Mc Mining Regulatory News (MCM)

ANNOUNCEMENT 1 October 2012

ANNUAL FINANCIAL STATEMENTS COMMENTARY AND PROJECT UPDATE

Coal of Africa Limited, ("CoAL", or "the Company", or "the Group"), the coal exploration, development and mining company operating in South Africa and listed on the ASX, AIM and JSE (ticker: CZA), is pleased to provide a copy of its Annual Financial Statements for the year ended 30 June 2012 which are also available on the Company's website on www.coalofafrica.com. The financial summary and commentary on the results are provided below.

John Wallington, CEO, commented on the period under review:

"The successes achieved during the year and the various prospects in hand herald an exciting new chapter for CoAL and confirms that the Company has the resource base, depth of management and operational know-how to become a significant Southern African coal producer. CoAL accomplished a number of significant milestones during the year, notwithstanding the turbulent economic, market and labour conditions:

·; lifting of the suspended Water Use License and receipt of the required regulatory authorisations allowing for the commencement of production at the Vele Colliery;

·; Makhado Project Definitive Feasibility Study and application for New Order Mining Right far advanced; test work completed confirming the ability to produce a hard coking coal product with a high quality thermal by-product from the project;

·; finalising the acquisition of Rio Tinto and Kwezi Mining's Chapudi coal assets;

·; fourfold increase in the Company's resource base to approximately 8.0 billion tonnes in the Soutpansberg and Limpopo coalfields creating the platform on which to build a world class coal business comprising hard and soft coking coal, high grade export thermal coal and a domestic product for Eskom;

·; further advancement of the technical work on the other properties in the Soutpansberg coalfield over which the Group has prospecting rights, providing further confidence in our strategy to develop the Makhado Project and the outstanding long term potential of the Company's Soutpansberg coalfield resource.

The successful resolution of the Vele Colliery regulatory hurdles after a 15 month delay was a decisive moment for the Company. The colliery's ground-breaking and collaborative initiatives in the South African coal mining industry reflect the Company's commitment to leading practices in sustainable development. The Company is committed to ensuring the integrity of the Mapungubwe heritage site and the long term sustainable development of mining activities in this area.

Group restructuring continued with the conversion of the Mooiplaats Colliery from a contract miner to an owner-managed operation; assessment of options to increase the life at the Woestalleen processing facility and the disposal of the Group's non-core alloy producer, NiMag.

Market conditions for export quality thermal coal deteriorated significantly during the financial year, with spot prices falling by approximately 27% year on year, with the decline particularly evident during the last quarter when coal prices fell approximately 10% to the approximately US$85 level. Similarly, hard coking coal prices fell from US$310 per tonne in June 2011 to approximately US$220 per tonne at the end of June 2012, falling below US$150 per tonne by September 2012.

In response to the declining prices, management implemented cost control measures to avert further losses particularly at the Mooiplaats Colliery. As previously announced, the recent increase in labour unrest in the South African mining industry has affected the colliery, with employees going on a wage related strike on 25 September 2012. Various measures are being contemplated as a result of the strike and declining prices, including the possibility of restructuring the operation.

Woestalleen continued to perform in line with expectations and the labour situation remains stable, with annual wage negotiations settled recently. With the depletion of the coal resource at the Vuna Colliery anticipated by March/April 2013, steps are underway to extend the life of the Woestalleen processing plant. This includes the reprocessing of the Woestalleen discard dumps to produce an Eskom quality coal and, utilising the existing rail-load out facility to load third party coal for transport by rail to Eskom's power stations.

As part of the ongoing funding requirements of the business, the Company completed an equity fundraising of US$106 million in November 2011 and subsequent to year end, completed equity placements totaling $53.5 million. In addition, discussions to restructure the Company's existing debt facilities by the end of the calendar year are ongoing.

CoAL continues to work on a number of initiatives to ensure the financial security of the group going forward and is pleased to announce the conclusion of a strategic partnership with Haohua Energy International (Hong Kong) Company Limited, a subsidiary of Beijing Haohau Energy Resource Company Limited, furnishing the Company with a binding offer to provide US$100.0 million of funding to CoAL by way of a subscription for shares. The funding will be structured as an initial US$20.0 million subscription utilising the Company's 15% authority, which will be subject to FIRB approval, and a further US$80 million subscription subject to shareholder approval.

Exxaro had an option to acquire up to 30% of the Makhado Project and engaged with the Company over the past few months to finalise the technical review and evaluation process. While the Company was pleased the product testing confirmed that the Makhado Project will produce a hard coking coal and that the project economics are sound, Exxaro has elected not to exercise its pre-emptive right to acquire a 30% interest and participate in the development of the project. The Company was advised by Exxaro that after consideration of the various alternative projects currently in their growth pipeline, combined with the current negative sentiments regarding the global and local macroeconomic growth outlook, that Exxaro will be focusing on existing projects.

The outcome of Exxaro's decision coincides with the completion of various negotiations regarding potential strategic investments with other third parties, either at group or project level, culminating in the binding offer received from HEI. In addition, discussions are ongoing regarding the restructuring of the Company's debt facility with Deutsche Bank together with discussions with other financial institutions on additional debt facilities.

The next phase of plant construction at Vele Colliery to achieve the full production target of 2.7 million run of mine tonnes per annum; improved operational performance at Mooiplaats and downsizing of Woestalleen to create a coal processing and loading hub are key FY2013 milestones. The remaining submissions for the granting of the Makhado Project New Order Mining Right have been finalised and management is working closely with the various regulatory bodies to secure the granting thereof. The development of the Greater Soutpansberg Project and advancing the technical work required to submit New Order Mining Right applications over the various other properties in respect of which the Group holds prospecting rights, remains key to generating significant future value for all stakeholders.

