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Annual Report2010www.keatonenergy.co.za
Keaton EnergyAnnual Report 2010
Keaton Cover AR10 6/10/10 10:49 AM Page 1
This Annual Report presents the operating and financial results for the year 1 April 2009 to 31 March 2010
for Keaton Energy Holdings Limited (Keaton Energy or the company or the group).
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS), and this report has been prepared in compliance with the South African Companies
Act No. 61 of 1973 and the Listings Requirements of the JSE Limited (JSE). King III became effective on
1 March 2010, and the company and its directors will ensure compliance with the revised principles of
good governance during the coming year. The Annual Report is submitted to the JSE as this is the
company's registered exchange.
The report includes an analysis of the key factors affecting the company’s performance over the period,
the steps taken by the company to operate within its risk framework to maximise stakeholder returns,
and a detailed review of the financial and technical aspects of the company over the year. Also included
in this report is a self-declared C level, GRI-compliant review of the company’s sustainability procedures
and practices.
The two key events during the period were the mining right award and subsequent development decision
on Phase 1 of the Vanggatfontein Project and the area extension secured at the Sterkfontein Project.
Post-balance sheet events include the declaration of an increase to the Sterkfontein Project’s Coal
Resource to 69 million tonnes and resolution of the legal dispute which led to the delay of the
Vanggatfontein Project.
Abbreviations used throughout this report are defined in the glossary of terms on pages 74 to 76.
Copies of the printed version can be requested from the contacts listed at the end of this report.
Scope of thereport
Forward-looking statementsCerta in s ta tements conta ined in th is Annua l Repor t inc lud ing, w i thout l im i ta t ion, those concern ing the economic out look for the coa lindust r y, expectat ions regard ing commodi ty pr ices, product ion, cash costs and other operat ing resu l ts , growth prospects and theout look for Keaton Energy’s operat ions, inc lud ing the complet ion and in i t ia t ion o f commerc ia l operat ions o f cer ta in Keaton Energyexp lorat ion and product ion pro jects , i ts l iqu id i ty and cap i ta l resources and expend i ture , conta in cer ta in forward- look ing s ta tementsregard ing Keaton Energy’s operat ions, economic per formance and f inanc ia l cond i t ion.
A l though Keaton Energy be l ieves that the expectat ions and the outcome re f lected in such forward- look ing s ta tements are reasonable ,no assurance can be g iven that such expectat ions wi l l p rove to have been cor rect . Accord ing ly, resu l ts cou ld d i f fe r mater ia l l y f romthose set out in the forward- look ing s ta tements as a resu l t o f , among other factors , changes in economic and market cond i t ions,success o f bus iness and operat ing in i t ia t i ves , changes in the regu la tor y env i ronment and other government act ion, f luctuat ions incommodi ty pr ices and exchange ra tes , and bus iness and operat iona l r i sk management . For a d iscuss ion o f such factors , re fer to ther isk factors as deta i led in the corporate governance sect ion o f th is Annua l Repor t . 3369/10 Russe l l and Assoc ia tes
Keaton Cover AR10 6/10/10 10:49 AM Page 2
1Keaton Energy Annual Report 2010
Contents
Corporate profile and highlights pg2
Timeline pg3
Chairman’s review pg4
Managing Director’s review pg6
Financial Director’s review pg8
Coal Resource and Reserve Statement pg10
Sustainable development review pg14
GRI index pg19
Directorate pg20
Corporate governance pg22
Remuneration report pg25
Annual financial statements
Directors’ responsibility pg29
Independent auditors’ report pg30
Directors’ report pg31
Statements of comprehensive income pg34
Statements of financial position pg35
Statements of changes in equity pg36
Statements of cash flows pg37
Accounting policies pg38
Notes to the annual financial statements pg48
Shareholders’ information pg73
Glossary of terms pg74
Notice of Annual General Meeting pg77
Form of proxy pg81
Administration and contact details pg83
2
Corporate profileand highlights
Corporate profileKeaton Energy is a coal exploration, development and miningcompany, created to pursue opportunities arising from boththe increased demand for coal domestically and abroad andthe changes in mineral legislation in South Africa. Fundamentalto the company’s strategy is the pursuit of exploration andgreenfield development projects in partnership with blackeconomic empowerment (BEE) entities.
The company’s focus lies in South Africa’s MpumalangaProvince, at its Vanggatfontein (formerly the Delmas Project)and Sterkfontein Projects, with its medium-term objectivetargeting annual production of two million tonnes of saleablesteam coal, rising to five million tonnes in the longer term. The1 635-hectare Vanggatfontein Project was granted a 20-yearmining right in June 2009, the first phase of development isunder way and will proceed in sync with commercial off-takeagreements. The Sterkfontein Project area was expanded bysome 71% in April 2009, and the drilling programme initiated inAugust 2009 led to a revised Coal Resource of 69 milliontonnes being declared post the financial year-end.
The Klip Colliery continued to provide cash flows through theyear, and reached the end of its mine life in November 2009having produced and sold a total of 247 000 tonnes of run-of-mine coal.
As at 31 March 2010, the company employed nine people(six employees and three permanent contractors).
Keaton Energy is listed on the main board of the JSE Limited(JSE) and trades under the share code KEH. The companyhas an authorised share capital of 250 million ordinary sharesof which 144 841 293 shares have been issued. The JSElisting reinforces the company’s commitment to provide returnsfor all its stakeholders, and particularly, its BEE partners.Keaton Energy’s corporate office is located in Bryanston,Johannesburg, South Africa.
HighlightsSterkfontein Project area increased by
71%, extended dril l ing programme
leads to a 100% increase in Coal
Resource to 69 million tonnes
First major project, Vanggatfontein
Project – Phase 1, given green light,
25.9 million tonne Coal Reserve declared
International and domestic coal
markets strengthened with the global
recovery keeping demand steady,
particularly in China and India
Board strengthened with business
development and operational expertise
during the period
3Keaton Energy Annual Report 2010
Timelinefrom April 2006 to May 2010
2006
2008
2009
2010
April Keaton Energy established
2007 December R312 million seed capital raised at R7 per share
March 206 million tonne Coal Resource at Vanggatfontein and Sterkfontein
declared in published CPR; mining right application submitted for
Vanggatfontein
April R100 million raised prior to JSE listing at R10 per share; Amalahle
prospecting rights awarded
May Resource upgrade – 213 million tonne Coal Resource at Vanggatfontein
and Sterkfontein declared
September Klipfontein mining permit awarded
October Klip Colliery (Klipfontein) begins production
April Sterkfontein Project area expansion announced
May 25.9 million tonne Coal Reserve announced for Vanggatfontein (as part
of a 163 million Coal Resource)
June Vanggatfontein mining right awarded
August Extension drilling programme begins at Sterkfontein
November Go-ahead announced for Vanggatfontein Project – Phase 1
April Sterkfontein Coal Resource doubled to 69 million tonnes
May Vanggatfontein land access secured; plant construction begins
4
Dear shareholderIt is my pleasure to present to you your
company’s third Annual Report for the year
to 31 March 2010. This period has been
very eventful. Our large Vanggatfontein
Project cleared the last, major pre-
development hurdles, allowing construction
of the first phase of the mine to begin in
May of this year. This coincided with our
first small mine, the Klip Colliery, reaching
the end of its economic life. Importantly, I
commend management for having operated
through the year without a single lost time
accident.
Markets
The period under review has been
characterised by the gradual recovery from
the market crash of late 2008. Keaton
Energy is well positioned to benefit from
this recovery, having carefully husbanded
its cash resources, which are sufficient for
the company to proceed with the
development of the first phase of the
Vanggatfontein Project, at a time of
increasing coal demand and better pricing.
It has been said in some quarters that our
conservative cash preservation plans and
the matching of our development and
growth to that of the global recovery –
effectively a risk averse, ‘batten down the
hatches’ approach – was detrimental to our
share price performance during the year.
This may have been so. We believe,
however, that our approach was correct as
we have emerged extremely well positioned
to leverage off strengthening coal markets.
Export coal prices have recovered from
their lows of 2009 and appear to have
stabilised above US$80 per tonne, ex-
Richards Bay Coal Terminal (RBCT).
Domestically the South African national
power utility, Eskom, has embarked on a
programme to contract 20 million tonnes a
year of medium-term supplies for its
existing power stations, and there are signs
of recovery in the domestic demand for
coal by industrial consumers.
Most significantly, it appears that a genuine
shortage of low-phosphorous, high-vitrinite,
bituminous metallurgical coal – the product
from Phase 1 of our Vanggatfontein Project
– has occurred in the local market, forcing
furnace operators to turn to more expensive
substitutes such as coking coal, creating an
immediate market for our Vanggatfontein
5-Seam product.
Strategy
The group’s previously-stated intention to
produce two million tonnes of saleable coal
a year in the medium-term is now likely to
be achieved within the next two years from
the Vanggatfontein Project alone, subject to
the suitable conclusion of contract
negotiations with Eskom. In spite of the
immediate challenges of negotiating such a
contract, and then building and
commissioning Phase 2 of the
Vanggatfontein Project, the Board of
directors (the Board) has reiterated the
mandate given to executive management
to develop the strategy to grow Keaton
Energy into a mid-tier coal producer in the
longer term.
The group’s two-tiered approach – to
pursue both a limited number of large, long-
life, resource-intensive projects and a
portfolio of smaller, quick-to-cash-flow
projects to provide the group with
operational flexibility – will now change in
emphasis as the first of the larger projects
comes on stream. While we will continue to
pursue smaller projects such as the Klip
Colliery, the larger projects will enjoy priority
for at least the next 12 months.
The experience gained from opening,
running and subsequently de-
commissioning the Klip Colliery was
invaluable. Sadly, one of the most salutary
lessons learned related to security. The
mine experienced no fewer than nine armed
robberies in its 20 months of operation. We
recognise the priority we will have to attach
to this aspect of our business in the future.
The challenges we face now, as the group
grows, are to remain lean, particularly in the
face of the burdens of regulatory compliance;
to avoid bureaucracy; to retain quick
decision-making; and to keep fixed costs to
a minimum.
Corporate governance andreporting
The Board and its committees have
continued to function well during the
period. During the year, our technical
Chairman’s review
5Keaton Energy Annual Report 2010
director, Dr Steven Rupprecht, resigned
from the Board to pursue other
opportunities, and we were very pleased
that Mr Peet Snyders, a 29-year veteran of
the South African mining industry – many of
those years spent in coal mining, accepted
an appointment to the Board in the executive
role of Operations Director. Mr John
Wallington resigned from the Board with
effect from 31 May 2010 and the Board
acknowledges with thanks his contribution
to the group.
We acknowledge the company’s
responsibility to report on its activities
timeously and meaningfully to all of its
stakeholders – shareholders, employees,
communities in which it operates, and the
country’s citizens as a whole. As a
consequence, we embarked on a process
to adopt sustainable development reporting
in 2009. This Annual Report is the
company’s second to include this important
element, and it takes us closer to
compliance with the recommendations of
King III. We expect to apply all
recommendations (and seek external
assurance) with our 2011 Annual Report.
Keaton Energy has self-certified its
sustainability report, which is included in
the Annual Report.
The Board views sound performance in the
‘triple bottom line’, comprising economic
prosperity, the management of
environmental impacts and social
development, as fundamental to the
continued sustainability of the company for
the benefit of all stakeholders. The company
is committed to the King Committee’s
recommendation for integrated
sustainability reporting and has adopted a
phased approach in line with the Global
Reporting Initiative’s (GRI) G3 guidelines.
Keaton Energy has self-certified its
sustainability review at a C level, with the
intention to incrementally improve the level
of reporting on sustainability issues.
Outlook
Keaton Energy ended the financial year in
a strong financial position, in an excellent
project development position, with a
positive market outlook and with a small,
young executive team that has grown
through weathering and succeeding in
difficult circumstances. We start the
new year enthusiastically with the
Vanggatfontein Project in construction and
with prospects for conducting an Eskom
supply contract. The outlook is very positive.
David SalterChairman28 May 2010
6
IntroductionThis Annual Report is being issued at a very
important time in Keaton Energy’s
development. Klip Colliery, our small,
‘starter’ operation, reached the end of its
economic life during the period under
review. It weathered an extremely volatile
time in the domestic coal market, opening
just months before the crash of October
2008. The lessons learned with this
operation are being put to good effect in
the development of our second, much
larger, longer-life Vanggatfontein Project.
The construction of this mine started in
earnest after the close of the review period,
following amicable settlement of a land
access dispute between ourselves and the
landowners concerned.
The development of the VanggatfonteinProject will result in the permanent staffcomplement of the company starting torise, although it remains the operatingphilosophy of the group to carry as lowas possible a fixed cost base whilstmaking extensive use of outsourcing andcontracting. Preferred contractors havebeen selected for the core processes ofplant construction, plant operation andopencast mining. Service level agreementshave also been entered into with consultants,who will provide support functions such asongoing survey, geology and mine planning.
The period under review also saw the releaseof an interim resource statement for our
major Sterkfontein Project. This reported adoubling of the project Coal Resource to69 million tonnes (mineable in situ), after theconclusion of the first phase of the2009/2010 exploration drilling campaign.
Safety, health andthe environmentThe safety, health and environmentalperformance of the group in the periodunder review has been acceptable, with81 749 hours worked on site with no lost timeinjuries recorded. We continue to work toimplement fully the safety and health statementand policy adopted in 2009. The closurephase of Klip Colliery will be monitoredcarefully to ensure that there is no complacencyregarding safety, health and the environment.The codes of practice developed for KlipColliery will be revised and supplemented forthe Vanggatfontein Project, and significanteffort will be made to ensure that safety,health and environmental policies andprocedures are properly developed andimplemented at the new operations.
Project review:large, long-lifeprojectsVanggatfontein Project (previouslythe Delmas Project)The Vanggatfontein mining right is held byKeaton Energy’s 74%-held subsidiary,Keaton Mining (Pty) Limited (KeatonMining). Bulk earthworks began on thisproject subsequent to the end of thereporting period, with first coal from theproject expected before the end of the2010 calendar year.
The original plan to bring the VanggatfonteinProject into operation by late 2009 wasdelayed in part due to market conditionsand in part as a consequence of the decision
Managing Director’s review
SOUTHAFRICA
Johannesburg
AFRICA
0 500km
Keaton Energyoperations
CapeTown
Keaton Energy: location map
7Keaton Energy Annual Report 2010
by the Department of Mineral Resources
(DMR) in mid-2009 no longer to accept
rehabilitation guarantees underwritten by
insurance companies. This change
increased the amount of upfront capital
required for the development of the project
materially. As a consequence both of this
and the general adverse economic
environment, management revised the
development schedule of the project.
Working within the existing approved Mine
Works Programme, a phased approach was
determined, in terms of which a stand-
alone 5-Seam metallurgical coal operation
would first be developed, followed by a
second phase in which a larger (by volume)
2 and 4-Seam domestic power station coal
project would be developed. This plan
reduced the upfront capital required to
cover first-year closure costs and allowed
short-term development of a project to
meet a physical shortage of 5-Seam
metallurgical coal in the domestic market.
It also allowed the company to participate
in Eskom’s medium-term coal procurement
programme, our engagement in which has
not yet concluded.
The Board approved the first phase
development of the 5-Seam operation in
November 2009 and fabrication of the plant
began in January 2010. The mining right
became effective on 23 February 2010.
Subsequent to the aforementioned
amicable resolution of the dispute over land
access, construction has begun in earnest.
The Board has approved total capital
expenditure of R172 million, with land
acquisition costs and the plant construction
costs making up most of the early investment.
SNC Lavalin South Africa is the managing
contractor on the project, with DRA Mineral
Projects responsible for plant design and
construction, and Epoch Resources for
residue facility design. Minopex has been
selected as the preferred plant operator and
Megacube Mining, a subsidiary of Sentula
Mining Limited, as the preferred opencast
mining contractor.
The design of the second phase of the
project is now being optimised as a
consequence of the engagement with Eskom.
This may result in this phase being larger
than originally anticipated in order to further
reduce the per tonne costs of production,
and provides further motivation for the
group to explore raising project finance for
the second phase of the project.
Sterkfontein ProjectThe Sterkfontein Project prospecting rightsare held by Keaton Mining and LabohlanoTrading 46 (Pty) Limited. Limited explorationwas done on the project in the 2009financial year, following the declaration of a34 million tonne Coal Resource in May2008. Exploration drilling resumed inearnest in mid-2009 following thesuccessful conclusion of the transaction toacquire a 74% interest in a 3 271-hectareprospecting right over properties intermingledwith the existing 4 009 hectares of prospectingrights. The transaction resulted in aconsolidated project area of 7 280 hectareswith the potential for establishing a large-scale underground mine.
An updated resource estimate was declaredfollowing the conclusion of a 31-hole drillingprogramme and inclusion of the data fromthe 25 holes drilled by the previous holderof the prospecting right. Further details arecontained in the Coal Resource Statementsection of this report; however, what ismost significant is that the Coal Resourceestimate has been doubled to 69 milliontonnes of coal (mineable in situ).
It was anticipated that the second phase ofthe drilling programme would be completedby June 2010, although the unseasonablywet weather has negatively affected drillingprogress.
Once drilling and geological modelling hasbeen completed over the consolidated area,a full feasibility study is planned with theview to determining the economics of anunderground mine producing both exportand domestic coal.
Project review:smaller, short-lifeproject portfolioand the explorationpipelineKlip CollieryThe Klip Colliery mining permit is held byKeaton Mining. Klip Colliery has reachedthe end of its economic life and the minesite will be rehabilitated during 2010.Although opencast mining is complete, somesurface operations are still being undertakenon site. All remaining coal has been sold.Keaton Mining intends to make an applicationfor a closure certificate prior to the end ofthe 2011 financial year.
Amalahle prospectsAmalahle Exploration (Pty) Limited, a 74%-held subsidiary of Keaton Energy,was granted four separate prospecting rightsby the DMR in April 2008. The prospectingrights covered six discrete propertiestotalling 1 597 hectares. Only two of theproperties were found to be of economicinterest and were added to the group’ssmall projects portfolio. There is someregulatory uncertainty relating to both theLeeuwfontein and Braamspruit Projects and,as a consequence, the Board felt it prudentto impair the associated explorationexpenditure.
Other prospectsThe group awaits granting and/or executionof three pending prospecting rights forrelatively small properties contiguous toboth the Vanggatfontein and SterkfonteinProjects. Once these prospecting rightshave been executed, suitableannouncements will be made toshareholders.
Looking aheadLarge, long-life projectsThe Vanggatfontein Project is in developmentand will be the focus of attention for thegroup in 2010. Now that the SterkfonteinProject’s resource base has beensignificantly increased, it is the group’sintention to move the project beyondexploration drilling and resource definitionto the feasibility study phase this year.
Smaller project portfolioThese projects will be placed on the ‘back-burner’ while the VanggatfonteinProject is developed. However, the groupwill continue to review any opportunities thatmay arise to add additional projects to thisportfolio.
While 2010 was a challenging financial year,we have cleared the major hurdles andestablished a strong base for future growth.
Paul Miller
Managing Director
28 May 2010
8
The financial results included in this Annual
Report are presented for the year ended
31 March 2010, and compared with the
results for the year ended 31 March 2009.
Review of thegroup’s cash positionand forecastThe group’s available cash as at 31 March
2010 amounted to R335 million with a further
R20 million pledged against the group’s
future environmental liabilities. R158 million
of the available cash is committed towards
the first phase of the group’s Vanggatfontein
Project development and surface right
acquisitions. The remaining cash of
R177 million is set aside to fund the
development of Phase 2 of the Vanggatfontein
Project and further resource exploration/
evaluation on existing and new prospecting
rights. It is the group’s intention to explore
raising project finance for the second phase
of the Vanggatfontein Project, with a view
to, in part, reduce the overall cost of capital
for the project.
Review of thegroup’s activitiesduring the yearThe Chairman’s and Managing Director’s
reviews on pages 4 to 7 include a detailed
discussion of the group’s activities. The
financial impact of the various group
activities during the year is as follows:
Vanggatfontein Project (previously the
Delmas Project): During the year
R21 million has been capitalised on
Phase 1 development and further
exploration, feasibility and related costs
(R44 million to date). A R17 million EMP
guarantee has been issued to the DMR
by Investec Bank Limited (fully backed by
cash collateral).
Sterkfontein Project (Bethal): During the
year R39 million has been capitalised on
this project (R62 million to date), mainly
as a result of the R30 million acquisition
of a contiguous prospecting right. In
terms of the shareholders’ agreement the
acquisition of this right coincided with the
acquisition of a 74% interest in
Labohlano Trading 46 (Pty) Limited (refer
to notes 7 and 14 on pages 54 and 59
respectively). The 74% Labohlano
acquisition involved a cash payment
(R5.0 million) and a share-based payment
of 2 000 000 ordinary shares of the
company (valued at R17.3 million) to the
existing shareholder of Labohlano, the
same day that Labohlano acquired the
prospecting right (its only asset) at a
significant discount. The final recognition
of the fair value of the prospecting right
was determined by grossing up the 74%
acquisition price of Labohlano (R22 million)
to 100% (R30 million), with the difference
being attributed to the non-controlling
shareholder (Money Box Investments
156 (Pty) Limited). The group will
consolidate the contiguous prospecting
rights at its Sterkfontein Project as soon
as sufficient geological data is available.
Klip Colliery (Balmoral/Ogies): Revenue
for the year, including a damages claim,
amounted to R23 million (R29 million to
date, representing 247 000 tonnes sold).
Operations at the colliery have been
downscaled which resulted in
impairments and net realisable value
losses of R6 million (refer to group results
below). However, the overall cash
contribution of the colliery over its life
amounted to R5 million.
Amalahle Projects (Bethal/Middelburg/
Ermelo): During the year R0.5 million has
been capitalised to exploration and
evaluation expenditure (R2 million to
date). A Measured Coal Resource of
922 000 mineable tonnes in situ (MTIS) of
open pittable coal has been declared at
the Leeuwfontein Project.
Review of thegroup’s resultsfor the yearRevenue and other income for the year
consisted mainly of Klip Colliery coal sales
of R21.8 million (2009: R5.4 million) and a
damages claim of R1.6 million in terms of
the defaulting coal buyer at Klip Colliery.
The total administration, other operational,
mining and related expenses amounted to
R24.7 million (2009: R23.7 million) and
include (prior year figures in brackets):
Financial Director’s review
9Keaton Energy Annual Report 2010
employee benefit costs (excluding the
share appreciation rights income) of
R9.8 million (R9.0 million). As at
31 March 2010, the group had nine (10)
permanent employees/contractors;
consulting, legal, audit and professional
fees of R4.2 million (R5.6 million);
non-executive directors’ fees of the
company of R2.0 million (R1.6 million);
listing and investor relations costs of
R1.6 million (R2.0 million);
head office lease costs of R0.7 million
(R0.7 million); and
depreciation charges not included in cost
of sales of R0.7 million (R0.7 million).
Note: Mining and related expenses mainly
include that portion of management and
employee time spent directly on exploration
and production subsidiaries, direct
consulting fees by mining and exploration
contractors, and compensation paid to
surface right holders. Administration and
other operating expenses mainly include the
remainder of the employee benefit costs,
non-executive directors’ fees, and listing
and investor relations costs.
One of the main participants of the share
incentive scheme resigned during the year.
The net positive adjustment of R4.3 million
is a result of the reversal of the share
appreciation right expenses recognised in
previous periods (2009: R4.6 million).
Impairment and net realisable value losses
of R7.8 million (2009: R4.2 million) include:
Operations at Klip Colliery were
downscaled during the year, resulting in a
sharp decrease in the remaining life-of-
mine tonnages. This decrease resulted in
the weighted average cost per tonne
increasing significantly, and low quality
stockpiles having to be written down by
R4.9 million to their net realisable value.
An additional impairment of R1.1 million
resulted from capitalised mine
development costs at Klip Colliery.
As a result of the regulatory uncertainty
regarding the remaining prospects in
Amalahle Exploration (Pty) Limited (74%
subsidiary of Keaton Energy), an impairment
loss of R1.8 million was raised during the
year to impair fully the associated
exploration expenditure.
The income for the year from the group’s
externally invested funds was R29 million
(2009: R45 million). This equates to an
average return of 8.0% (2009: 11.6%)
before tax. The company’s funds invested
in its subsidiaries’ exploration projects and
mining operations earn a return of prime
plus 5% after tax, cumulative and
compounded quarterly. This return (in the
form of preference dividends) has, however,
not yet been recognised as the dividends
have not yet been declared by the
subsidiaries.
Income taxation expense mainly comprises
current taxation expense of R5.7 million
(2009: R10.2 million) and a secondary tax
on companies (STC) of R1.6 million (2009:
R1.1 million). It should be noted that the
total STC accrual to date of R2.9 million will
be reassessed in future years pending new
taxation legislation. The group has also
accrued for Royalty Tax which became
effective on 1 March 2010.
The group early adopted IAS 27 (AC 132)
amendments Consolidated and Separate
Financial Statements (effective for annual
periods beginning on or after 1 July 2009)
during the current financial year. One of the
amendments requires that losses in
subsidiaries have to be allocated to the
non-controlling interest even if doing so
causes the non-controlling interest to be in
a deficit position. In the past, losses were
allocated only until the non-controlling
interests had a zero balance. The basic
earnings per share of 4.1 cents is therefore
based on the profit for the year (attributable
to owners of the company) of R6.0 million.
IAS 27 does not allow the retrospective
adjustment of the calculation of basic
earnings per share, which remains at
3.4 cents.
The group’s net asset value per share is
R3.14 (2009: R3.06).
Movements in the group’s plant, equipment,
exploration and evaluating assets have
been discussed under the review of
activities above. In terms of the group’s
accounting policy, R22.7 million has been
transferred from the intangible exploration
and evaluation assets to plant and
equipment upon determination of the
technical feasibility and commercial viability
of the Vanggatfontein Project at the
beginning of the year.
