8
Aug-0
8
Oct-
08
De
c-0
8
Feb
-09
Apr-
09
Jun-0
9
Aug-0
9
Oct-
09
De
c-0
9
Feb
-10
Apr-
10
Jun-1
0
Aug-1
0
Oct-
10
De
c-1
0
Feb
-11
Apr-
11
Jun-1
1
Aug-1
1
Oct-
11
De
c-1
1
Feb
-12
R/t
Revenue per saleable tonne
(12-month moving average across all products)
Vaalkrantz: cost profile
March 2012 | Leeuw Mining and Exploration joins the fold 20
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 (ytd)
Historical operating cost profile
Sundry
Electricity
Coal Logistics
Coal Processing
Mining Stores and Equipment Rental
Commissions
Head Office & Technical Services
Payroll
Sundry
Electricity
Coal logistics
Coal processing
Mining stores, equipment rental
Commissions
Head office, technical services
Payroll
KEH: value curve
March 2012 | Leeuw Mining and Exploration joins the fold 21
HIGH
TIME
No grassroots
prospecting
projects
Discovery
Proving
commercial
Development
LOW
Production
STERKFONTEIN
LEEUWFONTEIN
BRAAKFONTEIN
MPATI
BALGRAY
VAALKRANTZ VANGGATFONTEIN
Paul Miller
Managing Director
Paul has 16 years’ experience in South
Africa’s consulting, finance and mining
industries. He joined Keaton Energy as MD
in September 2007 after a period of
consulting to the company.
Phoevos Pouroulis
Non–executive Director
Phoevos brings several years of financial
experience in the development of African
mining projects to Keaton Energy.
David Salter
Independent Non–executive Chairman
David was appointed to the Keaton Energy
board during January 2008 following a 33-
year worldwide career in mineral technology
and project development.
KEH: board
22 March 2012 | Leeuw Mining and Exploration joins the fold
Lizwi Mtumtum
Independent Non-executive Director
Liwzi is currently Executive Chairman
of Ikamva Lethu Investments
(Proprietary) Limited. He is a board
member of Siyathenga Propery Fund
Limited and was previously an
independent non-executive director
of Eland Platinum Holdings Limited.
Antoinette Sedibe
Non–executive Director
A co–owner of Rutendo Mining,
Antoinette has almost 19 years of
hands–on and advisory experience
in financial and treasury operations
of new and established companies.
Mandi Glad
Executive Director: Business
Development and Marketing
A co–owner of Rutendo Mining,
Mandi has more than 15 years’
entrepreneurial experience in
establishing and running businesses
ranging from coal marketing to IT.
Jacques Rossouw
Financial Director
Jacques is a CA (SA), having
completed his articles with
PricewaterhouseCoopers, and
subsequently worked in both the high
technology and mining industries,
most recently as Manager: Corporate
Reporting at Harmony Gold Mining
Company Limited.
Paul Sadler
Independent Non-executive Director
Mr Sadler has extensive auditing
experience, much gained in the mining
sector. He was a partner at auditing
firm KPMG from 1980 until his
retirement in 2003, after which he
joined the Salene Group as a financial
consultant.
Dirk Jonker
Non–executive Director
A Dutch national, Dirk is Managing
Director of Gunvor International BV
and is based in Amsterdam. He is a
senior business executive with many
years’ experience in international
commodity trading and processing.
Coal market update
SA coal demand
23 March 2012 | Leeuw Mining and Exploration joins the fold
0
50
100
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250
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400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
'00
0 0
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to
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es
Exports Domestic Sasol Eskom - Tied Eskom - Spot Eskom - New Build Other Generation
Investment case
» Sound market fundamentals
» Sensible strategy
• in sync with market conditions and outlook
» Excellent mix of projects – diversified across products and geography
» Operating case established
» Experienced management team
March 2012 | Leeuw Mining and Exploration joins the fold 24
Leeuw Mining and Exploration
joins the fold
Paul Miller
Managing Director
Site visit
March 2012