The appointment of David Brown as Non-Executive Chairman and Bernard Pryor as Non-Executive Director of the CoAL board occurs at a critical time in the evolution of the Company, and I look forward to working with both as we advance the Group's future growth plans. I take this opportunity to thank our past Chairman Richard Linnell, Deputy Chairman Simon Farrell and Directors, Steve Bywater and Mikki Xayiya for their contribution whilst serving on the Board and wish them well in their future endeavors."

Operational highlights

·; Greatly improved safety performance - 10 lost time injuries ("LTI's") recorded during the year compared to 15 in FY2011.

·; 4.930 million run of mine ("ROM") tonnes (FY2011: 4.409 million ROM tonnes) of coal mined from the Vuna, Mooiplaats and Vele collieries, up 12% year on year.

·; 4.906 million ROM tonnes (FY2011: 4.997 million ROM tonnes) processed, producing 3.128 million saleable tonnes (FY2011: 3.316 million saleable tonnes) of thermal coal at an overall average yield of 63.8% (FY2011: 66.4%).

·; The start of mining operations in October 2011 and plant operations in February 2012 at Vele coking coal colliery ("Vele Colliery"), with the extraction of 161,107 tonnes of ROM coal during the build-up phase, producing 46,066 tonnes of export quality thermal coal that was railed from the Musina siding for export via the Matola Terminal in Maputo, Mozambique ("Matola Terminal").

·; Transfer of mining operations from a contract mining to owner-managed basis at Mooiplaats thermal coal colliery ("Mooiplaats Colliery") and the commissioning of a fifth underground section resulted in improved production, yielding 1.226 million tonnes of ROM coal, up 39% from 0.883 million tonnes during the previous financial year.

·; Granting of an Integrated Water Use Licence ("IWUL") for the North Block of Vuna colliery ("Vuna") and the start of mining operations in the new pit resulted in 3.543 million tonnes of ROM coal (FY 2011: 3.526 million tonnes) mined during the year.

·; Total group coal sales decreased by 2% year on year from 3,448,563 tonnes in FY2011 to 3,373,780 tonnes in FY2012, due primarily to the reduction of third party ROM and saleable coal available for purchase in the second half of the financial year, which augmented the prior year sales volumes.

·; Memorandum of Agreement ("MOA") signed with the South African Department of Environmental Affairs ("DEA") and South African National Parks ("SANParks") to ensure the conservation and integrity of the globally significant natural and cultural Mapungubwe National Park and World Heritage Site ("Mapungubwe"), and to maintain and strengthen co-operation between the parties at the Vele Colliery.

·; Memorandum of Understanding ("MOU") signed with the Save Mapungubwe Coalition ("the Coalition"), committing the parties to work together and strengthen co-operation, ensuring the sustainable development of the Mapungubwe cultural landscape.

·; Preliminary review of the Makhado coking coal project ("Makhado Project") Definitive Feasibility Study ("DFS") conducted by the CoAL board of directors ("Coal Board") resulting in submission thereof to Exxaro Coal Proprietary Limited ("Exxaro") allowing it to begin its evaluation process.

·; Completion of the full battery of independent tests commissioned by the Company, including full scale coking tests at ArcelorMittal South Africa's ("AMSA") local facilities, confirming the quality and technical feasibility for AMSA (and potentially other customers) of the hard coking coal to be produced at the Makhado Project.

·; Gross tonnes in situ in the Greater Soutpansberg area increased by 429% from 1.5 billion tonnes to 8.0 billion tonnes.

Regulatory highlights

·; Vele Colliery began full operations in October 2011, following the granting of the Environmental Authorisation ("EA") and lifting of the suspension of the IWUL.

·; Effective implementation of the Environmental Management Committee ("EMC") chaired by SANParks to monitor environmental compliance at the Vele Colliery.

·; Successful elections held for the appointment of the Makhado Colliery Community Consultative Forum ("MCCCF") in June 2012, enabling the finalisation of the public consultations required for the New Order Mining Right ("NOMR") application process.  

·; Section 11 consent received in terms of the Mineral & Petroleum Resources Development Act ("MPRDA") for the acquisition by Keynote Trading & Investment 108 Proprietary Limited ("Keynote") of the entire issued share capital of Chapudi Coal Proprietary Limited ("Chapudi") and Kwezi Mining Exploration Proprietary Limited ("KME") from Rio Tinto Minerals Development Limited ("RTMD") and Kwezi Mining Proprietary Limited ("Kwezi").

·; Approval for the substitution of creditor (CoAL for RTMD) in relation to the shareholder claims closing in respect of the acquisition of claims in Chapudi and KME by CoAL on 27 September 2012.

Funding activities

·; US$159.5 million new equity capital raised, including US$106.0 million during the financial year and US$53.5 million subsequent to year-end.

·; Subsequent to year end and finalisation of the audited financial statements, concluding an agreement with Beijing Haohau Energy Resource Company Limited's ("BHE") wholly owned subsidiary, Haohua Energy International (Hong Kong) Company Limited ("HEI"), to subscribe for shares in the Company for US$100.0 million at 25 pence per share, a 64% premium to the closing share price on Friday 27 September 2012, to be completed in two tranches of US$20.0 million (subject to FIRB approval) and US$80.0 million (subject to shareholder approval).

·; Discussions ongoing regarding restructuring of debt facility with Deutsche Bank and potential discussions with other financial institutions on debt facilities.

·; Extension of the payment date for the purchase consideration of US$13.6 million due to RTMD in terms of the Chapudi acquisition to 22 October 2012, with a view to further discussions on the revised payment plan taking place.

·; Completion of the disposal of the non-core NiMag Proprietary Limited and Metalloy Resources Investments Proprietary Limited (together "the NiMag Group") by way of a management buy-out ("MBO") for ZAR54.0 million (approximately US$6.5 million).

·; Ongoing review of levels of expenditures, active management of working capital requirements and options to restructure or disposal of other interests, specifically the thermal coal assets.