Trade and other receivables amounted to
R6.4 million and consists mainly of interest
receivable (R3.5 million) and March 2010
coal sales (R2.2 million). Trade and other
payables amounted to R15.3 million and
consists mainly of amounts owing to the
group’s plant, equipment and exploration
vendors (R11.5 million).
Johan Schönfeldt
Financial Director
28 May 2010
10
Keaton MiningGeoCoal Services (GeoCoal) was appointed
by Keaton Energy Holdings Limited (Keaton
Energy) to complete a March 2010
Independent Competent Person’s Report
(CPR) on the coal bearing potential of the
Sterkfontein Project area. This follows the
March 2008 CPR completed by Coffey
Mining (Pty) Limited, on both the Sterkfontein
and Vanggatfontein (formerly known as
Delmas) Project areas, and the May 2009
Coal Resource estimation completed by Coffey
Mining (Pty) Limited on the Leeuwfontein
Project area. In all instances the Competent
Person responsible was Mr David van Wyk.
Sterkfontein Project
Subsequent to the March 2008 CPR,
Keaton Energy’s 74%-held subsidiary,
Labohlano Trading No. 46 (Pty) Limited
(Labohlano), acquired a prospecting right
over 3 270.94 hectares contiguous to the
prospecting rights (the Labohlano
extension) already held by Keaton Mining
(Pty) Limited, also a 74%-held subsidiary of
Keaton Energy.
The areas under consideration in this Coal
Resource Statement for Keaton Energy thus
consist of three prospecting rights over a
total of 7 279.82 hectares, held by Keaton
Mining and Labohlano in the Bethal district
of Mpumalanga, South Africa. The project
area is located 143km east-southeast of the
centre of Johannesburg.
Subsequent to the acquisition of the
Labohlano extension, a 93-hole drill
campaign was planned. The first phase of
this campaign has been completed, with
30 boreholes having been drilled during the
2009 calendar year. The purpose of the
CPR is to provide an update on the coal
bearing potential of the expanded project
area based on the additional information
from the first phase of the drilling
campaign, combined with the data
obtained from the 25 boreholes drilled
Coal Resource and Reserve Statement
Sterkfontein Project0 30km
HeidelburgProjects
Town
National roads
Main road
Power station
LEGEND
SOUTH AFRICASOUTH AFRICA
JohannesburgJohannesburg
CapeTown 0 500 km
A F R I C A
Leeuwfontein Project
29°
29°
30°
30°
26°
26°
R38
R3
5
Standerton VolksrustHarrismith
Mokopane
Bel
fast
Bela-Bela
Pie
tRet
ief
Mba
bane
PRETORIA
JOHANNESBURG
WITBANK
ERMELO
Bethal
Middelburg
Delmas
N17
N12
N4
N3
N1
N11
Kendal
GrootvleiTutuka
KrielMatla
Duvha
Hendrina
Arnot
Secunda
Vanggatfontein Project
City
Map showing the relative geographic location of the Sterkfontein, Vanggatfontein and Leeuwfontein Project areas
11
by previous holders of the Labohlano
prospecting right.
The classification of the Coal Resources of
the Sterkfontein Project is based on the
South African Code for Reporting of Mineral
Resources and Mineral Reserves (the
SAMREC Code) prepared by the South
African Mineral Resource Committee
(SAMREC) under the auspices of The South
African Institute of Mining and Metallurgy
(2007). Under the SAMREC Code, particular
reference is taken of the South African
National Standard (SANS 10320:2004), the
South African guide to the systematic
evaluation of Coal Resources. The Coal
Resource estimations and classifications for
the Sterkfontein Project areas were
prepared by Mr David van Wyk, a registered
natural scientist with the South African
Council for Natural Scientific Professions
(SACNASP) (Reg. No. 401964/83),
280 Pretoria Street, Silverton, which is a
recognised body by SAMREC, of which he
is a member. Mr van Wyk is a Competent
Person as defined in the 2007 edition of the
SAMREC Code. Mr van Wyk has more than
25 years’ experience in the South African
coal industry and is also familiar with and
adheres to the new South African Minerals
and Petroleum Resources Development Act
of 2002 (ACT No. 28 of 2002) (MPRDA) and
the SAMREC code; namely SANS
10320:2004. Mr van Wyk resides at
26 Croyden Circle, Port Alfred.
Mr David van Wyk has given his consent for
the public reporting of the Coal Resource
Statement.
Prospecting rights of the Sterkfontein Project areas held by Keaton Mining and Labohlano
Keaton Energy Holdings Limited – Sterkfontein ProjectSummary of beneficially held prospecting rights
Property Area Prospecting right
(hectares) Application number Expiry date
Sterkfontein Project Area – Keaton Mining held prospecting rights
Palmietfontein 307 IS, Portion 3
Sterkfontein 299 IS, Portion 1 932.87 MP/30/5/1/1/2/443PR 18/12/2011
Kaffirskraal 148 IS, RE of Portion 3, Remaining Extent
Wildan 577 IS, Remaining Extent
Sterkfontein 299 IS, Portion 20, 21, 25, 26, 34 and RE Portion 4
Goedehoop 301 IS, Portion 4 3.076.00 MP/30/5/1/1/2/444PR 09/11/2011
Sterkfontein Project Area – Labohlano held prospecting rights
Kaffirskraal 148 IS, Portion 1, 2, 5, 6, 8, 9, 10, 11, 12
Sterkfontein 299 IS, Portion 3, 5, 6, 8, 9, 10, 11, 12, 13, 15, 16, 17
18, 19, 22, 24, 30, 31, 32 and RE Portion 14 3 270.94 MP/30/5/1/1/2/1720PR 05/05/2011
-2 9
40 0
00-2
935
000
-2 9
30 0
00
40 000 45 000
0 1km
Pre-2009 campaigns
LEGEND
2009 campaign
2010 campaign
Total Sterkfontein Project
Keaton Mining
Keaton Mining
Labohlano
-2 9
40 0
00-2
935
000
-2 9
30 0
00
35 000
40 000 45 00035 000
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These properties are referred to collectively as the Sterkfontein Project areaand are shown in the following diagram
12
Keaton Mining and Labohlano have incurred
exploration expenditure of R13.8 million and
R2.5 million respectively to date at the
Sterkfontein Project area. Keaton Mining
and Labohlano intend to drill an additional
56 boreholes to further expand the
Sterkfontein Project area resource base,
and to increase confidence levels of the
current resource estimates.
Keaton Energy, to the best of its knowledge,
is unaware of any land claims over any
parts of the project areas and is unaware of
any outstanding legal proceedings that
could prevent any prospecting and mining
activities planned on the properties listed
above. Labohlano has agreed with the
Govan Mbeki Municipality to apply to the
Department of Mineral Resources to amend
prospecting right MP/30/5/1/1/2/1720PR to
exclude a small portion of the prospecting
right adjacent to Extension 6 of the Mzinoni
Township. This amendment does not affect
the resource blocks identified in this Coal
Resource Statement.
Coal Resources
The geological investigation is at an advanced
exploration stage with about 50% of the
resources drilled to a measured resource.
The resource would be suitable for export
quality coal or to supply the Eskom power
stations in the vicinity. A total of 192 boreholes
have been drilled to date, with 176 having
full analyses.
All boreholes were drilled vertically by means
of diamond drilling using TNW (60mm) or
NQ (47.6mm) core size. Core recoveries
were good and the quality of the drilling
was acceptable. There were a number of
minor data discrepancies which could not
be rectified, however these discrepancies
were not material to the overall conclusion
of the report. Coal samples were analysed
at Inspectorate M&L.
In the Sterkfontein Project area, the No. 4
Seam is the only coal seam of economic
interest. The No. 5 Seam is present in most
of the holes at an average depth of 132m
and forms a thin (usually less than 30cm)
dull coal seam, which is a prominent marker
horizon, between 15m to 60m above the
No. 4 Seam. The No. 4 Seam occurs as a
composite seam with a number of different
coal zones identified. In places the No. 4 Seam
is split by a sandstone or siltstone parting,
creating 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.
The No. 4 Seam is on average 1.9m thick
across the property. In the south, the No. 4
Seam is thicker with an average width of
3.0m. Intra-seam partings are common,
although are mostly of insignificant widths
(<0.30cm) except for in the southeast of
where the parting reaches a maximum
thickness of 2.5m.
As at March 2010, the Gross Tonnes In Situ
(GTIS) of 82 million tonnes for the No. 4 Seam
in the three resource blocks identified on
Sterkfontein Project area was estimated using
1.40m as a minimum seam width.
Geological losses ranging from 10% to
20% were assumed depending on the
density of geological data and a MTIS Coal
Resource of 69 million tonnes has been
estimated. No material risk factors have
been identified that could impact on the
Coal Resource Statement.
The Coal Resource Statement was
prepared using SANS 10320ED South
African guide to the systematic evaluation
of Coal Resources and Coal Reserves
section 6 and the definitions from section 3.
Coal Resource and Reserve Statement
(continued)
The expected expenditure for the Sterkfontein Project area for the next 12 months.
Sterkfontein ProjectCoal exploration budget 2010
Project area Planned activity Number of boreholes Cost (R’million)
Sterkfontein Exploration and infill drilling 56 5.5
The drilling status for the area where the 4L Seam width is greater than 60cm
Area (sq m) Volume (cu m) Raw RD GTIS Boreholes Hectares Ha/bh
48 125 067 75 622 970 1.6 119 484 293 200 4 812.5067 24.06
13Keaton Energy Annual Report 2010
The weighted average theoretical borehole
yield for the three resource blocks is 44.22%
for an export 27 CV (MJ/kg) product and
35.29% for a 19.5 CV (MJ/kg) Eskom type
product.
Vanggatfontein Project
The Coal Resource and Reserve Statement
for the Vanggatfontein Project remains as
was declared in the May 2009 statement
and the 2009 Annual Report. Please refer to
the aforementioned documents, available
on www.keatonenergy.co.za for the full
disclosure. There has been no change to
the May 2009 statement.
AmalahleExplorationLeeuwfontein Project
The Coal Resource Statement for the
Leeuwfontein Project remains as was
declared in the May 2009 statement and
the 2009 Annual Report. Please refer to the
aforementioned documents, available on
www.keatonenergy.co.za for the full
disclosure. There has been no change to
the May 2009 statement.
The Coal Resources of the Sterkfontein Project area
Block Area Volume Ave RD GTIS Geological MTIS SAMREC(sq m) (cu m) width (m) loss classification
North 01 3 070 006 7 974 608 2.60 1.59 12 645 274 20% 10 116 219 Indicated
South 01 10 855 009 22 380 454 2.06 1.60 35 868 823 20% 28 695 058 Indicated
South 02 9 055 022 21 448 936 2.37 1.56 33 499 169 10% 30 149 252 Measured
Total 22 980 037 51 803 998 82 013 266 68 960 529
Modifying factors:Minimum seam width 1.4m; minimum dry ash free volatiles 26%; geological losses 10% to 20%; maximum raw uncontaminated ashof 50%
-2 9
40 0
00-2
935
000
-2 9
30 0
00
0 1km
Limits of the three resource blocks indentified on Sterkfontein Project area
Pre-2009 campaigns
LEGEND
2009 campaign
2010 campaign
North 01 – 10Mt MTIS
South 01 – 28Mt MTIS
South 02 – 30Mt MTIS
40 000 45 00035 000
40 000 45 00035 000
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The diagram below shows the limits of the three resource blocks identified onSterkfontein Project area
Keaton Energy’s strategy remains to
produce two million tonnes of saleable coal
in the medium term, growing into a mid-tier
coal producer in the longer term – with
production from greenfields and brownfields
projects where Keaton Energy is able to use
its intellectual and financial resources to
take projects up the value curve, through
rapid project development to production.
Keaton Energy has made progress towards
its two million tonnes per year objective by
advancing its development and exploration
projects, and this is discussed in the review
of operations. The Klip Colliery reached the
end of its economic life during the year and,
consequently, the group returned to being
an exploration and development company
until the first coal is produced at the
Vanggatfontein Project, which is expected
by the third quarter of the 2011 financial year.
The company’s social and environmental
footprint is planned to increase, as the
Vanggatfontein Project is brought to
account, and significant progress is
expected to be made in the year ahead.
Commitment tosustainabledevelopmentKeaton Energy’s objective is to become a
long-term sustainable enterprise, profitably
producing a primary commodity that
remains vital as both a source of energy
and foreign exchange for South Africa,
thereby contributing to economic growth,
job creation and socio-economic
development within the country.
The Board of Keaton Energy believes that
mining companies have unique
responsibilities relating to the safety and
health of employees, contractors and
communities, the natural environment and
the socio-economic development of both
the communities where they operate and
the country generally. Mines by their very
nature are declining assets that have finite
lives in which their contributions can be
made, and during which their negative
impacts must be minimised. It is the
Board’s firm view that sound performance
in the ‘triple bottom line’, comprising
economic prosperity, the management of
environmental impacts and social
development, is fundamental to the
continued sustainability of the company for
the benefit of all stakeholders.
Governance andrisk managementKeaton Energy is committed to good
corporate governance and disclosure.
Corporate governance matters are dealt
with on pages 22 to 24 of this report.
Keaton Energy has noted the new
disclosure requirements and
recommendations within the Companies
Act and the recently issued King report on
Corporate Governance (King III) and will, in
its 2011 Annual Report, report in compliance
with these. King II’s recommendation for
integrated sustainability reporting has
already been adopted by Keaton Energy
and the company continues to adopt a
phased approach to the reporting in line
with the Global Reporting Initiative’s (GRI)
G3 guidelines.
In line with the requirements of GRI, Keaton
Energy has self-declared a C level of
reporting and an index in this regard may
be found on page 19 of this report. Given
that the company is currently in a start-up
stage of business, little quantitative data is
available. However, it is our intention to set
up quantitative data collation systems for
the primary sustainability parameters as
soon as practicable. Keaton Energy does
not produce a separate sustainability report
but has chosen to incorporate this
information into the Annual Report. Further
information may also be found on the
company’s website at www.keatonenergy.co.za
under the sustainability section.
The Board-level Safety, Health and
Environmental Committee is chaired by
Managing Director Paul Miller, and
comprises David Salter, Peet Snyders and
John Wallington. Its role is to guide and
review safety, health and environmental
policy and practice and it has been
delegated this authority by the Board, to
which it reports. The group regards health
and safety as the responsibility of each
individual within the company and, to this
end, a group Health and Safety Committee
has been established consisting of
management and employee
representatives, which meets quarterly.
Furthermore each work site has either a
designated health and safety representative
14
Sustainable development review
15Keaton Energy Annual Report 2010
or a Health and Safety Committee,
depending on the number of employees
and contractors on the site.
Safety, health and environment, and issues
relating to employee development and
transformation, are overseen on an ongoing
basis by the company’s executive committee.
Further details may be found on the company’s
website.
Risk management is accorded priority as an
essential component in ensuring the
sustainability of the business. Risk
management is an inherent part of every
role and job description and formal structures
exist to ensure that risk management
processes are in place. The Board Risk
Committee, which comprises the full Board,
meets at least on a quarterly basis to
review all risk management processes,
procedures and outcomes. Their role is
supported by external experts retained to
facilitate risk identification and the
identification of suitable mitigation
measures.
EthicsKeaton Energy subscribes to the highest
principles of integrity and members of the
Board and employees are required to
commit to a policy on ethical behaviour.
Keaton Energy’s ethical code of conduct is
available in the corporate governance
section of the company’s website. The
company has extended these requirements
for standards of behaviour to its contractors.
Keaton Energy‘s permanent staff
complement is very small and all staff
members have direct access to non-executive
members of the Board. As a result, no
formal whistle-blowing process is in place
at this stage. The Board is committed to
ensuring that no legitimate whistle-blower
will be discriminated against.
Keaton Energy has not made any political
or charitable donations, and no policy is in
place to cover such donations.
The Board will only consider this position
once the operations are all cash flow positive.
StakeholderengagementKeaton Energy has identified its
stakeholders and, through both formal and
informal processes, engages with these
stakeholders on an ongoing basis.
Keaton Energy’s operating model makes
extensive use of outsourcing and
contracting to limit its fixed overhead costs,
while at the same time employing
competent resources that would otherwise
be unaffordable to a small company.
Employees and suppliers are viewed as
critical stakeholders within the business.
A commercial dispute arose between the
landowners of the land subject to the
Vanggatfontein Project mining right and
Keaton Mining, the subsidiary that holds
that mining right, over the quantum of
financial compensation payable for access
to the land. The dispute was settled
amicably before the matter was heard in
court, a step which Keaton Energy was
forced to pursue.
EconomicsustainabilityKeaton Energy recognises that its primary
role is the development and long-term
sustainability of the company, and to ensure
that these benefit a broad range of
stakeholders.
Keaton Energy has continued to invest in
the development of the Vanggatfontein and
Sterkfontein Projects. In total, the group
spent R39.5 million on exploration and
evaluation in the 2010 financial year, and
R24.1 million in respect of mine
development and capital expenditure.
Value-added statement
The value-added statement illustrates the
wealth created by Keaton Energy through
exploration, mining, trading and investing
operations and how this was disbursed
among the group’s stakeholders. During
2010, the group began investing extensively
in mine development and this will continue
in 2011.
Stakeholder engagement
Stakeholders Engagement Issues
Shareholders Formal, through regulatory and other announcements, Company progress on projects
and informal, through meetings and presentations
Employees Informal, employee numbers are limited and all Company performance, benefits
employees have access to senior management and prospects
Regulatory authorities, such as the DMR and the Informal and external, through permitting Reporting and compliance
Department of Water and Environment Affairs and other applications
Contractors Informal and formal Company performance and
prospects
Community members Informal and formal, extensive consultation is Proposed company operations
conducted with community members through the and timing thereof
required environmental regulatory framework
Group value-added statementsfor the year ended 31 March 2010 (unaudited)
31 March Wealth 31 March Wealth2010 created 2009 created
R % R %
Cash generated:
Proceeds from private placement (co-inciding with listing) – 90 483 396
Cash derived from sales and services 23 980 392 6 100 555
Income from investments and interest received 29 204 689 43 120 439
Paid to suppliers for goods and services (30 801 981) (46 787 991)
Cash value added 22 383 100 100 92 916 399 100
Cash utilised:
Paid to suppliers for mine development/infrastructure 23 799 596 106 5 187 669 6
Remunerate employees and directors for services 11 884 639 53 11 206 578 12
Pay direct taxes to government 6 199 529 28 10 060 051 11
Cash disbursed among stakeholders 41 883 764 187 26 454 298 28
Cash (invested)/retained in the group to maintain and develop operations (19 500 664) (87) 66 462 101 72
Notes to the group value-added statements
1. Tax contribution
Direct taxes (as above) 6 199 529 10 060 051
Value-added taxes levied on purchases of goods and services 7 644 221 8 076 322
13 843 750 18 136 373
2. Additional amounts collected by the group on behalf of government
Value-added tax and other duties charged on turnover 5 144 106 2 250 683
Employees’ tax deducted from remuneration paid 3 576 753 3 344 028
Unemployment insurance fund 20 043 17 627
8 740 902 5 612 338
3. Levies paid to government
Rates and taxes paid to local authorities – 57 485
Royalties payable to government 9 771 –
Workers’ compensation fund 20 282 5 000
Unemployment insurance fund 20 043 17 627
Skills development 105 789 102 978
155 885 183 090
16
Sustainable development review
(continued)
17Keaton Energy Annual Report 2010
The first coal to be produced from Keaton
Mining’s Vanggatfontein Project is 5-Seam
metallurgical coal. This is a niche product,
bituminous coal, prized for its low
phosphorous and high vitrinite content, and
is applied in metallurgical processes. There
is currently a physical shortage of such coal
in the domestic market and it is eagerly
sought after by particularly producers of
silicon manganese and, to a lesser extent,
producers of steel and a variety of ferro-
alloys. The development of a new source of
5-Seam coal will be of direct benefit to
South Africa’s metallurgical industries.
Further, Keaton Energy expects to play a
role in contributing to easing South Africa’s
power crisis by contributing up to 2.4 million
tonnes a year of consistent quality domestic
thermal coal to Eskom’s power stations.
This will however depend on the successful
conclusion of contract negotiations.
Economic transformation andblack economicempowerment (BEE)Keaton Energy recognises the role that
the company can and should play in the
transformation of the economy. The company’s
role is broadly in three areas:
first, in respect of increasing the
economic interest by historically
disadvantaged persons (HDPs) in the
resources industry;
second, to encourage the development
of BEE business entities and to provide
opportunities for these companies to
provide goods and services.
third, to transform the demographics of
corporate South Africa by recruiting,
training and developing HDPs within the
business. This is dealt with in greater
detail below.
Equity ownership
Keaton Energy was established as a
company with strong BEE credentials, and
to identify and develop projects in line with
the tenets of the Mineral and Petroleum
Resources Development Act (MPRDA). All
the group’s operating subsidiary companies
are fully empowered, in line with the
requirements of the Mining Charter. HDPs,
including women, are represented as owners
and as directors of the operating subsidiaries
and the holding company, and as employees
in senior executive roles in the group.
Keaton Energy was established in 2006 andits establishment is a direct benefit of theMPRDA. The group has been designed tocomply with the Act from inception: KeatonEnergy was established through theacquisition of 74% interests in prospectingrights previously owned 100% by BEEentities. The 74% interest was acquired forcash or through the issue of unencumberedlisted shares. The remaining 26% interest inthe operating entities continues to be heldby the BEE entity. Keaton Energy hasentered into funding, management andshareholder agreements relating to eachoperating company. As a consequence,26% of each operating company is held bya BEE entity and a further approximately8% of the listed company itself is also heldby BEE entities. These interests are allunencumbered.
The company is also pleased to report thatKeaton Mining, Keaton Energy’s principleoperating subsidiary, has received a Level 3BBBEE rating.
ProcurementKeaton Energy’s procurement policyensures that where possible procurementopportunities are afforded to HDPs andBEE entities. This is not only by purchasinggoods and services from entities with blackownership but also by ensuring thatsupplier companies similarly comply withthe BBBEE codes. All quotes and proposalsreceived from suppliers require thesubmission of BEE credentials, and thesecredentials are taken into account whenadjudicating supplier selection.
Much effort has gone into ensuring that thegroup has the administrative capacity toeffectively track preferential procurementwith a view to providing detailed disclosurein future reporting periods.
As noted above, Keaton Mining achieved aLevel 3 BBBEE rating during August 2009.With regards to Code Series 805 of theCodes of Good Practice (PreferentialProcurement), Keaton Mining achieved acompliance target of 42.5%, which is abovethe first five years’ target of 40%. Thisresulted in an actual score of 25 out of 25 interms of BBBEE procurement spend from
all suppliers based on the BBBEEprocurement recognition levels as a percentageof total measured procurement spend.
Social equity andperformanceEmployment
Keaton Energy is committed to being aresponsible employer and neighbour. At theend of March 2010, the company employednine people (six employees and threepermanent contractors). As at 31 March2009, the group provided directemployment for 10 people – sevenpermanent employees and three contractors.In addition a further 30 people wereemployed indirectly at the Klip Colliery.
Extensive human rights conventions existwith the South African Constitution and theLabour Relations Act, and these are upheldby Keaton Energy. Keaton Energy supportsemployees right to freedom of associationand collective bargaining.
Employment equity
Keaton Energy has developed a recruitmentpolicy to ensure fair and equitablerecruitment processes, prevents unfairdiscrimination and to address injusticesfaced by HDPs in the past. Where practical,and subject to the recruitment policy, it isKeaton Energy’s policy to recruit employeesfrom historically disadvantagedcommunities residing near its operations.Keaton Energy will also ensure thatcontractors employed by the group applysimilar practices in their recruitment process.
For all of its projects Keaton Energy hasprepared a detailed Social and Labour Planin compliance with the MPRDA and theMining Charter. These plans detail humanresource development, employment equity,equity ownership, procurement, housingand living conditions, local economicdevelopment, amongst other issues. Theseplans have been developed in consultationwith local stakeholders and will be alignedwith the integrated development plans oflocal communities to ensure maximumbenefits accrue to these communities. Thecompany will ensure that the contributionsit makes will directly benefit local people,with specific aims of contributing to povertyalleviation and job creation.
18
Health and safetyKeaton Energy has in place acomprehensive policy on health and safetythat is aligned with the requirements of theMine Health and Safety Act. All personnelengaged in exploration and mining activitiesundergo comprehensive medicalsurveillance. The company is in the pleasingposition that, to date, there has been noincidence of lost time injuries or fatalities.Notwithstanding this, adequate training inmatters related to health and safety isprovided to all employees and vigilance inrespect of safety performance will continue.
Plans are also in place to ensure thatadequate education and care is provided toemployees in respect of HIV and AIDS.
SecurityThe group has found the physicalprotection of its employees and assets tobe a challenge in the current environmentand security arrangements are constantlybeing reviewed. Regrettably, the KlipColliery was attacked by armed robbers onnine occasions in its 20 months ofoperation. Contracted security personnelare required to be trained to the appropriateindustry standard and are provided withelectronic alarm systems and on-call backup. The security measures put in placehave thus far successfully preventedsignificant losses in the period. However,this continues to be a risk to thesustainability of operations and one that thegroup will continue to seek to mitigate.
EnvironmentKeaton Energy has a group environmentalpolicy in place and, as a minimum, ensurescompliance with South Africa’senvironmental legislation. In anticipation ofmining activities, environmental impactassessments (EIAs) and EnvironmentalManagement Programmes (EMPs) havebeen or are being developed with theassistance of independent externalconsultants.