Financial highlights

·; US$243.8 million (FY2011: US$261.4 million) in total revenue generated for the year. Revenue from coal sales of US$242.5 million (FY2011: US$229.2 million) was 6% higher year on year. With the disposal of the NiMag operation during the year, US$nil million (FY2011: US$31.2 million) was reported as revenue in the current year and the profit on disposal of $1.1 million is reported as part of Other Income.

·; Sales of thermal coal decreased by 2% from 3,448,563 tonnes in FY2011 to 3,373,781 in FY2012 and included a change in the sales mix. The variation in sales mix resulted in revenue increasing by 6% and was offset by a 27% decline in export coal spot prices from approximately US$119 per tonne in June 2011, to approximately US$87 per tonne in June 2012.

·; Coal sales mix was made up as follows:

o export coal sales increased by 55% to 1.662 million tonnes (FY2011: 1.069 million tonnes) with the increase throughput capacity at the Matola terminal;

o inland sales of export quality coal decreased by 49% to 0.923 million tonnes (FY2011: 1.803 million tonnes) as existing contracts were fulfilled; and

o sales to Eskom Limited ("Eskom"), the South African electricity utility, increased by 37% to 0.788 million tonnes (FY2011: 0.577 million tonnes) as a result of additional discard available from mining and processing export quality coal.

·; Total gross profit for the year of US$33.4 million (FY2011: US$37.9 million) and the gross margin percentage of 14% (FY2011: 15%) was lower year on year due to:

o the gross margin from coal sales increasing by 4% to US$33.6 million (FY2011: US$32.4 million) as a result of the change in sales prices and mix, offset by higher logistics costs;

o the exclusion of the NiMag profit margin in the current financial year US$nil (FY2011: US$5.7 million) following the disposal of this non-core asset.

·; Once-off costs of $5.7 million (FY2011: US$nil) in the current year relating to additional legal, technical and regulatory work associated with the equity placement undertaken in November 2011.

·; Non-cash charges of US$115.9 million (FY2011: US$208.7 million) including:

o depreciation and amortisation of US$70.0 million (FY2011: US$79.5 million);

o unrealised foreign exchange losses of US$47.0 million (FY2011: US$28.8 million);

o share based payment expense of US$5.0 million (FY2011: US$3.0 million);

o goodwill of US$1.2 million written off (FY2011: US$nil);

o other income of US$6.9 million (FY2011: US$nil) relating to the reversal of warranty and other provisions in respect of the NuCoal acquisition; and

o reversal of impairment losses of US$0.3 million (FY2011: US$97.4 million impairment loss) with no additional impairment charges raised in FY2012.

·; Adjusted operating loss before tax (excluding non-cash items) or EBITA of US$32.8 million (FY2011: US$10.1 million) lower by US$22.7 million largely as a result of increased labour costs associated with the increase in mining activity at Mooiplaats, once off capital raising project costs and the exclusion of the contribution from NiMag disposed of in the current financial year.

·; Net loss after tax for the year, including non-cash items, of US$138.9 million (FY2011: US$219.0 million) was US$80.1 million lower largely due to no impairment of assets in FY2012 compared to US$97.4 million in the prior year.

·; Total unrestricted cash balances and undrawn Deutsche Bank facilities of US$37.0 million (FY2011: US$40.3 million) at year-end.

·; JSE reporting requirement: headline earnings loss for the year of US$0.2265 (FY2011: loss of US$0.2291).

Strategic Partner - Haohua Energy International (Hong Kong) Resource Co. Limited

On 29 September 2012, HEI submitted a binding offer to provide the Company with US$100.0 million of equity funding. The Proposed Transaction is to be executed in two stages:

·; an initial placement of US$20.0 million ("Initial Placement"); and

·; a conditional placement of US$80.0 million ("Conditional Placement").

The Initial Placement allows HEI to subscribe for US$20.0 million of ordinary shares in in CoAL at a subscription price of GBP0.25 per share, issued under the general authority provided to CoAL Board.

The subscription will be conditional upon the following conditions:

·; Australian Foreign Investment Review Board ("FIRB") approval (required for all foreign direct investments into Australia by state owned entities), expected to be a formality as the Company does not have any mining projects in Australia; and

·; approvals from the Peoples Republic of China ("PRC"). A price adjustment mechanism will occur if PRC approval is not obtained and Initial Placement share issue price will be increased to GBP0.35 per share, reducing the number of shares issued to HEI in the Initial Placement.

Following the Initial Placement HEI will hold 5.82% of CoAL's ordinary shares.

The Conditional Placement will enable HEI to subscribe for a further US$80.0 million of shares at GBP0.25 per share, subject to the following conditions:

·; 75% of the Company's shareholders approving the Conditional Placement;

·; approvals from the PRC;

·; CoAL shareholders waiving the requirement for a mandatory offer when HEI interest in the Company exceeds 19.99%; and

·; all other necessary regulatory and statutory approvals.

Following the Initial Placement and Conditional Placement, HEI will hold approximately 23.6% of CoAL's ordinary shares.

The Company will to undertake a road show in early October 2012 in order to inform shareholders of the proposed transaction to obtain the necessary shareholder support. If by 31 January 2013 the conditions have not been fulfilled or it appears that the conditions will not be fulfilled, HEI and CoAL have agreed to cooperate and consider other arrangements pursuant to which HEI is able to provide funding support to CoAL.

CoAL and HEI Co-operation Agreement

In the event that HEI invests US$100 million in CoAL, the parties have agreed to enter into discussions to implement a Co-operation Agreement that creates an environment for the cooperation on commercial, technical and operational issues. The intention is that CoAL will be able to draw on BHE's technical expertise in the development of the Company's project pipeline.

To further facilitate the development of CoAL's projects, HEI has undertaken to facilitate, on favourable terms, future funding required by the Company. HEI will also be entitled to nominate two directors to the CoAL Board.