Compliance with regulations necessarilyrequires extensive consultation with allstakeholders, especially land owners,occupiers of the affected land and anyparty that may register itself as aninterested and affected party. On receipt ofregulatory approval, the group will conductits operations in a manner that is incompliance with all the conditions ofregulatory approval.
No environmental incidents were recordedat Klip Colliery prior to the cessation ofoperations. Rehabilitation of this operationwas largely undertaken as the miningoperations progressed. Certain surfacerehabilitation operations are still in progress,and it is anticipated that Keaton Mining willbe in a position to make formal applicationto the DMR for a closure certificate late inthe 2011 financial year.
The group’s project EMPs detail potentialimpacts and mitigation measures andmonitoring systems and audits are put inplace to ensure compliance.
As an energy user and an energy company(through the mining of fossil fuels for energyproduction) Keaton Energy is highly awareof the need to consider the risks andopportunities related to climate changeboth for the company and its surroundingcommunities. In planning and operating itsmines Keaton Energy take critical accountof energy efficiency and aims, wherepractical, to limit its total use of energy,from whatever source.
A sustainablecompanyKeaton Energy is beginning a process ofimplementing sustainability reporting andrecognises that it is at the beginning of thisjourney. Shareholders are referred to thecompany’s website, www.keatonenergy.co.za,for additional information in this regard.
Sustainable development review
(continued)
19Keaton Energy Annual Report 2010
GRI indexReporting in line with GRI – C level of reporting Pages
G3 profile disclosures 1 Strategy and analysis
1.1 Statement by senior decision-maker 4-9
2 Organisational profile
2.1 – 2.10 Information on the company 2
3 Report parameters
3.1 – 3.4 Report profile IFC
3.5 – 3.11 Report scope and boundary 5
3.12 Content index 1
4 Governance, commitments and engagements
4.1 – 4.10 Governance 22-24
4.14 – 4.17 Stakeholder engagement 15
G3 performance indicators Economic performance indicators
Management approach 8
EC1 Direct economic value generated and distributed 8
EC2 Financial implications and other risks and opportunities for the
organisation’s activities due to climate change 18
EC4 Significant financial assistance received from government 16
EC6 Policy, practices, and proportion of spending on locally-based
suppliers at significant locations of operation 17
EC7 Procedures for local hiring and proportion of senior management hired
from the local community at locations of significant operation 17
EC8 Development and impact of infrastructure investments and services
provided primarily for public benefit through commercial, in kind, or
pro bono engagement 15
Environmental performance indicators
Management approach 18
EN23 Total number and volume of significant spills 18
Labour practices and decent work
Management approach 17
LA1 Total workforce by employment type, employment contract, and region 17
LA4 Percentage of employees covered by collective bargaining agreements 17
LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and
number of work-related fatalities by region 18
Human rights
Management approach 17
Society performance indicators
Management approach 17
20
David Salter (51)Independent Non-executive ChairmanBSc (Hons), PhD, FSAIMM
Appointed to the Board in January 2008.
David Salter has 29 years of international
mineral technology, project development
and senior mining executive management
experience, and has previously served as
the Managing Director of the Salene Group
and JSE-listed Barplats Investments
Limited and Eland Platinum Holdings
Limited. David currently serves on the
Board of TransAfrika Resources Limited
and Kameni Limited.
Zelda Mostert (37)Independent Non-executive DirectorBCom (Hons), MCom, CA (SA)
Appointed to the Board in July 2008.
Zelda Mostert was previously Chief
Financial Officer of Great Basin Gold
Limited and Treasurer of Harmony Gold
Mining Company Limited before joining
Keaton Energy. She has extensive mining
finance skills and experience and was
involved in several capital and debt raising
activities within the mining industry over the
past seven years. She has considerable
experience and knowledge of risk financing
pertaining to mining related risks.
Lizwi Mtumtum (38)Independent Non-executive DirectorBA (Economics/Accounting)
Appointed to the Board in March 2008.
Lizwi Mtumtum is the Executive Chairman
of Ikamva Lethu Investments, a BEE
investment holding company and is also
chairman of Jua-Ina-Linga Properties, a
property investment and development
company. He previously held positions at
the listed Pangbourne Properties, Yard
Capital (a BEE investment holding
company), Nedbank and Nedcor. He serves
as an independent non-executive director
of Kameni Limited, where he also chairs the
Audit Committee and has previously served
as an independent non-executive director
of Eland Platinum, where he chaired the
Audit Committee.
John Wallington (52)Independent Non-executive DirectorBSc (Mining Engineering)
Appointed to the Board in October 2008.
John Wallington was Chief Executive Officer
of the Coal Division of Anglo American plc
from January 2005 until May 2008, having
joined the division in 1981 as a mining
graduate at its Arnot Colliery. He was
instrumental in the development and
implementation of strategy at Anglo Coal,
played a major role in the completion of its
black economic empowerment transaction
in 2007, and built and maintained key
regulator and customer relations
internationally.
He joined the Firestone Energy Board in
May 2009 and was appointed as an interim
Managing Director of Firestone Energy with
effect from November 2009.
Phoevos Pouroulis (35)
Non-executive Director
BSc (Business Admin)
Appointed to the Board in March 2007.
Phoevos Pouroulis, who holds a BSc
degree in Business Science from Boston
University, is a businessman who has
started and partnered various businesses
locally and throughout Africa. He was a
commercial consultant involved in the
development of mining projects across
Africa, including advising Chromex Mining
plc on its establishment, where he was later
appointed Commercial Director. He is
Chairman of Spitfire Music South Africa and
was involved in the founding of Keaton
Energy. He is also a founding member and
Chairman of Music for The Children
Foundation an umbrella charity organisation
raising funds for underprivileged children in
South Africa. He is also the Executive
Chairman of Arxo Logistics (Pty) Limited, a
newly formed logistics business responsible
for the export of commodities. Phoevos has
been a Non-executive Director since
January 2008.
Directorate
21Keaton Energy Annual Report 2010
Antoinette Sedibe (44)Non-executive DirectorBA (Admin)
Appointed to the Board in April 2006.
Antoinette Sedibe, who is the Managing
Director of Andisa Capital, and a co-
founder of Rutendo Mining, started her
career with Nedbank’s graduate programme
in 1988, before moving on to AECI’s
Treasury Department as a foreign exchange
dealer, and later spent two years in the
internal audit department. She assisted
in setting up Polifin (Sasol and AECI joint
venture) Treasury, and also gained extensive
management, financial and treasury
operations experience as a portfolio
manager at Standard Bank’s treasury
outsourcing operation, where she was
appointed a director. Antoinette became an
executive director of Andisa Capital in 2003.
Paul Miller (40)Managing DirectorBCom (Hons)
Appointed to the Board in September 2007.
Paul Miller was involved as an advisor to
Keaton Energy in mid-2006, prior to his
appointment to the Board. He was
appointed Managing Director in September
2007. Formerly with Andersen Consulting
(now Accenture), Nedcor Investment Bank
and Nedbank Capital, he has 14 years’
experience in South Africa’s consulting,
finance and mining industries.
Mandi Glad (39)Business Development andMarketing Director
Appointed to the Board in May 2009.
Mandi Glad, who is a co-owner of Rutendo
Mining, is an entrepreneur who has more
than 15 years’ experience in owning and
operating businesses ranging from coal
marketing to IT. She has also gained
strategic industrial relations skills from
her interests in several businesses. Her
involvement with HDPs and women-led
coal mining initiatives has given her detailed
knowledge of the MPRDA and related
regulatory processes. She played an integral
role in the establishment of Keaton Energy.
Johan Schönfeldt (39)Financial DirectorBCom (Hons), MCom, CA (SA)
Appointed to the Board in January 2008.
Johan Schönfeldt gained international
banking experience while working in
London on contracts with major banking
groups. He has also held senior financial
management positions with the Indequity
Group and the IQ Business Group, after
which he consulted to a number of
PricewaterhouseCoopers’ clients on their
conversions from SA GAAP to IFRS. Most
recently he was the Financial Manager at
Eland Platinum until that company was
acquired by Xstrata.
Peet Snyders (49)Operations DirectorMCom, BEng
Appointed to the Board in January 2010.
Peet Snyders has 29 years’ working
experience in the South African mining
industry. Previously he held senior positions
in Riversdale Holdings (Pty) Limited, Anglo
Platinum, Kumba Coal, Iscor Mining, Anglo
Coal and Sasol Coal. He began his mining
career as a Gencor bursar.
22
GeneralThe Keaton Energy group and its directors
are committed to the principles of good
corporate governance and to applying the
highest ethical standards in conducting
business.
The group strives constantly to develop and
improve existing corporate governance
structures and practices to ensure continued
good governance. The group has substantially
complied with the recommendations of
King II. King III became effective on 1 March
2010 and the group and its directors will
apply the revised principles of good
corporate governance during the coming
year and will explain any instances of non-
compliance in the next Annual Report.
The Companies Act No. 71 of 2008, which
was signed into law during April 2009 by
the President, is being examined and will
be dealt with when it is brought into effect.
Board of directorsThe Board comprises four executive
directors and six non-executive directors,
of whom four are independent. The
independent non-executive directors are
noted under the directors’ section of this
report (pages 20 and 21). The Board is
responsible to shareholders for the conduct
of the business of the Keaton Energy group,
which includes providing Keaton Energy
with clear strategic direction. The schedule
of matters reviewed by the Board includes:
approval of the group's strategy and
annual budget;
overseeing group operational
performance and management;
ensuring that there is adequate
succession planning at senior levels;
overseeing director selection, orientation
and evaluation;
approval of major capital expenditure or
disposals, material contracts, material
acquisitions and developments;
reviewing the terms of reference of Board
committees;
determining policies and processes
which seek to ensure the integrity of the
group's risk management and internal
controls;
maintaining and monitoring the group's
systems of internal control and risk
management;
communication with shareholders,
including approval of all circulars,
prospectuses and major public
announcements;
approval of the interim statement and
Annual Report and accounts (including
the review of critical accounting policies
and accounting judgements and an
assessment of the company's position
and prospects); and
recommendation of dividends.
The Board retains full and effective control
over the business of Keaton Energy. The
Board has defined levels of materiality
through a written delegation of authority,
which sets out decisions the Board wishes
to reserve for itself. The delegation will be
regularly reviewed and monitored. The four
executive directors have fixed terms of
employment.
In accordance with the company's articles
of association, all directors, except the
managing director and any other executive
directors, are subject to retirement by
rotation and re-election by shareholders at
least every three years. The Board intends
to meet at least four times a year, or more
frequently if circumstances so require.
Information relevant to meetings is supplied
on a timely basis to the Board, ensuring
directors can make informed decisions. The
directors have unrestricted access to
information, management and the company
secretary in relation to Keaton Energy. All
directors are entitled to seek the advice of
independent professionals on matters
concerning the affairs of the group, at
Keaton Energy's expense.
Appointment to the Board
The Nomination Committee is responsible
for reviewing the composition of the Board
and identifies and makes recommendations
to the Board regarding the appointment of
new directors. Appointments to the Board
are made taking into account the need for
ensuring that the Board provides a diverse
range of skills, knowledge and expertise,
the necessity of achieving a balance between
skills and expertise and the professional
and industry knowledge necessary to meet
the company's strategic objectives, and the
need for ensuring demographic representation.
Upon appointment, each director receives
an induction programme into the group with
guidance on their responsibilities.
Division of responsibility
There is a clear division between the roles
of the chairman and the managing director.
The Board is chaired by an independent
non-executive director. The chairman is
responsible for providing leadership to the
Board, overseeing its efficient operation and
has been tasked with ensuring effective
corporate governance practices. The
managing director is responsible for
formulating, implementing and maintaining
the strategic direction of Keaton Energy,
and ensuring that the day-to-day affairs of
the group operations are appropriately
supervised and controlled. The non-
executive directors all have a high degree of
integrity and credibility, and the
composition of the Board provides for
objective input into the decision-making
process, thereby ensuring that no one
director holds unfettered decision-making
Corporate governance
23Keaton Energy Annual Report 2010
powers or too much influence. The directors
come from diverse backgrounds and bring
to the Board a wide range of experience.
Board committeesThe Board has appointed five committees
to which it has delegated specific
responsibilities. All committees operate
within written terms of reference approved
by the Board, which are available on the
company’s website at www.keatonenergy.co.za.
Audit Committee
The Audit Committee comprises three
independent non-executive directors,
namely Lizwi Mtumtum (chairman), David
Salter and Zelda Mostert. The financial
director, financial manager, company
secretary, the internal auditors and the
external auditors all attend meetings by
invitation.
The Audit Committee maintains terms of
reference, which are reviewed annually and
if necessary, are amended to meet market,
regulatory and internal needs. These terms
set out the basis for the committee’s
functioning, including the requirement to
consider and monitor the independence of
external auditors and the appropriate
rotation of the lead partner and to make
recommendations to the Board on the
appointment or dismissal of the external
auditor. The Audit Committee’s duties relate
to the management of financial risk across
the group, the safeguarding of assets, the
maintenance of adequate systems and
control process and compliance with legal
and accounting standard requirements in
the group’s financial reporting and
accounting statements. It also reviews the
internal audit charter, internal audit annual
plan, the external audit scope and
accounting, taxation and financial reporting
issues. The Audit Committee monitors
proposed changes in accounting policy and
considers the accounting and taxation
implications of transactions. It also
considers the appropriateness of the
expertise and experience of the group
financial director. The findings and
recommendations of the internal and
external auditors are used to determine the
effectiveness of internal control systems.
Consultation between internal and external
auditors is encouraged to achieve an
efficient audit process.
The external auditors attend the Audit
Committee meetings and have unrestricted
informal access to the chairman of the
Audit Committee. The Audit Committee has
approved a non-audit services policy and
set the principles for recommending the use
of external auditors for non-audit services.
The Audit Committee is satisfied that the
independence of the external auditors is
maintained at all times and is not
compromised by the relationship the
external auditors are building with the
executive directors during their external
audit function.
The Audit Committee met formally four
times during the financial year to consider
financial reporting issues and to advise the
Board on a range of matters, including
corporate governance practices, internal
control policies and procedures, and
internal and external audit management.
The chairman of the Audit Committee is
required to report to the Board after each
meeting.
During the year under review, the Audit
Committee was appointed by the subsidiaries
of Keaton Energy to perform the roles and
responsibilities of their Audit Committee.
Furthermore, the Audit Committee appointed
PricewaterhouseCoopers Inc. as the
internal auditors, determined their fees and
terms of engagement, and received internal
audit reports as per the internal audit plan
(whose findings confirmed the group’s tight
internal control policies and procedures and
made further recommendations on improving
others). The internal auditors have a direct
reporting line to the chairman of the Audit
Committee with the operational reporting
line to the managing director and/or his
designate. The internal auditors attend all
Audit Committee meetings by invitation and
have direct access to the chairman of the
Audit Committee.
In addition, the Audit Committee
recommended the re-appointment of KPMG
Inc. as the external auditors, determined
the fees to be paid to KPMG and their
terms of engagement, and reviewed and
recommended the approval of the interim
and annual financial statements to the Board.
The Board has determined that the Audit
Committee fulfilled its responsibilities for
the year under review, and as required
reports that it is satisfied with the expertise
and experience of the financial director and
the independence of KPMG.
Nomination Committee
The Nomination Committee is made up of
David Salter (chairman), Antoinette Sedibe,
Lizwi Mtumtum and John Wallington. The
primary role of the Nomination Committee
is to review the composition of the Board
and to identify and make recommendations
regarding the appointment of new directors.
It also satisfies itself that appropriate
succession plans are in place for the Board
and senior management of the Keaton
Energy group, and reviews the performance
of non-executive directors to ensure that they
have devoted sufficient time to their duties.
Remuneration Committee
The Remuneration Committee comprises
David Salter (chairman), Phoevos Pouroulis
and John Wallington. The Remuneration
Committee approves the remuneration policies
for the executive directors and senior
management, having considered relevant
market norms and independent advice
where appropriate. No director or manager
is involved in any decision as to his or her
own remuneration. A remuneration report
has been included on pages 25 to 28 which
shareholders will be asked to approve through
a non-binding approval at this year’s Annual
General Meeting (AGM).
Risk Committee
The Risk Committee is chaired by David
Salter and includes all the members of the
Board. The Risk Committee's role is to ensure
the management of all business risks,
including operational and financial risks, with
a view to enhancing the value of shareholders'
investments, safeguarding assets and
ensuring the safety of the workforce and
other stakeholders.
Safety, Health andEnvironmental Committee
The Safety, Health and Environmental
Committee (SHE) is chaired by Paul Miller
and includes David Salter, Peet Snyders
and John Wallington. The role of the Safety,
Health and Environmental Committee is to
monitor and review safely, health and
environmental performance and standards.
Code of BusinessEthics and ConductThe Board has approved and adopted a
Code of Business Ethics and Conduct (the
code) which reaffirms the high standard of
business conduct required of all employees,
officers and directors of Keaton Energy. It
has been adopted as part of the company's
continuing effort to ensure that it has an
effective programme to prevent and detect
violations of the law, and for the education
24
and training of employees, officers and
directors. In most circumstances, the code
sets standards higher than that required by
law. The code is available on the company’s
website at www.keatonenergy.co.za
Share dealingsIn line with best practice, the Securities
Services Act and the JSE Listings
Requirements, the company operates
closed periods prior to the announcement
of its interim and annual financial results.
During these closed periods, directors,
officers and other employees who are likely
to be in possession of price-sensitive
information may not deal in the shares or
other instruments pertaining to the shares
of the company. This principle is also
applied at other times whenever there is a
corporate action or similar circumstances.
Written requests to trade in the company’s
shares by directors, officers and senior
personnel and the requisite approval to
trade in the company shares, outside of
closed periods, are kept on record at the
company’s offices.
OtherThe Board is committed to honest, open
and regular communication with all
stakeholders on both financial and non-
financial matters. The company reports
formally to shareholders when half-year and
full-year results are announced. Shareholders
are invited to attend AGMs and to pose
questions to the directors. All executive
and non-executive directors are required to
attend this meeting. The AGM provides an
opportunity for the chairman to present to
the shareholders a report on current
operations and developments and enables
the shareholders to question and express
their views about the company's business.
A separate resolution is proposed on each
substantially separate issue, including the
receipt of the financial statements and
shareholders are entitled to vote either in
person or by proxy. The company secretary
acts as advisor to the Board and plays a
pivotal role in ensuring compliance with
statutory regulations, the code and the King
Code, the induction of new directors, tabling
information on relevant regulatory and
legislative changes, and giving guidance to
the directors regarding their duties and
responsibilities. The directors have unlimited
access to the advice and services of the
company secretary. Attendance at meetings
for the financial year ended 31 March 2010,
is indicated below.
Corporate governance(continued)
Name Board Audit Remuneration Nomination SHE Risk Committee Committee Committee Committee Committee
(4) (4) (4) (4) (4) (4)
David Salter 4 4 4 4 4 4
Zelda Mostert 4 4 n/a n/a n/a 3
Lizwi Mtumtum 4 4 n/a 4 n/a 4
John Wallington 3 n/a 3 4 4 4
Phoevos Pouroulis 4 n/a 4 n/a n/a 3
Antoinette Sedibe 4 n/a n/a 4 n/a 4
Paul Miller 4 n/a n/a n/a 4 4
Mandi Glad 4 n/a n/a n/a n/a 3
Peet Snyders 1(1) n/a n/a n/a 1(1) 1(1)
Johan Schönfeldt 4 n/a n/a n/a n/a 4
Steven Rupprecht 2(2) n/a n/a n/a 2 (2) 2 (2)
(1) Appointed 1 January 2010 (2) Resigned 10 November 2009
25Keaton Energy Annual Report 2010
RemunerationCommitteeComposition and terms ofengagement
The Remuneration Committee (the
committee) is a subcommittee of the Board
and is comprised of three non-executive
directors, the majority of whom are
independent. Meetings of the committee
are held at least twice a year and additional
meetings are held when deemed necessary.
Current members of the committee are:
David Salter (chairman)
Phoevos Pouroulis
John Wallington
All members of the committee are
appropriately qualified non-executive
directors of the company and are
considered by the Board to be independent
of the company’s executives and
management and, apart from one member,
free from any business or other relationship
which could interfere with the exercise of
their independent judgement. The Board
appoints the committee’s chairman, who is
fully independent, and determines the
period for which he shall hold office.
The committee will apply (and explain
where not) all the recommendations of the
King III Code of Corporate Practice and
Conduct by 2011. The Board considers its
composition to be appropriate in terms of
the necessary blend of knowledge, skill and
experience of its members.
The committee is authorised by the Board
to seek any information it requires from any
employee of the company in order to
perform its duties. The managing and
financial directors may attend meetings,
unless deemed inappropriate, to discuss
the remuneration of executives and senior
management, but may not participate in
any discussion or decision regarding their
own remuneration.
The company secretary (Routledge Modise
Inc. practising as Eversheds) acts as the
secretary and attends all meetings of the
committee, and the committee is required
by the Board to select, set the terms of
reference, and appoint remuneration
consultants, at the company’s expense.
The committee met four times during the
year. Attendance at meetings is noted on
page 24 of this Annual Report. Where a
member did not attend he submitted
apologies and was granted a leave of
absence in terms of the company’s articles
of association. The managing and financial
directors were invited to all four meetings.
Role and responsibilities
The committee chairman reports formally to
the Board on its proceedings after each
meeting of the committee and attends the
AGM to respond to any questions from
shareholders regarding the committee’s
areas of responsibility.
The responsibilities of the committee are in
accordance with its mandate and terms of
reference as set by the Board, and include
among others:
Determining and agreeing with the Board
the framework or broad policy for the
remuneration of the managing director,
the executive directors, executives and
senior management.
Ensuring that executive directors,
executives and senior management of
the company are provided with
appropriate incentives to encourage
enhanced performance and are, in a fair
and responsible manner, rewarded for
their individual contributions to the
success of the company.
Determining targets for the performance
related pay schemes operated by the
company and asking the Board, when
appropriate, to seek shareholder approval
for any long-term performance incentive
arrangements and amendments thereto.
Determining the total individual
remuneration package of each executive
director, executives and senior
management, including basic salary,
benefits in kind, annual cash incentive
payments and allocations of share
appreciation rights.
Determining the policy for and scope of
retirement fund arrangements, service
agreements for the executive directors,
executives and senior management,
termination payments and compensation
commitments.
Ensuring that contractual terms on
termination and any payments made are
fair to the individual and the company,
that failure is not rewarded and that the
duty to mitigate loss is fully recognised.
Being aware of and overseeing any major
changes in employee benefit structures
throughout the company or group.
Reviewing annually the reimbursement
of any claims for expenses from the
chairman of the company, executive
directors and non-executive directors.
Producing the remuneration report for
inclusion in the Annual Report, in line
with the guidelines of King III, JSE
Listings requirements and any other
regulatory requirements.
Remuneration report
26
A complete version of the committee’s
terms of reference is available on the
company’s website.
Reward strategyintent and principles Keaton Energy is committed to a reward
philosophy which will prevail throughout
the company, and will accommodate its
transition from a development to an
operating concern. The company has
recently implemented a clearly defined and
documented reward strategy.
Although still a small company with a
limited human resource, Keaton Energy is
keen to ensure that all remuneration
polices are in accordance with best
practice and the remuneration guidelines of
King III, and are aligned with the overall
objective of enabling the company to
attract, recruit and retain the necessary
skills to enhance and promote superior
business performance.
Keaton Energy has an integrated and
balanced reward strategy, which
encompasses maintaining guaranteed pay
levels that reflect an individual’s worth to
Keaton Energy, a performance
management system that serves to
differentiate individual performance, and
incentives that recognise and reward where
appropriate both operational performance
and strategic performance in a volatile
business environment.
Executive remune-ration policies In setting executive remuneration policy,
Keaton Energy aims to pay overall
packages that are competitive in the mining
and resources sector and, where
appropriate, in the general market, whilst
recognising that its reward strategy and
each of its component policies are dynamic
and should be revisited regularly to ensure
continuing alignment with best market
practice, and Keaton Energy’s evolving
organisational context and objectives.
Policy on guaranteed pay
Keaton Energy’s total employment cost, of
which guaranteed pay is the major
component, forms a significant portion of
total operating costs. Therefore guaranteed
pay is managed efficiently in terms of a
single entity, namely total cost to company
(TCC), which includes salary, benefits,
allowances, and company contributions to
retirement funding and medical aid.
Keaton Energy undertook an initial survey
of remuneration benchmarks at its
inception in 2007 and from now onwards
will be comparing itself to both the general
market and, more specifically, the mining
and resources surveys as published
annually.
Additionally the pay levels of top executive
positions in Keaton Energy will be
benchmarked against national market
executive remuneration surveys aspublished annually.
Guaranteed packages within the KeatonEnergy group are structured to be in linewith the median of the market but with theproviso that for key talent, bothprofessional and executive, a positioningcloser to or at the upper-quartile level ofpeer companies may be required.
Policy on performancemanagement
Keaton Energy has adopted a formal
framework for performance management
that is linked to and drives the annual cash
incentive scheme. Performance scorecards,
linked to strategic delivery and defined
financial targets set each year, and also the
company’s social and environmental
performance, have been derived for each
role and are used in the assessment
process. All executive and management
employees receive regular performance
management reviews which also provide an
opportunity for comment on career
development. The company intends that
these will occur at least twice a year.
Policy on pay mix
Keaton Energy has adopted a pay mix
policy that supports the philosophy that,
over time, the performance-based pay of
executives should rank alongside or exceed
guaranteed pay in the mix of total expected
compensation, and furthermore that, within
the performance-based pay of the most
Remuneration report(continued)
27Keaton Energy Annual Report 2010
senior executives, the orientation should be
towards rewarding long-term sustainable
performance (through long-term and/or
share-based incentives), more so than
operational performance (through annual
cash incentives).
The mix of fixed and variable pay is thus
designed to meet Keaton Energy’s
operational needs and strategic objectives,
based on targets that are stretching,
verifiable and relevant.
It should be borne in mind, however, that in
practice the mix will vary as annual cash
incentives may be less or greater than
targeted, and similarly the rewards from
share-based incentives will vary from year
to year depending on vesting and exercise
patterns, and the impact on share price
performance of not only company
performance but also external factors, such
as market sentiment, interest rates,
commodity prices and exchange rates.
Policy on annual incentivebonuses
Keaton Energy has recently completed the
design of an appropriate executive and
management incentive scheme in which an
incentive pool is created from a weighted
scorecard of company performance
measures, and is then allocated to
participants according to their relative
performance.
The central theme behind the design is to
accommodate the requirement of the
company for incentive payments to be
funded from incremental performance,
whilst at the same time recognising the
need to secure its human capital in what is
a volatile and unpredictable business
environment, and to reward high-performing
employees commensurate with their value
contributions.
The company performance scorecard
includes measures of investment return,
cash flow management and comparative
share price performance, whilst individual
balanced scorecards will be aligned to the
key performance areas in each role as
identified in individual role descriptions.
Bonuses will be calculated in May of each
year, based on the audited financial
performance of Keaton Energy and the
results from the performance management
process, and will be paid in June of each
year. The major determinants of the size of
an incentive bonus will be the individual’s
guaranteed package times the on-target
bonus percentage (from the reward strategy
– pay mix) times an individual performance
factor, modified to reflect the available
funds in the incentive pool.
Long-term, share-basedincentives
Currently long-term incentivisation is
available to be offered in terms of the
Keaton Energy Long-Term Performance
Incentive Scheme (LTIP), tabled and
approved by the shareholders of Keaton
Energy in 2007. Offers have already been
made to key executives in terms of the LTIP
(refer to page 71 of the Annual Report).
The main purpose of the LTIP is to
incentivise and retain key executive and
management talent by providing an incentive
to employees to advance the (long-term)
interests and growth of the company.
Until now, allocations have been made at
the discretion of the Board and there has
been no formal linkage to its reward
strategy. However it is Keaton Energy’s
intention to re-visit not the architecture or
documentation of the scheme but its
implementation, and to move towards
making annual allocations in terms of a
set policy.
Policy on servicecontracts andseverancearrangementsExecutive directors are subject to Keaton
Energy’s standard terms and conditions of
employment where notice periods are six
months. In line with the remuneration
guidelines of King III, none of the executives
have extended employment contracts,
special termination benefits or balloon
payments linked to any restraint of trade.
Keaton Energy’s policy when terminating
the services of an individual for operational
reasons is to pay a minimum of two weeks
of the annual TCC for each completed year
of service. Keaton Energy aims to apply this
policy to all employees, including executive
directors, but it is subject to negotiation in
special circumstances.
Pensions During the year, the relevant group companies
made contributions for executive directors
to the Keaton Administrative and Technical
Services Provident Fund (the fund), as part
of their TCC. The rate of contribution is between
3% and 15%, based on the pensionable
salary of these individuals. The value of
contributions for each executive director
appears in the summary of directors’
emoluments on page 71 of this Annual Report.
None of the non-executive directors of
Keaton Energy contributed to the fund
during the year or had any accrued pension
fund benefits in the fund as at 31 March 2010.
The committee has assessed the levels of
funding and benefits of the fund and
medical aid scheme and satisfied itself that
both were solvent and did not pose a risk
to any of the group’s employees or retirees.
Other benefits In addition to the benefits already described
as part of their guaranteed packages,
executive directors also receive a death-in-
service benefit. No ex-gratia payments or
deferred awards of any nature were made
during the review period.
Non-executivedirectors’ fees The remuneration of non-executive
directors is a matter for the executive
members of the Board, and is approved by
the company’s shareholders in general
meeting, acting pursuant to a
recommendation of the Board.
28
The Board applies principles of good
corporate governance relating to directors’
remuneration and also keeps abreast of
changing trends. Governance of directors’
remuneration is undertaken by the committee.
The committee takes cognisance of market
norms and practices, as well as the
additional responsibilities placed on Board
members by new legislation and corporate
governance principles.
Keaton Energy's policy on remuneration for
non-executive directors is that this should be:
fee based, comprising a retainer and per
committee components;
market related with respect to fees paid
and number of meetings attended by
non-executive directors of companies of
similar size and structure to Keaton
Energy and operating in the mining and
resources sector; and
not linked to share price or Keaton
Energy performance.
The group pays for all travel and
accommodation expenses incurred by
directors to attend Board meetings and
visits to company businesses.
No non-executive director has an
employment contract with the company
although non-executive directors are
required to conclude service agreements
with the company which set out the duties
and responsibilities expected of them as
non-executive directors.
Keaton Energy non-executive directors do
not receive bonuses or share options,
recognising that this can create potential
conflicts of interest which can impair the
independence which non-executive
directors are expected to bring to bear in
decision-making by the Board.
At Keaton Energy’s AGM to be held on
22 July 2010, shareholders will be required
to approve the non-executive director fees
set out in the notice of AGM on pages 77 to
80 of this Annual Report.
Annual fees for membership ofvarious committees for the reviewperiod were:
2009 2010Chairman* 220 000 236 500
Director 220 000 236 500
Chairman of a subcommittee 44 000 47 300
Member of a subcommittee 33 000 35 475
* The chairman’s fee is on an all
inclusive basis.
Disclosure of directors’ emoluments andshare appreciation rights
Refer to page 71 of the Annual Report.
Remuneration report(continued)
29Keaton Energy Annual Report 2010
The directors are responsible for the preparation and fair presentation of the group and company annual financial statements, comprising the
statements of financial position at 31 March 2010, and the statements of comprehensive income, the statements of changes in equity and the
statements of cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant
accounting policies and other explanatory notes, and the directors’ report, in accordance with International Financial Reporting Standards
and in the manner required by the Companies Act of South Africa.
The directors’ responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair
presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
The directors’ responsibility also includes maintaining adequate accounting records and an effective system of risk management as well as
the preparation of the supplementary schedules included in these financial statements.
The directors have made an assessment of the group and company’s ability to continue as a going concern and there is no reason to believe
the group’s or company’s businesses will not be a going concern in the year ahead.
The auditor is responsible for reporting on whether the group and company annual financial statements are fairly presented in accordance
with the applicable financial reporting framework.
Approval of group and company annual financial statementsThe group and company annual financial statements, as identified in the first paragraph above, were approved by the Board of directors on
28 May 2010 and signed on their behalf by:
J D Salter P B M Miller
Chairman Managing Director
28 May 2010 28 May 2010
Declaration by the company secretaryIn terms of section 268(G)(d) of the South African Companies Act 1973, as amended, we declare that, to the best of our knowledge, the
company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act
and that all such returns are true, correct and up to date in respect of the financial period reported upon.
On behalf of
Routledge Modise Inc. practising as Eversheds
28 May 2010
Directors’ responsibilityfor the annual financial statements
30
To the members of Keaton Energy Holdings LimitedWe have audited the group annual financial statements and the annual financial statements of Keaton Energy Holdings Limited, which
comprise the statements of financial position at 31 March 2010, and the statements of comprehensive income, the statements of changes in
equity and the statements of cash flows for the year then ended, and the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory notes, and the directors' report as set out on pages 31 to 72.
Directors’ responsibility for the financial statements The company's directors are responsible for the preparation and fair presentation of these financial statements in accordance with
International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes:
designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Keaton
Energy Holdings Limited at 31 March 2010, and its consolidated and separate financial performance and consolidated and separate cash
flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies
Act of South Africa.
KPMG Inc.
Registered Auditor
Per Shaun van den Boogaard KPMG Forum
Chartered Accountant (SA) 1226 Schoeman Street
Registered Auditor Hatfield
Director Pretoria
28 May 2010 0083
Independentauditors’ report
31Keaton Energy Annual Report 2010
The directors have pleasure in presenting the directors’ report to the financial statements for the year ended 31 March 2010.
1. Nature of businessKeaton Energy is a holding company of mining interests. It’s subsidiaries are involved in the exploration for and evaluation of coal prospects,
as well as the development and operation of coal projects in South Africa.
2. Subsidiary companiesKeaton Energy's interests in subsidiary companies at 31 March 2010 were as follows:
Total issued % share capital shareholding
(R)
Keaton Administrative and Technical Services (Pty) Limited 100 100%
Keaton Mining (Pty) Limited 100 74%
Amalahle Exploration (Pty) Limited 100 74%
Mafla Coal (Pty) Limited 100 74%
Labohlano Trading 46 (Pty) Limited 100 74%
The company acquired 74% in Labohlano during the year. This coincided with Labohlano acquiring a prospecting right contiguous to the
group’s Sterkfontein Project (refer to notes 7, 14 and 23). The transaction was accounted for as an asset acquisition rather than a business
combination as Labohlano was dormant up to the date of two transactions.
During the financial year, application was made to de-register Izwi Coal (Pty) Limited (60%), Rafcoal Mining (Pty) Limited (74%) and Intshe Coal
(Pty) Limited (60%), as they were no longer operational and had no assets or liabilities. The de-registration is in process for these entities. It is
the company's intention to apply for the de-registration of Mafla Coal (Pty) Limited during this coming year.
3. Review of business and operationsThe group began the year with a total short-term cash position of R373.7 million. This position decreased to R335.1 million as at 31 March 2010,
with a further R19.1 million invested in longer term deposits.
During the year the group generated mining revenue of R21.8 million (2009: R5.4 million), resulting in a gross profit of R0.8 million
(2009 : R3.6 million). After accounting for:
other income of R2.0 million (2009: R0.7 million);
administration and other operating expenses of R13.2 million (2009: R13.6 million);
mining and related costs of R11.5 million (2009: R10.1 million);
a share appreciation rights income of R4.3 million (2009 : expense of R4.1 million);
an impairment loss/net realisable value loss of R7.8 million (2009: R4.2 million);
net finance income of R29.1 million (2009: R44.5 million); and
a taxation charge of R7.3 million (2009: R11.9 million),
the loss for the year was R3.5 million (2009: profit of R4.8 million).
The group early adopted the revised version of IAS 27: Consolidated and Separate Financial Statements (refer to the accounting policies for a
detailed explanation in this regard). Amongst others, non-controlling shareholders in the group are responsible for their share of a subsidiary’s
losses, effective from 1 April 2009. This resulted in losses of R9.5 million being attributed to non-controlling interests during the year. The
profit attributable to owners of the company is therefore R6.0 million, or a basic earnings per share of 4.1 cents (2009: 3.4 cents). Headline
earnings per share was 5.6 cents (2009: 6.4 cents).
Directors’ reportfor the year ended 31 March 2010
32
4. Share capitalAuthorised share capital:250 000 000 (2009: 250 000 000) ordinary shares with a par value of R0.001 (one tenth of a cent) each (2009: R0.001 each).
Issued share capital:144 841 293 (2009: 142 841 293) ordinary shares with a par value of R0.001 (one tenth of a cent) each (2009: R0.001 each).
Two million shares were issued at R8.65 each during the year as part of the acquisition price of Labohlano Trading 46 (Pty) Limited. In the
2009 financial year 10 million shares were issued for cash at R10.00 each as part of the company’s listing.
5. DirectorateDuring the year, Dr SM Rupprecht resigned as a director with effect from 10 November 2009 and Mr PCCH Snyders was appointed as the
operations director with effect from 1 January 2010. Accordingly, Mr Snyders will resign as a director at the AGM to be held in July 2010,
having been appointed by the Board during the year, and is available for re-election.
Ms APE Sedibe and Mr P Pouroulis, who have served the longest on the Board of directors, shall retire by rotation at the AGM in July 2010
and are both available for re-election. On 24 May 2010, shareholders were advised that Mr Wallington resigned from the Board with effect
from 31 May 2010. The directors that held office at the date of this report are:
Name Position Independent
JD Salter (British) Non-executive Chairman Yes
Z Mostert Non-executive Director Yes
LX Mtumtum Non-executive Director Yes
JN Wallington Non-executive Director Yes
P Pouroulis (South African/Cypriot) Non-executive Director No
APE Sedibe Non-executive Director No
PBM Miller Executive Director No
AB Glad Executive Director No
JG Schönfeldt Executive Director No
PCCH Snyders Executive Director No
South African unless otherwise stated
6. AuditorsAt the forthcoming AGM, shareholders will be requested to reappoint KPMG Inc. as auditors of the company and to hold office for the
ensuring year until the conclusion of the next AGM. The engagement director will remain the same as he has not yet reached the five year
rotational requirement.
Directors’ reportfor the year ended 31 March 2010 (continued)
33Keaton Energy Annual Report 2010
7. Significant events after 31 March 2010 up to the date ofthis report
On 6 April 2010, Keaton Energy announced that it had doubled the total Coal Resource at its Sterkfontein Project in South Africa’s
Mpumalanga Province to 69 million mineable tonnes in situ, following the conclusion of the first phase of its current drilling campaign.
On 4 May 2010, Keaton Mining (Pty) Limited (Keaton Mining), reached an amicable settlement with local landowners, in terms of which
Keaton Mining will acquire four properties totalling 850 hectares relating to its Vanggatfontein Project, in the Delmas district of Mpumalanga.
8. Company secretaryThe company secretary is Routledge Modise Inc. practising as Eversheds.
Their contact details are:
22 Fredman Drive
Sandton
Johannesburg
2146
9. Registered addressGround floor
Eland House
The Braes
3 Eaton Avenue
Bryanston
2191
10. DividendsNo dividends for the year ended 31 March 2010 (year ended 31 March 2009: Rnil) have been declared nor are any proposed.
11. Going concernAt 31 March 2010, the group had adequate funding resources to continue to operate for the foreseeable future and has therefore continued to
adopt the going-concern basis in preparing the group's financial statements.
The company has subordinated its claims against all of its subsidiaries in favour and for the benefit of other creditors of these companies,
subject to certain claims and conditions as set out in the subordination agreements.
12. Special resolutionsSpecial resolutions approved for the company and its subsidiaries are as follows:
Company Special resolution Date registered
Keaton Energy Holdings limited Repurchase of shares by way of a general authority to acquire the issuedordinary shares of the company 1 September 2009
Labohlano Trading 46 (Pty) Limited Adoption of new memorandum and articles of association, increase of authorised shares 7 May 2009
Labohlano Trading 46 (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009
Amalahle Exploration (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009
Keaton Mining (Pty) Limited Amendment of article 23.2.5 re. interest on undeclared preference dividends 30 November 2009
34
Statements of comprehensiveincomefor the year ended 31 March 2010
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
Note R R R R
Revenue 1 21 957 053 5 423 590 – –
Cost of sales (21 191 150) (1 873 553) – –
Gross profit 765 903 3 550 037 – –
Other income 2 023 339 676 965 2 274 160 1 258 749
Administrative and other operating expenses (13 219 548) (13 623 366) (11 576 516) (8 400 151)
Mining and related expenses (11 452 590) (10 078 118) – (1 198 808)
Share appreciation rights income/(expense) 4 346 229 (4 126 146) (149 674) –
Impairment and net realisable value losses (7 813 009) (4 213 734) (3 679 217) (17 664 937)
Operating loss before net finance income 2 (25 349 676) (27 814 362) (13 131 247) (26 005 147)
Net finance income 3 29 106 713 44 508 863 28 893 849 44 749 399
Finance income 29 139 649 44 508 863 28 893 849 44 749 399
Finance costs (32 936) – – –
Net profit before taxation 3 757 037 16 694 501 15 762 602 18 744 252
Income taxation expense 4 (7 278 698) (11 853 152) (5 637 878) (10 114 082)
(Loss)/Profit for the year (3 521 661) 4 841 349 10 124 724 8 630 170
Total comprehensive income for the year (3 521 661) 4 841 349 10 124 724 8 630 170
(Loss)/Profit and total comprehensive income
attributable to:
Owners of the company 5 974 510 4 841 349
Non-controlling interest (9 496 171) –
(Loss)/Profit for the year (3 521 661) 4 841 349
Basic earnings per share (cents) 5 4.1 3.4
Diluted earnings per share (cents) 5 4.1 3.3
35Keaton Energy Annual Report 2010
Statements of financial position
Group Company31 March 2010 31 March 2009 31 March 2010 31 March 2009
Note R R R R
Assets
Plant and equipment 6 47 972 728 11 510 671 – –
Investment in subsidiary companies 7 135 668 662 74 458 403
Intangible exploration and evaluation asset 8 62 374 122 47 472 256 – –
Deferred tax 9 244 478 128 866 244 478 128 866
Restricted cash 12.1 19 106 648 – 774 648 –
Total non-current assets 129 697 976 59 111 793 136 687 788 74 587 269
Inventory 10 – 6 959 079 – –
Trade and other receivables 11 6 352 681 3 840 341 3 565 175 3 609 717
Value added taxation receivable 2 276 595 1 740 427 – –
Cash and cash equivalents 12.2 335 080 552 373 697 854 334 764 066 373 704 419
Total current assets 343 709 828 386 237 701 338 329 241 377 314 136
Total assets 473 407 804 445 349 494 475 017 029 451 901 405
Equity
Share capital 13 144 841 142 841 144 841 142 841
Share premium 13 449 935 213 432 637 213 449 935 213 432 637 213
Share-based payment reserve 13 203 923 4 550 153 203 923 4 550 153
Retained earnings/(Accumulated loss) 5 833 683 (140 827) 22 704 066 12 579 342
Total equity attributable to owners of the
company 456 117 660 437 189 380 472 988 043 449 909 549
Non-controlling interest (1 768 314) –
Total equity 454 349 346 437 189 380 472 988 043 449 909 549
Liabilities
Trade and other payables 15 15 337 223 5 387 285 1 491 378 1 043 063
Provisions 16 326 211 572 586 – –
Taxation 3 395 024 2 200 243 537 608 948 793
Total current liabilities 19 058 458 8 160 114 2 028 986 1 991 856
Total equity and liabilities 473 407 804 445 349 494 475 017 029 451 901 405
for the year ended 31 March 2010
36
Statements of changes in equity
GroupShare- Retained
based earnings/ Non-
Share Share payment (Accumu- controlling Total
capital premium reserve lated loss) Total interest equity
R R R R R R R
Balance at 31 March 2008 132 741 341 163 917 424 007 (4 982 176) 336 738 489 – 336 738 489
Total comprehensive
income for the year – – – 4 841 349 4 841 349 – 4 841 349
Issue of ordinary shares 10 000 99 990 000 – – 100 000 000 – 100 000 000
Share-based payments 100 999 900 4 126 146 – 5 126 146 – 5 126 146
Share issue expenses – (9 516 604) – – (9 516 604) – (9 516 604)
Balance at 31 March 2009 142 841 432 637 213 4 550 153 (140 827) 437 189 380 – 437 189 380
Total comprehensive income
for the year – – – 5 974 510 5 974 510 (9 496 171) (3 521 661)
Share-based payments 2 000 17 298 000 (4 346 230) – 12 953 770 – 12 953 770
Non-controlling interest
resulting from acquisition of
a subsidiary (refer to note 14) – – – – – 7 727 857 7 727 857
Balance at 31 March 2010 144 841 449 935 213 203 923 5 833 683 456 117 660 (1 768 314) 454 349 346
CompanyShare-
based
Share Share payment Retained
capital premium reserve earnings Total
R R R R R
Balance at 31 March 2008 132 741 341 163 917 424 007 3 949 172 345 669 837
Total comprehensive income
for the year – – – 8 630 170 8 630 170
Ordinary shares issued for cash 10 000 99 990 000 – – 100 000 000
Share-based payments 100 999 900 4 126 146 – 5 126 146
Share issue expenses – (9 516 604) – – (9 516 604)
Balance at 31 March 2009 142 841 432 637 213 4 550 153 12 579 342 449 909 549
Total comprehensive income
for the year – – – 10 124 724 10 124 724
Share-based payments 2 000 17 298 000 (4 346 230) – 12 953 770
Balance at 31 March 2010 144 841 449 935 213 203 923 22 704 066 472 988 043
for the year ended 31 March 2010
37Keaton Energy Annual Report 2010
Statements of cash flows
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
Note R R R R
Cash flows from operating activities
Cash utilised in operations 19.1 (13 055 985) (25 670 401) (8 997 342) (12 316 262)
Interest received 29 204 689 43 120 439 29 081 055 43 360 976
Interest paid (32 936) – – –
Taxation paid 19.2 (6 199 529) (10 060 051) (6 164 676) (10 060 051)
Net cash flows from operating activities 9 916 239 7 389 987 13 919 037 20 984 663
Cash flows from investing activities
Investment in subsidiary companies 19.3 (52 084 742) (44 505 748)
Acquisition of plant and equipment to expand
operations 19.4 (15 110 652) (5 697 197) – –
Proceeds on disposal of plant and equipment – 25 682 – –
Additions to exploration and evaluation assets 19.5 (14 316 241) (25 739 767) – –
Investment in restricted cash (19 106 648) – (774 648) –
Net cash flows from investing activities (48 533 541) (31 411 282) (52 859 390) (44 505 748)
Cash flows from financing activities
Proceeds from the issue of shares – 90 483 396 – 90 483 396
Net cash flows from financing activities – 90 483 396 – 90 483 396
Net (decrease)/increase in cash and cash equivalents (38 617 302) 66 462 101 (38 940 353) 66 962 311
Cash and cash equivalents at the beginning
of the year 373 697 854 307 235 753 373 704 419 306 742 108
Cash and cash equivalents at the end of
the year 12.2 335 080 552 373 697 854 334 764 066 373 704 419
for the year ended 31 March 2010
38
Accounting policies
Reporting entityKeaton Energy Holdings Limited (the company) is a company domiciled in the Republic of South Africa (Registration number:2006/011090/06). The address of the company’s registered office is Ground floor, Eland House, The Braes, 3 Eaton Road, Bryanston, 2191.The consolidated financial statements of the company as at and for the year ended 31 March 2010 comprise the company and itssubsidiaries (together referred to as the group or individually as group entities). The group is primarily involved in coal exploration andproduction activities.
Basis of preparationThe accounting policies have been applied consistently to all periods presented in these financial statements and have been appliedconsistently by group entities, except as explained in changes to accounting policies (later in these accounting policies). Any reference to‘financial statements’ includes both the consolidated and separate financial statements unless specifically identified.
The group has applied revised IAS 1 Presentation of Financial Statements (2007) which became effective for years beginning on or after1 January 2009.
Statement of complianceThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the requirements ofthe South African Companies Act, 1973, as amended.
Basis of measurementThe financial statements are prepared on the historical cost basis.
Functional and presentation currency These financial statements are presented in South African Rands (R), which is the company’s functional currency. All financial informationpresented in South African Rand has been rounded to the nearest Rand.
Use of estimates and judgementsThe preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions thataffect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates andassociated assumptions are based on historical experience and various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the estimates and judgements about carrying amounts and fair values of assetsand liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the periodin which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revisionaffects both current and future periods.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have themost significant effect on the amount recognised in the financial statements are described in the following notes:
Note 6 – Plant and equipmentNote 8 – Intangible exploration and evaluation asset Note 9 – Deferred tax Note 10 – InventoryNote 14 – Measurement of share-based paymentsNote 16 – ProvisionsNote 21 – Contingent liabilities
for the year ended 31 March 2010
39Keaton Energy Annual Report 2010
Basis of consolidationBusiness combinations
The group has changed its accounting policy with respect to accounting for business combinations. See later in these accounting policies for
further details.
Subsidiaries
Subsidiaries are entities controlled by the group. The financial statements of subsidiaries are included in the consolidated financial statements
from the date that control begins until the date that control ceases. The accounting policies of subsidiaries have been changed when
necessary to align them with the policies adopted by the group.
Special purpose entities
The group does not currently have any direct or indirect shareholdings in special purpose entities (SPEs), which are normally used for trading
and investment purposes. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the group and the SPE’s
risks and rewards, the group concludes that it controls the SPE. SPEs controlled by the group would typically be established under terms that
impose strict limitations on the decision-making powers of the SPEs’ management and that result in the group receiving the majority of the
benefits related to the SPEs’ operations and net assets, being exposed to the majority of risks incident to the SPEs’ activities, and retaining
the majority of the residual or ownership risks related to the SPEs or their assets.
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the group are
accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that
common control was established; for this purpose comparatives are revised. The assets and liabilities acquired are recognised at the carrying
amounts recognised previously in the group controlling shareholder’s consolidated financial statements. The components of equity of the
acquired entities are added to the same components within group equity except that any share capital of the acquired entities is recognised
as part of share premium. Any cash paid for the acquisition is recognised directly in equity.
Investments in associates and jointly controlled entities (equity accounted investees)
Associates are those entities in which the group would have significant influence, but not control, over the financial and operating policies.
Significant influence is presumed to exist when the group holds between 20 and 50 per cent of the voting power of another entity. Joint
ventures are those entities over whose activities the group would have joint control, established by contractual agreement and requiring
unanimous consent for strategic financial and operating decisions. IAS 31.57 Investments in associates and jointly controlled entities are
accounted for using the equity method (equity accounted investees) and are recognised initially at cost. The group’s investment includes
goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the group’s share
of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with
those of the group, from the date that significant influence or joint control begins until the date that significant influence or joint control
ceases. When the group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including
any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the group has an
obligation or has made payments on behalf of the investee.
Jointly controlled operations
A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint operations. The
consolidated financial statements would include the assets that the group controls and the liabilities that it incurs in the course of pursuing
the joint operation, and the expenses that the group incurs and its share of the income that it earns from the joint operation.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated
against the investment to the extent of the group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
Plant and equipmentMining assets
Mining assets typically include those costs incurred for the development of the mine, including the design of the mine plan, constructing and
commissioning the facilities, and preparation of the mine and necessary infrastructure for production. The mine development phase generally
begins after completion of a feasibility study and ends upon the start of commercial production.