OPERATIONAL REVIEW

The key operational coal statistics for the year are listed below:

Numbers in the table represent tonnes

*FY2012 figures include five months production from Vele Colliery (FY2011: nil)

Woestalleen Complex

The Woestalleen Complex comprises the Vuna colliery and three beneficiation plants with the capacity to process 4.2 million tonnes of ROM feed per annum. Vuna continued its respectable safety record with one lost time injury recorded during the 12 months (FY2011: nil) and three lost time injuries (FY2011: four) were recorded at the Woestalleen processing plant during the period.

Total ROM production for the 12 months from Vuna of 3,543,215 tonnes was marginally higher than the prior year's output of 3,525,906 tonnes.

The Company completed mining of the Vuna South Block towards the end of FY2012 and began mining the Vuna North Block, comprising #1 and #2 thermal coal seam typical of the Witbank/Middelburg coalfields, from March this year. A large portion of the #1 seam ROM coal, typically sold as a low grade power station coal, is crushed on site and delivered directly to Eskom resulting in an improved margin. All #2 seam coal mined at Vuna is transported by road to Woestalleen for processing, to produce a high grade product for export and a thermal coal middlings product for Eskom.

Coal processed at the Woestalleen facility decreased by 6% to 3,318,386 tonnes (FY2011:3,530,664 tonnes) and total saleable tonnes decreased by 10% to 2,095,934 tonnes (FY2011: 2,324,972 tonnes). The variation in both the yield and mix of saleable coal produced was as a result of:

·; the changeover from the South to the North block at the Vuna Colliery;

·; the reduction of the ROM coal processed; and

·; the use of selective mining practices coupled with the blending of stockpile material.

Overall the plant yield decreased to 63.2% (FY2011: 65.9%) for the year and the saleable tonnes produced consisted of:

·; 1,568,745 tonnes (FY2011: 2,021,770 tonnes) of export quality coal, and

·; 527,189 tonnes (FY2011: 303,202 tonnes) of middlings product for Eskom.

In anticipation of the depletion of the available ROM from Vuna by March/ April 2013, the Company continues to evaluate potential options to extend the life of the Woestalleen facility, including evaluating potential sources of ROM coal to be mined or washed on behalf of third parties and the reprocessing of the discard dumps at the Woestalleen plant complex to produce an Eskom quality middlings product. Initial results for the dump-material test sample have been positive and the reprocessing of this material will start once the Vuna resource has been depleted.

As previously indicated, the utilisation of the siding facility to load trains with third party Eskom coal was identified as a potential commercial option for the Woestalleen facility. Eskom's strategy to redirect significant volumes of coal currently transported to the power stations by road to rail transport, creates opportunities for co-operation at Woestalleen. The first trains containing Eskom quality product were loaded at the siding in September 2012 transporting coal to the Camden power station in Mpumalanga, confirming the viability of this business model.

Numbers in the table represent tonnes

Mooiplaats Colliery

Safety at Mooiplaats Colliery continues to be a focus area and the colliery recorded a 33% improvement in LTI's over the 12 month period reducing from nine in FY2011 to six in the current financial year.

Mooiplaats Colliery transitioned to an owner managed mine at the end of FY2011 facilitating direct management of the operation. The Company started an operational initiative at this time to identify potential improvements in the mining process that would lead to sustainable levels of higher production. This process included the introduction of a support contract with equipment supplier JOY Mining, ensuring a more effective approach for the maintenance of underground machinery and increased equipment availability.

The positive results of the operational improvement initiative and the addition of a fifth underground section during the year resulted in ROM coal production increasing from 883,036 tonnes in FY2011 to 1,226,155 tonnes in FY2012.

Coal processed during the period decreased from 1,466,136 tonnes to 1,425,941 tonnes as a result of the 59% reduction in third party ROM coal available for purchase, from 471,824 tonnes in FY2011 to 191,608 tonnes in FY2012. A total of 986,144 tonnes of saleable tonnes (FY2011: 991,237) were produced during the year consisting of:

·; 783,214 tonnes (FY2011: 738,503 tonnes) of export quality coal, and

·; 202,850 tonnes (FY2011: 252,734 tonnes) of middlings product for Eskom.

However, despite these improvements the Mooiplaats Colliery has not performed in line with managements' expectations and continues to be exposed to challenging geological conditions resulting in constrained production output.

In addition to the operational challenges, the combined effect of the current weak coal prices and current labour strike, creates further pressure on the operating margins at Mooiplaats making the mine unprofitable. The current strike if prolonged will have a negative impact on employees and the operation and steps are underway to potentially restructure the mine.

As part of a strategic review of the Mooiplaats Colliery undertaken earlier this year, various options were identified to unlock potential value from the installed infrastructure and processing plant capacity. There are a number of potential options under consideration which may include partnerships or joint ventures with interested parties. Management continues to vigorously pursue these options.

Numbers in the table represent tonnes

*Export sales include coal from Woestalleen, Mooiplaats Colliery and Vele Colliery

Vele Colliery

Vele Colliery recorded no LTI's during the year (FY2011: nil LTI's) and the process of implementing and monitoring the various safety, health and environmental policies and procedures continued during the production build-up phase.

The mine has not yet reached steady state production and mining and until this occurs, mining and processing costs are capitalised.

Environmental and regulatory compliance

After a protracted regulatory dispute over the Vele Colliery, construction of the processing plant was completed and production started in October 2011. Three milestones in the South African mining industry were attained as part of the effort to re-establish operations at Vele, namely:

·; An MOA was signed between the Company, DEA and SANParks in respect of the Mapungubwe Cultural Landscape World Heritage Site, to ensure the conservation and integrity of the cultural heritage site, strengthen co-operation between the three parties and ensure the sustainable development of mining activities in the area.

·; A MoU was signed between the Company and the Coalition, a main objector to the mine, providing an operational and administrative framework for the various parties to work through following the start of mining activities.