40
Accounting policiesfor the year ended 31 March 2010 (continued)
Plant and equipment (continued)Mining assets (continued)
Mining assets are measured at cost less accumulated depreciation and less any accumulated impairment losses. Expenditure, including
evaluation costs, incurred to establish or expand productive capacity, to support and maintain that productive capacity prior to the start of
commercial levels of production, are capitalised to assets under construction, and transferred to mining plant and equipment when the mining
venture reaches commercial production. Development costs incurred to maintain current production are expensed.
Deferred stripping costs
All stripping costs incurred (costs incurred in removing overburden to expose the coal) during the production phase of a mine are treated as
variable production costs and as a result are included in the cost of inventory produced during the period that the stripping costs are
incurred. However, any costs of overburden stripping in excess of the expected open pit life average stripping ratio are deferred. Any costs
deferred will be included in inventories or expensed in future periods over the life of the remaining open pit, resulting in lower earnings in
future periods.
Assets under construction are not depreciated until they are available for use. Mine development assets are depreciated using the units-
of-production method based on estimated economically recoverable proved and probable mineral reserves. Proved and probable
reserves reflect estimated quantities of economically recoverable resources which can be recovered in the future from known mineral
deposits. Mining assets relating specifically to plant and equipment are depreciated using the straight-line method. Depreciation is first
charged on mining assets from the date on which they are available for use.
Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
General
‘Cost’ includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the
cost of materials, direct labour and an appropriate portion of normal production overheads. Directly attributable expenses relating to
major capital projects and site preparation are capitalised until the asset is brought to a working condition for its intended use. These
costs include dismantling and site restoration costs to the extent that these are recognised as a provision. Administrative and other
general overhead costs are expensed as incurred. Purchased software that is integral to the functionality of the related equipment is
capitalised as part of that equipment.
Borrowing costs directly attributable to the construction or acquisition of qualifying assets are capitalised directly to the cost of the qualifying
asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, these borrowings shall be determined
as the actual borrowing costs incurred on that borrowing. To the extent that funds are borrowed generally and used for the purpose of
obtaining a qualifying asset, the amount of borrowing costs shall be determined by applying a capitalisation rate to the expenditures on that
asset. Borrowing costs, specifically to finance the establishment of qualifying mining assets, are capitalised until commercial levels of
production are achieved. Otherwise, capitalisation of borrowing costs ceases when the asset is substantially complete.
Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as
separate items of plant and equipment.
Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major
inspection and overhaul expenditure, is capitalised when the costs can be reliably measured and if it is probable that the future economic
benefits embodied within the component will flow to the group. The carrying amount of the replaced component, if any, is derecognised and
charged against profit or loss. Maintenance, day to day servicing and repairs, which neither materially add to the value of assets nor
appreciably prolong their useful lives, are charged against profit or loss.
Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying
amount of the item and are recognised net within ‘other income’ in profit or loss.
41Keaton Energy Annual Report 2010
Depreciation
Depreciation, unless otherwise stated, is recognised in profit or loss on a straight-line basis at rates that will reduce the carrying amounts to
estimated residual values over the estimated useful lives of the assets. Leasehold improvements on premises occupied under operating
leases are written off over the term of the lease or its useful life if shorter.
Depreciation methods, residual values and useful lives are reviewed at least annually, and adjusted if appropriate, at each reporting date.
Depreciation for the current and prior period, unless already stated, is calculated as follows:
motor vehicles at 20% per annum;
computer equipment at 33.3% per annum; and
office furniture and equipment at between 10% and 20% per annum.
Intangible exploration and evaluation assetsExploration for and evaluation of mineral resources
Exploration and evaluation costs, including the costs of acquiring prospecting rights and directly attributable exploration expenditure,
are capitalised as exploration and evaluation assets on a project-by-project basis, pending determination of the technical feasibility and
commercial viability of each such project. Costs are recognised as exploration and evaluation costs from the date of granting of a
prospecting right. The capitalised costs are presented as exploration and evaluation assets as a result of the nature of the assets
acquired.
The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proved reserves are
determined to exist. Upon determination of proved reserves exploration and evaluation assets attributable to those reserves are first tested
for impairment and then reclassified from exploration and evaluation assets to other appropriate categories of non-current assets.
Amortisation of these assets begins once these assets are appropriately reclassified and are in commercial production.
Exploration and evaluation assets are assessed for impairment based on the guidance as provided by IFRS 6 Exploration for and Evaluation
of Mineral Resources. These include:
the period to explore, as granted in terms of the prospecting rights acquired, has expired during the period; or will expire in the near
future; or is not expected to be renewed;
further exploration on the projects is neither budgeted nor planned for in the near future;
a decision was made not to develop a project; and
there is an indication that the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from a
successful development or the sale of the project.
If a project is abandoned, the related costs are expensed in profit or loss immediately.
ImpairmentFinancial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial
asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated
future cash flows of that asset. Objective evidence includes default or delinquency by a debtor, restructuring of an amount due to the
group on terms that the group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance
of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value
below its cost is objective evidence of impairment.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount,
and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed
collectively in groups of financial assets that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.
The reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill
and intangible assets that have indefinite lives or are not yet available for use, the recoverable amount is estimated at each reporting date.
42
Accounting policiesfor the year ended 31 March 2010 (continued)
Impairment (continued)Non-financial assets (continued)
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable
amount. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to CGUs (group of units) and then, to reduce the carrying amount of the other assets in the CGU (group
of units) on a pro rata basis.
The recoverable amount of an asset or CGU is the greater of its fair value less costs to sell and its value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the assets. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the CGU to which the asset belongs.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are
assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised. The impairment loss reversal is recognised in profit or loss.
Leased assets and lease paymentsLeases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial
recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding
liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining
term of the lease when the lease adjustment is confirmed.
Other leases are operating leases and the leased assets are not recognised on the group’s statement of financial position. Payments made
under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are
recognised as an integral part of the total lease expense, over the term of the lease.
InventoriesInventories comprising coal stockpiled are measured at the lower of cost and net realisable value. Cost is determined using the weighted
average method and includes direct mining expenditure and an appropriate portion of overhead expenditure based on normal production.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and cost to sell.
Obsolete, redundant and slow moving stock are identified and written down to net realisable values.
Financial instruments Non-derivative financial instruments
Non-derivative financial instruments comprise loans to subsidiaries, restricted cash, trade and other receivables, cash and cash equivalents,
and trade and other payables, and exclude investments in subsidiaries.
43Keaton Energy Annual Report 2010
Non-derivative financial instruments are recognised initially at fair value, plus, for any instrument not at fair value through profit and loss, any
directly attributable transaction costs. These instruments are recognised when a group entity becomes a party to the contractual provisions of
the instrument. Financial assets are derecognised if the group entity’s contractual rights to the cash flows from the financial asset expire or if
the group entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.
Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the group entity commits itself to
purchase or sale of the asset. Financial liabilities are derecognised if the group entity’s obligations specified in the contract expire or are
discharged or cancelled.
Subsequent to initial recognition, these instruments are measured as set out below:
Financial assets Restricted cash
Restricted cash are measured at amortised cost using the effective interest method.
Loans and receivables
Loans and receivables include loans to subsidiaries and trade and other receivables. These instruments are measured at amortised cost
using the effective interest method, less any impairment losses.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost. For the purposes of the cash flow statements, cash and cash equivalents
comprise cash on hand, restricted cash held at call with the banks, other short-term highly liquid investments and bank overdrafts.
Financial liabilitiesTrade and other payables
Trade and other payables are measured at amortised cost, using the effective interest method.
Share capitalOrdinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of the ordinary shares and share options are
recognised as a deduction from equity.
ProvisionsProvisions are recognised when the group has a present legal or constructive obligation as a result of past events where it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the
obligation can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the liability.
Long-term environmental obligations are based on the group’s environmental management plans, in compliance with the current
environmental and regulatory requirements.
Rehabilitation costs
The net present value of estimated future rehabilitation costs is recognised and provided for in the financial statements and recognised within
mining assets on initial recognition. Rehabilitation will generally occur on closure or after closure of a mine. Initial recognition of the provision
is at the time that the disturbance occurs and thereafter as and when additional disturbances take place. The estimates are reviewed annually
to take into account the effects of inflation and changes in estimates and are discounted using rates that reflect the time value of money.
Annual increases in the provision due to the passage of time are recognised in profit or loss as a finance expense. The present value of
additional disturbances and changes in the estimate of the rehabilitation liability are capitalised to mining assets against an increase in the
rehabilitation provision. The rehabilitation asset is depreciated as per the group’s accounting policy for mining assets. Rehabilitation projects
undertaken, included in the estimates, are charged to the provision as incurred.
Ongoing rehabilitation costs
Costs for restoration and rehabilitation which are created on an ongoing basis during production, are recognised in profit or loss.
44
Accounting policies
Provisions (continued)Other provisionsEnvironmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are recognised in profit or losswhen they are known, probable and may be reasonably estimated.
Gains or losses from the expected disposal of assets are not taken into account when determining the provision.
Foreign currencyForeign currency transactions are accounted for at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the reporting date are translated to Rand at the foreign exchange rate ruling at that date. Gains andlosses arising on settlement of such transactions and from the translation of foreign currency monetary assets and liabilities are recognised inprofit or loss.
Finance income and costsFinance income comprises interest received and receivable on funds invested, dividend income and foreign currency gains. Interest income isrecognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in profit or loss on the date theentity has a right to receive payment.
Finance costs comprise interest payable on borrowings calculated using the effective interest method, foreign currency losses, unwinding ofthe discount on provisions and dividends on preference shares classified as liabilities. Borrowing costs capitalised as per the plant andequipment note above are excluded.
Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliablymeasured. The following specific recognition criteria must also be met before revenue is recognised:
Sale of coalThe group enters into contracts for the sale of coal. Revenue arising from coal sales under these contracts is recognised when the price isdeterminable, the product has been delivered in accordance with the terms of the contract, the significant risks and rewards of ownershiphave been transferred to the customer, collection of the sales price is probable and associated costs can be reliably estimated. These criteriaare met when the coal leaves the mines’ properties. As sales from coal contracts are subject to a customer survey adjustment with regards toquality, sales are initially recorded on a provisional basis using the group’s best estimate of the coal quality. Subsequent adjustments arerecorded in revenue to take into account final adjustments, if different from the initial certificates.
Rental incomeRental income is recognised in profit or loss on a straight-line basis over the term of the lease, as it accrued to the group.
Employee benefitsShort-term employee benefitsThe costs of all short-term employee benefits are recognised in the period in which the employee renders the related service. The accrualsfor employee entitlements to salaries, performance bonuses and annual leave represent the amounts which the group has a presentobligation to pay as a result of the employees’ service provided. The accruals have been calculated at undiscounted amounts based oncurrent salary levels.
for the year ended 31 March 2010 (continued)
45Keaton Energy Annual Report 2010
Defined contribution planA defined contribution plan is a post employment plan under which an entity pays fixed contributions into a separate entity and will have nolegal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as anexpense in profit or loss as incurred.
Share-based payments – employeesThe grant date fair value of share appreciation rights or notional shares granted to employees, which are to be equity-settled, is recognisedas an employee expense with a corresponding increase in equity, over the period in which the employees become unconditionally entitled tothe equity instruments. Non-market vesting conditions are included in assumptions about the number of the share appreciation rights ornotional shares to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at eachreporting date to reflect the best estimate or actual number of share appreciation rights that vest, with any adjustment being made to bothequity and profit or loss as an employee cost.
Share-based payments – services rendered and goods receivedWhen the group issues share-based instruments to settle certain transactions, the payments are measured at the fair value of the goods andservices provided. If the fair value of the goods or services cannot be determined, the share-based payment is measured at the fair value ofthe equity instrument at the date of the grant, the date the group obtains the goods or the counterparty renders the service.
Income taxationIncome tax expense comprises current, secondary taxation on companies and deferred tax. Income tax expense is recognised in profit orloss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Taxable profit differsfrom profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible.
Current taxationCurrent tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reportingdate, and any adjustment to tax payable in respect of previous years.
Deferred taxationDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. The following temporary differences are not provided for:
initial recognition of goodwill;the initial recognition of assets or liabilities in a transaction that is not a business combination and that affect neither accounting nortaxable profit; anddifferences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporarydifference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probablethat the related tax benefit will be realised.
Secondary taxation on companies (STC) on distribution of dividendsSTC and additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay therelated dividend, except for taxes relating to the preference share dividends which are accrued as the dividends are earned, and will besettled when the dividends become due and payable.
Segment reportingThe segment reporting has been prepared in accordance with IFRS 8 – Operating Segments which defines requirements for the disclosureof financial information of an entity’s operating segments. A segment is a distinguishable business component of the group that is engagedeither providing related products or services which are subject to risks and rewards that are different from those of other segments. The basisof segment reporting is representative of the internal structure used for management reporting as well as the structure in which the chiefoperating decision maker reviews the information, which is the group’s mining projects in the respective operating subsidiaries.
The basis of segmental allocation is determined as follows:
operating profit/loss (before net finance income/costs and taxation) that can be directly attributed to a segment and a relevant portionof the operating loss that can be allocated on a reasonable basis to a segment, including the effect of transactions with other operatingsegments. Although losses are currently being generated due to the long-term nature of mine development, management believes thatsuch information is the most relevant for evaluating the results of certain segments against other entities in the coal industry; andtotal segment assets are those assets that are employed by a segment in its operating activities and that are either directly attributableto the segment or can be allocated to the segment on a reasonable basis.
46
Accounting policiesfor the year ended 31 March 2010 (continued)
Earnings per shareThe group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit
attributable to owners of the company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is
determined by adjusting the profit attributable to owners of the company and the weighted average number of ordinary shares outstanding
for the effects of all potential dilutive ordinary shares.
Changes in accounting policiesDuring the year the group has changed its accounting policies in the following areas:
Accounting for business combinations:
The group has early adopted IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all
business combinations occurring in the financial year starting 1 April 2009. All business combinations occurring on or after 1 April 2009 are
accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on
earnings per share.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,
the group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is
transferred to the acquiree. Judgement is applied in determining the acquisition date and determining whether control is transferred from one
party to another.
The group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling
interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all
measured as of the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the group to the previous owners of the
acquiree, and equity interests issued by the group. Consideration transferred also includes the fair value of any contingent consideration and
share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business
combination results in the termination of pre-existing relationships between the group and the acquiree, then the lower of the termination
amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and
recognised in other expenses.
When share-based payment awards exchanged (replacement awards) for awards held by the acquiree’s employees (acquiree’s awards) relate
to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require
future services, then the difference between the amount included in consideration transferred and the market-based measure of the
replacement awards is treated as post-combination compensation cost.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises
from a past event, and its fair value can be measured reliably.
The group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.
Transaction costs that the group incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees, and
other professional and consulting fees are expensed as incurred.
47Keaton Energy Annual Report 2010
Accounting for acquisition of non-controlling interests
IAS 27 (AC 132) amendments Consolidated and Separate Financial Statements is effective for annual periods beginning on or after
1 July 2009 but has been early adopted by the group for the first time in the current financial year.
Under the new accounting policy, acquisitions of non-controlling interests are accounted for as transactions with equity holders in their
capacity as equity holders and therefore no goodwill is recognised as a result of such transactions. Previously, goodwill was recognised
arising on the acquisition of a non-controlling interest in a subsidiary; and that represented the excess of the cost of the additional investment
over the carrying amount of the interest in the net assets acquired at the date of exchange. The change in accounting policy was applied
prospectively and had no material impact on earnings per share.
The amendments also require that losses (including negative ‘other comprehensive income’ as detailed in the revised IAS 1 (AC 101)
Presentation of Financial Statements (2007)) have to be allocated to the non-controlling interest even if doing so causes the non-controlling
interest to be in a deficit position. In the past losses were allocated only until the non-controlling interests had a zero balance. The change in
accounting policy was applied prospectively and the impact on earnings per share for the current year is shown in note 5.
New standards and interpretations not yet effectiveAt the date of authorisation of the financial statements of Keaton Energy a number of new standards, amendments to standards and
interpretations which were in issue, but not yet effective for the year ended 31 March 2010, have not been applied in preparing these financial
statements. All of these have been evaluated by the directors and the ones that are applicable to the group are:
IAS 24 (AC 126) (revised) Related Party Disclosures
IAS 24 (AC 126) (revised) is effective for annual periods beginning on or after 1 January 2011 and will be adopted by the group for the first
time for its financial reporting period ending 31 March 2012. The standard will be applied retrospectively. It addresses the disclosure
requirements in respect of related parties, with the main changes relating to the definition of a related party and disclosure requirements by
government-related entities. The definition of a related party has been amended with the result that a number of new related party
relationships have been identified.
IFRS 9 (AC 146) Financial Instruments
IFRS 9 (AC 146) is effective for annual periods beginning on or after 1 January 2013 and will be adopted by the group for the first time for its
financial reporting period ending 31 March 2014. The standard will be applied retrospectively, subject to transitional provisions. It addresses
the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39 (AC 133).
Under the new IFRS 9 (AC 146) there are two options in respect of classification of financial assets, namely, financial assets measured at
amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect
contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding.
All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid contracts that have a financial
asset host. There will be no impact on the financial statements of the group as it currently recognises its financial assets at amortised cost.
IFRIC 19 (AC 452) Extinguishing Financial Liabilities with Equity Instruments
IFRIC 19 (AC 452) is effective for annual periods beginning on or after 1 July 2010 and will be adopted by the group for the first time for its
financial reporting period ending 31 March 2012. The standard will be applied retrospectively. It addresses the accounting treatment for the
extinguishment of financial liabilities with equity instruments.
Equity instruments issued to a creditor to extinguish all or part of a financial liability will represent ‘consideration paid’. The equity instruments
will be measured on initial measurement at their fair value, unless such fair value cannot be reliably measured, in which case the fair value of
the financial liability will be used. The difference between the carrying amount of the financial liability (or part thereof) extinguished and the
initial measurement amount of the equity instruments shall be recognised in profit or loss. Currently there will be no impact on the financial
statements of the group.
48
Notes to the annual financialstatementsfor the year ended 31 March 2010
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
1. Revenue 21 957 053 5 423 590 – –
Coal sales 21 807 496 5 423 590 – –
Other fees received (1) 149 557 – – –
2. Operating loss before net finance income
Operating loss before net finance income is stated after:
Other income (2 023 339) (676 965) (2 274 160) (1 258 749)
Rental received and recoveries (341 273) (472 226) – –
Consulting fees (72 000) (159 873) – –
Management fees received – – (2 274 160) (1 258 749)
Damages claim – Klip Colliery (1 593 954) – – –
Other (16 112) (44 866) – –
Professional and consultant fees 1 954 647 4 506 178 616 387 877 229
Technical fees – 121 972 – –
Consulting fees 1 787 012 2 189 582 452 952 712 223
Administration fees 167 635 2 194 624 163 435 165 006
Impairment and net realisable value losses 7 813 009 4 213 734 3 679 217 17 664 937
Exploration and evaluation assets (2) 1 887 797 3 990 700 – –
Reversal of prior year impairment (53 768) – – –
Plant and equipment 13 775 223 034 – –
Investment in subsidiary companies (3) 3 679 217 17 664 937
Net realisable value losses (4) 4 889 864 – – –
Mine development assets – Klip Colliery (4) 1 075 341 – – –
(1) For technical and administration services.
(2) As a result of the regulatory uncertainty regarding the two remaining prospects in Amalahle Exploration (Pty) Limited (74% subsidiary of Keaton
Energy) an impairment loss of R1.9 million was raised during the year to fully impair the associated exploration expenditure (refer to note 8).
(3) The company has impaired its investments in/loans to subsidiaries that are in a loss position and where it does not anticipate to generate
profits in the immediate future (refer to note 7).
(4) Operations at Klip Colliery have been downscaled during the year resulting in a sharp decrease in the remaining life of the mine.
This decrease resulted in the weighted average cost per tonne increasing significantly, and low quality stockpiles having to be written down
by R4.9 million to their net realisable value. An additional impairment of R1.1 million resulted from capitalised mine development.
49Keaton Energy Annual Report 2010
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
2. Operating loss before net finance income (continued)
Depreciation 12 848 606 1 505 578 – –
Leasehold improvements 385 289 343 758 – –
Motor vehicles 83 543 126 619 – –
Computer equipment 88 768 69 452 – –
Office furniture and equipment 112 882 129 567 – –
Other 72 439 6 419 – –
Mine development assets and mine infrastructure 9 454 627 3 480 821 – –
Total depreciation (refer to note 6) 10 197 548 4 156 636 – –
Movement from/(to) inventory 2 651 058 (2 651 058) – –
Depreciation recognised in: 12 848 606 1 505 578 – –
Cost of sales 12 105 685 829 763 – –
Administrative and other operating expenses 742 921 675 815 – –
Directors’ emoluments (refer to note 24)
Executive directors 3 445 738 9 099 857 4 859 340 3 404 884
For services rendered as directors 7 842 044 4 977 884 4 709 666 3 404 884
Share-based payments (4 396 306) 4 121 973 149 674 –
Non-executive directors 1 994 713 1 563 710 1 994 713 1 563 710
Total directors’ emoluments 5 440 451 10 663 567 6 854 053 4 968 594
Audit fees 1 496 887 624 667 925 387 461 391
External audit services 1 005 783 624 667 601 283 461 391
Internal audit services 491 104 – 324 104 –
Legal fees 709 537 451 623 35 461 200 254
Marketing and investor relations costs 1 614 345 1 573 950 1 614 345 1 551 891
Rent paid for head office premises 737 407 680 518 – –
Royalty tax 9 771 – – –
Employee benefits
Salaries and wages
Salaries as employees 1 313 023 667 755 362 190 216 990
Provident fund contributions 53 873 51 597 34 560 20 293
Share-based payments – equity settled 50 078 4 173 – –
1 416 974 723 525 396 750 237 283
Key management compensation (including executive
directors – note 24)
Salaries as employees 7 829 810 7 647 540 4 274 704 3 028 910
Provident fund contributions 617 220 603 976 434 963 375 974
Share-based payments – equity settled (4 396 306) 4 121 973 149 674 –
4 050 724 12 373 489 4 859 341 3 404 884
Total employee benefits 5 467 698 13 097 014 5 256 091 3 642 167
50
Notes to the annual financialstatements
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
3. Net finance income
Finance income 29 139 649 44 508 863 28 893 849 44 749 399
Interest income – banks and money markets 29 138 186 44 507 648 28 662 689 44 487 266
Interest income – subsidiary companies 231 160 260 641
Interest income – other 1 463 1 215 – 1 492
Finance costs (32 936) – – –
Interest expense – other (32 936) – – –
29 106 713 44 508 863 28 893 849 44 749 399
4. Income taxation expense
Current tax expense
Current year 5 628 977 10 279 690 5 628 977 10 279 690
Under provision/(over provision) prior year 124 513 (36 742) 124 513 (36 742)
Deferred taxation
Origination and reversal of temporary differences (115 612) 493 219 (115 612) (128 866)
Donation tax 35 000 – – –
Secondary taxation on companies 1 605 820 1 116 985 – –
7 278 698 11 853 152 5 637 878 10 114 082
Reconciliation of effective taxation rate
Normal taxation rate for companies 28.0% 28.0% 28.0% 28.0%
Adjusted for:
Secondary taxation on companies 42.7% 6.7% – –
Non-deductible expenditure 57.8% 1.7% 7.0% 26.2%
Deferred tax asset not recognised 61.0% 35.2% – –
Other smaller reconciling amounts 4.2% (0.6%) 0.8% (0.2%)
Effective taxation rate 193.7% 71.0% 35.8% 54.0%
Refer to note 9 for amounts available for offset against future taxable income.
for the year ended 31 March 2010 (continued)
51Keaton Energy Annual Report 2010
GroupYear to Year to
31 March 2010 31 March 2009
5. Earnings per share
Basic earnings per share (cents) 4.1 3.4
Headline earnings per share (cents) 5.6 6.4
Diluted earnings per share (cents) 4.1 3.3
Diluted headline earnings per share (cents) 5.6 6.2
The calculation of basic earnings per share is based on the
profit for the year (attributable to owners of the company)
of R5 974 510 (2009 – profit of R4 841 349) and a
weighted average of 144 172 800 (2009 – 142 248 143)
ordinary shares in issue during the year.
Headline earnings calculations: Gross/Net Gross/Net
Profit for the year (R) (Attributable to owners of the company) 5 974 510 4 841 349
– Add back: impairment losses attributable to owners of the company (R)
(refer to note 2 – excludes net realisable value losses) 2 163 128 4 213 734
Headline earnings for the year (R) 8 137 638 9 055 083
Group
Number of shares
2010 2009
Weighted/diluted average number of ordinary shares:
Shares in issue at 1 April 2009 (1 April 2008) 142 841 293 132 741 293
– Effect of shares issued on 22 April 2008 – 9 424 658
– Effect of shares issued on 5 June 2008 – 82 192
– Effect of shares issued 28 July 2009 1 331 507 –
Weighted number of ordinary shares at 31 March 144 172 800 142 248 143
– Notional shares granted (16 January 2008) – 2 000 000
– Notional shares granted (22 April 2008) – 1 500 000
– Notional shares granted (1 March 2009) (1) 35 211
– Notional shares granted (1 January 2010) (1) –
Diluted number of ordinary shares in issue at 31 March 144 172 800 145 783 354
(1) Anti-dilutive
IAS 27: Consolidated and Separate Financial Statements (revised) prohibits the retrospective adjustment of losses attributable to
non-controlling interests. The loss/total comprehensive income attributable to owners of the company would have been R3 521 661 had
IAS 27 revised not been applied for the year ended 31 March 2010, resulting in the basic and diluted loss per share being 2.4 cents.
52
Notes to the annual financialstatements
Group
Transfer Transfer to
from Environ- inventory
exploration mental (deferred
Opening and evaluation rehabilitation stripping Closing
balance assets Additions additions costs) Disposals balance
R R R R R R R
6. Plant and equipmentCost
31 March 2010
Leasehold improvements 1 156 569 – 12 390 – – – 1 168 959
Motor vehicles 833 391 – – – – (321 684) 511 707
Computer equipment 223 601 – 109 301 – – (12 139) 320 763
Office furniture and
equipment 1 009 838 – 21 855 – – (16 867) 1 014 826
Mine development assets 11 554 271 22 672 061 8 588 934 2 700 000 ( 1 711 989) – 43 803 277
Assets under construction – – 15 210 662 – – – 15 210 662
Mine infrastructure 1 444 228 – 21 718 – – – 1 465 946
Other 34 245 – 128 270 – – – 162 515
16 256 143 22 672 061 24 093 130 2 700 000 (1 711 989) (350 690) 63 658 655
Group
Transfer
from Environ-
exploration mental
Opening and evaluation rehabilitation Closing
balance assets Additions additions Disposals balance
R R R R R R
Cost
31 March 2009
Leasehold improvements 1 017 578 – 138 991 – – 1 156 569
Motor vehicles 625 998 – 207 393 – – 833 391
Computer equipment 193 609 – 59 691 – (29 699) 223 601
Office furniture and
equipment 946 230 – 69 208 – (5 600) 1 009 838
Mine development assets – 7 238 244 3 956 745 359 282 – 11 554 271
Mine infrastructure – – 1 230 924 213 304 – 1 444 228
Other – – 34 245 – – 34 245
2 783 415 7 238 244 5 697 197 572 586 (35 299) 16 256 143
for the year ended 31 March 2010 (continued)
53Keaton Energy Annual Report 2010
Group
Impairment
Opening Depreciation loss (refer Closing
balance expense note 2) Disposals balance
R R R R R
6. Plant and equipment (continued)Accumulated depreciation and impairment losses
31 March 2010
Leasehold improvements (539 641) (385 289) – – (924 930)
Motor vehicles (421 179) (83 543) – 321 684 (183 038)
Computer equipment (96 231) (88 768) – 7 678 (177 321)
Office furniture and equipment (201 181) (112 882) (13 775) 16 847 (310 991)
Mine development assets (2 858 418) (8 611 084) (1 075 341) – (12 544 843)
Mine infrastructure (622 403) (843 543) – – (1 465 946)
Other (6 419) (72 439) – – (78 858)
(4 745 472) (10 197 548) (1 089 116) 346 209 (15 685 927)
31 March 2009
Leasehold improvements (195 883) (343 758) – – (539 641)
Motor vehicles (71 526) (126 619) (223 034) – (421 179)
Computer equipment (35 808) (69 452) – 9 029 (96 231)
Office furniture and equipment (72 202) (129 567) – 588 (201 181)
Mine development assets – (2 858 418) – – (2 858 418)
Mine infrastructure – (622 403) – – (622 403)
Other – (6 419) – – (6 419)
(375 419) (4 156 636) (223 034) 9 617 (4 745 472)
Group
31 March 2010 31 March 2009 1 April 2008
R R R
Carrying amount
Leasehold improvements 244 029 616 928 821 695
Motor vehicles 328 669 412 212 554 472
Computer equipment 143 442 127 370 157 801
Office furniture and equipment 703 835 808 657 874 028
Mine development assets 31 258 434 8 695 853 –
Assets under construction 15 210 662 – –
Mine infrastructure – 821 825 –
Other 83 657 27 826 –
47 972 728 11 510 671 2 407 996
All plant and equipment, except leasehold improvements, are owned.
Insurance
Plant and equipment, with the exception of motor vehicles, are insured at approximate cost of replacement. Motor vehicles are insured
at market value. Mine infrastructure is not insured.
54
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
Company31 March 2010 31 March 2009
R R
7. Investment in subsidiary companiesUnlisted – shares at cost (1)
Keaton Mining (Pty) Limited (2) 12 000 074 12 000 074
Amalahle Exploration (Pty) Limited 74 74
Labohlano Trading 46 (Pty) Limited (3) 22 312 500 –
Keaton Administrative and Technical Services (Pty) Limited (4) 54 987 4 550 253
Mafla Coal (Pty) Limited 74 74
34 367 709 16 550 475
(1) Subsidiaries that are in the process of deregistration (refer to the directors’ report) have been fully impaired in the prior year and are
not disclosed. Their prior year details are:
Unlisted shares Loan to Preference share Carrying
at cost subsidiary investment Impairment amount
Subsidiary R R R R R
31 March 2009
Intshe Coal (Pty) Limited 60 1 022 126 – (1 022 186) –
Rafcoal Mining (Pty) Limited 74 179 940 – (180 014) –
Izwi Coal (Pty) Limited 180 3 014 860 000 (863 194) –
314 1 205 080 860 000 (2 065 394) –
Company31 March 2010 31 March 2009
R R
(2) Keaton Mining (Pty) Limited 12 000 074 12 000 074
– initial cash cost 74 74
– share-based payment (prospecting right) 12 000 000 12 000 000
(3) Labohlano Trading 46 (Pty) Limited - total acquisition price 22 312 500 –
– share-based payment (refer to note 14) 17 300 000 –
– cash 5 012 500 –
(4) Keaton Administrative and Technical Services (Pty) Limited 54 987 4 550 253
– initial cash cost 100 100
– share-based payment (share appreciation rights) 54 887 4 550 153
55Keaton Energy Annual Report 2010
Company
31 March 2010 31 March 2009
R R
7. Investment in subsidiary companies (continued)Loans receivable from subsidiary companiesKeaton Mining (Pty) Limited 46 664 12 085 Amalahle Exploration (Pty) Limited 87 983 27 787 Labohlano Trading 46 (Pty) Limited 55 386 –Keaton Administrative and Technical Services (Pty) Limited (1) 9 569 262 9 365 938 Mafla Coal (Pty) Limited (1) 680 349 61 592
10 439 644 9 467 402
(1) These loans are unsecured, interest free and without any fixed terms of repayment. They have also been impaired to their recoverable amount.
The remaining loans bear interest at prime plus 2%, are unsecured and loan increases are settled on a monthly basis with the issue of unlisted cumulative redeemable preference shares by the relevant subsidiary company.
Unlisted cumulative redeemable preference shares at costKeaton Mining (Pty) Limited 93 700 000 56 500 000 Amalahle Exploration (Pty) Limited 7 800 000 6 200 000 Labohlano Trading 46 (Pty) Limited 7 300 000 –Mafla Coal (Pty) Limited 3 900 000 3 900 000
112 700 000 66 600 000
The preferences share investments are secured and attract dividends at prime plus 5%,compounded quarterly in arrears.
Total investment in subsidiary companies 157 507 353 92 617 877
Impairment of investment in subsidiary companies (refer to note 2) (21 838 691) (18 159 474)
Keaton Administrative and Technical Services (Pty) Limited (9 370 211) (13 916 191)Mafla Coal (Pty) Limited (4 580 423) (4 243 283)Amalahle Exploration (Pty) Limited (7 888 057) –
Total carrying value of investment in subsidiary companies 135 668 662 74 458 403
Represented by the carrying value of the investment in: 135 668 662 74 458 403
Keaton Mining (Pty) Limited 105 746 738 68 512 159Labohlano Trading 46 (Pty) Limited 29 667 886 –Keaton Administrative and Technical Services (Pty) Limited 254 038 –Amalahle Exploration (Pty) Limited – 6 227 861Mafla Coal (Pty) Limited – (281 617)
The directors of the company consider the carrying amount of the unlisted investments in subsidiaries to be a fair representation of thevalue on the investments given the various stages of development of the underlying assets.
GroupProspecting Other
Drilling rights evaluationexpenses acquired expenses Total
R R R R
8. Intangible exploration and evaluation assetCarrying amount at 31 March 2008 16 832 889 14 000 000 6 693 615 37 526 504 Additions 6 639 826 – 14 534 870 21 174 696 Impairment loss (refer to note 2) (2 856 272) – (1 134 428) (3 990 700)Transfer to plant and equipment (213 044) (7 000 000) (25 200) (7 238 244)
Carrying amount at 31 March 2009 20 403 399 7 000 000 20 068 857 47 472 256
Additions 3 521 568 – 2 644 958 6 166 526Acquisition of subsidiary (refer to note 19.5) 2 459 801 30 135 155 700 242 33 295 198Impairment loss (refer to note 2) (645 191) – (1 242 606) (1 887 797)Transfer to plant and equipment (10 575 193) – (12 096 868) (22 672 061)
Carrying amount at 31 March 2010 15 164 384 37 135 155 10 074 583 62 374 122
56
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
Group Company
Year to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
9. Deferred taxRecognised deferred tax asset
At beginning of the year 128 866 622 085 128 866 –
Recognised in profit or loss for the year (refer below) 115 612 (493 219) 115 612 128 866
Balance at end of the year 244 478 128 866 244 478 128 866
Movement in temporary differences during the year
Recognised in profit or loss for the year
Keaton Energy Holdings Limited
– Employee benefit provisions 73 704 104 170 73 704 104 170
– Share appreciation rights 41 908 – 41 908 –
– Other smaller differences – 24 696 – 24 696
Keaton Administrative and Technical Services
(Pty) Limited
– Tax losses – (413 703)
– Share appreciation rights – (118 722)
– Employee benefit provisions – (81 541)
– Other smaller differences – (8 119)
115 612 (493 219) 115 612 128 866
Unrecognised deferred tax assets
At beginning of the year 4 446 586 1 893 766
Additions:
– Tax losses and capital allowances (refer below) 2 054 122 2 552 820
Balance at end of the year 6 500 708 4 446 586
57Keaton Energy Annual Report 2010
Group31 March 2010 31 March 2009
R R
9. Deferred tax (continued)Movement in unrecognised deferred tax assets during the year
Deferred tax assets have not been recognised in respect of the following items during the year:– Tax losses in:
– Keaton Administrative and Technical Services (Pty) Limited 324 927 839 388– Keaton Mining (Pty) Limited (13 021 494) 13 118 897
– Capital allowances in:– Keaton Administrative and Technical Services (Pty) Limited 250 611 –– Keaton Mining (Pty) Limited 15 427 538 (11 942 616)– Amalahle Exploration (Pty) Limited (1 306 020) 1 189 968– Labohlano Trading 46 (Pty) Limited 378 560 –– Mafla Coal (Pty) Limited – (170 071)– Other (1) – (482 746)
2 054 122 2 552 820
(1) This represents the subsidiaries that are currently in the process of deregistration (refer tothe directors’ report).
The taxation losses normally expire within 12 months of the company not trading. Thedeductible temporary timing differences do not expire under current taxation legislation.Deferred taxation assets have not been recognised in terms of these items because the abovecompanies do not have a history of taxable profits and taxable profits will not be available inthe immediate future against which the company can utilise the benefits therefrom.
All of the above amounts have been calculated at the currently enacted income taxation rateof 28%. Recognised amounts will be recovered from future taxable profits.
Amounts available for offset against future taxable income:Unutilised tax losses 5 401 178 49 851 021
Amounts available for offset against future taxable mining income:Exploration costs 68 102 296 _
Unredeemed capital expenditure 19 989 043 6 152 064
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009R R R R
10. InventoryCoal stockpiles – 6 959 079 – –
11. Trade and other receivablesTrade receivables 2 432 935 38 129 – – Interest receivable on bank deposits 3 544 193 3 609 233 3 422 027 3 609 233 Other receivables 375 553 192 979 143 148 484
6 352 681 3 840 341 3 565 175 3 609 717
12.1 Restricted cashLong-term restricted cash 19 106 648 – 774 648 –
These bank deposits are pledged and ceded against long-term environmental guarantees issued on behalf of the group.
12.2 Cash and cash equivalentsShort-term deposits 329 422 157 350 640 907 329 145 133 350 640 907 Cash in bank and on hand 5 658 395 23 056 947 5 618 933 23 063 512
335 080 552 373 697 854 334 764 066 373 704 419
The company has pledged and ceded R485 171 (2009: R1 259 819) of its short-term deposits towards guarantees issued on behalf of itssubsidiaries (refer to note 20).
58
Notes to the annual financialstatements
Company31 March 2010 31 March 2009 31 March 2010 31 March 2009
Number of shares R R
13. Ordinary share capital, share premium and share-based payment reserveAuthorised share capital
Ordinary shares of 0.1 cents each 250 000 000 250 000 000 250 000 250 000
Issued share capital
At beginning of year 142 841 293 132 741 293 142 841 132 741
Issued for cash during the year – 10 000 000 – 10 000
Share-based payments (1) 2 000 000 100 000 2 000 100
144 841 293 142 841 293 144 841 142 841
Share premium
At beginning of the year 432 637 213 341 163 917
Issued for cash during the year – 99 990 000
Share-based payments (1) 17 298 000 999 900
Share issue expenses – (9 516 604)
449 935 213 432 637 213
Share-based payment reserve (1)
At beginning of the year 4 550 153 424 007
Share appreciation rights lapsed during year (4 545 980) –
Notional shares granted 199 750 4 126 146
203 923 4 550 153
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the company.
The directors are authorised, by resolution of the shareholders and until the forthcoming annual general meeting, to allot, issue and
otherwise dispose of the unissued shares. This is however subject to the Listings Requirements of the JSE Limited.
(1) Refer to note 14 for detail on the share-based payment transactions.
for the year ended 31 March 2010 (continued)
59Keaton Energy Annual Report 2010
Group Company
Year to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
14. Share-based payment transactionsRoutledge Modise Inc. (1) – 1 000 000 – 1 000 000
Money Box Investments 156 (Pty) Limited (2) 17 300 000 – 17 300 000 –
Total share-based payments settled 17 300 000 1 000 000 17 300 000 1 000 000
(1) For services rendered
During the prior year the group concluded transactions with service providers which accepted share-based payments as a method
of settlement. These services were performed at market related prices. The share-based payments have been accounted for at the
value of the services provided by the service providers as follows:
(2) For prospecting rights acquired
Pursuant to the shareholders’ agreement concluded between the company, Labohlano Trading 46 (Pty) Limited (Labohlano) and
Money Box Investments 156 (Pty) Limited (the 26% minority shareholder in Labohlano), written consent was received from the
DMR in terms of Section 11 of the MPRDA on 15 July 2009 that an exploration right be ceded and transferred to Labohlano from
Ibutho Mzinoni (Pty) Limited (Ibutho). In terms of the sale and shareholder’s agreement, the acquisition price for 74% in Labohlano
was settled through a R5 million cash payment and the issue of 2 000 000 ordinary shares in the share capital of the company.
This coincided with the payment by Labohlano to Ibutho for the prospecting right. An additional amount of R3.2 million cash was
paid by Labohlano for existing exploration and evaluation data on the property. As no valuation was done at the time of the
agreement, accounting rules require that the share-based payment be accounted for at the fair value of the shares on the date of
the grant, also the date that the vesting conditions were met (being 28 July 2009). The shares were therefore issued at a fair value
of R8.65 per share and the 74% interest in Labohlano therefore amounted to R22.3 million (refer to note 7). The implied value of
the prospecting right was therefore R30.1 million. The non-controlling interest recognised amounted to R7.7 million.
For share appreciation rights
The group established a long-term performance incentive scheme in terms of which certain directors and employees may receive a
conditional right to a bonus award (conditional bonus award) equal to the increase in the value of a number of notional Keaton Energy
ordinary shares (notional shares) between the date on which the Remuneration Committee of Keaton Energy approves the offer of the
conditional bonus award to the end of the performance period (normally three years following the offer) applicable to the conditional
bonus award.
The fair value of each notional share granted was estimated on the date of grant using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the notional
share award and share price volatility. The expected term of award granted is derived from current estimates by management
(where historical data is not yet available). Expected volatility is based on the historical volatility of Keaton Energy’s share price or the
average of a basket of coal exploration companies. These estimates involve inherent uncertainties and the application of management
judgement. In addition, the group is required to estimate the expected forfeiture rate and only recognise expense for those notional
shares expected to vest. As a result, if other assumptions had been used, the recognised share-based appreciation right expense
could have been different from that reported.
60
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
14. Share-based payment transactions (continued)
The terms and conditions of the grants to date (excluding lapsed grants) are as follows:
Grant date 1 March 2009 1 January 2010
Number of notional shares 35 211 894 454
Vesting conditions Minimum employment Minimum employment
period of 3 years period of 3 years
Contractual life of notional shares 3 years 3 years
Share price at grant date (offer price) R10.65 R5.59
Fair value per notional share at grant date R4.43 R2.01
Volatility factor 48.6% 39.1%
Volatility factor based on Keaton Energy’s Keaton Energy’s
share price share price
Group Company
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
Total share-based payments outstanding
– beginning of the year 4 550 153 424 007 – –
Share appreciation rights lapsed during the year (4 545 980) – – –
Share appreciation rights expense arising from notional
shares continued/granted during the year 199 750 4 126 146 149 674 –
Total share-based payments outstanding 203 923 4 550 153 149 674 –
The terms and conditions of the long-term performance incentive scheme stipulate that the Remuneration Committee of the group
will determine the most appropriate manner to settle the amount due, it being the intention that the settlement will normally occur by
way of an allotment and issue of new shares and/or the purchase and transfer of existing shares. However, if circumstances require,
the group is entitled to settle the amount due by way of a direct cash payment in Rand, net of PAYE and any other taxation. These
cash payments must be applied in the subscription of new or the purchase of issued shares of the company. In terms of paragraphs
41 to 43 of IFRS 2: Share-based Payment, these payments have been accounted for as equity-settled. The notional shares were
fair-valued on the date of each grant. As it is the intention for the notional shares to be equity-settled it has not been fair-valued at
31 March 2010. Accordingly, the expense recognised in profit or loss for the year represents that portion of the initial fair value that
is attributable to the portion of the contractual period which had elapsed at 31 March 2010.
A summary of the notional share grants are as follows:
Available for
Number of notional shares Granted utilisation
Beginning of the year 3 535 211 –
Lapsed during the year (3 500 000) –
Granted during the year 894 454 –
End of the year 929 665 –
61Keaton Energy Annual Report 2010
Group Company
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
15. Trade and other payablesTrade payables – exploration vendors 1 320 274 1 247 471 – –
Trade payables – plant and equipment vendors 10 240 025 – – –
Sundry payables and accrued expenses 2 237 039 904 025 449 817 513 119
Salary accruals 1 385 045 1 182 558 1 041 561 529 944
Tenant installation allowance 85 800 165 000 – –
Royalty tax 9 771 – – –
Tenants deposits 5 024 18 890 – –
Income received in advance 5 744 1 817 107 – –
15 288 722 5 335 051 1 491 378 1 043 063
Straight-lining of operating leases 48 501 52 234 – –
15 337 223 5 387 285 1 491 378 1 043 063
Salary accruals
These accruals comprise leave pay accrual, bonus
accrual and other salary accruals. The leave pay
accrual relates to vesting leave pay to which employees
may become entitled on leaving the employment of the
group. The accrual arises as employees render a
service that increases their entitlement to future
compensated leave and is calculated based on an
employee’s total cost of employment.
The bonus accrual consists of both a guaranteed portion
and a performance-based portion based on the
employee’s achievement of performance targets. The
employee must be in service to qualify for the bonus.
16. ProvisionsOpening balance 572 586 – – –
Increase in provision during the year 2 700 000 572 586 – –
Rehabilitation costs incurred during the year (2 946 375) – – –
326 211 572 586 – –
The provision represents the total remaining estimate of cash flows that will be needed to rehabilitate the Klip Colliery. Cash flows relating
to rehabilitation costs will mostly occur in the next financial year. The discounting effect was calculated and is regarded as immaterial.
17. Financial instrumentsOverview
Exposure to credit, market and liquidity risks arise in the normal course of the group’s business from its use of financial instruments.
This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for
measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.
The Board has overall responsibility for the establishment and oversight of the group’s risk management framework. The Risk Committee
is responsible for developing and monitoring the group’s risk management policies. This committee reports at least twice a year to the
Board on its activities.
The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the group’s activities. The group, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the group’s risk management framework in relation to risks
faced by the group. An internal audit function was established, and is assisting the Audit Committee in its oversight role. It undertakes
both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
62
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
17. Financial instrumentsCredit riskCredit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractualobligations, and arises principally from the group’s receivables from customers and deposits with financial institutions.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reportingdate was:
31 March 2010 31 March 2009Group Company Group Company
R R R R
Carrying amountsFinancial assetsRestricted cash 19 106 648 774 648 – –Loans to subsidiaries – 444 071 – 39 872Trade and other receivables 6 352 681 3 565 175 3 840 341 3 609 717Cash and cash equivalents 335 080 552 334 764 066 373 697 854 373 704 419
360 539 881 339 547 960 377 538 195 377 354 008
The company limits its counterparty exposures from its cash and cash equivalents by only dealing with well-established financialinstitutions of high quality credit standing. Customers are assessed on an individual basis to determine terms and conditions of saletransactions to limit the group’s exposure to bad debts. The maximum exposure to credit risk is represented by the carrying amount ofeach financial asset in the statement of financial position.
At the reporting date all of the group’s cash resources were deposited with reputable financial institutions of quality credit standing.The group has developed investment guidelines to ensure no significant concentration of credit risk. At the reporting date, the tradereceivables are neither past due nor impaired.
Liquidity riskLiquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managingliquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normaland stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. Refer to the maturity analysisunder market related risk below. The group holds at least 30 days worth of fixed overhead expenses in cash or call deposits.
Capital managementThe group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain futuredevelopment of the business. There were no changes to this policy during the year. The Board monitors both the demographic spreadof shareholders, as well as the return on capital, which the group defines as total shareholders’ equity, excluding minority interests, andthe level of dividends to ordinary shareholders. The income for the year from the group’s externally invested funds was R29.1 million(2009: R45.5 million). This equates to an average return of 8.0% (2009 : 11.6%) before tax. The company’s funds invested in itssubsidiaries’ exploration projects and mining operations earn a return of prime plus 5% after tax, cumulative and compounded quarterly.This return (in the form of preference dividends) has however not yet been recognised as the dividends have not yet been declared by thesubsidiaries.
Market riskMarket risk includes interest rate risk, currency risk and commodity price risk. Fluctuations in interest rates (prime rates) impact on thefinancing activities, giving rise to interest rate risk. Working capital and capital expenditure requirements are funded through cashgenerated by operations and the loan facilities provided to group entities. Interest rates are not hedged by the group. At 31 March 2010,the group did not consider there to be any significant concentration of currency risk or commodity price risk. The group’s Risk Committeemeets at least quarterly to specifically address and manage these risks as the group will be significantly exposed to these in future years.
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interestrates at the reporting date and the periods in which they mature.
63Keaton Energy Annual Report 2010
Group
Average effective Fixed or Maturing – less Maturing – over
interest rate variable rate Total than 6 months one year
R R R
17. Financial instruments (continued)At 31 March 2010
Financial assets
Restricted cash (1) 7.4% Variable 19 106 648 19 106 648 –
Short-term deposits 8% – 8.5% Variable 329 422 157 329 422 157 –
Cash in bank and on hand 7.2% Variable 5 658 395 5 658 395 –
354 187 200 354 187 200 –
At 31 March 2009
Financial assets
Short-term deposits 8.6% – 12.4% Variable 350 640 907 350 640 907 –
Cash in bank and on hand 7% – 9% Variable 23 056 947 23 056 947 –
373 697 854 373 697 854 –
(1) These deposits are invested in rolling short-term deposits, but are pledged against long-term guarantees that are valid over the life of a
mining or prospecting right.
Company
Average effective Fixed or Maturing – less Maturing – over
interest rate variable rate Total than 6 months one year
R R R
At 31 March 2010
Financial assets
Restricted cash (1) 7.2% Variable 774 648 774 648 –
Loans to subsidiaries Prime + 2% Variable 190 033 190 033 –
Short-term deposits 8% – 8.5% Variable 329 145 133 329 145 133 –
Cash in bank and on hand 7.2% Variable 5 618 933 5 618 933 –
335 728 747 335 728 747 –
At 31 March 2009
Financial assets
Loans to subsidiaries Prime + 2% Variable 39 872 39 872
Short-term deposits 8.6% – 12.4% Variable 350 640 907 350 640 907 –
Cash in bank and on hand 7% – 9% Variable 23 063 512 23 063 512 –
373 744 291 373 744 291 –
(1) These deposits are invested in rolling short-term deposits, but are pledged against long-term guarantees that are valid over the life of a
prospecting right.
64
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
17. Financial instruments (continued)The potential impact on the current year’s earnings, given a movement in interest rates of 100 basis points, are:
Effect on earnings (R)– Decrease in 100 basis points (Loss) (2 532 897)– Increase in 100 basis points (Profit) 2 532 897
Fair value of financial assets and liabilitiesThe fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:
Group
31 March 2010 31 March 2009Carrying amount Fair value Carrying amount Fair value
R R R R
At 31 March 2010Financial assetsRestricted cash 19 106 648 19 106 648 – –Trade and other receivables 6 352 681 6 288 789 3 840 341 3 787 763 Cash and cash equivalents 335 080 552 335 080 552 373 697 854 373 697 854
Financial liabilitiesTrade and other payables (15 288 722) (15 204 616) (5 335 051) (5 284 790)
345 251 159 345 271 373 372 203 144 372 200 827
Company
31 March 2010 31 March 2009Carrying amount Fair value Carrying amount Fair value
R R R R
Financial assetsRestricted cash 774 648 774 648 – –Loans to subsidiaries 444 071 439 673 39 872 39 379Trade and other receivables 3 565 175 3 519 512 3 609 717 3 579 045Cash and cash equivalents 334 764 066 334 764 066 373 704 419 373 704 419
Financial liabilitiesTrade and other payables (1 491 378) (1 475 596) (1 043 063) (1 038 483)
338 056 582 338 022 303 376 310 945 376 284 360
Basis for determining fair valuesLoans to subsidiaries and trade and other receivables – the fair value is estimated as the present value of future cash flows, discounted atthe market rate of interest at the reporting date.