·; As part of the Environmental Authorisation granted by the DEA, an EMC and its sub-committees have been established with their main objective of monitoring and overseeing environmental compliance at the Vele Colliery. The EMC members include SANParks, relevant government departments, CoAL, non-governmental organisations, municipalities, farming communities and other stakeholders. The Coalition participates as observers to these structures and the Company provides administrative support.

In January 2012, the second UNESCO Reactive Monitoring Mission ("UNESCO RMM") visit took place, hosted by the DEA. The UNESCO RMM visit included a site inspection of the Vele Colliery to assess progress made in implementing its November 2010 recommendations. As part of this process, the Vele Colliery HIA report was revised and submitted to the DEA.

Current mining operations at the Vele Colliery are located some 32kms from the Mapungubwe Heritage Site and 16kms away from the eastern boundary of the Mapungubwe Park ("the Park"). A detailed HIA report was prepared for UNESCO evaluating the potential impact of the Vele Colliery on the outstanding universal value of the Park. The HIA report and findings by the UNESCO Mission World Heritage Committee were tabled at the 36th session of UNESCO held in June 2012 and the meeting accepted the conclusion of the HIA report that under the approved authorisation, Vele Colliery mining activities will have no direct impact on the outstanding universal value of the heritage property. 

Operations

During FY2012 161,107 tonnes of ROM coal were mined (FY2011: nil tonnes) and processed, producing 46,066 tonnes of saleable export quality thermal coal. The production of the first export quality thermal coal in April 2012 allowed the railing of this coal from the Musina siding, located 55km from the mine, to the Matola Terminal.

Thermal coal yields are expected to improve as the opencast pit advances and the proportion of weathered coal decreases. During the coking coal testing phase, the mine will continue to produce export quality thermal coal to offset costs and avoid the build-up of unprocessed semi-soft coking coal producing ROM stockpiles. Testing of the coking coal and the Eskom thermal coal products are underway with AMSA and Eskom, both potential customers, as well as with independent laboratories. This is the final step required to finalise the off-take agreements with potential domestic and export customers.

Numbers in the table represent tonnes. Vele Colliery yields will be included once production reaches steady state.

* No production at the Vele Colliery in FY2011 due to the suspension of operations pending the lifting of the IWUL suspension

**Production at the Vele Colliery commenced in February 2012

***Sales of export quality thermal coal produced by the Vele Colliery are included in total sales from the Matola Terminal

Product testing

Product evaluation and washability tests indicate that both a semi-soft coking coal with a 10% ash and thermal coal can be produced simultaneously at the Vele Colliery. The thermal coal could either be a higher yielding lower quality Eskom product or a lower yielding higher quality export product.

Initial testing has also confirmed that the semi-soft coking coal has a number of significant hard coking coal characteristics however, due to higher volatiles and lower reflectance, is likely to be classified as a semi-soft coking coal. Further detailed bulk tests on the 10% ash coking coal product will be completed in the coming year.

Capital expenditure

Various additions to the Vele Colliery processing plant will be undertaken in order to simultaneously produce two products, namely a semi-soft coking coal and a thermal coal product, and facilities to enhance the recovery of the coking coal fine fraction due to the high quality of the finer size fraction nature of the coal. These initiatives will further enhance the operational and financial performance of the mine, creating additional value through higher yields on the coking coal products, additional revenue from the thermal coal and lower operational costs from improved processing efficiencies, reduced discard volumes and overall economies of scale.

The enhancements include:

·; the addition of a froth flotation section to beneficiate the ultra-fines portion of the ROM;

·; a permanent ROM coal handling section to replace the temporary facility planned only for the initial phase of mining operations;

·; the washing facility required for the co-generation of both coking coal and an export-grade thermal coal product; and

·; addition of a spiral fines upgrade section.

The technical work for the next phase has been completed with construction and commissioning of various modules expected to be completed in phases with the total project completed in CY2013.

Makhado Project

The DFS finalised during the reporting period defined the resource base, exploitation of the resource, processing methodology, product logistics, supporting surface infrastructure and bulk services as well as the life-cycle financials. A preliminary review of the DFS undertaken by the CoAL Board reflects that the resource will be most efficiently exploited by open-pit mining methods for approximately 16 years. Further detailed product test work, including the potential for an underground mining component, indicate that the Makhado Project will produce a hard coking coal and a thermal product for the export and/ or the Eskom markets.

The NOMR application for the Makhado Project was submitted to the DMR in January 2011 and during the reporting period independent experts advanced the baseline social and environmental studies required for the application process. Interactions with interested and affected parties continued during FY2012 and included the involvement of various government departments. Interested and affected parties were consulted on the EIA, Environmental Management Plan ("EMP") and IWUL, with all final NOMR regulatory approvals for the project expected by late CY2012/early CY2013.

As part of the consultation process for the Makhado Project, democratic election of the MCCCF consisting of 35 member representing seven affected communities and/or villages, has facilitated the discussions with the communities in the area. This forum provides an appropriate mechanism for ongoing dialogue with these parties.

Studies to evaluate the various options to ensure the long-term supply and adequate availability of water for the Makhado Project are on-going, including a further detailed assessment of the infrastructure required to supply the water to the project. The IWUL technical and engineering report is expected to be submitted to the DWA during the last quarter 2012 and the Company has undertaken consultations in the region to determine both alternate and joint solutions for the longer-term water requirements of the colliery and farming operations.

Work has progressed on the rail link for the project. In this regard the agreements to acquire properties or servitudes are in the final stages of negotiation or implementation and the process of transferring these properties and/or registering the servitudes is occurring in accordance with the relevant terms of the agreements.

Furthermore, the 5MVA of bulk power required for the construction phase of the project has been secured via an agreement with Eskom with the necessary financial guarantees in the process of being established. The date for commencement of construction of the overhead lines and terraces for the substation at the mine site has yet to be determined.