Trade and other payables – the fair value is calculated based on the future principal and interest cash flows, discounted at the marketrate of interest at the reporting date.
18. Retirement planProvident fundThe majority of the group’s salaried employees are members of the Keaton Administrative and Technical Services (Pty) Limited (KATS)provident fund. This provident fund operates as a defined contribution provident fund.
The provident fund is operated by Liberty Corporate Benefits on behalf of KATS, domiciled in the Republic of South Africa and isgoverned by the Pension Funds Act, (Act No.24 of 1956).
The total cost recognised in profit or loss for the year of R671 093 (2009: R655 572) represents contributions payable to this providentfund by the group at rates specified in the rules of the provident fund.
65Keaton Energy Annual Report 2010
Group Company
Year to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
19. Notes to the cash flow statement
19.1 Cash utilised in operations
Net profit before taxation 3 757 037 16 694 501 15 762 602 18 744 252
Adjustments for:
Impairment losses 2 923 145 4 213 734 3 679 217 17 664 937
Deferred stripping costs 1 711 989 – – –
Finance income (29 139 649) (44 508 863) (28 893 849) (44 749 399)
Finance costs 32 936 – – –
Depreciation 12 848 606 1 505 578 – –
Share-based (income)/payments (4 346 229) 5 126 146 149 674 1 000 000
Loss on disposal of plant and equipment 4 479 – – –
Profit on foreign exchange – – (638) –
Changes in working capital (848 299) (8 701 497) 305 652 (4 976 052)
Inventory 4 308 021 (4 308 021) – –
Rehabilitation costs (refer to note 16) (2 946 375) – – –
Trade and other receivables (2 577 380) 18 211 (142 664) (484)
Value added taxation (536 162) 1 902 542 – –
Trade and other payables (excluding amounts owing
to plant, equipment and exploration vendors) 903 597 (6 314 229) 448 316 (4 975 568)
(13 055 985) (25 670 401) (8 997 342) (12 316 262)
19.2 Taxation paid
Balance at beginning of the year (2 200 243) (900 361) (948 793) (765 895)
Current income tax and STC charge (7 359 310) (11 359 933) (5 753 490) (10 242 949)
Donations tax charge (35 000) – – –
Balance at end of the year 3 395 024 2 200 243 537 607 948 793
Paid during the year (6 199 529) (10 060 051) (6 164 676) (10 060 051)
19.3 Investment in subsidiary companies
Increase in carrying amount (61 210 259) (30 966 958)
Impairment losses (3 679 217) (17 664 937)
Share-based payments (acquisition of subsidiary) 17 300 000 –
Share-based payments (share appreciation rights) (4 495 266) 4 126 147
(52 084 742) (44 505 748)
19.4 Acquisition of plant and equipment
Additions (refer to note 6) (24 093 130) (5 697 197) – –
Less: Amounts owing to vendors (current year) 8 982 478 – – –
(15 110 652) (5 697 197) – –
19.5 Additions to exploration and evaluation asset
Additions (refer to note 8) (6 166 526) (21 174 696) – –
Acquisition of subsidiary (8 267 341)
Prospecting right and related data (refer to note 8) (33 295 198) – – –
Less: share-based payment 17 300 000 – – –
Less: non-controlling interest 7 727 857 – – –
Reversal of impairment 53 769 – – –
Plus: Amounts owing to exploration vendors (prior year) (1 094 273) (5 659 344) – –
Less: Amounts owing to exploration vendors
(current year) 1 158 130 1 094 273 – –
(14 316 241) (25 739 767) – –
66
Notes to the annual financialstatements
Group31 March 2010 31 March 2009
R R
20. Related party transactionsUnless stated otherwise, all related party transactions are concluded at arm’s length in the
normal course of business. All material intergroup transactions are eliminated on consolidation.
The following transactions were carried out with related parties:
Subsidiaries
Keaton Administrative and Technical Services (Pty) Limited (100% subsidiary):
– Inter-company loan balance (interest free) 9 569 262 9 365 938
– Share-based payments (refer to notes 13 and 14) (4 495 266) 4 126 146
– Management fee paid to Keaton Energy (excl. VAT) – management, administration and
accounting services 2 274 160 1 258 749
Keaton Mining (Pty) Limited (74% subsidiary):
– Preference share investment balance (dividends at prime + 5%) 93 700 000 56 500 000
– Inter-company loan balance (interest at prime + 2%) 46 664 12 085
– Interest paid to Keaton Energy 175 935 208 776
– Interest received from Keaton Energy – 43 177
– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf
of Keaton Mining 774 648 774 648
Amalahle Exploration (Pty) Limited (74% subsidiary)
– Preference share investment balance (dividends at prime + 5%) 7 800 000 6 200 000
– Inter-company loan balance (interest at prime + 2%) 87 983 27 787
– Interest paid to Keaton Energy 18 635 58 284
– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf of
Amalahle Exploration 360 000 360 000
Mafla Coal (Pty) Limited (74% subsidiary)
– Preference share investment balance (dividends at prime + 5%) 3 900 000 3 900 000
– Inter-company loan balance (interest at prime + 2 % up to 31 March 2009) 680 349 61 592
– Interest paid to Keaton Energy – 31 478
– Pledge and cession of cash for the issue of guarantees by Keaton Energy on behalf of
Mafla Coal 125 172 125 172
Labohlano Trading 46 (Pty) Limited (74% subsidiary):
– Preference share investment balance (dividends at prime + 5%) 7 300 000 –
– Inter-company loan balance (interest at prime + 2%) 55 386 –
– Interest paid to Keaton Energy 36 591 –
for the year ended 31 March 2010 (continued)
67Keaton Energy Annual Report 2010
Group CompanyYear to Year to Year to Year to
31 March 2010 31 March 2009 31 March 2010 31 March 2009
R R R R
20. Related party transactions (continued)
Transactions with other related parties
Braeston Corporate and Consulting Services (Pty)
Limited (refer below)
– Professional, accounting and IT related services 2 044 761 2 355 043 434 801 415 280
– Rental paid 737 407 680 518 – –
– Rental received 242 500 – – –
LG Majola 175 000 –
Andisa Capital (Pty) Limited (refer below) – 33 500 – –
Salene Mining (Pty) Limited (refer below) – 84 525 – –
Key management compensation
Refer to note 2 and 24. Key management includes the executive directors of the company.
Interest of directors in contracts
PBM Miller and P Pouroulis are shareholders of Braeston Corporate and Consulting Services (Pty) Limited (Braeston). Braeston sub-lets
a portion of Eland House, The Braes, 3 Eaton Road, Bryanston, 2021 to Keaton Administration and Technical Services (Pty) Limited
(KATS), a subsidiary of the company. Braeston earns rental from the letting of the property and provides property management services
to the group in respect of the property. The lease is for three years and covers a total floor area of 456m2. During the year KATS entered
into a sub-lease with Braeston for a portion of its floor area. All of these rentals are at market related rates.
Braeston also provides information technology facilities and support, back-up power facilities, financial management and accounting
services and office support services including secretarial, cleaning, security and delivery services to the group. Braeston charges the
group on a cost recovery basis. No dividends are expected to be declared to shareholders of Braeston. Braeston provides similar
services to TransAfrika Resources Limited, Tharisa Minerals (Pty) Limited and Kameni Limited.
APE Sedibe, a non-executive director of the company, is the managing director of Andisa Capital (Pty) Limited, which assisted the
company in drafting an investment policy.
P Pouroulis, a non-executive director of the company, is a director of Salene Mining (Pty) Limited. The group provided geological
consultancy services to Salene Mining (Pty) Limited. In the prior year he was also a director of Chromex Mining Plc, but has resigned
during the year.
LG Majola was a non-executive director of Izwi Coal (Pty) Limited, a company currently in the process of being deregistered.
An exploration vehicle was donated to him during the year. The vehicle was fully impaired in the prior year.
Some of the directors of Keaton Energy are also directors of its subsidiaries. Various shareholders’ agreements, funding agreements and
management agreements have been entered between the group’s entities.
Other than listed above, no director of Keaton Energy has any material beneficial interests, whether direct or indirect, in transactions that
were effected by the group during the current or immediate preceding financial year, that remain in any respect outstanding or
unperformed.
21. Contingent liabilities and commitments
The group has the following contingent liabilities and commitments:
The company has entered into the shareholders’ agreements with the external shareholders in the company’s exploration subsidiaries.
The shareholders’ agreements contain put and call options. In terms of the call option, the company has the option to purchase (all and
not part of) the shares in the exploration subsidiary held by the relevant external shareholder for a purchase price equal to the fair market
value of such shares. The call option is exercisable by way of a written notice at any time from the date of listing to the later of 1 May 2014
and the date of fulfilment of the last condition in the call option paragraph. The call option is subject to the suspensive condition that all
statutory and regulatory permissions and authorities required to be able to exercise such call option are obtained within 150 days of
exercising the call option. The purchase consideration shall be satisfied by the issue by the company to the external shareholder of such
number of Keaton Energy ordinary shares which shall be equal to the purchase consideration. In calculating the value such Keaton
Energy ordinary shares, the parties shall use the volume weighted average price of the ordinary shares (post listing) as traded on the JSE
over the 10 trading days immediately preceding the exercise of the call option.
68
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
21. Contingent liabilities and commitments (continued)
The external shareholder has the option to sell to the company (all and not part of) its shares in the exploration subsidiary for a purchase
price equal to the fair market value of such shares. The put option is exercisable by written notice at any time for a period of 30 days
beginning 2 May 2014 and the date of fulfilment of the last condition precedent contained in the put option paragraph. The purchase
consideration shall be settled in the same way as the call option. The put option is subject to the suspensive conditions that at the time
of exercise of the put option the exploration subsidiary will not suffer any prejudice or adverse effects in terms of the Broad Based Black
Economic Empowerment Act 2003, the provisions of any charter, the MPRDA or any law relating to empowerment and that all statutory
and regulatory permissions and authorities required to be able to exercise such put option are obtained within 150 days of the exercising
of the option.
During the year Keaton Mining (Pty) Limited (Keaton Mining), a 74% subsidiary of the company, entered into an agreement with a
consortium representing certain landowners at its Sterkfontein Project (Bethal). This agreement will govern future negotiations between
Keaton Mining and the landowners in terms of its exploration and mining activities, as well as land access and acquisitions. The parties
have also agreed certain payment mechanisms for future compensation as required in terms of the MPRDA.
Keaton Mining is involved in a legal dispute as described below:
Keaton Mining (Pty) Limited vs Petronella Res
The surface right owner at Klip Colliery was entitled to a monthly rental determined by the amount of coal mined and sold. The surface
right owner up to August 2009 (Petronella Res) disputes the amount of coal mined and sold and is demanding R180 000 plus interest.
The directors of Keaton Mining are confident that the surface right owner has been paid correctly and timeously in terms of the rental
agreement and will defend its position in this regard.
Group31 March 2010 31 March 2009
R R
Capital commitments
Guarantees issued to the DMR 19 591 819 1 259 819
Guarantees issued in terms of farm acquisitions (subsequent to year-end) 50 000 000 –
Authorised but not contracted 58 829 000 38 155 000
Authorised and contracted 31 539 000 2 263 000
All contracted amounts will be funded through the existing funding mechanisms between the
company and its subsidiaries.
69Keaton Energy Annual Report 2010
GroupYear to Year to
31 March 2010 31 March 2009
R R
22. Operating lease paymentsOne of the company’s subsidiaries, Keaton Administrative and Technical Services (Pty) Limited (KATS), leases the group’s head office premises under an operating lease. This lease runs for a period of three years up to 30 April 2011. Lease payments on this contract escalate by 7% each year. Another subsidiary, Keaton Mining, leased a weighbridge and a change house at Klip Colliery, and these have now expired. The commitments are:
Lease as lesseeNon-cancellable operating lease rentals are payable as follows:Less than one year 627 277 681 890One to five years 52 273 679 550
679 550 1 361 440
KATS also subleases a part of the group’s head office premises under an operating lease. This lease runs on a month to month basis.
31 March 2010 31 March 2009R R
23. Segmental informationTotal segment assetsKeaton Mining (Pty) Limited – Vanggatfontein Project 63 471 660 22 672 060Keaton Mining (Pty) Limited/Labohlano Trading 46 (Pty) Limited – Sterkfontein Project 62 374 102 23 287 756Keaton Mining (Pty) Limited – Klip Colliery 3 286 212 16 652 773Amalahle Exploration (Pty) Limited – Projects – 1 379 265Keaton Energy Holdings Limited – Investments and Cash resources 474 772 551 450 277 863(1)
Total operating segments’ assets 603 904 525 514 269 717Assets not allocated to segments 5 171 941 5 538 180 Consolidation adjustments – investments in subsidiaries (135 668 662) (74 458 403)
Total assets 473 407 804 445 349 494
(1) Restated to conform with current year’s amount.
Year to Year to31 March 2010 31 March 2009
R R
Segment revenueKeaton Mining (Pty) Limited – Klip Colliery (all external coal sales) (1) 23 401 450 5 423 590Keaton Administrative and Technical Services (Pty) Limited (intersegment revenues) 10 638 618 10 033 583
Total operating segments’ revenue 34 040 068 15 457 173Klip Colliery – damages claim disclosed under other income (1 593 954) –Consolidation adjustments (10 489 061) (10 033 583)
Revenue 21 957 053 5 423 590
(1) Coal sales to major customer as percentage of total sales. 89% 100%
Segment profit or lossKeaton Energy Holdings Limited (1) (9 302 355) (26 005 147)Keaton Administrative and Technical Services (Pty) Limited (117 715) (6 452 179)Keaton Mining (Pty) Limited (2) (14 704 259) (4 858 627)Amalahle Exploration (Pty) Limited (3) (3 230 829) (4 217 455)Labohlano Trading 46 (Pty) Limited (1 159 471) -Other subsidiaries (335 001) (3 945 891)
Total operating segments’ loss (28 849 630) (45 479 299)Non-cash flow items (179 263) –Consolidation adjustments 3 679 217 17 664 937
Operating loss before net finance income and taxation (25 349 676) (27 814 362)
(1) Excludes finance income of R28.9 million (2009: R44.7 million).(2) Includes depreciation of R12.1 million (2009: R0.8 million) and an impairment loss/net realisable value loss of R6.0 million (2009: Rnil).(3) Includes an impairment loss of R1.8 million (2009: R2.5 million).
70
Notes to the annual financialstatements
23. Segmental information (continued)
Operational segments
Vanggatfontein Project (previously Delmas Project)
A Proved and Probable Coal Reserve of 25.9 million tonnes has been declared on this project during the year, whilst the DMR has also
awarded a 20-year mining right for this project. In November 2009 the Board approved the development of the first phase of the project
(5 Seam metallurgical coal) and off-site fabrication of the 100 tonne per hour coal processing plant began in January 2010. Subsequent
to year-end an amicable settlement has been reached with local landowners, in terms of which Keaton Mining will acquire four properties
totalling 850 hectares. The first 5 Seam metallurgical coal is expected to be produced by the end of the current year.
Sterkfontein Project
During the year the group added 3 271 hectares of prospecting rights to its 4 009-hectare Sterkfontein Project through the acquisition of
a prospecting right by the company’s 74% subsidiary, Labohlano Trading 46 (Pty) Limited. The acquisition ‘fills out’ the areas between
Sterkfontein’s North 2 and South Blocks and included data from a recently completed, 25-hole drilling programme.
The group has previously drilled 132 boreholes - a total of 25 000 metres - on the original 4 009-hectares, from which it has declared a
total coal resource of 34.8Mt, 17.5Mt in the indicated category in the North 1 and 2 blocks and 17.3Mt in the measured category in the
South Block. Results indicated that 50% is export coal and 33% domestic steam coal.
With subsequent exploration and evaluation the group has doubled the coal resource at this project to 69 million mineable tons in situ.
This brings the total number of holes drilled on the project to date area to 192.
The remainder of the drill programme is well under way and the remaining 56 holes planned for the two northern blocks of the property
should be completed by mid-2010. The group should then have defined the coal resource base to the level of confidence which will allow
it to launch a prefeasibility study for a major underground multiproduct mine, producing both export and domestic coal.
Klip Colliery
Operations at Klip Colliery have been downscaled during the year resulting in a sharp decrease in the remaining life of the mine tonnages.
This decrease resulted in the weighted average cost per tonne increasing significantly, and low quality stockpiles having to be written
down by R4.9 million to their net realisable value. An additional impairment of R1.1 million resulted from capitalised mine development
assets. Mining stopped during November 2009, and the mine site will be rehabilitated during 2010. Ownership of the coal stockpiles still
at the mine has been transferred to the buyer. These stockpiles are expected to be depleted by the end of the current year, where after
a mine closure certificate will be applied for.
Segment assets represent the last invoice issued for the Colliery’s coal and cash deposits pledged against environmental guarantees
issued to the DMR.
Amalahle Projects
Two properties, Leeuwfontein and Braamspruit, are of economic interest. A Measured Coal Resource of 922 000 tonnes (MTIS) of open
pittable coal has been declared at the Leeuwfontein Project. The group is currently evaluating its options in terms of the Leeuwfontein
Project, which is contiguous to a current operational mine. The asset has been impaired as a result of regulatory uncertainty.
The Braamspruit Project is currently involved in a legal dispute with a neighbouring mining company and the DMR in respect of the
validity of the DMR awarding the prospecting right to Amalahle. No exploration or evaluation work has been done during the financial
period and the assets have been impaired due to regulatory uncertainty.
for the year ended 31 March 2010 (continued)
71Keaton Energy Annual Report 2010
23. Segmental information (continued)Keaton Energy Holdings Limited - Investments and Cash resourcesInvestments in subsidiaries’ preference shares do not generate any return yet. Loans to subsidiaries generate a return of prime plus 2%.The operating results include an impairment of R3.7 million (2009: impairment of R17.7 million) regarding investments in subsidiaries.
The company’s cash resources include long-term restricted cash, cash and cash equivalents and interest receivable, and which are notyet applied towards the funding of the group’s exploration and mine development activities. These investments generated net financeincome of R28.9 million during the year.
Assets not allocated to segmentsThe other assets represent the group’s head office assets, receivables and deferred tax assets and, due to their nature, are not allocatedto the respective projects discussed above.
24. Remuneration of directorsThe remuneration of the executive directors of the company is set out in the table below:
Basic Travel Medical Group Performancesalary (3) allowance aid benefits bonuses Total
Executive director R R R R R R
2010Paid by the company:PBM Miller 1 719 944 – 53 733 290 949 199 606 2 264 232JG Schönfeldt 1 385 970 – 68 937 233 170 162 282 1 850 359PCCH Snyders (2)/(4) 502 954 45 000 20 298 26 823 – 595 075
Paid by the subsidiary:SM Rupprecht (1)/(4) 1 080 673 80 000 39 440 148 302 – 1 348 415AB Glad (2) 1 427 635 120 000 – 74 046 162 282 1 783 963
6 117 176 245 000 182 408 773 290 524 170 7 842 044
2009Paid by the company:PBM Miller 1 602 767 – 4 319 263 183 – 1 870 269JG Schönfeldt 1 265 498 – 60 804 208 313 – 1 534 615
Paid by the subsidiary:SM Rupprecht 1 207 391 120 000 54 102 191 507 – 1 573 000
4 075 656 120 000 119 225 663 003 – 4 977 884
(1) Resigned as a director during the year.(2) Appointed as a director during the year.(3) Includes guaranteed annual bonuses. This was separately disclosed in the previous period.(4) A share appreciation right consisting of 894 454 notional shares at R5.59 each have been granted to PCCH Snyders on 1 January 2010
(refer to note 14). The total amount recognised in profit or loss during the year in terms of these share appreciation rights was R149 674.The share appreciation rights previously issued to SM Rupprecht lapsed upon his resignation and resulted in share appreciation rightsincome of R4 545 980 during the year.
The remuneration of the non-executive directors of the company is set out in the table below:
Board Committeemember fees fees Total
Non-executive director R R R
2010JD Salter 224 125 201 713 425 838JN Wallington 224 125 134 475 358 600LX Mtumtum 224 125 112 063 336 188Z Mostert 224 125 67 238 291 363P Pouroulis 224 125 67 238 291 363APE Sedibe 224 125 67 238 291 363
1 344 750 649 965 1 994 715
2009JD Salter 205 000 184 500 389 500LX Mtumtum 205 000 102 500 307 500P Pouroulis 205 000 61 500 266 500APE Sedibe 205 000 66 507 271 507Z Mostert 138 333 41 500 179 833JN Wallington 93 333 55 537 148 870
1 051 666 512 044 1 563 710
72
Notes to the annual financialstatementsfor the year ended 31 March 2010 (continued)
25. Directors’ interest in share capital
Percentage
Number of of issued
Nature of ordinary share capital
Director interest shares as at year-end
31 March 2010
PBM Miller Indirect, beneficial 2 725 000 1.9
PBM Miller Direct, beneficial 1 018 008 0.7
P Pouroulis (1) Indirect, beneficial 41 688 428 28.8
JD Salter (1) Indirect, beneficial 2 225 000 1.5
AB Glad Indirect, beneficial 7 321 0.01
AB Glad/APE Sedibe (1) Indirect, beneficial 8 000 000 5.5
SM Rupprecht Direct, beneficial 100 000 (2) 0.07
JG Schönfeldt Direct, beneficial 7 321 0.01
JG Schönfeldt Indirect, beneficial 1 300 000 0.9
57 071 078 39.39
31 March 2009
PBM Miller Indirect, beneficial 2 725 000 1.9
PBM Miller Direct, beneficial 1 000 000 0.7
P Pouroulis (1) Indirect, beneficial 41 688 428 29.2
JD Salter (1) Indirect, beneficial 1 225 000 0.9
APE Sedibe (1) Indirect, beneficial 8 500 000 5.9
SM Rupprecht Direct, beneficial 100 000 0.07
JG Schönfeldt Indirect, beneficial 1 300 000 0.9
56 538 428 39.57
Note: There has been no change in the directors’ interest in the share capital of the company between the end of the financial year and
the date of approval of the annual financial statements.
(1) Non-executive director.(2) Resigned as a director during the year.
26. Directors’ service contracts
The terms and conditions regulating the provision of services by the executive directors to the company are regulated by employment
contracts with the company or its subsidiaries. All executive directors have identical rolling service contracts, containing a six-month
notice period. Save for restrictions concerning the non-solicitation of staff for a period of 12 months after termination of employment, the
employment contracts do not contain any restraint of trade provisions. The terms and conditions contained in the agreements entered
into with the executive directors are normal for agreements of this nature. Unless termination of employment occurs as a result of the
misconduct or poor performance of the executive director or his resignation (other than under circumstances of constructive dismissal),
death, injury, illness or retirement, upon termination of employment the executive director shall be entitled to a severance payment equal
to his annual cost to company employment package less any other payments made or becoming due to the executive director as a result
of the termination of employment.
73Keaton Energy Annual Report 2010
Analysis of ordinary shareholders as at 26 March 2010Number of Number of Percentage of issued
shareholders shares share capital
Holdings of < 100 000 shares 1 172 10 796 443 7.45%
Holdings of 100 000 to 499 999 75 14 187 828 9.80%
Holdings of 500 000 to 999 999 11 7 725 322 5.33%
Holdings of 1 000 000 to 4 999 999 28 49 715 586 34.32%
Holdings > 5 000 000 4 62 416 114 43.09%
Total 1 290 144 841 293 100.00%
Major shareholders as at 26 March 2010Number of Percentage of issued
shares share capital
Other smaller shareholders 81 466 751 56.25%
Langa Trust 19 208 428 13.26%
Axel Trust 18 480 000 12.76%
Mrs A Pouroulis 17 686 114 12.21%
Rutendo Holdings (Proprietary) Limited 8 000 000 5.52%
Total 144 841 293 100.00%
Public and non-public shareholders as at 26 March 2010Number of Number of Percentage of issued
shareholders shares share capital
Public 1 262 65 984 101 45.56%
Non-public
Directors and associates 10 57 971 078 39.33%
Persons interested (other than directors),directly or indirectly, in 10% or more 1 17 686 114 12.21%
Other non-public shareholders 17 4 200 000 2.90%
Total 1 290 144 841 293 100.00%
Shareholders’ information
74
‘A’ grade coal Domestic South African bituminous coal with an air dried basis CV between 27.5 – 28.5 MJ/kg.
Air dried or AD Coal mass that includes inherent moisture (IM).
As received or AR Coal mass that includes total moisture (TM).
‘B’ grade coal Domestic South African bituminous coal with a air dried basis CV between 26.5 – 27.5 MJ/kg.
BBBEE Broad-based black economic empowerment as defined in the MPRDA.
BEE Black economic empowerment.
Bituminous coal A medium quality coal mostly used in for raising steam for the generation of electricity.
Boxcut The initial cut driven in a property, where no open side exists; this results in a highwall on both sides of the cut.
‘C’ grade coal Domestic South African bituminous coal with a air dried basis CV between 25.5 – 26.5 MJ/kg.
Calorific value or CV The heating value of coal. To determine the calorific value (CV), a known mass of air dried coal is burnedunder standard conditions in an oxygen atmosphere contained in a constant volume. The gross CV is thestandard South African method for reporting CVs and is measured in MJ/kg – it can also be measured GJ/t(Gigajoules/tonne), kcal/kg or btu/lb.