Product testing

The production scale testing of the Makhado Project bulk sample by AMSA at both the Vanderbijlpark and Newcastle plants was completed during the period confirming that the 10% ash product from a technical perspective could be used by AMSA in its South African coke operations. CoAL and AMSA are currently in the process of finalising a commercial term sheet that would form the basis of a future supply agreement once the project goes into production. Test work for establishing potential secondary products was also completed which conceptually indicates that the production of a secondary thermal coal product is feasible.

In accordance with the Letter of Intent signed with AMSA's majority shareholder, ArcelorMittal Limited on 16 April 2008, CoAL may sell between 2.5 and 5.0 million tonnes per annum ("mtpa") of Vele Colliery and Makhado Project coking coal on an indexed linked FOR price.

Exxaro Option

In 2009, the Company and Exxaro signed the Option to Participate Agreement (the "Option Agreement") to enable CoAL to acquire detailed exploration information previously compiled by Iscor and in return for which, Exxaro retained the right to a 30% equity participation (the "Option") in the Makhado Project.

In the interim period, the Company and Exxaro undertook a detailed technical review and evaluation process of the project. While the Company was pleased the product testing confirmed that the Makhado Project will produce a hard coking coal and that the project economics are sound, on 28 September 2012, Exxaro formally notified the Company of its decision not to exercise its Option to acquire a 30% interest and participate in the future development of the Makhado coal project.

The Company was advised by Exxaro that after consideration of the various alternative projects currently in their growth pipeline combined with the current negative sentiments regarding the global and local macroeconomic growth outlook, that Exxaro they will be focusing on existing projects. The outcome of Exxaro's decision coincides with the completion of various negotiations regarding potential strategic investments with other third parties, either at group or project level, culminating in the binding offer received from HEI to invest US$100.0 million in the Group, discussed above and in today's separate announcement.

Greater Soutpansberg Project (including the Chapudi transaction)

The November 2010 share purchase agreement between RTMD and Kwezi (collectively "the Vendors") and CoAL's subsidiary, Keynote, in respect of the Chapudi Coal Project and related exploration properties in the Soutpansberg coalfield for US$75.0 million, was amended to allow for the sale of equity and shareholders' claims to close separately.

CoAL received the consent required under Section 11 of the MPRDA, from the Minister of the DMR, in respect of the sale of shares (equity close) by RTMD and Kwezi (collectively "the Vendors") in both Chapudi and KME to Keynote. The consent results in the transfer of the entire share capital in Chapudi and KME, the holders of the NOPR's for the Chapudi Coal Project and related exploration properties in the Soutpansberg coalfield.

The purchase consideration or the equity is to be settled in separate tranches as follows:

·; the first tranche of US$29,357,545 for the sale of the equity, was paid in full in May 2012; and

·; the final tranche of US$30.0 million for the sale of the equity will become payable on the earlier of the receipt of a NOMR on any of the properties that form part of the transaction or two years from the date upon which the conditions precedent for the equity sale were fulfilled.

The shareholder claims transaction closed on 27 September 2012 and the outstanding balance of US$13,642,455 to settle these shareholder claims, totaling US$15,642,455 less the US$2.0 million deposit, has been extended to 22 October 2012, with a view to further discussions on the revised payment plan taking place.

Updated reserve and resource estimate

Keynote's acquisition of the equity of Chapudi and KME facilitated the consolidation of various contiguous tenements and the expansion makes CoAL a substantial holder of coking and thermal coal NOPRs in the Soutpansberg coalfield, providing significant optionality and flexibility in the planning of future mining projects. The Company updated its reserve and resource calculations during the year to include the newly acquired properties.

The highlights of the updated resource estimates for Greater Soutpansberg include:

·; Gross tonnes in situ increased by 429% to 7.957 billion tonnes from 1.505 billion tonnes;

·; Total tonnes in situ increased by 404% to 6.443 billion tonnes from 1.279 billion tonnes;

·; Mineable tonnes in situ increased by 209% to 2.004 billion tonnes from 0.648 billion tonnes;

·; Total licensed area of 99,719 hectares;

·; Acquisition cost of US$0.055 per MTIS tonne; and

·; Estimated valuation of US$0.74 and US$2.51 per tonne based on the Venmyn cost curves to value the MTIS resource tonnes.

CoAL's Soutpansberg coalfield NOPRs have been grouped into three consolidated regions, namely Mopane, Makhado and Chapudi.

The Chapudi Region, situated to the west and along strike of the Makhado Project, represents the most significant portion of the overall resource in the Greater Soutpansberg, consisting of the Chapudi, Chapudi West and Wildebeesthoek areas.

The Makhado Region includes the Makhado Project comprising 8,190 hectares and represents the most advanced exploration project in the Greater Soutpansberg. The Makhado Region consists of the Telema and Gray combined area (previously referred to as the Makhado Extension), Mount Stuart area to the east and, the Generaal area to the north.

The Mopane Region is approximately 10km north of the main Soutpansberg Coalfield and following the acquisition, was consolidated with various additional NOPR's already held by CoAL within the Voorburg and Jutland areas. The region has been identified as a source of coking coal with further potential to produce domestic and/ or export thermal coal products.

*Figures stated for the Mopane Region resource refer only to the Voorburg area.

Soutpansberg Coal Bed Methane ("CBM") Project

During the reporting period the CBM Project, in which the Company has a 50% interest, is in the process of being registered with the United Nations' ("UN") internationally accredited carbon credit programme. All of the necessary documentation has been completed and includes a letter of support from the South African Department of Energy. Work on the carbon credit programme continued during the period and CoAL compiled additional information for UN designated verifiers, facilitating the review of technical and financial documentation regarding the gas utilisation and greenhouse reduction required for the disposal of methane gas.