Gross CV, or upper heating value is the CV under laboratory conditions. Net CV, or lower heating value or NetEffective Calories (NEC) is the useful calorific value in the boiler plant. The difference is essentially the latentheat in the water vapour produced.
Cash cost Direct mining costs, direct processing costs, direct general and administration costs, consulting fees,management fees, transportation, treatment charges and profit sharing charges.
cm Centimetre or centimetres, as the context indicates.
Coal A black or brownish black solid, combustible substance formed by the partial decomposition of vegetablematter without access to air. The rank of coal, which may take the form of anthracite, bitumous coal, sub-bitumous coal and lignite, is based on its fixed carbon, volatile matter and heating values (CV). Coal rankindicates the progressive alteration, or coalification, from lignite to anthracite.
Coal Reserve The economically mineable material derived from a measured and/or indicated coal resource. It is inclusive ofdiluting materials and allows for losses that may occur when the material is mined. Appropriate assessments,which may include feasibility studies, have been carried out, including consideration of, and modification by,realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social andgovernmental factors. These assessments demonstrate at the time of reporting that extraction is reasonablyjustifiable. Coal reserves are subdivided in order of increasing confidence into probable coal reserves andproved coal reserves.
Coal Resource A concentration or occurrence of coal in or on the earth’s crust in such form and quantity that there arereasonable and realistic prospects for eventual economic extraction.
Colliery A coal mine together with its physical plant and buildings. In South Africa, the term colliery applies to bothunderground and open-pit coal mines.
Competent Person A person that is registered with any one of: the South African Council for Natural Scientific Professionals, theEngineering Council of South Africa, the South African Council for Professional Land Surveyors and TechnicalSurveyors; or any other statutory South African or international body that is recognised by SAMREC.
CPR Competent Persons’ Report.
Cut-offs The lowest grade of mineralised material that qualifies as Mineral Resources in a given deposit.
‘D’ grade coal Domestic South African bituminous coal with a air dried basis CV less than 25.5 MJ/kg.
DEAT The South African Department of Environment and Tourism.
Diamond drilling The act or process of drilling boreholes using bits inset with diamonds as the rock-cutting tool. The bits arerotated by various types and sizes of mechanisms motivated by steam, internal-combustion, hydraulic,compressed air, or electric engines or motors. A common method of prospecting for coal deposits.
Glossary of terms
75Keaton Energy Annual Report 2010
DMR The South African Department of Mineral Resources.
DMS Dense Medium Separation.
Dry-Ash-Free Volatiles The volatiles expressed as percentage without the other proximate analyses (ash and moisture). or DAF Vols
Dry Basis (DB) Coal mass that excludes total moisture.
DWAF The South African Department of Water Affairs and Forestry.
EIA Environmental Impact Assessment.
EMP Environmental Management Plan.
Eskom The South African electricity public utility and a major purchaser of South Africa’s coal production.
Exploration results The results of exploration which are compiled by a competent person.
Export quality coal In the South African context, export quality coal generally refers to coal that meets the RB1 and RB2specification or alternatively is an ‘A’ or ‘B’ grade coal. Anthracite and metallurgical coal is also exported fromSouth Africa.
g Grams.
GIS Geographical Information System.
GRI Global Reporting Initiative.
GTIS Gross tonnage in situ with no modifying factors.
Ha, ha or hectare A measurement of area 100 metres by 100 metres.
HDP A historically disadvantaged person as defined in the MPRDA, being: any person, category of persons or community, disadvantaged by unfair discrimination before theConstitution of the Republic of South Africa No. 108 of 1996 took effect; any association, a majority of whose members are persons contemplated in the first bullet above; or any juristic person other than an association, in which persons contemplated in the first bullet above ownand control a majority of the issued capital or members’ interest and are able to control a majority of themembers’ votes.
HEPS Headline earnings (or loss) per share.
IFRS International Financial Reporting Standards.
In situ Generally used with reference to the reporting of coal resources to indicate a volume or tonnage of coalpresent undisturbed in the ground.
In situ tonnage Measure of mass of coal in the ground (each tonnage quoted needs to be specified whether it is air dried ormoisture free).
Indicated Coal Resource That part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and coalcontent can be estimated with a reasonable level of confidence. It is based on exploration, sampling andtesting information gathered through appropriate techniques from locations such as outcrops, trenches, pits,workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/orgrade continuity but are spaced closely for continuity to be assumed.
Inferred Coal Resource That part of a coal resource for which tonnage, grade and coal content can be estimated with a low level ofconfidence. It is inferred from geological evidence and assumed but not verified for geological and/or gradecontinuity. It is based on information gathered through appropriate techniques from locations such asoutcrops, trenches, pits, workings and drill holes that may be limited or of uncertain quality and reliability.
ISO International Standards Organisation.
JSE JSE Limited (Registration number 2005/022939/06), a public company registered and incorporated in SouthAfrica, licensed as an exchange under the South African Securities Services Act, No 36 of 2004, as amended.
kcal/kg Kilocalories per kilogram. An alternative measure of CV, used outside South Africa. To convert kcal/kg toMJ/kg divide kcal/kg by 238.8.
km Kilometre or kilometres, as the context indicates.
Long life Operation with life of greater than 10 years.
m or metre Metre or metres, as the context indicates.
Measured Coal Resource That part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and coalcontent can be estimated with a high level of confidence. It is based on detailed and reliable exploration,sampling and testing information gathered through appropriate techniques from locations such as outcrops,trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological andgrade continuity.
Medium life Operation with life of between five and 10 years.
Megawatt (MW) One million watts.
76
MJ/Kg Megajoules per kilogram, measure of heat generating capacity (cv).
mm Millimetre or millimetres, as the context indicates.
MPRDA or Mineral and The South African Mineral and Petroleum Resources Development Act No. 28 of 2002, as amended, which Petroleum Resources became effective legislation on 1 May 2004. Development Act or MPRDA
MT, t Metric tonnes where 1 MT = 1 000 kilograms = 2 204.6 lb. MT are the standard measure of mass in South Africa.
Mt Million tonnes.
MTIS Mineable tonnes in situ.
Open pit A mine working or excavation, open to the surface.
Quality or grade An informal classification of coal relating to its suitability for use for a particular purpose. Refers to individualmeasurements such as heat value (CV); fixed carbon; moisture; ash; sulphur; phosphorus; major, minor, andtrace elements; coking properties; petrologic properties; and particular organic constituents. The individualquality elements may be aggregated in various ways to classify coal for such special purposes asmetallurgical, gas, petrochemical and blending usages. Grade is inversely related to the percentage ofinorganic material in the coal and is largely determined during the depositional stage of the coal’s formation.The ash content of a coal is therefore the most convenient measure of its grade.
Domestic market coal is South Africa has traditionally been classified as ‘A’, ‘B’, ‘C’ or ‘D’ grade coal, gradedby calorific value (CV).
R or Rand The South African Rand, the lawful currency of South Africa.
RBCT The Richards Bay Coal Terminal.
RD Relative density.
RoM Run-of-mine.
SA or South Africa or RSA The Republic of South Africa.
SAMREC The South African Mineral Resource Committee.
SAMREC Code The South African Code for Reporting of Mineral Resources and Mineral Reserves including the guidelinescontained therein.
SANS South African National Standards.
Seam A bed of coal lying between a roof and floor; an equivalent term to bed, commonly used by the industry;alternatively a provincial term for a coal bearing layer.
Short life Operation with life of less than five years.
SLP or Social and Labour Plan A document that is submitted in terms of MPRDA and the Mining Charter as part of an application for aMining Right.
MWP or Mine Works A document that is submitted in terms of MPRDA and the Mining Charter as part of an application for a Programme Mining Right.
DALA The Mpumalanga Provincial Department of Agriculture and Land Affairs.
t Tonnes.
Tailings The gangue and other refuse material resulting from the washing, concentration, or treatment of ground ore.
VAT Value-added tax payable in terms of the South African Value-Added Tax Act, No 89 of 1991.
Working capital Expenditures required to fund the resulting change in the debtors, creditors and stores position at a point in time.
Glossary of terms(continued)
77Keaton Energy Annual Report 2010
KEATON ENERGY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 2006/011090/06)
(the company or Keaton Energy)
JSE Code: KEH
ISIN Code: ZAE00117420
Notice is hereby given that the Annual General Meeting (AGM) of shareholders of the company will be held at The Graphite Room,
The Campus, 57 Sloane Street, Bryanston, 2191, South Africa on Thursday, 22 July 2010 at 10h00, for the following purposes:
Ordinary business1. To receive, consider and adopt the Annual Financial Statements for the year ended 31 March 2010 of the company and the group,
together with the auditor's report.
2. To elect, as an executive director, Mr PCCH Snyders, who was appointed as a director on 1 January 2010 and, being eligible makes
himself available for re-election.
3. To re-elect the directors who retire by rotation in terms of the Articles of Association and who, being eligible, offer themselves for re-election:
3.1 Ms APE Sedibe
3.2 Mr P Pouroulis
A brief curriculum vitae in respect of each director referred to in 2 and 3 above appears on pages 20 and 21 of this Annual Report.
The Board recommends the re-election of these directors.
4. To re-appoint KPMG Inc., with the designated audit partner (engagement director) being Mr S van den Boogaard, as auditors of the
company to hold office for the ensuing year until the conclusion of the next AGM.
5. To authorise the directors to fix the remuneration of the auditors.
6. To approve the non-executive directors' remuneration as set out on page 71.
Special businessIn addition, shareholders will be requested to consider and, if deemed fit, to pass the following ordinary and special resolutions with or
without amendment:
Ordinary resolution number 1
Control of authorised but unissued shares
"RESOLVED THAT all the authorised but unissued ordinary shares in the capital of the company, be and are hereby placed at the disposal
and under the control of the directors, and that the directors be and are hereby authorised to allot, issue and otherwise to dispose of all or
any of such shares at their discretion, in terms of and subject to the provisions of the Companies Act, 1973 (Act No. 61 of 1973), as amended
(the Act) and the JSE Limited (JSE) Listings Requirements and subject to the proviso that the aggregate number of ordinary shares which
may be allotted and issued in terms of this ordinary resolution number 1, shall be limited to 10% (ten per cent) of the number of ordinary
shares in issue from time to time."
A majority of the votes cast by all shareholders present or represented by proxy at the AGM, will be required to approve this resolution.
Notice of Annual General Meeting
78
Ordinary resolution number 2
General authority to issue shares for cash
"RESOLVED THAT the directors of the company be and are hereby authorised and empowered, by way of a general authority, to allot and
issue shares for cash to such persons, on such terms and conditions as the directors may from time to time at their discretion deem fit, but
subject to the provisions of the Act and the JSE Listings Requirements and the following limitations, namely that:
a. the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be
limited to such securities or rights that are convertible into a class already in issue;
b. any such issue will be made only to public shareholders as defined in the JSE Listings Requirements and not related parties, unless the
JSE otherwise agrees;
c. the number of shares issued for cash shall not in the aggregate in any one financial year exceed 10% (ten per cent) of the company's
issued share capital of ordinary shares. The number of ordinary shares which may be issued shall be based on the number of ordinary
shares in issue, added to those that may be issued in future (arising from the conversion of options/convertibles) at the date of such
application, less any ordinary shares issued, or to be issued in future arising from options/convertible ordinary shares issued during the
current financial year; plus any ordinary shares to be issued pursuant to a rights issue which has been announced, is irrevocable and is
fully underwritten, or an acquisition which has had final terms announced;
d. this authority be valid until the company's next AGM, provided that it shall not extend beyond 15 (fifteen) months from the date that this
authority is given;
e. a paid press announcement giving full details, including the impact on net asset value and earnings per share, will be published at the
time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of shares in
issue prior to the issue; and
f. in determining the price at which an issue of shares may be made in terms of this authority, the maximum discount permitted will be 10%
(ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the
price of the issue is determined or agreed to by the directors of the company."
Ordinary resolution number 2 is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in
favour of such resolution by all members present or represented by proxy and entitled to vote, at the AGM.
Ordinary resolution number 3:
Non-binding indicative approval of the remuneration policy
The King III Code of Governance recommends that the company's remuneration policy be tabled for a non-binding indicative vote by
shareholders at each annual general meeting.
"RESOLVED THAT the company's remuneration policy as set out on pages 25 to 28 of the Annual Report, be and is hereby accepted and
approved."
Special resolution number 1:
General authority to repurchase shares
"RESOLVED THAT, the company be and is hereby authorised by way of a general authority contemplated in sections 85(2) and 85(3) of the
Act, to acquire the issued ordinary shares of the company, upon such terms and conditions and in such amounts as the directors of the
Notice of Annual General Meeting
(continued)
79Keaton Energy Annual Report 2010
company may from time to time determine, but subject to the Articles of Association of the company, the provisions of the Act and the JSE
Listings Requirements, where applicable, and provided that:
a. the repurchase of shares will be effected through the main order book operated by the JSE trading system and done without any prior
understanding or arrangement between the company and the counter party;
b. this general authority shall only be valid until the company's next AGM, provided that it shall not extend beyond 15 (fifteen) months from
the date of passing of this special resolution;
c. in determining the price at which the company's ordinary shares are acquired by the company in terms of this general authority, the
maximum premium at which such ordinary shares may be acquired will be 10% (ten per cent) of the weighted average of the market price
at which such ordinary shares are traded on the JSE, as determined over the 5 (five) trading days immediately preceding the date of the
repurchase of such ordinary shares by the company;
d. the acquisition of ordinary shares in the aggregate in any one financial year does not exceed 20% (twenty per cent) of the company's
issued ordinary share capital from the date of the grant of this general authority;
e. the company and the group are in a position to repay their debt in the ordinary course of business for a period of 12 months from the
company first acquiring shares under this general authority and subject to (i) below;
f. the assets of the company and the group, being fairly valued in accordance with International Financial Reporting Standards, are in
excess of the liabilities of the company and the group at the time of the company first acquiring shares under this general authority and
subject to (i) below;
g. the ordinary capital and reserves of the company and the group are adequate for a period of 12 months from the company first acquiring
shares under this general authority and subject to (i) below;
h. the available working capital is adequate to continue the operations of the company and the group for a period of 12 months from the
company first acquiring shares under this general authority and subject to (i) below;
i. upon entering the market to proceed with the repurchase, the company's sponsor has compiled with its responsibilities contained in
Schedule 25 of the JSE Listings Requirements;
j. the company or its subsidiaries will not repurchase ordinary shares during a prohibited period as defined in paragraph 3.67 of the JSE
Listings Requirements, unless a repurchase programme (where the date and quantities of ordinary shares to be repurchased during the
prohibited period are fixed) is in place and full details thereof are announced on SENS prior to the start of the prohibited period;
k. when the company has cumulatively repurchased 3% of the initial number of the relevant class of shares, and for each 3% in aggregate
of the initial number of that class acquired thereafter, an announcement will be made; and
l. the company only appoints one agent to effect any repurchase(s) on its behalf."
Other disclosure in terms of Section 11.26 of the JSE Listings Requirements
The JSE Listings Requirements require the following disclosure, some of which is disclosed in the Annual Report of which this notice forms
part as set out below:
directors and management – pages 20 and 21;
major shareholders of Keaton Energy – page 71;
directors' interest in shares – page 72; and
share capital of Keaton Energy – page 32.
Material changes
There have been no material changes in the affairs of financial position of Keaton Energy and its subsidiaries since the date of signature of
the audit report and the date of this notice.
Directors' responsibility statement
The directors, whose names are given on pages 20 and 21 of the Annual Report, collectively and individually accept full responsibility for the
accuracy of the information pertaining to special resolution number 1 and certify that to the best of their knowledge and belief there are no
facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts
have been made and that this resolution contains all such information.
Litigation statement
In terms of section 11.26 of the JSE Listings Requirements, the directors, whose names are given on page 20 and 21 of the Annual Report of
which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that
may have or have had in the recent past, being at least the previous 12 months, a material effect on Keaton Energy's financial position.
80
Reason for and effect of special resolution number 1
The reason and effect for special resolution number 1 is to authorise the company by way of a general authority to acquire its own issued
shares on such terms, conditions and such amounts determined from time to time by the directors of the company, subject to the limitations
set out above.
Voting and proxies
A shareholder entitled to attend and vote at the AGM is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead.
A proxy need not be a shareholder of the company. For the convenience of registered shareholders of the company, a form of proxy is
enclosed herewith.
The attached form of proxy is only to be completed by those shareholders who are:
holding Keaton Energy ordinary shares in certificated from; or
recorded on the electronic sub-register in 'own name' dematerialised form.
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker and wish to attend
the AGM, must instruct their CSDP or broker to provide them with a letter of representation, or they must provide the CSDP or broker with
their voting instructions in terms of the relevant custody agreement/mandate entered into between them and their CSDP or broker.
Forms or proxy must be lodged with the transfer secretaries of the company at the address given on page 83 by no later than 10h00 on
Tuesday, 20 July 2010. Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person
at the AGM.
By order of the Board
Routledge Modise Inc. practising as Eversheds
Company secretary
28 May 2010
Notice of Annual General Meeting
(continued)
81Keaton Energy Annual Report 2010
Form of proxy
KEATON ENERGY HOLDINGS LIMITED
(incorporated in the Republic of South Africa)(Registration No. 2006/011090/06)(the company or Keaton Energy)JSE Code: KEHISIN Code: ZAE000117420
For use at the Annual General Meeting (AGM) of the holders of ordinary shares in the company (Keaton Energy shareholders) to be held at The GraphiteRoom, The Campus, 57 Sloane Street, Bryanston, 2191, South Africa on Thursday, 22 July 2010 at 10h00.
Keaton Energy shareholders who have dematerialised their shares through a CSDP or broker must not complete this form of proxy but must providetheir CSDP or broker with their voting instructions, except for Keaton Energy shareholders who have elected 'own name' registration in the sub-registerthrough a CSDP or broker. It is these shareholders who must complete this form of proxy and lodge it with the transfer secretaries.
Holders of dematerialised Keaton Energy shares wishing to attend the AGM must inform their CSDP or broker of such intention and request theirCSDP or broker to issue them with the relevant authorisation to attend.
I/We (name in block letters)
of (address)
being the registered holder/s of ordinary shares in the capital of the company, hereby appoint (see note 1):
i) or, failing him/her ii) or, failing him/her
iii) the chairperson of the AGM.
as my/our proxy to represent me/us at the AGM for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutionsto be proposed thereat or at such adjournment or postponement thereof, and to vote for and/or against the resolutions and/or abstain from voting inrespect of the shares in the issued share capital of the company registered in my/our name (see note 2), as follows:
For Against Abstain1. The adoption of the Annual Financial Statements for the period ended 31 March 20102. To elect as an executive director Mr PCCH Snyders3.1. To re-elect as a non-executive director Ms APE Sedibe3.2. To re-elect as a non-executive director Mr P Pouroulis4. To re-appoint KPMG Inc as auditors of the company5. To authorise the directors to fix the remuneration of the auditors6. To approve the non-executive directors' remuneration7. Ordinary resolution number 1 – Control of authorised but unissued shares8. Ordinary resolution number 2 – General authority to issue shares for cash 9. Ordinary resolution number 3 – Remuneration policy10. Special resolution number 1 – General authority to repurchase shares
and generally to act as my/our proxy at the said AGM (indicate with an ‘X’ or the relevant number of votes, in the applicable space, how you wish yourvotes to be cast. If no directions are given, the proxy holder will be entitled to vote or to abstain from voting as that proxy holder deems fit).
A member entitled to attend and vote at the AGM may appoint one or more proxies to attend, vote and speak in his/her/its stead at the general meeting.A proxy need not be a member of the company.
Signed at on 2010
Signature of member(s)
Assisted by (where applicable) Please read the notes on the reverse side hereof.
82
Notes to the form of proxy(continued)
1. This form of proxy must only be used by certificated ordinary shareholders or dematerialised ordinary shareholders who hold dematerialised
ordinary shares with 'own name' registrations.
2. Dematerialised ordinary shareholders are reminded that the onus is on them to communicate with their CSDP or broker.
3. A Keaton Energy shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the spaces provided, with
or without deleting 'the chairperson of the AGM', but any such deletion must be initialled by the Keaton Energy shareholder concerned. If two or
more proxies attend the meeting, then that person attending the meeting whose name appears first on the form of proxy, and whose name is not
deleted, shall be regarded as the validly appointed proxy.
4. The authority of a person signing a form of proxy in a representative capacity must be attached to the form of proxy unless that authority has
already been recorded by the company's transfer secretaries or waived by the Chairperson of the AGM.
5. In order to be effective, forms of proxy must reach the registered office of the company or the company's transfer secretaries at least
48 hours before the time appointed for holding the meeting (excluding Saturdays, Sundays and public holidays).
6. Any alteration or correction made to this form of proxy must be initialled by the signatory/(ies).
7. If this form of proxy is returned without any indication as to how the proxy should vote, the proxy will be entitled to vote or abstain from voting as
he thinks fit.
8. The delivery of the duly completed form of proxy shall not preclude any member or his duly appointed representative from attending the meeting,
speaking and voting in stead of such duly appointed proxy.
9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have
been registered by the company.
10. Where there are joint holders of any shares:
any one holder may sign this form of proxy; and
the vote(s) of the senior shareholders (for that purpose seniority will be determined by the order in which the names of shareholders appear in
the company's register of members) who tenders a vote (whether in person or by proxy) will be accepted to the exclusion of the vote(s) of the
other joint shareholder(s).
Registered address Transfer secretaries
Ground floor, Eland House Computershare Investor Services (Pty) LimitedThe Braes Ground floor, 70 Marshall Street3 Eaton Road JohannesburgBryanston, 2191 2001South Africa South Africa
83Keaton Energy Annual Report 2010
Administration and contact details
Keaton Energy Holdings Limited
Registration number: 2006/011090/06
Share code: KEH
ISIN code: ZAE000117420
Registered address
Ground floor
Eland House
The Braes
3 Eaton Road
Bryanston
2191
South Africa
Postnet Suite 464
Private Bag X51
Bryanston
2021
South Africa
Tel: +27 (0) 11 317 1700
Fax: +27 (0) 11 463 4759
Website: www.keatonenergy.co.za
Investor relations
James Duncan
Russell and Associates
Tel: +27 (0) 11 880 3924
Fax: +27 (0) 11 880 3788
Email: james@rair.co.za
Company secretary and attorney
Routledge Modise Inc. practising as Eversheds
22 Fredman Drive
Sandton
Johannesburg
2149
PO Box 78333
Sandton City
2146
Transfer secretaries
Computershare Investor Services
Registration number: 2004/003647/07
Ground floor
70 Marshall Street
Johannesburg
2001
PO Box 61051
Marshalltown
2001
Investment bank, corporate advisorand sponsor
Nedbank Capital135 Rivonia RoadSandown2196
PO Box 1144Johannesburg2000
Reporting accountants and auditors
KPMG IncorporatedRegistered Accountants and AuditorsChartered Accountants (SA)
KPMG Forum1226 Schoeman StreetHatfieldPretoria0083
PO Box 11265Hatfield0028
84
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Notes
This Annual Report presents the operating and financial results for the year 1 April 2009 to 31 March 2010
for Keaton Energy Holdings Limited (Keaton Energy or the company or the group).
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS), and this report has been prepared in compliance with the South African Companies
Act No. 61 of 1973 and the Listings Requirements of the JSE Limited (JSE). King III became effective on
1 March 2010, and the company and its directors will ensure compliance with the revised principles of
good governance during the coming year. The Annual Report is submitted to the JSE as this is the
company's registered exchange.
The report includes an analysis of the key factors affecting the company’s performance over the period,
the steps taken by the company to operate within its risk framework to maximise stakeholder returns,
and a detailed review of the financial and technical aspects of the company over the year. Also included
in this report is a self-declared C level, GRI-compliant review of the company’s sustainability procedures
and practices.
The two key events during the period were the mining right award and subsequent development decision
on Phase 1 of the Vanggatfontein Project and the area extension secured at the Sterkfontein Project.
Post-balance sheet events include the declaration of an increase to the Sterkfontein Project’s Coal
Resource to 69 million tonnes and resolution of the legal dispute which led to the delay of the
Vanggatfontein Project.
Abbreviations used throughout this report are defined in the glossary of terms on pages 74 to 76.
Copies of the printed version can be requested from the contacts listed at the end of this report.
Scope of thereport
Forward-looking statementsCerta in s ta tements conta ined in th is Annua l Repor t inc lud ing, w i thout l im i ta t ion, those concern ing the economic out look for the coa lindust r y, expectat ions regard ing commodi ty pr ices, product ion, cash costs and other operat ing resu l ts , growth prospects and theout look for Keaton Energy’s operat ions, inc lud ing the complet ion and in i t ia t ion o f commerc ia l operat ions o f cer ta in Keaton Energyexp lorat ion and product ion pro jects , i ts l iqu id i ty and cap i ta l resources and expend i ture , conta in cer ta in forward- look ing s ta tementsregard ing Keaton Energy’s operat ions, economic per formance and f inanc ia l cond i t ion.
A l though Keaton Energy be l ieves that the expectat ions and the outcome re f lected in such forward- look ing s ta tements are reasonable ,no assurance can be g iven that such expectat ions wi l l p rove to have been cor rect . Accord ing ly, resu l ts cou ld d i f fe r mater ia l l y f romthose set out in the forward- look ing s ta tements as a resu l t o f , among other factors , changes in economic and market cond i t ions,success o f bus iness and operat ing in i t ia t i ves , changes in the regu la tor y env i ronment and other government act ion, f luctuat ions incommodi ty pr ices and exchange ra tes , and bus iness and operat iona l r i sk management . For a d iscuss ion o f such factors , re fer to ther isk factors as deta i led in the corporate governance sect ion o f th is Annua l Repor t . 3369/10 Russe l l and Assoc ia tes
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Annual Report2010www.keatonenergy.co.za
Keaton EnergyAnnual Report 2010
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