Work done on the initial project area has indicated that there is a possibility of coal bed methane in the prospect area. The electro-seismic survey completed during the period, mapped the location of the saline aquifers and further information on the coal bed methane will be identified once the planned exploration boreholes have been drilled.

MARKETING

South African export coal prices were under pressure during the period declining 27% from US$119 per tonne in June 2011 to US$87 per tonne in June 2012. This was accompanied by softer global coal market fundamentals, requiring producers to identify alternative markets for their coal. Weak ocean freight rates have facilitated coal trade flows away from their traditional markets which combined with weak global macroeconomics, led to downward pressure on global coal prices.

Subsequent to the financial year-end, significant supply response was triggered by the weakening in coal prices, specifically from the US and Australia, resulting in the closure or curtailment at a number of coal mining operations. The current global coal and foreign exchange fundamentals are placing significant pressure on the marginal producer.

In late 2011, throughput volumes at the Richards Bay Coal Terminal increased from an annualised rate of 70 mtpa to in excess of 80 mtpa and resulted in a reduction of available saleable coal in the local market that was redirected for export. As a result, ROM tonnes previously available to purchase in the local market to supplement coal production tonnages were no longer available and contributed to the overall decline in the sales revenue and the profit margin during the period.

During the first half of the financial year the decline in thermal coal prices was offset in part by the weakening of the exchange rates and during this period the South African rand weakened from an average exchange rate of US$1.00=ZAR6.78 to US$1.00=ZAR8.12 during the six month period. From January 2012 coal prices continued to decline with a relatively stable currency averaging US$1.00=ZAR7.92 for the second half of the financial year.

Export sales of thermal coal from the Matola Terminal increased 55% to 1,662,204 tonnes (FY2011: 1,069,163 tonnes) due to the Company's export allocation increasing from 1 mtpa to 3 mtpa from March 2011. As a result of the Company's increased export allocation being available for the full reporting period (FY2011: three months), local sales of export quality coal decreased from 1,802,831 tonnes in FY2011 to 923,160 tonnes in FY2012. Sales of lower quality coal to Eskom, increased 37% from 576,569 tonnes in FY2011 to 788,417 tonnes in the current year.

FINANCIAL REVIEW

The consolidated statement of comprehensive income differentiated for non-cash accounting transactions is detailed below:

The following information is a summary of the key financial results for FY2012:

·; US$243.8 million (FY2011: US$261.4 million) in revenue generated for the year. Revenue from coal sales of US$242.5 million (FY2011: US$229.2 million) was 6% higher year on year. With the disposal of the NiMag operation during the year, US$nil million (FY2011: US$31.2 million) was reported in the current year and the profit on disposal of $1.1 million is reported as part of Other Income.

·; Revenue from thermal coal sales increased by 6% from US$229.2 million in FY2011 to US$242.5 million in the current year, despite export coal prices decreasing 27% from US$119 per tonne in June 2011 to US$87 per tonne on June 2012, which was offset by the 55% increase in export tonnes sold in the current year of 1,662,204 (FY2011: 1,069,163).

·; Gross profit for the year of US$33.4 million (FY2011: US$37.9 million) and the gross margin percentage of 14% (FY2011: 15%) was lower year on year due to the exclusion of the NiMag profit margin in the current financial year US$nil (FY2011: US$5.7 million). Gross margin from coal sales increased by 4% to US$33.6 million (FY2011: US$32.4 million) due to the change in sales mix with higher export tonnes sold and offset in part by weaker thermal coal prices and higher logistics costs.

·; Once-off costs of $5.5 million (FY2011: US$nil) in the current year relating to additional legal, technical and regulatory work associated with the equity placement undertaken in November 2011.

·; Non-cash charges of US$115.9 million (FY2011: US$208.7 million) including:

o depreciation and amortisation of US$70.0 million (FY2011: US$79.5 million);

o unrealised foreign exchange losses of US$47.0 million (FY2011: US$28.8 million);

o share based payment expense of US$5.0 million (FY2011: US$3.0 million);

o goodwill of US$1.2 million written off (FY2011: US$nil);

o other income of US$6.9 million (FY2011: US$nil) relating to the reversal of warranty and other provisions in respect of the NuCoal acquisition; and

o reversal of impairment losses of US$0.3 million compared to $97.4 million in the prior year, principally as a result of the impairment of $87.5 million for Mooiplaats Colliery, $5.1 million for NiMag and $4.7 million for Woestalleen.

·; Adjusted operating loss before tax (excluding non-cash items) or EBITA of US$32.8 million (FY2011: US$10.1 million) lower by US$22.7 million largely as a result of increased labour costs associated with the increase in mining activity at Mooiplaats, once off capital raising project costs and the exclusion of the contribution from NiMag disposed of in the current financial year.

·; Net loss after tax for the year, including non-cash items, of US$138.9 million (FY2011: US$219.0 million) was US$80.1 million lower largely due to no impairment of assets in FY2012 compared to US$97.4 million in the prior year.

·; JSE reporting requirement: headline earnings loss for the year of US$0.2265 (FY2011: loss of US$0.2291).

Of the total foreign exchange losses of US$48.9 million (FY2011: US$29.9 million), US$47.0 million are unrealised (FY2011: US$28.8 million) and the remaining amount of US$1.9 million (US$1.2 million) are realised. The unrealized foreign exchange losses are as a result of the South African rand weakening against the United States dollar. The rand weakened by 22% from ZAR6.78 at the beginning of the financial year to ZAR8.27 at 30 June 2012 and, by 11% from an average rate of ZAR6.99 in FY2011 to ZAR7.74 in FY2012.

Total impairment losses of $97.4m recorded in the previous financial year relate to the re-assessment of the carrying value of the investments in Mooiplaats and Woestalleen as well as assets held for sale. The auditors considered these assets fairly valued at the end of FY2012.

Depreciation and amortisation relating to the mining assets, plant and equipment decreased from $79.5 million in FY2011 to $70.0 million in FY2012. The 12% decrease in this charge year on year was due to a reduction in the estimated Vuna Colliery resource at is nears the end of its remaining life of mine.

Total unrestricted cash balances and undrawn Deutsche Bank facilities of US$37.0 million (FY2011: US$40.3 million) at year-end.

Disposal of the NiMag Group

During the reporting period, CoAL disposed of its 100% interest in the non-core NiMag Group by way of a MBO. The Company disposed of its shares in the NiMag Group companies for a total of ZAR54 million (approximately US$6.5 million) of which 60% is being funded by a combination of equity contributions and bank debt. The remaining 40% will be financed by an interest-bearing loan provided by CoAL that is repayable over four years. The effective date of the transaction was 2 April 2012.

Disposal of the Holfontein Project

In early CY2012, the Company agreed to sell the Holfontein Project to South African-owned Govhani Consulting for ZAR100 million (approximately US$12.1 million) and a continuing payment to CoAL of ZAR2.00 (approximately US$0.24) per tonne of saleable coal produced by the project.

Govhani paid a CoAL deposit of ZAR9.0 million (approximately US$1.1 million) for exclusivity and to conduct a detailed review of the project. If the transaction is successful, the total purchase consideration will be reduced by this balance. Govhani was unable to satisfy all the transaction's conditions precedent by 30 June 2012 and the Company and Govhani are negotiating a potential extension to this disposal process on a non-exclusive basis. The Company is also potentially inviting offers from other potential bidders for this property.

Corporate review

The 2012 financial year has been a turning point for the Company, with a number of key developments taking place on several fronts. Significant progress has been made in our relationships with key stakeholders, including government and the various regulatory authorities in South Africa. Overall, we have managed to overcome significant hurdles which will prove to be the foundation for the delivery of CoAL's objectives.

The newly formed strategic partnership with BHE through HEI's binding offer, provides a strong financial and technical partner for the business to realise the full potential for CoAL over the next few years. The additional funding secured through the capital raising and the proposed additional funding to be raised through the subscription for shares, will place the Company on a sound footing going forward. The decision to migrate the primary listing from the ASX to the LSE is currently under review, pending market conditions.

The consolidation of the Company's footprint in the Soutpansberg coalfield, is the catalyst for the future growth of the Company. The initiatives on the existing thermal operations are ongoing and will in time, create the necessary outcomes. The progress made at the Vele Colliery and advancing the Makhado Project bodes well for further positive developments in 2013 and beyond.

In conclusion, I take this opportunity to welcome CoAL's new directors, thank the directors that served on the board until recently and re-iterate the commitment of the Company to developing its valuable assets in a responsible manner. Furthermore I am fortunate to have a competent, dedicated and loyal team in place that have the desire and ambition to see CoAL succeed.

JOHN WALLINGTON

Chief Executive Officer

About CoAL:

CoAL is an AIM/ASX/JSE listed coal exploration, development and mining company operating in South Africa. CoAL's key projects include the Vele Colliery (coking and thermal coal), the Greater Soutpansberg Project, including CoAL's Makhado Project (coking coal) and the Mooiplaats and Woestalleen Collieries (both thermal coal).

The Mooiplaats Colliery commenced production in 2008 and is currently ramping up to produce 1.6 Mtpa. The Woestalleen Colliery, acquired through the acquisition of NuCoal Mining (Pty) Limited in January 2010, currently processes approximately 2.5Mtpa of saleable coal for domestic and export markets. The Woestalleen Complex also incorporates three beneficiation plants with a total processing capacity of 350,000 run-of-mine (ROM) feed tonnes per month.

CoAL's Vele Colliery commenced production in Q1 2012. During the initial phase, the operation is targeting 2.7 Mtpa ROM production to produce 1.0Mtpa of saleable coking coal. The Makhado Project, CoAL's flagship project in the Soutpansberg coalfield, is well into the feasibility stage, with a draft Definitive Feasibility Study having been reviewed by the CoAL Board in March 2012. An application for a New Order Mining Right for the Makhado Project was submitted in January 2011.

In May 2012, CoAL acquired the Chapudi coal project and several other coal exploration properties in the Soutpansberg coal basin in South Africa, subsequently renamed the Greater Soutpansberg Project, from the previous owners, including Rio Tinto. The Greater Soutpansberg Project is a consolidation of nine potential coking and thermal coal assets grouped into three proximate regions, namely Mopane, Makhado and Chapudi. The acquisition of these assets strengthens Coal of Africa's position as one of the most substantial holders of prospecting and mining rights for coking coal in South Africa's *Soutpansberg coalfield.

The updated resource estimates are presented in detail in the "Independent Technical Statement for Greater Soutpansberg Projects for Coal of Africa Limited, 31st May 2012" ("Technical Statement") prepared by Venmyn Rand (Pty) Ltd ("Venmyn"), which is available on the Coal of Africa website, www.coalofafrica.com.

Competent Person Statement

The information in this announcement that relates to mineral resources or ore reserves has been compiled by Ms C Telfer (B.Sc. Hons. (Geol.), (DMS) Dip Bus Man Pr. Sci. Nat., FGSSA, MAusIMM, M.Inst.D) and Mr G Njowa (M.Sc. (Min. Eng), MRM, B.Sc.Hons. (Min. Eng), Grad CIS, MSAIMM, Pr Eng, MIAS), both full time employees of Venmyn Rand (Pty) Ltd, who both have relevant and appropriate experience and independence to appraise the coal assets. Both Ms C Telfer and Mr G Njowa are considered "Competent Persons", and each have more than five years relevant experience in the assessment and evaluation of the types of coal exploration and mining properties presented in this announcement. Both Ms C Telfer and Mr G Njowa consent to the inclusion of the resource information in these Presentation Materials in the form and context in which it appears.